##### 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 September 30, 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
  o o 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  
  
 
 September 30,
    
    
    July 1,2006
    
    
    2006(unaudited)ASSETS:Cash
    
    $
    915
    
    
    $
    988Accounts receivable (less allowances of $5,776 and
$2,180, respectively)
    
    
    27,907
    
    
    
    6,683Assets held for disposal
    
    
    
    
    
    
    20Inventory
    
    
    27,233
    
    
    
    25,977Prepaid expenses
    
    
    1,227
    
    
    
    1,141Total current assets
    
    
    57,282
    
    
    
    34,809Property, plant and equipment, at cost
    
    
    11,520
    
    
    
    11,214Less accumulated depreciation and amortization
    
    
    8,949
    
    
    
    8,795Net property, plant and equipment
    
    
    2,571
    
    
    
    2,419Other assets
    
    
    3,155
    
    
    
    3,216Total assets
    
    $
    63,008
    
    
    $
    40,444LIABILITIES AND SHAREHOLDERS EQUITY:Short-term notes payable
    
    
    23,488
    
    
    
    2,200Current installments of long-term debt
    
    
    353
    
    
    
    395Accounts payable
    
    
    6,729
    
    
    
    9,085Accrued expenses
    
    
    4,726
    
    
    
    7,136Total current liabilities
    
    
    35,296
    
    
    
    18,816Accrued retirement costs and other
    
    
    11,883
    
    
    
    12,193Long-term debt, excluding current installments
    
    
    421
    
    
    
    439Total liabilities
    
    
    47,600
    
    
    
    31,448Shareholders 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
10,039 and 10,017 shares, respectively (excluding
treasury shares of 1,000 and 969, respectively)
    
    
    10,039
    
    
    
    10,017Additional capital in excess of par value
    
    
    13,267
    
    
    
    13,192Accumulated other comprehensive loss
    
    
    (4,335
    )
    
    
    (4,353
    )Retained deficit
    
    
    (3,563
    )
    
    
    (9,860
    )Net shareholders equity
    
    
    15,408
    
    
    
    8,996Total liabilities and net shareholders equity
    
    $
    63,008
    
    
    $
    40,444
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Thirteen weeks endedSeptember 30, 2006
    
    
    October 1, 2005(unaudited)Net sales
    
    $
    37,531
    
    
    $
    35,436Cost of sales
    
    
    22,340
    
    
    
    21,112Gross profit
    
    
    15,191
    
    
    
    14,324Selling, general and administrative expenses
    
    
    8,461
    
    
    
    9,347Restructuring and asset impairment charges
    
    
    74
    
    
    
    529Operating profit
    
    
    6,656
    
    
    
    4,448Other income
    
    
    45
    
    
    
    139Interest expense, net
    
    
    (287
    )
    
    
    (301
    )Income from continuing operations, before
income tax
    
    
    6,414
    
    
    
    4,286Income tax expense
    
    
    117
    
    
    
    26Earnings from continuing operations
    
    $
    6,297
    
    
    $
    4,260Earnings from discontinued operations
    
    
    
    
    
    
    24Net earnings
    
    $
    6,297
    
    
    $
    4,284Earnings per common share: continuing operationsBasic
    
    $
    0.63
    
    
    $
    0.43Diluted
    
    $
    0.61
    
    
    $
    0.42Earnings per common share: discontinued operationsBasic
    
    nm
    
    nmDiluted
    
    nm
    
    nmEarnings per common share: totalBasic
    
    $
    0.63
    
    
    $
    0.43Diluted
    
    $
    0.61
    
    
    $
    0.42Average number of common shares outstandingBasic
    
    
    10,020
    
    
    
    9,878Diluted
    
    
    10,343
    
    
    
    10,201
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Thirteen weeks endedSeptember 30, 2006
    
    
    October 1, 2005(unaudited)Operating activities:Net earnings
    
    $
    6,297
    
    
    $
    4,284Earnings from discontinued operations
    
    
    
    
    
    
    24Earnings from continuing operations
    
    
    6,297
    
    
    
    4,260Adjustments to reconcile net earnings to net cash used
in operating activities:Depreciation and amortization of property, plant and
equipment
    
    
    131
    
    
    
