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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 27, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 000-23314
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TRACTOR SUPPLY COMPANY
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3139732
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
320 Plus Park Boulevard, Nashville, Tennessee 37217
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (615) 366-4600
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at July 31, 1998
- ------------------------------------ -----------------------------------
Common Stock, $.008 par value 8,744,466
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TRACTOR SUPPLY COMPANY
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
Part I. Financial Information:
Item 1. Financial Statements:
Balance Sheets -
June 27, 1998 and December 27, 1997 3
Statements of Income -
For the Fiscal Three and Six Months Ended
June 27, 1998 and June 28, 1997 4
Statements of Cash Flows -
For the Fiscal Six Months Ended
June 27, 1998 and June 28, 1997 5
Notes to Unaudited Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 11
Part II. Other Information:
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRACTOR SUPPLY COMPANY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 27, DECEMBER 27,
1998 1997
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(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 8,162 $ 8,477
Accounts receivable, net............................................ 11,739 5,180
Inventories......................................................... 185,370 151,749
Prepaid expenses.................................................... 2,700 4,201
-------- --------
Total current assets......................................... 207,971 169,607
-------- --------
Land.................................................................. 7,028 6,851
Buildings and improvements............................................ 47,681 45,903
Machinery and equipment............................................... 23,904 22,362
Construction in progress.............................................. 4,247 843
-------- --------
82,860 75,959
Accumulated depreciation and amortization............................. (26,216) (23,551)
-------- --------
Property and equipment, net......................................... 56,644 52,408
-------- --------
Deferred income taxes................................................. 710 710
Other assets.......................................................... 1,383 1,355
-------- --------
Total assets................................................. $266,708 $224,080
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 82,001 $ 52,708
Accrued expenses.................................................... 27,995 21,188
Current maturities of long-term debt................................ 737 737
Current portion of capital lease obligations........................ 648 731
Income taxes currently payable...................................... 2,154 2,310
Deferred income taxes............................................... 9,064 9,064
-------- --------
Total current liabilities.................................... 122,599 86,738
-------- --------
Revolving credit loan................................................. 23,087 23,419
Other long-term debt.................................................. 4,818 5,177
Capital lease obligations............................................. 2,228 2,538
Other long-term liabilities........................................... 467 424
Excess of fair value of assets acquired over cost less accumulated
amortization of $2,785 and $2,695, respectively..................... 805 895
Stockholders' equity:
Common stock, 100,000,000 shares authorized; $.008 par value;
8,741,329 and 8,731,218 shares issued and outstanding in 1998
and 1997, respectively............................................. 70 70
Additional paid in capital.......................................... 42,075 41,926
Retained earnings................................................... 70,559 62,893
-------- --------
Total stockholders' equity........................................ 112,704 104,889
-------- --------
Total liabilities and stockholders' equity................... $266,708 $224,080
======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
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TRACTOR SUPPLY COMPANY
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
THREE MONTHS ENDED SIX MONTHS ENDED
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JUNE 27, JUNE 28, JUNE 27, JUNE 28,
1998 1997 1998 1997
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(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales.......................................... $196,081 $159,493 $301,668 $255,902
Cost of merchandise sold........................... 146,833 118,234 225,931 190,490
-------- -------- -------- --------
Gross margin.................................... 49,248 41,259 75,737 65,412
Selling, general and administrative expenses....... 31,656 28,005 58,580 52,094
Depreciation and amortization...................... 1,319 1,105 2,594 2,133
-------- -------- -------- --------
Income from operations.......................... 16,273 12,149 14,563 11,185
Interest expense, net.............................. 734 490 1,518 1,070
-------- -------- -------- --------
Income before income taxes...................... 15,539 11,659 13,045 10,115
Income tax provision............................... 6,371 4,671 5,379 4,053
-------- -------- -------- --------
Net income...................................... $ 9,168 $ 6,988 $ 7,666 $ 6,062
======== ======== ======== ========
Net income per share - basic.................... $ 1.05 $ .80 $ .88 $ .69
