[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-11579
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
21,214,272 Shares of Common Stock were outstanding as of June 30, 2002.
TBC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
June 30, December 31,
2002 2001
---- ----
CURRENT ASSETS: (Unaudited)
Cash and cash equivalents $ 2,215 $ 2,298
Accounts and notes receivable, less
allowance for doubtful accounts of
$7,979 on June 30, 2002 and
$7,737 on December 31, 2001:
Related parties 24,495 17,173
Other 118,664 95,848
------- ------
Total accounts and notes receivable 143,159 113,021
Inventories 183,513 172,431
Refundable federal and state income taxes 1,213 2,349
Deferred income taxes 11,256 11,501
Other current assets 18,050 16,999
------ ------
Total current assets 359,406 318,599
------- -------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land and improvements 5,130 5,032
Buildings and leasehold improvements 24,767 22,948
Furniture and equipment 60,278 52,591
------ ------
90,175 80,571
Less accumulated depreciation 39,193 33,650
------ ------
Total property, plant and equipment 50,982 46,921
------ ------
TRADEMARKS, NET 15,824 15,824
------ ------
GOODWILL, NET 58,182 51,291
------ ------
OTHER ASSETS 27,203 30,325
------ ------
TOTAL ASSETS $511,597 $462,960
======== ========
See accompanying notes to consolidated financial statements.
-2-
TBC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
2002 2001
---- ----
CURRENT LIABILITIES: (Unaudited)
Outstanding checks, net $ 14,389 $ 5,916
Notes payable to banks 53,500 34,200
Current portion of long-term debt
and capital lease obligations 18,006 16,533
Accounts payable, trade 67,264 53,227
Other current liabilities 42,434 41,516
------ ------
Total current liabilities 195,593 151,392
------- -------
LONG-TERM DEBT, LESS CURRENT PORTION 92,495 101,000
------ -------
NONCURRENT LIABILITIES 11,665 11,721
------ ------
DEFERRED INCOME TAXES 4,607 4,528
----- -----
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value,
shares issued and outstanding -
21,214 on June 30, 2002 and
21,003 on December 31, 2001 2,121 2,100
Additional paid-in capital 15,995 11,783
Other comprehensive income (703) (713)
Retained earnings 189,824 181,149
------- -------
Total stockholders' equity 207,237 194,319
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 511,597 $ 462,960
========= =========
See accompanying notes to consolidated financial statements.
-3-
TBC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2002 2001 2002 2001
---- ---- ---- ----
NET SALES * $ 286,718 $ 255,486 $ 536,422 $ 482,679
COST OF SALES 210,788 188,562 394,270 354,027
------- ------- ------- -------
GROSS PROFIT 75,930 66,924 142,152 128,652
------ ------ ------- -------
EXPENSES:
Distribution expenses 12,942 12,547 25,439 24,742
Selling, administrative and
retail store expenses 50,294 42,806 94,775 82,938
Interest expense - net 2,313 2,835 4,334 6,258
Other (income) expense - net (677) (587) (1,041) (1,231)
---- ---- ------ ------
Total expenses 64,872 57,601 123,507 112,707
------ ------ ------- -------
INCOME BEFORE INCOME TAXES 11,058 9,323 18,645 15,945
PROVISION FOR INCOME TAXES 4,243 3,798 7,023 6,590
----- ----- ----- -----
NET INCOME $ 6,815 $ 5,525 $ 11,622 $ 9,355
========= ========= ========= =========
EARNINGS PER SHARE -
Basic $ .32 $ .26 $ .55 $ .45
========= ========= ========= =========
Diluted $ .31 $ .26 $ .53 $ .44
========= ========= ========= =========
* Including sales to related parties of $26,000 and $22,812 in the three months ended June 30,
2002 and 2001, respectively and $52,082 and $43,336 in the six months ended June 30, 2002
and 2001, respectively.
See accompanying notes to consolidated financial statements.
