10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended February 28, 2009

OR

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

For the transition period from              to             .

Commission File Number 1-37917

 BURLINGTON COAT FACTORY INVESTMENTS HOLDINGS, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	20-4663833
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
1830 Route 130 North Burlington, New Jersey	08016
(Address of Principal Executive Offices)	(Zip Code)

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

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

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

Large accelerated filer  ¨    Accelerated filer  ¨    Smaller reporting company  ¨ Non-accelerated filer  x 

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

As of April 14, 2009, the registrant had 1,000 shares of common stock outstanding (all of which are owned by Burlington Coat Factory Holdings, Inc., our holding company, and are not publicly traded).

BURLINGTON COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES

INDEX

Part I - Financial Information:	Page
Item 1. Financial Statements (unaudited):
Condensed Consolidated Balance Sheets as of February 28, 2009 and May 31, 2008	3
Condensed Consolidated Statements of Operations for the nine and three month periods ended February 28, 2009 and March 1, 2008	4
Condensed Consolidated Statements of Cash Flows for the nine month periods ended February 28, 2009 and March 1, 2008	5
Notes to Condensed Consolidated Financial Statements	6
Item 2.  Management's Discussion and Analysis of  Financial Condition and Results of Operations	32
Item 3.  Quantitative and Qualitative Disclosures About Market Risk	51
Item 4.  Controls and Procedures	52
Part II - Other Information:	53
Item 1.  Legal Proceedings	53
Item 1A. Risk Factors	53
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 3. Defaults Upon Senior Securities	53
Item 4. Submission of Matters to a Vote of Security Holders	53
Item 5. Other Information	53
Item 6. Exhibits	54
SIGNATURES	55
*****************

2

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

BURLINGTON COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(All amounts in thousands)

	February 28, 2009		May 31, 2008
ASSETS
Current Assets:
Cash and Cash Equivalents	$	27,444	$	40,101
Restricted Cash and Cash Equivalents		2,637		2,692
Investment in Money Market Fund		3,526		--
Accounts Receivable, Net		30,132		27,137
Merchandise Inventories		726,774		719,529
Deferred Tax Assets		52,361		51,376
Prepaid Expenses and Other Current Assets		27,124		24,978
Income Tax Receivable		2,609		3,864
Assets Held for Disposal		782		2,816
Total Current Assets		873,389		872,493
Property and Equipment, Net of Accumulated Depreciation		906,019		919,535
Tradename		247,000		526,300
Favorable Leases, Net of Accumulated Amortization		490,995		534,070
Goodwill		45,613		42,775
Other Assets		89,911		69,319
Total Assets	$	2,652,927	$	2,964,492
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable	$	408,554	$	337,040
Income Taxes Payable		206		5,804
Other Current Liabilities		222,287		238,866
Current Maturities of Long Term Debt		10,563		3,653
Total Current Liabilities		641,610		585,363
Long Term Debt		1,326,029		1,480,231
Other Liabilities		169,647		110,776
Deferred Tax Liability		351,494		464,598
Commitments and Contingencies (Note 19)

Stockholders' Equity:
Common Stock		--			--
Capital in Excess of Par Value		463,180			457,371
Accumulated Deficit		(299,033	)		(133,847	)
Total Stockholders' Equity		164,147			323,524
Total Liabilities and Stockholders' Equity	$	2,652,927		$	2,964,492
See Notes to Condensed Consolidated Financial Statements.

3

BURLINGTON COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(All amounts in thousands)
	Nine Months Ended						Three Months Ended
	February 28, 2009			March 1, 2008			February 28, 2009		March 1, 2008
REVENUES:
Net Sales	$	2,730,504		$	2,612,448		$	1,021,079	$	987,113
Other Revenue		22,588			23,966			8,296		8,103
		2,753,092			2,636,414			1,029,375		995,216
COSTS AND EXPENSES:
Cost of Sales (Exclusive of Depreciation and Amortization Shown Below)		1,676,560			1,613,242			634,386		612,304
Selling and Administrative Expenses		837,245			802,792			265,639		273,504
Restructuring and Separation Costs (Note 3)		6,119			--			5,819		--
Depreciation		94,279			94,001			32,567		32,399
Amortization		33,008			32,136			11,242		10,756
Interest Expense		75,699			96,813			21,562		29,903
Impairment Charges - Long-Lived Assets		28,134			7,873			28,134		494
Impairment Charges - Tradename		279,300			--			279,300		--
Other (Income)/Expense, Net		(1,272	)		(10,534	)		1,565		(8,033	)
		3,029,072			2,636,323			1,280,214		951,327
(Loss) Income Before Income Tax (Benefit)/Expense		(275,980)			91			(250,839)		43,889
Income Tax (Benefit) Expense		(110,794)			533			(99,944)		17,109
Net (Loss) Income	$	(165,186)		$	(442	)	$	(150,895)	$	26,780

See Notes to Condensed Consolidated Financial Statements.

4

BURLINGTON COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(All amounts in thousands)
	Nine Months Ended
	February 28, 2009			March 1, 2008
OPERATING ACTIVITIES
Net (Loss)	$	(165,186)		$	(442	)
Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities:
Depreciation		94,279			94,001
Amortization		33,008			32,136
Impairment Charges - Long-Lived Assets		28,134			7,873
Impairment Charges - Tradename		279,300			--
Accretion of Senior Notes and Senior Discount Notes		450			10,081
Interest Rate Cap Contract - Adjustment to Market		(1,454	)		176
Provision for Losses on Accounts Receivable		2,283			2,194
Provision for Deferred Income Taxes		(116,927	)		(77,053	)
Increase in Long Term Income Tax Liabilities		1,317			46,084
Loss on Disposition of Fixed Assets and Leaseholds		238			1,024
Loss on Investment in Money Market Fund		4,661			--
Stock Option Expense		5,809			1,287
Non-Cash Rent Expense and Other		1,486			1,460
Changes in Assets and Liabilities
Accounts Receivable		(3,210	)		(6,561	)
Merchandise Inventories		(7,245	)		(73,568	)
Prepaid and Other Assets		(9,519	)		(7,813	)
Accounts Payable		71,514			70,052
Accrued and Other Liabilities		(1,433)			29,714
Deferred Rent Incentives		36,246			15,144
Net Cash Provided by Operating Activities		253,751			145,789
INVESTING ACTIVITIES
Cash Paid for Property and Equipment and Other Assets		(103,519	)		(64,982	)
Proceeds Received from Sale of Fixed Assets and Leasehold Improvements		177			2,159
Acquisition of Lease Rights		(3,938	)		(4,150	)
Change in Restricted Cash and Cash Equivalent		55			46
Redesignation of Cash Equivalents to Investment in Money Market Fund		(56,294	)		--
Redemption of Investment in Money Market Fund		48,107			--
Other		106			(34	)
Net Cash Used in Investing Activities		(115,306	)		(66,961	)
FINANCING ACTIVITIES
Proceeds from Long Term Debt - ABL Senior Secured Revolving Facility		631,751			437,301
Principal Payments on Long Term Debt		(1,442	)		(1,327	)
Principal Payments on Term Loan		--			(11,443	)
Principal Payments on Long Term Debt - ABL Senior Secured Revolving Facility		(778,051	)		(490,556	)
Purchase of Interest Rate Cap Contract		(3,360	)		(424	)
Payment of Dividends		--			(725	)
Net Cash Used in Financing Activities		(151,102	)		(67,174	)
(Decrease)/Increase in Cash and Cash Equivalents		(12,657	)		11,654
Cash and Cash Equivalents at Beginning of Period		40,101			33,878
Cash and Cash Equivalents at End of Period	$	27,444		$	45,532
Supplemental Disclosure of Cash Flow Information:
Interest Paid	$	65,225		$	78,932
Income Taxes Paid, Net of Refunds	$	9,144		$	5,831
Non-Cash Investing Activities:
Accrued Purchases of Property and Equipment	$	(1,598	)	$	(2,700	)

See Notes to Condensed Consolidated Financial Statements.

5

BURLINGTON COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE AND THREE MONTH PERIODS ENDED FEBRUARY 28, 2009 AND

MARCH 1, 2008

(unaudited)

1.  Summary of Significant Accounting Policies

Basis of Presentation

The unaudited Condensed Consolidated Financial Statements include the accounts of Burlington Coat Factory Investments Holdings, Inc. and all of its subsidiaries (“Company" or “Holdings”). Holdings has no operations and its only asset is all of the stock of Burlington Coat Factory Warehouse Corporation. All discussions of operations in this report relate to Burlington Coat Factory Warehouse Corporation and its subsidiaries (“BCFWC”), which are reflected in the financial statements of Holdings.  The accompanying financial statements are unaudited, but in the opinion of management reflect all adjustments (which are of a normal and recurring nature) necessary for the fair presentation of the results of operations for the interim periods.  Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted. It is suggested that these Condensed Consolidated Financial Statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for Fiscal 2008.  The balance sheet at May 31, 2008 has been derived from the audited Condensed Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2008 (“Fiscal 2008”). The Condensed Consolidated Statement of Cash Flows for the nine  months ended March 1, 2008  was revised to present the reclassification within operating activities of ($0.9) million and $0.1 million out of the line item “Non-Cash Rent Expense and Other” and into the line items “Accrued and Other Liabilities” and “Prepaid and Other Assets,” respectively.  We have also presented additional detail on the increase in long term income tax liabilities within cash flows from operating activities in the statements of cash flows and therefore we have reclassified the prior year amount to conform to the current year presentation.  Because the Company's business is seasonal in nature, the operating results for the nine month period ended February 28, 2009 are not necessarily indicative of results for the fiscal year ending May 30, 2009 (“Fiscal 2009”).

Current Conditions

The Company has experienced recurring operating losses since the formation of Holdings in April 2006, in part due to the interest expense associated with our leveraged debt structure detailed in Note 2 and discussed in our Annual Report on Form 10-K for Fiscal 2008.  During the nine and three month periods ended February 28, 2009, we recorded an impairment charge related to our tradename of $279.3 million (refer to Note 4 to the Company's Condensed Consolidated Financial Statements entitled "Goodwill and Intangible Assets" for further discussion).  At February 28, 2009 working capital was $229.1 million, cash and cash equivalents were $27.4 million and unused availability under our ABL Line of Credit was $427.9 million.  Recent significant declines in the United States and international financial markets and the resulting impact of such events on macroeconomic conditions have impacted and are anticipated to continue to impact customer behavior and consumer spending at retailers which impacts our sales trends.  In response to these economic conditions, we accelerated the implementation of several initiatives to restructure our workforce and reduce our cost structure (refer to Note 3 to the Company's Condensed Consolidated Financial Statements entitled "Restructuring and Separation Costs" for further discussion.  We continue to focus on a number of ongoing initiatives aimed at improving our comparative store sales and our operating results.  We are also prudently managing our capital spending and operating expenses. 

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

2. Long Term Debt

Long-term debt consists of:

	(in thousands)
	February 28, 2009			May 31,  2008
Industrial Revenue Bonds, 6.1% due in semi-annual payments of various amounts from March 1, 2009 to September 1, 2010	$	2,305		$	3,295
Promissory Note, 4.4% due in monthly payments of $8 through December 23, 2011		241			300
Promissory Note, non-interest bearing, due in monthly payments of  $17 through January 1, 2012		583			733
Senior Notes, 11.1% due at maturity on April 15, 2014, semi-annual interest payments from April 15, 2009 to April 15, 2014		300, 657			300,207
Senior Discount Notes, 14.5% due at maturity on October 15, 2014, semi-annual interest payments from April 15, 2009 to October 15, 2014		99,309			99,309
$900,000 Senior Secured Term Loan Facility, LIBOR plus 2.3% due in quarterly payments of $2,250 from May 30, 2009 to May 28, 2013		872,807			872,807
$800,000 ABL Senior Secured Revolving Facility, LIBOR plus spread based on average outstanding balance		35,300			181,600
Capital Lease Obligations		25,390			25,633
Total Debt		1,336,592			1,483,884
Less:  Current Maturities		(10,563	)		(3,653	)
Long-term debt, net of current maturities	$	1,326,029		$	1,480,231

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The $900 million Senior Secured Term Loan Facility (“Term Loan”) was entered into on April 13, 2006 and is to be repaid in quarterly payments of $2.3 million through May 28, 2013.  At the end of each fiscal year, the Company is required to make a payment based on 50% of the available free cash flow (as defined in the credit agreement governing the Term Loan).  This payment offsets future mandatory quarterly payments.  Based on the available free cash flow for Fiscal 2008, the Company was not required to make a mandatory payment.  The Company was required to make a payment of $11.4 million based on the available free cash flow for the fiscal year ended June 2, 2007.  This payment offsets the quarterly payments of $2.3 million through the third quarter of Fiscal 2009 and $0.2 million of the quarterly payment to be made in the fourth quarter of Fiscal 2009.  As a result, the Company is not required to make any cash payments related to the mandatory quarterly payments until the fourth quarter of Fiscal 2009.

The Company’s Term Loan agreement contains financial, affirmative and negative covenants and requires the Company to, among other things; maintain on the last day of each fiscal quarter a consolidated leverage ratio not to exceed a maximum amount. Specifically, the Company’s total debt to adjusted EBITDA, as each term is defined in the credit agreement governing the Term Loan, for the four fiscal quarters most recently ended on or prior to such date, may not exceed 5.75 to 1 at May 30, 2009, August 29, 2009, and November 28, 2009; 5.5 to 1 at February 27, 2010; and 5.25 to 1 at May 29, 2010.  Total debt reflects the outstanding balance of all debt instruments as of the period end except for the ABL Senior Secured Revolving Facility ("ABL Line of Credit"), which is determined by the trailing twelve month average month end balance.  Adjusted EBITDA reflects certain adjustments to calculate the consolidated leverage ratio.  Adjusted EBITDA starts with consolidated net income for the period and adds back (i) depreciation, amortization, impairments, and other non cash charges that were deducted in arriving at consolidated net income, (ii) the provision for taxes, (iii) interest expense, (iv) advisory fees, and (v) unusual, non-recurring or extraordinary expenses, losses or charges as reasonably approved by the administrative agent for such period.

The $800 million ABL Line of Credit was entered into on April 13, 2006 and is for a five-year period at an interest rate of LIBOR plus a spread which is determined by the Company’s annual average borrowings outstanding. The maximum borrowings under the ABL Line of Credit during the nine and three month periods ended February 28, 2009 were $410.0 million and $126.5 million, respectively. In comparison, the maximum borrowings under the ABL Line of Credit during the nine and three month periods ended March 1, 2008 were $247.2 million and $105.7 million, respectively.  Average borrowings during the nine and three month periods ended February 28, 2009 amounted to $199.8 million and $41.3 million, respectively, at an average interest rate of 4.4% and 3.4%, respectively.  In comparison, average borrowings during the nine and three month periods ended March 1, 2008 amounted to $150.4 million and $43.2 million, respectively, at an average interest rate of 7.1% and 6.6%, respectively.

At February 28, 2009 and May 31, 2008, $35.3 million and $181.6 million, respectively, were outstanding under the ABL Line of Credit. Commitment fees of ..25% are charged on the unused portion of the facility and are included in the line item “Interest Expense” on the Company’s Condensed Consolidated Statements of Operations.  As of February 28, 2009, the Company had unused availability under the ABL Line of Credit of $427.9 million compared with unused availability of $422.4 million as of March 1, 2008.  For the nine and three months ended February 28, 2009, the Company repaid $146.3 million and $120.7 million, respectively, net of borrowings.

Refer to Note 19 entitled “Commitments and Contingencies” for further discussion around the Company’s outstanding letters of credit.

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

As of February 28, 2009, the Company was in compliance with all of its debt covenants.The agreements regarding the ABL Line of Credit and Term Loan, as well as the indentures governing the BCFWC Senior Notes and the Holdings Senior Discount Notes, contain covenants that, among other things, limit the Company’s ability, and the ability of the Company’s restricted subsidiaries, to pay dividends on, redeem or repurchase capital stock; make investments; incur additional indebtedness or issue preferred stock; create liens; permit dividends or other restricted payments by the Company’s subsidiaries; sell all or substantially all of the Company’s assets or consolidate or merge with or into other companies; and engage in transactions with affiliates.

 The Company had $37.5 million and $45.3 million in deferred financing fees, net of accumulated amortization, as of February 28, 2009 and May 31, 2008, respectively, related to its debt instruments recorded in the line item “Other Assets” on the Company’s Condensed Consolidated Balance Sheets.  Amortization of deferred financing fees amounted to $7.8 million and $2.6 million for the nine and three month periods ended February 28, 2009, respectively, compared with $7.7 million and $2.6 million for the nine and three month periods ended March 1, 2008, respectively.  These amounts are recorded in the line item “Amortization” in the Company’s Condensed Consolidated Statements of Operations.

3. Restructuring and Separation Costs

The Company accounts for restructuring and separation costs in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS No. 146”).  In accordance with SFAS No. 146, the Company recorded a liability for one-time benefit costs during the three months ended February 28, 2009 related to the reduction of approximately 9% of the Company’s workforce and the separation of the Company’s former President and Chief Executive Officer (“CEO”) from the Company.

In an effort to better align the Company’s resources with its business objectives, the Company reviewed all areas of the business to identify efficiency opportunities to enhance the organization’s performance. In light of the current challenging economic and retail sales environments, the Company executed the implementation of several initiatives, including some that resulted in the elimination of certain positions and the restructuring of certain other jobs and functions.  This resulted in the reduction of 2,300 positions in the Company’s corporate office and its stores during the third quarter of Fiscal 2009. This reduction, which was approximately 9% of the Company’s workforce, resulted in a severance and related payroll tax charge during the third quarter of Fiscal 2009 of approximately $1.7 million.

These initiatives are anticipated to result in additional cost reductions in the near term as a result of a more effective management structure and payroll management in the stores as well as a reduction of payroll costs of the Company’s corporate functions.  The Company believes this will allow the business to run more efficiently without sacrificing the Company’s ability to serve its customers.

Additionally, on February 16, 2009, the Company’s former CEO, entered into a separation agreement with the Company.  As part of his separation agreement, the Company will pay the former CEO’s salary through May 30, 2009 at which time continuation payments and other benefits payable as provided in his separation agreement will commence.  The continuation payments will be paid out in bi-weekly installments through May 30, 2011.  The total amount of all continuation payments and other benefits is approximately $4.4 million, $2.4 million of which is non-cash and  $0.3 million of which was incurred during the first two quarters of Fiscal 2009 and was included in the line item “Selling and Administrative Expenses” in the Company’s Condensed Consolidated Statement of Operations.

7

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

					(in thousands)
		May 31, 2008	Charges	Capital in Excess of  Par Value		Cash Payments		February  28, 2009
Severance-Restructuring (A)	$	--	1,735	--		(1,039)	$	696
Severance-Separation Cost (B)		--	4,384	(2,425)		(24)		1,935
Total	$	--	6,119	(2,425)		(1,063)	$	2,631

 (A) The balance as of February 28, 2009 is recorded in the line item "Other Current Liablilities" in the Company's Condensed Colsolidated Balance Sheet.

 (B) Approximately $1.1 million and $0.8 million of the balance as of February 28, 2009 are recorded in the line items "Other Current Liabilities" and "Other

  Liabilities," respectively.

The Company incurred $2.4 million of non-cash stock compensation costs associated with the separation of the former CEO from the Company (refer to Note 12 to the Condensed Consolidated Financial Statements entitled “Stock Option and Award Plans and Stock Based Compensation” for further information regarding stock compensation).  This amount is included in the line item “Capital in Excess of Par Value” in the Company’s Condensed Consolidated Balance Sheets and in the line item “Stock Compensation Expense”  in the Company’s Condensed Consolidated Statement of Cash Flows.

4.   Goodwill and Intangible Assets

The Company accounts for goodwill and indefinite-lived intangible assets, such as tradenames, in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets” (“SFAS 142”).  In accordance with SFAS 142, goodwill and indefinite-lived intangible assets not subject to amortization shall be tested for impairment on an annual basis, and between annual tests in certain circumstances.  The Company has typically performed its annual impairment testing during the fourth quarter of the fiscal year.  In connection with the preparation of the Company’s Condensed Consolidated Financial Statements for the third quarter of Fiscal 2009, the Company concluded that it was appropriate to test its goodwill and indefinite-lived intangible assets for recoverability in light of the following factors:

8

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

·   The determination that these macroeconomic conditions are impacting our current sales trends as evidenced by the decreases in comparative store sales the Company is currently experiencing;

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

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

·   The Company’s expectation that current comparative store sales trends will continue for an extended period.  As a result, the Company revised its plans to a more moderate store opening plan which reduced the Company's future projections of revenue and operating results offset by initiatives that have been implemented to reduce the Company's cost structure as discussed in Note 1 to the Company’s Condensed Consolidated Financial Statements entitled “Summary of Significant Accounting Policies.”

In connection with the review of the Company’s goodwill and indefinite-lived intangible assets for recoverability, the Company determined its tradename was  impaired and recorded an impairment charge during the three months ended February 28, 2009 of $279.3 million, which is included in the line item “Impairment Charges – Tradename” in the Company's Condensed Consolidated Statements of Operations, as further described below.

Tradename.  The recoverability assessment with respect to the tradename used in the Company’s operations requires the Company to estimate the fair value of the tradename as of the assessment date.  Such determination is made using "relief from royalty" valuation method.  Inputs to the valuation model include:

·   Future revenue and profitability projections associated with the tradename;

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

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

Based upon the interim impairment analysis of the tradename during the third quarter of Fiscal 2009, the Company determined that a portion of the tradename was impaired and recorded an impairment charge of $279.3 million.  This impairment charge reflects lower revenues and profitability projections associated with the Company's tradename in the near term and lower estimated market royalty rate expectations in light of current general economic conditions. The Company’s projected revenues within the model are based on comparative store sales and new store assumptions over a nine year period.  The Company believes its estimates are appropriate based upon current market conditions.  However, future impairment charges could be required if the Company does not achieve the current revenue and profitability projections, market royalty rates decrease or the weighted average cost of capital increases. 

Tradename amounted to $247.0 million and $526.3 million as of February 28, 2009 and May 31, 2008, respectively.  A reconciliation of the Company’s tradename as reflected in the Company’s Condensed Consolidated Balance Sheets as of February 28, 2009 and May 31, 2008 is set forth in the table below:

	(in thousands )
Tradename as of May 31, 2008	$	526,300
Impairment Charges		(279,300)
Tradename as of February 28, 2009	$	247,000

Goodwill. The Company assesses the recoverability of goodwill using a combination of valuation approaches to determine the Company’s business enterprise value: (i) discounted cash flow techniques and (ii) a market approach using a guideline public company methodology.  Inputs to the valuation model include:

9

·   Estimated future cash flows;

·   Growth assumptions for future revenues, that include net store openings as well as future gross margin rates, expense rates and other estimates;

·   Rate used to discount the Company’s estimated future cash flow projections to their present value (or estimated fair value); and

·   Market values and financial information of similar publicly traded companies to determine market valuation multiples.

Based upon the Company's interim impairment analysis of recorded goodwill during the third quarter of Fiscal 2009, the Company determined that there was no goodwill impairment.  The Company believes its estimates are appropriate based upon current market conditions. However, future impairment charges could be required if the Company does not achieve its current cash flow, revenue and profitability projections or the weighted average cost of capital increases or market valuation multiples associated with peer group companies continue to decline. 

Goodwill amounted to $45.6 million and $42.8 million as of February 28, 2009 and May 31, 2008, respectively.  A reconciliation of goodwill as reflected in the Company’s Condensed Consolidated Balance Sheets as of February 28, 2009 and May 31, 2008 is set forth in the table below:

	(in thousands )
Goodwill as of May 31, 2008	$	42,775
Increase in net deferred tax liabilities (a)		2,838
Goodwill as of February 28, 2009	$	45,613

(a)   The change in deferred income taxes recorded during the nine month period ended February 28, 2009 reflects a change in the Company’s estimate of the effective state tax rate used to calculate deferred taxes in accordance with Financial Accounting Standards Board (“FASB”) Emerging Issues Task Force (“EITF”) Issue 93-7, “Uncertainties Related to Income Taxes in a Purchase Combination.” This adjustment has increased goodwill related to the Merger Transaction (as defined in Note 10 to the Company’s Condensed Consolidated Financial Statements entitled “Income Taxes”).

5. Impairment of Long-Lived Assets

The Company accounts for impaired long-lived assets in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). 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. This statement also requires that long-lived assets and certain intangibles to be disposed of should be reported at the lower of the 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 the estimated expected undiscounted future cash flows, the Company measures the amount of the impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is measured by discounting expected future cash flows using the Company’s incremental borrowing rate.

Impairment charges related to long-lived assets recorded during each of the nine and three month periods ended February 28, 2009 amounted to $28.1 million.  The majority of the impairment charges are related to the impairment of favorable leases in the amount of $20.9 million related to 15 of the Company’s stores.  The Company also impaired $5.8 million of leasehold improvements and $1.4 million of furniture and fixtures related to 22 of the Company’s stores for both the nine and three month periods ended February 28, 2009.  

The recoverability assessment related to these store-level assets requires judgments and estimates of future revenues, gross margin rates and store expenses.  The Company bases these estimates upon its past and expected future performance.  The Company believes its estimates are appropriate in light of current market conditions.  However, future impairment charges could be required if the Company does not achieve its current revenue or cash flow projections.  The impairment charges noted above are primarily related to a decline in revenues of the respective stores as a result of the declining macroeconomic conditions that are negatively impacting the Company's current comparative store sales.

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Impairment charges related to the Company’s long-lived assets recorded during each of the nine and three month periods ended March 1, 2008 amounted to $7.9 million and $0.5 million, respectively.  Impairment charges for both the nine and three month periods ended March 1, 2008 related to favorable lease assets amounted to $4.9 million (related to six of the Company’s stores) and $0.1 million (related to two of the Company’s stores), respectively.  The Company also impaired $1.2 million and $0.1 million of leasehold improvements for the nine and three months ended March 1, 2008, respectively, and $1.3 million and $0.3 million of furniture and fixtures for the nine and three month periods ended March 1, 2008, respectively.  For the nine months ended March 1, 2008, $0.5 million of certain warehouse equipment was also impaired.  Impairment charges at the store level were primarily related to a decline in the operating performance of the respective stores as a result of weakening consumer demand during the period.

6. Assets Held for Disposal

Assets held for disposal represent assets owned by the Company that management has committed to sell in the near term.  The Company either identified or was actively seeking out potential buyers for these assets as of the balance sheet dates.  Included in the line item “Assets Held for Disposal” in the Company’s Condensed Consolidated Balance Sheet as of February 28, 2009 are owned parcels of land adjacent to two of the Company’s stores and various warehouse equipment that is being held for sale.

As of May 31, 2008, assets included in the line item “Assets Held for Disposal” in the Company’s Condensed Consolidated Balance Sheet were comprised of leasehold improvements and a favorable lease related to one of the Company’s stores.

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

	(in thousands)
	February 28, 2009		May 31, 2008
Fixed Assets	$	782	$	63
Favorable Leases		--		2,753
	$	782	$	2,816

During the nine months ended February 28, 2009, certain assets related to one of the Company’s stores, which were previously held for sale at May 31, 2008 no longer qualified as held for sale due to the fact that, subsequent to May 31, 2008, there was no longer an active program to locate a buyer.  Due to the deteriorating real estate market, the Company determined that it was in its best interest to no longer market this location and instead to continue to hold and use this location in the ordinary course of business.  As a result, the Company reclassified assets related to this location with a net long-lived asset value of $2.8 million out of the line item “Assets Held for Disposal” in the Company’s Condensed Consolidated Balance Sheets and into the line items “Property and Equipment, Net of Accumulated Depreciation” and “Favorable Leases, Net of Accumulated Amortization.”  The reclassification resulted in a charge against the line item “Other (Income)/Expense, Net” in the Company’s Condensed Consolidated Statements of Operations of $0.3 million during the nine months ended February 28, 2009, reflecting the adjustment for depreciation and amortization expense that would have been recognized had the asset group been continuously classified as held and used.  In addition, the Company assessed these assets for impairment and determined that no impairment charge was necessary at the time of reclassification.

7.  Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement,” (“SFAS No. 157”) which defines fair value, establishes a framework for measurement and expands disclosure about fair value measurements.  Where applicable, SFAS No. 157 simplifies and codifies related guidance within GAAP.  In February 2008, the FASB issued FASB Staff Position (“FSP”) SFAS No. 157-2, “Effective Date for FASB Statement No. 157” (“FSP SFAS No. 157”)which extended the application of SFAS No. 157 for all non-recurring fair value measurements of non-financial assets and non-financial liabilities until fiscal years beginning after November 15, 2008.  The Company has elected to apply FSP SFAS No. 157 to its non-financial assets and non-financial liabilities that are valued on a non-recurring basis.  The Company is in the process of evaluating the impact of SFAS No. 157 for non-financial assets and non-financial liabilities on its Condensed Consolidated Financial Statements.   The adoption of SFAS No. 157 for financial assets and financial liabilities did not have a material impact on the Company’s Condensed Consolidated Financial Statements. 

SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). SFAS No. 157 classifies the inputs used to measure fair value into the following hierarchy:

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Level 1: Quoted prices for identical assets or liabilities in active markets.

Level 2: Quoted market prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3: Pricing inputs that are unobservable for the assets and liabilities and include situations where there is little, if any, market activity for the assets and liabilities.  

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

The Company’s financial assets as of February 28, 2009 include cash equivalents, interest rate cap agreements, and investments in a money market fund.  The Company does not have any financial liabilities that are measured at fair value as of February 28, 2009.   The carrying value of cash equivalents approximates fair value due to its short-term nature.  The fair value of the interest rate cap agreements are determined using quotes that are based on models whose inputs are observable LIBOR forward interest rate curves.  To comply with the provisions of SFAS No. 157, the Company incorporates credit valuation adjustments to appropriately reflect both the Company's non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements. In adjusting the fair value of the Company's interest rate cap agreements for the effect of non-performance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.  The fair value of the investment in the money market fund is determined by using quotes for similar assets in an active market.  As a result, the Company has determined that the significant majority of the inputs used to value this investment fall within Level 2 of the fair value hierarchy.

Although the Company has determined that the majority of the inputs used to value its interest rate cap agreements fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with the Company's interest rate cap agreements utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default. As of February 28, 2009, the Company has recorded credit valuation adjustments of $0.5 million to the overall valuation of the Company's interest rate cap agreements. The credit valuation adjustment is not considered significant to the valuation of each of the individual interest rate cap agreements and as a result, the Company has determined that its interest rate cap agreement valuations in their entirety are classified as a Level 2 within the fair value hierarchy.

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

	(in thousands)
	Fair Value Measurements at February 28, 2009
Assets:
Level 1
Cash equivalents (including restricted cash)	$	2,755
Level 2
Interest rate cap agreements (a)	$	5,606
Investment in Money Market Fund	$	3,526

(a)   Included in “Other Assets” within the Company’s Condensed Consolidated Balance Sheets (refer to Note 8 of the Company’s Condensed Consolidated Financial Statements, entitled “Derivative Instruments and Hedging Activities” for further discussion regarding the Company's interest rate cap agreements).  

In September 2008, as part of the Company's overnight cash management strategy, the Company invested $56.3 million in The Reserve Primary Fund (“Fund”), a money market fund registered with the Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940.   On September 22, 2008, the Fund announced that redemptions of shares of the Fund were suspended pursuant to an SEC order so that an orderly liquidation may be effected for the protection of the Fund’s investors.  On October 30, 2008, the Fund announced an initial distribution to Fund shareholders pursuant to which the Company received $28.5 million.  Based on the decline in the value of the Fund, the Company recorded a loss of $1.7 million in November 2008 related to its investment in the Fund.   

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On December 3, 2008, the Fund announced a second distribution to Fund shareholders pursuant to which the Company received $15.8 million.   Under the Fund’s plan of liquidation (also announced on December 3, 2008), subsequent periodic distributions will be made to Fund shareholders as cash accumulates in the Fund until the Fund’s net assets (other than (i) a special reserve established to satisfy certain costs and expenses of the Fund, including pending or threatened claims against the Fund, and (ii) net income generated from Fund holdings since September 15, 2008) have been distributed.

On February 26, 2009 the Fund announced that it determined to initially set aside $3.5 billion in the special reserve, whose value may increase or decrease as further information becomes available.  Consequently, pursuant to the Fund’s plan of liquidation, interim distributions will continue to be made up to 91.72 cents per share unless the Fund determines a need to increase the special reserve.   As a result of this announcement, the Company recorded an additional write-down of $3.0 million during the three months ended February 28, 2009.  Additionally, the Company received an interim distribution of $3.8 million during the three months ended February 28, 2009.

Based upon the maturities of the underlying investments in the Fund, the Company expects to receive the remaining amount of its investment during the next twelve months.  The investment in the Fund is classified in the line item entitled “Investment in Money Market Fund” in the Company’s Condensed Consolidated Balance Sheets as of February 28, 2009.

           In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement No. 115” (“SFAS No. 159”).  SFAS No. 159 permits entities to choose to measure eligible items (including many financial instruments and certain other items) at fair value at the specified election date.  Unrealized gains and losses for which the fair value option has been elected will be reported in earnings at each subsequent reporting date.  The Company adopted this statement on June 1, 2008.  The Company has not elected to measure any financial assets or financial liabilities at fair value which were not previously required to be measured at fair value.  Therefore, the adoption of SFAS No. 159 had no impact on the Company’s Condensed Consolidated Financial Statements.

8. Derivative Instruments and Hedging Activities

The Company adopted SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (“SFAS No. 161”) on November 30, 2008.  SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”) with the intent to provide users of financial statements with an enhanced understanding of: (i) How and why an entity uses derivative instruments; (ii) How derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations; and (iii) How derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows.  The adoption of SFAS No. 161 did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

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

SFAS No. 133 requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the statement of financial position.  The Company does not monitor its interest rate cap agreements for hedge effectiveness and therefore does not designate its interest rate cap agreements as cash flow hedges of certain future interest payments on variable-rate debt.  Instead, the interest rate cap agreements are adjusted to market on a quarterly basis.  As a result, gains or losses associated with the interest rate cap agreements are recorded in the line item “Interest Expense” on the Company’s Condensed Consolidated Statements of Operations and in the line item “Interest Rate Cap Contract – Adjustment to Market” on the Company’s Condensed Consolidated Statements of Cash Flows.

As of February 28, 2009, the Company was party to five outstanding interest rate cap agreements to manage the interest rate risk associated with future interest payments on variable-rate debt.

