1
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 September 25, 1999
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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 ________________________
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 Identification No.)
Incorporation or Organization)
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
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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 23, 1999
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Common Stock, $.008 par value 8,769,106
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TRACTOR SUPPLY COMPANY
INDEX
Page No.
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Part I. Financial Information:
Item 1. Financial Statements:
Balance Sheets -
September 25, 1999 and December 26, 1998 3
Statements of Income -
For the Fiscal Three and Nine Months Ended
September 25, 1999 and September 26, 1998 4
Statements of Cash Flows -
For the Fiscal Nine Months Ended
September 25, 1999 and September 26, 1998 5
Notes to Unaudited Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 11
Item 3. Quantitative and Qualitative
Disclosures About Market Risk 11
Part II. Other Information:
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRACTOR SUPPLY COMPANY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SEPT. 25, DECEMBER 26,
1999 1998
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(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 8,152 $ 18,201
Accounts receivable, net........................................................ 10,393 5,578
Inventories..................................................................... 234,831 171,749
Other current assets............................................................ 3,880 6,301
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Total current assets..................................................... 257,256 201,829
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Land.............................................................................. 6,654 6,871
Buildings and improvements........................................................ 54,367 49,437
Machinery and equipment........................................................... 37,811 23,121
Construction in progress.......................................................... 3,159 8,818
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101,991 88,247
Accumulated depreciation and amortization......................................... (33,116) (28,339)
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Property and equipment, net..................................................... 68,875 59,908
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Deferred income taxes............................................................. 1,426 1,426
Other assets...................................................................... 1,822 1,486
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Total assets............................................................. $ 329,379 $ 264,649
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................ $ 75,605 $ 60,900
Accrued expenses................................................................ 30,076 29,610
Short-term note payable......................................................... 15,000 --
Current maturities of long-term debt............................................ 3,138 3,138
Current portion of capital lease obligations.................................... 369 553
Income taxes currently payable.................................................. 1,298 4,134
Deferred income taxes........................................................... 7,964 7,964
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Total current liabilities................................................ 133,450 106,299
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Revolving credit loan............................................................. 47,210 19,000
Term loan......................................................................... 10,179 11,786
Other long-term debt.............................................................. 3,756 4,361
Capital lease obligations......................................................... 1,713 1,985
Other long-term liabilities....................................................... 507 527
Excess of fair value of assets acquired over cost less accumulated
amortization of $3,010 and $2,875, respectively................................. 580 715
Stockholders' equity:
Common stock, 100,000,000 shares authorized; $.008 par value; 8,764,278
and 8,748,105 shares issued and outstanding in 1999 and 1998, respectively.... 70 70
Additional paid-in capital...................................................... 42,589 42,213
Retained earnings............................................................... 89,325 77,693
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Total stockholders' equity.................................................... 131,984 119,976
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Total liabilities and stockholders' equity............................... $ 329,379 $ 264,649
=========== ===========
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 FOR THE FISCAL
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ---------------------------
SEPT. 25, SEPT. 26, SEPT. 25, SEPT. 26,
1999 1998 1999 1998
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(UNAUDITED) (UNAUDITED)
Net sales........................................ $ 160,214 $ 140,628 $ 499,985 $ 442,296
Cost of merchandise sold......................... 118,591 104,195 370,651 330,126
---------- ---------- ---------- ---------
Gross margin.................................. 41,623 36,433 129,334 112,170
Selling, general and administrative expenses..... 34,058 30,577 101,826 89,157
Depreciation and amortization.................... 1,941 1,370 5,204 3,964
---------- ---------- ---------- ---------
Income from operations........................ 5,624 4,486 22,304 19,049
Interest expense, net............................ 1,137 850 2,589 2,368
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Income before income taxes.................... 4,487 3,636 19,715 16,681
Income tax provision............................. 1,840 1,499 8,083 6,878
