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CONFORMED
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
DECEMBER 31, 1996 0-11579
TBC CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 31-0600670
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4770 Hickory Hill Road
Memphis, Tennessee 38141
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (901)363-8030
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
INDEX TO EXHIBITS at page 37 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, 1996 (for purposes of this calculation,
2,107,464 shares beneficially owned by
directors and executive officers of the
Company were treated as being held
by affiliates of the Company)................. $162,149,625
Number of shares of Common Stock, par value $.10,
outstanding at the close of business on
December 31, 1996 ............................ 23,727,414
DOCUMENT INCORPORATED BY REFERENCE
TBC Corporation's Proxy Statement for its Annual Meeting of Stockholders
to be held on April 23, 1997. 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-
PART I
Item 1. BUSINESS
TBC Corporation's business began in 1956 under the name Cordovan
Associates, Incorporated. The present company was incorporated in Delaware
in 1970 under the name THE Tire & Battery Corporation. In 1983, the Company
changed its name to TBC Corporation.
TBC Corporation and its wholly-owned subsidiaries are principally
engaged in the business of distributing tires and other products in the
automotive replacement market. On July 10, 1996, TBC Corporation acquired
Big O Tires, Inc. ("Big O"), which is now a wholly-owned subsidiary of TBC
Corporation. Big O is primarily engaged in the business of franchising
independent retail tire and automotive service stores and supplying such
retail stores with tires and related automotive products. On a limited
basis, Big O also owns and operates retail stores and engages in site
selection and real estate development for retail stores. Big O's retail
stores are located primarily in the Midwest and western United States.
Unless the context indicates otherwise, the term "Company" refers to TBC
Corporation and all of its subsidiaries.
Products
Sales of tires accounted for approximately 88% of the Company's
total sales in 1996 and 89% in 1995 and 1994. The Company's tire lines,
substantially all of which carry the Company's proprietary brand names,
are made by leading manufacturers. The Company's Cordovan ("R" -
Registered Trademark), Multi-Mile (R) and Sigma (R) brand lines of tires
are three of the most complete lines in the replacement tire market,
including tires for passenger, truck, farm, industrial, recreational and
other applications. Big O (R) brand tires, as well as other tires sold
through Big O's retail stores, are primarily for passenger and light truck
applications. The Company is one of the largest wholesale distributors of
replacement tires in the United States.
Other brands under which the Company's products are marketed
include Grand Prix (R), Grand Am ("TM" - Trademark), Grand Spirit (TM),
Wild Spirit (R), Grand Sport (R), Aqua-Flow (R), Wild Country (R), Epic (R),
Stampede (R), Talon (R), Power King (R), Harvest King (R), Big Foot (R),
Legacy (R), Procomp (R), Arapahoe (R), Aspen (R), Sun Valley (R), Big
Haul (R), and Big Sur (R).
Through 1996, the Company's products also included tubes,
automotive service equipment and automotive parts lines such as batteries,
wheels, ride-control products, filters, brake parts and chassis parts. In
December 1996, the Company announced its decision to refocus operations on
the replacement tire business and discontinue the marketing of automotive
parts lines to independent distributors. In connection with this
decision, the Company sold certain assets of its battery distribution
subsidiary in December 1996. The remainder of the marketing and
operational changes are expected to be completed by the end of the first
quarter of 1997. There will be no impact on the products marketed and
distributed by Big O, which include wheels, ride-control products and
certain other automotive products, in addition to its tire lines.
-3-
Marketing and Distribution
The Company distributes its products other than those sold
through its Big O subsidiary ("TBC products"), through a network of
distributors located across the United States, Canada and Mexico. Some of
these distributors act as wholesalers, some as retailers and some as both
wholesalers and retailers. The retail outlets handling TBC products
consist primarily of independent tire dealers. The loss of any major
distributor of TBC products could have a material adverse effect upon the
Company's business, pending the Company's establishment of a replacement
distributor.
Big O distributes its products principally through its
franchised independent retail tire and automotive service stores. At
December 31, 1996, Big O had a total of 395 stores in the United States,
including 385 franchisee-owned stores, two joint venture stores and eight
company-owned stores. Big O also distributes its products to 37
unaffiliated retail stores in British Columbia, Canada.
Big O franchise agreements essentially grant a ten-year license
to sell Big O (R) 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. Each franchisee is required to pay an initial franchise fee
as well as monthly royalty fees.
Major Customers
The Company's ten largest customers accounted for 46% of the
Company's gross sales in 1996. Sales to Carroll's, Inc., Hapeville,
Georgia, excluding sales to distributors which operate under arrangements
with and may pay compensation to Carroll's, represented 12% of the
Company's gross sales in 1996. No customer other than Carroll's
individually accounted for more than 10% of the Company's 1996 gross
sales. See Item 13 of this Report for additional information concerning
major customers.
Suppliers
The Company purchases its products, in finished form, from a
number of major rubber companies and other suppliers to the automotive
replacement market. The Company owns the brand names under which most of
its products are sold and, in the case of tires, many of the molds in
which they are made. The Company has not heretofore experienced any
difficulty in purchasing products in quantities needed by it, but there
can be no assurance that such difficulties will not be encountered in the
future.
The Kelly-Springfield Tire Company, a division of Goodyear Tire
and Rubber Company, has been a supplier to the Company since 1963. Kelly-
Springfield manufactured more than half of the tires purchased by the
Company in 1996, pursuant to a supply agreement entered into in 1977 and a
10-year commitment signed in 1994. The Company also has written contracts
with certain other suppliers.
-4-
Trademarks
Substantially all of the Company's products carry the Company's
own brand names, as previously set forth.
The ability to offer products 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. The Company holds federal registrations for substantially all
of its trademarks.
Seasonality and Inventory
The Company normally experiences its highest level of sales in
the second and third quarters of each year, with the first quarter
exhibiting the lowest level. Since 1992, first quarter sales have
represented, on the average, approximately 23% of annual sales; the second
and third quarters approximately 25% and 28%, respectively; and the fourth
quarter approximately 24%. The Company's inventories generally fluctuate
with anticipated seasonal sales volume.
Orders for the Company's products are usually placed with the
Company by computer transmission, facsimile or telephone. Orders are
filled either out of the Company's inventory or by direct shipment to the
customer from the manufacturers' plants at TBC's request.
Since distributors and franchisees look to the Company to
fulfill their needs on short notice, the Company maintains a large
inventory of products. The average of beginning and end-of-year
inventories was $60,300,000 in 1996. The Company's inventory turn rate
(cost of sales, including the cost of direct shipments from manufacturers
to customers, divided by average inventory) was 8.8 for 1996.
Competition
The industry in which the Company operates is highly competitive,
and many of the Company's competitors are significantly larger and have
greater financial and other resources than the Company. The Company's
competitors include its own suppliers and other tire manufacturers, as
well as other wholesale tire distributors. The Company also competes
against chain and department stores, warehouse clubs, oil companies and
other tire and automotive product retailers. The Company believes it is
able to compete successfully in its industry because of its ability to
offer quality products under proprietary brand names, its efficient
distribution systems, and its good relationships with distributors,
franchisees and suppliers.
Employees
As of December 31, 1996, the Company employed 530 persons. The
Company considers its employee relations to be satisfactory. The
Company's employees are not represented by a union.
-5-
Item 2. PROPERTIES
TBC Corporation's executive offices are located in Memphis,
Tennessee. Warehouse distribution facilities for TBC products, which
total approximately 1,300,000 square feet under roof, are also located in
Memphis. The Company owns the executive office building and one of its
warehouses. One TBC warehouse is leased under an agreement expiring in
2005 and two other TBC warehouses are leased under agreements expiring in
2000. The Company's Northern States Tire, Inc. subsidiary owns facilities
in New Hampshire, Vermont and Maine.
Big O leases its executive offices, which are located in
Englewood, Colorado. Big O owns its warehouse distribution facilities,
which total approximately 480,000 square feet and are located in Boise,
Idaho, New Albany, Indiana and Henderson, Nevada. Big O also owns certain
retail store locations.
Item 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings which are
routine to the conduct of its business. 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
cases it is covered by its manufacturers' indemnity agreements or their
product liability insurance. The Company also maintains its own product
liability insurance.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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
(April 23, 1997) or until their respective successors are elected.
Capacities in which
Individual Serves
Name Age the Company
Louis S. DiPasqua 62 President and Chief
Executive Officer
Kenneth P. Dick 50 Senior Vice President
Sales
Bob M. Hubbard 62 Senior Vice President
Purchasing and Engineering
Ronald E. McCollough 56 Senior Vice President
Operations and Treasurer
Barry D. Robbins 54 Senior Vice President
Strategic Planning
Larry D. Coley 39 Vice President and
Controller
-6-
Mr. DiPasqua has been Chief Executive Officer since July 1994,
and President since joining the Company in 1991. Mr. DiPasqua has been a
director since 1991 and served as the Company's Chief Operating Officer
from 1991 until July 1994. From 1989 until 1991, Mr. DiPasqua was Vice
President, Replacement Tire Sales and Marketing for the Goodyear Tire &
Rubber Company and prior to that was President and Chief Executive Officer
of Kelly Springfield Tire Company, a division of Goodyear. From 1984 to
1988, Mr. DiPasqua was Chairman and Managing Director of Goodyear Great
Britain.
Mr. Dick has served as Senior Vice President Sales of the Company
since 1988. From 1982 until his election as Senior Vice President, Mr.
Dick served as Vice President Sales of the Company. Mr. Dick joined the
Company in 1971, and from 1980 until 1982, served as Sales Manager of the
Company.
Mr. Hubbard was elected Senior Vice President Purchasing and
Engineering of the Company in 1982. From 1973 until his election as a
Senior Vice President, Mr. Hubbard was Vice President Purchasing and
Quality Assurance of the Company.
Mr. McCollough has been Senior Vice President Operations of the
Company since 1982 and Treasurer since May 1996. Mr. McCollough served as
Controller of the Company from 1973 to 1985 and as Vice President
Operations from 1978 until his election as a Senior Vice President.