-4-
TBC CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
Common Stock Other
------------------ Additional Compre-
Number of Paid-In hensive Retained
Shares Amount Capital Income Earnings Total
------ ------ ------- ------ -------- -----
Six Months Ended
June 30, 2001
-------------
BALANCE, JANUARY 1, 2001 20,939 $ 2,094 $ 9,760 $ -- $ 162,198 $ 174,052
Net income for period 9,355 9,355
Issuance of common stock
under stock option and
incentive plans, net 78 8 467 -- -- 475
Repurchase and retirement
of common stock (30) (3) (15) -- (243) (261)
Tax benefit from exercise of
stock options -- -- 29 -- -- 29
Other comprehensive income
associated with interest rate
swap agreements, net -- -- -- (488) -- (488)
------ --------- --------- --------- --------- --------- ---- ----
BALANCE, JUNE 30, 2001 20,987 $ 2,099 $ 10,241 $ (488) $ 171,310 $ 183,162
====== ========= ========= ========= ========= =========
Six Months Ended
June 30, 2002
-------------
BALANCE, JANUARY 1, 2002 21,003 $ 2,100 $ 11,783 $ (713) $ 181,149 $ 194,319
Net income for period 11,622 11,622
Issuance of common stock
under stock option and
incentive plans, net 441 44 3,544 -- -- 3,588
Repurchase and retirement
of common stock (230) (23) (138) -- (2,947) (3,108)
Tax benefit from exercise of
stock options -- -- 806 -- -- 806
Change in other comprehensive
income associated with interest
rate swap agreements -- -- -- 10 -- 10
------ --------- --------- -------- --------- ---------
BALANCE, JUNE 30, 2002 21,214 $ 2,121 $ 15,995 $ (703) $ 189,824 $ 207,237
====== ========= ========= ======== ========= =========
See accompanying notes to consolidated financial statements.
-5-
TBC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months
Ended June 30,
--------------
2002 2001
---- ----
Operating Activities:
Net income $ 11,622 $ 9,355
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 6,292 5,861
Amortization of intangible assets 3 1,366
Amortization of other comprehensive income 40 85
Provision for doubtful accounts and notes 1,219 1,063
(Gain) loss on sale of fixed assets (50) (234)
Deferred income taxes 307 142
Equity in (earnings) loss from joint ventures (55) 4
Changes in operating assets and liabilities,
net of effect of assets acquired:
Receivables (30,151) (10,661)
Inventories (9,483) (7,303)
Other current assets (843) (2,476)
Other assets 1,607 (4,882)
Accounts payable, trade 14,037 (14,766)
Federal and state income taxes
refundable or payable 1,942 839
Other current liabilities 861 123
Noncurrent liabilities (113) 124
---- ---
Net cash used in operating activities (2,765) (21,360)
------ -------
Investing Activities:
Purchase of property, plant and equipment (7,146) (4,176)
Purchase of net assets of retail tire stores (10,781) (3,644)
Investments in joint ventures and other entities,
net of distributions received 361 (145)
Proceeds from asset dispositions 453 6,958
Other -- 85
------- ----
Net cash used in investing activities (17,113) (922)
------- ----
Financing Activities:
Net bank borrowings under short-term
borrowing arrangements 19,300 20,007
Increase (decrease) in outstanding checks, net 8,473 544
Proceeds from long-term debt -- 4,000
Reduction of long-term debt and capital lease obligations (8,282) (2,559)
Issuance of common stock under stock option
and incentive plans 3,412 439
Repurchase and retirement of common stock (3,108) (261)
------ ----
Net cash provided by financing activities 19,795 22,170
------ ------
Change in cash and cash equivalents (83) (112)
Cash and cash equivalents:
Balance - Beginning of year 2,298 1,681
----- -----
Balance - End of period $ 2,215 $ 1,569
======== ========
-6-
TBC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
(Unaudited)
Six Months
Ended June 30,
--------------
2002 2001
---- ----
Supplemental Disclosures of Cash Flow Information:
Cash paid for - Interest $ 4,265 $ 5,094
- Income Taxes 4,774 5,610
Supplemental Disclosure of Non-Cash Financing Activity:
Tax benefit from exercise of stock options 806 29
Issuance of restricted stock under stock incentive plan,
net of shares received for tax withholding 176 36
Supplemental Disclosure of Non-Cash Investing
and Financing Activities:
In the first six months of 2002, the Company purchased
the assets of certain retail tire stores located in the
midwestern United States. The transaction was accounted
for under the purchase method, as follows:
Estimated fair value of assets acquired 3,890
Goodwill 6,891
Cash paid (10,781)
-------
Liabilities assumed $ --
=======
In the first six months of 2001, the Company purchased
the assets of certain retail tire stores located in the
southeastern United States. The transaction was accounted
for under the purchase method, as follows:
Estimated fair value of assets acquired 708
Goodwill 2,936
Cash paid (3,644)
------
Liabilities assumed $ --
======
See accompanying notes to consolidated financial statements.
