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McRae Industries, Inc. Reports Earnings For The Third Quarter And First Nine Months Of Fiscal 2014

Companies mentioned in this article: McRae Industries, Inc.

MOUNT GILEAD, N.C., June 6, 2014 /PRNewswire/ -- McRae Industries, Inc. (Pink Sheets: MCRAA and MCRAB) reported consolidated net revenues from operations for the third quarter of fiscal 2014 of $23,455,000 as compared to $22,585,000 for the third quarter of fiscal 2013. Net earnings for the third quarter of fiscal 2014 amounted to $1,223,000 or $0.61 per diluted Class A common share as compared to $1,333,000, or $0.62 per diluted Class A common share, for the third quarter of fiscal 2013.

Consolidated net revenues from operations for the first nine months of fiscal 2014 totaled $81,711,000 as compared to $73,531,000 for the first nine months of fiscal 2013. Net earnings for the first nine months of fiscal 2014 amounted to $5,768,000 or $2.67 per diluted Class A common share, as compared to $5,143,000, or $2.75 per diluted Class A common share, for the first nine months of fiscal 2013.

THIRD QUARTER FISCAL 2014 COMPARED TO THIRD QUARTER FISCAL 2013

Consolidated net revenues for the third quarter of fiscal 2014 amounted to $23.5 million as compared to $22.6 million for the third quarter of fiscal 2013. Net revenues related to our western/lifestyle boot products totaled $13.3 million for the third quarter of fiscal 2014 as compared to $13.6 million for the third quarter of fiscal 2013. This slight reduction in net revenues was primarily attributable to delayed receipt of inventory and extreme weather issues early in the quarter. However, overall demand for these products remained steady. Net revenues from our work boot products grew from $9.0 million for the third quarter of fiscal 2013 to $10.0 million for the third quarter of fiscal 2014. This increase in net revenues from our work boot business resulted primarily from continued strong military boot requirements for the U. S. Government and slightly higher demand for work boots as the economy continues to improve.

Consolidated gross profit totaled approximately $6.3 million for both third quarters of fiscal 2014 and fiscal 2013 as higher product import costs and sales mix shifts had a dampening impact on gross profit margins, which fell from 27.9% for the third quarter of fiscal 2013 to 27.1% for the third quarter of fiscal 2014. Our work boot business gross profit margins increased slightly as higher military boot production levels had a positive impact by lowering per unit manufacturing costs.

Consolidated operating costs and expenses for the third quarter of fiscal 2014 totaled $4.3 million as compared to $4.2 million for the third quarter of fiscal 2013. The increase in operating costs and expenses was primarily attributable to higher expenditures or charges for sales related compensation, sales and marketing expenditures, administrative compensation and professional fees, which were partially offset by lower travel and employee benefit charges.

As a result of the above, the consolidated operating earnings for the third quarter of fiscal 2014 were approximately $2.0 million as compared to approximately $2.1 million for the third quarter of fiscal 2013.

FIRST NINE MONTHS FISCAL 2014 COMPARED TO FIRST NINE MONTHS FISCAL 2013

Consolidated net revenues for the first nine months of fiscal 2014 amounted to $81.7 million as compared to $73.5 million for the first nine months of fiscal 2013. This 11% increase in net revenues resulted from strong performances in both of our product segments. Net revenues from our western/lifestyle products segment grew from $49.7 million for the first nine months of fiscal 2013 to $53.2 million for the first nine months of fiscal 2014 as market demand remained strong. The work boot segment net revenues for the first nine months of fiscal 2014 totaled $28.2 million, up from $23.7 million for the first nine months of fiscal 2013 as military boot revenues for both our commercial and government business grew nearly 38%.

