10-Q
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 26, 2009
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 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 (§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). YES o NO o
Indicate by check mark 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 24, 2009 |
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Common Stock, $.008 par value
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36,148,884 |
TRACTOR SUPPLY COMPANY
INDEX
Page 2
PART I. FINANCIAL INFORMATION
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Item 1. |
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Financial Statements |
TRACTOR SUPPLY COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
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September 26, |
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December 27, |
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September 27, |
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2009 |
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2008 |
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2008 |
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(Unaudited) |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
94,871 |
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$ |
36,989 |
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$ |
16,356 |
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Inventories |
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703,989 |
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603,435 |
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703,040 |
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Prepaid expenses and other current assets |
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40,433 |
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41,902 |
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40,731 |
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Deferred income taxes |
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11,361 |
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1,676 |
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2,923 |
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Total current assets |
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850,654 |
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684,002 |
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763,050 |
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Property and equipment, net of accumulated depreciation |
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362,741 |
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362,033 |
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357,270 |
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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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13,185 |
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13,727 |
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17,398 |
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Other assets |
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5,259 |
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5,977 |
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6,183 |
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Total assets |
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$ |
1,242,097 |
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$ |
1,075,997 |
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$ |
1,154,159 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
356,822 |
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$ |
286,828 |
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$ |
366,138 |
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Other accrued expenses |
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119,417 |
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113,465 |
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107,953 |
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Current portion of capital lease obligations |
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414 |
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550 |
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545 |
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Income taxes currently payable |
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962 |
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Total current liabilities |
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476,653 |
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400,843 |
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475,598 |
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Revolving credit loan |
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23,138 |
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Capital lease obligations, less current maturities |
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1,534 |
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1,797 |
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1,960 |
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Straight line rent liability |
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44,042 |
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38,016 |
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36,281 |
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Other long-term liabilities |
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26,327 |
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25,211 |
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24,827 |
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Total liabilities |
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548,556 |
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465,867 |
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561,804 |
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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; $.008
par value; 41,202,447 shares issued and 36,067,116
shares outstanding at September 26, 2009,
40,875,886 shares issued and 36,061,585 shares
outstanding at December 27, 2008 and 40,842,839
shares issued and 36,346,447 shares outstanding at
September 27, 2008 |
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330 |
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327 |
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327 |
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Additional paid-in capital |
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185,015 |
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168,045 |
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163,616 |
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Treasury stock at cost, 5,135,331 shares at
September 26, 2009, 4,814,301 shares at December
27, 2008 and 4,496,392 shares at September 27, 2008 |
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(214,690 |
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(203,915 |
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(192,549 |
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Retained earnings |
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722,886 |
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645,673 |
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620,961 |
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Total stockholders equity |
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693,541 |
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610,130 |
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592,355 |
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Total liabilities and stockholders equity |
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$ |
1,242,097 |
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$ |
1,075,997 |
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$ |
1,154,159 |
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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 26, |
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September 27, |
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September 26, |
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September 27, |
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2009 |
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2008 |
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2009 |
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2008 |
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(Unaudited) |
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(Unaudited) |
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Net sales |
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$ |
747,730 |
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$ |
733,918 |
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$ |
2,344,405 |
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$ |
2,208,453 |
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Cost of merchandise sold |
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501,692 |
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515,722 |
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1,595,133 |
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1,541,232 |
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Gross margin |
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246,038 |
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218,196 |
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749,272 |
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667,221 |
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Selling, general and administrative expenses |
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193,820 |
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176,774 |
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575,239 |
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527,302 |
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Depreciation and amortization |
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16,421 |
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15,345 |
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48,757 |
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44,725 |
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Operating income |
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35,797 |
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26,077 |
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125,276 |
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95,194 |
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Interest (income) expense, net |
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461 |
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(69 |
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1,139 |
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1,727 |
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Income before income taxes |
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35,336 |
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26,146 |
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124,137 |
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93,467 |
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Income tax expense |
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13,357 |
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10,276 |
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46,924 |
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36,249 |
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Net income |
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$ |
21,979 |
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$ |
15,870 |
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$ |
77,213 |
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$ |
57,218 |
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Net income per share basic |
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$ |
0.61 |
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$ |
0.44 |
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$ |
2.15 |
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$ |
1.54 |
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Net income per share diluted |
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$ |
0.60 |
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$ |
0.43 |
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$ |
2.11 |
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$ |
1.52 |
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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 26, |
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September 27, |
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2009 |
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2008 |
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(Unaudited) |
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Cash flows from operating activities: |
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Net income |
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$ |
77,213 |
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$ |
57,218 |
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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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48,757 |
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44,725 |
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Loss (gain) on sale of property and equipment |
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165 |
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(62 |
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Stock compensation expense |
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9,159 |
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9,192 |
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Deferred income taxes |
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(9,143 |
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(3,352 |
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Change in assets and liabilities: |
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Inventories |
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(100,554 |
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(67,052 |
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Prepaid expenses and other current assets |
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3,029 |
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1,730 |
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Accounts payable |
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69,994 |
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107,792 |
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Other accrued expenses |
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5,952 |
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(7,648 |
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Income taxes currently payable |
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(1,554 |
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(4,100 |
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Other |
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8,006 |
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5,455 |
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Net cash provided by operating activities |
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111,024 |
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143,898 |
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Cash flows from investing activities: |
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Capital expenditures |
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(49,435 |
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(68,828 |
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Proceeds from sale of property and equipment |
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44 |
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250 |
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Net cash used in investing activities |
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(49,391 |
) |
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(68,578 |
) |
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Cash flows from financing activities: |
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Borrowings under revolving credit agreement |
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274,033 |
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517,382 |
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Repayments under revolving credit agreement |
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(274,033 |
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(549,244 |
) |
Tax benefit on stock option exercises |
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2,924 |
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413 |
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Principal payments under capital lease obligations |
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(399 |
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(693 |
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Repurchase of common stock |
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(10,775 |
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(42,500 |
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Net proceeds from issuance of common stock |
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4,499 |
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2,498 |
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Net cash used in financing activities |
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(3,751 |
) |
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(72,144 |
) |
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Net increase in cash and cash equivalents |
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57,882 |
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3,176 |
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Cash and cash equivalents at beginning of period |
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36,989 |
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13,180 |
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Cash and cash equivalents at end of period |
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$ |
94,871 |
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$ |
16,356 |
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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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$ |
776 |
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$ |
2,788 |
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Income taxes |
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|
53,312 |
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|
43,023 |
|
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 27, 2008. 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 Significant Accounting Policies:
Cost of Merchandise Sold
Cost of merchandise sold includes the total cost of products sold; freight expenses associated with
moving merchandise inventories from our vendors to our distribution centers, from our distribution
centers to our retail stores, and from one distribution center to another; vendor support; damaged,
junked or defective product; cash discounts from payments to merchandise vendors; and adjustments
for shrinkage (physical inventory losses), lower of cost or market valuation, slow moving product,
excess inventory quantities and the last-in, first-out (LIFO) inventory valuation.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include payroll and benefit costs for retail,
distribution center and corporate employees; occupancy costs of retail, distribution center and
corporate facilities; advertising; tender costs, including bank charges and costs associated with
credit and debit card interchange fees; outside service fees; and other administrative costs, such
as computer maintenance, supplies, travel and lodging.
