##### Table of Contents



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 quarterly period ended October 1, 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 001-08769
 R.
G. BARRY CORPORATION
  OHIO
    
    31-4362899(State or other jurisdiction
of incorporation or organization)
    
    (IRS Employer
Identification Number)
 13405 Yarmouth Road NW, Pickerington, Ohio
    
    43147(Address of principal executive offices)
    
    (Zip Code)
 614-864-6400
 NOT APPLICABLE
  þ o
  o þ
  o þ
      - Page 1 -




---



TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONITEM 1  FINANCIAL STATEMENTSITEM 2  Managements Discussion and Analysis of Financial Condition and Results of OperationsITEM 3  Quantitative and Qualitative Disclosures About Market RiskITEM 4  Controls and ProceduresPART II  OTHER INFORMATIONItem 1. Legal ProceedingsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. ExhibitsSIGNATURESINDEX TO EXHIBITSEX-31.1EX-31.2EX-32.1    Table of Contents  
  
 
 October 1, 2005
    
    
    January 1, 2005(unaudited)(in thousands)ASSETS:Cash
    
    $
    1,292
    
    
    $
    958Accounts receivable:Trade (less allowances of
$8,072 and $12,095, respectively)
    
    
    24,936
    
    
    
    9,244Other
    
    
    445
    
    
    
    897Assets held for disposal
    
    
    124
    
    
    
    Inventory
    
    
    30,018
    
    
    
    20,192Prepaid expenses
    
    
    1,430
    
    
    
    1,791Total current assets
    
    
    58,245
    
    
    
    33,082Property, plant and equipment, at cost
    
    
    13,013
    
    
    
    13,705Less accumulated depreciation and amortization
    
    
    10,464
    
    
    
    10,987Net property, plant and equipment
    
    
    2,549
    
    
    
    2,718Other assets
    
    
    3,252
    
    
    
    3,292Total assets
    
    $
    64,046
    
    
    $
    39,092LIABILITIES AND SHAREHOLDERS EQUITY:Short-term notes payable
    
    
    24,207
    
    
    
    4,901Current installments of long-term debt
    
    
    770
    
    
    
    1,721Accounts payable
    
    
    10,870
    
    
    
    5,200Accrued expenses
    
    
    5,109
    
    
    
    6,387Total current liabilities
    
    
    40,956
    
    
    
    18,209Accrued retirement costs and other
    
    
    14,137
    
    
    
    15,426Long-term debt, excluding current installments
    
    
    604
    
    
    
    479Total liabilities
    
    
    55,697
    
    
    
    34,114Shareholders equity:Preferred shares, $1 par value per shareAuthorized 3,775 Class A shares,
225 Series I Junior Participating Class A Shares,
and 1,000 Class B Shares, none issued
    
    
    
    
    
    
    Common shares, $1 par value per shareAuthorized 22,500 shares; issued and outstanding
9,915 and 9,836 shares (excluding treasury
shares of 910 and 912)
    
    
    9,915
    
    
    
    9,836Additional capital in excess of par value
    
    
    13,032
    
    
    
    12,851Deferred compensation
    
    
    
    
    
    
    (19
    )Accumulated other comprehensive loss
    
    
    (4,158
    )
    
    
    (3,981
    )Accumulated deficit
    
    
    (10,440
    )
    
    
    (13,709
    )Net shareholders equity
    
    
    8,349
    
    
    
    4,978Total Liabilities and Shareholders Equity
    
    $
    64,046
    
    
    $
    39,092
 - Page 2 -




---



##### Table of Contents



Thirteen weeks ended
    
    
    Thirty-nine weeks endedOctober 1, 2005
    
    
    October 2, 2004
    
    
    October 1, 2005
    
    
    October 2, 2004(unaudited)(in thousands, except per share amounts)Net sales
    
    $
    35,436
    
    
    $
    34,573
    
    
    $
    68,645
    
    
    $
    67,519Cost of sales
    
    
    21,112
    
    
    
    21,738
    
    
    
    40,655
    
    
    
    45,138Gross profit
    
    
    14,324
    
    
    
    12,835
    
    
    
    27,990
    
    
    
    22,381Selling, general and
administrative expenses
    
    
    9,347
    
    
    
    9,748
    
    
    
    23,540
    
    
    
    29,802Restructuring and asset
impairment charges
    
    
    529
    
    
    
    4,216
    
    
    
    879
    
    
    
    16,117Operating profit (loss)
    
    
    4,448
    
    
    
    (1,129
    )
    
    
    3,571
    
    
    
    (23,538
    )Other income
    
    
    139
    
    
    
    45
    
    
    
    229
    
    
    
    135Interest expense, net
    
    
    (301
    )
    
    
    (396
    )
    
    
    (540
    )
    
    
    (928
    )Income (loss) from
continuing operations
before income tax and
minority interest
    
