SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 200549
-------------
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 August 2, 1997
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 0-24902
CENTRAL TRACTOR FARM & COUNTRY, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 42-1425562
(State or Other Jurisdiction of Incorporation) (I.R.S. Employer No.)
3915 Delaware Avenue, Des Moines, Iowa 50316-0330
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (515) 266-3101
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of June 10, 1997: 100.
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<CAPTION>
CENTRAL TRACTOR FARM & COUNTRY, INC.
INDEX
PART I. FINANCIAL STATEMENTS PAGE
<S> <C> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
Condensed consolidated balance sheets, August 2, 1997
(unaudited) and November 2, 1996.........................................................3
Condensed consolidated statements of income (unaudited), for the three
months and nine months ended August 2, 1997 and the
three months and nine months ended July 27, 1996.........................................4
Condensed consolidated statements of cash flows (unaudited),
nine months ended August 2, 1997 and July 27, 1996.......................................5
Notes to consolidated financial statements (unaudited)...................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..................................................................10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS..............................................................14
ITEM 2. CHANGES IN SECURITIES..........................................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS...............................................................14
ITEM 5. OTHER INFORMATION..............................................................14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...............................................14
INDEX TO EXHIBITS...............................................................................16
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2
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<TABLE>
<CAPTION>
CENTRAL TRACTOR FARM & COUNTRY, INC.
Condensed Consolidated Balance Sheets
(In thousands except share data)
SUCCESSOR | PREDECESSOR
---------- | -----------
August 2, | November 2,
1997 | 1996
---------- | -----------
(unaudited) | (Note)
<S> <C> <C>
|
ASSETS |
Current assets: |
Cash and cash equivalents $ 4,450 | $ 3,809
Trade receivables, net 6,672 | 992
Inventory 216,759 | 107,203
Other 4,279 | 2,368
----------- | -----------
Total current assets 232,160 | 114,372
|
Property, improvements and equipment, net 41,959 | 24,457
Goodwill, net 138,127 | 19,018
Other assets 6,155 | 1,391
----------- | -----------
Total assets $ 418,401 | $ 159,238
=========== | ===========
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
Current liabilities: |
Note payable to bank $ 64,900 | $ 3,669
Current portion of long-term debt 3,000 | 0
Accounts payable 47,357 | 41,081
Accrued expenses and other liabilities 25,169 | 5,819
----------- | -----------
Total current liabilities 140,426 | 50,569
|
Long-term debt, less current portion 152,000 | 16,000
Other long-term liabilities 5,756 | 2,606
----------- | -----------
Total liabilities 298,182 | 69,175
|
Stockholders' equity: |
Preferred stock,$.01 par value: Authorized |
shares - 0 in 1997 and -5,000,000 in 1996; none |
issued and outstanding -- | --
Common stock, $.01 par value: Authorized |
shares-3,000 in 1997 and 45,000,000 in 1996; issued |
and outstanding shares-100 in 1997 and 10,589,082 -- | 106
in 1996 |
Stock warrant outstanding 0 | 665
Additional paid in capital 118,182 | 69,709
Retained earnings 2,037 | 19,583
----------- | -----------
Total stockholders' equity 120,219 | 90,063
----------- | -----------
Total liabilities and stockholders' equity $ 418,401 | $ 159,238
=========== | ===========
<FN>
Note: The balance sheet at November 2, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
3
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<TABLE>
<CAPTION>
CENTRAL TRACTOR FARM & COUNTRY, INC.
