<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 27, 1997
-------------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to ______________________
Commission file number 000-23314
TRACTOR SUPPLY COMPANY
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3139732
- ----------------------------------- ----------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
320 Plus Park Boulevard, Nashville, Tennessee 37217
- ------------------------------------------------ ----------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (615) 366-4600
----------------------
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.008 par value
- --------------------------------------------------------------------------------
(Title of Class)
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates of the
registrant, based on the closing price of the Common Stock on The Nasdaq
National Market on January 31, 1998 was $45,625,328. For purposes of this
response, the registrant has assumed that its directors, executive officers, and
beneficial owners of 5% or more of its Common Stock are the affiliates of the
registrant.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date.
Class Outstanding at January 31, 1998
- ----------------------------------- -------------------------------------
Common Stock, $.008 par value 8,736,494
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on April 23, 1998 are incorporated by reference into
Part III of this Form 10-K. Portions of the Registrant's Annual Report to
Stockholders for the fiscal year ended December 27, 1997 are incorporated by
reference into Parts II and IV of this Form 10-K.
1
<PAGE> 2
PART I
ITEM 1. BUSINESS
Overview
Tractor Supply Company, a Delaware corporation ("TSC" or the "Company"), is a
specialty retailer which supplies the daily farming and maintenance needs of its
target customers: hobby, part-time and full-time farmers and ranchers, as well
as suburban customers, contractors and tradesmen. The Company operates one of
the largest retail farm store chains in the United States. TSC's 228 stores,
located in 26 states, 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. 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 meets the daily farming and maintenance needs of its target
customers with a comprehensive selection of farm maintenance products (fencing,
tractor parts and accessories, agricultural spraying equipment and tillage
parts); animal products (specialty feeds, supplements, equine supplies,
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; work clothing and other products. The Company does not sell large
tractors, combines, bulk chemicals or bulk fertilizers. The Company's
merchandising strategy combines this comprehensive product selection with strong
inventory support.
The Company was founded in 1938 as a catalog mail order tractor parts supplier.
In 1978, Fuqua Industries, Inc. acquired the Company, and in 1982 Fuqua, in
turn, sold the Company to a group of investors, including two members of the
Company's current senior management team, both of whom are principal
stockholders. Between the acquisition in 1982 and 1997, the Company's sales have
increased from $122.5 million to $509.1 million and the Company has opened 123
stores and closed 19 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.
Business Strategy
The Company believes its sales and earnings growth has resulted from the focused
execution of its business strategy, which includes the following key components:
Market Niche. The Company has identified a specialized market niche --
supplying the daily farming and maintenance needs of hobby, part-time and
full-time farmers and ranchers. By focusing its product mix on these core
customers, the Company believes it has differentiated itself from general
merchandise, home center and other specialty retailers.
Customer Service. The Company's number one priority is customer service. It
offers its customers a high level of in-store service through motivated,
well trained, technically proficient Store Associates. The Company believes
the ability of its Store Associates to provide friendly, responsive,
technical assistance is valued by its customers and helps to promote strong
customer loyalty and repeat shopping. TSC's commitment to customer service
is further enhanced by its "satisfaction guaranteed" policy and its special
order program.
Technology. Management strives to improve operating efficiencies and reduce
costs through the use of modern technologies. The Company utilizes an
integrated computerized inventory management and point-of-
2
<PAGE> 3
sale system that permits the entire store network to communicate with the
Company's distribution centers and its management headquarters. The Company
believes that this integrated system results in lower inventory carrying
costs, improved in-stock positions and enhanced inventory control, as well
as management and purchasing efficiencies. The Company believes that its
ongoing commitment to utilize modern technologies creates a competitive
advantage.
Store Locations. The Company's strategy is to locate its stores in rural
communities and outlying areas of large cities where farming is a
significant factor in the local economy. The Company believes it has
developed a sophisticated, proven methodology to select its new store
sites.
Product Selection. The Company offers a comprehensive selection of high
quality, nationally recognized brand name and private label products,
focused principally on the needs of the hobby, part-time and full-time
farmer and rancher. The Company seeks to offer an extensive assortment of
merchandise in specialized products. The Company's full line of product
offerings is supported by a strong in-stock inventory position. An average
store displays approximately 12,000 different products.
Pricing. The Company utilizes a "low prices everyday" strategy to
consistently offer its products at competitive prices. The Company monitors
prices at competing stores and adjusts its prices as necessary. The Company
believes that by avoiding a "sale" oriented marketing strategy, it is
attracting customers on a regular basis rather than only in response to
sales.
Vendor Partnering. The Company has established close working relationships
with many of its principal vendors to manage stock levels, develop new
products, plan promotions and design merchandise displays. The Company
intends to continue to expand its vendor partnering strategy to include
most of its other key vendors.
Advertising. To generate store traffic and position TSC as a destination
store, the Company promotes broad selections of merchandise with color
circulars distributed by direct mail and as newspaper inserts. The Company
also runs periodic special events promoted through local flyers, circulars
and radio advertising. Beginning in 1998, the Company intends to further
improve its marketing and advertising programs through the expanded use of
radio, and, for the first time, through the use of a national television
campaign. In connection with these new programs, the Company signed John
Lyons, a renowned equine specialist, as its national equine spokesman, and
George Strait, a renowned country music entertainer, as its national
spokesman.
Store Environment. TSC's stores are open, clean, bright and offer a
pleasant atmosphere with disciplined product presentation, attractive
displays, both inside and outside the store, and efficient check-out
procedures. The Company endeavors to staff its stores with courteous,
highly motivated, knowledgeable Store Associates in order to provide a
friendly, enjoyable shopping experience.
Growth Strategy
The Company's growth strategy is to increase sales and profitability at existing
stores through continuing improvements in product mix and operating efficiencies
and through new store openings and relocations. Since the beginning of fiscal
1992, the Company has opened 85 new stores and relocated 17. Of these 102
stores, 79 have been open more than one year and have generated average net
sales that are approximately 19.0% per annum greater than those of existing
stores. During this period, the Company has also closed eight stores (excluding
relocations). Management believes that substantial opportunities exist for the
opening of new stores to achieve greater penetration in existing markets and to
expand into new markets.
The Company slowed down its new store unit growth rate beginning in June 1997
for a period of approximately 18 months (opening 22 new stores in fiscal 1997
rather than the 25 originally contemplated, with current plans calling for the
opening of 18 new stores in fiscal 1998 rather than the 28 originally
contemplated) in order to focus its efforts on rejuvenating the merchandise mix
and improving comparable store sales. The Company anticipates resuming its
approximate 12% overall new store unit growth rate each year beginning in fiscal
1999 (the Company has presently identified over 200 potential new markets). As
such, the Company plans to open 30 new stores in fiscal 1999, 33 in fiscal 2000,
and additional stores thereafter.
3
<PAGE> 4
The Company's strategy is to lease its new stores. Assuming that new stores are
leased, the estimated cash required to open a new store is approximately
$800,000 to $1,000,000, the majority of which is for initial inventory and
capital expenditures, principally leasehold improvements, fixtures and
equipment, and the balance of which is for store opening expenses. The Company
may selectively purchase individual store locations or small chains of stores if
opportunities arise and management believes the store sites are located in prime
real estate locations.
The Company plans to relocate approximately one store in fiscal 1998 and an
average of one or two additional stores each year over the next several years.
Store relocations are typically undertaken to move small, older stores to
full-size formats in prime retail areas. The cash required to complete a store
relocation typically ranges from $250,000 to $500,000 depending on whether the
Company is responsible for any renovation or remodeling costs. The Company has
experienced average sales increases in excess of 22% in the year subsequent to
relocation for stores relocated over the past five years.
The Company plans to extensively remodel an average of one or two of its strong
performing stores each year over the next several years, one of which is
scheduled for fiscal 1998. The estimated cash required to complete a major
remodeling typically ranges from $150,000 to $400,000. The Company also plans to
perform minor remodelings of its stores on an on-going basis to ensure overall
Company physical facility standards are maintained. The estimated cash required
to complete a minor remodeling typically ranges from $25,000 to $75,000.
Store Environment and Merchandising
The Company's stores are designed and managed to create a pleasant environment,
maximize sales and operating efficiencies and make shopping an enjoyable
experience. The Company's stores are clean, open and bright. The average Company
store has approximately 12,300 square feet of inside selling space. The Company
typically utilizes at least 12,000 square feet of outside space from which it
merchandises certain farm-related and lawn and garden products. Visual displays
inside and outside can be changed easily for seasonal products and promotions
and space can be reallocated easily among departments.
The following chart indicates the average percentages of sales represented by
each of the major product categories during fiscal 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Percent of Total Sales
--------------------------------
Product Category 1997 1996 1995
---------------- ---- ---- ----
<S> <C> <C> <C>
Farm maintenance.................................... 19% 19% 19%
Animal care......................................... 17 16 15
General maintenance................................. 16 17 17
Lawn and garden..................................... 19 18 21
Light truck maintenance............................. 13 14 13
Work clothing and other............................. 16 16 15
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
The Company's stores carry a consistent merchandise mix, tailored to some extent
to specific regional needs and store size, and stock an average of 12,000
products. The Company's stores carry a wide selection of quality, nationally
recognized name brand merchandise. The Company also markets private label
merchandise under the Huskee, Traveller, Harvest Supreme, Retriever and Dumor
registered trademarks. Management believes that selling these nationally
recognized brands next to the Company's own high quality, private label
merchandise offers its customers a range of products at various price points and
helps build customer loyalty. The Company believes that it has also increased
sales by distributing to in-store customers an easy-reference "blue book"
catalog containing the descriptions and prices for thousands of its products.
The Company uses a "power merchandising" selling strategy. Under this strategy,
selected merchandise is given special emphasis through prominent displays, a
comprehensive product line and strong inventory support.
4
<PAGE> 5
Customer Service
The Company's number one priority is customer service. Store Associates are the
key to quality customer service, and the Company seeks to provide them with
decision-making authority and training to enable them to meet customer needs.
Store Associates are authorized to special order virtually any non-stocked item
a customer may need. The Company's refund policy is "hassle free" if within 30
days of date of purchase and accompanied by a receipt. However, the Company also
has a "satisfaction guaranteed" policy, such that if customers are not
satisfied, Store Associates are authorized, at their discretion, to offer to
repair or exchange the product, or offer store credits or refunds, irrespective
of when the product was purchased. The Company believes that by providing these
services it improves customer satisfaction, builds customer loyalty and
generates repeat business.
The Company devotes considerable resources to training its Store Associates,
often in cooperation with its vendors. The Company's training programs include
(i) a full management training program for manager trainees which covers all
aspects of the Company's operations, (ii) product knowledge video tapes with
over 100 vendors, (iii) semi-annual retail training skills classes, (iv)
semi-annual store managers meetings with vendor product presentations, (v)
vendor sponsored in-store training programs and (vi) ongoing product information
updates from its management headquarters. The Company seeks to hire and train
Store Associates with farming backgrounds.
The Company provides financial incentives to its district managers, store
managers, manager trainees, sales managers and sales clerks through incentive
compensation programs based on the achievement of sales and/or profitability
goals. The Company believes that its incentive compensation programs increase
the motivation and overall performance of its Store Associates and the Company's
ability to attract and retain qualified personnel.
Purchasing and Distribution
The Company offers an extensive selection of farm maintenance and other
specialty products. The Company has established arrangements with certain of its
principal vendors to develop new products, plan promotions, review marketing
strategies, manage stock levels and develop merchandise displays. The Company is
pursuing similar arrangements with other key vendors. The Company's business is
not dependent upon any one vendor or particular group of vendors. The Company
purchases its products from approximately 2,000 vendors, the five largest of
which accounted for less than 20% of the Company's total purchases in fiscal
1997 and none of which accounted for more than 10% of the Company's purchases
during such year. The Company has no long-term contractual commitments with any
of its vendors, has not experienced difficulty in obtaining satisfactory
alternative sources of supply for its products and believes that adequate
sources of supply exist at substantially similar costs for substantially all of
its products. Approximately 750 vendors participate in the Company's electronic
data interchanges ("EDI") system which makes it possible for the Company to
place purchase orders electronically. The Company is working to expand the
number of vendors who transmit invoices to the Company and increase the amount
of sales history transmitted from the Company, all through EDI. The Company's
merchandise purchasing is centrally managed.
The Company operates a 340,000 square foot distribution center in Indianapolis,
Indiana and a 144,000 square foot distribution center in Omaha, Nebraska, from
which it serviced approximately 132 stores and 96 stores, respectively, at
December 27, 1997. The Company also intends to utilize smaller, strategically
located "cross-dock" facilities to support the main distribution centers and
transportation system network. The first such cross-dock facility, a 50,000
square foot distribution center located in Waco, Texas, was opened in the fall
of 1996 and supports the Company's stores located in the Southwest region of the
country. The Company also opened a similar cross-dock facility, a 28,000 square
foot distribution center located in Winston-Salem, North Carolina, in March 1997
which will support the Company's growth and expansion plans in the Southeast
region of the country. In fiscal 1997, the Company received approximately 65% of
its merchandise through these distribution facilities, with the balance
delivered directly to the Company's stores. The main distribution centers ship
to each store at least twice a week during peak periods through a dedicated
contract carrier. The Company is continuously evaluating its long-term strategic
plan with respect to its distribution centers and transportation operations.
5
<PAGE> 6
Management Information and Control Systems
The Company has invested considerable resources in sophisticated management
information and control systems to ensure superior customer service, support the
purchase and distribution of merchandise and improve operating efficiencies. The
management information and control systems include a point-of-sale system, a
purchase order management system, a replenishment system, a merchandise planning
system and full sales, inventory and gross margin management reporting systems.
These systems are fully integrated and track merchandise from order through
sale. All operational data from these systems is also fully integrated with the
Company's financial systems.
The Company is constantly assessing and upgrading its management information and
control systems to support its growth, reduce and control costs, improve
internal controls and operating efficiencies and facilitate better
decision-making. In 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. In 1997, the
Company completed the installation of its major financial systems which have
improved financial reporting and controls, enhanced administrative efficiencies
and provided additional flexibility to support the Company's growth plans. The
Company has selected SAP America, Inc. to be its "world-class long-term
solution" with respect to its new merchandising and distribution systems, which
are planned to be implemented by mid-1999 at a total cost of approximately $10.0
million. The Company believes that these systems will further improve its
inventory management and control, allow for better decision making, enhance
overall productivity and provide the flexibility to support the Company's growth
plans while at the same time ensuring it is Year 2000 compliant.
Competition
The Company operates in a highly competitive market. While the Company believes
it has successfully differentiated itself from general merchandise, home center
and other specialty retailers, the Company faces select competition from these
entities, as well as competition from independently owned retail farm stores,
several privately-held regional farm store chains and farm cooperatives. Some of
these competitors are units of large national or regional chains that have
substantially greater financial and other resources than the Company.
Management and Employees
As of December 27, 1997, the Company employed approximately 1,400 full-time and
approximately 1,300 part-time employees. The Company also employs additional
part-time employees during peak periods. As of such date, approximately 90
employees of the Company's two main distribution centers were covered by
collective bargaining agreements. These collective bargaining agreements at the
Indianapolis, Indiana and Omaha, Nebraska distribution centers expire in April
2000 and August 1999, respectively.
Management believes its district managers, store managers and other supervisory
personnel have contributed significantly to the Company's performance.
Management encourages the participation of all Store Associates in decision
making, regularly solicits input and suggestions from Store Associates and
responds to the suggestions expressed by Company employees. Management believes
it has good relationships with its employees.
