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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

|                                     |  |                                                                                         
|------------------------------------ |  | ----------------------------------------------------------------------------------------
|x                                    |  | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
|                                    
|For the Quarter Ended April 27, 2002
|                                    
|OR                                  
|                                    
|o                                    |  | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

|                               |  |  |  |    |  | 
|------------------------------ |  |  |  | -- |  | 
|For the transition period from |  |  |  | to |  | 
|                               |  |  |  |    |  | 

Commission file number 1-8578

McRae Industries, Inc.
(Exact name of registrant as specified in its charter)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 56-0706710                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)

400 North Main Street
Mt. Gilead, North Carolina 27306
(Address of principal executive offices)

Telephone Number (910) 439-6147
(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods 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   o

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practical date:

Common Stock, $l Par ValueClass A
1,871,617 shares as of June 6, 2002.
Common Stock, $1 Par ValueClass B 896,882 shares as of June 6, 2002.





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TABLE OF CONTENTS



|                              |                                                                                               |                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                          
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEET                
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS      
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS      
|                              |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|PART II. OTHER INFORMATION   
|                              | Item 1. Legal Proceedings                                                                    
|                              | Items 2, 3, 4, and 5.                                                                        
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|                              | SIGNATURES                                                                                   



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McRae Industries, Inc. and Subsidiaries

INDEX

|                               |  |                                                                                       |  |         
|------------------------------ |  | ------------------------------------------------------------------------------------- |  | --------
|                               |  |                                                                                       |  | Page No.
|                               |  |                                                                                       |  |         
|PART I. 
FINANCIAL INFORMATION
|                              
|ITEM 1.                        |  | Condensed Consolidated Financial Statements                                           |  |         
|                              
|                               |  | Condensed Consolidated Balance Sheet                                                  |  | 3-4     
|                              
|                               |  | Condensed Consolidated Statement of Operations                                        |  | 5-6     
|                              
|                               |  | Condensed Consolidated Statement of Cash Flows                                        |  | 7       
|                              
|                               |  | Notes to Condensed Consolidated Financial Statements                                  |  | 8-9     
|                              
|ITEM 2.                        |  | Managements Discussion And Analysis of Financial
Condition and Results of Operations |  | 10-15   
|                              
|ITEM 3.                        |  | Quantitative and Qualitative Disclosures about Market
Risk                            |  | 15      
|                              
|PART II. 
OTHER INFORMATION    |  |                                                                                      
|                              
|ITEM 1.                        |  | Legal Proceedings                                                                     |  | 15      
|                              
|ITEM 2.                        |  | Changes in Securities and Use of Proceeds                                             |  | 15      
|                              
|ITEM 3.                        |  | Default upon Senior Securities                                                        |  | 15      
|                              
|ITEM 4.                        |  | Submission of Matters to a Vote of Security Holders                                   |  | 15      
|                              
|ITEM 5.                        |  | Other Information                                                                     |  | 15      
|                              
|ITEM 6.                        |  | Exhibits and Reports on Form 8-K                                                      |  | 16      
|                              
|                               |  | Signatures                                                                            |  | 16      

2



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PART I.   FINANCIAL INFORMATION




ITEM 1.   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




McRae Industries, Inc. and SubsidiariesCONDENSED CONSOLIDATED BALANCE SHEETASSETS
(In thousands, except share and per share data)

|                            |                                           |   |                 |        |               |   |        |        | 
|--------------------------- | ----------------------------------------- | - | --------------- | ------ | ------------- | - | ------ | ------ | 
|                            |                                           |   | April 27, 2002, |        | July 28, 2001
|                            |                                           |   | (Unaudited)     |        | (Note)       
|                            |                                           |   |                 |        |              
|ASSETS                      |                                           |   |                 |        |               |   |        |       
|Current assets:             |                                           |   |                 |        |               |   |        |       
|                            | Cash and cash equivalents                 |   | $               | 4,910  |               |   | $      | 7,341  | 
|                            | Securities                                |   |                 | 5      |               |   |        | 5      | 
|                            | Accounts and notes receivable, net        |   |                 | 10,130 |               |   |        | 5,442  | 
|                            | Inventories (see Note B)                  |   |                 | 13,615 |               |   |        | 13,806 | 
|                            | Net investment in capitalized leases      |   |                 | 567    |               |   |        | 567    | 
|                            | Income tax receivable                     |   |                 | 0      |               |   |        | 881    | 
|                            | Prepaid expenses and other current assets |   |                 | 161    |               |   |        | 60     | 
|                            |                                           |   |                 |        |               |   |        |        | 
|                            | Total current assets                      |   |                 | 29,388 |               |   |        | 28,102 | 
|                            |                                           |   |                 |        |               |   |        |        | 
|Property and equipment, net |                                           |   | 5,125           |        |               |   | 5,204  |       
|                            |                                           |   |                 |        |               |   |        |        | 
|Other assets:               |                                           |   |                 |        |               |   |        |       
|                            | Receivables, related entities             |   |                 | 514    |               |   |        | 527    | 
|                            | Net investment in capitalized leases      |   |                 | 547    |               |   |        | 960    | 
|                            | Notes receivable                          |   |                 | 137    |               |   |        | 203    | 
|                            | Real estate held for investment           |   |                 | 652    |               |   |        | 652    | 
|                            | Goodwill                                  |   |                 | 369    |               |   |        | 392    | 
|                            | Cash surrender value life insurance       |   |                 | 2,251  |               |   |        | 2,041  | 
|                            | Other                                     |   |                 | 1,557  |               |   |        | 896    | 
|                            |                                           |   |                 |        |               |   |        |        | 
|                            | Total
other assets                        |   |                 | 6,027  |               |   |        | 5,671  | 
|                            |                                           |   |                 |        |               |   |        |        | 
|                            |                                           | $ | 40,540          |        |               | $ | 38,977 |       
|                            |                                           |   |                 |        |               |   |        |        | 

