-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HZIGrP89KyGKVJaFqDFHwilHJwpt3WulrdIUPyH6Gk6T9fXVZhpmtf5gcc7ecmsw pnRl57qV9qJs5fs+r3cxhw== /in/edgar/work/0000950144-00-013929/0000950144-00-013929.txt : 20001115 0000950144-00-013929.hdr.sgml : 20001115 ACCESSION NUMBER: 0000950144-00-013929 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEAFNER TIRE GROUP INC CENTRAL INDEX KEY: 0001068152 STANDARD INDUSTRIAL CLASSIFICATION: [5013 ] IRS NUMBER: 560754594 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-61713 FILM NUMBER: 767935 BUSINESS ADDRESS: STREET 1: 2105 WATER RIDGE PARKWAY STREET 2: SUITE 500 CITY: CHARLOTTE STATE: NC ZIP: 28217 BUSINESS PHONE: 7044238989 MAIL ADDRESS: STREET 1: 2105 WATER RIDGE PARKWAY STREET 2: SUITE 500 CITY: CHARLOTTE STATE: NC ZIP: 28217 FORMER COMPANY: FORMER CONFORMED NAME: J H HEAFNER CO INC DATE OF NAME CHANGE: 19980817 10-Q 1 g65381e10-q.txt HEAFNER TIRE GROUP, INC. 1 ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- 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 QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 OR [ ] 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 333-61713 HEAFNER TIRE GROUP, INC. DELAWARE 56-0754594 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 2105 WATER RIDGE PARKWAY, SUITE 500 28217 CHARLOTTE, NORTH CAROLINA (Zip Code) (Address of principal executive offices)
(704) 423-8989 (Registrant's telephone number, including area code) 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 [ ] Number of common shares outstanding at November 10, 2000: 5,286,917 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
PAGE ---- PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Condensed Consolidated Balance Sheets -- September 30, 2000 (unaudited) and December 31, 1999......................... 1 Condensed Consolidated Statements of Operations (unaudited) -- Quarters and Nine Months Ended September 30, 2000 and 1999......................................... 2 Condensed Consolidated Statements of Cash Flows (unaudited) -- Quarters and Nine Months Ended September 30, 2000 and 1999......................................... 3 Notes to Condensed Consolidated Financial Statements........ 4 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 8 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk...................................................... 12 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings........................................... 12 ITEM 6. Exhibits and Reports on Form 8-K............................ 12 Signatures.................................................. 13
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. HEAFNER TIRE GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)
SEPTEMBER 30, 2000 DECEMBER 31, 1999 ------------------ ----------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................. $ 4,688 $ 6,497 Accounts receivable, net of allowances of $4,398 and $2,385................................................. 138,524 88,207 Inventories, net.......................................... 184,448 148,865 Other current assets...................................... 39,921 39,932 -------- -------- Total current assets.............................. 367,581 283,501 -------- -------- Property and equipment, net................................. 53,143 47,624 Goodwill, net............................................... 129,095 107,112 Other intangible assets, net................................ 10,986 7,968 Other assets................................................ 13,492 13,041 -------- -------- $574,297 $459,246 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $241,967 $160,861 Accrued expenses.......................................... 42,861 29,437 Current maturities of long-term debt...................... 2,642 1,792 -------- -------- Total current liabilities......................... 287,470 192,090 -------- -------- Revolving credit borrowings................................. 98,665 74,688 Long-term debt.............................................. 158,743 160,112 Other liabilities........................................... 13,131 9,604 Preferred stock series A -- 4% cumulative, 7,000 shares authorized, issued and outstanding........................ 7,000 7,000 Preferred stock series B -- variable rate cumulative, 4,500 shares authorized, issued and outstanding................. 4,094 4,094 Warrants.................................................... 1,137 1,137 Commitments and contingencies Stockholders' equity: Class A Common stock, par value $.01 per share; authorized 10,000,000 shares; 5,286,917 shares issued and outstanding............................................ 53 53 Class B Common stock, par value $.01 per share; authorized 20,000,0000 shares..................................... -- -- Additional paid-in capital................................ 23,981 23,981 Notes receivable from sale of stock....................... (1,046) (1,092) Retained deficit.......................................... (18,931) (12,421) -------- -------- Total stockholders' equity........................ 4,057 10,521 -------- -------- $574,297 $459,246 ======== ========
The accompanying notes to condensed consolidated financial statements are an integral part of these balance sheets. 1 4 HEAFNER TIRE GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands)
QUARTERS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Net sales............................................. $358,282 $267,360 $900,391 $773,205 Cost of goods sold.................................... 281,183 210,355 701,714 604,170 -------- -------- -------- -------- Gross profit........................................ 77,099 57,005 198,677 169,035 Selling, general and administrative expenses.......... 71,396 51,164 189,834 153,495 Special and nonrecurring charge (recovery)............ (697) 3,500 (697) 3,500 -------- -------- -------- -------- Income from operations.............................. 6,400 2,341 9,540 12,040 -------- -------- -------- -------- Other income (expense): Interest expense, net............................... (7,003) (5,622) (18,979) (16,310) Other income........................................ 617 437 1,389 1,424 -------- -------- -------- -------- Income (loss) from operations before provision (benefit) for income taxes.......................... 14 (2,844) (8,050) (2,846) Provision (benefit) for income taxes.................. 658 (811) (1,540) 178 -------- -------- -------- -------- Net loss.............................................. $ (644) $ (2,033) $ (6,510) $ (3,024) ======== ======== ======== ========
