<PAGE> 1
[TRACTOR SUPPLY CO. LOGO]
COVER PAGE
[Pictures: Products]
[Picture: Tractor Supply Company Sign]
We are the largest retail farm store
chain in America. We doubled our
business over the past five years
and our goal is to double it again
over the next five years by:
- - Building a strong, efficient infrastructure;
- - Focusing the merchandise offering; and
- - Expanding into new and existing markets.
1996 ANNUAL REPORT
<PAGE> 2
- --------------------------------------------------------------------------------
MAP
Total Number of Stores
at Year End
(Per State)
- --------------------------------------------------------------------------------
NUMBER OF STORES BY STATE
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Texas 29 Iowa 10 Nebraska 6 Maryland 2
Ohio 28 Kentucky 10 North Carolina 6 Mississippi 1
Michigan 21 North Dakota 8 Missouri 5 Montana 1
Indiana 17 Kansas 7 Pennsylvania 5 New York 1
Tennessee 17 Arkansas 6 South Dakota 4 Oklahoma 1
Illinois 12 Minnesota 6 Virginia 4 Wisconsin 1
</TABLE>
COMPANY PROFILE
Since its founding as a mail order tractor parts business in 1938, Tractor
Supply Company has grown to be the largest operator of retail farm stores in
America. The Company supplies the daily farming and maintenance needs of its
target customers: hobby, part-time and full-time farmers, as well as suburban
customers, contractors and tradesmen. At the close of fiscal 1996, the Company
operated 208 retail farm stores in 24 states. Tractor Supply Company stores
typically range in size from 12,000 to 14,000 square feet of inside space and
utilize at least as many square feet of outside selling space. An average
store displays a comprehensive selection of over 12,000 different products
including farm maintenance products (fencing, tractor parts and accessories,
agricultural spraying equipment and tillage parts); animal products (specialty
feeds, supplements, medicines, veterinary supplies and livestock feeders);
general maintenance products (air compressors, welders, generators, pumps,
plumbing and tools); lawn and garden products (riding mowers, tillers and
fertilizers); light truck equipment; and work clothing. The stores are located
in rural communities and in the outlying areas of large cities where farming is
a significant factor in the local economy. The Company employs approximately
2,500 people. Tractor Supply Company has been a public company since February
1994. Its stock is traded on The Nasdaq National Market under the symbol
"TSCO".
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TRACTOR SUPPLY COMPANY
FINANCIAL HIGHLIGHTS
(in thousands, except where noted)
<TABLE>
<CAPTION>
FISCAL YEAR PERCENT
------------------------ INCREASE
1996 1995 (DECREASE)
------- -------- ----------
<S> <C> <C> <C>
OPERATING RESULTS:
Net sales ............................................. $449,029 $383,903 17.0
Income before income taxes ............................ 22,081 20,815 6.1
Net income ............................................ 13,236 12,522 5.7
Net income per share ($) .............................. 1.50 1.40 7.1
FINANCIAL POSITION:
Total assets .......................................... 195,582 174,129 12.3
Cash and short-term investments ....................... 12,948 5,087 154.5
Stockholders' equity .................................. 92,966 79,951 16.3
Long-term debt to equity (%)........................... 22.8 32.3 (29.4)
STATISTICS:
Number of stores (#) .................................. 208 185 12.4
Square footage at year-end ............................ 2,544 2,238 13.7
Average sales per store ............................... 2,159 2,075 4.0
Net sales per square foot ($) ......................... 185 178 3.9
</TABLE>
GRAPHS
- ---------------
<TABLE>
<CAPTION>
Net Sales (in millions) Income From Operations (in millions)
- ----------------------- -------------------------------------
<S> <C> <C> <C>
1996 $449.0 1996 $24.4
1995 $383.9 1995 $22.5
1994 $330.0 1994 $20.6
1993 $279.2 1993 $15.3
1992 $251.5 1992 $12.6
<CAPTION>
Net Income (in millions) Five Year Compound Growth Rate
- ------------------------ ------------------------------
<S> <C> <C> <C>
1996 $13.2 Net Sales 15.8%
1995 $12.5 Income from Operations 18.2%
1994 $11.3 Net Income 34.4%
1993 $ 6.9
1992 $ 4.9
</TABLE>
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TRACTOR SUPPLY COMPANY
LETTER TO STOCKHOLDERS
WE HAVE THE NUMBER ONE POSITION IN A VERY UNIQUE MARKET NICHE SERVING THE BASIC
MAINTENANCE NEEDS OF AMERICA'S FARMERS AND RANCHERS. LAST YEAR WE MADE
TREMENDOUS PROGRESS BY CONTINUING TO BUILD A STRONG, EFFICIENT INFRASTRUCTURE.
TRACTOR SUPPLY IS TAKING MAJOR STEPS TO REJUVENATE THE MERCHANDISE MIX TO OFFER
AN EVEN MORE FOCUSED ASSORTMENT OF PRODUCTS OF STILL GREATER VALUE. WE
CURRENTLY HAVE IDENTIFIED MORE THAN 200 NEW MARKETS FOR OUR EXPANSION. WE ARE
PROUD OF THE CONTINUED DEVELOPMENT OF OUR MANAGEMENT TEAM AT EVERY LEVEL AND
ARE CONFIDENT THAT WE HAVE THE TALENT AND THE SPIRIT TO DRIVE THIS BUSINESS
BEYOND THE EXPECTATIONS OF MOST.
Tractor Supply Company achieved record sales, record net income, and opened
more new stores than ever in 1996. Total sales for the year were $449.0
million, up 17.0% and net income was $13.2 million, up 5.7%. We added 23 new
stores and operated 208 stores in 24 states, almost twice as many as our
nearest competitor.
Industry Leader
We have the number one position in a very unique market niche serving the basic
maintenance needs of America's farmers and ranchers. We have great confidence
in the future potential of this market and will continue to expand and grow by
increasing sales at existing stores and by opening new stores in markets that
meet our demographic criteria.
Building the Foundation
Last year we made tremendous progress by continuing to build our strong growth
infrastructure. New store performance is excellent, our new store computer
system is performing above expectations, turnover of store managers is at
record low levels, logistics support is outstanding, improved inventory
controls are yielding better in stock positions and lower inventories, and we
are now on the Internet at "http://www.tractorsupplyco.com".
Last fall we rolled out state of the art Point-of-Sale systems for all stores
in less than three months. The new systems have already reduced checkout time
and streamlined administrative functions at the stores and at our support
center. The nearly completed financial systems are yielding similar
efficiencies. We are focused on making prudent long-term investments in
technology that will give us competitive advantages and operating efficiencies.
This is the second consecutive year of record low turnover of store managers
which speaks very well of the strength of the management team. Low turnover of
store managers translates to stability of the sales force which further
solidifies and strengthens the organization. We continue our emphasis on
quality recruiting, management education for our leaders and product training
for all associates.
Rejuvenating the Merchandise Mix
Tractor Supply is taking major steps to rejuvenate the merchandise mix to offer
an even more focused assortment of products at still greater value. We are
substantially accelerating the changes in our offering to better serve the
basic maintenance needs of out target customer. There are more product
innovations in place now than in several years and more are on the way. We
know that merchandising drives sales and are confident that our renewed efforts
will produce stronger sales growth in 1997 and going forward.
Dynamic Future
Last year we added 23 new stores in eight states (including two new states:
Oklahoma and Virginia) which increased the total store count to over 200 for
the first time. Most of the 25 new stores planned for 1997 will be located in
or near existing market areas and the majority will open during the first few
months of the year. Sales from new stores continue to outperform the existing
store base and become profitable during the first twelve months of operation.
We are proud of the continued development of our management team at every level
and are confident that we have the talent and the spirit to drive this business
beyond the expectations of most. We are determined to substantially improve
our sales performance this year.
Tractor Supply Company has a very unique and special niche in the retail
marketplace serving America's farmers and ranchers. We are proud of what we do,
we are winners, and this year we will prove it once again.
<TABLE>
<S> <C>
Joe Scarlett Gerry Newkirk
Chairman of the Board and President and
Chief Executive Officer Chief Operating Officer
</TABLE>
2
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TRACTOR SUPPLY COMPANY
OUR BUSINESS
Tractor Supply Company is the largest farm store chain in America operating 208
stores in 24 states at the end of 1996. Stores typically range in size from
12,000 to 14,000 square feet of inside selling space and utilize at least as
many square feet of outside selling space. Our business strategy is to provide
a comprehensive, competitively priced selection of farming and maintenance
products that meet the needs of our target customers: hobby, part-time and
full-time farmers, as well as suburban homeowners, contractors and tradesmen.
An average store displays a wide selection of over 12,000 different items
including farm maintenance products (fencing, tractor parts and accessories,
agricultural spraying and tillage parts); animal products (specialty feeds,
supplements, medicines, veterinary supplies and livestock feeders); general
maintenance products (air compressors, welders, generators, pumps, plumbing and
tools); lawn and garden products (riding mowers, tillers and fertilizers);
light truck equipment and work clothing. Our principal mission is to be the
most dependable supplier of basic maintenance needs to America's farmers and
ranchers.
[PICTURE: Bob Young]
Communication: New Store Coordinator Bob Young
Bob Young, Tractor Supply Company's New Store Coordinator, is the liaison
between each new store's management team and all other support functions within
the organization. Bob was promoted to this position in May 1994, shortly after
the Company completed its initial public offering, to direct the Company's new
store opening program. By working closely with all members of the team, Bob
has been able to successfully direct the many facets of each new store opening,
which range from ordering fixtures and merchandise, as necessary, to the
distribution of all new store materials (such as forms, manuals, and
point-of-purchase information). In many cases, Bob assisted in developing the
process itself (such as the Company's "New Store Book" that details the daily
events leading up to the opening date). Each new store is a significant event
to Bob. By making the connection between support functions and local store
management work during the store opening process, Bob contributes greatly to a
new store's success.