Mr. Robbins joined the Company as Senior Vice President Strategic
Planning in June 1996. From 1995 until joining the Company, Mr. Robbins
was President and Chief Executive Officer of Tire Alliance Groupe. Prior
to 1995, Mr. Robbins had been continuously employed by Goodyear Tire &
Rubber Company and its subsidiaries in a number of management and other
positions since 1968.
Mr. Coley has been a Vice President of the Company since 1993 and
the Controller of the Company since 1989. Prior to that, Mr. Coley was
the Company's Manager of Financial Reporting.
-7-
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock of the Company is traded on The Nasdaq Stock
Market under the symbol TBCC. As of December 31, 1996, the Company had
approximately 6,200 stockholders based on the number of holders of record
and an estimate of the number of individual participants represented by
security position listings. The Company did not declare any cash
dividends during 1996 or 1995.
The following table sets forth for the periods indicated the
high and low sale prices for the Company's Common Stock on the Nasdaq
National Market System.
Price Range
High Low
Quarter ended
03/31/95............ 10.50 8.75
06/30/95............ 11.75 10.00
09/30/95............ 11.00 8.88
12/31/95............ 9.75 6.63
03/31/96............ 8.63 6.38
06/30/96............ 9.13 6.63
09/30/96............ 8.75 6.38
12/31/96............ 8.38 5.25
-8-
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, 1996.
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. The Company did not declare any cash
dividends during the five-year period ended December 31, 1996.
Year ended December 31,
1996 1995 1994 1993 1992
INCOME STATEMENT DATA (1):
Net sales .............. $604,585 $547,785 $563,661 $580,104 $581,161
Net income ............. 15,499 15,249 19,546 21,375 22,474
Earnings per share (2).. .65 .62 .71 .74 .76
Average shares
and equivalents
outstanding (2)..... 23,837 24,683 27,683 28,945 29,584
BALANCE SHEET DATA (1):
Total assets ........... $253,882 $179,952 $169,682 $166,746 $176,859
Working capital ........ 117,980 76,600 91,279 95,114 80,630
Long-term debt ......... 69,550 555 - - -
Stockholders' equity ... 119,805 104,823 113,983 116,550 102,960
(1) In thousands except per share amounts.
(2) 1992 amounts reflect 3-for-2 stock split effective December 11, 1992.
-9-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1996 Compared to 1995:
Net sales for 1996 were $604.6 million, a 10.4% increase from
1995 net sales of $547.8 million. The increase was due principally to the
addition of sales by Big O Tires, Inc., which was acquired July 10, 1996.
Sales of tires accounted for approximately 88% of total sales in 1996
compared to 89% in 1995. Excluding the contribution by Big O, sales of
tires declined 2.4%, due principally to industry-wide price discounting
throughout much of 1996 which caused average tire sales prices to be 3.7%
lower than in 1995. TBC's unit tire volume (excluding Big O) increased
1.3% in 1996 compared to the 1995 level.
Cost of sales as a percentage of net sales decreased from 89.2%
in 1995 to 87.4% in 1996, due to the positive effects of the Big O
acquisition, including the Company's improved overall sourcing strength.
In addition, a shift in the Company's sales toward shipments through the
Company's distribution facilities rather than direct from manufacturers
affected the year-to-year comparison. Gross margin percentages on
shipments through the Company's own facilities are typically higher than
on shipments direct from manufacturers.
Distribution expenses increased $5.5 million in 1996 compared to
1995, due primarily to Big O warehousing and product delivery expenses
totaling $3.9 million since the acquisition date. The 1996 increase was
also related in part to the above-noted increase in the percentage of
TBC's shipments through the Company's distribution facilities and to the
addition of certain facilities in the northeastern United States in
September 1995.
Selling and administrative expenses increased $10.2 million in
1996 compared to 1995, due principally to expenses for Big O of approx-
imately $7.1 million since the July 10, 1996 acquisition date. Increased
selling and administrative expenses were also attributable to the
facilities added in the northeastern United States in September 1995 and
to certain additional compensation-related expenses in 1996.
Interest expenses increased $1.0 million compared to the 1995
level, due principally to the additional long-term borrowings required to
finance the Big O acquisition. This was partially offset by reduced
short-term borrowing levels during 1996.
Net other income was higher in 1996 than in 1995, due primarily
to income from the settlement of a trademark infringement matter.
The Company's effective tax rate increased from 38.4% in 1995 to
39.0% in 1996. The increased effective rate reflects the impact of the
Big O acquisition, due to the additional goodwill amortization and greater
overall state tax burden.
-10-
Included in the 1996 results were a total of $2.4 million in
pre-tax charges related to the Company's decision to refocus operations on
the replacement tire business and discontinue the marketing of automotive
parts except those sold through its Big O Tires subsidiary (see Note 14 to
the consolidated financial statements). The discontinued product lines
comprised approximately 6.5% of net sales in 1996.
1995 Compared to 1994:
Net sales for 1995 decreased 2.8% from the 1994 level, due
principally to a 3.1% decline in tire sales. Sales of tires accounted for
approximately 89% of total sales in both 1995 and 1994. Unit tire
shipments decreased 6.5% from the year-earlier level, reflecting increased
competitive pressures and sluggishness in the replacement tire market
during 1995. Partially offsetting the lower unit volume was a 3.7%
increase in the average tire sales price, primarily related to the effect
of industry price increases since the beginning of 1994.
Cost of sales as a percentage of net sales increased from 88.7%
in 1994 to 89.2% in 1995. The fluctuation was due to the combined effects
of the above-noted competitive pressures and a shift in the Company's
sales toward shipments direct from manufacturers rather than through the
Company's distribution facilities.
Distribution expenses were relatively unchanged in 1995 compared
to the year-earlier level.
Selling and administrative expenses declined slightly in 1995
due to the recognition in 1994 of a charge of $2.5 million for
supplemental retirement benefits (see Note 9 to the consolidated financial
statements). Excluding that charge, selling and administrative expenses
increased principally due to the addition of facilities in the northeastern
United States in September 1995, higher pension costs and increased
selling expenses.
Interest expenses increased $1.7 million in 1995 compared to the
1994 level, due to the combined effects of higher average bank borrowings
and increased borrowing rates. The increase in average bank borrowings in
1995 was largely related to repurchases of common stock and higher inventory
levels during the year.
Net other income was lower in 1995 than in 1994, due in part to
reduced interest income and to the effect of joint venture investments
during 1995.
-11-
LIQUIDITY AND CAPITAL RESOURCES
On July 10, 1996, the Company completed the acquisition of Big O
Tires, Inc. (see Note 3 to the consolidated financial statements). As a
result, additional long-term debt of $60 million was incurred and there
were significant changes in a number of other balance sheet items between
December 31, 1995 and the end of 1996. However, the Company's financial
position and liquidity remain strong, with working capital of $118.0
million at December 31, 1996 compared to $76.6 million at the end of 1995.
The Company's current ratio was 3.18 at the end of 1996 compared to 2.04
at December 31, 1995.
In September, 1996, the Company replaced its previous short-term
borrowing agreements with a one-year committed bank facility and a three-
year committed bank facility, which allow the Company to borrow up to
$78.5 million. The unused amount under these facilities at December 31,
1996 was $56.8 million.
Capital expenditures, primarily for tire molds, totaled $5.3
million in 1996. In 1995, capital expenditures totaled $9.2 million,
which included the purchase of certain distribution facilities and
equipment in the northeastern United States and expenditures of $4.2
million for tire molds. The Company expects to fund 1997 day-to-day
operating expenses and normally recurring capital expenditures out of
operating funds and its present financial resources. The Company had no
material commitments for capital expenditures at the end of 1996.
Cash generated by operations, together with the available credit
arrangements, enabled the Company to fund stock repurchases totaling
$634,000 in 1996 and $24.6 million in 1995, as well as the above-mentioned
capital expenditures. The latest repurchase plans, approved by the Board
of Directors in 1995, authorized the repurchase of a total of 2,500,000
shares of common stock in market and other transactions, of which
approximately 1,365,000 shares had been repurchased as of the end of 1996.
Accounts and notes receivable decreased from $95.5 million at
December 31, 1995 to $85.8 million at the end of 1996. This decline was
principally due to improved receivable turnover, which more than offset
the additional receivables associated with the Big O acquisition.
Included in other assets at December 31, 1996 and 1995 is a
promissory note receivable of $4,897,000 from a former distributor. (See
Note 6 to the Consolidated Financial Statements for a discussion of the
legal proceedings relative to that receivable.)
The Company is currently addressing any "Year 2000" data
processing issues. The Company does not believe that the costs of
addressing these issues will be significant.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial informa-
tion required by this Item 8 are included on the following 17 pages of
this Report.
-12-
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
TBC Corporation
We have audited the accompanying consolidated balance sheets of
TBC Corporation and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996.
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 in accordance with generally accepted
auditing standards. 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. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of TBC Corporation and Subsidiaries as of December 31, 1996 and
1995, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Memphis, Tennessee
January 30, 1997
-13-
TBC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
December 31,
1996 1995
CURRENT ASSETS
Accounts and notes receivable, less
allowance for doubtful accounts
of $8,879 in 1996 and $8,014 in 1995:
Related parties $ 18,362 $ 17,208
Other 67,444 78,330
Total accounts and notes receivable 85,806 95,538
Inventories 71,102 49,538
Refundable federal and state income taxes - 472
Deferred income taxes 6,716 2,389
Other current assets 8,409 2,252
Total current assets 172,033 150,189
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land and improvements 5,285 2,572
Buildings 21,051 10,985
Equipment 21,496 20,324
Furniture and fixtures 4,433 2,381
Leasehold improvements 640 600
52,905 36,862
Less accumulated depreciation 17,818 17,714
Total property, plant and equipment 35,087 19,148
TRADEMARKS, NET 17,787 -
GOODWILL, NET 14,900 -
OTHER ASSETS 14,075 10,615
TOTAL ASSETS $253,882 $179,952
The accompanying notes are an integral part of the financial statements.
