##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 25049
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended July 30, 2005
 Commission file number: 1-8578
 McRAE INDUSTRIES, INC.
  Delaware
    
    56-0706710(State of Incorporation)
    
    (I.R.S.) Employer Identification No.)
 400 North Main Street, Mount Gilead, North Carolina 27306
 Registrants telephone number, including area code: (910) 439-6147
  Title of each class
    
    Name of each exchange on which registeredClass A Common Stock, $1 Par Value
    
    American Stock ExchangeClass B Common Stock, $1 Par Value
    
    American Stock Exchange
  þ o
 o
 o þ
 o þ
  DOCUMENTS INCORPORATED BY REFERENCE




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##### 



Part I
 ITEM 1. BUSINESS
  Bar Code Operations
  rd
    2




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##### 



Military Combat Boots
         3




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##### 



Western and Work Boots
        4




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##### 



John Deere
 Discontinued Operations
  Other Business
  Foreign Sales
  Other Investment Interests
  Regulation
  Employment
  5




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##### 



Financial Information about Operating Segments
  Research and Development
  ITEM 2. PROPERTIES
  Location
    
    Principal Use
    
    Size400 North Main Street
Mt. Gilead, N.C.
    
    Corporate headquarters,
manufacturing, and sales
    
    71,000 square feetHighway 109 North
Mt. Gilead, N.C.
    
    Footwear manufacturing
    
    57,6002500 Port Malabar Blvd.
Palm Bay, Florida
    
    Compsee bar code sales office
    
    5,250 square feetHighway 109 North
Mt. Gilead, N.C.
    
    Footwear warehouse
    
    3,500 square feetHighway 109
Richmond County, N.C.
    
    Footwear storage
    
    11,200 square feetHighway 24-27
Troy, N.C.
    
    Footwear manufacturing and
warehousing
    
    60,000 square feetHighway 109 North
Mt. Gilead, N.C.
    
    Footwear storage
    
    4,800 square feet601 E. Railroad Street
Waverly, TN
    
    Footwear manufacturing
    
    71,520 square feet5576 Highway 70 West
Waverly, TN
    
    Footwear warehouse
    
    77,000 square feet
    6




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##### 



ITEM 3. LEGAL PROCEEDINGS
  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  PART II
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
  CLASS A COMMON STOCK:
 Fiscal 2005
    
    Fiscal 2004Sales Price
    
    
    
    
    
    Sales PriceCash
    
    
    
    
    
    
    
    
    
    CashDividends
    
    
    
    
    
    
    
    
    
    DividendsQuarter
    
    High
    
    Low
    
    Declared
    
    High
    
    Low
    
    DeclaredFirst
    
    $
    11.90
    
    
    $
    8.50
    
    
    $
    .06
    
    
    $
    9.30
    
    
    $
    6.36
    
    
    $
    .06Second
    
    
    14.25
    
    
    
    10.25
    
    
    
    .08
    
    
    
    11.00
    
    
    
    8.85
    
    
    
    .06Third
    
    
    13.46
    
    
    
    11.26
    
    
    
    .08
    
    
    
    11.75
    
    
    
    9.49
    
    
    
    .06Fourth
    
    
    12.85
    
    
    
    11.40
    
    
    
    .08
    
    
    
    10.30
    
    
    
    9.05
    
    
    
    .06
 CLASS B COMMON STOCK:
 Fiscal 2005
    
    Fiscal 2004Sales Price
    
    
    
    
    
    Sales PriceCash
    
    
    
    
    
    
    
    
    
    CashDividends
    
    
    
    
    
    
    
    
    
    DividendsQuarter
    
    High
    
    Low
    
    Declared
    
    High
    
    Low
    
    DeclaredFirst
    
    $
    11.85
    
    
    $
    8.90
    
    
    $
    .00
    
    
    $
    8.75
    
    
    $
    6.50
    
    
    $
    .00Second
    
    
    14.05
    
    
    
    10.20
    
    
    
    .00
    
    
    
    10.75
    
    
    
    8.80
    
    
    
    .00Third
    
    
    13.10
    
    
    
    11.25
    
    
    
    .00
    
    
    
    11.50
    
    
    
    9.60
    
    
    
    .00Fourth
    
    
    13.07
    
    
    
    11.70
    
    
    
    .00
    
    
    
    10.15
    
    
    
    9.15
    
    
    
    .00
  7




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##### 



ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
  (In thousands, except for per share data)Fiscal Years Ended
    
    7-30-05
    
    7-31-04
    
    8-2-03
    
    8-3-02
    
    7-28-01Income Statement Data:Net revenues
    
    $
    62,404
    
    
    $
    70,496
    
    
    $
    54,501
    
    
    $
    50,745
    
    
    $
    38,505Net earnings from continuing operations
    
    
    1,574
    
    
    
    3,206
    
    
    
    2,447
    
    
    
    2,179
    
    
    
    830Net earnings (loss) from discontinued
Operations
    
    
    1,870
    
    
    
    (197
    )
    
    
    30
    
    
    
    406
    
    
    
    (1,527
    )Net earnings (loss)
    
    
    3,444
    
    
    
    3,009
    
    
    
    2,477
    
    
    
    2,585
    
    
    
    (697
    )Net earnings from continuing operations per
common share:Basic Earnings per share (a):Class A
    
    
    1.09
    
    
    
    1.90
    
    
    
    1.53
    
    
    
    1.37
    
    
    
    .73Class B
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Diluted Earnings per share (b):Class A
    
    
    .79
    
    
    
    1.33
    
    
    
    1.05
    
    
    
    .92
    
    
    
    .49Class B
    
    NA
    
    
    NA
    
    
    NA
    
    
    NA
    
    
    NABalance Sheet Data:Total assets
    
    $
    43,010
    
    
    $
    49,548
    
    
    $
    46,149
    
    
    $
    41,929
    
    
    $
    38,977Long-term liabilities
    
    
    0
    
    
    
    3,082
    
    
    
    3,307
    
    
    
    3,900
    
    
    
    4,598Working Capital
    
    
    27,017
    
    
    
    28,794
    
    
    
    27,377
    
    
    
    23,829
    
    
    
    21,202Shareholders equity
    
    
    36,986
    
    
    
    34,148
    
    
    
    31,602
    
    
    
    29,581
    
    
    
    27,371Weighted average number of common shares
outstanding:Class A
    
    
    1,993,172
    
    
    
    1,929,965
    
    
    
    1,898,908
    
    
    
    1,869,173
    
    
    
    1,860,684Class B
    
    
    775,327
    
    
    
    838,534
    
    
    
    869,591
    
    
    
    899,326
    
    
    
    907,815Weighted average number of common shares
outstanding(c)
    
    
    2,768,499
    
    
    
    2,768,499
    
    
    
    2,768,499
    
    
    
    2,768,499
    
    
    
