SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) of the
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) November 2, 1996
Central Tractor Farm & Country, Inc.
(Exact name of registrant as specified in charter)
Delaware 0-24902 42-1425562
(State or other (Commission file (IRS employer
jurisdiction of number) identification no.)
incorporation)
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
<PAGE>
Item 5. Other Events.
The Company has filed this Current Report to disclose its consolidated
financial statements at and for the year ended November 2, 1996, as set forth in
the index appearing at page F-1, and the related Management's Discussion and
Analysis of Financial Condition and Results of Operations, appearing immediately
below.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the consolidated financial
statements of the Company and related notes thereto included elsewhere in this
Report.
Results of Operations
The following table sets forth, for the periods indicated, certain items in
the Company's Statement of Income expressed as a percentage of net sales:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------
October 29, October 28, November 2,
1994 1995 1996
------------- ------------ --------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Gross profit 30.1 29.5 29.3
Selling, general and administrative expenses 23.6 23.2 23.3
Amortization of intangibles 0.4 0.3 0.3
------ ------ ------
Operating income 6.1 6.0 5.7
Interest expense 2.1 0.5 0.6
------ ------ ------
Income before income taxes 4.0 5.5 5.1
Income taxes 1.8 2.3 2.1
------ ------ ------
Income from continuing operations 2.2% 3.2% 3.0%
====== ====== ======
</TABLE>
Comparison of the Year Ended November 2, 1996 to the Year Ended October 28, 1995
Net Sales for the fiscal year ended November 2, 1996 were $293.0 million,
an increase of $41.3 million, or 16.4%, as compared to net sales for the fiscal
year ended October 28, 1995 of $251.7 million. This increase was due to a
comparable store sales increase of approximately 1.0% (net of sales attributable
to an extra (53rd) week in fiscal 1996), sales during such extra week, the
opening of 14 new stores in fiscal 1996, a full year of operations for the
eleven new stores opened in fiscal 1995 as compared to a partial year for those
stores during fiscal 1995 and the acquisition of the Big Bear stores in May
1996. The increase in comparable store sales was primarily due to a comparable
store sales increase of 13.8% during the fourth quarter of fiscal 1996 as
compared to the fourth quarter of fiscal 1995. This increase in comparable store
sales during the fourth quarter was the result of normal weather conditions
during fiscal 1996 as compared to unusual and severe drought conditions during
fiscal 1995.
Gross profit for fiscal 1996 was $85.8 million, an increase of $11.4
million, or 15.4%, as compared to $74.4 million for fiscal 1995. Gross profit as
a percentage of sales was 29.3% for fiscal 1996, as compared to 29.5% for fiscal
1995. This decrease is primarily attributable to the sale of lower margin
products in the Big Bear stores prior to their conversion to the CT store
format. Management expects that the completion of the conversion of the Big Bear
stores to the CT store format will improve gross margins as a percentage of
sales.
Selling, general, and administrative expenses for fiscal 1996 were $68.2
million, an increase of $9.9 million, or 17.0%, from $58.3 million for fiscal
1995. This increase was due primarily to costs related to new store openings and
costs related to stores acquired and operated in the Big Bear acquisition.
Selling, general, and administrative expenses as a percentage of sales increased
to 23.3% in fiscal 1996 as compared to 23.2% in fiscal 1995. This increase is
attributable to higher selling, general and administrative expenses as a
percentage of sales at the Big Bear stores, partially offset by a decrease in
selling, general and administrative expenses as a percentage of sales at CT's
existing stores. Management expects that the completion of the conversion of the
Big Bear stores to the CT store format will decrease selling, general and
administrative expenses as a percentage of sales.
1
<PAGE>
Amortization of intangibles was $0.9 million for fiscal 1996 and $0.9
million for fiscal 1995.
Operating income for fiscal 1996 was $16.7 million, an increase of $1.5
million, or 9.5%, as compared to $15.2 million for fiscal 1995. Operating income
as a percentage of sales decreased to 5.7% in fiscal 1996 from 6.0% in fiscal
1995. The decrease resulted from the factors affecting sales, gross profit and
selling, general and administrative expenses discussed above.
Interest expense for fiscal 1996 was $1.7 million, an increase of $0.4
million, or 27.7%, as compared to $1.3 million for fiscal 1995. This increase
was primarily due to an increase in interest related to short-term borrowings
under the Company's credit agreement.
Income tax expense related to continuing operations for fiscal 1996 was
$6.2 million, an increase of $0.5 million, or 8.8%, as compared to $5.7 million
for fiscal 1995. Income taxes as a percentage of pretax earnings were 41.7% in
fiscal 1996 as compared to 41.1% in fiscal 1995. This increase was primarily due
to the effect of a reduction of a prior year over-accrual in fiscal 1995.
Comparison of the Year Ended October 28, 1995 to the Year Ended October 29, 1994
Net Sales for the fiscal year ended October 28, 1995 were $251.7 million,
an increase of $20.6 million, or 8.9%, as compared to net sales for the fiscal
year ended October 29, 1994 of $231.1 million. This increase was due to the
opening of eleven new stores in fiscal 1995 and a full year of operations for
the eight new stores opened in fiscal 1994, partially offset by a comparable
store sales decrease of 1.6% and the closing of three stores during the latter
part of fiscal 1994. The 1.6% decrease in comparable store sales was primarily a
result of unusual and severe drought conditions throughout fiscal 1995 and
generally unfavorable economic conditions in the Northeast where most of the
Company's retail stores were located.
Gross profit for fiscal 1995 was $74.4 million, an increase of $4.9
million, or 6.9%, as compared to $69.5 million for fiscal 1994. Gross profit as
a percentage of sales was 29.5% for fiscal 1995, as compared to 30.1% for fiscal
1994. The decrease in gross profit percentage was primarily the result of
increased promotional sales in fiscal 1995 at lower gross margins, partially
offset by improvements in distribution costs.
Selling, general and administrative expenses for fiscal 1995 were $58.3
million, an increase of $3.8 million, or 6.9%, as compared to $54.5 for fiscal
1994. This increase was due primarily to increased costs related to new store
openings, partially offset by a reduction in costs due to the closing of three
stores in fiscal 1994 and a reduction in incentive compensation costs. Selling,
general and administrative expenses as a percentage of sales decreased to 23.2%
in fiscal 1995, as compared to 23.6% in fiscal 1994, reflecting the decrease in
incentive compensation expenses as a percentage of sales, partially offset by
higher selling, general and administrative expenses as a percentage of sales in
new stores.
