TRACTOR SUPPLY COMPA

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TRACTOR SUPPLY : DE/ Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

10/22/2020 | 08:31am

General




The following discussion and analysis should be read in conjunction with our
Annual Report on Form 10-K for the fiscal year ended December 28, 2019 (the
"2019 10-K"). This Quarterly Report on Form 10-Q also contains forward-looking
statements and information. The forward-looking statements included herein are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 (the "Act"). All statements, other than statements of
historical facts, which address activities, events, or developments that we
expect or anticipate will or may occur in the future, including sales and
earnings growth, estimated results of operations in future periods, the
declaration and payment of dividends, future capital expenditures (including
their amount and nature), business strategy, expansion and growth of our
business operations, and other such matters are forward-looking
statements. These forward-looking statements may be affected by certain risks
and uncertainties, any one, or a combination of which, could materially affect
the results of our operations. To take advantage of the safe harbor provided by
the Act, we are identifying certain factors that could cause actual results to
differ materially from those expressed in any forward-looking statements,
whether oral or written.

As with any business, many aspects of our operations are subject to influences
outside our control. These factors include, without limitation, national,
regional, and local economic conditions affecting consumer spending, including
the effects of the COVID-19 pandemic, the timing and acceptance of new products,
the timing and mix of goods sold, purchase price volatility (including
inflationary and deflationary pressures), the ability to increase sales at
existing stores, the ability to manage growth and identify suitable locations,
failure of an acquisition to produce anticipated results, the ability to
successfully manage expenses (including increased expenses as a result of
operating as an essential retailer during the COVID-19 pandemic) and execute our
key gross margin enhancing initiatives, the availability of favorable credit
sources, capital market conditions in general, the ability to open new stores in
the time, manner and number currently contemplated, particularly in light of the
COVID-19 pandemic, the impact of new stores on our business, competition,
including that from online competitors, weather conditions, the seasonal nature
of our business, effective merchandising initiatives and marketing emphasis, the
ability to retain vendors, reliance on foreign suppliers, the ability to
attract, train, and retain qualified employees, product liability and other
claims, changes in federal, state, or local regulations, the effects that
"shelter in place" and similar federal, state, and local regulations and
protocols could have on our business, including our supply chain and employees,
the imposition of tariffs on imported products or the disallowance of tax
deductions on imported products, potential judgments, fines, legal fees, and
other costs, breach of information systems or theft of employee or customer
data, ongoing and potential future legal or regulatory proceedings, management
of our information systems, failure to develop and implement new technologies,
the failure of customer-facing technology systems, business disruption including
from the implementation of supply chain technologies, effective tax rate changes
and results of examination by taxing authorities, the ability to maintain an
effective system of internal control over financial reporting, and changes in
accounting standards, assumptions, and estimates. We discuss in greater detail
risk factors relating to our business in Item 1A of our 2019 10-K and in Part
II, Item 1A of this Quarterly Report on Form 10-Q. Forward-looking statements
are based on our knowledge of our business and the environment in which we
operate, but because of the factors listed above or other factors, 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 will be realized or, even if
substantially realized, that they will have the expected consequences to or
effects on our business and operations. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. We undertake no obligation to release publicly any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.


Information Regarding COVID-19 Coronavirus Pandemic




The Company has been and continues to closely monitor the impact of the COVID-19
pandemic on all facets of our business. This includes the impact on our team
members, customers, suppliers, vendors, business partners, and supply chain
networks.

The health and safety of our team members and customers are the primary concerns
of our management team. We have taken and continue to take numerous actions to
promote health and safety, including, rapidly providing personal protective
equipment to our team members, requiring the use of masks in our facilities,
rolling out additional functionality to support contactless shopping
experiences, adding services for cleaning and sanitation in our stores and
distribution centers, hiring additional team members to assist in promoting
social distancing and cleaning actions in our stores, and implementing remote
work plans at our store support center.