-7-
The December 31, 2001 balance sheet was derived from audited financial statements. The consolidated balance sheet as of June 30, 2002, and the consolidated statements of income, stockholders' equity and cash flows for the periods ended June 30, 2002 and 2001, have been prepared by the Company, without audit. It is Management's opinion that these statements include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows as of June 30, 2002 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 2001 Annual Report.
Certain reclassifications have been made in the statement of cash flows for the six months ended June 30, 2001, to conform to the 2002 presentation, with no effect on previously reported net income.
Basic earnings per share have been computed by dividing net income by the weighted average number of shares of common stock outstanding. Diluted earnings per share have been computed by dividing net income by the weighted average number of common shares and equivalents outstanding. Common share equivalents, if any, represent shares issuable upon assumed exercise of stock options. The weighted average number of common shares and equivalents outstanding were as follows (in thousands):
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2002 2001 2002 2001
---- ---- ---- ----
Weighted average common
shares outstanding 21,173 20,987 21,125 20,975
Common share equivalents 992 205 901 129
--- --- --- ---
Weighted average common shares
and equivalents outstanding 22,165 21,192 22,026 21,104
====== ====== ====== ======
-8-
The Company is principally engaged in the marketing and distribution of tires in the automotive replacement market and has two operating segments: retail and wholesale. The retail segment includes the franchised retail tire business conducted by Big O Tires, Inc., as well as the operation of retail tire and service centers by Tire Kingdom, Inc. The wholesale segment markets and distributes the Company's proprietary brands of tires, as well as other tires and related products, on a wholesale basis to distributors who resell to or operate independent tire dealers.
The Company evaluates the performance of its two operating segments based on earnings before interest, taxes, depreciation, amortization and any special items (Operational EBITDA). There were no special items to consider in the periods ended June 30, 2002 or 2001. Segment information for the periods ended June 30, 2002 and 2001 is as follows (in thousands):
Retail Wholesale Total
------ --------- -----
Periods ended June 30, 2002
- ---------------------------
Total assets $234,447 $277,150 $511,597
Operating results -
For the Three Months Ended:
Net sales to external customers 131,638 155,080 286,718
Inter-segment net sales -- 39,266 39,266
Operational EBITDA 9,326 7,331 16,657
For the Six Months Ended:
Net sales to external customers 242,350 294,072 536,422
Inter-segment net sales -- 74,491 74,491
Operational EBITDA 16,023 13,251 29,274
Periods ended June 30, 2001
- ---------------------------
Total assets $224,931 $244,536 $469,467
Operating results -
For the Three Months Ended:
Net sales to external customers 115,637 139,849 255,486
Inter-segment net sales -- 42,698 42,698
Operational EBITDA 8,687 7,034 15,721
For the Six Months Ended:
Net sales to external customers 215,090 267,589 482,679
Inter-segment net sales -- 77,057 77,057
Operational EBITDA 15,921 13,508 29,429
The Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142) effective January 1, 2002. Under SFAS No. 142, goodwill and other indefinite-lived intangible assets are no longer amortized but are tested for impairment, with charges being recorded only if impairment is found to exist. SFAS No. 142 requires the fair values of these intangible assets to be assigned to the Company's "reporting units" and tested accordingly, with a reporting unit being defined as an operating segment or one level below a segment if discrete financial information is prepared and reviewed regularly by management. No impairment to the recorded value of the Company's indefinite-lived assets was found to exist as a result of the required testing.
