TRACTOR SUPPLY CO /DE/
10-Ks and 10-Qs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
ý
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
For the quarterly period ended
|
September 27, 2014
|
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
|
(I.R.S. Employer Identification No.)
|
|
|
Incorporation or Organization)
|
|
|
|
|
|
|
|
5401 Virginia Way, Brentwood, Tennessee
|
37027
|
|
|
(Address of Principal Executive Offices)
|
(Zip Code)
|
|
|
|
|
|
|
Not Applicable
|
(615) 440-4000
|
|
|
(Former name, former address and former fiscal year, if changed since last report)
|
(Registrant's Telephone Number, Including Area Code)
|
|
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
þ
NO
o
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 the definitions of “large accelerated filer,” “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
(Do not check if a smaller reporting company)
|
Smaller reporting company
|
o
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
YES
o
NO
þ
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.
|
Class
|
Outstanding at October 25, 2014
|
|
|
Common Stock, $.008 par value
|
135,938,869
|
|
TRACTOR SUPPLY COMPANY
INDEX
|
|
|
Page No.
|
|
|
|
|
Page
2
TRACTOR SUPPLY COMPANY
(in thousands, except per share amounts)
(Unaudited)
|
September 27,
2014 |
December 28,
2013 |
September 28,
2013 |
|||||||||
|
ASSETS
|
|
||||||||||
|
Current assets:
|
|
|
|
||||||||
|
Cash and cash equivalents
|
$
|
47,510
|
|
$
|
142,743
|
|
$
|
45,988
|
|
||
|
Inventories
|
1,295,824
|
|
979,308
|
|
1,142,013
|
|
|||||
|
Prepaid expenses and other current assets
|
49,936
|
|
57,359
|
|
45,794
|
|
|||||
|
Deferred income taxes
|
33,317
|
|
29,838
|
|
19,823
|
|
|||||
|
Total current assets
|
1,426,587
|
|
1,209,248
|
|
1,253,618
|
|
|||||
|
Property and equipment:
|
|
|
|
|
|
|
|||||
|
Land
|
73,424
|
|
73,350
|
|
72,225
|
|
|||||
|
Buildings and improvements
|
684,700
|
|
581,938
|
|
556,153
|
|
|||||
|
Furniture, fixtures and equipment
|
440,314
|
|
408,021
|
|
395,159
|
|
|||||
|
Computer software and hardware
|
158,480
|
|
140,222
|
|
141,986
|
|
|||||
|
Construction in progress
|
25,015
|
|
65,312
|
|
55,022
|
|
|||||
|
|
1,381,933
|
|
1,268,843
|
|
1,220,545
|
|
|||||
|
Accumulated depreciation and amortization
|
(675,132
|
)
|
(603,911
|
)
|
(586,149
|
)
|
|||||
|
Property and equipment, net
|
706,801
|
|
664,932
|
|
634,396
|
|
|||||
|
Goodwill
|
10,258
|
|
10,258
|
|
10,258
|
|
|||||
|
Deferred income taxes
|
24,929
|
|
92
|
|
5,283
|
|
|||||
|
Other assets
|
20,123
|
|
18,861
|
|
15,751
|
|
|||||
|
Total assets
|
$
|
2,188,698
|
|
$
|
1,903,391
|
|
$
|
1,919,306
|
|
||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|||||
|
Current liabilities:
|
|
|
|
|
|
|
|||||
|
Accounts payable
|
$
|
483,042
|
|
$
|
316,487
|
|
$
|
403,521
|
|
||
|
Accrued employee compensation
|
19,530
|
|
50,573
|
|
28,398
|
|
|||||
|
Other accrued expenses
|
154,631
|
|
155,615
|
|
136,234
|
|
|||||
|
Current portion of capital lease obligations
|
125
|
|
42
|
|
39
|
|
|||||
|
Income taxes payable
|
19,014
|
|
9,424
|
|
2,323
|
|
|||||
|
Total current liabilities
|
676,342
|
|
532,141
|
|
570,515
|
|
|||||
|
Revolving credit loan
|
150,000
|
|
—
|
|
40,000
|
|
|||||
|
Capital lease obligations, less current maturities
|
3,048
|
|
1,200
|
|
1,214
|
|
|||||
|
Deferred rent
|
78,356
|
|
76,930
|
|
76,914
|
|
|||||
|
Other long-term liabilities
|
50,745
|
|
46,226
|
|
46,152
|
|
|||||
|
Total liabilities
|
958,491
|
|
656,497
|
|
734,795
|
|
|||||
|
Stockholders’ equity:
|
|
|
|
|
|
|
|||||
|
Preferred stock, $1.00 par value; 40 shares authorized; no shares issued
|
—
|
|
—
|
|
—
|
|
|||||
|
Common stock, $0.008 par value; 400,000 shares authorized at September 27, 2014, 200,000 shares authorized at December 28, 2013 and September 28, 2013; 167,082, 166,324 and 165,722 shares issued; 136,615, 139,654 and 139,587 shares outstanding at September 27, 2014, December 28, 2013 and September 28, 2013, respectively
|
1,337
|
|
1,331
|
|
1,326
|
|
|||||
|
Additional paid-in capital
|
483,804
|
|
452,668
|
|
429,144
|
|
|||||
|
Treasury stock – at cost, 30,467, 26,670 and 26,135 shares at September 27, 2014, December 28, 2013 and September 28, 2013, respectively
|
(1,082,970
|
)
|
(838,588
|
)
|
(799,773
|
)
|
|||||
|
Retained earnings
|
1,828,036
|
|
1,631,483
|
|
1,553,814
|
|
|||||
|
Total stockholders’ equity
|
1,230,207
|
|
1,246,894
|
|
1,184,511
|
|
|||||
|
Total liabilities and stockholders’ equity
|
$
|
2,188,698
|
|
$
|
1,903,391
|
|
$
|
1,919,306
|
|
||
The accompanying notes are an integral part of these financial statements.
Page
3
TRACTOR SUPPLY COMPANY
(in thousands, except per share amounts)
(Unaudited)
|
|
For the Fiscal Three Months Ended
|
For the Fiscal Nine Months Ended
|
|||||||||||||
|
|
September 27,
2014 |
September 28,
2013 |
September 27,
2014 |
September 28,
2013 |
|||||||||||
|
|
|||||||||||||||
|
Net sales
|
$
|
1,359,950
|
|
$
|
1,208,090
|
|
$
|
4,127,461
|
|
$
|
3,749,695
|
|
|||
|
Cost of merchandise sold
|
895,881
|
|
792,424
|
|
2,716,641
|
|
2,475,798
|
|
|||||||
|
Gross profit
|
464,069
|
|
415,666
|
|
1,410,820
|
|
1,273,897
|
|
|||||||
|
Selling, general and administrative expenses
|
312,669
|
|
287,859
|
|
914,528
|
|
833,269
|
|
|||||||
|
Depreciation and amortization
|
29,387
|
|
26,137
|
|
84,521
|
|
73,056
|
|
|||||||
|
Operating income
|
122,013
|
|
101,670
|
|
411,771
|
|
367,572
|
|
|||||||
|
Interest expense, net
|
505
|
|
350
|
|
1,267
|
|
1,085
|
|
|||||||
|
Income before income taxes
|
121,508
|
|
101,320
|
|
410,504
|
|
366,487
|
|
|||||||
|
Income tax expense
|
44,905
|
|
36,553
|
|
151,681
|
|
134,134
|
|
|||||||
|
Net income
|
$
|
76,603
|
|
$
|
64,767
|
|
$
|
258,823
|
|
$
|
232,353
|
|
|||
|
Net income per share – basic
|
$
|
0.56
|
|
$
|
0.46
|
|
$
|
1.87
|
|
$
|
1.67
|
|
|||
|
Net income per share – diluted
|
$
|
0.55
|
|
$
|
0.46
|
|
$
|
1.85
|
|
$
|
1.64
|
|
|||
|
Weighted average shares outstanding:
|
|
|
|
|
|||||||||||
|
Basic
|
137,367
|
|
139,524
|
|
138,293
|
|
139,304
|
|
|||||||
|
Diluted
|
138,863
|
|
141,726
|
|
140,002
|
|
141,689
|
|
|||||||
|
Dividends declared per common share outstanding
|
$
|
0.16
|
|
$
|
0.13
|
|
$
|
0.45
|
|
$
|
0.36
|
|
|||
The accompanying notes are an integral part of these financial statements.