See notes to condensed consolidated financial statements

3



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McRae Industries, Inc. and SubsidiariesCONDENSED CONSOLIDATED BALANCE SHEETLIABILITIES AND SHAREHOLDERS EQUITY
(In thousands, except share and per share data)

|                                             |                                        |                                                                                                                     |        |                |        |               |        |        |        | 
|-------------------------------------------- | -------------------------------------- | ------------------------------------------------------------------------------------------------------------------- | ------ | -------------- | ------ | ------------- | ------ | ------ | ------ | 
|                                             |                                        |                                                                                                                     |        | April 27, 2002 |        | July 28, 2001
|                                             |                                        |                                                                                                                     |        | (Unaudited)    |        | (Note)       
|                                             |                                        |                                                                                                                     |        |                |        |              
|Liabilities and Shareholders Equity         |                                        |                                                                                                                     |        |                |        |               |        |       
|Current liabilities:                         |                                        |                                                                                                                     |        |                |        |               |        |       
|                                             | Notes payable, banks  current portion |                                                                                                                     |        | 407            |        |               |        | 407    |       
|                                             | Accounts payable                       |                                                                                                                     |        | 3,741          |        |               |        | 3,545  |       
|                                             | Accrued employee benefits              |                                                                                                                     |        | 294            |        |               |        | 239    |       
|                                             | Deferred revenues                      |                                                                                                                     |        | 984            |        |               |        | 983    |       
|                                             | Accrued payroll and payroll taxes      |                                                                                                                     |        | 798            |        |               |        | 578    |       
|                                             | Income taxes                           |                                                                                                                     |        | 22             |        |               |        | 0      |       
|                                             | Contract contingencies                 |                                                                                                                     |        | 669            |        |               |        | 650    |       
|                                             | Other                                  |                                                                                                                     |        | 550            |        |               |        | 498    |       
|                                             |                                        |                                                                                                                     |        |                |        |               |        |        |       
|                                             |                                        | Total current liabilities                                                                                           |        |                | 7,465  |               |        |        | 6,900  | 
|                                             |                                        |                                                                                                                     |        |                |        |               |        |        |       
|Notes payable, banks, net of current portion |                                        |                                                                                                                     | 4,152  |                |        |               | 4,598  |       
|Minority interest                            |                                        |                                                                                                                     | 101    |                |        |               | 108    |       
|Shareholders equity:                        |                                        |                                                                                                                     |        |                |        |               |        |       
|                                             | Common stock:                          |                                                                                                                     |        |                |        |               |        |        |       
|                                             |                                        | Class A, $1 par; Authorized 5,000,000
shares; issued and outstanding, 1,871,617 and 1,861,817, shares, respectively |        |                | 1,872  |               |        |        | 1,862  | 
|                                             |                                        | Class B, $1 par; Authorized 2,500,000
shares; issued and outstanding, 896,882
and 906,682 shares, respectively      |        |                | 897    |               |        |        | 907    | 
|                                             | Additional paid-in capital             |                                                                                                                     |        | 791            |        |               |        | 791    |       
|                                             | Retained earnings                      |                                                                                                                     |        | 25,262         |        |               |        | 23,811 |       
|                                             |                                        |                                                                                                                     |        |                |        |               |        |        |       
|                                             |                                        | Total shareholders equity                                                                                          |        |                | 28,822 |               |        |        | 27,371 | 
|                                             |                                        |                                                                                                                     |        |                |        |               |        |        |       
|                                             |                                        | $                                                                                                                   | 40,540 |                |        | $             | 38,977 |       
|                                             |                                        |                                                                                                                     |        |                |        |               |        |        |       

NOTE- The condensed consolidated balance sheet at July 28, 2001 has been
derived from the audited financial statements at that date but does not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements.

See notes to condensed consolidated financial statements

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McRae Industries, Inc. and SubsidiariesCONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)