Additionally, we have taken significant actions to support our team members
during this pandemic including COVID-19 paid medical leave, 100% coverage of
COVID-19 testing and treatment under our medical plan, and the payment of
incremental



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appreciation bonuses for frontline team members of approximately $35 million
from March 16 to June 27. Effective June 28 we have implemented permanent wage
increases for all of our hourly team members in our stores and distribution
centers of a minimum of $1 per hour and are now providing a new benefit package
for part-time team members, including medical, vision and dental coverage, paid
sick time and life insurance. Further, we have also implemented annual
restricted stock unit grants to more than 2,000 frontline salaried managers in
our stores and distribution centers. These actions, among others, are intended
to support our team members both during and after the COVID-19 pandemic.

As further described in the results of operations for the three and nine fiscal
months ended September 26, 2020, our net sales have significantly increased due
to unprecedented customer demand across all major product categories, channels,
and geographic regions. However, the net incremental costs of doing business
during this crisis have increased as a result of the aforementioned actions we
have taken to support and ensure the safety and well-being of our team members
and customers, and we believe these incremental costs will continue after the
pandemic is over.

On October 22, 2020 we provided financial guidance for the results of operations
expected for the fourth fiscal quarter ending December 26, 2020 which reflected
a continuation of the strong consumer demand for our products, albeit to a
lesser extent than experienced during our second and third fiscal quarters.
Additionally, we anticipate incurring incremental costs to respond to the
COVID-19 pandemic, as well as costs associated with the previously announced
permanent increase in compensation and benefits for our frontline team members,
and incremental costs for strategic investments in our business.

However, there are numerous uncertainties surrounding the pandemic and its
impact on the economy and our business, as further described in the Risk Factors
section of our 2019 10-K (as updated in Part II, Item 1A of this Quarterly
Report on Form 10-Q), which make it difficult to predict the impact on our
business, financial position, or results of operations for the remainder of
fiscal 2020 and beyond. While our stores, distribution centers, and e-commerce
operations are open and plan to remain open, we cannot predict the
uncertainties, or the corresponding impacts on our business, at this time.

Therefore, as previously disclosed, in an effort to strengthen our liquidity and
preserve cash while navigating the COVID-19 pandemic, we suspended our share
repurchase program effective March 12, 2020 and increased borrowings under our
debt facilities as described in Note 5 to the Condensed Consolidated Financial
Statements.

Seasonality and Weather

Our business is seasonal. Historically, our sales and profits are the highest
in the second and fourth fiscal quarters due to the sale of seasonal products.
We usually experience our highest inventory and accounts payable balances during
our first fiscal quarter for purchases of seasonal products to support the
higher sales volume of the spring selling season, and again during our third
fiscal quarter to support the higher sales volume of the cold-weather selling
season. We believe that our business can be more accurately assessed by focusing
on the performance of the halves, not the quarters, due to the fact that
different weather patterns from year-to-year can shift the timing of sales and
profits between quarters, particularly between the first and second fiscal
quarters and the third and fourth fiscal quarters.

Historically, weather conditions, including unseasonably warm weather in the
fall and winter months and unseasonably cool weather in the spring and summer
months, have unfavorably affected the timing and volume of our sales and results
of operations. In addition, extreme weather conditions, including snow and ice
storms, flood and wind damage, hurricanes, tornadoes, extreme rain, and droughts
have impacted operating results both negatively and positively, depending on the
severity and length of these conditions. Our strategy is to manage product flow
and adjust merchandise assortments and depth of inventory to capitalize on
seasonal demand trends.


Furthermore, we are not able to predict at this time the impact that the
COVID-19 pandemic may have on the seasonality of our business in the future.



Comparable Store Metrics




Comparable store metrics are a key performance indicator used in the retail
industry to measure the performance of the underlying business. Our comparable
store metrics are calculated on an annual basis using sales generated from all
stores open at least one year and all online sales and exclude certain
adjustments to net sales. Stores closed during either of the years being
compared are removed from our comparable store metrics calculations. Stores
relocated during either of the years being compared are not removed from our
comparable store metrics calculations. If the effect of relocated stores on our
comparable store metrics calculations became material, we would remove relocated
stores from the calculations.

