FORM 10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

(Mark One)

or

Commission File No.: 1-8739

BURLINGTON COAT FACTORY WAREHOUSE CORPORATION
(Exact Name of Registrant as specified in its charter)

State or other jurisdiction: Delaware

I.R.S. Employer incorporation or
organization Identification No.: 22-1970303

1830 Route 130, Burlington, New Jersey               08016    
(Address of principal executive offices)           (Zip Code)

Registrant's telephone number,
including area code:          (609) 387-7800

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:     Common Stock, $1.00 par value per share

Name of each exchange
on which registered:     New York Stock Exchange

Securities Registered pursuant to Section 12(g) of the Act:

Title of Class:     None

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     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     YES  X      NO___.

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     [  ]

     Indicate by check mark whether the registrant is an accelerated filer.     YES  X      NO___.

As of July 31, 2004, the number of shares of Common Stock, $1.00 par value, outstanding was 44,630,689.

The documents incorporated by reference into this Form 10-K:

Registrant's Proxy Statement to be filed pursuant to
Regulation 14A.

The Part of the Form 10-K into which the document is incorporated:

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PART I

Item 1. Business

     Burlington Coat Factory Warehouse Corporation and its subsidiaries (the "Company" or "Burlington Coat") operate, through its Burlington Coat Factory division, a chain of department stores which offer a broad range of moderate to higher priced, current brand name merchandise for men, women and children at prices substantially below traditional full retail prices generally charged by other department and specialty stores. Burlington Coat offers customers a complete line of men's, women's and children's wear and accessories (such as handbags, belts, perfume, watches, etc.) as well as a linens (linens, bath shop items, gifts and luggage) department in three hundred seven of its stores, a children's furniture department in one hundred ninety-nine of its stores, and a shoe department in three hundred fourteen of its stores. The Company also offers merchandise for sale through its internet subsidiary, Burlington Coat Factory Direct Corporation, on the worldwide w eb (www.bcfdirect.com). The Company's policy of buying significant quantities of merchandise throughout the year, maintaining inventory control and using a "no-frills" merchandising approach, allows it to offer merchandise at prices below traditional full retail prices. Merchandise is displayed on easy access racks, and sales assistance generally is available. Clothing alteration services are available on a limited basis in many stores for an additional charge.

     Burlington Coat's practice of purchasing outerwear early in each fashion season and of reordering in rapid response to sales has enabled it to maintain a large, current and varied selection of outerwear throughout each year. Although the Company believes that this practice helps attract customers to its stores, to the extent the Company maintains a relatively large inventory of merchandise, particularly outerwear, the risks related to style changes, weather and other seasonal factors, and economic conditions are necessarily greater than if the Company maintained smaller inventories.

     An important factor in Burlington Coat's operations has been its continued ability to purchase desirable, first-quality, current brand, labeled merchandise directly from manufacturers on terms at least as favorable as those offered to other department and specialty stores. The Company estimates that over 1,000 manufacturers of apparel, including over 200 manufacturers of outerwear, are represented at the Company's stores, and that no manufacturer accounted for more than 5% of the Company's purchases during the last full fiscal year. The Company does not maintain any long term or exclusive commitments or arrangements to purchase from any manufacturer. No assurance can be given that the Company will be able to continue to purchase such merchandise directly from

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     The Company sells its merchandise to retail customers for cash and accepts checks and most major credit cards. The Company's "Cohoes" division also offers its own credit card. In addition, the Company maintains a layaway plan and offers special orders on selected merchandise. It does not offer refunds, except on defective merchandise and certain sales from specialty retail operations, but will exchange merchandise or give store credit for merchandise returned within a prescribed period of time.

     The Company advertises primarily on television and, to a lesser extent, in regional and local newspapers and radio. During the past three fiscal years, advertising expenditures have averaged approximately 2.3% of total revenues.

     The Company has two major product segments, apparel and home products. The apparel segment includes departments offering all clothing items for men, women and children and apparel accessories such as shoes, jewelry, perfumes and watches. The home products segment includes departments offering linens, home furnishings, gifts, baby furniture and baby furnishings. Net sales from continuing operations from the sale of apparel products for fiscal years 2004, 2003 and 2002 were $2.2 billion, $2.1 billion and $1.9 billion, respectively. Net sales from continuing operations from the sale of home products for fiscal years 2004, 2003 and 2002 were $0.6 billion, $0.6 billion, and $0.6 billion, respectively.

     As of July 31, 2004, the Company operated three hundred forty-nine department stores, all but forty of which are located in leased facilities ranging in size (including storage space) from approximately 20,000 to approximately 178,000 square feet, with an average area of approximately 78,000 square feet. Total store gross square footage increased to approximately 27,315,000 square feet, an increase of 7.1% over a year ago. Selling space accounts for over seventy percent of the total area in most stores.

     All of the Company's department stores are either free-standing or are located in shopping malls, strip shopping centers or other commercial complexes. The Company believes that its customers are attracted to its stores principally by the availability of a large assortment of first-quality current brand name merchandise at attractive prices.

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     The Company also operates stores under the names "Cohoes Fashions," "MJM Designer Shoes" and "Luxury Linens." Cohoes Fashions offers merchandise in the middle to higher price range. MJM Designer Shoes offers moderately priced designer and fashion shoes. Luxury Linens is a specialty store for linens, bath shop items, gifts and accessories and offers merchandise in the middle to higher range. The Company also operates one stand-alone store under the name "Totally 4 Kids". Through June 2003, the Company operated seven stores under the name "Decelle." During July 2003, these stores were closed. The Company converted three stores formerly operated as Decelle stores to Burlington Coat Factory Stores and intends to convert two stores formerly operated as Decelle stores to Cohoes Fashions stores.

     The stores generally are located in close proximity to population centers, other department stores and other retail operations and are usually established near a major highway or thoroughfare, making them easily accessible by automobile. It is likely that the Company would be adversely affected by any conditions which were to result in the reduction of automobile use.

     The Company owns substantially all the equipment used in its stores and believes that its selling space is well utilized and that its equipment is well maintained and suitable for its requirements.