    
    4,286
    
    
    
    (1,480
    )
    
    
    3,260
    
    
    
    (24,331
    )Income tax (expense) benefit
    
    
    (26
    )
    
    
    57
    
    
    
    (83
    )
    
    
    (171
    )Minority interest in income
of consolidated
subsidiaries, net of tax
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (12
    )Income (loss) from
continuing operations
    
    
    4,260
    
    
    
    (1,426
    )
    
    
    3,177
    
    
    
    (24,514
    )Earnings from discontinued
operations, net of income
taxes
    
    
    24
    
    
    
    314
    
    
    
    92
    
    
    
    330Net earnings (loss)
    
    $
    4,284
    
    
    $
    (1,112
    )
    
    $
    3,269
    
    
    $
    (24,184
    )Earnings (loss) per common
share: continuing
operationsBasic
    
    $
    0.43
    
    
    $
    (0.14
    )
    
    $
    0.32
    
    
    $
    (2.49
    )Diluted
    
    $
    0.42
    
    
    $
    (0.14
    )
    
    $
    0.32
    
    
    $
    (2.49
    )Earnings per common
share: discontinued
operationsBasic
    
    $
    0.00
    
    
    $
    0.03
    
    
    $
    0.01
    
    
    $
    0.03Diluted
    
    $
    0.00
    
    
    $
    0.03
    
    
    $
    0.01
    
    
    $
    0.03Earnings (loss) per common
shareBasic
    
    $
    0.43
    
    
    $
    (0.11
    )
    
    $
    0.33
    
    
    $
    (2.46
    )Diluted
    
    $
    0.42
    
    
    $
    (0.11
    )
    
    $
    0.33
    
    
    $
    (2.46
    )Average number of common
shares outstandingBasic
    
    
    9,878
    
    
    
    9,839
    
    
    
    9,852
    
    
    
    9,839Diluted
    
    
    10,201
    
    
    
    9,839
    
    
    
    10,060
    
    
    
    9,839
 - Page 3 -




---



##### Table of Contents



Thirty-nine weeks endedOctober 1, 2005
    
    
    October 2, 2004(unaudited)(in thousands)Operating activities:Net earnings (loss)
    
    $
    3,269
    
    
    $
    (24,184
    )Earnings from discontinued operations, net of income taxes
    
    
    92
    
    
    
    330Income (loss) from continuing operations
    
    
    3,177
    
    
    
    (24,514
    )Adjustments to reconcile net earnings (loss) from continuing
operations to net cash used in operating activities:Depreciation and amortization of property, plant and
equipment
    
    
    436
    
    
    
    1,122Asset impairment loss
    
    
    
    
    
    
    7,172Amortization of deferred compensation
    
    
    3
    
    
    
    56Loss on disposal of property, plant and equipment
    
    
    57
    
    
    
    19Minority interest in income of consolidated subsidiaries,
net of tax
    
    
    
    
    
    
    12Changes in:Accounts receivable, net
    
    
    (15,415
    )
    
    
    (18,730
    )Inventory
    
    
    (10,038
    )
    
    
    3,221Prepaid expenses and other
    
    
    276
    
    
    
    1,993Accounts payable
    
    
    5,752
    
    
    
    1,774Accrued expenses
    
    
    (1,222
    )
    
    
    2,405Accrued retirement costs and other, net
    
    
    (1,243
    )
    
    
    (540
    )Net cash used in continuing operations
    
    
    (18,217
    )
    
    
    (26,010
    )Net cash provided by (used in) discontinued operations
    
    
    92
    
    
    
    (219
    )Net cash used in operating activities
    
    
    (18,125
    )
    
    
    (26,229
    )Investing activities:Purchases of property, plant and equipment
    
    
    (363
    )
    
    
    (111
    )Proceeds from the sale of property, plant and equipment
    
    
    15
    
    
    
    962Net cash provided by (used in) investing activities
    
    
    (348
    )
    
    
    851Financing activities:Proceeds from short-term notes, net
    
    
    18,404
    
    
    
    37,898Repayments of short-term bank notes
    
    
    
    
    
    
    (10,204
    )Proceeds from common shares issued
    
    
    260
    
    
    
    2Long-term debt
    
    
    495
    
    
    
    Repayment of long-term debt
    
    
    (325
    )
    
    
    (3,522
    )Net cash provided by financing activities
    
    
    18,834
    
    
    
    24,174Effect of exchange rates on cash
    
    
    (27
    )
    
    
    7Net increase (decrease) in cash
    
    
    334
    
    
    
    (1,197
    )Cash at the beginning of the period
    
    
    958
    
    
    
    2,012Cash at the end of the period
    
    $
    1,292
    
    
    $
    815Supplemental cash flow disclosures:Interest paid
    
    $
    323
    
    
    $
    904Income taxes (received) paid, net
    
    $
    (9
    )
    
    $
    28
 - Page 4 -




---



##### Table of Contents



1.
    