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Results of Operations



Fiscal Three Months (Third Quarter) Ended September 26, 2020 and September 28,
2019




Net sales for the third quarter of fiscal 2020 increased 31.4% to $2.61 billion
from $1.98 billion for the third quarter of fiscal 2019. Comparable store sales
for the third quarter of fiscal 2020 were $2.51 billion, a 26.8% increase as
compared to the third quarter of fiscal 2019. Net sales and comparable store
sales increased 5.4% and 2.9% in the third quarter of fiscal 2019, respectively.

The comparable store sales results for the third quarter of fiscal 2020 included
an increase in comparable average transaction count of 14.3% and an increase in
comparable average transaction value of 12.5%, each as compared to the third
quarter of fiscal 2019. The COVID-19 pandemic continued to have a significant
impact on consumer demand in the third quarter of fiscal 2020 across all of the
Company's major product categories as customers focused on the care of their
homes, land, and animals. Additionally, consumer demand in the quarter benefited
from favorable weather conditions across much of the country as well as growth
in new customer acquisition and the re-engagement of lapsed customers as a
result of advertising campaigns focused on brand awareness. These factors all
led to a significant increase in comparable store sales which was driven by
strong demand for everyday merchandise, including consumable, usable and edible
products and robust growth for summer seasonal categories. All geographic
regions of the Company had robust comparable store sales growth. In addition,
the Company's e-commerce sales experienced triple-digit sales percentage growth
as compared to the third quarter of fiscal 2019.

In addition to comparable store sales growth for the third quarter of fiscal
2020, sales from stores open less than one year were $93.6 million for the third
quarter of fiscal 2020, which represented 4.7 percentage points of the 31.4%
increase over third quarter fiscal 2019 net sales. For the third quarter of
fiscal 2019, sales from stores open less than one year were $50.0 million, which
represented 2.7 percentage points of the 5.4% increase over third quarter fiscal
2018 net sales.


The following table summarizes store growth for the fiscal three months ended
September 26, 2020 and September 28, 2019:




Fiscal Three Months Ended
September 26, September 28,
Store Count Information: 2020 2019
Tractor Supply
Beginning of period 1,881 1,790
New stores opened 23 25
Stores closed - (1)
End of period 1,904 1,814
Petsense
Beginning of period 180 177
New stores opened 3 1
Stores closed - (2)
End of period 183 176
Consolidated, end of period 2,087 1,990
Stores relocated - 1



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The following table indicates the percentage of net sales represented by each of
our major product categories for the fiscal three months ended September 26,
2020
and September 28, 2019:
Percent of Net Sales

Fiscal Three Months Ended
September 26, September 28,
Product Category: 2020 2019
Livestock and Pet 48 % 49 %
Hardware, Tools and Truck 23 23
Seasonal, Gift and Toy Products 19 18
Clothing and Footwear 5 5
Agriculture 5 5
Total 100 % 100 %



Gross profit increased 36.6% to $948.0 million for the third quarter of fiscal
2020 from $694.2 million for the third quarter of fiscal 2019. As a percent of
net sales, gross margin in the third quarter of fiscal 2020 increased 138 basis
points to 36.37% from 34.99% in the third quarter of fiscal 2019. The increase
in gross margin was driven by lower depth and frequency of sales promotions,
less clearance activity, and lower transportation costs as a percent of net
sales.

Selling, general and administrative ("SG&A") expenses, including depreciation
and amortization, increased 30.7% to $695.8 million for the third quarter of
fiscal 2020 from $532.4 million for the third quarter of fiscal 2019. As a
percent of net sales, SG&A expenses improved 14 basis points to 26.69% for the
third quarter of fiscal 2020 from 26.83% for the third quarter of fiscal 2019.
The decrease in SG&A as a percent of net sales was primarily attributable to
leverage in occupancy, personnel and other operating costs from the increase in
comparable store sales. The leverage in our personnel costs year-over-year was
inclusive of the permanent wage and benefit increases for our store and
distribution center team members that went into effect in the third quarter of
fiscal 2020. The leverage from these SG&A expenses was partially offset by
incremental costs related to the COVID-19 pandemic, investments in strategic
initiatives including advertising and increased incentive compensation given the
record sales and profit performance in the quarter with the majority allocated
to the store teams. The incremental costs related to the COVID-19 pandemic of
approximately $20 million included additional labor hours and supply costs
dedicated to cleaning and sanitation to enhance the health and safety of team
members and customers.