|                                                                                |                     |                                     |        |                    |        |                   |        |           |       |           |        |   |        |   |        |   |        |  
|------------------------------------------------------------------------------- | ------------------- | ----------------------------------- | ------ | ------------------ | ------ | ----------------- | ------ | --------- | ----- | --------- | ------ | - | ------ | - | ------ | - | ------ | -
|                                                                                |                     |                                     |        | Three Months Ended |        | Nine Months Ended
|                                                                                |                     |                                     |        |                    |        |                  
|                                                                                |                     |                                     |        | April 27,          |        | April 28,         |        | April 27, |       | April 28,
|                                                                                |                     |                                     |        | 2002               |        | 2001              |        | 2002      |       | 2001     
|                                                                                |                     |                                     |        |                    |        |                   |        |           |       |          
|Net revenues                                                                    |                     | $                                   | 18,477 |                    |        | $                 | 12,786 |           |       | $         | 53,753 |   |        | $ | 43,145 |  
|                                                                                | Costs and expenses: |                                     |        |                    |        |                   |        |           |       |           |        |   |        |   |        |   |       
|                                                                                |                     | Cost of revenues                    |        |                    | 13,602 |                   |        |           | 9,835 |           |        |   | 39,817 |   |        |   | 32,954 |  
|                                                                                |                     | Research & development              |        |                    | 162    |                   |        |           | 124   |           |        |   | 497    |   |        |   | 381    |  
|                                                                                |                     | Selling, general and
administrative |        |                    | 3,488  |                   |        |           | 3,325 |           |        |   | 10,405 |   |        |   | 10,015 |  
|                                                                                |                     | Other expense (income),
net         |        |                    | 106    |                   |        |           | (86   | )         |        |   | 39     |   |        |   | (283   | )
|Interest expense                                                                |                     |                                     | 52     |                    |        |                   | 97     |           |       |           | 185    |   |        |   | 323    |  
|                                                                                |                     |                                     |        |                    |        |                   |        |           |       |           |        |   |        |   |        |  
|Total costs and expenses                                                        |                     |                                     | 17,410 |                    |        |                   | 13,295 |           |       |           | 50,943 |   |        |   | 43,390 |  
|                                                                                |                     |                                     |        |                    |        |                   |        |           |       |           |        |   |        |   |        |  
|Earnings (loss) continuing operations
before income taxes and
minority interest |                     |                                     | 1,067  |                    |        |                   | (509   | )         |       |           | 2,810  |   |        |   | (245   | )
|Provision for income taxes                                                      |                     |                                     | 390    |                    |        |                   | (208   | )         |       |           | 1,086  |   |        |   | (64    | )
|Minority shareholders
interest in earnings
of subsidiary                       |                     |                                     | (1     | )                  |        |                   | (2     | )         |       |           | (7     | ) |        |   | (6     | )
|                                                                                |                     |                                     |        |                    |        |                   |        |           |       |           |        |   |        |   |        |  
|Net earnings (loss)
from continuing operations                                  |                     |                                     | 678    |                    |        |                   | (299   | )         |       |           | 1,731  |   |        |   | (175   | )

See notes to consolidated financial statements

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McRae Industries, Inc. and SubsidiariesCONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)

|                                                     |                                                                                              |   |                    |     |                   |   |           |      |           |   |           |     |  |   |           |      |  
|---------------------------------------------------- | -------------------------------------------------------------------------------------------- | - | ------------------ | --- | ----------------- | - | --------- | ---- | --------- | - | --------- | --- |  | - | --------- | ---- | -
|                                                     |                                                                                              |   | Three Months Ended |     | Nine Months Ended
|                                                     |                                                                                              |   |                    |     |                  
|                                                     |                                                                                              |   | April 27,          |     | April 28,         |   | April 27, |      | April 28,
|                                                     |                                                                                              |   | 2002               |     | 2001              |   | 2002      |      | 2001     
|                                                     |                                                                                              |   |                    |     |                   |   |           |      |          
|Discontinued operations:                             |                                                                                              |   |                    |     |                   |   |           |      |           |   |           |     |  |   |           |     
|                                                     | (see Note C)                                                                                 |   |                    |     |                   |   |           |      |           |   |           |     |  |   |           |      |  
|                                                     | Income (loss) from
operations of discontinued
business                                       |   |                    | 0   |                   |   |           | (2   | )         |   |           | 0   |  |   |           | 41   |  
|                                                     | Income tax benefit
(expense)                                                                 |   |                    | 0   |                   |   |           | 1    |           |   |           | 0   |  |   |           | (16  | )
|                                                     | Estimated loss on disposal
of business, net of income
tax benefit of $185,000 in
fiscal 2001 |   |                    | 0   |                   |   |           | 0    |           |   |           | 0   |  |   |           | (290 | )
|                                                     |                                                                                              |   |                    |     |                   |   |           |      |           |   |           |     |  |   |           |      |  
|Net earnings (loss)                                  |                                                                                              | $ | 678                |     |                   | $ | (300      | )    |           | $ | 1,731     |     |  | $ | (440      | )   
|                                                     |                                                                                              |   |                    |     |                   |   |           |      |           |   |           |     |  |   |           |      |  
|Net earnings (loss) per
common share-basic:          |                                                                                              |   |                    |     |                   |   |           |      |           |   |           |     |  |   |           |     
|                                                     | Earnings (loss) from
continuing operations                                                   |   | $                  | .24 |                   |   | $         | (.11 | )         |   | $         | .63 |  |   | $         | (.06 | )
|                                                     | Discontinued operations                                                                      |   |                    | .00 |                   |   |           | (.00 | )         |   |           | .00 |  |   |           | (.10 | )
|                                                     |                                                                                              |   |                    |     |                   |   |           |      |           |   |           |     |  |   |           |      |  
|                                                     | Net earnings (loss)                                                                          |   | $                  | .24 |                   |   | $         | (.11 | )         |   | $         | .63 |  |   | $         | (.16 | )
|                                                     |                                                                                              |   |                    |     |                   |   |           |      |           |   |           |     |  |   |           |      |  
|Weighted average number
of common shares
outstanding |                                                                                              |   | 2,768,499          |     |                   |   | 2,768,499 |      |           |   | 2,768,499 |     |  |   | 2,768,499 |     
|                                                     |                                                                                              |   |                    |     |                   |   |           |      |           |   |           |     |  |   |           |      |  

