##### Table of Contents



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 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THESECURITIES EXCHANGE ACT OF 1934
 FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2004 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THESECURITIES EXCHANGE ACT OF 1934
 COMMISSION FILE NUMBER 0-11579 TBC CORPORATION  DELAWARE
    
    20-1888610(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)7111 Fairway Drive, Suite 201Palm 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: Name of each exchangeTitle of each class
    
    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 þ 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. o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Act):
Yes þ No




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INDEX TO EXHIBITS at
page 61 of this Report Aggregate market value of outstanding shares of Common Stock,
par value $.10, held by non-affiliates of the Company on
December 31, 2004 (for purposes of this calculation, 1,647,867
shares beneficially owned by directors and executive officers of
the Company were treated as being held by affiliates of the Company)
    
    $
    574,469,125Number of shares of Common Stock, par value $.10, outstanding
at the close of business on December 31, 2004
    
    
    22,312,224
 DOCUMENT INCORPORATED BY REFERENCE TBC Corporations Proxy Statement for its Annual Meeting of Stockholders to be held on May 12,
2005. 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 of 79




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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 PROCEDURESItem 9B. OTHER INFORMATIONPART 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 AND FINANCIAL STATEMENT SCHEDULESSIGNATURESEX-10.20 EXECUTIVE DEFERRED COMPENSATION PLANEX-21.1 LIST OF SUBSIDIARIESEX-23.1 CONSENT OF PRICEWATERHOUSECOOPERS LLPEX-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. On November 19, 2004, the Company completed a corporate reorganization to implement a holding
company structure. As a result of the reorganization, the existing TBC Corporation (Old TBC)
became a wholly-owned subsidiary of a new Delaware holding company (the Holding Company), the
name of Old TBC was changed to TBC Private Brands, Inc., and the name of the Holding Company was
changed to TBC Corporation. Share certificates formerly representing shares of Common Stock of
Old TBC are now deemed to represent shares of Common Stock of the Holding Company, and the Holding
Company is the successor issuer of Old TBC for purposes of the Securities Act of 1933 and the
Securities Exchange Act of 1934. The Company and its wholly owned subsidiaries are principally engaged in the marketing of
tires in the automotive replacement market. The Company is one of the nations largest independent
marketers of tires for the automotive replacement market. The Company has two reportable operating
segments: the Companys Retail Division and the Companys Wholesale Division. Net sales in 2004
for the retail segment totaled $1.2 billion, which represented 64.3% of the Companys consolidated
net sales. Net sales during 2004 for the wholesale segment were $662.1 million, or 35.7% of total
sales. (See Note 15 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 and 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). The
Company acquired Merchants on April 1, 2003 and NTW (which operates its retail business under the
trade name National Tire & Battery, or NTB) 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 2004, there were 605 locations in
the Company-operated retail network, an increase of 14 stores compared to the end of 2003, when the
Company had 591 locations. The Company has two 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 mid-western United States and sells Big O® brand tires and other tires to these franchisees.
At December 31, 2004, the Company had a total of 567 Big O stores, serviced by 6 distribution
centers. Included in the 567 total outlets were 552 franchisee-owned stores and 15 stores owned by
joint ventures in which the Company has an equity interest. 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 of 79




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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 and independent tire dealers located throughout the United
States, Canada and 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 30 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 75% of the Companys total sales in 2004, 79%
in 2003, and 85% in 2002. Tire and mechanical services performed by Company-operated retail stores
represented approximately 23%, 19% and 12% of total sales in 2004, 2003 and 2002, respectively.
The remainder of the Companys sales includes tubes, wheels, and other products for the automotive
replacement market. The Company purchases its products, in finished form, from a number of major tire
manufacturers 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 Company has supply agreements with many of its suppliers. The Company purchases tires
from the Goodyear Tire & Rubber Company (Goodyear) pursuant to a supply agreement entered into in
1977 and a commitment letter that 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, which extends until 2011. Effective April 1, 2004, the Company entered into a supply
agreement with Michelin North America, Inc., which extends through 2005. In addition to these
three major suppliers, the Company has written contracts with certain other suppliers. The Company
has no minimum purchase commitments or requirements with these 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®, 4 of 79




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Legacy®, Prestige®, and Sun Valley®. 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
29.8% of total wholesale sales and 10.7% of the Companys total consolidated sales in 2004, with
the largest customer accounting for 3.6% 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 4 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 2004, 96%
in 2003 and 94% in 2002. The remainder of the Companys sales was attributable to customers
located primarily 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 two-year period from January
1, 2001 through December 31, 2002, first quarter sales averaged approximately 23% of annual sales;
the second quarter and third quarters 25% and 27%, respectively; and the fourth quarter 25%. 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 20% of total
sales, the second quarter 25%, the third quarter 27%, and the fourth quarter 28%. In 2004, the
trend was slightly different from the historical pattern, due to the impact of the NTB acquisition
completed in November 2003. First quarter sales in 2004 represented approximately 23% of total
sales, the second quarter 25%, the third quarter 26%, and the fourth quarter 26%. Orders for the Companys products, except for those sold directly to consumers in the retail
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 $286.4 million during 2004. 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
2004. 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, 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 of 79




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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 567 franchised retail outlets are primarily
concentrated in western and mid-western 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 72 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, 2004, the Company employed approximately 9,400 persons, of which
approximately 8,800 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. Additionally, all public filings may be
obtained at the Operations of the Public Reference Room located at 450 Fifth Street, N.W.,
Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330. 
 Item 2.PROPERTIES TBC Corporations executive offices are located in a leased facility in Palm Beach
Gardens, Florida. The Company has a total of 40 warehouse distribution facilities, totaling
approximately four million square feet, located in 17 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 3.7 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. Additionally, the Company owns certain
buildings situated on leased land. See Note 9 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 of 79




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EXECUTIVE OFFICERS OF THE REGISTRANT The following table 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 (May 12, 2005) or until their respective successors are elected. Capacities in which IndividualName
    
    Age
    
    Serves the CompanyLawrence C. Day
    
    
    55
    
    
    President and Chief Executive OfficerThomas W. Garvey
    
    
    50
    
    
    Executive Vice President and Chief Financial OfficerKenneth P. Dick
    
    
    58
    
    
    President and Chief Executive Officer of
TBC Private Brands, Inc. and Carrolls. Inc.J. Glen Gravatt
    
    
    53
    
    
    Executive Vice President of PurchasingWilliam M. Potts
    
    
    52
    
    
    Senior Vice President of Human ResourcesOrland Wolford
    
    
    57
    
    
    President and Chief Executive Officer of Tire Kingdom,
Merchants and NTWErik R. Olsen
    
    
    41
    
    
    Senior Vice President and Chief Marketing Officer
 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 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 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. 7 of 79




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EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED) Mr. Wolford has been the President and Chief Executive Officer of Tire Kingdom since it
was acquired by TBC in June 2000 and has served as President and Chief Executive Officer of
Merchants and NTW since each was acquired by TBC in 2003, when TBC purchased the company. From
1997 until joining the Company in May 2000, he served as Regional Vice President for Olson Tire,
and prior to that was the President and Chief Executive Officer of Automotive Industries from 1989
until 1997. Until that time, Mr. Wolford worked within the Firestone Corporation for 20 years, with
his last assignment there as Regional Vice President for the North and Central Regions which had
325 stores. Mr. Olsen has been Senior Vice President and Chief Marketing Officer of the Company since
December 2004. Before joining the Company, Mr. Olsen was Vice President of Sales for Michelins
North America Passenger and Light Truck Division. Prior to joining Michelin in 1997, Mr. Olsen
held marketing and sales positions with Ralston Foods, The Clorox Company and Proctor and Gamble. 8 of 79




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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, 2004, 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 7 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 RangeQuarter ended
    
    High
    
    
    Low03/31/03
    
    
    14.73
    
    
    
    11.8106/30/03
    
    
    19.30
    
    
    
    13.5809/30/03
    
    
    26.84
    
    
    
    16.5512/31/03
    
    
    30.30
    
    
    
    24.7803/31/04
    
    
    30.73
    
    
    
    25.7006/30/04
    
    
    30.90
    
    
    
    23.5009/30/04
    
    
    24.74
    
    
    
    20.3112/31/04
    
    
    28.67
    
    
    
    18.80
 See Item 12 for certain information with respect to compensation plans under which
shares of Common Stock of the Company are authorized for issuance. During the year ended December 31, 2004, the Company made no repurchases of Common
Stock. 9 of 79




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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, 2004. The following years, 2003 through 2000, have been
restated to reflect the change in accounting policies described in Note 3  Restatement to the
Companys consolidated financial statements. 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 and NTW in Note 5 to the consolidated financial statements.
Information regarding the 2000 acquisition of Tire Kingdom, Inc. was last included in Note 5 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, 2004. For the Years Ended December 31,Restated
    
    
    Restated
    
    
    Restated
    
    
    Restated2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000INCOME STATEMENT DATA (a):Net sales (b)
    
    $
    1,855,418
    
    
    $
    1,318,531
    
    
    $
    1,109,663
    
    
    $
    1,009,278
    
    
    $
    902,740Gross profit
    
    
    694,794
    
    
    
    433,886
    (c)
    
    
    300,282
    
    
    
    267,573
    
    
    
    197,802Net income
    
    
    37,598
    
    
    
    32,185
    
    
    
    26,438
    
    
    
    22,640
    
    
    
    18,452Diluted earnings per share
    
    $
    1.62
    
    
    $
    1.42
    
    
    $
    1.20
    
    
    $
    1.06
    
    
    $
    0.87Average shares and
equivalents outstanding
    
    
    23,280
    
    
    
    22,743
    
    
    
    21,966
    
    
    
    21,386
    
    
    
    21,191BALANCE SHEET DATA (a):Total assets
    
    $
    876,279
    
    
    $
    785,818
    
    
    $
    475,258
    
    
    $
    465,908
    
    
    $
    451,921Working capital
    
    
    138,610
    
    
    
    137,909
    
    
    
    171,127
    
    
    
    170,157
    
    
    
    156,998Long-term debt
    
    
    167,349
    
    
    
    208,620
    
    
    
    79,700
    
    
    
    101,000
    
    
    
    113,531Total liabilities
    
    
    571,270
    
    
    
    522,710
    
    
    
    251,251
    
    
    
    269,758
    
    
    
    277,666Stockholders equity
    
    
    305,009
    
    
    
    263,108
    
    
    
    224,007
    
    
    
    196,150
    
    
    
    174,255
   (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 $125,088 in 2004,
$82,010 in 2003, $100,406 in 2002, $92,813 in 2001 and $86,961 in 2000.(c)
    
    During 2003, the Company reclassified $1,652 of vendor rebates from selling, administrative and retail store expenses
to cost of sales in order to properly reflect the income statement in accordance with EITF 02-16 as discussed in Note 1 -
Nature of Business and Significant Accounting Policies. 10 of 79




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Item 7.MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following tables highlight the financial information, stated both as dollar amounts and as
percentage, which is discussed in greater detail below: For the Years Ended December 31,RESTATED
    
    
    RESTATED2004
    
    
    2003
    
    
    2002NET SALES
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %COST OF SALES
    
    
    62.6
    %
    
    
    67.1
    %
    
    
    72.9
    %GROSS PROFIT
    
    
    37.4
    %
    
    
    32.9
    %
    
    
    27.1
    %EXPENSES:Distribution expenses
    
    
    4.0
    %
    
    
    4.7
    %
    
    
    4.8
    %Selling, administrative and
retail store expenses
    
    
    29.5
    %
    
    
    23.9
    %
    
    
    17.9
    %Interest expense  net
    
    
    1.0
    %
    
    
    0.8
    %
    
    
    0.8
    %Other income
    
    
    -0.3
    %
    
    
    -0.2
    %
    
    
    -0.2
    %Total expenses
    
    
    34.3
    %
    
    
    29.1
    %
    
    
    23.3
    %INCOME BEFORE INCOME TAXES
    
    
    3.1
    %
    
    
    3.8
    %
    
    
    3.8
    %PROVISION FOR INCOME TAXES
    
    
    1.1
    %
    
    
    1.3
    %
    
    
    1.4
    %NET INCOME
    
    
    2.0
    %
    
    
    2.4
    %
    
    
    2.4
    %
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RESULTS OF OPERATIONS (Continued) For the Years Ended December 31,RESTATED(See Note 3)
    
    
    Fav/(Unfav)
    
    
    Fav/(Unfav)2004
    
    
    2003
    
    
    Change
    
    
    Change %NET SALES
    
    $
    1,855,418
    
    
    $
    1,318,531
    
    
    $
    536,887
    
    
    
    40.7
    %COST OF SALES
    
    
    1,160,624
    
    
    
    884,645
    
    
    
    (275,979
    )
    
    
    -31.2
    %GROSS PROFIT
    
    
    694,794
    
    
    
    433,886
    
    
    
    260,908
    
    
    
    60.1
    %EXPENSES:Distribution expenses
    
    
    74,284
    
    
    
    61,356
    
    
    
    (12,928
    )
    
    
    -21.1
    %Selling, administrative and
retail store expenses
    
    
    548,309
    
    
    
    314,760
    
    
    
    (233,549
    )
    
    
    -74.2
    %Interest expense  net
    
    
    18,739
    
    
    
    10,409
    
    
    
    (8,330
    )
    
    
    -80.0
    %Other income
    
    
    (4,722
    )
    
    
    (2,547
    )
    
    
    2,175
    
    
    
    85.4
    %Total expenses
    
    
    636,610
    
    
    