Condensed Consolidated Statements of Income (Unaudited)
(In thousands)
Three months ended
----------------------------------------------------------
SUCCESSOR | PREDECESSOR
------------------ | ----------------
Three months ended | Nine months ended
August 2, 1997 | July 27, 1996
------------------ | -----------------
<S> <C> <C>
|
Net sales $129,216 | $ 86,169
Cost of sales 92,567 | 60,752
-------- | --------
Gross profit 36,649 | 25,417
|
Selling, general and administrative expense 26,414 | 18,217
Amortization of intangibles 716 | 228
-------- | --------
Operating income 9,519 | 6,972
|
Interest expense 6,921 | 360
-------- | --------
Income before income taxes 2,598 | 6,612
Income taxes 1,293 | 2,675
-------- | --------
Net income $ 1,305 | $ 3,937
======== | ========
Ratio of earnings to fixed |
charges 1.4 x | 8.7 x
======== | ========
<CAPTION>
Nine months ended
------------------------------------------------------------
SUCCESSOR | PREDECESSOR PREDECESSOR
----------------- | ---------------- --------------------
March 27, 1997 to | Nov 3, 1996 to Nine months ended
August 2, 1997 | March 26, 1997 July 27, 1996
----------------- | ---------------- --------------------
<S> <C> <C> <C>
|
Net sales $ 164,384 | $ 106,048 $ 219,125
Cost of sales 117,100 | 75,281 155,601
--------- | --------- ---------
Gross profit 47,284 | 30,767 63,524
|
Selling, general and administrative expense 34,010 | 29,045 49,934
Amortization of intangibles 923 | 415 670
--------- | --------- ---------
Operating income 12,351 | 1,307 12,920
|
Interest expense 8,398 | 3,188 1,204
--------- | --------- ---------
Income (loss) before income taxes 3,953 | (1,881) 11,716
Income taxes (credits) 1,916 | (634) 4,815
--------- | --------- ---------
Net income (loss) $ 2,037 | ($ 1,247) $ 6,901
========= | ========= =========
Ratio (deficiency) of earnings to fixed |
charges 1.4 x | (.5 x) 5.5 x
========= | ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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<TABLE>
<CAPTION>
CENTRAL TRACTOR FARM & COUNTRY, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands )
SUCCESSOR | PREDECESSOR PREDECESSOR
--------------- | -------------- ------------------
May 4, 1997 to | Nov 3, 1996 to Nine months ended
August 2, 1997 | March 26, 1997 July 27, 1996
--------------- | -------------- ------------------
<S> <C> <C> <C>
Operating Activities |
Net income (net loss) $ 2,037 | $ (1,247) $ 6,901
Adjustments to reconcile net income to net |
cash provided by (used in) operations: |
Depreciation and amortization 2,696 | 1,904 2,899
Changes in operating assets and liabilities (4,702) | (12,916) (7,334)
--------- | --------- ---------
Net cash provided by (used in ) continuing operations 31 | (12,259) 2,466
Net cash provided by (used in) discontinued operations -- | -- 13,520
--------- | --------- ---------
Net cash provided by (used in) operating activities 31 | (12,259) 15,986
|
Investing activities |
|
Purchases of property, improvements and equipment (1,501) | (2,419) (5,850)
Cost of acquiring outstanding common -- | -- --
stock from predecessor shareholders (293,903) | -- (4,984)
Other 446 | (1,338) 140
--------- | --------- ---------
Net cash provided by (used in) investing activities (294,958) | (3,757) (10,694)
|
Financing activities |
|
Proceeds from the issuance of common stock 118,920 |
Net borrowings (repayments) under line of credit and |
margin loan facility 31,987 | 29,244 (4,146)
Payments on long-term debt (8,000) | (16,000) (17)
Proceeds from issuance of long term debt 163,000 | -- --
credit, term loan and Senior Notes (7,521) | -- --
Other (229) | 183 (18)
--------- | --------- ---------
Net cash provided by (used in) financing activities 298,157 | 13,427 (4,181)
|
Net increase(decrease) in cash and cash equivalents $ 3,230 | $ (2,589) $ 1,111
========= | ========= =========
|
Cash and cash equivalents at beginning of period 1,220 | 3,809 3,094
Cash and cash equivalents at end of period $ 4,450 | $ 1,220 $ 4,205
========= | ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
CENTRAL TRACTOR FARM & COUNTRY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. PRESENTATION OF FINANCIAL INFORMATION
The condensed unaudited financial statements have been prepared by Central
Tractor Farm & Country, Inc. ("CT" or "the Company") in accordance with
generally accepted accounting principles for interim financial information and
with the instructions for the Securities and Exchange Commission's Form 10-Q and
Article 10 of Regulation S-X, and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The condensed unaudited financial statements include the accounts of the
Company. In the preparation of the condensed unaudited financial statements, all
adjustments (consisting of normal recurring accruals) have been made which are,
in the opinion of management, necessary for the fair and consistent presentation
of such financial statements. The operating results for the interim periods are
not necessarily indicative of the results that may be expected for the year.
It is suggested that the condensed unaudited consolidated financial statements
contained herein be read in conjunction with the statements and notes in the
Company's Annual Report on Form 10-K for the year ended November 2, 1996.
As a result of the acquisition of the Company discussed in Note 3 below,
effective March 27, 1997, a new basis of accounting has been reflected in the
Company's financial statements reflecting the fair values for the Company's
assets and liabilities at that date ("Successor"). The financial statements of
the Company for periods prior to March 27, 1997 are presented on the historical
cost basis of accounting ("Predecessor"). A line has been placed in the
financial statements to distinguish between Predecessor and Successor activity.
NOTE 2. ACQUISITION OF COUNTRY GENERAL, INC.