Most of the Company's senior management, district managers and store managers
were promoted to their positions from within the Company. All members of senior
management have at least 15 years of retail experience and two members of senior
management have at least 19 years' experience with the Company. District
managers and store managers have an average length of service with the Company
of approximately 7.6 years and 5.6 years, respectively. Management believes
internal promotions, coupled with recruitment of college graduates and hiring of
individuals with previous retail experience, will provide the management
structure necessary to support expected store growth.
ITEM 2. PROPERTIES
As of December 27, 1997, the Company leased its four distribution facilities and
its management headquarters, owned 73 stores (23 of which are subject to
mortgages) and leased 155 stores. 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
6
<PAGE> 7
Company's option. None of the store leases or mortgages individually is material
to the Company's operations. The leases at its Indianapolis, Indiana; Omaha,
Nebraska; Waco, Texas and Winston-Salem, North Carolina distribution facilities
expire in 2000, 1999, 1998 and 1999 respectively, and the lease for its
management headquarters expires in 2007. Seven of the Company's stores and its
management headquarters are leased from affiliated parties. See Item 13.
"Certain Relationships and Related Transactions".
As of December 27, 1997, the Company operated 228 stores in 26 states as
follows:
<TABLE>
<CAPTION>
Number Number
State of Stores State of Stores
- ----- --------- ----- ---------
<S> <C> <C> <C>
Texas 35 Nebraska 6
Ohio 30 Missouri 6
Michigan 21 Pennsylvania 5
Tennessee 20 Virginia 5
Indiana 18 South Dakota 4
Kentucky 12 Alabama 2
Illinois 11 Oklahoma 2
Iowa 9 Maryland 2
North Carolina 8 Mississippi 1
North Dakota 8 Montana 1
Kansas 7 New York 1
Arkansas 6 South Carolina 1
Minnesota 6 Wisconsin 1
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings, other than routine claims
and lawsuits arising in the ordinary course of its business. The Company does
not believe that such claims and lawsuits, individually or in the aggregate,
will have a material adverse effect on the Company's business. Compliance with
federal, state, local and foreign laws and regulations pertaining to the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, has not had, and is not anticipated to have, a
material effect upon the capital expenditures, earnings or competitive position
of the Company. State and local regulations in the United States that are
designed to protect consumers or the environment have an increasing influence on
product claims, contents and packaging.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matter was submitted to a vote of the Company's security-holders during the
fourth quarter of the Company's fiscal year ended December 27, 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K, the following list is
included as an unnumbered item in Part I of this Report in lieu of being
included in the Proxy Statement for the Annual Meeting of Stockholders to be
held on April 23, 1998.
The following is a list of the names and ages of all of the executive officers
of the registrant indicating all positions and offices with the registrant held
by each such person and each person's principal occupations and employment
during at least the past five years:
7
<PAGE> 8
<TABLE>
<CAPTION>
Name Position Age
---- -------- ---
<S> <C> <C>
Joseph H. Scarlett, Jr.............. Chairman of the Board, Chief Executive Officer and Director 55
Gerald W. Brase .................... Senior Vice President - Merchandising and Marketing 44
Michael E. Brown.................... Senior Vice President - Operations 40
Thomas O. Flood..................... Senior Vice President-Administration and Finance,
Treasurer, Chief Financial Officer and Director 51
John W. Atkins...................... Vice President-Farm Merchandising 35
John E. Corbin...................... Vice President-Operations (Region III) 39
Blake A. Fohl....................... Vice President-Marketing 38
Lawrence Goldberg................... Vice President-Logistics 55
Leo H. Haberer...................... Vice President-Real Estate 57
Michael J. Kincaid.................. Vice President-Controller and Secretary 40
Gary M. Magoni...................... Vice President-Operations (Region I) 51
James R. McMurray................... Vice President-Information Technology and
Chief Information Officer 31
Stanley L. Ruta..................... Vice President-Operations (Region II) 46
Daisy L. Vanderlinde................ Vice President-Human Resources 46
</TABLE>
- ------------------
Joseph H. Scarlett, Jr. became Chairman of the Board and Chief Executive Officer
of the Company in February 1993 after having served as President and Chief
Operating Officer of the Company since 1987. Between 1979 and 1987, Mr. Scarlett
served as Vice President-Personnel, Senior Vice President-Administration and
Executive Vice President-Operations of the Company. Prior to 1979, Mr. Scarlett
held operational positions, including District Supervisor and Personnel
Director, with Two Guys Discount Stores in New Jersey over a 15 year period. Mr.
Scarlett has served as a director of the Company since 1982. Mr. Scarlett is
currently a member of the International Mass Retail Association Board.
Gerald W. Brase became Senior Vice President - Merchandising and Marketing of
the Company in October 1997. Mr. Brase previously served as Divisional Vice
President for Builders Square, a subsidiary of Kmart Corporation from 1993 to
1997. From 1985 to 1993, Mr. Brase served as Vice President and Divisional
Merchandise Manager with the Hechinger Company. From 1969 to 1985, Mr. Brase
held various merchandising and operational positions with the Hechinger Company
and Sears, Roebuck & Company.
Michael E. Brown became Senior Vice President - Operations of the Company in
January 1998. Mr. Brown previously served as Executive Vice President of Store
Operations with House of Fabrics, Inc. from 1994 to 1997. From 1991 to 1994, Mr.
Brown served as Vice President of Retail Sales, Regional Manager and District
Manager with House of Fabrics, Inc. From 1977 to 1991, Mr. Brown held various
management and operational positions with the Rock Island County Council on
Addictions, the 7 Eleven Food Stores of Iowa and the Prairie State Food
Corporation.
Thomas O. Flood became Senior Vice President - Administration and Finance,
Treasurer and Chief Financial Officer of the Company in 1996 after having served
as Vice President of Administration and Finance of the Company since 1984 and as
Chief Financial Officer and Treasurer since June 1993. Mr. Flood previously
served as Vice President of Finance of the Company from 1982 to 1984, as
Controller from 1981 to 1982 and in various financial and management information
systems capacities between 1969 and 1981. Mr. Flood has served as a director of
the Company since 1985.
8
<PAGE> 9
John W. Atkins became Vice President - Farm Merchandising of the Company in
December 1996 after having served as Division Merchandise Manager of Farm
Products of the Company since July 1995 and as a Buyer of the Company since July
1992. From 1986 to 1992, Mr. Atkins held various positions, including most
recently Division Manager-Field & Stream with Bass Pro Shops Outdoor World. From
1983 to 1986, Mr. Atkins held various retail management positions with Kmart
Corporation.
John E. Corbin became Vice President - Operations of the Company in June 1997
after having served as Director of Real Estate of the Company since January
1997, as Special Projects Manager of the Company since July 1996 and as District
Manager of the Company since October 1991. From 1988 to 1991, Mr. Corbin served
as a store manager and area manager of the Company.
Blake A. Fohl became Vice President - Marketing of the Company in December 1996
after having served as Director of Marketing of the Company since June 1995 and
as a Buyer of the Company since August 1992. Mr. Fohl previously served as
Divisional Manager of Green Seed Company from 1989 to 1992, as a Dairy
Specialist with Purina Mills from 1986 to 1989 and as a store manager for
Southern States Cooperative from 1981 to 1986.
Lawrence Goldberg became Vice President - Logistics of the Company in October
1993 after having served as Director of Distribution of the Company since
October 1992. Mr. Goldberg previously served as the Senior Vice President of
Merchandising and Marketing of Paccar Automotive Inc. from 1991 to 1992, the
General Manager of Al's Auto Supply (a subsidiary of Paccar Automotive Inc.)
from 1990 to 1991, the Director of Stores Division of Fuller O'Brien Paint
Corporation from 1988 to 1990 and the Director of Stores of Saxon Paint & Home
Care Centers from 1980 to 1988.
Leo H. Haberer has served as Vice President - Real Estate of the Company since
1989. Prior to 1989, Mr. Haberer served as a Regional Vice President of the
Company from 1975 to 1989 and as a store manager and zone manager from 1970 to
1975.
Michael J. Kincaid became Vice President - Controller and Secretary of the
Company in January 1996 after having served as the Controller of the Company
since June 1991 and as the Secretary of the Company since May 1993. From 1981 to
1991, Mr. Kincaid held various management and staff accounting positions with
Cole National Corporation, Revco D.S., Inc. and Price Waterhouse.
Gary M. Magoni has served as a Vice President - Operations of the Company since
1989. Mr. Magoni previously served as a District Manager for Gold Circle Stores
(a subsidiary of Federated Department Stores) from 1982 to 1988.
James R. McMurray became Vice President - Information Technology and Chief
Information Officer of the Company in January 1996 after having served as Vice
President of Management Information Systems of the Company since December 1994.
Mr. McMurray previously served as Vice President of Horizon Systems from July
1993 to December 1994 and as Vice President of Retail Information Systems for
LDI Corporation from June 1991 to June 1993. From 1987 to June 1991, Mr.
McMurray served as Chairman and President of Ergonomic Systems Corporation, a
leading developer of retail information systems technology located in Brunswick,
Ohio.
Stanley L. Ruta has served as a Vice President - Operations of the Company since
March 1994. Mr. Ruta previously served as Vice President of Store Planning and
Development and Vice President of Store Operations of Central Tractor Farm and
Family Center, Inc. from 1988 to 1994. From 1976 to 1988, Mr. Ruta held various
other operational positions with Central Tractor Farm and Family Center, Inc.,
including District Manager from 1985 to 1988.
Daisy L. Vanderlinde became Vice President - Human Resources of the Company in
April 1996. Ms. Vanderlinde previously served as Vice President - Human
Resources for Marshalls, Inc. from 1990 to 1996. From 1979 to 1990, Ms.
Vanderlinde held various management and human resources positions, including
most recently Divisional Vice President - Human Resources with The Broadway
Stores, Inc., a division of Carter Hawley Hale Stores, Inc.
9
<PAGE> 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock began trading on The Nasdaq National Market on
February 18, 1994 under the symbol "TSCO".
The table below sets forth the high and low sales prices of the Company's Common
Stock as reported by The Nasdaq National Market for each fiscal quarter of the
periods indicated:
<TABLE>
<CAPTION>
Price Range
------------------------------------------------
Fiscal 1997 Fiscal 1996
------------------- -------------------
High Low High Low
------- ------- ------- -------
<S> <C> <C> <C> <C>
First Quarter $21 $18 1/4 $27 1/2 $19 3/4
Second Quarter $21 1/2 $17 1/4 $27 1/4 $22
Third Quarter $20 5/8 $16 1/4 $23 1/2 $20 3/4
Fourth Quarter $22 $13 3/4 $22 3/4 $19 5/8
</TABLE>
As of January 31, 1998, the approximate number of record holders of the
Company's Common Stock was 62 (excluding individual participants in nominee
security position listings) and the approximate number of beneficial holders of
the Company's Common Stock was 1,500.
The Company has not declared any cash dividends on its Common Stock during the
two most recent fiscal years. The Company currently intends to retain all
earnings for future operation and expansion of its business and, therefore, does
not anticipate that any dividends will be declared on the Common Stock in the
foreseeable future. Any future declaration of dividends will be subject to the
discretion of the Company's Board of Directors and subject to the Company's
results of operations, financial condition, cash requirements and other factors
deemed relevant by the Board of Directors. The Company is also restricted from
paying cash dividends by the terms of the note agreement which relates to
mortgage notes on certain of its properties.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Five Year Selected Financial and
Operating Highlights" on page 8 of the Company's Annual Report to Stockholders
for the fiscal year ended December 27, 1997 is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information set forth under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 9 through 15
of the Company's Annual Report to Stockholders for the fiscal year ended
December 27, 1997 is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information set forth under the captions "Report of Independent
Accountants", "Balance Sheets", "Statements of Income", "Statement of Changes in
Stockholders' Equity", "Statements of Cash Flows", and "Notes to Financial
Statements" on pages 16 through 27 of the Company's Annual Report to
Stockholders for the fiscal year ended December 27, 1997 is incorporated herein
by reference.
The Company's unaudited operating results for each fiscal quarter within the two
most recent fiscal years, as set forth under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
10
<PAGE> 11
on page 10 of the Company's Annual Report to Stockholders for the fiscal year
ended December 27, 1997, is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the captions "Election of Class I Director and
Information Regarding Directors" and "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" on pages 2 through 4 and 14, respectively, of
the Company's Proxy Statement for its Annual Meeting of Stockholders to be held
on April 23, 1998 is incorporated herein by reference.
The information set forth under the caption "Executive Officers of the
Registrant" in Part I of this Form 10-K is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the captions "Board of Directors and Committees
of the Board Compensation of Directors", "Compensation Committee Interlocks and
Insider Participation", "Executive Compensation", "Summary Compensation Table",
"Option Grants in Last Fiscal Year", "Aggregated Option Exercises in Last Fiscal
Year and Fiscal Year-End Option Values", "Compensation Committee's Report on
Executive Compensation", and "Performance Graph" on pages 4 through 11 of the
Company's Proxy Statement for its Annual Meeting of Stockholders to be held on
April 23, 1998 is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" on pages 14 and 15 of the Company's Proxy
Statement for its Annual Meeting of Stockholders to be held on April 23, 1998 is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Interests of Management in Certain
Transactions" on pages 12 through 14 of the Company's Proxy Statement for its
Annual Meeting of Stockholders to be held on April 23, 1998 is incorporated
herein by reference.
11
<PAGE> 12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) (1) Financial Statements Page
----
<S> <C> <C>
The following financial statements and related notes of the Company
contained on pages 16 through 27 of the Company's Annual Report to
Stockholders for the fiscal year ended December 27, 1997 are
incorporated herein by reference:
Report of Independent Accountants......................................
Balance Sheets - December 27, 1997 and December 28, 1996...............
Statements of Income - Fiscal Years Ended December 27, 1997, December
28, 1996 and December 30, 1995.........................................
Statement of Changes in Stockholders' Equity - Fiscal Years Ended
December 27, 1997, December 28, 1996 and December 30, 1995.............
Statements of Cash Flows - Fiscal Years Ended December 27, 1997,
December 28, 1996 and December 30, 1995................................
Notes to Financial Statements..........................................
</TABLE>
(a) (2) Financial Statement Schedules
None
Financial statement schedules have been omitted because they are not
applicable or because the required information is otherwise furnished.
(a) (3) Exhibits
The exhibits listed in the Index to Exhibits, which appears on pages 14
through 19 of this Form 10-K, are incorporated herein by reference or
filed as part of this Form 10-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the last
quarter of the fiscal year ended December 27, 1997.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 18, 1998 By: /s/ Thomas O. Flood
-----------------------------
Thomas O. Flood
Senior Vice President -
Administration and Finance,
Treasurer and Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Joseph H. Scarlett, Jr.* Chairman of the Board, Chief March 18, 1998
- ---------------------------- Executive Officer and Director
Joseph H. Scarlett, Jr. (Principal Executive Officer)
/s/ Thomas O. Flood Senior Vice President - Administration March 18, 1998
- ---------------------------- and Finance, Treasurer, Chief
Thomas O. Flood Financial Officer and Director
(Principal Financial and
Accounting Officer)
/s/ Thomas J. Hennesy, III* Director March 18, 1998
- ----------------------------
Thomas J. Hennesy, III
/s/ Joseph D. Maxwell* Director March 18, 1998
- ----------------------------
Joseph D. Maxwell
/s/ S.P. Braud* Director March 18, 1998
- ----------------------------
S.P. Braud
/s/ Joseph M. Rodgers* Director March 18, 1998
- ----------------------------
Joseph M. Rodgers
</TABLE>
*By: /s/ Thomas O. Flood
-----------------------------
Thomas O. Flood
Attorney-in-fact by authority
of Power of Attorney
13
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page Number
Exhibit by Sequential
Number Description Numbering System
------ ----------- ----------------
<S> <C> <C>
2.1 Plan of Reorganization and Exchange Agreement, dated as of May
1, 1991, between the Company and Thomas J. Hennesy, III (filed
as Exhibit 2.1 to Registrant's Registration Statement on Form
S-1, Registration No. 33-73028, filed with the Commission on
December 17, 1993, and incorporated herein by reference).
