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CONFORMED
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 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 executive offices) (Zip Code)
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. [ X ]
INDEX TO EXHIBITS at page 38 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, 1998 (for purposes of this
calculation, 1,771,442 shares beneficially owned by
directors and executive officers of the Company were
treated as being held by affiliates of the Company) ........... $138,226,340
Number of shares of Common Stock, par value $.10,
outstanding at the close of business on December 31,1998 ....... 21,171,630
DOCUMENT INCORPORATED BY REFERENCE
TBC Corporation's Proxy Statement for its Annual Meeting of Stockholders to
be held on April 28, 1999. 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 one business, the distribution of tires in the automotive replacement
market. Through its Big O Tires, Inc. ("Big O") subsidiary, acquired in July
1996, the Company is also a franchisor of independent retail tire and
automotive service stores. 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 95% of the Company's total
sales in 1998, 94% in 1997 and 88% in 1996. 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 (R), Wild Spirit (R),
Grand Sport (R), Gran Esprit (TM), Aqua-Flow (R), Wild Country (R), Wild
Trac (R), Stampede (R), Power King (R), Harvest King (R), Big Foot (R),
Legacy (R), Prestige (R), and Sun Valley (R).
Through 1996, the Company's products also included automotive parts lines
such as batteries, wheels, ride-control products, filters and brake parts.
In December 1996, the Company decided 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 former battery distribution subsidiary in
December 1996 and completed the remainder of the marketing and operational
changes in early 1997. There was no impact on the products marketed and
distributed by the Company to Big O stores, which include automotive products
such as wheels and ride-control products, in addition to its tire lines.
There was also no impact on the Company's marketing of tubes to independent
distributors.
-3-
Marketing and Distribution
The Company distributes its products through a network of wholesale and
retail customers located across the United States, Canada and Mexico. The
retail outlets handling the Company's products consist primarily of
independent tire dealers. The loss of any major customer could have a
material adverse effect upon the Company's business, pending the Company's
establishment of a replacement customer to market the Company's products.
The Company's Big O (R) brand tires are principally distributed through
franchised stores. At December 31, 1998, the Company had a total of 436 Big
O stores in the United States, including 414 franchisee-owned stores, 11
joint venture stores and 11 company-owned stores. Big O products are also
distributed to 39 unaffiliated retail stores in British Columbia, Canada.
Big O franchise agreements grant a ten-year license to sell Big O brand tires
and to use Big O trademarks and trade secrets in the operation of a retail
store at a specific location within a defined trade area. Each franchisee is
required to pay an initial franchise fee as well as monthly royalty fees.
Major Customers
As discussed in Note 3 to the consolidated financial statements, the
Company acquired Carroll's, Inc. on November 19, 1998. Carroll's, a
wholesale distributor of tires in the southeastern United States
headquartered in Hapeville, Georgia, was one of the Company's largest
customers prior to being acquired. Sales to Carroll's during 1998, prior to
the acquisition, represented 10% of the Company's total 1998 sales.
The Company's ten largest customers, including Carroll's prior to the
acquisition, accounted for 40% of the Company's sales in 1998. Sales to Les
Schwab Warehouse Center, Inc., Prineville, Oregon, represented 10% of the
Company's sales in 1998. No other customers individually accounted for 10%
or more of the Company's total 1998 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 Kelly-Springfield Tire Company, a division of The Goodyear Tire &
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 1998, pursuant to a supply agreement entered into in 1977 and a 10-year
commitment signed in 1994. The Company also has a 10-year supply agreement,
signed in 1994, with Cooper Tire and Rubber Company, its second-largest
supplier. In addition, the Company has written contracts with certain other
suppliers.
-4-
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. If one of its two
largest suppliers became unavailable, the Company's business could be
adversely affected, pending the establishment of new, alternate suppliers.
There are a number of other large tire manufacturers on a worldwide basis.
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 third
quarter of each year, with the first quarter exhibiting the lowest level.
Since 1994, first quarter sales have represented, on the average,
approximately 23% of annual sales; the second and third quarters
approximately 24% and 28%, respectively; and the fourth quarter approximately
25%. 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.
Average inventories, based on quarter-end levels on-hand and in-transit,
were $98.2 million during 1998. The Company's inventory turn rate (cost of
sales, including the cost of direct shipments from manufacturers to
customers, divided by average inventory) was 5.5 for 1998.
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 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, 1998, the Company employed 780 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 totaling approximately 1,300,000 square
feet under roof, are also located in Memphis. The Company owns the executive
office building and one of its Memphis warehouses. One Memphis warehouse is
leased under an agreement expiring in 2005 and two others are leased under
agreements expiring in 2000.
Big O owns three warehouse distribution facilities, which total
approximately 480,000 square feet and are located in Idaho, Indiana and
Nevada. Other subsidiaries of the Company operate 17 warehouse and
distribution facilities, 16 of which are leased and one of which is owned.
These facilities total approximately 1,100,000 square feet and are located in
five states, primarily in the Southeast.
Item 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings which are routine to
the conduct of its business, none of which is believed to be material to the
Company. Some of these proceedings involve personal injury lawsuits based
upon alleged defects in products sold by the Company. The Company believes
that in substantially all such product liability cases, it is covered by its
manufacturers' indemnity agreements or product liability insurance. The
Company also maintains its own product liability insurance.
See Note 7 to the consolidated financial statements for information with
respect to pending legal proceedings relative to the collection of a
promissory note receivable held by the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The table which follows presents certain information concerning the
executive officers of the Company. The term of office of all executive
officers of the Company is until the next Annual Meeting of Directors (April
28, 1999) or until their respective successors are elected.
-6-
Capacities in which
Individual Serves
Name Age the Company
Louis S. DiPasqua 64 Vice Chairman and Chief Executive
Officer
Lawrence C. Day 49 President and Chief Operating Officer
Ronald E. McCollough 58 Executive Vice President, Chief Financial
Officer and Treasurer
Barry D. Robbins 56 Executive Vice President, Sales and Marketing
Larry D. Coley 41 Vice President and Controller
Mr. DiPasqua has been Vice Chairman of the Company since October 1998 and
Chief Executive Officer since July 1994. From 1991 to October 1998, Mr.
DiPasqua served as the Company's President. Mr. DiPasqua has been a director
since 1991 and served as the Company's Chief Operating Officer from 1991
until July 1994. Prior to joining the Company in 1991, Mr. DiPasqua was an
executive with The Goodyear Tire & Rubber Company. During his 28 years at
Goodyear, Mr. DiPasqua held a variety of positions, including Vice President
of Replacement Tire Sales and Marketing, President and Chief Executive
Officer of Kelly Springfield Tire Company (a division of Goodyear) and
Chairman and Managing Director of Goodyear Great Britain.