On July 3, 1997, the Company acquired all of the outstanding stock of Country
General, Inc. ("CG") from ConAgra, Inc. ("ConAgra") in exchange for $135,000,000
in cash, subject to post-closing adjustment (the "Acquisition"). As a result of
the Acquisition CG became a wholly-owned subsidiary of CT. At the time of the
Acquisition, CG operated a chain of 114 stores, located primarily in the
Midwest, offering merchandise oriented to farm and country living, including
animal care products, farm and ranch supplies, clothing and lawn and garden
products. Substantially all of the CG stores are located in markets not
currently served by CT stores. The Company presently intends to continue to
operate substantially all of the CG stores under their current format.
The Company funded the acquisition price in part from a $49,750,000 equity
contribution it received from its sole shareholder, CT Holding, Inc ("Holding"),
and in part from funds drawn under an amendment and restatement of the Company's
Credit Agreement with Fleet National Bank, as administrative agent for the
banks, financial institutions and other institutional lenders party thereto (the
"New Credit Facility"). Among other things, the amendment and restatement of the
New Credit Facility increased the aggregate principal amount of the facility
from $38,000,000 to $150,000,000 consisting of a $50,000,000 term loan facility
and a $100,000,000 revolving credit facility.
6
<PAGE>
The acquisition is accounted for as a purchase and was included in the results
of operations from the date of purchase. The net assets purchased are as follows
(in thousands):
Inventories $ 101,744
Accounts receivables net of allowances for doubtful accounts 5,795
Property and equipment 16,708
Other assets 902
Accounts payable and accrued expenses (40,242)
Goodwill 51,706
---------
Purchase price of $135.0 million plus acquisition costs $ 136,613
=========
NOTE 3. ACQUISITION OF COMPANY BY J.W. CHILDS
On November 27, 1996, the Board of Directors of the Company approved, and the
Company entered into, a merger agreement (the "Merger Agreement") with J.W.
Childs Equity Partners, L.P. and two of its affiliates (collectively "Childs")
that provided for the acquisition of the Company by Childs in a two-stage
transaction. The Merger Agreement provided that following the acquisition by
Childs of all of the Company shares held by affiliates of Butler Capital
Corporation (collectively, "BCC") an affiliate of Childs would merge with and
into the Company ( the "Merger") and Childs would acquire the remaining shares
of the Company held by public shareholders ("Merger Consideration") for $14.25
per share in cash. The Merger was completed on March 27, 1997.
Concurrent with the execution of the Merger Agreement, Childs entered into
agreements (the "Securities Purchase Agreements") with BCC and with certain
members of the company's management (the "Management Shareholders") pursuant to
which Childs agreed to purchase at a price of $14.00 per share 100% of BCC's
shares and 36.4% of the Managements Shareholders' shares representing
approximately 64.0% and 1.4% of the Company's outstanding common stock,
respectively (collectively the "Securities Purchases"). As of January 2, 1997,
Childs had consummated the Securities Purchases and paid related expenses
utilizing (i) $65.4 million of cash equity and (ii) $35.1 million of borrowings
under an interim margin loan facility (the "Margin Loan Facility"). In
connection with the Securities Purchases, the Company entered into a term loan
and a revolving credit facility and used a portion of such facilities to
refinance existing debt of the Company, including a $16.0 million convertible
note held by BCC. This term note and revolving credit facility was amended at
the time of the Country General acquisition (See Note 2.).
On March 27, 1997, the Company consummated a public offering of $105.0 million
aggregate principal amount of Senior Notes. The net proceeds from the offering
were used to repay borrowings under the Margin Loan Facility, pay the Merger
Consideration, repay a portion of the outstanding borrowings under the New
Revolving Credit Facility and pay fees and expenses of the acquisition.
The acquisition of the Company was accounted for as a purchase. The total
purchase price (for which certain costs and expenses have been estimated) has
been allocated to the tangible and intangible assets and the liabilities of the
Company based upon their respective fair values. The Company does not anticipate
that there will be any material final adjustments to the purchase price or the
fair value allocation. The cost of the acquisition over the allocated fair value
of the underlying tangible net assets is as follows (in thousands):
Cost of acquiring the outstanding common stock of the
Company from Predecessor shareholders $159,903
Fair value of underlying tangible net assets 72,630
--------
Excess of cost of acquisition over the allocated fair value
of the underlying tangible net assets $ 87,273
========
7
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NOTE 4. ACQUISITION OF BIG BEAR FARM STORES, INC.