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	Fair Values of Derivative Instruments
In thousands of dollars	Asset Derivatives
	February 28, 2009				May 31, 2008
Derivatives Not Designated as Hedging Instruments Under FAS 133	Balance Sheet Location	Fair Value			Balance Sheet Location	Fair Value
Interest Rate  Cap Agreements	Other Assets	$	5,606		Other Assets	$	791
In thousands of dollars	Liability Derivatives
	February 28, 2009				May 31, 2008
Derivatives Not Designated as Hedging Instruments Under FAS 133	Balance Sheet Location	Fair Value			Balance Sheet Location	Fair Value
Interest Rate  Cap Agreements	Other Liabiities	$	-		Other Liabiities	$	-
	(Gain)/Loss on Derivatives Instruments
In thousands of dollars
Derivatives Not Designated as Hedging Instruments Under Statement 133	Location of (Gain) or Loss Recognized in Income on Derivatives	Amount of (Gain) or Loss Recognized in Income on Derivatives
		Nine Months Ended				Three Months Ended
		February 28, 2009			March 1, 2008	February 28, 2009		March 1,  2008
Interest Rate Cap Agreements	Interest Expense	$	(1,454	)	$                        176	$	(1,793)	$                124

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These five agreements are recorded in the line item “Other Assets” within the Company’s Condensed Consolidated Balance Sheets.  The Company does not monitor these interest rate cap agreements for hedge effectiveness.  

Two of the five interest rate cap agreements became effective on May 12, 2006.  One of these interest rate cap agreements has a notional principal amount of $300 million with a cap rate of 7.0% and terminates on May 31, 2011.  The other agreement has a notional principal amount of $700 million with a cap rate of 7.0% and terminates on May 29, 2009.  

On December 20, 2007, the Company entered into an additional interest rate cap agreement to limit interest rate risk associated with its future long-term debt obligations.  The agreement has a notional principal amount of $600 million with a cap rate of 7.0% and terminates on May 31, 2011.   The agreement will be effective on May 29, 2009 upon the termination of the Company’s existing $700 million interest rate cap agreement.  The Company will determine prior to the effective date whether it will apply hedge accounting treatment for this interest rate cap agreement. Until the Company determines the accounting treatment that will be used, the Company will adjust the interest rate cap to fair value on a quarterly basis and as a result, gains or losses associated with this agreement will be included in the line item “Interest Expense” on the Company’s Condensed Consolidated Statements of Operations and in the line item “Interest Rate Cap Contract – Adjustment to Market” on the Company’s Condensed Consolidated Statements of Cash Flows.

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

9. Store Exit Costs 

The Company establishes reserves covering future obligations of closed stores and stores expected to be closed, including lease and severance obligations.  These reserves are included in the line item “Other Current Liabilities” in the Company’s Condensed Consolidated Balance Sheets.  These charges are recorded in the line item “Selling and Administrative Expenses” on the Company’s Condensed Consolidated Statements of Operations.  Reserves at February 28, 2009 and May 31, 2008 consisted of:

Fiscal Year Reserve Established	(in thousands)
	Balance at May 31, 2008		Provisions		Payments			Balance at February 28, 2009
2005	$	67	$	(4)	$	(63	)	$	--
2008		95		(13)		(72	)		10
2009		--		167		(167	)		--
	$	162	$	150	$	(302	)	$	10

The Company believes that these reserves are adequate to cover the expected contractual lease payments and other ancillary costs related to the closings. Scheduled rent related payments over the remainder of the contractual obligation periods are all expected to be paid during Fiscal 2009.

10. Income Taxes

As of February 28, 2009, the Company had a current deferred tax asset of $52.4 million and a non-current deferred tax liability of $351.5 million.  As of May 31, 2008, the Company had a current deferred tax asset of $51.4 million and a non-current deferred tax liability of $464.6 million. Current deferred tax assets consisted primarily of certain operating costs and inventory related costs not currently deductible for tax purposes.  Non-current deferred tax liabilities primarily relate to rent expense, pre-opening costs, intangible costs and depreciation expense where the Company has a future obligation for tax purposes.

Income taxes are provided on an interim basis based upon the Company’s estimate of the effective annual income tax rate. The effective tax rate for both the nine and three month periods ended February 28, 2009 differ from the estimate of the effective annual income tax rate due to certain discrete items.  As of February 28, 2009 and May 31, 2008, valuation allowances amounted to $4.8 million and related primarily to state tax net operating losses. The Company believes that it is more likely than not that a portion of the benefit of the state tax net operating losses will not be realized.  The state net operating losses have been generated in a number of taxing jurisdictions and are subject to various expiration periods ranging from five to twenty years beginning with the Company’s 2008 fiscal year.   Any tax benefit recognized in Fiscal 2009 by the use of a state tax net operating loss that was established prior to the April 13, 2006 merger transaction involving Bain Capital, LLC (the “Merger Transaction”), where a valuation allowance has been established, will be recorded first to reduce to zero the goodwill related to the Merger Transaction, second to reduce to zero other non-current intangible assets and third to reduce income tax expense.  Commencing during the fiscal year ended May 29, 2010, the provisions of SFAS 141R (as defined in Note 21 to the Company’s Condensed Consolidated Financial Statements entitled “Recent Accounting Pronouncements”) will be effective for the Company, and any future tax benefits related to the recognition of any state tax net operating losses, where a valuation allowance has been established, will be recorded to the Company’s Consolidated Statements of Operations.

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 As of February 28, 2009, the Company reported total unrecognized tax benefits in the line item “Other Liabilities” in the Company’s Condensed Consolidated Balance Sheet of $37.1 million, of which $8.8 million would affect the Company’s effective tax rate if recognized.  As of May 31, 2008, the Company reported total unrecognized tax benefits of $38.0 million, of which $8.3 million would affect the Company’s effective tax rate if recognized.  The Company reported total unrecognized tax benefits of $44.8 million as of June 3, 2007, the date of adoption of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.”  Due to the potential for resolution of federal and state examinations, and the expiration of various statutes of limitations, it is reasonably possible that the Company’s gross unrecognized tax benefit balance may decrease within the next twelve months by as much as $12.4 million, related primarily to issues involving deferred revenue and depreciation.

As a result of positions taken during a prior period, the Company recorded $2.2 million and $0.5 million of interest and penalties for the nine and three month periods ended February 28, 2009, respectively.   In comparison, for the nine and three months ended March 1, 2008, the Company recorded $2.8 million and $0.5 million of interest and penalties, respectively.  As of February 28, 2009, cumulative interest and penalties of $18.8 million have been recorded on the Company’s Condensed Consolidated Balance Sheet.  The Company recognizes interest and penalties related to unrecognized tax benefits as part of income taxes.

The Company files tax returns in the U.S. federal jurisdiction and various state jurisdictions.  The Company is open to audit under the statute of limitations by the Internal Revenue Service for fiscal years 2004 through 2008.  The Company or its subsidiaries’ state income tax returns are open to audit under the statute of limitations for the fiscal years 2003 through 2008.  Refer to Note 20 to the Company’s Condensed Consolidated Financial Statements entitled “Subsequent Events” and Note 18 entitled “Income Taxes” in the Company’s Fiscal 2008 Form 10-K for further information regarding the Company’s tax positions.

11. Barter Transactions

The Company accounts for barter transactions under SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion Number 29” (“SFAS No. 153”), andEITF 93-11, “Accounting for Barter Transactions Involving Barter Credits” (“EITF 93-11”).Barter transactions with commercial substance are recorded at the estimated fair value of the products exchanged, unless the products received have a more readily determinable estimated fair value.  During November 2008, the Company exchanged $10.7 million of inventory for certain advertising credits which are to be used over the next six years, exclusive of the Company’s option to extend the term an additional two years. This exchange resulted in $10.7 million of sales and cost of sales in the Company’s Condensed Consolidated Statements of Operations for the nine month period ended February 28, 2009.  During the Company’s first quarter of Fiscal 2008, the Company exchanged $5.2 million of inventory for certain advertising credits, which were to be used over the subsequent three to five years.  As of February 28, 2009, the Company utilized $3.5 million of the $15.9 million of the total advertising credits available.

As of February 28, 2009, the Company recorded $2.3 million of barter related prepaid advertising credits in the line item “Prepaid and Other Current Assets” and $10.1 million of barter related prepaid advertising credits in the line item “Other Assets” in the Company’s Condensed Consolidated Balance Sheets.  As of May 31, 2008, the Company recorded $1.7 million of barter related prepaid advertising credits in the line item “Prepaid and Other Current Assets” and $1.9 million of barter related prepaid advertising credits in the line item “Other Assets” in the Company’s Condensed Consolidated Balance Sheets.

Barter credit usage for the nine and three month periods ended February 28, 2009, amounted to $1.9 million and $0.6 million, respectively, compared with $1.2 million and $0.5 million for the nine and three month periods ended March 1, 2008, respectively.

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

On April 13, 2006, the Parent’s Board of Directors adopted the 2006 Management Incentive Plan (“Plan”). The Plan provides for the granting of service-based and performance-based stock options, restricted stock and other awards to executive officers and other key employees of the Company and its subsidiaries.  Pursuant to the Plan, employees have been granted options to purchase units of common stock in the Parent and restricted stock. Each unit consists of nine shares of Class A common stock and one share of Class L common stock of the Parent. The shares comprising a unit are in the same proportion as the shares of Class A and Class L common stock held by all stockholders of the Parent.   On December 2, 2008, the Company amended the Plan, increasing the number of units reserved to 618,622 units.  As of February 28, 2009 there were 618,622 units reserved under the Plan consisting of 5,567,598 shares of Class A common stock of Parent and 618,622 shares of Class L common stock of Parent.

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Non-cash stock compensation expense for the nine and three month periods ended February 28, 2009 amounted to $5.8 million and $3.7 million respectively.  In comparison, non-cash stock compensation expense for the nine and three months ended March 1, 2008 amounted to $1.3 million and $0.8 million respectively.  The table below summarizes the types of stock compensation:

Type of Non-Cash Stock Compensation	Nine Months Ended February 28, 2009		Nine Months Ended March 1, 2008		Three Months Ended February 28, 2009		Three Months Ended March 1, 2008
Stock Compensation – Separation Costs (A)	$	2,425	$	--	$	2,425	$	--
Stock Option Compensation (B)		3,331		1,287		1,268		755
Restricted Stock Compensation (B)		53		--		53		--
Total	$	5,809	$	1,287	$	3,746	$	755

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

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

The $2.4 million of stock compensation – separation costs relate to the separation of the Company’s former President and Chief Executive Officer ("CEO") from the Company and is included in the line item “Restructuring and Separation Costs” in the Company’s Condensed Consolidated Statements of Operations.  These costs are related to the repurchase of a portion of the former CEO’s restricted stock under the terms of the separation agreement and a modification of the options granted to the former CEO (refer to Note 3 to the Company’s Condensed Consolidated Financial Statements entitled “Restructuring and Separation Costs” for further information regarding the separation of the former CEO from the Company).

Stock Options

Options granted during the nine month period ended February 28, 2009 are all service-based awards which were granted in three tranches with exercise prices as follows: Tranche 1:  $100 per unit; Tranche 2:  $180 per unit; and Tranche 3:  $270 per unit.  The service-based awards vest 40% on the second anniversary of the award with the remaining amount vesting ratably over the subsequent three years. The final exercise date for any option granted is the tenth anniversary of the grant date.  The options are exercisable only for whole units and cannot be separately exercised for the individual classes of the Parent’s common stock.  

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

As of February 28, 2009, the Company had 501,500 options outstanding to purchase units, all of which are service-based awards. The Company accounts for awards issued under the Plan in accordance with SFAS No. 123R (Revised 2004), “Share-Based Payment” ("SFAS 123R"), using the modified prospective method, which requires companies to record stock option compensation expense for all non-vested and new awards beginning as of the adoption date. For the nine and three months ended February 28, 2009, the Company recognized non-cash stock option compensation expense of $3.3 million ($1.9 million after tax) and $1.3 million ($0.8 million after tax), respectively, net of a $0.6 million forfeiture adjustment for both the nine and three month periods ended February 28, 2009 as a result of actual forfeitures being higher than initially estimated.  In comparison, for the nine and three months ended March 1, 2008, the Company recognized non-cash stock option compensation expense of $1.3 million ($0.8 million after tax), net of $0.8 million of forfeiture adjustments, and $0.8 million ($0.5 million after tax), respectively.  There were no forfeiture adjustments recorded during the three months ended March 1, 2008.  Non-cash stock option compensation expense for all periods is included in the line item “Selling and Administrative Expense” on the Company’s Condensed Consolidated Statements of Operations. At February 28, 2009, there was approximately $11.1 million of unearned non-cash stock option compensation that the Company expects to recognize as an expense over the next 4.8 years. The service-based awards are expensed on a straight-line basis over the requisite service period of five years. At February 28, 2009, 23% of outstanding options to purchase units were vested.

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Stock option unit transactions during the nine months ended February 28, 2009 are summarized as follows:

		(in thousands)
	Number of   Units	Weighted Average Exercise Price Per Unit
Options Outstanding May 31, 2008	412,000	$	181.25
Options Issued	130,000	$	167.31
Options Forfeited	(28,000)		180.00
Options Cancelled	(12,500)	$	180.00
Options Exercised	--		--
Options Outstanding February 28, 2009	501,500	$	177.68

 Non-vested stock option unit transactions during the nine months ended February 28, 2009 are summarized below:

				(in thousands)
	Number of Units			Weighted Average Grant Date Fair Value
Non-Vested Options Outstanding,  May 31, 2008		315,000		$	13,298
Granted		130,000			3,356
Vested		(23,800	)		(972	)
Forfeited		(28,000	)		(1,143	)
Cancellations		(7,500	)		(306	)
Non-Vested Options Outstanding, February 28, 2009		385,700		$	14,233

18

The following table summarizes information about the stock options outstanding under the Plan as of February 28, 2009:

Option Units Outstanding
	Range of Exercise Prices		Number Outstanding at February 28, 2009	Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise  Price
Tranche 1	$	90.00-100.00	183,833	8.0	$	95.48
Tranche 2	$	180.00	158,833	8.0	$	180.00
Tranche 3	$	270.00	158,834	8.0	$	270.00
			501,500

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

	Options		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price
Expected to Vest as of February 28, 2009:
Tranche 1		165,355		8.00	$	95.84
Tranche 2		143,075		8.00		180.00
Tranche 3		143,075		8.00		270.00
Exercisable as of February 28, 2009:
Tranche 1		38,600		6.60	$	90.00
Tranche 2		38,600		6.60		180.00
Tranche 3		38,600		6.60		270.00

19

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants under the Plan in Fiscal 2008 and Fiscal 2009:

	Nine Months Ended February 28, 2009			Nine Months Ended March 1, 2008
Risk-free interest rate		2.61	%		4.11	%
Expected volatility		41.92	%		67	%
Expected life	8.1 years			4.5 years
Contractual life	10 years			10 years
Expected dividend yield		0.0	%		0.0
Fair value of option units granted	$	28.97		$	44.13

Restricted Stock Grants

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

During the nine months ended February 28, 2009, the Company granted 7,500 Units at a fair value per Unit of $84.19.   The fair value of each Unit granted is estimated on the date of grant using inputs that include the Company’s business enterprise value, the book value of outstanding debt and the number of Units outstanding.    All Units granted are service-based awards which were granted in three tranches and vest ratably over a three year service period.  Following a change of control, as defined by the Plan, all unvested Units shall accelerate and vest as of the date of such change of control.

During the three and nine month periods ended February 28, 2009, the Company recorded $0.1 million of non-cash stock compensation expense related to the grant of 7,500 Units which is included in the line item “Selling and Administrative Expense” on the Company’s Condensed Consolidated Statements of Operations.  As of February 28, 2009, there was approximately $0.6 million of unearned non-cash stock-based compensation that the Company expects to recognize as an expense over the next 2.8 years.  The service based Units are expensed on a straight-line basis over the requisite service period of three years.  At February 28, 2009, none of the outstanding Units were vested.

20

Unit transactions during the nine months ended February 28, 2009 are summarized as follows:

	Number of   Units
Units Outstanding May 31, 2008	--
Units Issued	7,500
Units Forfeited	--
Units Cancelled	--
Units Exercised	--
Units Outstanding February 28, 2009	7,500

13.  Comprehensive (Loss)/Income

The Company accounts for comprehensive (loss)/income in accordance with SFAS No. 130, “Reporting Comprehensive Income.”  For the nine and three month period ended February 28, 2009 and the nine and three month period ended March 1, 2008 comprehensive (loss)/income consisted of net (loss)/income. 

14. Other Revenue

Other revenue consists of rental income received from leased departments; subleased rental income; layaway, alteration, dormancy and other service charges; and other miscellaneous items.  Layaway, alteration, dormancy and other service charges (“Service Fees”) amounted to $7.1million and $1.9 million for the nine and three month periods ended February 28, 2009, respectively, compared with $8.6 million and $2.0 million for the nine and three month periods ended March 1, 2008, respectively.  The decrease in Service Fees is related to the Company’s decision to cease charging dormancy service fees on outstanding balances of store value cards (refer to Note 15 of the Company’s Condensed Consolidated Financial Statements entitled “Store Value Cards” for further discussion regarding store value cards).  Dormancy service fees contributed $2.2 million and $0.3 million to the Service Fees for the nine and three month period ended March 1, 2008, respectively.

 Rental income from leased departments amounted to $6.7 million and $3.1 million for each of the nine and three month periods ended February 28, 2009, respectively, compared with $6.3 million and $2.8 million for each of the nine and three month periods ended March 1, 2008, respectively. Subleased rental income and other miscellaneous revenue items amounted to $8.8 million and $3.3 million for the nine and three month periods ended February 28, 2009, respectively, compared with $9.1 million and $3.3 million for the nine and three month periods ended March 1, 2008, respectively.

15.  Store Value Cards

Store value cards include gift cards and store credits issued from merchandise returns.  Store value cards are recorded as a current liability upon the initial sale, and revenue is recognized when the store value card is redeemed for merchandise.  Store value cards issued by the Company do not have an expiration date and are not redeemable for cash.  Beginning in September of 2006 through December 29, 2007, if a store value card remained inactive for greater than thirteen months, the Company assessed the recipient a monthly dormancy service fee, where allowed by law, which was automatically deducted from the remaining value of the card.   Dormancy service fee income was recorded as part of the line item “Other Revenue” in the Company’s Condensed Consolidated Statements of Operations.

Early in Fiscal 2008, the Company determined it had accumulated adequate historical data to determine a reliable estimate of the amount of gift cards that would not be redeemed.  The Company formed a corporation in Virginia (BCF Cards, Inc.) to issue the Company’s store value cards commencing December 29, 2007 and upon the formation of BCF Cards, Inc., the Company discontinued assessing a dormancy service fee on inactive store value cards.   Instead, during the third quarter of Fiscal 2008, the Company began estimating and recognizing store value card breakage income in proportion to actual store value card redemptions and records such income in the line item “Other Income/Expense, Net” in the Company’s Condensed Consolidated Statements of Operations. The Company determines an estimated store value card breakage rate by continuously evaluating historical redemption data.   Breakage income is recognized in proportion to the historical redemption patterns for those store value cards for which the likelihood of redemption is remote.  For the nine and three months ended February 28, 2009, the Company recorded $2.3 million and $0.8 million, respectively, of store value card breakage income compared with $4.7 million recorded during the nine and three months ended March 1, 2008.  The decrease in breakage income is attributable to the Company initially recording breakage during the three months ended March 1, 2008 which included cumulative breakage income related to store value cards issued since the introduction of the store value card program.

21

16.  Other Current Liabilities

Other current liabilities primarily consist of sales tax payable, unredeemed store value cards, accrued payroll costs, self –insurance reserves  ($35.8 million and $36.7 million as of February 28, 2009 and May 31, 2008, respectively), accrued operating expenses, layaway deposits, payroll taxes payable, current portion of deferred rent expense and other miscellaneous items.

The Company has risk participation agreements with insurance carriers with respect to workers' compensation, general liability insurance and health insurance.  Pursuant to these arrangements, the Company is responsible for paying individual claims up to designated dollar limits.  The amounts included in costs related to these claims are estimated and can vary based on changes in assumptions or claims experience included in the associated insurance programs.  An increase in worker's compensation claims by employees, health insurance claims by employees or general liability claims may result in a corresponding increase in costs related to these claims.

17.  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 identified operating segments at the store level. However, each stores’ operating performance has been aggregated into one reportable segment.  Each store meets the aggregation criteria set forth in SFAS No. 131.  The Company’s operating segments are aggregated for financial reporting purposes because they are similar in each of the following areas: economic characteristics, class of consumer, nature of products, nature of production processes and distribution methods.  Revenues from customers are derived from merchandise sales and the Company does not rely on any major customers as a source of revenue.

18.  Acquisition of Value City Leases

 On October 3, 2007, Burlington Coat Factory Warehouse Corporation and certain wholly-owned subsidiaries (“Burlington”) entered into an Agreement to Acquire Leases and Lease Properties (the “Agreement”) from  Retail Ventures, Inc., an Ohio corporation (“RVI”), together with its wholly-owned subsidiaries, Value City Department Stores LLC, an Ohio limited liability company (“Value City” or “VCDS”), and GB Retailers, Inc., a Delaware corporation (“GB Retailers” and, together with VCDS, the “VCDS Tenants”), and from Schottenstein Stores Corporation (“SSC”) and certain affiliates of SSC (collectively with SSC, the “SSC Landlords”). RVI, the VCDS Tenants and the SSC Landlords are collectively referred to as the “Value City Entities.”  

As of February 28, 2009, the Company had fulfilled its obligations with respect to the Value City Entities.  Of the original 24 leases that were contemplated in the transaction, the Company acquired 18 of them for a total purchase price of $8.3 million.  Six of the locations were removed from the transaction in accordance with the Agreement.

19.  Commitments and Contingencies

The Company is party to various litigation matters arising in the ordinary course of business. The ultimate legal and financial liability of the Company with respect to such litigation cannot be estimated with certainty, but management believes, based on its examination of these matters, experience to date and discussions with counsel, that the ultimate liability from the Company’s various litigation matters will not be material to the business, financial condition, results of operations or cash flows of the Company.

Lease Agreements

 The Company enters into lease agreements during the ordinary course of business in order to secure favorable store locations.  As of February 28, 2009, the Company committed to six new lease agreements for locations at which stores are expected to be opened during the fourth quarter of Fiscal 2009.  The six new stores are expected to have minimum lease payments of $0.9 million, $4.3 million, $4.3 million, $4.3 million, and $30.5 million for the remainder of Fiscal 2009, and the fiscal years ended May 29, 2010, May 28, 2011, June 2, 2012 and all subsequent years thereafter, respectively.

Letters of Credit

 The Company had letter of credit arrangements with various banks in the aggregate amount of $40.7 million and $32.7 million guaranteeing performance under various lease agreements, insurance contracts and utility agreements at February 28, 2009 and March 1, 2008, respectively.  

 Additionally, the Company had an outstanding letter of credit in the amount of $2.4 million and $3.4 million at February 28, 2009 and March 1, 2008, respectively, guaranteeing its Industrial Revenue Bonds.  The Company also has outstanding letters of credit arrangements in the aggregate amount of $5.6 million and $8.0 million at February 28, 2009 and March 1, 2008, respectively, related to certain merchandising agreements.

Severance and Separation

 During the three months ended February 28, 2009, the Company entered into certain severance and separation agreements which require it to make payments to certain former employees.  These obligations resulted in a charge during the three months ended February 28, 2009 of approximately $3.7 million.  Approximately $1.7 million of this charge related to the reduction of 2,300 positions in the Company's corporate office and its stores.  As of February 28, 2009 approximately $0.7 million of the liability remains to be paid, the majority of which will be paid by May 30, 2009 with the remaining amount being paid during the first quarter of Fiscal 2010. 

 Additionally, $2.0 million of the charge recorded during the three months ended February 28, 2009 relates to the separation of the Company's former President and Chief Executive Officer from the Company.  As of February 28, 2009, $1.9 million of this liability remains to be paid.  The Company expects to make payments related to this charge in bi-weekly installments through May 30, 2011.   

20.  Subsequent Events

In March 2009, the IRS issued its revenue agent report detailing a proposed increase of $10.4 million in the Company’s tax liability for fiscal years 2004 and 2005, which was agreed to by the Company.  The Company previously accrued for this tax liability as part of its FIN 48 tax liabilities.  The Company is currently in negotiations with the IRS regarding the timing of payment to satisfy the agreed obligation with interest and is therefore still evaluating the impact the settlement may have on its financial statements in the fourth quarter of the current fiscal year.  It is currently contemplated that payment will be satisfied by approximately July 2010. 

22

21. Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141(revised 2007), “Business Combinations” (“SFAS No. 141R”).  SFAS No. 141R applies to any transaction or other event that meets the definition of a business combination.  Where applicable, SFAS No. 141R establishes principles and requirements for how the acquirer recognizes and measures identifiable assets acquired, liabilities assumed, noncontrolling interest in the acquiree and goodwill or gain from a bargain purchase.  In addition, SFAS No. 141R determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.   SFAS No. 141R also applies to prospective changes in acquired tax assets and liabilities recognized as part of the Company’s previous acquisitions by requiring such changes to be recorded as a component of the income tax provision. This statement is to be applied prospectively for fiscal years beginning after December 15, 2008.  The Company expects SFAS No. 141R will have an impact on accounting for future business combinations, once adopted, and on prospective changes, if any, of previously acquired tax assets and liabilities.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS No. 160”).  SFAS No. 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.  It also amends certain of ARB No. 51’s consolidation procedures for consistency with the requirements of SFAS No. 141R.  This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008.  The statement shall be applied prospectively as of the beginning of the fiscal year in which the statement is initially adopted.  The Company currently does not have a non-controlling interest in any subsidiaries, but will continue to evaluate the impact of SFAS No. 160 on its future Condensed Consolidated Financial Statements.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”).   This statement identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of non-governmental entities that are presented in conformity with GAAP.  This statement was became effective on November 15, 2008.It did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

In October 2008, SFAS 157 was amended by FSP SFAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for that Asset is Not Active” (“FSP SFAS 157-3”).  This FSP is effective upon issuance and amends FASB Statement No. 157, “Fair Value Measurements,” to clarify its application in an inactive market by providing an illustrative example to demonstrate how the fair value of a financial asset is determined when the market for the financial asset is inactive.  FSP SFAS 157-3 did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

In June 2008, the FASB ratified EITF No. 08-3 “Accounting by Lessees for Maintenance Deposits” (“EITF 08-3”).  EITF 08-3 mandates that maintenance deposits that may not be refunded should be accounted for as a deposit.  When the underlying maintenance is performed, the deposit is expensed or capitalized in accordance with the lessee’s maintenance accounting policy.  This EITF is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2008.  The Company does not believe that the adoption of EITF 08-3 will have a material impact on the Company’s Condensed Consolidated Financial Statements.

22. Condensed Guarantor Data

On April 13, 2006, BCFWC issued $305 million aggregate principal amount of 11.1% Senior Notes due 2014. The notes were issued under an indenture issued on April 13, 2006. Holdings and subsidiaries of BCFWC have fully and unconditionally guaranteed these notes.  These guarantees are both joint and several.  The following Condensed Consolidating Financial Statements present the financial position, results of operations and cash flows of Holdings, BCFWC, exclusive of subsidiaries (referred to herein as “BCFW”), and the guarantor subsidiaries. Holdings has one non-guarantor subsidiary that is not wholly-owned and is considered to be “minor” as that term is defined in Rule 3-10 of Regulation S-X promulgated by the Securities and Exchange Commission.

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

23

Burlington Coat Factory Investments Holdings, Inc. and Subsidiaries
Condensed Consolidating Balance Sheets
(All amounts in thousands)
	As of February 28, 2009
ASSETS	Holdings			BCFW			Guarantors		Eliminations			Consolidated
Current Assets:
Cash and Cash Equivalents	$	-		$	2,650		$	24,794	$	-		$	27,444
Restricted Cash and Cash Equivalents		-			-			2,637		-			2,637
Investment in Money Market  Fund		-			-			3,526					3,526
Accounts Receivable		-			21,980			8,152		-			30,132
Merchandise Inventories		-			826			725,948		-			726,774
Deferred Tax Asset		-			14,401			37,960		-			52,361
Prepaid and Other Current Assets		-			12,862			14,262		-			27,124
Income Tax Receivable		-						2,609		-			2,609
Assets Held for Sale		-			-			782		-			782
Total Current Assets		-			52,719			820,670		-			873,389
Property and Equipment - Net of Accumulated Depreciation		-			53,397			852,622		-			906,019
Tradename		-			247,000			-					247,000
Favorable Leases, Net of Accumulated Amortization		-			-			490,995					490,995
Goodwill		-			45,613			-					45,613
Other Assets		164,147			1,631,500			36,218		(1,741,954	)		89,911
Total Assets	$	164,147		$	2,030,229		$	2,200,505	$	(1,741,954	)	$	2,652,927
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable	$	-		$	408,554		$	-	$	-		$	408,554
Income Taxes Payable		-			206					-			206
Other Current Liabilities		-			122,192			100,095		-			222,287
Current Maturities of Long Term Debt		-			8,807			1,756		-			10,563
Total Current Liabilities		-			539,759			101,851		-			641,610
Long Term Debt		-			1,199,957			126,072		-			1,326,029
Other Liabilities		-			18,489			161,158		(10,000	)		169,647
Deferred Tax Liability		-			107,877			243,617		-			351,494
Stockholders' Equity:
Common Stock		-			-			-		-			-
Capital in Excess of Par Value		463,180			463,180			1,152,636		(1,615,816	)		463,180
(Accumulated Deficit)/ Retained  Earnings		(299,033	)		(299,033	)		415,171		(116,138	)		(299,033)
Total Stockholders' Equity		164,147			164,147			1,567,807		(1,731,954	)		164,147
Total Liabilities and Stockholders' Equity	$	164,147		$	2,030,229		$	2,200,505	$	(1,741,954	)	$	2,652,927

24

 Burlington Coat Factory Investments Holdings, Inc. and Subsidiaries

Condensed Consolidating Balance Sheets

(All amounts in thousands)

	As of May 31, 2008
	Holdings			BCFW			Guarantors		Eliminations			Consolidated
ASSETS
Current Assets:
Cash and Cash Equivalents	$	-		$	4,114		$	35,987	$	-		$	40,101
Restricted Cash and Cash Equivalents		-			-			2,692		-			2,692
Accounts Receivable, Net		-			20,930			6,207		-			27,137
Merchandise Inventories		-			1,354			718,175		-			719,529
Deferred Tax Assets		-			14,222			37,154		-			51,376
Prepaid and Other Current Assets		-			11,581			13,397		-			24,978
Income Tax Receivable		-			935			2,929		-			3,864
Assets Held for Disposal		-			-			2,816		-			2,816
Total Current Assets		-			53,136			819,357		-			872,493
Property and Equipment, Net of Accumulated Depreciation		-			58,906			860,629		-			919,535
Tradename		-			526,300			-		-			526,300
Favorable Leases, Net of Accumulated Amortization		-			-			534,070		-			534,070
Goodwill		-			42,775			-		-			42,775
Other Assets		323,524			1,705,185			21,025		(1,980,415	)		69,319
Total Assets	$	323,524		$	2,386,302		$	2,235,081	$	(1,980,415	)	$	2,964,492
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable	$	-		$	337,040		$	-	$	-		$	337,040
Income Taxes Payable		-			4,256			1,548		-			5,804
Other Current Liabilities		-			128,597			110,269		-			238,866
Current Maturities of Long Term Debt		-			2,057			1,596		-			3,653
Total Current Liabilities		-			471,950			113,413		-			585,363
Long Term Debt		-			1,352,557			127,674		-			1,480,231
Other Liabilities		-			17,550			103,226		(10,000	)		110,776
Deferred Tax Liability		-			220,721			243,877		-			464,598
Stockholders’ Equity:		-			-			-		-			-
Common Stock		-			-			-		-			-
Capital in Excess of Par Value		457,371			457,371			1,352,271		(1,809,642	)		457,371
(Accumulated Deficit)/ Retained Earnings		(133,847	)		(133,847	)		294,620		(160,773	)		(133,847	)
Total Stockholders’ Equity		323,524			323,524			1,646,891		(1,970,415	)		323,524
Total Liabilities and Stockholders’ Equity	$	323,524		$	2,386,302		$	2,235,081	$	(1,980,415	)	$	2,964,492

25

Burlington Coat Factory Investments Holdings, Inc. and Subsidiaries
Condensed Consolidating Statement of Operations
(All amounts in thousands)
	For the Nine months ended February 28, 2009
		Holdings			BCFW			Guarantors		Eliminations		Consolidated
REVENUES:
Net Sales	$	-		$	2,398		$	2,728,106	$		$	2,730,504
Other Revenue		-			(262)			22,850				22,588
Total Revenue		-			2,136			2,750,956				2,753,092
COSTS AND EXPENSES:
Cost of Sales		-			1,472			1,675,088				1,676,560
Selling and Administrative Expenses		-			110,933			726,312				837,245
Restructuring and Separation Costs					2,426			3,693				6,119
Depreciation		-			20,469			73,810				94,279
Amortization		-			7,374			25,634				33,008
Impairment Charges - Long-Lived Assets		-			-			28,134				28,134
Impairment Charges - Tradename					279,300			-				279,300
Interest Expense		-			63,172			12,527				75,699
Other Income/Expense, net		-			(1,837	)		565				(1,272	)
Loss (Earnings) from Equity Investment	165,186				(120,551	)		-		(44,635)		-
		165,186			362,758			2,545,763		(44,635)		3,029,072
(Loss) Income Before Income Tax (Benefit) Expense		(165,186	)		(360,622	)		205,193		44,635		(275,980	)
Income Tax / (Benefit) Expense		-			(195,436	)		84,642		-		(110,794	)
Net (Loss) Income	$	(165,186	)	$	(165,186	)	$	120,551	$	44,635	$	(165,186	)