-14-
TBC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
1996 1995
CURRENT LIABILITIES
Outstanding checks, net $ 559 $ 8,120
Notes payable to banks 21,092 50,838
Current portion of long-term debt 1,537 81
Accounts payable, trade 16,761 10,117
Federal and state income taxes payable 106 -
Other current liabilities 13,998 4,433
Total current liabilities 54,053 73,589
LONG-TERM DEBT, LESS CURRENT PORTION 69,550 555
NONCURRENT LIABILITIES 2,753 985
DEFERRED INCOME TAXES 7,721 -
STOCKHOLDERS' EQUITY
Common stock, $.10 par value,
shares issued and outstanding -
23,727 in 1996 and 23,784 in 1995 2,373 2,378
Additional paid-in capital 9,624 9,543
Retained earnings 107,808 92,902
Total stockholders' equity 119,805 104,823
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $253,882 $179,952
The accompanying notes are an integral part of the financial statements.
-15-
TBC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Years ended December 31,
1996 1995 1994
NET SALES* $604,585 $547,785 $563,661
COSTS AND EXPENSES
Cost of sales 528,610 488,717 500,085
Distribution 24,933 19,461 19,516
Selling and administrative 24,294 14,073 14,158
Interest expense 4,115 3,110 1,384
Other (income) expense - net (2,766) (2,348) (2,913)
Total costs and expenses 579,186 523,013 532,230
INCOME BEFORE INCOME TAXES 25,399 24,772 31,431
PROVISION FOR INCOME TAXES 9,900 9,523 11,885
NET INCOME $ 15,499 $ 15,249 $ 19,546
Earnings per share $ .65 $ .62 $ .71
Weighted average number of shares
and equivalents outstanding 23,837 24,683 27,683
* Including sales to related parties of $137,219, $130,215 and $135,786 in
the years ended December 31, 1996, 1995 and 1994, respectively.
The accompanying notes are an integral part of the financial statements.
-16-
TBC CORPORATION
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
(In thousands)
Years ended December 31, 1994, 1995 and 1996
Common Stock Additional
Number of Paid-In Retained
Shares Amount Capital Earnings Total
BALANCE, JANUARY 1, 1994 28,377 2,838 11,056 102,656 116,550
Net income for year 19,546 19,546
Issuance of common stock
under stock option and
incentive plans 20 2 131 - 133
Repurchase and retirement
of common stock (2,115) (212) (837) (21,238) (22,287)
Tax benefit from exercise of
stock options - - 41 - 41
BALANCE, DECEMBER 31, 1994 26,282 2,628 10,391 100,964 113,983
Net income for year 15,249 15,249
Issuance of common stock
under stock option and
incentive plans, net 19 2 132 - 134
Repurchase and retirement
of common stock (2,517) (252) (1,002) (23,311) (24,565)
Tax benefit from exercise of
stock options - - 22 - 22
BALANCE, DECEMBER 31, 1995 23,784 2,378 9,543 92,902 104,823
Net income for year 15,499 15,499
Issuance of common stock
under stock option and
incentive plans, net 24 3 114 - 117
Repurchase and retirement
of common stock (81) (8) (33) (593) (634)
BALANCE, DECEMBER 31, 1996 23,727 $2,373 $ 9,624 $107,808 $119,805
The accompanying notes are an integral part of the financial statements.
-17-
TBC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years ended December 31,
1996 1995 1994
Operating Activities:
Net income $ 15,499 $ 15,249 $ 19,546
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 5,750 4,612 4,012
Amortization 530 23 86
Write-off of intangible assets 276 - -
Deferred income taxes (845) (461) 238
Equity in (earnings) loss from
joint ventures (265) - -
Changes in operating assets
and liabilities:
Receivables 19,383 6,179 (6,270)
Inventories (2,815) (9,784) 3,559
Other current assets (1,986) 230 (601)
Other assets (40) (280) (375)
Outstanding checks, net (8,480) 3,863 3,276
Accounts payable, trade 589 (10,646) 2,281
Federal and state income taxes
refundable or payable 1,240 (67) (426)
Other current liabilities 1,366 187 (312)
Noncurrent liabilities 203 332 653
Net cash provided by
operating activities 30,405 9,437 25,667
Investing Activities:
Purchase of property, plant and equipment (5,260) (9,151) (3,580)
Acquisition of Big O Tires, Inc. (55,433) - -
Investments in joint ventures - (1,562) -
Net proceeds from asset disposition 2,099 - -
Other 777 13 378
Net cash used in investing activities (57,817) (10,700) (3,202)
Financing Activities:
Net bank borrowings (repayments) under
short-term borrowing arrangements (29,746) 25,058 (311)
Increase in long-term debt 60,000 697 -
Payments on long-term debt (2,325) (61) -
Issuance of common stock under stock option
and incentive plans, net of repurchase 117 134 133
Repurchase and retirement of common stock (634) (24,565) (22,287)
Net cash provided by (used in)
financing activities 27,412 1,263 (22,465)
Change in cash and cash equivalents - - -
Cash and cash equivalents:
Balance - Beginning of year - - -
Balance - End of year $ - $ - $ -
-18-
TBC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
Years ended December 31,
1996 1995 1994
Supplemental Disclosures of Cash
Flow Information:
Cash paid for - Interest $ 3,510 $ 2,956 $ 1,324
- Income Taxes 9,506 10,051 12,073
Supplemental Disclosure of Non-Cash
Financing Activity:
Tax benefit from exercise of
stock options $ - $ 22 $ 41
Supplemental Disclosure of Non-Cash Investing
and Financing Activities:
On July 10, 1996, the Company
completed the acquisition of Big O Tires,
Inc. for a total purchase price of
approximately $54,646, plus applicable
closing costs. The acquisition was
accounted for under the purchase method, as
follows:
Estimated fair value of assets acquired $ 60,263
Trademarks and Goodwill 33,072
Cash Paid (55,433)
Liabilities assumed $ 37,902
During 1996, the Company disposed of
certain assets of its battery distribution
subsidiary, as follows:
Assets sold $ (2,882)
Cash received 2,099
Liabilities assumed by purchaser $ (783)
The accompanying notes are an integral part of the financial statements.
-19-
TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Operations
The Company is principally engaged in the business of distributing
tires and other products in the automotive replacement market, through
wholesale and retail customers in the United States, Canada and Mexico.
Through its Big O Tires, Inc. subsidiary, which was acquired on July 10,
1996, the Company also acts as a franchisor of independent retail tire and
automotive service stores located primarily in the Midwest and western
United States. On a limited basis, Big O engages in site selection and
real estate development for franchised stores and owns and operates a
limited number of retail stores.
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. Investments in 50% or less-owned joint ventures over
which the Company has the ability to exercise significant influence are
accounted for using the equity method.
Reclassifications - Certain reclassifications have been made in
the statements of income for prior years, to conform to the 1996
presentation, with no effect on previously reported net income.
Accounting estimates - The preparation of financial statements in
conformity with generally accepted accounting principles 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.
Cash equivalents - Cash equivalents consist of short-term, highly
liquid investments which are readily convertible into cash.
Inventories - Inventories, consisting of automotive products held
for resale, are valued at the lower of cost (principally last in-first
out) or market. Current costs of inventories exceeded the LIFO value by
$4,759,000 and $6,863,000 at December 31, 1996 and 1995, respectively.
Concentrations of credit risk - The Company performs ongoing
credit evaluations of its 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 3-40 years. Amounts
expended for maintenance and repairs are charged to operations, and
expenditures for major renewals and betterments are capitalized. When
property, plant and equipment is retired or otherwise disposed of, the
related gain or loss is included in operations.
-20-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Goodwill, Trademarks and Other Intangible Assets - Goodwill
represents the excess of cost over the fair value of identifiable net
assets acquired. Goodwill, trademarks and other intangible assets are
amortized on a straight-line basis, principally over 40 years.
Accumulated amortization on intangible assets at December 31, 1996 totaled
$414,000. The Company periodically reviews the recoverability of these
assets. Any impairment would be recognized in operating results if a
permanent reduction in value were to occur, as required under Statement of
Financial Accounting Standards No. 121. This statement, adopted in 1996,
had no significant effect on the Company's financial statements.
Revenue recognition - Sales are recognized upon shipment of
products. Estimated costs of returns and allowances are accrued at the
time products are shipped.
Franchise fees - Each Big O franchisee is required to pay an
initial franchise fee as well as monthly royalty fees of 2% of gross
sales. Included in net sales in 1996 were franchise and royalty fees
totaling $3,742,000.
Standard warranty - The costs of anticipated adjustments for
workmanship and materials that are the responsibility of the Company are
estimated and charged to expense currently. A warranty reserve of
$6,675,000 was included in other current liabilities in the balance sheet
at December 31, 1996.
Interest on early payments to suppliers for product - Interest
income associated with early payments to suppliers for product is recorded
as a reduction of product cost. The portion of this interest which was
included in the statements of income as a reduction to cost of sales
represented 1.52% of net sales in 1996, 1.56% in 1995 and 1.41% in 1994.
Earnings per share - Earnings per share have been computed by
dividing net income by the weighted average number of shares of common
stock and equivalents outstanding. Common stock equivalents included in
the computation represent shares issuable upon assumed exercise of stock
options, which would have a dilutive effect in the respective years.
Fully diluted earnings per share did not significantly differ from
primary earnings per share in the years presented.
2. RELATED PARTY TRANSACTIONS
The Company's operations are managed through its Board of
Directors, members of which owned or are affiliated with companies which
owned approximately 9% of the Company's common stock at December 31, 1996.
Sales to distributors represented on the Board, including affiliates of
such distributors, accounted for approximately 23% of the Company's net
sales during 1996 and 24% during 1995 and 1994. One distributor accounted
for approximately 12% of net sales in 1996 and 15% in 1995 and 1994.
Sales to joint ventures in which the Company has an ownership interest
accounted for approximately 3% of the Company's net sales in 1996 and 1%
in 1995. Accounts receivable resulting from transactions with related
parties are presented separately in the balance sheets.
-21-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. ACQUISITION OF BIG O TIRES, INC.