See notes to condensed consolidated financial statements

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McRae Industries, Inc. and SubsidiariesCONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)

|                                                    |                                          |   |                   |        |                |   |        |      |  
|--------------------------------------------------- | ---------------------------------------- | - | ----------------- | ------ | -------------- | - | ------ | ---- | -
|                                                    |                                          |   | Nine Months Ended
|                                                    |                                          |   |                  
|                                                    |                                          |   | April 27, 2002    |        | April 28, 2001
|                                                    |                                          |   |                   |        |               
|Net cash provided by (used in)
operating activities |                                          | $ | 365               |        |                | $ | (210   | )   
|                                                    |                                          |   |                   |        |                |   |        |     
|Cash flows from investing activities:               |                                          |   |                   |        |                |   |        |     
|                                                    | Proceeds from sale of land               |   |                   | 0      |                |   |        | 9    |  
|                                                    | Proceeds from sale of securities         |   |                   | 0      |                |   |        | 56   |  
|                                                    | Purchase of land investment              |   |                   | 0      |                |   |        | (16  | )
|                                                    | Purchase of minority interest            |   |                   | 0      |                |   |        | (605 | )
|                                                    | Proceeds from sales of assets            |   |                   | 104    |                |   |        | 70   |  
|                                                    | Net collections from related parties     |   |                   | 13     |                |   |        | 129  |  
|                                                    | Capital expenditures                     |   |                   | (1,244 | )              |   |        | (895 | )
|                                                    | Purchase of brand name                   |   |                   | (800   | )              |   |        | 0    |  
|                                                    | Purchase of officer life insurance       |   |                   | (210   | )              |   |        | (211 | )
|                                                    | Net collections of long-term receivables |   |                   | 67     |                |   |        | 143  |  
|                                                    |                                          |   |                   |        |                |   |        |     
|Net cash used in investing activities               |                                          |   | (2,070            | )      |                |   | (1,320 | )   
|                                                    |                                          |   |                   |        |                |   |        |     
|Cash flows from financing activities:               |                                          |   |                   |        |                |   |        |     
|                                                    | Principal repayments of notes payable    |   |                   | (446   | )              |   |        | (203 | )
|                                                    | Dividends paid                           |   |                   | (280   | )              |   |        | (428 | )
|                                                    |                                          |   |                   |        |                |   |        |     
|Net cash used in financing activities               |                                          |   | (726              | )      |                |   | (631   | )   
|                                                    |                                          |   |                   |        |                |   |        |     
|Net decrease in cash and cash
equivalents           |                                          |   | (2,431            | )      |                |   | (2,161 | )   
|Cash and cash equivalents at beginning
of period    |                                          |   | 7,341             |        |                |   | 7,219  |     
|                                                    |                                          |   |                   |        |                |   |        |     
|Cash and cash equivalents at end of period          |                                          | $ | 4,910             |        |                | $ | 5,058  |     
|                                                    |                                          |   |                   |        |                |   |        |     

See notes to condensed consolidated financial statements

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McRae Industries, Inc. and SubsidiariesNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE A  BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the nine
months ended April 27, 2002 are not necessarily indicative of the results that
may be expected for the year ending August 3, 2002. For further information,
refer to the consolidated financial statements and footnotes thereto included
in the McRae Industries, Inc. Annual Report on Form 10-K for the year ended
July 28, 2001.

NOTE B  INVENTORIES

An actual valuation of inventory under the LIFO method can be made only at the
end of each fiscal year based on the inventory levels and costs at that time.
Accordingly, interim LIFO calculations are based on managements estimates of
expected year-end inventory levels and costs and are subject to change based on
the final year-end LIFO inventory valuation.

The components of inventory consist of the following (in thousands):

|                |  |                |            |               |  |   |            | 
|--------------- |  | -------------- | ---------- | ------------- |  | - | ---------- | 
|                |  | April 27, 2002 |            | July 28, 2001
|                |  |                |            |              
|Raw materials   |  | $              | 2,653,000  |               |  | $ | 2,843,000  | 
|Work-in-process |  |                | 648,000    |               |  |   | 746,000    | 
|Finished goods  |  |                | 10,314,000 |               |  |   | 10,217,000 | 
|                |  |                |            |               |  |   |            | 
|                |  | $              | 13,615,000 |               |  | $ | 13,806,000 | 
|                |  |                |            |               |  |   |            | 

NOTE C  DISCONTINUED OPERATIONS OF BUSINESS SEGMENT

For the quarter ending April 28, 2001, the printing business reported a net
loss of $1,000, net of $1,000 of tax benefit. A reserve for estimated loss on
discontinuance of this business amounted to $290,000, net of $185,000 of tax
benefit. The results of the printing and packaging business operations have
been reported separately as discontinued operations in the Condensed
Consolidated Statement of Operations.

NOTE D  SUBSEQUENT EVENTS

On June 5, 2002, the Company declared a cash dividend of $.05 cents per share
on its Class A Common Stock payable on June 28, 2002 to shareholders of record
on June 14, 2002.

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NOTE E  SUMMARY OF BUSINESS SEGMENTS

