TRACTOR SUPPLY CO /DE/
10-Ks and 10-Qs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 26, 2009
or
| o | 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
000-23314
TRACTOR SUPPLY COMPANY
(Exact name of registrant as specified in its charter)
| Delaware | 13-3139732 | |
|
(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 200 Powell Place, Brentwood, Tennessee | 37027 | |
| Address of principal executive offices | Zip Code | |
| Registrant’s telephone number, including area code | (615) 440-4000 | |
Securities Registered Pursuant to Section 12(g) of the Act: None
Securities Registered Pursuant to Section 12(b) of the Act:
| Title of each class | Name of each exchange on which registered | |
| Common Stock, $.008 par value | NASDAQ Global Select Market |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act
YES
þ
NO
o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act
YES
o
NO
þ
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
þ
NO
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
YES
o
NO
o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated
file,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
| Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
| (Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act.)
YES
o
NO
þ
The aggregate market value of the Common Stock held by non-affiliates of the registrant, based on
the closing price of the Common Stock on The NASDAQ Global Select Market on June 26, 2009, the last
business day of the registrant’s most recently completed second fiscal quarter, was $1,234,085,441.
For purposes of this response, the registrant has assumed that its directors, executive officers,
and beneficial owners of 5% or more of its Common Stock are the affiliates of the registrant.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of
the latest practicable date.
| Class | Outstanding at January 23, 2010 | |
| Common Stock, $.008 par value | 36,098,181 |
Documents Incorporated by Reference:
Portions of the Registrant’s definitive Proxy Statement for its 2010 Annual Meeting of Shareholders
are incorporated by reference into Part III hereof.
TRACTOR SUPPLY COMPANY
INDEX
INDEX
| Form 10-K | ||||||||
| Report | ||||||||
| Item no. | Page | |||||||
|
|
||||||||
| ii | ||||||||
|
|
||||||||
| 1 | ||||||||
|
|
||||||||
| 1 | ||||||||
|
|
||||||||
| 6 | ||||||||
|
|
||||||||
| 9 | ||||||||
|
|
||||||||
| 9 | ||||||||
|
|
||||||||
| 10 | ||||||||
|
|
||||||||
| 11 | ||||||||
|
|
||||||||
| 12 | ||||||||
|
|
||||||||
| 12 | ||||||||
|
|
||||||||
| 14 | ||||||||
|
|
||||||||
| 16 | ||||||||
|
|
||||||||
| 31 | ||||||||
|
|
||||||||
| 32 | ||||||||
|
|
||||||||
| 53 | ||||||||
|
|
||||||||
| 53 | ||||||||
|
|
||||||||
| 54 | ||||||||
|
|
||||||||
| 55 | ||||||||
|
|
||||||||
| 55 | ||||||||
|
|
||||||||
| 55 | ||||||||
|
|
||||||||
| 55 | ||||||||
|
|
||||||||
| 56 | ||||||||
|
|
||||||||
| 56 | ||||||||
|
|
||||||||
| 56 | ||||||||
|
|
||||||||
| 56 | ||||||||
|
|
||||||||
| Exhibit 23.1 | ||||||||
| Exhibit 31.1 | ||||||||
| Exhibit 31.2 | ||||||||
| Exhibit 32.1 | ||||||||
i
Table of Contents
FORWARD-LOOKING STATEMENTS OR INFORMATION
This Form 10-K and statements included or incorporated by reference in this Form 10-K include
certain historical and forward-looking information. The forward-looking statements included are
made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995
(the “Act”). All statements, other than statements of historical facts, which address activities,
events or developments that we expect or anticipate will or may occur in the future, including such
things as future capital expenditures (including their amount and nature), business strategy,
expansion and growth of the business operations and other such matters are forward-looking
statements. To take advantage of the safe harbor provided by the Act, we are identifying certain
factors that could cause actual results to differ materially from those expressed in any
forward-looking statements, whether oral or written. These factors include general economic
conditions affecting consumer spending, the timing and acceptance of new products in the stores,
the mix of goods sold, purchase price volatility (including inflationary and deflationary
pressures), the ability to increase sales at existing stores, the ability to manage growth and
identify suitable locations and negotiate favorable lease agreements on new and relocated stores,
the availability of favorable credit sources, capital market conditions in general, failure to open
new stores in the manner currently contemplated, the impact of new stores on our business,
competition, weather conditions, the seasonal nature of our business, effective merchandising
initiatives and marketing emphasis, the ability to retain vendors, reliance on foreign suppliers,
the ability to attract, train and retain qualified team members, product liability and other
claims, potential legal proceedings, management of our information systems, effective tax rate
changes and results of examination by taxing authorities, the ability to maintain an effective
system of internal control over financial reporting and those described in Item 1A. “Risk Factors.”
Forward-looking statements are based on currently available information and are based on our
current expectations and projections about future events. We undertake no obligation to release
publicly any revisions to these forward-looking statements to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
ii
Table of Contents
Item 1.
Business
Overview
Tractor Supply Company is the largest operator of retail farm and ranch stores in the United States
and is focused on supplying the lifestyle needs of recreational farmers and ranchers and those who
enjoy the rural lifestyle, as well as tradesmen and small businesses. We operate retail stores
under the names
Tractor Supply Company
and
Del’s Farm Supply
and operate a website under the name
TractorSupply.com
. Our stores are located in towns outlying major metropolitan markets and in
rural communities, and they offer the following comprehensive selection of merchandise:
| • |
Equine, pet and small animal products, including items necessary for their health, care,
growth and containment;
|
| • |
Hardware and seasonal products, including lawn and garden power equipment;
|
| • |
Truck, towing and tool products;
|
| • |
Work/recreational clothing and footwear for the entire family;
|
| • |
Maintenance products for agricultural and rural use; and
|
| • |
Home décor, candy, snack food and toys.
|
Our Tractor Supply stores typically range in size from 15,500 square feet to 18,500 square feet of
inside selling space and additional outside selling space. We use a standard 15,500 square foot
prototype for new purpose-built locations. For new existing buildings, one of several layout
formats is utilized.
Our wholly-owned subsidiary, Del’s Farm Supply, LLC (“Del’s”), which operated 27 stores as of
December 26, 2009 in Washington, Oregon, Idaho and Hawaii, offers a wide selection of products
(primarily in the equine, pet and animal category) tailored to those who enjoy the rural lifestyle.
Del’s stores currently range in size from approximately 2,000 to 6,000 square feet of inside
selling space plus additional outside and covered/sheltered selling space.
Tractor Supply Company has one reportable industry segment – farm and ranch retail sales, both at
our retail locations and online.
At December 26, 2009, we operated 930 (inclusive of 27 Del’s stores) retail farm and ranch stores
in 44 states.
Seasonality and Weather
Our business is highly seasonal. Historically, our sales and profits have been the highest in the
second and fourth fiscal quarters of each year due to the sale of seasonal products. Unseasonable
weather, excessive precipitation, drought, and early or late frosts may also affect our sales. We
believe, however, that the impact of extreme weather conditions is somewhat mitigated by the
geographic dispersion of our stores.
We experience our highest inventory and accounts payable balances during the first fiscal quarter
each year for purchases of seasonal products in anticipation of the spring selling season and again
during the third fiscal quarter in anticipation of the winter selling season.
Business Strategy
We believe our sales and earnings growth is a result of executing our business strategy, which
includes the following key components:
Market Niche
We have identified a specialized market niche: supplying the lifestyle needs of
recreational farmers and ranchers and those who enjoy the rural lifestyle (which we
refer to as the “
Out Here
” lifestyle), as well as tradesmen and small businesses.
By focusing our product mix on these core customers, we believe we are
differentiated from general merchandise, home center and other specialty retailers.
1
Table of Contents
Customer Service
We are committed to providing our customers a high level of in-store service through
our motivated, well-trained store team members. We believe the ability of our store
team members to provide friendly, responsive and seasoned advice helps to promote
strong customer loyalty and repeat shopping. As such, we seek to provide our store
team members with decision-making authority, product knowledge and training to
enable them to meet our customers’ needs.
We endeavor to staff our stores with courteous, highly motivated team members and
devote considerable resources to training store team members, often in cooperation
with our vendors. Our training programs include (i) a full management training
program which covers all aspects of our operations, (ii) product knowledge modules
produced in conjunction with key vendors, (iii) frequent management skills training
classes, (iv) semi-annual store manager meetings with vendor product presentations,
(v) vendor sponsored in-store training programs and (vi) ongoing product information
updates from our management headquarters, the Store Support Center. We seek to hire
and train store team members with farming and ranching backgrounds, with particular
emphasis on general maintenance, equine and welding.
Our online shopping site is
TractorSupply.com
. The availability of many of our
products online provides our customers the ability to purchase products and have
them shipped to one of our retail stores, their homes or offices. This capability
further enhances customer service and extends our market to areas where retail
stores are not currently located.
We offer proprietary, private label credit cards for individuals and business
customers. In addition, we accept cash, checks, debit cards, Visa, MasterCard,
American Express and Discover credit cards and gift cards.
Store Environment
Our stores are designed and managed to make shopping an enjoyable experience and to
maximize sales and operating efficiencies. Stores utilize several layouts, designed
to provide an open environment, optimal product placement and visual display
locations. In addition, these layouts allow for departmental space to be easily
reallocated and visual displays to be easily changed for seasonal products and
promotions. Display and product placement information is sent to stores weekly to
ensure quality and uniformity among the stores. Informative signs are located
throughout each store to assist customers with purchasing decisions and merchandise
location by comparison of “good, better, best” qualities, clear pricing and useful
information regarding product benefits and suggestions for appropriate accessories.
The general uniformity of our store layouts and visual displays afford our customers
a feeling of familiarity and enhances the shopping experience. To further enhance
the shopping experience, all of our store team members wear highly visible red
vests, aprons or smocks and nametags, and our customer service and checkout counters
are conveniently located.
Merchandising
We offer a differentiated assortment of products for our customers. Our broad
product assortment is tailored to meet the regional and geographic needs of our
markets, as well as the physical store size. Our full line of product offerings is
supported by a strong in-stock inventory position with an average of 15,500 to
19,000 unique products per store. No one product accounted for more than 10% of our
sales during 2009.
Our stores carry a wide selection of high quality, nationally recognized, name brand
merchandise. We also market a growing list of products under our “private-label
programs,” i.e. products manufactured by a number of vendors at our direction and
specifically for our sole benefit. The trademarks in the private label brand names
are owned by us. Our private label brands include:
| • |
Masterhand
and
JobSmart
(tools and tool chests)
|
| • |
Dumor
and
Producers Pride
(livestock feed)
|
| • |
4health
(pet foods)
|
| • |
Retriever
and
Paws ‘n Claws
(pet foods)
|
2
Table of Contents
| • |
Royal Wing
(bird feeding supplies)
|
| • |
Milepost
(equine products)
|
| • |
Groundwork
(lawn and garden supplies)
|
| • |
Huskee
(outdoor power equipment)
|
| • |
Countyline
(livestock, farm and ranch equipment)
|
| • |
Traveller
(truck/automotive products)
|
| • |
C.E. Schmidt
(apparel and footwear)
|
| • |
Bit & Bridle
(apparel)
|
| • |
Red Shed
(gifts and collectibles)
|
We believe that the availability of top quality private label products at great
prices provides superior value for our customers, a strategic advantage for us, and
positions us as a destination store.
The following chart indicates the average percentages of sales represented by each
of our major product categories during fiscal 2009, 2008 and 2007.
| Percent of Sales | ||||||||||||
| Product Category | 2009 | 2008 (a) | 2007 (a) | |||||||||
|
Livestock and Pet
|
39 | % | 36 | % | 33 | % | ||||||
|
Hardware and Seasonal
|
23 | 24 | 26 | |||||||||
|
Truck and Tool
|
18 | 19 | 20 | |||||||||
|
Clothing and Footwear
|
10 | 10 | 10 | |||||||||
|
Agriculture
|
6 | 7 | 7 | |||||||||
|
Gift and Recreation
|
4 | 4 | 4 | |||||||||
|
|
||||||||||||
|
|
100 | % | 100 | % | 100 | % | ||||||
|
|
||||||||||||
| (a) |
Reclassified to conform to current year presentation.
|
Purchasing
We offer a differentiated assortment of products that are sourced through domestic
and international vendors for those seeking to enjoy the “
Out Here
” lifestyle. Our
business is not dependent upon any one vendor or particular group of vendors. We
purchase our products from a core group of approximately 850 vendors, with no one
vendor representing more than 10% of our purchases during fiscal 2009.
Approximately 250 vendors accounted for approximately 90% of our purchases during
fiscal 2009. We have not experienced any significant difficulty in obtaining
satisfactory alternative sources of supply for our products, and we believe that
adequate sources of supply exist at substantially similar costs for substantially
all of our products. We have no material long-term contractual commitments with any
of our vendors.
We maintain a dedicated inventory management team to focus exclusively on all
replenishment and forecasting functions. This centralized direction permits our
buying teams to focus more strategic attention toward vendor line reviews,
assortment planning and testing of new products and programs. Through the combined
efforts of these teams, we have improved our overall inventory productivity and
in-stock position.
Over 97% of our purchase orders are transmitted through an electronic data
interchange (“EDI”) system, and approximately 95% of merchandise vendor invoices are
transmitted through EDI. We are expanding the percentage of vendors who
electronically transmit invoices and increasing the amount of sales history
transmitted.
Distribution
We currently operate a distribution network for supplying our stores with
merchandise, and in fiscal 2009 our stores received approximately 67% of our
merchandise through this network. Our six distribution centers are located in
Indiana, Georgia, Maryland, Texas, Nebraska, and Washington, representing total
distribution capacity of 2.9 million square feet. In 2010, we are not planning any
additional distribution center square footage as we concentrate on increasing the
utilization of our existing space.
3
Table of Contents
We manage our inbound and outbound transportation activity in-house through the use
of a web-based transportation management system. We outsource the operation of our
dedicated fleet to two third-party logistics providers and utilize several common
carriers as required for store deliveries. The third-party logistics providers are
responsible for managing drivers and tractors contracted to us, and they deliver
animal feed products directly to stores from our vendors. We control our
transportation costs through the monitoring of transportation routes and scheduling
of deliveries and backhauls while minimizing empty miles.
Marketing
We utilize an “everyday value prices” strategy to consistently offer our products at
competitive prices complemented by promotions primarily implemented during peak
selling seasons. We regularly monitor prices at competing stores and adjust our
prices as appropriate.
To generate store traffic and position ourselves as a destination store, we promote
broad selections of merchandise with newspaper circulars, customer targeted direct
mail and internet offerings. Vendors frequently support these specific programs by
offering temporary cost reductions, honoring coupons and funding gift card rebate
programs.
Due to the relatively small size of our stores, increased traffic in the store
ensures increased exposure to our products. Our vendors are committed to helping us
promote our brand and position ourselves as a destination store. Our vendors
provide assistance with product presentation and rack design, brochures,
point-of-purchase materials for customers’ education and product education for our
team members. We also receive funding through contributions and incentives on
purchases to promote new stores and earn rebates from vendors on product purchases
based on volume.
Competition
We operate in a competitive market. The principal competitive factors include
location of stores, price and quality of merchandise, in-stock consistency,
merchandise assortment and presentation, and customer service. We compete with
general merchandise retailers, home center retailers and other specialty and
discount retailers, as well as independently owned retail farm and ranch stores,
numerous privately-held regional farm store chains and farm cooperatives. Some of
these competitors are units of national or regional chains and may have
substantially greater resources and financial capacities than we do. However, we
believe we have successfully differentiated ourselves from these entities by
focusing on our specialized market niche for customers living the rural lifestyle.
Management and Team Members
As of December 26, 2009, we employed approximately 7,600 full-time and approximately
5,700 part-time team members. We also employ additional part-time team members
during peak periods. We are not party to any collective bargaining agreements.
Our store operations are organized by location into eight regions. Each region is
led by a regional manager and the region is further organized into districts, which
are led by a district manager. Our regional and district managers, store managers
and other distribution and support personnel have contributed significantly to our
performance. We have an internal advisory board comprised of store managers. This
group brings a grassroots perspective to operational initiatives and generates
chain-wide endorsement of proposed “best-practice” solutions.
We are committed to a continuous improvement program called Tractor Value System
(“TVS”). TVS is a commitment to provide, through team member engagement, a business
management system that emphasizes continuous improvement by embracing change of
current practices to reduce cost, shorten lead times, and drive innovation. We have
implemented numerous TVS project teams (comprised of team members from all areas of
our operations) to evaluate key operations and implement process changes that will
both improve efficiency and strengthen controls. Our management encourages the
participation of all team members in decision-making, regularly solicits input and
suggestions from our team members and responds to the suggestions.
4
Table of Contents
All of our team members participate in one of various incentive programs, which
provide the opportunity to receive additional compensation based upon team and/or
Company performance. We also provide our team members the opportunity to participate
in an employee stock purchase plan and a 401(k) retirement savings plan (we
contribute to the 401(k) savings plan solely through a cash match). Additionally, we
share in the cost of health insurance provided to our team members, and team members
receive a discount on merchandise purchased at our stores.
We encourage a “promote from within” environment when internal resources permit. We
also provide internal leadership development programs designed to mentor our high
potential team members for continued progress and believe we have satisfactory
relationships with our team members. Our district managers and store managers have
an average length of service of approximately five years. Management believes
internal promotions, coupled with the hiring of individuals with previous retail
experience, will provide the management structure necessary to support our planned
store growth.
Management Information and Control Systems
We have invested considerable resources in our management information and control
systems to ensure superior customer service, manage the purchase and distribution of
our merchandise and improve our operating efficiencies. Our management information
and control systems include a point-of-sale system, a supply chain management and
replenishment system, a radio frequency and voice picking system in the distribution
centers, a vendor purchase order control system and a merchandise presentation
system. These systems are integrated through an enterprise resource planning (“ERP”)
system. This ERP system tracks merchandise from initial order through ultimate sale
and interfaces with our financial systems.
We continue to evaluate and improve the functionality of our systems to maximize
their effectiveness. Such efforts include ongoing hardware and software evaluations
and upgrades to support optimal software configurations and application performance.
We plan to upgrade our information technology and implement other
efficiency-driving system enhancements (including the continued rollout of a new
point-of-sale system, an upgrade to our ERP system and a planned rollout of a new
warehouse management system) in 2010. These efforts are directed toward constantly
improving the overall business processes and achieving the most efficient and
effective use of the systems to manage our operations while ensuring a secure and
reliable environment.
Growth Strategy
Our current and long-term growth strategy is to (1) expand geographic market presence through
opening new retail stores, (2) enhance financial performance through same-store sales increases,
achieved through targeted merchandising programs with an “everyday value prices” philosophy and
supported by strong customer service, (3) enhance product margin through assortment management,
vendor management, global sourcing, and optimization of transportation and distribution costs, (4)
leverage operating costs, especially advertising, distribution and corporate overhead, (5) expand
market opportunities via internet sales, and (6) expand through selective acquisition, as such
opportunities arise, to enhance penetration into new and existing markets as a complementary
strategy to organic growth.
We have experienced considerable sales growth over the last five years, with a compounded annual
growth rate of approximately 13.0%. We project an increase of 70 to 80 new stores in 2010, an
increase of approximately 8%. We opened 76 new stores in 2009 and 91 new stores in 2008, an
increase of approximately 9% and 12%, respectively.
We operated 930 retail farm and ranch stores in 44 states as of December 26, 2009 and have plans to
open 70 to 80 stores in fiscal 2010. We have developed a proven method for selecting store sites
and have identified over 850 potential additional markets for new Tractor Supply stores (excluding
Del’s) in the United States. The acquisition of Del’s enabled us to establish an initial presence
in the Pacific Northwest, primarily in Washington, along with three stores in Hawaii. We have
slowed the growth of Del’s as we refine the concept, and we do not plan to open any additional
Del’s stores in fiscal 2010.
5
Table of Contents
Additional Information
We file reports with the Securities and Exchange Commission (“SEC”), including Annual Reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other reports as
required. The public may read and copy any materials the Company files with the SEC at the SEC’s
Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We
are an electronic filer and the SEC maintains an Internet site at
sec.gov
that contains the
reports, proxy and information statements, and other information filed electronically.
We make available free of charge through our Internet website,
TractorSupply.com
, our Annual Report
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to
those reports as soon as reasonably practicable after such material is electronically filed with or
furnished to the SEC. The information provided on our website is not part of this report, and is
therefore not incorporated by reference unless such information is otherwise specifically
referenced elsewhere in this report.
Our code of ethics, which is applicable to all of our team members, including our Chief Executive
Officer, Chief Financial Officer and Controller, along with our Corporate Governance Guidelines and
the charters of our Audit, Compensation, Corporate Governance and Nominating Committees of our
Board of Directors, is posted on our website.
Item 1A
.
Risk Factors
Our business faces many risks. Those risks which we are currently aware and we deem to be material
are described below. If any of the events or circumstances described in the following risk factors
occur, our business, financial condition or results of operations may significantly suffer, and the
trading price of our common stock could decline. These risk factors should be read in conjunction
with the other information in this Form 10-K.
General economic conditions may adversely affect our financial performance.
Our results of operations may be sensitive to changes in overall economic conditions that impact
consumer spending, including discretionary spending. Economic conditions affecting disposable
consumer income such as employment levels, business conditions, interest rates, tax rates, fuel and
energy costs, higher labor and healthcare costs, the impact of natural disasters or acts of
terrorism, and other matters could reduce consumer spending or cause consumers to shift their
spending to lower-priced competitors. A general reduction in the level of discretionary spending or
shifts in consumer discretionary spending to our competitors could adversely affect our growth and
profitability. Additionally, changes in the mix of products sold to a mix with a lower overall
gross margin or other increased cost of sales, along with slower inventory turnover and greater
markdowns on inventory, could adversely affect our operations and operating results.
Purchase price volatility, including inflationary and deflationary pressures, may adversely affect
our financial performance.
Although we cannot determine the full effect of inflation and deflation on our operations, we
believe our sales and results of operations are affected by both. We are subject to market risk
with respect to the pricing of certain products and services, which include, among other items,
steel, grain, petroleum, corn, soybean and other commodities as well as transportation services.
Therefore, we may experience both inflationary and deflationary pressure on product cost, which may
impact consumer demand and, as a result, sales and gross margin. Additionally, significant
inflationary pressures could have an adverse affect on our last-in, first-out (LIFO) inventory
provision, which would negatively impact gross margin. Our strategy is to reduce or mitigate the
effects of purchase price volatility principally by taking advantage of vendor incentive programs,
economies of scale from increased volume of purchases, adjusting retail prices and selectively
buying from the most competitive vendors without sacrificing quality. Due to the competitive
environment, such conditions have and may continue to adversely impact our financial performance.
There is no assurance that we will be able to continue to increase sales at our existing stores.
We experience fluctuations in our same-store sales, which are defined as stores which have
completed twelve months of sales. Our success depends, in part, upon our ability to improve sales
at our existing stores. Various factors affect same-store sales, including the general retail
sales environment, our ability to efficiently source and distribute products, changes in our
merchandise mix, competition, current economic conditions, the timing of release of new merchandise
and promotional events, the success of marketing programs and weather conditions. These factors
may cause our same-
store sales results to differ materially from prior periods and from expectations. Past same-store
sales are not necessarily an indication of future results, and there can be no assurance that our
same-store sales will not decrease in the future.
