1
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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 MARCH 31, 2001
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.
A DELAWARE CORPORATION 56-0754594
(IRS Employer Identification No.)
2105 WATER RIDGE PARKWAY, SUITE 500
CHARLOTTE, NORTH CAROLINA 28217
(704) 423-8989
Indicate by a 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 May 15, 2001: 5,271,917
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2
TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets -- March 31, 2001
(unaudited) and December 30, 2000.........................
Condensed Consolidated Statements of Operations
(unaudited) -- Quarters Ended March 31, 2001 and April 1,
2000......................................................
Condensed Consolidated Statements of Cash Flows
(unaudited) -- Quarters Ended March 31, 2001 and April 1,
2000......................................................
Notes to Condensed Consolidated Financial Statements........
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................
ITEM 3. Quantitative and Qualitative Disclosures about Market
Risk......................................................
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings...........................................
ITEM 6. Exhibits and Reports on Form 8-K............................
Signatures..................................................
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HEAFNER TIRE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS -- MARCH 31, 2001 AND DECEMBER 30, 2000
(in thousands, except share amounts)
MARCH 31, 2001 DECEMBER 30, 2000
-------------- -----------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,974 $ 3,327
Accounts receivable, net of allowances of $2,237 and
$1,877................................................. 114,413 101,828
Inventories............................................... 190,907 179,825
Other current assets...................................... 23,312 23,517
Net assets of discontinued operations..................... 11,333 17,866
-------- --------
Total current assets.............................. 345,939 326,363
-------- --------
Property and equipment, net................................. 33,160 32,504
Goodwill, net............................................... 99,370 101,070
Other intangible assets, net................................ 7,225 8,191
Other assets................................................ 28,276 28,992
-------- --------
$513,970 $497,120
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Accounts payable.......................................... $190,824 $186,256
Accrued expenses.......................................... 31,426 28,992
Current maturities of long-term debt...................... 2,026 1,471
-------- --------
Total current liabilities......................... 224,276 216,719
-------- --------
Revolving credit facility................................... 148,967 130,020
Long-term debt.............................................. 159,883 160,942
Other liabilities........................................... 9,451 9,393
Redeemable preferred stock series A -- 4% cumulative; 7,000
shares authorized, issued and outstanding................. 7,000 7,000
Redeemable preferred stock series B -- variable rate
cumulative; 4,500 shares authorized, issued and
outstanding............................................... 4,035 4,035
Redeemable preferred stock series C -- 12% cumulative;
1,333,334 shares authorized............................... -- --
Commitments and contingencies
Stockholders' investment:
Common stock, par value $.01 per share; 15,000,000 shares
authorized; 5,271,917 shares issued and outstanding.... 53 53
Additional paid-in capital................................ 23,767 23,981
Warrants.................................................. 1,137 1,137
Notes receivable from sale of stock....................... (846) (1,046)
Retained deficit.......................................... (63,753) (55,114)
-------- --------
Total stockholders' investment.................... (39,642) (30,989)
-------- --------
$513,970 $497,120
======== ========
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
1
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HEAFNER TIRE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED MARCH 31, 2001 AND APRIL 1, 2000
(Unaudited)
(in thousands)
QUARTER ENDED
------------------------------
MARCH 31, 2001 APRIL 1, 2000
-------------- -------------
Net sales................................................... $267,792 $224,757
Cost of goods sold.......................................... 216,391 185,200
-------- --------
Gross profit.............................................. 51,401 39,557
Selling, general and administrative expenses................ 52,844 35,568
-------- --------
Operating income (loss)................................... (1,443) 3,989
Other income (expense):
Interest expense.......................................... (7,410) (5,784)
Other income, net......................................... 334 182
-------- --------
Loss from continuing operations before income taxes......... (8,519) (1,613)
Benefit for income taxes.................................... (649) (149)
-------- --------
Loss from continuing operations............................. (7,870) (1,464)
Loss from discontinued operations, net of income tax
benefits of $514 and $1,003............................... (769) (1,447)
-------- --------
Net loss.................................................... $ (8,639) $ (2,911)
======== ========
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
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HEAFNER TIRE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED MARCH 31, 2001 AND APRIL 1, 2000
(Unaudited)
(in thousands)
QUARTER ENDED
