CONFORMED COPY
--------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A-1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 5, 2000
----------------
TBC CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 0-11579 31-0600670
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) 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
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Not Applicable
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(Former name or former address, if changed since last report)
-1-
<PAGE>
On June 20, 2000, TBC Corporation ("TBC") filed with the Commission a
Current Report on Form 8-K, dated June 5, 2000. At Item 7 of such Report, TBC
indicated that it would file the required historical financial statements of the
business acquired and pro forma financial information on or before August 21,
2000. Set forth below is Item 7 of such Report restated in its entirety to
include the required financial statements and pro forma financial information,
all of which are being filed with this Amendment.
Item 7. Financial Statements and Exhibits.
------ ---------------------------------
(a) Financial statements of business acquired.
See Financial Statement Index.
(b) Pro forma financial information.
See Financial Statement Index.
(c) Exhibits.
See Exhibit Index.
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 hereunto duly authorized.
TBC CORPORATION
(Registrant)
August 21, 2000 By: /s/ Ronald E. McCollough
--------------- ----------------------------
(Date) Ronald E. McCollough
Executive Vice President,
Chief Financial Officer
and Treasurer
-2-
<PAGE>
FINANCIAL STATEMENT INDEX
Page
----
Consolidated Balance Sheet of TKI Holdings, Inc.
at December 31, 1999 . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Operations of TKI Holdings, Inc.
for the year ended December 31, 1999 . . . . . . . . . . . . . . . 6
Consolidated Statement of Stockholders' Equity of TKI Holdings,
Inc. for the year ended December 31, 1999 . . . . . . . . . . . . . 7
Consolidated Statement of Cash Flows of TKI Holdings, Inc.
for the year ended December 31, 1999 . . . . . . . . . . . . . . . 8
Notes to Consolidated Financial Statements of TKI Holdings, Inc.
at and for the year ended December 31, 1999 . . . . . . . . . . . . 9
Report of Arthur Andersen LLP on Consolidated Financial
Statements of TKI Holdings, Inc. at and for the year ended
December 31, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . 16
Unaudited Consolidated Balance Sheet of TKI Holdings, Inc.
at March 31, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . 17
Unaudited Consolidated Statements of Operations of TKI Holdings,
Inc. for the three months ended March 31, 2000 and 1999 . . . . . . 19
Unaudited Consolidated Statements of Cash Flows of TKI Holdings,
Inc. for the three months ended March 31, 2000 and 1999 . . . . . . 20
Notes to Unaudited Consolidated Financial Statements of TKI
Holdings, Inc. at March 31, 2000 and for the three months ended
March 31, 2000 and 1999 . . . . . . . . . . . . . . . . . . . . . . 21
Unaudited Pro Forma Combined Statement of Income of
TBC Corporation and TKI Holdings, Inc. for the year ended
December 31, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . 22
Unaudited Pro Forma Combined Statement of Income of
TBC Corporation and TKI Holdings, Inc. for the six months
ended June 30, 2000 . . . . . . . . . . . . . . . . . . . . . . . . 23
Notes to Unaudited Pro Forma Combined Statement of Income
of TBC Corporation and TKI Holdings, Inc. . . . . . . . . . . . . . 24
-3-
<PAGE>
TKI HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
(000's Omitted)
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 76
Accounts receivable, less allowance for doubtful
accounts of $868 12,733
Merchandise inventory, less reserve for obsolescence of $749 30,433
Current portion of deferred tax asset 3,370
Prepaid expenses and other current assets 1,242
-------
Total current assets 47,854
PROPERTY AND EQUIPMENT, net 10,956
DEFERRED TAX ASSET, less current portion 2,408
INTANGIBLES, net 14,351
DEPOSITS AND OTHER ASSETS, net 1,588
-------
Total assets $77,157
=======
</TABLE>
(Continued)
-4-
<PAGE>
TKI HOLDINGS, INC
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
(000's Omitted)
(Continued)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C>
CURRENT LIABILITIES:
Accounts payable $29,012
Accrued liabilities 9,586
Line of credit 710
Current portion of capital lease obligation 403
Current portion of the deferred revenues 1,733
Income taxes payable 152
-------
Total current liabilities 41,596
CAPITAL LEASE OBLIGATION, net of current portion 462
LONG-TERM DEBT, less current maturities 2,870
DEFERRED RENT 3,427
DEFERRED REVENUE, less current portion 333
-------
Total liabilities 48,688
-------
COMMITMENTS AND CONTINGENCIES (Notes 6 and 12)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 120,000 shares authorized,
100,357 shares issued and outstanding 1
Additional paid-in capital 27,524
Retained earnings 944
-------
Total stockholders' equity 28,469
-------
Total liabilities and stockholders' equity $77,157
=======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this balance sheet.
