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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended April 1, 2006
 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
    
    (IRS Employerof incorporation or organization)
    
    Identification Number)13405 Yarmouth Road NW, Pickerington, Ohio
    
    43147(Address of principal executive offices)
    
    (Zip Code)
 614-864-6400
 NOT APPLICABLE
  þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
  o þ




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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 1A. Risk FactorsItem 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  
  
    April 1, 2006
    
    
    December 31, 2005(unaudited)(in thousands)ASSETS:Cash
    
    $
    989
    
    
    $
    3,529Accounts receivable (less allowances of
$6,203 and $14,002, respectively)
    
    
    9,383
    
    
    
    12,020Assets held for disposal
    
    
    93
    
    
    
    75Inventory
    
    
    21,797
    
    
    
    19,081Prepaid expenses
    
    
    1,140
    
    
    
    1,361Total current assets
    
    
    33,402
    
    
    
    36,066Property, plant and equipment, at cost
    
    
    11,122
    
    
    
    11,017Less accumulated depreciation and amortization
    
    
    8,798
    
    
    
    8,646Net property, plant and equipment
    
    
    2,324
    
    
    
    2,371Other assets
    
    
    3,323
    
    
    
    3,394Total Assets
    
    $
    39,049
    
    
    $
    41,831LIABILITIES AND SHAREHOLDERS EQUITY:Short-term notes payable
    
    
    2,515
    
    
    
    2,537Current installments of long-term debt
    
    
    453
    
    
    
    446Accounts payable
    
    
    4,632
    
    
    
    4,996Accrued expenses
    
    
    5,518
    
    
    
    7,369Total current liabilities
    
    
    13,118
    
    
    
    15,348Accrued retirement costs and other
    
    
    14,488
    
    
    
    14,841Long-term debt, excluding current installments
    
    
    451
    
    
    
    533Total liabilities
    
    
    28,057
    
    
    
    30,722Shareholders equity:Preferred shares, $1 par value per share
Authorized 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 share
Authorized 22,500 shares; issued and outstanding
9,930 and 9,920 shares, respectively (excluding
treasury shares of 969 and 910, respectively)
    
    
    9,968
    
    
    
    9,920Additional capital in excess of par value
    
    
    12,958
    
    
    
    13,041Accumulated other comprehensive loss
    
    
    (6,162
    )
    
    
    (6,191
    )Retained deficit
    
    
    (5,772
    )
    
    
    (5,661
    )Total shareholders equity
    
    
    10,992
    
    
    
    11,109Total Liabilities and Shareholders Equity
    
    $
    39,049
    
    
    $
    41,831
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Thirteen weeks endedApril 1, 2006
    
    
    April 2, 2005(unaudited)(in thousands, except per share amounts)Net sales
    
    $
    17,160
    
    
    $
    16,990Cost of sales
    
    
    10,405
    
    
    
    10,162Gross profit
    
    
    6,755
    
    
    
    6,828Selling, general and
administrative expense
    
    
    6,855
    
    
    
    7,400Restructuring and asset
impairment charges
    
    
    41
    
    
    
    241Operating loss
    
    
    (141
    )
    
    
    (813
    )Other income
    
    
    124
    
    
    
    45Interest expense
    
    
    (101
    )
    
    
    (85
    )Interest income
    
    
    34
    
    
    
    0Loss from operations, before
income tax
    
    
    (84
    )
    
    
    (853
    )Income tax expense
    
    
    27
    
    
    
    48Net loss
    
    $
    (111
    )
    
    $
    (901
    )Net loss per common shareBasic
    
    $
    (0.01
    )
    
    $
    (0.09
    )Diluted
    
    $
    (0.01
    )
    
    $
    (0.09
    )Average number of common shares outstandingBasic
    
    
    9,930
    
    
    
    9,837Diluted
    
    
    9,930
    
    
    
    9,837
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Thirteen weeks endedApril 1, 2006
    
    
    April 2, 2005(unaudited)(in thousands)Operating activities:Net loss
    
    $
    (111
    )
    
    $
    (901
    )Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation and amortization of
property, plant and equipment
    
    
    116
    
    
    
    171Stock compensation
    
    
    72
    
    
    
    3Changes in:Accounts receivable, net
    
    
    2,660
    
    
    
    382Inventory
    
    
    (2,683
    )
    
    
    (1,137
    )Prepaid expenses and other
    
    
    276
    
    
    
