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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
MARCH 31, 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
28,345,714 Shares of Common Stock were outstanding as of March 31, 1994.
INDEX TO EXHIBITS at page 11 of this Report<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
TBC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
March 31, December 31,
1994 1993
(Unaudited)
CURRENT ASSETS
Accounts and notes receivable, less
allowance for doubtful accounts
of $8,112 on March 31, 1994
and $7,828 on December 31, 1993:
Related parties $ 25,931 $ 14,207
Other 88,272 83,743
Total accounts and notes receivable 114,203 97,950
Inventories 40,098 43,313
Deferred federal income taxes 2,200 2,166
Other current assets 1,831 1,881
Total current assets 158,332 145,310
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land and improvements 1,545 1,545
Buildings 8,503 8,503
Equipment 16,743 16,370
Furniture and fixtures 1,611 1,606
Leasehold improvements 600 600
29,002 28,624
Less accumulated depreciation 13,968 13,196
Total property, plant and equipment 15,034 15,428
OTHER ASSETS 8,452 6,008
TOTAL ASSETS $181,818 $166,746
See accompanying notes to consolidated financial statements.
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TBC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
1994 1993
(Unaudited)
CURRENT LIABILITIES
Outstanding checks, net $ 6,755 $ 981
Notes payable to banks 15,882 26,091
Accounts payable, trade 30,534 18,482
Federal and state income taxes payable 2,894 84
Other current liabilities 4,597 4,558
Total current liabilities 60,662 50,196
STOCKHOLDERS' EQUITY
Common stock, $.10 par value,
shares issued and outstanding -
28,346 on March 31, 1994 and
28,377 on December 31, 1993 2,835 2,838
Additional paid-in capital 11,163 11,056
Retained earnings 107,158 102,656
Total stockholders' equity 121,156 116,550
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $181,818 $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
Ended March 31,
1994 1993
NET SALES* $133,780 $125,665
COSTS AND EXPENSES
Cost of sales 120,963 112,319
Distribution 1,979 2,169
Selling and administrative 3,098 3,498
Other (income) expense - net (463) (289)
Total costs and expenses 125,577 117,697
INCOME BEFORE INCOME TAXES 8,203 7,968
PROVISION FOR INCOME TAXES 3,117 2,948
NET INCOME $ 5,086 $ 5,020
Earnings per share $ .18 $ .17
Weighted average number of shares
and equivalents outstanding 28,514 29,228
* Including sales to related parties of $37,640 and $34,441 in the
three months ended March 31, 1994 and 1993, respectively.
See accompanying notes to consolidated financial statements.
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TBC CORPORATION
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
Common Stock Additional
Number of Paid-In Retained
Shares Amount Capital Earnings Total
Three Months Ended
March 31, 1993
BALANCE, JANUARY 1, 1993 29,032 $2,903 $10,593 $ 89,464 $102,960
Net income for period 5,020 5,020
Issuance of common stock
under stock option and
incentive plans 14 1 213 - 214
Repurchase and retirement
of common stock (35) (3) (13) (614) (630)
BALANCE, MARCH 31, 1993 29,011 $2,901 $10,793 $ 93,870 $107,564
Three Months Ended
March 31, 1994
BALANCE, JANUARY 1, 1994 28,377 $2,838 $11,056 $102,656 $116,550
Net income for period 5,086 5,086
Issuance of common stock
under stock option and
incentive plans 16 2 84 - 86
Repurchase and retirement
of common stock (47) (5) (18) (584) (607)
Tax benefit from exercise
of stock options - - 41 - 41
BALANCE, MARCH 31, 1994 28,346 $2,835 $11,163 $107,158 $121,156
See accompanying notes to consolidated financial statements.
