UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-K
(Mark One)
ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 201725, 2021
or
oTRANSITION 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
tsco-20211225_g1.jpg
TRACTOR SUPPLY COMPANY
(Exact name of registrant as specified in its charter)
Delaware13-3139732
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer Identification No.)
5401 Virginia Way, Brentwood, Tennessee37027
(Address of Principal Executive Offices)(Zip Code)
Registrant’s Telephone Number, Including Area Code:(615) 440-4000
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.008 par valueTSCONASDAQ Global Select Market


Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES  þ    NO oYes      No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YES  o    NO þYes      No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES  þ    NO oYes      No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES  þ    NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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.   o

Yes      No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filerþAccelerated filero
Non-accelerated filer
o (Do not check if a smaller reporting company)
Smaller reporting companyo
Emerging growth companyo
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o


Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of effectiveness of its internal control over financial reporting under section 404(b) of Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.)
YES  o    NO þYes      No
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 Global Select Market on July 1, 2017,June 26, 2021, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $6.2$17.2 billion.  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 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.
ClassOutstanding at January 27, 201822, 2022
Common Stock, $.008 par value125,116,910112,772,349
Documents Incorporated by Reference:
Portions of the Registrant’s definitive Proxy Statement for its 20182022 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.


Item no.  
 Form 10-K Report Page
   
   
   
   



Item No.  
 Form 10-K Report Page

i


FORWARD-LOOKING STATEMENTS OR INFORMATION


This Form 10-K and statements included or incorporated by reference in this Form 10-K include certain historical and forward-looking information.  The forward-looking statements, includedwhich are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (the “Act”).  All statements, other than statements of historical facts, which address activities, events, or developments that we expect or anticipate will or may occur in the future, including such things as future capital expenditures (including their amount and nature), business strategy, expansion, anticipated future performance and growth of theour business operations and other such matters are forward-looking statements.  To take advantage of the safe harbor provided by the Act, we are identifying certain factors that could cause actual results to differ materially from those expressed in any forward-looking statements, whether oral or written.statements.  These factors include, without limitation, national, regional, and local economic conditions affecting consumer spending, weather conditions,including the seasonal natureeffects of the business,COVID-19 pandemic, the efficacy and distribution of COVID-19 vaccines, the timing and acceptance of new products, in the stores, the timing and mix of goods sold, purchase price volatility (including inflationary and deflationary pressures), transportation costs, constraints in the supply chain affecting timing and availability of merchandise inventory, the ability to increase sales at existing stores or on our e-commerce platforms, the ability to manage growth and identify suitable locations, the ability to complete acquisitions on expected terms, failure of an acquisition to produce anticipated results, the ability to successfully manage expenses (including increased expenses as a result of operating during the COVID-19 pandemic) and to execute our key gross margin enhancing initiatives, increases in fuel and other transportation costs, increases in wages due to competitive pressures or minimum wage laws and regulations, the availability of favorable credit sources, capital market conditions in general, the ability to open new stores in the time, manner and number currently contemplated, particularly in light of the COVID-19 pandemic, the ability to open distribution centers in the anticipated timeframe and within budget, the impact of new stores on theour business, competition, including that from online competitors, weather conditions, the seasonal nature of our business, effective merchandising initiatives and marketing initiatives,emphasis, the ability to retain vendors, reliance on foreign suppliers, the ability to attract, train, and retain qualified employees, increasing labor and benefit costs, our ability to meet our sustainability, stewardship, carbon emission, and diversity, equity, and inclusion ("DE&I") related environmental, social, and governance ("ESG") projections, goals, and commitments, product liability and other claims, changes in federal, state, or local regulations, the potential effects on our business of responses of government and public health authorities to the COVID-19 pandemic, the “shelter in place” and similar federal, state, and local regulations and protocols could have on our business, including our supply chain and employees, the effectiveness of the Company’s responses to COVID-19, including our efforts to make a vaccine available to our employees, and customer response with respect to those actions, the refusal by our employees and the public generally to be vaccinated against COVID-19, the imposition of tariffs on imported products or the disallowance of tax deductions on imported products, potential judgments, fines, legal fees, and other costs, breach of information systems or theft of employee or customer data, ongoing and potential future legal or regulatory proceedings, management of the Company’sour information systems, failure to develop and implement new technologies, the failure of customer-facing technology systems, business disruption resultingincluding from a natural or other disaster orthe implementation of new technologies, including but not limited to, new supply chain technologies, effective tax rate changes including expected effects of the Tax Cuts and Jobs Act, and results of examination by taxing authorities, the ability to maintain an effective system of internal control over financial reporting, and changes in accounting standards, assumptions, and estimates, and those described in Item 1A. “Risk Factors.”  Forward-looking statements are based on currently available information and are based on our current expectations and projections about future events.  We undertake no obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

events, except as required by law.
ii



PART I


Item 1.
Business

Item 1.        Business

Overview


Tractor Supply Company (the “Company” or "Tractor Supply" or “we” or “our” or “us”) is the largest operator of rural lifestyle retail storesretailer in the United States (“U.S.”). The Company is focused on supplying the needs of recreational farmers, and ranchers, and othersall those who enjoy living the rural lifestyle (which we refer to as the “Out Here” lifestyle), as well as tradesmen and small businesses..  We operate retail stores under the names Tractor Supply Company, Petsense, and Del’s Feed & Farm Supply and Petsense and operate websites under the names TractorSupply.com andPetsense.comSupply. Our stores are located primarily in towns outlying major metropolitan markets and in rural communities.

We also offer an expanded assortment of products through the Tractor Supply mobile application and online at TractorSupply.com andPetsense.com

The Company has one reportable industry segment which is the retail sale of products that support the rural lifestyle. At December 30, 2017,25, 2021, we operated 1,8532,181 retail stores in 49 states (1,685(2,003 Tractor Supply and Del’s retail stores and 168178 Petsense retail stores). Our Tractor Supply stores typically range in size from 15,000 to 20,000 square feet of inside selling space, along with additional outside selling space, and our Petsense stores have approximately 5,500 square feet of inside selling space. For Tractor Supply retail locations, we use a standard design for most new built-to-suit locations that includes approximately 15,500 square feet of inside selling space. Our online selling websites and our mobile application offer an extended assortment of products beyond those offered in-store and drive traffic into our stores through our buy online and pickup in-store and ship to store programs. Our retail store locations and digital capabilities provide the convenience to allow our customers to engage with us anytime, anywhere and in any way they choose.


On February 17, 2021, the Company announced that it entered into an agreement to acquire all of the outstanding equity interests of Orscheln Farm and Home, LLC, a farm and ranch retailer with 167 retail stores in 11 states, in an all-cash transaction for approximately $320 million. The Company intends to fund the acquisition through cash-on-hand. The acquisition is conditioned on the receipt of regulatory clearance and the satisfactory completion of customary closing conditions within a specified timeframe.

Business Strategy for Tractor Supply Company


We believe our sales and earnings growth is the result of executing our businessmulti-year strategy, which includes the following key components:
 
Market Niche

We have identified a specialized market niche: supplying the lifestyle needs of recreational farmers, and ranchers, and othersall those who enjoy living the rural lifestyle, as well as tradesmen and small businesses.lifestyle.  By focusing our product assortment on these core customers, we believe we are differentiated from general merchandise, home center, and other specialty retailers. We cater to the rural lifestyle and often serve a market by being a trip consolidator for many basic maintenance needs for farm, ranch, and rural customers.customers through convenient shopping options both in-store and online.


Customers

Our target customers are home, land, pet, and livestock owners who generally have above average income and below average cost of living. We seek to serve a customer base that primarily lives in towns outlying major metropolitan markets and in rural communities. This customer base includes recreational farmers, and ranchers, and othersall those who enjoy living the rural lifestyle,lifestyle. We have seen a continuation of shifting consumer behavior trends due to the COVID-19 pandemic as well as tradesmencustomers focused on the care of their homes, land, and small businesses.animals, which resulted in a growing demand in everyday merchandise, including consumable, usable, and edible ("C.U.E.") products and seasonal categories.


Customer Service

We are committed to providing our customers reliable product availability and a high level of in-store service throughconvenient, customer-centric experience across shopping channels. In our motivated, well-trained store team members. Westores, we believe the ability of our storemotivated, well-trained team members to provide friendly, responsive and seasoned advice helps our customers find the right products to satisfy their everyday needs, as well as the specialty items needed to complete their rural lifestyle projects. We also engage with our customers through our e-commerce website (TractorSupply.com),websites and mobile application, which providesprovide the opportunity to allow customers to shop at a timeanytime, anywhere, and place that fits their schedulein any way
1

they choose, while delivering enhanced product information, research, and decision tools that support product selection and informational needs in specific subject areas. Additionally, we maintain a customer solutions centerCustomer Solutions Center at our Store Support Center located in Brentwood, Tennessee, to support our in-store and online customers, as well as our store team members. We believe this commitment to customer service promotes strong customer loyalty through personalized experiences and provides convenience that our customers expect, which drives repeat shopping.shopping experiences.


We use a third-party provider to survey and measure our level of customer service.  This process allows customers to provide feedback on their shopping experience.  Based on the third-party provider’s data, we believe our customer satisfaction scores to beare among the best-in-class.  We carefully evaluate the feedback we receive from our customers and implement improvements at both the Company and the individual store level based on that feedback.


Store Personnel and Training
We seek to hire store team members with farming and ranching backgrounds, with particular emphasis on general maintenance, equine and welding. We endeavor to staff our stores with courteous, highly motivated team members and devote considerable resources to training store team members, often in cooperation with our vendors.  Our training programs include:

a thorough on-boarding process to prepare new team members for their new role;
productive workplace environment training that is intended to educate team members on company policies and procedures covering topics such as harassment, discrimination, and retaliation;
new store opening training that prepares our store managers to open new stores to Company standards;
a management training program which covers all aspects of our store operations, delivering superior service and managing the team member experience;
structured training on customer service and selling skills;
online product knowledge training produced in conjunction with key vendors;
leadership development programs that prepare leaders to expand their current contributions; and
an annual store manager meeting with vendor product presentations.


Store Environment

Our stores are designed and managed to make shopping an enjoyable experience and to maximize sales and operating efficiencies.  Stores are strategically arranged to provide an open environment for optimal product placement and visual display. In addition, these layouts allow for departmental space to be easily re-allocatedreallocated and visual displays to be changed for seasonal products and promotions. Display and product placement information is routinely sent to stores to ensure quality and uniformity among the stores.stores, and our Field Activity Support Teams ("FAST") are dedicated to support the stores in creating an enhanced in-store experience for our customers through best-in-class merchandising execution. Our store layouts and visual displays are designed to provide our customers a feeling of familiarity and convenience to enhance the shopping experience. Informative signs are located in key product categories to conveniently assist customers with purchasing decisions and merchandise location.  These signs provide customers with a comparison of product qualities, clear pricing, useful information regarding product benefits, and suggestions for appropriate accessories. Our store layouts and visual displays are designed to provide our customers a feeling of familiarity and enhance the shopping experience. Also, our store team members wear highly visible red vests or aprons or smocks with nametags,name tags, and our customer service and checkout counters are conveniently located near the front of the store.Our stores have been equipped with tools such as team member communication devices, wireless internet, and mobile point-of-sale devices that enable our team members to provide an enhanced shopping experience to our customers. In addition, our buy online and pickup in-store and ship to store programs, including curbside pickup, provides convenient access for customers to pick up merchandise from our store locations.


We are in the midst of a multi-year project that began in 2020 to remodel our existing store base, bringing programs to life with new fixtures, layouts and products that truly enhance the customer shopping experience. The site level space is analyzed category by category and reallocated as needed to align with current merchandising strategies and to drive space productivity. Another space productivity initiative is to transform our side lot with an expanded product offering and an enhanced shopping experience. With this investment, the side lots space is leveraged to offer a wider product offering in the lawn and garden categories and our new categories with the garden center, and offer greater convenience through the expansion of our buy online and pickup in-store and ship to store capabilities for drive-thru pickup.

Merchandising and Purchasing

We offer an extensive assortment of products for all those seeking to enjoy the “Out Here” lifestyle, as well as tradesmen and small businesses. lifestyle.  Our product assortment is tailored to meet the needs of our customers in various geographic markets.  Our full line of product offerings includes a broad selection of high quality, reputable brand name and exclusive brand products and is supported by a strong in-stock inventory position with an average of 15,500approximately 16,000 to 20,00022,000 products per store.store as well as over 170,000 products online.  No onesingle product accounted for more than 10% of our sales during 2017.fiscal 2021. Our comprehensive selection of merchandise is comprised of the following major product categories:


Equine, livestock, pet, and small animal products, including items necessary for their health, care, growth, and containment;containment (i.e. fencing);
Hardware, truck, towing, and tool products;
Seasonal products, including heating, lawn and garden items, power equipment, gifts, and toys;
Work/recreational clothing and footwear; and
Maintenance products for agricultural and rural use.

2

Index

The following table indicates the percentage of net sales represented by each of our major product categories during fiscal 2017, 20162021, 2020, and 2015:2019:
 Percent of Net Sales
Fiscal Year
Product Category:202120202019
Livestock and Pet47 %47 %47 %
Hardware, Tools and Truck21 21 21 
Seasonal, Gift and Toy Products21 21 20 
Clothing and Footwear
Agriculture
Total100 %100 %100 %
 Percent of Net Sales
Product Category:2017 2016 2015
Livestock and Pet47% 46% 44%
Hardware, Tools and Truck22
 22
 23
Seasonal, Gift and Toy Products19
 19
 20
Clothing and Footwear8
 8
 8
Agriculture4
 5
 5
Total100% 100% 100%


Our buying team continuously reviews and updates our product assortment as necessary to respond to customer needs and to offer new, relevant products.  We are focused on providing key products that our customers use on a regular basis for their lifestyle and maintenance

needs with emphasis on consumable, usable, and edible (“("C.U.E.") products.  Examples of C.U.E. product categories include, but are not limited to, livestock feed and bedding, pet food, bird seed, lubricants, propane, and various seasonal products, such as heating,fertilizer, weed control, mulch, pest control, and twine.


Our products are sourced through both domestic and international vendors.vendors, each of whom are expected to adhere to a code of conduct that guides our relationship.  Our business is not dependent upon any onesingle vendor or particular group of vendors.  We purchase our products from a group of approximately 900975 vendors, with no one vendor representing more than 10% of our purchases during fiscal 2017.2021.  Approximately 350375 core vendors accounted for 90% of our merchandise purchases during fiscal 2017.  We2021. Although the COVID-19 pandemic has resulted in the fluctuation of customer demands for certain products as well as global supply chain disruptions and delays, we have not experienced any significant difficulty in obtaining satisfactory alternative sources of supply for our products and weto meet customer demands. We believe that adequate sources of supply exist, at substantially similar costs for nearly all of our products.  We have no material long-term contractual commitments with any of our product vendors.but they may cost more or require us to incur higher transportation costs. 


Our buying teams focus on merchandise procurement, vendor line reviews, and testing of new products and programs.  We also employ a dedicated inventory management team that focuses exclusively on forecasting and inventory replenishment, a committed merchandise planning team that concentrates on assortment planning, and a specialized pricing team that seeks to optimize market-specific pricing for our products.  Through the combined efforts of these teams, we continue to focus on improving our overall inventory productivity and in-stock inventory position.


Intellectual Property

Our subsidiary, Tractor Supply Co. of Texas, LP (“TSCT”), owns registrations with the U.S. Patent and Trademark Office (“USPTO”) for various service marks including TSC®, Tractor Supply Co.®, TSC Tractor Supply Co.®, and the trapezium design for retail store services. We consider these service marks, and the accompanying goodwill and name recognition, to be valuable assets of our business. TSCT also owns several other service marks for retail services, some of which have been registered with the USPTO and some of which are the subject of applications for registration pending before the USPTO.


In addition to selling products that bear nationally-known manufacturer brands, we also sell products manufactured for us under a number of exclusive brands that we consider to be important to our business. These exclusive brands are manufactured for us by a number of vendors and provide an alternative to the national brands, which helps provide value for our customers and positions us as a destination store.retailer.


3

Index
Our exclusive brands represented approximately 32%29% of our total sales in both fiscal 20172021 and 20162020 and 31% of our total sales in fiscal 2015.2019. Our exclusive brands include:


Ÿ 4health® (pet foods and supplies)
Ÿ JobSmart® (tools)
Ÿ Bit & Bridle® (apparel and footwear)
Ÿ Paws & Claws® (pet foods and supplies)
Ÿ Blue Mountain® (apparel)
Ÿ Producer’s Pride® (livestock and horse feed and supplies)
Ÿ C.E. SchmidtAmerican Farmworks®(apparel (livestock, farm and footwear)ranch
Ÿ Red Shed® (gifts, collectibles, and outdoor furniture)
equipment)
Bit & Bridle® (apparel and footwear)
Redstone® (heating products)
Ÿ Blue Mountain® (apparel)
Retriever® (pet foods and supplies)
C.E. Schmidt® (apparel and footwear)
Ridgecut® (apparel)
Countyline® (livestock, farm and ranch equipment)
Ÿ RedstoneRoyal Wing® (heating products)bird feed and supplies)
Ÿ Dumor® (livestock and horse feed and supplies)
Ÿ RetrieverStrive® (pet foods and supplies)(pet food)
Ÿ Equistages®(horse feed)
Ÿ Royal WingGroundwork® (bird feed and supplies)
Ÿ Groundwork® (lawn and garden supplies)
Ÿ Traveller® (truck and automotive products)
Ÿ Huskee® (outdoor power equipment)
Ÿ Treeline® (hunting gear and accessories)
JobSmart® (tools)
TSC Tractor Supply Co® (trailers, truck tool boxes, and animal
bedding)
Paws & Claws® (pet foods and supplies)
Untamed® (pet foods)



The exclusive brands identified above have been registered as trademarks with the USPTO for certain products and some are the subject of additional applications for registration pending before the USPTO for other products.


Our trademark and service mark registrations have various expiration dates; however, provided that we continue to use the marks and renewfile appropriate maintenance and renewal documentation with the registrationsUSPTO in a timely manner, the registrations are potentially perpetual in duration. Our patents (both United States and foreign) have expiration dates ranging from March 2024 to December 2045 and protect various elements, designs or functions of farm and ranch equipment, as well as light systems for trucks and other vehicles.


We believe our intellectual property, which includes the trademarks and service marks identified above, together with certain trade names, domain names, patents, and copyrights, has significant value and is an important component of our merchandising and marketing strategies.





Distribution

We currently operate a distribution facility network for supplying stores with merchandise and delivering product ordered through TractorSupply.com.our websites and mobile application. In fiscal 2017,2021, our Tractor Supply stores received approximately 74%76% of merchandise through this network while the remaining merchandise shipped directly to the stores from our vendors or directly to our stores or customers. We believe this flow facilitates the prompt and efficient distribution of merchandise in orderthat allows us to enhance in-stocks, minimizebe a dependable supplier to our customers for their "Out Here" lifestyle solutions by enhancing in-stock inventory positions, while minimizing freight costsexpense and improveimproving the inventory turn rate. Our distribution facilities, located in Arizona, Georgia, Indiana, Kentucky, Maryland, Nebraska, New York, Texas, and Washington represent a total distribution center capacity of 5.06.1 million square feet. In fiscal 2017, we began construction onWe also use third-party operated import centers, mixing centers and pop-up distribution facilities which provide additional distribution capacity.

The Company is building a new northeast distribution center in Frankfort, New York, as well as an expansionNavarre, Ohio, which is expected to be approximately 900,000 square feet and is currently anticipated to be completed in the fall of our existingfiscal 2022.

In addition, on January 26, 2022, the Company announced plans to build a new distribution center in Waverly, Nebraska, which will provide additionalMaumelle, Arkansas. This new distribution capacity once constructioncenter is completed.expected to be approximately 900,000 square feet. Construction is planned to begin in the middle of 2022 and is currently anticipated to be completed in late 2023.


We select the locations of our distribution facilities in an effort to minimize logistics costs and optimize the distance from distribution facilities to our stores. Our distribution centers utilize warehouse and labor management tools that support the planning, control, and processing of inventory. We manage our inbound and outbound transportation activity in-house through the use of a transportation management system.  We utilize multiple common carriers for store and direct to customer
4

Index
deliveries. We manage our transportation costs through carrier negotiations, the monitoring of transportation routes, and the scheduling of deliveries.


Marketing

We utilize an “everyday valuelow price” philosophy to consistently offer our products at competitive prices complemented by strategically planned promotions throughout the year. To drive store traffic and position ourselves as a destination store,retailer, we promote a broad selectionsselection of merchandise withthrough various digital and social media initiatives, television, newspaper circulars, customer targetedand customer-targeted direct e-mail and direct mail, as well as e-mail, digitallimited use of radio and socialother media initiatives.channels.  In addition, our Neighbor’s Club loyalty program enhances our ability to create engagementengage with our customers, recognize and reward our best customers. customers, drive desired behaviors, and create brand advocacy. Vendors frequently support these specific programs by offering temporary cost reductions, additional funding, and honoring coupons. Our vendors also provide assistance with product presentation and fixture design, brochures, support for in-store events, and point-of-purchase materials for customer education, and product knowledge for our team members. 


Omni-Channel
We connect with
Ensuring that our customers can engage with us in theirthe most convenient manner of choosing,for them whether that is in store,our stores, on our e-commerce website, (TractorSupply.com), e-mail, social media, direct mailon our mobile application, or throughvia our customer solutions center.Customer Solutions Center, is a high priority for us. Our goal is to be available anytime, anywhere, and in any way our customers choose to engage with our brand. We provide our customers the opportunity to shop in a manner that fits their lifestyle and is most convenient for them. Our focus is on delivering a comprehensive, seamless omni-channel shopping experience offering the conveniences our customers want and expect. We offer buy online, pickup in-store, and curbside pickup, which provides convenient access for customers to pick up merchandise from our store locations. Additionally, our online experience offers an expansive product assortment search capabilitiesincluding a direct to consumer assortment. This allows us to extend our aisles beyond our store locations and informationprovides convenient and useful content that is relevant for theirto our customers’ lifestyle. We provide our customers the ability to have products shipped directdirectly to our retail stores,store locations or to their homes or offices. For select products, we offer same day delivery. We maintain two fulfillment centers withinuse our distribution centerfacility network as well as our stores to support our e-commerce activities. In 2017, we completed the expansion of our buy online and pick up in store program which provides convenient customer pick up in our store locations. We also began providing additional convenience through flexible payment options and simplified checkout. We are focused on delivering an enhanced mobile and tablet experience, improving the site response time and expanding our product offerings for vendor direct to customer shipments, allowing us to serve our customers at any time. DigitalOur digital capabilities have further enhanced customer serviceour in-store shopping experience, allowing us to engage with our customers more effectively, and allowed us toexpanded our target markets outside of our current retail store locations.


Continuous Improvement

We are committed to a continuous improvement program to drive change throughout our organization.  Using data analytics and team member engagement, we examine business processes and identify opportunities to reduce costs, drive innovation, and improve effectiveness. We establish goals for productivity and cost improvement.  We have implemented numerous continuous improvement projects, with team members from multiple areas of our business, to evaluate key operations and implement process change. Team members are empowered and expected to challenge current paradigms and improve processes. Management encourages the participation of all team members in the decision-making process, regularly solicits input and suggestions from our team members, and incorporates suggestions into our improvement activities.

Management Information and Control Systems

We have invested resources in management information and control systems to provide legendary customer service and to deliver the right products in the right place at the right time. This investment includes use of digital technologies that support the "Out Here" lifestyle and integrate the customer experience in-store, online, and through our Customer Solutions Center, which offers customers the ability to shop anytime, anywhere, and in any way they choose. Our key platforms include:

Point-of-sale system;
In-store mobility;
E-commerce platform;
Consumer mobile app;
Replenishment and allocation systems;
Merchandising presentation and inventory management tools;
Warehouse and transportation management systems;
Labor management tools for stores and supply chain;
Price optimization system;
Vendor purchase order control system;
5

Index
Business intelligence and analytics tools; and
Customer loyalty and campaign management system.

These systems are integrated through an enterprise resource planning (“ERP”) system. This ERP system tracks merchandise from initial order through ultimate sale and interfaces with our financial systems.

We continue to invest in technology to support store, online, and distribution facility expansion and our long-term strategic growth initiatives focused heavily on improving the customer experience across all channels. We also continue to evaluate and improve the functionality of our systems to maximize their effectiveness.  Such efforts include ongoing hardware and software evaluations, refreshes, and upgrades to support optimal software configurations, and application performance. We plan to continue to invest in information technology and implement efficiency-driving system enhancements such as in-store mobility, labor management tools, and back-office support systems. We will continue to evaluate the use of technologies to improve productivity such as artificial intelligence, automation software, quantum computing, and other technologies. We also maintain and continue to strengthen the security of our information systems to help protect and prevent unauthorized access to personal information of our customers, employees, vendors, and other confidential Company data. We are endeavoring to adhere to quickly evolving industry privacy laws and standards. Critical areas of focus include cloud, end point protection and privacy. Collectively, these efforts are directed toward improving business processes, maintaining secure, efficient, and stable systems, and enabling the continued growth and success of our business.

Petsense

Petsense is a small-box pet specialty supply retailer focused on meeting the needs of pet owners, primarily in small and mid-sized communities, and offering a variety of pet products and services. At December 25, 2021, we operated a total of 178 Petsense stores in 23 states, with approximately 500 full-time and 1,000 part-time team members, and an e-commerce website (Petsense.com). The Petsense name is registered with the USPTO.

Human Capital

We believe that our team members are the foundation of our business and that their hard work, passion, commitment, and experience drive our success. As a result of our commitment to our team members, in both 2021 and 2020, we were recognized by the Great Place to Work Institute as a "Great Place to Work-Certified" company and were included in Forbes’ 2021 "America’s Best Employers for New Graduates" list for the second year in a row. Below are further descriptions of our Company and our focus on the development and support of our team members:

Management and Team Members

As of December 30, 2017,25, 2021, we employed approximately 14,000approximately 22,000 full-time and 14,00024,000 part-time Tractor Supply team members. We alsotypically employ additional part-time team members throughout the year during peakhigh sales volume periods.  We are not party to any collective bargaining agreements.


At the end of fiscal 2017, ourOur store operations wereare divided between east and west divisions, and each division is overseen by a senior vice president. The divisions are organized into ten regions.  Each regionregions, each of which is led by a regional vice president, and thepresident. The region is further organized into districts, each of which is led by a district manager.  We have two internal advisory boards, one comprised of store managers and the other comprised of district managers.  These groups bring a grassroots perspective to operational initiatives and generate chain-wide endorsement of proposed best-practice solutions.


All of ourEligible team members can participate in one of our various bonus incentive programs, which provide the opportunity to receive additional compensation based upon individual, team, and/or Company performance. In addition to bonus incentive programs, we provide our eligible team members the opportunity to participate in an employee stock purchase plan and a 401(k) retirement savings plan. We alsoplan and health insurance for which we share ina significant portion of the cost of health insurance provided topremiums. We additionally provide our eligible team members with paid time off and a six-week parental leave policy for new parents. Our team members also receive a discount on merchandise purchased from the Company.


We continue to make wage investments to offer our team members competitive compensation. On an annualized basis in 2021, we invested an additional $40 million in hourly store team members as a result of our increases in the minimum wage paid to team members.

We encourage a promote-from-within environment when internal resources permit.  We also provide internal leadership development programs designed to prepare our high-potential team members for greater responsibility. Our current team of
6

Index
district managers and store managers havehas an average tenure of approximately nine and six years,years, respectively.  We believe internal

promotions, coupled with the hiring of individuals with previous retail experience, will provide the management structure necessary to support our planned growth.long-term strategic growth initiatives.


Continuous ImprovementStore Personnel and Training

We seek to hire store team members who live and appreciate the "Out Here" lifestyle, including those with farming and ranching backgrounds, with particular emphasis on general maintenance, equine, and welding. We endeavor to staff our stores with courteous, highly motivated team members and devote considerable resources to training store team members, often in cooperation with our vendors.  Our training programs include:

A thorough on-boarding process to prepare new team members for their new role;
Productive workplace environment training that is intended to educate team members on Company policies and procedures covering topics such as harassment, discrimination, and retaliation;
Diversity and inclusion training which is intended to advance a diverse and inclusive culture built on one of our core values of respect, to foster different perspectives, ideas and innovative thinking;
New store opening training that prepares our store managers to open new stores to Company standards;
A management training program which covers all aspects of our store operations, delivering superior service, and managing the team member experience;
Structured training on customer service and selling skills;
Online product knowledge training produced in conjunction with key vendors;
Leadership development programs that prepare leaders to expand their current contributions;
Quarterly all store team member meetings; and
An annual store manager meeting with vendor product presentations.

Workplace Health and Safety

We strive to provide a safe and healthy workplace for all team members and drive a culture of safe practices and continuous improvement. We provide role based safety training during the onboarding process and through other specific safety programs. In response to the COVID-19 pandemic, we implemented enhanced cleaning standards, adapted to the evolving public health guidance in our workplaces, and provided training and education to our team members. We implemented a vaccination incentive program, provided paid time off to receive vaccinations, and held onsite vaccination clinics for our team members among other COVID-19 mitigation practices. We continually monitor and adapt our safety practices as the COVID-19 pandemic continues.

COVID-19 Response

The Company has been and continues to closely monitor the impact of the COVID-19 pandemic on all facets of our business. This includes the impact on our team members, customers, suppliers, vendors, business partners, and supply chain networks.

The health and safety of our team members and customers are the primary concerns of our management team. We have taken and continue to take numerous actions to promote health and safety, including, encouraging vaccination efforts, providing personal protective equipment to our team members, following local and federal guidance regarding the use of masks in our facilities, maintaining enhanced services for cleaning and sanitation, continuing to provide additional functionality to support contactless shopping experiences, promoting social distancing and cleaning actions in our stores, and continuing to offer remote work plans at our Store Support Center.

Additionally, we continue to support our team members during this pandemic through offering COVID-19 paid medical leave, 100% coverage of COVID-19 testing and treatment under our medical plan.

Diversity, Equity, and Inclusion ("DE&I")

Tractor Supply is committed to DE&I. We have built a strong and diverse team by purposefully seeking highly qualified diverse candidates with different backgrounds, experience, perspectives, ideas and skill sets. As we move forward, we are working to implement new DE&I initiatives that will result in an even more diverse team across the entire company.

7

Index
We are committed to providing a continuous improvement programdiverse and inclusive culture supported by our Mission & Values where we welcome diverse backgrounds and experiences and respectfully foster different perspectives, ideas and innovative thinking. We are stronger together, and we believe in the authenticity our team members bring to drive change throughoutwork every day. By focusing on our organization.  Using data analyticsteam members, we know that our customers, communities and suppliers will be well served. Diversity and inclusion play a key role in moving our business forward. Our workforce is approximately 51% male and 49% female. Minorities comprise approximately 17% of our workforce. Women serve in key leadership roles within the Company, including as Executive Vice President, Chief Human Resources Officer, Senior Vice President, General Counsel and Corporate Secretary, Senior Vice President of Investor Relations and Public Relations, Senior Vice President, Chief Marketing Officer and Senior Vice President of E-Commerce. We have taken several steps over the past twelve months to further enhance our diversity and inclusion strategy including publishing external DE&I goals aligned with our environmental, social, and governance ("ESG") efforts, enhancing our DE&I Strategy to include supplier diversity efforts, establishing our DE&I Customer Promise and continuing activation of our numerous team member engagement we examine business processesgroups supporting the development, community involvement and identify opportunities to reduce costs, drive innovation, and improve effectiveness.allyship within our Company. We have implemented numerous continuous improvement projects (with team members from multiple areas of our business) to evaluate key operations and implement process changes. Team members are empowered and expected to challenge current paradigms and improve processes. Our management encourages the participation of all team members in decision-making, regularly solicits input and suggestions from our team members and incorporates suggestions into our improvement activities.

Management Information and Control Systems
We have invested resources in management information and control systems to provide legendary customer service.   This includes use of digital technologies to integrate the customer experience in store, online, and through our customer solutions center, offering customers the ability to shop anytime, anywhere, and in any way they choose. Our key platforms include a point-of-sale system, in-store mobility and digital technology system, an e-commerce platform, a supply chain management and replenishment system, a transportation management system, warehouse and labor management tools, a price optimization system, a vendor purchase order control system, a merchandise presentation system, and a customer loyalty system. These systems are integrated through an enterprise resource planning (“ERP”) system. This ERP system tracks merchandise from initial order through ultimate sale and interfaces with our financial systems.

Wewill continue to invest in technologybuild on these initiatives to support store, online,enhance our culture of respect and distribution facility expansion. We also continue to evaluate and improve the functionality ofteamwork across our systems to maximize their effectiveness.  Such efforts include ongoing hardware and software evaluations, refreshes and upgrades to support optimal software configurations and application performance. We plan to continue to invest in information technology and implement efficiency-driving system enhancements, as well as evaluate use of technologies to improve productivity such as artificial intelligence, automation software, and other technologies. We also maintain and continue to strengthen the security of our information systems to help protect and prevent unauthorized access to personal information of our customers, employees and vendors or other confidential Company data. Collectively, these efforts are directed toward improving business processes, maintaining secure, efficient and stable systems, and enabling the continued growth and success of our business.organization.

Petsense
Petsense is a small-box pet specialty supply retailer focused on meeting the needs of pet owners, primarily in small and mid-sized communities, and offering a variety of pet products and services. At December 30, 2017, we operated a total of 168 Petsense stores in 26 states, with 400 full-time and 900 part-time team members, and an e-commerce website (Petsense.com). The Petsense name is registered with the USPTO.


Growth Strategy


Tractor Supply believes we can grow our business by being an integral part of our customers’ lives as the most dependable supplier of relevant products and services for the “"Out HereHere" lifestyle solutions, creating customer loyalty through personalized experiences, our Neighbor's Club loyalty program and providing convenience that our customers expect at anytime, anywhere, and in any way they choose. Our long-term growth strategy is to: (1) drive profitable growth through new store openingsexpand and deepen our customer base by expanding omni-channel capabilities, thus tying together our website productproviding personal, localized, and memorable customer engagements by leveraging content, social media, and digital and online shopping experience,experiences, attracting new customers and driving loyalty, (2) build customer-centric engagementevolve customer experiences by leveraging analytics to deliver legendary customer service, seasoned advicedigitizing our business processes and personalized experiences,furthering our omni-channel capabilities, (3) offer relevant assortments and services across all channels through exclusive and national brands and continue to introducegrow our total addressable market by introducing new products and services through our test and learn strategy, (4) enhance our coredrive operational excellence and foundationalproductivity through continuous improvement, increasing space utilization, and implementing advanced supply chain capabilities by investing in infrastructure and process improvements which willto support growth, scale and agility, while improving the customer experience, and (5) expand through selective acquisitions, as such opportunities arise, to add complementary businesses and to enhance penetration into new and existing markets to supplement organic growth.


Achieving this strategy will require a foundational focus on: (1) organizing, optimizingconnecting, empowering and empoweringgrowing our team members for growth by developing skills, talentto enhance our team members' lives and leadership across the organization,communities in which they live, enabling them to provide legendary service to our customers, and (2) implementing operational efficiency initiativesallocating resources in a disciplined and efficient manner to drive profitable growth and build stockholder value, including leveraging technology and automation to align our cost structure to support new business capabilities for margin improvement and cost reductions.


Over the past five years, we have experienced considerable sales growth, resulting in a compounded annual growth rate of approximately 9.2%13.4%. We plan to open approximately 75 to 80 new Tractor Supply and 2010 new Petsense stores in fiscal 2018,2022, a selling square footage increase of approximately 5.0%4%.  In fiscal 2017,2021, we opened 10180 new Tractor Supply stores and 25seven new Petsense

stores. In fiscal 2016,2020, we opened 11380 new Tractor Supply stores and began operating 143nine new Petsense stores. This represents a selling square footage increase of approximately 6.3%4% during each of fiscal 20172021 and 10.8% during fiscal 2016.2020.


At December 30, 2017,25, 2021, we operated 1,8532,181 retail stores in 49 states (1,685(2,003 Tractor Supply and Del’s retail stores and 168178 Petsense retail stores). Given the size of the communities that we target, we believe that there is ample opportunity for new store growth in many existing and new markets. We believe we have developed a proven method for selecting store sites and we believe we have identified approximately 800significant additional marketsopportunities for new Tractor Supply stores. We also believe that there is opportunity for up to 1,000continued growth for Petsense stores.

Approximately 40%57% of our Tractor Supply stores are in freestanding buildings and 60%43% are located in strip shopping centers. We lease approximately 93%95% of our stores and own the remaining 7%5%.


In addition to new store expansion, we will continue to support our strategic growth through expansion of our distribution network and initiatives including, among others, space productivity and side lot improvements in certain existing stores as well as continued improvements in technology and infrastructure at our existing stores, and ongoing investments to enhance our digital and omni-channel capabilities to better serve our customers.

8

Index
Competition


We operate in a competitive retail industry. TheWe believe the principal competitive factors include location of stores, fulfillment options, price, quality of merchandise, in-stock inventory consistency, merchandise assortment and presentation, product knowledge, and customer service. We compete with general merchandise retailers, home center retailers, pet retailers, specialty and discount retailers, independently owned retail farm and ranch stores, numerous privately-held regional farm store chains and farm cooperatives, as well as internet-based retailers.  However, we believe we successfully differentiate ourselves from many of these retailers by focusing on our specialized market niche for customers living the rural lifestyle. See further discussion of competition in 1A,1A. “Risk Factors” of this Annual Report on Form 10-K.


Seasonality and Weather


Our business is seasonal.  Historically, our sales and profits are the highest in the second and fourth fiscal quarters due to the sale of seasonal products. We usually experience our highest inventory and accounts payable balances during our first fiscal quarter for purchases of seasonal products to support the higher sales volume of the spring selling season, and again during our third fiscal quarter to support the higher sales volume of the cold-weather selling season. We believe that our business can be more accurately assessed by focusing on the performance of the halves, not the quarters, due to the fact that different weather patterns from year-to-year can shift the timing of sales and profits between quarters, particularly between the first and second fiscal quarters and the third and fourth fiscal quarters.


Historically, weather conditions, including unseasonably warm weather in the fall and winter months and unseasonably cool weather in the spring and summer months, have unfavorably affected the timing and volume of our sales and results of operations. In addition, extreme weather conditions, including snow and ice storms, flood and wind damage, hurricanes, tornadoes, extreme rain, and droughts have impacted operating results both negatively and positively, depending on the severity and length of these conditions. Our strategy is to manage product flow and adjust merchandise assortments and depth of inventory to capitalize on seasonal demand trends.


Stewardship and Compliance with Environmental Matters


Our operations are subject to numerous federal, state, and local laws and regulations, enacted or adopted, regulating the discharge of materials into the environment or otherwise relating to the protection of the environment.  We are committed to complying with all applicable environmental laws and regulations.  We are also committed to becoming a more environmentally sustainable company.  This commitment is demonstrated through our Stewardship Program, which is our environmental sustainability program.  Through this program, the Company has implemented a number of initiatives designed to reduce our impact on the environment.  These initiatives include the installation of energy management systems, LED lighting, high efficiency heating/air conditioning systems, in our stores, and recycling programs in our stores, distribution facilities, and the Store Support Center. Our Store Support Center opened in 2014, and our distribution centercenters in Casa Grande, Arizona, opened in 2015, were each awardedand Frankfort, New York, are LEED (Leadership in Energy and Environmental Design) Silver certificationcertified for environmentally sustainable design, construction, and operation.  We also installed solar arrays at the Store Support Center in Brentwood, Tennessee, and our Tractor Supply store in Hendersonville, Tennessee.

Executive OfficersThe Company has been a SmartWay Transport partner since 2013. SmartWay Transport is a public-private initiative between the U.S. Environmental Protection Agency, large and small trucking companies, retailers, and other federal and state agencies. Its purpose is to improve fuel efficiency and the environmental performance (reduction of both greenhouse gas emissions and air pollution) of supply chains.

In December 2018, we announced a goal to reduce carbon emissions from our facilities by 25% by 2025 from our 2015 baseline as part of the RegistrantCompany's Stewardship Program. In December 2020, we announced that we had reached this goal five years early.


In December 2021, we released our 2020 Task Force on Climate-Related Financial Disclosures Report, following the announcement of our goal in September 2021 to reduce our carbon footprint by 50% by 2030 and achieve net zero missions across all operations by 2040. In the report, we discussed our approach to evaluating and managing climate change risks and identifying opportunities. We also detailed the next phase of our sustainability journey, including increasing efforts to procure renewable energy, continuing investments in energy efficiency and cleaner technologies, avoiding future emissions through better design of both stores and distribution centers, and enhancing our Scope 3 focus with greater transparency and reduction efforts, including new vendor engagement to drive down value chain emissions.

9

Index
Additional information can be found in our ESG Tear Sheet and on our website (TractorSupply.com). The information provided on our website is not part of this report, and is therefore not incorporated by reference unless such information is otherwise specifically referenced elsewhere in this report.

Information about our Executive Officers

Pursuant to General Instruction G(3) of Form 10-K, the following list is included 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 May 10, 2018.11, 2022.