Mr. Day was elected President of the Company in October 1998 and has
served as Chief Operating Officer since joining the Company in April 1998.
Prior to his election as President, Mr. Day was an Executive Vice President
of the Company. Mr. Day was President and Chief Executive Officer of Monro
Muffler Brake, Inc. from 1995 to 1998. Prior to joining Monro in 1993, Mr.
Day was Vice President of Montgomery Ward's Auto Express Division. His
experience in the tire industry includes 13 years in a series of managerial
positions with the Firestone Tire & Rubber Company.
Mr. McCollough has been Executive Vice President and Chief Financial
Officer of the Company since April 1998 and Treasurer since May 1996. From
1982 to April 1998, Mr. McCollough served as Senior Vice President Operations
of the Company. Mr. McCollough was Controller of the Company from 1973 to
1985 and Vice President Operations from 1978 until his election as a Senior
Vice President.
Mr. Robbins has been the Company's Executive Vice President of Sales and
Marketing since April 1998. From June 1996, when he joined the Company, until
April 1998, Mr. Robbins was the Company's Senior Vice President Strategic
Planning. From 1995 until joining TBC, Mr. Robbins was President and Chief
Executive Officer of Tire Alliance Groupe. Prior to 1995, Mr. Robbins had
been continuously employed by The 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, 1998, the Company had approximately
5,600 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 1998 or
1997.
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
03/31/97............ 9.94 7.00
06/30/97............ 10.00 6.75
09/30/97............ 9.75 7.38
12/31/97............ 11.00 9.00
03/31/98............ 10.63 8.13
06/30/98............ 10.25 6.00
09/30/98............ 6.88 4.25
12/31/98............ 7.94 5.50
-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, 1998. The selected
financial information should be read in conjunction with the consolidated
financial statements of the Company and notes thereto which appear elsewhere
in this Report. Specific reference should be made to the discussion of the
1998 acquisition of Carroll's, Inc. in Note 3 to the consolidated financial
statements and the discussion of the 1996 acquisition of Big O Tires, Inc. in
Note 4 to the consolidated financial statements. The Company did not declare
any cash dividends during the five-year period ended December 31, 1998.
Year ended December 31,
1998 1997 1996 1995 1994
INCOME STATEMENT DATA (1):
Net sales ............... $646,135 $642,852 $604,585 $547,785 $563,661
Net income .............. 16,894 19,700 15,499 15,249 19,546
Earnings per share (2) .. .75 .84 .65 .62 .71
Average shares outstanding .. 22,430 23,466 23,793 24,583 27,551
BALANCE SHEET DATA (1):
Total assets .......... $333,790 $264,948 $253,882 $179,952 $169,682
Working capital ....... 105,816 130,414 117,980 76,600 91,279
Long-term debt ........ 59,653 67,647 69,550 555 -
Stockholders' equity .. 138,431 134,187 119,805 104,823 113,983
1) In thousands, except per share amounts.
2) Basic and diluted.
-9-
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1998 Compared to 1997:
Results of operations for 1998 include the post-acquisition effect of
Carroll's, Inc., a subsidiary which was acquired by the Company on November
19, 1998 (see Note 3 to the consolidated financial statements).
Net sales for 1998 were relatively unchanged from the 1997 level,
increasing 0.5%. Sales of tires accounted for approximately 95% of total
sales in 1998 compared to 94% in 1997. Unit tire shipments increased 0.1%
compared to the 1997 level. The average tire sales price increased 0.7%, due
to favorable changes in the mix of tires shipped which more than offset the
impact of continued industry-wide pricing pressures.
Cost of sales as a percentage of net sales decreased from 84.6% in
1997 to 84.1% in 1998. The reduction was due principally to an increased
percentage of shipments to franchised retail dealers compared to other
customers. Gross margin percentages on sales to franchised dealers are
generally higher than on shipments to the Company's other customers.
Distribution expenses as a percentage of net sales increased from 4.9%
in 1997 to 5.3% in 1998. The increases were largely attributable to higher
product delivery expenses in the current year, as well as greater costs for
labor and other warehousing items. The increased product delivery expenses
were related in part to the aforementioned increase in the percentage of
shipments to franchised retail dealers and the associated higher costs of
serving those customers. The increased warehousing expenses were due to the
impact of Carroll's, Inc., acquired in November 1998, as well as to the
impact of higher inventory levels during the year.
Selling and administrative expenses increased $3.4 million in 1998
compared to 1997. Included in the total for the prior year was an $810,000
charge associated with an early retirement program accepted by certain
employees. Excluding that charge, 1998 selling and administrative expenses
were $4.2 million greater than in 1997. The increase was largely the result
of the Company's efforts to accelerate the growth in its number of franchised
retail dealers. The Company has added personnel and systems and incurred
various other operating expenses in conjunction with these expansion efforts.
The current year total also included expenses for Carroll's, Inc. since the
November 1998 acquisition date.
Interest expenses increased $152,000 from the 1997 level. Interest
related to short-term borrowings increased $459,000 and interest on long-term
borrowings declined $307,000. The greater interest associated with short-
term borrowings was due to higher borrowing levels, which more than offset a
reduction in borrowing rates compared to the prior year.
Net other income was less in 1998 than in 1997, due primarily to
reductions in interest income and the equity in results from the Company's
joint ventures.
The Company's effective tax rate increased from 37.6% in 1997 to 39.2%
in 1998, due to a greater state tax burden as well as the impact of certain
other 1998 tax increases.
-10-
1997 Compared to 1996:
As a result of the Company's acquisition of Big O Tires, Inc. in July
1996 (see Note 4 to the consolidated financial statements), there were a
number of significant changes in income statement items between the years
1997 and 1996. Additionally, the impact of the Company's decision in
December 1996 to discontinue the marketing of automotive parts, except those
sold through Big O, affected the comparison of year-to-year results.
Included in the 1996 operating results were $2.4 million in pre-tax charges
related to this decision. The discontinued product lines comprised
approximately 6.5% of net sales in 1996. (See Note 15 to the consolidated
financial statements.)
Net sales for 1997 increased 6.3% from the 1996 level, with Big O
contributing an additional $75.3 million in net sales. Sales of tires
accounted for approximately 94% of total sales in 1997 compared to 88% in
1996. The increased percentage of tire sales was the result of the above-
mentioned decision to discontinue the marketing of certain non-tire products
to TBC's independent distributors. Excluding the contribution by Big O,
TBC's unit tire volume increased 2.9% compared to the 1996 level. The
average tire sales price excluding Big O declined 1.7%, due principally to
industry-wide price discounting that was prevalent throughout much of 1996
and 1997.
