UNITED STATES
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 30, 2006
------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to __________________
Commission file number 000-23314
TRACTOR SUPPLY COMPANY
----------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3139732
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
200 Powell Place, Brentwood, Tennessee 37027
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (615) 366-4600
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
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Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (check
one):
Large accelerated filer [X] Accelerated filer [_] Non-accelerated filer [_]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
YES NO X
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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 28, 2006
----------------------------- -------------------------------
Common Stock, $.008 par value 40,252,955
TRACTOR SUPPLY COMPANY
INDEX
Page No.
--------
Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets -
September 30, 2006 and December 31, 2005............. 3
Consolidated Statements of Income -
For the Fiscal Three and Nine Months Ended
September 30, 2006 and September 24, 2005............ 4
Consolidated Statements of Cash Flows -
For the Fiscal Nine Months Ended
September 30, 2006 and September 24, 2005............ 5
Notes to Unaudited Consolidated Financial Statements.... 6-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 12-17
Item 3. Quantitative and Qualitative Disclosures About Market
Risk................................................. 17
Item 4. Controls and Procedures................................. 18
Part II. Other Information:
Item 1. Legal Proceedings....................................... 19
Item 1A. Risk Factors............................................ 19
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds............................................. 19
Item 3. Default upon Senior Securities.......................... 19
Item 4. Submission of Matters to a Vote of Security Holders..... 19
Item 5. Other Information....................................... 19
Item 6. Exhibits................................................ 19
Signature ........................................................ 19
Page 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRACTOR SUPPLY COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SEPT. 30, DEC. 31,
2006 2005
----------- ---------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 26,180 $ 21,203
Inventories....................................................................... 605,716 460,751
Prepaid expenses and other current assets......................................... 36,700 38,380
Deferred income taxes............................................................. 8,022 11,079
--------- ---------
Total current assets........................................................ 676,618 531,413
--------- ---------
Property and equipment:
Land.............................................................................. 20,026 17,319
Buildings and improvements........................................................ 239,986 223,585
Furniture, fixtures and equipment................................................. 140,649 115,784
Computer software and hardware.................................................... 36,018 32,311
Construction in progress.......................................................... 11,469 9,842
--------- ---------
448,148 398,841
Accumulated depreciation and amortization......................................... (164,286) (140,366)
--------- ---------
Property and equipment, net.................................................... 283,862 258,475
Goodwill............................................................................. 10,412 12,436
Deferred income taxes................................................................ 10,665 7,530
Other assets......................................................................... 6,707 4,941
--------- ---------
Total assets................................................................ $ 988,264 $ 814,795
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................. $ 241,673 $ 185,397
Other accrued expenses............................................................ 104,855 102,814
Current portion of capital lease obligations...................................... 1,271 1,049
Income taxes currently payable.................................................... 1,044 1,421
--------- ---------
Total current liabilities................................................... 348,843 290,681
--------- ---------
Revolving credit loan................................................................ 31,105 8,212
Capital lease obligations, less current maturities................................... 2,688 2,527
Straight line rent liability......................................................... 22,567 18,502
Other long-term liabilities.......................................................... 18,038 17,175
--------- ---------
Total liabilities........................................................... 423,241 337,097
--------- ---------
Stockholders' equity:
Preferred stock, 40,000 shares authorized; $1.00 par value; no shares issued...... -- --
Common stock, 100,000 shares authorized; $0.008 par value; 40,233,325 and
39,433,449 shares issued and outstanding in 2006 and 2005 respectively............ 322 315
Additional paid-in capital........................................................... 124,894 99,047
Other comprehensive loss............................................................. (51) (11)
Retained earnings.................................................................... 439,858 378,347
--------- ---------
Total stockholders' equity.................................................. 565,023 447,698
--------- ---------
Total liabilities and stockholders' equity.................................. $ 988,264 $ 814,795
========= =========
The accompanying notes are an integral part of this statement.
Page 3
TRACTOR SUPPLY COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE FISCAL FOR THE FISCAL
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------- -----------------------
SEPT. 30, SEPT. 24, SEPT. 30, SEPT. 24,
2006 2005 2006 2005
--------- --------- ---------- ----------
(UNAUDITED) (UNAUDITED)
Net sales ..................................... $559,222 $479,607 $1,739,714 $1,470,045
Cost of sales ................................. 382,882 332,702 1,193,618 1,021,313
-------- -------- ---------- ----------
Gross profit ............................... 176,340 146,905 546,096 448,732
Selling, general and administrative expenses 136,520 109,073 415,400 337,131
Depreciation and amortization ................. 10,717 8,893 30,920 24,604
-------- -------- ---------- ----------
Income from operations ..................... 29,103 28,939 99,776 86,997
Interest expense, net ......................... 385 189 1,939 1,090
-------- -------- ---------- ----------
Income before income taxes ................. 28,718 28,750 97,837 85,907
Income tax expense ............................ 10,659 10,421 36,326 31,140
-------- -------- ---------- ----------
Net income .................................... $ 18,059 $ 18,329 $ 61,511 $ 54,767
======== ======== ========== ==========
Net income per share - basic .................. $ 0.45 $ 0.47 $ 1.54 $ 1.41
======== ======== ========== ==========
Net income per share - diluted ................ $ 0.44 $ 0.45 $ 1.50 $ 1.34
======== ======== ========== ==========
The accompanying notes are an integral part of this statement.
