<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________.
Commission File Number: 1-8833
BIG O TIRES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 87-0392481
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
11755 East Peakview Avenue
Englewood, Colorado 80111
(Address of Principal Executive Offices)
(303) 790-2800
(Registrant's Telephone Number, Including Area Code)
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
---- ----
The number of shares of registrant's common stock outstanding on May 9, 1996
was 3,317,916.
The total number of pages is 14.
<PAGE>
BIG O TIRES, INC.
CONSOLIDATED BALANCE SHEETS
(000s)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
---------- -----------
ASSETS Unaudited
- ---------------------------------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 546 $ 1,094
Trade accounts receivable, net of allowance for doubtful accounts 10,196 9,255
Other receivables 981 242
Current portion of notes receivable 585 515
Inventories 17,535 13,249
Retail stores under development 2,343 4,861
Deferred income taxes 2,731 2,654
Other current assets 420 769
-------- --------
Total current assets 35,337 32,639
-------- --------
NOTES RECEIVABLE, net of current portion 3,172 2,656
-------- --------
PROPERTY, PLANT AND EQUIPMENT 21,702 21,592
Less accumulated depreciation and amortization (5,552) (5,266)
-------- --------
16,150 16,326
INTANGIBLE AND OTHER ASSETS:
Distribution rights 8,730 8,799
Equity in joint ventures and unconsolidated subsidiaries 765 877
Other 2,108 2,097
-------- --------
11,603 11,773
-------- --------
TOTAL ASSETS $ 66,262 $ 63,394
-------- --------
-------- --------
</TABLE>
-See notes to consolidated financial statements.
2
<PAGE>
BIG O TIRES, INC.
CONSOLIDATED BALANCE SHEETS
(000s)
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY UNAUDITED
CURRENT LIABILITIES:
Accounts payable $ 4,898 $ 1,882
Accrued expenses 3,000 2,691
Warranty reserve 4,475 4,350
Current portion of long-term debt and capital
lease obligations 1,705 1,675
------- -------
Total current liabilities 14,078 10,598
------- -------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS,
net of current portion 12,594 13,860
------- -------
OTHER LONG-TERM LIABILITIES 1,321 1,337
------- -------
EMPLOYEE STOCK OWNERSHIP PLAN OBLIGATIONS -- 192
------- -------
SHAREHOLDERS' EQUITY:
Common stock 335 335
Capital contributed in excess of par 15,544 15,544
Retained earnings 22,602 21,962
------- -------
38,481 37,841
Less: Employee stock ownership plan obligations -- (192)
Deferred stock grant compensation (91) (121)
Treasury stock (121) (121)
------- -------
38,269 37,407
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $66,262 $63,394
------- -------
------- -------
See notes to consolidated financial statements.
3
<PAGE>
BIG O TIRES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(000s except for share and per share amounts)
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------------
1996 1995
---------- ----------
NET SALES:
Product and franchising $ 29,889 $ 29,153
Real estate 3,282 --
---------- ----------
33,171 29,153
COST OF SALES:
Product and franchising 22,656 22,413
Real estate 3,291 --
---------- ----------
25,947 22,413
GROSS PROFIT:
Product and franchising 7,233 6,740
Real estate (9) --
---------- ----------
7,224 6,740
EXPENSES, net:
Selling and administrative 4,678 4,579
Product delivery expense 896 851
Interest expense 274 396
Shareholder proposal expense 186 321
Loss on sale or closure of retail stores 85 95
---------- ----------
6,119 6,242
---------- ----------
INCOME BEFORE INCOME TAXES 1,105 498
---------- ----------
PROVISION FOR INCOME TAXES:
Current 542 248
Deferred (77) (39)
---------- ----------
465 209
---------- ----------
NET INCOME $ 640 $ 289
---------- ----------
---------- ----------
EARNINGS PER SHARE $ .19 $ .09
---------- ----------
---------- ----------
WEIGHTED AVERAGE SHARES AND COMMON
STOCK EQUIVALENTS OUTSTANDING 3,368,111 3,381,330
--------- ---------
--------- ---------
/Table>
See notes to consolidated financial statements.
