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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, 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 .
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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 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 September 30, 1998 December 31, 1997
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<S> <C> <C>
Current Assets:
Cash $ 1,120 $ 1,110
Accounts receivable, less unearned interest income
of $5,086 and $5,279 and allowance for
doubtful accounts of $2,698 and $2,400 75,525 72,204
Inventories:
Merchandise 39,755 39,607
Materials and manufacturing supplies 2,972 2,668
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42,727 42,275
Prepaid expenses 187 242
Other current assets 3,129 3,126
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Total Current Assets 122,688 118,957
Other assets 2,155 2,903
Property, plant and equipment, net 10,075 9,680
Cost in excess of net assets of businesses acquired, less
accumulated amortization of $984 and $957 443 470
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Total Current Assets $ 135,361 $ 132,010
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Liabilities and Shareholders' Equity
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Current Liabilities:
Short-term debt - majority shareholder $ 35,251 $ 29,550
Accounts payable and accrued expenses:
Trade 11,297 11,625
Majority shareholder 18,089 18,426
Salaries, wages and commissions 8,123 8,408
Taxes, other than income 1,179 1,027
Federal and state tax on income 166 808
Current portion of deferred revenue 1,928 2,306
Note payable - majority shareholder 5,500 5,500
Other accrued liabilities 344 878
Current portion of other long-term liabilities 74 84
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Total Current Liabilities 81,951 78,612
Other long-term liabilities, less current portion 3,223 3,466
Long-term deferred revenue 763 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 38,062 36,804
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Total Shareholders' Equity 49,424 48,166
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Total Liabilities and Shareholders' Equity $ 135,361 $ 132,010
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</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 Nine Months Ended
September 30, September 30,
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1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Net sales $ 66,767 $ 64,215 $ 190,520 $ 181,970
Miscellaneous income - net 2,694 3,212 9,976 10,419
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69,461 67,427 200,496 192,389
Costs and expenses:
Cost of products sold 45,936 44,329 130,255 125,454
Selling administrative and general expenses 22,347 21,331 65,956 63,456
Interest expense 741 700 2,236 2,079
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69,024 66,360 198,447 190,989
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Income before income taxes 437 1,067 2,049 1,400
Provision for income taxes 136 422 791 474
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Net income $ 301 $ 645 $ 1,258 $ 926
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Net income per common share
(Basic and Diluted) $ 0.14 $ 0.29 $ 0.57 $ 0.42
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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.
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STATEMENTS OF CASH FLOWS
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BRAD RAGAN, INC.
(Unaudited)
Amounts in thousands.
<TABLE>
<CAPTION>
Nine Months Ended
September 30
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1998 1997
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<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 1,258 $ 926
Adjustments To Reconcile Net Income
To Net Cash Provided By (Used In) Operating Activities:
Depreciation and amortization 1,919 1,709
Gain on sale of property, plant and equipment (200) (3)
Deferred tax asset 281 335
Changes in operating assets and liabilities:
Accounts receivable, net (3,321) (4,774)
Inventories (452) (1,725)
Prepaid expenses 55 1,179
Accounts payable and accrued expenses (665) 6,788
Salaries, wages and commissions (285) (260)
Taxes, other than income tax 152 109
Federal and state taxes on income (642) 0
Deferred revenue (1,381) (74)
Other accrued liabilities (534) (281)
Other 203 267
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Total Adjustments (4,870) 3,270
Net Cash Provided By (Used In) Operating Activities (3,612) 4,196
Cash Flows From Investing Activities:
Capital expenditures (2,337) (2,141)
Proceeds from disposals of property, plant and equipment 258 38
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Net Cash Used In Investing Activities (2,079) (2,103)
Cash Flows From Financing Activities:
Long-term debt paid -- --
Short-term debt - Majority Shareholder 5,701 (2,303)
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Net Cash Provided By (Used In) Financing Activities $ 5,701 $ (2,303)
Net Increase (Decrease) In Cash 10 (210)
Beginning Cash 1,110 682
Ending Cash $ 1,120 $ 472
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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 $20.4 million at September 30, 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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NOTE F - DEFERRED WARRANTY REVENUE
The Company sells extended warranty contracts on certain tires and home
products. Under the tire warranty program, the Company provides an initial
complement of services including wheel alignment and wheel balancing when the
contract is sold, recognizing the portion of contract revenue attributable to
these services at the time of the sale and amortizing the balance of the revenue
using the straight line method over the life of the contract, while costs
associated with warranty services, such as additional alignments, wheel
balancing, flat repair and tire replacement in the event of an unrepairable road
hazard incident, are recognized as incurred. Revenues for all other extended
warranty contracts are deferred and amortized over the life of the contract if
the Company is responsible for servicing the warranty contract or recognized at
the time of sale if a third party is responsible for the warranty service. The
Company recorded net revenue from the sale of extended warranty contracts of
$1,368,00 in the third quarter of 1998, compared to $796,000 in the third
quarter of 1997 and $4,283,00 for the nine months ended September 30, 1998
compared to $3,631,000 for the same period of 1997.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Third Quarter 1998 Compared To Third Quarter, 1997
Net sales for the quarter ended September 30, 1998 were up $2.6 million compared
to the third quarter of 1997. Commercial sales were up 7.0% primarily due to
increased sales of new tires and service, while retail sales declined 1.6%
primarily due to lower sales of home products. On a same location basis,
commercial sales were up 7.0% while retail sales declined 1.9%.