Warehousing and Distribution Costs
Costs incurred at our distribution centers for receiving, warehousing and preparing product for
delivery are expensed as incurred and are included in selling, general and administrative expenses
in the Consolidated Statements of Income. Because the Company does not include these costs in cost
of sales, the Companys gross margin may not be comparable to other retailers that include these
costs in the calculation of gross margin. Distribution center costs were approximately $14.8
million and $13.4 million for the third quarter of fiscal 2009 and 2008, respectively, and they
were approximately $43.7 million and $39.6 million for the first nine months of fiscal 2009 and
2008, respectively.
Page 6
Depreciation and Amortization
Depreciation includes expenses related to all retail, distribution center and corporate assets.
Amortization includes expenses related to definite-lived intangible assets.
Note 3 Reclassifications:
Certain amounts in previously issued financial statements have been reclassified to conform to the
fiscal 2009 presentation. Amounts related to voucher receivables ($0.2 million at September 27,
2008) have been reclassified from cash and cash equivalents to prepaid expenses and other current
assets. This change has affected our September 27, 2008 Consolidated Balance Sheets and the
Consolidated Statement of Cash Flows for the fiscal nine months ended September 27, 2008.
Note 4 Fair Value of Financial Instruments:
Our financial instruments consist of cash and cash equivalents, short-term receivables and payables
and long-term debt instruments, including capital leases. The carrying values of cash and cash
equivalents, receivables and trade payables equal current fair value. We had no borrowings under
the revolving credit loan at September 26, 2009 or December 27, 2008. We had $23.1 million in
borrowings under the revolving credit loan at September 27, 2008. The terms of our revolving
credit loan include variable interest rates, plus an additional amount ranging from 0.35% to 0.90%,
and based on timing of the cash flows and current market rates, the carrying value of our revolving
credit loan approximates fair value.
Note 5 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 $76.7 million,
$68.3 million and $48.0 million higher than reported at September 26, 2009, December 27, 2008 and
September 27, 2008, respectively.
Note 6 Property and Equipment:
Property and equipment is comprised as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 26, |
|
|
December 27, |
|
|
September 27, |
|
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
|
|
|
|
Land |
|
$ |
27,646 |
|
|
$ |
25,410 |
|
|
$ |
25,410 |
|
Buildings and improvements |
|
|
340,452 |
|
|
|
325,081 |
|
|
|
305,662 |
|
Furniture, fixtures and equipment |
|
|
216,235 |
|
|
|
198,881 |
|
|
|
192,423 |
|
Computer software and hardware |
|
|
84,008 |
|
|
|
74,589 |
|
|
|
68,802 |
|
Construction in progress |
|
|
12,990 |
|
|
|
12,615 |
|
|
|
24,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
681,331 |
|
|
|
636,576 |
|
|
|
616,774 |
|
Accumulated depreciation and amortization |
|
|
(318,590 |
) |
|
|
(274,543 |
) |
|
|
(259,504 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
362,741 |
|
|
$ |
362,033 |
|
|
$ |
357,270 |
|
|
|
|
|
|
|
|
|
|
|
Note 7 Share-Based Payments:
We recognize compensation expense for share-based payments based on the fair value of the awards.
Share-based payments include stock option and restricted stock unit grants and certain transactions
under our Employee Stock Purchase Plan (the ESPP). Share-based compensation expense lowered
pre-tax income by $2.9 million and $3.0 million for the third quarter of fiscal 2009 and 2008,
respectively, and by $9.2 million for the first nine months of both fiscal 2009 and 2008. The
benefits of tax deductions in excess of recognized compensation expense are reported as a financing
cash flow.
Page 7
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
Effective May 7, 2009, the Company adopted the 2009 Stock Incentive Plan replacing the 2006 Stock
Incentive Plan. Following the adoption of the 2009 Stock Incentive Plan, no further grants may be
made under the 2006 Stock Incentive Plan. Under the terms of the 2009 Stock Incentive Plan
3,100,000 shares are available for grant as stock options or other awards.
