<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 27, 1999
-----------------------------------------------
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
Incorporation or Organization) Identification No.)
320 Plus Park Boulevard, Nashville, Tennessee 37217
- ---------------------------------------------- ----------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (615) 366-4600
----------------------
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 the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at April 24, 1999
- ---------------------------------------------- -----------------------------
Common Stock, $.008 par value 8,759,391
1 of 11
<PAGE> 2
TRACTOR SUPPLY COMPANY
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information:
Item 1. Financial Statements:
Balance Sheets -
March 27, 1999 and December 26, 1998 3
Statements of Income -
For the Fiscal Three Months Ended
March 27, 1999 and March 28, 1998 4
Statements of Cash Flows -
For the Fiscal Three Months Ended
March 27, 1999 and March 28, 1998 5
Notes to Unaudited Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 9
Part II. Other Information:
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
2 of 11
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRACTOR SUPPLY COMPANY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 27, DECEMBER 26,
1999 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 21,626 $ 18,201
Accounts receivable, net........................................................ 15,208 5,578
Inventories..................................................................... 215,411 171,749
Prepaid expenses................................................................ 4,778 6,301
----------- -----------
Total current assets..................................................... 257,023 201,829
----------- -----------
Land.............................................................................. 6,721 6,871
Buildings and improvements........................................................ 50,349 49,437
Machinery and equipment........................................................... 34,663 23,121
Construction in progress.......................................................... 3,563 8,818
----------- -----------
95,296 88,247
Accumulated depreciation and amortization......................................... (29,810) (28,339)
----------- -----------
Property and equipment, net..................................................... 65,486 59,908
----------- -----------
Deferred income taxes............................................................. 1,426 1,426
Other assets...................................................................... 1,482 1,486
----------- -----------
Total assets............................................................. $ 325,417 $ 264,649
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................ $ 110,300 $ 60,900
Accrued expenses................................................................ 34,716 29,610
Current maturities of long-term debt............................................ 3,138 3,138
Current portion of capital lease obligations.................................... 484 553
Income taxes currently payable.................................................. 844 4,134
Deferred income taxes........................................................... 7,964 7,964
----------- -----------
Total current liabilities................................................ 157,446 106,299
----------- -----------
Revolving credit loan............................................................. 30,570 19,000
Term loan......................................................................... 11,250 11,786
Other long-term debt.............................................................. 4,164 4,361
Capital lease obligations......................................................... 1,894 1,985
Other long-term liabilities....................................................... 514 527
Excess of fair value of assets acquired over cost less accumulated
amortization of $2,920 and $2,875, respectively................................. 670 715
Stockholders' equity:
Common stock, 100,000,000 shares authorized; $.008 par value; 8,751,712
and 8,748,105 shares issued and outstanding in 1999 and 1998, respectively..... 70 70
Additional paid in capital...................................................... 42,286 42,213
Retained earnings............................................................... 76,553 77,693
----------- -----------
Total stockholders' equity.................................................... 118,909 119,976
----------- -----------
Total liabilities and stockholders' equity............................... $ 325,417 $ 264,649
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
3 of 11
<PAGE> 4
TRACTOR SUPPLY COMPANY
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE FISCAL THREE MONTHS ENDED
----------------------------------
MARCH 27, MARCH 28,
1999 1998
---------- ---------
(UNAUDITED)
<S> <C> <C>
Net sales.............................................................. $ 125,647 $ 105,587
Cost of merchandise sold............................................... 93,455 79,098
---------- ---------
Gross margin...................................................... 32,192 26,489
Selling, general and administrative expenses........................... 31,875 26,924
Depreciation and amortization.......................................... 1,448 1,275
---------- ---------
Loss from operations.............................................. (1,131) (1,710)
Interest expense, net.................................................. 732 784
---------- ---------
Loss before income taxes.......................................... (1,863) (2,494)
Income tax benefit..................................................... (723) (992)
---------- ---------
Net loss.......................................................... $ (1,140) $ (1,502)
========== ---------
Net loss per share - basic........................................ $ (.13) $ (.17)
========== =========
Net loss per share - assuming dilution............................ $ (.13) $ (.17)
========== =========
</TABLE>
The accompanying notes are an integral part of this statement.
