-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ONIfdV/EmdKpSB0/0GQXneeQ28tI0WlhYvO+rri/d1syzNuROPbR1Z4b4lyBybja xRK4Pz+eNiPzpJ4N/Zjldg== 0000718449-97-000001.txt : 19970222 0000718449-97-000001.hdr.sgml : 19970222 ACCESSION NUMBER: 0000718449-97-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970218 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TBC CORP CENTRAL INDEX KEY: 0000718449 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MOTOR VEHICLES & MOTOR VEHICLE PARTS & SUPPLIES [5010] IRS NUMBER: 310600670 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-11579 FILM NUMBER: 97536817 BUSINESS ADDRESS: STREET 1: 4770 HICKORY HILL RD CITY: MEMPHIS STATE: TN ZIP: 38141 BUSINESS PHONE: 9013638030 MAIL ADDRESS: STREET 1: 4770 HICKORY HILL RD CITY: MEMPHIS STATE: TN ZIP: 38141 10-K 1 CONFORMED SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER DECEMBER 31, 1996 0-11579 TBC CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 31-0600670 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4770 Hickory Hill Road Memphis, Tennessee 38141 (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code: (901)363-8030 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered None None Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] INDEX TO EXHIBITS at page 37 of this Report Aggregate market value of outstanding shares of Common Stock, par value $.10, held by non-affiliates of the Company on December 31, 1996 (for purposes of this calculation, 2,107,464 shares beneficially owned by directors and executive officers of the Company were treated as being held by affiliates of the Company)................. $162,149,625 Number of shares of Common Stock, par value $.10, outstanding at the close of business on December 31, 1996 ............................ 23,727,414 DOCUMENT INCORPORATED BY REFERENCE TBC Corporation's Proxy Statement for its Annual Meeting of Stockholders to be held on April 23, 1997. Definitive copies of the Proxy Statement will be filed with the Commission within 120 days after the end of the Company's fiscal year. Only such portions of the Proxy Statement as are specifically incorporated by reference under Part III of this Report shall be deemed filed as part of this Report. _______________________ -2- PART I Item 1. BUSINESS TBC Corporation's business began in 1956 under the name Cordovan Associates, Incorporated. The present company was incorporated in Delaware in 1970 under the name THE Tire & Battery Corporation. In 1983, the Company changed its name to TBC Corporation. TBC Corporation and its wholly-owned subsidiaries are principally engaged in the business of distributing tires and other products in the automotive replacement market. On July 10, 1996, TBC Corporation acquired Big O Tires, Inc. ("Big O"), which is now a wholly-owned subsidiary of TBC Corporation. Big O is primarily engaged in the business of franchising independent retail tire and automotive service stores and supplying such retail stores with tires and related automotive products. On a limited basis, Big O also owns and operates retail stores and engages in site selection and real estate development for retail stores. Big O's retail stores are located primarily in the Midwest and western United States. Unless the context indicates otherwise, the term "Company" refers to TBC Corporation and all of its subsidiaries. Products Sales of tires accounted for approximately 88% of the Company's total sales in 1996 and 89% in 1995 and 1994. The Company's tire lines, substantially all of which carry the Company's proprietary brand names, are made by leading manufacturers. The Company's Cordovan ("R" - Registered Trademark), Multi-Mile (R) and Sigma (R) brand lines of tires are three of the most complete lines in the replacement tire market, including tires for passenger, truck, farm, industrial, recreational and other applications. Big O (R) brand tires, as well as other tires sold through Big O's retail stores, are primarily for passenger and light truck applications. The Company is one of the largest wholesale distributors of replacement tires in the United States. Other brands under which the Company's products are marketed include Grand Prix (R), Grand Am ("TM" - Trademark), Grand Spirit (TM), Wild Spirit (R), Grand Sport (R), Aqua-Flow (R), Wild Country (R), Epic (R), Stampede (R), Talon (R), Power King (R), Harvest King (R), Big Foot (R), Legacy (R), Procomp (R), Arapahoe (R), Aspen (R), Sun Valley (R), Big Haul (R), and Big Sur (R). Through 1996, the Company's products also included tubes, automotive service equipment and automotive parts lines such as batteries, wheels, ride-control products, filters, brake parts and chassis parts. In December 1996, the Company announced its decision to refocus operations on the replacement tire business and discontinue the marketing of automotive parts lines to independent distributors. In connection with this decision, the Company sold certain assets of its battery distribution subsidiary in December 1996. The remainder of the marketing and operational changes are expected to be completed by the end of the first quarter of 1997. There will be no impact on the products marketed and distributed by Big O, which include wheels, ride-control products and certain other automotive products, in addition to its tire lines. -3- Marketing and Distribution The Company distributes its products other than those sold through its Big O subsidiary ("TBC products"), through a network of distributors located across the United States, Canada and Mexico. Some of these distributors act as wholesalers, some as retailers and some as both wholesalers and retailers. The retail outlets handling TBC products consist primarily of independent tire dealers. The loss of any major distributor of TBC products could have a material adverse effect upon the Company's business, pending the Company's establishment of a replacement distributor. Big O distributes its products principally through its franchised independent retail tire and automotive service stores. At December 31, 1996, Big O had a total of 395 stores in the United States, including 385 franchisee-owned stores, two joint venture stores and eight company-owned stores. Big O also distributes its products to 37 unaffiliated retail stores in British Columbia, Canada. Big O franchise agreements essentially grant a ten-year license to sell Big O (R) brand tires and to use Big O trademarks and trade secrets in the operation of a retail store at a specific location within a defined trade area. Each franchisee is required to pay an initial franchise fee as well as monthly royalty fees. Major Customers The Company's ten largest customers accounted for 46% of the Company's gross sales in 1996. Sales to Carroll's, Inc., Hapeville, Georgia, excluding sales to distributors which operate under arrangements with and may pay compensation to Carroll's, represented 12% of the Company's gross sales in 1996. No customer other than Carroll's individually accounted for more than 10% of the Company's 1996 gross sales. See Item 13 of this Report for additional information concerning major customers. Suppliers The Company purchases its products, in finished form, from a number of major rubber companies and other suppliers to the automotive replacement market. The Company owns the brand names under which most of its products are sold and, in the case of tires, many of the molds in which they are made. The Company has not heretofore experienced any difficulty in purchasing products in quantities needed by it, but there can be no assurance that such difficulties will not be encountered in the future. The Kelly-Springfield Tire Company, a division of Goodyear Tire and Rubber Company, has been a supplier to the Company since 1963. Kelly- Springfield manufactured more than half of the tires purchased by the Company in 1996, pursuant to a supply agreement entered into in 1977 and a 10-year commitment signed in 1994. The Company also has written contracts with certain other suppliers. -4- Trademarks Substantially all of the Company's products carry the Company's own brand names, as previously set forth. The ability to offer products under established trademarks represents an important marketing advantage in the automotive replacement industry, and the Company regards its trademarks as valuable assets of its business. The Company holds federal registrations for substantially all of its trademarks. Seasonality and Inventory The Company normally experiences its highest level of sales in the second and third quarters of each year, with the first quarter exhibiting the lowest level. Since 1992, first quarter sales have represented, on the average, approximately 23% of annual sales; the second and third quarters approximately 25% and 28%, respectively; and the fourth quarter approximately 24%. The Company's inventories generally fluctuate with anticipated seasonal sales volume. Orders for the Company's products are usually placed with the Company by computer transmission, facsimile or telephone. Orders are filled either out of the Company's inventory or by direct shipment to the customer from the manufacturers' plants at TBC's request. Since distributors and franchisees look to the Company to fulfill their needs on short notice, the Company maintains a large inventory of products. The average of beginning and end-of-year inventories was $60,300,000 in 1996. The Company's inventory turn rate (cost of sales, including the cost of direct shipments from manufacturers to customers, divided by average inventory) was 8.8 for 1996. Competition The industry in which the Company operates is highly competitive, and many of the Company's competitors are significantly larger and have greater financial and other resources than the Company. The Company's competitors include its own suppliers and other tire manufacturers, as well as other wholesale tire distributors. The Company also competes against chain and department stores, warehouse clubs, oil companies and other tire and automotive product retailers. The Company believes it is able to compete successfully in its industry because of its ability to offer quality products under proprietary brand names, its efficient distribution systems, and its good relationships with distributors, franchisees and suppliers. Employees As of December 31, 1996, the Company employed 530 persons. The Company considers its employee relations to be satisfactory. The Company's employees are not represented by a union. -5- Item 2. PROPERTIES TBC Corporation's executive offices are located in Memphis, Tennessee. Warehouse distribution facilities for TBC products, which total approximately 1,300,000 square feet under roof, are also located in Memphis. The Company owns the executive office building and one of its warehouses. One TBC warehouse is leased under an agreement expiring in 2005 and two other TBC warehouses are leased under agreements expiring in 2000. The Company's Northern States Tire, Inc. subsidiary owns facilities in New Hampshire, Vermont and Maine. Big O leases its executive offices, which are located in Englewood, Colorado. Big O owns its warehouse distribution facilities, which total approximately 480,000 square feet and are located in Boise, Idaho, New Albany, Indiana and Henderson, Nevada. Big O also owns certain retail store locations. Item 3. LEGAL PROCEEDINGS The Company is involved in various legal proceedings which are routine to the conduct of its business. Some of these proceedings involve personal injury lawsuits based upon alleged defects in products sold by the Company. The Company believes that in substantially all such cases it is covered by its manufacturers' indemnity agreements or their product liability insurance. The Company also maintains its own product liability insurance. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE REGISTRANT The following table presents certain information concerning the executive officers of the Company. The term of office of all executive officers of the Company is until the next Annual Meeting of Directors (April 23, 1997) or until their respective successors are elected. Capacities in which Individual Serves Name Age the Company Louis S. DiPasqua 62 President and Chief Executive Officer Kenneth P. Dick 50 Senior Vice President Sales Bob M. Hubbard 62 Senior Vice President Purchasing and Engineering Ronald E. McCollough 56 Senior Vice President Operations and Treasurer Barry D. Robbins 54 Senior Vice President Strategic Planning Larry D. Coley 39 Vice President and Controller -6- Mr. DiPasqua has been Chief Executive Officer since July 1994, and President since joining the Company in 1991. Mr. DiPasqua has been a director since 1991 and served as the Company's Chief Operating Officer from 1991 until July 1994. From 1989 until 1991, Mr. DiPasqua was Vice President, Replacement Tire Sales and Marketing for the Goodyear Tire & Rubber Company and prior to that was President and Chief Executive Officer of Kelly Springfield Tire Company, a division of Goodyear. From 1984 to 1988, Mr. DiPasqua was Chairman and Managing Director of Goodyear Great Britain. Mr. Dick has served as Senior Vice President Sales of the Company since 1988. From 1982 until his election as Senior Vice President, Mr. Dick served as Vice President Sales of the Company. Mr. Dick joined the Company in 1971, and from 1980 until 1982, served as Sales Manager of the Company. Mr. Hubbard was elected Senior Vice President Purchasing and Engineering of the Company in 1982. From 1973 until his election as a Senior Vice President, Mr. Hubbard was Vice President Purchasing and Quality Assurance of the Company. Mr. McCollough has been Senior Vice President Operations of the Company since 1982 and Treasurer since May 1996. Mr. McCollough served as Controller of the Company from 1973 to 1985 and as Vice President Operations from 1978 until his election as a Senior Vice President. Mr. Robbins joined the Company as Senior Vice President Strategic Planning in June 1996. From 1995 until joining the Company, Mr. Robbins was President and Chief Executive Officer of Tire Alliance Groupe. Prior to 1995, Mr. Robbins had been continuously employed by Goodyear Tire & Rubber Company and its subsidiaries in a number of management and other positions since 1968. Mr. Coley has been a Vice President of the Company since 1993 and the Controller of the Company since 1989. Prior to that, Mr. Coley was the Company's Manager of Financial Reporting. -7- PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock of the Company is traded on The Nasdaq Stock Market under the symbol TBCC. As of December 31, 1996, the Company had approximately 6,200 stockholders based on the number of holders of record and an estimate of the number of individual participants represented by security position listings. The Company did not declare any cash dividends during 1996 or 1995. The following table sets forth for the periods indicated the high and low sale prices for the Company's Common Stock on the Nasdaq National Market System. Price Range High Low Quarter ended 03/31/95............ 10.50 8.75 06/30/95............ 11.75 10.00 09/30/95............ 11.00 8.88 12/31/95............ 9.75 6.63 03/31/96............ 8.63 6.38 06/30/96............ 9.13 6.63 09/30/96............ 8.75 6.38 12/31/96............ 8.38 5.25 -8- Item 6. SELECTED FINANCIAL DATA Set forth below is selected financial information of the Company for each year in the five-year period ended December 31, 1996. The selected financial information should be read in conjunction with the consolidated financial statements of the Company and notes thereto which appear elsewhere in this Report. The Company did not declare any cash dividends during the five-year period ended December 31, 1996. Year ended December 31, 1996 1995 1994 1993 1992 INCOME STATEMENT DATA (1): Net sales .............. $604,585 $547,785 $563,661 $580,104 $581,161 Net income ............. 15,499 15,249 19,546 21,375 22,474 Earnings per share (2).. .65 .62 .71 .74 .76 Average shares and equivalents outstanding (2)..... 23,837 24,683 27,683 28,945 29,584 BALANCE SHEET DATA (1): Total assets ........... $253,882 $179,952 $169,682 $166,746 $176,859 Working capital ........ 117,980 76,600 91,279 95,114 80,630 Long-term debt ......... 69,550 555 - - - Stockholders' equity ... 119,805 104,823 113,983 116,550 102,960 (1) In thousands except per share amounts. (2) 1992 amounts reflect 3-for-2 stock split effective December 11, 1992. -9- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS 1996 Compared to 1995: Net sales for 1996 were $604.6 million, a 10.4% increase from 1995 net sales of $547.8 million. The increase was due principally to the addition of sales by Big O Tires, Inc., which was acquired July 10, 1996. Sales of tires accounted for approximately 88% of total sales in 1996 compared to 89% in 1995. Excluding the contribution by Big O, sales of tires declined 2.4%, due principally to industry-wide price discounting throughout much of 1996 which caused average tire sales prices to be 3.7% lower than in 1995. TBC's unit tire volume (excluding Big O) increased 1.3% in 1996 compared to the 1995 level. Cost of sales as a percentage of net sales decreased from 89.2% in 1995 to 87.4% in 1996, due to the positive effects of the Big O acquisition, including the Company's improved overall sourcing strength. In addition, a shift in the Company's sales toward shipments through the Company's distribution facilities rather than direct from manufacturers affected the year-to-year comparison. Gross margin percentages on shipments through the Company's own facilities are typically higher than on shipments direct from manufacturers. Distribution expenses increased $5.5 million in 1996 compared to 1995, due primarily to Big O warehousing and product delivery expenses totaling $3.9 million since the acquisition date. The 1996 increase was also related in part to the above-noted increase in the percentage of TBC's shipments through the Company's distribution facilities and to the addition of certain facilities in the northeastern United States in September 1995. Selling and administrative expenses increased $10.2 million in 1996 compared to 1995, due principally to expenses for Big O of approx- imately $7.1 million since the July 10, 1996 acquisition date. Increased selling and administrative expenses were also attributable to the facilities added in the northeastern United States in September 1995 and to certain additional compensation-related expenses in 1996. Interest expenses increased $1.0 million compared to the 1995 level, due principally to the additional long-term borrowings required to finance the Big O acquisition. This was partially offset by reduced short-term borrowing levels during 1996. Net other income was higher in 1996 than in 1995, due primarily to income from the settlement of a trademark infringement matter. The Company's effective tax rate increased from 38.4% in 1995 to 39.0% in 1996. The increased effective rate reflects the impact of the Big O acquisition, due to the additional goodwill amortization and greater overall state tax burden. -10- Included in the 1996 results were a total of $2.4 million in pre-tax charges related to the Company's decision to refocus operations on the replacement tire business and discontinue the marketing of automotive parts except those sold through its Big O Tires subsidiary (see Note 14 to the consolidated financial statements). The discontinued product lines comprised approximately 6.5% of net sales in 1996. 1995 Compared to 1994: Net sales for 1995 decreased 2.8% from the 1994 level, due principally to a 3.1% decline in tire sales. Sales of tires accounted for approximately 89% of total sales in both 1995 and 1994. Unit tire shipments decreased 6.5% from the year-earlier level, reflecting increased competitive pressures and sluggishness in the replacement tire market during 1995. Partially offsetting the lower unit volume was a 3.7% increase in the average tire sales price, primarily related to the effect of industry price increases since the beginning of 1994. Cost of sales as a percentage of net sales increased from 88.7% in 1994 to 89.2% in 1995. The fluctuation was due to the combined effects of the above-noted competitive pressures and a shift in the Company's sales toward shipments direct from manufacturers rather than through the Company's distribution facilities. Distribution expenses were relatively unchanged in 1995 compared to the year-earlier level. Selling and administrative expenses declined slightly in 1995 due to the recognition in 1994 of a charge of $2.5 million for supplemental retirement benefits (see Note 9 to the consolidated financial statements). Excluding that charge, selling and administrative expenses increased principally due to the addition of facilities in the northeastern United States in September 1995, higher pension costs and increased selling expenses. Interest expenses increased $1.7 million in 1995 compared to the 1994 level, due to the combined effects of higher average bank borrowings and increased borrowing rates. The increase in average bank borrowings in 1995 was largely related to repurchases of common stock and higher inventory levels during the year. Net other income was lower in 1995 than in 1994, due in part to reduced interest income and to the effect of joint venture investments during 1995. -11- LIQUIDITY AND CAPITAL RESOURCES On July 10, 1996, the Company completed the acquisition of Big O Tires, Inc. (see Note 3 to the consolidated financial statements). As a result, additional long-term debt of $60 million was incurred and there were significant changes in a number of other balance sheet items between December 31, 1995 and the end of 1996. However, the Company's financial position and liquidity remain strong, with working capital of $118.0 million at December 31, 1996 compared to $76.6 million at the end of 1995. The Company's current ratio was 3.18 at the end of 1996 compared to 2.04 at December 31, 1995. In September, 1996, the Company replaced its previous short-term borrowing agreements with a one-year committed bank facility and a three- year committed bank facility, which allow the Company to borrow up to $78.5 million. The unused amount under these facilities at December 31, 1996 was $56.8 million. Capital expenditures, primarily for tire molds, totaled $5.3 million in 1996. In 1995, capital expenditures totaled $9.2 million, which included the purchase of certain distribution facilities and equipment in the northeastern United States and expenditures of $4.2 million for tire molds. The Company expects to fund 1997 day-to-day operating expenses and normally recurring capital expenditures out of operating funds and its present financial resources. The Company had no material commitments for capital expenditures at the end of 1996. Cash generated by operations, together with the available credit arrangements, enabled the Company to fund stock repurchases totaling $634,000 in 1996 and $24.6 million in 1995, as well as the above-mentioned capital expenditures. The latest repurchase plans, approved by the Board of Directors in 1995, authorized the repurchase of a total of 2,500,000 shares of common stock in market and other transactions, of which approximately 1,365,000 shares had been repurchased as of the end of 1996. Accounts and notes receivable decreased from $95.5 million at December 31, 1995 to $85.8 million at the end of 1996. This decline was principally due to improved receivable turnover, which more than offset the additional receivables associated with the Big O acquisition. Included in other assets at December 31, 1996 and 1995 is a promissory note receivable of $4,897,000 from a former distributor. (See Note 6 to the Consolidated Financial Statements for a discussion of the legal proceedings relative to that receivable.) The Company is currently addressing any "Year 2000" data processing issues. The Company does not believe that the costs of addressing these issues will be significant. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary financial informa- tion required by this Item 8 are included on the following 17 pages of this Report. -12- REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Stockholders TBC Corporation We have audited the accompanying consolidated balance sheets of TBC Corporation and Subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of TBC Corporation and Subsidiaries as of December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Memphis, Tennessee January 30, 1997 -13- TBC CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands) ASSETS December 31, 1996 1995 CURRENT ASSETS Accounts and notes receivable, less allowance for doubtful accounts of $8,879 in 1996 and $8,014 in 1995: Related parties $ 18,362 $ 17,208 Other 67,444 78,330 Total accounts and notes receivable 85,806 95,538 Inventories 71,102 49,538 Refundable federal and state income taxes - 472 Deferred income taxes 6,716 2,389 Other current assets 8,409 2,252 Total current assets 172,033 150,189 PROPERTY, PLANT AND EQUIPMENT, AT COST Land and improvements 5,285 2,572 Buildings 21,051 10,985 Equipment 21,496 20,324 Furniture and fixtures 4,433 2,381 Leasehold improvements 640 600 52,905 36,862 Less accumulated depreciation 17,818 17,714 Total property, plant and equipment 35,087 19,148 TRADEMARKS, NET 17,787 - GOODWILL, NET 14,900 - OTHER ASSETS 14,075 10,615 TOTAL ASSETS $253,882 $179,952 The accompanying notes are an integral part of the financial statements. -14- TBC CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands) LIABILITIES AND STOCKHOLDERS' EQUITY December 31, 1996 1995 CURRENT LIABILITIES Outstanding checks, net $ 559 $ 8,120 Notes payable to banks 21,092 50,838 Current portion of long-term debt 1,537 81 Accounts payable, trade 16,761 10,117 Federal and state income taxes payable 106 - Other current liabilities 13,998 4,433 Total current liabilities 54,053 73,589 LONG-TERM DEBT, LESS CURRENT PORTION 69,550 555 NONCURRENT LIABILITIES 2,753 985 DEFERRED INCOME TAXES 7,721 - STOCKHOLDERS' EQUITY Common stock, $.10 par value, shares issued and outstanding - 23,727 in 1996 and 23,784 in 1995 2,373 2,378 Additional paid-in capital 9,624 9,543 Retained earnings 107,808 92,902 Total stockholders' equity 119,805 104,823 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $253,882 $179,952 The accompanying notes are an integral part of the financial statements. -15- TBC CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) Years ended December 31, 1996 1995 1994 NET SALES* $604,585 $547,785 $563,661 COSTS AND EXPENSES Cost of sales 528,610 488,717 500,085 Distribution 24,933 19,461 19,516 Selling and administrative 24,294 14,073 14,158 Interest expense 4,115 3,110 1,384 Other (income) expense - net (2,766) (2,348) (2,913) Total costs and expenses 579,186 523,013 532,230 INCOME BEFORE INCOME TAXES 25,399 24,772 31,431 PROVISION FOR INCOME TAXES 9,900 9,523 11,885 NET INCOME $ 15,499 $ 15,249 $ 19,546 Earnings per share $ .65 $ .62 $ .71 Weighted average number of shares and equivalents outstanding 23,837 24,683 27,683 * Including sales to related parties of $137,219, $130,215 and $135,786 in the years ended December 31, 1996, 1995 and 1994, respectively. The accompanying notes are an integral part of the financial statements. -16- TBC CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands) Years ended December 31, 1994, 1995 and 1996 Common Stock Additional Number of Paid-In Retained Shares Amount Capital Earnings Total BALANCE, JANUARY 1, 1994 28,377 2,838 11,056 102,656 116,550 Net income for year 19,546 19,546 Issuance of common stock under stock option and incentive plans 20 2 131 - 133 Repurchase and retirement of common stock (2,115) (212) (837) (21,238) (22,287) Tax benefit from exercise of stock options - - 41 - 41 BALANCE, DECEMBER 31, 1994 26,282 2,628 10,391 100,964 113,983 Net income for year 15,249 15,249 Issuance of common stock under stock option and incentive plans, net 19 2 132 - 134 Repurchase and retirement of common stock (2,517) (252) (1,002) (23,311) (24,565) Tax benefit from exercise of stock options - - 22 - 22 BALANCE, DECEMBER 31, 1995 23,784 2,378 9,543 92,902 104,823 Net income for year 15,499 15,499 Issuance of common stock under stock option and incentive plans, net 24 3 114 - 117 Repurchase and retirement of common stock (81) (8) (33) (593) (634) BALANCE, DECEMBER 31, 1996 23,727 $2,373 $ 9,624 $107,808 $119,805 The accompanying notes are an integral part of the financial statements. -17- TBC CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years ended December 31, 1996 1995 1994 Operating Activities: Net income $ 15,499 $ 15,249 $ 19,546 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 5,750 4,612 4,012 Amortization 530 23 86 Write-off of intangible assets 276 - - Deferred income taxes (845) (461) 238 Equity in (earnings) loss from joint ventures (265) - - Changes in operating assets and liabilities: Receivables 19,383 6,179 (6,270) Inventories (2,815) (9,784) 3,559 Other current assets (1,986) 230 (601) Other assets (40) (280) (375) Outstanding checks, net (8,480) 3,863 3,276 Accounts payable, trade 589 (10,646) 2,281 Federal and state income taxes refundable or payable 1,240 (67) (426) Other current liabilities 1,366 187 (312) Noncurrent liabilities 203 332 653 Net cash provided by operating activities 30,405 9,437 25,667 Investing Activities: Purchase of property, plant and equipment (5,260) (9,151) (3,580) Acquisition of Big O Tires, Inc. (55,433) - - Investments in joint ventures - (1,562) - Net proceeds from asset disposition 2,099 - - Other 777 13 378 Net cash used in investing activities (57,817) (10,700) (3,202) Financing Activities: Net bank borrowings (repayments) under short-term borrowing arrangements (29,746) 25,058 (311) Increase in long-term debt 60,000 697 - Payments on long-term debt (2,325) (61) - Issuance of common stock under stock option and incentive plans, net of repurchase 117 134 133 Repurchase and retirement of common stock (634) (24,565) (22,287) Net cash provided by (used in) financing activities 27,412 1,263 (22,465) Change in cash and cash equivalents - - - Cash and cash equivalents: Balance - Beginning of year - - - Balance - End of year $ - $ - $ - -18- TBC CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (In thousands) Years ended December 31, 1996 1995 1994 Supplemental Disclosures of Cash Flow Information: Cash paid for - Interest $ 3,510 $ 2,956 $ 1,324 - Income Taxes 9,506 10,051 12,073 Supplemental Disclosure of Non-Cash Financing Activity: Tax benefit from exercise of stock options $ - $ 22 $ 41 Supplemental Disclosure of Non-Cash Investing and Financing Activities: On July 10, 1996, the Company completed the acquisition of Big O Tires, Inc. for a total purchase price of approximately $54,646, plus applicable closing costs. The acquisition was accounted for under the purchase method, as follows: Estimated fair value of assets acquired $ 60,263 Trademarks and Goodwill 33,072 Cash Paid (55,433) Liabilities assumed $ 37,902 During 1996, the Company disposed of certain assets of its battery distribution subsidiary, as follows: Assets sold $ (2,882) Cash received 2,099 Liabilities assumed by purchaser $ (783) The accompanying notes are an integral part of the financial statements. -19- TBC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Operations The Company is principally engaged in the business of distributing tires and other products in the automotive replacement market, through wholesale and retail customers in the United States, Canada and Mexico. Through its Big O Tires, Inc. subsidiary, which was acquired on July 10, 1996, the Company also acts as a franchisor of independent retail tire and automotive service stores located primarily in the Midwest and western United States. On a limited basis, Big O engages in site selection and real estate development for franchised stores and owns and operates a limited number of retail stores. Significant Accounting Policies Principles of consolidation - The accompanying financial statements include the accounts of TBC Corporation and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated. Investments in 50% or less-owned joint ventures over which the Company has the ability to exercise significant influence are accounted for using the equity method. Reclassifications - Certain reclassifications have been made in the statements of income for prior years, to conform to the 1996 presentation, with no effect on previously reported net income. Accounting estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as certain financial statement disclosures. Cash equivalents - Cash equivalents consist of short-term, highly liquid investments which are readily convertible into cash. Inventories - Inventories, consisting of automotive products held for resale, are valued at the lower of cost (principally last in-first out) or market. Current costs of inventories exceeded the LIFO value by $4,759,000 and $6,863,000 at December 31, 1996 and 1995, respectively. Concentrations of credit risk - The Company performs ongoing credit evaluations of its customers and typically requires some form of security, including collateral, guarantees or other documentation. The Company maintains allowances for potential credit losses. The Company maintains cash balances with financial institutions with high credit ratings. The Company has not experienced any losses with respect to bank balances in excess of government-provided insurance. Property, plant and equipment - Depreciation is computed principally using the straight-line method over 3-40 years. Amounts expended for maintenance and repairs are charged to operations, and expenditures for major renewals and betterments are capitalized. When property, plant and equipment is retired or otherwise disposed of, the related gain or loss is included in operations. -20- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 1. SIGNIFICANT ACCOUNTING POLICIES (Continued) Goodwill, Trademarks and Other Intangible Assets - Goodwill represents the excess of cost over the fair value of identifiable net assets acquired. Goodwill, trademarks and other intangible assets are amortized on a straight-line basis, principally over 40 years. Accumulated amortization on intangible assets at December 31, 1996 totaled $414,000. The Company periodically reviews the recoverability of these assets. Any impairment would be recognized in operating results if a permanent reduction in value were to occur, as required under Statement of Financial Accounting Standards No. 121. This statement, adopted in 1996, had no significant effect on the Company's financial statements. Revenue recognition - Sales are recognized upon shipment of products. Estimated costs of returns and allowances are accrued at the time products are shipped. Franchise fees - Each Big O franchisee is required to pay an initial franchise fee as well as monthly royalty fees of 2% of gross sales. Included in net sales in 1996 were franchise and royalty fees totaling $3,742,000. Standard warranty - The costs of anticipated adjustments for workmanship and materials that are the responsibility of the Company are estimated and charged to expense currently. A warranty reserve of $6,675,000 was included in other current liabilities in the balance sheet at December 31, 1996. Interest on early payments to suppliers for product - Interest income associated with early payments to suppliers for product is recorded as a reduction of product cost. The portion of this interest which was included in the statements of income as a reduction to cost of sales represented 1.52% of net sales in 1996, 1.56% in 1995 and 1.41% in 1994. Earnings per share - Earnings per share have been computed by dividing net income by the weighted average number of shares of common stock and equivalents outstanding. Common stock equivalents included in the computation represent shares issuable upon assumed exercise of stock options, which would have a dilutive effect in the respective years. Fully diluted earnings per share did not significantly differ from primary earnings per share in the years presented. 