    The accompanying unaudited consolidated financial statements include the accounts of R.G.
Barry Corporation and its subsidiaries (collectively, the Company) and have been prepared in
accordance with the United States of America (U.S.) generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and Article 10 of SEC
Regulation S-X. Accordingly, they do not include all of the information and footnotes
required by U.S. generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments, consisting of normal recurring accruals,
considered necessary for a fair presentation have been included. Operating results for the
thirteen week and thirty-nine week periods ended October 1, 2005 are not necessarily
indicative of the results that may be expected for the fiscal year ending December 31, 2005
(fiscal 2005). For further information, refer to the consolidated financial statements and
notes thereto included in the Annual Report to Shareholders of R.G. Barry Corporation (R.G.
Barry) for the fiscal year ended January 1, 2005 (fiscal 2004), which are incorporated by
reference into Item 8  Financial Statements and Supplementary Data of R.G. Barrys Annual
Report on Form 10-K for the fiscal year ended January 1, 2005.
 2.
    
    The Company operates on a fifty-two or fifty-three week annual fiscal year, ending annually
on the Saturday nearest December 31st. Fiscal 2005 and fiscal 2004 are both fifty-two week
years.
 3.
    
    R.G. Barry has various stock option plans, under which R.G. Barry has granted incentive stock
options and nonqualified stock options, exercisable for periods of up to 10 years from the
date of grant, at prices not less than fair market value of the underlying common shares at
the date of grant. In December 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure, an amendment of SFAS No. 123. SFAS No. 148 provides
alternative methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation,to require
prominent disclosures in annual and interim financial statements about the method of
accounting for stock-based compensation and the effect in measuring compensation expense.The Company has elected to use the intrinsic value method in accordance with the provisions of
SFAS No. 123, as amended by SFAS No. 148, to apply the current accounting rules under Accounting
Principles Board (APB) Opinion No. 25 and related interpretations, including FASB
Interpretation No. 44 (Accounting for Certain Transactions Involving Stock Compensation, an
interpretation of APB No. 25) in accounting for employee stock options. Accordingly, the
Company has presented the disclosure only information as required by SFAS No. 123. Had the
Company elected to recognize compensation expense based on the fair value of the stock options
granted at the grant date as prescribed by SFAS No. 123, the Companys net earnings (loss) would
approximate the pro forma amounts indicated below for the periods noted:
 - Page 5 -




---



##### Table of Contents



Thirteen weeks ended
    
    
    Thirty-nine weeks endedOct. 1, 2005
    
    
    Oct. 2, 2004
    
    
    Oct. 1, 2005
    
    
    Oct. 2, 2004Net earnings (loss):As reported
    
    $
    4,284
    
    
    $
    (1,112
    )
    
    $
    3,269
    
    
    $
    (24,184
    )Deduct: Total stock-based
employee compensation
expense determined under
fair value based method
for all awards, net of
related tax effect
    
    
    (146
    )
    
    
    (143
    )
    
    
    (362
    )
    
    
    (430
    )Pro forma
    
    $
    4,138
    
    
    $
    (1,255
    )
    
    $
    2,907
    
    
    $
    (24,614
    )Net earnings (loss) per share:Basic  as reported
    
    $
    0.43
    
    
    $
    (0.11
    )
    
    $
    0.33
    
    
    $
    (2.46
    )Basic  pro forma
    
    $
    0.40
    
    
    $
    (0.13
    )
    
    $
    0.28
    
    
    $
    (2.50
    )Diluted  as reported
    
    $
    0.42
    
    
    $
    (0.11
    )
    
    $
    0.33
    
    
    $
    (2.46
    )Diluted  pro forma
    
    $
    0.41
    
    
    $
    (0.13
    )
    
    $
    0.29
    
    
    $
    (2.50
    )
 Using the Black-Scholes option-pricing model, the per-share, weighted-average fair value of
stock options granted during fiscal 2005 and fiscal 2004, was $1.95 and $1.14, respectively, on
the date of grant. The assumptions used in estimating the fair value of the stock options as of
October 1, 2005, and October 2, 2004 were:
 October 1, 2005
    
    
    October 2, 2004Expected dividend yield
    
    
    0%
    
    
    
    0%Expected volatility
    
    
    60%
    
    
    
    60%Risk-free interest rate
    
    
    3.75%
    
    
    
    3.00%Expected life-ISO grants
    
    
    4 years
    
    
    
    6 yearsExpected life-nonqualified grants
    
    
    3 - 5 years
    
    
    
    2 - 8 years
  4.
    