     Some stores contain departments licensed to unaffiliated parties for the sale of items such as lingerie, fragrances, shoes and jewelry. During the fiscal year ended May 29, 2004, the Company's rental income from all of its licensed departments aggregated less than 1% of the Company's total revenues.

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     Statements made in this report that are forward-looking (within the meaning of the Private Securities Litigation Reform Act of 1995) are not historical facts and involve a number of risks and uncertainties. Such statements include but are not limited to, proposed store openings and closings, proposed capital expenditures, projected financing requirements, proposed developmental projects, projected sales and earnings, and the Company's ability to maintain selling margins. Among the factors that could cause actual results to differ materially are the following: general economic conditions; consumer demand; consumer preferences; weather patterns; competitive factors, including pricing and promotional activities of major competitors; the availability of desirable store locations on suitable terms; the availability, selection and purchasing of attractive merchandise on favorable terms; import risks; the Company's ability to control costs and expenses; unfore seen computer related problems; any unforeseen material loss or casualty; the effect of inflation; and other factors that may be described in the Company's filings with the Securities and Exchange Commission. The Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied will not be realized.

     (1)  Stores Growth

     Since 1972 when its first store was opened in Burlington, New Jersey, the Company has expanded to three hundred twenty-nine Burlington Coat Factory department stores, five Cohoes Fashions stores, eleven MJM Designer Shoes stores and three stand-alone Luxury Linens stores. The Company also operates one stand-alone Totally 4 Kids store.

     At July 31, 2004 the Company operated stores in 42 states and is exploring expansion opportunities both within its current market areas and in other regions. For fiscal 2005, the Company plans to open approximately twelve additional Burlington Coat Factory department stores, eight MJM Designer Shoes stores and two Super Baby Depot stores.* The Company plans to open one Super Baby Depot store in Moorestown, New Jersey and one in Ontario, California. The Super Baby Depot store in Ontario, California will be the result of the conversion of the existing Totally 4 Kids store into two separate stores, the Super Baby Depot store and an MJM Designer Shoes store. The Super Baby Depot Stores are stand-alone stores based on the same merchandising concepts as those of the Baby Depot departments in the Burlington Coat Factory stores. The Company also intends to convert two stores formerly operated as Decelle stores to Cohoes Fashions stores.*

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     For fiscal 2005, the Company has planned store expansions and remodelings for approximately twelve stores.* In addition, the Company plans to relocate approximately six of its stores to new locations within the same trading market.* The Company continues to monitor store profitability and should economic factors change, some store closings could be possible.

     (2) Operations

     During fiscal 2004, the Company completed construction of a new warehouse and distribution facility of approximately 650,000 square feet in Edgewater Park, New Jersey. This new facility expands the Company's warehousing and distribution capacity and allows the Company to increase its percentage of centrally received goods. The new facility came on-line in August of 2003 and should be processing merchandise at full capacity within eighteen to twenty-four months. During fiscal 2005, the Company plans to implement a new warehouse management system which the Company hopes will (i) reduce receiving, sorting and other merchandise handling times, (ii) improve planning and allocation efficiency and (iii) reduce merchandise processing and handling costs.* The new facility also contains a new data center. This data center and the existing data center at the Company's corporate headquarters will be active operational data centers connected by a high speed telecomm unications network. These facilities will provide back up to each other in the case of an event causing a loss of data at one of the facilities.*

     Early in fiscal 2004, the Company completed a roll-out of new point-of-sale register systems to all of the Company's stores. The new register systems allows the Company to use new payment methodologies and technologies and provides necessary flexibility as these methodologies and technologies evolve over time.* During fiscal 2004, the Company also completed a roll-out of new debit card and electronic signature capture terminals. These roll-outs were part of a multi-year store systems upgrade which includes gift cards, new software and customer loyalty programs.

     During the second quarter of fiscal 2003, the Company launched its stored value card and gift card programs. The cards are reusable plastic wallet-sized cards that substantially replace the Company's paper gift certificates and store credits. The cards allow for improved control over the administration of store credit and gift certificate services. The Company hopes that these cards will be the foundation of its customer loyalty program.*

     During fiscal 2004, the Company continued its drive to increase the percentage of its merchandise purchases performed via electronic data interchange ("EDI"). Conducting transactions via EDI, rather than via paper purchase orders and paper invoices, improves efficiency in submitting merchandise orders, receiving merchandise and processing payments for merchandise orders.* By the end of fiscal 2004, approximately one-third of all the Company's merchandise purchases were being conducted via EDI.

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     In fiscal 2005, the Company plans to begin a pilot program using kiosks in its stores to perform a variety of employment and customer service functions. The kiosks will allow customers to enroll in and search the Company's Baby Depot gift registry, place and retrieve information regarding the status of special merchandise orders. In addition, the kiosks will gather customer information for direct marketing and promotional purposes and allow prospective employees to submit employment applications.*

     The Company offers merchandise for sale through its internet subsidiary, Burlington Coat Factory Direct Corporation, on the worldwide web. During the Spring of 2000, the Company relaunched its on-line shopping web site (www.bcfdirect.com). The site features thousands of merchandise items, shopping cart functionality, item search capability and a secure on-line payment processing system. An order management system allows for vendor direct, warehouse and store-based fulfillment of orders. Web site product data is tied to the Company's inventory systems for maintenance of prices and item availability. No assurance can be given, however, that this venture will be successful.*

     The Company seeks to maintain its competitive position and improve its prospects by periodically reevaluating its methods of operation, including its pricing and inventory policies, the format of its stores and its ownership or leasing of stores.

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

     At July 31, 2004, the Company had approximately 24,000 employees, including a large number of part-time and seasonal employees which varies throughout the year. Of the Company's employees, only those employed at two of its stores are members of collective bargaining units. The Company cannot predict whether any future attempts to unionize its employees will be successful. The Company believes that its relationship with its employees has been and remains satisfactory.

