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Article by DailyStocks_admin    (06-22-08 01:24 AM)

The Daily Magic Formula Stock for 06/22/2008 is Barry (R G) Corp. According to the Magic Formula Investing Web Site, the ebit yield is 20% and the EBIT ROIC is 50-75 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


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BUSINESS OVERVIEW

R. G. Barry Corporation was incorporated in Ohio in 1984. References in this Annual Report on Form 10-K to “we”, “us”, “our”, and the “Company” refer to R.G. Barry Corporation (the registrant) or, where appropriate, to R.G. Barry Corporation and its subsidiaries. Together with its predecessors, the Company has been in operation since April 1947. The Company designs, purchases, markets and distributes accessory footwear products. The Company defines accessory footwear as a product category that encompasses primarily slippers, sandals, hybrid and active fashion footwear and slipper socks. The principal executive offices of the Company are located at 13405 Yarmouth Road N.W., Pickerington, Ohio 43147 and its telephone number is (614) 864-6400. The Company’s common shares are principally traded on the American Stock Exchange LLC (“AMEX”) under the symbol “DFZ”, evoking its flagship brand name: Dearfoams * .
Since 2004, the Company has not manufactured footwear, except through its French subsidiaries, Escapade, S.A. and its Fargeot et Compagnie, S.A subsidiary (collectively, “Fargeot”). On June 18, 2007, the Company’s Board of Directors approved a plan to sell its 100% ownership in Fargeot, which was completed on July 20, 2007. The sale of Fargeot is discussed further under the caption “Changes in the Barry Comfort Europe Group Business” below.
The Company makes available free of charge through its 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”). These reports are available through the Company’s website as soon as reasonably practicable after they are submitted electronically to the Securities and Exchange Commission (the “SEC”). The Company’s website address is www.rgbarry.com (this uniform resource locator, or URL, is an inactive textual reference only and is not intended to incorporate the Company’s website into this Annual Report on Form 10-K).

As previously reported, on May 17, 2006, the Company’s Board of Directors approved a change to the Company’s fiscal year-end to the Saturday nearest June 30 from the Saturday nearest December 31. This change aligned the Company’s fiscal year more closely with the seasonal nature of its business.
During most of fiscal 2007, during all of the 2006 transition period, and in each of the two fiscal years in the two-year period ended December 31, 2005, the Company operated in two segments: the Barry Comfort North America Group, which includes accessory footwear products marketed and sold in North America; and the Barry Comfort Europe Group, which included footwear products sold by Fargeot primarily in France and other Western European markets. Selected financial information about the Company’s operating segments by geographic region for fiscal 2007, the 2006 transition period and fiscal 2005 is presented in Note 14 of the Notes to Consolidated Financial Statements included in the Company’s Annual Report to Shareholders for fiscal 2007, which information is incorporated herein by reference.
In June 2003, the Company sold substantially all of the assets of its wholly-owned subsidiary, Vesture Corporation (now named “RGB Technology, Inc.”), to an unaffiliated corporation which was renamed Vesture Corporation following the transaction and discontinued the thermal products operating segment of its business. No earnings from discontinued thermal products operations were reported during fiscal 2007 or the 2006 transition period. In fiscal 2005, the Company reported earnings from discontinued operations, net of income taxes, related to thermal products of $90,000, which represented royalty payments received during that year as established in the purchase agreement related to the sale of the Vesture Corporation assets.
Changes in the Barry Comfort North America Group Business Model
The market for the Company’s accessory footwear products continues to be challenged by two critical market changes: globalization and retail consolidation. The convergence of these forces has created a very competitive marketplace for suppliers of this product category. The Company expects that these conditions will continue in the future.
In response to these challenges, in fiscal 2004, the Company implemented a new operating model that transitioned its business, exclusive of its then-owned Fargeot business, from a manufacturer of footwear to a distributor of goods purchased from third-party manufacturers. During the first half of fiscal 2004, the Company closed all of its manufacturing operations in Mexico. Since that time, the Company has sourced all of its product requirements from third-party manufacturers, substantially all of which are located in China. The Company believes that the cost savings it recognizes by sourcing its products from third-party manufacturers outweigh the potential benefits of operating its own manufacturing facilities. Even though the Company is now dependent on third-party manufacturers, it does not anticipate that this dependence will impact the quality of its products or its ability to deliver products to its customers on a timely basis. To ensure that it remains competitive in the marketplace and to reduce the potential adverse effect of the loss of one or more of its current third-party manufacturers or substantial changes in product costs, the Company continues to explore other sources for its products, both in China and elsewhere.
As previously reported, during 2004 and as part of the implementation of its new business model, the Company closed a number of non-manufacturing facilities in Mexico and Texas, which primarily supported the Company’s former Mexican manufacturing operations. Today, the Company relies on its remaining distribution center in San Angelo, Texas and a third-party logistics firm located on the West Coast of the United States to warehouse and distribute products to its North America customers.
During the 2006 transition period, the Company took further steps to better position its business to meet its goals and objectives for fiscal 2007 and beyond, reducing its cost structure. These actions included, among others, reaching an agreement with the landlord of its former distribution center in Nuevo Laredo, Mexico to terminate the lease agreement for that facility which was no longer in use. R.G. Barry Corporation was a guarantor of the obligations of its Mexican subsidiary under the lease agreement. In consideration of the landlord’s agreement to terminate the lease and to dismiss a pending lawsuit against R.G. Barry Corporation and its subsidiary alleging breach of the lease agreement and the guarantee, the Company, in August 2006, paid approximately $2,764,000 to an assignee of the landlord pursuant to the agreement. The financial impact of this agreement was reflected in the Company’s lease loss accrual in the 2006 transition period.
Further information concerning the restructuring changes that occurred in the Barry Comfort North America Group during fiscal 2007, the 2006 transition period, fiscal 2005 and fiscal 2004 is presented in Note 15 of the Notes to Consolidated Financial Statements included in the Company’s Annual Report to Shareholders for fiscal 2007, which financial information is incorporated herein by this reference.
Changes in the Barry Comfort Europe Group Business
Fargeot’s business was the only business in our Barry Comfort Europe operating segment. Fargeot operates as an independent footwear manufacturing and distribution business in southern France. Fargeot typically serves smaller French independent retailers and export markets with a style of footwear that is different from the Company’s more traditional accessory footwear products. Fargeot’s products are generally not washable. Fargeot relies on its own distribution facility located in Thiviers, France to distribute products to its customers.
On June 18, 2007, the Company’s Board of Directors approved a plan to sell its 100% ownership in Fargeot. As a result of this action and consistent with the provisions of Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”), the results of operations for Fargeot have been reported as discontinued operations for the periods reported in the Company’s Consolidated Statements of Operations. Furthermore, the assets and liabilities related to these discontinued operations have been reclassified to current assets held for disposal and current liabilities associated with assets held for disposal in the Company’s Consolidated Balance Sheet as of June 30, 2007. On July 20, 2007, the Company completed the sale of its 100% ownership in Fargeot to M.T. SARL of Thiviers, France for approximately $480,000. The principals of M.T. SARL include members of management of the Company’s former Fargeot subsidiary. As a result of this transaction, the Company recorded, in fiscal 2007, a loss on discontinued operations, net of income taxes, of $590,000. Further details of the sale of Fargeot have been presented in Note 16 of the Notes to Consolidated Financial Statements included in the Company’s Annual Report to Shareholders for fiscal 2007, which financial information is incorporated herein by this reference.
In 2003, the Company entered into a five-year licensing agreement for the sale, marketing and sourcing of its slipper product brands in Europe with a subsidiary of a privately held British comfort footwear and apparel firm, GBR Limited. This agreement granted GBR Limited’s subsidiary a license to sell, source and distribute the Company’s brands of slipper products, other than Fargeot’s products, in all channels of distribution in the United Kingdom, The Republic of Ireland, France and through selected customers in other specified Western European countries, in exchange for royalty payments on net sales. The Company retained title to all of its patents and trademarks for products sold under this licensing agreement. The Company reported approximately $146,000, $107,000, $385,000, and $419,000 in royalty income under this agreement for fiscal 2007, the 2006 transition period, fiscal 2005 and fiscal 2004, respectively.
Principal Products
The Company designs, markets and distributes accessory footwear products for women, men and children. The Company’s products include slipper-type products and other types of products in the accessory footwear category, as defined earlier, including sandals and footwear products for indoor/outdoor wearing activities offered under the Terrasoles* brand name and canvas/active fashion footwear products offered under the Superga ** brand name, as further discussed under the caption “Trademarks and Licenses” below. Except for Fargeot, which manufactures its own footwear products, the Company purchases its accessory footwear products from third-party manufacturers, primarily in China. Going forward, the Company will purchase Superga** branded products from third-party manufacturers located in Vietnam, as described further under the caption “Sourcing” below.