Cost of sales as a percentage of net sales decreased from 87.4% in
1996 to 84.6% in 1997, due largely to the full-year effect of the Big O
acquisition, including the positive impact on the Company's overall sourcing
strength. In addition, an increase in the percentage of shipments through
the Company's distribution facilities rather than direct from manufacturers
affected the comparison to 1996 results. Gross margin percentages on
shipments through the Company's own facilities are typically higher than on
shipments direct from manufacturers, since sales prices are generally higher
to help offset the incremental costs of distribution.
Distribution expenses increased $6.5 million in 1997 compared to 1996.
The increase was principally due to the inclusion of additional warehousing
and product delivery expenses at Big O of $5.1 million. The increase was
also due in part to the above-noted increase in the percentage of TBC's
shipments through the Company's distribution facilities.
Selling and administrative expenses increased $8.9 million in 1997
compared to 1996, due primarily to the inclusion of additional Big O expenses
of approximately $9.8 million. The 1997 increase was also affected by a
charge of $810,000 associated with an early retirement program accepted by
certain employees. Expenses in 1996 included charges of approximately
$700,000 related to the decision to discontinue selling automotive parts to
TBC's independent distributors. Excluding these items, selling and
administrative expenses were reduced by $1.0 million in 1997.
Interest expenses increased $1.7 million compared to the 1996 level.
The full-year impact of the long-term borrowings incurred to finance the Big
O acquisition resulted in increased interest in 1997. This more than offset
an $887,000 reduction in interest on short-term borrowings related to lower
borrowing levels.
Net other income was higher in 1997 than in 1996, due primarily to
greater interest income and an increase in the equity in earnings from the
Company's joint ventures.
The Company's effective tax rate decreased from 39.0% in 1996 to 37.6%
in 1997. The lower effective rate reflects a reduction in TBC's state taxes,
as well as the impact of certain other 1997 tax reductions.
-11-
LIQUIDITY AND CAPITAL RESOURCES
In November 1998, the Company completed the acquisition of Carroll's,
Inc. (see Note 3 to the consolidated financial statements). Although this
acquisition resulted in significant increases in the Company's receivables,
inventories and short-term borrowings, no additional long-term debt was
incurred. The Company's financial position and liquidity remain strong, with
working capital of $105.8 million at December 31, 1998 compared to $130.4
million at the end of 1997. The Company's current ratio was 1.84 at the end
of 1998 compared to 3.47 at December 31, 1997.
The Company's short-term borrowing agreements consist of 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, 1998 was $28.2 million. Long-term debt totaled
$67.5 million at December 31, 1998, of which $7,859,000 was current and the
remainder was due after one year. Of the total long-term debt, Senior Notes
totaling $60 million were incurred in 1996 to finance the acquisition of Big
O. The Company is subject to certain financial covenants and other
restrictions under both its short-term borrowing agreements and Senior Notes
(see Notes 5 and 6 to the consolidated financial statements).
Capital expenditures, primarily for equipment, tire molds and Big O
retail stores, totaled $12.4 million in 1998 and $9.1 million in 1997. The
Company had no material commitments for capital expenditures at the end of
1998. The Company expects to fund 1999 day-to-day operating expenses and
normally recurring capital expenditures out of operating funds and its
present financial resources. The Company believes that the combination of
its net assets, committed bank facilities and expected funds from operations
will be sufficient to operate on both a short-term and long-term basis.
Cash generated by operations, together with the available credit
arrangements, enabled the Company to fund stock repurchases totaling $13.3
million in 1998 and $5.7 million in 1997, investments in joint ventures of
$5.1 million in 1998 and the above-mentioned capital expenditures. As of
December 31, 1998, the Company had an unused authorization from the Board of
Directors for the repurchase of approximately 1,936,000 additional shares of
common stock.
Inventories increased from $84.8 million at the end of 1997 to $124.7
million at December 31, 1998, due largely to the impact of the Carroll's
acquisition. Increased inventory levels were also attributable to new lines
and sizes of tires added during 1998 and to efforts to enhance order-fill
rates on shipments from the Company's distribution facilities.
Included in other assets at December 31, 1998 and 1997 is a promissory
note receivable of $4,897,000 from a former distributor. (See Note 7 to the
consolidated financial statements for a discussion of the legal proceedings
relative to that receivable.)
YEAR 2000 READINESS
The Company has addressed all significant year 2000 issues, including
its business systems, processes and essential equipment, and estimates that
it has completed approximately 80% of the work that will be required. The
overall costs to prepare the Company for the year 2000 are not considered
material to the Company's financial position or results of operation.
-12-
The Company believes the risk of business disruption presented by
potentially unresolved year 2000 issues is minimal. All internal systems
have been subjected to review and those presenting possible year 2000 issues
are being replaced or corrected. Our customers and significant suppliers
have been contacted and are aware of their obligations to address their own
year 2000 issues. The Company believes that both its major customers and
suppliers have adequate resources to properly address their own year 2000
concerns. No significant impact on customer demand is anticipated,
especially considering the relatively straightforward nature of their
business. The Company does not anticipate any difficulty in continuing to
purchase products from its major suppliers in sufficient quantities to meet
customer demand.
The nature of the Company's principal business of wholesale
distribution creates an environment of relatively low transaction volumes
that can be conducted on a temporary basis with manual contingency systems.
In the event of an unforseen internal year 2000 problem, contingency plans
currently in place for temporary computer system problems or outages would be
utilized. The Company's inventories typically include reserve stock that
would allow it to provide product to customers in the event of a temporary
disruption in product supply. Alternate suppliers exist and could
potentially be utilized if necessary.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not consider its exposure to market risk to be
material.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial information
required by this Item 8 are included on the following 18 pages of this
Report.
-13-
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
TBC Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, stockholders' equity, and of cash
flows present fairly, in all material respects, the financial position of
TBC Corporation and its subsidiaries at December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Memphis, Tennessee
January 29, 1999
-14-
TBC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
December 31,
1998 1997
CURRENT ASSETS:
Cash and cash equivalents $ 1,699 $ 917
Accounts and notes receivable, less
allowance for doubtful accounts of
$9,298 in 1998 and $7,344 in 1997:
Related parties 8,472 15,072
Other 77,632 62,267
Total accounts and notes receivable 86,104 77,339
Inventories 124,720 84,806
Refundable federal and state income taxes 1,477 2,489
Deferred income taxes 7,653 4,863
Other current assets 10,072 12,784
Total current assets 231,725 183,198
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land and improvements 8,453 5,604
Buildings and leasehold improvements 29,954 23,167
Furniture and equipment 30,821 29,455
69,228 58,226
Less accumulated depreciation 25,146 21,967
Total property, plant and equipment 44,082 36,259
TRADEMARKS, NET 16,887 17,337
GOODWILL, NET 20,747 14,628
OTHER ASSETS 20,349 13,526
TOTAL ASSETS $333,790 $264,948
The accompanying notes are an integral part of the financial statements.