-5-
<PAGE>
TKI HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(000's Omitted)
SALES AND SERVICES $ 223,928
COST OF MERCHANDISE SOLD 125,707
---------
Gross profit 98,221
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 92,837
DEPRECIATION AND AMORTIZATION 3,660
PROVISION FOR RESTRUCTURING AND OTHER
NONRECURRING CHARGES 1,214
INTEREST EXPENSE, net of interest income of $160 157
OTHER (INCOME) EXPENSE (245)
---------
Income before income taxes 598
PROVISION FOR INCOME TAXES 294
---------
Net income $ 304
=========
The accompanying notes to consolidated financial statements
are an integral part of this statement.
-6-
<PAGE>
TKI HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999
(000's Omitted)
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained Stockholders'
Stock Capital Earnings Equity
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1998 $ 1 $ 27,524 $ 640 $ 28,165
Net income - - 304 304
---------- ----------- ----------- -----------
BALANCE, December 31, 1999 $ 1 $ 27,524 $ 944 $ 28,469
========== ========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
-7-
<PAGE>
TKI HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
(000's Omitted)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 304
Adjustments to reconcile net income to cash provided by
operating activities-
Depreciation and amortization 3,660
Loss on sale of property and equipment 38
Deferred income tax provision 142
Changes in operating assets and liabilities:
(Increase) decrease in-
Accounts receivable, net (2,396)
Merchandise inventory, net (3,646)
Deferred tax asset (24)
Income taxes receivable 278
Prepaid expenses and other current assets (814)
Deposits and other assets, net (2)
Increase (decrease) in-
Accounts payable and accrued liabilities 4,498
Income taxes payable 152
Deferred revenue (64)
Deferred rent (5)
-------
Cash provided by operating activities 2,121
-------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (2,953)
Proceeds from sale of property and equipment 5
-------
Cash used in investing activities (2,948)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions (repayments) of long-term debt and
capital lease obligations $ 610
-------
Cash provided by financing activities 610
-------
NET DECREASE IN CASH AND CASH EQUIVALENTS (217)
CASH AND CASH EQUIVALENTS, beginning of year 293
-------
CASH AND CASH EQUIVALENTS, end of year $ 76
=======
SUPPLEMENTAL INFORMATION:
Interest paid $ 105
=======
Income taxes refunded $ 278
=======
Acquisition of property and equipment under capital lease $ 599
=======
The accompanying notes to consolidated financial statements
are an integral part of this statement.
-8-
<PAGE>
TKI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. GENERAL
-------
TKI Holdings, Inc. (the "Company"), a Delaware corporation, was incorporated on
December 22, 1992. On January 11, 1993, the Company acquired all of the
outstanding stock of Tire Kingdom, Inc. ("TKI") for a purchase price of $50.6
million. The acquisition was accounted for as a purchase. The net assets
acquired have been recorded at fair value. The excess of purchase price over
fair value of net assets is reflected as goodwill.
The Company, through its wholly-owned subsidiary, TKI, is engaged in the retail
and wholesale sale of tires and related automotive parts and services in Florida
and North Carolina.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Cash and Cash Equivalents
The Company considers cash equivalents to be short-term, highly liquid
investments that are readily convertible into cash and have a maturity of three
months or less. Cash and cash equivalents at December 31, 1999 consist of funds
deposited in non-interest bearing operating bank accounts and a money-market
type investment account which is collateralized by AA rated securities.
