NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – General:
Nature of Business
Founded in 1938, Tractor Supply Company (the “Company” or “we” or “our” or “us”) is the largest rural lifestyle retailer in the United States (“U.S.”). The Company is focused on supplying the needs of recreational farmers, ranchers, and all those who enjoy living the rural lifestyle (which we refer to as the “Out Here” lifestyle), as well as tradesmen and small businesses. Our stores are located primarily in towns outlying major metropolitan markets and in rural communities. The Company also owns and operates Petsense, LLC (“Petsense”), a small-box pet specialty supply retailer focused on meeting the needs of pet owners, primarily in small and mid-sized communities, and offering a variety of pet products and services. At March 27, 2021, the Company operated a total of 2,121 retail stores in 49 states (1,944 Tractor Supply and Del’s retail stores and 177 Petsense retail stores) and also offered an expanded assortment of products through the Tractor Supply Company mobile application and online at TractorSupply.com and Petsense.com.
On February 17, 2021, the Company announced that it has entered into an agreement to acquire all of the outstanding equity interests of Orscheln Farm and Home, LLC, a farm and ranch retailer with 167 retail stores in 11 states, in an all-cash transaction for approximately $320 million. The Company intends to fund the acquisition through cash-on-hand. The acquisition is conditioned on the receipt of regulatory clearance and satisfactory completion of customary closing conditions.
Basis of Presentation
The accompanying interim unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 26, 2020. The results of operations for our interim periods are not necessarily indicative of results for the full fiscal year.
The COVID-19 pandemic has created significant public health concerns as well as economic disruption, uncertainty, and volatility which may negatively affect our business operations. As a result, if the pandemic persists or worsens, our accounting estimates and assumptions could be impacted in subsequent interim reports and upon final determination at year-end, and it is reasonably possible such changes could be significant (although the potential effects cannot be estimated at this time).
Note 2 – Fair Value of Financial Instruments:
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The Company’s financial instruments consist of cash and cash equivalents, short-term receivables, trade payables, debt instruments, and interest rate swaps. Due to their short-term nature, the carrying values of cash and cash equivalents, short-term receivables, and trade payables approximate current fair value at each balance sheet date. As described in further detail in Note 5 to the Condensed Consolidated Financial Statements, the Company had $1.00 billion in borrowings under its debt facilities at each of March 27, 2021 and December 26, 2020, and $1.02 billion in borrowings under its debt facilities at March 28, 2020. Based on market interest rates (Level 2 inputs), the carrying value of borrowings in our debt facilities approximates fair value for each period reported. The fair value of the Company’s interest rate swaps is determined based on the present value of expected future cash flows using forward rate curves (a Level 2 input). As described in further detail in Note 6 to the Condensed Consolidated Financial Statements, the fair value of the interest rate swaps, excluding accrued interest, was a net liability of $1.5 million, $4.4 million, and $6.8 million at March 27, 2021, December 26, 2020, and March 28, 2020, respectively.
Note 3 – Share-Based Compensation:
Share-based compensation includes stock options, restricted stock units, performance-based restricted share units, and certain transactions under our Employee Stock Purchase Plan (the “ESPP”). Share-based compensation expense is recognized based on grant date fair value of all stock options, restricted stock units, and performance-based restricted share units plus a 15% discount on shares purchased by employees as a part of the ESPP. The discount under the ESPP represents the difference between the purchase date market value and the employee’s purchase price.
There were no significant modifications to the Company’s share-based compensation plans during the fiscal three months ended
March 27, 2021.
For the first quarter of fiscal 2021 and 2020, share-based compensation expense was $12.3 million and $6.9 million, respectively.
Stock Options
The following table summarizes information concerning stock option grants during the first three months of fiscal 2021:
|
|
|
|
|
|
|
Fiscal Three Months Ended
|
|
March 27, 2021
|
Stock options granted
|
235,607
|
|
Weighted average exercise price
|
$
|
143.18
|
|
Weighted average grant date fair value per option
|
$
|
30.13
|
|
As of March 27, 2021, total unrecognized compensation expense related to non-vested stock options was approximately $13.4 million with a remaining weighted average expense recognition period of 2.3 years.
