SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended July 29, 1995
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.)
402 North Main Street, Mount Gilead, North Carolina 27306
(Address of Principal Executive Offices) (Zip code)
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 (of for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate 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 20, 1995 was
approximately $8,975,000 and $3,070,000, respectively (including shares held by
5% or more shareholders other that B. J. McRae). On October 20, 1995, 1,779,197
Class A and 952,013 of Class B shares were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual shareholders meetings to be held
on December 21, 1995 are incorporated by reference into Part III.
<PAGE>
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 printing devices, manufacturing military combat boots,
selling, leasing and servicing office equipment, and commercial printing.
Bar Code Operations
The bar code segment, which is conducted by Compsee, Inc., a 90% owned
subsidiary, manufactures and sells bar code reading and printing devices
and other items related to optical data collection, including licensing
and selling computer software. At July 29, 1995, Compsee had numerous
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 designs and manufacturers QuickReader and QuickLink bar code
readers. Principal materials used in Compsee's assembly operations
consists of various electrical and electronic components that were
readily available from a number of sources during fiscal 1995.
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.
Revenues derived from this segment in fiscal 1995, 1994, and 1993 were
43%, 33%, and 35% of the Registrant's total revenues, respectively.
QuickReaders and QuickLink bar code readers developed and marketed by
Compsee accounted for 16%, 29%, and 36% of Compsee's sales and for 7%,
10%, and 13% respectively, of the Registrant's total revenues during
fiscal 1995, 1994, and 1993. There was no significant backlog of firm
orders for this segment at July 29, 1995.
Footwear Manufacturing
The Registrant manufactures Direct Molded Sole combat boots for the
United States Government (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 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 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.
<PAGE>
The Registrant's contracts with the Government are subject to partial or
complete termination under certain specified circumstances. The
Government has the authority to partially or completely terminate a
contract for the convenience of the Government. The Government may
negotiate a settlement with the Registrant in such event to cover costs
already incurred. The Government may exercise broad discretion in
deciding whether to terminate a contract on grounds of convenience,
including termination due to lack of funding. The Government also has
the authority to partially or completely terminate a contract because of
the Registrant's actual or anticipated failure to perform its contractual
obligations. The Registrant has never had a contract either partially
or completely terminated.
Leather and synthetic rubber, which have been and are currently generally
available from several sources, are the principal material components
used in the combat boot manufacturing process. Pursuant to Government
contracts, 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.
Revenues derived from this segment in fiscal 1995, 1994, and 1993 were
22%, 35%, and 32%, respectively, of the Registrant's total revenues.
The Registrant's backlog of firm orders for combat boots at July 29, 1995
and July 30, 1994 totaled approximately $8,000,000 (all of which is
expected to be filled during the current year) and $2,000,000,
respectively.
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. Graphics has nine 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 which were sold by Graphics during fiscal 1995 were 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 material 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 sales 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.
Revenues derived from this segment during fiscal 1995, 1994, and 1993
were 33%, 30% and 31%, respectively, of the Registrant's total revenues.
There was no significant backlog of firm orders for this segment at July
29, 1995.
<PAGE>
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 is also engaged in the food and lodging industry. It owns
and operates a 24 room motel and an adjacent 200 seat family style
restaurant in Troy, North Carolina. Competition from similar businesses
in the immediate vicinity is moderate.
Other Investment Interests
The Registrant has an investment in the 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. B. J. 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 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 July 29, 1995 The Registrant employed approximately 375 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 14 to the consolidated financial statements included in this Report.
ITEM 2. PROPERTIES
The following table describes the location, all of which are owned by the
Registrant and/or its subsidiaries, principal use and approximate size
of all principal facilities of the Registrant and its subsidiaries.
Location Principal Use Size
402 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 Sales office 5,250 square
Palm Bay, Florida feet
Highway 109 North Warehouse 3,500 square
Mt. Gilead, N.C. feet
<PAGE>
Highway 109 Warehouse 11,200 square
Richmond County, N.C. feet
Highway 24-27 Manufacturing and 35,000 square
Troy, N. C. warehousing feet
Highway 109 North Leased space 4,800 square
Mt. Gilead, N. C. feet
111 Main Street Printing Operation 11,520 square
Mt. Gilead, N.C. feet
Highway 24-27 Motel and restaurant 24 room motel
Troy, N. C. 6,625 square
foot restaurant
Highway 24-27 Warehouse leased 11,760 square
Troy, N. C. to automobile feet
dealership owned by
B. J. McRae
Highway 24-27 Warehouse leased 4,800 square
Troy, N. C. to automobile feet
dealership owned by B. J. McRae
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 July
29, 1995 that is being held for investment purposes.
