MOUNT GILEAD, N.C., June 27 /PRNewswire-FirstCall/ -- McRae Industries, Inc. (Pink Sheets: MRINA, MRINB) reported consolidated net revenues from operations for the third quarter of fiscal 2007 of $16,227,000 as compared to $17,122,000 for the third quarter of fiscal 2006. Net earnings for the third quarter of fiscal 2007 amounted to $430,000, or $.23 per diluted Class A common share as compared to net earnings of $1,137,000, or $.51 per diluted Class A common share, for the third quarter of fiscal 2006.
Consolidated net revenues from operations for the first nine months of fiscal 2007 totaled $50,915,000 as compared to $56,106,000 for the first nine months of fiscal 2006. Net earnings for the first nine months of fiscal 2007, excluding net earnings attributable to the sale of our Florida property amounted to $1,800,000, or $.91 per diluted Class A common share as compared to net earnings of $3,508,000, or $1.51 per diluted Class A common share, for the first nine months of fiscal 2006. The sale of the Florida property contributed net earnings of $860,000 or $.32 per diluted Class A common share for the first nine months of fiscal 2007.
THIRD QUARTER FISCAL 2007 COMPARED TO THIRD QUARTER FISCAL 2006
Consolidated net revenues for the third quarter of fiscal 2007 amounted to $16.2 million as compared to $17.1 million for the third quarter of fiscal 2006. This decline in net revenues was primarily attributable to reduced sales of bar code products and military combat boots to the U.S. Government ("Government"). Increased sales of western and work boot products partially offset the decline in net revenues.
Consolidated gross profit totaled $4.5 million for the third quarter of fiscal 2007, down from $4.8 million for the third quarter of fiscal 2006 primarily attributable to reduced net revenues for the bar code and military boot business that was partially offset by higher net revenues for the western and work boot business. Gross profit, as a percentage of net revenues, slipped from 28.3% for the third quarter of fiscal 2006 to 27.8% for the third quarter of fiscal 2007, primarily attributable to lower margins in the bar code and western and work boot businesses.
Consolidated operating costs and expenses, including research and development costs, amounted to $3.8 million for the third quarter of fiscal 2007 as compared to $3.3 million for the third quarter of fiscal 2006. This increase in operating costs and expenses related primarily to a number of additional sales support costs associated with our western and work boot business, higher group health insurance payments, and facility renovation costs, which were partially offset by lower research and development costs and employee benefit charges.
As a result of the above, the consolidated operating profit for the third quarter of fiscal 2007 totaled $670,000 as compared to $1.5 million for the third quarter of fiscal 2006.
Bar Code Business
Net revenues for the bar code business for the third quarter of fiscal 2007 were approximately $2.3 million, down from $2.6 million for the third quarter of fiscal 2006 as demand for our new MAT bar code product continued to be less than expected. Revenues generated by purchased product sales grew for the third quarter of fiscal 2007, partially offsetting the downward revenue impact of our manufactured products lines. As a result of the poor market acceptance of the MAT product, we are currently assessing our product mix in an effort to develop a business model that will enable this business unit to generate significantly higher net revenues in the future.
Gross profit fell from $763,000 for the third quarter of fiscal 2006 to $520,000 for the third quarter of fiscal 2007, primarily the result of lower net revenues coupled with reduced profit margins attributable to a larger concentration of lower margin purchased products in the overall sales mix.
Operating costs and expenses, including research and development costs, amounted to approximately $1.1 million for the third quarter of fiscal 2007 and 2006, respectively. Reduced advertising and marketing expenditures and research and development costs offset increased group health insurance costs.
As a result of the above, the net operating loss for the third quarter of fiscal 2007 totaled $531,000 as compared to a net operating loss of $308,000 for third quarter of fiscal 2006.
Military Boot Business
Net revenues for the military boot business totaled $5.1 million for the third quarter of fiscal 2007 as compared to $5.9 million for the third quarter of fiscal 2006. This decline in net revenues was attributable to lower military combat boot requirements related to the completion of former military boot contract with the U. S. Government ("Government") in September 2006.