On July 10, 1996, the Company completed the acquisition of Big O
Tires, Inc. Under the terms of the merger agreement, Big O stockholders
received $16.47 in cash for each of the 3,317,916 outstanding shares of
common stock, a total purchase price of $54,646,000. The acquisition was
accounted for as a purchase. These consolidated financial statements
include the operating results of Big O from the date of acquisition.
The following unaudited pro forma information (adjusted for
interest on required borrowings, estimated amortization of intangible
assets, improved sourcing strength, etc.) has been prepared as if the
companies had been combined as of January 1, 1995. The pro forma
information does not purport to present what actual results of operations
would have been if the acquisition of Big O had occurred on such date or
to project results for any future period. Net sales reflect certain
reclassifications made to present the results of the combined companies on
a consistent basis.
(In millions, except per share data)
Years Ended December 31,
1996 1995
(Unaudited)
Net sales $ 673.7 $ 684.4
Net income 18.0 18.3
Earnings per share .76 .74
4. CREDIT FACILITIES
In September, 1996, the Company replaced its previous short-term
borrowing agreements with a one-year committed bank facility and a three-
year committed bank facility. The credit facilities allow the Company to
borrow up to $78,500,000, with interest on the one-year facility at the
federal funds rate plus 1.15% and interest on the three-year facility
based on LIBOR plus a variable rate between 0.45% and 0.875%. The credit
facilities also require the payment of certain commitment and administrative
fees. The unused amount under these facilities at December 31, 1996 was
$56.8 million. The weighted average interest rate on short-term
borrowings at December 31, 1996 and 1995 was 6.61% and 6.80%, respectively.
The credit facilities contain certain financial covenants dealing
with the Company's tangible net worth, funded indebtedness and fixed
charge coverage ratio. The credit facilities also include certain
restrictions which affect the Company's ability to incur additional debt,
sell or place liens upon assets, provide guarantees and make loans,
advances, investments and certain expenditures.
-22-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
December 31,
1996 1995
7.55% Series A Senior Note, due
from 1999 through 2003 $32,500 $ -
7.87% Series B Senior Note, due
from 2004 through 2005 11,000 -
8.06% Series C Senior Note, due
from 2006 through 2008 16,500 -
8.71% Senior loan, collateralized
by certain real estate, due from
1998 through 2004 8,000 -
Prime rate uncollateralized credit
loan from supplier, due in 1997 1,415 -
Prime rate bank mortgage loan,
collateralized by deed of trust,
due through 2001 1,267 -
Other debt 405 636
71,087 636
Less current portion 1,537 81
$69,550 $ 555
The Senior Notes, issued in order to finance the acquisition of
Big O Tires, Inc., are unsecured with interest payable quarterly. The
note agreement related to such borrowings contains certain financial
covenants dealing with the Company's working capital ratio, interest
expense coverage and tangible net worth. In addition, the note agreement
places certain restrictions on the Company, including its ability to incur
additional debt, transfer or place liens upon assets, provide guarantees
and make loans, advances, investments and certain expenditures.
Interest only is due on the 8.71% Senior loan through July 1998,
after which principal and interest are due in quarterly installments. The
supplier credit loan allows for interest rate reductions of up to 2.5% if
certain purchase requirements are met.
Maturities of long-term debt for the next five years are as
follows: $1,537,000 due in 1997, $791,000 in 1998, $7,959,000 in 1999,
$7,947,000 in 2000 and $7,933,000 in 2001.
-23-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. OTHER ASSETS
Other assets consist of the following (in thousands):
December 31,
1996 1995
Notes receivable $ 9,274 $ 7,961
Investments in joint ventures 2,433 1,562
Other intangible assets, net 831 1,058
Other 1,537 34
$14,075 $10,615
The notes receivable totals include a note for $4,897,000 from a
former distributor. The maker of the note was discharged in a proceeding
under Chapter 11 of the Bankruptcy Code in 1991. The Company received
distributions totaling $308,000 from the bankruptcy proceeding. The
Company holds written guarantees of the distributor's account, absolute
and continuing in form, signed by the principal former owners and officers
of the distributor and their wives, upon which the Company filed suit in
1989. The defendants have pleaded various defenses based on, among other
things, an alleged oral cancellation of the guarantees. The defendants
have also filed a third party complaint against the Company's former chief
executive officer in which they claim the right to recover against him for
any liability they may have to the Company. The Company believes, on the
basis of applicable Tennessee law, that those defenses are invalid and
that there is no merit to the third-party complaint. In October 1994, the
Court granted the Company's motion to exclude evidence of any oral
cancellation of the guarantees. The Court's order has been appealed and
no date for trial has been scheduled. The Company knows of no reason to
believe that the defendants will be unable to pay any judgment that may be
entered against them in the action.
7. LEASES
Rental expense of $2,545,000, $2,069,000 and $2,160,000 was
charged to operations in 1996, 1995 and 1994, respectively, after
deducting sublease income applicable to 1996 of $996,000. Minimum
noncancelable real property lease commitments at December 31, 1996 were as
follows (in thousands):
Year Amount
1997 $ 5,131
1998 3,777
1999 3,199
2000 2,996
2001 2,623
Thereafter 7,912
25,638
Less sublease income 11,611
$14,027
The commitments relate substantially to distribution facilities.
In addition to the above rental payments, the Company is obligated in some
instances to pay real estate taxes, insurance and certain maintenance.
-24-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. 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, 1996, 1995 and 1994 were as follows (in thousands):
1996 1995 1994
Current:
Federal $ 9,375 $ 8,868 $10,349
State 1,370 1,116 1,298
10,745 9,984 11,647
Deferred (845) (461) 238
$ 9,900 $ 9,523 $11,885
The provision for deferred income taxes represents the change in
the Corporation's deferred income tax asset during the year, including the
effect of enacted 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.
Included in the Big O assets acquired was a deferred income tax asset of
$3,365,000, while liabilities assumed in the Big O acquisition included
deferred income taxes of $7,604,000.
The net deferred income tax assets in the financial statements at
December 31, 1996 and 1995 included approximately $3,156,000 and
$2,762,000, respectively, related to the allowance for doubtful accounts
and notes and $2,596,000 and $351,000, respectively, related to accrued
warranty reserves. The net deferred income tax liability in the financial
statements at December 31, 1996 included $7,093,000 related to trademarks.
The difference between the Company's effective income tax rate and
the statutory U. S. Federal income tax rate is reconciled as follows:
1996 1995 1994
Statutory U.S. Federal rate 35.0% 35.0% 35.0%
State income taxes 3.5 2.9 2.7
Other .5 .5 .1
Effective tax rate 39.0% 38.4% 37.8%
9. RETIREMENT PLANS
The Company has a defined benefit pension plan covering the
majority of its employees. The benefits are based on years of service and
the employee's final compensation. The Company's present funding policy
is to contribute annually the maximum amount that can be deducted for
federal income tax purposes. This amount is computed using a different
actuarial cost method and different assumptions from those used for
financial reporting purposes.
-25-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. RETIREMENT PLANS (Continued)
The following table sets forth the defined benefit pension plan's
funded status and amounts recognized in the Company's balance sheets (in
thousands):
December 31,
1996 1995
Actuarial present value of accumulated
benefit obligations, including
vested benefits of $3,991 in 1996
and $2,850 in 1995 $(4,273) $(3,325)
Actuarial present value of projected
benefit obligations for service
rendered to date $(6,589) $(5,053)
Plan assets at fair value, primarily
listed stocks and U.S. bonds 6,590 5,695
Plan assets over projected
benefit obligation 1 642
Unrecognized net loss from experience
different from that assumed 2,147 1,357
Unrecognized net assets at January 1,
1996 and 1995 being recognized
over 15.53 years (75) (91)
Unrecognized prior service cost 123 133
Prepaid pension cost $ 2,196 $ 2,041
The net expense for the defined benefit pension plan for 1996,
1995 and 1994 included the following (in thousands):
1996 1995 1994
Service cost $ 392 $ 274 $ 319
Interest cost 419 349 375
Return on plan assets (639) (757) (2)
Net amortization and deferral 131 616 (633)
$ 303 $ 482 $ 59
The weighted average discount rate and rate of increase in future
compensation levels used in determining the 1996 and 1995 actuarial
present values of projected benefit obligations were 7.25% and 5%,
respectively. The expected long-term rate of return on assets was 10%.
The Company also has an unfunded supplemental retirement plan for
certain of its executive officers, to provide benefits in excess of
amounts permitted to be paid by its defined benefit pension plan under
current tax law. In addition, supplemental retirement provisions are
included in the employment agreement of
-26-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. RETIREMENT PLANS (Continued)
the Company's President and Chief Executive Officer and were included in
the former Chief Executive Officer's employment agreement. During 1994,
the Company determined that expenses should be recorded under these
arrangements, and that the accumulated benefit obligation, which was
previously unaccrued, should be reflected as a liability in the
consolidated balance sheets until paid. As a result, expenses for 1994
included supplemental retirement charges of $2,548,000. Expenses in 1996
and 1995 included supplemental retirement charges of $313,000 and
$199,000, respectively. At December 31, 1996, the projected benefit
obligation, computed using the same discount rate and compensation
assumptions as for the defined benefit pension plan, was $1,963,000. The
accumulated benefit obligation, which was reflected as a noncurrent
liability at December 31, 1996, totaled $1,537,000.
The Company maintains employee savings plans under Section 401(k)
of the Internal Revenue Code, covering substantially all of its employees.
401(k) plan contributions made by the Company are based on a specified
percentage of employee contributions. Expenses recorded for the Company's
contributions totaled $194,000 in 1996, $62,000 in 1995 and $39,000 in
1994.
10. 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, 1996 or 1995.
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 either a
person or group has acquired 20% or more of the Company's common stock or
the commencement of a tender offer which would result in the offeror's
ownership of 30% or more of TBC's common stock. Under defined
circumstances, the rights allow TBC stockholders to purchase stock in
either the Company or an acquiring company at a price less than the market
price. The rights expire on July 31, 1998 unless redeemed at an earlier
date.
