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 2, 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 May 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
PART I. FINANCIAL INFORMATION PAGE
<S> <C> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
Condensed consolidated balance sheets, May 2, 1998 (unaudited) and November 1, 1997......................3
Condensed consolidated statements of income (unaudited), for the three months and six months ended
May 2, 1998 and the three months and six months ended May 3, 1997........................................4
Condensed consolidated statements of cash flows (unaudited), for the six months ended May 2, 1998 and
May 3, 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 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
2
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CENTRAL TRACTOR FARM & COUNTRY, INC.
Condensed Consolidated Balance Sheets
(In thousands except share data)
May 2, November 1,
1998 1997
----------- -----------
(unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents $ 14,979 $ 7,378
Recoverable income taxes 2,175 2,513
Trade receivables, net 6,612 7,264
Inventory 223,364 222,117
Deferred income taxes 1,936 4,000
Other 4,409 3,136
-------- --------
Total current assets 253,475 246,408
Property, improvements and equipment, net 41,977 43,195
Goodwill, net 133,614 135,612
Other assets 8,902 9,020
-------- --------
Total assets $437,968 $434,235
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Note payable to bank $ 53,000 $ 60,750
Current portion of long-term debt and capital
lease obligations 3,165 3,170
Accounts payable 85,774 68,015
Accrued expenses and other liabilities 22,058 28,834
-------- --------
Total current liabilities 163,997 160,769
Long-term debt, less current portion 150,500 152,000
Other long-term liabilities 1,840 1,919
-------- --------
Total liabilities 316,337 314,688
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 119,040 118,920
Retained earnings 2,591 627
-------- --------
Total stockholder's equity 121,631 119,547
-------- --------
Total liabilities and stockholder's equity $437,968 $434,235
======== ========
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.
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 PREDECESSOR
--------------------------------- | -----------------
Three months March 27, 1997 | February 2, 1997
ended to | to
May 2, 1998 May 3, 1997 | March 26,1997
--------------------------------- | -----------------
|
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Net sales $ 143,717 $ 35,168 | $ 34,569
Cost of sales 101,216 24,534 | 24,211
--------- --------- | ---------
Gross profit 42,501 10,634 | 10,358
|
Selling, general and administrative expense 33,473 7,595 | 11,431
Amortization of intangibles 860 207 | 158
--------- --------- | ---------
Operating income (loss) 8,168 2,832 | (1,231)
|
Interest expense 5,514 1,477 | 1,711
--------- --------- | ---------
Income (loss) before income taxes 2,654 1,355 | (2,942)
Income taxes 1,279 623 | (1,094)
--------- --------- | ---------
Net income (loss) $ 1,375 $ 732 | $ (1,848)
========= ========= | =========
|
Ratio (deficiency) of earnings to fixed charges 1.4x 1.8x | $ (2,942)
========= ========= | =========
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SUCCESSOR PREDECESSOR
-------------------------------- | -----------------
Six months March 27, 1997 | November 3, 1996
ended to | to
May 2, 1998 May 3, 1997 | March 26, 1997
-------------------------------- | -----------------
|
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Net sales $ 288,110 $ 35,168 | $ 106,048
Cost of sales 203,990 24,534 | 75,281
--------- --------- | ---------
Gross profit 84,120 10,634 | 30,767
|
Selling, general and administrative expense 67,568 7,595 | 29,045
Amortization of intangibles 1,726 207 | 415
--------- --------- | ---------
Operating income 14,826 2,832 | 1,307
|
Interest expense 10,798 1,477 | 3,188
--------- --------- | ---------
Income (loss) before income taxes 4,028 1,355 | (1,881)
Income taxes 2,064 623 | (634)
--------- --------- | ---------
Net income (loss) $ 1,964 $ 732 | $ (1,247)
========= ========= | =========
|
Ratio (deficiency) of earnings to fixed charges 1.3x 1.8x | $ (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
-------------------------------- | -----------------
Six months March 27, 1997 | November 3, 1996
ended to | to
May 2, 1998 May 3, 1997 | March 26, 1997
----------- -------------- | -----------------
|
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Operating Activities |
Net income (loss) $ 1,964 $ 732 | $ (1,247)
Adjustments to reconcile net income (loss) to net |
cash provided by (used in) operations: |
Depreciation and amortization 4,887 644 | 1,904
Deferred income taxes 2,064 -- | --
Changes in operating assets and liabilities 9,020 1,622 | (12,916)
