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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended August 2, 1997
COMMISSION FILE NUMBER: 1-8578
MCRAE INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 56-0706710
(State of Incorporation) (I.R.S. Employer Identification No.)
400 NORTH MAIN STREET, MOUNT GILEAD, NORTH CAROLINA 27306
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (910)439-6147
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Class A Common Stock, $1 Par Value American Stock Exchange
Class B Common Stock, $1 Par Value American Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment of this
Form 10-K. [ ]
The aggregate market value of shares of the Registrant's $1 par value Class A
and Class B Common Stock held by non-affiliates as of October 24, 1997 was
approximately $9,400,000 and $2,500,000, respectively. On October 24, 1997
1,819,728 Class A shares and 948,771 Class B shares of the Registrants Common
Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual shareholders meeting to be held
on December 18, 1997 are incorporated by reference into Part III.
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PART I
ITEM I. BUSINESS
The Registrant is a Delaware corporation organized in 1983 and is the successor
to a North Carolina corporation organized in 1959. The Company's principal lines
of business are: manufacturing and selling bar code reading and related printing
devices; manufacturing and selling military combat boots, western and work
boots; selling, leasing, and servicing office equipment; and commercial
printing. On April 30, 1996, the Registrant acquired American West Trading
Company (American West) which manufactures western and work boots.
BAR CODE OPERATIONS
The bar code segment, manufactures and sells bar code reading and printing
devices and other items related to optical data collection, including licensing
and selling computer software through Compsee, Inc. (Compsee), a 92% owned
subsidiary. At August 2, 1997, Compsee had sales centers located throughout the
United States and also sells its products in Central and South America, Europe,
Australia, the Middle East, and the Pacific Rim countries through foreign
distributors. Compsee's export sales were 1% of the Registrant's consolidated
gross revenues for each of the last three fiscal years.
Compsee designs and manufacturers QuickReader and QuickLink bar code readers.
Principal materials used in Compsee's assembly operations consist of various
electrical and electronic components that are readily available from a number of
sources. During fiscal 1996, Compsee introduced APEX II, a new portable bar code
scanner. This product was well received in the market and provided 8% of Compsee
sales for fiscal 1997. A companion product, the APEX II cradle, which
facilitates data transfer and provides battery recharging capabilities, was
added to the product line in fiscal 1997.
The markets in which this business segment operates are generally highly
competitive. The Registrant is not aware of any reliable statistics that would
enable the Registrant to determine the relative position of Compsee or its
products within the industry. Competition in the industry is principally based
on product features, customer service and price. The major competitors in the
industry include Percon, Unitech, UBI, and Handheld Products.
Revenues derived from this segment in fiscal 1997, 1996, and 1995 were 27%, 33%,
and 43% of the Registrant's total revenues, respectively. QuickReaders and
QuickLink bar code readers developed and marketed by Compsee accounted for 25%,
18%, and 16% of Compsee's sales and for 7%, 6%, and 7%, respectively, of the
Registrant's consolidated revenues during fiscal 1997, 1996, and 1995. There was
no significant backlog of firm orders for this segment at August 2, 1997.
FOOTWEAR MANUFACTURING
The Registrant's footwear manufacturing operations include the manufacture and
sale of military combat, western and work boots. The Registrant has manufactured
Direct Molded Sole military combat boots for the United States Government (the
Government) since 1966. On April 30, 1996, the Registrant acquired American West
which manufactures western, work boots and certain models of military boots.
The Registrant manufactures Direct Molded Sole combat boots for the Government.
Whenever the Government determines a need for producing combat boots because of
the number of new recruits entering the services, and the need to replenish its
inventory to replace worn out boots, the Government solicits contracts from
several U. S. boot manufacturers. The solicitation process typically includes
the evaluation
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of written technical and cost proposals. The Government awards contracts on
negotiated per pair contract prices based on estimated allowable costs as
projected for the subsequent fiscal year plus a reasonable profit margin. This
profit margin is subject to the Government's determination that the prices are
"fair" and "reasonable." All recent Government contracts for military boots have
been awarded to four manufacturers, of which the Registrant is one. No one
company dominates the Government military boot industry. Price, quality,
manufacturing efficiency, and delivery are the areas emphasized by the
Registrant to strengthen its competitive position. The Registrant also sells
boots to civilian and other military customers including other countries.
Military boot sales to the U.S. Government were $9.2 million, $12.8 million, and
$8.8 million, for fiscal 1997, 1996, and 1995, respectively.
The Registrant's contracts with the Government are subject to partial or
complete termination under certain specified circumstances including, but not
limited to, the following: for the convenience of the Government, for the lack
of funding, and for the Registrant's actual or anticipated failure to perform
its contractual obligations. If a contract is partially or completely terminated
for its convenience, the Government may negotiate a settlement with the
Registrant to cover costs already incurred. The Registrant has never had a
contract either partially or completely terminated.
Leather and synthetic rubber, which have been and currently are generally
available from several sources, are the principal material components used in
the boot manufacturing process. Pursuant to Government contracts for military
combat boots, all materials used in manufacturing these boots must be and are
produced in the United States and must be certified as conforming to military
specifications.
The Registrant has a technical assistance agreement with Ro-Search, Inc., a
subsidiary of Wellco, Inc., a competitor to which the Registrant pays a fee for
each pair of Direct Molded Sole boots it produces.
American West designs, manufactures, sells and distributes western and work
boots for men, women and children who wear boots for work and everyday
activities, including casual wear. American West markets and sells its boots
nationwide to major retail discount stores, regional specialty chain stores and
major western boot distributors. The boots are marketed primarily under the
retailer's private label with a smaller proportion of sales under the "American
West Trading Company" brand.
In addition to the western and work boot product lines, American West began
producing a couple of new styles of military footwear. Revenues from the new
military product line amounted to approximately $750,000 in fiscal 1997.
During fiscal 1997, American West consolidated its manufacturing operation by
combining all manufacturing operations at the Waverly facility. The Dresden
location continues to provide storage, warehouse and shipping functions. The
"upper" parts are constructed from leather and/or synthetic material and the
sole and heels consist of either leather, rubber and rubber-plastic blended
material. All raw materials necessary for manufacturing the boots are readily
available from several suppliers, both domestic and abroad. American West
utilizes three construction methods: Goodyear welt, injection molding and a
cement process.
The western/work boot markets are highly competitive and dominated by
approximately six to eight major companies. Justin Industries, Inc. and ACME
Boot Company are the market leaders of the western and work boot market. The
Registrant is not aware of any reliable statistics that would enable it to
determine its relevant position within the industry; however, it believes it has
established a solid position in the market for lower and middle ranged priced
boots where competition is principally based on price and product quality.
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American West coordinates its manufacturing and inventory according to the
seasonality of its business which tends to have higher sales occurring generally
in the fall and winter months. Sales by American West in fiscal 1997, were $12.9
million or 22% of the Registrant's consolidated gross revenues. During the three
months following the acquisition of American West in fiscal 1996, American West
contributed $4.2 million or 9% of the Registrant's consolidated gross revenues
in fiscal 1996. Prior to its acquisition, American West had sales of $18.7
million for each of its fiscal years ending December 31, 1995 and 1994. For the
twelve month period ending December 31, 1995, sales by American West to Walmart
were $6.2 million. During fiscal 1997, sales to Walmart were $4.1 million.
The Registrant's backlog of firm orders for military combat boots at August 2,
1997 and August 3, 1996 totaled approximately $7,700,000 (all of which is
expected to be filled during the current year) and $8,400,000, respectively. The
backlog of firm orders for western and work boots at August 2, 1997 totaled
approximately $700,000.
Revenues derived from this segment in fiscal 1997, 1996, and 1995 were 43%, 36%
and 22%, respectively, of the Registrant's consolidated revenues.
OFFICE PRODUCTS AND PRINTING BUSINESS
McRae Graphics, Inc. (Graphics), a wholly owned subsidiary, is a non-exclusive
distributor of Toshiba photocopier and facsimile machines in North Carolina and
parts of Virginia and South Carolina. Graphics operates eight district sales
offices throughout the state of North Carolina. Graphics is also the sole
distributor in North Carolina of RISO digital/duplicators. Machines, components
and certain supplies sold by Graphics during fiscal 1997 are generally available
only from Toshiba and RISO.
The Registrant also competes in the printing and packaging market through a
wholly owned subsidiary, Rae-Print Packaging, Inc. (Rae-Print). Rae-Print prints
packaging materials principally for the textile industry as well as for
commercial and industrial customers. The principal materials used in Rae-Print's
operations are paperboard and related products, which were readily available
from a number of sources during the year.
The office products and printing industries are generally highly competitive,
with price and service being the dominant factors. The Registrant is not aware
of any reliable statistics that would indicate its relative position within
these industries in the geographical area in which it competes.
Revenues derived from this segment during fiscal 1997, 1996, and 1995 were 29%,
30%, and 33%, respectively, of the Registrant's consolidated revenues. There was
no significant backlog of firm orders for this segment at August 2, 1997.
OTHER BUSINESSES
The Registrant's Financing and Leasing Division manages the Registrant's short
term investments and marketable securities. This division is also engaged in
equipment leasing and the financing of receivables for other businesses and
individuals.
The Registrant discontinued its operation in the food and lodging industry
during fiscal 1997. The 24 room motel and adjacent 200 seat family style
restaurant in Troy, North Carolina are leased to independent third parties.