|                                               |                    |   |                    |       |                   |   |           |       |           |   |        |        |   |   |        |        |  
|---------------------------------------------- | ------------------ | - | ------------------ | ----- | ----------------- | - | --------- | ----- | --------- | - | ------ | ------ | - | - | ------ | ------ | -
|                                               |                    |   | Three Months Ended |       | Nine Months Ended
|                                               |                    |   |                    |       |                  
|                                               |                    |   | April 27,          |       | April 28,         |   | April 27, |       | April 28,
|                                               |                    |   | 2002               |       | 2001              |   | 2002      |       | 2001     
|                                               |                    |   |                    |       |                   |   |           |       |          
|(Dollars in Thousands)                         |                    |   |                    |       |                   |   |           |       |           |   |        |        |   |   |        |       
|                                              
|Net revenues                                   |                    |   |                    |       |                   |   |           |       |           |   |        |        |   |   |        |       
|                                               | Bar Code           |   | $                  | 3,033 |                   |   | $         | 2,973 |           |   | $      | 7,810  |   |   | $      | 10,020 |  
|                                               | Office Products    |   |                    | 4,893 |                   |   |           | 3,700 |           |   |        | 17,072 |   |   |        | 13,106 |  
|                                               | Military Boots     |   |                    | 5,063 |                   |   |           | 3,693 |           |   |        | 15,009 |   |   |        | 12,997 |  
|                                               | Western/Work Boots |   |                    | 5,562 |                   |   |           | 2,422 |           |   |        | 14,236 |   |   |        | 7,146  |  
|                                               | Eliminations/Other |   |                    | (74   | )                 |   |           | (2    | )         |   |        | (374   | ) |   |        | (124   | )
|                                               |                    |   |                    |       |                   |   |           |       |           |   |        |        |   |   |        |        |  
|                                               |                    |   | 18,477             |       |                   |   | 12,786    |       |           |   | 53,753 |        |   |   | 43,145 |       
|                                               |                    |   |                    |       |                   |   |           |       |           |   |        |        |   |   |        |        |  
|Net earnings (loss)
from continuing
operations |                    |   |                    |       |                   |   |           |       |           |   |        |        |   |   |        |       
|                                               | Bar Code           |   |                    | (184  | )                 |   |           | (464  | )         |   |        | (1,186 | ) |   |        | (922   | )
|                                               | Office Products    |   |                    | (62   | )                 |   |           | (482  | )         |   |        | 194    |   |   |        | (1,234 | )
|                                               | Military Boots     |   |                    | 1,135 |                   |   |           | 687   |           |   |        | 3,622  |   |   |        | 2,476  |  
|                                               | Western/Work Boots |   |                    | 57    |                   |   |           | (396  | )         |   |        | (186   | ) |   |        | (985   | )
|                                               | Eliminations/Other |   |                    | 121   |                   |   |           | 146   |           |   |        | 366    |   |   |        | 420    |  
|                                               |                    |   |                    |       |                   |   |           |       |           |   |        |        |   |   |        |        |  
|                                               |                    |   | 1,067              |       |                   |   | (509      | )     |           |   | 2,810  |        |   |   | (245   | )     
|Provision for income
taxes (benefit)           |                    |   | 390                |       |                   |   | (208      | )     |           |   | 1,086  |        |   |   | (64    | )     
|Minority shareholders
interest                |                    |   | (1                 | )     |                   |   | (2        | )     |           |   | (7     | )      |   |   | (6     | )     
|Earnings (loss) from
discontinued operations   |                    |   | 0                  |       |                   |   | (1        | )     |           |   | 0      |        |   |   | (265   | )     
|                                               |                    |   |                    |       |                   |   |           |       |           |   |        |        |   |   |        |        |  
|Net earnings (loss)                            |                    | $ | 678                |       |                   | $ | (300      | )     |           | $ | 1,731  |        |   | $ | (440   | )     
|                                               |                    |   |                    |       |                   |   |           |       |           |   |        |        |   |   |        |        |  

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McRae Industries, Inc. and Subsidiaries




ITEM
2.   MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
                 OF OPERATIONS

The following discussion should be read in conjunction with the Companys
unaudited condensed consolidated financial statements and notes thereto
beginning on page 3, and with the Companys Annual Report on Form 10-K for the
fiscal year ended July 28, 2001, including the financial information and
managements discussion and analysis contained therein.

FINANCIAL CONDITION AND LIQUIDITY

The Companys financial condition remained strong as of the end of the third
fiscal quarter of 2002. Cash and cash equivalents totaled approximately $4.9
million up from approximately $3.1 million as of the end of the second fiscal
quarter of 2002. Working capital climbed to $21.9 million from $21.1 million at
the end of the second quarter and the current ratio remained steady at 3.9 to
1.

Operating activities for the first nine months of fiscal 2002 contributed
approximately $365,000 of cash. Net income from operations, adjusted for
depreciation and amortization, provided a positive cash flow of approximately
$3.0 million. The increase in trade accounts receivable used approximately $4.7
million of cash primarily attributable to higher demand for military and
western boot products and the timing of customer payments for the office
products and bar code businesses. The quality of the outstanding receivables
remained good, although the average collection days increased to 50 days from
47 days as of the end of the second fiscal quarter of 2002 as a result of the
timing of collection for military boots and office equipment and the impact of
longer payment terms for retailers in the western boot business. The investment
in capitalized leases associated with the office equipment business provided
approximately $413,000 of cash as equipment funding is placed with outside
finance companies. Prior year income tax refunds and the timing of current year
tax liabilities contributed a positive cash flow of approximately $902,000.

Investing activities for the first nine months of fiscal 2002 used
approximately $2.1 million of cash. The purchase of the Dan Post® brand name
and related assets as described in the 10-Q for the first quarter of fiscal
2002 used approximately $1.1 million of cash. Additional capital expenditures
amounting to approximately $900,000 consisted primarily of rental and office
equipment for the office equipment business and production equipment for the
footwear businesses. During the current quarter, the western boot business
realized cash proceeds of $104,000 from the sale of the Dresden, Tennessee
warehouse facility. This warehouse facility was replaced by a leased 77,000
square foot facility in Waverly, Tennessee. Investment in officer life
insurance policies used approximately $210,000 of cash.

The Company made quarterly dividend and monthly long-term debt principal
payments of approximately $280,000 and $446,000, respectively.

