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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 For the Quarter Ended October 29, 2005.
 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.
  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    56-0706710
(I.R.S. Employer Identification No.)
 400 North Main Street
 Mt. Gilead, North Carolina 27306
  Telephone Number (910) 439-6147
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  o þ
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McRae Industries, Inc. and Subsidiaries
 INDEX
 PART I. FINANCIAL INFORMATION
 Page No.ITEM 1.
    
    Condensed Consolidated Financial StatementsCondensed Consolidated Balance Sheets
    
    
    3-4Condensed Consolidated Statements of Operations
    
    
    5Condensed Consolidated Statements of Cash Flows
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7-9ITEM 2.
    
    Managements Discussion And Analysis of Financial
Condition and Results of Operations
    
    
    10-15ITEM 3.
    
    Quantitative and Qualitative Disclosures about
Market Risk
    
    
    15ITEM 4.
    
    Disclosure Controls and Procedures
    
    
    16PART II. OTHER INFORMATIONITEM 1.
    
    Legal Proceedings
    
    
    16ITEM 2.
    
    Changes in Securities and Use of Proceeds
    
    
    16ITEM 3.
    
    Defaults upon Senior Securities
    
    
    16ITEM 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    16ITEM 5.
    
    Other Information
    
    
    16ITEM 6.
    
    Exhibits
    
    
    17Signatures
    
    
    18
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PART I. FINANCIAL INFORMATION
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 McRae Industries, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
 October 29, 2005
    
    
    July 30, 2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    10,299
    
    
    $
    9,238Accounts and notes receivable, net
    
    
    10,912
    
    
    
    9,758Inventories, net
    
    
    12,046
    
    
    
    12,721Assets held for sale
    
    
    325
    
    
    
    325Income tax receivable
    
    
    270
    
    
    
    840Prepaid expenses and other current assets
    
    
    367
    
    
    
    159Total current assets
    
    
    34,219
    
    
    
    33,041Property and equipment, net
    
    
    2,629
    
    
    
    2,640Other assets:Notes receivable
    
    
    33
    
    
    
    36Real estate held for investment
    
    
    1,991
    
    
    
    1,882Goodwill
    
    
    362
    
    
    
    362Amount due from split-dollar life insurance
    
    
    2,220
    
    
    
    2,220Trademarks
    
    
    2,824
    
    
    
    2,824Other
    
    
    5
    
    
    
    5Total other assets
    
    
    7,435
    
    
    
    7,329Total assets
    
    $
    44,283
    
    
    $
    43,010
  3




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McRae Industries, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
 October 29, 2005
    
    
    July 30, 2005Liabilities and Shareholders EquityCurrent liabilities:Notes payable
    
    $
    169
    
    
    $
    174Accounts Payable
    
    
    3,659
    
    
    
    3,793Accrued employee benefits
    
    
    773
    
    
    
    480Accrued payroll and payroll taxes
    
    
    815
    
    
    
    683Other
    
    
    966
    
    
    
    894Total current liabilities
    
    
    6,382
    
    
    
    6,024Shareholders equity:Common Stock:Class A, $1 par; Authorized 5,000,000 shares; Issued
and outstanding, and 2,240,841 shares, respectively
    
    
    2,241
    
    
    
    2,241Class B, $1 par; Authorized 2,500,000 shares; Issued
and outstanding, and 527,658 shares, respectively
    
    
    527
    
    
    
    527Additional paid-in capital
    
    
    791
    
    
    
    791Retained earnings
    
    
    34,342
    
    
    
    33,427Total shareholders equity
    
    
    37,901
    
    
    
    36,986Total liabilities and shareholders equity
    
    $
    44,283
    
    
    $
    43,010
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McRae Industries, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months EndedOctober 29, 2005
    
    
    October 30, 2004Net revenues
    
    $
    18,560
    
    
    $
    20,434Cost of revenues
    
    
    13,276
    
    
    
