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 May 3, 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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CENTRAL TRACTOR FARM & COUNTRY, INC.
INDEX
PART I. FINANCIAL STATEMENTS PAGE
ITEM 1. FINANCIAL STATEMENTS
Condensed balance sheets, May 3, 1997
(unaudited) and November 2, 1996...................................3
Condensed statements of income (unaudited), for the
three months and six months ended May 3, 1997 and the
three months and six months ended April 27, 1996...................4
Condensed statements of cash flows (unaudited),
six months ended May 3, 1997 and April 27, 1996....................5
Notes to 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 3. DEFAULTS UPON SENIOR SECURITIES.................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS................................................14
ITEM 5. OTHER INFORMATION...............................................15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................15
INDEX TO EXHIBITS.........................................................17
<PAGE>
<TABLE>
<CAPTION>
Page 3
CENTRAL TRACTOR FARM & COUNTRY, INC.
Condensed Balance Sheets
(In thousands except share data)
SUCCESSOR | PREDECESSOR
--------------- | ----------------
May 3, | November 2,
1997 | 1996
--------------- | ----------------
(unaudited) | (Note)
<S> <C> <C>
|
ASSETS |
|
Current assets: |
|
Cash and cash equivalents $ 4,829 | $ 3,809
Trade receivables, net 930 | 992
Inventory 126,117 | 107,203
Other 3,521 | 2,368
----------- | -----------
Total current assets 135,397 | 114,372
|
Property, improvements and equipment, net 25,711 | 24,457
Goodwill, net 87,010 | 19,018
Other assets 6,417 | 1,391
----------- | -----------
Total assets $ 254,535 | $ 159,238
=========== | ===========
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
Current liabilities: |
|
Note payable to bank $ 16,500 | $ 3,669
Current portion of long-term debt 1,600 | --
Accounts payable 44,826 | 41,081
Accrued expenses and other liabilities 8,074 | 5,819
----------- | -----------
Total current liabilities 71,000 | 50,569
|
|
Long-term debt, less current portion 111,400 | 16,000
Other long-term liabilities 2,970 | 2,606
----------- | -----------
Total liabilities 185,370 | 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 -- | 665
Additional paid in capital 68,432 | 69,709
Retained earnings 733 | 19,583
----------- | -----------
Total stockholders' equity 69,165 | 90,063
----------- | -----------
Total liabilities and stockholders' equity $ 254,535 | $ 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.
</FN>
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
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CENTRAL TRACTOR FARM & COUNTRY, INC.
Condensed Statements of Income (Unaudited)
(In thousands)
Three months ended
-------------------------------------------------------------------------------------
SUCCESSOR | PREDECESSOR PREDECESSOR
------------------------- | ---------------------- --------------------
| Three months
| ended
March 27, 1997 to | Feb 2, 1997 to April 27,
May 3, 1997 | March 26,1997 1996
------------------------- | ---------------------- --------------------
<S> <C> <C> <C>
|
Net sales $ 35,168 | $ 34,569 $ 62,989
Cost of sales 24,534 | 24,211 43,744
--------- | --------- ---------
Gross profit 10,634 | 10,358 19,245
|
Selling, general and administrative expense 7,595 | 11,431 15,656
Amortization of intangibles 207 | 158 221
--------- | --------- ---------
Operating income 2,832 | (1,231) 3,368
| =========
|
Interest expense 1,477 | 1,711 484
--------- | --------- ---------
Income (loss) before income taxes 1,355 | (2,942) 2,884
|
Income taxes (credits) 623 | (1,094) 1,200
--------- | --------- ---------
Net income (loss) $ 732 | $ (1,848) $ 1,684
========= | ========= =========
|
Ratio (deficiency) of earnings to fixed |
charges 1.8 x | (0.4)x 4.1 x
========= | ========= =========
<CAPTION>
Six months ended
