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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(x) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarter Ended November 1, 1997
OR
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission file number 1-8578
McRae Industries, Inc
(Exact name of registrant as specified in its charter)
Delaware 56-0706710
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 North Main Street
Mt. Gilead, North Carolina 27306
(Address of principal executive offices)
Telephone Number (910)439-6147
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter periods that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $l Par Value--Class A 1,819,728 shares as of December 11, 1997
Common Stock, $1 Par Value--Class B 948,771 shares as of December 11, 1997
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McRae Industries, Inc. and Subsidiaries
INDEX
Page No.
PART 1. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet 3-4
Condensed Consolidated Statement of Operations 5
Condensed Consolidated Statement of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. Management's Discussion And Analysis of Financial
Condition and Results of Operations 8-9
ITEM 3. Quantitative and Qualitative Disclosures about
Market Risk 9
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 9
ITEM 2. Changes in Securities 9
ITEM 3. Default upon Senior Securities 9
ITEM 4. Submission of Matters to a Vote of Securities Holders 9
ITEM 5. Other Information 9
ITEM 6. Exhibits and Reports on Form 8-K 9
Signatures 10
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
McRae Industries, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
November 1, 1997 August 2, 1997
(Unaudited) (Note)
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,532 $ 5,473
Securities 64 64
Accounts and notes receivable, net 8,149 6,710
Inventories 13,759 11,924
Net investment in capitalized leases 860 866
Prepaid expenses and other current assets 147 203
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Total current assets 27,511 25,240
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Property, plant, and equipment, net 6,217 6,409
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Other assets:
Receivables, related entities 2,637 2,676
Net investment in capitalized leases 1,581 1,808
Notes receivable 1,414 1,363
Real estate held for investment 486 486
Goodwill 619 629
Other 1,144 1,114
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Total other assets 7,881 8,076
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$41,609 $39,725
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</TABLE>
See notes to condensed consolidated financial statements
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McRae Industries, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEET
LIABILITIES AND SHAREHOLDERS' EQUITY
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
November 1, 1997 August 2, 1997
(Unaudited) (Note)
---------------- --------------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Line of credit $ - $ 798
Current portion of notes payable, banks 293 314
Accounts payable 3,849 1,802
Accrued employee benefits 664 601
Deferred revenues 1,508 1,517
Accrued payroll and payroll taxes 651 642
Income taxes 677 532
Other 708 622
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Total current liabilities 8,350 6,828
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Notes payable to banks, net of current portion 5,796 5,854
Minority interest 885 869
Shareholders' equity:
Common stock:
Class A, $1 par; Authorized 5,000,000
shares; Issued and outstanding, 1,816,737
and 1,816,332, shares, respectively 1,817 1,817
Class B, $1 par; Authorized 2,500,000
shares; Issued and outstanding 951,762
and 952,167 shares, respectively 952 952
Additional paid-in capital 791 791
Retained earnings 23,018 22,614
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Total shareholders' equity 26,578 26,174
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$41,609 $39,725
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</TABLE>
NOTE - The condensed consolidated balance sheet at August 2, 1997 has been
derived from the audited financial statements at that date but does not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to condensed consolidated financial statements
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McRae Industries, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
November 1, November 2,
1997 1996
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<S> <C> <C>
Net revenues $ 14,965 $ 17,141
Costs and expenses:
Cost of revenues 11,082 12,579
Selling and administrative 2,965 3,008
Other expense (income), net (162) (76)
Interest expense 121 127
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Total costs and expenses 14,006 15,638
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Earnings before income taxes
and minority interest 959 1,503
Provision for income taxes 375 587
Minority shareholder's interest
in earnings of subsidiary 16 26
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Net earnings $ 568 $ 890
=========== ===========
Net earnings per common share $ .21 $ .32
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Weighted average number of
common shares outstanding 2,768,499 2,742,047
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</TABLE>
See notes to condensed consolidated financial statements
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McRae Industries, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
November 1, 1997 November 2, 1996
---------------- ----------------
<S> <C> <C>
Net cash provided by (used in) operating
activities $ 249 $ 3,289
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Cash flows from investing activities:
Proceeds from sales of assets 29 -
Capital expenditures (202) (93)
Net advances of long term
receivables 3 (176)
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Net cash provided by (used in)
investing activities (170) (269)
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Cash flows from financing activities:
Principal repayments of notes payable (856) (268)
Proceeds from exercise of stock options - 58
Dividends paid (164) -
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Net cash used in financing activities (1,020) (210)
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Net increase (decrease) in cash and cash
equivalents (941) 2,810
Cash and cash equivalents at beginning
of period 5,473 581
------ ------
Cash and cash equivalents at end of period $4,532 $3,391
====== ======
</TABLE>
See notes to condensed consolidated financial statements
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McRae Industries, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended November 1, 1997 are
not necessarily indicative of the results that may be expected for the year
ending August 1, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the McRae Industries,
Inc. Annual Report on Form 10-K for the year ended August 2, 1997.
Certain reclassifications have been made to the prior year's financial
statements to conform with the current year's presentation.
NOTE B - INVENTORIES
An actual valuation of inventory under the LIFO method can be made only at the
end of each year based on the inventory levels and costs at that time.
Accordingly, interim LIFO calculations must necessarily be based on management's
estimates of expected year-end inventory levels and costs. Because these are
subject to many forces beyond management's control, interim calculations, if
any, are subject to the final year-end LIFO inventory valuation.