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TBC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months
Ended March 31,
1994 1993
OPERATING ACTIVITIES
Net income $ 5,086 $ 5,020
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 966 913
Amortization 23 20
Deferred federal income taxes (34) (30)
Changes in operating assets and liabilities:
Receivables (18,723) (10,885)
Inventories 3,215 (15,349)
Other current assets 50 (400)
Outstanding checks, net 5,774 4,628
Accounts payable, trade 12,052 (6,701)
Federal and state income taxes payable 2,851 2,049
Other current liabilities 39 113
Net cash provided by (used in)
operating activities 11,299 (20,622)
INVESTING ACTIVITIES
Purchase of property, plant and equipment (602) (658)
Other, net 33 3
Net cash used in investing activities (569) (655)
FINANCING ACTIVITIES
Net bank borrowings (repayments) under
short-term borrowing arrangements (10,209) 19,822
Issuance of common stock under stock option and
incentive plans 86 214
Repurchase and retirement of common stock (607) (630)
Net cash provided by (used in)
financing activities (10,730) 19,406
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 $ 224 $ 284
- Income taxes 300 929
Supplemental Disclosure of Non-Cash Financing
Activity:
Tax benefit from exercise of stock options $ 41 $ -
See accompanying notes to consolidated financial statements.
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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.Financial Statement Presentation
The consolidated balance sheet as of March 31, 1994, and the consolidated
statements of income, stockholders' equity and cash flows for the three
months ended March 31, 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 March 31, 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.
3.Other Assets
Other assets consist of the following (in thousands):
March 31, December 31,
1994 1993
Notes receivable $7,928 $5,458
Intangible assets, net of amortization 523 546
Other 1 4
$8,452 $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 a proceeding under
Chapter 11 of the Bankruptcy Code in 1991. 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, in substance, the fact that they sold their interests
in the distributor after they signed the guarantees and the Company
continued to do business with the distributor thereafter. The defendants
have also filed a third party complaint against the Company's 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. Trial has been
adjourned until September 12, 1994, by reason of the illness of
defendants' attorney. 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.
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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 increased from $95.1 million at December 31, 1993, to $97.7 million
at March 31, 1994. Current accounts and notes receivable increased by
$16.3 million due principally to seasonal sales fluctuations. Inventories
declined by $3.2 million during the current quarter, related to increased
efforts to minimize inventory levels while maintaining high service levels.
Other assets increased $2.4 million due 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 $7.6 million from December 31, 1993 to March 31, 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 47,000
shares of common stock and normally recurring capital expenditures during
the first three months of 1994.
Results of Operations
Net sales increased 6.5% during the first quarter compared to the
year-earlier level, due primarily to a 13.3% increase in unit tire volume,
partially offset by a 3.5% decline in the average tire sales price and a
reduction in non-tire sales. The gain in unit tire shipments reflected an
unusually favorable trend in industrywide shipments during the first
quarter, as earlier purchases were made by customers in response to
announced industry price increases. Sales of tires accounted for
approximately 88% of total sales in the current quarter, compared to 86% in
the first quarter of 1993.
Cost of sales as a percentage of net sales increased from 89.4% in the
first quarter of 1993 to 90.4% in the current quarter, as increased
competitive conditions following the first quarter of 1993 led to higher
net product costs from suppliers. In addition, net product costs in the
first quarter of 1993 were favorably affected by greater interest income on
early payments to suppliers. A relatively high level of purchases in late
1992 and early 1993, associated with newly-introduced marketing programs
and expanded distribution facilities, increased the availability of early
payment interest during the first quarter of 1993.
Distribution expenses decreased 8.8% in the current quarter compared
to the year-earlier level. The decrease was due principally to a reduction
in inventory levels compared to the first quarter of 1993, which led to
lower operating expenses, including a reduction in labor costs.
Selling and administrative expenses decreased $400,000 from the level
in the first quarter of 1993. This reduction was principally due to a
decrease in compensation-related expenses, including the provision for
stock appreciation rights.
Net other income was higher in the first quarter of 1994 compared to
the year-earlier level, due primarily to a decrease in interest expense.
