UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004

OR

COMMISSION FILE NUMBER 0-11579

TBC CORPORATION

Registrant’s telephone number, including area code: (561) 227-0955

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

22,266,364 Shares of Common Stock were outstanding as of September 30, 2004.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TBC CORPORATION

ASSETS

See accompanying notes to consolidated financial statements.

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TBC CORPORATION

LIABILITIES AND STOCKHOLDERS’ EQUITY

See accompanying notes to consolidated financial statements.

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TBC CORPORATION

* Including sales to related parties of $34,086 and $24,168 and $86,699 and $62,858 in the three and nine months ended September 30, 2004 and 2003, respectively.

See accompanying notes to consolidated financial statements.

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TBC CORPORATION

See accompanying notes to consolidated financial statements.

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TBC CORPORATION

(Continued)

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TBC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
(Unaudited)

•     During 2003, the Company acquired Merchant’s, Incorporated. and NTW Incorporated (the “Purchased Companies”) and these acquisitions were accounted for under the purchase method. In connection with the Purchased Companies, the Company has adjusted the carrying value of certain balance sheet items to account for changes to their respective fair market values. During the nine months ended September 30, 2004, the Company increased goodwill by $348 comprised primarily of adjustments to inventory, property, plant and equipment, other assets and other accrued liabilities.

•     In connection with the acquisition of NTW Incorporated during 2003, the Company continues to evaluate purchase costs allocated to the assets acquired. The Company may, from time to time, adjust the carrying value of these assets as more accurate information regarding these values becomes available. These adjustments have no impact on the Company’s cash flows but may alter the carrying value of the assets as reflected in the accompanying balance sheet.

See accompanying notes to consolidated financial statements.

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TBC CORPORATION

1. Basis of Presentation

     The December 31, 2003 restated condensed consolidated balance sheet was derived from audited financial statements and restated as discussed in Note 2 “Restatement” of this Form 10-Q. The condensed consolidated balance sheet, statement of income, stockholders’ equity and cash flow for the period ended September 30, 2004, and the restated consolidated statements of income, stockholders’ equity and cash flow for the period ended September 30, 2003, have been prepared by the Company, without audit. It is Management’s opinion that these statements include all adjustments necessary to present fairly the financial position, results of operations and cash flows as of September 30, 2004 and for all periods presented. The results for the periods presented are not necessarily indicative of the results that may be expected for the full year.

     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. Actual results could differ from those estimates.

     The Company’s 2003 Annual Report on Form 10-K includes a summary of the significant accounting policies used in the preparation of the consolidated financial statements. The summary of significant accounting policies, as well as certain other footnote disclosures and information normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted for the purposes of this quarterly report. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s 2003 Form 10-K.

     In addition to the consolidated financial statements that have been restated, as described in Note 2 “Restatement” of this Form 10-Q, certain previously reported amounts have been reclassified to conform to the current financial statement presentation with no impact on previously reported net income or stockholders’ equity.

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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2. Restatement

     The Company historically used the last-in, first-out (“LIFO”) method for approximately 45% of its inventories, with the remaining inventories valued on a first-in, first-out (“FIFO”) basis. Effective January 1, 2004, the Company changed its method of determining the cost of its LIFO inventories to the FIFO method. The Company has applied this change retroactively by restating its financial statements as required by Accounting Principles Board No. 20, “Accounting Changes,” and accordingly, previously reported retained earnings as of December 31, 2003 has been decreased by $286,000.

     During the second quarter of 2004, the Company changed its inventory costing from LIFO to FIFO. The method was changed to obtain a more current inventory valuation at period end and to achieve a better matching of revenues and expenses. Costing for retail inventories has historically been on the FIFO method and it is expected that continued growth in this segment will result in the continuing liquidation of LIFO layers. The financial statements presented for the three and nine months ended September 30, 2003 have been retroactively restated to reflect this change. The effect of the change on previously reported net income and earnings per share are reflected in the table below (in thousands).

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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3. Earnings Per Share

     Basic earnings per share have been computed by dividing net income by the weighted average number of shares of common stock outstanding. Diluted earnings per share have been computed by dividing net income by the weighted average number of common shares and equivalents outstanding. Common share equivalents, if any, represent shares issuable upon assumed exercise of stock options. The weighted average number of common shares and equivalents outstanding were as follows (in thousands):

4. Segment Information

     The Company is principally engaged in the marketing and distribution of tires in the automotive replacement market and has two operating segments: retail and wholesale. The retail segment includes the franchised retail tire business conducted by Big O Tires, Inc., as well as the operation of retail tire and service centers by Tire Kingdom, Inc., Merchant’s, Incorporated and NTW Incorporated. The franchised and Company-operated retail systems are evaluated using similar operating measurements and are aggregated for segment reporting purposes since they have similar marketing concepts, distribution methods, customers and other economic characteristics. The wholesale segment markets and distributes the Company’s proprietary brands of tires, as well as other tires and related products, on a wholesale basis to distributors who resell to or operate independent tire dealerships.

     Accounting policies of both the retail and wholesale segments are the same as those described in the summary of significant accounting policies included in the Form 10-K for the year ended December 31, 2003 with the exception of the change in inventory valuation method as described in Note 2 “Restatement” of this Form 10-Q. The Company evaluates the performance of its two segments based on earnings before interest, taxes, depreciation and amortization (“EBITDA”). Net sales by the wholesale segment to the retail segment are eliminated in consolidation and totaled $67.4 million and $187.8 million and $49.1 million and $133.8 million for the three and nine months periods ended September 30, 2004 and the three and nine month periods ended September 30, 2003, respectively. Such intersegment sales had no effect on the EBITDA of the individual reporting segments.

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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

4. Segment Information (continued)

Segment information for the three and nine months ended September 30, 2004 and 2003 is as follows (in thousands):

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TBC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

5. Stock Option and Incentive Plans

     The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation” and SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure”. Accordingly, no compensation expense has been recognized for the stock options granted in the periods ended September 30, 2004 or 2003. Using fair value assumptions specified in SFAS No. 123, the weighted average per share values of options granted during the three and nine months ended September 30, 2004 was $9.44. No stock options were awarded during the three months ended September 30, 2003. Had compensation cost for such option grants been determined using such assumptions, results for the third quarter and first nine months of 2004 and 2003 would have been as follows (in thousands):