6
Table of Contents
Our failure to effectively manage growth could impair our business.
Even if we are able to implement, to a significant degree, our key business strategy of expanding
our store base, we may experience managerial or operational problems, which may prevent any
expected increase in profitability or negatively impact our cash flow. To manage our planned
expansion, we must ensure the continuing adequacy of our existing systems, controls and procedures,
including product distribution facilities, store management, financial controls and information
systems. There can be no assurance that we will be able to achieve our planned expansion, that the
new stores will be effectively integrated into our existing operations or that such stores will be
profitable.
Capital requirements for growth may not be available.
The construction and opening or acquisition of new stores and the development of new production and
distribution facilities, along with the remodeling and renovation of existing stores, require
significant amounts of capital. In the past, our growth has been funded primarily through bank
borrowings and internally generated cash flow.
Disruptions in the capital and credit markets could adversely affect the ability of the banks to
meet their commitments. Our access to funds under the credit facility is dependent on the ability
of the banks that are parties to the facility to meet their funding commitments. Those banks may
not be able to meet their funding commitments to us if they experience shortages of capital and
liquidity or if they experience excessive volumes of borrowing requests within a short period of
time.
Longer term disruptions in the capital and credit markets as a result of uncertainty, changing or
increased regulation, reduced alternatives, or failures of significant financial institutions could
adversely affect our access to liquidity needed for our business. Any disruption could require us
to take measures to conserve cash until the markets stabilize or until alternative credit
arrangements or other funding for our business needs can be arranged. Such measures could include
deferring capital expenditures, and reducing or eliminating future share repurchases or other
discretionary uses of cash.
Failure to open new stores in the manner currently contemplated could adversely affect our
financial performance.
An integral part of our business strategy includes the expansion of our base of stores by opening
new stores. This expansion strategy is dependent on our ability to find suitable locations, and we
face competition from many retailers for such sites. If we are unable to implement this strategy,
our ability to increase our sales, profitability, and cash flow could be impaired significantly. To
the extent that we are unable to open new stores in the manner we anticipate (due to, among other
reasons, site approval or unforeseen delays in construction), our sales growth may be impeded.
New stores may negatively impact our results.
There can be no assurance that our new store openings will be successful or result in greater sales
and profitability for the Company. New stores build their sales volumes and refine their
merchandise selection over time and, as a result, generally have lower gross margins and higher
operating expenses as a percentage of sales than our more mature stores. As we continue to open new
stores, there may be a negative impact on our results from a lower contribution margin of these new
stores until their sales levels ramp to chain average, as well as from the impact of related
pre-opening costs.
Competition in our industry may hinder our ability to execute our business strategy and adversely
affect our operations.
We operate in a very competitive market. The principal competitive factors include location of
stores, price and quality of merchandise, in-stock consistency, merchandise assortment and
presentation, and customer service. We believe we have successfully differentiated ourselves from
general merchandise retailers, home center retailers and other specialty and discount retailers by
focusing on our specialized market niche. However, we do face competition from these entities, as
well as competition from independently-owned retail farm and ranch stores, privately-held regional
farm store chains and farm cooperatives. Some of our competitors are units of national or regional
chains that have substantially greater financial and other resources.
Weather conditions may have a significant impact on our financial results.
Historically, weather conditions have had a significant impact on our operating results. Weather
conditions affect the demand for, and in some cases the supply of, products, which in turn has an
impact on prices. In past years, we have experienced extreme weather conditions, including snow
and ice storms, flood and wind damage, hurricanes, tornadoes and droughts in some states. Weather
conditions also directly affect the demand for seasonal products, particularly during the winter
heating season. Accordingly, the weather can have a material effect on our financial condition and
results of operations.
7
Table of Contents
There are certain risks associated with the seasonal nature of our business.
Our working capital needs and borrowings generally peak in our first and third fiscal quarters
because lower sales are generated while expenses are incurred and inventory is increased in
preparation for the spring and winter selling seasons. If cash on hand and borrowings under
existing credit facilities are insufficient to meet the seasonal needs or if cash flow generated
during the spring and winter is insufficient to repay associated borrowings on a timely basis, this
seasonality could have a material adverse effect on our business.
There is no assurance that our merchandising initiatives and marketing emphasis will provide
expected results.
We believe our past performance has been based on, and future success will depend upon, in part,
the ability to develop and execute merchandising initiatives with effective marketing. There is no
assurance that we will be successful, or that new initiatives will be executed in a timely manner
to satisfy our customers’ needs or expectations. Failure to execute and promote such initiatives
in a timely manner could harm our ability to grow the business and could have a material adverse
effect on our results of operations and financial condition. Additionally, our success depends on
our ability to anticipate and respond in a timely manner to changing customer demand and
preferences for merchandise. If we misjudge the market, we may significantly overstock unpopular
products and be forced to take significant inventory markdowns. Shortages of key items could also
have a materially adverse impact on operating results.
We face risks associated with vendors from whom our products are sourced.
The products we sell are sourced from a variety of domestic and international vendors. All of our
vendors must comply with applicable laws, including labor and environmental laws, and otherwise be
certified as meeting required vendor standards of conduct. We rely on foreign manufacturers for
various products that we sell. In addition, many of our domestic suppliers purchase a portion of
their products from foreign sources. We rely on long-term relationships with our suppliers but
have no long-term contracts with such suppliers. Our future success will depend in large measure
upon our ability to maintain our existing supplier relationships or to develop new ones. This
reliance increases the risk of inadequate and untimely supplies of various products due to local
political, economic, social, or environmental conditions, transportation delays, restrictive
actions by foreign governments, or changes in United States laws and regulations affecting imports
or domestic distribution. Our vendors may be forced to reduce their production, shut down their
operations or file for bankruptcy protection, which in some cases would make it difficult for us to
serve the market’s needs and could have a material adverse effect on our business. As an importer,
our business is subject to the risks generally associated with doing business abroad, such as
foreign governmental regulations, economic disruptions, delays in shipments, transportation
capacity and costs, currency exchange rates and changes in political or economic conditions in
countries from which we purchase products. If any such factors were to render the conduct of
business in particular countries undesirable or impractical or if additional United States quotas,
duties, taxes or other charges or restrictions were imposed upon the importation of our products in
the future, our financial condition and results of operations could be materially adversely
affected.
Our failure to attract and retain qualified team members could adversely affect our financial
performance.
Our ability to continue expanding operations depends on our ability to attract and retain a large
and growing number of qualified team members. Our ability to meet labor needs while controlling
wage and related labor costs is subject to numerous external factors, including the availability of
a sufficient number of qualified persons in the work force, unemployment levels, prevailing wage
rates, changing demographics, health and other insurance costs and changes in employment
legislation. If we are unable to locate, attract or retain qualified personnel, or if costs of
labor or related costs increase significantly, our financial performance could be adversely
affected.
We may be subject to product liability and other claims in the ordinary course of business.
Our business involves a risk of product liability and other claims in the ordinary course of
business. We maintain general liability insurance with a deductible for each occurrence and a
$33,000,000 aggregate retention applicable to all general liability and workers compensation
claims. We also maintain umbrella limits above the primary general liability and product liability
cover. In many cases, we have indemnification rights against the manufacturers of the products and
their products liability insurance. Our ability to recover under such insurance or indemnification
arrangements is subject to the financial viability of the insurers and manufacturers and the
specific allegations of a claim. No assurance can be given that our insurance coverage or the
manufacturers’ indemnity will be available or sufficient in any claims brought against us.
Legal proceedings could materially impact our results.
From time to time, we are party to legal proceedings including matters involving personnel and
employment issues, personal injury, intellectual property, and other proceedings arising in the
ordinary course of business. Our results could be materially impacted by the decisions and
expenses related to pending or future proceedings.
8
Table of Contents
If we experience difficulties with our management information systems, our financial performance
may be adversely affected.
We depend on management information systems for many aspects of our business. We could be
materially adversely affected if our management information systems are disrupted or if we are
unable to improve, upgrade, maintain and expand systems, particularly in light of the contemplated
continued store growth. Many of our information systems contain confidential customer, Company or
employee data. If we fail to adequately restrict access to this information, our financial
performance could be adversely affected.
Effective tax rate changes and results of examinations by taxing authorities could materially
impact our results.
Our future effective tax rates could be adversely affected by the earnings mix being lower than
historical results in states where we have lower statutory rates and higher than historical results
in states where we have higher statutory rates, by changes in the measurement of our deferred tax
assets and liabilities, or by changes in tax laws or interpretations thereof. In addition, we are
subject to periodic audits and examinations by the Internal Revenue Service (“IRS”) and other state
and local taxing authorities. Our results could be materially impacted by the determinations and
expenses related to these and other proceedings by the IRS and other state and local taxing
authorities.
Failure to maintain an effective system of internal control over financial reporting could
materially impact our business and results.
The Company’s management is responsible for establishing and maintaining adequate internal control
over financial reporting. An internal control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because of the inherent
limitations in all internal control systems, internal control over financial reporting may not
prevent or detect misstatements. Any failure to maintain an effective system of internal control
over financial reporting could limit our ability to report our financial results accurately and
timely or to detect and prevent fraud, and could expose us to litigation or adversely affect the
market price of our common stock.
Changes in accounting standards and subjective assumptions, estimates and judgments by management
related to complex accounting matters could significantly affect our financial results or financial
condition.
Generally accepted accounting principles and related accounting pronouncements, implementation
guidelines and interpretations with regard to a wide range of matters that are relevant to our
business, such as revenue recognition, asset impairment, inventories, lease obligations,
self-insurance, tax matters and litigation, are highly complex and involve many subjective
assumptions, estimates or judgments. Changes in these rules or their interpretation or changes in
underlying assumptions, estimates or judgments could significantly change our reported or expected
financial performance or financial condition.
Item 1B
.
Unresolved Staff Comments
None.
Item 2
.
Properties
At December 26, 2009, we operated 930 stores in 44 states. We lease more than 94% of our stores,
two of our six distribution centers and our management headquarters. Store leases typically have
initial terms of between 10 and 15 years, with two to four renewal periods of five years each,
exercisable at our option. No single lease is material to our operations.
9
Table of Contents
Following is a count of our store locations by state:
| Number | ||||
| State | of Stores | |||
|
Texas
|
118 | |||
|
Ohio
|
68 | |||
|
Michigan
|
62 | |||
|
Tennessee
|
57 | |||
|
Pennsylvania
|
55 | |||
|
New York
|
50 | |||
|
Georgia
|
39 | |||
|
North Carolina
|
38 | |||
|
Florida
|
36 | |||
|
Indiana
|
36 | |||
|
Kentucky
|
35 | |||
|
Virginia
|
32 | |||
|
Oklahoma
|
22 | |||
|
Alabama
|
20 | |||
|
Washington
|
20 | |||
|
California
|
19 | |||
|
South Carolina
|
19 | |||
|
West Virginia
|
17 | |||
|
Illinois
|
15 | |||
|
Arkansas
|
14 | |||
|
Louisiana
|
14 | |||
|
Wisconsin
|
14 | |||
|
Missouri
|
13 | |||
|
Nebraska
|
12 | |||
|
Kansas
|
11 | |||
|
Iowa
|
10 | |||
|
Maryland
|
9 | |||
|
New Jersey
|
9 | |||
|
Minnesota
|
8 | |||
|
New Hampshire
|
7 | |||
|
North Dakota
|
7 | |||
|
Connecticut
|
6 | |||
|
South Dakota
|
6 | |||
|
Maine
|
5 | |||
|
Vermont
|
5 | |||
|
Massachusetts
|
4 | |||
|
Mississippi
|
4 | |||
|
Delaware
|
3 | |||
|
Hawaii
|
3 | |||
|
Oregon
|
3 | |||
|
New Mexico
|
2 | |||
|
Idaho
|
1 | |||
|
Montana
|
1 | |||
|
Rhode Island
|
1 | |||
|
|
||||
|
|
930 | |||
|
|
||||
Item 3
.
Legal Proceedings
We are involved in various litigation matters arising in the ordinary course of business. We
expect these matters will be resolved without material adverse effect on our consolidated financial
position or results of operations. Any estimated loss related to such matters has been adequately
provided in accrued liabilities to the extent probable and reasonably estimable. It is possible,
however, that future results of operations for any particular quarterly or annual period could be
materially affected by changes in circumstances relating to these proceedings.
10
Table of Contents
Item 4
.
Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of our stockholders during the fourth quarter of our fiscal year
ended December 26, 2009.
Executive Officers of the Registrant
Pursuant to General Instruction G(3) of Form 10-K, the following list is included as an
unnumbered item in Part I of this Report in lieu of being included in the Proxy Statement for the
Annual Meeting of Stockholders to be held on April 29, 2010.
The following is a list of the names and ages of all executive officers of the registrant,
indicating all positions and offices with the registrant held by each such person and each person’s
principal occupations and employment during at least the past five years:
| Name | Position | Age | ||||
|
|
||||||
|
James F. Wright
|
Chairman of the Board and Chief Executive Officer | 60 | ||||
|
Gregory A. Sandfort
|
President and Chief Merchandising Officer | 54 | ||||
|
Stanley L. Ruta
|
Executive Vice President and Chief Operating Officer | 58 | ||||
|
Anthony F. Crudele
|
Executive Vice President-Chief Financial Officer and Treasurer | 53 | ||||
|
Kimberly D. Vella
|
Senior Vice President-Human Resources | 43 | ||||
James F. Wright has served as Chairman of the Board and Chief Executive Officer of the Company
since February 2009, and prior to that time served as Chairman of the Board, President and Chief
Executive Officer from November 2007 to February 2009, and as President and Chief Executive Officer
of the Company from October 2004 to November 2007. Mr. Wright previously served as President and
Chief Operating Officer of the Company from October 2000 to October 2004. Mr. Wright has served as
a director of the Company since 2002.
Gregory A. Sandfort has served as President and Chief Merchandising Officer of the Company since
February 2009, and prior to that time served as Executive Vice President-Chief Merchandising
Officer of the Company since November 2007. Mr. Sandfort previously served as President and Chief
Operating Officer at Michaels Stores, Inc. from March 2006 to August 2007 and as Vice President –
General Merchandise Manager at Michaels Stores, Inc. from January 2004 to February 2006. Mr.
Sandfort served as Vice Chairman and Co-Chief Executive Officer of Kleinert’s Inc. (d/b/a Buster
Brown) from 2002 to 2003 and as a Vice President, General Merchandise Manager for Sears, Roebuck
and Co. from 1998 to 2002.
Stanley L. Ruta has served as Executive Vice President and Chief Operating Officer of the Company
since February 2009, and prior to that time served as Executive Vice President-Store Operations
since January 2007, after having served as Senior Vice President-Store Operations since June 2000
and as Vice President-Store Operations of the Company since 1994.
Anthony F. Crudele has served as Executive Vice President-Chief Financial Officer and Treasurer
since January 2007, after having served as Senior Vice President-Chief Financial Officer and
Treasurer of the Company since November 2005. Mr. Crudele previously served as Chief Financial
Officer at Gibson Guitar from August 2003 to September 2005, as Chief Financial Officer of
Xcelerate Corp. from 2000 to January 2003, and at The Sports Authority from 1989 through 1999
(serving as Chief Financial Officer from 1996 through 1999).
Kimberly D. Vella has served as Senior Vice President-Human Resources of the Company since January
2007, after having served as Vice President-Human Resources of the Company since October 2001.
11
Table of Contents
| Item 5 . |
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
Tractor Supply Company’s common stock trades on The Nasdaq Global Select Market under the symbol
“TSCO”.
The table below sets forth the high and low sales prices of our common stock as reported by The
Nasdaq Global Select market for each fiscal quarter of the periods indicated:
| Price Range | ||||||||||||||||
| 2009 | 2008 | |||||||||||||||
| High | Low | High | Low | |||||||||||||
|
First Quarter
|
$ | 37.97 | $ | 28.67 | $ | 43.25 | $ | 28.01 | ||||||||
|
Second Quarter
|
$ | 43.72 | $ | 34.17 | $ | 42.07 | $ | 28.38 | ||||||||
|
Third Quarter
|
$ | 48.99 | $ | 39.68 | $ | 47.50 | $ | 26.70 | ||||||||
|
Fourth Quarter
|
$ | 54.50 | $ | 44.33 | $ | 45.40 | $ | 31.69 | ||||||||
As of January 31, 2010, the approximate number of record holders of our common stock was 130
(excluding individual participants in nominee security position listings), and the estimated number
of beneficial holders of our common stock was 30,000.
Issuer Purchases of Equity Securities
We have a share repurchase program which provides for the repurchase of up to $400 million of our
outstanding common stock through December 2011. Stock repurchase activity during fiscal 2009 is
set forth in the table below:
| Maximum Dollar | ||||||||||||||||
| Total Number of | Value of Shares | |||||||||||||||
| Total | Shares Purchased | That May Yet Be | ||||||||||||||
| Number of | Average | as Part of Publicly | Purchased Under | |||||||||||||
| Shares | Price Paid | Announced Plans | the Plans or | |||||||||||||
| Period | Purchased | Per Share | or Programs | Programs | ||||||||||||
|
First Quarter
|
280,984 | $ | 32.45 | 280,984 | $ | 187,120,351 | ||||||||||
|
Second Quarter
|
20,639 | 35.97 | 20,639 | 186,378,522 | ||||||||||||
|
Third Quarter
|
19,407 | 47.13 | 19,407 | 185,464,444 | ||||||||||||
|
|
||||||||||||||||
|
Fourth Quarter:
|
||||||||||||||||
|
9/27/09 – 10/24/09
|
5,804 | 47.38 | 5,804 | 185,189,616 | ||||||||||||
|
10/25/09 – 11/21/09
|
87,700 | 45.91 | 87,700 | 181,166,127 | ||||||||||||
|
11/22/09 – 12/26/09
|
4,500 | 47.43 | 4,500 | 180,952,848 | ||||||||||||
|
|
||||||||||||||||
|
|
98,004 | 46.06 | 98,004 | 180,952,848 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
As of December 26, 2009
|
419,034 | $ | 36.49 | 419,034 | $ | 180,952,848 | ||||||||||
|
|
||||||||||||||||
We expect to implement the balance of the repurchase program through purchases made from time to time either in
the open market or through private transactions, in accordance with regulations of the SEC.
We have not declared any cash dividends during the two most recent fiscal years. Our Board of Directors
authorized a share repurchase strategy, subject to a number of factors, including price, corporate and regulatory
requirements, capital availability and other market conditions. Any future declaration of dividends or
additional share repurchase programs will be subject to the discretion of our Board of Directors and subject to
our results of operations, financial condition, cash requirements and other factors deemed relevant by our Board
of Directors.
12
Table of Contents
STOCK PERFORMANCE GRAPH
This performance graph shall not be deemed “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the
liabilities under that Section and shall not be deemed to be incorporated by reference into any
filing of Tractor Supply Company under the Securities Act of 1933, as amended, or the Exchange Act.
The following graph compares the cumulative total stockholder return on our Common Stock from
December 25, 2004 to December 26, 2009 (the Company’s fiscal year-end) with the cumulative total
returns of the S&P 500 Index and the S&P Retail Index over the same period. The comparison assumes
that $100 was invested on December 25, 2004 in our Common Stock and in each of the foregoing
indices. The historical stock price performance shown on this graph is not necessarily indicative
of future performance.
| 12/25/04 | 12/31/05 | 12/30/06 | 12/29/07 | 12/27/08 | 12/26/09 | |||||||||||||||||||
|
Tractor Supply
Company
|
$ | 100.00 | $ | 147.34 | $ | 124.44 | $ | 98.41 | $ | 96.08 | $ | 150.38 | ||||||||||||
|
S&P 500
|
$ | 100.00 | $ | 103.15 | $ | 117.20 | $ | 122.18 | $ | 72.12 | $ | 93.09 | ||||||||||||
|
S&P Retail Index
|
$ | 100.00 | $ | 100.44 | $ | 109.84 | $ | 90.24 | $ | 59.71 | $ | 91.88 | ||||||||||||
13
Table of Contents
Item 6
.
Selected Financial Data
FIVE YEAR SELECTED FINANCIAL AND OPERATING HIGHLIGHTS
The following selected financial data are derived from the consolidated financial statements of
Tractor Supply Company. Our fiscal year includes 52 or 53 weeks and ends on the last Saturday of
the calendar year. References to fiscal year mean the year in which that fiscal year ended.