------------------------------
MARCH 31, 2001 APRIL 1, 2000
-------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(8,639) $(2,911)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Loss from discontinued operations......................... 769 1,447
Depreciation and amortization of goodwill and other
intangibles............................................ 3,980 3,062
Amortization of other assets.............................. 303 282
Other..................................................... (184) 16
Change in assets and liabilities:
Accounts receivable, net.................................. (12,585) (7,449)
Inventories............................................... (9,476) (273)
Other current assets...................................... 205 (1,518)
Accounts payable and accrued expenses..................... 7,589 29,742
Other..................................................... 277 32
------- -------
Net cash provided by (used in) continuing
operating activities............................ (17,761) 22,430
------- -------
Net cash provided by (used in) discontinued
operations...................................... 2,957 (4,366)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired.......................... (538) (2,121)
Purchase of property and equipment.......................... (3,030) (2,745)
Proceeds from sale of property and equipment................ 825 598
Proceeds from sale of assets of discontinued operations..... 1,445 --
Other....................................................... 315 (142)
------- -------
Net cash used in investing activities............. (983) (4,410)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments of) revolving credit
facility.................................................. 18,947 (7,618)
Principal payments on long-term debt........................ (513) (699)
Other....................................................... -- (827)
------- -------
Net cash provided by financing activities......... 18,434 (9,144)
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 2,647 4,510
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 3,327 6,497
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 5,974 $11,007
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for interest.................................. $ 2,524 $ 1,861
======= =======
Cash payments for taxes..................................... $ 256 $ --
======= =======
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
3
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HEAFNER TIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
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.
2. BASIS OF PRESENTATION:
The unaudited condensed consolidated balance sheet as of March 31, 2001,
and the condensed consolidated statements of operations and cash flows for the
quarters ended March 31, 2001 and April 1, 2000, 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 30, 2000. The results
of the operations for the quarter ended March 31, 2001 are not necessarily
indicative of the operating results for the full fiscal year. Certain prior year
amounts have been reclassified to conform to the current year presentation.
3. NEW ACCOUNTING PRONOUNCEMENTS:
In the current quarter, the Company adopted SFAS 133, as amended by SFAS
137 and SFAS 138, "Accounting for Derivative Instruments and Hedging
Activities." This statement establishes accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments imbedded in other contracts) be recorded in the balance sheet either
as an asset or liability measured at its fair value. This statement requires
that changes in the derivatives fair value be recognized currently in earnings
unless specific hedge accounting criteria are met, and requires that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. The adoption of this statement had no material
impact on the Company's financial position and results of operations.
4. REVOLVING CREDIT FACILITY:
Effective March 30, 2001, the Company amended its existing loan and
security agreement. The amended agreement provides for a senior secured
revolving credit facility (the "Revolver") which provides for borrowings in the
aggregate principal amount of up to the lesser of $180.0 million or the
Borrowing Base, as defined in the agreement, based on 85% of eligible accounts
receivable, the lesser of 65% of eligible tire inventory or $100 million and the
lesser of 50% of all other eligible inventory or $40 million (of which up to $10
million may be utilized in the form of letters of credit). At March 31, 2001,
the maximum loan amount available under the existing credit facility was $158.6
million of which $149.0 million was outstanding.
The Revolver term expires in March 2005, extendable by the Company and the
banks for an additional five years. Borrowings under the Revolver, following
these amendments, bear interest, at (i) the Base Rate, as defined, plus the
applicable margin or (ii) the Eurodollar Rate, as defined, plus the applicable
margin. The applicable margins were increased resulting in an applicable margin
of 2.0% for Base Rate loans, and an applicable margin of 3.25% for Eurodollar
Rate loans. The applicable margins are subject to performance based step-downs
resulting in rates ranging from 0.5% to 2.0% for Base Rate loans and 1.75% to
3.25% for Eurodollar Rate loans, respectively.
The Revolver, as amended, requires the Company to meet certain financial
requirements, including minimum EBITDA for continuing and discontinued
operations, fixed charge coverage and tangible capital funds, all as defined,
and minimum loan availability and certain covenants which, among other things,
restrict
4
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HEAFNER TIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Revolver are secured by all
inventories and accounts receivable.