3.1 Restated Certificate of Incorporation, as amended, of the
Company, filed with the Delaware Secretary of State on
February 14, 1994 (filed as Exhibit 3.1 to Registrant's
Quarterly Report on Form 10-Q, filed with the Commission on
August 8, 1997, Commission File No. 000-23314, and
incorporated herein by reference).
3.2 Certificate of Amendment of the Restated Certificate of
Incorporation, as amended, of the Company, filed with the
Delaware Secretary of State on April 28, 1995 (filed as
Exhibit 3.2 to Registrant's Quarterly Report on Form 10-Q,
filed with the Commission on August 8, 1997, Commission File
No. 000-23314, and incorporated herein by reference).
3.3 Certificate of Amendment of the Restated Certificate of
Incorporation, as amended, of the Company, filed with the
Delaware Secretary of State on May 13, 1997 (filed as Exhibit
3.3 to Registrant's Quarterly Report on Form 10-Q, filed with
the Commission on August 8, 1997, Commission File No.
000-23314, and incorporated herein by reference).
3.4 Amended and Restated By-laws of the Company as currently in
effect (filed as Exhibit 3.7 to Registrant's Registration
Statement on Form S-1, Registration No. 33-73028, filed with
the Commission on December 17, 1993, and incorporated herein
by reference).
4.1 Form of Specimen Certificate representing the Company's Common
Stock, par value $.008 per share (filed as Exhibit 4.2 to
Amendment No. 1 to Registrant's Registration Statement on Form
S-1, Registration No. 33-73028, filed with the Commission on
January 31, 1994, and incorporated herein by reference).
10.1 Revolving Credit Agreement, dated as of August 31, 1994, among
the Company, The First National Bank of Boston, as agent and
for itself, and First American National Bank (filed as Exhibit
1 to Registrant's Quarterly Report on Form 10-Q, filed with
the Commission on November 9, 1994, Commission File No.
000-23314, and incorporated herein by reference).
10.2 Revolving Credit Note, dated as of August 31, 1994, issued by
the Company to The First National Bank of Boston in the
aggregate principal amount of $25 million (filed as Exhibit 2
to Registrant's Quarterly Report on Form 10-Q, filed with the
Commission on November 9, 1994, Commission File No. 000-23314,
and incorporated herein by reference).
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
Page Number
Exhibit by Sequential
Number Description Numbering System
------ ----------- ----------------
<S> <C> <C>
10.3 Revolving Credit Note, dated as of August 31, 1994, issued by
the Company to First American National Bank in the aggregate
principal amount of $5 million (filed as Exhibit 3 to
Registrant's Quarterly Report on Form 10-Q, filed with the
Commission on November 9, 1994, Commission File No. 000-23314,
and incorporated herein by reference).
10.4 First Amendment to Revolving Credit Agreement, dated as of
July 31, 1996, among the Company and The First National Bank
of Boston, as agent and for itself and First American National
Bank (filed as Exhibit 10.1 to Registrant's Quarterly Report
on Form 10-Q, Commission File No. 000-23314, filed with the
Commission on November 6, 1996, and incorporated herein by
reference).
10.5 Amended and Restated Revolving Credit Note, dated as of July
31, 1996, issued by the Company to First American National
Bank in the aggregate principal amount of $20 million (filed
as Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q,
Commission File No. 000-23314, filed with the Commission on
November 6, 1996, and incorporated herein by reference).
10.6 Note Agreement (the "Note Agreement"), dated as of April 1,
1988, among the Company, The Mutual Life Insurance Company of
New York and MONY Life Insurance Company of America (filed as
Exhibit 10.3 to Registrant's Registration Statement on Form
S-1, Registration No. 33-73028, filed with the Commission on
December 17, 1993, and incorporated herein by reference).
10.7 First Amendment to Note Agreement, dated April 1, 1991, among
the Company, The Mutual Life Insurance Company of New York and
MONY Life Insurance Company of America (filed as Exhibit 10.4
to Registrant's Registration Statement on Form S-1,
Registration No. 33-73028, filed with the Commission on
December 17, 1993, and incorporated herein by reference).
10.8 Second Amendment to Note Agreement, dated as of February 1,
1992, among the Company, The Mutual Life Insurance Company of
New York and MONY Life Insurance Company of America (filed as
Exhibit 10.5 to Registrant's Registration Statement on Form
S-1, Registration No. 33-73028, filed with the Commission on
December 17, 1993, and incorporated herein by reference).
10.9 Third Amendment to Note Agreement, dated as of July 1, 1993,
among the Company, The Mutual Life Insurance Company of New
York and MONY Life Insurance Company of America (filed as
Exhibit 10.6 to Registrant's Registration Statement on Form
S-1, Registration No. 33-73028, filed with the Commission on
December 17, 1993, and incorporated herein by reference).
10.10 Form of Adjustable Rate First Mortgage Notes due January 1,
2004 issued by the Company to The Mutual Life Insurance
Company of New York and MONY Life Insurance Company of America
pursuant to the Note Agreement, as amended (filed as Exhibit
10.7 to Registrant's Registration Statement on Form S-1,
Registration No. 33-73028, filed with the Commission on
December 17, 1993, and incorporated herein by reference).
10.11 Form of Mortgage, dated as of May 10, 1988, from the Company
to The Mutual Life Insurance Company of New York pursuant to
the Note Agreement, as amended
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
Page Number
Exhibit by Sequential
Number Description Numbering System
------ ----------- ----------------
<S> <C> <C>
(filed as Exhibit 10.8 to Registrant's Registration Statement
on Form S-1, Registration No. 33-73028, filed with the
Commission on December 17, 1993, and incorporated herein by
reference).
10.12 Ground Lease Agreement, dated as of July 1, 1991, between the
Company and GOF Indiana Corp. (relating to Plainfield, Indiana
store) (filed as Exhibit 10.10 to Registrant's Registration
Statement on Form S-1, Registration No. 33-73028, filed with
the Commission on December 17, 1993, and incorporated herein
by reference).
10.13 Indenture of Lease, dated as of September 1, 1991, between the
Company and GOF Indiana Corp. (relating to Plainfield, Indiana
store) (filed as Exhibit 10.11 to Registrant's Registration
Statement on Form S-1, Registration No. 33-73028, filed with
the Commission on December 17, 1993, and incorporated herein
by reference).
10.14 Indenture of Lease, dated as of January 1, 1986, between the
Company and Thomas J., III and Cheryl D. Hennesy (relating to
Corpus Christi, Texas store) (filed as Exhibit 10.12 to
Registrant's Registration Statement on Form S-1, Registration
No. 33-73028, filed with the Commission on December 17, 1993,
and incorporated herein by reference).
10.15 Indenture of Lease, dated as of August 1, 1994, between the
Company and Thomas J., III and Cheryl D. Hennesy (relating to
Paris, Texas store) (filed as Exhibit 10.13 to Registrant's
Annual Report on Form 10-K, filed with the Commission on March
15, 1995, Commission File No. 000-23314, and incorporated
herein by reference).
10.16 Indenture of Lease, dated as of January 1, 1986, between the
Company and Joseph H., Jr. and Dorothy F. Scarlett (relating
to Omaha, Nebraska store) (filed as Exhibit 10.14 to
Registrant's Registration Statement on Form S-1, Registration
No. 33-73028, filed with the Commission on December 17, 1993,
and incorporated herein by reference).
10.17 Indenture of Lease, dated as of January 1, 1986, between the
Company and Gerald E. and Gail E. Newkirk (relating to
Waterloo, Iowa store) (filed as Exhibit 10.15 to Registrant's
Registration Statement on Form S-1, Registration No. 33-73028,
filed with the Commission on December 17, 1993, and
incorporated herein by reference).
10.18 Amendment No. 1 to Lease Agreement, dated July 1, 1992, between
the Company and Gerald E. and Gail E. Newkirk (relating to
Waterloo, Iowa store) (filed as Exhibit 10.16 to Registrant's
Registration Statement on Form S-1, Registration No. 33-73028,
filed with the Commission on December 17, 1993,
and incorporated herein by reference).
10.19 Indenture of Lease, dated as of January 1, 1986, between the
Company and Gerald E. and Gail E. Newkirk (relating to Sioux
Falls, South Dakota store) (filed as Exhibit 10.17 to
Registrant's Registration Statement on Form S-1, Registration
No. 33-73028, filed with the Commission on December 17, 1993,
and incorporated herein by reference).
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
Page Number
Exhibit by Sequential
Number Description Numbering System
------ ----------- ----------------
<S> <C> <C>
10.20 Indenture of Lease, dated as of January 1, 1986, between the
Company and Joseph D. and Juliann K. Maxwell (relating to
Nashville, Tennessee store) (filed as Exhibit 10.18 to
Registrant's Registration Statement on Form S-1, Registration
No. 33-73028, filed with the Commission on December 17, 1993,
and incorporated herein by reference).
10.21 Indenture of Lease, dated as of January 1, 1986, between the
Company and Thomas O. and Vickie Flood (relating to Mandan,
North Dakota store) (filed as Exhibit 10.19 to Registrant's
Registration Statement on Form S-1, Registration No. 33-73028,
filed with the Commission on December 17, 1993, and
incorporated herein by reference).
10.22 Indenture of Lease, dated as of September 15, 1986, between
the Company and GOF Partners (relating to Nashville, Tennessee
management headquarters) (filed as Exhibit 10.20 to
Registrant's Registration Statement on Form S-1, Registration
No. 33-73028, filed with the Commission on December 17, 1993,
and incorporated herein by reference).
10.23 Consulting and Noncompetition Agreement, dated as of May 1,
1991, between the Company and Thomas J. Hennesy, III (filed as
Exhibit 10.21 to Registrant's Registration Statement on Form
S-1, Registration No. 33-73028, filed with the Commission on
December 17, 1993, and incorporated herein by reference).
10.24 Tractor Supply Company 1994 Stock Option Plan (filed as Exhibit
10.28 to Registrant's Registration Statement on Form S-1,
Registration No. 33-73028, filed with the Commission on December
17, 1993, and incorporated herein by reference).
10.25 Amendment to the Tractor Supply Company 1994 Stock Option Plan
(filed as Exhibit 10.25 to Registrant's Quarterly Report on
Form 10-Q, filed with the Commission on August 8, 1997,
Commission File No. 000-23314, and incorporated herein by
reference).
10.26 TSC Industries, Inc. Employee 401(k) Retirement Plan
(including the Notices of the First, Second, Third, Fourth and
Fifth Amendments thereto and the Trust Agreement forming a
part thereof) (filed as Exhibit 10.29 to Registrant's
Registration Statement on Form S-1, Registration No. 33-73028,
filed with the Commission on December 17, 1993, and
incorporated herein by reference).
10.27 Form of Notice of the Revised Sixth Amendment to the TSC
Industries, Inc. Employee 401(k) Retirement Plan (filed as
Exhibit 10.30 to Amendment No. 1 to Registrant's Registration
Statement on Form S-1, Registration No. 33-73028, filed with the
Commission on January 31, 1994, and incorporated herein by
reference).
* 10.28 Senior Executive Incentive Plan of the Company.
* 10.29 Other Executive Incentive Plan of the Company.
* 10.30 Form of Deferred Compensation Agreement constituting the
Deferred Compensation Plan of the Company.
10.31 Certificate of Insurance relating to the Medical Expense
Reimbursement Plan of the Company (filed as Exhibit 10.33 to
Registrant's Registration Statement on Form S-
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
Page Number
Exhibit by Sequential
Number Description Numbering System
------ ----------- ----------------
<S> <C> <C>
1, Registration No. 33-73028, filed with the Commission on
December 17, 1993, and incorporated herein by reference).
10.32 Summary plan description of the Executive Life Insurance Plan
of the Company (filed as Exhibit 10.34 to Registrant's
Registration Statement on Form S-1, Registration No. 33-73028,
filed with the Commission on December 17, 1993, and
incorporated herein by reference).
10.33 Agreement, effective August 1, 1996, between the Company and
General Drivers & Helpers Union, Local # 554 (filed as Exhibit
10.31 to Registrant's Annual Report on Form 10-K, filed with
the Commission on March 21, 1997, Commission File No.
000-23314, and
incorporated herein by reference).
10.34 Agreement, effective April 1, 1996, between the Company and
Chauffeurs, Teamsters, Warehousemen and Helpers, Local Union
No. 135 (filed as Exhibit 10.32 to Registrant's Annual Report
on Form 10-K, filed with the Commission on March 21, 1997,
Commission File No. 000-23314, and incorporated herein by
reference).
10.35 Tractor Supply Company 1996 Associate Stock Purchase Plan
(filed as Exhibit 4.4 to Registrant's Registration Statement
on Form S-8, Registration No. 333-10699, filed with the
Commission on August 23, 1996, and incorporated herein by
reference).
10.36 Indemnification Agreement, dated January 27, 1994, between the
Company and Thomas O. Flood (filed as Exhibit 10.38 to
Amendment No. 1 to Registrant's Registration Statement on Form
S-1, Registration No. 33-73028, filed with the Commission on
January 31, 1994, and incorporated herein by reference).
10.37 Tractor Supply Company Restated 401(k) Retirement Plan (filed
as Exhibit 4.1 to Registrant's Registration Statement on Form
S-3, Registration No. 333-35317, filed with the Commission on
September 10, 1997, and incorporated herein by reference).
10.38 Trust Agreement (filed as Exhibit 4.2 to Registrant's
Registration Statement on Form S-3, Registration No.
333-35317, filed with the Commission on September 10, 1997,
and incorporated herein by reference).
10.39 Noncompetition Agreement, dated as of June 30, 1996, between
the Company and Joseph D. Maxwell (filed as Exhibit 10.35 to
Registrant's Quarterly Report on Form 10-Q, filed with the
Commission on October 31, 1997, Commission File No. 000-23314,
and incorporated herein by reference).
10.40 Noncompetition Agreement, dated as of June 9, 1997, between
the Company and Gerald E. Newkirk (filed as Exhibit 10.36 to
Registrant's Quarterly Report on Form 10-Q, filed with the
Commission on October 31, 1997, Commission File No. 000-23314,
and incorporated herein by reference).
* 13.1 Annual Report to Stockholders for the fiscal year ended
December 27, 1997.
* 23.1 Consent of Price Waterhouse LLP.
* 23.2 Consent of Price Waterhouse LLP.
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
Page Number
Exhibit by Sequential
Number Description Numbering System
------ ----------- ----------------
<S> <C> <C>
24.1 Power of Attorney (filed as Exhibit 24.1 to Registrant's
Annual Report on Form 10-K, filed with the Commission on March
15, 1995, Commission File No. 000-23314, and incorporated
herein by reference).
