SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 200549
-------------
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
X SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 30, 1999
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 February 28, 1999: 100. All of the registrant's
stock is held by CT Holding, Inc. and is not publicly traded.
<PAGE>
<TABLE>
<CAPTION>
CENTRAL TRACTOR FARM & COUNTRY, INC.
INDEX
<S> <C>
PART I. FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
Condensed consolidated balance sheets, January 30, 1999 (unaudited) and October 31, 1998................. 3
Condensed consolidated statements of income (unaudited), for the three months ended January 30, 1999
and January 31, 1998..................................................................................... 4
Condensed consolidated statements of cash flows (unaudited), for the three months ended January 30, 1999
and January 31, 1998..................................................................................... 5
Notes to condensed consolidated financial statements (unaudited)......................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS........................................................................... 7
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS............................................................................... 10
ITEM 2. CHANGES IN SECURITIES........................................................................... 10
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................................................. 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................. 10
ITEM 5. OTHER INFORMATION............................................................................... 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................ 10
INDEX TO EXHIBITS............................................................................................ 12
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
</TABLE>
2
<PAGE>
CENTRAL TRACTOR FARM & COUNTRY, INC.
Condensed Consolidated Balance Sheets
(In thousands except share data)
<TABLE>
<CAPTION>
January
30, October 31,
1999 1998
----------- -----------
(unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,144 $ 6,971
Recoverable income taxes 2,028 3,134
Trade receivables, net 3,843 4,648
Inventory 234,868 217,064
Other 2,547 3,010
-------- --------
Total current assets 248,430 234,827
Property, improvements and equipment, net 46,325 41,627
Goodwill, net 133,143 134,037
Other assets 8,557 8,354
-------- --------
Total assets $436,455 $418,845
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Note payable to bank $ 44,000 $ 32,075
Current portion of long-term debt and capital lease obligations 3,157 3,159
Accounts payable 84,472 78,322
Accrued expenses and other liabilities 21,951 22,862
-------- --------
Total current liabilities 153,580 136,418
Long-term debt, less current portion 147,500 149,000
Other long-term liabilities 4,132 3,670
-------- --------
Total liabilities 305,212 289,088
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 119,155 119,155
Retained earnings 12,088 10,602
-------- --------
Total stockholder's equity 131,243 129,757
-------- --------
Total liabilities and stockholder's equity $436,455 $418,845
======== ========
Note: The balance sheet at October 31, 1998 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.
</TABLE>
3
<PAGE>
CENTRAL TRACTOR FARM & COUNTRY, INC.
Condensed Consolidated Statements of Income (Unaudited)
(In thousands)
Three months ended
-----------------------------
January 30, January 31,
1999 1998
-------------- -------------
Net sales $ 146,147 $ 144,393
Cost of sales 103,520 102,774
--------- ---------
Gross profit 42,627 41,619
Selling, general and administrative expense 33,742 34,094
Amortization of intangibles 972 866
--------- ---------
Operating income 7,913 6,659
Interest expense 4,959 5,284
--------- ---------
Income before income taxes 2,954 1,375
Income taxes 1,468 785
--------- ---------
Net income and comprehensive income $ 1,486 $ 590
========= =========
Ratio of earnings to fixed charges 1.5 x 1.2 x
========= =========
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
CENTRAL TRACTOR FARM & COUNTRY, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands )
Three months ended
-------------------------
January 30, January 31,
1999 1998
------------ ------------
Operating Activities
Net income $ 1,486 $ 590
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 2,526 2,447
Deferred income taxes 1,468 785
Changes in operating assets and liabilities (5,324) 7,459
-------- --------
Net cash provided by operating activities 156 11,281
Investing Activities
Purchases of property, improvements and
equipment, net (4,015) (1,107)
Purchase of net operating assets of and
advances to H.C. Shaw Co. (7,829) --
Other (518) (532
-------- --------
Net cash used in investing activities (12,362) (1,639)
Financing Activities
Net borrowings (repayments) under line of
credit 11,925 (9,720)
Payments on long-term debt (1,500) (1,500)
Other (46) (43)
-------- --------
Net cash provided by (used in) financing activities 10,379 (11,263)
Net decrease in cash and cash equivalents (1,827) (1,621)
Cash and cash equivalents at beginning of period 6,971 7,378
-------- --------
Cash and cash equivalents at end of period $ 5,144 $ 5,757
======== ========
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
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., 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. ("Country General")
(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 October 31, 1998
("Form 10-K").
NOTE 2. ACQUISITION
In January 1999, the Company acquired nine retail stores and certain
net operating assets from H.C. Shaw Co., a privately-owned specialty retailer,
for approximately $7.0 million, subject to post-closing adjustments. The
transaction was accounted for as a purchase. The accounts and transactions of
the acquired stores are included in the accompanying condensed unaudited
consolidated financial statements from the date of acquisition. Proforma results
of operations as if the acquisition had occurred on November 1, 1998 are not
materially different from the historical results of operations presented herein.
