SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 30, 1996
McRAE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 1-8578 56-0706710
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
402 North Main Street
Mt Gilead, North Carolina 27306
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code (910) 439-6147
(Former name or former address, if changed since last report.)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
(a) As previously reported, on April 30, 1996, McRae Industries, Inc. (McRae)
entered into a Stock Purchase Agreement which provided among other things, for
McRae to purchase all of the outstanding common stock of American West Trading
Company (American West)from its then current 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 specialty chain stores.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements. In response to this item, the financial statements
of American West Trading Company for the year ended December 31, 1995 and
1994, are included herein as Exhibit (99)(a).
(b) Pro Forma Financial Information. In response to this item, certain pro
forma financial information with respect to the purchase for the nine months
ended April 27, 1996 and the twelve months ended July 29, 1995, is included
herein as Exhibit (99)(b).
(c) Exhibits:
Exhibit No. Description
(2) Stock Purchase Agreement (including
exhibits)(Incorporated by reference
to Exhibit (2) to McRae Industries,
Inc. current report on Form 8-K dated
May 10, 1996.)
(27) McRae's Financial Data Schedule.
(Incorporated by reference to Exhibit
(27) to McRae's 1996 Third Quarter
Report on Form 10-Q.)
(99)(a) Financial statements of American West
Trading Company for the years ended
December 31, 1995 and 1994.
(99)(b) Pro Forma financial information for
the nine month period ended April
27, 1996 and the twelve month period
ended July 29, 1995.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
McRae Industries, Inc.
(Registrant)
Date: June 26, 1996 By: /s/B.J. McRae
President
(Principal Executive Officer)
Date: June 26, 1996 By: /s/David K. Helms
Vice President-Finance
(Principal Financial Officer)
<PAGE>
Exhibit Index
EXHIBIT NO. DESCRIPTION PAGE NO.
(2) Stock Purchase Agreement
(including exhibits) (In-
corporated by reference to
Exhibit (2) to McRae Industries,
Inc. current report on Form 8-K
dated May 10, 1996.)
(27) McRae's Financial Data Schedule
(Incoprorated by reference to
Exhibit (27) to McRae's 1996
Third Quarter Report on Form 10-Q.)
(99)(a) Financial Statements of American 1-10
West Trading Company for the years
ended December 31, 1995 and 1994.
(99)(b) Pro Forma Financial Information for 11-13
the nine month period ended April 27,
1996 and the twelve month period ended
July 29, 1995.
<PAGE>
Exhibit (99)(a)
Independent Accountants' Report
Board of Directors
American West Trading Company
Mt. Gilead, North Carolina
We have audited the accompanying balance sheet of AMERICAN WEST TRADING
COMPANY as of December 31, 1995, and the related statements of operations and
retained earnings and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AMERICAN WEST TRADING
COMPANY as of December 31, 1995, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
As discussed in Note 1, American West Trading Company may be economically
dependent upon its parent company, which acquired the Company on April 30,
1996.
/s/ Gleiberman Spears Shepherd & Menaker, P.A.
Charlotte, NC
May 10, 1996
<PAGE>
Independent Accountants' Report
Board of Directors
American West Trading Company
Clarksville, Tennessee
We have audited the accompanying balance sheet of AMERICAN WEST TRADING
COMPANY (formerly Stetson Boot and Shoe Company, Inc.) as of December 31,
1994, and the related statements of operations and retained earnings and cash
flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AMERICAN WEST TRADING
COMPANY as of December 31, 1994, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Baird, Kurtz & Dobson
Bowling Green, Kentucky
February 23, 1995
<PAGE>
Exhibit (99)(a)
BALANCE SHEETS
AMERICAN WEST TRADING COMPANY
December 31, December 31,
1995 1994
ASSETS
CURRENT ASSETS
Cash $ 77,015 $ $ 317,237
Accounts receivable, less allowances
for doubtful accounts of $167,000
and $47,200, respectively 1,715,952 1,828,462
Inventories 3,746,203 3,518,623
Prepaid expenses 21,943 44,703
Deferred income taxes 57,500 39,000
Total Current Assets 5,618,613 5,748,025
PROPERTY, PLANT AND EQUIPMENT
Land 37,500 37,500
Buildings and improvements 624,459 624,459
Machinery and equipment 2,043,422 2,012,511
2,705,381 2,674,470
Less accumulated depreciation 1,169,078 852,844
1,536,303 1,821,626
OTHER ASSETS 2,414 78,524
$ 7,157,330 $ 7,648,175
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to bank $ 4,438,587 $ 3,545,496
