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 MARCH 31, 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
21,171,630 Shares of Common Stock were outstanding as of March 31, 1999.
1 of 11<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
TBC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
March 31, December 31,
1999 1998
CURRENT ASSETS: (Unaudited)
Cash and cash equivalents $ 1,018 $ 1,699
Accounts and notes receivable, less
allowance for doubtful accounts of
$9,415 on March 31, 1999 and
$9,298 on December 31, 1998:
Related parties 6,606 8,472
Other 75,417 77,632
Total accounts and notes receivable 82,023 86,104
Inventories 111,406 124,720
Refundable federal and state income taxes - 1,477
Deferred income taxes 7,687 7,653
Other current assets 12,574 10,072
Total current assets 214,708 231,725
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land and improvements 8,823 8,453
Buildings and leasehold improvements 30,893 29,954
Furniture and equipment 32,310 30,821
72,026 69,228
Less accumulated depreciation 26,620 25,146
Total property, plant and equipment 45,406 44,082
TRADEMARKS, NET 16,775 16,887
GOODWILL, NET 20,669 20,747
OTHER ASSETS 24,582 20,349
TOTAL ASSETS $ 322,140 $ 333,790
See accompanying notes to consolidated financial statements.
-2-<PAGE>
TBC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
1999 1998
CURRENT LIABILITIES: (Unaudited)
Outstanding checks, net $ 5,074 $ 5,677
Notes payable to banks 36,056 49,952
Current portion of long-term debt 7,860 7,860
Accounts payable, trade 45,528 43,731
Federal and state income taxes payable 4 -
Other current liabilities 16,420 18,689
Total current liabilities 110,942 125,909
LONG-TERM DEBT, LESS CURRENT PORTION 59,174 59,653
NONCURRENT LIABILITIES 2,631 2,612
DEFERRED INCOME TAXES 7,156 7,185
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value,
shares issued and outstanding -
21,172 on March 31, 1999 and
21,172 on December 31, 1998 2,117 2,117
Additional paid-in capital 9,540 9,540
Retained earnings 130,580 126,774
Total stockholders' equity 142,237 138,431
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 322,140 $ 333,790
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,
1999 1998
NET SALES * $ 162,202 $ 140,735
COSTS AND EXPENSES:
Cost of sales 134,379 118,401
Distribution 9,624 7,745
Selling and administrative 10,690 8,614
Interest expense 1,842 1,440
Other (income) expense - net (596) (582)
Total costs and expenses 155,939 135,618
INCOME BEFORE INCOME TAXES 6,263 5,117
PROVISION FOR INCOME TAXES 2,457 1,967
NET INCOME $ 3,806 $ 3,150
EARNINGS PER SHARE -
Basic and diluted $ .18 $ .14
*Including sales to related parties of $16,475 and $34,016 in the three
months ended March 31, 1999 and 1998, respectively.
See accompanying notes to consolidated financial statements.
-4-<PAGE>
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
Three Months Ended
March 31, 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 3,150 3,150
Issuance of common stock under
stock option and incentive plan 67 7 454 - 461
Repurchase and retirement
of common stock (164) (16) (69) (1,378) (1,463)
Tax benefit from exercise of
stock options - - 57 - 57
BALANCE, MARCH 31, 1998 23,066 $2,307 $10,230 $123,855 $136,392
Three Months Ended
March 31, 1999
BALANCE, JANUARY 1, 1999 21,172 $2,117 $9,540 $126,774 $138,431
Net income for period 3,806 3,806
BALANCE, MARCH 31, 1999 21,172 $2,117 $9,540 $130,580 $142,237
See accompanying notes to consolidated financial statements.
</TABLE>
-5-<PAGE>
TBC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months
Ended March 31,
1999 1998
Operating Activities:
Net income $ 3,806 $ 3,150
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,610 1,599
Amortization 234 243
Deferred income taxes (63) (23)
Equity in earnings from joint ventures (49) (58)
Changes in operating assets
and liabilities:
Receivables 563 (7,176)
Inventories 13,314 (12,089)
Other current assets (2,502) 1,866
Other assets (710) 179
Accounts payable, trade 1,797 22,546
Federal and state income taxes
refundable or payable 1,481 1,908
Other current liabilities (2,269) (1,890)
Noncurrent liabilities 19 86
Net cash provided by operating activities 17,231 10,341
Investing Activities:
Purchase of property, plant and equipment (2,992) (3,899)
Investments in joint ventures - (390)
Other 58 150
Net cash used in investing activities (2,934) (4,139)
Financing Activities:
Net bank borrowings (repayments) under
short-term borrowing arrangements (13,896) (3,644)
Increase (decrease) in outstanding checks, net (603) (2,185)
Payments on long-term debt (479) (140)
Issuance of common stock under stock option
and incentive plans - 313
Repurchase and retirement of common stock - (1,463)
Net cash used in financing activities (14,978) (7,119)
Change in cash and cash equivalents (681) (917)
Cash and cash equivalents:
Balance - Beginning of year 1,699 917
Balance - End of period $ 1,018 $ -
Supplemental Disclosures of Cash Flow Information:
Cash paid for - Interest $ 1,674 $ 1,545
- Income Taxes 1,039 82
Supplemental Disclosure of Non-Cash Financing Activity:
Tax benefit from exercise of stock options $ - $ 57
Issuance of restricted stock under stock incentive plan - 148
See accompanying notes to consolidated financial statements.