ITEM 3. LEGAL PROCEEDINGS
During fiscal 1995, there were no material legal proceedings to which the
Registrant or any of its subsidiaries is a party or of which any of their
property is subject within the meaning of Item 103 of Regulation S-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Registrant's classes of common stocks are traded on the American
Stock Exchange (ticker symbol MRI-A and MRI-B). As of October 20, 1995,
there were approximately 519 record holders of the Registrant's Class A
Common Stock and approximately 443 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:
1995 1994
Cash Cash
Sales Price Dividends Sales Price Dividends
Quarter High Low Declared High Low Declared
First $9.25 $6.75 $.0875 $7.00 5.75 $.085
Second 7.75 6.88 .0875 10.38 6.13 .085
Third 7.13 5.88 .0875 9.63 7.75 .0875
Fourth 7.25 5.81 .0875 8.13 6.88 .0875
CLASS B COMMON STOCK:
1995 1994
Sales Price Sales Price
Quarter High Low High Low
First $8.38 $6.75 $6.63 $6.13
Second 7.38 6.63 10.50 6.38
Third 7.00 5.88 10.88 7.88
Fourth 7.00 5.88 7.75 7.00
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. All dividends paid on Class B Common Stock must also be paid on
class A Common Stock in an equal amount. There is no assurance as to
future dividends because they are dependent on future actions of the
Board of Director, earnings, capital requirements, and financial
condition.
The following table set forth, by class of stock, average price per share
traded and price/earnings ratios for the five most recent fiscal year
periods. The "price/earnings ratio" is calculated by dividing the
average per share trading price of each class by earnings per share of
each class for each period presented. The "average price per share
traded" represents the twelve months average trading price for each class
of stock.
<PAGE>
CLASS A COMMON STOCK 1995 1994 1993 1992 1991
Average price per share traded $7.09 $7.67 $5.89 $5.25 $4.79
Price/earnings ratio 8.86 7.91 7.27 6.56 5.21
CLASS B COMMON STOCK
Average price per share traded $6.86 $7.69 $5.72 $5.19 5.08
Price/earnings ratio 8.58 7.93 7.06 6.49 5.52
ITEM 6. SELECTED FINANCIAL DATA
(Amounts in thousands except share and per share amounts)
Fiscal Year Ended July 29, July 30, July 31, August 1, August 3,
1995 1994 1993 1992 1991
Income Statement Data:
Net revenues $40,624 $39,454 $33,541 $31,653 $37,284
Net earnings 2,184 2,633 2,210 2,177 2,484
Net earnings
per common share: 0.80 0.97 0.81 .80 .92
Balance Sheet Data:
Total assets $29,583 $28,136 $25,880 $23,465 $22,436
Long-term liabilities -0- -0- 294,000 239,000 233,000
Working Capital 12,306 12,639 12,288 11,235 10,122
Shareholders' equity 22,669 21,101 19,061 17,430 15,750
Weighted average number
of Common Shares
Outstanding (a) 2,731,210 2,729,710 2,729,210 2,721,810 2,702,481
Cash dividends declared
per Common Share (b) $0.35 $0.345 $0.34 $0.3232 $ 0.32
(a) Includes both Class A and Class B Common Stock
(b) Dividends were paid on Class A Common Stock only.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND
RESULTS OF OPERATIONS
The Company reported revenues of $40.6 million for the 1995 fiscal year
as compared to $39.5 million for the same period in 1994 and $33.5
million in 1993. Revenues for 1995 were at a record high for the
Company and represents the third consecutive year of increased revenues.
Bar code revenues continue to increase in importance to our business and
currently constitute 43% of consolidated revenues as compared to 33% in
1994. Revenues for the footwear unit were down approximately $4.8
million in fiscal 1995 but were only $1.7 million less than the 1993
levels of $10.7 million. The loss of revenues and operating profits
from the footwear unit during fiscal 1995 was a large cause for the
deterioration in net earnings for 1995.
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 1993 through 1995.
1995 1994 1993 1995 1994 1993
Net Revenues Dollars Percent of Total Revenues
Bar Code $17,315 $13,205 $11,775 43 33 35
Office Products 11,919 9,872 8,495 29 25 25
Footwear 9,004 13,777 10,713 22 35 32
Printing 1,702 1,782 2,004 4 5 6
Eliminations 684 818 554 2 2 2
Consolidated $40,624 $39,454 $33,541 100 100 100
Gross Profit Gross Profit Percentage
Bar Code $ 7,246 $6,077 $5,832 42 46 50
Office Products 4,189 3,750 3,218 35 38 38
Footwear 1,576 2,985 2,760 10 22 26
Printing 272 286 232 16 16 12
Eliminations
and other (48) (61) (131)
Consolidated 13,235 $13,037 $11,911 33 33 36
Selling, General and Administrative Percentage of Sales
Bar Code $5,237 $4,567 $4,150 30 35 35
Office Products 4,198 3,535 3,298 35 36 39
Footwear 455 475 529 5 3 5
Printing 185 251 405 11 14 20
Eliminations (145) 143 (1)
and other
Consolidated $9,930 $8,971 $8,381 25 23 25
Operating Profit Percent of Sales
Bar Code $2,109 $1,510 $1,687 12 11 14
Office Products (9) 215 (80) - 2 -
Footwear 1,121 2,510 2,231 12 18 21
Printing 87 35 (173) 5 2 (9)
Eliminations
and other (3) (204) (135)
Consolidated $3,305 $4,066 $3,530 8 10 11
<PAGE>
The above chart shows strong revenue growth during the past three fiscal years
for both the bar code and office products units which represent 72% of the 1995
revenues. However, the effects of governmental budget constraints in lower
expenditure levels of purchases of combat boots has severely affected footwear's
revenues. The Company is currently operating under a three year contract with
the US Government which began in August 1993. The terms of this contract
require relatively constant shipments throughout the remaining period.