Amortization of intangibles was $0.9 million for fiscal 1995 and $0.8
million for fiscal 1994.
Operating income for fiscal 1995 was $15.2 million, an increase of $1.0
million, or 7.5%, as compared to $14.2 for fiscal 1994. Operating income as a
percentage of sales decreased to 6.0% in fiscal 1995 from 6.1% in fiscal 1994.
The decrease resulted from the factors affecting sales, gross profit and
selling, general and administrative expenses discussed above.
Interest expense for fiscal 1995 was $1.3 million, a decrease of $3.5
million, or 72.7%, as compared to $4.8 million for fiscal 1994. This was
primarily due to the reduction in long-term debt resulting from the debt prepaid
with the proceeds from the initial public offering of the Company completed in
October 1994.
Income tax expense related to continuing operations for fiscal 1995 was
$5.7 million, an increase of $1.5 million, or 36.3%, as compared to $4.2 million
for fiscal 1994. Income taxes as a percentage of pretax earnings were 41.1% in
fiscal 1995, as compared to 44.8% in fiscal 1994. This decrease was primarily
due to the effect of a proportionately lower amount of non-deductible goodwill
amortization and a reduction of a prior year over-accrual.
2
<PAGE>
Discontinued operations represent the results of operations of the
Company's former subsidiary, Herschel Corporation ("Herschel"), a manufacturer
and distributor of non-original equipment sickle bar cutting parts, tractor
parts, tillage and other agricultural componentry. Discontinued operations
generated net income of $0.8 million in fiscal 1995, as compared to a net loss
of $0.7 million in fiscal 1994. The sale of Herschel, which was completed on
December 6, 1995, resulted in an estimated net loss on the sale of $3.4 million,
net of an income tax benefit of $0.7 million, which was reflected in the
Company's financial statements for fiscal 1995.
Liquidity and Capital Resources
In addition to cash to fund operations, CT's primary on-going cash
requirements are those necessary for the Company's expansion programs, including
inventory purchases and capital expenditures, and debt service, including
payment of interest on the Senior Notes. The Company's primary sources of
liquidity are funds provided from operations, borrowings pursuant to the
Company's revolving credit facilities and short-term trade credit.
On November 2, 1996, the Company had working capital of $63.8 million, an
increase of $1.3 million, as compared to working capital of $62.5 million on
October 28, 1995. This increase resulted primarily from an increase in inventory
and a decrease in borrowings under the Company's revolving credit facility,
partially offset by a decrease in the net assets of Herschel and an increase in
accounts payable. On November 2, 1996, the Company's inventories were $107.2
million, an increase of $13.3 million, as compared to $93.9 million at October
28, 1995. This increase reflected inventory for new stores and inventory for the
stores acquired in the Big Bear acquisition. The increase in inventory was
funded with cash from operations, short-term trade credit and proceeds of
approximately $13.5 million from the sale of the net assets of Herschel,
including the repayment of approximately $2.1 million in advances.
Continuing operations of the Company (before payment of income taxes)
generated $10.3 million of net cash in fiscal 1996, used $1.1 million of net
cash in fiscal 1995 and generated $0.6 million of net cash in fiscal 1994. The
increase in net cash generated in fiscal 1996, as compared to fiscal 1995,
resulted primarily from a smaller increase in inventory and an increase in
income from continuing operations before income taxes, partially offset by a
reduction in accounts payable in fiscal 1996, as compared to an increase in
fiscal 1995. The decrease in net cash generated in fiscal 1995, as compared to
fiscal 1994, resulted primarily from an increase in inventory exceeding the
increase in accounts payable, partially offset by an increase in income from
continuing operations before income taxes.
The Company's capital expenditures were $8.8 million and $6.3 million for
fiscal 1996 and 1995, respectively. The majority of capital expenditures were
for store fixtures, equipment and leasehold improvements for new and existing
stores. The Company expects its capital expenditures for fiscal 1997 to be
approximately $5.3 million in connection with renewal and replacement costs at
existing stores and distribution centers, conversion of the Big Bear stores and
the opening of two new stores.
The Company completed the acquisition of 31 store locations and certain net
operating assets of Big Bear on May 31, 1996. These stores average 11,000 square
feet and are being converted to the CT format with a projected completion of
Spring of 1997. The total investment in the 31 stores, including acquisition
cost, additional capital investments and working capital needs and conversion
costs is expected to be approximately $12.0 million. In addition, the conversion
process requires each store to be closed for approximately three weeks. The
acquisition and the additional investments made to date were funded with cash
from operations and borrowings under the Company's revolving credit facility.
The Company anticipates utilizing the New Credit Facility and cash from
operations to fund the additional investments.
The Company's former revolving credit facility contained a commitment,
expiring February 1, 1998, to provide revolving loans of $25.0 million from
November 1 through May 31 of each year and $12.0 million from June 1 through
October 31 of each year. At November 2, 1996 and October 28, 1995, the Company
had $3.7 million and $6.8 million, respectively, of borrowings outstanding under
such revolving credit facility. The maximum amount of borrowings outstanding
during fiscal 1996 and 1995 was $11.9 million and $15.6 million, respectively.
On December 23, 1996, such revolving credit facility was replaced by the "New
Credit Facility", which consists of an $8.0 million, five-year term facility,
which was fully funded, and a $30.0 million revolving credit facility, under
which $17.3 million was outstanding
3
<PAGE>
as of December 23, 1996. The Company anticipates that approximately $1.8 million
of the proceeds of the Offering will be used to repay revolving borrowings under
the New Credit Facility.
The New Credit Facility will mature on December 31, 2001. Borrowings under
the New Credit Facility will bear interest at rates based upon prime or
Eurodollar rates plus an applicable margin. Loans under the New Credit Facility
will be guaranteed by any and all future subsidiaries of the Company and will be
secured by security interests in substantially all of the assets of the Company
and its subsidiaries, as well as the capital stock of the Company.