    2,768,499Cash dividends declared per common share (d)
    
    $
    0.30
    
    
    $
    0.24
    
    
    $
    0.24
    
    
    $
    0.21
    
    
    $
    0.28
 
 (a)
    
    This calculation uses the two-class method under which all undistributed earnings are
allocated to Class A Common Stock in the earnings per share calculation; thus, no earnings
are allocated to the holders of Class B Common Stock. See Note 1 to the consolidated
financial statements included in this report.(b)
    
    This calculation uses the if-converted method which assumes all Class B Common Stock is
converted into Class A Common Stock; thus, there are no holders of Class B Common Stock to
participate in undistributed earnings. See Note 1 to the consolidated financial statements
included in this report.(c)
    
    Includes both Class A and Class B Common Stock(d)
    
    Dividends were paid only on Class A Common Stock ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 PROPOSED REVERSE/FORWARD STOCK SPLIT
  8




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##### 



INTERNAL CONTROL OVER FINANCIAL REPORTING
   CRITICAL ACCOUNTING POLICIES
  9




---



##### 



Inventories
  Goodwill, Intangible Assets, and Long-Lived Assets
   Revenue Recognition
   10




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##### 



Income Taxes
  DESCRIPTION OF BUSINESS SEGMENTS
  11




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##### 



Fiscal Year
    
    Percent Change2005
    
    2004
    
    2003
    
    Over prior period
    
    Fiscal Year(In thousands)
    
    2005
    
    2004
    
    2005
    
    2004
    
    2003Percentage of Net RevenuesNet RevenuesBar Code
    
    $
    11,633
    
    
    $
    10,875
    
    
    $
    9,776
    
    
    
    7.0
    %
    
    
    11.2
    %
    
    
    19
    %
    
    
    15
    %
    
    
    18
    %Military Boots
    
    
    26,827
    
    
    
    40,104
    
    
    
    22,272
    
    
    
    (33.1
    )%
    
    
    80.0
    %
    
    
    43
    %
    
    
    57
    %
    
    
    41
    %Western/Work Boots
    
    
    23,618
    
    
    
    20,169
    
    
    
    22,618
    
    
    
    17.1
    %
    
    
    (10.8
    )%
    
    
    38
    %
    
    
    28
    %
    
    
    41
    %Eliminations/Other
    
    
    326
    
    
    
    (652
    )
    
    
    (165
    )
    
    NM
    
    NM
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Consolidated
    
    $
    62,404
    
    
    $
    70,496
    
    
    $
    54,501
    
    
    
    (11.5
    )%
    
    
    29.3
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Gross Profit PercentageGross ProfitBar Code
    
    $
    3,079
    
    
    $
    3,225
    
    
    $
    2,619
    
    
    
    (4.6
    )%
    
    
    23.2
    %
    
    
    26
    %
    
    
    30
    %
    
    
    27
    %Military Boots
    
    
    3,444
    
    
    
    6,632
    
    
    
    4,772
    
    
    
    (48.1
    )%
    
    
    39.0
    %
    
    
    13
    %
    
    
    16
    %
    
    
    21
    %Western/Work Boots
    
    
    7,894
    
    
    
    4,961
    
    
    
    5,743
    
    
    
    59.1
    %
    
    
    (13.6
    )%
    
    
    33
    %
    
    
    25
    %
    
    
    25
    %Eliminations/Other
    
    
    306
    
    
    
    166
    
    
    
    285
    
    
    NM
    
    NM
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Consolidated
    
    $
    14,723
    
    
    $
    14,984
    
    
    $
    13,419
    
    
    
    (1.7
    )%
    
    
    11.7
    %
    
    
    24
    %
    
    
    21
    %
    
    
    25
    %Percentage of Net RevenuesSelling, General and
Administrative expenseBar Code
    
    $
    4,666
    
    
    $
    4,322
    
    
    $
    4,155
    
    
    
    8.0
    %
    
    
    4.0
    %
    
    
    40
    %
    
    
    40
    %
    
    
    43
    %Military Boots
    
    
    2,181
    
    
    
    1,485
    
    
    
    997
    
    
    
    46.9
    %
    
    
    48.9
    %
    
    
    8
    %
    
    
    4
    %
    
    
    4
    %Western/Work Boots
    
    
    5,254
    
    
    
    4,612
    
    
    
    4,550
    
    
    
    13.9
    %
    
    
    1.4
    %
    
    
    22
    %
    
    
    23
    %
    
    
    20
    %Eliminations/Other
    
    
    165
    
    
    
    194
    
    
    
    156
    
    
    NM
    
    NM
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Consolidated
    
    $
    12,266
    
    
    $
    10,613
    
    
    $
    9,858
    
    
    
    15.6
    %
    
    
    7.7
    %
    
    
    20
    %
    
    
    15
    %
    
    
    18
    %Percentage of Net RevenuesOperating Profit (Loss)Bar Code
    
    $
    (1,587
    )
    
    $
    (1,097
    )
    
    $
    (1,536
    )
    
    
    (44.7
    )%
    
    
    28.6
    %
    
    
    (14
    )%
    
    
    (10
    )%
    
    
    (16
    )%Military Boots
    
    
    1,263
    
    
    
    5,147
    
    
    
    3,775
    
    
    
    (75.5
    )%
    
    
    36.3
    %
    
    
    5
    %
    
    
    13
    %
    
    
    17
    %Western/Work Boots
    
    
    2,640
    
    
    
    349
    
    
    
    1,193
    
    
    
    656.4
    %
    
    
    (70.8
    )%
    
    
    11
    %
    
    
    2
    %
    
    
    5
    %Eliminations/Other
    
    
    141
    
    
    
    (28
    )
    
    
    129
    
    
    NM
    
    NM
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Consolidated
    
    $
    2,457
    
    
    $
    4,371
    
    
    $
    3,561
    
    
    
    (43.8
    )%
    
    
    22.7
    %
    
    
    4
    %
    
    
    6
    %
    
    
    7
    %
 CONSOLIDATED RESULTS OF CONTINUING OPERATIONS, FISCAL 2005 COMPARED TO FISCAL 2004
   12




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##### 



BAR CODE UNIT RESULTS OF OPERATIONS, FISCAL 2005 COMPARED TO FISCAL 2004
      MILITARY BOOT UNIT RESULTS OF OPERATIONS, FISCAL 2005 COMPARED TO FISCAL 2004
   13




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##### 



WESTERN AND WORK BOOT UNIT RESULTS OF OPERATIONS, FISCAL 2005 COMPARED TO FISCAL 2004
     14




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##### 



John Deere
 DISCONTINUED OPERATIONS, FISCAL 2005 COMPARED TO FISCAL 2004
     CONSOLIDATED RESULTS OF CONTINUING OPERATIONS, FISCAL 2004 COMPARED TO FISCAL 2003
  15