    118Stock-based compensation expense
    
    
    153
    
    
    
    Loss on disposal of property, plant and equipment
    
    
    
    
    
    
    4Changes in:Accounts receivable
    
    
    (21,208
    )
    
    
    (20,171
    )Inventory
    
    
    (1,243
    )
    
    
    (7,024
    )Prepaid expenses and other
    
    
    (3
    )
    
    
    154Accounts payable
    
    
    (2,364
    )
    
    
    4,489Accrued expenses
    
    
    (2,488
    )
    
    
    1,093Accrued retirement costs and other, net
    
    
    (310
    )
    
    
    (567
    )Net cash used in operating activities
    
    
    (21,035
    )
    
    
    (17,644
    )Net cash provided by discontinued operations
    
    
    
    
    
    
    24Net cash used in operating activities
    
    
    (21,035
    )
    
    
    (17,620
    )Investing activities:Purchases of property, plant and equipment
    
    
    (280
    )
    
    
    (127
    )Proceeds from the sale of property, plant and equipment
    
    
    1
    
    
    
    12Net cash used by investing activities
    
    
    (279
    )
    
    
    (115
    )Financing activities:Proceeds from short-term notes, net
    
    
    21,243
    
    
    
    17,542Long-term debt
    
    
    
    
    
    
    495Repayment of long-term debt
    
    
    (18
    )
    
    
    (191
    )Proceeds from common shares issued
    
    
    13
    
    
    
    152Net cash provided by financing activities
    
    
    21,238
    
    
    
    17,998Effect of exchange rates on cash
    
    
    3
    
    
    
    Net (decrease) increase in cash
    
    
    (73
    )
    
    
    263Cash at the beginning of the period
    
    
    988
    
    
    
    1,029Cash at the end of the period
    
    $
    915
    
    
    $
    1,292Supplemental cash flow disclosures:Interest paid
    
    $
    334
    
    
    $
    354Income taxes refunded, net
    
    
    
    
    
    
    (13
    )
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Basis of Presentation
      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
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Accounting for Stock-Based Compensation
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October 1, 2005Net earnings:As reported
    
    
    4,284Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of related tax effect
    
    
    (146
    )Pro forma
    
    $
    4,138Net earnings per share:Basic  as reported
    
    $
    0.43Basic  pro forma
    
    $
    0.42Diluted  as reported
    
    $
    0.42Diluted  pro forma
    
    $
    0.41
  October 1, 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 ofNumber of
    
    common
    
    Weighted-common shares
    
    shares subject
    
    averagesubject to ISOs
    
    to NQs
    
    exercise priceOutstanding at July 1, 2006
    
    
    556,100
    
    
    
    552,800
    
    
    $
    5.27Granted
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (3,000
    )
    
    
    (50,000
    )
    
    $
    2.67Expired/Cancelled
    
    
    
    
    
    
    
    
    
    
    Outstanding at September 30, 2006
    
    
    553,100
    
    
    
    502,800
    
    
    $
    5.40Options exercisable at September 30, 2006
    
    
    411,400
    
    
    
    349,500
   Grant DateShares
    
    
    Fair ValueNonvested at July 1, 2006
    
    
    106,200
    
    
    $
    6.18Granted
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Nonvested at September 30, 2006
    
    
    106,200
    
    
    $
    6.18
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Income Taxes
  Thirteen weeks endedSeptember 30, 2006

    
    
    October 1, 2005Computed expected tax expense
    
    $
    2,181
    
    
    $
    1,465State income taxes benefit, net of federal income taxes
    
    
    120
    
    
    
    127Valuation allowance
    
    
    (2,265
    )
    
    
    (1,566
    )Other, net
    
    
    81
    
    
    
    Total expense
    
    $
    117
    
    
    $
    26
  , Accounting for Income Taxes
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Net Earnings Per Common Share
   Thirteen weeks endedSeptember 30, 2006
    
    
    October 1, 2005Numerator:Net earnings
    
    $
    6,297
    
    
    $
    4,284Denominator:Weighted average common
shares outstanding
    
    
    10,020
    
    
    
    9,878Effect of potentially dilutive
securities: employee stock options
and RSUs
    
    
    323
    
    
    