The Company is in the business of responding to consumer demand for comfortable footwear combined with attractive design, appearance and styling. Historically, the Company’s primary products have been foam-soled, soft, washable slippers. The Company developed and introduced women’s Angel Treads*, the world’s first foam-soled, soft, washable slipper, in 1947. Since that time, the Company has introduced numerous additional accessory footwear brand lines for men, women and children that are designed to provide comfort to the consumer. These accessory footwear products are mostly sold under the Company’s brand names including Angel Treads*, Barry Comfort*, Dearfoams*, DF Sport TM , EZfeet*, Fargeot, Dearfoams NV TM , Snug Treds*, Soft Notes*, Solé TM , Terrasoles*, Utopia TM , and Soluna*, but products are also marketed and sold under trademarks the Company licenses from third parties. See the discussion under the caption “Trademarks and Licenses” below.
The Company’s foam-cushioned accessory footwear product collections continue to be a significant part of its core business. These products typically have uppers made of man made fibers such as microfiber suedes, terries and velours as well as corduroy, nylon and an updating assortment of other man made and natural materials. A variety of brands and products are marketed to lifestyles represented in multiple channels of distribution and are targeted to women, men and children.
Most recently, the Company launched a new collection of accessory footwear products under the Terrasoles* brand name. These products address the après activity needs of people engaged in or aspiring to a variety of indoor/outdoor activities and life styles while delivering a comfort quality. These products are eco- friendly and consist of upper materials that include recycled micro fleece and mesh as well as organic materials such as bamboo. Other program components such as packaging materials are likewise made of recycled or biodegradable materials and/or processed with a focus on being earth friendly.
Late in fiscal 2007, as further described in the “Trademarks and Licenses” section below, the Company entered into an exclusive licensing agreement to market and distribute products under the Superga** brand and a transfer agreement related to the distribution of products under the NCAA College Clogs™ brand. Superga** brand products include primarily vulcanized, sneaker-type footwear with canvas, linen and leather upper materials. Products under the NCAA College Clogs™ brand include a more classic slipper-type fabrication and construction with uppers of man made fibers including primarily microfiber suedes, terries, velours, corduroy and nylon. The Company believes that many consumers of its foam-cushioned slipper-type products are loyal to the Company’s brand lines and have a history of repeat purchases. Substantially all of the slipper-type and other product brand lines including Terrasoles* and NCAA College Clogs™ are or will be displayed on a self-selection basis and are intended to appeal to the “impulse” buyer as well as to the “gift-giving” buyer. The Company believes that many of its slipper-type products are purchased as gifts for others during the holiday selling season, with approximately 70% of the Company’s annual consolidated net sales occurring during the second half of the calendar year.
Products marketed under the Superga** brand will be sold primarily in the shoe department of the Company’s customers and will be marketed primarily for the consumer’s self-purchase.
Several basic styles of slipper-type footwear are standard in many of the Company’s brand lines and are in demand throughout the year. The most significant changes for these styles are made in response to fashion changes and include variations in design, ornamentation, fabric and/or color. The Company also regularly introduces new updated styles of accessory footwear products with a view toward enhancing the comfort, fashion appeal and freshness of its products. The introduction of new styles is traditionally part of its spring and fall collections of products. The Company will continue to introduce new styles in future years in response to fashion changes and consumer taste and preferences.
Trademarks and Licenses
Products sold under trademarks owned by the Company currently represent approximately 95% of the Company’s annual sales. The Company is the holder of a number of trademarks which identify its products, principally: Angel Treads*, Barry Comfort*, Dearfoams*, DF Sport TM , Ezfeet*, Fargeot, Dearfoams NV TM , Snug Treds*, Soft Notes*, Solé TM , Terrasoles*, Utopia TM , and Soluna*. The Company believes that its trademarks identify its products and, thus, its trademarks are of significant value. Each registered trademark has a duration of 20 years and is subject to an indefinite number of renewals for a like period upon appropriate application and approval. The Company intends to continue the use of each of its trademarks and to renew each of its registered trademarks accordingly.
On June 19, 2007, the Company announced that it 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 licensee in the United States and, beginning in July 2008, in Canada for the Superga** brand of canvas/active fashion footwear. Superga** is a leading European luxury brand in the canvas/active fashion footwear category. Under the licensing agreement with Superga** the Company agreed to certain minimum royalty payments, payable quarterly. This licensing agreement establishes certain net sales targets that extend through December 31, 2010. If the Company meets the cumulative net sales target from July 1, 2007 through December 31, 2009, then the Company has the option to renew the licensing agreement for a period that extends through December 31, 2013. The Company believes that the Superga** license is a natural continuation of the Company’s long-term growth strategy and will add counter-balance to the seasonality of the Company’s current core business. The Company intends to distribute products under this brand in premier department stores and better footwear stores. The Company expect shipments to customers of products under the Superga** brand to begin in the spring of 2008.
On May 14, 2007, the Company announced that it signed a transfer agreement under which it purchased the NCAA College Clogs ä (“College Clogs™”) product from Wolverine World Wide, Inc. This transfer agreement permits the Company to sell the inventory it acquired from Wolverine World Wide, Inc. to a select number of customers. The transfer agreement did not include a transfer of the individual licenses with respect to the use of the official logos and colors of the NCAA colleges and universities. The Company is in the process of reapplying for those licenses with the appropriate representatives of various NCAA affiliated colleges and universities as appropriate, the individual institutions, their official licensing representatives or Licensing Resource Group, Inc. The Company has begun to enter into licensing agreements and expects to continue to do so during the first half of fiscal 2008. College Clogs ä footwear features the embroidered logos and official colors of many major NCAA colleges and universities and is sold through independent and on-line retailers, college bookstores and non-promotional department stores. The Company believes that participation in the NCAA licensing program is consistent with the Company’s long-term growth strategy, giving the Company an entry into the outdoor athletic sports channel. The Company is in the process of re-branding the College Clogs TM products under the Company’s “My College Footwear” trademark. The Company has applied for registration of the trademark “My College Footwear” with the United States Department of Commerce Patent and Trademark Office. The Company does not expect sales under the College Clogs TM and the My College Footwear TM brands to be significant in fiscal 2008.
The Company also sells accessory footwear under other trademarks owned by third parties under license agreements with such third parties. In fiscal 2007, the 2006 transition period, fiscal 2005 and fiscal 2004, total net sales under the Liz Claiborne**, Claiborne**, Villager** and NASCAR** labels pursuant to the license agreements described below represented approximately 3%, 19%, 4% and 5%, respectively, of the Company’s consolidated net sales for such periods. Sales of these licensed products were proportionately higher during the 2006 transition period, when compared to the proportion of annual sales over the fiscal years noted, because of a new 2006 spring program with a key “big box retailer”.
Since 2000, pursuant to a license agreement with a subsidiary of Liz Claiborne, Inc. (“Liz Claiborne”), the Company has marketed slipper products under the Liz Claiborne**, Claiborne** and Villager** labels. The initial term of the license agreement expired on December 31, 2005, but it was renewed for a one-year term, which commenced on January 1, 2006 and continued through December 31, 2006. The license agreement was further extended from January 1, 2007 through June 30, 2007. Although the license agreement expired on June 30, 2007, the Company and Liz Claiborne continue to have licensing-type arrangements that will allow the Company to market and distribute products under the Liz Claiborne**, Claiborne** and Villagers** labels during fiscal 2008 as demand for product occurs.

