MOUNT GILEAD, N.C. May 7 /PRNewswire-FirstCall/ -- McRae Industries, Inc. (Pink Sheets: MRINA and MRINB) reported consolidated net revenues for the second quarter of fiscal 2009 of $16,591,000 as compared to $20,773,000 for the second quarter of fiscal 2008. Net earnings for the second quarter of fiscal 2009 amounted to $455,000, or $.26 per diluted Class A common share as compared to net earnings of $1,442,000, or $.64 per diluted Class A common share, for the second quarter of fiscal 2008.
Consolidated net revenues for the first six months of fiscal 2009 totaled $36,925,000 as compared to $42,078,000 for the first six months of fiscal 2008. Net earnings for the first six months of fiscal 2009 amounted to $1,667,000, or $.81 per diluted Class A common share as compared to net earnings of $3,291,000, or $1.43 per diluted Class A common share, for the first six months of fiscal 2008.
SECOND QUARTER FISCAL 2009 COMPARED TO SECOND QUARTER FISCAL 2008
Consolidated net revenues for the second quarter of fiscal 2009 totaled $16.6 million as compared to $20.8 million for the second quarter of fiscal 2008. The decline in net revenues was primarily attributable to reduced U. S. Government requirements for military combat boots and to a soft market for our bar code products and related services.
Consolidated gross profit fell from $6.2 million for the second quarter of fiscal 2008 to $4.7 million for the second quarter of fiscal 2009, primarily attributable to the decrease in net revenues.
Consolidated operating costs and expenses totaled approximately $3.9 million for both second quarters of fiscal 2009 and 2008. Increased sales compensation costs, travel costs, professional fees, administrative wages and group health insurance expenditures were partially offset by reduced advertising and employee benefit charges.
As a result of the above, consolidated operating profit fell from $2.2 million for the second quarter of fiscal 2008 to $735,000 for the second quarter of fiscal 2009.
Bar Code Business
Net revenues for the bar code business decreased from $2.6 million for the second quarter of fiscal 2008 to $2.0 million for the second quarter of fiscal 2009 as a soft technology market lowered demand for our system sales and related hardware projects.
Gross profit for the second quarter of fiscal 2009 totaled $386,000 as compared to $619,000 for the second quarter of fiscal 2008. This decrease in gross profit resulted from lower net revenues and reduced profit margins as purchased product sales and service business, which command lower profit margins, made up a larger portion of the overall sales mix.
Operating costs and expenses amounted to $861,000 for the second quarter of fiscal 2009 as compared to $728,000 for the second quarter of fiscal 2008. The increase in operating costs was primarily attributable to increased expenditures for travel, sales and marketing, professional fees and corporate charges.
As a result of the above, the operating loss for the second quarter of fiscal 2009 totaled $475,000 as compared to $109,000 for the second quarter of fiscal 2008.
On March 31, 2009, we sold substantially all the assets of the Company's bar code business, including the name "Compsee, Inc.," to Control Solutions, Inc., a leading supply chain management and enterprise mobility software company, headquartered in Gig Harbor, Washington. The proceeds from the transaction to be received over a six month period will be approximately $800,000.
The Company retained the manufacturing component of the business and will continue to manufacture proprietary products to be sold through a one-year supply arrangement with Control Solutions, Inc.
Military Boot Business
Net revenues for the military boot business totaled $2.6 million for the second quarter of fiscal 2009 as compared to $6.2 million for the second quarter of fiscal 2008 primarily attributable to decreased military boot requirements for the U. S. Government (the "Government"). We expect the demand for military boots to be soft for the remainder of this fiscal year.
Gross profit for the second quarter of fiscal 2009 amounted to $104,000 as compared to $1.4 million for the second quarter of fiscal 2008. The decline in gross profit was primarily attributable to decreased net revenues and significantly lower production levels, which caused profit margins to fall from 23% for the second quarter of fiscal 2008 to 4% for the second quarter of fiscal 2009.
Operating costs and expenses fell from $318,000 for the second quarter of fiscal 2008 to $129,000 the second quarter of fiscal 2009, primarily attributable to lower employee benefit costs.
As a result of the above, the operating loss for the second quarter of fiscal 2009 totaled $25,000 as compared to $1.1 million operating profit for the second quarter of fiscal 2008.
Western and Work Boot Business
Net revenues for the western and work boot business amounted to $12.0 million for both second quarters of fiscal 2009 and fiscal 2008, as the market for our western and work boots remained steady in the midst of a global economic slowdown. However, we expect the third quarter of this fiscal year to be adversely affected by new material standards that became effective in February 2009 related to children's footwear products.
Gross profit for the second quarter of fiscal 2009 amounted to $4.2 million as compared to $4.1 million for the second quarter of fiscal 2008. This increase in gross profit was the result of slightly higher gross margins related to the product overall sales mix for the quarter.