The Company is party to an agreement and plan of merger pursuant to which
it is to become the wholly owned subsidiary (the "Acquisition") of CT Holding,
Inc. ("Holding"), an indirect subsidiary of J.W. Childs Equity Partners, L.P.
Holding is a holding company with no significant assets or operations other than
its investment in the Company. Part of the financing for the Acquisition will be
raised by an offering of $100 million of debt securities (the "Notes") to be
made by the Company. After the closing, Holding's primary source of funds will
be dividends and other advances and transfers of funds from the Company. The
Company's ability to make dividends and other advances and transfer of funds
will be subject to the terms of the New Credit Facility, the Notes and other
agreements to which the Company becomes a party from time to time. The Notes and
the New Credit Facility permit the Company (subject to certain conditions) to
pay cash dividends to Holding in an amount sufficient to permit Holding to fund
certain expenses incurred in the ordinary course of business.
The Company anticipates that its principal uses of cash following the
Acquisition will be working capital requirements, debt service requirements and
capital expenditures, as well as expenditures relating to acquisitions. Based
upon current and anticipated levels of operations, the Company believes that its
cash flow from operations, together with amounts available under the New Credit
Facility, will be adequate to meet its anticipated requirements in the
foreseeable future for working capital, capital expenditures and interest
payments. The Company expects that if it were to pursue a significant
acquisition, it would arrange prior to the acquisition any additional debt or
equity financing required to fund the acquisition. No discussions with respect
to any significant acquisition are ongoing.
There can be no assurance, however, that CT will continue to generate
sufficient cash flow from operations in the future to service its debt, and the
Company may be required to refinance all or a portion of its debt, obtain
additional financing or reduce its capital spending. There can be no assurance
that any such refinancing would be possible or that any additional financing
could be obtained. The inability to obtain additional financing could have a
material adverse effect on the Company.
Seasonality
Unlike many specialty retailers, the Company has historically 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.
Inflation
Management does not believe its operations have been materially affected by
inflation.
4
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
<S> <C>
Report of Ernst & Young LLP........................................................... F-2
Consolidated Balance Sheets as of October 29, 1994, October 28, 1995
and November 2, 1996............................................................... F-4
Consolidated Statements of Income for fiscal years ended October 29, 1994,
October 28, 1995 and November 2, 1996.............................................. F-5
Consolidated Statements of Changes in Stockholders' Equity for fiscal
years ended October 29, 1994, October 28, 1995 and November 2, 1996................ F-6
Consolidated Statements of Cash Flows for fiscal years ended October 29,
1994, October 28, 1995 and November 2, 1996........................................ F-7
Notes to Consolidated Financial Statements............................................ F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Central Tractor Farm & Country, Inc.
We have audited the accompanying consolidated balance sheets of Central Tractor
Farm & Country, Inc. as of October 29, 1994, October 28, 1995 and November 2,
1996, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Central Tractor
Farm & Country, Inc. at October 29, 1994, October 28, 1995 and November 2, 1996,
and the consolidated results of its operations and its cash flows for the years
then ended, in conformity with generally accepted accounting principles.
Des Moines, Iowa /s/ Ernst & Young LLP
December 6, 1996
F-2
<PAGE>
<TABLE>
<CAPTION>
CENTRAL TRACTOR FARM & COUNTRY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
October 29, October 28, November 2,
1994 1995 1996
------------- -------------- ---------------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,582 $ 3,094 $ 3,809
Receivable from sale of common stock (Note 6) 6,703 -- --
Trade receivables, less allowances of $168 in
1994, $72 in 1995 and $50 in 1996 1,469 883 992
Inventory 75,044 93,874 107,203
Deferred income taxes (Note 7) 172 -- --
Other 1,511 1,383 2,368
Net assets of discontinued operations (Note 10) 8,113 13,520 --
-------- -------- --------
Total current assets 95,594 112,754 114,372
Property, improvements and equipment:
Leasehold improvements 7,740 9,988 12,803
Furniture and fixtures 14,614 18,253 23,766
Capitalized property rights (Note 5) 2,508 2,508 2,859
Automobiles and trucks 499 817 1,065
-------- -------- --------
25,361 31,566 40,493
Less allowances for depreciation and
amortization 10,917 13,339 16,036
-------- -------- --------
14,444 18,227 24,457
Goodwill, net of amortization of $3,490 in 1994,
$4,014 in 1995 and $4,592 in 1996 17,454 16,930 19,018
Other intangible assets, net of amortization of
$2,406 in 1994, $2,527 in 1995 and $2,759 in
1996 1,630 1,406 1,016
Other assets 775 660 375
Noncurrent assets of discontinued operations 9,519 -- --
--------- --------- ---------
Total assets $ 139,416 $ 149,977 $ 159,238
========= ========= =========
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
CENTRAL TRACTOR FARM & COUNTRY, INC.