    Income tax expense for the thirty-nine week periods ended October 1, 2005 and October 2, 2004
consists of:
 2005
    
    
    2004Current expense:Federal
    
    $
    
    
    
    $
    Foreign
    
    
    83
    
    
    
    171State
    
    
    
    
    
    
    Total expense
    
    $
    83
    
    
    $
    171Total expense (benefit) allocated to discontinued
operations
    
    
    
    
    
    
    Total expense on continuing operations
    
    $
    83
    
    
    $
    171
 - Page 6 -




---



##### Table of Contents



Income tax expense for the thirty-nine week periods ended October 1, 2005 and October 2, 2004
differed from the amounts computed by applying the U. S. federal income tax rate of 34 percent
to pretax income (loss) as a result of the following:
 2005
    
    
    2004Computed expected tax expense (benefit)
    
    $
    1,140
    
    
    $
    (8,160
    )State income taxes expense (benefit), net of
federal income taxes
    
    
    93
    
    
    
    (722
    )Valuation allowance
    
    
    (1,150
    )
    
    
    9,053Foreign income tax rate differences
    
    
    
    
    
    
    Other, net
    
    
    
    
    
    
    Total expense
    
    $
    83
    
    
    $
    171Total expense (benefit) allocated to discontinued
operations
    
    
    
    
    
    
    Total expense on continuing operations
    
    $
    83
    
    
    $
    171
 In accordance with the provisions of SFAS No. 109, Accounting for Income Taxes, in the fourth
quarter of 2004, the Company recorded $21.3 million as a charge to earnings to establish a
valuation allowance for its deferred tax assets, including amounts related to its net operating
loss carryforwards. The Company intends to maintain a full valuation allowance for its net
deferred tax assets and net operating loss carryforwards until sufficient positive evidence
exists to support a reversal of some or the remainder of the valuation allowance. Until such
time, the Company expects to have no reported U.S. federal income tax provision or benefit, net
of valuation allowance adjustments.On June 8, 2004, the Company received a 30-day letter from the Internal Revenue Service
(IRS) proposing certain adjustments, which, if sustained, would result in an additional tax
obligation approximating $4,000 plus interest. The proposed adjustments relate to the years
1998 through 2002. Substantially all of the proposed adjustments relate to the timing of
certain deductions taken during that period. On July 7, 2004, the Company submitted to the IRS
a letter protesting the proposed adjustments, reiterating its position in this case. In March
2005, the IRS requested and the Company consented to an extension of the statute of limitations
to December 31, 2006. On September 21, 2005, representatives from the Company met with the IRS
Appeals Officer (IRS Officer); and after reviewing the facts and arguments of this case, the
IRS Officer requested additional information to support the Companys position. As previously
reported, the Company intends to vigorously contest the proposed adjustments. In the opinion of
management, the resolution of these matters is not expected to have a material effect on the
Companys financial position or results of operations.5.
    
    Basic net earnings (loss) per common share has been computed based on the weighted average
number of common shares outstanding during each period. Diluted net earnings (loss) per
common share is based on the weighted average number of outstanding common shares during the
period, plus, when their effect is dilutive, potential common shares consisting of certain
common shares subject to stock options and the employee stock purchase plan. Diluted net
earnings per common share for the thirteen-week and the thirty-nine week periods ended October
1, 2005 include the effect of potential common shares due to the dilutive effect of these
instruments. Conversely, diluted net loss per common share for the thirteen-week and the
thirty-nine week periods ended October 2, 2004 does not include the effect of potential common
shares due to the antidilutive effect of these instruments, since net losses were incurred
during the periods noted in 2004.
 - Page 7 -




---



##### Table of Contents



The following table presents a reconciliation of the numerator and denominators of basic and
diluted earnings per share from continuing operations:
 Thirteen weeks ended
    
    
    Thirty-nine weeks endedOct. 1, 2005
    
    
    Oct. 2, 2004
    
    
    Oct. 1, 2005
    
    
    Oct. 2, 2004Numerator:Income (loss) from
continuing operations
    
    $
    4,260
    
    
    $
    (1,426
    )
    
    $
    3,177
    
    
    $
    (24,514
    )Denominator:Weighted average common
shares outstanding
    
    
    9,878
    
    
    
    9,839
    
    
    
    9,852
    
    
    
    9,839Effect of potentially
dilutive securities: employee stock options
and other
    
    
    323
    
    
    
    
    
    
    
    208
    
    
    
    Weighted average
common shares
outstanding, assuming
dilution
    
    
    10,201
    
    
    
    9,839
    
    
    
    10,060
    
    
    
    9,839Basic earnings (loss)
per share  continuing
operations
    
    $
    0.43
    
    
    $
    (0.14
    )
    
    $
    0.32
    
    
    $
    (2.49
    )Dilutive earnings
(loss) per share
continuing operations
    
    $
    0.42
    
    
    $
    (0.14
    )
    
    $
    0.32
    
    
    $
    (2.49
    )
 6.
    