Page
4
TRACTOR SUPPLY COMPANY
(in thousands)
(Unaudited)
|
|
For the Fiscal Nine Months Ended
|
||||||
|
|
September 27,
2014 |
September 28,
2013 |
|||||
|
Cash flows from operating activities:
|
|
|
|||||
|
Net income
|
$
|
258,823
|
|
$
|
232,353
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|||||||
|
Depreciation and amortization
|
84,521
|
|
73,056
|
|
|||
|
Loss (gain) on disposition of property and equipment
|
249
|
|
(170
|
)
|
|||
|
Stock compensation expense
|
12,114
|
|
10,349
|
|
|||
|
Excess tax benefit of stock options exercised
|
(7,333
|
)
|
(31,626
|
)
|
|||
|
Deferred income taxes
|
(28,316
|
)
|
(3,485
|
)
|
|||
|
Change in assets and liabilities:
|
|
|
|
|
|||
|
Inventories
|
(316,516
|
)
|
(233,897
|
)
|
|||
|
Prepaid expenses and other current assets
|
7,423
|
|
6,014
|
|
|||
|
Accounts payable
|
166,555
|
|
83,129
|
|
|||
|
Accrued employee compensation
|
(31,043
|
)
|
(20,002
|
)
|
|||
|
Other accrued expenses
|
(379
|
)
|
(12,982
|
)
|
|||
|
Income taxes payable
|
16,923
|
|
(9,410
|
)
|
|||
|
Other
|
4,543
|
|
5,281
|
|
|||
|
Net cash provided by operating activities
|
167,564
|
|
98,610
|
|
|||
|
Cash flows from investing activities:
|
|
|
|
|
|||
|
Capital expenditures
|
(125,425
|
)
|
(156,791
|
)
|
|||
|
Proceeds from sale of property and equipment
|
309
|
|
331
|
|
|||
|
Decrease in restricted cash
|
—
|
|
8,400
|
|
|||
|
Net cash used in investing activities
|
(125,116
|
)
|
(148,060
|
)
|
|||
|
Cash flows from financing activities:
|
|
|
|
|
|||
|
Borrowings under revolving credit agreement
|
260,000
|
|
175,000
|
|
|||
|
Repayments under revolving credit agreement
|
(110,000
|
)
|
(135,000
|
)
|
|||
|
Excess tax benefit of stock options exercised
|
7,333
|
|
31,626
|
|
|||
|
Principal payments under capital lease obligations
|
(57
|
)
|
(27
|
)
|
|||
|
Repurchase of shares to satisfy tax obligations
|
(4,766
|
)
|
(3,942
|
)
|
|||
|
Repurchase of common stock
|
(244,382
|
)
|
(90,601
|
)
|
|||
|
Net proceeds from issuance of common stock
|
16,461
|
|
30,024
|
|
|||
|
Cash dividends paid to stockholders
|
(62,270
|
)
|
(50,272
|
)
|
|||
|
Net cash used in financing activities
|
(137,681
|
)
|
(43,192
|
)
|
|||
|
Net decrease in cash and cash equivalents
|
(95,233
|
)
|
(92,642
|
)
|
|||
|
Cash and cash equivalents at beginning of period
|
142,743
|
|
138,630
|
|
|||
|
Cash and cash equivalents at end of period
|
$
|
47,510
|
|
$
|
45,988
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|||
|
Cash paid during the period for:
|
|
|
|
|
|||
|
Interest
|
$
|
546
|
|
$
|
406
|
|
|
|
Income taxes
|
162,073
|
|
148,519
|
|
|||
|
Supplemental disclosures of non-cash activities:
|
|||||||
|
Property acquired through capital lease
|
$
|
1,988
|
|
$
|
—
|
|
|
|
Non-cash accruals for construction in progress
|
7,654
|
|
11,798
|
|
|||
The accompanying notes are an integral part of these financial statements.
Page
5
TRACTOR SUPPLY COMPANY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying interim unaudited condensed consolidated financial statements of Tractor Supply Company (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States and the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended
December 28, 2013
. The results of operations for our interim periods are not necessarily indicative of results for the full fiscal year.
The Company self-insures a significant portion of its employee medical insurance, workers’ compensation insurance and general liability (including product liability) insurance plans. The Company has stop-loss insurance policies to protect it from individual losses over specified dollar values. For self-insured employee medical claims, we have a stop loss limit of
$250,000
per person per year. Our deductible or self-insured retention, as applicable, for each claim involving workers’ compensation insurance and general liability insurance is limited to
$500,000
. Further, we maintain a commercially reasonable umbrella/excess policy that covers liabilities in excess of the primary insurance policy limits.
The full extent of certain claims, especially workers’ compensation and general liability claims, may not become fully determined for several years. Therefore, the Company estimates potential obligations based upon historical data and experience, including actuarial calculations. Although the Company believes 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 the Company's financial results. The Company had recorded net self-insurance reserves of
$45.6 million
,
$41.3 million
and
$40.2 million
at
September 27, 2014
,
December 28, 2013
and
September 28, 2013
, respectively.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The Company's financial instruments consist of cash and cash equivalents, short-term receivables, trade payables and long-term debt instruments. Due to their short-term nature, the carrying values of cash and cash equivalents, restricted cash, short-term receivables and trade payables approximate current fair value at each balance sheet date. The Company had
$150 million
and
$40 million
in borrowings under the Senior Credit Facility at
September 27, 2014
and
September 28, 2013
, respectively. The Company had
no
borrowings under the Senior Credit Facility at
December 28, 2013
. Based on current market interest rates, the carrying value of our borrowings under the Senior Credit Facility approximates fair value.
Share-based compensation includes stock option and restricted stock unit awards and certain transactions under our Employee Stock Purchase Plan (the “ESPP”). Share-based compensation expense is recognized based on grant date fair value of all options and restricted stock unit awards plus a discount on shares purchased by employees as a part of the ESPP.
There were no significant modifications to the Company's share-based compensation plans during the fiscal
nine
months ended
September 27, 2014
.
For the
third
quarters of fiscal
2014
and
2013
, share-based compensation expense was
$4.0 million
and
$3.4 million
, respectively, and
$12.1 million
and
$10.3 million
for the first
nine
months of fiscal
2014
and
2013
, respectively.
