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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 June 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 August 12 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>
Assets June 30, 1997 December 31, 1996
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<S> <C> <C>
Current Assets:
Cash $ 607 $ 682
Accounts receivable, less unearned interest income
of $5,267 and $5,105 and allowance for
doubtful accounts of $2,100 and $2,050 73,435 69,771
Inventories:
Merchandise 38,600 36,911
Materials and manufacturing supplies 2,853 2,781
-------- --------
41,453 39,692
Prepaid expenses 273 1,622
Other current assets 3,204 3,249
-------- --------
Total Current Assets 118,972 115,016
Other assets 2,879 2,921
Property, plant and equipment, net 9,086 8,887
Cost in excess of net assets of businesses acquired, less
accumulated amortization of $942 and $924 488 506
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$131,425 $127,330
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Liabilities and Shareholders' Equity
Current Liabilities:
Short-term debt - Majority Shareholder $ 34,293 $ 34,766
Accounts payable and accrued expenses:
Trade 14,163 12,728
Majority Shareholder 13,522 9,983
Salaries, wages and commissions 6,886 7,469
Taxes, other than income 1,140 1,097
Current portion of deferred revenue 2,375 2,466
Note payable - Majority Shareholder 5,500 5,500
Other accrued liabilities 1,093 1,364
Current portion of other long-term liabilities 75 83
-------- --------
Total Current Liabilities 79,047 75,456
Other long-term liabilities, less current portion 3,477 3,346
Long-term deferred revenue 1,882 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 35,657 35,376
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Total Shareholders' Equity 47,019 46,738
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$131,425 $127,330
-------- --------
</TABLE>
The notes to financial statements are an integral part of these statements.
2
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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 Six Months Ended
June 30, June 30,
-----------------------------------------------------------------------
1997 1996 1997 1996
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 63,336 $ 63,258 $ 117,755 $ 113,856
Miscellaneous income - net 4,141 4,594 7,207 7,220
---------- ----------- ---------- -----------
67,477 67,852 124,962 121,076
Cost and expenses:
Cost of products sold 43,628 43,881 81,125 78,881
Selling administrative and general expenses 21,931 20,998 42,125 40,113
Unusual Charge -- 4,832 -- 4,832
Interest expense 701 590 1,379 1,147
---------- ----------- ---------- -----------
66,260 70,301 124,629 124,973
---------- ----------- ---------- -----------
Income (loss) before income taxes 1,217 (2,449) 333 (3,897)
Provision (benefit) for income taxes 399 (884) 52 (1,504)
---------- ----------- ---------- -----------
Net Income (loss) $ 818 $ (1,565) $ 281 $ (2,393)
---------- ----------- ---------- -----------
Net Income (loss) per common share $ 0.37 $ (0.71) $ 0.13 $ (1.09)
---------- ----------- ---------- -----------
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>
Six Months Ended
June 30,
------------------------
1997 1996
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<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) $ 281 $(2,393)
Adjustments To Reconcile Net Income (Loss)
To Net Cash Used In Operating Activities:
Depreciation and amortization 1,116 1,019
(Gain) loss on sale of property, plant and equipment (3) (16)
Deferred tax asset 15 46
Changes in operating assets and liabilities:
Accounts receivable, net (3,664) (4,140)
Inventories (1,761) (7,869)
Prepaid expenses 1,349 (1,323)
Accounts payable and accrued expenses 4,974 7,663
Salaries, wages and commissions (583) (1,404)
Taxes, other than income tax 43 181
Deferred revenue 1 105
Other accrued liabilities (271) 4,832
Other 188 176
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Total Adjustments 1,404 (730)
Net Cash Provided By (Used In) Operating Activities 1,685 (3,123)
Cash Flows From Investing Activities:
Capital expenditures (1,316) (953)
Proceeds from disposals of property, plant and equipment 29 33
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Net Cash Provided By (Used In) Investing Activities (1,287) (920)
Cash Flows From Financing Activities:
Long-term debt paid -- --
Short-term debt - Majority Shareholder (473) 3,757
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Net Cash Provided By (Used In) Financing Activities (473) 3,757
Net Increase (Decrease) In Cash (75) (286)
Beginning Cash 682 478
Ending Cash $ 607 $ 192
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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 June 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 ended December 31, 1998. Company management is
assessing how the requirements of the statement will impact existing segment
disclosures.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SECOND QUARTER 1997 COMPARED TO SECOND QUARTER 1996
Net sales for the quarter ended June 30, 1997, increased to $63,336,000
compared to $63,258,000 for the same period of 1996. On a same location basis,
commercial sales were up 6.3% while retail sales decreased 8.4%. Commercial
sales growth occurred in all product categories while a cooler than normal
spring in the Southeast affected retail sales, particularly in lawn and garden
merchandise.
Miscellaneous income decreased 10.0% primarily due to lower revenues earned
from charges associated with consumer credit sales.
The gross margin rate increased slightly to 31.1% for the second quarter of
1997 compared to 30.6% for the same period of 1996.
Selling, administrative and general expenses increased 4.4% for the second
quarter of 1997 compared to the second quarter of 1996 primarily due to
increases in expenses associated with compensation and benefits.
