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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-23314
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TRACTOR SUPPLY COMPANY
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3139732
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
320 Plus Park Boulevard, Nashville, Tennessee 37217
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (615) 366-4600
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at April 28, 2001
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Common Stock, $.008 par value 8,813,771
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TRACTOR SUPPLY COMPANY
INDEX
Page No.
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Part I. Financial Information:
Item 1. Financial Statements:
Balance Sheets -
March 31, 2001 and December 30, 2000 3
Statements of Income -
For the Fiscal Three Months Ended
March 31, 2001 and April 1, 2000 4
Statements of Cash Flows -
For the Fiscal Three Months Ended
March 31, 2001 and April 1, 2000 5
Notes to Unaudited Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
Item 3. Quantitative and Qualitative
Disclosures About Market Risk 10
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K 11
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRACTOR SUPPLY COMPANY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
MARCH 31, DECEMBER 30,
2001 2000
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(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 14,272 $ 9,145
Accounts receivable, net ................................................... 6,410 7,683
Inventories ................................................................ 269,243 222,535
Prepaid expenses ........................................................... 6,631 7,870
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Total current assets ................................................ 296,556 247,233
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Land ......................................................................... 6,415 6,449
Buildings and improvements ................................................... 68,920 67,985
Machinery and equipment ...................................................... 50,683 49,304
Construction in progress ..................................................... 1,607 1,605
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127,625 125,343
Accumulated depreciation and amortization .................................... (47,609) (44,855)
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Property and equipment, net ................................................ 80,016 80,488
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Deferred income taxes ........................................................ 1,112 1,112
Other assets ................................................................. 3,492 3,463
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Total assets ........................................................ $ 381,176 $ 332,296
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................... $ 117,288 $ 70,294
Accrued expenses ........................................................... 31,136 33,929
Current maturities of long-term debt ....................................... 3,145 3,145
Current portion of capital lease obligations ............................... 279 279
Income taxes currently payable ............................................. -- 1,643
Deferred income taxes ...................................................... 4,212 4,212
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Total current liabilities ........................................... 156,060 113,502
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Revolving credit loan ........................................................ 59,000 50,007
Other long-term debt ......................................................... 9,355 10,131
Capital lease obligations .................................................... 2,742 2,812
Other long-term liabilities .................................................. 2,439 808
Stockholders' equity:
Common stock, 100,000,000 shares authorized; $.008 par value; 8,803,574 and
8,792,527 shares issued and outstanding in 2001 and 2000, respectively ... 70 70
Additional paid-in capital ................................................. 43,103 43,009
Retained earnings .......................................................... 110,108 111,957
Accumulated other comprehensive loss ....................................... (1,701) --
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Total stockholders' equity ............................................... 153,281 155,036
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Total liabilities and stockholders' equity .......................... $ 381,176 $ 332,296
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The accompanying notes are an integral part of this statement.
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TRACTOR SUPPLY COMPANY
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE FISCAL
THREE MONTHS ENDED
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MARCH 31, APRIL 1,
2001 2000
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(UNAUDITED)
Net sales .................................. $ 162,517 $ 147,482
Cost of merchandise sold ................... 120,422 109,878
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Gross margin .......................... 42,095 37,604
Selling, general and administrative expenses 40,953 35,760
Depreciation and amortization .............. 2,707 2,182
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Loss from operations .................. (1,565) (338)
Interest expense, net ...................... 1,517 1,303
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Loss before income taxes .............. (3,082) (1,641)
Income tax benefit ......................... (1,233) (666)
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Net loss .............................. $ (1,849) $ (975)
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Net loss per share - basic ............ $ (.21) $ (.11)
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Net loss per share - assuming dilution $ (.21) $ (.11)
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The accompanying notes are an integral part of this statement.
