UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



ý☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended	~~September 30, 2017~~ June 29, 2019



o☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from		to

Commission file number 000-23314

TRACTOR SUPPLY COMPANY

(Exact Name of Registrant as Specified in Its Charter)



Delaware		13-3139732
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
~~Incorporation or Organization)~~

~~5401 Virginia Way, Brentwood, Tennessee~~	~~37027~~
~~(Address of Principal Executive Offices)~~	~~(Zip Code)~~

~~Not Applicable~~	~~(615) 440-4000~~
~~(Former name, former address and former fiscal year, if changed since last report)~~	~~(Registrant’s Telephone Number, Including Area Code)~~

5401 Virginia Way, Brentwood, Tennessee37027

(Address of Principal Executive Offices and Zip Code)

(615)440-4000

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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 oYes ☑ 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 filer	þ☑	Accelerated filer	o☐
Non-accelerated filer	o ~~(Do not check if a smaller reporting company)~~ ☐	Smaller reporting company	o☐
		Emerging growth company	o☐

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

~~YES~~ o NO þYes ☐ No ☑

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.008 par value	TSCO	NASDAQ Global Select Market

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.



Class		Outstanding at ~~October 28, 2017~~July 27, 2019
Common Stock, $.008 par value		~~125,564,364~~119,264,959

TRACTOR SUPPLY COMPANY

INDEX



		Page No.

PART I.	Financial Information	3
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets (unaudited) ~~- September~~– June 29, 2019, December 29, 2018, and June 30, ~~2017, December 31, 2016 and September 24, 2016~~2018	3
	Condensed Consolidated Statements of Income (unaudited) – For the Fiscal Three and ~~Nine~~Six Months Ended ~~September~~June 29, 2019 and June 30, ~~2017 and September 24, 2016~~2018	4
	Condensed Consolidated Statements of Comprehensive Income (unaudited) – For the Fiscal Three and ~~Nine~~Six Months Ended ~~September~~June 29, 2019 and June 30, ~~2017 and September 24, 2016~~2018	5
	Condensed Consolidated Statements of Stockholders’ Equity (unaudited) – For the Fiscal Three and Six Months Ended June 29, 2019 and June 30, 2018	6
	Condensed Consolidated Statements of Cash Flows (unaudited) – For the Fiscal ~~Nine~~Six Months Ended ~~September~~June 29, 2019 and June 30, ~~2017 and September 24, 2016~~2018	68
	Notes to Unaudited Condensed Consolidated Financial Statements	79
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1820
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3028
Item 4.	Controls and Procedures	3028

PART II.	Other Information	3129
Item 1.	Legal Proceedings	3129
Item 1A.	Risk Factors	3129
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	30
Signature		31
~~Item 3.~~	~~Defaults Upon Senior Securities~~	31
~~Item 4.~~	~~Mine Safety Disclosures~~	31
~~Item 5.~~	~~Other Information~~	32
~~Item 6.~~	~~Exhibits~~	32
~~Signature~~		33

Index

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TRACTOR SUPPLY COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(Unaudited)


	September 30, 2017			December 31, 2016			September 24, 2016			June 29, 2019			December 29, 2018			June 30, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	70,046		$	53,916		$	55,507		$	104,018		$	86,299		$	69,954
Inventories	1,591,555			1,369,656			1,489,934			1,733,150			1,589,542			1,632,280
Prepaid expenses and other current assets	75,618			90,557			67,980			95,051			114,447			103,379
Income taxes receivable	4,776			3,680			16,335			5,589			4,111			5,115
Total current assets	1,741,995			1,517,809			1,629,756			1,937,808			1,794,399			1,810,728
Property and equipment:
Land	99,323			94,940			94,362
Buildings and improvements	1,013,937			965,582			906,624
Furniture, fixtures and equipment	593,329			567,653			556,276
Computer software and hardware	259,508			224,370			209,218
Construction in progress	56,006			21,320			50,173
Property and equipment, gross	2,022,103			1,873,865			1,816,653
Accumulated depreciation and amortization	(1,025,266		)	(911,557		)	(893,488		)

Property and equipment, net	996,837			962,308			923,165			1,135,310			1,134,464			1,081,543
Operating lease right-of-use assets										2,091,439			—			—
Goodwill and other intangible assets	124,492			125,717			10,258			124,492			124,492			124,492
Deferred income taxes	40,592			45,218			53,192			—			6,607			20,741
Other assets	24,435			23,890			19,362			23,670			25,300			29,902
Total assets	$	2,928,351		$	2,674,942		$	2,635,733		$	5,312,719		$	3,085,262		$	3,067,406

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	609,883		$	519,522		$	484,014		$	681,529		$	619,981		$	649,665
Accrued employee compensation	34,497			25,246			17,625			26,932			54,046			22,758
Other accrued expenses	186,037			215,650			199,327			222,919			232,416			205,352
Current portion of long-term debt	22,500			10,000			10,000			22,500			26,250			25,000
Current portion of capital lease obligations	3,545			1,294			1,294
Current portion of finance lease liabilities										3,717			3,646			3,714
Current portion of operating lease liabilities										264,707			—			—
Income taxes payable	15,732			5,482			—			49,082			1,768			34,997
Total current liabilities	872,194			777,194			712,260			1,271,386			938,107			941,486

Long-term debt	487,228			263,850			283,781			466,290			381,100			516,410
Capital lease obligations, less current maturities	33,509			25,919			26,246
Finance lease liabilities, less current portion										27,394			29,270			30,639
Operating lease liabilities, less current portion										1,928,367			—			—
Deferred income taxes										3,592			—			—
Deferred rent	104,617			100,078			91,681			—			107,038			107,827
Other long-term liabilities	59,402			54,683			57,025			70,748			67,927			65,002
Total liabilities	1,556,950			1,221,724			1,170,993			3,767,777			1,523,442			1,661,364

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 September 30, 2017, December 31, 2016 and September 24, 2016; 170,232, 169,943 and 169,859 shares issued; 125,853, 130,795 and 132,428 shares outstanding at September 30, 2017, December 31, 2016 and September 24, 2016, respectively	1,362			1,360			1,359
Preferred stock										—			—			—
Common stock										1,386			1,375			1,366
Additional paid-in capital	703,292			671,515			661,665			928,094			823,413			746,410
Treasury stock – at cost, 44,379, 39,148 and 37,431 shares at September 30, 2017, December 31, 2016 and September 24, 2016, respectively	(2,088,145		)	(1,761,498		)	(1,645,482		)
Accumulated other comprehensive income (loss)	1,557			1,392			(1,111		)
Treasury stock										(2,814,912		)	(2,480,677		)	(2,383,446		)
Accumulated other comprehensive income										882			3,814			5,742
Retained earnings	2,753,335			2,540,449			2,448,309			3,429,492			3,213,895			3,035,970
Total stockholders’ equity	1,371,401			1,453,218			1,464,740			1,544,942			1,561,820			1,406,042
Total liabilities and stockholders’ equity	$	2,928,351		$	2,674,942		$	2,635,733		$	5,312,719		$	3,085,262		$	3,067,406

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. 173,238, 171,887, and 170,728 shares issued; 119,723, 121,828, and 121,811 shares outstanding at June 29, 2019, December 29, 2018, and June 30, 2018, respectively.

Treasury Stock (at cost, shares in thousands): 53,515, 50,059, and 48,917 shares at June 29, 2019, December 29, 2018, and June 30, 2018, respectively.

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

Index

TRACTOR SUPPLY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(Unaudited)


	For the Fiscal Three Months Ended				For the Fiscal Nine Months Ended				For the Fiscal Three Months Ended				For the Fiscal Six Months Ended
	September 30, 2017		September 24, 2016		September 30, 2017		September 24, 2016		June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Net sales	$	1,721,704	$	1,542,706	$	5,303,544	$	4,863,037	$	2,353,782	$	2,213,249	$	4,176,002	$	3,896,150
Cost of merchandise sold	1,121,248		1,007,432		3,480,177		3,184,097		1,533,037		1,443,835		2,740,273		2,563,087
Gross profit	600,456		535,274		1,823,367		1,678,940		820,745		769,414		1,435,729		1,333,063
Selling, general and administrative expenses	410,276		357,592		1,198,126		1,076,180		484,190		452,346		949,999		878,459
Depreciation and amortization	41,927		35,662		122,701		103,296		48,998		43,610		94,765		86,397
Operating income	148,253		142,020		502,540		499,464		287,557		273,458		390,965		368,207
Interest expense, net	3,752		1,110		9,621		4,145		5,176		4,978		10,106		9,446
Income before income taxes	144,501		140,910		492,919		495,319		282,381		268,480		380,859		358,761
Income tax expense	52,605		51,466		180,063		181,782		63,171		61,191		84,817		80,039
Net income	$	91,896	$	89,444	$	312,856	$	313,537	$	219,210	$	207,289	$	296,042	$	278,722

Net income per share – basic	$	0.73	$	0.67	$	2.44	$	2.35	$	1.82	$	1.70	$	2.45	$	2.26
Net income per share – diluted	$	0.72	$	0.67	$	2.43	$	2.33	$	1.80	$	1.69	$	2.43	$	2.25

Weighted average shares outstanding:
Basic	126,416		133,392		128,293		133,529		120,371		122,100		120,791		123,288
Diluted	126,919		134,256		128,910		134,509		121,508		122,775		121,830		123,975

Dividends declared per common share outstanding	$	0.27	$	0.24	$	0.78	$	0.68	$	0.35	$	0.31	$	0.66	$	0.58

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

Index

TRACTOR SUPPLY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)


	For the Fiscal Three Months Ended				For the Fiscal Nine Months Ended					For the Fiscal Three Months Ended					For the Fiscal Six Months Ended
	September 30, 2017		September 24, 2016		September 30, 2017		September 24, 2016			June 29, 2019			June 30, 2018		June 29, 2019			June 30, 2018
Net income	$	91,896	$	89,444	$	312,856	$	313,537		$	219,210		$	207,289	$	296,042		$	278,722

Other comprehensive income (loss):
Other comprehensive (loss)/income:
Change in fair value of interest rate swaps, net of taxes	36		251		165		(1,111		)	(2,185		)	552		(3,649		)	2,384
Total other comprehensive income (loss)	36		251		165		(1,111		)
Total other comprehensive (loss)/income										(2,185		)	552		(3,649		)	2,384
Total comprehensive income	$	91,932	$	89,695	$	313,021	$	312,426		$	217,025		$	207,841	$	292,393		$	281,106

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

Index

TRACTOR SUPPLY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(Unaudited)



	Common Stock				Additional Paid-in Capital			Treasury Stock			Accum. Other Comp. Income			Retained Earnings			Total Stockholders’ Equity
	Shares		Dollars
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 & ESPP	570		5		34,727												34,732
Share-based compensation					9,624												9,624
Repurchase of shares to satisfy tax obligations					(3,026		)										(3,026		)
Repurchase of common stock	(1,724	)						(155,319		)							(155,319		)
Dividends paid														(37,623		)	(37,623		)
Change in fair value of interest rate swaps, net of taxes											(1,464		)				(1,464		)
Net income														76,832			76,832
Cumulative adjustment as a result of ASU 2017-12 adoption											717			(717		)	—
Stockholders’ equity at March 30, 2019	120,674		$	1,380	$	864,738		$	(2,635,996	)	$	3,067		$	3,252,387		$	1,485,576

Common stock issuance under stock award plans & ESPP	781		6		54,693												54,699
Share-based compensation					8,776												8,776
Repurchase of shares to satisfy tax obligations					(113		)										(113		)
Repurchase of common stock	(1,732	)						(178,916		)							(178,916		)
Dividends paid														(42,105		)	(42,105		)
Change in fair value of interest rate swaps, net of taxes											(2,185		)				(2,185		)
Net income														219,210			219,210
Stockholders’ equity at June 29, 2019	119,723		$	1,386	$	928,094		$	(2,814,912	)	$	882		$	3,429,492		$	1,544,942

