UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A – 1


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 0-11579

TBC CORPORATION

(Exact name of registrant as specified in its charter)


DELAWARE		20-1888610

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

7111 Fairway Drive, Suite 201 Palm Beach Gardens, Florida		33418

(Address of principal executive offices)		(Zip Code)

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 þ No o

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No o

22,444,519 Shares of Common Stock were outstanding as of March 31, 2005.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition
	Item 3. Quantitative and Qualitative Disclosures about Market Risk
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 6. Exhibits
SIGNATURE
INDEX TO EXHIBITS
Ex-10.2 Stock Option granted to Lawrence C. Day on March 29, 2005
Ex-10.3 Grant of Restricted Shares to Lawrence C. Day, dated March 29, 2005
EX-31.1 SECTION 302 CEO CERTIFICATION
EX-31.2 SECTION 302 CFO CERTIFICATION
EX-32.1 SECTION 906 CEO CERTIFICATION
EX-32.2 SECTION 906 CFO CERTIFICATION

Explanatory Note

The purpose of this amendment on Form 10-Q/A to the Quarterly Report on Form 10-Q of TBC Corporation for the quarter ended March 31, 2005 is to restate the Company’s consolidated financial statements for the quarters ended March 31, 2005 and 2004 and related disclosures, included therein. Additional information about the decision to restate these financial statements can be found in the Company’s Current Report on Form 8-K, dated July 21, 2005. The corrections are to properly account for leases acquired as part of purchase business combinations. The Company is also restating in order to properly reflect the adoption of Statement on Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations,” as of the first quarter of 2003. See Note 2 to the consolidated financial statements for additional discussion on this matter.

This Form 10-Q/A includes all of the information contained in the original report on Form 10-Q, and no attempt has been made in this Form 10-Q/A to modify or update the disclosures presented in the original report on Form 10-Q, except as required to reflect the effects of the restatement. The Form 10-Q/A does not reflect events occurring after the filing of the Form 10-Q or modify or update those disclosures, including the exhibits to the Form 10-Q affected by subsequent events. Information not affected by the restatement is unchanged and reflects the disclosures made at the time of the original filing of the Form 10-Q on May 10, 2005. Accordingly, this Form 10-Q/A should be read in conjunction with the Company’s filings made with the Securities and Exchange Commission subsequent to the filing of the original Form 10-Q. The following items have been amended as a result of the restatement:

Part I — Item 1 — Financial Statements and Supplementary Data
Part I — Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations
Part II — Item 4 — Controls and Procedures

The Company has not amended and does not intend to amend its previously-filed Annual Reports on Form 10-K or its Quarterly Reports on Form 10-Q for periods affected by the restatement other than the Form 10-K for the fiscal year ended December 31, 2004 and the Form 10-Q for the fiscal quarter ended March 31, 2005. For this reason, the consolidated financial statements, auditors’ reports and related financial information for the affected periods contained in any other prior reports should no longer be relied upon.

-2-

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

TBC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)


	RESTATED		RESTATED
	(See Note 2)		(See Note 2)
	March 31,		December 31,
	2005		2004
ASSETS

CURRENT ASSETS:

Cash and cash equivalents	$	1,433	$	2,832

Accounts and notes receivable, less allowance for doubtful accounts of $8,823 on March 31, 2005 and $9,307 on December 31, 2004:
Related parties		37,260		32,149
Other		127,818		117,812


Total accounts and notes receivable		165,078		149,961

Inventories		298,087		291,745
Deferred income taxes		24,929		24,790
Other current assets		17,014		19,270


Total current assets		506,541		488,598


PROPERTY, PLANT AND EQUIPMENT, AT COST:

Land and improvements		8,003		10,400
Buildings and leasehold improvements		109,503		110,478
Furniture and equipment		107,483		105,232

		224,989		226,110
Less accumulated depreciation		79,627		73,662


Total property, plant and equipment		145,362		152,448


TRADEMARKS, NET		15,824		15,824


GOODWILL, NET		168,641		168,552


OTHER ASSETS		40,523		39,331


TOTAL ASSETS	$	876,891	$	864,753

See accompanying notes to consolidated financial statements.

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TBC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)


	RESTATED			RESTATED
	(See Note 2)			(See Note 2)
	March 31,			December 31,
	2005			2004
LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Outstanding checks, net	$	13,440		$	30,368

Accounts payable, trade		162,452			128,656

Notes payable to banks		55,408			41,013

Current portion of long-term debt and capital lease obligations		41,243			41,216

Federal and state income taxes payable		1,773			17,790

Accrued warranty reserves		19,516			19,667

Other current liabilities		73,245			71,278


Total current liabilities		367,077			349,988


LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION		155,653			167,349


NONCURRENT LIABILITIES		34,283			34,383


DEFERRED INCOME TAXES		9,871			10,366


COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY:
Common stock, $.10 par value, shares issued and outstanding - 22,444 on March 31, 2005 and 22,312 on December 31, 2004		2,244			2,231

Additional paid-in capital		30,260			28,882

Deferred compensation		(1,205	)		(789	)

Accumulated other comprehensive loss		(1,278	)		(1,570	)

Retained earnings		279,986			273,913


Total stockholders’ equity		310,007			302,667


TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	876,891		$	864,753

See accompanying notes to consolidated financial statements.