The following is a list of the names and ages of all 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:
NamePositionAge
GregoryHarry A. SandfortLawton, IIIPresident and Chief Executive Officer6247
Steve K. BarbarickKurt D. BartonExecutive Vice President – Chief Financial Officer and Treasurer50
Robert D. MillsExecutive Vice President – Chief Technology, Digital Commerce and Strategy Officer49
John P. OrdusExecutive Vice President – Chief Stores Officer46
Jonathan S. EstepExecutive Vice President – Chief Merchandising Officer5042
Benjamin F. Parrish, Jr.Melissa D. KerseyExecutive Vice President – Chief Human Resources Officer47
Colin W. YankeeExecutive Vice President – Chief Supply Chain Officer44
Noni L. EllisonSenior Vice President – General Counsel and Corporate Secretary6150
Kurt D. BartonChristi C. KorzekwaSenior Vice President – Chief FinancialMarketing Officer and Treasurer4656
Chad M. FrazellMatthew L. RubinSenior Vice President – Human Resourcesand General Manager of Petsense45
Robert D. MillsSenior Vice President – Chief Information Officer4542


GregoryHarry A. Sandfort has served as Chief Executive Officer since December 2012. He servedLawton, III was appointed as President and Chief Executive Officer on January 13, 2020. Mr. Lawton served as President of the CompanyMacy's, Inc. from September 2017 to December 2012 to May 2016.2019. Prior to that time, heMr. Lawton served as President and Chief Operating Officer of the Company since February 2012. Mr. Sandfort previously served as President and Chief Merchandising Officer of the Company since February 2009, after having served as ExecutiveSenior Vice President, – Chief Merchandising OfficerNorth America at eBay, Inc. since May 2015. Mr. Lawton previously held a number of the Company since November 2007.  Mr. Sandfort served as President and Chief Operating Officerleadership positions at Michaels Stores,Home Depot, Inc. from March 20062005 to August 2007 and as Executive2015, including Senior Vice President – General Merchandise Manager at Michaels Stores, Inc. fromof Merchandising and head of Home Depot's online business. Since January 2004 to February 2006.2019, Mr. SandfortLawton has served as a director of the Company since February 2013.

Steve K. Barbarick hasSealed Air Corporation and previously served as President and Chief Merchandising Officer since Maya director of Buffalo Wild Wings, Inc. from October 2016 prior to which he served asFebruary 2018.

Kurt D. Barton was promoted to Executive Vice President – Chief MerchandisingFinancial Officer for the Company since September 2012. Prior to that time, he served as Senior Vice President – Merchandising sinceand Treasurer in February 2011. Mr. Barbarick previously served as Vice President – Merchandising since June 2009,2019, after having served as Vice President and Divisional Merchandise Manager since 2003.

Benjamin F. Parrish, Jr. has served as Executive Vice President – General Counsel and Corporate Secretary of the Company since February 2016, after having served as Senior Vice President – General Counsel and Corporate Secretary of the Company since October 2010.  Mr. Parrish previously served as Executive Vice President and General Counsel of MV Transportation, Inc. from September 2008 until he joined the Company.  He served as Senior Vice President and General Counsel of Central Parking Corporation from 1998 to 2008.

Kurt D. Barton has served as Senior Vice President – Chief Financial Officer and Treasurer since March 2017, after having2017. Prior to that time, Mr. Barton served as Senior Vice President – Controller of the Company since February 2016.  Mr. Barton previously served as Vice President - Controller of the Company from February 2009, after having previously served as the Company's Director, Internal Audit from July 2002 to February 2009. Mr. Barton has served in various other leadership roles in accounting since he joined the Company in 1999. Mr. Barton, a Certified Public Accountant, began his career in public accounting in 1993, spending six years at Ernst & Young, LLP.

Chad M. Frazell has served as Senior Vice President - Human Resources since August 2014. Mr. Frazell previously served as Senior Vice President, Human Resources for Shopko Stores Operating Co., LLC from April 2011 until he joined the Company. From 2008 to 2011, Mr. Frazell served as Vice President, Human Resources for Kohl’s Corporation, where he began as a store manager in 1999. Prior to 1999, Mr. Frazell served as a store manager and assistant manager for Target Corporation. He began his career with Wal-Mart Stores, Inc., where he served as an assistant manager and sales associate.


Robert D. Mills has served as Executive Vice President – Chief Technology, Digital Commerce and Strategy Officer since August 2018, prior to which he served as the Company's Senior Vice President - Chief Information Officer since February 2014. Mr. Mills previously served as Chief Information Officer for Ulta Beauty, Inc. from October 2011 until he joined the Company. From 2005 to 2011, Mr. Mills was Vice President, Chief Information Officer for the online business unit at Sears Holdings Corporation where he began as an Information Technology Customer Relationship Leader in 2001. Prior to 2001, Mr. Mills held roles at The Allstate Insurance,Corporation, Rockwell International, Telecommunications Division, and Household Finance Corporation. Since March 2018, Mr. Mills has served as a director of B&G Foods, Inc.


John P. Ordus was promoted to Executive Vice President – Chief Stores Officer in February 2020, after having served as the Company's Senior Vice President - Store Operations since August 2015. Prior to that time, Mr. Ordus served as Regional Vice President for the Company from June 2010 and as a Regional Director for the Company since September 2008. Mr. Ordus joined the Company as a District Manager in February 2002 after the acquisition of Quality Farm & Fleet, Inc. with which Mr. Ordus held roles since January 1988.

Jonathan S. Estep was promoted to Executive Vice President – Chief Merchandising Officer in February 2020, after having served as the Company's Senior Vice President, General Merchandising since April 2017. Prior to that time, Mr. Estep served the Company as a Vice President, Divisional Merchandise Manager from February 2014. Mr. Estep also previously served in various other leadership roles in merchandising since he re-joined the Company in January 2008.
10

Index

Melissa D. Kersey was appointed as Executive Vice President – Chief Human Resources Officer on July 20, 2020. Ms. Kersey was previously Senior Vice President and Chief People Officer for McDonald's USA, LLC from 2017 until July 2020. Ms. Kersey also previously held a number of executive level roles with Walmart Inc. (previously Wal-Mart Stores, Inc.) from 2008 to 2017, including Senior Vice President of Global Human Resource Transformation and People Services, Senior Vice President and Chief Human Resources Officer for U.S. Stores, and Senior Vice President of Learning and Human Resources Strategy. Prior to that time, Ms. Kersey spent eight years with Alltel Wireless and four years with the Target Corporation in Operations, Distribution, Human Resources and Technology roles.

Colin W. Yankee was promoted to Executive Vice President - Chief Supply Chain Officer in February 2020, after having served as the Company's Senior Vice President, Supply Chain since November 2015 when he joined the Company. Mr. Yankee was previously Vice President of Logistics for Neiman Marcus Group LLC from 2013 to 2015. Prior to that time, Mr. Yankee held various leadership roles in logistics and supply chain with the Target Corporation since 2004. He began his career as a Cavalry Officer, Captain in the United States Army.

Noni L. Ellison was appointed as Senior Vice President – General Counsel and Corporate Secretary on January 11, 2021. Ms. Ellison was previously General Counsel, Chief Compliance Officer and Corporate Secretary for Carestream Dental LLC from August 2017 until January 2021. Ms. Ellison also previously served as Associate General Counsel and Assistant Corporate Secretary at W.W. Grainger, Inc. from February 2015 until July 2017. Prior to that time, Ms. Ellison held roles of increasing responsibility at Turner Broadcasting System, Inc. and Scripps Networks Interactive, Inc. and practiced law with two national law firms as a corporate finance and securities associate.

Christi C. Korzekwa was promoted to Senior Vice President - Chief Marketing Officer in February 2022, after having served as Senior Vice President – Marketing since February 2015. Ms. Korzekwa previously served as Vice President, Marketing since she joined the Company in February 2012. Prior to joining the Company, Ms. Korzekwa served as Senior Vice President, Director of Client Services for Blue Sky Agency. She worked for Home Depot, Inc. from 2004 to 2011 in roles of increasing importance in marketing and advertising, most recently as Senior Director, Marketing. Before joining Home Depot, Inc., Ms. Korzekwa spent 17 years with TM Advertising, LLC, most recently serving as their Senior Vice President, Global Media Director.

Matthew L. Rubin was appointed Senior Vice President and General Manager of Petsense on February 1, 2021. Mr. Rubin previously served as Senior Vice President of Business Development & Growth at The Michaels Stores, Inc. from October 2018 until January 2021. Mr. Rubin was previously an executive in Accenture plc's North America Retail Practice from April 2015 to October 2018. Before April 2015, Mr. Rubin was a Partner at Consolidated Venture Partners & Consolidated Marketing and a Co-Founder & Finance Partner at OnTrend Products. Mr. Rubin also previously served as Vice President of Specialty Business Operations at BJ’s Wholesale Club Holding, Inc.. Mr. Rubin began his career at Office Depot, Inc. where he had multiple merchandising and strategic project leadership roles of increasing responsibility.

Additional Information


We file reports with the Securities and Exchange Commission (“SEC”), including Annual Reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other reports as required. The public may read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC  20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We are an electronic filer and the SEC maintains an Internet sitewebsite at sec.gov that contains the reports, proxy and information statements, and other information filed electronically.we file.



We make available, free of charge through our Internet website, TractorSupply.com, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.  The information provided on our website is not part of this report, and is therefore not incorporated by reference unless such information is otherwise specifically referenced elsewhere in this report.


11

Index
Item 1A.    Risk Factors


Our business faces many risks. ThoseCertain risks of which we are currently aware and deem to be material are described below.  If any of the events or circumstances described in the following risk factors occur, our business, financial condition or results of operations may significantly suffer, and the trading price of our common stock could decline.  These risk factors should be read in conjunction with the other information in this Form 10-K.


General economic conditions may adversely affect our financial performance.Strategic and Competitive Risks
Our results of operations may be sensitive to changes in overall economic conditions that impact consumer spending, including discretionary spending. A weakening of economic conditions affecting disposable consumer income such as lower employment levels, uncertainty or changes in business or political conditions, higher interest rates, higher tax rates, higher fuel and energy costs, higher labor and healthcare costs, the impact of natural disasters or acts of terrorism, and other matters could reduce consumer spending or cause consumers to shift their spending to competitors. A general reduction in the level of discretionary spending, shifts in consumer discretionary spending to our competitors or shifts in discretionary spending to less profitable products sold by us could result in lower net sales, slower inventory turnover, greater markdowns on inventory, and a reduction in profitability due to lower margins.


Failure to protect our reputation could have a material adverse effect on our brand name.name or any of our exclusive brands.

Our success depends in part on the value and strength of the Tractor Supply name.name, including our exclusive brands. The Tractor Supply name is integral to our business, as well as to the implementation of our strategies for expanding our business. Maintaining, promoting, and positioning our brand will depend largely on the success of our marketing and merchandising efforts and our ability to provide high quality merchandise and a consistent, high quality customer experience. Our brand could be adversely affected if we fail to achieve these objectives or if our public image or reputation were to be tarnished by negative publicity. Failurepublicity, whether or not based on fact. Any failure to comply or accusation of our failure to comply with ethical, social, product, labor, data privacy, and environmental standards could also jeopardize our reputation and potentially lead to various adverse consumer actions. Customers are also increasingly using social media to provide feedback and information about our Company, including our products and services, in a manner that can be quickly and broadly disseminated. Further, adverse publicity about our merchandise products, whether valid or not, may discourage consumers from buying the products we offer. Additionally, our proprietary rights in our trademarks, trade names, service marks, domain names, copyrights, patents, trade secrets and other intellectual property rights are valuable assets of our business. We may not be able to prevent or even discover every instance of unauthorized third party uses of our intellectual property or dilution of our brand names, such as when a third party uses trademarks that are identical or similar to our own. Any of these events could result in decreased revenue or otherwise adversely affect our business.


We may be unable to increase sales at our existing stores.

We experience fluctuations in our comparable store sales at our existing stores, defined as sales in stores which have been open for at least twelve months. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a further discussion of comparable store sales. Various factors affect the comparable store sales at our existing stores, including, among others, the general retail sales environment, our ability to efficiently source and distribute products, global supply chain disruptions, changes in our merchandise assortment, competition, proximity of our locations to one another or to the locations of other competing retailers, increased presence of online retailers, current economic conditions, customer satisfaction with our products, retail pricing, the timing of promotional events, the release of new merchandise, the success of marketing programs, weather conditions, and weather conditions.our ability to attract and retain qualified team members.  These factors may cause ourthe comparable store sales results at our existing stores to differ materially from prior periods and from expectations.  Past comparable store sales are not an indication of future results, and there can be no assurance that our comparable store sales will not decrease in the future.


Purchase price volatility, including inflationary and deflationary pressures, may adversely affect our financial performance.
Although we cannot determineFurthermore, the full effectsignificant positive impact of inflation and deflationthe COVID-19 pandemic on our operations, we believe our sales and results of operations are affected by both.  We are subject to market risk with respect to the pricing of certain products and services, which include, among other items, grain, corn, steel, petroleum, cotton and other commodities as well as diesel fuel and transportation services.  Therefore, we may experience both inflationary and deflationary pressure on product cost, which may impact consumer demand and, as a result, sales and gross margin.  Our strategy is to reduce or mitigate the effects of purchase price volatility principally by taking advantage of vendor incentive programs, economies of scale from increased volume of purchases, adjusting retail prices and selectively buying from the most competitive vendors while maintaining product quality.  Should our strategy to mitigate purchase price volatility not be effective, our financial performance could be adversely impacted.

Weather conditions may have a significant impact on our financial results.
Weather conditions affect the demand for our products in fiscal 2021 and 2020 resulted in a significant increase in new or reacquired customers and in some cases the supply of, products, whichcomparable store sales growth. Our sales performance in turn has an impact on prices.  Historically, weather conditions, including unseasonably warm weather in the fallfiscal 2021 and winter months and unseasonably cool weather in the spring and summer months, have affected the timing and volume of our sales and results of operations. In addition, extreme weather conditions, including snow and ice storms, flood and wind damage, hurricanes, tornadoes, extreme rain and

droughts, have impacted operating results. While extreme weather conditions can positively impact our operating results by increasing demand in affected locations for products needed2020 may present a greater risk to cope with the weather condition and its effects, they can also negatively affect our business depending on the severity and length of these conditions as a result of store closings or the inability of customers to shop at our stores due to weather conditions. Our strategy is to manage product flow and adjust merchandise assortments and depth of inventory to capitalize on seasonal demand trends. Should such a strategy not be effective, the weather may have a material adverse effect on our financial condition and results of operations.

Our merchandising and marketing initiatives may not provide expected results.
We believe our past performance has been based on, and future success will depend upon, in part, the ability to develop and execute merchandising initiatives with effective marketing programs.  These merchandising initiatives and marketing programs may not deliver expected results, and there is no assurance that we will correctly identify and respond in a timely manner to evolving trends and consumer preferences and expectations. If we misjudge the market or our marketing programs are not successful, we may overstock unpopular products and be forced to take inventory price reductions that have a material adverse effect on our profitability. Failure to execute and promote such initiatives in a timely manner could harm our ability to grow the business and could have a material adverse effect on our results of operations and financial condition.  Shortages of key merchandise could also have a material adverse impact on operating results and financial condition.

Capital required for growth may not be available.
The construction or acquisition of new stores,increase comparable store support center facilities, distribution facilities or other facilities, the remodeling and renovation of existing facilities and investments in information technology require significant amounts of capital. In the past, our growth has been funded through internally generated cash flow and bank borrowings.  Disruptionssales in the capitalfollowing year(s) and credit markets could adversely affect thein our ability of the banks to meet their commitments.  Our access to funds undermaintain our debt facilities is dependent on the ability of the banks that are parties to the facility to meet their funding commitments.  Those banksnew or reacquired customers gained in those years. Therefore, we may not be able to meet their funding commitments to us if they experience shortages of capitalsustain or increase our comparable store sales in fiscal 2022 and liquidity or if they experience excessive volumes of borrowing requests within a short period of time.  In addition, tight lending practices may make it difficult for our real estate developers to obtain financing under acceptable loan terms and conditions.  Unfavorable lending practices could impact the timing of our store openings and materially adversely affect our ability to open new stores in desirable locations.beyond.

Longer term disruptions in the capital and credit markets as a result of uncertainty, changing or increased regulation, reduced funding alternatives, or failures of significant financial institutions could adversely affect our access to liquidity needed for our business.  Any disruption could require us to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for our business needs can be arranged.  Such measures could include deferring capital expenditures and reducing or eliminating future share repurchases, cash dividends or other discretionary uses of cash.


Failure to open and manage new stores in the number and manner currently contemplated could adversely affect our financial performance.

An integral part of our business strategy includes the expansion of our store base through new store openings. This expansion strategy is dependent on our ability to find suitable locations, and we face competition from many retailers and other businesses for such sites. If we are unable to implement this strategy, our ability to increase our sales, profitability, and cash flow could be impaired significantly. To the extent that we are unable to open new stores in the manner we anticipate (due to, among other reasons, site approval or unforeseen delays in construction), our sales growth may be impeded.


Although we have a rigorous real estate site selection and approval process, there can be no assurance that our new store openings will be successful or result in incremental sales and profitability for the Company. New stores build their sales volumes and refine their merchandise selection over time and, as a result, generally have lower gross margins and higher
12

Index
operating expenses as a percentage of net sales than our more mature stores. As we continue to open new stores, there may be a negative impact on our results from a lower contribution margin of these new stores until their sales levels ramp to chain average, if at all, as well as from the impact of related pre-opening costs. Additionally, new stores can also impact the sales and contribution margins of existing stores located in close proximity.

As we execute this expansion strategy, we may also experience managerial or operational challenges which may prevent any expected increase in sales, profitability, or cash flow. Our ability to manage our planned expansion depends on the adequacy of our existing information systems, the efficiency and expansion of our distribution systems, the adequacy of the hiring and training process for new personnel (especially store managers), the effectiveness of our controls and procedures, and the ability to identify customer demand and build market awareness in different geographic areas. There can be no assurance that we will be able to achieve our planned expansion, that the new stores will be effectively integrated into our existing operations or that such stores will be profitable.


Although we have a rigorous real estate site selectionOur merchandising and approval process,marketing initiatives may not provide expected results.

We believe our past performance has been based on, and future success will depend, in part, upon the ability to develop and execute merchandising initiatives with effective marketing programs.  These merchandising initiatives and marketing programs may not deliver expected results, and there can beis no assurance that we will correctly identify and respond in a timely manner to evolving trends and consumer preferences and expectations. If we misjudge the market or our new store openings willmarketing programs are not successful, we may overstock unpopular products and be successfulforced to take inventory impairment or resultretail price reductions that have a material adverse effect on our profitability. Failure to execute and promote such initiatives in incremental salesa timely manner could harm our ability to grow the business and profitability for the Company. New stores build their sales volumes and refine their merchandise selection over time and, ascould have a result, generally have lower gross margins and higher operating expenses as a percentage of net sales than our more mature stores. As we continue to open new stores, there may be a negative impactmaterial adverse effect on our results fromof operations and financial condition.  Shortages of key merchandise could also have a lower contribution marginmaterial adverse effect on our financial condition and results of these newoperations.

Competition may hinder our ability to execute our business strategy and adversely affect our operations.

We operate in the highly competitive retail merchandise sector with numerous competitors. These competitors include general merchandise retailers, home center retailers, pet retailers, specialty and discount retailers, independently-owned retail farm and ranch stores, until their sales levels ramp to chain average, if at all,numerous privately-held regional farm store chains, and farm cooperatives, as well as frominternet-based retailers. We compete for customers, merchandise, real estate locations, and employees. This competitive environment subjects us to various other risks, including the impact of related pre-opening costs.


inability to continue our store and sales growth and to provide attractive merchandise to our customers at competitive prices that allow us to maintain our profitability. Our failure to attract and retain qualified team members, increasescompete effectively in wage and labor costs and changes in laws and other labor issuesthis environment could adversely affectimpact our financial performance.
Our ability to continue expanding operations depends on our ability to attract and retain a large and growing number of qualified team members.  Our ability to meet labor needs while controlling wage and related labor costs is subject to numerous external factors, including the availability of a sufficient number of qualified persons in the work force, unemployment levels, prevailing wage rates, changing demographics, health and other insurance costs, changes in employment legislation and the potential for changes in local labor practices or union activities.  If we are unable to locate, attract or retain qualified personnel, or if costs of labor or related costs increase significantly, our financial performance could be adversely affected.

We are subject to federal, state, and local laws governing employment practices and working conditions.  These laws cover wage and hour practices, labor relations, paid and family leave, workplace safety and immigration, among others.  The laws and regulations being passed at the state and local level create unique challenges for a multi-state employer.  We must continue to monitor and adapt our employment practices to comply with these various laws and regulations.  If our costs of labor or related costs increase significantly as new or revised labor laws, rules or regulations or healthcare laws are adopted or implemented, our financial performance could be adversely affected.


We may pursue strategic acquisitions and the failure of an acquisition to produce the anticipated results or the inability to fully integrate the acquired companies could have an adverse impact on our business.

We may, from time to time, acquire businesses we believe to be complementary to our business.business, for example, the pending acquisition of Orscheln Farm and Home, LLC discussed previously. The success of an acquisition is based on our ability to make accurate assumptions regarding the valuation, operations, growth potential, integration, and other factors relating to the target business. Acquisitions may result in difficulties in assimilating acquired companies and may result in the diversion of our capital and our management’s attention from other business issues and opportunities. We may not be able to successfully integrate an organization that we acquire, including their personnel, financial systems, distribution, operations, and general operating procedures. If we fail to successfully integrate acquisitions, we could experience increased costs associated with operating inefficiencies which could have an adverse effect on our financial results. Also, while we employ several different methodologies to assess potential business opportunities, the newacquired businesses may not meetachieve desired profitability objectives or other expectations, causing lower than expected earnings and cash flows which could adversely affect our expectationsfinancial performance and therefore,subsequently require impairment of long-lived assets, goodwill and other intangible assets.

Weather and Climate Risks

Unseasonal and extreme weather may have a significant impact on our financial results.

Weather conditions affect the demand for, and in some cases the supply of, products, which in turn has an impact on prices.  Historically, weather conditions, including unseasonably warm weather in the fall and winter months and unseasonably cool weather in the spring and summer months, have affected the timing and volume of our sales and results of operations. In addition, extreme weather conditions, such as more frequent or intense hurricanes, thunderstorms, tornadoes, flood, fires,
13

Index
droughts, and snow or ice storms, as well as rising sea levels, have impacted operating results both positively and negatively and may positively or negatively impact our business in the future. While extreme weather conditions can positively impact our operating results by increasing demand in affected locations for products needed to cope with the weather condition and its effects, they can also negatively affect our business depending on the severity and length of these conditions, as a result of store closings, damage to our stores or merchandise, or the inability of customers to shop at our stores due to weather conditions. Our strategy is to manage product flow and adjust merchandise assortments and depth of inventory to capitalize on seasonal demand trends. Should such a strategy not be effective, the weather may have a material adverse effect on our financial condition and results of operations.

Weather conditions may cause a disruption in our distribution and transportation network that would adversely affect our ability to conduct our operations.

We rely on our distribution and transportation network, including third-party logistics providers, to provide goods to our stores and to our customers in a timely and cost-effective manner through deliveries to our distribution facilities from vendors and then from the distribution facilities or direct ship vendors to our stores or customers by various means of transportation, including shipments by sea, air, rail, and truck. Although we believe that our operations are efficient, disruptions due to extreme weather conditions, including snow and ice storms, flood and wind damage, hurricanes, tornadoes, extreme rain, fires and droughts may result in delays in the transportation and delivery of merchandise to our distribution centers, our stores, or our customers. Significant disruptions or delays in our distribution and transportation network could adversely affect sales and the satisfaction of our customers which could have a material adverse impact on our financial condition and results of operations.

We may be adversely affected by legal, regulatory or market responses to global climate change.

Growing concern over climate change has led policy makers in the U.S. to consider the enactment of legislative and regulatory proposals that would impose mandatory requirements on greenhouse gas emissions. Such laws, if enacted, are likely to impact our business in a number of ways. For example, we use natural gas, diesel fuel, gasoline and electricity in conducting our operations. Increased government regulations to limit carbon dioxide and other greenhouse gas emissions may result in increased compliance costs and legislation or regulation affecting energy inputs, which could materially affect our profitability. Compliance with any new or more stringent laws or requirements, or stricter interpretations of existing laws, could require additional expenditures by us or our suppliers. Our inability to appropriately respond to such changes could adversely impact our business, financial condition, results of operations or cash flows.

Macroeconomic Risks

General economic conditions may adversely affect our financial performance.


CompetitionOur results of operations may hinderbe sensitive to changes in overall economic conditions that impact consumer spending, including discretionary spending. A weakening of economic conditions affecting disposable consumer income such as lower employment levels, uncertainty or changes in business or political conditions, social and political causes and movements, higher interest rates, higher tax rates, higher fuel and energy costs, higher labor and healthcare costs, the impact of natural disasters or acts of terrorism, general health epidemics, and other matters could reduce consumer spending or cause consumers to shift their spending to competitors. A general reduction in the level of discretionary spending, shifts in consumer discretionary spending to our competitors or shifts in discretionary spending to less profitable products sold by us could result in lower net sales, slower inventory turnover, greater markdowns on inventory, and a reduction in profitability due to lower margins.

Purchase price volatility, including inflationary and deflationary pressures, may adversely affect our financial performance.

Although we cannot determine the full effect of inflation and deflation on our operations, we believe our sales and results of operations are affected by both.  We are subject to market risk with respect to the pricing of certain products and services, which include, among other items, grain, corn, steel, petroleum, cotton, and other commodities, as well as duties, tariffs, diesel fuel, and transportation services.  Therefore, we may experience both inflationary and deflationary pressure on product cost, which may impact consumer demand and, as a result, sales and gross margin.  Our strategy is to reduce or mitigate the effects of purchase price volatility principally by taking advantage of vendor incentive programs, economies of scale from increased volume of purchases, adjusting retail prices, and selectively buying from the most competitive vendors while maintaining product quality.  Should our strategy to mitigate purchase price volatility not be effective, our financial performance could be adversely impacted.
14

Index

Team Member Risks

Our failure to attract and retain qualified team members, increases in wage, and labor costs, and changes in laws and other labor issues could adversely affect our financial performance.

Our ability to maintain and continue expanding operations depends on our ability to executeattract and retain a large and growing number of qualified team members.  Our ability to meet labor needs while controlling wage and related labor costs is subject to numerous external factors, including the availability of a sufficient number of qualified persons in the work force, unemployment levels, prevailing wage rates, increases in legally required minimum wage rates, changing demographics, health and other insurance costs, changes in employment legislation and the potential for changes in local labor practices or union activities.  If we are unable to locate, attract or retain qualified personnel, or if costs of labor or related costs increase significantly, our business strategyfinancial performance could be adversely affected.

We are subject to federal, state, and local laws governing employment practices and working conditions.  These laws cover wage and hour practices, labor relations, paid and family leave, workplace safety and immigration, among others.  The laws and regulations being passed at the state and local level create unique challenges for a multi-state employer.  We must continue to monitor and adapt our employment practices to comply with these various laws and regulations.  If our costs of labor or related costs increase significantly as new or revised labor laws, rules or regulations or healthcare laws are adopted or implemented, our financial performance could be adversely affected.

The loss of current members of our senior management team and other key team members or the failure to successfully manage an executive officer transition may adversely affect our operations.operating results.

Our success depends in large part on the continued availability and service of our executive officers, senior management, and other key team members. Competition for senior management and key team members in our industry is strong and we may not be able to retain our key team members or attract new qualified team members.  We operate in the highly competitive retail merchandise sector with numerous competitors. These competitors include general merchandise retailers, home center retailers, specialtymust continue to recruit, retain, and discount retailers, independently owned retail farmmotivate management and ranch stores, numerous privately-held regional farm store chains and farm cooperatives, as well as internet-based retailers. We compete for customers, merchandise, real estate locations, and employees. This competitive environment subjects us to various other risks, including the inability to continue our store and sales growth and to provide attractive merchandise to our customers at competitive prices that allow usteam members sufficiently, both to maintain our profitability. Ourcurrent business and to execute our long-term strategic growth initiatives. The loss of any of our executive officers or other key senior management without sufficient advance notice could prevent or delay the implementation and completion of our strategic initiatives or divert management’s attention to seeking qualified replacements. Additionally, any failure by us to compete effectively in this environmentmanage a successful leadership transition of an executive officer and to timely identify a qualified permanent replacement could adversely impactharm our financial performance.business and have a material adverse effect on our results of operations.


Supply Chain and Third-Party Vendor Risks

We face risks associated with vendors from whom our products are sourced.

The products we sell are sourced from a variety of domestic and international vendors.  We have agreements with our vendors in which the vendors agree to comply with applicable laws, including labor and environmental laws, and to indemnify us against certain liabilities and costs.  Our ability to recover liabilities and costs under these vendor agreements is dependent upon the financial condition and integrity of the vendors. We rely on long-term relationships with our suppliers but have no significant long-term contracts with such suppliers.  Our future success will depend in large measure upon our ability to maintain our existing supplier relationships or to develop new ones.  This reliance exposes us to the risk of inadequate and untimely supplies of various products due to political, economic, social, health (including, but not limited to, the COVID-19 coronavirus), or environmental conditions, transportation delays, or changes in laws and regulations affecting distribution.  Our vendors may be forced to reduce their production, shut down their operations or file for bankruptcy protection, which could make it difficult for us to serve the market’s needs and could have a material adverse effect on our business.


While the Company selects these third-party vendors carefully, it does not control their actions.actions or the components or manufacture of their products. Any problems caused by these third parties,third-parties, or issues associated with their products or workforce, including those resulting fromcustomer or governmental complaints, breakdowns or other disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher volumes, and cyber attacks or security breaches at a vendor could subject the Company to litigation and adversely affect the Company’s ability to deliver products and services to its customers and otherwise conduct its business.have a material adverse effect on our results of operations and financial condition.


We rely on foreign manufacturers for various products that we sell.  In addition, many of our domestic suppliers purchase a portion of their products from foreign sources.  As an importer, our business is subject to the risks generally associated with doing business internationally, such as domestic and foreign governmental regulations, economic disruptions, global or regional
15

Index
health epidemics, delays in shipments, transportation capacity and costs, currency exchange rates, and changes in political or economic conditions in countries from which we purchase products.  If any such factors were to render the conduct of business in particular countries undesirable or impractical or if additional

U.S. quotas, duties, tariffs, taxes, or other charges or restrictions were imposed upon the importation of our products in the future, our financial condition and results of operations could be materially adversely affected.


The current political landscape in the U.S. has introduced greatercontains uncertainty with respect to tax and trade policies, tariffs and regulations affecting trade between the U.S. and other countries. We source a portion of our merchandise from manufacturers located outside the U.S., primarily in Asia and Central America. Major developments in tax policy or trade relations, such as the disallowance of tax deductions for imported merchandise or the imposition of tariffs on imported products, could have a material adverse effect on our business, results of operations, and liquidity.financial condition.


We rely on manufacturers located in foreign countries, including China, for merchandise. Additionally, a portion of our domestically purchased merchandise is manufactured abroad. Our business may be materially adversely affected by risks associated with international trade, including the impact of current or potential tariffs by the U.S. with respect to certain consumer goods imported from China.

We source a portion of our merchandise from manufacturers located outside the U.S., primarily in Asia and Central America, and many of our domestic vendors have a global supply chain. The U.S. has imposed tariffs on certain products imported into the U.S. from China and could propose additional tariffs. The imposition of tariffs on imported products has increased our costs and could result in reduced sales and profits. The changes in certain tax and trade policies, tariffs and other regulations affecting trade between the U.S. and other countries enacted under the prior U.S. administration increased the cost of our merchandise sourced from outside of the U.S., which represents a large percentage of our overall merchandise. It remains unclear how tax or trade policies, tariffs or trade relations may change under the current U.S. administration, which could adversely affect our business, results of operations, effective income tax rate, liquidity and net income.

In addition, the imposition of tariffs by the U.S. has resulted in the adoption of tariffs by China on U.S. exports and could result in the adoption of tariffs by other countries as well. A resulting trade war could have a significant adverse effect on world trade and the world economy. Further, the imposition of tariffs or other changes in world trade could have an impact on certain U.S. industries and consumers and could negatively impact the consumer demand for products that we sell.

We continue to evaluate the impact of the effective and potential tariffs on our supply chain, costs, sales, and profitability as well as our strategies to mitigate any negative impact, including negotiating with our vendors, seeking alternative sourcing options, and adjusting retail selling prices. Given the uncertainty regarding the scope and duration of the current and potential tariffs, as well as the potential for additional trade actions by the U.S. or other countries, the impact on our business, results of operations, and financial condition is uncertain but could be significant. Thus, we can provide no assurance that any strategies we implement to mitigate the impact of such tariffs or other trade actions will be successful in whole or in part. To the extent that our supply chain, costs, sales, or profitability are negatively affected by the tariffs or other trade actions, our business, financial condition, and results of operations may be materially adversely affected.

A significant disruption to our distribution network or to the timely receipt of inventory could adversely impact sales or increase our transportation costs, which would decrease our profits.

We rely on our distribution and transportation network, including third-party logistics providers, to provide goods to our stores in a timely and cost-effective manner through deliveries to our distribution facilities from vendors and then from the distribution facilities or direct ship vendors to our stores or customers by various means of transportation, including shipments by sea, air, rail, and truck. Any disruption, unanticipated expense, or operational failure related to this process could negatively affect store operations negatively.our operations. For example, unexpected delivery delays (including delays due to weather, fuel shortages, work stoppages, global or regional health epidemics, product shortages from vendors, or other reasons) or increases in transportation costs (including increased fuel costs or a decrease in transportation capacity for overseas shipments) could significantly decrease our ability to provide adequate productproducts to meet increased customer demand for sale,certain products, or products at a desired price, resulting in lower sales and profitability. In addition, labor shortages or work stoppages in the transportation industry or long-term disruptions to the national and international transportation infrastructure that lead to delays or interruptions of deliveries could negatively affect our business. Also, a fire, tornado, or other disaster at one of our distribution facilities could disrupt our timely receiving, processing, and shipment of merchandise to our stores which could adversely affect our business. While we believe there are adequate reserve quantities and alternative suppliers available, shortages or interruptions in the receipt or supply of products caused by unanticipated demand, such as occurred during, and as the economy recovers from, the COVID-19 pandemic, problems in production or distribution, financial or other difficulties of supplies,

16

Index
inclement weather or other economic conditions, including the availability of qualified drivers and distribution center team members, could adversely affect the availability, quality and cost of products, and our operating results.

The implementation of our supply chain initiatives could disrupt our operations in the near term, and these initiatives might not provide the anticipated benefits or might fail.

We maintain a network of distribution facilities and have plans to build new distribution facilities and expand existing facilities to support our long-term strategic growth objectives.initiatives. Delays in opening new or expanded distribution facilities could adversely affect our future operations by slowing store growth or negatively impacting our fulfillment capabilities, which may in turn reduce revenue growth. In addition, distribution-related construction or expansion projects entail risks which could cause delays and cost overruns, such as: shortages of materials; shortages of skilled labor or work stoppages; unforeseen construction, scheduling, engineering, environmental, or geological problems; weather interference; fires or other casualty losses; and unanticipated cost increases. The completion date and ultimate cost of future projects could differ significantly from initial expectations due to construction-related or other reasons. We cannot guarantee that all projects will be completed on time or within established budgets.


We continue to make significant technology investments in our supply chain. These initiatives are designed to streamline our distribution process so that we can optimize the delivery of goods and services to our stores, and distribution facilities, and customers in a timely manner and at a reasonable cost. The cost and potential problems and interruptions associated with the implementation of these initiatives, including those associated with managing third-party service providers and employing new web-based tools and services, could disrupt or reduce the efficiency of our operations in the near term. In addition, our improved supply chain technology might not provide the anticipated benefits, it might take longer than expected to realize the anticipated benefits, or the initiatives might fail altogether.


We are subject to personal injury, workers’ compensation, product liability, discrimination, harassment, wrongful terminationTechnology, Data Security, Business Continuity and other claims in the ordinary course of business.Disaster Recovery Risks
Our business involves a risk of personal injury, workers’ compensation, product liability, discrimination, harassment, wrongful termination and other claims in the ordinary course of business.  Product liability claims from customers and product recalls for merchandise alleged to be defective or harmful could lead to the disposal or write-off of merchandise inventories, the incurrence of fines or penalties and damage to our reputation. We maintain general liability and workers’ compensation insurance with a self-insured retention for each policy type and a deductible for each occurrence.  We also maintain umbrella limits above the primary general liability and product liability coverage.  In many cases, we have indemnification rights against the manufacturers of the products and their products liability insurance as well as the property owners of our leased buildings.  Our ability to recover costs and damages under such insurance or indemnification arrangements is subject to the financial viability of the insurers, manufacturers and landlords and the specific allegations of a claim.  No assurance can be given that our insurance coverage or the manufacturers’ or landlords’ indemnity will be available or sufficient in any claims brought against us.

Additionally, we are subject to U.S. federal, state and local employment laws that expose us to potential liability if we are determined to have violated such employment laws, including but not limited to, laws pertaining to minimum wage rates, overtime pay,

discrimination, harassment, and wrongful termination. Compliance with these laws, including the remediation of any alleged violation, may have a material adverse effect on our business or results of operations.

Failure to maintain an effective system of internal control over financial reporting could materially impact our business and results.
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. An internal control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all internal
control systems, internal control over financial reporting may not prevent or detect misstatements. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud, and could expose us to litigation or adversely affect the market price of our common stock.


Any failure to maintain the security of the information relating to our business, customers, employeesteam members, and vendors that we hold, whether as a result of cybersecurity attacks or otherwise, could damage our reputation with customers, employees, and vendors, could cause us to incur substantial additional costs and to become subject to litigation, and could adverselymaterially affect our operating results, financial condition, and liquidity.

We depend on information systems and technology, some of which are managed or provided by third-parties, for many activities important to our business. As do most retailers, we receive and store in our information systems certain personal and other confidentialsensitive information about our business, customers, employeesteam members, and vendors. WeAdditionally, we also rely on business partners to provide services to us that may include important businessreceive and process information or data aboutpermitting cashless payments as part of our customers, employeesin-store and vendors. In addition, our online operations at TractorSupply.com and Petsense.com and on our mobile application, some of which depend upon the secure transmission of confidential information over public networks. The information that we receive and store makes us subject to cybersecurity attacks and cyber incidents, which are occurring more frequently, are constantly evolving in nature, are becoming more sophisticated, and are being made by groups and individuals with a wide range of expertise and motives. We are the target of attempted cyber and other security threats and we continuously monitor our information technology networks including information permitting cashless payments. While we maintain substantialand infrastructure in an effort to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact. However, these security measures cannot provide absolute assurance or guarantee that we will be successful in preventing, detecting, or responding to help protect and prevent unauthorized access toevery such information, it is possible that unauthorized parties (through cybersecurity attacks, which are rapidly evolving and becoming increasingly sophisticated,breach or by other means) might compromise our security measures and obtain anddisruption and/or preventing the misuse the personalof confidential information of our business, customers, employeesteam members, or vendors. Similar risks exist with respect to the third-party vendors on which we rely for aspects of our information technology support services and administrative functions, even if the attack or breach does not directly impact our systems or information.

A compromise of our information security and privacy controls, or those of businesses and vendors thatwith whom we holdinteract, which results in confidential information being accessed, obtained, damaged, or used by unauthorized or improper parties; loss or unavailability of data; disruptions to our business activities; or any other confidential Company data. It is possible that suchoutcome stemming from a compromise could go undetected by us. Such an occurrencecybersecurity incident could materially adversely affect our reputation with our customers, employees, andcustomers, team members, and vendors, as well as our operations, results of operations, financial condition, and liquidity, and could result in significant legal and financial exposure beyond the scope or limits of insurance coverage. Moreover, a security breach could require that we expend significant additional resources to respond to the attack or breach and could result in a disruption of our operations.


In addition, states and the federal government are increasingly enactinghave enacted laws and regulations relating to privacy, data breaches, and theft of employee and customer data.  These laws will likely increasehave increased the costs of doing business and, if we fail to comply with these laws and regulations or to implement appropriate safeguards or to detect and provide prompt notice of unauthorized access as required
17

Index
by some of these new laws, we could be subject to potential claims for damages and other remedies, which could harm our business.


We are subject to payments-related risks that could increase our operating costs, expose us to fraud, subject us to potential liability, and potentially disrupt our business.

We accept payments using a variety of methods, including credit cards, debit cards, credit accounts, our private label credit cards, gift cards, direct debit from a customer’s bank account, consumer invoicing, and physical bank checks, and we may offer different payment options over time. These payment options subject us to many compliance requirements, including, but not limited to, compliance with payment card association operating rules, including data security rules, certification requirements, rules governing electronic funds transfers, and Payment Card Industry Data Security Standards. They also subject us to potential fraud by criminal elements seeking to discover and take advantage of security vulnerabilities that may exist in some of these payment systems. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs and lower profitability. We rely on third parties to provide payment processing services, including the processing of credit cards, debit cards, electronic checks, gift cards and promotional financing, and it could disrupt our business if these companies become unwilling or unable to provide these services to us. If we fail to comply with these rules or requirements, adequately encrypt payment transaction data, or if our data security systems are breached or compromised, we may be liable for card issuing banks’ costs, subject to fines and higher transaction fees, and lose our ability to accept credit and debit card payments from our customers, process electronic funds transfers, or facilitate other types of online payments, and our business and operating results could be adversely affected.

Our business and operations could suffer material losses in the event of system interruptions or failures.

Our information technology systems, some of which are dependent on services managed or provided by third parties,third-parties, serve an important role in the operation and administration of our business. These systems are vulnerable to damages from any number of sources, including, but not limited to, human error, cybersecurity attacks, computer viruses, unauthorized access, fire, flood, power outages, telecommunication failures, facility or equipment damage, natural disasters, terrorism, and war.  In addition, we continually make investments in technology to implement new processes and systems, as well as to maintain and update our existing processes and systems. Implementing process and system changes increases the risk of disruption. If our information technology systems are interrupted or fail and our redundant systems or recovery plans are not adequate to address such interruptions or failures on a timely basis, our revenues and profits could be reduced and the reputation of our brand and our business could be materially adversely affected.  Additionally, remediation of any problems with our systems could result in significant, unplanned expenses.


As customer-facingCustomer-facing technology systems becomeare an increasingly important part of our sales and marketing strategy and the failure of those systems to perform effectively and reliably could keep us from delivering positive customer experiences.