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##### 



BAR CODE UNIT RESULTS OF OPERATIONS, FISCAL 2004 COMPARED TO FISCAL 2003
     MILITARY BOOT UNIT RESULTS OF OPERATIONS, FISCAL 2004 COMPARED TO FISCAL 2003
   16




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##### 



WESTERN AND WORK BOOT UNIT RESULTS OF OPERATIONS, FISCAL 2004 COMPARED TO FISCAL 2003
     DISCONTINUED OPERATIONS, FISCAL 2004 COMPARED TO FISCAL 2003
     FINANCIAL CONDITION AND LIQUIDITY
  17




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##### 



OFF-BALANCE SHEET ARRANGEMENTS
  CONTRACTUAL OBLIGATIONS
  Commitment
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    ThereafterBank Loans  Fixed rate
    
    $
    180
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0Operating leases
    
    
    8
    
    
    
    4
    
    
    
    0
    
    
    
    0
    
    
    
    
    
    
    
    0Total
    
    $
    188
    
    
    $
    4
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
 18




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##### 



For Years EndedJuly 30, 2005
    
    
    July 31, 2004Source (Use) of CashOperating activitiesNet earnings adjusted for depreciation and amortization
    
    $
    4,013
    
    
    $
    3,539Accounts receivable
    
    
    1,101
    
    
    
    (3,472
    )Inventories
    
    
    2,089
    
    
    
    (1,893
    )Discontinued operations
    
    
    (2,864
    )
    
    
    433Net cash provided by operating activities
    
    
    3,410
    
    
    
    517Investing activitiesPurchase of trademarks
    
    
    (1,775
    )
    
    
    Proceeds from sale of business
    
    
    9,900
    
    
    
    Capital expenditures
    
    
    (193
    )
    
    
    (1,370
    )Financing activitiesProceeds from bank loan
    
    
    
    
    
    
    401Principal repayment of long-term debt
    
    
    3,529
    
    
    
    (583
    )Dividends paid
    
    
    606
    
    
    
    (463
    )
    INFLATION
  IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
   19




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##### 



FORWARD-LOOKING STATEMENTS
  ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  20




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##### 



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  1.
    Report of Independent Registered Public Accounting Firm
    
    222.
    McRae Industries, Inc. and Subsidiaries Consolidated Financial Statements:Consolidated Balance Sheets as of July 30, 2005 and July 31, 2004
    
    23-24Consolidated Statements of Operations for the Years Ended July 30, 2005,
July 31, 2004, and August 2, 2003
    
    25Consolidated Statements of Shareholders Equity for Years Ended July 30, 2005,
July 31, 2004, and August 2, 2003
    
    26Consolidated Statements of Cash Flows for the Years Ended July 30, 2005,
July 31, 2004, and August 2, 2003
    
    27Notes to Consolidated Financial Statements
    
    28-422.
    Financial Statement Schedule:Schedule II
    
    43
 Schedules other than those listed above have been omitted because they are not applicable or
the required information is shown in financial statements or the notes thereto.
 21




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##### 



Report of Independent Registered Public Accounting Firm
 
       
 22




---



##### 



CONSOLIDATED BALANCE SHEETS  McRae Industries, Inc. and Subsidiaries
 (In Thousands)July 30,
    
    
    July 31,2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    9,238
    
    
    $
    2,463Accounts receivable, less allowances of $734,000 and
$339,000, respectively
    
    
    9,749
    
    
    
    11,245Notes receivable, current portion
    
    
    9
    
    
    
    25Inventories
    
    
    12,721
    
    
    
    14,810Income tax receivable
    
    
    840
    
    
    
    676Prepaid expenses and other current assets
    
    
    159
    
    
    
    271Asset held for sale  Waverly Plant
    
    
    325
    
    
    
    0Assets held for sale from discontinued operations
    
    
    0
    
    
    
    11,622Total current assets
    
    
    33,041
    
    
    
    41,112Property and equipment, net
    
    
    2,640
    
    
    
    3,342Other assets:Notes receivable, net of current portion
    
    
    36
    
    
    
    36Real estate held for investment
    
    
    1,882
    
    
    
    1,422Goodwill
    
    
    362
    
    
    
    362Amount due from split-dollar life insurance
    
    
    2,220
    
    
    
    2,220Trademarks
    
    
    2,824
    
    
    
    1,049Other
    
    
    5
    
    
    
    5Total other assets
    
    
    7,329
    
    
    
    5,094Total assets
    
    $
    43,010
    
    
    $
    49,548
  23




---



##### 



CONSOLIDATED BALANCE SHEETS  McRae Industries, Inc. and Subsidiaries
 (In Thousands)July 30,
    
    
    July 31,2005
    
    
    2004LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current portion of notes payable, banks
    
    $
    174
    
    
    $
    621Accounts payable
    
    
    3,793
    
    
    
    4,672Accrued employee benefits
    
    
    480
    
    
    
    524Accrued payroll and payroll taxes
    
    
    683
    
    
    
    865Liabilities associated with discontinued operations
    
    
    0
    
    
    
    4,587Other
    
    
    894
    
    
    
    1,049Total current liabilities
    
    
    6,024
    
    
    
    12,318Notes payable, banks, net of current portion
    
    
    0
    
    
    
    3,082Shareholders equity:Common Stock:Class A, $1 par value; authorized 5,000,000 shares;
issued and outstanding, 2,240,841 and 1,943,543
shares, respectively
    
    
    2,241
    
    
    
    1,943Class B, $1 par value; authorized 2,500,000 shares;
issued and outstanding, 527,658 and 824,956
shares, respectively
    
    
    527
    
    
    
    825Additional paid-in capital
    
    
    791
    
    
    
    791Retained earnings
    
    
    33,427
    
    
    
    30,589Total shareholders equity
    
    
    36,986
    
    
    
    34,148Total liabilities and shareholders equity
    
    $
    43,010
    
    
    $
    49,548
  24




---



##### 



CONSOLIDATED STATEMENTS OF OPERATIONS  McRae Industries, Inc. and Subsidiaries
 July 30,
    
    
    July 31,
    
    
    August 2,For years Ended
    
    2005
    
    
    2004
    
    
    2003Net revenues
    
    $
    62,404
    
    
    $
    70,496
    
    
    $
    54,501Cost of revenues
    
    
    47,681
    
    
    
    55,512
    
    
    
    41,101Gross profit
    
    
    14,723
    
    
    
    14,984
    
    
    
    13,400Selling, general and administrative expenses
    
    
    12,266
    
    
    
    10,613
    
    
    
    9,839Operating profit from continuing operations
    
    
    2,457
    
    
    
    4,371
    
    
    
    3,561Other income, net
    
    
    78
    
    
    
    329
    
    
    
    604Interest expense
    
    
    (44
    )
    
    
    (144
    )
    
    
    (175
    )Earnings from continuing operations before income
Taxes and minority interest
    
    
    2,491
    
    
    
    4,556
    
    
    
    3,990Provision for income taxes
    
    
    917
    
    
    
    1,352
    
    
    
    1,552Minority interest
    
    
    0
    
    
    
    2
    
    
    
    9Net earnings from continuing operations
    
    
    1,574
    
    
    
    3,206
    
    
    
    2,447Discontinued operations:Earnings (loss) from discontinued operations, net of
income tax (benefit) provision of $(161,000),
$(72,000), and $88,000 for 2005, 2004, and 2003.
    
