<PAGE> 1
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 quarter ended September 30, 1996.
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission file number 1-6575
BRAD RAGAN, INC.
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(Exact name of registrant as specified in its charter)
North Carolina 56-0756067
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4404-G Stuart Andrew Blvd.
Charlotte, North Carolina 28217-9990
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(Address of principal executive offices) (Zip Code)
704-521-2100
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
---- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 2,190,619 shares of Common
Stock ($1 par value) at November 8, 1996.
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Part I - Financial Information
Item 1. Financial Statements
STATEMENTS OF FINANCIAL POSITION
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BRAD RAGAN, INC.
(Unaudited)
Amounts in thousands, except share and per share data.
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
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Assets
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<S> <C> <C>
Current Assets:
Cash $ 366 $ 478
Accounts receivable, less unearned interest income
of $4,618 and $4,319 and allowance for
doubtful accounts of $1,920 and $1,907 71,863 68,235
Inventories:
Merchandise 42,652 35,021
Materials and manufacturing supplies 2,812 2,363
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45,464 37,384
Prepaid expenses 2,335 730
Other current assets 2,402 2,581
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Total Current Assets 122,430 109,408
Other assets 2,931 3,029
Property, plant and equipment, net 8,916 9,033
Cost in excess of net assets of businesses acquired, less
accumulated amortization of $915 and $887 515 543
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$ 134,792 $ 122,013
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Liabilities and Shareholders' Equity
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Current Liabilities:
Short-term debt - Majority Shareholder $ 33,556 $ 25,323
Accounts payable and accrued expenses:
Trade 12,859 14,087
Majority Shareholder 14,491 11,623
Salaries, wages and commissions 7,654 7,327
Taxes, other than income 1,101 1,046
Current portion of deferred revenue 2,509 2,499
Note payable - Majority Shareholder 5,500 5,500
Other accrued liabilities 4,683 --
Current portion of other long-term liabilities 16 61
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Total Current Liabilities 82,369 67,466
Other long-term liabilities, less current portion 3,239 3,019
Long-term deferred revenue 1,883 1,881
Shareholders' Equity:
Common stock, par value $1 per share:
Authorized 10,000,000 shares; issued 2,190,619 shares 2,191 2,191
Additional paid-in capital 9,171 9,171
Retained earnings 35,939 38,285
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Total Shareholders' Equity 47,301 49,647
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$ 134,792 $ 122,013
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</TABLE>
The Notes to Financial Statements are an integral part of these statements.
2
<PAGE> 3
STATEMENTS OF OPERATIONS
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BRAD RAGAN, INC.
(Unaudited)
Amounts in thousands, except share and per share data.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
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1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Net Sales $ 63,754 $ 63,672 $ 177,610 $ 178,931
Miscellaneous income - net 3,187 3,331 10,407 10,867
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66,941 67,003 188,017 189,798
Cost and expenses:
Cost of products sold 44,300 44,432 123,181 124,386
Selling administrative and general expenses 21,989 20,441 62,102 59,674
Unusual Charge -- -- 4,832 --
Interest expense 664 653 1,811 1,887
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66,953 65,526 191,926 185,947
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Income (loss) before income taxes (12) 1,477 (3,909) 3,851
Provision (benefit) for income taxes (59) 676 (1,563) 1,652
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Net income (loss) $ 47 $ 801 $ (2,346) $ 2,199
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Net income (loss) per common share $ 0.02 $ 0.37 $ (1.07) $ 1.00
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Weighted average number of common shares
outstanding 2,190,619 2,190,619 2,190,619 2,190,619
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</TABLE>
The Notes to Financial Statements are an integral part of these statements.
3
<PAGE> 4
STATEMENTS OF CASH FLOWS
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BRAD RAGAN, INC.
(Unaudited)
Amounts in thousands.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------
1996 1995
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<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) $ (2,346) $ 2,199
Adjustments To Reconcile Net Income (Loss)
To Net Cash Used In Operating Activities:
Depreciation and amortization 1,556 1,228
(Gain) loss on sale of property, plant and equipment (29) (25)
(Provision) benefit for deferred tax asset 181 (264)
Changes in operating assets and liabilities:
Accounts receivable, net (3,628) (1,993)
Inventories (8,079) (7,724)
Prepaid expenses (1,605) (85)
Accounts payable and accrued expenses 1,640 5,857
Salaries, wages and commissions 326 (333)
Taxes, other than income tax 56 (5)
Federal and state taxes on income -- 40
Deferred revenue 12 143
Other accrued liabilities 4,683 --
Other 263 (513)
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Total Adjustments (4,624) (3,674)
Net Cash Provided By (Used In) Operating Activities (6,970) (1,475)
Cash Flows From Investing Activities:
Capital expenditures (1,425) (1,252)
Proceeds from disposals of property, plant and equipment 50 58
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Net Cash Provided By (Used In) Investing Activities (1,375) (1,194)
Cash Flows From Financing Activities:
Long-term debt paid -- (3)
Short-term debt - Majority Shareholder 8,233 2,547
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Net Cash Provided By (Used In) Financing Activities $ 8,233 $ 2,544
Net Increase (Decrease) In Cash (112) (125)
Beginning Cash 478 240
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Ending Cash $ 366 $ 115
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</TABLE>
The Notes to Financial Statements are an integral part of these statements
4
<PAGE> 5
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
BRAD RAGAN, INC.
