UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 JULY 1, 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
------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
200 POWELL PLACE, BRENTWOOD, TENNESSEE 37027
--------------------------------------- -------------------
(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
------- ------
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 Act.)
YES NO X
---- -----
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 JULY 29, 2006
----------------------------- ----------------------------
Common Stock, $.008 par value 40,032,771
The accompanying notes are an integral part of this statement.
Page 1
TRACTOR SUPPLY COMPANY
INDEX
PAGE NO.
Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets -
July 1, 2006 and December 31, 2005.............................................3
Consolidated Statements of Income -
For the Fiscal Three and Six Months Ended
July 1, 2006 and June 25, 2005.................................................4
Consolidated Statements of Cash Flows -
For the Fiscal Six Months Ended
July 1, 2006 and June 25, 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.................................................................20
Item 6. Exhibits..........................................................................20
Signature ..................................................................................20
Page 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRACTOR SUPPLY COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JULY 1, DECEMBER 31,
2006 2005
---------- ------------
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents...................................................... $ 43,354 $ 21,203
Inventories.................................................................... 573,263 460,751
Prepaid expenses and other current assets...................................... 39,073 38,380
Deferred income taxes.......................................................... 14,134 11,079
---------- ---------
Total current assets..................................................... 669,824 531,413
---------- ---------
Property and Equipment:
Land........................................................................... 18,256 17,319
Buildings and improvements..................................................... 233,311 223,585
Furniture, fixtures and equipment.............................................. 136,454 115,784
Computer software and hardware................................................. 32,946 32,311
Construction in progress....................................................... 11,238 9,842
---------- ---------
432,205 398,841
Accumulated depreciation and amortization...................................... (154,898) (140,366)
---------- ---------
Property and equipment, net.................................................. 277,307 258,475
Goodwill 9,352 12,436
Deferred income taxes............................................................. 11,916 7,530
Other assets...................................................................... 8,024 4,941
---------- ---------
Total assets............................................................. $ 976,423 $ 814,795
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................... $ 265,936 $ 185,397
Other accrued expenses......................................................... 105,171 102,814
Current portion of capital lease obligations................................... 1,331 1,049
Income taxes currently payable................................................. 21,729 1,421
---------- ---------
Total current liabilities................................................ 394,167 290,681
Revolving credit loan............................................................. -- 8,212
Capital lease obligations, less current maturities................................ 2,937 2,527
Straight line rent liability...................................................... 21,045 18,502
Other long-term liabilities....................................................... 18,568 17,175
---------- ---------
Total liabilities........................................................ 436,717 337,097
---------- ---------
Stockholders' equity:
Preferred stock, 40,000 shares authorized, $1.00 par value; no shares issued... -- --
Common stock, 100,000,000 shares authorized; $.008 par value; 40,021,514
and 39,433,449 shares issued and outstanding in 2006 and 2005, respectively.. 320 315
Additional paid-in capital..................................................... 117,633 99,047
Other comprehensive loss....................................................... (46) (11)
Retained earnings.............................................................. 421,799 378,347
---------- ---------
Total stockholders' equity............................................... 539,706 477,698
---------- ---------
Total liabilities and stockholders' equity............................... $ 976,423 $ 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 SIX MONTHS ENDED
--------------------------- ----------------------
JULY 1, JUNE 25, JULY 1, JUNE 25,
2006 2005 2006 2005
------------ ------------ ------------ --------
(UNAUDITED) (UNAUDITED)
Net sales........................................ $ 714,944 $ 613,235 $ 1,180,492 $ 990,438
Cost of merchandise sold......................... 487,559 423,479 810,736 688,611
------------ ------------ ------------ ------------
Gross profit................................ 227,385 189,756 369,756 301,827
Selling, general and administrative expenses..... 147,874 125,383 278,880 228,058
Depreciation and amortization.................... 10,580 8,065 20,203 15,711
------------ ------------ ------------ ------------