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OTHER INVESTMENT INTERESTS
The Registrant has an investment in the outstanding Common Stock of American
Mortgage and Investment Company (AMIC). AMIC is located in Charleston, South
Carolina and is engaged in real estate development and sales, primarily lots for
single family dwellings, in the coastal region of South Carolina. D. Gary McRae,
President of the Registrant, is President of AMIC. The Registrant also owns 100%
of the outstanding 20% cumulative convertible preferred stock of AMIC. The
investment in this preferred stock was written down to zero by the Registrant
during fiscal 1990. Write downs in subsequent periods totaling approximately
$273,000 net have been made on the Registrant's books to reduce notes and
accounts receivable due from AMIC in order to reflect the Registrant's equity in
AMIC.
EMPLOYMENT
As of August 2, 1997, the Registrant employed approximately 575 persons in all
divisions and subsidiaries. None of the Company's employees are represented by
collective bargaining or a labor union. The Company considers its relationship
with its employees to be good.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Financial information for the past three fiscal years with respect to the
Registrant's industry segments are incorporated herein by reference to note 16
to the consolidated financial statements included in this Report.
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ITEM 2. PROPERTIES
The following table describes the location, principal use and approximate size
of the principal facilities of the Registrant and its subsidiaries, all of which
are owned by the Registrant and/or its subsidiaries.
LOCATION PRINCIPAL USE SIZE
400 North Main Street Corporate headquarters, 71,000 square
Mt. Gilead, N.C. manufacturing, and sales feet
Highway 109 North Footwear manufacturing 57,600 square
Mt. Gilead, N.C. feet
2500 Port Malabar Blvd. Compsee sales office 5,250 square
Palm Bay, Florida feet
Highway 109 North Footwear warehouse 3,500 square
Mt. Gilead, N.C. feet
Highway 109 Footwear warehouse 11,200 square
Richmond County, N.C. feet
Highway 24-27 Footwear manufacturing and 35,000 square
Troy, N. C. warehousing feet
Highway 109 North Footwear leased storage 4,800 square
Mt. Gilead, N. C. feet
111 Main Street Printing operation 11,520 square
Mt. Gilead, N.C. feet
601 E. Railroad Street Footwear manufacturing 71,520 square
Waverly, TN feet
100 Hillcrest Street Footwear storage and warehouse 76,720 square
Dresden TN feet
In addition to these principal locations, the Registrant and its subsidiaries
lease other offices throughout the United States. The Registrant also owned
approximately 500 acres of undeveloped land on August 2, 1997 that is being held
for investment purposes.
ITEM 3. LEGAL PROCEEDINGS
A subsidiary of the Registrant, McRae Graphics, Inc., is a party to certain
litigation incidental to its businesses. See Note 10 to the Consolidated
Financial Statements. Management does not believe that the resolution of such
litigation is likely to have a material adverse effect on the Registrant's
consolidated financial position or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Each of the Registrant's classes of Common Stock are traded on the American
Stock Exchange (ticker symbol MRI-A and MRI-B). As of October 24, 1997, there
were approximately 490 record holders of the Registrant's Class A Common Stock
and approximately 420 record holders of the Class B Common Stock. High and low
stock prices and dividends declared per share for the last two fiscal years
were:
CLASS A COMMON STOCK:
FISCAL 1997 FISCAL 1996
-------------------------- ------------------------
CASH CASH
SALES PRICE DIVIDENDS SALES PRICE DIVIDENDS
QUARTER HIGH LOW DECLARED HIGH LOW DECLARED
- ------- ---- --- -------- ------ --- ----------
First $ 8.00 $7.38 $.0875 $7.94 $6.38 $.0875
Second 10.13 8.00 .0900 8.44 6.31 .0875
Third 9.63 7.50 .0900 7.94 6.50 .0875
Fourth 9.13 7.38 .0900 8.63 7.06 .0875
CLASS B COMMON STOCK
FISCAL 1997 FISCAL 1996
SALES PRICE SALES PRICE
----------- -----------
QUARTER HIGH LOW HIGH LOW
- ------- ---- --- ---- ---
First $ 7.63 $7.00 $7.50 $6.38
Second 10.13 8.25 8.00 6.69
Third 9.25 7.50 7.50 6.75
Fourth 8.75 7.13 8.50 7.38
The Registrant has no policy with respect to payment of dividends, but expects
to continue paying regular cash dividends on its Class A Common Stock. Dividends
paid on Class B Common Stock, if any, must also be paid on Class A Common Stock
in an equal amount. No dividends were paid on Class B Common Stock during the
prior two fiscal years. There is no assurance as to future dividends on either
class of Common Stock as the payment of any dividends is dependent on future
actions of the Board of Directors, earnings, capital requirements, and financial
condition of the Company.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected Consolidated Financial Data of the Company presented
below for each of the five years in the period indicated has been derived from
the Company's audited and consolidated financial statements. The Company
acquired the stock of American West Trading Company (American West) on April 30,
1996. The results of the Company include the results of American West as of
April 30, 1996, the date of its acquisition by the Company. The Selected
Consolidated Financial Data should be read in conjunction with the Consolidated
Financial Statements and Notes thereto, "Management's Discussion and Analysis of
Financial Conditions and Results of Operations", and the other financial data
included elsewhere herein.
FISCAL YEAR ENDED 8-2-97 8-3-96 7-29-95 7-30-94 7-31-93
----------- ----------- ----------- ----------- -----------
INCOME STATEMENT DATA:
Net revenues $58,480,000 $48,724,000 $40,624,000 $39,454,000 $33,541,000
Net earnings 2,339,000 2,282,000 2,184,000 2,633,000 2,210,000
Net earnings,
per common share: 0.85 0.84 0.80 0.97 0.81
----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA:
Total assets $39,725,000 $39,561,000 $29,583,000 $28,136,000 $25,880,000
Long-term liabilities 5,854,000 6,285,000 -0- -0- 294,000
Working capital 18,412,000 16,953,000 12,306,000 12,639,000 12,288,000
Shareholders' equity 26,174,000 24,364,000 22,669,000 21,101,000 19,061,000
Weighted average
number of common
shares outstanding(a) 2,761,825 2,731,334 2,731,210 2,729,710 2,729,210
Cash dividends
declared per common
share(b) $ 0.36 $ 0.35 $ 0.35 $ 0.345 $ 0.34
----------- ----------- ----------- ----------- -----------
(a) Includes both Class A and Class B Common Stock
(b) Dividends were paid only on Class A Common Stock.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
DESCRIPTION OF BUSINESS SEGMENTS
The Company has three primary business units: the bar code unit operates under
the name Compsee, Inc. (Compsee); the office products unit operates under the
name McRae Graphics, Inc. (McRae Graphics); and the footwear unit operates under
the names McRae Footwear and American West Trading Company. The Company also
operates several other smaller businesses.
A summary of the net revenues; gross profits; selling, general and
administrative expenses; and operating profits of the major business units for
fiscal years 1995 through 1997 is presented in the following chart. Certain
reclassifications have been made to the prior year amounts to conform with the
current year presentation.
FISCAL YEAR PERCENT CHANGE FISCAL YEAR
1997 1996 1995 OVER PRIOR PERIOD 1997 1996 1995
DOLLARS (IN THOUSANDS) 1997 1996 PERCENT OF TOTAL REVENUES
-------------------------------- --------------- -------------------------
NET REVENUES
Bar Code $ 15,944 $ 15,994 $ 17,315 (0.3) (7.6) 27 33 43
Office Products 14,857 12,802 11,919 16.1 7.4 25 26 29
Footwear 25,379 17,490 9,004 45.1 94.2 43 36 22
Printing 2,083 1,814 1,702 14.8 6.6 4 4 4
Eliminations/other 217 624 684 NM NM 1 1 2
-------------------------------- ----- ------- -------------------------
Consolidated $ 58,480 $ 48,724 $ 40,624 20.0 19.9 100 100 100
GROSS PROFIT GROSS PROFIT PERCENTAGE
-------------------------
Bar Code $ 6,400 $ 6,383 $ 7,246 .3 (11.9) 40 40 42
Office Products 4,944 4,232 4,189 16.8 1.0 33 33 35
Footwear 4,424 3,744 1,576 18.2 137.6 17 21 18
Printing 217 186 272 16.7 (31.6) 10 10 16
Eliminations/other (126) (291) (48) NM NM
-------------------------------- ----- ------- -------------------------
Consolidated $ 15,859 $ 14,254 $ 13,235 11.3 7.7 27 29 33
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES PERCENTAGE OF SALES
-------------------------
Bar Code $ 5,071 $ 5,436 $ 5,237 (6.7) 3.8 32 34 30
Office Products 4,536 4,637 4,198 (2.2) 10.5 31 36 35
Footwear 2,202 986 455 123.3 116.7 9 6 5
Printing 199 209 185 (4.8) 13.0 10 12 11
Eliminations/other 6 (356) (193) NM NM
-------------------------------- ----- ------- -------------------------
Consolidated $ 12,014 $ 10,912 $ 9,882 10.1 10.4 21 22 24
OPERATING PROFIT PERCENTAGE OF SALES
-------------------------
Bar Code $ 1,329 $ 947 $ 2,009 40.3 (52.9) 8 6 12
Office Products 408 (405) (9) 200.7 (4400.0) 3 (3) 0
Footwear 2,222 2,758 1,121 (19.4) 146.0 9 16 12
Printing 18 (23) 87 178.3 (126.4) 1 (1) 5
Eliminations/other (132) 65 145 NM NM
-------------------------------- ----- ------- -------------------------
Consolidated $ 3,845 $ 3,342 $ 3,353 15.1 (0.3) 7 7 8
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CONSOLIDATED RESULTS OF OPERATIONS, FISCAL 1997 COMPARED TO FISCAL 1996
The Company's consolidated net revenues reached a record high of $58.5 million
for fiscal 1997 as compared to $48.7 million for fiscal 1996. The 20.0% increase
in net revenues for fiscal 1997 was largely attributable to the footwear unit
which reported an increase in net revenues of 45% over results for fiscal 1996.