Under our 2009 Stock Incentive Plan, options may be granted to officers, non-employee directors and
other employees. The per share exercise price of options granted shall not be less than the fair
market value of the stock on the date of grant and such options will expire no later than ten years
from the date of grant. Also, the aggregate fair market value of the stock with respect to which
incentive stock options are exercisable on a tax deferred basis for the first time by an individual
in any calendar year may not exceed $100,000. Vesting of options commences at various anniversary
dates following the dates of grant.
The fair value of each option grant is separately estimated for each vesting date. The fair value
of each option is recognized as compensation expense ratably over the vesting period. We have
estimated the fair value of all stock option awards as of the date of the grant by applying a
Black-Scholes pricing valuation model. The application of this valuation model involves
assumptions that are judgmental and highly sensitive in the determination of compensation expense,
including expected stock price volatility.
The following summarizes information concerning stock option grants during fiscal 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
September 26, |
|
|
September 27, |
|
|
September 26, |
|
|
September 27, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Stock options granted |
|
|
3,800 |
|
|
|
38,676 |
|
|
|
550,626 |
|
|
|
623,550 |
|
Weighted average exercise price |
|
$ |
46.04 |
|
|
$ |
38.59 |
|
|
$ |
34.37 |
|
|
$ |
38.29 |
|
Weighted average fair value |
|
$ |
16.89 |
|
|
$ |
15.05 |
|
|
$ |
12.89 |
|
|
$ |
14.53 |
|
The weighted average key assumptions used in determining the fair value of options granted in
the three and nine months ended September 26, 2009 and September 27, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
September 26, |
|
|
September 27, |
|
|
September 26, |
|
|
September 27, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Expected price volatility |
|
|
39.6 |
% |
|
|
38.6 |
% |
|
|
39.8 |
% |
|
|
38.5 |
% |
Risk-free interest rate |
|
|
2.2 |
% |
|
|
3.3 |
% |
|
|
1.6 |
% |
|
|
2.9 |
% |
Weighted average expected lives in years |
|
|
4.7 |
|
|
|
5.0 |
|
|
|
5.2 |
|
|
|
4.9 |
|
Forfeiture rate |
|
|
8.0 |
% |
|
|
5.4 |
% |
|
|
6.8 |
% |
|
|
5.7 |
% |
Dividend yield |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
As of September 26, 2009, total unrecognized compensation expense related to non-vested stock
options and restricted stock units was $15.2 million with a weighted average expense recognition
period of 1.54 years.
Restricted Stock Units
During the first nine months of 2009 and 2008, we issued 149,151 and 84,458 restricted stock units,
respectively, which vest over an approximate three-year term and had a grant date weighted average
fair value of $34.63 and $38.21, respectively.
Page 8
Employee Stock Purchase Plan
The ESPP provides our employees 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 38,293 and 44,185
shares of our common stock during the first nine months of fiscal 2009 and 2008, respectively.
Total stock compensation expense related to the ESPP was approximately $338,000 and $370,000 during
the first nine months of 2009 and 2008, respectively. At September 26, 2009, there were 3,199,762
shares of common stock reserved for future issuance under the ESPP.
There were no significant modifications to our share-based compensation plans during the nine
months ended September 26, 2009 (provided that, as noted above, the Company adopted its 2009 Stock
Incentive Plan in replacement of its 2006 Stock Incentive Plan, effective May 7, 2009).
Note 8 Net Income Per Share:
We present both basic and diluted earnings per share (EPS) on the face of the consolidated
statements of income. 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 units.
Net income per share is calculated as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Three months ended |
|
|
|
September 26, 2009 |
|
|
September 27, 2008 |
|
|
|
|
|
|
|
|
|
|
|
Per Share |
|
|
|
|
|
|
|
|
|
|
Per Share |
|
|
|
Income |
|
|
Shares |
|
|
Amount |
|
|
Income |
|
|
Shares |
|
|
Amount |
|
Basic net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
21,979 |
|
|
|
36,034 |
|
|
$ |
0.61 |
|
|
$ |
15,870 |
|
|
|
36,429 |
|
|
$ |
0.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive stock options and
restricted stock units
outstanding |
|
|
|
|
|
|
677 |
|
|
|
(0.01 |
) |
|
|
|
|
|
|
645 |
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
21,979 |
|
|
|
36,711 |
|
|
$ |
0.60 |
|
|
$ |
15,870 |
|
|
|
37,074 |
|
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
Nine months ended |
|
|
|
September 26, 2009 |
|
|
September 27, 2008 |
|
|
|
|
|
|
|
|
|
|
|
Per Share |
|
|
|
|
|
|
|
|
|
|
Per Share |
|
|
|
Income |
|
|
Shares |
|
|
Amount |
|
|
Income |
|
|
Shares |
|
|
Amount |
|
Basic net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
77,213 |
|
|
|
35,954 |
|
|
$ |
2.15 |
|
|
$ |
57,218 |
|
|
|
37,045 |
|
|
$ |
1.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive stock options and
restricted stock units
outstanding |
|
|
|
|
|
|
636 |
|
|
|
(0.04 |
) |
|
|
|
|
|
|
632 |
|
|
|
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
77,213 |
|
|
|
36,590 |
|
|
$ |
2.11 |
|
|
$ |
57,218 |
|
|
|
37,677 |
|
|
$ |
1.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9 Credit Agreement:
We are party to a Senior Credit Facility with Bank of America, N.A., as agent for a lender group
(the Credit Agreement), which provides for borrowings up to $350 million (with sublimits of $75
million and $20 million for letters of credit and swingline loans, respectively). The Credit
Agreement has an Increase Option for $150 million (subject to additional lender group commitments).