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TRACTOR SUPPLY COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE FISCAL
THREE MONTHS ENDED
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MARCH 31, APRIL 1,
2001 2000
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(UNAUDITED)
Cash flows from operating activities:
Net loss ........................................... $ (1,849) $ (975)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization expense .......... 2,707 2,182
Loss (gain) on sale of property and equipment .. (101) 177
Change in assets and liabilities:
Accounts receivable .......................... 1,273 426
Inventories .................................. (46,708) (56,755)
Prepaid expenses ............................. 1,239 (849)
Accounts payable ............................. 46,994 59,098
Accrued expenses ............................. (2,793) (6,653)
Income taxes currently payable ............... (1,643) (3,430)
Other ........................................ (149) 1
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Net cash used in operating activities ................ (1,030) (6,778)
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Cash flows from investing activities:
Capital expenditures ............................. (2,321) (5,396)
Proceeds from sale of property and equipment ..... 237 --
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Net cash used in investing activities ................ (2,084) (5,396)
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Cash flows from financing activities:
Net borrowings under revolving credit loan ....... 8,993 16,363
Repayment of other long-term debt ................ (776) (932)
Principal payments under capital lease obligations (70) (69)
Proceeds from issuance of common stock ........... 94 81
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Net cash provided by financing activities ............ 8,241 15,443
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Net increase in cash and cash equivalents ............ 5,127 3,269
Cash and cash equivalents at beginning of period ..... 9,145 6,991
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Cash and cash equivalents at end of period ........... $ 14,272 $ 10,260
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ........................................... $ 1,397 $ 1,413
Income taxes ....................................... 441 2,250
* Reclassified, for current year comparison.
The accompanying notes are an integral part of this statement.
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TRACTOR SUPPLY COMPANY
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
The accompanying interim financial statements have been prepared without audit,
and certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted, although the Company believes that the
disclosures herein are adequate to make the information presented not
misleading. These statements should be read in conjunction with the Company's
annual report on Form 10-K for the fiscal year ended December 30, 2000. The
results of operations for the fiscal three-month periods are not necessarily
indicative of results for the full fiscal year.
In the opinion of management, the accompanying interim financial statements
contain all adjustments (consisting only of normal recurring accruals) necessary
for a fair statement of the Company's financial position as of March 31, 2001
and its results of operations and its cash flows for the fiscal three-month
periods ended March 31, 2001 and April 1, 2000.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to December 31.
Management Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles inherently requires estimates and assumptions by
management that affect the reported amounts of assets and liabilities, revenues
and expenses and related disclosures. Actual results could differ from those
estimates.
Inventories
The accompanying unaudited financial statements have been prepared without full
physical inventories. The value of the Company's inventories was determined
using the lower of last-in, first-out (LIFO) cost or market. If the first-in,
first-out (FIFO) method of accounting for inventory had been used, inventories
would have been approximately $5,186,000 and $5,056,000 higher than reported at
March 31, 2001 and December 30, 2000, respectively. Since LIFO costs can only be
determined at the end of each fiscal year when inflation rates and inventory
levels are finalized, estimates of LIFO inventory costs are used for interim
financial reporting.
Net Loss Per Share
Net loss per share is calculated as follows (in thousands, except per share
amounts):
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2001 APRIL 1, 2000
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PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ ------ ------ ------ ------
Net loss per share:
Net income ... $(1,849) 8,802 $(0.21) $(975) 8,773 $(0.11)
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Common stock equivalents had no dilutive effect for either period.
NOTE 2 - SEASONALITY:
The Company's business is highly seasonal, with a significant portion of its
sales and a majority of its income generated in the second fiscal quarter. The
Company typically operates at a loss in the first fiscal quarter.
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NOTE 3 - COMPREHENSIVE LOSS:
On December 31, 2000, the Company adopted Statement of Financial Accounting
Standards Number 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), as amended. SFAS 133 requires the Company to recognize
all derivative instruments in the balance sheet at fair value. The Company has
reduced its exposure to increases in interest rates by entering into interest
rate swap agreements. These interest rate swaps are designated as cash flow
hedges. The adoption of SFAS 133 impacts the accounting for the Company's
interest rate swap agreements.
