MOUNT GILEAD, N.C., March 14 /PRNewswire-FirstCall/ -- McRae Industries, Inc. (Pink Sheets: MRINA and MRINB) reported consolidated net revenues from operations for the second quarter of fiscal 2007 of $17,123,000 as compared to $20,424,000 for the second quarter of fiscal 2006. Net earnings for the second quarter of fiscal 2007 amounted to $806,000, or $.38 per diluted Class A common share as compared to net earnings of $1,276,000, or $.55 per diluted Class A common share, for the second quarter of fiscal 2006.
Consolidated net revenues from operations for the first six months of fiscal 2007 totaled $34,688,000 as compared to $38,984,000 for the first six months of fiscal 2006. Net earnings for the first six months of fiscal 2007, excluding net earnings attributable to the sale of our Florida property, amounted to $1,370,000, or $.67 per diluted Class A common share as compared to net earnings of $2,371,000, or $1.00 per diluted Class A common share, for the first six months of fiscal 2006. The sale of the Florida property contributed net earnings of $860,000 or $.33 per diluted Class A common share for the first six months of fiscal 2007.
SECOND QUARTER FISCAL 2007 COMPARED TO SECOND QUARTER FISCAL 2006
Consolidated net revenues for the second quarter of fiscal 2007 totaled $17.1 million, down from $20.4 million for the second quarter of fiscal 2006. This decline in net revenues was primarily attributable to reduced U. S. Government requirements for military combat boots, a soft market for western boots, and lower than anticipated sales of our MAT bar code product.
Consolidated gross profit for the second quarter of fiscal 2007 amounted to $5.1 million as compared to $5.7 million for the second quarter of fiscal 2006. This reduction in gross profit resulted primarily from the decline in net revenues, which was partially offset by improved gross profit margins related to the predominance of higher margin western and work boot products in the overall sales mix.
Consolidated operating costs and expenses for the second quarter of fiscal 2007 were $3.9 million as compared to $4.0 million for the second quarter of fiscal 2006. Reduced research and development costs and employee benefit charges were partially offset by increased royalty payments, group health insurance costs, and sales compensation related expenditures.
As a result of the above, consolidated operating profit fell from $1.7 million for the second quarter of fiscal 2006 to $1.3 million for the second quarter of fiscal 2007.
Bar Code Business
Net revenues for the bar code business decreased from $3.4 million for the second quarter of fiscal 2006 to $2.7 million for the second quarter of fiscal 2007 as demand for our system sales and related hardware fell for the second quarter. Sales of our mature manufactured products were better than expected. Sales of our new MAT product fell short of our expectations, primarily the result of performance issues related to the pistol grip model. We expect these issues to be resolved early in the third quarter.
Gross profit for the second quarter of fiscal 2007 totaled $685,000 as compared to $714,000 for the second quarter of fiscal 2006. This decrease in gross profit resulted primarily from lower net revenues, partially offset by improved gross margins due to higher margin manufactured products comprising a greater portion of the overall sales mix.
Operating costs and expenses declined from $1.1 million for the second quarter of fiscal 2006 to $1.0 million for the second quarter of fiscal 2007 primarily attributable to reduced research and development expenditures.
As a result of the above, the operating loss for the second quarter of fiscal 2007 amounted to $348,000 as compared to $389,000 for the second quarter of fiscal 2006.
Military Boot Business
Net revenues for the military boot business totaled $4.2 million for the second quarter of fiscal 2007, down from $6.4 million for the second quarter of fiscal 2006 primarily attributable to reduced military boot requirements for the U. S. Government (the "Government") and the completion of our Israeli military boot contract.
Before our most recent contract with the Government expired at the end of September 2006, the Government ordered a quantity of military boots to cover the remainder of our current fiscal year under current production levels. The Government has issued several solicitations for new contracts to produce military boots. We have submitted bids related to several of these solicitations and expect to be successful in being awarded a contract or multiple contracts to produce military boots for the Government. However, as of the date of this report, we have not received a contract from the Government and there can be no assurance that we will be awarded a contract to continue producing military boots for the Government.
Gross profit for the second quarter of fiscal 2007 amounted to $855,000 as compared to $1.12 million for the second quarter of fiscal 2006. The decline in gross profit was primarily the result of lower net revenues. Gross profit as a percentage of net revenues grew from 17% for the second quarter of fiscal 2006 to 20% for the second quarter of fiscal 2007 primarily the result of lower per unit manufacturing costs.
Operating costs and expenses were down approximately $100,000 for the second quarter of fiscal 2007 as compared to the second quarter of fiscal 2006 as a result of lower allocated corporate charges (primarily the result of reduced professional fees and compliance and reporting costs) and employee benefit costs.
As a result of the above, the operating profit for the second quarter of fiscal 2007 totaled $603,000 as compared to $766,000 for the second quarter of fiscal 2006.