BUILDING THE STRONG, EFFICIENT INFRASTRUCTURE
The first key component of our growth and expansion plans is to continually
develop a strong, efficient infrastructure. Two critical elements in this
area are the ongoing development of our associates and the utilization of
technology to create competitive advantage and improve operating efficiencies.
We made significant progress on both fronts during 1996.
The most important element of building the foundation for our future is
developing our people. We are dedicated to recruiting, training and retaining
the best and most knowledgeable associates in our industry. In 1996, we
successfully recruited and/or promoted record numbers of associates throughout
the organization. We also trained record numbers of associates with programs
ranging from full management training programs for developing store managers to
product training for all associates. We have established incentive compensation
programs at all levels within our organization which we believe further enhance
our ability to attract and retain qualified associates. This ongoing
commitment to the development of our associates led to record low turnover of
store managers for the second year in a row.
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TRACTOR SUPPLY COMPANY
A second key element in building the foundation for our future is wisely using
technology. Several major milestones were achieved on the technology front in
1996. First, we successfully completed the roll-out of state of the art
point-of-sale systems to all stores. The new point-of-sale systems have
already reduced check-out time, streamlined administrative functions at the
store and the store support center, and improved inventory control. Benefits
of the new systems include scanning, on-line exception receiving, full price
look-up capabilities, and elimination of many manual processes, to name just a
few. We also completed the upgrade of several financial systems during 1996
and expect to complete the upgrade of another major financial system this
summer. These new financial systems are expected to improve financial
reporting and controls and further enhance administrative efficiencies.
We are proud of our management team and of our new state of the art systems and
believe that our ongoing commitment to the development of our associates and
the prudent use of technology will continue to propel us going forward.
[PICTURE: Shelly Campbell]
Customer Service: Store Manager Shelly Campbell
Shelly Campbell is a 23-year veteran with Tractor Supply Company and the
Manager of our store in Saginaw, Michigan. Over the years, Shelly has earned a
tremendous amount of respect for the way she treats customers and employees.
Shelly feels that treating people fairly and in the way she would like to be
treated if she was in their position is just common courtesy. This winning
attitude has contributed to her and her store's success. This success can also
be attributed to the friendly and supportive atmosphere fostered throughout the
store and the entire Tractor Supply organization. In an environment where
associates are empowered to succeed and to make a difference, great things can
be achieved.
FOCUSING THE MERCHANDISE OFFERING
The second key component of our growth and expansion plans is to increase sales
at our existing stores by continually focusing our merchandise offering. To
stimulate our comparable store sales, we have critically reevaluated our
business and have developed new merchandising and marketing strategies (the
focus of which will be on our core customer, the American farmer and rancher)
to accelerate the rate of change in our product offerings over the next several
years. Our goal is to aggressively pursue and introduce new and innovative
products and product lines, enhance our existing product assortments and
improve our in-stock position in key product categories. Several of these new
initiatives are already underway for 1997.
Our first major initiative for 1997 is a completely revamped equine product
assortment. This new equine program was rolled out to approximately 50 stores
earlier this year, will be rolled out to approximately 100 additional stores
beginning this summer and will be in all stores by the first quarter of next
year.
The second major initiative for 1997 is a new feed line to be rolled out
beginning this spring. The major focus of the new feed program is the
introduction, under a private label, of an economy feed line that will
compliment our already well established high-end private label feed line.
A third major initiative that we are starting in 1997 is the development of a
larger prototype store test. The Company is in the process of setting up two
larger store formats which are designed to test both new and innovative
products and product lines as well as the economics of a larger store. The
Company expects it will take several years to experiment with this new larger
prototype store, including assessing the success of the new products, product
lines, store layout and overall store performance,
4
<PAGE> 7
TRACTOR SUPPLY COMPANY
and consequently, the Company does not expect to have any meaningful results
from this test until spring of 1999. Regardless of the overall outcome of the
test of a larger store format, however, the Company expects to learn from the
experiment and hopes, at a minimum, to gain ideas for new products and/or
product lines that can be rolled out to existing stores.
And finally for 1997, the Company has also significantly enhanced one of its
key existing product assortments, power equipment, and believes that the new
and improved product offering being rolled out this spring will be our best and
most competitive power equipment offering to date.
We are confident that our efforts in this area will help rejuvenate our stores,
create excitement with our customers and store associates, and fuel our
comparable store sales.
[PICTURE: John Dansbie]
Opportunity: Store Manager John Dansbie
John Dansbie is the Manager of the Tractor Supply Company store located in
Lafayette, Indiana. John joined the Company in June 1994 as an entry level
associate at our Indianapolis, Indiana Distribution Center. In November 1994,
John was promoted to Manager Trainee and moved to the Greenwood, Indiana store
where he spent the next eleven months participating in the Company's store
management training program. Upon successful completion of the training
program, during which time he also earned his college degree, John was promoted
to Store Manager and moved to Lafayette, Indiana to manage his own store. Now,
he and his team look forward to the daily challenge of assisting customers in
finding the right products to meet their needs and making sure that store
operations in Lafayette run smoothly. John's rapid progress with Tractor
Supply is the fulfillment of one of his dreams and demonstrates the opportunity
afforded those willing to work hard and who have proven themselves.
EXPANDING INTO NEW AND EXISTING MARKETS
The third key component of the Company's growth and expansion plans is to open
additional stores in both new and existing markets. Over the past several
years, the Company has opened 56 new retail farm stores in new and existing
markets, a 37% increase in the total store count. We currently have identified
over 200 potential new markets, and our goal is to increase our total store
count by approximately 12% each year. The Company plans to open 25 additional
new stores in 1997 (approximately 12 of which are scheduled to open during the
first quarter of 1997), 28 in 1998 and additional stores thereafter. Sales from
new stores continue to outperform the existing store base and become profitable
during the first twelve months of operation.
OUTLOOK
The more we evaluate, develop and grow our business, the clearer our vision of
the business becomes. Our vision is best summarized by the basic principles we
have used to guide the Company since 1982:
<TABLE>
<S> <C>
- - To be the most dependable supplier of basic maintenance needs to farmers
and other residents of rural areas;
- - To provide the best customer service, guaranteed satisfaction and low
prices every day;
- - To provide an environment where the free exchange of information is a way
of life and where personal growth is based on individual initiative and
achievement; and
- - To continuously improve all operations so that Tractor Supply Company is
the most efficient operator.
</TABLE>
5
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TRACTOR SUPPLY COMPANY
We have a very unique and special niche in the retail marketplace, serving
America's farmers and ranchers. Our team is stronger than ever and we have an
unyielding passion to continually improve in everything we do. We believe
there continues to be tremendous opportunity for growth in this market and we
are confident that we have the talent and spirit to drive this business beyond
the expectations of most.
- ---------------------------------
As with any business, all phases of the Company's operations are subject to
influences outside its control. This report contains certain forward-looking
statements. These statements include reference to certain factors, any one, or
a combination, of which could materially affect the results of the Company's
operations. These factors include general economic cycles affecting consumer
spending, weather factors, pricing and other competitive factors, the timing
and acceptance of new products in the stores, the mix of goods sold, capital
market conditions in general and the seasonality of the Company's business.
Forward-looking statements made by or on behalf of the Company are based on a
knowledge of its business and the environment in which it operates, but because
of the factors listed above, 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 by the Company will be realized or, even if substantially realized,
that they will have the expected consequences to or effects on the Company or
its business and operations.
6
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TRACTOR SUPPLY COMPANY
[PICTURES: Products]
7
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TRACTOR SUPPLY COMPANY
[PICTURES: Products]
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TRACTOR SUPPLY COMPANY
FIVE YEAR SELECTED FINANCIAL AND OPERATING HIGHLIGHTS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
DECEMBER 28, DECEMBER 30, DECEMBER 31, JANUARY 1, DECEMBER 26,
1996 1995 1994 1994 1992
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Net Sales ....................................... $ 449,029 $ 383,903 $ 329,967 $ 279,213 $ 251,517
Gross margin .................................... 116,651 98,656 88,187 71,743 64,263
Selling, general and administrative expenses .... 88,827 73,587 65,790 54,788 50,142
Depreciation and amortization ................... 3,385 2,524 1,845 1,655 1,506
------------- ------------- ------------- ------------- ------------
Income from operations .......................... 24,439 22,545 20,552 15,300 12,615
Interest expense, net ........................... 2,358 1,730 1,798 3,840 4,326
------------- ------------- ------------- ------------- -----------
Income before income taxes ...................... 22,081 20,815 18,754 11,460 8,289
Income tax provision ............................ 8,845 8,293 7,496 4,531 3,421
------------- ------------- ------------- ------------- -----------
Net income ...................................... $ 13,236 $12,522 $11,258 $6,929 $4,868
============= ============= ============= ============= ===========
Net income applicable to common stockholders $ 13,039 $12,165 $10,788 $6,459 $4,398
============= ============= ============= ============= ===========
Net income per share (a) ......................... $ 1.50 $1.40 $1.28 $0.99 $0.67
============= ============= ============= ============= ===========
Weighted average common shares outstanding (b) 8,718,000 8,718,000 8,433,934 6,518,000 6,518,000
OPERATING DATA:
Gross margin .................................... 26.0% 25.7% 26.7% 25.7% 25.5%
Selling, general and administrative expenses .... 19.8% 19.2% 19.9% 19.6% 19.9%
Income from operations .......................... 5.4% 5.9% 6.2% 5.5% 5.0%
Net income ...................................... 2.9% 3.3% 3.4% 2.5% 1.9%
Number of stores:
Beginning of year ............................. 185 165 152 150 149
New stores .................................... 23 20 13 6 1
Closed stores ................................. --- --- --- (4) ---
------------- ------------- ------------- ------------- -----------
End of year ................................... 208 185 165 152 150
============= ============= ============= ============= ===========
Number of relocated stores ...................... 4 2 4 4 2
Number of remodeled stores (c) .................. 1 6 2 2 ---
Total selling square footage at period-end (d) .. 2,543,575 2,237,755 1,929,396 1,738,348 1,691,765
Average sales per store (in thousands) .......... $ 2,159 $ 2,075 $ 2,000 $ 1,837 $ 1,677
Net sales per square foot of selling space ...... $ 185 $ 178 $ 178 $ 163 $ 149
Comparable store sales increase (e) ............. 2.5% 3.1% 11.7% 7.0% 14.4%
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital ................................. $ 65,954 $ 63,850 $ 46,184 $ 27,414 $ 22,558
Total assets .................................... 195,582 174,129 146,248 116,786 107,306
Long-term debt, less current portion (f) ........ 21,166 25,858 12,266 40,006 42,733
Redeemable preferred stock ...................... 1,763 3,525 5,875 5,875 5,875
Stockholders' equity ............................ 92,966 79,951 67,817 17,279 10,392
</TABLE>
(a) Net income per share is calculated based on the weighted average number
of common shares outstanding applied to net income applicable to common
stockholders.