Upon adoption of SFAS 133, the Company recorded the fair value of the interest
rate swaps on its balance sheet. The Company will continue to reflect the
current fair value of interest rate swaps in its balance sheet. The related
unrealized gains or losses on these swaps are deferred in stockholders' equity
(as a component of comprehensive loss). These deferred gains and losses are
recognized in income in the period in which the related interest rates being
hedged are recognized in interest expense. However, to the extent, if any, that
the change in value of an interest rate swap contract does not perfectly offset
the change in the value of the interest rate being hedged, that ineffective
portion is immediately recognized in the results of operations.
Comprehensive loss includes changes in the fair value of the Company's interest
rate swaps which qualify for hedge accounting. Comprehensive loss totaled $3.6
million for the first quarter of fiscal 2001 compared to $1.0 million for the
first quarter of fiscal 2000. The difference between net loss and comprehensive
loss for the first quarter of fiscal 2001 is the result of $1.7 million of
unrealized losses on swap contracts in the quarter recognized in accordance with
SFAS 133. As of March 31, 2001 the Company expects to reclassify approximately
$600,000 of net losses on interest rate swaps from accumulated other
comprehensive loss to earnings over the next twelve months.
NOTE 4 - SUBSEQUENT EVENT:
The Company continues to carry life insurance policies on certain key
executives. In April 2001, a former executive of the Company, on whom the
Company had such a policy, passed away. As a result of the related coverage, the
Company expects to realize approximately $2.1 million of net benefit proceeds.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis describes certain factors affecting
Tractor Supply Company's (the "Company") results of operations for the fiscal
three-month periods ended March 31, 2001 and April 1, 2000, and significant
developments affecting its financial condition since the end of the fiscal year,
December 30, 2000, and should be read in conjunction with the Company's annual
report on Form 10-K for the fiscal year ended December 30, 2000. The following
discussion and analysis also contains certain historical and forward-looking
information. The forward-looking statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 ("the Act").
All statements, other than statements of historical facts, which address
activities, events or developments that the Company expects or anticipates will
or may occur in the future, including such things as future capital expenditures
(including the amount and nature thereof), business strategy, expansion and
growth of the Company's business operations and other such matters are
forward-looking statements. To take advantage of the safe harbor provided by the
Act, the Company is identifying certain factors that could cause actual results
to differ materially from those expressed in any forward-looking statements,
whether oral or written, made by or on behalf of the Company.
All phases of the Company's operations are subject to influences outside its
control. Any one, or a combination, of these factors could materially affect the
results of the Company's operations. These factors include general economic
cycles affecting consumer spending, weather factors, operating factors affecting
customer satisfaction, consumer debt levels, pricing and other competitive
factors, the ability to attract, train and retain highly-qualified associates,
the ability to identify suitable locations and negotiate favorable lease
agreements on new and relocated stores, the timing and acceptance of new
products in the stores, the mix of goods sold, the continued availability of
favorable credit sources, capital market conditions, in general, and the
seasonality of the Company's business. Forward-looking statements made by or on
behalf of the Company are based on a knowledge of its business and the
environment in which it operates, but because of the factors listed above,
actual results could differ materially from those reflected by any
forward-looking statements. Consequently, all of the forward-looking statements
made are qualified by these cautionary statements and there can be no assurance
that the actual results or developments anticipated by the Company will be
realized or, even if substantially realized, that they will have the expected
consequences to or effects on the Company or its business and operations.