2. RELATED PARTY TRANSACTIONS The Company's operations are managed through its Board of Directors, members of which owned or are affiliated with companies which owned approximately 9% of the Company's common stock at December 31, 1996. Sales to distributors represented on the Board, including affiliates of such distributors, accounted for approximately 23% of the Company's net sales during 1996 and 24% during 1995 and 1994. One distributor accounted for approximately 12% of net sales in 1996 and 15% in 1995 and 1994. Sales to joint ventures in which the Company has an ownership interest accounted for approximately 3% of the Company's net sales in 1996 and 1% in 1995. Accounts receivable resulting from transactions with related parties are presented separately in the balance sheets. -21- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 3. ACQUISITION OF BIG O TIRES, INC. On July 10, 1996, the Company completed the acquisition of Big O Tires, Inc. Under the terms of the merger agreement, Big O stockholders received $16.47 in cash for each of the 3,317,916 outstanding shares of common stock, a total purchase price of $54,646,000. The acquisition was accounted for as a purchase. These consolidated financial statements include the operating results of Big O from the date of acquisition. The following unaudited pro forma information (adjusted for interest on required borrowings, estimated amortization of intangible assets, improved sourcing strength, etc.) has been prepared as if the companies had been combined as of January 1, 1995. The pro forma information does not purport to present what actual results of operations would have been if the acquisition of Big O had occurred on such date or to project results for any future period. Net sales reflect certain reclassifications made to present the results of the combined companies on a consistent basis. (In millions, except per share data) Years Ended December 31, 1996 1995 (Unaudited) Net sales $ 673.7 $ 684.4 Net income 18.0 18.3 Earnings per share .76 .74 4. CREDIT FACILITIES In September, 1996, the Company replaced its previous short-term borrowing agreements with a one-year committed bank facility and a three- year committed bank facility. The credit facilities allow the Company to borrow up to $78,500,000, with interest on the one-year facility at the federal funds rate plus 1.15% and interest on the three-year facility based on LIBOR plus a variable rate between 0.45% and 0.875%. The credit facilities also require the payment of certain commitment and administrative fees. The unused amount under these facilities at December 31, 1996 was $56.8 million. The weighted average interest rate on short-term borrowings at December 31, 1996 and 1995 was 6.61% and 6.80%, respectively. The credit facilities contain certain financial covenants dealing with the Company's tangible net worth, funded indebtedness and fixed charge coverage ratio. The credit facilities also include certain restrictions which affect the Company's ability to incur additional debt, sell or place liens upon assets, provide guarantees and make loans, advances, investments and certain expenditures. -22- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 5. LONG-TERM DEBT Long-term debt consists of the following (in thousands): December 31, 1996 1995 7.55% Series A Senior Note, due from 1999 through 2003 $32,500 $ - 7.87% Series B Senior Note, due from 2004 through 2005 11,000 - 8.06% Series C Senior Note, due from 2006 through 2008 16,500 - 8.71% Senior loan, collateralized by certain real estate, due from 1998 through 2004 8,000 - Prime rate uncollateralized credit loan from supplier, due in 1997 1,415 - Prime rate bank mortgage loan, collateralized by deed of trust, due through 2001 1,267 - Other debt 405 636 71,087 636 Less current portion 1,537 81 $69,550 $ 555 The Senior Notes, issued in order to finance the acquisition of Big O Tires, Inc., are unsecured with interest payable quarterly. The note agreement related to such borrowings contains certain financial covenants dealing with the Company's working capital ratio, interest expense coverage and tangible net worth. In addition, the note agreement places certain restrictions on the Company, including its ability to incur additional debt, transfer or place liens upon assets, provide guarantees and make loans, advances, investments and certain expenditures. Interest only is due on the 8.71% Senior loan through July 1998, after which principal and interest are due in quarterly installments. The supplier credit loan allows for interest rate reductions of up to 2.5% if certain purchase requirements are met. Maturities of long-term debt for the next five years are as follows: $1,537,000 due in 1997, $791,000 in 1998, $7,959,000 in 1999, $7,947,000 in 2000 and $7,933,000 in 2001. -23- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 6. OTHER ASSETS Other assets consist of the following (in thousands): December 31, 1996 1995 Notes receivable $ 9,274 $ 7,961 Investments in joint ventures 2,433 1,562 Other intangible assets, net 831 1,058 Other 1,537 34 $14,075 $10,615 The notes receivable totals include a note for $4,897,000 from a former distributor. The maker of the note was discharged in a proceeding under Chapter 11 of the Bankruptcy Code in 1991. The Company received distributions totaling $308,000 from the bankruptcy proceeding. The Company holds written guarantees of the distributor's account, absolute and continuing in form, signed by the principal former owners and officers of the distributor and their wives, upon which the Company filed suit in 1989. The defendants have pleaded various defenses based on, among other things, an alleged oral cancellation of the guarantees. The defendants have also filed a third party complaint against the Company's former chief executive officer in which they claim the right to recover against him for any liability they may have to the Company. The Company believes, on the basis of applicable Tennessee law, that those defenses are invalid and that there is no merit to the third-party complaint. In October 1994, the Court granted the Company's motion to exclude evidence of any oral cancellation of the guarantees. The Court's order has been appealed and no date for trial has been scheduled. The Company knows of no reason to believe that the defendants will be unable to pay any judgment that may be entered against them in the action. 7. LEASES Rental expense of $2,545,000, $2,069,000 and $2,160,000 was charged to operations in 1996, 1995 and 1994, respectively, after deducting sublease income applicable to 1996 of $996,000. Minimum noncancelable real property lease commitments at December 31, 1996 were as follows (in thousands): Year Amount 1997 $ 5,131 1998 3,777 1999 3,199 2000 2,996 2001 2,623 Thereafter 7,912 25,638 Less sublease income 11,611 $14,027 The commitments relate substantially to distribution facilities. In addition to the above rental payments, the Company is obligated in some instances to pay real estate taxes, insurance and certain maintenance. -24- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 8. INCOME TAXES The Company records income taxes using the liability method prescribed by Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Income taxes provided for the years ended December 31, 1996, 1995 and 1994 were as follows (in thousands): 1996 1995 1994 Current: Federal $ 9,375 $ 8,868 $10,349 State 1,370 1,116 1,298 10,745 9,984 11,647 Deferred (845) (461) 238 $ 9,900 $ 9,523 $11,885 The provision for deferred income taxes represents the change in the Corporation's deferred income tax asset during the year, including the effect of enacted tax rate changes. Deferred income taxes arise from temporary differences between the tax basis of the Company's assets and liabilities and their reported amounts in the financial statements. Included in the Big O assets acquired was a deferred income tax asset of $3,365,000, while liabilities assumed in the Big O acquisition included deferred income taxes of $7,604,000. The net deferred income tax assets in the financial statements at December 31, 1996 and 1995 included approximately $3,156,000 and $2,762,000, respectively, related to the allowance for doubtful accounts and notes and $2,596,000 and $351,000, respectively, related to accrued warranty reserves. The net deferred income tax liability in the financial statements at December 31, 1996 included $7,093,000 related to trademarks. The difference between the Company's effective income tax rate and the statutory U. S. Federal income tax rate is reconciled as follows: 1996 1995 1994 Statutory U.S. Federal rate 35.0% 35.0% 35.0% State income taxes 3.5 2.9 2.7 Other .5 .5 .1 Effective tax rate 39.0% 38.4% 37.8% 9. RETIREMENT PLANS The Company has a defined benefit pension plan covering the majority of its employees. The benefits are based on years of service and the employee's final compensation. The Company's present funding policy is to contribute annually the maximum amount that can be deducted for federal income tax purposes. This amount is computed using a different actuarial cost method and different assumptions from those used for financial reporting purposes. -25- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 9. RETIREMENT PLANS (Continued) The following table sets forth the defined benefit pension plan's funded status and amounts recognized in the Company's balance sheets (in thousands): December 31, 1996 1995 Actuarial present value of accumulated benefit obligations, including vested benefits of $3,991 in 1996 and $2,850 in 1995 $(4,273) $(3,325) Actuarial present value of projected benefit obligations for service rendered to date $(6,589) $(5,053) Plan assets at fair value, primarily listed stocks and U.S. bonds 6,590 5,695 Plan assets over projected benefit obligation 1 642 Unrecognized net loss from experience different from that assumed 2,147 1,357 Unrecognized net assets at January 1, 1996 and 1995 being recognized over 15.53 years (75) (91) Unrecognized prior service cost 123 133 Prepaid pension cost $ 2,196 $ 2,041 The net expense for the defined benefit pension plan for 1996, 1995 and 1994 included the following (in thousands): 1996 1995 1994 Service cost $ 392 $ 274 $ 319 Interest cost 419 349 375 Return on plan assets (639) (757) (2) Net amortization and deferral 131 616 (633) $ 303 $ 482 $ 59 The weighted average discount rate and rate of increase in future compensation levels used in determining the 1996 and 1995 actuarial present values of projected benefit obligations were 7.25% and 5%, respectively. The expected long-term rate of return on assets was 10%. The Company also has an unfunded supplemental retirement plan for certain of its executive officers, to provide benefits in excess of amounts permitted to be paid by its defined benefit pension plan under current tax law. In addition, supplemental retirement provisions are included in the employment agreement of -26- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 9. RETIREMENT PLANS (Continued) the Company's President and Chief Executive Officer and were included in the former Chief Executive Officer's employment agreement. During 1994, the Company determined that expenses should be recorded under these arrangements, and that the accumulated benefit obligation, which was previously unaccrued, should be reflected as a liability in the consolidated balance sheets until paid. As a result, expenses for 1994 included supplemental retirement charges of $2,548,000. Expenses in 1996 and 1995 included supplemental retirement charges of $313,000 and $199,000, respectively. At December 31, 1996, the projected benefit obligation, computed using the same discount rate and compensation assumptions as for the defined benefit pension plan, was $1,963,000. The accumulated benefit obligation, which was reflected as a noncurrent liability at December 31, 1996, totaled $1,537,000. The Company maintains employee savings plans under Section 401(k) of the Internal Revenue Code, covering substantially all of its employees. 