The Company has two lines of credit with a bank totaling $4.75 million, all of
which was available at April 27, 2002. It is managements opinion that the
future cash flows from operations, currently available cash and cash
equivalents, and unused lines of credit will be sufficient to meet the
Companys foreseeable working capital; capital expenditures; and debt payment
requirements of approximately $59,000 per month on the Companys $4.6 million
long-term debt. In addition, the Companys management is currently developing a
financing strategy designed to fund a potential 25% to 50% increase in sales of
western boot products for the first and second quarters of fiscal 2003.

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THIRD QUARTER FISCAL 2002 COMPARED TO THIRD QUARTER FISCAL 2001

Consolidated net revenues for the third quarter of fiscal 2002 totaled $18.5
million, an increase of 44.5% over the consolidated net revenues reported for
the third quarter of fiscal 2001. Consolidated gross profit increased
approximately 63%, from $3.0 million reported for third quarter of fiscal 2001
to $4.9 million for the same period of fiscal 2002.

Consolidated gross profit as a percentage of net revenues for the third
quarter of fiscal 2002 amounted to 26.4%, up 14% from the 23.1% reported for
the third quarter of fiscal 2001. Selling, general and administrative (SG&A)
expenses increased approximately 5.0% for the third quarter of fiscal 2002 as
compared to the third quarter of fiscal 2001. Consolidated net earnings for
the third quarter amounted to $678,000 compared to the net loss of $300,000
reported for the third quarter of fiscal 2001.

Bar Code Business

Net revenues and gross profits for the bar code business were relatively flat
at approximately $3.0 million and $900,000, respectively, for the comparative
third quarters of fiscal 2002 and 2001 primarily as a result of continued
depressed economic activity and increased competitive pressures. SG&A
expenditures for the third quarter of fiscal 2002 were $1.0 million, down 23%
from the $1.3 million reported for the third quarter of fiscal 2001 primarily
attributable to reduced sales and administrative salaries and related benefit
costs; lower travel expenditures; and decreased advertising and marketing
expenses. The increase in research and development costs for the comparative
third quarters resulted from additional work to complete the Apex IV product.
The low sales volume and higher research and development costs in the third
quarter of fiscal 2002 resulted in a net loss of $184,000, down from the net
loss of $464,000 reported for the third quarter of fiscal 2001.

Office Products Business

Net revenues for the office products business totaled $4.9 million for the
third quarter of fiscal 2002 as compared to $3.7 million for the same period
of fiscal 2001. This increase in net revenues resulted primarily from higher
equipment sales and copy revenue generated from a greater quantity of copies
made under the county-wide school system cost per copy program. The increase
in gross profit from $901,000 for the third quarter of fiscal 2001 to $1.15
million for the third quarter of fiscal 2002 was primarily attributable to the
growth in net revenue. Gross profit as a percentage of net revenues decreased
slightly for the comparative quarters as lower margin cost per copy programs
made up a greater portion of the overall sales mix. SG&A expenses decreased
approximately 10%, down from $1.34 million for the third quarter of fiscal
2001 to $1.2 million for the third quarter of fiscal 2002 because of lower
sales salaries and related benefits attributable to a reduction in the
commercial sales force. The net loss of $62,000 for the third quarter of
fiscal 2002 was significantly lower than the net loss of $462,000 reported for
the same quarter of fiscal 2001 as a result of the increased revenues and
lower SG&A expenditures.

Military Boot Business

Military boot business net revenues for the third quarter of fiscal 2002
amounted to $5.1 million as compared to $3.7 million for the same period of
fiscal 2001. This 38% growth in net revenues was primarily the result of
increased requirements for military combat boots by the U. S. Government
(Government) after the tragic events of September 11th. Gross profit totaled
$1.3 million for the third quarter of fiscal 2002, up from the $817,000 for
the prior years third quarter and was primarily the result of higher net
revenues and lower unit costs produced by efficiencies associated with larger
production

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runs. SG&A expenses increased by approximately $60,000 because of increased
staff and employee benefit costs.Net earnings for the third quarter of fiscal
2002 totaled $1.14 million as compared to $687,000 for the same period of
fiscal 2001 primarily attributable to the increase in net revenues.

The Companys most recent contract (the Contract) with the Government, which
was set to expire on April 15, 2002, was recently extended through July 19,
2002. The Contract extension provides for a maximum order of military combat
boots of 216,000 pair and a minimum order quantity of 103,676 pair consisting
of the three current styles of direct molded sole boots covered by the
Contract. These boots are scheduled for delivery during the Companys first
and second quarters of fiscal 2003 and will have between a $6.3
million and $13.1 million impact on revenues. The Government solicitation to
replace its expiring direct molded sole contracts, including the Contract, is
still undergoing bid review. The Company has submitted a bid covering two
styles of military combat boots for which there are no construction
specification changes. However, the solicitation for the new design standard
issue combat boot which will replace the current molded style, which has
historically accounted for a majority of the Governments order under the
Contract, has been delayed. Although this new boot style, whose construction
specifications now include a waterproof membrane, is not compatible with the
Companys current manufacturing process, the Company is positioned to
manufacture the new membrane boot style and has submitted a bid against this
offer. There are no assurances, however, that the Company will be successful
in obtaining either contract. The Companys operating results could be
materially adversely affected if it is not successful in obtaining either of
these contracts to produce boots for the Government.