Page 4
TRACTOR SUPPLY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE FISCAL
NINE MONTHS ENDED
---------------------
SEPT. 30, SEPT. 24,
2006 2005
--------- --------
(UNAUDITED)
Cash flows from operating activities:
Net income ......................................................................... $ 61,511 $ 54,767
Tax benefit of stock options exercised ............................................. -- 10,355
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................... 30,920 24,604
Gain on sale of property and equipment .......................................... (190) (580)
Stock compensation expense ...................................................... 6,843 --
Deferred income taxes ........................................................... (78) (12,117)
Change in assets and liabilities:
Inventories .................................................................. (144,965) (101,899)
Prepaid expenses and other current assets .................................... 968 (8,436)
Accounts payable ............................................................. 56,276 76,622
Accrued expenses ............................................................. 1,837 1,692
Income taxes currently payable ............................................... (377) 664
Other ........................................................................ 6,512 7,622
--------- ---------
Net cash provided by operating activities .......................................... 19,257 53,294
--------- ---------
Cash flows from investing activities:
Capital expenditures ............................................................ (58,513) (53,163)
Proceeds from sale of property and equipment .................................... 5,071 2,372
Other ........................................................................... (746) --
--------- ---------
Net cash used in investing activities .............................................. (54,188) (50,791)
--------- ---------
Cash flows from financing activities:
Borrowings under revolving credit agreement ..................................... 301,114 255,172
Repayments under revolving credit agreement ..................................... (278,221) (267,451)
Tax benefit of stock options exercised .......................................... 9,002 --
Principal payments under capital lease obligations .............................. (933) (818)
Net proceeds from issuance of common stock ...................................... 8,946 7,312
--------- ---------
Net cash provided by (used in) financing activities ................................ 39,908 (5,785)
--------- ---------
Net increase (decrease) in cash and cash equivalents ............................... 4,977 (3,282)
Cash and cash equivalents at beginning of period ................................... 21,203 28,941
--------- ---------
Cash and cash equivalents at end of period ......................................... $ 26,180 $ 25,659
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ........................................................................ $ 2,169 $ 1,149
Income taxes .................................................................... 26,672 33,126
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Equipment acquired through capital leases ....................................... 1,461 1,250
The accompanying notes are an integral part of this statement.
Page 5
TRACTOR SUPPLY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION:
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States and the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States 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 the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2005. The results of operations for the fiscal three-month
and nine-month periods are not necessarily indicative of results for the full
fiscal year.
The Company's business is highly seasonal. Historically, the Company's sales and
profits have been the highest in the second and fourth fiscal quarters of each
year due to the sale of seasonal products. Unseasonable weather, excessive rain,
drought, and early or late frosts may also affect the Company's sales. The
Company believes, however, that the impact of adverse weather conditions is
somewhat mitigated by the geographic dispersion of its stores.
The Company experiences its highest inventory and accounts payable balances
during its first fiscal quarter each year for purchases of seasonal product in
anticipation of the spring selling season and again during its third fiscal
quarter in anticipation of the winter selling season.
NOTE 2 - INVENTORIES:
The value of the Company's inventories was determined using the lower of
last-in, first-out (LIFO) cost or market. Inventories are not in excess of
market value. Quarterly inventory determinations under LIFO are based on
assumptions as to projected inventory levels at the end of the fiscal year,
sales for the year and the rate of inflation/deflation for the year. If the
first-in, first-out (FIFO) method of accounting for inventory had been used,
inventories would have been approximately $17,537,000 and $14,168,000 higher
than reported at September 30, 2006 and December 31, 2005, respectively.
During the third quarter, the Company refined its method of estimating the
freight cost component of inventory based on changes in its business and
operating environment which included a change in mix of goods, increased import
activity and rapidly increasing fuel costs. This refinement provides a more
appropriate matching of freight cost incurred with inventory and cost of sales.
The change in estimate increased the inventory value and reduced cost of sales
by approximately $3.2 million, or $.05 per diluted share, for the three and nine
months ended September 30, 2006.
NOTE 3 - GOODWILL AND INTANGIBLE ASSETS:
For the nine months ended September 30, 2006, the Company reduced goodwill by
$2.0 million resulting from the determination that this amount related to
acquired intangible assets, primarily the trade name of DEL'S FARM SUPPLY. The
intangible assets are included in other assets in the accompanying consolidated
balance sheets. During the current year, a final evaluation of the intangible
assets was obtained and the Company increased the value assigned to the
intangible assets based on the evaluation. The weighted average estimated life
of the intangible assets is approximately 18.2 years. The Company recognized
$0.4 million in amortization expense related to intangible assets during the
nine months ended September 30, 2006.
NOTE 4 - SHARE-BASED PAYMENTS:
Effective January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123(R) "Share-Based Payment" ("SFAS 123(R)") using the modified
prospective method and began recognizing compensation expense for its
share-based payments based on the fair value of the awards. Share-based payments
include stock
Page 6
option grants and certain transactions under the Company's stock plans. SFAS
123(R) requires share-based compensation expense recognized since January 1,
2006 to be based on the following: a) grant date fair value estimated in
accordance with the original provisions of SFAS 123 for unvested options granted
prior to the adoption date; b) grant date fair value estimated in accordance
with the provisions of SFAS 123(R) for all share-based payments granted
subsequent to the adoption date; and c) the discount on shares sold to employees
subsequent to the adoption date, which represents the difference between the
grant date fair value and the employee purchase price.