During the third quarter of 1995, the Company signed a $2.9 million contract
with a foreign government to supply combat boots. Delivery will begin
during the first quarter of fiscal 1996.
Gross profit margins continue to erode in all three major units as a result of
either competitive pressures or lower production levels. Competitive pricing
pressures for our bar code products caused the erosion in profit margins from
50% to 46% to 42% during the years 1993, 1994, and 1995, respectively. This
erosion has slowed during the last part of 1995 and is expected to stabilize
during 1996. The office product's margins decreased from 38% in 1993 and 1994
to 35% in 1994. The decreases were primarily caused by increased service costs
while profit margins for hardware and supply sales were relatively stable for
the three years ended in fiscal 1995. The footwear margins dropped from 26%
to 22% to 18% during the years 1993, 1994, and 1995, respectively. Footwear's
margins have been adversely affected by the decrease in production in 1995,
thereby decreasing the absorption of overhead and general and administrative
costs.
Selling, general and administrative expenses for fiscal 1995 returned to 1993
levels as a percentage of sales. While sales increased 27% in 1995 for the bar
code and the office products units in 1995, the related selling expenses
increased only 13% during fiscal 1995. Consolidated selling expenses increased
from 13% of total revenues in 1994 to 14% in 1995 because the shift in revenues
during fiscal 1995 from footwear to the bar code and graphics units.
Total operating profit as a percentage of total revenues was 8% for 1995 as
compared to 10% and 11% for 1994 and 1993 respectively. The loss of revenues at
the footwear unit and the lower gross profit margins during 1995 caused the
operating profits to decline during 1995.
Other income for the three years presented changed primarily because a large
gain was included in 1993 of approximately $110,000, and the equity in our
investee increased during 1995 resulting from a large infrequent sale. Lower
state income taxes continue to reduce the effective tax rate for 1995 and 1994.
<PAGE>
BUSINESS SEGMENTS
The Company has three primary business units: the bar code unit operates under
the name of Compsee, the sales and servicing of office products is performed
under the name of McRae Graphics, and the manufacturing of footwear is done
under the name of McRae Footwear. The Company also operates several other
smaller business that are included in the other category in the above chart.
BAR CODE OPERATIONS
Compsee manufacturers and distributes bar code reading and printing devices and
other items related to optical data collection. Compsee is concentrating 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 1995 were 31% higher than in 1994 which was 12% higher
than in 1993. Compsee has experienced four consecutive years of increased
revenues. Approximately half of this increase in revenues has been caused by
new volume and very little of the increase was caused by inflation. The volume
increase resulted in new and increased revenues in two geographic markets during
fiscal 1995 while other areas achieved moderate growth in 1995 and 1994. An
acquisition in September 1994 caused revenue to increase approximately $1.7
million during 1995. Operating profit as a percentage of revenues for this
segment increased to 12% for fiscal 1995. Despite the increased pressure on
pricing and gross margins, this unit has been able to reduce both selling and
general and administrative expenses as a percentage of revenues by leveraging
the fixed and semi-fixed costs over the higher revenue base. The bar code unit's
selling, general and administrative expenses only increased approximately
$670,000 or 15% during 1995 and is 30% of sales as compared to 35% of sales
during 1994 and 1993.
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 year 1995 were 21% higher than in 1994 which was 16%
higher than the fiscal 1993 revenues. Revenues have continued to grow for four
consecutive years. McRae Graphics sells various equipment and supplies and
services the equipment it sells. Two new offices were operational during fiscal
1995 which resulted in most of the increase in revenues. Gross margins
decreased approximately two percentage points during fiscal 1995. This was
caused primarily by the service margins declining more than the equipment and
supplies margins. Selling, general and administrative expenses decreased to 35%
of revenues for fiscal 1995 by leveraging the fixed and semi-fixed costs over
the higher revenues base.
FOOTWEAR
McRae Footwear manufactures military combat boots primarily for the United
States Government. In an effort to supplement losses of production caused by
the Defense Department's overall reduction of combat boot orders, the Company
has begun producing boots for other markets. This segment is currently
operating under the second year of a three year contract with the US Government.
<PAGE>
Total revenues decreased to $9 million for fiscal 1995 or 65% of the fiscal 1994
revenues. Because of the terms of the government contract and lower production
levels, profit margins were adversely affected by absorption rates for overhead
and general and administrative expenses.
OTHER OPERATIONS
Our printing unit had a large bad debt occur during 1993 which caused selling,
general, and administrative expenses to increase substantially during that year
and caused that year's operating loss. The primary cause of the large change
in operating profit in the other category during 1995 was the recovery of a bad
debt of approximately $85,000 in our financing and leasing unit.
FINANCIAL CONDITION
The Company continues to have a strong balance sheet with a current ratio of
over 3:1. Total assets grew approximately 5% during fiscal 1995, while
stockholders' equity grew over 7% during the same period.
The increases in operations for our bar code and office products units resulted
in increased levels of inventories and accounts receivable by the end of fiscal
1995. The primary increases in our trade receivables were in the bar code and
office products units because of their increased sales activity. The days sales
in their total trade receivables did not change significantly during 1995. The
ageing of our trade receivables also continues to be good while our bad debts
for the past two years were minor. These increases were the primary causes for
the decrease in cash balances and cash flow from operations during 1995. The
Company also paid its borrowings from banks during fiscal 1995, thereby reducing
its interest expense for the fiscal year.