5. DISCONTINUED OPERATIONS:
Effective January 26, 2001, the Company's Board of Directors authorized the
exit of retail operations and determined that it was in the Company's best
interest to solely concentrate on wholesale distribution, which it considers to
be its core business. In that regard, the Company is actively pursuing the sale
of the operations of Winston Tire Company ("Winston"), its retail segment, and
anticipates that the disposition will be completed by the summer of 2001.
Accordingly, this segment has been reflected as a discontinued operation in the
accompanying consolidated financial statements and previously reported financial
results for the prior year have been restated to reflect this treatment. Winston
incurred operating losses subsequent to January 26, 2001 in the amount of $3.1
million which were charged to the Company's existing reserve for discontinued
operations.
Net sales of discontinued operations for the periods ended January 26,
2001, the measurement date, and April 1, 2000 were approximately $12.8 million
and $43.6 million, respectively. Net sales from continuing operations for the
periods ended March 31, 2001 and April 1, 2000 include approximately $10.5
million and $14.2 million of intersegment sales to Winston that have not been
eliminated in the accompanying statement of operations.
6. STOCKHOLDERS' INVESTMENT:
On March 30, 2001, the Company amended and restated its articles of
incorporation to authorize 15,000,000 shares of a single class of $.01 par value
common stock and 1,344,834 shares of $.01 par value preferred stock. Of the
1,344,834 shares of preferred stock, 7,000 shares are initially designated
series A preferred stock, 4,500 shares are initially designated series B
preferred stock, and 1,333,334 shares are initially designated series C
preferred stock.
7. 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.
8. SUBSEQUENT EVENTS:
Effective May 15, 2001, the Company has completed a transaction pursuant to
a Stock Purchase Agreement to sell all the capital stock in Winston to
Performance Management, Inc. for a purchase price of $11.3 million. In addition,
the Company has executed a Long Term Supply Contract with Winston as well as a
Limited License Agreement.
On April 2, 2001, the Company issued 1,333,334 shares of series C preferred
stock for $9.00 per share in exchange for $12.0 million in cash contributed by
certain of its principal shareholders. Shares of series C preferred stock accrue
dividends at an annual rate of 12% and are redeemable beginning May 16, 2009 at
the initial price plus any cumulative unpaid dividends as of the redemption
date. However, as long as any shares of series A preferred stock or series B
preferred stock remain outstanding, no dividends may be paid, nor redemption
occur. In addition, shares of series C preferred stock are convertible into
common stock at a conversion price of $9.00 per common share.
5
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HEAFNER TIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION:
The Company's Senior 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 condensed consolidating financial information for the
Company is as follows (in thousands):
Condensed consolidated balance sheets as of March 31, 2001 and December 30,
2000, are as follows:
AS OF MARCH 31, 2001
---------------------------------------------------
PARENT SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents........................... $ 2,547 $ 3,427 $ -- $ 5,974
Accounts receivable, net............................ 82,468 31,945 -- 114,413
Inventories......................................... 114,655 76,252 -- 190,907
Other current assets................................ 15,083 8,229 -- 23,312
Intercompany receivables............................ 224,785 -- (224,785) --
Net assets of discontinued operations............... -- 11,333 -- 11,333
-------- -------- --------- --------
Total current assets......................... 439,538 131,186 (224,785) 345,939
-------- -------- --------- --------
Property and equipment, net........................... 21,568 11,592 -- 33,160
Goodwill and other intangible assets, net............. 53,684 52,911 -- 106,595
Investment in subsidiaries............................ 71,760 -- (71,760) --
Other assets.......................................... 25,815 2,461 -- 28,276
-------- -------- --------- --------
$612,365 $198,150 $(296,545) $513,970
======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Accounts payable.................................... $125,550 $ 65,274 $ -- $190,824
Accrued expenses.................................... 27,365 4,061 -- 31,426
Current maturities of long-term debt................ 1,004 1,022 -- 2,026
Intercompany payables............................... 173,273 51,512 (224,785) --
-------- -------- --------- --------
Total current liabilities.................... 327,192 121,869 (224,785) 224,276
-------- -------- --------- --------