The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 2 5 HEAFNER TIRE GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
QUARTERS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ------------------- 2000 1999 2000 1999 -------- -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss............................................ $ (644) $ (2,033) $ (6,510) $ (3,024) Adjustments to reconcile net loss to net cash provided by (used in) operating activities, net of acquisitions -- Depreciation and amortization of goodwill and other intangibles.............................. 6,068 4,359 16,274 12,799 Amortization of other assets..................... 290 213 863 645 Special and nonrecurring charges................. -- 3,500 -- 3,500 Other, net....................................... (199) 87 (253) 267 Change in assets and liabilities: Accounts receivable, net......................... (11,175) 3,064 (28,075) (14,772) Inventories, net................................. 1,021 1,202 (7,493) (135) Other current assets............................. 760 4,524 3,591 (17,617) Accounts payable and accrued expenses............ 39,385 9,784 72,058 11,425 Other, net....................................... 334 19 109 (367) -------- -------- -------- -------- Net cash provided by (used in) operating activities.................................. 35,840 24,719 50,564 (7,279) -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of ATD, net of cash acquired............ (38,976) -- (38,976) -- Acquisition of California Tire, net of cash acquired......................................... -- -- -- (4,068) Acquisition of Tires Centers, Inc................... (2,134) -- (4,154) -- Acquisition of T.O. Haas, net of cash acquired...... 2,272 -- (21,247) -- Payments on deferred purchase price of acquired business......................................... (197) -- (3,450) -- Purchase of property and equipment.................. (1,983) (1,702) (7,489) (8,279) Proceeds from sale of property and equipment........ 1,036 856 1,885 962 Other, net.......................................... (62) 614 (64) (1,854) -------- -------- -------- -------- Net cash used in investing activities.......... (40,044) (232) (73,495) (13,239) -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in revolving credit borrowings....................................... 3,299 (13,251) 23,977 30,994 Principal payments on long-term debt................ (928) (157) (1,794) (3,222) Other, net.......................................... -- (592) (1,061) (3,034) -------- -------- -------- -------- Net cash provided by (used in) financing activities.................................. 2,371 (14,000) 21,122 24,738 -------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................................... (1,833) 10,487 (1,809) 4,220 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........ 6,521 381 6,497 6,648 -------- -------- -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD.............. $ 4,688 $ 10,868 $ 4,688 $ 10,868 ======== ======== ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION -- Cash payments for interest.......................... $ 2,313 $ 1,361 $ 13,812 $ 10,904 ======== ======== ======== ======== Cash payments for taxes............................. $ -- $ 750 $ -- $ 895 ======== ======== ======== ========
The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 3 6 HEAFNER TIRE GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS: Heafner Tire Group, Inc. and subsidiaries (the "Company") (formerly The J. H. Heafner Company, Inc.), is a Delaware corporation primarily engaged in the wholesale distribution of tires and tire accessories and the operation of retail tire and automotive service stores. 2. BASIS OF PRESENTATION: The unaudited condensed consolidated balance sheet as of September 30, 2000, and the condensed consolidated statements of operations and cash flows for the quarters and nine months ended September 30, 2000 and 1999, have been prepared by the Company and have not been audited. In the opinion of management, all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial position of the Company, the results of its operations and cash flows have been made. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's consolidated financial statements reported on Form 10-K for the fiscal year ended December 31, 1999. The results of the operations for the quarter and the nine months ended September 30, 2000 are not necessarily indicative of the operating results for the full fiscal year. Effective January 1, 2000, the Company changed its fiscal year end to the Saturday closest to December 31. Prior to 2000, the fiscal year ended on December 31. Certain prior period amounts have been reclassified to conform with current period presentation. 3. RECENT ACCOUNTING PRONOUNCEMENTS: In May 2000, the Emerging Issues Task Force ("EITF") of the FASB announced that it had reached a conclusion on Issue 00-14, "Accounting for Certain Sales Incentives". Issue 00-14 establishes requirements for the recognition and display of sales incentives such as discounts, coupons and rebates within the financial statements. The EITF conclusions on this issue will become effective during the fourth quarter of fiscal 2000. Because of the timing of the release of these conclusions, the Company has yet to fully assess their effect on the results of operations and financial position. However, the adoption of this statement may result in the reclassification of various costs within the captions of the income statement. At this time, we do not believe that the adoption of this statement would modify the pretax earnings or net income presented in these statements. 