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Index

TRACTOR SUPPLY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)

(in thousands)

(Unaudited)



	Common Stock				Additional Paid-in Capital			Treasury Stock			Accum. Other Comp. Income		Retained Earnings			Total Stockholders’ Equity
	Shares		Dollars
Stockholders’ equity at December 30, 2017	125,303		$	1,363	$	716,228		$	(2,130,901	)	$	3,358	$	2,828,625		$	1,418,673
Common stock issuance under stock award plans & ESPP	123		1		4,362											4,363
Share-based compensation					8,567											8,567
Repurchase of shares to satisfy tax obligations					(569		)									(569		)
Repurchase of common stock	(2,367	)						(157,463		)						(157,463		)
Dividends paid													(33,591		)	(33,591		)
Change in fair value of interest rate swaps, net of taxes											1,832					1,832
Net income													71,433			71,433
Stockholders’ equity at March 31, 2018	123,059		$	1,364	$	728,588		$	(2,288,364	)	$	5,190	$	2,866,467		$	1,313,245

Common stock issuance under stock award plans & ESPP	229		2		9,980											9,982
Share-based compensation					7,842											7,842
Repurchase of common stock	(1,477	)						(95,082		)						(95,082		)
Dividends paid													(37,786		)	(37,786		)
Change in fair value of interest rate swaps, net of taxes											552					552
Net income													207,289			207,289
Stockholders’ equity at June 30, 2018	121,811		$	1,366	$	746,410		$	(2,383,446	)	$	5,742	$	3,035,970		$	1,406,042

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Index

TRACTOR SUPPLY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	For the Fiscal Nine Months Ended						For the Fiscal Six Months Ended
	September 30, 2017			September 24, 2016			June 29, 2019			June 30, 2018
Cash flows from operating activities:
Net income	$	312,856		$	313,537		$	296,042		$	278,722
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	122,701			103,296			94,765			86,397
Loss on disposition of property and equipment	509			219
(Gain) / loss on disposition of property and equipment							(309		)	623
Share-based compensation expense	22,931			17,326			18,400			16,409
Deferred income taxes	4,626			2,002			10,199			(2,247		)
Change in assets and liabilities:
Inventories	(221,899		)	(205,559		)	(143,608		)	(179,072		)
Prepaid expenses and other current assets	14,939			19,530			19,396			(15,127		)
Accounts payable	90,361			56,765			61,548			73,097
Accrued employee compensation	9,251			(25,059		)	(27,114		)	(8,915		)
Other accrued expenses	(33,259		)	2,626			(21,856		)	(3,884		)
Income taxes	9,154			(6,384		)	45,836			23,870
Other	8,792			7,336			(4,425		)	4,141
Net cash provided by operating activities	340,962			285,635			348,874			274,014
Cash flows from investing activities:
Capital expenditures	(152,040		)	(167,161		)	(83,540		)	(116,695		)
Proceeds from sale of property and equipment	10,880			366			611			288
Net cash used in investing activities	(141,160		)	(166,795		)	(82,929		)	(116,407		)
Cash flows from financing activities:
Borrowings under debt facilities	1,010,000			695,000			567,000			673,000
Repayments under debt facilities	(773,750		)	(550,000		)	(485,750		)	(557,500		)
Debt issuance costs	(599		)	(1,380		)	—			(346		)
Principal payments under capital lease obligations	(1,554		)	(823		)
Principal payments under finance lease liabilities							(1,805		)	(1,809		)
Repurchase of shares to satisfy tax obligations	(771		)	(843		)	(3,139		)	(569		)
Repurchase of common stock	(326,647		)	(215,692		)	(334,235		)	(252,545		)
Net proceeds from issuance of common stock	9,619			37,421			89,431			14,345
Cash dividends paid to stockholders	(99,970		)	(90,829		)	(79,728		)	(71,377		)
Net cash used in financing activities	(183,672		)	(127,146		)	(248,226		)	(196,801		)
Net change in cash and cash equivalents	16,130			(8,306		)	17,719			(39,194		)
Cash and cash equivalents at beginning of period	53,916			63,813			86,299			109,148
Cash and cash equivalents at end of period	$	70,046		$	55,507		$	104,018		$	69,954

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	8,010		$	3,445		$	10,006		$	6,337
Income taxes	166,027			184,817			27,196			58,949

Supplemental disclosures of non-cash activities:
Property and equipment acquired through capital lease	$	11,395		$	10,493
Non-cash accruals for construction in progress	15,949			17,727			$	15,360		$	16,227
Operating lease assets and liabilities recognized upon adoption of ASC 842							2,084,880			—
Increase of operating lease assets and liabilities from new or modified leases							133,044			—

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

Index

TRACTOR SUPPLY COMPANY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – General:

Nature of Business

Founded in 1938, Tractor Supply Company (the “Company” or “we” or “our” or “us”) is the largest rural lifestyle retailer in the United States (“U.S.”). The Company is focused on supplying the needs of recreational farmers and ranchers and those who enjoy the rural lifestyle (which we refer to as the “Out Here” lifestyle), as well as tradesmen and small businesses. 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 June 29, 2019, the Company operated a total of 1,967 retail stores in 49 states (1,790 Tractor Supply and Del’s retail stores and 177 Petsense retail stores) and also offered an expanded assortment of products online at TractorSupply.comand Petsense.com.

Basis of Presentation

The accompanying interim ~~unaudited condensed consolidated financial statements~~Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange ~~Commission.~~Commission (“SEC”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December ~~31, 2016~~.29, 2018. The results of operations for our interim periods are not necessarily indicative of results for the full fiscal year.

In the first quarter of fiscal ~~2017, Tractor Supply~~2019, the Company ~~(the “Company”)~~ adopted lease accounting guidance ~~which affected the presentation in the statement of cash flows of excess tax benefits or deficiencies from the exercise of stock options~~ as discussed in Note ~~13.~~7 and Note 13 to the Condensed Consolidated Financial Statements. Adoption of the new lease accounting guidance had a material impact to our Condensed Consolidated Balance Sheets and related disclosures, and resulted in the recording of additional right-of-use assets and lease liabilities of approximately $2.08 billion as of the date of adoption. This guidance was applied using the optional transition method which allowed the Company to not recast comparative financial information but rather recognize a cumulative-effect adjustment to retained earnings as of the effective date in the period of adoption. No adjustment to retained earnings was made as a result of the adoption of this guidance. Consistent with the optional transition method, the financial information in the Condensed Consolidated Balance Sheets prior to the adoption of this new lease accounting guidance has not been adjusted and is therefore not comparable to the current period presented. The standard did not materially impact our Condensed Consolidated Statements of Income, Comprehensive Income, Stockholders’ Equity, or Cash Flows. For additional information, including the required disclosures, related to the impact of adopting this standard, see Note 7 and Note 13 to the Condensed Consolidated Financial Statements.

In the first quarter of fiscal 2019, the Company ~~has elected~~adopted Accounting Standards Update 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to ~~apply~~Accounting for Hedging Activities,” using the ~~amendments using a~~modified retrospective transition method. This method allows for ~~all periods presented~~a cumulative effect adjustment to retained earnings, as of the effective date in the period of adoption, for previously recorded amounts of hedge ineffectiveness. Upon adoption of the guidance, we recognized a cumulative-effect adjustment of $0.7 million, from retained earnings to accumulated other comprehensive income. The adoption of this guidance did not have a material impact on our Condensed Consolidated Financial Statements and ~~therefore the presentation of previously reported excess tax benefits~~related disclosures. For additional information on the ~~unaudited condensed consolidated statements of cash flows has been changed to conform~~required disclosures related to the ~~presentation used in~~impact of adopting this guidance, see Note 6 and Note 13 to the current period. As a result, $11.6 million of excess tax benefits related to share-based awards which were previously classified as cash flows from financing activities in the fiscal nine months ended September 24, 2016 have been reclassified as cash flows from operating activities.Condensed Consolidated Financial Statements.

~~Nature of Business~~

The Company is the largest operator of rural lifestyle retail stores in the United States. The Company is focused on supplying the needs of recreational farmers and ranchers and those who enjoy the rural lifestyle, as well as tradesmen and small businesses. Stores are located in towns outlying major metropolitan markets and in rural communities. At September 30, 2017, the Company operated a total of 1,827 retail stores in 49 states (1,665 Tractor Supply and Del’s retail stores and 162 Petsense retail stores) and also offered an expanded assortment of products online at ~~TractorSupply.com~~.

Note 2 – 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.

Index

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~~As described in further detail in Note 5 to the Condensed Consolidated Financial Statements, the Company had ~~$511.3~~$490.0 million, $408.8 million, and $543.0 million in borrowings under its debt facilities ~~(as discussed in Note 6)~~ at ~~September~~June 29, 2019, December 29, 2018, and June 30, ~~2017, $275.0 million in borrowings at December 31, 2016, and $295.0 million in borrowings at September 24, 2016.~~2018. Based on market interest rates (Level 2 inputs), the carrying value of borrowings in our debt facilities ~~approximate~~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 7,6 to the Condensed Consolidated Financial Statements, the fair value of the interest rate swaps, excluding accrued interest, was a ~~$3.1~~net asset of $0.9 million, ~~asset~~$5.8 million, and $8.4 million at ~~September~~June 29, 2019, December 29, 2018, and June 30, ~~2017, a $2.8 million asset at December 31, 2016 and a $1.8 million liability at September 24, 2016.~~2018, respectively.

Note 3 – Share-Based Compensation:

Share-based compensation includes stock ~~option and~~options, restricted stock ~~unit awards~~units, performance-based restricted share units, and certain transactions under our Employee Stock Purchase Plan (the “ESPP”). Share-based compensation expense is recognized based on grant date fair value of all stock options, ~~and~~ restricted stock ~~unit awards~~units, and performance-based restricted share units plus a 15% discount on shares purchased by employees as a part of the ESPP. The discount under the ESPP represents the difference between the purchase date market value and the employee’s purchase price.

There were no significant modifications to the Company’s share-based compensation plans during the fiscal ~~nine~~six months ended~~September 30, 2017~~.

~~Index~~

June 29, 2019.

For the ~~third~~ ~~quarters~~second quarter of fiscal ~~2017~~2019 and ~~2016~~2018, share-based compensation expense was ~~$7.9~~$8.8 million and ~~$6.1~~$7.8 million, respectively, and ~~$22.9~~$18.4 million and ~~$17.3~~$16.4 million for the first ~~nine~~six months of fiscal ~~2017~~2019 and ~~2016,~~2018, respectively.

Stock Options

The following table summarizes information concerning stock option grants during the first ~~nine~~six months of fiscal ~~2017~~ ~~and~~ ~~2016~~2019:



	Fiscal Six Months Ended
	June 29, 2019
Stock options granted	389,290
Weighted average exercise price	$	89.59
Weighted average grant date fair value per option	$	20.93

Fiscal nine months ended
September 30,
2017 September 24,
2016
Stock options granted 1,619,280
1,134,121
Weighted average exercise price $ 72.16
$ 86.41
Weighted average fair value per option $ 14.57
$ 19.62

As of ~~September 30, 2017,~~June 29, 2019, total unrecognized compensation expense related to non-vested stock options was approximately ~~$25.0~~$13.2 million with a remaining weighted average expense recognition period of ~~2.0~~1.8 years.

Restricted Stock Units and Performance-Based Restricted Share Units

The following table summarizes information concerning restricted stock unit and performance-based restricted share unit grants during the first ~~nine~~six months of fiscal ~~2017~~2019:



	Fiscal Six Months Ended
	June 29, 2019
Restricted stock units granted	245,842
Performance-based restricted share units granted ^(a)	56,379
Weighted average grant date fair value per share	$	86.98

(a) Assumes 100% target level achievement of the relative performance targets.

