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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [X]
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003 OR [   ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 COMMISSION FILE NUMBER 0-11579 TBC CORPORATION 
  DELAWARE
    
    31-0600670(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)7111 Fairway Drive, Suite 201
Palm Beach Gardens, Florida
    
    33418(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (561) 227-0955 Securities registered pursuant to Section 12(b) of the Act: Title of each class
    
    Name of each exchange
on which registeredNone
    
    None
 Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK 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
[   ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [   ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act):
Yes [X] No [   ] INDEX TO EXHIBITS at page 45 of this Report




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Aggregate market value of outstanding shares of Common Stock,
par value $.10, held by non-affiliates of the Company on
December 31, 2003 (for purposes of this calculation, 1,547,870
shares beneficially owned by directors and executive officers of
the Company were treated as being held by affiliates of the Company)
    
    $
    525,425,036Number of shares of Common Stock, par value $.10, outstanding
at the close of business on December 31, 2003
    
    
    21,905,291
 DOCUMENT INCORPORATED BY REFERENCE TBC Corporations Proxy Statement for its Annual Meeting of Stockholders to be
held on April 28, 2004. Definitive copies of the Proxy Statement will be filed
with the Commission within 120 days after the end of the Companys fiscal year.
Only such portions of the Proxy Statement as are specifically incorporated by
reference under Part III of this Report shall be deemed filed as part of this
Report. -2-




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TABLE OF CONTENTS  PART IItem 1. BUSINESSItem 2. PROPERTIESItem 3. LEGAL PROCEEDINGSItem 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIItem 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESItem 6. SELECTED FINANCIAL DATAItem 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSItem 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAItem 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREItem 9A. CONTROLS AND PROCEDURESPART IIIItem 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTItem 11. EXECUTIVE COMPENSATIONItem 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSItem 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSItem 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESPART IVItem 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-KSIGNAUTREINDEX TO EXHIBITSEX-3.2 BY-LAWS OF TBC CORPORATIONEX-10.1 TRUST AGREEMENTEX-10.11 EXECUTIVE RETIREMENT PLANEX-10.23 EXTENSION AGREEMENT WITH GOODYEAR TIREEX-14.1 CODE OF BUSINESS CONDUCTEX-21.1 LIST OF SUBSIDIARIESEX-23.1 CONSENT OF PRICEWATERHOUSECOOPERSEX-24.1 LIMITED POWER OF ATTORNEYEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO    Table of Contents  
 PART I 
 Item 1.
    
    BUSINESS
 TBC Corporations business began in 1956 under the name Cordovan
Associates, Incorporated. The Company was incorporated in Delaware in 1970
under the name THE Tire and Battery Corporation. In 1983, the Company changed
its name to TBC Corporation. TBC and its wholly-owned subsidiaries are principally engaged in the
marketing of tires in the automotive replacement market. The Company believes
it is the largest independent marketer/distributor of private brand replacement
tires in the United States. The Company has two operating segments: retail and
wholesale. Net sales in 2003 for the retail segment totaled $734.1 million,
which represented 56% of the Companys consolidated net sales. Net sales
during 2003 for the wholesale segment were $584.4 million, or 44% of total
sales. (See Note 12 to the consolidated financial statements included in this
Report for additional financial information about each of the reportable
segments.) Unless the context indicates otherwise, the term Company refers
to TBC Corporation and its subsidiaries, taken as a whole. Retail Business The retail segment of the Companys business (the Retail Business)
consists of both company-operated retail tire stores as well as franchised
stores. The Company-operated stores are operated by a number of the Companys
wholly owned subsidiaries, including Tire Kingdom, Inc. (Tire Kingdom),
Merchants, Incorporated (Merchants) and NTW Incorporated (NTW).
Merchants was acquired by the Company on April 1, 2003 and NTW (which operates
its retail business under the trade name National Tire & Battery, or NTB)
was acquired by the Company on November 29, 2003. The Companys franchised
retail tire business is conducted by its Big O Tires, Inc. subsidiary (Big
O). The retail tire and automotive service centers operated by the Company
are located primarily in the eastern two-thirds of the United States. At the
end of 2003, there were 591 locations in the Company-operated retail network,
an increase of 369 stores compared to the end of 2002, when the Company had 222
locations. A total of 337 stores were added in 2003 as a result of the
above-mentioned acquisitions of Merchants (112 stores) and NTW (225 stores).
The Company has three distribution centers dedicated solely to servicing its
company-operated retail network and also utilizes the distribution centers
operated by its wholesale segment to supply products to certain of its retail
stores. The Company-operated retail stores market a broad selection of tires
under nationally-advertised brands and private brands, including the Companys
own Sigma® brand. In addition, the stores provide full service tire
replacement including tire balancing, wheel alignment, extended service
programs and warranties, and also perform maintenance and mechanical services
such as brake repairs, suspension system replacement, and oil changes. Big O franchises retail tire and automotive service stores located
primarily in the western and midwestern United States and sells Big
O® brand
tires and other tires to these franchisees. At December 31, 2003, the Company
had a total of 576 Big O stores, serviced by six distribution centers.
Included in the 576 total outlets were 557 franchisee-owned stores, 14 stores
owned by joint ventures in which the Company has an equity interest, and 5
stores operated by the Company. Big O products are also sold by Big O to 34
unaffiliated retail stores in British Columbia, Canada. Big O franchise
agreements grant a ten-year license to sell Big O brand tires and to use Big O
trademarks and trade secrets in the operation of a retail store at a specific
location within a defined trade area. With the exception of retail tire stores
converting to the Big O franchise system, each franchisee is required to pay an
initial franchise fee. All franchisees are required to pay monthly royalty
fees. -3-




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Wholesale Business The wholesale segment of the Companys business (the Wholesale Business)
markets and distributes the Companys proprietary brands of tires, as well as
other tires and related products, on a wholesale basis to distributors located
throughout the United States and in Canada and in Mexico. These distributors
operate under written distributor agreements with the Company and resell the
Companys products to retailers or through retail outlets primarily consisting
of independent tire dealers. The Wholesale Business operates a total of 29
warehouse distribution centers, all of which are located in the United States. Tires marketed under the Companys proprietary brand trademarks are
manufactured for the Company by leading manufacturers. The Company believes
that its Cordovan®, Multi-Mile®, Sigma® and Vanderbilt® lines of tires are
among the most complete lines in the replacement tire market, covering the
majority of tire sizes and types available for automobiles, light trucks and
sport utility vehicles. The Company also distributes tires under other brands
for automobile, truck, sport utility vehicle, farm, industrial, recreational
and other applications. Products and Suppliers Sales of tires accounted for approximately 79% of the Companys total
sales in 2003, 85% in 2002, and 86% in 2001. Tire and mechanical services
performed by Company-operated retail stores represented approximately 19%, 12%
and 10% of total sales in 2003, 2002 and 2001, respectively. The remainder of
the Companys sales include tubes, wheels, and other products for the
automotive replacement market. The Company purchases its products, in finished form, from a number of
major rubber companies and other suppliers to the automotive replacement
market. In the case of tires bearing the Companys trademarks, the Company
owns most of the molds in which they are made. The Goodyear Tire & Rubber Company manufactured approximately 40% of the
tires purchased by the Company in 2003, pursuant to a supply agreement entered
into in 1977 and a commitment letter which extends until 2013. This ongoing
supply relationship with Goodyear began in 1963. The Company also has a supply
agreement with Cooper Tire and Rubber Company, its second-largest supplier,
which extends until 2011. In addition, the Company has written contracts with
certain other suppliers. From time to time, the tire industry has faced shortages and supply
disruptions affecting the availability of particular sizes of tires, for
reasons such as production difficulties, labor unrest, and recalls. While the
Company has not been immune from difficulties in purchasing products in
quantities desired, the Company believes that its long-term relationships with
its primary suppliers have been beneficial in minimizing the impact of any
industry shortages or supply disruptions. In the event that any of its primary
suppliers curtail their manufacturing or otherwise encounter difficulties in
meeting the Companys production requirements, the Companys business would be
adversely affected pending the implementation of contingency plans. Such
contingency plans, which are continually updated to reflect changing industry
conditions, are designed to mitigate any long-term adverse effect of a
significant supply disruption and include the use of alternate suppliers. In
addition to the Companys current suppliers, there are a number of other large
tire manufacturers on a worldwide basis that may have the desire and capacity
to meet the Companys needs for its proprietary lines of tires. Trademarks In addition to its Cordovan®, Multi-Mile®, Sigma®, Vanderbilt®, Big O®,
Tire Kingdom®, Merchants®, and NTB National Tire & Battery® trademarks, the
Company also holds federal registrations for trademarks such as Grand Prix®,
Grand Am, Grand Spirit®, Wild Spirit®, Aqua Flow®, Wild Country®, Wild Trac®,
Turbo-Tech®, Supreme, Stampede®, Power King®, Harvest King®, Big Foot®,
Legacy®, Prestige®, and Sun Valley®. -4-




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The ability to offer products and services under established trademarks
represents an important marketing advantage in the automotive replacement
industry, and the Company regards its trademarks as valuable assets of its
business. Customers The Companys ten largest customers in its Wholesale Business accounted
for approximately 33% of total wholesale sales and 15% of the Companys total
consolidated sales in 2003, with the largest customer accounting for less than
4% of total consolidated sales. The loss of a major customer in the Wholesale
Business could have a material adverse effect upon this segment and the
Companys business as a whole, pending the establishment of a replacement
customer to market the Companys products. See Note 2 to the consolidated
financial statements and Item 13 of this Report for additional information
concerning major customers. Sales to domestic customers represented 96% of the Companys consolidated
sales in 2003 and 94% in 2002 and 2001. The remainder of the Companys sales
was attributable to customers located outside the United States, principally in
Mexico and Canada. The Company has no significant foreign currency translation
risks, since its sales to customers located outside the United States are made
and settled in U.S. dollars. Seasonality and Inventory The Company normally experiences its highest level of sales in the third
quarter of each year, with the first quarter exhibiting the lowest level.
During the five-year period from January 1, 1999 through December 31, 2003,
first quarter sales averaged approximately 21% of annual sales; the second
quarter and third quarters 25% and 28%, respectively; and the fourth quarter
26%. In 2003, the trend was slightly different from the historical pattern, due
to the impact of acquisitions during the year. First quarter sales in 2003
represented approximately 19% of total sales, the second quarter 25%, the third
quarter 28%, and the fourth quarter 28%. Orders for the Companys products, except for those sold directly to
consumers in the Retail Business segment, are usually placed with the Company
by computer, facsimile, or telephone. These orders are filled either out of
the Companys inventory or by direct shipment to the customer from the
manufacturers plants at the Companys request. Since customers look to the Company to fulfill their needs on short
notice, the Company maintains a large inventory of tires and other products,
both for its Wholesale Business and its Retail Business segments. Average
inventories, based on quarter-end levels on hand and in transit, were $213.6
million during 2003. The Companys inventory turn rate (cost of sales,
including the cost of direct shipments from manufacturers to customers, divided
by average inventory) was 4.1 for 2003. Competition The industry in which the Company operates is highly competitive. In the
case of the Companys Wholesale Business, many of the Companys competitors are
significantly larger and have greater financial and other resources than the
Company. These competitors include the Companys own suppliers and other tire
manufacturers, other wholesale tire distributors, as well as mass merchandisers
and retailers with sufficient purchasing power to command wholesale prices. The Company believes its Wholesale Business is able to compete
successfully because of its ability to offer quality products under proprietary
brand names at competitive prices, its efficient distribution systems, its good
relationships with customers and suppliers, and its established presence in the
markets it serves. -5-




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In the case of the Companys Retail Business, competition is based
primarily upon market presence in a specific geographic area. Big Os 576
franchised retail outlets are primarily concentrated in western and midwestern
states, which gives Big O a significant market share in many of the retail
markets it serves. The market position for TBCs Company-operated retail
stores varies depending upon the city or region. For example, in the states of
Florida and Virginia, the Company is one of the leading tire retailers, with
171 and 73 Company-operated outlets, respectively. Retail competitors include
stores operated by tire manufacturers, other retail outlets such as warehouse
clubs, chains and mass merchandisers, and other independent tire dealers, some
of whom are customers or who buy from customers of the Companys Wholesale
Business. Employees As of December 31, 2003, the Company employed approximately 9,200 persons,
of which approximately 8,600 were in its Retail Business. None of the
Companys employees are represented by a union, and the Company considers its
employee relations to be excellent. Internet Website Address and Availability of SEC Filings The Company maintains an internet website, www.tbccorp.com. The Company
makes its SEC filings, including its Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, and Current Reports on Form 8-K, immediately available on
its website after filing, via an electronic link from the Companys website to
the SECs EDGAR database. Paper copies of such SEC filings are also available
free of charge from the Company, upon request. 
 Item 2.
    
    PROPERTIES
 TBC Corporations executive offices are located in leased facilities in
Palm Beach Gardens, Florida. The Company has a total of 38 warehouse
distribution facilities, totaling approximately 3.8 million square feet,
located in 16 states across the United States. The Company owns the office
building where its wholesale business is headquartered and two of its
distribution facilities. The remainder of the distribution facilities,
totaling approximately 3.2 million square feet, are leased under operating
leases. The majority of the retail tire and service centers operated by the
Company are in leased facilities. In the case of 51 retail store locations,
the Company owns buildings situated on leased land. See Note 6 to the
consolidated financial statements for information regarding the Companys
operating lease commitments. 
 Item 3.
    
    LEGAL PROCEEDINGS
 The Company is involved in various legal proceedings which are routine to
the conduct of its business, none of which is believed to be material to the
Company. Some of these proceedings involve personal injury lawsuits based upon
alleged defects in products sold by the Company. The Company believes that in
substantially all such product liability cases, it is covered by its
manufacturers indemnity agreements or product liability insurance. The
Company also maintains its own product liability insurance, as well as coverage
for damages, workmanship and claims relating to repairs and services performed
by its Retail Business. 
 Item 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 None. -6-




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EXECUTIVE OFFICERS OF THE REGISTRANT The table which follows presents certain information concerning the
executive officers of the Company. The term of office of all executive
officers of the Company is until the next Annual Meeting of Directors (April
28, 2004) or until their respective successors are elected. Capacities in which IndividualName
    
    Age
    
    Serves the CompanyLawrence C. Day
    
    
    54
    
    
    President and Chief Executive OfficerThomas W. Garvey
    
    
    49
    
    
    Executive Vice President and Chief Financial OfficerKenneth P. Dick
    
    
    57
    
    
    President and Chief Executive Officer of
TBC Wholesale DivisionJ. Glen Gravatt
    
    
    52
    
    
    Executive Vice President of PurchasingWilliam M. Potts
    
    
    51
    
    
    Senior Vice President of Human ResourcesLarry D. Coley
    
    
    46
    
    
    Vice President, Corporate Controller and Assistant Secretary
 Mr. Day has been the Companys Chief Executive Officer since October 1999
and President since October 1998. Mr. Day served as the Companys Chief
Operating Officer from the time he joined the Company in April 1998 until his
election as Chief Executive Officer. Mr. Day was an Executive Vice President
of the Company prior to his election as President. Mr. Day was President and
Chief Executive Officer of Monro Muffler Brake, Inc. from 1995 to 1998. Prior
to joining Monro in 1993, Mr. Day was Vice President of Montgomery Wards Auto
Express Division. His experience in the tire industry includes 13 years in a
series of managerial positions with the Firestone Tire & Rubber Company. Mr. Garvey has been Executive Vice President and Chief Financial Officer
of the Company since January 2001 and also served as Treasurer from January
2001 to August 2002. From 1993 to January 2001, Mr. Garvey was Executive Vice
President and Chief Financial Officer of Tire Kingdom, which TBC acquired in
June 2000. From 1987 to 1992, Mr. Garvey served as Executive Vice President
and Chief Financial Officer of Fisher Scientific Company. Mr. Dick has been President and Chief Executive Officer of the TBC
Wholesale Division since November 2003 and prior to that was President of the
TBC Private Brands Division since its formation in July 2001. From 2000 until
July 2001, Mr. Dick served as the Companys Executive Vice President of Sales
and was Senior Vice President Sales of the Company from 1988 until 2000. From
1982 until 1988, Mr. Dick was the Companys Vice President of Sales. Mr. Dick
joined the Company in 1971 and served in a number of sales management positions
prior to his election as Vice President. Mr. Gravatt has been Executive Vice President of Purchasing since November
2003 and prior to that served as the Companys Senior Vice President of
Purchasing. From 1987 until his election as Senior Vice President in 1999, Mr.
Gravatt was a Vice President of the Company. Mr. Gravatt joined the Company in
1984 as Manager of Purchasing and served in that role until his election as a
Vice President. Mr. Potts has been Senior Vice President of Human Resources since November
2003 and prior to that served as Vice President of Human Resources since
joining the Company in 1998. From 1994 until joining the Company, Mr. Potts
was Vice President, Human Resources of Millard Refrigerated Services, Inc., and
from 1988 to 1994 was Corporate Director of Human Resources for Griffin
Industries, Inc. Mr. Coley has been a Vice President of the Company since 1993 and
Corporate Controller and Assistant Secretary since April 1999. Mr. Coley was
Controller of the Company from 1989 to 1999. Mr. Coley joined the Company in
1984 and served in a number of financial management positions prior to his
election as Controller. -7-