On May 31, 1996, the Company acquired 31 retail stores and related net operating
assets from Big Bear Farm Stores, Inc. ("Big Bear"), an agricultural specialty
retailer. The transaction was accounted for as a purchase.
Big Bear's accounts and transactions are included in the accompanying condensed
financial statements from the date of acquisition.
NOTE 5. PRO FORMA RESULTS
Pro forma results of operations presented below is based on the historical
financial statements of the Company included in this Form 10-Q filing, adjusted
to give effect to: (i) the acquisition of 31 stores and certain net operating
assets from Big Bear by the Company described in Note 4; (ii) the acquisition of
the Company by Childs and the Senior Note offering described in Note 3; and
(iii) the acquisition of Country General by the Company (iv) the debt financing
arrangements relating acquisitions, and debt repayment described in Note 6, as
though these transactions had occurred on October 29, 1995.
Pro forma adjustments to the historical financial statements are based upon
available data and certain assumptions that the Company believes are reasonable.
The pro forma results of operations is not necessarily indicative of the
Company's results of operations that might have occurred had the aforementioned
transactions been completed as of the date indicated above and do not purport to
represent what the Company's consolidated results of operations might be for any
future period or date.
Pro Forma Results of Operations
Three Months Ended Nine Months Ended
-------------------------- --------------------------
Aug 2, July 27, Aug 2, July 27,
1997 1996 1997 1996
----------- ---------- --------- ----------
(In thousands)
Net sales $188,664 $177,720 $461,428 $467,457
Operating income 16,430 14,250 29,477 23,726
Net loss 7,284 5,246 7,675 4,186
NOTE 6. NEW CREDIT FACILITY
On July 3, 1997, the Company entered into an amended and restated Credit
Facility which consists of an $50.0 million, six-year term loan facility, which
was fully funded, and a $100.0 million revolving credit facility under which
$64.9 million was outstanding as of August 2, 1997. The amounts originally
funded and drawn under the Credit Facility were used, in part, to repay
outstanding borrowings under the Company's prior line of credit agreement.
The Credit Facility will mature on June 30, 2003. Borrowings under the Credit
Facility will bear interest at rates based upon prime or the Eurodollar Rate
plus a margin. At August 2, 1997, the interest rate on the Term Loan was 8.0%
and the interest rate on the Revolving Credit Facility was 9.5%.
8
<PAGE>
The term loan must be repaid in semiannual installments beginning December 31,
1997, plus annual prepayments based on the Company's excess cash flow, as
defined. The installments are as follows:
DATE AMOUNT
---- ------
December 31, 1997 $1,500,000
June 30, 1998 $1,500,000
December 31, 1998 $1,500,000
June 30, 1999 $1,500,000
December 31, 1999 $3,000,000
June 30, 2000 $3,000,000
December 31, 2000 $4,000,000
June 30, 2001 $4,000,000
December 31, 2001 $6,000,000
June 30, 2002 $6,000,000
December 31, 2002 $9,000,000
June 30, 2003 $9,000,000
The Credit Facility agreement contains covenants which require the Company to
maintain a minimum; consolidated net worth; earnings before taxes, interest,
depreciation and amortization (EBITDA); ratio of EBITDA to cash interest
payable; and ratio of debt to EBITDA. The covenants also restrict, among other
things, the payment of dividends, incurrence of debt, and disposition of assets.
The New Credit Facility is secured by substantially all of the assets of the
Company.
9
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CENTRAL TRACTOR FARM & COUNTRY, INC
Certain statements in this Report may contain "forward-looking" information (as
defined in the Private Securities Litigation Reform Act of 1995). All
forward-looking statements involve uncertainty, and actual future results and
trends may differ materially depending on a variety of factors. For a discussion
identifying some important factors that could cause actual results or trends to
differ materially from those anticipated in the forward-looking statements
contained herein, please see Exhibit 99 to this Report.
ITEM 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations
Third Quarter of Fiscal 1997 Compared to Third Quarter of Fiscal 1996
Sales for the third quarter of fiscal 1997 were $129.2 million, an increase of
$43.1 million, or 50.0 %, as compared to total sales for third quarter of fiscal
1996 of $86.1 million. This increase was due to $32.7 million in net sales from
Country General, seven new stores opened during the first, second and third
quarter of fiscal 1997 and thirty-one stores acquired during fiscal 1996,
partially offset by comparable store sales decrease of 1.3%. The decrease in
comparable store sales was primarily the result of a cool spring followed by a
dry summer in the Northeast where the majority of the comparable stores are
located.