    464Accounts payable
    
    
    (376
    )
    
    
    245Accrued expenses
    
    
    (1,996
    )
    
    
    (1,369
    )Accrued retirement costs and other, net
    
    
    (353
    )
    
    
    (343
    )Net cash used in operating activities
    
    
    (2,395
    )
    
    
    (2,485
    )Investing activities:Purchases of property, plant and equipment
    
    
    (66
    )
    
    
    (67
    )Financing activities:Proceeds from short-term notes, net
    
    
    
    
    
    
    3,305Repayments of short-term bank notes
    
    
    (112
    )
    
    
    (412
    )Proceeds from common shares issued
    
    
    33
    
    
    
    Net cash (used in) provided by financing activities
    
    
    (79
    )
    
    
    2,893Effect of exchange rates on cash
    
    
    
    
    
    
    11Net (decrease) increase in cash
    
    
    (2,540
    )
    
    
    352Cash at the beginning of the period
    
    
    3,529
    
    
    
    958Cash at the end of the period
    
    $
    989
    
    
    $
    1,310Supplemental cash flow disclosures:Interest paid
    
    $
    83
    
    
    $
    66Income taxes paid, net
    
    $
    170
    
    
    $
    
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1.
    
    Basis of Presentation:
   2.
    
    Stock-Based Compensation:
 Shared-Based Payment Accounting for Stock Issued to Employees Accounting for Certain Transactions
Involving Stock Compensation, an interpretation of APB No. 25
 Black-Scholes Accounting for Stock-Based Compensation
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Thirteen weeks endedApril 1, 2006Expected dividend yield
    
    
    0
    %Expected volatility
    
    
    60
    %Average risk-free interest rate
    
    
    4.52
    %Expected life (in years)  nonqualified grants
    
    
    5
    April 2, 2005Net loss:As reported
    
    $
    (901
    )Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effect
    
    
    (83
    )Pro forma
    
    $
    (984
    )Net loss per share:Basic  as reported
    
    $
    (0.09
    )Basic  pro forma
    
    $
    (0.10
    )Diluted  as reported
    
    $
    (0.09
    )Diluted  pro forma
    
    $
    (0.10
    )
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April 2, 2005Expected dividend yield
    
    
    0
    %Expected volatility
    
    
    60
    %Risk-free interest rate
    
    
    3.75
    %Expected life-ISO grants
    
    5 yearsExpected life-nonqualified grants
    
    3  5 years
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Number of
    
    Number of
    
    Weighted-common shares
    
    common shares
    
    averagesubject to ISOs
    
    subject to NQs
    
    exercise priceOutstanding at January 3, 2004
    
    
    904,300
    
    
    
    444,900
    
    
    $
    5.91Granted
    
    
    75,000
    
    
    
    150,000
    
    
    
    2.52Exercised
    
    
    (800
    )
    
    
    
    
    
    
    3.01Expired/Cancelled
    
    
    (266,200
    )
    
    
    (142,600
    )
    
    
    6.50Outstanding at January 1, 2005
    
    
    712,300
    
    
    
    452,300
    
    
    $
    5.05Granted
    
    
    140,000
    
    
    
    180,000
    
    
    
    3.84Exercised
    
    
    (69,000
    )
    
    
    (14,600
    )
    
    
    3.46Expired/Cancelled
    
    
    (143,900
    )
    
    
    (49,300
    )
    
    
    4.39Outstanding at December 31, 2005
    
    
    639,400
    
    
    
    568,400
    
    
    $
    4.94Granted
    
    
    0
    
    
    
    100,000
    
    
    
    6.58Exercised
    
    
    (7,800
    )
    
    
    (100,000
    )
    
    
    2.36Expired/Cancelled
    
    
    (8,800
    )
    
    
    
    
    
    
    6.64Outstanding at April 1, 2006
    
    
    622,800
    
    
    
    568,400
    
    
    $
    5.30Options exercisable at April 1, 2006
    
    
    466,600
    
    
    
    415,100
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3.
    
    Income Taxes:
  2006
    
    
    2005Computed expected tax benefit
    
    $
    29
    
    
    $
    290State income taxes benefit, net of federal income
taxes
    
    
    5
    
    
    
    30Valuation allowance
    
    
    (61
    )
    
    
    (368
    )Total expense
    
    $
    27
    
    
    $
    48
  , Accounting for Income Taxes
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4.
    