Operating income for the third quarter of fiscal 2020 increased 55.8% to $252.2
million
compared to $161.8 million in the third quarter of fiscal 2019.



The effective income tax rate was 22.2% for the third quarter of both fiscal
2020 and 2019.




As a result of the foregoing factors, net income for the third quarter of fiscal
2020 increased 56.1% to $190.6 million, or $1.62 per diluted share, as compared
to net income of $122.1 million, or $1.02 per diluted share, for the third
quarter of fiscal 2019.


Fiscal Nine Months (Third Quarter) Ended September 26, 2020 and September 28,
2019




Net sales increased 25.7% to $7.74 billion for the first nine months of fiscal
2020 from $6.16 billion for the first nine months of fiscal 2019. Comparable
store sales for the first nine months of fiscal 2020 were $7.49 billion, a 21.5%
increase over the first nine months of fiscal 2019. Net sales and comparable
store sales increased 6.6% and 3.6% in the first nine months of fiscal 2019,
respectively.

For the first nine months of fiscal 2020, the comparable store sales results
included an increase in comparable average transaction value of 12.0% and
comparable average transaction count of 9.6%. Beginning in March 2020, the
COVID-19 pandemic had a significant impact on consumer demand across all of the
Company's major product categories and geographic regions. All geographic
regions of the Company had robust comparable store sales growth during the first
nine months of fiscal 2020. The increase in comparable store sales was driven by
unprecedented demand for spring and summer seasonal categories along with
exceptional growth in everyday merchandise, including consumable, usable and
edible products.

In addition to comparable store sales growth in the first nine months of fiscal
2020, sales from stores open less than one year were $264.0 million in the first
nine months of fiscal 2020, which represented 4.3 percentage points of the 25.7%
increase over the first nine months of fiscal 2019 net sales. For the first nine
months of fiscal 2019, sales from stores open less than one year
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were $179.6 million, which represented 3.1 percentage points of the 6.6%
increase over the first nine months of fiscal 2018 net sales.



The following table summarizes store growth for the fiscal nine months ended
September 26, 2020 and September 28, 2019:




Fiscal Nine Months Ended
September 26, September 28,
Store Count Information: 2020 2019
Tractor Supply
Beginning of period 1,844 1,765
New stores opened 61 50
Stores closed (1) (1)
End of period 1,904 1,814
Petsense
Beginning of period 180 175
New stores opened 6 3
Stores closed (3) (2)
End of period 183 176
Consolidated, end of period 2,087 1,990
Stores relocated 1 2


The following table indicates the percentage of net sales represented by each of
our major product categories for the fiscal nine months ended September 26, 2020
and September 28, 2019:
Percent of Net Sales

Fiscal Nine Months Ended
September 26, September 28,
Product Category: 2020 2019
Livestock and Pet 48 % 48 %
Hardware, Tools and Truck 21 21
Seasonal, Gift and Toy Products 21 20
Clothing and Footwear 5 6
Agriculture 5 5
Total 100 % 100 %



Gross profit increased 29.9% to $2.77 billion from $2.13 billion in the first
nine months of fiscal 2019, and gross margin increased 115 basis points to
35.73% from 34.58% in the first nine months of fiscal 2019. The increase in
gross margin was driven by lower depth and frequency of sales promotions, less
clearance merchandise and, to a lesser extent, favorable product mix and lower
transportation costs as a percent of net sales.

Total SG&A expenses, including depreciation and amortization, increased 23.9% to
$1.95 billion from $1.58 billion in the first nine months of fiscal 2019. As a
percent of net sales, SG&A expenses decreased to 25.23% from 25.60% in the first
nine months of fiscal 2019. The decrease in SG&A as a percent of net sales was
primarily attributable to leverage in occupancy, personnel, and other operating
costs from the increase in comparable store sales. The leverage in our personnel
costs year-over-year was inclusive of the permanent wage and benefit increases
for our store and distribution center team members that went into effect in the
third quarter of fiscal 2020. These improvements in our SG&A as a percent of net
sales were partially offset by incremental costs related to the COVID-19
pandemic, increased incentive compensation given the Company's strong financial
performance, and investments in strategic initiatives. The costs related to the
COVID-19 pandemic were approximately $82 million during the first nine months of
fiscal 2020 which includes appreciation wages for frontline team members as well
as additional labor hours and supply costs dedicated to cleaning and sanitation
to enhance the health and safety of team members and customers.