Through our continued information technology enhancements, we believe we are able to provide an improved overall shopping environment and an omni-channel experience that empowers our customers to shop and interact with us from computers, tablets, smart phones, and other mobile communication devices. We use our websitewebsites, TractorSupply.com and Petsense.com, and our mobile application as both as a sales channel for our products and also as a method of providing product, project, and other relevant information to our customers to drive both in-store and online sales. Omni-channel retailing is continually evolving and expanding, and we must effectively respond to changing customer expectations and new developments. The portion of total consumer expenditures with retailers occurring online and through mobile applications has continued to increase and has accelerated significantly during the COVID-19 pandemic. The pace of this increase could further accelerate in the future. Our business has evolved from an in-store experience to interaction with customers across numerous channels, including in-store, online, mobile and social media, among others. Omni-channel retailing is rapidly evolving, and we must keep pace with changing customer expectations and new developments by our competitors. Our customers are increasingly using mobile phones, tablets, computers, and other devices to shop and to interact with us through social media, particularly in the wake of COVID-19. We are making investments in our websites and mobile applications. If we are unable to make, improve, or develop relevant customer-facing technology in a timely manner, our ability to compete and our results of operations could be adversely affected. Disruptions, failures, or other performance issues with these customer-facing technology systems could impair the benefits that they provide to our onlinein-store and in-storeonline business and negatively affect our relationship with our customers.


18

Index

If we are unable to maintain or upgrade our management information systems and software programs or if we are unable to convert to alternate systems in an efficient and timely manner, our operations may be disrupted or become less efficient and our long-term strategic businessgrowth initiatives may not be successful.

We depend on management information systems for many aspects of our business.  We rely on certain software vendors to maintain and periodically upgrade many of these systems so that we can continue to support our business. We could be materially adversely affected if we experienced a disruption or data loss relating to our management information systems and are unable to recover timely. We could also be adversely impacted if we are unable to improve, upgrade, maintain, and expand our management information systems, particularly in light of the contemplated continued store growth.


The success of our long-term strategic businessgrowth initiatives designed to increase our sales and improve margin isare dependent in varying degrees on the timely delivery and the functionality of information technology systems to support them.  Extended delays or cost overruns in securing, developing, and otherwise implementing technology solutions to support the long-term strategic businessgrowth initiatives would delay and possibly even prevent us from realizing the projected benefits of those initiatives.


Financial Risks

Changes in market conditions or in our credit rating could restrict capital and adversely affect our business operations and growth initiatives.

We rely on the positive cash flow we generate from our operating activities and our access to the credit and capital markets to fund our operations, growth strategy, capital expenditures, and return of cash to our stockholders through share repurchases and dividends. Changes in the credit and capital markets, including market disruptions, limited liquidity and interest rate fluctuations, may increase the cost of financing or restrict our access to these potential sources of future liquidity. Our continued access to liquidity sources on favorable terms depends on multiple factors, including our operating performance and credit ratings. There can be no assurance that we will be able to maintain and/or improve our current credit ratings. A rating organization may lower our rating, or change our ratings’ outlook, or decide not to rate our securities, temporarily or permanently, in its sole discretion. In the event that our current credit ratings are downgraded or removed, we would most likely incur higher borrowing costs and experience greater difficulty in obtaining additional financing, which in turn would have a material adverse impact on our financial condition, results of operations, cash flows, and liquidity. We can make no assurances that our ability to obtain additional financing through the debt and equity markets will not be adversely affected by economic conditions or that we will be able to maintain or improve our current credit ratings.

In addition, tight lending practices may make it difficult for our real estate developers to obtain financing under acceptable loan terms and conditions.  Unfavorable lending conditions could impact the timing of our store openings and materially adversely affect our ability to open new stores in desirable locations.

Longer-term disruptions in the capital and credit markets as a result of uncertainty, changing or increased regulation, reduced funding alternatives, or failures of significant financial institutions could adversely affect our access to liquidity needed for our business.  Any disruption could require us to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for our business needs can be arranged.  Such measures could include deferring capital expenditures and reducing or eliminating future share repurchases, cash dividends, or other discretionary uses of cash.

Our level of indebtedness could limit our cash flow available for operations and could adversely affect our ability to service our debt or obtain additional financing.

As of December 25, 2021, our total outstanding consolidated debt was approximately $986.4 million. Our level of indebtedness could restrict our operations and make it more difficult for us to satisfy our debt obligations. Our ability to make payments on our indebtedness, to refinance our indebtedness, and to fund planned capital expenditures will depend on our ability to generate cash in the future.This ability, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control. Our business may not be able to generate sufficient cash flow from operations, and future borrowings may not be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.We may need to refinance all or a portion of our indebtedness on or before maturity.Our ability to refinance all or a portion of our indebtedness on acceptable terms, or at all, will be dependent upon a number of factors, including our degree of leverage, the value of our assets, borrowing and other financial restrictions imposed by lenders and conditions in the credit markets at the time we refinance. If we are unable to refinance our indebtedness on acceptable terms, we may be forced to agree to otherwise unfavorable financing terms. This could have a material adverse effect on our business, financial condition and results of operations.
19

Index

In addition, so long as we comply with any existing limitations in our credit and debt agreements while they are in effect, we may issue an indeterminate amount of debt securities from time to time. If new debt is added to our and our subsidiaries' current debt levels, the related risks that we and they now face could intensify.

Our credit facilities, the indenture related to our 1.75% Senior Notes, and other debt instruments have restrictive covenants and change of control provisions that could limit our financial and business flexibility.

Our credit agreement governing our senior credit facilities and our note purchase and private shelf agreement governing our senior unsecured notes due August 14, 2029 (the “2029 notes”) each contain financial, operative and other restrictive covenants in addition to the restrictive covenants contained in the indenture governing our 1.75% Senior Notes (as defined in the Notes to the Consolidated Financial Statements). Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our debt, which would have a material adverse effect on our financial condition. In addition, upon certain events constituting a change of control, as that term is defined in the indenture for our 1.75% Senior Notes and in our note purchase and private shelf agreement for our 2029 notes, we are required to make an offer in cash to repurchase all or any part of each holder's 1.75% Senior Notes at a repurchase price equal to 101% of the principal thereof, plus accrued interest, and to prepay all of each holder’s 2029 notes at a prepayment price equal to 100% of the principal thereof, plus accrued interest. Sufficient funds may not be available to us, however, at the time of any change of control event to repurchase and prepay, as applicable, all or a portion of the tendered notes pursuant to these requirements. Our failure to offer to repurchase 1.75% Senior Notes and prepay 2029 notes, or to repurchase and prepay, as applicable, notes tendered, following a change of control will result in a default under the indentures for our 1.75% Senior Notes and the note purchase and private shelf agreement for our 2029 notes, which could lead to a cross-default under our credit agreement for our senior credit facilities.

We cannot provide any guaranty of future dividend payments or that we will continue to repurchase our common stock pursuant to our stock repurchase program.

Although our Board of Directors has indicated an intention to pay future quarterly cash dividends on our common stock, any determination to pay or increase cash dividends on our common stock in the future will be based primarily upon our financial condition, results of operations, business requirements, and our Board of Directors’ continuing determination that the declaration of dividends is in the best interests of our stockholders and is in compliance with all laws and agreements applicable to the dividend. Furthermore, although our Board of Directors has authorized a share repurchase program of up to $3$6.5 billion, through December 2020, we may temporarily pause or permanently discontinue this program at any time or significantly reduce the amount of repurchases under the program. The currently authorized amount reflects a $2.0 billion increase to the existing share repurchase program which was approved by our Board of Directors on January 26, 2022. The share repurchase program does not have an expiration date. As of December 25, 2021, prior to the expanded $2.0 billion repurchase authorization, the Company had remaining authorization under the share repurchase program of $345.0 million, exclusive of any fees, commissions or other expenses.


The market price for our common stock might be volatile and could result in a decline in value.

The price at which our common stock trades may be volatile and could be subject to significant fluctuations in response to our operating results, general trends and prospects for the retail industry, announcements by our competitors, analyst recommendations, our ability to meet or exceed analysts’ or investors’ expectations, the condition of the financial markets, and other factors. The Company’s stock price is dependent in part on the multiple of earnings that investors are willing to pay. That multiple is in part dependent on investors’ perception of the Company’s future earnings growth prospects. If investor perceptionsinvestors’ perception of the Company’s earnings growth prospects change, the Company’s earnings multiple may decline and its stock price could be adversely affected.

In addition, the stock market in recent years has at times experienced extreme price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of companies. These fluctuations, as well as general economic and market conditions, may adversely affect the market price of our common stock notwithstanding our actual operating performance.


Impairment of the carrying value of our goodwill or other intangible assets could adversely affect our financial condition and results of operations.

Goodwill represents the difference between the purchase price of an acquired company and the related fair value of net assets acquired. A significant amount of judgment is involved in determining if an indication of impairment of goodwill exists. As
20

Index
with goodwill, we also test our indefinite-lived intangible assets for impairment annually and whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Factors indicating impairment of goodwill or other intangible assets may include, among others: a significant decline in our expected future cash flows; a sustained, significant decline in our stock price and market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated or changing competition; the testing for recoverability of a significant asset group within a reporting unit; and reduced growth rates. Any adverse change in these factors could have a significant impact on the recoverability of these assets and negatively affect our financial condition and results of operations. To the extent that business conditions deteriorate or if changes in key assumptions and estimates differ significantly from management's expectations, it may be necessary to record additional impairment charges in the future which could have an adverse effect on our financial condition and results of operations.

Legal, Regulatory and Compliance Risks

We are subject to personal injury, workers’ compensation, product liability, discrimination, harassment, wrongful termination, wage and hour, and other claims in the ordinary course of business.

Our business involves a risk of personal injury, workers’ compensation, product liability, discrimination, harassment, wrongful termination, wage and hour, and other claims in the ordinary course of business.  Product liability claims from customers and product recalls for merchandise alleged to be defective or harmful could lead to the disposal or write-off of merchandise inventories, the incurrence of fines or penalties, and damage to our reputation. We maintain general liability with a self-insured retention and workers’ compensation insurance with a deductible for each occurrence.  We also maintain umbrella limits above the primary general liability and product liability coverage.  In many cases, we have indemnification rights against the manufacturers of the products and their products liability insurance, as well as the property owners of our leased buildings.  Our ability to recover costs and damages under such insurance or indemnification arrangements is subject to the financial viability of doingthe insurers, manufacturers, and landlords and the specific allegations of a claim.  No assurance can be given that our insurance coverage or the manufacturers’ or landlords’ indemnity will be available or sufficient in any claims brought against us.

Additionally, we are subject to U.S. federal, state, and local employment laws that expose us to potential liability if we are determined to have violated such employment laws, including but not limited to, laws pertaining to minimum wage rates, overtime pay, discrimination, harassment, and wrongful termination. Compliance with these laws, including the remediation of any alleged violation, may have a material adverse effect on our business or results of operations.

Our business could increasebe negatively impacted as a result of federal, state, local, or foreign laws and regulations.

We are subject to numerous federal, state, local, and foreign laws and governmental regulations including those relating to competition, environmental protection, personal injury, intellectual property, consumer product safety, building, land use and zoning requirements, workplace regulations, wage and hour, privacy and information security, and employment law matters.

Our operations, including our outsourced exclusive brand manufacturing partners, are subject to regulation by the Occupational Safety and Health Administration (“OSHA”), the Food and Drug Administration (the “FDA”), the Department of Agriculture (the “USDA”), the Environmental Protection Agency (the "EPA") and by various other federal, state, local and foreign authorities regarding the processing, packaging, storage, distribution, advertising, labeling and export of our products, including food safety standards.

If we fail to comply with existing or future laws or regulations, or if these laws or regulations are violated by importers, manufacturers or distributors, we may be subject to governmental or judicial fines or sanctions, while incurring substantial legal fees and costs. In addition, our capital expenditures could increase due to remediation measures that may be required if we are found to be noncompliant with any existing or future laws or regulations.


We are also subject to the Foreign Corrupt Practices Act (the “FCPA”), which prohibits U.S. companies and their intermediaries from making improper payments to foreign officials for the purposes of obtaining or retaining business, and the anti-bribery laws of other jurisdictions. Failure to comply with the FCPA and similar laws could subject us to, among other things, penalties and legal expenses that could harm our reputation and have a material adverse effect on our business, financial condition, and results of operations.


21

Index
Potential noncompliance with environmental regulations could materially impact our results of operations or financial condition.

Our business is subject to various federal, state, and local laws, regulations, and other requirements pertaining to protection of the environment and public health, including, for example, regulations governing the management of waste materials and waste waters.  Governmental agencies on the federal, state, and local levels have, in recent years, increasingly focused on the retail sector’s compliance with such laws and regulations, and have at times pursued enforcement activities.  We periodically receive information requests and notices of potential noncompliance with environmental laws and regulations from governmental agencies, which are addressed on a case-by-case basis with the relevant agency. Any of these events could have a material adverse effect on our results of operations or financial condition.


Failure to maintain an effective system of internal control over financial reporting could materially impact our business and results.


The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. An internal control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all internal control systems, internal control over financial reporting may not prevent or detect misstatements. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud, and could expose us to litigation or adversely affect the market price of our common stock.

Effective tax rate changes and results of examinations by taxing authorities could materially impact our results.

Our future effective tax rates could be adversely affected by legislative tax reform, changes in statutory rates or changes in tax laws, or interpretations thereof. Additionally, our future effective tax rates could be adversely affected by the earnings mix being lower than historical results in states where we have lower statutory rates and higher than historical results in states where we have higher statutory rates or by changes in the measurement of our deferred tax assets and liabilities.


We are subject to periodic audits and examinations by the Internal Revenue Service (“IRS”), as well as state and local taxing authorities. Like many retailers, a portion of our sales are to tax-exempt customers. The business activities of our customers and the intended use of the unique products sold by us create a challenging and complex compliance environment.  These circumstances create risk that we could be challenged as to the propriety of our sales tax compliance. Our results could be materially impacted by the determinations and expenses related to these and other proceedings by the IRS and other state and local taxing authorities.


COVID-19 Risks

The COVID-19 coronavirus pandemic has, and could continue to have a material negative effect on our results of operations, cash flows, financial position, and business operations.

The COVID-19 pandemic has created significant public health concerns as well as economic disruption, uncertainty, and volatility, such as increased transportation costs, supply chain distributions, labor shortages, increased overhead, among other impacts, which have, and may continue to, negatively affect our business operations.

Despite the previous impacts of the pandemic on our business, we are unable to predict the future impact that COVID-19 will have on our results of operations, cash flows, financial position, and business operations due to numerous uncertainties. These uncertainties include, but are not limited to: the severity of the virus; the duration of the pandemic, including the likelihood of resurgences and the emergence of variants; the efficacy and public acceptance of vaccines; governmental actions which include restrictions on our operations up to and including potential closure of our stores and distribution centers; the duration and degree of quarantine or shelter-in-place measures, including additional measures that may still occur; impacts on our supply chain which include suppliers of our products and our transportation vendors; impacts on our distribution network; the health of our workforce and our ability to maintain staffing needs to operate our business; how macroeconomic factors evolve including unemployment rates and recessionary pressures; the impact of the pandemic on consumer shopping patterns; volatility in the economy as well as the credit and financial markets; the incremental costs of doing business during the pandemic as well as on a long-term basis; potential increases in insurance premiums, medical claims costs, and workers' compensation claim costs; unknown consequences on our business performance and initiatives stemming from the substantial investment of time and other
22

Index
resources to the pandemic response; potential delays in growth initiatives including the timing of new store openings; potential adverse effects on our internal control environment and information security as a result of changes to a remote work environment; and the long-term impact of the pandemic on our business.

In addition, we cannot predict the impact that the pandemic will have on our manufacturers and suppliers of our products and other business partners such as service vendors; however, any material effect on these parties could adversely impact our results of operations and our ability to operate our business effectively.

The COVID-19 coronavirus pandemic has had, and could continue to have a material negative effect on our supply chain and distribution network.

Circumstances surrounding and related to the COVID-19 pandemic have created unprecedented impacts on the global supply chain. Our business relies on an efficient and effective supply chain, including the manufacture and transportation of our products as well as the effective functioning of our distribution centers. Impacts related to the COVID-19 pandemic are placing strains on the domestic and international supply chains that have negatively affected, and could continue to negatively affect the flow or availability of our products and result in higher out-of-stock inventory positions due to difficulties in timely obtaining product from the manufacturers and suppliers of our products as well as transportation of those products to our distribution centers and stores. Further, we may have to source products from different manufacturers or geographic locations which could result in, among other things, higher product costs, increased transportation costs, delays in receiving products or lower quality of the products.

Additionally, the operation of our distribution centers is crucial to our business operations. If our distribution centers experience closures or worker shortages, whether temporary or sustained, we could sustain significant adverse impacts related to the flow or availability of products to our stores and customers.

Any of these circumstances could adversely affect our ability to deliver inventory in a timely manner, which could impair our ability to meet customer demand for products and result in lost sales, increased supply chain costs, or damage to our reputation.

Economic impacts stemming from the COVID-19 coronavirus pandemic could significantly impact our financial position, including liquidity, capital allocation, and access to capital markets for additional funds to operate our business.

The financial and credit markets have experienced, and may continue to experience significant volatility and turmoil as a result of the COVID-19 pandemic. Changes in the financial and credit markets could adversely impact our ability to access capital on favorable terms and continue to meet our liquidity needs.

Additionally, changes in our capital allocation strategy could have significant adverse impacts, both short- and long-term, on our business, results of operations, and financial position. Any future suspension of our share repurchase program, if necessary and depending on duration, could negatively impact our earnings per share which in turn could adversely impact our common stock price. While not contemplated at this time, any potential suspension or reduction in our dividend declaration could have an adverse impact on investor perception and our common stock price.

Actions taken to protect the health and safety of our team members and customers during the COVID-19 coronavirus pandemic have increased our operating costs and may not be sufficient to protect against operational or reputational harm to our business, regulatory actions or claims and litigation.

In response to the COVID-19 pandemic, we have taken a number of actions across our business to help protect our team members, customers, and others in the communities we serve. These measures include encouraging vaccination efforts, personal protective equipment for our team members, following local and federal guidance regarding the use of masks in our facilities, increased staffing in order to provide contact-free curbside pickup from stores, expansion of our capabilities to support delivery to customer homes, increased cleaning and sanitizing measures, offering remote work plans at our Store Support Center and monitoring for “social distancing” directives, as well as additional cleaning materials in our facilities. Additionally, we have provided appreciation bonuses as well as permanent increases in compensation and benefits for our team members in our stores and distribution centers to further support them during and after the COVID-19 pandemic. Actions such as these have resulted in significant incremental costs in fiscal 2021 and 2020, and we expect that we will continue to incur these costs for the foreseeable future, which in turn will have an adverse impact on our results of operations.

The health and safety of our team members and customers are of primary concern to our management team. However, due to the unpredictable nature of this virus and the consequences of our actions, we may see unexpected outcomes notwithstanding
23

Index
our added safety measures. For instance, if we do not respond appropriately to the pandemic, or if our team members or customers do not participate in “social distancing”, vaccination efforts and other safety measures, the well-being of our team members and customers could be jeopardized. Furthermore, any failure to appropriately respond, or the perception of an inadequate response, could cause reputational harm to our brand and subject us to claims and litigation from team members, customers and service providers. Additionally, we may experience increased litigation expenses resulting from team member or customer lawsuits, including those related to the Company’s COVID-19 response and team member or customer contraction of COVID-19, increased insurance costs, medical claims costs and workers’ compensation claims costs and an adverse impact of regulatory and judicial changes in liability for workers’ compensation claims related to the COVID-19 pandemic.

Further, an outbreak of confirmed cases of COVID-19 in our stores or distribution centers could result in temporary or sustained workforce shortages or facility closures which would negatively impact our underlying business and results of operations.

Item 1B.    Unresolved Staff Comments


None.


24

Index

Item 2.        Properties


At December 30, 2017,25, 2021, the Company operated 1,8532,181 stores in 49 states.states (2,003 Tractor Supply and Del’s retail stores and 178 Petsense retail stores).  The Company leases approximately 93%95% of its stores. Store leases typically have initial terms of between 10 toand 15 years, with two to four optional renewal periods of five years each, exercisable at our option.  No single lease is material to Companythe Company’s operations.

Approximately 57% of our stores are in freestanding buildings and 43% are located in shopping centers.  The following is a count of store locations by state:
StateNumber
of Stores
StateNumber
of Stores
Texas235New Jersey27
North Carolina113Maryland25
Pennsylvania102Washington25
Tennessee102Illinois24
Georgia101Massachusetts24
Michigan97Maine23
Ohio97Colorado22
Florida96New Hampshire22
New York96Connecticut20
California74Nebraska18
Kentucky72Utah16
Virginia71Minnesota14
Alabama67North Dakota14
Indiana62Oregon13
Louisiana60Iowa9
Oklahoma58South Dakota9
South Carolina54Vermont9
Mississippi50Wyoming8
Arkansas39Delaware6
Arizona35Idaho6
Missouri32Montana6
New Mexico30Nevada6
West Virginia30Rhode Island4
Wisconsin29Hawaii2
Kansas27
 2,181

25

Index
State 
Number
of Stores
 State 
Number
of Stores
Texas 210 Maryland 22
North Carolina 94 New Hampshire 21
Pennsylvania 93 Maine 20
Tennessee 91 Massachusetts 20
Ohio 90 Wisconsin 20
Georgia 83 Connecticut 19
Michigan 83 Washington 19
New York 77 Nebraska 18
Kentucky 69 Illinois 17
Florida 63 New Jersey 17
California 59 Utah 15
Indiana 57 North Dakota 14
Alabama 56 Minnesota 12
Virginia 55 Iowa 9
Oklahoma 53 South Dakota 9
Louisiana 44 Wyoming 8
South Carolina 44 Vermont 7
Mississippi 39 Montana 6
Arkansas 35 Delaware 5
Arizona 34 Idaho 4
Missouri 30 Rhode Island 4
New Mexico 28 Nevada 3
West Virginia 28 Oregon 3
Colorado 22 Hawaii 2
Kansas 22    
      1,853



The following is a list of distribution locations including the approximate square footage and if the location is leased or owned:
Distribution Facility LocationApproximate Square FootageOwned/Leased Facility
Franklin, KentuckyFrankfort, New York833,000924,000Owned
Pendleton, IndianaFranklin, Kentucky764,000833,000Owned
Macon, GeorgiaPendleton, Indiana684,000764,000Owned
Waco, TexasMacon, Georgia666,000684,000Owned
Waco, Texas666,000Owned
Casa Grande, Arizona650,000Owned
Waverly, Nebraska592,000Owned
Hagerstown, Maryland(a)
482,000Owned
Hagerstown, Maryland (a)
309,000Leased
Waverly, Nebraska422,000Owned
Seguin, Texas (b)
71,000Owned
Lakewood, Washington64,000Leased
Lakewood, Washington (b)
64,000Leased
Longview, Texas (b)
63,000Owned

(a) The leased facilitydistribution center in Hagerstown is treated as an extension of the existing owned Hagerstown location and is not considered a separate distribution center.
(b) This is a mixing center designed to process certain high-volume bulk products.


The Company’s Store Support Center occupies approximately 260,000 square feet of owned building space in Brentwood, Tennessee, and the Company’s Merchandising Innovation Center occupies approximately 32,000 square feet of leased building space in Nashville, Tennessee.

The Company also leases approximately 8,000 square feet ofis building space for the Petsense corporate headquarters located in Scottsdale, Arizona.

In fiscal 2017, we began construction on a new northeast distribution center in Frankfort, New York, as well as an expansionNavarre, Ohio, which is expected to be approximately 900,000 square feet and is currently anticipated to be completed in the fall of our existingfiscal 2022.

In addition, on January 26, 2022, the Company announced plans to build a new distribution center in Waverly, Nebraska,Maumelle, Arkansas. This new distribution center is expected to be approximately 900,000 square feet. Construction is planned to begin in the middle of 2022 and is currently anticipated to be completed in late 2023.

We also use third-party operated import centers, mixing centers and pop-up distribution facilities which will provide additional distribution capacity once construction is completed.capacity.


Item 3.        Legal Proceedings


Item 103For a description of SEC Regulation S-K requires disclosure of certain environmentalthe Company's legal proceedings, if the proceeding reasonably involves potential monetary sanctions of $100,000 or more. We periodically receive information requests and notices of potential noncompliance with environmental laws and regulations from governmental agencies, which are addressed on a case-by-case basis with the relevant agency. The Company received a subpoena from the District Attorney of Yolo County, California, requesting records and information regarding its hazardous waste management and disposal practices in California. The Company and the Office of the District Attorney of Yolo County engaged in settlement discussions which resulted in the settlement of the matter. A consent decree reflecting the terms of settlement was filed with the Yolo County Superior Court on June 23, 2017. Under the settlement, the Company agreedrefer to a compliance plan and also agreed to pay a civil penalty and fund supplemental environmental projects furthering consumer protection and environmental enforcement in California. The civil penalty did not differ materially from the amount accrued. The cost of the settlement and the compliance with the consent decree will not have a material effect on our consolidated financial position, results of operations or cash flows.

The Company is also involved in various litigation matters arising in the ordinary course of business. The Company believes that any estimated loss related to such matters has been adequately provided for in accrued liabilitiesNote 11 to the extent probable and reasonably estimable. Accordingly, the Company currently expects these matters will be resolved without material adverse effectCondensed Consolidated Financial Statements included under Part II, Item 8 of this Annual Report on its consolidated financial position, results of operations or cash flows. Form 10-K.


Item 4.        Mine Safety Disclosures


Not applicable.


26

Index


PART II


Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Item 5.    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Common Stock

The Company’s common stock trades on the NasdaqNASDAQ Global Select Market under the symbol, “TSCO.”

The table below sets forth the high and low sales prices of our common stock as reported by the Nasdaq Global Select Market for each fiscal quarter of the periods indicated:
 Price Range
 2017 2016
 High Low High Low
First Quarter$78.25 $67.70 $90.76 $78.05
Second Quarter$71.53 $52.09 $97.25 $86.44
Third Quarter$63.40 $49.87 $95.39 $66.77
Fourth Quarter$75.64 $54.76 $78.17 $61.50


As of February 2, 2018,January 22, 2022, the number of record holders of our common stock was 585725 (excluding individual participants in nominee security position listings),.

Dividends

We paid cash dividends totaling $239.0 million and $174.7 million in fiscal 2021 and 2020, respectively. In fiscal 2021, we declared and paid cash dividends to stockholders of $2.08 per common share outstanding as compared to $1.50 per common share outstanding in fiscal 2020. These payments reflect an increase in the estimated numberquarterly dividend to $0.52 in the first quarter of beneficial holdersfiscal 2021 from $0.40 per share and an increase in the third quarter of our common stock was approximately 200,000.fiscal 2020 to $0.40 per share from $0.35 per share.


Common Stock Dividends

During 2017 and 2016,On January 26, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.92 per share of the following cash dividends:Company’s outstanding common stock. The dividend will be paid on March 8, 2022, to stockholders of record as of the close of business on February 21, 2022.

Date Declared
Dividend Amount
Per Share
Stockholders of Record DateDate Paid
November 6, 2017$0.27November 20, 2017December 5, 2017
August 7, 2017$0.27August 21, 2017September 6, 2017
May 8, 2017$0.27May 22, 2017June 6, 2017
February 8, 2017$0.24February 27, 2017March 14, 2017
October 31, 2016$0.24November 14, 2016November 29, 2016
August 1, 2016$0.24August 15, 2016August 30, 2016
May 2, 2016$0.24May 16, 2016June 1, 2016
February 3, 2016$0.20February 22, 2016March 8, 2016

It is the present intention of the Company’s Board of Directors to continue to pay a quarterly cash dividend; however, the declaration and payment amount of future dividends will be determined by the Company’s Board of Directors in its sole discretion and will depend upon the earnings, financial condition, and capital needs of the Company, as well asalong with any other factors which the Company’s Board of Directors deem relevant.

On February 7, 2018, our Board of Directors declared a quarterly cash dividend of $0.27 per share of the Company’s common stock.  The dividend will be paid on March 13, 2018, to stockholders of record as of the close of business on February 26, 2018.
27

Index

Issuer Purchases of Equity Securities


The Company’s Board of Directors has authorized common stock repurchases under a share repurchase program which was announced in February 2007. The authorization amount of the program, which has been increased from time to time, is currently authorized for up to $3$6.5 billion, exclusive of any fees, commissions or other expenses related to such repurchases throughrepurchases. The currently authorized amount reflects a $2.0 billion increase to the existing share repurchase program which was approved by the Company's Board of Directors on January 26, 2022. The share repurchase program does not have an expiration date. As of December 31, 2020.25, 2021, prior to the expanded $2.0 billion repurchase authorization, the Company had remaining authorization under the share repurchase program of $345.0 million, exclusive of any fees, commissions or other expenses. Additionally, the Company withholds shares from vested restricted stock units and performance-based restricted share units to satisfy employees’ minimum statutory tax withholding requirements. Stock purchase activity during fiscal 20172021 is set forth in the table below:
PeriodTotal Number
of Shares
Purchased
Average
Price Paid
Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Dollar Value of Shares That May Yet Be
Purchased
Under the Plans or Programs
First Quarter (a)
1,681,348 $157.89 1,600,354 $890,467,715 
Second Quarter (a)
1,126,487 $181.83 1,118,208 $687,175,560 
Third Quarter (a)
748,943 $190.01 743,344 $545,926,155 
Fourth Quarter: (a)
    
9/26/21 - 10/23/21160,205 $200.65 160,000 $513,824,218 
10/24/21 - 11/20/21165,433 $223.01 164,569 $477,120,646 
11/21/21 - 12/25/21577,384 $228.83 577,329 $345,018,590 
 903,022 $222.76 901,898 $345,018,590 
As of and for the year ended December 25, 20214,459,800 $182.47 4,363,804 $345,018,590 
Period 
Total Number
of Shares
Purchased
 
Average
Price Paid
Per Share
 Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs 
Maximum Dollar Value of Shares That May Yet Be
Purchased
Under the Plans or Programs
First Quarter (a)
 1,605,165
 $71.77
 1,596,167
 $1,124,516,565
Second Quarter 2,209,506
 60.47
 2,209,506
 990,943,666
Third Quarter (a)
 1,427,570
 55.08
 1,425,371
 912,461,301
         
Fourth Quarter:  
  
  
  
10/1/17 – 10/28/17 315,000
 58.98
 315,000
 893,885,189
10/29/17 – 11/25/17 (a)
 259,359
 61.08
 258,801
 878,077,270
11/26/17 – 12/30/17 119,900
 69.77
 119,900
 869,713,394
  694,259
 61.63
 693,701
 869,713,394
         
As of December 30, 2017 5,936,500
 $62.36
 5,924,745
 $869,713,394

(a) The total number of shares purchased and average price paid per share include shares withheld from vested restricted stock unitsawards to satisfy employees’ minimum statutory tax withholding requirements of 8,99880,994 during the first quarter, 2,1998,279 during the second quarter, 5,599 during the third quarter, and 5581,124 during the fourth quarter.


We expect to implement the balance of the repurchase program through purchases made from time to time either in the open market or through private transactions, in accordance with regulations of the SEC and other applicable legal requirements.  The timing and amount of any common stock repurchased under the program will depend on a variety of factors including price, corporate and regulatory requirements, capital availability, and other market conditions.
 
Any additional stock repurchase programs will be subject to the discretion of our Board of Directors and subject to our results of operations,will depend upon earnings, financial condition, cash requirements and capital needs of the Company, along with any other factors deemed relevant by ourwhich the Board of Directors.Directors deem relevant.  The program may be limited, temporarily paused, or terminated at any time, without prior notice.




28

Index

STOCK PERFORMANCE GRAPH


This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of Tractor Supply Company under the Securities Act of 1933, as amended, or the Exchange Act.


 
The following graph compares the cumulative total stockholder return on our common stock from December 29, 201231, 2016 to December 30, 201725, 2021 (the Company’s fiscal year-end), with the cumulative total returns of the S&P 500 Index and the S&P Retail Index over the same period.  The comparison assumes that $100 was invested on December 29, 2012,31, 2016, in our common stock and in each of the foregoing indices and in each case assumes reinvestment of dividends.  The historical stock price performance shown on this graph is not indicative of future performance.


tsco-20211225_g2.jpg
 12/31/201612/30/201712/29/201812/28/201912/26/202012/25/2021
Tractor Supply Company$100.00 $100.32 $113.40 $127.52 $205.47 $322.80 
S&P 500$100.00 $121.83 $115.49 $153.58 $178.76 $231.39 
S&P Retail Index$100.00 $130.40 $146.11 $188.70 $270.43 $326.24 


  12/29/2012 12/28/2013 12/27/2014 12/26/2015 12/31/2016 12/30/2017
Tractor Supply Company $100.00
 $174.14
 $181.29
 $201.04
 $179.94
 $180.52
S&P 500 $100.00
 $134.11
 $155.24
 $156.43
 $173.74
 $211.67
S&P Retail Index $100.00
 $147.73
 $164.24
 $207.15
 $219.43
 $286.13
Item 6.        [Reserved]

Item 6.
Selected Financial Data

FIVE YEAR SELECTED FINANCIAL AND OPERATING HIGHLIGHTS (a)(b)
The following selected financial data is derived frompreviously required by Item 301 of Regulation S-K has been omitted in accordance with the Consolidatedamendments to Regulation S-K.
29

Item 7.    Management’s Discussion and Analysis of Financial StatementsCondition and Results of Tractor Supply Company and provides summary historical financial information for the fiscal periodsended and as of the dates indicated(in thousands, except per share amounts and selected operating and other data):  Operations
 2017 2016 2015 2014 2013
 (52 weeks) (53 weeks) (52 weeks) (52 weeks) (52 weeks)
Operating Results:         
Net sales$7,256,382
 $6,779,579
 $6,226,507
 $5,711,715
 $5,164,784
Gross profit2,491,965
 2,325,202
 2,143,174
 1,950,415
 1,753,609
Selling, general and administrative expenses1,639,749
 1,488,164
 1,369,097
 1,246,308
 1,138,934
Depreciation and amortization165,834
 142,958
 123,569
 114,635
 100,025
Operating income686,382
 694,080
 650,508
 589,472
 514,650
Interest expense, net13,859
 5,810
 2,891
 1,885
 557
Income before income taxes672,523
 688,270
 647,617
 587,587
 514,093
Income tax expense249,924
 251,150
 237,222
 216,702
 185,859
Net income$422,599
 $437,120
 $410,395
 $370,885
 $328,234
Net income per share – basic (c)
$3.31
 $3.29
 $3.03
 $2.69
 $2.35
Net income per share – diluted (c)
$3.30
 $3.27
 $3.00
 $2.66
 $2.32
          
Weighted average shares – diluted (c)
128,204
 133,813
 136,845
 139,435
 141,723
Dividends declared per common share outstanding$1.05
 $0.92
 $0.76
 $0.61
 $0.49
          
Operating Data (percent of net sales): 
  
    
  
Gross margin34.3% 34.3 % 34.4 % 34.1% 34.0%
Selling, general and administrative expenses22.6% 22.0 % 22.0 % 21.8% 22.1%
Operating income9.4% 10.2 % 10.4 % 10.3% 10.0%
Net income5.8% 6.4 % 6.6 % 6.5% 6.4%
Store, Sales and Other Data: 
  
    
  
Stores open at end of year1,853
 1,738
 1,488
 1,382
 1,276
Comparable store sales increase (d)
2.7% 1.6 % 3.1 % 3.8% 4.8%
New store sales (as a % of net sales) (e)
5.6% 5.6 % 5.6 % 6.2% 5.4%
Average transaction value$44.61
 $44.42
 $44.87
 $44.84
 $44.48
Comparable store average transaction value increase (decrease) (c)
0.5% (0.9)% (0.2)% 0.6% %
Comparable store average transaction count increase (d)
2.2% 2.6 % 3.3 % 3.2% 4.7%
Total selling square footage (000���s)28,180
 26,511
 23,938
 22,176
 20,470
Total team members29,300
 26,000
 23,000
 21,100
 19,200
Capital expenditures (000’s)$250,401
 $226,017
 $236,496
 $160,613
 $218,200
Balance Sheet Data (at end of period): 
  
    
  
Average inventory per store (f)
$735.4
 $741.7
 $820.1
 $752.7
 $723.5
Inventory turns3.24
 3.19
 3.23
 3.32
 3.29
Working capital (g)
$806,154
 $740,615
 $768,177
 $670,897
 $677,107
Total assets$2,868,769
 $2,674,942
 $2,370,826
 $2,034,571
 $1,903,391
Long-term debt, less current portion (h)
$433,686
 $289,769
 $166,992
 $4,957
 $1,200
Stockholders’ equity$1,418,673
 $1,453,218
 $1,393,294
 $1,293,561
 $1,246,894
(a) Our fiscal year includes 52 or 53 weeks and ends on the last Saturday of the calendar year.  References to fiscal year mean the year in which that fiscal year ended.  Fiscal year 2016 consisted of 53 weeks while all other fiscal years presented consisted of 52 weeks.
(b) Beginning in the fourth quarter ended December 31, 2016, selected financial and operating information includes the consolidation of Petsense, unless otherwise noted.
(c) Basic net income per share is calculated based on the weighted average number of common shares outstanding applied to net income.  Diluted net income per share is calculated using the treasury stock method for stock options and restricted stock units.
(d) Comparable store metrics are calculated on an annual basis using sales generated from all stores open at least one year and all online sales, excluding certain adjustments to net sales. Beginning in fiscal 2015, stores closed during the year are removed from our comparable store metrics calculations. This change in the calculation methodology did not have a material impact on the comparable store metrics reported in prior periods presented due to the minimal number of stores closed in those periods. Stores relocated during the years being compared are not removed from our comparable store metrics. If the effect of relocated stores on our comparable store metrics becomes material, we would remove relocated stores from the calculations. Acquired Petsense stores are considered comparable stores beginning in the fourth quarter of fiscal 2017.
(e) New stores sales metrics are based on stores open for less than one year.
(f) Assumes average inventory cost, excluding inventory in-transit.
(g) Working capital for 2017, 2016 and 2015 reflects deferred tax assets as non-current as a result of the adoption of ASU 2015-17 (which is discussed in Note 15 to the Consolidated Financial Statements). Years prior to 2015 have not been adjusted to reflect the adoption of this guidance.
(h) Long-term debt includes amounts outstanding under the Company’s debt facilities and capital lease obligations, excluding the current portions.

Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations


The following discussion and analysis is intended to provide the reader with information that will assist in understanding the significant factors affecting our consolidated operating results, financial condition, liquidity, and capital resources during the three-yeartwo-year period ended December 30, 201725, 2021 (our fiscal years 2017, 20162021 and 2015)2020). For a comparison of our results of operations for fiscal year December 26, 2020 and December 28, 2019, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 26, 2020, filed with the SEC on February 18, 2021. This discussion should be read in conjunction with our Consolidated Financial Statements and Notes to the Consolidated Financial Statements included elsewhere in this report. This discussion contains forward-looking statements.statements and information. See “Forward-Looking Statements”Statements and Information” and “Risk Factors” included elsewhere in this report.


Tractor Supply reports its financial results in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Tractor Supply also uses certain non-GAAP measures that fall within the meaning of Securities and Exchange Commission Regulation G and Regulation S-K Item 10(e), which may provide users of the financial information with additional meaningful comparison to prior reported results. Non-GAAP measures do not have standardized definitions and are not defined by U.S. GAAP. Therefore, Tractor Supply’s non-GAAP measures are unlikely to be comparable to similar measures presented by other companies. The presentation of these non-GAAP measures should not be considered in isolation from, as a substitute for, or as superior to the financial information presented in accordance with U.S. GAAP. We believe this information is useful in providing period-to-period comparisons of the results of our continuing operations.


Overview


Founded in 1938, Tractor Supply Company (the “Company” or "Tractor Supply" or “we” or “our” or “us”) is the largest operator of rural lifestyle retail storesretailer in the United States (“U.S.”). The Company is focused on supplying the needs of recreational farmers, and ranchers, and othersall those who enjoy living the rural lifestyle (which we refer to as the “Out Here” lifestyle), as well as tradesmen and small businesses.. As of December 30, 2017,25, 2021, we operated 1,8532,181 retail stores in 49 states under the names Tractor Supply Company,Petsense, andDel’s Feed & Farm Supply and Petsense. We also operate websites under the names TractorSupply.com and Petsense.com.Supply. Our stores are located primarily in towns outlying major metropolitan markets and in rural communities,communities. We also operate websites under the names TractorSupply.com and theyPetsense.com as well as a Tractor Supply Company mobile application. Through our stores and e-commerce channels, we offer the following comprehensive selection of merchandise:


Equine, livestock, pet, and small animal products, including items necessary for their health, care, growth, and containment;containment (i.e. fencing);
Hardware, truck, towing, and tool products;
Seasonal products, including heating, lawn and garden items, power equipment, gifts, and toys;
Work/recreational clothing and footwear; and
Maintenance products for agricultural and rural use.


Tractor Supply Company believes we can grow our business by being an integral part of our customers’ lives as the most dependable supplier of relevant products and services for the “"Out HereHere" lifestyle solutions, creating customer loyalty through personalized experiences, and providing convenience that our customers expect at anytime, anywhere, and in any way they choose. Our long-term growth strategy is to: (1) drive profitable growth through new store openingsexpand and deepen our customer base by expanding omni-channel capabilities, thus tying together our website productproviding personal, localized, and memorable customer engagements by leveraging content, social media, and digital and online shopping experience,experiences, attracting new customers and driving loyalty, (2) build customer-centric engagementevolve customer experiences by leveraging analytics to deliver legendary customer service, seasoned advicedigitizing our business processes and personalized experiences,furthering our omni-channel capabilities, (3) offer relevant assortments and services across all channels through exclusive and national brands and continue to introducegrow our total addressable market by introducing new products and services through our test and learn strategy, (4) enhance our coredrive operational excellence and foundationalproductivity through continuous improvement, increasing space utilization, and implementing advanced supply chain capabilities by investing in infrastructure and process improvements which willto support growth, scale and agility, while improving the customer experience, and (5) expand through selective acquisitions, as such opportunities arise, to add complementary businesses and to enhance penetration into new and existing markets to supplement organic growth.


Achieving this strategy will require a foundational focus on: (1) organizing, optimizingconnecting, empowering and empoweringgrowing our team members for growth by developing skills, talentto enhance their lives and leadership across the organization,communities they live in, enabling them to provide legendary service to our customers, and (2) implementing operational efficiency initiativesallocating resources in a disciplined and efficient manner to drive profitable growth and build stockholder value, including leveraging technology and automation, to align our cost structure to support new business capabilities for margin improvement and cost reductions.


