<PAGE>
CONFORMED COPY
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED COMMISSION FILE NUMBER
SEPTEMBER 30, 1994 0-11579
TBC CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 31-0600670
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4770 Hickory Hill Road
Memphis, Tennessee 38141
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (901) 363-8030
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
26,359,719 Shares of Common Stock were outstanding as of September 30, 1994.
INDEX TO EXHIBITS at page 12 of this Report<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
TBC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
September 30, December 31,
1994 1993
(Unaudited)
CURRENT ASSETS
Accounts and notes receivable, less
allowance for doubtful accounts
of $8,741 on September 30, 1994
and $7,828 on December 31, 1993:
Related parties $ 23,202 $ 14,207
Other 105,235 83,743
Total accounts and notes receivable 128,437 97,950
Inventories 35,179 43,313
Refundable federal and state income taxes 4 -
Deferred federal income taxes 2,532 2,166
Other current assets 2,151 1,881
Total current assets 168,303 145,310
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land and improvements 1,545 1,545
Buildings 8,507 8,503
Equipment 18,396 16,370
Furniture and fixtures 1,700 1,606
Leasehold improvements 600 600
30,748 28,624
Less accumulated depreciation 15,819 13,196
Total property, plant and equipment 14,929 15,428
OTHER ASSETS 8,827 6,008
TOTAL ASSETS $192,059 $166,746
See accompanying notes to consolidated financial statements.
-2-<PAGE>
TBC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1994 1993
(Unaudited)
CURRENT LIABILITIES
Outstanding checks, net $ 5,905 $ 981
Notes payable to banks 32,862 26,091
Accounts payable, trade 38,322 18,482
Federal and state income taxes payable - 84
Other current liabilities 4,880 4,558
Total current liabilities 81,969 50,196
NONCURRENT LIABILITIES 531 -
STOCKHOLDERS' EQUITY
Common stock, $.10 par value,
shares issued and outstanding -
26,360 on September 30, 1994 and
28,377 on December 31, 1993 2,636 2,838
Additional paid-in capital 10,422 11,056
Retained earnings 96,501 102,656
Total stockholders' equity 109,559 116,550
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $192,059 $166,746
See accompanying notes to consolidated financial statements.
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TBC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
NET SALES* $157,513 $159,005 $424,218 $439,068
COSTS AND EXPENSES:
Cost of sales 143,929 144,569 384,880 397,141
Distribution 2,005 2,112 6,064 6,414
Selling and administrative 2,940 2,688 11,568 9,599
Other (income) expense - net (496) (149) (1,444) (650)
Total costs and expenses 148,378 149,220 401,068 412,504
INCOME BEFORE INCOME TAXES 9,135 9,785 23,150 26,564
PROVISION FOR INCOME TAXES 3,471 3,886 8,797 10,094
NET INCOME $ 5,664 $ 5,899 $ 14,353 $ 16,470
Earnings per share $ .21 $ .21 $ .51 $ .57
Weighted average number of shares
and equivalents outstanding 27,422 28,733 28,101 29,056
* Including sales to related parties of $37,538 and $37,816 in the three
months ended September 30, 1994 and 1993, respectively, and $108,943 and
$112,073 in the nine months ended September 30, 1994 and 1993,
respectively.
See accompanying notes to consolidated financial statements.
-4-<PAGE>
TBC CORPORATION
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
Common Stock Additional
Number of Paid-In Retained
Shares Amount Capital Earnings Total
Nine Months Ended
September 30, 1993
BALANCE, JANUARY 1, 1993 29,032 $2,903 $10,593 $ 89,464 $102,960
Net income for period 16,470 16,470
Issuance of common stock
under stock option and
incentive plans 48 5 713 - 718
Repurchase and retirement
of common stock (513) (51) (198) (6,090) (6,339)
Tax benefit from exercise
of stock options - - 22 - 22
BALANCE, SEPTEMBER 30, 1993 28,567 $2,857 $11,130 $ 99,844 $113,831
Nine Months Ended
September 30, 1994
BALANCE, JANUARY 1, 1994 28,377 $2,838 $11,056 $102,656 $116,550
Net income for period 14,353 14,353
Issuance of common stock
under stock option and
incentive plans, net 20 2 131 - 133
Repurchase and retirement
of common stock (2,037) (204) (806) (20,508) (21,518)
Tax benefit from exercise
of stock options - - 41 - 41
BALANCE, SEPTEMBER 30, 1994 26,360 $2,636 $10,422 $ 96,501 $109,559
See accompanying notes to consolidated financial statements.
