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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

COMMISSION FILE NUMBER 0-11579

TBC CORPORATION

Registrant’s telephone number, including area code: (901) 363-8030

Securities registered pursuant to Section 12(b) of the Act:

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]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act):      Yes   [X]      No   [   ]

INDEX TO EXHIBITS at page 43 of this Report

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DOCUMENT INCORPORATED BY REFERENCE

TBC Corporation’s Proxy Statement for its Annual Meeting of Stockholders to be held on April 30, 2003. 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.

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PART I

     TBC Corporation’s business began in 1956 under the name Cordovan Associates, Incorporated. The Company was incorporated in Delaware in 1970 under the name THE Tire and Battery Corporation. In 1983, the Company changed its name to TBC Corporation.

     TBC and its wholly-owned subsidiaries are principally engaged in the marketing and distribution of tires in the automotive replacement market. The Company believes it is the largest independent marketer/distributor of private brand replacement tires in the United States. The Company has two operating segments: wholesale and retail. (See Note 12 to the consolidated financial statements included in this Report for financial information about each of the reportable segments.) Unless the context indicates otherwise, the term “Company” refers to TBC Corporation and its subsidiaries, taken as a whole.

Wholesale Business

     The wholesale segment of the Company’s business (the “Wholesale Business”) consists of those operations which market and distribute the Company’s proprietary brands of tires, as well as other tires and related products, on a wholesale basis. These products are marketed through a network of distributors located throughout the United States and in Canada and in Mexico. These distributors operate under written distributor agreements with the Company and resell the Company’s products to retailers or through retail outlets primarily consisting of independent tire dealers. The Wholesale Business operates a total of 27 warehouse distribution centers, all of which are located in the United States.

     Tires marketed under the Company’s proprietary brand trademarks are manufactured for the Company by leading manufacturers. The Company’s Cordovan®, Multi-Mile®, Sigma® and Vanderbilt® lines of tires are among the most complete lines in the replacement tire market for automobiles, light trucks and sport utility vehicles. The Company also distributes tires under other brands for automobile, truck, sport utility vehicle, farm, industrial, recreational and other applications.

Retail Business

     The retail segment of the Company’s business (the “Retail Business”) consists of both the franchised retail tire business conducted by the Company’s Big O Tires, Inc. subsidiary (“Big O”), as well as the retail tire stores operated by the Company’s Tire Kingdom, Inc. subsidiary (“Tire Kingdom”).

     Big O franchises retail tire and automotive service stores located primarily in the western and midwestern United States and sells Big O® brand tires and other tires to these franchisees. At December 31, 2002, the Company had a total of 536 Big O stores, serviced by 7 distribution centers. Included in the 536 total outlets were 511 franchisee-owned stores, 18 stores owned by joint ventures in which the Company has an equity interest, and 7 stores operated by the Company. Big O products are also sold by Big O to 34 unaffiliated retail stores in British Columbia, Canada. Big O franchise agreements grant a ten-year license to sell Big O brand tires and to use Big O trademarks and trade secrets in the operation of a retail store at a specific location within a defined trade area. With the exception of retail tire stores converting to the Big O franchise system, each franchisee is required to pay an initial franchise fee. All franchisees are required to pay monthly royalty fees.

     Tire Kingdom, which the Company acquired in June 2000, operates retail tire and automotive service centers primarily in the southeastern United States. At the end of 2002, Tire Kingdom operated a total of 222 stores, serviced by 2 distribution centers. Tire Kingdom markets a broad selection of tires under nationally-advertised brands and private brands, including the Company’s own Sigma® brand. Tire Kingdom’s retail centers provide full service tire replacement including tire balancing, wheel alignment, extended service programs and warranties, and also perform maintenance and mechanical services such as brake repairs, suspension system replacement, and oil changes.

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Products and Suppliers

     Sales of tires accounted for approximately 85% of the Company’s total sales in 2002, 86% in 2001, and 89% in 2000. Tire and mechanical services performed by Company-operated retail stores represented approximately 12%, 10% and 5% of total sales in 2002, 2001 and 2000, respectively. The remainder of the Company’s sales include tubes, wheels, and other products for the automotive replacement market.

     The Company purchases its products, in finished form, from a number of major rubber companies and other suppliers to the automotive replacement market. In the case of tires bearing the Company’s trademarks, the Company owns many of the molds in which they are made.