Inventories
Inventories are stated at the lower of cost or market, with cost determined on a
weighted average basis.
Intangibles
Intangible assets consist of deferred acquisition costs and goodwill. These
assets are being amortized on the straight-line method over their estimated
useful lives of 40 years. Amortization expense was $435,000 for the year ended
December 31, 1999.
Long-Lived Assets
The Company continually evaluates factors, events and circumstances which
include, but are not limited to, the historical and projected operating
performance, specific industry trends and general economic conditions to assess
whether the remaining estimated useful lives of intangible assets may warrant
revision or that the remaining balance of intangible assets may not be
recoverable. When such factors, events or circumstances indicate that intangible
assets should be evaluated for possible impairment, the Company uses an estimate
of undiscounted cash flow over the remaining lives of the intangible assets in
measuring their recoverability. Management has reviewed the Company's long-lived
assets and has determined that no factors, events or circumstances have occurred
requiring impairment loss recognition or a revision of the remaining estimated
useful lives.
-9-
<PAGE>
Stock-Based Compensation
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require companies to record
compensation expense using a fair value based method. The Company has chosen to
continue to account for stock-based compensation using the intrinsic value
based method prescribed in Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, compensation expense
for stock options is measured as the excess, if any, of the estimated market
value of the Company's stock, as determined by the Board of Directors, at the
date of the grant over the amount an employee must pay to acquire the stock.
Deferred Rent
Certain store and warehouse lease agreements provide for scheduled base rental
increases over the lease term. The Company recognizes the aggregate rent expense
on a straight-line basis over the lease term, with the difference between rent
expense on a straight-line basis and the base rental reflected as deferred rent.
Self-Insurance Liability
The Company is self-insured, up to certain limits, for workers' compensation and
employee group accident and health benefits and, accordingly, accrues for unpaid
claims and associated expenses including incurred but not reported losses as
calculated by its respective professional insurance administrators. Changes in
this liability are recorded in the periods in which they become known.
In connection with the Company's self-insured workers' compensation policy, the
Company has obtained a $2,600,000 surety bond, and the insurer holds $1,049,000
of U.S. Treasury Securities to serve as collateral. The U.S. Treasury Securities
are included in "deposits and other assets, net" in the accompanying
consolidated balance sheet as of December 31, 1999.
Depreciation
Depreciation of property and equipment is calculated on a straight-line basis
over the estimated useful lives of the individual assets, as follows:
Furniture and fixtures 5 - 10 years
Machinery and equipment 3 - 10 years
Leasehold improvements Life of Lease
Computer equipment 5 years
Vehicles 4 - 5 years
Deferred Revenue
The Company sells road hazard, wheel alignment, and tire rotation and balancing
warranty policies. The terms of these policies provide for the replacement or
repair, realignment, rotation and re-balancing of tires. Revenue from these
sales is deferred and recognized as income over the policy period in proportion
to the expected costs to be incurred under the policy.
-10-
<PAGE>
Concentration of Suppliers
The Company purchases the majority of its tire inventories from five major tire
manufacturers.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires
disclosure of the fair value of certain financial instruments. Cash and cash
equivalents, accounts receivable and accounts payable are reflected in the
accompanying consolidated balance sheet, at cost, which approximates fair value.
Reporting Comprehensive Income
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income". SFAS No.
130 establishes standards for reporting and display of comprehensive income and
its components in financial statements. This statement requires that all
elements of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. For the year
ended December 31, 1999, the Company's comprehensive income equaled its net
income, as there were no adjustments to net income under SFAS No. 130.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. ACCOUNTS RECEIVABLE
-------------------
Accounts receivable consists of the following at December 31, 1999:
Trade accounts receivable, net $ 8,697,000
Vendor rebate receivables 2,503,000
Co-op advertising receivables 627,000
Credit card receivables 906,000
-------------
$ 12,733,000
=============
4. PROPERTY AND EQUIPMENT
----------------------
Property and equipment consists of the following at December 31, 1999:
Furniture and fixtures $ 7,889,000
Machinery and equipment 12,017,000
Leasehold improvements 3,565,000
Computer equipment 8,064,000
Vehicles 1,086,000
-------------
32,621,000
Less: Accumulated depreciation 21,665,000
-------------
$ 10,956,000
=============
Depreciation expense for the year ended December 31, 1999 was $3,225,000.
