2001 ANNUAL REPORT
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TRACTOR SUPPLY CO
[PHOTO]
OUR SALES TEAM:
A FARMER, AN EQUINE
ENTHUSIAST, AND A WELDER
THIS IS TRACTOR SUPPLY COMPANY
Tractor Supply Company began as a tractor parts mail-order catalog business in
Chicago in 1938 and has grown to be the largest operator of retail farm and
ranch stores in the United States. Stores are located in the outlying towns of
major metropolitan markets and in rural communities. Tractor Supply operates 323
stores in 28 states focusing on supplying products for the lifestyle needs of
hobby and part-time farmers and ranchers. The Company also serves the
maintenance needs of suburban customers, contractors and tradesmen.
Over the past six decades, many aspects of our business have changed including
the size of our stores and the merchandise assortment. But one thing has not
changed -- our commitment to our customers. Superior customer service is the
key to sales success, profit growth and store growth. And the most important
component in providing superior customer service -- outstanding team members
with great attitudes!
Our number one asset at Tractor Supply is our employees -- from our store teams,
to our support personnel, to our leadership --everyone works hard to provide our
customers with a great shopping experience. After all, this attitude is what has
made us the largest farm and ranch store chain in America!
[MAP]
323 STORES IN
28 STATES....
AND GROWING!
2 TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT
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TRACTOR SUPPLY CO
TABLE OF CONTENTS
[PHOTO]
COVER STORY: Page 8
[PHOTO]
GLORIA USSERY: Page 10
[PHOTO]
TOM PARRISH: Page 12
LETTER TO SHAREHOLDERS.......................... 4 - 5
FINANCIAL HIGHLIGHTS............................ 6
WAL*MART MOVED--TRACTOR SUPPLY DID, TOO......... 7
Jesse Guzman does the Texas two-step
COVER STORY
A FARMER, AN EQUINE ENTHUSIAST AND A WELDER..... 8
Larry, Gina and Sean provide the
knowledge base for success in Meadville, PA
GLORIA USSERY TRAINS HORSES..................... 10
She also leads people
BENEFITS AND BONUSES--ALIGNMENT OF INTERESTS.... 11
Kim Vella tells how what's good for
team members is also good for shareholders
PROMOTIONS, PROMOTIONS, PROMOTIONS.............. 12
We promoted power equipment and womens
work wear. We promoted Tom Parrish, too!
IT, POS, SSC, SAP, ERP, ATM, DC, RF
WHAT DO ALL THESE LETTERS MEAN?................. 13
Sanjay Zachariah takes the mystery
out of the latest technology developments
FINANCIAL INFORMATION
SELECTED FINANCIAL AND
OPERATING HIGHLIGHTS FOR 5 YEARS................ 14
MANAGEMENT'S DISCUSSION AND ANALYSIS............ 15
FINANCIAL STATEMENTS............................ 23
TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT 3
TO OUR SHAREHOLDERS
DEAR SHAREHOLDERS:
OUR BUSINESS--
Tractor Supply dominates a special and unique niche in the retail
marketplace. We focus on the rural lifestyle with particular emphasis on
customers who describe themselves as recreational farmers and ranchers. Our
customers value the outdoors, family independence and self-reliance and, like
the rest of us, demand good selection, great value and solid customer service,
which is exactly what they find at our stores.
The Tractor Supply merchandise assortment is geared directly to the
lifestyle needs of our customers. The products found at Tractor Supply stores
can seldom be found elsewhere under one roof. We win with our customers by
offering a broad selection of products selected specifically for their needs.
The unique merchandise selection at Tractor Supply is a key advantage;
however the major point of differentiation is the shopping experience -- handy
locations, easy access in and out, superior product knowledge, everyday low
prices and quick checkout. Knowledgeable and enthusiastic team members work
diligently to make every shopping experience a good one. We even know our
regular customers by name.
[PHOTO]
JOE SCARLETT
Chairman of the Board and
Chief Executive Officer
OUR RESULTS--
Same-store sales in 2001 rose 3.8% and total sales increased 12%. Net
income rose 29%, yielding earnings of $2.33 per share up from $1.87 a share the
previous year.
The accelerated effort to build a still better team of store and
district managers is producing solid results. The entire process of recruiting,
training, and developing the management team has been rebuilt. The quality of
the team is improving and turnover is declining.
Tractor Supply has also made tremendous strides improving management of
the inventory. We operated the entire year with at least 97% in stock at stores
on the 450 "driver items." At the same time, average store inventories were down
9%. We beat our aggressive inventory plans all year yielding substantially
improved inventory turn and reduced borrowings.
We successfully opened 18 new stores and remodeled and relocated five
more. We continue to improve our demographic models, yielding still stronger
performance from new stores. Initial plans call for at least 25 new stores this
year and renovation or relocation of about 10 older stores in growth markets.
4 TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT
TO OUR SHAREHOLDERS
(CONTINUED)
Our support functions continue to excel. The investments made in computer
systems over the last several years are contributing to operating efficiencies
and improved inventory turn. The distribution facility investments are also key
contributors. The other support functions -- human resources, accounting, real
estate, etc. are all working in concert to provide store support and drive
profits.
THE OPPORTUNITY--
At the beginning of 2002, Tractor Supply added 87 new stores from the
bankruptcy of a major competitor. The new stores are located in the East and
Midwest, in previously researched and targeted growth markets and are in
addition to the 25 new stores mentioned previously. After others have liquidated
the merchandise, we will quickly reconfigure the fixtures, stock the stores and
start serving our new customers. We have already hired many of their best store
managers, district managers, sales people, and support professionals.
This is a once-in-a-business-lifetime growth opportunity for Tractor
Supply Company. Most of the new locations will be open before mid-year. We have
aggressive timelines and comprehensive operational plans.
We will strengthen our purchasing power, broaden our marketing,
leverage virtually every expense category, and benefit from the elimination of
our largest direct competitor. We are in the midst of our greatest challenge
ever, and our team has stepped up like never before.
[PHOTO]
JIM WRIGHT
President and Chief Operating Officer
THE FUTURE--
We know our customers, know our merchandise, know our demographics,
and provide our customers with a superb shopping experience. We say with great
confidence that the leadership team at the top and throughout the organization
is the strongest, most aligned, and most aggressive in the company's history.
The future for Tractor Supply is very bright. We dominate a special
niche in the retail market and are committed to never ending sales and profit
growth.
/s/ Joe Scarlett
-----------------------------------------
Joe Scarlett
Chairman of the Board and
Chief Executive Officer
/s/ Jim Wright
-----------------------------------------
Jim Wright
President and Chief Operating Officer
TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT 5
FINANCIAL HIGHLIGHTS
(in thousands, except where noted)
PERCENT
FISCAL YEAR INCREASE
2001 2000 (DECREASE)
-------- -------- ----------
OPERATING RESULTS:
Net sales $849,799 $759,037 12.0%
Income before income taxes 36,526 27,596 32.4
Net income 25,774 16,390 57.3
Net income per share - basic ($) 2.92 1.87 56.1
Net income per share - assuming dilution ($) 2.85 1.87 52.4
FINANCIAL POSITION:
Total assets 338,482 332,296 1.6
Cash and short-term investments 8,927 9,145 (2.4)
Stockholders' equity 181,296 155,036 16.4
Long-term debt to equity (%) 12.8 40.6
STATISTICS:
Number of stores (#) 323 305 5.9
Square footage at year-end 4,164 3,905 6.6
Average sales per store ($) 2,699 2,603 3.7
Net sales per square foot ($) 209 204 2.5
[NET SALES FOR 1997 - 2001
(IN MILLIONS)
[GRAPH]
NUMBER OF STORES FOR
1997 - 2001 (AT YEAR END)
[GRAPH]
As with any business, all phases of the Company's operations are subject to
influences outside its control. This report contains certain forward-looking
statements. These statements include reference to certain factors, 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, pricing and other competitive factors, the ability to
attract, train and retain highly qualified associates, the ability to identify
suitable locations and negotiate favorable lease agreements on new and relocated
stores, the timing and acceptance of new products in the stores, the mix of
goods sold, the continued availability of favorable credit sources, capital
market conditions in general and the seasonality of the Company's business.
Forward-looking statements made by or on behalf of the Company are based on a
knowledge of its business and the environment in which it operates, but because
of the factors listed above, actual results could differ materially from those
reflected by any forward-looking statements. Consequently, all of the
forward-looking statements made are qualified by these cautionary statements and
there can be no assurance that the actual results or developments anticipated by
the Company will be realized or, even if substantially realized, that they will
have the expected consequences to or effects on the Company or its business and
operations.
6 TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT
WAL*MART MOVED --
TRACTOR SUPPLY DID, TOO
JESSE GUZMAN DOES THE TEXAS TWO-STEP
Retail sales growth in the Waco, Texas market resulted in Wal*Mart
expanding to a "Supercenter". Tractor Supply had also experienced significant
sales growth in our Waco store.
We often find that our growth and Wal*Mart's growth go hand-in-hand. As
a result, over the last five years we have located Tractor Supply stores in a
portion of over 30 former Wal*Mart stores.
[PHOTO]
WACO, TEXAS STORE MANAGER JESSE GUZMAN
PROUDLY STANDS IN FRONT OF HIS NEW STORE.
Waco is one more example of a growth retail market where people live
the rural lifestyle. So this past summer, Store Manager Jesse Guzman and his
team did the "Texas two-step". Step one was to turn 26,000 square feet of the
former Wal*Mart into a new generation Tractor Supply store. Step two was to move
the existing store to the new facilities. No, this wasn't a dance, but the Waco
store team and their customers are dancing for joy at the new expanded facility
that is easier to shop and easier to operate.
Jesse has been managing a Tractor Supply store in Waco since 1987 and
led a previous successful relocation back in the late 80's. The new Waco
facility has a bigger sales floor, a larger side lot, a new front entrance and a
much larger parking area.
"The response from our customers has been tremendous," said Jesse.
"They have rewarded us with their compliments and their business. Other stores,
which have been relocated in this manner, have proven to be very profitable. And
I expect the same from Waco."
Tractor Supply is committed to renovating, enlarging and relocating
older profitable stores in growth markets. Significant improvements were made
last year in Burleson, Texas; Elizabethtown, Kentucky; Warrenton, Virginia; and
St. Joseph, Missouri. Sales floors were expanded, side lots were enlarged, new
front entrances were added and parking lots were expanded. Other stores have
been selected for future similar renovations and relocations.
TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT 7
COVER STORY
A FARMER, AN EQUINE
LARRY, GINA, AND SEAN PROVIDE THE KNOWLEDGE BASE FOR
In the small town of Meadville, Pennsylvania, Larry, Gina and Sean go
about their day at the local Tractor Supply store providing an intangible
service to their customers -- expert product knowledge. This knowledge base has
helped make the Meadville store very successful.
Tractor Supply stores offer a unique assortment of specialized products
geared to the specific needs of our customers. Substantial knowledge is often
required to explain product features and benefits. Team members who know the
products and the customers are the most important components of success in our
stores. No other farm and ranch retail chain offers more product knowledge than
Tractor Supply; that's what differentiates us.