The acquisition of American West Trading Company (American West), a manufacturer
and distributor of western and work boots, on April 30, 1996 contributed $12.9
million in net revenues for fiscal 1997, accounting for $8.7 million of the
total increase, as compared to a three month contribution to net revenues of
$4.2 million for fiscal 1996. The contribution from American West to the
increase in the consolidated net revenues was slightly offset by a decline of
$700,000 in the sales of military combat boots, a decrease of 6%, as a result of
the completion of one military boot contract and the U. S. Government's delay in
awarding a new military boot contract from December 1996 to April 1997. The
office products and printing units contributed $2.1 million and $269,000,
respectively, to the increase in consolidated net revenues while the bar code
unit's net revenues remained relatively flat between fiscal 1996 and fiscal
1997.
Gross profit increased $1.6 million in fiscal 1997 primarily due to the increase
in net revenues. Gross profit as a percentage of sales, however, declined from
fiscal 1996 primarily as a result of the increasing contribution on a
consolidated basis of the western and work boot product line which typically
carries a smaller profit margin than the Company's other product lines. Profit
margins in fiscal 1997 for the other business segments were consistent with
profit margin levels for fiscal 1996.
Selling, general and administrative (SG&A) expenses on a consolidated basis
continued to decline as a percentage of sales from 22% in fiscal 1996 to 21% in
fiscal 1997. Each of the primary business units, except for the footwear
segment, posted declines in total dollars spent on SG&A due to lower
expenditures for employee benefits, administrative salaries, health care, and
professional fees. SG&A expenses for the footwear unit increased $1.2 million
over fiscal 1996 primarily as a result of the additional expenses associated
with the western and work boot product line which was acquired in April 1996.
Total operating profit for fiscal 1997 increased 15.1% over the results posted
for fiscal 1996 primarily due to increased operating profit from the bar code
and office products units slightly offset by a decline in the footwear unit.
Total operating profit for fiscal 1997 as a percentage of total revenue remained
flat at 7% primarily due to an increase in revenue from lower margin products
which was offset by cost containment and increased operating efficiencies.
BAR CODE UNIT RESULTS OF OPERATIONS, FISCAL 1997 COMPARED TO FISCAL 1996
Compsee is a manufacturer and distributor of "hi-tech" bar code reading and
printing devices and other peripheral items related to optical data collection.
Compsee is a global company and continues to seek new markets throughout the
United States and other parts of the world.
Total revenues for fiscal 1997 were $15.9 million, down 0.3% compared to fiscal
1996, primarily due to increased competition from new entrants in the industry
and related pricing pressures. The slight decline in revenue was more than
offset by effective cost containment and reduced SG&A expenses primarily due to
lower telephone expense, professional fees, and corporate charges resulting in
an increase of $382,000 in operating profit for the business unit.
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OFFICE PRODUCTS UNIT RESULTS OF OPERATIONS, FISCAL 1997 COMPARED TO FISCAL 1996
McRae Graphics distributes two lines of photocopiers, facsimile machines, and
digital printing equipment throughout the state of North Carolina and parts of
Virginia and South Carolina. McRae Graphics also provides service and sells
supplies to customers using these products.
Total revenues for the business unit climbed to a record level of $14.9 million
for fiscal 1997, a 16% increase over the $12.8 million reported for fiscal 1996
due primarily to the placement of equipment in several county-wide educational
systems. Gross profit grew to $4.9 million, an approximate 17% increase over the
fiscal 1996 level of $4.2 million and remained flat as a percent of sales. SG&A
expenses decreased in fiscal 1997 due primarily to lower administrative
salaries, health care costs, and advertising expenditures. Increased revenues
and reduced SG&A expenses resulted in increased operating profits of $408,000 in
fiscal 1997 as compared to an operating loss of $405,000 in fiscal 1996.
FOOTWEAR UNIT RESULTS OF OPERATIONS, FISCAL 1997 COMPARED TO FISCAL 1996
The footwear business unit manufactures and distributes military combat boots
and western and work boots. In response to a decline in military boot orders by
the Defense Department, this business began producing boots for other markets in
fiscal 1995. Shipments on a 1993 U.S. Government contract were completed in
December, 1996. A new U.S. Government contract covering a five year period was
awarded to the Company on April 15, 1997. The western and work boot product line
was added with the acquisition of American West in April, 1996. American West is
a manufacturer of high quality, low cost western and work boots for dress and
casual wear for men, women, and children. During fiscal 1997, American West also
produced military boots.
Net revenues for the footwear segment increased $7.9 million, up 45% from fiscal
1996. The western and work boot product line contributed 51% of the unit's total
net revenues for fiscal 1997 as compared to 24% in fiscal 1996 due to the
inclusion of the product line for a full, twelve months of operations in the
current fiscal year versus three months for the previous fiscal year. Gross
profit as a percentage of sales decreased due to the increasing proportion of
the lower margin western and work boot product line to the total product mix of
the footwear segment. SG&A expense increased primarily due to the inclusion of
the western and work boot product line for an entire year in fiscal 1997 and
the consolidation of manufacturing of this product line as described below.
Operating profit decreased due to lower margins and higher support costs
associated with the western and work boot product line and the decrease in net
revenues from the sales of military combat boots. In an effort to bolster future
operating profit from this business unit, American West consolidated its
manufacturing at the Waverly, Tennessee plant. The Dresden facility continues to
provide storage, warehousing, and distribution support. The Registrant expects
this consolidation to lower manufacturing and overhead costs through greater
production efficiencies and economies of scale; however, there can be no
assurances that such costs will be lowered. As a result of the consolidation,
employment during fiscal 1997 decreased by approximately 100 employees.
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OTHER BUSINESS UNIT RESULTS OF OPERATIONS, FISCAL 1997 COMPARED TO FISCAL 1996
Net revenues for the printing unit in fiscal 1997 increased 15% over fiscal
1996. Gross profit kept pace with the fiscal 1996 level as high paper and scrap
costs continued to depress profit margins. SG&A expense was down slightly from
the fiscal 1996 level due to lower selling costs and corporate expenses. This
unit posted a small operating profit due to increased revenues and decreased
SG&A expenses.
CONSOLIDATED RESULTS OF OPERATIONS, FISCAL 1996 COMPARED TO FISCAL 1995
The Company reported revenues of $48.7 million for the 1996 fiscal year compared
to $40.6 million for the same period in 1995. The footwear unit's revenue
increased 94%, approximately 52% or $4.2 million of the increase, due to the
acquisition of American West on April 30, 1996 in a transaction accounted for as
a purchase. Increased U.S. Government requirements and sales of military combat
boots to foreign governments contributed to the remaining $4.3 million increase
in revenues in the footwear division in fiscal 1996. The bar code and office
products unit sales declined from a combined 73% of consolidated revenues in
fiscal 1995 to a combined 59% of consolidated revenues in fiscal 1996.
Gross profit as a percentage of sales fell from 33% to 29% on a consolidated
basis. The bar code unit continued to yield margin to competitive pricing
pressure in fiscal 1996 as several major product lines experienced reductions in
selling price levels. The office products' margins have continued to decrease as
a result of increased service costs and higher costs associated with sales-type
leases and cost per copy rental programs. Gross margins for the footwear unit
increased as a result of fixed overhead being spread over a larger production of
military combat boots which was slightly offset by lower margins on the western
and work boot product line.
Consolidated SG&A expenses as a percentage of sales decreased to 22% in fiscal
1996 from 24% in fiscal 1995. The bar code unit experienced a sizable increase
in SG&A as a percentage of sales as a result of increased heath insurance cost,
research and development expenditures, and professional fees. The footwear unit
experienced a 116.7% increase in SG&A over fiscal 1995 caused primarily by the
acquisition of American West.
Total operating profit for fiscal 1996 as a percentage of total revenue dropped
to 7% from 8% in fiscal 1995. The decline in bar code revenue and the reduction
in gross margins on a consolidation unit basis were the major causal factors of
the decrease in consolidated operating profit in fiscal 1996.
BAR CODE UNIT RESULTS OF OPERATIONS, FISCAL 1996 COMPARED TO FISCAL 1995
Total revenues for fiscal 1996 were 7.6% lower than those reported in fiscal
1995 due to competitive pricing pressures on several product lines for this
business unit. SG&A expense increased due to higher health insurance costs,
research and development expenditures, and professional fees. All of these
factors were responsible for the 6% decline in operating profits for the unit
from fiscal 1995.
12
13
OFFICE PRODUCTS UNIT RESULTS OF OPERATIONS, FISCAL 1996 COMPARED TO FISCAL 1995
Total revenues for fiscal 1996 were 7.4% higher than in fiscal 1995. Gross
profit as a percentage of sales decreased primarily due to a decline in service
margins. SG&A expense increased to 36% of revenues for fiscal 1996 because of
higher administrative salaries, health care costs, and depreciation expense on
rental machines. The higher cost of sales and SG&A expenses out paced the
increase in revenues and resulted in a net operating loss for fiscal 1996.
FOOTWEAR UNIT RESULTS OF OPERATION, FISCAL 1996 COMPARED TO FISCAL 1995
Total revenues for the footwear segment increased to $17.5 million, up 94% over
fiscal 1995. Military combat boots accounted for 76% of the revenues for the
footwear segment while the western and work boot product line contributed 24% in
fiscal 1996. Higher production levels of military combat boots, slightly offset
by lower gross profit in the western and work boot product line, resulted in the
positive increase in gross profit as a percentage of sales as fixed overhead was
spread over an increased production level of military combat boots. SG&A
expenses increased 116.7% over fiscal 1995 largely attributable to the
acquisition of American West.