The Credit Agreement is unsecured and matures in February 2012, with proceeds expected to be used
for working capital, capital expenditures and share repurchases. Borrowings 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 26, 2009 and 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 26,
2009 and September 27, 2008).
Page 9
The Credit Agreement requires quarterly compliance with respect to two material covenants: a fixed
charge coverage ratio and a leverage ratio. The fixed charge coverage ratio principally compares
earnings before interest, taxes, depreciation, amortization, stock compensation and rent expense
(consolidated EBITDAR) to the sum of interest paid and rental expense (excluding straight-line
rent). The leverage ratio principally compares total debt plus rental expense (excluding
straight-line rent) multiplied by a factor of six to consolidated EBITDAR. The Credit Agreement
also contains certain other restrictions regarding additional indebtedness, capital expenditures,
business operations, guarantees, investments, mergers, consolidations and sales of assets,
transactions with subsidiaries or affiliates, and liens. We were in compliance with all covenants
at September 26, 2009.
Note 10 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. 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 19,407 and 464,812 shares under the share repurchase program during the third
quarter of 2009 and 2008, respectively. The total cost of the share repurchases was $0.9 million
and $14.7 million during the third quarter of 2009 and 2008, respectively. We repurchased 321,030
and 1,280,205 shares under the share repurchase program during the first nine months of 2009 and
2008, respectively. The total cost of the share repurchases was $10.8 million and $42.5 million
during the first nine months of 2009 and 2008, respectively. As of September 26, 2009, we had
remaining authorization under the share repurchase program of $185.5 million exclusive of any fees,
commissions, or other expenses.
Note 11 New Accounting Pronouncements:
In December 2007, the Financial Accounting Standards Board (FASB) modified FASB Accounting
Standards Codification (ASC) 805, Business Combinations (Topic 805). Previous guidance applied
only to business combinations in which control was obtained by transferring consideration. The
revised guidance applies to all transactions or other events in which one entity obtains control
over another. Topic 805 now defines the acquirer as the entity that obtains control over one or
more other businesses and defines the acquisition date as the date the acquirer achieves control.
It also requires the acquirer to recognize assets acquired, liabilities assumed and any
noncontrolling interest in the acquiree at their respective fair values as of the acquisition date.
The revised guidance changes the treatment of acquisition-related costs, restructuring costs
related to an acquisition that the acquirer expects but is not obligated to incur, contingent
consideration associated with the purchase price and preacquisition contingencies associated with
acquired assets and liabilities. Topic 805 retains the guidance for identifying and recognizing
intangible assets apart from goodwill. The revised guidance applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. We adopted this revised guidance
effective December 28, 2008 (fiscal 2009). Thus we are required to apply the revised guidance to
any business acquisition which occurs on or after December 28, 2008, but this modification had no
effect on prior acquisitions.
In April 2008, the FASB modified FASB ASC 350, Intangibles Goodwill and Other, and FASB ASC 275,
Risks and Uncertainties, for factors that must be considered in developing renewal or extension
assumptions used to determine the useful life over which to amortize the cost of a recognized
intangible asset. The modification requires an entity to consider its own assumptions about
renewal or extension of the term of the arrangement, consistent with its expected use of the asset,
and is an attempt to improve consistency between the useful life of a recognized intangible asset
and the period of expected cash flows used to measure the fair value of the asset. We adopted the
guidance for determining the useful life of a recognized intangible asset effective December 28,
2008 (fiscal 2009), and the guidance is applied prospectively to intangible assets acquired after
the effective date. The guidance did not have an impact on our financial condition, results of
operations or cash flow.
Page 10
On April 9, 2009, the FASB modified FASB ASC 825, Financial Instruments, and FASB ASC 270, Interim
Reporting, to extend the disclosure requirements related to the fair value of financial instruments
to interim financial statements of publicly traded companies. We adopted this guidance effective
June 27, 2009. This guidance did not have a significant impact on our financial condition, results
of operations or cash flow.
In May 2009, the FASB modified FASB ASC 855, Subsequent Events, which establishes general standards
of accounting for and disclosure of events that occur after the balance sheet date but before
financial statements are issued and requires entities to disclose the date through which they have
evaluated subsequent events. We adopted this guidance effective June 27, 2009. The adoption of
this guidance did not have an impact on our financial condition, results of operations or cash
flows.
In June 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-01 Topic 105, Generally
Accepted Accounting Principles which establishes the FASB ASC. The FASB ASC is the single source
of authoritative nongovernmental U.S. generally accepted accounting principles (GAAP),
superseding existing FASB, American Institute of Certified Public Accountants, Emerging Issues Task
Force, and related accounting literature. The FASB ASC reorganizes the thousands of GAAP
pronouncements into roughly 90 accounting topics and displays them using a consistent structure.
Also included is relevant Securities and Exchange Commission guidance organized using the same
topical structure in separate sections. We adopted ASU No. 2009-01 effective September 26, 2009.
The adoption of this guidance did not have an impact on our financial condition, results of
operations or cash flows.
In August 2009, FASB issued ASU No. 2009-05 which amends ASC 820, Fair Value Measurements and
Disclosures (Topic 820), to provide guidance on the fair value measurement of liabilities. This
update requires clarification for circumstances in which a quoted price in an active market for the
identical liability is not available. A reporting entity is required to measure fair value using
one or more of the following techniques: 1) a valuation technique that uses either the quoted price
of the identical liability when traded as an asset or quoted prices for similar liabilities or
similar liabilities when traded as an asset; or 2) another valuation technique that is consistent
with the principles in Topic 820 such as the income and market approach to valuation. The
amendments in this update also clarify that when estimating the fair value of a liability, a
reporting entity is not required to include a separate input or adjustment to other inputs relating
to the existence of a restriction that prevents the transfer of the liability. This update further
clarifies that if the fair value of a liability is determined by reference to a quoted price in an
active market for an identical liability, that price would be considered a Level 1 measurement in
the fair value hierarchy. Similarly, if the identical liability has a quoted price when traded as
an asset in an active market, it is also a Level 1 fair value measurement if no adjustments to the
quoted price of the asset are required. This update is effective for our fourth quarter 2009 and is
not expected to have a significant impact on our financial condition, results of operation or cash
flow.