    Net Loss Per Common Share:
   Thirteen weeks endedApril 1, 2006
    
    
    April 2, 2005Numerator:Net loss
    
    $
    (111
    )
    
    $
    (901
    )Denominator:Weighted average common
shares outstanding
    
    
    9,930
    
    
    
    9,837Effect of potentially dilutive securities:employee stock options and other
    
    
    
    
    
    
    Weighted average common shares
outstanding, assuming dilution
    
    
    9,930
    
    
    
    9,837Basic and diluted net loss per common share
    
    $
    (0.01
    )
    
    $
    (0.09
    )
  5.
    
    Inventories:
  April 1, 2006
    
    
    December 31, 2005Raw materials
    
    $
    729
    
    
    $
    700Work in process
    
    
    150
    
    
    
    145Finished goods
    
    
    20,918
    
    
    
    18,236Total inventory
    
    $
    21,797
    
    
    $
    19,081
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6.
    
    Restructuring and Asset Impairment Charges:
  Non-CashAs of
    
    
    
    
    
    
    
    
    
    
    Adjustments
    
    
    As ofDec. 31,
    
    
    Charges
    
    
    Estimate
    
    
    or Payments
    
    
    April 1,2005
    
    
    in 2006
    
    
    Adjustments
    
    
    Made in 2006
    
    
    2006Employee separations
    
    $
    47
    
    
    $
    
    
    
    $
    
    
    
    $
    18
    
    
    $
    29Other exit costs
    
    
    
    
    
    
    44
    
    
    
    (21
    )
    
    
    23
    
    
    
    Noncancelable lease costs
    
    
    1,336
    
    
    
    18
    
    
    
    
    
    
    
    216
    
    
    
    1,138Total restructuring costs
    
    $
    1,383
    
    
    $
    62
    
    
    $
    (21
    )
    
    $
    257
    
    
    $
    1,167
  7.
    
    Segment Information:
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Barry ComfortThirteen weeks ended
    
    NorthApril 1, 2006
    
    America
    
    
    Europe
    
    
    TotalNet sales
    
    $
    14,490
    
    
    $
    2,670
    
    
    $
    17,160Gross profit
    
    
    6,480
    
    
    
    275
    
    
    
    6,755Depreciation and
amortization
    
    
    104
    
    
    
    12
    
    
    
    116Restructuring and asset impairment charges
    
    
    41
    
    
    
    Interest expense
    
    
    92
    
    
    
    9
    
    
    
    101Interest income
    
    
    34
    
    
    
    
    
    
    
    34Pre tax earnings (loss)
    
    
    (166
    )
    
    
    82
    
    
    
    (84
    )Purchases of property, plant and equipment
    
    
    26
    
    
    
    40
    
    
    
    66Total assets devoted
    
    $
    35,281
    
    
    $
    3,768
    
    
    $
    39,049
 Barry ComfortThirteen weeks ended
    
    NorthApril 2, 2005
    
    America
    
    
    Europe
    
    
    TotalNet sales
    
    $
    13,885
    
    
    $
    3,105
    
    
    $
    16,990Gross profit
    
    
    6,385
    
    
    
    443
    
    
    
    6,828Depreciation and
amortization
    
    
    151
    
    
    
    20
    
    
    
    171Restructuring and asset impairment charges
    
    
    241
    
    
    
    
    
    
    
    241Interest expense
    
    
    70
    
    
    
    15
    
    
    
    85Pre tax earnings (loss)
    
    
    (994
    )
    
    
    141
    
    
    
    (853
    )Purchases of property, plant and equipment
    
    
    29
    
    
    
    38
    
    
    
    67Total assets devoted
    
    $
    34,983
    
    
    $
    4,442
    
    
    $
    39,425
 8.
    
    Employee Retirement Plans:
   April 1, 2006
    
    
    April 2, 2005Service cost
    
    $
    17
    
    
    $
    Interest cost
    
    
    538
    
    
    
    549Expected return on plan assets
    
    
    (474
    )
    
    
    (462
    )Net amortization
    
    
    133
    
    
    
    65Total pension expense
    
    $
    214
    
    
    $
    152
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9.
    
