<PAGE> 1
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 FEBRUARY 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
------------------ ---------------------
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
incorporation or organization) Identification No.)
402 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 1,812,237 shares as of March 10, 1997
Common Stock, $1 Par Value--Class B 956,262 shares as of March 10, 1997
1
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MCRAE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
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
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 10
ITEM 2. CHANGES IN SECURITIES 10
ITEM 3. DEFAULT UPON SENIOR SECURITIES 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS 10
ITEM 5. OTHER INFORMATION 10-11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
</TABLE>
2
<PAGE> 3
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>
February 1, 1997 August 3, 1996
Assets (Unaudited) (Note)
----------- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,488 $ 581
Securities 65 65
Accounts and notes receivable,net 7,510 10,606
Inventories 12,647 12,640
Net investment in capitalized leases 963 966
Prepaid expenses and other current assets 114 210
------- -------
Total current assets 24,787 25,068
------- -------
Property, plant and equipment,net 7,095 7,172
Other assets:
Receivables,related entities 2,511 2,359
Net investment in capitalized leases 1,527 1,798
Notes receivable 1,171 952
Real estate held for investment 486 478
Goodwill 654 674
Other 1,220 1,060
------- -------
Total other assets 7,569 7,321
------- -------
$39,451 $39,561
======= =======
</TABLE>
See notes to quarterly financial statements
3
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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>
February 1, 1997 August 3, 1996
(Unaudited) (Note)
----------- ------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ 321 $ 789
Accounts payable 2,806 2,897
Accrued employee benefits 807 846
Deferred revenues 1,326 1,454
Accrued payroll and payroll taxes 694 790
Income taxes 441 759
Other 312 580
------- -------
Total current liabilities 6,707 8,115
------- -------
Notes payable to banks, net of current portion 6,008 6,285
Minority Interest 861 797
Shareholders' Equity:
Common stock:
Class "A", $1 par; Authorized 5,000,000
shares; Issued and outstanding, 1,809,964
and 1,788,286, shares, respectively 1,810 1,788
Class "B", $1 par, Authorized 2,500,000
shares; Issued and outstanding 958,535
and 951,213 shares, respectively 959 951
Additional Paid-in Capital 734 705
Retained Earnings 22,372 20,920
------- -------
Total Shareholders' Equity 25,875 24,364
------- -------
$39,451 $39,561
======= =======
</TABLE>
NOTE - The condensed consolidated balance sheet at August 3, 1996 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 quarterly financial statements
4
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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 Six Months Ended
February 1, January 27, February 1, January 27,
1997 1996 1997 1996
------------------------ --------------------
<S> <C> <C> <C> <C>
Net revenues $ 15,147 $ 10,142 $ 32,288 $ 20,554
Costs and expenses:
Cost of revenues 10,682 6,935 23,261 14,278
Selling and administrative 3,168 2,582 6,176 5,118
Other expense (income), net 56 (125) 107 (200)
---------- ----------- ---------- -----------
Total costs and expenses 13,906 9,392 29,544 19,196
---------- ----------- ---------- -----------
Earnings before income taxes
and minority interest 1,241 750 2,744 1,358
Provision for income taxes 485 287 1,072 516
Minority shareholder's interest
in earnings of subsidiary 38 14 64 49
---------- ----------- ---------- -----------
Net earnings $ 718 $ 449 $ 1,608 $ 793
========== =========== ========== ===========
Net earnings per Common Share $ .26 $ .16 $ .58 $ .29
---------- ----------- ---------- -----------
Weighted average number of
Common Shares Outstanding 2,768,499 2,729,375 2,755,275 2,730,144
---------- ----------- ---------- -----------
</TABLE>
See notes to quarterly financial statements.
