TBC Reports Second Quarter Results
~ Results In-Line with Previous Guidance and Company Reiterates Full-Year Earnings Outlook Before Change in Accounting Treatments ~
PALM BEACH GARDENS, Fla., July 26 -- TBC Corporation , one of the nation's leading marketers of automotive replacement tires, today reported sales and earnings for the second quarter and six months ended June 30, 2004.
Net sales in the second quarter increased 38.8% to $456.5 million compared to $328.8 million in the prior-year period. TBC's total unit tire sales increased 18.4% in the second quarter, compared to unit shipments by tire manufacturers which increased 6.9% based on preliminary reports. Same store sales for TBC's retail segment increased 1.1% in the second quarter.
Net income increased 14.5% to $9.1 million, or $0.39 per diluted share, in the current quarter versus $8.0 million, or $0.35 per diluted share, in the second quarter of 2003. Earnings in the 2004 second quarter reflect the negative impact of Emerging Issues Task Force ("EITF") 02-16, of $0.08 per diluted share related to the Company's new purchase agreement with a major supplier, partially offset by the company wide adoption of the first-in first- out ("FIFO") inventory costing method which added $0.04 per diluted share in the period. Excluding the change in accounting treatments, TBC would have reported $0.43 per diluted share in the second quarter, consistent with its previous guidance for the period in the range of $0.40 to $0.43 per diluted share. The results for 2003 have been restated to reflect the company wide adoption of the FIFO inventory costing method.
The Company's wholesale business was strong in the quarter, highlighted by the performance of the private brands division which benefited from new account activity, favorable pricing and solid cost controls. The retail business posted positive comparable store sales and experienced increased demand for its services offerings. The introduction of private brand tires and the expansion of mechanical service offerings for the 225 acquired NTB stores continued on plan.
"We achieved our financial goals for the period and are pleased with the Company's performance, particularly in light of a challenging retail environment," commented Larry Day, TBC President and Chief Executive Officer. "While we expect these market conditions to continue in the near term, we are confident of our ability to realize our 2004 performance objectives through the contribution from our newly acquired retail locations, favorable product and service mix, and rigorous cost controls. As we move ahead, we look forward to benefiting from improved operating leverage in our retail operations while we remain active in growing our store base."
For the six months ended June 30, 2004, net sales rose 52.1% to $890.3 million compared to $585.4 million in the prior-year period. Total unit tire sales increased 24.8% compared to an industry increase of approximately 7.3% based on preliminary results. Retail same-store sales increased 3.5% in 2004. Net income grew 16.2% to $14.6 million, or $0.63 per diluted share, versus $12.6 million, or $0.56, reported a year ago. Results for the first six months of 2004 reflect the negative impact of EITF 02-16 of $0.08 per diluted share related to the Company's new purchase agreement with a major supplier, partially offset by the company wide adoption of the FIFO inventory costing method which added $0.02 per diluted share. Excluding the change in accounting treatments, TBC would have reported $0.69 per diluted share in the first half of 2004. The results for 2003 have been restated to reflect the company wide adoption of the FIFO inventory costing method.
At June 30, 2004, the Company had a combined total of 1,168 stores in its retail network with 598 Company-operated locations and 570 franchised Big O stores, representing a 29% increase in the Company's store base, or 262 locations, since June 30, 2003. Exclusive of any further acquisitions, the Company expects to add an additional 25 to 30 retail locations in the second half of 2004.
For the 2004 full year, the Company expects earnings in the range of $1.78 to $1.84 per diluted share that includes $.06 per diluted share for the impact of both EITF 02-16 and the company wide adoption of the FIFO inventory costing method. Excluding these costs, the Company's full-year outlook remains unchanged from its previous guidance of $1.84 to $1.90. Earnings for the third quarter are expected in the range of $0.59 to $0.62 per diluted share.
TBC Corporation will host a conference call on Tuesday, July 27, 2004, 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 27, 2004.
