UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-08769

R.G. BARRY CORPORATION

Ohio (State or other jurisdiction of incorporation or organization)		31-4362899 (I.R.S. Employer Identification No.)
13405 Yarmouth Road N.W. Pickerington, Ohio 43147 (Address of principal executive offices, including zip code)		(614) 864-6400 (Registrant’s telephone number, including area code)

Title of Each Class		Name of Each Exchange on Which Registered
Common Shares, Par Value $1.00 per share		The NASDAQ Stock Market (The NASDAQ Global Market)
Series II Junior Participating Class A Preferred Share Purchase Rights		The NASDAQ Stock Market

     Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

     Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

     The aggregate market value of the common shares (the only common equity of the Registrant) held by non-affiliates of the Registrant was $84,883,187 based on the December 31, 2009 closing price per common share of $8.60 on The NASDAQ Global Market.

     Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date: 10,984,180 common shares, $1.00 par value, as of September 2, 2010.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant’s definitive Proxy Statement to be furnished to shareholders of the Registrant in connection with the 2010 Annual Meeting of Shareholders, which definitive Proxy Statement will be filed not later than 120 days after July 3, 2010, are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent provided herein.

 

 

R.G. BARRY CORPORATION

FISCAL 2010
Form 10-K
ANNUAL REPORT

TABLE OF CONTENTS

		Page
Forward-Looking Statements			3
Definitions			3
PART I
Item 1. Business			4
Item 1A. Risk Factors			10
Item 1B. Unresolved Staff Comments			14
Item 2. Properties			14
Item 3. Legal Proceedings			15
Item 4. Reserved			15
Supplemental Item. Executive Officers of the Registrant			15
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			17
Item 6. Selected Financial Data			19
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			31
Item 8. Financial Statements and Supplementary Data			32
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			61
Item 9A. Controls and Procedures			61
Item 9B. Other Information			63
PART III
Item 10.* Directors, Executive Officers and Corporate Governance			63
Item 11.* Executive Compensation			65
Item 12.* Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			65
Item 13.* Certain Relationships and Related Transactions, and Director Independence			65
Item 14.* Principal Accountant Fees and Services			65
PART IV
Item 15. Exhibits and Financial Statement Schedules			66
EX-10.37
EX-21.1
EX-23.1
EX-24.1
EX-31.1
EX-31.2
EX-32.1

FORWARD-LOOKING STATEMENTS

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995:

     Some of the disclosures in this Annual Report on Form 10-K for the fiscal year ended July 3, 2010 (the “2010 Form 10-K”) contain forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as “may,” “expect,” “could,” “should,” “anticipate,” “believe,” “estimate,” or words with similar meanings. Any statements that refer to projections of our future performance, anticipated trends in our business and other characterizations of future events or circumstances are forward-looking statements. These statements, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995, are based upon our current plans and strategies and reflect our current assessment of the risks and uncertainties related to our business. These risks include, but are not limited to: our continuing ability to source products from third parties located outside North America; competitive cost pressures; the loss of retailer customers to competitors, consolidations, bankruptcies or liquidations; shifts in consumer preferences; the impact of global financial crisis and general economic conditions on consumer spending; the impact of the highly seasonal nature of our business upon our operations; inaccurate forecasting of consumer demand; difficulties liquidating excess inventory; disruption of our supply chain or distribution networks; and our investment of excess cash in certificates of deposit and other variable rate demand note securities. You should read this 2010 Form 10-K carefully, because the forward-looking statements contained in it (1) discuss our future expectations; (2) contain projections of our future results of operations or of our future financial condition; or (3) state other “forward-looking” information. The risk factors described in this 2010 Form 10-K and in our other filings with the Securities and Exchange Commission (the “SEC”), in particular “Item 1A. Risk Factors“of Part I of this 2010 Form 10-K, give examples of the types of uncertainties that may cause actual performance to differ materially from the expectations we describe in our forward-looking statements. If the events described in “Item 1A. Risk Factors” of Part I of this 2010 Form 10-K occur, they could have a material adverse effect on our business, operating results and financial condition. You should also know that it is impossible to predict or identify all risks and uncertainties related to our business. Consequently, no one should consider any such list to be a complete set of all potential risks and uncertainties. Forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update any forward-looking statement to reflect circumstances or events that occur after the date on which the statement is made to reflect unanticipated events. Any further disclosures in our filings with the SEC should also be considered.

DEFINITIONS

     All references in this 2010 Form 10-K to “we”, “us”, “our”, and the “Company” refer to R.G. Barry Corporation, an Ohio corporation (the registrant) or, where appropriate, to R.G. Barry Corporation and its subsidiaries. The Company’s annual reporting period is either a fifty-two or fifty-three-week period (“fiscal year”) ending annually on the Saturday nearest June 30. For definitional purposes, as used herein, the terms listed below include the respective periods noted:

Fiscal 2011		52 weeks ending July 2, 2011
Fiscal 2010		53 weeks ended July 3, 2010
Fiscal 2009		52 weeks ended June 27, 2009
Fiscal 2008		52 weeks ended June 28, 2008
Fiscal 2007		52 weeks ended June 30, 2007
2006 fifty-two-week period		52 weeks ended July 1, 2006
2006 transition period		26 weeks ended July 1, 2006
2005 twenty-six-week period		26 weeks ended July 2, 2005
Fiscal 2005		52 weeks ended December 31, 2005

PART I

Item 1. Business.

BUSINESS AND PRODUCTS

Overview

     We are a major developer and marketer of accessory footwear, a retail category that includes slippers, sandals, hybrid and active fashion footwear, slipper socks and hosiery. We serve a broad spectrum of North American retailers of all size and retail categories with our family of proprietary and licensed brands. We also develop and source private label accessory footwear products for some of North America’s leading retailers. We report our operations as a single operating segment.

     Our business model is a flexible, sourcing model where much of our costs are variable. We do not operate any manufacturing facilities and source all of our products from overseas resources. We implemented our current business model in 2004 after operating a manufacturing-based business model for 57 years since our founding in 1947. Under our current model, we have recorded consistent profitability and increased net sales annually since 2005, a period that has included some of the most difficult retail seasons in decades.

     We traditionally record approximately 70% of our net sales during the period from July through December. We have identified the popularity of slippers as a holiday gift item as the main reason for our net sales’ heavy seasonal weighting. In 2006, we moved from a December-ending fiscal year to a fiscal year that ends on the Saturday closest to June 30. This change was made to simplify planning and financial reporting under such a heavily seasonal business model. One of our on-going corporate objectives is to identify and acquire or to develop businesses that will add more seasonal balance to our annual business cycle.

     We use our strengths in design and product development; sourcing quality and value; consumer brand marketing; retail category management; supply chain and logistics; and relationship building with our key customers as critical elements in the long-term growth strategy for our core business. This strategy includes investing in and nurturing our own brands; diversification through category-appropriate acquisitions; entering meaningful branding and licensing opportunities; targeting new or underserved retailers; introducing innovative, new products and brands; and expanding internationally through programs with some of our key retailing partners. In July 2010, we licensed certain of the brands we own to Olivet International, Inc. in a five-year exclusive licensing agreement that gives Olivet exclusive rights to develop and market a variety of sleepwear, active wear and accessory products bearing the DF by Dearfoams™, DF Sport by Dearfoams™, and Utopia by Dearfoams™ trademarks for sale in North American and South American markets.

     Within the framework of our growth strategy, management also focuses on controlling risk, improving liquidity, increasing cash reserves, protecting the balance sheet, generating an appropriate return on investment and shareholders’ equity and keeping the business sustainable, while taking the kinds of intelligent risks that are necessary to encourage long-term, profitable growth.

     Our executive offices are located at 13405 Yarmouth Road N.W., Pickerington, Ohio 43147. Our telephone number is (614) 864-6400, and our corporate Internet website can be accessed at www.rgbarry.com (this uniform resource locator, or URL, is an inactive textual reference only and is not intended to incorporate our website into this 2010 Form 10-K). We have been a public company since 1962. Our common shares are principally traded on The NASDAQ Global Market (“NASDAQ-GM”) under the trading symbol DFZ.

Principal Products

     Since introducing Angel Treads*, the world’s first foam-soled, soft, washable slipper in 1947, we have developed a number of our own accessory footwear brands as well as licensed well-known brands from third parties. Most of our brand lines, both proprietary and licensed, feature slippers for women and men, and focus on comfort. Products sold under our own trademarks represented the majority of our consolidated net sales in fiscal 2010. The remainder of our net sales came from our licensed brand business and from the development, sourcing and sale of accessory footwear products for retailers who sell the footwear under their own private labels.

     We think our trademarks have significant commercial value. In general, trademarks remain valid and enforceable as long as they are used in connection with our products and services and the required registration renewals are filed. The Company intends to continue the use of each of its trademarks and renew each of its registered trademarks accordingly. In addition to Angel Treads*, our current principal brand names include Dearfoams*, DF by Dearfoams™, DF Sport by Dearfoams™, Terrasoles* and Utopia by Dearfoams™. Currently, our principal products sold under trademarks licensed from third parties include Levi’s** brand slippers and sandals for men, women and children; Nautica** slippers for women and men; and Superga** canvas sneakers and active/fashion footwear for women, men and children.

     Dearfoams* is our principal proprietary brand. Since its introduction in 1958, Dearfoams* has, according to our own consumer research, become one of the most-recognized brand names in accessory footwear. Several basic slipper profiles are standard in the Dearfoams* brand line, its sub-brands and our other proprietary and licensed slipper brands. These classic footwear silhouettes are in demand throughout the year. The most significant changes to these traditional products are made in response to broadly accepted fashion trends and can include slight variations in design, ornamentation, fabric and color. These products typically have uppers made of man-made fibers such as microfiber suede, knit terry and velour. In addition, corduroy, nylon and an updated assortment of other man-made and natural materials may be used. We also regularly introduce new styles that may offer enhanced comfort elements, fashion-forward design elements or other innovative or new product attributes.

     Retail prices for most of our slipper-type products normally range from approximately $5 to $30 per pair, depending on the style of footwear, retail channel and retailer mark-up. Most consumers, who are primarily female, of our slippers fit within a range of four-to-six universal sizes. This is a smaller range of sizes than that found in traditional footwear and allows us to carry lower inventory levels than many traditional footwear suppliers.

     We debut our new slipper product collections each spring and fall in conjunction with national retail accessory buying markets and other national trade events. We plan to continue the introduction of updated and new products in response to fashion changes, consumer taste preferences and changes in the demographic makeup of our business.

     As part of our ongoing effort to diversify our business from product, seasonal, demographic and retail channel perspectives, we have expanded our product portfolio since 2006 from only slippers to include sandals, indoor/outdoor casual footwear and canvas/active fashion footwear. Many of these products are sold into retail channels and to consumers not previously served by our core slipper business. We sell these products under our own brand names, such as Terrasoles*, and trademarks licensed from third parties, such as Superga**, Levi’s** and Nautica**.