Consolidated gross profit for the first nine months of fiscal 2014 totaled $24.1 million as compared to $22.0 million for the first nine months of fiscal 2013. This 9.5% increase in consolidated gross profit resulted primarily from the combined revenue growth in our western/lifestyle boot and work boot segments. Gross profit as a percentage of net revenues for both boot segments for the first nine months of fiscal 2014 totaled 29.4% as compared to 29.8% for the first nine months of fiscal 2013. This slight decline in overall gross margin percentage was primarily the result of product mix sales changes as the lower margin military boot sales contributions increased nearly 5% over last year.

Consolidated operating costs and expenses amounted to $14.7 million for the first nine months of fiscal 2014 as compared to $13.7 million for the first nine months of fiscal 2013. This increase in consolidated operating costs and expenses was primarily attributable to increased expenditures or charges for sales compensation related costs, marketing and advertising costs, professional fees, and employee benefit charges, which were partially offset by reduced outlays for group health insurance charges and travel costs.

As a result of the above, the consolidated operating profit for the first nine months of fiscal 2014 totaled approximately $9.4 million as compared to approximately $8.3 million for the first nine months of fiscal 2013.

FINANCIAL CONDITION AND LIQUIDITY

The Company's financial condition continues to be strong. Cash and cash equivalents totaled $16.6 million at May 3, 2014 as compared to $10.8 million at August 3, 2013. Our working capital totaled $48.1 million at May 3, 2014 as compared to $43.1 million at August 3, 2013.

We currently maintain two lines of credit with a bank totaling $6.75 million, all of which was available at May 3, 2014. Our credit line totaling $1.75 million (which is restricted to one hundred percent of the outstanding receivables due from the U. S. Government) and our $5.0 million line of credit (which is secured by our western/work boot business accounts receivable and inventory) expire in January 2015.

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 2014.

Operating activities for the first nine months of fiscal 2014 provided approximately $7.0 million of cash. Net earnings as adjusted for depreciation, provided $6.3 million of cash. Our trade accounts receivable provided approximately $1.6 million of cash as collection outpaced sales. The reduction of inventory levels provided approximately $1.0 million of cash as third quarter sales remained strong. The timing of inventory and accrued payroll related payments used approximately $1.1 million of cash. Income tax payments used approximately $800,000 of cash.

Investing activities used approximately $363,000 of cash. Capital expenditures, primarily for manufacturing equipment, office equipment and air handling equipment, used approximately $447,000 of cash. Proceeds from investment land sales provided approximately $87,000 of cash.

Financing activities used approximately $849,000 of cash for dividend payments.

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. Readers are cautioned not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Except as otherwise required by federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in our expectation or any change in events, conditions or circumstances on which any such statement is based.

                McRae Industries, Inc. and Subsidiaries

                 CONDENSED CONSOLIDATED BALANCE SHEETS

            (In thousands, except share and per share data)

                              (Unaudited)


                                   May 3,             August 3,
                                         2014
                                                              2013
                                                              ----

    ASSETS

    Current assets:

    Cash and cash
     equivalents                      $16,618              $10,804

    Marketable securities                   0                    0

    Accounts and notes
     receivable, net                   13,826               15,394

    Inventories, net                   22,041               23,046

    Income tax receivable               1,575                  695

    Prepaid expenses and
     other current assets                 354                  482
                                          ---                  ---

    Total current assets               54,414               50,421
                                       ------               ------


    Property and equipment,
     net                                3,218                3,319
                                        -----                -----


    Other assets:

        Deposits                           14                    0

    Marketable securities-
     long term                            950                  958

    Real estate held for
     investment                         3,581                3,626

       Amount due from split-
        dollar life insurance           2,288                2,288

    Trademarks                          2,824                2,824

    Total other assets                  9,657                9,696
                                        -----                -----


               Total assets           $67,289              $63,436
                                        =====              =======

                     McRae Industries, Inc. and Subsidiaries

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                 (In thousands, except share and per share data)

                                   (Unaudited)


                                             May 3,              August 3,
                                                    2014
                                                                         2013
                                                                         ----

    Liabilities and Shareholders' Equity


    Current liabilities:



         Accounts Payable                         $3,172               $4,054


         Accrued employee
          benefits                                 1,475                1,707


