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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
[X] Quarterly report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended June 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 [ ].
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 10, 1998.
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The Quarterly Report on Form 10Q for the quarterly period ended June 30, 1998
(the "report) of Brad Ragan, Inc. (the "registrant") is amended by this Form
10-Q/A-Amendment No. 1 to the report (the "Amendment") by deleting Items 1 and 2
of Part I in their entirety and by inserting in lieu thereof a new Item 1 and
Item 2 of Part I which adds Note F to Item 1 and expands Item 2 to include a
discussion of deferred warranty revenue.
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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, 1998 December 31, 1997
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<S> <C> <C>
Current Assets:
Cash $ 775 $ 1,110
Accounts receivable, less unearned interest income
of $5,243 and $5,279 and allowance for
doubtful accounts of $2,489 and $2,400 75,431 72,204
Inventories:
Merchandise 37,901 39,607
Materials and manufacturing supplies 2,962 2,668
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40,863 42,275
Prepaid expenses 294 242
Other current assets 2,738 3,126
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Total Current Assets 120,101 118,957
Other assets 2,898 2,903
Property, plant and equipment, net 10,075 9,680
Cost in excess of net assets of businesses acquired, less
accumulated amortization of $975 and $957 452 470
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$133,526 $132,010
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Liabilities and Shareholders' Equity
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Current Liabilities:
Short-term debt - Majority Shareholder $ 34,628 $ 29,550
Accounts payable and accrued expenses:
Trade 12,643 11,625
Majority Shareholder 15,246 18,426
Salaries, wages and commissions 7,819 8,408
Taxes, other than income 1,376 1,027
Federal and state tax on income -- 808
Current portion of deferred revenue 2,099 2,306
Note payable - Majority Shareholder 5,500 5,500
Other accrued liabilities 367 878
Current portion of other long-term liabilities 84 84
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Total Current Liabilities 79,762 78,612
Other long-term liabilities, less current portion 3,602 3,466
Long-term deferred revenue 1,039 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 37,761 36,804
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Total Shareholders' Equity 49,123 48,166
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$133,526 $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 Six Months Ended
June 30, June 30,
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1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Net Sales $ 68,819 $ 63,336 $ 123,753 $ 117,755
Miscellaneous income - net 4,571 4,141 7,282 7,207
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73,390 67,477 131,035 124,962
Cost and expenses:
Cost of products sold 47,290 43,628 84,319 81,125
Selling, administrative and general expenses 22,832 21,931 43,609 42,125
Interest expense 746 701 1,495 1,379
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70,868 66,260 129,423 124,629
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Income before income taxes 2,522 1,217 1,612 333
Provision for income taxes 1,055 399 655 52
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Net Income $ 1,467 $ 818 $ 957 $ 281
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Net Income per common share
(Basic and Diluted) $ 0.67 $ 0.37 $ 0.44 $ 0.13
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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>
Six Months Ended
June 30,
1998 1997
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<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 957 $ 281
Adjustments To Reconcile Net Income To Net Cash Provided By (Used In) Operating
Activities:
Depreciation and amortization 1,255 1,116
Gain on sale of property, plant and equipment (175) (3)
Deferred tax asset 388 15
Changes in operating assets and liabilities:
Accounts receivable, net (3,227) (3,664)
Inventories 1,412 (1,761)
Prepaid expenses (52) 1,349
Accounts payable and accrued expenses (2,162) 4,974
Salaries, wages and commissions (589) (583)
Taxes, other than income tax 349 43
Federal and state taxes on income (808) --
Deferred revenue (934) 1
Other accrued liabilities (511) (271)
Other 136 188
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Total Adjustments (4,918) 1,404
Net Cash Provided By (Used In) Operating Activities (3,961) 1,685
Cash Flows From Investing Activities:
Capital expenditures (1,680) (1,316)
Proceeds from disposals of property, plant and equipment 228 29
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Net Cash Used In Investing Activities (1,452) (1,287)
Cash Flows From Financing Activities:
Long-term debt paid -- --
Short-term debt - Majority Shareholder 5,078 (473)
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Net Cash Provided By (Used In)Financing Activities $ 5,078 $ (473)
Net Decrease In Cash (335) (75)
Beginning Cash 1,110 682
Ending Cash $ 775 $ 607
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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 $22.1 million at June 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
$1,537,000 in the Second Quarter of 1998, compared to $1,223,000 in the Second
Quarter of 1997 and $2,914,000 for the six months ended June 30, 1998 compared
to $2,440,000 for the same period of 1997.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Second Quarter 1998 Compared To Second Quarter 1997
Net sales for the quarter ended June 30, 1998 were up $5.5 million to
$68,819,000 from $63,336,000 for the same period of 1997. On a same location
basis, sales were up 11.3% for the retail segment and 7.5% for the commercial
segment. Sales increases were achieved in all product categories as a result of
a strong economy, strength in the trucking and construction industries, high
levels of consumer confidence and a late lawn and garden selling season delayed
due to cool, wet spring weather experienced in the first quarter.