(b) Weighted average common shares outstanding have been adjusted to give
effect to an approximately 50 for 1 stock split consummated on February
14, 1994 in connection with the Company's initial public offering
consummated on February 25, 1994. Stock options have been excluded as
they are anti-dilutive.
(c) Includes remodelings costing more than $150,000.
(d) Total selling square footage includes normal selling space and excludes
office, stockroom, receiving space and outside selling space.
(e) Comparable store sales increases are calculated on a 52-week basis,
excluding relocations, using all stores open at least one year.
(f) Long-term debt includes borrowings under the Company's principal
revolving credit agreements and amounts outstanding under its capital
lease obligations, excluding the current portions of each.
9
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TRACTOR SUPPLY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis describes certain factors affecting
Tractor Supply Company's (the "Company") results of operations for the three
fiscal years ended December 28, 1996 and its liquidity and capital resources.
This discussion should be read in conjunction with the financial statements and
notes thereto included elsewhere in this Annual Report. The following
discussion and analysis also contains certain historical and forward-looking
information. The forward-looking statements 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 the Company expects or
anticipates will or may occur in the future, including such things as future
capital expenditures (including the amount and nature thereof), business
strategy, expansion and growth of the Company's business operations and other
such matters are forward-looking statements. To take advantage of the safe
harbor provided by the Act, the Company is identifying certain factors that
could cause actual results to differ materially from those expressed in any
forward-looking statements, whether oral or written, made by or on behalf of
the Company.
All phases of the Company's operations are subject to influences outside its
control. Any one, or a combination, of these factors could materially affect
the results of the Company's operations. These factors include general
economic cycles affecting consumer spending, weather factors, operating factors
affecting customer satisfaction, consumer debt levels, pricing and other
competitive factors, the ability to identify suitable locations and negotiate
favorable lease agreements on new and relocated stores, the timing and
acceptance of new products in the stores, the mix of goods sold, the continued
availability of favorable credit sources and other capital market conditions
and the seasonality of the Company's business. Forward-looking statements made
by or on behalf of the Company are based on a knowledge of its business and the
environment in which it operates, but because of the factors listed above,
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 by the Company
will be realized or, even if substantially realized, that they will have the
expected consequences to or effects on the Company or its business and
operations.
The Company's fiscal year ends on the Saturday closest to December 31. Fiscal
years 1996, 1995 and 1994 consisted of 52 weeks.
OVERVIEW
Since its founding as a mail order tractor parts business in 1938, the Company
has grown to be the largest operator of retail farm stores in America. The
Company supplies the daily farming and maintenance needs of its target
customers: hobby, part-time and full-time farmers, as well as suburban
customers, contractors and tradesmen. The Company's stores typically range in
size from 12,000 to 14,000 square feet of inside selling space and utilize at
least as many square feet of outside selling space. An average store displays
a comprehensive selection of over 12,000 different products including farm
maintenance products (fencing, tractor parts and accessories, agricultural
spraying equipment and tillage parts); animal products (specialty feeds,
supplements, medicines, veterinary supplies and livestock feeders); general
maintenance products (air compressors, welders, generators, pumps, plumbing and
tools); lawn and garden products (riding mowers, tillers and fertilizers);
light truck equipment; and work clothing. The stores are located in rural
communities and in the outlying areas of large cities where farming is a
significant factor in the local economy. The Company does not sell large
tractors, combines, bulk chemicals or bulk fertilizers.
On February 25, 1994, the Company consummated an initial public offering (the
"Offering") whereby the Company sold 2,200,000 shares of common stock, par
value $.008 per share, at an initial offering price to the public of $20.00 per
share. In connection with the Offering, the Company (i) received net proceeds
of approximately $39.8 million (after deducting underwriting discounts and
commissions and expenses of the Offering); (ii) repaid all of the borrowings
then outstanding under its old revolving credit agreement with The First
National Bank of Boston (the "Old Credit Agreement") (approximately $22.7
million at February 25, 1994); (iii) paid off the mortgage notes on 34 of its
existing store locations (aggregating approximately $10.1 million); and (iv)
paid off all of the amounts outstanding under subordinated promissory notes
(aggregating approximately $.2 million). Also in connection with the Offering,
the Company retired the shares of common stock held in treasury.
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TRACTOR SUPPLY COMPANY
Over the past three fiscal years since the Offering, the Company has
successfully achieved its new store expansion goals, opening 13 new retail farm
stores in fiscal 1994, 20 new stores in fiscal 1995 and 23 new stores in fiscal
1996. These new stores have increased the Company's market presence in the
Southwest, primarily in Texas and Arkansas, and in the Southeast, primarily in
Tennessee and North Carolina. This expansion brings the Company's total store
count to 208 (in 24 states) as of December 28, 1996. The Company plans to open
an additional 25 stores in 1997, approximately 12 of which are scheduled to
open in the first quarter of 1997, 28 in fiscal 1998 and additional stores
thereafter. Over the past three fiscal years since the Offering, the Company
has also relocated ten stores (four in fiscal 1994, two in fiscal 1995, and
four in fiscal 1996) and completed major remodelings on nine of its existing
stores. In total over the past three fiscal years since the Offering, the
Company has opened, relocated or remodeled 75 stores.
Between fiscal year 1993 and fiscal year 1996, net sales increased from $279.2
million to $449.0 million and net income increased from $6.9 million to $13.2
million, reflecting a three-year compound annual growth rate of 17.2% and
24.1%, respectively. Between fiscal year 1991 and fiscal year 1996, net sales
increased from $215.9 million to $449.0 million and net income increased from
$3.0 million to $13.2 million, reflecting a five-year compound annual growth
rate of 15.8% and 34.4%, respectively. The Company generated these growth rates
primarily from increases in comparable store sales and, more recently, through
new store openings and relocations of existing stores. Comparable stores sales
increased 2.5%, 3.1% and 11.7% in fiscal 1996, 1995 and 1994, respectively.
Since 1992, the 52 new or relocated stores that have been open more than one
year have generated average net sales that are approximately 26.4% per annum
greater than those of existing stores.
SEASONALITY AND WEATHER
The Company's business is highly seasonal. Historically, the Company's sales
and profits have been the highest in the second and fourth fiscal quarters of
each year due to the farming industry's planting and harvesting seasons and the
sale of seasonal products. The Company has typically operated at a net loss in
the first fiscal quarter of each year. Unseasonable weather and excessive
rain, drought, or early or late frosts may also affect the Company's sales.
The Company believes, however, that the impact of adverse weather conditions is
somewhat mitigated by the geographic dispersion of its stores.
The Company experiences a buildup of inventory and accounts payable during its
first fiscal quarter each year for purchases of seasonal product in
anticipation of the April through June selling season and again during its
third fiscal quarter in anticipation of the October through December selling
season.
The Company's unaudited quarterly operating results for each fiscal quarter of
1996 and 1995 are shown below (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
<S> <C> <C> <C> <C> <C>
1996
Net sales $81,157 $146,717 $104,990 $116,165 $449,029
Gross margin 20,562 37,797 27,130 31,162 116,651
Income (loss) from
operations (938) 13,698 4,456 7,223 24,439
Net income (loss) (964) 7,868 2,286 4,046 13,236
Net income (loss) per share (.12) .90 .26 .46 1.50
1995
Net sales $71,500 $123,618 $ 88,296 $100,489 $383,903
Gross margin 17,806 31,531 22,882 26,437 98,656
Income (loss) from
operations (55) 11,883 4,189 6,528 22,545
Net income (loss) (246) 6,977 2,236 3,555 12,522
Net income (loss) per share (.04) .79 .25 .40 1.40
</TABLE>
11
<PAGE> 14
TRACTOR SUPPLY COMPANY
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items in the
Company's Statements of Income expressed as a percentage of net sales:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------
December 28, December 30, December 31, January 1, December 26,
1996 1995 1994 1994 1992
------------ ------------ ----------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Net sales ......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold .......... 74.0 74.3 73.3 74.3 74.5
------------ ------------ ----------------- ---------- ------------
Gross margin ...................... 26.0 25.7 26.7 25.7 25.5
Selling, general and administrative
expenses ........................ 19.8 19.2 19.9 19.6 19.9
Depreciation and amortization ..... 0.8 0.6 0.6 0.6 0.6
------------ ------------ ----------------- ---------- ------------
Income from operations ............ 5.4 5.9 6.2 5.5 5.0
Interest expense, net ............. 0.5 0.4 0.5 1.4 1.7
------------ ------------ ----------------- ---------- ------------
Income before income taxes ........ 4.9 5.5 5.7 4.1 3.3
Income tax provision .............. 2.0 2.2 2.3 1.6 1.4
------------ ------------ ----------------- ---------- ------------
Net income ........................ 2.9% 3.3% 3.4% 2.5% 1.9%
============ ============ ================= ========== ============
</TABLE>
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales increased 17.0% to $449.0 million in fiscal 1996 from $383.9 million
in fiscal 1995. This increase resulted primarily from, in order of relative
importance, new store openings and relocations, and, to a lesser extent, a
comparable store sales increase of 2.5% (calculated on a 52 week basis,
excluding relocations, using all stores open at least one year). To stimulate
comparable store sales, management has critically reevaluated the business and
developed new merchandising and marketing strategies (the focus of which will
be on the Company's core customer, the American farmer and rancher) to
accelerate the rate of change in product offerings over the next several years.