--------- --------- | ---------
Net cash provided by (used in) operating activities 17,935 2,998 | (12,259)
|
Investing Activities |
Purchases of property, improvements and equipment (1,437) (682) | (2,419)
Cost of acquiring outstanding common |
stock from predecessor shareholders -- (158,903) | --
Other 318 363 | (1,338)
--------- --------- | ---------
Net cash used in investing activities (1,119) (159,222) | (3,757)
|
Financing Activities |
Capital contribution from parent 120 69,170 | --
Net (repayments) borrowings under line of credit and |
interim loan facility (7,750) (16,413) | 29,244
Payments on long-term debt (1,500) -- | (16,000)
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 (85) (16) | 183
--------- --------- | ---------
Net cash (used in) provided by financing activities (9,215) 159,833 | 13,427
|
Net increase(decrease) in cash and cash equivalents 7,601 3,609 | (2,589)
|
Cash and cash equivalents at beginning of period 7,378 1,220 | 3,809
--------- --------- | ---------
Cash and cash equivalents at end of period $ 14,979 $ 4,829 | $ 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 operates a chain of 114 agricultural
retail stores. The transaction was accounted for as a purchase. 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").
Country General's accounts and transactions are included in
the accompanying condensed consolidated financial statements from the date of
acquisition.
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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. During March of 1998, the decision was made to close 12
of the acquired stores and effective April 1, 1998 the liquidation process
commenced. The Company plans to be substantially complete with the liquidation
process by the end of the third quarter of fiscal 1998. As of May 2, 1998 and
November 1, 1997, the reserve for severance had been reduced to $1,398 and
$2,722, respectively, as a result of payments to terminated employees. As of May
2, 1998 and November 1, 1997, the reserve for closed stores was $3,191 and
$3,358, respectively, as a result of expenses of the liquidation process to
date.
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 May 2, 1998 and May 3, 1997 was $402 and $272, 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
Second Quarter of Fiscal 1998 Compared to Second Quarter of Fiscal 1997
Net sales for the second quarter of fiscal 1998 were $143.7 million, an
increase of $74.0 million, or 106.1%, as compared to total net sales for the
second quarter of fiscal 1997 of $69.7 million. This increase was due to the
acquisition of 118 stores in fiscal 1997, including 114 in the Country General
Acquisition, a full quarter of operations for the 4 new stores opened in fiscal
1997 and a comparable store sales increase of 16.5% for Central Tractor stores.
Net sales includes $59.6 million of Country General sales during the second
quarter of fiscal 1998. The increase in comparable store sales is attributable
in part to the adverse effect on fiscal 1997 sales of mild winter and cool
spring weather conditions in the Northeast and in part to warm early spring
weather conditions in 1998.
Gross profit for the second quarter of fiscal 1998 was $42.5 million,
an increase of $21.5 million or 102.5%, as compared to $21.0 million for the
second quarter of fiscal 1997, primarily as a result of the increase in net
sales discussed above. Gross profit as a percentage of net sales remained
relatively constant at 29.6% for the second quarter of fiscal 1998, as compared
to 30.1% for the second quarter of fiscal 1997.
Selling, general and administrative (SGA) expenses for the second
quarter of fiscal 1998 were $33.5 million, an increase of $14.4 million, or
75.9%, as compared to the second quarter of fiscal 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 23.3% for the second quarter of fiscal 1998 as
compared to 27.3% for the second quarter of fiscal 1997, due primarily to
proportionately lower levels of SGA expenses in the second quarter of fiscal
1998 in stores opened and acquired during fiscal 1996 and increased sales in the
second quarter of fiscal 1998 in comparable stores.
Amortization of intangibles was $0.9 million for the second quarter of
fiscal 1998 and $0.4 million for the second quarter of fiscal 1997. The increase
is due to the additional goodwill incurred in the Acquisition and the Country
General Acquisition.
Operating income for the second quarter of fiscal 1998 was $8.2
million, an increase of $6.6 million, or 410.2%, as compared to $1.6 million for
the second quarter of fiscal 1997. Operating income as a percentage of net sales
increased to 5.7% for the second quarter of fiscal 1998 from 2.3% for the second
quarter of fiscal 1997. The increase was the result of the factors affecting
sales, gross profit and SGA discussed above.