     We launched Terrasoles*, a new kind of accessory footwear, in August 2007. Terrasoles* can be worn beyond the home and was developed to specifically address the after-activity comfort footwear needs of those engaged in or aspiring to a variety of sports and life styles. Our Terrasoles* brand products are sold through a variety of retailers including warehouse clubs, specialty stores, outdoor retailers, Internet sites and catalogs. Retail prices of these products range from $40 to $50. Terrasoles* products are displayed on a self-selection basis and are intended to appeal primarily to the self-purchase buyer.

Licenses

     In March 2009, we entered into a four-year licensing agreement with Levi Strauss & Co. to develop and market a collection of slippers and sandals for the United States market. Levi’s** is one of the most widely-recognized brands in the world. Under the license, we agreed to certain minimum royalty payments, payable quarterly. We have an option to renew the agreement for one additional three year-term commencing on January 1, 2013 and ending December 31, 2015, if certain sales based terms established under the agreement are met. Our Levi’s** line debuted in national chain department stores in the fall of 2009 with Levi’s ** sandals debuting at retail for spring of 2010. Retail prices for these products range from $20 to $30. Our products sold under the Levis** brand are displayed on a self-selection basis and are intended to appeal to “impulse” and “gift-giving” buyers. Net sales under this brand were modest for fiscal 2010.

     In June 2007, we entered into a licensing agreement with BasicNet S.p.A. of Turin, Italy, through BasicNet’s U.S. affiliate, Basic Properties America, Inc. (collectively, “BasicNet”), to become the exclusive North American licensee for Superga,** a leading European canvas/active fashion footwear brand. Its products include vulcanized sneakers with canvas, linen and leather upper materials. Our licensing agreement was modified in July 2009 and provides us with the right to sell Superga** licensed products through December 31, 2011. We are currently negotiating with BasicNet for the renewal of the agreement for an additional three-year term, following the December 31, 2011 current expiration date. Under our agreement, BasicNet is responsible for all product development and design activities, including product fit and wear testing, related to Superga**. Superga** is sold through mall-based retailers, in the shoe departments of mid-range and premier department stores and through key specialty retailers. Net sales for Superga** were modest in fiscal 2010.

     In January 2008, we entered into a three-year licensing agreement with Nautica Apparel, Inc. (“Nautica Apparel”), a subsidiary of VF Sportswear, Inc., a division of VF Corporation, to become the exclusive Nautica** accessory footwear licensee in the United States, Canada, Mexico and Puerto Rico. Our Nautica** licensing agreement will end on December 31, 2010. Net sales under the Nautica** brand were modest in fiscal 2010.

     We believe that the Levi’s** and Superga** licenses have the potential to become important components of our long-term growth strategy and to add additional counter-balance to the seasonal nature of our core slipper business.

Sales and Marketing

     We market and sell our products across many retail channels, with core collections of products primarily sold through traditional, promotional and national chain department stores; mass merchants; discount stores; warehouse clubs; discount retailers; specialty stores; independent retailers; catalogs; and Internet sites. Our products are marketed to these retailers under various owned, licensed or private label brands. Each product brand category is supported by a brand president and cross-functional disciplines including product design and development, marketing, finance, sales analysis and planning and information technology.

     Sales of our products to retailers are generally handled by sales account executives employed by the Company or through our business-to-business Internet portal sites. For the Terrasoles* and Superga** brands, we use some independent sales representatives as well as our own sales account executives.

     We do not finance our customers’ purchases beyond granting traditional payment terms at the time shipments are made. Limited return privileges are granted to some of the Company’s retailing partners. In some cases, we grant allowances to fund advertising and in-season promotional activities.

     The Company maintains a sales office and showroom at 9 East 37^th Street in New York City. During the spring and fall of each year, we present collections of our products to buyers representing the Company’s key retail customers at scheduled showings. Buyers for our large retail customers also periodically visit this sales office or our corporate facility in Pickerington, Ohio. We also maintain a sales administration office in Bentonville, Arkansas that supports our business with Wal-Mart Stores, Inc. and its affiliates. Wal-Mart Stores, Inc. and its affiliates together represent our largest customer.

     Due to the heavy seasonal component of our business, centered in the second half of the calendar year, our inventory investment is largest in early fall in order to support our customers’ needs for the fall and holiday selling seasons. During the holiday selling season, we hire temporary merchandisers to assist in the display and merchandising of the Company’s products in a number of department stores and chain stores nationally. We pioneered this point-of-sale retail selling floor management technique in the accessories area many years ago and continue to believe that, when it is combined with computerized automatic demand-pull replenishment systems and various other marketing initiatives, it optimizes our holiday seasonal sales.

     Beginning in fiscal 2010, we launched a multi-year, multi-million dollar marketing/advertising initiative that is focused on supporting our owned brands, primarily the Dearfoams* brands. Our previous marketing strategies focused on maximizing our presence at point of sale by expanding shelf and floor space, since substantially all of our products are intended to appeal to “impulse” and “gift-giving” buyers. The fiscal 2010 phase of our new marketing strategy involved extensive consumer research, message development and a limited amount of outdoor and print consumer advertising. As the project moves forward, these efforts will expand with the goals of increasing our dominance in the marketplace and increasing our relevance to a broader demographic section of accessory footwear consumers.

Sourcing

     We operate a sourcing office in Dongguan City, Peoples Republic of China (PRC or China), to facilitate the procurement of most of our products. Twenty-seven people work on various aspects of sourcing and product development are employed in our Dongguan City office. We purchase slipper-type products from fourteen different third-party manufacturers, all of whom are located in the PRC. Purchases of products currently sold under the Terrasoles* brand are made primarily by a different set of third-party manufacturers located in China. We purchase all Superga** products through a third-party Vietnam-based suppliers who provide those same products to Superga’s** parent company, BasicNet.

     Our overall experience with third-party manufacturers has been very good in terms of reliability, delivery times and product quality. All of our purchases in China are conducted on an open account basis. We recognize, however, that reliance on third-party manufacturers does carry elements of risk. During fiscal 2010, we did not experience any substantial adverse quality or delivery issues. We will continue to ensure that the sourcing activities supported by our Dongguan office are effectively aligned to ensure that the quality and delivery of products complies with our and our customers’ standards.

We are dependent on methods of third-party transport to move our products from our third-party manufacturers to our distribution facilities, and from those facilities to our customers.

Ethics, human rights and the environment

     It is a fundamental goal of the Company to incorporate our core values of integrity, quality, innovation, leadership, teamwork and community into all aspects of our business. We demand the highest business and personal ethical standards, as well as compliance with all applicable governmental laws, rules and regulations from all of our team members and from all with whom we do business. We only do business with suppliers and vendors who operate legally and ethically.

     We are committed to protecting human rights and in ensuring that fair treatment, humane working conditions and equitable market wages exist with our suppliers. Many of our key customers conduct their own independent human rights audits of our third-party suppliers and share their findings with us. We also conduct direct supplier audits under various licensed product agreements held by the Company.

     We are concerned about preserving and protecting our environment. We strive to comply with all federal, state and local environmental protection laws at all Company locations. Compliance with provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material effect on our capital expenditures, earnings or competitive position. We believe that the nature of our operations has little, if any, environmental impact, and we anticipate no material capital expenditures for environmental control facilities for the foreseeable future. We encourage our team members to conserve energy and other resources, to reduce the amount of waste the Company produces, and to participate actively in recycling efforts. We also expect all of our suppliers to comply with appropriate environmental laws.

RESEARCH AND DEVELOPMENT

     During fiscal 2010, we relocated certain portions of our research and development activity from our Pickerington, Ohio offices to our sourcing office located in Dongguan City, PRC. Most of our research and development activities in China relate to fabric selection and product testing. Since nearly all raw materials used in our products are sourced from China, moving the related R&D functions nearer to the source was viewed as a cost-saving and time-saving measure.

     The principal raw materials used in our products are textile fabrics, threads, foams, other synthetic products, recycled micro fleece and mesh. Our raw materials also include organic materials such as cotton and bamboo as well as packaging materials and are available from a wide range of suppliers. The Company has not experienced any significant difficulty in obtaining raw materials from our respective suppliers in China.

     During fiscal 2010, fiscal 2009 and fiscal 2008, we spent approximately $2.3 million, $2.4 million, and $2.6 million, respectively, to support the development of new products and improvement of existing products. These R&D activities were substantially supported by approximately 20 full-time employees.

SIGNIFICANT CUSTOMERS

     Wal-Mart Stores, Inc. and its affiliates accounted for 35%, 38% and 37% of our consolidated net sales during fiscal 2010, fiscal 2009 and fiscal 2008, respectively. Our sales to Wal-Mart Stores, Inc. and its affiliates are less seasonal in nature than those to many of our other customers. J.C. Penney Company, Inc. accounted for 10%, 10% and 11% of our consolidated net sales during fiscal 2010, fiscal 2009 and fiscal 2008, respectively.

BACKLOG OF ORDERS

     Due to the highly seasonal nature of our business, the backlog of unfilled sales orders is often largest in the July-August time frame as our customer orders are received in preparation for the holiday selling season. The backlogs of unfilled orders as of August month-end periods that ended on September 4, 2010, August 29, 2009 and September 2, 2008 were $30.3 million, $31.5 million and $30.8 million, respectively. The backlogs of unfilled sales orders at the end of fiscal 2010, fiscal 2009 and fiscal 2008 were approximately $33.4 million, $19.3 million and $29.2 million, respectively; comparisons between years reflect differences in the timing of order receipts only and do not necessarily indicate a growth or decline in sales volume.

     We anticipate that a large percentage of the unfilled sales orders as of the end of fiscal 2010 will be filled during the first six months of fiscal 2011. Due to the unpredictability of the timing of receipt of customer orders and given the heavy seasonality of our sales, we believe that the status of the backlog of orders may not necessarily be indicative of future business. In recent years, customers have placed their orders much closer to the time of expected delivery, a trend that we expect will continue. Our internal product sourcing and logistics activities will continue to adapt to these and other marketplace changes in an effort to ensure complete and timely deliveries to our customers.

INVENTORY

     Inventory risk, resulting primarily from season-to-season fashion and customer-driven styling changes, makes managing exposure to obsolete inventory one of our supply chain group’s key strategic roles. We have been very successful in managing inventory levels, reducing inventory risks and lowering inventory write-downs. We have accomplished this by purchasing inventory closer to the time that it is needed and by placing orders that are closely aligned with the visibility of customer demand.

     While we expect to continue tightly managing inventory levels, we believe that inventory, as measured by dollars invested, will continue to grow from its historic low at the end of fiscal 2009 at a rate appropriate to support our on-going growth. We also believe that inventory turns is a much more relevant performance metric, and we expect to continue turning inventory at a rate in excess of four times per year.