-11-
<PAGE>
5. LONG-TERM DEBT
--------------
On April 15, 1998, two of the Company's stockholders sold 6,250 shares back to
the Company for $110,000 in cash and a $2,515,000 promissory note. The
promissory note bears interest at 8% per annum, payable annually or added to the
principal at the discretion of the Company, and matures on April 15, 2003. At
December 31, 1999, $355,000 of accrued interest is included in "long-term debt,
less current maturities" in the accompanying consolidated balance sheet.
6. CAPITAL LEASE OBLIGATION
------------------------
The Company leases certain computer equipment under a capital lease. The
schedule of future minimum lease payments, together with the present value of
the net minimum lease payments as of December 31, 1999, is as follows:
Year ending December 31,
2000 $457,000
2001 454,000
2002 31,000
---------
942,000
Less: amount representing
interest at approximately 8% 77,000
---------
Present value of net minimum
lease payments $865,000
=========
7. LINE OF CREDIT
--------------
On October 26, 1998, the Company entered into an agreement with NationsBank to
open a revolving line of credit, effective January 1, 1999, in an amount not to
exceed $8 million. Interest is payable monthly at an interest rate of LIBOR plus
2%. The line of credit expires on April 30, 2000, at which time the outstanding
principal balance plus accrued interest shall be paid. At December 31, 1999,
there was $710,000 outstanding under the revolving line of credit.
8. OPERATING LEASES
----------------
The Company leases substantially all of its store locations, warehouses and
corporate headquarters under long-term noncancellable operating leases.
Substantially all of these leases contain renewal options at the end of the
initial lease term with no options for purchase. As previously stated, certain
leases provide fixed rent escalations which are recorded on a straight-line
basis. The remaining leases have escalation factors of the lower of a fixed or
consumer price index rate. Rent expense for store locations and other buildings
was $15,474,000 for the year ended December 31, 1999.
The Company also has a long-term operating lease on certain delivery vehicles.
Rent expense related to these vehicles was $446,000 for the year ended December
31, 1999.
-12-
<PAGE>
8. OPERATING LEASES (Continued)
----------------------------
The following is a schedule of future minimum rental payments required under
operating leases that have initial or remaining noncancellable lease terms in
excess of one year.
Year ending December 31,
2000 $ 15,190,000
2001 14,737,000
2002 14,162,000
2003 13,125,000
2004 10,587,000
Thereafter 74,181,000
--------------
$ 141,982,000
==============
9. EMPLOYEE BENEFIT PLANS
----------------------
The Company has a 401(k) employees' savings and retirement plan in which all
eligible employees may participate. Under the plan, the Company matches fifty
percent of employee contributions (up to two percent of salary). The Company's
contributions to the plan were $335,000 for the year ended December 31, 1999.
The Company's participation in the plan may be terminated at any time by the
Board of Directors.
The Company also maintains an Employee Benefit Trust Plan. This is a
self-insurance plan providing employees with health and accident insurance
benefits. A portion of the cost is charged to each participating employee.
10. INCOME TAXES
------------
Deferred income taxes at December 31, 1999 reflect the impact of temporary
differences between amounts of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws.
Temporary differences which give rise to a significant portion of deferred tax
assets and liabilities consist of, among other items, deferred revenue, deferred
rent, accrued self-insurance reserves, depreciation and uniform capitalization.