Fiscal year 2005 consists of 53 weeks while all other fiscal years presented below consist of 52
weeks. The following table provides summary historical financial information for the periods ended
and as of the dates indicated (in thousands, except per share and selected operating data):
| 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
|
Operating Results:
|
||||||||||||||||||||
|
Net sales
|
$ | 3,206,937 | $ | 3,007,949 | $ | 2,703,212 | $ | 2,369,612 | $ | 2,067,979 | ||||||||||
|
Gross margin
|
1,034,957 | 912,261 | 852,708 | 746,146 | 636,631 | |||||||||||||||
|
Selling, general and administrative expenses
|
784,066 | 715,961 | 641,603 | 555,834 | 466,167 | |||||||||||||||
|
Depreciation and amortization
|
66,258 | 60,731 | 51,064 | 42,292 | 34,020 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Operating income
|
184,633 | 135,569 | 160,041 | 148,020 | 136,444 | |||||||||||||||
|
Interest expense, net
|
1,644 | 2,133 | 5,037 | 2,688 | 1,632 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Income before income taxes
(a)
|
182,989 | 133,436 | 155,004 | 145,332 | 134,812 | |||||||||||||||
|
Income tax provision
|
67,523 | 51,506 | 58,763 | 54,324 | 49,143 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Net income
(a)
|
$ | 115,466 | $ | 81,930 | $ | 96,241 | $ | 91,008 | $ | 85,669 | ||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Net income per share – basic
(b)
|
$ | 3.21 | $ | 2.22 | $ | 2.45 | $ | 2.27 | $ | 2.19 | ||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Net income per share – assuming dilution
(b)
|
$ | 3.15 | $ | 2.19 | $ | 2.40 | $ | 2.22 | $ | 2.09 | ||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Adjusted weighted average shares for dilutive earnings
per share
|
36,649 | 37,464 | 40,100 | 41,060 | 40,980 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Operating Data (percent of net sales):
|
||||||||||||||||||||
|
Gross margin
|
32.3 | % | 30.3 | % | 31.5 | % | 31.5 | % | 30.8 | % | ||||||||||
|
Selling, general and administrative expenses
|
24.4 | % | 23.8 | % | 23.7 | % | 23.5 | % | 22.6 | % | ||||||||||
|
Operating income
|
5.8 | % | 4.5 | % | 5.9 | % | 6.2 | % | 6.6 | % | ||||||||||
|
Net income
|
3.6 | % | 2.7 | % | 3.6 | % | 3.8 | % | 4.1 | % | ||||||||||
|
|
||||||||||||||||||||
|
Number of Stores:
|
||||||||||||||||||||
|
Beginning of year
|
855 | 764 | 676 | 595 | 515 | |||||||||||||||
|
New stores opened
|
76 | 91 | 89 | 82 | 65 | |||||||||||||||
|
New stores acquired
|
— | — | — | — | 16 | |||||||||||||||
|
Closed/sold stores
|
(1 | ) | — | (1 | ) | (1 | ) | (1 | ) | |||||||||||
|
|
||||||||||||||||||||
|
End of year
|
930 | 855 | 764 | 676 | 595 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Number of stores relocated during year
|
2 | 1 | 12 | 15 | 18 | |||||||||||||||
|
Number of stores remodeled
(c)
|
6 | 3 | 1 | 3 | — | |||||||||||||||
|
Capital expenditures
(d)
|
$ | 73,974 | $ | 91,759 | $ | 83,986 | $ | 90,565 | $ | 78,835 | ||||||||||
|
Same-store sales increase (decrease)
(e)
|
(1.1 | %) | 1.4 | % | 3.4 | % | 1.6 | % | 5.7 | % | ||||||||||
|
Average sales per store (000’s)
(f)
|
$ | 3,586 | $ | 3,703 | $ | 3,762 | $ | 3,699 | $ | 3,772 | ||||||||||
|
Average transaction value
|
$ | 42.06 | $ | 44.55 | $ | 43.60 | $ | 43.12 | $ | 42.03 | ||||||||||
|
Average number of daily transactions per store
|
236 | 230 | 239 | 238 | 245 | |||||||||||||||
|
Total team members
|
13,300 | 12,800 | 11,600 | 9,800 | 8,700 | |||||||||||||||
|
|
||||||||||||||||||||
|
Balance Sheet Data (at end of period):
|
||||||||||||||||||||
|
Working capital
|
$ | 415,749 | $ | 283,159 | $ | 312,068 | $ | 316,104 | $ | 240,732 | ||||||||||
|
Total assets
|
1,230,845 | 1,075,997 | 1,057,971 | 998,258 | 803,176 | |||||||||||||||
|
Long-term debt, less current portion
(g)
|
1,407 | 1,797 | 57,351 | 2,808 | 10,739 | |||||||||||||||
|
Stockholders’ equity
|
733,203 | 610,130 | 565,337 | 598,904 | 477,698 | |||||||||||||||
14
Table of Contents
| (a) |
In fiscal 2006, we adopted new accounting guidance for share-based compensation which
lowered income before income taxes by $12.1 million, $12.3 million, $10.6 million and $9.7
million for 2009, 2008, 2007 and 2006, respectively. Net income was lowered by $7.7 million,
$7.5 million, $6.6 million and $6.1 million for 2009, 2008, 2007 and 2006, respectively.
|
|
| (b) |
Basic net income per share is calculated based on the weighted average number of common shares outstanding applied to net income. Diluted
net income per
share is calculated
using the treasury
stock method for
options and
warrants.
|
|
| (c) |
Reflects remodelings costing more than $150,000.
|
|
| (d) |
Includes assets acquired through capital leases.
|
|
| (e) |
Same-store sales increases (decreases) are calculated on an annual basis, including
relocations in 2009 and 2008 and excluding relocations in 2007, 2006 and 2005, using all
stores open at least one year.
|
|
| (f) |
Average sales per store is calculated based on the weighted average number of days open in
the applicable period.
|
|
| (g) |
Long-term debt includes borrowings under the Company’s revolving credit agreement and amounts
outstanding under its capital lease obligations, excluding the current portion.
|
15
Table of Contents
| Item 7 . |
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
|
Overview
Tractor Supply Company is the largest operator of retail farm and ranch stores in the United States
and is focused on supplying the lifestyle needs of recreational farmers and ranchers and of those
who enjoy the rural lifestyle, as well as tradesmen and small businesses. We operate retail stores
under the names
Tractor Supply Company
and
Del’s Farm Supply
and operate a website under the name
TractorSupply.com
. Our stores are located in towns outlying major metropolitan markets and in rural
communities, and they offer the following comprehensive selection of merchandise:
| • |
Equine, pet and small animal products, including items necessary for their health, care,
growth and containment;
|
| • |
Hardware and seasonal products, including lawn and garden power equipment;
|
| • |
Truck, towing and tool products;
|
| • |
Work/recreational clothing and footwear for the entire family;
|
| • |
Maintenance products for agricultural and rural use; and
|
| • |
Home décor, candy, snack food and toys.
|
Our Tractor Supply stores typically range in size from 15,500 square feet to 18,500 square feet of
inside selling space and additional outside selling space. We use a standard 15,500 square foot
prototype for new purpose-built locations. For new existing buildings, one of several layout
formats is utilized.
Our wholly-owned subsidiary, Del’s, which operated 27 stores as of December 26, 2009 in Washington,
Oregon, Idaho and Hawaii, offers a wide selection of products (primarily in the equine, pet and
animal category) tailored to those who enjoy the rural lifestyle. Del’s stores currently range in
size from approximately 2,000 to 6,000 square feet of inside selling space plus additional outside
and covered/sheltered selling space.
Our current and long-term growth strategy is to (1) expand geographic market presence through
opening new retail stores, (2) enhance financial performance through same-store sales increases,
achieved through targeted merchandising programs with an “everyday value prices” philosophy and
supported by strong customer service, (3) enhance product margin through assortment management,
vendor management, sourcing and optimization of transportation and distribution costs, (4)
leverage operating costs, especially advertising, distribution and corporate overhead, (5) expand
market opportunities via internet sales, and (6) expand through selective acquisition, as such
opportunities arise, to enhance penetration into new and existing markets as a complimentary
strategy to organic growth.
We have experienced considerable sales growth over the last five years, with a compounded annual
growth rate of approximately 13.0%. We project an increase of 70 to 80 new stores in 2010, an
increase of approximately 8%. We opened 76 new stores in 2009 and 91 new stores in 2008, an
increase of approximately 9% and 12%, respectively.
We operated 930 retail farm and ranch stores in 44 states as of December 26, 2009 and have plans to
open 70 to 80 stores in fiscal 2010. We have developed a proven method for selecting store sites
and have identified over 850 potential additional markets for new Tractor Supply stores (excluding
Del’s) in the United States. The acquisition of Del’s enabled us to establish an initial presence
in the Pacific Northwest, primarily in Washington, along with three stores in Hawaii. We have
slowed the growth of Del’s as we refine the concept, and we do not plan to open any additional
Del’s stores in fiscal 2010.
The average cash investment for new leased stores opened in 2009 was $1.3 million for retrofit
stores and $1.0 million for prototype stores. A majority of the cash outlay was for initial
acquisition of inventory and capital expenditures (principally leasehold improvements, fixtures and
equipment), and approximately $102,000 for pre-opening costs.
We have placed significant emphasis on our merchandising programs, evaluating the sales and
profitability of our products through detailed line reviews, review of vendor performance measures
and modification of the overall product offerings. We believe these efforts, coupled with a strong
marketing program and in-depth product knowledge training of our store team members, have enhanced
our sales and financial performance.
16
Table of Contents
Seasonality and Weather
Our business is highly seasonal. Historically, our sales and profits have been the highest in the
second and fourth fiscal quarters of each year due to the sale of seasonal products. Unseasonable
weather, excessive precipitation, drought, and early or late frosts may also affect our sales. We
believe, however, that the impact of extreme weather conditions is somewhat mitigated by the
geographic dispersion of our stores.
We experience our highest inventory and accounts payable levels during our first fiscal quarter
each year for purchases of seasonal product in anticipation of the spring selling season and again
during our third fiscal quarter in anticipation of the winter selling season.
Purchase Price Volatility
Although we cannot determine the full effect of inflation and deflation on our operations, we
believe our sales and results of operations are affected by both. We are subject to market risk
with respect to the pricing of certain products and services, which include, among other items,
steel, grain, petroleum, corn, soybean and other commodities as well as transportation services.
Therefore, we may experience both inflationary and deflationary pressure on product cost, which may
impact consumer demand and, as a result, sales and gross margin. Additionally, significant
inflationary pressures could have an adverse affect on our last-in, first-out (LIFO) inventory
provision, which would negatively impact gross margin. Our strategy is to reduce or mitigate the
effects of purchase price volatility principally by taking advantage of vendor incentive programs,
economies of scale from increased volume of purchases, adjusting retail prices and selectively
buying from the most competitive vendors without sacrificing quality. Due to the competitive
environment, such conditions have and may continue to adversely impact our financial performance.
Significant Accounting Policies and Estimates
Management’s discussion and analysis of our financial position and results of operations are based
upon our consolidated financial statements, which have been prepared in accordance with United
States generally accepted accounting principles. The preparation of these financial statements
requires management to make informed estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and related disclosure of contingent assets and
liabilities. Our financial position and/or results of operations may be materially different when
reported under different conditions or when using different assumptions in the application of such
policies. In the event estimates or assumptions prove to be different from actual amounts,
adjustments are made in subsequent periods to reflect more current information. Our significant
accounting policies are disclosed in Note 1 to our Consolidated Financial Statements. The
following discussion addresses our most critical accounting policies, which are those that are both
important to the portrayal of our financial condition and results of operations and that require
significant judgment or use of complex estimates.
17
Table of Contents
| Effect if Actual Results Differ From | ||||
| Description | Judgments and Uncertainties | Assumptions | ||
|
|
||||
|
Revenue Recognition and
Sales Returns:
|
||||
|
We recognize revenue
at the time the
customer takes
possession of
merchandise or
receives services.
If we receive payment
before the customer
has taken possession
of the merchandise
(as per our special
order and layaway
programs), the
revenue is deferred
until the sale is
complete. Revenues
from the sale of gift
cards are deferred
and recognized when:
(i) the gift card or
merchandise return
card is redeemed by
the customer; (ii)
the likelihood of the
gift card being
redeemed by the
customer is remote
(referred to as
“breakage”); or (iii)
the unredeemed
merchandise returns
cards expire (one
year from issuance).
|
We estimate a liability
for sales returns based on
a one-year rolling average
of historical return
trends, and we believe
that our estimate for
sales returns is an
accurate reflection of
future returns associated
with past sales. Our
estimation methodologies
have been consistently
applied from year to year;
however, as with any
estimate, refund activity
may vary from estimated
amounts.
The gift card breakage rate is based upon historical redemption patterns and a benefit is recognized for unredeemed gift cards in proportion to those historical redemption patterns. |
We have not made
any material
changes in the
accounting
methodology used to
recognize sales
returns in the
financial periods
presented.
We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate sales returns or gift card breakage. However, if actual consumer return or gift card redemption patterns are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material. A 50 basis point change in our sales return rate at December 26, 2009, would have affected net earnings by approximately $170,000 in fiscal 2009. A 50 basis point change in our gift card breakage rate would have affected net earnings by approximately $250,000 in fiscal 2009. |
||
|
|
||||
|
Inventory Valuation:
|
||||
|
Impairment Risk
|
||||
|
We identify
potentially excess
and slow-moving
inventory by
evaluating turn
rates, historical and
expected future sales
trends, age of
merchandise, overall
inventory levels,
current cost of
inventory and other
benchmarks. The
estimated inventory
valuation reserve to
recognize any
impairment in value
(i.e., an inability
to realize the full
carrying value) is
based on our
aggregate assessment
of these valuation
indicators under
prevailing market
conditions and
current merchandising
strategies.
|
We do not believe our
merchandise inventories
are subject to significant
risk of obsolescence in
the near term. However,
changes in market
conditions or consumer
purchasing patterns could
result in the need for
additional reserves.
Our impairment reserve contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding forecasted customer demand, and the promotional environment. |
We have not made
any material
changes in the
accounting
methodology used to
recognize
impairment reserves
in the financial
periods presented.
We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate impairment. However, if assumptions regarding consumer demand or clearance potential for certain products are inaccurate, we may be exposed to losses or gains that could be material. A 10% change in our impairment reserve at December 26, 2009, would have affected net earnings by approximately $545,000 in fiscal 2009. |
||
|
|
18
Table of Contents
| Effect if Actual Results Differ From | ||||
| Description | Judgments and Uncertainties | Assumptions | ||
|
|
||||
|
Shrinkage
|
||||
|
We perform physical
inventories at each
store at least once a
year, and we have
established reserves
for estimating
inventory shrinkage
between physical
inventory counts.
The reserve is
established by
assessing the
chain-wide average
shrinkage experience
rate, applied to the
related periods’
sales volumes. Such
assessments are
updated on a regular
basis for the most
recent individual
store experiences.
|
The estimated store
inventory shrink rate is
based on historical
experience. We believe
historical rates are a
reasonably accurate
reflection of future
trends.
Our shrinkage reserve contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding future shrinkage trends and the effect of loss prevention measures and new merchandising strategies. |
We have not made
any material
changes in the
methodology used to
recognize shrinkage
in the financial
periods presented.
We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our shrinkage reserve. However, if our estimates regarding inventory losses are inaccurate, we may be exposed to losses or gains that could be material. A 10% change in our shrinkage reserve at December 26, 2009, would have affected net earnings by approximately $835,000 in fiscal 2009. |
||
|
|
||||
|
Vendor Support
|
||||
|
We receive funding
from substantially
all of our
significant
merchandise vendors
for the promotion of
our brand as well as
the sale of their
products through a
variety of programs
and arrangements,
including guaranteed
funding and volume
rebate programs. The
amounts received are
subject to terms of
vendor agreements,
which have varying
expiration dates
ranging in duration
from several months
to a few years.
Many agreements are
negotiated annually
and are based on
expected annual
purchases of the
vendor’s product.
Vendor funding is
initially deferred as
a reduction of the
purchase price of
inventory and then
recognized as a
reduction of cost of
merchandise as the
related inventory is
sold. During the
interim periods, the
amount of expected
funding is estimated
based upon initial
guaranteed
commitments, as well
as anticipated
purchase levels with
applicable vendors.
|
The estimated purchase
volume and related vendor
funding is based on our
current knowledge of
inventory levels, sales
trends and expected
customer demand, as well
as planned new store
openings and relocations.
Although we believe we can
reasonably estimate
purchase volume and
related vendor funding at
interim periods, it is
possible that actual
year-end results could
significantly differ from
previously estimated
amounts.
Our allocation methodology contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding customer demand, purchasing activity, target thresholds, vendor attrition and collectibility. |
At the end of each
fiscal year, a
significant portion
of the actual
purchase activity
is known. Thus, we
do not believe
there is a
reasonable
likelihood that
there will be a
material change in
the amounts
recorded as vendor
support.
We do not believe there is a significant collectibility risk related to vendor support amounts due us at the end of fiscal 2009. If a 10% reserve had been applied against our outstanding vendor support due as of December 26, 2009, net earnings would have been affected by approximately $1.1 million. Although it is unlikely that there will be any significant reduction in historical levels of vendor support, if such a reduction were to occur in future periods, the Company could experience a higher inventory balance and higher cost of sales. |
||
|
|
||||
|
Freight
|
||||
|
We incur various
types of
transportation and
delivery costs in
connection with
inventory purchases
and distribution.
Such costs are
included as a
component of the
overall cost of
inventories (on an
aggregate basis) and
recognized as a
component of cost of
merchandise sold as
the related inventory
is sold.
|
We allocate freight as a
component of total cost of
sales without regard to
inventory mix or unique
freight burden of certain
categories. This
assumption has been
consistently applied for
all years presented.
|
If a 10% increase
or decrease had
been applied
against our current
inventory
capitalized freight
balance, net
earnings would have
been affected by
approximately
$2.9 million.
|
19
Table of Contents
| Effect if Actual Results Differ From | ||||
| Description | Judgments and Uncertainties | Assumptions | ||
|
|
||||
|
Share-Based Compensation:
|
||||
|
We have share-based
compensation plans,
which includes
incentive and
non-qualified stock
options, restricted
stock units, and an
employee stock
purchase plan. See
Note 1, Significant
Accounting Policies,
and Note 2,
Share-Based
Compensation, to the
Notes to Consolidated
Financial Statements,
included in Item 8,
Financial Statements
and Supplementary
Data, of this Annual
Report on Form 10-K,
for a complete
discussion of our
share-based
compensation
programs.
We estimate the fair value of our stock option awards at the date of grant utilizing a Black-Scholes option pricing model. We estimate the fair value of our market-based restricted stock units at the date of grant utilizing average market price of our stock on the date of the related award. |
Option-pricing models and
generally accepted
valuation techniques
require management to make
subjective assumptions and
to apply judgment to
determine the fair value
of our awards. These
assumptions and judgments
include estimating the
future volatility of our
stock price, expected
dividend yield, future
employee turnover rates
and future employee stock
option exercise behaviors.
In addition to the key
assumptions used to
estimate the fair value,
the estimated forfeiture
rate of the awarded
options is a critical
assumption, as it reduces
expense ratably over the
vesting period. Changes
in these assumptions can
materially affect the fair
value estimate.
|
While we update our
assumptions
annually, we do not
believe there is a
reasonable
likelihood that
there will be a
material change in
the future
estimates or
assumptions we use
to determine
share-based
compensation
expense. However,
if actual results
are not consistent
with our estimates
or assumptions, we
may be exposed to
changes in
share-based
compensation
expense that could
be material. The
reported
share-based
compensation
expense may not be
representative of
the actual economic
cost of the
share-based
compensation.
A 10% change in our stock-based compensation expense for the year ended December 26, 2009, would have affected net earnings by approximately $765,000. |
||
|
|
||||
|
Self-Insurance Reserves:
|
||||
|
We self-insure a
significant portion
of our employee
medical insurance,
workers’ compensation
and general liability
insurance plans. We
have stop-loss
insurance policies to
protect from
individual losses
over specified dollar
values.
When estimating our self-insured liabilities, we consider a number of factors, including historical claims experience, demographic factors and severity factors. |
The full extent of certain
claims, especially
workers’ compensation and
general liability claims,
may not become fully
determined for several
years.
Our self-insured liabilities contain uncertainties because management is required to make assumptions and to apply judgment to estimate the ultimate cost to settle reported claims and claims incurred but not reported as of the balance sheet date. |
We have not made
any material
changes in the
accounting
methodology used to
establish our
self-insurance
reserves in the
financial periods
presented.
We do not believe there is a reasonable likelihood that there will be a material change in the assumptions we use to calculate insurance reserves. However, if we experience a significant increase in the number of claims or the cost associated with these claims, we may be exposed to losses that could be material. A 10% change in our self-insurance reserves at December 26, 2009, would have affected net earnings by approximately $1.5 million in fiscal 2009. |
20
Table of Contents
| Effect if Actual Results Differ From | ||||
| Description | Judgments and Uncertainties | Assumptions | ||
|
|
||||
|
Sales Tax Audit Reserve:
|
||||
|
A portion of our
sales are to
tax-exempt customers.
We obtain exemption
information as a
necessary part of
each tax-exempt
transaction. Many of
the states in which
we conduct business
will perform audits
to verify our
compliance with
applicable sales tax
laws. The business
activities of our
customers and the
intended use of the
unique products sold
by us create a
challenging and
complex compliance
environment. These
circumstances also
create some risk that
we could be
challenged as to the
propriety of our
sales tax compliance.
While we believe we reasonably enforce sales tax compliance with our customers and endeavor to fully comply with all applicable sales tax regulations, there can be no assurance that we, upon final completion of such audits, would not have a significant liability for disallowed exemptions. |
We review our past audit
experience and assessments
with applicable states to
determine if we have
potential exposure for
non-compliance. Any
estimated liability is
based on an initial
assessment of compliance
risk and our to-date
experience with each
audit. As each audit
progresses, we quantify
the exposure based on
preliminary assessments
made by the state
auditors, adjusted for
additional documentation
that may be provided to
reduce the assessment.
Our sales tax audit reserve contains uncertainties because management is required to make assumptions and to apply judgment regarding the regulatory support for the complexity of agricultural-based exemptions, the ambiguity in state tax regulations, the number of ongoing audits, and the length of time required to settle with the state taxing authorities. |
We have not made
any material
changes in the
methodology used to
establish the sales
tax audit reserve
in the financial
periods presented.
We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate the sales tax liability reserve for current audits. However, if our estimates regarding the ultimate sales tax liability are inaccurate, we may be exposed to losses or gains that could be material. A 10% change in our sales tax liability reserve at December 26, 2009, would have affected net earnings by approximately $330,000 in fiscal 2009. |
||
|
|
||||
|
Tax Contingencies:
|
||||
|
Our income tax
returns are
periodically audited
by U.S. federal and
state tax
authorities. These
audits include
questions regarding
our tax filing
positions, including
the timing and amount
of deductions and the
allocation of income
among various tax
jurisdictions. At any
time, multiple tax
years are subject to
audit by the various
tax authorities. In
evaluating the
exposures associated
with our various tax
filing positions, we
record reserves for
probable exposures. A
number of years may
elapse before a
particular matter,
for which we have
established a
reserve, is audited
and fully resolved or
clarified. We adjust
our tax contingencies
reserve and income
tax provision in the
period in which
actual results of a
settlement with tax
authorities differs
from our established
reserve, the statute
of limitations
expires for the
relevant tax
authority to examine
the tax position or
when more information
becomes available.
We recognize a liability for certain tax benefits that do not meet the minimum requirements for recognition in the financial statements. |
Our tax contingencies
reserve contains
uncertainties because
management is required to
make assumptions and to
apply judgment to estimate
the exposures associated
with our various filing
positions and whether or
not the minimum
requirements for
recognition of tax
benefits have been met.
Our effective income tax rate is also affected by changes in tax law, the tax jurisdiction of new stores or business ventures, the level of earnings and the results of tax audits. |
We do not believe
there is a
reasonable
likelihood that
there will be a
material change in
the reserves
established for tax
benefits not
recognized.
Although management believes that the judgments and estimates discussed herein are reasonable, actual results could differ, and we may be exposed to losses or gains that could be material. To the extent we prevail in matters for which reserves have been established, or are required to pay amounts in excess of our reserves, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement would require use of our cash and would result in an increase in our effective income tax rate in the period of resolution. A favorable tax settlement would be recognized as a reduction in our effective income tax rate in the period of resolution. A 10% change in our unrecognized tax benefit reserve at December 26, 2009 would have affected net earnings by approximately $290,000 in fiscal 2009. |
21
Table of Contents
| Effect if Actual Results Differ From | ||||
| Description | Judgments and Uncertainties | Assumptions | ||
|
|
||||
|
Goodwill:
|
||||
|
Goodwill and
intangible assets
with indefinite lives
are not amortized.
We evaluate goodwill
for impairment
annually and whenever
events or changes in
circumstances
indicate the carrying
value of the goodwill
may not be
recoverable. We
complete our
impairment evaluation
by performing
internal valuation
analyses, considering
other publicly
available market
information and using
an independent
valuation firm, as
appropriate. All
goodwill at
December 26, 2009 and
December 27, 2008 is
associated with the
Del’s business and
for purposes of
impairment testing,
Del’s is considered
the reporting unit.