    Comprehensive Loss:
  Thirteen weeks endedApril 1, 2006
    
    
    April 2, 2005Net loss
    
    $
    (111
    )
    
    $
    (901
    )Foreign currency translation adjustments
    
    
    29
    
    
    
    (77
    )Total comprehensive loss
    
    $
    (82
    )
    
    $
    (978
    )
  2006
    
    
    2005Accumulated foreign currency translation adjustments
    
    $
    166
    
    
    $
    137Minimum pension liability, net of taxes
    
    
    (6,328
    )
    
    
    (6,328
    )Accumulated other comprehensive loss
    
    $
    (6,162
    )
    
    $
    (6,191
    )
 10.
    
    Related party transactions:
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11.
    
    Contingent Liabilities:
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Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:
 Introduction
  Critical Accounting Policies and Use of Significant Estimates
   (a)
    
    We recognize revenue when goods are shipped from our warehouses and other third-party
distribution locations, at which point our customers take ownership and assume risk of loss;
collection of the related receivable is probable; persuasive evidence of a sale arrangement
exists; and the sales price is fixed and determinable. In certain circumstances, we sell
products to customers under special arrangements, which provide for return privileges,
discounts, promotions and other sales incentives. At the time we recognize revenue, we reduce
our measurement of revenue by an estimated cost of potential future returns and allowable
retailer promotions and incentives, and recognize as well a corresponding reduction in our
reported trade accounts receivable. These estimates have traditionally been, and continue to
be, sensitive to and dependent on a variety of factors including, but not limited to,
quantities sold to our customers and the related selling and
marketing support programs; channels of distribution; sell-through rates at retail; acceptance
of the styling of our product by consumers;
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overall economic environment; consumer confidence
leading towards and through the holiday selling season; and other related factors.
 Allowances established for returns were approximately $2.0 million, $3.1 million, and $4.4
million at the end of the first quarter 2006, at the end of first quarter 2005, and at the end
of fiscal 2005, respectively. The quarter-on-quarter decrease of $1.1 million of return
allowances reflects primarily the timing of receipt and processing of returns under privileges
granted to a specific customer during fiscal 2005. This return privilege was accrued for at the
end of fiscal 2005. We did not have a similar returns transaction occurring during the first
quarter of fiscal 2005. Our overall returns approach continues to be consistent with our
current business model, which is based on a more customer-specific sell-in approach and based on
a close collaboration with our retailing partners to promote our products in-season, thus trying
to reduce returns. During the first quarter of fiscal 2006 and the first quarter of fiscal
2005, we recorded $302 thousand and $150 thousand, respectively, as the sales value of
merchandise returned by our customers, and $4.0 million for fiscal 2005. The quarterly increase
in the sales value of merchandise returned is due primarily to returns associated with spring
2006 merchandise, granted to and expected from one of our key department store customers.Furthermore, allowances for promotions and other sales incentives established at the end of the
first quarter 2006 and the first quarter 2005 were approximately $4.2 million and $6.0 million,
respectively, and $9.6 million at the end of fiscal 2005. The $1.8 million quarter-on-quarter
decrease in the promotions and sales incentives allowance primarily reflects the effect of last
years favorable adjustment recognized during the second and third quarters of fiscal 2005 of
approximately $1.5 million that resulted from better than expected anticipated over-the-counter
sales experienced during the holiday season in fiscal 2004. As we closed fiscal 2005, our
related allowance estimates did not anticipate a reoccurring favorable adjustment of similar
size. However, during the first quarter 2006, we recorded a favorable adjustment of $170
thousand to our year-end 2005 accrual, which resulted from better than expected anticipated
over-the-counter sales experienced during the spring 2005 season. Charges to earnings for
consumer promotion activities for the first quarter 2006 and the same period a year earlier were
$992 thousand and $1.2 million, respectively, and $9.4 million for fiscal 2005.Given the continuously changing retail environment and our still relatively short experience
with our current operating model, it is possible that allowances for returns, promotions and
other sales incentives, and the related charges reported in our consolidated results of
operations for these activities could be different than those estimates noted above.(b)
    
    We value inventories using the lower of cost or market, based upon the first-in, first-out
(FIFO) costing method. We evaluate our inventories for any reduction in realizable value in
light of our prior selling season, the overall economic environment, and our expectations for
the upcoming selling seasons, and we record accordingly the appropriate write-downs based on
our evaluation. At the end of the first quarter 2006 and the first quarter 2005, we estimated
that the FIFO cost of a portion of our inventory exceeded the estimated net realizable value
of that inventory by $214 thousand and $263 thousand, respectively, as compared with a similar
estimate of $1.4 million at the end of fiscal 2005. There were no significant items impacting
the quarter-on-quarter decrease in our estimate of the FIFO cost of our inventories over the
net realizable value of that inventory.Inventory write-downs, recognized as part of cost of sales for continuing operations, amounted
to $49 thousand, $92 thousand, and $1.6 million during the first quarter 2006, first quarter
2005, and fiscal year 2005, respectively. No significant items impacting the quarter-on-quarter
reduction of inventory write-downs were noted as we closed the first quarter of fiscal 2006.(c)
    