For the three and nine months ended September 30, 2006, the adoption of SFAS
123(R)'s fair value method resulted in share-based expense (a component of
selling and general and administrative expenses) related to the Company's stock
plans that the Company would not have recognized if it had continued to account
for share-based compensation under APB 25 (as defined below). For the three and
nine months ended September 30, 2006, this share-based compensation lowered
pre-tax earnings by $2.4 million and $6.8 million, lowered net income by $1.5
million and $4.3 million, and lowered basic and diluted earnings per share by
$0.04 and $0.10, respectively. SFAS 123(R) also requires the benefits of tax
deductions in excess of recognized compensation cost to be reported as a
financing cash flow rather than as an operating cash flow, as required prior to
adoption of SFAS 123(R). The impact of adopting SFAS 123(R) on future results
will depend on, among other matters, levels of share-based payments granted in
the future, actual forfeiture rates and the timing of option exercises.
Prior to January 1, 2006, the Company accounted for share-based payments using
the intrinsic-value-based recognition method prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB 25"). As
options were granted at an exercise price equal to the market value of the
underlying common stock on the date of grant, no stock-based employee
compensation cost was reflected in net income prior to adopting SFAS 123(R). As
the Company adopted SFAS 123(R) under the modified-prospective-transition
method, results from prior periods have not been restated.
The following table illustrates the effect on net income and earnings per share
as if the Company applied the fair value recognition provisions of SFAS 123 to
options granted under the Company's stock plans in all periods presented (in
thousands). For purposes of this pro forma disclosure, the value of the options
is estimated using a modified Black-Scholes option pricing model for all option
grants.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 24, 2005 SEPTEMBER 24, 2005
------------------ ------------------
Net income - as reported .............................. $18,329 $54,767
Pro forma compensation expense, net of income taxes ... (981) (2,982)
------- -------
Net income- pro forma ................................. $17,348 $51,785
======= =======
Net income per share - basic:
As reported ........................................ $ 0.47 $ 1.41
Pro forma .......................................... $ 0.44 $ 1.33
Net income per share - diluted:
As reported ........................................ $ 0.45 $ 1.34
Pro forma .......................................... $ 0.42 $ 1.27
Under SFAS 123(R), forfeitures are estimated at the time of valuation and reduce
expense ratably over the vesting period. This estimate is adjusted periodically
based on the extent to which actual forfeitures differ, or are expected to
differ, from the previous estimate. Under SFAS 123 and APB 25, the Company
elected to account for forfeitures at the time of valuation and reduce the
pro-forma expense ratably over the period.
Effective May 4, 2006, the Company adopted the 2006 Stock Incentive Plan
replacing the 2000 Stock Incentive Plan. Following the adoption of the 2006
Stock Incentive Plan, no further grants may be made under the 2000 Stock
Incentive Plan.
Under the Company's 2006 Stock Incentive Plan, options may be granted to
officers, directors (including non-employee directors) and employees. According
to the terms of the plan, the per share exercise price of options granted shall
not be less than the fair market value of the stock on the date of grant and
such options will expire no later than ten years from the date of grant. In the
case of a stockholder owning more than 10% of the outstanding
Page 7
voting stock of the Company, the exercise price of an incentive stock option may
not be less than 110% of the fair market value of the stock on the date of grant
and such options will expire no later than five years from the date of grant.
Also, the aggregate fair market value of the stock with respect to which
incentive stock options are exercisable on a tax deferred basis for the first
time by an individual in any calendar year may not exceed $100,000. Vesting of
options commences at various anniversary dates following the dates of grant.
Under the terms of the 2006 Stock Incentive Plan, a maximum of 2,750,000 shares
are available for grant as stock options or other awards. At September 30, 2006,
the Company had 2,731,520 shares available for future equity awards under the
Company's 2006 Stock Incentive Plan.
The fair value of each option grant is separately estimated for each vesting
date. The fair value of each option is amortized into compensation expense on a
straight-line basis between the grant date for the award and each vesting date.
The Company has estimated the fair value of all stock option awards as of the
date of the grant by applying a modified Black-Scholes pricing valuation model.
The application of this valuation model involves assumptions that are judgmental
and highly sensitive in the determination of compensation expense. The weighted
average for key assumptions used in determining the fair value of options
granted in the nine months ended September 30, 2006 and September 24, 2005 and a
summary of the methodology applied to develop each assumption are as follows:
NINE MONTHS ENDED
---------------------
SEPT. 30, SEPT. 24,
2006 2005
--------- ---------
Expected price volatility.................. 47.5% 47.8%
Risk-free interest rate.................... 4.6% 3.9%
Weighted average expected lives in years... 7.3 7.1
Forfeiture rate............................ 8.0% 22.1%
Dividend yield............................. 0.0% 0.0%
EXPECTED PRICE VOLATILITY -- This is a measure of the amount by which a
price has fluctuated or is expected to fluctuate. The Company uses actual
historical changes in the market value of its stock to calculate expected
price volatility because management believes that this is the best
indicator of future volatility. Prior to the third quarter of fiscal 2006,
the Company calculated weekly market value changes from the date of grant
over a past period representative of the expected life of the options to
determine volatility. Beginning in the third quarter of 2006, the Company
calculated daily market value changes from the date of grant over a past
period representative of the expected life of the options to determine
volatility. An increase in the expected volatility will increase
compensation expense.
RISK-FREE INTEREST RATE -- This is the U.S. Treasury rate for the week of
the grant having a term equal to the expected life of the option. An
increase in the risk-free interest rate will increase compensation expense.
WEIGHTED AVERAGE EXPECTED LIVES -- This is the period of time over which
the options granted are expected to remain outstanding and is based on
historical experience. Options granted have a maximum term of ten years. An
increase in the expected life will increase compensation expense.
FORFEITURE RATE -- This is the estimated percentage of options granted that
are expected to be forfeited or cancelled before becoming fully vested.