Interest expense for the second quarter of fiscal 1998 was $5.5
million, an increase of $2.3 million as compared to $3.2 million for the second
quarter of fiscal 1997. This increase was primarily due to the additional debt
incurred to the fund the Country General Acquisition, the Acquisition and the
short term borrowing needs of the consolidated entity.
Income taxes for the second quarter of fiscal 1998 were $1.3 million,
an increase of $1.8 million as compared to the second quarter of fiscal 1997.
Income tax as a percentage of pretax earnings (loss) was 48.2% in 1998, compared
8
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to (29.7)% in 1997. This increase is due primarily to amortization of goodwill
related to the Acquisition, which is not deductible for income tax purposes.
Net income for the second quarter of fiscal 1998 was $1.4 million, as
compared to a loss of $1.1 million for the second quarter of fiscal 1997, as a
result of the factors discussed above.
Six Months Ended May 2, 1998 Compared to Six Months Ended May 3, 1997
Net sales for the six months ended May 2, 1998 were $288.1 million, an
increase of $146.9 million, or 104.0%, as compared to total net sales for the
six months ended May 3, 1997 of $141.2 million. This increase was due to the
acquisition of 118 stores in fiscal 1997, including 114 in the Country General
Acquisition, a full six months of operations for the 4 new stores opened in
fiscal 1997 and a comparable store sales increase of 9.2% for Central Tractor
stores. Net sales includes $128.2 million of Country General sales during the
six months ended May 2, 1998. The increase in comparable store sales is
primarily attributable to the adverse effect on fiscal 1997 sales of mild winter
and cool spring weather conditions in the Northeast.
Gross profit for the six months ended May 2, 1998 was $84.1 million, an
increase of $42.7 million or 103.2%, as compared to $41.4 million for the six
months ended May 3, 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 29.2% for the six months ended May 2, 1998, as compared to 29.3% for
the six months ended May 3, 1997.
Selling, general and administrative (SGA) expenses for the six months
ended May 2, 1998 were $67.6 million, an increase of $30.9 million, or 84.4%, as
compared to the six months ended May 3, 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 23.5% for the six months ended May 2, 1998 as compared to 25.9% for
the six months ended May 3, 1997, due primarily to proportionately lower levels
of SGA expenses in the six months ended May 2, 1998 in stores opened and
acquired during fiscal 1996 and increased sales in the six months ended May 2,
1998 in comparable stores.
Amortization of intangibles was $1.7 million for the six months ended
May 2, 1998 and $0.6 million for the six months ended May 3, 1997. The increase
is due to the additional goodwill incurred in the Acquisition and the Country
General Acquisition.
Operating income for the six months ended May 2, 1998 was $14.8
million, an increase of $10.7 million, or 258.2%, as compared to $4.1 million
for the six months ended May 3, 1997. Operating income as a percentage of net
sales increased to 5.2% for the six months ended May 2, 1998 from 2.9% for the
six months ended May 3, 1997. The increase was the result of the factors
affecting sales, gross profit and SGA discussed above.
Interest expense for the six months ended May 2, 1998 was $10.8
million, an increase of $6.1 million as compared to $4.7 million for the six
months ended May 3, 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 six months ended May 2, 1998 were $2.1 million, an
increase of $2.1 million as compared to the six months ended May 3, 1997. Income
tax as a percentage of pretax earnings (loss) was 51.2% in 1998, compared to
(2.1)% in 1997. This increase is due primarily to amortization of goodwill
related to the Acquisition, which is not deductible for income tax purposes.
Net income for the six months ended May 2, 1998 was $2.0 million, as
compared to a loss of $0.5 million for the six months ended May 3, 1997 as a
result of the factors discussed above.
9
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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.
On May 2, 1998, the Company had working capital of $89.5 million, which
was a $3.9 million increase from working capital of $85.6 million on November 1,
1997. This increase resulted primarily from a $7.6 million increase in cash and
cash equivalents and the repayment of $7.8 million on the Company's revolving
credit facility, partially offset by a net increase in accounts payable and
accrued expenses.