-------------------------------------------------------------------------------------
SUCCESSOR | PREDECESSOR PREDECESSOR
------------------------- | ---------------------- -----------------------
| Six months ended
March 27, 1997 to | Nov 3, 1996 to April 27,
May 3, 1997 | March 26,1997 1996
------------------------- | ---------------------- -----------------------
<S> <C> <C> <C>
|
Net sales $ 35,168 | $ 106,048 $ 132,956
Cost of sales 24,534 | 75,281 94,849
--------- | --------- ---------
Gross profit 10,634 | 30,767 38,107
|
Selling, general and administrative expense 7,595 | 29,045 31,717
Amortization of intangibles 207 | 415 442
--------- | --------- ---------
Operating income 2,832 | 1,307 5,948
|
Interest expense 1,477 | 3,188 844
--------- | --------- ---------
Income (loss) before income taxes 1,355 | (1,881) 5,104
Income taxes (credits) 623 | (634) 2,140
--------- | --------- ---------
Net income (loss) $ 732 | $ (1,247) $ 2,964
========= | ========= =========
|
Ratio (deficiency) of earnings to fixed charges 1.8 x | 0.5 x 3.9 x
========= | ========= =========
</TABLE>
See accompanying notes to financial statements.
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<TABLE>
<CAPTION>
CENTRAL TRACTOR FARM & COUNTRY, INC
Condensed Statements of Cash Flows (Unaudited)
(In thousands) Six months ended
-----------------------------------------------------------
SUCCESSOR | PREDECESSOR PREDECESSOR
------------------- | ------------------ ----------------
| Six months ended
March 27, 1997 to | Nov 3, 1996 to April 27,
May 3, 1997 | March 26, 1997 1996
------------------- | ------------------ ----------------
<S> <C> <C> <C>
|
Operating Activities |
|
Net income $ 732 | $ (1,247) $ 2,964
Adjustments to reconcile net income to net |
|
cash provided by (used in) operations: |
|
Depreciation and amortization 644 | 1,904 1,893
Changes in operating assets and liabilities 1,622 | (12,916) (9,866)
--------- | --------- ---------
Net cash provided by (used in ) continuing operations 2,988 | (12,259) (5,009)
Net cash provided by (used in) discontinued operations -- | -- 13,520
--------- | --------- ---------
Net cash provided by (used in) operating activities 2,998 | (12,259) 8,511
|
|
Investing activities |
|
Purchases of property, improvements and equipment (682) | (2,419) (3,410)
Cost of acquiring outstanding common -- | -- --
stock from predecessor shareholders (158,903) | -- --
Other 363 | (1,338) (23)
--------- | --------- ---------
Net cash provided by (used in) investing activities (159,222) | (3,757) (3,433)
|
|
Financing activities |
|
Proceeds from the issuance of common stock 69,170 |
Net borrowings (repayments) under line of credit and |
margin loan facility (16,413) | 29,244 (3,611)
Payments on long-term debt -- | (16,000) (17)
Proceeds from issuance of long term debt 113,000 | -- --
Financing costs related to new line of -- | -- --
credit, term loan and Senior Notes (5,908) | -- --
Other (16) | 183 3
--------- | --------- ---------
Net cash provided by (used in) financing activities 159,833 | 13,427 (3,625)
|
Net increase(decrease) in cash and cash equivalents 3,609 | (2,589) 1,453
Cash and cash equivalents at beginning of period 1,220 | 3,809 3,094
--------- | --------- ---------
Cash and cash equivalents at end of period $ 4,829 | $ 1,220 $ 4,547
========= | ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
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CENTRAL TRACTOR FARM & COUNTRY INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. PRESENTATION OF FINANCIAL INFORMATION
The condensed unaudited financial statements have been prepared by 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 2
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. Acquisitions
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
<PAGE>
Page 7
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
new term loan (the "New Term Loan") and a new revolving credit facility
(the "New 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.