This estimate is based on historical experience. An increase in the
forfeiture rate will decrease compensation expense.
DIVIDEND YIELD --- The Company has not made any dividend payments nor does
it have plans to pay dividends in the foreseeable future. An increase in
the dividend yield will decrease compensation expense.
The Company issues new shares for restricted shares and when options are
exercised. A summary of stock option activity since the Company's most recent
fiscal year-end is as follows:
Page 8
WEIGHTED
WEIGHTED AVERAGE AGGREGATE
AVERAGE REMAINING INTRINSIC
EXERCISE CONTRACTUAL VALUE
OPTIONS PRICE TERM (IN THOUSANDS)
--------- -------- ----------- --------------
Outstanding December 31, 2005 ...... 2,773,278 $18.30
Granted ......................... 493,980 61.32
Exercised ....................... (772,986) 9.80
Cancelled ....................... (63,534) 42.38
--------- ------
Outstanding September 30, 2006 ..... 2,430,738 $29.04 6.4 $54,334
========= ======
Vested or expected to vest at
September 30, 2006 .............. 2,286,122 $28.14 6.7 $75,986
Exercisable at September 30, 2006... 1,426,141 $14.62 5.0 $48,806
The aggregate intrinsic values in the table above represents the total
difference between the Company's closing stock price on September 30, 2006 and
the option exercise price, multiplied by the number of in-the-money options as
of September 30, 2006. As of September 30, 2006, total unrecognized compensation
expense related to non-vested stock options is $17,914,000 with a weighted
average expense recognition period of 2.5 years.
Other information relative to option activity during the nine months ended
September 30, 2006 and September 24, 2005 is as follows (in thousands, except
per share amounts):
SEPT. 30, SEPT. 24,
2006 2005
--------- ---------
Weighted average grant date fair value of
stock options granted........................... $ 34.32 $ 20.15
Total fair value of stock options vested........... $ 5,417 $ 7,602
Total intrinsic value of stock options exercised... $36,005 $37,844
RESTRICTED STOCK - The Company has issued 2,480 restricted shares under the 2006
Stock Incentive Plan. The shares vest over a one-year term. The status of the
Company's non-vested shares as of September 30, 2006 is presented below:
GRANT DATE
NON-VESTED SHARES SHARES FAIR VALUE
----------------------------------- ------ ----------
Non-vested at December 31, 2005.... -- $ --
Granted............................ 2,480 64.45
Vested............................. -- --
Forfeited.......................... -- --
----- ------
Non-vested at September 30, 2006... 2,480 $64.45
===== ======
EMPLOYEE STOCK PURCHASE PLAN - The Company has adopted an Employee Stock
Purchase Plan (the "ESPP") whereby eligible employees of the Company have the
opportunity to purchase, through payroll deductions, shares of common stock of
the Company at a 15% discount. Pursuant to the terms of the ESPP, the Company
issued 8,389 shares during the third quarter of fiscal 2006. The total cost to
the Company related to the ESPP, including the compensation expense calculation
under SFAS 123(R), was approximately $90,000 and $319,000 during the three and
nine months ended September 30, 2006, respectively. At September 30, 2006,
3,357,521 shares of common stock were reserved for future issuance under the
ESPP.
There were no significant modifications to the Company's share-based
compensation plans during the nine months ended September 30, 2006 (provided
that, as noted above, the Company adopted its 2006 Stock Incentive Plan in
replacement of its 2000 Stock Incentive Plan, effective May 4, 2006).
Page 9
NOTE 5 - NET INCOME PER SHARE:
The Company presents both basic and diluted earning per share ("EPS") on the
face of the consolidated statements of income. As provided by SFAS 128 "Earnings
per Share", basic EPS is calculated as income available to common stockholders
divided by the weighted average number of shares outstanding during the period.
Diluted EPS is calculated using the weighted average outstanding common shares
and the treasury stock method for options and warrants.
Net income per share is calculated as follows (in thousands, except per share
amounts):
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 2006 SEPTEMBER 24, 2005
---------------------------- -----------------------------
PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------- ------ --------- ------- ------ ---------
BASIC NET INCOME PER SHARE:
Net income.......................... $18,059 40,135 $ 0.45 $18,329 39,236 $ 0.47
Dilutive stock options outstanding.. 953 (0.01) 1,798 (0.02)
------- ------ ------ ------- ------ ------
DILUTED NET INCOME PER SHARE:
Net income.......................... $18,059 41,088 $ 0.44 $18,329 41,034 $ 0.45
======= ====== ======= ======= ====== ======
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2006 SEPTEMBER 24, 2005
---------------------------- ----------------------------
PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------- ------ --------- ------- ------ ---------
BASIC NET INCOME PER SHARE:
Net income.......................... $61,511 39,933 $ 1.54 $54,767 38,942 $ 1.41
Dilutive stock options outstanding.. 1,132 (0.04) 1,960 (0.07)
------- ------ ------ ------- ------ ------
DILUTED NET INCOME PER SHARE:
Net income.......................... $61,511 41,065 $ 1.50 $54,767 40,902 $ 1.34
======= ====== ======= ======= ====== ======
NOTE 6 - GIFT CARDS:
The Company has a gift card program and, additionally, issues merchandise return
cards for certain return transactions. The gift cards do not expire and the
merchandise return cards expire after one year. As such, the Company recognizes
a benefit when: (i) the gift card or merchandise return card is redeemed by the
customer; or (ii) the likelihood of the gift card being redeemed by the customer
is remote (referred to as "breakage") or (iii) upon expiration of the unredeemed
merchandise returns cards. The gift card breakage rate is based upon historical
redemption patterns and a benefit is recognized for unredeemed gift cards in
proportion to those historical redemption patterns. Any benefit associated with
an unredeemed merchandise return card is recognized upon expiration (one year
after issuance). The Company recognized a benefit of $0.6 million and $1.9
million in the three and nine months ended September 30, 2006, respectively. Of
the $1.9 million recognized in the nine months ended September 30, 2006, $1.7
million (or $0.03 per diluted share) was due to a modification of the redemption
assumptions based on an analysis of historical redemption patterns. This benefit
has been included as a reduction in selling, general, and administrative
expenses and is reflected as a reduction of other accrued expenses in the
accompanying balance sheet.