     General. The retail business is highly competitive. Competitors include other department stores as well as individual, regional, and national "off-price" retailers and discount store chains. At various times throughout the year, traditional full-price department store chains and specialty shops offer brand name merchandise at substantial markdowns, which can result in prices approximating those offered by the Company at its Burlington Coat Factory department stores. Some of the Company's competitors

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are considerably larger than the Company and have substantially greater financial and other resources.

     Resale Price Maintenance. Since it is the general policy of the Company to sell at lower than the traditional full retail price, its business may be adversely affected by manufacturers who attempt to maintain the resale price of their merchandise by refusing to sell or grant advertising allowances to purchasers who do not adhere to their suggested retail prices. Federal legislation and regulations have been proposed from time to time which, if enacted, would be helpful to manufacturers attempting to establish minimum prices or withhold allowances. In addition, the rules against resale price maintenance have been subject to challenge in the courts from time to time.

     The Company has, on several occasions in the past, brought lawsuits against certain manufacturers and department store chains and complained to the Federal Trade Commission seeking more vigorous enforcement of existing Federal laws, as well as testified before Congress in connection with proposed legislation concerning the Federal antitrust laws.

     The Company's website is www.coat.com. The Company makes available on this website, free of charge, the Company's annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those filings, as soon as practical after such reports are filed with the Securities and Exchange Commission. The Company also makes available on this website its Code of Business Conduct and Ethics (which includes the Company's Code of Ethics for the Chief Executive Officer and Senior Financial Officers), its Corporate Governance Guidelines, and its Audit Committee Charter. Information contained on this website is not part of this report. Printed copies of information referred to in this paragraph is also available by writing to the Company at: Corporate Secretary, Burlington Coat Factory Warehouse Corporation, 1830 Rt. 130, Burlington, NJ 08016.

Item 2. Properties

     The Company owns the land and/or building for forty of its stores. Generally, however, the Company's policy has been to lease its stores. Store leases generally provide for fixed monthly rental payments, plus the payment, in most cases, of real estate taxes and other charges with escalation clauses. In many locations, the Company's store leases contain formulas providing for the payment of additional rent based on sales.

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     The following table shows the years in which store leases existing at July 31, 2004 expire:

     The Company owns five buildings in Burlington, New Jersey. Of these buildings, two are used by the Company as retail space. In addition, the Company owns approximately 97 acres of land in the Townships of Burlington and Florence, New Jersey on which the Company has constructed its office and warehouse/distribution facility. The Company leases a warehouse facility of approximately 300,000 square feet in Bristol, Pennsylvania. The Company leases approximately 20,000 square feet of office space in New York City. The Company owns approximately forty-six acres of land in Edgewater Park, New Jersey on which the Company has constructed a new facility of approximately 650,000 square feet. This new facility expands the Company's warehousing and distribution capabilities. The new facility became operational in August of 2003.

Item 3. Legal Proceedings

     In the past, the Company has initiated several lawsuits in its effort to stop what it believes to be unlawful practices on the part of certain manufacturers and large retailers to control the prices at which certain items of merchandise may be sold at the Company's stores.

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

     The Company did not submit any matter to a vote of its security holders during the fourth quarter of fiscal 2004.

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PART II

     The Company's Common Stock is traded on the New York Stock Exchange and its trading symbol is "BCF."

     The following table provides the high and low closing prices on the New York Stock Exchange for each fiscal quarter for the period from June 2, 2002 to May 29, 2004 and for the two months ended July 31, 2004.

     At July 31, 2004, there were 228 record holders of the Company's Common Stock. The number of record holders does not reflect the number of beneficial owners of the Company's Common Stock for whom shares are held by Cede & Co., certain brokerage firms and others.

     The Board of Directors of the Company declared an annual cash dividend of four cents ($0.04) per share on August 5, 2004, payable on December 15, 2004, to stockholders of record on November 22, 2004. The Company expects the paid dividend to be approximately $1.8 million. A cash dividend of three cents ($0.03) per share for fiscal 2004 was declared on August 14, 2003, and was paid on December 8, 2003, to stockholders of record on November 14, 2003. The paid dividend amounted to $1.3 million. Maintenance of the cash dividend policy or any change thereto in the future will be at the discretion of the Company's Board of Directors and will depend upon the financial condition, capital requirements and earnings of the Company as well as other factors which the Board of Directors may deem relevant. At present, the policy of the Board of Directors of the Company is to retain the majority of earnings to finance the growth and development of the Company's busines s.

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     The Company did not repurchase any shares of its stock during fiscal 2004. As of May 29, 2004, the Company had not authorized the repurchase of any additional shares of stock.

     The following table summarizes the Company's common stock repurchase activity for the three months ended May 29, 2004 and the approximate value of shares of common stock that may yet be repurchased.

Item 6. Selected Financial Data

     The following tables set forth certain selected financial data:

     Burlington Coat Factory sales were weak during the first two quarters of fiscal 2004 as a result of the general economic condition. However, sales strengthened in the second half of the year as the economy improved. Comparative store sales decreased by 0.3% in fiscal 2004 as compared with the same twelve-month period a year ago. Consolidated net sales for the 2004 fiscal year increased 6.6% over the twelve-month period a year ago. While improving economic conditions contributed to the improved performance during the latter half of the year, the increase in consolidated net sales for the year resulted primarily from the sales contributed by the new stores that opened in fiscal 2004.

     The Company's second quarter sales were weak as a result of the dramatically unseasonable warm weather throughout most of the country in October and November 2003. Historically, sales in the months of September to January have accounted for 52% of the Company's net sales for the year. The warm weather that was experienced throughout most of the areas served by the Burlington Coat Factory directly resulted in lower than expected sales.

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

     Comparative store sales is a measure of the 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 Company experienced a slight decrease in comparative store sales of 0.3% in fiscal 2004 compared with fiscal 2003. In the Company's case, the slight decline in comparative store sales was experienced even though unit sales increased. The Company experienced increased price competition from other retailers due to the availability of products from manufacturers at lower prices.

     Inventory turnover is a measure that indicates how efficiently inventory is bought and sold. It measures the length of time the Company owns its inventory. This is significant because usually the longer the inventory is owned, the more likely markdowns may be required to sell the inventory. Inventory turnover is calculated by dividing the retail sales by the average stock for the period being measured. Inventory turnover improved slightly in fiscal 2004 with a 4.72 rate, compared with a 4.65 rate in fiscal 2003.