COMPETITION

     We operate in a relatively small segment of the overall accessory footwear retail category. We compete primarily on the basis of quality and comfort of our products, price, value, service to our customers and our marketing and merchandising expertise. We believe that we are among the world’s largest marketers of accessory footwear products. However, this category is a very small component of the highly competitive footwear industry. In recent years, companies that are engaged in other areas of the footwear industry and apparel categories have begun to market accessory footwear. Many of these competitors have significantly greater financial, distribution and marketing resources than we do. In addition, some retailers have sought to source products directly for sale in their stores. We are not aware of any reliable published statistics that indicates our current market-share position in the footwear industry or in the sector providing accessory footwear products.

FACILITIES

     We own our corporate headquarters building in Pickerington, Ohio. We lease sales and sales administration offices in New York City and Bentonville, Arkansas; and a sourcing representative office in Dongguan City, PRC. We do not operate or own any manufacturing facilities.

     During fiscal 2010, we relied on our leased distribution center in San Angelo, Texas and an independent third-party logistics provider located in southern California to store products, fulfill customer orders and distribute our products. The distribution center in Texas primarily supports shipments of Terrasoles* and Superga** and other replenishment, closeout product and e-commerce orders. The third-party logistics provider primarily supports case pack shipments to customers. Our principal administrative, sales and distribution facilities are described more fully below under “Item 2. Properties.” of this 2010 Form 10-K.

EMPLOYEES

     At the close of fiscal 2010, we employed approximately 154 full-time team members. Approximately 82% of our team members are employed in the United States.

AVAILABLE INFORMATION

     We make available free of charge through our Internet website all annual reports on Form 10-K, all quarterly reports on Form 10-Q, all current reports on Form 8-K, and all amendments to those reports, filed or furnished by the Company pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as well as our definitive annual meeting proxy materials as filed pursuant to Section 14 of the Exchange Act. These reports and proxy materials are available as soon as reasonably practicable after they are submitted electronically to the Securities and Exchange Commission (the “SEC”).

Item 1A. Risk Factors.

     There are certain risks and uncertainties in our business that could cause our actual results to differ materially from those anticipated. The following risk factors should be read carefully in connection with evaluating our business and in connection with the forward-looking statements contained in this 2010 Form 10-K. Any of these risks could materially adversely affect our business, our operating results, or our financial condition and the actual outcome of matters as to which forward-looking statements are made.

The global financial and general economic conditions that are largely out of our control may adversely affect our financial condition and results of operations.

     Uncertainty about current and future global economic conditions may affect consumer spending or our customers’ buying habits, which would adversely affect demand for our products. Our customers may be impacted by the significant decrease in available credit. If credit pressures or other financial difficulties result in insolvency for these customers, it could adversely impact our overall financial results.

     Furthermore, reduced traffic in retail stores or limitations on the prices we can charge for our products could reduce our sales and profit margins and have a material adverse effect on our financial condition and results of operations. Our business, financial condition, results of operations and access to credit as well as the trading price of our common shares could be materially and adversely affected if the economy fails to stabilize, or if current economic conditions do not improve or worsen.

Our North America business, which is our primary business, is dependent on our ability to continue sourcing products from outside North America.

     We do not own or operate any manufacturing facilities and depend upon independent third parties to manufacture all of our products. During fiscal 2010, most of our products were manufactured in China, except for our Superga** and most of our Terrasoles* branded products, which were sourced from third-party manufacturers primarily located in Vietnam. The inability of our third-party manufacturers to ship orders of our products in a timely manner or to meet our quality standards could cause us to miss customer delivery date requirements and could result in cancellation of orders, refusals to accept deliveries, or harm our ongoing business relationships. Furthermore, because quality is a leading factor when customers and retailers accept or reject goods, any decline in the quality of the products produced by our third-party manufacturers could be detrimental not only to a particular order but to future relationships with our customers.

     We compete with other companies for the production capacity of our third-party manufacturers. Some of these competitors have greater financial and other resources than we have and may have an advantage in securing production from these manufacturers. If we experience a significant increase in demand for our products or if one of our existing third-party manufacturers must be replaced, we may have to find additional third-party manufacturing capacity. There can be no assurance that this additional capacity will be available when required or will be available on terms that are similar to the terms that we have with our existing third-party manufacturers or that are otherwise acceptable to us. If it is necessary for us to replace one or more of our third-party manufacturers, particularly one that we rely on for a substantial portion of our products, we may experience an adverse financial or operational impact, such as increased costs for replacement manufacturing capacity or delays in distribution and delivery of our products to our customers, which could cause us to lose customers or revenues because of late shipments or customers being unwilling to absorb increased costs.

Our international manufacturing operations are subject to the risks of doing business abroad.

     We currently purchase most of our products for all brands from China, except for the Superga** brand products, which are purchased primarily from Vietnam. We expect to continue to purchase our products from China and Vietnam at approximately the same levels in the future. This international sourcing subjects us to the risks of doing business abroad. These risks include:

	•		the impact on product development, sourcing or manufacturing from public health and contamination risks in China, Vietnam or other countries where we obtain or market our products;
	•		acts of war and terrorism;
	•		the impact of disease pandemics;
	•		social and political disturbances and instability and similar events;
	•		strikes or other labor disputes;
	•		export duties, import controls, tariffs, quotas and other trade barriers;
	•		shipping and transport problems;
	•		increased expenses, particularly those impacted by any increase in oil prices;
	•		fluctuations in currency values; and
	•		general economic conditions in overseas markets.

     Because we rely on Chinese and Vietnamese third-party manufacturers for a substantial portion of our product needs, any disruption in our relationships with these manufacturers could adversely affect our operations. While we believe these relationships are strong, if trade relations between the United States and these countries deteriorate or are threatened by instability, our business could be adversely affected. Although we believe that we could find alternative manufacturing sources, there can be no assurance that these sources would be available on terms that are favorable to us or comparable to those with our current manufacturers. Furthermore, a material change in the valuation of the Chinese or Vietnamese currency could adversely impact our product costs, resulting in a significant negative impact on our results of operations.

Our concentration of customers could have a material adverse effect on us, and our success is dependent on the success of our customers.

     As a result of the continuing consolidation in the retail industry, our customer base has decreased, thus increasing the concentration of our customers. Our largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for approximately 35%, 38% and 37% of our consolidated net sales in fiscal 2010, fiscal 2009 and fiscal 2008, respectively. The Company’s sales to Wal-Mart Stores, Inc. and its affiliates are less seasonal in nature than the rest of the Company’s customers. Wal-Mart Stores, Inc. and its affiliates and J.C. Penney Company, Inc. combined accounted for over 45% of our consolidated net sales in fiscal 2010. If either of these customers reduced or discontinued its product purchases from us, it would adversely affect our results of operations. Additionally, in recent years, several major department stores have experienced consolidation and ownership changes. In the future, retailers may undergo additional changes that could decrease the number of stores that carry our products, which could adversely affect our results.

     Our success is also impacted by the financial results and success of our customers. If any of our major customers, or a substantial portion of our customers, generally, experiences a significant downturn in business, fails to remain committed to our products or brands or realigns affiliations with suppliers or decides to purchase products directly from the manufacturer, then these customers may reduce or discontinue purchases from us which could have a material adverse effect on our business, results of operations and financial condition. We are also subject to the buying plans of our customers, and if our customers do not inform us of changes in their buying plans until it is too late for us to make necessary adjustments to our product lines, we may be adversely affected. We do not have long-term contracts with our customers and sales normally occur on an order-by-order basis. As a result, customers can generally terminate their relationship with us at any time.

Our business faces cost pressures, which could affect our business results.

     While we rely on third-party manufacturers as the source of our products, the cost of these products depends, in part, on these manufacturers’ raw materials, labor and energy costs. Thus, our own costs are subject to fluctuations, particularly due to changes in the cost of raw materials and cost of labor in the locations where our products are manufactured, foreign exchange and interest rates.

The accessory footwear product category is highly competitive.

     The accessory footwear product category in which we do most of our business is a highly competitive business. If we fail to compete effectively, we may lose market position. We operate in a relatively small segment of the overall footwear industry, supplying accessory footwear products. We believe that we are among the world’s largest marketers of accessory footwear products. However, this category is a very small component of the overall footwear industry. In recent years, companies that are engaged in other areas of the footwear industry and apparel companies have begun to market accessory footwear and many of these competitors have substantially greater financial, distribution and marketing resources than we do. In addition, many of the retail customers for our products have sought to import

competitive products directly from manufacturers in China and elsewhere for sale in their stores on a private label basis. The primary methods we use to compete in our industry include product design, product performance, quality, brand image, price, marketing and promotion and our ability to meet delivery commitments to retailers. A major marketing or promotional success or a technical innovation by one of our competitors could adversely impact our competitive position.

Our business is subject to consumer preferences, and unanticipated shifts in tastes or styles could adversely affect our sales and results of operations.

     The accessory footwear product category is subject to rapid changes in consumer preferences. Our performance may be hurt by our competitors’ product development, sourcing, pricing and innovation as well as general changes in consumer tastes and preferences. The accessory footwear product category is also subject to sudden shifts in consumer spending, and a reduction in such spending could adversely affect our results of operations. Consumer spending may be influenced by the amount of consumer disposable income, which may fluctuate based on a number of factors, including general economic conditions, consumer confidence and business conditions. Further, consumer acceptance of new products may fall below expectations and may result in excess inventories or the delay of the launch of new product lines.

If we inaccurately forecast consumer demand, we may experience difficulties in handling consumer orders or liquidating excess inventories and results of operations may be adversely affected.

     Our industry has relatively long lead times for the design and manufacture of products. Consequently, we must commit to production in advance of orders based on our forecast of consumer demands. If we fail to forecast consumer demand accurately, we may under- or over-source a product and encounter difficulty in handling customer orders or liquidating excess inventory, and we may have to sell excess inventory at a reduced cost. Further, due to the fashion-oriented nature of our products, rapid changes in consumer preferences lead to an increased risk of inventory obsolescence. While we believe we have successfully managed this risk in recent years and believe we can successfully manage it in the future, our operating results will suffer if we are unable to do so.

We rely on distribution centers to store and distribute our products and if there is a natural disaster or other serious disruption affecting any of these facilities or our methods of transport, we may be unable to effectively deliver products to our customers.

     We rely on our leased distribution center in San Angelo, Texas as well as a third-party logistics provider located in California to store our products prior to distribution to our customers. Significant disruptions affecting the flow of products to and from these facilities due to natural disasters, labor disputes such as dock strikes, or any other cause could delay receipt and shipment of a portion of our inventory. This could impair our ability to timely deliver our products to our customers and negatively impact our operating results. Although we have insured our finished goods inventory for the amount equal to its carrying cost plus normal profit expected in the sale of that inventory against losses due to fire, earthquake, tornado, flood and terrorist attacks, our insurance program does not protect us against losses due to delays in our receipt and distribution of products due to transport difficulties, cancelled orders or damaged customer relationships that could result from a major disruption affecting the flow of products to and from our distribution facilities.