Accounts payable 1,620,014 1,962,657
Current maturities of long-term debt 134,761 228,582
Accrued expenses 200,235 150,494
Total Current Liabilities 6,393,597 5,887,229
LONG-TERM DEBT 695,195 1,170,332
DEFERRED INCOME TAXES 21,000 21,000
STOCKHOLDERS' EQUITY
Common stock, no par value; $.25 stated
value; authorized 775,000 shares,
issued and outstanding 400,000 shares 100,000 100,000
Additional paid-in capital 103,500 103,500
Retained earnings (deficit) (155,962) 366,114
47,538 569,614
$ 7,157,330 $ 7,648,175
See notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
AMERICAN WEST TRADING COMPANY
For the Years Ended December 31, December 31,
1995 1994
Net sales $ 18,660,000 $ 18,657,726
Cost of goods sold 16,231,147 16,372,408
Gross profit 2,428,853 2,285,318
Operating expenses 2,296,809 2,045,349
Income from operations 132,044 239,969
Other income (expense)
Interest expense (516,154) (404,624)
Amortization expense ( 98,445) ( 42,410)
Stockholders' distributions ( 9,943) (153,082)
Other ( 48,078) 2,412
(672,620) (597,704)
(Loss) before income taxes (540,576) (357,735)
Credit for income taxes ( 18,500) ( 25,000)
Net loss (522,076) (332,735)
Retained earnings, beginning of year 366,114 698,849
Retained (deficit) earnings, end of year $ (155,962) $ 366,114
See notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS
AMERICAN WEST TRADING COMPANY
For the Years Ended December 31, December 31,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (522,076) $ (332,735)
Items not requiring (providing) cash:
Depreciation and amortization 392,344 351,517
Deferred income taxes (18,500) (19,000)
Changes in operating assets and liabilities:
Accounts receivable 112,510 193,869
Inventories (227,580) 784,326
Prepaid expenses and other 22,760 (15,430)
Accounts payable and accrued expenses (292,902) (1,074,837)
Other - (15,842)
Net cash used in operating activities (533,444) (128,132)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (30,911) (74,453)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings from notes payable to bank 452,054 592,159
Principal payments on long-term debt (127,921) (102,973)
Payment of deferred financing costs - (40,750)
Net cash provided by financing activities 324,133 448,436
Net Increase (Decrease) in Cash (240,222) 245,851
CASH, BEGINNING OF YEAR 317,237 71,386
CASH, END OF YEAR $ 77,015 $ 317,237
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
AMERICAN WEST TRADING COMPANY
DECEMBER 31, 1995 AND 1994
1. SUBSEQUENT EVENT AND FINANCIAL DEPENDENCE
On April 30, 1996, all of the outstanding common stock of the Company was
acquired by McRae Industries, Inc. (McRae) from the former shareholders. In
connection with the acquisition, McRae also guaranteed payment of the
Company s notes payable to bank (see Note 4).
These financial statements have been prepared based upon the assumption that
the Company will continue as a going concern. However, the Company has
incurred substantial net losses and negative cash flows from operating
activities during fiscal 1995 and 1994 and has been unable to meet the
requirements of its debt covenants under notes payable to the bank. The
Company may therefore be economically dependent upon McRae until such time
that the Company s operating results sufficiently improve for it to meet its
obligations as they become due and its related debt covenant requirements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
The Company manufactures and sells western and work boots and shoes
throughout the United States. The Company s principal customers are
retailers, mail order catalog companies and other footwear manufacturers.
Inventory
Inventories are stated at the lower of cost using the first in, first-out
method or market.
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.
Income Taxes
For federal income tax purposes, the Company is organized as an S
Corporation. As a result, the liability for federal income taxes passes
through to the stockholders, and no provision for federal income taxes is
recorded by the Company. The state of Tennessee does not recognize S
Corporation tax status; therefore, a provision for Tennessee excise tax is
recorded by the Company. Stockholders' distributions include amounts paid to
stockholders in lieu of regular S Corporation distributions to enable the
shareholders to pay personal income taxes on corporate earnings.
Deferred tax liabilities and assets are recognized for the tax effects of
differences between the financial statement and tax bases of assets and
liabilities. A valuation allowance is established to reduce deferred tax
assets if it is more likely than not that a deferred tax asset will not be
realized.