OTHER BUSINESS UNIT RESULTS OF OPERATIONS, FISCAL 1996 COMPARED TO FISCAL 1995
The printing unit's performance in fiscal 1996 was adversely affected by rising
paper prices and scrap costs. The primary cause of the large change in operating
profit in the other category during fiscal 1995 was the recovery of a bad debt
of approximately $85,000 in our financing and leasing unit.
FINANCIAL CONDITION
The Company's financial condition remains strong. Working capital totaled $18.4
million at August 2, 1997, an increase of 9% over the amount reported for fiscal
1996.
Operating activities provided cash of $6.9 million as compared to $900,000 used
in operating activities in the previous fiscal year. This increase in cash flow
was primarily attributable to the contribution of net earnings and the reduction
of accounts and notes receivable. The reduction of accounts and notes receivable
due to timing of collections contributed $3.9 million of cash. The allowance for
doubtful accounts increased by $305,000 primarily as a result of a certain
customer of the footwear unit filing bankruptcy under Chapter XI. The Registrant
manufactures U.S. military footwear under a sub-contract arrangement with this
customer. A decrease in inventories provided $700,000 of cash primarily through
reduced western and work boot inventory which resulted from the consolidation of
manufacturing operations into one facility. Accounts payable decreased by $1.1
million from the previous fiscal year primarily attributable to reduced
operating costs associated with the facility consolidation by American West.
Lower employee benefit costs related to current and future programs caused a
$250,000 reduction in accrued employee benefits for the current fiscal year. The
timing of certain income tax payments used approximately $227,000 of cash.
Capital expenditures for fiscal 1997 amounted to $1.2 million and consisted
primarily of $800,000 of rental equipment for the office products unit and
approximately $166,000 to upgrade the Company's information systems. Advances to
related parties amounted to $236,000 in fiscal 1997 and were used primarily to
fund
13
14
working capital needs. The financing and leasing business used $411,000 of cash
in fiscal 1997 to finance increased business. The Company generated
approximately $500,000 in cash from the sale of assets consisting of rental
property and machinery and equipment idled by the American West consolidation.
Debt principal payments associated with the purchase of American West amounted
to $500,000 while dividend payments used $645,000 of cash in fiscal 1997. Credit
facilities provided $400,000 of cash required to cover costs associated with the
consolidation of the American West manufacturing operations. Interest expense
increased to $500,000 in fiscal 1997 primarily due to the existence of the debt
related to the acquisition of American West for a full year.
At August 3, 1997, the Company's primary sources of liquidity consisted of cash,
cash equivalents, and short term investments totaling $5.5 million and lines of
credit with banks aggregating $3.75 million of which approximately $3.0 million
was available. The Company believes that the cash on hand, cash generated from
operations, and the borrowing arrangements described above will be sufficient to
meet the Company's capital requirements for fiscal 1998.
ENVIRONMENTAL MATTERS AND INFLATION
The Company is subject to various laws and regulations concerning environmental
matters and employee safety and health in the United States. The Company has
been able to comply with such laws and regulations without any material adverse
effect on its business. In the opinion of management, the Company is not in
violation of any environmental laws or regulations that would have a material
adverse effect on the financial condition of the Company.
The Company does not believe inflation has had a material impact on sales or
operating results for the periods covered in this discussion.
14
15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following documents are filed as part of this report:
PAGE
----
1. INDEPENDENT AUDITOR'S REPORT 16
2. MCRAE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL
STATEMENTS:
Consolidated Balance Sheets as of August 2, 1997 and August 3, 1996 17-18
Consolidated Statements of Operations for the Years Ended August 2, 1997,
August 3, 1996, and July 29, 1995 19
Consolidated Statements of Shareholders' Equity for the Years Ended
August 2, 1997, August 3, 1996, and July 29, 1995 20
Consolidated Statements of Cash Flows for the Years Ended August 2, 1997,
August 3, 1996, and July 29, 1995 21
Notes to Consolidated Financial Statements 22-35
3. FINANCIAL STATEMENT SCHEDULE:
Schedule II 36
Schedules other than those listed above have been omitted because they are not
applicable or the required information is shown in the financial statements of
the notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
FINANCIAL DISCLOSURE
None.
PART III
Items 10 through 13 are incorporated herein by reference to the sections
captioned Principal Shareholder and Holdings of Management; Election of
Directors; Director Compensation; Executive Officers; Interlocks and Insider
Participation; Certain Relationships and Related Transactions; Executive
Compensation; Pension Plan; and Section 16(a) Beneficial Ownership Reporting
Compliance in the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held December 18, 1997.
15
16
GLEIBERMAN SPEARS SHEPHERD & MENAKER, P. A.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Shareholders of
McRae Industries, Inc.
Mount Gilead, North Carolina
We have audited the accompanying consolidated balance sheets of McRae
Industries, Inc. and subsidiaries as of August 2, 1997 and August 3, 1996, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended August 2, 1997 and the
financial statement schedule listed under Item 8. These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of McRae Industries,
Inc. and subsidiaries as of August 2, 1997 and August 3, 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended August 2, 1997, in conformity with generally accepted accounting
principles. Further, in our opinion, the financial statement schedule referred
to above presents fairly, in all material respects, the information stated
therein, when considered in relation to the financial statements taken as a
whole.
/s/ Gleiberman Spears Shepherd & Menaker, P.A.
October 6, 1997
NationsBank Plaza
Suite 3500 Charlotte, North Carolina 28280
Telephone 704-377-0220 Telefax 704-377-7612
Certified Public Accountants
16
17
CONSOLIDATED BALANCE SHEETS
MCRAE INDUSTRIES, INC. AND SUBSIDIARIES
AUGUST 2, AUGUST 3,
1997 1996
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 5,473,000 $ 581,000
Marketable securities (Note 3) 64,000 65,000
Accounts and notes receivable, less allowances
for doubtful accounts of $606,000 and $301,000
respectively (Note 7) 6,710,000 10,606,000
Inventories (Notes 4 and 7) 11,924,000 12,640,000
Net investment in capitalized leases (Note 5) 866,000 966,000
Prepaid expenses and other current assets 203,000 210,000
----------- ----------
Total current assets 25,240,000 25,068,000
Property, plant and equipment, net (Notes 6 and 7) 6,409,000 7,172,000
Other assets:
Notes and accounts receivable, related
entities (Notes 12 and 13) 2,676,000 2,359,000
Net investment in capitalized leases (Note 5) 1,808,000 1,798,000
Notes receivable (Note 12) 1,363,000 952,000
Real estate held for investment 486,000 478,000
Goodwill (Note 2) 629,000 674,000
Other 1,114,000 1,060,000
----------- ----------
Total other assets 8,076,000 7,321,000
----------- ----------
Total assets $39,725,000 $39,561,000
----------- -----------
See notes to consolidated financial statements
17
18
CONSOLIDATED BALANCE SHEETS
MCRAE INDUSTRIES, INC. AND SUBSIDIARIES
AUGUST 2, AUGUST 3,
1997 1996
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit (Note 7) $ 798,000 $ 400,000
Current portion of notes payable, banks (Note 7) 314,000 389,000
Accounts payable 1,802,000 2,897,000
Accrued employee benefits (Note 8) 601,000 846,000
Deferred revenues 1,517,000 1,454,000
Accrued payroll and payroll taxes 642,000 790,000
Income taxes (Note 9) 532,000 759,000
Other 622,000 580,000
----------- -----------
Total current liabilities 6,828,000 8,115,000
Notes payable, banks, net of current portion (Note 7) 5,854,000 6,285,000
Minority interest (Note 10) 869,000 797,000
Commitments and contingencies (Note 10) - -
Shareholders' equity: (Note 11)
Common stock:
Class A, $1 par value; authorized
5,000,000 shares; issued and outstanding,
1,816,332 and 1,788,286 shares respectively 1,817,000 1,788,000
Class B, $1 par value; authorized
2,500,000 shares; issued and outstanding,
952,167 and 951,213 shares, respectively 952,000 951,000
Additional paid-in capital 791,000 705,000
Retained earnings 22,614,000 20,920,000
----------- -----------
Total shareholders' equity 26,174,000 24,364,000
----------- -----------
Total liabilities and shareholders' equity $39,725,000 $39,561,000
----------- -----------
See notes to consolidated financial statements
18
19
CONSOLIDATED STATEMENTS OF OPERATIONS
MCRAE INDUSTRIES, INC. AND SUBSIDIARIES
FOR THE YEARS ENDED AUGUST 2, AUGUST 3, JULY 29,
1997 1996 1995
------------ ------------ ------------
Net revenue $ 58,480,000 $ 48,724,000 $ 40,624,000
Cost of revenues 42,621,000 34,470,000 27,389,000
Gross profit 15,859,000 14,254,000 13,235,000
Selling, general and administrative 12,014,000 10,912,000 9,882,000
Earnings from operations 3,845,000 3,342,000 3,353,000
Other income, net 514,000 503,000 429,000
Interest expense (Note 7) (500,000) (133,000) (48,000)
Earnings before income
taxes and minority interest 3,859,000 3,712,000 3,734,000
Provision for income taxes (Note 9) 1,448,000 1,369,000 1,403,000
Minority shareholder's interest
in earnings of subsidiary (Note 10) 72,000 61,000 147,000
------------ ------------ ------------
Net earnings $ 2,339,000 $ 2,282,000 $ 2,184,000