[PHOTO]
MEADVILLE, PENNSYLVANIA EQUINE EXPERT GINA ROBERTS ASSISTS
HER CUSTOMER IN SELECTING A BRIDLE.
"Building The Team" is a mission of every store manager. The message is
clear -- the higher the quality of people on the team, the more successful the
store. The staffing goal for each store is to have a farmer/rancher, a welder,
and an equine enthusiast on the team.
In Meadville, Larry Crom is our semi-retired farmer himself and knows
many of his customers by name. He uses his experienced-based product knowledge
about the core work of our traditional customer all the time and is constantly
sharing that knowledge with his fellow team members.
Gina Roberts lives on a 23-acre farm just outside of Meadville and owns
two horses and a mule. She has a passion for these beautiful
8 TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT
ENTHUSIAST AND A WELDER
SUCCESS IN MEADVILLE, PENNSYLVANIA
[PHOTO]
BY USING HER KNOWLEDGE OF HORSES, GINA HELPS
HER CUSTOMERS DAILY WITH THEIR EQUINE NEEDS.
daily health and grooming needs. About one third of Tractor Supply's customers
own horses, so who better to help equestrian customers at the Meadville Tractor
Supply store than Gina. Customers really appreciate Gina's advice on feed,
health maintenance and grooming products for their animals.
Sean Coulter is called Mr. Mechanic in Meadville because of his love
for car restoration. His understanding of welding products and other tools has
made him a great asset to his team. He is a confident and competent welder and
an all-around handyman who truly understands his customers' needs. If you have a
mechanical question, you can trust Sean for the answer.
At Tractor Supply, we are always seeking to improve our levels of
product knowledge. In addition to the knowledge shared by our "experts", we also
conduct training classes on many key product lines such as power equipment,
animal feed, animal medicines, welders, air compressors, and work clothing.
After all, it's the job of each team member to provide legendary customer
service.
The success of every Tractor Supply store depends on the knowledge and
attitude of each team member. It is everyone's ongoing job to keep learning
about the products. The more knowledge we can share with our customers, the
better the shopping experience.
Superior customer service is job number one. Our goal is to make every
shopping experience a "great shopping experience."
TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT 9
LEADERSHIP AT WORK
GLORIA USSERY TRAINS HORSES--
SHE ALSO LEADS PEOPLE
A LADY FROM PENNSYLVANIA IMPROVES BUSINESS SOUTH OF NASHVILLE
What do training horses and leading people have in common? Both require
strength, patience, determination, creativity and hard work. Gloria Ussery has
those exact qualities. That's what makes her a great District Manager at Tractor
Supply Company.
Gloria began her career with Tractor Supply in 2000 after relocating
from Pennsylvania. She helped open 10 new stores in Florida before moving to
Tennessee to become District Manager over 11 stores just south of Nashville. Her
leadership has catapulted this district to the top third in the Company.
Just as Gloria trains her three horses to run successful field trials,
Tractor Supply trains its leaders to provide well thought- out plans and
consistent messages through semi-annual Leaders' Meetings.
[PHOTO]
DISTRICT MANAGER GLORIA USSERY TRAVELS TO THE STORES IN HER
DISTRICT WEEKLY TO VISIT WITH HER MANAGERS AND TEAM MEMBERS.
Tractor Supply actively seeks those leaders who mirror the philosophies
of the Company. "I believe in our Company's mission, values and core beliefs,"
stated Gloria. "This foundation has helped our Company through 63 years of
challenge, change and growth. My goal, as a leader, is to instill the same
values in my team members."
Tractor Supply encourages its leaders to surround themselves with the
right team members. "We have heard over and over again that the most important
decision we ever make as leaders is the selection of the people that comprise
our teams," said Gloria.
Another important aspect of the leaders' job is listening to their team
members. "We encourage our team members to listen to their customers," Gloria
added. "As leaders, we must also listen to our teams because the best ideas
about driving our business usually come from those closest to the customer."
"I've always believed that developing team members into "stars" is
one of the most rewarding aspects of my job," Gloria stated. "If I can encourage
initiative, teach, and coach effectively, then those around me will be
successful and ultimately Tractor Supply will be even more successful."
10 TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT
ALIGNMENT OF INTERESTS
BENEFITS AND BONUSES
KIM VELLA TELLS HOW WHAT'S GOOD FOR EMPLOYEES
IS ALSO GOOD FOR SHAREHOLDERS
[PHOTO]
BETSY HATCHER, LESLIE HOLT, KIM VELLA, NANCY BICKEL AND
BRANDI COX-WILLIAMS WORK HARD TO PROVIDE A BENEFITS PACKAGE
THAT IS MUTUALLY BENEFICIAL TO TEAM MEMBERS AND TRACTOR SUPPLY.
"Our goal at Tractor Supply Company is to exceed our customer's
expectations," stated Kim Vella, newly promoted Vice President of Human
Resources. "It's good for the customer, good for business, good for the team
members and good for the shareholders."
According to Kim, the Human Resources Department has the same goal - to
take care of their customers - the team members. "Our underlying goal is for our
team members to value their benefit plans and more closely bond to the
organization," Kim added. "Reduced employee turnover and the ability to attract
the right people lowers expenses, which is good for shareholders."
In early 2000, the Human Resources Department conducted a survey of our
team members to determine the most valued benefits. After receiving solid
feedback from a cross-functional group, Benefits Manager Betsy Hatcher and her
team researched the best way to redesign the benefit plans to meet team member
needs in the most cost-effective manner.
The team developed two new medical plan options, both with an added
wellness benefit and prescription drug card; supplemental and dependent life
insurance; company-sponsored life insurance; flexible spending accounts; and a
long-term disability plan for exempt team members. This was all accomplished
within targeted cost goals.
The response has been overwhelmingly positive. But the Human
Resources Department didn't stop there. The next mission: bonus plans.
Jim Wright, Cal Massmann and Kim Vella reviewed the various bonus plans
and discovered there was opportunity to better align employee and shareholder
interests. "It is important that we are all focused on our profit plan," said
Kim. "We need to ensure that our incentive plans are aligned with our goals."
After collaborating with all department heads, the Company's Board of
Directors and an outside consulting group, the new bonus plans were rolled out
with targets tied to Company goals. Tractor Supply is proud to have every team
member participate in a bonus plan.
MISSION ACCOMPLISHED!
Responsive benefit plans together with solid incentive bonus plans lead
to motivated team members, which in turn, lead to improved shareholder value!
TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT 11
PROMOTIONS,
PROMOTIONS,
PROMOTIONS.....
WE PROMOTED POWER EQUIPMENT AND
WOMEN'S WORK WEAR.
WE PROMOTED TOM PARRISH TOO!
[PHOTO]
PROMOTING POWER EQUIPMENT...
Power equipment -- primarily priding lawn mowers -- continues to be a
dominant category producing significant sales volume and positioning Tractor
Supply as an industry leader. Buyer Robert Bolyard said, "We, along with our
manufacturing partner MTD, select the features and benefits for each of our
riders. We relentlessly promote this product line in print, and on radio and
television with spokesman George Strait. As a result of our promotional efforts,
total unit sales in 2001 exceeded our record year 2000 sales in spite of softer
total demand."
Power equipment promotion isn't over. In 2002, for the first time ever,
Tractor Supply will carry the Cub Cadet line of the very highest quality riding
mowers in America. Prior to this year, Cub Cadet and other premium riders have
only been available through traditional independent dealers. Senior Vice
President Jerry Brase said "We are thrilled to be the first mass retailer in
America to offer a truly premium rider line to our customers. We will
aggressively promote this product line in 2002."
PROMOTING WOMEN'S WORK WEAR...
Our customer base has changed and evolved over the years. Today, 50% of
our customers are women-- so what could be more logical than promoting women's
work wear? Tractor Supply Company has been experimenting with various pilot
assortments of women's work wear for more than three years. The results of all
those pilot programs: a complete line that was rolled out late last summer.
Aggressive sales promotion, along with a great product assortment, has made the
women's work clothing program an overwhelming success.
PROMOTING FROM WITHIN...
Another promotion in 2001... Tom Parrish. Tom grew up in the
organization and was recently promoted to Vice President-Divisional
Merchandise Manager. He began his career with Tractor Supply in 1993 as an
Assistant Buyer in merchandising. He was promoted to Buyer in 1995. While a
Buyer, Tom successfully fine-tuned his product assortments improving turnover
and margins.
Over the years, Tom's merchandise responsibilities have included
buying virtually all products for the health, care, growth and containment of
equine, livestock and pets, as well as a broad selection of agricultural
products, men's work clothing, and lawn and garden power equipment.
Tom and his merchandise team are committed to further driving sales,
improving gross margins and continuing the tremendous improvement in the
management of inventory. With strengthened leadership and new, innovative
product lines, Tractor Supply will continue to expand its domination of the farm
and ranch store business.
12 TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT
IT, POS, SSC, SAP,
ERP, ATM, DC, RF...
WHAT DO ALL THESE
LETTERS MEAN?
SANJAY ZACHARIAH TAKES THE
MYSTERY OUT OF THE LATEST
TECHNOLOGY DEVELOPMENTS
[PHOTO]
SANJAY ZACHARIAH DISPLAYS THE NEW HARDWARE
PLATFORM FOR THE POS SYSTEM.
Although technology may be difficult for many people to understand, it
doesn't have to be like a foreign language. At Tractor Supply Company (TSC), the
use of technology is a very important part of our competitive advantage.
TSC's Information Technology (IT) Department recently upgraded several
of its most important systems including the Point-of-Sale (POS) cash register
system. The new hardware platform for POS performs most processes 30- 50% faster
than the previous system and provides new opportunities to gain efficiencies.
The store POS systems are connected to systems at the Store Support
Center (SSC) that include a Sales Audit System, a Data Warehouse, Email and an
SAP Enterprise Resource Planning (ERP) System. This connection is made possible
via an ATM (Asynchronous Transfer Mode) / Frame Relay connection, which provides
an "always-on" connection to all stores allowing continuous data transmission
between the Support Center and the stores.
Sanjay Zachariah, recently promoted Director of Enterprise Systems
Development, demystifies these systems for us. "All of the sales transactions
come into our Sales Audit system where we balance each store's cash, credit and
check transactions, then they are transmitted to our Data Warehouse, which
provides actionable and flexible reporting to virtually all of the different
departments in the Company. Finally, the sales and receiving information is
posted in our SAPERP system where we manage our merchandise assortments,
replenishment, and accounting processes," said Sanjay.
Tractor Supply successfully implemented SAP in 1999 and just completed
a four-month upgrade to SAP's most current software release, version 4.6c, which
provides a platform for future growth.
SO WHAT'S NEXT? "We're working right now on a project to automate all
of the processes at our Pendleton, Indiana Distribution Center (DC) for
implementation later this year," commented Sanjay. "Through the use of radio
frequency (RF) and voice-activated mobile terminals, we will improve the
efficiency and accuracy of our inventory management processes, resulting in
faster response time and lower required inventory levels."
So the next time you hear some- one say, "The IT Department upgraded
the POS system that utilizes an ATM/Frame Relay Connection to the SAPERP system
at the SSC;" it won't be a mystery. You will know that Tractor Supply Company
has up-to-date store and support center systems that provide the information and
controls to effectively manage our business.
TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT 13
FIVE YEAR SELECTED FINANCIAL
AND OPERATING HIGHLIGHTS
FISCAL YEAR ENDED
------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
DECEMBER 29, DECEMBER 30, JANUARY 1, DECEMBER 26, DECEMBER 27,
2001 2000 2000* 1998 1997
------------ ------------ ----------- ------------ ------------
OPERATING RESULTS:
Net sales $ 849,799 $ 759,037 $ 688,082 $ 600,677 $ 509,052
Gross margin 228,344 200,407 181,251 154,638 131,542
Selling, general and
administrative expenses 178,243 156,535 139,725 120,734 104,661
Depreciation and amortization 11,254 9,889 7,311 5,342 4,509
----------- ----------- ----------- ---------- ----------
Income from operations 38,847 33,983 34,215 28,562 22,372
Interest expense, net 4,494 6,387 4,104 3,270 2,439
Unusual item: gain on life insurance 2,173 -- -- -- --
----------- ----------- ----------- ---------- ----------
Income before income taxes 36,526 27,596 30,111 25,292 19,933
Income tax provision 10,752 11,206 12,237 10,492 8,172
----------- ----------- ----------- ---------- ----------
Net income $ 25,774 $ 16,390 $ 17,874 $ 14,800 $ 11,761
=========== =========== =========== ========== ==========
Net income per share - basic(a) $ 2.92 $ 1.87 $ 2.04 $ 1.69 $ 1.34
=========== =========== =========== ========== ==========
Net income per share - assuming dilution(a) $ 2.85 $ 1.87 $ 2.02 $ 1.68 $ 1.34
=========== =========== =========== ========== ==========
Dividends declared per share -- -- -- -- --
=========== =========== =========== ========== ==========
OPERATING DATA:
Gross margin 26.9% 26.4% 26.3% 25.7% 25.8%
Selling, general and administrative expenses 21.0% 20.6% 20.3% 20.1% 20.5%
Income from operations 4.6% 4.5% 5.0% 4.7% 4.4%
Net income 3.0% 2.2% 2.6% 2.5% 2.3%
Number of stores:
Beginning of year 305 273 243 228 208
New stores 18 35 31 15 22
Closed stores -- (3) (1) -- (2)
----------- ----------- ----------- ---------- ----------
End of year 323 305 273 243 228
=========== =========== =========== ========== ==========
Number of relocated stores 1 1 1 1 1
Number of remodeled stores(b) 4 -- -- -- --
Total selling square footage at period end(c) 4,164,190 3,904,958 3,448,347 3,014,196 2,806,864
Average sales per store (in thousands)(d) $ 2,699 $ 2,603 $ 2,682 $ 2,542 $ 2,300
Net sales per square foot of selling space $ 209 $ 204 $ 214 $ 206 $ 187
Comparable store sales increase(e) 3.8% .4% 4.4% 10.9% 3.1%
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital $ 122,309 $ 133,731 $ 117,306 $ 95,530 $ 82,869
Total assets 338,482 332,296 302,630 264,649 224,080
Long-term debt, less current portion(f) 23,157 62,950 54,683 37,132 31,134
Stockholders' equity 181,296 155,036 138,305 119,976 104,889
* 53-week fiscal year
(a) Basic net income per share is calculated based on the weighted average
number of common shares outstanding applied to net income. Diluted net
income per share is calculated using the treasury stock method for
options and warrants.
(b) Includes remodelings costing more than $150,000.
(c) Total selling square footage includes normal selling space and excludes
office, stockroom, receiving space and outside selling space.
(d) Average sales per store is calculated based on the weighted average
number of days open in the applicable period.
(e) Comparable store sales increases are calculated on a 52-week basis,
excluding relocations, using all stores open at least one year.
(f) Long-term debt includes borrowings under the Company's principal
revolving credit agreements, term loan agreements and amounts
outstanding under its capital lease obligations, excluding the current
portions of each.
14 TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis describes certain factors affecting
Tractor Supply Company's (the "Company") results of operations for the three
fiscal years ended December 29, 2001 and its liquidity and capital resources.
This discussion should be read in conjunction with the financial statements and
notes thereto included elsewhere in this Annual Report. The following discussion
and analysis also contains certain historical and forward-looking information.
The forward-looking statements are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995 ("the Act"). All
statements, other than statements of historical facts, which address activities,
events or developments that the Company expects or anticipates will or may occur
in the future, including such things as future capital expenditures (including
the amount and nature thereof), business strategy, expansion and growth of the
Company's business operations and other such matters are forward-looking
statements. To take advantage of the safe harbor provided by the Act, the
Company is identifying certain factors that could cause actual results to differ
materially from those expressed in any forward-looking statements, whether oral
or written, made by or on behalf of the Company.
All phases of the Company's operations are subject to influences outside its
control. Any one, or a combination, of these factors could materially affect the
results of the Company's operations. These factors include general economic
cycles affecting consumer spending, weather factors, operating factors affecting
customer satisfaction, consumer debt levels, pricing and other competitive
factors, the ability to attract, train and retain highly qualified associates,
the ability to identify suitable locations and negotiate favorable lease
agreements on new and relocated stores, the timing and acceptance of new
products in the stores, the mix of goods sold, the continued availability of
favorable credit sources, capital market conditions in general and the
seasonality of the Company's business. Forward-looking statements made by or on
behalf of the Company are based on a knowledge of its business and the
environment in which it operates, but because of the factors listed above,
actual results could differ materially from those reflected by any
forward-looking statements. Consequently, all of the forward-looking statements
made are qualified by these cautionary statements and there can be no assurance
that the actual results or developments anticipated by the Company will be
realized or, even if substantially realized, that they will have the expected
consequences to or effects on the Company or its business and operations.
The Company's fiscal year ends on the Saturday closest to December 31. Fiscal
years 2001 and 2000 consist of 52 weeks, while fiscal year 1999 consists of 53
weeks.
OVERVIEW
Since its founding as a mail order tractor parts business in 1938, the Company
has grown to be the largest operator of retail farm and ranch stores in the
United States. The Company supplies the daily farming and maintenance needs of
its target customers: hobby, part-time and full-time farmers and ranchers, as
well as rural customers, contractors and tradesmen. The Company's stores
typically range in size from 12,000 to 15,000 square feet of inside selling
space and utilize at least as many square feet of outside selling space. An
average store displays a comprehensive selection of 12,000 to 14,000 different
products including farm maintenance products (fencing, tractor parts and
accessories, agricultural spraying equipment and tillage parts); animal and pet
products (specialty feeds, supplements, medicines, veterinary supplies and
livestock feeders); general maintenance products (air compressors, welders,
generators, pumps, plumbing and tools); lawn and garden products (riding mowers,
tillers and fertilizers); light truck equipment; and work clothing. The stores
are located in the outlying towns of major metropolitan markets and in rural
communities.
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 approximate annualized rate of 8% to 10% unit growth and (2)
enhanced financial performance through comparable store sales increases,
achieved through aggressive merchandising programs with an "everyday low prices"
philosophy, supported by strong customer service.
Over the past eight fiscal years since the Company's initial public offering in
February 1994 (the "Offering"), the Company has opened 177 new retail stores: 13
in fiscal 1994, 20 in fiscal 1995, 23 in fiscal 1996, 22 in fiscal 1997, 15 in
fiscal 1998, 31 in fiscal 1999, 35 in fiscal 2000 and 18 in fiscal 2001. These
new stores have increased the Company's market presence in the Southwest,
primarily in Texas, and in the Southeast, primarily in Tennessee, Kentucky,
North Carolina and Florida. This expansion brings the Company's total store
count to 323 (in 28 states) as of December 29, 2001. The Company has a base plan
to open 25 stores in fiscal 2002 (an approximate 8% unit growth rate) and, with
the acquisition of certain real estate properties and lease rights from Quality
Stores, Inc., an additional 87 stores. Approximately 13 new stores are scheduled
to open in the first quarter of fiscal 2002 with an additional 94 store openings
planned by the middle of the year. In total over the past eight fiscal years
since the Offering, the Company has opened, relocated or remodeled 205 stores.
TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Additionally, the Company has placed significant emphasis on its merchandising
programs, evaluating the sales and profitability of its products through
detailed line reviews, vendor performance measures and modification of the
overall product offerings. These efforts, coupled with a strong marketing
program and in-depth product knowledge training of store associates, have
enhanced sales, improved gross margins and generated improved overall financial
performance.
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.
The Company's unaudited quarterly operating results for each fiscal quarter of
2001 and 2000 are shown below (dollars in thousands, except per share amounts):
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
2001
Net sales $ 162,517 $267,490 $199,435 $220,357 $849,799
Gross margin 42,095 71,793 53,972 60,484 228,344
Income (loss) from operations (1,565) 23,455 4,933 12,024 38,847
Net income (loss) (1,849) 15,644 2,425 9,554 25,774
Net income (loss) per share - basic (.21) 1.78 .28 1.08 2.92
Net income (loss) per share -
assuming dilution $ (.21) $ 1.76 $ .27 $ 1.03 $ 2.85
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
2000
Net sales $ 147,482 $232,341 $175,478 $203,736 $759,037
Gross margin 37,604 61,585 45,117 56,101 200,407
Income (loss) from operations (338) 19,062 3,619 11,640 33,983
Net income (loss) (975) 10,546 1,123 5,696 16,390
Net income (loss) per share - basic (.11) 1.20 .13 .65 1.87
Net income (loss) per share -
assuming dilution $ (.11) $ 1.20 $ .13 $ .65 $ 1.87
16 TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items in the
Company's Statements of Income expressed as a percentage of net sales:
FISCAL YEAR ENDED
------------------------------------------------------------------------------------
DECEMBER 29, DECEMBER 30, JANUARY 1, DECEMBER 26, DECEMBER 27,
2001 2000 2000 1998 1997
------------ ------------ ---------- ------------ ------------
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold 73.1 73.6 73.7 74.3 74.2
Gross margin 26.9 26.4 26.3 25.7 25.8
Selling, general and administrative
expenses 21.0 20.6 20.3 20.1 20.5
Depreciation and amortization 1.3 1.3 1.0 0.9 0.9
----- ----- ----- ----- -----
Income from operations 4.6 4.5 5.0 4.7 4.4
Interest expense, net 0.5 0.8 0.6 0.5 0.5
Unusual item: gain on life insurance 0.2 -- -- -- --
----- ----- ----- ----- -----
Income before income taxes 4.3 3.7 4.4 4.2 3.9
Income tax provision 1.3 1.5 1.8 1.7 1.6
----- ----- ----- ----- -----
Net income 3.0% 2.2% 2.6% 2.5% 2.3%
===== ===== ===== ===== =====
FISCAL 2001 COMPARED TO FISCAL 2000
Net sales increased 12.0% to $849.8 million in fiscal 2001 from $759.0 million
in fiscal 2000. This increase resulted from the opening of new stores as well as
comparable store sales (calculated on a 52-week basis, excluding relocations,
using all stores open at least one year), which increased 3.8% for fiscal 2001.