The test for goodwill impairment is a two step process. The first step of the goodwill impairment test, used to identify the potential for impairment, compares the fair value of a reporting unit with the carrying value of its net assets, including goodwill. If the fair value of the reporting unit is less than the carrying value of the reporting unit, the second step of the goodwill impairment test is performed to measure the amount of impairment loss to be recorded, if any. The second step, if required, would compare the implied fair value of goodwill with the current carrying amount of goodwill. If the implied fair value of goodwill is less than the carrying value, an impairment charge would be recorded as a charge to our operations. In the fourth quarter of fiscal 2009, we completed our annual impairment testing of goodwill using the methodology described herein, and determined there was no impairment. We determined that the fair value of the Del’s reporting unit (including goodwill) was in excess of the carrying value of the reporting unit and as such, the second step was not necessary. In reaching this conclusion, the fair value of the Del’s reporting unit was determined based on a weighting of income and market approaches. Under the income approach, the fair value of the Del’s reporting unit is calculated as the present value of estimated future cash flows. Under the market approach, the fair value is based on observed market multiples for comparable businesses and guideline transactions. |
We determine fair value
using widely accepted
valuation techniques,
including discounted cash
flow and market multiple
analyses. These types of
analyses contain
uncertainties because they
require management to make
assumptions and to apply
judgment to estimate
industry economic factors
and the profitability of
future business
strategies. Estimates
include revenues, gross
margins, operating costs
and cash flows. We
considered historical and
estimated future results,
economic and market
conditions and the impact
of planned business and
operational strategies in
deriving these estimates.
|
We have not made
any material
changes in our
impairment loss
assessment
methodology in the
financial periods
presented.
In developing the key judgments and assumptions used to assess impairment, we consider economic, operational and market conditions that could impact the fair value of the Del’s reporting unit. These estimates and the judgments and assumptions upon which the estimates are based may differ in some respects from actual results. Should a significant or prolonged deterioration in economic conditions persist, then key judgments and assumptions may be impacted. At December 26, 2009, the fair value of the Del’s reporting unit exceeded the carrying value of its net assets by approximately $100,000. Thus, if actual results are not consistent with our current estimates or assumptions, we may be exposed to an impairment charge that could be material. |
22
Table of Contents
| Effect if Actual Results Differ From | ||||
| Description | Judgments and Uncertainties | Assumptions | ||
|
|
||||
|
Long-Lived Assets:
|
||||
|
Long-lived assets
other than goodwill
and indefinite-lived
intangible assets,
which are separately
tested for
impairment, are
evaluated for
impairment whenever
events or changes in
circumstances
indicate that the
carrying value may
not be recoverable.
When evaluating long-lived assets for potential impairment, we first compare the carrying value of the asset to the asset’s estimated future cash flows (undiscounted and without interest charges). The evaluation for long-lived assets is performed at the lowest level of identifiable cash flows, which is generally the individual store level. The significant assumptions used to determine estimated undiscounted cash flows include cash inflows and outflows directly resulting from the use of those assets in operations, including margin on net sales, payroll and related items, occupancy costs, insurance allocations and other costs to operate a store. If the estimated future cash flows are less than the carrying value of the asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to the asset’s estimated fair value, which may be based on an estimated future cash flow model. We recognize an impairment loss if the amount of the asset’s carrying value exceeds the asset’s estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated (amortized) over the remaining useful life of that asset. |
Our impairment loss
calculations contain
uncertainties because they
require management to make
assumptions and to apply
judgment to estimate
future cash flows and
asset fair values,
including forecasting
useful lives of the assets
and selecting the discount
rate that reflects the
risk inherent in future
cash flows.
|
We have not made
any material
changes in our
impairment loss
assessment
methodology in the
financial periods
presented.
We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses. None of these estimates and assumptions are significantly sensitive, and a 10% change in any of these estimates would not have a material impact on our analysis. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses that could be material. |
23
Table of Contents
Quarterly Financial Data
Our unaudited quarterly operating results for each fiscal quarter of 2009 and 2008 are shown below
(dollars in thousands, except per share amounts):
| First | Second | Third | Fourth | |||||||||||||||||
| Quarter | Quarter | Quarter | Quarter | Total | ||||||||||||||||
|
2009
|
||||||||||||||||||||
|
Net sales
|
$ | 650,171 | $ | 946,504 | $ | 747,730 | $ | 862,532 | $ | 3,206,937 | ||||||||||
|
Gross margin
|
201,036 | 302,198 | 246,038 | 285,685 | 1,034,957 | |||||||||||||||
|
Operating income
|
1,185 | 88,294 | 35,797 | 59,357 | 184,633 | |||||||||||||||
|
Net income
|
470 | 54,764 | 21,979 | 38,253 | 115,466 | |||||||||||||||
|
|
||||||||||||||||||||
|
Net income per share:
(1)
|
||||||||||||||||||||
|
Basic
|
$ | 0.01 | $ | 1.53 | $ | 0.61 | $ | 1.06 | $ | 3.21 | ||||||||||
|
Diluted
|
$ | 0.01 | $ | 1.50 | $ | 0.60 | $ | 1.04 | $ | 3.15 | ||||||||||
|
|
||||||||||||||||||||
|
Same-store sales increase (decrease)
|
4.2 | % | (2.7 | %) | (5.1 | %) | 0.7 | % | (1.1 | %) | ||||||||||
|
|
||||||||||||||||||||
|
2008
|
||||||||||||||||||||
|
Net sales
|
$ | 576,208 | $ | 898,327 | $ | 733,918 | $ | 799,496 | $ | 3,007,949 | ||||||||||
|
Gross margin
|
175,516 | 273,509 | 218,196 | 245,040 | 912,261 | |||||||||||||||
|
Operating income (loss)
|
(2,041 | ) | 71,158 | 26,077 | 40,375 | 135,569 | ||||||||||||||
|
Net income (loss)
|
(2,004 | ) | 43,352 | 15,870 | 24,712 | 81,930 | ||||||||||||||
|
|
||||||||||||||||||||
|
Net income (loss) per share:
(1)
|
||||||||||||||||||||
|
Basic
|
$ | (0.05 | ) | $ | 1.17 | $ | 0.44 | $ | 0.68 | $ | 2.22 | |||||||||
|
Diluted
|
$ | (0.05 | ) | $ | 1.15 | $ | 0.43 | $ | 0.67 | $ | 2.19 | |||||||||
|
|
||||||||||||||||||||
|
Same-store sales increase (decrease)
|
(6.5 | %) | 3.4 | % | 6.2 | % | 1.3 | % | 1.4 | % | ||||||||||
| (1) |
Due to the nature of interim earnings per share calculations, the sum of quarterly earnings per share amounts may not
equal the reported earnings per share for the year.
|
24
Table of Contents
Results of Operations
Our fiscal year includes 52 or 53 weeks and ends on the last Saturday of the calendar year.
References to fiscal year mean the year in which that fiscal year ended. The fiscal years ended
December 26, 2009, December 27, 2008 and December 29, 2007 contain 52 weeks.
The following table sets forth, for the periods indicated, certain items in our Consolidated
Statements of Income expressed as a percentage of net sales.
| 2009 | 2008 | 2007 | ||||||||||
|
Net sales
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
Cost of merchandise sold
(a)
|
67.7 | 69.7 | 68.5 | |||||||||
|
|
||||||||||||
|
Gross margin
(a)
|
32.3 | 30.3 | 31.5 | |||||||||
|
Selling, general and administrative expenses
(a)
|
24.4 | 23.8 | 23.7 | |||||||||
|
Depreciation and amortization
|
2.1 | 2.0 | 1.9 | |||||||||
|
|
||||||||||||
|
Operating income
|
5.8 | 4.5 | 5.9 | |||||||||
|
Interest expense, net
|
0.1 | 0.1 | 0.2 | |||||||||
|
|
||||||||||||
|
Income before income taxes
|
5.7 | 4.4 | 5.7 | |||||||||
|
Income tax provision
|
2.1 | 1.7 | 2.1 | |||||||||
|
|
||||||||||||
|
Net income
|
3.6 | % | 2.7 | % | 3.6 | % | ||||||
|
|
||||||||||||
| (a) |
Our gross margin amounts may not be comparable to those of other retailers since some retailers
include all of the costs related to their distribution network in cost of merchandise sold and others like us
exclude a portion of these distribution network costs from gross margin and instead include them in selling,
general and administrative (“SG&A”) expenses; refer to Note 1 – Significant Accounting Policies, of the Notes to
Consolidated Financial Statements, included in Item 8 Financial Statements and Supplementary Data, of this Annual
Report on Form 10-K.
|
Fiscal 2009 Compared to Fiscal 2008
Net sales increased 6.6% to $3.21 billion in fiscal 2009 from $3.01 billion in fiscal 2008. This
increase resulted from the opening of new stores partially offset by a 1.1% decrease in same-store
sales. The same-store average daily transaction count increased 5.3%, while same-store transaction
value decreased 6.0% for fiscal 2009.
Same-store sales decreased 1.1% compared with a same-store sales increase of 1.4% in the prior
year. This same-store sales decline was primarily driven by softness in sales of seasonal big
ticket (merchandise priced $350 or greater) and discretionary merchandise, partially offset by
continued strong results in core consumable categories, including animal and pet-related products.
In fiscal 2009, we opened 76 new stores (compared to 91 new stores in fiscal 2008), relocated two
stores (compared to one in fiscal 2008) and closed one store (compared to no stores in fiscal
2008).
Gross margin increased 13.4% to $1,035.0 million compared to $912.3 million in 2008. As a percent
of sales, gross margin increased to 32.3% for fiscal 2009 compared to 30.3% for fiscal 2008. The
increase in gross margin resulted primarily from a substantial decrease in the LIFO provision and
lower transportation costs.
The LIFO charge decreased by $35.9 million to $6.9 million in fiscal 2009 compared to $42.8 million
in fiscal 2008. The decrease is due to an overall decline in the rate of inflation and cost
reductions in certain product categories. Even as inflation moderates and inventory per store
declines, we continue to generate a LIFO charge as we add merchandise that has higher inflation
indices than the existing Company average.
As a percent of sales, SG&A expenses increased 60 basis points to 24.4% in fiscal 2009 from 23.8%
in fiscal 2008. This increase as a percent of sales was primarily attributable to the deleveraging
related to the same-store sales decrease and higher incentive compensation and occupancy costs,
partially offset by reduced marketing costs. Depreciation and amortization expense increased 10
basis points as a percent of sales in fiscal 2009 over fiscal 2008 due mainly to costs associated
with new stores.
25
Table of Contents
Net interest expense decreased 22.9% to $1.6 million in fiscal 2009 from $2.1 million in fiscal
2008; however, net interest expense remained consistent as a percent of sales. This decrease is
directly related to lower average borrowings partially offset by higher interest charges associated
with sales tax audits.
Our effective tax rate decreased to 36.9% for fiscal 2009 compared to 38.6% in fiscal 2008. This
reduction in the tax resulted from the favorable impact of certain federal tax credits and a lower
percentage of unfavorable permanent tax differences relative to income before taxes.
As a result of the foregoing factors, net income for fiscal 2009 increased 40.9% to $115.5 million,
or $3.15 per diluted share, as compared to net income of $81.9 million, or $2.19 per diluted share,
in fiscal 2008.
During 2009, we repurchased approximately 0.4 million shares of stock for $15.3 million as part of
our previously announced $400 million share repurchase program. In 2008, we repurchased
approximately 1.6 million shares at a total cost of $53.9 million.
Fiscal 2008 Compared to Fiscal 2007
Net sales increased 11.3% to $3,007.9 million in fiscal 2008 from $2,703.2 million in fiscal 2007.
This increase resulted from the opening of new stores as well as a same-store sales improvement of
1.4%. The same-store average daily transaction count increased 0.1%, while same-store transaction
value increased 1.3% for fiscal 2008.
Same-store sales improvements of 1.4% compared to 3.4% in the prior year were strongest in core
consumable categories including animal and pet-related products, clothing and footwear.
In fiscal 2008, we opened 91 new stores (compared to 89 new stores in fiscal 2007), relocated one
store (compared to 12 in fiscal 2007) and closed no stores (compared to selling our only Del’s
store located in Canada in fiscal 2007).
Gross margin increased 7.0% to $912.3 million compared to $852.7 million in 2007. As a percent of
sales, gross margin decreased to 30.3% for fiscal 2008 compared to 31.5% for fiscal 2007. The
decrease in gross margin resulted primarily from a substantial increase in the LIFO provision. The
LIFO provision increased by $37.6 million to $42.8 million in fiscal 2008 compared to $5.2 million
in fiscal 2007. The increase is due to significant inflation (increases in costs for certain
commodities, petroleum-based products and steel), a shift in the product mix towards higher
turning, higher inflationary items and clearance activity.
As a percent of sales, SG&A expenses increased 10 basis points to 23.8% in fiscal 2008 from 23.7%
in fiscal 2007. This increase was due largely to occupancy and payroll expenses relating to new
stores, which generally have higher costs in relation to sales volume than the chain average,
offset by an aggressive expense management program. Depreciation and amortization expense
increased 18.9% in fiscal 2008 over fiscal 2007 due mainly to costs associated with new stores.
Net interest expense decreased 10 basis points as a percent of sales to $2.1 million in fiscal 2008
from $5.0 million in fiscal 2007. This decrease is directly related to a lower average debt
balance primarily due to a reduction in stock repurchase activity in 2008, as compared to 2007.
Our effective tax rate increased to 38.6% for fiscal 2008 compared to 37.9% in fiscal 2007,
resulting primarily from increases in state tax rates.
As a result of the foregoing factors, net income for fiscal 2008 decreased 14.9% to $81.9 million,
or $2.19 per diluted share, as compared to net income of $96.2 million, or $2.40 per diluted share,
in fiscal 2007.
During 2008, we repurchased approximately 1.6 million shares of stock for $53.9 million as part of
our previously announced $400 million share repurchase program. In 2007, we repurchased
approximately 3.2 million shares at a total cost of $150.0 million.
26
Table of Contents
Liquidity and Capital Resources
In addition to normal operating expenses, our primary ongoing cash requirements are for expansion,
remodeling and relocation programs, including inventory purchases and capital expenditures. Our
primary ongoing sources of liquidity are existing cash balances, funds provided from operations,
commitments available under our revolving credit
agreement, capital and operating leases and normal trade credit. Our inventory and accounts
payable levels typically build in the first and third fiscal quarters in anticipation of the spring
and winter selling seasons, respectively.
Financial markets experienced extreme volatility in 2008 and 2009 amid negative developments in
housing and mortgage-related activities, weakness of major financial institutions, governmental
actions, and negative economic developments. These conditions have resulted in disruptions in
credit and lending activities.
Disruptions in the capital and credit markets could adversely affect the ability of the banks to
meet their commitments. Our access to funds under the credit facility is dependent on the ability
of the banks that are parties to the facility to meet their funding commitments. Those banks may
not be able to meet their funding commitments to us if they experience shortages of capital and
liquidity or if they experience excessive volumes of borrowing requests within a short period of
time. We have experienced no inability by our banks to meet borrowing requests. We have a
diversified banking group which we believe should help mitigate any potential disruptions, if one
occurs.
Working Capital
At December 26, 2009, we had working capital of $415.7 million, a $132.5 million increase from
December 27, 2008. This increase was primarily attributable to changes in the following components
of current assets and current liabilities (in millions):
| 2009 | 2008 | Variance | ||||||||||
|
Current assets:
|
||||||||||||
|
Cash and cash equivalents
|
$ | 172.9 | $ | 37.0 | $ | 135.9 | ||||||
|
Inventories
|
601.2 | 603.4 | (2.2 | ) | ||||||||
|
Prepaid expenses and other current assets
|
42.3 | 41.9 | 0.4 | |||||||||
|
Deferred income taxes
|
17.9 | 1.7 | 16.2 | |||||||||
|
|
||||||||||||
|
|
834.3 | 684.0 | 150.3 | |||||||||
|
|
||||||||||||
|
Current liabilities:
|
||||||||||||
|
Accounts payable
|
$ | 273.2 | $ | 286.8 | $ | (13.6 | ) | |||||
|
Accrued expenses
|
137.4 | 113.5 | 23.9 | |||||||||
|
Income taxes payable
|
7.6 | — | 7.6 | |||||||||
|
Current portion of capital lease obligation
|
0.4 | 0.5 | (0.1 | ) | ||||||||
|
|
||||||||||||
|
|
418.6 | 400.8 | 17.8 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Working capital
|
$ | 415.7 | $ | 283.2 | $ | 132.5 | ||||||
|
|
||||||||||||
In comparison to prior year end, working capital increased primarily as a result of an
increase in cash. The increase in cash resulted principally from stronger earnings, a decrease in
net repayments under the revolving credit agreement, reduced share repurchase activity, and a
decline in average inventory per store and capital expenditure activity. This was partially offset
by increased accrued expenses principally as a result of timing of payments and higher incentive
compensation accruals over the prior year.
We have aggressively managed inventory and reduced our average inventory per store due to planned
inventory management initiatives while improving our in stock levels. Accounts payable has also
declined as a result of more timely payments on accounts payable in order to capture payment
discounts offered by our vendors. Trade credit arises from our vendors granting payment terms for
inventory purchases. Payment terms generally vary from 30 days to 180 days depending on the
inventory product. Certain vendors offer payment discounts for payments made within a shorter
period, typically within 10 to 15 days.
Borrowings and Credit Facilities
We are party to a Senior Credit Facility with Bank of America, N.A., as agent for a lender group
(the “Credit Agreement”), which provides for borrowings up to $350 million (with sublimits of $75
million and $20 million for letters of credit and swingline loans, respectively). The Credit
Agreement has an Increase Option for $150 million (subject to additional lender group commitments).
The Credit Agreement is unsecured and matures in February 2012, with proceeds expected to be used
for working capital, capital expenditures and share repurchases.
27
Table of Contents
At December 26, 2009 and December 27, 2008, there were no outstanding borrowings under the Credit
Agreement. There were $35.2 million and $25.1 million outstanding letters of credit as of
December 26, 2009 and December 27, 2008, respectively. Borrowings bear interest at either the
bank’s base rate (3.25% at December 26, 2009) or the London
Inter-Bank Offer Rate (“LIBOR”) (0.23% at December 26, 2009) plus an additional amount ranging from
0.35% to 0.90% per annum, adjusted quarterly based on our performance (0.50% at December 26, 2009).
We are also required to pay, quarterly in arrears, a commitment fee ranging from 0.06% to 0.18%
per annum and adjusted quarterly based on our performance, for unused capacity (0.10% at December
26, 2009). There are no compensating balance requirements associated with the Credit Agreement.
The Credit Agreement requires quarterly compliance with respect to two material covenants: a fixed
charge coverage ratio and a leverage ratio. The fixed charge coverage ratio principally compares
earnings before interest, taxes, depreciation, amortization, stock compensation and rent expense
(“consolidated EBITDAR”) to the sum of interest paid and rental expense (excluding straight-line
rent). The leverage ratio principally compares total debt plus rental expense (excluding
straight-line rent) multiplied by a factor of six to consolidated EBITDAR. The Credit Agreement
also contains certain other restrictions regarding additional indebtedness, capital expenditures,
business operations, guarantees, investments, mergers, consolidations and sales of assets,
transactions with subsidiaries or affiliates, and liens. We were in compliance with all covenants
at December 26, 2009.
Sources and Uses of Cash
Our primary source of liquidity is cash provided by operations. Principal uses of cash for
investing activities are capital expenditures and financing activities are payments on debt and
repurchase of the Company’s common stock. The following table presents a summary of cash flows
from operating, investing and financing activities for the last three fiscal years (in millions):
| 2009 | 2008 | 2007 | ||||||||||
|
Net cash provided by operating activities
|
$ | 215.3 | $ | 217.7 | $ | 154.8 | ||||||
|
Net cash used in investing activities
|
(73.8 | ) | (88.4 | ) | (82.6 | ) | ||||||
|
Net cash used in financing activities
|
(5.6 | ) | (105.5 | ) | (85.1 | ) | ||||||
|
|
||||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
$ | 135.9 | $ | 23.8 | $ | (12.9 | ) | |||||
|
|
||||||||||||
Operating Activities
The $2.4 million decrease in net cash provided by operations in fiscal 2009 over fiscal 2008 is
primarily due to changes in the following operating activities (in millions):
| 2009 | 2008 | Variance | ||||||||||
|
Net income
|
$ | 115.5 | $ | 81.9 | $ | 33.6 | ||||||
|
Depreciation and amortization
|
66.3 | 60.7 | 5.6 | |||||||||
|
Stock compensation expense
|
12.1 | 12.3 | (0.2 | ) | ||||||||
|
Deferred income taxes
|
(13.6 | ) | 1.6 | (15.2 | ) | |||||||
|
Inventories and accounts payable
|
(11.4 | ) | 61.0 | (72.4 | ) | |||||||
|
Accrued expenses
|
23.9 | (2.1 | ) | 26.0 | ||||||||
|
Income taxes currently payable
|
7.6 | (5.9 | ) | 13.5 | ||||||||
|
Other, net
|
14.9 | 8.2 | 6.7 | |||||||||
|
|
||||||||||||
|
Net cash provided by operations
|
$ | 215.3 | $ | 217.7 | $ | (2.4 | ) | |||||
|
|
||||||||||||
Cash flow from operating activities continues to provide the primary source of our liquidity.
The decrease in net cash provided by operations in fiscal 2009 compared with fiscal 2008 was
primarily due to changes in inventory levels and the timing of payments. Inventory levels
decreased in 2009 compared to 2008 due to a continued focus on inventory management in 2009.
Accounts payable levels have decreased at a greater rate as a result of more timely payments to
capture payment discounts offered by vendors.
The $62.9 million increase in net cash provided by operations in fiscal 2008 over fiscal 2007 is
primarily due to changes in the following operating activities (in millions):
| 2008 | 2007 | Variance | ||||||||||
|
Net income
|
$ | 81.9 | $ | 96.2 | $ | (14.3 | ) | |||||
|
Depreciation and amortization
|
60.7 | 51.1 | 9.6 | |||||||||
|
Stock compensation expense
|
12.3 | 10.6 | 1.7 | |||||||||
|
Deferred income taxes
|
1.6 | 7.0 | (5.4 | ) | ||||||||
|
Inventories and accounts payable
|
61.0 | (11.9 | ) | 72.9 | ||||||||
|
Accrued expenses
|
(2.1 | ) | 4.3 | (6.4 | ) | |||||||
|
Income taxes currently payable
|
(5.9 | ) | (6.5 | ) | 0.6 | |||||||
|
Other, net
|
8.2 | 4.0 | 4.2 | |||||||||
|
|
||||||||||||
|
Net cash provided by operations
|
$ | 217.7 | $ | 154.8 | $ | 62.9 | ||||||
|
|
||||||||||||
28
Table of Contents
The improvement in net cash provided by operations in fiscal 2008 compared with fiscal 2007
was primarily due to changes in inventory levels and the timing of payments. Inventory levels
decreased in 2008 compared to 2007, due to an increased focus on inventory management.
Investing Activities
Investing activities used $73.8 million, $88.4 million and $82.6 million in fiscal 2009, 2008 and
2007, respectively. The majority of this cash requirement relates to our capital expenditures.