5
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MCRAE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
February 1, 1997 January 27, 1996
---------------- ----------------
<S> <C> <C>
Net cash provided by operating
activities $ 4,531 $ 197
Cash flows from investing activities:
Proceeds from securities -0- 1,245
Capital expenditures (148) (423)
Purchase of other assets (90) (186)
Net advances of long term
receivables (380) (99)
------- -------
Net cash provided by (used in)
investing activities (618) 537
------- -------
Cash flows from financing activities:
Principal repayments of notes payable (745) -0-
Purchase Treasury Stock -0- (17)
Proceeds from exercise of stock options 58 -0-
Dividends paid (319) (311)
------- -------
Net cash used in financing activities (1,006) (328)
------- -------
Net increase in cash and cash equivalents 2,907 406
Cash and Cash Equivalents at Beginning of Period 581 628
------- -------
Cash and Cash Equivalents at End of Period $ 3,488 $ 1,034
======= =======
</TABLE>
See notes to quarterly 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 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
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 six months ended February 1, 1997 are
not necessarily indicative of the results that may be expected for the year
ending August 2, 1997. 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 3, 1996.
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>
February 1, 1997 August 3, 1996
---------------- --------------
<S> <C> <C>
Raw materials $ 2,150 $ 2,288
Work in process 719 1,142
Finished goods 9,778 9,210
------- -------
$12,647 $12,640
======= =======
</TABLE>
NOTE C - SUBSEQUENT EVENTS
On February 14, 1997, the Company announced plans to consolidate its western and
work boot production facilities by closing the manufacturing, retail and
administrative operations at the Dresden, Tennessee location on June 27, 1997.
The Company intends to continue to use the facilities for warehousing and
distribution. The Tennessee Department of Labor, local officials and employees
have been notified of this action.
On March 10, 1997, the Company declared a cash dividend of 9.0 cents per share
on its Class A Common Stock payable on April 4, 1997 to shareholders of record
on March 21, 1997.
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MCRAE INDUSTRIES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY
The Company's working capital at the end of this reporting period continued to
show a strong position with a current ratio of 3.7 to 1 as compared to 3.1 to 1
on August 3, 1996.
Cash, cash equivalents and marketable securities totaled $3,553,000 for the
period ended February 1, 1997 versus $646,000 reported on August 3, 1996. The
increase was due primarily to cash generated from operating activities amounting
to $4.5 million. Income from operations adjusted for depreciation and
amortization contributed $2.4 million and collections of accounts and notes
receivable related mainly to the footwear segment provided $3.1 million.
Inventory, primarily associated with the office products segment, used
approximately $587,000 in cash while payments of estimated income taxes used
another $319,000.
Investing activities used net cash of $618,000. Capital expenditures amounting
to $148,000 consisted primarily of purchases of production machinery and
computer hardware and software. Advances to certain related parties, for normal
operating capital, approximated $158,000 while notes receivable associated with
the financing and leasing segment used $222,000 for the period.
Cash used in financing activities amounted to approximately $1 million.
Principal and line of credit payments accounted for $745,000 while dividend
payments were $319,000. Proceeds from the exercise of stock options provided an
offset of $58,000.
Credit lines at several banks totalling $3.75 million are maintained by the
Company. As of February 1, 1997 the entire amount was available. Management
believes that the current cash and cash equivalents, available lines of credit
and anticipated cash flows from operations will be sufficient to provide for the
Company's future working capital and debt repayment requirements.
SECOND QUARTER FISCAL 1997 COMPARED TO SECOND QUARTER FISCAL 1996
Second quarter consolidated revenues for fiscal 1997 amounted to $15,147,000, a
49% increase over consolidated revenues of $10,142,000 reported for the same
period of fiscal 1996. The footwear segment contributed approximately $3.5
million of the total $5.0 million quarterly increase primarily due to the
acquisition in April 1996 of the western and work boot unit which contributed
approximately $3.1 million. The bar code unit contributed approximately $1.5
million of the increase which was primarily attributable to a major order
manufactured and delivered during the second quarter.
The Company does not expect revenues for the remainder of the fiscal year to
follow the same growth patterns exhibited by the first two quarters of fiscal
1997. The military combat boot unit has essentially completed the delivery
requirements associated with the recently expired government contract.