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TBC CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended
	March 31,
	RESTATED			RESTATED
	(See Note 2)			(See Note 2)
	2005			2004
NET SALES*	$	466,372		$	433,841

COST OF SALES		292,268			272,824


GROSS PROFIT		174,104			161,017


EXPENSES:
Distribution expenses		18,890			17,117
Selling, administrative and retail store expenses		142,192			132,104
Interest expense — net		4,951			4,102
Other income		(1,433	)		(718	)


Total Expenses		164,600			152,605


INCOME BEFORE INCOME TAXES		9,504			8,412

PROVISION FOR INCOME TAXES		3,431			3,012


NET INCOME	$	6,073		$	5,400


EARNINGS PER SHARE -
Basic	$	0.27		$	0.24


Diluted	$	0.26		$	0.23

Weighted Average Common Shares Outstanding -
Basic		22,355			22,021

Diluted		23,386			23,256


*		Including sales to related parties of $27,723 and $25,261 for the three months ended March 31, 2005 and 2004, respectively.

See accompanying notes to consolidated financial statements.

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TBC CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)


							Accumulated
							Compre-												Total
	Common Stock				Additional		hensive												Compre-
	Number of				Paid-In		Income			Deferred			Retained						hensive
	Shares		Amount		Capital		(Loss)			Compensation			Earnings			Total			Income
BALANCE, DECEMBER 31, 2003 AS PREVIOUSLY REPORTED		21,905	$	2,190	$	23,898	$	(1,637	)	$	—		$	238,657		$	263,108

Opening retained earnings change for restatement (See Note 2)		—		—		—		—			—			(1,940	)		(1,940	)
Net income for period (restated)		—		—		—		—			—			5,400			5,400

Issuance of common stock under stock option and incentive plans net of amortization of deferred compensation		225		23		1,954		—			(335	)		—			1,642
Tax benefit from exercise of stock options		—		—		957		—			—			—			957
Comprehensive income:
Net income (restated)																	—		$	5,400
Interest rate swap agreement, net of tax		—		—		—		51			—			—			51			51
Foreign currency translation adjustment		—		—		—		270			—			—			270			270

Other comprehensive income		—		—		—		—			—			—			—			321

Total comprehensive income (restated)		—		—		—		—			—			—			—		$	5,721



BALANCE, MARCH 31, 2004 AS RESTATED		22,130	$	2,213	$	26,809	$	(1,316	)	$	(335	)	$	242,117		$	269,488


BALANCE, JANUARY 1, 2005 AS RESTATED		22,312	$	2,231	$	28,882	$	(1,570	)	$	(789	)	$	273,913		$	302,667

Net income for period (restated)		—		—		—		—			—			6,073			6,073
Issuance of common stock under stock option and incentive plans, net of amortization of deferred compensation		132		13		1,295		—			(416	)		—			892
Tax benefit from exercise of stock options		—		—		83		—			—			—			83
Comprehensive income:
Net income (restated)		—		—		—		—			—			—			—		$	6,073
Interest rate swap agreement, net of tax		—		—		—		88			—			—			88			88
Foreign currency translation adjustment		—		—		—		204			—			—			204			204

Other comprehensive income		—		—		—		—			—			—			—			292

Total comprehensive income (restated)		—		—		—		—			—			—			—		$	6,365



BALANCE, MARCH 31, 2005 AS RESTATED		22,444	$	2,244	$	30,260	$	(1,278	)	$	(1,205	)	$	279,986		$	310,007

See accompanying notes to consolidated financial statements.

-6-

TBC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended
	March 31,
	RESTATED			RESTATED
	(See Note 2)			(See Note 2)
	2005			2004
Operating Activities:
Net income	$	6,073		$	5,400
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		6,987			6,734
Amortization of intangible assets		19			18
Amortization of deferred financing costs		492			491
Amortization of other deferred compensation		67			80
Provision for doubtful accounts and notes		1,113			1,009
Gain on sale of fixed assets		(305	)		(5	)
Deferred income taxes		(633	)		896
Equity in net earnings from joint ventures		(1,124	)		(223	)
Changes in operating assets and liabilities net of effect of assets acquired:
Receivables		(16,319	)		(31,379	)
Inventories		(6,342	)		(17,877	)
Other current assets		2,511			(1,361	)
Other assets		(581	)		(445	)
Accounts payable, trade		34,086			43,442
Federal and state income taxes refundable or payable		(15,933	)		(538	)
Other current liabilities		1,817			(7,847	)
Noncurrent liabilities		(101	)		(31	)