Our significant store expansion, coupled with required investment in infrastructure, resulted in
the following capital expenditures, including capital leases (in millions):
| 2009 | 2008 | 2007 | ||||||||||
|
New and relocated stores and stores not yet opened
|
$ | 31.7 | $ | 39.8 | $ | 38.1 | ||||||
|
Existing store properties acquired from lessor
|
— | 8.5 | 6.8 | |||||||||
|
Existing stores
|
18.4 | 10.0 | 18.3 | |||||||||
|
Distribution center capacity and improvements
|
4.3 | 16.2 | 3.3 | |||||||||
|
Information technology
|
17.6 | 17.2 | 17.4 | |||||||||
|
Corporate and other
|
2.0 | 0.1 | 0.1 | |||||||||
|
|
||||||||||||
|
|
$ | 74.0 | $ | 91.8 | $ | 84.0 | ||||||
|
|
||||||||||||
Our long-term growth strategy anticipates continued geographic market expansion and further
concentration within existing markets. This growth will also require continuing investment in
information technology. The costs reflected above are typically building improvements, as we lease
the majority of our facilities. We currently estimate that capital expenditures will range between
$90 million and $100 million in fiscal 2010. While we plan to open approximately the same number
of stores in 2010 compared to 2009, we expect to have additional capital expenditures next year
including a comprehensive warehouse management system designed to improve throughput and
efficiencies in the distribution center network and other efficiency-driving system enhancements in
2010.
Financing Activities
Financing activities used $5.6 million, $105.5 million, and $85.1 million in fiscal 2009, 2008 and
2007, respectively. The cash used by financing activities in fiscal 2009 is mainly the result of
share repurchase activity and borrowings and repayments under the Credit Agreement.
We have a Board-approved share repurchase program which provides for repurchase of up to $400
million of common stock, exclusive of any fees, commissions, or other expenses related to such
repurchases, through December 2011. The repurchases may be made from time to time on the open
market or in privately negotiated transactions. The timing and amount of any shares repurchased
under the program will depend on a variety of factors, including price, corporate and regulatory
requirements, capital availability, and other market conditions. Repurchased shares will be held
in treasury. The program may be limited or terminated at any time without prior notice. As of
December 26, 2009, we had remaining authorization under the share repurchase program of
$181.0 million exclusive of any fees, commissions, or other expenses.
We repurchased approximately 0.4 million, 1.6 million and 3.2 million shares for a total cost of
$15.3 million, $53.9 million and $150.0 million in fiscal 2009, 2008 and 2007, respectively.
Repurchased shares are accounted for at cost and will be held in treasury for future issuance.
We believe that our existing cash balances, expected cash flow from future operations, borrowings
available under the Credit Agreement, and normal trade credit will be sufficient to fund our
operations and our capital expenditure needs, including store openings, relocations and
renovations, over the next several years.
29
Table of Contents
Significant Contractual Obligations and Commercial Commitments
The following table reflects our future obligations and commitments as of December 26, 2009 (in
thousands):
| Payment Due by Period | ||||||||||||||||||||
| Total | ||||||||||||||||||||
| Contractual | Less than | More than | ||||||||||||||||||
| Obligations | 1 year | 1-3 years | 4-5 years | 5 years | ||||||||||||||||
|
Operating leases
|
$ | 1,484,979 | $ | 161,214 | $ | 311,229 | $ | 280,260 | $ | 732,276 | ||||||||||
|
Capital leases
(1)
|
3,242 | 526 | 352 | 292 | 2,072 | |||||||||||||||
|
Purchase obligations
(2)
|
2,683 | 2,683 | — | — | — | |||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 1,490,904 | $ | 164,423 | $ | 311,581 | $ | 280,552 | $ | 734,348 | ||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
| (1) |
Capital lease obligations include related interest.
|
|
| (2) |
The amounts for purchase obligations include commitments for construction of stores expected to be opened in fiscal 2010.
|
The Company had outstanding letters of credit of $35.2 million as of December 26, 2009.
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements consist of operating leases and outstanding letters of credit.
The balances for these arrangements are discussed above. We typically lease buildings for retail
stores and offices rather than acquiring these assets which allows us to utilize financial capital
to operate the business rather than invest in fixed assets. Letters of credit allow us to purchase
inventory, primarily sourced overseas, and support certain risk management programs in a timely
manner.
Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (“FASB”) modified FASB Accounting
Standards Codification (“ASC”) 805, Business Combinations (“Topic 805”). Previous guidance applied
only to business combinations in which control was obtained by transferring consideration; the
revised guidance applies to all transactions or other events in which one entity obtains control
over another. Topic 805 now defines the acquirer as the entity that obtains control over one or
more other businesses and defines the acquisition date as the date the acquirer achieves control.
It also requires the acquirer to recognize assets acquired, liabilities assumed and any
noncontrolling interest in the acquiree at their respective fair values as of the acquisition date.
The revised guidance changes the treatment of acquisition-related costs, restructuring costs
related to an acquisition that the acquirer expects but is not obligated to incur, contingent
consideration associated with the purchase price and preacquisition contingencies associated with
acquired assets and liabilities. Topic 805 retains the guidance for identifying and recognizing
intangible assets apart from goodwill. The revised guidance applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. We adopted this revised guidance
effective December 28, 2008 (fiscal 2009). Thus we are required to apply the revised guidance to
any business acquisition which occurs on or after December 28, 2008, but this modification had no
effect on prior acquisitions.
In April 2008, the FASB modified FASB ASC 350, Intangibles – Goodwill and Other, and FASB ASC 275,
Risks and Uncertainties, for factors that must be considered in developing renewal or extension
assumptions used to determine the useful life over which to amortize the cost of a recognized
intangible asset. The modification requires an entity to consider its own assumptions about
renewal or extension of the term of the arrangement, consistent with its expected use of the asset,
and is an attempt to improve consistency between the useful life of a recognized intangible asset
and the period of expected cash flows used to measure the fair value of the asset. We adopted the
guidance for determining the useful life of a recognized intangible asset effective December 28,
2008 (fiscal 2009), and the guidance is applied prospectively to intangible assets acquired after
the effective date. The guidance did not have an impact on our financial condition, results of
operations or cash flow.
On April 9, 2009, the FASB modified FASB ASC 825, Financial Instruments, and FASB ASC 270, Interim
Reporting, to extend the disclosure requirements related to the fair value of financial instruments
to interim financial statements of publicly traded companies. We adopted this guidance effective
June 27, 2009. This guidance did not have a significant impact on our financial condition, results
of operations or cash flow.
30
Table of Contents
In May 2009, the FASB modified FASB ASC 855, Subsequent Events, which establishes general standards
of accounting for and disclosure of events that occur after the balance sheet date but before
financial statements are issued and requires entities to disclose the date through which they have
evaluated subsequent events. We adopted this guidance effective June 27, 2009. The adoption of
this guidance did not have an impact on our financial condition, results of operations or cash
flows.
In June 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-01 Topic 105, Generally
Accepted Accounting Principles, which establishes the FASB ASC. The FASB ASC is the single source
of authoritative nongovernmental U.S. generally accepted accounting principles (“GAAP”),
superseding existing FASB, American Institute of Certified Public Accountants, Emerging Issues Task
Force, and related accounting literature. The FASB ASC reorganizes the thousands of GAAP
pronouncements into roughly 90 accounting topics and displays them using a consistent
structure. Also included is relevant Securities and Exchange Commission guidance organized using
the same topical structure in separate sections. We adopted ASU No. 2009-01 effective September
26, 2009. This impacted the Company’s notes to financial statements since all references to
authoritative accounting literature are referenced in accordance with the FASB ASC.
I
tem 7A.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to changes in interest rates primarily from the Credit Agreement. The Credit
Agreement bears interest at either the bank’s base rate (3.25% at both December 26, 2009 and
December 27, 2008) or LIBOR (0.23% and 0.46% at December 26, 2009 and December 27, 2008,
respectively) plus an additional amount ranging from 0.35% to 0.90% per annum, adjusted quarterly,
based on our performance (0.50% at both December 26, 2009 and December 27, 2008). We are also
required to pay (quarterly in arrears) a commitment fee ranging from 0.06% to 0.18% based on the
daily average unused portion of the credit line (0.10% at both December 26, 2009 and December 27,
2008). A hypothetical 100 basis point adverse move (increase) in interest rates along the entire
interest rate yield curve would result in approximately $111,000 of additional annual interest
expense and would not impact the fair market value of the long-term debt.
31
Table of Contents
Item 8
.
Financial Statements and Supplementary Data
INDEX
TRACTOR SUPPLY COMPANY
| Page | ||||
|
|
||||
| 33 | ||||
|
|
||||
| 35 | ||||
|
|
||||
| 36 | ||||
|
|
||||
| 37 | ||||
|
|
||||
| 38 | ||||
32
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Tractor Supply Company
Tractor Supply Company
We have audited Tractor Supply Company’s internal control over financial reporting as of December
26, 2009, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Tractor
Supply Company’s management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management’s Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Tractor Supply Company maintained, in all material respects, effective internal
control over financial reporting as of December 26, 2009, based on the COSO criteria
.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Tractor Supply Company as of December 26,
2009 and December 27, 2008 and the related consolidated statements of income, stockholders’ equity,
and cash flows for each of the three years in the period ended December 26, 2009 and our report
dated February 24, 2010 expressed an unqualified opinion thereon.
|
|
|
Nashville, Tennessee
February 24, 2010
February 24, 2010
33
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Tractor Supply Company
We have audited the accompanying consolidated balance sheets of Tractor Supply Company as of
December 26, 2009 and December 27, 2008, and the related consolidated statements of income,
stockholders’ equity, and cash flows for each of the three years in the period ended December 26,
2009. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Tractor Supply Company at December 26, 2009 and
December 27, 2008, and the consolidated results of its operations and its cash flows for each of
the three years in the period ended December 26, 2009, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Tractor Supply Company’s internal control over financial reporting as of
December 26, 2009, based on criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February
24, 2010 expressed an unqualified opinion thereon.
|
|
|
Nashville, Tennessee
February 24, 2010
February 24, 2010
34
Table of Contents
TRACTOR SUPPLY COMPANY
(in thousands, except per share amounts)
| Fiscal Year | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
|
||||||||||||
|
Net sales
|
$ | 3,206,937 | $ | 3,007,949 | $ | 2,703,212 | ||||||
|
|
||||||||||||
|
Cost of merchandise sold
|
2,171,980 | 2,095,688 | 1,850,504 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Gross margin
|
1,034,957 | 912,261 | 852,708 | |||||||||
|
|
||||||||||||
|
Selling, general and administrative expenses
|
784,066 | 715,961 | 641,603 | |||||||||
|
Depreciation and amortization
|
66,258 | 60,731 | 51,064 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Operating income
|
184,633 | 135,569 | 160,041 | |||||||||
|
|
||||||||||||
|
Interest expense, net
|
1,644 | 2,133 | 5,037 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Income before income taxes
|
182,989 | 133,436 | 155,004 | |||||||||
|
|
||||||||||||
|
Income tax expense
|
67,523 | 51,506 | 58,763 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net income
|
$ | 115,466 | $ | 81,930 | $ | 96,241 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net income per share — basic
|
$ | 3.21 | $ | 2.22 | $ | 2.45 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net income per share — assuming dilution
|
$ | 3.15 | $ | 2.19 | $ | 2.40 | ||||||
|
|
||||||||||||
The accompanying notes are an integral part of these financial statements.
35
Table of Contents
TRACTOR SUPPLY COMPANY
(in thousands, except share amounts)
| Dec. 26, | Dec. 27, | |||||||
| 2009 | 2008 | |||||||
|
ASSETS
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 172,851 | $ | 36,989 | ||||
|
Inventories
|
601,249 | 603,435 | ||||||
|
Prepaid expenses and other current assets
|
42,320 | 41,902 | ||||||
|
Deferred income taxes
|
17,909 | 1,676 | ||||||
|
|
||||||||
|
Total current assets
|
834,329 | 684,002 | ||||||
|
|
||||||||
|
|
||||||||
|
Property and Equipment:
|
||||||||
|
Land
|
27,646 | 25,410 | ||||||
|
Buildings and improvements
|
350,505 | 325,081 | ||||||
|
Furniture, fixtures and equipment
|
226,967 | 198,881 | ||||||
|
Computer software and hardware
|
88,700 | 74,589 | ||||||
|
Construction in progress
|
11,562 | 12,615 | ||||||
|
|
||||||||
|
|
705,380 | 636,576 | ||||||
|
Accumulated depreciation and amortization
|
(335,135 | ) | (274,543 | ) | ||||
|
|
||||||||
|
Property and equipment, net
|
370,245 | 362,033 | ||||||
|
|
||||||||
|
Goodwill
|
10,258 | 10,258 | ||||||
|
Deferred income taxes
|
11,091 | 13,727 | ||||||
|
Other assets
|
4,922 | 5,977 | ||||||
|
|
||||||||
|
|
||||||||
|
Total assets
|
$ | 1,230,845 | $ | 1,075,997 | ||||
|
|
||||||||
|
|
||||||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable
|
$ | 273,208 | $ | 286,828 | ||||
|
Other accrued expenses
|
137,375 | 113,465 | ||||||
|
Current portion of capital lease obligations
|
392 | 550 | ||||||
|
Income taxes payable
|
7,605 | — | ||||||
|
|
||||||||
|
Total current liabilities
|
418,580 | 400,843 | ||||||
|
|
||||||||
|
Revolving credit loan
|
— | — | ||||||
|
Capital lease obligations, less current maturities
|
1,407 | 1,797 | ||||||
|
Straight-line rent liability
|
45,515 | 38,016 | ||||||
|
Other long-term liabilities
|
32,140 | 25,211 | ||||||
|
|
||||||||
|
Total liabilities
|
497,642 | 465,867 | ||||||
|
|
||||||||
|
|
||||||||
|
Stockholders’ equity:
|
||||||||
|
Preferred Stock, 40,000 shares authorized; $1.00 par value; no shares issued
|
— | — | ||||||
|
Common Stock, 100,000,000 shares authorized, $.008 par value; 41,309,743
shares issued and 36,076,408 shares outstanding at December 26, 2009 and 40,875,886 shares issued and 36,061,585 shares outstanding at December 27,
2008
|
330 | 327 | ||||||
|
Additional paid-in capital
|
190,938 | 168,045 | ||||||
|
Treasury stock, at cost, 5,233,335 shares at December 26, 2009 and
4,814,301 shares at December 27, 2008
|
(219,204 | ) | (203,915 | ) | ||||
|
Retained earnings
|
761,139 | 645,673 | ||||||
|
|
||||||||
|
Total stockholders’ equity
|
733,203 | 610,130 | ||||||
|
|
||||||||
|
|
||||||||
|
Total liabilities and stockholders’ equity
|
$ | 1,230,845 | $ | 1,075,997 | ||||
|
|
||||||||
The accompanying notes are an integral part of these financial statements.
36
Table of Contents
TRACTOR SUPPLY COMPANY
CONSOLIDATED STATEMENTS STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||
| Common | Paid-in | Treasury | Retained | Comprehensive | Stockholders’ | |||||||||||||||||||
| Stock | Capital | Stock | Earnings | Income (Loss) | Equity | |||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Stockholders’ equity at December 30, 2006
|
$ | 322 | $ | 129,249 | $ | — | $ | 469,355 | $ | (22 | ) | $ | 598,904 | |||||||||||
|
|
||||||||||||||||||||||||
|
Cumulative effect of change in accounting
principle (Note 9)
|
(1,853 | ) | (1,853 | ) | ||||||||||||||||||||
|
Issuance of common stock under employee
stock purchase plan (46,654 shares)
|
1 | 1,844 | 1,845 | |||||||||||||||||||||
|
Exercise of stock options (371,823 shares)
|
3 | 5,586 | 5,589 | |||||||||||||||||||||
|
Stock compensation
|
10,620 | 10,620 | ||||||||||||||||||||||
|
Tax benefit of stock options exercised
|
4,018 | 4,018 | ||||||||||||||||||||||
|
Repurchase of common stock (3,216,187
shares)
|
(150,049 | ) | (150,049 | ) | ||||||||||||||||||||
|
Foreign currency translation adjustment
|
22 | 22 | ||||||||||||||||||||||
|
Net income
|
96,241 | 96,241 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Stockholders’ equity at December 29, 2007
|
326 | 151,317 | (150,049 | ) | 563,743 | — | 565,337 | |||||||||||||||||
|
|
||||||||||||||||||||||||
|
Issuance of common stock under employee
stock purchase plan (61,348 shares)
|
1,680 | 1,680 | ||||||||||||||||||||||
|
Exercise of stock options (114,329 shares)
|
1 | 1,469 | 1,470 | |||||||||||||||||||||
|
Stock compensation
|
12,257 | 12,257 | ||||||||||||||||||||||
|
Tax benefit of stock options exercised
|
1,322 | 1,322 | ||||||||||||||||||||||
|
Repurchase of common stock (1,598,114
shares)
|
(53,866 | ) | (53,866 | ) | ||||||||||||||||||||
|
Net income
|
81,930 | 81,930 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Stockholders’ equity at December 27, 2008
|
327 | 168,045 | (203,915 | ) | 645,673 | — | 610,130 | |||||||||||||||||
|
|
||||||||||||||||||||||||
|
Issuance of common stock under employee
stock purchase plan (50,735 shares)
|
1,631 | 1,631 | ||||||||||||||||||||||
|
Exercise of stock options (383,122 shares)
|
3 | 4,345 | 4,348 | |||||||||||||||||||||
|
Stock compensation
|
12,130 | 12,130 | ||||||||||||||||||||||
|
Tax benefit of stock options exercised
|
4,787 | 4,787 | ||||||||||||||||||||||
|
Repurchase of common stock (419,034 shares)
|
(15,289 | ) | (15,289 | ) | ||||||||||||||||||||
|
Net income
|
115,466 | 115,466 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Stockholders’ equity at December 26, 2009
|
$ | 330 | $ | 190,938 | $ | (219,204 | ) | $ | 761,139 | $ | — | $ | 733,203 | |||||||||||
|
|
||||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
37
Table of Contents
TRACTOR SUPPLY COMPANY
(in thousands)
| Fiscal Year | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Cash flows from operating activities
:
|
||||||||||||
|
Net income
|
$ | 115,466 | $ | 81,930 | $ | 96,241 | ||||||
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
||||||||||||
|
Depreciation and amortization
|
66,258 | 60,731 | 51,064 | |||||||||
|
(Gain) loss on disposition of property and equipment
|
213 | (425 | ) | 30 | ||||||||
|
Stock compensation expense
|
12,130 | 12,257 | 10,620 | |||||||||
|
Deferred income taxes
|
(13,597 | ) | 1,566 | 7,047 | ||||||||
|
Change in assets and liabilities:
|
||||||||||||
|
Inventories
|
2,186 | 32,553 | (41,137 | ) | ||||||||
|
Prepaid expenses and other current assets
|
(409 | ) | 1,007 | (4,802 | ) | |||||||
|
Accounts payable
|
(13,620 | ) | 28,482 | 29,175 | ||||||||
|
Accrued expenses
|
23,910 | (2,136 | ) | 4,339 | ||||||||
|
Income taxes payable
|
7,605 | (5,928 | ) | (6,488 | ) | |||||||
|
Other
|
15,175 | 7,689 | 8,687 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net cash provided by operating activities
|
215,317 | 217,726 | 154,776 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Cash flows from investing activities
:
|
||||||||||||
|
Capital expenditures
|
(73,974 | ) | (91,759 | ) | (83,547 | ) | ||||||
|
Proceeds from sale of property and equipment
|
97 | 3,324 | 974 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net cash used in investing activities
|
(73,877 | ) | (88,435 | ) | (82,573 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Cash flows from financing activities
:
|
||||||||||||
|
Borrowings under revolving credit agreement
|
274,033 | 853,903 | 1,050,931 | |||||||||
|
Repayments under revolving credit agreement
|
(274,033 | ) | (908,903 | ) | (995,931 | ) | ||||||
|
Excess tax benefit of stock options exercised
|
4,280 | 1,085 | 3,149 | |||||||||
|
Principal payments under capital lease obligations
|
(548 | ) | (851 | ) | (675 | ) | ||||||
|
Repurchase of common stock
|
(15,289 | ) | (53,866 | ) | (150,049 | ) | ||||||
|
Net proceeds from issuance of common stock
|
5,979 | 3,150 | 7,434 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net cash used in financing activities
|
(5,578 | ) | (105,482 | ) | (85,141 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net increase (decrease) in cash
|
135,862 | 23,809 | (12,938 | ) | ||||||||
|
|
||||||||||||
|
Cash and cash equivalents at beginning of year
|
36,989 | 13,180 | 26,118 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Cash and cash equivalents at end of year
|
$ | 172,851 | $ | 36,989 | $ | 13,180 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Supplemental disclosures of cash flow information:
|
||||||||||||
|
Cash paid during the year for:
|
||||||||||||
|
Interest
|
$ | 838 | $ | 3,890 | $ | 3,953 | ||||||
|
Income taxes
|
66,888 | 55,476 | 54,939 | |||||||||
|
|
||||||||||||
|
Supplemental disclosure of non-cash activities:
|
||||||||||||
|
Equipment acquired through capital leases
|
$ | — | $ | — | $ | 439 | ||||||
The accompanying notes are an integral part of these financial statements.
38
Table of Contents
Nature of Business
Tractor Supply Company (the “Company”, “we”, “us” and/or “our”) is the largest operator of retail
farm and ranch stores in the United States. We are focused on supplying the lifestyle needs of
recreational farmers and ranchers and those who enjoy the rural lifestyle, as well as tradesmen and
small businesses. Stores are located in towns outlying major metropolitan markets and in rural
communities. Our wholly-owned subsidiary, Del’s Farm Supply, LLC (“Del’s”) operated 27 stores as
of December 26, 2009. At December 26, 2009, we operated a total of 930 retail farm and ranch
stores (including Del’s) in 44 states and also offered a number of products online at
TractorSupply.com
.
Fiscal Year
Our fiscal year ends on the last Saturday of the calendar year and includes 52 or 53 weeks. The
fiscal years ended December 26, 2009, December 27, 2008 and December 29, 2007 consist of 52 weeks.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its
subsidiaries. All material intercompany accounts and transactions have been eliminated.
Reclassifications
Certain amounts in previously issued financial statements have been reclassified to conform to the
fiscal 2009 presentation. Amounts related to voucher receivables ($0.2 million and $0.5 million at
December 27, 2008 and December 29, 2007, respectively) have been reclassified from cash and cash
equivalents to prepaid expenses and other current assets. Also, amounts related to prepaid
fixtures ($0.3 million at December 27, 2008) previously classified in prepaid expenses and other
current assets have been reclassified to other assets to reflect their long-term status. Those
changes have affected our December 27, 2008 Consolidated Balance Sheet and the Consolidated
Statements of Cash Flows for the fiscal years ended December 27, 2008 and December 29, 2007.
Segment Information
Tractor Supply Company has one reportable industry segment which is the operation of farm and ranch
retail stores. We also offer a number of products online at
TractorSupply.com
.
Management Estimates
Our preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States inherently requires estimates and assumptions by us that
affect the reported amounts of assets and liabilities, revenues and expenses and related
disclosures. Actual results could differ from those estimates.
Significant estimates and assumptions by management primarily impact the following key financial
statement areas:
Revenue Recognition and Sales Returns
We recognize revenue at the time the customer takes possession of merchandise or receives
services. If we receive payment before the customer has taken possession of the merchandise
(as per our special order and layaway programs), the revenue is deferred until the sale is
complete.
We are required to collect certain taxes and fees from customers on behalf of government
agencies and remit such collections to the applicable governmental entity on a periodic
basis. These taxes are collected from customers at the time of purchase, but are not
included in net sales. We record a liability upon collection from the customer and relieve
the liability when payments are remitted to the applicable governmental agency.