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Net income.................................... $ 2,647 $ 2,137 $ 11,632 $ 9,803
========== ========== ========== =========
Net income per share - basic.................. $ 0.30 $ 0.24 $ 1.33 $ 1.12
========== ========== ========== =========
Net income per share - assuming dilution...... $ 0.30 $ 0.24 $ 1.31 $ 1.11
========== ========== ========== =========
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 NINE MONTHS ENDED
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SEPT. 25, SEPT. 26,
1999 1998
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(UNAUDITED)
Cash flows from operating activities:
Net income........................................................... $ 11,632 $ 9,803
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization expense............................ 5,204 3,964
Loss (gain) on sale of property and equipment.................... (103) 134
Change in assets and liabilities:
Accounts receivable............................................ (4,815) (3,545)
Inventories.................................................... (63,082) (36,088)
Other current assets........................................... 2,410 (603)
Accounts payable............................................... 14,705 16,147
Accrued expenses............................................... 466 6,457
Income taxes currently payable................................. (2,836) (1,762)
Other.......................................................... (393) (131)
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Net cash used in operating activities.................................. (36,812) (5,624)
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Cash flows from investing activities:
Capital expenditures............................................... (14,698) (9,617)
Proceeds from sale of property and equipment....................... 543 233
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Net cash used in investing activities.................................. (14,155) (9,384)
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Cash flows from financing activities:
Net borrowings (repayments) under revolving credit loan............ 28,210 (838)
Borrowings under term loan agreement............................... -- 15,000
Repayments under short-term loan agreement......................... (1,607) (357)
Borrowings under short-term note payable........................... 15,000 --
Principal payments under capital lease obligations................. (456) (572)
Repayment of long-term debt........................................ (605) (545)
Proceeds from issuance of common stock............................. 376 215
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Net cash provided by financing activities.............................. 40,918 12,903
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Net decrease in cash and cash equivalents.............................. (10,049) (2,105)
Cash and cash equivalents at beginning of period....................... 18,201 8,477
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Cash and cash equivalents at end of period............................. $ 8,152 $ 6,372
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................................. $ 2,560 $ 2,350
Income taxes......................................................... 10,918 8,533
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 26, 1998. The
results of operations for the fiscal three and nine-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 September 25,
1999 and its results of operations and its cash flows for the fiscal three and
nine-month periods ended September 25, 1999 and September 26, 1998.
Inventories
The accompanying unaudited financial statements have been prepared without full
physical inventories. The value of the Company's inventories was determined
using the lower of last-in, first-out (LIFO) cost or market. If the first-in,
first-out (FIFO) method of accounting for inventory had been used, inventories
would have been approximately $7,039,000 and $6,497,000 higher than reported at
September 25, 1999 and December 26, 1998, respectively. Since LIFO costs can
only be determined at the end of each fiscal year when inflation rates and
inventory levels are finalized, estimates of LIFO inventory costs are used for
interim financial reporting.
Net Income Per Share
Net income per share is calculated as follows (in thousands, except per share
amounts):
1999
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 25, 1999 SEPTEMBER 25, 1999
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PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ ------ ------ ------ ------
Basic net income per share:
Net income $ 2,647 8,761 $ 0.30 $ 11,632 8,757 $ 1.33
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Stock options outstanding 52 106
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Diluted net income per share $ 2,647 8,813 $ 0.30 $ 11,632 8,863 $ 1.31
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1998
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 26, 1998 SEPTEMBER 26, 1998
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PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ ------ ------ ------ ------
Basic net income per share:
Net income $ 2,137 8,741 $ 0.24 $ 9,803 8,740 $ 1.12
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Stock options outstanding 94 61
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Diluted net income per share $ 2,137 8,835 $ 0.24 $ 9,803 8,801 $ 1.11
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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.
NOTE 3 - SHORT-TERM NOTE PAYABLE:
In September 1999, the Company entered into an unsecured term note (the "Term
Note") with SunTrust Bank, Nashville, N.A. ("SunTrust") pursuant to which the
Company borrowed $15 million. The Term Note was pursuant to the Company's
existing loan agreement with SunTrust (the "Loan Agreement") and bears interest
at approximately 6.15% per year until its maturity in November 1999. There are
no compensating balance requirements associated with the Loan Agreement. The
Loan Agreement contains certain restrictions regarding additional indebtedness;
employee loans; business operations; guarantees; investments; mergers,
consolidations and sales of assets; transactions with subsidiaries; and liens.
