<PAGE>
UNITED STATES
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 Quarter Ended June 30, 1996
---------------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
------------- -------------
Commission file number 0-19390
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TREADCO, INC.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 7534 and 5531 71-0706271
- ------------------------- ------------------------- ----------------------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code No.)
organization)
1101 South 21st Street
Fort Smith, Arkansas
72901
(501) 788-6400
- -----------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code, of
the registrant's principal executive offices)
Not Applicable
- -----------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 1, 1996
--------------------------------- --------------------------------
Common Stock, $.01 par value 5,072,255 shares
<PAGE>
TREADCO, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets --
June 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations --
For the Three and Six Months Ended
June 30, 1996 and 1995 5
Consolidated Statements of Cash Flows --
For the Three Months Ended June 30, 1996 and 1995 6
Notes to Consolidated Financial Statements --
June 30, 1996 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
<PAGE>
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
TREADCO, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30 December 31
1996 1995
(Unaudited) (Note)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ - $ 1,619,901
Accounts receivable:
Trade receivables, less allowances for
doubtful accounts (1996 -- $1,355,357;
1995 -- $1,000,000) 19,077,836 18,132,847
Other 5,196,422 6,830,994
Due from affiliates 160,866 247,550
Inventories - Note D 30,279,128 32,986,490
Prepaid expenses 215,581 217,393
Federal and state income taxes 814,759 -
Deferred income taxes 1,579,896 1,579,896
----------- -----------
Total Current Assets 57,324,488 61,615,071
PROPERTY, PLANT AND EQUIPMENT
Land 2,998,834 2,706,417
Structures 10,384,655 9,829,124
Retreading and other equipment 24,281,879 16,411,345
----------- -----------
37,665,368 28,946,886
Less allowances for depreciation (12,422,222) (12,607,866)
----------- -----------
25,243,146 16,339,020
OTHER ASSETS
Goodwill, less amortization
(1996 -- $3,215,820;
1995 -- $2,984,826) 13,387,137 13,618,131
Noncompete agreements, less
amortization (1996 -- $740,208;
1995 -- $609,583) 566,042 696,667
Other 2,294,609 765,787
----------- -----------
16,247,788 15,080,585
----------- -----------
$ 98,815,422 $ 93,034,676
=========== ===========
<PAGE>
<CAPTION>
TREADCO, INC.
CONSOLIDATED BALANCE SHEETS
June 30 December 31
1996 1995
(Unaudited) (Note)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Bank overdraft $ 418,983 $ -
Trade accounts payable 13,690,751 8,363,965
Due to affiliate 542,776 477,469
Accrued salaries, wages and other expenses 6,747,719 6,779,354
Federal and state income taxes - 253,678
Current portion of long-term debt 1,844,794 862,623
----------- -----------
TOTAL CURRENT LIABILITIES 23,245,023 16,737,089
LONG-TERM DEBT, less current portion 11,822,616 10,000,000
OTHER LIABILITIES 63,825 54,366
DEFERRED INCOME TAXES 54,926 225,245
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per
share -- authorized 2,000,000 shares;
none issued - -
Common stock, par value $.01 per share --
authorized 18,000,000 shares; issued and
outstanding 5,072,255 shares 50,723 50,723
Additional paid-in capital 45,623,346 45,623,346
Retained earnings 17,954,963 20,343,907
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 63,629,032 66,017,976
COMMITMENTS AND CONTINGENCIES -- Note E
----------- -----------
$ 98,815,422 $ 93,034,676
=========== ===========
<FN>
<F1>
Note: The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
<F2>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
TREADCO, INC.
