McRae Industries， Inc. Reports Earnings for Fiscal 2007

　　MOUNT GILEAD, N.C., Nov. 14 /PRNewswire-FirstCall/ -- McRae Industries, Inc. (Pink Sheets: MRINA - News and MRINB - News) reported consolidated net revenues for fiscal 2007 of $68,271,000 as compared to $68,852,000 for fiscal 2006. Net earnings for fiscal 2007 totaled $3,818,000, or $1.75 per diluted Class A common share as compared to net earnings of $3,390,000, or $1.54 per diluted Class A common share for fiscal 2006. The after-tax gain on the sale of our Florida real estate property in fiscal 2007 favorably impacted earnings per diluted Class A common share by $.26.

    CONSOLIDATED RESULTS OF OPERATIONS, FISCAL 2007 COMPARED TO FISCAL 2006

    Consolidated net revenues for fiscal 2007 totaled $68.3 million as compared to $68.9 million for fiscal 2006. This small decrease in net revenues was primarily the result of reduced sales of military combat boots to the U.S. Government (the "Government"), which was partially offset by increased net revenues in the bar code and western and work boot businesses.

    Consolidated gross profit amounted to $18.5 million for fiscal 2007 as compared to $19.2 million for fiscal 2006. The decline in consolidated gross profit was primarily attributable to reduced military boot net revenues and inventory write-offs related to the bar code business. Increased gross profit for the western and work boot business attributable to higher net revenues partially offset the decrease in consolidated gross profit.

    Consolidated selling, general and administrative ("SG&A") expenses, including research and development ("R&D") costs, decreased from $14.0 million for fiscal 2006 to $13.3 million for fiscal 2007. This 5% decline in SG&A expenses resulted primarily from the gain on the sale of our real estate property in Florida in conjunction with reduced charges for R&D, professional services, employee benefit costs and goodwill impairment. These reductions in expenditures were partially offset by increased charges for sales commissions, real estate rental, travel and entertainment, and group health insurance.

    As a result of the above, consolidated net operating profit totaled $5.2 million for both fiscal 2007 and fiscal 2006.

    BAR CODE UNIT RESULTS OF OPERATIONS, FISCAL 2007 COMPARED TO FISCAL 2006

    Compsee is a leading full-service integrator of wireless and mobile computing and network solutions that designs, integrates and supports an end- to-end wireless solution - from the backbone to the mobile worker. The Company''s unique blend of best-of-breed hardware and professional services provides solutions for a full range of demanding mobile environments. Compsee also offers a line of manufactured portable and fixed barcode readers for specialized applications.

    Net revenues for the barcode unit grew from $12.6 million for fiscal 2006 to $13.5 million for fiscal 2007 primarily attributable to increased system hardware and peripheral equipment sales. The sales contribution from our manufactured products, including the MAT product, continues to decline as these product''s life cycles mature. As a result, during the fourth quarter of fiscal 2007, we changed our sales strategy to focus on a "mobility solutions" concept utilizing leading automatic identification product manufacturers. We will continue to sell our manufactured products to our core customer base.

    Gross profit fell from $3.1 million for fiscal 2006 to $2.4 million for fiscal 2007, primarily the result of write-off charges amounting to approximately $900,000 related to the decision to discontinue development of new manufactured products, including the MAT product. Gross profit as a percentage of net revenues also declined as lower margin system hardware sales made up a larger portion of the overall sales mix.

    SG&A expenses were $3.0 million for fiscal 2007 as compared to $4.4 million for fiscal 2006. This reduction in SG&A expenses was primarily attributable to the $1.1 million gain on the sale of the Florida office property and lower charges for R&D, advertising and marketing expenses, and goodwill impairment. Higher charges for real estate rental and group health insurance partially offset the reduction in SG&A expenses.

    As a result of the above, the operating loss improved from $1.2 million for fiscal 2006 to $632,000 for fiscal 2007.

    MILITARY BOOT UNIT RESULTS OF OPERATIONS, FISCAL 2007 COMPARED TO FISCAL 2006

    Our military boot unit manufactures and distributes military combat boots primarily to the Government, foreign governments, and selected commercial surplus outlets.

    Net revenues for the military boot unit totaled $16.4 million for fiscal 2007, down from $19.8 million for fiscal 2006, primarily the result of the expiration of two major military boot contracts and the delay in awarding a new contract by the Government until May 2007. The contract ("Contract") awarded in May provides for a base year and four one-year options specifying a minimum and maximum number of direct molded sole military boots to be purchased by the Government. This Contract is worth approximately $106.8 million if the Government purchases the maximum quantity of military boots for each of the one-year periods. The amount ultimately purchased by the Government depends solely on its military boot requirements.