The increase in comparable store sales for fiscal 2001 was a result of new
merchandising programs and reduced competition in certain markets, offset by
general economic challenges in 2001 and the warmer weather patterns in the
fourth quarter of fiscal 2001. The Company opened 18 new stores and relocated
one store in fiscal 2001. The Company opened 35 new stores, closed three stores
and relocated one store in fiscal 2000. At December 29, 2001, the Company
operated 323 stores compared to 305 stores at the end of the prior fiscal year.
In fiscal 2002, the Company has a base plan to open 25 stores (an approximate 8%
unit growth) and, with the acquisition of certain real estate properties and
lease rights from Quality Stores, Inc., an additional 87 stores. Additionally,
the Company plans to relocate 10 to 12 stores in fiscal 2002, primarily in the
third and fourth quarters.
The gross margin rate increased 0.5 percentage point to 26.9% of sales in fiscal
2001 from 26.4% in fiscal 2000. This gross margin improvement resulted from a
reduction in product costs achieved through detailed product line reviews,
improved product assortments and other merchandising initiatives.
As a percent of sales, selling, general and administrative expenses increased
0.4 percentage point to 21.0% for fiscal 2001 from 20.6% for fiscal 2000. On an
absolute basis, selling, general and administrative expenses increased 13.9% to
$178.2 million for fiscal 2001 from $156.5 million in fiscal 2000. The increase
in expenses on a percentage-of-sales basis is primarily a result of increased
investment in store level expenses (primarily payroll and training), higher
incentive accruals, offset, in part, by greater leverage from same-store sales
performance. The increase in absolute dollars is primarily attributable to costs
associated with new store openings (new stores have higher occupancy costs,
primarily rent, than the existing store base), as well as increased investment
in store payroll, training, and higher incentive accruals.
During fiscal 2001, the Company continued its major media advertising program
which includes a national television campaign featuring a celebrity
spokesperson, significantly expanded use of radio promotions and increased print
advertising. This program is partially funded each year through the support of
the Company's vendor partners.
TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Depreciation and amortization expense increased 13.8% over the prior year due
mainly to costs associated with new and relocated stores and remodeled existing
stores.
Net interest expense decreased 29.6% in fiscal 2001 from fiscal 2000. The
decrease in interest expense reflects reduced borrowings under the senior credit
facility, primarily attributable to lower average inventory balances and
improved same-store sales performance, as well as reduced short-term borrowing
rates during the period.
Exclusive of the non-taxable $2.1 million gain on the proceeds of life insurance
and the $2.5 million reduction of previously accrued income taxes, the Company's
effective tax rate decreased to 38.6% for fiscal 2001 compared to 40.6% for
fiscal 2000. The effective tax rate decreased primarily due to a reduction in
state income taxes. The Company reevaluated its tax exposure during the quarter
ended December 29, 2001; as a result of the favorable resolution of certain tax
issues, along with the closing of open tax years, the Company reduced previously
accrued income tax liabilities by $2.5 million.
As a result of the foregoing factors, net income increased 57.3% to $25.8
million in fiscal 2001 from $16.4 million in fiscal 2000. As a percent of sales,
net income increased 0.8 percentage point to 3.0% of sales in fiscal 2001 from
2.2% of sales in fiscal 2000.
FISCAL 2000 COMPARED TO FISCAL 1999
Net sales increased 10.3% to $759.0 million in fiscal 2000 from $688.1 million
in fiscal 1999. This increase resulted primarily from new store openings and
relocations, and, to a lesser extent, a comparable store sales increase of .4%
(calculated on a 52-week basis, excluding relocations, using all stores open at
least one year), while impacted by the inclusion of an additional week of
operations in fiscal 1999 (due to the Company's fiscal year-end policy).
Comparable store sales performance was significantly affected by the sale of
generators and other Y2K-related products in fiscal 1999. The Company
substantially mitigated this impact through the successful promotion of special
purchase merchandise selected for the maintenance needs of core customers. Also,
the Company benefited from favorable cold weather in November and December,
which prompted improved sales of winter workwear and heating products. Excluding
the effect of generator and other Y2K-related sales, comparable store sales
increased 2.9% over fiscal 1999. The Company opened 35 new stores, closed three
stores and relocated one store in fiscal 2000. The Company opened 31 new stores,
closed one store and relocated one store in fiscal 1999. At December 30, 2000,
the Company operated 305 retail farm stores versus 273 stores at the end of the
prior fiscal year.
The gross margin rate increased 0.1 percentage point to 26.4% of sales in fiscal
2000 from 26.3% in fiscal 1999. In 1999, the Company experienced a significant
change in the year-end mix of certain inventory items and achieved lower
purchase costs for other inventory items. These factors contributed to a
reduction in the expected LIFO provision and had the effect of increasing the
1999 gross margin rate by 0.3 percentage point. Exclusive of the favorable LIFO
effect in 1999, the year 2000 gross margin improvement of 0.4% resulted from a
reduction in product costs achieved through detailed product line reviews as
well as improved product assortments accomplished through significant
remerchandising efforts.
As a percent of sales, selling, general and administrative expenses increased
0.3 percentage point to 20.6% for fiscal 2000 from 20.3% for fiscal 1999. On an
absolute basis, selling, general and administrative expenses increased 12.0% to
$156.5 million for fiscal 2000 from $139.7 million in fiscal 1999. The increase
in expenses on a percentage-of-sales basis is primarily a result of costs
associated with new stores as well as the leverage loss attributable to the
lower than anticipated comparable store sales performance. The increase in
absolute dollars is primarily due to costs associated with new store openings
(new stores have higher occupancy costs, primarily rent, than the existing store
base), as well as increased costs associated with the Company's expanded
infrastructure (primarily larger distribution facilities and store support
service capacity). These increases were offset, to some extent, by lower
incentive accruals, one less week of operating expenses (fiscal 2000 reflects 52
weeks of operations compared to fiscal 1999 which is comprised of 53 weeks) and
a non-recurring expense of approximately $1 million in fiscal 1999 relating to
the Company's relocation of two of its distribution centers.
During fiscal 2000, the Company continued its major media advertising program,
which includes a national television campaign featuring a celebrity
spokesperson, significantly expanded use of radio promotions and increased print
advertising. This program is partially funded each year through the support of
the Company's vendor partners.
18 TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Depreciation and amortization expense increased 35.3% over the prior year due
mainly to costs associated with new and relocated stores and increased
investment in infrastructure (mainly the merchandise and warehouse management
system).
Net interest expense increased 55.6% in fiscal 2000 from fiscal 1999. The
increase in interest expense reflects additional borrowings under the senior
credit facility to fund the Company's growth and expansion plans, resulting in a
higher average outstanding debt balance in fiscal 2000 compared to fiscal 1999.
The Company's effective tax rate remained unchanged at 40.6% for both fiscal
2000 and fiscal 1999.
As a result of the foregoing factors, net income decreased 8.3% to $16.4 million
in fiscal 2000 from $17.9 million in fiscal 1999. As a percent of sales, net
income decreased 0.4 percentage point to 2.2% of sales in fiscal 2000 from 2.6%
of sales in fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
In addition to normal operating expenses, the Company's primary ongoing cash
requirements are those necessary for the Company's expansion, remodeling and
relocation programs, including inventory purchases and capital expenditures. The
Company's primary ongoing sources of liquidity are funds provided from
operations, commitments available under its credit agreements and short-term
trade credit. The Company's inventory and accounts payable levels typically
build in the first and again in the third fiscal quarters in anticipation of the
spring and fall selling seasons.
At December 29, 2001, the Company's inventories had decreased $0.5 million to
$222.0 million from $222.5 million at December 30, 2000. This decrease was
primarily attributable to improvements in inventory management achieved through
an enhanced replenishment system (a 5.8% reduction in average inventory per
store compared to December 30, 2000). Short-term trade credit, which represents
a source of financing for inventory, increased $10.7 million to $81.0 million at
December 29, 2001 from $70.3 million at December 30, 2000. Trade credit arises
from the Company's vendors granting extended payment terms for inventory
purchases. Payment terms vary from 30 days to 180 days depending on the
inventory product.
At December 29, 2001, the Company had working capital of $122.3 million, which
represented a $11.4 million decrease from December 30, 2000. This decrease
resulted primarily from a decrease in inventory (attributable mainly to the
factors described above) with an increase in accounts payable and an increase in
accrued expenses (mainly due to timing of payments, as well as higher incentive
and insurance accruals), offset by an increase in prepaid expenses and other
current assets (mainly construction-in-progress costs pertaining to planned
sale/leaseback transactions respecting certain 2001 and 2002 new stores) and a
decrease in current deferred income taxes. At December 30, 2000, the Company had
working capital of $133.7 million, which represented a $16.4 million increase
from January 1, 2000. This increase resulted primarily from an increase in
inventory without a corresponding increase in accounts payable, an increase in
prepaid expenses and other current assets (mainly construction-in-progress costs
pertaining to planned sale/leaseback transactions respecting certain 2000 and
2001 new stores), an increase in cash and cash equivalents, a decrease in income
taxes payable and a decrease in current deferred income taxes.
In November 2000, the Company entered into a three-year unsecured senior
revolving credit facility with Bank of America, N.A., as agent for a lender
group, (the "Senior Credit Facility") whereby the Company may borrow up to $125
million. This credit facility was used to refinance all outstanding indebtedness
under the existing revolving credit agreement. (The Company amended its then
existing credit agreement in November 1999 to increase the maximum total
commitments to $75 million.) At December 29, 2001, the Company had $15.1 million
of borrowings outstanding under the Senior Credit Facility. The Company expects
to continue borrowing amounts under the Senior Credit Facility from time to time
to fund its growth and expansion programs and as a source of seasonal working
capital.
After the close of fiscal year 2001, the United States Bankruptcy Court approved
a transaction for the sale of certain assets of Quality Stores, Inc., the
Company's single largest national competitor. The Company purchased the real
property for 24 stores, the lease rights to 76 stores and the furniture and
fixtures from 100 stores. Total consideration, including estimated transaction
costs, was approximately $35 million. The Company may sell and leaseback 20 of
the real properties and sell four properties with expected proceeds of
approximately $23 million. Alternatively, the Company may mortgage the related
properties or otherwise obtain long-term financing. The Company plans to open 87
of the locations as new Tractor Supply stores by the middle of fiscal 2002 and
to relocate existing Tractor Supply stores in nine other locations later in the
same year. Capital expenditures to convert the stores to the Tractor
TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Supply format are expected to be $12 to $13 million and inventories for the
converted stores are expected to total between $55 and $60 million. The Company
believes that its cash flow from operations, borrowings available under its
Senior Credit Facility and short-term trade credit will be sufficient to fund
this expansion.