------------ ------------ ------------
Net earnings per common share $ 0.85 $ 0.84 $ 0.80
Weighted average number of
common shares outstanding 2,761,825 2,731,334 2,731,210
------------ ------------ ------------
See notes to consolidated financial statements
19
20
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
MCRAE INDUSTRIES, INC. AND SUBSIDIARIES
COMMON STOCK, $1 PAR VALUE
CLASS A CLASS B ADDITIONAL RETAINED
SHARES AMOUNT SHARES AMOUNT PAID-IN CAPITAL EARNINGS
-------------------------------------------------------------------------
BALANCE, JULY 31, 1994 1,735,363 $1,735,000 995,847 $ 996,000 $676,000 $17,694,000
Conversion of Class B to
Class A stock 43,210 43,000 (43,210) (43,000)
Cash dividend ($.35 per
Class A common stock) (616,000)
Net earnings 2,184,000
-------------------------------------------------------------------------
BALANCE, JULY 29, 1995 1,778,573 1,778,000 952,637 953,000 676,000 19,262,000
Shares issued 8,289 8,000 29,000
Conversion of Class B to
Class A stock 1,424 2,000 (1,424) (2,000)
Cash dividend ($.35 per
Class A common stock) (624,000)
Net earnings 2,282,000
-------------------------------------------------------------------------
BALANCE, AUGUST 3, 1996 1,788,286 1,788,000 951,213 951,000 705,000 20,920,000
Shares issued 14,500 15,000 14,500 15,000 86,000
Conversion of Class B to 13,546 14,000 (13,546) (14,000)
Class A stock
Cash dividend ($.36 per
Class A common stock) (645,000)
Net earnings 2,339,000
-------------------------------------------------------------------------
BALANCE AUGUST 2, 1997 1,816,332 $1,817,000 952,167 $ 952,000 $791,000 $22,614,000
-------------------------------------------------------------------------
See notes to consolidated financial statements
20
21
CONSOLIDATED STATEMENTS OF CASH FLOWS
MCRAE INDUSTRIES, INC. AND SUBSIDIARIES
FOR THE YEARS ENDED AUGUST 2, AUGUST 3, JULY 29,
1997 1996 1995
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,339,000 $ 2,282,000 $ 2,184,000
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 1,610,000 1,072,000 807,000
Equity in net (income) loss of investee (81,000) 16,000 (25,000)
Minority shareholder's interest in earnings
of subsidiary 72,000 61,000 147,000
Gain on sale of assets (57,000) (171,000)
Gain on realization of officer life insurance (174,000)
Changes in operating assets and liabilities,
net of effects from purchase of subsidiaries:
Accounts and notes receivable 3,896,000 (3,389,000) (965,000)
Inventories 716,000 (950,000) (1,593,000)
Net investment in capitalized leases 90,000 (131,000) (554,000)
Prepaid expenses and other current assets 7,000 195,000 (94,000)
Accounts payable (1,095,000) (134,000) 235,000
Accrued employee benefits (245,000) (455,000) 11,000
Deferred revenues 63,000 119,000 208,000
Accrued payroll and payroll taxes (90,000) 40,000 119,000
Income taxes (227,000) 406,000 (186,000)
Other 42,000 121,000 (305,000)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)OPERATING ACTIVITIES 6,866,000 (918,000) (11,000)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of subsidiaries, net of cash acquired (614,000) (646,000)
Proceeds from sale of property 475,000 9,000
Purchases of short term investments (71,000) (2,373,000)
Proceeds from sale of short term investments 1,000 3,414,000
Proceeds from officers life insurance 329,000
Purchase of other assets (220,000) (340,000)
Purchase of minority interest (184,000)
Capital expenditures (1,217,000) (1,487,000) (956,000)
Net advances to related parties (236,000) (144,000) (207,000)
Net (advances) collections on notes receivable (411,000) (49,000) 2,000
----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (1,279,000) 534,000 (4,180,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing of long-term debt and notes payable 5,389,000
Net borrowings on lines of credit 398,000 400,000
Principal repayments of long-term debt and
notes payable (506,000) (4,865,000) (1,107,000)
Proceeds from exercise of stock options and
issuance of common stock 58,000 37,000
Dividends paid (645,000) (624,000) (616,000)
----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (695,000) 337,000 (1,723,000)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH EQUIVALENTS 4,892,000 (47,000) (5,914,000)
CASH, CASH EQUIVALENTS AT BEGINNING OF YEAR 581,000 628,000 6,542,000
CASH, CASH EQUIVALENTS AT END OF YEAR $ 5,473,000 $ 581,000 $ 628,000
----------- ----------- -----------
See notes to consolidated financial statements
21
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MCRAE INDUSTRIES, INC. AND SUBSIDIARIES
For the Years Ended August 2, 1997, August 3, 1996, and July 29, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Minority interest represents the minority shareholder's
proportionate share of the equity of a majority-owned subsidiary. The investment
in an investee is accounted for on the equity method. Significant intercompany
transactions and balances have been eliminated in consolidation.
USE OF ESTIMATES
The timely preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Actual results
could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid debt instruments such as certificates
of deposit and commercial paper purchased with an original maturity date of
three months or less.
MARKETABLE SECURITIES
Investments in marketable equity and debt securities have been classified as
available for sale and as a result are stated at fair value based on quoted
market prices. Unrealized holding gains and losses, if applicable, are included
as a separate component of shareholders' equity until realized. The effect of
this change in accounting principle was not material to the financial
statements, for the year ending July 29, 1995 (the year of change).
INVENTORIES
Inventories are stated at the lower of cost or market using the last-in,
first-out (LIFO) method for the military boots and photocopier inventories and
using the first-in, first-out (FIFO) method for all other inventories.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation and amortization
are provided on a straight-line method for financial reporting purposes and by
accelerated methods for income tax purposes.
SERVICE REVENUE RECOGNITION
Service maintenance agreements are sold for certain products. When such revenues
are recorded prior to providing repair and maintenance service, the revenues are
deferred and recognized over the term of the related agreements.
22
23
GOVERNMENT CONTRACT REVENUE RECOGNITION
Generally, sales under long-term government contracts are recognized as revenues
when the deliveries are made. In addition, certain orders under the Government
Contract call for the Company to manufacture and store the goods for the
Government. Sales are recorded on these bill and hold orders upon the
Government's inspection and approval of the goods. The Company has also recorded
receivables of $367,000 and $370,000 at August 2, 1997 and August 3, 1996,
respectively, under the government contract's economic price adjustment clause
for increases in leather prices.
GOODWILL
Goodwill is amortized by the straight-line method over periods ranging up to 20
years. On a periodic basis, the Company estimates the future undiscounted cash
flow of the businesses to which goodwill relates to assess that the carrying
value of such goodwill has not been impaired.
INCOME TAXES
A deferred tax asset or liability is recorded for all temporary differences
between financial and tax reporting using enacted tax rates. Deferred tax
expense (benefit) results from the change during the year of the deferred tax
assets and liabilities. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of shares of common
stock outstanding during the year.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements and notes thereto to conform with the current year presentation.
2. ACQUISITIONS
All acquisitions have been accounted for as purchases; operations of the
companies acquired have been included in the accompanying consolidated financial
statements from their respective dates of acquisition. The excesses of the
purchase prices over fair value of the net assets acquired are included in
goodwill.
On April 30, 1996, the Company purchased all of the outstanding common stock of
American West Trading Company (American West) from its shareholders. American
West is a manufacturer and distributor of western and work boots. American West
sells its boots nationwide to major retail and specialty chain stores.
The Company purchased 4,000,000 shares of American West Common Stock for
$490,000 in cash and notes and $60,000 of the Company's Class A Common Stock.
The purchase price approximated the fair values of the net assets acquired. In
addition, a deferred earn-out amount will be paid subject to certain conditions
being met over a sixty month period.
The unaudited proforma financial information which follows assumes the
acquisition of American West occurred at the beginning of the respective year
presented after giving
23
24
effect to certain adjustments. The proforma financial information does not
purport to be indicative of the results of operations that would have occurred
had the transaction taken place at the beginning of the period presented or of
future results of operations.
(UNAUDITED)
PROFORMA RESULTS OF OPERATIONS
YEAR ENDED
AUGUST 3, 1996 JULY 29, 1995
-------------- -------------
Net Revenues $ 61,421,000 $58,542,000
Net Earnings $ 2,291,000 $ 1,785,000
Net Earnings per Share $ 0.84 $ $.65
3. MARKETABLE SECURITIES
The following is a summary of the estimated fair market value of
available for sale securities:
1997 1996
------- --------
Municipal Bonds $55,000 $55,000
Common Stocks 9,000 10,000
------- --------
$64,000 $65,000
------- --------
Expected maturities may differ from contractual maturities of the municipal
bonds because the issuers of the securities may have the right to prepay
obligations without prepayment penalties. Unrealized gains and losses were not
material at August 2, 1997 or August 3, 1996.