    
    (274
    )
    
    
    (197
    )
    
    
    30Gain on sale of business, net of income tax provision
of $1,341,000
    
    
    2,144
    
    
    
    0
    
    
    
    0Net earnings
    
    $
    3,444
    
    
    $
    3,009
    
    
    $
    2,477Earnings per common share:Earnings per common share from continuing operations:Basic earnings per share:Class A
    
    
    1.09
    
    
    
    1.90
    
    
    
    1.53Class B
    
    
    0
    
    
    
    0
    
    
    
    0Diluted earnings per share:Class A
    
    
    .79
    
    
    
    1.32
    
    
    
    1.05Class B
    
    NA
    
    
    NA
    
    
    NAEarnings per common share from discontinued operations:Basic earnings per share:Class A
    
    
    .94
    
    
    
    (.10
    )
    
    
    .01Class B
    
    
    0
    
    
    
    0
    
    
    
    0Diluted earnings per share:Class A
    
    
    .67
    
    
    
    (.07
    )
    
    
    .01Class B
    
    NA
    

    
    NA
    
    
    NANet earnings per common share:Basic earnings per share:Class A
    
    
    2.03
    
    
    
    1.80
    
    
    
    1.54Class B
    
    
    0
    
    
    
    0
    
    
    
    0Diluted earnings per share:Class A
    
    
    1.46
    
    
    
    1.25
    
    
    
    1.06Class B
    
    NA
    
    
    NA
    
    
    NAWeighted average number of common shares outstanding:Class A
    
    
    1,993,172
    
    
    
    1,929,965
    
    
    
    1,898,908Class B
    
    
    775,327
    
    
    
    838,534
    
    
    
    869,591Total
    
    
    2,768,499
    
    
    
    2,768,499
    
    
    
    2,768,499
  25




---



##### 



CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY  McRae Industries, Inc and Subsidiaries
 (Dollars in thousands)Common Stock, $1 par valueClass A
    
    Class B
    
    Additional
    
    RetainedShares
    
    Amount
    
    Shares
    
    Amount
    
    Paid-in Capital
    
    EarningsBalance, August 3, 2002
    
    
    1,879,072
    
    
    $
    1,879
    
    
    
    889,427
    
    
    $
    889
    
    
    $
    791
    
    
    $
    26,022Conversion of Class B to Class A
Stock
    
    
    35,900
    
    
    
    36
    
    
    
    (35,900
    )
    
    
    (36
    )Cash Dividend ($.24 per Class A
common stock)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (456
    )Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,477Balance, August 2, 2003
    
    
    1,914,972
    
    
    
    1,915
    
    
    
    853,527
    
    
    
    853
    
    
    
    791
    
    
    
    28,043Conversion of Class B to Class A
stock
    
    
    28,571
    
    
    
    28
    
    
    
    (28,571
    )
    
    
    (28
    )Cash Dividend ($.24 per Class A
common stock)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (463
    )Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,009As restated (Note 15)Balance, July 31, 2004
    
    
    1,943,543
    
    
    
    1,943
    
    
    
    824,956
    
    
    
    825
    
    
    
    791
    
    
    $
    30,589Conversion of Class B to Class A
Stock
    
    
    297,298
    
    
    
    298
    
    
    
    (297,298
    )
    
    
    (298
    )Cash Dividend ($.30 per Class A
common stock)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (606
    )Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,444Balance, July 30, 2005
    
    
    2,240,841
    
    
    $
    2,241
    
    
    
    527,658
    
    
    $
    527
    
    
    $
    791
    
    
    $
    33,427
  26




---



##### 



CONSOLIDATED STATEMENTS OF CASH FLOWS  McRae Industries, Inc. and Subsidiaries
 (In thousands)July 30,
    
    
    July 31,
    
    
    August 2,For years Ended
    
    2005
    
    
    2004
    
    
    2003Cash Flows from Operating Activities:Net earnings
    
    $
    3,444
    
    
    $
    3,009
    
    
    $
    2,477Adjustments to reconcile net earnings to net cash
provided by operating activities:Net earnings from discontinued operations
    
    
    (1,870
    )
    
    
    197
    
    
    
    (30
    )Depreciation and amortization
    
    
    569
    
    
    
    530
    
    
    
    614Minority shareholders interest in earnings (loss) of
Subsidiary
    
    
    
    
    
    
    (2
    )
    
    
    (9
    )Gain on sale of assets
    
    
    138
    
    
    
    (73
    )
    
    
    (326
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    1,101
    
    
    
    (3,472
    )
    
    
    (665
    )Accounts receivable valuation allowances
    
    
    395
    
    
    
    (92
    )
    
    
    82Inventories
    
    
    2,089
    
    
    
    (1,893
    )
    
    
    (1,306
    )Prepaid expenses and other current assets
    
    
    (38
    )
    
    
    (139
    )
    
    
    72Accounts payable
    
    
    (879
    )
    
    
    2,093
    
    
    
    273Accrued employee benefits
    
    
    (44
    )
    
    
    97
    
    
    
    (48
    )Accrued payroll and payroll taxes
    
    
    (182
    )
    
    
    (38
    )
    
    
    160Income taxes
    
    
    (164
    )
    
    
    41
    
    
    
    (57
    )Working capital changes associated with discontinued
Operations
    
    
    (994
    )
    
    
    236
    
    
    
    (26
    )Other
    
    
    (155
    )
    
    
    23
    
    
    
    (42
    )Net cash provided by operating activities
    
    
    3,410
    
    
    
    517
    
    
    
    1,169Cash Flows from Investing Activities:Proceeds from sale of business
    
    
    9,900
    
    
    
    
    
    
    
    Proceeds from sale of property
    
    
    12
    
    
    
    142
    
    
    
    377Proceeds from sale of short term investments
    
    
    
    
    
    
    
    
    
    
    18Purchase of other assets
    
    
    (460
    )
    
    
    
    
    
    
    (150
    )Purchase of trademarks
    
    
    (1,775
    )
    
    
    
    
    
    
    Purchase of minority interest
    
    
    
    
    
    
    (85
    )
    
    
    Capital expenditures
    
    
    (193
    )
    
    
    (1,370
    )
    
    
    (249
    )Collections on notes receivable
    
    
    16
    
    
    
    68
    
    
    