    323Weighted average common shares
outstanding, assuming dilution
    
    
    10,343
    
    
    
    10,201Basic earnings per common share
    
    $
    0.63
    
    
    $
    0.43Diluted earnings per common share
    
    $
    0.61
    
    
    $
    0.42
 Inventories
  September 30, 2006
    
    
    July 1, 2006Raw materials
    
    $
    994
    
    
    $
    724Work in process
    
    
    96
    
    
    
    174Finished goods
    
    
    26,143
    
    
    
    25,079Total inventory
    
    $
    27,233
    
    
    $
    25,977
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Restructuring and Asset Impairment Charges
  Non-CashAs of
    
    
    
    
    
    
    
    
    
    
    Write-Offs &
    
    
    As ofJuly 1,
    
    
    Charges in
    
    
    Estimate
    
    
    Paid in
    
    
    September 30,2006
    
    
    Fiscal 2007
    
    
    Adjustments
    
    
    Fiscal 2007
    
    
    2006Employee separations
    
    $
    335
    
    
    $
    
    
    
    $
    3
    
    
    $
    235
    
    
    $
    103Other exit costs
    
    
    
    
    
    
    38
    
    
    
    
    
    
    
    38
    
    
    
    Noncancelable lease costs
    
    
    2,909
    
    
    
    1
    
    
    
    32
    
    
    
    2,936
    
    
    
    6Total restructuring costs
    
    $
    3,244
    
    
    $
    39
    
    
    $
    35
    
    
    $
    3,209
    
    
    $
    109
 Segment Information
  Thirteen weeks ended
    
    NorthSeptember 30,
2006
    
    America
    
    Europe
    
    TotalNet sales
    
    $
    35,292
    
    
    $
    2,239
    
    
    $
    37,531Income from continuing operations,
before income taxes
    
    
    6,305
    
    
    
    109
    
    
    
    6,414
 Thirteen weeks ended
    
    NorthOctober 1,
2005
    
    America
    
    Europe
    
    TotalNet sales
    
    $
    33,303
    
    
    $
    2,133
    
    
    $
    35,436Income from continuing operations,
before income taxes
    
    
    4,213
    
    
    
    73
    
    
    
    4,286
 Employee Retirement Plans
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September 30, 2006
    
    
    October 1, 2005Service cost
    
    $
    19
    
    
    $
    Interest cost
    
    
    445
    
    
    
    548Expected return on plan assets
    
    
    (370
    )
    
    
    (462
    )Net amortization
    
    
    107
    
    
    
    162Total pension expense
    
    $
    201
    
    
    $
    248
 Comprehensive income:
  Thirteen weeks endedSeptember 30, 2006
    
    
    October 1, 2005Net earnings
    
    $
    6,297
    
    
    $
    4,284Foreign currency translation adjustments
    
    
    18
    
    
    
    (2
    )Total comprehensive income
    
    $
    6,315
    
    
    $
    4,282
  September 30, 2006
    
    
    July 1, 2006Accumulated foreign currency translation adjustments
    
    $
    244
    
    
    $
    226Minimum pension liability, net of taxes
    
    
    (4,579
    )
    
    
    (4,579
    )Accumulated other comprehensive loss
    
    $
    (4,335
    )
    
    $
    (4,353
    )
 Related party transactions
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Contingent Liabilities
  Recently Issued Accounting Standards:
 Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement 109. Accounting for Income
Taxes.
 ,
Fair Value Measurements
 Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132
(R), (
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Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:
 Introduction
  Change in Fiscal Year End
  Results of Operations
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q
    
    $153 thousand of share-based compensation expense, which resulted from the
implementation of SFAS No. 123 R, effective on January 1, 2006;q
    
    $455 thousand charged to earnings in the third quarter of fiscal 2005,
representing the net effect of the purchase from the mother of our chairman of all of her
product designs and patent rights;q
    
    $141 thousand reduction in incentive bonus expense;q
    
    $258 thousand decrease in marketing expenses, which are expected to be incurred
in the remainder of fiscal 2007; andq
    
    $250 thousand reduction in shipping expenses, which resulted from improved
efficiencies in shipping goods to customers during the first quarter of fiscal 2007.
    Looking ahead to the remainder of fiscal 2007 and beyond
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
    
    Sustained innovation within our product lines;
    
    Continuing efforts to strengthen our relationships with existing retailing partners and
to expand distribution of products into new retail channels;
    
    Further enhancement of the image of our brands; and
    
    Introduction of several new licensed brands.
  CIT Facilities
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Liquidity and Capital Resources
   
    
    We ended the first quarter of fiscal 2007 with $915 thousand in
cash, compared to $1.3 million at the end of the third quarter of
fiscal 2005, and $1.0 million at the end of the 2006 transition
period.
    