Miscellaneous income decreased to $2.6 million for the third quarter of 1998
from $3.2 million for the third quarter of 1997 primarily due to lower revenue
from retail installment credit sales.
The gross margin rate increased slightly to 31.2% for the third quarter of 1998
compared to 31.0% for the same period of 1997.
The Company recorded net revenue from the sale of extended warranty contracts of
$1.4 million in the third quarter of 1998 compared to $796,000 in the same
period of 1997. For further discussion, see Note F of Notes to Financial
Statements located elsewhere in this report.
Selling, administrative and general expenses increased 4.8% for the third
quarter of 1998 compared to the third quarter of 1997 due to increased expenses
associated with employee benefits and compensation.
Interest expense was up slightly due to higher average outstanding debt balances
during the quarter. The average short term borrowing rate remained constant at
7.2% for the third quarters of 1998 and 1997.
The Company recorded net income of $301,000 or $.14 per share (Basic and
Diluted) for the third quarter of 1998 compared to 645,000 or $.29 per share
(Basic and Diluted) for the third quarter of 1997.
Nine Months ended September 30, 1998 Compared to Nine Months ended September 30,
1997
Net sales for the nine-month period ended September 30, 1998 increased $8.6
million to $190,520,000 from $181,970,000 for the same period of 1997.
Commercial sales were up 6.4% with increases realized in all product categories
while retail sales were up 1.8% primarily due to increased sales of new tires
and automotive service. On a same location basis, commercial and retail sales
were up 6.4% and 1.7%, respectively.
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Miscellaneous income decreased to $10.0 million for the nine-month period of
1998 from $10.4 million for the nine-month period of 1997 primarily due to lower
revenue from retail installment credit sales.
The gross margin rate increased to 31.6% for the nine-month period of 1998
compared to 31.1% for the same period of 1997.
The Company recorded net revenue from the sale of extended warranty contracts of
$4.3 million for the nine-month period ended September 30, 1998 compared to $3.6
million for the same period of 1997. For further discussion see Note F of Notes
to Financial Statements located elsewhere in this report.
Selling, administrative and general expenses increased 3.9% for the nine-month
period of 1998 compared to the nine-month period of 1997 due to increased
expenses associated with employee benefits and compensation. As a percentage of
sales, however, these expensed decreased to 34.6% for the third quarter of 1998
compared to 34.9% for the third quarter of 1997.
Interest expense was up slightly due to higher average outstanding debt balances
during the nine-month period. The average short term borrowing rate remained
constant at 7.2% for the nine-month period of 1998 and 1997.
The Company recorded net income of $1.3 million or $.57 per share (basic and
diluted) for the nine-month period ended September 30, 1998 compared to $926,000
or $.42 per share (basic and diluted) for the nine-month period ended September
30, 1997.
Financial Position
Net cash used in operating activities of $3.6 million. was primarily used in
seasonal increases in accounts receivable.
Net cash used in investing activities of $2.1 million was principally for
capital equipment.
Financing activities reflect a net increase in short-term borrowings of $5.7
million which was used to fund working capital requirements. Short-term debt is
originated through the Company's majority shareholder, The Goodyear Tire &
Rubber Company, which provides an open line of credit.
Year 2000 Compliance
Computers and the programs which they run have typically recorded and
stored dates with a two character representation for the year, making the year
2000 indistinguishable from the year 1900. This situation could result in system
failure or miscalculation where program logic is date sensitive and is generally
referred to as the "Year 2000 Problem".
The Company has developed a plan to assess and modify its computer
programs, files, and data interchanges to correctly recognize and process dates.
The Company has determined that these modifications are approximately 90%
completed and on schedule to be completed in the first quarter of 1999. A plan
is being developed to modify programs and systems provided by outside vendors to
be Year 2000 compliant. It is expected that these modifications will be
completed in the first quarter of 1999.