CONSOLIDATED BALANCE SHEETS (continued)
(In thousands)
October 29, October 28, November 2,
1994 1995 1996
------------ ------------- -----------
<S> <C> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Bank line of credit (Note 3) $ 977 $ 6,789 $ 3,669
Accounts payable 37,557 39,150 41,081
Accrued payroll and bonuses 4,438 2,553 3,631
Deferred income taxes (Note 7) -- -- 913
Accrued income taxes 140 163 4
Other accrued expenses 1,482 1,506 1,101
Current portion of long-term debt and capital
lease obligations 558 97 170
-------- -------- --------
Total current liabilities 45,152 50,258 50,569
Long-term debt, less current portion
(Notes 2 and 4) 16,017 16,000 16,000
Capital lease obligations, less current portion
(Note 5) 942 862 1,341
Deferred income taxes (Note 7) 1,570 1,580 1,265
--------- --------- --------
Total liabilities 63,681 68,700 69,175
Stockholders' equity (Notes 3 and 6):
Preferred stock, $.01 par value: authorized
shares -5,000,000; none issued or -- -- --
outstanding
Common stock, $.01 par value: authorized
shares - 45,000,000; issued and outstanding
shares - 10,576,676 in 1994, 10,576,676 in
1995 and 10,589,082 in 1996 106 106 106
Stock warrant outstanding 665 665 665
Additional paid-in capital 69,667 69,667 69,709
Retained earnings 5,297 10,839 19,583
Total stockholders' equity 75,735 81,277 90,063
--------- --------- --------
Commitments (Notes 5 and 8) -- -- --
--------- --------- --------
Total liabilities and stockholders' equity $ 139,416 $ 149,977 $159,238
========= ========= ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
<CAPTION>
CENTRAL TRACTOR FARM & COUNTRY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Fiscal year ended
---------------------------------------------
October 29, October 28, November 2,
1994 1995 1996
-------------- -------------- -------------
<S> <C> <C> <C>
Net sales $ 231,064 $ 251,703 $ 293,020
Cost of sales 161,523 177,340 207,228
---------- ---------- ----------
Gross profit 69,541 74,363 85,792
Selling, general and administrative expenses, including
amounts with related parties (Note 2) 54,548 58,294 68,197
Amortization of intangibles 841 862 938
---------- ---------- ----------
Operating income 14,152 15,207 16,657
Interest expense, including amounts with related parties
(Note 2) 4,774 1,302 1,663
---------- ---------- ----------
Income from continuing operations before income taxes
and extraordinary item 9,378 13,905 14,994
Income taxes (Note 7) 4,197 5,720 6,250
---------- ---------- ----------
Income from continuing operations before extraordinary
item 5,181 8,185 8,744
Discontinued operations (Notes 7 and 10):
Income (loss) from discontinued operations, net of
income taxes (benefit) of $(340) in 1994 and $474
in 1995 (745) 812 --
Loss on sale of Herschel Corporation, net of $665
income tax benefit -- (3,455) --
---------- ---------- ---------
Loss from discontinued operations (745) (2,643) --
---------- ---------- ---------
Income before extraordinary item 4,436 5,542 8,744
Extraordinary loss on early extinguishment of debt, net of
income tax benefit of $2,073 (Note 6) 3,110 -- --
---------- ---------- ----------
Net income $ 1,326 $ 5,542 $ 8,744
========== ========== ==========
Per share (Note 1):
Income from continuing operations before
extraordinary item $0.66 $0.74 $0.80
Discontinued operations:
Income (loss) from operations (0.10) 0.07 --
Loss on sale -- (0.31) --
Extraordinary loss (0.40) -- --
Net income 0.17 0.50 0.80
Weighted average common and common equivalent shares
outstanding (Note 1) 7,791 11,019 10,986
</TABLE>
See accompanying notes.
F-5
<PAGE>
<TABLE>
<CAPTION>
CENTRAL TRACTOR FARM & COUNTRY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
Fiscal years ended October 29, 1994,
October 28, 1995 and November 2, 1996
Note
Stock Additional Receivable Total
Common Warrant Paid-In from Retained Stockholders'
Stock Outstanding Capital Stockholder Earnings Equity
---------- ------------ ---------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity at October 30, 1993 $ 70 $ 665 $ 19,664 $ (83) $ 3,971 $ 24,287
Repurchase of common stock -- -- (70) -- -- (70)
Reduction in notes from stockholders -- -- -- 83 -- 83
Issuance of common stock in connection with
the Company's initial public offering, net
of offering expenses (Note 6) 36 -- 50,073 -- -- 50,109
Net income -- -- -- -- 1,326 1,326
---------- ----------- ---------- ---------- ---------- ----------
Stockholders' equity at October 29, 1994 106 665 69,667 -- 5,297 75,735
Net income -- -- -- -- 5,542 5,542
---------- ----------- ---------- ---------- ---------- ----------
Stockholders' equity at October 28, 1995 106 665 69,667 -- 10,839 81,277
Exercise of common stock options -- -- 42 -- -- 42
Net income -- -- -- -- 8,744 8,744
---------- ----------- ---------- ---------- ---------- ----------
Stockholders' equity at November 2, 1996 $ 106 $ 665 $ 69,709 $ -- $ 19,583 $ 90,063
========== =========== ========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-6
<PAGE>
<TABLE>
<CAPTION>
CENTRAL TRACTOR FARM & COUNTRY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
October 29, October 28, November 2,
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Operating activities
Income from continuing operations before income taxes and
extraordinary item $ 9,378 $ 13,905 $ 14,994
Adjustments to reconcile pretax income from continuing operations
to net cash provided by (used in) continuing operations:
Depreciation and amortization of property, improvements and
equipment 2,206 2,523 3,056
Amortization of intangibles and other deferred assets 1,180 862 998
Loss on sale of assets 143 24 20
Deferred interest 109 -- --
Changes in operating assets and liabilities:
Trade receivables (362) 586 83
Inventory (23,345) (18,830) (4,549)
Other current assets (330) 128 (972)
Accounts payable 11,371 1,593 (3,806)
Accrued expenses 269 (1,861) 445
-------- -------- --------
619 (1,070) 10,269
Income (loss) from discontinued operations before income taxe (1,085) 1,286 --
Adjustments to reconcile pretax income (loss) from discontinued operations to
net cash provided by discontinued operations: Depreciation and amortization
of property, improvements and
equipment 559 559 --
Amortization of intangibles 561 561 --
Deferred interest 336 -- --
Changes in operating assets and liabilities (1,321) (651) 13,520
-------- -------- --------
(950) 1,755 13,520
Extraordinary loss on early extinguishment of debt before income
taxes (5,183) -- --
Income taxes paid, net (1,815) (5,324) (5,675)
-------- -------- --------
Net cash provided by (used in) operating activities (7,329) (4,639) 18,114
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
CENTRAL TRACTOR FARM & COUNTRY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands)
October 29, October 28, November 2,
1994 1995 1996
----------- ---------- ------------
<S> <C> <C> <C>
Investing activities
Purchases of property, improvements and equipment $ (5,207) $ (6,339) $ (8,789)
Acquisition of certain net assets of Big Bear (Note 11) -- -- (5,650)
Other (54) (74) 255
Discontinued operations (255) (400) --
---------- ---------- -----------
Net cash used in investing activities (5,516) (6,813) (14,184)
Financing activities
Repurchase of common stock (70) -- --
Proceeds from sale of assets -- 7 --
Borrowings under line of credit 39,025 67,020 86,782
Repayments on line of credit (38,048) (61,208) (89,902)
Payments on long-term debt (37,757) (372) (17)
Payments on capitalized lease obligations (244) (186) (120)
Proceeds from issuance of common stock 43,406 6,703 42
---------- ---------- -----------
Net cash provided by (used in) financing activities 6,312 11,964 (3,215)
---------- ---------- -----------
Net increase (decrease) in cash and cash equivalents (6,533) 512 715
Cash and cash equivalents at beginning of period 9,115 2,582 3,094
---------- ---------- -----------
Cash and cash equivalents at end of period $ 2,582 $ 3,094 $ 3,809
========== ============ ============
Supplemental disclosures of cash flow information
Cash paid during the period for interest $ 7,925 $ 1,491 $ 1,991
Supplemental schedule of noncash investing and financing activities
Receivable from sale of common stock 6,703 -- --
</TABLE>
See accompanying notes.