======== ======== ======== ========
Net income per share - assuming dilution........ $ 1.04 $ .80 $ .87 $ .69
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
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TRACTOR SUPPLY COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FISCAL SIX MONTHS ENDED
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JUNE 27, JUNE 28,
1998 1997
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(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................... $ 7,666 $ 6,062
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense..................... 2,594 2,133
Loss on sale of property and equipment.................... 33 78
Change in assets and liabilities:
Accounts receivable..................................... (6,559) (1,389)
Inventories............................................. (33,621) (29,041)
Prepaid expenses........................................ 1,081 (1,409)
Accounts payable........................................ 29,293 24,179
Accrued expenses........................................ 6,773 3,437
Income taxes currently payable.......................... (156) (809)
Other................................................... (22) 8
-------- --------
Net cash provided by operating activities....................... 7,082 3,249
-------- --------
Cash flows from investing activities:
Capital expenditures........................................ (6,633) (4,890)
Proceeds from sale of property and equipment................ 171 888
-------- --------
Net cash used in investing activities........................... (6,462) (4,002)
-------- --------
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit loan..... (332) 2,051
Principal payments under capital lease obligations.......... (393) (499)
Repayment of long-term debt................................. (359) (324)
Proceeds from issuance of common stock...................... 149 89
Redemption of preferred stock............................... 0 (1,763)
Payment of preferred stock dividends........................ 0 (79)
-------- --------
Net cash used in financing activities........................... (935) (525)
-------- --------
Net decrease in cash and cash equivalents....................... (315) (1,278)
Cash and cash equivalents at beginning of period................ 8,477 12,948
-------- --------
Cash and cash equivalents at end of period...................... $ 8,162 $ 11,670
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest...................................................... $ 1,577 $ 1,215
Income taxes.................................................. 5,428 4,687
</TABLE>
The accompanying notes are an integral part of this statement.
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TRACTOR SUPPLY COMPANY
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
The accompanying interim financial statements have been prepared without audit,
and certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted, although the Company believes that the
disclosures herein are adequate to make the information presented not
misleading. These statements should be read in conjunction with the Company's
annual report on Form 10-K for the fiscal year ended December 27, 1997. The
results of operations for the fiscal three and six month periods are not
necessarily indicative of results for the full fiscal year.
In the opinion of management, the accompanying interim financial statements
contain all adjustments (consisting only of normal recurring accruals) necessary
for a fair statement of the Company's financial position as of June 27, 1998 and
its results of operations and its cash flows for the fiscal three and six month
periods ended June 27, 1998 and June 28, 1997.
Inventories
The accompanying unaudited financial statements have been prepared without full
physical inventories. The value of the Company's inventories was determined
using the lower of last-in, first-out (LIFO) cost or market. If the first-in,
first-out (FIFO) method of accounting for inventory had been used, inventories
would have been approximately $6,746,000 and $6,370,000 higher than reported at
June 27, 1998 and December 27, 1997, respectively. Since LIFO costs can only be
determined at the end of each fiscal year when inflation rates and inventory
levels are finalized, estimates of LIFO inventory costs are used for interim
financial reporting.
Net Income Per Share
Basic net income per share for the Company for the fiscal three and six month
periods ended June 27, 1998 and June 28, 1997 is calculated based on the
weighted average number of shares of common stock outstanding of 8,741,329 and
8,738,395 for the fiscal three and six month periods ended June 27, 1998,
respectively, and 8,722,664 and 8,721,778 for the fiscal three and six month
periods ended June 28, 1997, respectively, after giving effect to preferred
stock dividends of $20,473 and $55,732 for the fiscal three and six month
periods ended June 28, 1997, respectively. Diluted net income per share for the
Company for the fiscal three and six month periods ended June 27, 1998 and June
28, 1997 is calculated based on the weighted average number of shares of common
stock outstanding of 8,852,045 and 8,785,118 for the fiscal three and six month
periods ended June 27, 1998, respectively, and 8,722,664 and 8,721,778 for the
fiscal three and six month periods ended June 28, 1997, respectively, after
giving effect to dilutive common stock equivalents of 110,716 shares and 46,723
shares for the fiscal three and six month periods ended June 27, 1998,
respectively.
NOTE 2 - SEASONALITY:
The Company's business is highly seasonal, with a significant portion of its
sales and a majority of its income generated in the second fiscal quarter. The
Company typically operates at a loss in the first fiscal quarter.