    Net accounts receivable increased to $27.9 million at the end of
this fiscal years first quarter from $24.9 million at the end of
the third quarter of fiscal 2005. The $3 million
quarter-on-quarter increase in net accounts receivable primarily
reflected the impact of higher shipments experienced in the last
month of the first quarter of fiscal 2007, compared to the third
quarter of fiscal 2005. Net accounts receivable were $6.7 million
at the end of the 2006 transition period. The increase in net
accounts receivable of approximately $21.2 million from the end of
the 2006 transition period to the end of the first quarter of
fiscal 2007 was principally due to the seasonality of our
business.
    
    Net inventories for first quarter-end in fiscal 2007, the third
quarter-end of fiscal 2005, and at the end of the 2006 transition
period were $27.2 million, $30.0 million and $26.0 million,
respectively. The quarterly inventory levels are consistent with
our current business model and reflect the inventory investment
needed to support customer orders for the remainder of the holiday
selling season in the 2006 calendar year. The quarter-on-quarter
decrease in inventories of $2.8 million occurred primarily in
finished goods, and reflected the improvement in the timing of
receipt of product from our third-party suppliers and shipment of
goods to our customers, as well as the effect of lower levels of
closeout inventory on hand at quarter-end.
    
    We ended the first quarter of fiscal 2007, the third quarter of
fiscal 2005, and the 2006 transition period with borrowings of
$21.2 million, $21.9 million, and $0, respectively, under our CIT
ABL Facility. The amount owed under the CIT ABL Facility, when
applicable, is reported as short-term notes payable. We ended the
first quarter of fiscal 2007 with $23.5 million in short-term
notes payable, compared with $24.2 million at the end of the third
quarter of fiscal 2005, and $2.2 million at the end of the 2006
transition period. The short-term notes payable at the end of the
2006 transition period was comprised of $2.2 million borrowed
against the cash surrender value of life insurance policies on our
chairman.
    
    Accounts payable at the end of the first quarter of fiscal 2007
were $6.7 million, compared to $10.9 million at the end of the
third quarter of fiscal 2005 and $9.1 million at the end of the
2006 transition period. The $4.2 million decrease in accounts
payables quarter-to-quarter reflected the impact of lower
inventory on hand at the end of the reporting period, as well as
the timing of purchases and payments during the comparable
quarterly periods. The $2.4 million decrease in accounts payable
from the end of the 2006 transition period reflects the seasonal
timing of purchases and payments over this reporting quarter.
    
    We reported $4.7 million in accrued expenses at the end of the
first quarter of fiscal 2007, compared to $5.1 million at the end
of the third quarter of fiscal 2005, and $7.1 million at the end
of the 2006 transition period. The quarter-on-quarter decrease in
accrued expenses primarily reflected a reduction in reorganization
lease loss and related accruals of $1.2 million offset by an
increase of $800 thousand in short-term pension liabilities. When
compared to the end of the 2006 transition period, the first
quarter of fiscal 2007 accrual reflected $3.1 million in
reorganization lease loss accruals due to the agreement reached
with the landlord of our former distribution facility in Nuevo
Laredo, Mexico with respect to the lease agreement on that
facility. This reduction was offset by an aggregate of other net
higher accruals of $700 thousand reported at the end of the first
quarter of fiscal 2007 and represented in a variety of expense
areas.
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§
    
    Capital expenditures during the first quarter of fiscal 2007 were
$280 thousand, compared with $127 thousand during the same
quarterly period in fiscal 2005. Capital expenditures in both
periods were funded from working capital and reflected a
significantly lower level of capital asset spending compared to
years prior to fiscal 2005, when the Company operated its own
manufacturing plants. We expect future capital expenditures to be
in line with the current business model going forward.
 Other Long-Term Indebtedness and Current Installments of Long-Term Debt
 