Net cash provided by (used in) operating activities		11,827			(1,636	)


Investing Activities:
Purchase of property, plant and equipment		(3,941	)		(6,846	)
Investments in joint ventures, net of distributions received		—			(798	)
Proceeds from asset dispositions		4,025			192

Net cash provided by (used in) investing activities		84			(7,452	)


Financing Activities:
Net bank borrowings under short-term borrowing arrangements		14,395			15,300
(Decrease) increase in outstanding checks, net		(16,928	)		301
Payments of long-term debt and capital lease obligations		(11,669	)		(5,095	)
Issuance of common stock under stock incentive plans		892			1,642

Net cash (used in) provided by financing activities		(13,310	)		12,148


(Decrease) increase in cash and cash equivalents		(1,399	)		3,060
Cash and cash equivalents:
Balance — Beginning of year		2,832			2,645

Balance — End of period	$	1,433		$	5,705

(Continued)

-7-

TBC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In thousands)

(Unaudited)


	Three Months Ended
	March 31,
	Restated		Restated
	(See Note 2)		(See Note 2)
	2005		2004
Supplemental Disclosures of Cash Flow Information:
Cash paid for — Interest	$	4,386	$	3,542
Cash paid for — Income taxes		20,030		2,767

Supplemental Disclosures of Non-Cash Financing Activity:
Tax benefit from exercise of stock options	$	83	$	957
Issuance of restricted stock under stock incentive plan, net		416		335

See accompanying notes to consolidated financial statements.

-8-

TBC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The December 31, 2004 condensed consolidated balance sheet has been 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 March 31, 2005 have been prepared by the Company without audit. The restated consolidated statements of income, stockholders’ equity and cash flow, as discussed in Note 2 “Restatement” of this Form 10Q, for the period ended March 31, 2004, 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 March 31, 2005 and for all periods presented. Additionally, 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. The revised classification amounts were comprised of a change between distribution expenses and cost of sales for the three and six months ended March 31, 2004. 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 2004 Annual Report on Form 10-K/A includes a summary of the significant accounting policies used in the preparation of the consolidated financial statements. The reader of this Form 10-Q may wish to refer to Company’s 2004 Annual Form 10-K/A for the summary of significant accounting policies, which were unaffected by the restatement discussed below, as well as certain other footnote disclosures and information normally included in financial statements prepared in accordance with generally accepted accounting principles, which have been condensed or omitted for the purposes of this quarterly report. The Company amended the Form 10-K/A for the fiscal year ended December 31, 2004 to restate the financial statements contained therein to correct the accounting for acquired leases and asset retirement obligations as discussed in Note 2 “Restatement”.

-9-

TBC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2. Restatement

The Company has reviewed its lease-related accounting policies pertaining to acquired leases and determined that it should correct for an error its computation of straight-line rent expense, the related deferred rent liability and goodwill. Historically, when accounting for leases acquired as part of purchase business combinations, the Company evaluated the lease term in order to determine the period over which to record straight-line rents. After performing this assessment, the Company had incorrectly recorded a deferred rent liability at the date of acquisition and the Company straight-lined rents by amortizing the deferred rent liability over the lease term. The Company has now determined that it should have eliminated the deferred rent liability on its acquired leases and recorded leases at their fair values. Consequently, the Company’s straight-line rent expense for the years ended December 31, 2000 through 2004 and the first quarter of 2005 was understated. Accordingly, previously reported retained earnings as of December 31, 2004 has been decreased by $2.0 million.

In addition, the Company is restating its financial statements to record an asset retirement obligation in accordance with SFAS No. 143, “Accounting for Asset Retirement Obligations” (“SFAS No. 143”). The Company has determined that certain leases require that the premises be returned to its original condition, reflecting normal wear and tear, upon lease termination. As a result, the Company will incur costs, primarily related to the removal of signage from its retail stores, at the lease termination. SFAS No. 143 requires that these costs be recorded at their fair value at lease inception. SFAS No. 143 was effective for periods beginning January 1, 2003 with the impact at adoption being reported as a cumulative effect of a change in an accounting principle. Accordingly, previously reported retained earnings as of December 31, 2004 has been decreased by $0.3 million to correct for this matter.