-15-
TBC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
1998 1997
CURRENT LIABILITIES:
Outstanding checks, net $ 5,677 $ 3,237
Notes payable to banks 49,952 22,496
Current portion of long-term debt 7,860 690
Accounts payable, trade 43,731 10,879
Other current liabilities 18,689 15,482
Total current liabilities 125,909 52,784
LONG-TERM DEBT, LESS CURRENT PORTION 59,653 67,647
NONCURRENT LIABILITIES 2,612 2,876
DEFERRED INCOME TAXES 7,185 7,454
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value,
shares issued and outstanding -
21,172 in 1998 and 23,163 in 1997 2,117 2,316
Additional paid-in capital 9,540 9,788
Retained earnings 126,774 122,083
Total stockholders' equity 138,431 134,187
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $333,790 $264,948
The accompanying notes are an integral part of the financial statements.
-16-
TBC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Years ended December 31,
1998 1997 1996
NET SALES * $646,135 $642,852 $604,585
COSTS AND EXPENSES:
Cost of sales 543,214 544,119 528,610
Distribution 34,027 31,479 24,933
Selling and administrative 36,658 33,218 24,294
Interest expense 5,948 5,796 4,115
Other (income) expense - net (1,521) (3,347) (2,766)
Total costs and expenses 618,326 611,265 579,186
INCOME BEFORE INCOME TAXES 27,809 31,587 25,399
PROVISION FOR INCOME TAXES 10,915 11,887 9,900
NET INCOME $ 16,894 $ 19,700 $ 15,499
EARNINGS PER SHARE -
Basic and diluted $ .75 $ .84 $ .65
* Including sales to related parties of $133,170, $138,511 and $137,219 in
the years ended December 31, 1998, 1997 and 1996, respectively.
The accompanying notes are an integral part of the financial statements.
-17-
TBC CORPORATION
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
(In thousands)
Years ended December 31, 1996, 1997 and 1998
Common Stock Additional
Number of Paid-In Retained
Shares Amount Capital Earnings Total
BALANCE, JANUARY 1, 1996 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 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
Net income for year 19,700 19,700
Issuance of common stock under
stock option and incentive plans 59 6 364 - 370
Repurchase and retirement
of common stock (623) (63) (254) (5,425) (5,742)
Tax benefit from exercise of
stock options - - 54 - 54
BALANCE, DECEMBER 31, 1997 23,163 2,316 9,788 122,083 134,187
Net income for year 16,894 16,894
Issuance of common stock under
stock option and incentive plans 84 8 626 - 634
Repurchase and retirement
of common stock (2,075) (207) (931) (12,203) (13,341)
Tax benefit from exercise of
stock options - - 57 - 57
BALANCE, DECEMBER 31, 1998 21,172 $2,117 $ 9,540 $126,774 $138,431
The accompanying notes are an integral part of the financial statements.
-18-
TBC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years ended December 31,
1998 1997 1996
Operating Activities:
Net income $16,894 $19,700 $15,499
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 6,226 6,742 5,750
Amortization 951 979 530
Write-off of intangible assets - - 276
Deferred income taxes (464) 1,586 (845)
Equity in (earnings) loss from joint ventures 217 (426) (265)
Changes in operating assets
and liabilities:
Receivables 8,748 9,260 19,383
Inventories (15,335) (13,704) (2,815)
Other current assets 3,159 (4,375) (1,986)
Other assets (1,148) (15) (40)
Accounts payable, trade 15,593 (5,882) 589
Federal and state income taxes
refundable or payable 219 (2,541) 1,240
Other current liabilities (275) 1,484 1,366
Noncurrent liabilities (263) 123 203
Net cash provided by operating activities 34,522 12,931 38,885
Investing Activities:
Purchase of property, plant and equipment (12,405) (9,104) (5,260)
Acquisition of Big O Tires, Inc. - - (55,433)
Acquisition of Carroll's, Inc. (28,201) - -
Investments in joint ventures (5,074) - -
Net proceeds from asset disposition - - 2,099
Other 518 1,130 777
Net cash used in investing activities (45,162) (7,974) (57,817)
Financing Activities:
Net bank borrowings (repayments) under
short-term borrowing arrangements 23,648 1,404 (29,746)
Increase (decrease) in outstanding checks, net 1,623 2,678 (8,480)
Increase in long-term debt - - 60,000
Payments on long-term debt (826) (2,750) (2,325)
Issuance of common stock under stock option
and incentive plans 318 370 117
Repurchase and retirement of common stock (13,341) (5,742) (634)
Net cash provided by (used in)
financing activities 11,422 (4,040) 18,932
Change in cash and cash equivalents 782 917 -
Cash and cash equivalents:
Balance - Beginning of year 917 - -
Balance - End of year $ 1,699 $ 917 $ -
-19-
TBC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
Years ended December 31,
1998 1997 1996
Supplemental Disclosures of Cash Flow Information:
Cash paid for - Interest $ 6,278 $ 6,090 $ 3,510
- Income Taxes 11,162 12,842 9,506
Supplemental Disclosure of Non-Cash Financing Activity:
Tax benefit from exercise of stock options $ 57 $ 54 $ -
Issuance of restricted stock under stock incentive plan 316 - -
Supplemental Disclosure of Non-Cash Investing
and Financing Activities:
On November 19, 1998, the Company completed
the acquisition of Carroll's, Inc. for a total purchase
price of $28,000, plus applicable closing costs. The
acquisition was accounted for under the purchase
method, as follows:
Estimated fair value of assets acquired $47,946
Goodwill 6,472
Cash Paid (28,201)
Liabilities assumed $26,217
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 former 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.
-20-
TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Operations
The Company is principally engaged in one business, the distribution
of tires in the automotive replacement market. The Company's customers
include wholesalers and retailers in the United States, Canada and Mexico.
Through its Big O Tires, Inc. subsidiary, acquired in July 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 small 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.
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 $ 5,965,000
and $3,517,000 at December 31, 1998 and 1997, 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 estimated lives of 3-15 years for
furniture and equipment and 20-40 years for buildings and leasehold
improvements. 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.
Revenue recognition - Sales are recognized upon shipment of products.
Estimated costs of returns and allowances are accrued at the time products
are shipped.
-21-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Goodwill, Trademarks and Other Intangible Assets - Goodwill was
recorded as a result of the acquisition of Carroll's, Inc. in November 1998,
and both goodwill and trademarks were recorded as a result of the acquisition
of Big O Tires, Inc. in July 1996. Goodwill represents the excess of cost
over the fair value of identifiable net assets acquired. The value assigned
to Big O trademarks was based on an independent third-party valuation
prepared at the time of acquisition. Goodwill, trademarks and other
intangible assets are amortized on a straight-line basis, principally over 40
years. Accumulated amortization on intangible assets totaled $2,091,000 and
$1,266,000 at December 31, 1998 and 1997, respectively.