Management's goal is to aggressive pursue and introduce new and innovative
products and product lines, enhance existing product assortments and improve
in-stock position in key product categories. Management believes these efforts
will rejuvenate the stores, create excitement with the customers and store
associates and build stronger comparable store sales. The Company opened 23
new stores and relocated four stores in fiscal 1996. The Company opened 20 new
stores and relocated two stores during fiscal 1995. At December 28, 1996, the
Company operated 208 retail farm stores versus 185 stores at the end of the
prior fiscal year.
The gross margin rate increased .3 percentage points to 26.0% of sales in
fiscal 1996 from 25.7% in fiscal 1995. This increase resulted primarily due to
the positive mix effect of sales of lower margin merchandise representing a
smaller portion of total sales in fiscal 1996 compared to fiscal 1995, an
improved gross margin rate in certain product categories and a reduction in the
LIFO provision, partially offset by higher freight costs.
As a percent of sales, selling, general and administrative expenses increased
.6 percentage points to 19.8% for fiscal 1996 from 19.2% for fiscal 1995. On
an absolute basis, selling, general and administrative expenses increased 20.7%
to $88.8 million for fiscal 1996 from $73.6 million in fiscal 1995. The
increase in expenses on a percentage of sales basis is a result of the leverage
loss resulting from the soft comparable store sales performance. The increase
in absolute dollars is primarily attributable to costs associated with new
store openings and relocations (new and relocated stores have considerably
higher occupancy costs, primarily rent, than the existing store base).
Depreciation and amortization expense increased 34.1% over the prior year due
mainly to costs associated with new and relocated stores.
Net interest expense increased 36.3% to $2.4 million in fiscal 1996 from $1.7
million in fiscal 1995. The increase in interest expense reflects additional
borrowings under the Credit Agreement to fund the Company's growth and
expansion plans, resulting in a higher average outstanding balance under the
revolving credit loan in fiscal 1996 compared to fiscal 1995.
The Company's effective tax rate increased 0.3 percentage points to 40.1% in
fiscal 1996 from 39.8% in fiscal 1995 primarily due to a higher effective state
income tax rate in fiscal 1996.
12
<PAGE> 15
TRACTOR SUPPLY COMPANY
As a result of the foregoing factors, net income increased 5.7% to $13.2
million in fiscal 1996 from $12.5 million in fiscal 1995. As a percent of
sales, net income decreased 0.4 percentage points to 2.9% of sales in fiscal
1996 from 3.3% of sales in fiscal 1995.
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales increased 16.3% to $383.9 million in fiscal 1995 from $330.0 million
in fiscal 1994. This increase resulted primarily from, in order of relative
importance, new store openings and relocations, and, to a lesser extent, a
comparable store sales increase of 3.1% (calculated on a 52 week basis,
excluding reallocations, using all stores open at least one year). Comparable
store sales benefited from the Company's on-going efforts to improve its
in-stock position and enhance its product assortment as well as from its "low
prices everyday" pricing strategy and continuing efforts to improve customer
service. The Company opened 20 new stores and relocated two stores in fiscal
1995. The Company opened 13 new stores and relocated four stores during fiscal
1994. At December 30, 1995, the Company operated 185 retail farm stores versus
165 stores at the end of the prior year.
The gross margin rate decreased 1.0 percentage points to 25.7% of sales in
fiscal 1995 from 26.7% in fiscal 1994. This decrease resulted primarily from
higher product costs, increased competitive pricing pressures and additional
markdowns, mainly due to increased promotional activities, as well as from the
mix effect of lower margin merchandise, principally at the new stores and an
increase in the LIFO provision. The Company continues to face increasing
competitive pricing pressures which adversely impacted gross margin in fiscal
1995. During the fourth quarter of fiscal 1995, the Company undertook certain
merchandising, marketing and operational initiatives to improve the gross
margin while at the same time maintaining the "low prices everyday" competitive
pricing strategy.
As a percent of sales, selling, general and administrative expenses decreased
0.7 percentage points to 19.2% for fiscal 1995 from 19.9% for fiscal 1994. On
an absolute basis, selling, general and administrative expenses increased 11.9%
to $73.6 million for fiscal 1995 from $65.8 million in fiscal 1994. The
reduction in expenses on a percentage of sales basis is a result of the
Company's on-going efforts to control operating expenses, as well as from lower
incentive accruals compared to the prior year. The increase in absolute
dollars is primarily attributable to costs associated with new store openings
and relocations (new and relocated stores have considerably higher occupancy
costs, primarily rent, than the existing store base). Depreciation and
amortization expense increased 36.8% over the prior year due mainly to costs
associated with new, relocated and remodeled stores.
Net interest expense decreased 3.8% to $1.7 million in fiscal 1995 from $1.8
million in fiscal 1994. The reduction in interest expense reflects the
retirement of debt in early fiscal 1994 with a portion of the net proceeds of
the Offering, partially offset by a higher average outstanding balance under
the revolving credit loan in fiscal 1995 compared to fiscal 1994.
The Company's effective tax rate decreased 0.2 percentage points to 39.8% in
fiscal 1995 from 40.0% in fiscal 1994 primarily due to a lower effective state
income tax rate in fiscal 1995.
As a result of the foregoing factors, net income increased 11.2% to $12.5
million in fiscal 1995 from $11.3 million in fiscal 1994. As a percent of
sales, net income decreased 0.1 percentage points to 3.3% of sales in fiscal
1995 from 3.4% of sales in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
In addition to normal operating expenses, the Company's primary ongoing cash
requirements are those necessary for the Company's expansion, remodeling and
relocation programs, including inventory purchases and capital expenditures.
The Company's primary ongoing sources of liquidity are funds provided from
operations, commitments available under its credit agreement and short-term
trade credit. The Company's inventory and accounts payable levels typically
build in the first and again in the third fiscal quarters in anticipation of
the spring and fall selling seasons.
At December 28, 1996, the Company's inventories had increased $11.4 million to
$124.1 million from $112.7 million at December 30, 1995. The increase was
primarily attributable to additional inventory for new stores and, to a lesser
extent,
13
<PAGE> 16
TRACTOR SUPPLY COMPANY
development of new products and expanded product lines, but, as compared to the
larger increase in the previous year, also reflects improved control of
in-stock position in basic product lines. Short-term trade credit, which
represents a source of financing for inventory, increased $11.1 million to
$47.6 million at December 28, 1996 from $36.5 million at December 30, 1995.
Trade credit arises from the Company's vendors granting extended payment terms
for inventory purchases. Payment terms vary from 30 days to 180 days depending
on the inventory product.
At December 28, 1996, the Company had working capital of $66.0 million, which
represented a $2.1 million increase from December 30, 1995. This increase
resulted primarily from an increase in cash and cash equivalents and trade
receivables offset, in part, by an increase in accrued expenses (mainly
incremental costs relating to new stores) and a decrease in prepaid expenses
(mainly lower construction-in-progress costs compared to the previous year).
The Company's working capital increased $17.7 million in fiscal 1995 to $63.9
million from $46.2 million in fiscal 1994. This increase resulted primarily
from an increase in inventory (attributable mainly to the development of new
products, expansion of product lines and new stores) without a corresponding
increase in accounts payable and from an increase in prepaid expenses (mainly
construction-in-progress costs pertaining to planned sale/leaseback
transactions respecting certain 1996 new stores) offset, in part, by a decrease
in cash and cash equivalents.
In August 1994, the Company entered into a new revolving credit agreement with
The First National Bank of Boston, as agent and for itself (the "Agent") and
First American National Bank (the "New Credit Agreement") and simutaneously
terminated its Old Credit Agreement. Under the New Credit Agreement, the
Company had available total commitments aggregating at any one time up to a
maximum of $30 million.
In July 1996, the Company entered into an amendment (the "First Amendment") to
its New Credit Agreement with the Agent and First American National Bank (the
"Credit Agreement") whereby the Company (i) increased the maximum total
commitments available under the New Credit Agreement from $30 million to $45
million and (ii) extended the expiration date of the New Credit Agreement from
August 31, 1997 to August 31, 1999 (the date upon which any remaining
borrowings must be repaid). At December 28, 1996, the Company had $12.0
million of borrowings outstanding under the Credit Agreement. The Company
expects to continue borrowing amounts under the Credit Agreement from time to
time to fund its growth and expansion programs and as a source of additional
working capital.
Operations generated net cash of $21.2 million in fiscal 1996, used net cash of
$11.3 million in fiscal 1995 and generated $7.8 million in fiscal 1994. The
cash generated in fiscal 1996 resulted primarily from inventories increasing at
approximately the same rate as accounts payable (compared to inventories
increasing at a significantly faster rate than accounts payable in fiscal
1995), as well as from a decrease in prepaid expenses and an increase in
accrued expenses compared to the prior year. The use of cash in fiscal 1995
resulted primarily from inventories increasing at a faster rate than accounts
payable compared to the prior year and, to a lesser extent, from higher prepaid
expenses, increased accounts receivable and a smaller increase in accrued
expenses (mainly due to lower incentive accruals) compared to the prior year,
and a decrease in income taxes currently payable compared to fiscal 1994 due to
timing of payments.