Over the past five years, we have experienced considerable growth in stores, growing from 1,1761,738 stores at the end of 2012fiscal 2016 to 1,8532,181 stores (1,685(2,003 Tractor Supply and Del’s retail stores and 168178 Petsense retail stores) at the end of fiscal 2017,2021, and in net sales, with a compounded annual growth rate of approximately 9.2%13.4%. Given the size of the communities that we target, we believe that there is ample opportunity for new store growth in many existing and new markets. We have developed a proven method for selecting store sites, and we believe we have identified approximately 800significant additional opportunities for new Tractor Supply stores. We also believe that there is opportunity for up to 1,000continued growth for Petsense stores.

30

Index

Executive Summary


In 2017,fiscal 2021, we opened 10180 new Tractor Supply stores in 3927 states and 25seven new Petsense stores in 11four states. In 2016,fiscal 2020, we opened 11380 new Tractor Supply stores in 31 states and began operating 143nine new Petsense stores.stores in three states. This resulted in a selling square footage increase of approximately 6.3%4% in each of fiscal 20172021 and approximately 10.8% in fiscal 2016.2020.



Net sales increased 7.0%19.9% to $7.26$12.73 billion in fiscal 2017 (52 weeks)2021 from $6.78$10.62 billion in fiscal 2016 (53 weeks).2020 as we experienced significant demand for our products across all product categories, geographies and channels in fiscal 2021 as we acquired new customers who entered our markets and our existing customers focused on the care of their homes, land, and animals while navigating the COVID-19 pandemic. Comparable store sales increased 2.7%16.9% in fiscal 20172021 versus a 1.6%23.1% increase in fiscal 2016.2020. Gross profit increased 7.2%19.0% to $2.49$4.48 billion in fiscal 20172021 from $2.33$3.76 billion in fiscal 2016,2020, and gross margin remained flatdecreased 25 basis points to prior year at 34.3% as a percentage35.2% of net sales.sales in fiscal 2021 from 35.4% of net sales in fiscal 2020. Operating income decreased 80increased 88 basis points to 10.3% of net sales in fiscal 2021 from 9.4% of net sales in fiscal 2017 from 10.2% of net sales in fiscal 2016.2020. For fiscal 2017,2021, net income was $422.6$997.1 million, or $3.30$8.61 per diluted share, compared to $437.1$749.0 million, or $3.27$6.38 per diluted share, in fiscal 2016. Excluding the impact of the revaluation of the Company’s net deferred tax asset resulting in a one-time, non-cash charge of approximately $4.9 million, or $0.03 per diluted share, adjusted net income for fiscal 2017 was $427.5 million, or $3.33 per diluted share.2020.


We ended the yearfiscal 2021 with $109.1$878.0 million in cash and cash equivalents and outstanding debt of $426.1$986.4 million, after returning $503.2 million$1.04 billion to our stockholders through stock repurchases and quarterly cash dividends.


Information Regarding COVID-19 Coronavirus Pandemic

The Company has been and continues to closely monitor the impact of the COVID-19 pandemic on all facets of our business. This includes the impact on our team members, customers, suppliers, vendors, business partners, and supply chain networks.

The health and safety of our team members and customers are the primary concerns of our management team. We have taken and continue to take numerous actions to promote health and safety, including, encouraging vaccination efforts, providing personal protective equipment to our team members, following local and federal guidance regarding the use of masks in our facilities, maintaining enhanced services for cleaning and sanitation, continuing to provide additional functionality to support contactless shopping experiences, promoting social distancing in our stores, and continuing to offer remote work plans at our Store Support Center.

As further described in the results of operations, our net sales have significantly increased due to unprecedented customer demand across all major product categories, channels, and geographic regions. However, the net incremental costs of doing business during this crisis have increased as a result of the aforementioned actions we have taken to support and promote the safety and well-being of our team members and customers, and we believe some of these incremental costs will continue after the pandemic is over.

There are numerous uncertainties surrounding the pandemic and its impact on the economy and our business, as further described in the Risk Factors section under Part I Item 1A. of this Form 10-K, which make it difficult to predict the impact on our business, financial position, or results of operations in fiscal 2022 and beyond. While our stores, distribution centers, and e-commerce operations are open and plan to remain open, we cannot predict the uncertainties, or the corresponding impacts on our business, at this time.

Performance Metrics

Comparable Store Metrics

Comparable store metrics are a key performance indicator used in the retail industry and by the Company to measure the performance of the underlying business.Our comparable store metrics are calculated on an annual basis using sales generated from all stores open at least one year and all online sales and exclude certain adjustments to net sales.Stores closed during either of the years being compared are removed from our comparable store metrics calculations.Stores relocated during either of the years being compared are not removed from our comparable store metrics calculations.If the effect of relocated stores on our comparable store metrics calculations became material, we would remove relocated stores from the calculations.

31

Index
Transaction Count and Transaction Value

Transaction count and transaction value metrics are used by the Company to measure sales performance.Transaction count represents the number of customer transactions during a given period.Transaction value represents the average amount paid per transaction and is calculated as net sales divided by the total number of customer transactions during a given period.

Significant Accounting Policies and Estimates


Management’s discussion and analysis of our financial position and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP.  The preparation of these financial statements requires management to make informed estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  Our financial position and/or results of operations may be materially different when reported under different conditions or when using different assumptions in the application of such policies.  In the event estimates or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information.  Our significant accounting policies are disclosed in Note 1 to ourthe Consolidated Financial Statements.  The following discussion addresses our most critical accounting policies and estimates, which are those that are both important to the portrayal of our financial condition and results of operations and that require significant judgment or use of complex estimates.

DescriptionJudgments and UncertaintiesEffect if Actual Results Differ from Assumptions
Inventory Valuation:
Inventory Impairment
We identify potentially excess and slow-moving inventory by evaluating turn rates, historical and expected future sales trends, age of merchandise, overall inventory levels, current cost of inventory and other benchmarks.  We have established an inventory valuation reserve to recognize the estimated impairment in value (i.e., an inability to realize the full carrying value) based on our aggregate assessment of these valuation indicators under prevailing market conditions and current merchandising strategies.
We do not believe our merchandise inventories are subject to significant risk of obsolescence in the near term.  However, changes in market conditions or consumer purchasing patterns could result in the need for additional reserves.
Our impairment reserve contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding forecasted customer demand and the promotional environment.
We have not made any material changes in the accounting methodology used to recognize inventory impairment reserves in the financial periods presented.
We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate impairment.  However, if assumptions regarding consumer demand or clearance potential for certain products are inaccurate, we may be exposed to losses or gains that could be material.
A 10% change in our impairment reserve as of December 30, 2017, would have affected net income by approximately $0.5 million in fiscal 2017.
Merchandise Inventory:


We identify potentially excess and slow-moving inventory by evaluating turn rates, historical and expected future sales trends, age of merchandise, overall inventory levels, current cost of inventory, and other benchmarks. We have established an inventory valuation reserve to recognize the estimated impairment in value (i.e., an inability to realize the full carrying value) based on our aggregate assessment of these valuation indicators under prevailing market conditions and current merchandising strategies.

DescriptionJudgments and UncertaintiesEffect if Actual Results Differ from Assumptions
Shrinkage
We perform physical inventories at least once a year for each store that has been open more than 12 months, and we have established a reserve for estimating inventory shrinkage between physical inventory counts.  The reserve is established by assessing the chain-wide average shrinkage experience rate, applied to the related periods’ sales volumes.  Such assessments are updated on a regular basis for the most recent individual store experiences.
The estimated store inventory shrink rate is based on historical experience.  We believe historical rates are a reasonably accurate reflection of future trends.

We also have established a reserve for estimating inventory shrinkage between physical inventory counts. The reserve is established by assessing the chain-wide average shrinkage experience rate, applied to the related periods’ sales volumes. Such assessments are updated on a regular basis for the most recent individual store experiences. Our general policy is to perform physical inventories at least once a year for each store that has been open more than twelve months.

We receive funding from substantially all of our significant merchandise vendors, in support of our business initiatives, through a variety of programs and arrangements, including guaranteed vendor support funds (“vendor support”) and volume-based rebate funds (“volume rebates”). The amounts received are subject to terms of vendor agreements, most of which are “evergreen”, reflecting the on-going relationship with our significant merchandise vendors. Certain of our agreements, primarily volume rebates, are renegotiated annually, based on expected annual purchases of the vendor’s product. Vendor funding is initially deferred as a reduction of the purchase price of inventory, and then recognized as a reduction of cost of merchandise as the related inventory is sold. During interim periods, the amount of vendor support and volume rebates are estimated based upon initial commitments and anticipated purchase levels with applicable vendors.

We do not believe our merchandise inventories are subject to significant risk of obsolescence in the near term. However, changes in market conditions or consumer purchasing patterns could result in the need for additional reserves. Our impairment reserves contain uncertainties because the calculations require management to make assumptions and to apply judgment regarding forecasted customer demand and the promotional environment. The estimated store inventory shrink rate is based on historical experience. We believe historical rates are a reasonably accurate reflection of future trends. Our shrinkage reserve contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding future shrinkage trends, the effect of loss prevention measures and new merchandising strategies.
We have not made any material changes in the accounting methodology used to recognize shrinkage in the financial periods presented.

We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our shrinkage reserve.  However, if our estimates regarding inventory losses are inaccurate, we may be exposed to losses or gains that could be material.

A 10% change in our shrinkage reserve as of December 30, 2017, would have affected net income by approximately $1.7 million in fiscal 2017.
Vendor Funding
We receive funding from substantially all of our significant merchandise vendors, in support of our business initiatives, through a variety of programs and arrangements, including vendor support funds (“vendor support”) and volume-based rebate funds (“volume rebates”).  The amounts received are subject to terms of vendor agreements, most of which are “evergreen”, reflecting the on-going relationship with our significant merchandise vendors. Certain of our agreements, primarily volume rebates, are renegotiated annually, based on expected annual purchases of the vendor’s product.  

Vendor funding is initially deferred as a reduction of the purchase price of inventory, and then recognized as a reduction of cost of merchandise as the related inventory is sold.  

During interim periods, the amount of vendor support and volume rebates is estimated based upon initial commitments and anticipated purchase levels with applicable vendors.
The estimated purchase volume (and related vendor funding) is based on our current knowledge of inventory levels, sales trends and expected customer demand, as well as planned new store openings and relocations.  Although we believe we can reasonably estimate purchase volume and related volume rebates at interim periods, it is possible that actual year-end results could be different from previously estimated amounts.

Our allocation methodology contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding customer demand, purchasing activity, target thresholds, vendor attrition and collectability.
We have not made any material changes in the accounting methodology used to establish our vendor funding reserves in the financial periods presented.

At the end of each fiscal year, a significant portion of the actual purchase activity is known.  Thus, we do not believe there is a reasonable likelihood that there will be a material change in the amounts recorded as vendor funding.

We do not believe there is a significant collectability risk related to vendor funding amounts due to us at the end of fiscal 2017.

If a 10% reserve had been applied against our outstanding vendor funding due as of December 30, 2017, net income would have been affected by approximately $1.4 million in fiscal 2017.

Although it is unlikely that there will be any significant reduction in historical levels of vendor funding, if such a reduction were to occur in future periods, the Company could experience a higher inventory balance and higher cost of sales.
Freight
We incur various types of transportation and delivery costs in connection with inventory purchases and distribution.  Such costs are included as a component of the overall cost of inventories (on an aggregate basis) and recognized as a component of cost of merchandise sold as the related inventory is sold.We allocate freight as a component of total cost of sales without regard to inventory mix or unique freight burden of certain categories.  This assumption has been consistently applied for all years presented.
We have not made any material changes in the accounting methodology used to establish our capitalized freight balance or freight allocation in the financial periods presented.

If a 10% increase or decrease had been applied against our current inventory capitalized freight balance as of December 30, 2017, net income would have been affected by approximately $7.8 million in fiscal 2017.

DescriptionJudgments and UncertaintiesEffect if Actual Results Differ from Assumptions
Self-Insurance Reserves:
We self-insure a significant portion of our employee medical insurance, workers’ compensation insurance and general liability (including product liability) insurance plans.  We have stop-loss insurance policies to protect from individual losses over specified dollar values.

Provisions for losses related to our self-insured liabilities are based upon periodic independent actuarially determined estimates that consider a number of factors including historical claims experience, demographic factors and severity factors.
The full extent of certain claims, especially workers’ compensation and general liability claims, may not become fully determined for several years.

Our self-insured liabilities contain uncertainties because management is required to make assumptions and to apply judgment to estimate the ultimate cost to settle reported claims and claims incurred but not reported as of the balance sheet date based upon historical data and experience, including actuarial calculations.
We have not made any material changes in the accounting methodology used to establish our self-insurance reserves in the financial periods presented.

We do not believe there is a reasonable likelihood that there will be a material change in the assumptions we use to calculate insurance reserves.  However, if we experience a significant increase in the number of claims or the cost associated with these claims, we may be exposed to losses that could be material.

A 10% change in our self-insurance reserves as of December 30, 2017, would have affected net income by approximately $3.6 million in fiscal 2017.
Sales Tax Audit Reserve:
A portion of our sales are to tax-exempt customers, predominantly agricultural-based. We obtain exemption information as a necessary part of each tax-exempt transaction.  Many of the states in which we conduct business will perform audits to verify our compliance with applicable sales tax laws.  The business activities of our customers and the intended use of the unique products sold by us create a challenging and complex tax compliance environment.  These circumstances also create some risk that we could be challenged as to the accuracy of our sales tax compliance.

When establishing our sales tax audit reserve, we review our past audit experience and assessments with applicable states to continually determine if we have potential exposure for non-compliance. Any estimated liability is based on an initial assessment of compliance risk as well as our historical experience with each respective state.


We continually reassess the exposure based on historical audit results, changes in policies, preliminary and final assessments made by state sales tax auditors and additional documentation that may be provided to reduce the assessment.

Our sales tax audit reserve contains uncertainties because management is required to make assumptions and to apply judgment regarding the complexity of agricultural-based exemptions, the ambiguity in state tax regulations, the number of ongoing audits and the length of time required to settle with the state taxing authorities.
We have not made any material changes to our sales tax audit assessment methodology in the financial periods presented.

We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate the sales tax liability reserve.  However, if our estimates regarding the ultimate sales tax liability are inaccurate, we may be exposed to losses or gains that could be material.

A 10% change in our sales tax audit reserve as of December 30, 2017, would have affected net income by approximately $0.9 million in fiscal 2017.

DescriptionJudgments and UncertaintiesEffect if Actual Results Differ from Assumptions
Tax Contingencies:
Our income tax returns are periodically audited by U.S. federal and state tax authorities. These audits include questions regarding our tax filing positions, including the timing and amount of deductions and the allocation of income among various tax jurisdictions. At any time, multiple tax years are subject to audit by the various tax authorities. In evaluating the exposures associated with our various tax filing positions, we record a liability for uncertain tax positions taken or expected to be taken in a tax return. A number of years may elapse before a particular matter, for which we have established a reserve, is audited and fully resolved or clarified. We recognize the effect of income tax positions only if those positions are more likely than not of being sustained.  Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized.  Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.  We adjust our tax contingencies reserve and income tax provision in the period in which actual results of a settlement with tax authorities differs from our established reserve, the statute of limitations expires for the relevant tax authority to examine the tax position or when more information becomes available.
Our tax contingencies reserve contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with our various filing positions and whether or not the minimum requirements for recognition of tax benefits have been met.

The effective income tax rate is also affected by changes in tax law, the tax jurisdiction of new stores or business ventures, the level of earnings and the results of tax audits.
We have not made any material changes in the accounting methodology used to establish our tax contingencies in the financial periods presented.

We do not believe there is a reasonable likelihood that there will be a material change in the reserves established for tax benefits not recognized.

Although management believes that the judgments and estimates discussed herein are reasonable, actual results could differ, and we may be exposed to losses or gains that could be material.

To the extent we prevail in matters for which reserves have been established, or are required to pay amounts in excess of our reserves, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement would require use of our cash and would result in an increase in our effective income tax rate in the period of resolution. A favorable tax settlement would be recognized as a reduction in our effective income tax rate in the period of resolution.

A 10% change in our uncertain tax position reserve as of December 30, 2017, would have affected net income by approximately $0.1 million in fiscal 2017.

DescriptionJudgments and UncertaintiesEffect if Actual Results Differ from Assumptions
Impairment of Long-Lived Assets:
Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

When evaluating long-lived assets for potential impairment, we first compare the carrying value of the asset to the asset’s estimated future cash flows (undiscounted and without interest charges). The evaluation for long-lived assets is performed at the lowest level of identifiable cash flows, which is generally the individual store level.  The significant assumptions used to determine estimated undiscounted cash flows include cash inflows and outflows directly resulting from the use of those assets in operations, including margin on net sales, payroll and related items, occupancy costs, insurance allocations and other costs to operate a store.

If the estimated future cash flows are less than the carrying value of the asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to the asset’s estimated fair value, which may be based on an estimated future cash flow model. We recognize an impairment loss if the amount of the asset’s carrying value exceeds the asset’s estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated (amortized) over the remaining estimated useful life of that asset.
Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values.

We have not made any material changes in our impairment loss assessment methodology in the financial periods presented.

We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses. None of these estimates and assumptions are significantly sensitive, and a 10% change in any of these estimates would not have a material impact on our analysis.  However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses that could be material.

DescriptionJudgments and UncertaintiesEffect if Actual Results Differ from Assumptions
Impairment of Goodwill and Other Indefinite-Lived Intangible Assets:
Goodwill and other indefinite-lived intangible assets are evaluated for impairment annually, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

In accordance with the accounting standards, an entity has the option first to assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not that goodwill or an indefinite-lived intangible asset is impaired. If after such assessment an entity concludes that the asset is not impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the asset using a quantitative impairment test, and if impaired, the associated assets must be written down to fair value.

The quantitative impairment test for goodwill compares the fair value of a reporting unit with the carrying value of its net assets, including goodwill.  If the fair value of the reporting unit is less than the carrying value of the reporting unit, an impairment charge would be recorded to the Company’s operations, for the amount, if any, in which the carrying amount exceeds the reporting unit’s fair value. We determine fair values for each reporting unit using the market approach, when available and appropriate, or the income approach, or a combination of both. If multiple valuation methodologies are used, the results are weighted appropriately.

The quantitative impairment test for other indefinite-lived intangible assets involves comparing the carrying amount of the asset to the sum of the discounted cash flows expected to be generated by the asset. If the implied fair value of the indefinite-lived intangible asset is less than the carrying value, an impairment charge would be recorded to the Company’s operations.
Our impairment loss calculation contains uncertainties because they require management to make assumptions and to apply judgment to qualitative factors as well as estimate future cash flows and asset fair values, including forecasting prospective financial information and selecting the discount rate that reflects the risk inherent in future cash flows.

The valuation approaches utilized to estimate fair value for the purposes of the impairment tests of goodwill and other indefinite-lived intangible assets require the use of assumptions and estimates, which involve a degree of uncertainty. If actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to non-cash impairment losses that could be material.


Quarterly Financial Data

Our unaudited quarterly operating results for each fiscal quarter of 2017 and 2016 are shown below (in thousands, except per share amounts):
  First
Quarter
 Second
Quarter
 Third
Quarter
 
Fourth
Quarter
 Total
2017 (13 weeks) (13 weeks) (13 weeks) (13 weeks) (52 weeks)
Net sales $1,564,078
 $2,017,762
 $1,721,704
 $1,952,838
 $7,256,382
Gross profit 518,203
 704,708
 600,456
 668,598
 2,491,965
Operating income 96,362
 257,925
 148,253
 183,842
 686,382
Net income 60,311
 160,649
 91,896
 109,743
 422,599
           
Net income per share:  
  
  
  
  
Basic $0.46
 $1.25
 $0.73
 $0.87
 $3.31
Diluted $0.46
 $1.25
 $0.72
 $0.87
 $3.30
           
Comparable store sales (decrease) increase (a)
 (2.2)% 2.2% 6.6% 4.0% 2.7%
  First
Quarter
 Second
Quarter
 Third
Quarter
 Fourth
Quarter
 Total
2016 (b)
 (13 weeks) (13 weeks) (13 weeks) (14 weeks) (53 weeks)
Net sales $1,467,797
 $1,852,534
 $1,542,706
 $1,916,542
 $6,779,579
Gross profit 494,444
 649,222
 535,274
 646,262
 2,325,202
Operating income 108,195
 249,249
 142,020
 194,616
 694,080
Net income 67,668
 156,425
 89,444
 123,583
 437,120
           
Net income per share:  
  
  
  
  
Basic $0.51
 $1.17
 $0.67
 $0.94
 $3.29
Diluted $0.50
 $1.16
 $0.67
 $0.94
 $3.27
           
Comparable store sales increase (decrease) (a)
 4.9% (0.5)% (0.6)% 3.1% 1.6%
(a)Comparable store metrics are calculated using sales generated from all stores open at least one year and all online sales, excluding certain adjustments to net sales. Closed stores are removed from our comparable store metrics calculations. Stores relocated during the periods being compared are not removed from our comparable store metrics. If the effect of relocated storesloss prevention measures and merchandising strategies.

For vendor funding, we estimate the purchase volume (and related vendor funding) based on our comparablecurrent knowledge of inventory levels, sales trends and expected customer demand, as well as planned new store metrics becomesopenings and relocations. Although we believe we can reasonably estimate purchase volume and related volume rebates at interim periods, it is possible that actual year-end results could be different from previously estimated amounts. Our allocation methodology contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding customer demand, purchasing activity, target thresholds, vendor attrition and collectability.

32

We have not made any material changes in the accounting methodology used to recognize inventory impairment reserves or shrinkage in the financial periods presented. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate impairment or shrinkage. However, if assumptions regarding consumer demand, clearance potential or inventory loss for certain products are inaccurate, we may be exposed to losses or gains that could be material. A 10% change in our inventory impairment reserve as of December 25, 2021, would remove relocated storeshave affected net income by approximately $1.3 million in fiscal 2021. A 10% change in our shrinkage reserve as of December 25, 2021, would have affected net income by approximately $4.2 million in fiscal 2021.

We have not made any material changes in the accounting methodology used to establish our vendor funding reserves in the financial periods presented. At the end of each fiscal year, a significant portion of the actual purchase activity is known. Thus, we do not believe there is a reasonable likelihood that there will be a material change in the amounts recorded as vendor funding. We do not believe there is a significant collectability risk related to vendor funding amounts due to us at the end of fiscal 2021. If a 10% reserve had been applied against our outstanding vendor funding due as of December 25, 2021, net income would have been affected by approximately $2.3 million in fiscal 2021. Although it is unlikely that there will be any significant reduction in historical levels of vendor funding, if such a reduction were to occur in future periods, the Company could experience a higher inventory balance and higher cost of sales.

Self-Insurance Reserves:

We self-insure a significant portion of our workers’ compensation insurance and general liability (including product liability) insurance plans. We have stop-loss insurance policies to protect from individual losses over specified dollar values. Provisions for losses related to our self-insured liabilities are based upon periodic independent actuarially determined estimates that consider a number of factors including historical claims experience, loss development factors, and severity factors.

The full extent of certain workers’ compensation and general liability claims may not become fully determined for several years. Our self-insured liabilities contain uncertainties because management is required to make assumptions and to apply judgment to estimate the ultimate cost to settle reported claims and claims incurred but not reported as of the balance sheet date based upon historical data and experience, including actuarial calculations.

We have not made any material changes in the accounting methodology used to establish our self-insurance reserves in the financial periods presented. We do not believe there is a reasonable likelihood that there will be a material change in the assumptions we use to calculate insurance reserves. However, if we experience a significant increase in the number of claims or the cost associated with these claims, we may be exposed to losses that could be material. A 10% change in our self-insurance reserves as of December 25, 2021, would have affected net income by approximately $8.4 million in fiscal 2021.

Impairment of Long-Lived Assets:

Long-lived assets, including lease right-of-use assets, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. When evaluating long-lived assets for potential impairment, we first compare the carrying value of the asset or asset group to its estimated undiscounted future cash flows. The evaluation for long-lived assets is performed at the lowest level of identifiable cash flows, which is generally the individual store level. The significant assumptions used to determine estimated undiscounted cash flows include cash inflows and outflows directly resulting from the calculations. Acquired Petsense storesuse of those assets in operations, including margin on net sales, payroll and related items, occupancy costs, insurance allocations, and other costs to operate a store. If the estimated future cash flows are considered comparable stores beginningless than the carrying value of the related asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the related asset or asset group to its estimated fair value, which may be based on an estimated future cash flow model, market valuation, or other valuation technique, as appropriate. We recognize an impairment loss if the amount of the asset’s carrying value exceeds the asset’s estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated (amortized) over the remaining estimated useful life of that asset.

Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values.

We have not made any material changes in our impairment loss assessment methodology in the fourth quarter of fiscal 2017.financial periods presented.
(b)Beginning
We do not believe there is a reasonable likelihood that there will be a material change in the fourth quarter ended December 31, 2016, selectedestimates or assumptions we use to calculate long-lived asset impairment losses. None of these estimates and assumptions are significantly sensitive, and a 10%
33

change in any of these estimates would not have a material impact on our analysis. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses that could be material.

There were no significant long-lived assets impairment charges recognized in fiscal 2021.

Impairment of Goodwill and Other Indefinite-Lived Intangible Assets:

Goodwill and other indefinite-lived intangible assets are evaluated for impairment annually, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In accordance with the accounting standards, an entity has the option first to assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not that goodwill or an indefinite-lived intangible asset is impaired. If after such assessment an entity concludes that the asset is not impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the asset using a quantitative impairment test, and if impaired, the associated assets must be written down to fair value.

The quantitative impairment test for goodwill compares the fair value of a reporting unit with the carrying value of its net assets, including goodwill. If the fair value of the reporting unit is less than the carrying value of the reporting unit, an impairment charge would be recorded to the Company’s operations, for the amount in which the carrying amount exceeds the reporting unit’s fair value. We determine fair values for each reporting unit using the market approach, when available and appropriate, the income approach, or a combination of both. The income approach involves forecasting projected financial information (such as revenue growth rates, profit margins, tax rates, and operatingcapital expenditures) and selecting a discount rate that reflects the risk inherent in estimated future cash flows. Under the market approach, the fair value is based on observed market data. If multiple valuation methodologies are used, the results are weighted appropriately.

The quantitative impairment test for other indefinite-lived intangible assets involves comparing the carrying amount of the asset to the sum of the discounted cash flows expected to be generated by the asset. If the implied fair value of the indefinite-lived intangible asset is less than the carrying value, an impairment charge would be recorded to the Company’s operations.

Our impairment loss calculation contains uncertainties because they require management to make assumptions and to apply judgment to qualitative factors as well as estimate future cash flows and asset fair values, including forecasting projected financial information includesand selecting the consolidationdiscount rate that reflects the risk inherent in future cash flows.

The valuation approaches utilized to estimate fair value for the purposes of Petsense, unless otherwise noted.the impairment tests of goodwill and other indefinite-lived intangible assets require the use of assumptions and estimates, which involve a degree of uncertainty. If actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to non-cash impairment losses that could be material.


There were no goodwill or other indefinite-lived intangible assets impairment charges recognized in fiscal 2021.

34

Index
Results of Operations


The following table sets forth, for the periods indicated, certain items in ourthe Consolidated Statements of Income expressed as a percentage of net sales.
Fiscal Year
 20212020
Net sales100.00 %100.00 %
Cost of merchandise sold (a)
64.83 64.58 
Gross margin (a)
35.17 35.42 
Selling, general and administrative expenses (a)
22.78 23.34 
Depreciation and amortization2.12 2.04 
Impairment of goodwill and other intangible assets— 0.65 
Operating income10.26 9.39 
Interest expense, net0.21 0.27 
Income before income taxes10.05 9.12 
Income tax expense2.22 2.07 
Net income7.83 %7.05 %
 2017 2016 2015
Net sales100.0% 100.0% 100.0%
Cost of merchandise sold (a)
65.7
 65.7
 65.6
Gross margin (a)
34.3
 34.3
 34.4
Selling, general and administrative expenses (a)
22.6
 22.0
 22.0
Depreciation and amortization2.3
 2.1
 2.0
Operating income9.4
 10.2
 10.4
Interest expense, net0.2
 0.1
 
Income before income taxes9.2
 10.1
 10.4
Income tax provision3.4
 3.7
 3.8
Net income5.8% 6.4% 6.6%

(a)Our gross margin amounts may not be comparable to those of other retailers since some retailers include all of the costs related to their distribution facility network in cost of merchandise sold and others (like our Company) exclude a portion of these distribution facility network costs from gross margin and instead include them in selling, general, and administrative expenses; refer to Note 1 – Significant Accounting Policies of the Notes to the Consolidated Financial Statements, included in Item 8 Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.


Fiscal 20172021 Compared to Fiscal 20162020


Net sales increased 7.0%19.9% to $7.26$12.73 billion in fiscal 20172021 from $6.78$10.62 billion in fiscal 2016. The prior year included an extra sales week as a part of the Company’s 53-week calendar in 2016, which negatively impacted the overall sales increase by approximately 1.6 percentage points.2020. Comparable store sales for fiscal 2017 were $6.85increased 16.9% to $12.43 billion versus a 2.7% increase over fiscal 2016. This compares to a 1.6% comparable store sales23.1% increase in the prior year.fiscal 2020. The comparable store average transaction countvalue increased 2.2%9.8% and comparable store average tickettransaction count increased 0.5%7.1% for fiscal 2017.2021, as compared to an increase of 12.2% and 10.9% in fiscal 2020, respectively.


Comparable store metrics are calculated on an annual basis usingOur sales generated from all stores open at least one year and all online sales, excluding certain adjustmentsperformance continued to net sales. Stores closed during the year are removed from our comparable store metrics calculations. Stores relocated during the years being compared are not removed from our comparable store metrics. If the effect of relocated stores on our comparable store metrics becomes material, we would remove relocated storesbenefit from the calculations. Acquired Petsense stores are considered comparable beginningshift of consumer behavior trends due to the COVID-19 pandemic as customers focused on the care of their homes, land, and animals, targeted investments in marketing to increase our unaided brand awareness, and other key initiatives to enhance customers' shopping experience, including the fourth quarterrelaunch of fiscal 2017.

Thethe Neighbor's Club loyalty program. These factors led to growth in new customer acquisition and increased spend from existing customers, which further resulted in an increase in comparable store sales increase was driven by an increase in traffic counts and the year-round strength of consumable, usable and edible ("C.U.E.") products, primarily animal- and pet-related merchandise. Warmer than normal weather patterns early in the first quarter negatively impacted the sales of winter seasonal items and winter storms in March had an unfavorable impact on the start to the spring selling season. Beginning in the second quarter, we experienced broad-based improvement through the remainder of the year inacross all geographic regions and major product categories, driven by strengthrobust growth for everyday merchandise, including C.U.E. products, and solid demand for seasonal categories. In addition, the Company’s e-commerce sales experienced double-digit percentage growth in sales of everyday basic items in C.U.E. and year-round products. The third quarter experienced an additional benefit from an extended spring and summer selling season and strong sales of emergency response products relatedfiscal 2021 as compared to hurricanes during the quarter while the fourth quarter experienced an additional benefit from solid sales in cold weather and other seasonal products.fiscal 2020.


In addition to comparable store sales growth in fiscal 2017,2021, sales from stores opened less than one year including Petsense, were $405.0$324.6 million in fiscal 2017,2021, which represented 6.03.1 percentage points of the 7.0%19.9% increase over fiscal 2016 net sales. Sales from stores opened less than one year, including Petsense, were $378.9 million in fiscal 2016, which represented 6.1 percentage points of the 8.9% increase over fiscal 2015 net sales.

The following table summarizes our store growth during fiscal 2017 and 2016:
Tractor Supply2017 2016
Store count, beginning of period1,595
 1,488
New stores opened101
 113
Stores closed(11) (6)
Store count, end of period1,685
 1,595
Petsense   
Beginning of period143
 
Stores acquired
 136
New stores opened25
 8
Stores closed
 (1)
End of period168
 143
Consolidated end of period1,853
 1,738
    
Stores relocated3
 3




The following table indicates the percentage of net sales represented by each of our major product categories during fiscal 2017 and 2016:
 Percent of Net Sales
Product Category:2017 2016
Livestock and Pet47% 46%
Hardware, Tools and Truck22
 22
Seasonal, Gift and Toy Products19
 19
Clothing and Footwear8
 8
Agriculture4
 5
Total100% 100%

Gross profit increased 7.2% to $2.49 billion in fiscal 2017 compared to $2.33 billion in fiscal 2016.  As a percent of net sales, gross margin remained flat to prior year at 34.3%.  Gross margin percentage was negatively impacted by higher markdowns on cold weather merchandise and targeted promotional activity in the first quarter, as well as a higher freight expense throughout the year due to higher carrier costs, increased average fuel costs and a shift in product mix towards more freight intensive products. These declines in gross margin were offset by strong sell-through rates and solid price and inventory management, particularly in the back half of the year.

Total selling, general and administrative (“SG&A”) expenses, including depreciation and amortization, for fiscal 2017 increased 10.7% to $1.81 billion from $1.63 billion in fiscal 2016.  SG&A expenses, as a percent of net sales, increased 80 basis points to 24.9% in fiscal 2017 from 24.1% in fiscal 2016.  The increase in SG&A as a percent of net sales was primarily attributable to higher store payroll from wage inflation and our continued effort to enhance customer service, increased incentive compensation at the store level from the strong year-over-year growth in comparable store sales, the deleverage of occupancy and other fixed costs resulting from the integration of Petsense expenses and the 53rd week of sales in fiscal 2016 that did not reoccur in fiscal 2017, and investments in infrastructure and technology to support our strategic long-term growth initiatives.

Our effective tax rate increased to 37.2% for fiscal 2017 compared to 36.5% in fiscal 2016. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cut and Jobs Act (the “Act”). The Act makes broad and complex changes to the U.S. tax code including, but not limited to, a reduction of the federal income tax rate from 35% to 21% effective for tax years beginning after December 31, 2017. We have made a reasonable estimate of the effects of the Act on our existing deferred tax balances as of December 30, 2017, and recognized a provisional amount of $4.9 million, which is included as a component of income tax expense from continuing operations. However, we are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect the measurement of these balances in future periods. Excluding the impacts of the Act, our effective income tax rate in 2017 would have been 36.4%.

For fiscal 2017, net income was $422.6 million, or $3.30 per diluted share, compared to $437.1 million, or $3.27 per diluted share, in fiscal 2016. Excluding the impact of the revaluation of the Company’s net deferred tax asset resulting in a one-time, non-cash charge of approximately $4.9 million, or $0.03 per diluted share, adjusted net income for fiscal 2017 was $427.5 million, or $3.33 per diluted share. Adjusted net income is a non-GAAP measure which has been provided in order to enhance comparability for the periods presented.

During fiscal 2017, we repurchased approximately 5.9 million shares of the Company’s common stock at a total cost of $369.4 million as part of our $3 billion share repurchase program.  In fiscal 2016, we repurchased approximately 4.4 million shares at a total cost of $331.7 million.

Fiscal 2016 Compared to Fiscal 2015

Net sales increased 8.9% to $6.78 billion in fiscal 2016 from $6.23 billion in fiscal 2015. The fourth quarter included an extra sales week as a part of the Company’s 53-week calendar in 2016, which represented 1.6 percentage points of the overall 8.9% sales increase over prior year. Comparable store sales for fiscal 2016 were $6.41 billion, a 1.6% increase over fiscal 2015. This compares to a 3.1% comparable store sales increase in the prior year. The comparable store transaction count increased 2.6%, while comparable store average ticket decreased 0.9% for fiscal 2016.

Comparable store metrics are calculated on an annual basis using sales generated from all stores open at least one year and all online sales, excluding certain adjustments to net sales. Stores closed during the year are removed from our comparable store metrics calculations. Stores relocated during the years being compared are not removed from our comparable store metrics. If

the effect of relocated stores on our comparable store metrics becomes material, we would remove relocated stores from the calculations. Petsense stores are not considered comparable stores until 12 months after the date of acquisition.

The comparable store sales increase was driven by an increase in traffic counts and the year-round strength of C.U.E. products, principally animal- and pet-related merchandise. Livestock equipment and hardline products such as fencing and trailers also performed well throughout the year. The full year sales performance was negatively impacted by unpredictable weather patterns during the spring selling season and unseasonably warm weather in the key cold months of the year which drove softness in cold weather seasonal categories and big ticket items such as log splitters and stoves. Additionally, the Company believes that economic conditions in the energy producing markets negatively impacted consumer spending primarily in the Midwest and South Central regions.

In addition to comparable store sales growth in fiscal 2016, sales from stores opened less than one year, including Petsense, were $378.9 million in fiscal 2016, which represented 6.1 percentage points of the 8.9% increase over fiscal 20152020 net sales. Sales from stores opened less than one year were $351.0$355.3 million in fiscal 2015,2020, which represented 6.14.3 percentage points of the 9.0%27.2% increase over fiscal 20142019 net sales.


35

Index
The following table summarizes our store growth during fiscal 20162021 and 2015:2020:
Fiscal Year
Store Count Information:20212020
Tractor Supply
Beginning of period1,923 1,844 
New stores opened80 80 
Stores closed— (1)
End of period2,003 1,923 
Petsense
Beginning of period182 180 
New stores opened
Stores closed(11)(7)
End of period178 182 
Consolidated end of period2,181 2,105 
Stores relocated
Tractor Supply2016 2015
Store count, beginning of period1,488
 1,382
New stores opened113
 114
Stores closed(6) (8)
Store count, end of period1,595
 1,488
Petsense   
Beginning of period
 
Stores acquired136
 
New stores opened8
 
Stores closed(1) 
End of period143
 
Consolidated end of period1,738
 1,488
    
Stores relocated3
 6


The following table indicates the percentage of net sales represented by each of our major product categories during fiscal 20162021 and 2015:2020:
 Percent of Net Sales
Fiscal Year
Product Category:20212020
Livestock and Pet47 %47 %
Hardware, Tools and Truck21 21 
Seasonal, Gift and Toy Products21 21 
Clothing and Footwear
Agriculture
Total100 %100 %
 Percent of Net Sales
Product Category:2016 2015
Livestock and Pet46% 44%
Hardware, Tools and Truck22
 23
Seasonal, Gift and Toy Products19
 20
Clothing and Footwear8
 8
Agriculture5
 5
Total100% 100%


Gross profit increased 8.5%19.0% to $2.33$4.48 billion in fiscal 20162021 compared to $2.14$3.76 billion in fiscal 2015.2020.  As a percent of net sales, gross margin decreased 1025 basis points to 34.3%35.2% for fiscal 20162021 compared to 34.4%35.4% for fiscal 2015.  This2020. The decrease in gross margin as a percentage principally reflects aof net sales was primarily driven by higher product cost inflation, higher transportation costs driven by increased pressures on domestic freight, import freight, and rising fuel prices, and product mix ofshift towards C.U.E. products, which generally carry below chain average grossrun at a slightly lower margin partiallyrate. Partially offsetting the decrease was the Company's price management program and limited promotional and clearance activity, which effectively offset by benefits from our key margin driving initiatives. Freight expense as a percentsignificant portion of net sales experienced a marginal increase in fiscal 2016 as compared to the prior year due principally to an increase in inbound milesinflation and domestic transportation costs, partially offset by lower diesel fuel pricespressures.

Total selling, general and import container costs.

administrative (“SG&A&A”) expenses, including depreciation and amortization as a percent of net salesand asset impairment, increased 10 basis points14.7% to 24.1%$3.17 billion in fiscal 20162021 from 24.0%$2.76 billion in fiscal 2015.2020.  SG&A expenses, as a percent of net sales, increased dueimproved 113 basis points to incremental costs associated with our

new distribution facilities that began operations24.9% in late fiscal 2015, as well as acquisition and operating2021 from 26.0% in fiscal 2020.  The SG&A expenses associated within fiscal 2020 were impacted by discrete non-cash impairment charges for the Petsense purchase. These increases werebusiness of $74.1 million due primarily to a strategic reassessment of the business and a decision to reduce the number of new store openings planned over the long term and, to a lesser extent, the impairment of long-lived assets at underperforming locations.On an adjusted basis, excluding the impact of the discrete impairment charges in the prior year, SG&A expenses increased 17.8% to $3.17 billion in fiscal 2021 from $2.69 billion in fiscal 2020. On an adjusted basis, SG&A expenses, as a percent of net sales, improved 43 basis points to 24.9% in fiscal 2021 from 25.3% in fiscal 2020. The improvement in SG&A as a percent as net sales was primarily attributable to strong leverage in occupancy and other fixed costs from the increase in comparable store sales and lower COVID-19 pandemic response costs. COVID-19 pandemic response costs in fiscal 2021 of $63.3 million consisted of sick pay, benefits, and other health and safety related expenses, as compared to $117.1 million in fiscal 2020. The leverage from these SG&A expenses was partially offset by leverage of occupancy costs fromhigher store wage rates, additional store labor hours, and investment in the 53rd week of sales in fiscal 2016, as well as lower year-over-year incentive compensation expense. Total SG&A expenses, including depreciation and amortization, for fiscal 2016 increased 9.3% to $1.63 billion from $1.49 billion in fiscal 2015.  The increase in SG&A expenses primarily reflects new store growth, incremental costs from operating the new distribution facilities, variable costs associated with our comparable store sales growth and the extra sales week during the year and incremental expenses associated with the Petsense acquisition and its operations.Company's strategic initiatives.


Our effective income tax rate decreased to 36.5%22.1% for fiscal 20162021 compared to 36.6%22.6% in fiscal 2015.2020. The primary drivers for the decrease in the Company's effective income tax rate were additional benefits from share-based compensation, a reduction in
36

Index
disallowed executive compensation, and increases in available tax credits, partially offset by a small increase in the Company's provision for state taxes.

Net income in fiscal 2021 was due principally to the availability of federal and state tax incentives.

