ITEM 2. PROPERTIES
The following table describes the location, principal use and approximate size of all the principal facilities of the Registrant and its subsidiaries, all of which are owned by the Registrant and/or its subsidiaries.
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 at August 3, 1996 that is being held for investment purposes.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Registrant, a subsidiary and certain affiliates of the Registrant, including AMIC, are parties to certain litigation incidental to their businesses. See Note 13 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
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 25, 1996, there were approximately 510 record holders of the Registrant's Class A Common Stock and approximately 430 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:
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. Any 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.
ITEM 6.
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 consolidated financial statements. The Company acquired American West Trading Company (American West) on April 30, 1996 from its shareholders. The results of the
Company include the results of American West since April 30, 1996, the day 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.
(a) Includes both Class A and Class B Common Stock (b) Dividends were paid only on Class A Common Stock.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company reported revenues of $48.7 million for the 1996 fiscal year compared to $40.6 million for the same period in 1995 and $39.5 million in 1994. Consolidated revenues reached record levels for the fourth consecutive year. The footwear unit's revenue increased 94%, approximately 47% or $4.2 million of the increase, resulted from the acquisition of American West Trading Company (American West) on April 30, 1996 in a transaction accounted for as a purchase. The operating results of American West, which manufactures and sells western and work boots, are included in the Company's results of operations since the date of its acquisition. The Registrant expects that the inclusion of the operating results of American West, for a complete-fiscal year in 1997, to increase its revenues from the footwear segment. 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. Consolidated operating profits declined slightly from the fiscal 1995 level as a result of a 4% reduction in the gross profit percent.
The following chart sets forth the net revenues, gross profits, selling, general and administrative expenses, and operating profits of the major business units for the fiscal years 1994 through 1996.
The results reported in the chart reveal several different trends in the Company's revenue mix. The office products unit posted another year of record revenues with an increase of 7% over fiscal 1995. At the same time, the bar code unit experienced a 7% decline in revenues from the prior year. The major contributor to the Company's record consolidated revenue level was the footwear unit which increased revenue by 94% as a result of increased U.S. Government requirements, sales of combat boots to foreign governments and the acquisition of American West.
Gross profit margins fell 4% on a consolidated basis for fiscal 1996 compared to fiscal 1995 and were flat from fiscal 1995 to 1994. The bar code and office products units continued to experience downward trends in gross margins, and the footwear unit posted a 3% increase to 21% over fiscal 1995 and nearly matched the 22% level recorded in fiscal 1994. The bar code unit continued to yield margin to competitive pricing pressure in 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 selling, general and administrative (SG&A)expenses as a percentage of sales decreased 2% in fiscal 1996 from fiscal 1995 levels and matched the 1994 level. The bar code unit experienced a sizable increase in SG & A as a percentage of sales as a result of increased health insurance costs, research and development expenditures and professional fees. The footwear unit experienced a 144% increase in SG&A over fiscal 1995 caused primarily by the acquisition of the western boot product line.
Total operating profit for fiscal 1996 as a percentage of total revenue dropped to 7% from 8% in fiscal 1995 and 10% in fiscal 1994. The decline in bar code revenue and the reduction in gross margins on a consolidated unit basis were the major causal factors of the decrease in consolidated operating profit in fiscal 1996.
BUSINESS SEGMENTS
The Company has three primary business units: the bar code unit operates under the name of Compsee, the office products unit operates under the name of McRae Graphics, and the footwear manufacturing unit operates under the names of McRae Footwear and American West Trading Company. The Company also operates several other smaller businesses that are included in the other category in the above chart.
BAR CODE OPERATIONS
Compsee manufactures and distributes bar code reading and printing devices and other items related to optical data collection. Compsee continues to concentrate its efforts to expand into new markets throughout the United States and other parts of the world, and currently has sales agents in the United States, Central and South America, Europe, Australia, the Middle East, and some Pacific Rim countries.
Total revenues for fiscal 1996 were 7% lower than those reported in fiscal 1995 which were 31% higher than 1994 revenues. Several product lines were affected by significant competitive pressures on pricing during the year which
resulted in lower revenues and gross margins for the business unit. In addition, selling, general and administrative expenses increased 4% over fiscal 1995 from higher health insurance costs, research and development expenditures and professional fees. All of these factors were responsible for the 6% decline in operating profits from fiscal 1995.