Restricted Stock Units and Performance-Based Restricted Share Units
The following table summarizes information concerning restricted stock unit and performance-based restricted share unit grants during the first three months of fiscal 2021:
|
|
|
|
|
|
|
Fiscal Three Months Ended
|
|
March 27, 2021
|
Restricted stock units granted
|
245,961
|
|
Performance-based restricted share units granted (a)
|
56,882
|
|
Weighted average grant date fair value per share
|
$
|
139.97
|
|
(a) Assumes 100% target level achievement of the relative performance targets.
In the first three months of fiscal 2021, the Company granted awards that are subject to the achievement of specified performance goals. The performance metrics for the units are growth in net sales and growth in earnings per diluted share and also include a relative shareholder return modifier. The number of performance-based restricted share units presented in the foregoing table represent the shares that can be achieved at the performance metric target value. The actual number of shares that will be issued under the performance share awards, which may be higher or lower than the target, will be determined by the level of achievement of the performance goals and the total shareholder return modifier. If the performance targets are achieved, the units will be issued based on the achievement level and the grant date fair value and will cliff vest in full on the third anniversary of the date of the grant.
As of March 27, 2021, total unrecognized compensation expense related to non-vested restricted stock units and non-vested performance-based restricted share units was approximately $72.9 million with a remaining weighted average expense recognition period of 2.3 years.
Note 4 – Net Income Per Share:
The Company presents both basic and diluted net income per share on the Condensed Consolidated Statements of Income. Basic net income per share is calculated by dividing net income by the weighted average number of shares outstanding during the period. Diluted net income per share is calculated by dividing net income by the weighted average diluted shares outstanding during the period. Dilutive shares are computed using the treasury stock method for share-based awards. Performance-based restricted share units are included in diluted shares only if the related performance conditions are considered satisfied as of the end of the reporting period. Net income per share is calculated as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended
|
|
Fiscal Three Months Ended
|
|
March 27, 2021
|
|
March 28, 2020
|
|
Income
|
|
Shares
|
|
Per Share
Amount
|
|
Income
|
|
Shares
|
|
Per Share
Amount
|
Basic net income per share:
|
$
|
181,354
|
|
|
116,153
|
|
|
$
|
1.56
|
|
|
$
|
83,777
|
|
|
116,738
|
|
|
$
|
0.72
|
|
Dilutive effect of share-based awards
|
—
|
|
|
1,074
|
|
|
(0.01)
|
|
|
—
|
|
|
694
|
|
|
(0.01)
|
|
Diluted net income per share:
|
$
|
181,354
|
|
|
117,227
|
|
|
$
|
1.55
|
|
|
$
|
83,777
|
|
|
117,432
|
|
|
$
|
0.71
|
|
Anti-dilutive stock awards excluded from the above calculations totaled approximately 0.2 million and 0.5 million shares for the fiscal three months ended March 27, 2021 and March 28, 2020, respectively.
Note 5 – Debt:
The following table summarizes the Company’s outstanding debt as of the dates indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 27,
2021
|
|
December 26,
2020
|
|
March 28,
2020
|
1.75% Senior Notes due 2030
|
|
$
|
650.0
|
|
|
$
|
650.0
|
|
|
$
|
—
|
|
3.70% Senior Notes due 2029
|
|
150.0
|
|
|
150.0
|
|
|
150.0
|
|
Senior Credit Facility:
|
|
|
|
|
|
|
February 2016 Term Loan
|
|
—
|
|
|
—
|
|
|
140.0
|
|
June 2017 Term Loan
|
|
—
|
|
|
—
|
|
|
85.0
|
|
March 2020 Term Loan
|
|
—
|
|
|
—
|
|
|
200.0
|
|
November 2020 Term Loan
|
|
200.0
|
|
|
200.0
|
|
|
—
|
|
Revolving credit loans
|
|
—
|
|
|
—
|
|
|
445.0
|
|
Total outstanding borrowings
|
|
1,000.0
|
|
|
1,000.0
|
|
|
1,020.0
|
|
Less: unamortized debt discounts and issuance costs
|
|
(15.2)
|
|
|
(15.7)
|
|
|
(0.9)
|
|
Total debt
|
|
984.8
|
|
|
984.3
|
|
|
1,019.1
|
|
Less: current portion of long-term debt
|
|
—
|
|
|
—
|
|
|
(30.0)
|
|
Long-term debt
|
|
$
|
984.8
|
|
|
$
|
984.3
|
|
|
$
|
989.1
|
|
|
|
|
|
|
|
|
Outstanding letters of credit
|
|
$
|
60.3
|
|
|
$
|
48.7
|
|
|
$
|
39.0
|
|
1.75% Senior Notes due 2030
On October 30, 2020, the Company issued and sold, in a public offering, $650 million in aggregate principal amount of senior unsecured notes due November 1, 2030 bearing interest at 1.75% per annum (the “1.75% Senior Notes”). The entire principal amount of the 1.75% Senior Notes is due in full on November 1, 2030. Interest is payable semi-annually in arrears on each November 1 and May 1. The terms of the 1.750% Notes are governed by an indenture dated as of October 30, 2020 (the “Base Indenture”) between the Company and Regions Bank, as trustee, as amended and supplemented by a first supplemental indenture dated as of October 30, 2020 (the “Supplemental Indenture”) between the Company and Regions Bank, as trustee.
