<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
---------------------
<TABLE>
<C> <S>
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED OCTOBER 26, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM --------------- TO
---------------
</TABLE>
COMMISSION FILE NO. 2-72154
BIG B, INC.
STATE OF INCORPORATION
ALABAMA
I.R.S. EMPLOYER I.D.
NO. 63-0632551
ADDRESS OF PRINCIPAL EXECUTIVE OFFICE
2600 MORGAN ROAD S.E.,
BESSEMER, ALABAMA 35023
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE
AREA CODE (205) 424-3421
OUTSTANDING COMMON STOCK AS OF OCTOBER 26, 1996 IS 18,757,034
Indicate by check 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, and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X] No [ ]
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<PAGE> 2
BIG B, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
FINANCIAL STATEMENTS:
Condensed Balance Sheets as of October 26, 1996 and February 03, 1996.............. 3
Condensed Statements of Income and Retained Earnings for the Thirty-Eight and
Twelve Week Periods Ended October 26, 1996 and October 21, 1995.................. 4
Condensed Consolidated Statements of Cash Flows for the Thirty-Eight and Twelve
Week Periods Ended October 26, 1996 and October 21, 1995......................... 5
Notes of Condensed Financial Statements............................................ 6
Management's Discussion and Analysis of the Results of Operations and Financial
Condition........................................................................ 7
Other Information and Signatures................................................... 9
</TABLE>
2
<PAGE> 3
BIG B, INC.
CONDENSED BALANCE SHEETS
AS OF OCTOBER 26, 1996 AND FEBRUARY 3, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 26, FEBRUARY 3,
1996 1996
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Temporary Cash Investments.................................. $ 524 $ 491
Receivables.......................................................... 22,087 22,659
Inventories at LIFO.................................................. 199,756 179,400
Prepaid Expenses..................................................... 5,476 6,330
Refundable Income Taxes.............................................. 1,760 3,037
Deferred Income Taxes................................................ 2,539 2,539
-------- --------
Total Current Assets......................................... 232,142 214,456
-------- --------
Property, Equipment and Investments in Property Under Capital Leases,
Net.................................................................. 73,694 76,225
-------- --------
Other Assets........................................................... 11,447 8,155
-------- --------
317,283 298,836
======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Current Portion of Long-Term Debt and Capitalized Lease
Obligations....................................................... 1,057 1,057
Accounts Payable..................................................... 59,570 49,525
Short Term Bank Loan................................................. 12,500 4,700
Accrued Income Taxes Payable......................................... 0 0
Accrued Expenses..................................................... 16,296 13,170
-------- --------
Total Current Liabilities.................................... 89,423 68,452
-------- --------
Non-Current Liabilities:
Long-Term Debt and Capitalized Lease Obligations..................... 69,102 73,171
Deferred Income Taxes................................................ 6,513 5,169
Deferred Compensation................................................ 1,974 1,780
Other................................................................ 1,700 5,016
-------- --------
79,289 85,136
-------- --------
Shareholders' Investment:
Common stock, $.001 par value; 100,000,000 shares authorized,
18,757,034 shares issued and outstanding at October 26, 1996...... 19 19
Paid-in capital...................................................... 76,533 74,626
Retained earnings.................................................... 72,019 70,603
-------- --------
148,571 145,248
-------- --------
$ 371,283 $298,836
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
3
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BIG B, INC.
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THIRTY-EIGHT AND TWELVE WEEK PERIODS ENDED
OCTOBER 26, 1996 AND OCTOBER 21, 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(NOTE 2)
<TABLE>
<CAPTION>
THIRTY-EIGHT TWELVE WEEKS
WEEKS ENDED ENDED
------------------------- -------------------------
OCTOBER 26, OCTOBER 21, OCTOBER 26, OCTOBER 21,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales........................................... $ 557,406 $ 516,054 $ 175,509 $ 161,312
-------- -------- -------- --------
Cost and Expenses:
Cost of Products sold............................. 392,820 360,312 123,209 113,197
Store Operating, Selling and Administrative
Expenses....................................... 143,573 129,386 46,251 42,876
Depreciation and Amortization..................... 10,247 9,624 3,342 3,706
Interest Expense.................................. 4,060 3,473 1,313 1,115
Interest Income................................... (22) (41) (3) (5)
-------- -------- -------- --------
550,678 502,754 174,112 160,889
-------- -------- -------- --------
Income (Loss) Before Taxes.......................... 6,728 13,300 1,397 423
Provision for Income Taxes.......................... 2,520 4,990 525 160
-------- -------- -------- --------
Net Income.......................................... 4,208 8,310 872 263
Retained Earnings, Beginning of Period.............. 70,603 71,390 72,081 77,884
Dividend Paid....................................... (2,792) (2,482) (934) (929)
-------- -------- -------- --------
Retained Earnings, end of Period.................... $ 72,019 $ 77,218 $ 72,019 $ 77,218
======== ======== ======== ========
Net Income per Common Share (Note 1)
Fully Diluted..................................... $ 0.23 $ 0.46 $ 0.05 $ 0.02
======== ======== ======== ========
Primary........................................... $ 0.23 $ 0.48 $ 0.05 $ 0.01
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed financial statements.