4 of 11
<PAGE> 5
TRACTOR SUPPLY COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FISCAL THREE MONTHS ENDED
----------------------------------
MARCH 27, MARCH 28,
1999 1998
----------- ---------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................. $ (1,140) $ (1,502)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization expense............................ 1,448 1,275
Loss (gain) on sale of property and equipment.................... (210) 5
Change in assets and liabilities:
Accounts receivable............................................ (9,630) (8,255)
Inventories.................................................... (43,662) (51,081)
Prepaid expenses............................................... 1,523 (148)
Accounts payable............................................... 49,400 43,287
Accrued expenses............................................... 5,106 6,122
Income taxes currently payable................................. (3,290) (2,256)
Other.......................................................... (16) 29
----------- ---------
Net cash used in operating activities.................................. (471) (12,524)
---------- ---------
Cash flows from investing activities:
Capital expenditures............................................... (7,249) (2,312)
Proceeds from sale of property and equipment....................... 395 49
---------- ---------
Net cash used in investing activities.................................. (6,854) (2,263)
---------- ---------
Cash flows from financing activities:
Net borrowings under revolving credit loan......................... 11,570 17,649
Principal payments under term loan................................. (536) 0
Principal payments under capital lease obligations................. (160) (197)
Repayment of long-term debt........................................ (197) (177)
Proceeds from issuance of common stock............................. 73 78
---------- -----------
Net cash provided by financing activities.............................. 10,750 17,353
---------- ---------
Net increase in cash and cash equivalents.............................. 3,425 2,566
Cash and cash equivalents at beginning of period....................... 18,201 8,477
---------- ---------
Cash and cash equivalents at end of period............................. $ 21,626 $ 11,043
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................................. $ 797 $ 903
Income taxes......................................................... 2,562 1,157
</TABLE>
The accompanying notes are an integral part of this statement.
5 of 11
<PAGE> 6
TRACTOR SUPPLY COMPANY
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
The accompanying interim financial statements have been prepared without audit,
and certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted, although the Company believes that the
disclosures herein are adequate to make the information presented not
misleading. These statements should be read in conjunction with the Company's
annual report on Form 10-K for the fiscal year ended December 26, 1998. The
results of operations for the fiscal three-month periods are not necessarily
indicative of results for the full fiscal year.
In the opinion of management, the accompanying interim financial statements
contain all adjustments (consisting only of normal recurring accruals) necessary
for a fair statement of the Company's financial position as of March 27, 1999
and its results of operations and its cash flows for the fiscal three-month
periods ended March 27, 1999 and March 28, 1998.
Inventories
The accompanying unaudited financial statements have been prepared without full
physical inventories. The value of the Company's inventories was determined
using the lower of last-in, first-out (LIFO) cost or market. If the first-in,
first-out (FIFO) method of accounting for inventory had been used, inventories
would have been approximately $6,625,000 and $6,497,000 higher than reported at
March 27, 1999 and December 26, 1998, respectively. Since LIFO costs can only be
determined at the end of each fiscal year when inflation rates and inventory
levels are finalized, estimates of LIFO inventory costs are used for interim
financial reporting.
Net Loss Per Share
Net loss per share for the Company for the fiscal three month periods ended
March 27, 1999 and March 28, 1998 is calculated based on the weighted average
number of shares of common stock outstanding for the fiscal three-month periods
of 8,750,438 and 8,735,566, respectively. Common stock equivalents had no
dilutive effect for either period.
NOTE 2 - SEASONALITY:
The Company's business is highly seasonal, with a significant portion of its
sales and a majority of its income generated in the second fiscal quarter. The
Company typically operates at a loss in the first fiscal quarter.
6 of 11
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis describes certain factors affecting
Tractor Supply Company's (the "Company") results of operations for the fiscal
three months ended March 27, 1999 and March 28, 1998, and significant
developments affecting financial condition since the end of the fiscal year,
December 26, 1998, and should be read in conjunction with the Company's annual
report on Form 10-K for the fiscal year ended December 26, 1998. The following
discussion and analysis also contains certain historical and forward-looking
information. The forward-looking statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 ("the Act").
All statements, other than statements of historical facts, which address
activities, events or developments that the Company expects or anticipates will
or may occur in the future, including such things as future capital expenditures
(including the amount and nature thereof), business strategy, expansion and
growth of the Company's business operations and other such matters are
forward-looking statements. To take advantage of the safe harbor provided by the
Act, the Company is identifying certain factors that could cause actual results
to differ materially from those expressed in any forward-looking statements,
whether oral or written, made by or on behalf of the Company.
All phases of the Company's operations are subject to influences outside its
control. Any one, or a combination, of these factors could materially affect the
results of the Company's operations. These factors include general economic
cycles affecting consumer spending, weather factors, operating factors affecting
customer satisfaction, consumer debt levels, pricing and other competitive
factors, the ability to identify suitable locations and negotiate favorable
lease agreements on new and relocated stores, the timing and acceptance of new
products in the stores, the mix of goods sold, the continued availability of
favorable credit sources and other capital market conditions and the seasonality
of the Company's business. Forward-looking statements made by or on behalf of
the Company are based on a knowledge of its business and the environment in
which it operates, but because of the factors listed above, actual results could
differ materially from those reflected by any forward-looking statements.