Interest expense increased to $701,000 for the second quarter of 1997 from
$590,000 for the same period of 1996 due to an increased average short-term
borrowing rate and increased average outstanding short-term borrowings.
The Company recorded net income of $818,000 ($.37 per share) for the second
quarter of 1997 compared to a net loss of $1,565,000 ($.71 per share) for the
same period of 1996. The 1996 second quarter loss included a $4.8 million
unusual charge associated with the settlement of two class action lawsuits
related to retail installment credit sales.
FIRST HALF 1997 COMPARED TO FIRST HALF 1996
Net sales for the six-month period ended June 30, 1997 increased $3.9
million to $117,755,000 from $113,856,000 for the same period of 1996. On a same
location basis, commercial sales were up 4.9% while retail sales declined 1.7%.
Miscellaneous income for the first half of 1997 was down slightly to
$7,207,000 from $7,220,000 for the first half of 1996.
The gross margin rate for the six-month period was up slightly to 31.1%
compared to 30.7% for the same period of 1996.
Selling administrative and general expenses were up 5.0% for the first half
of 1997 compared to the first half of 1996 primarily due to increased expenses
associated with compensation and benefits.
Interest expense increased to $1,379,000 for the first half of 1997 from
$1,147,000 for the same period of 1996 primarily due to increased average
outstanding short-term borrowing.
The Company recorded net income of $281,000 ($.13 per share) for the first
half of 1997 compared to net loss of $2,393,000 ($1.09 per share) for the first
half of 1996. The 1996 first half loss includes a $4.8 million unusual charge
recorded in the second quarter for expenses 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 first half of 1997 was
$1.7 million. Cash provided by net income before depreciation and amortization
was $1.4 million. Additional cash of $6.3 million was provided by an increase in
accounts payable and accrued expenses and deceased prepaid expenses. This was
partially offset by increased accounts receivable and inventories.
Net cash used in investing activities of $1.3 million was principally for
capital equipment.
Financing activities reflect a net decrease in short-term borrowings of
$473,000. Short-term debt is originated through the majority shareholder, The
Goodyear Tire & Rubber Company, which provides an open line of credit.
7
<PAGE> 8
Comparative Sales Table
(Amounts In Thousands)
<TABLE>
<CAPTION>
COMMERCIAL SALES BY PRODUCT LINE
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------------ -------------------------------------
1997 1996 %VARIANCE 1997 1996 %VARIANCE
------- ------- --------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
New Tires $18,732 $17,565 6.6% $34,426 $32,307 6.6%
Retreading 10,571 10,313 2.5% 19,781 19,227 2.9%
Service 6,864 6,334 8.4% 12,955 11,601 11.7%
Rubber Products 2,853 2,504 13.9% 5,409 5,074 6.6%
------- ------- ------- -------
Total $39,020 $36,715 6.3% $72,571 $68,209 6.4%
======= ======= ======= =======
<CAPTION>
RETAIL SALES BY PRODUCT LINE
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------------ -------------------------------------
1997 1996 %VARIANCE 1997 1996 %VARIANCE
------- ------- --------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Hard Goods $11,286 $13,001 -13.2% $20,244 $20,411 -0.8%
New Tires 5,804 6,045 -4.0% 10,998 11,346 -3.1%
Retreading 119 121 -1.7% 228 222 2.7%
Service 7,107 7,376 -3.6% 13,714 13,668 0.3%
------- ------- ------- -------
Total $24,316 $26,543 -8.4% $45,184 $45,647 -1.0%
======= ======= ======= =======
</TABLE>
8
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 1997 Annual Meeting of Shareholders on May 22
1997. The only item on the agenda was the election of directors for which votes
were cast or withheld as follows:
Nominee For Withheld
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Eugene R. Culler, Jr. 2,166,121 0
Michael R. Thomann 2,166,121 0
Ronald J. Carr 2,166,121 0
Richard D. Pearson 2,166,121 0
Richard E. Sorensen 2,165,921 200
James W. Barnett 2,165,921 200
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: Exhibit No. 27 - Financial Data Schedule dated
June 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: August 12, 1997 By: /s/ R. J. Carr
------------------ --------------------------------------
R. J. Carr, Vice President - Finance
and Chief Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BRAD RAGAN, INC. FOR THE SIX MONTHS ENDED JUNE 30, 1997,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 607
<SECURITIES> 0
<RECEIVABLES> 73,435
<ALLOWANCES> 2,100
<INVENTORY> 41,453
<CURRENT-ASSETS> 118,972
<PP&E> 9,086
<DEPRECIATION> 22,960
<TOTAL-ASSETS> 131,425
<CURRENT-LIABILITIES> 79,047
<BONDS> 0
0
0
<COMMON> 2,191
<OTHER-SE> 44,828
<TOTAL-LIABILITY-AND-EQUITY> 131,425
<SALES> 117,755
<TOTAL-REVENUES> 124,962
<CGS> 81,125
<TOTAL-COSTS> 123,250
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 790
<INTEREST-EXPENSE> 1,379
<INCOME-PRETAX> 333
<INCOME-TAX> 52
<INCOME-CONTINUING> 281
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 281
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