Page
6
Stock Options
The following summarizes information concerning stock option grants during the first
nine
months of fiscal
2014
and
2013
:
|
|
Fiscal nine months ended
|
||||||
|
|
September 27,
2014 |
September 28,
2013 |
|||||
|
Stock options granted
|
1,142,719
|
|
1,022,426
|
|
|||
|
Weighted average exercise price
|
$
|
63.88
|
|
$
|
51.77
|
|
|
|
Weighted average fair value per option
|
$
|
15.32
|
|
$
|
14.66
|
|
|
As of
September 27, 2014
, total unrecognized compensation expense related to non-vested stock options was approximately
$20.4 million
with a remaining weighted average expense recognition period of
1.4
years.
Restricted Stock Units
The following summarizes information concerning restricted stock unit grants during the first
nine
months of fiscal
2014
and
2013
:
|
|
Fiscal nine months ended
|
||||||
|
|
September 27,
2014 |
September 28,
2013 |
|||||
|
Restricted stock units granted
|
57,452
|
|
59,864
|
|
|||
|
Weighted average fair value per share
|
$
|
64.51
|
|
$
|
51.72
|
|
|
As of
September 27, 2014
, total unrecognized compensation expense related to non-vested restricted stock units was approximately
$3.8 million
with a remaining weighted average expense recognition period of
1.8
years.
The Company presents both basic and diluted net income per share on the face of the unaudited condensed consolidated statements of income. Basic net income per share is calculated by dividing net income by the weighted average number of shares outstanding during the period. Diluted net income per share is calculated by dividing net income by the weighted average diluted shares outstanding. Dilutive shares are computed using the treasury stock method for stock options and restricted stock units. Net income per share is calculated as follows (in thousands, except per share amounts):
|
|
Fiscal three months ended September 27, 2014
|
Fiscal three months ended September 28, 2013
|
|||||||||||||||||||
|
|
Income
|
Shares
|
Per Share
Amount
|
Income
|
Shares
|
Per Share
Amount
|
|||||||||||||||
|
Basic net income per share:
|
|
|
|
|
|
|
|||||||||||||||
|
Net income
|
$
|
76,603
|
|
137,367
|
|
$
|
0.56
|
|
$
|
64,767
|
|
139,524
|
|
$
|
0.46
|
|
|||||
|
Diluted net income per share:
|
|||||||||||||||||||||
|
Dilutive stock options and restricted stock units outstanding
|
—
|
|
1,496
|
|
(0.01
|
)
|
—
|
|
2,202
|
|
—
|
|
|||||||||
|
Net income
|
$
|
76,603
|
|
138,863
|
|
$
|
0.55
|
|
$
|
64,767
|
|
141,726
|
|
$
|
0.46
|
|
|||||
Page
7
|
|
Fiscal nine months ended September 27, 2014
|
Fiscal nine months ended September 28, 2013
|
|||||||||||||||||||
|
|
Income
|
Shares
|
Per Share
Amount |
Income
|
Shares
|
Per Share
Amount |
|||||||||||||||
|
Basic net income per share:
|
|
|
|
|
|
|
|||||||||||||||
|
Net income
|
$
|
258,823
|
|
138,293
|
|
$
|
1.87
|
|
$
|
232,353
|
|
139,304
|
|
$
|
1.67
|
|
|||||
|
Diluted net income per share:
|
|||||||||||||||||||||
|
Dilutive stock options and restricted stock units outstanding
|
—
|
|
1,709
|
|
(0.02
|
)
|
—
|
|
2,385
|
|
(0.03
|
)
|
|||||||||
|
Net income
|
$
|
258,823
|
|
140,002
|
|
$
|
1.85
|
|
$
|
232,353
|
|
141,689
|
|
$
|
1.64
|
|
|||||
Anti-dilutive stock options excluded from the above calculations totaled approximately
1.4 million
and
0.7 million
for the three months ended
September 27, 2014
and
September 28, 2013
, and
1.1 million
and
1.2 million
for the
nine
months ended
September 27, 2014
and
September 28, 2013
, respectively.
On May 16, 2014, the Company exercised the option to increase the availability under the Senior Credit Facility by
$150 million
, which increased the aggregate principal amount available thereunder from
$250 million
to
$400 million
. The sublimit for swingline loans was also increased from
$20 million
to
$30 million
. This agreement is unsecured and matures in
October 2016
, with proceeds available to be used for working capital, capital expenditures, dividends, share repurchases and other matters. The Company had
$150 million
and
$40 million
in outstanding borrowings under the Senior Credit Facility at
September 27, 2014
and
September 28, 2013
, respectively. In addition, there were
$41.1 million
and
$47.3 million
outstanding letters of credit under the Senior Credit Facility as of
September 27, 2014
and
September 28, 2013
, respectively. Borrowings bear interest at either the bank’s base rate (
3.25%
at
September 27, 2014
) or the London Inter-Bank Offer Rate ("LIBOR") (
0.15%
at
September 27, 2014
) plus an additional amount ranging from
0.40%
to
1.00%
per annum (
0.50%
at
September 27, 2014
), adjusted quarterly based on our leverage ratio. The Company is also required to pay, quarterly in arrears, a commitment fee for unused capacity ranging from
0.08%
to
0.20%
per annum (
0.10%
at
September 27, 2014
), adjusted quarterly based on the Company's leverage ratio. The agreement requires quarterly compliance with respect to fixed charge coverage and leverage ratios. As of
September 27, 2014
, the Company was in compliance with all debt covenants.
On February 24, 2014, the Company’s Board of Directors authorized a
$1 billion
increase to the existing share repurchase program, bringing the total amount authorized to date under the program to an aggregate of
$2 billion
of common stock, exclusive of any fees, commissions, or other expenses related to such repurchases, through
December 2017
. 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 are accounted for at cost and will be held in treasury for future issuance. The program may be limited or terminated at any time without prior notice.
The Company repurchased
1.6 million
and
0.4 million
shares of common stock under the share repurchase program for a total cost of
$97.4 million
and
$21.3 million
during the
third
quarters of fiscal
2014
and fiscal
2013
, respectively. During the first
nine
months of
2014
and
2013
, the Company repurchased
3.8 million
and
1.8 million
shares under the share repurchase program for a total cost of
$244.4 million
and
$90.6 million
, respectively. As of
September 27, 2014
, the Company had remaining authorization under the share repurchase program of
$917.4 million
, exclusive of any fees, commissions, or other expenses.
Capital Stock
The authorized capital stock of the Company consists of common stock and preferred stock. On May 1, 2014, the shareholders approved an amendment to the Company's Certificate of Incorporation to increase the number of authorized shares of common stock from
200 million
to
400 million
. 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.
Page
8
Dividends
During the first
nine
months of fiscal
2014
and
2013
, the Board of Directors declared the following cash dividends:
|
Date Declared
|
Dividend Amount
Per Share
|
Stockholders of Record Date
|
Date Paid
|
|||||
|
July 30, 2014
|
$
|
0.16
|
|
August 18, 2014
|
September 3, 2014
|
|||
|
April 30, 2014
|
$
|
0.16
|
|
May 19, 2014
|
June 3, 2014
|
|||
|
February 5, 2014
|
$
|
0.13
|
|
February 24, 2014
|
March 11, 2014
|
|||
|
July 31, 2013
|
$
|
0.13
|
|
August 19, 2013
|
September 4, 2013
|
|||
|
May 1, 2013
|
$
|
0.13
|
|
May 20, 2013
|
June 4, 2013
|
|||
|
February 6, 2013
|
$
|
0.10
|
|
February 25, 2013
|
March 12, 2013
|
|||
It is the present intention of the Board of Directors to continue to pay a quarterly cash dividend; however, the declaration and payment of future dividends will be determined by the Board of Directors in its sole discretion and will depend upon the earnings, financial condition, and capital needs of the Company, along with other factors which the Board of Directors deems relevant.