-5-<PAGE>
TBC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months
Ended September 30,
1994 1993
OPERATING ACTIVITIES
Net income $ 14,353 $ 16,470
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 3,164 2,993
Amortization 80 88
Deferred federal income taxes (366) 30
Changes in operating assets and liabilities:
Receivables (33,171) (30,758)
Inventories 8,134 (3)
Other current assets (270) (328)
Other assets (219) -
Outstanding checks, net 4,924 5,963
Accounts payable, trade 19,840 (982)
Federal and state income taxes
refundable or payable (47) 479
Other current liabilities 322 101
Noncurrent liabilities 531 -
Net cash provided by (used in)
operating activities 17,275 (5,947)
INVESTING ACTIVITIES
Purchase of property, plant and equipment (2,997) (2,540)
Other, net 336 14
Net cash used in investing activities (2,661) (2,526)
FINANCING ACTIVITIES
Net bank borrowings (repayments) under
short-term borrowing arrangements 6,771 12,223
Issuance of common stock under stock option and
incentive plans, net 133 718
Repurchase and retirement of common stock (21,518) (6,339)
Net cash provided by (used in)
financing activities (14,614) 6,602
Decrease in Cash and Cash Equivalents - (1,871)
CASH AND CASH EQUIVALENTS
Balance - Beginning of period - 1,871
Balance - End of period $ - $ -
Supplemental Disclosures of Cash Flow Information:
Cash paid for - Interest $ 853 $ 1,388
- Income taxes 9,210 9,607
Supplemental Disclosure of Non-Cash Financing
Activity:
Tax benefit from exercise of stock options $ 41 $ 22
See accompanying notes to consolidated financial statements.
-6-<PAGE>
TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Financial Statement Presentation
The consolidated balance sheet as of September 30, 1994, the
consolidated statements of income for the three months and nine months
ended September 30, 1994 and 1993, and the consolidated statements of
stockholders' equity and cash flows for the nine months ended September
30, 1994 and 1993, have been prepared by the Company, without audit. It
is Management's opinion that these statements include all adjustments,
consisting only of normal recurring adjustments, necessary to present
fairly the financial position, results of operations and cash flows as of
September 30, 1994 and for all periods presented. The results for the
periods presented are not necessarily indicative of the results that may
be expected for the full year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these consolidated financial statements be read in conjunction with
the financial statements and notes thereto included in the Company's 1993
Annual Report.
2. Earnings Per Share
Earnings per share have been computed by dividing net income by the
weighted average number of common shares and equivalents outstanding.
Common share equivalents included in the computation represent shares
issuable upon assumed exercise of stock options, which would have a
dilutive effect in the respective periods. Fully diluted earnings per
share did not significantly differ from primary earnings per share in the
periods presented.
The total of earnings per share for each of the first three quarters
of 1994 does not equal earnings per share for the nine months ended
September 30, 1994, due to the distribution of earnings during the period
and the decrease in shares outstanding during 1994.
3. Other Assets
Other assets consist of the following (in thousands):
September 30, December 31,
1994 1993
Notes receivable $8,142 $5,458
Intangible assets, net of amortization 685 546
Other - 4
$8,827 $6,008
The notes receivable totals include a note for $4,897,000 from a
former distributor. The maker of the note was discharged in 1991 in a
proceeding under Chapter 11 of the Bankruptcy Code. The Company received
distributions totaling $290,000 from the bankruptcy proceeding. The
Company holds written guarantees of the distributor's account, absolute
and continuing in form, signed by the principal former owners and
officers of the distributor and their wives, upon which the Company filed
suit in 1989. The defendants have pleaded various defenses based on,
among other things, an alleged oral cancellation of the guarantees. The
defendants have also filed a third-party complaint against the Company's
former chief executive officer in which they claim the right to recover
against him for any liability they may have to the Company. The Company
believes, on the basis of applicable Tennessee law, that those defenses
are invalid and that there is no merit to the third-party complaint. In
-7-<PAGE>
TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
3. Other Assets (continued)
October 1994, the court granted the Company's motion to exclude evidence
of any oral cancellation of the guarantees. The date for trial has not
yet been re-scheduled. The Company knows of no reason to believe that the
defendants will be unable to pay any judgment that may be entered against
them in the action.
4. Supplemental Retirement Benefits
The Company has an unfunded supplemental retirement plan for certain
of its executive officers, to provide benefits in excess of amounts
permitted to be paid by its defined benefit pension plan under current
tax law. In addition, employment agreements with the Company's President
and Chief Executive Officer and its former Chief Executive Officer
include certain supplemental retirement provisions. During 1994, the
Company determined that expenses should be recorded under these
arrangements, and that the accumulated benefit obligation, which was
previously unaccrued, should be reflected as a liability in the
consolidated balance sheets until paid. As a result, expenses for the
third quarter and first nine months of 1994 included supplemental
retirement charges of $291,000 and $2,582,000, respectively. The
accumulated benefit obligation as of September 30, 1994 was $531,000 and
the projected benefit obligation was $647,000.