4
<PAGE>
BIG O TIRES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(000s)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1996 1995
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 640 $ 289
------- -------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 305 299
Amortization of intangibles 103 99
Other 477 52
Cash flows from changes in working capital (847) (3,116)
------- -------
Total adjustments 38 (2,666)
------- -------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES 678 (2,377)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable (116) --
Payments received on notes receivable 144 128
Proceeds from sales of property and equipment 5 26
Proceeds from sales of equity investments in affiliates 143 --
Equity investments in affiliates (28) (2)
Purchase of property and equipment (138) (8,420)
Purchase of retail stores -- (122)
------- -------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES 10 (8,390)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on long-term debt -- 6,850
Principal payments on long-term debt and capital lease obligations (1,236) (700)
Other -- 78
------- -------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES (1,236) 6,228
------- -------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (548) (4,539)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 1,094 4,882
------- -------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 546 $ 343
------- -------
------- -------
</TABLE>
-See notes to consolidated financial statements.
5
<PAGE>
BIG O TIRES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(000s)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-------------------
1996 1995
------- ------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 306 $ 378
Income taxes 392 --
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Accounts receivable transferred to long-term notes receivable 614 311
Decrease in employee stock ownership plan obligations 192 269
</TABLE>
-See notes to consolidated financial statements.
6
<PAGE>
BIG O TIRES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1995
UNAUDITED
NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
REFERENCE TO ANNUAL REPORT:
These financial statements should be read in conjunction with the Annual
Report on Form 10-K as amended on Form 10-K/A for the year ended December 31,
1995, since certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules
and regulations of the United States Securities and Exchange Commission
("SEC"). These interim financial statements reflect all adjustments which
are, in the opinion of Management, necessary for a fair presentation of the
financial position, results of operations and cash flows of the Company for
the interim periods. Such adjustments are of a normal recurring nature.
Operating results for the three months ended March 31, 1996, are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
SHAREHOLDER PROPOSAL EXPENSE:
At the Annual Meeting of Shareholders held in June 1994, the shareholders
adopted a resolution calling for the Company to engage an investment banker
to evaluate all alternatives for enhancing the value of the Company. The
cost associated with the implementation of the shareholder proposal was
$186,000 and $321,000 for the three months ended March 31, 1996 and 1995,
respectively.
MERGER AGREEMENT:
Effective April 30, 1996, the Company entered into a definitive Agreement and
Plan of Merger ("Merger Agreement") with TBC Corporation ("TBC"), a Tennessee
based marketer and distributor of tires and other automotive products and
TBC's wholly owned subsidiary, TBCO Acquisition, Inc. ("TBCO"), under which
TBC will acquire the Company in a merger and the Company's shareholders will
receive $16.50 per share of common stock. The cash price is subject to a
possible reduction based on a final tabulation of transaction costs and other
expenses which the Company does not believe will result in material
adjustments, if any. The transaction, which has been approved by the Board
of Directors of each company, remains subject to certain regulatory approvals
and the approval of the stockholders of the Company. Closing of the merger
is expected to occur within approximatley 60 days from the signing of the
definitive merger agreement.
Effective April 30, 1996, the Company entered into agreements with John E.
Siipola, the Chairman of the Company, and with Horst K. Mehlfeldt, the Vice
Chairman of the Company, that provide that if the above described merger is
consummated, Messrs. Siipola and Mehlfeldt will resign their positions with the
Company and will receive lump sum payments of $208,613 and $186,654,
respectively, rather than severance pay in accordance with the Company's
Executive Management Severance Pay Policy and that the Company would continue to
provide medical and dental insurance benefits to Messrs. Siipola and Mehlfeldt
and their eligible dependents for fifteen (15) months after the effective date
of the merger or until they obtain other employment, whichever is earlier. In
addition, the Company will repurchase 66,648 units under the Stock Appreciation
Rights Agreements of Messrs. Siipola and Mehlfeldt for a total amount of
$174,951 each. The agreements also provide that the stock options held by
Messrs. Siipola and Mehlfeldt will be repurchased in accordance with the Merger
Agreement.
By its terms, the Merger Agreement puts certain constraints on the Company's
conduct of business pending the merger. These constraints provide that neither
the Company nor any of its subsidiaries shall take any action except in the
ordinary course of business and consistent with past practices, without prior
written approval by TBC. The Merger Agreement also provides that approval be
obtained from TBC prior to expenditures, contingent liabilities or the
acquisition or disposition of assets which exceed $25,000.