4. INVENTORIES
Current costs exceed the LIFO value of inventories by approximately $978,000 and
$877,000 at August 2, 1997 and August 3, 1996, respectively. Year-end
inventories valued under the LIFO method were $5,015,000 and $5,150,000 at
August 2, 1997 and August 3, 1996, respectively. The components of inventory at
each year end are as follows:
1997 1996
----------- -----------
Raw materials $ 2,314,000 $ 2,288,000
Work-in-process 771,000 1,142,000
Finished goods 8,839,000 9,210,000
----------- -----------
$11,924,000 $12,640,000
----------- -----------
24
25
5. LEASES
The Company leases certain photocopier products under sales-type leases. The
Company's net investment in these leases is as follows:
1997 1996
----------- -----------
Minimum lease payments receivable $ 3,030,000 $ 3,070,000
Estimated unguaranteed residual values 251,000 267,000
Unearned income (491,000) (489,000)
Allowance for credit losses (116,000) (83,000)
----------- -----------
Net investment $ 2,674,000 $ 2,765,000
----------- -----------
The scheduled maturities for the above minimum lease payments receivable at
August 2, 1997 are as follows:
FISCAL YEAR ENDING
1998 $ 1,187,000
1999 856,000
2000 554,000
2001 285,000
2002 and thereafter 148,000
-----------
Total minimum lease payments receivable $ 3,030,000
-----------
6. PROPERTY, PLANT AND EQUIPMENT
1997 1996
----------- -----------
Land and improvements $ 737,000 $ 769,000
Buildings 4,181,000 4,262,000
Machinery and equipment 7,178,000 6,943,000
Furniture and fixtures 2,674,000 2,521,000
----------- -----------
14,770,000 14,495,000
Less: Accumulated depreciation 8,361,000 7,323,000
----------- -----------
$ 6,409,000 $ 7,172,000
----------- -----------
25
26
7. NOTES PAYABLE AND LINE OF CREDIT:
NOTES PAYABLE:
AUGUST 2, 1997 AUGUST 3, 1996
-------------- --------------
Note payable, bank, due in monthly installments of $56,477 including
interest at the prime rate less 0.5% through July, 2011. All of the
inventory, accounts receivable and property, plant and equipment, which
cost $8,991,000, of one of the Company's subsidiaries, American West,
are pledged as collateral. $5,784,000 $6,000,000
Note payable, State of Tennessee, due March, 2013. Note is payable in
60 monthly installments of $1,930 including interest at 1.5%, then 60
monthly installments of $2,073 including interest at 2.5% and then 120
monthly installments of $2,175 including interest at 3.5%. Land,
buildings and building improvements, which cost $847,000, of one of the
Company's subsidiaries, American West, are pledged as collateral. 322,000 340,000
Note payable, State of Tennessee, due in March, 2000. Note was payable
in 60 monthly installments of $4,015 including interest at 1.5% and
then in 24 monthly installments of $4,057 including interest at 2.5%.
Certain equipment, which cost $320,000, of one of the Company's
subsidiaries, American West, was pledged as collateral. Note was paid
off in September, 1996. - 160,000
Note payable, due in monthly installments of $5,000 without interest
through April, 1998. 45,000 105,000
Note payable, due in monthly installments of $1,875 including interest
at 6% through April, 1998. 17,000 40,000
Note payable, due in monthly installments of $1,915 including interest
at 5% through December, 1997. Note was paid off in September, 1996. - 29,000
---------- ----------
6,168,000 6,674,000
Less current portion 314,000 389,000
---------- ----------
$5,854,000 $6,285,000
========== ==========
26
27
ANNUAL MATURITIES OF LONG-TERM DEBT ARE AS FOLLOWS:
FISCAL YEAR ENDING:
1998 $ 314,000
1999 248,000
2000 280,000
2001 302,000
2002 326,000
thereafter 4,698,000
----------
$6,168,000
----------
LINE OF CREDIT:
The Company has a $1,000,000 revolving line of credit with a bank.
Substantially, all of the inventory, accounts receivable and property, which
cost $8,991,000, of one of the Company's subsidiaries, American West, are
pledged as collateral. The Company had outstanding borrowings under the line of
credit of $798,000 and $400,000 as of August 2, 1997 and August 3, 1996,
respectively. The line of credit provides for interest on outstanding balances
to be payable monthly at the prime rate less 0.5%. Interest expense payments
during fiscal years 1997, 1996, and 1995 were approximately $500,000, $133,000,
and $48,000, respectively.
8. EMPLOYEE BENEFIT PLANS
The Company's employee benefit program consists of a defined benefit pension
plan (which was terminated on August 3, 1996), an employee stock ownership plan,
a 401-K retirement plan, a cash bonus program, incentive awards and other
specified employee benefits as approved by the Board of Directors. At its sole
discretion, the Board of Directors determines the amount and the timing of
payment for benefits under these plans.
The Company's noncontributory defined benefit pension plan and employee stock
ownership plan cover substantially all employees. On September 30, 1992 the
Board of Directors decided to terminate the defined benefit pension plan. The
plan was settled and all participants were provided benefits as of August 3,
1996. The plan's actuary determined the amount owed to the pension plan as a
result of the plan's termination was $173,000. This amount was recorded as a
liability in accrued employee benefits as of August 3, 1996. The defined benefit
pension plan provided for benefits based on length of service from date of
employment and the employee's average compensation. Plan assets were invested
principally in collective funds consisting of short-term cash, fixed-income and
equity investments.
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 8% for 1992. The expected
long-term rate of return on assets was 8%.
27
28
The following table sets forth the defined benefit pension plan's funding status
at the end of each year indicated.
1996 1995
---- ----
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS:
Accumulated benefit obligation $ (891,000) $(873,000)
---------- ---------
Projected benefit obligation for service
rendered to date $ (891,000) $(875,000)
Plan assets at fair market value (801,000) (753,000)
---------- ---------
Projected benefit obligation in excess of
plan assets (90,000) (122,000)
Unrecognized net (gain) loss 173,000 92,000
Additional liability recognized for
unfunded accumulated benefit obligation (173,000) (90,000)
---------- ---------
Net pension liability (90,000) (120,000)
NET PERIODIC PENSION COSTS:
Interest cost on projected benefit
obligation 67,000 67,000
Actual return on plan assets (18,000) (35,000)
Net asset gain less (loss) during
the period (38,000) (25,000)
---------- ---------
Net periodic pension costs $ 11,000 $ 7,000
---------- ---------
The employee stock ownership plan's (ESOP) principal investments include shares
of Class A and B common stock of the Company and collective funds consisting of
short-term cash, fixed-income and equity investments.
In fiscal year 1997, the Company adopted a 401-K retirement plan which covers
substantially all employees. Employees can contribute up to 15% of their salary.
At its sole discretion, the Board of Directors determines the amount and timing
of any company matching contribution. The Company's contribution was $103,000
for the year ended August 2, 1997.
Employee benefit program expense amounted to $380,000, $525,000, and $725,000 in
1997, 1996, and 1995, respectively. To the extent the amount of these benefits
are not disbursed, the Board may, at its sole discretion, reduce any remaining
accruals.
28
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9. INCOME TAXES
Significant components of the provision for income taxes are as follows:
1997 1996 1995
---- ---- ----
CURRENT EXPENSE (BENEFIT)
Federal $ 1,221,000 $1,062,000 $1,010,000
State 276,000 276,000 238,000
----------- ---------- ----------
1,497,000 1,338,000 1,248,000
----------- ---------- ----------
DEFERRED EXPENSE (BENEFIT)
Federal (42,000) 27,000 133,000
State (7,000) 4,000 22,000
----------- ---------- ----------
(49,000) 31,000 155,000
$ 1,448,000 $1,369,000 $1,403,000
----------- ---------- ----------
The components of the provision for deferred income taxes are as follows:
1997 1996 1995
-------- --------- ---------
Depreciation $(86,000) $ 119,000 $ 21,000
Leasing activities (14,000) 48,000 111,000
Accrued employee benefits 39,000 207,000 (6,000)
Allowances for doubtful accounts (55,000) (95,000) (10,000)
Inventory 9,000 (123,000) (5,000)
Other 58,000 (125,000) 44,000
-------- --------- ---------
Deferred income taxes, expense
(benefit) $(49,000) $ 31,000 $ 155,000
-------- --------- ---------
Deferred tax liabilities and assets at each year end are as follows:
1997 1996
-------- --------
DEFERRED TAX LIABILITIES:
Depreciation $301,000 $387,000
Leasing activities 556,000 580,000
-------- --------
Total deferred tax liabilities 857,000 967,000
-------- --------
DEFERRED TAX ASSETS:
Accrued employee benefits 128,000 167,000
Allowances for doubtful accounts 233,000 151,000
Inventory 156,000 165,000
Other -- 95,000
-------- --------
Total deferred tax assets 517,000 578,000
-------- --------
Net deferred tax liability $340,000 $389,000
-------- --------
29
30
The reconciliation of income tax computed at the U. S. federal statutory tax
rate to actual income tax expense are (in thousands):
1997 1996 1995
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
Tax at U. S. statutory rate $1,312 34.0% $1,262 34.0% $1,269 34.0%
State income taxes, net of
federal tax benefit 243 6.3 154 6.3 157 6.3
Other - net (107) (2.8) (47) (3.4) (23) (2.3)
--------------- --------------- ---------------
$1,448 37.5% $1,369 36.9% $1,403 38.0%
--------------- --------------- ---------------
Total income tax payments during fiscal years 1997, 1996 and 1995 were
approximately $1,643,000, $958,000, and $1,647,000, respectively.
10. COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST
The Company has entered into a restrictive stock agreement with the minority
shareholder of its majority owned subsidiary. Under the terms of the agreement,
the Company has the right of first refusal to purchase at any time any shares
representing the minority interest in the subsidiary at a defined book value of
said shares. The minority shareholder has the right to sell twenty percent of
his shares per year to the Company beginning in November 1994 and each year
thereafter, at the defined book value of such shares, provided the minority
shareholder remains employed by the subsidiary.