The Company periodically reviews the recoverability of intangible and
other long-lived assets. If facts or circumstances support the possibility
of impairment, the Company will prepare a projection of the undiscounted
future cash flows of the specific intangible assets and determine if the
assigned value is recoverable based on such projection. If impairment is
indicated, an adjustment will be made to the carrying value of the assets
based on the discounted future cash flows. The Company does not believe that
there were any facts or circumstances which indicated an impairment of
recorded intangible assets as of December 31, 1998.
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 1998,1997 and 1996 were franchise and royalty fees of
$8,549,000, $7,811,000 and $3,742,000, respectively.
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. Warranty reserves of $8,025,000
and $6,931,000 were included in other current liabilities in the balance
sheets at December 31, 1998 and 1997, respectively.
Interest on early payments to suppliers for product - Interest income
associated with early payments to suppliers for product is recorded as a
reduction to cost of sales in the statements of income. This interest income
represented 1.4% of net sales during 1998 and 1.5% in 1997 and 1996.
Earnings per share - Earnings per share have been calculated according
to Statement of Financial Accounting Standards No. 128, "Earnings per share".
Basic earnings per share have been computed by dividing net income by the
weighted average number of shares of common stock outstanding. Diluted
earnings per share have been computed by dividing net income by the weighted
average number of common shares and equivalents outstanding. Common share
equivalents represent shares issuable upon assumed exercise of stock options.
Average common shares and equivalents outstanding were as follows (in
thousands):
1998 1997 1996
Weighted average common shares outstanding 22,430 23,466 23,793
Common share equivalents 51 105 47
Weighted average common shares and
equivalents outstanding 22,481 23,571 23,840
-22-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. TRANSACTIONS WITH RELATED PARTIES AND MAJOR CUSTOMERS
The Company's operations are managed through its Board of Directors,
members of which owned or are affiliated with companies which owned
approximately 8% of the Company's common stock at December 31, 1998. Sales
to distributors represented on the Board, including affiliates of such
distributors (and including Carroll's, Inc. prior to being acquired by the
Company in November 1998), accounted for approximately 17% of the Company's
net sales during 1998, 18% during 1997 and 20% in 1996. Sales to Carroll's,
Inc., prior to being acquired by the Company, accounted for approximately 10%
of net sales in 1998, 11% in 1997 and 12% in 1996. Another major customer,
unaffiliated with the board of directors, accounted for approximately 10% of
net sales in 1998, 11% in 1997 and 9% in 1996. Sales to joint ventures in
which the Company has an ownership interest accounted for approximately 3% of
the Company's net sales during 1998, 4% in 1997 and 3% in 1996. Accounts
receivable resulting from transactions with related parties are presented
separately in the balance sheets.
3. ACQUISITION OF CARROLL'S, INC.
On November 19, 1998, the Company acquired all of the common stock of
Carroll's, Inc., a privately-owned wholesale distributor of tires and
automotive products located in the southeastern United States. The
acquisition, which was accounted for as a purchase, was made with cash, for a
total purchase price of $28,000,000. Prior to the acquisition, Carroll's was
the Company's largest customer. These consolidated financial statements
include the operating results of Carroll's from the date of acquisition.
The following unaudited pro forma information (adjusted for interest
on required borrowings, estimated amortization of goodwill, elimination of
intercompany sales and profits, etc.) was prepared as if the companies had
been combined prior to 1997. This unaudited pro forma information does not
purport to present what actual results of operations would have been or to
project results for any future period. Pro-forma net sales were
$727,000,000 in 1998 and $723,700,000 in 1997; pro-forma net income was
$18,800,000 in 1998 and $20,200,000 in 1997; pro-forma earnings per share
were $.84 in 1998 and $.86 in 1997.
4. 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.) was prepared as if the companies had been combined
prior to 1996. This unaudited pro forma information does not purport to
present what actual results of operations would have been or to project
results for any future period. For the year ended December 31, 1996, pro-
forma net sales were $673,700,000, pro-forma net income was $18,000,000, and
pro-forma earnings per share were $.76.
-23-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. CREDIT FACILITIES
The Company's short-term borrowing agreements consist of 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, 1998 was $28.2 million. The weighted average interest rate on
short-term borrowings at December 31, 1998 and 1997 was 5.96% and 7.22%,
respectively.
The credit facilities contain certain financial covenants dealing with
the Company's tangible net worth, working capital, 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 and provide guarantees.
6. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
December 31,
1998 1997
7.55% Series A Senior Note, due from 1999 through 2003 $32,500 $32,500
7.87% Series B Senior Note, due from 2004 through 2005 11,000 11,000
8.06% Series C Senior Note, due from 2006 through 2008 16,500 16,500
8.71% Senior loan, collateralized by certain real estate,
due in quarterly installments through 2004 7,333 8,000
Other debt 179 337
67,512 68,337
Less current portion 7,859 690
$59,653 $67,647
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.
Maturities of long-term debt for the next five years are as follows:
$7,859,000 due in 1999, $7,986,000 in 2000, $7,833,000 in 2001, $7,833,000 in
2002 and $7,833,000 in 2003.
-24-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. OTHER ASSETS
Other assets consist of the following (in thousands):
December 31,
1998 1997
Notes receivable $ 9,063 $ 8,445
Investments in joint ventures 7,436 2,811
Other intangible assets, net 651 741
Other 3,199 1,529
$20,349 $13,526
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 lawsuit is presently scheduled to be tried in
May 1999. The Company believes that the defendants' defenses are invalid and
that there is no merit to the third-party complaint. 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.
8. LEASES
Rental expense of $3,564,000, $3,031,000 and $2,545,000 was charged to
operations in 1998, 1997 and 1996, respectively, after deducting sublease
income of $1,887,000 in 1998, $2,122,000 in 1997 and $996,000 in 1996.
Minimum noncancelable real property lease commitments at December 31, 1998
were as follows (in thousands):
Year Amount
1999 $ 6,767
2000 6,294
2001 5,090
2002 3,498
2003 3,238
Thereafter 8,826
33,713
Less sublease income (10,657)
$23,056
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.
-25-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. 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, 1998,
1997 and 1996 were as follows (in thousands):
1998 1997 1996
Current:
Federal $ 9,843 $ 8,910 $ 9,375
State 1,536 1,391 1,370
11,379 10,301 10,745
Deferred (464) 1,586 (845)
$ 10,915 $ 11,887 $ 9,900
The provision for deferred income taxes represents the change in the
Company's net deferred income tax asset or liability during the year,
including the effect of any 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 Carroll's assets acquired in 1998 were deferred
income tax assets totaling $2,594,000. Included in the Big O assets acquired
in 1996 was a deferred income tax asset of $3,365,000, while liabilities
assumed in the Big O acquisition included a deferred income tax liability of
$7,604,000.
