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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended September 30, 1997.
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______ to ______
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 10, 1997.
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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, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Assets
Current Assets:
Cash $ 472 $ 682
Accounts receivable, less unearned interest income
of $5,359 and $5,105 and allowance for
doubtful accounts of $2,350 and $2,050 74,545 69,771
Inventories:
Merchandise 38,408 36,911
Materials and manufacturing supplies 3,008 2,781
-------- --------
41,416 39,692
Prepaid expenses 444 1,622
Other current assets 2,868 3,249
-------- --------
Total Current Assets 119,745 115,016
Other assets 2,877 2,921
Property, plant and equipment, net 9,319 8,887
Cost in excess of net assets of businesses acquired, less
accumulated amortization of $951 and $924 479 506
-------- --------
$132,420 $127,330
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term debt - Majority Shareholder $ 32,462 $ 34,766
Accounts payable and accrued expenses:
Trade 12,526 12,728
Majority Shareholder 16,972 9,983
Salaries, wages and commissions 7,209 7,469
Taxes, other than income 1,206 1,097
Current portion of deferred revenue 2,335 2,466
Note payable - Majority Shareholder 5,500 5,500
Other accrued liabilities 1,083 1,364
Current portion of other long-term liabilities 104 83
-------- --------
Total Current Liabilities 79,397 75,456
Other long-term liabilities, less current portion 3,512 3,346
Long-term deferred revenue 1,847 1,790
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 36,302 35,376
-------- --------
Total Shareholders' Equity 47,664 46,738
-------- --------
$132,420 $127,330
======== ========
</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,
----------------------------------------------------------
1997 1996 1997 1996
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 64,215 $ 63,754 $ 181,970 $ 177,610
Miscellaneous income - net 3,212 3,187 10,419 10,407
---------- ----------- ---------- -----------
67,427 66,941 192,389 188,017
Cost and expenses:
Cost of products sold 44,329 44,300 125,454 123,181
Selling administrative and general expenses 21,331 21,989 63,456 62,102
Unusual charge -- -- -- 4,832
Interest expense 700 664 2,079 1,811
---------- ----------- ---------- -----------
66,360 66,953 190,989 191,926
---------- ----------- ---------- -----------
Income before income taxes 1,067 (12) 1,400 (3,909)
Provision for income taxes 422 (59) 474 (1,563)
---------- ----------- ---------- -----------
Net income $ 645 $ 47 $ 926 $ (2,346)
---------- ----------- ---------- -----------
Net income per common share $ .29 $ 0.02 $ .42 $ (1.07)
---------- ----------- ---------- -----------
Weighted average number of common shares
outstanding 2,190,619 2,190,619 2,190,619 2,190,619
---------- ----------- ---------- -----------
</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,
---------------------------
1997 1996
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<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) $ 926 $(2,346)
Adjustments To Reconcile Net Income (Loss)
To Net Cash Used In Operating Activities:
Depreciation and amortization 1,709 1,556
(Gain) loss on sale of property, plant and equipment (3) (29)
Deferred taxes 335 181
Changes in operating assets and liabilities:
Accounts receivable, net (4,774) (3,628)
Inventories (1,725) (8,079)
Prepaid expenses 1,179 (1,605)
Accounts payable and accrued expenses 6,788 1,640
Salaries, wages and commissions (260) 326
Taxes, other than income tax 109 56
Deferred revenue (74) 12
Other accrued liabilities (281) 4,683
Other 267 263
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Total Adjustments 3,270 (4,624)
Net Cash Provided By (Used In) Operating Activities 4,196 (6,970)
Cash Flows From Investing Activities:
Capital expenditures (2,141) (1,425)
Proceeds from disposals of property, plant and equipment 38 50
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Net Cash Provided By (Used In) Investing Activities (2,103) (1,375)
Cash Flows From Financing Activities:
Long-term debt paid -- --
Short-term debt - Majority Shareholder (2,303) 8,233
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Net Cash Provided By (Used In) Financing Activities $(2,303) $ 8,233
Net Increase (Decrease) In Cash (210) (112)
Beginning Cash 682 478
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Ending Cash $ 472 $ 366
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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, 1996.