CREDIT FACILITIES
The Company has loan agreements with several banks pursuant to which the banks
have agreed to provide lines of credit up to $3,750,000, at the banks' prime
interest rate, subject to certain restrictions.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments,
receivables, and capitalized leases. The Company maintains substantially all of
its cash and certificates of deposits with various financial institutions in
amounts which are in excess of the federally insured limits. Management performs
periodic evaluations of the relative credit standing of those financial
institutions.
Concentrations of credit risk with respect to receivables and capitalized leases
are limited due to the large number of entities comprising the Company's
customer base and their dispersion across many different industries. The Company
does not require collateral on trade accounts receivable.
OTHER
Under the terms of sale to the U.S. Government, the negotiated contract prices
of combat boots are subject to renegotiation if certain conditions are present.
Management is of the opinion that renegotiation, if any, will have no material
adverse effect on the Company's consolidated financial position or results of
operations.
The Company is subject to two lawsuits arising from the normal course of
business of its office products business. These actions are in the very early
stages, and the Company is unable to determine the likelihood or amount, if any,
of an unfavorable outcome.
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31
11. SHAREHOLDERS' EQUITY
COMMON STOCK
Each share of Class A Common Stock is entitled to one-tenth vote and each share
of Class B Common Stock is entitled to one full vote at meetings of
shareholders, except that Class A shareholders are entitled to elect 25 % and
Class B shareholders are entitled to elect 75 % of the directors. Each share of
Class B Common Stock can be converted to Class A Common Stock on a share for
share basis. All dividends paid on Class B Common Stock must also be paid on
Class A Common Stock in an equal amount.
The Company has a nonqualified stock option plan. Under the terms of the stock
option plan, stock options to purchase Common Stock may be granted to selected
key employees. The Company has reserved 120,000 shares of Class A and 120,000
shares of Class B Common Stock for the nonqualified stock option plan.
Transactions involving the plan are summarized as follows:
NONQUALIFIED STOCK OPTION PLAN 1997 1996 1995
CLASS CLASS CLASS
A B A B A B
---------------------------------------------------------
Outstanding and exercisable at
beginning of year 14,500 14,500 14,690 14,500 14,690 14,500
Exercised
($2.125 per share - Class A,
$1.875 per share - Class B) (14,500) (14,500) (190) -0- -0- -0-
---------------------------------------------------------
Outstanding and exercisable at
end of year ($2.125 per share
Class A, $1.875 per share -
Class B) -0- -0- 14,500 14,500 14,690 14,500
---------------------------------------------------------
At August 2, 1997, 71,500 shares of Class A and 71,500 shares of Class B common
stock were available for future grants under the nonqualified stock option plan.
12. RELATED PARTY TRANSACTIONS
Notes and accounts receivable from related entities that are included in the
balance sheet are as follows:
1997 1996
---------- ----------
Investments in and advances to investee (see Note 13) $ 822,000 $ 631,000
McRae Chevrolet-Buick, Inc., guaranteed by the estate of the
former President of the Company, with interest
at federal funds rate plus 2% 1,225,000 1,111,000
Notes receivable, other, guaranteed
by the estate of the former President of the Company 272,000 275,000
Notes receivable from the estate of the former President of the
Company, unsecured, with interest at federal funds
rate plus 2% 357,000 342,000
---------- ----------
$2,676,000 $2,359,000
---------- ----------
31
32
As of August 2, 1997, and August 3, 1996, there were approximately $708,000 and
$674,000, respectively, of receivables due from employees included in notes and
accounts receivable.
13. INVESTMENT IN INVESTEE
The Company has an investment in a real estate development company. The investee
has been operating under Chapter X of the United States Bankruptcy Act since
1974, and the court has imposed certain restrictions under a Plan of
Reorganization. The Company adjusts its investment in and advances to the
investee by the equity method. Summarized financial data of the investee is as
follows:
1997 1996 1995
----------- ---------- ----------
BALANCE SHEET
Assets $1,679,000 $1,474,000 $1,451,000
Liabilities 1,896,000 1,772,000 1,733,000
Shareholders' deficiency (217,000) (298,000) (282,000)
RESULTS OF OPERATIONS
Revenues $ 428,000 $ 195,000 $ 215,000
Net income (loss) 81,000 (16,000) 25,000
The following table summarizes the activity of the Company's investment
in investee:
1997 1996 1995
-------- --------- --------
Beginning investment $631,000 $ 600,000 $447,000
Equity in income (loss) 81,000 (16,000) 25,000
Additional investments 110,000 47,000 128,000
-------- --------- --------
Ending investment $822,000 $ 631,000 $600,000
-------- --------- --------
14. FINANCIAL INSTRUMENTS
All financial instruments are held or issued for other than trading purposes.
Management used the following methods and assumptions to estimate the fair value
of financial instruments:
CASH AND CASH EQUIVALENTS: Because of the close proximity to maturity, the
carrying value of cash and cash equivalents approximates fair value.
MARKETABLE SECURITIES: The fair values of marketable debt and equity securities
are based on quoted market prices.
NOTES RECEIVABLE: For notes receivable, fair value is estimated by discounting
future cash flows using the current rates at which similar loans would be made
to borrowers with similar credit ratings and for the same remaining maturities.
OTHER ASSETS: Other assets primarily represent officer's life insurance policies
recorded at their cash surrender value which approximates their fair value.
DEFERRED REVENUES: The carrying value approximates fair value because of the
short maturity of the deferred maintenance contracts.
32
33
LONG AND SHORT TERM DEBT: The carrying amounts of the borrowings under
short-term revolving credit agreements approximates its fair value. The fair
value of long term debt was estimated using discounted cash flow analyses, based
on the company's current incremental borrowing rates for similar types of
borrowing arrangements.
CARRYING FAIR
AMOUNT VALUE
---------- ----------
ASSETS
Cash and cash equivalents $5,473,000 $5,473,000
Short term investments 64,000 64,000
Notes receivable, related entities 2,676,000 see (a) below
Notes receivable 1,363,000 1,363,000
Other assets 1,114,000 1,114,000
LIABILITIES
Deferred revenues 1,517,000 1,517,000
Long and short term debt 6,966,000 6,966,000
(A) It is not practicable to estimate the fair value of the Notes due from
related parties to the corporation because of the inability to estimate
fair value without incurring excessive costs. See Note 12-Related Party
Transactions.
15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth unaudited quarterly financial information for the
years ended August 2, 1997 and August 3, 1996:
FIRST SECOND THIRD FOURTH
----------- ----------- ----------- -----------
AUGUST 2, 1997
Net revenues $17,141,000 $15,147,000 $12,646,000 $13,546,000
Gross profit 4,562,000 4,465,000 3,284,000 3,548,000
Net earnings 890,000 718,000 427,000 304,000
Net earnings per common share .32 .26 .15 .12
AUGUST 3, 1996
Net revenues $10,412,000 $10,142,000 $11,069,000 $17,101,000
Gross profit 3,069,000 3,207,000 3,239,000 4,739,000
Net earnings 344,000 449,000 384,000 1,105,000
Net earnings per common share .13 .16 .14 .41
The fourth quarter of 1996 includes an adjustment to decrease the Company's LIFO
Reserve which increased net earnings by $222,000 or $.08 per common share.
33
34
16. INDUSTRY SEGMENT INFORMATION
The Company's principal operations have been classified into three business
segments: bar code operations, office products and printing and footwear
manufacturing. The bar code segment manufactures and sells bar code reading and
related printing devices and other items related to optical data collection. The
office products and printing segment sells, provides maintenance and leases
photocopiers, facsimile machines and digital/duplicators, and operates a
commercial printing company. The footwear segment manufactures combat boots,
principally for the U.S. Government, and western and work boots. Total
consolidated revenues related to sales to the U.S. Government were 16% in 1997,
26% in 1996, and 22% in 1995. There were no significant intersegment sales or
transfers during 1997, 1996, and 1995. Operating profits by business segment
exclude allocated corporate interest income, income taxes, minority interest,
and equity in net loss of investee. Corporate assets consist principally of
cash, short term investments, certain receivables, and real estate held for
investment.
OFFICE
PRODUCTS CORPORATE
(IN THOUSANDS) FOOTWEAR BAR CODE PRINTING & OTHER CONSOLIDATED
- ------------------------------------------------------------------------------------------
FOR THE YEAR ENDED AUGUST 2, 1997
Net Revenues $25,379 $15,944 $ 16,940 $ 217 $58,480
Earnings(loss)from
operations 2,222 1,329 426 (132) 3,845
Identifiable assets 9,717 7,006 12,191 10,811 39,725
Capital expenditures 85 32 924 176 1,217
Depreciation expense
and amortization 546 210 471 383 1,610
------- ------- -------- -------- -------
FOR THE YEAR ENDED AUGUST 3, 1996
Net Revenues $17,490 $15,994 $ 14,616 $ 624 $48,724
Earnings(loss)from
operations 2,758 947 (428) 65 3,342
Identifiable Assets 14,095 6,300 9,823 9,343 39,561
Capital expenditures 37 347 884 219 1,487
Depreciation expense
and amortization 254 154 256 408 1,072
------- ------- -------- -------- -------
FOR THE YEAR ENDED JULY 29, 1995
Net Revenues $ 9,004 $17,315 $ 13,621 $ 684 $40,624
Earnings(loss)from
operations 1,121 2,009 78 145 3,353
Identifiable assets 2,435 9,474 10,500 7,174 29,583
Capital expenditures 17 205 487 247 956
Depreciation expense
and amortization 138 146 260 263 807
------- ------- -------- -------- -------
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35
SCHEDULE II --- VALUATION AND QUALIFYING ACCOUNTS
MCRAE INDUSTRIES, INC. AND SUBSIDIARIES
ADDITIONS
(1) (2)
DESCRIPTION BALANCE AT CHARGED TO CHARGED DEDUCTION BALANCE
BEGINNING COSTS AND OTHER DESCRIBE AT END OF
OF PERIOD EXPENSES ACCOUNTS PERIOD
DESCRIBE
YEAR END AUGUST 2, 1997
Deducted from Assets Accounts:
Allowance for Doubtful Accounts $ 384,000 $(240,000) $ 578,000 (1) $ 722,000
Employee Benefit Accrual 846,000 380,000 (625,000)(2) 601,000
Health Insurance Accrual 192,000 -- -- 192,000
YEAR ENDED AUGUST 3, 1996
Deducted from Assets Accounts:
Allowance for Doubtful Accounts $ 130,000 $ (56,000) $ 310,000 (1) $ 384,000
Employee Benefit Accrual 1,301,000 425,000 (880,000)(2) 846,000
Health Insurance Accrual 146,000 (40,000) 86,000 (2) 192,000
YEAR ENDED JULY 29 , 1995
Deducted from Assets Accounts:
Allowance for Doubtful Accounts $ 116,000 $ (47,000) $ 61,000 (1) $ 130,000
Employee Benefit Accrual 1,290,000 725,000 (714,000)(2) 1,301,000
Health Benefit Accrual 195,000 753,000 (802,000)(2) 146,000
(1) Uncollectible accounts written off
(2) Payments and/or expenses charged to operations
35
36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON 8-K
(A)(1) INDEPENDENT AUDITOR'S REPORT
MCRAE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of August 2, 1997 and August 3, 1996.