Operating costs and expenses totaled $2.9 million for the second quarter of fiscal 2009 as compared to $2.8 million for the second quarter of fiscal 2008. This increase in operating costs resulted primarily from higher trade show travel costs, professional fees, corporate allocated costs and employee benefit charges, which were partially offset by reduced advertising and marketing expenses.
As a result of the above, the operating profit totaled $1.3 million for both second quarters of fiscal 2009 and fiscal 2008.
FIRST SIX MONTHS FISCAL 2009 COMPARED TO FIRST SIX MONTHS FISCAL 2008
Consolidated net revenues for the first six months of fiscal 2009 totaled $36.9 million as compared to $42.1 million for the first six months of fiscal 2008. This decline in net revenues resulted primarily from reduced requirements by the Government for military combat boots and a weak market for bar code related products. Market demand for our branded work boot and children's footwear products remained steady.
Consolidated gross profit declined from $12.9 million for the first six months of fiscal 2008 to $10.7 million for the first six months of fiscal 2009 as a result of declines in net revenues and profit margins. Gross profit as a percentage of net revenues fell from 31% for the first six months of fiscal 2008 to 29% for the same period of fiscal 2009 as per unit overhead costs increased as a result of the decline in sales for the bar code and military boot businesses.
Consolidated operating costs and expenses totaled approximately $8.1 million for the first six months of fiscal 2009 as compared to $8.0 million for the first six months of fiscal 2008. Increased expenditures for sales related compensation, administrative salaries, group health insurance, travel costs, and professional fees were partially offset by lower outlays for marketing and advertising costs and employee benefit charges.
As a result of the above, the consolidated operating profit amounted to $2.6 million for the first six months of fiscal 2009 as compared to $4.9 million for the first six months of fiscal 2008.
Bar Code Business
Net revenues for the bar code business were $4.9 million for the first six months of fiscal 2009 as compared to $6.1 million for the first six months of fiscal 2008. This decline was primarily attributable to the soft market for bar code related products and services.
Gross profit for the first six months of fiscal 2009 amounted to $900,000 as compared to $1.6 million for the first six months of fiscal 2008. The decrease in gross profit was the result of reduced net revenues and an overall sales mix dominated by lower profit margin products and services. Gross profit as a percentage of net revenues fell from 27% for the first six months of fiscal 2008 to 19% for the same period of fiscal 2009.
Operating costs and expenses were $1.7 million for the first six months of fiscal 2009 as compared to $1.6 million for the first six months of fiscal 2008. The increase in operating costs and expenses was primarily the result of higher expenditures for sales and marketing costs, professional fees and corporate overhead charges, which were partially offset by lower sales commission expenses.
As a result of the above, the operating loss for the first six months of fiscal 2009 amounted to $800,000 as compared to a $40,000 operating profit for the first six months of fiscal 2008.
Military Boot Business
Net revenues for the military boot business for the first six months of fiscal 2009 totaled $6.1 million as compared to $11.6 million for the first six months of fiscal 2008. This decrease in net revenues resulted primarily from reduced military combat boot requirements for the Government.
Gross profit fell from $2.3 million for the first six months of fiscal 2008 to $607,000 for the first six months of fiscal 2009, primarily attributable to the decrease in net revenues and to higher per unit costs associated with lower production levels.
Operating costs and expenses for the first six months of fiscal 2009 totaled $323,000 as compared to $565,000 for the first six months of fiscal 2008. This decrease in operating costs and expenses was the result of lower employee benefit costs.
As a result of the above, operating profit for the first six months of fiscal 2009 amounted to $284,000 as compared to $1.8 million for the first six months of fiscal 2008.
Western and Work Boot Business
Net revenues for the western and work boot business for the first six months of fiscal 2009 totaled $25.8 million as compared to $23.9 million for the first six months of fiscal 2008. Demand for both our John Deere boot products and our fashion western wear products remained strong in spite of the dismal condition of the world-wide economy.
Gross profit climbed to $9.1 million for the first six months of fiscal 2009, up from $8.5 million for the first six months of fiscal 2008. 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 to $6.0 million for the first six months of fiscal 2009 as compared to $5.6 million for the first six months of fiscal 2008. The rise in operating costs and expenses was related to greater expenditures for sales salaries and commissions, administrative salaries, travel expenses, professional fees, corporate allocated charges and employee benefit costs, which were partially offset by lower expenditures for marketing and promotion costs.
As a result of the above, the operating profit for the first six months of fiscal 2009 totaled $3.1 million as compared to $2.9 million for the first six months of fiscal 2008.
FINANCIAL CONDITION AND LIQUIDITY
Our financial condition maintained its solid position at January 31, 2009. Cash and cash equivalents totaled $13.1 million as compared to $13.8 million at August 2, 2008. Our working capital amounted to $34.9 million at January 31, 2009 as compared to $33.6 million at August 2, 2008.