Page 10
NOTE 7 - CONTINGENCIES:
LITIGATION
The Company is involved in various litigation matters arising in the ordinary
course of business. After consultation with legal counsel, management expects
these matters will be resolved without material adverse effect on the Company's
consolidated financial position or results of operations. Any estimated loss
related to such matters has been provided in accrued liabilities to the extent
probable and reasonably estimable. It is possible, however, that future results
of operations for any particular quarterly or annual period could be materially
affected by changes in circumstances relating to these proceedings.
NOTE 8 - NEW ACCOUNTING PRONOUNCEMENTS:
In March 2006, the Emerging Issues Task Force ("EITF") reached a consensus on
EITF Issue No. 06-3, "How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income Statement (That Is,
Gross Versus Net Presentation)", which allows companies to adopt a policy of
presenting taxes in the income statement on either a gross or net basis. Taxes
within the scope of this EITF would include taxes that are imposed on a revenue
transaction between a seller and a customer, for example, sales taxes, use
taxes, value-added taxes, and some types of excise taxes. EITF 06-3 is effective
for interim and annual reporting periods beginning after December 15, 2006. EITF
06-3 will not impact the method for recording and reporting these sales taxes in
the Company's consolidated financial statements as the Company's policy is to
exclude all such taxes from revenue.
In June 2006, the Financial Accounting Standards Board issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an
interpretation of FASB Statement No. 109" ("FIN 48"). This Interpretation
clarifies the accounting for uncertainty in income taxes recognized in the
financial statements in accordance with FASB Statement No. 109, Accounting for
Income Taxes. This Interpretation prescribes that a company should use a
more-likely-than-not recognition threshold based on the technical merits of the
tax position taken. Tax positions that meet the more-likely-than-not recognition
threshold should be measured in order to determine the tax benefit to be
recognized in the financial statements. FIN 48 is effective in fiscal years
beginning after December 15, 2006. The Company is currently evaluating the
impact that the adoption of FIN 48 will have on its consolidated financial
statements.
In September 2006, the FASB issued Statement No. 157, FAIR VALUE MEASUREMENTS
("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring
fair value in accordance with generally accepted accounting principles and
expands disclosures about fair value measurements. SFAS 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007
(fiscal year 2008 for the Company), and interim periods within those fiscal
years. The Company is currently evaluating the impact that the adoption of SFAS
157 will have on its consolidated financial statements.
Page 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following discussion and analysis describe certain factors affecting Tractor
Supply Company (the "Company"), its results of operations for the fiscal
three-month and nine-month periods ended September 30, 2006 and September 24,
2005 and significant developments affecting its financial condition since the
end of the fiscal year, December 31, 2005, and should be read in conjunction
with the Company's Annual Report on Form 10-K. The following discussion and
analysis also contain certain historical and forward-looking 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 the Company expects or anticipates will
or may occur in the future, including such things as future capital expenditures
(including their amount and nature), 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 has identified herein and in the Company's other filings with the
Securities and Exchange Commission 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.
The Company's business is highly seasonal. Historically, the Company's sales and
profits have been the highest in the second and fourth fiscal quarters of each
year due to the sale of seasonal products. Unseasonable weather, excessive rain,
drought, and early or late frosts may also affect the Company's sales. The
Company believes, however, that the impact of adverse weather conditions is
somewhat mitigated by the geographic dispersion of its stores.
The Company experiences its highest inventory and accounts payable balances
during its first fiscal quarter each year for purchases of seasonal product in
anticipation of the spring selling season and again during its third fiscal
quarter in anticipation of the winter selling season.
As with any business, all phases of the Company's operations are subject to
influences outside its control. The information in this Quarterly Report on Form
10-Q contains certain forward-looking statements, including statements regarding
estimated results of operations in future periods. These forward-looking
statements are subject to the safe harbor provisions of the Act, and may be
affected by certain risks and uncertainties, any one, or a combination, of which
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,
inflation, pricing and other competitive factors, the ability to attract, train
and retain qualified employees, the ability to manage growth and 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, the ability to increase sales at existing stores,
the ability to retain vendors, the risk of product liability and other claims,
reliance on foreign suppliers, the ability to maintain and improve the Company's
management information systems and the seasonality of the Company's business. We
discuss in greater detail risk factors relating to the Company in Item 1A of the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2005. Forward-looking statements made by or on behalf of the Company are based
on our knowledge of the Company's 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. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the date hereof. The
Company does not undertake any 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.
Page 12
RESULTS OF OPERATIONS
Fiscal Three Months (Third Quarter) and Nine Months Ended September 30, 2006 and
September 24, 2005
Net sales increased 16.6% to $559.2 million for the third quarter of 2006 from
$479.6 million for the third quarter of 2005. Net sales increased 18.3% to
$1,739.7 million for the first nine months of fiscal 2006 from $1,470.0 million
for the first nine months of fiscal 2005.