Income from operations...................... 68,931 56,308 70,673 58,058
Interest expense, net............................ 647 224 1,554 901
------------ ------------ ------------ ------------
Income before income taxes.................. 68,284 56,084 69,119 57,157
Income tax expense............................... 25,357 20,330 25,667 20,719
------------ ------------ ------------ ------------
Net income....................................... $ 42,927 $ 35,754 $ 43,452 $ 36,438
============ ============ ============ ============
Net income per share - basic..................... $ 1.07 $ 0.92 $ 1.09 $ 0.94
============ ============ ============ ============
Net income per share - diluted................... $ 1.05 $ 0.87 $ 1.06 $ 0.89
============ ============ ============ ============
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 SIX MONTHS ENDED
JULY 1, JUNE 25,
2006 2005
------------- ------------
(UNAUDITED)
Cash flows from operating activities:
Net income........................................................... $ 43,452 $ 36,438
Tax benefit of stock options exercised............................... -- 7,296
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................... 20,203 15,711
Gain on sale of property and equipment.......................... (113) (299)
Stock compensation expense...................................... 4,465 --
Deferred income taxes........................................... (7,441) (2,868)
Change in assets and liabilities:
Inventories................................................. (112,512) (89,067)
Prepaid expenses and other current assets................... 1,738 (1,109)
Accounts payable............................................ 80,539 105,977
Accrued expenses............................................ 2,648 528
Income taxes currently payable.............................. 20,308 11,197
Other....................................................... 5,100 5,152
------------- ------------
Net cash provided by operating activities............................ 58,387 88,956
------------- ------------
Cash flows from investing activities:
Capital expenditures............................................ (41,313) (26,162)
Proceeds from sale of property and equipment.................... 1,302 1,929
Other........................................................... (746) --
------------- ------------
Net cash used in investing activities................................ (40,757) (24,233)
------------- ------------
Cash flows from financing activities:
Borrowings under revolving credit agreement..................... 207,129 187,987
Repayments under revolving credit agreement..................... (215,341) (220,266)
Tax benefit of stock options exercised.......................... 6,881 --
Principal payments under capital lease obligations.............. (629) (544)
Net proceeds from issuance of common stock...................... 6,481 5,517
------------- ------------
Net cash provided by (used in) financing activities.................. 4,521 (27,306)
------------- ------------
Net increase in cash and cash equivalents............................ 22,151 37,417
Cash and cash equivalents at beginning of period..................... 21,203 28,941
------------- ------------
Cash and cash equivalents at end of period........................... $ 43,354 $ 66,358
============= ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest........................................................ $ 1,466 $ 1,088
Income taxes.................................................... 5,113 3,680
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 six-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. The Company typically operates at
approximately break even in the first fiscal quarter of each year. 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 $15,417,000 and $14,168,000 higher
than reported at July 1, 2006 and December 31, 2005, respectively.
NOTE 3 - GOODWILL AND INTANGIBLE ASSETS:
For the three months ended July 1, 2006, the Company adjusted goodwill by $3.0
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. The amounts above may be revised by immaterial amounts pending a final
evaluation of the intangible assets acquired.
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 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 six months ended July 1, 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
Page 6
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
six months ended July 1, 2006, this share-based compensation lowered pre-tax
earnings by $2.6 million and $4.5 million, lowered net income by $1.6 million
and $2.7 million, and lowered basic and diluted earnings per share by $0.04 and
$0.07, 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 Statement 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 SIX MONTHS ENDED
JUNE 25, 2005 JUNE 25, 2005
------------- -------------
Net income - as reported............................ $ 35,754 $ 36,438
Pro forma compensation expense, net of income taxes. (985) (2,001)
---------- ----------
Net income- pro forma............................... $ 34,769 $ 34,437
========== ==========
Net income per share - basic:
As reported.................................. $ 0.92 $ 0.94
Pro forma.................................... $ 0.89 $ 0.89
Net income per share - diluted:
As reported.................................. $ 0.87 $ 0.89
Pro forma.................................... $ 0.85 $ 0.84
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 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 a grant as stock options or other awards. At July 1, 2006, the
Company had 2,747,520 shares available for future equity awards under the
Company's 2006 Stock Incentive Plan.
