TBC Reports Record Second Quarter Results
- Net Income Increases 15% to $7.9 Million, or $0.35 per Diluted Share - Successful Integration of Merchant's Tire Acquisition Drives Sales and Profit Gains - Company Increases Third Quarter and Full-Year Earnings Guidance
MEMPHIS, Tenn., July 23 -- TBC Corporation , one of the nation's leading marketers of automotive replacement tires, today reported record sales and earnings for the second quarter and six months ended June 30, 2003.
Net sales in the second quarter increased 14.7% to $328.8 million compared to $286.7 million in the prior-year period, due principally to increased service revenues at Company-operated retail stores, including the Merchant's Tire & Auto locations acquired in April 2003. Same store sales for TBC's retail segment increased 0.4% in the second quarter. TBC's total unit tire sales declined 1.3% in the second quarter compared to relatively flat unit shipments for the industry based on preliminary numbers. Net income increased 15% to $7.9 million, or $0.35 per diluted share, in the current quarter, versus $6.8 million, or $0.31 per diluted share, in the second quarter of 2002.
"During the second quarter, the integration of the Merchant's stores proceeded well ahead of plan and contributed to our same store sales gain and improved operating profits," commented Larry Day, President and Chief Executive Officer. "Results were stronger than anticipated for the 112 acquired Merchant's locations, with a solid performance in sales of manufacturers' branded tires as well as our recently introduced TBC private brands. Since being rolled out at Merchant's stores beginning in mid-April, our private brands have grown to represent more than 30% of Merchant's total unit tire sales. Our extensive array of private brand tires now offers consumers at the Merchant's locations more choices at competitive price points, which accounts for both the strong initial acceptance of these products as well as the broadening of Merchant's customer base.
"In addition to growing Merchant's tire business, we also maintained service revenues at the acquired locations. Mechanical service is a significant component of Merchant's mix and represents a high-margin contributor to TBC's overall operating performance. As a result of these factors, Merchant's was slightly accretive to the Company's earnings in the period, exceeding prior expectations of a dilutive impact to the quarter.
Mr. Day continued, "Our comparable store sales performance was in line with expectations and reflected our planned allocation of significant resources to ensure the successful integration of the Merchant's locations. Sales by our wholesale segment declined in the quarter, as the weaker economic environment had a considerable impact on many of the nation's smaller independent tire dealers. In addition, our own wholesale sales comparisons were made tougher by our strong performance a year ago when we significantly outperformed the industry. Sales trends in the last half of June and first several weeks of July have been encouraging, and we continue to expect an improvement in our wholesale segment in the third and fourth quarters."
For the six months ended June 30, 2003, net sales rose 9.1% to $585.4 million compared to $536.4 million in the prior-year period. Retail same-store sales increased 0.8%, and total unit tire sales declined 2.7% compared to an industry decline of approximately 1.6% based on preliminary results. Net income grew 15% to $13.3 million, or $0.60 per diluted share, versus $11.6 million, or $0.53, reported a year ago.
At June 30, 2003, the Company had a combined total of 906 stores in its retail network with 346 Company-operated locations and 560 franchised Big O stores, representing a 23% increase in the Company's store base, or 169 locations, since June 30, 2002. During the second quarter, the Company added 13 Big O stores and 6 Tire Kingdom stores in addition to the 112 acquired Merchant's locations. Exclusive of any further acquisitions, the Company expects to add an additional 35 to 40 retail locations in the second half of 2003.
Mr. Day concluded, "With the successful integration of Merchant's largely completed, we expect all of our retail operations to excel in the second half of the year. We also expect Merchant's to continue to exceed our initial expectations and to be accretive to earnings for the remainder of the year. As mentioned, our wholesale business is also expected to improve as we benefit from sales initiatives and cost controls as well as anticipated improvements in broader industry trends.
"Based on current trends and market conditions, we expect third quarter earnings in the range of $0.42 to $0.45 per diluted share. As a result, we are increasing our expectations for full year earnings to a range of $1.40 to $1.45 per diluted share."
TBC Corporation will host a conference call on Thursday, July 24, 2003, at 10:00 a.m. Eastern time / 9:00 a.m. Central time to discuss second quarter results. A live Webcast of the conference call will be available by visiting the Company's Web site, www.tbccorp.com. The Webcast will be archived at TBC's Web site until August 24, 2003.
About TBC: TBC Corporation is one of the nation's largest marketers of automotive replacement tires through a multi-channel strategy. The Company's retail operations include company-operated retail centers under the "Tire Kingdom" and "Merchant's Tire & Auto Centers" brands and franchised retail tire stores under the "Big O Tires" brand. TBC markets on a wholesale basis to regional tire chains and distributors serving independent tire dealers throughout the United States and in Canada and Mexico. The Company's proprietary brands of tires have a longstanding reputation for quality, safety and value.