    73Net cash provided by (used in) investing activities
    
    
    7,500
    
    
    
    (1,245
    )
    
    
    69Cash Flows from Financing Activities:Proceeds from bank loan
    
    
    
    
    
    
    401
    
    
    
    Principal repayments of long-term debt
    
    
    (3,529
    )
    
    
    (582
    )
    
    
    (542
    )Dividends paid
    
    
    (606
    )
    
    
    (463
    )
    
    
    (456
    )Net cash used in financing activities
    
    
    (4,135
    )
    
    
    (644
    )
    
    
    (998
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    6,775
    
    
    
    (1,372
    )
    
    
    240Cash and Cash Equivalents at Beginning of Year
    
    
    2,463
    
    
    
    3,835
    
    
    
    3,595Cash and Cash Equivalents at End of Year
    
    $
    9,238
    
    
    $
    2,463
    
    
    $
    3,835
 Note:
    
    Accounts receivable for fiscal 2005 contains a non-cash activity in the amount of
$894,000 related to the sale of our office products business.
  27




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  McRae Industries, Inc. and Subsidiaries
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation
  Use of Estimates
  Cash and Cash Equivalents
  Accounts Receivable
  Inventories
  28




---



##### 



Property and Equipment
  Revenue Recognition
      2005
    
    2004
    
    2003Lease Income
    
    $
    3,000
    
    
    $
    251,000
    
    
    $
    415,000Financing of Receivables
    
    
    17,000
    
    
    
    26,000
    
    
    
    38,000Maintenance Contracts
    
    
    155,000
    
    
    
    1,180,000
    
    
    
    1,365,000
   29




---



##### 



Intangible Assets
   Income Taxes
  Earnings per Share
      Recently Issued Accounting Standards
  30




---



##### 



Research and Development
  Advertising
  Shipping and Handling
  Reclassification
  31




---



##### 



Split-Dollar Life Insurance
  Real Estate Held for Investment
  Related Party Transactions
  Assets Subject to Liens
  2. INVENTORIES
  (In Thousands)Fiscal Year Ended2004As Restated2005
    
    (Note 15)Raw materials
    
    $
    2,217
    
    
    $
    3,883Work-in-process
    
    
    446
    
    
    
    2,385Finished goods
    
    
    10,058
    
    
    
    8,542$
    12,721
    
    
    $
    14,810
 32




---



##### 



3. PROPERTY AND EQUIPMENT
 (In Thousands)Fiscal Year Ended2005
    
    2004Land and improvements
    
    $
    664
    
    
    $
    679Buildings
    
    
    3,796
    
    
    
    4,297Machinery and equipment
    
    
    3,877
    
    
    
    4,159Furniture and fixtures
    
    
    1,457
    
    
    
    1,6389,794
    
    
    
    10,773Less: Accumulated depreciation
    
    
    7,154
    
    
    
    7,431$
    2,640
    
    
    $
    3,342
  4. NOTES PAYABLE AND LINES OF CREDIT
 NOTES PAYABLE:
 (In Thousands)Fiscal Year EndedJuly 30, 2005
    
    July 31, 2004Note payable, bank, due in monthly installments of $56,477
including interest at the prime rate less 0.5% (3.75% as of
July 31, 2004) through July 2011. Repaid in fiscal 2005.
    
    $
    0
    
    
    $
    3,114Note payable, State of Tennessee, due March 2013. Note is payable
in 60 monthly installments of $1,930 including interest at
1.5%, then 60 monthly installments of $2,073 including interest
at 2.5% and then 120 monthly installments of $2,175 including
interest at 3.5%. Land, buildings and building improvements of
the Companys Dan Post subsidiary, are pledged as collateral.
    
    
    174
    
    
    
    193Note payable, bank, due in 59 monthly installments of $4,460
including interest at the prime rate less 0.5% (3.75% as of
July 31, 2004) commencing on July 2, 2004 and 1 final payment
of all unpaid principal and interest due on June 2, 2009.
Repaid in fiscal 2005.
    
    
    0
    
    
    
    396Current portion
    
    
    174
    
    
    
    3,703174
    
    
    
    621$
    0
    
    
    $
    3,082
  LINES OF CREDIT:
   33




---



##### 



5. EMPLOYEE BENEFIT PLANS
     6. INCOME TAXES
  2005
    
    2004
    
    2003Current expense (benefit)Federal
    
    $
    732
    
    
    $
    971
    
    
    $
    1,399State
    
    
    83
    
    
    
    227
    
    
    
    218815
    
    
    
    1,198
    
    
    
    1,617Deferred expense (benefit)Federal
    
    
    87
    
    
    
    131
    
    
    
    (55
    )State
    
    
    15
    
    
    
    23
    
    
    
    (10
    )$
    917
    
    
    $
    1,352
    
    
    $
    1,552
  2005
    
    2004
    
    2003Depreciation
    
    $
    (16
    )
    
    $
    201
    
    
    $
    (39
    )Accrued employee benefits
    
    
    17
    
    
    
    (37
    )
    
    
    18Allowances for doubtful accounts
    
    
    (22
    )
    
    
    35
    
    
    
    (31
    )Inventory
    
    
    47
    
    
    
    (29
    )
    
    
    (29
    )State net operating loss carry forward
    
    
    (6
    )
    
    
    (12
    )
    
    
    (115
    )Other
    
    
    82
    
    
    
    (4
    )
    
    
    131Deferred income taxes, expense (benefit)
    
    $
    102
    
    
    $
    154
    
    
    $
    (65
    )
 34




---



##### 



2005
    
    
    2004Deferred tax liabilitiesDepreciation
    
    $
    (98
    )
    
    $
    (41
    )Total deferred tax liabilities
    
    $
    (98
    )
    
    $
    (41
    )Deferred tax assetsDepreciation
    
    
    0
    
    
    
    0Accrued employee benefits
    
    
    182
    
    
    
    199Allowances for doubtful accounts
    
    
    150
    
    
    
    129Inventory
    
    
    76
    
    
    
    124State net operating loss carry forward
    
    
    133
    
    
    
    127Other
    
    
    208
    
    
    
    84Total deferred tax asset
    
    
    749
    
    
    
    663Net deferred tax asset
    
    $
    651
    
    
    $
    622
   2005
    
    
    2004
    
    
    2003Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentTax at U.S. statutory rate
    
    $
    847
    
    
    
    34.0
    
    
    $
    1,549
    
    
    
    34.0
    
    
    $
    1,356
    
    
    
    34.0State income taxes, net of
federal tax benefit
    
    
    157
    
    
    
    6.3
    
    
    
    287
    
    
    
    6.3
    
    
    
    251
    
    
    
    6.3Other  net
    
    
    (87
    )
    
    
    (3.5
    )
    
    
    (484
    )
    
    
    (9.5
    )
    
    
    (55
    )
    
    
    (1.4
    )$
    917
    
    
    