As a result of the foregoing factors, net income for fiscal 2016 increased 6.5% to $437.1$997.1 million, or $3.27$8.61 per diluted share, as compared to net income of $410.4$749.0 million, or $3.00$6.38 per diluted share, in fiscal 2015.2020. The aforementioned non-cash impairment expense related to the Petsense business had an after-tax impact on fiscal 2020 net income of approximately $57.3 million or $0.49 per diluted share. On an adjusted basis, considering the after-tax impact of the non-cash impairment charges related to the Petsense business, net income was $806.2 million, or $6.87 per diluted share, for fiscal 2020. Adjusted net income and adjusted net income per diluted share are non-GAAP measures which have been provided in order to enhance comparability for the periods presented given that the impairment charges related to the Petsense business are non-recurring in nature. A reconciliation of these non-GAAP financial measures is included in the following table.


Reconciliation of Non-GAAP Financial Measures
(in thousands, except per share amounts)
Fiscal 2020
Impairment (a)
Fiscal 2020
(As Reported)(Adjustment)(As Adjusted)
SG&A (including depreciation and amortization and asset impairment)$2,764,621 $(74,051)$2,690,570 
Operating income$996,928 $74,051 $1,070,979 
Income before income taxes$968,147 $74,051 $1,042,198 
Income tax expense$219,189 $16,765 $235,954 
Net income$748,958 $57,286 $806,244 
Diluted net income per share$6.38 $0.49 $6.87 

(a) Comprised of $68.97 million of impairment of goodwill and other intangible assets along with $5.08 million of impairment of other long-lived assets related to the Petsense reporting unit

During fiscal 2016,2021, we repurchased approximately 4.4 million shares of the Company’s common stock at a total cost of $331.7$798.9 million as part of our $3 billion share repurchase program.  In fiscal 2015,2020, we repurchased approximately 3.4 million shares at a total cost of $292.7$343.0 million. Shares repurchased in fiscal 2020 were impacted by the temporary suspension of our share repurchase program from March 12, 2020 until November 5, 2020, in order to strengthen our liquidity and preserve cash while navigating the COVID-19 pandemic.


Fiscal 2018 Outlook2020 Compared to Fiscal 2019


Our guidance for fiscal 2018 anticipates net sales of $7.69 billion to $7.77 billion, reflectingFor a comparable store sales increase of 2.0% to 3.0% as well as the opening of approximately 80 Tractor Supply stores and 20 Petsense stores. At the mid-pointcomparison of our guidance range, we anticipate that operating profit as a percentageperformance and financial metrics for the fiscal years ended December 26, 2020 and December 28, 2019, see “Part II, Item 7. Management’s Discussion and Analysis of net sales will decrease from 9.4% inFinancial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal 2017 to 8.8% in fiscal 2018. Included in this estimate are anticipated cost pressures associatedyear ended December 26, 2020, filed with rising diesel fuel prices and transportation costs, wage investments for our team members in our stores and distribution centers, investments to support our growth strategy, and incremental pre-opening and other operating expenses from our new distribution center which is currently under construction in Frankfort, New York. Lastly, as a result of the Act reducing the statutory federal income tax rate from 35% to 21%, our effective tax rate in fiscal 2018 is expected to range from 23.0% to 23.5%. As a result of the foregoing factors, we estimate net income for fiscal 2018 of $490 million to $515 million, or $3.95 to $4.15 per diluted share.SEC on February 18, 2021.


Liquidity and Capital Resources
 
In addition to normal operating expenses and expenses associated with COVID-19, our primary ongoing cash requirements are for new store expansion, existing store remodeling and relocation programs,improvements, store relocations, distribution facility capacity and improvements, information technology, inventory purchases, repayment of
existing borrowings under our debt facilities, share repurchases, cash dividends, and selective acquisitions as opportunities arise.  


Our primary ongoing sources of liquidity are existing cash balances, cash provided from operations, remaining funds available under our debt facilities, capitaloperating and operatingfinance leases, and normal trade credit.  Our inventory and accounts payable levels typically build in the first and third fiscal quarters to support the higher sales volume of the spring and cold-weather selling seasons, respectively.


We believe that our existing cash balances, expected cash flow from future operations, funds available under our debt facilities, operating and capitalfinance leases, and normal trade credit will be sufficient to fund our operations, including expenses associated with COVID-19, and our capital expenditure needs, including new store openings, existing store acquisitions,remodeling and improvements,
37

Index
store relocations, and renovations and distribution facility capacity and improvements, and information technology improvements through the end of fiscal 2018.2022. We are not aware of any trends or events that would materially affect our capital requirements or liquidity.



Working Capital


At December 30, 2017,25, 2021, the Company had working capital of $806.2 million,$1.19 billion, which increased $65.6decreased $329.3 million from December 31, 2016.fiscal 2020.  The shifts in working capital were attributable to changes in the following components of current assets and current liabilities (in millions):
 December 25, 2021December 26, 2020Variance
Current assets:   
Cash and cash equivalents$878.0 $1,341.8 $(463.8)
Inventories2,191.2 1,783.3 407.9 
Prepaid expenses and other current assets164.1 133.6 30.5 
Income taxes receivable17.1 — 17.1 
Total current assets3,250.4 3,258.7 (8.3)
Current liabilities:   
Accounts payable1,155.6 976.1 179.5 
Accrued employee compensation109.6 119.7 (10.1)
Other accrued expenses474.4 324.8 149.6 
Current portion of finance lease obligations3.9 4.6 (0.7)
Current portion of operating lease obligations321.3 298.7 22.6 
Income taxes payable— 19.9 (19.9)
Total current liabilities2,064.8 1,743.8 321.0 
Working capital$1,185.6 $1,514.9 $(329.3)
 2017 2016 Variance
Current assets:     
Cash and cash equivalents$109.1
 $53.9
 $55.2
Inventories1,453.2
 1,369.7
 83.5
Prepaid expenses and other current assets88.3
 90.6
 (2.3)
Income taxes receivable4.8
 3.6
 1.2
Total current assets1,655.4
 1,517.8
 137.6
Current liabilities: 
  
  
Accounts payable576.6
 519.5
 57.1
Accrued employee compensation31.6
 25.2
 6.4
Other accrued expenses201.7
 215.7
 (14.0)
Current portion of long-term debt25.0
 10.0
 15.0
Current portion of capital lease obligation3.5
 1.3
 2.2
Income taxes payable10.8
 5.5
 5.3
Total current liabilities849.2
 777.2
 72.0
Working capital$806.2
 $740.6
 $65.6


In comparison to December 31, 2016,26, 2020, working capital as of December 30, 201725, 2021 was impacted most significantly by changes in our cash inventory and cash equivalents, inventories, accounts payable.payable and other accrued expenses.

The decrease in cash balance increasedand cash equivalents was primarily duedriven by share repurchases, capital expenditures to strong inventory turns at the end of fiscal 2017 stemming from the sale of cold weather seasonal merchandise.support strategic growth, and cash dividends to stockholders.
The increase in inventories resulted from an increase in average inventory per store driven by our commitment to support our strong sales trends, along with the impact of inflation and the purchase of additional inventory to support new store growth.
The increase in accounts payable resulted from the purchase of additional inventory to support new store growth. We actively manage our inventory balancesgrowth and in-stock levels at our stores. Average inventory per store decreased slightly year-over-year principallystrong sales volume trends.
Other accrued expenses increased primarily due to an improvementincreases in inventory turns of seasonalfreight and cold-weather merchandise atother payables due to the end of fiscal 2017 as compared to fiscal 2016.growth in sales.
Accounts payable increased primarily as a result of new store growth along with timing of payments to vendors.

38

Index
Debt


The following table summarizes the Company’s outstanding debt as of the dates indicated (in millions):
December 25,
2021
December 26,
2020
1.75% Senior Notes due 2030$650.0 $650.0 
3.70% Senior Notes due 2029150.0 150.0 
Senior Credit Facility:
November 2020 Term Loan200.0 200.0 
Revolving credit loans— — 
Total outstanding borrowings1,000.0 1,000.0 
Less: unamortized debt issuance costs(13.6)(15.7)
Total debt986.4 984.3 
Less: current portion of long-term debt— — 
Long-term debt$986.4 $984.3 
Outstanding letters of credit$52.9 $48.7 
  December 30,
2017
 December 31,
2016
Senior Notes $150.0
 $
Senior Credit Facility:    
February 2016 Term Loan 180.0
 190.0
June 2017 Term Loan 97.5
 
Revolving credit loans 
 85.0
Total outstanding borrowings 427.5
 275.0
Less: unamortized debt issuance costs (1.4) (1.1)
Total debt 426.1
 273.9
Less: current portion of long-term debt (25.0) (10.0)
Long-term debt $401.1
 $263.9
     
Outstanding letters of credit $39.6
 $44.3




Senior Notes


On August 14, 2017,October 30, 2020, the Company entered intoissued and sold, in a note purchase and private shelf agreement (the “Note Purchase Agreement”), pursuant to which the Company agreed to sell $150public offering, $650 million in aggregate principal amount of senior unsecured notes due August 14, 2029 (the “2029 Notes”) in a private placement. The 2029 Notes bearNovember 1, 2030 bearing interest at 3.70%1.75% per annum with interest payable semi-annually in arrears on each annual and semi-annual anniversary(the “1.75% Senior Notes”). In support of the issuance date. The obligations under the Note Purchase Agreement are unsecured, but guaranteed by each of the Company’s material subsidiaries.1.75% Senior Notes, we obtained credit ratings from Moody's Investor Services and Standard & Poor's.


The Company may from timeWe manage our business and financial ratios to time issuetarget an investment-grade bond rating, which has historically allowed flexible access to financing at reasonable market costs. As of December 25, 2021, and sell additional senior unsecured notes (the “Shelf Notes”) pursuant to the Note Purchase Agreement, in an aggregate principal amount of up to $150 million. The Shelf Notes will have a maturity date of no more than 12 years after the date of original issuancethis filing, February 17, 2022, the Company's senior unsecured debt is rated “Baa1,” by Moody’s Investor Services with a stable outlook and “BBB” by Standard & Poor’s with a stable outlook. These ratings have been obtained with the understanding that Moody’s Investors Services and Standard & Poor’s will continue to monitor our credit and make future adjustments to these ratings to the extent warranted. The ratings are not a recommendation to buy, sell or hold our securities, may be issued through August 14, 2020, unless earlier terminated in accordance with the terms of the Note Purchase Agreement.

Pursuant to the Note Purchase Agreement, the 2029 Notes and any Shelf Notes (collectively, the "Notes") are redeemable by the Company, in wholechanged, superseded or withdrawn at any time and should be evaluated independently of any other rating.

Our current ratings, as well as future rating agency actions, could impact our ability to finance our operations on satisfactory terms and affect our financing costs. There can be no assurance that we will maintain or in part from time to time, at 100% of the principal amount of the Notes being redeemed, together with accrued and unpaid interest thereon and a make whole amount calculated by discounting all remaining scheduled payments on the Notes by the yield on the U.S. Treasury security with a maturity equal to the remaining average life of the Notes plus 0.50%.improve our current credit ratings.


Senior Credit Facility

On February 19, 2016, the Company entered into a senior credit facility (the “2016 Senior Credit Facility”) consisting of a $200 million term loan (the “February 2016 Term Loan”) andWe also maintain a $500 million revolving credit facility (the “Revolver”) under the senior credit facility (the "Senior Credit Facility") with a sublimit of $50 million for swingline loans. This agreement is unsecured. On February 16, 2018, the maturity date was extended from February 19, 2021 to February 19, 2022.

On June 15, 2017, pursuant to an accordion feature available under the 2016 Senior Credit Facility, the Company entered into an incremental term loan agreement (the “June 2017 Term Loan”) which increased the term loan capacity under the 2016 Senior Credit Facility by $100 million. This agreement is unsecuredloans and matures on June 15, 2022.

The February 2016 Term Loan of $200 million requires quarterly payments totaling $10 million per year in years one and two and $20 million per year in years three through the maturity date, with the remaining balance due in full on the maturity date of February 19, 2022. The June 2017 Term Loan of $100 million requires quarterly payments totaling $5 million per year in years one and two and $10 million per year in years three through the maturity date, with the remaining balance due in full on the maturity date of June 15, 2022. The 2016 Senior Credit Facility also contains a $500 million revolving credit facility (with a sublimit of $50$150 million for swingline loans).letters of credit.


Borrowings under the February 2016 Term Loan and Revolver bear interest at either the bank’s base rate (4.500% at December 30, 2017) or the London Inter-Bank Offer Rate (“LIBOR”) (1.564% at December 30, 2017) plus anFor additional amount ranging from 0.500% to 1.125% per annum (0.750% at December 30, 2017), adjusted quarterly based on our leverage ratio.  The Company is also required to pay, quarterly in arrears, a commitment fee for unused capacity ranging from 0.075% to 0.200% per annum (0.125% at December 30, 2017), adjusted quarterly based oninformation about the Company’s leverage ratio. Borrowings under the June 2017 Term Loan bear interest at either the bank’s base rate (4.500% at December 30, 2017) or LIBOR (1.564% at December 30, 2017) plus an additional 1.000% per annum. As further described indebt and credit facilities, refer to Note 64 to the Consolidated Financial Statements, the Company has entered into interest rate swap agreements in order to hedge our exposure to variable rate interest payments associated with each of the term loans under the 2016 Senior Credit Facility.Statements.

Proceeds from the 2016 Senior Credit Facility may be used for working capital, capital expenditures, dividends, share repurchases, and other matters. There are no compensating balance requirements associated with the 2016 Senior Credit Facility.

Covenants and Default Provisions of the Debt Agreements

The 2016 Senior Credit Facility and the Note Purchase Agreement (collectively, the “Debt Agreements”) require quarterly compliance with respect to two material covenants: a fixed charge coverage ratio and a leverage ratio.  Both ratios are calculated on a trailing twelve-month basis at the end of each fiscal quarter. The fixed charge coverage ratio compares earnings before interest, taxes, depreciation, amortization, share-based compensation and rent expense (“consolidated EBITDAR”) to the sum of interest paid and rental expense (excluding any straight-line rent adjustments).  The fixed charge coverage ratio shall be greater than or equal to 2.00 to 1.0 as of the last day of each fiscal quarter. The leverage ratio compares rental expense (excluding any straight-line rent adjustments) multiplied by a factor of six plus total debt to consolidated EBITDAR.  The leverage ratio shall be less than

or equal to 4.00 to 1.0 as of the last day of each fiscal quarter. The Debt Agreements also contain certain other restrictions regarding additional indebtedness, capital expenditures, business operations, guarantees, investments, mergers, consolidations and sales of assets, transactions with subsidiaries or affiliates, and liens.  As of December 30, 2017, the Company was in compliance with all debt covenants.

The Debt Agreements contain customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, certain events of bankruptcy and insolvency, material judgments, certain ERISA events and invalidity of loan documents. Upon certain changes of control, payment under the Debt Agreements could become due and payable. In addition, under the Note Purchase Agreement, upon an event of default or change of control, the make whole payment described above may become due and payable.

The Note Purchase Agreement also requires that, in the event the Company amends its 2016 Senior Credit Facility, or any subsequent credit facility of $100 million or greater, such that it contains covenant or default provisions that are not provided in the Note Purchase Agreement or that are similar to those contained in the Note Purchase Agreement but which contain percentages, amounts, formulas or grace periods that are more restrictive than those set forth in the Note Purchase Agreement or are otherwise more beneficial to the lenders thereunder, the Note Purchase Agreement shall be automatically amended to include such additional or amended covenants and/or default provisions.

Interest Rate Swaps

The Company entered into an interest rate swap agreement which became effective on March 31, 2016, with a maturity date of February 19, 2021. The notional amount of this swap agreement began at $197.5 million (the principal amount of the February 2016 Term Loan borrowings as of March 31, 2016) and will amortize at the same time and in the same amount as the February 2016 Term Loan borrowings as described in Note 5 to the Consolidated Financial Statements, up to the maturity date of the interest rate swap agreement on February 19, 2021. As of December 30, 2017, the notional amount of the interest rate swap was $180.0 million.

The Company entered into a second interest rate swap agreement which became effective on June 30, 2017, with a maturity date of June 15, 2022. The notional amount of this swap agreement began at $100 million (the principal amount of the June 2017 Term Loan borrowings as of June 30, 2017) and will amortize at the same time and in the same amount as the June 2017 Term Loan borrowings as described in Note 5 to the Consolidated Financial Statements. As of December 30, 2017, the notional amount of the interest rate swap was $97.5 million.

The Company’s interest rate swap agreements are executed for risk management and are not held for trading purposes. The objective of the interest rate swap agreements is to mitigate interest rate risk associated with future changes in interest rates. To accomplish this objective, the interest rate swap agreements are intended to hedge the variable cash flows associated with the variable rate term loan borrowings under the 2016 Senior Credit Facility. Both interest rate swap agreements entitle the Company to receive, at specified intervals, a variable rate of interest based on LIBOR in exchange for the payment of a fixed rate of interest throughout the life of the agreement, without exchange of the underlying notional amount.


Sources and Uses of Cash


Our primary source of liquidity is cash provided by operations and funds available under our debt facilities.  Principal uses of cash for investing activities are capital expenditures and selective acquisitions, while principal uses of cash for financing activities are repurchase of the Company’s common stock and cash dividends paid to stockholders.  

39

Index

The following table presents a summary of cash flows provided by or used in operating, investing, and financing activities for the last three fiscal years 2021 and 2020 (in millions):
Fiscal Year
 20212020
(52 weeks)(52 weeks)
Net cash provided by operating activities$1,138.7 $1,394.5 
Net cash used in investing activities(627.3)(292.2)
Net cash (used in)/provided by financing activities(975.1)155.2 
Net (decrease)/increase in cash and cash equivalents$(463.7)$1,257.5 
 2017 
2016(a)
 
2015(a)
 (52 weeks) (53 weeks) (52 weeks)
Net cash provided by operating activities$631.5
 $650.7
 $456.2
Net cash used in investing activities(238.0) (369.3) (235.9)
Net cash used in financing activities(338.3) (291.3) (207.6)
Net increase (decrease) in cash and cash equivalents$55.2
 $(9.9) $12.7
(a) As a result of the adoption of ASU 2016-09 (discussed in Note 15 to the Consolidated Financial Statements), excess tax benefits on stock options exercised are no longer presented as a separate line item in the statement of cash flows. The presentation of fiscal 2016 and fiscal 2015 have been adjusted to conform to the current presentation.


Operating Activities


Operating activities provided net cash of $631.5 million, $650.7 million$1.14 billion and $456.2 million$1.39 billion in fiscal 2017, 20162021 and 2015,2020, respectively. The $19.2$255.8 million decrease in net cash provided by operating activities in fiscal 20172021, compared to fiscal 20162020, was due to changes in the following (in millions):
Fiscal YearVariance
 20212020
(52 weeks)(52 weeks)
Net income$997.1 $749.0 $248.1 
Depreciation and amortization270.2 217.1 53.1 
Impairment expense— 74.1 (74.1)
Share-based compensation expense47.6 37.3 10.3 
Deferred income taxes29.1 (31.7)60.8 
Inventories and accounts payable(228.4)152.6 (381.0)
Prepaid expenses and other current assets(30.5)(32.8)2.3 
Accrued expenses127.8 152.4 (24.6)
Income taxes(37.0)14.0 (51.0)
Other, net(37.2)62.5 (99.7)
Net cash provided by operating activities$1,138.7 $1,394.5 $(255.8)
 2017 
2016(a)
 Variance
 (52 weeks) (53 weeks)  
Net income$422.6
 $437.1
 $(14.5)
Depreciation and amortization165.8
 143.0
 22.8
Share-based compensation expense29.2
 23.6
 5.6
Deferred income taxes26.7
 10.0
 16.7
Inventories and accounts payable(26.5) 14.8
 (41.3)
Prepaid expenses and other current assets2.3
 1.8
 0.5
Accrued expenses(3.9) 2.1
 (6.0)
Income taxes4.2
 11.8
 (7.6)
Other, net11.1
 6.5
 4.6
Net cash provided by operating activities$631.5

$650.7
 $(19.2)

(a) As a result of the adoption of ASU 2016-09 (discussed in Note 15 to the Consolidated Financial Statements), excess tax benefits on stock options exercised are no longer presented as a separate line item in the statement of cash flows. The presentation of fiscal 2016 has been adjusted to conform to the current presentation.

The $19.2$255.8 million decrease in net cash provided by operating activities in fiscal 20172021, compared withto fiscal 20162020, is primarily reflects thedriven by a significant increase in inventory and timing of receiptspayments and payments in relation to inventory and accounts payableaccruals, partially offset by increased depreciation and amortization due to new store growth and investments in information technology and infrastructure.

The $194.5 millionan increase in our net cash provided by operating activities in fiscal 2016 over fiscal 2015 was due to changes in the following (in millions):income.
 
2016(a)
 
2015(a)
 Variance
 (53 weeks) (52 weeks)  
Net income$437.1
 $410.4
 $26.7
Depreciation and amortization143.0
 123.6
 19.4
Stock compensation expense23.6
 19.4
 4.2
Deferred income taxes10.0
 (5.5) 15.5
Inventories and accounts payable14.8
 (112.5) 127.3
Prepaid expenses and other current assets1.8
 (21.1) 22.9
Accrued expenses2.1
 16.9
 (14.8)
Income taxes payable11.8
 16.3
 (4.5)
Other, net6.5
 8.7
 (2.2)
Net cash provided by operating activities$650.7
 $456.2
 $194.5
(a) As a result of the adoption of ASU 2016-09 (discussed in Note 15 to the Consolidated Financial Statements), excess tax benefits on stock options exercised are no longer presented as a separate line item in the statement of cash flows. The presentation of fiscal 2016 and fiscal 2015 has been adjusted to conform to the current presentation.

The $194.5 million increase in net cash provided by operating activities in fiscal 2016 compared with fiscal 2015 primarily reflects incremental profitability and the impact of effective management of inventory and accounts payable levels. Average inventory per store decreased year-over-year principally due to an improvement in inventory turns of seasonal and cold-weather merchandise at the end of fiscal 2016 compared to fiscal 2015. Additionally, the timing of payments to vendors more closely aligned with receipt of inventory at the end of fiscal 2016 in comparison with the end of fiscal 2015, resulting in an improvement in cash flow year-over-year.



Investing Activities


Investing activities used cash of $238.0 million, $369.3$627.3 million and $235.9$292.2 million in fiscal 2017, 20162021 and 2015,2020, respectively.  Fiscal 2016 had a significantThe $335.1 million increase in net cash outflow fromused in investing activities relatedprimarily reflects an increase in capital expenditures in fiscal 2021 compared to the acquisition of Petsense.  Other than cash flows related to the acquisition of Petsense, cash flows from investingfiscal 2020.
40

Index

Investing activities, in the years presented are primarily composed ofincluding capital expenditures. Capital expenditures, for fiscal 2017, 20162021 and 20152020 were as follows (in millions):

Fiscal YearVariance
2017 2016 2015
(52 weeks) (53 weeks) (52 weeks) 20212020
(52 weeks)(52 weeks)
Existing storesExisting stores$326.9 $73.7 $253.2 
Information technology$82.1
 $40.5
 $35.8
Information technology124.8 133.0 (8.2)
Distribution center capacity and improvementsDistribution center capacity and improvements93.3 23.4 69.9 
New and relocated stores and stores not yet opened79.3
 111.2
 96.7
New and relocated stores and stores not yet opened73.0 58.8 14.2 
Distribution center capacity and improvements45.8
 21.0
 80.2
Existing stores43.0
 53.1
 23.1
Corporate and other0.2
 0.2
 0.7
Corporate and other10.4 5.1 5.3 
Total capital expenditures$250.4
 $226.0
 $236.5
Total capital expenditures$628.4 $294.0 $334.4 
Proceeds from sale of property and equipmentProceeds from sale of property and equipment(1.1)(1.8)0.7 
Net cash used in investing activitiesNet cash used in investing activities$627.3 $292.2 $335.1 


The above table reflects an investmentincrease in 101 new Tractor Supplyspending for existing stores and three store relocations, as well as 25 new Petsense stores during fiscal 2017. In 2016, we opened 113 new Tractor Supply stores, had three store relocations and began operating 143 Petsense stores as compared to 114 new Tractor Supply stores and six store relocations in fiscal 2015.  Existing store expenditures were higher in fiscal 2016 and fiscal 2017,2021 as compared to fiscal 2015, due2020 principally reflects our strategic initiatives related to store remodels, including internal space productivity and the investment in the chain-wide LED lighting retrofit initiative, which was completed in fiscal 2017.

outside side lot improvements. The sustained increase in spending on information technology represents continued support of our store growth and our omni-channel platform,initiatives, as well as improvements in security and compliance, enhancements and upgrades to our customer relationship management databaseloyalty program, mobility in our stores, and other strategic initiatives.


SpendingThe increase in spending for distribution center capacity and improvements increased in fiscal 20172021 as we begancompared to fiscal 2020 is principally related to beginning construction of a new northeast distribution center in Frankfort, New York,Navarre, Ohio, which is expected to be approximately 900,000 square feet and expansionis currently anticipated to be completed in the fall of our distribution centerfiscal 2022.

The above table reflects an investment in Waverly, Nebraska. Distribution center spending was also higher in80 new Tractor Supply stores, and seven new Petsense stores during fiscal 2015 as a result of the construction of two mixing centers in Texas2021. In fiscal 2020, we opened 80 new Tractor Supply stores, nine new Petsense stores, and the southwest distribution center in Casa Grande, Arizona, all of which began operations in fiscal 2015.had one store relocation. 


We currently estimate thatOur projected capital expenditures for fiscal 2022 are currently estimated to be in fiscal 2018 willa range between $260of approximately $625 million and $300to $675 million.
WeThe capital expenditures include a plan to open approximately 75 to 80 new Tractor Supply stores, remodel more than 150 stores and 20transform the side lots in approximately 100 locations, along with opening 10 new Petsense storesstores. We also anticipate the opening of our ninth distribution center in fiscal 2018.
WeNavarre, Ohio in the fall of 2022. Additionally, we plan to continue to investbegin construction in the developmentmiddle of ourfiscal 2022 on a new northeast distribution center. We alsocenter in Maumelle, Arkansas, which is currently anticipated to be complete in late 2023. In addition, we plan to investsupport our continued improvements in two additional mixing centerstechnology and an East Coast import center.
Additionally, we will continueinfrastructure at our existing stores, and ongoing investments to enhance our digital and omni-channel capabilities to better serve our customers.


Financing Activities


Financing activities used cash of $338.3 million, $291.3 million and $207.6$975.1 million in fiscal 2017, 2016 and 2015, respectively.  
2021, while financing activities provided $155.2 million in fiscal 2020. The $47.0 million increase$1.13 billion decrease in net cash used inprovided by financing activities in fiscal 20172021, compared to fiscal 20162020, was due to changes in the following (in millions):

Fiscal Year
2017 
2016(a)
 Variance 20212020Variance
(52 weeks) (53 weeks)  (52 weeks)(52 weeks)
Net borrowings and repayments under debt facilities$152.5
 $125.0
 $27.5
Net borrowings and repayments under debt facilities$— $602.5 $(602.5)
Repurchase of common stock(369.4) (331.7) (37.7)Repurchase of common stock(798.9)(343.0)(455.9)
Net proceeds from issuance of common stock16.3
 41.0
 (24.7)Net proceeds from issuance of common stock82.2 99.3 (17.1)
Cash dividends paid to stockholders(133.8) (122.3) (11.5)Cash dividends paid to stockholders(239.0)(174.7)(64.3)
Other, net(3.9) (3.3) (0.6)Other, net(19.4)(28.9)9.5 
Net cash used in financing activities$(338.3) $(291.3) $(47.0)
Net cash (used in)/provided by financing activitiesNet cash (used in)/provided by financing activities$(975.1)$155.2 $(1,130.3)
(a) As a result of the adoption of ASU 2016-09 (discussed in Note 15 to the Consolidated Financial Statements), excess tax benefits on stock options exercised are no longer presented as a separate line item in the statement of cash flows. The presentation of fiscal 2016 has been adjusted to conform to the current presentation.


41

Index

The increasedecrease in net cash used infrom financing activities in fiscal 20172021, compared to fiscal 20162020, is largelyprincipally due to incremental share repurchases of common stock and a reduction in proceeds from the issuance of common stock, partially offset by an increase in borrowings, net of repayments, under our debt facilities.

The $83.7 million increase in net cash used in financing activitiesactions taken in fiscal 2016 compared2020 intended to fiscal 2015 was due to changes instrengthen our liquidity and preserve cash while navigating the following (in millions):
 
2016(a)
 
2015(a)
 Variance
 (53 weeks) (52 weeks)  
Net borrowings and repayments under debt facilities$125.0
 $150.0
 $(25.0)
Repurchase of common stock(331.7) (292.7) (39.0)
Net proceeds from issuance of common stock41.0
 41.7
 (0.7)
Cash dividends paid to stockholders(122.3) (103.1) (19.2)
Other, net(3.3) (3.5) 0.2
Net cash used in financing activities$(291.3) $(207.6) $(83.7)
(a) As a result of the adoption of ASU 2016-09 (discussed in Note 15 to the Consolidated Financial Statements), excess tax benefits on stock options exercised are no longer presented as a separate line item in the statement of cash flows. The presentation of fiscal 2016 and fiscal 2015 has been adjusted to conform to the current presentation.

The increase in net cash used in financing activities in fiscal 2016 as compared to fiscal 2015 is due to incremental share repurchases of common stock, fewerCOVID-19 pandemic, including borrowings net of repayments, under our debt facilities and an increase in quarterly cash dividends paid to stockholders.as well as a temporary suspension of our share repurchase program.


Repurchase of Common Stock


The Company’s Board of Directors has authorized common stock repurchases under a share repurchase program which was announced in February 2007. The authorization amount of the program, which has been increased from time to time, is currently authorized for up to $3$6.50 billion, exclusive of any fees, commissions or other expenses related to such repurchases through December 31, 2020.repurchases. The currently authorized amount reflects a $2.0 billion increase to the existing share repurchase program which was approved by our Board of Directors on January 26, 2022. The share repurchase program does not have an expiration date. The repurchases may be made from time to time on the open market or in privately negotiated transactions. The timing and amount of any shares repurchased under the program will depend on a variety of factors, including price, corporate and regulatory requirements, capital availability, and other market conditions. Repurchased shares are accounted for at cost and will be held in treasury for future issuance. The program may be limited, temporarily paused, or terminated at any time without prior notice.


We repurchased approximately 5.9 million, 4.4 million and 3.4 million shares of common stock under the share repurchase program at a total cost of $369.4 million, $331.7$798.9 million and $292.7$343.0 million in fiscal 2017, 20162021 and 2015,2020, respectively.  As of December 30, 2017, we25, 2021, prior to the expanded $2.0 billion repurchase authorization, the Company had remaining authorization under the share repurchase program of $0.9 billion,$345.0 million, exclusive of any fees, commissions, or other expenses. Shares repurchased in fiscal 2020 were impacted by the temporary suspension of our share repurchase program from March 12, 2020 until November 5, 2020, in order to strengthen our liquidity and preserve cash while navigating the COVID-19 pandemic. Our projected share repurchases for fiscal 2022 are currently estimated to be in a range of approximately $700 million to $800 million.


Cash Dividends Paid to Stockholders


We paid cash dividends totaling $133.8 million, $122.3$239.0 million and $103.1$174.7 million in fiscal 2017, 20162021 and 2015,2020, respectively. In fiscal 2017,2021, we declared and paid cash dividends to stockholders of $1.05$2.08 per common share outstanding as compared to $0.92 and $0.76$1.50 per common share outstanding in fiscal 2016 and fiscal 2015, respectively.2020. These payments reflect an increase in the quarterly dividend in the secondfirst quarter of fiscal 20172021 to $0.27$0.52 per share from $0.24$0.40 per share and an increase in the quarterly dividend in the secondthird quarter of fiscal 2016 to $0.242020 from $0.35 per share.

On January 26, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.92 per share from $0.20 per share.of the Company’s outstanding common stock.  The dividend will be paid on March 8, 2022, to stockholders of record as of the close of business on February 21, 2022.


It is the present intention of the Company’s Board of Directors to continue to pay a quarterly cash dividend; however, the declaration and payment amount of future dividends will be determined by the Company’s Board of Directors in its sole discretion and will depend upon the earnings, financial condition, and capital needs of the Company, as well asalong with any other factors which the Company’s Board of Directors deem relevant.

Index


Significant Contractual Obligations and Commercial Commitments

The following table reflects our future obligations and commitments as of December 30, 2017 (in thousands):
  Payment Due by Period
  Total 2018 2019-2020 2021-2022 Thereafter
Operating leases $2,680,687
 $324,813
 $611,835
 $524,991
 $1,219,048
Capital leases(a)
 48,265
 5,201
 10,449
 9,466
 23,149
Long-term debt (b)
 512,400
 36,222
 78,280
 211,114
 186,784
Construction commitments (c)
 55,000
 55,000
 
 
 
  $3,296,352
 $421,236
 $700,564
 $745,571
 $1,428,981
(a) Capital lease obligations include related interest.
(b) Long-term debt obligations include an estimate of related interest after consideration of the interest rate swap agreements. See Notes 5 and 6 to the Consolidated Financial Statements for additional information regarding our interest rates.
(c) Represents contractual commitments related to the ongoing construction of a new distribution center in Frankfort, New York, and the expansion of our existing distribution center in Waverly, Nebraska.

At December 30, 2017, there were $39.6 million outstanding letters of credit under the 2016 Senior Credit Facility.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements are limited to operating leases and outstanding letters of credit.  The balances for these arrangements are previously discussed.  We typically lease buildings for retail stores rather than acquiring these assets through purchases.  Letters of credit allow us to purchase inventory, primarily sourced overseas, in a timely manner and support certain risk management programs.

New Accounting Pronouncements


Refer to Note 151 to the Consolidated Financial Statements for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of December 30, 2017.25, 2021.

Index


Item 7A.     Quantitative and Qualitative Disclosures About Market Risk


Interest Rate Risk


We are exposed to interest rate changes, primarily as a result of borrowings under our 2016 Senior Credit Facility (as discussed in Note 54 to the Consolidated Financial Statements), which bear interest based on variable rates.

As discussed in Note 6 to the Consolidated Financial Statements, we entered into interest rate swap agreements which are intended to mitigate interest rate risk associated with future changes in interest rates for the term loan borrowings under the 2016 Senior Credit Facility. As a result of the interest rate swaps, our exposure to interest rate volatility is minimized. The interest rate swap agreements have been executed for risk management purposes and are not held for trading purposes.


A 1% change in interest rates on our variable rate debt in excess of that amount covered by the interest rate swaps would have affected interest expense by approximately $2.1$2.0 million, $1.5$2.4 million, and $1.1$1.9 million in fiscal 2021, 2020, and 2019, respectively. Based on the fiscal years ended December 30, 2017, December 31, 2016, and December 26, 2015, respectively. Asamount of December 30, 2017, we have no outstanding variable rate debt other than theas of December 25, 2021, excluding those borrowings for which are covered bywe have interest rate swaps; therefore, on a prospective basis,swaps, a 1% change in interest rates on our variable rate debt, in excess of that amount covered by the interest rate swaps, would not result in no additionalany material increase in our interest expense.expense on a prospective basis.

42

Index

Purchase Price Volatility


Although we cannot determine the full effect of inflation and deflation on our operations, we believe our sales and results of operations are affected by both.  We are subject to market risk with respect to the pricing of certain products and services, which include, among other items, grain, corn, steel, petroleum, cotton, and other commodities, as well as duties, tariffs, diesel fuel, and transportation services.  Therefore, we may experience both inflationary and deflationary pressure on product cost, which may impact consumer demand and, as a result, sales and gross margin.  Our strategy is to reduce or mitigate the effects of purchase price volatility, principally by taking advantage of vendor incentive programs, economies of scale from increased volume of purchases, adjusting retail prices, and selectively buying from the most competitive vendors without sacrificing quality.

43

Index

Item 8.    Financial Statements and Supplementary Data
Item 8.
Financial Statements and Supplementary Data


INDEX


TRACTOR SUPPLY COMPANY

Page


44

Index

Management’s Report on Internal Control Over Financial Reporting


Our managementManagement is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934, as amended).  The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.


Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 30, 2017.25, 2021.  In making this assessment, management used the criteria established in Internal Control - IntegratedControl-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).  Based on this assessment, management believes that, as of December 30, 2017,25, 2021, the Company’s internal control over financial reporting is effective based on those criteria.


Ernst & Young LLP, the independent registered public accounting firm which also audited the Company’s Consolidated Financial Statements, has issued a report on the Company’s internal control over financial reporting, which is included herein.
/s/    GregoryHarry A. SandfortLawton, III
/s/    Kurt D. Barton
GregoryHarry A. SandfortLawton, III
President and Chief Executive Officer
Kurt D. Barton
SeniorExecutive Vice President -
Chief Financial Officer and Treasurer
February 22, 201817, 2022February 22, 201817, 2022


45

Index

Report of Independent Registered Public Accounting Firm




To the Shareholders and the Board of Directors of Tractor Supply Company


Opinion on the Internal Control Over Financial Reporting

We have audited Tractor Supply Company’s internal control over financial reporting as of December 30, 2017,25, 2021, based on criteria established in Internal Control-IntegratedControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Tractor Supply Company’sCompany (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 30, 2017,25, 2021, based on the COSO criteria.


We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheetsConsolidated Balance Sheets of Tractor Supply Company as of December 30, 201725, 2021 and December 31, 2016,26, 2020, and the related consolidated statementsConsolidated Statements of income, comprehensive income, stockholders’ equity,Income, Comprehensive Income, Stockholders’ Equity, and cash flowsCash Flows for each of the three fiscal years in the period ended December 30, 2017,25, 2021, and the related notes and our report dated February 22, 2018,17, 2022, expressed an unqualified opinion thereon.


Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with the respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.


Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.


Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.







/s/ Ernst & Young LLP
Nashville, Tennessee
February 22, 201817, 2022
46

Index

Report of Independent Registered Public Accounting Firm




To the Shareholders and the Board of Directors of Tractor Supply Company


Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheetsConsolidated Balance Sheets of Tractor Supply Company (the Company) as of December 30, 201725, 2021 and December 31, 2016,26, 2020, the related consolidated statementsConsolidated Statements of income, comprehensive income, stockholders' equity,Income, Comprehensive Income, Stockholders’ Equity and cash flowsCash Flows for each of the three fiscal years in the period ended December 30, 2017,25, 2021, and the related notes (collectively referred to as the “financial“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 30, 201725, 2021 and December 31, 2016,26, 2020, and the results of its operations and its cash flows for each of the three fiscal years in the period ended December 30, 2017,25, 2021, in conformity with U.S. generally accepted accounting principles.


We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company'sCompany’s internal control over financial reporting as of December 30, 2017,25, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 22, 2018,17, 2022, expressed an unqualified opinion thereon.


Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures includeincluded examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.



Critical Audit Matter


The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Estimate of Workers' Compensation Self-Insurance Reserves
Description of the MatterAt December 25, 2021, the Company’s reserve for workers’ compensation self-insurance risks was $67.1 million. As discussed in Note 1 of the consolidated financial statements, the Company retains a significant portion of risk for its workers’ compensation exposures. Accordingly, provisions are recorded based upon periodic estimates of such losses, as determined by management. The future claim costs for workers’ compensation exposures are estimated using actuarial methods that consider assumptions for a number of factors including, but not limited to, historical claims experience, loss development factors, and severity factors.
Auditing management’s estimate of the recorded workers’ compensation self-insurance reserves was complex and judgmental due to the significant assumptions and judgments required by management to project the exposure on incurred claims that remain unresolved, including those which have not yet been reported to the Company.
47

Index
How We Addressed the Matter in Our AuditWe obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s accounting for worker’ compensation self-insurance exposures. For example, we tested controls over the appropriateness of management’s review of the significant assumptions described above, including the completeness and accuracy of the underlying data, as well as management’s review of the actuarial calculations.
To test the Company’s estimate of the workers’ compensation self-insurance reserves, we performed audit procedures that included, among others, assessing the appropriateness of the actuarial valuation methodologies utilized by management and the significant assumptions within, testing the related underlying data used by the Company in its evaluation for completeness and accuracy, and testing the mathematical accuracy of the calculations. Our audit procedures also included, among others, comparing the significant assumptions used by management to industry accepted actuarial assumptions and reassessing the accuracy of management’s historical estimates utilized in prior period evaluations. We involved our actuarial valuation specialists to assist in assessing the valuation methodologies and significant assumptions noted above and to develop an independent range of estimates for the workers’ compensation self-insurance reserves which were then compared to management’s estimates.


/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2001.
Nashville, Tennessee
February 22, 201817, 2022
48

Index

TRACTOR SUPPLY COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)

 Fiscal Year
 202120202019
(52 weeks)(52 weeks)(52 weeks)
Net sales$12,731,105 $10,620,352 $8,351,931 
Cost of merchandise sold8,253,952 6,858,803 5,480,161 
Gross profit4,477,153 3,761,549 2,871,770 
Selling, general and administrative expenses2,900,297 2,478,524 1,932,572 
Depreciation and amortization270,158 217,124 195,978 
Impairment of goodwill and other intangible assets— 68,973 — 
Operating income1,306,698 996,928 743,220 
Interest expense, net26,610 28,781 19,843 
Income before income taxes1,280,088 968,147 723,377 
Income tax expense282,974 219,189 161,023 
Net income$997,114 $748,958 $562,354 
Net income per share – basic$8.69 $6.44 $4.70 
Net income per share – diluted$8.61 $6.38 $4.66 
Weighted average shares outstanding   
Basic114,794 116,370 119,727 
Diluted115,824 117,436 120,743 
Dividends declared per common share outstanding$2.08 $1.50 $1.36 
 Fiscal Year
 2017 2016 2015
 (52 weeks) (53 weeks) (52 weeks)
Net sales$7,256,382
 $6,779,579
 $6,226,507
Cost of merchandise sold4,764,417
 4,454,377
 4,083,333
Gross profit2,491,965
 2,325,202
 2,143,174
Selling, general and administrative expenses1,639,749
 1,488,164
 1,369,097
Depreciation and amortization165,834
 142,958
 123,569
Operating income686,382
 694,080
 650,508
Interest expense, net13,859
 5,810
 2,891
Income before income taxes672,523
 688,270
 647,617
Income tax expense249,924
 251,150
 237,222
Net income$422,599
 $437,120
 $410,395
      
Net income per share – basic$3.31
 $3.29
 $3.03
Net income per share – diluted$3.30
 $3.27
 $3.00
      
Weighted average shares outstanding 
  
  
Basic127,588
 132,905
 135,582
Diluted128,204
 133,813
 136,845
      
Dividends declared per common share outstanding$1.05
 $0.92
 $0.76


The accompanying notes are an integral part of these consolidated financial statements.Consolidated Financial Statements.
49

Index

TRACTOR SUPPLY COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

 Fiscal Year
 202120202019
 (52 weeks)(52 weeks)(52 weeks)
Net income$997,114 $748,958 $562,354 
Other comprehensive income/(loss):
Change in fair value of interest rate swaps, net of taxes4,588 (3,442)(4,332)
Total other comprehensive income/(loss)4,588 (3,442)(4,332)
Total comprehensive income$1,001,702 $745,516 $558,022 
 Fiscal Year
 2017 2016 2015
 (52 weeks) (53 weeks) (52 weeks)
Net income$422,599
 $437,120
 $410,395
      
Other comprehensive income:     
Change in fair value of interest rate swaps, net of taxes1,371
 1,392
 
Total other comprehensive income1,371
 1,392
 
Total comprehensive income$423,970
 $438,512
 $410,395


The accompanying notes are an integral part of these consolidated financial statements.Consolidated Financial Statements.