In fiscal 2019, the Company granted awards that are subject to the achievement of specified performance goals. The performance metrics for the units are growth in net sales and ~~2016~~:growth in earnings per diluted share. The number of performance-based restricted share units presented in the foregoing table represent the shares that can be achieved at the performance metric target value. The actual number of shares that will be issued under the performance share awards, which may be higher or lower than the target, will be determined by the level of achievement of the performance goals. If the performance targets are achieved, the units will be issued based on the achievement level and the grant date fair value and will cliff vest in full on the third anniversary of the date of the grant.

Index

Fiscal nine months ended
September 30,
2017 September 24,
2016
Restricted stock units granted 85,049
59,019
Weighted average fair value per share $ 66.34
$ 84.25

As of ~~September 30, 2017,~~June 29, 2019, total unrecognized compensation expense related to non-vested restricted stock units and non-vested performance-based restricted share units was approximately ~~$5.6~~$29.7 million with a remaining weighted average expense recognition period of ~~1.7~~2.3 years.

Note 4 – ~~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 6).

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.

~~Index~~

~~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 equipment 25,519
Other intangible assets - tradename 31,300
Other assets 428
Liabilities assumed:
Current liabilities (12,091 )
Long-term liabilities (5,489 )
Total identifiable net assets acquired 61,542
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. As of September 30, 2017, this settlement amount is an outstanding receivable, and is recorded in the consolidated balance sheet in prepaid expenses and other current assets.

~~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.~~

~~Note 5 –~~ Net Income Per Share:

The Company presents both basic and diluted net income per share on the ~~face~~Condensed Consolidated Statements of ~~the unaudited condensed consolidated statements of income.~~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 and~~share-based awards. Performance-based restricted ~~stock units.~~share units are included in diluted shares only if the related performance conditions are considered satisfied as of the end of the reporting period. Net income per share is calculated as follows (in thousands, except per share amounts):


	Fiscal three months ended						Fiscal three months ended					Fiscal Three Months Ended						Fiscal Three Months Ended
	September 30, 2017						September 24, 2016					June 29, 2019						June 30, 2018
	Income		Shares	Per Share Amount			Income		Shares	Per Share Amount		Income		Shares	Per Share Amount			Income		Shares	Per Share Amount
Basic net income per share:	$	91,896	126,416	$	0.73		$	89,444	133,392	$	0.67	$	219,210	120,371	$	1.82		$	207,289	122,100	$	1.70
Dilutive stock options and restricted stock units outstanding	—		503	(0.01		)	—		864	—
Dilutive effect of share-based awards												—		1,137	(0.02		)	—		675	(0.01		)
Diluted net income per share:	$	91,896	126,919	$	0.72		$	89,444	134,256	$	0.67	$	219,210	121,508	$	1.80		$	207,289	122,775	$	1.69



	Fiscal Six Months Ended						Fiscal Six Months Ended
	June 29, 2019						June 30, 2018
	Income		Shares	Per Share Amount			Income		Shares	Per Share Amount
Basic net income per share:	$	296,042	120,791	$	2.45		$	278,722	123,288	$	2.26
Dilutive effect of share-based awards	—		1,039	(0.02		)	—		687	(0.01		)
Diluted net income per share:	$	296,042	121,830	$	2.43		$	278,722	123,975	$	2.25

Fiscal nine months ended Fiscal nine months ended
September 30, 2017 September 24, 2016
Income Shares
Per Share
Amount
Income Shares
Per Share
Amount
Basic net income per share: $ 312,856
128,293
$ 2.44
$ 313,537
133,529
$ 2.35
Dilutive stock options and restricted stock units outstanding —
617
(0.01 ) —
980
(0.02 )
Diluted net income per share: $ 312,856
128,910
$ 2.43
$ 313,537
134,509
$ 2.33

~~Index~~

Anti-dilutive stock ~~options~~awards excluded from the above calculations totaled approximately ~~4.1~~0.3 million and ~~1.8 million shares for the three months ended September 30, 2017 and September 24, 2016, respectively, and 3.9 million and 1.6~~3.8 million shares for the fiscal ~~nine~~three months ended ~~September~~June 29, 2019 and June 30, ~~2017~~2018, respectively, and ~~September 24, 2016,~~0.3 million and 3.7 million shares for the fiscal six months ended June 29, 2019 and June 30, 2018, respectively.

Note 65 – Debt:

The following table summarizes the Company’s outstanding debt as of the dates indicated (in millions):



	June 29, 2019			December 29, 2018			June 30, 2018
Senior Notes	$	150.0		$	150.0		$	150.0
Senior Credit Facility:
February 2016 Term Loan	150.0			165.0			170.0
June 2017 Term Loan	90.0			93.8			95.0
Revolving credit loans	100.0			—			128.0
Total outstanding borrowings	490.0			408.8			543.0
Less: unamortized debt issuance costs	(1.2		)	(1.4		)	(1.6		)
Total debt	488.8			407.4			541.4
Less: current portion of long-term debt	(22.5		)	(26.3		)	(25.0		)
Long-term debt	$	466.3		$	381.1		$	516.4

Outstanding letters of credit	$	37.3		$	33.5		$	39.9

Index

September 30,
2017 December 31,
2016 September 24,
2016
Senior Notes $ 150.0
$ —
$ —
Senior Credit Facility:
February 2016 Term Loan 182.5
190.0
195.0
June 2017 Term Loan 98.8
—
—
Revolving credit loans 80.0
85.0
100.0
Total outstanding borrowings 511.3
275.0
295.0
Less: unamortized debt issuance costs (1.6 ) (1.1 ) (1.2 )
Total debt 509.7
273.9
293.8
Less: current portion of long-term debt (22.5 ) (10.0 ) (10.0 )
Long-term debt $ 487.2
$ 263.9
$ 283.8

Outstanding letters of credit $ 41.6
$ 44.3
$ 44.4

Senior Notes

On August 14, 2017, the Company entered into a note purchase and private shelf agreement (the “Note Purchase Agreement”), pursuant to which the Company agreed to sell $150 million aggregate principal amount of senior unsecured notes due August 14, 2029 (the “2029 Notes”) in a private placement. The 2029 Notes bear interest at 3.70% per annum with interest 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.

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. 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, 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 whole at any time 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%.

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”) and a $500 million revolving credit facility (the “Revolver”) with a sublimit of $50 million for swingline loans. This agreement is unsecured and matures on February 19, ~~2021.~~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 unsecured 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 ~~five,~~the maturity date, with the remaining balance due in full on the maturity date of February 19, ~~2021.~~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 ~~five,~~the maturity date, with the remaining balance due in full on the maturity date of June 15, 2022.

~~Index~~

The 2016 Senior Credit Facility also contains a $500 million revolving credit facility ~~with~~(with a sublimit of $50 million for swingline ~~loans.~~loans).

Borrowings under the February 2016 Term Loan and Revolver bear interest at either the bank’s base rate ~~(4.250%~~(5.500% at ~~September 30, 2017)~~June 29, 2019) or the London Inter-Bank Offer Rate (“LIBOR”) ~~(1.232%~~(2.398% at ~~September 30, 2017)~~June 29, 2019) plus an additional amount ranging from 0.500% to 1.125% per annum (0.750% at ~~September 30, 2017)~~June 29, 2019), 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 ~~September 30, 2017)~~June 29, 2019), adjusted quarterly based on the Company’s leverage ratio. Borrowings under the June 2017 Term Loan bear interest at either the bank’s base rate ~~(4.250%~~(5.500% at ~~September 30, 2017)~~June 29, 2019) or LIBOR ~~(1.232%~~(2.398% at ~~September 30, 2017)~~June 29, 2019) plus an additional 1.000% per annum. As further described in Note 7,6 to the Condensed 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.

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.

During the period of October 24, 2011 through February 19, 2016, the Company was party to a senior credit facility (the “2011 Senior Credit Facility”), which provided for borrowings up to $400 million with a sublimit of $30 million for swingline loans.

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

Index

sales of assets, prepayment of debts, transactions with subsidiaries or affiliates, and liens. As of ~~September 30, 2017,~~June 29, 2019, 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 76 – 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.~~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)~~2016) and will amortize at the same time and in the same amount as the February 2016 Term Loan borrowings, as described in Note 6.5 to the Condensed Consolidated Financial Statements, up to the maturity date of the interest rate swap agreement on February 19, 2021. As of ~~September 30, 2017,~~June 29, 2019, the notional amount of the interest rate swap was ~~$182.5~~$150.0 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.~~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)~~2017) and will amortize at the same time and in the same amount as the June 2017 Term Loan borrowings, as described in Note 6.5 to the Condensed Consolidated Financial Statements. As of ~~September 30, 2017,~~June 29, 2019, the notional amount of the interest rate swap was ~~$98.8~~$90.0 million.

~~Index~~

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.

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~~Condensed 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)~~net of related income taxes, and reclassified into earnings in the same income statement line and period during which the hedged transactions affect earnings. ~~The ineffective portion~~

As of ~~gains and losses on~~June 29, 2019, amounts to be reclassified from Accumulated Other Comprehensive Income (“AOCI”) into interest ~~rate swaps, if any,~~during the next twelve months are ~~recognized in current earnings.~~not expected to be material. No significant amounts were excluded from the assessment of cash flow hedge effectiveness as of June 29, 2019.

Index

The assets and liabilities measured at fair value related to the Company’s interest rate swaps, excluding accrued interest, were as follows (in thousands):



Derivatives Designated as Cash Flow Hedges	Balance Sheet Location	June 29, 2019		December 29, 2018		June 30, 2018
Interest rate swaps (short-term portion)	Other current assets	$	1,052	$	2,601	$	2,533
Interest rate swaps (long-term portion)	Other assets	276		3,222		5,871
Total derivative assets		$	1,328	$	5,823	$	8,404

Interest rate swaps (long-term portion)	Other long-term liabilities	$	389	$	—	$	—
Total derivative liabilities		$	389	$	—	$	—

Balance Sheet Location September 30,
2017 December 31,
2016 September 24,
2016
Interest rate swaps (short-term portion) Other current assets / (Other accrued expenses) $ 194
$ (398 ) $ (887 )
Interest rate swaps (long-term portion) Other assets / (Other long-term liabilities) 2,940
3,215
(935 )
Total net assets (liabilities) $ 3,134
$ 2,817
$ (1,822 )

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),~~AOCI, 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,~~AOCI, net of tax, related to the Company’s interest rate swaps (in thousands):



	June 29, 2019			December 29, 2018		June 30, 2018
Beginning fiscal year AOCI balance	$	3,814		$	3,358	$	3,358

Current fiscal period (loss)/gain recognized in OCI	(3,649		)	456		2,384
Cumulative adjustment as a result of ASU 2017-12 adoption	717			—		—
Other comprehensive (loss)/gain, net of tax	(2,932		)	456		2,384
Ending fiscal period AOCI balance	$	882		$	3,814	$	5,742

September 30,
2017 December 31,
2016 September 24,
2016
Beginning fiscal year AOCI balance $ 1,392
$ —
$ —

Current fiscal period gain (loss) recognized in OCI (OCL) 165
1,392
(1,111 )
Amounts reclassified from AOCI (AOCL) into current fiscal period earnings —
—
—
Other comprehensive gain (loss), net of tax 165
1,392
(1,111 )
Ending fiscal period AOCI (AOCL) balance $ 1,557
$ 1,392
$ (1,111 )

~~As of September 30, 2017, the estimated pre-tax portion of AOCI that is expected to be reclassified into earnings over the next twelve months is $0.2 million.~~ Cash flows related to the interest rate swaps are included in operating activities on the ~~condensed consolidated statements~~Condensed Consolidated Statements of ~~cash flows.~~Cash Flows.

