CONFORMED
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
__ SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
__ SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 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 executive offices) (Zip Code)
Registrant's telephone number, including area code: (901) 363-8030
Indicate by check 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
21,175,842 Shares of Common Stock were outstanding as of June 30, 1999.
1 of 12
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
TBC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
June 30, December 31,
1999 1998
CURRENT ASSETS: (Unaudited)
Cash and cash equivalents $ 1,081 $ 1,699
Accounts and notes receivable, less
allowance for doubtful accounts of
$9,630 on June 30, 1999 and
$9,298 on December 31, 1998:
Related parties 12,900 8,472
Other 82,418 77,632
Total accounts and notes receivable 95,318 86,104
Inventories 122,119 124,720
Refundable federal and state income taxes 3,107 1,477
Deferred income taxes 8,174 7,653
Other current assets 13,588 10,072
Total current assets 243,387 231,725
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land and improvements 10,012 8,453
Buildings and leasehold improvements 31,677 29,954
Furniture and equipment 36,067 30,821
77,756 69,228
Less accumulated depreciation 28,287 25,146
Total property, plant and equipment 49,469 44,082
TRADEMARKS, NET 16,662 16,887
GOODWILL, NET 20,565 20,747
OTHER ASSETS 17,784 20,349
TOTAL ASSETS $ 347,867 $ 333,790
See accompanying notes to consolidated financial statements.
-2-
TBC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1999 1998
CURRENT LIABILITIES: (Unaudited)
Outstanding checks, net $ 9,970 $ 5,677
Notes payable to banks 59,074 49,952
Current portion of long-term debt 7,861 7,860
Accounts payable, trade 39,667 43,731
Other current liabilities 17,651 18,689
Total current liabilities 134,223 125,909
LONG-TERM DEBT, LESS CURRENT PORTION 58,833 59,653
NONCURRENT LIABILITIES 3,350 2,612
DEFERRED INCOME TAXES 6,893 7,185
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value,
shares issued and outstanding -
21,176 on June 30, 1999 and
21,172 on December 31, 1998 2,118 2,117
Additional paid-in capital 9,597 9,540
Retained earnings 132,853 126,774
Total stockholders' equity 144,568 138,431
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 347,867 $ 333,790
See accompanying notes to consolidated financial statements.
-3-
TBC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
Three Months Six Months
Ended June 30, Ended June 30,
<CAPTION>
1999 1998 1999 1998
<S> <C> <C> <C> <C>
NET SALES * $187,664 $161,923 $349,866 $302,658
COSTS AND EXPENSES:
Cost of sales 154,553 137,148 288,932 255,549
Distribution 10,991 8,186 20,615 15,931
Selling and administrative 11,682 8,877 22,014 17,349
Provision for doubtful accounts and notes 4,821 172 5,179 314
Interest expense 1,645 1,552 3,487 2,992
Other (income) expense - net (8) (171) (604) (753)
Total costs and expenses 183,684 155,764 339,623 291,382
INCOME BEFORE INCOME TAXES 3,980 6,159 10,243 11,276
PROVISION FOR INCOME TAXES 1,670 2,440 4,127 4,407
NET INCOME $ 2,310 $ 3,719 $ 6,116 $ 6,869
EARNINGS PER SHARE -
Basic and diluted $ .11 $ .16 $ .29 $ .30
*Including sales to related parties of $19,647 and $35,784 in the
three months ended June 30, 1999 and 1998, respectively and
$36,122 and $69,800 in the six months ended June 30, 1999 and
1998, respectively.
See accompanying notes to consolidated financial statements.
</TABLE>
-4-
TBC CORPORATION
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
Number of Paid-In Retained
Shares Amount Capital Earnings Total
Six Months Ended
June 30, 1998
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 23,163 $2,316 $ 9,788 $122,083 $134,187
Net income for period 6,869 6,869
Issuance of common stock under
stock option and incentive plan 84 8 626 - 634
Repurchase and retirement
of common stock (164) (16) (70) (1,383) (1,469)
Tax benefit from exercise of
stock options - - 57 - 57
BALANCE, JUNE 30, 1998 23,083 $2,308 $10,401 $127,569 $140,278
Six Months Ended
June 30, 1999
BALANCE, JANUARY 1, 1999 21,172 $2,117 $ 9,540 $126,774 $138,431
Net income for period 6,116 6,116
Issuance of common stock under
stock option and incentive plan 9 1 55 - 56
Repurchase and retirement
of common stock (5) - (3) (37) (40)
Tax benefit from exercise of
stock options - - 5 - 5
BALANCE, JUNE 30, 1999 21,176 $2,118 $ 9,597 $132,853 $144,568
See accompanying notes to consolidated financial statements.