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PART II Item 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
 
 The Common Stock of the Company is traded on The Nasdaq Stock Market under
the symbol TBCC. As of December 31, 2003, the Company had approximately 4,000
stockholders based on the number of holders of record and an estimate of the
number of individual participants represented by security position listings.
Historically, the Company has not paid cash dividends and the Company has no
intention to do so in the foreseeable future. In addition, the Companys
short-term and long-term credit facilities restrict its ability to declare cash
dividends (see the Liquidity and Capital Resources section of Managements
Discussion and Analysis of Financial Condition and Results of Operations, and
Note 4 to the consolidated financial statements). The following table sets forth for the periods indicated the high and low
sales prices for the Companys Common Stock on the Nasdaq National Market
System. Price RangeHigh
    
    LowQuarter ended03/31/02
    
    $
    16.20
    
    
    $
    10.4606/30/02
    
    
    16.80
    
    
    
    12.0609/30/02
    
    
    16.00
    
    
    
    9.4612/31/02
    
    
    13.00
    
    
    
    9.8003/31/03
    
    
    14.73
    
    
    
    11.8106/30/03
    
    
    19.30
    
    
    
    13.5809/30/03
    
    
    26.84
    
    
    
    16.5512/31/03
    
    
    30.30
    
    
    
    24.78
 -8-




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Item 6.
    
    SELECTED FINANCIAL DATA
 Set forth below is selected financial information of the Company for each
year in the five-year period ended December 31, 2003. The selected financial
information should be read in conjunction with the consolidated financial
statements of the Company and notes thereto which appear elsewhere in this
Report. Specific reference should be made to the discussions of the
acquisitions during 2003 of Merchants, Incorporated and NTW, Incorporated in
Note 3 to the consolidated financial statements. Information regarding the
2000 acquisition of Tire Kingdom, Inc. was last included in Note 3 to the
consolidated financial statements included in Form 10-K for the year ended
December 31, 2002. The Company did not declare any cash dividends during the
five-year period ended December 31, 2003. Year ended December 31,2003
    
    2002
    
    2001
    
    2000
    
    1999INCOME STATEMENT DATA (a):Net sales (b)
    
    $
    1,318,531
    
    
    $
    1,109,663
    
    
    $
    1,009,278
    
    
    $
    902,740
    
    
    $
    743,050Gross profit
    
    
    434,131
    
    
    
    301,843
    
    
    
    264,977
    
    
    
    198,247
    
    
    
    129,559Net income
    
    
    33,359
    
    
    
    27,382
    
    
    
    21,010
    
    
    
    18,724
    
    
    
    17,939Diluted earnings per share
    
    
    1.47
    
    
    
    1.25
    
    
    
    .98
    
    
    
    .88
    
    
    
    .85Average shares and
equivalents outstanding
    
    
    22,743
    
    
    
    21,966
    
    
    
    21,386
    
    
    
    21,191
    
    
    
    21,189BALANCE SHEET DATA (a):Total assets
    
    $
    781,977
    
    
    $
    473,871
    
    
    $
    462,960
    
    
    $
    451,567
    
    
    $
    348,683Working capital
    
    
    137,358
    
    
    
    166,616
    
    
    
    167,207
    
    
    
    156,644
    
    
    
    113,669Long-term debt
    
    
    208,620
    
    
    
    79,700
    
    
    
    101,000
    
    
    
    113,531
    
    
    
    47,000Stockholders equity
    
    
    263,395
    
    
    
    223,120
    
    
    
    194,319
    
    
    
    174,052
    
    
    
    156,382
   (a)
    
    In thousands, except per share amounts.(b)
    
    Net sales include revenues from sales of products and services, plus
franchise and royalty fees, less
estimated returns, allowances and customer rebates. Reported net sales
include sales to related parties
of $82,010 in 2003, $100,406 in 2002, $92,813 in 2001, $86,961 in 2000 and
$78,880 in 1999. -9-




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Item 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 RESULTS OF OPERATIONS 2003 Compared to 2002: The Company has two operating segments: retail and wholesale. The retail
segment includes the franchised retail tire business conducted by Big O Tires,
Inc., as well as the operation of retail tire and service centers by Tire
Kingdom, Inc., Merchants, Incorporated (Merchants) and NTW Incorporated
(NTW). As discussed in Note 3 to the consolidated financial statements,
Merchants was acquired by TBC on April 1, 2003 and NTW and its operations were
acquired from Sears, Roebuck & Co. on November 29, 2003. The Companys 2003
consolidated results from operations include the results from these companies
since the date they were acquired. The Companys wholesale segment markets and
distributes TBCs proprietary brands of tires, as well as other tires and
related products, on a wholesale basis to distributors who resell to or operate
independent tire dealers. Net sales (which equals revenues from sales of products and services, plus
franchise and royalty fees, less estimated returns, allowances and customer
rebates) increased 18.8% during 2003 versus the 2002 level. The $208.9 million
increase in total net sales included a $222.2 million, or 43.4%, increase for
the retail segment and a $13.3 million, or 2.2%, decline for the wholesale
segment. The $222.2 million increase in retail net sales during 2003 included
a $110.2 million increase in tire sales, a $108.8 million gain in service
revenues at Company-operated stores, and a $3.2 million increase related to
franchise and royalty fees and to sales of products other than tires. The
increased retail tire sales dollars included a 24.2% gain in retail unit volume
and a 5.7% increase in the average retail tire sales price. An increased
number of franchised and Company-operated stores was the primary reason for the
growth in retail tire volume and service revenues compared to the year-earlier
level. At the end of December 2003, the Company had 40 more franchised stores
and 369 more Company-operated stores than at December 31, 2002, with the
acquisitions of Merchants in April 2003 and NTW in November 2003 adding 112
and 225 Company-operated stores, respectively, to the retail segment. The
acquired Merchants stores contributed $126.0 million to 2003 retail sales
during the nine months following the acquisition. For the one month following
the NTW acquisition, the acquired NTW stores contributed net sales of $44.9
million. The $13.3 million decrease in net sales by the wholesale segment was
primarily due to a 4.5% decline in unit tire shipments that exceeded the impact
of a 3.4% increase in the average wholesale tire sales price. The percentage of total sales attributable to tires declined from 85% in
2002 to 79% in 2003, due to the impact of increased service revenues at
Company-operated retail stores. Total unit tire volume in 2003 increased 4.5%
compared to the 2002 level. In comparison, unit tire shipments for the
replacement tire industry as a whole increased approximately 1.7% during 2003
(based on preliminary data). Average tire sales prices for the Company as a
whole increased 6.4% compared to a year earlier, due largely to favorable mix
changes. Gross profit as a percentage of net sales increased from 27.2% in 2002 to
32.9% in 2003. The improved overall gross profit percentage was largely due to
the increased contribution from the retail segment and from the increased level
of service revenues within the retail segment. In addition, the Companys
growth over the past several years has resulted in greater purchasing leverage
and an improvement in net purchase costs from tire suppliers. Gross profit
percentages on sales by the Companys retail segment increased from 42.5% in
2002 to 47.2% in 2003. Wholesale margins as a percentage of sales increased
from 14.1% in 2002 to 15.0% in 2003. Distribution expenses as a percentage of net sales decreased from 4.8% in
2002 to 4.7% in 2003, due primarily to improved cost leveraging associated with
the above-mentioned acquisitions as well as improved efficiencies related to
warehousing and product delivery. -10-




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Selling, administrative and retail store expenses increased by $114.3
million in 2003 compared to 2002. The increase was due principally to the
greater number of Company-operated retail stores, including the 112 stores
added on April 1, 2003 as a result of the Merchants acquisition and the 225
NTW stores added at the end of November 2003. Expenses for such retail stores
include payroll, operating and service-related costs, in addition to certain
other selling and administrative expenses. Excluding the impact of expenses
associated with the Company-operated stores added during 2002 and 2003,
selling, administrative and retail store expenses increased by $5.7 million, or
3.1%, in 2003 compared to the 2002 level. The increased expenses after
deducting the impact of new stores was largely due to the impact of general
inflation and various other cost increases in both the retail and wholesale
segments. Net interest expense increased by $1.7 million during 2003 compared to
2002, due largely to a 21.5% increase in average borrowing levels. Borrowings
necessary to fund the acquisitions of Merchants and NTW caused average
borrowing levels to increase, but the impact was somewhat offset by the
Companys cash from operations which totaled $37.7 million during the year.
The impact of amended credit facilities associated with the acquisitions caused
interest rate spreads to increase; however, average borrowing rates were 2.3%
lower in 2003 than in 2002 due to a decline in market interest rates. In both
2003 and 2002, the Company made significant efforts to keep interest rate
spreads and borrowing rates to a minimum. Net other income in 2003 was relatively unchanged compared to the
year-earlier level, increasing by 5.6%. A net decrease in the Companys equity
in operating results from joint ventures, which in 2003 included a $744,000
charge in connection with the exit from a joint venture, was more than offset
by an aggregate increase in other income items. The Companys effective tax rate was 35.6% in 2003 compared to 37.3% in
2002, due principally to reduced provisions for state income taxes. Earnings per diluted share were $1.47 in 2003 and $1.25 in 2002. Earnings
per diluted share in 2003 included a charge of approximately $0.02 in
conjunction with the above-noted exit from a joint venture. Excluding the
effect of this item, earnings in 2003 would have been approximately $1.49 per
diluted share, an increase of 19.2% compared to the 2002 level. 2002 Compared to 2001: Net sales for 2002 increased 9.9% from the 2001 level. The $100.4 million
increase in total net sales included a $66.2 million, or 14.8%, increase for
the retail segment and a $34.2 million, or 6.1%, increase for the wholesale
segment. The $66.2 million increase in retail net sales during 2002 included a
$33.4 million increase in tire sales, a $30.2 million gain in service revenues
at Company-operated stores, and a $2.6 million increase related to franchise
and royalty fees and to sales of products other than tires. The increased
retail tire sales dollars included a 7.7% gain in retail unit volume and a 2.6%
increase in the average retail tire sales price. Sales by the retail segment
were favorably affected by an increase in the number of Company-operated and
franchised stores in the Companys retail systems. At the end of 2002, the
Company had a total of 758 stores in its two retail systems compared to 686
stores at December 31, 2001. The $34.2 million increase in net sales by the
wholesale segment included a 4.4% increase in unit tire shipments and a 2.4%
increase in the average wholesale tire sales price. The percentage of total sales attributable to tires was 85% in 2002
compared to 86% in 2001. Total unit tire volume in 2002 increased 5.4%
compared to the 2001 level. In comparison, unit tire shipments for the
replacement tire industry as a whole declined approximately 0.3% during 2002.
Average tire sales prices for the Company as a whole increased 2.7% in 2002
compared to 2001, due principally to favorable mix changes. Gross profit as a percentage of net sales increased from 26.3% in 2001 to
27.2% in 2002. The improved overall gross profit percentage was largely due to
the increased contribution from the retail segment. In addition, the Companys
increased overall unit volume led to greater purchasing leverage with suppliers
and a resulting improvement in net purchase prices. Gross margin percentages
on sales by
the Companys retail segment increased to 42.5% in 2002 from 41.7% in 2001,
while wholesale margins were 14.1% in 2002 compared to 14.0% in 2001. -11-




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Distribution expenses as a percentage of net sales decreased from 5.0% in
2001 to 4.8% in 2002. Increases in total sales helped to leverage the
Companys warehousing and product delivery costs, since many of them, such as
rent, do not vary in relation to sales. Selling, administrative and retail store expenses increased $27.7 million
in 2002 compared to 2001, due principally to a greater number of
company-operated retail stores. Expenses for such retail stores include
payroll, operating and service-related costs, in addition to certain other
selling and administrative expenses. Expenses in 2001 included amortization of
goodwill and trademarks of $2.8 million. No amortization of such assets was
recorded in 2002, under the provisions of Statement of Financial Accounting
Standards No. 142 (SFAS No. 142), which was adopted by the Company on January
1, 2002 (see Note 1 to the consolidated financial statements.) Expenses in
2001 also included $720,000 related to the writeoff of a prepaid pension asset.
Excluding the impact of the amortization and pension charge in the prior year
and the expenses associated with the new stores, selling, administrative and
retail store expenses increased only 4.5% in 2002 compared to the 2001 level,
while net sales (excluding the new stores) increased 5.7%. Net interest expense decreased $2.5 million in 2002 compared to 2001
level, due principally to the combined effects of lower overall borrowing rates
and lower average borrowings. The Companys average borrowing rate in 2002 was
approximately 16% lower than in 2001, which was a reflection of lower market
interest rates as well as efforts by the Company to better manage receivables,
inventories and other key components of working capital and thereby minimize
interest rate spreads under its borrowing agreements. Average borrowings
declined 12% from the 2001 level, principally as a result of cash generated
from operations and the above-mentioned management efforts which allowed the
Company to reduce its debt to banks and other lenders. Net interest expense in
2001 included interest income of $606,000 related to refunds on amended tax
returns filed in prior years. Net other income in 2002 was $557,000 less than in 2001, due primarily to
a decline in interest and service charge income from customers as well as a
decrease in the Companys equity in operating results from joint ventures. The Companys effective tax rate was 37.3% in 2002 compared to 39.9% in
2001. The lower effective rate in 2002 was due to reduced provisions for state
income taxes as well as the impact of SFAS No. 142, since the majority of
goodwill amortized in prior years was not deductible for tax purposes. Earnings per diluted share were $1.25 in 2002 and $0.98 in 2001. Earnings
per diluted share in 2001 included a charge of $0.02 as a result of the
previously-noted writeoff of a prepaid pension asset and a credit of $0.02
related to interest on prior year amended tax returns, in addition to the
approximate $0.12 charge related to the amortization of goodwill and certain
other intangible assets prior to the adoption of SFAS No. 142. Excluding the
effects of these items, earnings in 2001 would have been approximately $1.10
per diluted share. LIQUIDITY AND CAPITAL RESOURCES On March 31, 2003, the Company executed a new borrowing agreement with a
group of 11 banks, which replaced its existing bank borrowing facilities. On
November 29, 2003, the new agreement was amended and restated to enable the
Company to consummate its acquisition of NTW Incorporated. The amended and
restated agreement includes a term loan facility and a revolving loan facility,
both of which mature on April 1, 2008. The revolving loan facility allows the
Company to borrow up to $121.5 million, with the option to increase that amount
by an additional $28.5 million. At December 31, 2003,
$29.1 million was borrowed under the revolving loan facility and $147.3 million
was outstanding under the term loan facility. The Companys long-term debt at
the end of 2003 also included a total of $77.5 million in Senior Notes. Of the
total $253.9 million borrowed at December 31, 2003 under these combined credit
arrangements, $57.1 million was classified as current on the Companys balance
sheet and the remaining $196.8 million was considered noncurrent. -12-