Revolving credit facility............................. 148,967 -- -- 148,967
Long-term debt........................................ 156,024 3,859 -- 159,883
Other liabilities..................................... 8,789 662 -- 9,451
Redeemable preferred stock series A -- 4% cumulative;
7,000 shares authorized, issued and outstanding..... 7,000 -- -- 7,000
Redeemable preferred stock series B -- variable rate
cumulative; 4,500 shares authorized, issued and
outstanding......................................... 4,035 -- -- 4,035
Stockholders' investment:
Intercompany investment............................. -- 123,905 (123,905) --
Common stock, par value $.01 per share; 15,000,000
shares authorized; 5,271,917 shares issued and
outstanding....................................... 53 -- -- 53
Additional paid-in capital.......................... 23,767 -- -- 23,767
Warrants............................................ 1,137 -- -- 1,137
Notes receivable from sale of stock................. (846) -- -- (846)
Retained deficit.................................... (63,753) (52,145) 52,145 (63,753)
-------- -------- --------- --------
Total stockholders' investment............... (39,642) 71,760 (71,760) (39,642)
-------- -------- --------- --------
$612,365 $198,150 $(296,545) $513,970
======== ======== ========= ========
6
9
HEAFNER TIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AS OF DECEMBER 30, 2000
--------------------------------------------------
PARENT SUBSIDIARY
COMPANY GUARANTORS ELIMINATION CONSOLIDATED
-------- ---------- ----------- ------------
ASSETS
Current assets:
Cash and cash equivalents........................ $ 3,518 $ (191) $ -- $ 3,327
Accounts receivable, net......................... 74,682 27,146 -- 101,828
Inventories...................................... 109,841 69,984 -- 179,825
Other current assets............................. 14,481 9,036 -- 23,517
Intercompany receivables......................... 197,848 -- (197,848) --
Net assets of discontinued operations............ -- 17,866 -- 17,866
-------- -------- --------- --------
Total current assets..................... 400,370 123,841 (197,848) 326,363
-------- -------- --------- --------
Property and equipment, net........................ 21,555 10,949 -- 32,504
Goodwill and other intangible assets, net.......... 54,523 54,738 -- 109,261
Investment in subsidiaries......................... 73,985 -- (73,985) --
Other assets....................................... 26,563 2,429 -- 28,992
-------- -------- --------- --------
$576,996 $191,957 $(271,833) $497,120
======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Accounts payable................................. $127,062 $ 59,194 $ -- $186,256
Accrued expenses................................. 25,019 3,973 -- 28,992
Current maturities of long-term debt............. 289 1,182 -- 1,471
Intercompany payables............................ 148,980 48,868 (197,848) --
-------- -------- --------- --------
Total current liabilities................ 301,350 113,217 (197,848) 216,719
-------- -------- --------- --------
Revolving credit facility.......................... 130,020 -- -- 130,020
Long-term debt..................................... 156,871 4,071 -- 160,942
Other liabilities.................................. 8,709 684 -- 9,393
Redeemable preferred stock series A -- 4%
cumulative; 7,000 shares authorized, issued and
outstanding...................................... 7,000 -- -- 7,000
Redeemable preferred stock series B -- variable
rate cumulative; 4,500 shares authorized, issued
and outstanding.................................. 4,035 -- -- 4,035
Stockholders' investment:
Intercompany investment.......................... -- 124,343 (124,343) --
Common stock, par value $.01 per share;
15,000,000 shares authorized; 5,286,917 shares
issued and outstanding........................ 53 -- -- 53
Additional paid-in capital....................... 23,981 -- -- 23,981
Warrants......................................... 1,137 -- -- 1,137
Notes receivable from sale of stock.............. (1,046) -- -- (1,046)
Retained deficit................................. (55,114) (50,358) 50,358 (55,114)
-------- -------- --------- --------
Total stockholders' investment........... (30,989) 73,985 (73,985) (30,989)
-------- -------- --------- --------
$576,996 $191,957 $(271,833) $497,120
======== ======== ========= ========
7
10
HEAFNER TIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Condensed consolidated statements of operations for the quarters ended
March 31, 2001 and April 1, 2000 are as follows:
FOR THE QUARTER ENDED MARCH 31, 2001
--------------------------------------------------
PARENT SUBSIDIARY
COMPANY GUARANTORS ELIMINATION CONSOLIDATED
-------- ---------- ----------- ------------
Net sales........................................... $181,411 $86,381 $ -- $267,792
Cost of goods sold.................................. 148,374 68,017 -- 216,391
-------- ------- ------ --------
Gross profit...................................... 33,037 18,364 -- 51,401