Negotiations on a new five year contract are in process and the Company expects
to receive an award during the third quarter. The Company had expected to
receive this award during the second quarter and this delay will have an
unfavorable impact on revenues for the third and possibly the fourth quarters.
While the Company believes it is well positioned to be awarded this contract, a
contrary decision or extended delay to award this contract by the government
could have an unfavorable effect on the Company. Management also believes that
the demands for western boots will decline in the spring and summer months
consistent
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with the seasonal trends of the industry.
Gross profit on a consolidated basis for the second quarter of 1997 exceeded the
second quarter of 1996 by approximately $1.3 million, a 39% improvement. The bar
code segment contributed almost $600,000 while the footwear segment contributed
approximately $500,000. Gross profit as a percent of net revenues declined for
the current quarter to 29.5% as compared to 31.6% for the prior year's second
quarter. This decrease was primarily caused by the product mix for the second
fiscal quarter being heavily influenced by the footwear segment which accounted
for 43% of the revenue versus 29% for the same period last year. This segment's
gross profit percentage also declined from the 20% reported for the second
quarter of 1996 to 17% for the second quarter of 1997 as a result of the
addition of the western and work boot unit which generally has lower margins. A
second factor related to a decline in the bar code unit's gross profit
percentage from 45% for second quarter 1996 to 43% for the comparative quarter.
This decrease was caused generally by higher labor cost associated with overtime
necessitated by tight delivery schedules and slightly higher material cost.
Selling, General and Administrative (SG&A) expenses were 21% of net revenues for
the second quarter of fiscal 1997 compared to 25% for the same period of fiscal
1996, while overall SG&A spending increased by 23 percent. This increase was
primarily due to the addition of the western and work boot unit and increased
sales salary and commission expenses related to the bar code unit.
FIRST SIX MONTHS FISCAL 1997 COMPARED TO FIRST SIX MONTHS FISCAL 1996
Consolidated net revenues for the first six months of fiscal 1997 exceeded the
comparable period for fiscal 1996 by 57%. The footwear segment contributed
approximately $10.2 million of the $11.7 million increase of which $7.6 million
resulted from the addition of the western and work boot unit. In addition, the
bar code unit contributed $1.2 million of the increase.
Gross profit increased by $2.75 million for the six month period of fiscal 1997
over the same period in fiscal 1996 while gross profit as a percent of net
revenues declined from 28% for the current fiscal period as compared to 30.5%
for the prior year's fiscal period. This decline in gross profit percentage was
primarily attributable to the increased concentration of lower margin sales from
the footwear segment in the product mix for the current reporting period as
compared to the prior year period. On an individual basis, however, each of the
major business segments reported slight gross profit percentage gains for the
comparable periods of fiscal 1997 and 1996.
Selling, General and Administrative expenses totaled $6.2 million for the six
months of fiscal 1997 as compared to $5.1 million for the prior year's fiscal
period. The major contributors to the increase were the inclusion of the western
and work boot SG&A expenditures which accounted for $760,000 and increased
selling costs of $173,000 attributable to the bar code unit.
9
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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 3, 1996.
ITEMS 2 AND 3.