Expenses for the three months and six months ended June 30, 2001 included amortization of goodwill and trademarks of $711,000 and $1,366,000, respectively. If SFAS No. 142 had been in effect during 2001 and amortization had not been recorded, net income for the second quarter of 2001 would have been approximately $640,000 greater than the reported total of $5,525,000 and diluted earnings per share would have been $0.29 compared to the reported total of $0.26. For the first six months of 2001, net income would have been approximately $1,230,000 greater than the reported total of $9,355,000 and diluted earnings per share would have been $0.50 compared to the reported total of $0.44, if SFAS No. 142 had been in effect.
The Company's financial position and liquidity continue to be strong. Working capital totaled $163.8 million at June 30, 2002 compared to $167.2 million at December 31, 2001.
Current accounts and notes receivable increased by $30.1 million and inventories increased by $11.1 million compared to the December 31, 2001 levels, due principally to seasonal fluctuations. A portion of the inventory increase was attributable to the purchase of assets of 19 retail tire stores during March 2002, which also affected the period-to-period comparison of property, plant and equipment and goodwill.
The net amount owed to banks and vendors (consisting of the combined balances of cash and cash equivalents, outstanding checks, notes and debt payable to banks, and accounts payable) increased by $34.9 million from December 31, 2001 to June 30, 2002. This increase, together with cash generated from operations, enabled the Company to fund the increased levels of receivables and inventories, as well as the above-noted purchase of retail tire store assets for a combined purchase price of $10.8 million. In addition, the Company was able to fund capital expenditures totaling $7.1 million during the first six months of 2002.
Net sales increased 12.2% during the second quarter of 2002 compared to the year- earlier level, due primarily to a 7.5% increase in unit tire sales, a 2.5% increase in the average tire sales price and greater service revenues in Company-operated retail tire outlets. The percentage of total sales attributable to tires was 84% in the current quarter and 85% in the second quarter of 2001. Net sales by the Company's retail segment increased 13.8% compared to the year-earlier second quarter and included a gain of 5.4% in unit tire volume, as well as the aforementioned higher average sales prices and service revenues. Sales by the retail segment were favorably affected by an increase in the number of franchised and Company-operated stores in the Company's retail systems. Second quarter net sales by the wholesale segment were up 10.9% over the year-earlier level. Wholesale unit tire volume was up 8.5%, aided by new product introductions and sales initiatives.
For the first six months, net sales increased 11.1% over the 2001 level, including an overall 8.5% gain in unit tire sales, a 1.2% increase in the average tire sales price and higher retail revenues from tire and mechanical services. Tire sales comprised 84% of total sales in the first half of 2002 and 85% in the year-earlier period. Year-to-date net sales by the retail segment increased 12.7% and retail unit tire volume increased 6.5% compared to the year- earlier levels. Net sales by the wholesale segment increased 9.9% in the year-to-date period, due largely to a 9.4% gain in tire unit volume.
Gross profit as a percentage of net sales was relatively stable, at 26.5% in both the current quarter and first six months of 2002 compared to 26.2% in the second quarter of 2001 and 26.7% in the first half of 2001. Gross profit percentages were favorably affected by the increased contribution of sales from retail, which generally has higher margins than sales to the Company's wholesale customers. The improved retail mix was largely offset by reduced discounts on early payments to certain suppliers, due to lower discount rates and the Company's decision to forego certain advance payments as it managed its debt position.
Distribution expenses as a percentage of net sales declined from 4.9% in the second quarter of 2001 to 4.5% in the current quarter and from 5.1% in the first six months of 2001 to 4.7% in the first half of 2002. The unit volume gains by the retail and wholesale segments helped to leverage the Company's warehousing and product delivery costs, since many of them, such as rent, do not vary in relation to sales.