Note 12 Commitments and Contingencies:
Construction commitments
We had commitments for new store construction projects totaling approximately $0.7 million at
September 26, 2009.
Litigation
We are involved in various litigation matters arising in the ordinary course of business.
Management expects these matters will be resolved without material adverse effect on our
consolidated financial position or results of operations. Any estimated loss related to such
matters has been adequately provided in accrued liabilities to the extent probable and reasonably
estimable. It is possible, however, that future results of operations for any particular quarterly
or annual period could be affected by changes in circumstances relating to these proceedings.
Note 13 Subsequent Events:
We evaluated all events or transactions that occurred after September 26, 2009 up through November
2, 2009, which represents the date these financial statements were filed with the Securities and
Exchange Commission.
Page 11
|
|
|
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 27, 2008. 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.
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 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 general economic conditions affecting consumer spending, the timing and
acceptance of new products in the stores, the mix of goods sold, purchase price volatility
(including inflationary and deflationary pressures), the ability to increase sales at existing
stores, the ability to manage growth and identify suitable locations and negotiate favorable lease
agreements on new and relocated stores, the availability of favorable credit sources, capital
market conditions in general, failure to open new stores in the manner currently contemplated, the
impact of new stores on our business, competition, weather conditions, the seasonal nature of our
business, effective merchandising initiatives and marketing emphasis, the ability to retain
vendors, reliance on foreign suppliers, the ability to attract, train and retain qualified
employees, product liability and other claims, potential legal proceedings, management of our
information systems, effective tax rate changes and results of examination by taxing authorities,
and the ability to maintain an effective system of internal control over financial reporting. 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 27, 2008. 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.
Page 12
Results of Operations
Fiscal Three Months (Third Quarter) and Nine Months Ended September 26, 2009 and September 27,
2008
Net sales increased 1.9% to $747.7 million for the third quarter of 2009 from $733.9 million for
the third quarter of 2008. Net sales increased 6.2% to $2.34 billion for the first nine months of
fiscal 2009 from $2.21 billion for the first nine months of fiscal 2008. The net sales increase
for the third quarter resulted primarily from the addition of new stores partially offset by a
same-store sales decline of 5.1%. The net sales increase for the first nine months of fiscal 2009
was primarily the result of new store openings partially offset by a 1.7% decrease in same-store
sales. Our third quarter same-store sales decline resulted primarily from softness in sales of
seasonal big-ticket items and difficult comparisons due to strong sales of hurricane-related
merchandise and seasonal heating products in the prior years quarter. The decline was partially
offset by continued strong sales in core consumable categories, including animal and pet-related
products, as well as repair and replacement parts.
We opened 17 new stores and relocated one store during the third quarter of 2009 compared to 20 new
store openings and no relocations or closures during the prior years third quarter. During the
first nine months of 2009, we opened 58 new stores, relocated two stores and closed one store
compared to 70 new store openings and no relocations or closures during the first nine months of
2008. We operated 912 stores at September 26, 2009 compared to 834 stores at September 27, 2008.
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 2009 and 2008:
|
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|
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|
|
|
Three months ended |
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|
Nine months ended |
|
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|
September 26, |
|
|
September 27, |
|
|
September 26, |
|
|
September 27, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Product Category: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Livestock and Pet |
|
|
41 |
% |
|
|
37 |
% |
|
|
40 |
% |
|
|
37 |
% |
Seasonal Products |
|
|
21 |
|
|
|
23 |
|
|
|
23 |
|
|
|
25 |
|
Hardware and Tools |
|
|
15 |
|
|
|
16 |
|
|
|
14 |
|
|
|
14 |
|
Clothing and Footwear |
|
|
7 |
|
|
|
7 |
|
|
|
7 |
|
|
|
7 |
|
Truck, Trailer and Towing |
|
|
9 |
|
|
|
9 |
|
|
|
9 |
|
|
|
9 |
|
Agricultural |
|
|
7 |
|
|
|
8 |
|
|
|
7 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
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|
|
|
|
|
Gross margin for the third quarter and the first nine months of fiscal 2009 was $246.0 million
and $749.3 million, respectively. This represents an increase of 12.8% and 12.3%, respectively,
over the comparable periods of the prior year. Gross margin, as a percent of sales, was 32.9% for
the third quarter of fiscal 2009 compared to 29.8% for the comparable period in fiscal 2008. The
improvement in gross margin rate for the quarter resulted from a decrease in the LIFO provision,
reduced transportation costs and effective markdown management.
The decrease in the LIFO charge of $8.7 million for the quarter is attributed to deflation or lower
inflation in certain product categories and changes in product mix. The LIFO provision is
dependent upon a combination of expected year-end inventory levels and mix, as well as the expected
year-end inflation rate for the various product categories. We continue to project a LIFO charge
for the full year, despite various cost reductions in certain product categories, because we
anticipate an increase in certain key products with higher inflation indices. The increase is
driven by our store base expansion and a commitment to better in-stocks on key items. As a result,
we are adding merchandise that has higher inflation indices than the existing Company averages, and
this creates a LIFO provision even as inflation moderates and inventory per store declines.