26

Burlington Coat Factory Investments Holdings, Inc. and Subsidiaries
Condensed Consolidating Statement of Operations (All amounts in thousands)
	For the Three Months Ended February 28, 2009
	Holdings			BCFW			Guarantors		Eliminations		Consolidated
REVENUES:
Net Sales	$	-		$	436		$	1,020,643	$	-	$	1,021,079
Other Revenue		-			226			8,070		-		8,296
Total Revenue		-			662			1,028,713		-		1,029,375
COSTS AND EXPENSES:
Cost of Sales		-			283			634,103		-		634,386
Selling and Administrative Expenses		-			38,687			226,952		-		265,639
Restructuring and Separation Costs					2,426			3,393				5,819
Depreciation		-			6,981			25,585		-		32,566
Amortization		-			2,460			8,783		-		11,243
Impairment Charges - Long-Lived Assets		-			-			28,134		-		28,134
Impairment Charges - Tradename					279,300			-				279,300
Interest Expense		-			17,383			4,178		-		21,561
Other Income/Expense, net		-			(1,077	)		2,643		-		1,566
Loss (Earnings) from Equity Investment		150,895			(55,889	)		-		(95,006)		-
		150,895			290,554			933,771		(95,006)		1,280,214
(Loss) Income Before Income Tax  (Benefit) Expense		(150,895	)		(289,892	)		94,942		95,006		(250,839	)
Income Tax / (Benefit) Expense		-			(138,997	)		39,053		-		(99,944	)
Net (Loss) Income	$	(150,895	)	$	(150,895	)	$	55,889	$	95,006	$	(150,895	)

27

BURLINGTON COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
	For the Nine months ended March 1, 2008
	Holdings			BCFW			Guarantors			Eliminations			Consolidated
	(All amounts in thousands)
REVENUES:
Net Sales	$	-		$	3,039		$	2,609,409		$	-		$	2,612,448
Other Revenue		-			370			23,596			-			23,966
TOTAL REVENUE		-			3,409			2,633,005			-			2,636,414
COSTS AND EXPENSES:
Cost of Sales		-			1,874			1,611,368			-			1,613,242
Selling and Administrative Expenses		-			102,029			700,763			-			802,792
Depreciation		-			18,585			75,416			-			94,001
Amortization		-			7,333			24,803			-			32,136
Impairment Charges - Long-Lived Assets		-			-			7,873			-			7,873
Impairment Charges - Tradename		-			-			-			-			-
Interest Expense		-			85,302			11,511			-			96,813
Other Income/Expense, net		-			(3,595	)		(6,939	)		-			(10,534	)
Equity in (Earnings) Loss of Subsidiaries		442			(125,094	)		-			124,652			-
		442			86,434			2,424,795			124,652			2,636,323
(Loss) Income Before Income Tax (Benefit) Expense		(442	)		(83,025	)		208,210			(124,652	)		91
Income Tax (Benefit) Expense		-			(82,583	)		83,116			-			533
Net (Loss) Income	$	(442	)	$	(442	)	$	125,094		$	(124,652	)	$	(442	)

28

BURLINGTON COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
	For the Three Months Ended March 1, 2008
	Holdings			BCFW			Guarantors			Eliminations			Consolidated
	(All amounts in thousands)
REVENUES:
Net Sales	$	-		$	1,173		$	985,940		$	-		$	987,113
Other Revenue		-			(1,622	)		9,725			-			8,103
TOTAL REVENUE		-			(449	)		995,665			-			995,216
COSTS AND EXPENSES:
Cost of Sales		-			725			611,579			-			612,304
Selling and Administrative Expenses		-			36,609			236,895						273,504
Depreciation		-			5,431			26,968			-			32,399
Amortization		-			(921	)		11,677			-			10,756
Impairment Charges - Long-Lived Assets		-			-			494			-			494
Impairment Charges - Tradename		-			-			-			-			-
Interest Expense		-			25,957			3,946			-			29,903
Other Income/Expense, net		-			(2,793	)		(5,240	)		-			(8,033	)
Equity in (Earnings) Loss of Subsidiaries		(26,780	)		(66,053	)		-			92,833			-
		(26,780	)		(1,045	)		886,319			92,833			951,327
Income (Loss) Before Income Tax  (Benefit) Expense		26,780			596			109,346			(92,833	)		43,889
Income Tax (Benefit) Expense		-			(26,184	)		43,293			-			17,109
Net Income (Loss)	$	26,780		$	26,780		$	66,053		$	(92,833	)	$	26,780

29

Burlington Coat Factory Investments Holdings, Inc. and Subsidiaries
Condensed Consolidating Statements of Cash Flows
(All amounts in thousands)
	For the Nine months ended February 28, 2009
	Holdings		BCFW			Guarantors			Eliminations		Consolidated
OPERATING ACTIVITIES
Net Cash (Used In) Provided by Operating Activities	$	-	$	162,417		$	91,334		$	-	$	253,751
INVESTING ACTIVITIES
Cash Paid for Property and Equipment and Other Assets		-		(14,327	)		(89,192	)		-		(103,519	)
Proceeds Received from Sales of Fixed Assets and  Leasehold Improvements		-		-			177			-		177
Acquisition of Lease Rights		-		-			(3,938	)		-		(3,938	)
Redesignation of Cash Equivalents to Investments in Money  Market Fund		-		-			(56,294	)		-		(56,294	)
Redemption of Investment in Money Market Fund		-		-			48,107			-		48,107
Change in Restricted Cash and Cash Equivalents		-		-			55			-		55
Investing Activity-Other		-		106			-			-		106
Net Cash Used in Investing Activities		-		(14,221	)		(101,085	)		-		(115,306	)
FINANCING ACTIVITIES
Purchase of Interest Rate Cap		-		(3,360	)		-			-		(3,360	)
Proceeds from Long Term Debt - ABL Line of Credit		-		631,751			-			-		631,751
Principal Payments on Long Term Debt		-		-			(1,442	)		-		(1,442	)
Principal Payments on Long Term Debt - ABL Line of Credit		-		(778,051	)		-			-		(778,051	)
Net Cash Provided By (Used In) Financing Activities		-		(149,660	)		(1,442	)		-		(151,102	)
Increase in Cash and Cash Equivalents		-		(1,464	)		(11,193	)		-		(12,657	)
Cash and Cash Equivalents at Beginning of Period		-		4,114			35,987			-		40,101
Cash and Cash Equivalents at End of Period	$	-	$	2,650		$	24,794		$	-	$	27,444

30

BURLINGTON COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
	For the Nine months ended March 1, 2008
	Holdings			BCFW			Guarantors			Elimination			Consolidated
	(All amounts in thousands)
OPERATING ACTIVITIES
Net Cash Provided by Operating Activities	$	-		$	78,575		$	67,214		$	-		$	145,789
INVESTING ACTIVITIES
Cash Paid for Property and Equipment and Other Assets		-			(18,509	)		(46,473	)		-			(64,982	)
Proceeds Received from Sales of Fixed Assets and Leasehold Improvements		-			-			2,159			-			2,159
Acquisition of Lease Rights		-			-			(4,150	)					(4,150	)
Change in Restricted Cash and Cash Equivalents					-			46						46
Other		-			(34	)		-			-			(34	)
Net Cash Used in Investing Activities		-			(18,543	)		(48,418	)		-			(66,961	)
FINANCING ACTIVITIES
Proceeds from Long -Term Debt – ABL Senior Secured Revolvin  Facility		-			437,301			-			-			437,301
Principal Payments on Long Term Debt		-			-			(1,327	)		-			(1,327	)
Principal Payments on Long Term Loan		-			(11,443	)		-			-			(11,443	)
Principal Payments on Long Term Debt - ABL Senior Secured  Revolving Facility		-			(490,556	)		-			-			(490,556	)
Equity Investment		-			-			-			-			-
Purchase of Interest Rate Cap - Agreement					(424	)								(424	)
Payment of Dividends		(725	)		(725	)		-			725			(725	)
Receipt of Dividends		725			-			-			(725	)		-
Net Cash Used in Financing Activities		-			(65,847	)		(1,327	)		-			(67,174	)
(Decrease) Increase in Cash and Cash Equivalents		-			(5,815	)		17,469			-			11,654
Cash and Cash Equivalents at Beginning of Period		-			20,035			13,843			-			33,878
Cash and Cash Equivalents at End of Period	$	-		$	14,220		$	31,312		$	-		$	45,532

31

BURLINGTON COAT FACTORY INVESTMENTS HOLDINGS, INC. AND SUBSIDIARIES

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

Management intends for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financial statements. All discussions of operations in this report relate to Burlington Coat Factory Warehouse Corporation and its subsidiaries (“BCFWC”), which are reflected in the financial statements of Burlington Coat Factory Investments Holdings, Inc. and its subsidiaries (hereinafter “we” or “our” or “Holdings”). The following discussion contains forward-looking information and should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto included elsewhere in this report and in our Annual Report on Form 10-K for the twelve month period ended May 31, 2008 ("2008 10-K"). Our actual results could differ materially from the results contemplated by these forward-looking statements due to various factors, including those discussed under the section of this Item 2 entitled “Safe Harbor Statement.”

Fiscal Year

We define the 2009 fiscal year (“Fiscal 2009”) and the 2008 fiscal year (“Fiscal 2008”) as the twelve month period ending on May 30, 2009 and the twelve month period ended on May 31, 2008, respectively. 

Overview

We experienced an increase in net sales for the three months ended February 28, 2009 compared with the three months ended March 1, 2008.  Consolidated net sales increased $34.0 million, or 3.4%, to $1,021.1 million for the three month period ended February 28, 2009 from $987.1 million for the comparable period last year. This increase was due to (i) an increase in net sales of $67.8 million for stores opened in 2009, (ii) an increase in net sales of $8.9 million for stores opened in 2008 that are not included in the Company’s comparative store sales, (iii) a comparable store sales decrease of $40.7 million, or 4.3%, and (iv) a decrease in net sales of $2.0 million from stores closed since the comparable period last year. From March 2, 2008 through February 28, 2009 we opened 31 net new stores. The comparable store decrease is due primarily to weakened consumer demand as a result of the contraction of credit available to consumers and the downturn in the economy.

Our gross margin as a percentage of sales remained relatively consistent during the three month period ended February 28, 2009 compared with the three month period ended March 1, 2008, decreasing slightly to 37.9% from 38.0%.  The slight decrease is the result of decreased initial markups offset in part by a decrease in markdowns as a percent of sales.

We recorded a net loss of $150.9 million for the three month period ended February 28, 2009 compared with net income of $26.8 million for the three month period ended March 1, 2008.  The decrease in our operating results of $177.7 million during the three months ended February 28, 2009 compared with the three months ended March 1, 2008 is primarily attributable to impairment charges related to the Company’s tradename and long-lived assets and restructuring and separation costs, partially offset by the positive operating results of our new stores.

We experienced an increase in net sales for the nine months ended February 28, 2009 compared with the nine months ended March 1, 2008.  Consolidated net sales increased $118.1 million, or 4.5%, to $2,730.5 million for the nine month period ended February 28, 2009 from $2,612.4 million for the comparable period last year. This increase was due to (i) an increase in net sales of $138.3 million for stores opened in 2009, (ii) an increase in net sales of $39.9 million for stores opened in 2008 that are not included in the Company’s comparative store sales, (iii) an increase in barter sales of $5.5 million, (iv) a comparable store sales decrease of $58.4 million, or 2.3%, and (v) a decrease in net sales of $6.7 million from stores closed since the comparable period last year. From March 2, 2008 through February 28, 2009 we opened 31 net new stores. The comparable store decrease is due primarily to weakened consumer demand as a result of the contraction of credit available to consumers and the downturn in the economy.

Our gross margin as a percentage of sales increased to 38.6% from 38.2% during the nine month period ended February 28, 2009 compared with the nine month period ended March 1, 2008.  The improvement in gross margin is primarily due to fewer markdowns as a percent of sales and improved initial markups which are the result of lower costs associated with better and more opportunistic buying efforts.

The improvement in markdowns as a percent of sales is primarily related to our taking $16.9 million of permanent markdowns during the fourth quarter of Fiscal 2008 which were historically taken during the first quarter of our fiscal year. The decision to accelerate permanent markdowns into the fourth quarter of Fiscal 2008 was made to stimulate sales of our summer product categories. We wanted to be priced right for the customer given the lower than planned sales trends leading up to May 2008.

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We recorded a net loss of $165.2 million for the nine month period ended February 28, 2009 compared with a net loss of $0.4 million for the nine month period ended March 1, 2008.  The decrease in our operating results during the nine months ended February 28, 2009 compared with the nine months ended March 1, 2008 is primarily attributable to impairment charges related to our tradename and long-lived assets and restructuring and separations costs partially offset by positive contributions from new stores opened in Fiscal 2009 and decreased interest expense as a result of lower interest rates during the nine months ended February 28, 2009 compared with the nine months ended March 1, 2008.  

Current Conditions

Store Openings, Closings, and Relocations. During the nine months ended February 28, 2009, we opened 33 new Burlington Coat Factory Warehouse stores (“BCF” stores) and closed three BCF stores, two of which were in locations within the same trading market as two of the new stores that we opened.  As of February 28, 2009, we operated 427 stores under the names "Burlington Coat Factory Warehouse" (409 stores), "Cohoes Fashions" (two stores), "MJM Designer Shoes" (fifteen stores) and "Super Baby Depot" (one store).  We have reduced our planned new store openings for the remainder of Fiscal 2009 and have committed to only six new lease agreements for stores to be opened during the remainder of Fiscal 2009.  In addition to the planned new store openings during the remainder of Fiscal 2009, we are planning to remodel three of our existing stores which were damaged by hurricanes in the Fall of 2008 (refer to section below entitled “Operational Growth” for further discussion regarding our store openings, closings and relocations).

We will continue to pursue our growth plans and invest in capital projects that meet our required financial hurdles. However, given the uncertainty of the economy, we have curtailed our store opening plans and prudent management of inventory and expenses will remain a strategic initiative.

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

·   Reducing our cost structure in excess of $60 million during this and the last quarter of Fiscal 2009 as discussed below.

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

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

·   In January of 2009, we executed the planned reduction of our workforce in our corporate office and stores by approximately 2,300 positions, or slightly less than 9% of our total workforce.

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

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

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

 General Economic Conditions.  Consumer spending habits, including spending for the merchandise that we sell, are affected by, among other things, prevailing economic conditions, inflation, levels of employment, salaries and wage rates, prevailing interest rates, housing costs, energy costs, income tax rates and policies, consumer confidence and consumer perception of economic conditions.  In addition, consumer purchasing patterns may be influenced by consumers’ disposable income, credit availability and debt levels. A continued or incremental slowdown in the U.S. economy, an uncertain economic outlook or an expanded credit crisis could continue to adversely affect consumer spending habits resulting in lower net sales and profits than expected on a quarterly or annual basis.  During Fiscal 2009, there has been significant deterioration in the global financial markets and economic environment, which we believe negatively impacted consumer spending at many retailers, including us. In response to this, we have taken steps to increase opportunities to profitably drive sales and to curtail capital spending and operating expenses where prudent, including the planned reduction in excess $60 million out of our cost structure (as further described above as part of our “Ongoing Initiatives”) and the planned decrease of approximately $17 million out of our Fiscal 2009 capital expenditure plan (as further described below under the caption “Operational Growth”). We closely monitor our net sales, gross margin, expenses and working capital.  We have performed scenario planning such that if our net sales decline, we have identified variable costs that could be reduced to partially mitigate the impact of these declines.  If these adverse economic trends worsen, or if our efforts to counteract the impacts of these trends are not sufficiently effective, there could be a negative impact on our financial performance and position in future fiscal periods. For further discussion of the risks to us regarding general economic conditions, please refer to the section below entitled “Liquidity and Capital Resources” and Part II, Item 1A of this report entitled “Risk Factors.”

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Key Performance Measures

Management considers numerous factors in assessing our performance. Key performance measures used by management include comparative store sales, adjusted EBITDA, as defined in the credit agreement governing the Term Loan, gross margin and inventory levels, inventory turnover, liquidity and comparative store payroll.

Comparative Store Sales. Comparative store sales measures performance of a store during the current reporting period against the performance of the same store in the corresponding period of the previous year.  The method of calculating comparative store sales varies across the retail industry.  We define comparative store sales as sales of those stores (net of sales discounts) that are beginning their four hundred and twenty-fifth day of operation (approximately one year and two months).  Existing stores whose square footage has been changed by more than 20% and relocated stores (except those relocated within the same shopping center) are classified as new stores for comparative store sales purposes.  We experienced a decrease in comparative store sales of 2.3% and 4.3% during the nine and three month periods ended February 28, 2009, respectively, compared with the nine and three month periods ended March 1, 2008.

Various factors affect comparative store sales, including, but not limited to, current economic conditions, weather conditions, the timing of our releases of new merchandise, the general retail sales environment, consumer preferences and buying trends, changes in sales mix among distribution channels, competition, and the success of marketing programs.  While any and all of these factors can impact comparative store sales, we believe that the decrease in comparative store sales in the nine and three month periods ended February 28, 2009 as compared with the nine and three month periods ended March 1, 2008 is primarily attributable to weakened consumer demand as a result of the downturn in the economy.

 Adjusted EBITDA.  Adjusted EBITDA is a non-GAAP financial measure of our performance.  Adjusted EBITDA starts with consolidated net income for the period and adds back (i) depreciation, amortization, impairments and other non-cash charges that were deducted in arriving at consolidated net income, (ii) the provision for taxes, (iii) interest expense, (iv) advisory fees, and (v) unusual, non-recurring or extraordinary expenses, losses or charges as reasonably approved by the administrative agent for such period.  Adjusted EBITDA corresponds to the definition used in the credit agreement governing the Company’s Term Loan and is used to calculate the consolidated leverage ratio.  We present Adjusted EBITDA because we believe it is a useful supplemental measure in evaluating the performance of our operating business and provides greater transparency into our results of operations.  Adjusted EBITDA provides management, including our chief operating decision maker, with helpful information with respect to our operations such as our ability to meet our future debt service, fund our capital expenditures and working capital requirements and to comply with various covenants in each indenture governing our outstanding notes and the credit agreements governing our senior secured credit facilities which are material to our financial condition and financial statements.  Refer to section entitled "Liquidity and Capital Resources" for further discussion regarding our debt and related covenants.  

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

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

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

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

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

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

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

 Adjusted EBITDA for the three months ended February 28, 2009 increased $15.6 million or 12.9 % from $120.9 million for the three months ended March 1, 2008 to $136.5 million for the three months ended February 28, 2009. The improvement in Adjusted EBITDA is primarily the result of sales growth from new stores and the cost reductions realized during the three month period ended February 28, 2009, as further described above under the caption entitled “Current Conditions.”

 Adjusted EBITDA for the nine months ended February 28, 2009 increased $19.6 million or 8.1% from $243.0 million for the nine months ended March 1, 2008 to $262.6 million for the nine months ended February 28, 2009.  As previously discussed, the improvement in Adjusted EBITDA is primarily the result of sales growth from new stores and the cost reductions realized during the nine month period ended February 28, 2009, as further described above under the caption entitled “Current Conditions.”

34

The following table shows our calculation of Adjusted EBITDA for the nine and three months ended February 28, 2009 and March 1, 2008:

	Nine Months Ended						Three Months Ended
	February 28, 2009			March 1, 2008			February 28, 2009			March 1, 2008
Net (Loss) Income	$	(165,186	)	$	(442	)	$	(150,895	)	$	26,780
Interest Expense		75,699			96,813			21,562			29,903
Income Tax (Benefit)/ Provision		(110,794	)		533			(99,944	)		17,109
Depreciation		94,279			94,001			32,567			32,399
Amortization		33,008			32,136			11,242			10,756
Impairment Charges - Long-Lived Assets		28,134			7,873			28,134			494
Impairment Charges - Tradename		279,300			--			279,300			--
Interest Income		(570	)		(1,632	)		(143	)		(674	)
Non Cash Straight-Line Rent Expense (a)		6,745			5,498			1,709			1,405
Advisory Fees (b)		3,641			3,183			1,188			1,108
Stock Compensation Expense ( c )		5,809			1,287			3,746			755
Sox Compliance (d)		1,196			1,716			120			1,237
Loss on Investment in Money Market Fund (e)		4,661			--			2,995			--
Leasehold Purchase Amortization(f)		634			--			282			--
Severance (g)		1,735			--			1,735			--
Franchise Taxes (h)		714			566			250			136
Insurance Reserve (i)		(844)			220			(561)			(1,021)
Advertising Expense Related to Barter (j)		1,918			1,240			624			478
CEO Transition Costs (k)		2,558			--			2,558			--
Adjusted EBITDA	$	262,637		$	242,992		$	136,496		$	120,865

(a)	Represents the difference between the actual base rent and rent expense calculated in accordance with GAAP (on a straight line basis), in accordance with the credit agreement governing the term loan.
(b)	Represents the annual advisory fee of Bain Capital expensed during the fiscal periods, in accordance with the credit agreement governing the term loan.

(c) Represents expenses recorded under SFAS No. 123(R) during the fiscal periods, in accordance with the credit agreement governing the term loan.

(d)	As a voluntary non-accelerated filer, we furnished our initial management report on Internal Controls Over Financial Reporting in our Annual Report on Form 10-K for Fiscal 2008.  These costs represent professional fees related to this compliance effort that were incurred during the first quarter of Fiscal 2009, as well as fees incurred as part of the ongoing compliance effort for Fiscal 2009, as approved by the administrative agent for the Term Loan.
(e)	Represents the loss on our investment in the Reserve Primary Fund (Fund), related to a decline in the fair value of the underlying securities held by the Fund, as approved by the administrative agent for the Term Loan.
(f)	Represents amortization of lease purchases which are recorded in rent expense within our selling and administrative line items, in accordance with the credit agreement governing the term loan.
(g)	Represents a severance charge resulting from a reduction of approximately 9% of our workforce during the third quarter of Fiscal 2009 (refer to Note 3 to our Condensed Consolidated Financial Statements entitled “Restructuring and Separation Costs” for further discussion), in accordance with the credit agreement governing the term loan.
(h)	Represents the franchise taxes paid which are based on the equity of the Company, as approved by the administrative agent for the Term Loan.
(i)	Represents the change in calculated non-cash reserves based on estimated general liability, workers compensation and health insurance claims, net of cash payments, as approved by the administrative agent for the Term Loan.
(j)	Represents non-cash advertising expense based on the usage of barter advertising credits obtained as part of a non-cash exchange of inventory, as approved by the administrative agent for the Term Loan.
(k)	On December 2, 2008, we entered into an employment agreement with our new President and Chief Executive Officer.  In connection with that effort, we recorded executive recruiting costs.  Additionally, we entered into a separation agreement with the former President and Chief Executive Officer pursuant to which he would receive continuation payments and other benefits payable as described in his separation agreement.  Both of these adjustments were approved by the administrative agent for the Term Loan.

35

 Gross margin.  Gross margin is a measure used by management to indicate whether we are selling merchandise at an appropriate gross profit. Gross margin is the difference between net sales and the cost of sales.  Our cost of sales and gross margin may not be comparable to those of other entities, since some entities include all of the costs related to their buying and distribution functions in cost of sales.  We include certain of these costs in the "Selling and Administrative Expenses" and "Depreciation" line items in our Condensed Consolidated Statements of Operations.  We include in our "Cost of Sales" line item all costs of merchandise (net of purchase discounts and certain vendor allowances), inbound freight, warehouse outbound freight and certain merchandise acquisition costs, primarily commissions and import fees.  For the nine months ended February 28, 2009 compared with the nine months ended March 1, 2008 we experienced an increase in gross margin as a percent of sales from 38.2% to 38.6%. The improvement in gross margin is primarily due to fewer markdowns as a percent of sales and improved initial markups which are the result of lower costs associated with better and more opportunistic buying efforts.

 The improvement in markdowns as a percent of sales is primarily related to our taking $16.9 million of markdowns during the fourth quarter of Fiscal 2008 which were historically taken during the first quarter of our fiscal year. The decision to accelerate markdowns into the fourth quarter of 2008 was made to stimulate sales of our summer product categories. We wanted to be priced right for the customer given the lower than planned sales trends leading up to May.

 In light of the current economic conditions, we continue to work to reduce our inventory levels in the stores.  Our efforts to date are evident in the 14% reduction in average store inventory at the end of the third quarter of Fiscal 2009 compared with the third quarter of Fiscal 2008. By managing our inventories conservatively we believe we will be better able to deliver a continual flow of fresh merchandise to our customers.   Over time, we intend to move toward more productive inventories by increasing the amount of current inventory as a percent of total inventory. This may result in us taking more markdowns as a percent of sales than prior periods, which would have a negative impact on gross margin.

Inventory decreased to $726.8 million at February 28, 2009 from $784.1 million at March 1, 2008.  Average store inventory decreased 14% to $1.7 million per store at February 28, 2009 compared with average store inventory of $2.0 million as of March 1, 2008.  

Inventory at May 31, 2008 was $719.5 million compared with inventory of $726.8 million at February 28, 2009.   The increase is due to new store openings partially offset by a decrease in average store inventory.  Average store inventory at February 28, 2009 decreased approximately 6.1% to $1.7 million per store compared with the average store inventory of $1.8 million as of May 31, 2008.

Inventory Turnover. Inventory turnover is a measure that indicates how efficiently inventory is bought and sold. It measures the length of time we own our inventory. This is significant because usually the longer the inventory is owned, the more likely markdowns will be necessary to sell the inventory. Inventory turnover is calculated by dividing the net sales before sales discounts by the average retail inventory for the period being measured. The annualized inventory turnover rate during the first nine months of Fiscal 2009 is consistent with the annualized inventory turnover rate during the first nine months of Fiscal 2008 at 2.3 turns per year.

Liquidity.  Liquidity measures our ability to generate cash. Management measures liquidity through cash flow and working capital position. Cash flow is the measure of cash generated from operating, financing, and investing activities. We experienced a decrease in cash flow of $24.3 million during the nine month period ended February 28, 2009 compared with the nine month period ended March 1, 2008, primarily due to increased capital expenditures related to new store growth and the designation of cash and cash equivalents to investments in money market funds (as further described in Note 7 to our Condensed Consolidated Financial Statements entitled “Fair Value Measurements”), offset in part by lower net borrowings on our ABL Line of Credit and improved operating results.  Cash and cash equivalents decreased $12.7 million to $27.4 million during the nine months ended February 28, 2009 (discussed in more detail under the caption below entitled “Liquidity and Capital Resources”).  

Changes in working capital also impact our cash flows. Working capital equals current assets (exclusive of restricted cash and cash equivalents) minus current liabilities. Working capital at February 28, 2009 was $229.1 million compared with $250.4 million at March 1, 2008.  This decrease in working capital is primarily attributable to decreased inventory levels as a result of the decrease in our average store inventory of 14% and decreased cash on hand partially offset by a decrease in accounts payable as a result of the decreased inventory balance.

Working capital at May 31, 2008 was $284.4 million compared with working capital of $229.1 million at February 28, 2009.  The decrease in working capital from May 31, 2008 to February 28, 2009 is primarily due to an increase in accounts payable as a result of the timing of invoices received and new store growth.

Comparative Store Payroll.  Comparative store payroll measures a store’s payroll during the current reporting period against the payroll of the same store in the corresponding period of the previous year. We define our comparative store payroll as stores which were opened for an entire week both in the previous year and the current year.  Comparative store payroll decreased 8.7% and 15.7% for the nine and three months ended February 28, 2009, respectively, compared with the nine and three months ended March 1, 2008 as a result of our ongoing initiative to reduce store payroll costs.  This is being accomplished through a variety of processes.  First, we have introduced a new store management model that was designed to provide consistent management coverage by sales volume.  We also began managing payroll of the stores based primarily on an expected sales per labor hour metric.  Prior to this change, stores were allocated dollar amounts based on sales volume which didn’t take into account disparities between hourly rates by state.  Lastly, we began to closely monitor new hire wage rates to ensure new hires were brought in at rates commensurate with their experience.  We believe that these actions will allow us to run the business more efficiently without sacrificing our ability to serve our customers.

Critical Accounting Policies and Estimates

Our Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities; (ii) the disclosure of contingent assets and liabilities at the date of the consolidated financial statements; and (iii) the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to inventories, long lived assets, intangible assets, goodwill impairment, self insurance, sales returns, allowances for doubtful accounts and income taxes. Historical experience and various other factors, that are believed to be reasonable under the circumstances, form the basis for making estimates and judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

          Our critical accounting policies and estimates are consistent with those disclosed in our 2008 10-K.

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Results of Operations

The following table sets forth certain items in the Condensed Consolidated Statements of Operations as a percentage of net sales for the nine and three month periods ended February 28, 2009 and March 1, 2008.

	Percentage of Net Sales
	Nine Months Ended						Three Months Ended
	(unaudited)						(unaudited)
	February 28,			March 1,			February 28,			March 1,
	2009			2008			2009			2008
Net Sales		100.0	%		100	%		100	%		100	%
Other Revenue		0.8			0.9			0.8			0.8
Cost of Sales		61.4			61.8			62.1			62.0
Selling & Administrative Expenses		30.7			30.7			26.0			27.7
Restructuring and Separation Costs		0.2			--			0.6			--
Depreciation		3.5			3.6			3.2			3.3
Amortization		1.2			1.2			1.1			1.1

Impairment Charges - Long-Lived Assets	1.0		0.3		2.8		0.1
Impairment Charges – Tradename	10.2		--		27.4		--
Interest Expense	2.8		3.7		2.1		3.0
Other (Income), Net	(0.1	)	(0.4	)	0.2		(0.8	)
(Loss) Income  before Income Taxes	(10.1	)	--		(24.7	)	4.4
Income Tax (Benefit) Expense	(4.1	)	--		(9.8	)	1.7
Net (Loss) Income	(6.0)	%	--	%	(14.9	)%	2.7	%

Three Month Period Ended February 28, 2009 Compared With Three Month Period Ended March 1, 2008

Net Sales 

Consolidated net sales increased $34.0 million, or 3.4%, to $1,021.1 million for the three month period ended February 28, 2009 from $987.1 million for the comparable period last year. This increase was due to (i) an increase in net sales of $67.8 million for stores opened in 2009, (ii) an increase in net sales of $8.9 million for stores opened in 2008 that are not included in the Company’s comparative store sales, (iii) a comparable store sales decrease of $40.7 million, or 4.3%, and (iv) a decrease in net sales of $2.0 million from stores closed since the comparable period last year. From March 2, 2008 through February 28, 2009 we opened 31 net new stores. The comparable store decrease is due primarily to weakened consumer demand as a result of the contraction of credit available to consumers and the downturn in the economy.

Other Revenue

Other revenue (consisting of rental income from leased departments; subleased rental income; layaway, alteration, dormancy, and other service charges; and miscellaneous revenue items) increased $0.2 million to $8.3 million for the three month period ended February 28, 2009 compared with $8.1 million for the three month period ended March 1, 2008. This increase is related to an increase in rental income from leased departments of $0.4 million and an increase in layaway fees of approximately $0.2 million for the three month period ended February 28, 2009, each as compared with the three month period ended March 1, 2008.  These increases were partially offset by a decrease in dormancy fees of $0.3 million for the three month period ended February 28, 2009 compared with the three month period ended March 1, 2008.

The decrease in dormancy fees is related to our decision during the third quarter of Fiscal 2008 to cease charging dormancy fees on outstanding store value cards, which were recorded in the line item “Other Revenue” in our Condensed Consolidated Statements of Operations, and begin recording store value card breakage income in the line item “Other Income/Expense, Net” in our Condensed Consolidated Statements of Operations.  These dormancy fees contributed an additional $0.3 million to the line item “Other Revenue” in our Condensed Consolidated Statements of Operations for the three months ended March 1, 2008 compared with the three months ended February 28, 2009.  We now recognize breakage income related to outstanding store value cards in the line item “Other Income/Expense, Net” in our Condensed Consolidated Statements of Operations (refer to Note 15 to our Condensed Consolidated Financial Statements entitled “Store Value Cards” for further discussion).

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Cost of Sales

Cost of sales increased $22.1 million (3.6%) for the three month period ended February 28, 2009 compared with the three month period ended March 1, 2008. Cost of sales as a percentage of net sales increased slightly to 62.1% during the three months ended February 28, 2009 from 62.0% during the three months ended March 1, 2008.  The dollar increase in cost of sales for the three months ended February 28, 2009 compared with the three months ended March 1, 2008 was primarily related to the operation of 31 new stores, net of store closures, which were opened between March 2, 2008 and February 28, 2009.

 Our cost of sales and gross margin may not be comparable to those of other entities, since some entities include all of the costs related to their buying and distribution functions in cost of sales. We include certain of these costs in the “Selling and Administrative Expenses” and “Depreciation” line items in our Condensed Consolidated Statements of Operations. We include in our “Cost of Sales” line item all costs of merchandise (net of purchase discounts and certain vendor allowances), inbound freight, warehouse outbound freight and certain merchandise acquisition costs, primarily commissions and import fees.

Selling and Administrative Expenses

Selling and administrative expenses decreased $7.9 million (2.9%) to $ 265.6 million for the three months ended February 28, 2009 from $273.5 million for the three months ended March 1, 2008. The decrease in selling and administrative expenses is summarized in the table below:

	(in thousands)
	Three Months Ended
	February 28,		March 1,		Variance			%
	2009		2008
Payroll and Payroll Related Costs	$	125,491	$	137,043	$	(11,552	)		(8.4	)%
Benefits Costs		265		4,733		(4,468	)		(94.4	)%
Other		32,865		34,697		(1,832	)		(5.3	)%
Advertising		13,995		15,698		(1,703	)		(10.8	)%
Professional Fees		4,931		6,304		(1,373	)		(21.8	)%
Occupancy		88,092		75,029		13,063			17.4	%
Selling & Administrative Expenses	$	265,639	$	273,504	$	(7,865	)		(2.9	)%

The decrease in payroll and payroll related costs of $11.6 million was primarily related to a decrease in comparative store payroll.  Comparative store payroll decreased approximately $15.5 million for the three months ended February 28, 2009 compared with the three months ended March 1, 2008.  This decrease was primarily related to our initiative to reduce store payroll costs as more thoroughly described above under the caption “Current Conditions,” and the reduction of janitorial payroll in conjunction with our initiative to replace janitorial payroll with a third party provider.  Additionally, vacation expense decreased $2.2 million during the three months ended February 28, 2009 compared with the three months ended March 1, 2008 as a result of the Company’s implementation of a new vacation and personal time policy.

These decreases in payroll and payroll related costs were partially offset by new stores opened in Fiscal 2009.  New stores opened in Fiscal 2009 contributed $6.9 million of payroll and payroll related costs during the three months ended February 28, 2009.

Benefit costs decreased $4.5 million during the three months ended February 28, 2009 compared with the three months ended March 1, 2008.  During the three months ended March 1, 2008, we recorded a 401(k) Plan matching contribution expense of $0.7 million.  Under our 401(k) Plan, we are able to utilize monies recovered through forfeitures to fund some or all of our annual matching contribution obligations.   A "forfeiture" is the portion of our matching contribution that is lost by a 401(k) Plan participant who terminates employment prior to becoming fully vested in such matching contribution.  We utilized $3.9 million of 401(k) Plan forfeitures during the three months ended February 28, 2009 to fund all ofour matching contribution obligations for calendar 2008 and, as a result, did not record an expense relating to such obligations during the three months ended February 28, 2009.