Cash used in investing activities of $6.8 million, $8.5 million and $5.8
million for fiscal 1996, 1995 and 1994, respectively, resulted primarily from
capital expenditures for new, relocated and remodeled stores, partially offset
by proceeds from the sale of certain properties (primarily land and buildings).
Financing activities in fiscal 1996 used $6.6 million in cash which represented
a $17.6 million increase over the $11.0 million in cash provided in fiscal
1995. This increase resulted primarily from net repayments of approximately
$3.1 million under the New Credit Agreement in fiscal 1996 compared to net
borrowings of approximately $15.1 million in fiscal 1995 and, to a lesser
extent, from scheduled repayments of long-term debt and capital lease
obligations totaling approximately $1.5 million in fiscal 1996 versus
approximately $1.4 million in fiscal 1995, partially offset by a lower cash
outlay for the repurchase of 1,762 shares of Series B Preferred Stock for
approximately $1.7 million (including accrued dividends) compared to the
repurchase of 2,350 shares of Series B Preferred Stock for approximately $2.4
million (including accrued dividends) in fiscal 1995. Financing activities in
fiscal 1995 provided $11.0 million in cash, which represented a $2.4 million
increase over the $8.6 million in cash provided in fiscal 1994. This increase
resulted primarily from net borrowings of $15.1 million under the New Credit
Agreement, partially offset by the repurchase of 2,350 shares of Series B
Preferred Stock for approximately $2.4 million (including accrued dividends),
as well as scheduled repayments of long-term debt and capital lease obligations
totaling $1.4 million.
14
<PAGE> 17
TRACTOR SUPPLY COMPANY
The Company's capital additions were $9.6 million, $10.1 million and $6.7
million in fiscal 1996, 1995 and 1994, respectively. The majority of the
capital additions were for store fixtures, equipment and leasehold improvements
for new stores and remodeling of existing stores. The Company expects that its
capital expenditures for fiscal 1997 will be approximately $11.0 million to
$12.0 million, consisting primarily of leasehold improvements and, to a lesser
extent, fixtures and equipment, assuming successful implementation of its
growth strategy through 25 planned new store openings. However, the Company
cannot predict with certainty the amount of such expenditures because such new
stores may be constructed, leased or acquired from others. The estimated cash
required to open a new store is approximately $.8 to $1.0 million, the majority
of which is for the initial acquisition of inventory and capital expenditures,
principally leasehold improvements, fixtures and equipment, and the balance of
which is for store opening expenses.
In fiscal 1996, the Company completed the installation of an advanced
point-of-sale store information system which has reduced customer check-out
time, improved inventory control and enhanced overall productivity. The Company
also completed the installation of more advanced financial systems in fiscal
1996 and plans to complete the installation of another major financial system
by the end of the second fiscal quarter of 1997. These new financial systems
are expected to further improve financial reporting and controls, enhance
administrative efficiencies and provide the flexibility to support the
Company's growth and expansion plans. The estimated cost of these new systems
was approximately $7.0 million to $7.5 million for the 154 stores included in
the original installation plan. The estimated incremental cost of completing
the installation of these new systems is approximately $2.0 million, which
reflects 54 additional stores and other enhancements, such as scanning, not
originally planned.
The Company believes that its cash flow from operations, borrowings available
under the Credit Agreement and short-term trade credit will be sufficient to
fund the Company's operations and its growth and expansion plans over the next
several years.
Management does not believe its operations have been materially affected by
inflation. The Company has been successful, in many cases, in reducing or
mitigating the effects of inflation principally by taking advantage of vendor
incentive programs, economies of scale from increased volume of purchases and
selective buying from the most competitive vendors without sacrificing quality.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Tractor Supply Company
In our opinion, the accompanying balance sheets and the related statements of
income, of changes in stockholders' equity and of cash flows present fairly, in
all material respects, the financial position of Tractor Supply Company at
December 28, 1996 and December 30, 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 28,
1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ PRICE WATERHOUSE
Nashville, Tennessee
Janaury 22, 1997
15
<PAGE> 18
TRACTOR SUPPLY COMPANY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30,
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................................... $ 12,948 $ 5,087
Accounts receivable, net ........................................ 4,930 3,730
Inventories ..................................................... 124,082 112,700
Prepaid expenses ................................................ 1,657 5,017
--------- ---------
Total current assets ........................................ 143,617 126,534
--------- ---------
Land ............................................................. 10,178 10,975
Buildings and improvements ....................................... 40,114 36,481
Machinery and equipment .......................................... 18,117 13,377
--------- ---------
68,409 60,833
Accumulated depreciation and amortization ........................ (18,883) (15,763)
--------- ---------
Property and equipment, net ..................................... 49,526 45,070
--------- ---------
Deferred income taxes ............................................ 1,064 1,526
Other assets ..................................................... 1,375 999
--------- ---------
Total assets ................................................ $ 195,582 $ 174,129
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................ $ 47,591 $ 36,525
Accrued expenses ................................................ 15,973 11,637
Current maturities of long-term debt ............................ 665 600
Current portion of capital lease obligations .................... 1,020 966
Income taxes currently payable .................................. 2,897 2,716
Deferred income taxes ........................................... 9,517 10,240
--------- ---------
Total current liabilities ................................... 77,663 62,684
--------- ---------
Revolving credit loan ............................................ 12,000 15,093
Other long-term debt ............................................. 5,914 6,579
Capital lease obligations ........................................ 3,252 4,186
Other long-term liabilities ...................................... 949 856
Excess of fair value of assets acquired over cost less accumulated
amortization of $2,515 and $2,335, respectively ................. 1,075 1,255
Redeemable preferred stock ....................................... 1,763 3,525
Commitments (Note 5)
Stockholders' equity:
Common stock, 9,500,000 shares authorized; $.008 par value;
8,718,000 shares issued and outstanding in 1996 and 1995 ....... 70 70
Additional paid-in capital ...................................... 41,685 41,685
Retained earnings ............................................... 51,211 38,196
--------- ---------
Total stockholders' equity .................................. 92,966 79,951
--------- ---------
Total liabilities and stockholders' equity ............. $ 195,582 $ 174,129
========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
16
<PAGE> 19
TRACTOR SUPPLY COMPANY
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
----------------------------------------
DECEMBER 28, DECEMBER 30, DECEMBER 31,
1996 1995 1994
--------- ----------- -----------
<S> <C> <C> <C>
Net sales ..................................... $449,029 $383,903 $329,967
Cost of merchandise sold ...................... 332,378 285,247 241,780
-------- -------- --------
Gross margin ................................ 116,651 98,656 88,187
Selling, general and administrative expenses .. 88,827 73,587 65,790
Depreciation and amortization ................. 3,385 2,524 1,845
-------- -------- --------
Income from operations ...................... 24,439 22,545 20,552
Interest expense, net ......................... 2,358 1,730 1,798
-------- -------- --------
Income before income taxes .................. 22,081 20,815 18,754
Income tax provision .......................... 8,845 8,293 7,496
-------- -------- --------
Net income .................................. $ 13,236 $ 12,522 $ 11,258
======== ======== ========
Net income per share ........................ $ 1.50 $ 1.40 $ 1.28
======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
17
<PAGE> 20
TRACTOR SUPPLY COMPANY
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED TREASURY STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCK EQUITY
-------- --------- -------- ------- ------------
<S> <C> <C> <C> <C> <C>
Stockholders' equity at
January 1, 1994 ...................... $ 6 $ 2,053 $22,271 $(7,051) $ 17,279
Effect of approximately
50 for 1 stock split (Note 2) ..... 48 (48) --
Net proceeds from initial public
offering of common stock (Note 2) .. 18 39,732 39,750
Cancellation of treasury stock ....... (2) (52) (6,997) 7,051 --
Preferred stock dividend ............. (470) (470)
Net income ........................... 11,258 11,258
-------- -------- -------- ------- -------
Stockholders' equity at
December 31, 1994 .................... 70 41,685 26,062 -- 67,817
Preferred stock dividend ............. (388) (388)
Net income ........................... 12,522 12,522
-------- -------- -------- ------- -------
Stockholders' equity at
December 30, 1995 .................... 70 41,685 38,196 -- 79,951
Preferred stock dividend ............. (221) (221)
Net income ........................... 13,236 13,236
-------- -------- -------- ------- -------
Stockholders' equity at
December 28, 1996 .................... $ 70 $ 41,685 $ 51,211 $ -- $92,966
======== ======== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
18
<PAGE> 21
TRACTOR SUPPLY COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
------------------------------------------
DECEMBER 28, DECEMBER 30, DECEMBER 31,
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .......................................... $ 13,236 $ 12,522 $ 11,258
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ..................... 3,385 2,524 1,845
Gain on sale of property and equipment ............ (904) (278) (14)
Deferred income taxes ............................. (261) (275) 237
Change in assets and liabilities:
Accounts receivable .............................. (1,200) (1,566) (307)
Inventory ........................................ (11,382) (26,384)
Prepaid expenses ................................. 3,360 (3,302) 1,793
Accounts payable ................................. 11,066 4,572 7,801
Accrued expenses ................................. 4,336 704 2,436
Income taxes currently payable ................... 181 (1,017) (464)
Other ............................................ (636) 1,151 (348)
---------- ---------- ----------
Net cash provided by (used in) operating activities .. 21,181 (11,349) 7,752
---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures ................................ (9,635) (10,109) (6,705)
Repayment of notes receivable from officers, net .... -- -- 474
Proceeds from sale of property and equipment ........ 2,871 1,582 399
---------- ---------- ----------
Net cash used in investing activities ................ (6,764) (8,527) (5,832)
---------- ---------- ----------
Cash flows from financing activities:
Net borrowings (repayment)
under revolving credit loan ........................ (3,093) 15,093 (17,935)
Principal payments under capital lease obligations .. (880) (849) (746)
Repayment of long-term debt ......................... (600) (542)
Net proceeds from sale of common stock .............. -- -- 39,750
Redemption of preferred stock ....................... (1,762) (2,350) --
Payment of preferred stock dividend ................. (221) (388) (470)
---------- ---------- ----------
Net cash provided by (used in) financing activities .. (6,556) 10,964 8,564
---------- ---------- ----------
Net increase (decrease) in cash ...................... 7,861 (8,912) 10,484
Cash and cash equivalents at beginning of year ....... 5,087 13,999 3,515
---------- ---------- ----------
Cash and cash equivalents at end of year ............. $ 12,948 $ 5,087 $ 13,999
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (NOTE 1):
Cash paid during the year for:
Interest $ 2,723 $ 1,732 $ 2,182
Income taxes..................................... 9,196 8,876 7,690
</TABLE>
The accompanying notes are an integral part of this statement.