    36.8
    
    
    $
    1,352
    
    
    
    30.8
    
    
    $
    1,552
    
    
    
    38.9
  7. COMMITMENTS AND CONTINGENCIES
 Lease Agreements
  Fiscal Year End:2006
    
    $
    82007
    
    
    42008
    
    
    02009
    
    
    02010
    
    
    0Thereafter$
    12
 35




---



##### 



Fiscal2006
    
    2007
    
    2008Lease Payments
    
    $
    50,000
    
    
    $
    83,333
    
    
    $
    7,500Facility Charges
    
    $
    56,291
    
    
    $
    56,291
    
    
    $
    4,691
 Minority Interest
  Concentrations
     Other
  8. SHAREHOLDERS EQUITY
 Common Stock
  36




---



##### 



9. FINANCIAL INSTRUMENTS
  Cash and Cash Equivalents:
 Notes Receivable:
 Split-Dollar Life Insurance:
 Long and Short-term Debt:
 (In thousands)Carrying
    
    FairAmount
    
    ValueAssetsCash and cash equivalents
    
    $
    9,238
    
    
    $
    9,238Notes receivable, current and long-term
    
    
    45
    
    
    
    45Amount due from split-dollar life insurance
    
    
    2,220
    
    
    
    2,220LiabilitiesLong and short-term debt
    
    
    174
    
    
    
    174
 37




---



##### 



10. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
  First
    
    Second
    
    Third
    
    FourthJuly 30, 2005Net revenues
    
    
    20,434
    
    
    
    15,525
    
    
    
    12,768
    
    
    
    13,677Gross profit
    
    
    4,592
    
    
    
    3,763
    
    
    
    3,011
    
    
    
    3,357Operating income from continuing operations
    
    
    1,212
    
    
    
    663
    
    
    
    294
    
    
    
    288Net earnings from continuing operations
    
    
    807
    
    
    
    484
    
    
    
    143
    
    
    
    140Net earnings per common shareBasic  Class A
    
    
    .48
    
    
    
    .33
    
    
    
    .15
    
    
    
    .15Basic  Class B
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Diluted  Class A
    
    
    .33
    
    
    
    .23
    
    
    
    .11
    
    
    
    .11Diluted  Class B
    
    NA
    
    
    NA
    
    
    NA
    
    
    NAJuly 31, 2004Net revenues
    
    $
    16,023
    
    
    $
    14,896
    
    
    $
    17,584
    
    
    $
    21,993Gross profit
    
    
    4,016
    
    
    
    2,941
    
    
    
    3,105
    
    
    
    4,922Operating income from continuing operations
    
    
    1,265
    
    
    
    172
    
    
    
    704
    
    
    
    2,230Net earnings from continuing operations
    
    
    823
    
    
    
    126
    
    
    
    479
    
    
    
    1,778Net earnings per common share:Basic  Class A
    
    
    .49
    
    
    
    .13
    
    
    
    .31
    
    
    
    .97Basic  Class B
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Diluted  Class A
    
    
    .34
    
    
    
    .09
    
    
    
    .21
    
    
    
    .68Diluted  Class B
    
    NA
    
    
    NA
    
    
    NA
    
    
    NA
 11. DISCOUNTINUED OPERATIONS
    38




---



##### 



(In thousands)July 30,
    
    
    July 31,2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    
    
    
    
    $
    1,371Accounts and note receivable
    
    
    
    
    
    
    1,358Inventories (net)
    
    
    
    
    
    
    4,602Current portion of lease receivable
    
    
    
    
    
    
    61Prepaid expenses
    
    
    
    
    
    
    70Total current assets
    
    
    
    
    
    
    7,462Property and equipment, net
    
    
    
    
    
    
    2,272Long term portion of net lease receivable and guaranteed
Residuals
    
    
    
    
    
    
    1,881Other assets
    
    
    
    
    
    
    7Assets held for sale
    
    
    
    
    
    $
    11,622
 (In thousands)July 30,
    
    
    July 31,2005
    
    
    2004LIABILITIESCurrent liabilities:Accounts payable
    
    
    
    
    
    $
    1,584Contract contingencies
    
    
    
    
    
    
    291Accrued payroll and payroll taxes
    
    
    
    
    
    
    10Other accrued liabilities
    
    
    
    
    
    
    139Total current liabilities
    
    
    
    
    
    
    2,024Lease guarantees
    
    
    
    
    
    
    1,817Deferred service revenue
    
    
    
    
    
    
    746Liabilities held for sale
    
    
    
    
    
    $
    4,587
  39




---



##### 



(In thousands)Fiscal Year Ended2005
    
    2004
    
    2003Net revenues
    
    $
    1,293
    
    
    $
    23,873
    
    
    $
    22,541Gross profit
    
    
    141
    
    
    
    6,023
    
    
    
    5,982Selling, general and administrative expense
    
    
    632
    
    
    
    6,134
    
    
    
    5,751Operating loss (profit)
    
    
    (491
    )
    
    
    (111
    )
    
    
    231
 12. SUBSEQUENT EVENTS
        40




---



##### 



13. RELATED PARTY TRANSACTIONS
  14. OPERATING SEGMENT INFORMATION
  41




---



##### 



Western/Military
    
    Work
    
    Bar
    
    CorporateBoots
    
    Boots
    
    Code
    
    & Other
    
    ConsolidatedFor the year Ended July 30, 2005Net revenues
    
    $
    26,827
    
    
    $
    23,618
    
    
    $
    11,633
    
    
    $
    326
    
    
    $
    62,404Operating profit (loss) from continuing
Operations
    
    
    1,263
    
    
    
    2,640
    
    
    
    (1,587
    )
    
    
    141
    
    
    
    2,457Identifiable assets
    
    
    4,577
    
    
    
    18,305
    
    
    
    5,584
    
    
    
    14,707
    
    
    
    43,173Capital Expenditures
    
    
    24
    
    
    
    68
    
    
    
    87
    
    
    
    14
    
    
    
    193Depreciation expense and amortization
    
    
    247
    
    
    
    100
    
    
    
    103
    
    
    
    119
    
    
    
    569Income tax provision (benefit)
    
    
    455
    
    
    
    750
    
    
    
    (558
    )
    
    
    270
    
    
    
    917For the Year Ended July 31, 2004Net revenues
    
    $
    40,104
    
    
    $
    20,169
    
    
    $
    10,875
    
    
    $
    (652
    )
    
    $
    70,496Operating profit (loss) from continuing
Operations
    
    
    5,147
    
    
    
    349
    
    
    
    (1,097
    )
    
    
    (28
    )
    
    
    4,371Identifiable assets
    
    
    12,902
    
    
    
    13,396
    
    
    
    4,810
    
    
    
    18,440
    
    
    
    49,548Capital Expenditures
    
    
    1,097
    
    
    
    101
    
    
    