In May 2007 we were awarded a new contract to produce direct molded sole military combat boots for the Government that provides for a base period and four one-year option periods. The Contract base period, which runs from May 16, 2007 to May 15, 2008, provides for a minimum boot requirement of 84,731 pairs and a maximum boot requirement of 346,837 pairs. Each of the four one- year option periods provides for a minimum and maximum boot requirement of 64,156 pairs and 320,780 pairs, respectively. The Contract value, assuming annual boot requirements near the maximum level for the five-year period, would approximate $100.0 million.
Gross profit fell from $991,000 for the third quarter of fiscal 2006 to $942,000 for the third quarter of fiscal 2007, primarily attributable to the decline in net revenues. Gross profit, as a percentage of net revenues, improved slightly, up from 16.7% for the third quarter of fiscal 2006 to 18.6% for the third quarter of fiscal 2007 as a result of lower manufacturing costs and increased production levels.
Operating costs and expenses for the third quarter of fiscal 2007 totaled $279,000, down from $306,000 for the third quarter of fiscal 2006 primarily attributable to reduced corporate allocated charges and employee benefit costs.
As a result of the above, the operating profit for the third quarter of fiscal 2007 amounted to $663,000 as compared to $685,000 for the third quarter of fiscal 2006.
Western and Work Boot Business
Net revenues for the western and work boot business for the third quarter of fiscal 2007 were $8.9 million as compared to $8.0 million for the third quarter of fiscal 2006. This increase in net revenues was primarily attributable to strong demand for our John Deere branded footwear products, which more than offset the decline in the fashion segment of the western boot market. We expect demand for our work boot products to be strong during the fourth quarter while the market for western fashion boots will continue to be weak.
Gross profit grew from $2.8 million for the third quarter of fiscal 2006 to $3.0 million for the third quarter of fiscal 2007, primarily attributable to the increase in net revenues. Gross profit, as a percentage of net revenues, fell from 34.8% for the third quarter of fiscal 2006 to 33.9% for the third quarter of fiscal 2007. This decrease in gross profit percentage was primarily attributable to higher freight costs, shipping labor, samples and depreciation charges.
Operating costs and expenses for the third quarter of fiscal 2007 totaled $2.5 million as compared to $1.9 million for the third quarter of fiscal 2006. This increase in operating costs and expenses was primarily attributable to increased support costs (royalties, commissions, advertising, travel, and marketing expenditures) associated with the revenue growth of our John Deere boot products. This product line was still in its developmental stage during the third quarter of fiscal 2006.
As a result of the above, the operating profit for the third quarter of fiscal 2007 amounted to $544,000 as compared to $857,000 for the third quarter of fiscal 2006.
FIRST NINE MONTHS FISCAL 2007 COMPARED TO FIRST NINE MONTHS FISCAL 2006
Consolidated net revenues for the first nine months of fiscal 2007 were $50.9 million as compared to $56.1 million for the first nine months of fiscal 2006. This 9% decline in net revenues was primarily attributable to reduced requirements for military combat boots for the Government and weaker than anticipated sales of our MAT bar code product and was partially offset by the increased sales contribution by our John Deere work and children's boot products.
Consolidated gross profit for the nine months of fiscal 2007 totaled $14.7 million, down approximately 7% from $15.8 million for the first nine months of fiscal 2006, primarily the result of lower net revenues attributable to our military boot and bar code businesses. Gross profit for our western and work boot business grew nearly $400,000 for the first nine months of fiscal 2007 as compared to the first nine months of fiscal 2006. Gross profit, as a percentage of net revenues, was fairly constant at approximately 28% for both nine-month periods of fiscal 2007 and 2006.
Consolidated operating costs and expenses, including research and development costs, increased from $11.0 million for the first nine months of fiscal 2006 to $11.5 million for the first nine months of fiscal 2007, primarily the result of additional support costs associated with our western and work boot business, which were partially offset by reduced SG&A expenditures in our bar code and military boot businesses.
As a result of the above, the consolidated operating profit for the first nine months of fiscal 2007 amounted to $3.2 million as compared to $4.8 million for the first nine months of fiscal 2006.