In addition, the Company must comply with certain quarterly restrictions
regarding net worth, working capital, ratios of total liabilities to net worth
and interest coverage and current ratio requirements.
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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 and nine-month periods ended September 25, 1999 and September 26, 1998,
and significant developments affecting its financial condition since the end of
the fiscal year, December 26, 1998, and should be read in conjunction with the
Company's annual report on Form 10-K for the fiscal year ended December 26,
1998. The following discussion and analysis also contains certain historical and
forward-looking information. The forward-looking statements are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995 ("the Act"). All statements, other than statements of historical facts,
which address activities, events or developments that the Company expects or
anticipates will or may occur in the future, including such things as future
capital expenditures (including the amount and nature thereof), business
strategy, expansion and growth of the Company's business operations and other
such matters are forward-looking statements. To take advantage of the safe
harbor provided by the Act, the Company is identifying certain factors that
could cause actual results to differ materially from those expressed in any
forward-looking statements, whether oral or written, made by or on behalf of the
Company.
All phases of the Company's operations are subject to influences outside its
control. Any one, or a combination, of these factors could materially affect the
results of the Company's operations. These factors include general economic
cycles affecting consumer spending, weather factors, operating factors affecting
customer satisfaction, consumer debt levels, pricing and other competitive
factors, the ability to identify suitable locations and negotiate favorable
lease agreements on new and relocated stores and distribution facilities, the
timing and acceptance of new products in the stores, the mix of goods sold, the
continued availability of favorable credit sources and other capital market
conditions and the seasonality of the Company's business. Forward-looking
statements made by or on behalf of the Company are based on a knowledge of its
business and the environment in which it operates, but because of the factors
listed above, actual results could differ materially from those reflected by any
forward-looking statements. Consequently, all of the forward-looking statements
made are qualified by these cautionary statements and there can be no assurance
that the actual results or developments anticipated by the Company will be
realized or, even if substantially realized, that they will have the expected
consequences to or effects on the Company or its business and operations.
RESULTS OF OPERATIONS
The Fiscal Three Months (Third Quarter) and Nine Months Ended September 25, 1999
and September 26, 1998
Net sales increased 13.9% to $160.2 million for the third quarter of fiscal 1999
from $140.6 million for the third quarter of fiscal 1998. Net sales rose 13.0%
to $500.0 million for the first nine months of fiscal 1999 from $442.3 million
for the first nine months of fiscal 1998. The sales increases resulted primarily
from new stores as comparable store sales (excluding relocations, using all
stores open at least one year) increased 5.4% for the third quarter of fiscal
1999 and 6.0% for the first nine months of fiscal 1999 over the corresponding
periods in the prior fiscal year. The Company opened 24 new retail farm stores
(nine in the third quarter of fiscal 1999) and relocated one store during the
first nine months of fiscal 1999. The Company opened 12 new retail farm stores
(one in the third quarter of fiscal 1998) during the first nine months of fiscal
1998. Comparable store sales for the third quarter of fiscal 1999 increased 5.4%
despite (i) cycling the prior year's comparable store sales increase of 12.0%
and (ii) soft sales in late September (primarily attributable to drought
conditions in Texas and the Ohio valley). Other contributing factors included:
(a) the group of product departments remerchandised in the first quarter of 1999
reflected a comparable store sales increase of over 9% for the third quarter and
(b) the top core basic sales categories that represent more than a third of the
Company's business reflected a comparable store sales increase of over 10% for
the third quarter. At September 25, 1999, the Company operated 266 retail farm
stores (in 26 states) versus 240 stores (in 26 states) at September 26, 1998.
The Company's current plans call for the opening of approximately six additional
new stores in the fourth quarter of fiscal 1999. The Company is also well
positioned to achieve its goal of opening 33 new stores in fiscal 2000.
As part of the Company's on-going efforts to continually focus on improving its
comparable store sales, the Company is planning to undertake several new
merchandising initiatives in 2000, including (i) the remerchandising of our tool
corral (consisting primarily of compressors, welders, pressure washers,
generators, hand tools, and all related accessories), (ii) greater product
assortment in fencing and core agricultural maintenance products and (iii)
further enhancement of product offerings in equine, pet and bird feeding
departments. Further, planned marketing initiatives and research efforts include
(i) expanded use of television media, featuring Company spokesmen George
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Strait and John Lyons, (ii) increased coverage of key markets using targeted
newspaper circulars and radio, (iii) expanded event marketing and (iv)
data-based marketing.