Provision for income taxes for the year ended December 31, 1999 consist of the
following:
Current Deferred Net
-------- -------- ---
State $ - $ 43,000 $ 43,000
Federal 152,000 99,000 251,000
-------- --------- --------
$152,000 $142,000 $294,000
======== ======== ========
As of December 31, 1999, the Company's consolidated balance sheet contains a net
deferred tax asset of $5,778,000. Realization of this amount is dependent upon
generating future taxable income. Although realization is not assured,
management believes it is more likely than not that the remaining deferred tax
asset will be realized based upon estimated future taxable income.
-13-
<PAGE>
11. STOCK INCENTIVE AND STOCK OPTION PLANS
--------------------------------------
The Company adopted an employee stock option plan to provide incentives to key
employees. All of the options vest at either 25% or 33-1/3% per year and expire
after ten years. The information for shares under option is as follows:
Outstanding, January 1, 1999-
Shares 10,135
Price $300-$420
Granted:
Shares -
Price -
Exercised:
Shares -
Price -
Cancelled:
Shares 700
Price 420
Outstanding, December 31, 1999-
Shares 9,435
Price $300-$420
The Company applies APB Opinion No. 25 and related interpretations in accounting
for its plans. Accordingly, no compensation cost has been recognized for stock
options. If compensation expense for the Company's stock was based on the fair
value at the grant dates for awards, consistent with the method of SFAS No. 123,
the Company's net income would have been as follows:
Net income-
As reported $ 304,000
Pro forma 251,000
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model for all options granted after January 1,
1995, with the following weighted average assumptions: expected volatility of
0%, risk-free interest rates of 7%, expected dividends of $0 and expected lives
of 7 years.
12. CONTINGENCIES
-------------
The Company is subject to various lawsuits and claims with respect to such
matters arising out of the normal course of business. While the effect on the
future financial results is not subject to reasonable estimation because
considerable uncertainties exist, in the opinion of Company counsel, the
ultimate liabilities resulting from such lawsuits and claims will not materially
affect the consolidated financial position or results of operations of the
Company.
-14-
<PAGE>
13. RELATED PARTY TRANSACTIONS
--------------------------
The Company leases its corporate headquarters and a warehouse facility from a
partnership in which one of the Company's stockholders is a partner. Total rent
expense under this long-term operating lease was $942,000 for the year ended
December 31, 1999. The Company also leases certain of its store locations from
two of the Company's stockholders under operating leases. Rent expense for these
locations was $898,000 for the year ended December 31, 1999.
14. RESTRUCTURING AND OTHER NONRECURRING CHARGES
--------------------------------------------
In 1999, the Company underwent a sales and use tax audit covering the period of
April 1, 1993 through March 31, 1998, and was assessed taxes and interest of
$236,000 and $95,000, respectively. These amounts are included in provision for
restructuring and other nonrecurring charges. The Company has accrued an
additional $70,000 in 1999 for the period of April 1, 1998 through December 31,
1999. This amount is included in selling, general and administrative expenses in
the accompanying consolidated statement of operations. Management believes that
it has amended its accounting procedures to limit future exposure.
Pursuant to long-standing litigation, in early March 2000, the Company became
aware that a court ruled that it was responsible for certain attorneys' fees,
cost and interest in an amount of $883,000. The Company believes that this award
is improper. The Company is appealing the award and expects to eventually
prevail in the matter. The amount of $883,000 has been accrued in the
accompanying financial statements and included in provision for restructuring
and other nonrecurring charges.
-15-
<PAGE>
ARTHUR ANDERSEN
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Board of Directors of
TKI Holdings, Inc.:
We have audited the accompanying consolidated balance sheet of TKI Holdings,
Inc. (a Delaware corporation) and subsidiary as of December 31, 1999, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TKI Holdings, Inc. as of
December 31, 1999, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States.
Arthur Andersen LLP
West Palm Beach, Florida,
March 20, 2000.