    Inventory by category for the Company consists of the following:
 October 1, 2005
    
    
    January 1, 2005Raw materials
    
    $
    930
    
    
    $
    1,031Work in process
    
    
    134
    
    
    
    202Finished goods
    
    
    28,954
    
    
    
    18,959Total inventory
    
    $
    30,018
    
    
    $
    20,192
 Inventory is presented net of raw materials write-downs of $71 as of October 1, 2005 and $42 as
of January 1, 2005, respectively, and finished goods write-downs of $658 as of October 1, 2005
and $1,515 as of January 1, 2005, respectively. Write-downs, recognized as a part of cost of
sales, were $395 and $671 for the thirteen-week periods ended October 1, 2005 and October 2,
2004, respectively; and $842 and $2,092 for the thirty-nine week periods ended October 1, 2005
and October 2, 2004, respectively.7.
    
    Restructuring and asset impairment charges  The Company recorded restructuring and asset
impairment charges as a result of certain actions taken to reduce costs and improve operating
efficiencies. Through the thirty-nine week period ended October 1, 2005, these actions mainly
represent continuing lease obligation costs on certain of the Companys leased facilities and
minor liquidation costs both of which were related to the prior years restructuring plan as
described in Note 15 of R.G. Barrys Annual Report to Shareholders for the fiscal year ended
January 1, 2005. As shown in the table below and consistent with prior reporting periods, the
restructuring and asset impairment charges have been recorded as a component of the Companys
operating expense.
 - Page 8 -




---



##### Table of Contents



As of
    
    
    
    
    
    
    
    
    
    
    Non-Cash Write-Offs
    
    
    As ofJan. 1,
    
    
    Charges
    
    
    Estimate
    
    
    and
    
    
    October 1,2005
    
    
    in 2005
    
    
    Adjustments
    
    
    Paid in 2005
    
    
    2005Employee separations
    
    $
    927
    
    
    $
    54
    
    
    $
    (24
    )
    
    $
    906
    
    
    $
    51Other exit costs
    
    
    
    
    
    
    269
    
    
    
    
    
    
    
    269
    
    
    
    Non-cancelable lease
costs
    
    
    1,732
    
    
    
    69
    
    
    
    511
    
    
    
    1,022
    
    
    
    1,290Total restructuring costs
    
    $
    2,659
    
    
    $
    392
    
    
    $
    487
    
    
    $
    2,197
    
    
    $
    1,341
 The Company recorded restructuring and asset impairment charges of $16,117 during the
thirty-nine week period ended on October 2, 2004. These charges were related to the major
initiatives undertaken in that year to reduce costs and improve operating efficiencies.8.
    
    Segment Information  The Company primarily markets comfort footwear for at- and
around-the-home. The Company considers Barry Comfort at- and around-the-home comfort
footwear groups in North America and in Europe as its two operating segments. The accounting
policies of the operating segments are substantially similar, except that the disaggregated
information has been prepared using certain management reports, which by their very nature
require estimates. In addition, certain items from these management reports have not been
allocated between the operating segments, including items such as costs of certain
administrative functions; current and deferred income tax expense or benefit; and deferred tax
assets or liabilities.
 Barry
    ComfortThirty-nine weeks ended
    
    NorthOctober 1, 2005
    
    America
    
    
    Europe
    
    
    TotalNet sales
    
    $
    61,937
    
    
    $
    6,708
    
    
    $
    68,645Gross profit
    
    
    27,033
    
    
    
    957
    
    
    
    27,990Depreciation and
amortization
    
    
    368
    
    
    
    68
    
    
    
    436Restructuring and asset impairment
charges
    
    
    879
    
    
    
    
    
    
    
    879Interest expense
    
    
    495
    
    
    
    45
    
    
    
    540Income from continuing operations
before income tax and minority interest
    
    
    3,019
    
    
    
    241
    
    
    
    3,260Purchases of property, plant and
equipment
    
    
    276
    
    
    
    87
    
    
    
    363Total assets devoted
    
    $
    60,750
    
    
    $
    3,296
    
    
    $
    64,046
 - Page 9 -




---



##### Table of Contents



Barry
    ComfortThirty-nine weeks ended
    
    NorthOctober 2, 2004
    
    America
    
    
    Europe
    
    
    TotalNet sales
    
    $
    60,583
    
    
    $
    6,936
    
    
    $
    67,519Gross profit
    
    
    21,348
    
    
    
    1,033
    
    
    
    22,381Depreciation and
amortization
    
    
    944
    
    
    
    178
    
    
    
    1,122Restructuring and asset impairment
charges
    
    
    16,117
    
    
    
    
    
    
    
    16,117Interest expense
    
    
    879
    
    
    
    49
    
    
    
    928Income (loss) from continuing
operations before income tax and
minority interest
    
    
    (24,391
    )
    
    
    60
    
    
    
    (24,331
    )Purchases of property, plant and
equipment
    
    
    67
    
    
    
