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 SEPTEMBER 30, 2000
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
21,228,765 Shares of Common Stock were outstanding as of September 30, 2000.
INDEX TO EXHIBITS at page 13 of this Report
-----------------
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TBC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
September 30, December 31,
2000 1999
---------- ---------
CURRENT ASSETS: (Unaudited)
Cash and cash equivalents $ 2,089 $ 1,273
Accounts and notes receivable, less
allowance for doubtful accounts of
$8,037 on September 30, 2000 and
$7,751 on December 31, 1999:
Related parties 19,294 9,546
Other 110,564 75,756
-------- --------
Total accounts and notes receivable 129,858 85,302
Inventories 157,695 138,054
Refundable federal and state income taxes 3,088 3,306
Deferred income taxes 12,395 6,079
Other current assets 10,555 15,553
-------- --------
Total current assets 315,680 249,567
-------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land and improvements 8,088 8,129
Buildings and leasehold improvements 30,387 27,330
Furniture and equipment 48,776 35,124
-------- --------
87,251 70,583
Less accumulated depreciation 30,210 25,269
-------- --------
Total property, plant and equipment 57,041 45,314
-------- --------
TRADEMARKS, NET 16,100 16,437
-------- --------
GOODWILL, NET 49,856 18,018
-------- --------
OTHER ASSETS 23,202 19,037
-------- --------
TOTAL ASSETS $461,879 $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
September 30, December 31,
2000 1999
---------- ---------
CURRENT LIABILITIES: (Unaudited)
Outstanding checks, net $ 5,673 $ 5,170
Notes payable to banks 107,027 63,762
Current portion of long-term debt
and capital lease obligations 6,940 6,514
Accounts payable, trade 78,440 40,417
Other current liabilities 41,171 20,035
-------- --------
Total current liabilities 239,251 135,898
-------- --------
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, LESS CURRENT PORTION 40,636 47,000
-------- --------
NONCURRENT LIABILITIES 5,388 1,420
-------- --------
DEFERRED INCOME TAXES 5,706 7,673
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value,
shares issued and outstanding -
21,229 on September 30, 2000 and
21,182 on December 31, 1999 2,123 2,118
Additional paid-in capital 9,894 9,639
Retained earnings 158,881 144,625
-------- --------
Total stockholders' equity 170,898 156,382
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $461,879 $348,373
======== ========
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
TBC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES * $ 267,883 $ 210,469 $ 651,706 $ 560,335
--------- --------- --------- ---------
COSTS AND EXPENSES:
Cost of sales 205,608 173,221 515,855 462,153
Distribution 13,422 12,588 36,370 33,203
Selling and administrative 37,085 12,340 68,737 34,354
Provision for doubtful accounts and notes 286 128 693 5,307
Interest expense 3,453 1,994 8,355 5,481
Other (income) expense - net (683) (514) (1,739) (1,118)
--------- --------- --------- ---------
Total costs and expenses 259,171 199,757 628,271 539,380
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 8,712 10,712 23,435 20,955
PROVISION FOR INCOME TAXES 3,410 4,155 9,179 8,282
--------- --------- --------- ---------
NET INCOME $ 5,302 $ 6,557 $ 14,256 $ 12,673
========= ========= ========= =========
EARNINGS PER SHARE -
Basic and diluted $ .25 $ .31 $ .67 $ .60
========= ========= ========= =========
</TABLE>
* Including sales to related parties of $23,707 and $23,141 in the three
months ended September 30, 2000 and 1999, respectively and $65,164 and
$59,263 in the nine months ended September 30, 2000 and 1999.