24.2 Power of Attorney (filed as Exhibit 24.2 to Registrant's
Annual Report on Form 10-K, filed with the Commission on March
20, 1996, Commission File No. 000-23314, and incorporated
herein by reference).
* 27.1 Financial Data Schedule (only submitted to SEC in
electronic format).
</TABLE>
- -------------------------
* Filed herewith.
19
<PAGE> 1
Exhibit 10.28
TRACTOR SUPPLY CO.
SENIOR EXECUTIVE INCENTIVE PLAN
PURPOSE
The Tractor Supply Co. Senior Executive Incentive Plan (the
"Plan") is established to provide additional compensation for senior executive
personnel who influence the profitability and success of Tractor Supply Co.
(the "Company").
ADMINISTRATION
The Plan is administered by the Compensation Committee (the
"Committee") designated by the Board of Directors of the Company (the "Board"),
which Committee, subject to action of the Board, has complete discretion and
authority with respect to the Plan and its application except to the extent that
discretion is expressly limited by the Plan. All action taken and decisions made
by the Committee or the Board pursuant to the Plan shall be final and
conclusive.
ELIGIBILITY FOR PARTICIPATION
The Plan established a participating group of employees (the
"Senior Executive Group") comprising key executives of the Company. Exhibit "A"
attached sets forth the Senior Executive Group as of January 1, 1997. The
Committee, in it sole discretion, shall decide with respect to each fiscal year
the identity of employees assigned to the Senior Executive Group. The Committee
may add additional persons to, and remove persons from the Executive Group
during each fiscal year. Unless the Board decides otherwise, participants in the
Plan shall only be entitled to bonuses to be paid during a fiscal year, if they
are employed by the Company on the Determination Date (hereinafter defined)
within such fiscal year. At the Board's discretion, participants who are not
employed by the Company on such Determination Date because of death, disability,
retirement or involuntary termination (other than for cause) may be entitled to
participate in the Plan with respect to a fiscal year on a pro rate basis, if
applicable, or otherwise.
DETERMINATION DATE
Bonus amounts shall be decided by March 15 following the end of
each fiscal year of the Company (the "Determination Date"). Bonus amounts shall
be paid to the Senior Executive Group as soon as administered practicable after
the Determination Date. Salary increases shall be retroactive to the beginning
of the fiscal year in which such determination was made.
<PAGE> 2
TRACTOR SUPPLY CO.
SENIOR EXECUTIVE INCENTIVE PLAN
BONUS AMOUNTS
Bonus amounts awarded will be used based on the percentage of FIFO
pre-tax profit improvement from one fiscal year to the next fiscal year, as
follows:
<TABLE>
<CAPTION>
FIFO PRE-TAX PROFIT IMPROVEMENT BONUS PERCENTAGE
------------------------------------------------------------------------
Increase from Prior Fiscal Year
<S> <C>
0 but less than 3% 0%
3 but less than 6% 20%
6 but less than 11% 30%
11 but less than 21% 40%
21 but less than 31% 50%
31 but less than 41% 60%
41% or more 70%
Decrease from Prior Fiscal Year Board Discretion
</TABLE>
Board may increase percentage in its discretion
Based on current annual base salary
RIGHT OF DISCHARGE RESERVED
Nothing in the Plan shall confer upon any participant the right to
continue in the employment of the Company or affect any right which the Company
may have to terminate the employment of such participant.
AMENDMENT OR TERMINATION OF THE PLAN
The Board or the Committee shall have the right to amend or
terminate the Plan any time and for any reason whatsoever.
EFFECTIVE DATE
The Plan shall be effective for fiscal years commencing on and
after January 1, 1997.
<PAGE> 3
GOVERNING LAW
The Plan shall be governed by and construed according to the
internal laws of the State of New York, without giving effect to the conflicts
of laws principals thereof.
EXHIBIT "A"
Participants in Tractor Supply Co. Senior Executive Incentive Plan as of January
1, 1997:
Joseph H. Scarlett, Jr.
Gerald E. Newkirk
Thomas O. Flood
John R. Pearson
<PAGE> 1
Exhibit 10.29
TRACTOR SUPPLY CO.
OTHER EXECUTIVE INCENTIVE PLAN
PURPOSE
The Tractor Supply Co. Other Executive Incentive Plan (the "Plan")
is established to provide additional compensation for other executive personnel
who influence the profitability and success of Tractor Supply Co. (the
"Company").
ADMINISTRATION
The Plan is administered by the Compensation Committee (the
"Committee") designated by the Board of Directors of the Company (the "Board"),
which Committee, subject to action of the Board, has complete discretion and
authority with respect to the Plan and its application except to the extent that
discretion is expressly limited by the Plan. All action taken and decisions made
by the Committee or the Board pursuant to the Plan shall be final and
conclusive.
ELIGIBILITY FOR PARTICIPATION
The Plan established a participating group of employees (the "Other
Executive Group") comprising key executives of the Company. Exhibit "A" attached
sets forth the Other Executive Group as of January 1, 1997. The Committee, in it
sole discretion, shall decide with respect to each fiscal year the identity of
employees assigned to the Other Executive Group. The Committee may add
additional persons to, and remove persons from, the Executive Group during each
fiscal year. Unless the Board decides otherwise, participants in the Plan shall
only be entitled to bonuses to be paid during a fiscal year, if they are
employed by the Company on the Determination Date (hereinafter defined) within
such fiscal year. At the Board's discretion, participants who are not employed
by the Company on such Determination Date because of death, disability,
retirement or involuntary termination (other than for cause) may be entitled to
participate in the Plan with respect to a fiscal year on a pro rate basis, if
applicable, or otherwise.
DETERMINATION DATE
Bonus amounts shall be decided by March 15 following the end of
each fiscal year of the Company (the "Determination Date"). Bonus amounts shall
be paid to the Other Executive Group as soon as administered practicable after
the Determination Date. Salary increases shall be retroactive to the beginning
of the fiscal year in which such determination was made.
<PAGE> 2
TRACTOR SUPPLY CO.
OTHER EXECUTIVE INCENTIVE PLAN
BONUS AMOUNTS
Bonus amounts awarded will be used based on the percentage of FIFO
pre-tax profit improvement from one fiscal year to the next fiscal year, as
follows:
<TABLE>
<CAPTION>
FIFO PRE-TAX PROFIT IMPROVEMENT BONUS PERCENTAGE
--------------------------------------------------------------------
Increase from Prior Fiscal Year
<S> <C>
0 but less than 3% 0%
3 but less than 6% 15%
6 but less than 11% 20%
11 but less than 21% 30%
21 but less than 31% 40%
31 but less than 41% 45%
41% or more 50%
Decrease from Prior Fiscal Year Board Discretion
</TABLE>
Board may increase percentage in its discretion
Based on current annual base salary
RIGHT OF DISCHARGE RESERVED
Nothing in the Plan shall confer upon any participant the right to
continue in the employment of the Company or affect any right which the Company
may have to terminate the employment of such participant.
AMENDMENT OR TERMINATION OF THE PLAN
The Board or the Committee shall have the right to amend or
terminate the Plan any time and for any reason whatsoever.
EFFECTIVE DATE
The Plan shall be effective for fiscal years commencing on and
after January 1, 1997.
<PAGE> 3
GOVERNING LAW
The Plan shall be governed by and construed according to the
internal laws of the State of New York, without giving effect to the conflicts
of laws principals thereof.
EXHIBIT "A"
Participants in Tractor Supply Co. Other Executive Incentive Plan as of January
1, 1997:
Lee Haberer
Mike Kincaid
Larry Goldberg
Jim McMurray
Daisy Vanderlinde
Blake Fohl
<PAGE> 1
EXHIBIT 10.30
TRACTOR SUPPLY COMPANY
DEFERRED COMPENSATION AGREEMENT
- --------------------------------------------------------------------------------
This agreement entered into this ____ day of _________, 199_ by and between
Tractor Supply Company, a corporation organized and existing under the laws of
the State of Delaware and having its principal place of business in the city of
Nashville, State of Tennessee, (the "Corporation") and
__________________________ of __________________, (the "Associate").
WITNESSETH:
Whereas, the Corporation is engaged in the retail sales of farm, home and
automotive maintenance products; and
Whereas, an employment relationship has existed between the parties hereto
since _______, 199_, to the mutual benefit of both parties; and
Whereas, the parties wish to continue this relationship and to provide for
certain contingencies; and
Whereas, the Associate is considered a highly compensated Associate or
member of a select management group of the Corporation;
Now, therefore, in consideration of the premise and of the covenants and
agreements set forth, and for other good and valuable consideration, receipt of
which is hereby acknowledged, the Corporation and the Associate covenant and
hereby agree as follows:
COMPENSATION TO ASSOCIATE IF RETIRED,
DECEASED OR DISABLED
1.1) Compensation following Termination of Employment. The Corporation
agrees, if the associate shall have been continuously employed by the
Corporation from the date of this Agreement to his retirement, such
retirement occurring no earlier than his 55th birthday, to pay to the
Associate upon his retirement the amount held in the Associate's
Deferred Compensation account, a ledger account shown Schedule A, in
equal monthly payments to be made over a period of five years.
Each year, the percentage of Base Compensation which shall be added to
the Associate's Deferred Compensation account for that year shall be
determined in accordance with the criteria specified in the schedule
below. Base Compensation shall include annual salary paid in bi-weekly
installments, but shall not include bonuses, fringe benefits or
employer contributions to qualified pension plans. An Associate's
Deferred Compensation account shall consist of all annual additions to
the Associate's
<PAGE> 2
TRACTOR SUPPLY COMPANY
DEFERRED COMPENSATION AGREEMENT
- --------------------------------------------------------------------------------
Deferred Compensation account, together with simple interest accrued
thereon, calculated for each year at a rate equal to the prime rate
listed in the Wall Street Journal on January 1 of that year. The amount
held in the Deferred Compensation account shall continue to earn
interest until all amounts in such account have been paid out to the
Associate.
<TABLE>
<CAPTION>
IF THE NET IF THE NET % OF OFFICER'S
INCOME INCREASE AND INCOME AS A ANNUAL BASE
OVER THE PRIOR % TO SALES IS SALARY TO BE
YEAR IS AT LEAST * DEFERRED
- ------------------------ -------------- ---------------
<S> <C> <C> <C>
Less than 0% AND 2.5% 2%
Between 0.1%
and 6.0% AND 2.5% 3%
Between 6.1%
and 11.0% AND 2.5% 4%
Between 11.1%
and 20.0% AND 2.5% 5%
Greater than
20.0% AND 2.5% 6%
</TABLE>
*If Net Income is less than 2.5% of sales, no deferral will be allowed
under any circumstances.
1.2) Death Prior to Termination of Employment. The Corporation agrees, if
the Associate should die while employed by the Corporation, to pay such
beneficiary or beneficiaries as designated by the Associate, or if not
designated by the Associate, to the Associate's estate, the total
amount shown in the Associate's Deferred Compensation account plus
interest accrued to the date of distribution in a lump sum. However, if
the Associate should commit suicide, while sane or insane, all amounts
payable by the Corporation to any person or entity under this Agreement
will be forfeited, subject to the right of the Corporation to consider
and make discretionary payment of part or all of the amounts held in
the Associate's Deferred Compensation account at such time.
1.3) Death of Associate Following Termination of Employment. In the event
that the Associate should die after retirement or disability, the
beneficiary or beneficiaries designated by the Associate in accordance
with Paragraph 4.1, or the Associate's estate will then receive the
unpaid portion of the Associate's Deferred Compensation account paid in
a lump sum with interest accrued until date of distribution.
1.4) Disability Prior to Termination of Employment. The Corporation agrees,
if the
<PAGE> 3
TRACTOR SUPPLY COMPANY
DEFERRED COMPENSATION AGREEMENT
- --------------------------------------------------------------------------------
Associate shall have been continuously employed by the Corporation from
the date of this Agreement and shall become totally disabled prior to
actual retirement and such total disability shall continue without
interruption for a period of at least six months, to pay the amount in
the Associate's Deferred Compensation account to the Associate in equal
monthly payments over a period not to exceed five (5) years. The amount
remaining in the Deferred Compensation account shall continue to accrue
interest until all amounts held in such account have been paid to the
Associate.
CONDITIONS FOR PAYMENT
2.1) Continuous Employment. Payments to the Associate or his designated
beneficiary under this Agreement shall be made only upon the continuous
employment of the Associate by the Corporation (including periods of
disability and authorized leaves of absence as defined in Paragraph 8.1
of this Agreement), from the date of this Agreement to the date of
retirement age at age 55, or later, death or disability, and upon the
Associate's compliance with the terms of this Agreement.
TERMINATION OF EMPLOYMENT
3.1) Vesting Schedule. If the Associate is terminated prior to the date of
his retirement, death, or disability, he shall forfeit all rights to
any amounts payable under any other Paragraph of this Agreement, and,
in lieu thereof, the Corporation agrees to pay to the Associate in a
lump sum an amount equal to the following schedule.
<TABLE>
<CAPTION>
FULL YEARS FROM DATE OF AN AMOUNT EQUAL TO THE
AGREEMENT TO SEVERANCE FOLLOWING % TIMES THE LATEST
OF EMPLOYMENT SCHEDULE "A" PLUS INTEREST
- ---------------------------- ----------------------------
<S> <C>
Less than 5 Years 0%
Equal to or greater
than 5 years but less
than 8 years 30%
Equal to or greater
than 8 years but less
than 10 years 60%
Equal to or greater
than 10 years 100%
</TABLE>
All amounts paid under this paragraph shall include interest paid to
the date of distribution.
<PAGE> 4
TRACTOR SUPPLY COMPANY
DEFERRED COMPENSATION AGREEMENT
- --------------------------------------------------------------------------------
3.2) Termination for Cause. Notwithstanding any other provisions in this
Agreement, if the Associate is discharged by the Corporation for cause,
all amounts payable under this Agreement shall be forfeited and the
Associate shall have no right to receive any part of his Deferred
Compensation account at any time. "Cause" as defined in this Agreement
shall mean (a) incompetence, (b) insubordination, (c) conviction or
pleas of nolo contendere in a felony case, d) intoxication, or (e) drug
addiction.
BENEFICIARIES
4.1) Beneficiary Designation. The Associate, by written notice to the
Corporation during his lifetime signed by him and witnessed by at least
two persons, in the form attached as Exhibit "B", may designate one or
more persons or entities (including a trust or trusts) to receive as
beneficiaries his Deferred Compensation account or any balance thereof,
and any other compensation payable to him under this Agreement, in the
event of his death prior to full payment thereof. If he shall designate
more than one beneficiary, he may designate the person or persons who
shall succeed to the rights of the person or persons originally
designated in case the latter should die while payments remain due
under this Agreement. He may from time to time change any designation
so made and the last written notice received by the Corporation before
his death shall be controlling.
4.2) Simultaneous Death. If any beneficiary designated under the provisions
of this agreement should die simultaneously with the Associate or
within the twenty-four hour period immediately following the death of
the Associate, all benefits payable under this Agreement shall be paid
as if such beneficiary died prior to the Associate.
CLAIMS PROCEDURE
5.1) Administrator. The administrator for purposes of the claim procedure
under this Agreement is Senior Vice President - CFO the Corporation
whose address is: 320 Plus Park Boulevard, Nashville, TN 37217, (615)
366-4600. The Corporation shall have the right to change the
administrator of this Agreement.
