Filed by Bowne Pure Compliance
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 27, 2008
OR
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o |
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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)
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Delaware
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13-3139732 |
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(State or Other Jurisdiction of
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(I.R.S. Employer Identification No.) |
Incorporation or Organization)
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200 Powell Place, Brentwood, Tennessee
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37027 |
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(Address of Principal Executive Offices)
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(Zip Code) |
Registrants Telephone Number, Including Area Code: (615) 440-4000
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 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
(check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) YES o NO þ
Indicate the number of shares outstanding of each of the issuers classes of common stock as of the
latest practicable date.
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Class
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Outstanding at October 25, 2008 |
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Common Stock, $.008 par value
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36,242,479 |
TRACTOR SUPPLY COMPANY
INDEX
Page 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TRACTOR SUPPLY COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
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September 27, |
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December 29, |
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September 29, |
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2008 |
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2007 |
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2007 |
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(Unaudited) |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
16,583 |
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$ |
13,700 |
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$ |
14,723 |
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Inventories |
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716,806 |
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635,988 |
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699,312 |
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Prepaid expenses and other current assets |
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40,504 |
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41,959 |
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43,942 |
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Deferred income taxes |
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277 |
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1,061 |
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Total current assets |
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773,893 |
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691,924 |
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759,038 |
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Property and equipment, net of accumulated depreciation |
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357,270 |
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332,928 |
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331,760 |
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Goodwill |
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10,258 |
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10,258 |
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10,258 |
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Deferred income taxes |
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17,398 |
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16,692 |
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15,829 |
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Other assets |
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6,183 |
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6,169 |
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5,720 |
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Total assets |
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$ |
1,165,002 |
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$ |
1,057,971 |
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$ |
1,122,605 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
366,138 |
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$ |
258,346 |
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$ |
281,209 |
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Other accrued expenses |
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107,953 |
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115,601 |
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111,450 |
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Current portion of capital lease obligations |
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545 |
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847 |
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803 |
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Income taxes currently payable |
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962 |
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5,062 |
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Deferred income taxes |
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2,434 |
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Total current liabilities |
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478,032 |
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379,856 |
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393,462 |
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Revolving credit loan |
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23,138 |
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55,000 |
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88,552 |
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Capital lease obligations, less current maturities |
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1,960 |
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2,351 |
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2,236 |
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Straight line rent liability |
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36,281 |
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30,886 |
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29,504 |
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Other long-term liabilities |
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24,827 |
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24,541 |
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24,026 |
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Total liabilities |
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564,238 |
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492,634 |
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537,780 |
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Stockholders equity: |
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Preferred stock, 40,000 shares authorized, $1.00
par value; no shares issued |
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Common stock, 100,000,000 shares authorized; $.008
par value; 40,842,839 shares issued and 36,346,447
shares outstanding at September 27, 2008,
40,700,209 shares issued and 37,484,022 shares
outstanding at December 29, 2007 and 40,571,265
shares issued and 38,706,651 shares outstanding at
September 29, 2007 |
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327 |
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326 |
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325 |
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Additional paid-in capital |
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163,616 |
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151,317 |
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145,698 |
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Treasury stock at cost, 4,496,392 shares at
September 27, 2008, 3,216,187 shares at December
29, 2007 and 1,864,614 shares at September 29, 2007 |
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(192,549 |
) |
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(150,049 |
) |
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(94,924 |
) |
Retained earnings |
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629,370 |
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563,743 |
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533,726 |
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Total stockholders equity |
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600,764 |
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565,337 |
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584,825 |
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Total liabilities and stockholders equity |
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$ |
1,165,002 |
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$ |
1,057,971 |
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$ |
1,122,605 |
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The accompanying notes are an integral part of this statement.
Page 3
TRACTOR SUPPLY COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
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For the fiscal |
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For the fiscal |
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three months ended |
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nine months ended |
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September 27, |
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September 29, |
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September 27, |
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September 29, |
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2008 |
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2007 |
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2008 |
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2007 |
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(Unaudited) |
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(Unaudited) |
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Net sales |
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$ |
733,918 |
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$ |
629,199 |
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$ |
2,208,453 |
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$ |
1,979,960 |
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Cost of merchandise sold |
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509,312 |
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430,552 |
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1,527,466 |
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1,362,709 |
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Gross margin |
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224,606 |
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198,647 |
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680,987 |
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617,251 |
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Selling, general and administrative expenses |
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176,774 |
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156,078 |
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527,302 |
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470,224 |
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Depreciation and amortization |
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15,345 |
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12,900 |
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44,725 |
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37,270 |
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Operating income |
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32,487 |
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29,669 |
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108,960 |
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109,757 |
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Interest (income) expense, net |
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(69 |
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1,517 |
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1,727 |
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3,046 |
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Income before income taxes |
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32,556 |
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28,152 |
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107,233 |
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106,711 |
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Income tax expense |
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12,795 |
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10,684 |
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41,606 |
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40,487 |
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Net income |
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$ |
19,761 |
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$ |
17,468 |
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$ |
65,627 |
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$ |
66,224 |
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Net income per share basic |
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$ |
0.54 |
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$ |
0.45 |
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$ |
1.77 |
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$ |
1.67 |
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Net income per share diluted |
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$ |
0.53 |
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$ |
0.44 |
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$ |
1.74 |
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$ |
1.63 |
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The accompanying notes are an integral part of this statement.