Bar Code Business
Net revenues for the bar code business for the first nine months of fiscal 2007 totaled $8.9 million as compared to $10.0 million for the first nine months of fiscal 2006. This decline in net revenues was primarily attributable to disappointing market acceptance of our new MAT bar code product. We are currently evaluating our product mix and expect to make appropriate changes to increase sales as we approach the new fiscal year.
Gross profit fell from $2.4 million for the first nine months of fiscal 2006 to $2.0 million for the first nine months of fiscal 2007 primarily the result of the decline in net revenues and slight decrease in profit margins attributable to a smaller contribution of higher margin manufactured products in the overall sales mix.
Operating costs and expenses, including research and development costs, fell nearly 5%, down from $3.2 million for the first nine months of fiscal 2006 to $3.0 million for the first nine months of fiscal 2007. This decrease in operating costs and expenses was primarily the result of reduced research and development costs and lower corporate allocated charges. In conjunction with the assessment of our product mix as noted above, we expect to implement appropriate actions that will reduce our future operating costs and expenses.
As a result of the above, the operating loss for the first nine months of fiscal 2007 amounted to $987,000 as compared to $824,000 for the first nine months of fiscal 2006.
Military Boot Business
Net revenues for the military boot business for the first nine months of fiscal 2007 totaled $12.4 million as compared to $17.0 million for the first nine months of fiscal 2006. This decline in net revenues resulted primarily from the expiration of both of our major former military boot contracts. Our former Government contract expired in September 2006 and the Israeli government contract expired in December 2005. Since September 2006, we have completed our military boot obligation under the old contract. As discussed above, the Government awarded us a new contract in May 2007.
Gross profit fell from $2.9 million for the first nine months of fiscal 2006 to $2.2 million for the first nine months of fiscal 2007 as a result of the decline in net revenues.
Operating costs and expenses were down approximately 29%, from $1.0 million for the first nine months of fiscal 2006 to $713,000 for the first nine months of fiscal 2007 as a result of lower employee benefit and corporate allocated charges.
As a result of the above, the operating profit for the first nine months of fiscal 2007 amounted to $1.4 million as compared to $1.9 million for the first nine months of fiscal 2006.
Western and Work Boot Business
Net revenues for the western and work boot business climbed to $29.5 million for the first nine months of fiscal 2007 as compared to $28.3 million for the first nine months of fiscal 2006. This 4% improvement in net revenues resulted primarily from the strong demand for our John Deere branded work boot and children's footwear products, which more than offset the negative revenue impact related to the declining market for our western fashion boot product lines.
Gross profit for the first nine months of fiscal 2007 reached $10.4 million, up from $10.0 million for the first nine months of fiscal 2006, as a result of the increase in net revenues. Profit margins remained steady at 35.3% for both nine-month periods of fiscal 2007 and 2006.
Operating costs and expenses increased from $6.5 million for the first nine months of fiscal 2006 to $7.6 million for the first nine months of fiscal 2007 primarily the result of the expansion of our John Deere footwear operations as sales commissions, royalty payments, product promotion related expenditures, facility costs and other support costs increased.
As a result of the above, the operating profit for the first nine months of fiscal 2007 amounted to $2.8 million as compared to $3.5 million for the first nine months of fiscal 2006.
FINANCIAL CONDITION AND LIQUIDITY
We continue to maintain a solid financial position as cash and cash equivalents totaled $8.7 million at April 28, 2007 as compared to $8.5 million at July 29, 2006. Our working capital improved from $27.9 million at July 29, 2006 to $28.5 million at April 28, 2007.
We currently maintain three lines of credit with a bank totaling $7.75 million, all of which was available at April 28, 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 lines of credit will be sufficient to meet our capital requirements for the remainder of fiscal 2007.
Operating activities for the first nine months of fiscal 2007 provided $1.6 million. Net earnings as adjusted for depreciation and a $1.1 million gain on the sale of our Palm Bay property provided $2.0 million. The increase in our trade accounts receivable balances used approximately $1.7 million, primarily attributable to late payment of military boot invoices caused by a change in the Government's pay agent. This problem has now been corrected. Reduced inventory levels primarily attributable to increased western and work boot sales provided $1.5 million of cash. The timing of income tax payments provided approximately $600,000 of cash. The decrease in accounts payable balances was primarily attributable to the timing of payment for large western and work boot inventory invoices used nearly $520,000 of cash. The reduction in employee benefit charges resulted in a $311,000 usage of cash.