    44
    
    
    
    111Total assets devoted
    
    $
    60,560
    
    
    $
    3,850
    
    
    $
    64,410
 Barry
    ComfortThirteen weeks ended
    
    NorthOctober 1, 2005
    
    America
    
    
    Europe
    
    
    TotalNet sales
    
    $
    33,303
    
    
    $
    2,133
    
    
    $
    35,436Gross profit
    
    
    13,981
    
    
    
    343
    
    
    
    14,324Depreciation and
amortization
    
    
    94
    
    
    
    23
    
    
    
    117Restructuring and asset impairment
charges
    
    
    529
    
    
    
    
    
    
    
    529Interest expense
    
    
    288
    
    
    
    13
    
    
    
    301Income from continuing operations
before income tax and minority interest
    
    
    4,213
    
    
    
    73
    
    
    
    4,286Purchases of property, plant
and equipment
    
    
    125
    
    
    
    2
    
    
    
    127Total assets devoted
    
    $
    60,750
    
    
    $
    3,296
    
    
    $
    64,046
 - Page 10 -




---



##### Table of Contents



Barry
    ComfortThirteen weeks ended
    
    NorthOctober 2, 2004
    
    America
    
    
    Europe
    
    
    TotalNet sales
    
    $
    32,215
    
    
    $
    2,358
    
    
    $
    34,573Gross profit
    
    
    12,488
    
    
    
    347
    
    
    
    12,835Depreciation and
amortization
    
    
    222
    
    
    
    57
    
    
    
    279Restructuring and asset impairment
charges
    
    
    4,216
    
    
    
    
    
    
    
    4,216Interest expense
    
    
    379
    
    
    
    17
    
    
    
    396Loss from continuing operations
before income tax and minority
interest
    
    
    (1,448
    )
    
    
    (32
    )
    
    
    (1,480
    )Purchases of property, plant and
equipment
    
    
    8
    
    
    
    13
    
    
    
    21Total assets devoted
    
    $
    60,560
    
    
    $
    3,850
    
    
    $
    64,410
 9.
    
    Employee Retirement Plans  The Company uses a measurement date of September 30 in making the
annually required pension computations. The Company is projecting to make total payments of
$1,994 into its funded, qualified associate retirement plan and meet its current year payment
obligation on its unfunded, nonqualified supplemental retirement plans by the end of fiscal
2005. Through the thirty-nine week period of 2005, actual payments of approximately $1,213
were made into the funded, qualified associate retirement plan and $451 thousand under its
unfunded, nonqualified supplemental retirement plans. In fiscal 2004, the Company received
IRS approval to defer a lump sum fiscal 2003 payment into the funded, qualified associate
retirement plan due in September 2004 and to amortize that payment over a five-year period.
In the third quarter of 2005, the Company elected to make full payment of the deferred lump
sum amount into its funded, qualified associate retirement plan. The payment of approximately
$721 is included in the $1,213 payment noted above.Effective, April 1, 2004, the Companys funded, qualified associate retirement plan and the
unfunded, nonqualified supplemental plans were frozen resulting in the elimination of additional
service costs after the first quarter of fiscal 2004.The components of net periodic benefit cost for the retirement plans were:
 Thirteen weeks ended
    
    
    Thirty-nine weeks endedOct. 1, 2005
    
    
    Oct. 2, 2004
    
    
    Oct. 1, 2005
    
    
    Oct. 2, 2004Service cost
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    214Interest cost
    
    
    548
    
    
    
    564
    
    
    
    1,646
    
    
    
    1,687Expected return on plan assets
    
    
    (462
    )
    
    
    (506
    )
    
    
    (1,387
    )
    
    
    (1,509
    )Net amortization
    
    
    162
    
    
    
    32
    
    
    
    292
    
    
    
    191Curtailment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,128Total pension expense
    
    $
    248
    
    
    $
    90
    
    
    $
    551
    
    
    $
    1,711
 - Page 11 -




---



##### Table of Contents



10.
    