On
October 29, 2014
, the Company's Board of Directors declared a quarterly cash dividend of
$0.16
per share of the Company’s common stock. The dividend will be paid on
December 2, 2014
to stockholders of record as of the close of business on
November 17, 2014
.
The Company's effective income tax rate
increased
to
37.0%
in the
third
quarter of fiscal
2014
compared to
36.1%
for the
third
quarter of fiscal
2013
due principally to a prior year reduction in reserves for uncertain tax positions, a current year reduction of federal tax credits and a current year smaller benefit from disqualified incentive stock options. For the first
nine
months of fiscal
2014
, our effective tax rate increased to
36.9%
compared to
36.6%
for the first
nine
months of fiscal
2013
. The increase in the effective tax rate was due to a current year reduction in tax credits, principally the federal Wage Opportunity Tax Credit which has not been reinstated for 2014, and a prior year reduction in reserves for uncertain tax positions. The Company expects the 2014 full year effective tax rate will be approximately
36.9%
.
Letters of Credit
At
September 27, 2014
, there were
$41.1 million
outstanding letters of credit under the Senior Credit Facility and an
$18.3 million
outstanding letter of credit at a financial institution outside of the Senior Credit Facility.
Litigation
The Company responded to a Request for Information from the United States Environmental Protection Agency (“EPA”) in the first quarter of fiscal 2009 relating to certain recreational vehicles and non-road spark ignition engines sold by the Company. In the first quarter of fiscal 2011, the Environmental Enforcement Section of the Department of Justice (“DOJ”), on behalf of the EPA, informed the Company that it believed the Company had violated the Clean Air Act by importing or causing the importation of certain engines that were noncompliant, and that unless the DOJ and the Company were able to reach a settlement, the DOJ was prepared to commence a civil action. The engines were purchased by the Company pursuant to agreements with vendors under which the vendors represented that their products complied with all applicable laws and regulations and under which the vendors agreed to indemnify the Company for any liabilities or costs relating to, among other matters, the noncompliance or alleged noncompliance of their products. The Company notified these vendors of the EPA's position and has worked with these vendors to provide additional information to the DOJ and EPA regarding the alleged violations. As a result of this process, the Company believes it has provided evidence that many of the products identified by the DOJ and EPA in early 2011 were, in fact, in compliance with the Clean Air Act and that most of the remaining issues relate to products purchased from
one
vendor. The vendor of these products and the Company are engaged in settlement discussions with the DOJ and EPA that would call for the payment of a civil penalty by, and certain injunctive relief against, the Company. The Company does not expect the resolution of this matter to have a material adverse effect on its financial condition, results of operations or cash flows. The Company does not believe it is reasonably possible that a loss in excess of the amount accrued will be incurred.
Page
9
The Company is also involved in various litigation matters arising in the ordinary course of business. The Company believes that any estimated loss related to such matters has been adequately provided in accrued liabilities to the extent probable and reasonably estimable. Accordingly, the Company currently expects these matters will be resolved without material adverse effect on its consolidated financial position, results of operations or cash flows.
The Company has one reportable segment which is the retail sale of products that meet the needs of those who enjoy the rural lifestyle. The Company manages the business on the basis of
one
operating segment. The following chart indicates the percentage of sales represented by each major product category for the fiscal three and
nine
months ended
September 27, 2014
and
September 28, 2013
:
|
|
Fiscal three months ended
|
Fiscal nine months ended
|
|||||||||
|
|
September 27, 2014
|
September 28, 2013
|
September 27, 2014
|
September 28, 2013
|
|||||||
|
Product Category:
|
|
|
|||||||||
|
Livestock and Pet
|
45
|
%
|
45
|
%
|
45
|
%
|
45
|
%
|
|||
|
Hardware, Tools and Truck
|
23
|
|
24
|
|
22
|
|
22
|
|
|||
|
Seasonal, Gift and Toy Products
|
19
|
|
18
|
|
20
|
|
20
|
|
|||
|
Clothing and Footwear
|
7
|
|
7
|
|
7
|
|
7
|
|
|||
|
Agriculture
|
6
|
|
6
|
|
6
|
|
6
|
|
|||
|
Total
|
100
|
%
|
100
|
%
|
100
|
%
|
100
|
%
|
|||
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 amends the guidance for revenue recognition to replace numerous, industry-specific requirements and converges areas under this topic with those of the International Financial Reporting Standards. The ASU implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendments in this ASU are effective for reporting periods beginning after December 15, 2016, and early adoption is prohibited. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. Management is currently assessing the impact the adoption of ASU 2014-09 will have on our Condensed Consolidated Financial Statements and related disclosures, including which transition method it will adopt.
Page
10
General
The following discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended
December 28, 2013
. This Form 10-Q also contains forward-looking information. The forward-looking statements included herein 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 sales and earnings growth, estimated results of operations in future periods, the declaration and payment of dividends, future capital expenditures (including their amount and nature), business strategy, expansion and growth of our business operations and other such matters are forward-looking statements. These forward-looking statements may be affected by certain risks and uncertainties, any one, or a combination of which, could materially affect the results of our operations. 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.
As with any business, many aspects of our operations are subject to influences outside our control. These factors include, without limitation, general economic conditions affecting consumer spending, the timing and acceptance of new products in the stores, the timing and 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, failure of an acquisition to produce anticipated results, the ability to successfully manage expenses and execute our key gross margin enhancing initiatives, the availability of favorable credit sources, capital market conditions in general, the ability to open new stores in the manner and number 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 employees, product liability and other claims, changes in federal, state or local regulations, potential judgments, fines, legal fees and other costs, breach of information systems or theft of customer data, ongoing and potential future legal or regulatory proceedings, management of our information systems, failure to secure or develop and implement new technologies, the failure of customer-facing technology systems, business disruption including from the implementation of supply chain technologies, effective tax rate changes and results of examination by taxing authorities, the ability to maintain an effective system of internal control over financial reporting, changes in accounting standards, assumptions and estimates. We discuss in greater detail risk factors relating to our business in Item 1A of our Annual Report on Form 10-K for the fiscal year ended
December 28, 2013
. Forward-looking statements are based on our knowledge of our business and the environment in which we operate, but because of the factors listed above or other factors, actual results could differ materially from those reflected by any forward-looking statements. Consequently, all of the forward-looking statements made are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated will be realized or, even if substantially realized, that they will have the expected consequences to or effects on our business and operations. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. 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.
Seasonality and Weather
Our business is seasonal. Historically, our sales and profits are the highest in the second and fourth fiscal quarters due to the sale of seasonal products. In past years, weather conditions, including unseasonably warm weather in winter months, and extreme weather conditions, including snow and ice storms, flood and wind damage, hurricanes, tornadoes, extreme rain and droughts, have affected our sales and results of operations both positively and negatively. Our strategy is to remain flexible and react to extreme weather conditions by adjusting our merchandise assortments and redirecting inventories to stores affected by the weather conditions. We experience our highest inventory and accounts payable balances during our first fiscal quarter for purchases of seasonal products to support the higher sales volume of the spring selling season and again during our third fiscal quarter to support the higher sales volume of the cold-weather selling season.