    We make an assessment of the amount of income taxes that will become currently payable or
recoverable for the just concluded period, and what deferred tax costs or benefits will become
realizable for income tax purposes in the future, as a consequence of differences between
results of operations as reported in conformity with U.S. GAAP, and the requirements of the
income tax codes existing in the various jurisdictions where we operate. In evaluating the
future benefits of our
deferred tax assets, we examine our capacity for refund of federal income taxes due to our net
operating loss carry-forward position, and our projections of future profits. We record a
valuation allowance when it is more likely than not that some portion or all of our deferred tax
assets will not be realized.
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Accordingly, beginning with year-end fiscal 2003, we established a
valuation allowance against the value of those deferred tax assets. Given our recent operating
results, there is no historical assurance that future taxable income will be generated to offset
these deferred deductible items. Consistent with our accounting policy, we have established a
valuation allowance against the net deferred tax assets in the amount of $18.4 million at the
end of fiscal 2005. During the first quarter of fiscal 2006, our net deferred tax assets
increased by $61 thousand, representing the federal and state income tax benefit that resulted
from our operating loss recognized during the period. Accordingly, our valuation allowance
against the net deferred tax assets likewise increased by $61 thousand to a cumulative $18.5
million at the end of the first quarter of fiscal 2006. Should our profits continue to improve
in the future and it becomes more likely than not that those deferred tax items become
realizable deductions in future years, we will recognize that benefit by reducing our reported
tax expense in the future years.
 (d)
    
    We adopted Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004),
Shared-Based Payment,effective January 1, 2006. SFAS 123R is a new and complex accounting
standard, the application of which requires significant judgment and the use of estimates,
particularly those associated with assumptions used under the Black-Scholes valuation model
such as stock price volatility and expected option lives, as well as expected option
forfeiture rates to value equity-based compensation. SFAS 123R requires recognition of the
fair value of stock compensation in results of operations. Refer to Note 2 of the Notes to
Consolidated Financial Statements for further information concerning our adoption of SFAS
123R.(e)
    
    We make estimates of the future costs associated with restructuring plans related to
operational changes announced during the year. Estimates are based upon the anticipated costs
of employee separations; an analysis of the impairment in the value of any affected assets;
anticipated future costs to be incurred in settling remaining lease obligations, net of any
anticipated sublease revenues; and other costs associated with the restructuring plans.During fiscal 2005 and through the end of the first quarter of fiscal 2006, we did not engage in
any new restructuring activities. At the end of the first quarter 2006 and the first quarter
2005, we had an accrued balance of approximately $1.2 million and $1.7 million, respectively,
associated primarily with the estimated future costs of closing our former manufacturing and
distribution facilities in Mexico. At the end of fiscal 2005, we had an accrued balance of $1.4
million, primarily for similar restructuring and reorganization activities. During the first
quarter of fiscal 2006, we charged to earnings $41 thousand, as compared to $241 thousand in the
same period a year earlier, related to occupancy costs associated with our former distribution
center facility in Mexico and other related restructuring activities. Should the actual costs
of restructuring activities exceed our estimates, the excess costs will be recognized in the
following period. Conversely, should the costs of restructuring be less than the amounts
estimated, future periods would benefit by that difference. See also Note 6 of the Notes to
Consolidated Financial Statements for additional information concerning restructuring and asset
impairment charges.(f)
    
    We review our long-lived assets, such as property, plant, and equipment, and purchased
intangible assets subject to amortization, for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying
amount of an asset to the estimated undiscounted future cash flows expected to be generated by
the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash
flows, an impairment charge is recognized by the amount by which the carrying amount of the
asset exceeds the fair value of the asset. Assets to be disposed of would be separately
presented in the balance sheet and reported at the lower of the carrying amount or fair value
less costs to sell, and are no longer depreciated. These assets and liabilities of a disposal
group classified as held for sale would be presented separately in the appropriate asset and
liability sections of the balance sheet.We did not record any asset impairment charges during the first quarter of fiscal 2006, first
quarter of fiscal 2005, and fiscal 2005.
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(g)
    