     The Goodyear Tire & Rubber Company manufactured more than half of the tires purchased by the Company in 2002, pursuant to a supply agreement entered into in 1977 and a 10-year commitment signed in 1994. This ongoing supply relationship began in 1963 with The Kelly-Springfield Tire Company as the supplier. Kelly-Springfield later became a wholly-owned subsidiary of Goodyear and was ultimately merged into Goodyear in December 1996. The Company also has a supply agreement with Cooper Tire and Rubber Company, its second-largest supplier, which extends until June 2011. In addition, the Company has written contracts with certain other suppliers.

     From time to time, the tire industry has faced shortages and supply disruptions affecting the availability of particular sizes of tires, for reasons such as production difficulties, labor unrest, and recalls. While the Company has not been immune from difficulties in purchasing products in quantities desired, the Company believes that its long-term relationships with its primary suppliers have been beneficial in minimizing the impact of any industry shortages or supply disruptions. In the event that any of its primary suppliers curtail their manufacturing or otherwise encounter difficulties in meeting the Company’s production requirements, the Company’s business would be adversely affected pending the implementation of contingency plans. Such contingency plans, which are continually updated to reflect changing industry conditions, are designed to mitigate any long-term adverse effect of a significant supply disruption and include the use of alternate suppliers. In addition to the Company’s current suppliers, there are a number of other large tire manufacturers on a worldwide basis that have the desire and capacity to meet the Company’s needs for its proprietary lines of tires.

Trademarks

     In addition to its Cordovan®, Multi-Mile®, Sigma®, Vanderbilt®, Big O® and Tire Kingdom® trademarks, the Company also holds federal registrations for trademarks such as Grand Prix®, Grand Am™, Grand Spirit®, Wild Spirit®, Aqua Flow®, Wild Country®, Wild Trac®, Turbo-Tech®, Supreme™, Stampede®, Power King®, Harvest King®, Big Foot®, Legacy®, Prestige®, and Sun Valley®.

     The ability to offer products and services under established trademarks represents an important marketing advantage in the automotive replacement industry, and the Company regards its trademarks as valuable assets of its business.

Customers

     The Company’s ten largest customers in its Wholesale Business accounted for approximately 34% of total wholesale sales and 19% of the Company’s total consolidated sales in 2002. No individual customer accounted for more than 5% of total sales. The loss of a major customer in the Wholesale Business could have a material adverse effect upon this segment and the Company’s business as a whole, pending the establishment of a replacement customer to market the Company’s products. See Note 2 to the consolidated financial statements and Item 13 of this Report for additional information concerning major customers.

     Sales to domestic customers represented 94% of the Company’s consolidated sales in 2002 and 2001, and 95% in 2000. The remainder of the Company’s sales was attributable to customers located outside the United States, principally in Mexico and Canada. The Company has no significant foreign currency translation risks, since its sales to customers located outside the United States are made and settled in U.S. dollars.

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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. In 2002, first quarter sales represented approximately 22% of total sales, the second quarter 26%, the third quarter 27%, and the fourth quarter 25%. During the five-year period from January 1, 1998 through December 31, 2002, first quarter sales have represented, on the average, approximately 22% of annual sales; the second quarter and third quarters 25% and 28%, respectively; and the fourth quarter 25%.

     Orders for the Company’s products, except for those sold directly to consumers in the Retail Business segment, are usually placed with the Company by computer, facsimile, or telephone. These orders are filled either out of the Company’s inventory or by direct shipment to the customer from the manufacturers’ plants at the Company’s request.

     Since customers look to the Company to fulfill their needs on short notice, the Company maintains a large inventory of tires and other products, both for its Wholesale Business and its Retail Business segments. Average inventories, based on quarter-end levels on hand and in transit, were $181.4 million during 2002. The Company’s inventory turn rate (cost of sales, including the cost of direct shipments from manufacturers to customers, divided by average inventory) was 4.5 for 2002.

Competition

     The industry in which the Company operates is highly competitive. In the case of the Company’s Wholesale Business, many of the Company’s competitors are significantly larger and have greater financial and other resources than the Company. These competitors include the Company’s own suppliers and other tire manufacturers, other wholesale tire distributors, as well as mass merchandisers and retailers with sufficient purchasing power to command wholesale prices.

     The Company believes its Wholesale Business is able to compete successfully because of its ability to offer quality products under proprietary brand names at competitive prices, its efficient distribution systems, its good relationships with customers and suppliers, and its established presence in the markets it serves.