The 1.75% Senior Notes are senior unsecured debt obligations of the Company and will rank equally with the Company’s other senior unsecured liabilities and senior to any future subordinated indebtedness of the Company. The 1.75% Senior Notes are subject to customary covenants restricting the Company’s ability, subject to certain exceptions, to incur debt secured by liens, to
enter into sale and leaseback transactions or to merge or consolidate with another entity or sell substantially all of its assets to another person.
At any time prior to August 1, 2030, the Company will have the right, at its option, to redeem the 1.75% Senior Notes, in whole or in part, at any time and from time to time, by paying the greater of 100% of the principal amount of the 1.75% Senior Notes to be redeemed, or the sum of the present values of the remaining scheduled payments of principal and interest through the par call date, plus, in each case, accrued and unpaid interest to, but not including, the date of redemption. In addition, on or after August 1, 2030, the Company will have the right, at its option, to redeem the 1.75% Senior Notes, in whole or in part, at any time and from time to time, at a redemption price equal to 100% of the principal amount of the 1.75% Senior Notes to be redeemed, plus accrued and unpaid interest to, but not including, the date of redemption.
If a Change of Control Triggering Event (as defined in the Supplemental Indenture) occurs, unless the Company has exercised its right to redeem the 1.75% Senior Notes, holders of the 1.75% Senior Notes may require the Company to repurchase all or any part of such holder’s 1.75% Senior Notes at a purchase price of 101% of the principal amount, plus accrued and unpaid interest, if any, on such 1.75% Senior Notes to, but not including, the purchase date. Upon the occurrence of an event of default with respect to the 1.75% Senior Notes, which includes payment defaults, defaults in the performance of certain covenants, cross defaults, and bankruptcy and insolvency related defaults, the Company’s obligations under the 1.75% Senior Notes may be accelerated, in which case the entire principal amount of the 1.75% Senior Notes would be due and payable immediately.
Senior Note Facility (including 3.70% Senior Notes due 2029)
On August 14, 2017, the Company entered into a note purchase and private shelf agreement (the “Note Purchase Agreement”), as amended from time to time, pursuant to which the Company agreed to sell, in a private placement, $150 million aggregate principal amount of senior unsecured notes due August 14, 2029 bearing interest at 3.70% per annum (the “3.70% Senior Notes”). The entire principal amount of the 3.70% Senior Notes is due in full on August 14, 2029. Interest is payable semi-annually in arrears on each annual and semi-annual anniversary of the issuance date. The obligations under the Note Purchase Agreement are unsecured.
The Company may from time to time issue and sell additional senior unsecured notes (the “Shelf Notes”) pursuant to the Note Purchase Agreement, in an aggregate principal amount of up to $300 million minus the aggregate principal amount of all notes outstanding and issued under the Note Purchase Agreement. The Shelf Notes will have a maturity date of no more than 12 years after the date of original issuance and may be issued through November 4, 2023, unless earlier terminated in accordance with the terms of the Note Purchase Agreement.
