SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 200549
-------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 1, 1998
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
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of August 31, 1998: 100. All of the registrant's
stock is held by CT Holding, Inc. and is not publicly traded.
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CENTRAL TRACTOR FARM & COUNTRY, INC.
INDEX
<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
Condensed consolidated balance sheets, August 1, 1998 (unaudited) and November 1, 1997...................3
Condensed consolidated statements of income (unaudited), for the three months and nine months ended
August 1, 1998 and the three months and nine months ended August 2, 1997.................................4
Condensed consolidated statements of cash flows (unaudited), for the nine months ended August 1, 1998
and August 2, 1997.......................................................................................5
Notes to condensed consolidated financial statements (unaudited).........................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS...........................................................................8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS..............................................................................12
ITEM 2. CHANGES IN SECURITIES..........................................................................12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................................................12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................12
ITEM 5. OTHER INFORMATION..............................................................................12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...............................................................12
INDEX TO EXHIBITS...............................................................................................14
Exhibit 10.1 - Letter Amendment, dated as of February 18, 1998, to Amended and Restated Credit Agreement
Exhibit 12 - Statement Re: Computation of Ratio of Earnings to Fixed Charges
Exhibit 27 - Financial Data Schedule (electronic copy only)
Exhibit 99 - Important Factors Regarding Forward-Looking Statements
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2
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CENTRAL TRACTOR FARM & COUNTRY, INC.
Condensed Consolidated Balance Sheets
(In thousands except share data )
August 1, November 1,
1998 1997
----------- ------------
(unaudited) (Note)
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ASSETS
Current assets:
Cash and cash equivalents $ 9,101 $ 7,378
Recoverable income taxes 2,513 2,513
Trade receivables, net 5,598 7,264
Inventory 205,826 222,117
Deferred income taxes 264 4,000
Other 4,466 3,136
-------- --------
Total current assets 227,768 246,408
Property, improvements and equipment, net 40,828 43,195
Goodwill, net 135,115 135,612
Other assets 8,992 9,020
-------- --------
Total assets $412,703 $434,235
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Note payable to bank $ 29,750 $ 60,750
Current portion of long-term debt and capital
lease obligations 3,162 3,170
Accounts payable 73,383 68,015
Accrued expenses and other liabilities 25,798 28,834
-------- --------
Total current liabilities 132,093 160,769
Long-term debt, less current portion 149,000 152,000
Deferred income taxes 2,315 748
Other long-term liabilities 1,052 1,171
-------- --------
Total liabilities 284,460 314,688
Stockholder's equity:
Common stock, $.01 par value: Authorized
shares-3,000; issued and outstanding
shares-100 (wholly-owned by CT Holding,Inc.) -- --
Additional paid-in capital 119,055 118,920
Retained earnings 9,188 627
-------- --------
Total stockholder's equity 128,243 119,547
-------- --------
Total liabilities and stockholder's equity $412,703 $434,235
======== ========
<FN>
Note: The balance sheet at November 1, 1997 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>
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See accompanying notes to condensed consolidated financial statements.
3
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CENTRAL TRACTOR FARM & COUNTRY, INC.