NOTE B - ACCOUNTS RECEIVABLE
Amounts included in accounts receivable having balances due after one year were
approximately $20.6 million at September 30, 1997, and $18.3 million at December
31, 1996.
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 and dilutive common equivalent shares
outstanding during each period.
NOTE E - PERVASIVENESS OF ESTIMATES
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 and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE F - RECENT PRONOUNCEMENT
In June, 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosure about Segments of an Enterprise and Related Information. It requires
that a public business enterprise report financial and descriptive information
about its reportable operating segments. This information is to be provided on
the same basis that it is used internally by management for evaluating segment
performance. It requires that a business report a measure of segment profit or
loss, certain specific revenue and expense items and segment assets, among
others. It also requires certain descriptive information, including the way that
the operating segments were determined and the products and services provided by
the operating segments. The Statement is effective for financial statements for
periods beginning after December 15, 1997. The Company plans to adopt the
Statement for the year ending December 31, 1998. Company management is assessing
how the requirements of the Statement will impact existing segment disclosures.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128. "Earnings per Share" ("SFAS 128") effective for
fiscal years ending after December 15, 1997. SFAS 128, requires dual
presentation of basic and diluted earnings per share (EPS) on the face of the
statement of income and requires a reconciliation of the numerators and
denominators of the basic and diluted EPS calculations. The Company does not
expect that basic and diluted EPS will be materially different from its current
calculation of net income per common share since potential common shares in the
form of stock options are not expected to be materially dilutive.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIRD QUARTER 1997 COMPARED TO THIRD QUARTER 1996
Net sales for the quarter ended September 30, 1997, increased $461,000
to $64.2 million compared to $63.8 million for the same period of 1996.
Commercial sales increased 2.8% primarily due to higher sales of new tires and
service while retail sales decreased 2.9% due to lower sales of hard goods and
new tires. On a same location basis, commercial sales increased 2.1% while
retail sales declined 3.7%.
Miscellaneous income remained constant at $3.2 million for the third
quarters of 1997 and 1996.
The gross margin rate increased slightly to 31% for the third quarter
of 1997 compared to 30.5% for the same period.
Selling, administrative and general expenses decreased 3% to $21.3
million for the third quarter of 1997 from $22.0 million for the same period of
1996. The 1996 third quarter included expenses associated with an adverse court
decision and related litigation cost in a general liability case against the
Company.
Interest expense increased for the third quarter of 1997 compared to
the same period of 1996 primarily due to higher average outstanding short-term
borrowing and slightly higher interest rates. The average short-term borrowing
rate for the third quarter of 1997 was 7.2% compared to 7.0% for the same period
of 1996.
Net income of $645,000 ($.29 per share) was recorded for the third
quarter of 1997 compared to net income of $47,000 ($.02 per share) for the same
quarter of 1996.
NINE MONTHS 1997 COMPARED TO NINE MONTHS 1996
Net sales for the nine-month period ended September 30, 1997,
increased $4,360,000 to $182 million compared to $177.6 million for the same
period of 1996. Commercial sales increased 5.0% while retail sales declined
1.7%. On a same location basis, commercial sales increased 3.5% while retail
sales declined 2.4%.
Miscellaneous income remained constant at $10.4 million for the
nine-month periods of 1997 and 1996.
The gross margin rate increased to 31.1% for the nine-month period of
1997 compared to 30.7% for the same period of 1996.
Selling, administrative and general expenses increased $1.4 million
for the nine-month period of 1997 compared to the same period of 1996 primarily
due to increased expenses for compensation and benefits.