5.2) Request for Benefits. Payments from the Deferred Compensation account
shall be paid in accordance with the provisions of this Agreement. The
Associate, or a designated beneficiary, or any other person claiming
through the Associate shall make a written request for payments
provided under this Agreement by mailing or delivering such claim to
the administrator. The administrator shall act upon request for
payments
<PAGE> 5
TRACTOR SUPPLY COMPANY
DEFERRED COMPENSATION AGREEMENT
- --------------------------------------------------------------------------------
within a reasonable time, but not later than 90 days after the receipt
of the claim by the administer.
FUNDING
6.1) The Corporation's obligation under this Agreement shall be an unfunded
and unsecured promise to pay. The Corporation shall not be obligated
under any circumstances to fund its obligations under this Agreement
but the Corporation may, at its sole and exclusive option, elect to
fund this Agreement in whole or in part. If the Corporation shall elect
to fund this Agreement informally, in whole or in part, the manner of
such informal funding, and the continuance or discontinuance of such
informal funding shall be the sole and exclusive decision of the
Corporation. If the Corporation shall determine to informally fund this
Agreement, in whole or in part, by procuring life insurance for its own
benefit on the life of the Associate, the form of such insurance and
the amounts shall be the sole and exclusive decision of the
Corporation. Associate hereby agrees to submit to medical examinations,
supply such information and execute such documents as may be required
by the insurance company or companies to whom the Corporation may have
applied for such insurance if the Corporation shall determine to
informally fund this Agreement with life insurance. If said policies
are obtained annuities are purchased or other investments are made the
Corporation shall be the sole owner of any such policies, annuities or
investments and said property will in no way be deemed security to the
Associate under this Agreement, but shall remain a general Corporate
asset.
ACCELERATION OF BENEFIT PAYMENTS
7.1) The Corporation reserves the right to accelerate the payment of any
amounts payable under this Agreement without the consent of the
Associate, his estate, his designated beneficiaries or any other person
claiming through the Associate, provided that the accelerated payment
is equivalent to the monthly payments that would otherwise have been
payable.
LEAVE OF ABSENCE
8.1) For the purpose of determining the period of an Associate's continuous
employment within the meaning of the Agreement, an Associate's
employment shall not be deemed to have been interrupted by any periods
of temporary absence taken with the advance approval of the
Corporation, during which the Associate worked for no other employer;
nor by any period of absence during service in the Armed Forces of the
United States of America, if the Associate shall return to his
employment at the time
<PAGE> 6
TRACTOR SUPPLY COMPANY
DEFERRED COMPENSATION AGREEMENT
- --------------------------------------------------------------------------------
and under the circumstances required to give him re-employment rights
under any Federal or State law. In the event the Associate shall not
return to the service of the Corporation within the specified period,
he shall be deemed to have terminated his employment when he originally
left the service of the Corporation.
NON-TRANSFERABILITY OF BENEFITS
9.1) This Agreement shall be binding upon the parties hereto, their heirs,
executors, administrators, successors, and assigns. However, no person
entitled to any payments under this Agreement shall have any right to
commute, assign, encumber, pledge, borrow on or dispose of the right to
receive such payments.
CONSTRUCTION OF AGREEMENT
10.1) CORPORATE MERGER OR TERMINATION. The Corporation agrees that it will
not merge or consolidate with any other corporation or organization, or
permit its business activities to be taken over by any other
organization, unless and until the succeeding or continuing corporation
or other organization shall expressly assume the rights and obligations
of the Corporation herein set forth. The Corporation further agrees
that it will not cease its business activities or terminate its
existence, other than as heretofore set forth in this Paragraph,
without having made adequate provision for the fulfilling of its
obligations hereunder. In the event of any default with respect to the
provisions of this Paragraph, the Associate shall have a continuing
lien on all Corporate assets, until such default be corrected.
10.2) ASSOCIATE SECURITY. With the exception of the circumstances enumerated
in Paragraph 10.1 above, the rights of the Associate, his designated
beneficiary or beneficiaries or his estate under this Agreement shall
be solely those of an unsecured creditor of the Corporation and they
shall have only the rights to receive from the Corporation those
benefits as specified under this Agreement. Nothing contained in this
Agreement shall create a fiduciary relationship between the Corporation
and the Associate, or any other persons. Any funds which may be
invested under the provisions of this Agreement shall continue for all
purposes to be a part of the general funds of the Corporation and no
person other than the Corporation shall by virtue of the provisions of
the Agreement have any interest in such funds.
10.3) COMPUTATION OF BENEFITS. Any deferred compensation benefit under this
Agreement shall not be deemed salary or other compensation to the
Associate for the purpose of
<PAGE> 7
TRACTOR SUPPLY COMPANY
DEFERRED COMPENSATION AGREEMENT
- --------------------------------------------------------------------------------
computing benefits to which he may be entitled under any pension plan
or other arrangement of the Corporation for the benefit of its
associates.
10.4) INDEPENDENCE OF BENEFITS. The payments made under this Agreement shall
be independent of, and in addition to, any other benefits or
compensation, whether by salary, or bonus or otherwise payable under
any employment agreements that now exist or may hereafter exist from
time to time between the Corporation and the Associate. This Agreement
between the Corporation and the Associate does not involve a reduction
in salary or foregoing of an increase in future salary by the existing
and future compensation and other benefits of Associate.
11.5) SCOPE OF AGREEMENT. This Agreement shall not be deemed to constitute a
contract of employment between the parties hereto, nor shall any
provision hereof restrict the right of the Corporation to discharge the
Associate for cause as defined in Paragraph 3.3, or for any other
reason; nor does it restrict the right of the Associate to terminate
his employment.
11.6) STATE LAW GOVERNING AGREEMENT. The Law of the State of Tennessee shall
govern this Agreement.
11.7) INTERPRETATION OF AGREEMENT. Where appropriate in this Agreement, words
used in the singular shall include the plural and words used in the
masculine include the feminine.
REVOCATION AND AMENDMENT
12.1) This Agreement may be revoked or amended in whole or in part by the
Board of Directors of the Corporation.
EXECUTION OF AGREEMENT
13.1) This Agreement shall be executed in duplicate, each copy of which when
so executed and delivered, shall be an original; but both copies shall,
together, constitute one and the same instrument.
<PAGE> 8
TRACTOR SUPPLY COMPANY
DEFERRED COMPENSATION AGREEMENT
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the said Corporation has caused this Agreement to be signed
in its corporate name by its duly authorized officer, and impressed with its
corporate seal, and the said Associate has hereunto set his hand, all on the day
and year first above written.
TRACTOR SUPPLY COMPANY
BY:
------------------------------------
(Seal)
ITS:
------------------------------------
THOMAS O. FLOOD
SENIOR VICE PRESIDENT - CFO
ATTEST:
- ------------------------------
SECRETARY
WITNESSES:
- --------------------------- ------------------------------------
ASSOCIATE
- ---------------------------
<PAGE> 9
TRACTOR SUPPLY COMPANY
DEFERRED COMPENSATION AGREEMENT
- --------------------------------------------------------------------------------
EXHIBIT "A"
SCHEDULE OF BENEFITS
AS COVERED BY _________________________ AGREEMENT . . .
<TABLE>
<CAPTION>
==================== ===========================
DEFERRAL BALANCE AS OF
FOR 199__ 12/31/9__
==================== ===========================
<S> <C>
$ $
==================== ===========================
</TABLE>
TOTAL DEFERRAL..........................................$
VESTED PORTION..........................................$
<PAGE> 10
TRACTOR SUPPLY COMPANY
DEFERRED COMPENSATION AGREEMENT
- --------------------------------------------------------------------------------
EXHIBIT "B"
BENEFICIARY DESIGNATION PROVISION
The following beneficiaries are hereby designated by the under signed Associate
to receive such payments as may be due pursuant to the Deferred Compensation
Agreement dated ______________,19___, between said Associate and Tractor Supply
Company upon the death of said Associate:
PRIMARY BENEFICIARY:
- --------------------------------------
Name
- --------------------------------------
Relationship
- --------------------------------------
Address
SECONDARY BENEFICIARY:
- --------------------------------------
Name
- --------------------------------------
Relationship
- --------------------------------------
Address
The primary beneficiary named above shall be the designated beneficiary referred
to in the Agreement to receive all amounts payable under such Agreement if he or
she is living at my death and should continue to live until all such amounts
have been paid in full. If the primary beneficiary should predecease me or
should die after payments have commenced to him or her but the full amount
payable has not been paid, the secondary beneficiary named above shall be the
designated beneficiary referred to in the Agreement to receive any and all
amounts due but unpaid under such Agreement.
WITNESSES: ASSOCIATE
- -------------------------------------- -----------------------------------
Name
- -------------------------------------- -----------------------------------
Date
ACKNOWLEDGED:
TRACTOR SUPPLY COMPANY
By:
-----------------------------------
<PAGE> 1
1997 Annual Report To Stockholders
(PICTURE)
Letter to Stockholders:
TRACTOR SUPPLY COMPANY is the leader in the farm store business. We operate 228
stores in 26 states with over 2,700 associates and we set the pace in our
industry. Tractor Supply Company is the most innovative, first to market with
new products, best at developing people, and most consistent building the
infrastructure to support future growth.
(continued on page 2)
--------------
(TRACTOR SUPPLY COMPANY LOGO)
<PAGE> 2
(PICTURE)
COMPANY PROFILE Since its founding as a mail order tractor parts business in
1938, Tractor Supply Company has grown to be one of the largest retail farm
store chains in America. The Company supplies the daily farming and maintenance
needs of its target customers: hobby, part-time and full-time farmers and
ranchers, as well as suburban customers, contractors and tradesmen. At the close
of fiscal 1997, the Company operated 228 retail farm stores in 26 states.
Tractor Supply Company 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, equine supplies,
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 and ranching is a significant
factor in the local economy. The Company employs over 2,700 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".
(PICTURE)
<TABLE>
<CAPTION>
NUMBER OF STORES BY STATE
<S> <C>
Texas 35
Ohio 30
Michigan 21
Tennessee 20
Indiana 18
Kentucky 12
Illinois 11
Iowa 9
North Carolina 8
North Dakota 8
Kansas 7
Arkansas 6
Minnesota 6
Missouri 6
Nebraska 6
Pennsylvania 5
Virginia 5
South Dakota 4
Alabama 2
Maryland 2
Oklahoma 2
Mississippi 1
Montana 1
New York 1
South Carolina 1
Wisconsin 1
---
Total 228
===
</TABLE>
<PAGE> 3
Tractor Supply Company
Financial Highlights
------------------
(in thousands, except where noted)
<TABLE>
<CAPTION>
FISCAL YEAR PERCENT
--------------------- INCREASE
1997 1996 (DECREASE)
- --------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING RESULTS:
Net sales $509,052 $449,029 13.4
Income before income taxes 19,933 22,081 (9.7)
Net income 11,761 13,236 (11.1)
Net income per share-basic ($) 1.34 1.50 (10.7)
FINANCIAL POSITION:
Total assets 224,080 195,582 14.6
Cash and short-term investments 8,477 12,948 (34.5)
Stockholders' equity 104,889 92,966 12.8
Long-term debt to equity (%) 29.7 22.8 30.3
STATISTICS:
Number of stores (#) 228 208 9.6
Square footage at year end 2,807 2,544 10.3
Average sales per store 2,233 2,159 3.4
Net sales per square foot ($) 191 185 3.2
</TABLE>
Net Sales for
1993-1997
(in millions)
(GRAPH)
Total Number of
Stores (at Year End)
1993-1997
(GRAPH)
Five-Year
Compound
Growth Rate
- - Net Sales
- - Income From Operations
- - Net Income
(GRAPH)
1
<PAGE> 4
WHILE 1997 WAS A YEAR OF TRANSITION AND REORGANIZATION, WE BELIEVE WE ARE TAKING
THE STEPS NECESSARY TO BUILD A STRONG FOUNDATION TO BETTER SUPPORT THE COMPANY'S
GROWTH PLANS.
Tractor Supply Company
Letter to Stockholders
----------
(continued from cover)
Last year was one of reorganization, rejuvenation, and reaffirming the basis
for future growth and success. We feel confident that we are positioned today
for future continuous meaningful sales and profit growth. We are disappointed in
last year's financial performance and are determined to deliver consistent
profitable growth in future years.
For 1997, total sales were up 13.4% and comparable store sales were up 3.1%.
We opened 22 new stores, relocated one store and closed two stores. Net income
decreased 11.1% to $11.8 million and net income per share decreased 10.7% to
$1.34 per share.
OUR RICH HISTORY Tractor Supply Company was founded in 1938 and we will
celebrate our 60th anniversary this year. The Company started as a tractor parts
mail order business focusing on the maintenance needs of America's farmers and
today, 60 years later, we are still focused on the basic maintenance needs of
America's farmers and ranchers. The landscape has changed, the customer has
changed, and the methods of agriculture have changed, however our focus has
stayed relatively consistent. Competitors have come and competitors have gone in
the farm store business--a couple of the nation's largest retailers have even
tried their hand at the farm store market. We are proud of our heritage, proud
of our company, and proud of our people.
OUR CUSTOMER COMMITMENT The Tractor Supply Company team has a winning attitude.
We passionately believe in our customer, our niche, our organization, and our
core business principles. We are committed to providing superior customer value
by being the most dependable supplier, providing the best customer service,
guaranteeing satisfaction on every purchase, and providing the lowest prices in
our business. Superior customer value for every customer is our winning formula.
THE FARM STORE MARKET NICHE We have a unique market niche serving the basic
maintenance needs of America's farmers and ranchers and have great confidence in
the future potential of this market. Our core customer, the "hobby and
part-time" farmer and rancher, is a growing segment of the country's
demographics. Our efforts are clearly focused on this well-defined and very
special niche in the retail market place.
STRONGER EXECUTIVE TEAM The Tractor Supply Company Executive team has been
substantially strengthened. First, Mr. Gerald Brase joined the Company in
October as our Senior Vice-President of Merchandising and Marketing. In his
short tenure with the Company, we have experienced substantial improvements in
business process and basic merchandising, a massive rollout of new and upgraded
merchandise programs and a bolder, more aggressive approach to our marketing
efforts. Second, Mr. Michael Brown joined the Company in January of this year as
the Senior Vice-President of Store Operations. Soon we expect to see the impact
of Mike on improved operations of the stores and are confident that Jerry and
Mike will together make substantial contributions to sales growth and profit
growth.
REJUVENATING THE PRODUCT MIX At Tractor Supply Company we focus on consistency,
we focus on our customer, and we focus on our core products. By the time you
read this letter, the entire right half and the center sections of every Tractor
Supply Company store will have been completely re-merchandised, re-assorted, and
re-positioned. Many of these changes were piloted last year and we are confident
that the total package will yield meaningful sales improvements starting this
spring. Our goal is to keep improving the merchandise mix to be most responsive
to our customers.
Tractor Supply Company works closely with its vendor business partners to
build strong, long-term relationships that help assure that we are the leader in
each of our key businesses. We believe that working closely with vendors gives
us competitive advantage. We collaborate on new products, new presentations,
sales promotions, product knowledge training, and use technology jointly to take
time and money out of the business process.
2
<PAGE> 5
(PICTURE)
BOLD NEW MARKETING INITIATIVES We are focused on growing our business with bold
and innovative marketing programs. Beginning this spring, we will be increasing
our print advertising, significantly expanding the use of radio, and, for the
first time, initiating regular television advertising. We are thrilled to
announce that nationally known equine expert, John Lyons, is our new spokesman
supporting our bold new initiatives in the horse care area. We are equally
thrilled to announce that Country Music Entertainer of the Year, George Strait,
is our new national spokesman. Tractor Supply Company has been one of America's
best-kept retail secrets, but this year that will change.