In 2003, the Company entered into licensing agreements regarding the marketing, production and distribution of NASCAR** leisure footwear, robes and towel wraps. During part of fiscal 2007, products under this brand were available on a limited distribution basis. These licensing agreements expired in December 2006 and the Company did not renew them.
The Company also markets accessory footwear to customers who sell the footwear under their own private labels. These sales represented approximately 9%, 2%, 3%, and 3% of the Company’s consolidated net sales during fiscal 2007, the 2006 transition period, fiscal 2005 and fiscal 2004, respectively.
Marketing
The Company’s marketing strategy for its slipper-type brand lines includes expanding counter and floor space by creating and marketing brand lines to different sectors of the consumer market. Retail prices for most of the Company’s slipper-type products normally range from approximately $5 to $30 per pair, depending on the style of footwear, type of retail channel and retailer’s mark-up. Most consumers of the Company’s slipper-type footwear products fit within a range of four to six sizes. This allows the Company to carry lower levels of inventories in the slipper lines compared to other more traditional footwear suppliers.
The Company’s slipper-type brand collections of products are sold in the following channels of distribution:
• Traditional department stores, promotional department stores, national chain department stores and specialty stores.

• Mass merchandising channels of distribution such as discount stores, “big box retailers,” warehouse clubs, drug and variety chain stores and supermarkets.

• Independent retail establishments.

• Catalogs and Internet.
The accessory footwear products to be sold under the Terrasoles* brand will be distributed, beginning in the first quarter of fiscal 2008, in specialty chain stores, independent shoe stores, outdoor type channels and catalogs. Prices of these products will range from $49 to $59. Superga** products are expected to be sold, beginning in the third quarter of fiscal 2008, in the mid- to upper-range department store channels at prices ranging from $80 to $180. Products sold under the College Clogs ä brand will be distributed, beginning in the first quarter of fiscal 2008, in sporting goods and athletic footwear channels, as well as in specialty chain stores, bookstores, catalogs, and on the Internet. Prices for these products will range from $19 to $49. See further details about the Company’s arrangements with respect to products to be sold under the Superga** and College Clogs ä brands under the “Trademarks and Licenses” caption above.
The Company has traditionally marketed most its products primarily through account managers employed by the Company. With the recent introduction of the Terrasoles* brand and the new arrangements with respect to the sales of accessory footwear products under the Superga** and College Clogs ä brands, the Company expects to market these products by using independent sales representatives. The Company does not finance its customers’ purchases, although return privileges are granted in limited circumstances to some of the Company’s retailing partners. The Company in some cases will also grant allowances to its customers to fund advertising and product discounts.
During the spring and fall of each year, the Company presents a collection of designs and styles to buyers representing the Company’s retail customers at scheduled showings. In an effort to achieve market exposure for its products, the Company also sponsors spring and fall showings for department stores and other large retail customers. In addition, Company account managers regularly visit retail customers. The Company makes catalogs available to its current and potential customers and participates in trade shows regionally and nationally.
The Company maintains a sales office and showroom in New York City. Buyers for department stores and other large retail customers make periodic visits to this sales office. The Company also maintains a sales administration office in Bentonville, Arkansas that supports the Company’s business with Wal-Mart Stores, Inc. and its affiliates (collectively, “Wal-Mart”).
The Company for many years has hired temporary merchandisers to assist in the display and merchandising of the Company’s products in a number of department stores and chain stores nationally. The Company believes that this point-of-sale management of the retail selling floor, combined with its computerized automatic demand pull replenishment systems with customers, allows the Company to optimize over-the counter sales of its accessory footwear products during the critical holiday selling season.
Sales during the last six months of each calendar year have historically been greater than during the first six months. Consequently, the Company’s inventory investment is largest in early fall in order to support the retailers’ product requirements for the fall and holiday selling seasons. The Company advertises principally in the print media and its promotional efforts are often conducted in cooperation with its customers. Many of the Company’s products are displayed at the retail store level for self-selection or gift-purchase.
In fiscal 2004 and fiscal 2005, the Company, with the assistance of an outside marketing consultant, conducted extensive “consumer-centric” market research. As a result of this research, the Company established its flagship Dearfoams* brand as the “Lifestyle at Home” brand. In 2006, the Company initiated consumer brand awareness marketing programs including its business to consumer e-commerce website. Through various publications and media outlets, the Company’s Dearfoams* brand was presented with brand building advertisements illustrating the extensive product styling the Company offers. The Company plans to continue to build consumer brand awareness through advertising, point-of-sale presentations, customized packaging, product styling, and a variety of marketing support programs. As the industry leader and accessory footwear category expert, the Company also expects to continue to invest in a variety of initiatives involving consumer-oriented, marketing strategies.

CEO BACKGROUND

Director and Chief Executive Officer of the Company since May 2006; President of the Company since February 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; Vice President and National Sales Manager of Brown Shoe Company, an operator of retail shoe stores, and a supplier and marketer of footwear for women, men, and children, from 1992 to 1998.

Senior Vice President – Finance and Chief Financial Officer of the Company since June 2000 and Secretary of the Company since October 2000; Treasurer of the Company from October 2000 to December 2004; Senior Vice President – Administration of the Company from 1992 to July 1999; Director of the Company from 2001 to 2004.

Senior Vice President – Sales and Brand President, Dearfoams ® of the Company since November 2006; Senior Vice President – Sales of the Company from June 2006 to November 2006; Senior Vice President Sales – National Accounts of the Company from September 2004 to June 2006; Vice President Sales – National Accounts of the Company from January 2004 to September 2004; Vice President – Sales of Designs by Skaffles, a privately-held supplier of novelty and accessory products, from October 2003 to January 2004; Vice President – Sales of Copy Cats, a privately-held supplier of women’s apparel products, from March 2003 to October 2003; Vice President Sales – National Accounts of the Company from August 2000 to March 2003.

Senior Vice President – Human Resources of the Company since November 2006; Vice President – Human Resources of the Company from 1993 to November 2006.

Senior Vice President – Design and Product Development of the Company since December 2006; 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; President of Pacific Brands, LLC, a market-driven footwear brand management company engaged primarily in managing the distribution of brands in North America and developing new footwear product lines for specialty brands, from 2000 to 2004.

Senior Vice President – Sourcing and Logistics of the Company since November 2006; Senior Vice President – Creative Services and Sourcing of the Company from November 2003 to November 2006; Vice President – Design and Creative Services of the Company from 2002 to November 2003.