7
<PAGE>
STOCK APPRECIATION RIGHTS:
In February 1995, the Company's Board of Directors granted Stock Appreciation
Rights ("SAR") to each of the three members of the Office of the Chief
Executive ("OCE"). Each member of the OCE received a grant of 100,000 share
equivalent units, each of which represents an equal undivided interest in the
future appreciation in the value of a share of the Company's Common Stock.
The SAR agreements provide, subject to certain vesting requirements, that
each unit will entitle each member to receive, in cash only, the difference
between the base value (as defined in each agreement) and the market value of
a share of common stock on the exercise date. As of March 31, 1996, $216,000
has been accrued pursuant to these agreements, however this amount is subject
to adjustment pursuant to the Merger Agreement and agreements with Messrs.
Mehlfeldt and Siipola as noted above.
UNEARNED STOCK COMPENSATION:
In connection with the restricted stock grants in 1994, unearned stock
compensation of $520,000 was recorded which represents the non-vested portion of
the restricted stock grants based upon the market price of the stock at the
grant date. Compensation expense is being recognized over a vesting period of
three to five years in accordance with the provisions of the Big O Tires, Inc.
Long Term Incentive Plan ("LTI Plan").
STOCK-BASED COMPENSATION:
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," which was effective for the Company beginning January 1, 1996.
SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity instrument awarded..
Companies are permitted, however, to continue to apply APB Opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB Opinion No. 25 to
its stock-based compensation awards to employees and will disclose the required
pro forma effect on net income and earnings per share.
FRANCHISE AND ROYALTY FEES:
The Company receives initial franchise fees and continuing royalty fees from its
franchised Big O dealers which totalled $1,642,000 for the three months ended
March 31, 1996, and $1,557,000 for the three months ended March 31, 1995.
EARNINGS PER SHARE:
Earnings per share is computed using the weighted-average number of outstanding
shares during each period presented. Common stock equivalents are included but
did not have a material effect on the computation.
LITIGATION:
As a franchisor and wholesale distributor, the Company licenses the use of its
trade names, service marks and trademarks to the Company's franchisees and other
licensees and distributes tire products manufactured by the Company's suppliers
("Suppliers") under the Company's trade names and trademarks. As a result,
the Company has been named as a defendant in a number of lawsuits alleging
negligent acts and/or omissions by the Company's franchisees of alleged
defective workmanship and/or materials of the products produced by the
Suppliers. As of March 31, 1996, there were 45 such lawsuits pending in which
the Company was named as a defendant. Of those 45 lawsuits, only three
directly involve the Company. The other 42 involve franchisees of the Company
or alleged tire failures of its Suppliers. In most of the 45 lawsuits in which
the Company is named as a defendant, the claims for damages are not specific.
It is possible that a judgment may be rendered against the Company in one or
more of these lawsuits but the Company is unable to estimate the amount of any
such possible judgments. Over the past
8
<PAGE>
five years, the judgments that have been rendered against the Company and
settlements made by the Company in lawsuits similar to the 45 lawsuits have
not resulted in material losses to the Company. Therefore, based upon such
history, the Company does not believe that the Company will suffer any
material loss as a result of the 45 lawsuits pending against the Company on
March 31, 1996.
The Company requires that both the Company's franchisees and Suppliers indemnify
and protect the Company against claims resulting from the alleged negligent acts
and/or omissions of the franchisees and the alleged defects in workmanship
and/or materials of its Suppliers. In addition, the Company carries its own
insurance. The 42 lawsuits referred to above are being defended by attorneys
who have been retained by the applicable insurance companies and the Company is
not actively involved in the defense thereof. Historically, the Company has
been able to rely upon its franchisees and Suppliers and their insurance
carriers to defend, protect and indemnify the Company against such types of
lawsuits. Accordingly, even if a judgment is rendered against the Company in
any of these lawsuits, because of the insurance and indemnities described above,
management does not believe that the Company would incur any loss as a result of
any such judgment.