     In the case of the Company’s Retail Business, competition is based primarily upon market presence in a specific geographic area. Big O’s 536 franchised retail outlets are primarily concentrated in western and midwestern states, which gives Big O a significant market share in many of the retail markets it serves. Tire Kingdom is one of the leading tire retailers in Florida, with 165 of its 222 total retail outlets being located in that state at the end of 2002. Tire Kingdom’s market position outside the state of Florida varies depending upon the city or region. Competitors include stores operated by tire manufacturers, other retail outlets such as warehouse clubs, chains and mass merchandisers, and other independent tire dealers, some of whom are customers or who buy from customers of the Company’s Wholesale Business.

Employees

     As of December 31, 2002, the Company employed approximately 3,200 persons, of which approximately 2,700 were in its Retail Business. None of the Company’s employees are represented by a union, and the Company considers its employee relations to be excellent.

Internet Website Address and Availability of SEC Filings

     The Company maintains an internet website, www.tbccorp.com. The Company makes its SEC filings, including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, immediately available on its website after filing, via an electronic link from the Company’s website to the SEC’s EDGAR database. Paper copies of such SEC filings are also available free of charge from the Company, upon request.

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     TBC Corporation’s executive offices are located in Memphis, Tennessee, along with two of its warehouse distribution facilities. The Company has a total of 36 warehouse distribution facilities, totaling approximately 3.7 million square feet, located in 17 states across the United States. Approximately 2.9 million square feet of the Company’s warehouse distribution facilities are utilized for the Company’s Wholesale Business and approximately 800,000 square feet are utilized for the Retail Business.

     The Company owns its executive office building and two of its distribution facilities. The remainder of the distribution facilities, totaling approximately 3.2 million square feet, are leased under operating leases, as are all of the retail tire and service centers operated by the Company. See Note 6 to the consolidated financial statements for information regarding the Company’s operating lease commitments.

     The Company is involved in various legal proceedings which are routine to the conduct of its business, none of which is believed to be material to the Company. Some of these proceedings involve personal injury lawsuits based upon alleged defects in products sold by the Company. The Company believes that in substantially all such product liability cases, it is covered by its manufacturers’ indemnity agreements or product liability insurance. The Company also maintains its own product liability insurance, as well as coverage for damages, workmanship and claims relating to repairs and services performed by its Retail Business.

     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 30, 2003) or until their respective successors are elected.

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     Mr. Day has been the Company’s Chief Executive Officer since October 1999 and President since October 1998. Mr. Day served as the Company’s Chief Operating Officer from the time he joined the Company in April 1998 until his election as Chief Executive Officer. Mr. Day was an Executive Vice President of the Company prior to his election as President. Mr. Day was President and Chief Executive Officer of Monro Muffler Brake, Inc. from 1995 to 1998. Prior to joining Monro in 1993, Mr. Day was Vice President of Montgomery Ward’s Auto Express Division. His experience in the tire industry includes 13 years in a series of managerial positions with the Firestone Tire & Rubber Company.

     Mr. Garvey has been Executive Vice President and Chief Financial Officer of the Company since January 2001 and also served as Treasurer from January 2001 to August 2002. From 1993 to January 2001, Mr. Garvey was Executive Vice President and Chief Financial Officer of Tire Kingdom, which TBC acquired in June 2000. From 1987 to 1992, Mr. Garvey served as Executive Vice President and Chief Financial Officer of Fisher Scientific Company.

     Mr. Dick has been President of the TBC Private Brands Division since its formation in July 2001 and prior to that was the Company’s Executive Vice President of Sales. From 1988 until his election as Executive Vice President in April 2000, Mr. Dick served as Senior Vice President Sales of the Company. From 1982 until 1988, Mr. Dick was the Company’s Vice President of Sales. Mr. Dick joined the Company in 1971 and served in a number of sales management positions prior to his election as Vice President.

     Mr. Gravatt has been the Company’s Senior Vice President of Purchasing since August 1999. From 1987 until his election as Senior Vice President, Mr. Gravatt was a Vice President of the Company. Mr. Gravatt joined the Company in 1984 as Manager of Purchasing and served in that role until his election as a Vice President.

     Mr. Potts has been a Vice President since joining the Company in April 1998. From 1994 until joining the Company, Mr. Potts was Vice President, Human Resources of Millard Refrigerated Services, Inc., and from 1988 to 1994 was Corporate Director of Human Resources for Griffin Industries, Inc.