Gross profit for the third quarter of fiscal 1997 was $36.6 million, an increase
of $11.2 million or 44.2%, as compared to $25.4 million for the third quarter of
fiscal 1996. Gross profit as a percentage of sales was 28.4% for the third
quarter of fiscal 1997, as compared to 29.5% for the third quarter of fiscal
1996. The additional sales from Country General generated $9.2 million in
additional gross margin at 28.0%. Central Tractor sales generated $27.5 in gross
margin at 28.5%. The decrease in Central Tractor's margins is primarily the
result of additional promotional activity during the quarter.
Selling, general and administrative (SGA) expenses for the third quarter of
fiscal 1997 were $26.4 million, an increase of $8.2 million, or 44.9%. Country
General accounted for $6.5 million or 35.6% of the increase. The remaining
increase is due primarily to the new store opening, Big Bear Acquisition and pre
opening store costs partially offset by decreased comparable store costs. SGA
expenses as a percentage of sales decreased to 20.4% for the third quarter of
fiscal 1997 as compared to 21.1% for the third quarter of fiscal 1996., due
primarily to the inclusion of Country General. Country General's SGA expenses as
a percent to sales is 19.8%. Central Tractor's SGA of 20.7% is up slightly
because of reduced sales in comparable stores.
Amortization expenses for the quarter has increased .5 million because of the
additional goodwill arising form the acquisition of the Company by J.W. Childs
and the purchase of Country General.
Operating income for the third quarter of fiscal 1997 was $9.5 million, an
increase of $2.5 million, or 35.7%. as compared to $7.0 million for the third
quarter of fiscal 1996. Operating income as a percentage of sales decreased to
7.4% for the third quarter of fiscal 1997 from 8.1% for the third quarter of
fiscal 1996. The decrease primarily was the result of the factors affecting
sales, gross profit and SGA as discussed above.
Interest expense for the third quarter of fiscal 1997 was $6.9 million, an
increase of $6.5 million as compared to $ .4 million for the third quarter of
fiscal 1996. The increase is attributed primarily to the placement of the $105.0
million in Senior Notes, the additional borrowing of $86.8 to purchase Country
General and acquisition related financing and interest costs of $2.4 million.
Income taxes (credits) for the third quarter of fiscal 1997 were $1.3 million, a
decrease of $1.4 million as compared to $2.7 million third quarter of fiscal
1996. Income tax as a percentage of pretax earnings was 49.8% in 1997, compared
10
<PAGE>
to 40.4% in 1996. The change is due primarily to the effect of a proportionately
high amount of non-deductible goodwill amortization.
Net income from operations for the third quarter of fiscal 1997 was $1.3
million, a decrease of $2.6 million as compared to $3.9 million for the third
quarter of fiscal 1997 as a result of the factors discussed above.
Nine Months Ended August 2, 1997 Compared to Nine Months Ended July 27, 1996
Sales for the nine months ended August 2, 1997 were $270.4 million, an increase
of $51.3 million, or 23.4%, as compared to total sales for the nine months ended
July 27, 1996 of $219.1 million. This increase was due to $32.7 million in net
sales from Country General, seven new stores opened during the first, second and
third quarter of fiscal 1997 and thirty-one stores acquired during fiscal 1996,
partially offset by comparable store sales decrease of 5.3%. The decrease in
comparable store sales was primarily the result of mild winter conditions, a
cool spring followed by a dry summer in the Northeast where the majority of the
comparable stores are located and the elimination of two promotional events run
during the first quarter of fiscal 1996.
Gross profit for the nine months ended August 2, 1997 was $78.1 million, an
increase of $14.6 million or 22.9%, as compared to $63.5 million for the nine
months ended July 27, 1996. Gross profit as a percentage of sales was 28.9% for
fiscal 1997, as compared to 29.0% for fiscal 1996. The additional sales from
Country General generated $9.1 million in additional gross margin at 28.0%.
Central Tractor sales generated $68.9 in gross margin at 28.9%. The decrease in
margins is primarily the result of including Country General at the reduced
margin.
Selling, general and administrative (SGA) expenses for the nine months ended
August 2, 1997 was $63.1 an increase of $13.1 million, or 26.3%. Country General
accounted for $6.5 million or 13.0% of the increase. The remaining increase is
due primarily to the new store opening, Big Bear Acquisition and pre opening
store costs being offset by decreased comparable store costs. SGA expenses as a
percentage of sales increased to 23.3% for fiscal 1997 as compared to 22.8% due
primarily to proportionately higher levels of SGA expense in stores opened and
acquired during fiscal 1996 and reduced sales in comparable stores.
Amortization expenses for the quarter has increased $.7 million because of the
additional goodwill arising form the acquisition of the Company by J.W. Childs
and the purchase of Country General.