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
(unaudited)
<S> <C> <C> <C> <C>
SALES
Non-affiliates $35,485,903 $37,451,191 $67,118,236 $70,714,066
Affiliates 628,592 606,746 1,129,897 1,193,885
----------- ----------- ----------- -----------
36,114,495 38,057,937 68,248,133 71,907,951
COSTS AND EXPENSES
Materials and cost
of new tires 26,337,098 26,451,165 49,902,860 50,077,953
Salaries and wages 5,532,265 5,019,884 10,800,126 9,681,445
Depreciation and
amortization 1,002,312 807,545 1,862,648 1,528,284
Administrative and
general 4,448,746 3,847,855 8,429,389 6,992,083
Amortization of
goodwill 115,497 115,497 230,994 230,994
----------- ----------- ----------- -----------
37,435,918 36,241,946 71,226,017 68,510,759
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (1,321,423) 1,815,991 (2,977,884) 3,397,192
OTHER INCOME
Interest income 3,982 6,923 19,111 18,251
Gain on asset sales 132,504 151,412 136,987 151,153
Other 37,349 28,937 62,155 73,075
----------- ----------- ----------- -----------
173,835 187,272 218,253 242,479
OTHER EXPENSES
Interest 157,984 121,892 318,453 160,503
Other amortization 65,313 65,313 130,625 130,625
----------- ----------- ----------- -----------
223,297 187,205 449,078 291,128
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES (1,370,885) 1,816,058 (3,208,709) 3,348,543
<PAGE>
<CAPTION>
Three Months Ended Year Ended
June 30 June 30
1996 1995 1996 1995
(unaudited)
<S> <C> <C> <C> <C>
FEDERAL AND STATE
INCOME TAXES
(CREDIT) -- Note C
Current (304,837) 804,938 (962,438) 1,512,400
Deferred (171,678) (66,595) (170,319) (142,894)
----------- ----------- ----------- -----------
(476,515) 738,343 (1,132,757) 1,369,506
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (894,370) $ 1,077,715 $(2,075,952) $ 1,979,037
=========== =========== =========== ===========
NET INCOME (LOSS)
PER SHARE $ (0.18) $ 0.21 $ (0.41) $ 0.39
=========== =========== =========== ===========
AVERAGE SHARES
OUTSTANDING 5,072,255 5,078,465 5,072,255 5,075,990
=========== =========== =========== ===========
CASH DIVIDENDS PAID
PER COMMON SHARE $ 0.04 $ 0.04 $ 0.08 $ 0.08
=========== =========== =========== ===========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
TREADCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Six Months Ended
June 30
1996 1995
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (2,075,952) $ 1,979,037
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization 1,862,648 1,528,284
Amortization of goodwill 230,994 230,994
Other amortization 130,625 130,625
Provision for losses on accounts
receivable 850,345 657,234
Credit for deferred income taxes (170,319) (142,894)
Gain on asset sales (136,987) (151,153)
Changes in operating assets and
liabilities:
Receivables (160,762) (1,565,274)
Inventories and prepaid expenses 2,709,174 (4,779,068)
Other assets (1,528,822) (140,896)
Trade accounts payable, accrued
expenses and taxes payable 4,226,714 (1,875,268)
Due to/from affiliates 151,991 558,582
Other liabilities 9,459 9,385
----------- -----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 6,099,108 (3,560,412)
INVESTING ACTIVITIES
Purchases of property, plant
and equipment (3,948,319) (3,768,079)
Proceeds from asset sales 171,690 198,374
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (3,776,629) (3,569,705)
FINANCING ACTIVITIES:
Borrowings under revolving
credit facility 5,610,000 9,000,000
Payments under revolving credit facility (9,610,000) (3,000,000)
Payments of other long-term debt (48,371) -
Dividends paid (312,992) (405,780)
Net increase in cash overdrafts 418,983 784,141
----------- -----------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (3,942,380) 6,378,361
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,619,901) (751,756)
Cash and cash equivalents at
beginning of period 1,619,901 751,756
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ - $ -
=========== ===========
<PAGE>
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
TREADCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE A -- ORGANIZATION
Treadco, Inc. (the "Company") was organized in June 1991 as the successor
to the truck tire retreading and new truck tire sales business previously
conducted and developed by a wholly owned subsidiary of Arkansas Best
Corporation ("ABC"). In September 1991 the Company completed an initial
public offering. At June 30, 1996, ABC owned approximately 46% of the
Company's outstanding shares.