Interest expense increased $268,000 due to higher average outstanding
short-term borrowing and slightly higher interest rates. The Company's average
short-term borrowing rate for the nine-month periods of 1997 and 1996 was 7.16%
and 6.95%, respectively.
The Company recorded net income of $926,000 ($.42 per share) for the
nine-month period ended September 30, 1997, compared to a net loss of $2,346,000
($1.07 per share) for the same period of 1996. The 1996 results included a $4.8
million pre-tax unusual charge associated with the settlement of two class
action lawsuits related to retail installment credit sales.
6
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FINANCIAL POSITION
Net cash provided by operating activities for the nine months ended
September 30, 1997, was $4.2 million. Net cash provided by seasonally increased
accounts payable balance of $6.8 million was offset by related increases in
inventory and accounts receivable.
Amounts included in accounts receivable with balances due after one
year were approximately $20.6 million at September 30, 1997, and $18.3 million
at December 31, 1996.
Net cash used in investing activities of $2.1 million was primarily
for capital equipment. Financing activities reflect a net decrease in the
Company's short-term borrowing of $2.3 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,
-------------------------------------------- ----------------------------------------------
1997 1996 % VARIANCE 1997 1996 % VARIANCE
------- ------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
New Tires $21,151 $20,280 4.3% $ 55,577 $ 52,587 5.7%
Retreading 10,812 10,789 0.2% 30,593 30,016 1.9%
Service 7,196 6,993 2.9% 20,151 18,594 8.4%
Rubber Products 2,811 2,777 1.2% 8,220 7,851 4.7%
------- ------- -------- --------
Total $41,970 $40,839 2.8% $114,541 $109,048 5.0%
======= ======= ======== ========
</TABLE>
RETAIL SALES BY PRODUCT LINE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------- ----------------------------------------------
1997 1996 % VARIANCE 1997 1996 % VARIANCE
------- ------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Hard Goods $ 8,911 $ 9,482 -6.0% $29,155 $29,893 -2.5%
New Tires 6,006 6,375 -5.8% 17,004 17,721 -4.0%
Retreading 131 121 8.3% 359 343 4.7%
Service 7,197 6,937 3.7% 20,911 20,605 1.5%
------- ------- ------- -------
Total $22,245 $22,915 -2.9% $67,429 $68,562 -1.7%
======= ======= ======= =======
</TABLE>
7
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PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On October 23, 1997, the Company announced that it has received an
Agreement and Plan of Share Exchange proposed by The Goodyear Tire & Rubber
Company ("Goodyear") pursuant to which Goodyear would acquire the
556,924 shares of the Company's common stock that it does not already own for
$32 cash per share. The Plan is subject to approval of the Company's Board of
Directors as well as its shareholders. If the Board approves the Plan, it will
call a meeting of the shareholders to consider approval. A committee of the
independent directors of the Company has been formed to study the proposal and
make a recommendation to the Board of Directors regarding the offer.
Interstate/Johnson Lane Corporation has been retained to act as a financial
advisor to the special committee regarding the Goodyear proposal.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. 27 - Financial Data Schedule dated
September 30, 1997.
(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 10, 1997 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,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 472
<SECURITIES> 0
<RECEIVABLES> 74,545
<ALLOWANCES> 2,350
<INVENTORY> 41,416
<CURRENT-ASSETS> 119,745
<PP&E> 9,319
<DEPRECIATION> 23,594
<TOTAL-ASSETS> 132,420
<CURRENT-LIABILITIES> 79,397
<BONDS> 0
0
0
<COMMON> 2,191
<OTHER-SE> 45,473
<TOTAL-LIABILITY-AND-EQUITY> 132,420
<SALES> 181,970
<TOTAL-REVENUES> 192,389
<CGS> 125,454
<TOTAL-COSTS> 188,910
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,515
<INTEREST-EXPENSE> 2,079
<INCOME-PRETAX> 1,400
<INCOME-TAX> 474
<INCOME-CONTINUING> 926
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 926
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