Western/Work Boot Business

Western/work boot business net revenues for the third quarter of fiscal 2002
totaled $5.6 million, an increase of 133% over net revenues of $2.4 million
reported for the third quarter of fiscal 2001. This growth in net revenues was
primarily attributable to strong demand for the Companys branded western and
fashion footwear products driven in part by the Companys acquisition of the
Dingo® and Dan Post® brand names in June and October, 2001, respectively.
Gross profit for the current reporting quarter totaled $1.4 million, a 348%
increase over the $318,000 reported for the third quarter of fiscal 2001.
Gross profit as a percentage of net revenues grew from 13.1% for the third
quarter of fiscal 2001 to 25.6 % for the third quarter of fiscal 2002 as a
result of the higher margin branded products making up a larger portion of the
overall sales mix. SG&A expenses for the third quarter of fiscal 2002 amounted
to $1.1 million; up from the $546,000 for the third quarter of fiscal 2001
primarily due to larger sales commissions, higher advertising and promotional
expenses, expanded administrative support costs, and increased professional
fees. Net earnings for the third quarter of fiscal 2002 totaled $57,000 as
compared to a net loss for the third quarter of fiscal 2001. This improvement
in net earnings was primarily attributable to the increase in net revenues and
the higher margins associated with the sales of branded products.

Discontinued Operations

The discontinued operations of the printing and packaging business had no
impact on the third quarter of fiscal 2002 and had only a minimal impact on
the third quarter of fiscal 2001.

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FIRST NINE MONTHS FISCAL 2002 COMPARED TO FIRST NINE MONTHS FISCAL 2001

Consolidated net revenues for the first nine months of fiscal 2002 totaled
$53.8 million, an increase of approximately 25% over the $43.1 million
reported for the first nine months of fiscal 2001. Gross profit grew from
$10.2 million for the first nine months of fiscal 2001 to $13.9 million for
the first nine months of fiscal 2002. As a percentage of net revenues, gross
profit improved nearly 10%, to 25.9% for the current nine-month reporting
period up from 23.6% for the first nine months of fiscal 2001. SG&A expenses
were only slightly higher, totaling $10.4 million for the first nine months of
fiscal 2002 as compared to $10.0 million for the same period of fiscal 2001.
Net earnings amounted to $1.7 million for the first nine months of fiscal 2002
as compared to a $440,000 loss for the first nine months of fiscal 2001.

Bar Code Business

Net revenues for the bar code business for the first nine months of fiscal
2002 totaled $7.8 million, down 22% from the $10.0 million reported for the
first nine months of fiscal 2001. This decrease in net revenues was primarily
attributable to the economic slowdown and increased market competition. Lower
net revenues had a negative impact on gross profit as gross profit fell from
$3.1 million for the first nine months of fiscal 2001 to $2.4 for the first
nine months of fiscal 2002. Gross profit as a percentage of net revenues
remained fairly constant over the two nine month fiscal year periods. SG&A
expenses for the current nine-month reporting period amounted to $3.1 million,
down from the $3.8 million for the first nine months of fiscal 2001. This
decrease in SG&A expenditures was the result of down sizing the work force,
lower group health insurance costs, reduced travel and related expenses, and
other cost containment initiatives. The net loss for the first nine months of
fiscal 2002 amounted to $1.2 million as compared to a net loss of $922,000 for
the first nine months of fiscal 2001 and was primarily attributable to the
decrease in net revenues.

Office Products Business

Office products business net revenues for the first nine months of fiscal 2002
amounted to $17.1 million as compared to $13.1 million for same period of
fiscal 2001. This 30% growth in revenues was primarily attributable to the
continued expansion of the county-wide school system cost per copy program.
Gross profit for the first nine months of fiscal 2002 totaled $4.1 million, up
35% over the $3.0 million for the first nine months of fiscal 2001 as result
of the increase in revenues. SG&A expenses for the first nine months of fiscal
2002 were $3.9 million, down slightly from the $4.1 million for the first nine
months of fiscal 2001, primarily as a result of lower sales salaries and
equipment rental expenses. The increase in net revenues and lower SG&A
expenses produced net earnings of $194,000 for the first nine months of fiscal
2002 as compared to a net loss of $1.2 million for the same period of fiscal
2001.

Military Boot Business

Military boot business net revenues for the first nine months of fiscal 2002
totaled $15.0 million as compared to $13.0 million for the first nine months
of fiscal 2001. This growth in net revenues was primarily the result of
increased U.S. Government requirements for military combat boots to support
the actions taken by the military to support the war on terrorism. Gross
profit for the first nine months of fiscal 2002 amounted to $4.2 million, up
from the $2.9 million for the same period of fiscal 2001. Gross profit as a
percentage of net revenues was up 23% for the current reporting period as
compared to the same prior year period. The increase in gross profit resulted
from higher combat boot sales and manufacturing efficiencies that reduced per
unit costs. SG&A expenses were slightly higher for the current nine-month
period as a result of increased staff and employee benefit costs. Net earnings
for the first nine months of

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fiscal 2002 totaled $3.6 million, an increase of $1.1 million over the net
earnings for the first nine months of fiscal 2001. This improvement in net
earnings was primarily the result of increased military boot sales and lower
per unit production costs.

Western/Work Boot Business

Western/work boot business net revenues for the first nine months of fiscal
2002 were $14.2 million, almost a 100% improvement over the $7.1 million for
the same period of fiscal 2001. This increase in net revenues was primarily
attributable to strong demand for the branded western and fashion footwear
products that were added to the product mix during the current fiscal year.
Gross margins for the first nine months of fiscal 2002 totaled $3.3 million as
compared to $1.2 million for the first nine months of fiscal 2001. Gross
margin as a percentage of net revenues grew from 16.7% for the first nine
months of fiscal 2001 to 23.3% for the same current year period. These
improvements resulted primarily from higher net revenues and the positive
impact of the higher margin branded western and fashion footwear in the
overall sales mix. SG&A expenditures amounted to $2.9 million for the first
nine months of fiscal 2002, up from $1.6 million for the previous fiscal
years first nine months. This rise in costs was primarily attributable to
increases in sales commissions, advertising, warehouse rental, administrative
salaries, and professional fees related primarily to the brand name
acquisitions. The net loss for the first nine months of fiscal 2002 totaled
$186,000, a significant improvement over the net loss of $985,000 reported for
the first nine months of fiscal 2001. This improvement resulted primarily from
increased net revenues and gross margins.