Selling, administrative and retail store expenses increased by $7.5 million in the second quarter and $11.8 million in the first six months of 2002 compared to the year-earlier levels, due principally to a greater number of company-operated retail stores. Expenses for such retail stores include payroll, operating and service-related costs, in addition to certain other selling and administrative expenses. Expenses in the second quarter and first six months of 2001 included amortization of goodwill and trademarks totaling $711,000 and $1,366,000, respectively. No amortization of such assets was recorded in the current periods, under the provisions of Statement of Financial Accounting Standards No. 142 (SFAS No. 142), which was adopted by the Company on January 1, 2002 (see Note 4 to the consolidated financial statements.)
Net interest expense decreased $522,000 in the second quarter and $1.9 million in the first six months of 2002 compared to the year-earlier levels, due principally to the combined effects of lower overall borrowing rates and lower average borrowings. The reduction in borrowing rates was a reflection of lower market interest rates, as well as efforts by the Company to better manage working capital and minimize interest rate spreads under its borrowing agreements. The lower average borrowing levels in the current quarter and first half of 2002 were principally the result of cash generated from operations and the above- mentioned management efforts which allowed the Company to reduce its debt to banks and other lenders.
Net other income was greater in the current quarter but less in the year-to-date period compared to the year-earlier levels. The current quarter improvement was largely related to favorable results from franchised store development transactions which exceeded a decline in interest and service charge income from customers. In the year-to-date period, the decrease in interest and service charge income more than offset the improved results from store development transactions.
The Company's effective tax rate decreased from 40.7% in the second quarter of 2001 to 38.4% in the current quarter. For the first six months, the effective tax rate was 37.7% in 2002 compared to 41.3% in 2001. The decreases were primarily related to the impact of SFAS No. 142, since the majority of goodwill amortized in prior years was not deductible for tax purposes. The lower effective tax rates in the current year also reflect declines in the provisions for state income taxes.
The Company is exposed to certain financial market risks. The most predominant of these risks is the fluctuation in interest rates associated with bank borrowings, since changes in interest expense affect the Company's operating results. At June 30, 2002, the Company owed $121.5 million to banks under its credit facilities, of which $100.25 million was not hedged by interest-rate swap agreements and was thus subject to market risk for a change in interest rates. If interest rates increase by 25 basis points, the Company's annual interest expense would increase by approximately $251,000 based on the outstanding balance which was not hedged at June 30, 2002.
At the Company's Annual Meeting of Stockholders held on April 24, 2002, Messrs. Richard A. McStay, Donald Ratajczak, and Robert R. Schoeberl were elected as directors of the Company for a term expiring at the 2005 Annual Meeting of Stockholders.
The number of shares voted for each director and the number of shares with respect to which authority to vote was withheld were as follows: 18,213,459 shares were voted for Mr. McStay and authority to vote 231,926 shares for Mr. McStay was withheld; 18,215,846 shares were voted for Mr. Ratajczak and authority to vote 229,539 shares for Mr. Ratajczak was withheld; and 18,309,798 shares were voted for Mr. Schoeberl and authority to vote 135,587 shares for Mr. Schoeberl was withheld.
(a) Exhibits - None.
(b) No reports on Form 8-K were filed during the three months ended June 30, 2002.
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 |
|
By /s/ Thomas W. Garvey Thomas W. Garvey Executive Vice President, Chief Financial Officer and Treasurer |
INDEX TO EXHIBITS
| Located at | ||
| Sequentially | ||
| Exhibit No. | Description | Numbered Page |
| (99) | OTHER EXHIBITS | |
| 99.1 | Certification by Lawrence C. Day pursuant to 18 U.S.C. | |
| Section 1350, as adopted pursuant to Section 906 of the | ||
| Sarbanes-Oxley Act of 2002. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 15 | |
| 99.2 | Certification by Thomas W. Garvey pursuant to 18 U.S.C. | |
| Section 1350, as adopted pursuant to Section 906 of the | ||
| Sarbanes-Oxley Act of 2002. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 16 |