    Gross profit for fiscal 2007 was $2.9 million as compared to $3.2 million for fiscal 2006. This decrease in gross profit was primarily the result of reduced net revenues. Gross profit as a percentage of net revenues increased from 16.3% for fiscal 2006 to 17.5% for fiscal 2007 as a result of lower per unit manufacturing costs which helped to offset the impact of lower net revenues.

    SG&A expenses fell nearly 21%, down from $1.2 million for fiscal 2006 to $1.0 million for fiscal 2007, primarily attributable to reduced employee benefit costs and corporate allocated charges.

    As a result of the above, the operating profit for fiscal 2007 amounted to $1.9 million as compared to $2.0 million for fiscal 2006.

    WESTERN AND WORK BOOT UNIT RESULTS OF OPERATIONS, FISCAL 2007 COMPARED TO FISCAL 2006

    Our western and work boot unit imports and sells various boot styles for men, women and children for dress and casual wear. We utilize a variety of retail channels throughout the United States and Canada to market our western and work boot products.

    Net revenues for the western and work boot unit totaled $38.2 million for fiscal 2007 as compared to $35.1 million for fiscal 2006. This 9% increase in net revenues for fiscal 2007 resulted from exceptional market demand for our John Deere branded products, especially the children''s line of products. The John Deere product line, which was initially introduced to the market during the last half of fiscal 2006, contributed more than $9.0 million in net revenues in fiscal 2007, and was a major factor in offsetting the decline in net revenues associated with market softness in our fashion boot product lines. We expect the John Deere product lines to have a greater impact on net revenues in fiscal 2008 while sales of our western boot lines will remain flat.

    Gross profit for fiscal 2007 climbed to $13.0 million, up from $12.2 million for fiscal 2006, primarily the result of the increase in net revenues. Gross profit as a percentage of net revenues remained nearly constant with 34.1% for fiscal 2007 as compared to 34.8% for fiscal 2006.

    SG&A expenses amounted to $9.1 million for fiscal 2007 as compared to $8.0 million for fiscal 2006. This increase in SG&A expenses resulted primarily from higher expenditures for salaries, sales commissions, travel related costs, bad debt charges and real estate rentals. Fiscal 2006 SG&A expenses were partially offset by the $212,000 gain on the sale of the manufacturing facility property.

    As a result of the above, the net operating profit for fiscal 2007 totaled $3.9 million as compared to $4.2 million for fiscal 2006.

    FINANCIAL CONDITION AND LIQUIDITY

    At July 28, 2007, our financial condition and liquidity remained strong. Cash and cash equivalents totaled $9.2 million at July 28, 2007, up from $8.5 million at July 29, 2006.

    Working capital amounted to $29.4 million and $27.9 million at July 28, 2007 and July 29, 2006, respectively.

    We currently have three lines of credit with a bank totaling $7.75 million, all of which were fully available at July 28, 2007. One credit line totaling $1.75 million (which is restricted to one hundred percent of the outstanding receivables due from the Government) expires in January 2008. One $3.0 million line of credit, which expires in November 2007, is secured by the inventory and accounts receivable of our Dan Post Boot Company subsidiary. The other $3.0 million line of credit is unsecured and expires in December 2007.

    We believe that our current cash and cash equivalents, cash generated from operations, and available credit lines will be sufficient to meet our capital requirements for fiscal 2008.

    Net cash provided by operating activities for fiscal 2007 amounted to approximately $2.5 million. Net earnings, as adjusted for depreciation and gain on sale of assets, contributed approximately $3.3 million of cash. The timing of collection of trade accounts and notes receivable used approximately $1.6 million of cash as fourth quarter sales for all business units were strong. The timing of payment for accounts payable, primarily for inventory purchases, and income taxes provided approximately $1.3 million of cash.

    Net cash used in investing activities totaled $748,000. Proceeds from the sale of our Florida real estate property of approximately $1.43 million were used in a Section 1031 like-kind exchange to purchase land for investment in North Carolina for approximately $1.85 million. Capital expenditures, primarily for manufacturing equipment, office furniture and computer related equipment, used $422,000 of cash.

    Financing activities used approximately $940,000 of cash for dividend payments and the repurchase of company stock from eligible employee stock ownership plan participants.

    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.

