CONFORMED
---------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
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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
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(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
21,223,765 Shares of Common Stock were outstanding as of June 30, 2000.
INDEX TO EXHIBITS at page 14 of this Report
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
TBC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
June 30, December 31,
2000 1999
----------- --------
CURRENT ASSETS: (Unaudited)
Cash and cash equivalents $ 1,385 $ 1,273
Accounts and notes receivable, less
allowance for doubtful accounts of
$8,172 on June 30, 2000 and
$7,751 on December 31, 1999:
Related parties 15,349 9,546
Other 104,674 75,756
-------- --------
Total accounts and notes receivable 120,023 85,302
Inventories 186,967 138,054
Refundable federal and state income taxes 2,137 3,306
Deferred income taxes 13,001 6,079
Other current assets 11,558 15,553
-------- --------
Total current assets 335,071 249,567
-------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land and improvements 7,718 8,129
Buildings and leasehold improvements 28,646 27,330
Furniture and equipment 48,882 35,124
-------- --------
85,246 70,583
Less accumulated depreciation 28,578 25,269
-------- --------
Total property, plant and equipment 56,668 45,314
-------- --------
TRADEMARKS, NET 16,212 16,437
-------- --------
GOODWILL, NET 50,382 18,018
-------- --------
OTHER ASSETS 23,150 19,037
-------- --------
TOTAL ASSETS $481,483 $348,373
======== ========
See accompanying notes to consolidated financial statements.
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<PAGE>
TBC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
2000 1999
----------- --------
CURRENT LIABILITIES: (Unaudited)
Outstanding checks, net $ 4,185 $ 5,170
Notes payable to banks 111,027 63,762
Current portion of long-term debt
and capital lease obligations 6,915 6,514
Accounts payable, trade 97,171 40,417
Other current liabilities 38,460 20,035
-------- --------
Total current liabilities 257,758 135,898
-------- --------
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, LESS CURRENT PORTION 47,252 47,000
-------- --------
NONCURRENT LIABILITIES 5,448 1,420
-------- --------
DEFERRED INCOME TAXES 5,452 7,673
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value,
shares issued and outstanding -
21,224 on June 30, 2000 and
21,182 on December 31, 1999 2,122 2,118
Additional paid-in capital 9,872 9,639
Retained earnings 153,579 144,625
-------- --------
Total stockholders' equity 165,573 156,382
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $481,483 $348,373
======== ========
See accompanying notes to consolidated financial statements.
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<PAGE>
TBC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------ -------------------
2000 1999 2000 1999
----------- ----------- ----------- --------
<S> <C> <C> <C> <C>
NET SALES * $ 206,434 $ 187,664 $ 383,823 $ 349,866
--------- --------- --------- ---------
COSTS AND EXPENSES:
Cost of sales 164,744 154,553 310,247 288,932
Distribution 11,734 10,991 22,948 20,615
Selling and administrative 19,509 11,682 31,652 22,014
Provision for doubtful accounts and notes 139 4,821 407 5,179
Interest expense 2,794 1,645 4,902 3,487
Other (income) expense - net (680) (8) (1,056) (604)
--------- --------- --------- ---------
Total costs and expenses 198,240 183,684 369,100 339,623
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 8,194 3,980 14,723 10,243
PROVISION FOR INCOME TAXES 3,185 1,670 5,769 4,127
--------- --------- --------- ---------
NET INCOME $ 5,009 $ 2,310 $ 8,954 $ 6,116
========= ========= ========= =========
EARNINGS PER SHARE -
Basic and diluted $ .24 $ .11 $ .42 $ .29
========= ========= ========= =========
</TABLE>
* Including sales to related parties of $21,693 and $19,647 in the three
months ended June 30, 2000 and 1999, respectively and $41,457 and
$36,122 in the six months ended June 30, 2000 and 1999.
See accompanying notes to consolidated financial statements.