OFFICE PRODUCTS
McRae Graphics sells and services certain office equipment of two major lines of photocopier, facsimile, and digital printing equipment through nine offices in North Carolina.
Total revenues for fiscal 1996 were 7% higher than in fiscal 1995 which was 21% higher than the fiscal 1994 revenues. Revenues have continued to grow for five consecutive years. McRae Graphics sells various equipment and supplies and services the equipment it sells. Gross margins decreased approximately two percentage points during fiscal 1996. This was primarily attributed to a decline in service margins. Selling, general and administrative expenses 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 selling and general and administrative expenses out paced the increase in revenues and resulted in a net operating loss for fiscal 1996.
FOOTWEAR
McRae Footwear manufactures military combat, western and work boots. Military combat boots are manufactured primarily for the United States Government (Government). In an effort to offset losses of production caused by the Defense Department's overall reduction of combat boot orders in recent years, the Company began producing boots for other markets in fiscal 1995. This segment is currently operating under the third and final year of a three year contract with the Government. A new contract covering a five year period is currently being negotiated. The Company believes that it is well positioned to successfully negotiate a new contract with the Government; however, there can be no assurances that the terms of any such contract will be favorable to the Company or that any such contract will be awarded.
In addition to producing combat boots for other markets, the Company purchased American West Trading Company (American West), a high quality, low cost producer of men's, women's and children's western and work boots, in April 1996. Total revenues for the footwear segment increased to $17.5 million, up 94% over fiscal 1995 which had declined 35% from fiscal 1994. 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 margins in the western and work boot product line, resulted in a positive 3% increase in gross margin as a percentage of sales as fixed overhead was spread over an increased production level of military combat boots. Selling, general and administrative expenses increased 144% over fiscal 1995 which was flat compared to fiscal 1994. The increase was largely attributable to the acquisition of the western and work boot operation.
OTHER OPERATIONS AND INFLATION
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.
Inflation, in the opinion of management, has not been a significant factor in the Company's operations for the last three fiscal years.
FINANCIAL CONDITION
The Company continues to have a strong balance sheet with a current ratio of over 3:1. Total assets grew approximately 34% during fiscal 1996, while stockholders' equity grew over 7% during the same period.
The expansion in operations for the footwear unit as a result of increased sales activity and the acquisition of American West contributed to the substantial increase in accounts receivable and inventory levels as compared to fiscal 1995. The 81% increase in receivables is directly related to higher military combat boot sales coupled with a delay in collection of Government receivables and timing of purchases by customers of the western and work boot product line. The 74% increase in inventory over last year is largely attributed to the buildup of western and work boot inventory to fill greater seasonal demands occurring during the fall and winter months of the year. Higher sales activity also prompted a slight upward adjustment in the allowance for bad debts. Accrued employee benefits used cash of $455,000 as a result of higher payments during fiscal 1996.
Investing activities resulted in net cash provided of $583,000 including $614,000 to purchase the western boot manufacturing company. Short term investments were liquidated resulting in a source of cash amounting to almost $3.4 million. The Company used these funds to restructure acquisition debt assumed and to finance operations. Fixed assets increased by capital expenditures of approximately $1.5 million as the Company continued to add to and update its manufacturing machinery and equipment as well as its computer and support programs.
Net cash provided by financing activities amounted to $337,000. New bank loans approximating $6 million were negotiated to replace the debt assumed by the Company in the purchase of American West. The Company paid dividends during the fiscal year which totaled $624,000.
At August 3, 1996, the Company had lines of credit with several banks totalling $3.75 million, of which $3.35 million was available to the Company. The Company will continue to have cash requirements to support working and capital needs as well as debt payment and servicing. To meet these cash requirements, the Company intends to use internally generated funds and to borrow under its lines of credit, if necessary. Management believes that the cash generated from these sources will be adequate to meet the Company's cash requirements during the next fiscal year.
