Net sales were up for the Heafner Tire Group in 2000, primarily thanks to acquisitions. However, the company has found it necessary to adjust its financial priorities in order to do business in 2001.
Consolidated net sales from continuing operations totaled almost $1.1 billion in 2000 compared to $908 million in 1999, an increase of 19.7%. Heafner's purchases of T.O. Haas Tire and American Tire Distributors (ATD) added $118.6 million to the sales total, or 66% of the $179.2 million increase.
Heafner reported that sales growth in 2000 was aided during the second half of the
year -- primarily in the third quarter -- "by a very strong consumer market for replacement tires caused by the heightened consumer awareness of tire safety issues arising from the publicity surrounding the recall of certain Firestone brands."
Gross profit increased 25% to $200 million in 2000. Gross profit as a percentage of sales increased to 18.4% in 2000 compared to 17.5% in 1999.
Entering 2000, Heafner's combined net indebtedness (net of cash) was $289.1 million compared to $228.9 million on December 31, 1999. The company required additional financing in connection with three acquisitions last year: T.O. Haas ($21.4 million), ATD ($39.1 million) and assets from Tire Centers Inc. ($6.2 million).
Heafner spent $14.7 million on capital expenditures in 2000. Its 73 distribution centers represent approximately 4.7 million
square feet of warehouse space.
Effective March 30, 2001, the company and its lenders amended the revolving credit facility ("Revolver"). The changes include:
1. Reducing the aggregate amount of the Revolver from $200 million to $180 million.
2. Amending the financial covenants contained therein.
3. Changing the interest rate of the borrowings.
4. Requiring the company to comply with additional financial and reporting requirements, including a minimum EBITDA for both continuing and discontinued
operations, fixed charge coverage and tangible capital funds, and minimum loan availability.
In addition, certain covenants "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."
Lenders waived the effects of a failure to meet the minimum net worth and interest coverage covenants, as defined in the credit agreement, as of December 30, 2000.
As of March 30, Heafner says its financial measures were in excess of the minimums required, as amended. "Management expects that such amounts will remain above the minimums
for the foreseeable future."
On April 2, 2001, Heafner issued 1,333,334 shares of Series C preferred stock in exchange for $12 million in cash contributed by certain of its principal stockholders. "Heafner anticipates that its principal use of cash going forward will be able to meet working capital and debt service requirements and to make capital expenditures."
Because there can no assurance that Heafner's business "will continue to generate sufficient cash flow from operations in the future to meet
these requirements or to service its debt." Heafner warns that it may be required to
refinance all or a portion of its existing debt, or to obtain additional
financing.
There also is no assurance that any such refinancing would be possible
or that any additional financing could be obtained, according to the company.