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In management's opinion, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. For further information, refer to the
financial statements and footnotes included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
NOTE B - ACCOUNTS RECEIVABLE
Amounts included in accounts receivable having balances due after one year were
approximately $17.7 million at September 30, 1996, and $17.3 million at
December 31, 1995.
NOTE C - INVENTORIES
Inventories are stated at the lower of cost or market, with cost determined
using the last-in, first-out (LIFO) method for substantially all inventories.
An actual valuation of inventory under the LIFO method is made only at the end
of each year based on the inventory levels and costs at that time. Accordingly,
interim LIFO calculations must necessarily be based on management's estimates
of expected year-end inventory levels and costs. Since these are subject to
many forces beyond management's control, interim results are subject to the
final year-end LIFO inventory valuation.
NOTE D - INCOME PER SHARE
Net Income (loss) per common share is computed by dividing net income(loss) by
the weighted average number of common shares outstanding during each period.
NOTE E - CONTINGENCIES
The Company is a defendant in two legal proceedings related to certain
installment credit sales transactions. These proceedings are both purported
class actions and include several defendants. These actions both allege that
the defendants, in charging certain fees in connection with financing
transactions in-lieu of making filings under the Uniform Commercial Code,
violated certain federal and state statutes and consumer protection laws. The
plaintiffs are seeking statutory damages, unspecified punitive damages and
other remedies. The Company has agreed to a settlement of these proceedings.
On October 11, 1996, the United States District Court for the Middle District
of Georgia issued a Preliminary Approval Order regarding the settlement. A
$4.8 million charge was recorded in the second quarter of 1996 for the
tentative settlement, including associated costs and expenses.
5
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIRD QUARTER 1996 COMPARED TO THIRD QUARTER 1995
Net sales for the quarter ended September 30, 1996, increased $82,000 to
$63,754,000 compared to $63,672,000 for the same period of 1995. Commercial
sales increased 2.3% primarily due to higher sales of new tires and service.
Retail sales were down 3.5% primarily due to lower sales of hard goods. On a
same location basis, commercial sales were up 5.0% while retail sales were down
2.8%
Miscellaneous income decreased $144,000 for the third quarter of 1996
compared to the same period of 1995 primarily due to lower revenues derived
from charges in respect of certain credit sales transactions.
The gross margin rate increased slightly to 30.5% for the third quarter of
1996 compared to 30.2% for the third quarter of 1995.
Selling, administrative and general expenses increased 7.6% for the third
quarter of 1996 compared to the same period of 1995 primarily due to expenses
associated with an adverse court decision and related litigation costs in a
general liability case against the Company.
Interest expense increased slightly for the third quarter of 1996 compared
to the same period of 1995 primarily due to higher average outstanding
short-term borrowings.
A tax benefit of $59,000 was recorded for the third quarter of 1996, which
benefit includes adjustments for the difference between the income tax
provision recorded in 1995 and the actual liability on the 1995 tax return
filed in 1996.
Net income of $47,000 ($.02 per share) was recorded for the third quarter
of 1996 compared to net income or $801,000 ($.37 per share) for the third
quarter of 1995.
NINE MONTHS 1996 COMPARED TO NINE MONTHS 1995
Net sales for the nine-month period ended September 30, 1996, declined
$1,300,000 to $177,610,000 compared to $178,931,000 for the same period of
1995. Increases in commercial sales of new tires and service were offset by
declines in sales of retreads and rubber products for a slight net increase of
.8%. Retail sales decreased in all categories with the exception of service,
which remained constant at $20.6 million, for a net decrease of 3.2%. On a
same location basis, commercial sales were up 2.7% while retail sales declined
2.6%.
Miscellaneous income decreased $460,000 for the nine-month period of 1996
compared to the same period of 1995 primarily due to reduced revenues derived
from charges in respect of certain credit sales transactions.
The gross margin rate for the nine-month period of 1996 was up slightly to
30.7% from 30.5% for the same period of 1995.