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
---------- ------ ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Nine Months Ended
September 30, 1999
------------------
BALANCE, JANUARY 1, 1999 21,172 $ 2,117 $ 9,540 $ 126,774 $ 138,431
Net income for period 12,673 12,673
Issuance of common stock under
stock option and incentive plan 23 2 95 -- 97
Repurchase and retirement
of common stock (13) (1) (6) (88) (95)
Tax benefit from exercise of
stock options -- -- 10 -- 10
--------- --------- --------- --------- ---------
BALANCE, SEPTEMBER 30, 1999 21,182 $ 2,118 $ 9,639 $ 139,359 $ 151,116
========= ========= ========= ========= =========
Nine Months Ended
September 30, 2000
------------------
BALANCE, JANUARY 1, 2000 21,182 $ 2,118 $ 9,639 $ 144,625 $ 156,382
Net income for period 14,256 14,256
Issuance of common stock
under stock option and
incentive plan, net 47 5 255 -- 260
--------- --------- --------- --------- ---------
BALANCE, SEPTEMBER 30, 2000 21,229 $ 2,123 $ 9,894 $ 158,881 $ 170,898
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
TBC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
2000 1999
--------- ---------
<S> <C> <C>
Operating Activities:
Net income $ 14,256 $ 12,673
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 6,704 5,271
Amortization 1,322 824
Provision for doubtful accounts and notes 693 5,307
Loss on sale of fixed assets 2 --
Deferred income taxes 549 (591)
Equity in (earnings) loss from joint ventures (216) 142
Changes in operating assets and liabilities,
net of effect of acquisition:
Receivables (35,755) (26,423)
Inventories 8,797 (18,430)
Other current assets 7,881 (5,094)
Other assets (1,474) (485)
Accounts payable, trade 14,197 20,340
Federal and state income taxes
refundable or payable 236 419
Other current liabilities (2,472) 3,912
Noncurrent liabilities 155 (1,392)
-------- --------
Net cash provided by (used in) operating activities 14,875 (3,527)
-------- --------
Investing Activities:
Purchase of property, plant and equipment (8,842) (12,306)
Acquisition of Tire Kingdom, Inc., net of cash acquired (43,404) --
Investments in joint ventures, net of distributions received 107 (75)
Proceeds from asset dispositions 947 --
Other -- 325
-------- --------
Net cash used in investing activities (51,192) (12,056)
-------- --------
Financing Activities:
Net bank borrowings under short-term
borrowing arrangements 43,265 11,931
Increase in outstanding checks, net 503 11,605
Payments on long-term debt and capital lease obligations (6,635) (7,659)
Issuance of common stock under stock option
and incentive plans -- 67
Repurchase and retirement of common stock -- (95)
-------- --------
Net cash provided by (used in) financing activities 37,133 15,849
-------- --------
Change in cash and cash equivalents 816 266
Cash and cash equivalents:
Balance - Beginning of year 1,273 1,699
-------- --------
Balance - End of period $ 2,089 $ 1,965
======== ========
</TABLE>
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<PAGE>
TBC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
2000 1999
--------- ---------
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid for - Interest $ 7,534 $ 5,464
- Income Taxes 8,394 8,454
Supplemental Disclosure of Non-Cash Financing Activity:
Tax benefit from exercise of stock options - 10
Issuance of restricted stock under stock incentive plan 260 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.
-7-
<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 September
30, 2000, and the consolidated statements of income, stockholders'
equity and cash flows for the periods ended September 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 September 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):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2000 1999 2000 1999
------- ------- ------- ------
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding 21,228 21,178 21,215 21,175
Common share equivalents 2 16 1 14
------- ------- ---------- ---------
Weighted average common shares
and equivalents outstanding 21,230 21,194 21,216 21,189
====== ====== ====== ======
</TABLE>
-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 149 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 $747,626,000 and $729,089,000 for the nine months ended
September 30, 2000 and 1999, respectively. Pro forma net income was
$14,580,000 in the first nine months of 2000 and $16,034,000 in the
year-earlier period. Pro forma earnings per share were $.69 and $.76 in the
first nine months of 2000 and 1999, respectively.
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
September 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
September 30, 2000. The Company's financial position at September 30, 2000
included working capital of $76.4 million.
Current accounts and notes receivable increased by $44.6 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. The
increases in inventory, property, plant and equipment, goodwill, other assets
and other current liabilities were 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 $81.0 million from December 31, 1999 to
September 30, 2000. This increase, together with cash generated from operations,
enabled the Company to fund the Tire Kingdom acquisition and increased level of
receivables. In addition, the Company was able to fund capital expenditures of
$8.8 million and reduce long-term debt and capital lease obligations by $6.6
million during the first nine 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
September 30, 2000 and the year-earlier periods.