Results of Operations
Fiscal Three Months (
Third
Quarter) Ended
September 27, 2014
and
September 28, 2013
Net sales
increased
12.6%
to
$1.36 billion
for the
third
quarter of fiscal
2014
from
$1.21 billion
for the
third
quarter of fiscal
2013
. Comparable store sales for the
third
quarter of fiscal
2014
were
$1.28 billion
, a
5.6%
increase
over the
third
quarter of fiscal
2013
. This compares to a
7.5%
comparable store sales increase for the
third
quarter of fiscal
2013
. Comparable store sales are calculated on an annual basis using sales generated from all stores open at least one year and all online sales and exclude certain adjustments to net sales. Stores closed or relocated during either of the years being compared are not removed from our
Page
11
comparable store sales metrics calculations. If the effect of closed and/or relocated stores on our comparable store sales metrics calculations becomes material, we would remove closed and/or relocated stores from the calculations.
The
third
quarter
2014
comparable store sales
increase
was broad based and driven by increases in both traffic and ticket. Comparable store transaction count increased
3.3%
and average ticket increased
2.2%
.
Comparable store sales benefited from favorable weather conditions throughout the quarter, which in turn drove strong performance in consumable, usable and edible (C.U.E.) and seasonal products. Increases in comparable store sales and average ticket were partially offset by deflation, principally in livestock feed, bird feed, lubricants and fencing. We estimate that comparable store sales were unfavorably impacted by approximately 90 basis points due to deflation, principally in livestock feed and bird feeding products.
In addition to comparable store sales growth in the
third
quarter of fiscal
2014
, sales from new stores, which are stores opened for less than one year, were
$85.7 million
for the
third
quarter of fiscal
2014
, which represented
7.1
percentage points of the
12.6%
increase over total
third
quarter fiscal
2013
net sales. For the
third
quarter of fiscal
2013
, sales from new stores were
$62.2 million
, which represented 5.8 percentage points of the 13.4% increase over total
third
quarter fiscal
2012
net sales.
The following chart summarizes our store growth for the fiscal three months ended
September 27, 2014
and
September 28, 2013
:
|
Fiscal three months ended
|
|||||
|
September 27, 2014
|
September 28, 2013
|
||||
|
Store Count, Beginning of Period
|
1,331
|
|
1,223
|
|
|
|
New Stores Opened
|
30
|
|
23
|
|
|
|
Stores Closed
|
—
|
|
(1
|
)
|
|
|
Store Count, End of Period
|
1,361
|
|
1,245
|
|
|
|
Stores Relocated
|
—
|
|
2
|
|
|
The following chart indicates the percentage of sales represented by each of our major product categories for the fiscal three months ended
September 27, 2014
and
September 28, 2013
:
|
|
Fiscal three months ended
|
||||
|
|
September 27, 2014
|
September 28, 2013
|
|||
|
Product Category:
|
|
|
|||
|
Livestock and Pet
|
45
|
%
|
45
|
%
|
|
|
Hardware, Tools and Truck
|
23
|
|
24
|
|
|
|
Seasonal, Gift and Toy Products
|
19
|
|
18
|
|
|
|
Clothing and Footwear
|
7
|
|
7
|
|
|
|
Agriculture
|
6
|
|
6
|
|
|
|
Total
|
100
|
%
|
100
|
%
|
|
Gross profit
increased
11.6%
to
$464.1 million
for the
third
quarter of fiscal
2014
from
$415.7 million
in the
third
quarter of fiscal
2013
. As a percent of sales, gross margin decreased
30
basis points to
34.1%
from
34.4%
in the prior year. The decrease in gross margin rate resulted primarily from higher transportation costs and the mix of merchandise sold. The decrease in gross margin rate was partially offset by the favorable impact of deflation as well as our key gross margin enhancing initiatives, which include inventory management, strategic sourcing, exclusive branding and price optimization.
As a percent of sales, selling, general and administrative (“SG&A”) expenses, including depreciation and amortization, improved
80
basis points to
25.2%
in the
third
quarter of fiscal
2014
from
26.0%
in the
third
quarter of fiscal
2013
. The improvement was primarily attributable to the leverage of store operating costs and incentive compensation provided by the strong comparable store sales growth. Total SG&A expenses
increased
8.9%
to
$342.1 million
from
$314.0 million
in the
third
quarter of fiscal
2013
. This increase is due primarily to new store growth.
The effective income tax rate
increased
to
37.0%
in the
third
quarter of fiscal
2014
compared to
36.1%
for the
third
quarter of fiscal
2013
due principally to a prior year reduction in reserves for uncertain tax positions, a current year reduction of federal tax
Page
12
credits and a current year smaller benefit from disqualified incentive stock options. The Company expects the full year 2014 effective tax rate will be approximately
36.9%
.
As a result of the foregoing factors, net income for the
third
quarter of fiscal
2014
increased
18.3%
to
$76.6 million
or
$0.55
per diluted share, as compared to net income of
$64.8 million
, or
$0.46
per diluted share, for the
third
quarter of fiscal
2013
.
Fiscal
Nine
Months Ended
September 27, 2014
and
September 28, 2013
Net sales increased
10.1%
to
$4.13 billion
for the first
nine
months of fiscal
2014
from
$3.75 billion
for the first
nine
months of fiscal
2013
. Comparable store sales for the first
nine
months of fiscal
2014
were
$3.87 billion
, a
3.2%
increase
over the first
nine
months of fiscal
2013
. This compares to a
5.3%
comparable store sales increase for the first
nine
months of fiscal
2013
. For the first
nine
months of fiscal
2014
, the comparable store sales
increase
was driven primarily by continued strong results in key C.U.E. products, principally animal- and pet-related merchandise and an increase in traffic counts. We estimate that comparable store sales were unfavorably impacted by approximately 90 basis points due to deflation, principally in livestock feed and bird feeding products.
In addition to comparable store sales growth in the first
nine
months of fiscal
2014
, sales from stores opened less than one year were
$259.4 million
for the first
nine
months of fiscal
2014
, which represented
6.9
percentage points of the
10.1%
increase over total first
nine
months fiscal
2013
net sales. Sales from stores opened less than one year were
$196.7 million
for the first
nine
months of fiscal
2013
, which represented 5.8 percentage points of the 11.0% increase over total first
nine
months fiscal
2012
net sales.