Western and Work Boot Business
Net revenues for the western and work boot business fell approximately 3%, from $10.5 million for the second quarter of fiscal 2006 to $10.1 million for the second quarter of fiscal 2007 as the market for western boot products, particularly ladies fashion boots, turned soft. The decline in the western boot revenues was partially offset by exceptionally strong demand for our John Deere licensed boot products. The soft market for western boots is expected to have a negative impact on revenues for the remainder of this fiscal year.
Gross profit for the second quarter of fiscal 2007 amounted to $3.55 million as compared to $3.70 million for the second quarter of fiscal 2006. The decrease in gross profit resulted primarily from the decline in net revenues as gross margins for both quarters approximated 35%.
Operating costs and expenses increased from $2.38 million for the second quarter of fiscal 2006 to $2.57 million for the second quarter of fiscal 2007 primarily the result of higher royalty payments, product promotion costs, trade show travel costs, and professional fees, which were partially offset by reduced employee benefit charges.
As a result of the above, operating profit fell from $1.3 million for the second quarter of fiscal 2006 to $1.0 million for the second quarter of fiscal 2007.
FIRST SIX MONTHS FISCAL 2007 COMPARED TO FIRST SIX MONTHS FISCAL 2006
Consolidated net revenues for the first six months of fiscal 2007 totaled $34.7 million as compared to $39.0 million for the first six months of fiscal 2006. This decline in net revenues resulted primarily from reduced requirements by the Government for military boots and lower than anticipated sales of our MAT bar code product.
Consolidated gross profit for the first six months of fiscal 2007 fell approximately 6%, from $10.9 million for the first six months of fiscal 2006 to $10.2 million for the current six-month period. This decrease in gross profit resulted primarily from the decline in net revenues. Gross profit margins increased from 28% for the first six months of fiscal 2006 to 29% for the same period of fiscal 2007 primarily attributable to a larger concentration of higher margin western and work boot products in the overall sales mix.
Consolidated operating costs and expenses totaled approximately $7.7 million for the first six months of both fiscal 2007 and 2006. Increased expenditures for royalties, sales related compensation, facility rentals, travel costs, product promotion activities, and group health insurance charges were offset by lower outlays for research and development, professional fees, compliance related costs, and employee benefit charges.
As a result of the above, consolidated operating profit amounted to $2.5 million for the first six months of fiscal 2007 as compared to $3.25 million for the first six months of fiscal 2006.
Bar Code Business
Net revenues for the bar code business were $6.7 million for the first six months of fiscal 2007 as compared to $7.4 million for the first six months of fiscal 2006. This decline was primarily attributable to lower requirements for peripheral equipment related to our system hardware sales and disappointing performance of our new MAT product.
Gross profit fell from $1.6 million for the first six months of fiscal 2006 to $1.5 million for the first six months of fiscal 2007 as a result of the decrease in net revenues over the comparative six-month fiscal periods.
Operating costs and expenses decreased from $2.1 million for the first six months of fiscal 2006 to $2.0 million for the first six months of fiscal 2007. This reduction in operating costs and expenses was primarily the result of lower research and development costs and product promotion expenses, which were partially offset by increased group health insurance costs.
As a result of the above, the operating loss for the first six months of fiscal 2007 amounted to $456,000 as compared to an operating loss of $516,000 for the first six months of fiscal 2006.
Military Boot Business
Net revenues for the military boot business for the first six months of fiscal 2007 totaled $7.4 million as compared to $11.1 million for the first six months of fiscal 2006. This decline in net revenues resulted primarily from lower military combat boot requirements for the Government. The completion of the Israeli military boot contract also contributed to net revenue decline for the comparative six-month periods.
Gross profit fell approximately $700,000 from $1.9 million for the first six months of fiscal 2006 to $1.2 million for the first six months of fiscal 2007 primarily attributable to the decline in net revenues.
Operating costs and expenses fell for the first six months of fiscal 2007 to $434,000 as compared to $697,000 for the first six months of fiscal 2006 as a result of lower employee benefit costs and corporate allocated charges.
As a result of the above, operating profit for the first six months of fiscal 2007 amounted to $777,000 as compared to $1.2 million for the first six months of fiscal 2006.
Western and Work Boot Business
Net revenues for the western and work boot business for the first six months of fiscal 2007 totaled $20.6 million as compared to $20.3 million for the first six months of fiscal 2006. Sales of our John Deere boot products exceeded our budget forecasts and partially offset the impact of a soft western boot market caused by the decline in demand for ladies western boots.
Gross profit grew to $7.4 million for the first six months of fiscal 2007, up from $7.2 million for the first six months of fiscal 2006. This improvement in gross profit resulted primarily from the increase in net revenues as gross profit as a percentage of net revenues remained steady at 35% for both fiscal six-month periods.
Operating costs and expenses increased from $4.6 million for the first six months of fiscal 2006 to $5.2 million for the first six months of fiscal 2007. The expansion of our John Deere boot product operations was responsible for a large portion of the increase in operating expenses as sales compensation, royalty payments, product promotion related expenses, and facility costs grew in relation to the same period of fiscal 2006. These increases along with higher professional fees and group health insurance costs were partially offset by lower employee benefit costs.