Other expenses decreased approximately $1.8 million during the three months ended February 28, 2009 compared with the three months ended March 1, 2008 as a result of several initiatives included in our plan to reduce our cost structure described in more detail above under the caption entitled “Current Conditions”, including decreases in costs related to security expense, miscellaneous taxes, temporary help and travel and entertainment.

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Advertising expense decreased approximately $1.7 million during the three months ended February 28, 2009 compared with the three months ended March 1, 2008 due to the elimination of a December newspaper insert, the cancellation of a direct mail campaign and the continued cost efficiencies realized by moving many production and creative functions in-house.  These decreases were partially offset by the cost of new television advertising campaigns.

Professional fees decreased approximately $1.4 million during the three months ended February 28, 2009 compared with the three months ended March 1, 2008.  The decrease in professional fees is primarily attributable to increased in-house compliance efforts resulting in a reduction in Sarbanes Oxley consulting costs when compared with the three months ended March 1, 2008.

The aforementioned decreases in selling and administrative expenses are partially offset by an increase in occupancy related costs of $13.1 million for the three month period ending February 28, 2009.  This increase was primarily related to new store openings.  New stores opened in Fiscal 2009 accounted for $6.5 million of the total increase during the three months ended February 28, 2009 compared with the three months ended March 1, 2008.  Stores opened in Fiscal 2008 that were not operating for a full three month’s incurred incremental occupancy costs during the three months ended February 28, 2009 of $0.8 million.  Excluding the impact of new store openings, utility expenses increased $1.7 million and janitorial service expense increased $2.3 million during the three months ended February 28, 2009 compared with the three months ended March 1, 2008.  The increase in utility expenses is primarily related to rate increases for electricity.  The increase in janitorial service expense is related to our initiative to replace janitorial payroll with a third party provider.  The increase in janitorial service expense is offset by decreases in our comparative store payroll as noted above.

Restructuring and Separation Costs

Restructuring and separation costs totaled $5.8 million for the three months ended February 28, 2009.  No restructuring or separation costs were incurred during the three months ended March 1, 2008.  In an effort to better align our resources with our business objectives, we reviewed all areas of the business to identify efficiency opportunities to enhance our performance. In light of the challenging economic and retail sales environments, we accelerated the implementation of several initiatives, including some that resulted in the elimination of certain positions and the restructuring of certain other jobs and functions.  This resulted in the reduction of approximately 2,300 positions in our corporate office and our stores during the third quarter of Fiscal 2009. This reduction, which amounted to slightly less than 9% of our workforce, resulted in a severance and related payroll tax charge during the third quarter of Fiscal 2009 of $1.7 million.

As a result of these various initiatives, as further described above under the caption “Current Conditions”, we expect to reduce our cost structure during this and the last quarter of Fiscal 2009 in excess of $60 million, over half of which was achieved during the three months ended February 28, 2009.  The majority of these savings are anticipated to result from a more effective management structure, more effective payroll management in the stores and a reduction of payroll costs related to our corporate functions.  We believe this will allow the business to run more efficiently without sacrificing our ability to serve our customers.

Additionally, on February 16, 2009 our former President and Chief Executive Officer entered into a separation agreement with us.  As part of his separation agreement, we will pay his salary through May 30, 2009 at which time continuation payments and other benefits payable as provided in his separation agreement will commence.  The continuation payments will be paid out in bi-weekly installments through May 30, 2011.  Continuation payments of $1.7 million were recorded during the three month period ended February 28, 2009.

In addition to the continuation payments, other benefits payable as provided in the former President and Chief Executive Officer’s separation agreement included additional non-cash compensation charges of approximately $2.4 million during the three months ended February 28, 2009 related to the repurchase of a portion of his restricted stock and a modification of his stock options (refer to Note 3 to the Company’s Condensed Consolidated Financial Statements entitled “Restructuring and Separation Costs” and Note 12 to the Company’s Condensed Consolidated Financial Statements entitled “Stock Option and Award Plans and Stock-Based Compensation” for further discussion surrounding the additional non-cash compensation charges).

Depreciation

Depreciation expense related to the depreciation of fixed assets remained relatively consistent with the comparative period. Depreciation expense amounted to $32.6 million for the three month period ended February 28, 2009 compared with $32.4 million for the three month period ended March 1, 2008.

Amortization

Amortization expense related to the amortization of favorable and unfavorable leases and deferred debt charges remained relatively consistent with the comparative period.  Amortization expense was $11.2 million for the three month period ended February 28, 2009 compared with $10.8 million for the three month period ended March 1, 2008.

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Impairment Charges - Long-Lived Assets

Impairment charges related to long-lived assets for the three month period ended February 28, 2009 was $28.1 million compared to $0.5 million during the three month period ended March 1, 2008.  The increase in impairment charges is primarily related to the decline in operating performance of 23 stores as a result of the declining macroeconomic conditions that are negatively impacting our current comparative store sales (refer to Note 5 to our Condensed Consolidated Financial Statements entitled “Impairment of Long-Lived Assets” for further discussion).

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

Impairment charges related to long-lived assets recorded during the three month period ended February 28, 2009 amounted to $28.1 million.  The majority of the impairment charges are related to the impairment of favorable leases in the amount of $20.9 million related to 15 of our stores.  We also impaired $5.8 million of leasehold improvements and $1.4 million of furniture and fixtures related to 22 of our stores for the three month period ended February 28, 2009.  

Impairment charges related to our long-lived assets recorded during the three month period ended March 1, 2008 amounted to $0.5 million.  Impairment charges for  the three month period ended March 1, 2008 related to favorable lease assets amounted to $0.1 million (related to two of our stores).  We also impaired $0.1 million of leasehold improvements for the three months ended March 1, 2008, and $0.3 million of furniture and fixtures for the three month period ended March 1, 2008, respectively.  Impairment charges at the store level were primarily related to a decline in the operating performance of the respective stores as a result of weakening consumer demand during the period.

Impairment Charges – Tradename

Impairment charges related to our tradename totaled $279.3 million during the three months ended February 28, 2009.  There was no impairment related to our tradename during the three months ended March 1, 2008.

The Company has typically performed its annual impairment testing during the fourth quarter of the fiscal year.  In connection with the preparation of the Company’s Condensed Consolidated Financial Statements for the third quarter of Fiscal 2009, the Company concluded that it was appropriate to test its goodwill and indefinite-lived intangible assets for recoverability in light of the following factors:

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

·   The determination that these macroeconomic conditions are impacting our current sales trends as evidenced by the decreases in comparative store sales the Company is currently experiencing;

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

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

·   The Company’s expectation that current comparative store sales trends will continue for an extended period.  As a result, the Company revised its plans to a more moderate store opening plan which reduced our future projections of revenue and operating results offset by initiatives that have been implemented to reduce our cost structure as discussed in Note 1 to the Company’s Condensed Consolidated Financial Statements entitled “Summary of Significant Accounting Policies.”

The recoverability assessment with respect to the tradename used in the Company’s operations requires the Company to estimate the fair value of the tradename as of the assessment date.  Such determination is made using the "relief from royalty" valuation method.  Inputs to the valuation model include:

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·   Future revenue and profitability projections associated with the tradename;

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

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

Based upon the interim impairment analysis of the tradename during the third quarter of Fiscal 2009, the Company determined that a portion of the tradename was impaired and recorded an impairment charge of $279.3 million.  This impairment charge reflects lower revenues and profitability projections associated with our tradename in the near term and lower estimated market royalty rate expectations in light of current general economic conditions. The Company’s projected revenues within the model are based on comparative store sales and new store assumptions over a nine year period.  A less aggressive new store opening plan combined with negative low single digit comparative store sales for the first two fiscal years has a significant negative impact on the valuation.  The Company believes its estimates are appropriate based upon current market conditions.  However, future impairment charges could be required if the Company does not achieve the current revenue and profitability projections, market royalty rates decrease or the weighted average cost of capital increases (refer to Note 4 to the Company’s Condensed Consolidated Financial Statements entitled “Goodwill and Intangible Assets” for further discussion). 

 Based upon the interim impairment analysis of the Company's recorded goodwill during the third quarter of Fiscal 2009, the Company determined that there was not goodwill impairment.  The Company believes its estimates are appropriate based upon current market conditions.  However, future impairment charges could be required if the Company does not achieve its current cash flow, revenue and profitablity projections or the weighted average cost of capital increases or market valuation multiple associated with peer group companies continue to decline.

Interest Expense

Interest expense was $21.6 million and $29.9 million for the three month periods ended February 28, 2009 and March 1, 2008, respectively. The decrease in interest expense was primarily related to lower average interest rates on our ABL Senior Secured Revolving Facility (“ABL Line of Credit”) and our Senior Secured Term Loan Facility (“Term Loan”) during the three months ended February 28, 2009 compared with the three months ended March 1, 2008.  Also contributing to the decrease were lower borrowings under our ABL Line of Credit during the three months ended February 28, 2009 compared with the three months ended March 1, 2008.  Also contributing to the decrease in interest expense were increases in the fair value of our interest rate cap agreements (discussed in more detail in Note 8 to our Condensed Consolidated Financial Statements entitled “Derivative Instruments and Hedging Activities”).

The average interest rates on our ABL Line of Credit for the three months ended February 28, 2009 and for the three months ended March 1, 2008 were 3.4% and 6.6%, respectively.  The average interest rates on our Term Loan for the three months ended February 28, 2009 and March 1, 2008 were 4.4 % and 7.3%, respectively. The average balance on our ABL Line of Credit was $41.3 million during the three months ended February 28, 2009 compared with an average balance of $43.2 million during the three months ended March 1, 2008.

Adjustments of the interest rate cap agreements to fair value resulted in a gain of $1.8 million for the three month period ended February 28, 2009 and a loss of $0.1 million for the three month period ended March 1, 2008, each of which are recorded in the line item “Interest Expense” in our Condensed Consolidated Statement of Operations.

Other Income/Expense, net

Other income/expense, net (consisting of investment income, gains and losses on disposition of assets, breakage income and other miscellaneous items) decreased $9.6 million to an expense of $1.6 million for the three month period ended February 28, 2009 compared with income of $8.0 million for the three month period ended March 1, 2008.  This decrease is primarily related to a decrease in breakage income of $3.9 million and a loss on the investment in a money market fund of $3.0 million (refer to Note 7 to our Condensed Consolidated Financial Statements entitled “Fair Value Measurements” for further discussion).

The decrease in breakage income is due to our initial recording of breakage income during the third quarter of Fiscal 2008.  In connection with the establishment of BCF Cards, Inc., we recorded $4.7 million of store value card breakage income in the line item “Other Income/Expense, Net” in our Condensed Consolidated Statements of Operations.  This amount, which was all recorded during the three months ended March 1, 2008, included cumulative breakage income related to store value cards issued since we introduced our store value card program.

Also contributing to the decrease of other income/expense, net during the three months ended February 28, 2009 compared with the three months ended March 1, 2008 are a decrease of interest income of $0.5 million, primarily related to less investable funds and lower interest rates, and $0.6 million less in insurance claims recoveries.

Income Tax Expense

Income tax benefit was $99.9 million for the three month period ended February 28, 2009 and income tax expense was $17.1 million for the similar fiscal period of last year.  Income tax benefit resulting from the tradename impairment was $111.8 million for the three month period ended February 28, 2009. The effective tax rate for the three month period ended February 28, 2009 was 39.8%.  The effective tax rate for the three month period ended March 1, 2008 was 39.0%.  The effective tax rates for both periods differ from their annual effective tax rates due to discrete items recorded during the third quarters of their respective fiscal years.  Refer to discussion on income tax benefit for nine months ended February 28, 2009 compared with the nine months ended March 1, 2008 for further discussion.

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Net Loss/Income

Net loss amounted to $150.9 million for the three months ended February 28, 2009 compared with net income of $26.8 million for the three months ended March 1, 2008. The $177.7 million decrease in net income for the three months ended February 28, 2009 compared with the three months ended March 1, 2008 was primarily related to increased impairment charges related to our tradename and long-lived assets, partially offset by increased sales and operating results of new stores opened during March 2, 2008 to February 29, 2008.

Nine Month Period Ended February 28, 2009 Compared With Nine Month Period Ended March 1, 2008

Net Sales 

Consolidated net sales increased $118.1 million, or 4.5%, to $2,730.5 million for the nine month period ended February 28, 2009 from $2,612.4 million for the comparable period last year. This increase was due to (i) an increase in net sales of $138.3 million for stores opened in 2009, (ii) an increase in net sales of $39.9 million for stores opened in 2008 that are not included in the Company’s comparative store sales, (iii) an increase in barter sales of $5.5 million, (iv) a comparable store sales decrease of $58.4 million, or 2.3%, and (v) a decrease in net sales of $6.7 million from stores closed since the comparable period last year. From March 2, 2008 through February 28, 2009 we opened 31 net new stores. The comparable store decrease is due primarily to weakened consumer demand as a result of the contraction of credit available to consumers and the downturn in the economy.

Other Revenue

Other revenue (consisting of rental income from leased departments; subleased rental income; layaway, alterations, dormancy and other service charges; and miscellaneous revenue items) decreased $1.4 million to $22.6 million for the nine month period ended February 28, 2009 compared with $24.0 million for the nine month period ended March 1, 2008. This decrease is primarily related to our decision during the third quarter of Fiscal 2008 to cease charging dormancy fees on outstanding store value cards, which was recorded in the line item “Other Revenue” in our Condensed Consolidated Statements of Operations, and begin recording store value card breakage income in the line item “Other Income” in our Condensed Consolidated Statements of Operations.   These dormancy fees contributed an additional $2.2 million to the line item “Other Revenue” in our Condensed Consolidated Statements of Operations for the nine months ended March 1, 2008 compared with the nine months ended February 28, 2009.  We now recognize breakage income related to outstanding store value cards in the line item “Other Income/Expense, Net” in our Condensed Consolidated Statements of Operations (Refer to Note 15 to our Condensed Consolidated Financial Statements entitled “Store Value Cards” for further discussion). 

Cost of Sales

Cost of sales increased $63.3 million (3.9%) for the nine month period ended February 28, 2009 compared with the nine month period ended March 1, 2008.  Cost of sales as a percentage of net sales decreased to 61.4% during the nine months ended February 28, 2009 from 61.8% during the nine months ended March 1, 2008.  The increase in cost of sales in dollars is related to the operation of 31 new stores, net of store closures, which were opened from March 2, 2008 through February 28, 2009. The decrease in cost of sales, as a percent of net sales, is primarily related to fewer markdowns as a percent of sales and improved initial markups which are the result of lower costs associated with better and more opportunistic buying efforts.

The improvement in markdowns as a percent of sales is primarily related to our taking $16.9 million of permanent markdowns during the fourth quarter of Fiscal 2008 which were historically taken during the first quarter of our fiscal year. The decision to accelerate permanent markdowns into the fourth quarter of Fiscal 2008 was made to stimulate sales of our summer product categories. We wanted to be priced right for the customer given the lower than planned sales trends leading up to May 2008.

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Selling and Administrative Expenses

Selling and administrative expenses increased $34.5 million (4.3%) from $802.8 million for the nine months ended March 1, 2008 to $837.3 million for the nine months ended February 28, 2009. The increase in selling and administrative expenses is summarized in the table below:

	(in thousands)
	Nine Months Ended
	February 28,		March 1,		Variance			%
	2009		2008
Occupancy	$	264,599	$	226,117	$	38,482			17.0	%
Advertising		59,084		55,094		3,990			7.2	%
Professional Fees		13,684		13,487		197			1.5	%
Payroll and Payroll Related		393,977		398,467		(4,490	)		(1.1	)%
Other		96,574		100,253		(3,679	)		(3.7	)%
Benefit Costs		9,327		9,374		(47	)		(0.5)	%
Selling & Administrative Expenses	$	837,245	$	802,792	$	34,453			4.3	%

The increase in occupancy related costs of $38.5 million was primarily related to new store openings.  New stores opened in Fiscal 2009 accounted for $19.4 million of the total increase.  Stores opened in Fiscal 2008 that were not operating for a full nine months in Fiscal 2008 incurred incremental occupancy costs of $4.3 million during the nine months ended February 28, 2009.

Excluding the impact of new store openings, utility expenses increased $4.7 million during the nine months ended February 28, 2009 compared with the nine months ended March 1, 2008 due to an increase in electricity rates.  Excluding the impact of new store openings, janitorial service expense increased $5.3 million during the nine months ended February 28, 2009 compared with the nine months ended March 1, 2008 due to our initiative to replace janitorial payroll with a third party provider.  Finally, real estate taxes increased $2.9 million due primarily to annual tax rate increases.

The increase in advertising expense of $4.0 million during the nine months ended February 28, 2009 compared with the nine months ended March 1, 2008 was primarily related to planned increases in advertising as a result of 31 net new stores opened from March 2, 2008 through February 28, 2009.  These costs were partially due to the cost of new television advertising campaigns. This increase was partially offset by the elimination of a December newspaper insert, the cancellation of a direct mail campaign and the continued cost efficiencies realized by moving many production and creative functions in-house.

  These increases in selling and administrative expenses were partially offset by decreases in payroll and payroll related costs, other costs and benefit costs.  The decrease in payroll and payroll related costs of approximately $4.5 million was primarily related to a decrease in our comparative store payroll related to our initiative to reduce store payroll costs as described above under the caption “Current Conditions,” and the reduction of janitorial payroll in conjunction with our initiative to replace janitorial payroll with a third party provider.  These initiatives resulted in a decrease in comparative store payroll of $25.3 million during the nine months ended February 28, 2009.  Additionally, vacation expense decreased $7.1 million during the nine months ended February 28, 2009 compared with the nine months ended March 1, 2008.  This decrease was a function of the Company’s implementation of a new vacation and personal time policy.

These decreases in payroll and payroll related costs were partially offset by new store payroll and increased bonus and stock compensation expense during the nine months ended February 28, 2009 compared with the nine months ended March 1, 2008.  New store payroll related to the 30 net new stores opened during the nine months ended February 28, 2009 contributed an additional $18.5 million to payroll.  Additionally, incremental payroll related to stores that were opened during Fiscal 2008, but were not operating for the full nine months through March 1, 2008, contributed incremental payroll expense of $4.3 million during the nine months ended February 28, 2009.  Bonus and stock compensation expense increased $5.4 million and $2.8 million, respectively.  The increase in bonus expense for the nine months ended February 28, 2009 compared with the nine months ended March 1, 2008 was due to the fact that during the nine months ended March 1, 2008, we determined it was no longer probable that we would achieve the targets under our bonus plan, and consequently, reversed the previously recognized expense.  The increase in stock compensation expense was related to more option and restricted stock grants at February 28, 2009 compared with March 1, 2008.

The decrease in other selling and administrative expenses of approximately $3.7 million during the nine months ended February 28, 2009 compared with the nine months ended March 1, 2008 was as a result of several initiatives included in our plan to reduce our cost structure described in more detail above under the caption entitled “Current Conditions”, including decreases in costs related to security, miscellaneous taxes, temporary help and travel and entertainment.

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Restructuring and Separation Costs

Restructuring and separation costs totaled $6.1 million for the nine months ended February 28, 2009.   No restructuring or separation costs were incurred during the nine months ended March 1, 2008.  In an effort to better align our resources with our business objectives, we reviewed all areas of the business to identify efficiency opportunities to enhance our performance. In light of the challenging economic and retail sales environments, we accelerated the implementation of several initiatives, including some that resulted in the elimination of certain positions and the restructuring of certain other jobs and functions.  This resulted in the reduction of approximately 2,300 positions in our corporate office and our stores during the third quarter of Fiscal 2009. This reduction, which amounted to slightly less than 9% of our workforce, resulted in a severance and related payroll tax charge during the third quarter of Fiscal 2009 of $1.7 million.

As a result of these various initiatives, we plan to reduce our cost structure in excess of $60 million during this and the last quarter of Fiscal 2009, over half of which was achieved during the three months ended February 28, 2009, as more fully described above under the caption entitled “Current Conditions.” We delivered well above one half of that amount in the third quarter.  The majority of these savings are anticipated to result from a more effective management structure, more effective payroll management in the stores and a reduction of payroll costs related to our corporate functions.  We believe this will allow the business to run more efficiently without sacrificing our ability to serve our customers.

Additionally, on February 16, 2009, our former President and Chief Executive Officer entered into a separation agreement with us.  As part of his separation agreement, we will pay his salary through May 30, 2009 at which time continuation payments and other benefits payable as provided in his separation agreement will commence.  The continuation payments will be paid out in bi-weekly installments through May 30, 2011.  Continuation payments of $2.0 million were incurred during the nine months ended February 28, 2009, $0.3 million of which was previously recognized in the first two quarters of the fiscal year and included in the line item “Selling and Administrative Expense” in the Company’s Condensed Consolidated Statements of Operations.

In addition to the continuation payments and other benefits payable as provided in the former President and Chief Executive Officer’s separation agreement, we incurred additional non-cash compensation charges of $2.4 million related to the repurchase of a portion of his restricted stock and a modification of his stock options (refer to Note 3 to the Company’s Condensed Consolidated Financial Statements entitled “Restructuring and Separation Costs” and Note 12 to the Company’s Condensed Consolidated Financial Statements entitled “Stock Option and Award Plans and Stock-Based Compensation” for further discussion surrounding the additional non-cash compensation charges).

Depreciation

Depreciation expense related to the depreciation of fixed assets remained relatively consistent with the comparative period. Depreciation expense amounted to $94.3 million for the nine month period ended February 28, 2009 compared with $94.0 million for the nine month period ended March 1, 2008.

Amortization

Amortization expense related to the amortization of favorable and unfavorable leases and deferred debt charges remained relatively consistent with the comparative period.  Amortization expense amounted to $33.0 million for the nine month period ended February 28, 2009 compared with $32.1 million for the nine month period ended March 1, 2008.

Impairment Charges - Long-Lived Assets

Impairment charges related to long-lived assets for the nine month period ended February 28, 2009 was $28.1 million compared to $7.9 million during the nine month period ended March 1, 2008.  The increase in impairment charges is primarily related to the decline in operating performance of 23 stores as a result of the declining macroeconomic conditions that are negatively impacting our current comparative store sales (refer to Note 5 to our Condensed Consolidated Financial Statements entitled “Impairment of Long-Lived Assets” for further discussion).

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

Impairment charges related to long-lived assets recorded during the nine month period ended February 28, 2009 amounted to $28.1 million.  The majority of the impairment charges are related to the impairment of favorable leases in the amount of $20.9 million related to 15 of our stores.  We also impaired $5.8 million of leasehold improvements and $1.4 million of furniture and fixtures related to 22 of our stores for the nine month period ended February 28, 2009.  

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Impairment charges related to our long-lived assets recorded during the nine month period ended March 1, 2008 amounted to $7.9 million.  Impairment charges for the nine month period ended March 1, 2008 related to favorable lease assets amounted to $4.9 million (related to six of our stores).  We also impaired $1.2 million of leasehold improvements for the nine months ended March 1, 2008, and $1.3 million of furniture and fixtures for the nine month period ended March 1, 2008, respectively.  For the nine months ended March 1, 2008, $0.5 million of certain warehouse equipment was also impaired.  Impairment charges at the store level were primarily related to a decline in the operating performance of the respective stores as a result of weakening consumer demand during the period.

Impairment Charges – Tradename

Impairment charges related to our tradename totaled $279.3 million during the nine months ended February 28, 2009.  There was no impairment related to our tradename during the nine months ended March 1, 2008.

The Company has typically performed its annual impairment testing during the fourth quarter of the fiscal year.  In connection with the preparation of the Company’s Condensed Consolidated Financial Statements for the third quarter of Fiscal 2009, the Company concluded that it was appropriate to test its goodwill and indefinite-lived intangible assets for recoverability in light of the following factors:

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

·   The determination that these macroeconomic conditions are impacting our current sales trends as evidenced by the decreases in comparative store sales the Company is currently experiencing;

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

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

·   The Company’s expectation that current comparative store sales trends will continue for an extended period.  As a result, the Company revised its plans to a more moderate store opening plan which reduced our future projections of revenue and operating results offset by initiatives that have been implemented to reduce our cost structure as discussed in Note 1 to the Company’s Condensed Consolidated Financial Statements entitled “Summary of Significant Accounting Policies.”

The recoverability assessment with respect to the tradename used in the Company’s operations requires the Company to estimate the fair value of the tradename as of the assessment date.  Such determination is made using the "relief from royalty" valuation method.  Inputs to the valuation model include:

·   Future revenue and profitability projections associated with the tradename;

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

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

 Based upon the interim impairment analysis of the tradename during the third quarter of Fiscal 2009, the Company determined that a portion of the tradename was impaired and recorded an impairment charge of $279.3 million.  This impairment charge reflects lower revenues and profitability projections associated with our tradename in the near term and lower estimated market royalty rate expectations in light of current general economic conditions. The Company’s projected revenues within the model are based on comparative store sales and new store assumptions over a nine year period.  A less aggressive new store opening plan combined with negative low single digit comparative store sales for the first two fiscal years has a significant negative impact on the valuation.  The Company believes its estimates are appropriate based upon current market conditions.  However, future impairment charges could be required if the Company does not achieve the current revenue and profitability projections, market royalty rates decrease or the weighted average cost of capital increases (refer to Note 4 to the Company’s Condensed Consolidated Financial Statements entitled “Goodwill and Intangible Assets” for further discussion).

Based upon the Company's interim impairment analysis of recorded goodwill during the third quarter of Fiscal 2009, the Company determined that there was no goodwill impairment.  The Company believes its estimates are appropriate based upon current market conditions.  However, future impairment charges could be required if the Comapny does not achieve its current cash flow, revenue and profitablity projections or the weighted average cost of capital increases or market valuation multiples associated with peer group companies continue to decline.

Interest Expense

Interest expense was $75.7 million and $96.8 million for the nine month periods ended February 28, 2009 and March 1, 2008, respectively. The decrease in interest expense was primarily related to lower average interest rates on our ABL Line of Credit and our Term Loan during the nine months ended February 28, 2009 compared with the nine months ended March 1, 2008.  The average interest rates on our ABL Line of Credit for the nine months ended February 28, 2009 and for the nine months ended March 1, 2008 were 4.4% and 7.1%, respectively.  The average interest rates on our Term Loan for the nine months ended February 28, 2009 and March 1, 2008 were 4.8% and 7.6%, respectively.  

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Also contributing to the decrease in interest expense were gains on the adjustments of our interest rate cap agreements to fair value.  Adjustments of the interest rate cap agreements to fair value resulted in a gain of $1.5 million for the nine month period ended February 28, 2009 and a loss of $0.2 million during the nine months ended March 1, 2008, each of which are recorded as “Interest Expense” in our Condensed Consolidated Statements of Operations.

These decreases in interest expense were partially offset by interest incurred on increased borrowings under the ABL Line of Credit during the nine months ended February 28, 2009 compared with the nine months ended March 1, 2008.  The average balance on our ABL Line of Credit was $199.8 million during the nine months ended February 28, 2009 compared with $150.4 million for the nine months ended March 1, 2008.

Other Income/Expense, net

Other income/expense, net (consisting of investment income, gains and losses on disposition of assets, breakage income and other miscellaneous items) decreased $9.2 million to $1.3 million for the nine month period ended February 28, 2009 compared with the nine month period ended March 1, 2008.  This decrease is primarily attributable to our recording a loss on our investment in a money market fund of $4.7 million, a decrease in breakage income of $2.4 million, and less interest income during the nine months ended February 28, 2009 compared with the nine months ended March 1, 2008.

Based on various communication issued by The Reserve Primary Fund (“Fund”) throughout the nine months ended February 28, 2009, we recorded a $4.7 million loss on our investment in the Fund (refer to Note 7 to our Condensed Consolidated Financial Statements entitled “Fair Value Measurements” for further discussion).

Breakage income decreased approximately $2.4 million to $2.3 million (refer to Note 15 to our Condensed Consolidated Financial Statements entitled “Store Value Cards” for further discussion).  The decrease in breakage income is due to our initial recording of breakage income during the third quarter of Fiscal 2008.  In connection with the establishment of BCF Cards, Inc., we recorded $4.7 million of store value card breakage income in the line item “Other Income/Expense, Net” in our Condensed Consolidated Statements of Operations.  This amount, which was all recorded during the three months ended March 1, 2008, included cumulative breakage income related to store value cards issued since we introduced our store value card program.

Finally, we earned $1.1 million less in interest income principally due to less funds being invested during the period.

Income Tax Benefit

Income tax benefit was $110.8 million for the nine month period ended February 28, 2009 and income tax expense was $0.5 million for the nine month period ended March 1, 2008. Income tax benefit resulting from the tradename impairment was $111.8 million for the nine month period ended February 28, 2009. The effective tax rates for the nine month periods ended February 28, 2009 and March 1, 2008 were 41.3% and 39.8%, respectively.  The effective tax rate for the nine months ended February 28, 2009 and March 1, 2008 differs from the forecasted annualized effective tax rates due to certain discrete adjustments.  The effective tax rate for the nine months ended February 28, 2009 was impacted by three discrete adjustments: a decrease to tax expense of $0.9 million to adjust deferred tax asset and liabilities for a change in state tax law and rates, a decrease to tax expense of $0.7 million due to a change in our effective state tax rate used to calculate deferred taxes, and an increase to tax expense of $1.3 million for the accrual of interest related to unrecognized tax benefits established in prior years in accordance with FIN 48.  The effective tax rate for the nine months ended March 1, 2008 was impacted by three discrete adjustments: a decrease to tax expense of $0.7 million to adjust deferred tax asset and liabilities for a change in state tax law, an increase to tax expense of $0.1 million for prior year accrual to return adjustment, and an increase to tax expense of $1.0 million as a result of the new requirements under FIN 48 related to the recognition of uncertain tax positions. 

Net Loss

Net losses amounted to $165.2 million for the nine months ended February 28, 2009 compared with a net loss of $0.4 million for the nine months ended March 1, 2008.  The decrease in our operating results of $164.7 million was primarily attributable to increased impairment charges related to our tradename and long-lived assets, partially offset by increased sales driven primarily from non-comparative stores, improved expense management as part of our initiative to reduce our cost structure and lower interest expense during the nine months ended February 28, 2009 compared with the nine months ended March 1, 2008.  

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Seasonality & Inflation

Our business, like that of most retailers, is subject to seasonal influences, with the major portion of sales and income typically realized during the second and third quarters of each fiscal year, which includes the back-to-school and holiday seasons. Approximately 50% of our annual net sales historically occur during the period from September through January.  Because of the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year. In addition, quarterly results of operations depend significantly upon the timing and amount of sales and costs associated with the opening of new stores, as well as weather.  Weather continues to be an important contributing factor to the sale of our clothing in the Fall, Winter and Spring seasons. Generally, our sales are higher if the weather is cold during the Fall and continues to be cold during the early Spring.

Although we expect that our operations will be influenced by general economic conditions, including fluctuations in food, fuel and energy prices, we do not believe that inflation has had a material effect on our results of operations. However, there can be no assurance that our business will not be affected by inflation in the future.

Liquidity and Capital Resources

Overview

We fund inventory expenditures during normal and peak periods through cash flows from operating activities, available cash, and our ABL Line of Credit. Liquidity may be affected by the terms we are able to obtain from vendors and their factors.  Our working capital needs follow a seasonal pattern, peaking in the second quarter of our fiscal year when inventory is received for the Fall selling season. Our largest source of operating cash flows is cash collections from our customers. In general, our primary uses of cash are the opening of new stores and remodeling of existing stores, debt servicing, payment of operating expenses and providing for working capital, which principally represents the purchase of inventory.  As of February 28, 2009, we had unused availability on our ABL Line of Credit of $427.9 million.

Our ability to satisfy our interest payment obligations on our outstanding debt and maintain compliance with our debt covenants, as discussed below, will depend largely on our future performance which, in turn, is subject to prevailing economic conditions and to financial, business and other factors beyond our control.  If we do not have sufficient cash flow to service interest payment obligations on our outstanding indebtedness and if we cannot borrow or obtain equity financing to satisfy those obligations, our business and results of operations will be materially adversely affected. We cannot be assured that any replacement borrowing or equity financing could be successfully completed.

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

As noted above under the caption “Current Conditions,” we have accelerated certain initiatives in response to the difficult economic environment which include reducing our cost structure in excess of $60 million during this and the last quarter of Fiscal 2009 through various payroll initiatives and supply chain efficiencies.  Additionally, as noted below under the caption “Operational Growth,” we have reduced our planned capital expenditures for the remainder of Fiscal 2009 by approximately $15 million.  We closely monitor our net sales, gross margin, expenses and working capital.  We have performed scenario planning such that if our net sales decline, we have identified variable costs that could be reduced to partially mitigate the impact of these declines and maintain compliance with our debt covenants.

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

Our Term Loan agreement contains financial, affirmative and negative covenants and requires the Company to, among other things; maintain on the last day of each fiscal quarter a consolidated leverage ratio not to exceed a maximum amount. Specifically, the Company’s total debt to adjusted EBITDA, as each term is defined in the credit agreement governing the Term Loan, for the four fiscal quarters most recently ended on or prior to such date, may not exceed 5.75 to 1 at May 30, 2009, August 29, 2009, and November 28, 2009; 5.5 to 1 at February 27, 2010; and 5.25 to 1 at May 29, 2010.  Adjusted EBITDA reflects certain adjustments to calculate the consolidated leverage ratio.  Adjusted EBITDA starts with consolidated net income for the period and adds back (i) depreciation, amortization, impairments and other non cash charges that were deducted in arriving at consolidated net income, (ii) the provision for taxes, (iii) interest expense, (iv) advisory fees, and (v) unusual, non-recurring or extraordinary expenses, losses or charges as reasonably approved by the administrative agent for such period.  As of February 28, 2009, we are in compliance with all of our debt covenants.

In September 2008, as part of our overnight cash management strategy, we made investments into The Reserve Primary Fund (“Fund”), a money market fund registered with the SEC under the Investment Company Act of 1940, of $56.3 million.  On September 22, 2008, the Fund announced that redemptions of shares of the Fund were suspended pursuant to an SEC order so that an orderly liquidation may be effected for the protection of the Fund’s investors.   On October 30, 2008, the Fund announced an initial distribution to Fund shareholders pursuant to which we received $28.5 million. Based on the decline in the value of the Fund, we recorded a loss of $1.7 million in November 2008 related to our investment in the Fund. 

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 On December 3, 2008, the Fund announced a second distribution to Fund shareholders pursuant to which we received $15.8 million.  Under the Fund’s plan of liquidation (also announced on December 3, 2008), subsequent periodic distributions will be made to Fund shareholders as cash accumulates in the Fund until the Fund’s net assets (other than (i) a special reserve established to satisfy certain costs and expenses of the Fund, including pending or threatened claims against the Fund, and (ii) net income generated from Fund holdings since September 15, 2008) have been distributed.