    383,978
    
    
    
    (252,632
    )
    
    
    -65.8
    %INCOME BEFORE INCOME TAXES
    
    
    58,184
    
    
    
    49,908
    
    
    
    8,276
    
    
    
    16.6
    %PROVISION FOR INCOME TAXES
    
    
    20,586
    
    
    
    17,723
    
    
    
    (2,863
    )
    
    
    -16.2
    %NET INCOME
    
    $
    37,598
    
    
    $
    32,185
    
    
    $
    5,413
    
    
    
    16.8
    %
 For the Years Ended December 31,RESTATED
    
    
    RESTATED(See Note 3)
    
    
    (See Note 3)
    
    
    Fav/(Unfav)
    
    
    Fav/(Unfav)2003
    
    
    2002
    
    
    Change
    
    
    Change %NET SALES
    
    $
    1,318,531
    
    
    $
    1,109,663
    
    
    $
    208,868
    
    
    
    18.8
    %COST OF SALES
    
    
    884,645
    
    
    
    809,381
    
    
    
    (75,264
    )
    
    
    -9.3
    %GROSS PROFIT
    
    
    433,886
    
    
    
    300,282
    
    
    
    133,604
    
    
    
    44.5
    %EXPENSES:Distribution expenses
    
    
    61,356
    
    
    
    53,136
    
    
    
    (8,220
    )
    
    
    -15.5
    %Selling, administrative and
retail store expenses
    
    
    314,760
    
    
    
    198,775
    
    
    
    (115,985
    )
    
    
    -58.3
    %Interest expense  net
    
    
    10,409
    
    
    
    8,703
    
    
    
    (1,706
    )
    
    
    -19.6
    %Other income
    
    
    (2,547
    )
    
    
    (2,411
    )
    
    
    136
    
    
    
    5.6
    %Total expenses
    
    
    383,978
    
    
    
    258,203
    
    
    
    (125,775
    )
    
    
    -48.7
    %INCOME BEFORE INCOME TAXES
    
    
    49,908
    
    
    
    42,079
    
    
    
    7,829
    
    
    
    18.6
    %PROVISION FOR INCOME TAXES
    
    
    17,723
    
    
    
    15,641
    
    
    
    (2,082
    )
    
    
    -13.3
    %NET INCOME
    
    $
    32,185
    
    
    $
    26,438
    
    
    $
    5,747
    
    
    
    21.7
    %
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Restatement During the second quarter of 2004, but effective on January 1, 2004, the Company changed
its inventory costing method from LIFO to FIFO. The method was changed to obtain a more current
inventory valuation at period end, to achieve a better matching of revenues and expenses and to
move to one method of inventory valuation on a Company-wide basis. In addition, since costing for
retail inventories has historically been on the FIFO method, as this segment grows, continuing
liquidation of LIFO layers would have resulted in any event. Principally, the Wholesale Segment
historically used the last-in, first-out (LIFO) method for approximately 45% of the Companys
inventories, with the remaining inventories valued on a first-in, first-out (FIFO) basis. The
Company has applied this change retroactively by restating its financial statements for 2003 and
2002 as required by Accounting Principles Board No. 20, Accounting Changes, and accordingly,
previously reported retained earnings as of January 1, 2002 has been increased by $1.8 million.
The effect of the change on the previously reported net income and earnings per share are reflected
in the table below (in thousands): As
    
    
    
    
    
    
    AsReported
    
    
    Adjustments
    
    
    RestatedNet incomeYear ended December 31, 2003
    
    $
    33,359
    
    
    $
    (1,174
    )
    
    $
    32,185Year ended December 31, 2002
    
    
    27,382
    
    
    
    (944
    )
    
    
    26,438Basic earnings per shareYear ended December 31, 2003
    
    $
    1.54
    
    
    $
    (0.05
    )
    
    $
    1.49Year ended December 31, 2002
    
    
    1.29
    
    
    
    (0.04
    )
    
    
    1.25Diluted earnings per shareYear ended December 31, 2003
    
    $
    1.47
    
    
    $
    (0.05
    )
    
    $
    1.42Year ended December 31, 2002
    
    
    1.25
    
    
    
    (0.05
    )
    
    
    1.20
 Consolidated Results of Operations 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). 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. A total of 337 Company-operated stores were added to the Companys retail segment as a result
of the Companys acquisitions of Merchants on April 1, 2003 and NTW from Sears, Roebuck & Co. on
November 29, 2003 (the Purchased Companies). Thus, there were a number of significant changes in
income statement line items between 2003 and 2004. The Companys 2003 consolidated results from
operations include the results from the Purchased Companies only from the dates they were acquired.
The Purchased Companies have also impacted the Companys overall seasonality pattern, since many
of the acquired stores operate in geographic areas that have different sales trends than the
Company experienced in the past. While the first quarter has historically been the Companys
weakest and the third quarter the strongest in terms of sales and earnings, overall results are now
expected to be more heavily skewed toward the last half of the year. 13 of 79




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2004 Compared to Restated 2003 Net sales (which equals revenues from sales of products and services, plus franchise and
royalty fees, less estimated returns, allowances and customer
rebates) increased $536.9 million, or
40.7%, during 2004 versus 2003 which included a $459.3 million,
or 62.6%, increase for the retail
segment and a $77.6 million, or 13.3%, increase for the
wholesale segment. The $459.3 million
increase in retail net sales during 2004 included a $277.4 million increase in tire sales, a $185.2
million gain in service revenues at Company-operated stores, and a
$3.3 million decrease primarily
related to sales of products other than tires. The increased retail tire sales dollars was
principally due to a 44.4% gain in retail unit volume and a 10.9% increase in the average retail
tire sales price due to product mix changes driven by the Purchased Companies and an
effective pass-through of supplier cost increases. Additionally, service revenues increased 76.3%
as compared to 2003 which was mainly attributable to the acquisition of the Purchased Companies.
At the end of December 2004, the Company had 9, or 1.6%, fewer franchised stores and 14, or 2.4%,
more Company-operated stores than at December 31, 2003. For comparative purposes, excluding the
impacts of the Purchased Companies on the 2004 results of operations, net sales would have
increased $70.5 million, or 5.9%. Net sales within the wholesale segment increased $77.6 million
which was driven by an increase in total unit tire volume of 5.0% coupled with an increase in
average tire sales prices of 8.0%. The increase in average tire sales prices was due to the
pass-through of price increases from suppliers and a favorable shift in the product mix toward
specialty tires. The percentage of total sales attributable to tires declined from 78.8% in 2003 to 75.1% in
2004, due to the impact of increased service revenues at the Company-operated retail stores.
Total unit tire volume in 2004 increased 19.6% compared to 2003 primarily due to the Purchased
Companies. Excluding the Purchased Companies, total unit tire volume in 2004 would have increased
4.1% versus 2003. Unit tire shipments for the replacement tire industry as a whole increased
approximately 3.0% during 2004 (based on available industry data as of December 31, 2004).
Additionally, average tire sales prices for the Company as a whole increased 12.2% compared to a
year earlier, due largely to favorable mix changes. Gross
profit increased $260.9 million from $433.9 million, or 32.9% of net sales in 2003 to
$694.8 million, or 37.5% of net sales in 2004. The increases were primarily driven by the
expansion of the Companys retail segment with the addition of the Purchased Companies. Gross
profit percentages on sales by the Companys retail segment increased from 47.2% in 2003 to 50.1%
in 2004. The increase in gross profit percentages was attributable to a favorable product mix
shift towards the Companys private label tires and an expansion into higher margin automotive
services. Wholesale margins as a percentage of sales decreased from 15.0% in 2003 to 14.6% in
2004. The decrease in wholesale margins primarily pertains to increased volume on lower margin
product sold to international customers as compared to 2003. Distribution expenses increased by $12.9 million from $61.4 million, or 4.7% of net sales in
2003, to $74.3 million, or 4.0% of net sales in 2004. The increase in dollars was primarily due
to the Purchased Companies which added 337 Company-operated stores along with the adverse impact of
higher fuel prices which increased the Companys transportation costs. As a percentage of net
sales, the improvement in 2004 as compared to 2003 reflected improved cost leveraging as the
Company was able to utilize its existing distribution networks to service the acquired stores. Selling,
administrative and retail store expenses increased by $233.5 million from $314.8
million, or 23.9% of net sales in 2003 to $548.3 million, or 29.6% of net sales in 2004. The
increases were principally due to the greater number of Company-operated retail stores as a result
of the Purchased Companies. Excluding the impact of expenses associated with the stores acquired
during 2003, selling, administrative and retail store expenses
increased by $10.2 million, or 4.1%,
versus an increase in comparable net sales of 5.9%. The resulting increase was due to the addition
of 14 Company-operated retail stores during 2004, $2.3 million in repair expenses related to damage
caused by the four major hurricanes and $3.0 million in consulting fees related to the on-going
assessment, documentation and testing of the Companys control environment as required by Section
404 of the Sarbanes-Oxley Act. Net
interest expense increased by $8.3 million, or 80.0%, during 2004 compared to 2003. The
increase was due principally to an increase in average borrowing levels on the Companys credit
facility primarily used to fund the acquisition of the Purchased Companies. The impact of the
increased credit facility borrowings was partially offset by continued efforts by the Company to
keep interest rate spreads to a minimum. The weighted average borrowing rate on average borrowings
during 2004 decreased 35 basis points as compared to 2003. 14 of 79




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Net other income in 2004 increased by $2.2 million as compared to 2003. The increase is
principally due to the equity earnings in a joint venture during 2004 coupled with a $744,000
charge recorded in 2003 in connection with the exit from a joint venture. Net other income
consists primarily of the Companys equity interest in joint ventures and net gains and/or losses
on sales of assets and miscellaneous other income and expense items. The
Company recorded tax provisions of $20.6 million and $17.7 million in 2004 and 2003,
respectively. The Companys effective tax rate for both 2004 and 2003 was approximately 35.5%,
which reflects the impact of certain tax saving initiatives. During 2004, the American Jobs
Creation Act of 2004 (Jobs Creation Act) was signed into law. Beginning in 2005, the Jobs Creation
Act includes relief for domestic manufacturers by providing a tax deduction for qualified
production activities. In addition, the Job Creation Act phases out the exclusion for
extraterritorial income (ETI) during 2005 and 2006. While the Company has historically benefited
from ETI, its repeal will not materially impact the Companys effective tax rate. With respect to
the tax deduction provided for domestic manufacturers, the Company has initially determined that
the deduction should not have an impact on its effective tax rate in future periods. The Company
expects its effective tax rate to increase; however, the actual rate will depend on a number of
factors, including the amount of pre-tax income by jurisdiction and any incremental tax savings
initiatives that might be identified and implemented. Restated 2003 Compared to Restated 2002 Net sales (which equals revenues from sales of products and services, plus franchise and
royalty fees, less estimated returns, allowances and customer rebates) increased $208.9 million, or
18.8%, during 2003 versus the 2002 level which 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 was principally due to a 24.2% gain in retail unit volume. In addition,
the average retail tire sales price was 5.7% greater in 2003 as compared to 2002 due largely to
changes in the product mix which was principally driven by the acquisition of the Purchased
Companies. 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 2002. At the end of 2003, the
Company had 40 more franchised stores and 369 more Company-operated stores than at the end of 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.
In the one-month period 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 in 2003
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
available industry data as of December 31, 2003). 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 increased $133.6 million from $300.3 million, or 27.1% of net sales in 2002 to
$433.9 million, or 32.9% of net sales in 2003. The increases were primarily driven by the
increased contribution from the retail segment and 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 13.9% in 2002 to 15.0% in 2003. Distribution expenses increased $8.2 million from $53.1 million, or 4.8% of net sales in 2002
to $61.4 million, or 4.7% of net sales in 2003. The increase in dollars was primarily due to the
Purchased Companies. The decrease as a percentage of sales is primarily due to improved cost
leveraging associated with the Purchased Companies as well as improved efficiencies related to
warehousing and product delivery expenses. 15 of 79




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Selling, administrative and retail store expenses increased by $116.0 million from $198.8
million, or 17.9% of net sales in 2002 to $314.8 million, or 23.9% of net sales in 2003. The
increases were principally due to the addition of 72 Company-operated retail and franchised stores
and 337 stores added resulting from the Purchased Companies. Excluding the impact of expenses
associated with the acquired stores during 2002 and 2003, selling, administrative and retail store
expenses increased by $26.9 million, or 13.5%, in 2003 compared to 2002. The resulting increased
expenses was largely due to the impact of the 72 Company-operated retail and franchised stores. Net interest expense increased by $1.7 million, or 19.6%, during 2003 compared to 2002. The
increase was due largely to a 21.5% increase in average borrowing levels on the Companys credit
facility primarily used to fund the acquisition of the Purchased Companies. The impact of the
increased credit facility was partially offset by the Companys cash from operations which totaled
$37.7 million during 2003. 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 2002, 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. Net other income consists primarily of the Companys
equity interest in joint ventures and net gains and/or losses on sales of assets and miscellaneous
other income and expense items. The Companys effective tax rate was 35.5% in 2003 compared to 37.2% in 2002, due principally
to reduced provisions for state income taxes. LIQUIDITY AND CAPITAL RESOURCES On March 31, 2003, the Company executed a new borrowing agreement with a group of 11 banks,
which modified its existing bank borrowing facilities. The new agreement was amended and restated
on November 29, 2003 to enable the Company to consummate its acquisition of NTW and again on
November 19, 2004 to permit the Company to implement the holding company reorganization described
in Item 1. 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, 2004, $41.0 million was borrowed under the revolving loan facility and
$124.8 million was outstanding under the term loan facility. The Companys long-term debt at the
end of 2004 also included a total of $72.0 million in Senior Notes. Of the total $237.8 million
borrowed at December 31, 2004 under these combined credit arrangements, which exclude capital lease
obligations, $81.4 million was classified as current on the Companys balance sheet and the
remaining $156.4 million was considered non-current. Under the agreements with its 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 that 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, 2004 and for the year then ended. The bank credit facilities and the
Senior Notes are collateralized by substantially all of the Companys assets and contain
cross-default provisions. The
Company had working capital of $138.6 million at December 31, 2004 and its current ratio
was 1.40. During 2004, total cash generated by operating activities totaled $17.9 million. The
Companys strong annual cash flow, solid financial position and sizable credit facilities allowed
it to make the acquisitions of the Purchased Companies in 2003 (see Note 5 to the consolidated
financial statements). The Company was also able to fund capital expenditures totaling $25.5
million in 2004. Capital expenditures, including those during 2004 and 2003, have historically
been primarily for equipment and tire molds. The Company had no material commitments for capital
expenditures at the end of 2004. The Company anticipates expending approximately $25.0 million in
capital expenditures in 2005. 16 of 79