NOTE B -- FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and six
months ended June 30, 1996, are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996. For further
information, refer to the Company's financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
NOTE C -- FEDERAL AND STATE INCOME TAXES
The following amounts and percentages, which relate to pre-tax income,
reflect the items included in income tax expense:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
($ thousands)
<S> <C> <C> <C> <C>
Income tax (credit) at
regular rates $(466,101) $ 617,460 $(1,090,961) $1,138,505
Percent (34.0)% 34.0% (34.0)% 34.0%
State taxes less
federal benefits (31,939) 83,971 (100,402) 157,774
Percent (2.3)% 4.6% (3.1)% 4.7%
Amortization of goodwill 35,200 43,843 70,401 87,685
Percent 2.6% 2.4% 2.2% 2.6%
Other items (13,675) (6,931) (11,795) (14,458)
Percent (1.0)% (0.4)% (0.4)% (0.4)%
--------- --------- ----------- ----------
Income tax expense
(benefit) $(476,515) $ 738,343 $(1,132,757) $1,369,506
Percent (34.7)% 40.6% (35.3)% 40.9%
========= ======== =========== ==========
</TABLE>
<PAGE>
NOTE D -- INVENTORIES
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
<S> <C> <C>
New tires and finished retreaded tires $ 23,397,470 $ 25,579,427
Materials and supplies 6,881,658 7,407,063
----------- -----------
$ 30,279,128 $ 32,986,490
=========== ===========
</TABLE>
NOTE E -- LITIGATION
Other than as discussed below, the Company is not a party to any pending
legal proceedings which management believes to be material to the financial
condition of the Company.
On October 30, 1995, the Company filed a lawsuit in Arkansas State Court
alleging that Bandag and certain of its officers and employees have violated
Arkansas statutory and common law in attempting to solicit the Company's
employees to work for Bandag or its competing franchisees and attempting to
divert customers from the Company. At the Company's request, the Court
entered a Temporary Restraining Order barring Bandag, the Company's former
officers J. J. Seiter, Ronald W. Toothaker, and Ronald W. Hawks and Bandag
officers Martin G. Carver and William Sweatman from soliciting or hiring the
Company's employees to work for Bandag or any of its franchisees, from
diverting or soliciting the Company's customers to buy from Bandag
franchisees other than Treadco, and from disclosing or using any of the
Company's confidential information.
On November 8, 1995, Bandag and the other named defendants asked the State
Court to stop its proceedings pending a decision by the United States
District Court, Western District of Arkansas, on a Complaint to Compel
Arbitration filed by Bandag in the Federal District Court on November 8,
1995.
The Federal District Court has ruled that under the terms of Treadco's
franchise agreements with Bandag, all of the issues involved in Treadco's
lawsuit against Bandag are to be decided by arbitration. Treadco and Bandag
are conducting discovery in preparation for the arbitration hearing. A date
for the arbitration hearing has not yet been set.
NOTE F -- LONG-TERM DEBT
The Company has a revolving credit agreement with Societe Generale (the
"Credit Agreement") providing for borrowings of up to the lesser of $20
million or the applicable borrowing base. The Credit Agreement expires in
September 1998 unless renewed or extended. Borrowings under the Credit
Agreement bear interest, at the Company's option, at 3/4% above the bank's
LIBOR rate, or at the higher of the bank's prime rate or the "federal funds
rate" plus 1/2%. At June 30, 1996 the average interest rate on the Credit
Agreement was 6.2%. The Company pays a commitment fee of 3/8% on the unused
amount under the Credit Agreement. There was $6 million borrowed under the
Credit Agreement as of June 30, 1996.
<PAGE>
During the second quarter, 1996, the Company entered into notes payable and
capital leases agreements for equipment purchases totaling $6.8 million,
which have 3 to 11 year maturities and interest rates ranging from 5% to
7.5%.
<PAGE>
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
In August 1995, Bandag, Incorporated ("Bandag") informed the Company that it
would not renew the Company's eight franchise agreements which expired in the
summer of 1996. The Company subsequently entered into an agreement with
Oliver Rubber Company ("Oliver") to be a supplier of equipment and related
materials for the eight franchised locations and any other Company facility
which ceased being a Bandag franchised location. Bandag subsequently advised
the Company that unless the Company used the Bandag retread process
exclusively, Bandag would not renew any of the Company's franchise agreements
when they expire.
As of June 30, 1996, the Company has converted sixteen of its production
facilities that were operated as Bandag retread franchises to Oliver licensed
facilities. The Company plans to complete the conversion of its remaining
Bandag franchises to the Oliver process by the end of the third quarter. Also
in conjunction with the conversion of the production facilities, Treadco has
switched to selling Oliver retreads at an additional 21 sales locations
served by the converted production facilities.