Investing activities during 1995 used cash of $4.2 million and was affected by
the acquisition of the net assets of two bar code subsidiaries for $646,000, the
reduction of $712,000 for capital expenditures as compared to the 1994
expenditures and the purchase of approximately $2.4 million of short term
investments. Construction of the Company's corporate offices and certain
manufacturing facilities during 1994 caused capital expenditures in 1994 to be
higher than normal.
At July 29, 1995, the Company had lines of credit with several banks totalling
$3.75 million, all of which was available to the Company. The Company will
continue to have cash requirements to support working and capital needs. In
order 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 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.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following documents are filed as part of this report:
Page
1. Independent auditor's report 14
2. McRae Industries, Inc. and Subsidiaries consolidated
financial statements:
Consolidated Balance Sheets as of July 29, 1995 and July 30,1994 15
Consolidated Statements of Operations for the Years Ended
July 29,1995, July 30, 1994, and July 31, 1993 16
Consolidated Statements of Cash Flow for the Years Ended
July 29, 1995, July 30, 1994, and July 31, 1993 17
Consolidated Statements of Shareholders' Equity for the
Years Ended July 29, 1995, July 30, 1994, and July 31, 1993 18
Notes to Consolidated Financial Statements 19-27
3. Financial Statement Schedule:
Schedule VIII 28
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
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The information contained in the Sections captioned "Election of Directors" and
"Compliance with Section 16 (a) of Securities Exchange Act of 1934" of the
Registrant's Proxy Statement for the meeting to be held December 21, 1995, with
respect to directors and executive officers of the Company, is incorporated
herein by reference in response to this item.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information contained in the Section captioned "Executive of Directors-
Directors" Fees and Meeting Attendance", "Interlocks and Inside Participation",
"Executive Compensation", and "July 29, 1995 Option Values" of the Registrant's
Proxy Statement for the meeting to be held December 21, 1995, with respect to
executive compensation, is incorporated herein by reference in response to this
item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information contained in the Sections captioned "Principal Shareholders" and
"Election of Directors" of the Registrant's Proxy Statement for the meeting to
be held December 21, 1995, with respect to security ownership of certain
beneficial owner and management, is incorporated herein by reference in response
to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the Section captioned "Interlocks and Insider
Participation" of the Registrant's Proxy Statement for the meeting to
be held December 21, 1995, with respect to certain relationships and related
transactions, is incorporated herein by reference in response to this item.
<PAGE>
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 July 29, 1995 and July 30, 1994,
and the related consolidated statements of income, shareholders' equity and
cash flows for each of the three years in the period ended July 29, 1995 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
schedules 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 July 29, 1995 and July 30, 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended July 29, 1995, 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 3, 1995
Nations Bank Suite 3500
Charlotte, North Carolina 28280
Telephone 704-377-0220
Telefax 704-377-7612
<PAGE>
CONSOLIDATED BALANCE SHEETS
McRae Industries, Inc. and Subsidiaries
July 29, July 30,
1995 1994
ASSETS
Current Assets:
Cash and cash equivalents $ 628,000 $ 6,542,000
Investments 3,244,000 871,000
Accounts and notes receivable, less allowances
for doubtful accounts of $80,000 and $86,000 5,860,000 4,582,000
respectively
Inventories 7,273,000 5,888,000
Net investment in capitalized leases 944,000 761,000
Prepaid expenses and other current assets 352,000 258,000
Total Current Assets 18,301,000 18,902,000
Property, Plant and Equipment, net 4,541,000 4,058,000
Other Assets:
Notes and accounts receivable, related entities 2,287,000 2,055,000
Net investment in capitalized leases 1,690,000 1,319,000
Notes receivable 903,000 905,000
Real estate held for investment 426,000 375,000
Goodwill 708,000
Other 727,000 522,000
6,741,000 5,176,000
$29,583,000 $28,136,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks $ 962,000
Accounts payable $ 1,897,000 1,294,000
Accrued employee benefits 1,301,000 1,290,000
Deferred revenues 1,335,000 1,127,000
Accrued payroll and payroll taxes 595,000 476,000
Due to related parties 55,000 88,000
Income taxes 353,000 526,000
Other 459,000 500,000
Total Current Liabilities 5,995,000 6,263,000
Minority Interest 919,000 772,000
Commitments and Contingencies
Shareholders' Equity:
Common Stock:
Class "A", $1 par value; authorized 5,000,000 shares;
issued and outstanding, 1,778,573 and 1,735,363
shares respectively 1,778,000 1,735,000
Class"B", $1 par value; authorized 2,500,000 shares;
issued and outstanding, 952,637 and 995,847
shares, respectively 953,000 996,000
Additional Paid-In Capital 676,000 676,000
Retained Earnings 19,262,000 17,694,000
22,669,000 21,101,000
$29,583,000 $28,136,000
See notes to consolidated financial statements
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
McRae Industries, Inc. and Subsidiaries