Pursuant to the Note Purchase Agreement, the 3.70% Senior Notes and any Shelf Notes (collectively, the "Senior Note Facility") are redeemable by the Company, in whole at any time or in part from time to time, at 100% of the principal amount of the Senior Note Facility being redeemed, together with accrued and unpaid interest thereon and a make whole amount calculated by discounting all remaining scheduled payments on the Senior Note Facility by the yield on the U.S. Treasury security with a maturity equal to the remaining average life of the Senior Note Facility plus 0.50%.
Senior Credit Facility
On February 19, 2016, the Company entered into a senior credit facility, as amended from time to time, and as amended and restated on November 4, 2020 (the “Senior Credit Facility”), which provides borrowing capacity under term loan facilities as well as a revolving credit facility. There are no compensating balance requirements associated with the Senior Credit Facility.
The Senior Credit Facility contains a $500 million revolving credit facility (the “Revolver”) with a sublimit of $50 million for swingline loans and a sublimit of $150 million for letters of credit. This agreement is unsecured and matures on November 4, 2023, which, subject to satisfaction of certain terms and conditions, may be extended at the option of the Company to November 4, 2024 (as may be extended, the “Senior Credit Facility Maturity Date”).
Under the Senior Credit Facility, on November 4, 2020, a $200 million term loan (the “November 2020 Term Loan”) was extended to the Company. The November 2020 Term Loan is unsecured and the entire principal amount is due in full on the Senior Credit Facility Maturity Date.
Borrowings under both the Revolver and the November 2020 Term Loan each bear interest either at the bank’s base rate (3.250% at March 27, 2021) plus an additional amount ranging from 0.000% to 0.375% (0.125% at March 27, 2021) or at the London Inter-Bank Offer Rate (“LIBOR”) (0.107% at March 27, 2021) plus an additional amount ranging from 0.875% to 1.375% per annum (1.125% at March 27, 2021), adjusted based on the Company's public credit ratings. The Company is also
required to pay, quarterly in arrears, a commitment fee related to unused capacity on the Revolver ranging from 0.090% to 0.200% per annum (0.125% at March 27, 2021), adjusted based on the Company's public credit ratings.
As further described in Note 6, the Company has entered into an interest rate swap agreement in order to hedge our exposure to variable rate interest payments associated with the Senior Credit Facility.
On February 19, 2016, the Company entered into a $200 million term loan agreement (the “February 2016 Term Loan”). This agreement was repaid in full on November 4, 2020 and is no longer in effect.
On June 15, 2017, the Company entered into a $100 million incremental term loan agreement (the “June 2017 Term Loan”). This agreement was repaid in full on November 4, 2020 and is no longer in effect.
On March 12, 2020, the Company entered into a $200 million incremental term loan agreement (the “March 2020 Term Loan”). This agreement was repaid in full on November 4, 2020 and is no longer in effect.
On April 22, 2020, the Company entered into a $350 million incremental term loan agreement (the "April 2020 Term Loan"). This agreement was repaid in full on October 30, 2020 and is no longer in effect.
Covenants and Default Provisions of the Debt Agreements
The Senior Credit Facility and the Note Purchase Agreement (collectively, the “Debt Agreements”) require quarterly compliance with respect to two material covenants: a fixed charge coverage ratio and a leverage ratio. Both ratios are calculated on a trailing twelve-month basis at the end of each fiscal quarter. The fixed charge coverage ratio compares earnings before interest, taxes, depreciation, amortization, share-based compensation and rent expense (“consolidated EBITDAR”) to the sum of interest paid and rental expense (excluding any straight-line rent adjustments). The fixed charge coverage ratio shall be greater than or equal to 2.00 to 1.0 as of the last day of each fiscal quarter. The leverage ratio compares total funded debt to consolidated EBITDAR. The leverage ratio shall be less than or equal to 4.00 to 1.0 as of the last day of each fiscal quarter. The Debt Agreements also contain certain other restrictions regarding additional subsidiary indebtedness, business operations, subsidiary guarantees, mergers, consolidations and sales of assets, transactions with subsidiaries or affiliates, and liens. As of March 27, 2021, the Company was in compliance with all debt covenants.
