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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 March 31, 1998
[ ] 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 May 11, 1998.
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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>
Assets March 31, 1998 December 31, 1997
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<S> <C> <C>
Current Assets:
Cash $ 469 $ 1,110
Accounts receivable, less unearned interest income
of $5,263 and $5,279 and allowance for
doubtful accounts of $2,396 and $2,400 68,679 72,204
Inventories:
Merchandise 42,396 39,607
Materials and manufacturing supplies 2,434 2,668
-------- --------
44,830 42,275
Prepaid expenses 881 242
Other current assets 3,126 3,126
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Total Current Assets 117,985 118,957
Other assets 2,901 2,903
Property, plant and equipment, net 9,506 9,680
Cost in excess of net assets of businesses acquired, less
accumulated amortization of $966 and $957 461 470
-------- --------
$130,853 $132,010
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term debt - Majority Shareholder $ 36,385 $ 29,550
Accounts payable and accrued expenses:
Trade 12,891 11,625
Majority Shareholder 12,769 18,426
Salaries, wages and commissions 6,221 8,408
Taxes, other than income 1,366 1,027
Federal and state tax on income -- 808
Current portion of deferred revenue 2,222 2,306
Note payable - Majority Shareholder 5,500 5,500
Other accrued liabilities 855 878
Current portion of other long-term liabilities 84 84
-------- --------
Total Current Liabilities 78,293 78,612
Other long-term liabilities, less current portion 3,534 3,466
Long-term deferred revenue 1,370 1,766
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 36,294 36,804
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Total Shareholders' Equity 47,656 48,166
-------- --------
$130,853 $132,010
======== ========
</TABLE>
The notes to financial statements are an integral part of these statements.
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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
March 31,
--------------------------------
1998 1997
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<S> <C> <C>
Net sales $ 54,934 $ 54,419
Miscellaneous income - net 2,711 3,066
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57,645 57,485
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Costs and expenses:
Cost of products sold 37,029 37,497
Selling, administrative and general expenses 20,777 20,194
Interest expense 749 678
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58,555 58,369
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Income (loss) before income taxes (910) (884)
Provision (benefit) for income taxes (400) (347)
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Net income (loss) $ (510) $ (537)
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Basic income (loss) per share of common share $ (0.23) $ (0.25)
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Weighted average number of common shares outstanding 2,190,619 2,190,619
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</TABLE>
The notes to financial statements are an integral part of these statements.
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STATEMENTS OF CASH FLOWS
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BRAD RAGAN, INC.
(Unaudited)
Amounts in thousands.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (510) $ (537)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO NET CASH FROM OPERATING ACTIVITIES:
Depreciation and amortization 624 546
(Gain) loss on sale of property, plant and equipment (151) (6)
Changes in operating assets and liabilities:
Accounts receivable 3,525 756
Inventory (2,555) (2,137)
Prepaid expenses (639) (103)
Accounts payable and accrued expenses (4,391) 2,094
Salaries, wages and commissions (2,188) (1,639)
Taxes, other than income tax 339 342
Federal and state taxes on income (808) --
Deferred revenue (480) (72)
Other accrued liabilities (23) (173)
Other 68 101
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Total Adjustments (6,679) (291)
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (7,189) (828)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (483) (533)
Proceeds from disposals of property, plant and equipment 196 6
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (287) (527)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt - Majority Shareholder 6,835 1,214
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES $ 6,835 $ 1,214
NET INCREASE (DECREASE) IN CASH (641) (141)
BEGINNING CASH 1,110 682
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ENDING CASH $ 469 $ 541
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</TABLE>
The notes to financial statements are an integral part of these statements.
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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, 1997.
NOTE B - ACCOUNTS RECEIVABLE
Amounts included in accounts receivable having balances due after one year were
approximately $19.1 million at March 31, 1998, and $20.4 million at December 31,
1997.
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
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128 ("SFAS 128") "Earnings Per Share", for the year ended December
31, 1997. SFAS 128 replaces the presentation of primary earnings per share
("EPS") and fully diluted EPS with a presentation of basic EPS and diluted EPS,
respectively. Basic EPS excludes dilution and is computed by dividing earnings
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Similar to fully diluted EPS, diluted EPS assumes
the issuance of common stock for all other potentially dilutive equivalent
shares outstanding. The calculation of basic EPS and diluted EPS for the Company
utilizes a common denominator, and therefore, both measurements produce
identical results. All prior-period EPS data have been restated. The adoption of
this new accounting standard did not have a material effect on the Company's
reported EPS amounts.
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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FIRST QUARTER 1998 COMPARED TO FIRST QUARTER 1997
Net sales for the quarter ended March 31, 1998 were up $515,000 to $54,934,000
compared to $54,419,000 for the first quarter of 1997. On a same location basis,
sales increased in the commercial segment 4.6% while retail sales declined 5.2%.
The Company experienced increased sales of new tires in both the retail and
commercial segments and increased sales of auto and tire related services, while
the cool, wet spring weather in the southeast severely impacted sales of lawn
and garden merchandise.