The conversion has resulted in up to two lost production days during each
change, some short-term operational inefficiencies and time lost as
production employees have familiarized themselves with the new equipment.
Also, management has been required to spend time with the conversion at the
expense of the normal daily operations.
In July, the company expanded its operations in the Los Angeles, CA market
with the purchase of Five Bros., Incorporated's assets in Walnut and Ontario,
CA. The Company purchased these assets for $1.1 million. The Walnut location
gives the company its first tire production facility in the Los Angeles area.
The following table sets forth for the periods indicated a summary of the
Company's operating costs and expenses as a percentage of sales.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
COSTS AND EXPENSES
Materials and cost of new tires 73.0% 69.5% 73.2% 69.6%
Salaries and wages 15.3 13.2 15.8 13.5
Depreciation and amortization 2.8 2.1 2.7 2.1
Administrative and general 12.3 10.1 12.4 9.7
Amortization of goodwill 0.3 0.3 0.3 0.4
----- ---- ----- ----
103.7% 95.2% 104.4% 95.3%
===== ==== ===== ====
</TABLE>
The Company is affected by seasonal fluctuations, which influence the demand
for retreads and new tires. The Company generally experiences reduced demand
for retreads and new tires in the first quarter due to more difficult driving
and tire maintenance conditions resulting from inclement weather. The Company
is also subject to cyclical national and regional economic conditions.
<PAGE>
Three Months Ended June 30, 1996 as Compared to Three Months
Ended June 30, 1995
Sales (including sales to affiliates) for the three months ended June 30,
1996 decreased 5.1% to $36.1 million from $38.1 million for the three months
ended June 30, 1995. Sales from retreading for the three months ended June
30, 1996 were $18.3 million, a 10% decrease from $20.4 million during the
three months ended June 30, 1995. Sales of new tires for the three months
ended June 30, 1996 were $17.8 million, a 0.5% increase from $17.7 million
during the three months ended
June 30, 1995. During the three months ended June 30, 1996, the Company sold
approximately 145,000 retreaded truck tires, a decrease of 10.7% from the
three months ended June 30, 1995 and new tires sold decreased 1.9% to 99,000
tires.
Economic conditions continued to weaken demand for both new replacement and
retreaded truck tires during the quarter. The Company faces new competition
at many of its locations, which has placed added pricing pressure in the
marketplace. As anticipated, Bandag, Inc. continues to target the Company's
accounts which has caused difficulty in retaining the national account
business and in some cases the business retained is at lower margins.
Retread sales for the three months ended June 30, 1995 included $600,000 of
casing sales from the operations of the Company's subsidiary. The Company has
since discontinued its retail casing business because the operations were not
profitable.
For the three months ended June 30, 1996, "same store" sales decreased 9.2%
which was offset in part by a 4.1% increase from "new store" sales. "Same
store" sales include both production locations and sales locations that have
been in existence for the entire periods presented. "New store" sales
resulted from two new production facilities and four new sales locations.
Operating costs and expenses were $37.4 million for the three months ended
June 30, 1996 compared to $36.2 million during the three months ended
June 30, 1995. The decrease in sales and increase in operating costs and
expenses resulted in operating loss of $1.3 million compared to operating
income of $1.8 million during the three months ended June 30, 1995. The
Company had a net loss of $894,000, or $.18 loss per share, compared to net
income of $1,078,000, or $.21 per share during the three months of June 30,
1995. Average shares outstanding were 5.1 million for each of the three
months ended June 30, 1996 and 1995.
Operating costs and expenses as a percent of sales were 103.7% for the three
months ended June 30, 1996 compared to 95.2% for the three months ended June
30, 1995. Materials and cost of new tires as a percent of sales increased to
73.0% for the three months ended June 30, 1996 from 69.5% during the three
months ended June 30, 1995, resulting primarily from expenses incurred during
the conversion process and because increased pricing pressures have reduced
margins. Salaries and wages as a percent of sales increased to 15.3 % for the
three months ended June 30, 1996 from 13.2 % during the three months ended
June 30, 1995 resulting from increased costs associated with the conversion
from Bandag, a smaller revenue base and from labor costs at six new locations
which have not reached adequate productivity levels. Administrative and
general expenses as a percent of sales increased to 12.3% for the three
months ended June 30, 1996 from 10.1% for the three months ended June 30,
1995. The increase resulted from several factors including costs associated
with the conversion from Bandag, higher insurance costs, expenses associated
with employee medical benefits and increased service expenses.