Other Assets
Deferred financing and organization costs are being amortized on a
straight-line basis over the respective useful lives.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
AMERICAN WEST TRADING COMPANY
DECEMBER 31, 1995 AND 1994
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Significant estimates included in the financial statements relate to the net
realizable value of inventory at December 31, 1995.
Reclassifications
Certain reclassifications have been made to the prior years financial
statements and notes thereto to conform with the current year
presentation.
Accounting Standards Not Yet Adopted
Statement of Financial Accounting Standards No. 121 - Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
is effective for fiscal years beginning after December 15, 1995. This
statement establishes standards for accounting for the impairment of long-
lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. Management believes the adoption
of this standard will not have a material impact on the financial
statements.
3. INVENTORIES
The components of inventory at each year end are as follows:
1995 1994
Raw materials $ 1,124,523 $ 1,186,063
Work in process 384,051 442,830
Finished goods 2,237,629 1,889,730
$ 3,746,203 $ 3,518,623
4. NOTES PAYABLE TO BANK
Notes payable to bank consist of several notes that are due on demand.
These notes, which bear interest at prime plus 2% (10.25 % and 10.5 % at
December 31, 1995 and 1994, respectively), are secured by the assets of the
Company and the personal guarantees of the stockholders of record prior to
April 30, 1996.
In connection with several of the above notes, the Company is required to
maintain a compensating cash balance of $100,000. Additionally, the Company
<PAGE>
NOTES TO FINANCIAL STATEMENTS
AMERICAN WEST TRADING COMPANY
DECEMBER 31, 1995 AND 1994
is required, among other things, to maintain certain financial conditions,
including a debt-to-equity ratio not to exceed 8.5 to 1.0 and stockholders'
equity of at least $800,000. The Company has failed to meet the debt
covenant requirements, consequently, these loan obligations have become
callable at the bank's option and are classified as current liabilities.
5. LONG-TERM DEBT
1995 1994
Note payable, Drerup Enterprises (A) $ 84,453 $ 110,572
Note payable, Bay-Bee Shoe Corp. (B) 159,606 178,601
Note payable, State of Tennessee (C) 198,279 243,120
Note payable, State of Tennessee (D) 343,937 361,674
Note payable, Mid Cumberland Area
Development Corporation (E) 43,681 63,910
Note Payable, TransFinancial Bank NA (F) - 441,037
829,956 1,398,914
Less current maturities 134,761 228,582
$695,195 $1,170,332
The aggregate annual maturities of long-term debt at December 31, 1995 and 1994
are as follows:
1995 1994
1995 $ - $228,582
1996 134,761 240,396
1997 142,063 250,035
1998 113,755 191,059
1999 93,863 143,471
2000 61,634 61,634
Thereafter 283,880 283,737
$829,956 $1,398,914
(A) Due December 15, 1998; payable $3,000 monthly including interest at 10.00%;
secured by real estate.
(B) Due June 1, 2001; payable $3,000 monthly including interest at 10.00%;
secured by machinery and equipment.
(C) Due March 30, 2000; payable in 60 monthly payments of $4,015 including
interest of 1.50% and then 24 monthly payments of $4,057 including interest of
2.50%; secured by equipment and personal guarantees of stockholders of record
prior to April 30, 1996.
(D) Due March 1, 2013; payable in 60 monthly payments of $1,930 including
interest of 1.50%, then 60 monthly payments of $2,073 including interest of
2.50%, then 120 monthly payments of $2,175 including interest of 3.50%; secured
by real estate and personal guarantees of stockholders of record prior to April
30, 1996.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
AMERICAN WEST TRADING COMPANY
DECEMBER 31, 1995 AND 1994
(E) Due December 31, 1997; payable $1,915 monthly including interest at 5.00%;
secured by equipment and personal guarantees of stockholders of record prior
to April 30, 1996.
(F) Consists of three notes maturing in June 1999 and December, 1997; one note
payable $50,000 annually plus interest, the other two payable $3,660 and $1,900
monthly plus interest; interest on all notes is prime plus 2%; all three notes
secured by the assets of the Company and the personal guarantees of
stockholders of record prior to April 30, 1996.
6. OPERATING LEASES
Noncancellable operating leases for machinery and equipment expire in
various years through 1998 and require the Company to pay all executory
costs (property taxes, maintenance and insurance).