Page 4
TRACTOR SUPPLY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
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For the fiscal |
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nine months ended |
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September 27, |
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September 29, |
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2008 |
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2007 |
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(Unaudited) |
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Cash flows from operating activities: |
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Net income |
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$ |
65,627 |
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$ |
66,224 |
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Adjustments to reconcile net income to net cash
provided by operating activities: |
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Depreciation and amortization |
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44,725 |
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37,270 |
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Gain on sale of property and equipment |
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(62 |
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(68 |
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Stock compensation expense |
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9,192 |
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8,652 |
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Deferred income taxes |
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2,005 |
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|
5,249 |
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Change in assets and liabilities: |
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Inventories |
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(80,818 |
) |
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(104,461 |
) |
Prepaid expenses and other current assets |
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1,437 |
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(6,547 |
) |
Accounts payable |
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107,792 |
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52,038 |
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Other accrued expenses |
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(7,648 |
) |
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188 |
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Income taxes currently payable |
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(4,100 |
) |
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(11,550 |
) |
Other |
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5,455 |
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8,693 |
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Net cash provided by operating activities |
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143,605 |
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55,688 |
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Cash flows from investing activities: |
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Capital expenditures |
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(68,828 |
) |
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(68,363 |
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Proceeds from sale of property and equipment |
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250 |
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966 |
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Net cash used in investing activities |
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(68,578 |
) |
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(67,397 |
) |
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Cash flows from financing activities: |
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Borrowings under revolving credit agreement |
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517,382 |
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756,850 |
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Repayments under revolving credit agreement |
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(549,244 |
) |
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(668,298 |
) |
Tax benefit on stock option exercises |
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413 |
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2,687 |
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Principal payments under capital lease obligations |
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(693 |
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(834 |
) |
Repurchase of common stock |
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(42,500 |
) |
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(94,924 |
) |
Net proceeds from issuance of common stock |
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2,498 |
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4,558 |
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Net cash (used in) provided by financing activities |
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(72,144 |
) |
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39 |
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Net increase (decrease) in cash and cash equivalents |
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2,883 |
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(11,670 |
) |
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Cash and cash equivalents at beginning of period |
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13,700 |
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|
26,393 |
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Cash and cash equivalents at end of period |
|
$ |
16,583 |
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$ |
14,723 |
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Supplemental disclosures of cash flow information: |
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Cash paid during the period for: |
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Interest |
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$ |
2,788 |
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|
$ |
2,087 |
|
Income taxes |
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|
43,023 |
|
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|
47,010 |
|
The accompanying notes are an integral part of this statement.
Page 5
TRACTOR SUPPLY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Basis of Presentation:
The accompanying unaudited interim consolidated financial statements 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 footnotes 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 29, 2007. The results of operations for the fiscal three-month and nine-month
periods are not necessarily indicative of results for the full fiscal year.
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 adverse weather conditions is somewhat mitigated by the
geographic dispersion of our stores.
We experience our highest inventory and accounts payable balances during our first fiscal quarter
each year for purchases of seasonal products in anticipation of the spring selling season and again
during our third fiscal quarter in anticipation of the winter selling season.
Note 2 Reclassifications:
Certain amounts in previously issued financial statements have been reclassified to conform to the
fiscal 2008 presentation. Cash balances in our bank concentration account at September 29, 2007
have been reclassified and netted against the related book overdraft included in accounts payable
in the Consolidated Balance Sheets.
Note 3 Inventories:
Inventories are stated using the lower of last-in, first-out (LIFO) cost or market. Inventories are
not in excess of market value. 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 first-in, first-out (FIFO) method of
accounting for inventory had been used, inventories would have been approximately $34.2 million,
$25.5 million and $23.0 million higher than reported at September 27, 2008, December 29, 2007 and
September 29, 2007, respectively.