Selling, administrative and general expenses increased 4.1% for the
nine-month period of 1996 compared to the same period of 1995 primarily due to
the previously mentioned adverse court decision and increased expenses for
compensation and benefits.
6
<PAGE> 7
Interest expense decreased $76,000 for the nine-month period of 1996
compared to the same period of 1995 primarily due to lower average short-term
borrowing rates. The average short-term borrowing rates for the nine-month
periods of 1996 and 1995 were 6.95% and 7.5%, respectively.
The Company recorded a net loss of $2,346,000 ($1.07 per share) for the
nine-month period ended September 30, 1996, compared to net income of
$2,199,000 ($1.00 per share) for the same period of 1995. The earnings decline
is primarily attributable to a $4.8 million unusual charge recorded in the
second quarter of 1996 associated with the tentative settlement of two class
action lawsuits related to retail installment credit sales. For further
discussion, see Note E of Notes to Financial Statements included elsewhere in
this report.
FINANCIAL POSITION
Net cash used in operating activities for the nine months ended September
30, 1996, was $7.0 million. Cash used by net loss was $2.3 million.
Additional cash was used to fund increased accounts receivable and inventory
balances that reflect the stronger second and third quarter selling season.
This was partially offset by related accounts payable increases and an increase
in other accrued liabilities. Amounts included in accounts receivable with
balances due after one year were approximately $17.7 million at September 30,
1996, and $17.3 million at December 31, 1995.
Net cash used in investing activities for the nine months ended
September 30, 1996, of $1.4 million was principally for capital equipment.
Financing activities reflect a net increase in the Company's short-term
borrowing of $8.2 million. Short-term debt is originated through the majority
shareholder, The Goodyear Tire & Rubber Company, which provides an open line of
credit.
Comparative Sales Table
(Amounts In Thousands)
COMMERCIAL SALES BY PRODUCT LINE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
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1996 1995 %VARIANCE 1996 1995 %VARIANCE
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<S> <C> <C> <C> <C> <C> <C>
New Tires $20,280 $19,709 2.9% $52,587 $ 51,592 1.9%
Retreading 10,789 10,897 -1.0% 30,016 30,513 -1.6%
Service 6,993 6,142 13.9% 18,594 17,392 6.9%
Rubber Products 2,777 3,169 -12.4% 7,851 8,638 -9.1%
------- ------- -------- --------
Total $40,839 $39,917 2.3% $109,048 $108,135 0.8%
======= ======= ======== ========
</TABLE>
RETAIL SALES BY PRODUCT LINE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------------------
1996 1995 %VARIANCE 1996 1995 %VARIANCE
-------- ------- --------- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Hard Goods $9,482 $10,462 -9.4% $29,893 $31,826 -6.1%
New Tires 6,375 6,314 1.0% 30,016 30,513 -1.6%
Retreading 121 126 -4.0% 343 371 -7.5%
Service 6,937 6,853 1.2% 20,605 20,594 0.1%
-------- ------- ------- -------
Total $ 22,915 $23,755 -3.5% $68,562 $70,796 -3.2%
======== ======= ======= =======
</TABLE>
7
<PAGE> 8
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in two legal proceedings related to
certain installment credit sales transactions. For further discussion see Note
E of Notes to Financial Statements included elsewhere in this report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: Exhibit No. 27 - Financial Data Schedule dated
September 30, 1996.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter
for which this report is filed.
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.
BRAD RAGAN, INC.
-----------------------------------------
(Registrant)
DATE: November 8, 1996 By: /s/ R.J. Carr
------------------------------------
R. J. Carr, Vice President - Finance
and Chief Financial Officer
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BRAD RAGAN, INC. FOR THE QUARTER ENDED SEPTEMBER 30,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 366
<SECURITIES> 0
<RECEIVABLES> 71,863
<ALLOWANCES> 1,920
<INVENTORY> 45,464
<CURRENT-ASSETS> 122,430
<PP&E> 8,916
<DEPRECIATION> 21,947
<TOTAL-ASSETS> 134,792
<CURRENT-LIABILITIES> 82,369
<BONDS> 0
0
0
<COMMON> 2,191
<OTHER-SE> 45,110
<TOTAL-LIABILITY-AND-EQUITY> 134,792
<SALES> 177,610
<TOTAL-REVENUES> 188,017
<CGS> 123,181
<TOTAL-COSTS> 185,283
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,151
<INTEREST-EXPENSE> 1,811
<INCOME-PRETAX> (3,909)
<INCOME-TAX> (1,563)
<INCOME-CONTINUING> (2,346)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,346)
<EPS-PRIMARY> (1.07)
<EPS-DILUTED> (1.07)
</TABLE>