The future minimum lease payments at December 31, 1995 and 1994 were:
1995 1994
1995 -0- $129,996
1996 $182,428 124,876
1997 160,001 103,545
1998 44,310 11,910
1999 2,600 -0-
Future minimum lease payments $389,339 $370,327
Rental expense for all operating leases totaled $ 249,423 and $247,656
during 1995 and 1994, respectively. The Company rents an office building
under an operating lease on a month to month basis with K and G Enterprises,
an entity owned by two of the Company's former stockholders. Rent paid on
this lease was $ 18,702 and $16,077 during 1995 and 1994, respectively.
7. INCOME TAXES
The credit for income taxes includes these components:
1995 1994
Taxes currently refundable $ -0- $( 6,000)
Deferred income taxes (18,500) (19,000)
$(18,500) $(25,000)
<PAGE>
NOTES TO FINANCIAL STATEMENTS
AMERICAN WEST TRADING COMPANY
DECEMBER 31, 1995 AND 1994
The tax effects of temporary differences related to deferred taxes shown on
the balance sheets were:
1995 1994
Deferred tax assets:
Allowance for doubtful accounts $ 10,000 $ 3,000
Inventory overhead costs capitalized
for tax purposes 13,000 11,000
Accrued compensated absences 4,000 5,000
Net operating loss carryforwards 33,000 9,000
Other (2,500) 11,000
57,500 39,000
Deferred tax liability:
Accumulated depreciation (21,000) (21,000)
Net deferred tax asset $ 36,500 $ 18,000
A reconciliation of income tax credit at the statutory rate to the Company's
actual income tax credit is shown below:
1995 1994
Computed at the statutory rate (6%) $ (32,434) $ (21,464)
Increase (decrease) resulting from:
Nondeductible items 2,100 2,103
Other 11,834 ( 5,639)
Actual tax credit $ (18,500) $ (25,000)
As of December 31, 1995, the Company has unused Tennessee operating loss
carryforwards of $564,759 which expire in 2009 and 2010.
8. ADDITIONAL INFORMATION
The company extends credit generally without collateral to its customers
throughout the United States. At December 31, 1995 and 1994 68% and 33% or
$1,169,021 and $612,527, respectively, of the Company s account receivables,
were due from five customers. Sales to two customers amounted to
approximately 54% and 57% of net sales during 1995 and 1994, respectively.
Interest paid during 1995 and 1994 amounted to $505,117 and $402,001,
respectively. Total income tax payments during 1994 were $9,537.
During 1994, the Company acquired $308,523 of equipment through the
reduction of certain accounts receivable and transferred $2,000,000 of a
line of credit balance into a term note.
<PAGE>
Exhibit(99)(b)
PRO FORMA COMBINED CONDENSED BALANCE SHEET
APRIL 27, 1996
(UNAUDITED)
The following unaudited pro forma combined condensed balance sheet combines
the consolidated historical balance sheets of McRae Industries, Inc. (McRae)
and American West Trading Company (West) as if both entities had been
combined (see note A) as of July 31, 1994, on a purchase accounting basis.
Pro Forma Pro Forma
McRae West Adjustments Combined
Assets (In Thousands)
Current assets:
Cash and cash equivalents $256 $ 27 $(325)(A) $(42)
Securities 1,241 1,241
Accounts and notes receivable, net 6,265 1,357 7,622
Inventories 8,785 4,417 13,202
Other 1,294 1,294
Total current assets 17,841 5,801 (325) 23,317
Property, plant and equipment, net 4,622 1,446 712 (C) 6,780
Other assets:
Related party receivables 2,360 2,360
Notes receivable 853 853
Net investment in capitalized leases 1,771 1,771
Goodwill 678 678
Other 1,529 2 550 (A) 1,531
(550)(C)
Total other assets 7,191 2 7,193
Total Assets $29,654 $7,249 $ 387 $37,290
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable to bank $4,588 $(4,588)(B)
Current portion of long term debt 137 83 (A) $389
169 (B)
Accounts payable $1,847 1,918 3,765
Deferred revenues 1,182 1,182
Other 2,476 119 2,595
Total current liabilities 5,505 6,762 (4,336) 7,931
Long term debt 649 4,419 (B) 5,150
82 (A)
Minority Interest 794 794
Shareholders' Equity:
Common Stock 2,731 100 8 (A) 2,739
(100)(C)
Additional Paid-in Capital 676 104 (104)(C) 728
52 (A)
Treasury Stock (24) (24)
Retained Earnings 19,972 (366) 366 (C) 19,972
Total Shareholders' Equity 23,355 (162) 222 23,415
Total $29,654 $7,249 $387 $37,290
See accompanying notes to pro forma financial information
<PAGE>
PRO FORMA COMBINED CONDENSED INCOME STATEMENTS
(McRAE AND AMERICAN WEST)
(UNAUDITED)
The following unaudited pro forma combined condensed statements of income
present the combined statements of income of McRae and West assuming the
companies had been combined (see note A) for each period presented on a
purchase accounting basis (effective as of July 31, 1994).