Consolidated Statements of Operations for the Years Ended August 2,
1997, August 3, 1996, and July 29, 1995.
Consolidated Statements of Shareholders' Equity for the Years Ended
August 2, 1997, August 3, 1996, and July 29, 1995.
Consolidated Statements of Cash Flows for the Years Ended August 2,
1997, August 3, 1996, and July 29, 1995.
(2) FINANCIAL STATEMENT SCHEDULE:
Schedule II
(3) EXHIBITS
3.1 Certificate of Incorporation (Incorporated by reference to
Exhibit 3.1 to the Registrant's Form S-14, Registration N.
2-85908).
3.2 Amendment to the Certificate of Incorporation (Incorporated by
reference to Exhibit 3 to the Registrant's Form 10-K for the
year ended August 1, 1987).
3.3 Amendment to the Bylaws of the Registrant effective September
10, 1993 (Incorporated by reference to Exhibit 3.3 to the
Registrant's Form 10-K for the fiscal year ended July 31,
1993).
3.4 Restated Bylaws of the Registrant (Incorporated by reference
to Exhibit 3.4 to the Registrant's Form 10-K for the fiscal
year ended July 31, 1993).
10.1 1985 McRae Industries, Inc. Non-Qualified Stock Option Plan
(Incorporated by reference to Exhibit 10 to the Registrant's
Form 10-K for the fiscal year ended August 3, 1985)*
10.2 Technical Assistance Agreement dated September 13, 1984
between the Registrant and Ro-Search, Incorporated
(Incorporated by reference to Exhibit 10.4 to the Registrant's
Form 10-K for the fiscal year ended July 28, 1984).
10.3 Award/Contract between Defense Personnel Support Center and
McRae Industries, Inc. dated August 6, 1993 (Incorporated by
reference to Exhibit 10.3 to the Registrant's Form 10-K for
the fiscal year ended July 31, 1993).
10.4 Stock Purchase Agreement as of April 7, 1996 among Walter A.
Dupuis, Kenneth O. Moore, William Glover, and McRae
Industries, Inc. was filed as Exhibit 2 to the Registrant's
current report on Form 8-K filed May 11, 1996 and is
incorporated herein by references.
36
37
10.5 Promissory Note, Security Agreement and Guaranty Agreement
dated July 25, 1996 among American West Trading Company, as
borrower, The Fidelity Bank, as lender, and the Registrant, as
Guarantor (Incorporated by reference to Exhibit 10.5 to the
Registrant's Form 10-K for the fiscal year ended August 3,
1996).
10.6 Deed of Trust between American West Trading Company and The
Fidelity Bank, dated July 25, 1996 (Incorporated by reference
to Exhibit 10.6 to the Registrant's Form 10-K for the fiscal
year ended August 3, 1996).
10.7 Security Agreement pertaining to inventory, accounts
receivable and equipment between American West Trading Company
and The Fidelity Bank, dated July 25, 1996 (Incorporated by
reference to Exhibit 10.7 to the Registrant's Form 10-K for
the fiscal year ended August 3, 1996).
10.8 Award/Contract between Defense Personnel Support Center and
McRae Industries, Inc. dated April 15, 1997 (Filed herein).
21 Subsidiaries of the Registrant (Incorporated by reference to
Exhibit 21 to the Registrant's Form 10-K for the fiscal year
ended August 3, 1996).
23 Consent of Independent Auditors (Filed herein).
27 Financial Data Schedule (Filed in electronic format only.
Pursuant to Rule 402 of Regulation S-T, this schedule shall
not be deemed filed for purpose of Section 11 of the
Securities Act of 1933 or Section 18 of the Securities
Exchange Act of 1934).
- ----------
*DENOTES A MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT.
(B) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K for the fiscal year ended
August 2, 1997.
37
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: October 30, 1997 By: /s/ D. Gary McRae
-----------------
D. Gary McRae
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
SIGNATURE DATE
- --------- ----
/s/D. Gary McRae October 30, 1997
- --------------------------------------------
D. Gary McRae
President, Treasurer, and Director
(Principal Executive Officer)
/s/George M. Bruton October 30, 1997
- --------------------------------------------
George M. Bruton
Director
/s/Hilton J. Cochran October 30, 1997
- --------------------------------------------
Hilton J. Cochran
Director
/s/Brady W. Dickson October 30, 1997
- --------------------------------------------
Brady W. Dickson
Director
/s/Victor A. Karam October 30, 1997
- --------------------------------------------
Victor A. Karam
Vice President - Footwear and Director
/s/James W. McRae October 30, 1997
- --------------------------------------------
James W. McRae
Vice President, Secretary, and Director
/s/Harold W. Smith October 30, 1997
- --------------------------------------------
Harold W. Smith
Vice President - Graphics and Director
/s/Marvin G. Kiser, Sr. October 30, 1997
- --------------------------------------------
Marvin G. Kiser, Sr.
Controller
(Principal Financial and Accounting Officer)
38
39
EXHIBIT INDEX
3.1 Certificates of Incorporation (Incorporation by reference to Exhibit
3.1 to the Registrant's Form S-14, Registration N. 2-85908).
3.2 Amendment to the Certificate of Incorporation (Incorporated by
reference to Exhibit 3 to the Registrant's Form 10-K for the fiscal
year ended August 1, 1987).
3.3 Amendment to the Bylaws of the Registrant effective September 10, 1993
(Incorporated by reference to Exhibit 3.3 to the Registrant's Form 10-K
for the fiscal year ended July 31, 1993).
3.4 Restated Bylaws of the Registrant (Incorporated by reference to Exhibit
3.4 to the Registrant's Form 10-K for the fiscal year ended July 31,
1993).
10.1 1985 McRae Industries, Inc. Non-Qualified Stock Option Plan
(Incorporated by the reference to Exhibit 10 to the Registrant's Form
10-K for the fiscal year ended August 3, 1985).
10.2 Technical Assistance Agreement dated September 13, 1984 between the
Registrant and Ro-Search, Incorporated (Incorporated by reference to
Exhibit 10.4 to the Registrant's Form 10-K for the fiscal year July 28,
1984).
10.3 Award/Contract between Defense Personnel Support Center and McRae
Industries, Inc. dated August 6, 1993 (Incorporated by reference to
Exhibit 10.3 to the Registrant's Form 10-K for the fiscal year ended
July 31, 1993).
10.4 Stock Purchase Agreement and Guaranty Agreement as of April 7, 1996
among Walter A. Dupuis, Kenneth O. Moore, William Glover, and McRae
Industries, Inc. was filed as Exhibit 2 to the Registrant's current
report on Form 8-K filed May 11, 1996 and is incorporated herein by
reference.
10.5 Promissory Note, Security Agreement and Guaranty Agreement dated July
25, 1996 among American West Trading Company, as borrower, The Fidelity
Bank, as lender and the Registrant, as Guarantor (Incorporated by
reference to Exhibit 10.5 to the Registrant's Form 10-K for the fiscal
year ended August 3, 1996).
10.6 Deed of Trust between American West Trading Company and The Fidelity
Bank, dated July 25, 1996 (Incorporated by reference to Exhibit 10.6 to
the Registrant's Form 10-K for the fiscal year ended August 3, 1996).
10.7 Security Agreement pertaining to inventory, accounts receivable and
equipment between American West Trading Company and The Fidelity Bank,
dated July 25, 1996 (Incorporated by reference to Exhibit 10.7 to the
Registrant's Form 10-K for the fiscal year ended August 3, 1996).
10.8 Award/Contract between Defense Personnel Support Center and McRae
Industries, Inc. dated April 15, 1997 (Filed herein).
39
40
21 Subsidiaries of the Registrant (Incorporated by reference to Exhibit 21
to the Registrant's Form 10-K for the fiscal year ended August 3,
1996).
23 Consent of Independent Auditors (Filed herein).
27 Financial Data Schedule (Filed in electronic format only. Pursuant to
Rule 402 of Regulation S-T, this schedule shall not be deemed filed for
purpose of Section 11 of the Securities Act of 1933 or Section 18 of
the Securities Exchange Act of 1934).
40