Discontinued Operations

The discontinued printing and packaging business had no affect on the results
of operations for the first nine months of fiscal 2002. Net revenues and
operating profit for the first nine months of fiscal 2001 amounted to $1.9
million and $25,000, respectively. An estimated loss on discontinuance of this
business amounting to $290,000, net of the tax benefit, was reserved in the
first quarter of fiscal 2001. This business ceased normal operations on April
28, 2001.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In June 2001, SFAS No. 142, Goodwill and Other Intangible Assets, was issued
and established the accounting and reporting standards for acquired goodwill
and other intangible assets. SFAS No. 142 is effective for the Registrant for
fiscal years beginning after December 15, 2001. The Registrant is evaluating
the effects of this pronouncement on recorded goodwill and trade names.

In July 2001, SFAS No. 143, Accounting for Asset Retirement Obligations, was
issued and established the accounting and reporting standards associated with
the retirement of tangible long-lived assets. SFAS No. 143 is effective for the
Registrant for fiscal years beginning after June 15, 2002. The Registrant
currently has no assets subject to the provisions of this statement.

In August 2001, SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, was issued and established the accounting and reporting
requirements associated with long-lived asset impairment and disposal. SFAS No.
144 is effective for the Registrant for fiscal years beginning after December
15, 2001. The Registrant is evaluating the effects of this pronouncement on its
long-lived assets.

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FORWARD-LOOKING STATEMENTS

In addition to historical information, this Interim Report includes certain
forward-looking statements as such term is defined in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
including but not limited to statements about the Companys ability to meet
future working capital, capital expenditure, and debt repayment requirements.
These forward-looking statements involve certain risks and uncertainties,
including but not limited to the effect of acquisitions, the ability to meet
additional financing requirements, the successful development and marketing of
new products and services, the effect of competitive products and pricing,
risks unique to selling goods to the U.S. Government (including the impact of
the war on terrorism, termination of the Contract and changes in the types of
military boots used by the U.S. Government), and the effect of general
economic conditions, that could cause actual results to differ materially from
those in such forward-looking statements.




ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to the impact of interest rate changes due to its
aggregate $4.75 million lines of credit and a term loan through its wholly
owned subsidiary, American West Trading Company. As of April 27, 2002, there
was no outstanding indebtedness under the lines of credit and $4.6 million was
outstanding on the term loan. The Company does not buy or sell derivative
financial instruments for trading purposes. Borrowings under the Companys
credit facilities described above bear interest at rates based upon the Prime
Rate or Prime Rate less a margin of one-half percent offered by the
applicable lender. The Company has not entered into any swap agreements or
engaged in any other hedging activities with respect to this variable rate
indebtedness. A 10% increase in the interest rates under the Companys credit
facilities would increase annual interest expense by approximately $22,000
(assuming the Companys aggregate borrowings under the credit facilities
averaged $4.6 million during a fiscal year).




PART II.   OTHER INFORMATION




Item 1.   Legal Proceedings

The Company is not currently party to any material legal proceedings. However,
from time to time the Company is party to various legal proceedings incidental
to its business.




Items 2, 3, 4, and 5.

These items are not applicable and have been omitted.

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Item 6.   Exhibits and Reports on Form 8-K

(a)   Exhibits

|    |  |                                                                                                                                                                                        
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1 |  | Certificate of Incorporation (Incorporated by reference to Exhibit
3.1 to the Registrants Form S-14, Registration N. 2-85908)                                                         
|   
|3.2 |  | Amendment to the Certificate of Incorporation (Incorporated by
reference to Exhibit 3 to the Registrants Form 10-K for the year
ended August 1, 1987)                                 
|   
|3.3 |  | Amendment to the Bylaws of the Registrant effective September 10,
1993 (Incorporated by reference to Exhibit 3.3 to the Registrants
Form 10-K for the fiscal year ended July 31, 1993)
|   
|3.4 |  | Restated Bylaws of the Registrant (Incorporated by reference to
Exhibit 3.4 to the Registrants Form 10-K for the fiscal year ended
July 31, 1993)                                     
|   
|3.5 |  | Amendment to Bylaws (Incorporated by reference to Exhibit 3.5 to
the Registrants Form 10-K for the fiscal year ended July 29, 2000)                                                   

(b)   No reports on Form 8-K were filed during the quarter ended April 27,
2002.




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 thereunto duly authorized.

|                      |  |                                     |  |                                                              
|--------------------- |  | ----------------------------------- |  | -------------------------------------------------------------
|                      |  | McRae Industries, Inc.
(Registrant)
|                     
|Date:   June 11, 2002 |  | By:                                 |  | /s/ D. Gary McRae                                            
|                      |  |                                     |  |                                                              
|                      |  |                                     |  | D. Gary McRae
President and CEO
(Principal Executive Officer)
|                     
|Date:   June 11, 2002 |  | By:                                 |  | /s/ Marvin G. Kiser, Sr.                                     
|                      |  |                                     |  |                                                              
|                      |  |                                     |  | Marvin G. Kiser, Sr.
(Principal Accounting Officer)          

16