The effect of the correction on the previously reported results of operations and earnings per share are reflected in the table below (in thousands):


						Asset
	As		Straight-line			Retirement
	Previously		Rent			Obligation			As
	Reported		Adjustment			Adjustment			Restated
Selling, administrative and retail store expenses
Three months ended March 31, 2004	$	131,949	$	131		$	24		$	132,104
Three months ended March 31, 2005	$	141,983	$	183		$	26		$	142,192

Net income
Three months ended March 31, 2004	$	5,499	$	(84	)	$	(15	)	$	5,400
Three months ended March 31, 2005	$	6,207	$	(117	)	$	(17	)	$	6,073

Basic earnings per share
Three months ended March 31, 2004	$	0.25	$	(0.01	)	$	—		$	0.24
Three months ended March 31, 2005	$	0.28	$	(0.01	)	$	—		$	0.27

Diluted earnings per share
Three months ended March 31, 2004	$	0.24	$	(0.01	)	$	—		$	0.23
Three months ended March 31, 2005	$	0.27	$	(0.01	)	$	—		$	0.26

-10-

TBC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2. Restatement (Continued)

The impact of the restatement on the condensed consolidated balance sheet as of December 31, 2004 is summarized below (in thousands):


	As		Straight-line			Retirement
	Previously		Rent			Obligation			As
	Reported		Adjustment			Adjustment			Restated
Property, Plant and Equipment, net	$	152,173	$	—		$	275		$	152,448
Goodwill, net		180,353		(11,962	)		161			168,552
Total assets		876,279		(11,962	)		436			864,753

Noncurrent liabilities		43,320		(9,939	)		1,002			34,383
Deferred income taxes		10,613		23			(270	)		10,366

Retained earnings		276,255		(2,046	)		(296	)		273,913

Total liabilities and stockholders’ equity		876,279		(11,962	)		436			864,753

The impact of the restatement on the condensed consolidated balance sheet as of March 31, 2005 is summarized below (in thousands):


						Asset
	As		Straight-line			Retirement
	Previously		Rent			Obligation			As
	Reported		Adjustment			Adjustment			Restated
Property, Plant and Equipment, net	$	145,092	$	—		$	270		$	145,362
Goodwill, net		180,442		(11,962	)		161			168,641
Total assets		888,422		(11,962	)		431			876,891

Noncurrent liabilities		43,016		(9,757	)		1,022			34,281
Deferred income taxes		10,193		(43	)		(279	)		9,871

Retained earnings		282,462		(2,161	)		(313	)		279,988

Total liabilities and stockholders’ equity		888,422		(11,962	)		431			876,891

-11-

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):


	Three Months Ended
	March 31,
	2005		2004
Weighted average common shares outstanding		22,355		22,021

Common share equivalents*		1,031		1,235


Weighted average common shares and equivalents outstanding		23,386		23,256


*		The Company had additional employee stock options outstanding during the periods presented that were not included in the computation of diluted earnings per share because they were anti-dilutive. Options to purchase 437,861 and 10,000 shares of common stock were anti-dilutive and outstanding during the three months ended March 31, 2005 and 2004, respectively.

4. Segment Information

The Company is principally engaged in the marketing and distribution of tires in the automotive replacement market and has two reportable 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/A for the year ended December 31, 2004 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 $53.0 million and $52.8 million for the three months ended March 31, 2005 and 2004, respectively. Such intersegment sales had no effect on the EBITDA of the individual reporting segments.

-12-

TBC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

4. Segment Information (continued)

Segment information for the three months ended March 31, 2005 and 2004 is as follows (in thousands):


	Retail		Wholesale		Total
Three Months ended March 31, 2005 (Restated)

Total assets	$	574,108	$	302,783	$	876,891
Operating results -

Net sales to external customers		293,160		173,212		466,372

EBITDA		12,866		8,595		21,461
Depreciation and amortization						7,006
Interest expense, net						4,951

Income before income taxes					$	9,504


Three Months ended March 31, 2004 (Restated)

Total assets	$	521,060	$	305,191	$	826,251

Operating results -

Net sales to external customers		285,616		148,225		433,841

EBITDA		12,577		6,689		19,266
Depreciation and amortization						6,752
Interest expense, net						4,102

Income before income taxes					$	8,412

-13-

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 March 31, 2005 and 2004. Using fair value assumptions specified in SFAS No. 123, the weighted average per share values of options granted during the three months ended March 31, 2005 and 2004 were $9.94 and $10.85, respectively. Had compensation cost for such option grants been determined using such assumptions, results for the first quarter of 2005 and 2004 would have been as follows (in thousands):


	Three Months Ended
	March 31,
	RESTATED			RESTATED
	(See Note 2)			(See Note 2)
	2005			2004
Net income, as reported	$	6,073		$	5,400

Add: Stock-based compensation included in reported net income, net of tax effects		44			52

Less: Total stock-based compensation expense determined using fair value assumptions, net of tax effects		(817	)		(725	)


Pro forma net income	$	5,300		$	4,727


Earnings per share:
Basic — as reported	$	0.27		$	0.24

— pro forma	$	0.24		$	0.21


Diluted — as reported	$	0.26		$	0.23

— pro forma	$	0.23		$	0.20

The fair value of each option granted in the first three months of 2005 and 2004 was estimated on the date of grant using the Black-Scholes option-pricing model and the following weighted-average assumptions: dividend yield of 0%; expected lives of 5.0 years; and interest rates based on risk-free governmental issues with maturities equal to the expected term of the option. The expected volatility percentages used for options granted during the first three months of 2005 and 2004 were 36.5% and 38.9%, respectively.

