MOUNT GILEAD, N.C., Nov. 17 /PRNewswire-FirstCall/ -- McRae Industries, Inc. (Pink Sheets: MRINA; MRINB) reported consolidated net revenues from continuing operations for fiscal 2006 of $68,852,000 as compared to $62,404,000 for fiscal 2005. Net earnings from continuing operations for fiscal 2006 amounted to $3,390,000 compared to net earnings from continuing operations of $1,574,000 for fiscal 2005. Net earnings for fiscal 2006 totaled $3,390,000, or $1.54 per diluted Class A common share as compared to net earnings of $3,444,000, or $1.46 per diluted Class A common share for fiscal 2005. Earnings per share were favorably impacted by the reduction in outstanding shares resulting from the completion of the reverse/forward stock split in December 2005. Approximately 194,000 common shares were purchased in the transaction for approximately $2.8 million.
CONSOLIDATED RESULTS OF CONTINUING OPERATIONS, FISCAL 2006 COMPARED TO FISCAL 2005
Consolidated net revenues from continuing operations for fiscal 2006 grew to $68.9 million, up 10.3% from $62.4 million for fiscal 2005. This improvement in consolidated net revenues was primarily attributable to continued fashion trend demand for western and work boots products, which was partially offset by reduced requirements for military combat boots for the U.S. Government.
Consolidated gross profit from continuing operations climbed to $19.2 million for fiscal 2006 as compared to $14.7 million for fiscal 2005 primarily attributable to increased net revenues and a greater proportion of higher margin western boot products in the overall sales mix.
Selling, general and administrative ("SG&A"), including research and development costs ("R&D") totaled $14.1 million for fiscal 2006 as compared to $12.3 million for fiscal 2005. This increase in SG&A costs was primarily attributable to support costs associated with the expansion of our western and work boot business. These costs were partially offset by lower SG&A expenditures in our bar code and military boot businesses, primarily related to reduced corporate overhead expense charges.
As a result of the above, operating profit from continuing operations amounted to $5.2 million for fiscal 2006 as compared to $2.5 million for fiscal 2005.
BAR CODE UNIT RESULTS OF OPERATIONS, FISCAL 2006 COMPARED TO FISCAL 2005
Compsee is a manufacturer and distributor of bar code reading and printing devices, other peripheral equipment, and supplies related to optical data collection. Compsee markets, sells, and services its products through sales centers located throughout the United States. Compsee continues to explore new markets throughout the United States and other parts of the world.
Net revenues grew from $11.6 million for fiscal 2005 to $12.6 million for fiscal 2006, primarily the result of increased system hardware and related peripheral equipment sales. Sales of our current manufactured products fell for the current year, primarily the result of declining life cycles of mature products and late market introduction of the new MAT product. Competition in the bar code market continues to be intense.
Gross profit was approximately $3.1 million for both fiscal 2006 and 2005. The gross margin associated with increased net revenues was largely offset by the predominance of lower margin purchased products in the overall sales mix as gross margin, as a percentage of net revenues, fell from 26% for fiscal 2005 to 25% for fiscal 2006.
SG&A expenses for fiscal 2006 totaled $4.4 million as compared to $4.7 million for fiscal 2005. This reduction in SG&A expenses was primarily the result of lower R&D costs and corporate overhead allocations, which were partially offset by higher sales compensation expenses and the write-off of impaired goodwill.
As a result of the above, the operating loss for fiscal 2006 amounted to $1.2 million as compared to an operating loss of $1.6 million for fiscal 2005.
MILITARY BOOT UNIT RESULTS OF OPERATIONS, FISCAL 2006 COMPARED TO FISCAL 2005
Our military boot unit manufactures and distributes military combat boots primarily to the U. S. Government (the "Government"), foreign governments, and selected commercial surplus outlets.
Net revenues for the military boot business for fiscal 2006 amounted to $19.8 million as compared to $26.8 million for fiscal 2005. This decline in net revenues was primarily attributable to reduced military combat boot requirements for the Government and the expiration of our military boot contract with the Israeli government during the second quarter of fiscal 2006.
Gross profit for fiscal 2006 totaled $3.2 million, down from $3.4 million for fiscal 2005. This 7% decline in gross profit was primarily the result of lower net revenues. Gross profit as a percentage of net revenues grew from 13% for fiscal 2005 to 16% for fiscal 2006, partially offsetting the lower net revenue impact on gross profit. This gross margin improvement resulted from lower per unit costs related to reduced usage of higher cost subcontract labor, benefits from reduced LIFO inventory reserves and an economic price adjustment related to contract leather costs.
SG&A expenses for fiscal 2006 decreased nearly $1.0 million, down from $2.2 million for fiscal 2005 to $1.2 million for fiscal 2006, primarily the result of reduced corporate allocated charges related to lower expenditures for group health insurance and professional fees.