19
<PAGE> 22
TRACTOR SUPPLY COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business
Tractor Supply Company is a specialty retailer which supplies the daily farming
and maintenance needs of its target customers: hobby, part-time and full-time
farmers, as well as suburban customers, contractors and tradesmen. The
Company, which was founded in 1938, operated 208 retail farm stores in 24
states as of December 28, 1996.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to December 31. Fiscal
years 1996, 1995 and 1994 consist of 52 weeks.
Management Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles inherently requires estimates and assumptions by
management that affect the reported amounts of assets and liabilities, revenues
and expenses and related disclosures. Actual results could differ from those
estimates.
Fair Value of Financial Instruments
The Company has cash and cash equivalents, short-term trade receivables and
payables and long-term debt instruments, including capital leases. The
carrying values of cash and cash equivalents, trade receivables and trade
payables equal current fair value. The terms of the Company's revolving credit
agreement include variable interest rates which approximate current market
rates. The Company's fixed rate debt bears interest at 10.32% which is above
current rates available; however, the related debt agreement includes certain
pre-payment penalties which make refinancing uneconomical (Notes 3 and 4).
Inventories
Inventories, which consist primarily of farm maintenance and animal products,
general maintenance products, lawn and garden products, light truck equipment
and work clothing, are stated at cost, which is less than market value, with
cost being determined on the last-in, first-out (LIFO) method. If the
first-in, first-out (FIFO) method of accounting for inventory had been used,
inventories would have been approximately $6,163,000 and $5,593,000 higher than
reported at December 28, 1996 and December 30, 1995, respectively.
Net Income Per Share
Net income per share for fiscal 1996, 1995 and 1994 is calculated based on the
weighted average number of shares of common stock outstanding of 8,718,000,
8,718,000 and 8,433,934, respectively, and after giving effect to preferred
stock dividends of $197,000 in fiscal 1996, $357,000 in fiscal 1995 and
$470,000 in fiscal 1994. Stock options have been excluded as they are
anti-dilutive. The net income applicable to common stockholders for fiscal
1996, 1995 and 1994 was $13,039,000, $12,165,000 and $10,788,000, respectively.
Excess of Fair Value of Assets Acquired Over Cost
On December 26, 1982 the Company began operations with the acquisition of
certain assets and assumption of certain obligations. The unallocated excess of
fair value of assets acquired over cost was approximately $3,590,000 and is
being amortized over 20 years on a straight-line basis.
20
<PAGE> 23
TRACTOR SUPPLY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Property and Equipment
The Company owns the land and buildings of 74 of its stores. Property and
equipment are carried at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the respective assets.
Generally, buildings are depreciated over 31 years and machinery and equipment
is depreciated over seven years.
Revenue Recognition
The Company recognizes revenue at the time of customer purchase.
Income Taxes
The Company accounts for income taxes using the liability method, whereby
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Store Opening Costs
Costs incurred in connection with opening new stores are expensed as incurred.
Advertising Costs
Advertising costs primarily consist of expenses incurred in connection with
newspaper circulars and, to a lesser extent, radio and newspaper advertisements
and other promotions. Expenses incurred are charged to operations at the time
the related advertising first takes place. Advertising expense for fiscal
1996, 1995 and 1994 was approximately $8,157,000, $6,837,000 and $6,015,000,
respectively.
Stock-based Compensation Plans
The Company applies APB Opinion 25 and related Interpretations in accounting
for its plans. Accordingly, no compensation cost has been recognized for its
fixed stock option plan and its stock purchase plan (Note 10).
Cash Flows
The Company considers temporary cash investments, which typically have a
maturity of three months or less, to be cash equivalents. In connection with
the Company's initial public offering in February 1994, the Company approved a
stock split of approximately 50 for 1 and canceled 2,890,151 shares of its
common stock held in treasury (Note 2).
NOTE 2--INITIAL PUBLIC OFFERING:
On February 25, 1994, the Company consummated an initial public offering of
3,283,000 shares of common stock, 2,200,000 shares of which were offered by the
Company (the "Offering"). In connection with the Offering, the Company (i)
received net proceeds of approximately $39.8 million (after deducting
underwriting discounts and commissions and expenses of the Offering); (ii)
repaid all of the borrowings outstanding under its old revolving credit
agreement with The First National Bank of Boston (the "Old Credit Agreement")
(approximately $22.7 million at February 25, 1994); (iii) paid off the mortgage
notes on 34 of its existing store locations (aggregating approximately $10.1
million); (iv) paid off all the amounts outstanding under subordinated
promissory notes (aggregating approximately $.2 million); and (v) invested the
balance of the net proceeds in short-term investment
21
<PAGE> 24
TRACTOR SUPPLY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
grade or equivalent interest bearing instruments. The Company also retired the
shares of common stock held in treasury.
Also in connection with the Offering, the Board of Directors approved a change
in the Company's capital stock to increase the authorized shares of $.008 par
value common stock to 9,500,000 shares and the authorized shares of $1.00 par
value preferred stock to 40,000 shares and a stock split of approximately 50
for 1, effective prior to the commencement of the Offering.
NOTE 3--REVOLVING CREDIT AGREEMENT:
In April 1986, the Company entered into a revolving credit agreement, as
amended and restated in February 1991 and 1993, with The First National Bank of
Boston (the "Old Credit Agreement"). Under the Old Credit Agreement the
Company could borrow up to the lesser of $30 million or 45% of the value of
eligible inventories. Borrowings were subject to interest at the base rate of
the lender plus 1.0% per annum, and the Company paid a commitment fee of .25%
per annum on the unused portion of the credit line. The Old Credit Agreement
was secured by inventory, receivables and equipment and contained a number of
restrictive covenants.
In August 1994, the Company entered into a new revolving credit agreement with
The First National Bank of Boston, as agent and for itself (the "Agent") and
First American National Bank (the "New Credit Agreement") and simultaneously
terminated its Old Credit Agreement. Under the New Credit Agreement, the
Company had available total commitments aggregating at any one time up to a
maximum of $30 million.
In connection with entering into the New Credit Agreement, the Company also
terminated its revolving credit loan agreement (the "Construction Loan") with
Third National Bank in Nashville (Note 4).
In July 1996, the Company entered into an amendment (the "First Amendment") to
its New Credit Agreement with the Agent and First American National Bank (the
"Credit Agreement") whereby the Company (i) increased the maximum total
commitments available under the New Credit Agreement from $30 million to $45
million and (ii) extended the expiration date of the New Credit Agreement from
August 31, 1997 to August 31, 1999 (the date upon which any remaining
borrowings must be repaid). There were no changes to any of the other material
terms and conditions of the New Credit Agreement as a result of the First
Amendment.
All borrowings under the Credit Agreement bear interest, at the Company's
option, at either the base rate of the Agent (8.25% at December 28, 1996) plus
.25% per annum or the LIBOR rate (5.59% at December 28, 1996) plus .75% per
annum provided, however, that upon the occurrence of certain events, the
interest rate increases to the base rate of the Agent plus .50% per annum or
the LIBOR rate plus 1.0% per annum. The Company is also required to pay,
quarterly in arrears, a commitment fee of .25% per annum on the average daily
unused portion of the credit line. There are no compensating balance
requirements associated with the Credit Agreement. The Credit Agreement is
unsecured.
The Credit Agreement contains certain restrictions regarding additional
indebtedness; employee loans; business operations; guarantees; investments;
mergers, consolidations and sales of assets; transactions with subsidiaries or
affiliates; and liens. In addition, the Company must comply with certain
annual restrictions regarding net worth, working capital, ratios of total
liabilities to net worth and interest coverage and current ratio requirements.
The Company was in compliance with all covenants at December 28, 1996.
22
<PAGE> 25
TRACTOR SUPPLY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--OTHER LONG-TERM DEBT:
Other long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30,
1996 1995
----------- -----------
<S> <C> <C>
Mortgage Notes ............................................... $ 6,579 $7,179
Less: current maturities ..................................... (665) (600)
------- ------
$ 5,914 $6,579
======= ======
</TABLE>
In April 1988, the Company issued notes (the "Mortgage Notes") to Mutual Life
Insurance Company of New York and MONY Life Insurance Company of America
pursuant to a Note Agreement which was amended in April 1991, February 1992 and
July 1993 (the "Mortgage Loan Agreement"). The Mortgage Notes bear interest at
a minimum 10.32% rate until their maturity in January 2004. The Mortgage Notes
require monthly payments, including interest, of approximately $109,000 through
January 2004.