For the Years Ended July 29, July 30, July 31,
1995 1994 1993
Net revenues $40,624,000 $39,454,000 $33,541,000
Cost of revenues 27,389,000 26,417,000 21,630,000
Gross profit 13,235,000 13,037,000 11,911,000
Selling, general and administrative 9,930,000 8,971,000 8,381,000
Earnings from operations 3,305,000 4,066,000 3,530,000
Other income, net 429,000 292,000 390,000
Earnings before income taxes and minority 3,734,000 4,358,000 3,920,000
interest
Provision for income taxes 1,403,000 1,599,000 1,580,000
Minority shareholder's interest
in earnings of subsidiary 147,000 126,000 130,000
Net earnings $ 2,184,000 $ 2,633,000 $2,210,000
Net earnings per Common Share $0.80 $0.97 $0.81
Weighted average number of
Common Shares outstanding 2,731,210 2,729,710 2,729,210
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
McRae Industries, Inc. and Subsidiaries
For the Years Ended July 29, July 30, July 31,
1995 1994 1993
Cash Flows from Operating Activities:
Net earnings $2,184,000 $2,633,000 $2,210,000
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 807,000 610,000 596,000
Equity in net (income) loss of
investee ( 25,000) 34,000 29,000
Minority shareholder's interest in
earnings of subsidiary 147,000 126,000 130,000
Gain on sale of assets ( 141,000)
Changes in operating assets and
liabilities, net of effects from
purchase ofsubsidiaries:
Accounts and notes receivable ( 965,000) (467,000)( 818,000)
Inventories ( 1,593,000) 360,000 ( 1,295,000)
Net investment in capitalized ( 554,000) (261,000)( 277,000)
leases
Prepaid expenses and other
current assets ( 94,000) (50,000) 84,000
Accounts payable 235,000 (481,000) 75,000
Accrued employee benefits 11,000 237,000 264,000
Deferred revenues 208,000 149,000 132,000
Accrued payroll and payroll taxes 119,000 3,000 190,000
Income taxes ( 186,000) 423,000 ( 15,000)
Other ( 305,000) 33,000 ( 295,000)
Net Cash (Used In) Provided by
Operating Activities ( 11,000) 3,349,000 869,000
Cash Flows from Investing Activities:
Purchase of subsidiaries, net of
cash acquired ( 646,000)
Disposals of property 27,000 397,000
Purchases of securities ( 2,373,000) (21,000) ( 171,000)
Capital expenditures ( 956,000) (1,668,000) ( 625,000)
Net advances to related parties ( 207,000) ( 121,000) ( 147,000)
Net (advances) collections on notes 2,000 ( 182,000) ( 356,000)
receivables
Net Cash Used in Investing Activities ( 4,180,000) (1,965,000) ( 902,000)
Cash Flows from Financing Activities:
Borrowings of long-term debt and notes
payable 400,000 465,000
Principal repayments of long-term debt
and notes payable (1,107,000) (747,000) (403,000)
Proceeds from exercise of stock options 4,000
Dividends paid ( 616,000) ( 597,000) ( 579,000)
Net Cash Used in Financing Activities ( 1,723,000) ( 940,000) ( 517,000)
Net Increase (Decrease) in Cash and Cash
Equivalents (5,914,000) 444,000 ( 550,000)
Cash and Cash Equivalents at Beginning of
year 6,542,000 6,098,000 6,648,000
Cash and Cash Equivalents at End of Year $628,000 $6,542,000 $6,098,000
See notes to consolidated financial statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
McRae Industries, Inc. and Subsidiaries
<CAPTION>
Common Stock, $1 par value
Class "A" Class "B" Additional Retained
Shares Amount Shares Amount Paid-in Capital Earnings
<S> <C> <C> <C> <C> <C> <C>
Balance, August 1, 1992 1,682,843 $1,683,000 1,046,367 $1,046,000 $674,000 $14,027,000
Conversion of Class "B" to
Class "A" stock 48,480 48,000 ( 48,480) ( 48,000)
Cash dividend ($.34 per Class "A"
common share) ( 579,000)
Net earnings 2,210,000
Balance, August 1, 1993 1,731,323 1,731,000 997,887 998,000 674,000 15,658,000
Conversion of Class "B" to
Class "A" stock 3,040 3,000 ( 3,040) ( 3,000)
Cash dividend ($.345 per Class "A"
common share) ( 597,000)
Exercise of stock options 1,000 1,000 1,000 1,000 2,000
Net earnings 2,633,000
Balance, July 31, 1994 1,735,363 1,735,000 995,847 996,000 676,000 17,694,000
Conversion of Class "B" to
Class "A" stock 43,210 43,000 (43,210) ( 43,000)
Cash dividend ($.35 per Class "A"
common share) ( 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
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
McRae Industries, Inc. and Subsidiaries
For the Years Ended July 29, 1995, July 30, 1994 and July 31, 1993
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.
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.
Securities
At July 29, 1995, investments in marketable equity and debt securities have been
categorized 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. At July 29, 1995, investments were stated at the lower of aggregrate
cost or market. The effect of this change in accounting principles was not
material to the financial statements for fiscal 1995.
Inventories
Inventories are stated at the lower of cost or market using the last-in,
first-out (LIFO) method for the footwear 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.
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.
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.
<PAGE>
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 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
allocation of the purchase prices over the fair value of the net assets
acquired resulted in an excess of approximately $600,000 and is being
amortized by the straight line method over twenty years.
In June 1995, the Company acquired Systems Intregrators, Inc., a consulting firm
primarily engaged in programming bar code related products, for approximately
$315,000. The allocation of the purchase price over the fair values of its net
assets acquired resulted in an excess of approximately $138,000 and is being
amortized by the straight line method over fifteen years.