ENVIRONMENTAL MATTERS
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.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following documents are filed as part of this report:
Schedules other than those listed above have been omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto.
ITEM 9.
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, Audit and Incentive Stock Option Committee 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 19, 1996.
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 3, 1996 and July 29, 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended August 3, 1996 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 misstatement. 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 3, 1996, and July 29, 1995, and the results of their operations and their cash flows for each of the three years in the period ended August 3, 1996, 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 11, 1996
NationsBank Suite 3500 Charlotte, North Carolina 28280 Telephone 704-377-0220 Telefax 704--377-7612 Certified Public Accountants and Business Advisors
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS McRae Industries, Inc. and Subsidiaries
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS McRae Industries, Inc. and Subsidiaries
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY McRae Industries, Inc. and Subsidiaries
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS McRae Industries, Inc. and Subsidiaries For the Years Ended August 3, 1996, July 29, 1995 and July 30, 1994
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 Marketable Securities consist of certificates of deposit with an original maturity date of more than three months and debt and equity securities. Certificates of deposit are stated at cost and the securities are stated at approximate fair values based on quoted market prices.
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.
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.
Government Contract Revenue Recognition Sales under long-term government contracts are recognized as revenues when the deliveries are made. In addition, the Company has recorded receivables of $370,000 at August 3, 1996, 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 The Company records provision for income taxes using the liability method of accounting for income taxes under SFAS No. 109 Accounting for 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. Supplemental information, combining the acquired companies on a pro forma basis as though they were acquired at the beginning of the fiscal years, has not been presented for the DataScan Corporation and Systems Integrators, Inc. acquisitions because it would have an immaterial effect on the net revenues and income for the periods presented.
In September 1994, the Company acquired DataScan Corporation, a reseller of bar code products located in South Carolina, for approximately $523,000. The excess of the purchase price over the fair value of the net assets acquired of approximately $600,000 was recorded as goodwill and is being amortized by the straight-line method over twenty years.
In June 1995, the Company acquired Systems Integrators, Inc., a consulting firm primarily engaged in programming bar code related products, for approximately $315,000. The excess of the purchase price over the fair value of the net assets acquired of approximately $138,000 was recorded as goodwill and is being amortized by the straight-line method over fifteen years.
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 with manufacturing facilities located in Dresden and Waverly, Tennessee. American West sells it's boots nationwide to major retail and speciality 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 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.
3. MARKETABLE SECURITIES
The following is a summary of the estimated fair market value of available for sale securities:
At July 29, 1995 all certificates of deposit had contractual maturities of one year or less. 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 3, 1996 or July 29, 1995.
4. INVENTORIES
Current costs exceed the LIFO value of inventories by approximately $877,000 and $847,000 at August 3, 1996 and July 29, 1995, respectively. Year-end inventories valued under the LIFO method were approximately $5,150,000 at August 3, 1996 and approximately $4,500,000 at July 29, 1995. The components of inventory at each year end are as follows:
5. LEASES
The Company leases certain photocopier products under sales-type leases. The Company's net investment in these leases is as follows:
The scheduled maturities for the above minimum lease payments receivable at August 3, 1996 are as follows:
6. PROPERTY, PLANT AND EQUIPMENT
7. NOTES PAYABLE:
Annual maturities of long-term debt are as follows:
Interest expense payments during fiscal years 1996, 1995 and 1994 were approximately $133,000, $48,000 and $82,000, respectively.
8. EMPLOYEE BENEFIT PLANS
The Company's employee benefit program consists of a defined benefit pension plan, an employee stock ownership 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's actuary determined the amount owed to the pension plan as a result of the plan's termination was $173,000. This amount has been 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 are 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 is 8%.
The following table sets forth the defined benefit pension plan's funding status at the end of each year indicated.
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.
Employee benefit program expense amounted to $525,000, $725,000 and $850,000 in 1996, 1995 and 1994, respectively. To the extent the amount of these benefits are not disbursed, the Board may, at its sole discretion, reduce any remaining accruals.