Net cash provided by operating activities was $17.9 million for the six
months ended May 2, 1998. This was an increase of $27.2 million from the six
months ended May 3, 1997, during which $9.3 million of cash was used in
operating activities. This increase resulted primarily from a larger net
increase in accounts payable and accrued expenses and a smaller increase in
inventory, respectively, during the six months ended May 2, 1998 as compared to
the same period in the prior year. The Company's capital expenditures were $1.4
million and $3.1 million for the six months ended May 2, 1998 and May 3, 1997,
respectively. In addition, the Company had net repayments of debt of $9.3
million during the six months ended May 2, 1998 as compared to net borrowings of
$109.8 million during the six months ended May 3, 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. Furthermore, notwithstanding the
foregoing, 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, which has been fully funded, and a $100.0
million revolving credit facility, under which $53.0 million was outstanding as
of May 2, 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
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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 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
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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: June 15 , 1998 Central Tractor Farm & Country, Inc.
/s/Denny L. Starr
Denny L. Starr
Senior Vice President, Finance and
Chief Financial Officer
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CENTRAL TRACTOR FARM & COUNTRY, INC.
INDEX TO EXHIBITS
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
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Exhibit 12
CENTRAL TRACTOR FARM & COUNTRY, INC.
Schedule Regarding Computation of Ratio of Earnings to Fixed Charges
(In thousands except ratios)
SUCCESSOR | PREDECESSOR
---------------------------------------------- | ---------------------
Three months ended March 27, 1997 to | Feb 2, 1997 to
May 2, 1998 May 3, 1997 | March 26, 1997
------------------- --------------------- | ---------------------
|
<S> <C> <C> <C>
|
Fixed Charges: |
Interest expense $ 5,514 $ 1,477 | $ 1,711
Portion of rent expense |
representing interest 742 180 | 321
------- ------- | -------
6,256 1,657 | 2,032
======= ======= | =======
|
|
|
Earnings: |
Income (loss) before income taxes 2,654 1,355 | (2,942)
Fixed charges 6,256 1,657 | 2,032
------- ------- | -------
$ 8,910 $ 3,012 | $ (910)
======= ======= | =======
|
|
Ratio (deficiency) of earnings to fixed charges 1.4x 1.8x | $(2,942)
======= ======= | =======
<CAPTION>
SUCCESSOR | PREDECESSOR
---------------------------------------------- | ---------------------
Six months ended March 27, 1997 to | Nov 3, 1996 to
May 2, 1998 May 3, 1997 | March 26, 1997
------------------- --------------------- | ---------------------
<S> <C> <C> <C>
|
|
Fixed Charges: |
Interest expense $10,798 $ 1,477 | $ 3,188
Portion of rent expense |
representing interest 1,497 180 | 842
------- ------- | -------
12,295 1,657 | 4,030
======= ======= | =======
|
|
|
Earnings: |
Income (loss) before income taxes 4,028 1,355 | (1,881)
Fixed charges 12,295 1,657 | 4,030
------- ------- | -------
$16,323 $ 3,012 | $ 2,149
======= ======= | =======
|
|
Ratio (deficiency) of earnings to fixed charges 1.3x 1.8x | $(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 May 2, 1998 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> OCT-31-1998
<PERIOD-START> NOV-02-1997
<PERIOD-END> MAY-02-1998
<CASH> 14,979
<SECURITIES> 0
<RECEIVABLES> 6,998
<ALLOWANCES> 386
<INVENTORY> 223,364
<CURRENT-ASSETS> 253,475
<PP&E> 47,314
<DEPRECIATION> 5,337
<TOTAL-ASSETS> 437,968
<CURRENT-LIABILITIES> 163,997
<BONDS> 150,500
0
0
<COMMON> 0
<OTHER-SE> 121,631
<TOTAL-LIABILITY-AND-EQUITY> 437,968
<SALES> 288,110
<TOTAL-REVENUES> 288,110
<CGS> 203,990
<TOTAL-COSTS> 203,990
<OTHER-EXPENSES> 69,294
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,798
<INCOME-PRETAX> 4,028
<INCOME-TAX> 2,064
<INCOME-CONTINUING> 1,964
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,964
<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.
Regional Economy
The majority of the Company's existing stores are located in the
Northeastern United States, the Midwestern United States and the 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.
<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 effort will
continue by these and other mass merchandisers.
2