Condensed Consolidated Statements of Income (Unaudited)
(In thousands)
------------------------------------------------
SUCCESSOR
------------------------------------------------
Three months ended Three months ended
August 1, 1998 August 2, 1997
------------------------ ---------------------
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Net sales $ 67,859 $129,216
Cost of sales 16,713 92,567
-------- --------
Gross profit 51,146 36,649
Selling, general and administrative expense 34,554 26,414
Amortization of intangibles 896 716
-------- --------
Operating income 15,696 9,519
Interest expense 4,560 4,581
-------- --------
Income before income taxes 11,136 4,938
Income taxes 4,539 2,229
-------- --------
Net income $ 6,597 $ 2,709
======== ========
Ratio of earnings to fixed charges 3.1 x 1.9 x
======== ========
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SUCCESSOR | PREDECESSOR
------------------------------------------| -----------------
|
Nine months ended March 27, 1997 to | Nov 3, 1996 to
August 1, 1998 August 2, 1997 | March 26,1997
------------------- ----------------- | --------------
|
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Net sales $ 455,969 $ 164,384 | $ 106,048
Cost of sales 320,703 117,100 | 75,281
--------- --------- | ---------
Gross profit 135,266 47,284 | 30,767
|
Selling, general and administrative expense 102,122 34,010 | 29,045
Amortization of intangibles 2,622 923 | 415
--------- --------- | ---------
Operating income 30,522 12,351 | 1,307
|
Interest expense 15,358 6,058 | 3,188
--------- --------- | ---------
Income (loss) before income taxes 15,164 6,293 | (1,881)
Income taxes 6,603 2,852 | (634)
--------- --------- | ---------
Net income (loss) $ 8,561 $ 3,441 | $ (1,247)
========= ========= | =========
|
Ratio (deficiency) of earnings to fixed |
charges 1.9 x 1.9 x | $ (1,881)
========= ========= | =========
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See accompanying notes to condensed consolidated financial statements.
4
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CENTRAL TRACTOR FARM & COUNTRY, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
-----------------------------------------------------------
SUCCESSOR PREDECESSOR
-----------------------------------------------------------
Nine months |
ended March 27, 1997 to | Nov 3, 1996 to
August 1, 1998 August 2, 1997 | March 26, 1997
---------------- ----------------- | ----------------
|
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Operating Activities |
Net income (loss) $ 8,561 $ 3,441 | $ (1,247)
Adjustments to reconcile net income (loss) to net |
cash provided by (used in) operations: |
Depreciation and amortization 7,346 2,696 | 1,904
Deferred income taxes 6,603 -- | --
Changes in operating assets and liabilities 15,725 (4,702) | (12,916)
-------- --------- | ---------
Net cash provided by (used in) operating activities 38,235 1,435 | (12,259)
|
Investing Activities |
Purchases of property, improvements and equipment, net (2,696) (1,501) | (2,419)
Cost of acquiring outstanding common |
stock from predecessor shareholders -- 158,903) | --
Acquisition of Country General, Inc. -- 135,000) | --
Other 176 446 | (1,338)
-------- --------- | ---------
Net cash used in investing activities (2,520) (294,958) | (3,757)
|
Financing Activities |
Capital contribution from parent 135 118,920 | --
Net (repayments) borrowings under line of credit and |
margin loan facility (31,000) 31,987 | 29,244
Payments on long-term debt (3,000) (8,000) | (16,000)
Proceeds from issuance of long-term debt -- 163,000 | --
Financing costs related to new line of |
credit, term loan and Senior Notes -- (8,925) | --
Other (127) (229) | 183
-------- --------- | ---------
Net cash (used in) provided by financing activities (33,992) 296,753 | 13,427
|
Net increase(decrease) in cash and cash equivalents 1,723 3,230 | (2,589)
|
Cash and cash equivalents at beginning of period 7,378 1,220 | 3,809
--------- --------- | ---------
Cash and cash equivalents at end of period $ 9,101 $ 4,450 | $ 1,220
========= ========= | =========
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See accompanying notes to condensed consolidated financial statements.
5
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CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS)
NOTE 1. PRESENTATION OF FINANCIAL INFORMATION
Central Tractor Farm & Country, Inc. is a wholly-owned
subsidiary of CT Holding, Inc. ("CT Holding"), an affiliate of J.W. Childs
Equity Partners, L.P. ("Childs"). The consolidated financial statements include
Central Tractor Farm & Country, Inc. and its wholly-owned subsidiary, Country
General, Inc. (hereinafter collectively the "Company").
The condensed unaudited consolidated 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 consolidated financial statements
include the accounts of the Company and its subsidiary. All material
intercompany items and transactions have been eliminated in the consolidation.
In the preparation of the condensed unaudited consolidated 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 1, 1997 ("Form 10-K").
