MOUNT GILEAD, N.C., Dec. 14 /PRNewswire-FirstCall/ -- McRae Industries, Inc. (Pink Sheets: MRINA; MRINB) reported consolidated net revenues for the first quarter of fiscal 2008 of $21,305,000 as compared to $17,565,000 for the first quarter of fiscal 2007. Net earnings for the first quarter of fiscal 2008 amounted to $1,849,000, or $.79 per diluted Class A common share as compared to net earnings of $1,424,000, or $.62 per diluted Class A common share, for the first quarter of fiscal 2007. Net earnings for the first quarter of fiscal 2007 were positively impacted by approximately $860,000, net of income taxes, or $.33 per diluted Class A common share, as a result of the sale of our real property (land and building) in Florida.
FIRST QUARTER FISCAL 2008 COMPARED TO FIRST QUARTER FISCAL 2007
Consolidated net revenues for the first quarter of fiscal 2008 amounted to $21.3 million as compared to $17.6 million for the first quarter of fiscal 2007. This increase in net revenues resulted primarily from higher military boot requirements by the U. S. Government and strong seasonal demand for western and work boot products, which were partially offset by lower bar code product net revenues.
Consolidated gross profit totaled $6.7 million for the first quarter of fiscal 2008 as compared to $5.0 million for the first quarter of fiscal 2007. The improvement in gross profit was attributable to increased net revenues and higher profit margins for each of our major business units.
Consolidated selling, general and administrative ("SG&A") expenses, including research and development ("R&D") costs, were $4.0 million for the first quarter of fiscal 2008 as compared to $2.7 million for the first quarter of fiscal 2007. The $1.3 million difference was primarily attributable to the inclusion of a $1.0 million gain on the sale of our Florida real estate property and lower expenditures for group health insurance and professional fees, which were partially offset by higher expenditures for sales salaries and commissions, travel related costs, and employee benefit charges.
As a result of the above, the consolidated operating profit for the first quarter of fiscal 2008 amounted to $2.7 million as compared to $2.3 million for the first quarter of fiscal 2007.
Bar Code Business
Net revenues for the bar code business for the first quarter of fiscal 2008 were $3.5 million as compared to $3.9 million for the first quarter of fiscal 2007. The decrease in net revenues was primarily attributable to reduced large system related sales, which were partially offset by our service related revenues associated with our new business model of selling mobility solutions.
Gross profit grew from $843,000 for the first quarter of fiscal 2007 to $1.0 million for the first quarter of fiscal 2008 primarily the result of higher margins on service related revenues.
SG&A expenses, including R&D, fell from $951,000, not including the effect of the gain on the Florida property, for the first quarter of fiscal 2007 to $874,000 for the first quarter of fiscal 2008. The decline in SG&A expenses was primarily attributable to reduced R&D and group health insurance expenditures.
As a result of the above, the operating profit for the bar code business for the first quarter of fiscal 2008 totaled $150,000 as compared to an operating loss of $108,000, not including the effect of the gain on the sale of the Florida property for the corresponding 2007 period.
Military Boot Business
Net revenues for the military boot business for the first quarter of fiscal 2008 totaled $5.3 million, up from $3.1 million for the first quarter of fiscal 2007 primarily attributable to increased military combat boot requirements under the contract awarded by U. S. Government (the "Government") in May 2007.
Gross profit increased from $356,000 for the first quarter of fiscal 2007 to $913,000 for the first quarter of fiscal 2008. The improvement in gross profit was the result of the growth in net revenues and higher profit margins. Gross profit as a percentage of net revenues rose from 11% for the first quarter of fiscal 2007 to 17% for the first quarter of fiscal 2008 as higher production levels resulted in lower per unit manufacturing costs.
SG&A expenses were up from $182,000 for the first quarter of fiscal 2007 to $247,000 for the first quarter of fiscal 2008 primarily the result of increased employee benefit charges.
As a result of the above, the operating profit for the military boot business amounted to $666,000 for the first quarter of fiscal 2008 as compared to $174,000 for the first quarter of fiscal 2007.
Western and Work Boot Business
Net revenues for the western and work boot business totaled $11.9 million for the first quarter of fiscal 2008 as compared to $10.5 million for the first quarter of fiscal 2007. The increase in net revenues was primarily attributable to strong demand for our John Deere branded work boots and children's footwear products. The soft market for our western and fashion style boots partially offset the sales performance of our John Deere products.
Gross profit for the first quarter of fiscal 2008 was $4.4 million as compared to $3.7 million for the first quarter of fiscal 2007. The growth in gross profit was primarily attributable to the increase in net revenues as gross profit as a percentage of net revenues remained steady at approximately 36% for the two reporting periods.