Page 7
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 six months ended July 1, 2006 and June 25, 2005 and a summary of
the methodology applied to develop each assumption are as follows:
SIX MONTHS ENDED
JULY 1, JUNE 25,
2006 2005
------- -------
Expected price volatility...................... 48.4% 48.1%
Risk-free interest rate........................ 4.6% 3.8%
Weighted average expected lives in years....... 7.2 7.1
Forfeiture rate................................ 7.9% 21.8%
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. The Company calculates weekly
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.
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.
Page 8
The Company issues new shares when options are exercised. A summary of stock
option activity since the Company's most recent fiscal year-end is as follows:
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....................... 475,500 62.09
Exercised..................... (567,084) 9.82
Cancelled..................... (55,335) 41.77
------------ ----------
Outstanding July 1, 2006........... 2,626,359 $ 27.50 6.9 $ 97,253
=========== ==========
Vested or Expected to vest at
July 1, 2006.................... 2,490,429 $ 26.55 6.8 $ 93,550
Exercisable at July 1, 2006........ 1,630,297 $ 13.98 5.6 $ 78,673
The aggregate intrinsic values in the table above represents the total
difference between the Company's closing stock price on July 1, 2006 and the
option exercise price, multiplied by the number of in-the-money options as of
July 1, 2006. As of July 1, 2006, total unrecognized compensation expense
related to non-vested stock options is $19,975,000 with a weighted average
expense recognition period of 2.7 years.
Other information relative to option activity during the six months ended July
1, 2006 and June 25, 2005 is as follows (in thousands):
JULY 1, JUNE 25,
2006 2005
---------- -----------
Weighted average grant date fair value of stock options granted..... $ 34.89 $ 20.33
Total fair value of stock options vested............................ $ 5,292 $ 7,501
Total intrinsic value of stock options exercised.................... $ 28,804 $ 29,063
RESTRICTED STOCK - The Company 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 July 1, 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 July 1, 2006.................. 2,480 $ 64.45
======= =======
ASSOCIATE STOCK PURCHASE PLAN - The Company has adopted an Associate Stock
Purchase Plan (the "ASPP") 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 ASPP, the Company
issued 9,532 shares during the second quarter of fiscal 2006. The total cost to
the Company related to the ASPP, including the compensation expense calculation
under SFAS 123(R), was approximately $107,000 and $232,000 during the three and
six months ended July 1, 2006, respectively. At July 1, 2006, 3,365,910 shares
of common stock were reserved for future issuance under the ASPP.
There were no significant modifications to the Company's share-based
compensation plans during the three months ended July 1, 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
JULY 1, 2006 JUNE 25, 2005
---------------------------------- --------------------------------
PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
BASIC NET INCOME PER SHARE:
Net income.......................... $ 42,927 39,968 $ 1.07 $ 35,754 39,008 $ 0.92
Dilutive stock options outstanding.. 930 (0.02) 1,897 (0.05)
--------- ------- -------- --------- ------- --------
DILUTED NET INCOME PER SHARE:
Net income.......................... $ 42,927 40,898 $ 1.05 $ 35,754 40,905 $ 0.87
========= ======= ========= ========= ====== =========
SIX MONTHS ENDED SIX MONTHS ENDED
JULY 1, 2006 JUNE 25, 2005
---------------------------------- -----------------------------------
PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
BASIC NET INCOME PER SHARE:
Net income.......................... $ 43,452 39,833 $ 1.09 $ 36,438 38,796 $ 0.94
Dilutive stock options outstanding.. 1,124 (0.03) 2,040 (0.05)
--------- ------- -------- --------- ------- --------
DILUTED NET INCOME PER SHARE:
Net income.......................... $ 43,452 40,957 $ 1.06 $ 36,438 40,836 $ 0.89
========= ======= ========= ========= ====== =========
Anti-dilutive stock options excluded from the above calculations totaled 145,467
and 102,654 for the three and six months ended July 1, 2006, and 21,680 and
39,707 in the three and six months ended June 25, 2005.
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") and (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 $1.3
million and $1.4 million in the three and six months ended July 1, 2006,
respectively. Of the $1.3 million recognized in the second quarter of fiscal
2006, $1.2 million (or $0.02 per diluted share, after tax) 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. This benefit 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 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.