     Mr. Coley has been a Vice President of the Company since 1993 and Corporate Controller and Assistant Secretary since April 1999. Mr. Coley was Controller of the Company from 1989 to 1999. Mr. Coley joined the Company in 1984 and served in a number of financial management positions prior to his election as Controller.

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PART II

     The Common Stock of the Company is traded on The Nasdaq Stock Market under the symbol TBCC. As of December 31, 2002, the Company had approximately 3,500 stockholders based on the number of holders of record and an estimate of the number of individual participants represented by security position listings. Historically, the Company has not paid cash dividends and the Company has no intention to do so in the foreseeable future. In addition, the Company’s short-term and long-term credit facilities restrict its ability to declare cash dividends (see the Liquidity and Capital Resources section of Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Note 4 to the consolidated financial statements).

     The following table sets forth for the periods indicated the high and low sale prices for the Company’s Common Stock on the Nasdaq National Market System.

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     Set forth below is selected financial information of the Company for each year in the five-year period ended December 31, 2002. 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 2000 acquisition of Tire Kingdom, Inc. in Note 3 to the consolidated financial statements. Information regarding the 1998 acquisition of Carroll’s, Inc. was included in Note 4 to the consolidated financial statements included in Form 10-K for the year ended December 31, 2000. The Company did not declare any cash dividends during the five-year period ended December 31, 2002.

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RESULTS OF OPERATIONS

2002 Compared to 2001:

     The Company has two operating segments: retail and wholesale. The retail segment includes the franchised retail tire business conducted by Big O Tires, Inc., as well as the operation of retail tire and service centers by Tire Kingdom, Inc. The wholesale segment markets and distributes the Company’s proprietary brands of tires, as well as other tires and related products, on a wholesale basis to distributors who resell to or operate independent tire dealers.

     Net sales for 2002 increased 9.9% from the 2001 level, due principally to the combined effects of a 5.4% gain in total unit tire volume, a 2.7% increase in the average tire sales price and greater service revenues in Company-operated retail tire outlets. In comparison, unit tire shipments for the U.S. replacement tire industry as a whole declined approximately 0.3% during 2002 (based on preliminary data). The percentage of total Company sales attributable to tires was 85% in 2002 compared to 86% in 2001. Net sales by the Company’s retail segment increased 14.8% compared to the 2001 level, including a 7.7% increase in unit tire volume, a 2.6% increase in the average retail tire sales price and the previously-mentioned increase in service revenues. Sales by the retail segment were favorably affected by an increase in the number of Company-operated and franchised stores in the Company’s retail systems. At the end of 2002, the Company had a total of 758 stores in its two retail systems compared to 686 stores at December 31, 2001. Net sales by the wholesale segment increased 6.1% over the 2001 level, due principally to a 4.4% increase in unit tire sales and a 2.4% increase in average tire sales prices.

     Gross profit as a percentage of net sales increased from 26.3% in 2001 to 27.2% in 2002. The improved overall gross profit percentage was largely due to the increased contribution from the retail segment. In addition, the Company’s increased overall unit volume led to greater purchasing leverage with suppliers and a resulting improvement in net purchase prices. Gross margin percentages on sales by the Company’s retail segment increased to 42.5% in 2002 from 41.7% in 2001, while wholesale margins were 14.1% in 2002 compared to 14.0% in 2001.

     Distribution expenses as a percentage of net sales decreased from 5.0% in 2001 to 4.8% in 2002. Increases in total sales helped to leverage the Company’s warehousing and product delivery costs, since many of them, such as rent, do not vary in relation to sales.

     Selling, administrative and retail store expenses increased $27.7 million in 2002 compared to 2001, due principally to a greater number of company-operated retail stores. Expenses for such retail stores include payroll, operating and service-related costs, in addition to certain other selling and administrative expenses. Expenses in 2001 included amortization of goodwill and trademarks of $2.8 million. No amortization of such assets was recorded in 2002, under the provisions of Statement of Financial Accounting Standards No. 142 (SFAS No. 142), which was adopted by the Company on January 1, 2002 (see Note 1 to the consolidated financial statements.) Expenses in 2001 also included $720,000 related to the writeoff of a prepaid pension asset. Excluding the impact of the amortization and pension charge in the prior year and the expenses associated with the new stores, selling, administrative and retail store expenses increased only 4.5% in 2002 compared to the 2001 level, while net sales (excluding the new stores) increased 5.7%.