GROWTH STRATEGIES Tractor Supply Company is a rapid growth company. In 1990
total sales were $200,000,000 and last year sales exceeded $500,000,000--a half
billion dollars! The Company has grown two and a half fold in the last seven
years and we expect that rapid growth to continue. Our vision is to double sales
to over a billion dollars in the year 2001 through both new stores and growth in
existing stores.
During the last three years we have opened 65 new stores and now operate 228
stores in 26 states. Our goal is to open 18 new stores this year and 30 new
stores next year and, by the year 2000, to be operating more than 300 stores.
INVESTING IN THE INFRASTRUCTURE At Tractor Supply Company we take a long-term
view of our business by making continuous investments for future growth and
success. Developing top quality people is one of our principal focuses. We
regularly recruit agricultural business students on major college campuses for
our Executive Training Program. The entire sales force participated in our sales
training program last year and we are now hearing regular success stories on how
the training has paid off in better service and bigger sales. At Tractor Supply
Company our people work in a positive, enthusiastic environment where there are
opportunities for everyone. We focus on continually improving the strength of
our team.
We also use technology to achieve competitive advantage. The information from
the recently completed point-of-sale system provides for much better analysis of
sales, expenses and control issues, which all help enhance the bottom line. In
addition, we track sales data on over 350,000 key farm and ranch customers and
are now marketing directly to them. Our district managers use laptop computers
for analyzing sales and inventory to quickly react to changing trends. We
recently embarked on installation of world-class merchandise, inventory and
distribution systems that will help us manage the business even more
efficiently. Technology is our friend and we will use it to build our business.
OUTLOOK I am more confident about the future of our Company today than at any
time in my 19 years with Tractor Supply Company. I am confident because of the
strength of our current Executive and Management team. We are the farm store
leader in every respect.
/s/ Joe Scarlett
-------------------------
Joe Scarlett
Chairman of the Board and
Chief Executive Officer
----------
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.
3
<PAGE> 6
BY LISTENING TO CUSTOMERS AND BEING RESPONSIVE TO THEIR NEEDS, WE SUCCESSFULLY
REINTRODUCED A LADIES WORKWEAR LINE OF CLOTHING TO OUR PRODUCT OFFERING.
(PICTURE)
WALK BEHIND MOWERS ARE AN INTEGRAL COMPONENT OF THE COMPANY'S FULL-LINE OF LAWN
AND GARDEN PRODUCTS.
(PICTURE)
THE COMPANY'S COMPLETELY RE-ASSORTED AND SIGNIFICANTLY IMPROVED POWER WASHER
PRODUCT LINE IS OUR STRONGEST EVER.
(PICTURE)
AN ALL NEW, FULL LINE OF HILL'S SCIENCE DIET(R) PRODUCTS, THE ENVY OF MANY
OTHER RETAILERS, WAS ROLLED OUT AS PART OF OUR ALL NEW PET DEPARTMENT.
(PICTURE)
4
<PAGE> 7
(PICTURE)
SIGNIFICANTLY ENHANCED PET DEPARTMENT: One of our major initiatives to
rejuvenate the product mix is the significantly enhance pet department. Based on
early indications, we expect that this all new pet department will generate
double-digit sales increases in fiscal 1998 at a slightly improved gross margin
rate.
5
<PAGE> 8
TILLERS ARE ANOTHER INTEGRAL COMPONENT OF THE COMPANY'S FULL-LINE OF LAWN AND
GARDEN PRODUCTS.
(PICTURE)
OUR POWER TOOL PRODUCT OFFERING WAS SUBSTANTIALLY EXPANDED LATE IN 1997.
(PICTURE)
THE COMPANY SIGNIFICANTLY RE-MERCHANDISED AND EXPANDED ITS ANIMAL HEALTH
DEPARTMENT. EPRINEX IS NOT ONLY AN EXAMPLE OF A DYNAMIC NEW PRODUCT IN THIS
IMPROVED ANIMAL HEALTH DEPARTMENT, BUT IT IS ALSO AN EXAMPLE OF THE COMPANY
BEING FIRST TO MARKET WITH A NEW PRODUCT.
(PICTURE)
PRODUCER'S PRIDE BRAND, OUR NEW PRIVATE LABEL ECONOMY FEED LINE, COMPLIMENTS OUR
ALREADY WELL ESTABLISHED PRIVATE LABEL HIGH-END FEED LINE, DUMOR BRAND.
(PICTURE)
6
<PAGE> 9
(PICTURE)
COMPLETELY REVAMPED EQUINE DEPARTMENT: Another one of our major initiatives to
rejuvenate the product mix is the expanded and completely revamped equine
department. Based on early indications, we expect that this all new equine
department will also generate double-digit sales increases in fiscal 1998 at a
slightly improved gross margin rate.
7
<PAGE> 10
Tractor Supply Company
Five-Year Selected Financial and Operating Highlights
----------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------------------------------
(in thousands, except per share and operating data)
DECEMBER 27, DECEMBER 28, DECEMBER 30, DECEMBER 31, JANUARY 1,
1997 1996 1995 1994 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Net Sales $ 509,052 $ 449,029 $ 383,903 $ 329,967 $ 279,213
Gross margin 131,542 116,651 98,656 88,187 71,743
Selling, general and
administrative expenses 104,661 88,827 73,587 65,790 54,788
Depreciation and amortization 4,509 3,385 2,524 1,845 1,655
-------------------------------------------------------------------------
Income from operations 22,372 24,439 22,545 20,552 15,300
Interest expense, net 2,439 2,358 1,730 1,798 3,840
-------------------------------------------------------------------------
Income before income taxes 19,933 22,081 20,815 18,754 11,460
Income tax provision 8,172 8,845 8,293 7,496 4,531
-------------------------------------------------------------------------
Net income $ 11,761 $ 13,236 $ 12,522 $ 11,258 $ 6,929
-------------------------------------------------------------------------
Net income applicable to
common stockholders $ 11,705 $ 13,039 $ 12,165 $ 10,788 $ 6,459
---------------------------------------------------------------------------
Net income per share - basic (a) $ 1.34 $ 1.50 $ 1.40 $ 1.28 $ 0.99
-------------------------------------------------------------------------
Weighted average common
shares outstanding (b) 8,724,915 8,718,000 8,718,000 8,433,934 6,518,000
OPERATING DATA:
Gross margin 25.8% 26.0% 25.7% 26.7% 25.7%
Selling, general and
administrative expenses 20.5% 19.8% 19.2% 19.9% 19.6%
Income from operations 4.4% 5.4% 5.9% 6.2% 5.5%
Net income 2.3% 2.9% 3.3% 3.4% 2.5%
Number of stores:
Beginning of year 208 185 165 152 150
New stores 22 23 20 13 6
Closed stores (2) -- -- -- (4)
-------------------------------------------------------------------------
End of year 228 208 185 165 152
--------------------------------------------------------------------------
Number of relocated stores 1 4 2 4 4
Number of remodeled stores (c) -- 1 6 2 2
Total selling square
footage at period-end (d) 2,806,864 2,543,575 2,237,755 1,929,396 1,738,348
Average sales per store (in thousands) $ 2,233 $ 2,159 $ 2,075 $ 2,000 $ 1,837
Net sales per square foot of selling space $ 191 $ 185 $ 178 $ 178 $ 163
Comparable store sales increase (e) 3.1% 2.5% 3.1% 11.7% 7.0%
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital $ 82,869 $ 65,954 $ 63,850 $ 46,184 $ 27,414
Total assets 224,080 195,582 174,129 146,248 116,786
Long-term debt, less current portion (f) 31,134 21,166 25,858 12,266 40,006
Redeemable preferred stock -- 1,763 3,525 5,875 5,875
Stockholders' equity 104,889 92,966 79,951 67,817 17,279
</TABLE>
(a) Basic 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.
(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.
8
<PAGE> 11
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 27, 1997 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 1997, 1996 and 1995 consisted of 52 weeks.
OVERVIEW
Since its founding as a mail order tractor parts business in 1938, the
Company has grown to be one of the largest retail farm store chains in America.
The Company supplies the daily farming and maintenance needs of its target
customers: hobby, part-time and full-time farmers and ranchers, 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, equine supplies, 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 and
ranching 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 received net proceeds of
approximately $39.8 million (after deducting underwriting discounts and
commissions and expenses of the Offering), repaid all of the borrowings then
outstanding under its old revolving credit agreement (approximately $22.7
million), paid off the mortgage notes on 34 of its existing store locations
(approximately $10.1 million) and paid off all of the amounts outstanding under
subordinated promissory notes (aggregating approximately $.2 million).
Over the past four fiscal years since the Offering, the Company has opened 13
new retail farm stores in fiscal 1994, 20 new stores in fiscal 1995, 23 new
stores in fiscal 1996 and 22 new stores in fiscal 1997. These new stores have
increased the Company's market presence in the Southwest, primarily in Texas,
and in the Southeast, primarily in
9
<PAGE> 12
Tractor Supply Company
Management's Discussion and Analysis of Financial Condition and
Results of Operations
-----------
Tennessee, Kentucky, Alabama and North Carolina. This expansion brings the
Company's total store count to 228 (in 26 states) as of December 27, 1997. The
Company plans to open an additional 18 stores in fiscal 1998, approximately
three of which are scheduled to open in the first quarter of fiscal 1998, 30 in
fiscal 1999 and additional stores thereafter. Over the past four fiscal years
since the Offering, the Company has also relocated eleven stores (four in fiscal
1994, two in fiscal 1995, four in fiscal 1996 and one in fiscal 1997) and
completed major remodelings on nine of its existing stores. In total over the
past four fiscal years since the Offering, the Company has opened, relocated or
remodeled 98 stores.
Between fiscal year 1994 and fiscal year 1997, net sales increased from
$330.0 million to $509.1 million and net income increased from $11.3 million to
$11.8 million, reflecting a three-year compound annual growth rate of 15.5% and
1.5%, respectively. Between fiscal year 1992 and fiscal year 1997, net sales
increased from $251.5 million to $509.1 million and net income increased from
$4.9 million to $11.8 million, reflecting a five-year compound annual growth
rate of 15.1% and 19.3%, 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 3.1%, 2.5% and 3.1% in fiscal 1997, 1996 and 1995, respectively. Since
1992, the 79 new or relocated stores that have been open more than one year have
generated average net sales that are approximately 19.0% 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 1997 and 1996 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>
1997
Net sales $ 96,409 $159,493 $118,438 $134,712 $509,052
Gross margin 24,153 41,259 30,273 35,857 131,542
Income (loss) from operations (964) 12,149 3,221 7,966 22,372
Net income (loss) (926) 6,988 1,552 4,147 11,761
Net income (loss) per share - basic (.11) .80 .18 .47 1.34
Net income (loss) per share -
assuming dilution (.11) .80 .18 .47 1.34
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 - basic (.12) .90 .26 .46 1.50
Net income (loss) per share -
assuming dilution (.12) .89 .26 .46 1.49
</TABLE>
10
<PAGE> 13
Tractor Supply Company
Management's Discussion and Analysis of Financial Condition and
Results of Operations
---------------------
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 27, DECEMBER 28, DECEMBER 30, DECEMBER 31, JANUARY 1,
1997 1996 1995 1994 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold 74.2 74.0 74.3 73.3 74.3
------------------------------------------------------------------------
Gross margin 25.8 26.0 25.7 26.7 25.7
Selling, general and administrative expenses 20.5 19.8 19.2 19.9 19.6
Depreciation and amortization 0.9 0.8 0.6 0.6 0.6
------------------------------------------------------------------------
Income from operations 4.4 5.4 5.9 6.2 5.5
Interest expense, net 0.5 0.5 0.4 0.5 1.4
------------------------------------------------------------------------
Income before income taxes 3.9 4.9 5.5 5.7 4.1
Income tax provision 1.6 2.0 2.2 2.3 1.6
------------------------------------------------------------------------
Net income 2.3% 2.9% 3.3% 3.4% 2.5%
------------------------------------------------------------------------
</TABLE>
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales increased 13.4% to $509.1 million in fiscal 1997 from $449.0
million in fiscal 1996. 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 relocations, using all stores open at least one year).
Comparable store sales for fiscal 1997, benefiting from an aggressive inventory
in-stock position as well as from several significant merchandising "relays" (a
new economy feed line, a significantly enhanced animal health product line, a
completely revamped equine product line, and a new ladies workwear line of
clothing were rolled out to approximately 150 stores during fiscal 1997), were
up 3.1% despite unseasonably cool and excessively rainy spring weather
conditions and unseasonably warm winter weather conditions in November and
December. The Company opened 22 new stores, closed two stores and relocated one
store in fiscal 1997. The Company opened 23 new stores and relocated four stores
during fiscal 1996. At December 27, 1997, the Company operated 228 retail farm
stores versus 208 stores at the end of the prior fiscal year.
The Company slowed down its new store unit growth rate beginning in June 1997
for a period of approximately 18 months (opening 22 new stores in fiscal 1997
rather than the 25 originally contemplated, with current plans calling for the
opening of 18 new stores in fiscal 1998 rather than the 28 originally
contemplated) in order to focus its efforts on rejuvenating the merchandise mix
and improving comparable store sales. The Company anticipates resuming its
approximate 12% overall new store unit growth rate each year beginning in fiscal
1999 (the Company has presently identified over 200 potential new markets).
The Company is undertaking major steps to build a stronger foundation to
better support the Company's growth plans going forward. Some of the major steps
taken recently include (i) strengthening the executive management team with the
hiring of Gerald W. Brase, Senior Vice President of Merchandising and Marketing,
and Michael E. Brown, Senior Vice President of Operations, (ii) rejuvenating the
merchandising mix by "relaying" a significant portion of over 150 stores in a
relatively short period of time (several additional major "Spring 1998
Merchandising Initiatives" are already under way in the first quarter of fiscal
1998, of which the new "lawn and garden merchandising relay" is probably the
most powerful new merchandising presentation the Company has implemented to
date), (iii) investing in the infrastructure, both in people (the Company is
planning a considerable increase in its commitment to store payroll in fiscal
1998) and in technology to create competitive advantage (in addition to
continually enhancing the new point-of-sale system, aggressively pursuing
"electronic data interchange" (EDI) with the Company's vendor partners, and
introducing lap-top computers with full "intranet" capabilities to the field
operators, the Company has selected SAP America, Inc. ("SAP") to be its
"world-class long-term solution" with respect to merchandising and distribution
systems, which are planned to be implemented by mid-1999), (iv) improving the
internal processes
11
<PAGE> 14
Tractor Supply Company
Management's Discussion and Analysis of Financial Condition and
Results of Operations
-----------
(which range from tightening shrinkage control programs to implementing a new
grand opening process for all new stores); and (v) improving the marketing and
advertising programs (the Company has already signed John Lyons, a renowned
equine specialist, as its national equine spokesman and, with the support of its
vendor partners, the Company plans to further improve the "reach" and
"frequency" of its advertising mainly through the expanded use of radio and, for
the first time, through the use of a national television campaign which will
feature George Strait, a renowned country music entertainer, as national
spokesman for the Company).
The gross margin rate decreased .2 percentage points to 25.8% of sales
in fiscal 1997 from 26.0% in fiscal 1996 mainly due to higher shrinkage expense.