         Accrued payroll and
          payroll taxes                            1,188                1,209


         Other                                       469                  399
                                                     ---                  ---


              Total current
               liabilities                         6,304                7,369




    Shareholders' equity:


         Common Stock:


         Class A, $1 par;
          Authorized 5,000,000
          shares; Issued                           2,039                2,038

            and outstanding  2,038,543
             shares and 2,037,605,
             respectively


         Class B, $1 par;
          Authorized 2,500,000
          shares; Issued                             392                  393

            and outstanding  391,981
             shares and 392,919,
             respectively


    Retained earnings                             58,554               53,636
                                                  ------               ------


          Total shareholders'
           equity                                 60,985               56,067
                                                  ------               ------


              Total liabilities and
               shareholders' equity              $67,289              $63,436
                                                 =======              =======

                                                        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

                                                                                  May 3,                April 27,        May 3,         April 27,
                                                                                           2014                    2013           2014             2013
                                                                                           ----                    ----           ----             ----


    Net revenues                                                                        $23,455                 $22,585        $81,711          $73,531

       Cost of revenues                                                                  17,116                  16,248         57,654           51,506
                                                                                         ------                  ------         ------           ------

             Gross profit                                                                 6,339                   6,337         24,057           22,025


    Less: Operating costs and expenses:


       Selling, general and administrative expenses                                       4,338                   4,195         14,654           13,764
                                                                                          -----                   -----         ------           ------


              Earnings from operations                                                    2,001                   2,142          9,403            8,261


       Other income                                                                          70                      62            223              156


       Interest expense                                                                      (3)                     (2)            (3)              (2)
                                                                                            ---                     ---            ---              ---


    Earnings before income taxes                                                          2,068                   2,202          9,623            8,415


    Provision for income taxes                                                              845                     869          3,855            3,272
                                                                                            ---                     ---          -----            -----


    Net earnings                                                                         $1,223                  $1,333         $5,768           $5,143
                                                                                         ======                  ======         ======           ======


    Earnings per common share:

         Basic earnings per share:

            Class A                                                                        $.73                    $.74          $3.18            $3.30

            Class B                                                                         .13                     .09            .35              .68

         Diluted earnings per share:

            Class A                                                                         .61                    $.62          $2.67            $2.75

            Class B                                                                         N/A                     N/A            N/A              N/A

    Weighted average number of
    Common shares outstanding:

           Class A                                                                    2,038,543               2,037,358      2,038,444        2,034,124

           Class B                                                                      391,981                 395,426        392,080          402,363
                                                                                        -------                 -------        -------          -------

                 Total                                                                2,430,524               2,432,784      2,430,524        2,436,487
                                                                                      ---------               ---------      ---------        ---------

                McRae Industries, Inc. and Subsidiaries

            CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                             (In thousands)

                              (Unaudited)


                                      Nine Months
                                         Ended

                                        May 3,            April 27,
                                              2014                2013
                                              ----                ----


    Net cash provided by
     operating activities                   $7,026              $5,059
                                            ------              ------


    Cash flows from investing activities:


         Proceeds from sales of
          assets                                87                   4


         Purchase of land for
          investment                            (3)                (59)



         Purchase of securities                  0              (1,045)


         Capital expenditures                 (447)               (807)



    Net cash used in investing
     activities                               (363)             (1,907)
                                              ----              ------


    Cash flows from financing activities:


         Issuance of company stock               0                   6


         Purchase of company stock               0                (162)


         Dividends paid                       (849)             (1,838)
                                              ----              ------


    Net cash used in financing
     activities                               (849)             (1,994)
                                              ----              ------


    Net increase in cash and
     cash equivalents                        5,814               1,158


    Cash and cash equivalents
     at beginning of period                 10,804              12,874
                                            ------              ------


    Cash and cash equivalents
     at end of period                      $16,618             $14,032
                                             =====             =======

SOURCE McRae Industries, Inc.