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     Net interest expense decreased $2.5 million in 2002 compared to 2001 level, due principally to the combined effects of lower overall borrowing rates and lower average borrowings. The Company’s average borrowing rate in 2002 was approximately 16% lower than in 2001, which was a reflection of lower market interest rates as well as efforts by the Company to better manage receivables, inventories and other key components of working capital and thereby minimize interest rate spreads under its borrowing agreements. Average borrowings declined 12% from the 2001 level, principally as a result of cash generated from operations and the above-mentioned management efforts which allowed the Company to reduce its debt to banks and other lenders. Net interest expense in 2001 included interest income of $606,000 related to refunds on amended tax returns filed in prior years.

     Net other income in 2002 was $557,000 less than in 2001, due primarily to a decline in interest and service charge income from customers as well as a decrease in the Company’s equity in operating results from joint ventures.

     The Company’s effective tax rate was 37.3% in 2002 compared to 39.9% in 2001. The lower effective rate in 2002 was due to reduced provisions for state income taxes as well as the impact of SFAS No. 142, since the majority of goodwill amortized in prior years was not deductible for tax purposes.

     Earnings per diluted share were $1.25 in 2002 and $0.98 in 2001. Earnings per diluted share in 2001 included a charge of $0.02 as a result of the previously-noted writeoff of a prepaid pension asset and a credit of $0.02 related to interest on prior year amended tax returns, in addition to the approximate $0.12 charge related to the amortization of goodwill and certain other intangible assets prior to the adoption of SFAS No. 142. Excluding the effects of these items, earnings in 2001 would have been approximately $1.10 per diluted share.

2001 Compared to 2000:

     As a result of the Company’s acquisition of Tire Kingdom, Inc. (“Tire Kingdom”) in June 2000 (see Note 3 to the consolidated financial statements), there were a number of significant changes in income statement items between the years 2001 and 2000, since results in 2000 only included Tire Kingdom for the seven months following the acquisition.

     Net sales for 2001 increased 11.8% from the 2000 level, due principally to the combined effects of a 6.1% increase in the average tire sales price and a 0.9% gain in unit tire volume. The increased unit tire volume was due principally to the inclusion of tire units sold by Tire Kingdom during all of 2001. The increase in the average tire sales price was due to the increased proportion of sales attributable to retail, as well as the effect of industry price increases during 2001. Net sales also benefited from the inclusion of revenue from mechanical and maintenance services performed by Tire Kingdom’s retail stores during the entire year of 2001. The revenue from such services, which is included in non-tire sales, caused the percentage of total sales attributable to tires to shift from 89% in 2000 to 86% in 2001. Excluding the impact of Tire Kingdom, unit tire volume declined 7.2% compared to the 2000 level, while the average tire sales price increased 4.1%. The decline in unit tire volume after excluding Tire Kingdom was largely reflective of a fluctuation in industry demand from year to year. Demand in 2000 was greater than normal, due to certain recalls within the industry and because of strong purchasing activity in the fourth quarter in advance of announced industry price increases effective January 1, 2001. Industry demand in 2001 was affected somewhat by the overall general economic slowdown during the last half of the year.

     Gross profit as a percentage of net sales increased from 22.0% in 2000 to 26.3% in 2001, due primarily to the significantly increased proportion of sales attributable to the retail segment. Gross margin percentages on sales by the Company’s retail segment increased from 36.1% in 2000 to 41.7% in 2001, due principally to the inclusion of Tire Kingdom for the full year in 2001. Wholesale margins were relatively unchanged, at 14.0% in 2001 compared to 14.3% in 2000.

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     Distribution expenses as a percentage of net sales decreased from 5.4% in 2000 to 5.0% in 2001, due largely to the inclusion of Tire Kingdom for the entire year in 2001. As an operator of retail stores, Tire Kingdom generally experiences lower warehousing and product delivery costs as a percentage of its sales than the Company experiences on sales to its other customers. The Company also benefited in 2001 from improved operating efficiencies by its wholesale segment, which led to reduced warehousing and product delivery expenses as a percentage of sales.