Senior Vice President – Sales, Licensing and Business Development of the Company since May 2007; Senior Vice President – Sales and Business Development of the Company from May 2006 to May 2007; President of the H.S. Trask & Co. division and Corporate Vice President of Phoenix Footwear Group, Inc. from September 2003 to February 2006; Executive Vice President / General Manager of Born / H.H. Brown, a wholly-owned subsidiary of Berkshire Hathaway engaged in a variety of businesses including the manufacturing and distribution of clothing and footwear, from March 2001 to March 2003.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

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 the Company’s financial condition, changes in financial condition, results of operations and cash flows. Our MD&A should be read in conjunction with the Company’s Consolidated Financial Statements and related Notes to Consolidated Financial Statements and other information included in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q should also be read in conjunction with our 2007 Form 10-K.
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.
Results of Continuing Operations
During the third quarter of fiscal 2008, net sales were $20.2 million, representing a $3.9 million or 23.6% increase over the comparable quarter in fiscal 2007. The quarter-on-quarter increase in net sales was primarily due to our planned transition of product that resulted in a non-recurring $3.9 million increase in net sales to our largest customer. The increase in net sales resulted from our largest customer selecting us as their sole supplier for their basic replenishment slipper business. In addition, the quarter-on-quarter increase in net sales included an increase in sales of nearly $1.1 million to various customers in the high-end department store channel, substantially offset by a decrease in net sales of $945 thousand to one of our warehouse club customers.
For the nine months of fiscal 2008, net sales were $90.9 million, representing a $300 thousand or 0.3% decrease from the comparable period in fiscal 2007. The decrease in net sales for the nine months reflected primarily the effect of a reduction of approximately $5.7 million in sales to customers in department stores channel, offset by an increase of nearly $4.7 million in sales to customers in the warehouse club, mass, catalog/internet and specialty store channels, as well as the impact of a $535 thousand favorable adjustment made to the allowance for sales incentives estimated at the end of fiscal 2007. This favorable adjustment resulted from sell through rates that were better than anticipated in our fiscal 2007 year-end estimates for customers in the specialty and department store channels. The decrease in net sales for the nine months of fiscal 2008 was primarily due to the downward retail sales trends reported for the 2007 holiday season for customers in the department store channels. The increases in net sales for the nine months of fiscal 2008 were primarily due to a successful sales program with customers in the warehouse club channel, the effect of shipping new product to customers in the specialty store channel, increased sales in catalog/internet channels, and the successful transition of product with our largest customer.
Gross profit for the third quarter of fiscal 2008 was $8.0 million or 39.5% of net sales, compared to $6.4 million or 38.8% of net sales for the comparable period in fiscal 2007. Gross profit for the nine months of fiscal 2008 was $37.8 million or 41.6% of net sales, compared to $36.4 million or 39.9% of net sales for the comparable nine-month period of fiscal 2007. The quarterly and nine-month increases of 0.7 and 1.7 percentage points in gross profit as a percent of net sales, respectively, were due primarily to increased sales of higher margin product for the quarter and higher margins earned on our closeout product for the nine-month period, offset in part by continued increases in the prices we pay for product sourced from third-party manufacturers.
Selling, general and administrative (“SG&A”) expenses for the third quarter and nine months of fiscal 2008 increased by $475 thousand and $1.3 million, respectively, over the comparable reporting periods in fiscal 2007. As a percent of net sales, SG&A expenses were 34.9% in the third quarter of fiscal 2008 and 40.3% in the comparable quarter a year earlier. SG&A expenses as a percent of sales were 27.1% and 25.6% in the nine months of fiscal 2008 and the comparable period in fiscal 2007, respectively.
The quarter-on-quarter net increase of $475 thousand in SG&A expenses included $205 thousand less in bad debt expense, which was more than offset by increases of $171 thousand in non-incentive payroll and payroll related expense, $162 thousand in marketing support expense associated with new brandline initiatives, $142 thousand in outside contract and consulting expense, and $195 thousand in net expense from a range of other areas during the period. The increase in SG&A expenses for the nine months of fiscal 2008 primarily included increases of $727 thousand in print advertising; $516 thousand increase in other marketing costs associated with new our brandline initiatives; $504 thousand in payroll and payroll related expenses, and $284 thousand in consulting expense associated with a variety of projects undertaken during the period. These higher expenses were offset primarily by a decrease of $688 thousand in incentive bonus expense recognized in the nine-month reporting period of fiscal 2008. Bonus expense accrual for the nine months of fiscal 2008 was based on year to date operating performance, which is on par with the planned level of bonus as established under the Company’s incentive plan. Bonus expense accrual recorded for the same period of fiscal 2007 was based on operating performance that exceeded the planned level and resulted in higher bonus expense.
During the nine months of fiscal 2007, we recorded $163 thousand as a restructuring charge. Costs incurred in the nine months of fiscal 2007 were primarily due to professional fees associated with the application process of liquidating our subsidiaries in Mexico and advisory services with respect to customs issues for one of our former subsidiaries in Mexico. No restructuring charges were recorded during the third quarter and nine months of fiscal 2008. As reported in earlier filings, we have fully liquidated and deregistered our former subsidiaries in Mexico.
During the third quarter and nine months of fiscal 2008, we recorded net interest income of $242 thousand and $420 thousand, respectively, compared to net interest income of $171 thousand and net interest expense of $364 thousand for the same reporting periods in fiscal 2007. The increase in net interest income was primarily due to reduced interest expense as a result of our cumulative profitability over the last twelve months, which resulted in lower borrowing levels under our existing borrowing facility discussed further below and our related ability to make short-term investments.
During the third quarter and nine months of fiscal 2008, we recorded an income tax benefit of $45 thousand and income tax expense of $4.5 million, respectively, on continuing operations. The income tax benefit recognized in the third quarter of fiscal 2008 reflects the impact of recording an out of period $524 deferred tax benefit adjustment in excess of the amount previously reported. This deferred tax benefit was associated with the asset valuation write-down recorded during fiscal 2004 with respect to closure of our former distribution operations in Mexico.