Operating income for the nine months ended August 2, 1997 was $13.7 million, an
increase of $.8 million, 5.7%. as compared to $12.9 million for the nine months
ended July 27,1996. Operating income as a percentage of sales decreased to 5.1%
for fiscal 1997 from 5.9% for fiscal 1996. The decrease primarily was the result
of the factors affecting sales, gross profit and SGA as discussed above.
Interest expense for the nine months ended August 2, 1997 was $11.6 million, an
increase of $10.4 million as compared to $ 1.2 million for nine months ended
July 27, 1997. The increase is attributed primarily to the placement of the
$105.0 million in Senior Notes, the additional borrowing of $86.8 to purchase
Country General and acquisition related financing and interest costs of $4.6
million.
Income taxes for nine months ended August 2, 1997 were $1.3 million, a decrease
of $3.5 million as compared to $4.8 million for nine months ended July 27,1996.
Income tax as a percentage of pretax earnings was 61.9% in 1997, compared to
41.1% in 1996. The change is due primarily to the effect of a proportionately
high amount of non-deductible goodwill amortization.
Net income from operations for the nine months ended August 2, 1997 was $.8
million, a decrease of $6.1 million as compared to $6.9 million for fiscal 1996
as a result of the factors discussed above.
11
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Liquidity and Capital Resources
On November 27, 1996, the Board of Directors of the Company approved, and the
Company entered into, a merger agreement (the "Merger Agreement") with J.W.
Childs Equity Partners, L.P. and two of its affiliates (collectively "Childs")
that provided for the acquisition of the Company by Childs in a two-stage
transaction. The Merger Agreement provided that following the acquisition by
Childs of all of the Company shares held by affiliates of Butler Capital
Corporation ("BCC"), an affiliate of Childs would merge with and into the
Company held by public shareholders ("Merger Consideration") for $14.25 per
share in cash.
Concurrent with the execution of the Merger Agreement, Childs entered into
agreements (the "Securities Purchase Agreements") with BCC and with certain
members of the company's management (the "Management Shareholders") pursuant to
which Childs agreed to purchase at a price of $14.00 per share 100% of BCC's
shares and 36.4% of the Management Shareholders' shares representing
approximately 64.0% and 1.4% of the Company's outstanding common stock,
respectively (collectively the "Securities Purchases"). As of January 2, 1997,
Childs had consummated the Securities Purchases and paid related expenses
utilizing (i) $65.4 million of cash equity and (ii) $35.1 million of borrowings
under an interim margin loan facility (the "Margin Loan Facility) on December
23, 1996. In connection with the Securities Purchases, the Company entered into
a term loan and a revolving credit facility and used a portion of such facility
to refinance existing debt of the Company, including a $16.0 million convertible
note held by BCC. This term loan and revolving credit facility was amended at
the time of the Country General acquisition. (See Note 2)
On March 27, 1997, the Company consummated a public offering of $105.0 million
aggregate principal amount of Senior Notes. The net proceeds from the offering
were used to repay borrowings under the Margin Loan Facility, pay the Merger
Consideration, repay a portion of the outstanding borrowings under the New
Revolving Credit Facility and pay fees and expenses of the acquisition. The
following table sets forth the sources and uses of the gross proceeds of the
Offering (in thousands):
Sources of Funds:
Senior Notes Offered $105,000
Total Sources $105,000
Uses of Funds:
Refinance Margin Loan Facility $ 35,899
Pay Merger Consideration 51,674
Repay New Revolving Credit Facilities 6,151
Additional cash 2,645
Fee and expenses 8,631
--------
$105,000
On July 3, 1997, the Company acquired all of the outstanding stock of Country
General, Inc. ("CG") from ConAgra, Inc. ("ConAgra") in exchange for $135,000,000
in cash, subject to post-closing adjustment (the "Acquisition"). As a result of
the Acquisition CG became a wholly-owned subsidiary of CT. At the time of the
Acquisition, CG operated a chain of 114 stores, located primarily in the
Midwest, offering merchandise oriented to farm and country living , including
animal care products, farm and ranch supplies, clothing and lawn and garden
products, Substantially all of the CG stores are located in markets not
currently served by CT stores. The Company presently intends to continue to
operate substantially all of the CG stores under their current format.
The Company funded the acquisition price in part from a $49,750,000 equity
contribution it received from its sole shareholder, CT Holding, Inc.