     Inventory levels are monitored by management to assure that the stores are properly stocked to service customer needs while at the same time assuring that stores are not over-stocked which would necessitate increased markdowns to move slow-selling merchandise. At the end of fiscal 2004, the inventory was $622.5 million versus $583.1 million at the end of fiscal 2003. This increase in inventory is due to the increase in the number of stores operating in fiscal 2004 compared with fiscal 2003. The inventory per store was $1.8 million in both fiscal 2004 and fiscal 2003.

     Gross margin is a measure used by management to indicate whether the Company is selling merchandise at an appropriate gross profit. Gross margin is the difference between net sales and the cost of goods. The Company experienced a slight increase in gross margin for fiscal 2004 to 37.7%, from 37.5% for fiscal 2003.

     Net operating margin provides management with an indication of the operating profitability of the Company. Net operating margin is the difference between revenues (net sales and other income) and the combination of the cost of goods and operating expenses (selling and administrative expenses and depreciation). The Company's net margin increased slightly from $114.1 million in fiscal 2003 to $119.9 million in fiscal 2004.

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     Liquidity measures the Company's ability to generate cash. Management measures liquidity through cash flow and working capital. Cash flow is the measure of cash generated from operating, financing, and investing activities. The Company experienced an increase in cash flow from operations resulting from an increase of cash from merchandise sales in fiscal 2004 compared with the prior fiscal year, and from an increase in trade accounts payable in fiscal 2004 compared with the prior year. The increase in sales resulted from the contribution of sales from new stores and did not significantly improve the cash position of the Company. The increase in trade accounts payable was due to longer dating of accounts, which was driven by terms negotiated with vendors, and has benefited the Company's cash position by allowing the Company to hold and productively utilize the cash for a longer period. In addition, the Company sold $100 million of senior notes in fiscal 2 004, which bolstered cash flow from financing activities. The cash from the sale of notes increased the Company's liquidity and further improved the current ratio. The Company will use the proceeds from the sale of notes for general corporate purposes and store expansions. Along with cash flow, working capital assists management in determining the Company's ability to meet its cash requirements. Working capital measures the Company's current financial position. Working capital is current assets minus current liabilities. Working capital for fiscal 2004 was $336.9 million, compared with $203.1 million in fiscal 2003. This increase in working capital resulted in part from the Company's sale of $100 million of senior notes.

     The Company's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue returns, bad debts, inventories, income taxes, financing operations, asset impairment, retirement benefits, risk participation agreements, vendor promotional allowances, reserves for closed store and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making 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.

     The Company believes that the following represent its more critical estimates and assumptions used in the preparation of the consolidated financial statements, although the list is not exhaustive:

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Inventory. The Company's inventory is valued at the lower of cost or market using the retail first-in, first-out ("FIFO") inventory method. Under the retail inventory method, the valuation of inventory at cost and resulting gross margin are calculated by applying a calculated cost to retail ratio to the retail value of inventory. The retail inventory method is an averaging method that has been widely used in the retail industry due to its practicality. Additionally, the use of the retail inventory method will result in valuing inventory at the lower of cost or market if markdowns are currently taken as a reduction of the retail value of inventory. Inherent in the retail inventory method calculation are certain significant management judgments and estimates including, merchandise markon, markups, markdowns and shrinkage which significantly impact the ending inventory valuation at cost as well as the resulting gross margin. Management believes that the Company's retail i nventory method and application of FIFO provides an inventory valuation which approximates cost using a first-in, first-out assumption and results in carrying value at the lower of cost or market. Estimates are used to charge inventory shrinkage for the first three fiscal quarters of the fiscal year. An actual physical inventory is conducted at the end of the fiscal year to calculate actual shrinkage. The Company also estimates its required markdown allowances. If actual market conditions are less favorable than those projected by management, additional markdowns may be required. While the Company makes estimates on the basis of the best information available to it at the time estimates are made, over accruals or under accruals may be uncovered as a result of the physical inventory requiring fourth quarter adjustments.

Insurance. The Company has risk participation agreements with insurance carriers with respect to workers' compensation and liability insurance. Pursuant to these arrangements, the Company is responsible for paying individual claims up to designated dollar limits. The amounts included in the Company's 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 or liability claims will result in a corresponding increase in the Company's costs related to these claims.

Reserves for Revenue Returns. The Company records reserves for future revenue returns. The reserves are based on current revenue volume and historical claim experience. If claims experience differs from historical levels, revisions in the Company's estimates may be required.

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

Allowance for Doubtful Accounts. The Company maintains allowances for bad checks and losses on credit card accounts.

     In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses accounting standards for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs and is effective for fiscal years beginning after June 15, 2002. The Company adopted SFAS No. 143 on June 1, 2003. The adoption did not have a material effect on the Company's earnings or financial position.

     In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, an Amendment of FASB Statement No. 123. SFAS No. 148 amends FASB No. 123, Accounting for Stock-Based Compensation and Accounting Principles Board ("APB") Opinion No. 28, Interim Financial Reporting. It provides for alternative methods of transition for an entity which voluntarily changes to the fair value based method of accounting for stock-based employee compensation and amends the disclosure requirements of an entity's accounting for stock-based compensation on both an annual and interim financial reporting basis. Certain provisions of FASB No. 148 related to FASB No. 123 and APB No. 28 are effective for reports containing condensed financial statements for interim periods beginning after December 15, 2002. All other provisions of the statement are effective for financial statements for fiscal years ending after Decem ber 15, 2002. The Company has adopted the disclosure requirements of SFAS No. 148.

     In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments and hedging activities. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and is effective for hedging relationships designated after June 30, 2003. The Company adopted this statement in the first quarter of fiscal 2004 with no material effect on its consolidated financial statements.