As a result of the above, the operating profit amounted to $2.0 million as compared to $1.3 million for fiscal 2005.
WESTERN AND WORK BOOT UNIT RESULTS OF OPERATIONS, FISCAL 2006 COMPARED TO FISCAL 2005
Our western and work boot business imports and sells various boot styles for men, women and children for dress and casual wear.
Net revenues for the western and work boot business amounted to $35.1 million for fiscal 2006 as compared to $23.6 million for fiscal 2005. This growth in net revenues was primarily attributable to the fashion cycle impact for the full fiscal year as compared to a partial year in fiscal 2005. This fashion cycle is expected to weaken in fiscal 2007.
Gross profit for fiscal 2006 totaled $12.3 million as compared to $7.9 million for fiscal 2005. This improvement in gross profit resulted primarily from the increase in net revenues. Gross profit as a percentage of net revenues grew by two percentage points as a result of the contribution of higher margin imported boots.
SG&A expenses were $8.1 million for fiscal 2006 as compared to $5.3 million for fiscal 2005. This increase in sales and support costs was the result of larger expenditures for sales salaries and commissions, advertising and marketing costs, bad debt provisions, employee benefit costs and corporate allocation charges. These expenses were partially offset by reduced professional fee costs.
As a result of the above, the operating profit for fiscal 2006 totaled $4.2 million as compared to $2.6 million for fiscal 2005.
FINANCIAL CONDITION AND LIQUIDITY
Our financial condition remained strong at July 29, 2006 as cash and cash equivalents totaled approximately $8.5 million as compared to $9.2 million at July 30, 2005. Working capital increased slightly, from $27.0 million at July 30, 2005 to $27.9 million at July 29, 2006.
We currently have two lines of credit with a bank totaling $4.75 million, all of which was available at July 29, 2006. One credit line totaling $1.75 million (which is restricted to one hundred percent of the outstanding receivables due from the U.S. Government) expires in January 2007. The $3.0 million credit line expires in November 2007.
We believe that our current cash and cash equivalents, cash generated from operations, and available credit lines will be sufficient to meet our capital requirements for fiscal 2007.
Net cash provided by operating activities for fiscal 2006 amounted to approximately $1.8 million. Net earnings, adjusted for depreciation and goodwill impairment charges, contributed $4.3 million of cash. Trade accounts and notes receivable provided approximately $800,000 of cash primarily the result of lower end of quarter sales for the military boot and bar code businesses. The increase in inventory levels, primarily associated with the seasonal build up of western and work boots, used approximately $3.1 million of cash. Reduced accounts payable levels used approximately $900,000 of cash primarily attributable to the timing of payments for large inventory purchases. The timing of payment of higher sales commissions related to the western and work boot business provided an additional $331,000 of cash.
Net cash provided by investing activities amounted to approximately $1.0 million. Proceeds from the sale of our office products business and the sale of the Waverly, Tennessee manufacturing plant provided approximately $1.4 million of cash. Capital expenditures for manufacturing equipment, computer upgrades, and office furnishings totaled $410,000.
Financing activities used approximately $3.6 million of cash primarily for the repurchase of company stock related to our reverse/forward stock split transaction ($2.76 million), the early retirement of notes payable related to our western boot business ($174,000), and dividend payments ($680,000).
Forward-Looking Statements
This press release includes certain forward-looking statements. Important factors that could cause actual results or events to differ materially from those projected, estimated, assumed or anticipated in any such forward-looking statements include: the effect of competitive products and pricing, risks unique to selling goods to the Government (including variation in the Government's requirements for our products and the Government's ability to terminate its contracts with vendors), loss of key customers, acquisitions, supply interruptions, additional financing requirements, our expectations about future Government orders for military boots, loss of key management personnel, our ability to successfully develop new products and services, and the effect of general economic conditions in our markets.