Miscellaneous income decreased $355,000 primarily due to reduced finance
charge income received through the Company's retail installment credit program
as a result of lower retail installment sales.
The Company's gross margin rate increased to 32.6% for the first quarter of
1998 from 31.1% for the first quarter of 1997. The margin increase was the
result of fluctuation in the Company's mix of business and competitive pricing
strategies amongst the major tire manufactures.
Selling, administrative and general expenses increased $583,000 primarily due
to increases in employee compensation and benefit related expenses.
Interest expense increased $71,000 for the first quarter of 1998 compared to
the first quarter of 1997 due to increased borrowing and slightly higher average
interest rates. The average interest rate for the first quarter of 1998 was
7.17% compared to 6.96% for the same period of 1997.
Historically, the first quarter does not represent a strong earnings
period for the Company. A net loss of $510,000 or $.23 per share (Basic and
Diluted) was recorded for the first quarter of 1998 compared to a net loss of
$537,000 or $.25 per share (Basic and Diluted) for the first quarter of 1997.
FINANCIAL POSITION
Net cash used in operating activities for the first quarter of 1998
was $6,678,000 primarily due to a reduction in the payable to the majority
shareholder partially offset by increases in trade payables.
Financing activities reflect a net increase in the Company's
short-term borrowing of $6.8 million which was used primarily to fund working
capital requirements. Short-term debt is originated through the majority
shareholder, The Goodyear Tire & Rubber Company, which provides an open line of
credit.
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COMPARATIVE SALES TABLE
(in 000's)
COMMERCIAL SALES BY PRODUCT LINE
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
---------------------------------------
1998 1997 % VARIANCE
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<S> <C> <C> <C>
New Tires $16,315 $15,694 4.0%
Retreading 9,386 9,210 1.9%
Service 6,342 6,091 4.1%
Rubber Products 3,042 2,556 19.0%
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Total $35,085 $33,551 4.6%
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</TABLE>
RETAIL SALES BY PRODUCT LINE
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
---------------------------------------
1998 1997 % VARIANCE
------ ------- ----------
<S> <C> <C> <C>
Hard Goods $ 7,548 $ 8,958 -15.9%
New Tires 5,421 5,194 4.4%
Retreading 116 109 6.4%
Service 6,764 6,607 2.4%
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Total $19,849 $20,868 -4.9%
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</TABLE>
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 27, 1998, the plaintiffs in the lawsuit styled Herbert R. Behrens and
Martin Bergstein, Trustee FBO Herbert R. Behrens v. Brad Ragan, Inc. et al.
filed a notice of voluntary dismissal without prejudice, and on April 28, 1998,
the defendants filed a motion for the court to approve the dismissal. This
motion remains under consideration by the court. This lawsuit is described in
more detail under Item 3 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
ITEM 5. OTHER INFORMATION
On October 23, 1997, the Company announced that its Board of Directors had
received a proposed Agreement and Plan of Share Exchange from The Goodyear Tire
& Rubber Company pursuant to which Goodyear would acquire the 556,924 shares
(approximately 25%) of Brad Ragan, Inc. common stock that it does not already
own for a cash price of $32.00 per share. The Board established a Special
Committee of independent directors to study the proposal along with its
financial and legal advisors and make a recommendation to the Board regarding
the offer. Interstate/Johnson Lane Corporation acted as financial advisor to the
Special Committee.
On February 13, 1998 the Company announced that the Board of Directors,
acting on the recommendation of the Special Committee of independent directors,
had agreed in principle to the Goodyear proposed Agreement and Plan of Share
Exchange for the revised cash price of $37.25 per share.
On May 11, 1998 the Company announced that the Board of Directors had given
final approval to the Goodyear proposal. The agreement must still be approved by
a majority vote of the shares of the Company's outstanding common stock at the
Annual Shareholders Meeting. The Company expects Goodyear to vote the shares it
already owns in favor of the transaction, thus assuring its approval.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. 27 - Financial Data Schedule dated March 31, 1998
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter for which
this report is filed.
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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.
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(Registrant)
DATE: May 11, 1998 By: /s/ R. J. Carr
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R. J. Carr, Vice President - Finance
and Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BRAD RAGAN, INC. FOR THE THREE MONTHS ENDED MARCH 30,
1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-30-1998
<CASH> 469
<SECURITIES> 0
<RECEIVABLES> 68,679
<ALLOWANCES> 2,396
<INVENTORY> 44,830
<CURRENT-ASSETS> 117,985
<PP&E> 9,506
<DEPRECIATION> 23,970
<TOTAL-ASSETS> 130,853
<CURRENT-LIABILITIES> 78,293
<BONDS> 0
0
0
<COMMON> 2,191
<OTHER-SE> 45,465
<TOTAL-LIABILITY-AND-EQUITY> 130,853
<SALES> 54,934
<TOTAL-REVENUES> 57,645
<CGS> 37,029
<TOTAL-COSTS> 57,806
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 442
<INTEREST-EXPENSE> 749
<INCOME-PRETAX> (910)
<INCOME-TAX> (400)
<INCOME-CONTINUING> (510)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (510)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