As reported previously, we recorded a valuation allowance for the carrying amount of our deferred tax assets at the end of fiscal 2003 because we deemed then that it was more likely than not that our deferred tax assets would not be realized. In the second quarter of fiscal 2007, we determined, based on the existence of sufficient positive evidence, represented primarily by three years of cumulative income before restructuring charges, that a valuation allowance against net deferred tax assets was no longer required because it was more likely than not that the deferred tax assets will be realized in future periods. In the first quarter of fiscal 2007, we recorded $81 thousand in income tax expense on continuing operations, primarily as a result of alternative minimum tax expense, which was due to the full valuation reserves maintained during that period. With reversal of the tax valuation allowance in the second quarter of fiscal 2007, we reported an income tax benefit of $240 thousand and $13.1 million for the third quarter and nine months of fiscal 2007, respectively.
Based on the results of continuing operations noted above, we reported net earnings of approximately $1.2 million, or $0.11 per diluted common share, for the third quarter of fiscal 2008 and $9.1 million, or $0.85 per diluted common share, for the nine months of fiscal 2008. We reported $208 thousand, or $0.02 per diluted common share, for the third quarter of fiscal 2007 and $26.8 million, or $2.58 per diluted common share, for the nine months of fiscal 2007.
Results of Discontinued Operations
There were no net earnings or net losses reported as part of discontinued operations for our former Fargeot business during the third quarter or nine months of fiscal 2008. In the third quarter and nine months of fiscal 2007, we reported net earnings of $87 thousand, or $0.01 net earnings per diluted common share, and net earnings of $241 thousand, or $0.02 per diluted common share, respectively, as part of discontinued operations on Fargeot.
Seasonality
Although our various product lines are sold on a year round basis, the demand for specific products or styles may be highly seasonal. For example, the demand for gift-oriented slipper product is higher in the fall holiday season than it is in the spring and summer seasons. As the timing of product shipments and other events affecting the retail business may vary, results for any particular quarter may not be indicative of results for the full year.
Looking ahead to the remainder of fiscal 2008 and beyond
Looking ahead to the remainder of fiscal 2008 and beyond, we will continue to pursue strategically driven initiatives that are designed to provide measurable and sustainable net sales and profit growth. We continue to expect our fiscal 2008 income from continuing operations, before taxes and excluding the fiscal 2007 gain of $878,000 on the sale of land, to increase by approximately 10 percent from fiscal 2007. However, due to the recent slowing retail environment and to the loss of some reorder business as a result of the April 10 tornado that struck our San Angelo, Texas distribution facility, we now expect our net sales for fiscal 2008 to increase by approximately 3 percent from fiscal 2007, instead of our previously-issued guidance of approximately 4 percent. As our business continues to be highly seasonal and dependent on the holiday selling season, there is significant inherent risk in the current business model. See the risk factors described in “Item 1A. Risk Factors” of Part II of this Quarterly Report on Form 10-Q and in “Item 1A. Risk Factors” of Part I of our 2007 Form 10-K.
On April 10, 2008, we incurred tornado related damages to our Texas leased distribution facility and inventory stored in that facility. Damages to the facility, equipment and inventory, as well as losses incurred due to business interruption are fully covered by insurance above a deductible provision of $125 thousand. This insurance coverage provides for repair or reimbursement of replacement cost on the facility as well as equipment and for an amount equal to the cost plus normal profit expected in the sale for any finished goods inventory. The carrying cost of damaged inventory approximates $1.5 million. We have leased an additional distribution facility for a period of three months. Shipment of our goods resumed very shortly after the date of the storm. We expect this event to have no significant effect on overall business activities in supporting our customers, or on our results of operations for fiscal 2008.
Liquidity and Capital Resources
Our only source of revenue and cash flow comes from our operating activities in North America. When cash inflows are less than cash outflows, we also have access to amounts under our bank facility, discussed further under the caption “Bank Facility” below, 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, 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 borrowing facility at the time of shipment of the products and reduce the amount available under our bank borrowing facility when issued.
Cash and cash equivalents on hand was approximately $13.0 million at March 29, 2008 compared to $16.9 million at March 31, 2007 and $18.2 million at June 30, 2007. Short-term investments were approximately $15.0 million at March 29, 2008, $0 at March 31, 2007 and $0 at June 30, 2007. Our short-term investments are comprised of highly liquid debt securities with an interest rate determined at the time of purchase and reset on a weekly basis. These debt securities are classified as available for sale investments that can be liquidated into cash within seven days via tender of the securities to the third-party financial institution serving as remarketing agent and/or guarantor for the debt securities. The carrying amount of the investments approximates fair value due to the short time such investments are held. These investments are guaranteed as to both principal and accumulated interest through letters of credit provided by third party financial institutions. In some investments, the principal and accumulated interest guarantee is supplemented by insurance from third party insurers. We perform periodic evaluations of the credit ratings of third party financial institutions and third party insurers, which are considered as part of our short-term investment policy.
All references made in this section are on a consolidated basis. Amounts with respect to Fargeot, which have been reclassified as discontinued operations in our Consolidated Statements of Operations for the third quarter and nine months of fiscal 2007, have been included, as applicable, in the discussion of operating, investing and financing activities sections of this liquidity and capital resources analysis. The net impact on cash from the sale of Fargeot is reflected as an investing activity for the third quarter and nine months of fiscal 2008 as described below.
Operating Activities
During the nine months of fiscal 2008 and of fiscal 2007, our operations provided $10.4 million and $15.6 million of cash, respectively. The operating cash flows were primarily the result of earnings from continuing operations for those periods adjusted for non-cash items such as depreciation and amortization, deferred income tax expense (benefit), stock-based compensation expense and net gain (loss) on disposal of property, and changes in our working capital accounts, as discussed in more detail further below. During the nine months of fiscal 2008, we funded our operations entirely by using our own cash. We were able to do this because of our profitability achieved during fiscal 2007. In contrast, during the nine months of fiscal 2007, we partially funded our working capital needs by drawing on our then existing credit line with The CIT Group/Commercial Services, Inc. (“CIT”).