We currently maintain three lines of credit with a bank totaling $7.75 million, all of which was available at January 31, 2009. 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 2010. We have two $3.0 million lines of credit, one expires in November 2009 and the other expires in December 2009.
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 2009.
For the first six months of fiscal 2009, operating activities used approximately $145,000 of cash. Net earnings, as adjusted for depreciation, provided $1.9 million of cash. Accounts and notes receivable, as adjusted for valuation allowances, used approximately $54,000 of cash, as collections outpaced new sales of military boots and bar code products and were partially offset by higher receivable levels for the western and work boot business. Reduced inventory levels, primarily associated with high seasonal sales of western and work boot products, provided approximately $2.1 million of cash. The timing of payments for fourth quarter fiscal 2008 inventory accounts payable for all three business units used approximately $1.8 million of cash. Income tax payments used approximately $1.4 million of cash.
Investing activities for the first six months of fiscal 2009 used approximately $1.6 million of cash, primarily attributable to the purchase of new manufacturing equipment for the military footwear business.
Financing activities provided approximately $1.0 million for the first six months of fiscal 2009 as the Company borrowed $1.4 million to pay for the new manufacturing equipment. Dividend payments for the first six months of fiscal 2009 used $376,000 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 31, August 2, 2009 2008 ASSETS Current assets: Cash and cash equivalents $13,092 $13,822 Accounts and notes receivable, net 10,018 9,964 Inventories, net 13,421 15,473 Income tax receivable 2,037 678 Prepaid expenses and other current assets 682 429 Total current assets 39,250 40,366 Property and equipment, net 3,020 1,687 Other assets: Real estate held for investment 3,346 3,358 Amount due from split-dollar life insurance 2,288 2,288 Trademarks 2,824 2,824 Other 3 3 Total other assets 8,461 8,473 Total assets $50,731 $50,526 McRae Industries, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) (Unaudited) January 31, August 2, 2009 2008 Liabilities and Shareholders' Equity Current liabilities: Bank Note Payable-current portion $90 $0 Accounts Payable 2,021 3,792 Accrued employee benefits 369 992 Accrued payroll and payroll taxes 948 1,018 Other accrued liabilities 927 941 Total current liabilities 4,355 6,743 Bank Note Payable, net of current portion 1,310 0 Shareholders' equity: Common Stock: Class A, $1 par; Authorized 5,000,000 shares; Issued and outstanding 2,094,128 shares and 2,093,043 shares, respectively 2,094 2,093 Class B, $1 par; Authorized 2,500,000 shares; Issued and outstanding 439,667 shares and 441,252 shares, respectively 440 441 Retained earnings 42,532 41,249 Total shareholders' equity 45,066 43,783 Total liabilities and shareholders' equity $50,731 $50,526 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 31, January 26, January 31, January 26, 2009 2008 2009 2008 Net revenues $16,591 $20,773 $36,925 $42,078 Cost of revenues 11,886 14,606 26,210 29,193 Gross profit 4,705 6,167 10,715 12,885 Less: Operating costs and expenses: Research & development 0 0 0 1 Selling, general and administrative expenses 3,970 3,947 8,063 7,974 Earnings from operations 735 2,220 2,652 4,910 Other expense (income), net (71) (142) (163) (251) Interest expense 3 3 5 5 Earnings before income taxes 803 2,359 2,810 5,156 Provision for income taxes 348 917 1,143 1,865 Net earnings $455 $1,442 $1,667 $3,291 Earnings per common share: Basic earnings per share: Class A $.31 $.78 $.98 $1.74 Class B 0 0 0 0 Diluted earnings per share: Class A .26 .64 .81 1.43 Class B N/A N/A N/A N/A Weighted average number of common shares outstanding: Class A 2,093,951 2,104,924 2,093,497 2,104,924 Class B 440,316 448,921 440,784 449,038 Total 2,534,267 2,553,845 2,534,281 2,553,962 McRae Industries, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six Months Ended January 31, January 26, 2009 2008 Net cash (used in) provided by operating activities $(145) 4,679 Cash flows from investing activities: Proceeds from sales of assets 4 6 Purchase of land for investment (15) (22) Capital expenditures (1,590) (56) Net collections of long-term receivables 0 4 Net cash used in investing activities (1,601) (68) Cash flows from financing activities: Bank loan proceeds 1,400 0 Purchase of company stock (8) (14) Dividends paid (376) (362) Net cash provided by (used in) financing activities 1,016 (376) Net (decrease) increase in cash and cash equivalents (730) 4,235 Cash and cash equivalents at beginning of period 13,822 9,243 Cash and cash equivalents at end of period $13,092 $13,478
McRae Industries, Inc.
CONTACT: D. Gary McRae, +1-910-439-6147
Web Site: http://www.mcraeindustries.com/