4
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BIG B, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-EIGHT WEEK PERIODS ENDED OCTOBER 26, 1996 AND OCTOBER 21, 1995
INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 26, OCTOBER 21,
1996 1995
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.......................................................... $ 4,208 $ 8,310
-------- --------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities
Depreciation and amortization.................................... 10,247 9,624
Provision for deferred income taxes.............................. 1,344 105
Provision for losses on receivables.............................. 3,418 7,984
Provision to value inventories at LIFO cost...................... 1,425 1,150
Loss on sale of property......................................... 136 38
Provision for deferred compensation.............................. 194 161
Provision (Recognition) of other non-current liability........... (1,526) (1,761)
Change in assets and liabilities:
Increase in accounts receivable................................ (2,846) (9,440)
Increase in other assets....................................... (3,612) (2,132)
Increase in inventories........................................ (21,781) (38,015)
Decrease in refundable income taxes............................ 1,277 0
Decrease (increase) in prepaid expenses........................ 2,854 (4,751)
Increase in accounts payable................................... 10,045 3,951
Decrease in accrued income taxes............................... 0 (1,446)
Increase in accrued expenses................................... 3,901 1,762
-------- --------
Total adjustments........................................... 5,076 (32,770)
-------- --------
Net cash provided by (used in) operating activities......... 9,284 (24,460)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property...................................... 17 25
Capital expenditures................................................ (11,339) (19,284)
-------- --------
Net cash used in investing activities....................... (11,322) (19,259)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt............................ 2,000 14,000
Net borrowings (repayments) under line of credit agreement.......... 7,800 6,800
Principal payments under long-term debt and capital lease
obligations...................................................... (5,070) (16,487)
Proceeds from issuance of common stock.............................. 133 38,327
Dividends paid...................................................... (2,792) (2,482)
-------- --------
Net cash provided by financing activities................... 2,071 40,158
-------- --------
NET INCREASE IN CASH AND TEMPORARY CASH INVESTMENTS................... 33 (3,561)
CASH AND TEMPORARY INVESTMENTS AT BEGINNING OF PERIOD................. 491 4,076
-------- --------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD.................. $ 524 $ 515
======== ========
Supplemental disclosures of cash flows information:
Cash paid during the period for:
Interest......................................................... $ 4,559 $ 4,254
Income taxes..................................................... 700 8,000
</TABLE>
See accompanying notes to condensed financial statements.
5
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BIG B, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
OCTOBER 26, 1996 AND OCTOBER 21, 1995
Net income per common share for all periods was computed by dividing net
income by the average weighted number of shares outstanding during the periods.
Outstanding stock options are common stock equivalents but were excluded from
the primary net income per common share computations as their effect was not
material. Fully diluted net income per common share was determined on the
assumption that all convertible subordinated debentures were converted and all
stock options outstanding were exercised. Conversion was assumed during the
portion of each period that the debentures and the options were outstanding. For
the debentures, net income was adjusted for interest, net of income tax effects,
for the stock options, outstanding shares were decreased by the number of shares
that could have been purchased with the proceeds from the exercise, using the
end of the period market price.
For the twenty-six and twelve week periods ending October 26, 1996, fully
diluted net income per common share is considered to be the same as primary net
income per common share since the effect of certain potentially dilutive
securities would be anti-dilutive.
In the opinion of management, all adjustments have been made which are
necessary to reflect a fair statement of the results of operations of the
interim period.
6
<PAGE> 7
BIG B, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OPERATING RESULTS
Net Sales
Sales for the thirty-eight week period increased 8.0% to $557.4 million
from $516.1 million in the prior year. Sales for the twelve week period
increased 8.8% to $175.5 million from $161.3 million in the prior year period.
The increase in net sales for both the thirty-eight and twelve week periods were
primarily the result of increased sales in existing stores and new stores
opened.
Store Cost and Expense
Cost of products sold, including warehouse expense, as a percentage of net
sales, increased to 70.5% from 69.8% in the thirty-eight week period and
remained steady at 70.2% in the most recent twelve week period. The increase in
cost of products sold as a percentage of net sales in the thirty-eight week
period resulted primarily from the continued increase in third-party
prescription sales with lower gross margins than non third-party prescription
sales.
Store operating, selling and administrative expenses as a percentage of net
sales increased to 25.8% from 25.1% in the thirty-eight week period and
decreased slightly to 26.4% from 26.6% in the most recent twelve week period.
This increase in the thirty-eight week period was the primary result of higher
operating expenses of store systems. The slight decrease in the twelve week
period was the result of lower net advertising cost.