Our working capital ratio, which is calculated by dividing total current assets by total current liabilities, was 5.2:1 at March 29, 2008, 3.9:1 at March 31, 2007 and 3.2:1 at June 30, 2007. The increase in our working capital ratio from the end of the third quarter of fiscal 2007 to the end of the third quarter of fiscal 2008 was due primarily to the impact of cumulative earnings over that period.
Going forward, we anticipate continuing to fund our operations by using our internal cash reserves. Based on our tax net operating loss (“NOLs”) carryforward position at the end of fiscal 2007 and our expected profitability in the future, we anticipate being able to utilize the NOLs in future periods, which will favorably impact our cash flow during those periods. We expect to begin paying U.S. federal income taxes in our fiscal 2010.
Changes in the primary components of our working capital accounts for the nine months of fiscal 2008 and nine months of fiscal 2007 were as follows:
§ Net accounts receivable increased by $700 thousand and by $4.6 million during the nine months of fiscal 2008 and fiscal 2007, respectively. The increases in net accounts receivable during these reporting periods were due primarily to the seasonality of our business. The increase in net accounts receivable for the current period versus the same prior year period primarily reflects the impact of higher returns allowance reserves in the current year associated with transitioning of product with our largest customer during the third quarter of fiscal 2008.
§ Net inventories decreased by $600 thousand during the nine months of fiscal 2008 and primarily reflects the net effect of the timing of relative purchases over the period. The decrease in net inventories of $13.6 million during the nine months of fiscal 2007 primarily reflected our successful efforts to manage our inventory levels consistent with our customer-centric sell-in approach as well as our continued success in selling our closeout inventories.
§ Accounts payable decreased by $2.0 million and $4.6 million during the nine months of fiscal 2008 and nine months of fiscal 2007, respectively. The decreases in accounts payable were due primarily to the timing of purchases and payment for inventories, which were in line with the seasonality of our business and consistent with supporting the product transition initiative with our largest customer.
§ Accrued expenses decreased by $1.1 million and $1.4 million during the nine months of fiscal 2008 and nine months of fiscal 2007, respectively. The decreases in accrued expenses were due primarily to a reduction in our bonus incentive accrual recorded at the end of each of the reporting periods.
Investing Activities
During the nine months of fiscal 2008, investing activities used $16.2 million in cash. Our investing activities involved primarily $15.0 million in purchases of short-term investments and $1.3 million in capital expenditures, offset by the net change in cash of $66 thousand resulting from the disposition of our former Fargeot subsidiary. During the nine months of fiscal 2007, investing activities provided $348 thousand, which included the proceeds of $888 thousand from the sale of land offset by capital expenditures of $540 thousand. The increase in capital expenditures for the nine months of fiscal 2008 was due primarily to the installation of a new air conditioning system in our corporate offices. We expect to incur approximately $1.7 million in capital expenditures in fiscal 2008.
Financing activities
During the nine months of fiscal 2008, financing activities provided $601 thousand in cash. This financing cash inflow resulted primarily from $659 thousand of cash provided from the exercise of stock options by our employees and non-employee directors,, offset by $58 thousand used to reduce our outstanding debt obligations. During the nine months of fiscal 2007, financing activities used $26 thousand, which included the use of $228 thousand to reduce our debt, offset by $202 thousand received from the exercise of stock options by our employees during that period.
2008 Liquidity
We believe our sources of cash and cash equivalents on-hand, short-term investments, cash from operations and funds available under our bank borrowing facility, as described below, will be adequate to fund our operations and capital expenditures through the remainder of fiscal 2008.