Net sales increased 27.3% during the third quarter and 16.3% during the
first nine months of 2000 compared to the year-earlier levels. Sales of tires
accounted for approximately 87% of total sales during the current quarter versus
94% in the third quarter of 1999. For the first nine months, tires accounted for
90% of total sales in 2000 and 93% in the year-earlier period. Unit tire
shipments increased 12.0% in the third quarter and 7.8% in the first nine
months, compared to the year-earlier results. The average tire sales price
increased 6.3% in the current quarter and 4.1% 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 Tire Kingdom
acquisition. 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 results of Tire Kingdom, unit tire volume declined 3.4%
in the third quarter and increased 0.3% in the year-to-date period, and the
average tire sales price increased 1.0% in the current quarter and 1.4% in the
nine-month period. Industrywide pricing pressures, prevalent throughout most of
the last several years, continued through the first nine months of 2000, and the
Company's results were also affected by changes in the customer mix.
-10-
<PAGE>
Cost of sales as a percentage of net sales decreased from 82.3% in the
third quarter of 1999 to 76.8% in the current quarter. For the year-to-date
period, cost of sales declined from 82.5% in 1999 to 79.2% in 2000. The
reductions were due largely to the impact of the Tire Kingdom acquisition, since
the gross margin percentages on Tire Kingdom's retail sales are generally higher
than on sales to the Company's other customers. Excluding the impact of Tire
Kingdom, the cost of sales as a percentage of net sales was 83.1% in the current
quarter and 82.4% in the first nine months of 2000. The increased cost of sales
percentage in the current quarter was due in part to a reduction in certain
volume-based discounts from suppliers, since the Company reduced purchases in an
effort to lower inventories. The higher cost of sales percentage also reflected
industrywide competitive pressures.
Distribution expenses as a percentage of net sales were 5.0% in the
current quarter compared to 6.0% in the third quarter of 1999. For the first
nine months, distribution expenses were 5.6% 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 5.9%
of net sales in the current quarter and 6.1% during the first nine months of
2000.
Selling and administrative expenses increased $24.7 million in the
third quarter and $34.4 million in the first nine months of 2000, compared to
the year-earlier levels, due principally to the Tire Kingdom acquisition. The
expenses for Tire Kingdom totaled $25.5 million in the current quarter and $33.5
million in the year-to-date period and included payroll and operating costs for
their retail stores in addition to their other selling and administrative
expenses. Excluding Tire Kingdom's expenses, selling and administrative expenses
were down 6.5% in the current quarter compared to the third quarter of 1999. For
the nine-month period, excluding Tire Kingdom, selling and administrative
expenses increased 2.5%, due largely to increased compensation expenses in the
first quarter associated with higher staffing levels.
The provision for doubtful accounts and notes in the first nine months
of 1999 was greater than in the current year-to-date period, 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 that charge and the
impact of Tire Kingdom on current quarter and year-to-date results, the
provision for doubtful accounts and notes decreased compared to the year-earlier
levels.
Interest expense increased $1.5 million in the third quarter and $2.9
million in the first nine months of 2000 compared to the same periods in 1999.
The increases were attributable to the combined effects of higher short-term
borrowing levels and higher interest rates, both of which were significantly
affected by the Tire Kingdom acquisition (see Note 4 to the financial
statements).
Net other income was greater in the third quarter and first nine 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.
The Company's effective tax rate did not change significantly between
periods. In the current quarter, the effective tax rate was 39.1% compared to
38.8% in the third quarter of 1999. During the first nine months, the rate was
39.2% in 2000 versus 39.5% in 1999.
Earnings per share in the first nine months of 1999 included a charge
of $.13 from 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.
-11-
<PAGE>
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 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits - See Index to Exhibits
(b) Reports on Form 8-K.
During the quarter ended September 30, 2000, the Company
filed a report on Form 8-K/A-1, in conjunction with a
Current Report on Form 8-K dated June 5, 2000 and filed on
June 20, 2000. Such Form 8-K/A-1 provided required
information with respect to TBC's acquisition of Tire
Kingdom, Inc., including financial statements and pro forma
financial information required by Item 7.
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
October 31, 2000 By /s/ Ronald E. McCollough
---------------- ------------------------
Ronald E. McCollough
Executive Vice President,
Chief Financial Officer
and Treasurer
-12-
<PAGE>
INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
Located at
Sequentially
Exhibit No. Description Numbered Page
----------- ----------- -------------
<S> <C> <C>
(10) MATERIAL CONTRACTS
Material Contracts and Compensatory Plans or Arrangements
---------------------------------------------------------
10.1 TBC Corporation 2000 Stock Option Plan was filed as
Exhibit 4.3 to TBC Corporation Registration Statement
on Form S-8 filed on October 27, 2000. . . . . . . . . . .. . . *
</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>