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:
Cost of acquiring the outstanding common stock of the
Company from Predecessor shareholders $159,903
Fair value of underlying tangible net assets 71,314
Excess of cost of acquisition over the allocated fair value
of the underlying tangible net assets $ 87,217
========
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NOTE 3. 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 4. 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 3; (ii) the acquisition of the Company by Childs and
the Senior Note offering described in Note 2; and (iii) the New Credit
Facility 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 Six Months Ended
-------------------------- ------------------------
May 3, April 27, May 3, April 27,
1997 1996 1997 1996
----------- ----------- ----------- ----------
(In thousands)
Net sales $ 69,737 $ 67,758 $ 141,216 $ 144,808
Operating income 1,367 3,049 3,562 5,680
Net loss (1,553) (357) (2,441) (896)
NOTE 5. DEFERRED CATALOG 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 amount of unamortized deferred catalog
costs at May 3, 1997 and April 27, 1996 was $272,204 and $229,791,
respectively, and $33,866 at November 2, 1996.
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NOTE 6. NEW CREDIT FACILITY
On December 23, 1996, the Company entered into a New Credit Facility
with a bank which consists of an $8.0 million, five-year term loan
facility, which was fully funded, and a $30.0 million revolving credit
facility under which $16.5 million was outstanding as of May 3, 1997.
The amounts originally funded and drawn under the New Credit Facility
were used, in part, to repay outstanding borrowings under the Company's
prior line of credit agreement and to prepay (without payment of any
prepayment premium) all of the Company's 7% convertible notes
outstanding in the amount of $16.0 million.
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 the Eurodollar Rate plus a margin. At May 3, 1997, the
interest rate on the New Term Loan was 7.89% and the effective interest
rate for the New Revolving Credit Facility was 8.4%.
The term loan must be repaid in ten installments of $0.8 million
beginning June 30, 1997, plus annual prepayments based on the Company's
excess cash flow, as defined.
The New 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. Effective April 30,
1997, the New Credit Facility was amended to reduce the minimum
requirements for EBITDA and to adjust related EBITDA ratios.
The New Credit Facility is secured by substantially all of the assets
of the Company.
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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
Second Quarter of Fiscal 1997 Compared to Second Quarter of Fiscal 1996
Sales for the second quarter of fiscal 1997 were $69.7 million, an
increase of $6.7 million, or 10.7%, as compared to total sales for
second quarter of fiscal 1996 of $63.0 million. This increase was due
to two new stores opened during the first and second quarters of fiscal
1997. Nine new stores opened during the third and fourth quarters of
fiscal 1996 and thirty-one stores acquired during fiscal 1996,
partially offset by comparable store sales decrease of 4.2%. The
decrease in comparable store sales was primarily the result of mild
winter and cool spring weather conditions in the Northeast where the
majority of the comparable stores are located.
Gross profit for the second quarter of fiscal 1997 was $21.0 million,
an increase of $1.7 million or 9.1%, as compared to $19.2 million for
the second quarter of fiscal 1996. Gross profit as a percentage of
sales was 30.1% for the second quarter of fiscal 1997, as compared to
30.6% for the second quarter of fiscal 1996. The decrease is primarily
the result of margin/volume variances in agricultural and hardware
products.
Selling, general and administrative (SGA) expenses for the second
quarter of fiscal 1997 were $19.0 million, an increase of $3.4 million,
or 21.7%, as compared to the second quarter of fiscal 1996, due
primarily to stores opened during the last two quarters of fiscal 1996,
and stores acquired during fiscal 1996, partially offset by a decrease
in comparable store expenses. SGA expenses as a percentage of sales
increased to 27.3% for the second quarter of fiscal 1997 as compared to
24.8% for the second quarter of fiscal 1996, due primarily to
proportionately higher levels of SGA expense in stores opened and
acquired during fiscal 1996 and reduced sales in comparable stores.