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     In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures financial instruments that are within the pronouncement's scope as a liability because it embodies an obligation of the issuer. Provisions of this standard are consistent with the current definition of liabilities in FASB Concepts Statement No. 6, Elements of Financial Statements, while other provisions revise that definition to include certain obligations that a reporting entity can or must settle through issuance of its own equity shares. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first interim period beginning after June 15, 2003. The Company adopted this statement in the second quarter of fiscal 2004. The adoption of S FAS No. 150 had no material effect on its consolidated financial statements.

     In November 2003, the FASB decided to defer certain provisions of SFAS No. 150 related to mandatorily redeemable financial instruments representing non-controlling interests in subsidiaries included in consolidated financial statements. Management will monitor the actions of the FASB and assess the impact, if any, that these actions may have on the Company's financial statements.

     In January of 2003, the FASB issued FASB Interpretation ("FIN") No. 46, Consolidation of Variable Interest Entities. FIN No. 46 requires the consolidation of entities that cannot finance their activities without the support of other parties and that lack certain characteristics of a controlling interest, such as the ability to make decisions about the entity's activities via voting rights or similar rights. The entity that consolidates the variable interest entity is the primary beneficiary of the entity's activities. In December 2003, the FASB revised FIN 46 ("FIN 46R"), which delayed the required implementation date for entities that do not have an interest in variable interest entities or potential variable interest entities for periods ending after March 15, 2004. The Company adopted this interpretation for fiscal year ended May 29, 2004. The adoption of FIN 46R did not have a material effect on the Company's consolidated financial statements.

     In November 2003, the Emerging Issues Task Force ("EITF") issued EITF Issue No. 03-10, Application of EITF No. 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor, by Resellers to Sales Incentives Offered to Consumers by Manufacturers. This Issue addresses the financial statement classification of consideration received by a reseller from a vendor that is reimbursement by the vendor for honoring the vendor's sales incentives offered directly to consumers. Issue No. 03-10 requires that, upon certain criteria being met, consideration received by a reseller from a vendor that is reimbursement by the vendor for honoring the vendor's sales incentives offered directly to the consumer be classified as revenue. EITF Issue No. 03-10 is effective for fiscal periods beginning after November 25, 2003. The Company adopted this statement in the third quarter of fiscal 2004. The adoption of EITF Issue No. 03-10 had no material effect on the Company's consolidated financial statements.

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     In March 2004, the EITF issued a consensus on EITF Issue No. 03-01, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. In this consensus, the EITF required certain quantitative and qualitative disclosures related to debt and marketable equity securities classified as available-for-sale or held-to-maturity under SFAS No. 115 that are in an unrealized loss position at the balance sheet date but for which an other-than-temporary impairment has not been recognized. In addition, the EITF developed a basic model in evaluating whether investments within the scope of EITF Issue No. 03-01 have other-than-temporary impairment. The Company adopted the requirements of EITF Issue No. 03-01 during fiscal 2004. The adoption of EITF Issue No. 03-01 did not have a material impact on the Company's consolidated financial statements.

     The Company maintains its records on the basis of a 52-53 week fiscal year ending on the Saturday closest to May 31. The following discussion compares the twelve months (52 weeks) ended May 29, 2004 with the twelve months (52 weeks) ended May 31, 2003 and the twelve months (52 weeks) ended May 31, 2003 with the twelve months (52 weeks) ended June 1, 2002.

     The following table sets forth certain items, relating to continuing operations, in the consolidated statements of operations as a percentage of net sales for the twelve months ended May 29, 2004 and May 31, 2003 (prior year information reclassified to conform to current year presentation).

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Sales

     Consolidated net sales increased $177.5 million (6.6%) for fiscal 2004 compared with the similar period of a year ago, due primarily to sales from the new stores. Comparative stores sales decreased 0.3% for fiscal 2004.

     Beginning in fiscal 2004, the Company changed its method of calculating comparative store sales in order to mitigate the effect of store grand openings and store expansions. The Company now defines its comparative store sales as sales of those stores (net of sales discounts) that are beginning their four hundred and twenty-fifth day of operation (approximately 1 year and 2 months). Existing stores whose square footage has been changed by more than 20% and relocated stores are classified as new stores for comparative store sales purposes. This method is the method used in this section comparing the results of operations for the twelve months ended May 29, 2004 with the results of operations for the twelve months ended May 31, 2003. Previously: (i) the Company defined comparative store sales as sales of those stores beginning their three hundred and sixty-fifth day of operation; (ii) comparative store sales did not include sales discounts; (iii) comparati ve store sales included sales of all expanded stores; (iv) relocated stores were treated as new stores for comparative store sales purposes.

     Sales of linens and home furnishings (a subset of the home products segment) decreased to $274 million in fiscal 2004, compared with $283 million in fiscal 2003 and $283 million in fiscal 2002. This decrease in the sales of linens and home furnishings can be attributed to strong competition among retailers of home products. The expansion of stores by competitors combined with increased product lines being offered by our competitors, has challenged our Company to continue to find ways to prevent further erosion of our market share. In order to counter this trend, the Company is increasing the linen and home furnishings product lines available in our stores, expanding the sections that are experiencing strong sales and improving merchandising methods for obtaining home products.

     Twenty-four new and nine relocated Burlington Coat Factory department stores opened during fiscal 2004 contributed $165.5 million to this year's net sales. Stores opened a year ago contributed $65.6 million to this year's net sales from the beginning of fiscal 2004 to the anniversary of their opening date.

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     The Cohoes stores contributed $38.9 million to consolidated sales for the twelve months ended May 29, 2004 compared with $38.4 million for the twelve months ended May 31, 2003. Cohoes comparative store sales increased 1.0% for the twelve month period.

     Through June 2003, the Company operated seven stores under the name "Decelle." During July 2003, these stores were closed. The Company converted three of these stores to Burlington Coat Factory stores and intends to convert two stores to Cohoes Fashions stores. Sales in fiscal 2004 for the Decelle stores were $3.2 million compared with $25.2 million for the twelve months ended May 31, 2003.

     The MJM Designer Shoes stores contributed $29.4 million to this year's sales compared with $19.4 million a year ago. As of May 29, 2004, eleven MJM Designer Shoes stores were operating.