The net deferred income tax asset in the financial statements at
December 31, 1998 included $2,039,000 related to the allowance for doubtful
accounts and notes, $2,032,000 related to inventory reserves and basis
differences, and $3,110,000 related to accrued warranty reserves. At
December 31, 1997, the net deferred income tax asset included $824,000
related to the allowance for doubtful accounts and notes, $1,366,000 related
to inventories and $2,696,000 related to warranty reserves. The net deferred
income tax liability at December 31, 1998 and 1997 included $6,734,000 and
$6,913,000, respectively, 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:
1998 1997 1996
Statutory U.S. Federal rate 35.0% 35.0% 35.0%
State income taxes 3.6 2.9 3.5
Other .6 (.3) .5
Effective tax rate 39.2% 37.6% 39.0%
-26-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. RETIREMENT PLANS
The Company has a defined benefit pension plan covering many of its
employees. The benefits are based on years of service and the employee's
final compensation. The Company makes contributions to the plan, not to
exceed 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.
The following table sets forth the defined benefit pension plan's
changes in projected benefit obligations for service rendered to date,
changes in the fair value of plan assets, the funded status and amounts
recognized in the Company's balance sheets (in thousands):
1998 1997
Actuarial present value of projected benefit
obligations, at beginning of year $(6,852) $(6,589)
Service cost (400) (404)
Interest cost (443) (454)
Actuarial gain (loss) 88 (404)
Settlement charges (257) (660)
Benefits paid 1,266 1,589
Expenses paid 63 70
Actuarial present value of projected benefit
obligations, at end of year (6,535) (6,852)
Fair value of plan assets, at beginning of year 6,176 6,590
Actual return on plan assets 942 1,094
Employer contribution 75 151
Benefits and expenses paid (1,329) (1,659)
Fair value of plan assets, at end of year 5,864 6,176
Funded Status - plan assets over (under)
projected benefit obligation, at end of year (671) (676)
Unrecognized net loss from experience
different from that assumed 1,149 1,782
Unrecognized net assets and prior service cost 73 64
Prepaid pension cost, at end of year $ 551 $ 1,170
The net expense for the defined benefit pension plan in 1997 included a
charge of $810,000 associated with an early retirement program accepted by
certain employees. The net expense for 1998, 1997 and 1996 was comprised of
the following (in thousands):
1998 1997 1996
Service cost $ 400 $ 404 $ 392
Interest cost 443 454 419
Return on plan assets (942) (1,093) (639)
Net amortization, deferral
and settlement charges 794 1,412 131
$ 695 $1,177 $ 303
-27-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. RETIREMENT PLANS (Continued)
In determining the 1998 and 1997 actuarial present values of benefit
obligations for the defined benefit plan, assumptions included a 7% discount
rate, a 5% increase in future compensation levels, and a 10% expected long-
term rate of return on assets. Actuarial present values of accumulated
benefit obligations were $4,012,000 at December 31, 1998 and $4,206,000 at
December 31, 1997, including vested benefits of $3,894,000 and $4,123,000,
respectively.
The Company also has unfunded supplemental retirement plans for
certain of its executive officers, to provide benefits in excess of amounts
permitted to be paid by its other retirement plans under current tax law. In
addition, supplemental retirement provisions are included in the employment
agreement of the Company's Vice Chairman and Chief Executive Officer.
Expenses for supplemental retirement benefits totaled $538,000 in 1998,
$377,000 in 1997 and $313,000 in 1996. At December 31, 1998, the projected
benefit obligation, computed using the same discount rate and compensation
assumptions as for the defined benefit pension plan, was $2,511,000. The
accumulated benefit obligation, which was reflected as a noncurrent liability
at December 31, 1998, totaled $1,793,000.
The Company maintains an employee savings plan under Section 401(k) of
the Internal Revenue Code. Contributions by the Company to the 401(k) plan
include those based on a specified percentage of employee contributions, as
well as discretionary contributions. Expenses recorded for the Company's
contributions totaled $409,000 in 1998, $422,000 in 1997 and $194,000 in
1996.
11. 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, 1998 or
1997.
The Company has a Stockholder Rights Plan whereby outstanding shares
of the Company's common stock are accompanied by preferred stock purchase
rights. The rights become exercisable ten days after a public announcement
that a person or group has acquired 20% or more of the Company's common stock
or any earlier date designated by the Board of Directors. Under defined
circumstances, the rights allow TBC stockholders (other than the 20%
acquiror) to purchase common stock in the Company at a price which may be
substantially less than the market price. The rights expire on July 31, 2008
unless redeemed at an earlier date.
In 1998, 1997 and 1996, shares of the Company's common stock were
repurchased and retired under authorizations made by the Board of Directors.
As of December 31, 1998, the Company had unused authorizations from the
Board for the repurchase of approximately 1,936,000 additional shares.
12. 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 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.
-28-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
12. STOCK OPTIONS AND INCENTIVE PLAN (Continued)
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, 1998, 2,106,000 shares were available
for future option and restricted stock grants under the 1989 Plan.
A summary of stock option activity during 1996, 1997 and 1998 is shown
below:
Weighted
Average
Option Option Price Exercise
Shares Range Price
Outstanding at January 1, 1996
(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
Granted in 1997 324,112 7.75 7.75
Exercised in 1997 53,261 5.03 - 6.55 6.20
Forfeited in 1997 34,711 6.55 - 12.13 9.81
Outstanding at December 31, 1997
(330,225 exercisable) 749,780 $ 5.03 - $12.13 $ 8.12
Granted in 1998 397,025 9.25 - 10.25 9.86
Exercised in 1998 52,632 5.03 - 7.75 6.03
Forfeited in 1998 17,210 7.75 - 12.13 9.38
Outstanding at December 31, 1998
(407,605 exercisable) 1,076,963 $ 5.03 - $12.13 $ 8.84
Additional information regarding stock options outstanding at December
31, 1998 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 - $ 7.50 138,336 $ 5.95 2.1 yrs. 137,295 $5.94
$ 7.51 - $ 10.00 758,579 8.83 8.2 yrs. 185,262 8.60
$ 10.01 - $ 12.13 180,048 11.14 7.0 yrs. 85,048 12.13
1,076,963 407,605
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
12. STOCK OPTIONS AND INCENTIVE PLAN (Continued)
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 1998, 1997 or 1996. Using fair value assumptions
specified in SFAS No. 123, the weighted average per share value of options
granted during 1998, 1997 and 1996 was $4.28, $3.36 and $3.29, 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
$16,196,000 in 1998, $19,355,000 in 1997 and $15,405,000 in 1996, compared to
reported net income of $16,894,000 in 1998, $19,700,000 in 1997 and
$15,499,000 in 1996. Pro forma earnings per share would have been $.72 and
$.82 in 1998 and 1997, respectively, rather than the reported totals of $.75
in 1998 and $.84 in 1997. Pro forma earnings per share in 1996 were the
same as the reported amount.
