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 May 1, 2004
OR
o 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 (State or other jurisdiction of |
56-0706710 (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 o
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date:
Common Stock, $1 Par Value—Class A 1,942,543 shares as of June 9, 2004
Common Stock, $1 Par Value—Class B 823,456 shares as of June 9, 2004
1
McRae Industries, Inc. and Subsidiaries
INDEX
PART I. FINANCIAL INFORMATION
| Page No. | ||||
| 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 | 7-8 | |||
| ITEM 2. | Management’s Discussion And Analysis of Financial Condition and Results of Operations | 9-16 | ||
| ITEM 3. | Quantitative and Qualitative Disclosures about Market Risk | 16 | ||
| ITEM 4. | Controls and Procedures | 17 | ||
| PART II. OTHER INFORMATION | ||||
| ITEM 1. | Legal Proceedings | 17 | ||
| ITEM 2. | Changes in Securities and Use of Proceeds | 17 | ||
| ITEM 3. | Defaults upon Senior Securities | 17 | ||
| ITEM 4. | Submission of Matters to a Vote of Security Holders | 17 | ||
| ITEM 5. | Other Information | 17 | ||
| ITEM 6. | Exhibits and Reports on Form 8-K | 17 | ||
| Signatures | 18 | |||
2
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)
| May 1, 2004 | August 2, 2003 | ||||||||||
ASSETS |
|||||||||||
Current assets: |
|||||||||||
Cash and cash equivalents |
$ | 3,438 | $ | 6,192 | |||||||
Accounts and notes receivable, net |
12,410 | 10,334 | |||||||||
Inventories (see Note B) |
18,119 | 17,559 | |||||||||
Net investment in capitalized leases |
146 | 146 | |||||||||
Prepaid income taxes |
974 | 314 | |||||||||
Prepaid expenses and other current assets |
517 | 242 | |||||||||
Total current assets |
35,604 | 34,787 | |||||||||
Property and equipment, net |
5,390 | 4,541 | |||||||||
Other assets: |
|||||||||||
Net investment in capitalized leases |
1,694 | 1,716 | |||||||||
Notes receivable |
25 | 71 | |||||||||
Real estate held for investment |
1,451 | 1,390 | |||||||||
Goodwill |
362 | 362 | |||||||||
Cash surrender value of life insurance |
2,220 | 2,220 | |||||||||
Trademarks |
1,049 | 1,049 | |||||||||
Other |
12 | 13 | |||||||||
Total other assets |
6,813 | 6,821 | |||||||||
Total Assets |
$ | 47,807 | $ | 46,149 | |||||||
See notes to condensed consolidated financial statements
3
McRae Industries, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEET
LIABILITIES AND SHAREHOLDERS’ EQUITY
(In thousands, except share and per share data)
| May 1, 2004 | August 2, 2003 | ||||||||||
LIABILITIES AND SHAREHOLDER’S EQUITY |
|||||||||||
Current liabilities: |
|||||||||||
Notes payable, banks — current portion |
$ | 577 | $ | 577 | |||||||
Accounts payable |
5,915 | 5,211 | |||||||||
Accrued employee benefits |
257 | 427 | |||||||||
Deferred revenues |
745 | 1,012 | |||||||||
Accrued payroll and payroll taxes |
1,152 | 913 | |||||||||
Contract contingencies |
400 | 400 | |||||||||
Other |
1,149 | 1,044 | |||||||||
Total current liabilities |
10,195 | 9,584 | |||||||||
Notes payable, banks, net of current portion |
3,278 | 3,307 | |||||||||
Lease guarantees |
1,657 | 1,568 | |||||||||
Minority interest |
82 | 88 | |||||||||
Commitment and contingencies |
— | — | |||||||||
Shareholders’ equity: |
|||||||||||
Common stock: |
|||||||||||
Class A, $1 par; Authorized 5,000,000 shares;
Issued and outstanding, 1,929,943 and
1,914,972 shares, respectively |
1,930 | 1,915 | |||||||||
Class B, $1 par; Authorized 2,500,000 shares;
Issued and outstanding, 838,556 and 853,527
shares, respectively |
839 | 853 | |||||||||
Additional paid-in capital |
791 | 791 | |||||||||
Retained earnings |
29,035 | 28,043 | |||||||||
Total shareholders’ equity |
32,595 | 31,602 | |||||||||
Total liabilities and shareholders’ equity |
$ | 47,807 | $ | 46,149 | |||||||
| NOTE: | The condensed consolidated balance sheet at August 2, 2003 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
4
McRae Industries, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| May 1, | May 3, | May 1, | May 3, | |||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||||
Net revenues |
$ | 24,780 | $ | 19,221 | $ | 65,602 | $ | 56,629 | ||||||||
Cost of revenues |
19,625 | 14,530 | 51,110 | 42,959 | ||||||||||||
Gross profit |
5,155 | 4,691 | 14,492 | 13,670 | ||||||||||||
Costs and expenses: |
||||||||||||||||
Research & development |
363 | 215 | 1,196 | 640 | ||||||||||||
Selling, general and
administrative |
3,529 | 3,662 | 11,179 | 11,023 | ||||||||||||
Other expense (income), net |
(32 | ) | (46 | ) | (89 | ) | (427 | ) | ||||||||
Interest expense |
32 | 42 | 103 | 135 | ||||||||||||
Total costs and expenses |
3,892 | 3,873 | 12,389 | 11,371 | ||||||||||||
Earnings from operations
before income taxes and
minority interest |
1,263 | 818 | 2,103 | 2,299 | ||||||||||||
Provision for income taxes |
474 | 253 | 770 | 827 | ||||||||||||
Minority shareholder’s