Note 4 Property and Equipment:
Property and equipment is comprised as follows:
|
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|
|
|
|
|
|
September 27, |
|
|
December 29, |
|
|
September 29, |
|
|
|
2008 |
|
|
2007 |
|
|
2007 |
|
|
|
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|
Land |
|
$ |
25,410 |
|
|
$ |
23,151 |
|
|
$ |
23,151 |
|
Buildings and improvements |
|
|
305,662 |
|
|
|
279,313 |
|
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|
270,701 |
|
Furniture, fixtures and equipment |
|
|
192,423 |
|
|
|
175,941 |
|
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|
167,314 |
|
Computer software and hardware |
|
|
68,802 |
|
|
|
61,732 |
|
|
|
50,769 |
|
Construction in progress |
|
|
24,477 |
|
|
|
10,006 |
|
|
|
26,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
616,774 |
|
|
|
550,143 |
|
|
|
538,126 |
|
Accumulated depreciation and amortization |
|
|
(259,504 |
) |
|
|
(217,215 |
) |
|
|
(206,366 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
357,270 |
|
|
$ |
332,928 |
|
|
$ |
331,760 |
|
|
|
|
|
|
|
|
|
|
|
Page 6
Note 5 Share-Based Payments:
Pursuant to Statement of Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payments
(SFAS 123(R)), we recognize compensation expense for share-based payments based on the fair value
of the awards. Share-based payments include stock option grants and certain transactions under our
other stock plans. SFAS 123(R) requires share-based compensation expense to be based on the
following: a) grant date fair value estimated in accordance with the original provisions of
SFAS 123 for unvested options granted prior to the adoption of SFAS 123(R); b) grant date fair
value estimated in accordance with the provisions of SFAS 123(R) for all share-based payments
granted subsequent to adoption; and c) the discount on shares sold to employees subsequent to
adoption, which represents the difference between the grant date fair value and the employee
purchase price. Share-based compensation expense lowered pre-tax income by $3.0 million and $2.9
million for the third quarter of fiscal 2008 and 2007, respectively, and $9.2 million and $8.7
million for the first nine months of fiscal 2008 and 2007, respectively. The benefits of tax
deductions in excess of recognized compensation expense are reported as a financing cash flow.
Under SFAS 123(R), 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.
Stock Incentive Plan
Under our 2006 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.
The fair value of each option grant is separately estimated for each grant 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
modified 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,
including expected stock price volatility.
The following summarizes information concerning stock option grants during fiscal 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
September 27, |
|
|
September 29, |
|
|
September 27, |
|
|
September 29, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Stock options granted |
|
|
38,676 |
|
|
|
12,250 |
|
|
|
623,550 |
|
|
|
449,700 |
|
Weighted average exercise price |
|
$ |
38.59 |
|
|
$ |
48.08 |
|
|
$ |
38.29 |
|
|
$ |
46.49 |
|
Weighted average fair value |
|
$ |
15.05 |
|
|
$ |
19.67 |
|
|
$ |
14.53 |
|
|
$ |
19.57 |
|
The weighted average key assumptions used in determining the fair value of options granted in the
three and nine months ended September 27, 2008 and September 29, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
September 27, |
|
|
September 29, |
|
|
September 27, |
|
|
September 29, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Expected price volatility |
|
|
38.6 |
% |
|
|
41.6 |
% |
|
|
38.5 |
% |
|
|
41.6 |
% |
Risk-free interest rate |
|
|
3.3 |
% |
|
|
4.9 |
% |
|
|
2.9 |
% |
|
|
4.7 |
% |
Weighted average expected lives in years |
|
|
5.0 |
|
|
|
4.4 |
|
|
|
4.9 |
|
|
|
4.7 |
|
Forfeiture rate |
|
|
5.4 |
% |
|
|
6.1 |
% |
|
|
5.7 |
% |
|
|
5.2 |
% |
Dividend yield |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
As of September 27, 2008, total unrecognized compensation expense related to non-vested stock
options and restricted stock units was $15.8 million with a weighted average expense recognition
period of 1.44 years.
Page 7
Restricted Stock Units
During the first nine months of 2008 and 2007, we issued 84,458 and 63,389 restricted stock units
which vest over an approximate three-year term and had a grant date weighted average fair value of
$38.21 and $46.49, respectively.
Employee Stock Purchase Plan
We have an Employee Stock Purchase Plan (the ESPP) whereby eligible employees have the
opportunity to purchase, through payroll deductions, shares of our common stock at a 15% discount.
Pursuant to the terms of the ESPP, we issued 44,185 and 34,477 shares of our common stock during
the first nine months of fiscal 2008 and 2007, respectively. Total stock compensation expense
related to the ESPP was approximately $370,000 and $433,000 during the first nine months of 2008
and 2007, respectively. At September 27, 2008, there were 3,255,218 shares of common stock
reserved for future issuance under the ESPP.
There were no modifications to our share-based compensation plans during the nine months ended
September 27, 2008.
Note 6 Net Income Per Share:
We present both basic and diluted earnings per share (EPS) on the face of the consolidated
statements of income. As provided by SFAS 128 Earnings per Share, basic EPS is calculated as
income available to common stockholders divided by the weighted average number of shares
outstanding during the period. Diluted EPS is calculated using the weighted average outstanding
common shares and the treasury stock method for options and restricted stock.