In February of 2009, we received an additional distribution of $3.8 million.  On February 26, 2009, the Fund announced that $3.5 billion has been initially set aside in a special reserve, which may be increased or decreased as further information becomes available.  This special reserve is in response to significant litigation against the Fund and will cover the costs associated with that litigation.  In turn, the Fund announced that it would make interim distribution to shareholders up to 91.72% of their original investment.  Based on that information, we recorded an additional write-down of approximately $3.0 million (refer to Note 7 to the Condensed Consolidated Financial Statements entitled “Fair Value Measurement” for further details). The investment in the Fund is classified in the line item entitled “Investment in Money Market Fund” in our Condensed Consolidated Balance Sheets as of February 28, 2009.

 Based upon the maturities of the underlying investments in the Fund, we expect to receive the remaining amount of our investment during the next twelve months. 

Cash Flow for the Nine Months Ended February 28, 2009 Compared with the Nine Months Ended March 1, 2008

We used $12.7 million of cash flow during the nine months ended February 28, 2009 compared with generating $11.7 million of cash flow for the nine months ended March 1, 2008.  Net cash provided by operating activities was $253.8 million for the nine months ended February 28, 2009 compared with $145.8 million for the nine months ended March 1, 2008.  The improvement in net cash provided by operating activities was primarily the result of several factors, as follows:

·   Operating results, exclusive all non-cash charges improved by $48.6 million.  This increase is primarily the result of increased sales from new store growth, decreased selling and administrative costs in connection with our cost reduction strategy, and decreased interest expense as a result of lower average interest rates on our ABL Line of Credit and our Term Loan.

·   The cash flow related to merchandise inventory increased $66.3 million for the nine months ended February 28, 2009 compared with the nine months ended March 1, 2008.  This improvement was primarily related to average store inventory being reduced by 14% as of February 28, 2009 compared with March 1, 2008.

·   Deferred rent incentives increased by $21.1 million during the nine months ended February 28, 2009 compared with the three months ended March 1, 2008 as a result of more new store openings during the nine months ended February 28, 2009 compared with the nine months ended March 1, 2008.

These increases in cash flow from operating activities are partially offset by the following decrease:

·   The change in accrued and other liabilities  resulted in decreased cash flow of $31.1 million.

 The improvements in cash flows from operating activities were offset by increased cash outlays in investing and financing activities.  For the nine months ended February 28, 2009, we used $151.1 million in financing activities, the majority of which represents repayments, net of borrowings, of $146.3 million, on our ABL Line of Credit.  For the nine months ended March 1, 2008, we used $67.2 million in financing activities, the majority of which represents repayments, net of borrowings, of $53.3 million on our ABL Line of Credit.  Cash flow used in investing activities increased $48.3 million due primarily to higher levels of capital expenditures (discussed in more detail under the caption below entitled “Operational Growth”) and the redesignation of cash and cash equivalents to investments in money market funds, partially offset by the partial redemption of the investment in money market funds during the nine months ended February 28, 2009 compared with the nine months ended March 1, 2008.

Cash flow and working capital levels assist management in measuring our ability to meet our cash requirements.  Working capital measures our current financial position.  Working capital is defined as current assets (exclusive of restricted cash and cash equivalents) less current liabilities.  Working capital at February 28, 2009 was $229.1 million compared with $284.4 million at May 31, 2008.  The decrease in working capital from May 31, 2008 to February 28, 2009 was primarily due to an increase in accounts payable as a result of the timing of invoices received and new store growth.

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Operational Growth

 During the nine months ended February 28, 2009, we opened 33 new Burlington Coat Factory Warehouse Stores (“BCF” stores) and closed three BCF stores, two of which were in locations within the same trading market as two of the new stores we opened.  As of February 28, 2009, we operated 427 stores under the names "Burlington Coat Factory Warehouse" (409 stores), "Cohoes Fashions" (two stores), "MJM Designer Shoes" (fifteen stores) and "Super Baby Depot" (one store).   We are forecasting spending approximately $80 million net of approximately $55 million of landlord allowances in capital expenditures during Fiscal 2009.  Estimated capital expenditures include approximately $35 million, net of the $55 million of landlord allowances for store expenditures, $25 million for upgrades of warehouse facilities, and $20 million for computer and other equipment.  This forecast represents an approximate $17 million reduction in planned capital expenditures for Fiscal 2009 compared with our original Fiscal 2009 plan.  For the nine months ended February 28, 2009, capital expenditures, net of landlord allowances, amounted to approximately $67.3 million.

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

 Additionally, we may consider strategic acquisitions.  If we undertake such transactions, we may seek additional financing to fund acquisitions and carrying charges (i.e., the cost of rental, maintenance, tax and other obligations associated with such properties from the time of commitment to acquire to the time that such locations can be readied for opening as our stores) related to these stores.  There can be no assurance, however, that any additional locations will become available, or that, if available, we will undertake to bid or be successful in bidding for such locations. Furthermore, to the extent that we decide to purchase additional store locations, it may be necessary to finance such acquisitions with additional long-term borrowings.

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

 
Dividends

Payment of dividends is prohibited under our credit agreements, except for limited circumstances.  Dividends equal to $0.7 million were paid during the nine month period ended March 1, 2008 to Holdings in order to repurchase capital stock of the Parent from executives who left the Company.

Long-Term Borrowings, Lines of Credit and Capital Lease Obligations

Holdings and each of our current and future subsidiaries, except one subsidiary which is considered minor, have jointly, severally and unconditionally guaranteed BCFWC’s obligations pursuant to the $800 million ABL Line of Credit, $900 million Term Loan and the $305 million of Senior Notes due in 2014. As of February 28, 2009, we were in compliance with all of our debt covenants. Significant changes in our debt consist of the following:

$800 Million ABL Senior Secured Revolving Facility

During the nine and three months ended February 28, 2009, we made repayments of principal, net of borrowings, in the amount of $146.3 million and $120.7 million, respectively.  As of February 28, 2009, we had $35.3 million outstanding under the ABL Line of Credit and unused availability of $427.9 million.

$900 Million Term Loan

On September 4, 2007, we made a repayment of principal in the amount of $11.4 million based on 50% of the available free cash flow (as defined in the credit agreement governing the Term Loan) as of June 2, 2007.  This payment offsets the $2.3 million quarterly payments that we were required to make under the credit agreement governing the Term Loan through the third quarter of Fiscal 2009 and $0.2 million of the quarterly payment to be made in the fourth quarter of Fiscal 2009.  Based on the available free cash flow for the fiscal year ended May 31, 2008, we were not required to make any mandatory repayment.  As of February 28, 2009, we had $872.8 million outstanding under the Term Loan.

Senior Discount Notes

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

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Off-Balance Sheet Arrangements

Other than operating leases consummated in the normal course of business and letters of credit, as more fully described below, we are not involved in any off-balance sheet arrangements that have or are reasonably likely to have a material current or future impact on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

Contractual Obligations

There have been no significant changes to our contractual obligations and commercial commitments table as disclosed in our 2008 10-K, except as follows:

Lease Agreements

We enter into lease agreements during the ordinary course of business in order to secure favorable store locations.  As of February 28, 2009, we were committed to six new lease agreements for locations at which stores are expected to be opened in Fiscal 2009.  The six new stores are expected to have minimum lease payments of $0.9 million, $4.3 million, $4.3 million, $4.3 million, and $30.5 million for the remainder of Fiscal 2009, and the fiscal years ended May 29, 2010, May 28, 2011, June 2, 2012 and all subsequent years thereafter, respectively.

Letters of Credit

We had letter of credit arrangements with various banks in the aggregate amount of $40.7 million and $32.7 million guaranteeing performance under various lease agreements, insurance contracts and utility agreements at February 28, 2009 and March 1, 2008, respectively.  

Additionally, we have an outstanding letter of credit in the amount of $2.4 million and $3.4 million at February 28, 2009 and March 1, 2008, respectively, guaranteeing our Industrial Revenue Bonds.  We also have outstanding letters of credit agreements in the amount of $5.6 million and $8.0 million at February 28, 2009 and March 1, 2008, respectively, related to certain merchandising agreements.

Severance and Separation

 During the three months ended February 28, 2009, we entered into certain serverance and separation agreements which require us to make payments to certain former employees.  These obligations resulted in a charge during the three months ended February 28, 2009 of approximately $3.7 million.  Approximately $1.7 million of this charge related to the reduction of 2,300 positions in our corporate office and our stores.  As of February 28, 2009, approximately $0.7 million of the liability remains to be paid, the majority of which will be paid by May 30, 2009 with the remaining amount being paid during the first quarter of Fiscal 2010.

 Additionally, $2.0 million of the charge recorded during the three months ended February 28, 2009 relates to the separation of our former President and Chief Executive Officer from the Company.  As of February 28, 2009, $1.9 million of this liability remains to be paid.  We expect to make payments related to this charge in bi-weekly installments through May 30, 2011. 

Safe Harbor Statement

This report contains forward-looking statements (including, without limitation, any forward-looking statements contained in any financial statement forming part of this report) that are based on current expectations, estimates, forecasts and projections about us, the industry in which we operate and other matters, as well as management’s beliefs and assumptions and other statements regarding matters that are not historical facts. For example, when we use words such as “projects,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “should,” “would,” “could,” “will,” “opportunity,” “potential” or “may,” variations of such words or other words that convey uncertainty of future events or outcomes, we are making forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (Securities Act) and Section 21E of the Securities Exchange Act of 1934 (Exchange Act). Our forward-looking statements are subject to risks and uncertainties.  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, our ability to maintain selling margins, and the effect of the adoption of recent accounting pronouncements on our consolidated financial position, results of operations and cash flows.  Actual events or results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include: competition in the retail industry, seasonality of our business, adverse weather conditions, changes in consumer preferences and consumer spending patterns, import risks, inflation, general economic conditions, our ability to implement our strategy, our substantial level of indebtedness and related debt-service obligations, restrictions imposed by covenants in our debt agreements, availability of adequate financing, our dependence on vendors for our merchandise, events affecting the delivery of merchandise to our stores, existence of adverse litigation, availability of desirable locations on suitable terms, and other risks discussed from time to time in our filings with the Securities and Exchange Commission.

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Many of these factors are beyond our ability to predict or control. In addition, as a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this report might not occur. Furthermore, we cannot guarantee future results, events, levels of activity, performance or achievements.

Recent Accounting Pronouncements

 Refer to Note 21 to our Condensed Consolidated Financial Statements entitled “Recent Accounting Pronouncements” for a discussion of recent accounting pronouncements and their impact on our Condensed Consolidated Financial Statements.

Item 3.   Quantitative and Qualitative Market Risk Disclosures

We are exposed to certain market risks as part of our ongoing business operations. Primary exposures include changes in interest rates, as borrowings under our ABL Line of Credit and Term Loan will bear interest at floating rates based on LIBOR or the base rate (in each case plus an applicable borrowing margin), and investing activities.

We will manage our interest rate risk by balancing the amount of fixed-rate and floating-rate debt and through the use of interest rate cap transactions. For fixed-rate debt, interest rate changes do not affect earnings or cash flows. Conversely, for floating-rate debt, interest rate changes generally impact our earnings and cash flows, assuming other factors are held constant.

At February 28, 2009, we had $428.5 million principal amount of fixed-rate debt and $908.1 million of floating-rate debt. Based on $908.1 million outstanding as floating-rate debt, an immediate increase of one percentage point, excluding the interest rate caps, would cause an increase to cash interest expense of approximately $9.0 million per year.

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

Floating Rate Debt	Principal Outstanding at February 28, 2009		Additional Interest Expense Q4 2009		Additional Interest Expense Q1 2010		Additional Interest Expense Q2 2010		Additional Interest Expense Q3 2010
ABL Senior Secured Revolving Facility	$	35,300	$	88	$	88	$	88	$	88
Term Loan		872,807		2,177		2,171		2,166		2,160
Total	$	908,107	$	2,265	$	2,259	$	2,254	$	2,248

We currently have two interest rate cap agreements in effect for a maximum principal amount of $1.0 billion which limit our interest rate exposure to 7% on our first billion dollars of borrowings under our variable rate debt obligations.  If interest rates were to increase above the 7% cap rate, there would be no additional interest rate exposure to the Company as our borrowings are less than $1.0 billion.    Currently, we have unlimited interest rate risk related to our variable rate debt in excess of $1.0 billion.  For the nine months ended February 28, 2009, our borrowing rates related to our ABL Line of Credit and our Term Loan averaged 4.4% and 4.8%, respectively.

Our ability to satisfy our interest payment obligations on our outstanding debt will depend largely on our future performance, which, in turn, is in part subject to prevailing economic conditions and to financial, business and other factors beyond our control. If we do not have sufficient cash flow to service our interest payment obligations on our outstanding indebtedness and if we cannot borrow or obtain equity financing to satisfy those obligations, our business and results of operations will be materially adversely affected. We cannot be assured that any replacement borrowing or equity financing could be successfully completed.

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

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

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In September 2008, as part of our overnight cash management strategy, we made investments into The Reserve Primary Fund (“Fund”), a money market fund registered with the Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, of $56.3 million.  On September 22, 2008, the Fund announced that redemptions of shares of the Fund were suspended pursuant to an SEC order so that an orderly liquidation may be effected for the protection of the Fund’s investors.  On October 30, 2008, the Fund announced an initial distribution to Fund shareholders pursuant to which we received $28.5 million.  Based on the decline in the value of the Fund, we recorded a loss of $1.7 million in November 2008 related to its investment in the Fund.   

On December 3, 2008, the Fund announced a second distribution to Fund shareholders pursuant to which we received $15.8 million.  Under the Fund’s plan of liquidation (also announced on December 3, 2008), subsequent periodic distributions will be made to Fund shareholders as cash accumulates in the Fund until the Fund’s net assets (other than (i) a special reserve established to satisfy certain costs and expenses of the Fund, including pending or threatened claims against the Fund, and (ii) net income generated from Fund holdings since September 15, 2008) have been distributed.

In February of 2009, we received an additional distribution of $3.8 million.  On February 26, 2009, the Fund announced that $3.5 billion has been initially set aside in a special reserve, which may be increased or decreased as further information becomes available.  This special reserve is in response to significant litigation against the fund and will cover the costs associated with that litigation.  Also announced was that investors would receive interim distributions up to 91.72 cents on the dollar.  As a result we recorded an additional write-down of $3.0 million. The investment in the Fund is classified in the line item entitled “Investment in Money Market Fund” in our Condensed Consolidated Balance Sheets as of February 28, 2009.

Based upon the maturities of the underlying investments in the Fund, we expect to receive the remaining amount of our investment during the next twelve months. 

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management team, under the supervision and with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act, as of the last day of the fiscal period covered by this report, February 28, 2009. The term disclosure controls and procedures means our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of February 28, 2009.

Changes in Internal Control Over Financial Reporting

During the fiscal quarter ended February 28, 2009, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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BURLINGTON COAT FACTORY INVESTMENTS HOLDINGS, INC.

AND SUBSIDIARIES

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

No material legal proceedings have commenced or been terminated during the period covered by this report. We are party to various other litigation matters, in most cases involving ordinary and routine claims incidental to our business. We cannot estimate with certainty our ultimate legal and financial liability with respect to such pending litigation matters. However, we believe, based on our examination of such matters, that our ultimate liability will not have a material adverse effect on our financial position, results of operations or cash flows.

Item 1A. Risk Factors.

Our Annual Report on Form 10-K for the fiscal year ended May 31, 2008 (“2008 10-K”) contains a detailed discussion of certain risk factors that could materially adversely affect our business, our operating results, or our financial condition.  Set forth below is an update to our risk factor related to the risk regarding general economic conditions previously identified in our 2008 10-K.  Except as set forth below, there have been no material changes to the risk factors disclosed in the “Risk Factors” section of our 2008 10-K.

General economic conditions affect our business.

Throughout Fiscal 2009, there was significant deterioration in the global financial markets and economic environment, which we believe negatively impacted consumer spending at many retailers, including us.   Consumer spending habits, including spending for the merchandise that we sell, are affected by, among other things, prevailing economic conditions, inflation, levels of employment, salaries and wage rates, prevailing interest rates, housing costs, energy costs, income tax rates and policies, consumer confidence and consumer perception of economic conditions.  In addition, consumer purchasing patterns may be influenced by consumers’ disposable income, credit availability and debt levels. A continued or incremental slowdown in the U.S. economy, an uncertain economic outlook or an expanded credit crisis could continue to adversely affect consumer spending habits resulting in lower net sales and profits than expected on a quarterly or annual basis.  Consumer confidence is also affected by the domestic and international political situation. The outbreak or escalation of war, or the occurrence of terrorist acts or other hostilities in or affecting the United States, could lead to a decrease in spending by consumers.

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

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders. 

None.

Item 5. Other Information.

None.

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Item 6.   Exhibits.

10.1	Amendment No. 1 to the Burlington Coat Factory Holdings, Inc. Management Incentive plan dated as of December 2, 2008
10.2	Employment Agreement, dated as of December 2, 2008, by and among Burlington Coat Factory Warehouse Corporation, Burlington Coat Factory Holdings, Inc., and Thomas Kingsbury
10.3 10.4 10.5	Separation Agreement, dated as of February 16, 2009, by and among Burlington Coat Factory Holdings, Inc., Burlington Coat Factory Warehouse Corporation, and Mark Nesci.  Joinder to Loan Documents, dated as of February 18, 2009, by and among and Bear Stearns Corporate Lending Inc., as Administrative Agent, Burlington Coat Factory Warehouse Corporation, and the Existing Facility Guarantors and the New Facility Guarantor party thereto. Joinder to Loan Documents, dated as of February 18, 2009, by and among Bank of America, N.A., as Administrative Agent, Burlington Coat Factory Warehouse Corporation, and the Existing Borrowers, New Borrower and Facility Guarantors party thereto.

31.1	Certification of Principal Executive Officer pursuant to Rule 13a - 14(a) and Rule 15d - 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer pursuant to Rule 13a - 14(a) and Rule 15d - 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements 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 INVESTMENTS HOLDINGS, INC.

/s/ Thomas  A. Kingsbury              

Thomas A. Kingsbury

Chief Executive Officer

/s/ Todd Weyhrich

Todd Weyhrich

Executive Vice President & Chief Financial Officer (Principal Financial Officer)

Date: April 14, 2009

EX-10.1

Exhibit 10.1

AMENDMENT No. 1

 to the

BURLINGTON COAT FACTORY HOLDINGS, INC.

2006 MANAGEMENT INCENTIVE PLAN

This Amendment No. 1 (“Amendment”) to the Burlington Coat Factory Holdings, Inc. 2006 Management Incentive Plan (the “Plan”) is made as of the 2nd day of December 2008.

WHEREAS, the Plan was adopted by the Board of Directors of Burlington Coat Factory Holdings, Inc., a Delaware corporation (the “Corporation”) as of April 13, 2006; and

WHEREAS, the Board desires to amend the Plan to increase the number of shares of capital stock available for Awards to be granted under the Plan;

NOW, THEREFORE, the Plan is amended as follows:

1.   All defined terms used in this Amendment shall have the meanings ascribed to them under the Plan.

2.	The first sentence of Section 4(a) of the Plan is hereby deleted and replaced by the following:           “A maximum of 5,567,598 shares of Class A Common and 618,622 shares of Class L Common may be delivered in satisfaction of Awards under the Plan.
3.	All other terms and conditions of the Plan are hereby confirmed and ratified.

EX-10.2

Exhibit 10.2

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made as of December 2, 2008, by and between Burlington Coat Factory Warehouse Corporation, a Delaware corporation (the “Company”), Burlington Coat Factory Holdings, Inc., a Delaware corporation (“Parent”), and Thomas Kingsbury (“Executive”).

WHEREAS, the Company desires to employ Executive during the Employment Period, and Executive is willing to accept employment with the Company, on the terms and conditions set forth herein; and

WHEREAS, the agreements of Executive in Sections 5, 6 and 7 are material inducements to enter into this Agreement.

In consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.Definitions.  In this Agreement:

“Accounting Firm” has the meaning given to that term in Section 22(b).

“Agreement” has the meaning set forth in the preamble above.

“Arbitrator” has the meaning given to that term in Section 21(d).

“Base Salary” has the meaning given to that term in Section 3(a).

“Board” means the Board of Directors of the Company.

“Cause” means Executive (i) is convicted of a felony or other crime involving dishonesty towards the Company or any of its Subsidiaries or material misuse of property of the Company or any of its Subsidiaries; (ii) engages in willful misconduct or fraud with respect to the Company or any of its Subsidiaries or any of their customers or suppliers or an intentional act of dishonesty or disloyalty in the course of Executive’s employment; (iii) refuses to perform Executive’s material obligations under this Agreement (except in connection with a Disability) as reasonably directed by the Board or the Company’s chief executive officer, which failure is not cured within 15 days after written notice thereof to Executive; (iv) misappropriates one or more of the Company’s or any of its Subsidiaries material assets or business opportunities; or (v) breaches Sections 5, 6 or 7 hereof which breach, if capable of being cured, is not cured within 10 days of written notice thereof has been delivered to Executive.  In each such case (other than clause (i)), such notice shall specifically describe the condition giving rise to “Cause.” The Company may allow Executive an extension of time to cure a breach if the Board, in its sole discretion, determines that such extension is appropriate under the circumstances.

“Code” has the meaning given to that term in Section 4(g).

“Company” has the meaning set forth in the preamble above, together with its Subsidiaries and affiliates and includes all predecessor entities.

“Competing Business” has the meaning given to that term in Section 7(a).

“Confidential Information” has the meaning given to that term in Section 5(a).

“Court” has the meaning given to that term in Section 8(b).

“Current Home” has the meaning given to that term in Section 3(i).

“Disability” means Executive’s inability to perform the essential duties, responsibilities and functions of Executive’s position with the Company and its Subsidiaries for a continuous period of 180 days as a result of any mental or physical disability or incapacity, as determined under the definition of disability in the Company’s long-term disability plan so as to qualify Executive for benefits under the terms of that plan or as determined by an independent physician to the extent no such plan is then in effect.  Executive shall cooperate in all respects with the Company if a question arises as to whether Executive has become disabled (including, without limitation, submitting to an examination by a medical doctor or other health care specialists selected by the Company and authorizing such medical doctor or such other health care specialist to discuss Executive’s condition with the Company).

“Employment Period” means the period commencing on the date hereof and ending on the date set forth in Section 4(a).

“Equity Award Agreements” means, (i) that certain Restricted Stock Grant Agreement, dated as of the date hereof, by and between Executive and Parent, and (ii) that certain Non-Qualified Stock Option Agreement, dated as of the date hereof, by and between Executive and Parent.

“Excise Tax” has the meaning given to that term in Section 22(a).

“Executive” has the meaning set forth in the preamble above.

“Executive Dispute Notice” has the meaning given to that term in Section 21(b).

“Final Determination” has the meaning given to that term in Section 21(d).

“Good Reason” means the occurrence of any of the following events without the written consent of Executive: (i) a material diminution of Executive’s duties or the assignment to Executive of duties that are inconsistent in any substantial respect with the position, authority or responsibilities associated with Executive’s position as set forth pursuant to Section 2(b), other than any such authorities, duties or responsibilities assigned at any time which are by their nature, or which are identified at the time of assignment, as being temporary or short-term; (ii) the Company’s requiring Executive to be based at a location which is fifty (50) or more miles from Executive’s principal office location on the date hereof; or (iii) a material breach by the Company of its obligations pursuant to this Agreement (including, without limitation, its obligations pursuant to Section 3) (which such breach goes uncured after notice and a reasonable opportunity to cure); provided, however, no condition enumerated in the preceding shall be deemed to be “Good Reason” unless within thirty (30) days of Executive’s knowledge of the initial existence of such condition, Executive shall have given the Company written notice thereof specifically describing the condition giving rise to “Good Reason” and allowing the Company a period of thirty (30) days from the date of receipt of the notice to remedy such condition.  Notwithstanding the foregoing, in no event will a condition give rise to “Good Reason” hereunder unless at any time during the period commencing ten (10) days after the expiration of the period provided in the Executive’s notice for the Company to remedy said condition (which condition remains unremedied) and ending one hundred and eighty (180) days after Executive’s knowledge of the initial existence of said condition (but in all events within two (2) years after the initial existence of said condition), Executive shall have actually terminated his employment with the Company by giving written notice of resignation for failure of the Company to remedy such condition.

“Gross-Up Payment” has the meaning given to that term in Section 22(a).

“Housing Allowance” has the meaning given to that term in Section 3(i).

“Initial Public Offering” shall have the meaning given to such term in the Stockholders Agreement.

“New Home” has the meaning given to that term in Section 3(i).

“Non-Compete Period” has the meaning given to that term in Section 7(a).

“Parent” has the meaning set forth in the preamble above.

“Parent Valuation Notice” has the meaning given to that term in Section 21(b).

“Payment” has the meaning given to that term in Section 22(a).

“Prior Employer” has the meaning given to that term in Section 9(c).

“Prior Employer Claims” has the meaning given to that term in Section 9(c).

“Stockholders Agreement” has the meaning given to that term in Section 21(a).

“Subsidiaries” means any corporation or other entity of which the securities or other ownership interests having the voting power to elect a majority of the board of directors or other governing body are, at the time of determination, owned by the Company, directly or through one of more Subsidiaries.

“Target Bonus” has the meaning given to that term in Section 3(b).

“Termination Year” means the calendar year in which the Employment Period is terminated.

“Underpayment” has the meaning given to that term in Section 22(b).

“Work Product” has the meaning given to that term in Section 6.

2.Employment, Position and Duties.

(a)The Company shall employ Executive and Executive hereby accepts employment with the Company, upon the terms and conditions set forth in this Agreement for the Employment Period.

(b)During the Employment Period, Executive shall serve as President and Chief Executive Officer of the Company and of Parent and shall perform the normal duties, responsibilities and functions of a President and Chief Executive Officer of a company of a similar size and type and shall have such power and authority as shall reasonably be required to enable Executive to perform Executive’s duties hereunder, subject to the power and authority of the Board to expand or limit such duties, responsibilities, functions, power and authority and to overrule actions of officers of the Company in a manner consistent with the traditional responsibilities of such office.  During the Employment Period, Executive shall serve as a member of the Board and of the Board of Directors of Parent (“Parent Board”).

(c)During the Employment Period, Executive shall (i) render such administrative, financial and other executive and managerial services to the Company and its Subsidiaries which are consistent with Executive’s position as the Board may from time to time direct, (ii) report to the Board and devote Executive’s best efforts and Executive’s full business time and attention (except for permitted vacation periods and reasonable periods of illness or other incapacity) to the business and affairs of the Company and its Subsidiaries and (iii) submit to the Board all business, commercial and investment opportunities presented to Executive or of which Executive becomes aware which relate to the business of the Company and its Subsidiaries, and unless approved by the Board in writing, Executive shall not pursue, directly or indirectly, any such opportunities on Executive’s own behalf.  Executive shall also perform the foregoing duties and functions as President and Chief Executive Officer of Parent, as applicable, as the Parent Board shall direct, and in such capacity shall report to the Parent Board.  Executive shall perform Executive’s duties, responsibilities and functions to the Company and its Subsidiaries hereunder to the best of Executive’s abilities in a diligent, trustworthy and professional manner.

3.Compensation and Benefits.

(a)During the Employment Period, Executive’s base salary shall be a minimum of $850,000 per annum (as increased or decreased in accordance with this Agreement from time to time, the “Base Salary”), which salary shall be payable by the Company in regular installments in accordance with the Company’s general payroll practices (in effect from time to time).  Executive’s Base Salary will be subject to annual review and increase (but not decrease) by the Board during the Employment Period.  Any such increased Base Salary shall be Executive’s “Base Salary” for all purposes thereafter under this Agreement.

(b)Executive shall be entitled to participate in the Company’s Senior Management Bonus Plan approved by the Board or a committee thereof, as in effect from time to time, with a target annual bonus of one hundred percent (100%) of Executive’s Base Salary (“Target Bonus”) or such greater amount as the Board in its sole discretion may from time to time determine.  Any bonus earned by Executive for the portion of the fiscal year ending on May 30, 2009 shall be pro rated based on the number of days worked by Executive for the Company in such fiscal year.

(c)The Board, or a committee or appointee thereof, during the term of this Agreement, shall review annually, or at more frequent intervals which the Board determines is appropriate, Executive’s compensation and may award Executive compensation as the Board deems appropriate in its sole discretion; provided, however, that Executive’s Base Salary shall not be reduced pursuant to any such review or otherwise.

(d)Executive shall be entitled to twenty (20) days of paid vacation each calendar year in accordance with the Company’s policies, which if not taken in any year may not be carried forward to any subsequent calendar year and no compensation shall be payable in lieu thereof.  Such vacation will accrue as of January 1 of each year, except that if Executive’s employment commences after January 31 of any calendar year, Executive shall accrue twenty (20) days of paid vacation pro rated for the number of full calendar months remaining in the calendar year in which the Employment Period commences.

(e)During the Employment Period, the Company shall reimburse Executive for all reasonable business expenses incurred by Executive in the course of performing Executive’s duties, responsibilities and functions under this Agreement which are consistent with the Company’s policies in effect from time to time with respect to travel, entertainment and other business expenses, subject to the Company’s requirements with respect to reporting and documentation of such expenses.

(f)The Company shall provide Executive with the use of an automobile which has an original purchase price not in excess of $50,000.  Such automobile shall be replaced with a new model of comparable make and model from time to time in accordance with Company policy then in effect, but at least every three (3) years.  The Company shall be responsible for all costs and expenses incurred in operation, maintenance, insurance and repair of such automobile.

(g)In addition to participation in the Senior Management Bonus Plan and the awards to Executive under the Equity Award Agreements, Executive shall be entitled to participate, on the same basis as other executives of comparable level in the Company, in any compensation, bonus, incentive, award, deferred compensation, pension, retirement, stock award, stock option or other benefit, plan or arrangement of the Company (including, without limitation, any plan sponsored by the entity owning or controlling the Company, or any affiliate of such entity) now existing or hereafter adopted, all upon terms at least as favorable as those enjoyed by other salaried employees of comparable level of the Company; provided, however, the Company may restrict or exclude Executive’s participation in any such plan, or the benefits thereunder, on such terms and conditions as the Company shall in its sole discretion determine, if at any time Executive shall be working fewer than five days a week or on other part-time basis during regular business days.  Executive also shall be entitled to hospital, health, disability, medical and life insurance, and any other benefits enjoyed, from time to time, by other salaried employees of the Company of comparable level, all upon terms as favorable as those enjoyed by other salaried employees of comparable level of the Company.  Notwithstanding anything in this Section 3(g) to the contrary, if the Company adopts any change in the benefits provided for other salaried employees of the Company of comparable level, and such policy is uniformly applied to all such employees of the Company (and any successor or acquirer of the Company, if any), then no such change shall be deemed a breach by the Company of this Section 3(g).

(h)Executive will be indemnified and defended for acts performed (or omissions made) in Executive’s capacity as an officer or director of the Company to the fullest extent specified in the Company’s certificate of incorporation and bylaws and as permitted under Delaware law.  During Executive’s employment and membership on the Board and the Parent Board and for not less than six (6) years following the latest termination thereof, the Company or Parent (or both), as the case may be, shall insure Executive under a contract of directors and officers liability insurance to the same extent as members of the Board or the Parent Board, as applicable, are so insured.

(i)As soon as reasonably practicable (but not later than thirty (30) days) following the date on which Executive commences employment with the Company, the Company will make a one-time payment to Executive in an aggregate amount of $300,000 in order for Executive to pay certain expenses he may incur in connection with his relocation from Oconomowoc, Wisconsin (the “Current Home”) to a non-temporary residence within reasonable commuting distance from the Company’s principal offices in Burlington, New Jersey (the “New Home”).  Such payment shall be subject to all customary withholding, payroll and other taxes and shall not, for the avoidance of doubt, be grossed up for any such taxes.  In addition, for the period from the date hereof to the earlier of (x) six (6) months after the date hereof, and (y) the time Executive sells his Current Home and relocates to a New Home, the Company will reimburse to the Executive reasonable temporary housing accommodations for Executive and his family (not to exceed $3,000.00 per month) (the “Housing Allowance”).  Executive acknowledges that he will be solely responsible for the excess of the amount of Executive’s actual cost of housing accommodations over $3,000.00 per month.  The Company shall also reimburse Executive for any applicable federal and state income taxes paid by Executive resulting from the inclusion in his taxable income of the Housing Allowance, including all such taxes imposed on such reimbursement (grossed up), payable to Executive at the same time that Executive files his federal and state income tax returns for the year in which reimbursed amounts are included in Executive’s taxable income and based on the highest marginal state and federal income tax rates for such year.  The Company shall also reimburse Executive for any applicable federal and state employment taxes paid by Executive resulting from the inclusion in his taxable wages of the Housing Allowance, including all such taxes imposed on such reimbursement (grossed up), payable to Executive at the same time as the employment taxes are due to be withheld from Executive.  Executive agrees to provide to the Company documentation showing that the reimbursed amounts are taxable at such rates for the year in question.  The obligation of the Company to provide reimbursement for Executive’s federal tax liability will be adjusted to take into account the federal tax benefit, if any, of state income taxes applicable to the inclusion in taxable income of the amount of such amounts paid or reimbursed, regardless of the year in which such federal tax benefit is realized by Executive.

(j)For the period from the date hereof to the time Executive shall become eligible for participation in the Company’s health and medical plans, the Company shall reimburse Executive for the excess of the costs paid by Executive to his former employer for the purchase of continuation of health benefits under the Consolidated Omnibus Budget Reconciliation Act as administered by such company over the Executive’s current contributions to such plans.

(k)Notwithstanding anything herein to the contrary, in the event Executive’s employment with the Company is terminated either voluntarily by Executive (other than for Good Reason or due to his Disability) or for Cause by the Company within eighteen (18) months after the commencement of Executive’s employment, Executive shall immediately repay to the Company the after-tax amount of the $300,000 one-time relocation payment and the pre-tax amount of the Housing Allowance and tax gross-up paid on Executive’s behalf by the Company or reimbursed to Executive by the Company pursuant to Section 3(i) above.

4.Termination and Payment Terms.

(a)The Employment Period shall commence on the date hereof and shall terminate, (i) immediately upon Executive’s resignation, death or Disability, or (ii) by resolution of the Board, with or without Cause, at any time.  Except as otherwise provided herein, any termination of the Employment Period by the Company shall be effective as specified in a written notice from the Company to Executive.