NOTE 2. ACQUISITIONS
As more fully described in the Form 10-K, the Company was
acquired, effective March 27, 1997, by Childs for approximately $159,393 (the
"Acquisition"). The Acquisition was partially funded by a public offering of
$105,000 aggregate principal amount of Senior Notes. The Acquisition was
accounted for as a purchase and 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 as of March 27, 1997. The financial statements of the
Company for periods prior to March 27, 1997 are presented on the historical cost
basis of accounting. A line has been placed in the financial statements to
distinguish between Predecessor and Successor activity.
Effective June 26, 1997, the Company acquired all of the
outstanding capital stock of Country General, Inc. ("Country General"), an
agricultural specialty retailer, for approximately $136,995 (the "Country
General Acquisition"). Country General operated a chain of 114 agricultural
retail stores. The transaction was accounted for as a purchase. During the third
quarter of fiscal 1998, the Company recorded the final purchase price
adjustments related to the Country General Acquisition. The purchase price
adjustments amounted to $1,968 to increase the total purchase price to
approximately $138,963. As more fully described in the Form 10-K, the Country
General Acquisition was partially funded by a $49,750 cash equity contribution
from CT Holding and the remainder by funds drawn on the Company's amended and
restated credit facility, which provides for a $50,000 6-year term loan facility
and a $100,000 revolving credit facility (collectively, the "Credit Facility").
6
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Country General's accounts and transactions are included in
the accompanying condensed unaudited consolidated financial statements from the
date of acquisition.
In allocating the purchase price to the assets and liabilities
based on fair values, a $3,358 reserve was recorded for the estimated cost,
principally lease liabilities, to close nine acquired stores during fiscal 1998;
and a $2,866 reserve was recorded for the cost of severance payments to
identified employees in connection with the closing of Country General's
corporate headquarters. In connection with the final purchase price adjustment,
the reserve for store closings was increased by $1,522 and the reserve for
severance payments was decreased by $704. During March of 1998, the decision was
made to close 12 of the acquired stores and as of August 1, 1998 the inventory
liquidation process has been completed. As of August 1, 1998 and November 1,
1997, the reserve for severance had been reduced to $440 and $2,722,
respectively, as a result of payments to terminated employees and the final
purchase price adjustments. As of August 1, 1998 and November 1, 1997, the
reserve for closed stores was $4,065 and $3,358, respectively, consisting
primarily of remaining lease costs for the closed stores.
NOTE 3. INTEREST RATE SWAP AGREEMENT
In March of 1998, the Company entered into an interest rate
swap agreement (the "Swap Agreement") with a bank to reduce the impact of
changes in interest rates on its floating term loan facility. Accordingly, the
Swap Agreement was entered into for purposes other than trading. The Swap
Agreement has an initial notional amount of $48,500. The notional amount
decreases in tandem with the outstanding balance on the Company's term loan
facility until the Swap Agreement's maturity on March 30, 2001. The Swap
Agreement effectively fixes the interest rate on the term loan facility at
5.8525% plus the applicable margin. The Company is exposed to interest rate risk
in the event of nonperformance by the counter party to the Swap Agreement.
However, the Company does not anticipate nonperformance by the bank.
NOTE 4. 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 August 1, 1998 and August 2, 1997 was $219 and $166, respectively, and $48 at
November 1, 1997.
7
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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 Condition and Results
of Operations
Third Quarter of Fiscal 1998 Compared to Third Quarter of Fiscal 1997
Net sales for the third quarter of fiscal 1998 were $167.9 million, an
increase of $38.7 million, or 29.9%, as compared to net sales for the third
quarter of fiscal 1997 of $129.2 million. This increase was due to the Country
General Acquisition, offset slightly by a comparable store sales decrease of
0.2% for Central Tractor stores. Net sales includes $71.4 million and $32.7
million of Country General sales during the third quarter of fiscal 1998 and the
third quarter of fiscal 1997, respectively.
Gross profit for the third quarter of fiscal 1998 was $51.1 million, an
increase of $14.5 million or 39.6%, as compared to $36.6 million for the third
quarter of fiscal 1997, as a result of the increase in net sales discussed above
and an increase in gross profit percentage. Gross profit as a percentage of net
sales increased to 30.5% for the third quarter of fiscal 1998, as compared to
28.4% for the third quarter of fiscal 1997. The increase in the gross profit
percentage is attributable to early warm spring weather, which resulted in the
shift to the second quarter in fiscal 1998 of certain sales of lower margin
items historically occurring in the third quarter.
