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McRae Industries, Inc. Reports Earnings for the Third Quarter and First Nine Months of Fiscal 2011

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MOUNT GILEAD, N.C., June 30, 2011 /PRNewswire/ -- McRae Industries, Inc. (Pink Sheets: MRINA and MRINB) reported consolidated net revenues from operations for the third quarter of fiscal 2011 of $18,037,000 as compared to $15,476,000 for the third quarter of fiscal 2010.  Net earnings for the third quarter of fiscal 2011 amounted to $721,000, or $0.36 per diluted Class A common share as compared to $695,000, or $0.35 per diluted Class A common share, for the third quarter of fiscal 2010.  

Consolidated net revenues from operations for the first nine months of fiscal 2011 totaled $59,454,000 as compared to $49,228,000 for the first nine months of fiscal 2010. Net earnings for the first nine months of fiscal 2011 amounted to $3,026,000 or $1.44 per diluted Class A common share, as compared to $2,442,000, or $1.19 per diluted Class A common share, for the first nine months of fiscal 2010.

THIRD QUARTER FISCAL 2011 COMPARED TO THIRD QUARTER FISCAL 2010

Consolidated net revenues for the third quarter of fiscal 2011 amounted to $18.0 million as compared to $15.5 million for the third quarter of fiscal 2010. This increase in net revenues was primarily attributable to the improvement in demand for our work boot products, which grew from $5.9 million for the third quarter of fiscal 2010 to $8.6 million for the third quarter of fiscal 2011. Net revenues for our western/life style products remained strong at approximately $9.4 million for both fiscal third quarters.

Consolidated gross profit totaled approximately $4.6 million for the third quarters of both fiscal 2011 and 2010. Higher production costs primarily for labor, health insurance, freight, and mold rental had a negative impact on gross profit for the third quarter of fiscal 2011 as compared to the third quarter of fiscal 2010. These higher costs were due in part to the lower margin work boot segment increasing its share of the overall sales mix from 39% for the third quarter of fiscal 2010 to 48% for the third quarter of fiscal 2011.  Gross profit as a percentage of net revenues fell from 29.9% for the third quarter of fiscal 2010 to 25.0% for the third quarter of fiscal 2011.

Consolidated operating costs and expenses for the third quarter of fiscal 2011 totaled $3.7 million as compared to $3.5 million for the third quarter of fiscal 2010. This 9% increase in operating costs and expenses was primarily attributable to higher expenditures or charges for administrative salaries, travel expenses, advertising costs and bad debt charges, which were partially offset by lower outlays for professional fees and employee benefit costs.  

As a result of the above, the consolidated operating earnings for the third quarter of fiscal 2011 were approximately $900,000 as compared to $1.1 million for the third quarter of fiscal 2010.

FIRST NINE MONTHS FISCAL 2011 COMPARED TO FIRST NINE MONTHS FISCAL 2010

Consolidated net revenues for the first nine months of fiscal 2011 amounted to $59.5 million as compared to $49.2 million for the first nine months of fiscal 2010. This 21% increase in net revenues resulted from solid performances in both of our boot segments. Our western/life style product revenues grew from $32.2 million for the first nine months of fiscal 2010 to $34.3 million for the first nine months of fiscal 2011 as demand for these products remained strong. Our work boot business grew from $16.6 million for the first nine months of fiscal 2010 to $24.8 million for the first nine months of fiscal 2011. This 49% increase in net revenues resulted primarily from increased demand for military boots for the U.S. Government. Net revenues attributable to our other work boot products grew 11%, from $9.0 million to $10.0 million, for the first nine months of fiscal 2011 as compared to the same period of fiscal 2010, primarily the result of an improved economy.

Consolidated gross profit for the first nine months of fiscal 2011 totaled $16.3 million as compared to $14.8 million for the first nine months of fiscal 2010. This improvement in consolidated gross profit resulted primarily from the revenue growth in both of our boot segments. Gross profit as a percentage of net revenues fell from 30% for the first nine months of fiscal 2010 to 27% for the first nine months of fiscal 2011. This decline in gross profit margin was primarily attributable to higher production costs, freight costs, and a sales mix shift where lower margin work boot product sales made up a higher percentage of the overall sales mix, growing from 34% for the first nine months of fiscal 2010 to 42% for the first nine months of fiscal 2011.

Consolidated operating costs and expenses amounted to $11.6 million for the first nine months of fiscal 2011 as compared to $10.8 million for the first nine months of fiscal 2010. This increase in consolidated operating costs and expenses was primarily attributable to increased expenditures for sales compensation related costs, administrative salaries, rental expense, employee benefit charges, travel expenses, group health insurance charges, and marketing and advertising expenses, which were partially offset by reduced professional fees.

As a result of the above, the consolidated operating profit for the first nine months of fiscal 2011 totaled $4.7 million as compared to $4.0 million for the first nine months of fiscal 2010. 