Operating income for the second quarter of fiscal 1997 was $1.6
million, a decrease of $1.8 million, or 52.7%, as compared to $3.4
million for the second quarter of fiscal 1996. Operating income as a
percentage of sales decreased to 2.3% for the second quarter of fiscal
1997 from 5.4%
-10-
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for the second quarter of fiscal 1996. The decrease primarily was the
result of the factors affecting sales, gross profit and SGA as
discussed above.
Amortization expenses for the quarter has increased $0.1 million
because of additional goodwill arising from the acquisition of the
company by Childs.
Interest expense for the second quarter of fiscal 1997 was $3.2
million, an increase of $2.7 million as compared to $0.5 million for
the second quarter of fiscal 1996. The increase is attributable
primarily to the placement of the $105 million in Senior Notes during
the second quarter of 1997 and acquisition related financing and
interest costs of $1.3 million.
Income taxes (credits) for the second quarter of fiscal 1997 were
($0.5) million, a decrease of $1.7 million as compared to the first
quarter of fiscal 1996. Income tax as a percentage of pretax earnings
(loss) was (29.7%) in 1997, compared to 41.6% in 1996. The change is
due primarily to the effect of a proportionately high amount of
non-deductible goodwill amortization.
Net loss from operations for the second quarter of fiscal 1997 was
($1.1) million, as compared to $1.7 million for the second quarter of
fiscal 1997 as a result of the factors discussed above.
Six Months Ended May 3, 1997 Compared to Six Months Ended April 27,
1996
Sales for the six months ended May 3, 1997 were $141.2 million, an
increase of $8.3 million, or 6.2% as compared to total sales for the
six months ended April 27, 1996 of $133.0 million. The increase was due
primarily to the opening of eleven new stores. Comparable store sales
decreased $10.2 million, or 8.3% for the six months ended May 3, 1997.
The decrease in comparable store sales was primarily due as a result of
mild winter conditions followed up by cool spring conditions 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 six months ended May 3, 1997 was $41.4 million, an
increase of $3.3 million, or 8.6%, as compared to 38.1 million for the
six months ended April 27, 1996. Gross profit as a percentage of sales
was 29.3% for fiscal 1997, as compared to 28.7% for fiscal 1996. The
increase in gross profit percentage was primarily the result of the
elimination of two low margin promotional events run during the first
quarter of 1996.
SGA expenses for the six months ended May 3, 1997 was $36.6 million, an
increase of $4.9 million, or 15.6% as compared to the six months ended
April 27, 1996, due primarily to increased expenses associated with the
growth in sales and costs related to new store openings. SGA expenses
as a percentage of sales increased to 25.9% in fiscal 1997 as compared
to 23.9% in fiscal 1997. The increase is due primarily to
proportionately higher levels of SGA expense in stores opened and
acquired during fiscal 1996 and reduced sales in comparable stores.
Operating income for the six months ended May 3, 1997 was $4.1 million,
a decrease of $1.8 million, or 30.6%, as compared to $5.9 million for
the six months ended April 27, 1996. Operating
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Page 12
income as a percentage of sales decreased to 2.9% in fiscal 1997 from
4.5% in fiscal 1996. The decrease was the result of higher SGA expenses
as discussed above.
Amortization expense for the six months increased $0.1 million because
of the additional goodwill arising from the acquisition of the Company
by Childs.
Interest expense for the six months ended May 3, 1997 was $4.7 million,
an increase of $3.8 million as compared to $0.8 million for the six
months ended April 27, 1996. The increase was due to the placement of
$105 million in Senior Notes during its second quarter and acquisition
related financing and interest costs of $2.2 million.
Income taxes (credits) for the six months ended May 3, 1997 were ($0.1)
million, a decrease of $2.1 million as compared to the six months ended
April 27, 1996. Income tax as a percentage of pretax earnings was 32.8%
in 1997, compared to 41.9% in 1996. The increase is due primarily to
the effect of a proportionately high amount of non-deductible goodwill
amortization.