-14-

TBC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In December 2004, the FASB issued a revised version of FASB Statement No. 123, “Accounting for Stock-Based Compensation.” The statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost will be recognized over the period during which an employee is required to provide service in exchange for the award, typically the vesting period. For public entities, the revised statement indicated an effective date as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. However, the Securities and Exchange Commission (the “Commission”) announced on April 14, 2005 a new rule which allows companies to implement FASB Statement No. 123 at the beginning of the next fiscal year. The Company intends to adopt Statement No. 123 in compliance with the revised implementation date on January 1, 2006.

6. Variable Interest Entities

In January 2003 and December 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46), and its revision, FIN 46-R, respectively. FIN 46 and FIN 46-R provide guidance on the consolidation of entities whose equity holders have either not provided sufficient equity at risk to allow the entity to finance its own activities or do not possess certain characteristics of a controlling financial interest. FIN 46 and FIN 46-R require the consolidation of these entities, known as variable interest entities (VIE’s), by the primary beneficiary of the entity and also require certain disclosures by primary beneficiaries and other significant variable interest holders. The primary beneficiary is the entity, if any, that is subject to a majority of the risk of loss from the VIE’s activities, entitled to receive a majority of the VIE’s residual returns, or both. In applying FIN 46 for purposes of determining whether an entity is a VIE, the Company has reviewed arrangements created after that date in which it has: 1) an economic interest in an entity or obligations to that entity; 2) issued guarantees related to the liabilities of an entity; 3) transferred assets to an entity; 4) managed the assets of an entity; or 5) leased assets from an entity or provided that entity with financing. As of March 31, 2005, the Company has identified one hundred thirty-seven (137) retail stores operated by Big O Tires franchisees that meet the VIE conditions due to lending, leasing or guarantee arrangements. These stores make retail tire sales and provide automotive services to consumers under the trade name of Big O Tires (“Big O”) through franchise agreements entered into with the Company’s subsidiary. Under the franchise agreements, Big O sells private-branded and other tires to the franchised stores and receives a 2% royalty on all revenues of the stores. As of March 31, 2005, the Company’s subsidiary had extended loans in the aggregate of $8.5 million, entered into leasing or subleasing arrangements for minimum payments totaling $36.4 million, and guaranteed loans or leases on behalf of these franchisees totaling $2.2 million. During the first quarter of 2005, Big O recorded product sales of $9.1 million and royalty fee revenues of $0.7 million related to these 137 franchised stores. During the first quarter of 2005, the stores themselves reported to Big O that they had retail sales totaling $32.8 million. The 137 retail stores are owned and/or operated by numerous entities and persons. The process of obtaining complete financial information for the stores was a lengthy one and in some instances the Company was unable to obtain certain financial information. In some instances, the Company evaluated these stores based on their economic characteristics and made certain assumptions in instances where financial information was not available. Based on these evaluations, at March 31, 2005, the Company was the primary beneficiary of four VIEs. However, the consolidation of those entities for which the Company is the primary beneficiary would not have a material impact on the Company’s consolidated financial statements and therefore, the four entities are not included in the consolidated results of operations of the Company for the three months ended March 31, 2005.

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TBC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

7. Consideration Received from a Vendor

On March 20, 2003, the Emerging Issues Task Force (“EITF”) issued EITF 02-16, “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor,” which states that cash consideration received from a vendor is presumed to be a reduction of the price of the vendor’s products or services and should, therefore, be characterized as a reduction of cost of goods sold and a portion of these amounts be capitalized into ending inventory. This presumption is overcome when the consideration is either a reimbursement of specific, incremental and identifiable costs incurred to sell the vendor’s products, or a payment for assets or services delivered to the vendor.

Prior to the effective date of EITF 02-16, the Company entered into numerous multi-year supply agreements. Consistent with EITF 02-16, the Company continued accounting for these agreements under its historical method of recognizing the vendor allowances based on the Company’s fulfillment of the related obligations of the agreement. In the second quarter of 2004, the Company entered into a new supply agreement with one of its major vendors. As required by EITF 02-16, the Company began capitalizing a portion of the allowances afforded it under this new agreement. Earnings during the three months ended March 31, 2005 reflect the impact of EITF 02-16 of $64,000. In addition, during the three months ended March 31, 2004, the Company reclassified certain vendor allowances of $716,000 previously classified in selling, general and administrative expenses to properly record these as cost of goods sold in accordance with EITF 02-16 with no impact on net income.

8. Goodwill and Intangible Assets

The component of Goodwill by segments are listed below (in thousands):


	RESTATED		RESTATED
	(See Note 2)		(See Note 2)
	March 31,		December 31,
	2005		2004
Goodwill
Retail segment	$	163,026	$	163,026
Wholesale segment		5,615		5,526


Total goodwill	$	168,641	$	168,552

The net increase in goodwill reflects an increase of $89,000 pertaining to the acquisition of the assets and certain liabilities of Southwest Tire and Supply which was acquired by the Company in October 2004.