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The Company expects to fund 2005 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. Depending upon their size, future
acquisition could require additional capital resources and would involve new or amended credit
facilities. See Forward-Looking Statements and Risks, 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 14 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,
2004. 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 $3.5 million as of December
31, 2004. 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 16 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. 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. As of December 31, 2004, the Company has determined that it holds interests in certain VIEs
in connection with the franchise business activities conducted at Big O Tires, Inc.. 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, 2004, and therefore no VIEs are included in the consolidated financial statements
of the Company as of December 31, 2004 and for the year then ended. 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 8 to the consolidated
financial statements. The table below summarizes the Companys known material contractual
obligations as of December 31, 2004 (in thousands). Payments due by PeriodWithin 1
    
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    
    year
    
    
    2-3 Years
    
    
    4-5 Years
    
    
    5 YearsContractual Obligations:Long-term debt
    
    $
    196,775
    
    
    $
    40,443
    
    
    $
    85,886
    
    
    $
    70,446
    
    
    $
    Short-term debt
    
    
    41,013
    
    
    
    41,013
    
    
    
    
    
    
    
    
    
    
    
    Capital lease obigations
    
    
    11,789
    
    
    
    773
    
    
    
    1,881
    
    
    
    2,226
    
    
    
    6,909Interest expense obligations
    
    
    67,000
    
    
    
    18,000
    
    
    
    33,000
    
    
    
    16,000
    
    
    
    Operating lease obligations
    
    
    885,938
    
    
    
    86,915
    
    
    
    160,279
    
    
    
    138,361
    
    
    
    500,383Total contractual obligations
    

    $
    1,202,515
    
    
    $
    187,144
    
    
    $
    281,046
    
    
    $
    227,033
    
    
    $
    507,292
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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 judgments,
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. Income Tax Accounting- We determine our income tax provision using the asset and liability
method. Under this method, deferred tax assets and liabilities are recognized for the expected
future tax consequences of temporary differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. We also recognize future tax
benefits associated with tax loss and credit carryforwards as deferred tax assets. Our deferred
tax assets are reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be realized. We
measure deferred tax assets and liabilities using enacted tax rates in effect for the year in which
we expect to recover or settle the temporary differences. The effect of a change in tax rates on
deferred taxes is recognized in the period that the change is enacted. 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, 2004 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. The Company historically used the last-in, first-out
(LIFO) method for approximately 45% of its inventories, with the remaining inventories valued on
a first-in, first-out (FIFO) basis. Effective January 1, 2004, the Company changed its method of
determining the cost of its LIFO inventories to the FIFO method. The Company has applied this
change retroactively by restating its financial statements as required by Accounting Principles
Board No. 20, Accounting Changes, and accordingly, previously reported retained earnings as of
January 1, 2002 has been increased by $1.8 million. During the second quarter of 2004, but effective on January 1, 2004, the Company changed its
inventory costing from LIFO to FIFO. The method was changed to obtain a more current inventory
valuation at period end and to achieve a better matching of revenues and expenses. Costing for
retail inventories has historically been on the FIFO method and it is expected that continued
growth in this segment will result in the continuing liquidation of LIFO layers. The financial
statements presented for 2003, 2002, 2001 and 2000 have been retroactively restated to reflect this
change. For the effect of the change on previously reported net income and earnings per share see
Note 3  Restatement. 18 of 79




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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, the
amortization of goodwill and other indefinite-lived intangible assets ceased effective January 1,
2002, with charges being recorded only if impairment is found to exist. The Company performs its
annual impairment assessment in the first quarter of each fiscal year unless circumstances dictate
more frequent assessments. 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. Fair value is estimated using the discounted cash flow method. When available and as
appropriate, the Company uses comparative market multiples to corroborate discounted cash flow
results. In applying this methodology, the Company relies on a number of factors, including actual
operating results, future business plans, economic prospects and market data. 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. Reserves for future warranty claims and service are included in liabilities in the
balance sheets. Self-Insured Reserves The Company is self-insured for general and automobile liability,
workers compensation and health care claims, although the Company maintains stop-loss coverage
with third-party insurers to limit its total liability exposure. A reserve for liabilities
associated with these losses is established for claims filed and claims incurred but not yet
reported based upon the Companys estimate of ultimate cost, which is calculated using analyses of
historical data, severity factors and valuations provided by third-party actuaries. The Company
monitors new claims and claim development as well as negative trends related to the claims incurred
but not reported in order to assess the adequacy of its insurance reserves. On an annual basis, the
Company also reviews its assumptions with its third-party actuaries. While the Company does not
expect the amounts ultimately paid to differ significantly from its estimates, the Companys
self-insurance reserves and corresponding selling, general and administrative expenses could be
affected if future claim experience differs significantly from historical trends and actuarial
assumptions. 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. Expected returns on
plan assets are determined based on a weighted average expected long-term return on the target
asset allocation as described in Note 11  Retirement Plans and adjusted depending upon returns
expected on the various asset classes. 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 In May 2004, the FASB issued FASB Staff Position, or FSP, 106-2, Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.
FSP 106-2 addresses the appropriate accounting and disclosure requirements for companies that
sponsor a postretirement health care plan that provides prescription drug benefits. The new
guidance was deemed necessary as a result of the 2003 Medicare prescription law which includes a
federal subsidy for qualifying companies. The effective date of FSP 106-2 is the first interim or
annual period beginning after June 15, 2004. The adoption of FSP 106-2 had no impact on the
Companys financial position, results of operations or related footnote disclosure. In November 2004, the FASB issued SFAS No. 151, Inventory Costs. The new statement amends
Accounting Research Bulletin No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling costs and wasted material. This
statement requires that those items be recognized as current-period charges and requires that
allocation of fixed production overheads to the cost of conversion be based on the normal capacity
of the production facilities. This statement is effective for fiscal years beginning after June 15,
2005. The Company does not expect the adoption of this statement to
have a material impact on the Companys financial condition or results of operations. 19 of 79




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In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment, or SFAS
No. 123R. SFAS No. 123R replaces SFAS No. 123, Accounting for Stock-Based Compensation and
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and subsequently issued
stock option related guidance. This statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or services, primarily
on accounting for transactions in which an entity obtains employee services in share-based payment
transactions. It also addresses transactions in which an entity incurs liabilities in exchange for
goods or services that are based on the fair value of the entitys equity instruments or that may
be settled by the issuance of those equity instruments. Entities will be required to measure the
cost of employee services received in exchange for an award of equity instruments based on the
grant-date fair value of the award (with limited exceptions). That cost will be recognized over the
period during which an employee is required to provide service in exchange for the award (usually
the vesting period). The grant-date fair value of employee share options and similar instruments
will be estimated using option-pricing models. If an equity award is modified after the grant date,
incremental compensation cost will be recognized in an amount equal to the excess of the fair value
of the modified award over the fair value of the original award immediately before the
modification. The Company is required to apply SFAS No. 123R to all awards granted, modified or settled as
of the beginning of the first interim or annual reporting period that begins after June 15, 2005.
The Company is also required to use either the modified-prospective method or
modified-retrospective method. Under the modified-prospective method, we must recognize
compensation cost for all awards subsequent to adopting the standard and for the unvested portion
of previously granted awards outstanding upon adoption. Under the modified-retrospective method,
the Company must restate its previously issued financial statements to recognize the amounts
previously calculated and reported on a pro forma basis, as if the prior standard had been adopted.
Under both methods, the Company is permitted to use either the straight line or an accelerated
method to amortize the cost as an expense for awards with graded vesting. The standard permits and
encourages early adoption. The Company has commenced its analysis of the impact of SFAS No. 123R, but has not yet
decided: (1) whether it will elect to early adopt, (2) if it will elect to early adopt, what date
we would do so, (3) whether it will use the modified-prospective or modified-retrospective method,
and (4) whether it will elect to use straight line or an accelerated method. Accordingly, the
Company has not determined the impact that the adoption of SFAS No. 123R will have on the Companys
financial position or results of operations. 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 Exchange 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 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. 20 of 79




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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, 2004, the Company owed a
total of $165.8 million to banks under its credit facilities, of which $154.5 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 $386,000 based on the outstanding balance which was not
hedged at December 31, 2004. See Note 7 to the consolidated financial statements for information
regarding the Companys interest rate swap agreements. The Company has no significant foreign currency translation risks associated with its sales to
customers located outside the United States since these sales are made and settled in U.S. dollars.
The Company does have significant risk in foreign currency translation associated with its share
of earnings and losses from certain equity investments. 
 Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary financial information required by this Item 8 are
included on the following 31 pages of this Report. 21 of 79




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PRICEWATERHOUSECOOPERSPricewaterhouseCoopers LLP1000 Morgan Keegan TowerFifty North Front StreetMemphis, TN 38103Telephone (901) 522 2000Facsimile (901) 523 2045
 Report of Independent Registered Public Accounting Firm To the Board of Directors  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, 2004 and December 31, 2003, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2004 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 the standards of the Public Company Accounting Oversight Board
(United States). Those standards 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. /s/  PricewaterhouseCoopers
LLP Memphis, Tennessee
March 31, 2005 22 of 79




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TBC CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands) ASSETS RESTATED(See Note 3)December 31,
    
    
    December 31,2004
    
    
    2003CURRENT ASSETS:Cash and cash equivalents
    
    $
    2,832
    
    
    $
    2,645Accounts and notes receivable, less allowance
for doubtful accounts of $9,307 and $8,260 at
December 31, 2004 and 2003, respectively.Related parties
    
    
    32,149
    
    
    
    12,535Other
    
    
    117,812
    
    
    
    109,962Total accounts and
notes receivable
    
    
    149,961
    
    
    
    122,497Inventories
    
    
    291,745
    
    
    
    264,810Refundable federal and state income taxes
    
    
    
    
    
    
    296Deferred income taxes
    
    
    24,790
    
    
    
    12,987Other current assets
    
    
    19,270
    
    
    
    10,346Total current assets
    
    
    488,598
    
    
    
    413,581PROPERTY, PLANT AND EQUIPMENT, AT COST:Land and improvements
    
    
    10,400
    
    
    
    12,100Buildings and leasehold improvements
    
    
    109,959
    
    
    
    103,669Furniture and equipment
    
    
    105,232
    
    
    
    93,710225,591
    
    
    
    209,479Less accumulated depreciation
    
    
    73,418
    
    
    
    56,618Total property,
plant and equipment
    
    
    152,173
    
    
    
    152,861TRADEMARKS, NET
    
    
    15,824
    
    
    
    15,824GOODWILL, NET
    
    
    180,353
    
    
    
    169,184OTHER ASSETS
    
    
    39,331
    
    
    
    34,368TOTAL ASSETS
    
    $
    876,279
    
    
    $
    785,818
 The accompanying notes are an integral part of the consolidated financial statements. 23 of 79




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TBC CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands) LIABILITIES AND STOCKHOLDERS EQUITY RESTATED(See Note 3)December 31,
    
    
    December 31,2004
    
    
    2003CURRENT LIABILITIES:Outstanding checks, net
    
    $
    30,368
    
    
    $
    11,411Accounts payable, trade
    
    
    128,656
    
    
    
    114,708Notes payable to banks
    
    
    41,013
    
    
    
    29,100Current portion of long-term debt and capital
lease obligations
    
    
    41,216
    
    
    
    28,723Federal and state income taxes payable
    
    
    17,790
    
    
    
    Warranty reserves
    
    
    19,667
    
    
    
    22,544Other current liabilities
    
    
    71,278
    
    
    
    69,186Total current
liabilities
    
    
    349,988
    
    
    
    275,672LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, LESS CURRENT PORTION
    
    
    167,349
    
    
    
    208,620NONCURRENT LIABILITIES
    
    
    43,320
    
    
    
    30,528DEFERRED INCOME TAXES
    
    
    10,613
    
    
    
    7,890COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Common stock, $.10 par value, shares issued and
outstanding - 22,312 and 21,905 on
December 31, 2004 and 2003, respectively
    
    
    2,231
    
    
    
    2,190Additional paid-in capital
    
    
    28,882
    
    
    
    23,898Deferred Compensation
    
    
    (789)
    
    
    
    Accumulated other comprehensive loss
    
    
    (1,570
    )
    