The gross margin rate increased .1 percentage point to 26.0% of sales for the
third quarter of fiscal 1999 and increased .5 percentage points to 25.9% of
sales for the first nine months of fiscal 1999 compared with the corresponding
periods in the prior fiscal year. The gross margin rate increase for the third
quarter of fiscal 1999 was primarily due to improved product costs and new
higher margin products and product lines associated with the remerchandising
effort completed in the first quarter of fiscal 1999, as well as an increase in
volume purchase rebates.
As a percent of sales, selling, general and administrative ("SG&A") expenses
decreased .4 percentage points to 21.3% of sales in the third quarter of fiscal
1999 and increased .2 percentage points to 20.4% of sales for the first nine
months of fiscal 1999 primarily due to the Company's on-going efforts to control
operating expenses. On an absolute basis, SG&A expenses increased 11.4% to $34.1
million in the third quarter of fiscal 1999 and increased 14.2% to $101.8
million for the first nine months of fiscal 1999. The increased dollar amount
was primarily attributable to costs associated with new store openings (new
stores have considerably higher occupancy costs, primarily rent, than the
existing store base) and the incremental costs of certain planned infrastructure
investments. Depreciation and amortization expense increased 41.7% and 31.3%
over the prior year for the third quarter and the first nine months of fiscal
1999, respectively, due mainly to costs associated with new stores, costs
associated with the Company's installation of its new SAP merchandising and
distribution computer systems, and, to a lesser extent, from fixture costs
associated with the remerchandising effort completed during the first quarter of
fiscal 1999. Net interest expense increased 33.8% to $1.1 million in the third
quarter of fiscal 1999 and increased 9.3% to $2.6 million in the first nine
months of fiscal 1999 primarily due to additional borrowings under the Credit
Agreement and the Company's growth and expansion plans, including additional
inventory as discussed below.
The Company's effective tax rate decreased to 41.0% for both the third quarter
of fiscal 1999 and the first nine months of fiscal 1999, compared with 41.2% for
both the third quarter of fiscal 1998 and the first nine months of fiscal 1998,
primarily due to a lower effective state income tax rate in fiscal 1999.
As a result of the foregoing factors, net income for the third quarter of fiscal
1999 increased 23.9% to $2.6 million from $2.1 million for the third quarter of
fiscal 1998 and net income per share (assuming dilution) for the third quarter
of fiscal 1999 increased 25.0% to $.30 per share from $.24 per share for the
third quarter of last year. Net income for the first nine months of fiscal 1999
increased 18.7% to $11.6 million from $9.8 million for the first nine months of
fiscal 1998 and net income per share (assuming dilution) for the first nine
months of fiscal 1999 increased 18.0% to $1.31 per share from $1.11 per share
last year. As a percentage of sales, net income increased .2 percentage points
to 1.7% of sales for the third quarter of fiscal 1999 from 1.5% of sales for the
third quarter of fiscal 1998 and increased .1 percentage point to 2.3% of sales
for the first nine months of fiscal 1999 from 2.2% of sales for the first nine
months of fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
In addition to normal operating expenses, the Company's primary ongoing cash
requirements are those necessary for the Company's expansion, remodeling and
relocation programs, including inventory purchases and capital expenditures. The
Company's primary ongoing sources of liquidity are funds provided from
operations, commitments available under its revolving credit agreement (the
"Credit Agreement") and short-term trade credit.
In September 1999, the Company entered into an unsecured term note (the "Term
Note") with SunTrust Bank, Nashville, N.A. ("SunTrust") pursuant to which the
Company borrowed $15 million. The Term Note was pursuant to the Company's
existing loan agreement with SunTrust (the "Loan Agreement") and bears interest
at approximately 6.15% per year until its maturity in November 1999. There are
no compensating balance requirements associated with the Loan Agreement. The
Loan Agreement contains certain restrictions regarding additional indebtedness;
employee loans; business operations; guarantees; investments; mergers,
consolidations and sales of assets; transactions with subsidiaries; and liens.