RESULTS OF OPERATIONS
The Fiscal Three Months (First Quarter) Ended March 31, 2001 and April 1, 2000
Net sales increased 10.2% to $162.5 million for the first quarter of fiscal 2001
from $147.5 million for the first quarter of fiscal 2000. The sales increase
resulted from new store performance, as comparable store sales (excluding
relocations, using all stores open at least one year) decreased 1.9% for the
first quarter of fiscal 2001. The decrease in comparable store sales was
primarily due to an expected weather-related shift to a later spring selling
season (compared to the prior year). The Company opened 11 new stores during the
first quarter of fiscal 2001 compared to ten new stores during the first quarter
of fiscal 2000. The Company had originally planned to open 25 new stores in
fiscal 2001, but has decided to decrease its new store openings to a total of 17
to 18 new stores for several reasons, including anticipated improvements in the
real estate market as well as the availability of fully trained new store
managers.
Planned store renovations and relocations are being completed on schedule. Three
of these stores were completed in April; three to four additional renovations
and relocations are expected to be completed later in the year.
The gross margin rate for the first quarter of fiscal 2001 increased .4
percentage point to 25.9% of sales from 25.5% of sales in the first quarter of
fiscal 2000 mainly due to lower shrinkage, improved product costs and changes in
the sales mix, partially offset by higher freight costs.
As a percent of sales, selling, general and administrative ("SG&A") expenses
increased 1.0 percentage point to 25.2% of sales in the first quarter of fiscal
2001 from 24.2% of sales in the first quarter of fiscal 2000 primarily as a
result of costs associated with new stores as well as the leverage loss
attributable to comparable store sales performance. On an absolute basis, SG&A
expenses increased 14.5% to $41.0 million in the first quarter of fiscal 2001
from $35.8 million in the first quarter of fiscal 2000. The increased dollar
amount was primarily attributable to cost associated with new store openings
(new stores have considerably higher occupancy costs, primarily rent, than the
existing store base).
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Depreciation and amortization expense of $2.7 million for the first quarter of
fiscal 2001 increased 24.1% over the first quarter of fiscal 2000 due to costs
associated with new stores and greater infrastructure costs. Net interest
expense increased 16.4% to $1.5 million in the first quarter of fiscal 2001
primarily due to additional borrowings under the Company's credit agreement to
fund the current growth and expansion plans.
The Company's effective tax rate decreased to 40.0% in the first quarter of
fiscal 2001 compared with 40.6% for the first quarter of fiscal 2000 primarily
due to a lower effective state income tax rate.
As a result of the foregoing factors, net loss for the first quarter of fiscal
2001 increased 89.6% to $1.8 million from $1.0 million for the first quarter of
fiscal 2000 and net loss per share for the first quarter of fiscal 2001
increased 90.9% to $.21 per share from $.11 per share for the first quarter of
fiscal 2000. As a percent of sales, net loss increased .4 percentage point to
1.1% of sales for the first quarter of fiscal 2001 from .7% of sales for the
first quarter of fiscal 2000. Due to seasonal trends, the Company typically
operates at a net loss in the first quarter of its fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
In addition to normal operating expenses, the Company's primary ongoing cash
requirements are those necessary for the Company's expansion, remodeling and
relocation programs, including inventory purchases and capital expenditures. The
Company's primary ongoing sources of liquidity are funds provided from
operations, commitments available under its credit agreement and short-term
trade credit.
The Company's inventory and accounts payable levels typically build in the first
fiscal quarter and again in the third fiscal quarter in anticipation of the
spring and fall selling seasons. At March 31, 2001, the Company's inventories
had increased $46.7 million to $269.2 million from $222.5 million at December
30, 2000. This increase resulted primarily from additional inventory for new
stores and planned inventory increases in seasonal product lines. Short-term
trade credit, which represents a source of financing for inventory, increased
$47.0 million to $117.3 million at March 31, 2001 from $70.3 million at December
30, 2000. Trade credit arises from the Company's vendors granting extended
payment terms for inventory purchases. Payment terms vary from 30 days to 180
days depending on the inventory product.