Indefinite-lived intangible assets were $0.4 million and $0.5 million at March 31, 2005 and December 31, 2004, respectively. Gross definite-lived intangible assets comprised of customer lists and non-compete agreements were $485,000 at March 31, 2005 and December 31, 2004 with related accumulated amortization of $158,000 and $139,000 at March 31, 2005 and December 31, 2004, respectively, were included in other assets in the Consolidated Balance Sheets. Amortization of definite-lived intangible assets was $19,000 during the quarter ended March 31, 2005 and 2004. The estimated future amortization expense related to definite-lived intangible assets at March 31, 2005 is $74,000, $42,000, $37,000, $37,000 and $37,000 for 2005, 2006, 2007, 2008 and 2009, respectively.

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TBC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

9. Warranty Reserves

The costs of anticipated adjustments for workmanship and materials that are the responsibility of the Company are estimated based on historical experience and charged against earnings currently. Management reviews these estimates on a regular basis and adjusts the warranty provisions as actual experience differs from historical estimates or other information becomes available. Reserves for future warranty claims and service, including those associated with acquired operations, totaled $25.0 million and $25.7 million at March 31, 2005 and December 31, 2004, respectively, of which $5.5 million and $6.0 million was classified as noncurrent liabilities at March 31, 2005 and December 31, 2004, respectively, in the balance sheets. The following table presents changes in the warranty reserves from December 31, 2004:


	March 31,
	2005
Warranty reserve, beginning of period	$	25,667

Reserves established		1,481

Reserves utilized		(1,876	)

Other adjustments		(229	)


Warranty reserve, end of period	$	25,043

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

The following tables highlight the financial information, stated both as dollar amounts and as percentage, which is discussed in greater detail below:


	Three Months Ended March 31,
	RESTATED			RESTATED
	(See Note 2)			(See Note 2)			Fav/(Unfav)			Fav/(Unfav)
	2005			2004			Change			Change %
NET SALES	$	466,372		$	433,841		$	32,531			7.5	%

COST OF SALES		292,268			272,824			(19,444	)		-7.1	%


GROSS PROFIT		174,104			161,017			13,087			8.1	%


EXPENSES:
Distribution expenses		18,890			17,117			(1,773	)		-10.4	%
Selling, administrative and retail store expenses		142,192			132,104			(10,088	)		-7.6	%
Interest expense — net		4,951			4,102			(849	)		-20.7	%
Other income		(1,433	)		(718	)		715			99.6	%


Total expenses		164,600			152,605			(11,995	)		-7.9	%


INCOME BEFORE INCOME TAXES		9,504			8,412			1,092			13.0	%

PROVISION FOR INCOME TAXES		3,431			3,012			(419	)		-13.9	%


NET INCOME	$	6,073		$	5,400		$	673			12.5	%

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Results of Operations (Continued)


	Three Months Ended March 31,
	RESTATED			RESTATED
	(See Note 2)			(See Note 2)
	2005			2004
NET SALES		100.0	%		100.0	%

COST OF SALES		62.7	%		62.9	%


GROSS PROFIT		37.3	%		37.1	%


EXPENSES:
Distribution expenses		4.0	%		3.9	%
Selling, administrative and retail store expenses		30.5	%		30.5	%
Interest expense — net		1.1	%		1.0	%
Other income		-0.3	%		-0.2	%


Total expenses		35.3	%		35.2	%


INCOME BEFORE INCOME TAXES		2.0	%		1.9	%

PROVISION FOR INCOME TAXES		0.7	%		0.7	%


NET INCOME		1.3	%		1.2	%

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Introduction

The Company is one of the nation’s largest independent marketers of tires for the automotive replacement market. The Company has determined that its operating activities consist of two reportable operating segments: the Company’s Retail Division and the Company’s Wholesale Division. The Company operates and acts as a franchisor of retail tire and automotive service centers throughout the entire United States under the trade names Tire Kingdom, Merchant’s Tire & Auto Centers, National Tire & Battery and Big O Tires. The Company’s wholesale customers include retailers and other wholesalers, primarily in the United States, Canada and Mexico. As of March 31, 2005, the Company had a total of 1,172 retail locations consisting of 609 Company-operated and 563 franchised stores.

The following discussion should be read in conjunction with the consolidated historical financial statements, including the related notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, as well as the consolidated financial statements, and notes thereto, included in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2004. The Company will amend Form 10-K/A for the fiscal year ended December 31, 2004 to restate the financial statements contained therein to correct the accounting for acquired leases and asset retirement obligations as discussed below.

Restatement

Subsequent to the issuance of the Company’s 2004 financial statements, the Company reviewed its lease-related accounting policies pertaining to acquired leases and determined that it should correct its computation of straight-line rent expense, the related deferred rent liability and goodwill. In addition, the Company determined it needed to correct its accounting for the adoption of SFAS No. 143, “Accounting For Asset Retirement Obligations.” See Note 3 – “Restatement for Accounting Change” and Note 4 “Restatement For Lease Accounting Correction” for additional information. All amounts herein have been restated to reflect the above-mentioned corrections.