Consequently, all of the forward-looking statements made are qualified by these
cautionary statements and there can be no assurance that the actual results or
developments anticipated by the Company will be realized or, even if
substantially realized, that they will have the expected consequences to or
effects on the Company or its business and operations.
RESULTS OF OPERATIONS
The Fiscal Three Months (First Quarter) Ended March 27, 1999 and March 28, 1998
Net sales increased 19.0% to $125.6 million for the first quarter of fiscal 1999
from $105.6 million for the first quarter of fiscal 1998. The sales increase
resulted primarily from comparable store sales (excluding relocations, using all
stores open at least one year), which increased 12.5% for the first quarter of
fiscal 1999, and, to a lesser extent, from new stores. The Company opened six
new retail farm stores during the first quarter of fiscal 1999. The Company
opened four new retail farm stores during the first quarter of fiscal 1998.
Comparable store sales for the first quarter of fiscal 1999 benefited from (i)
the extensive "remerchandising" of all stores in the first quarters of 1998 and
1999, (ii) the aggressive marketing programs, (iii) strong cold weather sales in
January and (iv) "Y2K" preparation sales (such as generators and water tanks).
The gross margin rate for the first quarter of fiscal 1999 improved .5
percentage points to 25.6% of sales from 25.1% of sales in the first quarter of
fiscal 1998 mainly due to the positive mix effect of decreased sales of lower
margin spring seasonal merchandise, planned gross margin improvements in certain
product categories and lower shrinkage expense.
As a percent of sales, selling, general and administrative expenses decreased .1
percentage points to 25.4% of sales in the first quarter of fiscal 1999 from
25.5% of sales in the first quarter of fiscal 1998 despite the incremental costs
incurred in connection with the remerchandising efforts totaling in excess of
$500,000, primarily as a result of the Company's on-going efforts to control
increases in its operating expenses and, to a lesser extent, from the leverage
gain attributable to the strong comparable stores sales performance. Selling,
general and administrative expenses increased 18.4% to $31.9 million in the
first quarter of fiscal 1999 from $26.9 million in the first quarter of fiscal
1998. The increased dollar amount was primarily attributable to costs associated
with new store openings (new stores have considerably higher occupancy costs,
primarily rent, than the existing store base) higher incentive accruals and the
incremental costs incurred in connection with the remerchandising efforts
discussed above. Depreciation and amortization expense of $1.4 million for the
first quarter of fiscal 1999 was up 13.6% over the
7 of 11
<PAGE> 8
first quarter of fiscal 1998, also mainly due to costs associated with new and
relocated stores and, to a lesser extent, capital expenditures associated with
the Company's new merchandise and warehouse management systems. Net interest
expense decreased 6.6% to $.7 million in the first quarter of fiscal 1999 from
$.8 million in the first quarter of fiscal 1998 primarily due to reduced average
borrowings under the Credit Agreement (largely as a result of the inventory turn
improvement in the first quarter of fiscal 1999) and, to a lesser extent, the
lower fixed-rate on borrowings under the Term Loan Agreement.
The Company's effective tax rate decreased to 38.8% in the first quarter of
fiscal 1999 compared with 39.8% for the first quarter of fiscal 1998 primarily
due to a lower effective state income tax rate.
As a result of the foregoing factors, net loss decreased $.4 million to a $1.1
million net loss in the first quarter of fiscal 1999 from a net loss of $1.5
million in the first quarter of fiscal 1998. As a percent of sales, net loss
decreased .5 percentage points to .9% of sales in the first quarter of fiscal
1999 from 1.4% of sales in the first quarter of fiscal 1998.
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 March 27, 1999, the Company's inventories had increased
$43.7 million to $215.4 million from $171.7 million at December 26, 1998. This
increase resulted primarily from additional inventory for new stores as well as
planned inventory increases in seasonal product lines. Short-term trade credit,
which represents a source of financing for inventory, increased $49.4 million to
$110.3 million at March 27, 1999 from $60.9 million at December 26, 1998. 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 March 27, 1999, the Company had working capital of $99.6 million, which
represented a $4.1 million increase from December 26, 1998. This increase
resulted primarily from an increase in trade accounts receivable (mainly due to
commitments from vendors respecting the Company's 1999 marketing campaign) as
well as from an increase in cash and cash equivalents and a decrease in income
taxes payable (mainly due to timing of payments), partially offset by an
increase in accounts payable without a corresponding increase in inventories, an
increase in accrued expenses (mainly due to deferred vendor support payments
relating to the Company's 1999 marketing campaign and, to a lesser extent,
timing of payments) and a decrease in prepaid expenses.