Operating income for the first nine months of fiscal 2020 increased 47.0% to
$812.5 million compared to $552.8 million in the first nine months of fiscal
2019.
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The effective income tax rate was 22.6% in the first nine months of fiscal 2020
compared to 22.2% in the first nine months of fiscal 2019. The primary driver
for the increase in the Company's effective income tax rate was attributable to
a reduction in the impact of the tax benefit associated with share-based
compensation. The Company expects the full fiscal year 2020 effective tax rate
to be in a range between 22.5% and 22.7%. The CARES Act was enacted in the U.S.
on March 27, 2020. We do not anticipate that the enactment of this legislation
will significantly impact our full year effective tax rate in fiscal 2020;
however, the legislation resulted in the deferral of certain tax payments.

As a result of the foregoing factors, net income increased 46.6% to $613.1
million
from $418.2 million in the first nine months of fiscal 2019, and diluted
earnings per share increased 51.6% to $5.23 from $3.45 in the first nine months
of fiscal 2019.


Liquidity and Capital Resources




In addition to normal operating expenses, our primary ongoing cash requirements
are for new store expansion, remodeling and relocation programs, distribution
facility capacity and improvements, information technology, inventory purchases,
repayment of existing borrowings under our debt facilities, share repurchases,
cash dividends, and selective acquisitions as opportunities arise.

Our primary ongoing sources of liquidity are existing cash balances, cash
provided from operations, remaining funds available under our debt facilities,
finance and operating leases, and normal trade credit. Our inventory and
accounts payable levels typically build in the first and third fiscal quarters
to support the higher sales volume of the spring and cold-weather selling
seasons, respectively.

The Company believes that its existing cash balances, expected cash flow from
future operations, funds available under its debt facilities, finance and
operating leases, and normal trade credit will be sufficient to fund its
operations, including increased expenses associated with COVID-19, and its
capital expenditure needs, including new store openings, store acquisitions,
relocations and renovations, distribution facility capacity, and information
technology improvements, through the end of fiscal 2020.


Working Capital




At September 26, 2020, the Company had working capital of $1.04 billion, which
increased $498.0 million from December 28, 2019, and increased $284.5 million
from September 28, 2019. The shifts in working capital were attributable to
changes in the following components of current assets and current liabilities
(in millions):
September 26, December 28, September 28,
2020 2019 Variance 2019 Variance
Current assets:
Cash and cash equivalents $ 1,112.0 $ 84.2 $ 1,027.8 $ 82.6 $ 1,029.4
Inventories 1,915.0 1,602.8 312.2 1,812.8 102.2
Prepaid expenses and other current
assets 136.1 100.9 35.2 104.5 31.6
Income taxes receivable 7.8 - 7.8 5.6 2.2
Total current assets 3,170.9 1,787.9 1,383.0 2,005.5 1,165.4
Current liabilities:
Accounts payable 1,056.9 643.0 413.9 679.8 377.1
Accrued employee compensation 120.4 39.8 80.6 49.2 71.2
Other accrued expenses 274.2 247.7 26.5 218.8 55.4
Current portion of long-term debt 380.0 30.0 350.0 30.0 350.0
Current portion of finance lease
liabilities 4.4 4.0 0.4 3.9 0.5
Current portion of operating lease
liabilities 294.8 277.1 17.7 270.0 24.8
Income taxes payable 1.9 6.0 (4.1) - 1.9

Total current liabilities 2,132.6 1,247.6 885.0 1,251.7 880.9
Working capital $ 1,038.3 $ 540.3 $ 498.0 $ 753.8 $ 284.5



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In comparison to December 28, 2019, working capital as of September 26, 2020,
was impacted most significantly by changes in cash and cash equivalents,
inventories, accounts payable, current portion of long-term debt, and accrued
employee compensation.