The Debt Agreements contain customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, certain events of bankruptcy and insolvency, material judgments, certain ERISA events and invalidity of loan documents. Upon certain changes of control, payment under the Debt Agreements could become due and payable. In addition, under the Note Purchase Agreement, upon an event of default or change of control, the make whole payment described above may become due and payable.
The Note Purchase Agreement also requires that, in the event the Company amends its Senior Credit Facility, or any subsequent credit facility of $100 million or greater, such that it contains covenant or default provisions that are not provided in the Note Purchase Agreement or that are similar to those contained in the Note Purchase Agreement but which contain percentages, amounts, formulas or grace periods that are more restrictive than those set forth in the Note Purchase Agreement or are otherwise more beneficial to the lenders thereunder, the Note Purchase Agreement shall be automatically amended to include such additional or amended covenants and/or default provisions.
Note 6 – Interest Rate Swaps:
The Company entered into an interest rate swap agreement which became effective on March 18, 2020, with a maturity date of March 18, 2025. The notional amount of this swap agreement is fixed at $200 million.
The Company previously had interest rate swap agreements associated with the February 2016 Term Loan and the June 2017 Term Loan, each of which was settled in full on November 10, 2020, following the repayment and termination of the associated term loans, and is no longer in effect.
The Company’s interest rate swap agreements are executed for risk management and are not held for trading purposes. The objective of the interest rate swap agreements is to mitigate interest rate risk associated with future changes in interest rates. To accomplish this objective, the interest rate swap agreements are intended to hedge the variable cash flows associated with the variable rate term loan borrowings under the Senior Credit Facility. The interest rate swap agreements entitle the Company to receive, at specified intervals, a variable rate of interest based on LIBOR in exchange for the payment of a fixed rate of interest throughout the life of the agreement, without exchange of the underlying notional amount.
The Company has designated its interest rate swap agreements as cash flow hedges and accounts for the underlying activity in accordance with hedge accounting. The interest rate swaps are presented within the Condensed Consolidated Balance Sheets at fair value. In accordance with hedge accounting, the gains and losses on interest rate swaps that are designated and qualify as cash flow hedges are recorded as a component of Other Comprehensive Income (“OCI”), net of related income taxes, and reclassified into earnings in the same income statement line and period during which the hedged transactions affect earnings.
As of March 27, 2021, amounts to be reclassified from Accumulated Other Comprehensive Income (“AOCI”) into interest during the next twelve months are not expected to be material. No significant amounts were excluded from the assessment of cash flow hedge effectiveness as of March 27, 2021.
The assets and liabilities measured at fair value related to the Company’s interest rate swaps, excluding accrued interest, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Designated
as Cash Flow Hedges
|
|
Balance Sheet Location
|
|
March 27,
2021
|
|
December 26,
2020
|
|
March 28,
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps (short-term portion)
|
|
Other accrued expenses
|
|
$
|
1,229
|
|
|
$
|
1,227
|
|
|
$
|
2,512
|
|
Interest rate swaps (long-term portion)
|
|
Other long-term liabilities
|
|
274
|
|
|
3,137
|
|
|
4,277
|
|
Total derivative liabilities
|
|
|
|
$
|
1,503
|
|
|
$
|
4,364
|
|
|
$
|
6,789
|
|
The offset to the interest rate swap asset or liability is recorded as a component of equity, net of deferred taxes, in AOCI, and will be reclassified into earnings over the term of the underlying debt as interest payments are made.
The following table summarizes the changes in AOCI, net of tax, related to the Company’s interest rate swaps (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 27,
2021
|
|
December 26,
2020
|
|
March 28,
2020
|
Beginning fiscal year AOCI balance
|
|
$
|
(3,243)
|
|
|
$
|
199
|
|
|
$
|
199
|
|
Current fiscal period gain/(loss) recognized in OCI
|
|
2,125
|
|
|
(5,666)
|
|
|
(5,250)
|
|
Amounts reclassified from AOCI
|
|
—
|
|
|
2,224
|
|
|
—
|
|
Other comprehensive gain/(loss), net of tax
|
|
2,125
|
|
|
(3,442)
|
|
|
(5,250)
|
|
Ending fiscal period AOCI balance
|
|
$
|
(1,118)
|
|
|
$
|
(3,243)
|
|
|
$
|
(5,051)
|
|
Cash flows related to the interest rate swaps are included in operating activities on the Condensed Consolidated Statements of Cash Flows.