The net sales increase for the third quarter and nine months ended September 30,
2006 resulted primarily from the addition of new stores, successful store
relocations, and same-store sales improvement of 2.4% and 2.0%, respectively.
The Company's same-store sales improvements were strongest in the
clothing/footwear and equine/pet/animal categories, but were partially offset by
lower than expected performance in seasonal power equipment and generators. A
summary of store openings, relocations and closings is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------- ---------------------
SEPT. 30, SEPT. 24, SEPT. 30, SEPT. 24,
2006 2005 2006 2005
--------- --------- --------- ---------
Beginning of period............ 641 547 595 515
Opened......................... 18 15 64 47
Closed......................... (1) -- (1) --
--- --- --- ---
End of period.................. 658 562 658 562
=== === === ===
Relocations.................... 4 8 15 12
The following table indicates the percentage of sales represented by each of the
Company's major product categories during the third quarter and first nine
months of fiscal 2006 and 2005:
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------- ---------------------
SEPT. 30, SEPT. 24, SEPT. 30, SEPT. 24,
2006 2005 2006 2005
--------- --------- --------- ---------
Equine, Pet and Animal......... 34% 32% 33% 32%
Seasonal Products.............. 21 22 23 24
Hardware and Tools............. 17 18 17 17
Truck/Trailer/Tow/Lube......... 13 14 12 12
Maintenance products for
agriculture and rural use... 8 8 8 9
Clothing and Footwear.......... 7 6 7 6
--- --- --- ---
Total.......................... 100% 100% 100% 100%
=== === === ===
Gross profit for the third quarter and the first nine months of fiscal 2006 was
$176.3 million and $546.1 million, respectively. This represents an increase of
20.0% and 21.7%, respectively, over the comparable periods of the prior year.
This increase is primarily attributable to the increase in sales described
above. Gross profit, as a percent of sales, was 31.5% for the third quarter of
fiscal 2006, compared to 30.6% for the comparable period in fiscal 2005. For the
first nine months of 2006, the gross profit rate was 31.4%, compared to 30.5%
for the comparable period in fiscal 2005. This improvement in the gross profit
rate reflects a more favorable product mix, increased importing, and improvement
in inventory shrinkage, offset partially by higher freight costs.
During the third quarter, the Company refined its method of estimating the
freight cost component of inventory based on changes in its business and
operating environment which included a change in mix of goods, increased import
activity and rapidly increasing fuel costs. This refinement provides a more
appropriate matching of freight cost incurred with inventory and cost of sales.
The change in estimate increased the inventory value and reduced cost of sales
by approximately $3.2 million, or $.05 per share, for the three and nine months
ended September 30, 2006.
As a percent of net sales, selling, general and administrative ("SG&A") expenses
increased 170 basis points to 24.4% of sales in the third quarter of fiscal 2006
from 22.7% of sales in the third quarter of fiscal 2005. SG&A expenses increased
100 basis points to 23.9% of sales in the first nine months of fiscal 2006 from
22.9% of sales in the first
Page 13
nine months of fiscal 2005. The loss in leverage relates primarily to continued
expansion of the store base and resulting higher personnel and occupancy costs.
Additionally, the Company recognized approximately $2.4 million and $6.8 million
of stock compensation expense for the third quarter and first nine months of
2006, respectively.
The Company has a gift card program and, additionally, issues merchandise return
cards for certain return transactions. The gift cards do not expire and the
merchandise return cards expire after one year. As such, the Company recognizes
a benefit when: (i) the gift card or merchandise return card is redeemed by the
customer; or (ii) the likelihood of the gift card being redeemed by the customer
is remote (referred to as "breakage") or (iii) upon expiration of the unredeemed
merchandise returns cards. The gift card breakage rate is based upon historical
redemption patterns and a benefit is recognized for unredeemed gift cards in
proportion to those historical redemption patterns. Any benefit associated with
an unredeemed merchandise return card is recognized upon expiration (one year
after issuance). The Company recognized a benefit of $0.6 million and $1.9
million in the three and nine months ended September 30, 2006, respectively. Of
the $1.9 million recognized in the nine months ended September 30, 2006, $1.7
million (or $0.03 per diluted share) was due to a modification of the redemption
assumptions based on an analysis of historical redemption patterns. This benefit
has been included as a reduction in selling, general, and administrative
expenses and is reflected as a reduction of other accrued expenses in the
accompanying balance sheet.
Effective January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123(R) "Share-Based Payment" ("SFAS 123(R)") using its modified
prospective method and began recognizing compensation expense for its
share-based payments based on the fair value of the awards. Share-based payments
include stock option grants and certain transactions under the Company's other
stock plans. SFAS 123(R) requires share-based compensation expense recognized
since January 1, 2006 to be based on the following: a) grant date fair value
estimated in accordance with the original provisions of SFAS 123 for unvested
options granted prior to the adoption date; b) grant date fair value estimated
in accordance with the provisions of SFAS 123(R) for all share-based payments
granted subsequent to the adoption date; and c) the discount on shares sold to
employees post-adoption, which represents the difference between the grant date
fair value and the employee purchase price.