<PAGE>
Interest expense for the three months ended June 30, 1996 was $158,000
compared to $122,000 for the three months ended June 30, 1995. The increase
resulted primarily from the increase in debt outstanding relating to
equipment purchases.
The difference between the effective tax rate for the three months ended
June 30, 1996 and the federal statutory rate resulted primarily from state
income taxes, amortization of goodwill and other nondeductible expenses (see
Note C to the unaudited consolidated financial statements).
Six Months Ended June 30, 1996 as Compared to Six Months
Ended June 30, 1995
Sales (including sales to affiliates) for the six months ended June 30, 1996
decreased 5.1% to $68.2 million from $71.9 million for the six months ended
June 30, 1995. Sales from retreading for the six months ended June 30, 1996
were $35.4 million, a 8.5% decrease from $38.7 million during the six months
ended June 30, 1995. Sales of new tires for the six months ended June 30,
1996 were $32.8 million, a 1.1% decrease from $33.2 million during the six
months ended June 30, 1995. During the six months ended June 30, 1996, the
Company sold approximately 282,000 retreaded truck tires, a decrease of 7.9%
from the six months ended June 30, 1995 and new tires sold decreased 3.2% to
180,000 tires.
Economic conditions continued to weaken demand for both new replacement and
retreaded truck tires during the quarter. The Company faces new competition
at many of its locations, which has placed added pricing pressure in the
marketplace. As anticipated, Bandag, Inc. continues to target the Company's
accounts which has caused difficulty in retaining the national account
business and in some cases the business retained is at lower margins.
Retread sales for the six months ended June 30, 1995 included $1.8 million of
casing sales from the operations of the Company's subsidiary. The Company has
since discontinued its retail casing business because the operations were not
profitable.
For the six months ended June 30, 1996, "same store" sales decreased 8.2%
which was offset in part by a 3.1% increase from "new store" sales. "Same
store" sales include both production locations and sales locations that have
been in existence for the entire periods presented. "New store" sales
resulted from two new production facilities and four new sales locations.
Operating costs and expenses were $71.2 million for the six months ended
June 30, 1996 compared to $68.5 million during the six months ended June 30,
1995. The decrease in sales and increase in operating costs and expenses
resulted in an operating loss of $3.0 million compared to operating income of
$3.4 million during the six months ended June 30, 1995. The Company had a net
loss of $2.1 million, or $.41 loss per share, compared to net income of $2.0
million, or $.39 per share during the six months of June 30, 1995. Average
shares outstanding were 5.1 million for each of the six months ended June 30,
1996 and 1995.
<PAGE>
Operating costs and expenses as a percent of sales were 104.4% for the six
months ended June 30, 1996 compared to 95.3% for the six months ended
June 30, 1995. Materials and cost of new tires as a percent of sales
increased to 73.2% for the six months ended June 30, 1996 from 69.6% during
the six months ended June 30, 1995, resulting primarily from expenses
incurred during the conversion process and because increased pricing
pressures have reduced margins. Salaries and wages as a percent of sales
increased to 15.8 % for the six months ended June 30, 1996 from 13.5 % during
the six months ended June 30, 1995 resulting from increased costs associated
with the conversion from Bandag, a smaller revenue base and from labor costs
at six new locations which have not reached adequate productivity levels.
Administrative and general expenses as a percent of sales increased to 12.4%
for the six months ended June 30, 1996 from 9.7% for the six months ended
June 30, 1995. The increase resulted from several factors including costs
associated with the conversion from Bandag, higher insurance costs, expenses
associated with employee medical benefits and increased legal fees relating
to the Bandag lawsuit.
Interest expense for the six months ended June 30, 1996 was $318,000 compared
to $161,000 for the six months ended June 30, 1995. The increase resulted
primarily from the increase in debt outstanding relating to equipment
purchases and working capital needs.
The difference between the effective tax rate for the six months ended
June 30, 1996 and the federal statutory rate resulted primarily from state
income taxes, amortization of goodwill and other nondeductible expenses (see
Note C to the unaudited consolidated financial statements).