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," "Merchant's Tire & Auto Centers" and "National Tire & Battery" 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
RESTATED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
RESTATED RESTATED RESTATED
2004 2003 2004 2003
NET SALES $456,490 $328,843 $890,331 $585,388
COST OF SALES 281,289 219,987 553,264 401,540
GROSS PROFIT 175,201 108,856 337,067 183,848
EXPENSES:
Distribution expenses 18,790 15,361 36,756 28,780
Selling, administrative and
retail store expenses 137,824 79,539 269,773 132,664
Interest expense - net 5,103 2,448 9,205 4,260
Other (income) expense - net (653) (907) (1,371) (1,419)
Total expenses 161,064 96,441 314,363 164,285
INCOME BEFORE INCOME TAXES 14,137 12,415 22,704 19,563
Provision for income taxes 5,006 4,439 8,074 6,976
NET INCOME $9,131 $7,976 $14,630 $12,587
EARNINGS PER SHARE -
Basic $0.41 $0.37 $0.66 $0.59
Diluted $0.39 $0.35 $0.63 $0.56
Weighted Average Common Shares
Oustanding -
Basic 22,204 21,590 22,112 21,484
Diluted 23,329 22,604 23,292 22,367
TBC CORPORATION
RESTATED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
ASSETS
RESTATED
June 30, December 31,
2004 2003
(Unaudited) (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $3,430 $2,645
Accounts and notes receivable,
less allowance for doubtful
accounts of $9,275 at
June 30, 2004 and $8,260 at
December 31, 2003
Related parties 23,915 12,535
Other 128,071 109,962
Total accounts and notes
receivable 151,986 122,497
Inventories 288,426 264,810
Refundable federal and state
income taxes - 296
Deferred income taxes 13,657 11,359
Other current assets 12,138 11,136
Total current assets 469,637 412,743
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land and improvements 12,100 12,100
Buildings and leasehold improvements 111,782 100,379
Furniture and equipment 103,923 93,710
227,805 206,189
Less accumulated depreciation 68,576 56,618
Total property, plant and
equipment 159,229 149,571
TRADEMARKS, NET 15,824 15,824
GOODWILL, NET 169,029 169,184
OTHER ASSETS 37,725 34,368
TOTAL ASSETS $851,444 $781,690
TBC CORPORATION
RESTATED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
RESTATED
June 30, December 31,
2004 2003
(Unaudited) (Unaudited)
CURRENT LIABILITIES:
Outstanding checks, net $19,051 $11,411
Notes payable to banks 73,800 29,100
Current portion of long-term debt
and capital lease obligations 37,178 28,723
Accounts payable, trade 111,259 114,708
Other current liabilities 96,353 91,730
Total current liabilities 337,641 275,672
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, LESS CURRENT PORTION 187,969 208,620
NONCURRENT LIABILITIES 33,157 26,400
DEFERRED INCOME TAXES 10,379 7,890
STOCKHOLDERS' EQUITY:
Common stock, $0.10 par value,
shares issued and outstanding -
22,245 at June 30, 2004 and
21,905 at December 31, 2003 2,224 2,190
Additional paid-in capital 28,177 23,898
Other comprehensive income (loss) (1,390) (1,637)
Retained earnings 253,287 238,657
Total stockholders' equity 282,298 263,108
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $851,444 $781,690
SUPPLEMENTARY INFORMATION
Adoption of FIFO Inventory Costing Method
Consistent with TBC's current approach within its retail subsidiaries, the Company has chosen to adopt the first-in first out ("FIFO") inventory costing method effective January 1, 2004. Management believes the FIFO methodology provides a more current inventory valuation at period end and more effectively matches revenues with expenses. As per the Company's stated objectives, the retail segment will continue to become a larger portion of its revenues. TBC's retail segment currently makes up 65% of its sales and approximately 60% of its inventories, which are already valued on a FIFO basis.
EITF 02-16
On March 20, 2003, the Emerging Issues Task Force ("EITF") issued its final version of EITF 02-16, "Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor," which states that cash consideration received from a vendor is presumed to be a reduction of the price of the vendor's products or services and should, therefore, be characterized as a reduction of cost of goods sold and a portion of these amounts be capitalized into ending inventory. This EITF 02-16 is effective for volume-based rebate agreements entered into after November 21, 2002 and for all other vendor allowances entered into or modified after December 31, 2002.
The Company has been working with its major vendors to transition to a more seamless, fully integrated tire distribution system. The final piece was put in place as the Company entered into a new supply agreement with a major vendor in the second quarter of 2004, which required the accounting treatment of EITF 02-16.
Earnings in the second quarter of 2004 reflect the impact of EITF 02-16 of $.08 per diluted share related to the new purchase agreement. Historically, the Company recognized vendor allowances as they were earned, based on the fulfillment of the related obligations of the agreement. The adoption of EITF 02-16 last year did not materially impact net earnings in fiscal year 2003. As required by EITF 02-16, the Company has begun capitalizing the allowances afforded it under this new agreement. Due to the substantial amount of purchases and related vendor allowances received pursuant to this new agreement, the application of EITF 02-16 to this agreement reduced diluted earnings per share by $.08 in the second quarter of 2004.
TBC CORPORATION
SUPPLEMENTARY DATA
(In thousands, except percentages and store counts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
RESTATED RESTATED RESTATED
2004 2003 2004 2003
RECONCILIATION OF EBITDA TO NET
INCOME:
EBITDA $26,062 $19,943 $45,477 $32,451
Less - Depreciation and
Amortization 6,822 5,080 13,568 8,628
Interest Expense - net 5,103 2,448 9,205 4,260
Provision for Income Taxes 5,006 4,439 8,074 6,976
NET INCOME $9,131 $7,976 $14,630 $12,587
SEGMENT INFORMATION:
NET SALES -
Retail $294,391 $185,421 $577,532 $311,923
Wholesale 162,099 143,422 312,799 273,465
Consolidated $456,490 $328,843 $890,331 $585,388
EBITDA -
Retail $15,657 $12,401 $28,330 $20,134
Wholesale 10,405 7,542 17,147 12,317
Consolidated $26,062 $19,943 $45,477 $32,451
CAPITAL EXPENDITURES $7,446 $7,663 $14,292 $10,097
RETAIL SAME-STORE SALES % CHANGE 1.1% 0.4% 3.5% 0.8%
RETAIL STORE COUNTS, at end of period
Company Operated Stores 598 346
Franchised Big O Stores 570 560
Total 1,168 906