Net income per share is calculated as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Three months ended |
|
|
|
September 27, 2008 |
|
|
September 29, 2007 |
|
|
|
|
|
|
|
|
|
|
|
Per Share |
|
|
|
|
|
|
|
|
Per Share |
|
|
|
Income |
|
|
Shares |
|
|
Amount |
|
|
Income |
|
|
Shares |
|
|
Amount |
|
Basic net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
19,761 |
|
|
|
36,429 |
|
|
$ |
0.54 |
|
|
$ |
17,468 |
|
|
|
38,972 |
|
|
$ |
0.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive stock options and
restricted stock outstanding |
|
|
|
|
|
|
645 |
|
|
|
(0.01 |
) |
|
|
|
|
|
|
841 |
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
19,761 |
|
|
|
37,074 |
|
|
$ |
0.53 |
|
|
$ |
17,468 |
|
|
|
39,813 |
|
|
$ |
0.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
Nine months ended |
|
|
|
September 27, 2008 |
|
|
September 29, 2007 |
|
|
|
|
|
|
|
|
|
|
|
Per Share |
|
|
|
|
|
|
|
|
Per Share |
|
|
|
Income |
|
|
Shares |
|
|
Amount |
|
|
Income |
|
|
Shares |
|
|
Amount |
|
Basic net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
65,627 |
|
|
|
37,045 |
|
|
$ |
1.77 |
|
|
$ |
66,224 |
|
|
|
39,606 |
|
|
$ |
1.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive stock options and
restricted stock outstanding |
|
|
|
|
|
|
632 |
|
|
|
(0.03 |
) |
|
|
|
|
|
|
933 |
|
|
|
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
65,627 |
|
|
|
37,677 |
|
|
$ |
1.74 |
|
|
$ |
66,224 |
|
|
|
40,539 |
|
|
$ |
1.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 8
Note 7 Credit Agreement:
We are party to a Senior Credit Facility with Bank of America, N.A., as agent for a lender group,
which provides for borrowings up to $350 million (with sublimits of $75 million and $20 million for
letters of credit and swingline loans, respectively). In February 2008, we exercised the Increase
Option on this facility, increasing the overall capacity from $250 million to $350 million.
Simultaneously, the Credit Facility was modified to: (1) add an additional Increase Option for
$150 million (subject to additional lender group commitments); (2) modify the definition of
swingline committed amount from $10 million to $20 million; and (3) revise the definition of the
fixed charge coverage ratio covenant to remove certain defined charges. All pricing terms and the
term of the facility remained the same.
The Senior Credit Facility is unsecured and matures in February 2012, with proceeds expected to be
used for working capital, capital expenditures and share repurchases. Borrowings will bear
interest at either the banks base rate or LIBOR plus an additional amount ranging from 0.35% to
0.90% per annum, adjusted quarterly based on our performance (0.50% at September 27, 2008). We are
also required to pay a commitment fee ranging from 0.06% to 0.18% per annum for unused capacity
(0.10% at September 27, 2008). The agreement requires quarterly compliance with respect to fixed
charge coverage and leverage ratios.
Note 8 Treasury Stock:
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. In August 2008, the board of directors authorized a $200
million increase to the existing $200 million share repurchase program and extended the program
term from February 2010 to 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 464,812 and 645,022 shares under the share repurchase program during the third
quarter of 2008 and 2007, respectively. The total cost of the share repurchases was $14.7 million
and $31.2 million during the third quarter of 2008 and 2007, respectively. We repurchased
1,280,205 and 1,864,614 shares under the share repurchase program during the first nine months of
2008 and 2007, respectively. The total cost of the share repurchases was $42.5 million and $94.9
million during the first nine months of 2008 and 2007, respectively. As of September 27, 2008, we
had remaining authorization under the share repurchase program of $207.6 million.
Note 9 New Accounting Pronouncements:
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair
Value Measurements, (SFAS 157). SFAS 157 defines fair value, establishes a framework for
measuring fair value in accordance with accounting principles generally accepted in the United
States, and expands disclosures about fair value measurements. In February 2008, the FASB issued
FASB Staff Position No. FAS 157-2, Effective Date of FASB Statement No. 157 (FSP 157-2), which
amended SFAS 157 and delayed its effective date for all nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis (that is, at least annually). FSP 157-2 defers the effective date
of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those
fiscal years for items within the scope of FSP 157-2. We adopted the remaining provisions of SFAS
157 effective December 30, 2007 (fiscal 2008). The adoption of SFAS 157 did not impact our
financial condition, results of operations, or cash flow. We are currently evaluating the impact
that the adoption of FSP 157-2 will have on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS 159). SFAS 159 allows entities the option to measure eligible
financial instruments at fair value as of specified dates. Such election, which may be applied on
an instrument by instrument basis, is typically irrevocable once elected. We adopted SFAS 159
effective December 30, 2007 (fiscal 2008). The adoption of SFAS 159 did not impact our financial
condition, results of operations, or cash flow.
Page 9
In April 2008, the FASB issued FASB Staff Position (FSP) No. FAS 142-3, Determination of the
Useful Life of Intangible Assets, which amends the 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 under SFAS 142, Goodwill and Other Intangible Assets. The FSP
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 under SFAS 142 and the period
of expected cash flows used to measure the fair value of the asset under SFAS 141, Business
Combinations. The FSP is effective for fiscal years beginning after December 15, 2008, and the
guidance for determining the useful life of a recognized intangible asset must be applied
prospectively to intangible assets acquired after the effective date. The FSP is not expected to
have a significant impact on our financial condition, results of operations or cash flow.
In May 2008, the FASB issued SFAS No. 162 (SFAS 162), The Hierarchy of Generally Accepted
Accounting Principles. The statement is intended to improve financial reporting by identifying a
consistent hierarchy for selecting accounting principles to be used in preparing financial
statements that are prepared in conformance with generally accepted accounting principles. The
statement is effective 60 days following the SECs pending approval of the Public Company
Accounting Oversight Board (PCAOB) amendments to AU Section 411, The Meaning of Present Fairly in
Conformity with GAAP, and is not expected to have any impact on the Companys financial condition,
results of operations or cash flow.