    120
    
    
    
    52
    
    
    
    1,370Depreciation expense and amortization
    
    
    161
    
    
    
    154
    
    
    
    59
    
    
    
    156
    
    
    
    530Income tax provision (benefit)
    
    
    1,978
    
    
    
    (96
    )
    
    
    (379
    )
    
    
    (151
    )
    
    
    1,352For the Year Ended August 2, 2003Net revenues
    
    $
    22,272
    
    
    $
    22,618
    
    
    $
    9,776
    
    
    $
    (165
    )
    
    $
    54,501Operating profit (loss) from continuing
Operations
    
    
    3,775
    
    
    
    1,193
    
    
    
    (1,536
    )
    
    
    129
    
    
    
    3,561Identifiable assets
    
    
    6,328
    
    
    
    14,214
    
    
    
    4,987
    
    
    
    20,620
    
    
    
    46,149Capital Expenditures
    
    
    84
    
    
    
    84
    
    
    
    52
    
    
    
    29
    
    
    
    249Depreciation expense and amortization
    
    
    81
    
    
    
    162
    
    
    
    191
    
    
    
    180
    
    
    
    614Income tax provision (benefit)
    
    
    1,446
    
    
    
    192
    
    
    
    (531
    )
    
    
    445
    
    
    
    1,552
 42




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##### 



15. RESTATEMENT OF FINANCIAL STATEMENTS
  AsPreviously
    
    AsReported
    
    RestatedBalance SheetInventories
    
    $
    15,739
    
    
    $
    14,810Income tax receivable
    
    
    364
    
    
    
    676Accrued employee benefits
    
    
    607
    
    
    
    524Retained earnings
    
    
    31,123
    
    
    
    30,589Statement of Operations:Cost of revenues
    
    
    54,563
    
    
    
    55,512Gross profit
    
    
    15,933
    
    
    
    14,984Selling, general & administrative expenses
    
    
    10,716
    
    
    
    10,613Earnings from continuing operations before income taxes
And minority interest
    
    
    5,402
    
    
    
    4,556Provision for income taxes
    
    
    1,664
    
    
    
    1,352Net earnings from continuing operations
    
    
    3,740
    
    
    
    3,206Net earnings
    
    
    3,543
    
    
    
    3,009Earnings per share:Earnings per common share from continuing operations:Basic earnings per share:Class A
    
    
    2.18
    
    
    
    1.90Class B
    
    
    0
    
    
    
    0Diluted earnings per share:Class A
    
    
    1.52
    
    
    
    1.32Class B
    
    
    NA
    
    
    
    NANet earnings per common share:Basic earnings per share:Class A
    
    
    2.07
    
    
    
    1.80Class B
    
    
    0
    
    
    
    0Diluted earnings per share:Class A
    
    
    1.45
    
    
    
    1.25Class B
    
    
    NA
    
    
    
    NA
 43




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##### 



McRAE INDUSTRIES, INC. AND SUBSIDIARIES
 SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
 ADDITIONSCHARGED
    
    CHARGED TOBALANCE AT
    
    TO COSTS
    
    OTHER
    
    
    
    
    
    BALANCE ATBEGINNING
    
    AND
    
    ACCOUNTS 
    
    DEDUCTIONS 
    
    END OFDESCRIPTION
    
    OF PERIOD
    
    EXPENSES
    
    DESCRIBE
    
    DESCRIBE
    
    PERIODYear ended July 30, 2005Allowance for Doubtful Accounts
    
    
    339,000
    
    
    
    33,000
    
    
    
    570,000
    (4)
    
    
    (208,000
    )(1)
    
    
    734,000Allowance for Inventory Write-
downs
    
    
    325,000
    
    
    
    (124,000
    )
    
    
    
    
    
    
    
    
    
    
    201,000Employee Benefit Accrual
    
    
    524,000
    
    
    
    417,000
    
    
    
    13,000
    (3)
    
    
    (474,000
    )(2)
    
    
    480,000Health Insurance Accrual
    
    
    270,000
    
    
    
    (43,000
    )
    
    
    
    
    
    
    
    
    
    
    227,000Year ended July 31, 2004Allowance for Doubtful Accounts
    
    $
    431,000
    
    
    $
    314,000
    
    
    
    
    
    
    $
    (406,000
    )(1)
    
    $
    339,000Allowance for Inventory Write-
downs
    
    
    250,000
    
    
    
    75,000
    
    
    
    
    
    
    
    
    
    
    
    325,000Employee Benefit Accrual
    
    
    427,000
    
    
    
    463,000
    
    
    $
    10,000
    (3)
    
    
    (376,000
    )(2)
    
    
    524,000Health Insurance Accrual
    
    
    200,000
    
    
    
    70,000
    
    
    
    
    
    
    
    
    
    
    
    270,000Year ended August 2, 2003Allowance for Doubtful Accounts
    
    $
    349,000
    
    
    $
    87,000
    
    
    
    
    
    
    $
    (5,000
    )(1)
    
    $
    431,000Allowance for Inventory Write-
downs
    
    
    175,000
    
    
    
    75,000
    
    
    
    
    
    
    
    
    
    
    
    250,000Employee Benefit Accrual
    
    
    474,000
    
    
    
    359,000
    
    
    $
    (55,000
    )(3)
    
    
    (351,000
    )(2)
    
    
    427,000Health Insurance Accrual
    
    
    225,000
    
    
    
    (25,000
    )
    
    
    
    
    
    
    
    
    
    
    200,000
 
 (1)
    
    Uncollectible accounts written off(2)
    
    Payments and/or expenses charged to operations(3)
    
    Changes related to discontinued operations(4)
    
    Includes an allowance for purchased accounts receivable ($338,000) and an allowance for
sales returns ($232,000) ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL DISCLOSURE
  ITEM 9A. CONTROLS AND PROCEDURES
  44




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##### 



ITEM 9B. OTHER INFORMATION
  PART III
 ITEMS 10-14.
  45




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##### 



PART IV
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 (a) (1) Report of Independent Registered Public Accounting Firm McRae Industries, Inc. and
Subsidiaries consolidated financial statements:
 Consolidated Balance Sheets as of July 30, 2005 and July 31, 2004.Consolidated Statements of Operations for the Years Ended
July 30, 2005, July 31, 2004, and August 2, 2003.Consolidated Statements of Shareholders Equity for the
Years Ended July 30, 2005, July 31, 2004, and August 2, 2003.Consolidated Statements Cash Flows for the Years Ended
July 30, 2005, July 31, 2004, and August 2, 2003.Notes to Consolidated Financial Statements.(2)
    
    Financial Statement Schedule:Schedule II(3)
    
    Exhibits:3.1
    
    Certificate of Incorporation (Filed as Exhibit 3.1 to the Registrants Form S-14,
Registration N.2-85908).3.2
    