With this transaction, the Company has committed to a store growth plan in
fiscal 2002 which is approximately four times the historical unit store growth
plan for a single year. However, the Company has avoided the potential pitfalls
of acquiring redundant headquarters and information systems. Further, the
Company did not acquire any inventory, thus avoiding the challenges of
integrating similar product with dissimilar packaging into its existing stock,
as well as avoiding the challenge of liquidating other products which conflicts
with the Company's existing product offerings. Rather, the Company has selected
only the geographic markets that it believes have the greatest potential (many
of which were part of the Company's previously established near-term growth
plan) and the Company has already hired many store managers and district
managers to operate these new stores. With this experienced retail workforce,
the Company has developed an accelerated training program to complete the
transition. Further, the Company believes it has the needed distribution
capacity at its primary distribution center in Indiana to accommodate this
increased volume. Organizational meetings with the Company's key vendor partners
have been held, confirming a strong source of support and product supply, with
extended payment terms and additional discounts. Enhancements to the Company's
information systems that have been made over the last three years should provide
the necessary systems support for this aggressive growth. Finally, the required
additions to other functional areas (e.g. merchandising, human resources and
accounting) that are needed to maintain the appropriate infrastructure for
support are also substantially in place.
This aggressive expansion will occur in a more compressed timeframe than the
Company's historical store growth. The Company expects to start receiving
physical possession of the facilities in early March, with activities to
renovate the facilities, train the personnel and stock the stores taking place
at a very rapid pace. However, the Company has deployed numerous "store set-up"
teams to achieve the state of readiness required to enable all such stores to be
opened by July 1, 2002. The Company expects to incur no more than the typical
level of per-store training and pre-opening costs associated with any store
opening; however, due the more concentrated timeline of the pre-opening activity
(approximately four months), the operating results are expected to be slightly
dilutive for the full year. The timing of the completion of improvements to the
new locations may make a significant difference in the results of operations for
the first half and full year.
Operations provided net cash of $46.8 million in fiscal 2001, provided net cash
of $10.2 million in fiscal 2000 and used net cash of $7.7 million in fiscal
1999. The generation of cash in fiscal 2001 resulted primarily from net income
as well as inventories decreasing at a faster rate than accounts payable
compared to the prior year. The generation of cash in fiscal 2000 resulted
primarily from net income offset, in part, by inventories increasing at a faster
rate than accounts payable compared to the prior year.
Cash used in investing activities of $10.7 million, $16.7 million and $19.6
million for fiscal 2001, 2000 and 1999, respectively, resulted primarily from
capital expenditures for new, relocated and remodeled stores and for new
merchandise and warehouse management systems, partially offset by proceeds from
the sale of certain properties (primarily land and buildings) and the
liquidation of certain life insurance policies (in fiscal 2001).
Financing activities in fiscal 2001 used $36.3 million in cash, which
represented a $45.0 million decrease from the $8.7 million in cash provided in
fiscal 2000. This decrease resulted primarily from net repayments of $34.9
million under the revolving credit agreement in fiscal 2001 compared to net
borrowings of approximately $11.9 million in fiscal 2000, as well as repayments
of long-term debt of $5.6 million in fiscal 2001 compared to $3.0 million in
fiscal 2000. This decrease was offset, in part, by net proceeds from life
insurance benefits of $2.5 million in fiscal 2001 and $1.9 million in proceeds
from issuance of common stock in fiscal 2001. Financing activities in fiscal
2000 provided $8.7 million in cash, which represented a $7.4 million decrease
from the $16.1 million in cash provided in fiscal 1999. This decrease resulted
primarily from net borrowings of $11.9 million under the revolving credit
agreement in fiscal 2000 compared to net borrowings of $19.1 million in 1999.
The Company's capital additions were $13.6 million, $17.4 million and $20.4
million in fiscal 2001, 2000 and 1999, respectively. The majority of the capital
additions were for store fixtures, equipment and leasehold improvements for new
stores and remodeling of existing stores as well as the merchandise and
warehouse management system. The Company expects that its capital expenditures
for fiscal 2002 will be approximately $18 million to $20 million for the base
store openings plan of 25 new stores. Additionally, the Company has spent
approximately $35 million (including transaction costs) for certain assets and
lease rights for certain retail stores
20 TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
formerly operated by Quality Stores, Inc. (The Company has received a waiver of
the applicable restrictive loan covenants from its bank group for the
transaction). This planned spending is predicated on the successful
implementation of the Company's growth strategy through approximately 112
planned new store openings and ten to twelve relocations of existing stores.
However, the Company cannot predict with certainty the amount of such
expenditures because such new stores may be constructed, leased or acquired from
others. The estimated cash required to open a new store is approximately $0.8 to
$1.0 million, the majority of which is for the initial acquisition of inventory
and capital expenditures, principally leasehold improvements, fixtures and
equipment, and the balance of which is for store opening expenses.
The Company believes that its cash flow from operations, borrowings available
under the Senior Credit Facility and short-term trade credit will be sufficient
to fund the Company's operations and its capital expenditure plans, including
store openings and renovations, over the next several years.
LITIGATION
The Company is involved in various litigation arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
these matters will be resolved without material adverse effect on the Company's
consolidated financial position or results of operations. 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.
MARKET RISKS
The Company is exposed to changes in interest rates primarily from its
variable-rate, long-term debt arrangements. Under its current policies, the
Company uses interest rate swaps to manage exposure to interest rate changes for
a portion of its debt arrangements. Taking into account the effects of interest
rate swaps designated as hedges, a hypothetical 100 basis point adverse move
(decrease) in interest rates along the entire interest rate yield curve would
result in approximately $300,000 of additional interest expense and would not
impact the fair market value of the long-term debt.
Although the Company cannot accurately determine the precise effect of inflation
on its operations, it does not believe its sales or results of operations have
been materially affected by inflation. The Company has been successful, in many
cases, in reducing or mitigating the effects of inflation principally by taking
advantage of vendor incentive programs, economies of scale from increased volume
of purchases and selective buying from the most competitive vendors without
sacrificing quality.
RECENT SEC DISCLOSURE GUIDANCE
In December 2001 and January 2002, the Securities and Exchange Commission issued
financial reporting releases, FR-60, "Cautionary Advice Regarding Disclosure
About Critical Accounting Policies" and FR-61, "Commission Statement about
Management Discussion and Analysis ("MD&A") of Financial Condition and Results
of Operations," respectively. FR-60 focuses on the need for more discussion
about critical accounting policies. FR-61 focuses on additional disclosure
relating to liquidity and capital resources, including off-balance sheet
arrangements and related party transactions. The extent of the Company's
off-balance sheet arrangements are limited to letters of credit, operating
leases for buildings and equipment for retail stores, distribution centers and
offices (see Notes 2 and 4 to the accompanying financial statements). The
Company's only related party transactions are capital lease arrangements on six
retail stores entered into in 1986 (see Note 9 to accompanying financial
statements). The Company's critical accounting policies are disclosed in Note 1
to the accompanying financial statements.
TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142"). Under SFAS 142, goodwill amortization ceases when the new standard
is adopted. The new rule also requires an initial goodwill impairment assessment
in the year of adoption and annual impairment tests thereafter. The Company
adopted this Statement effective December 30, 2001. At December 29, 2001 the
Company had unamortized negative goodwill of $175,000. Application of this
Statement will result in the write-off of the remaining negative goodwill,
increasing income before income taxes by $175,000 in the first quarter of fiscal
2002.
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144") which provides clarifications of certain
implementation issues within SFAS 121, along with additional guidance on the
accounting for the impairment or disposal of long-lived assets. SFAS 144
supersedes SFAS 121 and applies to all long-lived assets (including discontinued
operations) and consequently amended APB 30 "Reporting the Effects of Disposal
of a Segment of a Business." SFAS 144 develops one accounting model (based on
the model in SFAS 121) for long-lived assets that are to be disposed of by sale,
as well as addresses the principal implementation issues. SFAS 144 is effective
for financial statements issued for fiscal years beginning after December 15,
2001. The Company believes the adoption of this standard will not have a
material effect on the Company's financial position or results of operations.
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Tractor Supply Company
We have audited the consolidated balance sheet of Tractor Supply Company as of
December 29, 2001, and the related consolidated statement of income,
stockholders' equity, and cash flows for the year then ended. 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. The consolidated balance sheet of Tractor Supply Company as of
December 30, 2000, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the two years in the period
ended December 30, 2000, were audited by other auditors whose report dated,
January 24, 2001, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards 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. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the 2001 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Tractor Supply Company at December 29, 2001, and the consolidated results of its
operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Nashville, Tennessee
January 18, 2002
22 TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
FOR THE FISCAL YEAR ENDED
--------------------------------------------------
DECEMBER 29, DECEMBER 30, JANUARY 1,
2001 2000 2000
------------ ------------ ----------
Net sales $ 849,799 $ 759,037 $ 688,082
Cost of merchandise sold 621,455 558,630 06,831
---------- ---------- ----------
Gross profit 228,344 200,407 181,251
Selling, general and administrative expenses 178,243 156,535 139,725
Depreciation and amortization 11,254 9,889 7,311
---------- ---------- ----------
Income from operations 38,847 33,983 34,215
Interest expense, net 4,494 6,387 4,104
Unusual item: gain on life insurance 2,173 -- --
---------- ---------- ----------
Income before income taxes 36,526 27,596 30,111
Income tax provision 10,752 11,206 12,237
---------- ---------- ----------
Net income $ 25,774 $ 16,390 $ 17,874
========== ========== ==========
Net income per share - basic $ 2.92 $ 1.87 $ 2.04
========== ========== ==========
Net income per share - assuming dilution $ 2.85 $ 1.87 $ 2.02
========== ========== ==========
The accompanying notes are an integral part of this statement.
TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT 23
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
DECEMBER 29, DECEMBER 30,
2001 2000
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 8,927 $ 9,145
Accounts receivable, net 6,516 7,683
Inventories 221,979 222,535
Prepaid expenses and other current assets 14,540 7,870
---------- ----------
Total current assets 251,962 247,233
---------- ----------
Land 6,365 6,449
Buildings and improvements 72,682 67,985
Machinery and equipment 53,250 49,304
Construction in progress 5,699 1,605
---------- ----------
137,996 125,343
Accumulated depreciation and amortization (56,008) (44,855)
---------- ----------
Property and equipment, net 81,988 80,488
---------- ----------
Deferred income taxes 2,741 1,112
Other assets 1,791 3,463
---------- ----------
Total assets $ 338,482 $ 332,296
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 80,974 $ 70,294
Accrued expenses 42,943 33,929
Current maturities of long-term debt 2,142 3,145
Current portion of capital lease obligations 309 279
Income taxes currently payable 3,111 1,643
Deferred income taxes 174 4,212
---------- ----------
Total current liabilities 129,653 113,502
Revolving credit loan 15,117 50,007
Other long-term debt 5,537 10,131
Capital lease obligations 2,503 2,812
Other long-term liabilities 4,376 808
---------- ----------
Total liabilities 157,186 177,260
---------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock, 100,000,000 shares authorized; $.008 par value; 8,937,651 and
8,792,527 shares issued and outstanding in 2001and 2000, respectivelY 71 70
Additional paid-in capital 44,916 43,009
Retained earnings 137,731 111,957
Accumulated other comprehensive loss, net (1,422) --
---------- ----------
Total stockholders' equity 181,296 155,036
---------- ----------
Total liabilities and stockholders' equity $ 338,482 $ 332,296
========== ==========
The accompanying notes are an integral part of this statement.