4. ACQUISITIONS: On July 21, 2000, the Company purchased the net assets of American Tire Distributors ("ATD"), the wholesale operations of Merchants, Inc. The total purchase price was approximately $39.0 million, of which approximately $1.9 million is held in escrow. The excess of the purchase price over the net tangible assets acquired was allocated to goodwill (approximately $16.7 million) and is being amortized over 15 years. On May 25, 2000, the Company purchased all of the outstanding common stock of T.O. Haas Holding Co. ("Haas"), a tire wholesaler, retreader and retailer, located in Lincoln, Nebraska as well as all of the outstanding common stock of Haas Investment Company ("Haas Investment"). In connection with the acquisition, the Company sold certain parcels of real estate, including substantially all of the assets of Haas Investment, and leased them back in a transaction which closed on August 8, 2000. The net purchase price of the Haas acquisition, giving effect to the real estate transaction and subject to adjustment as provided in the agreement, was approximately $28.4 million (including $1.6 million of assumed debt). Of that amount approximately $1.5 million was withheld at closing pending adjustment as provided in the agreement and $5.2 million is payable in the form of noncompete and stayput payments over a period of 6 years. The excess of the 4 7 HEAFNER TIRE GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) purchase price over the net tangible assets acquired was allocated to goodwill ($10.6 million) and other intangibles ($4.1 million) and is being amortized over 15 years and 6 years, respectively. Pro forma sales and net loss for the nine months ended September 30, 2000 and 1999, as if Haas had been acquired January 1, 1999, are $941.2 million and $7.8 million and $852.1 million and $4.5 million, respectively. On April 28, 2000, the Company purchased certain assets of Tire Centers, LLC ("TCI"), a wholly owned subsidiary of Michelin North America, Inc. The total purchase price was approximately $4.2 million. The excess of the purchase price over the net tangible assets acquired was allocated primarily to other intangibles ($1.1 million) and is being amortized over 5 years. These transactions have been accounted for as purchases and, accordingly, results of operations for the acquired businesses have been included in the unaudited condensed consolidated statements of operations from the acquisition dates. Preliminary allocations of the purchase prices have been recorded in the accompanying unaudited condensed consolidated financial statements as of September 30, 2000, based on management's best estimate of assets acquired and liabilities assumed. 5. SPECIAL AND OTHER NONRECURRING CHARGES: In the third quarter 1999, the Company, without admitting any fault, entered into a settlement agreement with plaintiffs in a class action lawsuit filed in 1998 on behalf of Winston store managers. The lawsuit alleged that Winston violated certain California wage and business practices regulations. Winston denied these allegations. As a result of this agreement, the Company recorded a pre-tax non-recurring charge of $3.5 million in the third quarter 1999. The nonrecurring charge includes payments of approximately $3.5 million to the plaintiff class members and their attorneys. On July 26, 2000, the Company settled all outstanding claims with the previous shareholders of Winston. In connection with the settlement, the Company received $1.0 million in cash on July 28, 2000. 6. REVOLVING CREDIT FACILITY: On March 6, 2000, the Company revised its revolver by amending the credit facility (the "New Revolver"). The New Revolver provides for borrowings in the aggregate principal amount of up to the lesser of $200.0 million or the Borrowing Base, as defined in the agreement, based on 85% of eligible accounts receivable, 65% of eligible tire inventory and 50% of all other eligible inventory (of which up to $10.0 million may be utilized in the form of letters of credit). The New Revolver has a five-year term expiring in March 2005, extendable by the Company and the banks for an additional five years. Indebtedness under the New Revolver bears interest, at the Company's option, (i) at the Base Rate, as defined, plus the applicable margin or (ii) at the Eurodollar Rate, as defined, plus the applicable margin. In July 2000, the New Revolver was amended to, among other things, permit the acquisition of the assets of American Tire Distributors ("ATD") on July 21, 2000 and amend certain covenants contained therein. In connection with these amendments, the applicable margins for Eurodollar Rate Loans in the pricing grid were increased by 0.25%, resulting in an applicable margin of 0.5% for Base Rate Loans and an applicable margin of 2.25% for Eurodollar Rate Loans through December 31, 2000. The New Revolver requires the Company to meet certain financial requirements, including minimum net worth and minimum loan availability and contains certain covenants which, among other things, restrict the ability of the Company to incur additional indebtedness; enter into guarantees; make loans and investments; make capital expenditures; declare dividends; engage in mergers, consolidations and asset sales; enter into transactions with affiliates; create liens and encumbrances; enter into sale/leaseback transactions; modify material agreements; and change the business it conducts. The Company's obligations under the New Revolver are secured by all inventories and accounts receivable. 5 8 HEAFNER TIRE GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. SEGMENT INFORMATION: The Company classifies its business interests into two fundamental segments: wholesale distribution of tires and products and retail sales of tires, products and services. The Company includes the retail activity for Haas in the Wholesale Distribution segment. Management does not separately analyze this component of the segment due to its immateriality. The Company evaluates performance based on several factors, of which the primary financial measure is income (loss) before interest expense, income taxes, noncash amortization of intangible assets and depreciation ("EBITDA").