~~Index~~

The following table summarizes the impact of pre-tax gains and losses derived from the Company’s interest rate swaps (in thousands):



		Fiscal Three Months Ended					Fiscal Six Months Ended
	Financial Statement Location	June 29, 2019			June 30, 2018		June 29, 2019			June 30, 2018
Amount of (losses)/gains recognized in OCI during the period	Other comprehensive (loss)/income	$	(2,937	)	$	737	$	(4,884	)	$	3,205

Fiscal three months ended Fiscal nine months ended
Financial Statement Location September 30,
2017 September 24,
2016 September 30,
2017 September 24,
2016
Effective portion of gains (losses) recognized in OCI (OCL) during the period Other comprehensive income (loss) $ 59
$ 412
$ 270
$ (1,822 )
Amounts reclassified from AOCI (AOCL) into earnings Interest expense, net —
—
—
—
Ineffective portion of gains recognized in earnings during the period Interest expense, net 25
306
46
—

The following table summarizes the impact of taxes affecting ~~AOCI/AOCL~~AOCI as a result of the Company’s interest rate swaps (in thousands):



	Fiscal Three Months Ended					Fiscal Six Months Ended
	June 29, 2019			June 30, 2018		June 29, 2019			June 30, 2018
Income tax (benefit)/expense of interest rate swaps on AOCI	$	(752	)	$	185	$	(1,235	)	$	821

Fiscal three months ended Fiscal nine months ended
September 30,
2017 September 24,
2016 September 30,
2017 September 24,
2016
Income tax (benefit) expense of interest rate swaps on AOCI (AOCL) $ 23
$ 161
$ 105
$ (711 )

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 loans) 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 ~~September 30, 2017,~~June 29, 2019, it could have been required to post full collateral or settle its obligations under the Company’s interest rate swap agreements. However, as of ~~September 30, 2017,~~June 29, 2019, the Company had not breached any of these provisions or posted any collateral related to the underlying interest rate swap agreements.

Index

Note 7 – Leases:

The Company leases the majority of its retail store locations, two distribution sites, its Merchandise Innovation Center, and certain equipment under various non-cancellable operating leases. The leases have varying terms and expire at various dates through 2037. Store leases typically have initial terms of between 10 and 15 years, with two to four optional renewal periods of five years each. The 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 nonlease components (e.g., fixed payment common-area maintenance) as a single component. Certain lease agreements require variable payments based upon actual costs of common-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 and others require payments adjusted periodically for inflation. As substantially all of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement or modification date in determining the present value of lease payments.

In addition to the operating lease right-of-use assets presented on the Condensed Consolidated Balance Sheets, assets, net of accumulated amortization, under finance leases of $27.9 million are recorded within the Property and equipment, net line on the Condensed Consolidated Balance Sheets as of ~~September 30, 2017,~~June 29, 2019.

The following table summarizes the ~~net balance~~Company’s classification of ~~each~~lease cost (in thousands):



		Fiscal Three Months Ended		Fiscal Six Months Ended
	Statement of Income Location	June 29, 2019		June 29, 2019
Finance lease cost:
Amortization of lease assets	Depreciation and amortization	$	1,045	$	2,090
Interest on lease liabilities	Interest expense, net	395		800
Operating lease cost	Selling, general and administrative expenses	87,797		174,018
Variable lease cost	Selling, general and administrative expenses	18,806		37,151
Net lease cost		$	108,043	$	214,059

The following table summarizes the future maturities of the Company’s ~~interest rate swaps were~~lease liabilities (in thousands):



	Operating Leases ^(a)			Finance Leases			Total
2019 ^(b)	$	179,491		$	2,610		$	182,101
2020	347,852			5,234			353,086
2021	326,494			5,294			331,788
2022	302,676			4,172			306,848
2023	277,599			2,980			280,579
After 2023	1,256,672			20,169			1,276,841
Total lease payments	2,690,784			40,459			2,731,243
Less: Interest	(497,710		)	(9,348		)	(507,058		)
Present value of lease liabilities	$	2,193,074		$	31,111		$	2,224,185

(a) Operating lease payments exclude $192.4 million of legally binding minimum lease payments for leases signed, but not yet commenced.

(b) Excluding the six-month period ended June 29, 2019.

Index

The following table summarizes the Company’s lease term and discount rate:



	June 29, 2019
Weighted-average remaining lease term (years):
Finance leases	9.4
Operating leases	8.9
Weighted-average discount rate:
Finance leases	5.3	%
Operating leases	4.4	%

The following table summarizes the other information related to the Company’s lease liabilities (in thousands):



	Fiscal Three Months Ended		Fiscal Six Months Ended
	June 29, 2019		June 29, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Financing cash flows from finance leases	$	908	$	1,805
Operating cash flows from finance leases	395		800
Operating cash flows from operating leases	89,515		162,980

The Company adopted new lease accounting guidance in ~~a net asset position~~the first quarter of fiscal 2019, as discussed in Note 1 and ~~therefore~~Note 13 to the ~~Company would have no obligation upon default.~~Condensed Consolidated Financial Statements, and as required, the following disclosure is provided for periods prior to adoption. As of December 29, 2018 future minimum payments, by year and in the aggregate, under leases with initial or remaining terms of one year or more consisted of the following (in thousands):



	Capital Leases			Operating Leases
2019	$	5,215		$	344,836
2020	5,234			328,589
2021	5,294			306,572
2022	4,172			284,327
2023	2,980			260,518
Thereafter	20,169			1,175,972
Total minimum lease payments	43,064			$	2,700,814
Amount representing interest	(10,148		)
Present value of minimum lease payments	32,916
Less: current portion	(3,646		)
Long-term capital lease obligations	$	29,270

Note 8 – 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 thousand shares of preferred stock, with such designations, rights and preferences as may be determined from time to time by the Board of Directors.

Index

Dividends

During the first six months of fiscal 2019 and 2018, the Board of Directors declared the following cash dividends:



Date Declared	Dividend Amount Per Share of Common Stock		Record Date	Date Paid
May 8, 2019	$	0.35	May 28, 2019	June 11, 2019
February 6, 2019	$	0.31	February 25, 2019	March 12, 2019

May 9, 2018	$	0.31	May 29, 2018	June 12, 2018
February 7, 2018	$	0.27	February 26, 2018	March 13, 2018

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

On August 7, 2019, the Company’s Board of Directors declared a quarterly cash dividend of $0.35 per share of the Company’s outstanding common stock. The dividend will be paid on September 10, 2019, to stockholders of record as of the close of business on August 26, 2019.

Note 9 – Treasury Stock:

The Company’s Board of Directors has authorized common stock repurchases under a share repurchase program. On May 8, 2019, the Board of Directors authorized a $1.5 billion increase to the existing share repurchase program, upbringing the total amount authorized to ~~$3.0~~$4.5 billion,, exclusive of any fees, commissions, or other expenses related to such ~~repurchases through December 31, 2020.~~repurchases. 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 or terminated at any time without prior notice.

The Company repurchased approximately 1.4 million shares of common stock under the share repurchase program during the third quarters of both fiscal 2017 and 2016, for a total cost of $78.5 million and $108.8 million, respectively. During the first nine months of fiscal 2017 and fiscal 2016, the Company repurchased 5.2 million and 2.7 million shares under the share repurchase program for a total cost of $326.6 million and $215.7 million, respectively. As of ~~September 30, 2017,~~June 29, 2019, the Company had remaining authorization under the share repurchase program of ~~$0.9~~$1.69 billion, exclusive of any fees, commissions, or other expenses.

~~Note 9 – Capital Stock and Dividends:~~

~~Capital Stock~~

The ~~authorized capital stock~~following table provides the number 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 40,000 shares of preferred stock, with such designations, rights and preferences as may be determined from time to time by the Board of Directors.

~~Index~~

~~Dividends~~

~~During the first~~ ~~nine~~ ~~months of fiscal~~ ~~2017~~ ~~and~~ ~~2016, the Board of Directors declared the following cash dividends:~~

Date Declared Dividend Amount
Per Share Record Date Date Paid
August 7, 2017 $ 0.27
August 21, 2017 September 6, 2017
May 8, 2017 $ 0.27
May 22, 2017 June 6, 2017
February 8, 2017 $ 0.24
February 27, 2017 March 14, 2017

August 1, 2016 $ 0.24
August 15, 2016 August 30, 2016
May 2, 2016 $ 0.24
May 16, 2016 June 1, 2016
February 3, 2016 $ 0.20
February 22, 2016 March 8, 2016

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

~~On November 6, 2017, the Company’s Board of Directors declared a quarterly cash dividend of $0.27~~repurchased, average price paid per share, ofand total amount paid for share repurchases during the ~~Company’s outstanding common stock. The dividend will be paid on December 5, 2017 to stockholders of record as of the close of business on November 20, 2017.~~fiscal three and six months ended June 29, 2019 and June 30, 2018, respectively (in thousands, except per share amounts):



	Fiscal Three Months Ended				Fiscal Six Months Ended
	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Total number of shares repurchased	1,732		1,477		3,456		3,844
Average price paid per share	$	103.27	$	64.37	$	96.69	$	65.70
Total cash paid for share repurchases	$	178,916	$	95,082	$	334,235	$	252,545

Note 10 – Income Taxes:

The Company’s effective income tax rate decreased to ~~36.4%~~22.4% in the ~~third~~second quarter of fiscal ~~2017~~2019 compared to ~~36.5% for~~22.8% in the ~~third~~second quarter of fiscal ~~2016.~~2018. The ~~decrease~~primary driver for the ~~third quarter of fiscal 2017 compared to the third quarter of fiscal 2016 is primarily due to lower state effective tax rates resulting from our income mix, offset~~decrease in ~~part by fewer state credits recognized this year as compared to last year.~~

~~For the first nine months of fiscal 2017,~~ the Company’s effective income tax rate ~~decreased to 36.5% compared to 36.7% for the first nine months of fiscal 2016.~~was an incremental tax benefit associated with share-based compensation. The ~~decrease in the~~ effective income tax rate was ~~primarily driven by net excess tax benefits associated with~~22.3% in the ~~settlement~~first six months of share-based payment awards due to the adoption of ASU 2016-09 (as discussed in Note 13), along with an increase in federal work opportunity tax credits recognized, partially offset by an increase in nondeductible expenses.both fiscal 2019 and fiscal 2018.

Note 11 – Commitments and Contingencies:

Construction and Real Estate Commitments

At September 30, 2017, the Company had contractual commitments of approximately $30 million related to the ongoing construction of its new distribution center in Frankfort, New York, which is expected to be operational by the end of fiscal 2018. ThereJune 29, 2019, there were no material commitments related to real estate or construction projects extending greater than twelve months.

Index

Letters of Credit

At ~~September 30, 2017,~~June 29, 2019, there were ~~$41.6~~$37.3 million of outstanding letters of credit under the 2016 Senior Credit Facility.

Litigation

Item 103 of SEC Regulation S-K requires disclosure of certain environmental 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 has 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

~~Index~~

~~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 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.