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<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
------------ ------ ----------- -------- --------
<S> <C> <C> <C> <C> <C>
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
========= ========= ========= ========= =========
Six Months Ended
June 30, 2000
-----------------
BALANCE, JANUARY 1, 2000 21,182 $ 2,118 $ 9,639 $ 144,625 $ 156,382
Net income for period 8,954 8,954
Issuance of common stock
under stock option and
incentive plan, net 42 4 233 -- 237
--------- --------- --------- --------- ---------
BALANCE, JUNE 30, 2000 21,224 $ 2,122 $ 9,872 $ 153,579 $ 165,573
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
TBC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
--------------
2000 1999
--------- -------
<S> <C> <C>
Operating Activities:
Net income $ 8,954 $ 6,116
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 3,925 3,353
Amortization 669 530
Provision for doubtful accounts and notes 407 5,179
(Gain) on sale of fixed assets (99) --
Deferred income taxes (311) (813)
Equity in loss from joint ventures 214 368
Changes in operating assets and liabilities,
net of effect of acquisition:
Receivables (23,584) (12,477)
Inventories (20,475) 2,601
Other current assets 6,855 (3,486)
Other assets (1,921) 194
Accounts payable, trade 32,928 (4,064)
Federal and state income taxes
refundable or payable 1,186 (1,625)
Other current liabilities (5,192) (1,038)
Noncurrent liabilities 86 738
-------- --------
Net cash provided by (used in) operating activities 3,642 (4,424)
-------- --------
Investing Activities:
Purchase of property, plant and equipment (6,438) (9,055)
Acquisition of Tire Kingdom, Inc., net of cash acquired (43,404) --
Investments in joint ventures, net (41) --
Other 117 279
-------- --------
Net cash used in investing activities (49,766) (8,776)
-------- --------
Financing Activities:
Net bank borrowings (repayments) under
short-term borrowing arrangements 47,265 9,122
Increase (decrease) in outstanding checks, net (985) 4,293
Payments on long-term debt and capital lease obligations (44) (819)
Issuance of common stock under stock option
and incentive plans -- 26
Repurchase and retirement of common stock -- (40)
-------- --------
Net cash provided by (used in) financing activities 46,236 12,582
-------- --------
Change in cash and cash equivalents 112 (618)
Cash and cash equivalents:
Balance - Beginning of year 1,273 1,699
-------- --------
Balance - End of period $ 1,385 $ 1,081
======== ========
</TABLE>
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<PAGE>
TBC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
----------------------
2000 1999
--------- --------
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid for - Interest $ 4,550 $ 3,670
- Income Taxes 4,893 6,565
Supplemental Disclosure of Non-Cash Financing Activity:
Tax benefit from exercise of stock options -- 5
Issuance of restricted stock under stock incentive plan 237 30
Supplemental Disclosure of Non-Cash Investing
and Financing Activities:
Effective June 1, 2000, the Company completed
the acquisition of Tire Kingdom, Inc. for a total
purchase price of $45,000, less certain adjustments
and plus applicable closing costs. The acquisition
was accounted for under the purchase method, as
follows:
Estimated fair value of assets acquired 62,584
Goodwill 32,764
Cash paid, net of cash acquired (43,404)
--------
Liabilities assumed $ 51,944
========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Financial Statement Presentation
The December 31, 1999 balance sheet was derived from audited
financial statements. The consolidated balance sheet as of June 30,
2000, and the consolidated statements of income, stockholders' equity
and cash flows for the three months ended June 30, 2000 and 1999, 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, 2000 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 1999 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, if any, 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,
---------------- ---------------
2000 1999 2000 1999
------- ------- ------- ------
Weighted average common
shares outstanding 21,215 21,175 21,208 21,173
Common share equivalents -- 17 -- 14
------ ------ ------ ------
Weighted average common shares
and equivalents outstanding 21,215 21,192 21,208 21,187
====== ====== ====== ======
-8-
<PAGE>
3. Acquisition of Tire Kingdom, Inc.
On June 5, 2000, the Company acquired Tire Kingdom, Inc. ("Tire
Kingdom"), a privately-owned company which operates 148 retail tire centers in
the southeastern United States. The acquisition was effective June 1, 2000 for
accounting purposes and was completed by means of a merger of a wholly-owned
subsidiary of TBC with and into TKI Holdings, Inc., which owned 100% of the
capital stock of Tire Kingdom. The acquisition was accounted for as a purchase
and was made with cash, for a total purchase price of $45,000,000 less certain
adjustments. These consolidated financial statements include the operating
results of Tire Kingdom since June 1, 2000.
The following unaudited pro forma information (adjusted for items
such as interest on required borrowings, estimated amortization of goodwill,
improved sourcing strength, and anticipated operating synergies) was prepared as
if the companies had been combined prior to 1999. The pro forma results for 1999
exclude an after-tax charge by TBC of $2.8 million, or $0.13 per share, related
to the write-off of a note receivable that had been the subject of litigation
since 1989. This unaudited pro forma information does not purport to present
what actual results of operations would have been or to project results for any
future period. Pro forma net sales were $479,743,000 and $461,089,000 for the
six months ended June 30, 2000 and 1999, respectively. Pro forma net income was
$9,278,000 in the first six months of 2000 and $9,399,000 in the first half of
1999. Pro forma earnings per share were $.44 in the first six months of 2000 and
1999.
4. Credit Facilities
In order to complete the acquisition of Tire Kingdom, the Company's
short-term credit facility was amended in June 2000 to allow the Company to
borrow up to $133,000,000, with interest at the eurodollar or federal funds rate
plus 1.75%. The amended short-term facility requires the payment of certain fees
and contains certain amended financial covenants and restrictions. Certain of
the covenant requirements associated with both the short-term credit facility
and long-term Senior Notes were not met and were waived by the respective
lenders as of and for the quarter ended June 30, 2000.