Net income from continuing operations for the six months ended May 3,
1997, was ($0.5) million as compared to $3.0 million in fiscal 1996 as
a result of factors discussed above.
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, an affiliate
of Childs would merge with and into the Company and Childs would
acquire the remaining shares of 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 new term loan (the "New Term Loan") and a new revolving
credit facility (the "New 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.
<PAGE>
Page 13
The New Term Loan is an $8.0 million, five year term facility, which
has been fully funded, and the New Revolving Credit Facility is a $30.0
million revolving credit facility, under which $16.5 million was
outstanding as of May 3, 1997. The credit facility will mature on
December 31, 2001 and borrowings will bear interest rates based upon
prime or Eurodollar rates plus an applicable margin.
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 Facility 6,151
Additional cash 2,645
Fee and expenses 8,631
--------
$105,000
========
On May 3, 1997, the Company had working capital of $64.4 million, which
was a $0.6 million increase over working capital of $63.8 million on
November 2, 1996.
Net cash used by continuing operations increased from $5.0 million for
the first six months of fiscal 1996 to $9.3 million for the first six
months of fiscal 1997. This increase 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 $3.1 million and $3.4 million for the six months of
fiscal 1997 and 1996, respectively.
Seasonality
Unlike many specialty retailers, histortically 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.
<PAGE>
page 14
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
The provisions of the New Term Loan and New Revolving Credit Facility
include certain financial covenants, including covenants requiring the Company
to maintain certain minimum consolidated earnings before interest, taxes,
depreciation and amortization ("EBITDA") for the four most recently completed
fiscal quarters and to maintain certain maximum ratios of consolidated debt to
consolidated EBITDA for the four most recently completed fiscal quarters. For
the four fiscal quarter completed May 3, 1997, the Company's consolidated EBITDA
and its ratio of consolidated debt to consolidated EBITDA were $19,463,000 and
6.78x, respectively, each determined in accordance with the provisions of the
New Term Loan and New Revolving Credit Facility, as compared to $20.9 million
and 5.55x as required by the financial covenants.
As of June 20, 1997, the lenders under the New Term Loan and New
Revolving Credit Facility agreed to an amendment to the facilities, effective as
of April 30, 1997, reducing the minimum EBITDA requirements and adjusting
EBITDA-related ratios for periods ending through April 30, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
On March 27, 1997, the Company held a special meeting of stockholders
pursuant to notice dated March 6, 1997. The purpose for which the meeting was
called was to consider and vote upon a proposal to approve and adopt a Merger
Agreement dated November 27, 1996, by and among the Company, J.W. Childs Equity
Partners, L.P., CT Holding, Inc. and JWC Acquisition I, Inc. The proposal was
approved by the following vote:
BROKER
FOR AGAINST ABSTAIN NON-VOTE
--------- ----------- ----------- ------------
9,292,448 21,428 3,450 0
<PAGE>
Page 15
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 - No reports on Form 8-K were filed during the
second quarter of fiscal 1997.
<PAGE>
Page 16
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: June 20, 1997 Central Tractor Farm & Country, Inc.
/s/ Dean Longnecker
Dean Longnecker
Executive Vice President, Finance and
Chief Financial Officer
<PAGE>
Page 17
CENTRAL TRACTOR FARM & COUNTRY, INC.
INDEX TO EXHIBITS
EXHIBIT 10.23 Letter Amendment, dated as of April 30, 1997, to Credit
Agreement, dated as of December 23, 1996, among the
Company, Holding, certain banks, financial institutions
and other institutional lenders listed therein, Fleet, as
administrative agent, and NationsBank, as Co-agent.