•The increase in cash and cash equivalents was driven by significant net cash
provided by operating activities in the first nine months of fiscal 2020 and an
increase in borrowings, net of repayments, under our debt facilities as we
sought to strengthen liquidity and preserve cash while navigating the COVID-19
pandemic. These increases in cash and cash equivalents were partially offset by
share repurchases, capital expenditures to support our strategic growth, and
cash dividends paid to stockholders.
•The increase in inventories resulted primarily from an increase in average
inventory per store due to normal seasonal patterns as well as the purchase of
additional inventory to support new store growth.
•The increase in accounts payable was strongly correlated to the significant
increase in inventory as well as strong comparable store sales during the third
quarter of fiscal 2020. The sales performance during the third quarter drove an
increase in inventory purchases and produced high inventory turns, resulting in
an increase in the amount of inventory purchases that remain in accounts payable
at quarter end.
•The increase in the current portion of long-term debt was related to the new
$350 million April 2020 Term Loan borrowing, which was executed in order to
strengthen liquidity and preserve cash while navigating the COVID-19 pandemic.
•The increase in accrued employee compensation was primarily due to incentive
accruals given the strong year-to-date financial performance in fiscal 2020 and,
to a lesser extent, the timing of other payroll accruals and related payments.

In comparison to September 28, 2019, working capital as of September 26, 2020,
was impacted most significantly by changes in cash and cash equivalents,
inventories, accounts payable, current portion of long-term debt, and accrued
employee compensation.

•The increase in cash and cash equivalents was driven by a significant
year-over-year increase in net cash provided by operating activities as well as
an increase in borrowings, net of repayments, under our debt facilities and a
reduced amount of year-over-year share repurchases as we sought to strengthen
liquidity and preserve cash while navigating the COVID-19 pandemic.
•The increase in inventories resulted primarily from the purchase of additional
inventory to support new store growth as average inventory per store did not
fluctuate significantly year-over-year.
•The increase in accounts payable resulted primarily from the purchase of
additional inventory to support new store growth and increased sales volumes
during the third quarter of fiscal 2020. However, the inventory balance did not
increase at the same rate as accounts payable due to the significant increase in
sales and inventory turns in the third quarter of fiscal 2020 which resulted in
a year-over-year increase in the amount of inventory purchases that remain in
accounts payable at quarter end.
•The increase in the current portion of long-term debt was related to the new
$350 million April 2020 Term Loan borrowing, which was executed in order to
strengthen liquidity and preserve cash while navigating the COVID-19 pandemic.
•The increase in accrued employee compensation was primarily due to higher
year-over-year incentive accruals given the strong year-to-date financial
performance in fiscal 2020.

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Debt



The following table summarizes the Company's outstanding debt as of the dates
indicated (in millions):



September 26, December 28, September 28,
2020 2019 2019
Senior Notes $ 150.0 $ 150.0 $ 150.0
Senior Credit Facility:
February 2016 Term Loan 130.0 145.0 150.0
June 2017 Term Loan 80.0 87.5 90.0
March 2020 Term Loan 200.0 - -
April 2020 Term Loan 350.0 - -
Revolving credit loans - 15.0 255.0
Total outstanding borrowings 910.0 397.5 645.0
Less: unamortized debt issuance costs (0.7) (1.0) (1.1)
Total debt 909.3 396.5 643.9
Less: current portion of long-term debt (380.0) (30.0) (30.0)
Long-term debt $ 529.3 $ 366.5 $ 613.9

Outstanding letters of credit $ 50.4 $ 32.0 $ 34.0


For additional information about the Company's debt and credit facilities, refer
to Note 5 to the Condensed Consolidated Financial Statements. Refer to Note 6 to
the Condensed Consolidated Financial Statements for information about the
Company's interest rate swap agreements.