As described in Note 12 of the Notes to our Consolidated Financial Statements, losses in inventory and equipment as well as damage to the facility incurred as a result of the tornado in Texas are fully insured subject to a minor deductible allowance. We do not expect this event to have any significant effect on either our results from operations or on our relative liquidity for fiscal 2008.

Bank Facility
Bank Facility
On March 29, 2007, we entered into an unsecured Revolving Credit Agreement (the “Bank Facility”) with The Huntington National Bank (“Huntington”). The Bank Facility replaced the former borrowing facility with CIT. Under the terms of the Bank Facility, Huntington is obligated to advance us funds for a period of three years in the following amounts:
Year 1 — $20 million from July to December; $5 million from January to June;
Year 2 — $16 million from July to December; $5 million from January to June; and
Year 3 — $12 million from July to December; $5 million from January to June
The termination and maturity date of the Bank Facility is March 31, 2010, but it may be extended for one-year periods upon the agreement of the Company and Huntington. Under its terms, we are required to satisfy certain financial covenants, including (a) satisfying a minimum fixed charge coverage ratio test of not less than 1.25 to 1.0, which is calculated quarterly on a trailing 12-month basis, and (b) maintaining a consolidated net worth of at least $29 million, increased annually by an amount equal to 50% of our consolidated net income subsequent to June 30, 2007. Further, the Bank Facility must be rested for at least 30 consecutive days beginning on February 1st of each year and borrowings under the Bank Facility may not exceed 80% of the Company’s eligible accounts receivable and 50% of its eligible inventory at any given time. The interest rate on the Bank Facility is a variable rate equal to LIBOR plus 1.20%. Additionally, we agreed to pay a quarterly fee for any unused amount of the Bank Facility equal to .25% percent of the average unused balance of the Bank Facility, a commitment fee of $5 thousand, which was paid at closing, and an annual facility fee of $2.5 thousand due on the last day of March commencing March 31, 2008. During the third quarter and nine months of fiscal 2008, we incurred unused line of credit fees of approximately $3 thousand and $27 thousand, respectively. As of March 29, 2008, we had no amounts of borrowings outstanding and had $4.8 million available under the Bank Facility.
Other Long-Term Indebtedness and Current Installments of Long-Term Debt
As of March 29, 2008, we reported approximately $83 thousand as current installments of long-term debt, which represented the current portion of our obligation associated with the agreement entered into with the mother of our chairman as disclosed in Note 9 of the Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. At the end of the third quarter of fiscal 2008, we reported approximately $209 thousand as consolidated long-term debt, all of which was related to the obligation with the mother of our chairman.
Off-Balance Sheet Arrangements and Contractual Obligations
There have been no material changes to “Off-Balance Sheet Arrangements” and “Contractual Obligations” since the end of fiscal 2007, other than routine payments. For more detail on off-balance sheet arrangements and contractual obligations, please refer to “Liquidity and Capital Resources – Other Matters Impacting Liquidity and Capital Resources” of our 2007 Annual Report to Shareholders, which was incorporated by reference into “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation” of Part II of our 2007 Form 10-K.
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 after gathering as much 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 some time 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 for the quarterly period. 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 (v) of the Notes to Consolidated Financial Statements included in our 2007 Annual Report to Shareholders, which was incorporated by reference into “Item 8. Financial Statements and Supplementary Data” of Part II of our 2007 Form 10-K.