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
LETTER AMENDMENT
Dated as of April 30, 1997
To the banks, financial institutions and other institutional lenders
(collectively, the "Lenders") parties to the Credit Agreement
referred to below and to Fleet National Bank,
as administrative agent (the "Administrative Agent")
for the Lenders
Ladies and Gentlemen:
We refer to the Credit Agreement dated as of December 23, 1996 (the
"Credit Agreement") among the undersigned, CT Holding, Inc., a Delaware
corporation ("Holding"), and you. Capitalized terms not otherwise defined in
this Letter Amendment have the same meanings as specified in the Credit
Agreement.
The Credit Agreement is, effective of the date of this Letter
Amendment, hereby amended as follows:
(a) Section 5.04(b) of the Credit Agreement is amended by deleting the
portion of the chart therein relating to the fiscal quarters ended April 30,
1997, July 31, 1997, October 31, 1997, January 31, 1998 and April 30, 1998 and
replacing such portion of such chart with the following:
"Four Fiscal Quarters Ending
Closest To Amount
April 30, 1997 $19,000,000
July 31, 1997 $19,000,000
October 31, 1997 $19,000,000
January 31, 1998 $20,000,000
April 30, 1998 $20,000,000."
(b) Section 5.04(c) of the Credit Agreement is amended by deleting the
portion of the chart therein relating to the fiscal quarters ended January 31,
1998 and April 30, 1998 and replacing such portion of such chart with the
following:
<PAGE>
2
"Four Fiscal Quarters Ending
Closest To Amount
January 31, 1998 1.60
April 30, 1998 1.60."
(c) Section 5.04(d) of the Credit Agreement is amended by deleting the
portion of the chart therein relating to the fiscal quarters ended April 30,
1997, July 31, 1997, October 31, 1997, January 31, 1998 and April 30, 1998 and
replacing such portion of such chart with the following:
"Four Fiscal Quarters Ending
Closest To Amount
April 30, 1997 6.80
July 31, 1997 6.20
October 31, 1997 6.20
January 31, 1998 6.20
April 30, 1998 6.20."
This Letter Amendment shall become effective as of the date first above
written when, and only when, the Administrative Agent shall have received
counterparts of this Letter Amendment executed by us, Holding and the Required
Lender or, as to any of the Lenders, advice satisfactory to the Administrative
Agent that such Lender has executed this Letter Amendment. This Letter Amendment
is subject to the provisions of Section 8.01 of the Credit Agreement.
On and after the effectiveness of this Letter Amendment, each reference
in the Credit Agreement to "this Agreement," "hereunder," "hereof" or words of
like import referring to the Credit Agreement, and each reference in the other
Loan Documents to "the Credit Agreement," "thereunder," "thereof" or words of
like import referring to this Credit Agreement, shall mean and be a reference to
the Credit Agreement, as amended by this Letter Amendment.
The Credit Agreement, as specifically amended by this Letter Amendment,
and the Notes and each of the other Loan Documents are and shall continue to be
in full force and effect and are hereby in all respects ratified and confirmed.
Without limiting the generality of the foregoing, the Collateral Documents and
all of the Collateral described therein do and shall continue to secure the
payment of all Obligations of the Loan Parties under the Loan Documents. The
execution, delivery and effectiveness of this Letter Amendment shall not, except
as expressly provided herein, operate as a waiver of any right, power or remedy
of any Lender or the Administrative Agent under any of the Loan Documents, not
constitute a waiver of any provision of any of the Loan Documents.
<PAGE>
3
If you agree to the terms and provisions of this Letter Amendment,
please evidence such agreement by executing and returning at least two
counterparts of this Letter Amendment to Maura E. O'Sullivan, Shearman &
Sterling, 599 Lexington Avenue, New York, New York 10022.
This Letter Amendment may be executed in any number of counterparts and
by different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement. Delivery of an executed counterpart of a
signature page to this Letter Amendment by telecopier shall be effective as
delivery of a manually executed counterpart of this Letter Amendment.
This Letter Amendment shall be governed by, and construed in accordance
with, the Laws of the State of New York.
Very truly yours,
CENTRAL TRACTOR FARM & COUNTRY, INC.