 Off-Balance Sheet Arrangements and Contractual Obligations
  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
reported trade accounts receivable. These estimates
have traditionally been, and continue to be, sensitive to and dependent on a variety of factors
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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; the
acceptance of the styling of our product by consumers; the overall economic environment;
consumer confidence leading towards and through the holiday selling season; and other related
factors.Allowances established for returns were approximately $1.5 million, $2.4 million, and $900
thousand at the end of the first quarter of fiscal 2007, at the end of the third quarter of
fiscal 2005, and at the end of the 2006 transition period, respectively. The quarter-on-quarter
decrease of $900 thousand in return allowances primarily reflects the impact of our current
business model, which continues to be based on a more customer-centric sell-in approach,
collaborating more closely with our retailing partners to promote product sell-through during
the season, and thus reducing future returns. During the first quarter of fiscal 2007 and the
third quarter of fiscal 2005, we recorded approximately $370 thousand and $90 thousand,
respectively, as the sales value of merchandise returned by customers. The quarterly increase
in the sales value of merchandise returned was due to returns associated with spring 2006
merchandise from one customer, and returns of branded merchandise from another, which
transitioned to a private label program.During the first quarter of fiscal 2007 and the third quarter of fiscal 2005, reductions in
sales for future returns were $1.0 million and $2.4 million, respectively.Allowances for promotions and other sales incentives established at the end of the first quarter
2007 and the third quarter of fiscal 2005 were approximately $4.2 million and $5.7 million,
respectively, and $1.2 million at the end of the 2006 transition period. The $1.5 million
quarter-on-quarter decrease in the promotions and sales incentives allowances reflects the
impact of lower promotions and incentives of $457 thousand granted to customers with respect to
goods shipped in the first quarter of fiscal 2007; lower chargeback claims reserves of $412
thousand due to better execution of shipments over the calendar year; and lower promotions and
sales incentives reserves of $606 thousand due to relative timing of customer deductions taken
during the reporting period.Charges to earnings for consumer promotion and sales incentive activities for the first quarter
of fiscal 2007 and the third period of fiscal 2005 were $3.7 million and $3.6 million,
respectively. During the third quarter of fiscal 2005, approximately $589 thousand of favorable
adjustments to the fiscal 2004 year-end accruals were recorded due to our better than expected
over-the-counter sales experienced during the 2004 holiday season. We did not record a similar
favorable adjustment during the first quarter of fiscal 2007.We have been successful thus far in our initiatives of collaborating with our retail partners to
achieve mutually satisfactory sell-through rates by promoting goods in season, thus positively
impacting the level of returns. However, due to the continuing seasonal nature of our business,
it is possible that allowances for returns, promotions and other sales incentives, and the
related charges reported in our consolidated results of operations 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 the prior selling season, the overall economic environment, and our expectations for
the upcoming selling seasons, and we record the appropriate write-downs based on this
evaluation. At the end of the first quarter of fiscal 2007 and the third quarter of fiscal
2005, we estimated the FIFO cost of a portion of our inventory exceeded the estimated net
realizable value of that inventory by $711 thousand and $729 thousand, respectively, as
compared with a similar estimate of $463 thousand at the end of the 2006 transition period.
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, were $605
thousand, $395 thousand, and $358 thousand during the first quarter of fiscal 2007, the third
quarter of fiscal 2005, and the 2006 transition period, respectively. No significant items
impacting the quarter-on-quarter increase of inventory write-downs were noted in closing the
first quarter of fiscal 2007.
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Approximately, $3.6 million and $2.6 million of inventory that had been previously written down
was sold during the first quarter of fiscal 2007 and third quarter of fiscal 2005, respectively.(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 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. Accordingly, beginning with year-end
fiscal 2003, we established a valuation allowance against the value of those deferred tax
assets. Given our operating results in the past several years, there is not sufficient
historical assurance that future taxable income will be generated to offset these deferred
deductible items. Consistent with our accounting policy, we established a valuation allowance
against the net deferred tax assets in the amount of $18.3 million at the end of the 2006
transition period. During the first quarter of fiscal 2007, our net deferred tax assets
decreased by $2.3 million, representing use of accumulated federal and state tax loss carry
forwards as a result of the earnings reported during the thirteen-week reporting period.
Accordingly, our valuation allowance against the net deferred tax assets decreased to $16.0
million at the end of the first quarter of fiscal 2007. Should our profits continue to
improve in the future and it becomes more likely than not that those deferred tax items will
become realizable deductions in future years, we will recognize that benefit by reducing our
reported tax expense in the future years.
  Recently Issued Accounting Standards
  Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement 109. Accounting for Income
Taxes.
 , Fair
Value Measurements
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Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132
(R), (
  