The Company is also a defendant in seven additional lawsuits which are
incidental to the Company's business and for which the Company does not believe
it is liable, but which are not covered by insurance. Thus, the Company is
directly and actively involved in its own defense and has sufficient information
to form a judgment on the likely outcome and exposure of such cases. Based on
this analysis, the Company believes that the ultimate outcome of these cases
will not have a material adverse effect on the Company's financial statements.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
LIQUIDITY AND CAPITAL RESOURCES:
SHAREHOLDER PROPOSAL, MERGER AGREEMENT AND RELATED MATTERS
In June 1994, the shareholders adopted a proposal requesting the Company to
engage an investment banker to evaluate all alternatives to enhance the values
of the Company. In implementing this shareholder proposal, the Board of
Directors established the Investment Committee of the Board which retained
PaineWebber Incorporated ("PaineWebber") to fulfill this shareholder proposal.
Effective April 30, 1996, Big O Tires, Inc. (the "Company") entered into a
definitive Agreement and Plan of Merger ("Merger Agreement") with TBC
Corporation ("TBC") and TBC's wholly owned subsidiary, TBCO Acquisition,
Inc. ("TBCO"). The Merger Agreement provides that TBC, through its
subsidiary, TBCO, will acquire the Company in a merger in which the Company's
stockholders will receive a cash price of $16.50 per share of the Company's
common stock, subject to a possible reduction based on a final tabulation of
transaction costs and other expenses, which is not expected to result in a
material adjustment. The merger is subject to certain regulatory approvals
and the approval of the Company's stockholders. Among other conditions, the
consummation of the merger also is subject to TBC obtaining satisfactory
financing. The consummation of this Merger Agreement with TBC will have an
unknown impact on liquidity and capital resources.
Prior to executing the Merger Agreement, the Company amended the Rights
Agreement to specifically exclude from the definition of an "Acquiring
Person," TBC, TBCO, and any other person who may be deemed to be the
beneficial owner of the Company's common stock because of the execution and
delivery of the Merger Agreement, so long as such persons are not the
beneficial owners of any capital stock of the Company other than (a) pursuant
to the Merger Agreement, (b) common stock owned by such persons prior to
April 30, 1996, (c) common stock acquired by any of such persons from any
other of such persons, (d) common stock or other securities acquired by such
persons in transactions or types of transactions that are approved in advance
by the Investment Committee of the Board of Directors of the Company and (e)
common stock other than as described above not exceeding 1% of the shares of
common stock then outstanding; and any other person that beneficially owns
common stock as of April
9
<PAGE>
30, 1996, but does not thereafter become the beneficial owner of any additional
common stock exceeding 1% of the shares of common stock then outstanding.
Effective April 30, 1996, the Company entered into agreements with John E.
Siipola, the Chairman of the Company, and with Horst K. Mehlfeldt, the Vice
Chairman of the Company, that provide that if the above described merger is
consummated, Messrs. Siipola and Mehlfeldt will resign their positions with the
Company and will receive lump sum payments of $208,613 and $186,654,
respectively, rather than severance pay in accordance with the Company's
Executive Management Severance Pay Policy and that the Company would continue to
provide medical and dental insurance benefits to Messrs. Siipola and Mehlfeldt
and their eligible dependents for fifteen (15) months after the effective date
of the merger or until they obtain other employment, whichever is earlier. In
addition, the Company will repurchase 66,648 units under the Stock Appreciation
Rights Agreements of Messrs. Siipola and Mehlfeldt for a total amount of
$174,951 each. The agreements also provide that the stock options held by
Messrs. Siipola and Mehlfeldt will be repurchased in accordance with the Merger
Agreement.
By its terms, the Merger Agreement puts certain constraints on the Company's
conduct of business pending the merger. These constraints provide that
neither the Company nor any of its subsidiaries shall take any action except
in the ordinary course of business and consistent with past practices,
without prior written approval by a representative of TBC and TBCO. The
Merger Agreement also provides that approval be obtained from TBC and TBCO
prior to expenditures, contingent liabilities or the acquisition or
disposition of assets which exceed $25,000.
WORKING CAPITAL
At March 31, 1996, the Company had $21,259,000 in working capital (defined as
current assets less current liabilities), which represented a net decrease of
$782,000 from December 31, 1995. Primary uses of working capital included
purchases of equipment of $138,000, and principal payments on long term debt and
capital lease obligations of $1,236,000.