The following chart summarizes our store growth for the fiscal
nine
months ended
September 27, 2014
and
September 28, 2013
:
|
Fiscal nine months ended
|
|||||
|
September 27, 2014
|
September 28, 2013
|
||||
|
Store Count, Beginning of Period
|
1,276
|
|
1,176
|
|
|
|
New Stores Opened
|
85
|
|
71
|
|
|
|
Stores Closed
|
—
|
|
(2
|
)
|
|
|
Store Count, End of Period
|
1,361
|
|
1,245
|
|
|
|
Stores Relocated
|
1
|
|
2
|
|
|
The following chart indicates the percentage of sales represented by each of our major product categories for the fiscal
nine
months ended
September 27, 2014
and
September 28, 2013
:
|
Fiscal nine months ended
|
|||||
|
September 27,
2014 |
September 28,
2013 |
||||
|
Product Category:
|
|||||
|
Livestock and Pet
|
45
|
%
|
45
|
%
|
|
|
Hardware, Tools and Truck
|
22
|
|
22
|
|
|
|
Seasonal, Gift and Toy Products
|
20
|
|
20
|
|
|
|
Clothing and Footwear
|
7
|
|
7
|
|
|
|
Agriculture
|
6
|
|
6
|
|
|
|
Total
|
100
|
%
|
100
|
%
|
|
Gross profit
increased
10.7%
to
$1.41 billion
for the first
nine
months of fiscal
2014
from
$1.27 billion
in the first
nine
months of fiscal
2013
. As a percent of sales, gross margin
increased
20
basis points to
34.2%
for the first
nine
months of fiscal
2014
compared to
34.0%
for the comparable period in fiscal
2013
. The increase in gross margin rate reflects the favorable impact of deflation throughout the year in addition to solid retail price management and strong sell-through of winter goods in the first fiscal quarter of 2014. These favorable elements were partially offset by unfavorable product mix and increased transportation costs in the second and third quarter of 2014.
Page
13
SG&A expenses, including depreciation and amortization, as a percent to sales remained flat at
24.2%
in the first
nine
months of fiscal
2014
and fiscal
2013
. Total SG&A expenses
increased
10.2%
to
$999.0 million
from
$906.3 million
in the first
nine
months of fiscal
2013
. The increase in SG&A expense primarily reflects new store growth.
For the first
nine
months of fiscal
2014
, the effective income tax rate
increased
slightly to
36.9%
compared to
36.6%
for the first
nine
months of fiscal
2013
. The increase in the effective tax rate was due to a current year reduction in tax credits, principally the federal Wage Opportunity Tax Credit which has not been reinstated for 2014, and a prior year reduction in reserves for uncertain tax positions. The Company expects the full year 2014 effective tax rate will be approximately
36.9%
.
As a result of the foregoing factors, net income for the first
nine
months of fiscal
2014
increased
11.4%
to
$258.8 million
compared to
$232.4 million
in the first
nine
months of fiscal
2013
. Net income per diluted share for the first
nine
months of fiscal
2014
increased to
$1.85
from
$1.64
in the first
nine
months of fiscal
2013
.
Liquidity and Capital Resources
In addition to normal operating expenses, our primary ongoing cash requirements are for new store expansion, remodeling and relocation programs, distribution center and store support center capacity and improvements, information technology, inventory purchases, share repurchases and cash dividends. Our primary ongoing sources of liquidity are existing cash balances, funds provided from operations, borrowings available under our Senior Credit Facility, capital and operating leases and normal trade credit. Our inventory and accounts payable levels typically build in the first and third fiscal quarters to support the higher sales volume of the spring and cold-weather selling seasons, respectively.
Working Capital
At
September 27, 2014
, the Company had working capital of
$750.3 million
, which
increased
$73.2 million
from
December 28, 2013
and
increased
$67.2 million
from
September 28, 2013
. The shifts in working capital were attributable to changes in the following components of current assets and current liabilities (in millions):
|
|
September 27,
2014 |
December 28,
2013 |
Variance
|
September 28,
2013 |
Variance
|
||||||||||||||
|
Current assets:
|
|
|
|
|
|
||||||||||||||
|
Cash and cash equivalents
|
$
|
47.5
|
|
$
|
142.7
|
|
$
|
(95.2
|
)
|
$
|
46.0
|
|
$
|
1.5
|
|
||||
|
Inventories
|
1,295.8
|
|
979.3
|
|
316.5
|
|
1,142.0
|
|
153.8
|
|
|||||||||
|
Prepaid expenses and other current assets
|
50.0
|
|
57.4
|
|
(7.4
|
)
|
45.8
|
|
4.2
|
|
|||||||||
|
Deferred income taxes
|
33.3
|
|
29.8
|
|
3.5
|
|
19.8
|
|
13.5
|
|
|||||||||
|
|
1,426.6
|
|
1,209.2
|
|
217.4
|
|
1,253.6
|
|
173.0
|
|
|||||||||
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Accounts payable
|
483.0
|
|
316.5
|
|
166.5
|
|
403.5
|
|
79.5
|
|
|||||||||
|
Accrued employee compensation
|
19.5
|
|
50.6
|
|
(31.1
|
)
|
28.4
|
|
(8.9
|
)
|
|||||||||
|
Other accrued expenses
|
154.7
|
|
155.6
|
|
(0.9
|
)
|
136.3
|
|
18.4
|
|
|||||||||
|
Current portion of capital lease obligation
|
0.1
|
|
—
|
|
0.1
|
|
—
|
|
0.1
|
|
|||||||||
|
Income taxes payable
|
19.0
|
|
9.4
|
|
9.6
|
|
2.3
|
|
16.7
|
|
|||||||||
|
|
676.3
|
|
532.1
|
|
144.2
|
|
570.5
|
|
105.8
|
|
|||||||||
|
Working capital
|
$
|
750.3
|
|
$
|
677.1
|
|
$
|
73.2
|
|
$
|
683.1
|
|
$
|
67.2
|
|
||||
In comparison to
December 28, 2013
, working capital as of
September 27, 2014
was impacted most significantly by changes in our cash, inventories, accounts payable and accrued employee compensation.
|
•
|
The decrease in cash is primarily attributable to inventory purchases, common stock repurchases and capital expenditures, offset in part by earnings from operations and incremental borrowings under the Senior Credit Facility. Capital expenditures are principally related to new store construction and construction of the new store support center in Brentwood, TN.
|
|
•
|
The increase in inventories and accounts payable resulted primarily from the purchase of additional inventory to support new store growth as well as an increase of average inventory per store due to normal seasonal patterns.
|
|
•
|
The decrease in accrued employee compensation is primarily due to the payment of annual incentive compensation.
|
Page
14
In comparison to
September 28, 2013
, working capital as of
September 27, 2014
was impacted most significantly by changes in our inventories and accounts payable.
|
•
|
The increase in inventories and accounts payable is primarily a result of new store growth and increased average inventory per store of 3.7%. The increase in average inventory per store is principally related to strategic early purchases in key winter seasonal categories.
|
Operating Activities
Operating activities provided net cash of
$167.6 million
and
$98.6 million
in the first
nine
months of fiscal
2014
and fiscal
2013
, respectively. The
$69.0 million
increase
in net cash provided by operating activities in the first
nine
months of fiscal
2014
compared to the first
nine
months of fiscal
2013
is due to changes in the following operating activities (in millions):
|
|
Fiscal nine months ended
|
||||||||||
|
|
September 27,
2014 |
September 28,
2013 |
Variance
|
||||||||
|
Net income
|
$
|
258.8
|
|
$
|
232.4
|
|
$
|
26.4
|
|
||
|
Depreciation and amortization
|
84.5
|
|
73.1
|
|
11.4
|
|
|||||
|
Stock compensation expense
|
12.1
|
|
10.3
|
|
1.8
|
|
|||||
|
Excess tax benefit of stock options exercised
|
(7.3
|
)
|
(31.6
|
)
|
24.3
|
|
|||||
|
Deferred income taxes
|
(28.3
|
)
|
(3.5
|
)
|
(24.8
|
)
|
|||||
|
Inventories and accounts payable
|
(150.0
|
)
|
(150.8
|
)
|
0.8
|
|
|||||
|
Prepaid expenses and other current assets
|
7.4
|
|
6.0
|
|
1.4
|
|
|||||
|
Accrued expenses
|
(31.4
|
)
|
(33.0
|
)
|
1.6
|
|
|||||
|
Income taxes payable
|
16.9
|
|
(9.4
|
)
|
26.3
|
|
|||||
|
Other, net
|
4.9
|
|
5.1
|
|
(0.2
|
)
|
|||||
|
Net cash provided by operating activities
|
$
|
167.6
|
|
$
|
98.6
|
|
$
|
69.0
|
|
||
The
$69.0 million
increase
in net cash provided by operating activities in the first
nine
months of fiscal
2014
compared with the first
nine
months of fiscal
2013
is due to stronger earnings, the timing of income tax payments and less impact of excess tax benefits resulting from stock option exercises.