24 TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS EQUITY
(in thousands)
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
STOCK CAPITAL EARNINGS LOSS EQUITY
------ ---------- --------- ------------- -------------
Stockholders' equity at
December 26, 1998 $ 70 $ 42,213 $ 77,693 $ 0 $ 119,976
Issuance of common stock under employee
stock purchase plan (13,752 shares) 298 298
Exercise of stock options (7,249 shares) 157 157
Net income 17,874 17,874
----- --------- ---------- --------- ----------
Stockholders' equity at
January 1, 2000 70 42,668 95,567 0 138,305
Issuance of common stock under employee
stock purchase plan (23,421 shares) 341 341
Net income 16,390 16,390
----- --------- ---------- --------- ----------
Stockholders' equity at
December 30, 2000 70 43,009 111,957 0 155,036
Issuance of common stock under employee
stock purchase plan (34,715 shares) 380 380
Exercise of stock options (66,439 shares) 1 1,235 1,236
Tax benefit on disqualifying disposition
of stock options 292 292
Net income (Note 7) 25,774 25,774
Other comprehensive loss related to
interest rate swap agreement, net (1,422) (1,422)
----------
Comprehensive income 24,352
----- --------- ---------- --------- ----------
Stockholders' equity at
December 29, 2001 $ 71 $ 44,916 $ 137,731 $ (1,422) $ 181,296
===== ========= ========== ========= ==========
TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT 25
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
FOR THE FISCAL YEAR ENDED
---------------------------------------------------
DECEMBER 29, DECEMBER 30, JANUARY 1,
2001 2000 2000
------------ ------------ ----------
Cash flows from operating activities:
Net income $ 25,774 $ 16,390 $ 17,874
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 11,254 9,889 7,311
Gain on disposition of property and equipment (60) (241) (104)
Gain on proceeds from life insurance (2,173) -- --
Deferred income taxes (5,667) (3,258) (180)
Change in assets and liabilities:
Accounts receivable 1,167 (918) (1,187)
Inventory 556 (15,210) (35,576)
Prepaid expenses and other current assets (6,670) (3,025) 1,456
Accounts payable 10,680 10,530 (1,136)
Accrued expenses 9,014 (108) 4,427
Income taxes currently payable 1,468 (2,492) 1
Other 1,462 (1,384) (605)
---------- ---------- ----------
Net cash provided by (used in) operating activities 46,805 10,173 (7,719)
---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures (13,569) (17,358) (20,368)
Proceeds from sale of property and equipment 1,376 634 816
Liquidation of life insurance policies 1,499 -- --
---------- ---------- ----------
Net cash used in investing activities (10,694) (16,724) (19,552)
---------- ---------- ----------
Cash flows from financing activities:
Net borrowings (repayment) under revolving credit agreement (34,890) 11,881 19,126
Repayment of long term debt (5,597) (3,049) (2,960)
Principal payments under capital lease obligations (279) (468) (560)
Net proceeds from life insurance death benefit 2,529 -- --
Net proceeds from issuance of common stock 1,908 341 455
---------- ---------- ----------
Net cash provided by (used in) financing activities (36,329) 8,705 16,061
---------- ---------- ----------
Net increase (decrease) in cash (218) 2,154 (11,210)
Cash and cash equivalents at beginning of year 9,145 6,991 18,201
---------- ---------- ----------
Cash and cash equivalents at end of year $ 8,927 $ 9,145 $ 6,991
========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 4,338 $ 6,423 $ 4,026
Income taxes 13,770 16,324 12,937
Non-cash investing and financing activities:
Capital lease-buildings -- -- 1,581
The accompanying notes are an integral part of this statement.
26 TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS
Tractor Supply Company is a specialty retailer, which supplies the daily farm
and ranch maintenance needs of its target customers: hobby, part-time and
full-time farmers and ranchers, as well as suburban customers, contractors and
tradesmen. The Company, which was founded in 1938,operated 323 retail farm
stores in 28 states as of December 29,2001.
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to December 31. Fiscal
years 2001 and 2000 consist of 52 weeks, while fiscal year 1999 consists of 53
weeks.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries. All material intercompany accounts and
transactions have been eliminated.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States inherently requires estimates and
assumptions by management that affect the reported amounts of assets and
liabilities, revenues and expenses and related disclosures. Actual results could
differ from those estimates. Significant estimates and assumptions by management
primarily impact the following key financial areas:
INVENTORY VALUATION
The Company identifies potentially excess and slow-moving inventory by
evaluating turn rates and overall inventory levels. Excess quantities
are identified through the application of benchmark turn targets and
historical sales experience. Further, exposure to inadequate
realization of carrying value is identified through analysis of gross
margin achievement and markdown experience, in combination with all
merchandising initiatives.
INVENTORY SHRINKAGE
The Company estimates its expected shrinkage of inventory between
physical inventory counts by assessing the chain-wide average shrinkage
experience rate, applied to the related periods' sales volume. Such
assessments are updated on a regular basis for the most recent
individual store experiences.
SALES RETURNS
The Company generally honors customer refunds within 30 days of the
original purchase, with the supporting receipt. The Company estimates
its reserve for likely customer returns based on the average refund
experience in relation to sales for the related period. Due to the
seasonality of the Company's sales, the refund experience can vary,
depending on the fiscal quarter of measurement.
REVENUE RECOGNITION
The Company recognizes revenue at the time of customer purchase. A provision is
made for expected refunds attributed to customer returns.
TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CASH FLOWS
The Company considers temporary cash investments, with a maturity of three
months or less when purchased, to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has cash and cash equivalents, short-term trade receivables and
payables and long-term debt instruments, including capital leases. The carrying
values of cash and cash equivalents, trade receivables and trade payables equal
current fair value. The terms of the Company's revolving credit agreement and
term loan agreement include variable interest rates, which approximate current
market rates. (Notes 2 and 3)
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company has entered into an interest rate swap agreement as a means of
managing its interest rate exposure. This agreement has the effect of converting
certain of the Company's variable rate obligations to fixed rate obligations.
Net amounts paid or received are reflected as adjustments to interest expense.
On December 31, 2000, the Company adopted Statements of Financial Accounting
Standards Nos. 133, 137, and 138 (collectively "SFAS 133") pertaining to the
accounting for derivatives and hedging activities. SFAS 133 requires the Company
to recognize all derivative instruments in the balance sheet at fair value. The
adoption of SFAS 133 impacts the accounting for the Company's interest rate swap
agreement. The Company's interest rate swap agreement is designated as a cash
flow hedge.
Upon adoption of SFAS 133, the Company recorded the fair value of the interest
rate swap in its consolidated balance sheet. Thereafter, the Company adjusts the
carrying value of the interest rate swap to reflect its current fair value. The
related gain or loss on the swap is deferred in stockholders' equity (as a
component of comprehensive income). The deferred gain or loss is recognized in
income in the period in which the related interest rate payments being hedged
have been recognized as expense. However, to the extent that the change in value
of an interest rate swap contract does not perfectly offset the change in the
interest rate payments being hedged, that ineffective portion is immediately
recognized as expense.
INVENTORIES
Inventories consist primarily of farm maintenance and animal and pet products,
general maintenance products, lawn and garden products, light truck equipment
and work clothing. All inventories are stated at the lower of cost or market,
with cost being determined on the last-in, first-out (LIFO) method. If the
first-in, first-out (FIFO) method of accounting for inventory had been used,
inventories would have been approximately $6,631,000 and $5,056,000 higher than
reported at December 29, 2001 and December 30, 2000, respectively.
FREIGHT COSTS
The Company incurs various types of transportation and delivery costs in
connection with inventory purchases and distribution. Such costs are included as
a component of the overall cost of merchandise.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment when circumstances indicate
the carrying amount of an asset may not be recoverable. An impairment is
recognized when the sum of undiscounted estimated future cash flows expected to
result from the use of the asset is less than the carrying value. Accordingly,
when the Company commits to relocate or close a store, the estimated
unrecoverable costs are charged to operating expenses. Such costs include the
estimated loss on the sale of land and buildings, the book value of abandoned
fixtures, equipment and leasehold improvements, and a provision for the present
value of future lease obligations, less estimated sub-lease income.
28 TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PROPERTY AND EQUIPMENT
The Company owns the land and buildings for 65 of its stores. Property and
equipment are carried at cost. The Company's buildings, furniture, fixtures,
equipment and computer software are depreciated using the straight-line method
over the estimated useful lives of the assets. Improvements to leased premises
are amortized using the straight-line method over the life of the lease or the
useful life of the improvement, whichever is shorter. The Company's property and
equipment is depreciated using the following estimated useful lives:
Life
----
Buildings 30 - 35 years
Leasehold improvements 5 - 15 years
Furniture, fixture and equipment 5 - 10 years
Computer software 3 - 5 years
STORE OPENING COSTS
Non-capital expenditures incurred in connection with opening new stores are
expensed as incurred.
ADVERTISING COSTS
Advertising costs consist of expenses incurred in connection with newspaper
circulars, television and radio, as well as newspaper advertisements and other
promotions. Expenses incurred are charged to operations at the time the related
advertising first takes place. Advertising expenses, net of vendor-provided
funding, for fiscal 2001, 2000 and 1999 were approximately $5,012,000,
$8,063,000, and, $8,806,000, respectively.
INCOME TAXES
The Company accounts for income taxes using the liability method, whereby
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to be recovered or settled.
EXCESS OF FAIR VALUE OF ASSETS ACQUIRED OVER COST
The unallocated excess of fair value of assets acquired over cost (negative
goodwill) of approximately $3,590,000 is being amortized over 20 years on a
straight-line basis.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142"). Under SFAS 142, goodwill amortization ceases when the new standard
is adopted. The new rule also requires an initial goodwill impairment assessment
in the year of adoption and annual impairment tests thereafter. The Company
adopted this Statement effective the first day of fiscal 2002. At December 29,
2001 the Company had unamortized negative goodwill of $175,000. Application of
this Statement will result in the write-off of the remaining negative goodwill,
increasing income before income taxes by $175,000 in the first quarter of fiscal
2002.
STOCK-BASED COMPENSATION PLANS
As allowed by Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation," the Company has elected to account
for its stock-based compensation plans under the intrinsic value-based method of
accounting prescribed by Accounting Principles Board Opinion No. 25 ("APB
No.25"), "Accounting for Stock Issued to Employees." Under APB No. 25,
compensation expense would be recorded on the date of grant if the current
market price of the underlying stock exceeded the exercise price. The Company
has adopted the disclosure requirements of SFAS 123.
TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NET INCOME PER SHARE
Statement of Financial Accounting Standards No. 128 - Earnings per Share ("SFAS
128") requires companies with complex capital structures that have publicly held
common stock or common stock equivalents to present both basic and diluted
earning per share ("EPS") on the face of the income statement. As provided by
SFAS 128, 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 treasury stock method for options and
warrants (Note 8).