We estimate a liability for sales returns based on a one-year rolling average of historical
return trends, and we believe that our estimate for sales returns is an accurate reflection
of future returns associated with past sales. Our estimation methodologies have been
consistently applied from year to year; however, as with any estimate,
refund activity may vary from estimated amounts. At December 26, 2009 we had a liability of
$3.1 million reserved for sales returns, compared to $3.2 million at December 27, 2008.
39
Table of Contents
We recognize a benefit for gift cards when: (i) the gift card or merchandise return card is
redeemed by the customer; (ii) the likelihood of the gift card being redeemed by the
customer is remote (referred to as “breakage”); or (iii) the unredeemed merchandise returns
cards expire (one year from issuance). The gift card breakage rate is based upon historical
redemption patterns and a benefit is recognized for unredeemed gift cards in proportion to
those historical redemption patterns. We recognized a benefit of $1.1 million, $1.4 million
and $1.2 million in fiscal 2009, 2008 and 2007, respectively.
Inventory Valuation
Impairment Risk
We identify potentially excess and slow-moving inventory by evaluating turn rates,
historical and expected future sales trends, age of merchandise, overall inventory levels,
current cost of inventory and other benchmarks. The estimated inventory valuation reserve
to recognize any impairment in value (i.e. an inability to realize the full carrying value)
is based on our aggregate assessment of these valuation indicators under prevailing market
conditions and current merchandising strategies. We do not believe our merchandise
inventories are subject to significant risk of obsolescence in the near term. However,
changes in market conditions or consumer purchasing patterns could result in the need for
additional reserves.
Shrinkage
We perform physical inventories at each store at least once a year and we have established
reserves for estimating inventory shrinkage between physical inventory counts. The reserve
is established by assessing the chain-wide average shrinkage experience rate, applied to the
related periods’ sales volumes. Such assessments are updated on a regular basis for the
most recent individual store experiences. The estimated shrink rate is based on historical
experience. We believe historical rates are a reasonably accurate reflection of future
trends.
Vendor Support
We receive funding from substantially all of our significant merchandise vendors for the
promotion of our brand as well as the sale of their products through a variety of programs
and arrangements, including guaranteed funding and volume rebate programs. The amounts
received are subject to terms of vendor agreements, which have varying expiration dates
ranging in duration from several months to a few years. Many agreements are negotiated
annually and are based on expected annual purchases of the vendor’s product. Vendor funding
is initially deferred as a reduction of the purchase price of inventory and then recognized
as a reduction of cost of merchandise as the related inventory is sold.
During the interim periods, the amount of expected funding is estimated based upon initial
guaranteed commitments, as well as anticipated purchase levels with applicable vendors. The
estimated purchase volume and related vendor funding is based on our current knowledge of
inventory levels, sales trends and expected customer demand, as well as planned new store
openings and relocations. Although we believe we have the ability to reasonably estimate
purchase volume and related vendor funding at interim periods, it is possible that actual
year-end results could significantly differ from the previously estimated amounts.
Freight
We incur various types of transportation and delivery costs in connection with inventory
purchases and distribution. Such costs are included as a component of the overall cost of
inventories (on an aggregate basis) and recognized as a component of cost of merchandise
sold as the related inventory is sold.
Share-Based Compensation
We have share-based compensation plans, which includes incentive and non-qualified stock
options, restricted stock units, and an employee stock purchase plan, covering certain members
of management and non-employee directors.
We estimate the fair value of stock option awards on the date of grant utilizing a
Black-Scholes
option pricing model. The
Black-Scholes
option valuation model was developed for use in
estimating the fair value of short-term traded options that have no vesting restrictions and are
fully transferable. However, key assumptions used in the
Black-Scholes
model are adjusted to
incorporate the unique characteristics of our stock option awards. Option valuation models
require the input of subjective assumptions including expected stock price volatility, risk-free
interest rate and expected life. We rely on historical volatility trends to estimate future
volatility assumptions. The
risk-free interest rates used were actual U.S. Treasury Constant Maturity rates for bonds
matching the expected term of the option on the date of grant. The expected life of the option
on the date of grant was estimated based on our historical experience for similar options.
40
Table of Contents
In addition to the key assumptions used in the
Black-Scholes
model, the estimated forfeiture
rate at the time of valuation (which is based on historical experience for similar options) is a
critical assumption, as it reduces expense ratably over the vesting period. We adjust this
estimate periodically, based on the extent to which actual forfeitures differ, or are expected
to differ, from the previous estimate.
We believe our estimates are reasonable in the context of historical experience. Future results
will depend on, among other matters, levels of share-based compensation granted in the future,
actual forfeiture rates and the timing of option exercises.
Self-Insurance Reserves
We self-insure a significant portion of our employee medical insurance, workers’ compensation
and general liability insurance plans. We have stop-loss insurance policies to protect from
individual losses over specified dollar values. The full extent of certain claims, especially
workers’ compensation and general liability claims, may not become fully determined for several
years. Therefore, we estimate potential obligations for liabilities that have been incurred but
not yet reported based upon historical data and experience. Although we believe the reserves
established for these obligations are reasonably estimated, any significant increase in the
number of claims or costs associated with claims made under these plans could have a material
adverse effect on our financial results. At December 26, 2009, we had recorded net insurance
reserves of $23.7 million compared to $22.6 million at December 27, 2008.
Sales Tax Audit Reserve
A portion of our sales are to tax-exempt customers. We obtain exemption information as a
necessary part of each tax-exempt transaction. Many of the states in which we conduct business
will perform audits to verify our compliance with applicable sales tax laws. The business
activities of our customers and the intended use of the unique products sold by us create a
challenging and complex compliance environment. These circumstances also create some risk that
we could be challenged as to the propriety of our sales tax compliance. While we believe we
reasonably enforce sales tax compliance with our customers and endeavor to fully comply with all
applicable sales tax regulations, there can be no assurance that we, upon final completion of
such audits, will not have a significant liability for disallowed exemptions.
We review our past audit experience and assessments with applicable states to determine if we
have potential exposure for non-compliance. Any estimated liability is based on an initial
assessment of compliance risk and our to-date experience with each audit. As each audit
progresses, we quantify the exposure based on preliminary assessments made by the state
auditors, adjusted for additional documentation that may be provided to reduce the assessment.
The reserve for these tax audits can fluctuate depending on numerous factors, including the
complexity of agricultural-based exemptions, ambiguity in state tax regulations, the number of
ongoing audits and the length of time required to settle with the state taxing authorities.
Tax Contingencies
Our income tax returns are periodically audited by U.S. federal and state tax authorities. These
audits include questions regarding our tax filing positions, including the timing and amount of
deductions and the allocation of income among various tax jurisdictions. At any time, multiple
tax years are subject to audit by the various tax authorities. In evaluating the exposures
associated with our various tax filing positions, we record reserves for probable exposures. A
number of years may elapse before a particular matter, for which we have established a reserve,
is audited and fully resolved or clarified. We adjust our tax contingencies reserve and income
tax provision in the period in which actual results of a settlement with tax authorities differs
from our established reserve, the statute of limitations expires for the relevant tax authority
to examine the tax position or when more information becomes available.
We recognize a liability for certain tax benefits that do not meet the minimum requirements for
recognition in the financial statements.
Our tax contingencies reserve contains uncertainties because management is required to make
assumptions and to apply judgment to estimate the exposures associated with our various filing
positions and whether or not the minimum requirements for recognition of tax benefits have been
met.
41
Table of Contents
Our effective income tax rate is also affected by changes in tax law, the tax jurisdiction of
new stores or business ventures, the level of earnings and the results of tax audits.
Credit Cards/Accounts Receivable
Sales generated through our private label credit cards are not reflected as accounts receivable.
Under an agreement with Citi Cards, a division of Citigroup (“Citigroup”), consumer and business
credit is extended directly to customers by Citigroup. All credit program and related services are
performed and controlled directly by Citigroup.
Pre-opening Costs
Non-capital expenditures incurred in connection with opening new store and distribution centers,
primarily payroll and rent, are expensed as incurred. Preopening costs were approximately $7.5
million, $8.7 million and $9.4 million in 2009, 2008 and 2007, respectively.
Store Closing Costs
We regularly evaluate the performance of our stores and periodically close those that are
under-performing. We record a liability for a cost associated with an exit or disposal activity
when the liability is incurred, usually in the period the store closes. Store closing costs were
not significant to results of operations for any of the fiscal years presented.
Cash and Cash Equivalents
Temporary cash investments, with a maturity of three months or less when purchased, are considered
to be cash equivalents. The majority of payments due from banks for customer credit card
transactions process within 24-48 hours and are accordingly classified as cash and cash
equivalents.
Fair Value of Financial Instruments
Our financial instruments consist of cash and cash equivalents, short-term receivables and payables
and long-term debt instruments, including capital leases. The carrying values of cash and cash
equivalents, receivables and trade payables equal current fair value. We had no borrowings under
the Credit Agreement at December 26, 2009 or December 27, 2008.
Inventories
Inventories are stated using the lower of LIFO cost or market. Quarterly inventory determinations
under LIFO are based on assumptions as to projected inventory levels at the end of the fiscal year,
sales for the year and the expected rate of inflation/deflation for the year. If the FIFO method
of accounting for inventory had been used, inventories would have been approximately $75.2 million
and $68.3 million higher than reported at December 26, 2009 and December 27, 2008, respectively.
Vendor Concentration
Approximately 250 vendors accounted for 90% of our purchases for fiscal 2009, with no one vendor
representing more than 10% of purchases during the year.
Cost of Merchandise Sold
Cost of Merchandise sold includes the total cost of products sold; freight expenses associated with
moving merchandise inventories from our vendors to our distribution centers; from our distribution
centers to our retail stores; and from one distribution center to another; vendor support; damaged,
junked or defective product; cash discounts from payments to merchandise vendors; and adjustments
for shrinkage (physical inventory losses), lower of cost or market valuation, slow moving product,
excess inventory quantities and the LIFO inventory valuation.
42
Table of Contents
Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A”) include payroll and benefit costs for retail,
distribution center and corporate employees; occupancy costs of retail, distribution center and
corporate facilities; advertising; tender costs, including bank charges and costs associated with
credit and debit card interchange fees; outside service fees; and other administrative costs, such
as computer maintenance, supplies, travel and lodging.
Warehousing and Distribution Costs
Costs incurred at our distribution centers for receiving, warehousing and preparing product for
delivery are expensed as incurred and are included in SG&A expenses in the Consolidated Statements
of Income. Because the Company does not include these costs in cost of sales, the Company’s gross
margin may not be comparable to other retailers that include these costs in the calculation of
gross margin. Distribution Center costs for fiscal 2009, 2008 and 2007 were approximately $59.0
million, $52.8 million and $49.9 million, respectively.
Property and Equipment
Property and equipment are carried at cost. Depreciation is recorded using the straight-line
method over the estimated useful lives of the assets. Improvements to leased premises are
amortized using the straight-line method over the initial term of the lease or the useful life of
the improvement, whichever is less. Leasehold improvements added late in the lease term are
amortized over the term of the lease (including the first renewal option, if the renewal is
reasonably assured) or the useful life of the improvement, whichever is less. The following
estimated useful lives are generally applied:
| Life | ||||
|
Buildings
|
30 – 35 years | |||
|
Leasehold and building improvements
|
5 – 15 years | |||
|
Furniture, fixtures and equipment
|
5 – 10 years | |||
|
Computer software and hardware
|
3 – 5 years | |||
Depreciation and Amortization
Depreciation includes expenses related to all retail, distribution center and corporate assets.
Amortization includes expenses related to definite-lived intangible assets.
Capitalized Software Costs
The Company capitalizes certain costs related to the acquisition and development of software and
amortizes these costs using the straight-line method over the estimated useful life of the
software, which is three to five years. These costs are included in Computer software and hardware
in the accompanying Consolidated Balance Sheets. Certain software costs not meeting the criteria
for capitalization are expensed as incurred.
Leases
Assets under capital leases are amortized in accordance with our normal depreciation policy for
owned assets or over the lease term, if shorter, and the related charge to operations is included
in depreciation expense in the Consolidated Statements of Income.
Certain leases include rent increases during the initial lease term. For these leases, we
recognize the related rental expense on a straight-line basis over the term of the lease (which
includes the pre-opening period of construction, renovation, fixturing and merchandise placement)
and record the difference between the expense charged to operations and amounts paid as a rent
liability.
We occasionally receive reimbursements from landlords to be used towards improving the related
store to be leased. Reimbursements are primarily for the purpose of performing work required to
divide a much larger location into smaller segments, one of which we will use for our store. This
work could include the addition of demising walls, separation of plumbing, utilities, electric
work, entrances (front and back) and other work as required. Leasehold improvements are
recorded at their gross costs including items reimbursed by landlords. Related reimbursements are
amortized on a straight-line basis as a reduction of rent expense over the initial lease term.
43
Table of Contents
Impairment of Long-Lived Assets
Long-lived assets other than goodwill and indefinite-lived intangible assets, which are separately
tested for impairment, are evaluated for impairment whenever events or changes in circumstances
indicate that the carrying value may not be recoverable.
When evaluating long-lived assets for potential impairment, we first compare the carrying value of
the asset to the asset’s estimated undiscounted future cash flows. The evaluation for long-lived
assets is performed at the lowest level of identifiable cash flows, which is generally the
individual store level. The significant assumptions used to determine estimated undiscounted cash
flows include cash inflows and outflows directly resulting from the use of those assets in
operations, including margin on net sales, payroll and related items, occupancy costs, insurance
allocations and other costs to operate a store. If the estimated future cash flows are less than
the carrying value of the asset, we calculate an impairment loss. The impairment loss calculation
compares the carrying value of the asset to the asset’s estimated fair value, which may be based on
an estimated future cash flow model. We recognize an impairment loss if the amount of the asset’s
carrying value exceeds the asset’s estimated fair value. If we recognize an impairment loss, the
adjusted carrying amount of the asset becomes its new cost basis. For a depreciable long-lived
asset, the new cost basis will be depreciated (amortized) over the remaining useful life of that
asset.
During fiscal year 2009 impairment charges of $0.8 million were recorded representing the amount
required to write-down carrying value of certain leasehold improvements to the assets’ estimated
fair value. Impairment charges are included in SG&A expenses in the Consolidated Statement of
Income. No significant impairment charges were recognized in fiscal years 2008 and 2007.
Goodwill
Goodwill and intangible assets with indefinite lives are not amortized. We evaluate goodwill for
impairment annually and whenever events or changes in circumstances indicate the carrying value of
the goodwill may not be recoverable. We complete our impairment evaluation by performing internal
valuation analyses, considering other publicly available market information and using an
independent valuation firm, as appropriate. All goodwill at December 26, 2009 and December 27,
2008 is associated with the Del’s business and, for purposes of impairment testing, Del’s is
considered the reporting unit.
The test for goodwill impairment is a two step process. The first step of the goodwill impairment
test, used to identify the potential for impairment, compares the fair value of a reporting unit
with the carrying value of its net assets, including goodwill. If the fair value of the reporting
unit is less than the carrying value of the reporting unit, the second step of the goodwill
impairment test is performed to measure the amount of impairment loss to be recorded, if any. The
second step, if required, would compare the implied fair value of goodwill with the current
carrying amount of goodwill. If the implied fair value of goodwill is less than the carrying
value, an impairment charge would be recorded as a charge to our operations.
In the fourth quarter of fiscal 2009, we completed our annual impairment testing of goodwill and
determined there was no impairment. We determined that the fair value of the Del’s reporting unit
(including goodwill) was in excess of the carrying value of the reporting unit and as such, the
second step was not necessary. In reaching this conclusion, the fair value of the Del’s reporting
unit was determined based on a weighting of income and market approaches. Under the income
approach, the fair value of the Del’s reporting unit is calculated as the present value of
estimated future cash flows. Under the market approach, the fair value is based on observed market
multiples for comparable businesses and guideline transactions. Both of these approaches involve
the use of significant estimates as to revenues, gross margin, operating costs and cash flows. We
considered historical and estimated future results, economic and market conditions and the impact
of planned business and operational strategies in deriving these estimates.
Advertising Costs
Advertising costs consist of expenses incurred in connection with newspaper circulars, television
and radio, as well as direct mail, newspaper advertisements and other promotions. Costs are
expensed when incurred with the exception of television advertising and circular and direct mail
promotions, which are expensed upon first showing. Advertising expenses for fiscal 2009, 2008 and
2007 were approximately $45.7 million, $58.0 million and $58.6 million,
respectively. Prepaid advertising costs were approximately $0.2 million and $0.4 million at
December 26, 2009 and December 27, 2008, respectively.
44
Table of Contents
Income Taxes
We account for income taxes using the liability method, whereby deferred tax assets and liabilities
are determined based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be in effect when the
differences are expected to be recovered or settled.
Net Income Per Share
Basic earnings per share is calculated by dividing net income by the weighted average number of
shares outstanding during the period. Diluted EPS is calculated by dividing net income by the
weighted average diluted shares outstanding. Diluted shares are computed using the treasury stock
method for options.
Foreign Currency Translation
Adjustments resulting from translating foreign functional currency financial statements into U.S.
dollars are included in the foreign currency translation adjustment, a component of accumulated
other comprehensive loss in stockholders’ equity. The assets and liabilities of our store in
British Columbia, which was sold in fiscal 2007, were translated into United States dollars at
year-end rates of exchange, while revenues and expense items were translated at average rates for
the period.
We recognize share-based compensation expense based on the fair value of the awards. Share-based
compensation includes stock option and restricted stock unit grants and certain transactions under
our Employee Stock Purchase Plan (the “ESPP”). Share-based compensation expense is recognized
based on grant date fair value and the discount on shares sold to employees, which represents the
difference between the grant date fair value and the employee purchase price.
Share-based compensation expense including reductions in expense for modifications of awards
lowered pre-tax income by $12.1 million, $12.3 million and $10.6 million for fiscal 2009, 2008 and
2007, respectively.
Forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting
period. This estimate is adjusted periodically based on the extent to which actual forfeitures
differ, or are expected to differ, from the previous estimate.
Effective May 7, 2009, the Company adopted the 2009 Stock Incentive Plan replacing the 2006 Stock
Incentive Plan. Following the adoption of the 2009 Stock Incentive Plan, no further grants may be
made under the 2006 Stock Incentive Plan.
Under our 2009 Stock Incentive Plan, options may be granted to officers, non-employee directors and
other employees. The per share exercise price of options granted shall not be less than the fair
market value of the stock on the date of grant and such options will expire no later than ten years
from the date of grant. Also, the aggregate fair market value of the stock with respect to which
incentive stock options are exercisable on a tax deferred basis for the first time by an individual
in any calendar year may not exceed $100,000. Vesting of options commences at various anniversary
dates following the dates of grant.
Under the terms of the 2009 Stock Incentive Plan, a maximum of 3,100,000 shares are available for
grant as stock options or other awards. At December 26, 2009, we had 3,082,060 shares available
for future equity awards under the Company’s 2009 Stock Incentive Plan.
45
Table of Contents
The fair value of each option grant is separately estimated for each vesting date. The fair value
of each option is recognized as compensation expense ratably over the vesting period. We have
estimated the fair value of all stock option awards as of the date of the grant by applying a
Black-Scholes
pricing valuation model. The application of this valuation model involves
assumptions that are judgmental and highly sensitive in the determination of compensation expense.
The weighted averages for key assumptions used in determining the fair value of options granted
during fiscal 2009, 2008 and 2007, as well as a summary of the methodology applied to develop each
assumption, are as follows:
| Fiscal Year | ||||||
| 2009 | 2008 | 2007 | ||||
|
Expected price volatility
|
39.3 – 54.0% | 37.6 – 39.7% | 38.1 – 41.7% | |||
|
Risk-free interest rate
|
0.6 – 2.5% | 1.6 – 3.5% | 4.1 – 5.0% | |||
|
Weighted average expected lives (in years)
|
4.7 – 5.6 | 4.4 – 5.5 | 4.1 – 5.4 | |||
|
Forfeiture rate
|
1.4 – 8.0% | 1.4 – 7.1% | 1.4 – 8.0% | |||
|
Dividend yield
|
0.0% | 0.0% | 0.0% | |||
Expected Price Volatility —
This is a measure of the amount by which a price has
fluctuated or is expected to fluctuate. We use actual historical changes in the
market value of the stock to calculate expected price volatility because we believe
that this is the best indicator of future volatility. We calculate daily market
value changes from the date of grant over a past period generally representative of
the expected life of the options to determine volatility. An increase in the
expected volatility will increase compensation expense.
Risk-Free Interest Rate —
This is the U.S. Treasury Constant Maturity rate over a
term equal to the expected life of the option. An increase in the risk-free interest
rate will increase compensation expense.
Weighted Average Expected Lives —
This is the period of time over which the options
granted are expected to remain outstanding and is based on historical experience.
Options granted generally have a maximum term of ten years. An increase in the
expected life will increase compensation expense.
Forfeiture Rate —
This is the estimated percentage of options granted that are
expected to be forfeited or cancelled before becoming fully vested. This estimate is
based on historical experience. An increase in the forfeiture rate will decrease
compensation expense.
Dividend Yield —
We have not made any dividend payments. An increase in the
dividend yield will decrease compensation expense.
Stock Options
We issue new shares for options when exercised. A summary of stock option activity is as follows:
| Weighted | Weighted Average | Aggregate | ||||||||||||||
| Average Exercise | Remaining | Intrinsic Value | ||||||||||||||
| Options | Price | Contractual Term | ( in thousands) | |||||||||||||
|
Outstanding December 30, 2006
|
2,391,361 | $ | 29.32 | 6.5 | $ | 45,301 | ||||||||||
|
Granted
|
579,666 | 46.78 | ||||||||||||||
|
Exercised
|
(371,823 | ) | 15.03 | |||||||||||||
|
Canceled
|
(310,878 | ) | 49.62 | |||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Outstanding December 29, 2007
|
2,288,326 | $ | 33.31 | 6.4 | $ | 22,485 | ||||||||||
|
Granted
|
653,350 | 38.34 | ||||||||||||||
|
Exercised
|
(113,319 | ) | 12.98 | |||||||||||||
|
Canceled
|
(274,350 | ) | 45.99 | |||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Outstanding December 27, 2008
|
2,554,007 | $ | 34.14 | 6.2 | $ | 19,296 | ||||||||||
|
Granted
|
563,066 | 34.56 | ||||||||||||||
|
Exercised
|
(377,674 | ) | 11.66 | |||||||||||||
|
Canceled
|
(88,977 | ) | 46.02 | |||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Outstanding December 26, 2009
|
2,650,422 | $ | 37.05 | 6.4 | $ | 47,413 | ||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Exercisable at December 26,
2009
|
1,566,916 | $ | 36.97 | 5.1 | $ | 29,144 | ||||||||||
|
|
||||||||||||||||
The aggregate intrinsic values in the table above represents the total difference between our
closing stock price at each year-end and the option exercise price, multiplied by the number of
in-the-money options at each year-end. As of December 26, 2009, total unrecognized compensation
expense related to non-vested stock options is $8,841,000 with a weighted average expense
recognition period of 1.3 years.