(b)If the Employment Period is terminated:

(i)by resolution of the Board (other than for Cause) or by Executive resigning for Good Reason, Executive shall be entitled to receive (1) all previously earned and accrued but unpaid Base Salary and vacation and unpaid business expenses up to the date of such termination, (2) any unpaid bonus (if any) earned by Executive for the fiscal year prior to the Termination Year, but then unpaid, and any other amounts owed under Section 3(i) or Section 23, (3) the pro rata portion of Executive’s Target Bonus (pursuant to Section 3(b) hereof) during the Termination Year, to the extent targets thereunder are achieved for such year, after such termination or expiration, pro rated based on the number of days of the Termination Year or the Expiration Year, as applicable, prior to the date of termination, which payment shall be made when the bonus payments for such Termination Year are otherwise due; (4) severance pay in the full amount of Base Salary at the time of termination from the date of termination through the period ending on the second (2nd) anniversary of the date of termination; and (5) full continuation of Executive’s hospital, health, disability, medical and life insurance benefits during the two (2) year severance period (to the extent any of those benefits cannot be provided by Company during the two (2) year severance period, the Company will provide Executive with a sum of money calculated to permit Executive to obtain the same benefits individually, grossed up for tax purposes so that Executive remains whole); or

(ii)for any other reason, including as a result of Executive’s death, Disability, voluntary resignation for other than Good Reason or by resolution of the Board for Cause, Executive’s sole entitlement shall be to receive all previously earned and accrued but unpaid Base Salary, vacation and unpaid business expenses up to the date of such termination and Executive shall not be entitled to any further Base Salary, bonus payments or benefits for that year or any future year, except as required by law, or to any other severance compensation of any kind.

(c)Executive agrees that: (i) Executive shall be entitled to the payments and services provided for in Sections 4(b)(i)(3), 4(b)(i)(4), and 4(b)(i)(5), if any, if and only if Executive has executed and delivered the Release attached as Exhibit A and seven (7) days have elapsed since such execution without any revocation thereof by Executive and Executive has not breached as of the date of termination of the Employment Period the provisions of Sections 5, 6 and 7 hereof and does not breach such sections or such covenants at any time during the period for which such payments or services are to be made; and (ii) the Company’s obligation to make such payments and services will terminate upon the occurrence of any such breach during such period.  Executive shall not have any obligation to mitigate the amounts payable to him pursuant to Sections 4(b)(i)(3), 4(b)(i)(4), or 4(b)(i)(5) by seeking or accepting alternative employment; provided, that Executive’s rights to receive the benefits provided for in Section 4(b)(i)(5) shall cease at such time as he is eligible to be covered under the hospital, health, disability, medical or life insurance benefits, as apply, of any subsequent employer.

(d)Except as stated above, any payments pursuant to Section 4(b) shall be paid by the Company in regular installments in accordance with the Company’s general payroll practices, and following such payments the Company shall have no further obligation to Executive pursuant to this Section 4 except as provided by law.  All amounts payable to Executive as compensation hereunder shall be subject to all customary withholding, payroll and other taxes.  Except as set forth in the Equity Award Agreements, the Company shall be entitled to deduct or withhold from any amounts payable to Executive any federal, state, local or foreign withholding taxes, excise tax, or employment taxes imposed with respect to Executive’s compensation or other payments or Executive’s ownership interest in the Company (including, without limitation, wages, bonuses, dividends, the receipt or exercise of equity options and/or the receipt or vesting of restricted equity).

(e)Executive hereby agrees that except as expressly provided herein, no severance compensation of any kind, nature or amount shall be payable to Executive and except as expressly provided herein, Executive hereby irrevocably waives any claim for severance compensation.

(f)Except as provided in Sections 4(b)(i) and 4(b)(ii) above, all of Executive’s rights pursuant to Section 3 (other than Section 3(h)) shall cease upon the termination of the Employment Period.

(g)Notwithstanding anything herein to the contrary, if, at the time any payment is payable to Executive pursuant to the provisions of Section 4(b)(i) above as a result of Executive’s “separation from service” (within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations promulgated thereunder, the Company or any company in the affiliate group in which the Company’s financial statements are consolidated in accordance with generally accepted accounting principles has a class of equity securities traded on an established domestic or foreign securities market or otherwise including, without limitation, trading on an American exchange only as American Depositary receipts and Executive is designated a “specified person” (as such term is defined in Section 409A of the Code and the regulations promulgated thereunder) on a list prepared by the Company periodically pursuant to Section 409A of the Code and the regulations promulgated thereunder, then during the six month period from and after the date of Executive’s “separation from service” the amount payable to Executive pursuant to the provisions of Section 4(b)(i) of the Employment Agreement shall not exceed the lesser of (x) two times Executive’s annual base compensation or (y) two times the amount determined pursuant to Section 401(a)(17) of the Code, and any excess amount which accrues to Executive during such period shall be withheld during such period and paid to Executive in a lump sum, together with interest at the applicable federal rate in effect on the date of termination under Section 1274(d) of the Code, upon the expiration of six months after the date of “separation from service” (or , if earlier than the end of such six month period, upon Executive’s death).  Any further amounts payable to Executive pursuant to Section 4(b)(i) thereafter accruing shall be paid on their scheduled payment dates.

5.Confidential Information.

(a)Executive acknowledges and agrees that the information, observations and data (including trade secrets) obtained by Executive while employed by the Company and its Subsidiaries concerning the business or affairs of the Company and its Subsidiaries are the confidential information (“Confidential Information”), and the property, of the Company and/or its Subsidiaries.  Without limiting the foregoing, the term “Confidential Information” shall be interpreted as broadly as possible to include all observations, data and other information of any sort that are (i) related to any past, current or potential business of the Company or any of its Subsidiaries or any of their respective predecessors, and any other business related to any of the foregoing, and (ii) not generally known to and available for use by those within the line of business or industry of the Company or by the public (except to the extent such information has become generally known to and available for use by the public as a direct or indirect result of Executive’s acts or omissions) including all (A) Work Product (as defined below); (B) information concerning development, acquisition or investment opportunities in or reasonably related to the business or industry of the Company or any of its Subsidiaries of which Executive is aware or becomes aware during the term of his employment; (C) information identifying or otherwise concerning any current, former or prospective suppliers, distributors, contractors, agents or customers of the Company or any of its Subsidiaries; (D) development, transition, integration and transformation plans, methodologies, processes and methods of doing business; (E) strategic, marketing, promotional and financial information (including all financial statements), business and expansion plans, including plans and information regarding planned, projected and/or potential sales, pricing, discount and cost information; (F) information identifying or otherwise concerning employees, independent contractors and consultants; (G) information on new and existing programs and services, prices, terms, and related information; (H) the terms of this Agreement; (I) all information marked, or otherwise designated, as confidential by the Company or any of its Subsidiaries or which Executive should reasonably know is confidential or proprietary information of the Company or any of its Subsidiaries; (J) all information or materials similar or related to any of the foregoing, in whatever form or medium, whether now existing or arising hereafter (and regardless of whether merely stored in the mind of Executive or employees or consultants of the Company or any of its Subsidiaries, or embodied in a tangible form or medium); and (K) all tangible embodiments of any of the foregoing.

(b)Therefore, Executive agrees that, except as required by law or court order, including, without limitation, depositions, interrogatories, court testimony, and the like (and in such case provided that Executive must give the Company and/or its Subsidiaries, as applicable, prompt written notice of any such legal requirement, disclose no more information than is so required and seek, at the Company’s sole cost and expense, confidential treatment where available and cooperate fully with all efforts by the Company and/or its Subsidiaries to obtain a protective order or similar confidentiality treatment for such information) or in connection with Executive’s performance of his duties hereunder, Executive shall not disclose to any unauthorized person or entity or use for Executive’s own purposes any Confidential Information without the prior written consent of the Board, unless and to the extent that the Confidential Information becomes generally known to and available for use by the public other than as a direct or indirect result of Executive’s acts or omissions.  Executive shall deliver to the Company at the termination of the Employment Period, or at any other time the Company may request, all memoranda, notes, plans, records, reports, computer tapes, printouts and software and other documents and data (and copies thereof) embodying or relating to the Confidential Information (including any Work Product (as defined below)) or the business of the Company and its Subsidiaries which Executive may then possess or have under Executive’s control and if, at any time thereafter, any such materials are brought to Executive’s attention or Executive discovers them in his possession or control, Executive shall deliver such materials to the Company immediately upon such notice or discovery.

6.Intellectual Property, Inventions and Patents.  Executive acknowledges and agrees that all discoveries, concepts, ideas, inventions, innovations, improvements, developments, methods, specifications, designs, analyses, drawings, reports, patents and patent applications, processes, programs, systems, software, firmware, materials, plans, sketches, models, know-how, devices, developments, data, databases, technology, trade secrets, works of authorship, copyrightable works and mask works (whether or not including any confidential information) and all registrations or applications related thereto, all other intellectual property or proprietary information and all similar or related information (whether or not patentable or copyrightable and whether or not reduced to tangible form or practice) which relate to the Company’s or any of its Subsidiaries’ actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by Executive (whether alone or jointly with others) while employed by the Company or its predecessors and its Subsidiaries (“Work Product”) shall be deemed to be “work made for hire” (as defined in the Copyright Act, 17 U.S.C.A. § 101 et seq., as amended) and owned exclusively by the Company.  To the extent that any Work Product is not deemed to be “work made for hire” under applicable law, and all right, title and interest in and to such Work Product have not automatically vested in the Company, Executive hereby (A) irrevocably assigns, transfers and conveys, and shall assign transfer and convey, to the full extent permitted by applicable law, all right, title and interest in and to the Work Product on a worldwide basis to the Company (or such other person or entity as the Company shall designate), without further consideration, and (B) waives all moral rights in or to all Work Product, and to the extent such rights may not be waived, agrees not to assert such rights against the Company or its respective licensees, successors or assigns.  Executive shall, at the Company’s expense, execute all documents and perform all actions reasonably requested by the Board (whether during or after the Employment Period) to establish, confirm, evidence, effectuate, maintain, protect, enforce, perfect, record, patent or register any of the Company’s rights hereunder (including, without limitation, assignments, consents, powers of attorney and other instruments).

7.Non-Compete, Non-Solicitation.

(a)In further consideration of the compensation to be paid to Executive hereunder, Executive acknowledges and agrees that during the course of Executive’s employment with the Company and its Subsidiaries Executive shall become familiar with the Company’s trade secrets and with other Confidential Information and that Executive’s services have been and shall be of special, unique and extraordinary value to the Company and its Subsidiaries, and therefore, Executive agrees that, during his or her employment with the Company and for a period of two (2) years thereafter (the “Non-Compete Period”), Executive shall not directly or indirectly (whether as an owner, partner, shareholder, agent, officer, director, employee, independent contractor, consultant or otherwise) own any interest in, operate, invest in, manage, control, participate in, consult with, render services for (alone or in association with any person or entity), in any manner engage in any business activity on behalf of a Competing Business within any geographical area in which the Company or its Subsidiaries operates or plan to operate.  Nothing herein shall prohibit Executive from being a passive owner of not more than 2% of the outstanding stock of any class of a corporation which is publicly traded, so long as Executive has no active participation in the business of such corporation.  For purposes of this paragraph, “Competing Business” means each of the following entities, together with their respective subsidiaries and affiliates:  TJ Maxx, Marshalls, Ross Stores, Stein Mart, Century 21, Forman Mills, Schottenstein Stores, Daffy Dan’s, AJ Wright, Bob’s Stores, and TK Maxx.

(b)During the Non-Compete Period, Executive shall not, directly or indirectly, and shall ensure that any person or entity controlled by Executive does not, (i) induce or attempt to induce any employee of the Company or any Subsidiary to leave the employ of the Company or such Subsidiary, or in any way interfere with the relationship between the Company or any Subsidiary and any employee thereof, (ii) hire, directly or through another person, any person (whether or not solicited) who was an executive of the Company or any Subsidiary at any time within the one year period before Executive’s termination from employment, (iii) induce or attempt to induce any customer, supplier, licensee, licensor, franchisee or other business relation of the Company or any Subsidiary to cease doing business with the Company or such Subsidiary, engage in or assist any person or entity in engaging in any Competing Business or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and the Company or any Subsidiary (Executive understands that any person or entity that Executive contacted during the one year period prior to the date of Executive’s termination of employment for the purpose of soliciting sales from such person or entity shall be regarded as a “potential customer” of the Company and its Subsidiaries as to whom the Company has a protectible proprietary interest) or (iv) make or solicit or encourage others to make or solicit directly or indirectly any defamatory statement or communication about the Company or any of its Subsidiaries or any of their respective businesses, products, services or activities (it being understood that such restriction shall not prohibit truthful testimony compelled by valid legal process).

8.Enforcement.

(a)Executive acknowledges and agrees that the Company entered into this Agreement in reliance on the provisions of Sections 5, 6 and 7 and the enforcement of this Agreement is necessary to ensure the preservation, protection and continuity of the business of the Company and its Subsidiaries and other Confidential Information and goodwill of the Company and its Subsidiaries to the extent and for the periods of time expressly agreed to herein.  Executive acknowledges and agrees that he has carefully read this Agreement and has given careful consideration to the restraints imposed upon Executive by this Agreement, and is in full accord as to their necessity for the reasonable and proper protection of confidential and proprietary information of the Company and its Subsidiaries now existing or to be developed in the future.  Executive expressly acknowledges and agrees that each and every restraint imposed by this Agreement is reasonable with respect to subject matter, time period and geographical area.

(b)Notwithstanding any provision to the contrary herein, the Company or its Subsidiaries may pursue, at its discretion, enforcement of Sections 5, 6 and 7 in any court of competent jurisdiction (each a “Court”).

(c)Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.  More specifically, if any Court determines that any of the covenants set forth in Sections 5, 6 and 7 are overbroad or unreasonable under applicable law in duration, geographical area or scope, the parties to this Agreement specifically agree and authorize such Court to rewrite this Agreement to reflect the maximum duration, geographical area and/or scope permitted under applicable law.

(d)Because Executive’s services are unique and because Executive has intimate knowledge of and access to Confidential Information and Work Product, the parties hereto agree that money damages would not be an adequate remedy for any breach of Sections 5, 6 and 7, and any breach of the terms of Sections 5, 6 and 7 would result in irreparable injury and damage to the Company and its Subsidiaries for which the Company and its Subsidiaries would have no adequate remedy at law.  Therefore, in the event of a breach or threatened breach of Sections 5, 6 and 7, the Company or its successors or assigns, in addition to any other rights and remedies existing in their favor at law or in equity, shall be entitled to specific performance and/or immediate injunctive or other equitable relief from a Court in order to enforce, or prevent any violations of, the provisions hereof (without posting a bond or other security), without having to prove damages.  The terms of this Section 8 shall not prevent the Company or any of its Subsidiaries from pursuing any other available remedies for any breach or threatened breach of this Agreement, including the recovery of damages from Executive.

9.Executive’s Representations; Prior Employment.

(a)Executive hereby represents and warrants to the Company that, subject to the acknowledgements and agreements of Company, Parent, and Executive set forth in Section 9(c) below, (i) the execution, delivery and performance of this Agreement by Executive does not and shall not conflict with, breach, violate or cause a default under any contract, agreement, covenant, restriction, instrument, order, judgment or decree to which Executive is a party or by which he is bound (including any arising out of any prior employment), (ii) Executive is not a party to or bound by any contract, agreement, covenant, restriction, instrument, order, judgment or decree with any other person or entity (including any arising out of any prior employment) that would restrict Executive from performing the services contemplated hereunder, and (iii) upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of Executive, enforceable in accordance with its terms.

(b)Executive hereby agrees that he shall not improperly use or disclose confidential information or trade secrets, if any, of any former employers or any other person or entity to whom Executive owes an obligation of confidentiality, and that he shall not bring onto the premises of the Company any unpublished documents or any property belonging to any former employer or any other person or entity to whom Executive owes an obligation of confidentiality.

(c)The Company and Parent acknowledge that Executive previously entered into an employment agreement, dated August 1, 2006, with his former employer (the “Prior Employer”) which contains restrictive covenants among other provisions that have been disclosed to the Company and Parent.  Executive has informed the Prior Employer prior to Executive’s entering into this Agreement of his decision to accept employment with the Company and that he will be acting as the President and Chief Executive Officer of the Company.  Executive has not been informed of, and Executive has no knowledge of, any objection on the part of the Prior Employer to his decision to accept employment with the Company or act as its President and Chief Executive Officer, and Executive is entering into a separation agreement with the Prior Employer which confirms that no such objection exists.  Executive shall keep the Company informed regarding any communications, whether written or oral, that he receives from his Prior Employer and which concern his decision to accept employment with the Company and act as its President and Chief Executive Officer, and Executive shall not amend or modify any provision of the separation agreement he is entering into with the Prior Employer which would have a material adverse effect on Company or Parent.

(d)In the event that the Prior Employer threatens or asserts any claim that Executive, by accepting the position of, and acting as, the President and Chief Executive Officer of the Company, has breached or violated any employment, non-competition, confidentiality, or other similar agreement that would materially limit Executive’s ability to perform any of his duties under this Agreement or subject Executive to legal expenses or liability for damages, (collectively, “Prior Employer Claims”), the Company shall indemnify and hold harmless Executive (and his heirs, legatees and distributees in the event of his death) against any damages, amounts paid in settlement and expenses (including legal fees and expenses) incurred by Executive and arising from any such Prior Employer Claims.  The Company shall have the right to select any counsel reasonably acceptable to Executive to represent Executive in connection with any Prior Employer Claims, and the Company shall have the right to settle or compromise any Prior Employer Claim indemnified hereby.

(e)In the event that the Prior Employer brings any Prior Employer Claims, the Company shall have the option to terminate Executive’s employment with the Company.  In the event of any such termination, and notwithstanding anything in this Agreement to the contrary, (i) Executive shall have the right to receive the benefits set forth in Sections 4(b)(i)(1), 4(b)(i)(2), and 4(b)(i)(4) (except that for purposes of this Section 9(e), the phrase “second (2nd) anniversary” in Section 4(b)(i)(4) shall be replaced with “first (1st) anniversary”), subject to compliance by him with the other applicable provisions of Section 4 (including Sections 4(b) and 4(c)), (ii) Executive shall continue to be entitled to the benefit of the indemnification set forth in Section 3(h) (including directors and officers liability insurance) and  Section 9(d) above, and (iii) Executive shall not have the right to any other payments, bonuses, or benefits of any kind following such termination, and all of Executive’s right, title, and interest in all of the equity securities and other benefits granted to him pursuant to this Agreement and the Equity Award Agreements shall be cancelled in their entirety without any consideration payable in connection therewith and without regard to any of the provisions of such agreements that would otherwise apply in such circumstances.

(f)EXECUTIVE HEREBY ACKNOWLEDGES, AGREES AND REPRESENTS THAT EXECUTIVE HAS CONSULTED WITH INDEPENDENT LEGAL COUNSEL REGARDING EXECUTIVE’S RIGHTS AND OBLIGATIONS UNDER THIS AGREEMENT AND THE TERMS OF THE RELEASE ATTACHED AS EXHIBIT A AND THAT EXECUTIVE FULLY UNDERSTANDS THE TERMS AND CONDITIONS CONTAINED HEREIN AND THEREIN.

10.Survival.  Sections 3(h) and (k) and Sections 4 through 23, inclusive, shall survive and continue in full force in accordance with their terms notwithstanding the termination of the Employment Period.

11.Notices.  Any notice provided for in this Agreement shall be in writing and shall be either personally delivered, sent by reputable overnight courier service with confirmation of delivery, sent by facsimile (with evidence of transmission) or mailed by first class mail, return receipt requested, to the recipient at the address below indicated:

To Executive:

Thomas Kingsbury

At the last known New Home (or subsequent residence) address set forth on the personnel records of the Company

To the Company:

Burlington Coat Factory Warehouse Corporation

1830 Route 130

Burlington, New Jersey 08016

Attention: General Counsel

Facsimile No.:  (609) 239-9675

with copies (which shall not constitute notice) to:

Bain Capital Partners, LLC

111 Huntington Avenue

Boston, Massachusetts 02199

Attention: Jordan Hitch

Facsimile No.: (617) 516-2010

Kirkland & Ellis LLP

200 E. Randolph Dr.

Chicago, IL 60601

Attention:      Matthew E. Steinmetz, P.C.

      Matthew J. Richards

Facsimile No.:  (312) 861-2200

or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party.  Any notice under this Agreement shall be deemed to have been given when personally delivered, one (1) business day following delivery to the overnight courier service, if given by facsimile, when such facsimile is transmitted to the applicable fax number specified above and the appropriate facsimile confirmation is received, or if so mailed, on receipt.

12.Complete Agreement.  This Agreement and those other documents expressly referred to herein embody the complete agreement and understanding among the parties hereto and supersede and preempt any prior understandings, agreements or representations by or among the parties hereto, written or oral, which may have related to the subject matter hereof in any way.

13.Counterparts.  This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement.

14.Successors and Assigns.  This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive, the Company, Parent, and their respective heirs, successors and assigns; provided, that the services provided by Executive under this Agreement are of a personal nature and rights and obligations of Executive under this Agreement shall not be assignable.

15.Choice of Law.  All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.  In furtherance of the foregoing, the internal law of the State of New York shall control the interpretation and construction of this Agreement, even though under that jurisdiction’s choice of law or conflict of law analysis, the substantive law of some other jurisdiction would ordinarily apply.

16.Consent to Jurisdiction.  EACH OF THE PARTIES IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE OR FEDERAL COURTS LOCATED IN THE CITY AND STATE OF NEW YORK IN THE BOROUGH OF MANHATTAN FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF THIS AGREEMENT, ANY RELATED AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY.  EACH OF THE PARTIES HERETO FURTHER AGREES THAT SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR DOCUMENT BY U.S. REGISTERED MAIL TO SUCH PARTY’S RESPECTIVE ADDRESS SET FORTH IN SECTION 11 SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY ACTION, SUIT OR PROCEEDING WITH RESPECT TO ANY MATTERS TO WHICH IT HAS SUBMITTED TO JURISDICTION IN THIS SECTION 16.  EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF THIS AGREEMENT, ANY RELATED DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY IN THE STATE OR FEDERAL COURTS LOCATED IN THE CITY AND STATE OF NEW YORK IN THE BOROUGH OF MANHATTAN AND HEREBY AND THEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION, SUIT OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

17.Waiver of Jury Trial.  AS A SPECIFICALLY BARGAINED FOR INDUCEMENT FOR EACH OF THE PARTIES HERETO TO ENTER INTO THIS AGREEMENT AFTER HAVING THE OPPORTUNITY TO CONSULT WITH COUNSEL, EACH PARTY HERETO EXPRESSLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LAWSUIT OR PROCEEDING RELATING TO OR ARISING IN ANY WAY FROM THIS AGREEMENT OR THE MATTERS CONTEMPLATED HEREBY.

18.Amendment and Waiver.  The provisions of this Agreement may be amended or waived only with the prior written consent of the Company (as approved by the Board) and Executive, and no course of conduct or course of dealing or failure or delay by any party hereto in enforcing or exercising any of the provisions of this Agreement (including, without limitation, the Company’s right to terminate the Employment Period for Cause) shall affect the validity, binding effect or enforceability of this Agreement or be deemed to be an implied waiver of any provision of this Agreement.

19.Key Man Life Insurance.  The Company may apply for and obtain and maintain a key man life insurance policy in the name of Executive together with other executives of the Company in an amount deemed sufficient by the Board, the beneficiary of which shall be the Company.  Executive shall submit to physical examinations and answer reasonable questions in connection with the application and, if obtained, the maintenance of, as may be required, such insurance policy, the findings of which shall be held in the strictest confidence and used exclusively for the purpose of obtaining such insurance.

20.Executive’s Cooperation.  During the Employment Period and thereafter, Executive shall cooperate with the Company and its Subsidiaries in any internal investigation or administrative, regulatory or judicial proceeding as reasonably requested by the Company (including, without limitation, Executive being available to the Company upon reasonable notice for interviews and factual investigations, appearing at the Company’s request to give testimony without requiring service of a subpoena or other legal process, volunteering to the Company all pertinent information and turning over to the Company all relevant documents which are or may come into Executive’s possession, all at times and on schedules that are reasonably consistent with Executive’s other permitted activities and commitments).  In the event the Company requires Executive’s cooperation in accordance with this section after the termination of the Employment Period, the Company shall reimburse Executive for all of Executive’s reasonable costs and expenses incurred, in connection therewith, plus pay Executive a reasonable amount per day for Executive’s time spent.

21.Stockholders Agreement; Buyback Valuation, etc.

(a)Executive hereby agrees that he shall be party to, and bound by all of the terms and provisions of, that certain Stockholders Agreement, dated as of April 13, 2006, by and among Parent, the Investors (as such term is defined therein), and the other Stockholders (as such term is defined therein) party thereto (the “Stockholders Agreement”).  Executive shall be deemed to be a “Manager” for purposes of the Stockholders Agreement and shall, except to the extent otherwise set forth herein, have all the rights of, and be subject to all of the obligations of, a Manager as set forth in the Stockholders Agreement.

(b)In the event of any exercise of the Company Call Option (as such term is defined in the Stockholders Agreement) with respect to Executive, Parent shall simultaneously deliver to Executive its determination of Fair Market Value (as such term is defined in the Stockholders Agreement) for purposes of such exercise (the “Parent Valuation Notice”).  Executive may, at his option, elect to dispute any Parent Valuation Notice by delivering written notice thereof (an “Executive Dispute Notice”) to Parent within twenty-one (21) business days of the date of transmission of such Parent Valuation Notice; provided, that any Executive Dispute Notice must include Executive’s determination of Fair Market Value.  If Executive does not timely deliver an Executive Dispute Notice in compliance with the provisions of this Section 21(b), then the applicable Parent Valuation Notice shall be final and binding.

(c)In the event of any proper delivery of an Executive Dispute Notice, Executive and Parent shall negotiate in good faith for a period of fifteen (15) business days to resolve their dispute.  Any agreement between Executive and Parent regarding an Executive Dispute Notice shall be in writing executed by the parties and thereupon shall be final and binding.  In the event Executive and Parent are unable to resolve their dispute following such fifteen (15) business day period, such dispute shall be resolved as set in Section 21(d) below.

(d)Any dispute regarding an Executive Dispute Notice shall be resolved as follows.  Within ten (10) business days following the expiration of the period set forth in Section 21(c) above, Parent shall select an independent investment bank, valuation firm, or other similar person experienced in the valuation of securities and who is reasonably acceptable to Executive to act as an arbitrator for the parties; provided, that if Parent and Executive are unable to agree, in good faith, on the identity of such person, then each of Parent and Executive shall select an independent investment bank, valuation firm, or other similar person experienced in the valuation of securities, and the two persons so selected shall select a third independent investment bank, valuation firm, or other similar person experienced in the valuation of securities, and the third such person so selected shall act as the arbitrator for the parties.  The person so selected to act as arbitrators shall be the “Arbitrator”.  The Arbitrator shall conduct its Arbitration, (i) pursuant to the rules of the American Arbitration Association, and (ii) so that a final determination of Fair Market Value (the “Final Determination”) is rendered no later than forty-five (45) days following the selection of the Arbitrator.  The Final Determination shall no be greater than the greatest value claimed by either party nor lower than the lowest value claimed by either party.  The Final Determination shall be final and binding on the parties.

(e)Each party shall bear their own fees and expenses resulting from the delivery of any Executive Dispute Notice; provided, that the fees and expenses of the Arbitrator shall be allocated between the parties based on their relative success in the Final Determination.  For example, if Parent asserts that Fair Market Value is $90, and Executive asserts that Fair Market Value is $100, and the Final Determination states that Fair Market Value is $94, then Parent shall bear 40% (i.e., ($94-$90)/($100-$90)) of the fees and expenses of the Arbitrator and Executive shall bear 60% (i.e., ($100-$94)/($100-$90)) of the fees and expenses of the Arbitrator.

(f)Notwithstanding any to the contrary in the Stockholders Agreement, if the Fair Market Value is finally determined pursuant to the dispute resolution process set forth in this Section 21 to be an amount at least ten percent (10%) greater than the valuation set forth in the applicable Parent Valuation Notice, then the person or persons exercising the Company Call Option shall have the right to revoke such exercise by giving written notice thereof no later than fifteen (15) business days following the final determination of Fair Market Value, which revocation shall be irrevocable and the Company Call Right under the Stockholders Agreement shall thereupon in all respects terminate.

(g)Notwithstanding anything to the contrary in the Stockholders Agreement, any deadlines for the closing of any purchase pursuant to the Company Call Option shall be tolled during the resolution of the dispute process set forth in this Section 21.

22.Excise Tax Payments.

(a)If it shall be determined that any benefit provided to Executive, or payment or distribution by or for the account of the Company or Parent, or any other amounts in the nature of compensation, to or for the benefit of Executive, in each case pursuant to this Agreement, any of the Equity Award Agreements or any other plan, arrangement or agreement with the Company or any affiliate, and occurring after an Initial Public Offering (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by Executive with respect to such excise tax resulting from any action or inaction by the Company or Parent (such excise tax, together with any such interest and penalties, collectively, the “Excise Tax”), then Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) from the Company in an amount such that after payment by Executive of the Excise Tax and all other federal, state and local income, employment, excise and other taxes that are imposed on the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the sum of (A) the Excise Tax imposed upon the Payments and (B) the product of any deductions disallowed because of the inclusion of the Gross-up Payment in Executive’s adjusted gross income and the highest applicable marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made.

(b)Subject to the provisions of Section 22(c), all determinations required to be made under this Section 22, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company’s independent, certified public accounting firm or such other certified public accounting firm as may be designated by Executive and shall be reasonably acceptable to the Company (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and Executive within 15 business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company.  If the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting a change in the ownership or effective control (as defined for purposes of Section 280G of the Code) of the Company, Executive shall appoint another nationally recognized accounting firm which is reasonably acceptable to the Company to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder).  All fees and expenses of the Accounting Firm shall be borne solely by the Company.  Any Gross-Up Payment, as determined pursuant to this Section 22, shall be paid by the Company to Executive within five days of the receipt of the Accounting Firm’s determination.  Subject to Section 22(c), any determination by the Accounting Firm shall be binding upon the Company and Executive.  As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that additional Gross-Up Payments shall be required to be made to compensate Executive for amounts of Excise Tax later determined to be due, consistent with the calculations required to be made hereunder (an “Underpayment”).  If the Company exhausts its remedies pursuant to Section 22(c) and Executive is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive.

(c)Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment.  Such notification shall be given as soon as practicable but no later than ten (10) business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid.  Executive shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due).  If the Company notifies Executive in writing prior to the expiration of such period that they desire to contest such claim, Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company; (iii) cooperate with the Company in good faith effectively to contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties incurred in connection with such contest) and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses.

23.Executive’s Legal Fees.  The Company shall pay the reasonable, documented fees and expenses of one counsel retained by Executive in connection with the negotiation and preparation of this Agreement and the Equity Award Agreements.

*   *   *   *   *

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

BURLINGTON COAT FACTORY WAREHOUSE CORPORATION

By:           /s/ Paul Tang

Name: Paul Tang

Title: EVP

BURLINGTON COAT FACTORY HOLDINGS, INC.

By:           /s/ Paul Tang

Name: Paul Tang

Title: EVP

/s/ Thomas Kingsbury

Thomas Kingsbury

Exhibit A

GENERAL RELEASE

I, Thomas Kingsbury, in consideration of and subject to the performance by Burlington Coat Factory Warehouse Corporation, a Delaware corporation (together with its subsidiaries, the “Company”), of its obligations with respect to the payment of severance pursuant to Sections 4(b)(i)(3), 4(b)(i)(4) and 4(b)(i)(5) of the Employment Agreement, dated as of December 2, 2008 (the “Agreement”) and this General Release (the “General Release”), do hereby release and forever discharge as of the date hereof the Company, its subsidiaries and affiliates and all present and former directors, officers, agents, representatives, employees, successors and assigns of the Companies and their subsidiaries and affiliates and the Company’s direct and indirect owners (collectively, the “Released Parties”) to the extent provided below.

1.   I understand that any payments paid to me under Sections 4(b)(i)(3), 4(b)(i)(4) and 4(b)(i)(5) of the Agreement represent consideration for signing this General Release and are not salary or wages to which I was already entitled. I understand and agree that I will not receive the payments specified in Sections 4(b)(i)(3), 4(b)(i)(4) and 4(b)(i)(5) of the Agreement unless I execute this General Release and do not revoke this General Release within the time period permitted hereafter or breach this General Release or Sections 5, 6 or 7 of the Agreement.  Such payments will not be considered compensation for purposes of any employee benefit plan, program, policy or arrangement maintained or hereafter established by the Company or its affiliates.  I also acknowledge and represent that I have received all salary, wages and bonuses that I am entitled to receive (as of the date hereof) by virtue of any employment by the Company.

2.   Except as provided in paragraphs 4, 12 and 13 below and except for the provisions of the Agreement which expressly survive the termination of my employment with the Company, I knowingly and voluntarily (for myself, my heirs, executors, administrators and assigns) release and forever discharge the Company and the other Released Parties from any and all claims, suits, controversies, actions, causes of action, cross-claims, counter-claims, demands, debts, compensatory damages, liquidated damages, punitive or exemplary damages, other damages, claims for costs and attorneys’ fees, or liabilities of any nature whatsoever in law and in equity, both past and present (through the date this General Release becomes effective and enforceable) and whether known or unknown, suspected, or claimed against the Company or any of the Released Parties which I, my spouse, or any of my heirs, executors, administrators or assigns, may have, which arise out of or are connected with my employment with, or my separation or termination from, the Company (including, but not limited to, any allegation, claim or violation, arising under: Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended (including the Older Workers Benefit Protection Act); the Equal Pay Act of 1963, as amended; the Americans with Disabilities Act of 1990; the Family and Medical Leave Act of 1993; the Worker Adjustment Retraining and Notification Act; any applicable Executive Order Programs; the Fair Labor Standards Act; or their state or local counterparts; or under any other federal, state or local civil or human rights law, or under any other local, state, or federal law, regulation or ordinance; or under any public policy, contract or tort, or under common law; or arising under any policies, practices or procedures of the Company; or any claim for wrongful discharge, breach of contract, infliction of emotional distress, defamation; or any claim for costs, fees, or other expenses, including attorneys’ fees incurred in these matters) (all of the foregoing collectively referred to herein as the “Claims”).

3.   I represent that I have made no assignment or transfer of any right, claim, demand, cause of action, or other matter covered by paragraph 2 above.