    Related party transactions  R.G. Barry and its non-executive chairman (chairman)
previously entered into an agreement pursuant to which R.G. Barry is obligated for up to two
years after the death of the chairman to purchase, if the estate elects to sell, up to $4,000
of the R.G. Barrys common shares, at their fair market value. To fund its potential
obligation to purchase such common shares, R.G. Barry purchased a $5,000 insurance policy on
the life of the chairman; in addition, R.G.
    Barry maintains another policy insuring the life of the chairman. The cumulative cash surrender
value of the policies approximates $2,600, which is included in other assets in the accompanying
consolidated balance sheets. Effective in March 2004 and continuing through October 1, 2005,
the Company has borrowed against the cash surrender value of these policies.In addition, for a period of 24 months following the chairmans death, R.G. Barry would have a
right of first refusal to purchase any common shares of R.G. Barry owned by the chairman at the
time of his death if his estate elects to sell such common shares. R.G. Barry would have the
right to purchase such common shares on the same terms and conditions as the estate proposes to
sell such common shares to a third party.R.G. Barry and the mother of the chairman had been parties to a royalty agreement (the Original
Agreement) pursuant to which she granted to R.G. Barry the exclusive right to manufacture and
sell various slipper styles and other product designs created and owned by her, including future
styles and designs. Under the Original Agreement, R.G. Barry agreed to pay a royalty to her of
1% of the net sales of products utilizing her designs. On August 11, 2005 (the Effective
Date), R.G. Barry and the mother of the chairman terminated the Original Agreement and entered
into a new agreement (the New Agreement) whereby the mother of the chairman transferred all of
her product designs and patent rights to R.G. Barry as of the Effective Date; provided a
covenant not to compete during the period payments are owed to her under the New Agreement and
for one year thereafter; and released all unpaid claims that would have accrued under the
Original Agreement and through the Effective Date for the sum of $600. This amount will be paid
in 24 quarterly payments of $25 each beginning on the Effective Date and continuing on the last
business day of each and every October, January, April, and July until the last business day in
April 2011. On the Effective Date, the net present value of this obligation was computed at
approximately $495, discounted at 7%, and the Company charged that amount to earnings
accordingly. As of October 1, 2005, the Company reported approximately $100 of the outstanding
net present value amount as current installments of long-term debt and the remaining $375 as
long-term debt.During fiscal 2004, R.G. Barry engaged The Meridian Group (Meridian), whose services included
assisting the Company in the development of its new business model, restructuring its financing
resources, and identifying auction firms to market and sell its equipment in Mexico. R.G.
Barrys President and Chief Executive Officer is currently on leave from Meridian, and his
spouse is the President and sole owner of Meridian. The fees incurred were at Meridians
customary rates for providing such services, and R.G. Barry believes the fees were consistent
with the market price for such services. During the fourth quarter of fiscal 2004 and through
the first nine months of fiscal 2005, R.G. Barry did not engage the services of Meridian.11.
    
    Contingent Liabilities  The Company has been named as defendant in various lawsuits arising
in the ordinary course of business. In the opinion of management, the resolution of these
matters is not expected to have a material adverse effect on the Companys financial position
or results of operations.
 - Page 12 -




---



##### Table of Contents



Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:
  Risk Factors
  §
    
    The Companys ability to continue sourcing products from outside North America without negatively impacting delivery
times or product quality under our current business model.
 §
    
    The ability of the Company to meet certain minimum covenants regarding our financial condition and financial
performance as described in our asset-based lending facility with CIT Commercial Services, Inc. (CIT), discussed
below under CIT Facilities. While we believe we can continue to comply with such covenants during the remainder of
fiscal 2005, our ability to do so assumes that (i) the cost benefits of our current business model continue during the
remainder of fiscal 2005; (ii) we experience no major loss of customers or a major loss of business from existing
customers; and (iii) the Company continues to be able to source products without incurring substantial unplanned costs.
 §
    
    The Companys ability to maintain our inventory levels in accordance with our plans and achieve adequate levels of
working capital.
 §
    
    The continued demand for the Companys products by our customers and consumers, especially during the critical upcoming
holiday season.
 §
    
    The continued demand for the Companys products by our key customers during the remainder of fiscal 2005.
 §
    
    The ability of the Company to successfully compete on quality, fashion, service, selection, and price.
 §
    
    The Companys ability to successfully manage the impact on our product cost that may result from a potential material
change in the valuation of the Chinese currency.
 §
    
    The ability of the Company to finalize the exiting of certain lease obligations related to our former distribution
facility in Nuevo Laredo, Mexico and our former office in San Antonio, Texas, without incurring substantial unplanned
costs or experiencing unforeseen difficulties.
 §
    
    The Companys ability to resolve our dispute with the IRS, as described in Note 4 of the Notes to Consolidated
Financial Statements, without incurring a substantial liability.
 - Page 13 -




---



##### Table of Contents



§
    
    The impact of competition on the Companys market share.
 §
    
    The ability of the Company to retain key executives and successfully manage a succession
plan for members of our senior management, including our President and CEO.
 Introduction
   Critical Accounting Policies and Use of Significant Estimates
      - Page 14 -




---



##### Table of Contents



- Page 15 -




---



##### Table of Contents



Recently Issued Accounting Standards
  Inventory Costs  an Amendment of ARB No. 43, Chapter
4, Exchanges of Non-monetary Assets an amendment of APB Opinion 29
 - Page 16 -




---



##### Table of Contents



Share-Based Payments Accounting for Stock Issued to Employees Statement of Cash Flows
  Continuing to Refine Our Business Model during the Remainder of Fiscal 2005
  