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 evaluating FIN 48 and does not
expect the adoption to have a material impact on its consolidated results of
operations and financial condition.
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-
and six-month periods ended July 1, 2006 and June 25, 2005 and significant
developments affecting its financial condition since the end of the fiscal year
ended December 31, 2005, and should be read in conjunction with the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2005. The
following discussion and analysis also contains 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 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.
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 (SECOND QUARTER) AND SIX MONTHS ENDED JULY 1, 2006 AND
JUNE 25, 2005
Net sales increased 16.6% to $714.9 million for the second quarter of 2006 from
$613.2 million for the second quarter of 2005. Net sales increased 19.2% to
$1,180.5 million for the first six months of fiscal 2006 from $990.4 million for
the first six months of fiscal 2005. The net sales increase resulted primarily
from the addition of new stores, successful store relocations, and same-store
sales improvement of 0.5% and 1.8% for the second quarter and first six months,
respectively. The Company's same-store sales improvements were strongest in the
clothing/footwear and livestock/pet categories, but were largely offset by lower
than expected performance in seasonal power equipment and generators. The
Company opened 17 new stores during the second quarter and 46 stores during the
first six months of fiscal 2006, compared to 19 and 32 stores opened during the
second quarter and first six months of 2005, respectively. The Company also
relocated six and 11 stores in the second quarter and first six months of 2006,
respectively, compared to two and four store relocations during the second
quarter and first six months of 2005, respectively. The Company operated 641
stores at July 1, 2006 as compared to 547 stores at June 25, 2005.
The following chart indicates the average percentage of sales represented by
each of the Company's major product categories during the second quarter and
first six months of fiscal 2006 and 2005:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ -------------------
JULY 1, JUNE 25, JULY 1, JUNE 25,
2006 2005 2006 2005
-------- -------- -------- ------
Equine, Pet and Animal 30% 29% 32% 32%
Seasonal Products 28 29 24 25
Hardware and Tools 15 15 16 17
Truck/Trailer/Tow/Lube 12 12 12 12
Maintenance products for agriculture and rural use 10 10 9 8
Clothing and Footwear 5 5 7 6
----- ----- ------ ----
Total 100% 100% 100% 100%
==== ==== ==== ====
Gross profit for the second quarter and the first six months of fiscal 2006 was
$227.4 million and $369.8 million, respectively. This represents an increase of
19.8% and 22.5%, respectively, over the comparable periods of the prior year.
Gross profit, as a percent of sales, was 31.8% for the second quarter of fiscal
2006 compared to 30.9% for the comparable period in fiscal 2005. For the first
six months of 2005, the gross profit rate was 31.3% compared to 30.5% for the
comparable period in fiscal 2005. The improvement in gross profit results from
more favorable product mix and improved product sourcing and reductions in
inventory shrinkage. These gains were partially offset by higher transportation
costs.
As a percent of net sales, selling, general and administrative ("SG&A") expenses
increased 30 basis points to 20.7% of sales in the second quarter of fiscal 2006
from 20.4% of sales in the second quarter of fiscal 2005. SG&A expenses
increased 60 basis points to 23.6% of sales in the first six months of fiscal
2006 from 23.0% of sales in the first six months of fiscal 2005. This increase
was due to a loss in leverage related primarily to occupancy costs (primarily
rent, depreciation and utilities) and the recognition of $2.6 million and $4.5
million for the second quarter and first six months of 2006, respectively, in
compensation expense related to the adoption of Statement of Financial
Accounting Standards No. 123(R) "Share-Based Payment." These cost increases were
partially offset by income of approximately $1.3 million associated with
estimated gift card breakage, as a result of a change in the Company's
assumptions for gift card redemption.