-9-
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Financial Condition
On June 5, 2000, the Company completed the acquisition of Tire Kingdom,
Inc. (see Note 3 to the consolidated financial statements). As a result,
additional short-term borrowings were incurred and there were significant
changes in a number of other balance sheet items between December 31, 1999 and
June 30, 2000. However, the Company's financial position and liquidity remain
solid, with working capital of $77.3 million at June 30, 2000.
Current accounts and notes receivable increased by $34.7 million
compared to the level at the end of 1999, due principally to seasonal sales
fluctuations as well as the impact of the Tire Kingdom acquisition. Inventories
increased by $48.9 million, due to the acquisition of Tire Kingdom, seasonal
fluctuations and the addition of several new lines of tires. The increases in
property, plant and equipment, goodwill, other assets and other current
liabilities were all primarily due to the acquisition of Tire Kingdom.
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 $102.9 million from December 31, 1999
to June 30, 2000. This increase, together with cash generated from operations,
enabled the Company to fund the above-noted increases in both current and
noncurrent assets, as well as capital expenditures of $6.4 million during the
first six months of 2000.
As indicated in Note 4 to the financial statements, in June 2000, the
Company amended its short-term borrowing agreement to allow the Company to
borrow up to $133 million.
Results of Operations
As a result of the Company's acquisition of Tire Kingdom, Inc. in June 2000
(see Note 3 to the consolidated financial statements), there are a number of
significant changes in income statement items between the periods ended June 30,
2000 and the year-earlier periods.
Net sales increased 10.0% during the second quarter and 9.7% during the
first six months of 2000 compared to the year-earlier levels. Sales of tires
accounted for approximately 91% of total sales during the current quarter and
92% in the first half of 2000 versus 93% in the second quarter and first six
months of 1999. Unit tire shipments increased approximately 2.1% in the second
quarter and 5.3% in the first six months, compared to the year-earlier results.
The average tire sales price increased 5.0% in the current quarter and 2.4% in
the year-to-date period, compared to the levels in the same periods of 1999.
Both the increased unit tire volume and higher average tire sales price were due
largely to the impact of the Tire Kingdom acquisition. The impact of the retail
business conducted by Tire Kingdom also influenced the percentage of total sales
attributable to tires, since the revenue from mechanical services performed by
the Tire Kingdom stores is included in non-tire sales. Excluding the Tire
Kingdom impact, unit tire volume declined 2.7% in the second quarter and
increased 2.7% in the first half of 2000, while the average tire sales price
increased 2.7% in the current quarter and 1.2% in the year-to-date period.
Industrywide pricing pressures, prevalent throughout most of the last several
years, continued into the current year.
-10-
<PAGE>
Cost of sales as a percentage of net sales decreased from 82.4% in the
second quarter of 1999 to 79.8% in the current quarter. For the year-to-date
period, cost of sales declined from 82.6% in 1999 to 80.8% in 2000. The
reductions were due largely to the impact of the Tire Kingdom acquisition. In
addition, an increased percentage of shipments to franchised dealers favorably
affected margins and contributed to a reduction in the cost of sales percentage
compared to the same periods in 1999, excluding the impact of Tire Kingdom.
Distribution expenses as a percentage of net sales were 5.7% in the
current quarter compared to 5.9% in the second quarter of 1999. For the first
six months, distribution expenses were 6.0% of net sales in 2000 versus 5.9% in
the prior year. Excluding Tire Kingdom, which has lower warehousing and product
delivery costs than TBC's wholesale operations, distribution expenses were 6.0%
of net sales in the current quarter and 6.2% during the first half of 2000. The
increases were largely due to higher fixed costs associated with new
distribution facilities, which were opened in the last half of 1999 to better
service both franchised dealers and other customers.
Selling and administrative expenses increased $7.8 million in the
second quarter and $9.6 million in the first six months of 2000, compared to the
year-earlier levels, due principally to the effect of the Tire Kingdom
acquisition. Excluding expenses of Tire Kingdom during the month of June 2000,
which totaled $8.0 million, selling and administrative expenses were lower in
the current quarter than in the second quarter of 1999. For the first six
months, excluding Tire Kingdom, selling and administrative expenses increased
$1.7 million due largely to increased compensation expenses in the first
quarter, related in part to higher staffing levels.
The provision for doubtful accounts and notes in the second quarter and
first six months of 1999 was greater than in the current periods, due to a $4.6
million charge associated with a note receivable from a former distributor which
had been the subject of litigation since 1989. Excluding the impact of that
charge, the provision for doubtful accounts and notes decreased by $93,000 in
the current quarter and $183,000 in the first six months of 2000 compared to the
year-earlier levels.