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Under its agreements with the respective lenders, the Company is subject
to certain financial covenants dealing with, among other things, the Companys
funded indebtedness, leverage, fixed charge coverage ratio, accounts receivable
and inventories. The agreements also include certain restrictions which affect
the Companys ability to incur additional debt, acquire other companies, make
certain investments, repurchase its own common stock, sell or place liens upon
assets, provide guarantees and pay cash dividends. The Company was in
compliance with all of its borrowing covenants as of December 31, 2003 and for
the year then ended. The bank credit facilities are collateralized by
substantially all of the Companys assets and contain certain cross-default
provisions in conjunction with the Senior Notes. The Company had working capital of $137.4 million at December 31, 2003 and
its current ratio was 1.50. During 2003, total cash generated by operating
activities totaled $37.7 million. The Companys strong annual cash flow, solid
financial position and sizable credit facilities allowed it to make the
acquisitions of Merchants, Incorporated on April 1, 2003 and NTW Incorporated
on November 29, 2003 (see Note 3 to the consolidated financial statements).
The Company was also able to fund capital expenditures totaling $21.0 million
in 2003. Capital expenditures, including those during 2003 and 2002, have
historically been primarily for equipment and tire molds. The Company had no
material commitments for capital expenditures at the end of 2003. The Company
expects to fund 2004 day-to-day operating expenses and normally recurring
capital expenditures out of operating funds and its present financial
resources. The Company expects its future growth to include additional
strategic acquisitions such as the acquisitions during 2003 of Merchants and
NTW. Significant future acquisitions could require additional capital
resources and would involve new or amended credit facilities. See
Forward-Looking Statements and Risks below, which identifies certain risks
associated with the Companys acquisition strategy, as well as many of the
other factors which influence the Companys operating results, its future
growth potential and the industry in which it operates. OFF-BALANCE SHEET ARRANGEMENTS Financial guarantees- As discussed in Note 11 to the consolidated
financial statements, the Companys Big O Tires, Inc. subsidiary has provided
certain financial guarantees associated with real estate leases and financing
of its franchisees. Although the guarantees were issued in the normal course
of business to meet the financing needs of its franchisees, they represent
credit risk in excess of the amounts reported on the balance sheet as of
December 31, 2003. The contractual amounts of the guarantees, which represent
the Companys maximum exposure to credit loss in the event of non-performance
by the franchisees, totaled $3,874,000 as of December 31, 2003. The credit
risk associated with these guarantees is essentially the same as that involved
in extending loans to the franchisees. Big O evaluates each franchisees
creditworthiness and requires that sufficient collateral and security interests
be obtained by the third party lenders or lessors, before the guarantees are
issued. There are no cash requirements associated with the guarantees, except
in the event that an actual financial loss is subsequently incurred due to
non-performance by the franchisees. Variable Interest Entities- As discussed in Note 13 to the consolidated
financial statements, in January 2003 and December 2003, the FASB issued
Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46),
and its revision, FIN 46-R, respectively. FIN 46 and FIN 46-R provide guidance
on the consolidation of entities whose equity holders have either not provided
sufficient equity at risk to allow the entity to finance its own activities or
do not possess certain characteristics of a controlling financial interest. FIN
46 and FIN 46-R require the consolidation of these entities, known as variable
interest entities (VIEs), by the primary beneficiary of the entity and also
require certain disclosures by primary beneficiaries and other significant
variable interest holders. The primary beneficiary is the entity, if any, that
is subject to a majority of the risk of loss from the VIEs activities,
entitled to receive a majority of the VIEs residual returns, or both. The
guidance of FIN 46 was immediately applicable for VIEs created after January
31, 2003. In applying such guidance for purposes of determining whether an
entity is a VIE, the Company has reviewed arrangements created after that date
in which it has: 1) an economic interest in an entity or obligations to that
entity; 2) issued guarantees related to the liabilities of an entity; 3)
transferred assets to an entity; 4) managed the assets of an entity; or 5)
leased assets from an entity or provided that entity with financing. For any
VIEs created prior to February 1, 2003, the Company will perform such analysis
for the quarter ending March 31, 2004. As of December 31, 2003, the Company has determined that it holds
interests in certain VIEs created after January 31, 2003 in connection with
the franchise business activities conducted at its Big O Tires, Inc.
subsidiary. However, there were no material expected losses that the
Company would have been required to absorb nor were there any
significant residual returns that the Company expected to receive
from such entities as of December 31, 2003, and therefore no
VIEs are included in the consolidated financial statements of
the Company as of December 31, 2003 and for the year then ended. -13-




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CONTRACTUAL OBLIGATIONS In addition to the debt obligations discussed in the Liquidity and Capital
Resources section, the Company has operating and capital lease commitments as
set forth in Note 6 to the consolidated financial statements. The table below
summarizes the Companys known material contractual obligations as of December
31, 2003 (in thousands). Payments Due by PeriodWithin
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    1 year
    
    2-3 Years
    
    4-5 Years
    
    5 YearsContractual ObligationsLong-term debt
    
    $
    224,834
    
    
    $
    28,059
    
    
    $
    80,886
    
    
    $
    90,889
    
    
    $
    25,000Short-term debt
    
    
    29,100
    
    
    
    29,100
    
    
    
    
    
    
    
    
    
    
    
    Capital lease obligations
    
    
    12,509
    
    
    
    664
    
    
    
    1,711
    
    
    
    2,062
    
    
    
    8,072Operating lease obligations
    
    
    826,778
    
    
    
    83,631
    
    
    
    155,487
    
    
    
    131,282
    
    
    
    456,378Total contractual obligations
    
    $
    1,093,221
    
    
    $
    141,454
    
    
    $
    238,084
    
    
    $
    224,233
    
    
    $
    489,450
 CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, as well as certain financial statement
disclosures. Actual results could differ from those estimates. Significant
accounting policies employed by the Company, including the use of estimates and
assumptions, are presented in the Notes to Consolidated Financial Statements.
Management bases its estimates on its historical experience, together with
other relevant factors, in order to form the basis for making judgements, which
will affect the carrying values of assets and liabilities. On an ongoing
basis, management evaluates its estimates and makes revisions as deemed
necessary. The following areas are considered to be of critical importance: Net sales- Net sales include revenues from sales of products and
services, plus franchise and royalty fees charged to Big O franchisees, less
estimated returns, allowances and customer rebates. Sales are recognized at
the time products are shipped or services are rendered and the estimated costs
of returns, allowances and rebates are accrued at the same time. Historically,
managements estimates for the costs of returns, allowances and rebates have
not been materially different than the actual costs later incurred. Each Big O
franchisee is required to pay an initial franchise fee as well as monthly
royalty fees of 2% of gross sales. Initial franchise fees are deferred and
recognized when all material services or conditions relating to the sale or
transfer of the franchise have been substantially completed. Allowance for doubtful accounts and notes- The Company maintains an
allowance for doubtful accounts and notes for estimated losses resulting from
the inability of its customers to make required payments. The allowance is
based on review of the overall condition of receivable balances and review of
significant past due accounts. The Company evaluated its allowance for
doubtful account at
December 31, 2003 and determined that such amount was adequate but not
excessive, based on facts and conditions known at that time. If the financial
condition of the Companys customers were to deteriorate in such a way as to
impair their ability to make payments, additional allowances may be required. Inventories- Inventories, consisting of tires and other automotive
products held for resale, are valued at the lower of cost or market. Certain
inventories are valued using the last in-first out method; however, the amount
by which the current costs of those inventories exceeded the LIFO value did not
change significantly from December 31, 2002 to December 31, 2003 and thus the
reported results would not have been materially different under a different
inventory costing method. -14-




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Goodwill, Trademarks and Other Intangible Assets- Goodwill represents the
excess of cost over the fair value of identifiable net assets acquired. Under
the provisions of SFAS No. 142, goodwill and other indefinite-lived intangible
assets ceased the amortization of goodwill effective January 1, 2002, with
charges being recorded only if impairment is found to exist. At least
annually, the Company compares the carrying values of its reporting units to
their fair value, with a reporting unit being defined as an operating segment
or one level below a segment if discrete financial information is prepared and
reviewed regularly by management. If the carrying value of a reporting unit
exceeds its fair value, an impairment loss is required to be recognized. No
impairment to the recorded value of Companys indefinite-lived assets was found
to exist as a result of the required testing. Warranty costs- The costs of anticipated adjustments for workmanship and
materials that are the responsibility of the Company are estimated based on
historical experience and charged against earnings currently. Management
reviews these estimates on a regular basis and adjusts the warranty provisions
as actual experience differs from historical estimates or other information
becomes available. During 2003, accruals for warranty expenses were adjusted
to reflect changes in purchasing arrangements with certain suppliers that
caused the Companys responsibility for warranty costs to be lessened.
Reserves for future warranty claims and service are included in liabilities in
the balance sheets. Retirement plan obligations- The values of certain assets and liabilities
associated with the Companys retirement plan obligations are determined on an
actuarial basis and include estimates and assumptions such as the expected
return on plan assets and discount rates. Discount rates are determined based
on rates of high quality, fixed income investments. Actual changes in the fair
market value of plan assets, differences between the actual return and the
expected return on plan assets and changes in the discount rate affect the
amount of the pension expense recognized. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS See Recent Accounting Pronouncements in Note 1 to the consolidated
financial statements for a complete discussion of the impact of recently issued
accounting standards on the Companys consolidated financial statements as of
December 31, 2003 and for the year then ended, as well as the expected impact
on the financial statements for future periods. FORWARD-LOOKING STATEMENTS AND RISKS This Managements Discussion and Analysis of Financial Condition and
Results of Operations contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Act of 1934, as amended, including, without limitation,
statements containing the words believes, expects, anticipates,
estimates and words of similar import. Such forward-looking statements
relate to expectations for future financial performance, which involve known
and unknown risks, uncertainties and other factors. Such factors include, but
are not limited to: changes in economic and business conditions in the world;
increased competitive activity; consolidation within and among both
competitors, suppliers and customers; unexpected changes in the replacement
tire market; the Companys inability to attract as many new franchisees or open
as many Company-operated retail outlets as planned; changes in the Companys
ability to identify and acquire additional companies in the replacement tire
industry and successfully
integrate acquisitions and achieve anticipated synergies or savings;
fluctuations in tire prices charged by manufacturers, including fluctuations
due to changes in raw material and energy prices; product shortages and supply
disruptions; changes in interest and foreign exchange rates; the cyclical
nature of the automotive industry and the loss of a major customer or program.
It is not possible to foresee or identify all such factors. Any
forward-looking statements in this report are based on certain assumptions and
analyses made by the Company in light of its experience and perception of
historical trends, current conditions, expected future developments and other
factors it believes are appropriate in the circumstances. Such statements are
not a guarantee of future performance and actual results or developments may
differ materially from those projected. -15-




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##### Table of Contents



Item 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 The Company is exposed to certain financial market risks. The most
predominant of these risks is the fluctuation in interest rates associated with
bank borrowings, since changes in interest expense affect the Companys
operating results. At December 31, 2003, the Company owed a total of $176.4
million to banks under its credit facilities, of which $160.5 million was not
hedged by interest-rate swap agreements and was thus subject to market risk for
a change in interest rates. If interest rates increase by 25 basis points, the
Companys annual interest expense would increase by approximately $401,000
based on the outstanding balance which was not hedged at December 31, 2003.
See Note 5 to the consolidated financial statements for information regarding
the Companys interest rate swap agreements. The Company has no significant foreign currency translation risks, since
its sales to customers located outside the United States are made and settled
in U.S. dollars. Item 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 The financial statements and supplementary financial information required
by this Item 8 are included on the following 22 pages of this Report. -16-




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PRICEWATERHOUSECOOPERS PricewaterhouseCoopers LLP1000 Morgan Keegan TowerFifty North Front StreetMemphis, TN 38103Telephone (901) 522 2000Facsimile (901) 523 2045
 Report of Independent Auditors To the Board of Directors and Stockholders of
TBC Corporation In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, stockholders equity and cash flows present
fairly, in all material respects, the financial position of TBC Corporation and
its subsidiaries at December 31, 2003 and 2002, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2003, in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of the Companys management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion. As discussed in Note 1 to the consolidated financial statements, the Company
adopted FASB Statement No. 142, Goodwill and Other Intangible Assets, during
2002. PricewaterhouseCoopers LLP February 6, 2004, except
for Note 3 for which the date is March 10, 2004; and
Note 13 for which the date is March 12, 2004. -17-




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TBC CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands) ASSETS December 31,2003
    
    2002CURRENT ASSETS:Cash and cash equivalents
    
    $
    2,645
    
    
    $
    2,319Accounts and notes receivable, less
allowance for doubtful accounts of
$8,260 in 2003 and $8,701 in 2002:Related parties
    
    
    12,535
    
    
    
    16,507Other
    
    
    109,962
    
    
    
    103,201Total accounts and notes receivable
    
    
    122,497
    
    
    
    119,708Inventories
    
    
    265,317
    
    
    
    170,867Refundable federal and state income taxes
    
    
    76
    
    
    
    Deferred income taxes
    
    
    11,359
    
    
    
    12,364Other current assets
    
    
    11,136
    
    
    
    12,515Total current assets
    
    
    413,030
    
    
    
    317,773PROPERTY, PLANT AND EQUIPMENT, AT COST:Land and improvements
    
    
    12,100
    
    
    
    6,068Buildings and leasehold improvements
    
    
    100,379
    
    
    
    28,795Furniture and equipment
    
    
    93,710
    
    
    
    64,052206,189
    
    
    
    98,915Less accumulated depreciation
    
    
    56,618
    
    
    
    42,993Total property, plant and equipment
    
    
    149,571
    
    
    
    55,922TRADEMARKS, NET
    
    
    15,824
    
    
    
    15,824GOODWILL, NET
    
    
    169,184
    
    
    
    58,381OTHER ASSETS
    
    
    34,368
    
    
    
    25,971TOTAL ASSETS
    
    $
    781,977
    
    
    $
    473,871
 The accompanying notes are an integral part of the consolidated financial statements. -18-




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##### Table of Contents



TBC CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands) LIABILITIES AND STOCKHOLDERS EQUITY December 31,2003
    
    2002CURRENT LIABILITIES:Outstanding checks, net
    
    $
    11,411
    
    
    $
    4,209Notes payable to banks
    
    
    29,100
    
    
    
    35,000Current portion of long-term debt
and capital lease obligations
    
    
    28,723
    
    
    
    18,500Accounts payable, trade
    
    
    114,708
    
    
    
    45,200Federal and state income taxes payable
    
    
    
    
    
    
    767Accrued warranty expenses
    
    
    22,544
    
    
    
    10,543Other current liabilities
    
    
    69,186
    
    
    
    36,938Total current liabilities
    
    
    275,672
    
    
    
    151,157LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, LESS CURRENT PORTION
    
    
    208,620
    
    
    
    79,700NONCURRENT LIABILITIES
    
    
    26,400
    
    
    
    14,243DEFERRED INCOME TAXES
    
    
    7,890
    
    
    
    5,651STOCKHOLDERS EQUITY:Common stock, $.10 par value,
shares issued and outstanding -
21,905 in 2003 and 21,292 in 2002
    
    
    2,190
    
    
    
    2,129Additional paid-in capital
    
    
    23,898
    
    
    
    16,687Other comprehensive income (loss)
    
    
    (1,637
    )
    
    
    (1,281
    )Retained earnings
    
    
    238,944
    
    
    
    205,585Total stockholders equity
    
    
    263,395
    
    
    
    223,120TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY
    
    $
    781,977
    
    
    $
    473,871
 The accompanying notes are an integral part of the consolidated financial statements. -19-




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TBC CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) Years ended December 31,2003
    
    2002
    
    2001NET SALES *
    
    $
    1,318,531
    
    
    $
    1,109,663
    
    
    $
    1,009,278COST OF SALES
    
    
    884,400
    
    
    
    807,820
    
    
    
    744,301GROSS PROFIT
    
    
    434,131
    
    
    
    301,843
    
    
    
    264,977EXPENSES:Distribution expenses
    
    
    61,356
    
    
    
    53,136
    
    
    
    50,694Selling, administrative and
retail store expenses
    
    
    313,109
    
    
    
