<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
MARCH 31, 1997 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
23,544,214 Shares of Common Stock were outstanding as of March 31, 1997.
1 of 11<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
TBC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
March 31, December 31,
1997 1996
(Unaudited)
CURRENT ASSETS
Accounts and notes receivable, less
allowance for doubtful accounts
of $9,068 on March 31, 1997
and $8,879 on December 31, 1996:
Related parties $ 21,532 $ 18,362
Other 67,059 67,444
Total accounts and notes receivable 88,591 85,806
Inventories 83,199 71,102
Deferred income taxes 6,638 6,716
Other current assets 7,869 8,409
Total current assets 186,297 172,033
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land and improvements 5,135 5,285
Buildings and leasehold improvements 21,444 21,691
Furniture and equipment 26,963 25,929
53,542 52,905
Less accumulated depreciation 19,253 17,818
Total property, plant and equipment 34,289 35,087
TRADEMARKS, NET 17,675 17,787
GOODWILL, NET 14,806 14,900
OTHER ASSETS 14,608 14,075
TOTAL ASSETS $267,675 $253,882
See accompanying notes to consolidated financial statements.
-2-<PAGE>
TBC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
1997 1996
(Unaudited)
CURRENT LIABILITIES
Outstanding checks, net $ 2,828 $ 559
Notes payable to banks 32,119 21,092
Current portion of long-term debt 1,133 1,537
Accounts payable, trade 15,422 16,761
Federal and state income taxes payable 1,375 106
Other current liabilities 13,390 13,998
Total current liabilities 66,267 54,053
LONG-TERM DEBT, LESS CURRENT PORTION 69,501 69,550
NONCURRENT LIABILITIES 2,805 2,753
DEFERRED INCOME TAXES 7,589 7,721
STOCKHOLDERS' EQUITY
Common stock, $.10 par value,
shares issued and outstanding -
23,544 on March 31, 1997 and
23,727 on December 31, 1996 2,354 2,373
Additional paid-in capital 9,588 9,624
Retained earnings 109,571 107,808
Total stockholders' equity 121,513 119,805
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $267,675 $253,882
See accompanying notes to consolidated financial statements.
-3-<PAGE>
TBC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months
Ended March 31,
1997 1996
NET SALES* $144,367 $124,005
COSTS AND EXPENSES
Cost of sales 123,071 110,065
Distribution 7,083 4,677
Selling and administrative 8,152 3,800
Interest expense 1,421 574
Other (income) expense - net (695) (577)
Total costs and expenses 139,032 118,539
INCOME BEFORE INCOME TAXES 5,335 5,466
PROVISION FOR INCOME TAXES 2,104 2,077
NET INCOME $ 3,231 $ 3,389
Earnings per share $ .14 $ .14
Weighted average number of shares
and equivalents outstanding 23,716 23,837
* Including sales to related parties of $34,707 and $32,826 in the
three months ended March 31, 1997 and 1996, 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
Three Months Ended
March 31, 1996
BALANCE, JANUARY 1, 1996 23,784 $2,378 $ 9,543 $ 92,902 $104,823
Net income for period 3,389 3,389
Forfeiture of restricted
stock (2) - - - -
BALANCE, MARCH 31, 1996 23,782 $2,378 $ 9,543 $ 96,291 $108,212
Three Months Ended
March 31, 1997
BALANCE, JANUARY 1, 1997 23,727 $2,373 $ 9,624 $107,808 $119,805
Net income for period 3,231 3,231
Issuance of common stock
under stock option and
incentive plans 6 - 35 - 35
Repurchase and retirement
of common stock (189) (19) (76) (1,468) (1,563)
Tax benefit from exercise
of stock options - - 5 - 5
BALANCE, MARCH 31, 1997 23,544 $2,354 $ 9,588 $109,571 $121,513
See accompanying notes to consolidated financial statements.
-5-<PAGE>
TBC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months
Ended March 31,
1997 1996
OPERATING ACTIVITIES
Net income $ 3,231 $ 3,389
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,590 1,234
Amortization 242 28
Deferred income taxes (54) (66)
Equity in earnings from joint ventures (144) (39)
Changes in operating assets and liabilities:
Receivables (2,912) 647
Inventories (12,097) (5,727)
Other current assets 540 (528)
Other assets (298) 8
Outstanding checks, net 2,269 144
Accounts payable, trade (1,339) 1,954
Federal and state income taxes
refundable or payable 1,274 1,984
Other current liabilities (608) (302)
Noncurrent liabilities 52 42
Net cash provided by (used in)
operating activities (8,254) 2,768
INVESTING ACTIVITIES
Purchase of property, plant and equipment (1,267) (811)
Other, net 475 13
Net cash used in investing activities (792) (798)
FINANCING ACTIVITIES
Net bank borrowings (repayments) under
short-term borrowing arrangements 11,027 (1,911)
Payments on long-term debt (453) (59)
Issuance of common stock under stock option and
incentive plans 35 -
Repurchase and retirement of common stock (1,563) -
Net cash provided by (used in)
financing activities 9,046 (1,970)
Increase (decrease) in Cash and Cash Equivalents - -
CASH AND CASH EQUIVALENTS
Balance - Beginning of period - -
Balance - End of period $ - $ -
Supplemental Disclosures of Cash Flow Information:
Cash paid for - Interest $ 1,399 $ 799
- Income taxes 884 159
Supplemental Disclosure of Non-Cash Financing
Activity:
Tax benefit from exercise of stock options $ 5 $ -
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 March 31, 1997, and the
consolidated statements of income, stockholders' equity and cash flows
for the three months ended March 31, 1997 and 1996, 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, 1997 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 1996
Annual Report.