    15,847Research & development
    
    
    191
    
    
    
    304Selling, general and administrative expenses
    
    
    3,508
    
    
    
    3,071Other expense (income), net
    
    
    (104
    )
    
    
    (54
    )Interest expense
    
    
    4
    
    
    
    22Total costs and expenses
    
    
    16,875
    
    
    
    19,190Earnings from continuing operations before income taxes
    
    
    1,685
    
    
    
    1,244Provision for income taxes
    
    
    590
    
    
    
    437Net earnings from continuing operations
    
    
    1,095
    
    
    
    807Discontinued operations:Loss from operations of discontinued business
    
    
    0
    
    
    
    (438
    )Income tax benefit
    
    
    0
    
    
    
    170Estimated gain on disposal of business, net of income taxes
    
    
    0
    
    
    
    2,174Net earnings
    
    $
    1,095
    
    
    $
    2,713Earnings per common share:Earnings per common share from continuing operations:Basic earnings per share:Class A
    
    $
    .57
    
    
    $
    .48Class B
    
    
    0
    
    
    
    0Diluted earnings per share:Class A
    
    
    .46
    
    
    
    .33Class B
    
    
    N/A
    
    
    
    N/AEarnings per common share from discontinued operations:Basic earnings per share:Class A
    
    
    0
    
    
    
    .98Class B
    
    
    0
    
    
    
    0Diluted earnings per share:Class A
    
    
    0
    
    
    
    .69Class B
    
    
    N/A
    
    
    
    N/ANet earnings per common share:Basic earnings per share:Class A
    
    
    .57
    
    
    
    1.46Class B
    
    
    0
    
    
    
    0Diluted earnings per share:Class A
    
    
    .46
    
    
    
    1.02Class B
    
    
    N/A
    
    
    
    N/AWeighted average number of common shares outstanding:Class A
    
    
    2,240,841
    
    
    
    1,943,543Class B
    
    
    527,658
    
    
    
    824,956Total
    
    
    2,768,499
    
    
    
    2,768,499
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McRae Industries, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three Months EndedOctober 29, 2005
    
    
    October 30, 2004Net cash provided by operating activities
    
    $
    471
    
    
    $
    1,443Cash flows from investing activities:Proceeds from sales of assets
    
    
    898
    
    
    
    9,904Purchase of trade names and other assets
    
    
    0
    
    
    
    (22
    )Capital expenditures
    
    
    (126
    )
    
    
    (101
    )Net collections of long-term receivables
    
    
    3
    
    
    
    3Net cash provided by investing activities
    
    
    775
    
    
    
    9,784Cash flows from financing activities:Principal repayments of notes payable
    
    
    (5
    )
    
    
    (3,128
    )Dividends paid
    
    
    (180
    )
    
    
    (116
    )Net cash used in financing activities
    
    
    (185
    )
    
    
    (3,244
    )Net increase in cash and cash equivalents
    
    
    1,061
    
    
    
    7,983Cash and cash equivalents at beginning of period
    
    
    9,238
    
    
    
    2,464Cash and cash equivalents at end of period
    
    $
    10,299
    
    
    $
    10,447
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McRae Industries, Inc. and Subsidiaries
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE A  BASIS OF PRESENTATION
   NOTE B  INVENTORIES
  October 29, 2005
    
    
    July 30, 2005Raw materials
    
    $
    2,070
    
    
    $
    2,217Work-in-process
    
    
    526
    
    
    
    446Finished goods
    
    
    9,450
    
    
    
    10,058$
    12,046
    
    
    $
    12,721
 NOTE C  SUBSEQUENT EVENTS
    7




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NOTE D
 DISCONTINUED OPERATIONS
    8




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NOTE E
 SUMMARY OF BUSINESS SEGMENTS
 Three Months EndedOctober 29,
    