NOTE 3 - REVOLVING CREDIT AGREEMENT:
In March 1998, the Company entered into an amendment (the "Second Amendment") to
its revolving credit agreement with BankBoston, N.A. (successor to First
National Bank of Boston), a national banking association, as agent, and for
itself, in its capacity as a lender thereunder, First American National Bank, a
national banking association, and SunTrust Bank Nashville, N.A., a national
banking association, (the "Credit Agreement") whereby the Company (i) increased
the maximum total commitments available under the Credit Agreement from $45
million to $60 million and (ii) extended the expiration date of the Credit
Agreement from August 31, 1999 to August 31, 2002 (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 Credit Agreement as a result of the Second
Amendment, provided, however,
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that the financial covenants must now be tested quarterly as of the end of each
fiscal quarter, based on a rolling four-quarters basis, rather than at the end
of each fiscal year.
NOTE 4 - SUBSEQUENT EVENT:
In June 1998, the Company entered into a new loan agreement (the "Loan
Agreement") and term note (the "Term Note") with SunTrust Bank, Nashville, N.A.
("SunTrust") pursuant to which the Company borrowed $15 million. The Term Note
bears interest at the rate of 6.75% per annum until its maturity in June 2005.
The Term Note requires monthly payments equal to $178,572, plus accrued
interest, through June 2005. There are no compensating balance requirements
associated with the Loan Agreement. The Loan Agreement is unsecured. The Loan
Agreement contains certain restrictions regarding additional indebtedness;
employee loans; business operations; guarantees; investments; mergers,
consolidations and sales of assets; transactions with subsidiaries; and liens.
In addition, the Company must comply with certain quarterly restrictions
regarding net worth, working capital, ratios of total liabilities to net worth
and interest coverage and current ratio requirements.
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ITEM 2. 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 fiscal
three and six month periods ended June 27, 1998 and June 28, 1997, and
significant developments affecting its financial condition since the end of the
fiscal year, December 27, 1997, and should be read in conjunction with the
Company's annual report on Form 10-K for the fiscal year ended December 27,
1997. 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.
RESULTS OF OPERATIONS
The Fiscal Three Months (Second Quarter) and Six Months Ended June 27, 1998 and
June 28, 1997
Net sales increased 22.9% to $196.1 million for the second quarter of fiscal
1998 from $159.5 million for the second quarter of fiscal 1997. Net sales rose
17.9% to $301.7 million for the first six months of fiscal 1998 from $255.9
million for the first six months of fiscal 1997. The sales increases resulted
primarily from comparable store sales increases (excluding relocations, using
all stores open at least one year) of 15.0% for the second quarter of fiscal
1998 and 9.9% for the first six months of fiscal 1998, and, to a lesser extent,
from new stores. The Company opened eleven new retail farm stores (seven in the
second quarter of fiscal 1998) during the first six months of fiscal 1998. The
Company opened 16 new retail new retail farm stores (five in the second quarter
of fiscal 1997) and relocated one store during the first six months of fiscal
1997. Comparable store sales for the second quarter of fiscal 1998 benefited
from (i) the "remerchandising" of a significant portion of all stores during the
first quarter of fiscal 1998, (ii) the new 1998 marketing programs, (iii) an
improved spring seasonal inventory in-stock position, as well as from (iv)
favorable spring weather conditions throughout most of the regions of the
country in which the Company operated, compared to unseasonably cool and
excessively rainy spring weather conditions last year in several regions of the
country in which the Company operated. At June 27, 1998, the Company operated
239 retail farm stores (in 26 states) versus 224 stores at June 28, 1997 (in 26
states). The Company's current plans now call for the opening of approximately
four additional new stores in fiscal 1998 (approximately one of which is
scheduled to open during the third quarter) rather than the seven additional new
stores originally contemplated (mainly due to the Company's reconsidering
several "recycled" real estate locations originally in the pipeline for later
this year in light of the Company's decision to enforce tighter standards of
compliance regarding such real estate). The Company is on track to achieve its
goal of opening 30 new stores in fiscal 1999.
While certainly the favorable spring weather conditions positively impacted the
second quarter's results, the Company believes it is also beginning to realize
the benefits of some of the major initiatives recently undertaken to build a
stronger foundation to better support the Company's growth and expansion plans
going forward, including (i) achieving an improved spring seasonal inventory
in-stock position (the Company changed its strategic plan with
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respect to inventory management whereby the spring seasonal merchandise was
brought in earlier this year than in prior years for consistency of supply and
more continuous flow of seasonal product); (ii) rejuvenating the merchandising
mix by completing the "remerchandising" of a significant portion of its stores
during the first quarter of fiscal 1998; and (iii) implementing, with the
support of its vendor partners, the new 1998 marketing programs (consisting
mainly of (a) increased print advertising, (b) significantly expanded use of
radio, and, (c) for the first time ever, a national television campaign
featuring George Strait, a renowned country music entertainer and national
spokesman for the Company, and John Lyons, a renowned equine specialist and
equine spokesman for the Company).