Operating Activities




Operating activities provided net cash of $1.0 billion and $414.3 million in the
first nine months of fiscal 2020 and fiscal 2019, respectively. The $590.7
million
increase in net cash provided by operating activities in the first nine
months of fiscal 2020 compared to the first nine months of fiscal 2019 is due to
changes in the following operating activities (in millions):
Fiscal Nine Months Ended
September 26, September 28,
2020 2019 Variance
Net income $ 613.1 $ 418.2 $ 194.9
Depreciation and amortization 158.6 144.6 14.0
Share-based compensation expense 27.0 25.8 1.2
Deferred income taxes (3.7) 8.5 (12.2)
Inventories and accounts payable 101.6 (163.4) 265.0
Prepaid expenses and other current assets (35.2) 10.0 (45.2)
Accrued expenses 100.9 (26.4) 127.3
Income taxes (11.9) (3.3) (8.6)
Other, net 54.6



0.3 54.3
Net cash provided by operating activities $ 1,005.0 $ 414.3 $ 590.7






The $590.7 million increase in net cash provided by operating activities in the
first nine months of fiscal 2020 compared with the first nine months of fiscal
2019 resulted from a year-over-year increase in our net income as well as the
net impact of changes in our operating assets and liabilities, principally due
to the timing of accruals and related payments and a significant increase in
inventory that remains in accounts payable due to the increased sales volume and
inventory turns in the third quarter of fiscal 2020.

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Investing Activities




Investing activities used net cash of $160.2 million and $142.0 million in the
first nine months of fiscal 2020 and fiscal 2019, respectively. The $18.1
million
increase in net cash used in investing activities primarily reflects an
increase in capital expenditures in the first nine months of fiscal 2020
compared to fiscal 2019.


Capital expenditures for the first nine months of fiscal 2020 and fiscal 2019
were as follows (in millions):



Fiscal Nine Months Ended



September 26, September 28,
2020 2019
Information technology $ 72.6 $ 66.5
New and relocated stores and stores not yet opened 43.8 38.6
Existing stores 30.6 23.5
Distribution center capacity and improvements 11.6 14.3
Corporate and other 2.7 1.4
Total capital expenditures $ 161.3 $ 144.3



The spending on information technology represents continued support of our store
growth and our omni-channel initiatives, as well as improvements in security and
compliance, enhancements to our customer relationship management program, and
other strategic initiatives. As we continue throughout fiscal 2020, we intend to
prioritize our information technology capital expenditures to accelerate
initiatives to enhance safety and convenience for customers, including
initiatives such as Buy Online, Pickup In Store; Buy Online, Deliver from Store;
Contactless Curbside Pickup; Contactless Payment capabilities; additional Mobile
POS devices in all stores; and improvements to our in-store wireless internet.

In the first nine months of fiscal 2020, the Company opened 61 new Tractor
Supply
stores compared to 50 new Tractor Supply stores during the first nine
months of fiscal 2019. The Company also opened six new Petsense stores during
the first nine months of fiscal 2020 compared to three new Petsense stores
during the first nine months of fiscal 2019. We expect to open approximately 80
new Tractor Supply stores and approximately 10 new Petsense stores during fiscal
2020, but the timing of new store openings in some areas may be delayed as a
result of the COVID-19 pandemic, including local and state orders.

Spending for existing stores principally reflects routine refresh activity.
However, the increased spend for existing stores in the first nine months of
fiscal 2020 as compared to the first nine months of fiscal 2019 is driven by
strategic initiatives in select stores including security enhancements, space
productivity and side lot improvements.

For fiscal 2020, the Company expects capital expenditures to be approximately
$300 million to $325 million, as we continue to support our strategic growth
initiatives related to space productivity and side lot improvements in certain
existing store locations as well as new technology and service enhancements that
are being implemented across the enterprise.


Financing Activities




Financing activities provided net cash of $182.9 million in the first nine
months of fiscal 2020 compared to using net cash of $276.0 million in the first
nine months of fiscal 2019. The $458.9 million change in net cash provided by
financing activities in the first nine months of fiscal 2020 compared to the
first nine months of fiscal 2019 is due to changes in the following (in
millions):
Fiscal Nine Months Ended
September 26, September 28,
2020 2019 Variance



Net borrowings and repayments under debt facilities $ 512.5


$ 236.3 $ 276.2
Repurchase of common stock (263.2) (490.0) 226.8
Net proceeds from issuance of common stock 73.8 105.5 (31.7)
Cash dividends paid to stockholders (128.0) (121.2) (6.8)
Other, net (12.2) (6.6) (5.6)