6
<PAGE>
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
First Quarter of Fiscal 1999 Compared to First Quarter of Fiscal 1998
Net sales for the first quarter of fiscal 1999 were $146.1 million, an
increase of $1.7 million, or 1.2%, as compared to net sales for the first
quarter of fiscal 1998 of $144.4 million. This increase was due principally to a
comparable store sales increase of 6.1% and to sales derived in 1999 from new
stores opened in fiscal 1999 to date, partially offset by $8.1 million of sales
derived in 1998 from stores closed in fiscal 1998.
Gross profit for the first quarter of fiscal 1999 was $42.6 million, an
increase of $1.0 million or 2.4%, as compared to $41.6 million for the first
quarter of fiscal 1998, 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 29.2% for the first quarter of fiscal 1999, as compared to
28.8% for the first quarter of fiscal 1998. The increase in the gross profit
percentage is attributable to the fuller realization of the increased purchasing
power of the Company resulting from the acquisition of Country General during
fiscal 1997.
Selling, general and administrative (SGA) expenses for the first quarter of
fiscal 1999 were $33.7 million, a decrease of $0.4 million, or 1.0 %, as
compared to the first quarter of fiscal 1998. SGA expenses as a percentage of
net sales improved to 23.1% for the first quarter of fiscal 1999 as compared to
23.6% for the first quarter of fiscal 1998. This decrease is attributable to
completion of the integration of the Country General stores.
Amortization of intangibles remained relatively constant at $1.0 million
for the first quarter of fiscal 1999 as compared to $0.9 million for the first
quarter of fiscal 1998.
Operating income for the first quarter of fiscal 1999 was $7.9 million, an
increase of $1.2 million, or 18.8%, as compared to $6.7 million for the first
quarter of fiscal 1998. Operating income as a percentage of net sales increased
to 5.4% for the first quarter of fiscal 1999 from 4.6% for the first quarter of
fiscal 1998. The increase was the result of the factors affecting net sales,
gross profit and SGA expenses discussed above.
Interest expense was $5.0 million for the first quarter of fiscal 1999 as
compared to $5.3 million for the first quarter of fiscal 1998. The decrease in
interest expense is attributable to a lower average debt balance and a decrease
in interest rates on the Company's variable rate borrowings.
Income taxes for the first quarter of fiscal 1999 were $1.5 million, an
increase of $0.7 million as compared to the first quarter of fiscal 1998. Income
tax as a percentage of pretax earnings was 49.7% in 1999, compared to 57.1% in
1998. This decrease is due primarily to amortization of goodwill related to the
acquisition of the Company by Childs, which is not deductible for income tax
purposes, being spread over a larger pre-tax income base.
Net income for the first quarter of fiscal 1999 was $1.5 million, as
compared to $0.6 million for the first quarter of fiscal 1998, as a result of
the factors discussed above.
7
<PAGE>
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 January 30, 1999, the Company had working capital of $94.9 million, a
$3.5 million decrease from working capital of $98.4 million on October 31, 1998.
This decrease resulted primarily from a $18.1 million aggregate increase in the
Company's note payable to bank and accounts payable and a $4.2 million decrease
in miscellaneous current assets, partially offset by a $17.8 million increase in
inventory. The increase in inventory is due primarily to the Company's new store
expansion program for fiscal 1999 along with the purchase of the H.C. Shaw Co.
stores in January 1999.
Net cash provided by operating activities was $0.2 million for the
three months ended January 30, 1999. This was a decrease of $11.1 million from
the three months ended January 31, 1998, during which $11.3 million of cash was
generated by operating activities. This decrease resulted primarily from an
increase in inventory during the first quarter of fiscal 1999 as compared to a
decrease during the same period in the prior year. The Company's capital
expenditures, exclusive of the H.C. Shaw Co. acquisition, were $4.0 million and
$1.1 million for the three months ended January 30, 1999 and January 31, 1998,
respectively. The increase is primarily attributable to the Company's new store
expansion program for fiscal 1999. In addition, the Company had cash provided by
financing activities of $10.4 million during the three months ended January 30,
1999 as compared to cash used in financing activities of $11.2 million during
the three months ended January 31, 1998. The increase in cash provided by
financing activities during the first quarter of fiscal 1999, as compared to the
first quarter of fiscal 1998, is attributable to the purchase of the H.C. Shaw
Co. stores and subsequent cash advances and the funding of the inventory
build-up and capital expenditures related to the Company's new store expansion
program for fiscal 1999.
The Company has a $100.0 million revolving credit facility, under which
$44.0 million was outstanding as of January 30, 1999. 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.