At March 31, 2001, the Company had working capital of $140.5 million, which
represented a $6.8 million increase from December 31, 2000. This increase
resulted primarily from an increase in cash and cash equivalents and decreases
in accounts receivable, accrued expenses and income taxes payable (mainly due to
timing of payments). These increases were partially offset by a decrease in
prepaid expenses.
Operations used net cash of $1.0 million and $6.8 million in the first quarter
of fiscal 2001 and 2000, respectively. The $5.8 million decrease in net cash
used in the first quarter of fiscal 2001 resulted primarily from smaller
decreases in accrued expenses and income taxes payable (primarily due to timing
of payments).
Cash used in investing activities of $2.1 million for the first quarter of
fiscal 2001 represented a $3.3 million decrease from cash used in the first
quarter of fiscal 2000 of $5.4 million. The decrease in cash used in the first
quarter of fiscal 2001 reflects less capital expenditures as compared to the
first quarter of fiscal 2000 (mainly due to fixture costs associated with fiscal
2000 remerchandising activities, leasehold improvements and equipment costs
associated with new distribution centers in fiscal 2000, as well as other
infrastructure costs.
Financing activities in the first quarter of fiscal 2001 provided $8.2 million
in cash, which represented a $7.2 million decrease in net cash provided from the
$15.4 million in net cash provided in the first quarter of fiscal 2000. This
decrease in net cash provided resulted primarily from net short-term borrowings
under the credit agreement of approximately $9.0 million during the first
quarter of fiscal 2001 compared to net borrowings of approximately $16.4 million
during the first quarter of fiscal 2000.
The Company believes that its cash flow from operations, borrowings available
under its credit agreement and short-term trade credit will be sufficient to
fund the Company's operations and its current growth and expansion plans.
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RECENT ACCOUNTING PRONOUNCEMENTS
On December 31, 2000, the Company adopted Statement of Financial Accounting
Standards Number 133, "Accounting for Derivative Instruments and Hedging
Activities," ("SFAS 133") as amended. SFAS 133 requires the Company to recognize
all derivative instruments in the balance sheet at fair value. The Company has
reduced its exposure to increases in interest rates by entering into interest
rate swap agreements. These interest rate swaps are designated as cash flow
hedges. The adoption of SFAS 133 impacts the accounting for the Company's
interest rate swap agreements.
Upon adoption of SFAS 133, the Company recorded the fair value of the interest
rate swaps on its balance sheet. The Company will continue to reflect the
current fair value of interest rate swaps in its balance sheet. The related
unrealized gains or losses on these swaps are deferred in stockholders' equity
(as a component of comprehensive loss). These deferred gains and losses are
recognized in income in the period in which the related interest rates being
hedged are recognized in interest expense. However, to the extent if any, that
the change in value of an interest rate swap contract does not perfectly offset
the change in the value of the interest rate being hedged, that ineffective
portion is immediately recognized in the results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to financial market risks, including changes in interest
rates. To reduce such risks, the Company has entered into interest rate swap
agreements as a means of managing its interest rate exposure. The interest rate
swap agreements apply to a maximum of $30 million in outstanding borrowings
under the Company's revolving credit agreement and also the outstanding term
loan balance, approximately $9.3 million at March 31, 2001. All borrowings under
the Company's revolving credit agreement and term loan agreement bear interest
at a variable rate based on the prime rate or the London Interbank Offered Rate.
An increase in interest rates of 100 basis points would not significantly affect
the Company's net income. All of the Company's business is transacted in U.S.
dollars and, accordingly, foreign exchange rate fluctuations have never had a
significant impact on the Company, and they are not expected to in the
foreseeable future.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the
fiscal quarter ended March 31, 2001.
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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: May 4, 2001 By: /s/ Calvin B. Massmann
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Calvin B. Massmann
Senior Vice President-
Chief Financial Officer and Treasurer
(Duly Authorized Officer and
Principal Financial Officer)
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