3. INVESTMENTS
The following is a summary of the estimated fair value of available for sale
securities:
1995 1994
Certificates of Deposit $2,332,000 $ -
Mutual Funds 551,000 511,000
Municipal Bonds 354,000 354,000
Common Stocks 7,000 6,000
$3,244,000 $871,000
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 issurers of the securities may have the right
to prepay obligations without prepayment penalties. Unrealized gains and losses
were not material at July 29, 1995 or July 30, 1994.
4. INVENTORIES
Current cost exceeds the LIFO value of inventories by approximately $847,000
and $735,000 at July 29, 1995 and July 30, 1994, respectively. Year end
inventories valued under the LIFO method were approximately $4,500,000 at
July 29, 1995 and approximately $3,700,000 at July 30, 1994. The components of
inventory at each year end are as follows:
1995 1994
Raw materials $1,093,000 $ 857,000
Work-in-process 444,000 472,000
Finished goods 5,736,000 4,559,000
$7,273,000 $ 5,888,000
5. LEASES
The Company leases certain photocopier products under sales-type leases. The
Company's net investment in these leases is as follows:
1995 1994
Minimum lease payments receivable $2,913,000 $2,303,000
Estimated unguaranteed residual values 242,000 194,000
Unearned income (471,000) (387,000)
Allowance for credit losses ( 50,000) ( 30,000)
Net investment $2,634,000 $2,080,000
<PAGE>
The scheduled maturities for the above minimum lease payments receivable at
July 29, 1995 are as follows:
Fiscal Year Ending
1996 $1,139,000
1997 900,000
1998 548,000
1999 249,000
2000 and Thereafter 77,000
Total minimum lease payments receivable $2,913,000
6. PROPERTY, PLANT AND EQUIPMENT
1995 1994
Land and improvements $ 626,000 $ 612,000
Buildings 3,324,000 3,384,000
Machinery and equipment 3,470,000 2,801,000
Furniture and fixtures 2,291,000 1,702,000
9,711,000 8,499,000
Less: Accumulated depreciation 5,170,000 4,441,000
4,541,000 4,058,000
7. 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
amount owed to the pension plan as a result of the plan's termination has not
yet been determined by the actuary, but additional required funding, if any,
is not expected to exceed the amount accrued as of July 29, 1995. 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%.
<PAGE>
The following table sets forth the defined benefit plan's funding status at the
end of each year indicated.
1995 1994 1993
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $873,000, $836,000 and $888,000,
respectively ($873,000) ($836,000)($888,000)
Projected benefit obligation for service rendered
to date ($875,000) ($836,000)($888,000)
Plan assets at fair market value ( 753,000) ( 768,000)( 812,000)
Projected benefit obligation in excess of plan ( 122,000) ( 68,000)( 76,000)
assets
Unrecognized net (gain) loss 92,000 41,000 20,000
Additional liability recognized for unfunded
accumulated benefit obligation ( 90,000) ( 41,000) ( 20,000)
Net pension liability (120,000) ( 68,000) ( 76,000)
Net periodic pension costs:
Interest cost on projected benefit obligation 67,000 67,000 67,000
Actual return on plan assets ( 35,000) (17,000) ( 39,000)
Net asset gain less (loss) during the period ( 25,000) (47,000) ( 24,000)
Net periodic pension costs ($ 7,000) $ 3,000 $ 4,000
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.
Employee benefit program expense amounted to $725,000, $850,000 and $550,000
in 1995, 1994 and 1993, respectively. To the extent the amount of these
benefits are not disbursed, the Board may, at its sole discretion, reduce any
remaining accruals.
8.INCOME TAXES
Significant components of the provision for income taxes are as follows:
1995 1994 1993
Current:
Federal $1,010,000 $1,324,000 $ 1,269,000
State 238,000 285,000 376,000
Total Current 1,248,000 1,609,000 1,645,000
Deferred:
Federal 133,000 ( 9,000) ( 56,000)
State 22,000 ( 1,000) ( 9,000)
Total deferred 155,000 ( 10,000) ( 65,000)
$1,403,000 $ 1,599,000 $ 1,580,000
<PAGE>
The components of the provision for deferred income taxes are as follows:
1995 1994 1993
Depreciation $ 21,000 $16,000 ($ 89,000)
Leasing activities 111,000 62,000 3,000
Employee benefit accrual ( 6,000) ( 75,000) (104,000)
Bad debt allowances ( 10,000) ( 18,000) 61,000
Other 39,000 5,000 64,000
Provision for deferred income
taxes $155,000 ($10,000) ($65,000)
Deferred tax liabilities and assets at each year end are as follows:
Deferred tax liabilities: 1995 1994
Tax over book depreciation $268,000 $247,000
Leasing activities 522,000 420,000
Total deferred tax liabilities 790,000 667,000
Deferred tax assets:
Employee benefit accrual 373,000 368,000
Other reserves 59,000 96,000
Total deferred tax assets 432,000 464,000
Net deferred tax liability $358,000 $203,000
The reconciliation of income tax computed at the U. S. federal statutory tax
rate to actual income tax expense are (in thousands):
1995 1994 1993
Amount Percent Amount Percent Amount Percent
Tax at U. S. statutory rate $1,269 34.0% $1,482 34.0% $1,332 34.0%
State income taxes, net of
federal tax benefit 157 6.3 188 6.3 248 6.3
Other - net ( 23) (2.3) (71) (1.6)
$1,403 38.0% $1,599 36.7% $1,580 40.3%
Total income tax payments during fiscal years 1995, 1994 and 1993 were
approximately $1,647,000, $1,100,000, and $1,668,000, respectively.