These uses were partially offset by working capital derived from payments
received on long term notes receivable of $144,000 and working capital provided
by operations of $678,000.
REAL ESTATE DEVELOPMENT
The Company's real estate development program involves Big O retail store
site selection and development by one of the Company's subsidiaries, and the
subsequent sale of these developed store sites to franchisees that qualify
for Small Business Administration ("SBA") guaranteed loans. Significant
financing is currently required by the Company, which is planned to be repaid
as the SBA guaranteed financing is obtained by the prospective franchisee.
The Company anticipates funding future projects through its revolving line of
credit, joint ventures or directly with developers, although funding needs
may change dramatically as a result of completion of the Merger Agreement
with TBC and TBCO.
The Company sold five projects during the first three months of 1996.
CAPITAL EXPENDITURES
At March 31, 1996, the Company's subsidiary that is implementing the real estate
development program had approximately $2.3 million invested in construction in
progress for Big O retail store sites, a decrease of $2.5 million since December
31, 1995, primarily due to the sale of five development projects during the
first three months of 1996 and investments of $737,000 in new sites. Additional
capital expenditures are anticipated in connection with these real estate
development activities, which are anticipated to be funded through the Company's
revolving line
10
<PAGE>
of credit, joint ventures or directly with developers, subject to change as a
result of the Merger described above.
FINANCIAL COMMITMENTS
The Company's current operations are primarily funded through its operating
cash flow and its $20 million revolving line of credit with The First
National Bank of Chicago ("First Chicago") which has a 1996 sub-limit of $8
million for construction and permanent financing pursuant to the Company's
real estate development program.
Management's discretion with respect to certain business matters is limited by
financial and other covenants contained in loan agreements with First Chicago,
the senior note holders, Kelly-Springfield Tire Company (a division of the
Goodyear Tire & Rubber Company) and other lenders. These covenants, among other
things, limit or prohibit the Company from (i) paying dividends on its capital
stock, (ii) incurring additional indebtedness, (iii) creating liens on or
selling certain assets, (iv) making certain loans, investments, or guarantees,
(v) violating certain financial ratios (vi) repurchasing shares of its common
stock, (vii) making certain capital expenditures, and (viii) merging or selling
substantially all of its assets. At March 31, 1996, the Company was in
compliance with all of these covenants. The proposed Merger Agreement with TBC
may constitute a violation of certain covenants.
The Company's continuing guarantees at March 31, 1996 were comprised principally
of the following:
Retail store financing $ 6.2 million
Notes receivable guarantees 1.4 million
Real estate lease guarantees 6.3 million
Denver, RSC mortgage loan 2.7 million
SEASONALITY
The franchised and Company-owned retail stores experience some seasonal
variation in product sales because the sale of tires, wheels, and related
automotive products are generally greater during the summer months than in the
winter months. The Company generally experiences some seasonality, although not
to the same extent as the retail stores, since the Company maintains sales to
certain retail stores on a regional basis (e.g., snow tires and chains) that
offset the trend on a national basis.
ENVIRONMENTAL ISSUES
The Company and its franchisees are subject to federal and state environmental
regulations regarding the disposal of tires and used oil, and the handling and
storage of certain other substances. Such regulations have not previously had a
material effect on the Company's operations, and Management does not believe
that they will have a material effect in the future since the Company has
adopted a policy of requiring Phase I environmental studies associated with any
new projects or the acquisition of any existing locations before such
transactions are consummated.
ACCOUNTING STANDARDS
The Company adopted Statement of Financial Accounting Standard ("SFAS") No.
121, ACCOUNTING FOR THE IMPAIRMENT OF LONG LIVED ASSETS AND FOR, LONG LIVED
ASSETS TO BE DISPOSED OF effective January 1, 1996. The adoption of this
SFAS did not have a material effect on the Company's financial position or
results of operations for the three months ended March 31, 1996.
The Company implemented SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION
effective January 1, 1996, by electing to continue to apply APB Opinion No.
25, which recognizes compensation cost based on the intrinsic value of the
equity instrument awarded. The implementation of this SFAS did not have an
effect on the Company's financial position or results of operations for the
three months ended March 31, 1996.