    198,775
    
    
    
    171,099Interest
expense - net
    
    
    10,409
    
    
    
    8,703
    
    
    
    11,188Other
(income) expense - net
    
    
    (2,547
    )
    
    
    (2,411
    )
    
    
    (2,968
    )Total expenses
    
    
    382,327
    
    
    
    258,203
    
    
    
    230,013INCOME BEFORE INCOME TAXES
    
    
    51,804
    
    
    
    43,640
    
    
    
    34,964PROVISION FOR INCOME TAXES
    
    
    18,445
    
    
    
    16,258
    
    
    
    13,954NET INCOME
    
    $
    33,359
    
    
    $
    27,382
    
    
    $
    21,010EARNINGS PER SHARE -Basic
    
    $
    1.54
    
    
    $
    1.29
    
    
    $
    1.00Diluted
    
    $
    1.47
    
    
    $
    1.25
    
    
    $
    .98
  *
    
    Including sales to related parties of $82,010, $100,406 and $92,813 in
the years ended
December 31, 2003, 2002 and 2001, respectively. The accompanying notes are an integral part of the consolidated financial statements. -20-




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##### Table of Contents



TBC CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (In thousands) Years ended December 31, 2001, 2002 and 2003OtherCommon Stock
    
    
    
    
    
    Additional
    
    Compre-hensiveNumber of
    
    
    
    
    
    Paid-In
    
    Income
    
    RetainedShares
    
    Amount
    
    Capital
    
    (Loss)
    
    Earnings
    
    TotalBALANCE, JANUARY 1, 2001
    
    
    20,939
    
    
    $
    2,094
    
    
    $
    9,760
    
    
    
    
    
    
    $
    162,198
    
    
    $
    174,052Net income for 2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,010
    
    
    
    21,010Issuance of common stock under stock
option and incentive plans, net
    
    
    269
    
    
    
    27
    
    
    
    1,825
    
    
    
    
    
    
    
    
    
    
    
    1,852Repurchase and retirement of common stock
    
    
    (205
    )
    
    
    (21
    )
    
    
    (103
    )
    
    
    
    
    
    
    (2,059
    )
    
    
    (2,183
    )Tax benefit from exercise of stock options
    
    
    
    
    
    
    
    
    
    
    301
    
    
    
    
    
    
    
    
    
    
    
    301Other comprehensive loss associated with
interest rate swap agreements, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (713
    )
    
    
    
    
    
    
    (713
    )BALANCE, DECEMBER 31, 2001
    
    
    21,003
    
    
    
    2,100
    
    
    
    11,783
    
    
    
    (713
    )
    
    
    181,149
    
    
    
    194,319Net income for 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,382
    
    
    
    27,382Issuance of common stock under stock
option and incentive plans, net
    
    
    519
    
    
    
    52
    
    
    
    4,084
    
    
    
    
    
    
    
    
    
    
    
    4,136Repurchase and retirement of common stock
    
    
    (230
    )
    
    
    (23
    )
    
    
    (139
    )
    
    
    
    
    
    
    (2,946
    )
    
    
    (3,108
    )Tax benefit from exercise of stock options
    
    
    
    
    
    
    
    
    
    
    959
    
    
    
    
    
    
    
    
    
    
    
    959Change in other comprehensive loss associated
with interest rate swap agreements, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (177
    )
    
    
    
    
    
    
    (177
    )Minimum pension liability adjustment,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (391
    )
    
    
    
    
    
    
    (391
    )BALANCE, DECEMBER 31, 2002
    
    
    21,292
    
    
    
    2,129
    
    
    
    16,687
    
    
    
    (1,281
    )
    
    
    205,585
    
    
    
    223,120Net income for 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,359
    
    
    
    33,359Issuance of common stock under stock
option and incentive plans, net
    
    
    613
    
    
    
    61
    
    
    
    5,391
    
    
    
    
    
    
    
    
    
    
    
    5,452Tax benefit from exercise of stock options
    
    
    
    
    
    
    
    
    
    
    1,820
    
    
    
    
    
    
    
    
    
    
    
    1,820Change in other comprehensive loss associated
with interest rate swap agreements, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    331
    
    
    
    
    
    
    
    331Change in minimum pension liability
adjustment, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37
    )
    
    
    
    
    
    
    (37
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (650
    )
    
    
    
    
    
    
    (650
    )BALANCE, DECEMBER 31, 2003
    
    
    21,905
    
    
    $
    2,190
    
    
    $
    23,898
    
    
    $
    (1,637
    )
    
    $
    238,944
    
    
    $
    263,395
 The accompanying notes are an integral part of the consolidated financial statements. -21-




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##### Table of Contents



TBC CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years ended December 31,2003
    
    2002
    
    2001Operating Activities:Net income
    
    $
    33,359
    
    
    $
    27,382
    
    
    $
    21,010Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation
    
    
    18,159
    
    
    
    12,665
    
    
    
    11,192Amortization of intangible assets
    
    
    69
    
    
    
    24
    
    
    
    2,801Amortization of other comprehensive income
    
    
    (309
    )
    
    
    83
    
    
    
    226Provision for doubtful accounts and notes
    
    
    4,267
    
    
    
    2,861
    
    
    
    2,607(Gain) loss on sale of fixed assets
    
    
    23
    
    
    
    (14
    )
    
    
    (485
    )Deferred income taxes
    
    
    4,423
    
    
    
    169
    
    
    
    (810
    )Equity in (earnings) loss from joint ventures
    
    
    128
    
    
    
    24
    
    
    
    (364
    )Changes in operating assets and liabilities, net
of effects of assets and liabilities acquired:Receivables
    
    
    (5,847
    )
    
    
    (7,329
    )
    
    
    (614
    )Inventories
    
    
    (42,277
    )
    
    
    3,338
    
    
    
    (4,098
    )Other current assets
    
    
    1,561
    
    
    
    (426
    )
    
    
    (7,762
    )Other assets
    
    
    1,925
    
    
    
    2,320
    
    
    
    582Accounts payable, trade
    
    
    14,283
    
    
    
    (8,027
    )
    
    
    (21,447
    )Federal and state income taxes refundable or payable
    
    
    987
    
    
    

    4,488
    
    
    
    1,051Other current liabilities
    
    
    4,393
    
    
    
    5,301
    
    
    
    (1,168
    )Noncurrent liabilities
    
    
    2,566
    
    
    
    2,564
    
    
    
    1,260Net cash provided by operating activities
    
    
    37,710
    
    
    
    45,423
    
    
    
    3,981Investing Activities:Purchase of property, plant and equipment
    
    
    (21,017
    )
    
    
    (15,155
    )
    
    
    (12,051
    )Acquisition of Merchants, Inc., net of cash acquired
    
    
    (58,477
    )
    
    
    
    
    
    
    Acquisition of NTW Incorporated, net of cash acquired
    
    
    (225,914
    )
    
    
    
    
    
    
    Purchase of net assets of retail tire stores, net of cash acquired
    
    
    
    
    
    
    (11,154
    )
    
    
    (3,644
    )Proceeds from disposition of commercial division of
Merchants, Inc.
    
    
    5,600
    
    
    
    
    
    
    
    Proceeds from sale of real estate under operating leases, net
    
    
    134,050
    
    
    
    
    
    
    
    Distributions received from joint ventures and other entities
(net of investments made)
    
    
    1,694
    
    
    
    466
    
    
    
    (4,932
    )Net proceeds from asset dispositions
    
    
    2,593
    
    
    
    1,022
    
    
    
    10,808Other
    
    
    
    
    
    
    
    
    
    
    114Net cash used in investing activities
    
    
    (161,471
    )
    
    
    (24,821
    )
    
    
    (9,705
    )Financing Activities:Net bank borrowings (repayments) under short-term
borrowing arrangements
    
    
    (5,900
    )
    
    
    800
    
    
    
    22,207Increase (decrease) in outstanding checks, net
    
    
    3,245
    
    
    
    (1,707
    )
    
    
    (4,121
    )Proceeds from long-term debt, net of financing costs
    
    
    133,862
    
    
    
    
    
    
    
    2,472Proceeds from capital leases from sale of real estate, net
    
    
    3,594
    
    
    
    
    
    
    
    Payments on long-term debt and capital lease obligations
    
    
    (15,300
    )
    
    
    (20,533
    )
    
    
    (13,855
    )Issuance of common stock under stock option
and incentive plans
    
    
    4,586
    
    
    
    3,967
    
    
    
    1,821Repurchase and retirement of common stock
    
    
    
    
    
    
    (3,108
    )
    
    
    (2,183
    )Net cash provided by (used in) financing activities
    
    
    124,087
    
    
    
    (20,581
    )
    
    
    6,341Increase in cash and cash equivalents
    
    
    326
    
    
    
    21
    
    
    
    617Cash and cash equivalents:Balance - Beginning of year
    
    
    2,319
    
    
    
    2,298
    
    
    
    1,681Balance - End of year
    
    $
    2,645
    
    
    $
    2,319
    
    
    $
    2,298
 -22-




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##### Table of Contents



TBC CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (In thousands) Years ended December 31,2003
    
    2002
    
    2001Supplemental Disclosures of Cash Flow Information:Cash paid
for - Interest
    
    $
    9,920
    
    
    $
    8,589
    
    
    $
    11,578- Income Taxes
    
    
    13,035
    
    
    
    11,601
    
    
    
    13,713Supplemental Disclosure of Non-Cash Financing Activity:Tax benefit from exercise of stock options
    
    $
    1,820
    
    
    $
    959
    
    
    $
    301Issuance of restricted stock under stock incentive
plan, net of shares received for tax withholding
    
    
    866
    
    
    
    169
    
    
    
    31Conversion of capital lease obligations
    
    
    
    
    
    
    
    
    
    
    91Supplemental Disclosure of Non-Cash Investing
and Financing Activities:On April 1, 2003, the Company completed the acquisition
of Merchants, Incorporated for a purchase price of
$57,494, plus applicable closing costs. The acquisition
was accounted for under the purchase method, as follows:Estimated fair value of assets acquired
    
    $
    53,956Goodwill
    
    
    49,645Cash paid, net of cash acquired
    
    
    (58,477
    )Liabilities assumed
    
    $
    45,124On November 29, 2003, the Company completed the acquisition
of NTW Incorporated for a purchase price of $225,000,
plus applicable closing costs. Contemporaneously with the
closing of the acquisition, the Company sold and leased back
86 retail stores under operating leases and received net
proceeds of $132,185. The transaction was accounted for
under the purchase method, as follows:Estimated fair value of assets acquired, including
fees to be amortized, net of assets disposed of
in sale and leaseback transaction
    
    $
    104,016Goodwill
    
    
    60,652Cash paid, net of cash acquired
    
    
    (225,914
    )Cash received from sale and leaseback transactions,
net of transaction costs
    
    
    132,185Liabilities assumed
    
    $
    70,939In 2002, the Company purchased the net assets of
certain retail tire stores at a combined cash purchase
price of $11,154. The transaction was accounted for
under the purchase method, as follows:Estimated fair value of assets acquired
    
    
    
    
    
    $
    4,166Goodwill
    
    
    
    
    
    
    7,090Cash paid, net of cash acquired
    
    
    
    
    
    
    (11,154
    )Liabilities assumed
    
    
    
    
    
    $
    102
 The accompanying notes are an integral part of the consolidated financial statements. -23-




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##### Table of Contents



TBC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  1.
    
    NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Operations The Company is principally engaged in the marketing and distribution of
tires in the automotive replacement market, through both wholesale and retail
channels. The Companys wholesale customers include retailers and other
wholesalers, primarily in the United States, Canada and Mexico. The Company
operates retail tire and automotive service centers, primarily in the eastern
two-thirds of the United States, under its Tire Kingdom, Merchants Tire & Auto
Centers, and National Tire & Battery business units. Through its subsidiary
Big O Tires, Inc., the Company also acts as a franchisor of independent retail
tire and automotive service stores located primarily in the western and
midwestern United States. Significant Accounting Policies Principles of consolidation- The accompanying financial statements
include the accounts of TBC Corporation and its wholly-owned subsidiaries. All
significant intercompany transactions and balances have been eliminated. Accounting estimates- The financial statements are prepared in conformity
with accounting principles generally accepted in the United States of America.
The preparation of such financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, as well as certain financial statement
disclosures. Actual results could differ from those estimates. Equity investments- The Company has invested in certain tire distributors
and independent tire dealers. The investments in these 50% or less-owned
entities are accounted for using the equity method and are included in other
assets on the balance sheets. The carrying value of such equity investments
totaled $10,754,000 and $13,982,000 at December 31, 2003 and 2002,
respectively. For its share of earnings and losses from such equity
investments, the Company recorded net losses of $128,000 in 2003 and $24,000 in
2002 and earnings of $364,000 in 2001. The net loss recorded during 2003
included a $744,000 charge in connection with the Companys exit from a joint
venture. Cash equivalents- Cash equivalents consist of short-term, highly liquid
investments which are readily convertible into cash. Inventories- Inventories, consisting of tires and other automotive
products held for resale, are valued at the lower of cost or market. Certain
inventories are valued using the last in-first out method and the current costs
of those inventories exceeded the LIFO value by $1,595,000 and $1,389,000 at
December 31, 2003 and 2002, respectively. Concentrations of credit risk- The Company performs ongoing credit
evaluations of its franchisees and wholesale customers and typically requires
some form of security, including collateral, guarantees or other documentation.
The Company maintains allowances for potential credit losses. The Company
maintains cash balances with financial institutions with high credit ratings.
The Company has not experienced any losses with respect to bank balances in
excess of government-provided insurance. Property, plant and equipment- Depreciation is computed principally using
the straight-line method, over estimated lives of 3-15 years for furniture and
equipment and 20-40 years for buildings and leasehold improvements. In
situations where lease terms are for a period of less than 20 years, leasehold
improvements are depreciated over the life of the lease. Amounts expended for
maintenance and repairs are charged to operations, and expenditures for major
renewals and betterments are capitalized. When property, plant and equipment
is retired or otherwise disposed of, the related gain or loss is included in
the results of operations. -24-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED  1.
    
    NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Acquisitions- The Company accounts for asset and business acquisitions
using the purchase method, under the provisions of Statement of Financial
Accounting Standards No. 141, Business Combinations. Assets acquired and
liabilities assumed are recorded at their fair value on the date of purchase.
Purchase cost in excess of the fair value of the net assets acquired is
allocated to identifiable intangibles, to the extent of their fair value. Any
remaining excess cost is allocated to goodwill. Goodwill, Trademarks and Other Intangible Assets- Goodwill represents the
excess of cost over the fair value of identifiable net assets acquired.
Goodwill was recorded as a result of the Companys acquisitions of Merchants,
Incorporated and NTW Incorporated in 2003, as well as the purchase of the net
assets of certain other retail tire stores during 2002 and 2001. Effective
January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets (SFAS No. 142).
Under SFAS No. 142, goodwill and other indefinite-lived intangible assets are
no longer amortized but are tested for impairment annually, with charges being
recorded only if impairment is found to exist. SFAS No. 142 requires the fair
values of these intangible assets to be assigned to the Companys reporting
units and tested accordingly, with a reporting unit being defined as an
operating segment or one level below a segment if discrete financial
information is prepared and reviewed regularly by management. No impairment to
the recorded value of the Companys indefinite-lived assets was found to exist
as a result of the required testing. Expenses for the year ended December 31, 2001 included amortization of
goodwill and trademarks of $2,755,000. If SFAS No. 142 had been in effect
during 2001 and amortization had not been recorded, net income would have been
approximately $2,480,000 greater than the reported total of $21,010,000 and
diluted earnings per share would have been approximately $1.10 compared to the
reported total of $0.98. Long-lived assets- The Company periodically reviews the recoverability of
intangible and other long-lived assets. If facts or circumstances support the
possibility of impairment, the Company will prepare a projection of the
undiscounted future cash flows of the specific assets and determine if the
assigned value is recoverable or if an adjustment to the carrying value of the
assets is necessary. The Company does not believe that there were any facts or
circumstances which indicated an impairment of recorded assets as of December
31, 2003 or 2002. Net sales- Net sales include revenues from sales of products and
services, plus franchise and royalty fees charged to Big O franchisees, less
estimated returns, allowances and customer rebates. Sales are recognized at
the time products are shipped or services are rendered and the estimated costs
of returns, allowances and rebates are accrued at the same time. Each Big O
franchisee is required to pay an initial franchise fee as well as monthly
royalty fees of 2% of gross sales. Initial franchise fees are deferred and
recognized when all material services or conditions relating to the sale or
transfer of the franchise have been substantially completed. Warranty costs- The costs of anticipated adjustments for workmanship and
materials that are the responsibility of the Company are estimated based on
historical experience and charged against earnings currently. Management
reviews these estimates on a regular basis and adjusts the warranty provisions
as actual experience differs from historical estimates or other information
becomes available. During 2003, accruals for warranty expenses were adjusted
to reflect changes in purchasing arrangements with certain suppliers that
caused the Companys responsibility for warranty costs to be lessened.
Reserves for future warranty claims and service, including those associated
with acquired operations, totaled $29,394,000 and $10,997,000 at December 31,
2003 and 2002, respectively, of which a portion was classified as
noncurrent in
the balance sheets. Interest on early payments to suppliers for product- Interest income
associated with early payments to suppliers for product is recorded as a
reduction to cost of sales in the statements of income. This interest income
represented 0.9% of net sales in 2003, 1.0% during 2002 and 1.2% in 2001. -25-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED  1.
    
    NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Earnings per share- Earnings per share have been calculated according to
Statement of Financial Accounting Standards No. 128, Earnings per share.
Basic earnings per share have been computed by dividing net income by the
weighted average number of shares of common stock outstanding. Diluted
earnings per share have been computed by dividing net income by the weighted
average number of common shares and equivalents outstanding. Common share
equivalents represent shares issuable upon assumed exercise of stock options.
Average common shares and equivalents outstanding were as follows (in
thousands): 2003
    
    2002
    
    2001Weighted average common shares outstanding
    
    
    21,649
    
    
    
    21,191
    
    
    
    20,984Common share equivalents
    
    
    1,094
    
    
    
    775
    
    
    
    402Weighted average common shares and equivalents outstanding
    
    
    22,743
    
    
    
    21,966
    
    
    
    21,386
 Recent Accounting Pronouncements In June 2001, Statement of Financial Accounting Standards No. 143,
Accounting for Asset Retirement Obligations was issued, effective for
financial statements for fiscal years beginning after June 15, 2002. SFAS 143
requires entities to establish liabilities for legal obligations associated
with the retirement of tangible long-lived assets. The Company adopted this
statement effective January 1, 2003 as required, and such adoption had no
material impact on the Companys financial statements. In June 2002, Statement of Financial Accounting Standards No. 146,
Accounting for Costs Associated with Exit or Disposal Activities was issued,
effective for such activities initiated after December 31, 2002. The statement
addresses financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3.
SFAS No. 146 requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred and establishes
that fair value is the objective for initial measurement of the liability. The
Company adopted this statement effective January 1, 2003 as required, and such
adoption had no material impact on the Companys financial statements. In June 2003, Statement of Financial Accounting Standards No. 149,
Amendment of Statement 133 on Derivative Instruments and Hedging Activities
was issued, principally effective for contracts entered into or modified after
June 30, 2003 and for hedging relationships designated after that date. The
statement amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities under FASB Statement No. 133. The
Company adopted this statement effective July 1, 2003 as required, and such
adoption had no material impact on the Companys financial statements. In May 2003, Statement of Financial Accounting Standards No. 150,
Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity was issued. SFAS No. 150 addresses the classification
and measurement of certain financial instruments that, under previous guidance,
could be accounted for as equity and requires that those instruments be
classified as liabilities on the balance sheet. The statement also requires
disclosures about alternative ways of settling the instruments and the related
capital structure of entities. Most of the guidance in SFAS No.150 was
effective for financial instruments entered into or modified after May 31,
2003, and otherwise was effective for the Company on July 1, 2003. The
adoption of this statement had no material impact on the Companys financial
statements. -26-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED  1.
    
    NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued) In November 2002, FASB Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including indirect Guarantees of
Indebtedness of Others, was issued. FIN 45 elaborates on the financial
statement disclosures to be made by a guarantor about its obligations under
certain guarantees. It also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The initial recognition and
initial measurement provisions of this interpretation are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002.
The disclosure requirements in the interpretation were effective for financial
statements of interim or annual periods ending after December 15, 2002 and the
Company included such disclosures in Note 11 to the consolidated financial
statements for the year ended December 31, 2002. The Company adopted the
initial recognition and initial measurement provision of this statement
effective January 1, 2003 as required, and such adoption had no material impact
on the Companys financial statements.  2.
    
    TRANSACTIONS WITH RELATED PARTIES AND MAJOR CUSTOMERS The Companys operations are managed through its Board of Directors,
members of which owned or are affiliated with companies which owned
approximately 7% of the Companys common stock at December 31, 2003. Sales to
a distributor represented on the Board, including affiliates of that
distributor, accounted for approximately 3% of the Companys net sales during
2003, 4% during 2002 and 5% in 2001. One major customer, unaffiliated with the
board of directors or the Company, accounted for approximately 3% of net sales
in 2003, 5% of net sales in 2002, and 4% in 2001. Sales to joint ventures and
entities in which the Company has an ownership interest accounted for
approximately 3% of the Companys net sales during 2003, 5% in 2002 and 4% in
2001. Accounts receivable resulting from transactions with related parties are
presented separately in the balance sheets.  3.
    
    ACQUISITIONS IN 2003 OF MERCHANTS, INCORPORATED AND
NTW INCORPORATED On April 1, 2003, the Company acquired all of the outstanding capital
stock of Merchants, Incorporated (Merchants), which was a privately-owned
company operating 112 retail tire centers in the Mid-Atlantic region of the
United States. The acquisition was made to increase the size and geographic reach of TBCs
retail store network and to enhance TBCs purchasing, distribution and
marketing economies. The acquisition was accounted for as a purchase, with total
consideration of $57,494,000 payable by TBC at closing plus up to $15 million
payable in the future depending upon the performance of the existing Merchants
retail stores during the five year period beginning January 1, 2004. For the
year ended December 31, 2002, Merchants had sales of $174.2 million, of which
$154.6 million related to its retail business. The remaining sales in 2002
were attributable to Merchants commercial and retreading business which TBC
sold effective April 30, 2003 for a net price of $5.6 million, with no gain
being recognized. On November 29, 2003, the Company acquired all of the outstanding capital
stock of NTW Incorporated from Sears, Roebuck and Co. NTW was operated as a
separate operating division by Sears under the name National Tire & Battery
(NTB), with 225 retail tire and automotive centers in 20 states generating
annual revenues in excess of $425 million. Like the Merchants acquisition, the NTW acquisition was made to increase the
size and geographic reach of TBCs retail store network and further enhance
TBCs purchasing, distribution and marketing economies. The acquisition was accounted for
as a purchase, with total consideration of $225 million financed through debt
and sale/leaseback arrangements. Contemporaneously with the closing of the
acquisition, the Company sold and leased back 86 retail tire stores owned by
NTW, with net proceeds from that transaction totaling approximately $132
million. -27-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED  3.
    
    ACQUISITIONS IN 2003 OF MERCHANTS, INCORPORATED AND
NTW INCORPORATED (Continued) The Companys consolidated financial statements include the operating
results of Merchants since April 1, 2003 and NTW since November 30, 2003. The
following unaudited pro forma results (adjusted for items such as interest on
required borrowings, differences in purchasing costs for goods, operating
expenses, etc.) were prepared as if the companies had been combined as of
January 1, 2002 and exclude an after-tax charge of $53,978,000 in 2002 by NTW
for the cumulative effect of a change in accounting for goodwill. Such pro
forma results give no consideration to anticipated changes in the mix of
products and services offered by the acquired stores and the favorable effect
that such changes would be expected to have on gross profit. Thus, the pro
forma results do not purport to present what actual results of operations would
have been or to project results for any future period. Pro forma net sales
were $1,751,527,000 in 2003 and $1,727,358,000 in 2002. Pro forma net income
was $34,251,000 in 2003 and $33,442,000 in 2002 and pro forma diluted earnings
per share were $1.52 in both 2003 and 2002.  4.
    
    NOTES PAYABLE TO BANKS AND LONG-TERM DEBT On March 31, 2003, the Company executed a new borrowing agreement with a
group of 11 banks, which replaced its existing bank borrowing facilities. On
November 29, 2003, the new agreement was amended and restated to enable the
Company to consummate its acquisition of NTW Incorporated. The amended and
restated agreement includes a term loan facility and a revolving loan facility,
both of which mature on April 1, 2008. The revolving loan facility allows the
Company to borrow up to $121.5 million, with the option to increase that
amount by an additional $28.5 million. Interest under each of the new
facilities is at the eurodollar rate plus a variable rate between 1.75% and
2.75% dependent on the Companys leverage ratio. The bank credit facilities
are collateralized by substantially all of the Companys assets and contain
certain cross-default provisions in conjunction with the long-term Senior Notes
described below. The credit facilities require the payment of certain
commitment and administrative fees and contain certain financial covenants
dealing with, among other things, the Companys funded indebtedness, leverage,
fixed charge coverage ratio, accounts receivable and inventories. The credit
facilities also include certain restrictions which affect the Companys ability
to incur additional debt, acquire other companies, make certain investments,
repurchase its own common stock, sell or place liens upon assets, provide
guarantees and pay cash dividends. On April 1, 2003, the Company entered into a new agreement with a lender
that allowed the Company to borrow $50 million under Series D variable rate
Senior Notes, due April 16, 2009. Borrowings under the Series D Senior Notes
were made April 16, 2003, with the proceeds being used to help finance the
acquisition of Merchants (see Note 3). On November 29, 2003, the agreements
under which the Companys Series A, B,C and D Senior Notes were issued were
amended to modify the interest rates payable thereunder and, among other
things, incorporate all of the financial covenants and restrictions contained
in the amended and restated bank credit facilities noted above. The Companys
obligations under the Senior Notes are collateralized by substantially all of
the Companys assets, with principal payments required to be made semi-annually
and interest payable quarterly. The Company was in compliance with all of its borrowing covenants as of
December 31, 2003 and for the year then ended. A total of $29,100,000 was
borrowed under the bank revolving loan facility at December 31, 2003. The
weighted average interest rate on short-term borrowings at December 31, 2003
and 2002 was 5.25% and 4.03%, respectively. -28-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED  4.
    
    NOTES PAYABLE TO BANKS AND LONG-TERM DEBT (Continued) Long-term debt and capital lease obligations on the balance sheets are
summarized as follows (in thousands): December 31,2003
    
    20028.30% Series A Senior Note
    
    $
    
    
    
    $
    6,5009.62% Series B Senior Note, due from 2004 through 2005
    
    
    11,000
    
    
    
    11,0009.81% Series C Senior Note, due from 2006 through 2008
    
    
    16,500
    
    
    
    16,5007.25% Series D Senior Note, due from 2007 through 2009
    
    
    50,000
    
    
    
    Variable-Rate Term Loan Payable to Banks, due from 2004 through 2008
    
    
    147,334
    
    
    
    63,000Capital lease obligations
    
    
    12,509
    
    
    
    1,200237,343
    
    
    
    98,200Less current portion
    
    
    28,723
    
    
    
    18,500$
    208,620
    
    
    $
    79,700
 Maturities of long-term debt and capital lease obligations are as follows:
$28,723,000 due in 2004, $41,270,000 in 2005, $41,327,000 in 2006, $46,441,000
in 2007, $46,510,000 in 2008, and $33,072,000 thereafter.  5.
    
    INTEREST RATE SWAP AGREEMENTS The Company has certain interest-rate swap agreements which are hedge
instruments accounted for under Statement of Financial Accounting Standards No.
133, adopted by the Company on January 1, 2001. SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended, requires the
recognition of all derivative instruments on the balance sheet at fair value.
The Companys interest-rate swap agreements expire over periods of five years
or less and are cash-flow hedges since they are used to convert a portion of
the Companys variable-rate bank debt to fixed rates and thereby minimize
earnings fluctuations caused by interest rate volatility. Changes in the fair
value of interest-rate swaps are recorded in other comprehensive income, until
earnings are affected by the variability of actual cash flows. As of December
31, 2003, deferred losses on interest-rate swaps, net of deferred taxes,
totaled $559,000 and were included in other comprehensive income (loss) on the
balance sheet. At the end of 2003, interest expense of approximately $617,000
was expected to be recorded within the next twelve months, in conjunction with
the realization of assumed interest rates. For the year ended December 31,
2001, amounts included in the statement of income associated with the adoption
and provisions of SFAS No. 133 were not material.  6.
    
    LEASE COMMITMENTS The Companys commitments under operating leases relate substantially to
retail store locations and distribution facilities. In addition to rental
payments, the Company is obligated in some instances to pay real estate taxes,
insurance and certain maintenance costs. Leased capital assets are included in
property, plant and equipment on the consolidated balance sheets. Other
facilities and equipment are leased under arrangements that are accounted for
as operating leases. Rental expense of $52,845,000, $35,623,000 and
$29,441,000 was charged to operations in 2003, 2002 and 2001, respectively,
after deducting sublease income of $4,169,000 in 2003, $4,429,000 in 2002 and
$3,459,000 in 2001. Minimum rent is expensed on a straight-line basis over the
terms of the operating leases. -29-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED  6.
    
    LEASE COMMITMENTS (Continued) Future minimum capital and operating lease payments and the related
present value of capital lease payments at December 31, 2003 were as follows
(in thousands): Operating
    
    CapitalYear
    
    Leases
    
    Leases2004
    
    $
    83,631
    
    
    $
    2,2942005
    
    
    79,888
    
    
    
    2,1562006
    
    
    75,599
    
    
    
    2,1542007
    
    
    68,366
    
    
    
    2,1362008
    
    
    62,916
    
    
    
    2,050Thereafter
    
    
    456,378
    
    
    
    12,586Total minimum lease payments
    
    
    826,778
    
    
    
    23,376Less -  sublease income associated
with operating leases
    
    
    (28,494
    )Net minimum lease payments
    
    $
    798,284Less - interest expense associated
with capital leases
    
    
    
    
    
    
    (10,867
    )Present value of net
minimum lease payments
    
    
    
    
    
    $
    12,509
 In conjunction with the acquisition of NTW Incorporated in November 2003,
the Company entered into a transaction whereby 86 retail stores were sold and
leased back pursuant to leases that qualified and were accounted for as
operating leases. The Company does not have any retained or contingent
interests in the sold stores. Proceeds from this sale-leaseback transaction,
net of related fees, totaled $132,185,000, with no gain being recognized since
the net book value of the sold properties was the same as the fair market
value. In addition to the NTW stores, certain other retail stores were sold
and leased back during the year under sale-leaseback arrangements. The leases
that resulted from these sale-leaseback transactions are included in the above
table.  7.
    