For the three and nine months ended September 30, 2006, the adoption of SFAS
123(R)'s fair value method resulted in additional compensation expense (a
component of selling and general and administrative expenses) related to the
Company's stock plans that the Company would not have recognized if it had
continued to account for share-based compensation under APB 25. For the three
and nine months ended September 30, 2006, this share-based compensation lowered
pre-tax earnings by $2.4 million and $6.8 million, lowered net income by $1.5
million and $4.3 million, and lowered basic and diluted earnings per share by
$0.04 and $0.10, respectively. As of September 30, 2006, total unrecognized
compensation expense related to non-vested stock options is $17.9 million with a
weighted average expense recognition period of 2.5 years. SFAS 123(R) also
requires the benefits of tax deductions in excess of recognized compensation
cost to be reported as a financing cash flow, rather than as an operating cash
flow as required prior to adoption of SFAS 123(R). The impact of adopting SFAS
123(R) on future results will depend on, among other matters, levels of
share-based payments granted in the future, actual forfeiture rates and the
timing of option exercises.
Depreciation and amortization expense in the third quarter of 2006 remained
consistent at 1.9% of sales compared to the third quarter of 2005. Depreciation
and amortization expense increased 10 basis points to 1.8% of sales in the first
nine months of fiscal 2006 compared to the prior year due mainly to costs
associated with new and relocated stores and investment in additional
distribution center capacity.
Net interest expense was $0.4 and $1.9 million for the third quarter and first
nine months of fiscal 2006, respectively, compared to $0.2 million and $1.1
million, respectively, for the third quarter and first nine months of fiscal
2005. The Company's financing activities and liquidity are discussed in the
LIQUIDITY AND CAPITAL RESOURCES section below.
The Company's effective tax rate increased to 37.1% in both the third quarter
and first nine months of fiscal 2006 compared with 36.2% in both the third
quarter and first nine months of fiscal 2005, respectively, primarily due to
permanent tax differences relating to stock compensation expense.
Page 14
LIQUIDITY AND CAPITAL RESOURCES
In addition to normal operating expenses, the Company's primary ongoing cash
requirements are for 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 and normal trade credit. The Company's
inventory and accounts payable levels typically build in the first and third
fiscal quarters in anticipation of the spring and winter selling seasons.
At September 30, 2006, the Company had working capital of $327.8 million, an
$87.1 million increase from December 31, 2005. This increase is primarily
attributable to changes in the following components of current assets and
current liabilities (in millions):
SEPT. 30, DEC. 31,
2006 2005 CHANGE
--------- --------- ------
Current assets:
Cash and cash equivalents ..................... $ 26.2 $ 21.2 $ 5.0
Inventories ................................... 605.7 460.8 144.9
Prepaid expenses and other current assets ..... 36.7 38.4 (1.7)
Other, net .................................... 8.0 11.0 (3.0)
------ ------ ------
676.6 531.4 145.2
------ ------ ------
Current liabilities:
Accounts payable .............................. 241.7 185.4 56.3
Accrued expenses .............................. 104.9 102.8 2.1
Income taxes payable .......................... 1.0 1.4 (0.4)
Current portion of capital lease obligations .. 1.2 1.1 0.1
------ ------ ------
348.8 290.7 58.1
------ ------ ------
Working capital .................................. $327.8 $240.7 $ 87.1
====== ====== ======
Operations provided net cash of $19.3 million and $53.3 million in the first
nine months of fiscal 2006 and 2005, respectively. The $34.0 million decrease in
net cash provided in fiscal 2006 over fiscal 2005 is primarily due to changes in
the following operating activities (in millions):
FOR THE FISCAL NINE
MONTHS ENDED
---------------------
SEPT. 30, SEPT. 24,
2006 2005 CHANGE
--------- --------- ------
Net income ....................................... $ 61.5 $ 54.8 $ 6.7
Tax benefit of stock options exercised ........... -- 10.4 (10.4)
Stock compensation expense ....................... 6.8 -- 6.8
Depreciation and amortization .................... 30.9 24.6 6.3
Deferred income taxes ............................ -- (12.1) 12.1
Inventories and accounts payable ................. (88.7) (25.3) (63.4)
Accrued expenses ................................. 1.8 1.7 0.1
Other, net ....................................... 7.0 (0.8) 7.8
------ ------ ------
Net cash provided by operations ............... $ 19.3 $ 53.3 $(34.0)
====== ====== ======
The decrease in net cash provided by operations in the first nine months of 2006
compared with the first nine months of 2005 was primarily due to the growth in
inventory levels, partially offset by the timing of payments. The increase in
inventories and related increase in accounts payable resulted primarily from the
purchase of inventory for new stores (which are typically larger than the
historical store formats) and the addition of inventory due to a new (larger)
distribution center in Waverly, Nebraska. The Company has also increased
inventory levels in many stores as the result of certain merchandising
initiatives as well as to achieve a better overall in-stock position at the
store level. The Company experienced a slight decrease in year-to-date inventory
turns resulting in a decrease in financed inventory from approximately 45% to
39%. Trade credit arises from the Company's vendors granting extended payment
terms
Page 15
for inventory purchases. Payment terms generally vary from 30 days to 180 days
depending on the inventory product. The increase in accrued expenses was
primarily due to the timing of the accruals and the related payment of those
accruals in their respective periods.
Investing activities used $54.2 million and $50.8 million in the first nine
months of fiscal 2006 and fiscal 2005, respectively. The majority of this cash
requirement relates to the Company's capital expenditures. Capital expenditures
(including equipment acquired under capital lease) for the first nine months of
fiscal 2006 and 2005 were as follows (in millions):
2006 2005
----- -----
New/relocated stores and stores not yet opened $39.1 $28.1
Existing stores 16.3 11.4
Distribution center capacity and improvements 1.9 12.0
Information technology 2.6 2.3
Corporate and other 0.1 0.6
----- -----
$60.0 $54.4
===== =====
The above table reflects 79 new/relocated stores in 2006, compared to 59 during
the first nine months of 2005.