    
    (1,637
    )Retained earnings
    
    
    276,255
    
    
    
    238,657Total stockholders
equity
    
    
    305,009
    
    
    
    263,108TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    876,279
    
    
    $
    785,818
 The accompanying notes are an integral part of the consolidated financial statements. 24 of 79




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TBC CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) For the Years Ended December 31,RESTATED
    
    
    RESTATED(See Note 3)
    
    
    (See Note 3)2004
    
    
    2003
    
    
    2002NET SALES*
    
    $
    1,855,418
    
    
    $
    1,318,531
    
    
    $
    1,109,663COST OF SALES
    
    
    1,160,624
    
    
    
    884,645
    
    
    
    809,381GROSS PROFIT
    
    
    694,794
    
    
    
    433,886
    
    
    
    300,282EXPENSES:Distribution expenses
    
    
    74,284
    
    
    
    61,356
    
    
    
    53,136Selling, administrative and
retail store expenses
    
    
    548,309
    
    
    
    314,760
    
    
    
    198,775Interest
expense - net
    
    
    18,739
    
    
    
    10,409
    
    
    
    8,703Other income
    
    
    (4,722
    )
    
    
    (2,547
    )
    
    
    (2,411
    )Total expenses
    
    
    636,610
    
    
    
    383,978
    
    
    
    258,203INCOME BEFORE INCOME TAXES
    
    
    58,184
    
    
    
    49,908
    
    
    
    42,079PROVISION FOR INCOME TAXES
    
    
    20,586
    
    
    
    17,723
    
    
    
    15,641NET INCOME
    
    $
    37,598
    
    
    $
    32,185
    
    
    $
    26,438EARNINGS PER SHARE -Basic
    
    $
    1.70
    
    
    $
    1.49
    
    
    $
    1.25Diluted
    
    $
    1.62
    
    
    $
    1.42
    
    
    $
    1.20Weighted Average Common Shares
Outstanding -Outstanding -Basic
    
    
    22,190
    
    
    
    21,649
    
    
    
    21,191Diluted
    
    
    23,280
    
    
    
    22,743
    
    
    
    21,966
   *
    
    Including sales to related parties of $125,088, $82,010 and $100,406 in the years
ended
December 31, 2004, 2003 and 2002, respectively. The accompanying notes are an integral part of the consolidated financial statements. 25 of 79




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TBC CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(In thousands) AccumulatedOtherCompre-Common Stock
    
    
    Additional
    
    
    hensive
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalNumber of
    
    
    
    
    
    
    Paid-In
    
    
    Income
    
    
    Deferred
    
    
    Retained
    
    
    
    
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    (Loss)
    
    

Compensation
    
    
    Earnings
    
    
    Total
    
    
    IncomeBALANCE, JANUARY 1, 2002
AS PREVIOUSLY REPORTED
    
    
    21,003
    
    
    $
    2,100
    
    
    $
    11,783
    
    
    $
    (713
    )
    
    
    
    
    
    $
    181,149
    
    
    $
    194,319Opening retained earnings change
for
restatement (See Note 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,831
    
    
    
    1,831Net income for period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,438
    
    
    
    26,438Issuance of common stock under
stock option and incentive plans
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    959Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    28,269Interest rate swap agreements,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (177
    )
    
    
    
    
    
    
    
    
    
    
    (177
    )
    
    
    (177
    )Minimum pension liability
adjustments,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (391
    )
    
    
    
    
    
    
    
    
    
    
    (391
    )
    
    
    (391
    )Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (568
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    27,701BALANCE, DECEMBER 31, 2002
    
    
    21,292
    
    
    
    2,129
    
    
    
    16,687
    
    
    
    (1,281
    )
    
    
    
    
    
    
    206,472
    
    
    
    224,007Net income for period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,185
    
    
    
    32,185Issuance of common stock under
stock option and incentive plans
    
    
    613
    
    
    
    61
    
    
    
    5,391
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,452Tax benefit from exercise of
stock options
    
    
    
    
    
    
    
    
    
    
    1,820
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,820Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    32,185Interest rate swap agreements,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    331
    
    
    
    
    
    
    
    
    
    
    
    331
    
    
    
    331Minimum pension liability
adjustments,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37
    )
    
    
    
    
    
    
    
    
    
    
    (37
    )
    
    
    (37
    )Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (650
    )
    
    
    
    
    
    
    
    
    
    
    (650
    )
    
    
    (650
    )Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (356
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    31,829BALANCE, DECEMBER 31, 2003
    
    
    21,905
    
    
    
    2,190
    
    
    
    23,898
    
    
    
    (1,637
    )
    
    
    
    
    
    
    238,657
    
    
    
    263,108Net income for period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,598
    
    
    
    37,598Issuance of common stock under
stock option and incentive plans
    
    
    407
    
    
    
    41
    
    
    
    3,278
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,319Tax benefit from exercise of
stock options
    
    
    
    
    
    
    
    
    
    
    1,706
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,706Comprehensive income:Deferred
Compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (789
    )
    
    
    
    
    
    
    (789
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    37,598Interest rate swap agreements,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    327
    
    
    
    
    
    
    
    
    
    
    
    327
    
    
    
    327Minimum pension liability
adjustments,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (312
    )
    
    
    
    
    
    
    
    
    
    
    (312
    )
    
    
    (312
    )Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52
    
    
    
    
    
    
    
    
    
    
    
    52
    
    
    
    52Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    37,665BALANCE, DECEMBER 31, 2004
    
    
    22,312
    
    
    $
    2,231
    
    
    $
    28,882
    
    
    $
    (1,570
    )
    
    $
    (789
    )
    
    $
    276,255
    
    
    $
    305,009
 The accompanying notes are an integral part of the consolidated financial statements. 26 of 79




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TBC CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years Ended December 31,RESTATED
    
    
    RESTATED2004
    
    
    2003
    
    
    2002Operating Activities:Net income
    
    $
    37,598
    
    
    $
    32,185
    
    
    $
    26,438Adjustments to reconcile net income to net cash
used in operating activities:Depreciation
    
    
    27,470
    
    
    
    18,159
    
    
    
    12,665Amortization of intangible assets
    
    
    74
    
    
    
    69
    
    
    
    24Amortization of deferred financing costs
    
    
    1,967
    
    
    
    617
    
    
    
    446Amortization of other comprehensive income
    
    
    
    
    
    
    (309
    )
    
    
    83Provision for doubtful accounts and notes
    
    
    4,322
    
    
    
    4,267
    
    
    
    2,861(Gain) loss on sale of fixed assets
    
    
    (32
    )
    
    
    23
    
    
    
    (14
    )Provision for deferred income taxes
    
    
    (8,539
    )
    
    
    3,701
    
    
    
    (448
    )Equity in net earnings from joint ventures
    
    
    (2,164
    )
    
    
    196
    
    
    
    24Changes in operating assets and liabilities
net of effect of assets acquired:Receivables
    
    
    (31,600
    )
    
    
    (5,847
    )
    
    
    (7,329
    )Inventories
    
    
    (35,274
    )
    
    
    (40,382
    )
    
    
    4,899Other current assets
    
    
    (9,611
    )
    
    
    1,561
    
    
    
    (426
    )Other assets
    
    
    (580
    )
    
    
    1,240
    
    
    
    1,874Accounts payable, trade
    
    
    13,588
    
    
    
    14,283
    
    
    
    (8,027
    )Federal and
state income taxes refundable or
payable
    
    
    19,792
    
    
    
    987
    
    
    
    4,488Other current liabilities
    
    
    (5,417
    )
    
    
    4,393
    
    
    
    5,301Noncurrent liabilities
    
    
    6,259
    
    
    
    2,567
    
    
    
    2,564Net cash provided by operating activities
    
    
    17,853
    
    
    
    37,710
    
    
    
    45,423Investing Activities:Purchase of property, plant and equipment
    
    
    (25,506
    )
    
    
    (21,017
    )
    
    
    (15,155
    )Purchase of net assets of retail stores, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (11,154
    )Acquisition of Merchants, Inc., net of cash acquired
    
    
    
    
    
    
    (58,477
    )
    
    
    Purchase of NTW, Inc., net of cash acquired
    
    
    
    
    
    
    (225,914
    )
    
    
    Proceeds from sale of Merchants Commercial Division
    
    
    
    
    
    
    5,600
    
    
    
    Proceeds from sale of real estate under operating leases, net
    
    
    
    
    
    
    134,050
    
    
    
    Investments in joint ventures, net of distributions received
    
    
    (645
    )
    
    
    1,694
    
    
    
    466Net proceeds from asset dispositions
    
    
    3,493
    
    
    
    2,593
    
    
    
    1,022Net cash used in investing activities
    
    
    (22,658
    )
    
    
    (161,471
    )
    
    
    (24,821
    )Financing Activities:Net bank borrowings under short-term borrowing arrangements
    
    
    11,913
    
    
    
    (5,900
    )
    
    
    800Increase (decrease) in outstanding checks, net
    
    
    18,956
    
    
    
    3,245
    
    
    
    (1,707
    )Proceeds from long-term debt, net of financing costs
    
    
    
    
    
    
    142,000
    
    
    
    Payments of deferred financing costs
    
    
    (17
    )
    
    
    (8,138
    )
    
    
    Payments of long-term debt and capital lease obligations
    
    
    (28,778
    )
    
    
    (15,300
    )
    
    
    (20,533
    )Proceeds from capital leases from sale of real estate, net
    
    
    
    
    
    
    3,594
    
    
    
    Issuance of common stock under stock incentive plans
    
    
    2,918
    
    
    
    4,586
    
    
    
    3,967Repurchase and retirement of common stock
    
    
    
    
    
    
    
    
    
    
    (3,108
    )Net cash provided by (used in) financing activities
    
    
    4,992
    
    
    
    124,087
    
    
    
    (20,581
    )Increase in cash and cash equivalents
    
    
    187
    
    
    
    326
    
    
    
    21Cash and cash equivalents:Balance  Beginning of period
    
    
    2,645
    
    
    
    2,319
    
    
    
    2,298Balance  End of period
    
    $
    2,832
    
    
    $
    2,645
    
    
    $
    2,319
 (Continued) 27 of 79




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TBC CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (In thousands) Years Ended December 31,RESTATED
    
    
    RESTATED2004
    
    
    2003
    
    
    2002Supplemental Disclosures of Cash Flow Information:Cash paid for  Interest
    
    $
    16,801
    
    
    $
    9,920
    
    
    $
    8,589Cash paid for  Income taxes
    
    
    10,077
    
    
    
    13,035
    
    
    
    11,601Supplemental Disclosures of Non-Cash Financing Activity:Tax benefit from exercise of stock options
    
    $
    1,706
    
    
    $
    1,820
    
    
    $
    959Issuance of restricted stock under stock incentive plan, net
    
    
    401
    
    
    
    866
    
    
    
    169Property, plant and equipment acquired under capital leases
    
    
    
    
    
    
    3,923
    
    
    
    1,200Supplemental Disclosures of Non-Cash Investing Activity:On October 28, 2004, the Company acquired the assets and certain
liabilities of Southwest Tire and Supply for a purchase price of
$4,474. The acquisition was accounted for under the
purchase method, as follows:Estimated fair value of assets acquired
    
    $
    2,765Goodwill
    
    
    1,769Obligations
satisfied
    
    
    (4,474
    )Liabilities assumed
    
    $
    60On April 1, 2003, the Company completed the acquisition of
Merchants, Incorporated for a purchase price of $57,494,
plus applicable closing costs of $983. The acquisition was
accounted for under the purchase method, as follows:Estimated fair value of assets acquired
    
    
    
    
    
    $
    53,956Goodwill
    
    
    
    
    
    
    49,645Cash paid, net of assets 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 of $914. 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
leaseback transaction
    
    
    
    
    
    $
    104,016Goodwill
    
    
    
    
    
    
    60,652Cash paid, net of assets 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 assets acquired
    
    
    
    
    
    
    
    
    
    
    (11,154
    )Liabilities assumed
    
    
    
    
    
    
    
    
    
    $
    102
  
    During 2003, the Company acquired Merchants, Incorporated and NTW Incorporated
(the Purchased Companies) and these acquisitions were accounted for under the purchase
method. In connection with the Purchased Companies, the Company has adjusted the carrying
value of certain balance sheet items to account for changes to their respective fair market
values. During 2004, the Company increased goodwill by $9,358 comprised primarily of
adjustments to the initial values assigned to inventory, property, plant and equipment, other
assets and other accrued liabilities. The accompanying notes are an integral part of the consolidated financial statements. 28 of 79




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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Operations The Company is one of the nations largest independent marketers of tires for the
automotive replacement market. The Company has determined that its operating activities consist of
two reportable operating segments: the Companys Retail Division and the Companys Wholesale
Division. The Company operates and acts as a franchisor of retail tire and automotive service
centers throughout the entire United States under the trade names Tire Kingdom, Merchants Tire &
Auto Centers, National Tire & Battery and Big O Tires. The Companys wholesale customers include
retailers and other wholesalers, primarily in the United States, Canada and Mexico. As of December
31, 2004, the Company had a total of 1,172 retail locations consisting of 605 Company-operated and
567 franchised stores. Basis of Presentation The consolidated financial statements have been restated, as described in Note 3
Restatement of this Form 10-K. Additionally, certain previously reported amounts have been
reclassified to conform to the current financial statement presentation with no impact on
previously reported net income or stockholders equity. The revised classification amounts were
comprised of a change between noncurrent income tax payable and deferred income taxes and a change
between noncurrent assets, building and leasehold improvements and
non current liabilities as of
December 31, 2003. 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 as appropriate and are included in other assets on the balance sheets. The carrying
value of such equity investments totaled $13.8 million and $10.8 million at December 31, 2004 and
2003, respectively. For its share of earnings and losses from such equity investments, the Company
recorded a net gain in other income of $2.2 million in 2004 and net losses of $0.2 million and
$24,000 in 2003 and 2002, respectively. The net loss recorded during 2003 included a $0.7 million
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. 29 of 79