     Further, we are dependent on methods of third-party transport to move our products to and from these facilities. Circumstances may arise where we are unable to find available or reasonably priced shipping to the United States from our manufacturers in China, Vietnam and elsewhere or road and rail transport to our customers. If our methods of transport are disrupted or if costs increase sharply or suddenly, due to price increases of oil in the world markets or other inflationary pressures, we may not be able to affordably or timely deliver our products to 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.

     Our business is highly seasonal and much of the results of our operations are dependent on strong performance during the last six months of the calendar year, particularly the holiday selling season. The majority of our marketing and sales activities take place at industry market week and trade shows in the spring and fall. Our inventory is largest in the early fall to support our customers’ requirements for the fall and holiday selling seasons. Historically, our cash position is strongest in the first six months of the calendar year. Unfavorable economic conditions affecting retailers during the fall and through the holiday season in any year could have a material adverse effect on the results of our operations for the year. Although our strategic business initiatives are focused on adding seasonal balance to our business, we can offer no assurance that the seasonal nature of our business will change in the future.

We must satisfy minimum covenants regarding our financial condition in order to be able to borrow under our current unsecured credit facility with The Huntington National Bank.

     Our current unsecured credit facility with The Huntington National Bank contains certain minimum covenants regarding our financial condition and financial performance. We have remained in compliance with all of these covenants since we entered into the facility in March 2007, and we believe that we will continue to comply with these covenants throughout the remainder of the term of the credit facility agreement (as amended June 26, 2009), which runs through December 31, 2011.

We periodically invest funds in marketable securities, in which ultimate repayment of amounts invested depends on the financial capacity of the related financial institutions and corporations involved.

     At July 3, 2010, as part of our cash management and investment program, we maintained a portfolio of $28.0 million in short-term investments, consisting of $21.8 million in marketable investment securities comprised variable rate demand notes and $6.2 million in other short-term investments. The marketable investment securities are classified as available-for-sale. These marketable investment securities are carried at cost, which approximates fair value. The other short-term investments are classified as held-to-maturity securities and include several corporate bonds which have individual maturity dates ranging from July 2010 to January 2011.

Item 1B. Unresolved Staff Comments.

     No response required.

Item 2. Properties.

     The Company owns our corporate headquarters and executive offices located at 13405 Yarmouth Road N.W. in Pickerington, Ohio, a facility that contains approximately 55,000 square feet. The Company leases space aggregating approximately 188,800 square feet at an approximate aggregate annual rent of $565,500. The following table describes the Company’s principal leased properties during fiscal 2010 and the operating status of those properties at July 3, 2010:

Approximate

Approximate

Lease

Location

Use

Square Feet

Annual Rental

Expires

Renewals

9 East 37th Street, 11th Floor New York City, N.Y.

Sales Office

5,000

$

200,000

2015

None

Distribution Center San Angelo, Texas

Shipping, Distribution Center

172,800

$

330,000

2010

Month to month

Approximate

Approximate

Lease

Location

Use

Square Feet

Annual Rental

Expires

Renewals

Brain Building, 1st Floor, Nanwu Chisheng Industry Zone, Houjie Town, Dongguan City, Guangdong Province , China

Sourcing Representative Office

9,700

$

16,000

2014

None

903 S.E. 28th Street Suite 7 Bentonville, Arkansas

Sales Administration Office

1,300

$

19,500

N/A

Month to month

Item 3. Legal Proceedings.

     The Company is from time to time involved in claims and litigation considered normal in the ordinary course of our business. There are no significant legal proceedings pending for the Company. While it is not feasible to predict the ultimate outcome, in the opinion of management, the resolution of pending legal proceedings is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

Item 4. (Reserved)

Supplemental Item. Executive Officers of the Registrant.

     The following table lists the names and ages of the executive officers of the Company as of September 9, 2010, the positions with the Company presently held by each executive officer and the business experience of each executive officer during the past five years. Unless otherwise indicated, each individual has had his or her principal occupation for more than five years. The executive officers serve at the discretion of the Board of Directors subject, when applicable, to their respective contractual rights with the Company and, in the case of Mr. Tunney, pursuant to an employment agreement. There are no family relationships among any of the Company’s executive officers or directors.

						Position(s) Held with the Company and
Name		Age				Principal Occupation (s) for Past Five Years
Greg A. Tunney			49			Chief Executive Officer of the Company since May 2006; President of the Company since February 2006; Director of the Company since August 2006; Chief Operating Officer of the Company from February 2006 to May 2006; President and Chief Operating Officer of Phoenix Footwear Group, Inc., a supplier of a diversified selection of men’s and women’s dress and casual footwear, belts, personal items, outdoor sportswear and travel apparel, from 1998 to February 2005.
Jose G. Ibarra			51			Senior Vice President – Finance and Chief Financial Officer of the Company since January 2009; Secretary of the Company from January 2009 to October 2009; Senior Vice President – Treasurer of the Company from July 2008 to January 2009; Vice President – Treasurer of the Company from December 2004 to June 2008.

						Position(s) Held with the Company and
Name		Age				Principal Occupation (s) for Past Five Years
Glenn D. Evans			49			Senior Vice President – Global Operations of the Company since November 2006; Senior Vice President – Creative Services and Sourcing of the Company from November 2003 to November 2006.
Yvonne E. Kalucis			45			Senior Vice President – Human Resources of the Company since February 2008; Vice President – Human Resources of the Company from September 2007 to February 2008; Director of Human Resources for Limited Brands, Inc., a specialty retailer of women’s intimate and other apparel, beauty and personal care products and accessories under various trade names, from September 2005 to September 2007.
Gregory A. Ackard			49			Senior Vice President – Sales of the Company since April 2009; Vice President Sales – National Accounts of the Company from January 2008 to April 2009; National Account Manager of the Company from May 2006 to January 2008; Vice President National Accounts of the Company from January 2005 to May 2006.
Lee F. Smith			48			Senior Vice President – Creative Services of the Company since January 2009; Senior Vice President – Design and Product Development of the Company from December 2006 to January 2009; President of Pacific Footwear Services, a footwear business development company engaged primarily in the research, design, development and commercialization of footwear products for a variety of customers, from 2004 to 2006.
Jeffrey P. Bua			56			President – Licensed Brands of the Company since February 2009; Senior Vice President, Business Development of Sports Casuals International, an apparel development specialist for private brands, from October 2003 to January 2009.
Thomas JZ Konecki			55			President — Private Brands of the Company since March 2009; Senior Vice President – Sales, Licensing and Business Development of the Company from May 2007 to March 2009; Senior Vice President– Sales and Business Development of the Company from May 2006 to May 2007; President of H.S. Trask & Co. division and Corporate Vice President of Phoenix Footwear Group, Inc., a supplier of a diversified selection of men’s and women’s dress and casual footwear, and accessories, from September 2003 to February 2006.
Nancy N. Coons			50			President – Dearfoams® of the Company since July 2010, Principal of Coons Consulting Co., brand strategy, product development and merchandising consultant services, from April 2008 to June 2010; General Manager, Apparel of New Balance Athletic Shoe, Inc., a privately- held performance athletic and lifestyle brand, from February 2005 to October 2007; Business Manager, Apparel of Oakley, Inc. a premium eyewear, apparel and footwear brand company, from August 2008 to January 2005.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market and Dividend Information

Sales Price Per Common Share

																		Dividends
																		Declared per
		Quarter				High				Low				Close				Common Share
Fiscal 2010		First				$	9.00			$	6.48			$	7.95			$	—
		Second					9.20				7.68				8.60				0.05
		Third					10.50				8.27				10.44				0.05
		Fourth					12.00				8.10				11.30				0.05
Fiscal 2009		First				$	8.73			$	6.77			$	6.88			$	—
		Second					6.90				4.85				4.99				—
		Third					6.50				4.86				5.81				—
		Fourth					7.63				5.26				7.63				0.25

     Since March 10, 2008, common shares of the Company have traded on NASDAQ-GM under the “DFZ” symbol. The high, low and close sales prices shown above reflect the prices as reported in NASDAQ-GM.

Approximate Number of Registered Shareholders: 1,900 as of September 2, 2010.

     On May 1, 2009, the Company’s Board of Directors declared and subsequently paid a special cash dividend of $0.25 per common share and thereafter has declared and paid quarterly dividends of $0.05 per common share as shown above. The declaration and payment of future dividends with respect to the Company’s common shares will depend on the earnings, financial condition, shareholders’ equity levels, and cash flow and business requirements of the Company, as determined by the Board of Directors.

     The unsecured Revolving Credit Agreement (the “Bank Facility”) between the Company and The Huntington National Bank (“Huntington”), as amended June 26, 2009, places no direct restrictions on the Company’s ability to pay cash dividends. See the discussion of the Bank Facility in Note (6) of the Notes to Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data.” and in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” in this 2010 Form 10-K.

Information Regarding Recent Sales of Unregistered Securities

     No disclosure is required under Item 701 of SEC Regulation S-K.

Purchases of Equity Securities by Registrant

     Neither the Company nor any “affiliated purchaser,” as defined in Rule 10b-18(a) (3) under the Securities Exchange Act of 1934, as amended, purchased any common shares of the Company during the fiscal quarter ended July 3, 2010. The Company does not currently have in effect a publicly announced repurchase plan or program. However, the Company is authorized under the terms of its stock-based

compensation plans to withhold common shares which would otherwise be issued in order to satisfy related individual tax liabilities upon issuance of common shares in accordance with the terms of restricted stock unit (“RSU”) agreements.

Stock Performance Graph and Cumulative Total Shareholder Return

The graph below shows the cumulative total shareholder return assuming the investment of $100 on January 1, 2005 (and the reinvestment of dividends thereafter) on each of R.G. Barry Corporation common shares, the NASDAQ Composite, the Russell 2000 and Dow Jones U.S. Footwear. The comparisons in the graph below are based upon historical data and are not indicative of, or intended to forecast, future performance of R.G. Barry Corporation common shares.

										Fiscal Year Ending
Company/Index/Market		1/1/2005				12/31/2005				7/1/2006				6/30/2007				6/28/2008				6/27/2009				7/03/2010
RG Barry Corporation		$	100.00			$	175.00			$	191.76			$	336.65			$	242.33			$	225.78			$	339.58
NASDAQ Composite		$	100.00			$	102.13			$	101.03			$	121.96			$	109.27			$	87.63			$	100.62
Russell 2000		$	100.00			$	104.15			$	110.48			$	129.07			$	115.98			$	87.08			$	100.38
Dow Jones U.S. Footwear		$	100.00			$	102.43			$	96.38			$	142.14			$	134.17			$	110.49			$	148.31

Note: R.G. Barry Corporation changed its fiscal year from the Saturday nearest to December 31 to the Saturday nearest to June 30 during 2006. Accordingly, there was a six-month transition period as of July 1, 2006 commensurate with this change in fiscal year-end.