The gross margin rate decreased .8 percentage points to 25.1% of sales for the
second quarter of fiscal 1998 and decreased .5 percentage points to 25.1% of
sales for the first six months of fiscal 1998 compared with the corresponding
periods in the prior fiscal year. The gross margin rate decline for the second
quarter of fiscal 1998 was primarily due to more aggressive promotional
activities, principally additional discounting of select items in our print
advertising, as well as additional markdowns and other promotional activities
associated with the new stores' grand openings (during the fall of 1997, the
Company implemented several major new marketing and merchandising initiatives in
connection with its new stores' grand openings which have significantly
increased grand opening day sales) and, to a lesser extent, from the adverse mix
effect of sales of lower margin merchandise (mainly power tools) representing a
larger portion of total sales than in the second quarter last year. While the
Company's overall inventory level at June 27, 1998 was slightly higher than
planned (in certain categories), the Company (a) exceeded its overall gross
margin dollar plan; (b) managed its overall gross margin rate to nearly on plan
(despite the planned decrease in the second quarter's gross margin rate, the
Company's current plans call for the gross margin rate to be at or slightly
above last year's level by the end of the fiscal year); and (c) realized an
improved spring seasonal merchandise sell-through (without incurring any
significant incremental seasonal clearance markdowns).
As a percent of sales, selling, general and administrative ("S,G&A") expenses
decreased 1.5 percentage points to 16.1% of sales in the second quarter of
fiscal 1998 and decreased 1.0 percentage point to 19.4% of sales for the first
six months of fiscal 1998 primarily due to the provision in the second quarter
of fiscal 1997 of a reserve for management reorganization totaling approximately
$1.2 million pretax (or approximately $.7 million net of tax), as well as the
leverage gain attributable to the strong comparable store sales performance and
the Company's on-going efforts to control the increase in operating expenses.
Excluding the effect of the reserve for management reorganization costs in
fiscal 1997, SG&A expenses for the second quarter and first six months of fiscal
1998, as a percentage of sales, would have decreased .7 and .5 percentage
points, respectively. On an absolute basis, SG&A expenses increased 13.0% to
$31.7 million in the second quarter of fiscal 1998 and increased 12.4% to $58.6
million for the first six months of fiscal 1998. The increased dollar amount was
primarily attributable to costs associated with new store openings (new stores
have considerably higher occupancy costs, primarily rent, than the existing
store base), as well as from higher incentive accruals compared to the prior
year, offset, in part, by the effect of the reserve for management
reorganization costs recorded during the second quarter of fiscal 1997.
Depreciation and amortization expense increased 19.4% and 21.6% over the prior
year for the second quarter and the first six months of fiscal 1998,
respectively, due mainly to costs associated with new stores. Net interest
expense increased 49.8% to $.7 million in the second quarter of fiscal 1998 and
increased 41.9% to $1.5 million in the first six months of fiscal 1998 primarily
due to additional borrowings under the Credit Agreement to fund the Company's
growth and expansion plans, including additional inventory as discussed below.
The Company's effective tax rate increased to 41.0% for the second quarter of
fiscal 1998 and 41.2% for the first six months of fiscal 1998, compared with
40.1% for both the second quarter and first six months of fiscal 1997, primarily
due to a higher effective state income tax rate in fiscal 1998.
As a result of the foregoing factors, net income for the second quarter of
fiscal 1998 increased 31.2% to $9.2 million from $7.0 million for the second
quarter of fiscal 1997 and net income per share for the second quarter of fiscal
1998 increased 31.3% to $1.05 per share from $.80 per share for the second
quarter of last year. Excluding the effect of the reserve for management
reorganization costs in fiscal 1997, net income and net income per share for the
second quarter of fiscal 1998 would have increased 19.2% and 19.3%,
respectively, over the second quarter of last year. Net income for the first six
months of fiscal 1998 increased 26.5% to $7.7 million from $6.1 million for the
first six months of fiscal 1997 and net income per share for the first six
months of fiscal 1998 increased 27.5% to $.88 per share from $.69 per share last
year. Excluding the effect of the reserve for management reorganization costs in
fiscal 1997, net income and net income per share for the first six months of
fiscal 1998 would have increased 13.4% and 14.3%, respectively, over the first
six months a year ago. As a percentage of sales, net income increased .3
percentage points to 4.7% of sales for the second quarter of fiscal 1998 from
4.4% of sales for the
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second quarter of fiscal 1997 and increased .1 percentage point to 2.5% of sales
for the first six months of fiscal 1998 from 2.4% of sales for the first six
months of fiscal 1997.