The reduced transportation costs resulted primarily from lower fuel costs and to a lesser extent
improved transportation efficiencies. The improved markdown management results from our continued
inventory reduction initiative through efforts to clear seasonal product and certain merchandise
that will not be carried into future periods. For the first nine months of fiscal 2009, the gross
margin rate was 32.0% compared to 30.2% for the first nine months of 2008, largely due to the same
reasons.
Page 13
Costs incurred at our distribution centers for receiving, warehousing and preparing product for
delivery are expensed as incurred and are included in selling, general and administrative expenses
in the Consolidated Statements of Income. Because the Company does not include these costs in cost
of sales, the Companys gross margin may not be comparable to other retailers that include these
costs in the calculation of gross margin. Distribution center costs were approximately $14.8
million and $13.4 million for the third quarter of fiscal 2009 and 2008, respectively, and they
were approximately $43.7 million and $39.6 million for the first nine months of fiscal 2009 and
2008, respectively.
Selling, general and administrative (SG&A) expenses increased 180 basis points to 25.9% of sales
in the third quarter of fiscal 2009 from 24.1% of sales in the third quarter of fiscal 2008. This
third quarter increase as a percent of sales was primarily attributable to the deleveraging related
to the same-store sales decrease and, to a lesser extent, an increase in our sales tax audit
expense as several states have initiated sales tax audits and an increase in incentive compensation
expense related to the Companys favorable results in the current year. SG&A expenses for the
first nine months of fiscal 2009 increased 60 basis points to 24.5% of sales from 23.9% in the
first nine months of fiscal 2008, primarily due to less sales leverage and increased incentive
compensation expense.
Depreciation and amortization expense increased 10 basis points to 2.2% of sales in the third
quarter of fiscal 2009 from 2.1% in the third quarter of fiscal 2008. As a percent of sales,
depreciation and amortization expense increased 10 basis points to 2.1% in the first nine months of
fiscal 2009 from 2.0% in the first nine months of fiscal 2008. The increases were related directly
to new store growth and capital costs for infrastructure and technology.
Interest expense increased 10 basis points to 0.1% of sales in the third quarter of 2009 from 0.0%
in the third quarter of fiscal 2008. For the first nine months of fiscal 2009, interest expense
decreased to $1.1 million compared to $1.7 million for the comparable period in fiscal 2008. The
year-to-date improvement is primarily due to a lower average outstanding balance on our credit
facility, and a lower weighted-average interest rate.
Our effective income tax rate decreased to 37.8% in the third quarter and first nine months of
fiscal 2009 compared with 39.3% and 38.8% for the third quarter and the first nine months of fiscal
2008, respectively, largely due to certain federal tax credits and the estimated favorable impact
of other permanent tax differences on the revised full year taxable income.
As a result of the foregoing factors, net income for the third quarter of fiscal 2009 increased
38.5% to $22.0 million compared to $15.9 million in the third quarter of fiscal 2008. Net income
for the first nine months of fiscal 2009 increased 34.9% to $77.2 million from $57.2 million in the
first nine months of the prior year. Net income, as a percent of sales, increased 70 basis points
to 2.9% for the third quarter of fiscal 2009 compared to 2.2% in the third quarter of fiscal 2008.
For the first nine months of fiscal 2009, net income as a percent of sales increased 70 basis
points to 3.3%, compared to 2.6% for the first nine months of fiscal 2008. Net income per diluted
share for the third quarter of fiscal 2009 increased to $0.60 from $0.43 and, for the first nine
months of fiscal 2009, increased to $2.11 from $1.52. Outstanding shares were reduced as a result
of repurchases under our share repurchase program.
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 technology upgrades. Our
primary ongoing sources of liquidity are funds provided from operations, commitments available
under our revolving credit agreement and normal trade credit.
Page 14
At September 26, 2009, we had working capital of $374.0 million, which was a $90.8 million increase
and an $86.5 million increase compared to December 27, 2008 and September 27, 2008, respectively.