Selling, general and administrative (SGA) expenses for the third
quarter of fiscal 1998 were $34.6 million, an increase of $8.1 million, or 30.8
%, as compared to the third quarter of fiscal 1997. This increase was due
primarily to costs related to the operation of the Country General stores. SGA
expenses as a percentage of net sales remained relatively constant at 20.6% for
the third quarter of fiscal 1998 as compared to 20.4% for the third quarter of
fiscal 1997.
Amortization of intangibles was $0.9 million for the third quarter of
fiscal 1998 and $0.7 million for the third quarter of fiscal 1997. The increase
is due to the amortization for a full quarter of the additional goodwill
incurred in the Country General Acquisition.
Operating income for the third quarter of fiscal 1998 was $15.7
million, an increase of $6.2 million, or 64.9%, as compared to $9.5 million for
the third quarter of fiscal 1997. Operating income as a percentage of net sales
increased to 9.4% for the third quarter of fiscal 1998 from 7.4% for the third
quarter of fiscal 1997. The increase was the result of the factors affecting
sales and gross profit discussed above.
Interest expense was $4.6 million for both the third quarter of fiscal
1998 and the third quarter of fiscal 1997. The increase in interest expense
caused by the additional debt incurred to the fund the Country General
Acquisition was offset by decreased short term borrowing.
Income taxes for the third quarter of fiscal 1998 were $4.5 million, an
increase of $2.3 million as compared to the third quarter of fiscal 1997. Income
tax as a percentage of pretax earnings was 40.8% in 1998, compared to 45.1% in
1997. This decrease is due primarily to amortization of goodwill related to the
Acquisition, which is not deductible for income tax purposes, being spread over
a larger pre-tax income base.
Net income for the third quarter of fiscal 1998 was $ 6.6 million, as
compared to $2.7 million for the third quarter of fiscal 1997, as a result of
the factors discussed above.
8
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Nine Months Ended August 1, 1998 Compared to Nine Months Ended August
2, 1997
Net sales for the nine months ended August 1, 1998 were $456.0 million,
an increase of $185.6 million, or 68.6%, as compared to total net sales for the
nine months ended August 2, 1997 of $270.4 million. This increase was due to the
acquisition of 118 stores in fiscal 1997, including 114 in the Country General
Acquisition, a full nine months of operations for the 4 new stores opened in
fiscal 1997 and a comparable store sales increase of 5.9% for Central Tractor
stores. Net sales includes $199.7 million and $32.7 million of Country General
sales during the nine months ended August 1, 1998 and August 2, 1997,
respectively. The increase in comparable store sales is primarily attributable
to the adverse effect on fiscal 1997 sales of mild winter, cool spring, and dry
summer weather conditions in the Northeast and in part to warm early spring
weather conditions in the second quarter of 1998.
Gross profit for the nine months ended August 1, 1998 was $135.3
million, an increase of $57.2 million or 73.3%, as compared to $78.1 million for
the nine months ended August 2, 1997, primarily as the result of the increase in
net sales discussed above. Gross profit as a percentage of net sales remained
relatively constant at 29.7% for the nine months ended August 1, 1998, as
compared to 28.9% for the nine months ended August 2, 1997.
Selling, general and administrative (SGA) expenses for the nine months
ended August 1, 1998 were $102.1 million, an increase of $39.1 million, or
62.0%, as compared to the nine months ended August 2, 1997. This increase was
due primarily to costs related to the operation of the Country General stores
and other stores opened or acquired during fiscal 1997. SGA expenses as a
percentage of net sales decreased to 22.4% for the nine months ended August 1,
1998 as compared to 23.3% for the nine months ended August 2, 1997, due
primarily to proportionately lower levels of SGA expenses in the nine months
ended August 1, 1998 in stores opened and acquired during fiscal 1996 and
increased sales in the nine months ended August 1, 1998 in comparable stores.