Operations used net cash of $.5 million and $12.5 million in the first quarter
of fiscal 1999 and 1998, respectively. The decrease in net cash used in the
first quarter of fiscal 1999 resulted primarily from accounts payable increasing
at a faster rate than inventories as compared to the first quarter of fiscal
1998 and a decrease in prepaid expenses, partially offset by an increase in
trade accounts receivable and a decrease in income taxes payable, as well as the
timing of payments for accrued expenses.
Cash used in investing activities of $6.9 million for the first quarter of
fiscal 1999 represented a $4.6 million increase over cash used in the first
quarter of fiscal 1998 of $2.3 million. The increase in cash used in the first
quarter of fiscal 1999 resulted primarily from increased capital expenditures as
compared to the first quarter of fiscal 1998 (mainly due to the Company's new
merchandise and warehouse management systems and the remerchandising effort
discussed above), as well as the opening of six new stores during the first
quarter of fiscal 1999 compared with four new store openings during the first
quarter of fiscal 1998).
Financing activities in the first quarter of fiscal 1999 provided $10.7 million
in cash which represented a $6.7 million decrease in net cash provided as
compared to the $17.4 million in net cash provided in the first quarter of
fiscal 1998. This decrease in net cash provided resulted primarily from net
short-term borrowings of approximately $11.6 million during the first quarter of
fiscal 1999 compared to net borrowings of approximately $17.6 million in the
first quarter of fiscal 1998.
8 of 11
<PAGE> 9
The Company believes that its cash flow from operations, borrowings available
under its Credit Agreement and short-term trade credit will be sufficient to
fund the Company's operations and its growth and expansion plans for the next
several years.
YEAR 2000 READINESS PLANS
In February 1999, the Company concluded the remaining conversion effort and
completed its installation of a new merchandise and warehouse management system,
thus achieving full Year 2000 compliance for its remaining processing systems.
This installation had been the one remaining significant requirement for the
Company to achieve Year 2000 compliance prior to the need to execute
transactions with Year 2000 implications (the processing concern created by the
change in the century and the traditional two-digit year fields embedded in most
data processing systems is commonly referred to as the "Year 2000" issue). The
total estimated cost of the Company's Year 2000 remediation efforts, of which
the installation of this system was the major component, is approximately $10.0
million.
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 continues to work with each of its critical
vendors to determine 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 continues to expect
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company had no holdings of derivative financial or commodity instruments at
March 27, 1999. The Company is exposed to financial market risks, including
changes in interest rates. All borrowings under the Company's credit agreement
bear interest at a variable rate based on the prime rate or the London Interbank
Offered Rate. An increase in interest rates of 100 basis points would not
significantly affect the Company's net income. All of the Company's business is
transacted in U.S. dollars and, accordingly, foreign exchange rate fluctuations
have never had a significant impact on the Company, and they are not expected to
in the foreseeable future.
9 of 11
<PAGE> 10
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Effective September 1, 1999, Thomas O. Flood will retire from his position as
Senior Vice President Administration and Finance and Chief Financial Officer.
Mr. Flood will continue to serve on the Company's Board of Directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)Exhibits
27.1 Financial Data Schedule (only submitted to SEC in electronic
format).
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the
fiscal quarter ended March 27, 1999.
10 of 11
<PAGE> 11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRACTOR SUPPLY COMPANY
Date: April 30, 1999 By: /s/ Thomas O. Flood
-------------------- ------------------------------------------
Thomas O. Flood
Senior Vice President - Administration and
Finance, Treasurer and Chief Financial
Officer (Duly Authorized Officer &
Principal Financial Officer)
11 of 11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TRACTOR SUPPLY COMPANY FOR THE THREE MONTHS ENDED MARCH
27, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> DEC-27-1998
<PERIOD-END> MAR-27-1999
<CASH> 21,626
<SECURITIES> 0
<RECEIVABLES> 15,308
<ALLOWANCES> 0
<INVENTORY> 215,411
<CURRENT-ASSETS> 231,657
<PP&E> 95,296
<DEPRECIATION> 29,810
<TOTAL-ASSETS> 325,417
<CURRENT-LIABILITIES> 157,446
<BONDS> 47,878
0
0
<COMMON> 70
<OTHER-SE> 118,839
<TOTAL-LIABILITY-AND-EQUITY> 325,417
<SALES> 125,647
<TOTAL-REVENUES> 125,647
<CGS> 93,455
<TOTAL-COSTS> 93,455
<OTHER-EXPENSES> 33,323
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 732
<INCOME-PRETAX> (1,863)
<INCOME-TAX> (723)
<INCOME-CONTINUING> (1,140)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,140)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