In 1996 and 1995, shares of the Company's common stock were
repurchased and retired under plans approved by the Board of Directors.
The latest plans, approved in 1995, authorized the repurchase of 2,500,000
shares in market and other transactions. As of December 31, 1996,
approximately 1,365,000 shares had been repurchased under these plans.
11. STOCK OPTIONS AND INCENTIVE PLAN
The Company's 1989 stock incentive plan ("1989 Plan") provides 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 may also grant
-27-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. STOCK OPTIONS AND INCENTIVE PLAN (Continued)
stock appreciation rights, either singly or in tandem with stock options,
which entitle the holder to benefit from market appreciation in the
Company's common stock without requiring any payment on the part of the
holder.
The 1989 Plan also authorizes the committee 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 $5,000 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, 1996,
2,295,000 shares were available for future option and restricted stock
grants under the 1989 Plan.
A summary of stock option activity during 1994, 1995 and 1996 is
shown below:
Weighted
Average
Option Option Price Exercise
Shares Range Price
Outstanding at January 1, 1994
(267,759 exercisable) 457,243 $ 1.48 - $12.13 $ 6.71
Granted in 1994 - - -
Exercised in 1994 15,874 5.03 - 6.55 5.59
Forfeited in 1994 2,829 6.55 - 12.13 10.07
Outstanding at December 31, 1994
(330,360 exercisable) 438,540 $ 1.48 - $12.13 $ 6.73
Granted in 1995 119,325 9.69 9.69
Exercised in 1995 37,918 1.48 - 8.00 3.10
Forfeited in 1995 6,604 9.69 - 12.13 11.22
Outstanding at December 31, 1995
(332,099 exercisable) 513,343 $ 1.48 - $12.13 $ 7.62
Granted in 1996 72,731 6.38 - 8.88 8.47
Exercised in 1996 58,038 1.48 - 6.55 2.35
Forfeited in 1996 14,396 9.69 - 12.13 10.17
Outstanding at December 31, 1996
(331,784 exercisable) 513,640 $ 5.03 - $12.13 $ 8.27
Additional information regarding stock options outstanding at
December 31, 1996 is shown below:
Outstanding Options Exercisable Options
Weighted Weighted Weighted
Average Average Average
Option Exercise Remaining Option Exercise
Option Price Range Shares Price Term Shares Price
$5.03 - $7.50 239,275 $ 5.97 4.0 yrs. 236,154 $ 5.96
$7.51 - $10.00 174,923 9.24 8.9 yrs. 24,317 9.69
$10.01 - $12.13 99,442 12.09 6.6 yrs. 71,313 12.08
513,640 331,784
-28-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. STOCK OPTIONS AND INCENTIVE PLAN (Continued)
The option shares listed for the three-year period ended December
31, 1996 include any with stock appreciation rights (SAR's). No SAR's
were granted during this three-year period. 63,280 SAR's were outstanding
at January 1, 1994, each with an exercise price of $1.71 per share.
25,000 SAR's were exercised in 1995 and 38,280 were exercised in 1996. No
stock appreciation rights were outstanding as of December 31, 1996.
Amounts included in the statements of income relating to stock
appreciation rights included credits of $30,000 in 1996 and $198,000 in
1994 and a charge of $23,000 in 1995.
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation". Accordingly, no compensation has been
recognized for the stock options granted in 1995 or 1996. Using fair
value assumptions specified in SFAS No. 123, the weighted average per
share value of options granted during 1996 and 1995 was $3.29 and $3.66,
respectively. Had compensation cost for such option grants been
determined using such assumptions, the Company's net income on a pro forma
basis would have been $15,405,000 in 1996 and $15,238,000 in 1995,
compared to reported net income of $15,499,000 in 1996 and $15,249,000 in
1995. Earnings per share on a pro forma basis would have been the same as
the reported amounts in both 1996 and 1995.
The fair value of each option granted in 1995 and 1996 was
estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions used: dividend yield
of 0%; expected volatility of 30%; expected lives of 5 years and risk-free
interest rates equal to zero-coupon governmental issues.
12. FINANCIAL GUARANTEES AND CREDIT RISK
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, 1996. 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 $10,864,000 as of December 31,
1996, including $5,145,000 related to franchisee financing and $5,719,000
related to real estate leases. In addition, Big O is the guarantor of the
mortgage loan on a formerly-owned building. At December 31, 1996, the
exposure to credit loss on such mortgage loan totaled $2,688,000.
Most of the above franchisee financing and lease guarantees extend
for more than five years and expire in decreasing amounts through 2016.
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
-29-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
12. FINANCIAL GUARANTEES AND CREDIT RISK (Continued)
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.
13. 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 pending litigation will have a material adverse effect on its
consolidated financial position, results of operations or cash flows.
14. ANNOUNCED REFOCUS OF OPERATIONS ON REPLACEMENT TIRE BUSINESS
In December 1996, the Company announced its decision to refocus
operations on the replacement tire business and discontinue the marketing
of certain non-tire products such as batteries, wheels, ride-control
products and filters to independent distributors. The announced changes
included the sale of certain assets of the Company's battery distribution
subsidiary, which was completed in December 1996. The remainder of the
marketing and operational changes are expected to be completed by the end
of the first quarter of 1997. There will be no impact on the products
marketed through the Company's Big O Tires subsidiary.
A total of $2.4 million in pre-tax charges was recorded in the
fourth quarter of 1996 related to these decisions. Included were charges
of $1.2 million to cost of goods sold associated with inventory write-
downs, $700,000 in selling and administrative expenses and $460,000 in
other expenses.
SUPPLEMENTARY DATA:
QUARTERLY FINANCIAL INFORMATION
Unaudited quarterly results for 1996 and 1995 are summarized as
follows:
(In thousands, except per share amounts)
First Second Third Fourth
Quarter Quarter Quarter Quarter
1996
Net sales $124,005 $137,561 $177,338 $165,681
Cost of sales 110,065 123,854 153,875 140,816
Net income 3,389 3,227 4,730 4,153
Earnings per share $ .14 $ .14 $ .20 $ .17
1995
Net sales $133,050 $135,087 $150,410 $129,238
Cost of sales 118,432 120,270 135,253 114,762
Net income 4,276 4,035 3,870 3,068
Earnings per share $ .17 $ .16 $ .16 $ .13
-30-
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except for information concerning executive officers of the
Company which is set forth in Part I of this Report, the information
required by this Item 10 is set forth in the Company's Proxy Statement for
its Annual Meeting of Stockholders to be held April 23, 1997, and is
incorporated herein by this reference.
Item 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is set forth in the
Company's Proxy Statement for its Annual Meeting of Stockholders to be
held April 23, 1997, 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
The information required by this Item 12 is set forth in the
Company's Proxy Statement for its Annual Meeting of Stockholders to be
held April 23, 1997, and is incorporated herein by this reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is set forth in the
Company's Proxy Statement for its Annual Meeting of Stockholders to be
held April 23, 1997, and is incorporated herein by this reference.
-31-
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(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 Certified Public Accountants
Consolidated Balance Sheets - December 31, 1996, and
1995
Consolidated Statements of Income - Years ended
December 31, 1996, 1995, and 1994
Consolidated Statements of Stockholders' Equity -
Years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows - Years ended
December 31, 1996, 1995, and 1994
Notes to Consolidated Financial Statements
(a) (2) FINANCIAL STATEMENT SCHEDULES
Report of Independent Certified Public Accountants (at
p. 35 of this Report)
Schedule VIII - Valuation and qualifying accounts
(at p. 36 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 consoli-dated financial
statements or notes thereto.
(a) (3) EXHIBITS
See INDEX to EXHIBITS included at p. 37 of this Report
(b) REPORTS ON FORM 8-K
The Company did not file any Reports on Form 8-K during the
quarter ended December 31, 1996.
-32-
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 in the City of Memphis, Tennessee, on this 14th day of February,
1997.
TBC CORPORATION
By: /s/ LOUIS S. DiPASQUA
Louis S. DiPasqua
President and Chief
Executive Officer
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/ LOUIS S. DiPASQUA President, Chief February 14, 1997
Louis S. DiPasqua Executive Officer
and Director
/s/ RONALD E. McCOLLOUGH Senior Vice President February 14, 1997
Ronald E. McCollough Operations and
Treasurer (principal
accounting and
financial officer)
* MARVIN E. BRUCE Chairman of the Board February 14, 1997
Marvin E. Bruce of Directors
* ROBERT E. CARROLL, JR. Director February 14, 1997
Robert E. Carroll, Jr.
* ROBERT H. DUNLAP Director February 14, 1997
Robert H. Dunlap
-33-
* STANLEY A. FREEDMAN Director February 14, 1997
Stanley A. Freedman
* DWAIN W. HIGGINBOTHAM Director February 14, 1997
Dwain W. Higginbotham
* CHARLES A. LEDSINGER, JR. Director February 14, 1997
Charles A. Ledsinger, Jr.
* RICHARD A. McSTAY Director February 14, 1997
Richard A. McStay
* ROBERT M. O'HARA Director February 14, 1997
Robert M. O'Hara
* ROBERT R. SCHOEBERL Director February 14, 1997
Robert R. Schoeberl
* The undersigned by signing his name hereto does sign and execute
this Report on Form 10-K on behalf of each of the above-named directors of
TBC Corporation pursuant to a power of attorney executed by each such
director and filed with the Securities and Exchange Commission as an
exhibit to this Report.