46
Table of Contents
The following summarizes information concerning stock option grants during fiscal 2009, 2008
and 2007:
| 2009 | 2008 | 2007 | ||||||||||
|
Options granted with exercise price equal to market value:
|
||||||||||||
|
Weighted average exercise price
|
$ | 34.56 | $ | 38.34 | $ | 46.15 | ||||||
|
Weighted average fair value
|
$ | 12.96 | $ | 14.54 | $ | 19.39 | ||||||
|
Stock options granted
|
563,066 | 653,350 | 473,748 | |||||||||
During fiscal 2007, certain options were modified to immediately vest and extend the related
exercise period, effectively resulting in a cancellation of existing options and grant of new
options (there were no material modifications in 2008 or 2009). The options retained the original
exercise price and, as a result, the modified options had exercise prices both above and below the
modification date fair market value. The following summarizes the activity related to these
modifications:
| 2007 | ||||
|
Options granted with exercise price greater than market value:
|
||||
|
Weighted average exercise price
|
$ | 58.87 | ||
|
Weighted average fair value
|
$ | 0.93 | ||
|
Stock options granted
|
55,668 | |||
|
|
||||
|
Options granted with exercise price less than market value:
|
||||
|
Weighted average exercise price
|
$ | 39.11 | ||
|
Weighted average fair value
|
$ | 2.16 | ||
|
Stock options granted
|
50,250 | |||
Other information relative to option activity during fiscal 2009, 2008 and 2007 is as follows (in
thousands, except per share amounts):
| 2009 | 2008 | 2007 | ||||||||||
|
Weighted average grant date fair value of stock options granted
|
$ | 12.96 | $ | 14.54 | $ | 16.15 | ||||||
|
Total fair value of stock options vested
|
$ | 10,225 | $ | 9,192 | $ | 10,748 | ||||||
|
Total intrinsic value of stock options exercised
|
$ | 12,742 | $ | 2,561 | $ | 12,075 | ||||||
Restricted Stock Units
We issue shares for restricted stock unit awards once vesting occurs and related restrictions
lapse. The units vest over a one to three-year term. The status of restricted stock units is
presented below:
| Weighted | ||||||||
| Average | ||||||||
| Grant Date | ||||||||
| Restricted Stock Units | Shares | Fair Value | ||||||
|
Restricted at December 30, 2006
|
2,480 | $ | 64.45 | |||||
|
Granted
|
68,889 | 46.01 | ||||||
|
Exercised
|
— | — | ||||||
|
Forfeited
|
(7,500 | ) | 46.17 | |||||
|
|
||||||||
|
|
||||||||
|
Restricted at December 29, 2007
|
63,869 | 46.71 | ||||||
|
Granted
|
89,958 | 38.33 | ||||||
|
Exercised
|
(1,010 | ) | 59.37 | |||||
|
Forfeited
|
(14,114 | ) | 42.00 | |||||
|
|
||||||||
|
|
||||||||
|
Restricted at December 27, 2008
|
138,703 | 41.66 | ||||||
|
Granted
|
154,051 | 34.99 | ||||||
|
Exercised
|
(5,448 | ) | 38.06 | |||||
|
Forfeited
|
(7,914 | ) | 40.73 | |||||
|
|
||||||||
|
|
||||||||
|
Restricted at December 26, 2009
|
279,392 | $ | 38.08 | |||||
|
|
||||||||
As of December 26, 2009, total unrecognized compensation expense related to non-vested restricted
stock units is $4,973,000 with a weighted average expense recognition period of 1.8 years.
47
Table of Contents
Employee Stock Purchase Plan
The ESPP provides our employees the opportunity to purchase, through payroll deductions, shares of
common stock at a 15% discount. Pursuant to the terms of the ESPP, we issued 50,735, 61,348 and
46,654 shares of common stock during
fiscal 2009, 2008 and 2007, respectively. The total cost related to the ESPP, including the
compensation expense calculations, was approximately $449,000, $485,000 and $556,000 in fiscal
2009, 2008 and 2007, respectively. At December 26, 2009, there were 3,187,320 shares of common
stock reserved for future issuance under the ESPP.
There were no significant modifications to the Company’s share-based compensation plans during
fiscal 2009 (provided that, as noted above, the Company adopted its 2009 Stock Incentive Plan in
replacement of its 2006 Stock Incentive Plan, effective May 7, 2009).
We are party to a Senior Credit Facility with Bank of America, N.A., as agent for a lender group
(the “Credit Agreement”), which provides for borrowings up to $350 million (with sublimits of $75
million and $20 million for letters of credit and swingline loans, respectively). The Credit
Agreement has an Increase Option for $150 million (subject to additional lender group commitments).
The Credit Agreement is unsecured and matures in February 2012, with proceeds expected to be used
for working capital, capital expenditures and share repurchases.
At December 26, 2009 and December 27, 2008, there were no outstanding borrowings under the Credit
Agreement. There were $35.2 million and $25.1 million outstanding letters of credit as of
December 26, 2009 and December 27, 2008, respectively. Borrowings bear interest at either the
bank’s base rate (3.25% at December 26, 2009) or the London Inter-Bank Offer Rate (0.23% at
December 26, 2009) plus an additional amount ranging from 0.35% to 0.90% per annum, adjusted
quarterly based on our performance (0.50% at December 26, 2009). We are also required to pay,
quarterly in arrears, a commitment fee ranging from 0.06% to 0.18% per annum and adjusted quarterly
based on our performance, for unused capacity (0.10% at December 26, 2009). There are no
compensating balance requirements associated with the Credit Agreement.
The Credit Agreement requires quarterly compliance with respect to two material covenants: a fixed
charge coverage ratio and a leverage ratio. The fixed charge coverage ratio principally compares
consolidated EBITDAR to the sum of interest paid and rental expense (excluding straight-line rent).
The leverage ratio principally compares total debt plus rental expense (excluding straight-line
rent) multiplied by a factor of six to consolidated EBITDAR. The Credit Agreement also contains
certain other restrictions regarding additional indebtedness, capital expenditures, business
operations, guarantees, investments, mergers, consolidations and sales of assets, transactions with
subsidiaries or affiliates, and liens. We were in compliance with all covenants at December 26,
2009.
We lease the majority of our office space and retail store locations, certain distribution centers,
transportation equipment and other equipment under various noncancellable operating leases. The
leases have varying terms and expire at various dates through 2029 and 2025 for capital leases and
operating leases, respectively. Store leases typically have initial terms of between 10 and 15
years, with two to four optional renewal periods of five years each. Some leases require the
payment of contingent rent that is based upon store sales above agreed-upon sales levels for the
year. The sales levels vary for each store and are established in the lease agreements.
Generally, most of the leases also require that we pay associated taxes, insurance and maintenance
costs.
Total rent expense for fiscal 2009, 2008 and 2007 was approximately $162.2 million, $144.4 million
and $124.2 million, respectively. Total contingent rent expense for fiscal 2009, 2008 and 2007 was
insignificant.
48
Table of Contents
Future minimum payments, by year and in the aggregate, under leases with initial or remaining terms
of one year or more consist of the following (in thousands):
| Capital | Operating | |||||||
| Leases | Leases | |||||||
|
|
||||||||
|
2010
|
$ | 526 | $ | 161,214 | ||||
|
2011
|
206 | 159,263 | ||||||
|
2012
|
146 | 151,966 | ||||||
|
2013
|
146 | 145,391 | ||||||
|
2014
|
146 | 134,869 | ||||||
|
Thereafter
|
2,072 | 732,276 | ||||||
|
|
||||||||
|
Total minimum lease payments
|
3,242 | $ | 1,484,979 | |||||
|
|
||||||||
|
Amount representing interest
|
(1,443 | ) | ||||||
|
|
||||||||
|
Present value of minimum lease payments
|
1,799 | |||||||
|
Less: current portion
|
(392 | ) | ||||||
|
|
||||||||
|
Long-term capital lease obligations
|
$ | 1,407 | ||||||
|
|
||||||||
Assets under capital leases were as follows (in thousands):
| 2009 | 2008 | |||||||
|
|
||||||||
|
Building and improvements
|
$ | 1,581 | $ | 1,581 | ||||
|
Computer software and hardware
|
3,022 | 3,553 | ||||||
|
Less: accumulated depreciation and amortization
|
(3,198 | ) | (3,068 | ) | ||||
|
|
||||||||
|
|
$ | 1,405 | $ | 2,066 | ||||
|
|
||||||||
The authorized capital stock of the Company consists of common stock and preferred stock. The
Company is authorized to issue 100,000,000 shares of common stock. The Company is also authorized
to issue 40,000 shares of Preferred Stock, with such designations, rights and preferences as may be
determined from time to time by the Board of Directors.
We have a Board-approved share repurchase program which provides for repurchase of up to $400
million of common stock, exclusive of any fees, commissions, or other expenses related to such
repurchases, through December 2011. The repurchases may be made from time to time on the open
market or in privately negotiated transactions. The timing and amount of any shares repurchased
under the program will depend on a variety of factors, including price, corporate and regulatory
requirements, capital availability, and other market conditions. Repurchased shares will be held
in treasury. The program may be limited or terminated at any time without prior notice.
We repurchased 0.4 million, 1.6 million and 3.2 million shares under the share repurchase program
for a total cost of $15.3 million, $53.9 million and $150.0 million in fiscal 2009, 2008 and 2007,
respectively. As of December 26, 2009, we had remaining authorization under the share repurchase
program of $181.0 million exclusive of any fees, commissions, or other expenses.
Comprehensive income for each fiscal year is as follows (in thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
|
||||||||||||
|
Net income
|
$ | 115,466 | $ | 81,930 | $ | 96,241 | ||||||
|
Foreign currency translation adjustment
|
— | — | 22 | |||||||||
|
|
||||||||||||
|
Comprehensive income
|
$ | 115,466 | $ | 81,930 | $ | 96,263 | ||||||
|
|
||||||||||||
49
Table of Contents
Net income per share is calculated as follows (in thousands, except per share amounts):
| 2009 | ||||||||||||
| Net | Per Share | |||||||||||
| Income | Shares | Amount | ||||||||||
|
Basic net income per share:
|
||||||||||||
|
Net income
|
$ | 115,466 | 35,990 | $ | 3.21 | |||||||
|
Dilutive stock
options and
restricted stock
units outstanding
|
— | 659 | (0.06 | ) | ||||||||
|
|
||||||||||||
|
Diluted net income per share
|
$ | 115,466 | 36,649 | $ | 3.15 | |||||||
|
|
||||||||||||
| 2008 | ||||||||||||
| Net | Per Share | |||||||||||
| Income | Shares | Amount | ||||||||||
|
Basic net income per share:
|
||||||||||||
|
Net income
|
$ | 81,930 | 36,830 | $ | 2.22 | |||||||
|
Dilutive stock
options and
restricted stock
units outstanding
|
— | 634 | (0.03 | ) | ||||||||
|
|
||||||||||||
|
Diluted net income per share
|
$ | 81,930 | 37,464 | $ | 2.19 | |||||||
|
|
||||||||||||
| 2007 | ||||||||||||
| Net | Per Share | |||||||||||
| Income | Shares | Amount | ||||||||||
|
Basic net income per share:
|
||||||||||||
|
Net income
|
$ | 96,241 | 39,220 | $ | 2.45 | |||||||
|
Dilutive stock
options and
restricted stock
units outstanding
|
— | 880 | (0.05 | ) | ||||||||
|
|
||||||||||||
|
Diluted net income per share
|
$ | 96,241 | 40,100 | $ | 2.40 | |||||||
|
|
||||||||||||
Anti-dilutive stock options excluded from the above calculations totaled 1,652,937, 1,637,286
and 1,052,603 in 2009, 2008 and 2007 respectively.
The provision for income taxes consists of the following (in thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Current tax expense:
|
||||||||||||
|
Federal
|
$ | 71,640 | $ | 46,489 | $ | 49,395 | ||||||
|
State
|
9,480 | 3,995 | 2,321 | |||||||||
|
|
||||||||||||
|
Total current
|
81,120 | 50,484 | 51,716 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Deferred tax expense (benefit):
|
||||||||||||
|
Federal
|
(10,926 | ) | 1,096 | 4,449 | ||||||||
|
State
|
(2,671 | ) | (74 | ) | 2,598 | |||||||
|
|
||||||||||||
|
Total deferred
|
(13,597 | ) | 1,022 | 7,047 | ||||||||
|
|
||||||||||||
|
Total provision
|
$ | 67,523 | $ | 51,506 | $ | 58,763 | ||||||
|
|
||||||||||||
Deferred income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the deferred tax assets and liabilities are as
follows (in thousands):
| 2009 | 2008 | |||||||
|
Current tax assets:
|
||||||||
|
Inventory valuation
|
$ | 8,462 | $ | 8,153 | ||||
|
Accrued employee benefit costs
|
14,955 | 7,466 | ||||||
|
Accrued sales taxes
|
3,280 | 139 | ||||||
|
Other
|
4,651 | 4,671 | ||||||
|
|
||||||||
|
|
31,348 | 20,429 | ||||||
|
|
||||||||
|
|
||||||||
|
Current tax liabilities:
|
||||||||
|
Inventory basis difference
|
(11,995 | ) | (17,653 | ) | ||||
|
Other
|
(1,444 | ) | (1,100 | ) | ||||
|
|
||||||||
|
|
(13,439 | ) | (18,753 | ) | ||||
|
|
||||||||
|
Net current tax asset
|
$ | 17,909 | $ | 1,676 | ||||
|
|
||||||||
|
|
||||||||
50
Table of Contents
| 2009 | 2008 | |||||||
|
|
||||||||
|
Non-current tax assets:
|
||||||||
|
Capital lease obligation basis difference
|
$ | 1,017 | $ | 1,013 | ||||
|
Rent expenses in excess of cash payments required
|
18,675 | 15,720 | ||||||
|
Deferred compensation
|
11,113 | 7,086 | ||||||
|
Other
|
2,981 | 2,271 | ||||||
|
|
||||||||
|
|
33,786 | 26,090 | ||||||
|
|
||||||||
|
|
||||||||
|
Non-current tax liabilities:
|
||||||||
|
Depreciation
|
(21,823 | ) | (11,376 | ) | ||||
|
Capital lease assets basis difference
|
(570 | ) | (597 | ) | ||||
|
Other
|
(302 | ) | (390 | ) | ||||
|
|
||||||||
|
|
(22,695 | ) | (12,363 | ) | ||||
|
|
||||||||
|
Net non-current tax asset
|
$ | 11,091 | $ | 13,727 | ||||
|
|
||||||||
We have evaluated the need for a valuation allowance for all or a portion of the deferred tax
assets and we believe that all of the deferred tax assets will more likely than not be realized
through future earnings.
A reconciliation of the provision for income taxes to the amounts computed at the federal statutory
rate is as follows (in thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
|
||||||||||||
|
Tax provision at statutory rate
|
$ | 64,047 | $ | 46,702 | $ | 54,252 | ||||||
|
Tax effect of:
|
||||||||||||
|
State income taxes, net of federal tax benefits
|
4,455 | 2,549 | 3,205 | |||||||||
|
Permanent differences
|
(979 | ) | 2,255 | 1,306 | ||||||||
|
|
||||||||||||
|
|
$ | 67,523 | $ | 51,506 | $ | 58,763 | ||||||
|
|
||||||||||||
The Company and its affiliates file income tax returns in the U. S. and various state and
local jurisdictions. With few exceptions, we are no longer subject to federal, state and local
income tax examinations by tax authorities for years before 2004. Various states have completed an
examination of our income tax returns for 2001 through 2007.
As a result of adopting new accounting guidance for accounting for uncertainty in income taxes, we
recognized a $1.9 million increase (net of applicable federal tax benefit) in the liability for
unrecognized tax benefits, including interest, which was accounted for as a reduction to the
December 30, 2006 balance of retained earnings. The total amount of unrecognized tax benefits
that, if recognized, would decrease the effective tax rate, is $2.9 million at December 26, 2009.
In addition, we recognize current interest and penalties accrued related to these uncertain tax
positions as interest expense, (a component of total operating expenses) and the amount is not
material to the Consolidated Statements of Income. A reconciliation of the beginning and ending
gross amount of unrecognized tax benefits (exclusive of interest and penalties) is as follows (in
thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Balance at beginning of year
|
$ | 3,052 | $ | 4,236 | $ | 3,558 | ||||||
|
Additions based on tax positions related to the current year
|
1,295 | 762 | 812 | |||||||||
|
Additions for tax positions of prior years
|
437 | — | 278 | |||||||||
|
Reductions for tax positions of prior years
|
(688 | ) | (520 | ) | (377 | ) | ||||||
|
Reductions due to audit results
|
(207 | ) | (1,426 | ) | (35 | ) | ||||||
|
|
||||||||||||
|
Balance at end of year
|
$ | 3,889 | $ | 3,052 | $ | 4,236 | ||||||
|
|
||||||||||||
We have a defined contribution benefit plan, the Tractor Supply Company 401(k) Retirement Savings
Plan (the “Plan”), which provides retirement benefits for our employees. Employees become eligible
on the first month following their fulfillment of the eligibility requirements. To be eligible, an
employee must be at least 21 years of age, have completed 12 months of employment, and performed
1,000 hours of service in a year of service as defined by the Plan. We match (in cash) 100% of the
employee’s elective contributions up to 3% of the employee’s eligible compensation plus 50% of the
employee’s elective contributions from 3% to 6% of the employee’s eligible compensation. In no
event shall the total Company match made on behalf of the employee exceed 4.5% of the employee’s
eligible compensation. All current contributions are immediately 100% vested. Company
contributions to the Plan during fiscal 2009, 2008 and 2007, were approximately $3.2 million, $2.8
million and $2.6 million, respectively.
51
Table of Contents
We offer, through a deferred compensation program, the opportunity for certain qualifying employees
to elect a deferral of up to 40% of their annual base salary and up to 100% of their annual
incentive bonus under their respective incentive bonus programs. To be eligible for the salary
deferral, each participant must contribute the maximum amount of salary to the Tractor Supply
Company 401(k) Retirement Savings Plan subject to the Company’s match. Under the deferred
compensation program, the participants’ salary deferral is matched by the Company, 100% on the
first $3,000 of base salary contributed and 50% on the next $3,000 of base salary contributed
limited to a maximum annual matching contribution of $4,500. Each participant’s account earns
simple annual interest at the prime rate as in effect on January 1 each year. Each participant is
fully vested in all amounts credited to their deferred compensation account. Payments under the
program, which are made in cash and paid in ten annual installments or in a single lump sum payment
at the election of the participant, are made within 30 days following the earlier of the
participant’s (i) death, (ii) retirement, plus six months if the participant is a key employee,
(iii) total and permanent disability, (iv) separation from service, plus six months if the
participant is a key employee, or (v) some other date designated by the participant at the time of
the initial deferral. The Company’s contributions, including accrued interest, were $0.3 million,
$0.3 million and $0.5 million for fiscal 2009, 2008 and 2007, respectively.
Construction and Real Estate Commitments
We had commitments for new store construction projects totaling approximately $2.7 million at
December 26, 2009.
Litigation
We are involved in various litigation matters arising in the ordinary course of business.
Management expects these matters will be resolved without material adverse effect on our
consolidated financial position or results of operations. Any estimated loss related to such
matters has been adequately provided in accrued liabilities to the extent probable and reasonably
estimable. It is possible, however, that future results of operations for any particular quarterly
or annual period could be materially affected by changes in circumstances relating to these
proceedings.
In December 2007, the FASB modified FASB ASC 805, Business Combinations (“Topic 805”). Previous
guidance applied only to business combinations in which control was obtained by transferring
consideration; the revised guidance applies to all transactions or other events in which one entity
obtains control over another. Topic 805 now defines the acquirer as the entity that obtains
control over one or more other businesses and defines the acquisition date as the date the acquirer
achieves control. It also requires the acquirer to recognize assets acquired, liabilities assumed
and any noncontrolling interest in the acquiree at their respective fair values as of the
acquisition date. The revised guidance changes the treatment of acquisition-related costs,
restructuring costs related to an acquisition that the acquirer expects but is not obligated to
incur, contingent consideration associated with the purchase price and preacquisition contingencies
associated with acquired assets and liabilities. Topic 805 retains the guidance for identifying
and recognizing intangible assets apart from goodwill. The revised guidance applies prospectively
to business combinations for which the acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15, 2008. We adopted this revised guidance
effective December 28, 2008 (fiscal 2009). Thus we are required to apply the revised guidance to
any business acquisition which occurs on or after December 28, 2008, but this modification had no
effect on prior acquisitions.
In April 2008, the FASB modified FASB ASC 350, Intangibles – Goodwill and Other, and FASB ASC 275,
Risks and Uncertainties, for factors that must be considered in developing renewal or extension
assumptions used to determine the useful life over which to amortize the cost of a recognized
intangible asset. The modification requires an entity to consider its own assumptions about
renewal or extension of the term of the arrangement, consistent with its expected use of the asset,
and is an attempt to improve consistency between the useful life of a recognized intangible asset
and the period of expected cash flows used to measure the fair value of the asset. We adopted the
guidance for determining the useful life of a recognized intangible asset effective December 28,
2008 (fiscal 2009), and the guidance is applied prospectively to intangible assets acquired after
the effective date. The guidance did not have an impact on our financial condition, results of
operations or cash flow.
52
Table of Contents
On April 9, 2009, the FASB modified FASB ASC 825, Financial Instruments, and FASB ASC 270, Interim
Reporting, to extend the disclosure requirements related to the fair value of financial instruments
to interim financial statements of
publicly traded companies. We adopted this guidance effective June 27, 2009. This guidance did
not have a significant impact on our financial condition, results of operations or cash flow.
In May 2009, the FASB modified FASB ASC 855, Subsequent Events, which establishes general standards
of accounting for and disclosure of events that occur after the balance sheet date but before
financial statements are issued and requires entities to disclose the date through which they have
evaluated subsequent events. We adopted this guidance effective June 27, 2009. The adoption of
this guidance did not have an impact on our financial condition, results of operations or cash
flows.
In June 2009, the FASB issued ASU No. 2009-01 Topic 105, Generally Accepted Accounting Principles
which establishes the FASB ASC. The FASB ASC is the single source of authoritative nongovernmental
U.S. GAAP, superseding existing FASB, American Institute of Certified Public Accountants, Emerging
Issues Task Force, and related accounting literature. The FASB ASC reorganizes the thousands of
GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent
structure. Also included is relevant Securities and Exchange Commission guidance organized using
the same topical structure in separate sections. We adopted ASU No. 2009-01 effective September
26, 2009. This impacted the Company’s notes to financial statements since all references to
authoritative accounting literature are referenced in accordance with the FASB ASC.
We evaluated all events or transactions that occurred after December 26, 2009 up through February
24, 2010, which represents the date these financial statements were filed with the Securities and
Exchange Commission.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation required by the Securities Exchange Act of 1934, as amended (the “1934
Act”), under the supervision and with the participation of our principal executive officer and
principal financial officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the 1934 Act) as of
December 26, 2009. Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by an issuer in the reports
that it files or submits under the 1934 Act is accumulated and communicated to the issuer’s
management, including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding required
disclosure. Based on this evaluation, our principal executive officer and principal financial
officer concluded that, as of December 26, 2009, our disclosure controls and procedures were
effective to ensure that information required to be disclosed by us in the reports that we file or
submit under the 1934 Act is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms.