The Company is currently contacting third parties with which it has
material relationships, including its material customers and suppliers, to
attempt to determine their preparedness with respect to Year 2000 issues and to
analyze the risk to the Company in the event such third parties experience
significant business interruptions as a result of Year 2000 noncompliance. The
Company expects to complete this review and
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analysis and to determine the need for contingency planning in this regard by
the end of the first quarter of 1999.
Although the Company believes its planning efforts are adequate to
address its Year 2000 concerns, there can be no assurance that the Company will
not experience unanticipated negative consequences and material costs caused by
undetected errors or defects in the technology used in its internal systems, or
that the systems of third parties on which the Company relies will be made
compliant on a timely basis and will not have any material adverse effect on the
Company. The Company is currently unable to estimate the most reasonably likely
worst-case effects of the arrival of the year 2000 and does not currently have a
contingency plan in place for any such unanticipated negative effects. The
Company intends to analyze reasonably likely worst-case scenarios and the need
for such contingency planning once the system modifications and review of
third-party preparedness described above have been completed and expects to
complete this analysis by the end of the second quarter 1999.
Presently, the Company does not believe that Year 2000 compliance will
require significant out-of-pocket expense nor that the costs of remediation
will have a material adverse financial effect. Costs associated with Year 2000
compliance will be expensed as incurred.
Presently, the Company does not believe that the Year 2000 Problem
will have a material adverse effect on its business operations or financial
results, however, there is no definitive assurance that the Year 2000 Problem
will not have an adverse effect.
Forward-Looking Information - Safe Harbor Statement
The foregoing Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements that
relate to the Company's plans and objectives. These statements are subject to
risks and uncertainties. Readers should note that these risks and uncertainties
could cause actual results and developments to be materially different form
those expressed or implied by any of these forward-looking statements.
Comparative Sales Table
(Amounts In Thousands)
COMMERCIAL SALES BY PRODUCT LINE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30
-------------------------------- ----------------------------------
1998 1997 % VARIANCE 1998 1997 % VARIANCE
------- ------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
New Tires $22,636 $21,151 7.0% $ 59,230 $ 55,577 6.6%
Retreading 11,223 10,812 3.8% 31,798 30,593 3.9%
Service 8,069 7,196 12.1% 21,975 20,151 9.1%
Rubber Products 2,960 2,811 5.3% 8,896 8,220 8.2%
------- ------- -------- --------
Total $44,888 $41,970 7.0% $121,899 $114,541 6.4%
======= ======= ======== ========
</TABLE>
DETAIL SALES BY PRODUCT LINE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30
-------------------------------- ----------------------------------
1998 1997 % VARIANCE 1998 1997 % VARIANCE
------- ------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Hard Goods $ 8,328 8,911 -6.5% $29,092 $29,155 -0.2%
New Tires 6,256 6,006 4.2% 17,689 17,004 4.0%
Retreading 143 131 9.2% 385 359 7.2%
Service 7,152 7,197 -0.6% 21,455 20,911 2.6%
------- ------- ------- -------
Total $21,879 $22,245 -1.6% $68,621 $67,429 1.8%
======= ======= ======= =======
</TABLE>
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PART II - OTHER INFORMATION
Item 5. Other Information
The Agreement and Plan of Share Exchange dated May 5, 1998 between the Company
and The Goodyear Tire & Rubber Company, which has been previously reported
provides for Goodyear to acquire the 556,924 shares (approximately 25%) of Brad
Ragan, Inc. common stock that it does not already own for a cash price of $37.25
per share, remains subject to approval by the Company's shareholders at the
Annual Shareholders Meeting, which is currently expected to be held in
December, 1998. 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 September 30,
1998.
(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.
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(Registrant)
DATE: November 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 NINE MONTHS ENDED SEPTEMBER 30,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,120
<SECURITIES> 0
<RECEIVABLES> 75,525
<ALLOWANCES> 2,698
<INVENTORY> 42,727
<CURRENT-ASSETS> 122,688
<PP&E> 10,075
<DEPRECIATION> 24,695
<TOTAL-ASSETS> 135,361
<CURRENT-LIABILITIES> 81,951
<BONDS> 0
0
0
<COMMON> 2,191
<OTHER-SE> 47,233
<TOTAL-LIABILITY-AND-EQUITY> 135,361
<SALES> 190,520
<TOTAL-REVENUES> 200,496
<CGS> 130,255
<TOTAL-COSTS> 196,211
<OTHER-EXPENSES> 2,236
<LOSS-PROVISION> 1,582
<INTEREST-EXPENSE> 2,236
<INCOME-PRETAX> 2,049
<INCOME-TAX> 791
<INCOME-CONTINUING> 1,258
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,258
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.57
</TABLE>