Net cash provided by/(used in) financing activities $ 182.9



$ (276.0) $ 458.9



Page 27



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Index



The $458.9 million change in net cash provided by financing activities in the
first nine months of fiscal 2020 compared with the first nine months of fiscal
2019 is due to an increase in net borrowings under debt facilities, which
included the addition of the $200 million March 2020 Term Loan and the $350
million
April 2020 Term Loan as described in Note 5 to the Condensed
Consolidated Financial Statements. Additionally, we used less cash for the
repurchase of common stock as we have suspended our share repurchase program
effective March 12, 2020. The incremental borrowings and suspension of our share
repurchase program were both intended to strengthen our liquidity and preserve
cash while navigating the COVID-19 pandemic.


Dividends



During the first nine months of fiscal 2020 and fiscal 2019, the Company's Board
of Directors declared the following cash dividends:



Dividend Amount


Date Declared Per Share of Common Stock Record Date



Date Paid
August 5, 2020 $ 0.40 August 24, 2020 September 9, 2020
May 6, 2020 $ 0.35 May 26, 2020 June 9, 2020
February 5, 2020 $ 0.35 February 24, 2020 March 10, 2020

August 7, 2019 $ 0.35 August 26, 2019 September 10, 2019
May 8, 2019 $ 0.35 May 28, 2019 June 11, 2019
February 6, 2019 $ 0.31 February 25, 2019 March 12, 2019



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 deems relevant.

Share Repurchase Program

The Company's Board of Directors has authorized common stock repurchases under a
share repurchase program up to $4.5 billion, exclusive of any fees, commissions,
or other expenses related to such repurchases. 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 or terminated at any time without prior notice. As of
September 26, 2020, the Company had remaining authorization under the share
repurchase program of $1.22 billion, exclusive of any fees, commissions, or
other expenses.


The Company has suspended the share repurchase program effective March 12, 2020,
in order to strengthen its liquidity and preserve cash while navigating the
COVID-19 pandemic.




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 and nine months ended September 26, 2020 and September 28, 2019,
respectively (in thousands, except per share amounts):
Fiscal Nine Months
Fiscal Three Months Ended Ended
September 26, September 28, September 26, September 28,
2020 2019 2020 2019
Total number of shares repurchased - 1,470 2,853 4,926
Average price paid per share $ - $ 105.97 $ 92.28 $ 99.46
Total cash paid for share repurchases $ - $ 155,742


$ 263,219 $ 489,977



Off-Balance Sheet Arrangements




The Company's off-balance sheet arrangements are limited to outstanding letters
of credit. Letters of credit allow the Company to purchase inventory, primarily
sourced overseas, in a timely manner and support certain risk management
programs.

Page 28



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Index



Significant Contractual Obligations and Commercial Commitments



At September 26, 2020, there were no material commitments related to real estate
or construction projects extending greater than twelve months.



At September 26, 2020, there were $50.4 million of outstanding letters of credit
under the 2016 Senior Credit Facility.



Significant Accounting Policies and Estimates




Management's discussion and analysis of the Company's financial position and
results of operations are based upon its Condensed Consolidated Financial
Statements, which have been prepared in accordance with U.S. GAAP. The
preparation of these financial statements requires management to make informed
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. The Company's significant accounting policies, including areas of
critical management judgments and estimates, have primary impact on the
following financial statement areas:
- Inventory valuation - Impairment of long-lived assets
- Self-insurance reserves - Impairment of


goodwill and other indefinite-lived



intangible assets


See the Notes to the Consolidated Financial Statements in our Annual Report on
Form 10-K for the fiscal year ended December 28, 2019, for a discussion of the
Company's critical accounting policies. The Company's financial position and/or
results of operations may be materially different when reported under different
conditions or when using different assumptions in the application of such
policies. In the event estimates or assumptions prove to be different from
actual amounts, adjustments are made in subsequent periods to reflect more
current information.


New Accounting Pronouncements




Refer to Note 12 to the Condensed Consolidated Financial Statements for recently
adopted accounting pronouncements and recently issued accounting pronouncements
not yet adopted as of September 26, 2020.

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