</TABLE>
-5-
TBC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months
Ended June 30,
1999 1998
Operating Activities:
Net income $ 6,116 $ 6,869
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 3,353 3,302
Amortization 530 486
Provision for doubtful accounts and notes 5,179 314
Deferred income taxes (813) 140
Equity in earnings from joint ventures 368 102
Changes in operating assets
and liabilities:
Receivables (12,477) (12,973)
Inventories 2,601 (4,927)
Other current assets (3,486) 1,386
Other assets 194 219
Accounts payable, trade (4,064) 21,432
Federal and state income taxes
refundable or payable (1,625) 299
Other current liabilities (1,038) (1,534)
Noncurrent liabilities 738 (501)
Net cash provided by (used in) operating activities (4,424) 14,614
Investing Activities:
Purchase of property, plant and equipment (9,055) (4,764)
Investments in joint ventures - (395)
Other 279 213
Net cash used in investing activities (8,776) (4,946)
Financing Activities:
Net bank borrowings (repayments) under
short-term borrowing arrangements 9,122 (10,819)
Increase (decrease) in outstanding checks, net 4,293 2,665
Payments on long-term debt (819) (145)
Issuance of common stock under stock option
and incentive plans 26 318
Repurchase and retirement of common stock (40) (1,469)
Net cash provided by (used in) financing activities 12,582 (9,450)
Change in cash and cash equivalents (618) 218
Cash and cash equivalents:
Balance - Beginning of year 1,699 917
Balance - End of period $ 1,081 $ 1,135
Supplemental Disclosures of Cash Flow Information:
Cash paid for - Interest $ 3,670 $ 3,199
- Income Taxes 6,565 3,968
Supplemental Disclosure of Non-Cash Financing Activity:
Tax benefit from exercise of stock options $ 5 $ 57
Issuance of restricted stock under stock incentive plan 30 316
See accompanying notes to consolidated financial statements.
-6-
TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Financial Statement Presentation
The December 31, 1998 balance sheet was derived from audited
financial statements. The consolidated balance sheet as of June 30,
1999, and the consolidated statements of income, stockholders' equity
and cash flows for the periods ended June 30, 1999 and 1998, 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 June
30, 1999 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 1998 Annual Report.
Certain reclassifications have been made in the statements of
income and statements of cash flows for the periods ended June 30,
1998, to conform to the current presentation, with no effect on
previously reported net income.
2. Earnings Per Share
Basic earnings per share have been computed by dividing net
income by the weighted average number of shares of common stock
outstanding. Diluted earnings per share have been computed by
dividing net income by the weighted average number of common shares
and equivalents outstanding. Common share equivalents represent
shares issuable upon assumed exercise of stock options. The weighted
average number of common shares and equivalents outstanding were as
follows (in thousands):
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
Weighted average common
shares outstanding 21,175 23,082 21,173 23,095
Common share equivalents 17 71 14 93
Weighted average common shares
and equivalents outstanding 21,192 23,153 21,187 23,188
-7-
TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Other Assets
Other assets consist of the following (in thousands):
June 30, December 31,
1999 1998
Notes receivable $ 7,147 $ 9,063
Investments in joint ventures 7,010 7,436
Other intangible assets, net 640 651
Other 2,987 3,199
$17,784 $20,349
At December 31, 1998, the notes receivable total included a note
for $4,897,000 from a former distributor, Wall Tire Distributors, Inc.
The Company held written guarantees from the distributor's former
owners, Gene and Geraldine Wall and Joe and Helen Wall, and filed suit
in the Chancery Court of Shelby County, Tennessee in 1989 to recover
under the guarantees. The lawsuit was tried and a decision was reached
on July 1, 1999 in favor of the Walls. As a result, the Company
recorded a charge to earnings in the second quarter of 1999 of
$4,589,000, which equaled the balance of the note less $308,000
previously received under a related bankruptcy proceeding.
-8-
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 totaled $109.2 million at June 30, 1999 compared to $105.8
million at December 31, 1998. Current accounts and notes receivable
increased by $9.2 million during the first half of 1999, due primarily to
seasonal fluctuations. Inventories decreased by $2.6 million during the
first six months of 1999, due principally to improved efforts to minimize
inventory levels while maintaining high service levels. As discussed in
Note 3 to the consolidated financial statements, other assets were $2.6
million lower at June 30, 1999 than at December 31, 1998 due primarily to
the write-off of a $4.9 million note from a former distributor, for which the
Company recorded a charge to earnings during the current quarter.