Amortization of intangibles was $2.6 million for the nine months ended
August 1, 1998 and $1.3 million for the nine months ended August 2, 1997. The
increase is due to the additional goodwill incurred in the Acquisition and the
Country General Acquisition.
Operating income for the nine months ended August 1, 1998 was $30.5
million, an increase of $16.8 million, or 123.5%, as compared to $13.7 million
for the nine months ended August 2, 1997. Operating income as a percentage of
net sales increased to 6.7 % for the nine months ended August 1, 1998 from 5.1%
for the nine months ended August 2, 1997. The increase was the result of the
factors affecting sales and SGA discussed above.
Interest expense for the nine months ended August 1, 1998 was $15.3
million, an increase of $6.1 million as compared to $9.2 million for the nine
months ended August 2, 1997. This increase was primarily due to the additional
debt incurred to the fund the Acquisition, the Country General Acquisition and
the short term borrowing needs of the consolidated entity.
Income taxes for the nine months ended August 1, 1998 were $6.6
million, an increase of $4.4 million as compared to the nine months ended August
2, 1997. Income tax as a percentage of pretax earnings was 43.5% in 1998,
compared to 50.3% in 1997. This decrease is due primarily to amortization of
goodwill related to the Acquisition, which is not deductible for income tax
purposes, being spread over a larger pre-tax income base.
Net income for the nine months ended August 1, 1998 was $8.6 million,
as compared to $2.2 million for the nine months ended August 2, 1997, as a
result of the factors discussed above.
Liquidity and Capital Resources
In addition to cash to fund operations, the Company's primary on-going
cash requirements are those necessary for the Company's expansion program,
including inventory purchases and capital expenditures, and debt service. The
Company's primary sources of liquidity have been funds provided from operations,
borrowings pursuant to the Company's revolving and term credit facilities,
short-term trade credit and additional equity investments.
9
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On August 1, 1998, the Company had working capital of $95.7 million,
which was a $10.1 million increase from working capital of $85.6 million on
November 1, 1997. This increase resulted primarily from a $31.0 million decrease
in the Company's note payable to bank, partially offset by a $16.3 million
decrease in inventory and a $3.7 million decrease in current deferred income
taxes.
Net cash provided by operating activities was $38.2 million for the
nine months ended August 1, 1998. This was an increase of $49.0 million from the
nine months ended August 2, 1997, during which $10.8 million of cash was used in
operating activities. This increase resulted primarily from increased net
income, a decrease in inventory and a smaller net increase in accounts payable
and accrued expenses during the nine months ended August 1, 1998 as compared to
the same period in the prior year. The Company's capital expenditures were $2.7
million and $3.9 million for the nine months ended August 1, 1998 and August 2,
1997, respectively. In addition, the Company had net repayments of debt of $34.0
million during the nine months ended August 1, 1998 as compared to net
borrowings of $200.2 million during the nine months ended August 2, 1997.
In connection with the Acquisition, the Company consummated a public
offering of $105.0 million aggregate of 10 5/8% Senior Notes (the "Senior
Notes"). The Senior Notes mature on April 1, 2007 with interest payable
semiannually in arrears on April 1 and October 1. The Senior Notes may be
redeemed beginning April 1, 2002 at a price of 105.3125% of the principal amount
decreasing approximately 1.77% annually thereafter until April 1, 2005 at which
time they are redeemable at face value. In addition, the Company may redeem up
to 35% of the original aggregate principal amount of the Senior Notes at a price
of 110% of the principal amount with the net cash proceeds of a public equity
offering within 60 days of closing such offering.