Item 6. Selected Financial Data.

Selected Financial Data (1)

		Fifty-three																Fifty-two												Fifty-two
		weeks ended				Fifty-two weeks ended												weeks ended				Twenty-Six Weeks Ended								weeks ended
		Fiscal				Fiscal				Fiscal				Fiscal				July 1,				July 1,				July 2,				Fiscal
(Dollars in thousands, except per common share amounts)		2010				2009				2008				2007				2006				2006				2005				2005
Summary of Operating Results
Net sales		$	123,787			$	113,817			$	109,499			$	105,332			$	97,467			$	28,455			$	28,634			$	97,646
Cost of sales			72,428				70,350				64,520				63,561				55,229				16,295				15,582				54,515
Gross profit			51,359				43,467				44,979				41,771				42,238				12,160				13,052				43,131
Gross profit as percent of net sales			41.5	%			38.2	%			41.1	%			39.7	%			43.3	%			42.7	%			45.6	%			44.2	%
Selling, general and administrative expenses			36,623				32,971				32,126				30,367				33,302				13,886				13,779				33,217
Gain on insurance recovery			—				—				(1,362	)			—				—				—				—				—
Gain on sale of land			—				—				—				(878	)			—				—				—				—
Restructuring and asset impairment charges			—				—				—				179				3,825				2,556				349				1,619
Operating profit (loss)			14,736				10,496				14,215				12,103				5,111				(4,282	)			(1,076	)			8,295
Other income			—				15				50				146				402				130				90				385
Interest income (expense), net			247				670				585				(166	)			(744	)			(114	)			(207	)			(838	)
Income (loss) from continuing operations, before income taxes			14,983				11,181				14,850				12,083				4,769				(4,266	)			(1,193	)			7,842
Income tax (expense) benefit			(5,583	)			(4,189	)			(5,065	)			13,652				(112	)			—				—				(112	)
Earnings (loss) from continuing operations			9,400				6,992				9,785				25,735				4,657				(4,266	)			(1,193	)			7,730
(Loss) earnings from discontinued operations, net of income taxes (including $1,240 impairment loss in fiscal 2007)			—				—				—				(590	)			206				67				179				318
Net earnings (loss)			9,400				6,992				9,785				25,145				4,863				(4,199	)			(1,014	)			8,048
Additional Data
Basic earnings (loss) per common share – continuing operations		$	0.86			$	0.66			$	0.93			$	2.55			$	0.47			$	(0.43	)		$	(0.12	)		$	0.78
Diluted earnings (loss) per common share – continuing operations			0.85				0.65				0.92				2.46				0.45				(0.43	)			(0.12	)			0.76
Basic earnings (loss) per common share – discontinued operations			—				—				—				(0.06	)			0.02				0.01				0.02				0.03
Diluted earnings (loss) per common share – discontinued operations			—				—				—				(0.06	)			0.02				0.01				0.02				0.03
Basic net earnings (loss) per common share			0.86				0.66				0.93				2.49				0.49				(0.42	)			(0.10	)			0.82
Diluted net earnings (loss) per common share			0.85				0.65				0.92				2.40				0.47				(0.42	)			(0.10	)			0.79
Dividends declared			1,630				2,681				—				—				—				—				—				—
Dividends declared per common share			0.15				0.25				—				—				—				—				—				—
Book value per common share (at the end of period)			4.95				4.28				4.31				3.46				0.87				0.90				0.40				1.09
Annual % increase (decrease) in net sales			8.8	%			3.9	%			4.0	%			8.1	%			(.02	%)			(.6	%)			1.2	%			1.4	%
Income (loss) from continuing operations, before income taxes as a percentage of net sales			12.1	%			9.8	%			13.6	%			11.5	%			4.9	%			(15.0	%)			(4.2	%)			8.0	%
Net earnings (loss) as a percentage of beginning total shareholders’ equity			20.5	%			15.2	%			27.02	%			279.5	%			43.8	%			(37.8	%)			(20.4	%)			161.6	%

		Fifty-three																Fifty-two												Fifty-two
		weeks ended				Fifty-two weeks ended												weeks ended				Twenty-Six Weeks Ended								weeks ended
		Fiscal				Fiscal				Fiscal				Fiscal				July 1,				July 1,				July 2,				Fiscal
(Dollars in thousands, except per common share amounts)		2010				2009				2008				2007				2006				2006				2005				2005
Basic weighted-average number of common shares outstanding			10,893				10,633				10,469				10,089				9,929				9,961				9,839				9,869
Diluted weighted average number of common shares outstanding			11,036				10,737				10,691				10,462				10,315				9,961				9,839				10,148
Financial Position at the End of Period
Total current assets		$	69,405			$	60,582			$	55,476			$	49,686			$	34,809			$	34,809			$	30,891			$	36,066
Total current liabilities			10,312				9,706				9,751				15,490				18,816				18,816				17,785				15,348
Working capital (2)			59,093				50,876				45,725				34,196				15,993				15,993				13,106				20,718
Long-term debt, excluding current installments			—				97				187				272				439				439				294				533
Total shareholders’ equity			54,596				45,908				46,029				36,215				8,996				8,996				3,900				11,109
Net property, plant and equipment			4,125				3,743				3,149				2,255				2,419				2,419				2,542				2,371
Total assets			83,369				75,083				67,643				63,528				40,444				40,444				36,729				41,831
Other Data
Capital expenditures			1,181				1,365				1,569				633				326				326				236				478
Depreciation and amortization of property, plant and equipment			867				775				641				560				239				239				318				590

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Introduction

     Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide investors and others with information we believe is necessary to understand our financial condition, changes in financial condition, results of operations and cash flows. This MD&A should be read in conjunction with our Consolidated Financial Statements and related Notes to Consolidated Financial Statements and other information included in “Item 8. Financial Statements and Supplementary Data.” in this 2010 Form 10-K. All dollar amounts, except as stated on a per common share basis, are rounded and represent approximate amounts when cited in the text within this section.

     Our Company is engaged in designing, sourcing, marketing and distributing accessory footwear products. We define accessory footwear as a product category that encompasses primarily slippers, sandals, hybrid and active fashion footwear and slipper socks. Our products are sold predominantly in North America through department stores, chain stores and mass merchandising channels of distribution. Unless the context otherwise requires, references in this MD&A to the “Company” refer to R.G. Barry Corporation and its consolidated subsidiaries when applicable.

Summary of Results for Fiscal 2010

     During fiscal 2010, we remained focused on achieving our principal goals:

	•		grow our business profitably by pursuing a core group of initiatives based on innovation within our product lines;
	•		continue efforts to strengthen the relationships with our retailing partners and open distribution of our products in new retail channels; and
	•		further enhance the image of our brands through both customer and consumer advertising.

     During fiscal 2010, we accomplished the following:

	•		We achieved an 8.8 percent increase in our consolidated net sales, as compared to fiscal 2009.
	•		We had pre-tax earnings of approximately $15.0 million, or 12.1% of net sales.
	•		We did not use our Bank Facility, which is described under the caption “Liquidity and Capital Resources” below, during fiscal 2010 and ended the year with no outstanding indebtedness under the Bank Facility.
	•		We reported cash and cash equivalents on hand of approximately $17.0 million and short-term investments of approximately $28.0 million at the end of fiscal 2010.

Looking Ahead to Fiscal 2011 and Beyond

Looking ahead to fiscal 2011 and beyond, our strategy continues to center on growing market share in existing channels; pursuing new retail opportunities; expanding our business internationally; and growing through appropriate acquisitions. We have demonstrated that for 16 consecutive quarters our model can perform at or above levels consistent with top quartile performance, and we expect to deliver performance that drives growth and long-term shareholder value.

     See the discussion under the caption “Item 1A. Risk Factors” in this 2010 Form 10-K.

Fiscal 2010 Results from Operations Compared to Fiscal 2009

     The discussion in this section compares our results of operations for fiscal 2010 to those in fiscal 2009. Each dollar amount and percentage change noted below reflects the change between these periods unless otherwise indicated. Fiscal 2010 had fifty-three weeks compared to fifty-two weeks for fiscal 2009; however, the additional week in fiscal 2010 had no significant effect on sales or operating results as compared to fiscal 2009.

     During fiscal 2010, net sales increased by $10.0 million or 8.8%. This net sales increase reflected primarily increased shipments in the mass merchandising and discount channels, and reflected our continued success with product offerings and sales initiatives with customers in those channels. All other channels combined had flat to nominal net sales increases over fiscal 2009.

     Gross profit increased by $7.9 million. Gross profit as a percent of net sales was 41.5 percent in fiscal 2010 and 38.2 percent in fiscal 2009. The increases in gross profit dollars and in gross profit as a percent of net sales reflected both increased shipments in fiscal 2010 over fiscal 2009 and the impact of lower product costs due primarily to availability of supplier capacity and the reduction of oil prices in the period in which we placed our fall season orders in fiscal 2010 versus the same period in the prior year. In addition, the increase in gross profit as a percentage of net sales reflected in part the positive impact of higher margin in certain of our products shipped during the third quarter of fiscal 2010 as compared to the same period in fiscal 2009.

     Selling, general and administrative (“SG&A”) expense increased by $3.7 million or 11.1 percent. As a percent of net sales, SG&A expenses were 29.6 percent for fiscal 2010 versus 29.0 percent for fiscal 2009. The net increase in SG&A expenses was due primarily to the following:

	•		a $2.4 million increase in payroll costs, represented primarily by increases in incentive, severance and health benefit costs.
	•		a $1.5 million increase in costumer and consumer advertising expense as part of a multi-year marketing program in support of our Dearfoams® brand.
	•		a $623 thousand increase in pension expense, due primarily to the effect of lower discount rates and pension asset market values on our annual pension expense and to the one-time impact of a settlement loss incurred on a lump-sum payment made to a former executive as full settlement of his nonqualified supplemental retirement plan benefit upon his retirement.
	•		The higher expenses noted above were partially offset by a $393 thousand decrease in bad debt expense and a $524 thousand decrease in expenses in a broad range of areas, none of which were individually significant.

     The decrease in interest income of $438 thousand resulted from the lower interest rates available during fiscal 2010 than had been available during fiscal 2009.

     Interest expense decreased nominally in fiscal 2010 compared to fiscal 2009. Due to our continuing profitability over time, we had no borrowings under our Bank Facility, as described further under the caption “Liquidity and Capital Resources” below.

     Based on the results of operations noted above, we reported net earnings of approximately $9.4 million in fiscal 2010, or $.85 per diluted common share, which represented a 34.4% increase when compared to the net earnings results of $7.0 million in fiscal 2009, or $0.65 per common diluted share.