NOTE 2 - REVOLVING CREDIT AGREEMENT:
In November 2000, the Company entered into a three-year unsecured senior
revolving credit facility with Bank of America, N.A., as agent for a lender
group, (the "Senior Credit Facility") whereby the Company may borrow up to $125
million. This credit facility was used to refinance all outstanding indebtedness
under the existing $75 million revolving credit agreement. Of the total $125
million commitment at December 29, 2001, $3.9 million has been utilized for the
issuance of letters of credit relating to insurance policies and import
merchandise. The outstanding borrowings under this Senior Credit Facility
totaled $15.1 million at December 29, 2001. The balance of funds available under
the Senior Credit Facility may be utilized for borrowings or other letters of
credit. All borrowings under the Senior Credit Facility bear interest, at the
Company's option, at either the base rate of the agent (4.75% at December 29,
2001) or the LIBOR rate (1.88% at December 29, 2001) plus an additional amount
ranging from .75% to 1.5% per annum, adjusted quarterly based on Company
performance (1.00% at December 29, 2001). The Company is also required to pay,
quarterly in arrears, a commitment fee ranging from .20% to .35% per annum,
adjusted quarterly based on Company performance, on the average daily unused
portion of the credit line. There are no compensating balance requirements
associated with the Senior Credit Facility.
In October 2001, the Company extended the Senior Credit Facility by one year,
thus setting the maturity to November 2004.
The Senior Credit Facility contains certain restrictions regarding additional
indebtedness; capital expenditures; business operations; guarantees;
investments; mergers, consolidations and sales of assets; transactions with
subsidiaries or affiliates; and liens. In addition, the Company must comply with
certain quarterly restrictions (based on a rolling four-quarters basis)
regarding net worth, leverage ratio, fixed charge coverage and current ratio
requirements. The Company was in compliance with all covenants at December 29,
2001.
In November 1999, the Company entered into an amendment (the "Third Amendment")
to its then existing revolving credit agreement, whereby the Company (i)
increased the maximum total commitments available thereunder from $60 million to
$75 million. There were no changes to any of the other material terms and
conditions of the revolving credit agreement as a result of the Third Amendment.
NOTE 3 - OTHER LONG-TERM DEBT:
In June 1998, the Company entered into a loan agreement (the "Loan Agreement")
and term note (the "Term Note") pursuant to which the Company borrowed $15
million. Until amended as discussed below, the Term Note carried interest at the
rate of 6.75% per annum until its maturity in June 2005. The Term Note requires
monthly payments equal to $178,572, plus accrued interest, through June 2005.
There are no compensating balance requirements associated with the Loan
Agreement. The Loan Agreement is unsecured. In November 2000, in connection with
the closing of the Senior Credit Facility, the Company amended the Loan
Agreement and Term Note. The terms of the agreement were amended to provide that
the existing indebtedness would both mature and bear interest under the same
provision as that in the Senior Credit Facility and the restrictive covenants
would be modified to be the same as those in the Senior Credit Facility (Note
2). The Company was in compliance with all covenants at December 29, 2001.
30 TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In April 1988, the Company issued notes (the "Mortgage Notes") pursuant to a
Note Agreement, which was amended in April 1991, February 1992 and July 1993
(the "Mortgage Loan Agreement"). The Mortgage Notes bear interest at a minimum
10.32% rate until their maturity in January 2004. The Mortgage Notes require
monthly payments, including interest, of approximately $109,000 through January
2004. As of December 30, 2000 the Mortgage Notes remaining balance was
approximately $3,456,000, of which $1,004,000 was included in current maturities
of long-term debt. In August 2001, the Company prepaid the remaining outstanding
balance on the Mortgage Notes.
NOTE 4 - LEASES:
The Company leases the majority of its office, warehouse/distribution and retail
space, transportation equipment and other equipment under various noncancelable
operating leases. The leases have varying terms and expire at various dates
through October 2018. 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. Generally, most of the leases require the
Company to pay taxes, insurance and maintenance costs.
Total rent expense for fiscal 2001, 2000 and 1999 was approximately $36,733,000,
$31,620,000, and $25,453,000, respectively.
Future minimum payments, by year and in the aggregate, under leases with initial
or remaining terms of one year or more consist of the following (in thousands):
CAPITAL OPERATING
LEASES LEASES
-------- ---------
2002 $ 581 $ 30,675
2003 579 29,512
2004 536 28,024
2005 497 27,090
2006 166 25,638
Thereafter 3,691 135,669
-------- ---------
Total minimum lease payments 6,050 $ 276,608
Amount representing interest (3,238) =========
Present values of net minimum lease payments 2,812
--------
Less: current portion (309)
--------
Long-term capital lease obligations $ 2,503
========
NOTE 5- INCOME TAXES:
The provision for income taxes consists of the following (in thousands):
2001 2000 1999
--------- --------- ---------
Current tax expense:
Federal $ 13,159 $ 11,200 $ 9,774
State 2,358 3,264 2,643
--------- --------- ---------
Total current 15,517 14,464 12,417
--------- --------- ---------
Deferred tax expense:
Federal (4,154) (2,337) (172)
State (611) (921) (8)
--------- --------- ---------
Total deferred (4,765) (3,258) (180)
--------- --------- ---------
Total provision $ 10,752 $ 11,206 $ 12,237
========= ========= =========
TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows (in thousands):
DECEMBER 29, DECEMBER 30,
2001 2000
------------ ------------
Current tax assets:
Inventory valuation $ 3,857 $ 4,288
Other 3,222 2,779
-------- --------
7,079 7,067
-------- --------
Current tax liabilities:
Inventory basis difference 6,557 10,565
Other 696 714
-------- --------
7,253 11,279
-------- --------
Net current tax liabilities $ 174 $ 4,212
======== ========
Non-current tax assets:
Capital lease obligation basis difference $ 1,206 $ 1,368
Fixed assets basis difference 904 170
Interest rate swap 902
Other 2,826 2,317
-------- --------
5,838 3,855
-------- --------
Non-current tax liabilities:
Depreciation 2,345 1,868
Capital lease assets basis difference 752 875
-------- --------
3,097 2,743
-------- --------
Net non-current tax assets $ 2,741 $ 1,112
======== ========
Management has evaluated the need for a valuation allowance for all, or a
portion of the deferred tax assets and believes that all of the deferred tax
assets will more likely than not be realized through the future earnings of the
Company.
A reconciliation of the provision for income taxes to the amounts computed at
the federal statutory rate is as follows (in thousands):
2001 2000 1999
--------- --------- ---------
Tax provision at statutory rate $ 12,784 $ 9,659 $ 10,539
Tax effect of:
State income taxes, net of federal tax benefit 1,369 1,577 1,721
Life insurance proceeds (926) -- --
Previously accrued income taxes (2,500) -- --
Amortization of negative goodwill (63) (73) (63)
Other 88 43 40
--------- --------- ---------
$ 10,752 $ 11,206 $ 12,237
========= ========= =========
The Company reevaluated its tax exposure during the quarter ended December 29,
2001 and, as a result of the favorable resolution of certain tax issues, along
with the closing of open tax years, reduced previously accrued income tax
liabilities by $2.5 million.
32 TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - CAPITAL STOCK:
The authorized capital stock of the Company consists of common stock and
preferred stock. The Company is authorized to issue 100,000,000 shares of Common
Stock. The Company is also authorized to issue 40,000 shares of Preferred Stock,
with such designations, rights and preferences as may be determined from time to
time by the Board of Directors.
NOTE 7 - COMPREHENSIVE INCOME:
Comprehensive income includes net income and changes in the fair value of the
Company's interest rate swap agreement, which qualifies for hedge accounting.
Comprehensive income totaled $24.4 million for fiscal 2001 compared to $16.4
million for fiscal 2000. The difference between net income and comprehensive
income for fiscal 2001 is the result of a $1.4 million unrealized loss (net of
estimated tax benefit of $0.9 million) on the swap agreement recognized in
accordance with SFAS 133. As of December 29, 2001, the Company expects to
reclassify approximately $0.9 million of net losses on interest rate swaps from
accumulated other comprehensive loss to earnings over the next twelve months.
NOTE 8 - NET INCOME PER SHARE:
Net income per share is calculated as follows (in thousands, except per share
amounts):
2001
------------------------------------------
PER SHARE
INCOME SHARES AMOUNT
--------- ------ ---------
Basic net income per share:
Net income $ 25,774 8,824 $ 2.92
=======
Dilutive stock options outstanding 217
--------- ------
Diluted net income per share $ 25,774 9,041 $ 2.85
========= ====== =======
2000
------------------------------------------
PER SHARE
INCOME SHARES AMOUNT
--------- ------ ---------
Basic net income per share:
Net income $ 16,390 8,782 $ 1.87
=======
Dilutive stock options outstanding 0
--------- ------
Diluted net income per share $ 16,390 8,782 $ 1.87
========= ====== =======
1999
------------------------------------------
PER SHARE
INCOME SHARES AMOUNT
--------- ------ ---------
Basic net income per share:
Net income $ 17,874 8,761 $ 2.04
=======
Dilutive stock options outstanding 75
--------- ------
Diluted net income per share $ 17,874 8,836 $ 2.02
========= ====== =======
TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - RELATED PARTY TRANSACTIONS:
In 1986, the Company entered into capitalized sale-leaseback transactions with
certain officers of the Company for seven of its stores. The Company sold,
leased back and provided the financing for these properties at estimated fair
values totaling $2,575,000. The related gains arising from the sale of these
properties have been deferred and are being amortized on a straight-line basis
over the terms of the related leases. Properties under capital leases acquired
through sale-leaseback transactions have been reduced by the related deferred
gains on the properties and are classified with property and equipment. The
leases have basic terms of 20 years with options to renew for two successive
five-year terms. The Company has an option to purchase the leased properties
after December 31, 1995. Rent payments under these leases were approximately
$361,000 in fiscal 2001, $393,000 in 2000 and $425,000 in 1999. All the officers
have repaid their outstanding obligations under these notes to the Company. In
June 2000, the Company closed operations at one of these seven facilities. In
December 2000, the Company paid $200,000 to terminate the lease on the facility.
The balance of the remaining six capitalized lease obligations, included in
total capital lease obligations at December 29, 2001, was $869,000.
Prior to fiscal 2001, the Company leased its management headquarters from a
partnership in which certain stockholders of the Company are general partners.
In December 2000, the management headquarters was sold to an unrelated third
party. The remaining lease term is six years, with the Company having exercised
both remaining five-year renewal options in fiscal 1996, with monthly rent set
at $35,000 and $39,000 per month, respectively. Rent payments made to related
parties under this lease were $385,000 in fiscal 2000 and $420,000 in fiscal
1999.
NOTE 10 - RETIREMENT BENEFIT PLAN:
The Company has a defined contribution benefit plan, the Tractor Supply Company
Restated 401(k) Retirement Plan (the "Plan"), which provides retirement and
other benefits for the Company's employees. Employees become eligible for
participation at age 21 and upon completion of 12 consecutive months of
employment and 1,000 hours or more of service. The Company matches 100% of the
employee's elective contributions up to 3% of the employee's compensation plus
50% of the employee's elective contributions from 3% to 7% of the employee's
compensation. In no event shall the total Company match made on behalf of the
employee exceed 5% of the employee's compensation in any Plan year. Through
January 1, 2000, the employer's contribution is vested 20% each year starting at
two years of service. Effective January 1, 2000 the Company amended the Plan
("Amendment No. 2"). In accordance with Amendment No. 2, the Company matches
100% of the employee's elective contributions up to 3% of the employee's
compensation plus 50% of the employee's elective contributions from 3% to 6% of
the employee's compensation. In no event shall the total Company match made on
behalf of the employee exceed 4.5% of the employee's compensation. Effective in
fiscal 2000, all employer contributions are immediately 100% vested. Company
contributions to the Plan during fiscal 2001, 2000 and 1999 were approximately
$1,022,000 (net of applied forfeitures of $98,000), $521,000 (net of applied
forfeitures of $677,000), and $969,000, respectively.
