FDD Talk 2013: Average Retail Sales of Big O Tires Stores by Sales Level and by State (2013 FDD)

Highlights of Big O Tires’ Item 19 Financial Performance Representations (2013 FDD) – Part 1

• The information given in this Item 19 is based on the historical financial performance of a specific subset of Big O Tires Stores.

• Set forth in this Schedule 1 are the average sales per Store information for calendar year 2012 for Stores that reported sales for each and every month during 2012 (the “Included Stores”). The Included Stores consist of 20.6% Product Distribution Franchise (PDF) Stores, 63.3% franchised Business Format Franchise (BFF) Stores and 16.0% company-owned BFF Stores.

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  Before 2006, the franchisor offered only PDFs, except for certain BFF test market programs in southern Nevada, which ended around April 2006. As of March 31, 2013, the company had 81 Stores that operated as PDFs.

• The Big O Network is currently transitioning from the PDF model to the BFF model. The franchisor is now only offering BFFs, but the franchisor anticipates that it will continue to have PDFs in the network for a significant amount of time.

• The BFF and PDF are both licenses to operate Big O Tire retail tire and automotive repair stores. From a retail perspective, consumers should not see any substantive difference in the experience that they are provided. Both franchises are for the operation of retail stores selling and servicing tires and related automotive products and services that operate under the same Licensed Marks and use the same Big O System.

• The principal economic differences between the BFF and PDF relate to:

• 1) BFF owners will pay a higher royalty to the franchisor (up to 5% of gross sales) as compared to 2% of gross sales paid by PDF owners.

• 2) BFF owners will receive pricing for “Big O Program Products” on a cost basis as opposed to the prices that Big O charges to PDF owners. The prices Big O charges under these two franchise models will vary by line and product, but the franchisor estimates the difference may range from 3% to 42% of wholesale price from Big O for non-specialty tires.

• 3) BFF owners will receive additional products, licenses, services, financial benefits, and support that are not available to PDF owners or which may be available to PDF owners at an additional charge or at prices higher than those charged to BFF owners.

• 4) At the franchisor’s discretion, BFF must adhere to certain standards or incur certain costs that would not be required of PDF owners.

• The figures in Schedule 1 are based on actual monthly sales reports submitted by Big O franchisees for the purpose of computing royalty fees. The franchisor has not independently audited or verified the accuracy of these numbers.

Section 1 – Average Retail Sales Per Included Store in 2012 for Four Categories of Included Stores (categorized by annual volume of sales)

Over $2.0 million

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