Other Income

Cost of Sales

     Cost of sales increased $105.2 million (6.3%) for the twelve months ended May 29, 2004 compared with the twelve months ended May 31, 2003. The dollar increase in cost of sales was due to the increase in net sales during the current fiscal year compared with the prior year. Cost of sales as a percentage of net sales decreased slightly from 62.5% in fiscal 2003 to 62.2% in fiscal 2004. During fiscal 2004, initial margins remained relatively unchanged as compared with fiscal 2003. The improvement in margins was related primarily to slight decreases in markdowns and inventory shrinkage as a percentage of sales for fiscal 2004 as compared with fiscal 2003.

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Selling and Administrative Expense

     Selling and administrative expenses, including amortization of leasehold purchases, increased $54.9 million (6.5%) from the 2003 period to the 2004 period. The increase in selling and administrative expenses was due primarily to the increased number of stores in operation during fiscal 2004 as compared with fiscal 2003. As a percentage of net sales, selling and administrative expenses were 31.7% for the twelve months ended May 29, 2004 compared with 31.8% for the twelve months ended May 31, 2003. As a percentage of net sales, payroll related costs declined 0.1% for fiscal 2004 compared with fiscal 2003 as a result of the Company's budgetary controls over payroll expenditures. In addition, advertising expense declined 0.1% for the current fiscal year as compared with the similar period of a year ago. During fiscal 2001, the Company established a $2.4 million reserve for the costs associated with the relocation of several stores. During fiscal 2003 and 2002 , the Company paid $0.4 million and $1.0 million of these costs, respectively. In addition, during fiscal 2002, $1.0 million of the reserve was relieved due to an early termination of the lease by the landlord. During fiscal 2004 and fiscal 2003, the Company established reserves of $1.5 million and $0.4 million, respectively, for future lease obligations relating to stores closed during these periods of which $0.5 million was paid during fiscal 2004.

Depreciation Expense

     Depreciation expense amounted to $82.3 million in the twelve months ended May 29, 2004 compared with $68.0 million in the twelve months ended May 31, 2003. This increase of $14.3 million in the fiscal 2004 period compared with the comparative 2003 period is attributable primarily to capital additions relating to new store purchases, improvements, expansions and remodelings over the past two fiscal years.

Interest Expense

     Interest expense increased $3.1 million for the twelve months ended May 29, 2004 compared with the similar period of a year ago. The increase in interest expense is primarily related to the $100.0 million of senior notes issued by the Company in September 2003 and to the Company's capital lease obligations.

Income Tax

     The provision for income taxes was $42.4 million for the twelve months ended May 29, 2004 and $42.0 million for the similar fiscal period a year ago. The effective tax rate for fiscal 2004 was 37.2% compared with 37.7% in the prior fiscal year. The decrease in the effective tax rate is primarily the result of prior year adjustments of state income taxes.

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Net Income from Continuing Operations

     Net income from continuing operations amounted to $71.7 million for the year ended May 29, 2004 compared with $69.3 million for the comparative period of a year ago. Basic and diluted net income per share from continuing operations was $1.61 per share and $1.60 per share, respectively, for fiscal 2004 compared with basic and diluted net income per share from continuing operations of $1.56 per share for fiscal 2003.

Discontinued Operations

     During the fiscal year ended May 29, 2004, the Company discontinued the operations of eight stores. Net sales for these stores amounted to $9.7 million in fiscal 2004. Gross margins amounted to $2.0 million for stores closed during fiscal 2004. Net loss from discontinued operations amounted to $4.1 million during fiscal 2004. During fiscal 2003, the Company closed eight stores. These eight stores and the eight stores closed in fiscal 2004 had sales of $28.4 million during fiscal 2003. Gross margins amounted to $9.8 million for stores closed during fiscal 2003. Net loss from discontinued operations amounted to $4.4 million during fiscal 2003. Loss per share from discontinued operations was $0.09 per share for fiscal 2004 and $0.10 per share for fiscal 2003.

Net Income

     Net income increased $2.6 million to $67.6 million for the fiscal 2004 period from $65.0 million for the comparative 2003 period. Basic net income per share was $1.52 per share for fiscal 2004 compared with $1.46 per share for the comparative 2003 period. Diluted net income per share was $1.51 per share for fiscal 2004 as compared with $1.46 per share for fiscal 2003.

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     The following table sets forth certain items, relating to continuing operations, in the consolidated statements of operations as a percentage of net sales for the twelve months ended May 31, 2003 and June 1, 2002 (prior year information restated to conform to current year presentation).

Sales

     Consolidated net sales increased $135.3 million (5.3%) for fiscal 2003 compared with the similar period of the prior year. Comparative stores sales decreased 1.8% for the period.

     Beginning in fiscal 2004, the Company changed its method of calculating comparative store sales in order to mitigate the effect of store grand openings and store expansions. Previously: (i) the Company defined comparative store sales as sales of those stores beginning their three hundred and sixty-fifth day of operation; (ii) comparative store sales did not include sales discounts; (iii) comparative store sales included sales of all expanded stores; (iv) relocated stores were treated as new stores for comparative store sales purposes. This method is the method used in this section comparing the results of operations for the twelve months ended May 31, 2003 with the results of operations for the twelve months ended June 1, 2002. Beginning in fiscal 2004, the Company defines its comparative store sales as sales of those stores (net of sales discounts) that are beginning their four hundred and twenty-fifth day of operation (approximately 1 year and 2 months). Existing stores whose square footage has been changed by more than 20% and relocated stores are classified as new stores for comparative store sales purposes.

     Eighteen new and three relocated Burlington Coat Factory department stores opened during fiscal 2003 contributed $117.0 million to sales. Stores opened during fiscal 2003 contributed $82.4 million to sales from the beginning of fiscal 2003 to the anniversary of their opening date.

     The Cohoes stores contributed $38.4 million to consolidated net sales for the twelve months ended May 31, 2003 compared with $39.0 million for the twelve months ended June 1, 2002. Cohoes comparative store sales decreased 2.0% for the twelve month period.