The Mortgage Loan Agreement is secured by first mortgages on certain of the
Company's existing properties. The Mortgage Loan Agreement contains certain
restrictions regarding sales of assets, mergers, consolidations, investments,
sales or discounting of receivables, operating leases and, unless the Company
satisfies certain net income, indebtedness and tangible net worth tests, cash
dividends on and redemptions of capital stock. In addition, the Company must
comply with certain restrictions regarding tangible net worth, working capital,
funded debt, ratios of indebtedness to capitalization, FIFO inventory to
current debt, interest coverage, fixed charge coverage, earnings coverage and
current ratio requirements. The Company was in compliance with these
restrictions at December 28, 1996.
In March 1989, the Company issued substantially similar five-year Subordinated
Promissory Notes (the "Subordinated Notes"). The Subordinated Notes bear
interest at the prime rate (6.0% at January 1, 1994) and are payable $60,000
per month, plus interest, through April 1994 with a final payment of $100,000
principal and accrued interest in May 1994. The Subordinated Notes are
subordinated to all of the Company's obligations under the Old Credit
Agreement. The Subordinated Notes contain restrictive covenants relating
primarily to the sale of assets, mergers, payment of dividends and issuance of
stock. In addition, the Subordinated Notes may, at the option of the holder,
be converted to common stock in the event of the occurrence of certain events
of default. The Subordinated Notes were paid off in connection with the
Company's initial public offering (Note 2).
In September 1993, the Company entered into a revolving credit loan agreement
(the "Construction Loan") with Third National Bank in Nashville ("Third
National Bank"). Pursuant to the Construction Loan, the Company may borrow up
to the lesser of $3.0 million or 80% of the fair market value of certain
properties pledged as collateral thereunder. Borrowings under the Construction
Loan must be used only for the acquisition of real property and/or the
development and construction of retail stores. The Construction Loan bears
interest at the base rate of Third National Bank plus 1.5% per annum; is
secured by first mortgages on certain of the Company's existing properties; and
contains certain restrictive covenants regarding the sale of assets,
investments, loans and advances, acquisitions, mergers and consolidations. The
Construction Loan was terminated in connection with the Company's entering
into the New Credit Agreement (Note 3).
23
<PAGE> 26
TRACTOR SUPPLY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The combined aggregate maturities of the above obligations for each of the next
five years are as follows (in thousands):
<TABLE>
<S> <C>
1997................................... $ 665
1998................................... 737
1999................................... 817
2000................................... 905
2001................................... 1,003
</TABLE>
NOTE 5--LEASES:
The Company leases office, warehouse/distribution and retail space,
transportation equipment, and other equipment under various noncancelable
operating leases. The leases have varying terms and expire at various dates
through June 2020. The store leases typically have initial terms of between 10
and 15 years, with one to three renewal periods of five years each, exercisable
at the Company's option. Generally, most of the leases require the Company to
pay taxes, insurance and maintenance costs.
Rent expense for all noncancelable operating leases for fiscal 1996, 1995 and
1994 was approximately $21,358,000, $16,057,000 and $11,881,000 respectively.
Future minimum payments, by year and in the aggregate, under leases with
initial or remaining terms of one year or more consist of the following (in
thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------ ---------
<S> <C> <C>
1997 ................................................. $ 1,402 $ 14,340
1998 ................................................. 1,028 13,859
1999 ................................................. 787 13,144
2000 ................................................. 464 11,894
2001 ................................................. 464 11,480
Thereafter ........................................... 1,709 59,656
-------- --------
Total minimum lease payments ......................... 5,854 $124,373
========
Amount representing interest ......................... (1,582)
--------
Present values of net minimum lease payments ......... 4,272
Less: current portion ................................ (1,020)
--------
Long-term capital lease obligations .................. $ 3,252
========
</TABLE>
NOTE 6--INCOME TAXES:
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Current tax expense:
Federal $ 7,442 $ 6,999 $ 5,827
State 1,664 1,569 1,432
-------- -------- --------
Total current 9,106 8,568 7,259
-------- -------- --------
Deferred tax expense:
Federal (229) (238) 81
State (32) (37) 156
-------- -------- --------
Total deferred (261) (275) 237
-------- -------- --------
Total provision $ 8,845 $ 8,293 $ 7,496
======== ======== ========
</TABLE>
24
<PAGE> 27
TRACTOR SUPPLY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30,
1996 1995
------------ ------------
<S> <C> <C>
Current tax assets:
Inventory valuation .................................. $ 3,339 $ 3,049
Other ................................................ 1,378 1,096
-------- --------
4,717 4,145
-------- --------
Current tax liabilities:
Inventory basis difference ........................... 13,922 13,922
Other ................................................ 312 463
-------- --------
14,234 14,385
-------- --------
Net current tax liabilities ............................ $ 9,517 $ 10,240
======== ========
Non-current tax assets:
Capital lease obligation basis difference ............ $ 1,304 $ 1,670
Fixed assets basis difference ........................ 458 619
Other ................................................ 1,382 1,105
-------- --------
3,144 3,394
-------- --------
Non-current tax liabilities:
Depreciation ......................................... 1,613 1,353
Capital lease assets basis difference ................ 467 515
-------- --------
2,080 1,868
-------- --------
Net non-current tax assets ............................. $ 1,064 $ 1,526
======== ========
</TABLE>
A reconciliation of the provision for income taxes to the amounts computed at
the federal statutory rate is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Tax provision at statutory rate ................. $ 7,729 $ 7,285 $ 6,564
Tax effect of:
State income taxes, net of federal tax benefit.. 1,082 1,020 928
Amortization of negative goodwill .............. (63) (63) (63)
Other .......................................... 97 51 67
-------- -------- --------
$ 8,845 $ 8,293 $ 7,496
======== ======== ========
</TABLE>
A substantial portion of the current deferred tax liability of the Company
relates to the tax treatment of certain inventory and other assets acquired by
the Company in connection with an acquisition in 1982. Recent cases cast some
doubt as to whether the Company's tax position with respect to such inventory
and other assets would be sustained if challenged. If the Company were
challenged on its tax position, no assurance can be given as to the outcome.
However, the Company believes, based upon its understanding of the resolution
of similar situations by others, that it has established adequate reserves and
that, accordingly, resolution of this issue would not have a material adverse
effect on its results of operations or financial position.
NOTE 7--REDEEMABLE PREFERRED STOCK:
The Company is authorized to issue 40,000 shares of Preferred Stock, with such
designations, rights and preferences as may be determined from time to time by
the Board of Directors (Note 2).
25
<PAGE> 28
TRACTOR SUPPLY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In May 1991, in accordance with a Plan of Reorganization and Exchange
Agreement, the Company reacquired 2,890,151 shares of common stock in exchange
for 5,875 shares of Series B Preferred Stock (the "Preferred Stock") and cash.
The Preferred Stock has a par value of $1 per share and a stated value and
liquidation preference of $1,000 per share. Dividends on the Preferred Stock
are cumulative and payable semi-annually on May 1st and November 1st at a rate
of 8.0% per annum on the stated value of the outstanding shares, increasing to
10% on May 1, 1999, 11% on May 1, 2000, 12% on May 1, 2001 and 13% thereafter.
On April 27, 1995, the Company's stockholders approved an amendment to the
Company's Restated Certificate of Incorporation to change the redemption
provisions of the Company's Series B Preferred Stock to permit the Company, at
its option, to repurchase all or any part of the shares of Series B Preferred
Stock then outstanding at any time and from time to time on or after May 1,
1995, (rather than on or after May 1, 1996, as previously provided in the
Restated Certificate of Incorporation). On May 26, 1995, the Company
repurchased 2,350 shares of the Series B Preferred Stock at a total repurchase
price of approximately $2,363,000 (including accrued dividends totaling
approximately $13,000). On May 24, 1996, the Company repurchased 1,762 shares
of the Series B Preferred Stock at a total repurchase price of approximately
$1,771,000 (including accrued dividends totaling approximately $9,000). If the
Company fails to make two consecutive dividend payments or to redeem all of the
outstanding shares of the Preferred Stock by April 30, 2003, holders of the
Preferred Stock would be entitled to elect a majority of the Board of Directors
of the Company until such dividends were paid or such redemption was completed.
The Company has paid all dividends on a timely basis.
NOTE 8--RELATED PARTY TRANSACTIONS:
In 1986, the Company entered into capitalized sale-leaseback transactions with
certain officers of the Company for seven of its stores. The Company sold,
leased back and provided the financing for seven of its real properties at
estimated fair values totaling $2,575,000. The related gains arising from the
sale of these properties have been deferred and are being amortized on a
straight-line basis over the terms of the related leases. Properties under
capital leases acquired through sale-leaseback transactions have been reduced
by the related deferred gains on the properties and are classified with
property and equipment. The leases have basic terms of 20 years with options
to renew for two successive five-year terms. The Company has an option to
purchase the leased properties after December 31, 1995. Rent payments under
these leases were approximately $425,000 in fiscal 1996 and $319,000 in fiscal
1995 and 1994. The Company recognized interest income (computed at 11.0%)
under the related notes receivable of approximately $30,000 in fiscal 1994. By
December 31, 1994, all the officers had repaid their outstanding obligations
under these notes to the Company. The balance of these capitalized lease
obligations, included in total capital lease obligations at December 28, 1996,
was $1,817,000.
The Company leases its management headquarters from a partnership in which
certain stockholders of the Company are general partners. The original lease
term is ten years, commencing in February 1987, with two consecutive five-year
optional renewal terms. During fiscal 1996, the Company exercised both
remaining five-year renewal options, with monthly rent set at $35,000 and
$39,000 per month, respectively. Rent payments under this lease were $384,000
in each of the fiscal years 1996, 1995 and 1994.