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") and (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
Page 13
expiration (one year after issuance). The Company recognized a benefit of $1.3
million and $1.4 million in the three and six months ended July 1, 2006,
respectively. Of the $1.3 million recognized in the second quarter of fiscal
2006, $1.2 million (or $0.02 per diluted share, after tax) 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. This benefit 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 six months ended July 1, 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 six months ended
July 1, 2006, this share-based compensation lowered pre-tax earnings by $2.6
million and $4.5 million, lowered net income by $1.6 million and $2.7 million,
and lowered basic and diluted earnings per share by $0.04 and $0.07,
respectively. As of July 1, 2006, total unrecognized compensation expense
related to non-vested stock options is $19,975,000 with a weighted average
expense recognition period of 2.7 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 increased 20 basis points to 1.5% of sales
in the second quarter of fiscal 2006 from 1.3% in the second quarter of fiscal
2005. As a percent of sales, depreciation and amortization expense increased 10
basis points to 1.7% in the first six months of fiscal 2006 from 1.6% in the
first six months of fiscal 2005. The increases were related directly to capital
expenditures for new store growth and additional distribution capacity.
Net interest expense was $0.6 million and $1.6 million for the second quarter
and first six months of fiscal 2006, respectively, compared to $0.2 million and
$0.9 million, respectively, for the second quarter and first six months of
fiscal 2005. Increases in interest expense reflect additional borrowings for the
seasonal build-up of inventory, an increased borrowing rate over last year, and
interest expense related to a settlement of certain tax audits.
The Company's effective tax rate increased to 37.1% in both the second quarter
and first six months of fiscal 2006 compared with 36.3% in both the second
quarter and first six months of fiscal 2005, primarily due to permanent tax
differences relating to the stock option expense.
As a result of the foregoing factors, net income for the second quarter and
first six months of fiscal 2006 increased $7.1 million and $7.1 million,
respectively, to $42.9 million and $43.5 million from $35.8 million and $36.4
million in the second quarter and first six months of fiscal 2005, respectively.
Net income, as a percent of sales, increased 20 basis points to 6.0% for the
second quarter of 2006 compared to 5.8% in the second quarter of 2005. For the
first six months, net income remained consistent at 3.7% of sales compared to
the first six months of 2005. Net income per diluted share increased to $1.05
and $1.06 for the second quarter and the first six months of fiscal 2006,
respectively, from $0.87 and $0.89 for the second quarter and the first six
months of fiscal 2005, respectively.
Page 14
LIQUIDITY AND CAPITAL RESOURCES
In addition to normal operating expenses, the Company's primary ongoing cash
requirements are for store 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.
At July 1, 2006, the Company had working capital of $275.6 million, a $34.9
million increase from December 31, 2005. This increase was primarily
attributable to changes in the following components of current assets and
current liabilities (in millions):
JULY 1, DEC. 31,
2006 2005 VARIANCE
-------- -------- --------
Current assets:
Cash and cash equivalents................... $ 43.3 $ 21.2 $ 22.1
Inventories................................. 573.3 460.8 112.5
Prepaid expenses and other current assets... 39.1 38.4 0.7
Other, net.................................. 14.1 11.0 3.1
-------- -------- --------
669.8 531.4 138.4
-------- -------- --------
Current liabilities:
Accounts payable............................ 265.9 185.4 80.5
Accrued expenses............................ 105.2 102.8 2.4
Income tax currently payable................ 21.7 1.4 20.3
Other, net.................................. 1.4 1.1 0.3
-------- -------- --------
394.2 290.7 103.5
-------- -------- --------
Working capital............................... $ 275.6 $ 240.7 $ 34.9
======== ======== ========
Operations provided net cash of $58.4 million and $89.0 million in the first six
months of 2006 and 2005, respectively. The $30.6 million decrease in net cash
provided 2006 over 2005 is primarily due to changes in the following operating
activities (in millions):
FOR THE FISCAL SIX MONTHS
ENDED
JULY 1, JUNE 25,
2006 2005 VARIANCE
-------- ----------- --------
Net income.................................... $ 43.5 $ 36.4 $ 7.1
Tax benefit of stock options exercised........ -- 7.3 (7.3)
Inventories and accounts payable.............. (32.0) 16.9 (48.9)
Prepaid expenses and other current assets..... 1.7 (1.1) 2.8
Accrued expenses.............................. 2.6 0.5 2.1
Income taxes currently payable................ 20.3 11.2 9.1
Other, net.................................... 22.3 17.8 4.5
-------- -------- --------
Net cash provided by operations............. $ 58.4 $ 89.0 $ (30.6)
======== ======== ========
The decrease in net cash provided by operations in the first six months of 2006
compared with the first six 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. As a result of the above factors and softer than anticipated sales
in the second quarter, inventory turns declined from the prior year period.
Slower inventory turns have resulted in a decline in financed inventory from
approximately 52% to 45%. Trade credit arises from the Company's vendors
granting extended payment terms for inventory purchases. Payment terms generally
vary from 30 days to 180 days depending on the inventory product. The
Page 15
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 $40.8 million and $24.2 million in the first six
months of 2006 and 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 six months of fiscal 2006 and 2005 were as follows (in millions):
FOR THE FISCAL SIX MONTHS
ENDED
JULY 1, JUNE 25,
2006 2005
--------- --------
New/relocated stores and stores not yet opened.............. $ 30.8 $ 17.8
Existing stores (including store level technology).......... 8.5 1.3
Distribution center capacity and improvements............... 1.5 5.5
Information technology...................................... 1.9 1.6
Corporate and other......................................... 0.1 1.2
-------- --------
$ 42.8 $ 27.4
======== ========
The above table reflects 57 new/relocated stores in the first six months of
2006, compared to 36 during the six months of 2005.
Financing activities provided $4.5 million in the first six months of fiscal
2006 and used $27.3 million in the first six months of fiscal 2005, largely due
to increased borrowings resulting from higher inventory levels, additional
pre-opening costs (including capital expenditures) 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 $134.9 million and $140.3
million available for future borrowings, net of outstanding letters of credit,
under its revolving credit agreement at July 1, 2006 and June 25, 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 $20.1 million and $14.7 million
at July 1, 2006 and June 25, 2005, respectively.
Page 16
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 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 (8.00% and 6.00% at July 1, 2006 and June 25,
2005, respectively) or LIBOR (6.10% and 4.05% at July 1, 2006 and June 25, 2005,
respectively) plus an additional amount ranging from 0.75% to 1.50% per annum,
adjusted quarterly, based on Company performance (0.75% at July 1, 2006 and June
25, 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 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.
Page 17
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
As of July 1, 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 July 1, 2006, for recording, processing, summarizing and
reporting the information 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 July 1, 2006
that have materially affected or are reasonably likely to materially affect the
Company's internal control over financial reporting.
Page 18
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
(a) The Company's Annual Meeting of Stockholders was held on May 4, 2006 at
the Company's corporate headquarters in Nashville, Tennessee.
(b) The stockholders elected, for a one-year term, the directors set forth
below.
(c) The stockholders voted on the following matters at the Annual Meeting:
1. Upon the stockholders' approval of the amendment to the Company's
Certificate of Incorporation, the election of ten directors for a
one-year term ending at the 2007 Annual Meeting of Stockholders:
NOMINEES FOR DIRECTORS FOR WITHHELD
---------------------- --- --------
Joseph H. Scarlett, Jr. 36,842,652 962,856
James F. Wright 36,838,941 966,567
Jack Bingleman 37,540,756 264,752
S.P. Braud 36,794,780 1,010,728
Cynthia T. Jamison 37,412,520 392,988
Gerard E. Jones 37,473,495 332,013
Joseph D. Maxwell 36,289,280 1,516,228
Edna K. Morris 37,426,033 379,475
Sam K. Reed 36,080,968 1,724,540
Joe M. Rodgers 36,657,679 1,147,829
2. Approval of the 2006 Stock Incentive Plan.
FOR AGAINST ABSTAIN NON-VOTES
--- ------- ------- ---------
28,768,962 4,785,191 164,226 4,093,110
Page 19
3. Ratification of the appointment of Ernst & Young LLP as
independent auditors for the fiscal year ending December 30, 2006.
FOR AGAINST ABSTAIN NON-VOTES
--- ------- ------- ---------
37,705,388 19,090 81,030 5,981
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: AUGUST 10, 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 20