    INCOME TAXES The Company records income taxes using the liability method prescribed by
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. Income taxes provided for the years ended December 31, 2003, 2002 and
2001 were as follows (in thousands): 2003
    
    2002
    
    2001Current:Federal
    
    $
    13,149
    
    
    $
    15,440
    
    
    $
    12,539State
    
    
    873
    
    
    
    649
    
    
    
    2,22514,022
    
    
    
    16,089
    
    
    
    14,764Deferred
    
    
    4,423
    
    
    
    169
    
    
    
    (810
    )$
    18,445
    
    
    $
    16,258
    
    
    $
    13,954
 -30-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 7. INCOME TAXES (Continued) The provision for deferred income taxes represents the change in the
Companys net deferred income tax asset or liability during the year, excluding
deferred taxes related to other comprehensive income or loss and including the
effect of any tax rate changes. Deferred income taxes arise from temporary
differences between the tax basis of the Companys assets and liabilities and
their reported amounts in the financial statements. Deferred income tax assets
of $1,355,000 were recorded in connection with the acquisition of Merchants in
April 2003. No deferred income tax assets were recorded in connection with the
November 2003 acquisition of NTW. The major components of deferred income tax
assets and liabilities on the balance sheets are summarized as follows (in
thousands): December 31,2003
    
    2002Deferred income tax assets:Allowance for doubtful accounts
    
    $
    3,211
    
    
    $
    3,285Warranty-related reserves
    
    
    3,599
    
    
    
    3,982Insurance-related accruals
    
    
    3,143
    
    
    
    2,841Compensation and retirement-related accruals
    
    
    2,444
    
    
    
    2,069Lease accruals and related arrangements
    
    
    3,195
    
    
    
    2,719Deferred revenues
    
    
    897
    
    
    
    645Other comprehensive income/loss
    
    
    588
    
    
    
    794Other deferred income tax assets
    
    
    215
    
    
    
    70Total deferred income tax assets
    
    $
    17,292
    
    
    $
    16,405Deferred income tax liabilities:Trademarks and intangible assets
    
    $
    7,867
    
    
    $
    6,261Accumulated depreciation
    
    
    4,634
    
    
    
    3,017Inventory
    
    
    1,118
    
    
    
    208Other deferred income tax liabilities
    
    
    204
    
    
    
    206Total deferred income tax liabilities
    
    $
    13,823
    
    
    $
    9,692Net deferred income tax asset
    
    $
    3,469
    
    
    $
    6,713Balance sheet presentation:Current deferred income tax asset
    
    $
    11,359
    
    
    $
    12,364Noncurrent deferred income tax liability
    
    
    7,890
    
    
    
    5,651Net deferred income tax asset
    
    $
    3,469
    
    
    $
    6,713
 A reconciliation of the statutory U. S. Federal income tax rate to the
Companys effective income tax rate is as follows: 2003
    
    2002
    
    2001Statutory U.S. Federal rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State income taxes
    
    
    1.2
    
    
    
    2.2
    
    
    
    4.1Other
    
    
    (.6
    )
    
    
    .1
    
    
    
    .8Effective tax rate
    
    
    35.6
    %
    
    
    37.3
    %
    
    
    39.9
    %
 At December 31, 2003, certain of the Companys consolidated subsidiaries
had net operating loss carryforwards available in certain states. These state
loss carryforwards are expected to be utilized prior to expiring in 2023. -31-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED  8.
    
    RETIREMENT PLANS The Company maintains employee savings plans under Section 401(k) of the
Internal Revenue Code. Contributions are typically made by the Company to the
401(k) plans based on specified percentages of employee contributions, but may
also include discretionary contributions. Expenses recorded for the Companys
contributions totaled $1,405,000 in 2003, $1,807,000 in 2002 and $1,274,000 in
2001. The Company has a defined benefit pension plan which covered less than 100
of its employees at the end of 2003. The benefits are based on years of
service and the employees final compensation. The plan is funded by
contributions by the Company, not to exceed the maximum amount that can be
deducted for federal income tax purposes. The plan was amended as of December
31, 2001 to freeze accrued participant benefits by providing that years of
service and compensation after that date shall not be taken into account in the
calculation of plan benefits. Although no decision has been made to terminate
the plan, it may be terminated at some point in the future (in accordance with
the requirements of ERISA and the Pension Benefit Guaranty Corporation). The
Company wrote off the remaining balance of its prepaid pension asset during
2001 and recorded an expense of $720,000. In 2003 and 2002, the Company
recorded minimum pension liability adjustments of $59,000 and $624,000,
respectively, related to the excess of accumulated benefit obligations over the
underlying plan assets. Accumulated adjustments, reflected in other
comprehensive income or loss on the balance sheets net of deferred income
taxes, were $428,000 and $391,000 as of December 31, 2003 and 2002,
respectively. The table which follows sets forth the defined benefit pension plans
changes in projected benefit obligations for service rendered to date, changes
in the fair value of plan assets, the funded status and amounts recognized in
the Companys balance sheets (in thousands): 2003
    
    2002Actuarial present value of projected benefit
obligations,at beginning of year
    
    $
    (5,894
    )
    
    $
    (5,867
    )Service cost
    
    
    (50
    )
    
    
    Interest cost
    
    
    (366
    )
    
    
    (383
    )Actuarial gain (loss)
    
    
    (60
    )
    
    
    (61
    )Settlement gain
    
    
    840
    
    
    
    318Benefits paid
    
    
    134
    
    
    
    86Expenses paid
    
    
    135
    
    
    
    89Amendments and other
    
    
    
    
    
    
    (76
    )Actuarial present value of projected benefit
obligations, at end of year
    
    
    (5,261
    )
    
    
    (5,894
    )Fair value of plan assets, at beginning of year
    
    
    5,184
    
    
    
    5,867Return on plan assets
    
    
    459
    
    
    
    (107
    )Benefits and expenses paid
    
    
    (269
    )
    
    
    (175
    )Settlements
    
    
    (1,031
    )
    
    
    (401
    )Fair value of plan assets, at end of year
    
    
    4,343
    
    
    
    5,184Funded
Status  - plan assets under projected
benefit obligation,at end of year
    
    
    (918
    )
    
    
    (710
    )Unrecognized net loss from experience
different from that assumed
    
    
    683
    
    
    
    548Unrecognized prior service cost
    
    
    
    
    
    
    76Accumulated pension liability adjustment
    
    
    (683
    )
    
    
    (624
    )Accrued benefit liability, at end of year
    
    $
    (918
    )
    
    $
    (710
    )
 -32-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED  8.
    
    RETIREMENT PLANS (Continued) The net expense for the defined benefit plan for 2003, 2002 and 2001 was
comprised of the following (in thousands): 2003
    
    2002
    
    2001Interest cost
    
    $
    366
    
    
    $
    383
    
    
    $
    422Service cost
    
    
    50
    
    
    
    
    
    
    
    250Expected return on plan assets
    
    
    (376
    )
    
    
    (340
    )
    
    
    (647
    )Net amortization, deferral and
settlement charges
    
    
    109
    
    
    
    43
    
    
    
    5Writeoff of prepaid pension asset
    
    
    
    
    
    
    
    
    
    
    720$
    149
    
    
    $
    86
    
    
    $
    750
 The discount rates used in determining the actuarial present values of
benefit obligations for the defined benefit plan were 6.25% in 2003 and 6.50%
in 2002. Estimated increases in future compensation levels were not applicable
due to the plan amendment freezing participant benefits. The expected
long-term rate of return on assets was 7.5% in 2003 and 6% in 2002. Actuarial
present values of accumulated benefit obligations were $5,261,000 at December
31, 2003 and $5,894,000 at December 31, 2002. The Company also has unfunded supplemental retirement plans for certain of
its key executives, to provide benefits in excess of amounts permitted to be
paid by its other retirement plans under current tax law. Expenses recorded
for supplemental retirement benefits totaled $409,000 in 2003, $387,000 in 2002
and $215,000 in 2001. At December 31, 2003, the projected benefit obligation,
computed using a 6.25% discount rate and 5% expected increase in future
compensation, was $2,277,000. The accumulated benefit obligation, which was
reflected as a noncurrent liability at December 31, 2003, totaled $1,498,000.  9.
    
    STOCKHOLDERS EQUITY The Company is authorized to issue 50,000,000 shares of $.10 par value
common stock. In addition, 2,500,000 shares of $.10 par value preferred stock
are authorized, none of which were outstanding at December 31, 2003 or 2002. The Company has a Stockholder Rights Plan whereby outstanding shares of
the Companys common stock are accompanied by preferred stock purchase rights.
The rights become exercisable ten days after a public announcement that a
person or group has acquired 20% or more of the Companys common stock or any
earlier date designated by the Board of Directors. Under defined
circumstances, the rights allow TBC stockholders (other than the 20% acquiror)
to purchase common stock in the Company at a price which may be substantially
less than the market price. The rights expire on July 31, 2008 unless redeemed
at an earlier date. In 2002 and 2001, shares of the Companys common stock were repurchased
and retired under authorizations made by the Board of Directors. No common
stock repurchases were made during 2003. As of December 31, 2003, the Company
had unused authorizations from the Board for the repurchase of approximately
1,199,000 additional shares. -33-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED  10.
    
    STOCK OPTION AND INCENTIVE PLANS The Company has a 1989 stock incentive plan (1989 Plan) and a 2000 stock
option plan (2000 Plan). The plans provide for the grant of options to
purchase shares of the Companys common stock to officers and other key
employees upon terms and conditions determined by a committee of the Board of
Directors. Options typically are granted at the fair market value of the stock
on the date of grant, vest ratably over a three-year period and expire in ten
years. The committee is authorized under the 1989 Plan to grant performance
awards and restricted stock awards to officers and other key employees.
Additionally, the 1989 Plan provides for the annual grant of restricted stock
with a market value of $10,000 ($5,000 for years prior to 2003) to each
non-employee director of the Company. Each of these shares of restricted stock
is accompanied by four options, which are only exercisable under certain
conditions and the exercise of which results in the forfeiture of the
associated share of restricted stock. The options expire in one-third
increments as the associated restricted stock vests. Such tandem options are
not included in the totals shown below for outstanding options. At December
31, 2003, 2,660,000 shares were reserved for issuance under the 1989 and 2000
Plans. A summary of stock option activity during 2001, 2002 and 2003 is shown below: WeightedAverageOption
    
    Option Price
    
    ExerciseShares
    
    Range
    
    PriceOutstanding at January 1, 2001(902,139 exercisable)
    
    
    1,891,992
    
    
    $
    4.63 - $12.13
    
    
    $
    7.67Granted in 2001
    
    
    640,500
    
    
    
    5.63 -     8.70
    
    
    
    6.78Exercised in 2001
    
    
    (268,302
    )
    
    
    5.72 -     9.75
    
    
    
    6.91Forfeited in 2001
    
    
    (46,049
    )
    
    
    4.63 -     9.75
    
    
    
    6.40Outstanding at December 31, 2001(1,113,628 exercisable)
    
    
    2,218,141
    
    
    $
    4.63 - $12.13
    
    
    $
    7.53Granted in 2002
    
    
    539,490
    
    
    
    11.59 -   13.05
    
    
    
    13.03Exercised in 2002
    
    
    (501,673
    )
    
    
    4.69 -   12.13
    
    
    
    7.86Forfeited in 2002
    
    
    (34,723
    )
    
    
    4.69 -   13.05
    
    
    
    9.62Outstanding at December 31, 2002(1,116,947 exercisable)
    
    
    2,221,235
    
    
    $
    4.63 - $13.05
    
    
    $
    8.76Granted in 2003
    
    
    621,284
    
    
    
    12.62 -   29.70
    
    
    
    13.13Exercised in 2003
    
    
    (540,574
    )
    
    
    4.63 -   13.05
    
    
    
    8.57Forfeited in 2003
    
    
    (129,136
    )
    
    
    5.50 -   13.05
    
    
    
    11.32Outstanding at December 31, 2003(1,117,383 exercisable)
    
    
    2,172,809
    
    
    $
    4.69 - $29.70
    
    
    $
    9.91
 Additional information regarding stock options outstanding at December 31,
2003 is shown below: Outstanding Options
    
    
    
    
    
    Exercisable OptionsWeighted
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    Average
    
    
    
    
    
    AverageOption
    
    Exercise
    
    Remaining
    
    Option
    
    ExerciseOption Price Range
    
    Shares
    
    Price
    
    Term
    
    Shares
    
    Price$
    4.69 - $  8.50
    
    
    
    845,282
    
    
    $
    6.26
    
    
    6.2 yrs.
    
    
    712,447
    
    
    $
    6.29$
    8.51 - $13.00
    
    
    
    860,493
    
    
    
    11.43
    
    
    7.8 yrs.
    
    
    266,907
    
    
    
    9.57$
    13.01 - $29.70
    
    
    
    467,034
    
    
    
    13.70
    
    
    8.1 yrs.
    
    
    138,029
    
    
    
    13.052,172,809
    
    
    
    
    
    
    
    
    
    
    
    1,117,383
 -34-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED  10.
    
    STOCK OPTION AND INCENTIVE PLANS (Continued) As of December 31, 2003, 755,441 of the outstanding options contained a
reload feature. Options granted by the committee with a reload feature
provide for the grant of a new option, called a reload option, for a number
of shares equal to the number of shares delivered by the optionee to pay the
exercise price of the original option and to pay any tax withholding payments
associated with the exercise of the original option. The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation and SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure. Accordingly, no compensation expense
has been recognized for the stock options granted in 2003, 2002 or 2001. Using
fair value assumptions specified in SFAS No. 123, the weighted average per
share value of options granted during 2003, 2002 and 2001 was $4.80, $5.16 and
$2.81, respectively. Had compensation cost for such option grants been
determined using such assumptions, results for the years ended December 31,
2003, 2002 and 2001 would have been as follows (in thousands): 2003
    
    2002
    
    2001Net income, as reported
    
    $
    33,359
    
    
    $
    27,382
    
    
    $
    21,010Add: Stock-based compensation included
in reported net income, net of tax effects
    
    
    159
    
    
    
    78
    
    
    
    97Less: Total stock-based compensation
expense determined using fair value
assumptions, net of tax effects
    
    
    (2,397
    )
    
    
    (1,949
    )
    
    
    (1,403
    )Pro forma net income
    
    $
    31,121
    
    
    $
    25,511
    
    
    $
    19,704Earnings per share:Basic - as reported
    
    $
    1.54
    
    
    $
    1.29
    
    
    $
    1.00- pro forma
    
    
    1.44
    
    
    
    1.20
    
    
    
    0.94Diluted - as reported
    
    
    1.47
    
    
    
    1.25
    
    
    
    0.98- pro forma
    
    $
    1.37
    
    
    $
    1.16
    
    
    $
    0.92
 The fair value of each option granted in 2003, 2002 and 2001 was estimated
on the date of grant using the Black-Scholes option-pricing model using the
following weighted-average assumptions: dividend yield of 0%; risk-free
interest rates equal to zero-coupon governmental issues; and expected lives of
5.0 years in 2003 and 2002 and 4.9 years in 2001. The expected volatility
percentages used for options granted were 36.4% in 2003, 36.3% for 2002 and
37.7% for 2001.  11.
    
    FINANCIAL GUARANTEES AND CREDIT RISKS The Companys Big O Tires, Inc. subsidiary has provided certain financial
guarantees associated with real estate leases and financing of its franchisees.
Although the guarantees were issued in the normal course of business to meet
the financing needs of its franchisees, they represent credit risk in excess of
the amounts reported on the balance sheet as of December 31, 2003. The
contractual amounts of the guarantees, which represent the Companys maximum
exposure to credit loss in the event of non-performance by the franchisees,
totaled $3,874,000 as of December 31, 2003, including $2,917,000 related to
franchisee financing and $957,000 related to store and real estate leases.
Most of the guarantees extend for more than five years and expire in decreasing
amounts through 2009. The credit risk associated with these guarantees is
essentially the same as that involved in extending loans to the franchisees.
Big O evaluates each franchisees creditworthiness and requires that sufficient
collateral (primarily inventories and equipment) and security interests be
obtained by the third party lenders or lessors, before the guarantees are
issued. There are no cash requirements associated with the guarantees, except
in the event that an actual financial loss is subsequently incurred due to
non-performance by the franchisees. -35-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED  12.
    