50

Index

TRACTOR SUPPLY COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
 December 25, 2021December 26, 2020
ASSETS  
Current assets:  
Cash and cash equivalents878,030 1,341,756 
Inventories2,191,192 1,783,270 
Prepaid expenses and other current assets164,118 133,659 
Income taxes receivable17,100 — 
Total current assets3,250,440 3,258,685 
Property and equipment, net1,617,806 1,248,960 
Operating lease right-of-use assets2,785,858 2,423,881 
Goodwill and other intangible assets                                                                             55,520 55,520 
Deferred income taxes2,437 31,586 
Other assets55,406 30,484 
Total assets$7,767,467 $7,049,116 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable$1,155,630 $976,096 
Accrued employee compensation109,618 119,701 
Other accrued expenses474,412 324,813 
Current portion of finance lease liabilities3,897 4,554 
Current portion of operating lease liabilities321,285 298,696 
Income taxes payable— 19,938 
Total current liabilities2,064,842 1,743,798 
Long-term debt986,382 984,324 
Finance lease liabilities, less current portion32,848 33,096 
Operating lease liabilities, less current portion2,574,882 2,220,904 
Other long-term liabilities105,848 143,154 
Total liabilities5,764,802 5,125,276 
Stockholders’ equity:  
Common stock1,411 1,401 
Additional paid-in capital1,210,512 1,095,500 
Treasury stock(4,155,846)(3,356,953)
Accumulated other comprehensive income/(loss)1,345 (3,243)
Retained earnings4,945,243 4,187,135 
Total stockholders’ equity2,002,665 1,923,840 
Total liabilities and stockholders’ equity$7,767,467 $7,049,116 
 December 30, 2017 December 31, 2016
ASSETS   
Current assets:   
Cash and cash equivalents$109,148
 $53,916
Inventories1,453,208
 1,369,656
Prepaid expenses and other current assets88,252
 90,557
Income taxes receivable4,760
 3,680
Total current assets1,655,368
 1,517,809
    
Property and equipment: 
  
Land99,336
 94,940
Buildings and improvements1,037,730
 965,582
Furniture, fixtures and equipment605,957
 567,653
Computer software and hardware266,898
 224,370
Construction in progress83,816
 21,320
Property and equipment, gross2,093,737
 1,873,865
Accumulated depreciation and amortization(1,049,234) (911,557)
Property and equipment, net1,044,503
 962,308
    
Goodwill and other intangible assets                                                                             124,492
 125,717
Deferred income taxes18,494
 45,218
Other assets25,912
 23,890
    
Total assets$2,868,769
 $2,674,942
    
LIABILITIES AND STOCKHOLDERS’ EQUITY 
  
Current liabilities: 
  
Accounts payable$576,568
 $519,522
Accrued employee compensation31,673
 25,246
Other accrued expenses201,656
 215,650
Current portion of long-term debt25,000
 10,000
Current portion of capital lease obligations3,545
 1,294
Income taxes payable10,772
 5,482
Total current liabilities849,214
 777,194
    
Long-term debt401,069
 263,850
Capital lease obligations, less current maturities32,617
 25,919
Deferred rent105,906
 100,078
Other long-term liabilities61,290
 54,683
Total liabilities1,450,096
 1,221,724
    
Stockholders’ equity: 
  
Preferred Stock, $1.00 par value; 40 shares authorized; no shares issued
 
Common Stock, $0.008 par value; 400,000 shares authorized at December 30, 2017 and December 31, 2016; 170,375 shares issued and 125,303 shares outstanding at December 30, 2017 and 169,943 shares issued and 130,795 shares outstanding at December 31, 20161,363
 1,360
Additional paid-in capital716,228
 671,515
Treasury stock, at cost, 45,072 shares at December 30, 2017 and 39,148 shares at December 31, 2016(2,130,901) (1,761,498)
Accumulated other comprehensive income2,763
 1,392
Retained earnings2,829,220
 2,540,449
Total stockholders’ equity1,418,673
 1,453,218
Total liabilities and stockholders’ equity$2,868,769
 $2,674,942


Preferred Stock (shares in thousands): $1.00 par value; 40 shares authorized; no shares were issued or outstanding during any period presented.
Common Stock (shares in thousands): $0.008 par value; 400,000 shares authorized at all periods presented. 176,371 and 175,128 shares issued; 113,125 and 116,246 shares outstanding at December 25, 2021 and December 26, 2020, respectively.
Treasury Stock (at cost, shares in thousands): 63,246 and 58,882 shares at December 25, 2021 and December 26, 2020, respectively.

The accompanying notes are an integral part of these consolidated financial statements.Consolidated Financial Statements.
51

Index

TRACTOR SUPPLY COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Common Stock
Additional
Paid-in
Capital
Treasury
Stock
Accum. Other Comp. Income
Retained
Earnings
Total
Stockholders’
Equity
 SharesDollars
Stockholders' equity at
December 29, 2018
121,828 $1,375 $823,413 $(2,480,677)$3,814 $3,213,895 $1,561,820 
Common stock issuance under stock award plans & ESPP1,721 14 115,967  115,981 
Share-based compensation expense 31,136   31,136 
Repurchase of shares to satisfy tax obligations(3,818)(3,818)
Repurchase of common stock(5,384)  (533,319) (533,319)
Cash dividends paid to stockholders   (162,699)(162,699)
Change in fair value of interest rate swaps, net of taxes(4,332)(4,332)
Net income   562,354 562,354 
Reclassification of stranded tax effects as a result of ASU 2018-02 adoption717 (717)— 
Stockholders' equity at
December 28, 2019
118,165 1,389 966,698 (3,013,996)199 3,612,833 1,567,123 
Common stock issuance under stock award plans & ESPP1,520 12 99,328   99,340 
Share-based compensation expense 37,273   37,273 
Repurchase of shares to satisfy tax obligations(7,799)(7,799)
Repurchase of common stock(3,439)  (342,957) (342,957)
Cash dividends paid to stockholders   (174,656)(174,656)
Change in fair value of interest rate swaps, net of taxes(3,442)(3,442)
Net income   748,958 748,958 
Stockholders' equity at
December 26, 2020
116,246 1,401 1,095,500 (3,356,953)(3,243)4,187,135 1,923,840 
Common stock issuance under stock award plans & ESPP1,243 10 82,239 82,249 
Share-based compensation expense47,649 47,649 
Repurchase of shares to satisfy tax obligations(14,876)(14,876)
Repurchase of common stock(4,364)(798,893)(798,893)
Cash dividends paid to stockholders(239,006)(239,006)
Change in fair value of interest rate swaps, net of taxes4,588 4,588 
Net income997,114 997,114 
Stockholders' equity at
December 25, 2021
113,125 $1,411 $1,210,512 $(4,155,846)$1,345 $4,945,243 $2,002,665 
 Common Stock          
 Shares Dollars 
Additional
Paid-in
Capital
 
Treasury
Stock
 Accum. Other Comp. Income 
Retained
Earnings
 
Total
Stockholders’
Equity
Stockholders' equity at
December 27, 2014
136,382
 $1,342
 $510,997
 $(1,137,085) $
 $1,918,307
 $1,293,561
              
Issuance of common stock under employee stock purchase plan68
 1
 4,709
      
 4,710
Exercise of stock options and restricted stock units1,190
 9
 36,970
  
    
 36,979
Share-based compensation

  
 19,420
  
    
 19,420
Tax benefit of stock options exercised

  
 27,032
  
    
 27,032
Repurchase of shares to satisfy tax obligations

 

 (2,997) 

   

 (2,997)
Repurchase of common stock(3,416)  
  
 (292,705)    
 (292,705)
Dividends paid

  
  
  
   (103,101) (103,101)
Net income

  
  
  
   410,395
 410,395
Stockholders' equity at
December 26, 2015
134,224
 1,352
 596,131
 (1,429,790) 
 2,225,601
 1,393,294
              
Issuance of common stock under employee stock purchase plan70
 1
 4,808
  
    
 4,809
Exercise of stock options and restricted stock units899
 7
 36,194
  
    
 36,201
Share-based compensation

  
 23,554
  
    
 23,554
Tax benefit of stock options exercised

  
 11,671
  
    
 11,671
Repurchase of shares to satisfy tax obligations

 

 (843) 

   

 (843)
Repurchase of common stock(4,398)  
  
 (331,708)    
 (331,708)
Dividends paid

  
  
  
   (122,272) (122,272)
Change in fair value of interest rate swaps, net of taxes        1,392
   1,392
Net income

  
  
  
   437,120
 437,120
Stockholders' equity at
December 31, 2016
130,795
 1,360
 671,515
 (1,761,498) 1,392
 2,540,449
 1,453,218
              
Issuance of common stock under employee stock purchase plan83
 1
 4,282
       4,283
Exercise of stock options and restricted stock units349
 2
 12,045
       12,047
Share-based compensation

   29,202
       29,202
Repurchase of shares to satisfy tax obligations

   (816)       (816)
Repurchase of common stock(5,924)     (369,403)     (369,403)
Dividends paid

         (133,828) (133,828)
Change in fair value of interest rate swaps, net of taxes

       1,371
   1,371
Net income

         422,599
 422,599
Stockholders' equity at
December 30, 2017
125,303
 $1,363
 $716,228
 $(2,130,901) $2,763
 $2,829,220
 $1,418,673


The accompanying notes are an integral part of these consolidated financial statements.Consolidated Financial Statements.
52

Index

TRACTOR SUPPLY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Fiscal Year
 202120202019
(52 weeks)(52 weeks)(52 weeks)
Cash flows from operating activities:   
Net income$997,114 $748,958 $562,354 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization270,158 217,124 195,978 
Impairment of goodwill and other intangible assets— 68,973 — 
Impairment of other long-lived assets— 5,078 — 
Loss/(gain) on disposition of property and equipment4,045 (1,157)(297)
Share-based compensation expense47,649 37,273 31,136 
Deferred income taxes29,149 (31,739)6,760 
Change in assets and liabilities:
Inventories(407,922)(180,489)(13,239)
Prepaid expenses and other current assets(30,459)(32,794)13,582 
Accounts payable179,534 333,060 23,055 
Accrued employee compensation(10,083)79,946 (14,291)
Other accrued expenses137,833 72,405 10,351 
Income taxes(37,038)13,954 8,327 
Other(41,260)63,923 (12,000)
Net cash provided by operating activities1,138,720 1,394,515 811,716 
Cash flows from investing activities:   
Capital expenditures(628,431)(294,002)(217,450)
Proceeds from sale of property and equipment1,091 1,792 2,489 
Net cash used in investing activities(627,340)(292,210)(214,961)
Cash flows from financing activities:   
Borrowings under debt facilities— 2,009,000 1,002,000 
Repayments under debt facilities— (1,406,500)(1,013,250)
Debt discounts and issuance costs— (17,048)— 
Principal payments under finance lease liabilities(4,580)(4,170)(3,708)
Repurchase of shares to satisfy tax obligations(14,876)(7,799)(3,818)
Repurchase of common stock(798,893)(342,957)(533,319)
Net proceeds from issuance of common stock82,249 99,340 115,981 
Cash dividends paid to stockholders(239,006)(174,656)(162,699)
Net cash (used in)/provided by financing activities(975,106)155,210 (598,813)
Net (decrease)/increase in cash and cash equivalents(463,726)1,257,515 (2,058)
Cash and cash equivalents at beginning of period1,341,756 84,241 86,299 
Cash and cash equivalents at end of period$878,030 $1,341,756 $84,241 
Supplemental disclosures of cash flow information:   
Cash paid during the period for:   
Interest$23,601 $24,540 $19,146 
Income taxes291,665 235,319 144,377 
Supplemental disclosures of non-cash activities:
Non-cash accruals for property and equipment$24,408 $12,642 $7,924 
Increase of operating lease assets and liabilities from new or modified leases678,092 524,141 365,233 
Increase of finance lease assets and liabilities from new or modified leases3,675 7,395 5,217 
Operating lease assets and liabilities recognized upon adoption of ASC 842— — 2,084,880 
 Fiscal Year
 2017 2016 2015
 (52 weeks) (53 weeks) (52 weeks)
Cash flows from operating activities:     
Net income$422,599
 $437,120
 $410,395
Adjustments to reconcile net income to net cash provided by operating activities:     
Depreciation and amortization165,834
 142,958
 123,569
Loss on disposition of property and equipment460
 579
 315
Share-based compensation expense29,202
 23,554
 19,420
Deferred income taxes26,724
 9,976
 (5,450)
Change in assets and liabilities: 
  
  
Inventories(83,552) (67,650) (168,925)
Prepaid expenses and other current assets2,305
 1,782
 (21,066)
Accounts payable57,046
 82,477
 56,426
Accrued employee compensation6,427
 (18,237) 5,628
Other accrued expenses(10,338) 20,368
 11,252
Income taxes4,210
 11,787
 16,282
Other10,533
 5,997
 8,366
Net cash provided by operating activities631,450
 650,711

456,212
Cash flows from investing activities: 
  
  
Capital expenditures(250,401) (226,017) (236,496)
Proceeds from sale of property and equipment11,220
 362
 584
Acquisition of Petsense, net of cash acquired1,225
 (143,610) 
Net cash used in investing activities(237,956) (369,265) (235,912)
Cash flows from financing activities: 
  
  
Borrowings under debt facilities1,180,000
 945,000
 680,000
Repayments under debt facilities(1,027,500) (820,000) (530,000)
Debt issuance costs(599) (1,380) 
Principal payments under capital lease obligations(2,446) (1,150) (507)
Repurchase of shares to satisfy tax obligations(816) (843) (2,997)
Repurchase of common stock(369,403) (331,708) (292,705)
Net proceeds from issuance of common stock16,330
 41,010
 41,689
Cash dividends paid to stockholders(133,828) (122,272) (103,101)
Net cash used in financing activities(338,262) (291,343) (207,621)
Net change in cash and cash equivalents55,232
 (9,897) 12,679
Cash and cash equivalents at beginning of year53,916
 63,813
 51,134
Cash and cash equivalents at end of year$109,148
 $53,916
 $63,813
      
Supplemental disclosures of cash flow information: 
  
  
Cash paid during the year for: 
  
  
Interest                                                                        $10,481
 $6,124
 $2,283
Income taxes219,081
 232,258
 226,968
      
Supplemental disclosures of non-cash activities:     
Property and equipment acquired through capital lease$11,395
 $10,493
 $13,207
Non-cash accruals for construction in progress8,647
 12,303
 16,050


The accompanying notes are an integral part of these consolidated financial statements.Consolidated Financial Statements.
53

Index

TRACTOR SUPPLY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1 – Significant Accounting Policies:


Nature of Business


Founded in 1938, Tractor Supply Company (the “Company” or "Tractor Supply" or “we” or “our” or “us”) is the largest operator of rural lifestyle retail storesretailer in the United States (“U.S.”).  The Company is focused on supplying the needs of recreational farmers, and ranchers, and all those who enjoy living the rural lifestyle (which we refer to as the “Out Here” lifestyle), as well as tradesmen and small businesses.  Stores. The Company's stores are located primarily in towns outlying major metropolitan markets and in rural communities. The Company also owns and operates Petsense, LLC (“Petsense”), a small-box pet specialty supply retailer focused on meeting the needs of pet owners, primarily in small and mid-sized communities, and offering a variety of pet products and services.  At December 30, 2017,25, 2021, the Company operated a total of 1,8532,181 retail stores in 49 states (1,685(2,003 Tractor Supply and Del’s retail stores and 168178 Petsense retail stores) and also offered a numberan expanded assortment of products through the Tractor Supply Company mobile application and online at TractorSupply.com and Petsense.com.


On February 17, 2021, the Company announced that it entered into an agreement to acquire all of the outstanding equity interests of Orscheln Farm and Home, LLC, a farm and ranch retailer with 167 retail stores in 11 states, in an all-cash transaction for approximately $320 million. The Company intends to fund the acquisition through cash-on-hand. The acquisition is conditioned on the receipt of regulatory clearance and the satisfactory completion of customary closing conditions within a specified timeframe.

Basis of Presentation


In the first quarter of fiscal 2017, the Company adoptedThe accompanying Consolidated Financial Statements have been prepared in accordance with accounting guidance which affected the presentationprinciples generally accepted in the statementUnited States of cash flowsAmerica ("U.S. GAAP") and the rules and regulations of excess tax benefits or deficiencies from the exercise of stock optionsSecurities and Exchange Commission ("SEC").

COVID-19 Pandemic

The COVID-19 pandemic has created significant public health concerns as discussed in Note 15. The Company has elected to apply the amendments using a retrospective transition method for all periods presentedwell as economic disruption, uncertainty, and therefore the presentation of previously reported excess tax benefits on the Consolidated Statements of Cash Flows has been changed to conform to the presentation used in the current period.
volatility which may negatively affect our business operations. As a result, $11.7 millionas the pandemic persists and/or if it worsens, our accounting estimates and $27.0 million of excess tax benefits related to share-based awards which were previously classified as cash flows from financing activities have been reclassified as cash flows from operating activitiesassumptions could be impacted in the Consolidated Statement of Cash Flows for the years ended December 31, 2016,subsequent periods, and December 26, 2015, respectively. Additionally, beginning in fiscal 2017, the Statement of Stockholders’ Equityit is no longer impacted by the excess tax benefits or deficiencies from the exercise of stock options.reasonably possible such changes could be significant.


Fiscal Year


The Company’s fiscal year includes 52 or 53 weeks and ends on the last Saturday of the calendar year.  The fiscal yearyears ended December 30, 201725, 2021, December 26, 2020, and December 28, 2019, all consisted of 52 weeks, the fiscal year ended December 31, 2016 consisted of 53 weeks and the fiscal year ended December 26, 2015 consisted of 52 weeks.


Principles of Consolidation


The accompanying consolidated financial statementsConsolidated Financial Statements include the accounts of the Company and its subsidiaries.  All intercompany accounts and transactions have been eliminated.


Management Estimates


The preparation of consolidated financial statementsConsolidated Financial Statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”)GAAP inherently requires estimates and assumptions by management of the Company that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures.  Actual results could differ from those estimates.


54

Index
Significant estimates and assumptions by management primarily impact the following key financial statement areas:


Inventory Valuation


Inventory Impairment Risk
The Company identifies potentially excess and slow-moving inventory by evaluating turn rates, historical and expected future sales trends, age of merchandise, overall inventory levels, current cost of inventory, and other benchmarks.  The Company has established an inventory valuation reserve to recognize the estimated impairment in value (i.e., an inability to realize the full carrying value) based on the Company’s aggregate assessment of these valuation indicators under prevailing market conditions and current merchandising strategies. The Company does not believe its merchandise inventories are subject to significant risk of obsolescence in the near term.  However, changes in market conditions or consumer purchasing patterns could result in the need for additional reserves.



Index


Shrinkage
The Company typically performs physical inventories at least once a year for each store that has been open more than 12 months, and the Company has established a reserve for estimating inventory shrinkage between physical inventory counts.  The reserve is established by assessing the chain-wide average shrinkage experience rate, applied to the related periods’ sales volumes.  Such assessments are updated on a regular basis for the most recent individual store experiences.  The estimated store inventory shrink rate is based on historical experience.  The Company believes historical rates are a reasonably accurate reflection of future trends.


The Company assessed the risks associated with the stores not inventoried and concluded there is no material risk of misstatement to the financial statements for the stores not inventoried and further concluded that effective compensating controls are in place to ensure completeness and accuracy of reported inventory balances and estimated shrink losses.

Vendor Funding
The Company receives funding from substantially all of its significant merchandise vendors, in support of its business initiatives, through a variety of programs and arrangements, including guaranteed vendor support funds (“vendor support”) and volume-based rebate funds (“volume rebates”).  The amounts received are subject to terms of vendor agreements, most of which are “evergreen,” reflecting the on-going relationship with our significant merchandise vendors. Certain of the Company’s agreements, primarily volume rebates, are renegotiated annually, based on expected annual purchases of the vendor’s product.  Vendor funding is initially deferred as a reduction of the purchase price of inventory, and then recognized as a reduction of cost of merchandise sold as the related inventory is sold.  


During interim periods, the amount of vendor support and volume rebates are estimated based upon initial commitments and anticipated purchase levels with applicable vendors.  The estimated purchase volume (and related vendor funding) is based on the Company’s current knowledge of inventory levels, sales trends and expected customer demand, as well as planned new store openings and relocations.  Although the Company believes it can reasonably estimate purchase volume and related volume rebates at interim periods, it is possible that actual year-end results could be different from previously estimated amounts.

Freight
The Company incurs various types of transportation and delivery costs in connection with inventory purchases and distribution.  Such costs are included as a component of the overall cost of inventories (on an aggregate basis) and recognized as a component of cost of merchandise sold as the related inventory is sold.


Self-Insurance Reserves

The Company self-insures a significant portion of its employee medical insurance, workers’ compensation insurance and general liability (including product liability) insurance plans.  The Company has stop-loss insurance policies to protect it from individual losses over specified dollar values. For self-insured employee medical claims, we have a stop loss limit of $300,000 per person per year. Our deductible or self-insured retention, as applicable, for each claim involving workers’ compensation insurance and general liability insurance is limited to $500,000 and our Texas Work Injury Policy is limited to $750,000.$500,000. Further, we maintain a commercially reasonable umbrella/excess policy that covers liabilities in excess of the primary insurance policy limits.


The full extent of certain claims, especially workers’ compensation and general liability claims may not become fully determined for several years. Therefore, the Company estimates potential obligations based upon historical claims experience, industryloss development factors, severity factors, and other actuarial assumptions. Although the Company believes the reserves established for these obligations are reasonably estimated, any significant change in the number of claims or costs associated with claims made under these plans could have a material effect on the Company’s financial results.  At December 30, 2017,25, 2021, the Company had recorded net insurance reserves for workers' compensation of $57.9$67.1 million compared to $54.3$55.0 million at December 31, 2016. 26, 2020. Insurance reserves for general liability plans was $41.3 million at December 25, 2021 compared to $31.7 million at December 26, 2020. In addition, insurance receivables recorded in Other assets on the Consolidated Balance Sheets for claims greater than our insurance stop-loss limits were $14.9 million and $11.2 million as of December 25, 2021 and December 26, 2020.

55

Index

Impairment of Long-Lived Assets

Long-lived assets, including lease right-of-use assets, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

When evaluating long-lived assets for potential impairment, the Company first compares the carrying value of the asset or asset group to its estimated undiscounted future cash flows. The evaluation for long-lived assets is performed at the lowest level of identifiable cash flows, which is generally the individual store level.  The significant assumptions used to determine estimated undiscounted cash flows include cash inflows and outflows directly resulting from the use of those assets in operations, including margin on net sales, payroll and related items, occupancy costs, insurance allocations and other costs to operate a store.  If the estimated future cash flows are less than the carrying value of the related asset, the Company calculates an impairment loss.  The impairment loss calculation compares the carrying value of the related asset or asset group to its estimated fair value, which may be based on an estimated future cash flow model, market valuation, or other valuation technique, as appropriate. The Company recognizes an impairment loss if the amount of the asset’s carrying value exceeds the asset’s estimated fair value. If the Company recognizes an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated (amortized) over the remaining estimated useful life of that asset.

No significant impairment charges were recognized in fiscal 2021 or 2019 related to long-lived assets. In fiscal 2020, we recognized $5.1 million of impairment charges related to long-lived assets for Petsense stores.  Impairment charges, if recognized, are included in selling, general and administrative (“SG&A”) expenses in the Consolidated Statements of Income.

Impairment of Indefinite-Lived Intangible Assets

Goodwill and other indefinite-lived intangible assets are evaluated for impairment annually, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Our annual impairment evaluation is conducted on the first day of our fiscal fourth quarter.
In accordance with the accounting standards, an entity has the option first to assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not that goodwill or an indefinite-lived intangible asset is impaired. If after such assessment an entity concludes that the asset is not impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the asset using a quantitative impairment test, and if impaired, the associated assets must be written down to fair value.

The quantitative impairment test for goodwill compares the fair value of a reporting unit with the carrying value of its net assets, including goodwill.  If the fair value of the reporting unit is less than the carrying value of the reporting unit, an impairment charge would be recorded to the Company’s operations, for the amount in which the carrying amount exceeds the reporting unit’s fair value. We determine fair values for each reporting unit using the market approach, when available and appropriate, the income approach, or a combination of both. The income approach involves forecasting projected financial information (such as revenue growth rates, profit margins, tax rates, and capital expenditures) and selecting a discount rate that reflects the risk inherent in estimated future cash flows. Under the market approach, the fair value is based on observed market data. If multiple valuation methodologies are used, the results are weighted appropriately.

The quantitative impairment test for other indefinite-lived intangible assets involves comparing the carrying amount of the asset to the sum of the discounted cash flows expected to be generated by the asset. If the implied fair value of the indefinite-lived intangible asset is less than the carrying value, an impairment charge would be recorded to the Company’s operations.

No impairment charges were recognized in fiscal 2021 or 2019 related to indefinite-lived intangible assets. As described in further detail in Note 3 to the Consolidated Financial Statements, in fiscal 2020 we recognized goodwill impairment of $60.8 million and trade name asset impairment of $8.2 million related to Petsense. Impairment charges, if recognized, are included as a separate line item within SG&A expenses in the Consolidated Statements of Income.

Revenue Recognition and Sales Tax Audit ReserveReturns
A portion
The Company recognizes revenue at the time the customer takes possession of merchandise.  If the Company receives payment before completion of its customer obligations (as per the Company’s special order and layaway programs), the revenue is deferred until the customer takes possession of the merchandise and the sale is complete.
56

Index

The Company is required to collect certain taxes and fees from customers on behalf of government agencies and remit such collections to the applicable governmental agency on a periodic basis.  These taxes and fees are collected from customers at the time of purchase but are not included in net sales.  The Company records a liability upon collection from the customer and relieves the liability when payments are remitted to the applicable governmental agency.

The Company estimates a liability for sales returns based on a rolling average of historical return trends, and the Company believes that its estimate for sales returns is an accurate reflection of future returns associated with past sales.  However, as with any estimate, refund activity may vary from estimated amounts.  The Company had a liability for sales returns of $17.9 million and $14.2 million as of December 25, 2021 and December 26, 2020, respectively.

The Company recognizes revenue when a gift card or merchandise return card is redeemed by the customer and recognizes income when the likelihood of the gift card or merchandise return card being redeemed by the customer is remote (referred to as “breakage”).  The gift cards and merchandise return card breakage rate is based upon historical redemption patterns and income is recognized for unredeemed gift cards and merchandise return cards in proportion to those historical redemption patterns.  The Company recognized breakage income of $4.2 million, $3.6 million, and $3.0 million in fiscal 2021, 2020, and 2019, respectively.

Cost of Merchandise Sold

Cost of merchandise sold includes the total cost of products sold; freight and duty expenses associated with moving merchandise inventories from vendors to distribution facilities, from distribution facilities to retail stores, from one distribution facility to another, and directly to our customers; tariffs on imported products; vendor support; damaged, junked or defective product; cash discounts from payments to merchandise vendors; and adjustments for shrinkage (physical inventory losses), lower of cost or net realizable value, slow moving product, and excess inventory quantities.

Selling, General and Administrative Expenses

SG&A expenses include payroll and benefit costs for retail, distribution facility, and corporate employees; share-based compensation expenses; occupancy costs of retail, distribution, and corporate facilities; advertising; tender costs, including bank charges and costs associated with credit and debit card interchange fees; outside service fees; and other administrative costs, such as computer maintenance, supplies, travel, and lodging.

Advertising Costs

Advertising costs consist of expenses incurred in connection with digital and social media offerings, television, newspaper circulars, and customer-targeted direct e-mail and direct mail, as well as limited events through radio and other media channels.  Costs are expensed when incurred with the exception of television advertising and circular and direct mail promotions, which are expensed upon first showing.  Advertising expenses were approximately $95.4 million, $100.9 million, and $86.6 million for fiscal 2021, 2020, and 2019, respectively.  Prepaid advertising costs were approximately $1.7 million and $1.6 million as of December 25, 2021, and December 26, 2020, respectively.

Warehousing and Distribution Facility Costs

Costs incurred at the Company’s distribution facilities for receiving, warehousing, and preparing product for delivery are expensed as incurred and are included in SG&A expenses in the Consolidated Statements of Income.  Because the Company does not include these costs in cost of sales, the Company’s gross margin may not be comparable to other retailers that include these costs in the calculation of gross margin.  Distribution facility costs including depreciation were approximately $367.4 million, $292.6 million, and $231.5 million for fiscal 2021, 2020, and 2019, respectively.

Pre-Opening Costs

Non-capital expenditures incurred in connection with opening new stores, primarily payroll and rent, are expensed as incurred.  Pre-opening costs were approximately $10.4 million, $8.6 million, and $8.1 million for fiscal 2021, 2020, and 2019, respectively.

57

Index
Share-Based Compensation

The Company has share-based compensation plans covering certain members of management and non-employee directors, which include non-qualified stock options, restricted stock units, and performance-based restricted share units. Performance-based restricted share units are subject to performance conditions that include both Company and market performance. In addition, the Company offers an Employee Stock Purchase Plan (“ESPP”) to eligible employees.

The Company estimates the fair value of its stock option awards at the date of grant utilizing a Black-Scholes option pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of short-term traded options that have no vesting restrictions and are fully transferable. However, key assumptions used in the Black-Scholes model are adjusted to incorporate the unique characteristics of the Company’s sales arestock option awards. Option pricing models and generally accepted valuation techniques require management to tax-exempt customers, predominantly agricultural-based.make subjective assumptions including expected stock price volatility, expected dividend yield, risk-free interest rate, expected term and forfeiture rates. The Company obtains exemption information as a necessary part of each tax-exempt transaction.  Manyrelies on historical volatility trends to estimate future volatility assumptions.  The risk-free interest rates used were actual U.S. Treasury Constant Maturity rates for bonds matching the expected term of the statesoption on the date of grant. The expected term of the option on the date of grant was estimated based on the Company’s historical experience for similar options.

The forfeiture rate at the time of valuation was estimated based on historical experience for similar options and reduces expense ratably over the vesting period. The Company adjusts this estimate periodically, based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate.

The fair value of the Company’s restricted stock units is the closing stock price of the Company’s common stock the day preceding the grant date, discounted for the expected dividend yield over the term of the award. The fair value of the Company's performance-based restricted share units is estimated using a Monte Carlo simulation model on the grant date. Key assumptions used in the Monte Carlo simulation include expected volatility, dividend yield and risk-free interest rate.

The Company believes its estimates are reasonable in the context of historical experience.  Future results will depend on, among other matters, levels of share-based compensation granted in the future, actual forfeiture rates, and the timing of option exercises.

Depreciation and Amortization

Depreciation includes expenses related to all retail, distribution facility, and corporate assets.  Amortization includes expenses related to definite-lived intangible assets.

Income Taxes

The Company uses the asset and liability method to account for income taxes whereby deferred tax assets and liabilities are determined based on differences between the financial carrying amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that are anticipated to be in effect when temporary differences reverse or are settled.  The effect of a tax rate change is recognized in the period in which the Company conducts business will perform audits to verifylaw is enacted in the Company’s compliance with applicable sales tax laws.  The business activities of the Company’s customers and the intended use of the unique products sold by the Company create a challenging and complex tax compliance environment.  These circumstances also create some risk that the Company could be challenged as to the accuracy of the Company’s sales tax compliance.

provision for income taxes.  The Company reviews past audit experience and assessments with applicable states to continually determine ifrecords a valuation allowance when it has potential exposure for non-compliance.  Any estimated liability is based on an initial assessment of compliance risk and historical experience with each state.  The Company continually reassesses the exposure based on historical audit results, changes in policies, preliminary and final assessments made by state salesmore likely than not that a deferred tax auditors and additional documentation that mayasset will not be provided to reduce the assessment.  The reserve for these tax audits can fluctuate depending on numerous factors, including therealized.
Index

complexity of agricultural-based exemptions, the ambiguity in state tax regulations, the number of ongoing audits and the length of time required to settle with the state taxing authorities.


Tax Contingencies

The Company’s income tax returns are periodically audited by U.S. federal and state tax authorities. These audits include questions regarding tax filing positions, including the timing and amount of deductions and the allocation of income among various tax jurisdictions. At any time, multiple tax years are subject to audit by the various tax authorities. In evaluating the exposures associated with the Company’s various tax filing positions, the Company records a liability for uncertain tax positions taken or expected to be taken in a tax return.  A number of years may elapse before a particular matter, for which the Company has established a reserve, is audited and fully resolved or clarified.  The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained.  Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized.  Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.  The Company adjusts its tax contingencies reserve and income tax provision in the period in which actual results of a settlement with tax authorities differs from the established reserve, the statute of limitations expires for the relevant tax authority to examine the tax position or when more information becomes available.


58

Index
Sales Tax Audit Reserve

A portion of the Company’s sales are to tax-exempt customers, predominantly agricultural-based.  The Company obtains exemption information as a necessary part of each tax-exempt transaction.  Many of the states in which the Company conducts business will perform audits to verify the Company’s compliance with applicable sales tax laws.  The business activities of the Company’s customers and the intended use of the unique products sold by the Company create a challenging and complex tax compliance environment.  These circumstances also create some risk that the Company could be challenged as to the accuracy of the Company’s sales tax compliance.

The Company’s tax contingencies reserve contains uncertainties because managementCompany reviews past audit experience and assessments with applicable states to continually determine if it has potential exposure for non-compliance.  Any estimated liability is required to make assumptions and apply judgment to estimate the exposures associated with the Company’s various filing positions and whether or not the minimum requirements for recognition of tax benefits have been met.

The effective income tax rate is also affected by changes in tax law, the tax jurisdiction of new stores or business ventures, the level of earnings and the results of tax audits.

Impairment of Long-Lived Assets
Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

When evaluating long-lived assets for potential impairment, the Company first compares the carrying value of the asset to the asset’s estimated undiscounted future cash flows. The evaluation for long-lived assets is performed at the lowest level of identifiable cash flows, which is generally the individual store level.  The significant assumptions used to determine estimated undiscounted cash flows include cash inflows and outflows directly resulting from the use of those assets in operations, including margin on net sales, payroll and related items, occupancy costs, insurance allocations and other costs to operate a store.  If the estimated future cash flows are less than the carrying value of the asset, the Company calculates an impairment loss.  The impairment loss calculation compares the carrying value of the asset to the asset’s estimated fair value, which may be based on an estimated future cash flow model.initial assessment of compliance risk and historical experience with each state.  The Company recognizes an impairment loss ifcontinually reassesses the amount of the asset’s carrying value exceeds the asset’s estimated fair value. If the Company recognizes an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated (amortized) over the remaining estimated useful life of that asset.

No significant impairment charges were recognized in fiscal 2017, 2016 or 2015.  Impairment charges are included in selling, general and administrative (“SG&A”) expenses in the Consolidated Statements of Income.

Impairment of Indefinite-Lived Intangible Assets
Goodwill and other indefinite-lived intangible assets are evaluated for impairment annually, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
In accordance with the accounting standards, an entity has the option first to assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not that goodwill or an indefinite-lived intangible asset is impaired. If after such assessment an entity concludes that the asset is not impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the asset using a quantitative impairment test, and if impaired, the associated assets must be written down to fair value.

The quantitative impairment test for goodwill compares the fair value of a reporting unit with the carrying value of its net assets, including goodwill.  If the fair value of the reporting unit is less than the carrying value of the reporting unit, an impairment charge would be recorded to the Company’s operations, for the amount, if any, in which the carrying amount exceeds the reporting unit’s fair value. We determine fair values for each reporting unit using the market approach, when available and appropriate, or the income approach, or a combination of both. If multiple valuation methodologies are used, the results are weighted appropriately.
Index

The quantitative impairment test for other indefinite-lived intangible assets involves comparing the carrying amount of the asset to the sum of the discounted cash flows expected to be generated by the asset. If the implied fair value of the indefinite-lived intangible asset is less than the carrying value, an impairment charge would be recorded to the Company’s operations.
No significant impairment charges were recognized in fiscal 2017, 2016 or 2015.  Impairment charges are included in SG&A expenses in the Consolidated Statements of Income.

Revenue Recognition and Sales Returns

The Company recognizes revenue at the time the customer takes possession of merchandise.  If the Company receives payment before completion of its customer obligations (as per the Company’s special order and layaway programs), the revenue is deferred until the customer takes possession of the merchandise and the sale is complete.

The Company is required to collect certain taxes and fees from customers on behalf of government agencies and remit such collections to the applicable governmental agency on a periodic basis.  These taxes and fees are collected from customers at the time of purchase, but are not included in net sales.  The Company records a liability upon collection from the customer and relieves the liability when payments are remitted to the applicable governmental agency.

The Company estimates a liability for sales returns based on a rolling average of historical return trends, and the Company believes that its estimate for sales returns is an accurate reflection of future returns associated with past sales.  However, as with any estimate, refund activity may vary from estimated amounts.  At December 30, 2017, the Company had a liability of $3.8 million reserved for sales returns compared to $4.2 million at December 31, 2016.

The Company recognizes revenue when a gift card or merchandise return card is redeemed by the customer and recognizes income when the likelihood of the gift card or merchandise return card being redeemed by the customer is remote (referred to as “breakage”).  The gift cards and merchandise return card breakage rate is based upon historical redemption patterns and income is recognized for unredeemed gift cards and merchandise return cards in proportion to those historical redemption patterns.  The Company recognized breakage income of $2.4 million, $1.9 million and $1.6 million in fiscal 2017, 2016 and 2015, respectively.

Cost of Merchandise Sold

Cost of merchandise sold includes the total cost of products sold; freight expenses associated with moving merchandise inventories from vendors to distribution facilities, from distribution facilities to retail stores, from one distribution facility to another, and directly to our customers; vendor support; damaged, junked or defective product; cash discounts from payments to merchandise vendors; and adjustments for shrinkage (physical inventory losses), lower of cost or net realizable value, slow moving product and excess inventory quantities.

Selling, General and Administrative Expenses

SG&A expenses include payroll and benefit costs for retail, distribution facility and corporate employees; share-based compensation expenses; occupancy costs of retail, distribution and corporate facilities; advertising; tender costs, including bank charges and costs associated with credit and debit card interchange fees; outside service fees; and other administrative costs, such as computer maintenance, supplies, travel and lodging.

Advertising Costs

Advertising costs consist of expenses incurred in connection with newspaper circulars and customer-targeted direct mail, as well as limited television, radio, digital and social media offerings and other promotions.  Costs are expensed when incurred with the exception of television advertising and circular and direct mail promotions, which are expensed upon first showing.  Advertising expenses for fiscal 2017, 2016 and 2015 were approximately $81.3 million, $84.2 million and $73.9 million, respectively.Prepaid advertising costs were approximately $1.1 million and $2.1 million at December 30, 2017, and December 31, 2016, respectively.

Warehousing and Distribution Facility Costs

Costs incurred at the Company’s distribution facilities for receiving, warehousing and preparing product for delivery are expensed as incurred and are included in SG&A expenses in the Consolidated Statements of Income.  Because the Company does not include these costs in cost of sales, the Company’s gross margin may not be comparable to other retailers that include these costs in the calculation of gross margin.  Distribution facility costs including depreciation for fiscal 2017, 2016 and 2015 were approximately $182.1 million, $166.8 million and $145.4 million, respectively.
Index

Pre-opening Costs

Non-capital expenditures incurred in connection with opening new stores, primarily payroll and rent, are expensed as incurred.  Pre-opening costs were approximately $10.8 million, $9.9 million and $9.6 million in fiscal 2017, 2016 and 2015, respectively.

Share-Based Compensation

The Company has share-based compensation plans covering certain members of management and non-employee directors, which include incentive and non-qualified stock options and restricted stock units. In addition, the Company offers an Employee Stock Purchase Plan (“ESPP”) to most employees that work at least 20 hours per week.

The Company estimates the fair value of its stock option awards at the date of grant utilizing a Black-Scholes option pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of short-term traded options that have no vesting restrictions and are fully transferable. However, key assumptions used in the Black-Scholes model are adjusted to incorporate the unique characteristics of the Company’s stock option awards. Option pricing models and generally accepted valuation techniques require management to make subjective assumptions including expected stock price volatility, expected dividend yield, risk-free interest rate and expected life. The Company relies on historical volatility trends to estimate future volatility assumptions.  The risk-free interest rates used were actual U.S. Treasury Constant Maturity rates for bonds matching the expected term of the option on the date of grant. The expected term of the option on the date of grant was estimated based on the Company’s historical experience for similar options.