Financing activities provided $39.9 million and used $5.8 million in the first
nine months of fiscal 2006 and fiscal 2005, respectively, largely due to
increased borrowings resulting from higher inventory levels, new and relocated
stores and decreased cash flow from operations, partially offset by proceeds
received from the issuance of common stock received upon exercise of stock
options and purchases under the employee stock purchase plan. The Company had
approximately $96.0 million and $109.7 million available for future borrowings,
net of outstanding letters of credit, under its revolving credit agreement at
September 30, 2006 and September 24, 2005, respectively.
The Company believes that its cash flow from operations, borrowings available
under its revolving credit agreement, and normal trade credit will be sufficient
to fund the Company's operations and its capital expenditure needs, including
store openings and renovations, over the next several years.
OFF-BALANCE SHEET ARRANGEMENTS
The Company's off-balance sheet arrangements are limited to operating leases and
outstanding letters of credit. Leasing buildings and equipment for retail stores
and offices rather than acquiring these significant assets allows the Company to
utilize financial capital to operate the business rather than maintain assets.
Letters of credit allow the Company to purchase inventory in a timely manner.
The Company had outstanding letters of credit of $27.9 million at September 30,
2006 and $25.3 at September 24, 2005.
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
Management's discussion and analysis of the Company's financial position and
results of operations are based upon the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. 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 - Self insurance
- Sales returns - Sales tax reserve
- Share-based payments
The Company's critical accounting policies are subject to judgments and
uncertainties which affect the application of such policies. See Notes 1 and 15
to the Notes to the consolidated financial statements of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2005 for a discussion
of the Company's critical
Page 16
accounting policies. As a result of the required adoption of SFAS 123(R) in the
current year, we have determined that the accounting for share-based payments
represents a critical accounting policy. See the disclosure of the Company's
adoption and related key assumptions in Note 4 to the accompanying notes to
consolidated financial statements. As a result of current conditions within the
sales tax environment, the Company has determined that its sales tax reserve is
an area involving critical management judgments and estimates. For a further
discussion see Note 15 to the Notes to the consolidated financial statements of
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2005. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in interest rates primarily from its revolving
credit agreement (the "Credit Agreement"). The Credit Agreement bears interest
at either the bank's base rate (8.25% and 6.75% at September 30, 2006 and
September 24, 2005, respectively) or LIBOR (6.08% and 4.55% at September 30,
2006 and September 24, 2005, respectively), plus an additional amount ranging
from 0.75% to 1.50% per annum, adjusted quarterly, based on Company performance
(0.75% at September 30, 2006 and September 24, 2005). The Company is also
required to pay, quarterly in arrears, a commitment fee ranging from 0.20% to
0.35% based on the daily average unused portion of the Credit Agreement. See
Note 4 of Notes to the Consolidated Financial Statements of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2005 for further
discussion regarding the Credit Agreement.
Although the Company cannot accurately determine the precise effect of inflation
on its operations, it believes its sales and results of operations have been
affected by inflation. The Company is subject to market risk with respect to the
pricing of certain products and services, which include, among other items,
petroleum, steel, corn, soybean, and other commodities as well as transportation
services. If prices of these materials and/or services continue to increase,
consumer demand may fall and/or the Company may not be able to pass all such
increases on to its customers and, as a result, sales and/or gross margins could
decline. The Company's strategy is to reduce or mitigate the effects of
inflation principally by taking advantage of vendor incentive programs,
economies of scale from increased volume of purchases, increasing retail prices
and selectively buying from the most competitive vendors without sacrificing
quality. Due to the competitive environment, such conditions have and may
continue to adversely impact the Company's gross margin.
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
As of September 30, 2006, the Company carried out an evaluation, under the
supervision and with the participation of the Company's management, including
the Chief Executive Officer and the Chief Financial Officer, of the design and
operation of the Company's disclosure controls and procedures. Based on this
evaluation, the Company's Chief Executive Officer and Chief Financial Officer
have concluded that the Company's disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are
effective, as of September 30, 2006, for recording, processing, reporting and
summarization of the information that the Company is required to disclose in the
reports it files under the Securities Exchange Act of 1934 within the time
periods specified in the Commission's rules and forms. These controls and
procedures ensure that such information is accumulated and communicated to the
Company's management, including the Chief Executive Officer and the Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosures.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in the Company's internal control over financial
reporting that occurred during the Company's fiscal quarter ended September 30,
2006 that have materially affected or are reasonably likely to materially affect
the Company's internal control over financial reporting.
Page 17
PART II. OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS
-------------------------
The Company is involved in various litigation matters arising in the ordinary
course of business. After consultation with legal counsel, management expects
these matters will be resolved without material adverse effect on the Company's
consolidated financial position or results of operations. Any estimated loss
related to such matters has been adequately provided in accrued liabilities to
the extent probable and reasonably estimable. It is possible, however, that
future results of operations for any particular quarterly or annual period could
be materially affected by changes in circumstances relating to these
proceedings.
ITEM 1A. RISK FACTORS
---------------------
None
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
-------------------------------------------------------------------
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
---------------------------------------
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------
None
ITEM 5. OTHER INFORMATION
-------------------------
None
ITEM 6. EXHIBITS
----------------
Exhibits
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.
32.1 Certification of Chief Executive Officer and Chief Financial Officer
under Section 906 of the Sarbanes-Oxley Act of 2002.
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, 2006 By: /s/ Anthony F. Crudele
---------------- ------------------------------------
Anthony F. Crudele
Senior Vice President - Chief
Financial Officer and Treasurer
(Duly Authorized Officer and
Principal Financial Officer)
Page 18