Note 10 Commitments and Contingencies:
Construction commitments
We had commitments for new store construction projects and a distribution center expansion project
totaling approximately $5.3 million at September 27, 2008.
We had outstanding letters of credit of $13.4 million at September 27, 2008.
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.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
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 29, 2007. The following discussion and analysis also
contains certain historical and 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 estimated results of operations in future periods,
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.
Page 10
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, natural disasters, drought, and early or late frosts may also
affect our sales. We believe, however, that the impact of severe weather conditions is somewhat
mitigated by the geographic dispersion of our stores.
We experience our highest inventory and accounts payable balances during our first fiscal quarter
each year for purchases of seasonal products in anticipation of the spring selling season and again
during our third fiscal quarter in anticipation of the winter selling season.
As with any business, many aspects of our operations are subject to influences outside our control.
These factors include the effect of the current economic cycle on consumer spending, weather
factors, operating factors affecting customer satisfaction, consumer debt levels, inflation,
pricing and other competitive factors, the ability to attract, train and retain qualified
employees, the ability to manage and fund growth and identify suitable locations and negotiate
favorable lease agreements on new and relocated stores, the impact of new stores on our business,
the timing and acceptance of new products in the stores, the mix of goods sold, the continued
availability of favorable credit sources, capital market conditions in general, the ability to
increase sales at existing stores, the ability to retain vendors, the risk of product liability and
other claims, reliance on foreign suppliers, the ability to maintain and improve our management
information systems and internal controls over financial reporting, potential legal proceedings,
tax rate changes, and the seasonality of our business. 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 29, 2007. 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.
Results of Operations
Fiscal Three Months (Third Quarter) and Nine Months Ended September 27, 2008 and September 29,
2007
Net sales increased 16.6% to $733.9 million for the third quarter of 2008 from $629.2 million for
the third quarter of 2007. Net sales increased 11.5% to $2.21 billion for the first nine months of
fiscal 2008 from $1.98 billion for the first nine months of fiscal 2007. The net sales increase
for the third quarter resulted primarily from the addition of new stores and a same-store sales
improvement of 6.2%. The net sales increase for the first nine months of fiscal 2008 was primarily
the result of new store openings and a 1.5% increase in same-store sales. Our third quarter
same-store sales improvements were driven by our core consumable categories (including animal and
pet-related products) as well as seasonal heating-related products and emergency-response
merchandise related to hurricane activity.
We opened 20 new stores during the third quarter of 2008 compared to 21 new store openings and four
store relocations during the prior years third quarter. During the first nine months of 2008, we
opened 70 new stores, compared to 63 new store openings, 11 relocations and the sale of one store
during the first nine months of 2007. We operated 834 stores at September 27, 2008, compared to
738 stores at September 29, 2007.
Page 11
The following chart indicates the average percentage of sales represented by each of our major
product categories during the third quarter and first nine months of fiscal 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
September 27, |
|
|
September 29, |
|
|
September 27, |
|
|
September 29, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Product Category: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Livestock and Pet |
|
|
37 |
% |
|
|
36 |
% |
|
|
37 |
% |
|
|
34 |
% |
Seasonal Products |
|
|
23 |
|
|
|
24 |
|
|
|
25 |
|
|
|
26 |
|
Hardware and Tools |
|
|
16 |
|
|
|
15 |
|
|
|
14 |
|
|
|
15 |
|
Clothing and Footwear |
|
|
7 |
|
|
|
7 |
|
|
|
7 |
|
|
|
7 |
|
Truck, Trailer and Towing |
|
|
9 |
|
|
|
10 |
|
|
|
9 |
|
|
|
10 |
|
Agricultural |
|
|
8 |
|
|
|
8 |
|
|
|
8 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin for the third quarter and the first nine months of fiscal 2008 was $224.6 million and
$681.0 million, respectively. This represents an increase of 13.1% and 10.3%, respectively, over
the comparable periods of the prior year. Gross margin, as a percent of sales, was 30.6% for the
third quarter of fiscal 2008 compared to 31.6% for the comparable period in fiscal 2007. The
decline in gross margin rate for the quarter resulted from higher transportation costs, an
increased LIFO charge and clearance markdowns. The increased transportation costs resulted from
increased fuel costs and the mix of goods. The LIFO charge is attributed to increases in costs for
certain commodities, petroleum-based products and steel. The clearance markdowns relate to our
continued inventory reduction initiative through aggressive efforts to clear seasonal product and
certain merchandise that will not be carried into future periods. For the first nine months of
fiscal 2008, the gross margin rate was 30.8% compared to 31.2% for the first nine months of 2007,
largely due to the same reasons.
Selling, general and administrative (SG&A) expenses decreased 70 basis points to 24.1% of sales
in the third quarter of fiscal 2008 from 24.8% of sales in the third quarter of fiscal 2007. This
third quarter improvement was primarily attributable to increased sales leverage, improved
management of store payroll and a focus on cost control and overall expense management. These
improvements were offset in part by higher occupancy costs due to our store expansion program.