     Net Sales in fiscal 2003 for the Decelle stores were $25.2 million compared with $29.0 million for the twelve months ended June 1, 2002. Decelle comparative store sales decreased 12.8% for the twelve months ended May 31, 2003 compared with the similar twelve month period of the prior year.

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     The MJM Designer Shoes stores contributed $19.4 million to sales for fiscal 2003 compared with $7.9 million during the prior year. As of May 31, 2003, four new MJM Designer Shoes stores were operating. These stores contributed $6.0 million to fiscal 2003 sales.

Other Income

     Other income (consisting of rental income from leased departments, investment income and miscellaneous items) increased to $29.2 million for fiscal 2003 compared with $26.6 million for fiscal 2002. Decreases in investment income of approximately $0.8 million and rental income of approximately $0.1 million were offset by increases in miscellaneous items of approximately $3.3 million during fiscal 2003 as compared with fiscal 2002.

Cost of Sales

     Cost of sales increased $84.7 million (5.4%) for the twelve months ended May 31, 2003 compared with the twelve months ended June 1, 2002. The dollar increase in cost of sales was due to the increase in net sales during fiscal 2003 compared with the prior year. Cost of sales as a percentage of net sales was 62.5% in fiscal 2003 and fiscal 2002. During fiscal 2003, initial margins improved slightly as compared with fiscal 2002. The improvement in initial margins was offset by increased markdowns and inventory shrinkage as a percentage of sales for fiscal 2003 as compared with fiscal 2002.

Selling and Administrative Expense

     Selling and administrative expenses, including amortization of leasehold purchases increased $44.1 million (5.5%) from the 2002 period to the 2003 period. The increase in selling and administrative expenses was due primarily to the increased number of stores in operation during fiscal 2003 as compared with fiscal 2002. As a percentage of net sales, selling and administrative expenses were 31.8% for the twelve months ended May 31, 2003 and the twelve months ended June 1, 2002. During fiscal 2001, the Company established a $2.4 million reserve for the costs associated with the relocation of several stores. During fiscal 2003 and 2002, the Company paid $0.4 million and $1.0 million of these costs, respectively. In addition, during fiscal 2002, $1.0 million of the reserve was relieved due to an early termination of the lease by the landlord. During fiscal 2003, the Company established a $0.4 million reserve for future lease obligations relating to a store clo sed during fiscal 2003.

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Depreciation Expense

     Depreciation expense amounted to $68.0 million in the twelve months ended May 31, 2003 compared with $58.5 million in the twelve months ended June 1, 2002. This increase of $9.5 million in the fiscal 2003 period compared with the comparative 2002 period is attributable primarily to capital additions relating to new store purchases, improvements, expansions and remodelings over the prior two fiscal years.

Interest Expense

     Interest expense increased $1.8 million for the twelve months ended May 31, 2003 compared with the twelve months ended June 1, 2002. The increase in interest expense is due primarily to interest expense related to the Company's capital leases. Interest expense related to capital lease obligations amounted to $2.1 million during fiscal 2003 as compared with $0.2 million during fiscal 2002. In addition, interest relating to the Company's borrowings under its lines of credit amounted to $0.2 million during fiscal 2003 compared with $0.3 million during fiscal 2002.

Income Tax

     The provision for income taxes decreased to $42.0 million for the twelve months ended May 31, 2003 from $43.0 million for the twelve months ended June 1, 2002. This decrease in the tax provision was due to lower earnings. The effective tax rate for fiscal 2003 was 37.7% compared with 37.8% in the prior fiscal year. An increase in the Company's effective state tax rate, net of federal tax benefit, of approximately 1.4% was offset by a one-time federal tax adjustment realized by the Company during the current fiscal year.

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Net Income from Continuing Operations

     Net income from continuing operations decreased $1.4 million to $69.3 million for fiscal 2003 compared with fiscal 2002. Net income per share was $1.56 per share for fiscal 2003 compared with $1.59 per share during fiscal 2002.

Discontinued Operations

     During fiscal 2003, the Company closed eight stores. Net sales, gross margins and net loss on discontinued operations amounted to $28.4 million, $9.8 million and $4.4 million, respectively, for the twelve months ended May 31, 2003. During fiscal 2002, the Company closed four stores. Net sales, gross margins and net loss on discontinued operations amounted to $43.5 million, $14.5 million and $3.8 million, respectively, for the twelve months ended June 1, 2002.

Net Income

     Net income decreased $1.9 million to $65.0 million for the fiscal 2003 period from $66.9 million for the comparative 2002 period. Basic net income per share was $1.46 per share for fiscal 2003 compared with $1.51 per share for the comparative 2002 period. Diluted net income per share was $1.46 per share for fiscal 2003 as compared with $1.50 per share for fiscal 2002.

Overview

     The Company was able to satisfy its cash requirements for current operations, expansions (such as new store openings), and other initiatives primarily from cash flows provided by operating activities, combined with the sale of senior notes, short-term borrowings and utilizing available lines of credit.

Operational Growth

     During fiscal 2004, the Company opened twenty-one Burlington Coat Factory Warehouse department stores and three MJM Designer Shoes stores. The Company closed two Burlington Coat Factory stores, two MJM Designer Shoes stores, one Luxury Linens store, one Baby Depot store and relocated nine Burlington Coat Factory to new locations within their trading

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areas. Seven Decelle stores were closed during the current fiscal year. Three of these locations were converted to Burlington Coat Factory Warehouse department stores. Management expects two locations previously operated as Decelle stores to be converted to Cohoes stores during fiscal 2005. Expenditures incurred to acquire, set up and fixture new stores opened during fiscal 2004 were approximately $37.8 million. Expenditures for store relocations, store expansions and store refurbishings were approximately $71.6 million during fiscal 2004. During fiscal 2004, the Company acquired the leases of two stores for $0.2 million. In addition, expenditures during fiscal 2004 for store locations to be opened during fiscal 2005 amounted to $6.6 million. Expenditures incurred in the construction of the Company's new distribution center in Edgewater Park, New Jersey amounted to $4.3 million. Other capital expenditures, consisting primarily of computer system enhancements amounted to $8.3 million for fiscal 2004. For fiscal 2005, the Company estimates that it will spend approximately $118.1 million for capital expenditures (i.e., building acquisitions, fixtures, equipment and leasehold improvements) in connection with the opening of approximately twenty-seven new stores (including store relocations), remodeling and expansion of existing stores, expansion of the Company's home office and warehouse facilities, and computer enhancement projects.*

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

Stock Repurchases

Working Capital

     Working capital increased to $336.9 million at May 29, 2004 from $203.1 million at May 31, 2003. At June 1, 2002, working capital was $236.3 million. The increase is primarily related to the proceeds received from the Company's sale of $100.0 million of senior notes during fiscal 2004.