    There are other accounting policies that also require managements judgment. We follow these
policies consistently from year to year and period to period. For an additional discussion of
all of our significant accounting policies, please see Notes (1) (a) through (u) of the Notes
to Consolidated Financial Statements in our 2005 Annual Report to Shareholders, which was
incorporated by reference into Item 8  Financial Statements and Supplementary Data of R.G.
Barry Annual Report on Form 10-K for the fiscal year ended December 31, 2005.
  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
 Accounting for
Stock Issued to Employees Accounting for Certain Transactions Involving Stock Compensation, an interpretation of APB No. 25 Black-Scholes Accounting for Stock-Based Compensation
 Accounting Changes and Error Corrections, , Accounting Changes Reporting Accounting Changes in
Interim Financial Statements
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Looking ahead to 2006 and beyond
  
    
    Sustained innovation to our product lines;
    
    Continuing efforts to strengthen our relationships with our current retailing partners
and to open distribution of our products in new retail channels; and
    
    Further enhancements to the image of our portfolio of brands
  CIT Facilities
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Liquidity and Capital Resources
   
    
    We ended the first quarter of fiscal 2006 with approximately $1.0
million in cash, compared to $1.3 million at the end of the same
period a year earlier, and $3.5 million at the end of fiscal 2005.
    
    Our net accounts receivable decreased from $9.7 million at the end
of the first quarter of 2005 to $9.4 million at the end of this
years first quarter. Although we are reporting a slight
quarter-on-quarter decrease in our net accounts receivable, the
following variances impacting our net accounts receivable are
worth noting: our gross trade receivables were lower by
approximately $3.1 million, reflecting an improved number of days
outstanding cycle on relatively flat quarter-on-quarter sales; and
as noted earlier in this MD&A, our total allowances for returns
and promotions and sales incentives were lower by approximately
$2.9 million this quarter as compared to the same period a year
ago. Our improved collection cycle reflects the continuing
positive effects of the changes in our sell-in approach, which are
primarily based on collaborating with our retailing partners to
promote our product in season and reduce returns. Net accounts
receivable were $12.0 million at the end of fiscal 2005. The
decrease in our net accounts receivable of approximately $2.6
million from the end of fiscal 2005 to the end of the first
quarter of fiscal 2006 is mainly due to the seasonality of our
business.
    
    Our net inventories for first quarter-end 2006 and 2005 were $21.8
million and $21.2 million, respectively, and approximately $19.1
million at the end of fiscal 2005. The quarterly inventory
levels, as reported, are consistent with our current business
model and reflect the inventory investment needed to support our
customer orders for the remainder of the spring/summer season.
    
    We ended the first quarter of fiscal 2006, first quarter of 2005,
and year-end of fiscal 2005 with a $0, $5.5 million, and $0
balance, respectively, under our CIT ABL Facility. The amount
owed under our CIT ABL Facility when applicable, is reported as
short-term notes payable. We ended the first quarter of fiscal
2006 with $2.5 million in short-term notes payable, compared with
$8.2 million at the end of the first quarter of 2005, and $2.5
million at the end of fiscal 2005. The significant
quarter-on-quarter decrease of approximately $5.7 million in our
short-term notes payable is due primarily to our profitability in
fiscal 2005 and reflects a much lower short-term funding
requirement of our business from the first quarter a year ago.
Our short-term notes payable at the end of the first quarter of
fiscal 2006 is primarily comprised of $2.2 million borrowed
against the cash surrender value of life insurance policies on our
chairman.
    
    We reported $5.5 million in accrued expenses at the end of the
first quarter of fiscal 2006 compared to $5.0 million at the end
of the first quarter of 2005, and $7.4 million at year-end of
fiscal 2005. The quarter-on-quarter variance in our accrued
expenses reflects primarily the net of lower property tax and
restructuring related accruals and higher short-term pension
related accruals when compared to the same period a year earlier.
The higher short-term pension accrual at the end of the first
quarter of fiscal 2006 as compared to the same period a year
earlier is consistent with the projected payment of $2.6 million
into our funded, qualified associate retirement plan and our
current year payment obligation on our unfunded, non-
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qualified
supplemental retirement plan to be made by the end of fiscal 2006.
Our payments into the funded, qualified associate retirement plan
and into our unfunded, non-qualified supplemental retirement plan
were approximately $1.4 million for fiscal 2005. The variance in
accrued expenses from this years first quarter period to the
year-end of fiscal 2005 is primarily timing related and is
consistent with the working capital cycle of our current business
model.
 