(a) We recognize revenue when the following criteria are met:
• goods are shipped from our warehouses and other third-party distribution locations, at which point our customers take ownership and assume risk of loss;

• collection of the related receivable is probable;

• persuasive evidence of a sale arrangement exists; and

• the sales price is fixed or determinable.
In certain circumstances, we sell products to customers under special arrangements, which provide for return privileges, discounts, promotions and other sales incentives. At the time we recognize revenue, we reduce our measurement of revenue by an estimated cost of potential future returns and allowable retailer promotions and incentives, and recognize 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. During the third quarter and nine months of fiscal 2008, we recorded favorable adjustments of $5 thousand and $535 thousand, respectively, related to our allowance for sales incentives of $1.7 million established at June 30, 2007. These favorable adjustments were associated with several customers in the specialty and department store channels and resulted from sell through rates that were better than anticipated in our fiscal 2007 year-end estimates.
At the end of the third quarter of fiscal 2008, we had approximately $2.5 million in allowances related to returns privileges granted to certain customers. A substantial portion of these returns privileges is associated with the product-transition initiative with our largest customer. We expect these product returns to be received and processed during the fourth quarter of fiscal 2008. These allowance estimates were based on our use of ongoing sell-through and other inventory information obtained from our customers.
(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. No significant changes occurred during the third quarter and nine months of fiscal 2008 with respect to these estimates made at June 30, 2007.
(c) We make an assessment of the amount of income taxes that will become currently payable or recoverable for the just concluded period, and what deferred tax costs or benefits will become realizable for income tax purposes in the future, as a consequence of differences between results of operations as reported in conformity with U.S. GAAP, and the requirements of the income tax codes existing in the various jurisdictions where we operate. In evaluating the future benefits of deferred tax assets, we examine our capacity for refund of federal income taxes due to our net operating loss carry-forward position, and our projections of future profits. We recorded a valuation allowance when it was more likely than not that some portion or all of our deferred tax assets would not be realized. Accordingly, beginning with year-end fiscal 2003, we established a valuation allowance against the carrying amount of those deferred tax assets. At that time, there was not sufficient historical assurance that future taxable income would be generated to offset these deferred deductible items. Accordingly, we maintained a valuation allowance against the net deferred tax assets in the amount of $18.3 million at July 1, 2006.
This full valuation allowance against deferred tax assets was maintained through the first quarter of fiscal 2007. In the second quarter of fiscal 2007, we determined, based on the existence of sufficient positive evidence, represented primarily by three years of cumulative income before restructuring charges, that a valuation allowance against net deferred tax assets was no longer required because it was more likely than not that our deferred tax assets would be realized in future periods. Accordingly, a 100% reversal of the valuation allowance was recognized in closing out the second quarter of fiscal 2007.
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 accrual. Any identified exposures will be subjected to continuing assessment and estimates will be revised as appropriate as information becomes available to us. At the end of the third quarter of fiscal 2008, we had no tax contingency reserve. There were no significant uncertain tax positions existing for purposes of FIN 48 when we adopted FIN 48 as of July 1, 2007.
Actual results may vary from any of the estimates described above as a consequence of activities after the period-end estimates have been made. These subsequent activities may 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
In September 2006, the FASB released SFAS No. 157 , " Fair Value Measurements .” This standard becomes effective for financial assets and liabilities, as well as any assets carried at fair value, for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those years. This standard becomes effective for nonfinancial assets and liabilities for financial statements issued after November 15, 2008 and interim periods within those years. Earlier application is encouraged, provided financial statements have not yet been issued for that fiscal year, including financial statements for an interim period within that fiscal year. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS No. 157 will be effective for the Company’s fiscal year beginning on June 29, 2008, except as noted below. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements. In February 2008, the FASB issued FASB Staff Positions (“FSP”) 157-1 and 157-2. FSP 157-1 amends SFAS No. 157 to exclude its application to SFAS No. 13, “ Accounting for Leases ” or any related accounting pronouncements that address fair value measurements for purposes of lease classification or measurement . FSP 157-2 delays by one year, the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on at least an annual basis. The application of the provisions of SFAS No. 157, and its subsequent amendments, will not have a significant effect on the Company’s financial position or its results of operations since it primarily relates to disclosures about fair value measurements.
In December 2007, the FASB released SFAS No. 141 (revised 2007), “ Business Combinations " , and SFAS No. 160, “ Noncontrolling Interests in Consolidated Financial Statements- an amendment of ARB No.151. ” These standards become effective for fiscal years beginning on or after December 15, 2008, and they provide guidance in accounting for business combinations and the reporting of noncontrolling interests (or minority interests) in consolidated financial statements. Both standards become effective for the Company’s fiscal year beginning on June 28, 2009. The provisions of these standards will be applied on a prospective basis and thus will not have an effect on the Company’s historical financial position or its results of operations.

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