Certain reclassifications have been made in the statement of income
for the three months ended March 31, 1996 to conform to the current
presentation, with no effect on previously reported net income.
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.
Statement of Financial Accounting Standards No. 128, "Earnings per
Share", was issued in February 1997 and established new standards for
computing and presenting earnings per share. The Company is required to
adopt this statement beginning with the annual financial statements for the
year ended December 31, 1997; however, the impact is not expected to be
material.
3. Other Assets
Other assets consist of the following (in thousands):
March 31, December 31,
1997 1996
Notes receivable $ 9,401 $ 9,274
Investments in joint ventures 2,571 2,433
Intangible assets, net of amortization 826 831
Other 1,810 1,537
$14,608 $14,075
-7-<PAGE>
TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Other Assets (continued)
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 $308,000 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. In October
1994, the Court granted the Company's motion to exclude evidence of any
oral cancellation of the guarantees. That order was reversed by the
Court of Appeals on March 7, 1997, which held, in substance, among other
things, that the defendants should not be barred from offering evidence
to support their defenses of waiver/abandonment and estoppel, subject to
the trial court's rulings on the admissibility of any evidence so offered.
The Company has until May 6, 1997 to apply to the Supreme Court of
Tennessee for permission to appeal that reversal. The Company believes,
on the basis of applicable Tennessee law, that the defendants' defenses
are invalid and that there is no merit to the third party complaint. 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.
-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 increased from $118.0 million at December 31, 1996 to $120.0 million
at March 31, 1997. Inventories increased by $12.1 million during the
current quarter, in anticipation of increased seasonal sales demand. The
composite total owed to banks and vendors, in the form of outstanding
checks, notes payable to banks and accounts payable, increased $12.0 million
from December 31, 1996 to March 31, 1997. This increase, together with cash
generated from operations, enabled the Company to fund the above-noted
increase in inventories, as well as normally recurring capital expenditures
during the first three months of 1997.
Results of Operations
As a result of the Company's acquisition of Big O Tires, Inc. on July
10, 1996, there are a number of significant changes in income statement
items between the three months ended March 31, 1997 and the year-earlier
period.
Net sales increased 16.4% during the first quarter compared to the
year-earlier level, due principally to the addition of sales by Big O in
1997. Sales of tires accounted for approximately 93% of total sales in
the first quarter of 1997 versus 86% in the first three months of 1996, as
a result of the Company's decision in December 1996 to discontinue the
marketing of certain non-tire products such as batteries, wheels and ride
control products to TBC's independent distributors. Excluding the
contribution by Big O, TBC's unit tire volume increased 7.7% compared to the
prior year first quarter and the average tire sales price decreased 5.2%.
The lower average sales price was principally due to the effects of
industry-wide price discounting after the first quarter of 1996.
Cost of sales as a percentage of net sales decreased from 88.8% in
the first quarter of 1996 to 85.2% in the current quarter. The
fluctuation was due principally to the positive effects of the Big O
acquisition, including the Company's improved overall sourcing strength.
Distribution expenses increased $2.4 million in the current quarter
compared to the year-earlier level, due primarily to Big O warehousing and
product delivery expenses totaling $1.9 million in the current quarter.
The 1997 increase was also related to an increase in the percentage of
shipments through the Company's distribution facilities rather than
direct from manufacturers.
Selling and administrative expenses increased $4.4 million from the
level in the first quarter of 1996. This increase was due to expenses
recorded in the current quarter of $3.8 million for Big O and $810,000 for
a one-time charge associated with an early retirement program accepted by
certain employees. Excluding these items, selling and administrative
expenses declined 7.6% compared to the year-earlier level.
Interest expense increased $847,000 in the current quarter compared to
the first quarter of 1996. This net increase was due to the additional
long-term borrowings incurred to finance the Big O acquisition, partially
offset by the impact of lower average short-term bank borrowings in the
current quarter.
Net other income did not change significantly in the first three months
of 1997 compared to the year-earlier level.
The Company's effective tax rate increased from 38.0% in the first
quarter of 1996 to 39.4% in the current quarter, due primarily to the
impact of the Big O acquisition.
-9-<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
None
(b) No reports on Form 8-K were filed during the three months ended
March 31, 1997.
-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
April 22, 1997 By /s/ Ronald E. McCollough
Ronald E. McCollough
Senior Vice President Operations
and Treasurer
(principal accounting and
financial officer)
-11-<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> (2,828)<F1>
<SECURITIES> 0
<RECEIVABLES> 97,659
<ALLOWANCES> 9,068
<INVENTORY> 83,199
<CURRENT-ASSETS> 186,297
<PP&E> 53,542
<DEPRECIATION> 19,253
<TOTAL-ASSETS> 267,675
<CURRENT-LIABILITIES> 66,267
<BONDS> 0
0
0
<COMMON> 2,354
<OTHER-SE> 119,159
<TOTAL-LIABILITY-AND-EQUITY> 267,675
<SALES> 144,367
<TOTAL-REVENUES> 144,367
<CGS> 123,071
<TOTAL-COSTS> 123,071
<OTHER-EXPENSES> 14,540
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 1,421
<INCOME-PRETAX> 5,335
<INCOME-TAX> 2,104
<INCOME-CONTINUING> 3,231
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,231
<EPS-PRIMARY> .14
<EPS-DILUTED> 0<F2>
<FN>
<F1>THIS ITEM IS SHOWN UNDER THE CATEGORY "OUTSTANDING CHECKS, NET" ON THE
CONSOLIDATED BALANCE SHEETS.
<F2>THESE ITEMS ARE NOT SEPARATELY REPORTED ON TBC CORPORATION'S FORM 10-Q.
</FN>
</TABLE>