Investing Activities
Investing activities used cash of
$125.1 million
and
$148.1 million
in the first
nine
months of fiscal
2014
and fiscal
2013
, respectively. The decrease in cash used for investing activities primarily reflects a decrease in capital expenditures. Capital expenditures for the first
nine
months of fiscal
2014
and fiscal
2013
were as follows (in millions):
|
|
Fiscal nine months ended
|
||||||
|
|
September 27,
2014 |
September 28,
2013 |
|||||
|
New and relocated stores and stores not yet opened
|
$
|
62.7
|
|
$
|
51.5
|
|
|
|
Corporate and other
|
26.7
|
|
25.0
|
|
|||
|
Information technology
|
18.4
|
|
22.8
|
|
|||
|
Existing stores
|
16.0
|
|
13.1
|
|
|||
|
Distribution center capacity and improvements
|
1.6
|
|
40.9
|
|
|||
|
Purchase of previously leased stores
|
—
|
|
3.5
|
|
|||
|
|
$
|
125.4
|
|
$
|
156.8
|
|
|
The above table reflects
85
new stores in the first
nine
months of fiscal
2014
, compared to
71
new stores during the first
nine
months of fiscal
2013
. We expect to open 102 to 106 new stores during fiscal
2014
compared to
102
new stores in fiscal
2013
. The decrease in spending on distribution center capacity and improvements in the first
nine
months of fiscal
2014
compared to the first
nine
months of fiscal
2013
is primarily due to the construction of our new Macon, GA distribution center in fiscal 2013,
Page
15
which is the relocation of our former Southeast distribution center in Braselton, GA. This facility became operational in the third quarter of fiscal 2013.
Financing Activities
Financing activities used cash of
$137.7 million
and
$43.2 million
in the first
nine
months of fiscal
2014
and fiscal
2013
, respectively. The change in net cash used in financing activities is largely due to a
$153.8 million
increase in repurchases of common stock, partially offset by incremental net borrowings under the Senior Credit Facility of $110.0 million during the first
nine
months of fiscal
2014
compared to the first nine months of fiscal
2013
.
On May 16, 2014, the Company exercised the option to increase the availability under the Senior Credit Facility by
$150 million
, which increased the aggregate principal amount available thereunder from
$250 million
to
$400 million
. The sublimit for swingline loans was also increased from
$20 million
to
$30 million
. This agreement is unsecured and matures in
October 2016
, with proceeds available to be used for working capital, capital expenditures, dividends, share repurchases and other matters. The Company had
$150 million
and
$40 million
in borrowings under the Senior Credit Facility at
September 27, 2014
and
September 28, 2013
, respectively. There were
$41.1 million
and
$47.3 million
outstanding letters of credit under the Senior Credit Facility as of
September 27, 2014
and
September 28, 2013
, respectively. Borrowings bear interest at either the bank’s base rate (
3.25%
at
September 27, 2014
) or LIBOR (
0.15%
at
September 27, 2014
) plus an additional amount ranging from
0.40%
to
1.00%
per annum (
0.50%
at
September 27, 2014
), adjusted quarterly based on our leverage ratio. The Company is also required to pay, quarterly in arrears, a commitment fee for unused capacity ranging from
0.08%
to
0.20%
per annum (
0.10%
at
September 27, 2014
), adjusted quarterly based on the Company's leverage ratio. The agreement requires quarterly compliance with respect to fixed charge coverage and leverage ratios. As of
September 27, 2014
, the Company was in compliance with all debt covenants.
The Company believes that its existing cash balances, expected cash flow from future operations, borrowings available under the Senior Credit Facility, operating and capital leases and normal trade credit will be sufficient to fund its operations and its capital expenditure needs, including new store openings, store acquisitions, relocations and renovations and distribution center capacity, through the end of fiscal 2014.
Share Repurchase Program
On February 24, 2014, the Company’s Board of Directors authorized a
$1 billion
increase to the existing share repurchase program, bringing the total amount authorized to date under the program to an aggregate of
$2 billion
of common stock, exclusive of any fees, commissions, or other expenses related to such repurchases, through
December 2017
. 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 are accounted for at cost and will be held in treasury for future issuance. The program may be limited or terminated at any time without prior notice.
The Company repurchased
1.6 million
and
0.4 million
shares of common stock under the share repurchase program for a total cost of
$97.4 million
and
$21.3 million
during the
third
quarters of fiscal
2014
and fiscal
2013
, respectively. During the first
nine
months of
2014
and
2013
, the Company repurchased
3.8 million
and
1.8 million
shares under the share repurchase program for a total cost of
$244.4 million
and
$90.6 million
, respectively. As of
September 27, 2014
, the Company had remaining authorization under the share repurchase program of
$917.4 million
, exclusive of any fees, commissions, or other expenses.
Dividends
During the first
nine
months of fiscal
2014
and
2013
, the Board of Directors declared the following cash dividends:
|
Date Declared
|
Dividend Amount
Per Share |
Stockholders of Record Date
|
Date Paid
|
|||||
|
July 30, 2014
|
$
|
0.16
|
|
August 18, 2014
|
September 3, 2014
|
|||
|
April 30, 2014
|
$
|
0.16
|
|
May 19, 2014
|
June 3, 2014
|
|||
|
February 5, 2014
|
$
|
0.13
|
|
February 24, 2014
|
March 11, 2014
|
|||
|
July 31, 2013
|
$
|
0.13
|
|
August 19, 2013
|
September 4, 2013
|
|||
|
May 1, 2013
|
$
|
0.13
|
|
May 20, 2013
|
June 4, 2013
|
|||
|
February 6, 2013
|
$
|
0.10
|
|
February 25, 2013
|
March 12, 2013
|
|||
Page
16
It is the present intention of the Board of Directors to continue to pay a quarterly cash dividend; however, the declaration and payment of future dividends will be determined by the Board of Directors in its sole discretion and will depend upon the earnings, financial condition, and capital needs of the Company, along with other factors which the Board of Directors deems relevant.
On
October 29, 2014
, the Company's Board of Directors declared a quarterly cash dividend of
$0.16
per share of the Company’s common stock. The dividend will be paid on
December 2, 2014
to stockholders of record as of the close of business on
November 17, 2014
.
Off-Balance Sheet Arrangements
The Company's off-balance sheet arrangements are limited to operating leases and outstanding letters of credit. The Company typically leases buildings for retail stores rather than acquiring these assets which allows the Company to utilize financial capital to operate the business rather than invest in fixed assets. Letters of credit allow the Company to purchase inventory, primarily sourced overseas, in a timely manner and support certain risk management programs.