Depreciation and amortization as a percentage of net sales decreased
slightly to 1.8% from 1.9% in the thirty-eight week period and decreased to 1.9%
from 2.3% in the most recent twelve week period. The decrease in both periods
were the result of the writing off of obsolete store equipment.
Interest expense as a percentage of net sales increased slightly in both
the thirty-eight and twelve week periods. This increase was due primarily to
higher short term borrowings during the period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements relate primarily to opening and stocking
new stores, acquiring stores, and refurbishing existing stores. Capital is also
required to support inventory for the Company's existing stores. Historically,
the Company has been able to lease its store locations and has financed its
expansion and operations from internally generated cash flows, the net proceed
of securities offerings, and borrowed funds. Currently the Company owns the land
and buildings of only three of its drug stores.
RECENT DEVELOPMENT
On November 15, 1996, Revco D.S., Inc. ("Revco") announced that it
completed its cash tender offer (the "Offer") for all of the outstanding shares
of the common stock, par value $0.001 per share (the "Common Stock"), of Big B,
Inc. (the "Company") at a price of $17.25 per share in cash. According to Revco,
as of the closing of the Offer at 9:00 a.m. on November 15, 1996, 17,232,483
shares of the Company's Common Stock had been tendered and accepted for payment
(the "Purchased Shares"). The aggregate purchase price for the Purchased Shares
was approximately $297.3 million. According to Revco, the funds required by
Revco to purchase the Purchased Shares were obtained from cash on hand and
borrowings under Revco's $650 million Revolving Credit Facility.
According to Revco, Revco owns an aggregate of 18,422,483 shares of the
Company's Common Stock, which represents approximately 85.0% of the Company's
Common Stock outstanding on December 3, 1996. Revco and the Company intend to
proceed with the consummation of a merger pursuant to an Agreement and Plan of
Merger (the "Merger Agreement"), dated October 27, 1996, pursuant to which RDS
Acquisition Inc. ("RDS"), a Delaware corporation and a wholly-owned subsidiary
of Revco, will merge with and into the
7
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Company with the Company surviving as a wholly-owned subsidiary of Revco (the
"Merger"). In the Merger, the remaining shares of the Company's Common Stock
will be converted into the right to receive $17.25 per share in cash subject to
the terms and conditions set forth in the Merger Agreement. The Company intends
to call a special meeting of shareholders on December 19, 1996, at which time
the Merger Agreement will be presented for consideration by the Company's
remaining shareholders. Because under Alabama law the approval of the holders of
at least 66-2/3% of all outstanding shares of the Company's Common Stock is
sufficient to approve and adopt the Merger Agreement, Revco can cause the Merger
to occur without the affirmative vote of any other holders of shares of the
Company's Common Stock. Revco and RDS have agreed pursuant to the Merger
Agreement to vote all of the shares of the Company's Common Stock held by them
in favor of approval and adoption of the Merger Agreement.
Pursuant to the Merger Agreement, Anthony J. Bruno, Vincent J. Bruno, James
A. Bruno and Richard Cohn have resigned from the Company's Board of Directors,
and, the following individuals, each an employee of Revco, have been designated
by the Board to fill the vacancies created by such resignations: D. Dwayne
Hoven, Carl A. Bellini, Brian P. Carney, and Jack A. Staph.
8
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BIG B, INC.
OTHER INFORMATION
The Company was not required to file and did not file any report on Form
8-K during the twelve weeks ended October 26, 1996.
Exhibits: Exhibit 27: Financial Data Schedule (For SEC use only)
SIGNATURES
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.
BIG B, INC.
--------------------------------------
Registrant
December 5, 1996
--------------------------------------
Date
/s/ MICHAEL J. TORTORICE
--------------------------------------
Michael J. Tortorice
Vice President of Finance*
- ---------------
* Both duly authorized officer and principal financial officer.
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> OCT-26-1996
<EXCHANGE-RATE> 1
<CASH> 524
<SECURITIES> 0
<RECEIVABLES> 24,595
<ALLOWANCES> 2,508
<INVENTORY> 199,756
<CURRENT-ASSETS> 232,142
<PP&E> 130,101
<DEPRECIATION> 56,407
<TOTAL-ASSETS> 317,283
<CURRENT-LIABILITIES> 89,423
<BONDS> 49,684
0
0
<COMMON> 19
<OTHER-SE> 148,552
<TOTAL-LIABILITY-AND-EQUITY> 317,283
<SALES> 557,406
<TOTAL-REVENUES> 557,406
<CGS> 392,820
<TOTAL-COSTS> 392,820
<OTHER-EXPENSES> 10,225
<LOSS-PROVISION> 3,418
<INTEREST-EXPENSE> 4,060
<INCOME-PRETAX> 6,728
<INCOME-TAX> 2,520
<INCOME-CONTINUING> 4,208
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,208
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