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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued) 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, 2004 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. The Company historically used the last-in, first-out
(LIFO) method for approximately 45% of its inventories, with the remaining inventories valued on
a first-in, first-out (FIFO) basis. Effective January 1, 2004, the Company changed its method of determining the cost of its LIFO
inventories to the FIFO method. The Company has applied this change retroactively by restating its
financial statements as required by Accounting Principles Board No. 20, Accounting Changes, and
accordingly, previously reported retained earnings as of January 1, 2002 has been increased by $1.8
million. See Note 3 to the consolidated financial statements for information regarding the
restatement. 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 the lesser of the useful life or lease term. 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 other income in the results of operations. 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 and NTW 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. The Company performs its annual impairment assessment in the first
quarter of each fiscal year unless circumstances dictate more frequent assessments. SFAS No. 142
also 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. If the carrying value of a reporting unit exceeds its fair value, an impairment loss
is required to be recognized. Fair value is estimated using the discounted cash flow method. When
available and as appropriate, 30 of 79




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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued) the Company uses comparative market multiples to corroborate discounted cash flow results. In
applying this methodology, the Company relies on a number of factors, including actual operating
results, future business plans, economic prospects and market data. No impairment to the recorded
value of Companys indefinite-lived assets was found to exist as a result of the required testing. 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, 2004 or 2003. 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. Reserves for future warranty claims and service, including those associated with
acquired operations, totaled $25.7 million and $29.4 million at December 31, 2004 and 2003,
respectively, of which $6.0 million and $6.9 million was classified as non-current liabilities at
December 31, 2004 and 2003, respectively, 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 0.7% of net sales in 2004, 0.9% during 2003 and 1.0% in
2002. Self-Insured Reserves The Company is self-insured for general and automobile liability,
workers compensation and the health care claims, although the Company maintains stop-loss coverage
with third-party insurers to limit its total liability exposure. A reserve for liabilities
associated with these losses is established for claims filed and claims incurred but not yet
reported based upon the Companys estimate of ultimate cost, which is calculated using analyses of
historical data, severity factors and valuations provided by third-party actuaries. The Company
monitors new claims and claim development as well as negative trends related to the claims incurred
but not reported in order to assess the adequacy of its insurance reserves. On an annual basis, the
Company also reviews its assumptions with its third-party actuaries. While the Company does not
expect the amounts ultimately paid to differ significantly from its estimates, the Companys
self-insurance reserves and corresponding selling, general and administrative expenses could be
affected if future claim experience differs significantly from historical trends and actuarial
assumptions. 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. 31 of 79




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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Comprehensive
income Comprehensive income represents the change in
stockholders equity from transactions and other events and
circumstances arising from non-stockholder sources. Comprehensive
income consists of net income, foreign currency translation
adjustments, changes in minimum pension liabilities and elements of
qualifying cash flow hedges, net of applicable taxes. Shipping and Handling Costs Income generated from shipping and handling fees is classified
as revenues for all periods presented. Freight costs incurred to bring merchandise to retail
stores and warehouses are included as a component of inventory and costs of goods sold. Freight
costs incurred to ship merchandise to customers are recorded as a component of distribution
expenses. Freights costs incurred to ship merchandise to customers totaled $19.5 million, $14.8
million and $12.7 million for 2004, 2003 and 2002, respectively. Income Tax Accounting- We determine our income tax provision using the asset and
liability method. Under this method, deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases. We also recognize future
tax benefits associated with tax loss and credit carryforwards as deferred tax assets. Our deferred
tax assets are reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be realized. We
measure deferred tax assets and liabilities using enacted tax rates in effect for the year in which
we expect to recover or settle the temporary differences. The effect of a change in tax rates on
deferred taxes is recognized in the period that the change is enacted. 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): 2004
    
    
    2003
    
    
    2002Weighted average common shares outstanding
    
    
    22,190
    
    
    
    21,649
    
    
    
    21,191Common share equivalents
    
    
    1,090
    
    
    
    1,094
    
    
    
    775Weighted average common shares and
equivalents outstanding
    
    
    23,280
    
    
    
    22,743
    
    
    
    21,966
 32 of 79




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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Accounting for Stock-Based Compensation- 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, under APB No. 25 Accounting for Stock Compensation, no compensation
expense has been recognized for the stock options granted in 2004, 2003 or 2002. Using fair value
assumptions specified in SFAS No. 123, the weighted average per share value of options granted
during 2004, 2003 and 2002 was $10.78, $4.80 and $5.16, respectively. Had compensation cost for
such option grants been determined using such assumptions, results for the years ended December 31,
2004, 2003 and 2002 would have been as follows (in thousands): 2004
    
    
    2003
    
    
    2002Net income, as reported
    
    $
    37,598
    
    
    $
    32,185
    
    
    $
    26,438Add: Stock-based compensation included
in reported net income, net of tax effects
    
    
    183
    
    
    
    159
    
    
    
    78Less: Total stock-based compensation
expense determined using fair value
assumptions, net of tax effects
    
    
    (3,070
    )
    
    
    (2,397
    )
    
    
    (1,949
    )Pro forma net income
    
    $
    34,711
    
    
    $
    29,947
    
    
    $
    24,567Earnings per share:Basic - as reported
    
    $
    1.69
    
    
    $
    1.49
    
    
    $
    1.25- pro forma
    
    $
    1.56
    
    
    $
    1.38
    
    
    $
    1.16Diluted - as reported
    
    $
    1.62
    
    
    $
    1.42
    
    
    $
    1.20- pro forma
    
    $
    1.49
    
    
    $
    1.32
    
    
    $
    1.12
 The
Committee of the Board of Directors is authorized under the 1989 Plan
to grant restricted stock awards to officers and other key employees.
These awards are recorded in additional paid-in capital within an
offset to deferred compensation when granted. Subsequently, an
expense is recorded, on a straight-line basis, for these awards as a
component of selling, administrative and retail store expenses based
upon the applicable vesting period of the restricted stock ranging
from three to ten years.  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. The annual grant is initially recorded in additional
pain-in capital with an offset to deferred compensation.
Subsequently, the expense is recorded in selling, administrative and
retail store expenses over the one-year service period. Each of these shares of restricted stock
is accompanied by four tandem 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. If the non-employee directory exercises the rights to the
tandem options, an adjustment is recorded between common stock and
additional paid-in capital for the forfeited restricted stock. 33 of 79




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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 2. RECENT ACCOUNTING PRONOUNCEMENTS (Continued) In May 2004, the FASB issued FASB Staff Position, or FSP, 106-2, Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization
Act of 2003. FSP 106-2 addresses the appropriate accounting and disclosure requirements for
companies that sponsor a postretirement health care plan that provides prescription drug benefits.
The new guidance was deemed necessary as a result of the 2003 Medicare prescription law which
includes a federal subsidy for qualifying companies. The effective date of FSP 106-2 is the first
interim or annual period beginning after June 15, 2004. The adoption of FSP 106-2 had no impact on
the Companys financial position, results of operations or related footnote disclosure. In November 2004, the FASB issued SFAS No. 151, Inventory Costs. The new statement amends
Accounting Research Bulletin No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling costs and wasted material. This
statement requires that those items be recognized as current-period charges and requires that
allocation of fixed production overheads to the cost of conversion be based on the normal capacity
of the production facilities. This statement is effective for fiscal years beginning after June 15,
2005. We do not expect the adoption of this statement to have a material impact on the Companys
financial condition or results of operations. In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment, or SFAS
No. 123R. SFAS No. 123R replaces SFAS No. 123, Accounting for Stock-Based Compensation and
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and subsequently issued
stock option related guidance. This statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or services, primarily
on accounting for transactions in which an entity obtains employee services in share-based payment
transactions. It also addresses transactions in which an entity incurs liabilities in exchange for
goods or services that are based on the fair value of the entitys equity instruments or that may
be settled by the issuance of those equity instruments. Entities will be required to measure the
cost of employee services received in exchange for an award of equity instruments based on the
grant-date fair value of the award (with limited exceptions). That cost will be recognized over the
period during which an employee is required to provide service in exchange for the award (usually
the vesting period). The grant-date fair value of employee share options and similar instruments
will be estimated using option-pricing models. If an equity award is modified after the grant date,
incremental compensation cost will be recognized in an amount equal to the excess of the fair value
of the modified award over the fair value of the original award immediately before the
modification. The Company is required to apply SFAS No. 123R to all awards granted, modified or settled as
of the beginning of the first interim or annual reporting period that begins after June 15, 2005.
The Company is also required to use either the modified-prospective method or
modified-retrospective method. Under the modified-prospective method, we must recognize
compensation cost for all awards subsequent to adopting the standard and for the unvested portion
of previously granted awards outstanding upon adoption. Under the modified-retrospective method,
the Company must restate its previously issued financial statements to recognize the amounts
previously calculated and reported on a pro forma basis, as if the prior standard had been adopted.
Under both methods, the Company is permitted to use either the straight line or an accelerated
method to amortize the cost as an expense for awards with graded vesting. The standard permits and
encourages early adoption. The Company has commenced its analysis of the impact of SFAS No. 123R, but has not yet
decided: (1) whether it will elect to early adopt, (2) if it will elect to early adopt, what date
we would do so, (3) whether it will use the modified-prospective or modified-retrospective method,
and (4) whether it will elect to use straight line or an accelerated method. Accordingly, the
Company has not determined the impact that the adoption of SFAS No. 123R will have on the Companys
financial position or results of operations. 34 of 79




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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 3. RESTATEMENT During the second quarter of 2004, but effective on January 1, 2004, the Company changed
its inventory costing method from LIFO to FIFO. The method was changed to obtain a more current
inventory valuation at period end, to achieve a better matching of revenues and expenses and to
move to one method of inventory valuation on a Company-wide basis. In addition, since costing for
retail inventories has historically been on the FIFO method, as this segment grows, continuing
liquidation of LIFO layers would have resulted in any event. Principally, the Wholesale Segment
historically used the last-in, first-out (LIFO) method for approximately 45% of the Companys
inventories, with the remaining inventories valued on a first-in, first-out (FIFO) basis. The
Company has applied this change retroactively by restating its financial statements for 2003 and
2002 as required by Accounting Principles Board No. 20, Accounting Changes, and accordingly,
previously reported retained earnings as of January 1, 2002 has
been increased by $1.8 million.
The effect of the change on the previously reported net income and earnings per share are reflected
in the table below (in thousands): AsPreviously
    
    
    
    
    
    
    AsReported
    
    
    Adjustments
    
    
    RestatedNet incomeYear ended December 31, 2003
    
    $
    33,359
    
    
    $
    (1,174
    )
    
    $
    32,185Year ended December 31, 2002
    
    
    27,382
    
    
    
    (944
    )
    
    
    26,438Basic earnings per shareYear ended December 31, 2003
    
    $
    1.54
    
    
    $
    (0.05
    )
    
    $
    1.49Year ended December 31, 2002
    
    
    1.29
    
    
    
    (0.04
    )
    
    
    1.25Diluted earnings per shareYear ended December 31, 2003
    
    $
    1.47
    
    
    $
    (0.05
    )
    
    $
    1.42Year ended December 31, 2002
    
    
    1.25
    
    
    
    (0.05
    )
    
    
    1.20
 4. 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 6.4% of the Companys common stock
at December 31, 2004. Sales to a distributor represented on the Board, including affiliates of
that distributor, accounted for approximately 2% of the Companys net sales during 2004, 3% during
2003 and 4% in 2002. One major customer, unaffiliated with the Board of Directors or the Company,
accounted for approximately 2% of net sales in 2004, 3% of net sales in 2003, and 5% in 2002.
Sales to joint ventures and entities in which the Company has an ownership interest accounted for
approximately 5% of the Companys net sales during 2004, 3% in 2003 and 5% in 2002. Accounts
receivable resulting from transactions with related parties are presented separately in the balance
sheets. 35 of 79




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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 5. ACQUISITIONS On October 28, 2004, the Company acquired the assets and certain liabilities of a wholesale
customer, Southwest Tire and Supply (Southwest Tire). The acquisition was made to satisfy outstanding obligations owed to the Company by Southwest Tire. The acquisition was accounted for
as a purchase, with total consideration of $4,474,000 which represented the satisfaction of the
outstanding obligations. The goodwill acquired with respect to
Southwest Tire totaled $1,769,000. The goodwill is deductible for tax
purposes pursuant to the provisions of Internal Revenue Code
(IRC) section 197. 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. Goodwill
additions relating to Merchants at acquisition totaled
$49,645,000. The goodwill for tax purposes is deductible under IRC
section 197 due to the asset acquisition treatment of the transaction
pursuant to the IRC section 338(h)(10) election executed by the
parties. 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.
Goodwill additions relating to NTW at acquisition totaled
$60,652,000. The goodwill for tax purposes is deductible under IRS
section 197 due to the asset acquisition treatment of the transaction
pursuant to the IRC section 338(h)(10) election executed by the
parties. The goodwill for tax purposes is deductible under IRC
section 197 due to the asset acquisition treatment of the transaction
pursuant to the IRC section 338(h)(10) election executed by the
parties. 36 of 79