SG&A expenses for the first nine months of fiscal 2008 increased 20 basis points to 23.9% of sales
from 23.7% in the first nine months of fiscal 2007, primarily due to less sales leverage in the
first quarter of fiscal 2008.
Depreciation and amortization expense was consistent at 2.1% of sales in the third quarter of
fiscal 2008 and 2007. As a percent of sales, depreciation and amortization expense increased 10
basis points to 2.0% in the first nine months of fiscal 2008 from 1.9% in the first nine months of
fiscal 2007. The increases were related directly to new store growth and capital costs for
infrastructure and technology.
Interest expense decreased 20 basis points to 0.0% of sales in the third quarter of 2008 from 0.2%
in the third quarter of fiscal 2007. For the first nine months of fiscal 2008, interest expense
decreased to $1.7 million compared to $3.0 million for the comparable period in fiscal 2007. The
quarter and year-to-date improvements are primarily due to a lower average outstanding balance on
our credit facility, and a lower weighted-average interest rate. Reported expense also included a
$0.3 million reduction due to favorable resolution of a sales tax audit.
Our effective income tax rate increased to 39.3% in the third quarter of fiscal 2008 compared with
37.9% for the third quarter of fiscal 2007 largely due to recent increases in certain state tax
rates and the impact of stock compensation expense.
As a result of the foregoing factors, net income for the third quarter of fiscal 2008 increased
13.1% to $19.8 million compared to $17.5 million in the third quarter of fiscal 2007. Net income
for the first nine months of fiscal 2008 decreased 0.9% to $65.6 million from $66.2 million in the
first nine months of the prior year. Net income, as a percent of sales, decreased 10 basis points
to 2.7% for the third quarter of fiscal 2008 compared to 2.8% in the third quarter of fiscal 2007.
For the first nine months of fiscal 2008, net income as a percent of sales decreased 40 basis
points to 2.9%, compared to 3.3% for the first nine months of fiscal 2007. Net income per diluted
share for the third quarter of fiscal 2008 increased to $0.53 from $0.44 and, for the first nine
months of fiscal 2008, increased to $1.74 from $1.63. Outstanding shares were reduced as a result
of repurchases under our share repurchase program.
Page 12
Liquidity and Capital Resources
In addition to normal operating expenses, our primary ongoing cash requirements are for store
expansion and remodeling programs, including inventory purchases and capital expenditures. Our
primary ongoing sources of liquidity are funds provided from operations, commitments available
under our Senior Credit Facility and normal trade credit.
At September 27, 2008, we had working capital of $295.9 million, a $16.2 million decrease from
December 29, 2007. This decrease was primarily attributable to changes in the following components
of current assets and current liabilities (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 27, |
|
|
December 29, |
|
|
|
|
|
|
September 29, |
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
Variance |
|
|
2007 |
|
|
Variance |
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
16.6 |
|
|
$ |
13.7 |
|
|
$ |
2.9 |
|
|
$ |
14.7 |
|
|
$ |
1.9 |
|
Inventories |
|
|
716.8 |
|
|
|
636.0 |
|
|
|
80.8 |
|
|
|
699.3 |
|
|
|
17.5 |
|
Prepaid expenses and other current assets |
|
|
40.5 |
|
|
|
41.9 |
|
|
|
(1.4 |
) |
|
|
43.9 |
|
|
|
(3.4 |
) |
Deferred income taxes |
|
|
|
|
|
|
0.3 |
|
|
|
(0.3 |
) |
|
|
1.1 |
|
|
|
(1.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
773.9 |
|
|
|
691.9 |
|
|
|
82.0 |
|
|
|
759.0 |
|
|
|
14.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
366.1 |
|
|
|
258.3 |
|
|
|
107.8 |
|
|
|
281.2 |
|
|
|
84.9 |
|
Other accrued expenses |
|
|
108.0 |
|
|
|
115.6 |
|
|
|
(7.6 |
) |
|
|
111.5 |
|
|
|
(3.5 |
) |
Current portion of capital lease obligation |
|
|
0.5 |
|
|
|
0.8 |
|
|
|
(0.3 |
) |
|
|
0.8 |
|
|
|
(0.3 |
) |
Income tax currently payable |
|
|
1.0 |
|
|
|
5.1 |
|
|
|
(4.1 |
) |
|
|
|
|
|
|
1.0 |
|
Deferred tax liabilities |
|
|
2.4 |
|
|
|
|
|
|
|
2.4 |
|
|
|
|
|
|
|
2.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
478.0 |
|
|
|
379.8 |
|
|
|
98.2 |
|
|
|
393.5 |
|
|
|
84.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital |
|
$ |
295.9 |
|
|
$ |
312.1 |
|
|
$ |
(16.2 |
) |
|
$ |
365.5 |
|
|
$ |
(69.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in inventories since year-end resulted primarily from normal seasonal purchases as
well as the purchase of additional inventory for new stores. These increases were offset by a
decrease in average inventory per store due to planned initiatives to reduce inventory levels
coupled with more aggressive clearance efforts. The increase in accounts payable resulted from the
increase in inventories as well as improved vendor financing. Trade credit arises from our vendors
granting extended payment terms for inventory purchases. Payment terms generally vary from 30 days
to 180 days depending on the inventory product. Income taxes payable declined from year-end due to
the timing of estimated payments.