The shifts in working capital were primarily attributable to changes in the following components of
current assets and current liabilities (in millions):
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 26, |
|
|
December 27, |
|
|
|
|
|
|
September 27, |
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
Variance |
|
|
2008 |
|
|
Variance |
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
94.9 |
|
|
$ |
37.0 |
|
|
$ |
57.9 |
|
|
$ |
16.4 |
|
|
$ |
78.5 |
|
Inventories |
|
|
704.0 |
|
|
|
603.4 |
|
|
|
100.6 |
|
|
|
703.1 |
|
|
|
0.9 |
|
Prepaid expenses and other current assets |
|
|
40.4 |
|
|
|
41.9 |
|
|
|
(1.5 |
) |
|
|
40.7 |
|
|
|
(0.3 |
) |
Deferred income taxes |
|
|
11.4 |
|
|
|
1.7 |
|
|
|
9.7 |
|
|
|
2.9 |
|
|
|
8.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
850.7 |
|
|
|
684.0 |
|
|
|
166.7 |
|
|
|
763.1 |
|
|
|
87.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
356.8 |
|
|
|
286.8 |
|
|
|
70.0 |
|
|
|
366.1 |
|
|
|
(9.3 |
) |
Other accrued expenses |
|
|
119.5 |
|
|
|
113.5 |
|
|
|
6.0 |
|
|
|
108.0 |
|
|
|
11.5 |
|
Current portion of capital lease obligation |
|
|
0.4 |
|
|
|
0.5 |
|
|
|
(0.1 |
) |
|
|
0.5 |
|
|
|
(0.1 |
) |
Income tax currently payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0 |
|
|
|
(1.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
476.7 |
|
|
|
400.8 |
|
|
|
75.9 |
|
|
|
475.6 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital |
|
$ |
374.0 |
|
|
$ |
283.2 |
|
|
$ |
90.8 |
|
|
$ |
287.5 |
|
|
$ |
86.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Operations provided net cash of $111.0 million and $143.9 million in the first nine months of
fiscal 2009 and fiscal 2008, respectively. The $32.9 million decrease in net cash provided in 2009
over 2008 is primarily due to changes in the following operating activities (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
September 26, |
|
|
September 27, |
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
Variance |
|
Net income |
|
$ |
77.2 |
|
|
$ |
57.2 |
|
|
$ |
20.0 |
|
Depreciation and amortization |
|
|
48.8 |
|
|
|
44.7 |
|
|
|
4.1 |
|
Inventories and accounts payable |
|
|
(30.6 |
) |
|
|
40.7 |
|
|
|
(71.3 |
) |
Stock compensation expense |
|
|
9.2 |
|
|
|
9.2 |
|
|
|
|
|
Prepaid expenses and other current assets |
|
|
3.0 |
|
|
|
1.7 |
|
|
|
1.3 |
|
Other accrued expenses |
|
|
6.0 |
|
|
|
(7.6 |
) |
|
|
13.6 |
|
Income taxes currently payable |
|
|
(1.6 |
) |
|
|
(4.1 |
) |
|
|
2.5 |
|
Other, net |
|
|
(1.0 |
) |
|
|
2.1 |
|
|
|
(3.1 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operations |
|
$ |
111.0 |
|
|
$ |
143.9 |
|
|
$ |
(32.9 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities continue to provide the primary source of our liquidity. The
decrease in net cash provided by operations in the first nine months of fiscal 2009 compared with
the first nine months of fiscal 2008 was primarily due to changes in inventory levels and timing of
payments. As a result of the same store sales decrease in the third quarter the inventory turns
declined from the prior year period. Slower inventory turns combined with more timely payments on
accounts payable to capture payment discounts have resulted in a decline in financed inventory from
48.4% to 44.9%, resulting in a lower accounts payable increase relative to inventory. (The
calculated financed inventory assumes FIFO inventory, excludes inventory in-transit, and includes
gross book overdrafts in accounts payable.) This decrease was partially offset by the strong net
income performance in 2009 and an increase in accrued expenses related to incentive compensation.
Investing activities used $49.4 million and $68.6 million in the first nine months of fiscal 2009
and fiscal 2008, respectively. The majority of this cash requirement relates to our capital
expenditures.
Page 15
Capital expenditures for the first nine months of fiscal 2009 and fiscal 2008 were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
September 26, |
|
|
September 27, |
|
|
|
2009 |
|
|
2008 |
|
New/relocated stores and stores not yet opened |
|
$ |
26.5 |
|
|
$ |
30.3 |
|
Information technology |
|
|
11.4 |
|
|
|
9.9 |
|
Existing stores |
|
|
10.0 |
|
|
|
7.6 |
|
Distribution center capacity and improvements |
|
|
1.3 |
|
|
|
12.4 |
|
Other |
|
|
0.2 |
|
|
|
0.1 |
|
Existing store properties acquired from lessor |
|
|
|
|
|
|
8.5 |
|
|
|
|
|
|
|
|
|
|
$ |
49.4 |
|
|
$ |
68.8 |
|
|
|
|
|
|
|
|
The above table reflects 58 new stores in the first nine months of fiscal 2009, compared to 70 new
stores during the first nine months of fiscal 2008.
Financing activities used $3.8 million and $72.1 million in the first nine months of fiscal 2009
and fiscal 2008, respectively. This decrease in net cash used is largely due to more repayments
than borrowings under the Senior Credit Facility in the prior year and 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). The Credit Agreement has an Increase Option
for $150 million (subject to additional lender group commitments). We had approximately $323.8
million available for future borrowings, net of outstanding letters of credit, under our Credit
Agreement at September 26, 2009.
The Credit Agreement is unsecured and matures in February 2012, with proceeds expected to be used
for working capital, capital expenditures and share repurchases. Borrowings 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 26, 2009 and 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 26, 2009 and September 27, 2008). The agreement requires
quarterly compliance with respect to fixed charge coverage and leverage ratios.
The Credit Agreement requires quarterly compliance with respect to two material covenants: a fixed
charge coverage ratio and a leverage ratio. The fixed charge coverage ratio principally compares
earnings before interest, taxes, depreciation, amortization, stock compensation and rent expense
(consolidated EBITDAR) to the sum of interest paid and rental expense (excluding straight-line
rent). The leverage ratio principally compares total debt plus rental expense (excluding
straight-line rent) multiplied by a factor of six to consolidated EBITDAR. The Credit Agreement
also contains certain other restrictions regarding additional indebtedness, capital expenditures,
business operations, guarantees, investments, mergers, consolidations and sales of assets,
transactions with subsidiaries or affiliates, and liens. We were in compliance with all covenants
at September 26, 2009.
We believe that our existing cash balances, expected cash flow from future operations, borrowings
available under our Credit Agreement, 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. 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.
Page 16
We repurchased 19,407 and 464,812 shares under the share repurchase program during the third
quarter of 2009 and 2008, respectively. The total cost of the share repurchases was $0.9 million
and $14.7 million during the third quarter of 2009 and 2008, respectively. We repurchased 321,030
and 1,280,205 shares under the share repurchase program during the first nine months of 2009 and
2008, respectively. The total cost of the share repurchases was $10.8 million and $42.5 million
during the first nine months of 2009 and 2008, respectively. As of September 26, 2009, we had
remaining authorization under the share repurchase program of $185.5 million exclusive of any fees,
commissions, or other expenses.