9.INCOME TAXES
Significant components of the provision for income taxes are as follows:
The components of the provision for deferred income taxes are as follows:
Deferred tax liabilities and assets at each year end are as follows:
The reconciliation of income tax computed at the U. S. federal statutory tax rate to actual income tax expense are (in thousands):
Total income tax payments during fiscal years 1996, 1995 and 1994 were approximately $958,000, $1,647,000 and $1,100,000, 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 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 subject to certain restrictions at the banks' prime interest rate.
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 of the Company 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 account receivables.
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.
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:
At August 3, 1996, 143,000 shares of Class A and 143,000 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:
As of August 3, 1996, and July 29, 1995, there were approximately $674,000 and $695,000, 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:
The following table summarizes the activity of the Company's investment in investee:
The Company, a subsidiary and investee have been named co-defendants in a civil lawsuit involving one residential real estate lot in a subdivision partially developed by the investee. The investee has been named a defendant in a second lawsuit also involving a residential real estate lot in the same subdivision. The lawsuits allege various torts related to quiet title, adverse possession, tortious interference and others. The first suit seeks unspecified compensatory and punitive damages. The second suit seeks compensatory damages of $15,000 and unspecified punitive damages. The Company's counsel in connection with these lawsuits has represented that it is unable to evaluate the probability of a favorable or unfavorable outcome nor to estimate the range of loss, if any, in these cases. Accordingly, no provision for any liability that may result has been made in the accompanying consolidated financial statements.
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 flow 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 its cash surrender value which approximates its fair value.
Deferred revenues: The carrying value approximates fair value because of the short maturity of the deferred maintenance contracts.
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.
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 11-Related Party Transactions.
15. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The following table sets forth unaudited quarterly financial information for the years ended August 3, 1996 and July 29, 1995:
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.
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 printing devices and other items related to optical data collection. The office products and printing segment sells, provides maintenance and leases photocopiers, facsimile 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 26% in 1996, 22% in 1995, and 35% in 1994. There were no significant intersegment sales or transfers during 1996, 1995 and 1994. 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.
PART IV
ITEM 14.
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 3, 1996 and July 29,
Consolidated Statements of Operations for the Years Ended August 3, 1996, July 29, 1995, and July 30, 1994.
Consolidated Statements of Cash Flow for the Years Ended August 3, 1996, July 29, 1995 and July 30, 1994
Consolidated Statements of Shareholders' Equity for the Years Ended August 3, 1996, July 29, 1995 and July 30, 1994
(2) Financial Statement Schedules:
Schedule II
(b) Reports on Form 8-K
The Registrant filed a Form 8-K dated May 10, 1996 and a Form 8-K/A dated June 29, 1996 in connection with its acquisition of American West Trading Company. The Form 8-K/A dated June 29, 1996 includes financial statements of American West Trading Company for the years ended December 31, 1995 and 1994 and pro forma financial information for the nine months ended April 27, 1996 and the twelve months ended July 29, 1995.
(c) Exhibits
---------------------------------------- *Denotes a management contract or compensatory plan or arrangement.
SCHEDULE II.. VALUATION AND QUALIFYING ACCOUNTS McRae Industries, Inc. and Subsidiaries.
(1) Uncollectible accounts written off (2) Payments and/or expenses charged to operations
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 31, 1996 By: /s/ B. J. McRae --------------------- B.J 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/ B. J. McRae October 31, 1996 - --------------- President and Director (Principal Executive Officer)
/s/ George M. Bruton - -------------------- George M. Bruton October 31, 1996 Director
/s/ Hilton Cochran - ----------------- Hilton Cochran October 31, 1996 Director
/s/ James W. McRae - ------------------ James W. McRae October 31, 1996 Vice President, Secretary and Director
/s/ Victor A. Karam - ------------------ Victor A. Karam October 31, 1996 Vice President of Footwear and Director
/s/ D. Gary McRae - ----------------- D. Gary McRae October 31, 1996 First Vice President, Treasurer and Director
/s/ Harold W. Smith - ------------------- Harold Smith October 31, 1996 Vice President of McRae Graphics and Director
/s/ Marvin G. Kiser, Sr. - ------------------------ Marvin G. Kiser October 31, 1996 Controller (Principal Financial and Accounting Officer)
Exhibit Index