F-8
<PAGE>
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal years ended October 29, 1994,
October 28, 1995 and November 2, 1996
1. Summary of Accounting Policies and Other Matters
Business and Principles of Consolidation
Central Tractor Farm & Country, Inc. and subsidiaries (the Company) is an
agricultural specialty retailer which operates retail stores primarily located
in the Midwest and Northeastern United States. The Company also sells
merchandise on a wholesale basis under various distributor agreements throughout
the United States. With the sale of the net operating assets of Herschel
Corporation, a wholly-owned subsidiary of the Company, continuing operations
constitute one business segment for financial reporting purposes.
The Company operates on a 52-53 week fiscal year ending on the Saturday nearest
to October 31.
All significant intercompany transactions have been eliminated from the
consolidated financial statements.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with a maturity of three months or less when purchased to be
cash equivalents. Investments, including repurchase agreements and commercial
paper, are carried at cost, which approximates market.
Use of Estimates
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.
Trade Receivables
Most of the Company's retail sales are cash or credit card sales, while
wholesale sales are generally on account. Concentrations of credit risk with
respect to trade receivables are limited due to the number of customers of the
Company and their geographic dispersion. The allowance for doubtful accounts is
based on a current analysis of receivable delinquencies and historical loss
experience.
Inventory
Inventory is recorded at cost, including warehousing and freight costs,
determined principally by the last-in, first-out (LIFO) method, which is not in
excess of market. The Company reviews its inventory for slow-moving, obsolete or
otherwise unsalable items on a regular basis throughout the year, including at
the time of physical inventory counts. Provision is made for any estimated
losses to be incurred with respect to slow-moving, obsolete or otherwise
unsalable inventory as such inventory is identified. Inventories valued using
the LIFO method were approximately $3,926,000, $4,851,000 and $5,081,000 at
October 29, 1994, October 28, 1995 and November 2, 1996, respectively, less than
the amounts of such inventories valued at current cost.
F-9
<PAGE>
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of Accounting Policies and Other Matters (continued)
Property, Improvements and Equipment
Property, improvements and equipment are carried at cost less allowances for
depreciation and amortization. Depreciation and amortization expense is computed
primarily on a basis of the straight-line method over the estimated useful lives
of the assets as follows:
Leasehold improvements (not in excess of underlying lease terms) 5 to 20 years
Furniture and fixtures 5 to 15 years
Automobiles and trucks 3 to 10 years
Certain long-term lease transactions have been accounted for as capital leases.
The property rights recorded under direct financing leases are amortized on a
straight-line basis over the lesser of the useful life or the respective terms
of the leases.
Goodwill and Other Intangible Assets
Goodwill is being amortized utilizing the straight-line method principally over
periods of 40 years. Other intangible assets are being amortized over the
periods of expected benefit, ranging from 5 to 24 years. The carrying value of
goodwill and other intangibles is reviewed continually to determine whether any
impairment has occurred. This review takes into consideration the recoverability
of the unamortized amounts based on the estimated undiscounted cash flows of the
related business lines.
Deferred Income Taxes
The Company uses the liability method of accounting for income taxes. Under this
method, deferred income tax assets and liabilities are determined based on the
difference between financial reporting and income tax bases of assets and
liabilities using the enacted marginal tax rates. Deferred income tax expenses
or credits are based on the changes in the asset or liability from period to
period.
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating its
fair value of financial instruments:
Cash equivalents, short-term investments, accounts receivable and payable,
and bank line of credit: Carrying amounts reported in the Company's
consolidated balance sheets based on historical cost approximate estimated
fair value for these instruments, due to their short-term nature.
The fair value of the convertible long-term debt is estimated to
approximate its carrying value as of November 2, 1996 and was based on the
estimated market price for this security as of that date.
Returns and Warranties
Costs relating to merchandise returns from sales at retail stores and through
distributors are not significant and are accounted for as they occur.
F-10
<PAGE>
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of Accounting Policies and Other Matters (continued)
Catalogs, Sale Flyers and Advertising Costs
The direct cost of printing and mailing the Company's annual mail order catalog
is deferred and amortized against mail order revenues over the year the catalog
is in use. The direct cost of printing and distributing sale flyers is deferred
and amortized over the life of the flyer which is generally two weeks or less.
Other advertising costs are expensed as incurred. Unamortized amounts relating
to the costs of the annual catalog and periodic sale flyers is immaterial at
each fiscal year-end. Advertising expenses were approximately $6,184,000,
$7,228,000 and $8,841,000 for fiscal 1994, 1995 and 1996, respectively.
Store Pre-Opening Costs
Direct costs, which consist principally of rent, employee compensation and
travel costs for merchandise set-up and supplies, incurred in setting up new
stores for opening are deferred and amortized over the first twenty-six weeks of
store operations. The amount of unamortized store pre-opening costs at October
29, 1994, October 28, 1995 and November 2, 1996, amounted to $502,000, $431,000
and $1,123,000, respectively.
Earnings Per Share
Per share earnings is based on the weighted average number of shares of common
stock and common stock equivalents outstanding and assuming all stock options
issued prior to the Company's initial public offering and the stock warrant were
outstanding at the beginning of each respective year. The dilutive effect of
outstanding stock options and the stock warrant were determined based upon the
Treasury Stock Method. Fully diluted earnings per share did not vary
significantly from earnings per share as presented.
Emerging Accounting Issues
The Company is not aware of any accounting standards which have been issued and
which will require the Company to change its current accounting policies or
adopt new policies, the effect of which would be material to the Company's
financial statements.