In addition, the Company must comply with certain quarterly restrictions
regarding net worth, working capital, ratios of total liabilities to net worth
and interest coverage and current ratio requirements.
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 September 25, 1999, the Company's
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inventories had increased $63.1 million to $234.8 million from $171.7 million at
December 26, 1998. This increase resulted primarily from additional inventory
for new stores, planned inventory increases in seasonal product lines, as well
as unplanned inventory increases in certain basic goods. As a result of certain
complications relating to the Company's implementation of a new merchandising
and distribution computer system in the first quarter of 1999, the in-stock
position in many key categories of the Company's stores was compromised. In the
Company's attempt to rectify this situation, it over corrected the ordering of
these goods. While a significant reduction (approximately 25%) in the overstock
position was achieved during the third quarter, and further significant
reductions are expected through the fourth quarter, certain overstocks are not
expected to be fully resolved until the second quarter of 2000. The Company
believes these reductions can be achieved without taking significant incremental
markdowns. Short-term trade credit, which represents a source of financing for
inventory, increased $14.7 million to $75.6 million at September 25, 1999 from
$60.9 million at December 26, 1998. Trade credit arises from the Company's
vendors granting extended payment terms for inventory purchases. Payment terms
vary from 30 days to 180 days depending on the inventory product.
At September 25, 1999, the Company had working capital of $123.8 million, which
represented a $28.3 million increase from December 26, 1998. This increase
resulted primarily from an increase in inventories without a corresponding
increase in accounts payable and an increase in trade accounts receivable
(mainly due to commitments from vendors respecting the Company's 1999 marketing
campaign), partially offset by an increase in accrued expenses (mainly due to
deferred vendor support payments relating to the Company's 1999 marketing
campaign and, to a lesser extent, timing of payments).
Operations used net cash of $36.8 million and $5.6 million in the first nine
months of fiscal 1999 and 1998, respectively. The increase in net cash used in
the first nine months of fiscal 1999 resulted primarily from inventories
increasing at a faster rate than accounts payable in the first nine months of
fiscal 1999 compared to the first nine months of fiscal 1998, a smaller increase
in accrued expenses in the first nine months of fiscal 1999 compared to the
first nine months of fiscal 1998 (mainly due to the level of net deferred vendor
support payments relating to the Company's 1999 marketing campaign compared with
the increase experienced in the prior year, the first year of the program, and,
to a lesser extent, timing of payments) as well as a larger increase in trade
accounts receivable compared to the prior year (mainly due to commitments from
vendors respecting the Company's 1999 marketing campaign compared with the
increase experienced in the prior year, the first year of the program) and an
increase in income taxes payable (primarily due to timing of payments),
partially offset by the timing of certain prepaid expenses.
Cash used in investing activities of $14.2 million for the first nine months of
fiscal 1999 represented a $4.8 million increase over cash used in the first nine
months of fiscal 1998 of $9.4 million. The increase in cash used for capital
expenditures during the first nine months of fiscal 1999 compared to the prior
year primarily reflects expenditures for new stores (24 new stores were opened
and one store was relocated during the first nine months of fiscal 1999 compared
with 12 new store openings during the first nine months of fiscal 1998), costs
associated with the Company's installation of its SAP merchandising and
distribution computer systems, and, to a lesser extent, fixture costs associated
with the Company's remerchandising efforts.
Financing activities in the first nine months of fiscal 1999 provided $40.9
million in cash, which represented a $28.0 million, increase in net cash
provided over the $12.9 million in net cash provided in the first nine months of
fiscal 1998. This increase in net cash provided resulted primarily from net
short-term borrowings under the Credit Agreement of approximately $28.2 million
during the first nine months of fiscal 1999 compared to net repayments of
approximately $.8 million during the first nine months of fiscal 1998, as well
as short-term borrowings of $15.0 million under the Term Note, offset, in part,
by repayments under the Term Loan of approximately $1.6 million during the first
nine months of fiscal 1999.
The Company believes that its cash flow from operations, borrowings available
under its Credit Agreement and short-term trade credit will be sufficient to
fund the Company's operations and its growth and expansion plans for the next
several years.