    Amendment to the Certificate of Incorporation (Filed as Exhibit 3 to the Registrants Form
10-K for the year ended August 1, 1987).3.3
    
    Restated Bylaws of the Registrant effective May 29, 2001 (Filed as Exhibit 3.3 to the
Registrants Form 10-K for the fiscal year ended July 28, 2001).10.1
    
    1985 McRae Industries, Inc. Non-Qualified Stock Option Plan (Filed as Exhibit 10 to the
Registrants Form 10-K for the fiscal year ended August 3, 1985).*10.2
    
    Technical Assistance Agreement dated September 13, 1984 between the Registrant and Ro-Search,
Incorporated (Filed as Exhibit 10.4 to the Registrants Form 10-K for the fiscal year ended
July 28, 1984).10.3
    
    Stock Purchase Agreement and Guaranty Agreement as of April 7, 1996 among Walter A. Dupuis,
Kenneth O. Moore, Williams Glover, and McRae Industries, Inc., (Filed as Exhibit 2 to the
Registrants current report on Form 8-K field May 11, 1996).10.4
    
    Split Dollar Life Insurance Arrangement (Filed as Exhibit 10.10 to the Registrants Form 10-K
for the fiscal year ended August 3, 2002).*10.5
    
    Award/Contract between Defense Personnel Support Center and McRae Industries, Inc., dated
April 15, 1997 (Filed as Exhibit 10.8 to the Registrants Form 10-K for the fiscal year ended
August 2, 1997).10.6
    
    Asset Purchase Agreement among the Company, McRae Office Solutions, Inc., TOPAC U.S.A., Inc.,
and Connected Office Products, Inc. dated September 9, 2004 (Filed as Exhibit 2.1 to the
Registrants Current Report on Form 8-K filed September 9, 2004).
 46




---



##### 



10.7
    
    Award/Contract between Defense Supply Center Philadelphia and McRae Industries, Inc. dated
September 30, 2003. (Filed as Exhibit 10.8 to the Registrants Form 10-K for the fiscal year
ended August 2, 2003).10.8
    
    Asset Purchase Agreement between McRae Industries, Inc. and Texas Boot, Inc. (Filed as
Exhibit 2.1 to the Registrants Current Report on Form 8-K filed June 29, 2005).21.
    
    Subsidiaries of the Registrant (Filed herein). Page 50.23.
    
    Consent of Independent Registered Public Accounting Firm (Filed herein). Page 51.31.1
    
    Rule 13a-14(a)/15d-14(a) Certification for D. Gary McRae, President and CEO (Filed herein).
Page 52.31.2
    
    Rule 13a-14(a)/15d-14(a) Certification for Marvin G. Kiser, Sr., Vice President of Finance
(Filed herein). Page 53.32.1
    
    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 54.32.2
    
    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 55.
 
 *
    
    Denotes a management contract or compensatory plan or arrangement. 47




---



##### 



SIGNATURES
  McRAE INDUSTRIES, INC.Dated: October 28, 2005
    By:
    /s/ D. Gary McRaeD. Gary McRaePresident  SIGNATURE
    
    DATE/s/ D. Gary McRae

President, Treasurer, and Director
(Principal Executive Officer)
    
    October 28, 2005/s/ William H. Swan

William H. Swan
Director
    
    October 28, 2005/s/ Hilton J. Cochran

Hilton J. Cochran
Director
    
    October 28, 2005/s/ Brady W. Dickson

Brady W. Dickson
Director
    
    October 28, 2005/s/ Victor A. Karam

Victor A. Karam
President  McRae Footwear and Director
    
    October 28, 2005/s/ James W. McRae

James W. McRae
Vice President, Secretary, and Director
    
    October 28, 2005/s/ Marvin G. Kiser, Sr.

Marvin G. Kiser, Sr.
Vice President of Finance and Director
(Principal Financial and Accounting Officer)
    
    October 28, 2005
 48




---



##### 



EXHIBIT INDEX
 3.1
    
    Certificate of Incorporation (Filed as Exhibit 3.1 to the Registrants Form S-14,
Registration N.2-85908).3.2
    
    Amendment to the Certificate of Incorporation (Filed as Exhibit 3 to the Registrants Form
10-K for the year ended August 1, 1987).3.3
    
    Restated Bylaws of the Registrant effective May 29, 2001 (Filed as Exhibit 3.3 to the
Registrants For 10-K for the fiscal year ended July 28, 2001).10.1
    
    1985 McRae Industries, Inc. Non-Qualified Stock Option Plan (Field as Exhibit 10 to the
Registrants Form 10-K for the fiscal year ended July 28, 2001).10.2
    
    Technical Assistance Agreement dated September 13, 1984 between the Registrant and Ro-Search,
Incorporated (Filed as Exhibit 10.4 to the Registrants Form 10-K for the fiscal year ended
July 28, 1984).10.3
    
    Stock Purchase Agreement and Guaranty Agreement as of April 7, 1996 among Walter A. Dupuis,
Kenneth O. Moore, Williams Glover, and McRae Industries, Inc., (Filed as Exhibit 2 to the
Registrants current report on Form 8-K field May 11, 1996).10.4
    
    Split Dollar Life Insurance Arrangement (Filed as Exhibit 10.10 to the Registrants Form 10-K
for the fiscal year ended August 3, 2002).*10.5
    
    Award/Contract between Defense Personnel Support Center and McRae Industries, Inc., dated
April 15, 1997 (Filed as Exhibit 10.8 to the Registrants Form 10-K for the fiscal year ended
August 2, 1997).10.6
    
    Asset Purchase Agreement among the Company, McRae Office Solutions, Inc., TOPAC U.S.A., Inc.,
and Connected Office Products, Inc. dated September 9, 2004 (Filed as Exhibit 2.1 to the
Registrants Current Report on Form 8-K filed September 9, 2004).10.7
    
    Award/Contract between Defense Supply Center Philadelphia and McRae Industries, Inc. dated
September 30, 2003. (Filed as Exhibit 10.8 to the Registrants Form 10-K for the fiscal year
ended August 2, 2003).10.8
    
    Asset Purchase Agreement between McRae Industries, Inc. and Texas Boot, Inc. (Filed as
Exhibit 2.1 to the Registrants Current Report on Form 8-K filed June 29, 2005).21.
    
    Subsidiaries of the Registrant (Filed herein). Page 50.23.
    
    Consent of Independent Registered Public Accounting Firm (Filed herein). Page 51.31.3
    
    Rule 13a-14(a)/15d-14(a) Certification for D. Gary McRae, President and CEO (Filed herein).
Page 52.31.4
    
    Rule 13a-14(a)/15d-14(a) Certification for Marvin G. Kiser, Sr., Vice President of Finance
(Filed herein). Page 53.32.3
    
    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 54.32.4
    
    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 55.
 
 *
    
    Denotes a management contract or compensatory plan or arrangement. 49