2. Transactions with Related Parties
Certain investment funds (collectively referred to as "BCC Funds") managed by
Butler Capital Corporation ("BCC") own a majority of the outstanding common
stock of the Company. The BCC Funds held the senior and subordinated notes
extinguished in October 1994, and currently hold the outstanding 7% convertible
notes (see Note 4). Interest paid on such notes in fiscal 1994, 1995 and 1996
was approximately $6,960,000, $883,000 and $1,425,000, respectively.
A company affiliated with the BCC Funds was paid a management and consulting fee
of approximately $238,000 in fiscal 1994.
The Company purchases inventory from two suppliers who are controlled by the BCC
Funds. Purchases from these suppliers aggregated approximately $3,882,000,
$6,254,000 and $6,228,000 for fiscal years 1994, 1995 and 1996, respectively.
F-11
<PAGE>
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Line of Credit
On January 28, 1994, the Company entered into a line of credit agreement with a
commercial bank through February 1, 1998. At November 2, 1996, borrowings of
$3,669,000 and letters of credit totaling approximately $1,515,000 were
outstanding against the line of credit. Available borrowings under the line of
credit are $25,000,000 each year from November 1 through May 31 and $12,000,000
from June 1 through October 31. Interest on the outstanding borrowing varies,
but is primarily payable monthly at an annual rate equal to the bank's prime
rate. The interest rate on October 29, 1994, October 28, 1995 and November 2,
1996 was 8.25%, 8.75%, and 8.25%, respectively. In addition, the Company is
required to pay commitment fees ranging from 0.375% down to 0.125% on the total
credit line, less outstanding borrowing. During the period from April 15 through
December 31 in each year, the Company must have borrowing less than $5,000,000
outstanding under this line of credit for a consecutive period of 45 days. The
line of credit contains, among other provisions, requirements that the Company
maintain a minimum current ratio, leverage ratio and fixed charge coverage
ratio. At November 2, 1996, substantially all retained earnings were restricted.
4. Long-Term Debt
Long-term debt consisted of the following:
October 29, October 28, November 2,
1994 1995 1996
-------------- ------------ ---------------
7% convertible notes $ 16,000,000 $ 16,000,000 $ 16,000,000
Other 388,989 17,044 --
-------------- -------------- -------------
16,388,989 16,017,044 16,000,000
Less current portion 371,944 17,044 --
-------------- -------------- -------------
$ 16,017,045 $ 16,000,000 $ 16,000,000
============== ============== =============
Interest on the convertible notes is payable quarterly at 7.0% per annum and the
entire principal amount is due October 31, 2002. The note may be prepaid after
October 14, 1999, at a premium of 2.0%, which declines by 1.0% annually on each
October 14 thereafter. The holders of the convertible notes have the right, at
any time prior to the close of business on October 31, 2002, to convert the
principal amounts into shares of common stock at a conversion price of $19.375
per share. The conversion price of the convertible notes is subject to
adjustment in certain events, including a common stock split, the issuance of
securities convertible or exchangeable into common stock at less than the then
fair market value of the common stock and certain mergers, consolidations or
sales of stock. The convertible notes are subordinated to the principal amounts
outstanding pursuant to the line of credit (see Note 3).
As of November 2, 1996, there are no maturities of long-term debt during the
next five fiscal years.
F-12
<PAGE>
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Lease Obligations
The Company has entered into certain long-term lease agreements for the use of
warehouses, certain retail store facilities and computer equipment. These leases
have been accounted for as purchases of property rights and designated as
capitalized leases.
Amortization expense relating to such property rights recorded under capitalized
leases was $213,000, $130,000 and $125,000 for fiscal 1994, 1995 and 1996,
respectively. The net book value of property rights recorded under capital
leases was $829,000, $699,000 and $926,000 at October 29, 1994, October 28, 1995
and November 2, 1996, respectively.
As of November 2, 1996, the debt associated with the capitalized property rights
is represented by the present value of the minimum lease payments as follows:
Fiscal year ended in:
1997 $ 347,108
1998 324,648
1999 292,968
2000 292,968
2001 292,968
After 2001 735,000
-----------
Total minimum lease payments 2,285,660
Less amount representing interest 774,663
-----------
Present value of minimum lease payments 1,510,997
Less current installments 170,072
$ 1,340,925
===========
The Company also has entered into certain noncancelable operating leases for the
use of real estate, automobiles and trucks, and office equipment. Aggregate
rental expense for operating leases for fiscal 1994, 1995 and 1996 was
approximately $6,724,000, $7,833,000 and $9,294,000, respectively.
The following is a summary of minimum rental commitments as of November 2, 1996,
for operating leases:
<TABLE>
<CAPTION>
Automobile Office
Fiscal Year-End Real Estate and Trucks Equipment Total
- ------------------------- ------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
1997 $ 9,479,335 $ 12,293 $ 52,328 $ 9,543,956
1998 8,320,110 8,195 52,328 8,380,633
1999 6,822,291 -- 46,280 6,868,571
2000 5,288,555 -- 16,544 5,305,099
2001 2,927,707 -- 1,972 2,929,679
After 2001 6,315,729 -- -- 6,315,729
-------------- ----------------- --------------- ---------------
$ 39,153,727 $ 20,488 $ 169,452 $ 39,343,667
============== ================= =============== ===============
</TABLE>
F-13
<PAGE>
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Capital Stock and Stock Options
Capital Stock
During October 1994, the Company completed an initial public offering for the
sale of 3,565,000 shares of its common stock. The net proceeds from the offering
were used to prepay both principal and prepayment premium on the outstanding
Senior Notes and a portion of the outstanding Subordinated Notes. Prepayment
premiums on the early extinguishment of these notes resulted in an extraordinary
loss of $3,110,000, net of income tax benefit. The remaining Subordinated Notes
in the amount of $16,000,000 were exchanged for notes which are convertible into
the Company's common stock. At October 29, 1994, $6,703,000 of the net proceeds
representing the Underwriter's exercise of their over-allotment option was
receivable. This amount was received on November 2, 1994.
The Board of Directors is authorized to issue up to an aggregate of 5,000,000
shares of preferred stock, $0.01 par value per share, in one or more series,
each series to have voting preferences or other rights as determined by the
Board of Directors.