/s/ LOUIS S. DiPASQUA
Louis S. DiPasqua
Attorney-in-Fact
-34-
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
TBC Corporation
Our report on the consolidated financial statements of TBC
Corporation and Subsidiaries is included on page 13 of this Form 10-K. In
connection with our audits of such financial statements, we have also
audited the related financial statement schedule listed in the index at
Item 14(a) (2) of this Form 10-K.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Memphis, Tennessee
January 30, 1997
-35-
TBC CORPORATION
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(In thousands)
Additions
Charged Charged
to Costs to
Balance and Other Balance
January 1, Expenses Accounts Deductions December 31,
1996
Warranty
reserve...... $ 1,002 4,159 5,613 (1) 4,099 (2) $6,675
Allowance for
doubtful
accounts..... 8,014 1,640 1,954 (1) 2,729 (3) 8,879
1995
Warranty
reserve...... 975 1,591 - 1,564 (2) 1,002
Allowance for
doubtful
accounts..... 7,069 1,546 123 724 (3) 8,014
1994
Warranty
reserve...... 861 1,643 - 1,529 (2) 975
Allowance for
doubtful
accounts..... 7,828 1,320 - 2,079 (3) 7,069
(1) Includes amounts for Big O Tires, Inc. as of the July 10, 1996
acquisition date.
(2) Amounts added during current year and payable at year end less
amount payable at beginning of year.
(3) Accounts written off during year.
-36-
INDEX TO EXHIBITS
Located at
Manually
Numbered Page
(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT,
LIQUIDATION OR SUCCESSION:
2.1 Agreement and Plan of Merger, dated as of April 30,
1996, by and among TBC Corporation, TBCO
Acquisition, Inc. and Big O Tires, Inc., was filed
as Exhibit 2.1 to the TBC Corporation Current
Report on Form 8-K, dated April 30, 1996 ........... *
(3) ARTICLES OF INCORPORATION AND BY-LAWS:
3.1 Certificate of Incorporation of TBC Corporation,
as amended April 29, 1988, was filed as Exhibit
3.1 to the TBC Corporation Annual Report on
Form 10-K for the year ended December 31, 1994 ..... *
3.2 Amendment to Restated Certificate of Incorporation
of TBC Corporation dated April 23, 1992, was filed
as Exhibit 3.2 to the TBC Corporation Annual Report
on Form 10-K for the year ended December 31, 1992 .. *
3.3 By-Laws of TBC Corporation as amended through
July 25, 1996, were filed as Exhibit 3.1 to the
TBC Corporation Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996 ........... *
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS,
INCLUDING INDENTURES:
4.1 $30,000,000 Long Term Credit Agreement, dated as of
September 25, 1996, among TBC Corporation, the
lending institutions party thereto, First Tennessee
Bank National Association as Administrative Agent,
and NBD Bank as Co-Agent, including as Exhibit A
the form of Note, dated September 25, 1996, issued
by TBC Corporation to each lender pursuant thereto,
and including as Exhibit F the form of Continuing
Guaranty executed by certain subsidiaries of TBC
Corporation in connection therewith, was filed as
Exhibit 4.1 to the TBC Corporation Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1996 ................................. *
-37-
4.2 $48,500,000 Short Term Credit Agreement, dated as
of September 25, 1996, among TBC Corporation, the
lending institutions party thereto, First Tennessee
Bank National Association as Administrative Agent,
and NBD Bank as Co-Agent, including as Exhibit A-1
the form of Revolving Note, dated September 25,
1996, issued by TBC Corporation to each lender
pursuant thereto, including as Exhibit A-2 the
form of Swing Line Note, dated September 25, 1996,
issued by TBC Corporation to First Tennessee Bank
National Association pursuant thereto, and
including as Exhibit F the form of Continuing
Guaranty executed by certain subsidiaries of TBC
Corporation in connection therewith, was filed as
Exhibit 4.2 to the TBC Corporation Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1996.................................. *
4.3 Note Purchase and Private Shelf Agreement, dated
July 10, 1996, between TBC Corporation and The
Prudential Insurance Company of America, was filed
as Exhibit 4.1 to the TBC Corporation Current
Report on Form 8-K, dated July 10, 1996 ............ *
4.4 Series A, Series B, and Series C Senior Notes,
dated July 10, 1996, issued by TBC Corporation
pursuant to the Note Purchase Agreement
referenced in item 4.3 above, were filed as
Exhibit 4.2 to the TBC Corporation Current Report
on Form 8-K, dated July 10, 1996 ................... *
4.5 Amendment No. 1, dated September 20, 1996, to the
Note Purchase Agreement referenced in item 4.3
above, including form of Continuing Guaranty
executed by certain subsidiaries of TBC Corporation
in connection therewith, was filed as Exhibit 4.5
to the TBC Corporation Quarterly Report on Form
10-Q for the quarter ended September 30, 1996 ...... *
4.6 Other long-term debt instruments ................... #
(10) MATERIAL CONTRACTS:
Management Contracts and Compensatory Plans
or Arrangements
10.1 Executive Employment Agreement between the Company
and Mr. Louis S. DiPasqua, amended and restated
as of January 31, 1995, was filed as Exhibit 10.1
to the TBC Corporation Quarterly Report on Form
10-Q for the quarter ended March 31, 1995 .......... *
10.2 Executive Consulting Agreement between the Company
and Mr. Marvin E. Bruce dated January 1, 1995, was
filed as Exhibit 10.2 to the TBC Corporation
Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995 .............................. *
-38-
10.3 Louis S. DiPasqua Trust Agreement dated as of
October 22, 1992 between the Company and First
Tennessee Bank National Association was filed as
Exhibit 10.6 to the TBC Corporation Annual Report
on Form 10-K for the year ended December 31, 1992 .. *
10.4 Amendment, dated July 1, 1996, to Executive
Employment Agreement between the Company and
Mr. Louis S. DiPasqua .............................. 44
10.5 TBC Corporation 1989 Stock Incentive Plan, as
amended April 23, 1992 was filed as Exhibit 10.8
to the TBC Corporation Annual Report on Form 10-K
for the year ended December 31, 1992 ............... *
10.6 TBC Corporation Deferred Compensation Plan for
Directors was filed as Exhibit 10.10 to the TBC
Corporation Annual Report on Form 10-K for the
year ended December 31, 1993 ....................... *
10.7 Resolution adopted by the Compensation Committee
of the TBC Corporation Board of Directors,
September 26, 1996, relating to interest payable
on deferred compensation of officers and directors
of TBC Corporation, was filed as Exhibit 10.3 to
the TBC Corporation Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996............ *
10.8 Executive Employment Agreement dated as of
November 1, 1988 between the Company and Mr.
Kenneth P. Dick, including Trust Agreement as
Exhibit A thereto, as extended as of November 1,
1991 and as amended as of July 1, 1992, was
filed as Exhibit 10.10 to the TBC Corporation
Annual Report on Form 10-K for the year ended
December 31, 1992 .................................. *
10.9 Agreement to Extend Executive Employment Agreement,
between the Company and Mr. Kenneth P. Dick dated
October 31, 1994, was filed as Exhibit 10.9 to the
TBC Corporation Annual Report on Form 10-K for the
year ended December 31, 1994 ....................... *
10.10 Amendment, dated July 1, 1996, to Executive
Employment Agreement between the Company and
Mr. Kenneth P. Dick ................................ 45
10.11 Executive Employment Agreement dated as of
November 1, 1988 between the Company and Mr.
Bob M. Hubbard, including Trust Agreement as
Exhibit A thereto, as extended as of November 1,
1991 and as amended as of July 1, 1992, was
filed as Exhibit 10.11 to the TBC Corporation
Annual Report on Form 10-K for the year ended
December 31, 1992 .................................. *
-39-
10.12 Agreement to Extend Executive Employment Agreement,
between the Company and Mr. Bob M. Hubbard dated
October 31, 1994, was filed as Exhibit 10.11 to the
TBC Corporation Annual Report on Form 10-K for the
year ended December 31, 1994 ....................... *
10.13 Amendment, dated July 1, 1996, to Executive
Employment Agreement between the Company and
Mr. Bob M. Hubbard ................................. 46
10.14 Executive Employment Agreement dated as of
November 1, 1988 between the Company and Mr.