As a percent of sales, selling, general and administrative expenses increased
.7 percentage points to 20.5% for fiscal 1997 from 19.8% for fiscal 1996. On an
absolute basis, selling, general and administrative expenses increased 17.8% to
$104.7 million for fiscal 1997 from $88.8 million in fiscal 1996. The increase
in expenses on a percentage of sales basis was primarily due to costs associated
with new stores, the incremental costs of certain planned infrastructure
investments (such as the new point-of-sale system and related "frame relay
costs") as well as the leverage loss attributable to the soft comparable store
sales performance. The increase in absolute dollars was primarily due 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), and, to a lesser extent, from a reserve for management
reorganization costs (primarily severance, related benefits and other costs
associated with changes in certain management personnel) totaling approximately
$1.2 million pretax (or approximately $.7 million net of tax). Depreciation and
amortization expense increased 33.2% over the prior year due mainly to costs
associated with new and relocated stores.
Net interest expense increased 3.4% over the prior year. 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 1997 compared to
fiscal 1996.
The Company's effective tax rate increased 0.9 percentage points to 41.0% in
fiscal 1997 from 40.1% in fiscal 1996 primarily due to a higher effective state
income tax rate in fiscal 1997.
As a result of the foregoing factors, net income decreased 11.1% to $11.8
million in fiscal 1997 from $13.2 million in fiscal 1996. As a percent of sales,
net income decreased 0.6 percentage points to 2.3% of sales in fiscal 1997 from
2.9% of sales in fiscal 1996. Excluding the effect of the reserve for management
reorganization costs, net income for fiscal 1997 would have been approximately
$12.5 million, a decrease of 5.8% from fiscal 1996 or, as a percentage of sales,
2.4% for fiscal 1997.
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, the Company 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. The Company's goal is to aggressively pursue and introduce new and
innovative products and product lines, enhance existing product assortments and
improve in-stock position in key product categories. The Company 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
12
<PAGE> 15
Tractor Supply Company
Management's Discussion and Analysis of Financial Condition and
Results of Operations
-----------
was a result of the leverage loss resulting from the soft comparable store sales
performance. The increase in absolute dollars was 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.
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.
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 27, 1997, the Company's inventories had increased $27.6 million
to $151.7 million from $124.1 million at December 28, 1996. The increase was
primarily attributable to development of new products and expanded product
lines, an aggressive inventory in-stock position, and, to a lesser extent,
additional inventory for new stores. Short-term trade credit, which represents a
source of financing for inventory, increased $5.1 million to $52.7 million at
December 27, 1997 from $47.6 million at December 28, 1996. 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 27, 1997, the Company had working capital of $82.9 million, which
represented a $16.9 million increase from December 28, 1996. This increase
resulted primarily from an increase in inventory (attributable mainly to the
factors described above) without a corresponding increase in accounts payable
and from an increase in prepaid expenses (mainly certain prepaid rent payments
and construction-in-progress costs pertaining to certain planned sale/leaseback
transactions) offset, in part, by an increase in accrued expenses (mainly
incremental costs relating to new stores) and a decrease in cash and cash
equivalents. The Company's working capital increased $2.1 million in fiscal 1996
to $66.0 million from $63.9 million in fiscal 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).
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 "Credit Agreement"). Under the Credit
Agreement, the Company originally 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 Credit Agreement with the Agent and First American National Bank whereby
the Company (i) increased the maximum total commitments available under the
Credit Agreement from $30 million to $45 million and (ii) extended the
expiration date of the Credit Agreement from August 31, 1997 to August 31, 1999
(the date upon which any remaining borrowings must be repaid). At December 27,
1997, the Company had $23.4 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 used net cash of $5.1 million in fiscal 1997, generated net cash
of $21.2 million in fiscal 1996 and used $11.3 million in fiscal 1995. The use
of cash in fiscal 1997 resulted primarily from inventories increasing at a
faster
13
<PAGE> 16
Tractor Supply Company
Management's Discussion and Analysis of Financial Condition and
Results of Operations
-----------
rate than accounts payable compared to the prior year and, to a lesser extent,
from higher prepaid expenses (mainly certain rent payments and
construction-in-progress costs) and a decrease in income taxes currently payable
compared to fiscal 1996 due to timing of payments. 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 1997 and 1995), as well as from a
decrease in prepaid expenses and an increase in accrued expenses compared to the
prior year.
Cash used in investing activities of $7.5 million, $6.8 million and $8.5
million for fiscal 1997, 1996 and 1995, 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 1997 provided $8.2 million in cash which
represented a $14.7 million increase over the $6.6 million in cash used in
fiscal 1996. This increase resulted primarily from net borrowings of
approximately $11.4 million under the Credit Agreement in fiscal 1997 compared
to net repayments of approximately $3.1 million in fiscal 1996 offset in part,
by scheduled repayments of long-term debt and capital lease obligations totaling
approximately $1.8 million in fiscal 1997 versus approximately $1.5 million in
fiscal 1996 and the repurchase of 1,763 shares of Series B Preferred Stock for
approximately $1.8 million (including accrued dividends) compared to the
repurchase of 1,762 shares of Series B Preferred Stock for approximately $1.8
million (including accrued dividends) in fiscal 1996. 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 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 $1.8 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.
The Company's capital additions were $9.1 million, $9.6 million and $10.1
million in fiscal 1997, 1996 and 1995, 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 1998 will be approximately $9.0 million to $11.0
million, consisting primarily of leasehold improvements and, to a lesser extent,
fixtures and equipment, assuming successful implementation of its growth
strategy through 18 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 1997, the Company completed the installation of its major financial
systems, thereby providing the Company with advanced point-of-sale and financial
information systems which are fully Year 2000 compliant (processing concerns
created by the change in the century and traditional two-digit year fields
embedded in most data processing systems is commonly referred to as the "Year
2000" concern). The Company's new point-of-sale and financial systems were
designed and installed with Year 2000 compliance in mind and contain provisions
for full four-digit year fields, thus enabling processing to take place for
transactions which go beyond the year 1999.
In addition to these systems, the Company operates its merchandising and
inventory replenishment/distribution systems with software that was developed in
the early 1980's and that is not Year 2000 compliant. However, early in fiscal
1997, the Company began planning for the replacement of this software with a new
merchandise and warehouse management system designed by SAP which, once
installed, will be completely integrated with existing systems and fully Year
2000 compliant. The Company has critically evaluated the time frame for
implementation and is confident that the SAP system can be installed and
operational by June 1999, timing which affords the Company some flexibility
prior to the need to execute transactions with Year 2000 ramifications. The
total estimated cost for the full installation of these systems (not solely Year
2000 compliance efforts) is approximately $10.0 million.
The Company had previously identified in its strategic plan the need to
update or replace its merchandising and inventory replenishment/distribution
systems, primarily as a means of accommodating the Company's store growth
14
<PAGE> 17
Tractor Supply Company
Management's Discussion and Analysis of Financial Condition and
Results of Operations
-----------
plans and the burden such growth plans would place on the Company's existing
systems. Further, the absence of Year 2000 compliance was also considered and a
preliminary plan for compliance had been designed. Consequently, if needed to
ensure full Year 2000 compliance of the existing systems, the Company is
prepared to execute a separate plan which entails the installation of a new RISC
AS/400 computer which will permit more efficient operations and allow easier
conversion of existing code to bring the existing systems into Year 2000
compliance. This process has been established as a stand-by measure, should the
installation of new SAP systems be delayed beyond a time frame which would
reasonably permit timely recovery. If needed, this plan will commence in
September 1998 and be complete by March 1999, at an approximate cost of $1
million.
The Company's financial information systems interface with third party
software which is heavily dependent on date fields. These "sub-systems"
primarily involve EDI and outside payroll processing services. The vendors
supplying the critical translation routines are currently in the process of
completing required modifications to be Year 2000 compliant by the end of fiscal
1998.
As a fundamental business consideration, the Company depends heavily on its
vendors to meet the purchasing requirements dictated by the Company's business
needs. To that end, the Company plans to explore with each of its critical
vendors the impact the Year 2000 issue will have on their ability to source
products for the Company and process purchase orders with delivery requirements
and terms involving the Year 2000. The Company expects each of these vendors
will likewise take measures to address the risks imposed by the Year 2000 and
adequately prepare their own processing systems so that their businesses will
not be interrupted as a result of this issue. Accordingly, the Company does not
expect any significant interruption in its ability to source its product needs
with existing vendors. As an ongoing measure, the Company will continue to
address this risk with each new vendor to ensure similar safeguards.
Finally, the Company further recognizes the potential impact the Year 2000
issue may have relative to its customers, creditors and other service providers.
The Company has reviewed its exposure to business interruption or substantial
loss in these areas and believes no risk of material adverse consequences
presently exists or that any risks previously identified will be resolved before
the end of fiscal 1999.
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.
The Company 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.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement No. 128, "Earnings per Share." This Statement establishes
standards for computing and presenting earnings per share (EPS), simplifying the
standards previously provided in APB Opinion 15. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. The impact of this statement on the Company's
earnings per share has been reflected on the face of the income statement.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" and Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information." For fiscal years beginning after December 15, 1997, these
statements respectively require (i) the reporting and display of comprehensive
income and its components and (ii) the reporting of certain information about
operating segments and related information about the products and services of
such segments. The Company does not anticipate the adoption of these statements
to have a significant impact on the reporting of results of operations.
15
<PAGE> 18
Tractor Supply Company
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 27, 1997 and December 28, 1996, and the results of its operations and
its cash flows for each of the three years in the period ended December 27,
1997, 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 LLP
Nashville, Tennessee
January 22, 1998
16
<PAGE> 19
Tractor Supply Company
Balance Sheets
----------
(in thousands, except share amounts)
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 28,
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,477 $ 12,948
Accounts receivable, net 5,180 4,930
Inventories 151,749 124,082
Prepaid expenses 4,201 1,657
----------------------
Total current assets 169,607 143,617
----------------------
Land 6,851 7,679
Buildings and improvements 45,903 40,114
Machinery and equipment 22,362 18,117
Construction in progress 843 2,499
----------------------
75,959 68,409
Accumulated depreciation and amortization (23,551) (18,883)
----------------------
Property and equipment, net 52,408 49,526
----------------------
Deferred income taxes 710 1,064
Other assets 1,355 1,375
----------------------
Total assets $ 224,080 $ 195,582
----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 52,708 $ 47,591
Accrued expenses 21,188 15,973
Current maturities of long-term debt 737 665
Current portion of capital lease obligations 731 1,020
Income taxes currently payable 2,310 2,897
Deferred income taxes 9,064 9,517
----------------------
Total current liabilities 86,738 77,663
----------------------
Revolving credit loan 23,419 12,000
Other long-term debt 5,177 5,914
Capital lease obligations 2,538 3,252
Other long-term liabilities 424 949
Excess of fair value of assets acquired over cost less accumulated
amortization of $2,695 and $2,515, respectively 895 1,075
Redeemable preferred stock -- 1,763
Commitments (Note 4)
Stockholders' equity:
Common stock, 100,000,000 shares authorized; $.008 par value; 8,731,218 and
8,718,000 shares issued and outstanding in 1997 and 1996, respectively 70 70
Additional paid-in capital 41,926 41,685
Retained earnings 62,893 51,211
----------------------
Total stockholders' equity 104,889 92,966
----------------------
Total liabilities and stockholders' equity $ 224,080 $ 195,582
----------------------
</TABLE>
The accompany notes are an integral part of this statement.
17
<PAGE> 20
Tractor Supply Company
Statements of Income
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
------------------------------------------
DECEMBER 27, DECEMBER 28, DECEMBER 30,
1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $509,052 $449,029 $383,903
Cost of merchandise sold 377,510 332,378 285,247
-----------------------------------------
Gross margin 131,542 116,651 98,656
Selling, general and administrative expenses 104,661 88,827 73,587
Depreciation and amortization 4,509 3,385 2,524
-----------------------------------------
Income from operations 22,372 24,439 22,545
Interest expense, net 2,439 2,358 1,730
-----------------------------------------
Income before income taxes 19,933 22,081 20,815
Income tax provision 8,172 8,845 8,293
-----------------------------------------
Net income $ 11,761 $ 13,236 $ 12,522
-----------------------------------------
Net income per share - basic $ 1.34 $ 1.50 $ 1.40
-----------------------------------------
Net income per share - assuming dilution $ 1.34 $ 1.49 $ 1.40
-----------------------------------------
</TABLE>
The accompany notes are an integral part of this statement.
18
<PAGE> 21
Tractor Supply Company
Statement of Changes in Stockholders' Equity
----------
(in thousands)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
Preferred stock dividend (79) (79)
Issuance of common stock under employee
stock purchase plan (13,218 shares) 241 241
Net income 11,761 11,761
----------------------------------------------------
Stockholders' equity at
December 27, 1997 $ 70 $ 41,926 $62,893 $104,889
----------------------------------------------------
</TABLE>
The accompany notes are an integral part of this statement.
19
<PAGE> 22
Tractor Supply Company
Statements of Cash Flows
----------
(in thousands)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
---------------------------------------------------
DECEMBER 27, DECEMBER 28, DECEMBER 30,
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 11,761 $ 13,236 $ 12,522
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,509 3,385 2,524
Gain on sale of property and equipment (23) (904) (278)
Deferred income taxes (99) (261) (275)
Change in assets and liabilities:
Accounts receivable (326) (1,200) (1,566)
Inventory (27,667) (11,382) (26,384)
Prepaid expenses (2,555) 3,360 (3,302)
Accounts payable 5,117 11,066 4,572
Accrued expenses 5,236 4,336 704
Income taxes currently payable (551) 181 (1,017)
Other (539) (636) 1,151
---------------------------------------------------
Net cash provided by (used in) operating activities (5,137) 21,181 (11,349)
---------------------------------------------------
Cash flows from investing activities:
Capital expenditures (9,120) (9,635) (10,109)
Proceeds from sale of property and equipment 1,636 2,871 1,582
---------------------------------------------------
Net cash used in investing activities (7,484) (6,764) (8,527)
---------------------------------------------------
Cash flows from financing activities:
Net borrowings (repayment) under revolving credit loan 11,419 (3,093) 15,093
Principal payments under capital lease obligations (1,003) (880) (849)
Repayment of long-term debt (665) (600) (542)
Net proceeds from sale of common stock 241 -- --
Redemption of preferred stock (1,763) (1,762) (2,350)
Payment of preferred stock dividend (79) (221) (388)
---------------------------------------------------
Net cash provided by (used in) financing activities 8,150 (6,556) 10,964
---------------------------------------------------
Net increase (decrease) in cash (4,471) 7,861 (8,912)
Cash and cash equivalents at beginning of year 12,948 5,087 13,999
---------------------------------------------------
Cash and cash equivalents at end of year $ 8,477 $ 12,948 $ 5,087
---------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
(NOTE 1):
Cash paid during the year for:
Interest $ 2,583 $ 2,723 $ 1,732
Income taxes 8,643 9,196 8,876
</TABLE>
The accompany notes are an integral part of this statement.
20
<PAGE> 23
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 and ranchers, as well as suburban customers, contractors and
tradesmen. The Company, which was founded in 1938, operated 228 retail farm
stores in 26 states as of December 27, 1997.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to December 31. Fiscal
years 1997, 1996 and 1995 consist of 52 weeks.
Reclassifications
Certain prior year amounts have been reclassified for comparative purposes to
conform with the current year presentation.
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 has an approximate fair value of $6.3 million, bearing
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 2 and 3).
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 $6,370,000 and $6,163,000 higher than reported at
December 27, 1997 and December 28, 1996, respectively.