The following table summarizes the impact of pre-tax gains and losses derived from the Company’s interest rate swaps (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended
|
|
|
|
Financial Statement Location
|
|
March 27,
2021
|
|
March 28,
2020
|
|
|
|
|
Amount of gains/(losses) recognized in OCI during the period
|
Other comprehensive income/(loss)
|
|
$
|
2,861
|
|
|
$
|
(7,056)
|
|
|
|
|
|
The following table summarizes the impact of taxes affecting AOCI as a result of the Company’s interest rate swaps (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended
|
|
|
|
March 27,
2021
|
|
March 28,
2020
|
|
|
|
|
Income tax expense/(benefit) of interest rate swaps on AOCI
|
$
|
736
|
|
|
$
|
(1,806)
|
|
|
|
|
|
Credit-risk-related contingent features
In accordance with the underlying interest rate swap agreements, the Company could be declared in default on its interest rate swap obligations if repayment of the underlying indebtedness (i.e., the Company’s term loans) is accelerated by the lender due to the Company’s default on such indebtedness.
If the Company had breached any of the provisions in the underlying agreements at March 27, 2021, it could have been required to post full collateral or settle its obligations under the Company’s interest rate swap agreements. However, as of March 27, 2021, the Company had not breached any of these provisions or posted any collateral related to the underlying interest rate swap agreements.
Note 7 – Capital Stock and Dividends:
Capital Stock
The authorized capital stock of the Company consists of common stock and preferred stock. The Company is authorized to issue 400 million shares of common stock. The Company is also authorized to issue 40 thousand shares of preferred stock, with such designations, rights and preferences as may be determined from time to time by the Company's Board of Directors.
Dividends
During the first three months of fiscal 2021 and 2020, the Company's Board of Directors declared the following cash dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date Declared
|
|
Dividend Amount
Per Share of Common Stock
|
|
Record Date
|
|
Date Paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 27, 2021
|
|
$
|
0.52
|
|
|
February 22, 2021
|
|
March 9, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 5, 2020
|
|
$
|
0.35
|
|
|
February 24, 2020
|
|
March 10, 2020
|
It is the present intention of the Company’s Board of Directors to continue to pay a quarterly cash dividend; however, the declaration and payment of future dividends will be determined by the Company’s Board of Directors in its sole discretion and will depend upon the earnings, financial condition, and capital needs of the Company, along with any other factors that the Company’s Board of Directors deem relevant.
On May 5, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.52 per share of the Company’s outstanding common stock. The dividend will be paid on June 8, 2021, to stockholders of record as of the close of business on May 24, 2021.
Note 8 – Treasury Stock:
The Company’s Board of Directors has authorized common stock repurchases under a share repurchase program which was announced in February 2007. The authorization amount of the program, which has been increased from time to time, is currently authorized for up to $4.5 billion, exclusive of any fees, commissions, or other expenses related to such repurchases. The share repurchase program does not have an expiration date. The repurchases may be made from time to time on the open market or in privately negotiated transactions. The timing and amount of any shares repurchased under the program will depend on a variety of factors, including price, corporate and regulatory requirements, capital availability, and other market conditions. Repurchased shares are accounted for at cost and will be held in treasury for future issuance. The program may be limited, temporarily paused (as it was from March 12, 2020 until November 5, 2020 in order to strengthen the Company's liquidity and preserve cash while navigating the COVID-19 pandemic), or terminated at any time without prior notice. As of March 27, 2021, the Company had remaining authorization under the share repurchase program of $890.5 million, exclusive of any fees, commissions, or other expenses.