WHOLESALE CORPORATE AND DISTRIBUTION RETAIL ELIMINATIONS TOTALS ------------ -------- ------------- -------- Quarter ended September 30, 2000 -- Revenues................................. $310,563 $ 47,603 $ 116 $358,282 EBITDA(1)................................ 17,657 (3,842) (1,427) 12,388 Segment assets........................... 506,816 88,482 (21,001) 574,297 Expenditures for segment assets.......... 1,214 744 25 1,983 Nine months ended September 30, 2000 -- Revenues................................. $763,342 $136,753 $ 296 $900,391 EBITDA(1)................................ 38,483 (7,750) (4,227) 26,506 Segment assets........................... 506,816 88,482 (21,001) 574,297 Expenditures for segment assets.......... 3,519 3,607 363 7,489 Quarter ended September 30, 1999 -- Revenues................................. $223,439 $ 43,894 $ 27 $267,360 EBITDA(1)................................ 10,411 762 (536) 10,637 Segment assets........................... 464,315 80,879 (66,461) 478,733 Expenditures for segment assets.......... 1,066 605 31 1,702 Nine months ended September 30, 1999 -- Revenues................................. $649,765 $123,413 $ 27 $773,205 EBITDA(1)................................ 31,792 1,885 (3,914) 29,763 Segment assets........................... 464,315 80,879 (66,461) 478,733 Expenditures for segment assets.......... 4,015 4,183 81 8,279
- --------------- (1) EBITDA represents income (loss) before interest expense, income taxes, noncash amortization of intangible assets and depreciation. For the quarters ended September 30, 2000 and September 30, 1999, interest expense in the condensed consolidated statements of operations includes $0.3 million and $0.2 million, respectively, of amortization expense related to deferred transaction fees. For the nine months ended September 30, 2000 and September 30, 1999, interest expense in the condensed consolidated statements of operations includes $0.9 million and $0.6 million, respectively, of amortization expense related to deferred transaction fees. For the quarters and nine months ended September 30, 2000 and 1999, EBITDA excludes the impact of the nonrecurring charge (recovery) of $(0.7) million and $3.5 million, respectively. 6 9 HEAFNER TIRE GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION: The Series D Notes are guaranteed on a full, unconditional and joint and several basis by all of the Company's direct subsidiaries, each of which is wholly owned. The combined summarized information of these subsidiaries is as follows (000's):
AS OF AND FOR AS OF AND FOR THE NINE MONTHS THE NINE MONTHS ENDED ENDED SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 ------------------ ------------------ Current assets....................................... $153,614 $103,567 Noncurrent assets.................................... 119,756 99,001 Current liabilities.................................. 105,196 67,300 Noncurrent liabilities............................... 7,692 7,292 Net sales............................................ 342,719 266,468 Gross profit......................................... 102,327 87,523 Net loss............................................. (5,800) (5,445)
The above information excludes $49.4 and $44.5 million of net intercompany payable and $47.4 and $43.3 million of intercompany sales of the Company's subsidiary guarantors as of and for the quarters ended September 30, 2000 and September 30, 1999, respectively. In the preparation of the Company's condensed consolidated financial statements, all intercompany accounts are eliminated. 9. COMMITMENTS AND CONTINGENCIES: See "PART II -- OTHER INFORMATION, Item 1. Legal Proceedings." The Company is party to various lawsuits and claims, including purported class actions, arising in the normal course of business. In the opinion of management, these lawsuits and claims are not, singularly or in the aggregate, material to the Company's financial position or results of operations. On July 26, 2000, the Company settled all outstanding claims with the previous shareholders of Winston as described note 5. In connection with the settlement, the Company received $1.0 million in cash on July 28, 2000. The agreements related to the acquisition of CPW, including employment agreements, contained various provisions which required the Company to make certain calculations regarding results of operations (as defined therein) and make payments based on certain formulas. Previously, the parties mediated the various issues involved in these matters and resolved all issues except for one. By Settlement Agreement dated September 18, 2000 the parties resolved the outstanding issues remaining. 7 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis of the results of operations, financial condition and liquidity of the Company should be read in conjunction with the financial statements and the related notes included in this report. OVERVIEW The Company sells its products to a variety of markets, both in terms of end-users and geography. In its Wholesale Distribution segment, it operates in the following regions of the United States: Southeast, Northeast, Plains and in California and Arizona. Its Retail segment operates in California and Arizona. The Company believes that the diversity of its markets helps stabilize its sales and earnings. The Company acquired certain assets and operations from TCI on April 28, 2000, acquired all the outstanding stock of Haas on May 25, 2000, and the assets of ATD on July 21, 2000. Therefore, the results of operations for the quarter and nine months ended September 30, 2000 include the acquired operations subsequent to those dates. RESULTS OF OPERATIONS QUARTER ENDED SEPTEMBER 30, 2000 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1999 The following table sets forth certain selected information regarding the Company's segments (in millions):