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
We had commitments for new store construction projects totaling approximately $0.7 million at
September 26, 2009. There has been no material change in our contractual obligations and
commercial commitments other than in the ordinary course of business since the end of fiscal 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 (including LIFO) |
|
|
|
|
Share-based payments |
|
|
|
|
Self-insurance reserves |
|
|
|
|
Sales tax audit reserve |
|
|
|
|
Tax contingencies |
|
|
|
|
Goodwill |
|
|
|
|
Long-lived assets |
See the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the
fiscal year ended December 27, 2008 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 are exposed to changes in interest rates primarily from the Credit Agreement. The Credit
Agreement bears interest at either the banks base rate (2.35% and 5.00% at September 26, 2009 and
September 27, 2008, respectively) or LIBOR (0.25% and 3.43% at September 26, 2009 and September 27,
2008, respectively) plus an additional amount ranging from 0.35% to 0.90% per annum, adjusted
quarterly, based on our performance (0.50% at September 26, 2009 and September 27, 2008). We are
also required to pay, quarterly in arrears, a commitment fee ranging from 0.06% to 0.18% based on
the daily average unused portion of the Credit Agreement (0.10% at September 26, 2009 and September
27, 2008). See Note 9 of the Notes to the Consolidated Financial Statements included herein for
further discussion regarding the Credit Agreement.
Page 17
Although we cannot determine the full effect of inflation and deflation on our operations, we
believe our sales and results of operations are affected by both. We are subject to market risk
with respect to the pricing of certain products and services, which include, among other items,
steel, grain, petroleum, corn, soybean and other
commodities as well as transportation services. Therefore, we may experience both inflationary and
deflationary pressure on product cost, which may impact consumer demand and, as a result, sales and
gross margin. Our strategy is to reduce or mitigate the effects of purchase price volatility
principally by taking advantage of vendor incentive programs, economies of scale from increased
volume of purchases, adjusting retail prices and selectively buying from the most competitive
vendors without sacrificing quality. Due to the competitive environment, such conditions have and
may continue to adversely impact our financial performance.
|
|
|
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 26, 2009. Based on this evaluation, our principal executive officer and principal
financial officer concluded that, as of September 26, 2009, our disclosure controls and procedures
were effective to ensure that information required to be disclosed by us in the reports that we
file or submit under the 1934 Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commissions rules and forms. Disclosure controls
and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by an issuer in the reports that it files or submits under the
1934 Act is accumulated and communicated to the issuers management, including its principal
executive and principal financial officers, or persons performing similar functions, as appropriate
to allow timely decisions regarding required disclosure.
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 2009 that have materially affected or are reasonably likely to materially affect our
internal control over financial reporting.
PART II. OTHER INFORMATION
|
|
|
Item 1. |
|
Legal Proceedings |
We are involved in various litigation matters arising in the ordinary course of business. We
expect these matters will be resolved without material adverse effect on our consolidated financial
position or results of operations. Any estimated loss related to such matters has been adequately
provided in accrued liabilities to the extent probable and reasonably estimable. It is possible,
however, that future results of operations for any particular quarterly or annual period could be
affected by changes in circumstances relating to these proceedings.
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 27, 2008.
Page 18
|
|
|
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. Stock repurchase activity during the third quarter
of fiscal 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Dollar |
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Value of Shares |
|
|
|
|
|
|
|
|
|
|
|
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 28, 2009 July 25, 2009 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
186,378,522 |
|
July 26, 2009 August 22, 2009 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
186,378,522 |
|
August 23, 2009 September 26, 2009 |
|
|
19,407 |
|
|
$ |
47.13 |
|
|
|
19,407 |
|
|
$ |
185,464,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 26, 2009 |
|
|
19,407 |
|
|
|
|
|
|
|
19,407 |
|
|
$ |
185,464,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
Item 3. |
|
Defaults Upon Senior Securities |
None
|
|
|
Item 4. |
|
Submission of Matters to a Vote of Security Holders |
None
|
|
|
Item 5. |
|
Other Information |
None
|
|
|
|
|
Exhibits |
|
|
|
|
|
|
10.47 |
|
|
Revolving Credit Agreement, dated as of February 22, 2007 by and among Tractor
Supply Company, the banks party thereto, and Bank of America, N.A., as Administrative
Agent. |
|
|
|
|
|
|
10.48 |
|
|
Form of Director Restricted Stock Unit Award Agreement. |
|
|
|
|
|
|
10.49 |
|
|
Form of Restricted Share Unit Agreement for Officers. |
|
|
|
|
|
|
10.50 |
|
|
Form of Deferred Stock Unit Award Agreement for Directors. |
|
|
|
|
|
|
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. |
Page 19
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 2, 2009 |
By: |
/s/ Anthony F. Crudele
|
|
|
|
Anthony F. Crudele |
|
|
|
Executive Vice President Chief Financial Officer and Treasurer
(Duly Authorized Officer and Principal Financial Officer) |
|
Page 20
EXHIBIT INDEX
|
|
|
|
|
|
10.47 |
|
|
Revolving Credit Agreement, dated as of February 22, 2007 by and
among Tractor Supply Company, the banks party thereto, and Bank of
America, N.A., as Administrative Agent. |
|
|
|
|
|
|
10.48 |
|
|
Form of Director Restricted Stock Unit Award Agreement. |
|
|
|
|
|
|
10.49 |
|
|
Form of Restricted Share Unit Agreement for Officers. |
|
|
|
|
|
|
10.50 |
|
|
Form of Deferred Stock Unit Award Agreement for Directors. |
|
|
|
|
|
|
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. |
Page 21