Interest expense increased $1.1 million in the second quarter and $1.4
million in the first half of 2000 compared to the same periods in 1999. Interest
related to short-term borrowings increased $1.2 million in the current quarter
and $1.6 million in the first six months of 2000, while interest on long-term
borrowings declined versus the year-earlier levels. The greater interest
associated with short-term borrowings was attributable to the combined effects
of higher borrowing levels and higher interest rates, both of which were
affected somewhat by the Tire Kingdom acquisition. The reduction in interest on
long-term borrowings was due to lower long-term debt than in the year-earlier
periods.
Net other income was greater in the second quarter and first six months
of 2000 than in the year-earlier periods, due primarily to improvements in the
equity in results from the Company's joint ventures and to increased interest
income from customers.
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<PAGE>
The Company's effective tax rate was 38.9% in the current quarter
compared to 42.0% in the second quarter of 1999. For the first six months, the
effective tax rate was 39.2% in 2000 compared to 40.3% in 1999. The decreases
were largely related to changes in the tax provision associated with the equity
in results from joint ventures, as well as reductions in the impact of state
income taxes.
Earnings per share in the second quarter and first six months of 1999
included the net impact of the previously-mentioned $4.6 million charge
associated with a note receivable which had been the subject of litigation since
1989. The net impact of that charge on 1999 earnings per share was $.13.
Excluding the effect of such charge, earnings per share was unchanged in the
second quarter and first six months of 2000, compared to the results in the same
periods of 1999.
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 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on April 26,
2000, the 2000 Stock Option Plan (the "Plan") was approved by stockholders and
Messrs. Marvin E. Bruce, Lawrence C. Day, and Robert H. Dunlap were elected as
directors of the Company for a term expiring at the 2003 Annual Meeting of
Stockholders.
The number of shares of Common Stock voted in conjunction with the
approval of Plan were as follows: 17,472,226 shares were voted in favor of the
Plan, 1,450,839 were voted against the Plan and 313,355 shares were abstained
from voting for approval of the Plan. The number of shares voted for each
director and the number of shares with respect to which authority to vote was
withheld were as follows: 18,967,330 shares were voted for Mr. Bruce and
authority to vote 269,090 shares for Mr. Bruce was withheld; 19,051,709 shares
were voted for Mr. Day and authority to vote 184,711 shares for Mr. Day was
withheld; 18,966,730 shares were voted for Mr. Dunlap and authority to vote
269,690 shares for Mr. Dunlap was withheld.
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<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Index to Exhibits
(b) Reports on Form 8-K.
During the quarter ended June 30, 2000, the Company filed
two Current Reports on Form 8-K, each dated June 5, 2000:
The first Current Report on Form 8-K was filed on June
8, 2000 and provided under Item 5, "Other Events",
information with respect to a Press release,
facts-in-brief, and 1999 Pro Forma Financial Statements
relating to TBC's acquisition of Tire Kingdom, Inc. The
text of these documents was filed by TBC as Exhibit 99.1
to this Form 8-K.
The second Current Report on Form 8-K was filed on June
20, 2000, and provided under Item 2, "Acquisition or
Disposition of Assets", required information with
respect to the Tire Kingdom, Inc. acquisition. The
financial statements and pro forma financial information
required by Item 7 were not included in the Report, but
will be filed no later than August 21, 2000. The
Agreement and Plan of Merger, dated as of June 2, 2000,
relating to the Tire Kingdom, Inc. acquisition was filed
as Exhibit 2.1 to this Form 8-K.
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
August 21, 2000 By /s/ Ronald E. McCollough
--------------- ------------------------
Ronald E. McCollough
Executive Vice President,
Chief Financial Officer
and Treasurer
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<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
-----------------
Located at
Sequentially
Exhibit No. Description Numbered Page
----------- ----------- -------------
<S> <C>
(2) PLAN OF ACQUISITION, REORGANIZATION,
ARRANGEMENT, LIQUIDATION OR SUCCESSION:
2.1 Agreement and Plan of Merger, dated as of June 2, 2000,
by and among TBC Corporation, TBC Retail Enterprises,
Inc., TKI Holdings, Inc. and Certain Stockholders of TKI
Holdings, Inc. (filed as Exhibit 2.1 to TBC's Current
Report on Form 8-K, dated June 5, 2000 and filed on
June 20, 2000) . . . . . . . . . . . . . . . . . . . . . . .. . . . . *
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY
HOLDERS, INCLUDING INDENTURES:
4.1 Amendment No. 4, dated as of June 2, 2000, to the Note
Purchase and Private Shelf Agreement, dated July 10, 1996,
as amended, between TBC Corporation and The Prudential
Insurance Company of America . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
* Indicates that the Exhibit is incorporated by reference into this
Quarterly Report on Form 10-Q from a previous filing with the
Commission.
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<PAGE>