Management’s Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining effective internal
control over financial reporting as defined in Rule 13a-15(f) under the 1934 Act. The Company’s
internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and presentation.
53
Table of Contents
Management assessed the effectiveness of the Company’s internal control over financial reporting as
of December 26, 2009. In making this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control –
Integrated Framework. Based on this assessment,
management believes that, as of December 26, 2009, the Company’s internal control over financial
reporting is effective based on those criteria.
Ernst & Young LLP, the independent registered public accounting firm which also audited the
Company’s consolidated financial statements, has issued a report on the Company’s internal control
over financial reporting, which is included herein.
Change in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our
last fiscal quarter that have materially affected or are reasonably likely to materially affect our
internal control over financial reporting.
Item 9B.
Other Information
None.
54
Table of Contents
Item 10.
Directors, Executive Officers and Corporate Governance
The information set forth under the caption “Executive Officers of the Registrant” in Part I of
this Form 10-K is incorporated herein by reference.
The information set forth under the captions “Corporate Governance – Code of Ethics,” “Item 1:
Election of Directors,” “Board Meetings and Committees,” and “Section 16(a) Beneficial Ownership
Reporting Compliance” in our Proxy Statement for our Annual Meeting of Stockholders to be held on
April 29, 2010 is incorporated herein by reference.
Item 11.
Executive Compensation
The information set forth under the captions “Corporate Governance – Compensation Committee
Interlock and Insider Participation,” “Compensation of Directors”, “Executive Compensation”,
“Compensation Committee Report”, “Compensation Discussion and Analysis”, “2009 Summary Compensation
Table”, “2009 Non-Qualified Deferred Compensation”, “2009 Grants of Plan-Based Awards”,
“Outstanding Equity Awards At Fiscal 2009 Year-End”, “2009 Option Exercises and Stock Vested”, and
“Potential Payments Upon Termination or Change in Control” in our Proxy Statement for our Annual
Meeting of Stockholders to be held on April 29, 2010 is incorporated herein by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The information set forth under the caption “Security Ownership of Certain Beneficial Owners and
Management” in our Proxy Statement for our Annual Meeting of Stockholders to be held on April 29,
2010 is incorporated herein by reference.
Following is a summary of our equity compensation plans as of December 26, 2009, under which equity
securities are authorized for issuance, aggregated as follows:
| Number of Securities to be | Weighted Average | |||||||||||
| Issued Upon Exercise of | Exercise Price of | Number of Securities | ||||||||||
| Outstanding Options, | Outstanding Options, | Remaining Available | ||||||||||
| Plan Category | Warrants, and Rights | Warrants and Rights | for Future Issuance | |||||||||
|
|
||||||||||||
|
Equity compensation plans approved
by security holders:
|
||||||||||||
|
|
||||||||||||
|
2009 Stock Incentive Plan
|
17,940 | $ | 33.36 | 3,082,060 | ||||||||
|
2006 Stock Incentive Plan
(1)
|
1,743,915 | 32.78 | — | |||||||||
|
2000 Stock Incentive Plan
(1)
|
1,014,373 | 35.68 | — | |||||||||
|
1994 Stock Option Plan
(1)
|
153,586 | 27.70 | — | |||||||||
|
Employee Stock Purchase Plan
(2)
|
— | — | 3,187,320 | |||||||||
|
Equity compensation plans not
approved by security holders:
|
— | — | — | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Total
|
2,929,814 | $ | 33.52 | 6,269,380 | ||||||||
|
|
||||||||||||
| (1) |
The 2006 Stock Incentive Plan was superseded in May 2009.
The 2000 Stock Incentive Plan was superseded in May 2006. The 1994 Stock
Option Plan expired in February 2004.
|
|
| (2) |
Represents shares available as of December 26, 2009.
|
The information set forth in Note 2 to the “Notes to Consolidated Financial Statements”
contained in this Report provides further information with respect to the material features of each
plan.
55
Table of Contents
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information set forth under the captions “Item 1 – Election of Directors”, “Corporate
Governance” and “Related-Party Transactions” in our Proxy Statement for our Annual Meeting of
Stockholders to be held on April 29, 2010 is incorporated herein by reference.
Item 14.
Principal Accountant Fees and Services
The information set forth under the caption “Item 2 – Ratification of Reappointment of Independent
Registered Public Accounting Firm” in our Proxy Statement for our Annual Meeting of Stockholders to
be held on April 29, 2010, is incorporated herein by reference.
Item 15.
Exhibits, Financial Statement Schedules
| (a) (1) |
Financial Statements
|
|
|
See Consolidated Financial Statements under Item 8 on pages 32 through 53 of this Report.
|
||
| (a) (2) |
Financial Statement Schedules
|
|
|
None
|
||
|
Financial statement schedules have been omitted because they are not applicable.
|
||
| (a) (3) |
Exhibits
|
|
|
The exhibits listed in the Index to Exhibits, which appears on pages 58 through 61 of this
Form 10-K, are incorporated herein by reference or filed as part of this Form 10-K.
|
56
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
TRACTOR SUPPLY COMPANY
|
||||
| Date: February 24, 2010 | By: | /s/ Anthony F. Crudele | ||
| Anthony F. Crudele | ||||
| Executive Vice President – Chief Financial Officer and Treasurer | ||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant in the capacities and on the dates
indicated.
| Signature | Title | Date | ||
|
|
||||
|
/s/ Anthony F. Crudele
|
Executive Vice President – Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) | February 24, 2010 | ||
|
|
||||
|
/s/ James F. Wright
|
Chairman of the Board, Chief Executive Officer and Director (Principal Executive Officer) | February 24, 2010 | ||
|
|
||||
|
/s/ John Adams
|
Director | February 24, 2010 | ||
|
|
||||
|
/s/ William Bass
|
Director | February 24, 2010 | ||
|
|
||||
|
/s/ Jack C. Bingleman
|
Director | February 24, 2010 | ||
|
|
||||
|
/s/ S.P. Braud
|
Director | February 24, 2010 | ||
|
|
||||
|
/s/ Richard W. Frost
|
Director | February 24, 2010 | ||
|
|
||||
|
/s/ Cynthia T. Jamison
|
Director | February 24, 2010 | ||
|
|
||||
|
/s/ Gerard E. Jones
|
Director | February 24, 2010 | ||
|
|
||||
|
/s/ George MacKenzie
|
Director | February 24, 2010 | ||
|
|
||||
|
/s/ Edna K. Morris
|
Director | February 24, 2010 |
57
Table of Contents
EXHIBIT INDEX
| 3.1 |
Restated Certificate of Incorporation, as amended, of the Company, filed
with the Delaware Secretary of State on February 14, 1994 (filed as Exhibit 4.1
to Registrant’s Registration Statement on Form S-8, Registration No. 333-102768,
filed with the Commission on January 28, 2003. and incorporated herein by
reference).
|
|||
|
|
||||
| 3.2 |
Certificate of Amendment of the Restated Certificate of Incorporation, as
amended, of the Company, filed with the Delaware Secretary of State on April 28,
1995 (filed as Exhibit 4.2 to Registrant’s Registration Statement on Form S-8,
Registration No. 333-102768, filed with the Commission on January 28, 2003, and
incorporated herein by reference).
|
|||
|
|
||||
| 3.3 |
Certificate of Amendment of the Restated Certificate of Incorporation, as
amended, of the Company, filed with the Delaware Secretary of State on May 13,
1994 (filed as Exhibit 4.3 to Registrant’s Registration Statement on Form S-8,
Registration No. 333-102768, filed with the Commission on January 28, 2003, and
incorporated herein by reference).
|
|||
|
|
||||
| 3.4 |
Certificate of Amendment of the Restated Certificate of Incorporation, as
amended, of the Company (filed as Exhibit 3.1 to Registrant’s Quarterly Report
on Form 10-Q, filed with the Commission on May 3, 2005, Commission File No.
000-23314, and incorporated herein by reference).
|
|||
|
|
||||
| 3.5 |
Second Amended and Restated By-laws (filed as Exhibit 3(ii) to
Registrant’s Current Report on Form 8-K, filed with the Commission on February
11, 2009, Commission File No. 000-23314, and incorporated herein by reference).
|
|||
|
|
||||
| 4.1 |
Form of Specimen Certificate representing the Company’s Common Stock, par
value $.008 per share (filed as Exhibit 4.2 to Amendment No. 1 to Registrant’s
Registration Statement on Form S-1, Registration
No. 33-73028,
filed with the
Commission on January 31, 1994, and incorporated herein by reference).
|
|||
|
|
||||
| 10.1 |
Tractor Supply Company 1994 Stock Option Plan (filed as Exhibit 10.28 to
Registrant’s Registration Statement on Form S-1, Registration No. 33-73028, filed
with the Commission on December 17, 1993, and incorporated herein by reference).+
|
|||
|
|
||||
| 10.2 |
Amendment to the Tractor Supply Company 1994 Stock Option Plan (filed as
Exhibit 4.6 to Registrant’s Registration Statement on Form S-8, Registration No.
333-10699, filed with the Commission on June 14, 1999, and incorporated herein by
reference).+
|
|||
|
|
||||
| 10.3 |
Second Amendment to the Tractor Supply Company 1994 Stock Option Plan
(filed as Exhibit 10.44 to Registrant’s Annual Report on Form 10-K, filed with
the Commission on March 24, 2000, Commission File No. 000-23314, and incorporated
herein by reference).+
|
|||
|
|
||||
| 10.4 |
Third Amendment to the Tractor Supply Company 1994 Stock Option Plan,
effective February 8, 2007 (filed as Exhibit 10.36 to Registrant’s Annual Report
on Form 10-K, filed with the Commission on February 28, 2007, Commission File No.
000-23314, and incorporated herein by reference.)+
|
|||
|
|
||||
| 10.5 |
Certificate of Insurance relating to the Medical Expense Reimbursement Plan
of the Company (filed as Exhibit 10.33 to Registrant’s Registration Statement on
Form S-1, Registration No. 33-73028, filed with the Commission on December 17,
1993, and incorporated herein by reference).
|
|||
|
|
||||
| 10.6 |
Summary Plan Description of the Executive Life Insurance Plan of the
Company (filed as Exhibit 10.34 to Registrant’s Registration Statement on Form
S-1, Registration No. 33-73028, filed with the Commission on December 17, 1993,
and incorporated herein by reference).+
|
58
Table of Contents
|
|
||||
| 10.7 |
Tractor Supply Company 1996 Associate Stock Purchase Plan (filed as Exhibit
4.4 to Registrant’s Registration Statement on Form S-8, Registration No.
333-10699, filed with the Commission on August 23, 1996, and incorporated herein
by reference).+
|
|||
|
|
||||
| 10.8 |
Tractor Supply Company Restated 401(k) Retirement Plan (filed as Exhibit
4.1 to Registrant’s Registration Statement on Form S-3, Registration No.
333-35317, filed with the Commission on September 10, 1997, and incorporated
herein by reference).+
|
|||
|
|
||||
| 10.9 |
First Amendment, dated December 22, 2003 to the Tractor Supply Company
401(k) Retirement Savings Plan (filed as Exhibit 10.53 to Registrant’s Annual
Report on Form 10-K, filed with the Commission on March 8, 2004, Commission File
No. 000-23314, and incorporated herein by reference).+
|
|||
|
|
||||
| 10.10 |
Second Amendment to Tractor Supply Company Restated 401(k) Retirement Plan
(filed as Exhibit 10.57 to Registrant’s Annual Report on Form 10-K, filed with
the Commission on March 23, 2001, Commission File No. 000-23314, and incorporated
herein by reference).+
|
|||
|
|
||||
| 10.11 |
Trust Agreement (filed as Exhibit 4.2 to Registrant’s Registration
Statement on Form S-3, Registration No. 333-35317, filed with the Commission on
September 10, 1997, and incorporated herein by reference).
|
|||
|
|
||||
| 10.12 |
Split-Dollar Agreement, dated January 27, 1998, between the Company and
Joseph H. Scarlett, Jr., Tara Anne Scarlett and Andrew Sinclair Scarlett (filed
as Exhibit 10.45 to Registrant’s Annual Report on Form 10-K, filed with the
Commission on March 17, 1999, Commission File No. 000-23314, and incorporated
herein by reference).
|
|||
|
|
||||
| 10.13 |
Tractor Supply Company 2000 Stock Incentive Plan (filed as Exhibit 4.5 to
Registrant’s Registration Statement on Form S-8, Registration No. 333-102768,
filed with the Commission on January 28, 2003 and incorporated herein by
reference).+
|
|||
|
|
||||
| 10.14 |
First Amendment to the Tractor Supply Company 2000 Stock Incentive Plan,
effective February 8, 2007 (filed as Exhibit 10.37 to Registrant’s Annual Report
on Form 10-K, filed with the Commission on February 28, 2007, Commission File No.
000-23314, and incorporated herein by reference.) +
|
|||
|
|
||||
| 10.15 |
First Amendment to Lease Agreement, dated as of December 18, 2000, between
Tractor Supply Company and GOF Partners (filed as Exhibit 10.56 to Registrant’s
Annual Report on Form 10-K, filed with the Commission on March 23, 2001,
Commission File No. 000-23314, and incorporated herein by reference).
|
|||
|
|
||||
| 10.16 |
Transportation Management Services Agreement between UPS Logistics Group,
Inc. and Tractor Supply Company dated May 10, 2001 (filed as Exhibit 10.58 to
Registrant’s Quarterly Report on Form 10-Q, filed with the Commission on August
14, 2001 Commission File No. 000-23314, and incorporated herein by reference).
|
|||
|
|
||||
| 10.17 |
Tractor Supply Company Executive Deferred Compensation Plan, dated
November 11, 2001 (filed as Exhibit 10.58 to Registrant’s Quarterly Report on
Form 10-Q, filed with the Commission on May 13, 2002, Commission File No.
000-23314, and incorporated herein by reference).
|
|||
|
|
||||
| 10.18 |
Transition and Separation Agreement dated February 17, 2006 between
Tractor Supply Company and Calvin B. Massmann (filed as Exhibit 10.1 to
Registrant’s Current Report on Form 8-K, Registration No. 000-23314 filed with
the Commission on February 21, 2006, and incorporated herein by reference).+
|
|||
|
|
||||
| 10.19 |
Lease Agreement dated January 22, 2004 between Tractor Supply Company and
The Prudential Insurance Company of America (filed as Exhibit 10.54 to
Registrant’s Annual
Report on Form 10-K, filed with the Commission on March 8, 2004, Commission
File No. 000-23314, and incorporated herein by reference).
|
59
Table of Contents
| 10.20 |
Tractor Supply Co. 2004 Cash Incentive Plan, effective April 15, 2004
(filed as Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q, filed with
the Commission on August 4, 2004, Commission File No. 000-23314, and incorporated
herein by reference).
|
|||
|
|
||||
| 10.21 |
Employment Agreement between Tractor Supply Company and James F. Wright
effective July 12, 2004 (filed as Exhibit 10.2 to Registrant’s Quarterly Report
on Form 10-Q, filed with the Commission on August 4, 2004, Commission File No.
000-23314, and incorporated herein by reference).+
|
|||
|
|
||||
| 10.22 |
First Amendment to Employment Agreement, dated December 22, 2008, by and
between Tractor Supply Company and James F. Wright (filed as Exhibit 10.1 to
Registrant’s Current Report on Form 8-K, filed with the Commission on
February 17, 2010, Commission File No. 000-23314, and incorporated herein by
reference).+
|
|||
|
|
||||
| 10.23 |
Second Amendment to Employment Agreement, dated February 11, 2010, by and
between Tractor Supply Company and James F. Wright (filed as Exhibit 10.2 to
Registrant’s Current Report on Form 8-K, filed with the Commission on
February 17, 2010, Commission File No. 000-23314, and incorporated herein by
reference).+
|
|||
|
|
||||
| 10.24 |
Chairman of the Board Bonus Plan (filed as Exhibit 10.1 to Registrant’s
Current Report on Form 8-K, filed with the Commission on April 27, 2005,
Commission File No. 000-23314, and incorporated herein by reference).+
|
|||
|
|
||||
| 10.25 |
Form of Incentive Stock Option Agreement under the 2000 Stock Incentive
Plan (filed as Exhibit 10.46 to Registrant’s Annual Report on Form 10-K, filed
with the Commission on March 10, 2005, Commission File No. 000-23314, and
incorporated herein by reference).+
|
|||
|
|
||||
| 10.26 |
Form of Incentive Stock Option Agreement under the 2000 Stock Incentive
Plan (filed as Exhibit 10.44 to Registrant’s Annual Report on Form 10-K, filed
with the Commission on March 16, 2006, Commission File No. 000-23314, and
incorporated herein by reference).+
|
|||
|
|
||||
| 10.27 |
Form of Incentive Stock Option Agreement under the 2006 Stock Incentive
Plan (filed as Exhibit 10.39 to Registrant’s Annual Report on Form 10-K, filed
with the Commission on February 28, 2007, Commission File No. 000-23314, and
incorporated herein by reference).+
|
|||
|
|
||||
| 10.28 |
Form of Incentive Stock Option Agreement under the 2006 Stock Incentive
Plan (filed as Exhibit 10.45 to Registrant’s Annual Report on Form 10-K, filed
with the Commission on February 27, 2008, Commission File No. 000-23314,
incorporated herein by reference).+
|
|||
|
|
||||
| 10.29 |
Tractor Supply Company 2006 Stock Incentive Plan (filed as Exhibit 99.1 to
the Registrant’s Current Report on Form 8-K filed with the Commission on April
27, 2006, and incorporated herein by reference).+
|
|||
|
|
||||
| 10.30 |
First Amendment, dated April 27, 2006 to the 2006 Stock Incentive Plan
(filed as Exhibit 99.1 to Registrant’s Current Report on Form 8-K, filed with the
Commission on April 27, 2006, Commission File No. 000-23314, and incorporated
herein by reference).+
|
|||
|
|
||||
| 10.31 |
Second Amendment to the Tractor Supply Company 2006 Stock Incentive Plan,
effective February 8, 2007 (filed as Exhibit 10.38 to Registrant’s Annual Report
on Form 10-K, filed with the Commission on February 28, 2007, Commission File No.
000-23314, and incorporated herein by reference.)+
|
|||
|
|
||||
| 10.32 |
Form of Incentive Stock Option Agreement under the 2006 Stock Incentive
Plan (filed as Exhibit 10.41 to the Registrant’s Annual Report on Form 10-K,
filed with the Commission on February 25, 2009, Commission File No. 000-23314,
and incorporated herein by reference).+
|
60
Table of Contents
|
|
||||
| 10.33 |
Form of Change in Control Agreement for each of Anthony F. Crudele;
Stanley L. Ruta; Gregory A. Sandfort; and Kimberly D. Vella (filed as Exhibit
10.42 to Registrant’s Quarterly Report on Form 10-Q, filed with the Commission on
August 4, 2009, Commission File No. 000-23314, and incorporated herein by
reference).+
|
|||
|
|
||||
| 10.34 |
Form of Change in Control Agreement for James F. Wright (filed as Exhibit
10.43 to Registrant’s Quarterly Report on Form 10-Q, filed with the Commission on
August 4, 2009, Commission File No. 000-23314, and incorporated herein by
reference).+
|
|||
|
|
||||
| 10.35 |
Form of Incentive Stock Option Agreement under the Tractor Supply Company
2009 Stock Incentive Plan (filed as Exhibit 10.44 to Registrant’s Quarterly
Report on Form 10-Q, filed with the Commission on August 4, 2009, Commission File
No. 000-23314, and incorporated herein by reference).+
|
|||
|
|
||||
| 10.36 |
Form of Restricted Share Unit Agreement under the Tractor Supply Company
2009 Stock Incentive Plan (filed as Exhibit 10.45 to Registrant’s Quarterly
Report on Form 10-Q, filed with the Commission on August 4, 2009, Commission File
No. 000-23314, and incorporated herein by reference).+
|
|||
|
|
||||
| 10.37 |
Form of Nonqualified Stock Option Agreement under the Tractor Supply
Company 2009 Stock Incentive Plan (filed as Exhibit 10.46 to Registrant’s
Quarterly Report on Form 10-Q, filed with the Commission on August 4, 2009,
Commission File No. 000-23314, and incorporated herein by reference).+
|
|||
|
|
||||
| 10.38 |
Revolving Credit Agreement, dated as of February 22, 2007 by and among
Tractor Supply Company, the banks party thereto, and Bank of America, N.A., as
Administrative Agent, (filed as Exhibit 10.47 to Registrant’s Quarterly Report on
Form 10-Q, filed with the Commission on November 2, 2009, Commission File No.
000-23314, and incorporated herein by reference).
|
|||
|
|
||||
| 10.39 |
First Amendment to Revolving Credit Agreement, dated as of February 25,
2008 by and among Tractor Supply Company, the banks party thereto, and Bank of
America, N.A., as Administrative Agent (filed as Exhibit 10.46 to Registrant’s
Annual Report on Form 10-K, filed with the Commission on February 27, 2008,
Commission File No. 000-23314, and incorporated herein by reference).
|
|||
|
|
||||
| 10.40 |
Form of Director Restricted Stock Unit Award Agreement (filed as Exhibit
10.48 to Registrant’s Quarterly Report on Form 10-Q, filed with the Commission on
November 2, 2009, Commission File No. 000-23314, and incorporated herein by
reference).+
|
|||
|
|
||||
| 10.41 |
Form of Restricted Share Unit Agreement for Officers (filed as Exhibit
10.49 to Registrant’s Quarterly Report on Form 10-Q, filed with the Commission on
November 2, 2009, Commission File No. 000-23314, and incorporated herein by
reference).+
|
|||
|
|
||||
| 10.42 |
Form of Deferred Stock Unit Award Agreement for Directors (filed as
Exhibit 10.50 to Registrant’s Quarterly Report on Form 10-Q, filed with the
Commission on November 2, 2009, Commission File No. 000-23314, and incorporated
herein by reference).+
|
|||
|
|
||||
| 10.43 |
Tractor Supply Company 2009 Stock Incentive Plan (filed as Exhibit 99.1 to
Registrant’s Current Report on Form 8-K, filed with the Commission on April 14,
2009, Commission File No. 000-23314, and incorporated herein by reference).+
|
|||
|
|
||||
| 23.1* |
Consent of Ernst & Young LLP.
|
|||
|
|
||||
| 31.1* |
Certification of Chief Executive Officer under Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|||
|
|
||||
| 31.2* |
Certification of Chief Financial Officer under Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|||
|
|
||||
| 32.1* |
Certification of Chief Executive Officer and Chief Financial Officer under
Section 906 of the Sarbanes-Oxley Act of 2002.
|
| * |
Filed herewith
|
|
| + |
Management contract or compensatory plan or arrangement
|
61
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission Of Matters To A Vote Of Security HoldersPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataNote 1 Significant Accounting Policies:Note 2 Share-based Compensation:Note 3 Credit Agreement:Note 4 Leases:Note 5 Capital Stock:Note 6 Treasury Stock:Note 7 Comprehensive Income:Note 8 Net Income Per Share:Note 9 Income Taxes:Note 10 Retirement Benefit Plans:Note 11 Commitments and Contingencies:Note 12 Impact Of Recently Issued Accounting Standards:Note 13 Subsequent Events:Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits, Financial Statement Schedules