Fiscal 2009 Results from Operations Compared to Fiscal 2008

     The discussion in this section compares our results of operations for fiscal 2009 to those in fiscal 2008. Each dollar amount and percentage change noted below reflects the change between these periods unless otherwise indicated.

     During fiscal 2009, net sales increased by $4.3 million or 3.9%. The net sales increase was primarily due to increased shipments to our customers in the warehouse club and catalog and Internet channels, partially offset by decreased shipments reported to customers in the mass merchandising, department store, specialty and independent store channels. The volume changes reflect our continued success with product offerings and sales initiatives with customers in the warehouse club channel as well as catalog and Internet-based customers. In addition, these volume changes reflect the effect of the very challenging economic and retail climate experienced with most of our customers during most of fiscal 2009.

     Gross profit decreased by $1.5 million. Gross profit as a percent of net sales was 38.2 percent in fiscal 2009 and 41.1 percent in fiscal 2008. The decreases in both gross profit dollars and in gross profit as a percent of net sales were due primarily to increases in the average product cost experienced year over year. The increase in average product cost was driven primarily by an increase in oil prices and changes in the exchange rate of Chinese currency, which negatively impacted the fall selling season as orders to purchase goods were placed beginning in April 2008. The product price increases, combined with an intense promotional selling environment in a tough retail economic climate, were major factors in our gross profit results for fiscal 2009.

     Selling, general and administrative (“SG&A”) expenses increased by $845 thousand or 2.6 percent. As a percent of net sales, SG&A expenses were 29.0 percent for fiscal 2009 versus 29.3 percent for fiscal 2008. The net increase in SG&A expenses was due primarily to the following:

	•		a $1.1 million increase in payroll and related expenses, which reflected the Company’s organizational growth and repositioning as part of our long-term strategic direction;
	•		a $463 thousand increase in customer bad debt expense, reflecting the impact of several customer bankruptcies during fiscal 2009; and
	•		a $191 thousand net increase in a variety of other expense areas.

     The expense increases noted above were partially offset by the following:

•

a $909 thousand decrease in advertising expense, incurred in fiscal 2008 as part of the initial launch of our newer brand initiatives undertaken that year. `

     For fiscal 2008, we reported a gain of approximately $1.4 million from an insurance recovery. No similar event occurred during fiscal 2009.

     The increase in interest income of $71 thousand resulted from the increase in our invested funds during fiscal 2009, which were available due to our profitability and liquidity over the last twelve months.

     Interest expense decreased nominally by $14 thousand. Due to our continuing profitability over time, we had no borrowings under our Bank Facility, as described further under the caption “Liquidity and Capital Resources” below.

     Based on the results of operations noted above, we reported net earnings of $7.0 million in fiscal 2009, or $0.65 per diluted common share, compared to net earnings of $9.8 million in fiscal 2008, or $0.92 per diluted common share.

Liquidity and Capital Resources

     Our primary source of revenue and cash flow is our operating activities in North America. When cash inflows are less than cash outflows, we also have access to amounts under our Bank Facility subject to its terms. We may seek to finance future capital investment programs through various methods, including, but not limited to, cash flow from operations and borrowings under our current or additional credit facilities.

     Our liquidity requirements arise from the funding of our working capital needs, which include primarily inventory, other operating expenses and accounts receivable, funding of capital expenditures and repayment of our indebtedness. Generally, most of our product purchases from third-party manufacturers are acquired on an open account basis, and to a lesser extent, through trade letters of credit. Such trade letters of credit are drawn against our Bank Facility at the time of shipment of the products and reduce the amount available under our Bank Facility when issued.

     Total cash and cash equivalents were $17.0 million at July 3, 2010, compared to $14.3 million at June 27, 2009. Short-term investments were $28.0 million at July 3, 2010, compared to $25.0 million at June 27, 2009.

     At July 3, 2010, as part of our cash management and investment program, we maintained a portfolio of $28.0 million in short-term investments, including $21.8 million in marketable investment securities consisting of variable rate demand notes and $6.2 million in other short-term investments. The marketable investment securities are classified as available-for-sale. These marketable investment securities are carried at cost, which approximates fair value. The other short-term investments are classified as held-to-maturity securities and include several corporate bonds which had individual maturity dates ranging from July 2010 to January 2011.

Operating Activities

     During fiscal 2010, our operations generated $6.8 million in cash. This operating cash flow was primarily the result of our net earnings of $9.4 million for the period, adjusted for (a) non-cash activities such as deferred income tax expense of $4.0 million gross of an offsetting $1.3 million excess tax benefit credit recognized on stock options exercised and restricted stock unit vested, depreciation expense of $867 thousand, and stock-based compensation expense of $840 thousand, (b) changes in our working capital accounts and (c) payments on our pension and other obligations. In fiscal 2010, significant changes in working capital accounts included higher amounts of inventory which were partially offset by lower amounts of accounts receivable, as discussed in more detail below.

     During fiscal 2009, our operations generated $17.3 million in cash. This operating cash flow was primarily the result of our net earnings of $7 million for the period, adjusted for (a) non-cash activities such as deferred income tax expense of $3.5 million, depreciation and stock-based compensation expense of $775 thousand and $938 thousand, respectively, and (b) changes in our working capital accounts as well as payments on our pension and other obligations. In fiscal 2009, significant changes in working capital accounts included lower amounts of accounts receivable and inventory.

     During fiscal 2008, our operations generated $8.7 million in cash. This operating cash flow was primarily the result of our net earnings of $9.8 million for the period, adjusted for (a) non-cash activities such as deferred income tax expense of $4.6 million, depreciation and stock-based compensation expense of $641 thousand and $698 thousand, respectively, and (b) changes in our working capital accounts as well as payments on our pension and other obligations. In fiscal 2008, significant changes in working capital accounts included higher amounts of accounts receivable and lower accounts payable and accrued expenses, offset by lower amounts of inventory.

     Our working capital ratio, which is calculated by dividing total current assets by total current liabilities, was 6.7:1 at July 3, 2010, 6.2:1 at June 27, 2009 and 5.7: 1 at June 28, 2008. The increase in our working capital ratio from the end of fiscal 2008 to the end of fiscal 2010 was primarily driven by an increase in cash and short-term investments resulting from our profitability over those reporting periods.

     Changes during fiscal 2010 in the primary components of our working capital accounts were as follows:

•

Net accounts receivable decreased by approximately $1.2 million during fiscal 2010 primarily due to faster collections and the timing of customer deductions.

	•		Net inventories increased by $5.0 million during fiscal 2010, reflecting primarily a return during fiscal 2010 to more historical levels of inventory required to support our customers on an ongoing basis, particularly in the replenishment business.
	•		Accounts payable decreased by $289 thousand during fiscal 2010, due primarily to the timing and payment of certain operational expenses as well as our purchases from third-party manufacturers.
	•		Accrued expenses increased by $602 thousand during fiscal 2010, primarily due to higher incentive bonus accruals offset in part by lower short-term pension liabilities.

Investing Activities

     During fiscal 2010, investing activities used $4.2 million in cash. Purchases of short-term investments comprised $3.0 million of this amount. Capital expenditures were $1.2 million and primarily consisted of building and leasehold improvements as well as purchases of software and computer equipment.

     During fiscal 2009, investing activities used $14.5 million in cash. Purchases of short-term investments comprised $13.1 million of this amount. Capital expenditures were $1.4 million and primarily consisted of leasehold improvements to our New York showroom, warehouse equipment for our leased distribution facility in Texas and purchases of software and computer equipment.

     During fiscal 2008, investing activities used $13.4 million in cash. Purchases of short-term investments comprised $11.9 million of this amount. Capital expenditures, primarily involving heating and air conditioning units for the corporate offices and purchased software of $1.6 million, were made during fiscal 2008, offset by $100 thousand in proceeds from the disposal of Fargeot and other equipment disposals.

Financing activities

     During fiscal 2010, financing activities provided $74 thousand in cash. This financing cash inflow was primarily due to $1.3 million in gross excess tax benefits realized on the exercise of stock options and vesting of restricted stock units granted to certain employees of the Company and directors of R.G. Barry Corporation, and $468 thousand provided from the exercise of employee stock options, and was offset, in part, by the $1.6 million payment of cash dividends.

     During fiscal 2009, financing activities consumed $2.7 million in cash. This financing cash outflow was primarily due to the payment of a special cash dividend of $0.25 per common share, which amounted to approximately $2.7 million, as part of a Company dividend program implemented in late fiscal 2009. In addition, approximately $500 thousand of debt was paid in fiscal 2009, with an offsetting inflow of approximately $500 thousand provided from the exercise of employee stock options and gross excess state and local tax benefits associated with vesting of restricted stock units and stock option exercises during the period.

     During fiscal 2008, financing activities provided $685 thousand in cash. This financing cash inflow resulted primarily from $764 thousand in cash provided from the exercise of employee stock options and realized gross excess state and local tax benefits associated with stock option exercises and restricted stock unit vesting. This amount was partially offset by the payment of approximately $79 thousand associated with our debt.

2011 Liquidity

     We believe our sources of cash and cash equivalents on hand, short-term investments and funds available under our Bank Facility will be adequate to fund our operations and capital expenditures through fiscal 2011.

Bank Facility

     Our Company is party to an unsecured revolving credit facility with The Huntington National Bank (“Huntington”). The original facility dated March 29, 2007 was modified effective June 26, 2009. Under this modified facility (“Bank Facility”), Huntington is obligated to advance us funds for a period of two and a half years ending on December 31, 2011, subject to a one-year renewal option thereafter, up to the following amounts:

		July to December				January to June
Fiscal 2011		$10 million				$5 million
Fiscal 2012		$  8 million

     The terms of the Bank Facility require the Company to satisfy certain financial covenants including (a) satisfying a minimum fixed charge coverage ratio of not less than 1.25 to 1.0 which is calculated on a trailing 12 months basis, and (b) maintaining a consolidated tangible net worth of not less than $44 million, increased annually by 50% of the Company’s consolidated net income after June 28, 2009. The Bank Facility must be rested for 30 consecutive days beginning in February of each year. Also, the borrowing under the Bank Facility may not exceed 80% of the Company’s eligible accounts receivable and 50% of its eligible inventory at any one time. As of July 3, 2010, the Company was in compliance with these financial covenants.

     The Bank Facility provides that Huntington will issue on behalf of the Company letters of credit with a maximum aggregate value of up to $1.5 million. The aggregate dollar amount of outstanding letters of credit is deducted from the available balance under the Bank Facility. At July 3, 2010, we had $9.2 million available under the Bank Facility, which was reduced by the aggregate amount of $800 thousand in letters of credit outstanding.