Under the Company's stockholders' agreement, common stock acquired by a
management stockholder is subject to certain restrictions on the sale or
transfer of such shares.
Stock Options
The Company has stock option arrangements with various officers, directors and
other members of management which it accounts for under the provisions of APB
Opinion No. 25 and related interpretations. The option prices approximated fair
market value at the date of grant. The options generally vest over periods of
three to seven years and must be exercised no later than ten years from the date
of grant. With respect to options for 150,200 shares, their vesting period may
be accelerated based upon the attainment of specified Company operating goals.
Shares of common stock issuable upon exercise of stock options are subject to
restrictions on transfer.
A summary of common stock option activity through November 2, 1996 is as
follows:
<TABLE>
<CAPTION>
Fiscal Year
----------------------------------------------
1994 1995 1996
------------ ------------- -------------
<S> <C> <C> <C>
Outstanding at beginning of year 468,923 637,774 623,960
Options granted 323,464 66,800 81,900
Options exercised -- -- (12,406)
Options canceled (154,613) (80,614) (30,771)
------------ ------------- -------------
Outstanding at end of year 637,774 623,960 662,683
============ ============= =============
Range of option prices per share:
Outstanding $3.08-$15.50 $ 3.08-$15.50 $ 3.08-$15.50
Granted during year $3.41-$15.50 $ 11.50-$15.50 $ 11.38-$14.50
</TABLE>
F-14
<PAGE>
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Capital Stock and Stock Options (continued)
At November 2, 1996, options for 295,973 shares were exercisable. The remaining
options become exercisable in fiscal years as follows: 1997 - 90,802 shares;
1998 - 30,916 shares; 1999 - 25,409 shares; 2000 - 14,000 shares; 2001 - 156,583
shares; 2002 - 49,000 shares.
As of November 2, 1996, the Company has reserved 914,025 shares of common stock
for issuance under stock option arrangements described above. In addition, the
Company has reserved 230,523 shares of common stock for issuance under the stock
warrant.
Compensation expense charged to operating income relating to stock option grants
amounts to $111,000 for fiscal 1994, $1,000 for fiscal 1995 and $0 for fiscal
1996.
7. Income Taxes
Deferred income taxes reflect the net tax effect of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------------------
October 29, October 28, November 2,
1994 1995 1996
------------------ ----------------- -----------------
<S> <C> <C> <C>
Deferred tax liabilities:
Differences in depreciation on property,
improvements and equipment $ 1,789,000 $ 1,890,000 $ 1,766,000
LIFO and uniform capitalization differences on
inventories 787,000 1,391,000 1,160,000
Prepaid advertising 211,000 174,000 244,000
Deferred leasing costs 185,000 82,000 --
Store pre-opening costs 208,000 172,000 449,000
Other 10,000 10,000 9,000
----------- ------------ ------------
Total deferred tax liabilities 3,190,000 3,719,000 3,628,000
----------- ------------ ------------
</TABLE>
F-15
<PAGE>
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
7. Income Taxes (continued)
Fiscal Year Ended
--------------------------------------------------------
October 29, October 28, November 2,
1994 1995 1996
--------------- ---------------- -----------------
<S> <C> <C> <C>
Deferred tax assets:
Loss on sale of discontinued operations:
Ordinary loss $ -- $ 665,000 $ --
Capital loss carryforward -- 755,000 755,000
Allowance for doubtful accounts 101,000 45,000 20,000
Compensation and employee benefit accruals 174,000 148,000 58,000
Operating leases 330,000 261,000 273,000
Accrued profit sharing contributions 323,000 321,000 356,000
Stock warrant 279,000 266,000 266,000
Accrued store closing costs 168,000 86,000 32,000
Capitalized property rights and lease
obligations treated as operating leases for
income tax purposes 126,000 97,000 234,000
Other 291,000 250,000 211,000
--------------- ---------------- -----------------
1,792,000 2,894,000 2,205,000
Less valuation allowance for capital loss
carryforward -- (755,000) (755,000)
--------------- ---------------- -----------------
Total deferred tax assets 1,792,000 2,139,000 1,450,000
--------------- ---------------- -----------------
Net deferred tax liabilities $ 1,398,000 $ 1,580,000 $ 2,178,000
=============== ================ =================
<CAPTION>
The capital loss carryforward relating to the sale of Herschel will expire in
the year 2001.
Components of income tax expense (benefit) are as follows:
Fiscal Year Ended
--------------------------------------------------------
October 29, October 28, November 2,
1994 1995 1996
---------------- ---------------- -----------------
<S> <C> <C> <C>
Continuing operations:
Current:
Federal $ 3,121,000 $ 3,768,000 $ 3,951,000
State 709,000 1,152,000 1,199,000
---------------- ---------------- -----------------
3,830,000 4,920,000 5,150,000
Deferred 367,000 800,000 1,100,000
---------------- ---------------- -----------------
4,197,000 5,720,000 6,250,000
Discontinued operations:
Current (302,000) 427,000 367,000
Deferred (38,000) (618,000) (367,000)
---------------- ---------------- -----------------
(340,000) (191,000) --
---------------- ---------------- -----------------
Extraordinary loss - currently deductible (2,073,000) -- --
---------------- ---------------- -----------------
Total $ 1,784,000 $ 5,529,000 $ 6,250,000
================ ================ =================
</TABLE>
F-16
<PAGE>
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Income Taxes (continued)
Total reported income tax expense differs from the tax that would have resulted
by applying the statutory expected federal income tax rate to income before
taxes. The reasons for these differences are as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------
October 29, October 28, November 2,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Income tax at federal statutory rate $ 1,057,000 $ 3,764,000 $ 5,098,000
Increases in taxes resulting from:
State income taxes, net of federal income
tax effect 403,000 897,000 833,000
Goodwill amortization 215,000 215,000 178,000
Capital loss carryforward -- 755,000 --
Other, net 109,000 102,000 141,000
Reduction of prior year overaccruals -- (204,000) --
----------- ----------- ------------
$ 1,784,000 $ 5,529,000 $ 6,250,000
=========== =========== ============
</TABLE>
8. Employment Commitments
The Company has employment agreements with three officers of the Company which
provide for annual salaries amounting to approximately $775,000. Upon
termination of employment for death, disability or without cause, compensation
may be continued for a period not to exceed two years.