By /s/ Dean Longnecker
Title: Exec. V.P.
CT HOLDING, INC.
By /s/ Steven G. Segal
Title:
<PAGE>
4
Agreed as of the date first above written:
FLEET NATIONAL BANK,
as Administrative Agent and as Lender
By /s/ John E. Duncan
Title: Managing Director
NATIONSBANK, N.A.,
as Co-Agent and as Lender
By
Title:
HELLER FINANCIAL, INC.
By /s/ Salvatore Salzillo
Title: AVP
NORWEST BANK, IOWA, N.A.
By /s/ Robert G. Gagne
Title: Vice President
CENTRAL TRACTOR FARM & COUNTRY, INC.
Schedule Regarding Computations of Ratio of Earnings to Fixed Charges
(In thousands except ratios)
Exhibit 11
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
SUCCESSOR | PREDECESSOR PREDECESSOR
------------------------- | ---------------------- ---------------------
| Three months
| ended
March 27, 1997 to | Feb 2, 1997 to April 27,
May 3, 1997 | March 26,1997 1996
------------------------- | ---------------------- ---------------------
<S> <C> <C> <C>
|
|
Fixed Charges: |
Interest expense $ 1,477 | $ 1,711 $ 484
Portion of rent expense |
representing interest 180 | 321 461
------- | ------- -------
1,657 | 2,032 945
======= | ======= =======
Earnings |
Income (loss) before |
income taxes 1,355 | (2,942) 2,884
Fixed charges per above 1,657 | 2,032 945
------- | ------- -------
$ 3,012 | $ (910) $ 3,829
======= | ======= =======
Ratio (deficiency) of earnings to fixed |
charges 1.8 x | (0.4) x 4.1 x
======= | ======= =======
|
<CAPTION>
-------------------------------------------------------------------------------------
SUCCESSOR | PREDECESSOR PREDECESSOR
------------------------- | ---------------------- ----------------------
| Six months ended
March 27, 1997 to | Nov 3, 1997 to April 27,
May 3, 1997 | March 26,1997 1996
------------------------- | ---------------------- ----------------------
<S> <C> <C> <C>
|
Fixed Charges: |
Interest expense $ 1,477 | $ 3,188 $ 844
Portion of rent expense |
representing interest 180 | 842 906
------- | ------- -------
1,657 | 4,030 1,750
======= | ======= =======
Earnings |
Income (loss) before |
income taxes 1,355 | (1,881) 5,104
|
Fixed charges per above 1,657 | 4,030 1,750
------- | ------- -------
$ 3,012 | $ 2,149 $ 6,854
======= | ======= =======
|
Ratio (deficiency) of earnings to fixed charges 1.8 x | 0.5 x 3.9 x
======= | ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the the
condensed consolidated balance sheet at May 3, 1997 (unaudited) and the
condensed consolidated statements of income (unaudited) for the three months and
six months ended May 3, 1997 of Central Tractor Farm & Country, Inc. and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-01-1997
<PERIOD-START> NOV-02-1996
<PERIOD-END> MAY-03-1997
<CASH> 4,829
<SECURITIES> 0
<RECEIVABLES> 992
<ALLOWANCES> 0
<INVENTORY> 126,117
<CURRENT-ASSETS> 3,521
<PP&E> 26,069
<DEPRECIATION> 358
<TOTAL-ASSETS> 254,535
<CURRENT-LIABILITIES> 71,000
<BONDS> 112,656
0
0
<COMMON> 0
<OTHER-SE> 69,135
<TOTAL-LIABILITY-AND-EQUITY> 254,535
<SALES> 69,737
<TOTAL-REVENUES> 69,737
<CGS> 48,745
<TOTAL-COSTS> 19,391
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,791
<INCOME-PRETAX> (2,190)
<INCOME-TAX> (718)
<INCOME-CONTINUING> (1,472)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,472)
<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.