Selling, general and administrative expenses........ 33,316 19,528 -- 52,844
-------- ------- ------ --------
Operating loss.................................... (279) (1,164) -- (1,443)
Other income (expense):
Interest expense.................................. (7,363) (47) -- (7,410)
Other income, net................................. 225 109 -- 334
Equity in loss of subsidiaries.................... (1,787) -- 1,787 --
-------- ------- ------ --------
Loss from continuing operations before income
taxes............................................. (9,204) (1,102) 1,787 (8,519)
Benefit for income taxes............................ (565) (84) -- (649)
-------- ------- ------ --------
Loss from continuing operations..................... (8,639) (1,018) 1,787 (7,870)
Loss from discontinued operations................... -- (769) -- (769)
-------- ------- ------ --------
Net loss.................................. $ (8,639) $(1,787) $1,787 $ (8,639)
======== ======= ====== ========
FOR THE QUARTER ENDED APRIL 1, 2000
--------------------------------------------------
PARENT SUBSIDIARY
COMPANY GUARANTORS ELIMINATION CONSOLIDATED
-------- ---------- ----------- ------------
Net sales........................................... $162,742 $62,015 $ -- $224,757
Cost of goods sold.................................. 134,744 50,456 -- 185,200
-------- ------- ---- --------
Gross profit...................................... 27,998 11,559 -- 39,557
Selling, general and administrative expenses........ 25,068 10,500 -- 35,568
-------- ------- ---- --------
Operating income.................................. 2,930 1,059 -- 3,989
Other income (expense):
Interest expense.................................. (5,733) (51) -- (5,784)
Other income, net................................. 158 24 -- 182
Equity in loss of subsidiaries.................... (779) -- 779 --
-------- ------- ---- --------
Income (loss) from continuing operations before
income taxes...................................... (3,424) 1,032 779 (1,613)
Benefit (provision) for income taxes................ (513) 364 -- (149)
-------- ------- ---- --------
Income (loss) from continuing operations............ (2,911) 668 779 (1,464)
Loss from discontinued operations................... -- (1,447) -- (1,447)
-------- ------- ---- --------
Net loss.................................. $ (2,911) $ (779) $779 $ (2,911)
======== ======= ==== ========
8
11
HEAFNER TIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Condensed consolidated statements of cash flows for the quarters ended
March 31, 2001 and April 1, 2000 are as follows:
FOR THE QUARTER ENDED MARCH 31, 2001
--------------------------------------------------
PARENT SUBSIDIARY
COMPANY GUARANTORS ELIMINATION CONSOLIDATED
-------- ---------- ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................ $ (8,639) $ (1,787) $ 1,787 $ (8,639)
Adjustments to reconcile net income to net cash
provided by operating activities:
Net loss from discontinued operations............. -- 769 -- 769
Depreciation and amortization of goodwill, other
intangibles and other assets................... 2,315 1,968 -- 4,283
Other............................................. (214) 30 -- (184)
Equity in loss of subsidiaries.................... 1,787 -- (1,787) --
Changes in operating assets and liabilities:
Accounts receivable, net.......................... (7,786) (4,799) -- (12,585)
Inventories....................................... (4,015) (5,461) -- (9,476)
Other current assets.............................. (1,403) 1,608 -- 205
Accounts payable and accrued expense.............. 1,421 6,168 -- 7,589
Other............................................. 383 (106) -- 277
-------- -------- ------- --------
Net cash provided by (used in) continuing
operations.............................. (16,151) (1,610) -- (17,761)
-------- -------- ------- --------
Net cash provided by discontinued
operations.............................. -- 2,957 -- 2,957
-------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired.................. (538) -- -- (538)
Purchase of property and equipment.................. (1,591) (1,439) -- (3,030)
Proceeds from sale of property and equipment........ 822 3 -- 825
Proceeds from sale of assets of discontinued
operations........................................ -- 1,445 -- 1,445
Other, net.......................................... 315 -- -- 315
Intercompany........................................ (2,643) 2,643 -- --
-------- -------- ------- --------
Net cash provided by (used in) investing
activities.............................. (3,635) 2,652 -- (983)
-------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments of revolving credit facility......... 18,947 -- -- 18,947
Principal payments on long-term debt................ (132) (381) -- (513)
-------- -------- ------- --------
Net cash provided by (used in) financing
activities.............................. 18,815 (381) -- 18,434