    SEGMENT INFORMATION The Company is principally engaged in the marketing and distribution of
tires in the automotive replacement market and has two operating segments:
retail and wholesale. The retail segment includes the franchised retail tire
business conducted by Big O Tires, Inc., as well as the operation of retail
tire and service centers by Tire Kingdom, Inc., Merchants, Incorporated and
NTW Incorporated. The franchised and Company-operated retail systems are
evaluated using similar operating measurements and are aggregated for segment
reporting purposes since they have similar marketing concepts, distribution
methods, customers and other economic characteristics. The wholesale segment
markets and distributes the Companys proprietary brands of tires, as well as
other tires and related products, on a wholesale basis to distributors who
resell to or operate independent tire dealers. Accounting policies of both the retail and wholesale segments are the same
as those described in the summary of significant accounting policies. The
Company evaluates the performance of its two segments based on earnings before
interest, taxes, depreciation, amortization and any special items (Operational
EBITDA). Special items considered in the determination of Operational EBITDA
included a $744,000 charge recorded in 2003 in conjunction with the Companys
exit from a joint venture and a $720,000 charge recorded in 2001 related to the
writeoff of a prepaid pension plan asset. Net sales by the wholesale segment
to the retail segment are eliminated in consolidation and totaled $176,862,000,
$164,899,000 and $159,020,000 in 2003, 2002 and 2001 respectively. Such
intersegment sales had no effect on the Operational EBITDA of the individual
reporting segments. Segment information for the three years ended December 31, 2003, 2002 and
2001 is as follows (in thousands): Retail
    
    Wholesale
    
    TotalYear ended December 31, 2003Total assets
    
    $
    520,222
    
    
    $
    261,755
    
    
    $
    781,977Operating results -Net sales to external customers
    
    
    734,073
    
    
    
    584,458
    
    
    
    1,318,531Operational EBITDA
    
    
    51,147
    
    
    
    30,038
    
    
    
    81,185Year ended December 31, 2002Total assets
    
    $
    238,678
    
    
    $
    235,193
    
    
    $
    473,871Operating results -Net sales to external customers
    
    
    511,925
    
    
    
    597,738
    
    
    
    1,109,663Operational EBITDA
    
    
    33,592
    
    
    
    31,440
    
    
    
    65,032Year ended December 31, 2001Total assets
    
    $
    221,104
    
    
    $
    241,856
    
    
    $
    462,960Operating results -Net sales to external customers
    
    
    445,746
    
    
    
    563,532
    
    
    
    1,009,278Operational EBITDA
    
    
    32,810
    
    
    
    28,055
    
    
    
    60,865
 -36-




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED  13.
    
    VARIABLE INTEREST ENTITIES In January 2003 and December 2003, the FASB issued Interpretation No. 46,
Consolidation of Variable Interest Entities (FIN 46),and its revision, FIN
46-R, respectively. FIN 46 and FIN 46-R provide guidance on the consolidation
of entities whose equity holders have either not provided sufficient equity at
risk to allow the entity to finance its own activities or do not possess
certain characteristics of a controlling financial interest. FIN 46 and FIN
46-R require the consolidation of these entities, known as variable interest
entities (VIEs), by the primary beneficiary of the entity and also require
certain disclosures by primary beneficiaries and other significant variable
interest holders. The primary beneficiary is the entity, if any, that is
subject to a majority of the risk of loss from the VIEs activities, entitled
to receive a majority of the VIEs residual returns, or both. The guidance of
FIN 46 was immediately applicable for VIEs created after January 31, 2003. In
applying such guidance for purposes of determining whether an entity is a VIE,
the Company has reviewed arrangements created after that date in which it has:
1) an economic interest in an entity or obligations to that entity; 2) issued
guarantees related to the liabilities of an entity; 3) transferred assets to an
entity; 4) managed the assets of an entity; or 5) leased assets from an entity
or provided that entity with financing. For any VIEs created prior to
February 1, 2003, the Company will perform such analysis for the quarter ending
March 31, 2004. As of December 31, 2003, the Company has determined that it holds
interests in VIEs created after January 31, 2003 in connection with the
franchise business activities conducted at its Big O Tires, Inc. subsidiary. The Company has identified thirty-nine
(39) retail stores operated by Big O franchisees that meet the VIE conditions
due to lending, leasing or guarantee arrangements. These stores make retail
tire sales and provide automotive services to consumers under the trade name of
Big O Tires through franchise agreements entered into with the Companys
subsidiary. Under the franchise agreements, Big O Tires, Inc. sells
private-branded and other tires to the franchised stores and receives a 2%
royalty on all revenues of the stores. As of December 31, 2003, the Companys
subsidiary had extended loans in the aggregate of $1,989,000, entered into
leasing or subleasing arrangements for minimum payments totaling $3,765,000,
and guaranteed loans on behalf of these franchisees totaling $1,982,000.
During 2003, Big O Tires, Inc. recorded product sales of $5,929,000 and royalty
fee revenues of $276,000 related to these 39 franchised stores opened after
January 31, 2003. These 39 franchised stores had retail sales totaling
$17,156,000 during that period. The Company was not the primary
beneficiary for all of these 39 franchised stores and the
Companys consolidated financial statements as of December 31,
2003 and for the year then ended do not include the financial
statements of such stores, since there were no material expected
losses that the Company would have been required to absorb nor were
there any significant residual returns that the Company expected to
receive.  14.
    
    LEGAL PROCEEDINGS The Company is involved in various legal proceedings which are routine to
the conduct of its business. The Company does not believe that any such
routine litigation will have a material adverse effect on its consolidated
financial position, results of operations or cash flows. -37-




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SUPPLEMENTARY DATA: QUARTERLY FINANCIAL INFORMATION Unaudited quarterly results for 2003 and 2002 are summarized as follows: (In thousands, except per share amounts)First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter2003Net sales
    
    $
    256,545
    
    
    $
    328,843
    
    
    $
    362,401
    
    
    $
    370,742Gross profit
    
    
    76,395
    
    
    
    108,658
    
    
    
    114,206
    
    
    
    134,872Net income
    
    
    5,470
    
    
    
    7,859
    
    
    
    10,531
    
    
    
    9,499Earnings per share -Basic
    
    
    0.26
    
    
    
    0.36
    
    
    
    0.48
    
    
    
    0.43Diluted
    
    $
    0.25
    
    
    $
    0.35
    
    
    $
    0.46
    
    
    $
    0.412002Net sales
    
    $
    249,704
    
    
    $
    286,718
    
    
    $
    295,455
    
    
    $
    277,786Gross profit
    
    
    66,222
    
    
    
    75,930
    
    
    
    79,349
    
    
    
    80,342Net income
    
    
    4,807
    
    
    
    6,815
    
    
    
    7,646
    
    
    
    8,114Earnings per share -Basic
    
    
    0.23
    
    
    
    0.32
    
    
    
    0.36
    
    
    
    0.38Diluted
    
    $
    0.22
    
    
    $
    0.31
    
    
    $
    0.35
    
    
    $
    0.37
 
 Item 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
 None. 
 Item 9A.
    
    CONTROLS AND PROCEDURES
 The Companys management, under the supervision and with the participation
of the Companys Chief Executive Officer and its Chief Financial Officer,
carried out an evaluation of the effectiveness of the Companys disclosure
controls and procedures as of the end of the period covered by this report.
Based upon this evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Companys disclosure controls and procedures are
effective in alerting them on a timely basis to material information required
to be disclosed in reports filed with the Securities and Exchange Commission
for the Company and its consolidated subsidiaries. During the quarter ended December 31, 2003, there was no change in the
Companys system of internal controls over financial reporting that has
materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting. -38-




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##### Table of Contents



PART III 
 Item 10.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 Information concerning executive officers of the Company is set forth in
Part I of this Report. The remaining information required by this Item 10 is
set forth in the Companys Proxy Statement for its Annual Meeting of
Stockholders to be held April 28, 2004, under the captions Election of
Directors, Governance of the Company and Board Matters and Section 16(a)
Beneficial Ownership Reporting Compliance, and is incorporated herein by this
reference. 
 Item 11.
    
    EXECUTIVE COMPENSATION
 The information required by this Item 11 is set forth in the Companys
Proxy Statement for its Annual Meeting of Stockholders to be held April 28,
2004, under the captions Governance of the Company and Board Matters and
Executive Compensation, and, with the exception of the information disclosed
in the Proxy Statement pursuant to Item 402(k) or 402(l) of Regulation S-K, is
incorporated herein by this reference. 
 Item 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 The information required by this Item 12 is set forth in the Companys
Proxy Statement for its Annual Meeting of Stockholders to be held April 28,
2004, under the captions Proposal to Approve 2004 Incentive Plan and
Security Ownership of Management and Principal Stockholders, and is
incorporated herein by this reference. 
 Item 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 The information required by this Item 13 is set forth in the Companys
Proxy Statement for its Annual Meeting of Stockholders to be held April 28,
2004, under the caption Governance of the Company and Board Matters, and is
incorporated herein by this reference. Item 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
 The information required by this Item 14 is set forth in the Companys
Proxy Statement for its Annual Meeting of Stockholders to be held April 28,
2004, under the caption The Companys Independent Accountants, and is
incorporated herein by this reference. -39-




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##### Table of Contents



PART IV 
 Item 15.
    
    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
  (a)
    
    (1) FINANCIAL STATEMENTSThe following items, including consolidated financial
statements of the Company, are set forth at Item 8 of this
Report:  Report of Independent AuditorsConsolidated Balance Sheets - December 31, 2003, and 2002Consolidated Statements of Income - Years ended December 31, 2003,
2002 and 2001Consolidated Statements of Stockholders Equity - Years ended
December 31, 2003, 2002 and 2001Consolidated Statements of Cash Flows - Years ended December
31, 2003, 2002 and 2001Notes to Consolidated Financial Statements  (a)
    
    (2) FINANCIAL STATEMENT SCHEDULES  Report of Independent Auditors (at p.43 of this Report)Schedule II -  Valuation and qualifying accounts (at p. 44 of this Report)All other schedules are omitted because they are not
applicable, or not required, or because the required
information is included in the consolidated financial
statements or notes thereto.  (a)
    
    (3) EXHIBITS - See Index to Exhibits included at p. 45 of this Report(b)
    
    During the quarter ended December 31, 2003, the Company
filed the following reports on Form 8-K:  (1)
    
    A Form 8-K dated October 21, 2003 was filed
which included the text of the Companys press release
reporting its financial results for the quarter ended
September 30, 2003.(2)
    
    A Form 8-K dated November 29, 2003 was filed
which included the following:  (a)
    
    Under Item 2,  Acquisition or
Disposition of Assets, required information with respect
to the Companys acquisition of NTW Incorporated from
Sears, Roebuck & Co.(b)
    
    Under Item 5, Other Matters and
Required FD Disclosure, information regarding amended
borrowing agreements entered into by the Company.(c)
    
    Exhibit 2.1, Stock Purchase Agreement
dated September 21, 2003 related to the NTW acquisition.(d)
    
    Exhibit 2.2, First Amendment, dated as
of November 28, 2003, to Stock Purchase Agreement related
to the NTW acquisition. -40-




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##### Table of Contents






Item 15.
    
    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K (Continued)
  (e)
    
    Exhibit 4.1, $273,500,000 Amended and
Restated Credit Agreement dated as of November 29, 2003
among TBC Corporation and a group of 11 banks.(f)
    
    Exhibit 4.2, Amendment No. 1, dated as
of November 29, 2003, to Second Amended and Restated Note
Agreement between TBC Corporation and The Prudential
Insurance Company of America.(g)
    
    Exhibit 4.3, Amendment No. 1, dated as
of November 29, 2003, to Note Purchase Agreement among
TBC Corporation and The Prudential Insurance Company of
America.(h)
    
    Exhibit 4.4, Amendment No. 1, dated
November 29, 2003, to Deed of Trust, Assignment of Leases
and Security Agreement executed by TBC Corporation in
favor of JP Morgan Chase Bank, as collateral agent and
beneficiary.(i)
    
    Exhibit 4.5, Guarantee and Collateral
Agreement, dated as of March 31, 2003, executed by TBC
Corporation and its subsidiaries in favor of JP Morgan
Chase Bank, as collateral agent.(j)
    
    Exhibit 4.6, First Amendment, dated
November 29, 2003, to Guarantee and Collateral Agreement
executed by TBC Corporation and its subsidiaries in favor
of JP Morgan Chase Bank, as collateral agent.(k)
    
    Exhibit 4.7, Intercreditor Agreement,
dated as of March 31, 2003, among various secured lenders
of TBC Corporation.(l)
    
    Exhibit 4.8, First Amendment, dated as
of November 29, 2003, to Intercreditor Agreement among
various secured lenders of TBC Corporation.(m)
    
    Exhibit 10.1, Transition Services
Agreement, dated November 29, 2003, by and between TBC
Corporation and Sears, Roebuck & Co.(n)
    
    Exhibit 10.2, Purchase Agreement and
Escrow Instructions, dated October 23, 2003, between TBC
Corporation and Realty Income Corporation or its
assignees, related to certain lease agreements to be
executed by NTW.  (3)
    
    A Form 8-K dated December 15, 2003 was filed
which included the text of the Companys press release
providing its growth outlook for 2004. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, TBC Corporation has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized. TBC CORPORATIONMarch 15, 2004
    
    By:
    
    /s/ LAWRENCE C. DAYLawrence C. DayPresident and Chief Executive Officer
 -41-




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Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of TBC
Corporation and in the capacities and on the dates indicated: Name
    
    Title
    
    Date/s/ LAWRENCE C. DAY

Lawrence C. Day
    
    President, Chief Executive Officer
and Director
    
    March 15, 2004/s/ THOMAS W. GARVEY

Thomas W. Garvey
    
    Executive Vice President and
Chief Financial Officer (principal
financial and accounting officer)
    
    March 15, 2004* MARVIN E. BRUCE

Marvin E. Bruce
    
    Chairman of the Board of Directors
    
    March 15, 2004* GEORGE W. BRYAN

George W. Bryan
    
    Director
    
    March 15, 2004* MICHAEL E. DUNLAP

Michael E. Dunlap
    
    Director
    
    March 15, 2004* CHARLES A. LEDSINGER, JR.

Charles A. Ledsinger, Jr.
    
    Director
    
    March 15, 2004* WILLIAM J. McCARTHY

William J. McCarthy
    
    Director
    
    March 15, 2004* RICHARD A. McSTAY

Richard A. McStay
    
    Director
    
    March 15 , 2004* DONALD RATAJCZAK
    
    Director
    
    March 15, 2004Donald Ratajczak* ROBERT R. SCHOEBERL

Robert R. Schoeberl
    
    Director
    
    March 15, 2004* RAYMOND E. SCHULTZ

Raymond E. Schultz
    
    Director
    
    March 15, 2004
  *
    
    The undersigned by signing his name hereto does sign and execute this
Report on Form 10-K on behalf of each of the above-named directors of TBC
Corporation pursuant to a power of attorney executed by each such director and
filed with the Securities and Exchange Commission as an exhibit to this Report. /s/ LAWRENCE C. DAYLawrence C. DayAttorney-in-Fact
 -42-




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PRICEWATERHOUSECOOPERS PricewaterhouseCoopers LLP1000 Morgan Keegan TowerFifty North Front StreetMemphis, TN 38103Telephone (901) 522 2000Facsimile (901) 523 2045
 Report of Independent Auditors on
Financial Statement Schedule To the Board of Directors and
   Stockholders of TBC Corporation Our audits of the consolidated financial statements referred to in our report
dated February 6, 2004, except as to Note 3, for which the date is March 10,
2004; and Note 13, for which the date is March 12, 2004; appearing on page 17
of this Form 10-K also included an audit of the financial statement schedule
listed in Item 15(a) (2) of this Form 10-K. In our opinion, the financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. PricewaterhouseCoopers LLP February 6,
2004, except for Note 3 for which the date is March 10, 2004;
and
Note 13, for which the date is March 12, 2004 -43-




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TBC CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (In thousands) AdditionsCharged
    
    Chargedto Costs
    
    toBalance
    
    and
    
    Other
    
    
    
    
    
    BalanceJanuary 1,
    
    Expenses
    
    Accounts
    
    Deductions
    
    December 31,2003Warranty reserve
    
    $
    10,997
    
    
    $
    3,750
    
    
    $
    20,140
    (1)
    
    $
    5,493
    (2)
    
    $
    29,394Allowance for
doubtful accounts
    
    
    8,701
    
    
    
    4,267
    
    
    
    83
    (1)
    
    
    4,791
    (3)
    
    
    8,2602002Warranty reserve
    
    
    8,762
    
    
    
    7,854
    
    
    
    
    
    
    
    5,619
    (2)
    
    
    10,997Allowance for
doubtful accounts
    
    
    7,737
    
    
    
    2,861
    
    
    
    
    
    
    
    1,897
    (3)
    
    
    8,7012001Warranty reserve
    
    
    9,265
    
    
    
    3,834
    
    
    
    
    
    
    
    4,337
    (2)
    
    
    8,762Allowance for
doubtful accounts
    
    
    7,831
    
    
    
    2,607
    
    
    
    
    
    
    
    2,701
    (3)
    
    
    7,737
   (1)
    
    Includes amounts for Merchants, Incorporated and NTW Incorporated as of
the dates
of their acquisition by TBC Corporation during 2003.(2)
    
    Amounts added during current year and payable at year end less amount
payable at
beginning of year.(3)
    
    Accounts written off during year, net of recoveries. -44-




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INDEX TO EXHIBITS Located atManuallyNumbered Page(2)
    
    PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT,
LIQUIDATION OR SUCCESSION:2.1
    
    Stock Purchase Agreement, dated March 25, 2003, by and among TBC
Corporation, Linda Merchant Bell, Carol Merchant Kirby, and Wilson C.
Merchant III was filed as Exhibit 2.1 to the TBC Corporation Current Report on
Form 8-K dated April 1, 2003
    
    
    *2.2
    
    Stock Purchase Agreement, dated as of September 21, 2003, by and between
TBC Corporation and Sears, Roebuck and Co., was filed as Exhibit 2.1 to the
TBC Corporation Quarterly Report on Form 10-Q for the quarter ended
September 30, 2003.
    