The fair value of each option granted in 1998, 1997 and 1996 was
estimated on the date of grant using the Black-Scholes option-pricing model
using the following weighted-average assumptions: dividend yield of 0%; risk-
free interest rates equal to zero-coupon governmental issues; and expected
lives of 4.9 years in 1998 and 5 years in 1997 and 1996. The expected
volatility percentages used for options granted were 40.5% for 1998, 37.8%
for 1997 and 30% for 1996.
13. 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, 1998. 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 $7,466,000 as of December 31, 1998,
including $3,371,000 related to franchisee financing and $4,095,000 related
to real estate leases. In addition, Big O is the guarantor of the mortgage
loan on a formerly-owned building. At December 31, 1998, the exposure to
credit loss on such mortgage loan totaled $2,591,000.
Most of the above franchisee financing and lease guarantees extend for
more than five years and expire in decreasing amounts through 2009. The
credit risk associated with these guarantees is essentially the same as that
involved in extending loans to the franchisees. Big O evaluates each
franchisee's creditworthiness and requires that sufficient collateral
(primarily inventories and equipment) and security interests be obtained by
the third party lenders or lessors, before the guarantees are issued. There
are no cash requirements associated with the guarantees, except in the event
that an actual financial loss is subsequently incurred due to non-performance
by the franchisees.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. LEGAL PROCEEDINGS
In addition to the litigation described in Note 7, the Company is
involved in various legal proceedings which are routine to the conduct of its
business. The Company does not believe that any such routine litigation will
have a material adverse effect on its consolidated financial position,
results of operations or cash flows.
15. REFOCUS OF OPERATIONS ON REPLACEMENT TIRE BUSINESS
In December 1996, the Company decided to refocus its 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 decision resulted in the December 1996 sale of
certain assets of the Company's former battery distribution subsidiary, as
well as other marketing and operational changes which were completed by the
end of the first quarter of 1997. There was 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 changes. 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 1998 and 1997 are summarized as follows:
(In thousands, except per share amounts)
First Second Third Fourth
Quarter Quarter Quarter Quarter
1998
Net sales $140,735 $161,923 $177,661 $165,816
Cost of sales 118,401 137,148 150,049 137,616
Net income 3,150 3,719 5,506 4,519
Earnings per share -
Basic and diluted * $ .14 $ .16 $ .25 $ .21
1997
Net sales $144,367 $163,785 $182,648 $152,052
Cost of sales 123,071 139,261 155,713 126,074
Net income 3,231 4,784 6,042 5,643
Earnings per share -
Basic and diluted $ .14 $ .20 $ .26 $ .24
* The total of earnings per share for each of the quarters of 1998 does
not equal earnings per share for the year ended December 31, 1998,
due to the decrease in average shares outstanding.
-31-
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 28, 1999, under the captions "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance", and is
incorporated herein by this reference.
Item 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is set forth in the Company's
Proxy Statement for its Annual Meeting of Stockholders to be held April 28,
1999, under the captions "Election of Directors" and "Executive Compensation",
and, with the exception of the information disclosed in the Proxy Statement
pursuant to Item 402(k) or 402(l) of Regulation S-K, is incorporated herein by
this reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item 12 is set forth in the Company's
Proxy Statement for its Annual Meeting of Stockholders to be held April 28,
1999, under the caption "Security Ownership of Management and Principal
Stockholders", and is incorporated herein by this reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is set forth in the Company's
Proxy Statement for its Annual Meeting of Stockholders to be held April 28,
1999, under the captions "Election of Directors" and "Executive Compensation",
and is incorporated herein by this reference.
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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, 1998, and 1997
Consolidated Statements of Income - Years ended December 31,
1998, 1997, and 1996
Consolidated Statements of Stockholders' Equity - Years ended
December 31, 1996, 1997 and 1998
Consolidated Statements of Cash Flows - Years ended December
31, 1998, 1997, and 1996
Notes to Consolidated Financial Statements
(a)(2) FINANCIAL STATEMENT SCHEDULES
Report of Independent Certified Public Accountants (at p. 35
of this Report)
Schedule II - 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 consolidated 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
During the quarter ended December 31, 1998, the Company filed a
Current Report on Form 8-K dated November 19, 1998, providing
under Item 2, "Acquisition or Disposition of Assets", information
relative to the acquisition on November 19, 1998 of all of the
outstanding capital stock of Carroll's, Inc.
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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 on this 9th day
of February, 1999.
TBC CORPORATION
By: /s/ LOUIS S. DiPASQUA
Louis S. DiPasqua
Vice Chairman 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 Vice Chairman, Chief February 9, 1999
Louis S. DiPasqua Executive Officer
and Director
/s/ RONALD E. McCOLLOUGH Executive Vice President, February 9, 1999
Ronald E. McCollough Chief Financial Officer
and Treasurer (principal
accounting and financial
officer)
MARVIN E. BRUCE Chairman of the Board February 9, 1999
Marvin E. Bruce of Directors
/s/ LAWRENCE C. DAY President, Chief February 9, 1999
Lawrence C. Day Operating Officer and
Director
ROBERT H. DUNLAP Director February 9, 1999
Robert H. Dunlap
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* CHARLES A. LEDSINGER, JR. Director February 9, 1999
Charles A. Ledsinger, Jr.
* RICHARD A. McSTAY Director February 9, 1999
Richard A. McStay
* ROBERT M. O'HARA Director February 9, 1999
Robert M. O'Hara
* ROBERT R. SCHOEBERL Director February 9, 1999
Robert R. Schoeberl
* RAYMOND E. SCHULTZ Director February 9, 1999
Raymond E. Schultz
* 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
-35-
REPORT OF INDEPENDENT ACCOUNTANTS
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of
TBC Corporation
Our audits of the consolidated financial statements referred to in our report
dated January 29, 1999 appearing on page 14 of this Form 10-K also included
an audit of the financial statement schedule listed in Item 14(a)(2) of this
Form 10-K. In our opinion, the financial statement schedule presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Memphis, Tennessee
January 29, 1999
-36-
TBC CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands)
Additions
Charged Charged
to Costs to
Balance and Other Balance
January 1, Expenses Accounts Deductions December 31,
1998
Warranty reserve...... $ 6,931 $ 5,647 $ 1,200 (1) $ 5,753 (3) $8,025
Allowance for
Doubtful accounts.... 7,344 742 2,144 (1) 932 (4) 9,298
1997
Warranty reserve..... 6,675 6,422 - 6,166 (3) 6,931
Allowance for
Doubtful accounts.... 8,879 1,394 - 2,929 (4) 7,344
1996
Warranty reserve..... 1,002 4,159 5,613 (2) 4,099 (3) 6,675
Allowance for
Doubtful accounts.... 8,014 1,640 1,954 (2) 2,729 (4) 8,879
(1) Includes amounts for Carroll's, Inc. as of the November 19, 1998
acquisition date.