The Company leases one of its stores from a corporation in which certain
executive officers and directors of the Company are the sole shareholders,
directors and executive officers. The initial term of the lease is twenty
years, commencing in September 1991 and ending in August 2011, subject to
renewal at the option of the Company for two successive five-year terms.
Monthly rent ranges from $8,437 for the first five years to $9,375 for the
final five years of the initial term. The Company has the option to terminate
the lease at any time after August 31, 2001 by offering to purchase the
premises at a price that increases from $873,300 to $1,012,500, depending on
the date of the offer. If the lessor were to reject the Company's offer to
purchase, the lease would terminate 90 days after the date of the offer. The
related land is leased by the lessor from the Company pursuant to a ground
lease agreement dated July 1, 1994 providing for a fifty-year lease term,
commencing in July 1991 and ending in June 2011 and annual rental payments that
range from $15,000 to $24,300.
26
<PAGE> 29
TRACTOR SUPPLY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In October 1996, the Board approved a proposed transaction to relocate this
store to a larger facility. To effect the proposed transaction, the Company
expects it will (i) acquire the store building from the lessor for $650,000,
the purchase price provided for under the lease agreement between the Company
and the lessor effective through August 31, 1996 (the lessor waived the
increase in the purchase price effective September 1, 1996 since the
transaction on the property is not expected to close until approximately June
1997), (ii) cancel the ground lease agreement with the lessor respecting said
property, (iii) sell the store (building and land) to an unrelated real estate
developer for $750,000 (which is approximately $650,000 below the appraised
value of said property), and (iv) lease a new larger store from the same
developer (said new store to be built by the developer on a nearby site owned
by them of approximately four acres and in accordance with the Company's
specifications), pursuant to which the Company will receive a discounted rent
(approximately $6.30 per square foot initially compared to the market rate of
approximately $8.60 per square foot or approximately $750,000 over the fifteen
year initial lease) in consideration for the reduced purchase price on the
store building and land.
The Company also leases one store location from an S corporation owned by
certain officers of the Company. Rent payments under this lease were
approximately $101,000 in each of the fiscal years 1996, 1995 and 1994.
NOTE 9--RETIREMENT BENEFIT PLANS:
The Company has a defined contribution benefit plan, the TSC Industries, Inc.
Employee 401(k) Retirement Plan, which provides retirement and other benefits
for the Company's employees. Employees become eligible for participation upon
completion of 12 consecutive months of employment and 1,000 hours or more of
service. The Company contributes an amount equal to 2% of employee's
compensation plus an additional 25% of any employee voluntary contribution
(limited to 5% of the employee's total compensation).
Effective March 26, 1994, the Employee Stock Ownership Plan was merged into the
TSC Industries, Inc. Employee 401(k) Retirement Plan and the name was changed
to the Tractor Supply Company Employee 401(k) Retirement Plan. At December 28,
1996, this plan owned 978,912 shares of the Company's common stock. Expense
for the merged plan for fiscal 1996, 1995 and 1994 was approximately $565,000,
$579,000 and $373,000, respectively.
NOTE 10--STOCK-BASED COMPENSATION PLANS:
FIXED STOCK OPTION PLAN
The Company has a stock option plan for officers, directors (including
non-employee directors) and key employees which reserves 250,000 shares of
common stock for future issuance under the plan. 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. In the case of a stockholder owning more than 10% of the
outstanding voting stock of the Company, the exercise price of an incentive
stock option may not be less than 110% of the fair market value of the stock
on the date of grant and such options will expire no later than five 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. Options granted vest one-third each year beginning on
the third anniversary date of the grant and expire after ten years.
27
<PAGE> 30
TRACTOR SUPPLY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Plan activity is summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES RANGE PER SHARE
--------- ---------------
<S> <C> <C> <C>
Options granted in fiscal 1994 32,500 $21.50 - $27.00
Canceled (2,500) $ 21.50
--------
Outstanding at December 31, 1994 30,000 $21.50 - $27.00
Granted 52,750 $21.31 - $22.13
Canceled (6,750) $21.50 - $22.13
--------
Outstanding at December 30, 1995 76,000
Granted 135,500 $21.38 - $25.13
Canceled (26,500) $21.38 - $22.13
--------
Outstanding at December 28, 1996 185,000
========
</TABLE>
Had compensation cost for the Company's stock option plan been determined
based on the fair value at the grant dates for awards under the plan
consistent with the method prescribed by FASB Statement No. 123, the Company's
net income and earnings per share, for fiscal 1996 and 1995, would have been
reduced to the pro forma amounts indicated below (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Net income As reported $13,236 $12,522
Pro forma 12,919 12,397
Net income per share As reported $ 1.50 $ 1.40
Pro forma 1.46 1.39
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions using grants in fiscal 1994, 1995 and 1996, respectively: expected
volatility of 25% and risk-free interest rates of approximately 6.75% for all
years; average expected lives of 7.5 years (1994 Options), 6.5 years (1995
Options) and 6.0 years (1996 Options); and no dividend yield for any year.
EMPLOYEE STOCK PURCHASE PLAN
In July 1996, the Company adopted the 1996 Associate Stock Purchase Plan (the
"ASPP") to allow eligible employees of the Company the opportunity to
purchase, through payroll deductions, shares of common stock of the Company at
a 15% discount. In August 1996, the Company filed a registration statement
with the Securities and Exchange Commission covering the shares of common
stock to be sold under the ASPP. Continuance of the ASPP is subject to its
approval by the Company's stockholders at the Company's 1997 annual meeting.
In addition, although the Company has authorized the sale of 1,000,000 shares
of common stock under the ASPP, 500,000 of such shares will be available only
if the Company's stockholders approve an appropriate increase in the number of
authorized shares of the Company's common stock. The first offering period
under the new ASPP ended on December 31, 1996 and, as such, no additional
stock had been issued by the Company under the plan as of December 28, 1996.
28
<PAGE> 31
TRACTOR SUPPLY COMPANY
<TABLE>
<S> <C> <C>
DIRECTORS, OFFICERS, AND CORPORATE INFORMATION
- --------------------------------------------------------------------------------------------------------------------------------
DIRECTORS
JOSEPH H. SCARLETT, JR. THOMAS J. HENNESY, III JOSEPH M. RODGERS (1) (2)
Chairman of the Board Retired Vice Chairman Chairman of the Board
Tractor Supply Company of the Board The JMR Group, an investment
Tractor Supply Company firm, and former U.S.
Ambassador to France
GERALD E. NEWKIRK JOSEPH D. MAXWELL
President Retired Vice President
Tractor Supply Company Tractor Supply Company
(1) Audit Committee Member
(2) Compensation Committee Member
THOMAS O. FLOOD S.P. BRAUD (1)*(2)* (*) Committee Chairman
Senior Vice President Retired Chief Financial Officer
Tractor Supply Company Service Merchandise Company,
Inc. and President and Director
Braud Design/Build, Inc.
- -----------------------------------------------------------------------------------------------------------------------------
OFFICERS
JOSEPH H. SCARLETT, JR. JOHN W. ATKINS GARY M. MAGONI
Chairman of the Board and Vice President-Farm Merchandising Vice President-Operations
Chief Executive Officer (Region I)
GERALD E. NEWKIRK BLAKE A. FOHL JAMES R. MCMURRAY
President and Vice President-Marketing Vice President-Information
Chief Operating Officer Technology and Chief
LAWRENCE GOLDBERG Information Officer
THOMAS O. FLOOD Vice President-Logistics
Senior Vice President- STANLEY L. RUTA
Administration and Finance, LEO H. HABERER Vice President-Operations
Treasurer and Chief Financial Officer Vice President-Real Estate (Region II)
JOHN R. PEARSON MICHAEL J. KINCAID DAISY L. VANDERLINDE
Senior Vice President- Vice President-Controller Vice President-Human Resources
Merchandising and Secretary
- ----------------------------------------------------------------------------------------------------------------------------------
CORPORATE INFORMATION
Store Support Center Annual Meeting written request to the Company's
Tractor Supply Company The Annual Meeting of investor relations firm:
320 Plus Park Boulevard Stockholders will be held at Corporate Communications, Inc.
Nashville, Tennessee 37217 10:00 a.m., April 24, 1997 at the 523 Third Avenue South
615/366-4600 Company's Store Support Center, Nashville, Tennessee 37210
320 Plus Park Boulevard, Nashville, 615/254-3376
Transfer Agent and Registrar Tennessee, 37217
The First National Bank of Boston Quarterly Stock Price Range
Shareholder Services Number of Stockholders
P.O. Box 644, Mail Stop 45-02-09 As of January 31, 1997 there were High Low
Boston, Massachusetts 02102 approximately 61 stockholders of --------------- -------
617/575-3400 record. This number excludes Fiscal 1996:
individual stockholders holding First Quarter $27 1/2 $19 3/4
Independent Accountants stock under nominee security Second Quarter $27 1/4 $22
Price Waterhouse LLP position listings. Third Quarter $23 1/2 $20 3/4
4400 Harding Road Fourth Quarter $22 3/4 $19 5/8
Nashville, Tennessee 37205 Form 10-K
A copy of the Company's Fiscal 1995:
Stock Exchange Listing Annual Report on Form 10-K, First Quarter $24 1/4 $20 1/4
The Nasdaq National Market as filed with the Securities Second Quarter $22 1/4 $18 1/4
Ticker Symbol: TSCO and Exchange Commission, will be Third Quarter $24 1/2 $19
sent to any stockholder upon Fourth Quarter $20 1/2 $14 5/8
World Wide Web
http://www.tractorsupplyco.com
</TABLE>
29
<PAGE> 32
TRACTOR SUPPLY COMPANY
BACK COVER