401(k) plan contributions made by the Company are based on a specified percentage of employee contributions. Expenses recorded for the Company's contributions totaled $194,000 in 1996, $62,000 in 1995 and $39,000 in 1994. 10. STOCKHOLDERS' EQUITY The Company is authorized to issue 50,000,000 shares of $.10 par value common stock. In addition, 2,500,000 shares of $.10 par value preferred stock are authorized, none of which were outstanding at December 31, 1996 or 1995. The Company has a Stockholder Rights Plan whereby outstanding shares of the Company's common stock are accompanied by preferred stock purchase rights. The rights become exercisable ten days after either a person or group has acquired 20% or more of the Company's common stock or the commencement of a tender offer which would result in the offeror's ownership of 30% or more of TBC's common stock. Under defined circumstances, the rights allow TBC stockholders to purchase stock in either the Company or an acquiring company at a price less than the market price. The rights expire on July 31, 1998 unless redeemed at an earlier date. In 1996 and 1995, shares of the Company's common stock were repurchased and retired under plans approved by the Board of Directors. The latest plans, approved in 1995, authorized the repurchase of 2,500,000 shares in market and other transactions. As of December 31, 1996, approximately 1,365,000 shares had been repurchased under these plans. 11. STOCK OPTIONS AND INCENTIVE PLAN The Company's 1989 stock incentive plan ("1989 Plan") provides for the grant of options to purchase shares of the Company's common stock to officers and other key employees upon terms and conditions determined by a committee of the Board of Directors. Options typically are granted at the fair market value of the stock on the date of grant, vest ratably over a three-year period and expire in ten years. The committee may also grant -27- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 11. STOCK OPTIONS AND INCENTIVE PLAN (Continued) stock appreciation rights, either singly or in tandem with stock options, which entitle the holder to benefit from market appreciation in the Company's common stock without requiring any payment on the part of the holder. The 1989 Plan also authorizes the committee to grant performance awards and restricted stock awards to officers and other key employees. Additionally, the 1989 Plan provides for the annual grant of restricted stock with a market value of $5,000 to each non-employee director of the Company. Each of these shares of restricted stock is accompanied by four options, which are only exercisable under certain conditions and the exercise of which results in the forfeiture of the associated share of restricted stock. The options expire in one-third increments as the associated restricted stock vests. Such tandem options are not included in the totals shown below for outstanding options. At December 31, 1996, 2,295,000 shares were available for future option and restricted stock grants under the 1989 Plan. A summary of stock option activity during 1994, 1995 and 1996 is shown below: Weighted Average Option Option Price Exercise Shares Range Price Outstanding at January 1, 1994 (267,759 exercisable) 457,243 $ 1.48 - $12.13 $ 6.71 Granted in 1994 - - - Exercised in 1994 15,874 5.03 - 6.55 5.59 Forfeited in 1994 2,829 6.55 - 12.13 10.07 Outstanding at December 31, 1994 (330,360 exercisable) 438,540 $ 1.48 - $12.13 $ 6.73 Granted in 1995 119,325 9.69 9.69 Exercised in 1995 37,918 1.48 - 8.00 3.10 Forfeited in 1995 6,604 9.69 - 12.13 11.22 Outstanding at December 31, 1995 (332,099 exercisable) 513,343 $ 1.48 - $12.13 $ 7.62 Granted in 1996 72,731 6.38 - 8.88 8.47 Exercised in 1996 58,038 1.48 - 6.55 2.35 Forfeited in 1996 14,396 9.69 - 12.13 10.17 Outstanding at December 31, 1996 (331,784 exercisable) 513,640 $ 5.03 - $12.13 $ 8.27 Additional information regarding stock options outstanding at December 31, 1996 is shown below: Outstanding Options Exercisable Options Weighted Weighted Weighted Average Average Average Option Exercise Remaining Option Exercise Option Price Range Shares Price Term Shares Price $5.03 - $7.50 239,275 $ 5.97 4.0 yrs. 236,154 $ 5.96 $7.51 - $10.00 174,923 9.24 8.9 yrs. 24,317 9.69 $10.01 - $12.13 99,442 12.09 6.6 yrs. 71,313 12.08 513,640 331,784 -28- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 11. STOCK OPTIONS AND INCENTIVE PLAN (Continued) The option shares listed for the three-year period ended December 31, 1996 include any with stock appreciation rights (SAR's). No SAR's were granted during this three-year period. 63,280 SAR's were outstanding at January 1, 1994, each with an exercise price of $1.71 per share. 25,000 SAR's were exercised in 1995 and 38,280 were exercised in 1996. No stock appreciation rights were outstanding as of December 31, 1996. Amounts included in the statements of income relating to stock appreciation rights included credits of $30,000 in 1996 and $198,000 in 1994 and a charge of $23,000 in 1995. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation". Accordingly, no compensation has been recognized for the stock options granted in 1995 or 1996. Using fair value assumptions specified in SFAS No. 123, the weighted average per share value of options granted during 1996 and 1995 was $3.29 and $3.66, respectively. Had compensation cost for such option grants been determined using such assumptions, the Company's net income on a pro forma basis would have been $15,405,000 in 1996 and $15,238,000 in 1995, compared to reported net income of $15,499,000 in 1996 and $15,249,000 in 1995. Earnings per share on a pro forma basis would have been the same as the reported amounts in both 1996 and 1995. The fair value of each option granted in 1995 and 1996 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used: dividend yield of 0%; expected volatility of 30%; expected lives of 5 years and risk-free interest rates equal to zero-coupon governmental issues. 12. FINANCIAL GUARANTEES AND CREDIT RISK The Company's Big O Tires, Inc. subsidiary has provided certain financial guarantees associated with real estate leases and financing of its franchisees. Although the guarantees were issued in the normal course of business to meet the financing needs of its franchisees, they represent credit risk in excess of the amounts reported on the balance sheet as of December 31, 1996. The contractual amounts of the guarantees, which represent the Company's maximum exposure to credit loss in the event of non-performance by the franchisees, totaled $10,864,000 as of December 31, 1996, including $5,145,000 related to franchisee financing and $5,719,000 related to real estate leases. In addition, Big O is the guarantor of the mortgage loan on a formerly-owned building. At December 31, 1996, the exposure to credit loss on such mortgage loan totaled $2,688,000. Most of the above franchisee financing and lease guarantees extend for more than five years and expire in decreasing amounts through 2016. The credit risk associated with these guarantees is essentially the same as that involved in extending loans to the franchisees. Big O evaluates each franchisee's creditworthiness -29- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 12. FINANCIAL GUARANTEES AND CREDIT RISK (Continued) and requires that sufficient collateral (primarily inventories and equipment) and security interests be obtained by the third party lenders or lessors, before the guarantees are issued. There are no cash requirements associated with the guarantees, except in the event that an actual financial loss is subsequently incurred due to non-performance by the franchisees. 13. LEGAL PROCEEDINGS The Company is involved in various legal proceedings which are routine to the conduct of its business. The Company does not believe that any pending litigation will have a material adverse effect on its consolidated financial position, results of operations or cash flows. 14. ANNOUNCED REFOCUS OF OPERATIONS ON REPLACEMENT TIRE BUSINESS In December 1996, the Company announced its decision to refocus operations on the replacement tire business and discontinue the marketing of certain non-tire products such as batteries, wheels, ride-control products and filters to independent distributors. The announced changes included the sale of certain assets of the Company's battery distribution subsidiary, which was completed in December 1996. The remainder of the marketing and operational changes are expected to be completed by the end of the first quarter of 1997. There will be no impact on the products marketed through the Company's Big O Tires subsidiary. A total of $2.4 million in pre-tax charges was recorded in the fourth quarter of 1996 related to these decisions. Included were charges of $1.2 million to cost of goods sold associated with inventory write- downs, $700,000 in selling and administrative expenses and $460,000 in other expenses. SUPPLEMENTARY DATA: QUARTERLY FINANCIAL INFORMATION Unaudited quarterly results for 1996 and 1995 are summarized as follows: (In thousands, except per share amounts) First Second Third Fourth Quarter Quarter Quarter Quarter 1996 Net sales $124,005 $137,561 $177,338 $165,681 Cost of sales 110,065 123,854 153,875 140,816 Net income 3,389 3,227 4,730 4,153 Earnings per share $ .14 $ .14 $ .20 $ .17 1995 Net sales $133,050 $135,087 $150,410 $129,238 Cost of sales 118,432 120,270 135,253 114,762 Net income 4,276 4,035 3,870 3,068 Earnings per share $ .17 $ .16 $ .16 $ .13 -30- Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Except for information concerning executive officers of the Company which is set forth in Part I of this Report, the information required by this Item 10 is set forth in the Company's Proxy Statement for its Annual Meeting of Stockholders to be held April 23, 1997, and is incorporated herein by this reference. Item 11. EXECUTIVE COMPENSATION The information required by this Item 11 is set forth in the Company's Proxy Statement for its Annual Meeting of Stockholders to be held April 23, 1997, and, with the exception of the information disclosed in the Proxy Statement pursuant to Item 402(k) or 402(l) of Regulation S- K, is incorporated herein by this reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item 12 is set forth in the Company's Proxy Statement for its Annual Meeting of Stockholders to be held April 23, 1997, and is incorporated herein by this reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item 13 is set forth in the Company's Proxy Statement for its Annual Meeting of Stockholders to be held April 23, 1997, and is incorporated herein by this reference. -31- PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) FINANCIAL STATEMENTS The following items, including consolidated financial statements of the Company, are set forth at Item 8 of this Report: Report of Independent Certified Public Accountants Consolidated Balance Sheets - December 31, 1996, and 1995 Consolidated Statements of Income - Years ended December 31, 1996, 1995, and 1994 Consolidated Statements of Stockholders' Equity - Years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows - Years ended December 31, 1996, 1995, and 1994 Notes to Consolidated Financial Statements (a) (2) FINANCIAL STATEMENT SCHEDULES Report of Independent Certified Public Accountants (at p. 35 of this Report) Schedule VIII - Valuation and qualifying accounts (at p. 36 of this Report) All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the consoli-dated financial statements or notes thereto. (a) (3) EXHIBITS See INDEX to EXHIBITS included at p. 37 of this Report (b) REPORTS ON FORM 8-K The Company did not file any Reports on Form 8-K during the quarter ended December 31, 1996. -32- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, TBC Corporation has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Memphis, Tennessee, on this 14th day of February, 1997. TBC CORPORATION By: /s/ LOUIS S. DiPASQUA Louis S. DiPasqua President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of TBC Corporation and in the capacities and on the dates indicated: Name Title Date /s/ LOUIS S. DiPASQUA President, Chief February 14, 1997 Louis S. DiPasqua Executive Officer and Director /s/ RONALD E. McCOLLOUGH Senior Vice President February 14, 1997 Ronald E. McCollough Operations and Treasurer (principal accounting and financial officer) * MARVIN E. BRUCE Chairman of the Board February 14, 1997 Marvin E. Bruce of Directors * ROBERT E. CARROLL, JR. Director February 14, 1997 Robert E. Carroll, Jr. * ROBERT H. DUNLAP Director February 14, 1997 Robert H. Dunlap -33- * STANLEY A. FREEDMAN Director February 14, 1997 Stanley A. Freedman * DWAIN W. HIGGINBOTHAM Director February 14, 1997 Dwain W. Higginbotham * CHARLES A. LEDSINGER, JR. Director February 14, 1997 Charles A. Ledsinger, Jr. * RICHARD A. McSTAY Director February 14, 1997 Richard A. McStay * ROBERT M. O'HARA Director February 14, 1997 Robert M. O'Hara * ROBERT R. SCHOEBERL Director February 14, 1997 Robert R. Schoeberl * The undersigned by signing his name hereto does sign and execute this Report on Form 10-K on behalf of each of the above-named directors of TBC Corporation pursuant to a power of attorney executed by each such director and filed with the Securities and Exchange Commission as an exhibit to this Report. /s/ LOUIS S. DiPASQUA Louis S. DiPasqua Attorney-in-Fact -34- REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Stockholders TBC Corporation Our report on the consolidated financial statements of TBC Corporation and Subsidiaries is included on page 13 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the index at Item 14(a) (2) of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Memphis, Tennessee January 30, 1997 -35- TBC CORPORATION SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (In thousands) Additions Charged Charged to Costs to Balance and Other Balance January 1, Expenses Accounts Deductions December 31, 1996 Warranty reserve...... $ 1,002 4,159 5,613 (1) 4,099 (2) $6,675 Allowance for doubtful accounts..... 8,014 1,640 1,954 (1) 2,729 (3) 8,879 1995 Warranty reserve...... 975 1,591 - 1,564 (2) 1,002 Allowance for doubtful accounts..... 7,069 1,546 123 724 (3) 8,014 1994 Warranty reserve...... 861 1,643 - 1,529 (2) 975 Allowance for doubtful accounts..... 7,828 1,320 - 2,079 (3) 7,069 (1) Includes amounts for Big O Tires, Inc. as of the July 10, 1996 acquisition date. (2) Amounts added during current year and payable at year end less amount payable at beginning of year. (3) Accounts written off during year. -36- INDEX TO EXHIBITS Located at Manually Numbered Page (2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION: 2.1 Agreement and Plan of Merger, dated as of April 30, 1996, by and among TBC Corporation, TBCO Acquisition, Inc. and Big O Tires, Inc., was filed as Exhibit 2.1 to the TBC Corporation Current Report on Form 8-K, dated April 30, 1996 ........... * (3) ARTICLES OF INCORPORATION AND BY-LAWS: 3.1 Certificate of Incorporation of TBC Corporation, as amended April 29, 1988, was filed as Exhibit 3.1 to the TBC Corporation Annual Report on Form 10-K for the year ended December 31, 1994 ..... * 3.2 Amendment to Restated Certificate of Incorporation of TBC Corporation dated April 23, 1992, was filed as Exhibit 3.2 to the TBC Corporation Annual Report on Form 10-K for the year ended December 31, 1992 .. * 3.3 By-Laws of TBC Corporation as amended through July 25, 1996, were filed as Exhibit 3.1 to the TBC Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 ........... * (4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES: 4.1 $30,000,000 Long Term Credit Agreement, dated as of September 25, 1996, among TBC Corporation, the lending institutions party thereto, First Tennessee Bank National Association as Administrative Agent, and NBD Bank as Co-Agent, including as Exhibit A the form of Note, dated September 25, 1996, issued by TBC Corporation to each lender pursuant thereto, and including as Exhibit F the form of Continuing Guaranty executed by certain subsidiaries of TBC Corporation in connection therewith, was filed as Exhibit 4.1 to the TBC Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 ................................. * -37- 4.2 $48,500,000 Short Term Credit Agreement, dated as of September 25, 1996, among TBC Corporation, the lending institutions party thereto, First Tennessee Bank National Association as Administrative Agent, and NBD Bank as Co-Agent, including as Exhibit A-1 the form of Revolving Note, dated September 25, 1996, issued by TBC Corporation to each lender pursuant thereto, including as Exhibit A-2 the form of Swing Line Note, dated September 25, 1996, issued by TBC Corporation to First Tennessee Bank National Association pursuant thereto, and including as Exhibit F the form of Continuing Guaranty executed by certain subsidiaries of TBC Corporation in connection therewith, was filed as Exhibit 4.2 to the TBC Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.................................. * 4.3 Note Purchase and Private Shelf Agreement, dated July 10, 1996, between TBC Corporation and The Prudential Insurance Company of America, was filed as Exhibit 4.1 to the TBC Corporation Current Report on Form 8-K, dated July 10, 1996 ............ * 4.4 Series A, Series B, and Series C Senior Notes, dated July 10, 1996, issued by TBC Corporation pursuant to the Note Purchase Agreement referenced in item 4.3 above, were filed as Exhibit 4.2 to the TBC Corporation Current Report on Form 8-K, dated July 10, 1996 ................... * 4.5 Amendment No. 1, dated September 20, 1996, to the Note Purchase Agreement referenced in item 4.3 above, including form of Continuing Guaranty executed by certain subsidiaries of TBC Corporation in connection therewith, was filed as Exhibit 4.5 to the TBC Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 ...... * 4.6 Other long-term debt instruments ................... # (10) MATERIAL CONTRACTS: Management Contracts and Compensatory Plans or Arrangements 10.1 Executive Employment Agreement between the Company and Mr. Louis S. DiPasqua, amended and restated as of January 31, 1995, was filed as Exhibit 10.1 to the TBC Corporation Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 .......... * 10.2 Executive Consulting Agreement between the Company and Mr. Marvin E. Bruce dated January 1, 1995, was filed as Exhibit 10.2 to the TBC Corporation Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 .............................. * -38- 10.3 Louis S. DiPasqua Trust Agreement dated as of October 22, 1992 between the Company and First Tennessee Bank National Association was filed as Exhibit 10.6 to the TBC Corporation Annual Report on Form 10-K for the year ended December 31, 1992 .. * 10.4 Amendment, dated July 1, 1996, to Executive Employment Agreement between the Company and Mr. Louis S. DiPasqua .............................. 44 10.5 TBC Corporation 1989 Stock Incentive Plan, as amended April 23, 1992 was filed as Exhibit 10.8 to the TBC Corporation Annual Report on Form 10-K for the year ended December 31, 1992 ............... * 10.6 TBC Corporation Deferred Compensation Plan for Directors was filed as Exhibit 10.10 to the TBC Corporation Annual Report on Form 10-K for the year ended December 31, 1993 ....................... * 10.7 Resolution adopted by the Compensation Committee of the TBC Corporation Board of Directors, September 26, 1996, relating to interest payable on deferred compensation of officers and directors of TBC Corporation, was filed as Exhibit 10.3 to the TBC Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 1996............ * 10.8 Executive Employment Agreement dated as of November 1, 1988 between the Company and Mr. Kenneth P. Dick, including Trust Agreement as Exhibit A thereto, as extended as of November 1, 1991 and as amended as of July 1, 1992, was filed as Exhibit 10.10 to the TBC Corporation Annual Report on Form 10-K for the year ended December 31, 1992 .................................. * 10.9 Agreement to Extend Executive Employment Agreement, between the Company and Mr. Kenneth P. Dick dated October 31, 1994, was filed as Exhibit 10.9 to the TBC Corporation Annual Report on Form 10-K for the year ended December 31, 1994 ....................... * 10.10 Amendment, dated July 1, 1996, to Executive Employment Agreement between the Company and Mr. Kenneth P. Dick ................................ 45 10.11 Executive Employment Agreement dated as of November 1, 1988 between the Company and Mr. Bob M. Hubbard, including Trust Agreement as Exhibit A thereto, as extended as of November 1, 1991 and as amended as of July 1, 1992, was filed as Exhibit 10.11 to the TBC Corporation Annual Report on Form 10-K for the year ended December 31, 1992 .................................. * -39- 10.12 Agreement to Extend Executive Employment Agreement, between the Company and Mr. Bob M. Hubbard dated October 31, 1994, was filed as Exhibit 10.11 to the TBC Corporation Annual Report on Form 10-K for the year ended December 31, 1994 ....................... * 10.13 Amendment, dated July 1, 1996, to Executive Employment Agreement between the Company and Mr. Bob M. Hubbard ................................. 46 10.14 Executive Employment Agreement dated as of November 1, 1988 between the Company and Mr. Ronald E. McCollough, including Trust Agreement as Exhibit A thereto, as extended as of November 1, 1991 and as amended as of July 1, 1992, was filed as Exhibit 10.12 to the TBC Corporation Annual Report on Form 10-K for the year ended December 31, 1992 .................................. * 10.15 Agreement to Extend Executive Employment Agreement, between the Company and Mr. Ronald E. McCollough dated October 31, 1994, was filed as Exhibit 10.13 to the TBC Corporation Annual Report on Form 10-K for the year ended December 31, 1994 ............... * 10.16 Amendment, dated July 1, 1996, to Executive Employment Agreement between the Company and Mr. Ronald E. McCollough ........................... 47 10.17 Executive Employment Agreement dated as of June 1, 1996 between TBC Corporation and Barry D. Robbins, was filed as Exhibit 10.1 to the TBC Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 ................................ * 10.18 Amendment, dated July 1, 1996, to Executive Employment Agreement between the Company and Mr. Barry D. Robbins ............................... 48 10.19 TBC Corporation 1995 Management Incentive Compensation Plan, effective for the calendar year 1995 and thereafter, was filed as Exhibit 10.1 to the TBC Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 ................ * 10.20 Amendment dated July 20, 1995 to the TBC Corporation 1995 Management Incentive Compensation Plan was filed as Exhibit 10.14 to the TBC Corporation Annual Report on Form 10-K for the year ended December 31, 1995 .................................. * 10.21 1996 Amendment and Restatement of the TBC Corporation Executive Supplemental Retirement Plan, as amended through October 24, 1996, was filed as Exhibit 10.2 to the TBC Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 ........................................... * -40- Other Material Contracts 10.22 Lease Agreement, dated February 25, 1980, between TBC Corporation and Vantage-Memphis, Inc. was filed as Exhibit 10.2 to TBC Corporation Registra- tion Statement on Form S-1 (Reg. No. 2-83216) ...... * 10.23 Modification and Ratification of Lease, dated April 16, 1991, between TBC Corporation and Vantage-Memphis, Inc. was filed as Exhibit 10.11 to the TBC Corporation Annual Report on Form 10-K for the year ended December 31, 1991 ............... * 10.24 Lease Agreement, dated September 23, 1992, between TBC Corporation and Weston Management Company (for Weston Building #105) was filed as Exhibit 10.18 to the TBC Corporation Annual Report on Form 10-K for the year ended December 31, 1992 ..... * 10.25 Lease Agreement, dated September 23, 1992, between TBC Corporation and Weston Management Company (for Weston Building #108) was filed as Exhibit 10.19 to the TBC Corporation Annual Report on Form 10-K for the year ended December 31, 1992 ..... * 10.26 Form of TBC Corporation's standard Distributor Agreement was filed as Exhibit 10.1 to the TBC Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 ........................ * 10.27 Form of Franchise Agreement in use by Big O Tires, Inc. was filed as Exhibit 10.1 to the TBC Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 ................... * 10.28 Agreement, dated October 1, 1977, between TBC Corporation and The Kelly-Springfield Tire Company, including letter dated June 30, 1978, was filed as Exhibit 10.6 to TBC Corporation Registration Statement on Form S-1 (Reg. No. 2-83216) ................................. * 10.29 Ten-Year Commitment Agreement, dated March 21, 1994, between the Company and The Kelly-Springfield Tire Company, was filed as Exhibit 10.2 to the TBC Corporation Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 ....................... * 10.30 Agreement, effective January 1, 1994, signed April 25, 1994, between the Company and Cooper Tire & Rubber Company, was filed as Exhibit 10.2 to the TBC Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 ................ * (21) SUBSIDIARIES OF THE COMPANY: 21.1 List of the names and jurisdictions of incorporation of the subsidiaries of the Company ... 49 -41- (23) CONSENTS OF EXPERTS AND COUNSEL: 23.1 Consent of Coopers & Lybrand L.L.P., Independent Certified Public Accountants, to incorporation by reference of their report dated January 30, 1997 in Post-Effective Amendment No. 1 to Registration Statement on Form S-8 for the Company's 1983 Stock Option Plan (Reg. No. 2-97888) and Registration Statement on Form S-8 for the Company's 1989 Stock Incentive Plan (Reg. No. 33-43166) ................. 50 (24) POWER OF ATTORNEY: 24.1 Power of attorney of each person who signed this Annual Report on Form 10-K on behalf of another pursuant to a power of attorney .................... 51 (27) FINANCIAL DATA SCHEDULE: 27.1 Financial Data Schedule ............................ + (99) ADDITIONAL EXHIBITS: 99.1 Rights Agreement, dated as of July 21, 1988, between TBC Corporation and the First National Bank of Boston, as Rights Agent, was filed as an Exhibit to the Company's Registration Statement on Form 8-A dated July 21, 1988. The Rights Agreement includes as Exhibit A the form of Certificate of Designation, Preferences and Rights; as Exhibit B, the form of Rights Certificate; and as Exhibit C, the form of Summary of Rights .................................. * "*" Indicates that the Exhibit is incorporated by reference into this Annual Report on Form 10-K from a previous filing with the Commission. "#" With respect to all other instruments defining the rights of holders of long-term debt, the amount of securities authorized under each of such instruments does not exceed 10% of the total assets of TBC Corporation and its subsidiaries on a consolidated basis. A copy of each of such instruments will be furnished to the Commission upon request. "+" Included only in the Company's electronic filing with the Commission. -42- TBC CORPORATION EXHIBITS TO FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 -43- EXHIBIT 10.4 AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") dated February 18, 1991, between TBC CORPORATION (the "Company") and LOUIS S. DIPASQUA (the "Executive"), last amended effective January 31, 1995, as of July 1, 1996. The Company and the Executive agree that, due to the discontinuance in 1996 of the Standard & Poor's "composite bond yield", Paragraph C of Section 4 of the Agreement shall, from the time of such discontinuance, provide as follows and not as heretofore, namely: "C. The Company shall establish and maintain a deferred compensation account on its books in the name of the Executive in which shall be recorded the amount of the Executive's deferred compensation. The Company shall credit to the deferred compensation account, on a daily basis, interest on the amount then credited to such account (including all previous credits to such account by operation of this paragraph C) computed at an annual rate which is equal to the average yield for BBB Industrial Bonds, as published in the Standard & Poor's Corporate and Government Bond Yield Index (or such similar index as the Compensation Committee of the Board of Directors of the Company shall select) for the month last preceding the beginning of such calendar quarter." In all other respects, the terms of the Agreement shall continue in effect as heretofore. IN WITNESS WHEREOF, the parties have hereunto set their hands. TBC CORPORATION By /s/Marvin E. Bruce Marvin E. Bruce Chairman of the Board /s/Louis S. DiPasqua LOUIS S. DIPASQUA (the Executive) -44- EXHIBIT 10.10 AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") dated November 1, 1988, between TBC CORPORATION (the "Company") and KENNETH P. DICK (the "Executive"), last amended as of October 31, 1994, as of July 1, 1996. The Company and the Executive agree that, due to the discontinuance in 1996 of the Standard & Poor's "composite bond yield", Paragraph C of Section 4 of the Agreement shall, from the time of such discontinuance, provide as follows and not as heretofore, namely: "C. The Company shall establish and maintain a deferred compensation account on its books in the name of the Executive in which shall be recorded the amount of the Executive's deferred compensation. The Company shall credit to the deferred compensation account, on a daily basis, interest on the amount then credited to such account (including all previous credits to such account by operation of this paragraph C) computed at an annual rate which is equal to the average yield for BBB Industrial Bonds, as published in the Standard & Poor's Corporate and Government Bond Yield Index (or such similar index as the Compensation Committee of the Board of Directors of the Company shall select) for the month last preceding the beginning of such calendar quarter." In all other respects, the terms of the Agreement shall continue in effect as heretofore. IN WITNESS WHEREOF, the parties have hereunto set their hands. TBC CORPORATION By /s/Louis S. DiPasqua Louis S. DiPasqua, President and Chief Executive Officer /s/Kenneth P. Dick KENNETH P. DICK (the Executive) -45- EXHIBIT 10.13 AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") dated November 1, 1988, between TBC CORPORATION (the "Company") and BOB M. HUBBARD (the "Executive"), last amended as of October 31, 1994, as of July 1, 1996. The Company and the Executive agree that, due to the discontinuance in 1996 of the Standard & Poor's "composite bond yield", Paragraph C of Section 4 of the Agreement shall, from the time of such discontinuance, provide as follows and not as heretofore, namely: "C. The Company shall establish and maintain a deferred compensation account on its books in the name of the Executive in which shall be recorded the amount of the Executive's deferred compensation. The Company shall credit to the deferred compensation account, on a daily basis, interest on the amount then credited to such account (including all previous credits to such account by operation of this paragraph C) computed at an annual rate which is equal to the average yield for BBB Industrial Bonds, as published in the Standard & Poor's Corporate and Government Bond Yield Index (or such similar index as the Compensation Committee of the Board of Directors of the Company shall select) for the month last preceding the beginning of such calendar quarter." In all other respects, the terms of the Agreement shall continue in effect as heretofore. IN WITNESS WHEREOF, the parties have hereunto set their hands. TBC CORPORATION By /s/Louis S. DiPasqua Louis S. DiPasqua, President and Chief Executive Officer /s/Bob M. Hubbard BOB M. HUBBARD (the Executive) -46- EXHIBIT 10.16 AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") dated November 1, 1988, between TBC CORPORATION (the "Company") and RONALD E. McCOLLOUGH (the "Executive"), last amended as of October 31, 1994, as of July 1, 1996. The Company and the Executive agree that, due to the discontinuance in 1996 of the Standard & Poor's "composite bond yield", Paragraph C of Section 4 of the Agreement shall, from the time of such discontinuance, provide as follows and not as heretofore, namely: "C. The Company shall establish and maintain a deferred compensation account on its books in the name of the Executive in which shall be recorded the amount of the Executive's deferred compensation. The Company shall credit to the deferred compensation account, on a daily basis, interest on the amount then credited to such account (including all previous credits to such account by operation of this paragraph C) computed at an annual rate which is equal to the average yield for BBB Industrial Bonds, as published in the Standard & Poor's Corporate and Government Bond Yield Index (or such similar index as the Compensation Committee of the Board of Directors of the Company shall select) for the month last preceding the beginning of such calendar quarter." In all other respects, the terms of the Agreement shall continue in effect as heretofore. IN WITNESS WHEREOF, the parties have hereunto set their hands. TBC CORPORATION By /s/Louis S. DiPasqua Louis S. DiPasqua, President and Chief Executive Officer /s/Ronald E. McCollough RONALD E. McCOLLOUGH (the Executive) -47- EXHIBIT 10.18 AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") dated June 1, 1996, between TBC CORPORATION (the "Company") and BARRY D. ROBBINS (the "Executive"), as of July 1, 1996. The Company and the Executive agree that, due to the discontinuance in 1996 of the Standard & Poor's "composite bond yield", Paragraph C of Section 4 of the Agreement shall, from the time of such discontinuance, provide as follows and not as heretofore, namely: "C. The Company shall establish and maintain a deferred compensation account on its books in the name of the Executive in which shall be recorded the amount of the Executive's deferred compensation. The Company shall credit to the deferred compensation account, on a daily basis, interest on the amount then credited to such account (including all previous credits to such account by operation of this paragraph C) computed at an annual rate which is equal to the average yield for BBB Industrial Bonds, as published in the Standard & Poor's Corporate and Government Bond Yield Index (or such similar index as the Compensation Committee of the Board of Directors of the Company shall select) for the month last preceding the beginning of such calendar quarter." In all other respects, the terms of the Agreement shall continue in effect as heretofore. IN WITNESS WHEREOF, the parties have hereunto set their hands. TBC CORPORATION By /s/Louis S. DiPasqua Louis S. DiPasqua, President and Chief