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 revolving credit agreement (the
"Credit Agreement") and short-term trade credit.
In March 1998, the Company entered into an amendment (the "Second Amendment") to
its Credit Agreement with BankBoston, N.A. (successor to First National Bank of
Boston), a national banking association, as agent, and for itself, in its
capacity as a lender thereunder, First American National Bank, a national
banking association, and SunTrust Bank Nashville, N.A., a national banking
association, whereby the Company (i) increased the maximum total commitments
available under the Credit Agreement from $45 million to $60 million and (ii)
extended the expiration date of the Credit Agreement from August 31, 1999 to
August 31, 2002 (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
Credit Agreement as a result of the Second Amendment, provided, however, that
the financial covenants must now be tested quarterly as of the end of each
fiscal quarter, based on a rolling four-quarters basis, rather than at the end
of each fiscal year.
In June 1998, the Company entered into a new loan agreement (the "Loan
Agreement") and term note (the "Term Note") with SunTrust Bank, Nashville, N.A.
("SunTrust") pursuant to which the Company borrowed $15 million. The Term Note
bears interest at the rate of 6.75% per annum until its maturity in June 2005.
The Term Note requires monthly payments equal to $178,572, plus accrued
interest, through June 2005. There are no compensating balance requirements
associated with the Loan Agreement. The Loan Agreement is unsecured. The Loan
Agreement contains certain restrictions regarding additional indebtedness;
employee loans; business operations; guarantees; investments; mergers,
consolidations and sales of assets; transactions with subsidiaries; and liens.
In addition, the Company must comply with certain quarterly restrictions
regarding net worth, working capital, ratios of total liabilities to net worth
and interest coverage and current ratio requirements.
The Company's inventory and accounts payable levels typically build in the first
fiscal quarter and again in the third fiscal quarter in anticipation of the
spring and fall selling seasons. At June 27, 1998, the Company's inventories had
increased $33.7 million to $185.4 million from $151.7 million at December 27,
1997. This increase resulted primarily from additional inventory for new stores
as well as planned inventory increases in seasonal product lines. The Company
changed its strategic plan with respect to inventory management during the first
quarter of fiscal 1998, whereby spring seasonal merchandise was brought in
earlier this year than in prior years for consistency of supply and more
continuous flow of seasonal product. In connection with this new strategic plan
regarding inventory management, the Company exited its spring seasonal
merchandise earlier this year than in prior years to minimize the amount of
seasonal markdowns and product carryover. Short-term trade credit, which
represents a source of financing for inventory, increased $29.3 million to $82.0
million at June 27, 1998 from $52.7 million at December 27, 1997. 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 June 27, 1998, the Company had working capital of $85.4 million, which
represented a $2.5 million increase from December 27, 1997. This increase
resulted primarily from an increase in inventories without a corresponding
increase in accounts payable and an increase in trade accounts receivable
(mainly due to commitments from vendors respecting the Company's 1998 marketing
campaign), partially offset by an increase in accrued expenses (mainly due to
deferred vendor support payments relating to the Company's 1998 marketing
campaign and, to a lesser extent, from higher incentive accruals and timing of
payments).
Operations provided net cash of $7.1 million and $3.2 million in the first six
months of fiscal 1998 and 1997, respectively. The increase in net cash provided
in the first six months of fiscal 1998 resulted primarily from an increase in
net income, an increase in accrued expenses (mainly due to deferred vendor
support payments relating to the Company's 1998 marketing campaign and, to a
lesser extent, from higher incentive accruals and timing of payments) as well as
a decrease in prepaid expenses (mainly due to timing of rent payments),
partially offset by an increase in trade accounts receivable compared to the
prior year (mainly due to commitments from vendors respecting the Company's 1998
marketing campaign).