In connection with the Country General Acquisition, on July 3, 1997,
the Company amended and restated the Credit Facility (consisting of a $50.0
million, six-year term loan facility, of which $47.0 million remained
outstanding at August 1, 1998, and a $100.0 million revolving credit facility,
under which $29.8 million was outstanding as of August 1, 1998). The Credit
Facility will mature on June 30, 2003 and borrowings will bear interest at rates
based upon prime or Eurodollar rates plus an applicable margin. In March of
1998, the Company entered into an interest rate swap agreement with a bank for a
notional amount of $48.5 million in order to fix the interest rate on the term
loan facility. The notional amount decreases in tandem with the outstanding
balance on the term loan facility until the swap agreement's maturity on March
30, 2001. The swap agreement effectively fixes the interest rate on the term
loan facility at 5.8525% plus the applicable margin. The Company is exposed to
interest rate risk in the event of nonperformance by the counter party to the
swap agreement. However, the Company does not anticipate nonperformance by the
bank.
The Company anticipates that its principal uses of cash in the
foreseeable future 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 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.
There can be no assurance, however, that the Company's business 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 existing debt or to obtain additional financing or to 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, historically the Company has 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
10
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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.
Year 2000
The Company has conducted a comprehensive review of its computer
systems to identify the systems that could be affected by the "Year 2000" issue
and has developed an implementation plan to resolve the issue. The Year 2000
problem is the result of computer programs being written using two digits rather
than four to define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations. The Company presently believes that, with modifications to
existing software and converting to new software, the Year 2000 problem will not
pose significant operational problems for the Company's computer systems as so
modified and converted. The expenditures for the modifications and conversions
are not expected to have a material impact on the operations of the Company.
However, if such modifications and conversions are not completed timely, the
Year 2000 problem may have a material impact on the operations of the Company.
11
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CENTRAL TRACTOR FARM & COUNTRY, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS None
ITEM 2. CHANGES IN SECURITIES None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS None
ITEM 5. OTHER INFORMATION None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS - See Index to Exhibits included elsewhere herein.
(b) FORM 8-K None
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: September 15, 1998 Central Tractor Farm & Country, Inc.
/s/Denny L. Starr
Denny L. Starr
Senior Vice President, Finance and
Chief Financial Officer
13
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CENTRAL TRACTOR FARM & COUNTRY, INC.
INDEX TO EXHIBITS
EXHIBIT 10.1 Letter Amendment, dated as of February 18, 1998, to Amended and
Restated Credit Agreement
EXHIBIT 12 Statement Re: Computation of Ratio of Earnings to Fixed Charges
EXHIBIT 27 Financial Data Schedule (electronic copy only)
EXHIBIT 99 Important Factors Regarding Forward-Looking Statements
14
EXHIBIT 10.1
LETTER AMENDMENT
Dated as of February 18, 1998
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 Amended and Restated Credit Agreement dated as
of July 3, 1997 (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, the Security Agreement and the Pledge
Agreement are, effective of the date of this Letter Amendment, hereby amended as
follows:
(a) The following definitions are hereby added to Section 1.01
of the Credit Agreement in the correct alphabetical order:
"Bank Hedge Agreement" means any interest rate Hedge Agreement
required or permitted under Article V that is entered into by and
between the Borrower and any Hedge Bank.
"Hedge Bank" means any Lender party or any of its Affiliates
in its capacity as a party to a Bank Hedge Agreement."
(b) The definition of "Secured Parties" in Section 1.01 of the
Credit Agreement is hereby amended by adding at the end thereof "and the Hedge
Banks".
(c) The definition of "Loan Documents" in Section 1.01 of the
Credit Agreement is hereby amended by adding at the end of clause (b) therein
the phrase "and (vi) each Bank Hedge Agreement".
<PAGE>
-2-
(d) Section 5.02(b)(ii) of the Credit Agreement is hereby
amended in full to read as follows:
"(ii) in the case of the Borrower and its Subsidiaries, (A)
the Permanent Debt in an aggregate principal amount not to exceed
$115,000,000 and (B) Debt in respect of Hedge Agreements designed to
hedge against fluctuations in interest rates incurred in the ordinary
course of business and consistent with prudent business practice in an
aggregate notional amount not to exceed $48,500,000 at any time
outstanding.
(e) Section 5.02(f)(iv) of the Credit Agreement is hereby
amended in full to read as follows:
"(iv) (A) Investments consisting of intercompany Debt
permitted under Section 5.02(b)(iii) and (B) Investments by the
Borrower in Hedge Agreements permitted under Section 5.02(b)(ii)(B)".