Significant Contractual Obligations and Commercial Commitments
There have been no other material changes in our contractual obligations and commercial commitments other than in the ordinary course of business since the end of fiscal
2013
.
At
September 27, 2014
, there were
$41.1 million
outstanding letters of credit under the Senior Credit Facility and an
$18.3 million
outstanding letter of credit at a financial institution outside of the Senior Credit Facility.
Significant Accounting Policies and Estimates
Management’s discussion and analysis of the Company's financial position and results of operations are based upon its 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. The Company's significant accounting policies, including areas of critical management judgments and estimates, have primary impact on the following financial statement areas:
|
-
|
Inventory valuation
|
-
|
Income tax contingencies
|
|
-
|
Self-insurance reserves
|
-
|
Long-lived assets
|
|
-
|
Sales tax audit reserve
|
|
|
See the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended
December 28, 2013
for a discussion of the Company's critical accounting policies. The Company's 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.
Recently Adopted Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. ASU 2014-09 amends the guidance for revenue recognition to replace numerous, industry-specific requirements and converges areas under this topic with those of the International Financial Reporting Standards. The ASU implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendments in this ASU are effective for reporting periods beginning after December 15, 2016, and early adoption is prohibited. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. Management is currently assessing the impact the adoption of ASU 2014-09 will have on our Condensed Consolidated Financial Statements and related disclosures, including which transition method it will adopt.
Page
17
Interest Rate Risk
We may be exposed to changes in interest rates primarily from the Senior Credit Facility. The Senior Credit Facility bears interest at either the bank’s base rate (
3.25%
at both
September 27, 2014
and
September 28, 2013
) or LIBOR (
0.15%
and
0.18%
at
September 27, 2014
and
September 28, 2013
, respectively) plus an additional amount ranging from
0.40%
to
1.00%
per annum (
0.50%
at both
September 27, 2014
and
September 28, 2013
), adjusted quarterly based on our leverage ratio. We are also required to pay quarterly in arrears, a commitment fee for unused capacity ranging from
0.08%
to
0.20%
per annum (
0.10%
at both
September 27, 2014
and
September 28, 2013
), adjusted quarterly based on our leverage ratio. See Note 6 of the Notes to Unaudited Condensed Consolidated Financial Statements included herein for further discussion regarding the Senior Credit Facility.
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, cotton 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. 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.
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
September 27, 2014
. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of
September 27, 2014
, our disclosure controls and procedures were effective.
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.
The Company responded to a Request for Information from the EPA in the first quarter of fiscal 2009 relating to certain recreational vehicles and non-road spark ignition engines sold by the Company. In the first quarter of fiscal 2011, the Environmental Enforcement Section of the DOJ, on behalf of the EPA, informed the Company that it believed the Company had violated the Clean Air Act by importing or causing the importation of certain engines that were noncompliant, and that unless the DOJ and the Company were able to reach a settlement, the DOJ was prepared to commence a civil action. The engines were purchased by the Company pursuant to agreements with vendors under which the vendors represented that their products complied with all applicable laws and regulations and under which the vendors agreed to indemnify the Company for any liabilities or costs relating to, among other matters, the noncompliance or alleged noncompliance of their products. The Company notified these vendors of the EPA's position and has worked with these vendors to provide additional information to the DOJ and EPA regarding the alleged violations. As a result of this process, the Company believes it has provided evidence that many of the products identified by the DOJ and EPA in early 2011 were, in fact, in compliance with the Clean Air Act and that most of the remaining issues relate to products purchased from one vendor. The vendor of these products and the Company are engaged in settlement discussions with the DOJ and EPA that would call for the payment of a civil penalty by, and certain injunctive relief against, the Company. The Company does not expect the resolution of this matter to have a material adverse effect on its financial condition, results of operations or cash flows. The Company does not believe it is reasonably possible that a loss in excess of the amount accrued will be incurred.
Page
18
The Company is also involved in various litigation matters arising in the ordinary course of business. The Company believes that any estimated loss related to such matters has been adequately provided in accrued liabilities to the extent probable and reasonably estimable. Accordingly, the Company currently expects these matters will be resolved without material adverse effect on its consolidated financial position, results of operations or cash flows.
There have been no material changes to our risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended
December 28, 2013
.
Issuer Purchases of Equity Securities
Stock repurchase activity during the
third
quarter of fiscal
2014
was as follows:
|
Period
|
Total Number of Shares Purchased
|
Average
Price Paid
Per Share
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
|
Maximum Dollar
Value of Shares That May Yet Be Purchased Under the Plans or Programs
|
||||||||||
|
June 29, 2014 – July 26, 2014
|
529,609
|
|
(a)
|
$
|
61.04
|
|
470,660
|
|
$
|
986,036,427
|
|
|||
|
July 27, 2014 – August 23, 2014
|
570,000
|
|
62.21
|
|
570,000
|
|
950,582,704
|
|
||||||
|
August 24, 2014 – September 27, 2014
|
533,500
|
|
62.13
|
|
533,500
|
|
917,441,732
|
|
||||||
|
Total
|
1,633,109
|
|
$
|
61.81
|
|
1,574,160
|
|
$
|
917,441,732
|
|
||||
(a)
The total number of shares purchased and average price paid per share include 58,949 shares withheld from vested restricted stock units to satisfy employees' minimum statutory tax withholding requirements.
Share repurchases were made pursuant to the share repurchase program described under Item 2 Management's Discussion and Analysis of Financial Conditions and Results of Operations. 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 Securities and Exchange Commission and other applicable legal requirements.
None
Not applicable.
None.
Exhibit
|
10.1
|
Fourth Amended and Restated By-laws (filed as Exhibit 3.1 to Registrant's Current Report on Form 8-K, filed with the Commission on August 6, 2014, Commission File No. 000-23314, and incorporated herein by reference).
|
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.
|
|
101
|
The following financial information from our Quarterly Report on Form 10-Q for the
third
quarter of fiscal
2014
, filed with the Securities and Exchange Commission on
November 3, 2014
, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets at
September 27, 2014
,
December 28, 2013
and
|
Page
19
September 28, 2013
, (ii) the Condensed Consolidated Statements of Income for the fiscal three and
nine
months ended
September 27, 2014
and
September 28, 2013
, (iii) the Condensed Consolidated Statements of Cash Flows for the fiscal
nine
months ended
September 27, 2014
and
September 28, 2013
, and (iv) the Notes to Unaudited Condensed Consolidated Financial Statements.
* Filed herewith
Page
20
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
TRACTOR SUPPLY COMPANY
|
|
|
|
|
|
|
Date:
|
November 3, 2014
|
By:
|
/s/ Anthony F. Crudele
|
|
|
|
|
Anthony F. Crudele
|
|
|
|
|
Executive Vice President - Chief Financial Officer and Treasurer
|
|
|
|
|
(Duly Authorized Officer and Principal Financial Officer)
|
Page
21
TABLE OF CONTENTS
Part I. Financial InformationItem 1. Financial StatementsNote 1 Basis Of Presentation:Note 2 Self-insurance Reserves:Note 3 Fair Value Of Financial Instruments:Note 4 Share-based Compensation:Note 5 - Net Income Per Share:Note 6 Credit Agreement:Note 7 Treasury Stock:Note 8 Capital Stock and Dividends:Note 9 Income Taxes:Note 10 Commitments and Contingencies:Note 11 Segment Reporting:Note 12 New Accounting Pronouncements:Item 2. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits