SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
Commission file number 000-23314
TRACTOR SUPPLY COMPANY
Registrant’s Telephone Number, Including Area Code: (615) 366-4600
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.008 par value
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). YES [X] NO [ ]
The aggregate market value of the Common Stock held by non-affiliates of the registrant, based on the closing price of the Common Stock on The Nasdaq National Market on June 28, 2002, the last business day of the registrant’s most recently completed second fiscal quarter was $504,561,709. For purposes of this response, the registrant has assumed that its directors, executive officers, and beneficial owners of 5% or more of its Common Stock are the affiliates of the registrant.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.
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TABLE OF CONTENTS
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for the Annual Meeting of Stockholders to be held on April 17, 2003 are incorporated by reference into Part III of this Form 10-K. Portions of the Registrant’s Annual Report to Stockholders for the fiscal year ended December 28, 2002 are incorporated by reference into Parts II and IV of this Form 10-K.
FORWARD-LOOKING STATEMENTS OR INFORMATION
This Form 10-K includes certain statements that may be deemed to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements included or incorporated by reference in this Form 10-K 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.
All phases of the Company’s operations are subject to influences outside its control. Any one, or a combination, of these factors could materially affect the results of the Company’s operations. These factors include general economic cycles affecting consumer spending, weather factors, operating factors affecting customer satisfaction, consumer debt levels, pricing and other competitive factors, the ability to attract, train and retain highly qualified employees, the ability to identify suitable locations and negotiate favorable lease agreements on new and relocated stores, the timing and acceptance of new products in the stores, the mix of goods sold, the continued availability of favorable credit sources, capital market conditions in general, threats of war or terrorism, and the seasonality of the Company’s business. Many of these factors have previously been identified in filings or statements made by or on behalf of the Company. Forward-looking statements made by or on behalf of the Company are based on a knowledge of its business and the environment in which it operates, but because of the factors listed above, actual results could differ materially from those reflected by any forward-looking statements. Consequently, all of the forward-looking statements made are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the Company or its business and operations.
PART I
Item 1. Business
Overview
Tractor Supply Company, a Delaware corporation (the “Company”), was founded in 1938 as a catalog mail order tractor parts supplier. In 1982, the Company was purchased by a group of investors, including a member of the Company’s current management team who is a significant stockholder. In 1994, the Company made its initial public offering. Today, the Company is the largest operator of retail farm and ranch stores in the United States. The Company is focused on supplying the lifestyle needs of recreational farmers and ranchers and serving the maintenance needs of those who enjoy the rural lifestyle, as well as tradesmen and small businesses. Stores are located in towns outlying major metropolitan markets and in rural communities. The Company offers the following comprehensive selection of merchandise: (1) livestock and pet products, including items necessary for their health, care, growth and containment; (2) maintenance products for agricultural and rural use; (3) hardware and tool products; (4) seasonal products, including lawn and garden power equipment; (5) truck, trailer and towing products; and (6) work clothing for the entire family. The Company’s stores typically range in size from 12,500 to 15,500 square feet of inside selling space and utilize approximately as many square feet of outside selling space. The Company operated 433 retail farm stores in 30 states as of December 28, 2002.
Tractor Supply Company has one reportable industry segment — the operation of farm and ranch retail stores.
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Seasonality and Weather
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 a net loss 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 a buildup of inventory and accounts payable during its first fiscal quarter each year for purchases of seasonal product in anticipation of the April through June selling season and again during its third fiscal quarter in anticipation of the October through December selling season.
Business Strategy
The Company believes its sales and earnings growth has resulted from the focused execution of its business strategy, which includes the following key components:
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Growth Strategy
The Company’s current and long-term growth strategy is built on a combination of (1) expanded geographic market presence, achieved through the opening of new retail stores at an annual growth rate of 8% to 10% and (2) enhanced financial performance through same-store sales increases, achieved through aggressive merchandising programs with an “everyday low prices” philosophy, supported by strong customer service.
The Company has experienced considerable growth in recent years, including the addition of 35 stores in fiscal 2000, 18 in fiscal 2001 and 113 in fiscal 2002. This recent growth has increased the Company’s market presence in the Southwest, primarily in Texas, the Southeast, primarily in Tennessee, Kentucky, North Carolina and Florida, in the central northern part of the United States, primarily in Ohio and Michigan and in the Northeast, primarily in Pennsylvania and New York. The Company operated 433 stores in 30 states as of December 28, 2002 and has a base plan to open 30 to 35 stores in fiscal 2003. The Company plans to open 40 to 45 new stores in fiscal 2004 and additional stores thereafter. The Company believes it has developed a sophisticated proven method for selecting store sites and has identified over 600 potential additional markets for new stores in the United States. In addition, the Company continues to identify opportunities to relocate existing stores to ensure optimal locations to promote growth.
During the first quarter of 2002, the Company purchased real property for 24 store locations, lease rights for 76 store locations and fixtures from 100 stores from Quality Stores, Inc. (which was in bankruptcy liquidation). During fiscal 2002, 87 stores were opened as new Tractor Supply stores and nine Tractor Supply stores were relocated to the acquired locations. The Company has also decided to open one additional store (previously held for sale) and hold the remaining locations for sale. With this transaction, the Company has achieved store growth in fiscal 2002 that is approximately four times the historical unit store growth plan for a single year. The Company avoided the potential pitfalls of acquiring redundant headquarters and information systems and did not acquire any inventory, thus avoiding the challenges of integrating similar products with dissimilar packaging into its existing stock, as well as
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avoiding the challenge of liquidating other products which conflict with the Company’s existing product offerings. Rather, the Company selected only the geographic markets that it believed had the greatest potential.
This aggressive expansion occurred in a more compressed timeframe than the Company’s historical store growth, including the opening of 90 stores in the second quarter of fiscal 2002. To achieve this level of growth, the Company devoted substantial resources toward this endeavor and incurred considerable cost to ensure the stores were opened in accordance with the planned strategy. The transition of these locations to Tractor Supply Company stores was completed during the third fiscal quarter of 2002.
The Company’s strategy is generally to lease its new stores. At December 28, 2002, 358 of the Company’s 433 stores are leased. Assuming that new stores are leased, the estimated cash required to open a new store is approximately $800,000 to $1,000,000, the majority of which is for initial acquisition of inventory and capital expenditures (principally leasehold improvements and fixtures and equipment) and the balance of which is for pre- opening expenses.
The Company plans to relocate a total of 10 to 12 stores in fiscal 2003 and an average of three or four additional stores each year over the next several years. Store relocations are typically undertaken to move small, older stores to full-size formats in prime retail areas. The cash required to complete a store relocation typically ranges from $150,000 to $400,000 depending on whether the Company is responsible for any renovation or remodeling costs.
The Company plans to extensively remodel 10 of its stronger performing stores in 2003 and each year thereafter over the next several years. The estimated cash required to complete a major remodeling typically ranges from $100,000 to $450,000.
As a result of the rapid expansion discussed above, the Company has gained considerable expertise in the opening and relocating of its stores. The average store opening timeframe has been reduced from nine weeks in fiscal 1998 to six weeks in fiscal 2003 with additional timesavings anticipated. The Company has also improved its store set-up process through the utilization of third parties for key functions such as fixture procurement, architectural assistance and procurement of key vendor support (brochures, product training booklets, etc.) and supplies. The use of third parties to support store openings and relocations allows management to focus on its primary responsibility of running the business.
Additional Information
The Company files reports with the Securities and Exchange Commission (“SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q and other reports from time to time. The public may read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The Company is an electronic filer and the SEC maintains an Internet site at www.sec.gov that contains the reports, proxy and information statements, and other information filed electronically.
The Company makes available free of charge through its Internet website, www.myTSCstore.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The information provided on our website is not part of this report, and is therefore not incorporated by reference unless such information is otherwise specifically referenced elsewhere in this report.
The Company maintains a code of ethics that is applicable to all employees, including the Company’s Chief Executive Officer and Chief Financial Officer and Controller. This code, which requires continued observance of high ethical standards such as honesty, integrity and compliance with the law in the conduct of the Company’s business, is available for public access on the Company’s Internet website (www.myTSCstore.com).
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Item 2. Properties
At December 28, 2002, the Company operated 433 stores in 30 states. The Company leases its four distribution facilities and its management headquarters, and over 75% of its stores. The store leases typically have initial terms of between 10 and 15 years, with one to three renewal periods of five years each, exercisable at the Company’s option. None of the store leases is individually material to the Company’s operations. The leases at its Pendleton, Indiana; Omaha, Nebraska; Waco, Texas and Rural Hall, North Carolina distribution facilities expire in 2015, 2004, 2003 and 2004 respectively, and the lease for its management headquarters expires in 2007. The Company is constructing a new, larger facility in Waco, Texas, with an expected opening in August 2003, which will provide more efficient distribution of merchandise to Company stores. Two of the Company’s stores are leased from affiliated parties. See Item 13. “Certain Relationships and Related Transactions.”
As of December 28, 2002, the Company operated 433 stores in 30 states as follows:
Item 3. Legal Proceedings
The Company is involved in various litigation matters involving routine claims and lawsuits arising in the ordinary course of its business. The Company does not believe that such claims and lawsuits, individually or in the aggregate, will have a material adverse effect on the Company’s business. Compliance with federal, state, local and foreign laws and regulations pertaining to the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had, and is not anticipated to have, a material effect upon the capital expenditures, earnings or competitive position of the Company.
Item 4. Submission of Matters to a Vote of Security-Holders
No matter was submitted to a vote of the Company’s security-holders during the fourth quarter of the Company’s fiscal year ended December 28, 2002.
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Executive Officers of the Registrant
Pursuant to General Instruction G(3) of Form 10-K, the following list is included as an unnumbered item in Part I of this Report in lieu of being included in the Proxy Statement for the Annual Meeting of Stockholders to be held on April 17, 2003.
The following is a list of the names and ages of all executive officers of the registrant, indicating all positions and offices with the registrant held by each such person and each person’s principal occupations and employment during at least the past five years:
Joseph H. Scarlett, Jr. has served as Chairman of the Board and Chief Executive Officer of the Company since 1993, having previously served as President and Chief Operating Officer of the Company from 1987 to 1993. Mr. Scarlett has served as a director of the Company since 1982.
James F. Wright has served as President and Chief Operating Officer of the Company since October 2000. Mr. Wright previously served as President and Chief Executive Officer of Tire Kingdom, a tire and automotive services retailer, from May 1997 to June 2000. Mr. Wright has served as a director of the Company since 2002.
Gerald W. Brase has served as Senior Vice President-Merchandising of the Company since September 1997.
Calvin B. Massmann has served as Senior Vice President-Chief Financial Officer and Treasurer since January 2000. Mr. Massmann previously served as an independent business consultant during 1998 and 1999.
Stanley L. Ruta has served as Senior Vice President-Store Operations since June 2000, after having served as a Vice President-Store Operations of the Company since 1994.
PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
The Company’s Common Stock began trading on The Nasdaq National Market on February 18, 1994 under the symbol “TSCO”.
The table below sets forth the high and low sales prices of the Company’s Common Stock as reported by The Nasdaq National Market (as adjusted for a 2:1 stock split effective August 2, 2002) for each fiscal quarter of the periods indicated:
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As of January 31, 2003, the approximate number of record holders of the Company’s Common Stock was 100 (excluding individual participants in nominee security position listings) and the estimated number of beneficial holders of the Company’s Common Stock was 12,000.
The Company has not declared any cash dividends on its Common Stock during the two most recent fiscal years. The Company currently intends to retain all earnings for future operation and expansion of its business and, therefore, does not anticipate that any dividends will be declared on the Common Stock in the foreseeable future. Any future declaration of dividends will be subject to the discretion of the Company’s Board of Directors and subject to the Company’s results of operations, financial condition, cash requirements and other factors deemed relevant by the Board of Directors. The Company is also restricted from paying cash dividends by the terms of its various financing agreements.
Item 6. Selected Financial Data
The information set forth under the caption “Five Year Selected Financial and Operating Highlights” on page 6 of the Company’s Annual Report to Stockholders for the fiscal year ended December 28, 2002 is incorporated herein by reference.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The information set forth under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages 7 through 16 of the Company’s Annual Report to Stockholders for the fiscal year ended December 28, 2002 is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information set forth under the caption “Quantitative and Qualitative Disclosures About Market Risk” of the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on page 15 of the Company’s Annual Report to Stockholders for the fiscal year ended December 28, 2002 is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The information set forth under the captions “Report of Independent Auditors”, “Consolidated Statements of Income”, “Consolidated Balance Sheets,”, “Consolidated Statement of Stockholders’ Equity”, “Consolidated Statements of Cash Flows”, and “Notes to Consolidated Financial Statements” on pages 17 through 33 of the Company’s Annual Report to Stockholders for the fiscal year ended December 28, 2002 is incorporated herein by reference.
The Company’s unaudited operating results for each fiscal quarter within the two most recent fiscal years, as set forth under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on page 9 of the Company’s Annual Report to Stockholders for the fiscal year ended December 28, 2002, is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
The information set forth under the captions “Information Regarding Directors” and “Compliance with Section 16(a) of the Securities Exchange Act of 1934” on pages 1 through 4 and 18, respectively, of the Company’s Proxy Statement for its Annual Meeting of Stockholders to be held on April 17, 2003 is incorporated herein by reference.
The information set forth under the caption “Executive Officers of the Registrant” in Part I of this Form 10-K is incorporated herein by reference.
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Item 11. Executive Compensation
The information set forth under the captions “Board of Directors and Committees of the Board — Compensation of Directors”, “Compensation Committee Interlocks and Insider Participation”, “Executive Compensation”, “Summary Compensation Table”, “Option Grants in Last Fiscal Year”, “Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values”, “Compensation Committee’s Report on Executive Compensation”, and “Performance Graph” on pages 5 through 16 of the Company’s Proxy Statement for its Annual Meeting of Stockholders to be held on April 17, 2003 is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” on pages 18 and 19 of the Company’s Proxy Statement for its Annual Meeting of Stockholders to be held on April 17, 2003 is incorporated herein by reference.
Following is a summary of the Company’s equity compensation plans as of December 28, 2002, under which equity securities are authorized for issuance, aggregated as follows:
The information set forth under the caption “Stock-Based Compensation Plans” in the “Notes to Consolidated Financial Statements” on pages 31 and 32 of the Company’s Annual Report to Stockholders for the fiscal year ended December 28, 2002 (incorporated herein by reference), provides further information with respect to the material features of each plan.
Item 13. Certain Relationships and Related Transactions
The information set forth under the caption “Related-Party Transactions with Tractor Supply Company” on page 7 of the Company’s Proxy Statement for its Annual Meeting of Stockholders to be held on April 17, 2003 is incorporated herein by reference.
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Item 14. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Within 90 days prior to the date of the filing of this report, 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 10a-14 and 15d-14 under the Securities Exchange Act of 1934) are effective for gathering, analyzing and disclosing 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 rules and forms of the Securities and Exchange Commission and 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 Controls
There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date of the evaluation referred to above.
PART IV
Item 15. Exhibits, Financial Statements and Reports on Form 8-K
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors andStockholders of Tractor Supply Company
In our opinion, the statements of income, of changes in stockholders’ equity and of cash flows for the year ended December 30, 2000 present fairly, in all material respects, the results of operations of Tractor Supply Company and its cash flows for the year ended December 30, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion. We have not audited the financial statements of Tractor Supply Company for any period subsequent to December 30, 2000.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
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CERTIFICATIONS
I, Joseph H. Scarlett, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of Tractor Supply Company;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
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I, Calvin B. Massmann, certify that:
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EXHIBITS INDEX
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