  Market Risk Sensitive Instruments  Foreign Currency
   Market
Risk Sensitive Instruments  Interest Rates
  
  Evaluation of Disclosure Controls and Procedures
  Page 22




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##### Table of Contents



a.
    
    information required to be disclosed by the Company in this Quarterly Report on Form
10-Q and the other reports that it files or submits under the Exchange Act would be
accumulated and communicated to the Companys management, including its principal executive
officer and its principal financial officer, as appropriate to allow timely decisions
regarding required disclosure;b.
    
    information required to be disclosed by the Company in this Quarterly Report on Form
10-Q and the other reports that it 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.
    
    the Company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 the Company is made known to them, particularly during the period
for which the periodic reports of the Company, including this Quarterly Report on Form
10-Q, are being prepared.
 Changes in Internal Control Over Financial Reporting
  Page 23




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##### Table of Contents



Item 1. Legal Proceedings
     
 Item 1A. Risk Factors
  Our North America business, which is our primary business, is dependent on our ability to continue
sourcing products from outside North America.
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##### Table of Contents



Our concentration of customers could have a material adverse effect on us, and our success is
dependent on the success of our customers.
   The seasonal nature of our business makes management more difficult, and severely reduces cash flow
and liquidity during certain parts of the year.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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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)July 2  August 5, 2006
    
    0
    
    n/a
    
    0
    
    0August 6  September 2, 2006
    
    0
     
    n/a
    
    0
    
    0September 3  30, 2006
    
    20,156 (1)
    
    6.40 (1)
    
    0
    
    0Total
    
    20,156
    
$ 6.40
    
0
   
0
 
 (1)
    
    Reflects common shares owned and tendered by a director of the Company to pay
the exercise price for the exercise of non-qualified stock options.(2)
    
    The Company 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
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##### Table of Contents



R. G. BARRY CORPORATION
RegistrantDate: November 9, 2006
    
    /s/ Daniel D. VirenDaniel D. VirenSenior Vice President  Finance, Chief Financial Officer
and Secretary(Principal Financial Officer)(Duly Authorized Officer)
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##### Table of Contents



Exhibit No.
    
    Description
    
    Location10.1
    
    Amendment to Executive Employment
Agreement, made to be effective as
of August 28, 2006, between R.G.
Barry Corporation and Harry Miller
    
    Incorporated herein
by reference to
Exhibit 10.1 to
R.G. Barry
Corporations
Current Report on
Form 8-K dated and
filed on September
1, 2006 (File No.
001-08769)10.2
    
    Settlement Agreement, dated as of
August 28, 2006, among R.G. Barry
Corporation, Fertwall Properties,
Ltd. and Barry Distribution Center
de Mexico, S.A. de C.V.
    
    Incorporated herein
by reference to
Exhibit 10.2 to
R.G. Barry
Corporations
Current Report on
Form 8-K dated and
filed on September
1, 2006 (File No.
001-08769)10.3
    
    Amendment Notice and Consent Form
Regarding Restricted Stock Units
Awarded to Employees of R.G. Barry
Corporation under the R.G. Barry
Corporation 2005 Long-Term Incentive
Plan
    
    Incorporated herein
by reference to
Exhibit 10.1 to
R.G. Barry
Corporations
Current Report on
Form 8-K dated
August 18, 2006 and
filed on August 21,
2006 (File No.
001-08769)10.4
    
    2007 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 and
filed on August 8,
2006 (File No.
001-08769)31.1
    
    Rule 13a-14(a)/15 d-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 28