    
    Continuing to meet or exceed the expectations of our retailing partners and consumers
with fresh, innovative, thinking supported by a line-up of great products;§
    
    Continuing to enhance the image of our Dearfoams® family of brands; and§
    
    Continuing to improve our order fulfillment and inventory management processes through
the use of improved forecasting processes.
  Liquidity and Capital Resources
   §
    
    Our net accounts receivable decreased slightly from $25.9 million at the end of the
third quarter of 2004 to $25.4 million at the end of the same period this year. Accounts
receivable were $10.1 million at the end of fiscal 2004. The increase in our net accounts
receivable of $15.3 million from the end of fiscal 2004 to the end of the third quarter of
2005 is mainly due to the seasonality of our business.§
    
    Our net inventories for third quarter-end 2005 and 2004 were $30.0 million and $29.5
million, respectively, and $20.2 million at the end of fiscal 2004. Our net inventory
investment as reported for each of the third quarter-end periods 2005 and 2004 begins to
reflect an inventory level that is more naturally consistent with our new 100% outsourcing
operating model effected during fiscal 2004. Better management of our inventory investment
is one of our key initiatives
for fiscal 2005 and beyond. The increase of nearly $10.0 million in our net inventory
investment from the end of fiscal 2004 to the end of this reporting period is due
principally to purchases of finished goods as we gradually build inventory to support this
years fall selling season.
 - Page 17 -




---



##### Table of Contents



§
    
    We ended the third quarter of 2005 with $1.3 million in cash, compared with $815 thousand at
the end of the third quarter of 2004 and $1.0 million at the end of fiscal 2004. We ended
the third quarter of 2005 with $24.2 million in short-term notes payable, compared with
$29.6 million in short-term notes payable at the end of the third quarter a year earlier and
$4.9 million at the end of fiscal 2004. The quarter-on-quarter decrease of approximately
$5.4 million in our short-term notes payable is due primarily to lower borrowings required
to fund our leaner operating model and our improvement in net earnings in comparison to the
net loss for the same quarter a year ago. The increase in short-term notes payable of $19.3
million from the end of fiscal 2004 to the end of the third quarter of 2005 is due mainly to
the seasonality of our business and the timing of purchases required to support our customer
orders for the upcoming selling season.
   CIT Facilities
      - Page 18 -




---



##### Table of Contents



Other Short-Term Debt
   Other Long-Term Indebtedness and Current Installment of Long-Term Debt
    Off-Balance Sheet Arrangements
  Results of Operations
   - Page 19 -




---



##### Table of Contents



- Page 20 -




---



##### Table of Contents



Market Risk Sensitive Instruments  Foreign Currency
   Market
Risk Sensitive Instruments  Interest Rates
  
  Evaluation of Disclosure Controls and Procedures
  a.
    
    information required to be disclosed by R. G. Barry in this Quarterly Report on Form
10-Q and the other reports which R. G. Barry files or submits under the Exchange Act would
be accumulated and communicated to R. G. Barrys management, including its principal
executive officer and principal financial officer, as appropriate to allow timely decisions
regarding required disclosure;b.
    
    information required to be disclosed by R. G. Barry in this Quarterly Report on Form
10-Q and the other reports which R. G. Barry files or submits under the Exchange Act would
be recorded, processed, summarized and reported within the time periods specified in the
SECs rules and forms; and
 - Page 21 -




---



##### Table of Contents



c.
    
    R. G. Barrys disclosure controls and procedures are effective as of the end of the
quarterly period covered by this Quarterly Report on Form 10-Q to ensure that material
information relating to R. G. Barry and its consolidated subsidiaries is made known to them,
particularly during the period in which this Quarterly Report on Form 10-Q is being
prepared.
 Changes in Internal Control Over Financial Reporting
  
  
 Item 1. Legal Proceedings
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 (a)
    
    and (b) Not Applicable(c)
    
    R. G. Barry did not purchase any of its common shares during the quarterly
period ended October 1, 2005. R. G. Barry does not currently have in effect a publicly
announced repurchase plan or program.
 
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
  - Page 22 -




---



##### Table of Contents



R. G. BARRY CORPORATION
RegistrantNovember 9, 2005
    /s/ Daniel D. VirenDate
    Daniel D. VirenSenior Vice President  Finance, Chief Financial Officer and
Secretary

(Principal Financial Officer)

(Duly Authorized Officer) - Page 23 -




---



##### Table of Contents



Exhibit No.
    
    Description
    
    Location31.1
    
    Rule 13a-14(a)/15d-14(a) Certification
(Principal Executive Officer)
    
    Filed herewith31.2
    
    Rule 13a-14(a)/15d-14(a) Certification
(Principal Financial Officer)
    
    Filed herewith32.1
    
    Section 1350 Certifications (Principal
Executive Officer and Principal Financial
Officer)
    
    Filed herewith
 - Page 24 -