Partially offsetting the effect on other assets of this write-off was the
conversion of amounts due from one customer from an account receivable to a
note receivable, of which $3.1 million was classified as noncurrent at June
30, 1999.
The net total owed to banks and vendors, consisting of the combined
balances of cash and cash equivalents, outstanding checks, notes payable to
banks and accounts payable, increased by $10.0 million from December 31,
1998 to June 30, 1999. This increase was principally related to the
previously-noted increase in current receivables as well as capital
expenditures totaling $9.1 million during the first six months of 1999.
These amounts outweighed the effects of positive cash generated from
operations during the first half of 1999 and the above-noted reduction in
inventory levels.
Results of Operations
As a result of the Company's acquisition of Carroll's, Inc.
(Carroll's) on November 19, 1998, there are a number of significant changes
in income statement items between the periods ended June 30, 1999 and the
year-earlier periods. Carroll's, a wholesale distributor of tires and
automotive products in the Southeast, was the Company's largest customer
and was classified as a related party in the consolidated financial
statements prior to the acquisition.
Net sales increased 15.9% during the second quarter and 15.6% during
the first six months of 1999 compared to the year-earlier levels. Sales of
tires accounted for approximately 93% of total sales during the current
quarter and first half of 1999 versus 94% in the second quarter of 1998 and
95% in the first six months of 1998. Unit tire shipments increased
approximately 10.2% in the second quarter and 8.3% in the first six months,
compared to the year-earlier results. The average tire sales price
increased by approximately 3.8% in the current quarter and 5.5% in the
year-to-date period, compared to the levels in the same periods of 1998.
Both the increased unit tire volume and higher average tire sales prices
were due principally to the positive impact of the Carroll's acquisition.
Excluding the net impact of the Carroll's acquisition on 1999 results, net
sales increased 2.5% in the current quarter and 1.8% in the year-to-date
period. Excluding the Carroll's impact, unit tire volume increased 1.3% in
the second quarter and 1.2% in the first half of 1999, while the average
tire sales price declined 0.5% in the current quarter and 0.8% in the year-
to-date period. Industrywide pricing pressures, prevalent throughout most
of the last three years, have continued into the current year.
-9-
Cost of sales as a percentage of net sales decreased from 84.7% in
the second quarter of 1998 to 82.4% in the current quarter. For the year-
to-date period, cost of sales declined from 84.4% in 1998 to 82.6% in 1999.
The reduction was due largely to the positive impact of the Carroll's
acquisition. In addition, an increased percentage of shipments to
franchised retail dealers favorably affected margins and caused cost of
sales as a percentage of net sales, excluding the Carroll's impact, to be
lower than in the same periods of the prior year. Gross margin percentages
on sales to franchised retailers are generally higher than on shipments to
the Company's other customers.
Distribution expenses as a percentage of net sales increased from
5.1% in the second quarter of 1998 to 5.9% in the current quarter, and from
5.3% in the first six months of 1998 to 5.9% in the first half of 1999.
The increase was largely due to the greater costs for labor and other
warehousing items associated with servicing the customers of Carroll's
compared to much of the Company's other customer base. Excluding the
effects of the Carroll's acquisition, distribution expenses were 5.2% of
net sales in the current period and 5.3% in the first half of 1999.
Selling and administrative expenses increased $2.8 million in the
second quarter of 1999 and $4.7 million in the first six months of 1999
compared to the year-earlier levels, due principally to the effects of the
Carroll's acquisition. Excluding the expenses of Carroll's, which totaled
$2.0 million in the current period and $3.6 million in the first six months
of 1999, selling and administrative expenses increased compared to the 1998
levels due primarily to increases in salaries and other compensation-
related expenses.
The provision for doubtful accounts and notes in the second quarter
and first six months of 1999 was greater than in the year-earlier periods,
due to the $4.6 million charge recorded in the current period in conjunction
with a note receivable from a former distributor. See Note 3 to the
consolidated financial statements.
Interest expense increased $93,000 in the second quarter and
$495,000 in the year-to-date period compared to the year-earlier levels,
due to higher short-term borrowing levels which more than offset a
reduction in short-term borrowing rates. Short-term borrowings of $28.2
million were used to fund the November 1998 acquisition of Carroll's and
were thus higher in the second quarter and first half of 1999 than in the
year-earlier periods.
The Company's effective tax rate was 42.0% in the current quarter
compared to 39.6% in the second quarter of 1998. For the first six months,
the effective tax rate was 40.3% in 1999 compared to 39.1% in 1998. The
increases were related primarily to state income taxes, due in part to the
effects of the Carroll's acquisition.