NOTE 11 - STOCK-BASED COMPENSATION PLANS:
Fixed Stock Option Plan
The Company has stock option plans for officers, directors (including
non-employee directors) and key employees which reserves 2,000,000 shares of
common stock for future issuance. According to the terms of the plans, 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. Options granted generally vest one-third each year beginning on the
third anniversary date of the grant and expire after ten years, provided,
however, that options granted to non-employee directors vest one-third each year
beginning on the first anniversary of the grant.
34 TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Plan activity is summarized as follows:
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
----------- ----------------
Outstanding at December 26, 1998 514,750 $ 19.21
Exercised (7,249) $ 21.66
Granted 218,000 $ 25.58
Canceled (124,001) $ 20.91
----------
Outstanding at January 1, 2000 601,500 $ 21.14
Granted 371,000 $ 14.13
Canceled (135,667) $ 19.02
----------
Outstanding at December 30, 2000 836,833 $ 18.38
Exercised (66,439) $ 18.60
Granted 396,000 $ 13.43
Canceled (119,683) $ 18.04
----------
Outstanding at December 29, 2001 1,046,711 $ 16.53
==========
The following table summarizes information concerning currently outstanding and
exercisable options:
OPTIONS OUTSTANDING
-------------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE OPTIONS
YEAR EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE
---- --------------- ----------- ----------- -------- -----------
1994 $21.50 - $27.00 11,000 2.19 $ 22.00 11,000
1995 $21.31 - $22.13 18,000 3.10 $ 22.07 18,000
1996 $21.38 - $25.13 41,083 4.07 $ 21.38 41,083
1997 $17.75 - $20.00 145,394 5.47 $ 18.52 100,384
1998 $14.44 - $24.31 14,834 6.19 $ 19.43 6,235
1999 $25.81 - $26.75 134,000 7.06 $ 25.84 7,705
2000 $14.94 - $15.16 264,000 8.09 $ 14.94 3,630
2000 $ 8.95 50,000 8.84 $ 8.95 --
2001 $13.43 368,400 9.08 $ 13.43 --
---------- --------
1,046,711 188,037
========== ========
Had compensation cost for the Company's stock option plan been determined based
on the fair value at the grant dates for awards under the plan consistent with
the method prescribed by FASB Statement No. 123, the Company's pro forma net
income and net income per share, for fiscal 2001, 2000 and 1999, would have been
as follows (in thousands, except per share amounts):
2001 2000 1999
-------- -------- --------
Net income As reported $ 25,774 $ 16,390 $ 17,874
Pro forma $ 24,852 $ 15,667 $ 17,179
Net income per share - basic As reported $ 2.92 $ 1.87 $ 2.04
Pro forma $ 2.82 $ 1.79 $ 1.96
Net income per share - diluted As reported $ 2.85 $ 1.87 $ 2.02
Pro forma $ 2.75 $ 1.79 $ 1.94
TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions.
2001 2000 1999
------- ------- --------
Expected volatility 43.8% 39.8% 37.8%
Risk-free interest rate 5.1% 5.5% 6.5%
Average expected life (years) 7.5 7.25 7.5
Dividend yield 0% 0% 0%
Weighted average fair value $ 7.43 $ 7.11 $ 12.95
Employee Stock Purchase Plan
The Company provides 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 34,715, 23,421and 13,752
shares of common stock in fiscal 2001, 2000 and 1999, respectively.
NOTE 12 - GAIN ON PROCEEDS FROM LIFE INSURANCE:
In April 2001, a former executive of the Company, on whom the Company carried a
life insurance policy, passed away. As a result of the related coverage, the
Company realized a $2.1 million gain on the benefit proceeds.
NOTE 13 - LITIGATION:
The Company is involved in various litigation arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
these matters will be resolved without material adverse effect on the Company's
consolidated financial position or results of operations. 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 14 - SUBSEQUENT EVENT:
On December 31, 2001, the Company, through a recently formed joint venture with
Great American Group, Gordon Brothers Retail Partners, LLC and DJM Asset
Management LLC, was the successful bidder at a liquidation bankruptcy auction
for the buildings, improvements, fixtures and lease rights of certain retail
stores formerly operated by Quality Stores, Inc., a debtor and debtor in
possession under Chapter 11 of the United States Bankruptcy Code. The bid, which
has been approved by the United States Bankruptcy Court for the Western District
of Michigan, provides for the Joint Venture to act as exclusive agent for the
disposition of substantially all of the store assets located in New York,
Pennsylvania, Virginia, Maryland, West Virginia, Delaware, Kentucky, Ohio,
Indiana and Michigan. The bid totaled $34 million and was funded entirely
through the Senior Credit Facility.
Under its agreement with the other joint venture partners, the Company has
agreed to purchase the buildings for 24 retail stores, to assume the building
lease rights for 76 additional retail stores and to purchase the related
equipment, furniture and fixtures. After a complete liquidation of the existing
inventory by other members of the joint venture, the Company expects to reopen
87 retail stores in its own format by the middle of fiscal 2002, to relocate
existing stores in nine other locations and to sell four of the properties.
36 TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT
BOARD OF DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
JOSEPH H. SCARLETT, JR.
Chairman of the Board and Chief Executive Officer
Tractor Supply Company
THOMAS O. FLOOD
Retired Senior Vice President
Tractor Supply Company
JOSEPH D. MAXWELL (3)
Retired Vice President
Tractor Supply Company
S.P. BRAUD (1)(*)(2)(3)(4)
Retired Chief Financial Officer
Service Merchandise Company, Inc. and
President and Director, Braud Design/Build, Inc.
GERARD E. JONES (1)(2)(3)(*)
Of Counsel to
Shipman & Goodwin LLP
SAM K. REED (1)(2)(*)(4)(*)
Vice Chairman and Director
Kellogg Company
JOSEPH M. RODGERS (1)(2)(4)
Chairman of the Board
The JMR Group, an investment firm, and
former U.S. Ambassador to France
(1) Audit Committee
(2) Compensation Committee
(3) Nominating Committee
(4) Corporate Governance Committee
* Committee Chairman
[PHOTO]
TRACTOR SUPPLY SENIOR EXECUTIVES:
JERRY BRASE, STAN RUTA, JIM WRIGHT, JOE SCARLETT AND CAL MASSMANN.
OFFICERS
JOSEPH H. SCARLETT, JR.
Chairman of the Board and Chief Executive Officer
JAMES F. WRIGHT
President and Chief Operating Officer
GERALD W. BRASE
Senior Vice President-Merchandising
CALVIN B. MASSMANN
Senior Vice President-
Chief Financial Officer and Treasurer
STANLEY L. RUTA
Senior Vice President-Store Operations
JOHN W. ATKINS
Vice President-Information Technology
BLAKE A. FOHL
Vice President-Marketing
MARK D. GILLMAN
Vice President-Store Operations
LAWRENCE GOLDBERG
Vice President-Logistics
STEPHEN E. HULL
Vice President-Real Estate
DAVID C. LEWIS
Vice President-Controller and
Corporate Secretary
GARY M. MAGONI
Vice President-Store Operations
THOMAS P. PARRISH
Vice President-Divisional Merchandise Manager
KIMBERLY D. VELLA
Vice President-Human Resources
TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT 37
CORPORATE INFORMATION
CORPORATE ADDRESS:
Tractor Supply Company
320 Plus Park Boulevard
Nashville, Tennessee 37217
(615) 366-4600
TRANSFER AGENT AND REGISTRAR
EquiServe Trust Company, N.A.
P.O. Box 43010
Providence, RI 02940-3010
(781) 575-3400
INDEPENDENT AUDITORS
Ernst & Young LLP
Bank of America Plaza
414 Union Street, Suite 2100
Nashville, Tennessee 37219
STOCK EXCHANGE LISTING
The Nasdaq National Market
Ticker Symbol: TSCO
INTERNET ADDRESS:
www.tractorsupplyco.com
ANNUAL MEETING
The Annual Meeting of
Stockholders will be held at
10:00 a.m., April 18, 2002 at the
Company's Store Support Center,
320 Plus Park Boulevard,
Nashville, Tennessee, 37217
NUMBER OF STOCKHOLDERS
As of January 31, 2002 there were approximately 76 stockholders of record. This
number excludes individual stockholders holding stock under nominee security
position listings.
FORM 10-K
A copy of the Company's Annual Report on Form 10-K, as filed with the Securities
and Exchange Commission, will be sent to any stockholder upon written request to
the Company.
QUARTERLY STOCK PRICE RANGE
HIGH LOW
------- -------
FISCAL 2001:
First Quarter $ 14.94 $ 8.50
Second Quarter $ 16.45 $ 13.50
Third Quarter $ 24.48 $ 14.80
Fourth Quarter $ 34.98 $ 17.47
HIGH LOW
------- -------
FISCAL 2000:
First Quarter $ 21.00 $ 14.63
Second Quarter $ 22.00 $ 12.00
Third Quarter $ 17.19 $ 9.69
Fourth Quarter $ 11.06 $ 6.50
THE TRACTOR SUPPLY FLAG CORPS PREPARES TO RAISE "OLD GLORY" AT THE FLAG
DEDICATION AND CEREMONY ON NOVEMBER 9, 2001.
38 TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT
THIS IS TRACTOR SUPPLY COMPANY
[PHOTO]
JOE SCARLETT AND SENIOR MANAGEMENT BURST THROUGH A BANNER
DURING THE VENDOR CONFERENCE TO "PUMP" UP THE VENDOR PARTNERS.
[PHOTO]
IN JULY OF 2001, PRESIDENT GEORGE W. BUSH MET WITH REPRESENTATIVES OF THE
FARMING AND RANCHING INDUSTRY AT THE BILLINGS, MONTANA TRACTOR SUPPLY STORE.
[PHOTO]
TRACTOR SUPPLY STORES NATIONWIDE SHOWED THEIR
SUPPORT AFTER THE TRAGIC EVENTS OF SEPTEMBER 11.
TRACTOR SUPPLY COMPANY 2001 ANNUAL REPORT 39
WHETHER YOU
OWN ONE ACRE
OR 1,000 --
YOU'LL KEEP
HUMMING
OUR TUNE
Why? Because we've got everything
you need to get the job done.
So whether it's farm supplies, pet
supplies, horse feed, power equipment,
or work clothing, stop by
Tractor Supply and see why we're
the largest farm and ranch store
chain in America.
For more information on Tractor
Supply Company, please call us at
615-366-4600, or check out our
website at tractorsupplyco.com
[PHOTO]
GEORGE STRAIT
[LOGO]
TRACTOR SUPPLY CO