SG&A expenses grew from $2.5 million for the first quarter of fiscal 2007 to $2.8 million for the first quarter of fiscal 2008, primarily the result of increased expenditures for sales related salaries and commissions, travel costs, facility rentals, and employee benefit charges that were partially offset by reduced professional fees.
As a result of the above, the operating profit for the western and work boot business totaled $1.6 million for the first quarter of fiscal 2008 as compared to $1.3 million for the first quarter of fiscal 2007.
Financial Condition and Liquidity
Our financial condition remained strong at October 27, 2007 as cash and cash equivalents totaled $10.1 million as compared to $9.2 million at July 28, 2007. Our working capital increased from $29.4 million at July 28, 2007 to $31.2 million at October 27, 2007.
We currently have three lines of credit with a bank totaling $7.75 million, all of which were fully available at October 27, 2007. One credit line totaling $1.75 million (which is restricted to one hundred percent of the outstanding receivables due from the Government) expires in January 2008. One $3.0 million line of credit, which expires in November 2008, is secured by the inventory and accounts receivable of our Dan Post Boot Company subsidiary. The other $3.0 million line of credit is unsecured and expires in December 2008.
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 2008.
Net cash provided by operating activities for the first quarter of fiscal 2008 amounted to $602,000. Net earnings, as adjusted for depreciation and gain on sale of assets, contributed approximately $1.6 million of cash. Accounts and notes receivable used approximately $3.3 million of cash as a result of the timing of collection of strong first quarter sales. The decline in inventory related also to the strong first quarter sales provided $2.3 million of cash. The reduction in accounts payable used $1.0 million of cash primarily for the payment of inventory purchases. The timing of income tax payments provided approximately $736,000 of cash.
Net cash provided by investing activities amounted to $407,000, primarily attributable to the proceeds from the sale of land. Capital expenditures used $18,000 of cash for office and computer equipment.
Dividend payments for the first quarter of fiscal 2008 used $173,000 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), changes in fashion cycles and trends in the western boot business, 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) October 27, July 28, 2007 2007 Assets Current assets: Cash and cash equivalents $ 10,079 $ 9,243 Accounts and notes receivable, net 12,916 9,632 Inventories, net 13,756 16,060 Income tax receivable - 433 Prepaid expenses and other current assets 175 210 Total current assets 36,926 35,578 Property and equipment, net 1,887 1,988 Other assets: Notes receivable 18 20 Real estate held for investment 3,292 3,340 Amount due from split-dollar life insurance 2,220 2,220 Trademarks 2,824 2,824 Other 3 3 Total other assets 8,357 8,407 Total assets $47,170 $45,973 McRae Industries, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) (Unaudited) October 27, July 28, 2007 2007 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 2,778 $ 3,810 Accrued employee benefits 788 476 Accrued payroll and payroll taxes 780 968 Income tax payable 303 - Other accrued liabilities 1,039 911 Total current liabilities 5,688 6,165 Shareholders' equity: Common Stock: Class A, $1 par; Authorized 5,000,000 shares; Issued and outstanding, 2,104,924 shares 2,105 2,105 Class B, $1 par; Authorized 2,500,000 shares; Issued and outstanding, 449,155 shares 449 449 Retained earnings 38,928 37,254 Total shareholders' equity 41,482 39,808 Total liabilities and shareholders' equity $47,170 $45,973 McRae Industries, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data) (Unaudited) Three Months Ended October October 27, 2007 28, 2006 Net revenues $21,305 $17,565 Cost of revenues 14,587 12,573 Gross profit 6,718 4,992 Costs and expenses: Research & development 1 137 Selling, general and administrative expenses 4,027 2,555 Other expense (income), net (109) (113) Interest expense 2 2 Total costs and expenses 3,921 2,581 Earnings before income taxes 2,797 2,411 Provision for income taxes 948 987 Net earnings $1,849 $1,424 Earnings per common share: Basic earnings per share: Class A $.96 $.75 Class B 0 0 Diluted earnings per share: Class A .79 .62 Class B NA NA Weighted average number of common shares outstanding: Class A 2,104,924 2,116,751 Class B 449,155 457,603 Total 2,554,079 2,574,354 McRae Industries, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Three Months Ended October 27, October 28, 2007 2006 Net cash provided by (used in) operating activities $ 602 $(3,424) Cash flows from investing activities: Proceeds from sales of assets 437 1,432 Purchase of land for investment (14) - Capital expenditures (18) (163) Net collections of long-term receivables 2 2 Net cash provided by investing activities 407 1,271 Cash flows from financing activities: Dividends paid (173) (169) Net cash used in financing activities (173) (169) Net increase (decrease) in cash and cash equivalents 836 (2,322) Cash and cash equivalents at beginning of period 9,243 8,461 Cash and cash equivalents at end of period $10,079 $6,139