Note 12 – Segment Reporting:

The Company has one 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 the fiscal three ~~months~~ and ~~nine~~six months ended ~~September~~June 29, 2019 and June 30, ~~2017~~ ~~and~~ ~~September 24, 2016~~2018:



	Fiscal Three Months Ended				Fiscal Six Months Ended
Product Category:	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Livestock and Pet	45	%	44	%	48	%	48	%
Seasonal, Gift and Toy Products	24		24		21		21
Hardware, Tools and Truck	21		21		21		21
Clothing and Footwear	5		5		6		6
Agriculture	5		6		4		4
Total	100	%	100	%	100	%	100	%

Fiscal three months ended Fiscal nine months ended
Product Category: September 30,
2017 September 24,
2016 September 30,
2017 September 24,
2016
Livestock and Pet 48 % 48 % 48 % 47 %
Hardware, Tools and Truck 24
23
22
22
Seasonal, Gift and Toy Products 17
18
19
20
Clothing and Footwear 6
6
6
6
Agriculture 5
5
5
5
Total 100 % 100 % 100 % 100 %

Note 13 – New Accounting Pronouncements:

New Accounting Pronouncements Recently Adopted

In ~~July 2015,~~February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory.” This update requires an entity that determines the cost of inventory by methods other than last-in, first-out and the retail inventory method to measure inventory at the lower of cost and net realizable value. The Company adopted this guidance in the first quarter of fiscal 2017 using a prospective application. 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 2016-04, “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

~~Index~~

~~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 is to be recorded for the amount, if any, in which the carrying value exceeds the reporting unit’s fair value. The Company adopted this guidance in the first quarter of fiscal 2017 using a prospective application. The adoption of this guidance did not have a material impact to our Consolidated Financial Statements and related disclosures.

~~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. 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 Company continues to evaluate the adoption of this standard, including the transition method; however, adoption 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. In January 2018, the FASB issued ASU 2018-01, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842.” This update permits an entity to elect an optional transition practical expedient to not evaluate land easements that exist or expired before the entity’s adoption of ASU 2016-02 and that were not accounted for as leases under previous lease guidance. In July 2018, ASU 2018-10, “Codification Improvements to Topic 842, Leases,” was issued to provide more detailed guidance isand additional clarification for implementing ASU 2016-02. Furthermore, in July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements,” which provides an optional transition method in addition to the existing modified retrospective transition method by allowing a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. These new leasing standards are 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~~In March 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,~~2019, the FASB issued ASU ~~2017-09, “Compensation - Stock Compensation~~2019-01, “Leases (Topic ~~718)~~842): ~~Scope of Modification Accounting.” This update provides~~Codification Improvements” which was issued to provide more detailed 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~~and clarification 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 instrumentimplementing ASU 2016-02.

~~Index~~

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~~adopted this guidance in the first quarter of fiscal ~~2018.~~ 2019 and as a part of that process, made the following elections:

The Company elected the optional transition method which allows for the lessee to not recast comparative financial information but rather recognize a cumulative-effect adjustment to retained earnings as of the effective date in the period of adoption. No such adjustment to retained earnings was made as a result of the adoption of this guidance.

The Company elected the package of practical expedients permitted under the transition guidance iswithin the new standard which, among other things, allowed us to carry forward our prior lease classification under Accounting Standards Codification (“ASC”) Topic 840.

The Company did not ~~expected~~elect the hindsight practical expedient for all leases.

Index

The Company elected to ~~have~~make the accounting policy election for short-term leases resulting in lease payments being recorded as an expense on a straight-line basis over the lease term.

The Company elected the land easement practical expedient.

Adoption of the new standard had a material impact onto our Condensed Consolidated ~~Financial Statements~~Balance Sheets and related ~~disclosures.~~disclosures, and resulted in the recording of additional right-of-use assets and lease liabilities of approximately $2.08 billion as of the date of adoption. The standard did not materially impact our Condensed Consolidated Statements of Income, Comprehensive Income, Stockholders’ Equity, or Cash Flows.

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~~in which the entity adopts this guidance. The amended presentation and disclosure guidance isshould be adopted prospectively. The Company adopted this guidance in the first quarter of fiscal 2019 and recognized a cumulative-effect adjustment of $0.7 million from retained earnings to accumulated other comprehensive income. The adoption of this guidance did not have a material impact on our Condensed Consolidated Financial Statements and related disclosures.

In June 2018, the FASB issued ASU 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. 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 Company adopted this guidance in the first quarter of fiscal 2019. The adoption of this guidance did not ~~expected~~have a material impact on our Condensed Consolidated Financial Statements and related disclosures.

In October 2018, the FASB issued ASU 2018-16, “Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes” which expands the permissible benchmark interest rates to include the Secured Overnight Financing Rate (SOFR) to be eligible as a U.S. benchmark interest rate for purposes of applying hedge accounting under Topic 815, Derivatives and Hedging. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted if an entity has previously adopted ASU 2017-12. The Company adopted this guidance in the first quarter of fiscal 2019. The adoption of this guidance did not have a material impact on our Condensed Consolidated Financial Statements and related disclosures.

New Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement,” which amends the disclosure requirements for fair value measurements by removing, modifying and adding certain disclosures. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted. The Company does not expect the adoption of this guidance to have a material impact on ~~our~~its Condensed Consolidated Financial Statements and related disclosures.

In August 2018, the FASB issued ASU 2018-15, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” This update clarifies the accounting treatment for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. This guidance is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted. The amendments may be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently assessing the impact that adoption of this guidance will have on its Condensed Consolidated Financial Statements and related disclosures.

Index

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The following discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December ~~31, 2016~~29, 2018. This Form 10-Q also contains forward-looking statements and information. The forward-looking statements included herein 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 sales and earnings growth, estimated results of operations in future periods, the declaration and payment of dividends, future capital expenditures (including their amount and nature), business strategy, expansion and growth of our business operations, and other such matters are forward-looking statements. These forward-looking statements may be affected by certain risks and uncertainties, any one, or a combination of which, could materially affect the results of our operations. 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.

As with any business, many aspects of our operations are subject to influences outside our control. These factors include, without limitation, national, regional, and local economic conditions affecting consumer spending, 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), the ability to increase sales at existing stores, the ability to manage growth and identify suitable locations, failure of an acquisition to produce anticipated results, the ability to successfully manage expenses and execute our key gross margin enhancing initiatives, 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, the impact of new stores on our business, competition, including that from online competitors, weather conditions, the seasonal nature of our business, effective merchandising initiatives and marketing emphasis, the ability to retain vendors, reliance on foreign suppliers, the ability to attract, train, and retain qualified employees, product liability and other claims, changes in federal, state, or local regulations, 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 our information systems, failure to develop and implement new technologies, the failure of customer-facing technology systems, business disruption including from the implementation of supply chain technologies, effective tax rate changes 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. We discuss in greater detail risk factors relating to our business in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December ~~31, 2016~~29, 2018. Forward-looking statements are based on our knowledge of our business and the environment in which we operate, but because of the factors listed above or other factors, actual results could differ materially from those reflected by any forward-looking statements. Consequently, all of the forward-looking statements made are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated will be realized or, even if substantially realized, that they will have the expected consequences to or effects on our business and operations. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. 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.

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 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 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.

Index

Comparable Store ~~Sales~~Metrics

Comparable store ~~sales~~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 ~~sales~~ metrics calculations. Stores relocated during either of the years being compared are not removed from our comparable store ~~sales~~ metrics calculations. If the effect of relocated stores on our comparable store ~~sales~~ metrics calculations became material, we would remove relocated stores from the calculations.

Results of Operations

Fiscal Three Months ~~(Third~~(Second Quarter) Ended ~~September~~June 29, 2019 and June 30, ~~2017 and September 24, 2016~~2018

Net sales for the ~~third~~second quarter of fiscal ~~2017~~2019 increased ~~11.6%~~6.3% to ~~$1.72~~$2.35 billion from ~~$1.54~~$2.21 billion in the ~~third~~second quarter of fiscal ~~2016.~~2018. Comparable store sales for the ~~third~~second quarter of fiscal ~~2017~~2019 were ~~$1.62~~$2.29 billion, a ~~6.6%~~3.2% increase as compared to the ~~third~~second quarter of fiscal ~~2016.~~2018. Comparable store sales ~~decreased 0.6%~~increased 5.6% for the ~~third~~second quarter of fiscal 2016. Each quarter of fiscal 2017 starts one week later than the same quarter of fiscal 2016 due to the Company’s 2016 fiscal year having 53 weeks versus the normal 52 weeks. Adjusting for the week shift, last year’s third quarter comparable store sales decrease would have been 1.1%.2018.

The comparable store sales results in the ~~third~~second quarter of fiscal ~~2017~~2019 included ~~an increase~~increases in ~~both traffic~~comparable average transaction value and ~~ticket, with comparable store~~ transaction count ~~increasing 5.0%~~of 2.2% and ~~average ticket increasing 1.5% compared to prior year’s third quarter. Comparable store sales were positive across all~~1.0%, respectively. All geographic regions of the Company and all major product categories ~~including solid performance~~had positive comparable store sales growth. The increase in ~~year-round products,~~comparable store sales was primarily driven by strength in ~~seasonal~~everyday merchandise, including consumable, usable and edible products, ~~from an extended~~along with solid demand for spring and summer ~~selling season as well as a benefit from~~seasonal categories.

In addition to comparable store sales ~~of emergency response products related to hurricanes~~growth in the ~~quarter.~~

~~Sales from stores open less than one year were $99.3 million in the third~~second quarter of fiscal ~~2017, which represented a 6.4% increase over third quarter fiscal 2016 net sales. For the third quarter of fiscal 2016,~~2019, sales from stores open less than one year were ~~$81.6~~$71.6 million in the second quarter of fiscal 2019, which represented 3.2 percentage points of the 6.3% increase over second quarter fiscal 2018 net sales. For the second quarter of fiscal 2018, sales from stores open less than one year were $86.6 million, which represented a ~~5.5%~~4.3% increase over ~~third~~second quarter fiscal ~~2015~~2017 net sales.

The following table summarizes our store growth for the fiscal three months ended ~~September~~June 29, 2019 and June 30, ~~2017 and September 24, 2016:~~2018:


	Fiscal three months ended				Fiscal Three Months Ended
	September 30, 2017		September 24, 2016 ^(a)
Store Count Information:					June 29, 2019	June 30, 2018
Tractor Supply
Store count, beginning of period	1,630		1,542
Beginning of period					1,775	1,700
New stores opened	36		34		15	25
Stores closed	(1	)	(1	)	—	—
Store count, end of period	1,665		1,575
End of period					1,790	1,725
Petsense
Store count, beginning of period	160		—
Beginning of period					176	172
New stores opened	2		—		1	3
Stores closed	—		—		—	(1	)
Store count, end of period	162		—
Consolidated end of period	1,827		1,575

End of period					177	174
Consolidated, end of period					1,967	1,899
Stores relocated	1		1		1	2

^(a)~~As Petsense was acquired by the Company on September 29, 2016, there is no store count information for the prior period.~~

Index

The following table indicates the percentage of net sales represented by each of our major product categories for the fiscal three months ended ~~September~~June 29, 2019 and June 30, ~~2017~~ ~~and~~ ~~September 24, 2016~~2018:

Fiscal three months ended
Product Category: September 30,
2017 September 24,
2016
Livestock and Pet 48 % 48 %
Hardware, Tools and Truck 24
23
Seasonal, Gift and Toy Products 17
18
Clothing and Footwear 6
6
Agriculture 5
5
Total 100 % 100 %



	Percent of Net Sales
	Fiscal Three Months Ended
	Fiscal Three Months Ended
Product Category:	June 29, 2019		June 30, 2018
Livestock and Pet	45	%	44	%
Seasonal, Gift and Toy Products	24		24
Hardware, Tools and Truck	21		21
Agriculture	5		6
Clothing and Footwear	5		5
Total	100	%	100	%

Gross profit increased ~~12.2%~~6.7% to ~~$600.5~~$820.7 million for the ~~third~~second quarter of fiscal ~~2017~~2019 from ~~$535.3~~$769.4 million for the ~~third~~second quarter of fiscal ~~2016.~~2018. As a percent of net sales, gross margin increased 2011 basis points to ~~34.9%~~34.87% for the ~~third~~second quarter of fiscal ~~2017~~2019 from ~~34.7%~~34.76% for the ~~third~~second quarter of fiscal ~~2016. Favorable seasonal conditions, strong sell through rates and solid inventory~~2018.The increase in gross margin was driven by product mix, along with the strength of the Company’s price management ~~benefited~~program. Freight expense did not have a significant impact on the year-over-year change in gross margin. ~~These benefits were partially offset by a greater mix of freight intensive categories and higher average fuel costs.~~

~~Selling,~~Total selling, general and administrative (“SG&A”) expenses, including depreciation and amortization, increased ~~15.0%~~7.5% to ~~$452.2~~$533.2 million for the ~~third~~second quarter of fiscal ~~2017~~2019 from ~~$393.3~~$496.0 million in the ~~third~~second quarter of fiscal ~~2016. As~~2018. SG&A expenses, as a percent of net sales, ~~SG&A expenses~~ increased 8024 basis points to ~~26.3%~~22.65% in the ~~third~~second quarter of fiscal ~~2017~~2019 from ~~25.5%~~22.41% in the ~~third~~second quarter of fiscal ~~2016.~~2018. The increase in SG&A as a percent of net sales was primarily attributable to ~~higher incentive compensation from the strong year-over-year growth~~incremental costs associated with a new distribution facility in ~~comparable~~Frankfort, New York, and, to a lesser extent, investment in store sales, higher store payroll from our continued effort to enhance customer service and the integration of Petsense expenses. Additionally, we have made investments in infrastructure and technology to support our strategic long-term growth initiatives.team member wages. These SG&A increases were partially offset by leverage in occupancy and other ~~areas of the business~~costs from the increase in comparable store ~~sales and cost savings initiatives.~~sales.