-8-<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Financial Condition
The Company's financial position and liquidity remain strong. Working
capital was $86.3 million at September 30, 1994, compared to $95.1 million at
December 31, 1993. Current accounts and notes receivable increased by $30.5
million due principally to seasonal sales fluctuations. Inventories declined
by $8.1 million due to increased efforts to minimize inventory levels while
maintaining high service levels. Other assets increased $2.8 million due
primarily to the conversion of an amount due from one distributor from an
account receivable to a collateralized note receivable. The composite total
owed to banks and vendors, in the form of outstanding checks, notes payable
to banks and accounts payable, increased by $31.5 million from December 31,
1993 to September 30, 1994. This increase, together with cash generated from
operations, was sufficient to fund the above-noted increase in receivables,
as well as the repurchase of 2,037,000 shares of common stock and normally
recurring capital expenditures during the first nine months of 1994.
Noncurrent liabilities at September 30, 1994, reflected the accrual of
certain supplemental retirement benefits which were previously unaccrued.
See Note 4 to the consolidated financial statements.
Results of Operations
Net sales declined 0.9% during the third quarter and 3.4% through the
first nine months compared to the year-earlier levels. Sales of tires
accounted for approximately 90% of total sales in the current quarter and 89%
in the first nine months of 1994, compared to 89% in the third quarter of
1993 and 88% in the first nine months of 1993. Unit tire volume declined
0.8% in the current quarter and 1.2% in the year-to-date period, compared
with prior year levels. The average tire sales price increased 1.0% in the
third quarter but declined 0.6% in the first nine months, compared with the
same periods in 1993 . Sales of non-tire products decreased in the third
quarter and first nine months of 1994, due primarily to lower unit shipments
of batteries.
Cost of sales as a percentage of net sales increased from 90.9% in the
third quarter of 1993 to 91.4% in the current quarter. For the year-to-date
period, cost of sales increased slightly, from 90.5% of net sales in 1993 to
90.7% in 1994. Net product costs from suppliers in the third quarter and
first nine months of 1993 were favorably affected by greater interest income
on early payments to suppliers.
Distribution expenses decreased 5.1% in the third quarter and 5.5% in
the first nine months of 1994 compared to the year-earlier levels, due
principally to decreases in labor and related costs.
Selling and administrative expenses increased from the levels in the
third quarter and first nine months of 1993, due principally to charges of
$291,000 in the current quarter and $2,582,000 in the first nine months of
1994 for supplemental retirement benefits. See Note 4 to the consolidated
financial statements.
Net other income was higher in the third quarter and first nine months of
1994 compared to the year-earlier levels, due primarily to decreased interest
expenses associated with lower bank borrowings.
The Company's effective tax rate was 38.0% in both the third quarter and
first nine months of 1994, compared to effective rates of 39.7% in the third
quarter of 1993 and 38.0% in the first nine months of 1993. The enactment of
a higher Federal tax rate during the third quarter of 1993 caused a higher
effective rate during that quarter, since the new rate was applied
retroactively to earnings since January 1, 1993.
-9-<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Index to Exhibits
(b) No reports on Form 8-K were filed during the three months ended
September 30, 1994.
-10-<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TBC CORPORATION
October 17, 1994 By /s/ Ronald E. McCollough
Ronald E. McCollough
Senior Vice President Operations
(principal accounting and
financial officer)
-11-<PAGE>
INDEX TO EXHIBITS
Located at
Sequentially-
Exhibit No. Description Numbered Page
(27) FINANCIAL DATA SCHEDULE:
27.1 Financial Data Schedule (as electronically
filed on the Securities & Exchange Commission's
EDGAR system) as of September 30, 1994 and for
the nine months then ended...................... 13
-12-<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> (5,905)<F1>
<SECURITIES> 0
<RECEIVABLES> 137,178
<ALLOWANCES> 8,741
<INVENTORY> 35,179
<CURRENT-ASSETS> 168,303
<PP&E> 30,748
<DEPRECIATION> 15,819
<TOTAL-ASSETS> 192,059
<CURRENT-LIABILITIES> 81,969
<BONDS> 0
<COMMON> 2,636
0
0
<OTHER-SE> 106,923
<TOTAL-LIABILITY-AND-EQUITY> 192,059
<SALES> 424,218
<TOTAL-REVENUES> 424,218
<CGS> 384,880
<TOTAL-COSTS> 384,880
<OTHER-EXPENSES> 16,188
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 0<F2>
<INCOME-PRETAX> 23,150
<INCOME-TAX> 8,797
<INCOME-CONTINUING> 14,353
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,353
<EPS-PRIMARY> .51
<EPS-DILUTED> 0<F2>
<FN>
<F1>THIS ITEM IS SHOWN UNDER THE CATEGORY "OUTSTANDING CHECKS, NET" ON THE
CONSOLIDATED BALANCE SHEET.
<F2>THESE ITEMS ARE NOT SEPARATELY REPORTED ON TBC CORPORATION'S FORM 10-Q.
</FN>