4.   I agree that this General Release does not waive or release any rights or claims that I may have under the Age Discrimination in Employment Act of 1967 which arise after the date I execute this General Release. I acknowledge and agree that my engagement and employment by, and separation from employment with the Company in compliance with the terms of the Agreement shall not serve as the basis for any claim or action (including, without limitation, any claim under the Age Discrimination in Employment Act of 1967).

5.   In signing this General Release, I acknowledge and intend that it shall be effective as a bar to each and every one of the Claims hereinabove mentioned or implied. I expressly consent that this General Release shall be given full force and effect according to each and all of its express terms and provisions, including those relating to unknown and unsuspected Claims (notwithstanding any state statute that expressly limits the effectiveness of a general release of unknown, unsuspected and unanticipated Claims), if any, as well as those relating to any other Claims hereinabove mentioned or implied. I acknowledge and agree that this waiver is an essential and material term of this General Release and that without such waiver the Company would not have agreed to make any payments pursuant to the terms of Sections 4(b)(i)(3), 4(b)(i)(4) and 4(b)(i)(5) of the Agreement.  I further agree that in the event I should bring a Claim seeking damages against the Company or any other Released Party, or in the event I should seek to recover against the Company or any other Released Party in any Claim brought by a governmental agency on my behalf, this General Release shall serve as a complete defense to such Claims. I further agree that I am not aware of any pending charge or complaint of the type described in paragraph 2 as of the execution of this General Release.

6.   I agree that neither this General Release, nor the furnishing of the consideration for this General Release, shall be deemed or construed at any time to be an admission by the Company, any Released Party or myself of any improper or unlawful conduct.

7.   I agree that I will forfeit all amounts payable by the Company pursuant to Sections 4(b)(i)(3),4(b)(i)(4), and 4(b)(i)(5) of the Agreement if I challenge the validity of this General Release.  I also agree that if I violate this General Release by suing the Company or the other Released Parties, I will return all severance payments received by me pursuant to Sections 4(b)(i)(3),4(b)(i)(4), and 4(b)(i)(5) of the Agreement.

8.   I agree that this General Release is confidential and agree not to disclose any information regarding the terms of this General Release, except to my immediate family and any tax, legal or other advisor I have consulted regarding the meaning or effect hereof or as required by law, and I will instruct each of the foregoing not to disclose the same to anyone.

9.   Any non-disclosure provision in this General Release does not prohibit or restrict me (or my attorney) from responding to any inquiry about this General Release or its underlying facts and circumstances by the Securities and Exchange Commission (SEC), the National Association of Securities Dealers, Inc. (NASD), any other self-regulatory organization or governmental entity.

10.   I agree that, as of the date hereof, I have returned to the Company any and all property, tangible or intangible, relating to its business, which I possessed or had control over at any time (including, but not limited to, company-provided credit cards, building or office access cards, keys, computer equipment, manuals, files, documents, records, software, customer data base and other data) and that I shall not retain any copies, compilations, extracts, excerpts, summaries or other notes of any such manuals, files, documents, records, software, customer data base or other data other than such documents as are generally or publicly known; provided, that such documents are not known as a result of my breach or actions in violation of the Agreement or this General Release.

11.   Notwithstanding anything in this General Release to the contrary, this General Release shall not relinquish, diminish, or in any way affect any rights or claims arising out of any breach by the Company or by any Released Party of the Agreement after the date hereof or any other rights or claims I may have against the Company or any Released Party arising after the date hereof.

12.   Whenever possible, each provision of this General Release shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this General Release is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this General Release shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.

13.   As set forth in Section 10 of the Agreement, Sections 4 through 20 of the Agreement, inclusive, survived the termination of my employment and are incorporated herein and made part hereof.

BY SIGNING THIS GENERAL RELEASE, I REPRESENT AND AGREE THAT:

(i)   I HAVE READ IT CAREFULLY;

(ii)   I UNDERSTAND ALL OF ITS TERMS AND KNOW THAT I AM GIVING UP IMPORTANT RIGHTS, INCLUDING BUT NOT LIMITED TO, RIGHTS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, AS AMENDED; THE EQUAL PAY ACT OF 1963 AND THE AMERICANS WITH DISABILITIES ACT OF 1990;

(iii)   I VOLUNTARILY CONSENT TO EVERYTHING IN IT;

(iv)   I HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING IT AND I HAVE DONE SO OR, AFTER CAREFUL READING AND CONSIDERATION I HAVE CHOSEN NOT TO DO SO OF MY OWN VOLITION;

(v)   I HAVE HAD AT LEAST 21 DAYS (OR 45 DAYS, AS REQUIRED BY LAW) FROM THE DATE OF MY RECEIPT OF THIS RELEASE SUBSTANTIALLY IN ITS FINAL FORM ON _______________ __, _____ TO CONSIDER IT AND THE CHANGES MADE SINCE THE _______________ __, _____ VERSION OF THIS RELEASE ARE NOT MATERIAL AND WILL NOT RESTART THE REQUIRED 21-DAY (OR 45-DAY, AS APPLICABLE) PERIOD;

(vi)   ANY CHANGES TO THE AGREEMENT SINCE DECEMBER 2, 2008 EITHER ARE NOT MATERIAL OR WERE MADE AT MY REQUEST.

(vii)   I UNDERSTAND THAT I HAVE SEVEN DAYS AFTER THE EXECUTION OF THIS RELEASE TO REVOKE IT AND THAT THIS RELEASE SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED WITHOUT NOTICE OF ANY SUCH REVOCATION HAVING BEEN RECEIVED BY THE COMPANY;

(viii)   I HAVE SIGNED THIS GENERAL RELEASE KNOWINGLY AND VOLUNTARILY AND WITH THE ADVICE OF ANY COUNSEL RETAINED TO ADVISE ME WITH RESPECT TO IT; AND

(ix)   I AGREE THAT THE PROVISIONS OF THIS GENERAL RELEASE MAY NOT BE AMENDED, WAIVED, CHANGED OR MODIFIED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE COMPANY AND BY ME.

DATE:  _____________                                                                           ____________________________________

Thomas Kingsbury

EX-10.3

Exhibit 10.3

SEPARATION AGREEMENT

THIS SEPARATION AGREEMENT (this “Agreement”) is made as of February16, 2009 by and among Burlington Coat Factory Holdings, Inc., a Delaware corporation (“Parent”), Burlington Coat Factory Warehouse Corporation, a Delaware corporation (the “Company”), and Mark Nesci (“Executive”).

Reference is made to (i) that certain Employment Agreement, dated as of April 13, 2006, by and between the Company and Executive (the “Employment Agreement”), (ii) the 2006 Management Incentive Plan of Parent (the “Plan”), (iii) that certain Non-Qualified Stock Option Agreement, dated as of April 13, 2006, by and between Parent and Executive (the “Option Agreement”), (iv) that certain Restricted Stock Grant Agreement, dated as of April 13, 2006, by and between Parent and Executive (the “Restricted Stock Agreement”), and (v) that certain Stockholders Agreement, dated as of April 13, 2006, by and among Parent, Executive, and certain other equityholders of Parent (the “Stockholders Agreement”).  Capitalized terms used, but not otherwise defined, herein shall have the meanings given to such terms in the Employment Agreement.

NOW, THEREFORE, the parties hereto agree as follows:

1.Employment Separation Matters.

(a)Effective as of the date hereof, to the extent he has not already done so, Executive hereby resigns as a director of, and as the President and Chief Executive Officer of, Parent and the Company, and hereby resigns any other position he may hold as an executive, officer or director of any Subsidiaries of Parent or the Company.  Executive’s status as an employee of Parent, the Company, and any of its Subsidiaries shall terminate on February 16, 2009 (the “Transition Date”).  Effective as of the Transition Date, the Employment Agreement will terminate and be of no further force or effect, except for those terms and provisions which expressly survive termination of the Employment Agreement as provided in Section 10 of the Employment Agreement, each of which will survive the Transition Date in accordance with its terms.

(b)From and after the Transition Date, Executive shall serve as a senior advisor to the board of directors of Parent, and in such role shall perform such duties, responsibilities, and functions as may be delegated to him from time to time by the board of directors of Parent.  In his role as senior advisor, Executive shall (i) devote such efforts, time, and attention to the business and affairs of Parent, the Company, and its Subsidiaries as may be requested of him from time to time by the board of directors of Parent (except for permitted vacation periods and reasonable periods of illness and other incapacity), and (ii) receive an annual salary (payable in regular installments in accordance with the Company’s general payroll practices in effect from time to time) of $100,000 (the “Advisory Fee”), but shall not receive any other benefits (including, without limitation, any bonus, incentive compensation, deferred compensation, equity award, health, or welfare benefits), except as expressly set forth otherwise in this Agreement; provided, that the Advisory Fee shall only be payable from and after May 30, 2009 (the “Separation Date”).  Executive and Parent may each terminate Executive's role as senior advisor at any time and for any reason (such date of termination, the “Advisory Termination Date”), and from and after the Advisory Termination Date Executive shall not be entitled to receive any further payments from Parent, the Company, or any of its Subsidiaries, other than accrued but unpaid salary or as expressly set forth otherwise in this Agreement.

2.Severance Payments and Related Matters.

(a)Severance Payments.  As of the Transition Date, in addition to the Advisory Fee but instead of any amounts to which Executive otherwise would be entitled pursuant to Section 4 of the Employment Agreement, Executive shall be entitled to:

(i)all previously earned and accrued but unpaid base salary and bonuses, and unpaid business expenses;

(ii)the pro rata portion of Executive's target bonus for the current fiscal year, to the extent the applicable targets are met for such year, pro rated based on the number of days worked by Executive during such year through the Transition Date;

(iii)continuation of payment of Executive’s base salary as in effect on the Transition Date until the Separation Date; and

(iv)$1,200,000.

it being understood that in each case Executive shall be entitled to receive (and continue receiving) the amounts and benefit payments set forth herein (A) if and only if Executive has executed and delivered to the Company, and has not revoked or breached (including, without limitation, by bringing any Claim, as defined therein), the Release and (B) only so long as Executive has not breached, or engaged in conduct prohibited by, the Employment Agreement (including Sections 5 through 7 thereof) and has not breached any provision of this Agreement.  The amounts payable pursuant to this Section 2(a) shall be payable from and after the Transition Date in regular installments (and in the case of the payments under clause (iv), over a period of two (2) years) in accordance with the Company’s normal payroll practices in effect as of the Transition Date and shall be subject to customary withholding, payroll, and other taxes; provided, that the amount, if any, payable pursuant to Section 2(a)(ii) shall be payable when bonus payments for the current fiscal year are made to other employees of the Company; provided, further, that the Company shall commence payment of the amounts payable pursuant to Section 2(a)(iv) on the Separation Date.

(b)Health Coverage.

(i)Subject to continued compliance with the provisions of Section 2(a) above, for the period commencing on the Transition Date and ending on the second (2nd) anniversary of the Separation Date (the “Health Continuation Period”), Executive shall be entitled to continued reimbursement of health care expenses for Executive and his spouse and eligible dependents under the Company's group health plan (the “Health Plan”) on the same basis as an active employee of the Company.  During the Health Continuation Period, any periodic payments received by Executive pursuant to Sections 2(a)(iii) or (iv) shall be increased by the amount that must be paid by Executive for the amount that Executive must pay with respect to the applicable period for him and his spouse and eligible dependents to continue to be so covered, with such increases grossed-up for tax purposes as provided in Section 4(b)(i)(5) of the Employment Agreement.

(ii)Effective at the end of the Health Continuation Period, Executive will be entitled to elect to continue coverage under the Health Plan for himself and his spouse and eligible dependents for as long as he lives, provided that the Health Plan remains in effect.  If Executive so elects, Executive shall be solely responsible for paying the cost, as determined by the actuary for the Health Plan, of such coverage.

(iii)Notwithstanding anything set forth in paragraphs (i) or (ii) above, the Company’s obligation to provide Executive with continued coverage under the Health Plan shall cease on the date on which Executive commences to be eligible for coverage under a subsequent employer’s group health plan.

(c)No Other Payments.  Except as set forth in Sections 1(b) and 2(a) above, Executive shall not be entitled to any other salary, bonuses, employee benefits or compensation from Parent, the Company, or any of their respective Subsidiaries after the Transition Date and all of Executive’s rights to salary, bonuses, employee benefits and other compensation hereunder which would have accrued or become payable after the Transition Date (other than vested retirement benefits accrued on or prior to the Transition Date that have not yet been paid) shall cease upon the Transition Date, other than, (i) those expressly required under applicable law (such as COBRA), and (ii) those set forth in that certain Agreement, dated as of November 8, 2005, by and between Executive and the Company and concerning certain death benefits (which such agreement shall remain in full force and effect in accordance with its terms).  Executive and the Company acknowledge and agree that the amounts payable as set forth in this Section 2 expressly supersede and replace the Company’s obligations set forth in Section 4 of the Employment Agreement and that no such amounts under Section 4 of the Employment Agreement shall be payable (except to the extent set forth otherwise in this Section 2).

(d)Mitigation; Termination of Certain Benefits.  Executive is under no obligation to mitigate damages or the amount of any payment provided for hereunder by seeking other employment or otherwise.

(e)Right of Offset.  Unless otherwise prohibited by Code Section 409A (as defined below) with respect to any payment hereunder that constitutes “nonqualified deferred compensation” within the meaning of Code Section 409A, the Company may offset any amounts Executive owes Parent, it, or their respective Subsidiaries against any amounts Parent, the Company, or any of their respective Subsidiaries owes Executive hereunder.

3.Release.  As a condition to receiving the severance benefits under Section 2 beyond the benefits described in Section 2(a)(i), Executive shall execute and deliver to the Company a general release in the form of Exhibit A attached hereto (the “Release”).  The Release shall be executed and delivered (and no longer subject to revocation, if applicable) within sixty (60) days following the Transition Date.  The payments which will be made to Executive described herein are conditioned upon the Release being in full force and effect.

4.Option Matters.  Notwithstanding anything to the contrary set forth in the Option Agreement, Parent hereby agrees that sixty percent (60%) of the Options (as such terms is defined in the Option Agreement) granted to Executive pursuant to the Option Agreement shall be vested as of the Transition Date.  All such vested Options held by Executive shall, notwithstanding any provision to the contrary in the Plan or the Option Agreement, remain vested and exercisable by Executive (in accordance with the terms of the Option Agreement and the Plan) until the later of (a) the fourth (4th) anniversary of the Transition Date, or (b) the second (2nd) anniversary of the Advisory Termination Date, upon which date all such Options shall immediately terminate (such termination date, the “Equity Termination Date”); provided that in no event shall the Equity Termination Date be later than the original expiration date of the Options as set forth under the Plan or the Option Agreement.  Executive hereby acknowledges that all Options held by him which are not vested and exercisable as of the Transition Date shall terminate as of such date, without any required action on the part of Parent or any other person.  Except as set forth otherwise in this Section 4, nothing in this Agreement shall modify the terms of any Options held by Executive, the Option Agreement, or the Plan.

5.Other Equity Matters.

(i)Executive hereby affirms that he is, and shall remain, bound by the provisions of the Stockholders Agreement.  In addition, Parent and Executive hereby agree that, with respect to any of the shares of the capital stock of the Company owned by him as of the Transition Date, or any shares of the capital stock of the Company that he may acquire as a result of any exercise of Options after the Transition Date, Parent shall not be entitled to exercise the Company Call Option (as such term is defined in the Stockholders Agreement).  Except as set forth otherwise in this Section 5, nothing in this Agreement shall modify the terms of the Restricted Stock Agreement of the Stockholders Agreement.

(ii)Following the Transition Date, Parent shall purchase 33,333 of the Units owned by Executive for a purchase price in cash equal to (i) 33,333, multiplied by (ii) a per Unit price of $90; provided, that Parent shall have the right to withhold from any payments to Executive pursuant to the Put Option to the extent required by applicable law.  For purposes of this Agreement, a “Unit” is 1 share of Parent’s Class L Common Stock and 9 shares of Parent’s Class A Common Stock.  The consummation of such purchase and sale shall occur no later than March 6, 2009.  Parent shall have the right to receive customary representations and warranties from Executive in connection with such purchase and sale (including with respect to title and absence of liens and encumbrances) and to have any signatures be guaranteed by a national bank or reputable securities broker.

6.Other Agreements.

(a)Non-Disparagement.  Executive agrees not to disparage Parent, the Company, or any of their respective past and present investors, affiliates, officers, directors or employees, and to keep all confidential and proprietary information about the past or present business affairs of Parent, the Company and its Subsidiaries confidential unless a prior written release from the Company is obtained.  Parent and the Company agrees that the executives of Parent and the Company shall not disparage Executive.

(b)Return of Property.  Executive may retain his laptop, car (except that from and after the Transition Date Executive shall be responsible for costs and expenses incurred in connection with the operation, maintenance, insurance, and repair of such car), and shopping discount as in effect on the Transition Date; provided, that any information or documents on Executive's laptop concerning the business of Parent, the Company or any of their respective Subsidiaries or affiliates shall continue to be subject to the confidentiality provisions of the Employment Agreement.  Except with respect to the foregoing items, Executive agrees that, effective as of the Transition Date, Executive shall have returned to the Company any and all property, tangible or intangible, relating to the business of Parent, the Company, and their respective Subsidiaries’ businesses, which Executive possessed or had control over at any time (including, but not limited to, credit cards, building or office access cards, keys, computer equipment, manuals, files, documents, records, software, customer data base and other data) and that Executive shall not retain any copies, compilations, extracts, excerpts, summaries or other notes of any such manuals, files, documents, records, software, customer data base or other data.

(c)No Admissions.  This Agreement shall not be construed as an admission of any wrongdoing by Parent, the Company, any of their respective Subsidiaries or affiliates, or any of their directors, officers, agents or employees.

(d)Post-Mortem Payments; Designation of Beneficiary.  In the event that Executive remains entitled to receive any cash payments pursuant to the terms hereof and Executive dies, such payments shall be made to a beneficiary or beneficiaries designated by Executive.  At any time after the execution of this Agreement, Executive may prepare, execute, and file with the Secretary of the Company a designation of beneficiary form.  Executive hereby designates Marie Nescias such beneficiary.  Executive shall thereafter be free to amend, alter or change such form; provided that any such amendment, alteration or change shall be made by filing a new designation of beneficiary form with the Secretary of the Company.  In the event Executive revokes the above designation but fails to designate another beneficiary, following the death of Executive all payments of the amounts specified by this Agreement which would have been paid to Executive’s designated beneficiary pursuant to this Agreement shall instead be paid to Executive’s spouse, if any, if she survives Executive or, if there is no spouse or she does not survive Executive, to Executive’s estate.

7.Representations and Warranties; Acknowledgments.

(a)Executive’s Representations and Warranties.  Executive hereby represents and warrants to Parent and the Company that (i) the execution, delivery and performance of this Agreement by Executive do not and shall not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which Executive is a party or by which he is bound, (ii) Executive is not a party to or bound by any employment agreement, noncompete agreement or confidentiality agreement with any other person or entity and (iii) upon the execution and delivery of this Agreement by Parent and the Company, this Agreement shall be the valid and binding obligation of Executive, enforceable in accordance with its terms.

(b)Executive’s Acknowledgment.  Executive hereby acknowledges and represents that he was advised to and he has consulted with independent legal counsel regarding his rights and obligations under this Agreement (including the Release) or voluntarily waived the opportunity to do so and that he fully understands the terms and conditions contained herein (including the Release).

(c)The Company’s Representations and Warranties.  Parent and the Company each hereby represent and warrant to Executive that (i) the execution, delivery and performance of this Agreement by such person does not and shall not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which such person is a party or by which it is bound, and (ii) upon the execution and delivery of this Agreement by Executive, this Agreement shall be the valid and binding obligation of such person, enforceable in accordance with its terms.

8.Confidentiality.  Each of Parent, the Company and Executive agrees that the contents of this Agreement and the attached Release, including but not limited to its financial terms, are strictly confidential.  By executing this Agreement Executive agrees and represents that Executive has maintained and will maintain the confidential nature of the agreement and has not and will not disclose its terms to any third party, except (a) to legal counsel, tax and financial planners, and immediate family who agree to keep it confidential; (b) as otherwise required by law, in which case Executive shall notify the Company in writing in advance of disclosure; and (c) as necessary to enforce this Agreement.  By executing this Agreement, Parent and the Company each agree and represent that such person has maintained and will maintain the confidential nature of the agreement and has not and will not disclose its terms to any third party, except (x) to its executive staff and governing bodies, as necessary or appropriate, and to its outside counsel, auditors and other advisors; (y) as otherwise required by law (including applicable securities regulations); and (z) as necessary to enforce this Agreement.

9.General Provisions.

(a)Severability.  Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.

(b)Complete Agreement.  This Agreement, those documents expressly referred to herein and other documents of even date herewith, including but not limited to the Release attached as Exhibit A, embody the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way.

(c)Counterparts.  This Agreement may be executed in separate counterparts (including by means of facsimile or portable document format (pdf)), each of which is deemed to be an original and all of which taken together constitute one and the same agreement.

(d)Successors and Assigns.  Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by Executive, Parent, the Company and their respective successors and assigns; provided that the rights and obligations of Executive under this Agreement shall not be assignable.

(e)Governing Law.  All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed in accordance with the laws of the State of  New York without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the law of any jurisdiction other than the State of New York.

(f)Forum.  The parties agree that they will not file any action arising out of or based upon this Agreement other than in the federal and state courts located in the State of New York.  The parties consent to personal jurisdiction and venue solely within the federal and state courts located in the State of New York and waive all other possible objections thereto.

(g)Specific Performance.  Each of the parties to this Agreement shall be entitled to enforce its rights under this Agreement specifically, to recover damages and costs (including reasonable attorney’s fees) caused by any breach of any provision of this Agreement and to exercise all other rights existing in its favor.  The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any bond or deposit) for specific performance and/or other injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement.

(h)Amendment and Waiver.  The provisions of this Agreement may be amended and waived only with the prior written consent of Parent, the Company and Executive.

10.Code Section 409A Compliance.

(a)The intent of the parties is that payments and benefits under this Agreement comply with Internal Revenue Code Section 409A and the regulations and guidance promulgated thereunder (collectively “Code Section 409A”) and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith.  To the extent that any provision hereof is modified in order to comply with Code Section 409A, such modification shall be made in good faith and shall, to the maximum extent reasonably possible, maintain the original intent and economic benefit to Executive and the Company of the applicable provision without violating the provisions of Code Section 409A.  In no event whatsoever shall the Company be liable for any additional tax, interest or penalty that may be imposed on Executive by Code Section 409A or damages for failing to comply with Code Section 409A.

(b)Notwithstanding any other provision in this Agreement, the parties hereto agree that the bona fide level of services that Executive will be required to perform pursuant to Section 1(b) shall in no event be at a level that would prevent Executive from being treated as having a “separation from service” (within the meaning of Code Section 409A) on the Transition Date.

(c)A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amount or benefit upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Code Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment” or like terms shall mean “separation from service.”

(d)To the extent that any expense reimbursement or in-kind benefit under this Agreement constitutes “non-qualified deferred compensation” for purposes of Code Section 409A, (i) such expense or other reimbursement hereunder shall be made on or prior to the last day of the taxable year following the taxable year in which such expenses were incurred by Executive, (ii) any right to reimbursement or in-kind benefits will not be subject to liquidation or exchange for another benefit, and (iii) no such reimbursement, expenses eligible for reimbursement, or in-kind benefits provided in any taxable year shall in any way affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year.

(e)For purposes of Code Section 409A, Executive’s right to receive installment payments pursuant to this Agreement shall be treated as a right to receive a series of separate and distinct payments.

*      *      *      *

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above.

BURLINGTON COAT FACTORY HOLDINGS, INC.

By: /s/ Paul Tang

Name: Paul Tang

Its: EVP

BURLINGTON COAT FACTORY WAREHOUSE CORPORATION

By: /s/ Paul Tang

Name: Paul Tang

Its: EVP

MARK NESCI

/s/ Mark Nesci

Exhibit A

GENERAL RELEASE

I, Mark Nesci, in consideration of and subject to the performance by Burlington Coat Factory Warehouse Corporation, a Delaware corporation (the “Company”), of its obligations pursuant to the Separation Agreement, dated as of February 16, 2009 (the “Agreement”) and this General Release (the “General Release”), do hereby release and forever discharge as of the date hereof the Company, its subsidiaries and affiliates and all present and former directors, officers, agents, representatives, employees, successors and assigns of the Companies and their subsidiaries and affiliates and the Company’s direct and indirect owners (collectively, the “Released Parties”) to the extent provided below.

1.I understand that any payments paid to me under the Agreement represent consideration for signing this General Release and are not salary or wages to which I was already entitled.  I understand and agree that I will not receive the payments specified in the Agreement, or any other payments of any kind (including any payable pursuant to the terms of the Employment Agreement, dated as of April 13, 2006, by and between me and the Company (the “Employment Agreement”)) unless I execute this General Release and do not revoke this General Release within the time period permitted hereafter or breach this General Release, the Agreement, or the Employment Agreement.  Such payments will not be considered compensation for purposes of any employee benefit plan, program, policy or arrangement maintained or hereafter established by the Company or its affiliates.  I also acknowledge and represent that I have received all salary, wages and bonuses that I am entitled to receive (as of the date hereof) by virtue of any employment by the Company (except for bonuses, if any, referred to in Section 2(a)(ii) of the Agreement).

2.Except as provided in paragraphs 4, 12 and 13 below and except for the provisions of the Agreement and the Employment Agreement which expressly survive the termination of my employment with the Company, I knowingly and voluntarily (for myself, my heirs, executors, administrators and assigns) release and forever discharge the Company and the other Released Parties from any and all claims, suits, controversies, actions, causes of action, cross-claims, counter-claims, demands, debts, compensatory damages, liquidated damages, punitive or exemplary damages, other damages, claims for costs and attorneys’ fees, or liabilities of any nature whatsoever in law and in equity, both past and present (through the date this General Release becomes effective and enforceable) and whether known or unknown, suspected, or claimed against the Company or any of the Released Parties which I, my spouse, or any of my heirs, executors, administrators or assigns, may have, which arise out of or are connected with my employment with, or my separation or termination from, the Company (including, but not limited to, any allegation, claim or violation, arising under: Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended (including the Older Workers Benefit Protection Act); the Equal Pay Act of 1963, as amended; the Americans with Disabilities Act of 1990; the Family and Medical Leave Act of 1993; the Worker Adjustment Retraining and Notification Act; any applicable Executive Order Programs; the Fair Labor Standards Act; or their state or local counterparts; or under any other federal, state or local civil or human rights law, or under any other local, state, or federal law, regulation or ordinance; or under any public policy, contract or tort, or under common law; or arising under any policies, practices or procedures of the Company; or any claim for wrongful discharge, breach of contract, infliction of emotional distress, defamation; or any claim for costs, fees, or other expenses, including attorneys’ fees incurred in these matters) (all of the foregoing collectively referred to herein as the “Claims”).

3.I represent that I have made no assignment or transfer of any right, claim, demand, cause of action, or other matter covered by paragraph 2 above.

4.I agree that this General Release does not waive or release any rights or claims that I may have under the Age Discrimination in Employment Act of 1967 which arise after the date I execute this General Release. I acknowledge and agree that my engagement and employment by, and separation from employment with the Company in compliance with the terms of the Agreement shall not serve as the basis for any claim or action (including, without limitation, any claim under the Age Discrimination in Employment Act of 1967).

5.In signing this General Release, I acknowledge and intend that it shall be effective as a bar to each and every one of the Claims hereinabove mentioned or implied. I expressly consent that this General Release shall be given full force and effect according to each and all of its express terms and provisions, including those relating to unknown and unsuspected Claims (notwithstanding any state statute that expressly limits the effectiveness of a general release of unknown, unsuspected and unanticipated Claims), if any, as well as those relating to any other Claims hereinabove mentioned or implied. I acknowledge and agree that this waiver is an essential and material term of this General Release and that without such waiver the Company would not have agreed to make any payments pursuant to the Agreement.  I further agree that in the event I should bring a Claim seeking damages against the Company or any other Released Party, or in the event I should seek to recover against the Company or any other Released Party in any Claim brought by a governmental agency on my behalf, this General Release shall serve as a complete defense to such Claims. I further agree that I am not aware of any pending charge or complaint of the type described in paragraph 2 as of the execution of this General Release.

6.I agree that neither this General Release, nor the furnishing of the consideration for this General Release, shall be deemed or construed at any time to be an admission by the Company, any Released Party or myself of any improper or unlawful conduct.

7.I agree that I will forfeit all amounts payable by the Company pursuant to the Agreement if I challenge the validity of this General Release.  I also agree that if I violate this General Release by suing the Company or the other Released Parties, I will return all payments received by me pursuant to the Agreement.

8.I agree that this General Release is confidential and agree not to disclose any information regarding the terms of this General Release, except to my immediate family and any tax, legal or other advisor I have consulted regarding the meaning or effect hereof or as required by law, and I will instruct each of the foregoing not to disclose the same to anyone.

9.Any non-disclosure provision in this General Release does not prohibit or restrict me (or my attorney) from responding to any inquiry about this General Release or its underlying facts and circumstances by the Securities and Exchange Commission (SEC), the National Association of Securities Dealers, Inc. (NASD), any other self-regulatory organization or governmental entity.

10.I agree that, as of the Transition Date, I have returned to the Company any and all property, tangible or intangible, relating to its business, which I possessed or had control over at any time (including, but not limited to, credit cards, building or office access cards, keys, computer equipment, manuals, files, documents, records, software, customer data base and other data) and that I shall not retain any copies, compilations, extracts, excerpts, summaries or other notes of any such manuals, files, documents, records, software, customer data base or other data other than such documents as are generally or publicly known; provided, that such documents are not known as a result of my breach or actions in violation of the Agreement, the Employment Agreement, or this General Release.

11.Notwithstanding anything in this General Release to the contrary, this General Release shall not relinquish, diminish, or in any way affect any rights or claims arising out of any breach by Parent, the Company or by any Released Party of the Agreement after the date hereof or any other rights or claims I may have against Parent, the Company or any Released Party arising after the date hereof.

12.Whenever possible, each provision of this General Release shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this General Release is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this General Release shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.

13.As set forth in Section 1(c) of the Agreement, certain provisions of the Employment Agreement survived the termination of my employment and are incorporated herein and made part hereof.

BY SIGNING THIS GENERAL RELEASE, I REPRESENT AND AGREE THAT:

1.I HAVE READ IT CAREFULLY;

2.I UNDERSTAND ALL OF ITS TERMS AND KNOW THAT I AM GIVING UP IMPORTANT RIGHTS, INCLUDING BUT NOT LIMITED TO, RIGHTS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, AS AMENDED; THE EQUAL PAY ACT OF 1963 AND THE AMERICANS WITH DISABILITIES ACT OF 1990;

3.I VOLUNTARILY CONSENT TO EVERYTHING IN IT;

4.I HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING IT AND I HAVE DONE SO OR, AFTER CAREFUL READING AND CONSIDERATION I HAVE CHOSEN NOT TO DO SO OF MY OWN VOLITION;

5.I HAVE HAD AT LEAST 21 DAYS (OR 45 DAYS, AS REQUIRED BY LAW) FROM THE DATE OF MY RECEIPT OF THIS RELEASE SUBSTANTIALLY IN ITS FINAL FORM ON FEBRUARY 16,, 2009 TO CONSIDER IT;

6.ANY CHANGES TO THE EMPLOYMENT AGREEMENT SINCE APRIL 13, 2006 EITHER ARE NOT MATERIAL OR WERE MADE AT MY REQUEST.

7.I UNDERSTAND THAT I HAVE SEVEN DAYS AFTER THE EXECUTION OF THIS RELEASE TO REVOKE IT AND THAT THIS RELEASE SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED WITHOUT NOTICE OF ANY SUCH REVOCATION HAVING BEEN RECEIVED BY THE COMPANY;

8.I HAVE SIGNED THIS GENERAL RELEASE KNOWINGLY AND VOLUNTARILY AND WITH THE ADVICE OF ANY COUNSEL RETAINED TO ADVISE ME WITH RESPECT TO IT; AND

9.I AGREE THAT THE PROVISIONS OF THIS GENERAL RELEASE MAY NOT BE AMENDED, WAIVED, CHANGED OR MODIFIED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE COMPANY AND BY ME.

DATE:  February 16, 2009                                                                /s/ Mark Nesci

  Mark Nesci

EX-10.4

Exhibit 10.4
 

JOINDER TO LOAN DOCUMENTS

This Joinder to Loan Documents (this “Joinder”) is made as of February 18, 2009, by and among:

BURLINGTON COAT FACTORY WAREHOUSE CORPORATION (“Borrower”), a corporation organized under the laws of the State of Delaware, with its principal executive offices at 1830 Route 130, Burlington, New Jersey 08016;

The FACILITY GUARANTORS party to the Credit Agreement (as defined below) set forth on Schedule I annexed hereto (collectively, the “Existing Facility Guarantors”);

BURLINGTON COAT FACTORY OF IOWA, LLC (the “New Facility Guarantor”); and

BEAR STEARNS CORPORATE LENDING INC., a Delaware corporation, having a place of business at 383 Madison Avenue, New York, New York 10179, as administrative agent (in such capacity, the “Administrative Agent”) for its own benefit and the benefit of the other Credit Parties (as defined in the Credit Agreement referred to below) and as collateral agent (in such capacity, the “Collateral Agent”), for its own benefit and for the benefit of the other Secured Parties (as defined in the Credit Agreement referred to below) to the Credit Agreement (as defined below);

in consideration of the mutual covenants herein contained and benefits to be derived herefrom.

W I T N E S S E T H :

A.           Reference is made to a certain Credit Agreement dated as of April 13, 2006 (as amended, modified, supplemented or restated and in effect from time to time, the “Credit Agreement”), by and among, among others, Borrower, Existing Facility Guarantors (together with the Borrower, the “Existing Loan Parties”), the Lenders named therein (collectively, the “Lenders”) and Bear Stearns Corporate Lending Inc., as Administrative Agent, (in such capacity, the “Administrative Agent”), and as collateral agent (in such capacity the “Collateral Agent”, and collectively with the Administrative Agent, the “Agents”).

B.           Reference is further made to (i) a certain Guaranty dated as of April 13, 2006 (as amended, modified, supplemented or restated and in effect from time to time, the “Guaranty”) entered into among the Existing Facility Guarantors in favor of the Administrative Agent, the Collateral Agent and the other Secured Parties, pursuant to which each Existing Facility Guarantor unconditionally guaranteed all Obligations of the Borrower under the Credit Agreement and the other Loan Documents; and (ii) a certain Security Agreement dated as of April 13, 2006 (as amended, modified, supplemented or restated and in effect from time to time, the “Security Agreement”) entered into among the Existing Loan Parties and the Collateral Agent, to secure the Existing Loan Parties respective Obligations under the Loan Documents.