QUARTER ENDED --------------------------------------- SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 ------------------ ------------------ Net sales Wholesale distribution............................. $310.6 $223.4 Retail............................................. 47.6 43.9 Corporate.......................................... 0.1 0.0 ------ ------ Consolidated....................................... $358.3 $267.4 EBITDA Wholesale.......................................... $ 17.7 $ 10.4 Retail............................................. (3.8) 0.8 Corporate.......................................... (1.4) (0.5) ------ ------ Consolidated....................................... $ 12.4 $ 10.6
Consolidated net sales increased by $90.9 million, or 34.0%, to $358.3 million in the third quarter 2000 compared to $267.4 million in the third quarter 1999. Of the increase, the operations acquired from Haas and ATD accounted for $47.2 million, or a 17.7% increase over prior year. Excluding the Haas and ATD operations, sales increased $43.7 million or 16.3% over the same quarter last year. The precise effect on sales of the TCI assets acquired cannot be determined due to the merger of these operations into various of the Company's existing warehouse operations. Market demand for tire products was very high during the quarter due primarily to heightened consumer awareness of tire safety issues arising from the publicity surrounding the recall of certain Firestone brand tires. In addition to the very strong consumer market for replacement tires, sales growth was driven by the entry into new markets, either through acquisition or expansion, combined with the effects of the Company's marketing programs. Gross profit increased from $57.0 million in the third quarter 1999 to $77.1 million in the third quarter 2000. Gross profit as a percentage of sales increased from 21.3% to 21.5%, as a result of this very strong replacement tire market, offset by lower retail gross margins and the effects of wholesale sales comprising a greater percentage of consolidated sales in 2000 than in 1999. Selling, general, and administrative expenses increased by $20.2 million in the third quarter 2000 representing 19.9% as a percentage of sales compared to 19.1% in 1999. Increased operating expenses were 8 11 primarily wage, occupancy and vehicle costs, a direct result of expanding operations in 2000. Interest and other expense increased in the third quarter 2000 by $1.2 million to $6.4 million due to higher borrowings on the revolving credit line for acquisitions and capital additions. The income tax provision in the third quarter 2000 was $0.7 million compared to an income tax benefit of $0.8 million for the same quarter in 1999. The net loss for the third quarter 2000 was $0.6 million compared to a net loss of $2.0 million in the third quarter 1999. Wholesale Distribution Net sales in the Wholesale Distribution segment increased $87.1 million, or 39.0% from net sales of $223.4 million in the third quarter 1999 to $310.6 million in the third quarter 2000. Sales growth in the segment was fueled by the strong market for replacement passenger and light truck tires and the effects of acquired operations. Acquired operations accounted for approximately $47.2 million of the sales increase for the third quarter 2000. Excluding the effects of the acquired operations, sales increased $39.9 million, or 17.9% from the prior year. The sales increase over prior year levels was experienced in all geographic regions served by the Company. The Company's aggressive marketing and promotions activities also contributed to the increase in sales levels. Third quarter sales increased over prior year in all product areas, including sales of custom wheels, although such increase was most evident in sales of replacement tires. The Company continues to evaluate opportunities for expansion in geographic territories that it does not currently serve. These opportunities may involve future acquisitions or expansion into new markets through "greenfield" operations. The Company's recent expansions of its wholesale distribution operations in Southern California have contributed to sales growth during the quarter. EBITDA increased $7.2 million from $10.4 million in the third quarter 1999 to $17.7 million in the third quarter 2000 primarily as a result of significantly higher sales levels, combined with improved gross profit margins. Gross profit margins increased from 17.8% to 19.4% as a percent of sales for the third quarter 1999 and 2000, respectively. The increase in gross profit margin is largely attributable to an improved sales mix in 2000. Selling, general, and administrative expenses increased by $14.5 million over the third quarter 1999 primarily due to expanded operations, including acquired operations. Retail The Retail segment (Winston Tire Company) experienced an increase in net sales in the third quarter of $3.7 million or 8.5%, up from $43.9 million in the third quarter 1999 to $47.6 million in the