    
    October 30,2005
    
    
    2004(In thousands)Net revenues from continuing operationsBar Code
    
    $
    4,024
    
    
    $
    2,802Military Boots
    
    
    4,655
    
    
    
    11,516Western/Work Boots
    
    
    9,795
    
    
    
    6,089Eliminations/Other
    
    
    86
    
    
    
    2718,560
    
    
    
    20,434Net (loss) earnings from continuing operationsBar Code
    
    
    (115
    )
    
    
    (454
    )Military Boots
    
    
    461
    
    
    
    931Western/Work Boots
    
    
    1,047
    
    
    
    613Eliminations/Other
    
    
    292
    
    
    
    1541,685
    
    
    
    1,244Provision for income taxes
    
    
    590
    
    
    
    437Net earnings from continuing operations
    
    
    1,095
    
    
    
    807Earnings from discontinued operations, net of tax expense
    
    
    0
    
    
    
    1,906Net earnings
    
    $
    1,095
    
    
    $
    2,713
 October 29,
    
    
    July 30,2005
    
    
    2005AssetsBar Code
    
    $
    6,462
    
    
    $
    5,584Military Boots
    
    
    4,402
    
    
    
    4,577Western/Work Boots
    
    
    19,795
    
    
    
    18,305Eliminations/Other
    
    
    13,624
    
    
    
    14,544$
    44,283
    
    
    $
    43,010
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  CRITICAL ACCOUNTING ESTIMATES
  Inventories
  Goodwill, Intangible Assets, and Long-Lived Assets
  Revenue Recognition
   10




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Income Taxes
  FINANCIAL CONDITION AND LIQUIDITY
    11




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For the Quarter EndedSource (Use) of Cash
    
    October 29, 2005Operating activities:Net earnings adjusted for depreciation and amortization
    
    $
    1,231Accounts receivable
    
    
    (1,154
    )Inventories
    
    
    675Accounts payable
    
    
    (134
    )Income taxes
    
    
    570Net cash provided by operating activities
    
    
    471
    Off-Balance Sheet Arrangements
  FIRST QUARTER FISCAL 2006 COMPARED TO FIRST QUARTER FISCAL 2005
   12




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Bar Code Business
      Military Boot Business
   13




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Western and Work Boot Business
 Laredo
    14




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Discontinued Business
    IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
  FORWARD-LOOKING STATEMENTS
  ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  15




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ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES
     PART II. OTHER INFORMATION
 Item 1. Legal Proceedings
  Items 2, 3, 4 and 5.
  16




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Item 6. Exhibits
 3.1
    
    Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 to the
Registrants Form S-14, Registration No. 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
    
    Certificate of Amendment to the Certificate of Incorporation (Filed herein).
Page 193.4
    
    Certificate of Amendment to the Certificate of Incorporation (Filed herein).
Page 21.3.5
    
    Restated Bylaws of the Registrant effective May 29, 2001. (Incorporated by
reference to Exhibit 3.3 to the Registrants Form 10-K for the year ended July 28,
2001).31.1
    
    Rule 13a-14(a)/15d-14(a) Certification for D. Gary McRae, President and CEO
(Filed herein). Page 23.31.2
    
    Rule 13a-14(a)/15d-14(a) Certification for Marvin G. Kiser, Sr., Vice President
of Finance (Filed herein). Page 24.32.1
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18
U.S.C. Section 1350), for D. Gary McRae, President and CEO (Filed herein). Page 25.32.2
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18
U.S.C. Section 1350), for Marvin G. Kiser, Sr., Vice President of Finance (Filed
herein). Page 26.
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SIGNATURES
  McRae Industries, Inc.(Registrant)Date: December 13, 2005
    
    
    
    By:
    
    /s/ D. Gary McRaeD. Gary McRaePresident and CEO(Principal Executive Officer)Date: December 13, 2005
    
    
    
    By:
    
    /s/ Marvin G. Kiser, Sr.Marvin G. Kiser, Sr.(Principal Accounting Officer)
 18