<PAGE>
9. 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, securities,
trade and notes receivables, and capitalized leases. Allowances are maintained
for potential credit losses, and such losses have been within management's
expectations.
The Company maintains substantially all of its cash and certificates of deposit
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 and
does not expect to incur any losses. The Company has various other investments
in securities that are diversified to reduce the risk to principal from credit
and investment sector risk. Concentrations of credit risk with respect to trade
receivables and capitalized leases are limited due to the large number of
entities comprising the Company's customer base, the individual debtor's
financial strength, and/or their dispersion across many different industries.
The Company does not normally require colleteral relating to normal trade
receivables or leases, however the notes receivable do require colleteral. The
Comapny has receivables in the amount of $1,687,000 from the President and a
seperate business owned by the President and does not require colleteral for
those 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.
<PAGE>
10. 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 each of Class A and Class B
shares for the nonqualified stock option plan. Transactions involving the plan
are summarized as follows:
<TABLE>
Nonqualified Stock Option Plan
<CAPTION>
1995 1994 1993
Class Class Class
A B A B A B
<S> <C> <C> <C> <C> <C> <C>
Outstanding and exercisable at beginning
of year 14,690 14,500 15,690 15,500 15,690 15,500
Exercised ($2.125 per share - Class A,
$1.875
per share - Class B) -0- -0- (1,000) (1,000) -0- -0-
Outstanding and exercisable at end of
year ($2.125) per share - Class A,
$1.875 per share - Class B) 14,690 14,500 14,690 14,500 15,690 15,500
<FN>
At July 29, 1995, 143,000 shares were available for future grants under the
nonqualified stock option plan.
</TABLE>
11. RELATED PARTY TRANSACTIONS
Notes and accounts receivable from related entities that are included in the
balance sheet are as follows:
1995 1994
Investments in and advances to investee $ 600,000 $ 447,000
McRae Chevrolet Buick, guaranteed by the
President of the Company, with interest at
federal funds rate plus 2% 1,071,000 1,297,000
Notes receivable from the President of the
Company, unsecured,with interest at federal
funds rate plus 2% 616,000 311,000
$2,287,000 $2,055,000
As of July 29, 1995 there were approximately $460,000 ($655,000 at July 30,
1994) of receivables due from employees included in notes and accounts
receivable.
<PAGE>
12. 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:
1995 1994 1993
Balance Sheet
Assets $1,451,000 $1,277,000 $1,220,000
Liabilities 1,733,000 1,584,000 1,493,000
Shareholders' deficiency (282,000) (307,000) (273,000)
Results of Operations
Revenues $ 215,000 $ 84,000 $ 258,000
Net income (lo) 25,000 (34,000) (29,000)
The following table summarizes the activity of the Company's investment in
investee:
1995 1994 1993
Beginning investment $ 447,000 $400,000 $ 395,000
Equity in income(loss) 25,000 (34,000) (29,000)
Additional investments 128,000 81,000 34,000
Ending investment $ 600,000 $447,000 $400,000
13. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The following table sets forth unaudited quarterly financial information for the
years ended July 29, 1995 and July 30, 1994:
First Second Third Fourth
July 29, 1995
Net revenues $ 9,776,000 $10,041,000 $10,451,000 $10,356,000
Gross profit 3,106,000 3,287,000 3,371,000 3,471,000
Net earnings 467,000 533,000 525,000 659,000
Net earnings per
common share .17 .20 .19 .24
July 30, 1994
Net revenues $10,330,000 $10,146,000 $9,277,000 $9,701,000
Gross profit 3,558,000 3,048,000 3,321,000 3,110,000
Net earnings 786,000 521,000 611,000 715,000
Net earnings per
common share .29 .19 .22 .27
<PAGE>
14. 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. Total consolidated revenues related to sales to the
U.S. Government were 22% in 1995, 35% in 1994 and 30% in 1993. There were no
significant intersegment sales or transfers during 1995, 1994 and 1993.
Operating profits by business segment excludes 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.