Earnings per share in the second quarter and first six months of 1999
included the net impact of the above-mentioned $4.6 million charge associated
with a note receivable which had been the subject of litigation since 1989.
The net impact of this charge on earnings per share was $0.13. Excluding the
effect of this charge, earnings per share increased 50% in the second quarter
and 40% in the first six months of 1999, compared to the year-earlier levels.
-10-
Year 2000 Readiness
The Company has addressed all significant year 2000 issues, including
its business systems, processes and essential equipment, and estimates that
it has completed approximately 95% of the work that will be required. The
Company believes that all necessary work will be completed before December
31, 1999. The overall costs to prepare the Company for the year 2000 are
not considered material to the Company's financial position or results of
operation.
The Company believes the risk of business disruption presented by
potentially unresolved year 2000 issues is minimal. All internal systems
have been subjected to review and those presenting possible year 2000
issues are being replaced or corrected. The Company's customers and
significant suppliers have been contacted and are aware of their
obligations to address their own year 2000 issues. The Company believes
that both its major customers and suppliers have adequate resources to
properly address their own year 2000 concerns. No significant impact on
customer demand is anticipated, especially considering the relatively
straightforward nature of the business of the Company and its customers.
The Company does not anticipate any difficulty in continuing to purchase
products from its major suppliers in sufficient quantities to meet customer
demand.
The nature of the Company's principal business of wholesale
distribution creates an environment of relatively low transaction volumes
that can be conducted on a temporary basis with manual contingency systems.
In the event of an unforseen internal year 2000 problem, contingency plans
currently in place for temporary computer system problems or outages would
be utilized. The Company's inventories typically include reserve stock
that would allow it to provide product to its customers in the event of a
temporary disruption in product supply. Alternate suppliers exist and
could potentially be utilized if necessary.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not consider its exposure to market risk to be
material.
PART II.OTHER INFORMATION
Item 1. Legal Proceedings
The information required by this Item 1 is set forth in Note 3 to
the consolidated financial statements and is incorporated herein by this
reference.
-11-
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on April 28,
1999, Messrs. Richard A. McStay and Robert R. Schoeberl were elected as
directors of the Company for a term expiring at the 2002 Annual Meeting of
Stockholders.
The number of shares of Common Stock voted for each director
elected at the Annual Meeting and the number of shares with respect to
which authority to vote for each such director was withheld are as follows:
16,634,071 shares were voted for Mr. McStay and authority to vote 1,965,749
shares for Mr. McStay was withheld; 16,637,173 shares were voted for Mr.
Schoeberl and authority to vote 1,962,647 shares for Mr. Schoeberl was
withheld.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
None
(b) During the quarter ended June 30, 1999, the Company filed a
Current Report on Form 8-K dated July 1, 1999, providing under
Item 5, _Other Events_, information relative to a charge
recorded in the second quarter of 1999 associated with
litigation involving a note receivable from a former
distributor. See Note 3 of this Form 10-Q for additional
information.
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
July 27, 1999 By /s/ Ronald E. McCollough
Ronald E. McCollough
Executive Vice President,
Chief Financial Officer
and Treasurer
-12-
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> (8889)<F1>
<SECURITIES> 0
<RECEIVABLES> 104948
<ALLOWANCES> 9630
<INVENTORY> 122119
<CURRENT-ASSETS> 243387
<PP&E> 77756
<DEPRECIATION> 28287
<TOTAL-ASSETS> 347867
<CURRENT-LIABILITIES> 134223
<BONDS> 0
0
0
<COMMON> 2118
<OTHER-SE> 142450
<TOTAL-LIABILITY-AND-EQUITY> 347867
<SALES> 349866
<TOTAL-REVENUES> 349866
<CGS> 288932
<TOTAL-COSTS> 288932
<OTHER-EXPENSES> 42025
<LOSS-PROVISION> 5179
<INTEREST-EXPENSE> 3487
<INCOME-PRETAX> 10243
<INCOME-TAX> 4127
<INCOME-CONTINUING> 6116
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6116
<EPS-BASIC> .29<F2>
<EPS-DILUTED> .29
<FN>
<F1>THIS ITEM IS SHOWN NET OF "OUTSTANDING CHECKS, NET" ON THE CONSOLIDATED
BALANCE SHEETS.
<F2>AMOUNT IS "BASIC" EPS AS COMPUTED PER FASB STATEMENT NO. 128.
</FN>
</TABLE>