The effective income tax rate decreased to ~~36.4%~~22.4% in the ~~third~~second quarter of fiscal ~~2017~~2019 compared to ~~36.5%~~22.8% for the ~~third~~second quarter of fiscal ~~2016.~~2018. The ~~decrease~~primary driver for the ~~third quarter of fiscal 2017 compared to~~decrease in the ~~third quarter of fiscal 2016 is primarily due to lower state~~Company’s effective income tax ~~rates resulting from our income mix, offset in part by fewer state credits recognized this year as compared to last year.~~rate was an incremental tax benefit associated with share-based compensation. The Company expects the full fiscal year ~~2017~~2019 effective tax rate ~~will~~to be ~~approximately 36.6%~~in a range between 22.4% and 22.7%.

As a result of the foregoing factors, net income for the ~~third~~second quarter of fiscal ~~2017~~2019 increased ~~2.7%~~5.8% to ~~$91.9~~$219.2 million, or ~~$0.72~~$1.80 per diluted share, as compared to net income of ~~$89.4~~$207.3 million, or ~~$0.67~~$1.69 per diluted share, for the ~~third~~second quarter of fiscal ~~2016.~~2018.

Fiscal ~~Nine~~Six Months Ended ~~September~~June 29, 2019 and June 30, ~~2017 and September 24, 2016~~2018

Net sales increased ~~9.1%~~7.2% to ~~$5.30~~$4.18 billion for the first ~~nine~~six months of fiscal ~~2017~~2019 from ~~$4.86~~$3.90 billion for the first ~~nine~~six months of fiscal ~~2016.~~2018. Comparable store sales for the first ~~nine~~six months of fiscal ~~2017~~2019 were ~~$4.99~~$4.06 billion, a ~~2.2%~~4.0% increase over the first ~~nine~~six months of fiscal ~~2016. This compares to a 1.1% comparable~~2018. Comparable store sales ~~increase~~increased 4.7% for the first ~~nine~~six months of fiscal 2016. Fiscal 2017 started one week later than fiscal 2016 due to the Company’s 2016 fiscal year having 53 weeks versus the normal 52 weeks. Adjusting for the week shift, last year’s comparable store sales increase for the first nine months of the year would have been 0.8%. The first nine months of fiscal 2017 had one less sales day compared to the first nine months of fiscal 2016, which negatively impacted comparable store sales by approximately 20 basis points for the first nine months of fiscal 2017.2018.

For the first ~~nine~~six months of fiscal ~~2017,~~2019, the comparable store sales results included increases in comparable average transaction value of 2.6% and comparable transaction count of 1.3%. All geographic regions of the Company and all major product categories had positive comparable store sales growth. The increase in comparable store sales was primarily driven by ~~continued demand for key~~strength in everyday merchandise, including consumable, usable, and edible ~~(“C.U.E.”)~~ products, ~~primarily animal~~along with strong demand for both winter and ~~pet related merchandise, offset by softness in~~spring seasonal categories, principally in the first quarter. Warmer than normal weather early in the first quarter negatively impacted winter seasonal items and winter storms in March had an unfavorable impact on the start to the spring selling season. Weather patterns normalized in the second quarter and comparable store sales were broad based and positive in all geographic regions of the country, driven by strength in sales of year-round products. The broad-based sales growth continued in the third quarter, benefiting from an extended spring and summer selling season and strong sales of emergency response products related to hurricanes during the quarter.categories.

In addition to comparable store sales growth in the first ~~nine~~six months of fiscal ~~2017,~~2019, sales from stores open less than one year were ~~$321.7~~$129.6 million in the first six months of fiscal 2019, which represented ~~a 6.6%~~3.3 percentage points of the 7.2% increase over the first ~~nine~~six months of fiscal ~~2016~~2018 net sales. ~~Sales~~For the first six months of fiscal 2018, sales from stores open less than one year were ~~$255.0~~$153.8 million, ~~for the first nine months of fiscal 2016,~~ which represented a ~~5.6%~~4.3% increase over the first ~~nine~~six months of fiscal ~~2015~~2017 net sales.

Index

The following table summarizes our store growth for the fiscal ~~nine~~six months ended ~~September~~June 29, 2019 and June 30, ~~2017 and September 24, 2016:~~2018:


	Fiscal nine months ended				Fiscal Six Months Ended
	September 30, 2017		September 24, 2016 ^(a)
Store Count Information:					June 29, 2019	June 30, 2018
Tractor Supply
Store count, beginning of period	1,595		1,488
Beginning of period					1,765	1,685
New stores opened	74		92		25	40
Stores closed	(4	)	(5	)	—	—
Store count, end of period	1,665		1,575
End of period					1,790	1,725
Petsense
Store count, beginning of period	143		—
Beginning of period					175	168
New stores opened	19		—		2	7
Stores closed	—		—		—	(1	)
Store count, end of period	162		—
Consolidated end of period	1,827		1,575

End of period					177	174
Consolidated, end of period					1,967	1,899
Stores relocated	2		2		1	2

^(a)~~As Petsense was acquired by the Company on September 29, 2016, there is no store count information for the prior period.~~

The following table indicates the percentage of net sales represented by each of our major product categories for the fiscal ~~nine~~six months ended ~~September~~June 29, 2019 and June 30, ~~2017 and September 24, 2016:~~2018:

Fiscal nine months ended
September 30,
2017 September 24,
2016
Product Category:
Livestock and Pet 48 % 47 %
Hardware, Tools and Truck 22
22
Seasonal, Gift and Toy Products 19
20
Clothing and Footwear 6
6
Agriculture 5
5
Total 100 % 100 %



	Percent of Net Sales
	Fiscal Six Months Ended
	Fiscal Six Months Ended
Product Category:	June 29, 2019		June 30, 2018
Livestock and Pet	48	%	48	%
Seasonal, Gift and Toy Products	21		21
Hardware, Tools and Truck	21		21
Clothing and Footwear	6		6
Agriculture	4		4
Total	100	%	100	%

Gross profit increased ~~8.6%~~7.7% to ~~$1.82~~$1.44 billion for the first ~~nine~~six months of fiscal ~~2017~~2019 from ~~$1.68~~$1.33 billion infor the first ~~nine~~six months of fiscal ~~2016.~~2018. As a percent of net sales, gross margin ~~decreased 10~~increased 17 basis points to ~~34.4%~~34.38% for the first ~~nine~~six months of fiscal ~~2017 compared to 34.5%~~2019 from 34.21% for the comparable period in fiscal ~~2016.~~2018. The ~~decline~~increase in gross margin was ~~driven by higher markdowns on cold weather merchandise and targeted promotional activity~~primarily attributable to strength in the ~~first quarter as well as a higher freight expense~~Company’s price management program and favorable product mix throughout the first ~~nine~~six months of the year, ~~due to a shift~~as well as strong sell through of winter seasonal categories in ~~product mix towards more freight intensive products and higher average fuel costs. These declines were~~the first quarter. This favorable activity was partially offset by ~~strong sell through rates and solid inventory management~~slightly higher transportation costs as a percent of net sales, particularly in the ~~third~~first quarter.

Total SG&A expenses, including depreciation and amortization, increased ~~12.0%~~8.3% to ~~$1.32~~$1.04 billion for the first six months of fiscal 2019 from $964.9 million in the first ~~nine~~six months of fiscal ~~2017 from $1.18 billion in the first nine months of fiscal 2016. As~~2018. SG&A expenses, as a percent of net sales, ~~SG&A expenses~~ increased 6025 basis points to ~~24.9%~~25.02% in the first ~~nine~~six months of fiscal ~~2017~~2019 from ~~24.3%~~24.77% in the first ~~nine~~six months of fiscal ~~2016.~~2018. The increase in SG&A ~~expenses increased~~ as a ~~percentage~~percent of net sales ~~due principally~~was primarily attributable to ~~higher~~incremental costs associated with a new distribution facility in Frankfort, New York, and, to a lesser extent, investment in store ~~payroll to support strong customer service, investments~~team member wages. These SG&A increases were partially offset by leverage in ~~infrastructure~~occupancy and ~~technology to drive growth and an improved customer experience, as well as~~other costs from the ~~integration of Petsense, which operates at a higher SG&A rate.~~increase in comparable store sales.

~~For the first nine months of fiscal 2017, the effective income tax rate decreased to 36.5% compared to 36.7% for the first nine months of fiscal 2016~~. The ~~decrease in the~~ effective income tax rate was ~~primarily driven by net excess tax benefits associated with~~22.3% in the ~~settlement~~first six months of share-based payment awards due to the adoption of ASU 2016-09 (as discussed in Note 13 to the unaudited condensed consolidated financial statements), along with an increase in federal work opportunity tax credits recognized, partially offset by an increase in nondeductible expenses.both fiscal 2019 and fiscal 2018. The Company expects the full fiscal year ~~2017~~2019 effective tax rate ~~will~~to be ~~approximately 36.6%~~in a range between 22.4% and 22.7%.

~~Index~~

As a result of the foregoing factors, net income for the first ~~nine~~six months of fiscal ~~2017 decreased 0.2%~~2019 increased 6.2% to ~~$312.9~~$296.0 million, or $2.43 per diluted share, as compared to ~~$313.5~~net income of $278.7 million, ~~in the first nine months of fiscal 2016. Net income~~or $2.25 per diluted share, for the first ~~nine~~six months of fiscal ~~2017 increased to $2.43 from $2.33 in the first nine months of fiscal 2016.~~2018.

Index

Liquidity and Capital Resources

In addition to normal operating expenses, our primary ongoing cash requirements are for new store expansion, remodeling and relocation programs, distribution ~~center~~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, ~~capital~~finance and operating 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.

The Company believes that its existing cash balances, expected cash flow from future operations, funds available under its debt facilities, ~~operating~~finance and ~~capital~~operating leases, and normal trade credit will be sufficient to fund its operations and its capital expenditure needs, including new store openings, store acquisitions, relocations and renovations, and distribution ~~center~~facility capacity, through the end of fiscal ~~2017.~~2019.