("Holding"), and in part from funds drawn under an amendment and restatement of
the Company's Credit Agreement with Fleet National Bank, as administrative agent
for the banks, financial institutions
12
<PAGE>
and other institutional lenders party thereto (the "New Credit Facility"). Among
other things, the amendment and restatement of the New Credit Facility increased
the aggregate principal amount of the facility from $38,000,000 to $150,000,000,
consisting of a $50,000,000 term loan facility ("New Term Loan") and a
$100,000,000 revolving credit facility ("New Revolving Credit Facility").
The proceeds to the Company from the July 3, 1997 refinancing was $159.1 million
before commissions and estimated expenses of the offering. The proceeds were
used to repay borrowings from the December 23, 1996 Credit Facility, purchase
Country General and pay financing fees:
Sources of Funds:
Equity investment $ 49,750
Senior debt financing 50,000
Senior revolver financing 59,369
--------
$159,119
--------
Uses of Funds:
Repayment of existing credit facilities $ 19,869
Purchase of Country General stock 135,000
Fees and expenses including $2,637 charged
operations 4,250
--------
$159,119
--------
The New Term Loan is a $ 50.0 million, 6 year term facility, which has been
fully funded and the New Revolving Credit Facility is $100.0 million revolving
credit facility, under which $64.9 million was out standing as of August 2,
1997. The credit facility will mature June 30, 2003.
On June 6, 1997, the holders of CT Holding, Inc.'s outstanding Series B 13%
Senior Redeemable Exchangeable Pay- In-Kind Preferred Stock exchanged the
preferred stock, including accrued dividends for $10.6 million of CT Holding's
13% Subordinated Notes.
On August 2, 1997, the Company had working capital of $107.5 million, which was
a $43.7 million increase over working capital of $63.8 million on November 2,
1996.
Net cash provided (used) by continuing operations decreased from $2.5 million
for the first nine months of fiscal 1996 to $(12.2) million for the first six
months of fiscal 1997. This increase in cash used is due primarily to increased
inventories partially offset by increased accounts payable. The Company received
$13.5 million in cash as a result of the sale of Herschel Corporation in the
first quarter of fiscal 1996. The Company's capital expenditures were $3.9
million and $5.9 million for the nine months of fiscal 1997 and 1996,
respectively.
Seasonality
Unlike many specialty retailers, historically the Company has usually generated
positive operating income in each of its four fiscal quarters. However, because
the Company is an agricultural specialty retailer, its sales necessarily
fluctuate with the seasonal needs of the agricultural community. The Company
responds to this seasonality by attempting to manage inventory levels (and the
associated working capital requirements) to meet expected demand, and by varying
its use of part-time employees. Historically, the Company's sales and operating
income have been highest in the third quarter of each fiscal year due to the
farming industry's planting season and the sale of seasonal products. Working
capital needs are highest during the second quarter. The Company expects these
trends to continue for the foreseeable future.
13
<PAGE>
CENTRAL TRACTOR FARM & COUNTRY, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS None
ITEM 2. CHANGES IN SECURITIES 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
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS - See Index to Exhibits included elsewhere herein.
(b) FORM 8-K - The Company filed a Form 8-K dated July 3, 1997
to report its acquisition of CG.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: September 16, 1997 Central Tractor Farm & Country, Inc.
/s/ Dean Longnecker
Dean Longnecker
Executive Vice President and
Chief Operations Officer
15
<PAGE>
CENTRAL TRACTOR FARM & COUNTRY, INC.
INDEX TO EXHIBITS
EXHIBIT 11 Statement Re: Computation of Ratio of Earnings to
Fixed Charges
EXHIBIT 27 Financial Data Schedule (included in electronic copy only)
EXHIBIT 99 Important Factors Regarding Forward-Looking Statements
16
EXHIBIT 11
<TABLE>
<CAPTION>
CENTRAL TRACTOR FARM & COUNTRY, INC.