Executive Officer /s/Barry D. Robbins BARRY D. ROBBINS (the Executive) -48- EXHIBIT 21.1 SUBSIDIARIES OF TBC CORPORATION TBC Corporation has five subsidiaries, each of which is wholly- owned by TBC Corporation. The subsidiaries and their states of incorporation are as follows: Name of Subsidiary State of Incorporation Big O Tires, Inc. Nevada TBC Properties, Inc. Delaware Northern States Tire, Inc. Delaware TBC International, Inc. Delaware TBC Sales, Inc. Delaware In addition, TBC Corporation has other subsidiaries which it owns indirectly through the above-named subsidiaries. Such indirectly- owned subsidiaries are not named because they would not, if considered in the aggregate as one subsidiary, constitute a "significant subsidiary," as defined in Rule 1.02(w) of Regulation S-X. -49- EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the amended Form S-8 registration statement for TBC Corporation's 1983 Stock Option Plan and the Form S-8 registration statement for TBC Corporation's 1989 Stock Incentive Plan of our reports dated January 30, 1997, on our audits of the consolidated financial statements and financial statement schedule of TBC Corporation and Subsidiaries as of December 31, 1996 and 1995 and for the years ended December 31, 1996, 1995 and 1994, which reports are included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Memphis, Tennessee February 14, 1997 -50- EXHIBIT 24.1 TBC CORPORATION LIMITED POWER OF ATTORNEY WHEREAS, TBC Corporation (the "Company") intends to file with the Securities and Exchange Commission its Annual Report on Form 10-K for the year ended December 31, 1996; NOW, THEREFORE, the undersigned, in his capacity as a director of the Company, hereby appoints Louis S. DiPasqua and/or Ronald E. McCollough, or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to execute in his name, place and stead, the Company's Annual Report on Form 10-K for the year ended December 31, 1996 (including any amendment to such report), and any and all other instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission. Either of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in the aforesaid capacity, every act whatsoever necessary or desirable to be done, as fully to all intents and purposes as the undersigned might or could do in person. The undersigned hereby ratifies and approves the acts of either of said attorneys. IN WITNESS WHEREOF, the undersigned has executed this instrument this 12th day of February, 1997. /s/ Marvin E. Bruce Marvin E. Bruce -51- TBC CORPORATION LIMITED POWER OF ATTORNEY WHEREAS, TBC Corporation (the "Company") intends to file with the Securities and Exchange Commission its Annual Report on Form 10-K for the year ended December 31, 1996; NOW, THEREFORE, the undersigned, in his capacity as a director of the Company, hereby appoints Louis S. DiPasqua and/or Ronald E. McCollough, or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to execute in his name, place and stead, the Company's Annual Report on Form 10-K for the year ended December 31, 1996 (including any amendment to such report), and any and all other instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission. Either of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in the aforesaid capacity, every act whatsoever necessary or desirable to be done, as fully to all intents and purposes as the undersigned might or could do in person. The undersigned hereby ratifies and approves the acts of either of said attorneys. IN WITNESS WHEREOF, the undersigned has executed this instrument this 12th day of February, 1997. /s/ Robert E. Carroll, Jr. Robert E. Carroll, Jr. -52- TBC CORPORATION LIMITED POWER OF ATTORNEY WHEREAS, TBC Corporation (the "Company") intends to file with the Securities and Exchange Commission its Annual Report on Form 10-K for the year ended December 31, 1996; NOW, THEREFORE, the undersigned, in his capacity as a director of the Company, hereby appoints Louis S. DiPasqua and/or Ronald E. McCollough, or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to execute in his name, place and stead, the Company's Annual Report on Form 10-K for the year ended December 31, 1996 (including any amendment to such report), and any and all other instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission. Either of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in the aforesaid capacity, every act whatsoever necessary or desirable to be done, as fully to all intents and purposes as the undersigned might or could do in person. The undersigned hereby ratifies and approves the acts of either of said attorneys. IN WITNESS WHEREOF, the undersigned has executed this instrument this 13th day of February, 1997. /s/ Robert H. Dunlap Robert H. Dunlap -53- TBC CORPORATION LIMITED POWER OF ATTORNEY WHEREAS, TBC Corporation (the "Company") intends to file with the Securities and Exchange Commission its Annual Report on Form 10-K for the year ended December 31, 1996; NOW, THEREFORE, the undersigned, in his capacity as a director of the Company, hereby appoints Louis S. DiPasqua and/or Ronald E. McCollough, or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to execute in his name, place and stead, the Company's Annual Report on Form 10-K for the year ended December 31, 1996 (including any amendment to such report), and any and all other instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission. Either of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in the aforesaid capacity, every act whatsoever necessary or desirable to be done, as fully to all intents and purposes as the undersigned might or could do in person. The undersigned hereby ratifies and approves the acts of either of said attorneys. IN WITNESS WHEREOF, the undersigned has executed this instrument this 12th day of February, 1997. /s/ Stanley A. Freedman Stanley A. Freedman -54- TBC CORPORATION LIMITED POWER OF ATTORNEY WHEREAS, TBC Corporation (the "Company") intends to file with the Securities and Exchange Commission its Annual Report on Form 10-K for the year ended December 31, 1996; NOW, THEREFORE, the undersigned, in his capacity as a director of the Company, hereby appoints Louis S. DiPasqua and/or Ronald E. McCollough, or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to execute in his name, place and stead, the Company's Annual Report on Form 10-K for the year ended December 31, 1996 (including any amendment to such report), and any and all other instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission. Either of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in the aforesaid capacity, every act whatsoever necessary or desirable to be done, as fully to all intents and purposes as the undersigned might or could do in person. The undersigned hereby ratifies and approves the acts of either of said attorneys. IN WITNESS WHEREOF, the undersigned has executed this instrument this 12th day of February, 1997. /s/ Dwain W. Higginbotham Dwain W. Higginbotham -55- TBC CORPORATION LIMITED POWER OF ATTORNEY WHEREAS, TBC Corporation (the "Company") intends to file with the Securities and Exchange Commission its Annual Report on Form 10-K for the year ended December 31, 1996; NOW, THEREFORE, the undersigned, in his capacity as a director of the Company, hereby appoints Louis S. DiPasqua and/or Ronald E. McCollough, or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to execute in his name, place and stead, the Company's Annual Report on Form 10-K for the year ended December 31, 1996 (including any amendment to such report), and any and all other instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission. Either of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in the aforesaid capacity, every act whatsoever necessary or desirable to be done, as fully to all intents and purposes as the undersigned might or could do in person. The undersigned hereby ratifies and approves the acts of either of said attorneys. IN WITNESS WHEREOF, the undersigned has executed this instrument this 13th day of February, 1997. /s/ Charles A. Ledsinger Charles A. Ledsinger -56- TBC CORPORATION LIMITED POWER OF ATTORNEY WHEREAS, TBC Corporation (the "Company") intends to file with the Securities and Exchange Commission its Annual Report on Form 10-K for the year ended December 31, 1996; NOW, THEREFORE, the undersigned, in his capacity as a director of the Company, hereby appoints Louis S. DiPasqua and/or Ronald E. McCollough, or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to execute in his name, place and stead, the Company's Annual Report on Form 10-K for the year ended December 31, 1996 (including any amendment to such report), and any and all other instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission. Either of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in the aforesaid capacity, every act whatsoever necessary or desirable to be done, as fully to all intents and purposes as the undersigned might or could do in person. The undersigned hereby ratifies and approves the acts of either of said attorneys. IN WITNESS WHEREOF, the undersigned has executed this instrument this 12th day of February, 1997. /s/ Richard A. McStay Richard A. McStay -57- TBC CORPORATION LIMITED POWER OF ATTORNEY WHEREAS, TBC Corporation (the "Company") intends to file with the Securities and Exchange Commission its Annual Report on Form 10-K for the year ended December 31, 1996; NOW, THEREFORE, the undersigned, in his capacity as a director of the Company, hereby appoints Louis S. DiPasqua and/or Ronald E. McCollough, or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to execute in his name, place and stead, the Company's Annual Report on Form 10-K for the year ended December 31, 1996 (including any amendment to such report), and any and all other instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission. Either of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in the aforesaid capacity, every act whatsoever necessary or desirable to be done, as fully to all intents and purposes as the undersigned might or could do in person. The undersigned hereby ratifies and approves the acts of either of said attorneys. IN WITNESS WHEREOF, the undersigned has executed this instrument this 12th day of February, 1997. /s/ Robert M. O'Hara Robert M. O'Hara -58- TBC CORPORATION LIMITED POWER OF ATTORNEY WHEREAS, TBC Corporation (the "Company") intends to file with the Securities and Exchange Commission its Annual Report on Form 10-K for the year ended December 31, 1996; NOW, THEREFORE, the undersigned, in his capacity as a director of the Company, hereby appoints Louis S. DiPasqua and/or Ronald E. McCollough, or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to execute in his name, place and stead, the Company's Annual Report on Form 10-K for the year ended December 31, 1996 (including any amendment to such report), and any and all other instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission. Either of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in the aforesaid capacity, every act whatsoever necessary or desirable to be done, as fully to all intents and purposes as the undersigned might or could do in person. The undersigned hereby ratifies and approves the acts of either of said attorneys. IN WITNESS WHEREOF, the undersigned has executed this instrument this 14th day of February, 1997. /s/ Robert R. Schoeberl Robert R. Schoeberl -59- EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 12-MOS DEC-31-1996 DEC-31-1996 (559) 0 94,685 8,879 71,102 172,033 52,905 17,818 253,882 54,053 0 0 0 2,373 117,432 253,882 604,585 604,585 528,610 528,610 44,821 1,640 4,115 25,399 9,900 15,499 0 0 0 15,499 .65 0 THIS ITEM IS SHOWN UNDER THE CATEGORY "OUTSTANDING CHECKS, NET" ON THE CONSOLIDATED BALANCE SHEETS. THESE ITEMS ARE NOT SEPARATELY REPORTED ON TBC CORPORATION'S FORM 10-K.
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