The following table provides the number of shares repurchased, average price paid per share, and total amount paid for share repurchases during the fiscal three months ended March 27, 2021 and March 28, 2020, respectively (in thousands, except per share amounts):
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Fiscal Three Months Ended
|
|
|
|
March 27,
2021
|
|
March 28,
2020
|
|
|
|
|
Total number of shares repurchased
|
1,600
|
|
|
2,853
|
|
|
|
|
|
Average price paid per share
|
$
|
158.35
|
|
|
$
|
92.28
|
|
|
|
|
|
Total cash paid for share repurchases
|
$
|
253,409
|
|
|
$
|
263,219
|
|
|
|
|
|
Note 9 – Income Taxes:
The Company’s effective income tax rate was 18.8% in the first quarter of fiscal 2021 compared to 22.1% in the first quarter of fiscal 2020. The improvement in the effective income tax rate was primarily related to a discrete incremental tax benefit associated with share-based compensation compared to the first quarter of 2020.
Note 10 – Commitments and Contingencies:
Construction and Real Estate Commitments
The Company is building a new distribution center in Navarre, Ohio which is expected to be approximately 900,000 square feet and is currently anticipated to be complete by the end of fiscal 2022. At March 27, 2021, the Company had contractual commitments of approximately $75 million related to the construction of this new distribution center.
Letters of Credit
At March 27, 2021, there were $60.3 million of outstanding letters of credit under the Senior Credit Facility.
Litigation
On October 9, 2020, an alleged stockholder, the City of Pontiac Police and Fire Retirement System, filed a derivative lawsuit in the U.S. District Court for the Middle District of Tennessee, purportedly on the Company's behalf, against certain current and former members of our Board of Directors, and the Company as a nominal defendant, seeking unspecified compensatory and punitive damages payable to the Company, disgorgement, restitution, corporate governance and hiring changes, mandated community investment, and attorneys' fees and costs. Plaintiff alleges that defendants violated the federal securities laws governing proxy solicitations and breached their fiduciary duties by misrepresenting the Company’s commitment to and support for diversity and inclusion. The Company disputes the allegations of the complaint. The Company and the individual defendants moved to dismiss the complaint based on plaintiff’s failure to make a demand on the Board of Directors and to state a claim upon which relief may be granted. Given the indeterminate claims for monetary damages and the early stage of the proceedings where key factual and legal issues have not been resolved, the Company is unable to predict the ultimate timing or outcome of, or reasonably estimate the possible losses or a range of possible losses resulting from the matter described above.
The Company is also involved in various other litigation matters arising in the ordinary course of business. The Company believes that, based upon information currently available, any estimated loss related to such matters has been adequately provided for in accrued liabilities to the extent probable and reasonably estimable. Accordingly, the Company currently expects these matters will be resolved without material adverse effect on its consolidated financial position, results of operations, or cash flows. However, litigation and other legal matters involve an element of uncertainty. Future developments in such matters, including adverse decisions or settlements or resulting required changes to the Company's business operations, could affect our consolidated operating results when resolved in future periods or could result in liability or other amounts material to the Company's Condensed Consolidated Financial Statements.
Note 11 – Segment Reporting:
The Company has one reportable segment which is the retail sale of products that support the rural lifestyle. The following table indicates the percentage of net sales represented by each major product category during the fiscal three months ended March 27, 2021 and March 28, 2020:
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Fiscal Three Months Ended
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Product Category:
|
March 27,
2021
|
|
March 28,
2020
|
|
|
|
|
Livestock and Pet
|
51
|
%
|
|
54
|
%
|
|
|
|
|
Hardware, Tools and Truck
|
21
|
|
|
20
|
|
|
|
|
|
Seasonal, Gift and Toy Products
|
18
|
|
|
17
|
|
|
|
|
|
Clothing and Footwear
|
7
|
|
|
6
|
|
|
|
|
|
Agriculture
|
3
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|
|
3
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|
|
|
|
|
Total
|
100
|
%
|
|
100
|
%
|
|
|
|
|
Note 12 – New Accounting Pronouncements:
New Accounting Pronouncements Not Yet Adopted
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848): Scope." This collective guidance is in response to accounting concerns regarding contract modifications and hedge accounting because of impending rate reform associated with structural risks of interbank offered rates (IBORs), and, particularly, the risk of cessation of LIBOR related to regulators in several jurisdictions around the world having undertaken reference rate reform initiatives to identify alternative reference rates. The guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The adoption of this guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Company does not expect the adoption of this guidance to have a material impact on its Condensed Consolidated Financial Statements and related disclosures.