11
<PAGE>
RESULTS OF OPERATIONS:
REVENUES
Net sales for the first quarter of 1996 increased $4,018,000 as compared to the
first quarter of 1995. The sale of Big O brand units decreased by approximately
22,000 units (a decrease of 6.3%) during the first quarter of 1996 as compared
to the first quarter of 1995. The sale of other new tires increased by
approximately 11,800 units (an increase of 10.7%) during the same period. The
average selling price of Big O brand units increased by $2.63 per unit (an
increase of 4.7%) for the first quarter of 1996 as compared to the first quarter
of 1995. The average selling price of other new tires increased by $0.49 per
unit (an increase of 1.3%) during this same period.
The increase in sales for the first quarter of 1996 as compared to the first
quarter iof 1995 included an increase of $3,282,000 from the sale of five
Company developed real estate projects during the first quarter of 1996. Other
increases include additional sales to new franchisee owned stores of
approximately $1,484,000, an increase in royalty fees of $85,000, additional
sales due to new Company-owned stores of approximately $161,000 and additional
sales to the Canadian licensees of approximately $185,000. These increases were
partially offset by decreases due to closed franchisee owned stores of
approximately $460,000 and a decrease in sales to previously existing franchisee
owned stores of approximately $825,000.
GROSS PROFIT
Gross profit for the first quarter of 1996 increased by $484,000 as compared
to the first quarter of 1995, net of a decrease of $9,000 related to real
estate sales. The Company's product and franchising gross margin was 24.2%
for the first quarter of 1996 which represented an increase of 1.1% as
compared to the first quarter of 1995. An increase in gross profit of
$178,000 was attributable to the higher sales volume, along with an increase
in gross profit of $315,000 due to the 1.1% increase in gross margin.
The increase in gross margin was primarily due to increased Company-owned retail
store sales and franchise revenues and reduced inventory writedowns. An
offsetting decrease in gross margin was associated with increased warranty
adjustment expense.
NET EXPENSES
Net expenses for the first quarter of 1996 decreased by $123,000 from the
first quarter of 1995. Product delivery expenses increased by $45,000
primarily due to increased delivery expenses associated with the Las Vegas
Distribution Center which opened in the latter part of the first quarter
1995. In addition, net expenses decreased by $135,000 for expenses related
to the implementation of the shareholder proposal which was approved at the
June 1994 Shareholders Meeting.
Selling and administrative expenses increased by $99,000 during the first
quarter of 1996 as compared to the first quarter of 1995. This increase was
primarily due to an increase in bad debt expense ($190,000), expense associated
with an additional Company-owned retail store ($69,000), and increased
advertising costs ($50,000). These increases were partially offset by decreases
in payroll and payroll related expenses.
Interest expense decreased by $122,000 for the first quarter of 1996 as compared
to the same period for 1995. This decrease was primarily due to decreased
borrowings under the Company's line of credit during the first quarter of 1996
as compared to the first quarter of 1995. Borrowings were higher during the
first quarter of 1995 due to financing needs for the consolidation of three of
the Company's RSC's into the new Las Vegas RSC.
12
[cad 228]e<PAGE>
PART II
OTHER INFORMATION
Item 5. OTHER INFORMATION.
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits.
None
b. Reports on Form 8-K
1. On March 18, 1996, the Company filed a current Report on Form 8-K
reporting under ITEM 5 that the Company had entered into a Letter of
Intent with TBC Corporation ("TBC") relating to TBC's proposed
acquisition of all the outstanding shares of the Company in a
transaction in which the Company would be merged into a subsidiary of
TBC. The Company also announced that it terminated the Merger Agreement
dated July 24, 1995, between the Company and the companies formed by a
group consisting of certain of the Company's management and a group of
the Company's franchised dealers. The Company also filed under ITEM 7
the press release dated March 14, 1996 regarding the Letter of Intent
dated March 13, 1996, between the Company and TBC.
13
<PAGE>
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.
Date: May 15, 1996
BIG O TIRES, INC.
By:
------------------------
John B. Adams
Executive Vice President
and Principal Financial
Officer
By:
------------------------
John B. Adams
Principal Accounting
Officer
14
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<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
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0
0
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