In addition to the key assumptions used in the Black-Scholes model, the estimated forfeiture rate at the time of valuation (which isexposure based on historical experienceaudit results, changes in policies, preliminary and final assessments made by state sales tax auditors, and additional documentation that may be provided to reduce the assessment.  The reserve for similar options) is a critical assumption, as it reduces expense ratably overthese tax audits can fluctuate depending on numerous factors, including the vesting period. The Company adjusts this estimate periodically, based oncomplexity of agricultural-based exemptions, the extent to which actual forfeitures differ, or are expected to differ, fromambiguity in state tax regulations, the previous estimate.

The fair valuenumber of the Company’s restricted stock unit awards is the closing price of the Company’s common stock the day preceding the grant date, discounted for the expected dividend yield over the term of the award.

The Company believes its estimates are reasonable in the context of historical experience.  Future results will depend on, among other matters, levels of share-based compensation granted in the future, actual forfeiture ratesongoing audits, and the timinglength of option exercises.time required to settle with the state taxing authorities.

Depreciation and Amortization

Depreciation includes expenses related to all retail, distribution facility and corporate assets.  Amortization includes expenses related to definite-lived intangible assets.

Income Taxes

The Company uses the asset and liability method to account for income taxes whereby deferred tax assets and liabilities are determined based on differences between the financial carrying amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that are anticipated to be in effect when temporary differences reverse or are settled.  The effect of a tax rate change is recognized in the period in which the law is enacted in the provision for income taxes.  The Company records a valuation allowance when it is more likely than not that a deferred tax asset will not be realized.


Net Income Per Share


The Company presents both basic and diluted net income per share on the Consolidated Statements of Income. Basic net income per share is calculated by dividing net income by the weighted average number of shares outstanding during the period.  Diluted net income per share is calculated by dividing net income by the weighted average diluted shares outstanding.outstanding during the period. Dilutive shares are computed using the treasury stock method for stock options andshare-based awards. Performance-based restricted stock units.share units are included in diluted shares only if the related performance conditions have been considered satisfied as of the end of the reporting period.


Cash and Cash Equivalents


Temporary cash investments, with a maturity of three months or less when purchased, are considered to be cash equivalents.  The majority of payments due from banks for customer credit cards are classified as cash and cash equivalents, as they generally settle within 24-4824 - 48 hours.

Index


Sales generated through the Company’s private label credit cards are not reflected as accounts receivable.  Under an agreement with Citi Cards, a division of Citigroup, consumer and business credit is extended directly to customers by Citigroup.  All credit program and related services are performed and controlled directly by Citigroup.  Payments due from Citigroup are classified as cash and cash equivalents as they generally settle within 24-4824 - 48 hours.


Fair Value of Financial Instruments


Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.  These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.


The Company’s financial instruments consist of cash and cash equivalents, short-term receivables, trade payables, debt instruments, and interest rate swaps. Due to their short-term nature, the carrying values of cash and cash equivalents, short-term receivables, and trade payables approximate current fair value at each balance sheet date. The Company had $427.5 million$1.00 billion in borrowings under our debt facilities (as discussed in Note 5) at December 30, 2017, and $275.0 million in borrowings4) as of December 31, 2016.25, 2021 and December 26, 2020. Based on current market interest rates (Level 2 inputs), the carrying value of our borrowings under our debt facilities approximates fair value for each period reported. The fair value of the Company’s interest rate swaps is determined based on the present value of expected future cash flows using forward rate curves (a Level 2 input). As described in further detail in Note 6, theThe fair value of the interest rate swaps, excluding accrued interest, was a $5.2net asset of $1.8 million asset atand net liability $4.4 million as of December 30, 2017,25, 2021 and was a $2.8 million asset at December 31, 2016.26, 2020, respectively.


59

Index
Derivative Financial Instruments


The Company accounts for derivative financial instruments in accordance with applicable accounting standards for such instruments and hedging activities, which require that all derivatives are recorded on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting.


Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge a certain portion of its risk, even though hedge accounting does not apply or the Company elects not to apply the hedge accounting standards.


The fair value of the interest rate swaps, excluding accrued interest, was a net asset of $1.8 million and net liability $4.4 million as of December 25, 2021 and December 26, 2020, respectively.

Inventories


Inventories are stated at the lower of cost, as determined by the average cost method, or net realizable value.  Inventory cost consists of the direct cost of merchandise including freight.freight, duties, and tariffs.  Inventories are net of shrinkage, obsolescence, other valuations, and vendor allowances.


Property and Equipment


Property and equipment are carriedinitially recorded at cost.  Depreciation is recorded using the straight-line method over the estimated useful lives of the assets.  Improvements to leased premises are amortized using the straight-line method over the initialremaining term of the lease or the useful life of the improvement, whichever is less. The following table summarizes the Company's property and equipment balances and includes the estimated useful lives which are generally applied:applied (in thousands, except estimated useful lives):
 Estimated Useful LivesDecember 25,
2021
December 26,
2020
Land$100,129 $100,138 
Buildings and improvements1 – 35 years1,517,052 1,319,559 
Furniture, fixtures and equipment5 – 10 years900,272 773,178 
Computer software and hardware2 – 7 years694,455 563,509 
Construction in progress211,486 73,950 
Property and equipment, gross3,423,394 2,830,334 
Accumulated depreciation and amortization(1,805,588)(1,581,374)
Property and equipment, net$1,617,806 $1,248,960 
Life
Buildings30 – 35 years
Leasehold and building improvements1 – 35 years
Furniture, fixtures and equipment5 – 10 years
Computer software and hardware3 –   5 years
Index


The Company entered into agreements with various governmental entities in the states of Kentucky, Georgia, Ohio and Tennessee to implement tax abatement plans related to its distribution center in Franklin, Kentucky (Simpson County), its distribution center in Macon, Georgia (Bibb County), its distribution center in Navarre, Ohio (Stark County) and its Store Support Center in Brentwood, Tennessee (Williamson County).  The tax abatement plans provide for reduction of real property taxes for specified time frames by legally transferring title to its real property in exchange for industrial revenue bonds. This property was then leased back to the Company. No cash was exchanged.


60

Index
The lease payments are equal to the amount of the payments on the bonds.  The tax abatement period extends through the term of the lease, which coincides with the maturity date of the bonds. At any time, the Company has the option to purchase the real property by paying off the bonds, plus $1.$1. The terms and amounts authorized and drawn under each industrial revenue bond agreement are outlined as follows, as of December 30, 2017:25, 2021:

 Bond Term
Bond Authorized Amount
(in millions)
Amount Drawn
(in millions)
Bond Term
Bond Authorized Amount
(in millions)
Amount Drawn
(in millions)
Franklin, Kentucky Distribution Center 30 years$54.0$51.8Franklin, Kentucky Distribution Center30 years$54.0$51.8
Macon, Georgia Distribution Center 15 years$58.0$49.9Macon, Georgia Distribution Center15 years$58.0$58.0
Brentwood, Tennessee Store Support Center 10 years$78.0$75.3Brentwood, Tennessee Store Support Center10 years$78.0$75.3
Navarre, Ohio Distribution CenterNavarre, Ohio Distribution Center30 years$90.0$— 


Due to the form of these transactions, the Company has not recorded the bonds or the lease obligation associated with the sale lease-back transaction. The original cost of the Company’s property and equipment is recorded on the balance sheet and is being depreciated over its estimated useful life.


Capitalized Software Costs


The Company capitalizes certain costs related to the acquisition and development of software and amortizes these costs using the straight-line method over the estimated useful life of the software, which is threetwo to fiveseven years.  Computer software consists of software developed for internal useinternal-use and third-party software purchased for internal use.internal-use.  A subsequent addition, modification or upgrade to internal-use software is capitalized to the extent that it enhances the software’s functionality or extends its useful life.  These costs are included in computer softwareproperty and hardwareequipment in the accompanying Consolidated Balance Sheets.  Certain software costs not meeting the criteria for capitalization are expensed as incurred.


Store Closing Costs


The Company regularly evaluates the performance of its stores and periodically closes those stores that are under-performing.underperforming.  The Company records a liability for costs associated with an exit or disposal activity when the liability is incurred, usually in the period the store closes.  Store closing costs were not significant to the results of operations for any of the fiscal years presented.


Leases


Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment, if any, of operating lease assets. To determine the present value of lease payments not yet paid, we estimate incremental borrowing rates corresponding to the reasonably certain lease term. As substantially all of our leases do not provide an implicit rate, we estimate our collateralized incremental borrowing rate based upon a Company specific credit rating and yield curve analysis at commencement or modification date in determining the present value of lease payments.

Assets under capitalfinance leases are amortized in accordance with the Company’s normal depreciation policy for owned assets or over the lease term, if shorter, and the related charge to operations is included in depreciation expense in the Consolidated Statements of Income.


Certain operating leases include rent increases duringNew Accounting Pronouncements Not Yet Adopted

In March 2020, the lease term.  For these leases,FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848): Scope." This collective guidance is in response to accounting concerns regarding contract modifications and hedge accounting because of impending rate reform associated with structural risks of interbank offered rates ("IBOR"s), and, particularly, the risk of cessation of the London Inter-Bank Offer Rate ("LIBOR") related to regulators in several jurisdictions around the world having undertaken reference rate reform initiatives to identify alternative reference rates. The guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The adoption of this guidance is effective for all entities as of March 12, 2020
61

Index
through December 31, 2022. The primary contract and hedging relationship for which LIBOR is used is our November 2020 Term Loan (as defined below) and related interest rate swap. As the interest rate swap is designed to be a highly effective cash flow hedge against the variable LIBOR rates of the Term Loan, the impact of using LIBOR rates is effectively offset in our financial statements. As such, the Company recognizesdoes not expect the adoption of this guidance to have a material impact on its Condensed Consolidated Financial Statements and related rental expense on a straight-line basis over the term of the lease (which includes the pre-opening period of construction, renovation, fixturing and merchandise placement) and records the difference between the expense charged to operations and amounts paid as a deferred rent liability.disclosures.


The Company occasionally receives reimbursements from landlords to be used towards improving the related store to be leased.  Leasehold improvements are recorded at their gross costs, including items reimbursed by landlords.  Related reimbursements are deferred and amortized on a straight-line basis as a reduction of rent expense over the applicable lease term.

Note 2 - Share-Based Compensation:


Share-based compensation includes stock option andoptions, restricted stock unit awardsunits, performance-based restricted share units, and certain transactions under the Company’s ESPP.  Share-based compensation expense is recognized based on the grant date fair value of all stock option andoptions, restricted stock unit awards plus aunits, and performance-based restricted share units. Share based compensation expense is also recognized for the value of the 15% discount on shares purchased by employees as a part of the ESPP.  The discount under the ESPP represents the difference between the market value on the first day of the purchase period or the market value on the purchase date, market valuewhichever is lower, and the employee’s purchase price.
Index


There were no significant modifications to the Company’sCompany's share-based compensation plans during fiscal 2017. At December 30, 2017,since the Company had approximately 2.3 million shares available for future equity awardsadoption of the 2018 Omnibus Incentive Plan (the “2018 Plan”) on May 10, 2018, which replaced the 2009 Stock Incentive Plan. Following the adoption of the 2018 Plan, no further grants may be made under the Company’s 2009 Stock Incentive Plan.


Share-basedUnder our share-based compensation expense, including changes in expense for modifications ofplans, awards was $29.2 million, $23.6 million and $19.4 million for fiscal 2017, 2016 and 2015, respectively.

Stock Options

Under the Company’s 2009 Stock Incentive Plan, options may be granted to current or prospective officers, or employees, non-employee directors, and consultants.other employees. The per share exercise price of options granted shall not be less than the fair market value of the stock on the date of grant and such optionsawards will expire no later than ten years from the date of grant. Vesting of optionsawards commences at various anniversary dates following the dates of each grant. Performance-based awards will vest if established performance conditions are met subject to continued employment. Certain performance-based awards are also subject to a market condition such that the actual number of shares vest are further modified based on the achievement of a relative stockholder return modifier. At December 25, 2021, the Company had approximately 9.9 million shares available for future equity awards under the Company’s 2018 Plan.


Share-based compensation expense, including changes in expense for modifications, if any, of awards, was $47.6 million, $37.3 million, and $31.1 million for fiscal 2021, 2020, and 2019, respectively.

Stock Options

The fair value is separately estimated for each option grant.  The fair value of each option is recognized as compensation expense ratably over the vesting period.  The Company has estimated the fair value of all stock option awards as of the date of the grant by applying a Black-Scholes pricing valuation model.  The application of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense.  The ranges of key assumptions used in determining the fair value of options granted during fiscal 2017, 20162021, 2020, and 2015,2019, as well as a summary of the methodology applied to develop each assumption, are as follows:
 Fiscal Year
 202120202019
Expected price volatility29.8% - 30.3%26.7% - 30.0%26.4% - 27.6%
Risk-free interest rate0.3% - 1.0%0.2% - 1.3%1.6% - 2.5%
Weighted average expected lives (in years)4.34.34.5
Forfeiture rate7.0 %7.0 %7.3 %
Dividend yield1.5 %1.5 %1.4 %
 Fiscal Year
 2017 2016 2015
Expected price volatility25.1 - 26.0%
 25.5 - 27.9%
 27.3 – 28.8%
Risk-free interest rate1.7 - 1.9%
 0.9 - 1.3%
 1.2 – 1.5%
Weighted average expected lives (in years)4.4
 4.4
 4.5
Forfeiture rate7.2% 7.1% 6.9%
Dividend yield1.3% 0.9% 1.0%


Expected Price Volatility — This is a measure of the amount by which a price has fluctuated or is expected to fluctuate. The Company applies a historical volatility rate. To calculate historical changes in market value, the Company uses daily market value changes from the date of grant over a past period generally representative of the expected life of the options to determine volatility.  The Company believes the use of historical price volatility provides an appropriate indicator of future volatility. An increase in the expected volatility will increase compensation expense.


Risk-Free Interest Rate — This is the U.S. Treasury Constant Maturity rate over a term equal to the expected lifeterm of the option. An increase in the risk-free interest rate will increase compensation expense.


62

Index
Weighted Average Expected Lives Term — This is the period of time over which the options granted are expected to remain outstanding and is based on historical experience. Options granted generally have a maximum term of ten years. An increase in the expected lifeterm will increase compensation expense.


Forfeiture Rate — This is the estimated percentage of options granted that are expected to be forfeited or canceled before becoming fully vested. This estimate is based on historical experience. An increase in the forfeiture rate will decrease compensation expense.


Dividend Yield —This — This is the estimated dividend yield for the weighted average expected lifeterm of the option granted. An increase in the dividend yield will decrease compensation expense.











Index


The Company issues shares for options when exercised. A summary of stock option activity is as follows:
Stock Option ActivityOptions
Weighted
Average Exercise
Price
Weighted Average Fair Value
Weighted Average
Remaining
Contractual Term
Aggregate Intrinsic Value
(in thousands)
Outstanding at December 26, 20201,932,410 80.44 5.8$128,411 
Granted248,808 145.87 $30.78 
Exercised(974,878)77.63 
Canceled(38,029)106.98 
Outstanding at December 25, 20211,168,311 $95.85 6.9$154,706 
Exercisable at December 25, 2021598,807 $77.15 5.4$90,489 
 Options 
Weighted
Average Exercise
Price
 Weighted Average Fair Value 
Weighted Average
Remaining
Contractual Term
 
Aggregate Intrinsic Value
(in thousands)
Outstanding December 27, 20144,083,426
 $41.93
  
 7.2 $146,967
Granted1,080,490
 83.70
 $19.53
    
Exercised(1,116,828) 33.11
      
Canceled(185,582) 67.28
      
          
Outstanding December 26, 20153,861,506
 $54.95
   7.1 $119,050
Granted1,150,941
 86.05
 $19.27
    
Exercised(851,118) 42.53
      
Canceled(187,582) 80.01
      
          
Outstanding December 31, 20163,973,747
 $65.43
   6.9 $59,601
Granted1,625,140
 72.11
 $14.56
    
Exercised(309,904) 38.87
      
Canceled(290,457) 79.08
      
          
Outstanding December 30, 20174,998,526
 $68.46
   6.9 $50,145
          
Exercisable at December 30, 20172,582,283
 $60.46
   5.3 $45,939


The aggregate intrinsic values in the table above represent the total difference between the Company’s closing stock price at each year-end and the option exercise price, multiplied by the number of in-the-money options at each year-end. As of December 30, 2017,25, 2021, total unrecognized compensation expense related to non-vested stock options was approximately $19.8$8.4 million with a weighted average expense recognition period of 1.91.8 years.


There were no material modifications to options in fiscal 2017, 20162021, 2020, or 2015.2019.


Other information relative to optionoptions activity during fiscal 2017, 20162021, 2020, and 20152019 is as follows (in thousands):

Fiscal Year
2017 2016 2015 202120202019
Total fair value of stock options vested$15,996
 $15,184
 $13,207
Total fair value of stock options vested$8,478 $12,546 $16,060 
Total intrinsic value of stock options exercised$9,237
 $39,696
 $60,082
Total intrinsic value of stock options exercised$90,532 $64,395 $45,101 


















Index


Restricted Stock Units


The Company issues shares for restricted stock unit awardsunits once vesting occurs and related restrictions lapse.  The fair value of the restricted stock units is the closing price of the Company’s common stock the day preceding the grant date, discounted for the expected dividend yield over the term of the award. The units generally vest over a one to four-year term; somethree-year term. Some plan participants have elected to defer receipt of shares of common stock upon vesting of restricted stock units, and as a result, those shares are not issued until a later date. The statusA summary of restricted stock unitsunit activity is presented below:
Restricted Stock Unit ActivityRestricted Stock UnitsWeighted Average Grant Date Fair Value
Restricted at December 26, 2020595,645 $85.27 
Granted276,268 144.52 
Vested(305,704)82.51 
Forfeited(42,790)118.70 
Restricted at December 25, 2021523,419 $115.59 

63

Index
Restricted Stock Units Shares Weighted Average Grant Date Fair Value
Restricted at December 27, 2014 277,347
 $42.64
Granted 56,052
 84.86
Exercised (107,548) 25.97
Forfeited (6,234) 63.57
     
Restricted at December 26, 2015 219,617
 $60.99
Granted 59,586
 83.22
Exercised (58,503) 52.51
Forfeited (26,669) 76.51
     
Restricted at December 31, 2016 194,031
 $68.04
Granted 85,049
 66.34
Exercised (51,069) 64.64
Forfeited (4,781) 79.65
     
Restricted at December 30, 2017 223,230
 $67.92
As of December 25, 2021, total unrecognized compensation expense related to non-vested restricted stock units was approximately $36.4 million with a weighted average expense recognition period of 1.9 years.


There were no material modifications to restricted stock units in fiscal 2021, 2020, or 2019.

Other information relative to restricted stock unit activity during fiscal 2017, 20162021, 2020, and 20152019 is as follows (in thousands):
Fiscal Year
 202120202019
Total grant date fair value of restricted stock units vested and issued$25,222 $17,935 $8,301 
Total intrinsic value of restricted stock units vested and issued$47,136 $23,011 $10,623 

Performance-Based Restricted Share Units

We issue performance-based restricted share units to senior executives that represent shares potentially issuable in the future, subject to the achievement of specified performance goals.  The performance metrics for the units are growth in net sales and growth in earnings per diluted share over a specified performance period. The performance metrics for the performance-based restricted share units granted in fiscal 2021 also include a relative total shareholder return ("TSR") modifier such that the actual number of shares that vest at the end of the respective three-year period is determined based on the Company's TSR performance relative to the constituents of the S&P 500 as well as the level of achievement of the performance goals. If the performance targets are achieved, the performance-based restricted share units will be issued based on the achievement level, inclusive of the relative TSR modifier and the grant date fair value, and will cliff vest in full on the third anniversary of the date of the grant. The fair value of the performance-based restricted share units is estimated using a Monte Carlo simulation model on the grant date. Key assumptions used in the Monte Carlo simulation for the performance shares with a TSR modifier granted during fiscal 2021 include an expected volatility of 31.47%, a risk-free interest rate of 0.18% and a compounded dividend yield of 1.13%.

A summary of performance-based restricted share unit activity is presented below:

Performance-Based Restricted Share Unit ActivityPerformance-Based Restricted Share UnitsWeighted Average Grant Date Fair Value
Restricted at December 26, 2020143,268 $87.94 
Granted (a)
60,317 148.05 
Vested(10,015)64.70 
Forfeited(6,552)104.65 
Restricted at December 25, 2021187,018 $107.99 

(a)Assumes 100% target level achievement of the relative performance targets. The actual number of shares that will be issued, which may be higher or lower than the target, will be determined by the level of achievement of the relative performance targets, inclusive of the TSR modifier.

As of December 25, 2021, total unrecognized compensation expense related to non-vested performance-based restricted share units was approximately $17.4 million with a weighted average expense recognition period of 1.9 years

There were no material modifications to performance-based restricted share units in fiscal 2021, 2020, or 2019.

Other information relative to performance-based restricted share unit activity during fiscal 2021 is as follows (in thousands):

Fiscal Year
 202120202019
Total grant date fair value of performance-based restricted share units vested and issued$648 $1,895 $2,035 
Total intrinsic value of performance-based restricted share units vested and issued$1,538 $2,826 $2,666 
64

Index
 2017 2016 2015
Total grant date fair value of restricted stock units vested and issued$3,301
 $3,072
 $2,793
Total intrinsic value of restricted stock units vested and issued$3,465
 $5,104
 $9,139
Shares Withheld to Satisfy Tax Withholding Requirements


For the majority of restricted stock units and performance-based restricted share units granted, the number of shares issued on the date the restricted stock unitsawards vest is net of shares withheld by the Company forto satisfy the minimum statutory tax withholding requirements, which the Company pays on behalf of its employees.  The Company issued 39,314, 48,267219,723, 186,751, and 72,206103,124 shares as a result of vested restricted stock units and performance-based restricted share units during fiscal 2017, 20162021, 2020, and 2015,2019, respectively.  Although shares withheld are not issued, they are treated similar to common stock repurchases as they reduce the number of shares that would have been issued upon vesting.  The amounts are net of 11,755, 10,23695,996, 81,946, and 35,34241,786 shares withheld to satisfy $0.8$14.9 million, $7.8 million, and $3.8 million of employees’ tax obligations during both fiscal 20172021, 2020, and 2016, and $3.0 million during fiscal 2015.2019, respectively.

There were no material modifications to restricted stock units in fiscal 2017, 2016 or 2015.

As of December 30, 2017, total unrecognized compensation expense related to non-vested restricted stock units was approximately $4.3 million with a weighted average expense recognition period of 1.6 years.


Employee Stock Purchase Plan


The ESPP provides Company employees the opportunity to purchase, through payroll deductions, shares of common stock at a 15% discount.  Pursuant to the terms of the ESPP, the Company issued 83,155, 69,56248,446, 63,704, and 68,42861,678 shares of common stock during fiscal 2017, 20162021, 2020, and 2015,2019, respectively.  The total cost related to the ESPP, including the compensation expense calculations, was approximately $1.0$1.4 million, in fiscal 2017$1.4 million, and $1.1 million in both fiscal 20162021, 2020, and 2015.2019, respectively.  There is a maximum of 16.0 million shares of common stock that are reserved under the ESPP. At December 30, 2017,25, 2021, there were approximately 12.011.8 million remaining shares of common stock reserved for future issuance under the ESPP.

Index


Note 3 - Acquisition of Petsense:

On September 29, 2016, the Company completed the acquisition of Petsense. Headquartered in Scottsdale, Arizona, Petsense is a small-box pet specialty supply retailer focused on meeting the needs of pet owners, primarily in small and mid-size communities, and offering a variety of pet products and services. Pursuant to the agreement governing the transaction, the Company acquired all the outstanding equity interests in Petsense for an all-cash purchase price which was financed with cash on-hand and revolver borrowings under the 2016 Senior Credit Facility (as defined in Note 5).

The total consideration transferred in connection with the Petsense acquisition has been allocated to the assets acquired and liabilities assumed based upon their respective fair values. The fair value of the assets acquired and liabilities assumed is estimated based on either one or a combination of the following methodologies: the income approach, the cost approach or the market approach as determined based on the nature of the asset or liability and the level of inputs available. With respect to assets and liabilities, the determination of fair value requires management to make subjective judgments as to projections of future operating performance, the appropriate discount rate to apply, long-term growth rates, etc. (i.e. unobservable inputs classified as Level 3 inputs under the fair value hierarchy), which affect the amounts recorded in the purchase price allocation. The excess of the consideration transferred over the fair value of the identifiable assets, net of liabilities, is recorded as goodwill, which is indicative of the expected continued growth and development of the pet specialty retail business acquired.

The table below summarizes the consideration transferred and allocation of the purchase price for the Petsense acquisition (in thousands):
Consideration transferred$144,476
Assets acquired: 
Current assets$21,875
Property and equipment25,519
Other intangible assets - tradename31,300
Other assets428
Liabilities assumed: 
Current liabilities(12,091)
Long-term liabilities(5,489)
Total identifiable net assets acquired61,542
Excess of consideration transferred over identifiable net assets acquired (goodwill)$82,934

In September 2017, the Company finalized the working capital settlement pursuant to the agreement governing the transaction. As a result, the values of the consideration transferred, assets acquired and liabilities assumed as reflected in the table above are considered final. The working capital settlement reduced both the consideration transferred and goodwill by $1.2 million from the preliminary values.

The resulting goodwill of $82.9 million and tradename of $31.3 million are amortized for income tax purposes.

The results of operations of Petsense have been included in the Consolidated Financial Statements since the date of acquisition.

Index

Note 4 - Goodwill and Other Intangible Assets:


Goodwill


The Company had approximately $93.2 million and $94.4 million of goodwill at December 30, 2017 and December 31, 2016, respectively. The changes in the carrying amount of goodwill by reporting unit for the years ended December 30, 201725, 2021 and December 31, 201626, 2020 are as follows (in thousands):
Fiscal Year 2021Fiscal Year 2020
Tractor SupplyPetsenseConsolidatedTractor SupplyPetsenseConsolidated
Balance, beginning of year$10,258 $22,161 $32,419 $10,258 $82,934 $93,192 
Impairment expense— — — — (60,773)(60,773)
Balance, end of year$10,258 $22,161 $32,419 $10,258 $22,161 $32,419 
 2017 2016
Balance, beginning of year$94,417
 $10,258
Goodwill acquired as part of acquisition
 84,159
Working capital settlement(1,225) 
Impairment loss
 
Balance, end of year$93,192
 $94,417


Goodwill is allocated to each identified reporting unit, which is defined as an operating segment or one level below the operating segment.

Goodwill is not amortized, but is evaluated for impairment annually and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. The Company completes itsCompany's annual impairment evaluation by performing valuation analyses and considering other publicly available market information, as appropriate.is conducted on the first day of the fiscal fourth quarter.


The test used to identify the potential for goodwill impairment compares the fair value of a reporting unit with its carrying value. An impairment charge would be recorded to the Company’s operations for the amount, if any, in which the carrying value exceeds the fair value.

In the fourth quarter of fiscal 2017,2021, the Company completed its annual impairment testingassessment of goodwill for all reporting units. As part of this analysis, the Company assessed the current environment to determine if there were any indicators of impairment as a result of the operating conditions resulting from COVID-19 or otherwise and concluded, that while there have been events and circumstances in the macro-environment that have impacted the Company's business, there were no any entity-specific indicators of impairment of goodwill that would require the Company to perform a quantitative impairment assessment. Therefore, there were no impairment charges related to goodwill being recognized in fiscal 2021.

In the fourth quarter of fiscal 2020, the Company identified qualitative indicators of impairment as a result of a strategic reassessment of the Petsense business, including an evaluation of current operations and its future growth outlook due to changing consumer trends within certain identified growth markets, which resulted in a decision to reduce the number of new store openings planned over the long term. The carrying value of goodwill for the Petsense reporting unit is indicative of the expected growth and development of the business. The aforementioned decision to reduce the long-term growth outlook resulted in a downward adjustment of the future financial forecasts for the Petsense business which indicated that impairment of the goodwill asset was identified. The Companya more-likely-than-not outcome.

We conducted a quantitative impairment analysis of the Petsense reporting unit using the income approach. As a result of the quantitative impairment analysis of the Petsense reporting unit, it was determined that the fair value of each reporting unit (including goodwill) was in excess of the carrying value of the respective reporting unit.  In reaching this conclusion,exceeded the fair value, resulting in a pre-tax impairment loss of each reporting unit was determined based on either a market or an income approach.  Under the market approach, the fair value is based on observed market data.approximately $60.8 million in fiscal 2020.


65

Index
Other Intangible Assets


The Company had approximately $31.3$23.1 million of intangible assets other than goodwill at December 30, 201725, 2021 and December 31, 2016.26, 2020. The intangible asset balance represents the estimated faircarrying value of the Petsense tradename,trade name, which is not subject to amortization as it has an indefinite useful life on the basis that it is expected to contribute cash flows beyond the foreseeable horizon.

With respect to intangible assets, we evaluate The trade name asset is evaluated for impairment annually and whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. We recognize anThe Company's annual impairment loss only if the carrying amountevaluation is not recoverable through its discounted cash flows and measure the impairment loss basedconducted on the difference betweenfirst day of the carrying value and fair value. fiscal fourth quarter.

In the fourth quarter of fiscal 2017,2021, the Company completed its annual impairment testing of intangible assets and no impairment was identified. The Company determined that the fair value of the intangible asset was in excess of the carrying value.

Index


In the fourth quarter of fiscal 2020, the aforementioned decision to reduce the long-term growth outlook for Petsense resulted in a downward adjustment of its future financial forecasts which indicated that impairment of the trade name asset was a more-likely-than-not outcome. The Company conducted a quantitative impairment analysis in the fourth quarter of fiscal 2020 using the relief-from-royalty method. As a result of the quantitative impairment analysis, it was determined that the carrying value of the Petsense trade name was in excess of the fair value,resulting in a pre-tax impairment loss of approximately $8.2 million in fiscal 2020.

Note 5 -4 – Debt:


The following table summarizes the Company’s outstanding debt as of the dates indicated (in millions):
December 25,
2021
December 26,
2020
1.75% Senior Notes due 2030$650.0 $650.0 
3.70% Senior Notes due 2029150.0 150.0 
Senior Credit Facility:
November 2020 Term Loan due 2023200.0 200.0 
Revolving credit loans— — 
Total outstanding borrowings1,000.0 1,000.0 
Less: unamortized debt discounts and issuance costs(13.6)(15.7)
Total debt986.4 984.3 
Less: current portion of long-term debt— — 
Long-term debt$986.4 $984.3 
Outstanding letters of credit$52.9 $48.7 
  December 30,
2017
 December 31,
2016
Senior Notes $150.0
 $
Senior Credit Facility:    
February 2016 Term Loan 180.0
 190.0
June 2017 Term Loan 97.5
 
Revolving credit loans 
 85.0
Total outstanding borrowings 427.5
 275.0
Less: unamortized debt issuance costs (1.4) (1.1)
Total debt 426.1
 273.9
Less: current portion of long-term debt (25.0) (10.0)
Long-term debt $401.1
 $263.9
     
Outstanding letters of credit $39.6
 $44.3


1.75% Senior Notes due 2030

On October 30, 2020, the Company issued and sold, in a public offering, $650 million in aggregate principal amount of senior unsecured notes due November 1, 2030 bearing interest at 1.75% per annum (the “1.75% Senior Notes”). The entire principal amount of the 1.75% Senior Notes is due in full on November 1, 2030. Interest is payable semi-annually in arrears on each November 1 and May 1. The terms of the 1.750% Notes are governed by an indenture dated as of October 30, 2020 (the “Base Indenture”) between the Company and Regions Bank, as trustee, as amended and supplemented by a first supplemental indenture dated as of October 30, 2020 (the “Supplemental Indenture”) between the Company and Regions Bank, as trustee.

The 1.75% Senior Notes are senior unsecured debt obligations of the Company and will rank equally with the Company’s other senior unsecured liabilities and senior to any future subordinated indebtedness of the Company. The 1.75% Senior Notes are subject to customary covenants restricting the Company’s ability, subject to certain exceptions, to incur debt secured by liens, to enter into sale and leaseback transactions or to merge or consolidate with another entity or sell substantially all of its assets to another person.

At any time prior to August 1, 2030, the Company will have the right, at its option, to redeem the 1.75% Senior Notes, in whole or in part, at any time and from time to time, by paying the greater of 100% of the principal amount of the 1.75% Senior Notes

66

Index
to be redeemed, or the sum of the present values of the remaining scheduled payments of principal and interest through the par call date, plus, in each case, accrued and unpaid interest to, but not including, the date of redemption. In addition, on or after August 1, 2030, the Company will have the right, at its option, to redeem the 1.75% Senior Notes, in whole or in part, at any time and from time to time, at a redemption price equal to 100% of the principal amount of the 1.75% Senior Notes to be redeemed, plus accrued and unpaid interest to, but not including, the date of redemption.

If a Change of Control Triggering Event (as defined in the Supplemental Indenture) occurs, unless the Company has exercised its right to redeem the 1.75% Senior Notes, holders of the 1.75% Senior Notes may require the Company to repurchase all or any part of such holder’s 1.75% Senior Notes at a purchase price of 101% of the principal amount, plus accrued and unpaid interest, if any, on such 1.75% Senior Notes to, but not including, the purchase date. Upon the occurrence of an event of default with respect to the 1.75% Senior Notes, which includes payment defaults, defaults in the performance of certain covenants, cross defaults, and bankruptcy and insolvency related defaults, the Company’s obligations under the 1.75% Senior Notes may be accelerated, in which case the entire principal amount of the 1.75% Senior Notes would be due and payable immediately.

Senior Note Facility (including 3.70% Senior Notes due 2029)

On August 14, 2017, the Company entered into a note purchase and private shelf agreement (the “Note Purchase Agreement”), as amended from time to time, pursuant to which the Company agreed to sell, in a private placement, $150 million aggregate principal amount of senior unsecured notes due August 14, 2029 (the “2029 Notes”) in a private placement. The 2029 Notes bearbearing interest at 3.70% per annum with interest(the “3.70% Senior Notes”). The entire principal amount of the 3.70% Senior Notes is due in full on August 14, 2029. Interest is payable semi-annually in arrears on each annual and semi-annual anniversary of the issuance date. The obligations under the Note Purchase Agreement are unsecured, but guaranteed by each of the Company’s material subsidiaries.unsecured.


The Company may from time to time issue and sell additional senior unsecured notes (the “Shelf Notes”) pursuant to the Note Purchase Agreement, in an aggregate principal amount of up to $150 million.$300 million minus the aggregate principal amount of all notes outstanding and issued under the Note Purchase Agreement. The Shelf Notes will have a maturity date of no more than 12 years after the date of original issuance and may be issued through August 14, 2020,November 4, 2023, unless earlier terminated in accordance with the terms of the Note Purchase Agreement.


Pursuant to the Note Purchase Agreement, the 20293.70% Senior Notes and any Shelf Notes (collectively, the "Notes""Senior Note Facility") are redeemable by the Company, in whole at any time or in part from time to time, at 100% of the principal amount of the NotesSenior Note Facility being redeemed, together with accrued and unpaid interest thereon and a make whole amount calculated by discounting all remaining scheduled payments on the NotesSenior Note Facility by the yield on the U.S. Treasury security with a maturity equal to the remaining average life of the NotesSenior Note Facility plus 0.50%.


Senior Credit Facility


On February 19, 2016, the Company entered into a senior credit facility, as amended from time to time, and as amended and restated on November 4, 2020 (the “2016“Senior Credit Facility”), which provides borrowing capacity under term loan facilities as well as a revolving credit facility. There are no compensating balance requirements associated with the Senior Credit Facility”) consisting of a $200 million term loan (the “February 2016 Term Loan”) andFacility.

The Senior Credit Facility contains a $500 million revolving credit facility (the “Revolver”) with a sublimit of $50 million for swingline loans. This agreement is unsecured. On February 16, 2018, the maturity date was extended from February 19, 2021 to February 19, 2022.

On June 15, 2017, pursuant to an accordion feature available under the 2016 Senior Credit Facility, the Company entered into an incremental term loan agreement (the “June 2017 Term Loan”) which increased the term loan capacity under the 2016 Senior Credit Facility by $100 million.loans and a sublimit of $150 million for letters of credit. This agreement is unsecured and matures on June 15, 2022.November 4, 2023, which, subject to satisfaction of certain terms and conditions, may be extended at the option of the Company to November 4, 2024 (as may be extended, the “Senior Credit Facility Maturity Date”).


Under the Senior Credit Facility, on November 4, 2020, a $200 million term loan (the “November 2020 Term Loan”) was extended to the Company. The February 2016November 2020 Term Loan of $200 million requires quarterly payments totaling $10 million per year in years oneis unsecured and two and $20 million per year in years three through the maturity date, with the remaining balanceentire principal amount is due in full on the maturity date of February 19, 2022. The June 2017 Term Loan of $100 million requires quarterly payments totaling $5 million per year in years one and two and $10 million per year in years three through the maturity date, with the remaining balance due in full on the maturity date of June 15, 2022. The 2016 Senior Credit Facility also contains a $500 million revolving credit facility (with a sublimit of $50 million for swingline loans).Maturity Date.

Index


Borrowings under both the February 2016Revolver and the November 2020 Term Loan and Revolvereach bear interest either at either the bank’s base rate (4.500%(3.250% at December 30, 2017) or the London Inter-Bank Offer Rate (“LIBOR”) (1.564% at December 30, 2017)25, 2021) plus an additional amount ranging from 0.500%0.000% to 1.125%0.375% (0.125% at December 25, 2021) or at the LIBOR (0.101% at December 25, 2021) plus an additional amount ranging from 0.875% to 1.375% per annum (0.750%(1.125% at December 30, 2017)25, 2021), adjusted quarterly based on our leverage ratio.the Company's public credit ratings. The Company is also required to pay, quarterly in arrears, a commitment fee forrelated to unused capacity on the Revolver ranging from 0.075%0.090% to 0.200% per annum (0.125% at December 30, 2017)25, 2021), adjusted quarterly based on the Company’s leverage ratio. Borrowings underCompany's public credit ratings.

On February 19, 2016, the Company entered into a $200 million term loan agreement (the “February 2016 Term Loan”). This agreement was repaid in full on November 4, 2020 and is no longer in effect.
67

Index

On June 15, 2017, the Company entered into a $100 million incremental term loan agreement (the “June 2017 Term Loan bear interest at either the bank’s base rate (4.500% at December 30, 2017) or LIBOR (1.564% at December 30, 2017) plus an additional 1.000% per annum. As further describedLoan”). This agreement was repaid in Note 6,full on November 4, 2020 and is no longer in effect.

On March 12, 2020, the Company has entered into interest rate swap agreementsa $200 million incremental term loan agreement (the “March 2020 Term Loan”). This agreement was repaid in order to hedge our exposure to variable rate interest payments associated with each offull on November 4, 2020 and is no longer in effect.

On April 22, 2020, the Company entered into a $350 million incremental term loans under the 2016 Senior Credit Facility.loan agreement (the "April 2020 Term Loan"). This agreement was repaid in full on October 30, 2020 and is no longer in effect.

Proceeds from the 2016 Senior Credit Facility may be used for working capital, capital expenditures, dividends, share repurchases, and other matters. There are no compensating balance requirements associated with the 2016 Senior Credit Facility.


Covenants and Default Provisions of the Debt Agreements


The 2016 Senior Credit Facility and the Note Purchase Agreement (collectively, the “Debt Agreements”) require quarterly compliance with respect to two material covenants: a fixed charge coverage ratio and a leverage ratio.  Both ratios are calculated on a trailing twelve-month basis at the end of each fiscal quarter. The fixed charge coverage ratio compares earnings before interest, taxes, depreciation, amortization, share-based compensation and rent expense (“consolidated EBITDAR”) to the sum of interest paid and rental expense (excluding any straight-line rent adjustments).  The fixed charge coverage ratio shall be greater than or equal to 2.002.0 to 1.0 as of the last day of each fiscal quarter. The leverage ratio compares rental expense (excluding any straight-line rent adjustments) multiplied by a factor of six plus total funded debt to consolidated EBITDAR.  The leverage ratio shall be less than or equal to 4.004.0 to 1.0 as of the last day of each fiscal quarter. The Debt Agreements also contain certain other restrictions regarding additional subsidiary indebtedness, capital expenditures, business operations, subsidiary guarantees, investments, mergers, consolidations and sales of assets, transactions with subsidiaries or affiliates, and liens.  As of December 30, 2017,25, 2021, the Company was in compliance with all debt covenants.


The Debt Agreements contain customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, certain events of bankruptcy and insolvency, material judgments, certain ERISA events and invalidity of loan documents. Upon certain changes of control, payment under the Debt Agreements could become due and payable. In addition, under the Note Purchase Agreement, upon an event of default or change of control, the make whole payment described above may become due and payable.


The Note Purchase Agreement also requires that, in the event the Company amends its 2016 Senior Credit Facility, or any subsequent credit facility of $100 million or greater, such that it contains covenant or default provisions that are not provided in the Note Purchase Agreement or that are similar to those contained in the Note Purchase Agreement but which contain percentages, amounts, formulas or grace periods that are more restrictive than those set forth in the Note Purchase Agreement or are otherwise more beneficial to the lenders thereunder, the Note Purchase Agreement shall be automatically amended to include such additional or amended covenants and/or default provisions.


Note 6 - Interest Rate Swaps:

The Company entered into an interest rate swap agreement which became effective on March 31, 2016, with a maturity date of February 19, 2021. The notional amount of this swap agreement began at $197.5 million (the principal amount of the February 2016 Term Loan borrowings as of March 31, 2016) and will amortize at the same time and in the same amount as the February 2016 Term Loan borrowings as described in Note 5 up to the maturity date of the interest rate swap agreement on February 19, 2021. As of December 30, 2017, the notional amount of the interest rate swap was $180.0 million.

The Company entered into a second interest rate swap agreement which became effective on June 30, 2017, with a maturity date of June 15, 2022. The notional amount of this swap agreement began at $100 million (the principal amount of the June 2017 Term Loan borrowings as of June 30, 2017) and will amortize at the same time and in the same amount as the June 2017 Term Loan borrowings as described in Note 5. As of December 30, 2017, the notional amount of the interest rate swap was $97.5 million.