    
    Capital expenditures during the first quarter of fiscal 2006 were
$66 thousand compared with $67 thousand during the same quarterly
period a year earlier. Expenditures in both years were funded
from our working capital and reflect a much reduced level of
capital asset spending as compared to previous years during which
we operated our own manufacturing plants. We expect our future
capital expenditures to be in line with our current business model
and thus require a much lower funding than in prior years.
 Other Short-Term Debt
  Other Long-Term Indebtedness and Current Installments of Long-Term Debt
  Off-Balance Sheet Arrangements and Contractual Obligations
  Results of Operations
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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; andc.
    
    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.
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Changes in Internal Control Over Financial Reporting
  
  
 Item 1. Legal Proceedings
    
 Item 1A. Risk Factors
  Fluctuations in the price, availability, and quality of raw materials could cause delay and
increase costs.
  Page 24




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Reduction of business with key customers could have a material adverse effect on our results of
operations.
  If we are unable to successfully finalize the exiting of an ongoing lease obligation in Mexico, we
may incur unplanned costs or difficulties.
  Managements accounting policies and methods are the basis of how we report our financial condition
and results of operations, and these policies and methods may require management to make estimates
about matters that are inherently uncertain.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
     MaximumNumber (orTotal Number of
    
    ApproximateCommon
    
    Dollar Value)Shares
    
    of CommonPurchased as
    
    Shares that MayTotal Number
    
    
    
    
    
    Part of Publicly
    
    Yet Beof Common
    
    Average Price
    
    Announced
    
    Purchased UnderShares
    
    Paid per
    
    Plans or
    
    the PlansPeriod
    
    Purchased
    
    Common Share
    
    Programs (2)
    
    Or Programs (2)January 1-31, 2006
    
    
    0
    
    
    
    n/a
    
    
    
    0
    
    
    
    0February 1-28, 2006
    
    
    0
    
    
    
    n/a
    
    
    
    0
    
    
    
    0March 1-April 1, 2006
    
    
    36,184
    (1)
    
    $
    6.08
    (1)
    
    
    0
    
    
    
    0Total
    
    
    36,184
    
    
    $
    6.08
    
    
    
    0
    
    
    
    0
 
 (1)
    
    Reflects common shares owned and tendered by an executive officer and director of R.G.
Barry to pay the exercise price for the exercise of non-qualified stock options.(2)
    
    R.G. Barry does not currently have in effect a publicly announced repurchase plan or
program. Page 26




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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 27




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R. G. BARRY CORPORATIONRegistrantMay 10, 2006Date/s/ Daniel D. Viren

Daniel D. VirenSenior Vice President  Finance, Chief Financial Officerand Secretary(Principal Financial Officer)(Duly Authorized Officer)
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Exhibit No.
    
    Description
    
    Location10.1
    
    Executive Employment Agreement,
dated as of February 7, 2006,
between R.G. Barry Corporation and
Greg A. Tunney
    
    Incorporated herein
by reference to
Exhibit 10.1 to
R.G. Barry
Corporations
Current Report on
Form 8-K, dated
February 9, 2006
and filed February
10, 2006 (File No.
001-08769) (R.G.
Barrys February 9,
2006 Form 8-K)10.2
    
    Nonqualified Stock Option Award
Agreement for options granted to
Greg A. Tunney on February 7, 2006
under the R.G. Barry Corporation
2005 Long-Term Incentive Plan
    
    Incorporated herein
by reference to
Exhibit 10.2 to
R.G. Barrys
February 9, 2006
Form 8-K10.3
    
    2006 R.G. Barry Management Bonus Plan
    
    Incorporated herein
by reference to
Exhibit 10.1 to
R.G. Barry
Corporations
Current Report on
Form 8-K, dated
March 23, 2006 and
filed March 27,
2006 (File No.
001-08769)10.4.
    
    Employment Agreement, dated March
30, 2006, between R.G. Barry
Corporation and Thomas M. Von Lehman
    
    Incorporated herein
by reference to
Exhibit 10.1 to
R.G. Barry
Corporations
Current Report on
Form 8-K, dated
April 4, 2006 and
filed April 5, 2006
(File No.
001-08769)31.1
    
    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 29