These items are inapplicable and have been omitted.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on December 19, 1996, the
following individuals were elected to the Board of Directors:
<TABLE>
<CAPTION>
VOTES FOR VOTES WITHHELD
CLASS A CLASS B CLASS A CLASS B
------- ------- ------- -------
<S> <C> <C> <C> <C>
B.J. McRae N/A 731,576 N/A 100
George M. Bruton N/A 731,576 N/A 100
Hilton J. Cochran N/A 731,576 N/A 100
Victor A. Karam N/A 731,576 N/A 100
James W. McRae N/A 731,576 N/A 100
D. Gary McRae 1,518,092 N/A 3816 N/A
Harold W. Smith 1,518,092 N/A 3816 N/A
</TABLE>
The following proposal was approved at the Company's Annual Meeting:
<TABLE>
<CAPTION>
AFFIRMATIVE VOTES NEGATIVE VOTES VOTES WITHHELD
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Ratify the appointment of
Gleiberman Spears Shepherd &
Menaker, P.A. as independent
certified public accountants
for the current fiscal year 1,517,759 731,258 -0- 100 4149 318
</TABLE>
ITEM 5. OTHER INFORMATION
On March 11, 1997, a change in control of the registrant occurred when D. Gary
McRae and James W. McRae qualified under local law in Montgomery County, North
Carolina as Co-Executors of the estate of the late Branson J. McRae, their
father, who died on February 26, 1997. Mr. B. J. McRae was the beneficial
owner of 509,385 shares or 28.1% of Class A Common Stock of the Registrant and
523,865 shares or 54.8% of Class B Common Stock of the Registrant. However,
such percentages are subject to change, as each share of Class B Common Stock
may be converted at any time at no expense into one share of Class A Common
Stock pursuant to the Registrant's Certificate of Incorporation.
As Co-Executors of the estate, Messrs. D. Gary McRae and James W. McRae have,
collectively, sole power to dispose and sole power to vote all such shares.
The holders of the Class A Common Stock and the holders of the Class B Common
Stock are entitled to vote as separate classes on such other matters as may be
required by law or the Registrant's Certificate of Incorporation. On all other
matters, the holders of Class A and Class B Common Stock vote together as a
single class with each share of Class A Common Stock being entitled to 1/10th
of one vote and each share of Class B Common Stock being entitled to one vote.
Provided the number of outstanding shares of Class A Common Stock is at least
10% of the aggregate number of outstanding shares of Class A and Class B Common
Stock, the holders of Class A Common Stock voting as a separate class are
entitled to elect the number of directors which constitute 25% of the
authorized number of members of the Board of Directors. If such 25% is not a
whole number, then the holders of the Class A Common Stock are entitled to
elect the nearest higher whole number of directors. The holders of Class A
Common Stock are currently entitled to elect two directors.
Provided the number of outstanding shares of Class B Common Stock is at least
350,000, the holders of the Class B Common Stock voting as a separate class are
entitled to elect the remaining authorized number of members of the Board of
Directors. The holders of the Class B Common Stock are currently entitled to
elect five directors.
D. Gary McRae has been appointed President of the Registrant, and James W.
McRae continues to serve as Vice President and Secretary of the Registrant.
The Registrant's business is being carried on without interruption.
10
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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 February 1, 1997.
11
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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: March 18, 1997 By: /s/ D. Gary McRae
------------------ -----------------------------
D. Gary McRae
President and CEO
(Principal Executive Officer)
DATE: March 18, 1997 By: /s/ Marvin G. Kiser, Sr.
------------------ -----------------------------
Marvin G. Kiser, Sr.
(Principal Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-02-1997
<PERIOD-START> AUG-04-1996
<PERIOD-END> FEB-01-1997
<CASH> 3,488
<SECURITIES> 65
<RECEIVABLES> 7,803
<ALLOWANCES> 293
<INVENTORY> 12,647
<CURRENT-ASSETS> 24,787
<PP&E> 15,139
<DEPRECIATION> 8,044
<TOTAL-ASSETS> 39,451
<CURRENT-LIABILITIES> 6,707
<BONDS> 0
0
0
<COMMON> 2,769
<OTHER-SE> 734
<TOTAL-LIABILITY-AND-EQUITY> 39,451
<SALES> 32,288
<TOTAL-REVENUES> 32,288
<CGS> 23,261
<TOTAL-COSTS> 23,261
<OTHER-EXPENSES> 107
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 252
<INCOME-PRETAX> 2,680
<INCOME-TAX> 1,072
<INCOME-CONTINUING> 1,608
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,608
<EPS-PRIMARY> 0.58
<EPS-DILUTED> 0
</TABLE>