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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, 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
were prepared as if the companies had been combined as of the beginning of each period presented
and includes 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 $1,754,874,000 in 2003 and $1,747,154,000 in 2002. Pro
forma net income was $36,657,000 in 2003 and a pro forma net loss of $13,286,000 in 2002 and pro
forma diluted earnings per share of $1.61 in 2003 and a pro forma diluted loss per share of $0.60
in 2002. On March 20, 2002, the Company acquired primarily all of the assets of Mueller Tire and Brake,
LLC and related entities (Mueller), which was a privately-owned company operating 19 retail tire
centers in Ohio. The acquisition was made to increase the size and geographic reach of the
Companys retail store network. The acquisition was accounted for as an asset purchase, with total
consideration of $11,154,000. 6. GOODWILL AND INTANGIBLE ASSETS The component of Goodwill by segments are listed below (in thousands): December 31,
    
    
    December 31,2004
    
    
    2003Goodwill
Retail segment
    
    $
    174,827
    
    
    $
    165,426Wholesale segment
    
    
    5,526
    
    
    
    3,758Total goodwill
    
    $
    180,353
    
    
    $
    169,184
 The net increase in goodwill reflects the following:  
    An increase of $7.9 million pertaining to straight-line rent adjustments in
order to properly reflect deferred rent liabilities in connection with the stores
acquired for the NTW acquisition.  
    An increase of $7.7 million pertaining changes in valuation estimates related
to inventory acquired in conjunction with the NTW acquisition.  
    A decrease of $6.2 million pertaining to the sale and leaseback transactions
as described in Note 5  Acquisitions.  
    An increase of $1.8 million pertaining to the acquisition of the assets and
certain liabilities of Southwest Tire as described in Note 5  Acquisitions. Indefinite-lived intangible assets were $0.5 million and $0.1 million at December 31,
2004 and 2003, respectively. Gross definite-lived intangible assets comprised of customer lists
and non-compete agreements were $485,000 at December 31, 2004 and 2003 with related accumulated
amortization of $139,000 and $65,000 at December 31, 2004 and 2003, respectively, were included in
other assets in the Consolidated Balance Sheets. Amortization of definite-lived intangible assets
was $74,000, $69,000 and $24,000 in 2004, 2003 and 2002, respectively. The estimated future
amortization expense related to definite-lived intangible assets at December 31, 2004 is $74,000,
$42,000, $37,000, $37,000 and $37,000 for 2005, 2006, 2007, 2008 and 2009, respectively. 7. 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 modified its existing bank borrowing facilities. The new agreement was amended and
restated on November 29, 2003 to enable the Company to consummate its acquisition of NTW and again
on November 19, 2004 to permit the Company to implement the holding company reorganization
described in Item 1. 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 and the Senior Notes are collateralized by substantially all of the Companys assets and
contain cross-default provisions. The credit facilities require the payment of certain commitment
and administrative fees which totaled $224,000 and $438,000 in 2004 and 2003, respectively, 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. 37 of 79




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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 7. NOTES PAYABLE TO BANKS AND LONG-TERM DEBT (Continued) 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 5). 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, 2004 and
for the year then ended. A total of $41.0 million and $29.0 million was borrowed under the bank
revolving loan facility at December 31, 2004 and 2003, respectively. The combined weighted average
interest rate on both short-term and long-term average borrowings during 2004 and 2003 was 6.1% and
6.4%, respectively. Long-term debt and capital lease obligations are summarized as follows (in thousands): December 31,2004
    
    
    20039.62% Series B Senior Note, due from 2004 through 2005
    
    $
    5,500
    
    
    $
    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
    
    
    
    50,000Variable-Rate Term Loan Payable to Banks, due from 2004 through 2008
    
    
    124,776
    
    
    
    147,334Capital lease obligations
    
    
    11,789
    
    
    
    12,509208,565
    
    
    
    237,343Less current portion
    
    
    41,216
    
    
    
    28,723$
    167,349
    
    
    $
    208,620
 Maturities of long-term debt and capital lease obligations are as follows: $41.2 million due
in 2005, $41.3 in 2006, $46.4 million in 2007, $46.5 million in 2008, $26.2 million in 2009, and
$6.9 million thereafter. 8. 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
designated 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,
2004, deferred losses on interest-rate swaps, net of deferred taxes, totaled $0.2 million and were
included in other comprehensive income (loss) on the balance sheet. At the end of 2004, interest
expense of approximately $0.4 million was expected to be recorded within the next twelve months, in
conjunction with the realization of assumed interest rates. At December 31, 2004 and 2003, the
fair value of these interest-rate swaps were $0.4 million and $0.9
million, respectively. The current and long-term portions of the fair value are
recorded in other current liabilities and noncurrent liabilities,
respectively. 38 of 79




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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 9. 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. The
accumulated depreciation relating to these capital assets is $1.6
million and $0.7 million in 2004 and 2003,
respectively. Other facilities and equipment are leased under arrangements that are accounted for
as operating leases. Rental expense of $86.7 million, $52.8 million and $35.6 million was charged
to operations in 2004, 2003 and 2002, respectively, after deducting
sublease income of $5.1 million
in 2004, $4.2 million in 2003 and $4.4 million in 2002. Minimum rent is expensed on a straight-line
basis over the terms of the operating leases. Future minimum capital and operating lease payments and the related present value of
capital lease payments at December 31, 2004 were as follows (in thousands): Operating
    
    
    CapitalYear
    
    Leases
    
    
    Leases2005
    
    $
    92,100
    
    
    $
    2,1562006
    
    
    88,852
    
    
    
    2,1542007
    
    
    80,696
    
    
    
    2,1362008
    
    
    75,175
    
    
    
    2,0412009
    
    
    70,293
    
    
    
    1,985Thereafter
    
    
    516,401
    
    
    
    10,572Total minimum lease payments
    
    
    923,517
    
    
    
    21,044Less  sublease income associated
with operating leases
    
    
    37,579Net minimum lease payments
    
    $
    885,938Less 
interest expense associated
with capital leases
    
    
    
    
    
    
    (9,255
    )Present value of net minimum lease payments
    
    
    
    
    
    $
    11,789
 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 continues to lease and operate
the sold stores, but does not have any other retained or contingent interests in the sold stores.
Proceeds from this sale-leaseback transaction, net of related fees, totaled $132.2 million, 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. 39 of 79




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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 10. 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, 2004, 2003 and 2002 were as follows (in thousands): 2004
    
    
    2003
    
    
    2002Current:Federal
    
    $
    27,339
    
    
    $
    13,149
    
    
    $
    15,440State
    
    
    1,786
    
    
    
    873
    
    
    
    64929,125
    
    
    
    14,022
    
    
    
    16,089Deferred
    
    
    (8,539
    )
    
    
    3,701
    
    
    
    (448
    )$
    20,586
    
    
    $
    17,723
    
    
    $
    15,641
 40 of 79




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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 10. 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. Deferred
income tax assets of $179,000 were recorded in January 2004 in connection with the acquisition of
Merchants as a result of changes to the severance accrual. No deferred income tax assets were
recorded in connection with the November 2003 acquisition of NTW. Deferred income tax assets of
$477,000 were recorded in April 2004 in connection with the acquisition of NTW as a result of
changes to the severance accrual. The major components of deferred income tax assets and
liabilities on the balance sheets are summarized as follows (in thousands): December 31,RESTATED(See Note 3)2004
    
    
    2003Deferred income tax assets:Allowance for doubtful accounts
    
    $
    3,429
    
    
    $
    3,211Warranty-related reserves
    
    
    5,831
    
    
    
    3,599Insurance-related accruals
    
    
    6,761
    
    
    
    3,143Compensation and retirement-related accruals
    
    
    3,123
    
    
    
    2,555Lease accruals and related arrangements
    
    
    4,071
    
    
    
    2,841Deferred revenues
    
    
    2,961
    
    
    
    1,110Inventory
    
    
    2,481
    
    
    
    Foreign subsidiary basis difference
    
    
    1,874
    
    
    
    1,579Foreign subsidiary basis difference valuation allowance
    
    
    (650
    )
    
    
    (650
    )Capital loss carryover
    
    
    944
    
    
    
    Other deferred income tax assets
    
    
    1,594
    
    
    
    1,258Total deferred income tax assets
    
    $
    32,419
    
    
    $
    18,646Deferred income tax liabilities:Trademarks and intangible assets
    
    $
    11,397
    
    
    $
    7,599Accumulated depreciation
    
    
    6,496
    
    
    
    4,636Inventory
    
    
    
    
    
    
    1,118Other deferred income tax liabilities
    
    
    349
    
    
    
    196Total deferred income tax liabilities
    
    $
    18,242
    
    
    $
    13,549Net deferred income tax asset
    
    $
    14,177
    
    
    $
    5,097Balance sheet presentation:Current deferred income tax asset
    
    $
    24,790
    
    
    $
    12,987Noncurrent deferred income tax liability
    
    
    10,613
    
    
    
    7,890Net deferred income tax asset
    
    $
    14,177
    
    
    $
    5,097
 41 of 79




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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 10. INCOME TAXES (Continued) A reconciliation of the statutory U.S. Federal income tax rate to the Companys effective
income tax rate is as follows: 2004
    
    
    2003
    
    
    2002Statutory U.S. Federal rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State income taxes
    
    
    1.5
    %
    
    
    1.2
    %
    
    
    2.2
    %Other
    
    
    -1.1
    %
    
    
    -0.7
    %
    
    
    0.0
    %Effective tax rate
    
    
    35.4
    %
    
    
    35.5
    %
    
    
    37.2
    %
 In assessing the realization of the Companys deferred income tax assets, the Company
considers whether it is more likely than not that the deferred income tax assets will be realized.
The ultimate realization of the Companys deferred income tax assets depends upon generating future
taxable income during the periods in which the temporary differences become deductible and before
the net operating loss carryforwards and foreign tax credits expire. The Company evaluates the
recoverability of the deferred income tax assets by assessing the need for a valuation allowance on
a quarterly basis. If the Company determines that it is more likely than not that the deferred
income tax assets will not be recovered, a valuation allowance is established against some or all
of the deferred income tax assets. The valuation allowance reflected by the Company due to
uncertainties related to its ability to utilize some of its deferred tax assets, primarily
consisting of certain foreign tax credits as of December 31, 2004, 2003, and 2002 was $650,000,
$650,000 and $700,000, respectively. At December 31, 2004, 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 their expiration in 2018 through 2023. During 2004, the American Jobs Creation Act of 2004 (Jobs Creation Act) was signed into law.
Beginning in 2005, the Jobs Creation Act includes relief for domestic manufacturers by providing a
tax deduction for qualified production activities. In addition, the Job Creation Act phases out
the exclusion for extraterritorial income (ETI) during 2005 and 2006. While the Company has
historically benefited from ETI, its repeal will not materially impact the Companys effective tax
rate. With respect to the tax deduction provided for domestic manufacturers, the Company has
initially determined that the deduction should not have an impact on its effective tax rate in
future periods. 11. 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 $2.0 million in 2004, $1.4 million in 2003 and
$1.8 million in 2002. The Company has a defined benefit pension plan which covered less than 100 of its employees at
the end of 2004. 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
2004 and 2003, the Company recorded minimum pension liability adjustments of $219,000 and $59,000,
respectively, related to the excess of accumulated benefit obligations over the fair value of the
underlying plan assets. Accumulated adjustments, reflected in other comprehensive income or loss
on the balance sheets net of deferred income taxes, were $566,000 and $428,000 as of December 31,
2004 and 2003, respectively. 42 of 79




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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 11. RETIREMENT PLANS (Continued) 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): 2004
    
    
    2003Actuarial present value of projected benefit
obligations, at beginning of year
    
    $
    (5,261
    )
    
    $
    (5,894
    )Service cost
    
    
    (50
    )
    
    
    (50
    )Interest cost
    
    
    (328
    )
    
    
    (366
    )Actuarial loss
    
    
    (336
    )
    
    
    (60
    )Settlement gain
    
    
    516
    
    
    
    840Benefits paid
    
    
    94
    
    
    
    134Expenses paid
    
    
    82
    
    
    
    135Amendments and other
    
    
    
    
    
    
    Actuarial present value of projected benefit
obligations, at end of year
    
    
    (5,283
    )
    
    
    (5,261
    )Fair value of plan assets, at beginning of year
    
    
    4,343
    
    
    
    5,184Return on plan assets
    
    
    325
    
    
    
    459Employer contributions
    
    
    76
    
    
    
    Benefits and expenses paid
    
    
    (176
    )
    
    
    (269
    )Settlements
    
    
    (515
    )
    
    
    (1,031
    )Fair value of plan assets, at end of year
    
    
    4,053
    
    
    
    4,343Funded Status  plan assets under projected
benefit obligation, at end of year
    
    
    (1,230
    )
    
    
    (918
    )Unrecognized net loss from experience
different from that assumed
    
    
    902
    
    
    
    683Unrecognized prior service cost
    
    
    
    
    
    
    Accumulated pension liability adjustment
    
    
    (902
    )
    
    
    (683
    )Accrued benefit liability, at end of year
    
    $
    (1,230
    )
    
    $
    (918
    )
 43 of 79




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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 11. RETIREMENT PLANS (Continued) The net expense for the defined benefit plan for 2004, 2003 and 2002 was comprised of the
following (in thousands): 2004
    