(f) Section 7.01 of the Credit Agreement is hereby amended by
replacing the first sentence thereof in its entirety to read as follows:
"Each Lender Party (in its capacities as a Lender, the Swing
Line Bank (if applicable), the Issuing Bank (if applicable) and a
potential Hedge Bank) hereby appoints and authorizes the Administrative
Agent to take such action as agent on its behalf and to exercise such
powers and discretion under this Agreement and the other Loan Documents
as are delegated to the Administrative Agent by the terms hereof and
thereof, together with such powers and discretion as are reasonably
incidental thereto.
(g) Sections 1, 2 and 3 of the Security Agreement are hereby
amended by replacing each reference therein to "Lender Parties" with "Secured
Parties".
(h) Sections 1 and 2 of the Pledge Agreement are hereby
amended by replacing each reference therein to "Lender Parties" with "Secured
Parties".
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 Lenders or, as to any of the Lenders, advice satisfactory to the
Administrative Agent that such Lender as executed this Letter Amendment, and the
Loan Party Consent attached hereto by Country General, Inc. 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, (x)
each reference in the Credit Agreement to "this Agreement", "hereunder",
"hereof" or words of like import
<PAGE>
-3-
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 the Credit Agreement, shall mean and be a reference to the
Credit Agreement, as amended by this Letter Amendment, (y) each reference in the
Security Agreement to "this Agreement", "hereunder", "hereof" or words of like
import referring to the Security Agreement, and each reference in the other Loan
Documents to "the Security Agreement", "thereunder", "thereof" or words of like
import referring to the Security Agreement, shall mean and be a reference to the
Security Agreement, as amended by this Letter Amendment and (z) each reference
in the Pledge Agreement to "this Agreement", "hereunder", "hereof" or words of
like import referring to the Pledge Agreement, and each reference in the other
Loan Documents to "the Pledge Agreement", "thereunder", "thereof" or words of
like import referring to the Pledge Agreement, shall mean and to be reference to
the Pledge Agreement, as amended by this Letter Agreement.
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, nor constitute a waiver of any provision of any of the Loan
Documents.
If you agree to the terms and provision of this Letter
Amendment, please evidence such agreement by executing and returning at least
two counterparts of this Letter Amendment to Tracey Springer, 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.
<PAGE>
-4-
Very truly yours,
CENTRAL TRACTOR FARM & COUNTRY, INC.
By /s/ Denny L. Starr
Title: CFO - Senior Vice President
CT HOLDING, INC.
By /s/ Dean Longnecker
Title: Exec. Vice President
Agreed as of the date first above written:
FLEET NATIONAL BANK,
as Administrative Agent, Issuing Bank and as Lender
By /s/ Stephen Curran
Title: AVP
NATIONSBANK, N.A.
By /s/ Robert Wilson
Title: Vice President
DLJ CAPITAL FUNDING, INC.
By______________________________
Title:
<PAGE>
-5-
HELLER FINANCIAL, INC.
By:_____________________________
Title:
FIRST UNION NATIONAL BANK
By: /s/ Jorge Gonzales
Title: Senior Vice President
IBJ SCHRODER BANK & TRUST COMPANY
By /s/ Jennifer Marshall
Title: Director
KEYBANK NATIONAL ASSOCIATION
By /s/ Alex Strazella
Title: Vice President
NATIONSBANK, N.A.
By ______________________
Title:
HARRIS TRUST & SAVINGS BANK
By /s/ Christopher J. Fisher
Title: Vice President
LASALLE NATIONAL BANK
By /s/ A. Nicole Hagan
Title: Loan Officer
<PAGE>
-6-
FIRST BANK NATIONAL ASSOCIATION
By /s/ Elliot J. Jaffee
Title: Vice President
BANK ONE, ILLINOIS, NA
By /s/ Thomas J. Littau
Title: Asst. Vice President
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
By /s/ Jeffrey W. Maillet
Title: Sr. Vice Pres. & Director
HELLER FINANCIAL, INC.