Working Capital

At ~~September 30, 2017,~~June 29, 2019, the Company had working capital of ~~$869.8~~$666.4 million, which ~~increased $129.2~~decreased $189.9 million from December ~~31, 2016,~~29, 2018, and decreased ~~$47.7~~$202.8 million from ~~September 24, 2016.~~June 30, 2018. The shifts in working capital were attributable to changes in the following components of current assets and current liabilities (in millions):


	September 30, 2017		December 31, 2016		Variance			September 24, 2016		Variance			June 29, 2019		December 29, 2018		Variance			June 30, 2018		Variance
Current assets:
Cash and cash equivalents	$	70.0	$	53.9	$	16.1		$	55.5	$	14.5		$	104.0	$	86.3	$	17.7		$	70.0	$	34.0
Inventories	1,591.6		1,369.7		221.9			1,489.9		101.7			1,733.2		1,589.5		143.7			1,632.3		100.9
Prepaid expenses and other current assets	75.6		90.6		(15.0		)	68.0		7.6			95.0		114.5		(19.5		)	103.3		(8.3		)
Income taxes receivable	4.8		3.6		1.2			16.3		(11.5		)	5.6		4.1		1.5			5.1		0.5
Total current assets	1,742.0		1,517.8		224.2			1,629.7		112.3			1,937.8		1,794.4		143.4			1,810.7		127.1
Current liabilities:
Accounts payable	609.9		519.5		90.4			484.0		125.9			681.6		620.0		61.6			649.7		31.9
Accrued employee compensation	34.5		25.2		9.3			17.6		16.9			26.9		54.0		(27.1		)	22.8		4.1
Other accrued expenses	186.0		215.7		(29.7		)	199.3		(13.3		)	222.9		232.4		(9.5		)	205.3		17.6
Current portion of long-term debt	22.5		10.0		12.5			10.0		12.5			22.5		26.3		(3.8		)	25.0		(2.5		)
Current portion of capital lease obligation	3.6		1.3		2.3			1.3		2.3
Current portion of finance lease liabilities													3.7		3.6		0.1			3.7		—
Current portion of operating lease liabilities													264.7		—		264.7			—		264.7
Income taxes payable	15.7		5.5		10.2			—		15.7			49.1		1.8		47.3			35.0		14.1
Total current liabilities	872.2		777.2		95.0			712.2		160.0			1,271.4		938.1		333.3			941.5		329.9
Working capital	$	869.8	$	740.6	$	129.2		$	917.5	$	(47.7	)	$	666.4	$	856.3	$	(189.9	)	$	869.2	$	(202.8	)

In comparison to December ~~31, 2016~~29, 2018, working capital as of ~~September 30, 2017~~June 29, 2019, was impacted most significantly by changes in ~~our~~ inventories, accounts payable, the adoption of the new lease accounting standard under ASC 842, income taxes, and accrued ~~expenses.~~employee compensation.

The increase in inventories and accounts payable resulted primarily from the purchase of additional inventory to support new store growth, as well as an increase in average inventory per store principally due to normal seasonal patterns.

The ~~decrease~~change in ~~other accrued expenses~~operating lease liabilities is due to the adoption of the new lease accounting standard under ASC 842.

The increase in income taxes payable is due to the timing of tax payments.

The decrease in accrued expenses is a result of the timing of payments in the normal course of business.

~~Index~~

In comparison to ~~September 24, 2016,~~June 30, 2018, working capital as of ~~September 30, 2017~~June 29, 2019, was impacted most significantly by changes in inventories, accounts payable and ~~accounts payable.~~the adoption of the new lease accounting standard under ASC 842.

Index

The increase in inventories and accounts payable resulted primarily from the purchase of additional inventory to support new store growth ~~partially offset by a decrease~~and to support our new northeast distribution center in ~~average~~Frankfort, New York, which began shipping merchandise to our stores in the first quarter of fiscal 2019. Average inventory per store ~~at Tractor Supply stores~~increased slightly due principally to inflation, inclusive of the impact of tariffs, as well as modest growth in everyday merchandise to support the normal trends in the business.

The change in operating lease liabilities is due to the ~~strong sell through from an extended spring~~adoption of the new lease accounting standard under ASC 842.

Debt

The following table summarizes the Company’s outstanding debt as of the dates indicated (in millions):



	June 29, 2019			December 29, 2018			June 30, 2018
Senior Notes	$	150.0		$	150.0		$	150.0
Senior Credit Facility:
February 2016 Term Loan	150.0			165.0			170.0
June 2017 Term Loan	90.0			93.8			95.0
Revolving credit loans	100.0			—			128.0
Total outstanding borrowings	490.0			408.8			543.0
Less: unamortized debt issuance costs	(1.2		)	(1.4		)	(1.6		)
Total debt	488.8			407.4			541.4
Less: current portion of long-term debt	(22.5		)	(26.3		)	(25.0		)
Long-term debt	$	466.3		$	381.1		$	516.4

Outstanding letters of credit	$	37.3		$	33.5		$	39.9

For additional information about the Company’s debt and ~~summer selling season in~~credit facilities, refer to Note 5 to the ~~third quarter of fiscal 2017.~~Condensed Consolidated Financial Statements. Refer to Note 6 to the Condensed Consolidated Financial Statements for information about the Company’s interest rate swap agreements.

~~Accounts payable increased principally due to additional inventory for new store growth and the timing of payments.~~

Operating Activities

Operating activities provided net cash of ~~$341.0~~$348.9 million and ~~$285.6~~$274.0 million in the first ~~nine~~six months of fiscal ~~2017~~2019 and fiscal ~~2016,~~2018, respectively. The ~~$55.4~~$74.9 million increase in net cash ~~from~~provided by operating activities in the first ~~nine~~six months of fiscal ~~2017~~2019 compared to the first ~~nine~~six months of fiscal ~~2016~~2018 is due to changes in the following operating activities (in millions):


	Fiscal nine months ended									Fiscal Six Months Ended
	September 30, 2017			September 24, 2016 ^(a)			Variance			June 29, 2019			June 30, 2018			Variance
Net income	$	312.9		$	313.5		$	(0.6	)	$	296.0		$	278.7		$	17.3
Depreciation and amortization	122.7			103.3			19.4			94.8			86.4			8.4
Share-based compensation expense	22.9			17.3			5.6			18.4			16.4			2.0
Deferred income taxes	4.6			2.0			2.6			10.2			(2.3		)	12.5
Inventories and accounts payable	(131.5		)	(148.8		)	17.3			(82.1		)	(106.0		)	23.9
Prepaid expenses and other current assets	14.9			19.5			(4.6		)	19.4			(15.1		)	34.5
Accrued expenses	(24.0		)	(22.4		)	(1.6		)	(49.0		)	(12.8		)	(36.2		)
Income taxes	9.2			(6.4		)	15.6			45.9			23.9			22.0
Other, net	9.3			7.6			1.7			(4.7		)	4.8			(9.5		)
Net cash provided by operating activities	$	341.0		$	285.6		$	55.4		$	348.9		$	274.0		$	74.9

^(a)As a result of the adoption of ASU 2016-09 (discussed in Note 13 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 ~~$55.4~~$74.9 million increase in net cash ~~from~~provided by operating activities in the first ~~nine~~six months of fiscal ~~2017~~2019 compared with the first ~~nine~~six months of fiscal ~~2016~~2018 resulted ~~primarily~~principally from ~~increased depreciation~~incremental profitability and ~~amortization due to~~ new store growth, in addition to the net impact of changes in our operating assets and ~~investments in information technology and infrastructure, lower cash requirements~~liabilities which fluctuated due primarily to the timing of ~~inventory receipts and related payments and the timing of income tax~~ payments.

Index

Investing Activities

Investing activities used cash of ~~$141.2~~$82.9 million and ~~$166.8~~$116.4 million in the first ~~nine~~six months of fiscal ~~2017~~2019 and fiscal ~~2016,~~2018, respectively. The $33.5 million decrease in cash used ~~for~~in investing activities primarily reflects a decrease in capital expenditures ~~and the impact of cash proceeds from the sale of property and equipment of $10.9 million~~ in the first ~~nine~~six months of fiscal ~~2017.~~ 2019 compared to fiscal 2018.

Capital expenditures for the first ~~nine~~six months of fiscal ~~2017~~2019 and fiscal ~~2016~~2018 were as follows (in millions):


	Fiscal nine months ended				Fiscal Six Months Ended
	September 30, 2017		September 24, 2016		June 29, 2019		June 30, 2018
Information technology					$	35.6	$	38.5
New and relocated stores and stores not yet opened	$	59.5	$	88.0	22.3		32.8
Information technology	49.1		30.7
Existing stores	30.7		37.4		13.0		11.5
Distribution center capacity and improvements	12.6		10.9		11.8		33.8
Corporate and other	0.1		0.2		0.8		0.1
Total capital expenditures	$	152.0	$	167.2	$	83.5	$	116.7

We expect to open approximately 100 new Tractor Supply stores during fiscal 2017 compared to 113 new Tractor Supply stores in fiscal 2016. We also expect to open approximately 25 new Petsense stores during fiscal 2017. In the first nine months of fiscal ~~2017, the Company opened 74 new Tractor Supply stores, converted its two Hometown Pet stores to Petsense stores and closed~~

~~Index~~

~~two stores, both Del’s stores, compared to 92 new Tractor Supply stores and five store closures, all of which were Del’s stores, during the first~~ ~~nine~~ ~~months of fiscal~~ ~~2016~~. The Company also opened 19 new Petsense stores (including the conversion of the Hometown Pet stores) and had no Petsense store closures during the first nine months of fiscal 2017. In addition to fewer Tractor Supply store openings, the decrease in store spending in the first nine months of fiscal 2017 compared to the first nine months of fiscal ~~2016~~ ~~also reflects a higher percentage of new prototype stores, which are less capital intensive, and fewer retrofit stores.~~

The ~~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 to our customer relationship management program, and other strategic initiatives.

~~Additionally,~~Spending on existing stores principally reflects routine refresh activity. In the first six months of fiscal 2019, the Company ~~began~~opened 25 new Tractor Supply stores compared to 40 new Tractor Supply stores during the first six months of fiscal 2018. The Company also opened two new Petsense stores during the first six months of fiscal 2019 compared to seven new Petsense stores during the first six months of fiscal 2018. We expect to open approximately 80 new Tractor Supply stores during fiscal 2019 compared to 80 new Tractor Supply stores in fiscal 2018. We also expect to open approximately 10 to 15 new Petsense stores during fiscal 2019 compared to 18 new Petsense stores in fiscal 2018.

Spending for distribution center capacity and improvements was higher in the first six months of fiscal 2018 due to the expansion of our distribution center in Waverly, Nebraska, and the construction of aour new northeast distribution center in Frankfort, New York. The expansion of the Waverly, Nebraska, distribution center was completed in the first quarter of fiscal 2018. The new northeast distribution center in Frankfort, New York, began shipping merchandise to our stores in the ~~third~~first quarter of fiscal ~~2017. The facility is expected to be operational by the end of fiscal 2018.~~2019.

Financing Activities

Financing activities used net cash of ~~$183.7~~$248.2 million and ~~$127.1~~$196.8 million in the first ~~nine~~six months of fiscal ~~2017~~2019 and fiscal ~~2016,~~2018, respectively. The ~~$56.6~~$51.4 million change in net cash from financing activities in the first ~~nine~~six months of fiscal ~~2017~~2019 compared to the first ~~nine~~six months of fiscal ~~2016~~2018 is due to changes in the following ~~financing activities~~ (in millions):


	Fiscal nine months ended									Fiscal Six Months Ended
	September 30, 2017			September 24, 2016 ^(a)			Variance			June 29, 2019			June 30, 2018			Variance
Net borrowings and repayments under debt facilities	$	236.3		$	145.0		$	91.3		$	81.3		$	115.5		$	(34.2	)
Repurchase of common stock	(326.7		)	(215.7		)	(111.0		)	(334.2		)	(252.5		)	(81.7		)
Net proceeds from issuance of common stock	9.6			37.4			(27.8		)	89.4			14.3			75.1
Cash dividends paid to stockholders	(100.0		)	(90.8		)	(9.2		)	(79.7		)	(71.4		)	(8.3		)
Other, net	(2.9		)	(3.0		)	0.1			(5.0		)	(2.7		)	(2.3		)
Net cash used in financing activities	$	(183.7	)	$	(127.1	)	$	(56.6	)	$	(248.2	)	$	(196.8	)	$	(51.4	)

The ~~$56.6~~$51.4 million change in net cash from financing activities in the first ~~nine~~six months of fiscal ~~2017~~2019 compared with the first ~~nine~~six months of fiscal ~~2016~~2018 is due to ~~an increase in repurchases of common stock and~~ a ~~reduction in proceeds from the issuance of common stock, partially offset by an increase~~decrease in borrowings, net of repayments, under our debt ~~facilities.~~facilities and an increase in capital returned to shareholders through repurchases of common stock and quarterly cash dividends. This was partially offset by an increase in net proceeds from the issuance of common stock stemming from the exercise of stock awards.