    
    2003
    
    
    2002Interest cost
    
    $
    328
    
    
    $
    366
    
    
    $
    383Service cost
    
    
    50
    
    
    
    50
    
    
    
    Expected return on plan assets
    
    
    (319
    )
    
    
    (376
    )
    
    
    (340
    )Net amortization, deferral and
settlement charges
    
    
    111
    
    
    
    109
    
    
    
    43$
    170
    
    
    $
    149
    
    
    $
    86
 A description of plan asset allocation percentages by investment type are included as follows: Target
    
    
    Allocation
    
    
    AllocationAllocation
    
    
    Percentage
    
    
    Percentage2005
    
    
    2004
    
    
    2003Equity securities
    
    
    70.00
    %
    
    
    71.51
    %
    
    
    75.68
    %Debt securities
    
    
    30.00
    %
    
    
    28.04
    %
    
    
    21.88
    %Real estate
    
    
    3.50
    %
    
    
    0.00
    %
    
    
    0.00
    %Other
    
    
    5.00
    %
    
    
    0.45
    %
    
    
    2.44
    %Total
    
    
    
    
    
    
    100.00
    %
    
    
    100.00
    %
 The Company expects to contribute approximately $54,000 to the plan in 2005. Additionally,
expected benefit payments are detailed as follows: Year ended December 31,
    
    Payment Amount2005
    
    $
    160,1872006
    
    
    271,1212007
    
    
    210,5202008
    
    
    262,5672009
    
    
    381,468Thereafter
    
    
    2,123,585
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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 11. RETIREMENT PLANS (Continued) The discount rates used in determining the actuarial present values of benefit
obligations for the defined benefit plan were 6.00%, 6.25% and 6.50% in 2004, 2003 and 2002,
respectively. 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%, 7.5% and 6% in 2004, 2003 and 2002, respectively. The assumptions used to develop the net
periodic pension expense are developed based on the discount rate, the expected long-term rate of
return on assets and interest rates used to determine the benefit obligations. Additionally,
administrative expense assumptions are based on historical plan trust information. Actuarial
present values of accumulated benefit obligations were $5.3 million, $5.3 million and $5.9 million
at December 31, 2004, 2003 and 2002, respectively. 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 $692,000, $409,000
and $387,000 in 2004, 2003 and 2002, respectively. At December 31, 2004, the projected benefit
obligation, computed using a 6.0% discount rate and 5.0% expected increase in future compensation,
was $3,710,000. The accumulated benefit obligation, which was reflected as a noncurrent liability
at December 31, 2004, totaled $2,475,000. 12. 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, 2004 or 2003. 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% acquirer) 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 2004
or 2003. As of December 31, 2004, the Company had unused authorizations from the Board for the
repurchase of approximately 1,199,000 additional shares. 45 of 79




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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 13. STOCK OPTION AND INCENTIVE PLANS The Company has a 1989 stock incentive plan (1989 Plan), a 2000 stock option plan
(2000 Plan) and a 2004 stock option plan (2004 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, 2004, 2,070,272 shares
were reserved for issuance under the 1989, 2000 and 2004 Plans. A summary of stock option activity during 2002, 2003 and 2004 is shown below: WeightedAverageOption
    
    
    Option Price
    
    
    ExerciseShares
    
    
    Range
    
    
    PriceOutstanding 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
    
    
    $
    9.91Granted in 2004
    
    
    393,723
    
    
    
    23.93 -  30.60
    
    
    
    27.89Exercised in 2004
    
    
    (402,369
    )
    
    
    4.69 -  16.00
    
    
    
    8.54Forfeited in 2004
    
    
    (51,394
    )
    
    
    5.75 -  27.90
    
    
    
    13.20Outstanding at December 31, 2004
(1,271,485 exercisable)
    
    
    2,112,769
    
    
    $
    4.69 - $30.60
    
    
    $
    13.44
 46 of 79




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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 13. STOCK OPTION AND INCENTIVE PLANS (Continued) Additional information regarding stock options outstanding at December 31, 2004 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
    
    
    597,165
    
    
    $
    6.23
    
    
    5.2 yrs
    
    
    597,165
    
    
    $
    6.23$8.51 - $12.62
    
    
    739,133
    
    
    
    11.42
    
    
    6.9 yrs
    
    
    430,395
    
    
    
    10.56$12.63 - $30.60
    
    
    776,471
    
    
    
    20.91
    
    
    8.1 yrs
    
    
    243,925
    
    
    
    13.462,112,769
    
    
    
    
    
    
    
    
    
    
    
    1,271,485
 As of December 31, 2004, 626,600 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 fair value of each option granted in 2004, 2003 and 2002 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. The expected volatility percentages used for options
granted were 38.8% in 2004, 36.4% in 2003 and 36.3% in 2002. 14. 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,
2004. 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 $3.5 million as of December
31, 2004, including $2.7 million related to franchisee financing and $0.8 million 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. Any fair
value associated with guarantees is immaterial. 47 of 79




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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 15. SEGMENT INFORMATION The Company is principally engaged in the marketing and distribution of tires in the
automotive replacement market and has two reportable 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 upon earnings before interest, taxes, depreciation and amortization (EBITDA). Net sales by the wholesale segment to the retail segment are eliminated in
consolidation and totaled $255.9 million, $176.9 million and $164.9 million in 2004, 2003 and 2002
respectively. Such intersegment sales had no effect on the EBITDA of the individual reporting
segments. 48 of 79




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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 15. SEGMENT INFORMATION (Continued) Segment information for the three years ended December 31, 2004, 2003 and 2002 is as
follows (in thousands): Retail
    
    
    Wholesale
    
    
    TotalPeriod ended December 31, 2004Total assets
    
    $
    591,208
    
    
    $
    285,071
    
    
    $
    876,279Operating results -Net sales to external customers
    
    
    1,193,360
    
    
    
    662,058
    
    
    
    1,855,418EBITDA
    
    
    69,063
    
    
    
    35,405
    
    
    
    104,468Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    27,544Interest expense, net
    
    
    
    
    
    
    
    
    
    
    18,739Income before income taxes
    
    
    
    
    
    
    
    
    
    
    58,184Period ended December 31, 2003 (Restated)Total assets
    
    $
    520,346
    
    
    $
    265,472
    
    
    $
    785,818Operating results -Net sales to external customers
    
    
    734,073
    
    
    
    584,458
    
    
    
    1,318,531EBITDA
    
    
    51,087
    
    
    
    27,458
    
    
    
    78,545Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    18,228Interest expense, net
    
    
    
    
    
    
    
    
    
    
    10,409Income before income taxes
    
    
    
    
    
    
    
    
    
    
    49,908Period ended December 31, 2002 (Restated)Total assets
    
    $
    238,868
    
    
    $
    236,392
    
    
    $
    475,260Operating results -Net sales to external customers
    
    
    511,925
    
    
    
    597,738
    
    
    
    1,109,663EBITDA
    
    
    33,427
    
    
    
    30,044
    
    
    
    63,471Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    12,689Interest expense, net
    
    
    
    
    
    
    
    
    
    
    8,703Income before income taxes
    
    
    
    
    
    
    
    
    
    
    42,079
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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 16. 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. As of
December 31, 2004, 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. (Big O) subsidiary. The Company has identified one hundred forty-seven (147) 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 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,
2004, the Companys subsidiary had extended loans in the aggregate of $8.6 million, entered into
leasing or subleasing arrangements for minimum payments totaling $37.6 million, and guaranteed
loans or leases on behalf of these franchisees totaling $2.3 million. During 2004, Big O recorded
product sales of $42.2 million and royalty fee revenues of $2.8 million related to these 147
franchised stores. During 2004, the store themselves had retail sales totaling $140.2 million.
The 147 franchised stores are owned and/or operated by numerous entities and persons. The process
of obtaining complete financial information for the stores was a lengthy one and in some instances
the Company was unable to obtain certain financial information. In some instances, the Company
evaluated these stores based on their economic characteristics and made certain assumptions in
instances where financial information was not available. Based on these evaluations, at December
31, 2004, the Company is the primary beneficiary of three VIEs. However, the consolidation of
those entities for which the Company is the primary beneficiary would not have a material impact on
the Companys consolidated financial statements and therefore, the three entities are not included
in the consolidated results of operations of the Company. 17. CONSIDERATION RECEIVED FROM A VENDOR On March 20, 2003, the Emerging Issues Task Force (EITF) issued EITF 02-16, Accounting
by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor, which
states that cash consideration received from a vendor is presumed to be a reduction of the price of
the vendors products or services and should, therefore, be characterized as a reduction of cost of
goods sold and a portion of these amounts be capitalized into ending inventory. This presumption is
overcome when the consideration is either a reimbursement of specific, incremental and identifiable
costs incurred to sell the vendors products, or a payment for assets or services delivered to the
vendor. EITF 02-16 is effective for volume-based rebate agreements entered into after November 21,
2002 and for all other rebate agreements entered into or modified after December 31, 2002. During 2003, the Company adopted EITF 02-16; however, the adoption of this pronouncement did
not have a material impact on the results of operations. Prior to the effective date of EITF
02-16, the Company entered into numerous multi-year supply agreements. Consistent with EITF 02-16,
the Company continued accounting for these agreements under its historical method of recognizing
the vendor allowances
based on the Companys fulfillment of the related obligations of the agreement.
In the second
quarter of 2004, the Company entered into a new supply agreement with one of its major vendors. As
required by EITF 02-16, the Company 50 of 79




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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 17. CONSIDERATION RECEIVED FROM A VENDOR (CONTINUED) began capitalizing a portion of the allowances afforded it under this new agreement. Earnings
in 2004 reflect a negative net income impact of EITF 02-16 of $3.5 million, or $0.10 per diluted
share, related to the Companys new purchase agreement with this major vendor. In addition, during
2003, the Company reclassified $1.7 million of vendor allowances previously classified in selling,
general and administrative expenses to properly record these as cost of goods sold with no impact
on net income. For the year ended December 31, 2002, a
reclassification was not required since vendor rebates were properly
accounted for as a component of cost of sales. 18. 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. 51 of 79




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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 52 of 79




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SUPPLEMENTARY DATA: QUARTERLY FINANCIAL INFORMATION Unaudited quarterly results for 2004 and 2003 are summarized as follows: (In thousands, except per share amounts) First
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    FullQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    YearRESTATED(See Note 3)2004Net sales
    
    $
    433,841
    
    
    $
    456,490
    
    
    $
    476,464
    
    
    $
    488,623
    
    
    $
    1,855,418Gross profit
    
    
    161,866
    
    
    
    175,201
    
    
    
    175,251
    
    
    
    182,476
    
    
    
    694,794Net income
    
    
    5,499
    
    
    
    9,131
    
    
    
    10,922
    
    
    
    12,046
    
    
    
    37,598Earnings per share -Basic
    
    $
    0.25
    
    
    $
    0.41
    
    
    $
    0.49
    
    
    $
    0.55
    
    
    $
    1.69Diluted
    
    $
    0.24
    
    
    $
    0.39
    
    
    $
    0.47
    
    
    $
    0.52
    
    
    $
    1.622003 (Restated  See Note 3)Net sales
    
    $
    256,545
    
    
    $
    328,843
    
    
    $
    362,401
    
    
    $
    370,742
    
    
    $
    1,318,531Gross profit
    
    
    74,992
    
    
    
    108,856
    
    
    
    114,653
    
    
    
    135,385
    
    
    
    433,886Net income
    
    
    4,611
    
    
    
    7,976
    
    
    
    10,020
    
    
    
    9,578
    
    
    
    32,185Earnings per share -Basic
    
    $
    0.22
    
    
    $
    0.37
    
    
    $
    0.46
    
    
    $
    0.44
    
    
    $
    1.49Diluted
    
    $
    0.21
    
    
    $
    0.35
    
    
    $
    0.44
    
    
    $
    0.41
    
    
    $
    1.42
 
 Item 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 None. 
 Item 9A.
    