The increase in inventory from the prior year quarter is due to the purchase of additional
inventory for new stores. The increase in accounts payable is due primarily to the purchase of
inventory for new stores as well as improved vendor dating.
Page 13
Operations provided net cash of $143.6 million and $55.7 million in the first nine months of fiscal
2008 and fiscal 2007, respectively. The $87.9 million increase in net cash provided in 2008 over
2007 is primarily due to changes in the following operating activities (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
September 27, |
|
|
September 29, |
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
Variance |
|
Net income |
|
$ |
65.6 |
|
|
$ |
66.2 |
|
|
$ |
(0.6 |
) |
Depreciation and amortization |
|
|
44.7 |
|
|
|
37.3 |
|
|
|
7.4 |
|
Inventories and accounts payable |
|
|
27.0 |
|
|
|
(52.4 |
) |
|
|
79.4 |
|
Stock compensation expense |
|
|
9.2 |
|
|
|
8.7 |
|
|
|
0.5 |
|
Prepaid expenses and other current assets |
|
|
1.4 |
|
|
|
(6.5 |
) |
|
|
7.9 |
|
Other accrued expenses |
|
|
(7.6 |
) |
|
|
0.2 |
|
|
|
(7.8 |
) |
Income taxes currently payable |
|
|
(4.1 |
) |
|
|
(11.6 |
) |
|
|
7.5 |
|
Other, net |
|
|
7.4 |
|
|
|
13.8 |
|
|
|
(6.4 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operations |
|
$ |
143.6 |
|
|
$ |
55.7 |
|
|
$ |
87.9 |
|
|
|
|
|
|
|
|
|
|
|
The improvement in net cash provided by operations in the first nine months of fiscal 2008 compared
with the first nine months of fiscal 2007 was primarily due to reductions in average inventory
levels and improved vendor financing. The change in cash used for income taxes relates to the
timing of payments.
Investing activities used $68.6 million and $67.4 million in the first nine months of fiscal 2008
and fiscal 2007, respectively. The majority of this cash requirement relates to our capital
expenditures.
Capital expenditures for the first nine months of fiscal 2008 and fiscal 2007 were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
September 27, |
|
|
September 29, |
|
|
|
2008 |
|
|
2007 |
|
New/relocated stores and stores not yet opened |
|
$ |
30.3 |
|
|
$ |
32.4 |
|
Distribution center capacity and improvements |
|
|
12.4 |
|
|
|
2.0 |
|
Existing store properties acquired from lessor |
|
|
8.5 |
|
|
|
6.8 |
|
Information technology |
|
|
9.9 |
|
|
|
13.1 |
|
Existing stores |
|
|
7.6 |
|
|
|
14.0 |
|
Other |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
$ |
68.8 |
|
|
$ |
68.4 |
|
|
|
|
|
|
|
|
The above table reflects 70 new stores in the first nine months of fiscal 2008, compared to 74
new/relocated stores during the first nine months of fiscal 2007.
Financing activities used $72.1 million and provided no significant net cash in the first nine months
of fiscal 2008 and fiscal 2007, respectively. This increase in net cash used is largely due to
more repayments than borrowings under the Senior Credit Facility and, to a lesser extent, less
repurchases of common stock under our share repurchase program.
We are party to a Senior Credit Facility with Bank of America, N.A., as agent for a lender group,
which provides for borrowings up to $350 million (with sublimits of $75 million and $20 million for
letters of credit and swingline loans, respectively). In February 2008, we exercised the Increase
Option on this facility, increasing the overall capacity from $250 million to $350 million. Each
of the nine lenders within our credit facility bank group participated in the increase.
Simultaneously, the Senior Credit Facility was modified to: (1) add an additional Increase Option
for $150 million (subject to additional lender group commitments); (2) modify the definition of
swingline committed amount from $10 million to $20 million; and (3) revise the definition of the
fixed charge coverage ratio covenant to remove certain defined charges. All pricing terms and the
term of the facility remained the same.
The Senior Credit Facility is unsecured and matures in February 2012, with proceeds expected to be
used for working capital, capital expenditures and share repurchases. Borrowings will bear
interest at either the banks base rate or LIBOR plus an additional amount ranging from 0.35% to
0.90% per annum, adjusted quarterly based on our performance (0.50% at September 27, 2008). We are
also required to pay a commitment fee ranging from 0.06% to 0.18% per annum for unused capacity
(0.10% at September 27, 2008). The agreement requires quarterly
compliance with respect to fixed charge coverage and leverage ratios. We were in compliance with
all financial covenants at September 27, 2008.
Page 14
We believe that our cash flow from operations, borrowings available under our Senior Credit
Facility, and normal trade credit will be sufficient to fund our operations and capital expenditure
needs, including store openings and renovations, over the next several years.