    McRae Industries, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (In thousands) July 28, July 29, 2007 2006 ASSETS Current assets: Cash and cash equivalents $9,243 $8,461 Accounts receivable, less allowances of $720,000 and $743,000, respectively 9,629 8,049 Notes receivable, current portion 3 5 Inventories 16,060 15,835 Income tax receivable 433 815 Prepaid expenses and other current assets 210 127 Total current assets 35,578 33,292 Property and equipment, net 1,988 2,509 Other assets: Notes receivable, net of current portion 20 37 Real estate held for investment 3,340 1,468 Amount due from split-dollar life insurance 2,220 2,220 Trademarks 2,824 2,824 Other 3 5 Total other assets 8,407 6,554 Total assets $ 45,973 $42,355 McRae Industries, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (In thousands) July 28, July 29, 2007 2006 LIABILITIES AND SHAREHOLDERS'' EQUITY Current liabilities: Accounts payable $3,810 $2,923 Accrued employee benefits 476 602 Accrued payroll and payroll taxes 968 1,014 Other 911 885 Total current liabilities 6,165 5,424 Shareholders'' equity: Common Stock: Class A, $1 par value; authorized 5,000,000 shares; issued and outstanding, 2,104,924 and 2,116,751 shares, respectively 2,105 2,117 Class B, $1 par value; authorized 2,500,000 shares; issued and outstanding, 449,155 and 457,603 shares, respectively 449 458 Retained earnings 37,254 34,356 Total shareholders'' equity 39,808 36,931 Total liabilities and shareholders'' equity $45,973 $42,355 McRae Industries, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data) July 28, July 29, July 30, For Years Ended 2007 2006 2005 Net revenues $68,271 $68,852 $62,404 Cost of revenues 49,775 49,661 47,681 Gross profit 18,496 19,191 14,723 Selling, general and administrative expenses 13,336 14,008 12,266 Operating profit from continuing operations 5,160 5,183 2,457 Other income 462 409 78 Interest expense (19) (13) (44) Earnings from continuing operations before income taxes 5,603 5,579 2,491 Provision for income taxes 1,785 2,189 917 Net earnings from continuing operations 3,818 3,390 1,574 Discontinued operations: Loss from discontinued operations, net of income tax benefit of $(161,000) for 2005. 0 0 (274) Gain on sale of business, net of income tax provision of $1,341,000 0 0 2,144 Net earnings $3,818 $3,390 $3,444 Earnings per common share: Earnings per common share from continuing operations: Basic earnings per share: Class A $2.13 $1.90 $1.09 Class B 0 0 0 Diluted earnings per share: Class A 1.75 1.54 .79 Class B NA NA NA Earnings per common share from discontinued operations: Basic earnings per share: Class A 0 0 .94 Class B 0 0 0 Diluted earnings per share: Class A 0 0 .67 Class B NA NA NA Net earnings per common share: Basic earnings per share: Class A 2.13 1.90 2.03 Class B 0 0 0 Diluted earnings per share: Class A 1.75 1.54 1.46 Class B NA NA NA Weighted average number of common shares outstanding: Class A 2,111,633 2,147,827 1,993,172 Class B 454,645 492,323 775,327 Total 2,566,278 2,640,150 2,768,499 McRae Industries, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) July 28, July 29, July 30, For Years Ended 2007 2006 2005 Cash Flows from Operating Activities: Net earnings $3,818 $3,390 $3,444 Adjustments to reconcile net earnings to net cash provided by operating activities: Net loss from discontinued operations 0 0 (1,870) Depreciation and amortization 575 543 569 Goodwill impairment 0 362 0 Gain on sale of assets (1,091) (214) 138 Changes in operating assets and liabilities: Accounts and notes receivable (1,555) 796 1,101 Accounts receivable valuation allowances (23) 10 395 Inventories (295) (3,114) 2,089 Prepaid expenses and other current assets (82) 446 (38) Accounts payable 887 (870) (879) Accrued employee benefits (126) 122 (44) Accrued payroll and payroll taxes (46) 331 (182) Income taxes 382 25 (164) Working capital changes associated with discontinued operations 0 0 (994) Other 26 (10) (155) Net cash provided by operating activities 2,470 1,817 3,410 Cash Flows from Investing Activities: Proceeds from sale of discontinued operations 0 894 9,900 Proceeds from sale of land and fixed assets 113 537 12 Purchase of land for investment (456) 0 (460) Purchase of trademarks 0 0 (1,775) Capital expenditures (422) (410) (193) Collections on notes receivable 17 3 16 Net cash (used in) provided by investing activities (748) 1,024 7,500 Cash Flows from Financing Activities: Purchase of common stock (254) (2,764) 0 Principal repayments of long-term debt 0 (174) (3,529) Dividends paid (686) (680) (606) Net cash used in financing activities (940) (3,618) (4,135) Net Increase (Decrease) in Cash and Cash Equivalents 782 (777) 6,775 Cash and Cash Equivalents at Beginning of Year 8,461 9,238 2,463 Cash and Cash Equivalents at End of Year $9,243 $8,461 $9,238 Note: Accounts receivable for fiscal 2005 contains a non-cash activity in the amount of $894,000 related to the sale of our office products business. Inventories and capital expenditure for fiscal 2007 contain a $70,000 non-cash activity related to the transfer of bar code inventory to fixed assets. Proceeds from sale of land and purchase of land contain a non-cash section 1031 exchange component totaling $1.43 million.

    Source: McRae Industries, Inc.