Pro Forma Pro Forma
McRae West Adjustments Combined
Nine Months ended April 27, 1996 (In thousands except per share data)
Net Revenues $31,623 $12,697 $44,320
Costs and expenses:
Cost of revenues 22,108 10,848 $41(E) 32,997
Selling general and
administrative 7,818 1,563 9,381
Other:
Interest expense 6 393 (78)(D) 321
Interest income (187) (187)
Other (108) (2) (110)
(289) 391 (78) 24
Total costs and expenses 29,637 12,802 (37) 42,402
Earnings (loss) before
income taxes and
minority interest 1,986 (105) 37 1,918
Provision (credit) for
income taxes 752 (6) (16)(F) 730
Minority interest 57 57
Net Earnings (Loss) $1,177 $ (99) $ 53 $1,131
Net Earnings per
Common Share (G) $.43 $.41
Weighted average number
of Common Shares
outstanding (G) 2,729,491 2,737,590
Twelve Months Ended July 29, 1995
Net Revenues $40,624 $17,918 $58,542
Costs and expenses:
Cost of revenues 27,389 15,629 $49(E) 43,067
Selling general and
administrative 9,930 2,442 12,372
Other:
Interest expense 48 477 (73)(D) 452
Interest income (395) (395)
Other (82) 12 (70)
(429) 489 (73) (13)
Total costs and expenses 36,890 18,560 (24) 55,426
Earnings (loss) before
income taxes and
minority interest 3,734 (642) 24 3,116
Provision (credit) for
income taxes 1,403 (39) (180)(F) 1,184
Minority interest 147 147
Net earnings(Loss) $2,184 $(603) $204 $1,785
Net Earnings per
Common Share (G) $.80 $.65
Weighted average
number ofCommon
Shares Outstanding (G) 2,731,210 2,739,309
See accompanying notes to pro forma financial information.
<PAGE>
NOTES TO PRO FORMA FINANCIAL INFORMATION
The pro forma information presented is not necessarily indicative of the
results of operations or the combined financial position that would have
resulted had the purchase indicated in the notes to the pro forma financial
information below been consummated at the beginning of the periods indicated,
nor is it necessarily indicative of the results of operations in future
periods or the future financial position of the combined entities. The pro forma
statements should be read in conjunction with the historical financial
statements and footnotes thereto used in the preparation of such pro forma
statements.
(A) On April 30, 1996, McRae acquired all of the outstanding shares of American
West for cash of $325,000, notes of $45,000, 8,099 shares of McRae's Class A
common stock valued at $7.41 or $60,000 in total, $120,000 for an employment and
not to compete agreement, and paid certain acquisition costs. The acquisition
has been accounted for using the purchase method of accounting and, accordingly,
the purchase price has been allocated to the assets acquired and the liabilities
assumed based upon their fair values of April 30, 1996.
(B) Assumes the proceeds of a $4,588,000 term loan was used to repay the notes
payable to bank. Subsequent to April 30, 1996, West refinanced certain debt
obligations including the notes payable to the bank with a $5,600,000 term loan
from another bank.
(C) Elimination of investment on McRae's financial statements and records
West's net assets at fair value at date of acquisition.
(D) Assumes West would have lower interest expense based on McRae's ability to
guarantee loans.
(E) Higher depreciation expenses caused by increased values of property, plant
and equiment recorded at fair values.
(F) Recording effective tax rate of combined entities.
(G) Income per share data has been computed based on the combined historical net
income using the historical weighted average shares outstanding of McRae's
common stock adjusted to reflect the additional shares included in the purchase
price.
(H) As indicated by the foregoing unaudited pro forma financial information and
based solely on combined financial information as of April 27, 1996, upon
consummation of the purchase of American West, McRae's historical net income per
common share for the nine months ended April 27, 1996 and year ended July 29,
1995, each would have been dilutive. It should not necessarily be assumed,
however that the foregoing data will represent actual dilution with respect to
the purchase of American West.
(I) Certain reclassifications have been included herein to conform the
presentations.
<PAGE>