As a result of the above, the operating profit for the first six months of fiscal 2007 totaled $2.2 million as compared to $2.6 million for the first six months of fiscal 2006.
FINANCIAL CONDITION AND LIQUIDITY
Our financial condition maintained its solid position at January 27, 2007. Cash and cash equivalents totaled $6.5 million as compared to $8.5 million at July 29, 2006. Our working capital improved from $27.9 million at July 29, 2006 to $28.6 million at January 27, 2007.
We currently maintain three lines of credit with a bank totaling $7.75 million, all of which was available at January 27, 2007. 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 2008. We have two $3.0 million lines of credit, one expires in November 2007 and the other expires in December 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 the remainder of fiscal 2007.
For the first six months of fiscal 2007, operating activities used approximately $1.3 million of cash. Net earnings, adjusted for depreciation and a $1.1 million gain on the sale of our Palm Bay property, provided $1.45 million of cash. Accounts and notes receivable, as adjusted for valuation allowances, used approximately $4.1 million of cash, primarily attributable to the timing of collection on Government and western boot business receivables. Reduced inventory levels primarily associated with high seasonal sales of western and work boot products provided approximately $1.5 million of cash.
Investing activities for the first six months of fiscal 2007 used approximately $368,000 of cash. Proceeds from the sale of the Palm Bay property were used to purchase several tracts of land in North Carolina for investment purposes. This transaction is being treated as a "like-kind exchange" for income tax reporting purposes. Capital expenditures used approximately $200,000 for various manufacturing, office and computer equipment.
Dividend payments for the first six months of fiscal 2007 used $339,000 of cash.
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
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
January 27, July 29,
2007 2006
ASSETS
Current assets:
Cash and cash equivalents $6,460 $8,461
Accounts and notes receivable, net 12,158 8,054
Inventories, net 14,300 15,835
Income tax receivable 461 815
Prepaid expenses and other current assets 317 127
Total current assets 33,696 33,292
Property and equipment, net 2,064 2,509
Other assets:
Notes receivable 35 37
Real estate held for investment 3,066 1,468
Amount due from split-dollar life insurance 2,220 2,220
Trademarks 2,824 2,824
Other 4 5
Total other assets 8,149 6,554
Total assets $43,909 $42,355
McRae Industries, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
January July 29,
27, 2007 2006
Liabilities and Shareholders' Equity
Current liabilities:
Accounts Payable $2,955 $2,923
Accrued employee benefits 244 602
Accrued payroll and payroll taxes 984 1,014
Other 904 885
Total current liabilities 5,087 5,424
Shareholders' equity:
Common Stock:
Class A, $1 par; Authorized 5,000,000 shares;
Issued and outstanding 2,116,751 shares 2,117 2,117
Class B, $1 par; Authorized 2,500,000 shares;
Issued and outstanding 457,603 458 458
Retained earnings 36,247 34,356
Total shareholders' equity 38,822 36,931
Total liabilities and shareholders' equity $43,909 $42,355
McRae Industries, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
Three Months Ended Six Months Ended
January January January January
27, 2007 28, 2006 27, 2007 28, 2006
Net revenues $17,123 $20,424 $34,688 $38,984
Cost of revenues 12,001 14,773 24,483 28,049
Gross profit 5,122 5,651 10,205 10,935
Less: Operating costs
and expenses:
Research & development 152 256 289 447
Selling, general and
administrative expenses 3,707 3,733 7,417 7,241
Earnings from operations 1,263 1,662 2,499 3,247
Other expense (income), net (127) (301) (1,304) (405)
Interest expense 3 3 5 7
Earnings before income taxes 1,387 1,960 3,798 3,645
Provision for income taxes 581 684 1,568 1,274
Net earnings $806 $1,276 $2,230 $2,371
Earnings per common share:
Basic earnings per share:
Class A $.46 $.68 $1.21 $1.24
Class B 0 0 0 0
Diluted earnings per share:
Class A .38 .55 1.00 1.00
Class B N/A N/A N/A N/A
Weighted average number of
common shares outstanding:
Class A 2,116,751 2,132,266 2,116,751 2,186,553
Class B 457,603 510,858 457,603 519,258
Total 2,574,354 2,643,124 2,574,354 2,705,811
McRae Industries, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
January 27, January 28,
2007 2006
Net cash (used in) provided by
operating activities $(1,294) $504
Cash flows from investing activities:
Proceeds from sales of assets 1,428 1,427
Purchase of land for investment (1,598) 0
Capital expenditures (200) (221)
Net collections of long-term receivables 2 5
Net cash (used in) provided by
investing activities (368) 1,211
Cash flows from financing activities:
Purchase of company stock 0 (2,780)
Principal repayments of notes payable 0 (174)
Dividends paid (339) (346)
Net cash used in financing activities (339) (3,300)
Net decrease in cash and cash equivalents (2,001) (1,585)
Cash and cash equivalents at beginning
of period 8,461 9,238
Cash and cash equivalents at end of period $6,460 $7,653