-------- -------- ------- --------
Net decrease in cash and cash equivalents........... (971) 3,618 -- 2,647
Cash and cash equivalents, beginning of period...... 3,518 (191) -- 3,327
-------- -------- ------- --------
Cash and cash equivalents, end of period............ $ 2,547 $ 3,427 $ -- $ 5,974
======== ======== ======= ========
9
12
HEAFNER TIRE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE QUARTER ENDED APRIL 1, 2000
-------------------------------------------------
PARENT SUBSIDIARY
COMPANY GUARANTORS ELIMINATION CONSOLIDATED
------- ---------- ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................. $(2,911) $ (779) $ 779 $(2,911)
Adjustments to reconcile net income to net cash
provided by operating activities:
Net loss from discontinued operations.............. -- 1,447 -- 1,447
Depreciation and amortization of goodwill, other
intangibles and other assets.................... 1,783 1,561 -- 3,344
Other.............................................. 15 1 -- 16
Equity in loss of subsidiaries..................... 779 -- (779) --
Changes in operating assets and liabilities:
Accounts receivable, net........................... (5,770) (1,679) -- (7,449)
Inventories........................................ (930) 657 -- (273)
Other current assets............................... 19 (1,537) -- (1,518)
Accounts payable and accrued expense............... 26,320 3,422 -- 29,742
Other.............................................. 34 (2) -- 32
------- ------- ----- -------
Net cash provided by continuing
operations............................... 19,339 3,091 -- 22,430
------- ------- ----- -------
Net cash used in discontinued operations... -- (4,366) -- (4,366)
------- ------- ----- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired................... (2,000) (121) -- (2,121)
Purchase of property and equipment................... (835) (1,910) -- (2,745)
Proceeds from sale of property and equipment......... 139 459 -- 598
Other................................................ (195) 53 -- (142)
Intercompany......................................... (6,696) 6,696 -- --
------- ------- ----- -------
Net cash (used in) provided by investing
activities............................... (9,587) 5,177 -- (4,410)
------- ------- ----- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments of revolving credit facility.......... (7,618) -- -- (7,618)
Principal payments on long-term debt................. (121) (578) -- (699)
Other, net........................................... (827) -- -- (827)
------- ------- ----- -------
Net cash provided by (used in) financing
activities............................... (8,566) (578) -- (9,144)
------- ------- ----- -------
Net decrease in cash and cash equivalents............ 1,186 3,324 -- 4,510
Cash and cash equivalents, beginning of period....... 3,820 2,677 -- 6,497
------- ------- ----- -------
Cash and cash equivalents, end of period............. $ 5,006 $ 6,001 $ -- $11,007
======= ======= ===== =======
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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 related notes included in this report.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 2001 COMPARED TO QUARTER ENDED APRIL 1, 2000
Consolidated net sales increased by $43.0 million or 19.1% to $267.8
million in the first quarter 2001 compared to $224.8 million in the first
quarter 2000. Pro forma sales growth in the first quarter 2001 was relatively
flat when compared to the same period last year. The sales increase in 2001 was
due primarily to the sales revenue from the acquisitions in 2000 of ATD in the
third quarter of 2000 and T.O. Haas in the second quarter of 2000. Competition
was strong across all segments in the first quarter 2001 as competitors fought
for limited sales dollars. Units of passenger and light truck tires shipped for
the tire distribution industry were down approximately 5.9% in the first quarter
of 2001 with shipments of 51.4 million units compared to shipments of 54.6
million units in the first quarter of 2000.
Gross profit increased by $11.8 million or 29.9% to $51.4 million in the
first quarter 2001 compared to $39.6 million in the first quarter 2000. Gross
profit as a percentage of sales increased 1.6% to 19.2% in the first quarter
2001 compared to 17.6% in the first quarter 2000. Margin increases were due
primarily to improved product mix and price.
Selling, general and administrative expenses increased by $17.3 million in
the first quarter 2001 representing 19.7% as a percentage of sales compared to
15.8% in 2000. Increased operating expenses were a direct result of expansion of
operations in 2000, increased operating costs due to higher fuel and energy
costs and one-time severance payments of $1.8 million.
Interest expense increased in the first quarter 2001 by $1.6 million to
$7.4 million due to higher borrowings on the revolving credit line resulting
from acquisitions during the year 2000 and capital expenditures.