Miscellaneous income increased $430,000 primarily due to increased
finance charge income received through the Company's retail installment credit
program as a result of increased retail installment sales.
The gross margin rate increased slightly to 31.3% for the second
quarter of 1998 from 31.1% for the same period of 1997.
The company recorded net revenue from the sale of extended warranty
contracts of $1,537,000 in the second quarter of 1998 compared to $1,223,000 in
the same period of 1997. For further discussion see Note F of Notes to Financial
Statements included elsewhere in this report.
Selling, administrative and general expenses increased $901,000
primarily due to increases in employee compensation and benefit related
expenses. However, as a percentage of sales, these expenses decreased to 33.2%
for the 1998 second quarter from 34.6% for the 1997 second quarter.
Interest expense increased to $746,000 for the second quarter of 1998
compared to $701,000 for the same period of 1997 primarily due to higher average
outstanding short-term borrowings.
The Company recorded net income of $1,467,000 or $.67 per share (Basic
and Diluted) for the second quarter of 1998 compared to net income of $818,000
or $.37 per share (Basic and Diluted) for the second quarter of 1997.
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First Half 1998 Compared to First Half 1997
Net sales for the six-month period ended June 30, 1998 increased $6.0
million to $123,753,000 from $117,755,000 for the same period of 1997. On a same
location basis, commercial sales were up 6.1% and retail sales were up 3.3%.
Sales increases were realized in all product categories for both the retail and
commercial segments.
Miscellaneous income was up slightly for the six-month period to
$7,282,000 compared to $7,207,000 for the 1997 six-month period.
The gross margin rate increased to 31.9% for the first half of 1998
from 31.1% for the same period of 1997.
The company recorded net revenue from the sale of extended warranty
contracts of $2,914,000 for the six-month period ended June 30, 1998 compared to
$2,440,000 for the same period of 1997. For further discussion see Note F of
Notes to Financial Statements included elsewhere in this report.
Selling, administrative and general expenses increased $1.5 million for
the first half of 1998 compared to the first half of 1997 primarily due to
increased expenses associated with employee compensation and benefits. However,
as a percentage of sales, these expenses decreased to 35.2% for the first half
of 1998 compared to 35.8% for the first half of 1997.
Interest expense increased $116,000 for the 1998 first half compared to
the 1997 first half due to slightly higher short-term borrowing rates and higher
average outstanding short-term borrowings.
The Company's effective tax rate for the first half of 1998 was 40.6%
compared to 15.6% for the first half of 1997. The 1997 tax expense includes
adjustments for the difference between the income tax provision recorded in 1996
and the actual liability on the 1996 tax return filed in 1997.
The Company recorded net income of $957,000 or $.44 per share (Basic
and Diluted) for the first half of 1998 compared to net income of $281,000 or
$.13 per share (Basic and Diluted) for the first half of 1997.
Financial Position
Net cash used in operating activities for the first half of 1998 was
$4.0 million. Increased accounts receivable of $3.2 million combined with lower
accounts payable and accrued expenses of $2.2 million was partially offset by
decreased inventory balances of $1.4 million.
Net cash used in investing activities of $1.5 million was principally
for capital equipment.
Financing activities reflect a net increase in short-term borrowings of
$5.1 million which was used 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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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 75%
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.
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.
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Comparative Sales Table
(Amounts In Thousands)
COMMERCIAL SALES BY PRODUCT LINE
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
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1998 1997 %VARIANCE 1998 1997 %VARIANCE
---- ---- --------- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
New Tires $20,279 $18,732 8.3% $36,594 $34,426 6.3%
Retreading 11,189 10,571 5.8% 20,575 19,781 4.0%
Service 7,564 6,864 10.2% 13,906 12,955 7.3%
Rubber Products 2,894 2,853 1.4% 5,936 5,409 9.7%
------- ------- ------- -------
Total $41,926 $39,020 7.4% $77,011 $72,571 6.1%
======= ======= ======= =======
</TABLE>
RETAIL SALES BY PRODUCT LINE
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------------------- --------------------------------------
1998 1997 %VARIANCE 1998 1997 %VARIANCE
---- ---- --------- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Hard Goods $13,216 $11,286 17.1% $20,764 $20,244 2.6%
New Tires 6,012 5,804 3.6% 11,433 10,998 4.0%
Retreading 126 119 5.9% 242 228 6.1%
Service 7,539 7,107 6.1% 14,303 13,714 4.3%
------- ------- ------- -------
Total $26,893 $24,316 10.6% $46,742 $45,184 3.4%
======= ======= ======= =======
</TABLE>
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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: October 14, 1998 By: /s/ R. J. Carr
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R. J. Carr, Vice President - Finance
and Chief Financial Officer
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