    
    *2.3
    
    First Amendment, dated as of November 28, 2003, to Stock Purchase Agreement,
dated September 21, 2003, by and between TBC Corporation and Sears, Roebuck
& Co. was filed as Exhibit 2.2 to the TBC Corporation Current Report on Form
8-K dated November 29, 2003.
    
    
    *(3)
    
    ARTICLES OF INCORPORATION AND BY-LAWS:3.1
    
    Certificate of Incorporation of TBC Corporation, restated as of August 6, 1987,
as amended by Certificate of Amendment to Restated Certificate of Incorporation
dated April 24, 1992, was filed as Exhibit 4.1 to the TBC Corporation
Registration Statement on Form S-8 (Reg. No. 333-48802) filed on
October 27, 2000
    
    
    *3.2
    
    By-Laws of TBC Corporation as amended through April 22, 1998.
    
    
    52(4)
    
    INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS,
INCLUDING INDENTURES:4.1
    
    Amended and Restated Rights Agreement, dated as of July 23, 1998, between
TBC Corporation and BankBoston, N.A., as Rights Agent, including as Exhibit A
thereto the form of Rights Certificate, was filed as Exhibit 4.1 to the TBC
Corporation Form 8-A/A-1 Registration Statement filed with the Commission
on July 30, 1998.
    
    
    *4.2
    
    $273,500,000 Amended and Restated Credit Agreement, dated as of November
29, 2003, among TBC Corporation, the Lenders party thereto, U.S. Bank National
Association, as Documentation Agent, SunTrust Bank, as Syndication Agent, First
Tennessee Bank National Association, as Administrative Agent, and JP Morgan
Chase Bank, as Co-Administrative Agent was filed as Exhibit 4.1 the TBC
Corporation Current Report on Form 8-K dated November 29, 2003.
    
    
    *4.3
    
    Second Amended and Restated Note Agreement, dated as of April 1, 2003,
between TBC Corporation and The Prudential Insurance Company of America,
was filed as Exhibit 4.2 to the TBC Corporation Current Report on Form 8-K
dated April 1, 2003.
    
    
    *
 -45-




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Located atManuallyNumbered Page4.4
    
    Amendment No. 1, dated as of November 29, 2003, to Second Amended and
Restated Note Agreement, dated as of April 1, 2003, between TBC Corporation
and The Prudential Insurance Company of America, including as Exhibits B and
C thereto the amended form of Variable Rate Senior Notes issued thereunder,
was filed as Exhibit 4.2 to the TBC Corporation Current Report on Form 8-K
dated November 29, 2003.
    
    
    *4.5
    
    Note Purchase Agreement, dated as of April 1, 2003, among TBC Corporation,
The Prudential Insurance Company of America, and certain of its affiliates,
managed funds, and accounts purchasing Notes thereunder, including as Exhibit
1 thereto the form of Senior Secured Note evidencing the Series D Variable Rate
Senior Secured Notes in the aggregate principal amount of $50,000,000 issued
thereunder, was filed as Exhibit 4.3 to the TBC Corporation Current Report on
Form 8-K dated April 1, 2003.
    
    
    *4.6
    
    Amendment No. 1, dated as of November 29, 2003, to Note Purchase Agreement,
dated as of April 1, 2003, among TBC Corporation, The Prudential Insurance
Company of America, and certain of its affiliates, managed funds, and accounts
purchasing Notes thereunder, was filed as Exhibit 4.3 to the TBC Corporation
Current Report on Form 8-K dated November 29, 2003.
    
    
    *4.7
    
    Form of Deed of Trust, Assignment of Leases and Security Agreement, dated
March 31, 2003, executed by TBC Corporation in favor of JP Morgan Chase
Bank, as Collateral Agent and beneficiary, was filed as Exhibit 4.4 to the TBC
Corporation Current Report on Form 8-K dated April 1, 2003.
    
    
    *4.8
    
    Amendment No. 1, dated November 29, 2003, to Deed of Trust, Assignment of
Leases and Security Agreement, dated as of March 31, 2003, executed by TBC
Corporation in favor of JP Morgan Chase Bank, as Collateral Agent and
Beneficiary, was filed as Exhibit 4.4 to the TBC Corporation Current Report on
Form 8-K dated November 29, 2003.
    
    
    *4.9
    
    Guarantee and Collateral Agreement, dated as of March 31, 2003, executed by
TBC Corporation and the subsidiaries of TBC Corporation in favor of JPMorgan
Chase Bank, as Collateral Agent, was filed as Exhibit 4.5 to the TBC Corporation
Current Report on Form 8-K dated November 29, 2003.
    
    
    *4.10
    
    First Amendment, dated November 29, 2003, to Guarantee and Collateral
Agreement, dated as of March 31, 2003, executed by TBC Corporation and the
subsidiaries of TBC Corporation in favor of JPMorgan Chase Bank, as Collateral
Agent, was filed as Exhibit 4.6 to the TBC Corporation Current Report on Form
8-K dated November 29, 2003.
    
    
    *4.11
    
    Intercreditor Agreement, dated as of March 31, 2003, among various secured
lenders to TBC Corporation, was filed as Exhibit 4.7 to the TBC Corporation
Current Report on Form 8-K dated November 29, 2003.
    
    
    *4.12
    
    First Amendment, dated as of November 29, 2003, to Intercreditor Agreement,
dated March 31, 2003, among various secured lenders to TBC Corporation, was
filed as Exhibit 4.8 to the TBC Corporation Current Report on Form 8-K dated
November 29, 2003.
    
    
    *
 -46-




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Located atManuallyNumbered Page4.13
    
    Other long-term debt
instruments.
    
    
    #(10)
    
    MATERIAL CONTRACTS:Management Contracts and Compensatory Plans or Arrangements10.1
    
    Form of Trust Agreement (between the Company and certain executive
officers  1/1/98 version)
    
    
    5910.2
    
    TBC Corporation 2000 Stock Option Plan was filed as Exhibit 4.3 to the TBC
Corporation Registration Statement on Form S-8 (Reg. No. 333-48802) filed on
October 27, 2000.
    
    
    *10.3
    
    TBC Corporation 1989 Stock Incentive Plan, as amended and restated August 9,
2002, was filed as Exhibit 10.1 to the TBC Corporation Quarterly Report on Form
10-Q for the quarter ended September 30, 2002.
    
    
    *10.4
    
    TBC Corporation Deferred Compensation Plan for Directors was filed as Exhibit
10.4 to the TBC Corporation Annual Report on Form 10-K for the year ended
December 31, 2001.
    
    
    *10.5
    
    Resolution adopted by the Compensation Committee of the TBC Corporation
Board of Directors, September 26, 1996, relating to interest payable on deferred
compensation of officers and directors of TBC Corporation, was filed as Exhibit
10.5 to the TBC Corporation Annual Report on Form 10-K for the year ended
December 31, 2001.
    
    
    *10.6
    
    Executive Employment Agreement between the Company and Lawrence C. Day,
amended and restated as of September 1, 2002 (without Exhibit A thereto, which is
substantially identical to the form of Trust Agreement referenced in Exhibit 10.1),
was filed as Exhibit 10.2 to the TBC Corporation Quarterly Report on Form 10-Q
for the quarter ended September 30, 2002.
    
    
    *10.7
    
    Executive Employment Agreement, dated as of October 31, 2000, between the
Company and Kenneth P. Dick (without Exhibit A thereto, which is substantially
identical to the form of Trust Agreement referenced in Exhibit 10.1), was filed as
Exhibit 10.7 to the TBC Corporation Annual Report on Form 10-K for the year
ended December 31, 2000.
    
    
    *10.8
    
    Executive Employment Agreement, dated as of January 19, 2001, between the
Company and Thomas W. Garvey (without Exhibit A thereto, which is
substantially identical to the form of Trust Agreement referenced in Exhibit 10.1),
was filed as Exhibit 10.1 to the TBC Corporation Quarterly Report on Form 10-Q
for the quarter ended March 31, 2001.
    
    
    *10.9
    
    TBC Corporation Management Incentive Compensation Plan, effective January 1,
1997, was filed as Exhibit 10.9 to the TBC Corporation Annual Report on Form
10-K for the year ended December 31, 2002.
    
    
    *
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##### Table of Contents



Located atManuallyNumbered Page10.10
    
    TBC Corporation Executive Supplemental Retirement Plan, as amended through
August 1, 1997, was filed as Exhibit 10.10 to the TBC Corporation Annual Report
on Form 10-K for the year ended December 31, 2002.
    
    
    *10.11
    
    TBC Corporation Executive Retirement Plan.
    
    
    8110.12
    
    TBC Corporation Executive Deferred Compensation Plan, effective August 1,
1999, was filed as Exhibit 10.6 to the TBC Corporation Quarterly Report on Form
10-Q for the quarter ended September 30,1999.
    
    
    *10.13
    
    TBC Corporation Long Term Incentive Plan, effective January 1, 2002, was filed
as Exhibit 10.1 to the TBC Corporation Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002.
    
    
    *10.14
    
    Resolutions establishing fees payable to directors of TBC Corporation, as adopted
by TBC Corporation Board of Directors on August 9, 2002, were filed as Exhibit
10.14 to the TBC Corporation Annual Report on Form 10-K for the year ended
December 31, 2002.
    
    
    *10.15
    
    TBC Corporation Senior Executive Professional Services Reimbursement Program
was filed as Exhibit 10.1 to the TBC Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003.
    
    
    *Other Material Contracts10.16
    
    Transition Services Agreement, dated November 29, 2003, by and between TBC
Corporation and Sears, Roebuck & Co., was filed as Exhibit 10.1 to the TBC
Corporation Current Report on Form 8-K dated November 29, 2003.
    
    
    *10.17
    
    Purchase Agreement and Escrow Instructions, dated October 23, 2003, between
TBC Corporation and Realty Income Corporation or its assignee (including Crest
Net Lease, Inc. and Realty Income Texas Properties, L.P.), including as Exhibit B
thereto the form of Land and Building Lease Agreement to be executed by NTW
Incorporated, together with a schedule setting forth certain information with respect
to the leases so executed by NTW Incorporated, was filed as Exhibit 10.2 to the
TBC Corporation Current Report on Form 8-K dated November 29, 2003.
    
    
    *10.18
    
    Joinder Agreement, executed effective as of November 21, 2003, by TBC
Corporation in favor of Realty Income Corporation, Crest Net Lease, Inc., Realty
Income Texas Properties, L.P., and their successors and assigns, was filed as
Exhibit 10.3 to the TBC Corporation Current Report on Form 8-K dated
November 29, 2003.
    
    
    *10.19
    
    Form of TBC Corporations standard Distributor Agreement was filed as Exhibit
10.13 to the TBC Corporation Annual Report on Form 10-K for the year ended
December 31, 2000.
    
    
    *10.20
    
    Form of Franchise Agreement in use by Big O Tires, Inc. was filed as Exhibit
10.14 to the TBC Corporation Annual Report on Form 10-K for the year ended
December 31, 2001.
    
    
    *
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##### Table of Contents



Located atManuallyNumbered Page10.21
    
    Agreement, dated October 1, 1977, between TBC Corporation and The
Kelly-Springfield Tire Company, including letter dated June 30, 1978, was filed
as Exhibit 10.6 to TBC Corporation Registration statement on Form S-1, filed on
April 21, 1983 (Reg. No. 2-83116).
    
    
    *10.22
    
    Ten-Year Commitment Agreement, dated March 21, 1994, between the Company
and The Kelly-Springfield Tire Company, was filed as Exhibit 10.16 to the TBC
Corporation Annual Report on Form 10-K for the year ended December 31, 2000.
    
    
    *10.23
    
    Extension Agreement, dated November 4, 2003, between the Company and The
Goodyear Tire & Rubber Company.
    
    
    8710.24
    
    Agreement, effective January 1, 1994, between the Company and Cooper Tire &
Rubber Company, was filed as Exhibit 10.17 to the TBC Corporation Annual
Report on Form 10-K for the year ended December 21, 2000.
    
    
    *10.25
    
    Amendment, effective May 17, 2000, to Agreement between the Company and
Cooper Tire & Rubber Company, was filed as Exhibit 10.1 to the TBC Corporation
Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.
    
    
    *10.26
    
    Agreement, effective January 1, 2002, between the Company and Cooper Tire &
Rubber Company, was filed as Exhibit 10.19 to the TBC Corporation Annual
Report on Form 10-K for the year ended December 31, 2001.
    
    
    *(14)
    
    CODE OF ETHICS:14.1
    
    TBC Corporation Code of Business Conduct, as adopted March 10, 2004.
    
    
    88(21)
    
    SUBSIDIARIES OF THE COMPANY:21.1
    
    List of the names and jurisdictions of incorporation of the subsidiaries of
the Company.
    
    
    97(23)
    
    CONSENTS OF EXPERTS AND COUNSEL:23.1
    
    Consent of PricewaterhouseCoopers LLP, Independent Auditors, to
incorporation by reference of their reports dated February 6, 2004 in Post-
Effective Amendment No. 1 to the Registration Statement on Form S-8 for
the Companys 1989 Stock Incentive Plan (Reg. No. 33-43166) and in the
Registration Statement on Form S-8 for the Companys 2000 Stock Option Plan
(Reg. No. 333-48802).
    
    
    98(24)
    
    POWER OF ATTORNEY:24.1
    
    Power of attorney of each person who signed this Annual Report on Form 10-K
on behalf of another pursuant to a power of attorney.
    
    
    99
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##### Table of Contents



Located atManuallyNumbered Page(31)
    
    RULE 13a -* 14(a)/15(d)-14(a) CERTIFICATIONS:31.1
    
    Rule 13a-14(a) Certification of Chief Executive Officer of TBC Corporation in
accordance with Section 302 of the Sarbanes-Oxley Act of 2002.
    
    
    10831.2
    
    Rule 13a-14(a) Certification of Chief Financial Officer of TBC Corporation in
accordance with Section 302 of the Sarbanes-Oxley Act of 2002.
    
    
    109(32)
    
    SECTION 1350 CERTIFICATIONS:32.1
    
    Section 1350 Certification of Chief Executive Officer of TBC Corporation in
accordance with Section 906 of the Sarbanes-Oxley Act of 2002.
    
    
    11032.2
    
    Section 1350 Certification of Chief Financial Officer of TBC Corporation in
accordance with Section 906 of the Sarbanes-Oxley Act of 2002.
    
    
    111
   *
    
    Indicates that the Exhibit is incorporated by reference into this Annual
Report on
Form 10-K from a previous filing with the Commission.#
    
    With respect to any other instrument defining the rights of holders of long-term debt,
the amount of securities authorized under any such instrument does not exceed 10%
of the total assets of TBC Corporation and its subsidiaries on a consolidated basis.
A copy of any such instrument will be furnished to the Commission upon request. -50-