C.           Pursuant to the terms of Section 5.12 of the Credit Agreement, the Borrower is required to cause the New Facility Guarantor to become a party to, and bound by the terms of, the Credit Agreement and certain of the other Loan Documents, in the same capacity and to the same extent as the Existing Facility Guarantors thereunder.

D.           In order for the New Facility Guarantor to become party to the Credit Agreement and certain of the other Loan Documents as provided herein, the New Facility Guarantor and the Existing Loan Parties are required to execute this Joinder.

NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1.   Definitions.  All capitalized terms used herein and not otherwise defined shall have the same meaning herein as in the Credit Agreement.

2.   Joinder and Assumption of Obligations.  Effective as of the date of this Joinder:

a.   The New Facility Guarantor hereby:

i.   Joins in the execution of, and becomes a party to (i) the Credit Agreement, as a Facility Guarantor; (ii) the Guaranty, as a Facility Guarantor, and unconditionally guarantees, as a primary obligor and not merely as a surety, the due and punctual payment and performance (whether at the stated maturity, by acceleration or otherwise) by the Borrower of all Obligations; (iii) the Security Documents, as a Grantor; and (iv) each of the other Loan Documents to which the Existing Facility Guarantors are a party.

ii.   Assumes and agrees to perform all applicable duties and Obligations of a Loan Party under the Credit Agreement, the Guaranty, the Security Agreement and the other Loan Documents to which the Existing Facility Guarantors are a party.

b.   Without in any manner limiting the generality of clause (a) above, the New Facility Guarantor hereby covenants and agrees that:

i.   Such New Facility Guarantor shall be bound by all covenants (other than covenants which specifically relate solely to an earlier date), agreements, liabilities and acknowledgments of (i) a “Facility Guarantor” under the Credit Agreement and the Guaranty and (ii) a “Grantor” under the Security Agreement, in each case, with the same force and effect as if such New Facility Guarantor was a signatory thereto and was expressly named therein;

ii.   The Obligations may be extended or renewed, in whole or in part, without further notice to or assent from, such New Facility Guarantor, and that it will remain bound upon the Guaranty notwithstanding any extension or renewal of any of the Obligations, (ii) such New Facility Guarantor is jointly and severally liable for all Guaranteed Obligations (as defined in the Guaranty);

iii.   To secure the prompt and complete payment, performance and observance of all of the Obligations and all renewals, extensions, restructurings and refinancings thereof, such New Facility Guarantor hereby grants, mortgages, pledges and hypothecates to the Collateral Agent, for the benefit of the Collateral Agent and the Secured Parties, a Lien upon all of its right, title and interest in, to and under the Collateral.

3.   Representations and Warranties.  The New Facility Guarantor hereby makes all representations, warranties, and covenants set forth in the Credit Agreement, the Guaranty, the Security Agreement, and each of the other Loan Documents to which the Existing Facility Guarantors are a party, as of the date hereof (other than representations, warranties and covenants that relate solely to an earlier date).  To the extent that any changes in any representations, warranties, and covenants require any amendments to the Schedules to the Credit Agreement or other Loan Documents, such Schedules are hereby updated, as evidenced by any supplemental Schedules (if any) annexed to this Joinder.

4.   Ratification of Loan Documents.  Except as specifically amended by this Joinder and the other documents executed and delivered in connection herewith, all of the terms and conditions of the Credit Agreement and of the other Loan Documents shall remain in full force and effect as in effect prior to the date hereof, without releasing any Loan Party thereunder or Collateral granted by any Loan Party.

5.   Conditions Precedent to Effectiveness.  This Joinder shall not be effective until the following conditions precedent have each been fulfilled to the reasonable satisfaction of the Administrative Agent:

a.   This Joinder shall have been duly executed and delivered by the respective parties hereto, and shall be in full force and effect and shall be in form and substance reasonably satisfactory to the Administrative Agent.

b.   All action on the part of the New Facility Guarantor and the other Loan Parties necessary for the valid execution, delivery and performance by the New Facility Guarantor of this Joinder and all other documentation, instruments, and agreements required to be executed in connection herewith shall have been duly and effectively taken and evidence thereof reasonably satisfactory to the Administrative Agent shall have been provided to the Administrative Agent.

c.   The New Facility Guarantor (and each other Loan Party, to the extent requested by the Administrative Agent) shall each have delivered the following to the Administrative Agent, in form and substance reasonably satisfactory to the Administrative Agent:

i.   Certificate of Legal Existence and Good Standing issued by the Secretary of the State of its incorporation or organization.

ii.   A certificate of an authorized officer of the due adoption, continued effectiveness, and setting forth the text, of each corporate resolution adopted in connection with the assumption of obligations under the Credit Agreement and the other Loan Documents, and attesting to the true signatures of each Person authorized as a signatory to any of the Loan Documents, together with true and accurate copies of all Charter Documents.

iii.   Execution and delivery by the New Facility Guarantor of such other documents, agreements and certificates as the Administrative Agent and the Collateral Agent may reasonably require.

d.   Upon the reasonable request of the Administrative Agent, the Agents shall have received a favorable written legal opinion of the Loan Parties’ counsel addressed to the Agents and the other Lenders, covering such matters relating to the New Facility Guarantor, the Loan Documents and/or the transactions contemplated thereby as the Agents shall reasonably request.

e.   The Administrative Agent shall have received all documents and instruments, (including an authenticated record authorizing the Agents and their representatives to file such UCC financing statements as the Agents may determine to be appropriate), required by law or requested by the Administrative Agent or the Collateral Agent to create or perfect the first priority Lien (subject only to Permitted Encumbrances having priority by operation of Applicable Law) intended to be created under the Loan Documents and all such documents and instruments shall have been so filed, registered or recorded or other arrangements reasonably satisfactory to the Agents.

f.   The Loan Parties shall have executed and delivered to the Agents such additional documents, instruments, and agreements as the Agents may reasonably request.

6.   Miscellaneous.

a.   This Joinder may be executed in several counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, and all of which together shall constitute one instrument.

b.   This Joinder expresses the entire understanding of the parties with respect to the transactions contemplated hereby.  No prior negotiations or discussions shall limit, modify, or otherwise affect the provisions hereof.

c.   Any determination that any provision of this Joinder or any application hereof is invalid, illegal or unenforceable in any respect and in any instance shall not effect the validity, legality, or enforceability of such provision in any other instance, or the validity, legality or enforceability of any other provisions of this Joinder.

d.   The Loan Parties shall pay all Credit Party Expenses of the Agents and the Secured Parties, including, without limitation, all such Credit Party Expenses incurred in connection with the preparation, negotiation, execution and delivery of this Joinder in accordance with the terms of the Credit Agreement.

e.   THIS JOINDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

[SIGNATURE PAGES FOLLOW]

IN WITNESS WHEREOF, each of the undersigned has caused this Joinder to be duly executed and delivered by its proper and duly authorized officer as of the date first written above.

NEW FACILITY GUARANTOR:

BURLINGTON COAT FACTORY OF IOWA, LLC

By:__/s/ Paul Tang_________

Name:  Paul Tang

Title:    Executive Vice President

ADMINISTRATIVE AGENT:

BEAR STEARNS CORPORATE LENDING INC.

By:           __/s/  Barry Bergman________

Name:                      Barry Bergman

Title:                      Managing Director

COLLATERAL AGENT:

BEAR STEARNS CORPORATE LENDING INC.

By:           __/s/ Barry Bergman___

Name:                      Barry Bergman

Title:                      Managing Director

Acknowledged and Agreed:

BURLINGTON COAT FACTORY WAREHOUSE CORPORATION,

as Borrower

By:______/s/ Paul Tang _____________________

Name:  Paul Tang

Title:    Executive Vice President

THE ENTITIES LISTED ON SCHEDULE I HERETO, as Existing Facility Guarantors

By:___/s/  Paul Tang ________________________

Name:   Paul Tang

Title:     Executive Vice President

Schedule I

Existing Facility Guarantors

Burlington Coat Factory Warehouse Corporation (Lead Borrower)

Baby Depot of California, LLC

Bee Ridge Plaza, LLC

Burlington Coat Factory Direct Corporation

Burlington Coat Factory Holdings, Inc.

Burlington Coat Factory Investments Holdings, Inc.

Burlington Coat Factory of Alabama, LLC

Burlington Coat Factory of Arizona, LLC

Burlington Coat Factory of Arkansas, LLC

Burlington Coat Factory of California, LLC

Burlington Coat Factory of Colorado, LLC

Burlington Coat Factory of Connecticut, LLC

Burlington Coat Factory of Delaware, LLC

Burlington Coat Factory of Florida, LLC

Burlington Coat Factory of Georgia, LLC

Burlington Coat Factory of Idaho, LLC

Burlington Coat Factory of Illinois, LLC

Burlington Coat Factory of Iowa, LLC

Burlington Coat Factory of Indiana, LLC

Burlington Coat Factory of Kansas, LLC

Burlington Coat Factory of Kentucky, Inc.

Burlington Coat Factory of Louisiana, LLC

Burlington Coat Factory of Maine, LLC

Burlington Coat Factory of Maryland, LLC

Burlington Coat Factory of Massachusetts, LLC

Burlington Coat Factory of Michigan, LLC

Burlington Coat Factory of Minnesota, LLC

Burlington Coat Factory of Mississippi, LLC

Burlington Coat Factory of Missouri, LLC

Burlington Coat Factory of Nebraska, LLC

Burlington Coat Factory of Nevada, LLC

Burlington Coat Factory of New Hampshire, LLC

Burlington Coat Factory of New Jersey, LLC

Burlington Coat Factory of New Mexico, LLC

Burlington Coat Factory of New York, LLC

Burlington Coat Factory of North Carolina, LLC

Burlington Coat Factory of North Dakota, LLC

Burlington Coat Factory of Ohio, LLC

Burlington Coat Factory of Oklahoma, LLC

Burlington Coat Factory of Oregon, LLC

Burlington Coat Factory of Pennsylvania, LLC

Burlington Coat Factory of Pocono Crossing, LLC

Burlington Coat Factory of Rhode Island, LLC

Burlington Coat Factory of South Carolina, LLC

Burlington Coat Factory of Texas, Inc.

Burlington Coat Factory of Texas, L.P.

Burlington Coat Factory of Utah, LLC

Burlington Coat Factory of Virginia, LLC

Burlington Coat Factory of Washington, LLC

Burlington Coat Factory of West Virginia, LLC

Burlington Coat Factory of Wisconsin, LLC

Burlington Coat Factory Purchasing, Inc.

Burlington Coat Factory Realty Corp.

Burlington Coat Factory Realty of Bellaire, Inc.

Burlington Coat Factory Realty of Bloomingdale, Inc.

Burlington Coat Factory Realty of Coliseum, Inc.

Burlington Coat Factory Realty of Coral Springs, Inc.

Burlington Coat Factory Realty of Des Peres, Inc.

Burlington Coat Factory Realty of Desert Sky, Inc.

Burlington Coat Factory Realty of Dublin, Inc.

Burlington Coat Factory Realty of Edgewater Park, Inc.

Burlington Coat Factory Realty of El Paso, Inc.

Burlington Coat Factory Realty of Fairfax, Inc.

Burlington Coat Factory Realty of Florin, Inc.

Burlington Coat Factory Realty of Franklin, Inc.

Burlington Coat Factory Realty of Greenwood, Inc.

Burlington Coat Factory Realty of Huntsville, LLC

Burlington Coat Factory Realty of Langhorne, Inc.

Burlington Coat Factory Realty of Memphis, Inc.

Burlington Coat Factory Realty of Mesa, Inc.

Burlington Coat Factory Realty of Morrow, Inc.

Burlington Coat Factory Realty of North Attleboro, Inc.

Burlington Coat Factory Realty of Orlando, Inc.

Burlington Coat Factory Realty of Paramus, Inc.

Burlington Coat Factory Realty of Pinebrook, Inc.

Burlington Coat Factory Realty of River Oaks, Inc.

Burlington Coat Factory Realty of Sarasota, Inc.

Burlington Coat Factory Realty of Tulsa, Inc.

Burlington Coat Factory Realty of University Square, Inc.

Burlington Coat Factory Realty of Ventura, Inc.

Burlington Coat Factory Realty of West Colonial, Inc.

Burlington Coat Factory Realty of West Mifflin, Inc.

Burlington Coat Factory Realty of Westmoreland, Inc.

Burlington Coat Factory Realty of Whitehall, Inc.

Burlington Coat Factory Realty of Yonkers, Inc.

Burlington Coat Factory Warehouse of Anchorage, Inc.

Burlington Coat Factory Warehouse of Atlanta, Inc.

Burlington Coat Factory Warehouse of Baytown, Inc.

Burlington Coat Factory Warehouse of Bristol, LLC

Burlington Coat Factory Warehouse of Charleston, Inc.

Burlington Coat Factory Warehouse of Cheltenham, Inc.

Burlington Coat Factory Warehouse of Cleveland, Inc.

Burlington Coat Factory Warehouse of Coliseum, Inc.

Burlington Coat Factory Warehouse of Detroit, Inc.

Burlington Coat Factory Warehouse of East St. Louis, Inc.

Burlington Coat Factory Warehouse of Edgewater Park Urban Renewal Corp.

Burlington Coat Factory Warehouse of Grand Rapids, Inc.

Burlington Coat Factory Warehouse of Hickory Commons, Inc.

Burlington Coat Factory Warehouse of Langhorne, Inc.

Burlington Coat Factory Warehouse of Memphis, Inc.

Burlington Coat Factory Warehouse of Montgomeryville, Inc.

Burlington Coat Factory Warehouse of New Jersey, Inc.

Burlington Coat Factory Warehouse of Redford, Inc.

Burlington Coat Factory Warehouse of San Bernadino, LLC

Burlington Coat Factory Warehouse of Shelby, Inc.

Burlington Coat Factory Warehouse of Wilkes-Barre, Inc.

Burlington Coat Factory Warehouse Inc.

Burlington Coat Realty of East Windsor, Inc.

Burlington Coat Realty of Gurnee, Inc.

Burlington Coat Realty of Houston, Inc.

Burlington Coat Realty of Las Vegas, Inc.

Burlington Coat Realty of Plano, Inc.

Burlington Coat Realty of Potomac, Inc.

Burlington Factory Warehouse of Reading, Inc.

C.F.B., Inc.

C.F.I.C. Corporation

C.L.B., Inc.

Cohoes Fashions of Connecticut, LLC

Cohoes Fashions of Cranston, Inc.

Cohoes Fashions of Massachusetts, LLC

Cohoes Fashions of New Jersey, LLC

Cohoes Fashions of New York, LLC

Georgetown Fashions Inc.

K&T Acquisition Corp.

LC Acquisition Corp.

MJM Designer Shoes of California, LLC

MJM Designer Shoes of Delaware, LLC

MJM Designer Shoes of Florida, LLC

MJM Designer Shoes of Moorestown, Inc.

MJM Designer Shoes of New Jersey, LLC

MJM Designer Shoes of New York, LLC

MJM Designer Shoes of Pennsylvania, LLC

MJM Designer Shoes of Texas, Inc.

Monroe G. Milstein, Inc.

Super Baby Depot of Moorestown, Inc.

BCF Cards, Inc.

Burlington Coat Factory of Puerto Rico, LLC

Burlington Coat Factory of Hawaii, LLC

Burlington Coat Factory of Montana, LLC

Burlington Coat Factory of Vermont, LLC

Burlington Coat Factory of South Dakota, LLC

Burlington Coat Factory of Wyoming, LLC

EX-10.5

Exhibit 10.5

JOINDER TO LOAN DOCUMENTS

This Joinder to Loan Documents (this “Joinder”) is made as of February 18, 2009 by and among:

BURLINGTON COAT FACTORY WAREHOUSE CORPORATION, a Delaware corporation, as agent (in such capacity, the “Lead Borrower”) for itself and the other Borrowers party to the Credit Agreement referred to below;

The BORROWERS party to the Credit Agreement set forth on Schedule I annexed hereto (collectively, with the Lead Borrower, the “Existing Borrowers”);

The FACILITY GUARANTORS party to the Credit Agreement set forth on Schedule II annexed hereto (collectively, the “Facility Guarantors”);

BURLINGTON COAT FACTORY OF IOWA, LLC, an Iowa limited liability company (the “New Borrower”); and

BANK OF AMERICA, N.A., a national banking association, having a place of business at 100 Federal Street, Boston, Massachusetts 02109, as administrative agent (in such capacity, the “Administrative Agent”) for its own benefit and the benefit of the other Credit Parties (as defined in the Credit Agreement referred to below) and as collateral agent (in such capacity, the “Collateral Agent”), for its own benefit and for the benefit of the other Secured Parties (as defined in the Credit Agreement referred to below) to the Credit Agreement (as defined below);

in consideration of the mutual covenants herein contained and benefits to be derived herefrom.

W I T N E S S E T H :

A.           Reference is made to a certain Credit Agreement dated as of April 13, 2006 (as amended, modified, supplemented or restated and in effect from time to time, the “Credit Agreement”) by, among others (i) Lead Borrower, (ii) the Existing Borrowers, (iii) the Facility Guarantors (together with the Existing Borrowers, the “Existing Loan Parties”), (iv) the Lenders named therein (collectively, the “Lenders”), (v) Bank of America, N.A., as Administrative Agent, (vi) Bank of America, N.A., as Collateral Agent, (vii) Bear Stearns Corporate Lending Inc., a Delaware corporation, as Syndication Agent, and (viii) Wachovia Bank, National Association, The CIT Group/Business Credit, Inc., General Electric Capital Corporation, and JPMorgan Chase Bank, N.A., as co-Documentation Agents.

B.           Pursuant to the terms of Section 5.12 of the Credit Agreement, the Existing Loan Parties (as applicable) are required to cause the New Borrower to become a party to, and bound by the terms of, the Credit Agreement and the other Loan Documents, in the same capacity and to the same extent as the Existing Borrowers thereunder.  The undersigned New Borrower is executing this Joinder in accordance with the requirements of the Credit Agreement to become a Borrower thereunder and to induce the Lenders to make additional Revolving Credit Loans and to induce the Issuing Bank to issue additional Letters of Credit.

C.           In order for the New Borrower to become party to the Credit Agreement and certain of the other Loan Documents as provided herein, the New Borrower and the Existing Loan Parties are required to execute this Joinder.

NOW, THEREFORE, in consideration of the foregoing premises and as consideration for the Revolving Credit Loans previously made and the Letters of Credit previously issued, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1.   Definitions.  All capitalized terms used herein and not otherwise defined shall have the same meaning herein as in the Credit Agreement.

2.   Joinder and Assumption of Obligations.  Effective as of the date of this Joinder:

a.   New Borrower hereby:

i.   Joins in the execution of, and becomes a party to the Credit Agreement, the Revolving Credit Notes, the Swingline Note, the Security Documents and each of the other Loan Documents to which the Existing Borrowers are a party.

ii.   Assumes and agrees to perform all applicable duties and Obligations of a Loan Party under the Credit Agreement, the Revolving Credit Notes, the Swingline Note, the Security Documents and each of the other Loan Documents to which the Existing Borrowers are a party.

b.   Without in any manner limiting the generality of clause (a) above, New Borrower hereby covenants and agrees that:

i.   New Borrower shall be bound by all covenants (other than covenants which specifically relate solely to an earlier date), agreements, liabilities and acknowledgments of a Borrower under the Credit Agreement, the Revolving Credit Notes, the Swingline Note, the Security Documents and each of the other Loan Documents to which the Existing Borrowers are a party, in each case, with the same force and effect as if New Borrower was a signatory thereto and was expressly named therein;

ii.   To secure the prompt and complete payment, performance and observance of all of the Obligations and all renewals, extensions, restructurings and refinancings thereof, New Borrower hereby grants, mortgages, pledges and hypothecates to the Collateral Agent, for the benefit of the Collateral Agent and the Secured Parties, a Lien upon all of its right, title and interest in, to and under the Collateral.

3.   Representations and Warranties.  New Borrower hereby makes all representations, warranties, and covenants set forth in the Credit Agreement the Revolving Credit Notes, the Swingline Note, the Security Documents and each of the other Loan Documents as of the date hereof (other than representations, warranties and covenants that relate solely to an earlier date).  To the extent that any changes in any representations, warranties, and covenants require any amendments to the Schedules to the Credit Agreement or any of the other Loan Documents, such Schedules are hereby updated, as evidenced by any supplemental Schedules (if any) annexed to this Joinder.

4.   Ratification of Loan Documents.  Except as specifically amended by this Joinder and the other documents executed and delivered in connection herewith, all of the terms and conditions of the Credit Agreement and of the other Loan Documents shall remain in full force and effect as in effect prior to the date hereof, without releasing any Loan Party thereunder or Collateral granted by any Loan Party.

5.   Conditions Precedent to Effectiveness.  This Joinder shall not be effective until the following conditions precedent have each been fulfilled to the reasonable satisfaction of the Administrative Agent:

a.   This Joinder shall have been duly executed and delivered by the respective parties hereto, and shall be in full force and effect and shall be in form and substance reasonably satisfactory to the Administrative Agent.

b.   All action on the part of the New Borrower and the other Loan Parties necessary for the valid execution, delivery and performance by the New Borrower of this Joinder and all other documentation, instruments, and agreements required to be executed in connection herewith shall have been duly and effectively taken and evidence thereof reasonably satisfactory to the Administrative Agent shall have been provided to the Administrative Agent.

c.   New Borrower (and each other Loan Party, to the extent requested by the Administrative Agent) shall each have delivered the following to the Administrative Agent, in form and substance reasonably satisfactory to the Administrative Agent:

i.   Certificate of Legal Existence and Good Standing issued by the Secretary of the State of its incorporation or organization.

ii.   A certificate of an authorized officer of the due adoption, continued effectiveness, and setting forth the text, of each corporate resolution adopted in connection with the assumption of obligations under the Credit Agreement and the other Loan Documents, and attesting to the true signatures of each Person authorized as a signatory to any of the Loan Documents, together with true and accurate copies of all Charter Documents.

iii.   Execution and delivery by New Borrower of such other documents, agreements and certificates as the Administrative Agent and the Collateral Agent may reasonably require.

d.   The Agents, upon their reasonable request, shall have received a favorable written legal opinion of the Loan Parties’ counsel addressed to the Agents and the other Lenders, covering such matters relating to New Borrower, the Loan Documents and/or the transactions contemplated thereby as the Agents shall reasonably request.

e.   The Administrative Agent shall have received all documents and instruments, (including an authenticated record authorizing the Agents and their representatives to file such UCC financing statements as the Agents may determine to be appropriate), required by law or requested by the Administrative Agent or the Collateral Agent to create or perfect the first priority Lien (subject only to Permitted Encumbrances having priority by operation of Applicable Law) intended to be created under the Loan Documents and all such documents and instruments shall have been so filed, registered or recorded or other arrangements reasonably satisfactory to the Agents.

f.   The Loan Parties shall have executed and delivered to the Agents such additional documents, instruments, and agreements as the Agents may reasonably request.

6.   Miscellaneous.

a.   This Joinder may be executed in several counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, and all of which together shall constitute one instrument.

b.   This Joinder expresses the entire understanding of the parties with respect to the transactions contemplated hereby.  No prior negotiations or discussions shall limit, modify, or otherwise affect the provisions hereof.

c.   Any determination that any provision of this Joinder or any application hereof is invalid, illegal or unenforceable in any respect and in any instance shall not effect the validity, legality, or enforceability of such provision in any other instance, or the validity, legality or enforceability of any other provisions of this Joinder.

d.   The Loan Parties shall pay all Credit Party Expenses of the Agents and the Secured Parties, including, without limitation, all such Credit Party Expenses incurred in connection with the preparation, negotiation, execution and delivery of this Joinder in accordance with the terms of the Credit Agreement.

e.   THIS JOINDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

[SIGNATURE PAGES FOLLOW]

IN WITNESS WHEREOF, each of the undersigned has caused this Joinder to be duly executed and delivered by its proper and duly authorized officer as of the date first written above.

NEW BORROWER:

BURLINGTON COAT FACTORY OF IOWA, LLC

By:_____/s/  Paul Tang_____________

Name:   Paul Tang

Title:      Executive Vice President

ADMINISTRATIVE AGENT:

BANK OF AMERICA, N.A.

By:_____/s/  Kathleen Dimock_______

Name:  Kathleen Dimock

Title:     Managing Director

COLLATERAL AGENT:

BANK OF AMERICA, N.A.

By:_____/s/  Kathleen Dimock _______

Name:   Kathleen Dimock

Title:      Managing Director

Acknowledged and Agreed:

BURLINGTON COAT FACTORY WAREHOUSE CORPORATION,

as Lead Borrower

By:__/s/  Paul Tang _________________________

Name:  Paul Tang

Title:    Executive Vice President

THE ENTITIES LISTED ON SCHEDULE I HERETO, as Borrowers

By:_/s/  Paul Tang __________________________

Name:  Paul Tang

Title:    Executive Vice President

THE ENTITIES LISTED ON SCHEDULE II HERETO, as Facility Guarantors

By:__/s/  Paul Tang _________________________

Name:  Paul Tang

Title:    Executive Vice President

SCHEDULE I

Borrowers

Burlington Coat Factory Warehouse Corporation (Lead Borrower)

Burlington Coat Factory of Alabama, LLC

Burlington Coat Factory Warehouse of Anchorage, Inc.

Burlington Coat Factory of Arizona, LLC

Burlington Coat Factory of Arkansas, LLC

Baby Depot of California, LLC

Burlington Coat Factory of California, LLC

Burlington Coat Factory Warehouse of San Bernadino, LLC

MJM Designer Shoes of California, LLC

Burlington Coat Factory of Colorado, LLC

Burlington Coat Factory of Connecticut, LLC

Cohoes Fashions of Connecticut, LLC

Burlington Coat Factory of Delaware, LLC

Burlington Coat Factory of Texas, L.P.

C.F.B., Inc.

MJM Designer Shoes of Delaware, LLC

Burlington Coat Factory of Florida, LLC

MJM Designer Shoes of Florida, LLC

Burlington Coat Factory of Georgia, LLC

Burlington Coat Factory Warehouse of Atlanta, Inc.

Burlington Coat Factory of Idaho, LLC

Burlington Coat Factory of Illinois, LLC

Burlington Coat Factory Warehouse of East St. Louis, Inc.

Burlington Coat Factory of Indiana, LLC

Burlington Coat Factory of Iowa, LLC

Burlington Coat Factory of Kansas, LLC

Burlington Coat Factory of Kentucky, Inc.

Burlington Coat Factory of Louisiana, LLC

Burlington Coat Factory of Maine, LLC

Burlington Coat Factory of Maryland, LLC

Burlington Coat Factory of Massachusetts, LLC

Cohoes Fashions of Massachusetts, LLC

Burlington Coat Factory of Michigan, LLC

Burlington Coat Factory Warehouse of Detroit, Inc.

Burlington Coat Factory Warehouse of Redford, Inc.

Burlington Coat Factory Warehouse of Grand Rapids, Inc.

Burlington Coat Factory of Minnesota, LLC

Burlington Coat Factory of Mississippi, LLC

Burlington Coat Factory of Missouri, LLC

Burlington Coat Factory of Nebraska, LLC

Burlington Coat Factory of Nevada, LLC

Burlington Coat Factory of New Hampshire, LLC

Burlington Coat Factory Direct Corporation

Burlington Coat Factory of New Jersey, LLC

Burlington Coat Factory Warehouse of New Jersey, Inc.

Cohoes Fashions of New Jersey, LLC

MJM Designer Shoes of Moorestown, Inc.

MJM Designer Shoes of New Jersey, LLC

Super Baby Depot of Moorestown, Inc.

Burlington Coat Factory of New Mexico, LLC

Burlington Coat Factory of New York, LLC

Georgetown Fashions Inc.

Monroe G. Milstein, Inc.

Cohoes Fashions of New York, LLC

MJM Designer Shoes of New York, LLC

Burlington Coat Factory of North Carolina, LLC

Burlington Coat Factory of North Dakota, LLC

Burlington Coat Factory of Ohio, LLC

Burlington Coat Factory Warehouse of Cleveland, Inc.

Burlington Coat Factory of Oklahoma, LLC

Burlington Coat Factory of Oregon, LLC

Burlington Coat Factory Warehouse of Bristol, LLC

Burlington Coat Factory of Pennsylvania, LLC

Burlington Coat Factory Warehouse of Montgomeryville, Inc.

Burlington Coat Factory Warehouse of Cheltenham, Inc.

Burlington Coat Factory Warehouse of Wilkes-Barre, Inc.

Burlington Coat Factory Warehouse of Langhorne, Inc.

Burlington Factory Warehouse of Reading, Inc.

Burlington Coat Factory Warehouse Inc.

MJM Designer Shoes of Pennsylvania, LLC

Burlington Coat Factory of Rhode Island, LLC

Cohoes Fashions of Cranston, Inc.

Burlington Coat Factory of South Carolina, LLC

Burlington Coat Factory Warehouse of Charleston, Inc.

Burlington Coat Factory Warehouse of Memphis, Inc.

Burlington Coat Factory Warehouse of Shelby, Inc.

Burlington Coat Factory Warehouse of Hickory Commons, Inc.

Burlington Coat Factory Warehouse of Baytown, Inc.

MJM Designer Shoes of Texas, Inc.

Burlington Coat Factory of Utah, LLC

Burlington Coat Factory of Virginia, LLC

Burlington Coat Factory of Pocono Crossing, LLC

Burlington Coat Factory Warehouse of Coliseum, Inc.

Burlington Coat Factory of Washington, LLC

Burlington Coat Factory of West Virginia, LLC

Burlington Coat Factory of Wisconsin, LLC

BCF Cards, Inc.

Burlington Coat Factory of Puerto Rico, LLC

Burlington Coat Factory of Hawaii, LLC

Burlington Coat Factory of Montana, LLC

Burlington Coat Factory of Vermont, LLC

Burlington Coat Factory of South Dakota, LLC

Burlington Coat Factory of Wyoming, LLC

SCHEDULE II

Facility Guarantors

Burlington Coat Factory Holdings, Inc.

Burlington Coat Factory Investments Holdings, Inc.

Burlington Coat Factory Realty of Huntsville, LLC

Burlington Coat Factory Realty of Mesa, Inc.

Burlington Coat Factory Realty of Desert Sky, Inc.

Burlington Coat Factory Realty of Dublin, Inc.

Burlington Coat Factory Realty of Florin, Inc.

Burlington Coat Factory Realty of Ventura, Inc.

Burlington Coat Realty of East Windsor, Inc.

Burlington Coat Factory of Texas, Inc.

Burlington Coat Factory Purchasing, Inc.

C.F.I.C. Corporation

C.L.B., Inc.

Burlington Coat Factory Realty Corp.

Burlington Coat Factory Realty of University Square, Inc.

Burlington Coat Factory Realty of Coral Springs, Inc.

Burlington Coat Factory Realty of West Colonial, Inc.

Burlington Coat Factory Realty of Orlando, Inc.

Burlington Coat Factory Realty of Sarasota, Inc.

K&T Acquisition Corp.

Bee Ridge Plaza, LLC

Burlington Coat Factory Realty of Morrow, Inc.

Burlington Coat Realty of Gurnee, Inc.

Burlington Coat Factory Realty of Bloomingdale, Inc.

Burlington Coat Factory Realty of River Oaks, Inc.

Burlington Coat Factory Realty of Greenwood, Inc.

Burlington Coat Factory Realty of North Attleboro, Inc.

Burlington Coat Factory Realty of Des Peres, Inc.

Burlington Coat Realty of Las Vegas, Inc.

Burlington Coat Factory Realty of Edgewater Park, Inc.

Burlington Coat Factory Realty of Paramus, Inc.

Burlington Coat Factory Realty of Pinebrook, Inc.

Burlington Coat Factory Warehouse of Edgewater Park Urban Renewal Corp.

Burlington Coat Factory Realty of Yonkers, Inc.

LC Acquisition Corp.

Burlington Coat Factory Realty of Tulsa, Inc.

Burlington Coat Factory Realty of West Mifflin, Inc.

Burlington Coat Factory Realty of Langhorne, Inc.

Burlington Coat Factory Realty of Whitehall, Inc.

Burlington Coat Factory Realty of Memphis, Inc.

Burlington Coat Realty of Plano, Inc.

Burlington Coat Realty of Houston, Inc.

Burlington Coat Factory Realty of Westmoreland, Inc.

Burlington Coat Factory Realty of Bellaire, Inc.

Burlington Coat Factory Realty of El Paso, Inc.

Burlington Coat Realty of Potomac, Inc.

Burlington Coat Factory Realty of Fairfax, Inc.

Burlington Coat Factory Realty of Coliseum, Inc.

Burlington Coat Factory Realty of Franklin, Inc.

EX-31.1

Exhibit 31.1

I, Thomas A. Kingsbury, certify that:

 1. I have reviewed this quarterly report on Form 10-Q of Burlington Coat Factory  Investments Holdings, Inc.;  

2. Based on my knowledge, this report does not contain any untrue statement of a  material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;  

3. Based on my knowledge, the financial statements, and other financial information  included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;  

4.              The registrant's other certifying officer and I are responsible for establishing  and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:  

a. Designed such disclosure controls and procedures, or caused such  disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most  recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: April 14, 2009

/s/ Thomas A. Kingsbury

Thomas A. Kingsbury

President and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

I, Todd Weyhrich, certify that:

 1. I have reviewed this quarterly report on Form 10-Q of Burlington Coat Factory  Investments Holdings, Inc.;  

2. Based on my knowledge, this report does not contain any untrue statement of a  material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;  

3. Based on my knowledge, the financial statements, and other financial information  included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;  

4.              The registrant's other certifying officer and I are responsible for establishing  and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:  

a. Designed such disclosure controls and procedures, or caused such  disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most  recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: April 14, 2009

/s/ Todd Weyhrich

Todd Weyhrich

Executive Vice President - Chief Financial Officer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Burlington Coat Factory Investments Holdings, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended February 28, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas A. Kingsbury, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial position and results of operations of the Company.  

Date: April 14, 2009

/s/ Thomas A. Kingsbury

Thomas A. Kingsbury

President and Chief Executive Officer

(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Burlington Coat Factory Investments Holdings, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended February 28, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Todd Weyhrich, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial position and results of operations of the Company.

Date: April 14, 2009

/s/ Todd Weyhrich

Todd Weyhrich

Executive Vice President - Chief Financial Officer

(Principal Financial Officer)