~~Debt~~

Index

~~The~~

Dividends

During the first six months of fiscal 2019 and 2018, the Board of Directors declared the following ~~table summarizes~~cash dividends:



Date Declared	Dividend Amount Per Share of Common Stock		Record Date	Date Paid
May 8, 2019	$	0.35	May 28, 2019	June 11, 2019
February 6, 2019	$	0.31	February 25, 2019	March 12, 2019

May 9, 2018	$	0.31	May 29, 2018	June 12, 2018
February 7, 2018	$	0.27	February 26, 2018	March 13, 2018

On August 7, 2019, the Company’s Board of Directors declared a quarterly cash dividend of $0.35 per share of the Company’s outstanding ~~debt~~common stock. The dividend will be paid on September 10, 2019, to stockholders of record as of the ~~dates indicated (in millions):~~close of business on August 26, 2019.

~~Index~~

~~Senior Notes~~

~~Senior Credit Facility~~

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 five, with the remaining balance due in full on the maturity date of February 19, 2021. 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 five, 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.

Borrowings under the February 2016 Term Loan and Revolver bear interest at either the bank’s base rate (4.250% at September 30, 2017) or the London Inter-Bank Offer Rate (“LIBOR”) (1.232% at September 30, 2017) plus an additional amount ranging from 0.500% to 1.125% per annum (0.750% at September 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 September 30, 2017), adjusted quarterly based on the Company’s leverage ratio. Borrowings under the June 2017 Term Loan bear interest at either the bank’s base rate (4.250% at September 30, 2017) or LIBOR (1.232% at September 30, 2017) plus an additional 1.000% per annum. As further described in Note 7, 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.

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~~

~~Index~~

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, prepayment of debts, transactions with subsidiaries or affiliates, and liens. As of September 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.

~~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 6 to the unaudited condensed consolidated financial statements. As of September 30, 2017, the notional amount of the interest rate swap was $182.5 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 6 to the unaudited condensed consolidated financial statements. As of September 30, 2017, the notional amount of the interest rate swap was $98.8 million.

Share Repurchase Program

The Company’s Board of Directors has authorized common stock repurchases under a share repurchase program. On May 8, 2019, the Board of Directors authorized a $1.5 billion increase to the existing share repurchase program, upbringing the total amount authorized to ~~$3.0~~$4.5 billion, exclusive of any fees, commissions, or other expenses related to such ~~repurchases, through December 31, 2020.~~repurchases. 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 or terminated at any time without prior notice.

~~Index~~

~~Dividends~~

~~During~~The following table provides the ~~first~~ ~~nine~~number of shares repurchased, average price paid per share, and total amount paid for share repurchases during the fiscal three and six months ~~of fiscal~~ ~~2017~~ended June 29, 2019 and ~~2016, the Board of Directors declared the following cash dividends:~~June 30, 2018, respectively (in thousands, except per share amounts):



	Fiscal Three Months Ended				Fiscal Six Months Ended
	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Total number of shares repurchased	1,732		1,477		3,456		3,844
Average price paid per share	$	103.27	$	64.37	$	96.69	$	65.70
Total cash paid for share repurchases	$	178,916	$	95,082	$	334,235	$	252,545

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

On November 6, 2017, the Company’s Board of Directors declared a quarterly cash dividend of $0.27 per share of the Company’s outstanding common stock. The dividend will be paid on December 5, 2017 to stockholders of record as of the close of business on November 20, 2017.

Off-Balance Sheet Arrangements

The Company’s off-balance sheet arrangements are limited to ~~operating leases and~~ outstanding letters of credit. The Company typically leases buildings for retail stores rather than acquiring these assets, which allows the Company to utilize financial capital to operate the business rather than invest in fixed assets. Letters of credit allow the Company to purchase inventory, primarily sourced overseas, in a timely manner and support certain risk management programs.

Significant Contractual Obligations and Commercial Commitments

At ~~September 30, 2017,~~June 29, 2019, there were ~~$41.6~~$37.3 million of outstanding letters of credit under the 2016 Senior Credit Facility.

Index

Significant Accounting Policies and Estimates

Management’s discussion and analysis of the Company’s financial position and results of operations are based upon its ~~consolidated financial statements,~~Condensed 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. The Company’s significant accounting policies, including areas of critical management judgments and estimates, have primary impact on the following financial statement areas:



-	Inventory valuation	-	~~Income tax contingencies~~
-	~~Self-insurance reserves~~	-	Impairment of long-lived assets
-	~~Sales tax audit reserve~~Self-insurance reserves	-	Impairment of goodwill and other indefinite-lived intangible assets

See the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December ~~31, 2016~~29, 2018, for a discussion of the Company’s critical accounting policies. The Company’s 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.

~~Index~~

New Accounting Pronouncements

~~New Accounting Pronouncements Recently Adopted~~

~~In July 2015,~~Refer to Note 13 to the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory.” This update requires an entity that determines the cost of inventory by methods other than last-in, first-out and the retail inventory method to measure inventory at the lower of cost and net realizable value. The Company adopted this guidance in the first quarter of fiscal 2017 using a prospective application. The adoption of this guidance did not have a material impact to ourCondensed Consolidated Financial Statements for recently adopted accounting pronouncements and ~~related disclosures.~~

~~In March 2016, the FASB~~recently 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 Companyaccounting pronouncements not yet 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.

~~New Accounting Pronouncements Not Yet Adopted~~

~~Index~~

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. 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 Company continues to evaluate the adoption of this standard, including the transition method; however, adoption 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.June 29, 2019.

~~Index~~

Item 3. 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 65 to the ~~unaudited condensed consolidated financial statements)~~Condensed Consolidated Financial Statements) which bear interest based on variable rates.

As discussed in Note 76 to the ~~unaudited condensed consolidated financial statements,~~Condensed 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 these 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 ~~$0.3~~$0.5 million and ~~$0.1~~$0.7 million infor the three months ended ~~September~~June 29, 2019 and June 30, ~~2017 and September 24, 2016,~~2018, respectively, and ~~$1.8~~$0.9 million and ~~$0.8~~$1.0 million infor the ~~nine~~six months ended ~~September~~June 29, 2019 and June 30, ~~2017 and September 24, 2016,~~2018, respectively.

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 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, growing economies of scale from increased volume of purchases, adjusting retail prices and selectively buying from the most competitive vendors without sacrificing quality.

Item 4. 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 ~~September 30, 2017~~June 29, 2019. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of ~~September 30, 2017~~June 29, 2019, our disclosure controls and procedures were effective.

Index

Internal Control over Financial Reporting

We adopted the new lease accounting standard under ASC 842 as of December 30, 2018 (see Note 1 and Note 13 to the Condensed Consolidated Financial Statements). As a result, we updated accounting policies affected by ASC 842 and modified internal controls over financial reporting related to ASC 842.

There were no other 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.

~~Index~~

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

There have been no material changes to our risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December ~~31, 2016~~29, 2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

Stock repurchase activity during the ~~third~~second quarter of fiscal ~~2017~~2019 was as follows:

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
July 2, 2017 - July 29, 2017 568,462
$ 52.29
568,462
$ 961,227,444
July 30, 2017 - August 26, 2017 558,020
^(a)
55.02
557,800
930,546,072
August 27, 2017 - September 30, 2017 301,088
^(a)
60.47
299,109
912,461,301
Total 1,427,570
$ 55.08
1,425,371
$ 912,461,301



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
March 31, 2019 - April 27, 2019	522,500		$	102.06	522,500	$	311,399,902
April 28, 2019 - May 25, 2019	551,118	^(a)	101.85		550,000	1,755,387,231
May 26, 2019 - June 29, 2019	660,000		105.41		660,000	1,685,822,720
Total	1,733,618		$	103.27	1,732,500	$	1,685,822,720

(a) The number of shares purchased and average price paid per share ~~include 220 and 1,979~~includes 1,118 shares withheld from vested restricted stock units to satisfy employees’ minimum statutory tax withholding requirements for the period of ~~July 30, 2017~~April 28, 2019 - ~~August 26, 2017 and August 27, 2017 - September 30, 2017, respectively.~~May 25, 2019.

Share repurchases were made pursuant to the share repurchase program described under Part I Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations. 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 ~~Securities and Exchange Commission~~SEC and other applicable legal requirements.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

~~Index~~

Item 5. Other Information

None.

Index

Item 6. Exhibits

Exhibit


31.1*	31.1* Certification of Chief Executive ~~Officer under Section 302 of the Sarbanes-Oxley Act of 2002.~~ 31.2* ~~Certification of Chief Financial~~ Officer under Section 302 of the Sarbanes-Oxley Act of 2002.


31.2*	Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.


32.1*	Certification of Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.


101.INS	XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.


~~101~~101.SCH**	XBRL Taxonomy Extension Schema Document


101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document


101.DEF**	XBRL Taxonomy Extension Definition Linkbase Document


101.LAB**	XBRL Taxonomy Extension Label Linkbase Document


101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document

104

The ~~following financial information~~cover page from ~~our~~the Company’s Quarterly Report on Form 10-Q for the ~~third~~ quarter ~~of fiscal 2017, filed with the Securities and Exchange Commission on November 9, 2017,~~ended June 29, 2019, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets at September 30, 2017, December 31, 2016 and September 24, 2016, (ii) the Condensed Consolidated Statements of Income for the fiscal three and nine months ended September 30, 2017 and September 24, 2016, (iii) the Condensed Consolidated Statements of Comprehensive Income for the fiscal three and nine months ended September 30, 2017 and September 24, 2016, (iv) the Condensed Consolidated Statements of Cash Flows for the fiscal nine months ended September 30, 2017 and September 24, 2016, and (v) the Notes to Unaudited Condensed Consolidated Financial Statements.Inline XBRL (included in Exhibit 101).


*	Filed herewith

* Filed herewith

Index

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



			TRACTOR SUPPLY COMPANY

Date:	~~November 9, 2017~~August 8, 2019	By:	/s/ Kurt D. Barton
			Kurt D. Barton
			~~Senior~~Executive Vice President - Chief Financial Officer and Treasurer
			(Duly Authorized Officer and Principal Financial Officer)

Page 3331



Consideration transferred	$	144,476
Assets acquired:
Current assets	$	21,875
Property and equipment	25,519
Other intangible assets - tradename	31,300
Other assets	428
Liabilities assumed:
Current liabilities	(12,091		)
Long-term liabilities	(5,489		)
Total identifiable net assets acquired	61,542
Excess of consideration transferred over identifiable net assets acquired (goodwill)	$	82,934



Date Declared	Dividend Amount Per Share		Record Date	Date Paid
August 7, 2017	$	0.27	August 21, 2017	September 6, 2017
May 8, 2017	$	0.27	May 22, 2017	June 6, 2017
February 8, 2017	$	0.24	February 27, 2017	March 14, 2017

August 1, 2016	$	0.24	August 15, 2016	August 30, 2016
May 2, 2016	$	0.24	May 16, 2016	June 1, 2016
February 3, 2016	$	0.20	February 22, 2016	March 8, 2016