TBC Corporation Safe Harbor Statement
This document contains "forward-looking statements," as that term is defined under the Private Securities Litigation Reform Act of 1995, regarding expectations for future financial performance, which involve uncertainty and risk. It is possible that the Company's future financial performance may differ from expectations due to a variety of factors including, but not limited to: changes in economic and business conditions in the world; increased competitive activity; consolidation within and among both competitors, suppliers and customers; unexpected changes in the replacement tire market; the Company's inability to attract as many new franchisees or open as many distribution outlets as stated in its goals; changes in the Company's ability to identify and acquire additional companies in the replacement tire industry and the failure to achieve synergies or savings anticipated in such acquisitions; fluctuations in tire prices charged by manufacturers, including fluctuations due to changes in raw material and energy prices, changes in interest and foreign exchange rates; the cyclical nature of the automotive industry and the loss of a major customer or program. It is not possible to foresee or identify all such factors. Any forward-looking statements in this report are based on certain assumptions and analyses made by the Company in light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Prospective investors are cautioned that any such statements are not a guarantee of future performance and actual results or developments may differ materially from those projected. The Company makes no commitment to update any forward-looking statement included herein, or to disclose any facts, events or circumstances that may affect the accuracy of any forward-looking statement. Additional information on factors that could potentially affect the Company or its financial results may be found in the Company's filings with the Securities and Exchange Commission.
TBC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
2003 2002 2003 2002
NET SALES $328,843 $286,718 $585,388 $536,422
COST OF SALES 220,185 210,788 400,335 394,270
GROSS PROFIT 108,658 75,930 185,053 142,152
EXPENSES:
Distribution expenses 15,361 12,942 28,780 25,439
Selling, administrative
and retail store expenses 79,539 50,294 132,664 94,775
Interest expense - net 2,448 2,313 4,260 4,334
Other (income)
expense - net (907) (677) (1,419) (1,041)
Total expenses 96,441 64,872 164,285 123,507
INCOME BEFORE
INCOME TAXES 12,217 11,058 20,768 18,645
Provision for
income taxes 4,358 4,243 7,439 7,023
NET INCOME $ 7,859 $ 6,815 $ 13,329 $ 11,622
EARNINGS PER SHARE -
Basic $ 0.36 $ 0.32 $ 0.62 $ 0.55
Diluted $ 0.35 $ 0.31 $ 0.60 $ 0.53
Weighted Average
Common Shares
and Equivalents
Outstanding 22,604 22,165 22,367 22,026
TBC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
June 30, December 31,
2003 2002
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 3,372 $ 2,319
Accounts and notes receivable, less allowance
for doubtful accounts of
$8,095 at June 30, 2003
and $8,701 at
December 31, 2002:
Related parties 15,363 16,507
Other 117,205 103,201
Total accounts and notes receivable 132,568 119,708
Inventories 209,921 170,867
Refundable federal and state income taxes 1,625 --
Deferred income taxes 12,009 12,364
Other current assets 16,488 12,515
Total current assets 375,983 317,773
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land and improvements 11,286 6,068
Buildings and leasehold improvements 42,799 28,795
Furniture and equipment 77,580 64,052
131,665 98,915
Less accumulated depreciation 49,865 42,993
Total property, plant and equipment 81,800 55,922
TRADEMARKS, NET 15,824 15,824
GOODWILL, NET 107,788 58,381
OTHER ASSETS 30,375 25,971
TOTAL ASSETS $611,770 $473,871
TBC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
2003 2002
(Unaudited)
CURRENT LIABILITIES:
Outstanding checks, net $ 7,555 $ 4,209
Notes payable to banks 53,800 35,000
Current portion of long-term debt
and capital lease obligations 15,752 18,500
Accounts payable, trade 79,346 45,200
Federal and state income taxes payable - 767
Other current liabilities 64,640 47,481
Total current liabilities 221,093 151,157
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, LESS CURRENT PORTION 128,198 79,700
NONCURRENT LIABILITIES 15,215 14,243
DEFERRED INCOME TAXES 6,116 5,651
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value, shares issued
and outstanding --
21,712 at June 30, 2003
and 21,292 at December 31, 2002 2,171 2,129
Additional paid-in capital 21,294 16,687
Other comprehensive income (loss) (1,231) (1,281)
Retained earnings 218,914 205,585
Total stockholders' equity 241,148 223,120
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $611,770 $473,871