     The interest rate on the Bank Facility is a variable rate equal to LIBOR plus 2.75 percent. The applicable interest rate on the Bank Facility assuming a 30-day LIBOR rate of .35 percent at July 3, 2010 was 3.10 percent. Additionally, the modified Bank Facility requires the Company to pay a quarterly unused line fee at the rate of 3/8 percent of the average unused Bank Facility balance. During fiscal 2010, the Company did not use its Bank Facility and incurred unused line fees of approximately $27 thousand. We incurred a commitment fee of approximately $43 thousand when the modification occurred effective as of June 26, 2009. This fee is being amortized over the remaining term of the Bank Facility.

Other Short-term Debt

     During fiscal 2009, we paid $450 thousand of $2.2 million we previously borrowed against the cash surrender value of life insurance policies insuring our non-executive chairman. Approximately $1.8 million of this indebtedness was classified within short-term notes payable in our Consolidated Balance Sheets at July 3, 2010 and June 27, 2009, respectively.

Other Long-term Indebtedness and Current Installments of Long-term Debt

     As of July 3, 2010, we reported approximately $97 thousand as current installments of long-term debt, which represented the remainder of our obligation associated with the agreement entered into with the mother of our chairman as disclosed in Note (6) of the Notes to the Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data.” in this 2010 Form 10-K.

Other Matters Impacting Liquidity and Capital Resources

Contractual Obligations

     We have traditionally leased facilities under operating lease transactions for varying term lengths, ranging generally from two years to seven years, often with options for renewal. On occasion, we have also leased certain equipment utilizing operating leases. These leasing arrangements have allowed us to pay for the facilities and equipment over the time periods they are utilized, rather than committing our resources initially to acquire the facilities or equipment. All leases have been accounted for as operating leases, consistent with the provisions of U.S. Generally Accepted Accounting Standards (“U.S. GAAP”). Our future off-balance sheet non-cancelable operating lease obligations are discussed in Note (7) of the Notes to Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data.” in this 2010 Form 10-K.

     The following table summarizes our contractual obligations for both short-term and long-term obligations as of July 3, 2010:

						Payments due by period
																		More
						Less than				1 – 3				3 – 5				than 5
		Total				1 year				years				Years				years				Other
						(in thousands of dollars)
Short-Term Debt		$	1,750			$	1,750			None				None				None				None
Long-Term Debt, Current and Non-Current Portions *		$	97			$	97			None				None				None				None
Other Long-Term Liabilities reflected on the Consolidated Balance Sheet of the Company **		$	18,461					**				**				**				**		$	18,461	**
OTHER CONTRACTUAL OBLIGATIONS:
Operating Leases – see also Note (7) of the Notes to Consolidated Financial Statements		$	1,140			$	353			$	604			$	183			None				None
Minimum payments under third–party logistics distribution services contract		$	2,262			$	1,362			$	900			None				None				None
Minimum royalty and advertising fund payments under product licensing programs ***		$	800			$	800			None				None				None				None
Purchase obligations in the ordinary course of business ****		$	33,825			$	33,825			None				None				None				None
OFF-BALANCE SHEET ARRANGEMENTS:
None

Other Matters Relevant to Financial Condition and Results of Operations

Licensing Agreement for European Distribution

     In fiscal 2008, we terminated the licensing agreement for the sale, marketing and sourcing of our slipper product brands in Europe with a subsidiary of a British comfort footwear and apparel firm. The annual royalty fees resulting from this agreement were not significant to the overall operations of our business. We reported $50 thousand for fiscal 2008 as royalty payments received from the licensee under this licensing agreement.

Critical Accounting Policies and Use of Significant Estimates

     The preparation of financial statements in accordance with U.S. GAAP requires that we make certain estimates. These estimates can affect reported revenues, expenses and results of operations, as well as the reported values of certain assets and liabilities. We make these estimates based on information from as many resources, both internal and external, as are available at the time. After reasonably assessing the conditions that exist at the time, we make these estimates and prepare consolidated financial statements accordingly. These estimates are made in a consistent manner from period to period, based upon historical trends and conditions and after review and analysis of current events and circumstances. We believe these estimates reasonably reflect the current assessment of the financial impact of events whose actual outcomes will not become known to us with certainty until sometime in the future.

     The following discussion of critical accounting policies is intended to bring to the attention of readers those accounting policies that management believes are critical to the Company’s consolidated financial statements and other financial disclosures. It is not intended to be a comprehensive list of all of our significant accounting policies that are more fully described in Notes (1) (a) through (1) (s) of the Notes to Consolidated Financial Statements in this 2010 Form 10-K.

A summary of the critical accounting policies requiring management estimates follows:

          (a) We recognize revenue when the following criteria are met:

	•		goods are shipped from our warehouse and other third-party distribution locations, at which point our customers take ownership and assume risk of loss;
	•		collection of the relevant receivable is probable;
	•		persuasive evidence of an arrangement exists; and
	•		the sales price is fixed or determinable.

     In certain circumstances, we sell products to customers under special arrangements, which provide for return privileges, discounts, promotions and other sales incentives. When selling under these special arrangements, at the time we recognize revenue, we reduce our measurement of revenue by an estimate of the potential future returns and allowable retailer promotions and sales incentives, and recognize 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 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 products by consumers; the overall economic environment; consumer confidence leading towards and through the holiday selling season; and other related factors.

     Allowances for returns, promotions, cooperative advertising and other sales incentives were not material to our overall financial position as reported at the end of either fiscal 2010 or fiscal 2009. The estimates established for these allowances at the end of these reporting periods reflected our current practice of collaborating closely with key retailing partners to offer the appropriate in-season consumer promotions and sales incentives to achieve mutually satisfactory sell-

through rates, thus reducing or eliminating returns. As of July 3, 2010, our allowance for returns was approximately $1.4 million. A hypothetical change of 10 percent in our returns allowance would have an impact on income before income taxes of approximately $140 thousand. As of July 3, 2010, our allowance for promotions, cooperative advertising and other sales incentives was $1.8 million. A hypothetical change of 10 percent in this allowance would have an impact on income before income taxes of $180 thousand.

     Due to the continuing seasonal nature of our business and the current economic climate, 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.

     We monitor the creditworthiness of our customers and the related collection of monies owed to us. In circumstances where we become aware of a specific customer’s inability to meet its financial obligations, a specific reserve for doubtful accounts is taken as a reduction to accounts receivable to reduce the net recognized receivable to the amount reasonably expected to be collected. For all other customers, we recognize estimated reserves for bad debts based on our historical collection experience, the financial condition of our customers, an evaluation of current economic conditions and anticipated trends, each of which is subjective and requires certain assumptions. At the end of fiscal 2010 and fiscal 2009, our allowance for doubtful accounts was $228 thousand and $427 thousand, respectively.

     (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 fiscal 2010 and the end of fiscal 2009, we estimated the FIFO cost of a portion of our inventory exceeded the estimated net realizable value of that inventory by $336 thousand and $220 thousand, respectively. The increase from fiscal 2009 to fiscal 2010 reflected our on-going initiatives to properly manage our inventory investment, particularly with the newer Terrasoles* and Superga** brands.

     (c) We make an assessment of the amount of income taxes that will become currently payable or recoverable for the just concluded period, and the deferred tax costs or benefits that 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 projections of future profits.

     (d) As a result of the Company’s disposal of its ownership of Fargeot in July 2007, the Company incurred a capital loss, and it was able to utilize part of this loss to offset prior year capital gains. The portion of the capital loss, which could not be utilized in fiscal 2010, or fiscal 2009 or fiscal 2008, is included as a capital loss carryforward. This capital loss deferred tax asset is subject to expiration after five years as a carryforward item, with any realization permitted only by offsetting against future capital gains generated by the Company. Approximately $482 thousand of this capital loss remains without any immediate offsetting capital gain expected at July 3, 2010. Accordingly, all of the $482 thousand has been reserved through a valuation allowance established at the end of fiscal 2010.

     In addition, we make ongoing assessments of income tax exposures that may arise at the federal, state or local tax levels. As a result of these evaluations, any exposure deemed more likely than not will be quantified and accrued as tax expense during the period and reported in a tax contingency reserve. Any identified exposures will be subjected to continuing assessment and estimates will be revised accordingly as information becomes available to us.

     We had no tax contingency reserve at the end of fiscal 2010 or fiscal 2009, since there were no significant outstanding exposures at the federal, state or local tax levels as determined by management.

     (e) We make estimates of the future costs associated with restructuring plans related to operational changes announced during the year. These 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. While we believe restructuring activities and all related costs incurred in fully implementing the Company’s current model have been completely achieved by the Company, changes in business conditions going forward may necessitate future restructuring costs.

     (f) We sponsor a noncontributory retirement plan for the benefit of salaried and nonsalaried employees, the Associates’ Retirement Plan (“ARP”). Effective as of close of business on March 31, 2004, the ARP was frozen and has remained frozen since that time. We also sponsor a Supplemental Retirement Plan (“SRP”) for certain officers and other key employees as designated by our Board of Directors. The SRP is unfunded, noncontributory, and provides for the payment of monthly retirement benefits. Effective as of close of business on March 31, 2004, the SRP was frozen.

     The actuarial valuation of our ARP and SRP benefit costs, assets and obligations affects our financial position, results of operations and cash flow. These valuations require the use of assumptions and long-range estimates. These assumptions include, among others, assumptions regarding interest and discount rates, and assumed long-term rates of return on pension plan assets. We regularly evaluate these assumptions and estimates as new information becomes available. Changes in assumptions, which may be caused by conditions in the debt and equity markets, changes in asset mix, and plan experience, could have a material effect on our pension obligations and expenses, and can affect our net income, assets and shareholders’ equity. In addition, changes in assumptions such as rates of return, fixed income rates used to value liabilities or declines in the fair value of plan assets, may result in voluntary decisions or mandatory requirements to make additional contributions to our ARP.

     The discount rate was determined based on an analysis of interest rates for high-quality, long-term corporate debt at each measurement date. In order to appropriately match the bond maturities with expected future cash payments, we utilize differing bond portfolios to estimate the discount rates for the defined benefit plans. The weighted average discount rate used to determine the defined benefit plans’ obligation as of the balance sheet date is the rate in effect at the measurement date. The same rate is also used to determine the defined benefit plans’ expense for the following fiscal year. The long-term rate of return for the defined benefit plans’ assets is based on our historical experience, the defined benefit plans’ investment guidelines and our expectations for long-term rates of return. The defined benefit plans’ investment guidelines are established based upon an evaluation of market conditions, tolerance for risk and cash requirements for benefit payments. Holding all other assumptions constant, we estimate that a 100 basis point decrease in the expected discount rate would decrease our fiscal 2010 pretax earnings by approximately $190 thousand, and it would increase our total pension liability by approximately $4.2 million.

     We establish assumptions to measure our pension liabilities and project the long-term rate of return expected on the invested pension assets in our qualified ARP. Changes in assumptions, which may be caused by conditions in the debt and equity markets, changes in asset mix, and plan experience, could have a material effect on our pension obligations and expenses, and can affect our net income, assets, and shareholders’ equity. Changes in assumptions may also result in voluntary or mandatory requirements to make additional contributions to our qualified ARP. These assumptions are reviewed and reset as appropriate at the pension measurement date commensurate with the end of our fiscal year end, and we monitor these assumptions over the course of the fiscal year.