Investing activities used approximately $590,000 of cash primarily attributable to the purchase of investment land property for $1.7 million, which was partially offset by the $1.4 million proceeds of the sale of our Palm Bay office facility. Capital expenditures primarily for manufacturing equipment, computer equipment and other office fixtures used approximately $358,000 of cash.
Financing activities used approximately $768,000 of cash to redeem company stock from employees ($255,000) and dividend payments ($513,000).
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
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
April 28, July 29,
2007 2006
ASSETS
Current assets:
Cash and cash equivalents $8,715 $8,461
Accounts and notes receivable, net 9,728 8,054
Inventories, net 14,349 15,835
Income tax receivable 197 815
Prepaid expenses and other current assets 201 127
Total current assets 33,190 33,292
Property and equipment, net 2,072 2,509
Other assets:
Notes receivable 26 37
Real estate held for investment 3,146 1,468
Amount due from split-dollar life insurance 2,220 2,220
Trademarks 2,824 2,824
Other 3 5
Total other assets 8,219 6,554
Total assets $43,481 $42,355
McRae Industries, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
April 28, July 29,
2007 2006
Liabilities and Shareholders' Equity
Current liabilities:
Accounts Payable $2,403 $2,923
Accrued employee benefits 291 602
Accrued payroll and payroll taxes 1,058 1,014
Other 906 885
Total current liabilities 4,658 5,424
Shareholders' equity:
Common Stock:
Class A, $1 par; Authorized 5,000,000
shares; Issued and outstanding 2,103,724
shares and 2,116,950 shares, respectively 2,104 2,117
Class B, $1 par; Authorized 2,500,000
shares; Issued and outstanding 450,355
shares and 457,603 shares, respectively 450 458
Retained earnings 36,269 34,356
Total shareholders' equity 38,823 36,931
Total liabilities and shareholders'
equity $43,481 $42,355
McRae Industries, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
Three Months Ended Nine Months Ended
April 28, April 29, April 28, April 29,
2007 2006 2007 2006
Net revenues $16,227 $17,122 $50,915 $56,106
Cost of revenues 11,723 12,282 36,206 40,331
Gross profit 4,504 4,840 14,709 15,775
Less: Operating
costs and expenses:
Research & development 143 206 432 653
Selling, general and
administrative
expenses 3,691 3,101 11,108 10,342
Earnings from
operations 670 1,533 3,169 4,780
Other expense
(income), net (113) (92) (1,417) (497)
Interest expense 11 2 16 9
Earnings before income
taxes 772 1,623 4,570 5,268
Provision for income
taxes 342 486 1,910 1,760
Net earnings $430 $1,137 $2,660 $3,508
Earnings per common share:
Basic earnings per share:
Class A $.29 $.62 $1.50 $1.86
Class B 0 0 0 0
Diluted earnings per share:
Class A .23 .51 1.23 1.51
Class B N/A N/A N/A N/A
Weighted average number
of common shares outstanding:
Class A 2,108,619 2,101,382 2,114,040 2,158,163
Class B 453,704 473,171 456,303 503,896
Total 2,562,323 2,574,553 2,570,343 2,662,059
McRae Industries, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
April 28, April 29,
2007 2006
Net cash provided by operating activities $1,612 $3,158
Cash flows from investing activities:
Proceeds from sales of assets 1,435 1,427
Purchase of land for investment (1,678) 0
Capital expenditures (358) (321)
Net collections of long-term receivables 11 4
Net cash (used in) provided by investing
activities (590) 1,110
Cash flows from financing activities:
Purchase of company stock (255) (2,760)
Principal repayments of notes payable 0 (174)
Dividends paid (513) (514)
Net cash used in financing activities (768) (3,448)
Net increase in cash and cash equivalents 254 820
Cash and cash equivalents at beginning of period 8,461 9,238
Cash and cash equivalents at end of period $8,715 $10,058