<TABLE>
<CAPTION>
Office Products
Footwear Bar Code and Printing Corporate Consolidated
<S> <C> <C> <C> <C> <C>
For the Year Ended July 29, 1995
Net revenues $9,004,000 $17,315,000 $13,621,000 $684,000 $40,624,000
Earnings (loss) from operations 1,121,000 2,109,000 78,000 (3,000) 3,305,000
Identifiable assets 2,435,000 9,474,000 10,500,000 7,174,000 29,583,000
Capital expenditures 17,000 205,000 487,000 247,000 956,000
Depreciation and amortization 138,000 146,000 260,000 263,000 807,000
For the Year Ended July 30, 1994
Net revenues $13,777,000 $13,205,000 $11,654,000 $818,000 $39,454,000
Earnings (loss) from operations 2,510,000 1,510,000 250,000 ( 204,000) 4,066,000
Identifiable assets 2,166,000 9,447,000 8,640,000 7,883,000 28,136,000
Capital expenditures 113,000 717,000 377,000 461,000 1,668,000
Depreciation expense 145,000 75,000 188,000 202,000 610,000
For the Year Ended July 31, 1993
Net revenues $10,713,000 $11,775,000 $ 10,499,000 $ 554,000 $33,541,000
Earnings from operations 2,231,000 1,687,000 (253,000) (135,000) 3,530,000
Identifiable assets 2,694,000 8,292,000 7,369,000 7,525,000 25,880,000
Capital expenditures 36,000 89,000 120,000 380,000 625,000
Depreciation expense 140,000 62,000 207,000 187,000 596,000
<PAGE>
</TABLE>
<TABLE>
SCHEDULE VIII - - - - VALUATION AND QUALIFYING ACCOUNTS
McRae Industries, Inc. and Subsidiaries
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
ADDITIONS
Balance at (1) (2) Balance
Description Beginning of Charged Charged Deductions- at End
Period to Cost to Other Describe of
and Accounts- Period
Expenses Describe
<S> <C> <C> <C> <C> <C>
Year ended July 29, 1995:
Deducted from asset 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 insurance accrual 195,000 753,000 (802,000)(2) 146,000
<S>
Year ended July 30, 1994:
Deducted from assets accounts:
Allowance for doubtful accounts $70,000 $ 90,000 ($44,000)(1) $116,000
Employee benefit accrual 1,053,000 850,000 (613,000)(2) 1,290,000
Health insurance accrual 125,000 935,000 (865,000)(2) 195,000
<S>
Year ended July 31, 1993:
Deducted from assets accounts:
Allowance for doubtful accounts $ 227,000 $216,000 ($373,000)(1) $70,000
Employee benefit accrual 789,000 550,000 (286,000)(2) 1,053,000
Health insurance accrual 140,000 407,000 (422,000)(2) 125,000
<FN>
(1) Uncollectible accounts written off
(2) Expenses charges to operations
</FN>
</TABLE>
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON 8-K
(a). (1) See Item 8.
(2) See Item 8.
(3) See part (c) below.
(b). Reports on Form 8-K
None.
(c) 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 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 Registrants 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)
22 Subsidiaries of the Registrant (Filed herein)
24 Consent of Independent Auditors (Filed herein)
*Denotes a management contract or compensatory plan or arrangement.
(d) Financial Statement Schedules - The response to this portion of Item 14 is
submitted as a separate section of this report.
<PAGE>
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 24, 1995 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 24, 1995
President and Director
(Principal Executive Officer)
/s/ George M. Bruton
George M. Bruton October 24, 1995
Director
/s/Hilton Cochran
Hilton Cochran October 24, 1995
Director
/s/ James W. McRae
James W. McRae October 24, 1995
Vice President, Secretary
and Director
/s/Victor A. Karam
Victor A. Karam October 24, 1995
Vice President of
Footwear and Director
/s/ D. Gary McRae
D. Gary McRae October 24,1995
First Vice President
Treasurer and Director
/s/ Harold W. Smith
Harold Smith October 24, 1995
Vice President of
McRae Graphics, Inc. and Director
/s/David K. Helms
David K. Helms October 24, 1995
Vice President of Finance
(Principal Financial and Accounting Officer)
<PAGE>
Exhibit 22
SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary State of Incorporation
McRae Graphics, Inc. North Carolina
Rae-Print Packaging, Inc. North Carolina
Compsee, Inc. (90% ownership) North Carolina
Hoke Development Company, Inc. North Carolina
McRae Boot, Inc. North Carolina
DataScan Corporation South Carolina
System Integrators Plus, Inc. North Carolina
<PAGE>
Exhibit 24
GLEIBERMAN SPEARS SHEPHERD & MENAKER, P.A.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Post Effective
Amendment to the Registration Statement of Form S-8 (No. 33-24648) of McRae
Industries, Inc. and subsidiaries of our report dated October 3, 1995 on the
consolidated financial statements and financial statement schedule of McRae
Industries, Inc. and subsidiaries as listed under Item 8 on page 12 of the
Annual Report on Form 10-K for the year ended July 29, 1995.
/s/Gleiberman Spears Shepherd & Menaker, P. A.
Charlotte, North Carolina
October 3, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-29-1995
<PERIOD-START> JUL-31-1994
<PERIOD-END> JUL-29-1995
<CASH> 628
<SECURITIES> 3,244
<RECEIVABLES> 5,860
<ALLOWANCES> 80
<INVENTORY> 7,273
<CURRENT-ASSETS> 18,301
<PP&E> 4,541
<DEPRECIATION> 5,170
<TOTAL-ASSETS> 29,583
<CURRENT-LIABILITIES> 5,995
<BONDS> 0
<TOTAL-LIABILITY-AND-EQUITY> 22,669
<COMMON> 2,731
0
0
<OTHER-SE> 676
<SALES> 40,624
<TOTAL-REVENUES> 40,624
<CGS> 27,389
<TOTAL-COSTS> 9,930
<OTHER-EXPENSES> (429)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,734
<INCOME-TAX> 1,403
<INCOME-CONTINUING> 2,184
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,184
<EPS-PRIMARY> .80
<EPS-DILUTED> .80
</TABLE>