Share Repurchase Program
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. In August 2008, the board of directors authorized a $200
million increase to the existing $200 million share repurchase program and extended the program
term from February 2010 to 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 464,812 and 645,022 shares under the share repurchase program during the third
quarter of 2008 and 2007, respectively. The total cost of the share repurchases was $14.7 million
and $31.2 million during the third quarter of 2008 and 2007, respectively. We repurchased
1,280,205 and 1,864,614 shares under the share repurchase program during the first nine months of
2008 and 2007, respectively. The total cost of the share repurchases was $42.5 million and $94.9
million during the first nine months of 2008 and 2007, respectively. As of September 27, 2008, we
had remaining authorization under the share repurchase program of $207.6 million.
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements are limited to operating leases and outstanding letters of
credit. Leasing buildings and equipment for retail stores and offices rather than acquiring these
significant assets allows us to utilize financial capital to operate the business rather than
maintain assets. Letters of credit allow us to purchase inventory in a timely manner.
Significant Contractual Obligations and Commercial Commitments
In addition to commitments related to construction for new stores of $4.1 million, we have a
remaining contractual commitment of $1.2 million for the expansion of our Waco, TX distribution
center. There has been no other material change in our contractual obligations and commercial
commitments other than in the ordinary course of business since the end of fiscal 2007.
We had outstanding letters of credit of $13.4 million at September 27, 2008.
Significant Accounting Policies and Estimates
Our 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 accounting
principles generally accepted in the United States. The preparation of these financial statements
requires us 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.
Significant accounting policies, including areas of critical management judgments and estimates,
have primary impact on the following financial statement areas:
|
|
|
Revenue recognition and sales returns |
|
|
|
|
Inventory valuation |
|
|
|
|
Stock- based compensation |
|
|
|
|
Self- insurance reserves |
|
|
|
|
Sales tax audit reserve |
|
|
|
|
Tax contingencies |
|
|
|
|
Goodwill |
|
|
|
|
Long- lived assets |
Page 15
See the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the
fiscal year ended December 29, 2007 for a discussion of our critical accounting policies. 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We have no separate investments subject to market risk; however, we remain exposed to changes in
interest rates primarily from our Senior Credit Facility (the Credit Agreement). The Credit
Agreement bears interest at either the banks base rate (5.00% and 7.75% at September 27, 2008 and
September 29, 2007, respectively) or LIBOR (3.43% and 5.13% at September 27, 2008 and September 29,
2007, respectively) plus an additional amount ranging from 0.35% to 0.90% per annum, adjusted
quarterly, based on our performance (0.50% at September 27, 2008 and September 29, 2007). 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 Agreement (0.10% at September 27, 2008 and September
29, 2007). See Note 7 of the Notes to the Consolidated Financial Statements included herein for
further discussion regarding the Credit Agreement.
Although we cannot determine the full effect of inflation on our operations, we believe our sales
and results of operations are affected by inflation. 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 diesel fuel and transportation services
and utility costs. If the cost of these products and services continues to increase, consumer
demand may fall and/or we may not be able to pass all such increases on to our customers and, as a
result, sales and/or gross margins could decline. Our strategy is to reduce or mitigate the
effects of inflation principally by taking advantage of vendor incentive programs, economies of
scale from increased volume of purchases, increasing 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 gross margin.
Item 4. Controls and Procedures
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, 2008. Based on this evaluation, our principal executive officer and principal
financial officer concluded that, as of September 27, 2008, 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 Securities and Exchange Commissions rules and forms.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the third fiscal
quarter of 2008 that have materially affected or are reasonably likely to materially affect our
internal control over financial reporting.
Page 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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.
Item 1A. Risk Factors
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 29, 2007.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
We have a share repurchase program which provides for repurchase of up to $400 million of our
outstanding common stock through December 2011. In August 2008, the board of directors authorized
a $200 million increase to the existing $200 million share repurchase program and extended the
program term from February 2010 to December 2011. Stock repurchase activity during the third
quarter of fiscal 2008 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
June 29, 2008 - July 26, 2008 |
|
|
375,625 |
|
|
$ |
29.53 |
|
|
|
375,625 |
|
|
$ |
11,180,983 |
|
July 27, 2008 - August 23, 2008 |
|
|
77,505 |
|
|
$ |
40.16 |
|
|
|
77,505 |
|
|
$ |
208,070,482 |
(a) |
August 24, 2008 - September 27, 2008 |
|
|
11,682 |
|
|
$ |
41.48 |
|
|
|
11,682 |
|
|
$ |
207,586,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 27, 2008 |
|
|
464,812 |
|
|
|
|
|
|
|
464,812 |
|
|
$ |
207,586,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. |
|
|
|
(a) |
|
Reflects Board approval in August 2008 to increase program by $200
million. |
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Page 17
Item 6. Exhibits
Exhibits
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. |
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 4, 2008 |
By: |
/s/ Anthony F. Crudele
|
|
|
|
Anthony F. Crudele |
|
|
|
Executive Vice President Chief Financial Officer and Treasurer
(Duly Authorized Officer and Principal Financial Officer) |
|
Page 18