The components of inventory consist of the following (in thousands):
<TABLE>
<CAPTION>
November 1, 1997 August 2, 1997
<S> <C> <C>
Raw materials $ 2,428 $ 2,314
Work in process 651 771
Finished good 10,680 8,839
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$13,759 $11,924
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</TABLE>
NOTE C - SUBSEQUENT EVENTS
On November 24, 1997, the Company declared a cash dividend of 9.0 cents per
share on its Class A Common Stock payable on December 29, 1997 to shareholders
of record on December 12, 1997.
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McRae Industries, Inc. and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached
unaudited condensed consolidated financial statements and notes thereto, and
with the Company's Annual Report on Form 10-K for the fiscal year ended August
2, 1997, including the financial information and management's discussion and
analysis contained or incorporated by reference therein.
FINANCIAL CONDITION AND LIQUIDITY
The Company's financial condition and liquidity for the quarter ended November
1, 1997 remained solid with a current ratio of 3.3 to 1 and with cash, cash
equivalents and marketable securities amounting to $4.6 million.
Net income from operations, adjusted for depreciation and amortization,
contributed $937,000 in cash. Accounts and notes receivable increased since
August 2, 1997 by approximately $1.4 million. This use of cash was primarily
attributable to increased first quarter sales for the bar code unit as compared
to the fourth quarter and to the timing of collections associated with the
office products unit. Inventories used approximately $1.8 million of cash
primarily due to the office products unit which replenished stock levels which
were lowered by record fourth quarter sales. Approximately $2.0 million of cash
was provided by the increase in accounts payable primarily attributable to the
purchase of the office products unit inventory which accounted for approximately
77% of the increase. The western and work boot product line contributed
approximately 23% of the accounts payable increase as a result of increased
production levels above the fourth quarter of fiscal 1997.
Principal and line of credit repayments for the western and work boot unit used
$856,000 of cash. Dividend payments used another $164,000 of cash.
The Company continues to maintain lines of credit with several banks totaling
$3.75 million all of which was available at November 1, 1997. Management
believes that the current cash and cash equivalents, available lines of credit,
and cash flows from operations will be sufficient to support future working
capital and debt repayment requirements.
FIRST QUARTER FISCAL 1998 COMPARED TO FIRST QUARTER FISCAL 1997
Consolidated net revenues for the first quarter of fiscal 1998 decreased
approximately $2.2 million as compared to the same quarter of fiscal 1997. This
12.7% decline in consolidated net revenues was primarily attributable to the
footwear unit which was down approximately $2.7 million or 30% from the net
revenue level posted in the first quarter of fiscal 1997. Net revenues from the
military combat boot product line declined $1.4 million primarily as a result of
the timing of shipments associated with the completion of one Government
contract and the commencement of a new contract in April, 1997. Net revenues
from the western and work boot product line declined $1.3 million primarily as a
result of lower demand for western style boots. The office products and bar code
units partially offset the decline in consolidated net revenues by posting
comparative first quarter increases in net revenues of approximately $454,000 or
13.7% and $171,000 or 4.0%, respectively. Sales to several county-wide school
systems were primarily responsible for the net revenue increase posted by the
office products unit. The bar code unit's net revenue increase was primarily
attributable to the shipment of several large radio frequency product orders.
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Consolidated gross profit fell from $4.6 million for the first quarter of fiscal
1997 to $3.9 million for the current quarter primarily as a result of decreased
consolidated net revenues. Gross profit as a percentage of sales declined from
26.6% for the first quarter of fiscal 1997 to 25.9% for the first quarter of
fiscal 1998. This decline in gross profit margin was the result of the
continuing competitive price pressures in the bar code market and the spreading
of fixed manufacturing expenses over smaller production levels in connection
with the western and work boot product line.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3 of the Company's Annual Report to Shareholders on
Form 10-K for the fiscal year ended August 2, 1997.
Items 2,3,4, and 5
These items are inapplicable and have been omitted.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule. (Filed in electronic format only.
Pursuant to Rule 402 of Regulations S-T, this schedule shall
not be deemed filed for purposes of Section 11 of the
Securities Act of 1933 or Section 18 of the Securities
Exchange Act of 1934.)
(b) No reports on Form 8-K were filed during the quarter ended November 1, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
McRae Industries, Inc.
(Registrant)
Date: December 12, 1997 By: /s/ D. Gary McRae
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D. Gary McRae
President and CEO
(Principal Executive Officer)
Date: December 12, 1997 By: /s/ Marvin G. Kiser, Sr.
----------------- ------------------------
Marvin G. Kiser, Sr.
(Principal Accounting Officer)
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-1-1998
<PERIOD-START> AUG-3-1997
<PERIOD-END> NOV-1-1997
<CASH> 4,532
<SECURITIES> 64
<RECEIVABLES> 8,692
<ALLOWANCES> 543
<INVENTORY> 13,759
<CURRENT-ASSETS> 27,511
<PP&E> 14,901
<DEPRECIATION> 8,683
<TOTAL-ASSETS> 41,609
<CURRENT-LIABILITIES> 8,350
<BONDS> 5,796
0
0
<COMMON> 2,769
<OTHER-SE> 791
<TOTAL-LIABILITY-AND-EQUITY> 41,609
<SALES> 14,965
<TOTAL-REVENUES> 14,965
<CGS> 11,082
<TOTAL-COSTS> 14,168
<OTHER-EXPENSES> (162)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 121
<INCOME-PRETAX> 959
<INCOME-TAX> 375
<INCOME-CONTINUING> 568
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 568
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