Net Cash from Operating Activities

     Net cash provided by continuing operations activities of $26.5 million for fiscal 2004 decreased by $50.1 million from $76.6 million in net cash provided by operating activities for fiscal 2003. This decrease in net cash from operations was due primarily to an increase in the Company's short term investment position, offset in part by an increase in the Company's accounts payable position, as of May 29, 2004 compared with May 31, 2003.

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Dividends

     On August 5, 2004, the Board of Directors of the Company declared a cash dividend in the amount of four cents (0.04) per share payable on December 15, 2004 to stockholders of record on November 22, 2004. The Company expects the paid dividend to be approximately $1.8 million. On August 14, 2003, the Board of Directors of the Company declared a cash dividend in the amount of three cents ($0.03) per share. This cash dividend was paid on December 8, 2003, to stockholders of record on November 14, 2003. The paid dividend amounted to $1.3 million.

Long-Term Borrowings and Capital Lease Obligations

     The Company's long-term borrowings at May 29, 2004 consisted of $100 million of Senior Notes issued to institutional investors in a private placement, an industrial development refunding bond of $6.4 million issued by the New Jersey Economic Development Authority (the "Refunding Bonds"), a $1.5 million loan from the Burlington County Board of Chosen Freeholders and capital lease obligations of $26.7 million.

Refunding Bonds. The Refunding Bonds consist of term bonds. The term bonds consist of two portions, $1.4 million maturing on September 1, 2005 and $5.0 million maturing on September 1, 2010. The term bonds bear interest at the rates of 5.6% for the portion maturing on September 1, 2005 and 6.125% per annum for the portion maturing on September 1, 2010. The average interest rate and average scheduled maturity of the Refunding Bonds are 6.0% and 3.6 years, respectively. During fiscal 2004, the Company expended approximately $0.6 million for the repayment of the Refunding Bonds. Payment of the principal and interest are guaranteed under an irrevocable letter of credit in the amount of $6.6 million.

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

Senior Notes. On August 15, 2003, the Company and its wholly-owned subsidiary, Burlington Coat Factory Warehouse of New Jersey, Inc., entered into a Note Purchase Agreement with a group of institutional investors for the sale of an aggregate of $100 million of Senior Notes. The Notes were issued on September 30, 2003 in two tranches. The Series A Notes aggregated $36 million at an interest rate of 4.06% due September 30, 2010 with an average life of five years. The Series B Notes aggregated $64 million at an interest rate of 4.67% due September 30, 2013 with an average life of seven years. The Company intends to use the proceeds from the sale of the Notes for general corporate purposes and the build-out of additional stores, including associated real estate acquisitions.

Capital Lease Obligations. The Company has capital lease obligations relating to two of its stores. The lease terms for these locations extend over twenty-three years and twenty-one years. The capital lease obligations equal the present value of the minimum lease payments under the leases and amounted to $27.1 million. During fiscal 2004, $0.1 million of lease payments were applied against the capital lease obligations and $2.3 million were applied to interest expense.

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Lines of Credit

     As of May 29, 2004 and May 31, 2003, the Company had in place a committed four year revolving line of credit agreement in the amount of $100.0 million. The term of the committed revolving line of credit automatically renews for an additional year on its anniversary unless the lender gives notice of its intention to not renew in which case the revolving line of credit will continue until the remaining three year term expires. Short term borrowings against the Company's lines of credit bear interest at or below the lending bank's prime rate (4.00% at May 29, 2004). The Company had letter of credit commitments outstanding against the committed line of credit related to the purchase of inventory of $33.1 million at the end of fiscal 2004 and $26.4 million at the end of fiscal 2003. At May 29, 2004, the Company had no borrowing under these lines of credit. Maximum borrowing amounted to $62.9 million during the first quarter of fiscal 2004 and $74.9 million durin g the second quarter of fiscal 2004. For the comparative periods of a year ago, the maximum borrowings were $43.5 million and $74.8 million, respectively. The average borrowing under these credit lines during the first quarter of fiscal 2004 was $33.3 million, at an average interest rate of 1.6%. During the second quarter of fiscal 2004, the average borrowing under the lines of credit was $53.7 million at an average interest rate of 1.6%. Average borrowing during the first quarter of fiscal 2003 was $19.3 million at an average interest rate of 2.3%. During the second quarter of fiscal 2003, average borrowing was $47.3 million at an average interest rate of 2.3%. During the third and fourth quarters of fiscal 2004 and 2003, there were no borrowings under these lines of credit. Borrowings under the Company's lines of credit were necessary during the current year's first six months primarily because of the purchase of inventory during the period and capital expenditure requirements.

Letters of Credit

     The Company also had letter of credit agreements with a bank in the amount of $2.4 million and $3.5 million guaranteeing performance under various leases, insurance contracts and utility agreements at the end of fiscal 2004 and fiscal 2003, respectively.

Liquidity and Capital Resources Summary

     The Company believes that its current capital expenditures and operating requirements can be satisfied from internally generated funds, from the proceeds of the sale of the $100 million of senior notes, from short term borrowings under its revolving credit and term loan agreement as well as uncommitted lines of credit.* Furthermore, to the extent that the Company decides to purchase additional store locations, or to undertake unusual transactions such as an acquisition, it may be necessary to finance such transactions with additional long term borrowings.*

     The following table sets forth certain information regarding the Company's contractual obligations as of May 29, 2004 (in millions):