Financial Condition

At March 31, 2005, the Company’s financial position and liquidity were strong, with working capital of $139.5 million and stockholders’ equity of $310.0 million. During the first quarter of 2005, total cash generated by operating activities totaled $11.8 million and the net amount owed to banks and vendors (consisting of the combined balances of cash and cash equivalents, outstanding checks, notes payable to banks, and accounts payable) increased by $32.7 million from December 31, 2004 to March 31, 2005. Consequently, the Company was able to fund federal and state tax payments of $20.0 million and capital expenditures totaling $3.9 million during the first quarter of 2005. Capital expenditures, including those during the current quarter have historically been primarily for equipment and tire molds. The Company anticipates expending approximately $25.0 million in capital expenditures in 2005.

Current accounts and notes receivable increased by $15.1 million and inventories increased by $6.3 million compared to the December 31, 2004 levels, due largely to seasonal fluctuations. The number of days of sales in accounts receivable and number of days inventory on hand increased approximately 3 days at March 31, 2005 compared to their levels at the end of 2004. The increases are primarily attributable to extended payment programs offered by the Company’s wholesale segment during the first quarter of 2005.

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Consolidated Results of Operations

Three Months Ended March 31, 2005 Compared to the Three Months Ended March 31, 2004

Net sales (which equals revenues from sales of products and mechanical services, plus franchise and royalty fees, less estimated returns, allowances and customer rebates) increased $32.5 million, or 7.5%, during the first quarter of 2005, compared to the first quarter of 2004, including a $10.0 million, or 3.5%, increase for the retail segment and a $22.5 million, or 14.9%, increase for the wholesale segment. The $10.0 million increase in retail net sales during the first quarter of 2005 included a $20.1 million gain in service revenues at Company-operated stores offset by a $6.9 million decrease in tire sales and a $3.2 million decrease primarily related to sales of products other than tires. The 20.8% increase in service revenues as compared to the first quarter of 2004 was mainly attributable to aggressive advertising in order to expand higher-margin service sales. The decrease in retail tire sales dollars was principally due to a 3.6% decrease in retail unit volume and a 0.3% decrease in the average retail tire sales price due to product mix changes towards lower-priced private and exclusive branded tire products, which was offset by the pass-through of supplier cost increases. At the end of March 2005, the Company had 13, or 2.2%, more Company-operated stores and 8, or 1.4%, less franchised stores than at March 31, 2004. Net sales within the wholesale segment increased $22.5 million, or 14.9%, which was due to an increase in total unit tire volume of 8.8% coupled with an increase in average tire sales prices of 6.2%. The increase in average tire sales prices was due to the pass-through of price increases from suppliers and a favorable shift in the product mix toward specialty tire products.

The percentage of total sales attributable to tires declined from 75.2% in the first quarter of 2004 to 73.2% for the first quarter of 2005, due to the impact of service revenues contributed by the Company-operated retail stores. Total unit tire volume in the first quarter of 2005 increased 3.1% compared to the first quarter of 2004 primarily due to increases in the wholesale segment. Unit tire shipments for the replacement tire industry as a whole increased approximately 1.7% in the first quarter of 2005 (based on preliminary data as of March 2005). Additionally, the average tire sales price for the Company as a whole increased 1.6% compared to the first quarter of 2004.

Gross profit increased $13.1 million from $161.0 million, or 37.1% of net sales in the first quarter of 2004 to $174.1 million, or 37.3% of net sales in the first quarter of 2005. As a percentage of sales, gross profit increased compared to the first quarter of 2004 reflecting an increase in higher-margin mechanical services and private brand expansion in the Company’s retail segment and offset by the increased contribution by the Company’s wholesale segment. Gross profit percentages on sales by the Company’s retail and wholesale segments increased from 49.3% and 13.6%, respectively, in the first quarter of 2004 to 50.8% and 14.6%, respectively, in the current quarter.

Distribution expenses increased $1.8 million from $17.1 million, or 3.9% of net sales in the first quarter of 2004 to $18.9 million, or 4.0% of net sales in the current quarter. The increases were primarily due to the increased tire unit volume and higher fuel prices, which were partially offset by the Company’s ability to leverage its fixed costs due to the increased sales volume.

Selling, administrative and retail store expenses increased by $10.1 million from $132.1 million, or 30.5% of net sales in the first quarter of 2004 to $142.2 million, or 30.5% in the current quarter. The increase in dollars was principally due to the addition of 13 Company-operated retail stores as compared to the first quarter of 2004, approximately $3.0 million in incremental advertising expenses related to the aggressive promotion of the Company’s mechanical service offerings and $0.8 million in consulting fees related to the on-going assessment, documentation and testing of the Company’s internal control environment as required by Section 404 of the Sarbanes-Oxley Act.