The Company’s interest rate swap agreements are executed for risk management and are not held for trading purposes. The objective of the interest rate swap agreements is to mitigate interest rate risk associated with future changes in interest rates. To accomplish this objective, the interest rate swap agreements are intended to hedge the variable cash flows associated with the variable rate term loan borrowings under the 2016 Senior Credit Facility. Both interest rate swap agreements entitle the Company to receive,
Index

at specified intervals, a variable rate of interest based on LIBOR in exchange for the payment of a fixed rate of interest throughout the life of the agreement, without exchange of the underlying notional amount.

The Company has designated its interest rate swap agreements as cash flow hedges and accounts for the underlying activity in accordance with hedge accounting. The interest rate swaps are presented within the consolidated balance sheets at fair value. In accordance with hedge accounting, the effective portion of gains and losses on interest rate swaps that are designated and qualify as cash flow hedges are recorded as a component of Other Comprehensive Income (Loss) (“OCI” or “OCL”, respectively) and reclassified into earnings in the period during which the hedged transactions affect earnings. The ineffective portion of gains and losses on interest rate swaps, if any, are recognized in current earnings.

The assets and liabilities measured at fair value related to the Company’s interest rate swaps, excluding accrued interest, were as follows (in thousands):
  Balance Sheet Location 2017 2016
Interest rate swaps (short-term portion) Other current assets / (Other accrued expenses) $900
 $(398)
Interest rate swaps (long-term portion) Other assets 4,252
 3,215
Total net assets   $5,152
 $2,817

The offset to the interest rate swap asset or liability is recorded as a component of equity, net of deferred taxes, in Accumulated Other Comprehensive Income (Loss) (“AOCI” or “AOCL,” respectively), and will be reclassified into earnings over the term of the underlying debt as interest payments are made.

The following table summarizes the changes in AOCI/AOCL, net of tax, related to the Company’s interest rate swaps (in thousands):
  2017 2016
Beginning fiscal year AOCI balance $1,392
 $
     
Current fiscal period gain recognized in OCI 1,371
 1,392
Amounts reclassified from AOCI (AOCL) into current fiscal period earnings 
 
Other comprehensive gain, net of tax 1,371
 1,392
Ending fiscal period AOCI balance $2,763
 $1,392

As of December 30, 2017, the estimated pre-tax portion of AOCI that is expected to be reclassified into earnings over the next twelve months is $0.9 million. Cash flows related to the interest rate swaps are included in operating activities on the consolidated statements of cash flows.

The following table summarizes the impact of pre-tax gains and losses derived from the Company’s interest rate swaps (in thousands):
  Financial Statement Location 2017 2016 2015
Effective portion of gains recognized in OCI
during the period
 Other comprehensive income $2,240
 $2,283
 $
Amounts reclassified from AOCI (AOCL) into earnings Interest expense, net 
 
 
Ineffective portion of gains recognized in earnings
during the period
 Interest expense, net 95
 534
 

The following table summarizes the impact of taxes affecting AOCI/AOCL as a result of the Company’s interest rate swaps (in thousands):
  2017 2016
Income tax expense of interest rate swaps on AOCI $869
 $891





Index

Credit-risk-related contingent features

In accordance with the underlying interest rate swap agreements, the Company could be declared in default on its interest rate swap obligations if repayment of the underlying indebtedness (i.e., the Company’s term loan) is accelerated by the lender due to the Company's default on such indebtedness.

If the Company had breached any of the provisions in the underlying agreements at December 30, 2017, it could have been required to post full collateral or settle its obligations under the Company’s interest rate swap agreements. However, as of December 30, 2017, the Company had not breached any of these provisions or posted any collateral related to the underlying interest rate swap agreements. Further, as of December 30, 2017, the net balance of each of the Company’s interest rate swaps were in a net asset position and therefore the Company would have no obligation upon default.

Note 7 - Leases:


The Company leases the majority of its retail store locations, two distribution sites, its Merchandise Innovation Center, transportation equipment and othercertain equipment under various non-cancellable operating leases. The leases have varying terms and expire at various dates through 2037.2042.  Store leases typically have initial terms of between 10 years and 15 years, with two to four optional renewal periods of five years each.  Some leasesThe exercise of lease renewal options is at our sole discretion. The Company has included lease renewal options in the lease term for calculations of its right-of-use assets and liabilities when it is reasonably certain that the Company plans to renew these leases. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company accounts for lease components (e.g., fixed payments including rent, real estate taxes, and insurance costs) together with non-lease components (e.g., fixed payment common-area maintenance) as a single component for all classes of underlying assets. Certain lease agreements require the paymentvariable payments based upon actual costs of contingent rent that iscommon-area maintenance, real estate taxes, and insurance. Further, certain lease agreements require variable payments based upon store sales above agreed-upon sales levels for the year.  The sales levels vary for each store and are established in the lease agreements.  Generally, most of the leases also require that the Company pays associated taxes, insurance and maintenance costs.
Total rent expense for fiscal 2017, 2016 and 2015 was approximately $319.5 million, $293.0 million and $262.1 million, respectively.  Total contingent rent expense for fiscal 2017, 2016 and 2015 was insignificant.

Future minimum payments, by year and others require payments adjusted periodically for inflation. As substantially all of our leases do not provide an implicit rate, we estimate our collateralized incremental borrowing rate based upon a Company specific credit rating and yield curve analysis at commencement or modification date in determining the aggregate, underpresent value of lease payments.

The Company has elected not to recognize leases with initial or remaining termsan original term of one year or more consistless on the balance sheet. Short-term lease cost during the periods presented was immaterial.

68

Index
In addition to the operating lease right-of-use assets presented on the Consolidated Balance Sheets, assets, net of accumulated amortization, under finance leases of $32.0 million and $33.5 million are recorded within the Property and equipment, net line on the Consolidated Balance Sheets as of December 25, 2021 and December 26, 2020, respectively.

The following table summarizes the Company’s classification of lease cost (in thousands):
Fiscal Year Ended
Statement of Income LocationDecember 25, 2021December 26, 2020
Finance lease cost:
Amortization of lease assetsDepreciation and amortization$5,085 $4,765 
Interest on lease liabilitiesInterest expense, net1,740 1,765 
Operating lease costSelling, general and administrative expenses400,908 379,318 
Variable lease costSelling, general and administrative expenses79,479 80,154 
Net lease cost$487,212 $466,002 
 
Capital
Leases
 
Operating
Leases
2018$5,201
 $324,813
20195,215
 315,062
20205,234
 296,773
20215,294
 273,932
20224,172
 251,059
Thereafter23,149
 1,219,048
Total minimum lease payments48,265
 $2,680,687
Amount representing interest(12,103)  
Present value of minimum lease payments36,162
  
Less:  current portion(3,545)  
Long-term capital lease obligations$32,617
  


Assets under capital leases were as followsThe following table summarizes the future maturities of the Company’s lease liabilities (in thousands):

Operating Leases (a)
Finance LeasesTotal
2022$418,059 $5,542 $423,601 
2023406,847 4,382 411,229 
2024383,8434,397388,240
2025360,3024,324364,627
2026326,3044,294330,599
After 20261,540,09323,2811,563,375
Total lease payments3,435,44946,2203,481,669
Less: Interest(539,283)(9,475)(548,758)
Present value of lease liabilities$2,896,167 $36,745 $2,932,912 

(a) Operating lease payments exclude $239.2 million of legally binding minimum lease payments for leases signed, but not yet commenced.

The following table summarizes the Company’s lease term and discount rate:
December 25, 2021December 26, 2020
Weighted-average remaining lease term (years):
Finance leases10.510.4
Operating leases10.09.1
Weighted-average discount rate:
Finance leases4.8 %4.9 %
Operating leases3.6 %4.1 %

The following table summarizes the other information related to the Company’s lease liabilities (in thousands):
Fiscal Year Ended
December 25, 2021December 26, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Financing cash flows used for finance leases$4,580 $4,170 
Operating cash flows used for finance leases1,740 1,765 
Operating cash flows for operating leases404,864 385,529 

69
 2017 2016
Building and improvements, gross$29,324
 $29,324
Computer software and hardware11,388
 
Less:  accumulated depreciation and amortization(6,462) (3,381)
Assets under capital lease, net$34,250
 $25,943


Index
Note 8 -6 – Capital Stock and Dividends:


Capital Stock


The authorized capital stock of the Company consists of common stock and preferred stock. The Company is authorized to issue 400 million shares of common stock. The Company is also authorized to issue 40,00040 thousand shares of preferred stock, with such designations, rights and preferences as may be determined from time to time by the Company’s Board of Directors.


Dividends


During fiscal 20172021 and 2016,2020, the Company’s Board of Directors declared the following cash dividends:
Date DeclaredDividend Amount
Per Share of Common Stock
Record DateDate Paid
November 3, 2021$0.52November 22, 2021December 8, 2021
August 4, 2021$0.52August 23, 2021September 8, 2021
May 5, 2021$0.52May 24, 2021June 8, 2021
January 27, 2021$0.52February 22, 2021March 9, 2021
Date DeclaredNovember 4, 2020
Dividend Amount
Per Share
$0.40
Stockholders of Record DateNovember 23, 2020Date PaidDecember 8, 2020
November 6, 2017August 5, 2020$0.270.40November 20, 2017August 24, 2020December 5, 2017September 9, 2020
August 7, 2017May 6, 2020$0.270.35August 21, 2017May 26, 2020September 6, 2017June 9, 2020
May 8, 2017February 5, 2020$0.270.35May 22, 2017February 24, 2020June 6, 2017
February 8, 2017$0.24February 27, 2017March 14, 2017
October 31, 2016$0.24November 14, 2016November 29, 2016
August 1, 2016$0.24August 15, 2016August 30, 2016
May 2, 2016$0.24May 16, 2016June 1, 2016
February 3, 2016$0.20February 22, 2016March 8, 201610, 2020


It is the present intention of the Company’s Board of Directors to continue to pay a quarterly cash dividend; however, the declaration and payment amount of future dividends will be determined by the Company’s Board of Directors in its sole discretion and will depend upon the earnings, financial condition, and capital needs of the Company, as well asalong with any other factors which the Company’s Board of Directors deem relevant.


On February 7, 2018,January 26, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.27$0.92 per share of the Company’s outstanding common stock.  The dividend will be paid on March 13, 2018,8, 2022, to stockholders of record as of the close of business on February 26, 2018.21, 2022.


Note 9 -7 – Treasury Stock:


The Company’s Board of Directors has authorized common stock repurchases under a share repurchase program which was announced in February 2007. As of December 25, 2021, the authorization amount of the program, which has been increased from time to time, was authorized for up to $3$4.5 billion, exclusive of any fees, commissions or other expenses related to such repurchases through December 31, 2020.repurchases. The total authorized amount was increased by the Company's Board of Directors on January 26, 2022 by $2.0 billion for a total authorization of $6.5 billion. The share repurchase program does not have an expiration date. The repurchases may be made from time to time on the open market or in privately negotiated transactions. The timing and amount of any shares repurchased under the program will depend on a variety of factors, including price, corporate and regulatory requirements, capital availability and other market conditions. Repurchased shares are accounted for at cost and will be held in treasury for future issuance. The program may be limited, temporarily paused, or terminated at any time without prior notice.

The Company repurchased approximately 5.9 million, 4.4 million and 3.4 million shares of common stock under the share repurchase program at a total cost of $369.4 million, $331.7 million and $292.7 million in fiscal 2017, 2016 and 2015, respectively. As of December 30, 2017,25, 2021, prior to the expanded $2.0 billion repurchase authorization, the Company had remaining authorization under the share repurchase program of $0.9 billion,$345.0 million, exclusive of any fees, commissions or other expenses.


70

Index

The following table provides the number of shares repurchased, average price paid per share, and total amount paid for share repurchases in fiscal 2021, 2020, and 2019, respectively (in thousands, except per share amounts):  
Fiscal Year
202120202019
Total number of shares repurchased4,364 3,439 5,384 
Average price paid per share$183.07 $99.72 $99.05 
Total cash paid for share repurchases$798,893 $342,957 $533,319 

Shares repurchased in fiscal 2020 were impacted by the temporary suspension of our share repurchase program from March 12, 2020 until November 5, 2020, in order to strengthen our liquidity and preserve cash while navigating the COVID-19 pandemic.

Note 10 -8 – Net Income Per Share:


Net income per share is calculated as follows (in thousands, except per share amounts):
Fiscal Year
 2021
 
Net
Income
Shares
Per Share
Amount
Basic net income per share:$997,114 114,794 $8.69 
Dilutive effect of share-based awards— 1,030 (0.08)
Diluted net income per share:$997,114 115,824 $8.61 
Fiscal Year
 2020
 
Net
Income
Shares
Per Share
Amount
Basic net income per share:$748,958 116,370 $6.44 
Dilutive effect of share-based awards— 1,066 (0.06)
Diluted net income per share:$748,958 117,436 $6.38 
 2017
 
Net
Income
 Shares 
Per Share
Amount
Basic net income per share$422,599
 127,588
 $3.31
Dilutive stock options and restricted stock units outstanding
 616
 (0.01)
Diluted net income per share$422,599
 128,204
 $3.30
Fiscal Year
 2019
 
Net
Income
Shares
Per Share
Amount
Basic net income per share:$562,354 119,727 $4.70 
Dilutive effect of share-based awards— 1,016 (0.04)
Diluted net income per share:$562,354 120,743 $4.66 

 2016
 
Net
Income
 Shares 
Per Share
Amount
Basic net income per share$437,120
 132,905
 $3.29
Dilutive stock options and restricted stock units outstanding
 908
 (0.02)
Diluted net income per share$437,120
 133,813
 $3.27

 2015
 
Net
Income
 Shares 
Per Share
Amount
Basic net income per share$410,395
 135,582
 $3.03
Dilutive stock options and restricted stock units outstanding
 1,263
 (0.03)
Diluted net income per share$410,395
 136,845
 $3.00


Anti-dilutive stock optionsshare-based awards excluded from the above calculations totaled approximately 3.9 million, 1.9 million and 0.9less than 0.1 million in fiscal 2017, 20162021 and 2015, respectively.2020 and were approximately 0.4 million shares in fiscal 2019.


71

Index
Note 119 – Income Taxes:


The provision for income taxes consists of the following (in thousands):
Fiscal Year
 202120202019
Current tax expense:   
Federal$221,152 $211,228 $128,490 
State34,238 38,511 25,091 
Total current255,390 249,739 153,581 
Deferred tax expense/(benefit):
Federal24,303 (21,997)11,770 
State3,281 (8,553)(4,328)
Total deferred27,584 (30,550)7,442 
Total provision$282,974 $219,189 $161,023 
 2017 2016 2015
Current tax expense:     
Federal$207,986
 $221,207
 $225,253
State14,516
 20,858
 17,419
Total current222,502
 242,065
 242,672
      
Deferred tax expense (benefit):     
Federal22,469
 12,256
 (7,017)
State4,953
 (3,171) 1,567
Total deferred27,422
 9,085
 (5,450)
Total provision$249,924
 $251,150
 $237,222












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 deferred tax assets and liabilities are as follows (in thousands):
 December 25, 2021December 26, 2020
Tax assets:  
Inventory valuation$23,365 $20,539 
Accrued employee benefits costs36,810 44,625 
Nondeductible reserves7,099 5,967 
Finance lease liabilities8,958 8,595 
Operating lease liabilities740,478 645,719 
Deferred compensation12,201 12,289 
Workers' compensation insurance14,271 11,804 
General liability insurance9,402 7,346 
Income tax credits7,986 8,744 
Amortization7,803 7,269 
Other12,799 10,746 
 881,172 783,643 
Tax liabilities: 
Finance lease assets(7,797)(7,584)
Operating lease right-of-use assets(702,197)(612,658)
Depreciation(161,137)(124,280)
Other(7,604)(7,535)
 (878,735)(752,057)
Net deferred tax asset$2,437 $31,586 
 2017 2016
Tax assets:   
Inventory valuation$13,029
 $19,713
Accrued employee benefits costs7,092
 14,120
Accrued sales tax audit reserve3,479
 4,317
Rent expenses in excess of cash payments required24,728
 35,391
Deferred compensation20,299
 23,978
Workers’ compensation insurance9,153
 13,565
General liability insurance4,265
 5,332
Lease exit obligations1,829
 2,617
Income tax credits4,206
 4,265
Other6,997
 7,311
 95,077
 130,609
Tax liabilities: 
  
Inventory basis difference(4,141) (4,600)
Prepaid expenses(1,423) (2,912)
Depreciation(65,650) (73,336)
Amortization(3,818) (2,419)
Other(1,551) (2,124)
 (76,583) (85,391)
    
Net deferred tax asset$18,494
 $45,218

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Under the provisions of the Act, the U.S. corporate income tax rate decreased from 35% to 21% effective for tax years beginning after December 31, 2017. This change required the Company to remeasure our deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which generally is 21% for federal income tax purposes. We have made a reasonable estimate of the effects on our existing deferred tax balances as of December 30, 2017, and recognized a provisional expense amount of $4.9 million, which is included as a component of income tax expense from continuing operations. However, we are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect the measurement of these balances. We will recognize any changes to this provisional amount as we refine our estimates of our cumulative temporary differences as well as interpretations of the application of the Act.
The Company has evaluated the need for a valuation allowance for all or a portion of the deferred tax assets.  The Company believes that all of the deferred tax assets will more likely than not be realized through future earnings.  The Company had state tax credit carryforwards of $5.1$6.6 million and $7.5$8.6 million as of December 30, 201725, 2021 and December 31, 2016,26, 2020, respectively, with varying dates of expiration between 2017 and 2030.through 2036.  The Company provided no valuation allowance as of December 30, 201725, 2021 and December 31, 201626, 2020 for state tax credit carryforwards, as the Company believes it is more likely than not that all of these credits will be utilized before their expiration dates.













72

Index

A reconciliation of the provision for income taxes to the amounts computed at the federal statutory rate is as follows (in thousands):
Fiscal Year
 202120202019
Tax provision at statutory rate$268,819 $203,311 $151,909 
Tax effect of:
State income taxes, net of federal tax benefits36,116 27,642 19,722 
Tax credits, net of federal tax benefits(13,157)(8,828)(7,768)
Share-based compensation programs(13,368)(9,303)(4,484)
Other4,564 6,367 1,644 
Total income tax expense$282,974 $219,189 $161,023 
 2017 2016 2015
Tax provision at statutory rate$235,383
 $240,894
 $226,666
Tax effect of:     
State income taxes, net of federal tax benefits14,320
 15,527
 13,976
Tax credits, net of federal tax benefits(5,060) (7,227) (3,763)
Stock-based compensation programs(1,040) 
 
Enactment of tax legislation4,856
 
 
Other1,465
 1,956
 343
Total income tax expense$249,924
 $251,150
 $237,222


The Company and its affiliates file income tax returns in the U.S. and various state and local jurisdictions.  With few exceptions, the Company is no longer subject to federal, state and local income tax examinations by tax authorities for years before 2012.2017.  Various states have completed an examination of our income tax returns for 20112017 through 20142019 with minimal adjustments.


The total amount of unrecognized tax positions that, if recognized, would decrease the effective tax rate, is $1.7$3.2 million at December 30, 2017.25, 2021. In addition, the Company recognizes current interest and penalties accrued related to these uncertain tax positions as interest expense, and the amount is not material to the Consolidated Statements of Income.  The Company has considered the reasonably possible expected net change in uncertain tax positions during the next 12 months and does not expect any material changes to our liability for uncertain tax positions through December 29, 2018.25, 2021.


A reconciliation of the beginning and ending gross amount of unrecognized tax benefits (exclusive of interest and penalties) is as follows (in thousands):
Fiscal Year
 202120202019
Balance at beginning of year$3,236 $2,760 $2,451 
Additions based on tax positions related to the current year927 816 650 
Additions for tax positions of prior years51 32 59 
Reductions for tax positions of prior years(465)(372)(400)
Balance at end of year$3,749 $3,236 $2,760 
 2017 2016 2015
Balance at beginning of year$1,579
 $2,922
 $3,500
Additions based on tax positions related to the current year527
 460
 869
Additions for tax positions of prior years14
 139
 
Reductions for tax positions of prior years(127) (1,829) (1,447)
Reductions due to audit results
 (113) 
Balance at end of year$1,993
 $1,579
 $2,922


The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in the U.S. on March 27, 2020. The enactment of this legislation did not have a material impact on income tax expense in fiscal 2020. However, the Company did elect to participate in the deferral of the employer’s share of social security tax deposits, with $24.5 million included within other accrued expenses in the Consolidated Balance Sheet as of December 25, 2021. This amount will become due on December 31, 2022.

Note 12 -10 – Retirement Benefit Plans:


The Company has a defined contribution benefit plan, the Tractor Supply Company 401(k) Retirement Savings Plan (the “401(k) Plan”), which provides retirement benefits for eligible employees.  The Company matches (in cash) 100% of the employee’s elective contributions up to 3% of eligible compensation plus 50% of the employee’s elective contributions from 3% to 6% of eligible compensation.  In no event shall the total Company match made on behalf of the employee exceed 4.5% of the employee’s eligible compensation.  All current contributions are immediately vested.  Company contributions to the 401(k) Plan were approximately $15.3 million, $12.9 million, and $9.8 million during fiscal 2017, 20162021, 2020, and 2015, were approximately $7.4 million, $6.6 million and $5.9 million,2019, respectively.


The Company offers, through a deferred compensation program, the opportunity for certain qualifying employees to elect to defer a portion of their annual base salary and/or their annual incentive bonus.  Under the deferred compensation program, a percentage of the participants’ salary deferral is matched by the Company, limited to a maximum annual matching contribution of $4,500.  The Company’s contributions, including accrued interest, during fiscal 2017, 2016 and 2015, were $0.5$0.3 million, $0.6 million, and $0.5$0.7 million during fiscal 2021, 2020, and 2019, respectively.


73

Index
Note 1311 – Commitments and Contingencies:


Construction and Real EstateContractual Commitments


At December 30, 2017,25, 2021, the Company had contractual commitments of approximately $55approximately $107.8 million, of which $56.9 million is related to the ongoing construction of itsthe new distribution center in Frankfort, New York, Navarre, Ohio, and the expansion of its existing distribution center in Waverly, Nebraska. There were noremaining is related to purchase obligations such as inventory purchases and marketing-related contracts. The Company does not have material contractual commitments related to construction projects extending greater than twelve months.In addition, the Company had $239.2 million legally binding minimum lease payments for leases signed, but not yet commenced.



Letters of Credit


At December 30, 2017,25, 2021, there were $39.6$52.9 million outstanding letters of credit under the 2016 Senior Credit Facility.


Litigation


Item 103On October 9, 2020, an alleged stockholder, the City of SEC Regulation S-K requires disclosurePontiac Police and Fire Retirement System, filed a derivative lawsuit in the U.S. District Court for the Middle District of Tennessee, purportedly on the Company's behalf, against certain environmental legal proceedings ifcurrent and former members of our Board of Directors, and the proceeding reasonably involves potential monetary sanctions of $100,000 or more. We periodically receive information requestsCompany as a nominal defendant, seeking unspecified compensatory and notices of potential noncompliance with environmentalpunitive damages payable to the Company, disgorgement, restitution, corporate governance and hiring changes, mandated community investment, and attorneys' fees and costs. Plaintiff alleges that defendants violated the federal securities laws governing proxy solicitations and regulations from governmental agencies, which are addressed on a case-by-case basis withbreached their fiduciary duties by misrepresenting the relevant agency.Company’s commitment to and support for diversity and inclusion. The Company received a subpoena fromdisputes the District Attorneyallegations of Yolo County, California, requesting records and information regarding its hazardous waste management and disposal practices in California.the complaint. The Company and the Officeindividual defendants moved to dismiss the complaint based on plaintiff’s failure to make a demand on the Board of Directors and to state a claim upon which relief may be granted. While the District Attorneyultimate outcome of Yolo County engaged in settlement discussions which resulted in the settlement of the matter. A consent decree reflecting the terms of settlement was filed with the Yolo County Superior Court on June 23, 2017. Under the settlement, the Company agreed to a compliance plan and also agreed to pay a civil penalty and fund supplemental environmental projects furthering consumer protection and environmental enforcement in California. The civil penalty didthis matter is currently not differ materially from the amount accrued. The cost of the settlement and the compliance with the consent decreedeterminable, we do not believe this litigation will not have a material effect on our consolidated financial position, results of operations or cash flows.impact to the Company's Consolidated Financial Statements.


The Company is also involved in various litigation matters arising in the ordinary course of business. The Company believes that, based upon information currently available, any estimated loss related to such matters has been adequately provided for in accrued liabilities to the extent probable and reasonably estimable. Accordingly, the Company currently expects these matters will be resolved without material adverse effect on its consolidated financial position, results of operations or cash flows.  However, litigation and other legal matters involve an element of uncertainty. Future developments in such matters, including adverse decisions or settlements or resulting required changes to the Company’s business operations, could affect our consolidated operating results when resolved in future periods or could result in liability or other amounts material to the Company’s Consolidated Financial Statements.


Note 1412 – Segment Reporting:


The Company has one1 reportable segment which is the retail sale of products that support the rural lifestyle.  The following table indicates the percentage of net sales represented by each major product category during fiscal 2017, 2016,2021, 2020, and 2015:2019:
 Percent of Net Sales
Fiscal Year
Product Category:202120202019
Livestock and Pet47 %47 %47 %
Hardware, Tools and Truck21 21 21 
Seasonal, Gift and Toy Products21 21 20 
Clothing and Footwear
Agriculture
Total100 %100 %100 %

 Percent of Net Sales
Product Category:2017 2016 2015
Livestock and Pet47% 46% 44%
Hardware, Tools and Truck22
 22
 23
Seasonal, Gift and Toy Products19
 19
 20
Clothing and Footwear8
 8
 8
Agriculture4
 5
 5
Total100% 100% 100%

Note 1513New Accounting Pronouncements:Subsequent Events:


New Accounting Pronouncements Recently Adopted

In July 2015,On January 26, 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory.”Company announced plans to build a new distribution center in Maumelle, Arkansas. This update requires an entity that determines the cost of inventory by methods other than last-in, first-out and the retail inventory methodnew distribution center is expected to measure inventory at the lower of cost and net realizable value. The Company adopted this guidancebe approximately 900,000 square feet. Construction is planned to begin in the first quartermiddle of fiscal 2017 using a prospective application. The adoption of this guidance did not have a material impact to our Consolidated Financial Statements2022 and related disclosures.

In March 2016, the FASB issued ASU 2016-04, “Liabilities - Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products.” This update requires that liabilities related to the sale of prepaid stored-value products (gift cards) be adjusted periodically to reflect breakage. The Company adopted this guidance in the first quarter of fiscal 2017. The Company was recording gift card breakage prior to the adoption of this guidance; therefore, the adoption of this guidance did not have a material impact to our Consolidated Financial Statements and related disclosures.

In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” The update addresses several aspects of the accounting for share-based compensation transactions including: (a) income tax consequences when awards vest or are settled, (b) classification of awards as either equity or liabilities, (c) a policy election to account for forfeitures as they occur rather than on an estimated basis and (d) classification

of excess tax impacts on the statement of cash flows. The inclusion of excess tax benefits and deficiencies as a component of our income tax expense will increase volatility within our provision for income taxes as the amount of excess tax benefits or deficiencies from share-based compensation awards is dependent on our stock price at the date the awards are exercised or settled. The Company adopted this guidance in the first quarter of fiscal 2017, which did not have a material impact to our Consolidated Financial Statements and related disclosures. The Company has elected to continue estimating forfeitures of share-based awards. The Company has elected to apply the amendments related to the presentation of excess tax benefits on the statement of cash flows using a retrospective transition method, and as a result, excess tax benefits related to share-based awards which had been previously classified as cash flows from financing activities will be reclassified as cash flows from operating activities.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” This update clarifies and provides specific guidance on eight cash flow classification issues that are not currently addressed by U.S. GAAP and thereby reduces the current and potential future diversity in practice.  The Company adopted this guidance in the first quarter of fiscal 2017. The adoption of this guidance did not impact the classification of any of the Company’s cash flow activity and therefore did not have a material impact to our Consolidated Financial Statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This update simplifies the measurement of goodwill by eliminating the second step from the goodwill impairment test, which requires the comparison of the implied fair value of goodwill with the current carrying amount of goodwill. Instead, under the amendments in this guidance, an entity shall perform a goodwill impairment test by comparing the fair value of each reporting unit with its carrying amount and an impairment charge isanticipated to be recorded for the amount, if any,completed in which the carrying value exceeds the reporting unit’s fair value. The Company adopted this guidancelate 2023.

74

Item 9.    Changes in the first quarter of fiscal 2017 using a prospective application. The adoption of this guidance did not have a material impact to our Consolidatedand Disagreements with Accountants on Accounting and Financial StatementsDisclosure

None.

Item 9A.    Controls and related disclosures. Procedures

New Accounting Pronouncements Not Yet Adopted

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 amends the guidance for revenue recognition to replace numerous, industry-specific requirements and converges areas under this topic with those of the International Financial Reporting Standards. The ASU implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” which implemented a one-year deferral of ASU 2014-09. As a result of the deferral, the amendments in ASU 2014-09 are effective for reporting periods beginning after December 15, 2017. In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” which further clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,” which further clarifies the aspects of (a) identifying performance obligations and (b) the licensing implementation guidance. In May 2016, the FASB issued ASU 2016-12 “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,” which provides implementation guidance in regards to (a) assessing the collectability criterion, (b) the presentation of taxes collected from customers, (c) noncash consideration, (d) contract modification at transition, (e) completed contracts at transition and (f) other technical corrections. In December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers,” which is intended to clarify the codification and to correct unintended application of guidance pertaining to Topic 606 and other Topics amended by ASU 2014-09 to increase stakeholders’ awareness of the proposals and to expedite improvements to ASU 2014-09. The effective date and transition requirements for ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 are the same as the effective date and transition requirements of ASU 2014-09. Entities that transition to these standards may either retrospectively restate each prior reporting period or reflect the cumulative effect of initially applying the updates with an adjustment to retained earnings at the date of adoption. The Company will adopt this guidance in the first quarter of fiscal 2018 using the modified retrospective transition method. Based on an evaluation of the standard as a whole, the Company has identified customer incentives and principal versus agent considerations as the areas that will most likely be affected by the new revenue recognition guidance. The adoption of this guidance is not expected to have a material impact on our Consolidated Financial Statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” This update requires a dual approach for lessee accounting under which a lessee will account for leases as finance leases or operating leases. Both finance leases and operating leases will

result in the lessee recognizing a right-of-use asset and a corresponding lease liability on its balance sheet, with differing methodology for income statement recognition. This guidance is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. A modified retrospective approach is required for all leases existing or entered into after the beginning of the earliest comparative period in the consolidated financial statements. The Company is currently assessing the impact that adoption of this guidance will have on its Consolidated Financial Statements and related disclosures.

In May 2017, the FASB issued ASU 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.” This update provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718.  An entity should account for the effects of a modification unless (a) the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified, (b) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified or (c) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The amendments in ASU 2017-09 are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted, including adoption in any interim period, for public business entities for reporting periods for which financial statements have not been issued. The amendments in ASU 2017-09 should be applied prospectively to an award modified on or after the adoption date. The Company plans to adopt this guidance in the first quarter of fiscal 2018. The adoption of this guidance is not expected to have a material impact on our Consolidated Financial Statements and related disclosures.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” which amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements. This update expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. Additionally, the amendments in ASU 2017-12 provide new guidance about income statement classification and eliminates the requirement to separately measure and report hedge ineffectiveness. This guidance is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted.  The amendments in ASU 2017-12 require that an entity with cash flow or net investment hedges existing at the date of adoption apply a cumulative-effect adjustment to eliminate the separate measurement of ineffectiveness to the opening balance of retained earnings as of the beginning of the fiscal year that the entity adopts this guidance. The amended presentation and disclosure guidance is adopted prospectively. The adoption of this guidance is not expected to have a material impact on our Consolidated Financial Statements and related disclosures.

In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act.  This guidance is effective for all entities for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted.  The amendments in ASU 2018-02 should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized.  The adoption of this guidance is not expected to have a material impact on our Consolidated Financial Statements and related disclosures.

Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

Item 9A.
Controls and Procedures


Disclosure Controls and Procedures


We carried out an evaluation required by the Securities Exchange Act of 1934, as amended (the “1934 Act”), under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the 1934 Act) as of December 30, 2017.25, 2021.  Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of December 30, 2017,25, 2021, our disclosure controls and procedures were effective.




Internal Control Over Financial Reporting


A report of the Company’s management on the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the 1934 Act) and a report of Ernst & Young LLP, an independent registered public accounting firm, on the effectiveness of the Company’s internal control over financial reporting are included in Item 8 of this Annual Report on Form 10-K.


There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.


Item 9B.
Other Information

Item 9B.    Other Information

None.


PART III


Item 10.
Directors, Executive Officers and Corporate Governance

Item 10.    Directors, Executive Officers and Corporate Governance

The information set forth under the caption “Executive Officers of the Registrant”“Information about our Executive Officers” in Part I of this Form 10-K is incorporated herein by reference.


The information set forth under the captions “Item 1: Election of Directors,” “Board Meetings and Committees,” and “Section“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance”Reports” in our Proxy Statement for our Annual Meeting of Stockholders to be held on May 10, 2018,11, 2022, is incorporated herein by reference.


The Company has a Code of Ethics which covers all exempt employees, officers and directors of the Company, including the principal executive officer, principal financial officer, principal accounting officer and controller. The Code of Ethics is available in the “Corporate Governance” section of the Company’s website at TractorSupply.com. A copy of the Code of Ethics can also be obtained, free of charge, upon written request to the Corporate Secretary, Tractor Supply Company, 5401 Virginia Way, Brentwood, TN 37027. The Company intends to post amendments to or waivers, if any, from its Code of Ethics (to the extent applicable to its principal executive officer, principal financial officer, principal accounting officer or controller) on its website.


Item 11.        Executive Compensation


The information set forth under the captions “Corporate Governance – Compensation Committee Interlocks and Insider Participation,” “Compensation of Directors,” and “Executive Compensation” in our Proxy Statement for our Annual Meeting of Stockholders to be held on May 10, 2018,11, 2022, is incorporated herein by reference.


Item 12.        Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


The information set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” in our Proxy Statement for our Annual Meeting of Stockholders to be held on May 10, 2018,11, 2022, is incorporated herein by reference.


75

Index

Following is a summary of our equity compensation plans as of December 30, 2017,25, 2021, under which equity securities are authorized for issuance, aggregated as follows:
Plan Category
Number of Securities to be
Issued Upon Exercise of
Outstanding Options, Warrants, and Rights
Weighted Average
Exercise Price of
Outstanding Options, Warrants and Rights
Number of Securities
Remaining Available
for Future Issuance
Equity compensation plans approved by security holders:   
Stock Incentive Plans$1,878,748 (a)$95.85 (b)9,851,807 
Employee Stock Purchase Plan— — 11,759,546 
Equity compensation plans not approved by security holders— — — 
Total1,878,748 $95.85 21,611,353 
Plan Category 
Number of Securities to be
Issued Upon Exercise of
Outstanding Options, Warrants, and Rights
 
Weighted Average
Exercise Price of
Outstanding Options, Warrants and Rights
 
Number of Securities
Remaining Available
for Future Issuance
Equity compensation plans approved by security holders:      
Stock Incentive Plans 5,221,756
(a) 
$65.53
(b) 
2,277,812
Employee Stock Purchase Plan 
 
 12,010,832
Equity compensation plans not approved by security holders 
 
 
Total 5,221,756
 $65.53
 14,288,644

(a) Includes 4,998,5261,168,311 outstanding stock options, 184,312480,717 unvested restricted stock units and 38,91842,702 restricted stock units which have vested but the receipt of which have been deferred by the recipient.recipient, and 187,018 unvested performance-based restricted share units. The 2006 Stock Incentive Plan was superseded in May 2009 by the 2009 Stock Incentive Plan. The 2009 Stock Incentive Plan was superseded in May 2018 by the 2018 Omnibus Incentive Plan. Shares available under the 2009 Stock2018 Omnibus Incentive Plan are reduced by one share for each share issued pursuant to the exercise of a stock option and by two shares for each share issued pursuant to a full-value award (e.g., restricted stock unit or performance-based restricted share unit).

(b) RestrictedExcludes restricted stock units and performance-based restricted share units which have a weighted average exercise price of zero.


The information set forth in Note 2 to the “Notes to Consolidated Financial Statements”Statements contained in this Form 10-K provides further information with respect to the material features of each plan.


Item 13.        Certain Relationships and Related Transactions, and Director Independence


The information set forth under the captions “Corporate Governance – Director Independence and Board Operations” and “Related Party Transactions” in our Proxy Statement for our Annual Meeting of Stockholders to be held on May 10, 2018,11, 2022, is incorporated herein by reference.


Item 14.        Principal Accountant Fees and Services


The information set forth under the caption “Item 2 – Ratification of Reappointment of Independent Registered Public Accounting Firm” in our Proxy Statement for our Annual Meeting of Stockholders to be held on May 10, 2018,11, 2022, is incorporated herein by reference.

PART IV


Item 15.        Exhibits and Financial Statement Schedules


(a) (1)    Financial Statements    


See Consolidated Financial Statements under Item 8 on pages 4044 through 7174 of this Form 10-K.


(a) (2)    Financial Statement Schedules


All schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions, are inapplicable or the information is included in the Consolidated Financial Statements and, therefore, have been omitted.


(a) (3)    Exhibits


The exhibits listed in the Index to Exhibits, which appears on pages 7578 through 7781 of this Form 10-K, are incorporated herein by reference or filed as part of this Form 10-K.


Item 16.        Form 10-K Summary


None.

76

Index

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:February 17, 2022TRACTOR SUPPLY COMPANY 
Date:February 22, 2018By:
/s/ Kurt D. Barton
SeniorExecutive Vice President – Chief Financial Officer and Treasurer


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.

Signature
 
TitleDate
/s/ Kurt D. Barton
Kurt D. Barton


SeniorExecutive Vice President –
Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
 
February 22, 201817, 2022
/s/ GregoryHarry A. SandfortLawton III
GregoryHarry A. SandfortLawton III
President, Chief Executive Officer, and Director

(Principal Executive Officer)

 
February 22, 201817, 2022
/s/ Cynthia T. Jamison
Cynthia T. Jamison
 
Chairman of the Board
 
February 22, 201817, 2022
/s/ Johnston C. AdamsJoy Brown
Johnston C. Adams
Joy Brown
DirectorFebruary 22, 201817, 2022
/s/ Peter D. BewleyRicardo Cardenas
Peter D. BewleyRicardo Cardenas
DirectorFebruary 17, 2022
/s/ Denise L. Jackson
Denise L. Jackson
 
DirectorFebruary 22, 201817, 2022
/s/ Thomas A. Kingsbury
Thomas A. Kingsbury
 
DirectorFebruary 22, 201817, 2022
/s/ Ramkumar Krishnan
Ramkumar Krishnan
 
DirectorFebruary 22, 2018
/s/ George MacKenzie
George MacKenzie
DirectorFebruary 22, 201817, 2022
/s/ Edna K. Morris
Edna K. Morris
 
DirectorFebruary 22, 201817, 2022
/s/ Mark J. Weikel
Mark J. Weikel J.Weikel
DirectorFebruary 22, 201817, 2022

77

Index

EXHIBIT INDEX

3.11.1
3.2
4.13.1
3.2
4.1Form 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 in paper form with the Commission on January 31, 1994, and incorporated herein by reference).
10.14.2
4.3
4.4
4.5
4.6*
10.1Certificate 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-1, Registration No. 33-73028, filed in paper form with the Commission on December 17, 1993, and incorporated herein by reference).
10.2Summary 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 in paper form with the Commission on December 17, 1993, and incorporated herein by reference).+
10.3
10.4
10.5
10.6
10.7
10.8
78

Index
10.9
10.10
10.11
10.12
10.13
10.14
Index

10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
Index

10.31
10.3210.23
10.33*10.24
10.34*10.25
79

Index
21*10.26

10.27
10.28
10.29
10.30
10.31


10.32

10.33

10.34
10.35
10.36
10.37
10.38
10.39



80

Index
10.40
10.41
10.42
10.43
10.44
10.45*
10.46*
10.47*
10.48*
10.49*
10.50*
10.51*
21*
23*
31.1*
31.2*
32*


101*
The following financial information from our Annual Report on Form 10-K for fiscal 2017, filed with the SEC on February 22, 2018, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets at December 30, 2017 and December 31, 2016, (ii) the Consolidated Statements of Income for the fiscal years ended December 30, 2017, December 31, 2016, and December 26, 2015, (iii) the Consolidated Statements of Comprehensive Income for the fiscal years ended December 30, 2017, December 31, 2016, and December 26, 2015, (iv) the Consolidated Statements of Cash Flows for the fiscal years ended December 30, 2017, December 31, 2016, and December 26, 2015, (v) the Consolidated Statements of Stockholders’ Equity for the fiscal years ended December 30, 2017, December 31, 2016, and December 26, 2015, and (vi) the Notes to Consolidated Financial Statements.

101* The following financial information from our Annual Report on Form 10-K for fiscal 2021, filed with the SEC on February 17, 2022, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets at December 25, 2021 and December 26, 2020, (ii) the Consolidated Statements of Income for the fiscal years ended December 25, 2021, December 26, 2020, and December 28, 2019, (iii) the Consolidated Statements of Comprehensive Income for the fiscal years ended December 25, 2021, December 26, 2020, and December 28, 2019, (iv) the Consolidated Statements of Stockholders’ Equity for the fiscal years ended December 25, 2021, December 26, 2020, and December 28, 2019, (v) the Consolidated Statements of Cash Flows for the fiscal years ended December 25, 2021, December 26, 2020, and December 28, 2019, and (vi) the Notes to Consolidated Financial Statements.

104    The cover page from the Company's Annual Report on Form 10-K for the year ended December 25, 2021, formatted in Inline XBRL (included in Exhibit 101).

*           Filed herewith
+           Management contract or compensatory plan or arrangement

7781