     Selling, administrative and retail store expenses increased $62.0 million in 2001 compared to 2000, due principally to the inclusion of Tire Kingdom’s expenses for the full year of 2001 and to a greater number of retail stores in operation. In addition, an increase in market development expenses and store conversion costs in conjunction with the expansion of the Company’s franchised retail system caused expenses in 2001 to be greater than in 2000. Expenses for the retail segment, particularly those associated with the operation of the Company’s own retail stores, are substantially higher as a percentage of sales than for the wholesale segment. Expenses of a non-recurring nature included a charge of $720,000 in 2001 related to the writeoff of a prepaid pension asset and a charge of approximately $1.2 million in 2000 related to certain severance and management restructuring.

     Net interest expense in 2001 declined $203,000 from the 2000 level and included lower average borrowing rates and higher average borrowing levels. In addition, the net expense in 2001 included interest income of $606,000 related to refunds on amended tax returns filed in prior years. The higher average borrowings during 2001 were principally associated with the borrowings made to fund the Tire Kingdom acquisition in June 2000. The structure of the Company’s borrowing agreements was changed as a result of the acquisition to include somewhat higher interest rate spreads based upon the Company’s leverage ratio. This change led to a 4.2% decline in total average borrowing rates in 2001, even though market interest rates experienced a much sharper decrease compared to 2000.

     Net other income in 2001 was $503,000 greater than in 2000, due in part to improved results from real estate transactions associated with franchised store development and to increased interest and service charge income from customers.

     The Company’s effective tax rate was relatively unchanged, at 39.9% in 2001 compared to 39.7% in 2000.

     Earnings per diluted share in 2001 totaled $0.98 and included a charge of $0.02 as a result of the previously-noted writeoff of a prepaid pension asset and a credit of $0.02 related to interest on prior year amended tax returns. Earnings per diluted share in 2000 totaled $0.88 and included a net charge of $0.04 as a result of the previously-noted management restructuring expenses. Excluding the effects of these items, earnings were $0.98 (as reported) in 2001 compared to $0.92 per diluted share in 2000.

LIQUIDITY AND CAPITAL RESOURCES

     The Company had working capital of $166.6 million at December 31, 2002, relatively unchanged from $167.2 million at the end of 2001. The Company’s current ratio was 2.10 at the end of both 2002 and 2001.

     In January 2001, the Company entered into a borrowing agreement with a group of 11 banks which included an $80 million, three-year revolving loan facility and an $80 million, five-year term loan. At December 31, 2002, $35.0 million was borrowed under the bank revolving loan facility and $63 million was outstanding under the bank term loan. The Company’s long-term debt at the end of 2002 also included $34.0 million in Senior Notes. Of the total $132.0 million borrowed at December 31, 2002 under these credit arrangements, $53.5 million was classified as current on the Company’s balance sheet and the remaining $78.5 million was considered noncurrent. The Company is subject to certain financial covenants and other restrictions under its agreements with the respective lenders (see Note 4 to the consolidated financial statements). The Company was in compliance with all of its borrowing covenants as of December 31, 2002 and for the year then ended. The current revolving loan facility is scheduled to expire in January 2004. The Company began discussions with lenders in early 2003 to restructure its borrowing agreements, to provide financial resources to help meet the Company’s capital needs as it plans for continued future growth.

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     Cash generated by operations, together with the available credit arrangements, enabled the Company to fund capital expenditures totaling $15.2 million in 2002, as well as the purchase of the net assets of certain retail tire stores for $11.2 million. Additionally, the Company was able to reduce its total funded debt by a total of $19.7 million during 2002 and fund repurchases of common stock totaling $3.1 million. As of December 31, 2002, the Company had an unused authorization from the Board of Directors for the repurchase of 1,199,000 additional shares of common stock.

     Capital expenditures in 2002 and 2001 were primarily for equipment and tire molds. The Company had no material commitments for capital expenditures at the end of 2002. The Company expects to fund 2003 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 bank borrowing facilities and expected funds from operations will be sufficient to operate on both a short-term and long-term basis.

     In 2002, management’s strong emphasis on managing working capital and the balance sheet resulted in cash from operations of over $45 million. Accounts receivable and inventory turnover both improved significantly in 2002 compared to the 2001 rates. The Company was able to reduce its investment in franchise stores under development (included in other current assets on the balance sheet) by $4.6 million compared to the December 31, 2001 level. The balance in other noncurrent assets was also significantly reduced, primarily as a result of collections of noncurrent notes receivable.