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Cash used in investing activities of $6.5 million for the first six months of
fiscal 1998 represented a $2.5 million increase over cash used in the first six
months of fiscal 1997 of $4.0 million. The increase in cash used for capital
expenditures during the first six months of fiscal 1998 compared to the prior
year primarily reflects expenditures related to the Company's on-going
installation of its SAP America, Inc, ("SAP") system (current plans now call for
the implementation of the new SAP merchandising, distribution and financial
systems by October 25, 1998, rather than by mid-1999 as originally
contemplated), as well as the effect of decreased proceeds from the sale of
property and equipment during the first six months of fiscal 1998 compared to
the first six months of fiscal 1997.
Financing activities in the first six months of fiscal 1998 used $.9 million in
cash which represented a $.4 million increase in net cash used over the $.5
million in net cash used in the first six months of fiscal 1997. This increase
in net cash used resulted primarily from repayments under the Credit Agreement
of approximately $.3 million during the first six months of fiscal 1998 compared
to net borrowings of approximately $2.1 million during the first six months of
fiscal 1997 (offset, in part, by the redemption of 1,763 shares of Series B
Preferred Stock, constituting all of the then outstanding Series B Preferred
Stock, during the first six months of fiscal 1997).
The Company believes that its cash flow from operations, borrowings available
under its Credit Agreement and short-term trade credit will be sufficient to
fund the Company's operations and its growth and expansion plans for the next
several years.
11 of 13
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's Annual Meeting of Stockholders was held on April 23, 1998 at
the Company's corporate headquarters in Nashville, Tennessee.
(b) The stockholders elected for a three-year term the one Class I director
nominated for election (Thomas O. Flood) as set forth in the proxy
statement dated March 20, 1998. The following table sets forth certain
information concerning each other director of the Company whose term of
office as a director continued after the meeting:
<TABLE>
<CAPTION>
Current Term as
Name Director Expires
---- ----------------
<S> <C>
Thomas J. Hennesy, III 1999
Joseph D. Maxwell 1999
Joseph M. Rodgers 1999
Joseph H. Scarlett, Jr. 2000
S. P. Braud 2000
</TABLE>
(c) (1) The stockholders elected one Class I director for a three-year term
ending at the 2001 Annual Meeting of Stockholders.
<TABLE>
<CAPTION>
Name For Withheld
---- --- --------
<S> <C> <C>
Thomas O. Flood 7,879,488 31,928
</TABLE>
(c) (2) The stockholders ratified the reappointment of Price Waterhouse LLP
as independent certified public accountants of the Company for the
fiscal year ending December 26, 1998.
<TABLE>
<CAPTION>
For Against Abstain Non-Vote
--- ------- ------- --------
<S> <C> <C> <C>
7,895,109 5,985 10,322 0
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule (only submitted to SEC in electronic
format).
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the
fiscal quarter ended June 27, 1998.
12 of 13
<PAGE> 13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRACTOR SUPPLY COMPANY
Date: July 31, 1998 By: /s/ Thomas O. Flood
--------------------- ----------------------------------------
Thomas O. Flood
Senior Vice President -
Administration and Finance,
Treasurer and Chief Financial
Officer
(Duly Authorized Officer &
Principal Financial Officer)
13 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TRACTOR SUPPLY CO. FOR THE SIX MONTHS ENDED JUNE 27,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-START> DEC-28-1997
<PERIOD-END> JUN-27-1998
<CASH> 8,162
<SECURITIES> 0
<RECEIVABLES> 11,839
<ALLOWANCES> 0
<INVENTORY> 185,370
<CURRENT-ASSETS> 207,971
<PP&E> 82,860
<DEPRECIATION> 26,216
<TOTAL-ASSETS> 266,708
<CURRENT-LIABILITIES> 122,599
<BONDS> 30,133
0
0
<COMMON> 70
<OTHER-SE> 112,634
<TOTAL-LIABILITY-AND-EQUITY> 266,708
<SALES> 301,668
<TOTAL-REVENUES> 301,668
<CGS> 225,931
<TOTAL-COSTS> 225,931
<OTHER-EXPENSES> 61,174
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,518
<INCOME-PRETAX> 13,045
<INCOME-TAX> 5,379
<INCOME-CONTINUING> 7,666
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,666
<EPS-PRIMARY> .88
<EPS-DILUTED> .87
</TABLE>