(2) Includes amounts for Big O Tires, Inc. as of the July 10, 1996
acquisition date.
(3) Amounts added during current year and payable at year end less amount
payable at beginning of year.
(4) Accounts written off during year, net of recoveries.
-37-
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............ *
2.2 Share Purchase Agreement, dated November 19, 1998, by and
among TBC Corporation, Robert E. Carroll, Jr., and William J.
Baker II, Trustee, was filed as Exhibit 2.1 to the TBC Corporation
Current Report on Form 8-K, dated November 19, 1998............. *
(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 April 22, 1998,
were filed as Exhibit 3.1 to the TBC Corporation Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998........... *
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS,
INCLUDING INDENTURES:
4.1 Amended and Restated $30,000,000 Long Term Credit Agreement,
dated as of November 9, 1998, among TBC Corporation, the lending
institutions party thereto, First Tennessee Bank National Association
as Administrative Agent, and The Chase Manhattan Bank as
Syndication Agent and Sole Book Manager, including as Exhibit A the
form of Amended and Restated Note, dated November 9, 1998,
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... 44
-38-
4.2 Amended and Restated $48,500,000 Short Term Credit Agreement,
dated as of November 9, 1998, among TBC Corporation, the lending
institutions party thereto, First Tennessee Bank National
Association as Administrative Agent, and The Chase Manhattan
Bank as Syndication Agent and Sole Book Manager, including as
Exhibit A-1 the form of Amended and Restated Revolving Note,
dated November 9, 1998, issued by TBC Corporation to each lender
pursuant thereto, including as Exhibit A-2 the form of Amended and
Restated Swing Line Note, dated November 9, 1998, 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...................................................... 130
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 Amendment No. 2, dated October 28, 1998, to the Note Purchase
Agreement referenced in item 4.3 above.......................... 202
4.7 Amended and Restated Rights Agreement, dated as of July 23, 1998,
between TBC Corporation and BankBoston, N.A., as Rights Agent,
including as Exhibit A thereto the form of Rights Certificate, was
filed as Exhibit 4.1 to the TBC Corporation Form 8-A/A-1 Registration
Statement filed with the Commission on July 30, 1998.............. *
4.8 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......... *
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10.2 Agreement, dated January 7, 1998, to Extend Executive Employment
Agreement between the Company and Mr. Louis S. DiPasqua was
filed as Exhibit 10.1 to the TBC Corporation Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998............... *
10.3 Amendment, dated July 1, 1996, to Executive Employment
Agreement between the Company and Mr. Louis S. DiPasqua was
filed as Exhibit 10.4 to the TBC Corporation Annual Report on Form
10-K for the year ended December 31, 1996............ *
10.4 Form of Trust Agreement (between the Company and certain
executive officers - 1/1/98 version) was filed as Exhibit 10.3 to the
TBC Corporation Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998....................................... *
10.5 TBC Corporation 1989 Stock Incentive Plan, as amended and
restated April 23, 1997 was filed as Exhibit 10.1 to the TBC
Corporation Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997................................................... *
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 February 20, 1998
between the Company and Mr. Lawrence C. Day, (without Exhibit A
thereto, which is substantially identical to the Form of Trust
Agreement referenced in Exhibit 10.4) was filed as Exhibit 10.4 to
the TBC Corporation Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998............................................ *
10.9 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........................................ *
10.10 Amendment, dated July 1, 1996, to Executive Employment
Agreement between the Company and Mr. Ronald E. McCollough
was filed as Exhibit 10.16 to the TBC Corporation Annual Report
on Form 10-K for the year ended December 31, 1996....... *
10.11 Agreement to Extend Executive Employment Agreement, between
the Company and Mr. Ronald E. McCollough dated October 31, 1997
was filed as Exhibit 10.16 to the TBC Corporation Annual Report
on Form 10-K for the year ended December 31, 1997.............. *
-40-
10.12 Amended and Restated Executive Employment Agreement dated
as of August 1, 1997 between the Company and Mr. Barry D.
Robbins, including Trust Agreement as Exhibit A thereto, was filed
as Exhibit 10.2 to the TBC Corporation Quarterly Report on Form
10-Q for the quarter ended September 30, 1997.................. *
10.13 TBC Corporation Management Incentive Compensation Plan,
effective January 1, 1997, was filed as Exhibit 10.1 to the TBC
Corporation Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.............................................. *
10.14 TBC Corporation Executive Supplemental Retirement Plan, as
amended through August 1, 1997, was filed as Exhibit 10.3 to
the TBC Corporation Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997............................. *
10.15 TBC Corporation Executive Retirement Plan was filed as Exhibit
10.1 to the TBC Corporation Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998..................................... *
Other Material Contracts
10.16 Lease Agreement, dated February 25, 1980, between TBC
Corporation and Vantage-Memphis, Inc. was filed as Exhibit 10.2
to TBC Corporation Registration Statement on Form S-1, filed on
April 21, 1983 (Reg. No. 2-83216).............................. *
10.17 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.......................... *
10.18 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 .. *
10.19 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 .. *
10.20 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............................ *
10.21 Form of Franchise Agreement in use by Big O Tires, Inc. was filed
as Exhibit 10.25 to the TBC Corporation Annual Report on Form
10-K for the year ended December 31, 1997....................... *
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10.22 Agreement, dated October 1, 1977, between TBC Corporation
and The Kelly-Springfield Tire Company, including letter dated
June 30, 1978, was filed as Exhibit 10.6 to TBC Corporation
Registration statement on Form S-1, filed on April 21, 1983
(Reg. No. 2-83216)................................................ *
10.23 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............................... *
10.24 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..................................... 209
(23) CONSENTS OF EXPERTS AND COUNSEL:
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants,
to incorporation by reference of their report dated January 29, 1999
in Post-Effective Amendment No. 1 to Registration Statement on
Form S-8 for the Company's 1989 Stock Incentive Plan
(Reg. No. 33-43166)............................................. 210
(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.... 211
(27) FINANCIAL DATA SCHEDULE:
27.1 Financial Data Schedule.......................................... +
"*" 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.
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TBC CORPORATION
EXHIBITS
TO
FORM 10-K
FOR THE YEAR ENDED
DECEMBER 31, 1998
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