-16-
<PAGE>
TKI HOLDINGS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
(000's Omitted)
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 181
Accounts receivable, less allowance for doubtful
accounts of $753 10,228
Merchandise inventory, less reserve for obsolescence of $685 26,455
Current portion of deferred tax asset 3,370
Prepaid expenses and other current assets 915
-------
Total current assets 41,149
PROPERTY AND EQUIPMENT, net 10,594
DEFERRED TAX ASSET, less current portion 2,256
INTANGIBLES, net 14,243
DEPOSITS AND OTHER ASSETS, net 1,737
-------
Total assets $69,979
=======
</TABLE>
(Continued)
-17-
<PAGE>
TKI HOLDINGS, INC
UNAUDITED CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
(000's Omitted)
(Continued)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C>
CURRENT LIABILITIES:
Accounts payable $21,298
Accrued liabilities 10,354
Current portion of capital lease obligation 409
Current portion of the deferred revenues 1,738
Income taxes payable 259
-------
Total current liabilities 34,058
CAPITAL LEASE OBLIGATION, net of current portion 357
LONG-TERM DEBT, less current maturities 2,924
DEFERRED RENT 3,458
DEFERRED REVENUE, less current portion 333
-------
Total liabilities 41,130
-------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 120,000 shares authorized,
100,357 shares issued and outstanding 1
Additional paid-in capital 27,524
Retained earnings 1,324
-------
Total stockholders' equity 28,849
-------
Total liabilities and stockholders' equity $69,979
=======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-18-
<PAGE>
TKI HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(000's Omitted)
Three Months
Ended March 31,
--------------------
2000 1999
-------- --------
SALES AND SERVICES $ 57,347 $ 54,502
COST OF MERCHANDISE SOLD 32,408 29,987
-------- --------
Gross profit 24,939 24,515
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 23,365 22,664
DEPRECIATION AND AMORTIZATION 920 849
INTEREST EXPENSE, net of interest income
of $26 and $12 respectively 57 67
OTHER (INCOME) EXPENSE (58) (79)
-------- --------
Income before income taxes 655 1,014
PROVISION FOR INCOME TAXES 275 498
-------- --------
Net income $ 380 $ 516
======== ========
See accompanying notes to unaudited consolidated financial statements.
-19-
<PAGE>
TKI HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's Omitted)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
--------------------
2000 1999
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 380 $ 516
Adjustments to reconcile net income to cash
provided by operating activities-
Depreciation and amortization 920 849
Loss on sale of property and equipment 2 6
Deferred income tax provision 77 35
Changes in operating assets and liabilities:
(Increase) decrease in-
Accounts receivable, net 1,085 (70)
Merchandise inventory, net 3,978 301
Deferred tax asset 75 (5)
Prepaid expenses and other current assets 327 (144)
Deposits and other assets, net (149) (2)
Increase (decrease) in-
Accounts payable and accrued liabilities (5,519) (1,325)
Income taxes payable 107 718
Deferred revenue 5 36
Deferred rent 31 (2)
------- -------
Cash provided by operating activities 1,319 913
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (459) (383)
------- -------
Cash used in investing activities (459) (383)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions (repayments) of long-term debt and
capital lease obligations (755) 30
------- -------
Cash provided by (used in) financing activities (755) 30
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 105 560
CASH AND CASH EQUIVALENTS, beginning of year 76 293
------- -------
CASH AND CASH EQUIVALENTS, end of period $ 181 $ 853
======= =======
SUPPLEMENTAL INFORMATION:
Interest paid $ 30 $ 28
======= =======
Income taxes paid (refunded) $ 15 $ (278)
======= =======
Acquisition of property and equipment under capital lease $ -- $ 22
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-20-
<PAGE>
TKI HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENT PRESENTATION
--------------------------------
The consolidated balance sheet as of March 31, 2000, and the consolidated
statements of income and cash flows for the three months ended March 31, 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 March 31, 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 unaudited
consolidated financial statements be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended December
31, 1999.