third quarter 2000. Retail operated 197 retail stores as of September 30, 2000 compared to 196 stores as of September 30, 1999. EBITDA fell in the third quarter from $0.8 million in 1999 to $(3.8) million in 2000. Lower gross margins and significantly higher operating expenses than the third quarter of 1999 gave rise to the loss in the quarter. The Company's rollout and installation of its new point-of-sale computer system in all of its stores during 2000 have given rise to a number of problems. These problems relate primarily to communication, summarization and control, and significant expenses associated with these problems and their correction were incurred during 2000. Management took a number of actions during the third quarter 2000 to reduce costs and improve profits which were expected to reverse the EBITDA losses experienced in the Retail segment during 2000. These actions included headcount reductions, additional vendor discounts, controlled management of parts pricing and a return to selected price-based print advertising. While many of these actions were successful in reducing costs, the issues to be corrected and problems in the systems capabilities have made the management of store activities very difficult and therefore earnings in the third quarter were significantly less than expected. The point-of-sale system is not yet fully operational, and as a result, the ability of the management team to measure and control the effects of intended changes has been hampered. This, among other things, has further delayed the expected improvement in operating results in Retail. The Company is evaluating a number of options for improving earnings in retail, and therefore improving enterprise value and other measures of financial strength. 9 12 NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1999 The following table sets forth certain selected information regarding the Company's segments (in millions):
NINE MONTHS ENDED --------------------------------------- SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 ------------------ ------------------ Net sales Wholesale distribution............................. $763.3 $649.8 Retail............................................. 136.8 123.4 Corporate.......................................... 0.3 0.0 ------ ------ Consolidated....................................... $900.4 $773.2 EBITDA Wholesale.......................................... $ 38.5 $ 31.8 Retail............................................. (7.8) 1.9 Corporate.......................................... (4.2) (3.9) ------ ------ Consolidated....................................... $ 26.5 $ 29.8
Consolidated net sales increased by $127.2 million, or 16.4%, to $900.4 million in the nine-month period 2000 compared to $773.2 million in the nine-month period 1999. Of the increase, the operations acquired from the Haas and ATD acquisitions accounted for $57.1 million, or a 7.4% increase over prior year. Excluding the Haas and ATD operations, sales increased $70.1 million or 9.1% over the same period last year. The precise effect on sales of the TCI assets acquired cannot be determined due to the merger of these operations into various of the Company's existing warehouse operations. Market demand for all products was moderate in the first half of 2000, and was extremely strong during the third quarter 2000 compared to reasonably strong demand throughout the nine-month period 1999. The Company believes that its sales increase outpaced the industry rate of growth for the nine-month period. The sales increase in 2000 was due primarily to the effect of acquisitions and better product line offerings and more focus on marketing programs. Competition continues to be strong in the Company's various geographic service areas. Gross profit increased from $169.0 million in the nine-month period 1999 to $198.7 million in the nine-month period 2000. Gross profit as a percentage of sales increased from 21.9% to 22.1%, despite lower retail gross margins combined with the effects of wholesale sales comprising a greater percentage of consolidated sales in 2000 than in 1999. Selling, general, and administrative expenses increased by $36.3 million in the nine-month period 2000 representing 21.1% as a percentage of sales compared to 19.9% in the nine-month period 1999. Increased operating expenses were primarily wage, occupancy and vehicle cost, a direct result of expanding operations in 2000 and higher fuel cost. Interest expense increased in the nine-month period 2000 by $2.7 million to $19.0 million due to higher borrowings on the revolving credit line for acquisitions and capital additions. The income tax benefit in the nine-month period 2000 was $1.5 million compared to an income tax provision of $0.2 million for the nine-month period 1999. The net loss for the nine-month period 2000 was $6.5 million compared to a net loss of $3.0 million in the nine-month period 1999. Wholesale Distribution Net sales in the Wholesale Distribution segment increased $113.6 million, or 17.5%, from net sales of $649.8 million in the nine-month period 1999 to $763.3 million in the nine-month period 2000. Acquired operations accounted for approximately $57.1 million of the sales increase for the nine-month period 2000. The effects of the very strong consumer market for replacement tires during the third quarter resulting from the publicity surrounding the Firestone recall more than offset a rather