     The Company expects its future growth to include additional strategic acquisitions such as the June 2000 acquisition of Tire Kingdom. It is likely that at least one such acquisition will be made in 2003. Significant future acquisitions could require additional capital resources and would involve new or amended credit facilities. See “Forward-Looking Statements and Risks” below, which identifies certain risks associated with the Company’s acquisition strategy, as well as many of the other factors which influence the Company’s operating results, its future growth potential and the industry in which it operates.

CRITICAL ACCOUNTING POLICIES

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as certain financial statement disclosures. Actual results could differ from those estimates. Significant accounting policies employed by the Company, including the use of estimates and assumptions, are presented in the Notes to Consolidated Financial Statements. Management bases its estimates on its historical experience, together with other relevant factors, in order to form the basis for making judgements, which will affect the carrying values of assets and liabilities. On an ongoing basis, management evaluates its estimates and makes revisions as deemed necessary. The following areas are considered to be of critical importance:

     Inventories - Inventories, consisting of tires and other automotive products held for resale, are valued at the lower of cost or market. Certain inventories are valued using the last in-first out method.

     Revenue recognition - Sales are recognized upon shipment of products. Estimated costs of returns, allowances and customer rebates 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. Initial franchise fees are deferred and recognized when all material services or conditions relating to the sale or transfer of the franchise have been substantially completed.

     Retirement plan obligations - The values of certain assets and liabilities associated with the Company’s retirement plan obligations are determined on an actuarial basis and include estimates and assumptions such as the expected return on plan assets and discount rates. Discount rates are determined based on rates of high quality, fixed income investments. Actual changes in the fair market value of plan assets, differences between the actual return and the expected return on plan assets and changes in the discount rate affect the amount of the pension expense recognized.

     Long-lived assets - The Company periodically reviews the recoverability of its long-lived assets. If facts or circumstances support the possibility of impairment, the Company will prepare a projection of the undiscounted future cash flows of the specific assets and determine if the assigned value is recoverable or if an adjustment to the carrying value of the assets is necessary. There were no facts or circumstances which indicated an impairment of recorded assets as of December 31, 2002 or 2001.

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     Goodwill, Trademarks and Other Intangible Assets - Goodwill represents the excess of cost over the fair value of identifiable net assets acquired. Under the provisions of SFAS No. 142, goodwill and other indefinite-lived intangible assets ceased the amortization of goodwill effective January 1, 2002, with charges being recorded only if impairment is found to exist. At least annually, the Company compares the carrying values of its “reporting units” to their fair value, with a reporting unit being defined as an operating segment or one level below a segment if discrete financial information is prepared and reviewed regularly by management. If the carrying value of a reporting unit exceeds its fair value, an impairment loss is required to be recognized. No impairment to the recorded value of Company’s indefinite-lived assets was found to exist as a result of the required testing.

     Warranty costs - The costs of anticipated adjustments for workmanship and materials that are the responsibility of the Company are estimated and charged against earnings currently. Reserves for future warranty claims and service are included in liabilities in the balance sheets.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 2001, Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” was issued, effective for financial statements for fiscal years beginning after June 15, 2002. SFAS 143 requires entities to establish liabilities for legal obligations associated with the retirement of tangible long-lived assets. The Company will adopt this statement in 2003 as required, but does not expect it to have a material impact on its financial statements.

     In October 2001, Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” was issued, effective for years beginning after December 15, 2001. SFAS No. 144 superseded SFAS 121 and addresses financial accounting and reporting for long-lived assets to be held and used, and of long-lived assets and components of an entity to be disposed of. The Company adopted this statement on January 1, 2002, as required, and it did not have a material effect on its financial statements.

     In April 2002, Statement of Financial Accounting Standards No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” was issued. SFAS No. 145 rescinded three previously issued statements and amended SFAS No. 13, “Accounting for Leases.” The statement provides reporting standards for debt extinguishments and provides accounting standards for certain lease modifications that have economic effects similar to sale-leaseback transactions. The statement was effective for certain lease transactions occurring after May 15, 2002 and all other provisions of the statement were effective for financial statements issued on or after May 15, 2002. Adoption of this standard did not have any impact on the Company’s financial statements.

     In June 2002, Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” was issued, effective for such activities initiated after December 31, 2002. The statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred and establishes that fair value is the objective for initial measurement of the liability. The Company does not expect the adoption of SFAS No. 146 to have a material effect on its financial statements.