Ronald E. McCollough, including Trust Agreement
as Exhibit A thereto, as extended as of November 1,
1991 and as amended as of July 1, 1992, was
filed as Exhibit 10.12 to the TBC Corporation
Annual Report on Form 10-K for the year ended
December 31, 1992 .................................. *
10.15 Agreement to Extend Executive Employment Agreement,
between the Company and Mr. Ronald E. McCollough
dated October 31, 1994, was filed as Exhibit 10.13
to the TBC Corporation Annual Report on Form 10-K
for the year ended December 31, 1994 ............... *
10.16 Amendment, dated July 1, 1996, to Executive
Employment Agreement between the Company and
Mr. Ronald E. McCollough ........................... 47
10.17 Executive Employment Agreement dated as of June 1,
1996 between TBC Corporation and Barry D. Robbins,
was filed as Exhibit 10.1 to the TBC Corporation
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996 ................................ *
10.18 Amendment, dated July 1, 1996, to Executive
Employment Agreement between the Company and
Mr. Barry D. Robbins ............................... 48
10.19 TBC Corporation 1995 Management Incentive
Compensation Plan, effective for the calendar year
1995 and thereafter, was filed as Exhibit 10.1 to
the TBC Corporation Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995 ................ *
10.20 Amendment dated July 20, 1995 to the TBC Corporation
1995 Management Incentive Compensation Plan was
filed as Exhibit 10.14 to the TBC Corporation
Annual Report on Form 10-K for the year ended
December 31, 1995 .................................. *
10.21 1996 Amendment and Restatement of the TBC
Corporation Executive Supplemental Retirement Plan,
as amended through October 24, 1996, was filed as
Exhibit 10.2 to the TBC Corporation Quarterly
Report on Form 10-Q for the quarter ended September
30, 1996 ........................................... *
-40-
Other Material Contracts
10.22 Lease Agreement, dated February 25, 1980, between
TBC Corporation and Vantage-Memphis, Inc. was
filed as Exhibit 10.2 to TBC Corporation Registra-
tion Statement on Form S-1 (Reg. No. 2-83216) ...... *
10.23 Modification and Ratification of Lease, dated
April 16, 1991, between TBC Corporation and
Vantage-Memphis, Inc. was filed as Exhibit 10.11
to the TBC Corporation Annual Report on Form 10-K
for the year ended December 31, 1991 ............... *
10.24 Lease Agreement, dated September 23, 1992, between
TBC Corporation and Weston Management Company
(for Weston Building #105) was filed as Exhibit
10.18 to the TBC Corporation Annual Report on
Form 10-K for the year ended December 31, 1992 ..... *
10.25 Lease Agreement, dated September 23, 1992, between
TBC Corporation and Weston Management Company
(for Weston Building #108) was filed as Exhibit
10.19 to the TBC Corporation Annual Report on
Form 10-K for the year ended December 31, 1992 ..... *
10.26 Form of TBC Corporation's standard Distributor
Agreement was filed as Exhibit 10.1 to the TBC
Corporation Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994 ........................ *
10.27 Form of Franchise Agreement in use by Big O Tires,
Inc. was filed as Exhibit 10.1 to the TBC
Corporation Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 ................... *
10.28 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
(Reg. No. 2-83216) ................................. *
10.29 Ten-Year Commitment Agreement, dated March 21, 1994,
between the Company and The Kelly-Springfield Tire
Company, was filed as Exhibit 10.2 to the TBC
Corporation Quarterly Report on Form 10-Q for the
quarter ended March 31, 1994 ....................... *
10.30 Agreement, effective January 1, 1994, signed
April 25, 1994, between the Company and Cooper
Tire & Rubber Company, was filed as Exhibit 10.2 to
the TBC Corporation Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994 ................ *
(21) SUBSIDIARIES OF THE COMPANY:
21.1 List of the names and jurisdictions of
incorporation of the subsidiaries of the Company ... 49
-41-
(23) CONSENTS OF EXPERTS AND COUNSEL:
23.1 Consent of Coopers & Lybrand L.L.P., Independent
Certified Public Accountants, to incorporation by
reference of their report dated January 30, 1997
in Post-Effective Amendment No. 1 to Registration
Statement on Form S-8 for the Company's 1983 Stock
Option Plan (Reg. No. 2-97888) and Registration
Statement on Form S-8 for the Company's 1989 Stock
Incentive Plan (Reg. No. 33-43166) ................. 50
(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 .................... 51
(27) FINANCIAL DATA SCHEDULE:
27.1 Financial Data Schedule ............................ +
(99) ADDITIONAL EXHIBITS:
99.1 Rights Agreement, dated as of July 21, 1988,
between TBC Corporation and the First National
Bank of Boston, as Rights Agent, was filed as an
Exhibit to the Company's Registration Statement
on Form 8-A dated July 21, 1988. The Rights
Agreement includes as Exhibit A the form of
Certificate of Designation, Preferences and
Rights; as Exhibit B, the form of Rights
Certificate; and as Exhibit C, the form of
Summary of Rights .................................. *
"*" 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 all other instruments defining the
rights of holders of long-term debt, the amount of
securities authorized under each of such instruments
does not exceed 10% of the total assets of TBC
Corporation and its subsidiaries on a consolidated
basis. A copy of each of such instruments will be
furnished to the Commission upon request.
"+" Included only in the Company's electronic filing
with the Commission.
-42-
TBC CORPORATION
EXHIBITS
TO
FORM 10-K
FOR THE YEAR ENDED
DECEMBER 31, 1996
-43-
EXHIBIT 10.4
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement")
dated February 18, 1991, between TBC CORPORATION (the "Company") and LOUIS
S. DIPASQUA (the "Executive"), last amended effective January 31, 1995, as
of July 1, 1996.
The Company and the Executive agree that, due to the
discontinuance in 1996 of the Standard & Poor's "composite bond yield",
Paragraph C of Section 4 of the Agreement shall, from the time of such
discontinuance, provide as follows and not as heretofore, namely:
"C. The Company shall establish and maintain a
deferred compensation account on its books in the name of the
Executive in which shall be recorded the amount of the Executive's
deferred compensation. The Company shall credit to the deferred
compensation account, on a daily basis, interest on the amount then
credited to such account (including all previous credits to such
account by operation of this paragraph C) computed at an annual
rate which is equal to the average yield for BBB Industrial Bonds,
as published in the Standard & Poor's Corporate and Government Bond
Yield Index (or such similar index as the Compensation Committee of
the Board of Directors of the Company shall select) for the
month last preceding the beginning of such calendar quarter."
In all other respects, the terms of the Agreement shall continue in
effect as heretofore.
IN WITNESS WHEREOF, the parties have hereunto set their hands.
TBC CORPORATION
By /s/Marvin E. Bruce
Marvin E. Bruce
Chairman of the Board
/s/Louis S. DiPasqua
LOUIS S. DIPASQUA (the Executive)
-44-
EXHIBIT 10.10
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement")
dated November 1, 1988, between TBC CORPORATION (the "Company") and
KENNETH P. DICK (the "Executive"), last amended as of October 31, 1994, as
of July 1, 1996.
The Company and the Executive agree that, due to the
discontinuance in 1996 of the Standard & Poor's "composite bond yield",
Paragraph C of Section 4 of the Agreement shall, from the time of such
discontinuance, provide as follows and not as heretofore, namely:
"C. The Company shall establish and maintain a
deferred compensation account on its books in the name
of the Executive in which shall be recorded the amount
of the Executive's deferred compensation. The Company
shall credit to the deferred compensation account, on
a daily basis, interest on the amount then credited to
such account (including all previous credits to such
account by operation of this paragraph C) computed at
an annual rate which is equal to the average yield for
BBB Industrial Bonds, as published in the Standard &
Poor's Corporate and Government Bond Yield Index (or
such similar index as the Compensation Committee of
the Board of Directors of the Company shall select)
for the month last preceding the beginning of such
calendar quarter."
In all other respects, the terms of the Agreement shall continue
in effect as heretofore.
IN WITNESS WHEREOF, the parties have hereunto set their hands.
TBC CORPORATION
By /s/Louis S. DiPasqua
Louis S. DiPasqua, President and
Chief Executive Officer
/s/Kenneth P. Dick
KENNETH P. DICK (the Executive)
-45-
EXHIBIT 10.13
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement")
dated November 1, 1988, between TBC CORPORATION (the "Company") and BOB M.
HUBBARD (the "Executive"), last amended as of October 31, 1994, as of
July 1, 1996.
The Company and the Executive agree that, due to the
discontinuance in 1996 of the Standard & Poor's "composite bond yield",
Paragraph C of Section 4 of the Agreement shall, from the time of such
discontinuance, provide as follows and not as heretofore, namely:
"C. The Company shall establish and maintain a
deferred compensation account on its books in the name
of the Executive in which shall be recorded the amount
of the Executive's deferred compensation. The Company
shall credit to the deferred compensation account, on
a daily basis, interest on the amount then credited to
such account (including all previous credits to such
account by operation of this paragraph C) computed at
an annual rate which is equal to the average yield for
BBB Industrial Bonds, as published in the Standard &
Poor's Corporate and Government Bond Yield Index (or
such similar index as the Compensation Committee of
the Board of Directors of the Company shall select)
for the month last preceding the beginning of such
calendar quarter."
In all other respects, the terms of the Agreement shall continue
in effect as heretofore.
IN WITNESS WHEREOF, the parties have hereunto set their hands.
TBC CORPORATION
By /s/Louis S. DiPasqua
Louis S. DiPasqua, President and
Chief Executive Officer
/s/Bob M. Hubbard
BOB M. HUBBARD (the Executive)
-46-
EXHIBIT 10.16
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement")
dated November 1, 1988, between TBC CORPORATION (the "Company") and RONALD
E. McCOLLOUGH (the "Executive"), last amended as of October 31, 1994, as
of July 1, 1996.
The Company and the Executive agree that, due to the
discontinuance in 1996 of the Standard & Poor's "composite bond yield",
Paragraph C of Section 4 of the Agreement shall, from the time of such
discontinuance, provide as follows and not as heretofore, namely:
"C. The Company shall establish and maintain a
deferred compensation account on its books in the name
of the Executive in which shall be recorded the amount
of the Executive's deferred compensation. The Company
shall credit to the deferred compensation account, on
a daily basis, interest on the amount then credited to
such account (including all previous credits to such
account by operation of this paragraph C) computed at
an annual rate which is equal to the average yield for
BBB Industrial Bonds, as published in the Standard &
Poor's Corporate and Government Bond Yield Index (or
such similar index as the Compensation Committee of
the Board of Directors of the Company shall select)
for the month last preceding the beginning of such
calendar quarter."
In all other respects, the terms of the Agreement shall continue
in effect as heretofore.
IN WITNESS WHEREOF, the parties have hereunto set their hands.
TBC CORPORATION
By /s/Louis S. DiPasqua
Louis S. DiPasqua, President and
Chief Executive Officer
/s/Ronald E. McCollough
RONALD E. McCOLLOUGH
(the Executive)
-47-
EXHIBIT 10.18
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement")
dated June 1, 1996, between TBC CORPORATION (the "Company") and BARRY D.
ROBBINS (the "Executive"), as of July 1, 1996.
The Company and the Executive agree that, due to the
discontinuance in 1996 of the Standard & Poor's "composite bond yield",
Paragraph C of Section 4 of the Agreement shall, from the time of such
discontinuance, provide as follows and not as heretofore, namely:
"C. The Company shall establish and maintain a
deferred compensation account on its books in the name
of the Executive in which shall be recorded the amount
of the Executive's deferred compensation. The Company
shall credit to the deferred compensation account, on
a daily basis, interest on the amount then credited to
such account (including all previous credits to such
account by operation of this paragraph C) computed at
an annual rate which is equal to the average yield for
BBB Industrial Bonds, as published in the Standard &
Poor's Corporate and Government Bond Yield Index (or
such similar index as the Compensation Committee of
the Board of Directors of the Company shall select)
for the month last preceding the beginning of such
calendar quarter."
In all other respects, the terms of the Agreement shall continue
in effect as heretofore.
IN WITNESS WHEREOF, the parties have hereunto set their hands.