YEAR 2000 READINESS PLANS
The Company previously reported that during the first fiscal quarter of 1999 it
had concluded the remaining conversion effort and completed its installation of
a new merchandise and warehouse management system, thus achieving full Year 2000
compliance for its remaining processing systems. That installation had been the
one
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remaining significant requirement for the Company to achieve Year 2000
compliance prior to the need to execute transactions with Year 2000 implications
(the processing concern created by the change in the century and the traditional
two-digit year fields embedded in most data processing systems is commonly
referred to as the "Year 2000" issue). The total estimated cost of the Company's
Year 2000 remediation efforts, of which the installation of the new system was
the major component, is approximately $10.0 million.
The Company's point-of-sale systems (the "POS systems") are supported by
numerous personal computers and servers that utilize standard operating system
software and hardware. Certain elements of this hardware and software required
upgrade and/or replacement to be fully Year 2000 compliant (collectively, the
"Year 2000 upgrades"). The Company completed the development and testing of
these Year 2000 upgrades for its POS systems during the second quarter of fiscal
1999, and completed the rollout thereof, during the third quarter of fiscal
1999. The Year 2000 upgrades, approximating $300,000, are a component of the
total estimated cost of the Company's Year 2000 remediation efforts indicated
above.
As a fundamental business consideration, the Company depends heavily on its
vendors to meet the purchasing requirements dictated by the Company's business
needs. To that end, the Company continues to work with each of its critical
vendors to determine the impact the Year 2000 issue will have on their ability
to source products for the Company and process purchase orders with delivery
requirements and terms involving the Year 2000. The Company continues to expect
each of these vendors will likewise take measures to address the risks imposed
by the Year 2000 and adequately prepare their own processing systems so that
their businesses will not be interrupted as a result of this issue. Accordingly,
the Company does not expect any significant interruption in its ability to
source its product needs with existing vendors. As an ongoing measure, the
Company will continue to address this risk with each new vendor to ensure
similar safeguards.
The Company further recognizes the potential impact the Year 2000 issue may have
relative to its customers, creditors and other service providers. The Company
has reviewed its exposure to business interruption or substantial loss in these
areas and believes no risk of material adverse consequences presently exists and
that any other risks previously identified will be resolved before the end of
fiscal 1999.
Finally, the Company engaged a consulting firm to perform an independent review
of its overall Year 2000 readiness plans and assist with any final remediation
efforts as appropriate. That independent review was completed during the third
quarter and divulged certain areas of varying exposure to the Company. The
Company has reviewed each of these areas and assessed the relative risks to its
business needs. While there were no significant areas of risk identified, the
Company will complete a final review during the fourth quarter of fiscal 1999 to
minimize the risk that any significant interruption in the business will occur.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company had no holdings of derivative financial or commodity instruments at
September 25, 1999. The Company is exposed to financial market risks, including
changes in interest rates. All borrowings under the Company's credit agreement
bear interest at a variable rate based on the prime rate or the London Interbank
Offered Rate. An increase in interest rates of 100 basis points would not
significantly affect the Company's net income. All of the Company's business is
transacted in U.S. dollars and, accordingly, foreign exchange rate fluctuations
have never had a significant impact on the Company, and they are not expected to
in the foreseeable future.
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PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Effective as of September 1, 1999, Thomas O. Flood retired from his position as
Senior Vice President-Administration and Finance and Chief Financial Officer of
the Company, but remains a director of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.47 Term Note, dated as of September 2, 1999, issued by the
Company to SunTrust Bank, Nashville, N.A., a national banking
association, in the aggregate amount of $15 million.
10.48 Noncompetition Agreement, dated as of August 31, 1999, between
the Company and Thomas O. Flood.
10.49 Consulting Agreement, dated as of August 31, 1999, between the
Company and Thomas O. Flood.
27.1 Financial Data Schedule (only submitted to SEC in electronic
format).
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the fiscal
quarter ended September 25, 1999.
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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: October 29, 1999 By: /s/ Joseph H. Scarlett, Jr.
---------------------- ---------------------------------------
Joseph H. Scarlett, Jr.
Chairman of the Board,
President, Treasurer and
Chief Executive Officer
(Duly Authorized Officer &
Principal Financial Officer)
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