interest in earnings of
subsidiary |
(1 | ) | (3 | ) | (5 | ) | (7 | ) | ||||||||
Net earnings |
$ | 790 | $ | 568 | $ | 1,338 | $ | 1,479 | ||||||||
Net earnings per common share |
$ | .29 | $ | .20 | $ | .48 | $ | .53 | ||||||||
Weighted average number of
common shares outstanding |
2,768,499 | 2,768,499 | 2,768,499 | 2,768,499 | ||||||||||||
See notes to condensed consolidated financial statements
5
McRae Industries, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
| Nine Months Ended | ||||||||
| May 1, 2004 | May 3, 2003 | |||||||
Net cash used in operating activities |
$ | (1,175 | ) | $ | (1,499 | ) | ||
Cash flows from investing activities: |
||||||||
Proceeds from sales of assets |
12 | 394 | ||||||
Purchase of trade names and other assets |
— | (150 | ) | |||||
Capital expenditures |
(1,262 | ) | (324 | ) | ||||
Net collections of long-term receivables |
46 | 51 | ||||||
Net cash (used in) provided by investing activities |
(1,204 | ) | (29 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from long-term debt |
401 | — | ||||||
Principal repayments of notes payable |
(430 | ) | (400 | ) | ||||
Dividends paid |
(346 | ) | (341 | ) | ||||
Net cash used in financing activities |
(375 | ) | (741 | ) | ||||
Net decrease in cash and cash equivalents |
(2,754 | ) | (2,269 | ) | ||||
Cash and cash equivalents at beginning of period |
6,192 | 5,822 | ||||||
Cash and cash equivalents at end of period |
$ | 3,438 | $ | 3,553 | ||||
| NOTE: | Transfers of office equipment from inventory to property and equipment amounting to $516,000 and $827,000 for the first nine months of fiscal 2004 and 2003, respectively, are excluded from this statement of cash flows as non-cash operating and investing activities. |
See notes to condensed consolidated financial statements
6
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 by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required by the accounting principals generally accepted in the United States for complete financial statements. In addition, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine months ended May 1, 2004 are not necessarily indicative of the results that may be expected for the year ending July 31, 2004 The interim condensed consolidated financial information should be read in conjunction with the Company’s August 2, 2003 audited consolidated financial statements and footnotes thereto included in the McRae Industries, Inc. Annual Report filed with the SEC.
Certain reclassifications have been made to the prior year’s financial statements to conform with the current year’s presentation.
NOTE B — INVENTORIES
The components of inventory consist of the following (in thousands):
| May 1, 2004 | August 2, 2003 | |||||||
Raw materials |
$ | 3,931 | $ | 3,293 | ||||
Work-in-process |
2,368 | 1,081 | ||||||
Finished goods |
11,820 | 13,185 | ||||||
| $ | 18,119 | $ | 17,559 | |||||
NOTE C — SUBSEQUENT EVENTS
On May 28, 2004, the Company declared a cash dividend of $.06 cents per share on its Class A Common Stock payable on June 25, 2004 to shareholders of record on June 11, 2004.
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NOTE D — SUMMARY OF BUSINESS SEGMENTS
| Three Months Ended | Nine Months Ended | |||||||||||||||
| May 1, | May 3, | May 1, | May 3, | |||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||||
| (In thousands) | ||||||||||||||||
| |
||||||||||||||||
Net revenues |
||||||||||||||||
Bar Code |
$ | 2,868 | $ | 2,339 | $ | 7,779 | $ | 7,378 | ||||||||
Office Products |
7,195 | 6,368 | 17,099 | 15,710 | ||||||||||||
Military Boots |
9,920 | 5,341 | 25,663 | 15,251 | ||||||||||||
Western/Work Boots |
4,720 | 5,148 | 15,718 | 18,214 | ||||||||||||
Eliminations/Other |
77 | 25 | (657 | ) | 76 | |||||||||||
| 24,780 | 19,221 | 65,602 | 56,629 | |||||||||||||
Net (loss) earnings
from operations |
||||||||||||||||
Bar Code |
(148 | ) | (439 | ) | (869 | ) | (1,153 | ) | ||||||||
Office Products |
503 | 151 | (146 | ) | (379 | ) | ||||||||||
Military Boots |
664 | 949 | 2,739 | 2,480 | ||||||||||||
Western/Work Boots |
62 | (48 | ) | (103 | ) | 602 | ||||||||||
Eliminations/Other |
182 | 205 | 482 | 749 | ||||||||||||
| 1,263 | 818 | 2,103 | 2,299 | |||||||||||||
Provision for income
taxes (benefit) |
474 | 253 | 770 | 827 | ||||||||||||
Minority shareholder’s
interest |
(1 | ) | (3 | ) | (5 | ) | (7 | ) | ||||||||
Net (loss) earnings |
$ | 790 | $ | 568 | $ | 1,338 | $ | 1,479 | ||||||||
| May 1, | August 2, | |||||||||||||||
| 2004 | 2003 | |||||||||||||||
Assets |
||||||||||||||||
Bar Code |
$ | 4,663 | $ | 4,987 | ||||||||||||
Office Products |
12,938 | 13,074 | ||||||||||||||
Military Boots |
12,087 | 6,328 | ||||||||||||||
Western/Work Boots |
11,408 | 14,214 | ||||||||||||||
Eliminations/Other |
6,711 | 7,546 | ||||||||||||||
| $ | 47,807 | $ | 46,149 | |||||||||||||
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