Liquidity and Capital Resources
The ratio of current assets to current liabilities was 2.47:1 at June 30,
1996, compared to 3.68:1 at December 31, 1995. Net cash provided by operating
activities was $6.1 million for the six months ended June 30, 1996, compared
to net cash used of $3.6 million for the six months ended June 30, 1995. The
increase is due primarily to the changes in inventories and accounts payable
offset in part by the Company's net loss.
The Company is a party to a revolving credit facility with Societe Generale
(the "Credit Agreement") providing for borrowings of up to the lesser of $20
million or the applicable borrowing base. The Company's borrowing base under
the Credit Agreement is equal to 80% of its eligible accounts receivable and
50% of its inventory consisting of tire casings, new tires and finished
retreads. At June 30, 1996, the borrowing base was $27.6 million. The Credit
Agreement expires in September 1998, unless renewed or extended. Borrowings
under the Credit Agreement bear interest, at the Company's option, at 3/4%
above the bank's LIBOR rate, or at the higher of the bank's prime rate or the
"federal funds rate" plus 1/2%. At June 30, 1996, the average interest rate
on the Credit Agreement was 6.2%. The Company pays a commitment fee of 3/8%
on the unused amount under the Credit Agreement. There was $6 million
borrowed under the Credit Agreement as of June 30, 1996.
The Credit Agreement contains various covenants which limit, among other
things, dividends, disposition of receivables, indebtedness and investments,
as well as requiring the Company to meet certain financial tests which have
been met.
<PAGE>
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company is named as a defendant in legal actions,
the majority of which arise out of the normal course of its business. Other
than as discussed below, the Company is not a party to any pending legal
proceeding which the Company's management believes to be material to the
financial condition of the Company. The Company generally maintains liability
insurance against risks arising out of the normal course of its business.
On October 30, 1995, the Company filed a lawsuit in Arkansas State Court
alleging that Bandag and certain of its officers and employees have violated
Arkansas statutory and common law in attempting to solicit the Company's
employees to work for Bandag or its competing franchisees and attempting to
divert customers from Treadco. At the Company's request, the Court entered a
Temporary Restraining Order barring Bandag, Treadco's former officers J. J.
Seiter, Ronald W. Toothaker, and Ronald W. Hawks and Bandag officers Martin
G. Carver and William Sweatman from soliciting or hiring Treadco's employees
to work for Bandag or any of its franchises, from diverting or soliciting
Treadco's customers to buy from Bandag franchises other than Treadco, and
from disclosing or using any of Treadco's confidential information.
On November 8, 1995, Bandag and the other named defendants asked the State
Court to stop its proceedings pending a decision by the United States
District Court, Western District of Arkansas, on a Complaint to Compel
Arbitration filed by Bandag in the Federal District Court on November 8,
1995.
The Federal District Court has ruled that under the terms of Treadco's
franchise agreements with Bandag, all of the issues involved in Treadco's
lawsuit against Bandag are to be decided by arbitration. Treadco and Bandag
are conducting discovery in preparation for the arbitration hearing. A date
for the arbitration hearing has not yet been set.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
None
<PAGE>
SIGNATURES
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.
TREADCO, INC.
(Registrant)
Date: August 13, 1996 s/Donald L. Neal
Donald L. Neal
Senior Vice President - Chief
Financial Officer
and Principal Accounting
Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TREADCO,
INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000876948
<NAME> TREADCO, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 19,077,836
<ALLOWANCES> 1,355,357
<INVENTORY> 30,279,128
<CURRENT-ASSETS> 57,324,488
<PP&E> 37,665,368
<DEPRECIATION> 12,422,222
<TOTAL-ASSETS> 98,815,422
<CURRENT-LIABILITIES> 23,245,023
<BONDS> 11,822,616
0
0
<COMMON> 50,723
<OTHER-SE> 63,578,309
<TOTAL-LIABILITY-AND-EQUITY> 98,815,422
<SALES> 68,248,133
<TOTAL-REVENUES> 0
<CGS> 49,902,860
<TOTAL-COSTS> 71,226,017
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 850,345
<INTEREST-EXPENSE> 318,453
<INCOME-PRETAX> (3,208,709)
<INCOME-TAX> (1,132,757)
<INCOME-CONTINUING> (2,075,952)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,075,952)
<EPS-PRIMARY> (.41)
<EPS-DILUTED> (.41)
<PAGE>
</TABLE>