The income tax benefit in the first quarter 2001 was $0.6 million compared
to $0.1 million for the same quarter in 2000. The difference between the
statutory tax rate and the effective tax rate is primarily due to non-deductible
goodwill amortization.
EBITDA from continuing operations decreased $4.3 million to $2.9 million in
the first quarter of 2001 compared to $7.2 million in the first quarter of 2000.
This decrease is primarily due to higher selling general and administrative
expenses, which include $1.8 million of one-time severance payments to former
executives of the Company.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, the combined net indebtedness (net of cash) of the
Company was $304.9 million compared to $216.3 million at April 1, 2000 and
$289.1 million at December 30, 2000. Total commitments by the lenders under the
Company's revolving credit facility were $180.0 million at March 31, 2001, of
which $149.0 million was outstanding and $9.6 million was available for
additional borrowings.
The Company's principal source of cash during the first quarter of 2001 was
borrowings under revolving credit facilities. Cash generated from (used in)
continuing operations was ($17.8) million for the quarter ended March 31, 2001
compared to $22.4 million for the quarter ended April 1, 2000. Net working
capital (exclusive of net assets of discontinued operations) at March 31, 2001
totaled $110.3 million, compared to $91.8 million at December 30, 2000, an
increase of $18.5 million. The increase in working capital is due to increased
business activity during the quarter resulting in higher receivable and
inventory balances partially offset by an increase in accounts payable. Net cash
generated from (used in) discontinued operations totaled $3.0 million, and
($4.4) million during the first quarter of 2001 and 2000, respectively.
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Capital expenditures during the first quarter of 2001 and 2000 amounted to
$3.0 million and $2.7 million, respectively. Capital expenditures in 2001
included warehouse racking and computer systems upgrades.
Effective March 30, 2001, the Company and its lenders amended the revolving
credit facility ("Revolver") to, among other things, reduce the aggregate amount
of the Revolver from $200 million to $180 million, amend the financial covenants
contained therein, change the rate at which borrowings thereunder bear interest,
and require the Company to comply with additional reporting requirements.
Borrowings under the Revolver, following these amendments, bear interest, at (i)
the Base Rate, as defined, plus the applicable margin or (ii) the Eurodollar
Rate, as defined, plus the applicable margin. The applicable margins were
increased resulting in an applicable margin of 2.0% for Base Rate loans, and an
applicable margin of 3.25% for Eurodollar Rate loans. The applicable margins are
subject to performance based step-downs resulting in rates ranging from 0.5% to
2.0% for Base Rate loans and 1.75% to 3.25% for Eurodollar Rate loans,
respectively.
The Revolver, as amended, requires the Company to meet certain financial
requirements, including minimum EBITDA for continuing and discontinued
operations, fixed charge coverage and tangible capital funds, all as defined,
and minimum loan availability and 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 Revolver are secured by all
inventories and accounts receivable.
On April 2, 2001, the Company issued 1,333,334 shares of Series C Preferred
Stock in exchange for $12 million in cash contributed by certain of its
principal stockholders.
Effective May 15, 2001, the Company has completed a transaction pursuant to
a Stock Purchase Agreement to sell all the capital stock in Winston to
Performance Management, Inc. for a purchase price of $11.3 million. Upon
closing, the Company received $8.5 million cash and a $2.8 million note due May
15, 2002. The sale of Winston will improve the operating cash flows of the
Company by eliminating the significant use of cash resulting from the heavy cash
requirements needed to fund Winston's past operations.
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. 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
meet these requirements or to service its debt, and Heafner may be required to
refinance all or a portion of its existing debt, or to obtain 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
There have been no material changes to the Company's market risk since
those reported in the Company's Report on Form 10-K for the fiscal year ended
December 30, 2000.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There have been no 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 30, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits --
Exhibit 10.34 Stock Purchase Agreement dated May 4, 2001, between Heafner
Tire Group, Inc. and Performance Management Inc.
Exhibit 11 Computation of Earnings per Share
Exhibit 12.1 Statement Regarding Computation of Earnings to Fixed Charges
and Preferred Stock Dividends
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter ended March 31,
2001.
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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: May 15, 2001
HEAFNER TIRE GROUP, INC.
By: /s/ WILLIAM E. BERRY
------------------------------------
William E. Berry
Executive Vice President -- Finance
and Administration
(On behalf of the Registrant and
as Principal Financial Officer)
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