Schedule Regarding Computations of Ratio of Earnings to Fixed Charges
(In thousands except ratios)
SUCCESSOR | PREDECESSOR
----------------- | --------------------
| Three months ended
March 27, 1997 to | July 27,
August 2, 1997 | 1996
----------------- | --------------------
<S> <C> <C>
Fixed Charges: |
Interest expense $ 6,921 | $ 360
Portion of rent expense |
representing interest 635 | 503
------- | -------
7,556 | 863
======= | =======
Earnings |
Income (loss) before |
income taxes 2,598 | 6,612
Fixed charges per above 7,696 | 863
------- | -------
10,294 | 7,475
======= | =======
Ratio (deficiency ) of earnings to fixed |
charges 1.4 x | 8.7 x
======= | =======
<CAPTION>
------------------------------------------------------------
SUCCESSOR | PREDECESSOR PREDECESSOR
----------------- | ---------------- --------------------
| Nine months ended
March 27, 1997 to | Nov 3, 1996 to July 27,
August 2, 1997 | March 26, 1997 1996
----------------- | ---------------- --------------------
<S> <C> <C> <C>
|
Fixed Charges: |
|
Interest expense $ 8,398 | $ 3,188 $ 1,204
Portion of rent expense |
representing interest 825 | 842 1,410
-------- | -------- --------
9,223 | 4,030 2,614
======== | ======== ========
Earnings |
Income (loss) before |
income taxes 3,953 | (1,881) 11,716
|
Fixed charges per above 9,223 | 4,030 2,614
-------- | -------- --------
$ 13,176 | $ 2,149 $ 14,330
======== | ======== ========
Ratio of earnings to fixed |
charges 1.4 x | (.5 x) 5.5 x
======== | ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet of Central Tractor Farm & Country, Inc. at
August 2, 1997 (unaudited) and the related Condensed Consolidated Statements of
Income (unaudited) for the nine month's ended August 2, 1997 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-01-1997
<PERIOD-START> NOV-02-1996
<PERIOD-END> AUG-02-1997
<CASH> 4,450
<SECURITIES> 0
<RECEIVABLES> 6,672
<ALLOWANCES> 0
<INVENTORY> 216,759
<CURRENT-ASSETS> 0
<PP&E> 43,261
<DEPRECIATION> 1,302
<TOTAL-ASSETS> 418,401
<CURRENT-LIABILITIES> 140,426
<BONDS> 152,000
0
0
<COMMON> 0
<OTHER-SE> 120,219
<TOTAL-LIABILITY-AND-EQUITY> 418,401
<SALES> 270,432
<TOTAL-REVENUES> 270,432
<CGS> 192,381
<TOTAL-COSTS> 192,381
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,586
<INCOME-PRETAX> 2,072
<INCOME-TAX> 1,282
<INCOME-CONTINUING> 790
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
EXHIBIT 99
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
The following factors, among others, could cause the Company's actual
results and performance to differ materially from those contained in
forward-looking statements made in this report and presented elsewhere by or on
behalf of the Company from time to time.
Ability to Achieve Future Growth
The Company's ability to profitably open stores in accordance with its
expansion plan and to increase the financial performance of its existing stores
will be a significant factor in achieving future growth. The Company's ability
to profitably open stores will depend, in part, on matters not completely within
the Company's control including, among other things, locating and obtaining
store sites that meet the Company's economic, demographic, competitive and
financial criteria, and the availability of capital on acceptable terms.
Further, increases in comparable store sales will depend, in part, on the
soundness and successful execution of the Company's merchandising strategy.
Seasonality
The Company is an agricultural specialty retailer, and consequently its
sales fluctuate with the seasonal needs of the agricultural community. The
Company responds to this seasonality by attempting to manage inventory levels
(and the associated working capital requirements) to meet expected demand, and
by varying to a degree its use of part-time employees. Historically, the
Company's sales and operating income have been highest in the second and third
quarters of each fiscal year due to the farming industry's planting season and
the sale of seasonal products.
Weather, Business Conditions and Government Policy
Unseasonable weather and excessive rain, drought, or early or late
frosts may affect the Company's sales and operating income. In addition, the
Company's sales volume and income from operations depend significantly upon
expectations and economic conditions relevant to consumer spending and the farm
economy.
<PAGE>
Regional Economy
The majority of the Company's existing stores are located in the
Northeastern United Sates and the Company's expansion plan includes locating
stores in Midwestern and Southeastern United States. As a result, the Company's
sales and profitability are largely dependent on the general strength of the
economy in these regions.
Competition
The Company faces competition primarily from other chain and
single-store agricultural specialty retailers, and from mass merchandisers. Some
of these competitors have substantially greater financial and other resources
than the Company.
Currently, most of the Company's stores do not compete directly in the
markets of other agricultural specialty retail chains. However, the Company's
expansion plans will likely result in new stores being located in markets
currently serviced by one or more of these chains, and there can be no assurance
that these chains, certain of which have announced expansion plans, will not
expand into the Company's markets.
In addition, the Company competes in over half of its markets with mass
merchandisers. The Company believes that its merchandise mix and level of
customer service currently successfully differentiate it from mass
merchandisers, and that as a result the Company has to date not been
significantly impacted by competition from mass merchandisers. However, in the
past certain mass merchandisers have modified their product mix and marketing
strategies in an effort apparently intended to permit them to compete more
effectively in the Company's markets, and it is likely that these effort will
continue by these and other mass merchandisers.