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 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.
8
<PAGE>
Inflation
Management does not believe its operations have been materially affected by
inflation.
Year 2000
The Year 2000 issue, common to most companies, concerns the inability of
information and other systems to correctly recognize and properly process
date-sensitive information after 1999 due to the use of only the last two digits
to refer to a year. This problem could affect both information systems (software
and hardware) and other equipment that relies on microprocessors. Management has
completed a company-wide evaluation of this impact on its computer systems,
applications and other date-sensitive equipment. Systems and equipment that are
not Year 2000 compliant have been identified and remediation efforts are in
process. Management estimates that nearly 90 percent of remediation efforts were
completed as of February 28, 1999. All remediation efforts and testing of
product/equipment are expected to be completed by May 1, 1999.
The Company is also in the process of monitoring the progress of material
third parties (vendors and suppliers) in their efforts to become Year 2000
compliant. Those third parties include, but are not limited to: product
suppliers, third party benefit administrators, third party logistic providers,
insurance institutions, mainframe computer services suppliers, financial
institutions and utilities. The Company has requested confirmation from all
material third parties that they will be timely Year 2000 compliant. Through
February 28, 1999, the Company had received confirmations from approximately 60%
of the third parties that were sent these requests.
Through February 28, 1999, the Company has spent approximately $1.5 million
to address Year 2000 issues. Total costs to address Year 2000 issues are
currently estimated not to exceed $2.0 million and consist primarily of costs
for the remediation of internal systems, including internal programming time.
Funds for these costs are expected to be provided by the operating cash flows of
the Company. The majority of the costs of internal system remediation efforts
relate to the costs of on-staff systems engineers and, therefore, are not
necessarily incremental costs. The Company has not canceled or delayed any other
material projects as a result of this work.
The Company could be faced with severe consequences if Year 2000 issues are
not identified and resolved in a timely manner by the Company and material third
parties. A worst-case scenario would result in the short-term inability of the
Company to sell products in its stores due to unresolved Year 2000 issues. This
would result in lost revenues; however, the amount would be dependent on the
length and nature of the disruption, which cannot be predicted or estimated. In
light of the possible consequences, the Company is devoting the resources needed
to address Year 2000 issues in a timely manner. Management receives monthly
updates as to project status. While management expects a successful resolution
of these issues, there can be no guarantee that the Company and material third
parties, on which the Company relies, will address all Year 2000 issues on a
timely basis or that their failure to timely and successfully address all issues
would not have an adverse effect on the Company.
The Company is in the process of developing contingency plans in case
business interruptions do occur. Management expects these plans to be completed
by June 1, 1999.
9
<PAGE>
CENTRAL TRACTOR FARM & COUNTRY, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS None
ITEM 2. CHANGES IN SECURITIES None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS None
ITEM 5. OTHER INFORMATION None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS - See Index to Exhibits included elsewhere herein.
(b) FORM 8-K None
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: March 15, 1999 Central Tractor Farm & Country, Inc.
/s/Denny L. Starr
Denny L. Starr
Senior Vice President, Finance and
Chief Financial Officer
11
<PAGE>
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
12
EXHIBIT 12
CENTRAL TRACTOR FARM & COUNTRY, INC.
SCHEDULE REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(in thousands)
Three months ended
--------------------------------
January 30, January 31,
1999 1998
---- ----
Income before income taxes $ 2,954 $ 1,375
======= =======
Fixed charges:
Interest expense 4,959 5,284
Portion of rent expense
representing interest 715 756
------- -------
Total fixed charges 5,674 6,040
======= =======
Earnings before income
taxes and fixed charges 8,628 7,415
======= =======
Ratio of earnings to fixed 1.5 x 1.2 x
charges ======= =======
<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 January 30, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-30-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-30-1999
<CASH> 5,144
<SECURITIES> 0
<RECEIVABLES> 4,229
<ALLOWANCES> 386
<INVENTORY> 234,868
<CURRENT-ASSETS> 248,430
<PP&E> 55,465
<DEPRECIATION> 9,140
<TOTAL-ASSETS> 436,455
<CURRENT-LIABILITIES> 153,580
<BONDS> 147,500
0
0
<COMMON> 0
<OTHER-SE> 131,243
<TOTAL-LIABILITY-AND-EQUITY> 436,455
<SALES> 146,147
<TOTAL-REVENUES> 146,147
<CGS> 103,520
<TOTAL-COSTS> 103,520
<OTHER-EXPENSES> 34,714
<LOSS-PROVISION> 132
<INTEREST-EXPENSE> 4,959
<INCOME-PRETAX> 2,954
<INCOME-TAX> 1,468
<INCOME-CONTINUING> 1,486
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,486
<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, 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.
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.