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Net interest expense increased by $0.8 million, or 20.7%, in the first quarter of 2005 compared to the first quarter of 2004. The increase was due principally to an increase in average borrowing rates. The weighted average borrowing rates in the current quarter were approximately 90 basis points higher than in the first quarter of 2004 due principally to increases in the prime rate.

Net other income in the first quarter of 2005 increased by $0.7 million compared to the first quarter of 2004. The increase is principally due to the equity earnings in a joint venture during the first quarter of 2005 as compared to the first quarter of 2004. Net other income consisted primarily of the Company’s equity interest in joint ventures and net gains and/or losses on sales of assets and miscellaneous other income and expense items.

The Company recorded tax provisions of $3.4 million and $3.0 million in the first quarter of 2005 and 2004, respectively. The Company’s effective tax rate was 36.1% in the current quarter, compared to 35.8% in the first quarter of 2004. The Company expects its effective tax rate to increase; however, the actual rate will depend on a number of factors, including the amount of pre-tax income by jurisdiction and any incremental tax savings initiatives that might be identified and implemented.

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FORWARD-LOOKING STATEMENTS AND RISKS

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to certain financial market risks. The most predominant of these risks is the fluctuation in interest rates associated with bank borrowings, since changes in interest expense affect the Company’s operating results. At March 31, 2005, the Company owed a total of $171.4 million to banks under its credit facilities, of which $161.4 million was not hedged by interest-rate swap agreements and was thus subject to market risk for a change in interest rates. If interest rates increase by 25 basis points, the Company’s annual interest expense would increase by approximately $0.4 million based on the outstanding balance, which was not hedged at March 31, 2005. At March 31, 2005, the fair market value of the interest rate swap was $0.2 million, which is recorded as a component of other current liabilities.

The Company has no significant foreign currency translation risks associated with its sales to customers located outside the United States since these sales are made and settled in U.S. dollars. The Company does have significant risk in foreign currency translation associated with its share of earnings and losses from certain equity investments.

Item 4. Controls and Procedures

The Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer and its Chief Financial Officer, carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

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Changes in Internal Control Over Financial Reporting

During the quarter ended March 31, 2005, there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Consideration of the Restatement

Management has considered, among other things, the control deficiency related to the accounting for leases, which resulted in the need to restate the Company’s previously issued financial statements as disclosed in Note 4 of Notes to Consolidated Financial Statements included in Item 8 of the Company’s 2004 Annual Report on Form 10-K/A and in Note 2 of Notes to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q. After reviewing and analyzing the Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) No. 99, “Materiality,” Accounting Principles Board Opinion No. 28, “Interim Financial Reporting” paragraph 29 and SAB Topic 5-F, “Accounting Changes Not Retroactively Applied Due to Immateriality,” and taking into consideration (i) that the restatement adjustments did not have a material impact on the financial statements of prior interim or annual periods taken as a whole; (ii) that the cumulative impact of the restatement adjustments on stockholders’ equity was not material to the financial statements of prior interim or annual periods; and (iii) that the Company decided to restate its previously issued financial statements solely because the cumulative impact of the error, if recorded in the current period, would have been material to the current period reported net income, management concluded that the control deficiency that resulted in the restatement of the prior period financial statements was not in itself a material weakness. Furthermore, management concluded that the control deficiency that resulted in the restatement when aggregated with other deficiencies did not constitute a material weakness.

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PART II. OTHER INFORMATION

Item 6. Exhibits

(a)

Exhibits – see Index to Exhibits.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	TBC CORPORATION

August 31, 2005	By	/s/ Thomas W. Garvey

		Thomas W. Garvey Executive Vice President and Chief Financial Officer (principal financial and accounting officer)

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INDEX TO EXHIBITS


Exhibit No.		Description
(10)		MATERIAL CONTRACTS

Management Contracts and Compensatory Plans or Arrangements

10.1		TBC Corporation Deferred Compensation Plan for Directors (Effective January 1, 1989 and Amended Effective July 1, 1992 and March 2, 2005) was filed as Exhibit 10.1 to the TBC Corporation Current Report on Form 8-K dated March 31, 2005 and is incorporated herein by reference.

10.2		Stock Option granted to Lawrence C. Day on March 29, 2005.

10.3		Grant of Restricted Shares to Lawrence C. Day, dated March 29, 2005.

(31)		RULE 13a-14(a) / 15d-14(a) CERTIFICATIONS

31.1		Certification by Lawrence C. Day pursuant to rule 13a-14(a) under the Securities Exchange Act of 1934

31.2		Certification by Thomas W. Garvey pursuant to rule 13a-14(a) under the Securities Exchange Act of 1934

(32)		SECTION 1350 CERTIFICATIONS

32.1		Certification by Lawrence C. Day pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification by Thomas W. Garvey pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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TBC CORP 10-Q/A