    CONTROLS AND PROCEDURES
 Disclosure 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. Changes in Internal
Control over Financial Reporting During the quarter ended December 31, 2004, 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. Status of
Managements Report on Internal Control over Financial
Reporting As permitted by the SECs Release No. 34-50754, dated November 30, 2004, the following items
are not included in this Annual Report on Form 10-K at this time: (i) managements annual report
on internal control over financial reporting as of December 31, 2004, or (ii) the related report of
PricewaterhouseCoopers
LLP, the Companys independent registered public accounting firm. Both of these reports will be
filed by amendment to this Annual Report on Form 10-K by May 2, 2005 as specified in the applicable
SEC rules. Although managements assessment process is not yet complete, as of the date of the
filing of this Annual Report on Form 10-K, management has not identified any material weakness in
its internal control over financial reporting. 53 of 79




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Item 9B.OTHER INFORMATION None. 54 of 79




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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 May 12, 2005, 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 May 12, 2005, 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 Equity Compensation Plan Information The following table shows certain information as of December 31, 2004 with respect to
compensation plans under which shares of common stock of the Company are authorized for issuance: Number ofshares remainingavailable for futureNumber of
    
    
    
    
    
    
    issuance under equityshares to be issued
    
    
    Weighted average
    
    
    compensation plansupon exercise of
    
    
    exercise price of
    
    
    (excluding shares inoutstanding options
    
    
    outstanding options
    
    
    column (a) )Plan category
    
    ( a )
    
    
    ( b )
    
    
    ( c )Equity compensation
plans approved by
stockholders
    
    
    2,112,769
    
    
    $
    13.44
    
    
    
    2,070,272Equity compensation
plans not approved
by stockholders
    
    
    
    
    
    
    
    
    
    
    
 Note:
    
    The above number of shares to be issued upon
exercise of outstanding options does not
include 61,968 outstanding tandem options
issued to directors in conjunction with 15,492
outstanding shares of restricted stock. One
share of restricted stock would be forfeited
for every four tandem options exercised.
 The remaining information required by this Item 12 is set forth in the Companys Proxy
Statement for its Annual Meeting of Stockholders to be held May 12, 2005, under the captions
Proposal to Approve 2004 Incentive Plan and Security Ownership of Management and Principal
Stockholders, and is incorporated herein by this reference. 55 of 79




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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 May 12, 2005, 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 May 12, 2005, under the caption The Companys
Independent Registered Public Accounting Firm, and is incorporated herein by this reference. 56 of 79




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PART IV 
 Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) (1) FINANCIAL STATEMENTS The following items, including consolidated financial statements of the Company,
are set forth at Item 8 of this Report: Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets  December 31, 2004, and 2003 Consolidated Statements of Income  Years ended December 31, 2004, 2003 and
2002 Consolidated Statements of Stockholders Equity  Years ended December 31,
2004, 2003 and 2002 Consolidated Statements of Cash Flows  Years ended December 31, 2004, 2003
and 2002 Notes to Consolidated Financial Statements (a) (2) FINANCIAL STATEMENT SCHEDULES Report of
Independent Registered Public Accounting Firm (at p. 59 of this
Report) Schedule II
 Valuation and qualifying accounts (at p. 60 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. 61 of this Report(b)
    During the quarter ended December 31, 2004, the Company filed the
following reports on Form 8-K:  (1)
    A Form 8-K dated October 4, 2004, was filed in which TBC
Corporation issued a press release commenting on the impact of the recent
hurricanes and schedules its third quarter 2004 conference call.(2)
    A Form 8-K dated October 25, 2004, was filed in which TBC
Corporation issued a press release reporting its financial results for the
three and nine months ended September 30, 2004.(3)
    A Form 8-K dated November 19, 2004, was filed in which TBC Corporation
issued a press release commenting that it completed a corporate
reorganization to implement a holding company structure. 
 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 31, 2005
    By:
    /s/ LAWRENCE C. DAYLawrence C. DayPresident and Chief Executive Officer 57 of 79




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##### Table of Contents



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
    
    President, Chief Executive Officer
and Director
    
    March 31, 2005Lawrence C. Day/s/ THOMAS W. GARVEY
    
    Executive Vice President and Chief Financial Officer
    
    March 31, 2005(principal financial and accounting officer)Thomas W. GarveyChairman of the Board of Directors
    
    March 31, 2005Marvin E. BruceDirector
    
    March 31, 2005Michael E. DunlapDirector
    
    March 31, 2005Charles A. Ledsinger, Jr.* WILLIAM J. McCARTHY
    
    Director
    
    March 31, 2005William J. McCarthy* RICHARD A. McSTAY
    
    Director
    
    March 31, 2005Richard A. McStay* DONALD RATAJCZAK
    
    Director
    
    March 31, 2005Donald Ratajczak* ROBERT R. SCHOEBERL
    
    Director
    
    March 31, 2005Robert R. SchoeberlDirector
    
    March 31, 2005Raymond E. Schultz
    /s/ LAWRENCE C. DAYLawrence C. DayAttorney-in-Fact 58 of 79




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PRICEWATERHOUSECOOPERS PricewaterhouseCoopers LLP
1000 Morgan Keegan Tower
Fifty North Front Street
Memphis, TN 38103
Telephone (901) 522 2000
Facsimile (901) 523 2045 Report of Independent Auditors on Financial Statement Schedule
 To the Board of Directors  Our audits of the
consolidated financial statements referred to in our report dated
March 31, 2005 appearing in Item 8 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, this financial statement schedule
presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated
financial statements.   
 
 59 of 79




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TBC CORPORATION SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In thousands) AdditionsCharged
    
    
    Chargedto Costs
    
    
    toBalance
    
    
    and
    
    
    Other
    
    
    
    
    
    
    BalanceJanuary 1,
    
    
    Expenses
    
    
    Accounts
    
    
    Deductions
    
    
    December 31,2004Warranty
reserve
    
    $
    29,394
    
    
    $
    3,420
    
    
    $
    61
    
    
    $
    7,208
    
    
    $
    25,667Allowance for
doubtful
accounts
    
    
    8,260
    
    
    
    4,322
    
    
    
    (646
    )
    
    
    2,629
    (3)
    
    
    9,307Deferred tax
asset valuation allowance
    
    
    650
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6502003Warranty
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)
    
    
    8,260Deferred tax
asset valuation allowance
    
    
    700
    
    
    
    (50
    )
    
    
    
    
    
    
    
    
    
    
    6502002Warranty
reserve
    
    
    8,762
    
    
    
    7,854
    
    
    
    
    (1)
    
    
    5,619
    (2)
    
    $
    10,997Allowance for
doubtful
accounts
    
    
    7,737
    
    
    
    2,861
    
    
    
    
    (1)
    
    
    1,897
    (3)
    
    
    8,701Deferred tax
asset valuation allowance
    
    
    100
    
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    700
   (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. 60 of 79




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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
    
    *2.4
    
    Agreement and Plan of Merger, dated November 19, 2004, among
TBC Corporation, TBC Parent Holding Corp., and TBC Merger Corp.
was filed as Exhibit 2.1 to the TBC Corporation Current Report
on Form 8-K dated November 19, 2004
    
    *(3)(i)
    
    ARTICLES OF INCORPORATION:3(i).1
    
    Certificate of Incorporation of TBC Corporation (formerly named TBC Parent
Holding Corp.) was filed as Exhibit 3(i).1 to the TBC Corporation Current
Report on Form 8-K dated November 19, 2004
    
    *(3)(ii)
    
    BYLAWS:3(ii).1
    
    ByLaws of TBC Corporation (formerly named TBC Parent Holding
Corp.) were filed as Exhibit 3(ii).1 to the TBC Corporation Current
Report on Form 8-K dated November 19, 2004
    
    *(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
    
    Second Amended and Restated Credit Agreement, dated as of November
19, 2004, among TBC Corporation, TBC Private Brands, Inc.,
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
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Chase Bank, as Co-Administrative Agent, was filed as Exhibit 4.1 the TBC
Corporation Current Report on Form 8-K dated November 19, 2004
    
    *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
    
    *4.4
    
    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
    
    Amendment No. 2, dated as of November 19, 2004, among TBC Corporation,
TBC Private Brands, Inc., and The Prudential Insurance Company of America,
to Second Amended and Restated Note Agreement, dated as of April 1, 2003
and amended by Amendment No. 1, dated as of November 29, 2003, was
filed as Exhibit 4.3 to the TBC Corporation Current Report on Form 8-K
dated November 19, 2004
    
    *4.6
    
    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
    
    *4.7
    
    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
    
    *4.8
    
    Amendment No. 2, dated as of November 19, 2004, among TBC Corporation,
TBC Private Brands, Inc., and the Noteholders party thereto, to Note
Purchase Agreement, dated as of April 1, 2003 and amended by Amendment
No. 1, dated as of November 29, 2003, was filed as Exhibit 4.4 to the
TBC Corporation Current Report on Form 8-K dated November 19, 2004
    
    *4.9
    
    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
    
    *4.10
    
    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
    
    *4.11
    
    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
    
    *
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4.12
    
    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
    
    *4.13
    
    Assumption Agreement, dated as of November 19, 2004, between TBC
Corporation (formerly known as TBC Parent Holding Corp.) and JPMorgan
Chase Bank, as Collateral Agent, was filed as Exhibit 4.2 to the TBC Corporation
Current Report on Form 8-K dated November 19, 2004
    
    *4.14
    
    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
    
    *4.15
    
    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
    
    *4.16
    
    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) was filed as Exhibit 10.1 to the TBC Corporation Annual Report
on Form 10-K for the year ended December 31, 2003
    
    *10.2
    
    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 2004 Incentive Plan was filed as Exhibit 10.1 to the TBC
Corporation Quarterly Report on Form 10-Q for the quarter ended
March 31, 2004
    
    *10.5
    
    Form of Restricted Share Grants to Executive Officers under the TBC Corporation
1989 Stock Incentive Plan was filed as Exhibit 10.2 to the TBC Corporation
Quarterly Report on Form 10-Q for the quarter ended September 30, 2004
    
    *10.6
    
    Form of Incentive Stock Options Granted to Executive Officers under the TBC
Corporation 1989 Stock Incentive Plan was filed as Exhibit 10.3 to the TBC
Corporation Quarterly Report on Form 10-Q for the quarter ended September 30,
2004
    
    *10.7
    
    Form of Nonqualified Stock Options Granted to Executive Officers under the TBC
Corporation 1989 Stock Incentive Plan was filed as Exhibit 10.4 to the TBC
Corporation Quarterly Report on Form 10-Q for the quarter ended
September 30, 2004
    
    *
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10.8
    
    Form of Incentive Stock Options, Including Reload Feature, Granted to Executive
Officers under the TBC Corporation 2000 Stock Option Plan was filed as
Exhibit 10.5 to the TBC Corporation Quarterly Report on Form 10-Q for the
quarter ended September 30, 2004
    
    *10.9
    
    Form of Nonqualified Stock Options,
Including Reload Feature, Granted to Executive
Officers under the TBC Corporation 2000 Stock Option Plan was filed
as Exhibit 10.6
to the TBC Corporation Quarterly Report on Form 10-Q for the quarter ended
September 30, 2004
    
    *10.10
    
    Form of Stock Options, Including Reload Feature, Granted to Executive Officers
under the TBC Corporation 2000 Stock Option Plan was filed as Exhibit 10.7 to
the TBC Corporation Quarterly Report on Form 10-Q for the quarter ended
September 30, 2004
    
    *10.11
    
    Form of Stock Options Granted to Executive Officers under the TBC Corporation
2004 Incentive Plan was filed as Exhibit 10.2 to the TBC Corporation Current
Report on Form 8-K dated March 1, 2005
    
    *10.12
    
    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
    
    *10.13
    
    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
    
    *10.14
    
    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
    
    *10.15
    
    Employment Agreement, dated as of May 8, 2000, between TBC Corporation
and Orland Wolford, together with Assignment and Assumption, effective as of
June 5, 2000, between TBC Corporation and Tire Kingdom, Inc., was filed as
Exhibit 10.3 to the TBC Corporation Current Report on Form 8-K dated
March 1, 2005
    
    *10.16
    
    TBC Corporation Deferred Compensation Plan for Directors (Effective January 1,
1989 and Amended Effective July 1, 1992 and March 2, 2005) was filed as Exhibit
10.1 to the TBC Corporation Current Report on Form 8-K dated March 1, 2005
    
    *10.17
    
    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
    
    *10.18
    
    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
    
    *10.19
    
    TBC Corporation Executive Retirement Plan was filed as Exhibit 10.11
to the TBC Corporation Annual Report on Form 10-K for the year
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ended December 31, 2003
    
    
    *10.20
    
    TBC Corporation Executive Deferred Compensation Plan, effective August 1,
1999
    
    
    6910.21
    
    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
    
    
    *10.22
    
    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
    
    
    *10.23
    
    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 Contracts 10.24
    
    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
    
    *10.25
    
    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
    
    *10.26
    
    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
    
    *10.27
    
    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
    
    *10.28
    
    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
    
    *10.29
    
    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)
    
    *10.30
    
    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
    
    *10.31
    
    Extension Agreement, dated November 4, 2003, between the Company and The
Goodyear Tire & Rubber Company was filed as Exhibit 10.23 to the TBC
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Corporation Annual Report on Form 10-K for the year ended December 31, 2003
    
    
    *10.32
    
    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
    
    
    *10.33
    
    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
    
    
    *10.34
    
    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
    
    
    *10.35
    
    2004-2005 Dealer Agreement, effective as of April 1, 2004, between TBC
Corporation and Michelin Americas Small Tires, a division of Michelin
North America, Inc., was filed as Exhibit 10.1 to the TBC Corporation
Quarterly Report on Form 10-Q for the quarter ended September 30, 2004
    
    
    *(18)
    
    LETTER RE CHANGE IN ACCOUNTING PRINCIPLES:18.1
    
    Letter, dated July 22, 2004, from PricewaterhouseCoopers LLP was filed
as Exhibit 18.1 to the TBC Corporation Quarterly Report on Form 10-Q
for the quarter ended June 30, 2004
    
    
    *(21)
    
    SUBSIDIARIES OF THE COMPANY:21.1
    
    List of the names and jurisdictions of incorporation of the subsidiaries of
the Company
    
    
    73(23)
    
    CONSENTS OF EXPERTS AND COUNSEL:23.1
    
    Consent of PricewaterhouseCoopers LLP, Independent Registerd Public,
Accounting Firm incorporation by reference of their reports dated March 31, 2005
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)
    
    
    74(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
    
    
    75(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
    
    
    7631.2
    
    Rule 13a-14(a) Certification of Chief Financial Officer of TBC Corporation in
accordance with Section 302 of the Sarbanes-Oxley Act of 2002
    
    
    77(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
    
    
    78
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32.2
    
    Section 1350 Certification of Chief Financial Officer of TBC Corporation in
accordance with Section 906 of the Sarbanes-Oxley Act of 2002
    
    
    79
   *
    
    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. 67 of 79




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TBC CORPORATION EXHIBITS
 TO FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2004 68 of 79