TBC CORPORATION
By /s/Louis S. DiPasqua
Louis S. DiPasqua, President and
Chief Executive Officer
/s/Barry D. Robbins
BARRY D. ROBBINS (the Executive)
-48-
EXHIBIT 21.1
SUBSIDIARIES
OF
TBC CORPORATION
TBC Corporation has five subsidiaries, each of which is wholly-
owned by TBC Corporation. The subsidiaries and their states of
incorporation are as follows:
Name of Subsidiary State of Incorporation
Big O Tires, Inc. Nevada
TBC Properties, Inc. Delaware
Northern States Tire, Inc. Delaware
TBC International, Inc. Delaware
TBC Sales, Inc. Delaware
In addition, TBC Corporation has other subsidiaries which it
owns indirectly through the above-named subsidiaries. Such indirectly-
owned subsidiaries are not named because they would not, if considered in
the aggregate as one subsidiary, constitute a "significant subsidiary," as
defined in Rule 1.02(w) of Regulation S-X.
-49-
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the amended Form
S-8 registration statement for TBC Corporation's 1983 Stock Option Plan
and the Form S-8 registration statement for TBC Corporation's 1989 Stock
Incentive Plan of our reports dated January 30, 1997, on our audits of the
consolidated financial statements and financial statement schedule of TBC
Corporation and Subsidiaries as of December 31, 1996 and 1995 and for the
years ended December 31, 1996, 1995 and 1994, which reports are included in
this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Memphis, Tennessee
February 14, 1997
-50-
EXHIBIT 24.1
TBC CORPORATION
LIMITED POWER OF ATTORNEY
WHEREAS, TBC Corporation (the "Company") intends to file with
the Securities and Exchange Commission its Annual Report on Form 10-K for
the year ended December 31, 1996;
NOW, THEREFORE, the undersigned, in his capacity as a director
of the Company, hereby appoints Louis S. DiPasqua and/or Ronald E.
McCollough, or either of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, to execute in
his name, place and stead, the Company's Annual Report on Form 10-K for
the year ended December 31, 1996 (including any amendment to such report),
and any and all other instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange
Commission. Either of said attorneys shall have full power and authority
to do and perform in the name and on behalf of the undersigned, in the
aforesaid capacity, every act whatsoever necessary or desirable to be
done, as fully to all intents and purposes as the undersigned might or
could do in person. The undersigned hereby ratifies and approves the acts
of either of said attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
this 12th day of February, 1997.
/s/ Marvin E. Bruce
Marvin E. Bruce
-51-
TBC CORPORATION
LIMITED POWER OF ATTORNEY
WHEREAS, TBC Corporation (the "Company") intends to file with
the Securities and Exchange Commission its Annual Report on Form 10-K for
the year ended December 31, 1996;
NOW, THEREFORE, the undersigned, in his capacity as a director
of the Company, hereby appoints Louis S. DiPasqua and/or Ronald E.
McCollough, or either of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, to execute in
his name, place and stead, the Company's Annual Report on Form 10-K for
the year ended December 31, 1996 (including any amendment to such report),
and any and all other instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange
Commission. Either of said attorneys shall have full power and authority
to do and perform in the name and on behalf of the undersigned, in the
aforesaid capacity, every act whatsoever necessary or desirable to be
done, as fully to all intents and purposes as the undersigned might or
could do in person. The undersigned hereby ratifies and approves the acts
of either of said attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
this 12th day of February, 1997.
/s/ Robert E. Carroll, Jr.
Robert E. Carroll, Jr.
-52-
TBC CORPORATION
LIMITED POWER OF ATTORNEY
WHEREAS, TBC Corporation (the "Company") intends to file with
the Securities and Exchange Commission its Annual Report on Form 10-K for
the year ended December 31, 1996;
NOW, THEREFORE, the undersigned, in his capacity as a director
of the Company, hereby appoints Louis S. DiPasqua and/or Ronald E.
McCollough, or either of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, to execute in
his name, place and stead, the Company's Annual Report on Form 10-K for
the year ended December 31, 1996 (including any amendment to such report),
and any and all other instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange
Commission. Either of said attorneys shall have full power and authority
to do and perform in the name and on behalf of the undersigned, in the
aforesaid capacity, every act whatsoever necessary or desirable to be
done, as fully to all intents and purposes as the undersigned might or
could do in person. The undersigned hereby ratifies and approves the acts
of either of said attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
this 13th day of February, 1997.
/s/ Robert H. Dunlap
Robert H. Dunlap
-53-
TBC CORPORATION
LIMITED POWER OF ATTORNEY
WHEREAS, TBC Corporation (the "Company") intends to file with
the Securities and Exchange Commission its Annual Report on Form 10-K for
the year ended December 31, 1996;
NOW, THEREFORE, the undersigned, in his capacity as a director
of the Company, hereby appoints Louis S. DiPasqua and/or Ronald E.
McCollough, or either of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, to execute in
his name, place and stead, the Company's Annual Report on Form 10-K for
the year ended December 31, 1996 (including any amendment to such report),
and any and all other instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange
Commission. Either of said attorneys shall have full power and authority
to do and perform in the name and on behalf of the undersigned, in the
aforesaid capacity, every act whatsoever necessary or desirable to be
done, as fully to all intents and purposes as the undersigned might or
could do in person. The undersigned hereby ratifies and approves the acts
of either of said attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
this 12th day of February, 1997.
/s/ Stanley A. Freedman
Stanley A. Freedman
-54-
TBC CORPORATION
LIMITED POWER OF ATTORNEY
WHEREAS, TBC Corporation (the "Company") intends to file with
the Securities and Exchange Commission its Annual Report on Form 10-K for
the year ended December 31, 1996;
NOW, THEREFORE, the undersigned, in his capacity as a director
of the Company, hereby appoints Louis S. DiPasqua and/or Ronald E.
McCollough, or either of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, to execute in
his name, place and stead, the Company's Annual Report on Form 10-K for
the year ended December 31, 1996 (including any amendment to such report),
and any and all other instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange
Commission. Either of said attorneys shall have full power and authority
to do and perform in the name and on behalf of the undersigned, in the
aforesaid capacity, every act whatsoever necessary or desirable to be
done, as fully to all intents and purposes as the undersigned might or
could do in person. The undersigned hereby ratifies and approves the acts
of either of said attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
this 12th day of February, 1997.
/s/ Dwain W. Higginbotham
Dwain W. Higginbotham
-55-
TBC CORPORATION
LIMITED POWER OF ATTORNEY
WHEREAS, TBC Corporation (the "Company") intends to file with
the Securities and Exchange Commission its Annual Report on Form 10-K for
the year ended December 31, 1996;
NOW, THEREFORE, the undersigned, in his capacity as a director
of the Company, hereby appoints Louis S. DiPasqua and/or Ronald E.
McCollough, or either of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, to execute in
his name, place and stead, the Company's Annual Report on Form 10-K for
the year ended December 31, 1996 (including any amendment to such report),
and any and all other instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange
Commission. Either of said attorneys shall have full power and authority
to do and perform in the name and on behalf of the undersigned, in the
aforesaid capacity, every act whatsoever necessary or desirable to be
done, as fully to all intents and purposes as the undersigned might or
could do in person. The undersigned hereby ratifies and approves the acts
of either of said attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
this 13th day of February, 1997.
/s/ Charles A. Ledsinger
Charles A. Ledsinger
-56-
TBC CORPORATION
LIMITED POWER OF ATTORNEY
WHEREAS, TBC Corporation (the "Company") intends to file with
the Securities and Exchange Commission its Annual Report on Form 10-K for
the year ended December 31, 1996;
NOW, THEREFORE, the undersigned, in his capacity as a director
of the Company, hereby appoints Louis S. DiPasqua and/or Ronald E.
McCollough, or either of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, to execute in
his name, place and stead, the Company's Annual Report on Form 10-K for
the year ended December 31, 1996 (including any amendment to such report),
and any and all other instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange
Commission. Either of said attorneys shall have full power and authority
to do and perform in the name and on behalf of the undersigned, in the
aforesaid capacity, every act whatsoever necessary or desirable to be
done, as fully to all intents and purposes as the undersigned might or
could do in person. The undersigned hereby ratifies and approves the acts
of either of said attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
this 12th day of February, 1997.
/s/ Richard A. McStay
Richard A. McStay
-57-
TBC CORPORATION
LIMITED POWER OF ATTORNEY
WHEREAS, TBC Corporation (the "Company") intends to file with
the Securities and Exchange Commission its Annual Report on Form 10-K for
the year ended December 31, 1996;
NOW, THEREFORE, the undersigned, in his capacity as a director
of the Company, hereby appoints Louis S. DiPasqua and/or Ronald E.
McCollough, or either of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, to execute in
his name, place and stead, the Company's Annual Report on Form 10-K for
the year ended December 31, 1996 (including any amendment to such report),
and any and all other instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange
Commission. Either of said attorneys shall have full power and authority
to do and perform in the name and on behalf of the undersigned, in the
aforesaid capacity, every act whatsoever necessary or desirable to be
done, as fully to all intents and purposes as the undersigned might or
could do in person. The undersigned hereby ratifies and approves the acts
of either of said attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
this 12th day of February, 1997.
/s/ Robert M. O'Hara
Robert M. O'Hara
-58-
TBC CORPORATION
LIMITED POWER OF ATTORNEY
WHEREAS, TBC Corporation (the "Company") intends to file with
the Securities and Exchange Commission its Annual Report on Form 10-K for
the year ended December 31, 1996;
NOW, THEREFORE, the undersigned, in his capacity as a director
of the Company, hereby appoints Louis S. DiPasqua and/or Ronald E.
McCollough, or either of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, to execute in
his name, place and stead, the Company's Annual Report on Form 10-K for
the year ended December 31, 1996 (including any amendment to such report),
and any and all other instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange
Commission. Either of said attorneys shall have full power and authority
to do and perform in the name and on behalf of the undersigned, in the
aforesaid capacity, every act whatsoever necessary or desirable to be
done, as fully to all intents and purposes as the undersigned might or
could do in person. The undersigned hereby ratifies and approves the acts
of either of said attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
this 14th day of February, 1997.
/s/ Robert R. Schoeberl
Robert R. Schoeberl
-59-