McRae Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands)
July 29, July 30,
ASSETS 2006 2005
Current assets:
Cash and cash equivalents $8,461 $ 9,238
Accounts receivable, less allowances of
$743,000 and $734,000, respectively 8,049 9,749
Notes receivable, current portion 5 9
Inventories 15,835 12,721
Income tax receivable 815 840
Prepaid expenses and other current assets 127 159
Asset held for sale - Waverly Plant 0 325
Total current assets 33,292 33,041
Property and equipment, net 2,509 2,640
Other assets:
Notes receivable, net of current portion 37 36
Real estate held for investment 1,468 1,882
Goodwill 0 362
Amount due from split-dollar life insurance 2,220 2,220
Trademarks 2,824 2,824
Other 5 5
Total other assets 6,554 7,329
Total assets $42,355 $ 43,010
McRae Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands)
July 29, July 30,
2006 2005
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable, banks $0 $174
Accounts payable 2,923 3,793
Accrued employee benefits 602 480
Accrued payroll and payroll taxes 1,014 683
Other 885 894
Total current liabilities 5,424 6,024
Shareholders' equity:
Common Stock:
Class A, $1 par value; authorized
5,000,000 shares; issued and outstanding,
2,116,751 and 2,240,841 shares, respectively 2,117 2,241
Class B, $1 par value; authorized 2,500,000
shares; issued and outstanding, 457,603 and
527,658 shares, respectively 458 527
Additional paid-in capital 0 791
Retained earnings 34,356 33,427
Total shareholders' equity 36,931 36,986
Total liabilities and shareholders' equity $ 42,355 $ 43,010
McRae Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
July 29, July 30, July 31,
For Years Ended 2006 2005 2004
Net revenues $68,852 $62,404 $70,496
Cost of revenues 49,609 47,681 55,512
Gross profit 19,243 14,723 14,984
Selling, general and administrative
expenses 14,060 12,266 10,613
Operating profit from continuing
operations 5,183 2,457 4,371
Other income, net 409 78 329
Interest expense (13) (44) (144)
Earnings from continuing operations
before income Taxes and minority
interest 5,579 2,491 4,556
Provision for income taxes 2,189 917 1,352
Minority interest 0 0 2
Net earnings from continuing
operations 3,390 1,574 3,206
Discontinued operations:
Loss from discontinued operations,
net of income tax benefit of
$(161,000) and $(72,000) for 2005
and 2004. 0 (274) (197)
Gain on sale of business, net of
income tax provision of $1,341,000 0 2,144 0
Net earnings $3,390 $3,444 $3,009
Earnings per common share:
Earnings per common share from
continuing operations:
Basic earnings per share:
Class A $1.90 $1.09 $1.90
Class B 0 0 0
Diluted earnings per share:
Class A 1.54 .79 1.32
Class B NA NA NA
Earnings per common share from
discontinued operations:
Basic earnings per share:
Class A 0 .94 (.10)
Class B 0 0 0
Diluted earnings per share:
Class A 0 .67 (.07)
Class B NA NA NA
Net earnings per common share:
Basic earnings per share:
Class A 1.90 2.03 1.80
Class B 0 0 0
Diluted earnings per share:
Class A 1.54 1.46 1.25
Class B NA NA NA
Weighted average number of common
shares outstanding:
Class A 2,147,827 1,993,172 1,929,965
Class B 492,323 775,327 838,534
Total 2,640,150 2,768,499 2,768,499
McRae Industries, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
July 29, July 30, July 31,
For Years Ended 2006 2005 2004
Cash Flows from Operating Activities:
Net earnings $3,390 $3,444 $3,009
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Net earnings (loss) from discontinued
operations - (1,870) 197
Depreciation and amortization 543 569 530
Goodwill impairment 362 - -
Minority shareholders' interest in loss
of subsidiary - - (2)
Gain on sale of assets (214) 138 (73)
Changes in operating assets and
liabilities:
Accounts receivable 796 1,101 (3,472)
Accounts receivable valuation
allowances 10 395 (92)
Inventories (3,114) 2,089 (1,893)
Prepaid expenses and other current
assets 446 (38) (139)
Accounts payable (870) (879) 2,093
Accrued employee benefits 122 (44) 97
Accrued payroll and payroll taxes 331 (182) (38)
Income taxes 25 (164) 41
Working capital changes associated with
discontinued operations - (994) 236
Other (10) (155) 23
Net cash provided by operating
activities 1,817 3,410 517
Cash Flows from Investing Activities:
Proceeds from sale of discontinued
operations 894 9,900 -
Proceeds from sale of property 537 12 142
Purchase of other assets - (460) -
Purchase of trademarks - (1,775) -
Purchase of minority interest - - (85)
Capital expenditures (410) (193) (1,370)
Collections on notes receivable 3 16 68
Net cash provided by (used in)
investing activities 1,024 7,500 (1,245)
Cash Flows from Financing Activities:
Purchase of common stock (2,764)
Proceeds from bank loan - - 401
Principal repayments of long-term debt (174) (3,529) (582)
Dividends paid (680) (606) (463)
Net cash used in financing activities (3,618) (4,135) (644)
Net (Decrease) Increase in Cash and
Cash Equivalents (777) 6,775 (1,372)
Cash and Cash Equivalents at Beginning
of Year 9,238 2,463 3,835
Cash and Cash Equivalents at End of Year $8,461 $9,238 $2,463
Note: Accounts receivable for fiscal 2005 contains a non-cash activity in
the amount of $894,000 related to the sale of our office products
business.