9. Profit Sharing Plan
The Company has a profit sharing plan covering all employees who meet certain
eligibility requirements. The plan provides for discretionary employer
contributions and allows voluntary participant contributions. Company
contributions are determined by its Board of Directors. The Company incurred
expense in connection with the profit sharing plan of $770,000, $804,000 and
$881,000 for fiscal 1994, 1995 and 1996, respectively.
F-17
<PAGE>
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Discontinued Operations
During fiscal 1996, the Company completed the sale of its wholly owned
subsidiary, Herschel Corporation ("Herschel"), a manufacturer and wholesale
distributor of equipment parts for use in the farming industry. Herschel has
been reported as a discontinued segment of the business; accordingly, its net
assets and operating results have been segregated in the consolidated financial
statements. The net assets of Herschel Corporation have been classified as
current at October 28, 1995 as the carrying amount approximates the selling
price, plus advances to be repaid, less expenses of sale, and were realized upon
closing in December 1995.
Summarized financial information of the Company's income (loss) from
discontinued operations follow:
Fiscal Year Ended
-------------------------------------
October 29, October 28,
1994 1995
---------------- ----------------
Net sales $ 23,312,046 $ 22,969,504
Income (loss) before income taxes (1,085,217) 1,286,242
Income taxes (credit) (340,000) 474,127
Income (loss) from discontinued operations (745,217) 812,115
11. Acquisition
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, for approximately $5,650,000. The transaction was accounted for as a
purchase. The purchase price was allocated based on fair value as follows:
Inventories $ 8,780,000
Accounts receivable and other assets 206,000
Leaseholds and equipment 517,000
Deferred income taxes 135,000
Goodwill 2,666,000
Accounts payable and accrued expenses (6,654,000)
------------
$ 5,650,000
============
The results of operations of Big Bear from the date of purchase to the end of
fiscal year 1996 are included in the accompanying consolidated statement of
income.
F-18
<PAGE>
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. Acquisition (continued)
Pro forma amounts, based on the assumption that the purchase occurred at the
beginning of fiscal 1995, are as follows (in thousands, except per share data):
Fiscal Year Ended
--------------------------------------
October 28, November 2,
1995 1996
---------------- -----------------
Net sales $275,685 $307,847
Net income 6,018 9,104
Net income per share .55 .83
12. Quarterly Results of Operations (Unaudited)
The following is a tabulation of the unaudited quarterly results of operations
for the years ended October 28, 1995 and November 2, 1996 (in thousands, except
per share data):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Fiscal year ended October 28, 1995:
Net sales $61,836 $59,347 $74,362 $56,158
Gross profit 17,362 18,214 22,557 16,230
Income from continuing operations 1,473 2,121 4,249 342
Income (loss) from discontinued operations (1) 467 187 (3,296)
Net income (loss) 1,472 2,588 4,436 (2,954)
Per share:
Income from continuing operations 0.13 0.19 0.39 0.03
Income (loss) from discontinued operations -- 0.04 0.02 (0.30)
Net income (loss) 0.13 0.23 0.40 (0.27)
Fiscal year ended November 2, 1996:
Net sales 69,967 62,989 86,169 73,895
Gross profit 18,862 19,245 25,417 22,268
Net income 1,280 1,684 3,937 1,843
Net income per share 0.12 0.15 0.36 0.17
</TABLE>
The sum of quarterly per share amounts do not necessarily equal the annual
amount reported, as per share amounts are computed separately for each quarter
and the full year based on respective weighted average of common and common
equivalent shares outstanding.
F-19
<PAGE>
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Subsequent Event
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 provides for the acquisition of the Company by Childs in a two-stage
transaction. The Merger Agreement provides 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 will merge with and
into the Company, and Childs will acquire the remaining shares of the Company
held by public stockholders for $14.25 per share in cash. The consummation of
the merger is subject to the satisfaction of certain conditions including, among
other things, (i) the acquisition by Childs of all of the Company's shares held
by affiliates of BCC and (ii) the availability of sufficient funds to consummate
the merger pursuant to commitments obtained by Childs from its prospective
lenders.
Pursuant to an agreement executed contemporaneously with the Merger Agreement
between Childs and affiliates of BCC which own 64.5% of the Company's
outstanding common stock, BCC's affiliates have sold 1,048,214 shares of the
Company's common stock (representing 9.9% of the outstanding shares) to Childs
for a cash consideration of $14.00 per share, and have agreed to sell their
remaining shares to Childs for $14.00 per share in cash. The agreement also
provides that such BCC affiliates will agree, immediately following the
conclusion of the stock sale, to the prepayment by the Company (without payment
of any prepayment premium) of all the Company's 7% convertible notes with a face
amount of $16,000,000. In connection with the second purchase, certain members
of management agreed to sell 146,299 shares to Childs for a cash consideration
of $14.00 per share.
While the Merger Agreement is subject to stockholder approval, it is expected
that Childs will own a sufficient number of shares of Company common stock to
adopt and approve the merger.
F-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTRAL TRACTOR FARM & COUNTRY, INC.
By: /s/ Dean Longnecker
------------------------------------
Dean Longnecker,
Executive Vice President, Finance
Date: January 10, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-02-1996
<PERIOD-START> OCT-26-1995
<PERIOD-END> NOV-02-1996
<CASH> 3,809,000
<SECURITIES> 0
<RECEIVABLES> 1,042,000
<ALLOWANCES> 50,000
<INVENTORY> 107,203,000
<CURRENT-ASSETS> 114,372,000
<PP&E> 40,493,000
<DEPRECIATION> 16,036,000
<TOTAL-ASSETS> 159,238,000
<CURRENT-LIABILITIES> 50,569,000
<BONDS> 17,341,000
0
0
<COMMON> 106,000
<OTHER-SE> 89,957,000
<TOTAL-LIABILITY-AND-EQUITY> 159,238,000
<SALES> 293,020,000
<TOTAL-REVENUES> 293,020,000
<CGS> 207,228,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,663,000
<INCOME-PRETAX> 14,994,000
<INCOME-TAX> 6,250,000
<INCOME-CONTINUING> 8,744,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,744,000
<EPS-PRIMARY> 0.80
<EPS-DILUTED> 0.80
</TABLE>