FINANCIAL CONDITION AND LIQUIDITY

The Company's financial condition continues to be strong as cash and cash equivalents totaled $12.3 million at April 29, 2011 as compared to $9.9 million at July 31, 2010. Our working capital totaled $34.9 million at April 29, 2011 as compared to $32.8 million at July 31, 2010.

We currently maintain two lines of credit with a bank totaling $6.75 million, all of which was available at April 29, 2011. 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 2012. Our $5.0 million line of credit expires in March 2012.

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 2011.

Operating activities for the first nine months of fiscal 2011 provided $3.7 million of cash. Net earnings as adjusted for depreciation, provided $3.5 million of cash. Our trade accounts receivable used approximately $900,000 of cash while our reduced inventory levels provided approximately $1.6 million of cash. Both of these results were primarily attributable to increased third quarter sales. Prepaid items, primarily the investment in more than 504,000 Euros to be used to purchase new manufacturing equipment, used approximately $630,000 of cash. Income tax benefits provided approximately $104,000 of cash.

Investing activities used approximately $615,000 of cash. Capital expenditures, primarily for manufacturing equipment, office equipment and air handling equipment, used approximately $458,000. Land development costs used $246,000 of cash. Proceeds from the sale of land and other assets provided $89,000 of cash.

Financing activities used approximately $723,000 of cash. Payments to repurchase company stock and dividend payments used $168,000 and $555,000 of cash, respectively.

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 29,

2011


July 31,

2010

ASSETS




Current assets:




Cash and cash equivalents

$ 12,340


$   9,948

Accounts and notes receivable, net

11,376


10,471

Inventories, net

15,600


17,175

Income tax receivable

935


1,059

Prepaid expenses and other current assets

912


165

Total current assets

41,163


38,818





Property and equipment, net

2,850


2,849





Other assets:








Real estate held for investment

3,641


3,435

Amount due from split-dollar life insurance

2,288


2,288

Trademarks

2,824


2,824

Total other assets

8,753


8,547





          Total assets

$ 52,766


$ 50,214




McRae Industries, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)


April 29,

2011


July 31,

2010

Liabilities and Shareholders' Equity








Current liabilities:




    Accounts Payable

$  3,855


$  3,576





    Accrued employee benefits

663


674





    Accrued payroll and payroll taxes

1,114


1,111





    Other

676


699





         Total current liabilities

6,308


6,060





Shareholders' equity:








    Common Stock:








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

    and outstanding  2,049,608 shares and 2,054,282, respectively

2,050


2,054





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

    and outstanding  420,594 shares and 428,979, respectively

421


429





Retained earnings

43,987


41,671





     Total shareholders' equity

46,458


44,154





         Total liabilities and shareholders' equity

$52,766


$50,214




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 29,

2011


May 1,

2010


April 29,

2011


May 1,

2010









Net revenues

$18,037


$15,476


$59,454


$49,228

  Cost of revenues

13,454


10,831


43,179


34,442

        Gross profit

4,583


4,645


16,275


14,786









Less: Operating costs and expenses:
















  Selling, general and administrative expenses

3,665


3,487


11,632


10,793









         Earnings from operations

918


1,158


4,643


3,993









  Other income

52


60


127


155









  Interest expense

0


(4)


(1)


(33)









Earnings before income taxes

970


1,214


4,769


4,115









Provision for income taxes

249


519


1,743


1,673









Net earnings

$    721


$    695


$  3,026


$  2,442









Earnings per common share:








    Basic earnings per share:








       Class A

$  .44


$  .43


$ 1.74


$ 1.45

       Class B

0


0


0


0

    Diluted earnings per share:








       Class A

$  .36


$  .35


$ 1.44


$ 1.19

       Class B

N/A  


N/A  


N/A  


N/A  

Weighted average number of Common shares outstanding:    








      Class A

2,051,443


2,055,579


2,055,157


2,073,693

      Class B

421,701


429,274


424,732


433,697

            Total

2,473,144


2,484,853


2,479,889


2,507,390




McRae Industries, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


Nine Months Ended


April 29,

2011


May 1,

2010





Net cash provided by operating activities

$  3,730


$  3,791





Cash flows from investing activities:








    Proceeds from sales of assets

89


0

    Purchase of land for investment

0


(22)

    Land development costs

(246)


0

    Capital expenditures

(458)


(331)









Net cash used in investing activities

(615)


(353)





Cash flows from financing activities:




    Principal repayments of bank loan

0


(1,310)

    Purchase of company stock

(168)


(362)

    Dividends paid

(555)


(559)





Net cash used in financing activities

(723)


(2,231)





Net increase in cash and cash equivalents

2,392


1,207





Cash and cash equivalents at beginning of period

9,948


11,310





Cash and cash equivalents at end of period

$  12,340


$  12,517




SOURCE McRae Industries, Inc.



RELATED LINKS
http://www.mcraeindustries.com

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