By________________________
Title:
<PAGE>
LOAN PARTY CONSENT
Dated as of February 18, 1998
The undersigned, Country General, Inc., a Delaware Corporation, as a
Loan Party under the Loan Documents referred to in the Credit Agreement dated as
of July 3, 1997 (the "Credit Agreement"), among Central Tractor Farm & Country,
Inc., CT Holding, Inc., the banks and other financial institutions party thereto
and Fleet National Bank as administrative agent hereby consents to the foregoing
Letter Amendment and agrees that (a) notwithstanding the effectiveness of such
Letter Amendment, each of the Loan Documents to which the undersigned is a party
is, and shall continue to be, in full force and effect and is hereby ratified
and confirmed in all respects and (b) the Security Agreement (as defined in the
Credit Agreement) and all of the Collateral described therein do, and shall
continue to, secure the payment of all of the Secured Obligations (as defined
therein).
COUNTRY GENERAL, INC.
By /s/ Denny L. Starr
Title: Senior Vice President - CFO
<TABLE>
<CAPTION>
CENTRAL TRACTOR FARM & COUNTRY, INC.
Schedule Regarding Computation of Ratio of Earnings to Fixed Charges
(In thousands except ratios)
Exhibit 12
---------------------------------------------
SUCCESSOR
---------------------------------------------
Three months ended Three months ended
August 1, 1998 August 2, 1997
------------------ ---------------------
<S> <C> <C>
Fixed charges:
Interest expense $ 4,560 $ 4,581
Portion of rent expense
representing interest 712 635
------- -------
5,272 5,216
======= =======
Earnings:
Income before income taxes 11,136 4,938
Fixed charges 5,272 5,216
------- -------
$16,408 $10,154
======= =======
Ratio of earnings to fixed charges 3.1x 1.9x
======= =======
<CAPTION>
-------------------------------------------------------------------------
SUCCESSOR | PREDECESSOR
----------------------------------------------- | --------------------
Nine months ended March 27, 1997 to | Nov 3, 1996 to
August 1, 1998 August 2, 1997 | March 26, 1997
------------------ ----------------------- | --------------------
|
|
<S> <C> <C> <C>
Fixed charges: |
Interest expense $15,358 $ 6,058 | $ 3,188
Portion of rent expense |
representing interest 2,209 825 | 842
------- ------- | -------
17,567 6,883 | 4,030
======= ======= | =======
|
|
|
Earnings: |
Income (loss) before income taxes 15,164 6,293 | (1,881)
Fixed charges 17,567 6,883 | 4,030
------- ------- | -------
$32,731 $13,176 | $ 2,149
======= ======= | =======
|
|
Ratio (deficiency) of earnings to fixedcd charges 1.9x 1.9x | $(1,881)
======= ======= | =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial statements of Central Tractor Farm & Country, Inc. at and
for the period ended August 1, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-02-1997
<PERIOD-END> AUG-01-1998
<CASH> 9,101
<SECURITIES> 0
<RECEIVABLES> 5,984
<ALLOWANCES> 386
<INVENTORY> 205,826
<CURRENT-ASSETS> 227,768
<PP&E> 47,443
<DEPRECIATION> 6,615
<TOTAL-ASSETS> 412,703
<CURRENT-LIABILITIES> 132,093
<BONDS> 149,000
0
0
<COMMON> 0
<OTHER-SE> 128,243
<TOTAL-LIABILITY-AND-EQUITY> 412,703
<SALES> 455,969
<TOTAL-REVENUES> 455,969
<CGS> 320,703
<TOTAL-COSTS> 320,703
<OTHER-EXPENSES> 104,744
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,358
<INCOME-PRETAX> 15,164
<INCOME-TAX> 6,603
<INCOME-CONTINUING> 8,561
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,561
<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 third quarter 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.
Regional Economy
The majority of the Company's existing stores are located in the
Northeastern United States and the Midwestern 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.
<PAGE>
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 efforts will
continue by these and other mass merchandisers.
2