lackluster sales performance during the first half of 2000. EBITDA increased $6.7 million from $31.8 million in the nine-month period 1999 to $38.5 million in the nine-month period 2000. Gross profit margins increased from 18.3% to 19.1% as a percent of sales for the nine- 10 13 month period 1999 and 2000, respectively. Sales volume and higher gross profit margins accounted for the EBITDA increase. Selling, general, and administrative expenses increased from 14.9% to 15.5% as a percent of sales for the nine-month period 1999 and 2000, respectively. Higher wages and occupancy were the direct result of expanded operations including acquired operations and sales volume. Retail The Retail segment (Winston Tire Company) experienced an increase in net sales in the nine-month period 2000 of $13.3 million or 10.8%, up from $123.4 million in the nine-month period 1999 to $136.8 million. Retail operated 197 retail stores as of September 30, 2000 compared to 196 stores as of September 30, 1999. EBITDA fell from $1.9 million in the nine-month period 1999 to $(7.8) million in nine-month period 2000. The Company's rollout and installation of its new point-of-sale computer system in all of its stores during 2000 have given rise to a number of problems. These problems relate primarily to communication, summarization and control, and significant expenses associated with these problems and their correction were incurred during 2000. Management took a number of actions during the third quarter 2000 to reduce costs and improve profits which were expected to reverse the EBITDA losses experienced in the Retail segment during 2000. These actions included headcount reductions, additional vendor discounts, controlled management of parts pricing and a return to selected price-based print advertising. While many of these actions were successful in reducing costs, the issues to be corrected and problems in the systems capabilities have made the management of store activities very difficult and therefore earnings in the third quarter were significantly less than expected. The point-of-sale system is not yet fully operational, and as a result, the ability of the management team to measure and control the effects of intended changes has been hampered. This, among other things, has further delayed the expected improvement in operating results in Retail. The Company is evaluating a number of options for improving earnings in retail, and therefore improving enterprise value and other measures of financial strength. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2000 the combined net indebtedness (net of cash) of the Company was $255.4 million compared to $230.1 million at December 31, 1999. On March 6, 2000 the revolving credit facility was amended to provide, among other things, maximum borrowings thereunder up to $200 million or a borrowing base comprised of specified percentages of accounts receivable and inventory, whichever is less. As of September 30, 2000, $64.7 million was available for additional borrowings under the credit facility. The Company's principal sources of cash during the third quarters ended 2000 and 1999 came from operations and borrowings under the revolving credit facility. Cash provided by operating activities totaled $35.8 million and $24.7 million respectively, during each of those periods. Trade accounts receivable increased by $11.2 million in the third quarter 2000 compared to a decrease of $3.1 million in the third quarter 1999 due primarily to increased sales levels. Decreases in inventories totaled $1.0 million in the third quarter 2000 compared to $1.2 million in the third quarter 1999. Trade accounts payable and accrued expenses increased by $39.4 million in the third quarter 2000 compared to $9.8 million in the same period 1999. Accounts payable increases are due primarily to the significantly higher level of sales and purchases in the third quarter ended 2000 and the effects of the ATD acquisition. Capital expenditures during the third quarter 2000 and 1999 amounted to $2.0 million and $1.7 million, respectively. Capital expenditures in 2000 included $0.7 million in Retail for new retail stores, existing retail store refurbishment and relocations, and information systems. The Company anticipates that its principal use of cash going forward will be to meet working capital and debt service requirements and to make capital expenditures which are expected to total approximately $10 million for fiscal 2000. Based upon current and anticipated levels of operations, the Company believes that its cash flow from operations, together with amounts available under the credit facility, will be adequate to meet its anticipated requirements. There can be no assurance, however, that the Company's business will continue to generate sufficient cash flow from operations in the future to be applied to meet these requirements or to service its debt, and the Company may be required to refinance all or a portion of its existing debt, or to obtain 11 14 additional financing. These increased borrowings may result in higher interest payments. In addition, there can be no assurance that any such refinancing would be possible or that any additional financing could be obtained. The inability to obtain additional financing could have a material adverse effect on the Company. Certain minority stockholders of the Company have been granted redemption rights commencing in 2004, subject to certain conditions, which if exercised would obligate the Company to redeem the shares of capital stock held by such stockholders at agreed valuations (based upon a multiple of EBITDA formula). There can be no assurance that sufficient funds will be available to redeem the shares of capital stock held by such stockholders if the Company is required to do so or whether the terms of its outstanding indebtedness at such time will permit such redemption. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. The Company does not consider its exposure to market risk to be material. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. On July 26, 2000, the Company settled all outstanding claims with the previous shareholders of Winston as described in the Company's Report on Form 10-K for the fiscal year ended December 31, 1999. In connection with the settlement, the Company received $1.0 million in cash on July 28, 2000. There have been no other material developments in legal proceedings involving the Company since those reported in the Company's Report on Form 10-K for the fiscal year ended December 31, 1999. The agreements related to the acquisition of CPW, including employment agreements, contained various provisions which required the Company to make certain calculations regarding results of operations (as defined therein) and make payments based on certain formulas. Previously, the parties mediated the various issues involved in these matters and resolved all issues except for one. By Settlement Agreement dated September 18, 2000 the parties resolved the outstanding issues remaining. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits -- Exhibit 11 Computation of Earnings per Share Exhibit 12.1 Statement Regarding Computation of Earnings to Fixed Charges and Preferred Stock Dividends Exhibit 27.1-.2 Financial Data Schedules
(b) Reports on Form 8-K No report on Form 8-K was filed during the quarter ended September 30, 2000. 12 15 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: November 14, 2000 HEAFNER TIRE GROUP, INC. By: /s/ DAVID H. TAYLOR ------------------------------------ David H. Taylor Senior Vice President and Chief Financial Officer (On behalf of the Registrant and as Principal Financial Officer) 13 EX-11 2 g65381ex11.txt COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 HEAFNER TIRE GROUP, INC. COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED --------------------------------------- --------------------------------------- SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 ------------------ ------------------ ------------------ ------------------ Average shares outstanding during the period........... 5,286,917 5,286,917 5,286,917 5,177,962 Incremental shares under stock options and warrants computed under the treasury stock method using the average market price of issuer's stock during the period...................... -- -- -- -- ---------- ----------- ----------- ----------- Total shares for diluted EPS.................... 5,286,917 5,286,917 5,286,917 5,177,962 ========== =========== =========== =========== Income applicable to common shareholders: Net loss.................... (644,000) (2,033,000) (6,510,000) (3,024,000) Loss per basic common share:...................... $ (0.12) $ (0.38) $ (1.23) $ (0.58) ========== =========== =========== =========== Loss per diluted share:....... $ (0.12) $ (0.38) $ (1.23) $ (0.58) ========== =========== =========== ===========
EX-12.1 3 g65381ex12-1.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12.1 HEAFNER TIRE GROUP, INC. STATEMENT REGARDING: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (AMOUNTS IN THOUSANDS, EXCEPT RATIO AMOUNTS)
3 MONTHS 3 MONTHS 9 MONTHS 9 MONTHS ENDED ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2000 1999 2000 1999 (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) ------------- ------------- ------------- ------------- Consolidated pretax income (loss) from continuing operations...................... 14 (2,844) (8,050) (2,846) Interest..................................... 7,003 5,622 18,979 16,310 Interest portion of rent expense............. 3,219 2,267 8,653 6,770 ------ ------ ------ ------ EARNINGS..................................... 10,236 5,045 19,582 20,234 ====== ====== ====== ====== Interest..................................... 7,003 5,622 18,979 16,310 Interest portion of rent expense............. 3,219 2,267 8,653 6,770 ------ ------ ------ ------ FIXED CHARGES................................ 10,222 7,889 27,632 23,080 ====== ====== ====== ====== RATIO OF EARNINGS TO FIXED CHARGES........... 1.00 -- -- -- ====== ====== ====== ======
EX-27.1 4 g65381ex27-1.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE HEAFNER TIRE GROUP, INC. CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 4,688 0 142,922 4,398 184,448 367,581 77,086 23,943 574,297 287,470 161,385 11,094 0 53 4,004 574,297 900,391 900,391 681,470 890,851 (1,389) 0 18,979 (8,050) (1,540) (6,510) 0 0 0 (6,510) (1.23) (1.23)
EX-27.2 5 g65381ex27-2.txt RESTATED FINANCIAL DATA SCHEDULE FOR 1999
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE HEAFNER TIRE GROUP, INC. CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 10,868 0 132,775 4,980 154,046 306,716 64,919 19,507 478,733 226,137 161,693 11,353 0 53 14,022 478,733 773,205 773,205 587,730 761,165 (1,424) 0 16,310 (2,846) 178 (3,024) 0 0 0 (3,024) (0.58) (0.58)
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