-21-
<PAGE>
TBC CORPORATION AND TKI HOLDINGS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
TBC TKI
Corporation Holdings, Pro Forma
(Adjusted Inc. --------------------------------
Historical) (Historical) Adjustments Consolidated
------------- ------------ ----------- ------------
(A)
<S> <C> <C> <C> <C>
NET SALES $743,050 $223,928 $ - $966,978
-------- -------- ------------- --------
COSTS AND EXPENSES:
Cost of sales 613,425 125,707 (2,850) (D) 736,282
Distribution, selling and administrative (B) 91,194 96,497 679 (E) 188,370
Interest expense 7,676 317 (C) 2,891 (F) 10,884
Other (income) expense - net (1,840) 809 (C) (516) (G) (1,547)
----------- ---------- ----------- ----------
Total costs and expenses 710,455 223,330 204 933,989
--------- --------- ----------- ---------
INCOME BEFORE INCOME TAXES 32,595 598 (204) 32,989
PROVISION FOR INCOME TAXES 12,536 294 322 (H) 13,152
---------- ---------- ------------ ---------
NET INCOME $ 20,059 $ 304 $ (526) $ 19,837
========== ========== ============= =========
EARNINGS PER SHARE -
Basic and diluted $ .95 $ .94
========== ==========
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
-22-
<PAGE>
TBC CORPORATION AND TKI HOLDINGS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
TKI
TBC Holdings, Inc. Pro Forma
Corporation (5 months --------------------------------
(Historical) Historical) Adjustments Consolidated
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
NET SALES $383,823 $ 95,920 $ - $479,743
-------- -------- -------------- --------
COSTS AND EXPENSES:
Cost of sales 310,247 53,746 (1,167) (D) 362,826
Distribution, selling and administrative (B) 55,007 41,338 2 (E) 96,347
Interest expense 4,902 144 (C) 1,428 (F) 6,474
Other (income) expense - net (1,056) (181) (C) - (1,237)
--------- --------- ------------- ---------
Total costs and expenses 369,100 95,047 263 464,410
--------- --------- ------------- ---------
INCOME BEFORE INCOME TAXES 14,723 873 (263) 15,333
PROVISION FOR INCOME TAXES 5,769 220 66 (H) 6,055
--------- --------- ------------- ---------
NET INCOME $ 8,954 $ 653 $ (329) $ 9,278
========== ========= ============= =========
EARNINGS PER SHARE -
Basic and diluted $ .42 $ .44
========== =========
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
-23-
<PAGE>
TBC CORPORATION AND TKI HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
The unaudited pro forma combined statement of income for the year ended
December 31, 1999 gives effect to TBC's acquisition on June 5, 2000 of TKI
Holdings, Inc., which owned 100% of the capital stock of Tire Kingdom,
Inc. ("Tire Kingdom"). The Acquisition was effective June 1, 2000 for
accounting purposes and was accounted for as a purchase. This pro forma
information is based on the historical consolidated financial statements
of TBC and its subsidiaries and Tire Kingdom under the assumptions and
adjustments set forth in the accompanying notes. The historical income
statement for TBC for the six months ended June 30, 2000 includes results
for Tire Kingdom after the June 1, 2000 effective date of the Acquisition.
The unaudited pro forma combined statements of income have been prepared
by the management of TBC, assuming a purchase price of $45.0 million and
the payment of certain liabilities of Tire Kingdom. The unaudited pro
forma combined statements of income, which include results of operations
as if the Acquisition had been consummated on January 1, 1999, do not
reflect transaction expenses expected to be incurred or any anticipated
cost savings except as noted in the accompanying notes. The unaudited pro
forma combined statements of income have been prepared assuming retention
of all of the Company's and Tire Kingdom's sales following the
Acquisition. As a result, the unaudited pro forma combined statements of
income may not be indicative of the results of operations that actually
would have occurred had the Acquisition been in effect during the period
presented or which may be attained in the future. Actual performance will
differ, and the differences may be material. The unaudited pro forma
combined statements of income should be read in conjunction with the
historical consolidated financial statements and notes thereto of TBC and
Tire Kingdom.