     In December 2002, Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure” was issued. SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” and provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation. SFAS No. 148 also amends the disclosure requirements of SFAS No. 123 to require more prominent and frequent disclosures in financial statements about the effects of stock-based compensation. The Company will adopt the disclosure provisions of SFAS No. 148 beginning in 2003 and therefore does not expect the statement to have any impact on its financial position or results of operations.

     In November 2002, FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including indirect Guarantees of Indebtedness of Others,” was issued. FIN 45 elaborates on the financial statement disclosures to be made by a guarantor about its obligations under certain guarantees. It also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for

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the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements in the interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002 and the Company has included such disclosures in Note 11 to the consolidated financial statements. The Company does not expect adoption of the liability recognition provisions to have a material impact on its financial position or results of operations.

     In January 2003, FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” was issued. This interpretation provides guidance on how to identify a variable interest entity (VIE) and determine when the assets, liabilities, noncontrolling interests, and results of operations of a VIE need to be included in a company’s consolidated financial statements. A company that holds variable interests in an entity must consolidate the entity if the company’s interest in the VIE is such that the company will absorb a majority of the VIE’s expected losses and/or receive a majority of the entity’s expected residual returns, if they occur. FIN 46 also requires additional disclosures by primary beneficiaries and other significant variable interest holders. The provisions of this interpretation apply immediately to VIE’s created after January 31, 2003. For VIE’s created prior to February 1, 2003, the Company must apply FIN 46 to financial statements for periods beginning July 1, 2003. The Company has certain synthetic lease agreements that may be affected by the provisions of FIN 46, but the Company does not expect this interpretation to have a material impact on its financial position or results of operations.

FORWARD-LOOKING STATEMENTS AND RISKS

     This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended, including, without limitation, statements containing the words “believes,” “expects,” “anticipates,” “estimates” and words of similar import. Such forward-looking statements relate to expectations for future financial performance, which involve known and unknown risks, uncertainties and other factors. Such factors include, but are not limited to: changes in economic and business conditions in the world; increased competitive activity; consolidation within and among both competitors, suppliers and customers; unexpected changes in the replacement tire market; the Company’s inability to attract as many new franchisees or open as many company-operated retail outlets as planned; changes in the Company’s ability to identify and acquire additional companies in the replacement tire industry and the failure to achieve synergies or savings anticipated in such acquisitions; fluctuations in tire prices charged by manufacturers, including fluctuations due to changes in raw material and energy prices; product shortages and supply disruptions; changes in interest and foreign exchange rates; the cyclical nature of the automotive industry and the loss of a major customer or program. It is not possible to foresee or identify all such factors. Any forward-looking statements in this report are based on certain assumptions and analyses made by the Company in light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Such statements are not a guarantee of future performance and actual results or developments may differ materially from those projected.

     The Company is exposed to certain financial market risks. The most predominant of these risks is the fluctuation in interest rates associated with bank borrowings, since changes in interest expense affect the Company’s operating results. At December 31, 2002, the Company owed $98.0 million to banks under its credit facilities, of which $78.3 million was not hedged by interest-rate swap agreements and was thus subject to market risk for a change in interest rates. If interest rates increase by 25 basis points, the Company’s annual interest expense would increase by approximately $196,000, based on the outstanding balance which was not hedged at December 31, 2002. See Note 5 to the consolidated financial statements for information regarding the Company’s interest rate swap agreements.

     The Company has no significant foreign currency translation risks, since its sales to customers located outside the United States are made and settled in U.S. dollars.

     The financial statements and supplementary financial information required by this Item 8 are included on the following 20 pages of this Report.

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PRICEWATERHOUSECOOPERS

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 cash flows present fairly, in all material respects, the financial position of TBC Corporation and its subsidiaries at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 1 to the consolidated financial statements, the Company adopted FASB Statement No. 142, “Goodwill and Other Intangible Assets,” during 2002.

PricewaterhouseCoopers LLP

February 7, 2003

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TBC CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands)

ASSETS

The accompanying notes are an integral part of the consolidated financial statements.

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TBC CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands)

LIABILITIES AND STOCKHOLDERS’ EQUITY

The accompanying notes are an integral part of the consolidated financial statements.

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TBC CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

The accompanying notes are an integral part of the consolidated financial statements.

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TBC CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

The accompanying notes are an integral part of the consolidated financial statements.

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TBC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

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TBC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In thousands)