The lower average inventory levels in the current quarter led to a
reduction in bank borrowings.
The Company's effective tax rate increased from 37.0% in the first quarter
of 1993 to 38.0% in the current quarter, due to the higher Federal tax rate
associated with the tax legislation enacted after the first quarter of the
prior year.
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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
March 31, 1994.
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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
May 10, 1994 By/s/ Ronald E. McCollough
Ronald E. McCollough
Senior Vice President
Operations
(principal accounting and
financial officer)
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INDEX TO EXHIBITS
Located at
Sequentially-
Exhibit No. Description Numbered
Page
(10) MATERIAL CONTRACTS:
Management Contracts and Compensatory Plans or Arrangements
10.1 Agreement to Extend Executive Employment Agreement,
between the Company and Mr. Louis S. DiPasqua
effective January 20, 1994 .......................... 12
Other Material Contracts
10.2 Ten-Year Commitment agreement, dated March 21, 1994,
between the Company and The Kelly-Springfield Tire
Company ............................................. 13
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Exhibit 10.1
TBC CORPORATION
AGREEMENT TO EXTEND
EXECUTIVE EMPLOYMENT AGREEMENT
WITH
LOUIS S. DiPASQUA
Effective as of January 20, 1994, the undersigned hereby agree to extend
the Executive Employment Agreement between them dated February 18, 1991, as
amended on July 1, 1992, on the same terms and conditions, for a period of
one year until January 31, 1995.
The amount of the Executive's salary referred to in Section 3 of said
Executive Employment Agreement shall not be less than $318,340.00 per year.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
TBC CORPORATION
By /s/ Marvin E. Bruce
Chairman and Chief Executive
Officer
/s/ Louis S. DiPasqua
LOUIS S. DiPASQUA
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Exhibit 10.2
THE KELLY-SPRINGFIELD TIRE COMPANY
(KELLY)
AND
TBC CORPORATION
(TBC)
10-YEAR COMMITMENT
This Commitment, made this 21st day of March, 1994, by and between THE
KELLY-SPRINGFIELD TIRE COMPANY, a Maryland corporation (hereinafter called
"Kelly"), and TBC CORPORATION, a Delaware corporation, of Memphis,
Tennessee (hereinafter called "TBC"), WITNESSETH:
Kelly has been supplying tires to TBC and TBC has been purchasing tires
from Kelly since 1963.
Kelly and TBC now desire to strengthen their business relationship by
pledging continued support to each other for the next 10 years as they look
ahead to the 21st century and to new growth and strong leadership in the
custom brands segment of the replacement tire industry.
As a long-term reliable supplier, Kelly pledges the following levels of
support to TBC over the next 10 years: The assignment of a tire engineer
to work closely with TBC's purchasing and engineering group to provide TBC
with the latest and most innovative technology; continued high levels of
inventory availability through the joint pursuit of advanced methods to
determine the most accurate and efficient production and inventory levels
required to meet current and future demand; and exchange of such marketing
information which will allow both companies to achieve the highest levels
of service to each other in all areas of their individual operations.
As a long-term reliable customer, TBC pledges over the next 10 years
continued loyalty in its purchases of products manufactured by Kelly as
these business partners strive to provide state-of-the-art tire products to
their customers, current and new, both in the United States and abroad, as
they carry the replacement tire market into the 21st century and beyond as
leaders in the industry.
While this commitment is subject to the changing needs of both business
partners and to the changing needs of the replacement tire market, and to
the terms and provisions of the parties' October 1, 1977 Supply Agreement,
Kelly and TBC agree to a long-term pledge of cooperation and teamwork as
they strive to build and grow their own companies and the entire custom
brands market in the replacement tire industry.
THE KELLY-SPRINGFIELD TIRE COMPANY
By /s/ Lee N. Fiedler
TBC CORPORATION
By /s/ Marvin E. Bruce
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