A pro forma combined balance sheet is not included with the pro forma
financial information included herein, since TBC Corporation's Form 10-Q
for the period ended June 30, 2000, as filed with the Commission, includes
a consolidated balance sheet for TBC Corporation and subsidiaries
(including Tire Kingdom) as of June 30, 2000, subsequent to the
Acquisition.
Earnings per share have been computed by dividing net income by the
weighted average number of common shares and equivalents outstanding. The
weighted average number of common shares outstanding were 21,177,000 for
the year ended December 31, 1999 and 21,208,000 for the six months ended
June 30, 2000. Common share equivalents, representing shares issuable upon
assumed exercise of stock options, totaled 12,000 for the year 1999. There
were no common share equivalents for the six months ended June 30, 2000.
The weighted average number of common shares and equivalents outstanding
were 21,189,000 for the year 1999 and 21,208,000 for the six months ended
June 30, 2000.
-24-
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(Continued)
(A) The 1999 historical income statement for TBC excludes an after-tax charge
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, and an
after-tax net gain of $700,000, or $0.03 per share, related to the sale of
a distribution facility and the costs of relocating to four new
distribution centers.
(B) Distribution, selling and administrative expenses include the provisions
for doubtful accounts and notes.
(C) Interest expense and net other income/expense for Tire Kingdom reflect the
reclassification of interest income, which was previously netted against
interest expense.
(D) Pro forma adjustments to cost of sales include benefits from the combined
purchasing strength of TBC Corporation and Tire Kingdom. The savings
reflected represent amounts resulting from incremental purchasing
economies arising from the Acquisition and are based on agreements that
the Company currently has with suppliers. Management believes that the
total annual purchasing savings will be realized in the first year
following the Acquisition.
(E) Pro forma adjustments to distribution, selling and administrative expenses
for the year ended December 31, 1999 include additional amortization of
intangibles of $1.2 million, the elimination of a one-time adjustment by
Tire Kingdom of $675,000, and net savings of $1.2 million associated with
the administration of the combined companies. The net decrease in
administrative expenses is principally related to reductions in executive
staffing.
For the six months ended June 30, 2000, pro forma adjustments to
distribution, selling and administrative expenses include additional
amortization of intangibles of $602,000 and net savings of $600,000
associated with the administration of the combined companies.
The additional amortization of intangibles is principally related to the
increase in goodwill associated with the Acquisition. Such goodwill, as
well as intangible assets on the balance sheet of Tire Kingdom prior to
the Acquisition, is amortized over an estimated life of 20 years.
(F) Pro forma adjustments to interest expense include interest on the
additional borrowings to finance the Acquisition, additional fees on TBC's
short-term and long-term borrowing agreements, higher interest rates on
TBC's actual borrowings during the periods presented, and the elimination
of interest to Tire Kingdom stockholders related to the extinguishment of
related debt.
(G) Pro forma adjustments to other income/expense for the year ended December
31, 1999, represent the elimination of certain non-recurring items
recorded by Tire Kingdom, including a provision for restructuring.
(H) The provisions for income taxes were made after considering the
non-deductible nature of the additional amortization of intangible assets.
In addition, as a result of the Acquisition, the statutory Federal income
tax rate applied to Tire Kingdom's taxable earnings increased from 34% to
35%.
-25-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
<S> <C>
Page
----
Exhibit No. and Description:
(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. . . . *
(23) Consents of experts and counsel.
23.1 Consent of Arthur Andersen LLP to the incorporation by reference
into Registration Statement No. 33-43166 on Form S-8 for TBC
Corporation, of their report on the consolidated financial statements
of TKI Holdings, Inc. at and for the year ended December 31, 1999 . . 27
</TABLE>
* Indicates Exhibit was previously filed with the Commission. (As
permitted by Item 601(b)(2) of Regulation S-K, the Schedules delivered
by TKI Holdings, Inc. to TBC Corporation contemporaneously with the
execution of the above Merger Agreement are not being filed herewith. A
description of the contents of the Schedules is set forth on page (viii)
of the Merger Agreement. TBC Corporation agrees to furnish a copy of the
Schedules to the Commission upon request.)
-26-
<PAGE>