Net Income Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128-Earnings per Share ("SFAS 128"). SFAS
128 requires companies with complex capital structures that have publicly held
common stock or common stock equivalents to present both basic and diluted
earning per share ("EPS") on the face of the income statement. The presentation
of basic EPS replaces the presentation of primary EPS previously required by
Accounting Principles Board Opinion No. 15 ("APB 15"). Basic EPS is calculated
as income available to common stockholders divided by the weighted average
number of shares outstanding during the period. Diluted EPS (previously referred
to as fully diluted EPS) is calculated using the "if converted" method for
convertible securities and the treasury stock method for options and warrants.
The weighted average number of shares of common stock outstanding for fiscal
1997, 1996 and 1995 was 8,724,915, 8,718,000 and 8,718,000, respectively. The
net income available to common stockholders for fiscal 1997, 1996 and 1995 was
$11,705,000, $13,039,000 and $12,165,000, respectively, after giving effect to
preferred stock dividends of $56,000 in fiscal 1997, $197,000 in fiscal 1996 and
$357,000 in fiscal 1995.
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.
21
<PAGE> 24
Tractor Supply Company
Notes to Financial Statements
----------
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 1997,
1996 and 1995 was approximately $8,771,000, $8,157,000 and $6,837,000,
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 9).
Cash Flows
The Company considers temporary cash investments, with an original maturity
of three months or less, to be cash equivalents.
NOTE 2-REVOLVING CREDIT AGREEMENT:
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 "Credit Agreement"). Under the Credit
Agreement, the Company originally 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 Credit Agreement with the Agent and First American National Bank whereby
the Company (i) increased the maximum total commitments available under the
Credit Agreement from $30 million to $45 million and (ii) extended the
expiration date of the 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 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 (8.50% at December 27, 1997) plus
.25% per annum or the LIBOR rate (5.97% at December 27, 1997) 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 27, 1997.
22
<PAGE> 25
Tractor Supply Company
Notes to Financial Statements
-----------
NOTE 3-OTHER LONG-TERM DEBT:
Other long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 28,
1997 1996
- -------------------------------------------------------------
<S> <C> <C>
Mortgage Note $ 5,914 $ 6,579
Less: current maturities (737) (665)
----------------------------
$ 5,177 $ 5,914
----------------------------
</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 27, 1997.
The combined aggregate maturities of the Mortgage Notes for each of the next
five years are as follows (in thousands):
<TABLE>
<S> <C>
1998 $ 737
1999 817
2000 905
2001 1,003
2002 1,112
</TABLE>
NOTE 4-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 1997, 1996 and
1995 was approximately $27,557,000, $21,358,000 and $16,057,000 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>
1998 $ 1,028 $ 18,030
1999 787 17,491
2000 464 16,104
2001 464 15,663
2002 464 13,570
Thereafter 1,261 77,875
----------------------
Total minimum lease payments 4,468 $ 158,733
---------
Amount representing interest (1,199)
-------
Present values of net minimum lease payments 3,269
Less: current portion (731)
-------
Long-term capital lease obligations $ 2,538
-------
</TABLE>
23
<PAGE> 26
Tractor Supply Company
Notes to Financial Statements
----------
Note 5-INCOME TAXES:
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Current tax expense:
Federal $6,720 $7,442 $6,999
State 1,551 1,664 1,569
--------------------------------
Total current 8,271 9,106 8,568
--------------------------------
Deferred tax expense:
Federal (116) (229) (238)
State 17 (32) (37)
--------------------------------
Total deferred (99) (261) (275)
--------------------------------
Total provision $8,172 $8,845 $8,293
--------------------------------
</TABLE>
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>
DECEMBER 27, DECEMBER 28,
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Current tax assets:
Inventory valuation $ 3,852 $ 3,339
Other 1,543 1,378
--------------------------------
5,395 4,717
--------------------------------
Current tax liabilities:
Inventory basis difference 13,977 13,922
Other 482 312
--------------------------------
14,459 14,234
--------------------------------
Net current tax liabilities $ 9,064 $ 9,517
--------------------------------
Non-current tax assets:
Capital lease obligation basis difference $ 1,017 $ 1,304
Fixed assets basis difference 338 458
Other 1,356 1,382
--------------------------------
2,711 3,144
--------------------------------
Non-current tax liabilities:
Depreciation 1,582 1,613
Capital lease assets basis difference 419 467
--------------------------------
2,001 2,080
--------------------------------
Net non-current tax assets $ 710 $ 1,064
--------------------------------
</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>
1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax provision at statutory rate $ 6,977 $ 7,729 $ 7,285
Tax effect of:
State income taxes, net of federal tax benefit 1,008 1,082 1,020
Amortization of negative goodwill (63) (63) (63)
Other 250 97 51
-----------------------------------
$ 8,172 $ 8,845 $ 8,293
-----------------------------------
</TABLE>
24
<PAGE> 27
Tractor Supply Company
Notes to Financial Statements
-------------------
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 6-CAPITAL STOCK:
The authorized capital stock of the Company consists of common stock and
preferred stock. In April 1997, the stockholders of the Company approved an
amendment to the Company's Restated Certificate of Incorporation, as amended, to
increase the number of authorized shares of Common Stock from 9,500,000 shares
to 100,000,000 shares. The Company is also authorized to issue 40,000 shares of
Preferred Stock, with such designations, rights and preferences as may be
determined from time to time by the Board of Directors.
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
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). On May 23, 1997, the Company repurchased the remaining
1,763 shares of the Series B Preferred Stock at a total repurchase price of
approximately $1,772,000 (including accrued dividends totaling approximately
$9,000).
NOTE 7-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 1997 and 1996 and $319,000 in fiscal 1995. All
the officers have repaid their outstanding obligations under their notes to the
Company. The balance of these capitalized lease obligations, included in total
capital lease obligations at December 27, 1997, was $1,692,000.
The Company leases its management headquarters from a partnership in which
certain stockholders of the Company are general partners. The remaining lease
term is ten years, with the Company having exercised both remaining five-year
renewal options in fiscal 1996, with monthly rent set at $35,000 and $39,000 per
month, respectively. Rent payments under this lease were $417,000 in fiscal 1997
and $384,000 in fiscal 1996 and 1995.
The Company leased 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
ranged from $8,437 for the first five years to $9,375 for the final five years
of the initial term. The related land was 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. In October 1996, the
Board approved a proposed transaction to relocate this store to a larger
facility. In June 1997, the Company (i) acquired the store building from the
lessor for $650,000, (ii) canceled the ground lease agreement with the lessor
respecting said property, (iii) sold 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) leased a new larger store
from the same developer (said new store having been 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 received a discounted
25
<PAGE> 28
Tractor Supply Company
Notes to Financial Statements
-----------------------------
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 1997, 1996 and 1995.
NOTE 8-RETIREMENT BENEFIT PLANS:
The Company has a defined contribution benefit plan, the Tractor Supply
Company Restated 401(k) Retirement Plan (the "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 matches 100% of the first 3% of the
employee's elective contributions plus an additional 50% of any additional
elective contribution (limited to 5% of the employee's total compensation).
Company contributions to the Plan during fiscal 1997 were approximately
$733,000.
Effective March 26, 1994, the Company's Employee Stock Ownership Plan
("ESOP") was merged into the Plan (formerly known as the TSC Industries, Inc.
Employee 401(k) Retirement Plan). At December 28, 1996, the Plan owned 978,912
shares of the Company's common stock. In 1997, the Company further amended the
Plan to, among other things, provide participants, to the extent applicable,
with the ability to direct the investment of their ESOP funds (consisting of the
Tractor Supply Company common stock and cash) and eliminate the "five year break
in service" payout provision previously continued therein, and simultaneously,
filed a registration statement with the Securities and Exchange Commission
covering the 978,912 shares of the Company's common stock then held by the Plan.
Expense for the Plan for fiscal 1996 and 1995 was approximately $565,000 and
$579,000, respectively.
NOTE 9-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 1,000,000 shares of
common stock for future issuance under the plan. According to the terms of 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.
Plan activity is summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1994 30,000 $21.68
Granted 52,750 $22.09
Canceled (6,750) $21.71
Outstanding at December 30, 1995 76,000 $21.97
Granted 135,500 $21.62
Canceled (26,500) $21.56
Outstanding at December 28, 1996 185,000 $21.77
Granted 350,500 $18.44
Canceled (35,500) $21.29
Outstanding at December 27, 1997 500,000 $19.47
</TABLE>
26
<PAGE> 29
Tractor Supply Company
Notes to Financial Statements
-----------------------------
The following table summarizes information concerning currently outstanding
and exercisable options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------
WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED AVERAGE OPTIONS
YEAR EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 $21.50 - $27.00 21,000 6.18 $ 21.76 21,000
1995 $21.31 - $22.13 37,750 7.10 $ 22.10 0
1996 $21.38 - $25.13 96,250 8.10 $ 21.73 0
1997 $17.75 - $20.00 345,000 9.51 $ 18.42 0
-------- ------
500,000 21,000
-------- ------
</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 pro forma
net income and earnings per share for fiscal 1997, 1996 and 1995 would have been
as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income As reported $ 11,761 $ 13,236 $ 12,522
Pro forma $ 11,437 $ 13,058 $ 12,451
Net income per share - basic As reported $ 1.34 $ 1.50 $ 1.40
Pro forma $ 1.30 $ 1.48 $ 1.39
Net income per share - assuming dilution As reported $ 1.34 $ 1.49 $ 1.40
Pro forma $ 1.30 $ 1.47 $ 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:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected volatility 30.8% 25.0% 25.0%
Risk-free interest rate 6.5% 6.75% 6.75%
Average expected life (years) 7.25 6.0 6.5
Dividend yield 0% 0% 0%
Weighted average fair value $8.97 $ 8.92 $9.45
</TABLE>
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. The ASPP was approved by the Company's stockholders in
April 1997, authorizing the sale of up to 1,000,000 shares of common stock under
the ASPP. During fiscal 1997, an additional 13,218 shares of common stock were
issued by the Company under the ASPP.
27
<PAGE> 30
Tractor Supply Company
Directors and Officers
----------
<TABLE>
<CAPTION>
Directors
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
JOSEPH H. SCARLETT, JR. THOMAS J. HENNESY, III JOSEPH M. RODGERS (1) (2)
Chairman of the Board Retired Vice Chairman Chairman of the Board
and Chief Executive Officer of the Board The JMR Group, an investment
Tractor Supply Company Tractor Supply Company firm, and former U.S.
Ambassador to France
THOMAS O. FLOOD JOSEPH D. MAXWELL
Senior Vice President- Retired Vice President (1) Audit Committee Member
Administration and Finance, Tractor Supply Company (2) Compensation Committee Member
Treasurer and Chief Financial (*) Committee Chairman
Officer S.P. BRAUD (1)*(2)*
Tractor Supply Company Retired Chief Financial Officer
Service Merchandise Company, Inc.
and President and Director
Braud Design/Build, Inc.
Officers
- -----------------------------------------------------------------------------------------------------------------------------------
JOSEPH H. SCARLETT, JR. JOHN E. CORBIN JAMES R. MCMURRAY
Chairman of the Board and Vice President-Operations Vice President-Information
Chief Executive Officer (Region III) Technology and Chief
Information Officer
GERALD W. BRASE BLAKE A. FOHL
Senior Vice President- Vice President-Marketing STANLEY L. RUTA
Merchandising and Marketing Vice President-Operations
LAWRENCE GOLDBERG (Region II)
MICHAEL E. BROWN Vice President-Logistics
Senior Vice President- DAISY L. VANDERLINDE
Store Operations LEO H. HABERER Vice President-Human Resources
Vice President-Real Estate
THOMAS O. FLOOD
Senior Vice President- MICHAEL J. KINCAID
Administration and Finance, Vice President-Controller
Treasurer and Chief Financial and Secretary
Officer
GARY M. MAGONI
JOHN W. ATKINS Vice President-Operations
Vice President-Farm (Region I)
Merchandising
</TABLE>
28
<PAGE> 31
Tractor Supply Company
Corporate Information
----------------------
Store Support Center
Tractor Supply Company
320 Plus Park Boulevard
Nashville, Tennessee 37217
(615) 366-4600
Transfer Agent and Registrar
The First National Bank of Boston
Shareholder Services
P.O. Box 644, Mail Stop 45-02-09
Boston, Massachusetts 02102
(781) 575-3400
Independent Accountants
Price Waterhouse LLP
4400 Harding Road
Nashville, Tennessee 37205
Stock Exchange Listing
The Nasdaq National Market
Ticker Symbol: TSCO
World Wide Web
http://www.tractorsupplyco.com
Annual Meeting
The Annual Meeting of Stockholders will be held at 10:00 a.m., April 23, 1998
at the Company's Store Support Center, 320 Plus Park Boulevard, Nashville,
Tennessee 37217
Number of Stockholders
As of January 31, 1998 there were approximately 62 stockholders of record.
This number excludes individual stockholders holding stock under nominee
security position listings.
Form 10-K
A copy of the Company's Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission, will be sent to any stockholder upon written
request to the Company's investor relations firm:
Corporate Communications, Inc.
523 Third Avenue South
Nashville, Tennessee 37210
(615) 254-3376
Quarterly Stock Price Range
<TABLE>
<CAPTION>
HIGH LOW
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FISCAL 1997:
First Quarter $ 21 $ 18 1/4
Second Quarter $ 21 1/2 $ 17 1/4
Third Quarter $ 20 5/8 $ 16 1/4
Fourth Quarter $ 22 $ 13 3/4
FISCAL 1996:
First Quarter $ 27 1/2 $ 19 3/4
Second Quarter $ 27 1/4 $ 22
Third Quarter $ 23 1/2 $ 20 3/4
Fourth Quarter $ 22 3/4 $ 19 5/8
</TABLE>
<PAGE> 32
Tractor Supply Company
320 Plus Park Boulevard
Nashville, Tennessee 37217
(615) 366-4600
------------------
(TRACTOR SUPPLY COMPANY LOGO)
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-10699) of Tractor Supply Company of our report
dated January 22, 1998 appearing on page 16 of the Annual Report to
Stockholders which is incorporated in this Annual Report on Form 10-K.
/s/ PRICE WATERHOUSE LLP
Nashville, Tennessee
March 18, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 333-35317) of Tractor Supply Company of our report
dated January 22, 1998 appearing on page 16 of the Annual Report to
Stockholders which is incorporated in this Annual Report on Form 10-K.
/s/ PRICE WATERHOUSE LLP
Nashville, Tennessee
March 18, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TRACTOR SUPPLY COMPANY FOR THE YEAR ENDED DECEMBER 27,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> DEC-27-1997
<CASH> 8,477
<SECURITIES> 0
<RECEIVABLES> 5,280
<ALLOWANCES> 0
<INVENTORY> 151,749
<CURRENT-ASSETS> 169,607
<PP&E> 75,959
<DEPRECIATION> 23,551
<TOTAL-ASSETS> 224,080
<CURRENT-LIABILITIES> 86,738
<BONDS> 31,134
0
0
<COMMON> 70
<OTHER-SE> 104,819
<TOTAL-LIABILITY-AND-EQUITY> 224,080
<SALES> 509,052
<TOTAL-REVENUES> 509,052
<CGS> 377,510
<TOTAL-COSTS> 377,510
<OTHER-EXPENSES> 109,170
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,439
<INCOME-PRETAX> 19,933
<INCOME-TAX> 8,172
<INCOME-CONTINUING> 11,761
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,761
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.34
</TABLE>