-6-<PAGE>
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 March 31,
1999, and the consolidated statements of income, stockholders' equity
and cash flows for the periods ended March 31, 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 March 31, 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.
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
Ended March 31,
1999 1998
Weighted average common
shares outstanding 21,172 23,107
Common share equivalents 9 111
Weighted average common shares
and equivalents outstanding 21,181 23,218
-7-<PAGE>
TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Other Assets
Other assets consist of the following (in thousands):
March 31, December 31,
1999 1998
Notes receivable $ 12,581 $ 9,063
Investments in joint ventures 7,457 7,436
Other intangible assets, net 646 651
Other 3,898 3,199
$ 24,582 $ 20,349
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. The lawsuit is presently scheduled to be
tried in May 1999. The Company believes 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 solid. Working
capital totaled $103.8 million at March 31, 1999 compared to $105.8 million
at December 31, 1998. Inventories decreased by $13.3 million during the first
quarter of 1999, due principally to improved efforts to minimize inventory
levels while maintaining high service levels. Current accounts and notes
receivable decreased by $4.1 million during the first three months of 1999
and other assets increased $4.2 million during the same period. These
fluctuations were primarily attributable to the conversion of amounts due from
one customer from an account receivable to a note receivable, of which $3.3
million was classified as noncurrent at March 31, 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,
decreased $12.0 million from December 31, 1998 to March 31, 1999. This
decrease was principally related to the previously-noted reduction in
inventories, as well as the positive cash generated from operations during
the first quarter of 1999. Also funded by the positive cash flow were
capital expenditures during the first three months of 1999 of $3.0 million.
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 three months ended March 31, 1999 and the year-
earlier period. 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 15.3% during the first quarter compared to the
year-earlier level. Sales of tires accounted for approximately 94% of total
sales in the current quarter versus 95% in the first three months of 1998.
Unit tire shipments increased approximately 6.0% in the first quarter and the
average tire sales price increased by approximately 7.5% compared to the
year-earlier period, due principally to the positive impact of the Carroll's
acquisition. Excluding the net impact of the Carroll's acquisition on current
quarter results, net sales increased 1.1%, including the effects of a 1.1%
increase in unit tire volume, a 1.1% decreased in the average tire sales price,
and an increase in non-tire sales compared to the prior year first quarter.
Industrywide pricing pressures, prevalent throughout most of the last three
years, continued into the current quarter.
Cost of sales as a percentage of net sales decreased from 84.1% in the
first quarter of 1998 to 82.8% in the current quarter, due principally to the
positive impact of the Carroll's acquisition on consolidated profit margins.
Excluding the net effect of the Carroll's acquisition, cost of sales as a
percentage of net sales was relatively unchanged compared to the year-earlier
level.
Distribution expenses as a percentage of net sales increased from 5.5%
in the first quarter of 1998 to 5.9% in the current quarter. 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 net effect of the Carroll's
acquisition, distribution expenses were 5.3% of net sales in the current
period.
-9-<PAGE>
Selling and administrative expenses increased $2.1 million in the first
three months of 1999 compared to the year-earlier level, due principally to
the effects of the Carroll's acquisition. Excluding the expenses of
Carroll's, which totaled $1.9 million in the current period, selling and
administrative expenses increased 2.6% compared to the level in the first
quarter of 1998 due primarily to increases in salaries and other
compensation-related expenses.
Interest expenses increased $402,000 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 current period than in the first three months of 1998.
The Company's effective tax rate was 39.2% in the current quarter
compared to 38.4% in the first quarter of 1998, due primarily to an increase
in state income taxes which resulted from the Carroll's acquisition.
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 85% 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.
-10-<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, 1999.
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 27, 1999 By /s/ Ronald E. McCollough
Ronald E. McCollough
Executive Vice President,
Chief Financial Officer
and Treasurer
-11-
<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-31-1999
<PERIOD-END> MAR-31-1999
<CASH> (4056)<F1>
<SECURITIES> 0
<RECEIVABLES> 91438
<ALLOWANCES> 9415
<INVENTORY> 111406
<CURRENT-ASSETS> 214708
<PP&E> 72026
<DEPRECIATION> 26620
<TOTAL-ASSETS> 322140
<CURRENT-LIABILITIES> 110942
<BONDS> 0
0
0
<COMMON> 2117
<OTHER-SE> 140120
<TOTAL-LIABILITY-AND-EQUITY> 322140
<SALES> 162202
<TOTAL-REVENUES> 162202
<CGS> 134379
<TOTAL-COSTS> 134379
<OTHER-EXPENSES> 19718
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1842
<INCOME-PRETAX> 6263
<INCOME-TAX> 2457
<INCOME-CONTINUING> 3806
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3806
<EPS-PRIMARY> .18<F2>
<EPS-DILUTED> .18
<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>