     Expected rate of return on ARP assets is also an important element of plan expense. In fiscal 2010, we used 8.25 percent as the rate of return on ARP assets. To determine the rate of return on plan assets, we consider the historical experience and expected future performance of the plan assets, as well as the current and expected allocation of the plan assets. Our ARP’s asset allocation as of July 3, 2010, the measurement date for fiscal 2010, was approximately 64 percent in domestic and foreign equity investments, 20 percent in domestic fixed income securities, 11 percent in hedge fund investments and 5 percent in cash investments. This asset allocation was in line with our investment policy guidelines. We periodically evaluate the allocation of plan assets among the different investment classes to ensure that they are within policy guidelines. Holding all other assumptions constant, we estimate that a 100 basis point decrease in the expected rate of return on ARP assets would lower our fiscal 2010 pre-tax earnings by approximately $246 thousand.

     (g) FASB ASC 718 (the Stock Compensation topic) requires the recognition of the fair value of stock-based compensation in the results of operations. The Company recognizes stock-based compensation expense over the requisite service period of the individual grantees, which generally equals the vesting period. When restricted stock units are granted, the fair value of the grant is determined based on the market value of the underlying common shares at the date of grant and is adjusted for anticipated forfeitures based on our historical experience and management judgment. In fiscal 2010, fiscal 2009 and fiscal 2008, all equity-based grants made by the Company were in the form of restricted stock units.

     (h) There are various 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 (1) (s) of the Notes to Consolidated Financial Statements.

     Actual results may vary from these estimates as a consequence of activities after the period-end estimates have been made. These subsequent activities will have either a positive or negative impact upon the results of operations in a period subsequent to the period when we originally made the estimate.

Recently Issued Accounting Standards

     See Note 1 (t) of the Notes to Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data.” in this 2010 Form 10-K for disclosure that at July 3, 2010, there were no recently issued accounting standards that would have significant effect on the Company when they would be implemented.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rates

     Our principal market risk exposure relates to the impact of changes in short-term interest rates that may result from the floating rate nature of the Company’s Bank Facility. At July 3, 2010, we had no borrowings outstanding under the Bank Facility. Based on our projected funding needs for operations during fiscal 2011, we do not expect any significant borrowings under our Bank Facility. We typically do not hedge our exposure to floating interest rates.

     Interest rate changes impact the level of earnings for short-term investment. Changes in long-term interest rates also affect the measurement of pension liabilities performed on an annual basis.

Market Risk Sensitive Instruments — Foreign Currency

     Substantially all of our sales were conducted in North America and denominated in U.S. Dollars during fiscal 2010. At the end of each of fiscal 2010, fiscal 2009 and fiscal 2008, the Company did not have any such foreign exchange contracts outstanding.

Item 8. Financial Statements and Supplementary Data.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
R.G. Barry Corporation:

We have audited the accompanying consolidated balance sheets of R.G. Barry Corporation and subsidiaries as of July 3, 2010 and June 27, 2009, and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for the years ended July 3, 2010, June 27, 2009 and June 28, 2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of R.G. Barry Corporation and subsidiaries as of July 3, 2010 and June 27, 2009, and the results of their operations and their cash flows for the years ended July 3, 2010, June 27, 2009 and June 28, 2008, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Oversight Board (United States), R.G. Barry Corporation’s internal control over financial reporting as of July 3, 2010, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated September 9, 2010, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG LLP
Columbus, Ohio

September 9, 2010

R.G. BARRY CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)

		July 3, 2010				June 27, 2009
ASSETS
Current assets:
Cash and cash equivalents		$	16,988			$	14,259
Short-term investments			27,954				24,977
Accounts receivable:
Trade (less allowance of $3,446 and $2,725, respectively)			7,440				9,243
Other			862				260
Inventory			13,486				8,499
Deferred tax assets-current			1,676				2,621
Prepaid expenses			999				723
Total current assets			69,405				60,582
Property, plant and equipment, at cost			11,669				11,254
Less accumulated depreciation and amortization			7,544				7,511
Net property, plant and equipment			4,125				3,743
Deferred tax assets-noncurrent			6,936				7,685
Other assets			2,903				3,073
Total assets		$	83,369			$	75,083
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term notes payable		$	1,750			$	1,750
Current installments of long-term debt			97				90
Accounts payable			3,598				3,887
Accrued expenses			4,867				3,979
Total current liabilities			10,312				9,706
Long-term debt, excluding current installments			—				97
Accrued retirement costs and other			18,461				19,372
Total liabilities			28,773				29,175
Commitments and contingencies (note 17)			—				—
Shareholders’ equity:
Preferred shares, $1 par value per share: Authorized 3,775 Class A shares, 225 Series II 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 10,930 and 10,722 shares, respectively (excluding treasury shares of 1,025 and 1,008, respectively)			10,930				10,722
Additional capital in excess of par value			19,195				16,940
Accumulated other comprehensive loss			(12,594	)			(11,049	)
Retained earnings			37,065				29,295
Total shareholders’ equity			54,596				45,908
Total liabilities and shareholders’ equity		$	83,369			$	75,083

See accompanying notes to consolidated financial statements.

R.G. BARRY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
Fiscal Years Ended July 3, 2010, June 27, 2009 and June 28, 2008
(in thousands, except per common share data)

		2010				2009				2008
Net sales		$	123,787			$	113,817			$	109,499
Cost of sales			72,428				70,350				64,520
Gross profit			51,359				43,467				44,979
Selling, general and administrative expenses			36,623				32,971				32,126
Gain on insurance recovery			—				—				(1,362	)
Operating profit			14,736				10,496				14,215
Interest income			341				779				708
Interest expense			(94	)			(109	)			(123	)
Other income			—				15				50
Income before income tax			14,983				11,181				14,850
Income tax expense			5,583				4,189				5,065
Net earnings		$	9,400			$	6,992			$	9,785
Net earnings per common share
Basic		$	0.86			$	0.66			$	0.93
Diluted		$	0.85			$	0.65			$	0.92
Weighted average number of common shares outstanding
Basic			10,893				10,633				10,469
Diluted			11,036				10,737				10,691

See accompanying notes to consolidated financial statements.

R.G. BARRY CORPORATION
Consolidated Statements of Shareholders’ Equity and Comprehensive Income
Fiscal Years Ended July 3, 2010, June 27, 2009 and June 28, 2008
(in thousands)

						Additional capital				Accumulated other
						in excess of par				comprehensive								Net shareholders’
		Common shares				value				(loss)				Retained earnings				equity
Balance at June 30, 2007		$	10,352			$	14,546			$	(3,968	)		$	15,285			$	36,215
Comprehensive income:
Net earnings			—				—				—				9,785				9,785
Other comprehensive loss:
Foreign currency translation adjustment			—				—				(365	)			—				(365	)
Pension liability adjustment, net of tax			—				—				(1,019	)			—				(1,019	)
Total comprehensive income																			8,401
Stock-based compensation expense			—				698				—				—				698
Stock-based compensation tax benefit realized			—				70				—				—				70
Restricted stock units vested and stock options exercised			196				449				—				—				645
Balance at June 28, 2008		$	10,548			$	15,763			$	(5,352	)		$	25,070			$	46,029
Comprehensive income:
Net earnings			—				—				—				6,992				6,992
Other comprehensive loss:
Pension liability adjustment, net of tax			—				—				(5,742	)			—				(5,742	)
Total comprehensive income																			1,250
Incremental effect of applying the measurement date change on the employee retirement plan, net of tax			—				—				45				(86	)			(41	)
Stock-based compensation expense			—				938				—				—				938
Stock-based compensation tax benefit realized			—				(5	)			—				—				(5	)
Restricted stock units vested and stock options exercised			174				244				—				—				418
Dividend declared at $0.25 per common share			—				—				—				(2,681	)			(2,681	)
Balance at June 27, 2009		$	10,722			$	16,940			$	(11,049	)		$	29,295			$	45,908
Comprehensive income:
Net earnings			—				—				—				9,400				9,400
Other comprehensive loss:
Pension liability adjustment, net of tax			—				—				(1,545	)			—				(1,545	)
Total comprehensive income																			7,855
Stock-based compensation expense			—				840				—				—				840
Stock-based compensation tax benefit realized			—				1,285				—				—				1,285
Restricted stock units vested and stock options exercised			208				130				—				—				338
Dividends declared at $0.15 per common share			—				—				—				(1,630	)			(1,630	)
Balance at July 3, 2010		$	10,930			$	19,195			$	(12,594	)		$	37,065			$	54,596

See accompanying notes to consolidated financial statements.

R.G. BARRY CORPORATION
Consolidated Statements of Cash Flows
Fiscal Years Ended July 3, 2010, June 27, 2009 and June 28, 2008
(in thousands)

		2010				2009				2008
Operating activities:
Net earnings		$	9,400			$	6,992			$	9,785
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			867				775				641
Loss on disposal of property, plant and equipment, net			47				—				19
Deferred income tax expense			3,967				3,490				4,672
Gross excess tax (benefit) expense from exercise of stock options and vesting of restricted stock units			(1,327	)			5				(70	)
Stock-based compensation expense			840				938				698
Changes in:
Accounts receivable			1,201				3,150				(5,783	)
Inventory			(4,986	)			2,342				3,797
Prepaid expenses and other assets			(107	)			968				(632	)
Accounts payable			(289	)			(282	)			(3,279	)
Accrued expenses			602				609				(158	)
Accrued retirement cost, net			(3,260	)			(1,520	)			(1,198	)
Other liabilities			(142	)			(212	)			195
Net cash provided by operating activities			6,813				17,255				8,686
Investing activities:
Purchase of short-term investments, net			(2,977	)			(13,107	)			(11,870	)
Purchases of property, plant and equipment			(1,181	)			(1,365	)			(1,571	)
Proceeds from sale of subsidiary and other, net			—				—				73
Net cash used in investing activities			(4,158	)			(14,472	)			(13,368	)
Financing activities:
Repayment of short-term and long-term debt			(91	)			(534	)			(79	)
Gross excess tax benefit (expense) from exercise of stock options and vesting of restricted stock units			1,327				(5	)			70
Proceeds from common shares issued			468				486				694
Dividends paid			(1,630	)			(2,681	)			—
Net cash provided by (used in) financing activities			74				(2,734	)			685
Net increase (decrease) in cash and cash equivalents			2,729				49				(3,997	)
Cash and cash equivalents at the beginning of the year			14,259				14,210				18,207
Cash and cash equivalents at the end of the year		$	16,988			$	14,259			$	14,210
Supplemental cash flow disclosures:
Interest paid		$	96			$	119			$	23
Income taxes paid, net of taxes refunded			2,464				636				353