bankruptcy of two significant retail customers ($0.3 million); and,
(iii) expenses related to establishment and operation of our European subsidiary ($1.0 million). We established our European subsidiary in July, 2008 with the intent to build out a long term distribution channel for Europe. During the start-up phase of this business, the impact of seasonality is magnified due to the higher initial establishment costs. However, we expect to reduce costs related to this subsidiary through the remainder of 2009. Results of Operations
The following table sets forth selected financial information derived from our interim unaudited condensed consolidated financial statements. The discussion that follows the table should be read in conjunction with the interim unaudited condensed consolidated financial statements. In addition, please see Management's Discussion and Analysis of Financial Condition and Results of Operations, our consolidated annual financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2008.

                                                             Quarter Ended
                                                 March 28,     March 29,
     ($ in thousands)                              2009          2008        % Change

     Net Sales                                   $ 25,910      $ 24,732            5 %
     Gross Profit                                   9,831        10,061           (2 %)
     Gross Profit %                                  37.9 %        40.7 %    (280 bps)
     Selling and Administrative Expenses           10,869         8,968           21 %
     % of Net Sales                                  41.9 %        36.3 %     560 bps
     Non-Operating Income (Expense)                   (52 )         159         (133 %)
     Income (Loss) Before Income Taxes             (1,090 )       1,252         (187 %)
     Income Tax Provision (Benefit)                  (398 )         473         (184 %)
     Net Income (Loss)                               (692 )         779         (189 %)

     Trade and other accounts receivable, net      18,190        19,307           (6 %)
     Inventories                                   28,023        26,053            8 %

Quarter Ended March 28, 2009 Compared to Quarter Ended March 29, 2008:
Net Sales: Net sales for the first quarter of 2009 increased 5%, to $25.9 million, from $24.7 million in the same period of 2008. Sales to the work market were $19.0 million for the first quarter of 2009, up 6% from $17.9 million for the same period of 2008. The growth in work market sales reflects continued penetration into various avenues within the U.S. Government market, including growing demand from aftermarket military suppliers, partially offset by the bankruptcies of two major retailers and widespread softness in the retail channel. While the loss of these two retailers negatively impacted our quarterly revenue growth by $1.8 million, our strength in our portfolio of sales channels enabled our consolidated growth in net sales of 5% in the first quarter of 2009. We expect to ship $6.7 million of previously announced orders to the U.S. Army during the balance of 2009.
Sales to the outdoor market were $6.9 million for the first quarter of 2009, up slightly from $6.8 million for the same period of 2008. Despite continued softness in the overall retail environment, our first quarterly increase in outdoor sales since the third quarter of 2007 was primarily due to strength in our cold weather product offerings, offset by the continued sluggish retail environment.
In addition, the first quarter of 2009 had 61 business days, representing a 3% decrease compared to 63 business days during the first quarter of 2008. Gross Profit: Gross profit for the first quarter of 2009 was 37.9% of net sales, compared to 40.7% in the same period of 2008. The decline in gross profit of 280 basis points ("bps") was due to the impact of investments in our Portland factory (80 bps), increased costs as a result of re-sourcing key rubber styles due to the closure of one of our third party manufacturing facilities in 2008 (40 bps), an increase in markdown sales (30 bps), and product cost and product mix changes and other items (130 bps).
Selling and Administrative Expenses: Selling and administrative expenses in the first quarter of 2009 increased $1.9 million, or 21%, to $10.9 million from $9.0 million in the same period of 2008, driven by expenses related to establishment and operation of our European subsidiary which was established in the third quarter of 2008 ($1.0 million), expenses

related to establishment and operation of our new Indianapolis distribution center ($0.5 million), bad debt expense related primarily to the bankruptcy of two significant retail customers ($0.3 million) and other expenses ($0. 1 million).
Non-Operating Income (Expense): Non-operating income (expense) in the first quarter of 2009 changed from income of approximately $0.16 million to an expense of $0.05 million compared with the same period of 2008, primarily as a result of a decrease in interest income due to lower rates in 2009 and the recovery of certain foreign taxes on royalty income in 2008.
Income Tax Provision (Benefit): We recognized an income tax benefit at an effective rate of 36.5% for the first quarter of 2009 compared to income tax expense at an effective tax rate of 37.8% in the same period of 2008. The change in the effective tax rate from 2008 is primarily due to the timing of realization of federal research and experimentation credits. The law allowing such credits for 2008 and 2009 was enacted on October 2, 2008, and the impact of the 2008 credits was recognized in the fourth quarter of 2008.
Net Income (Loss): Net loss for the first quarter of 2009 was $0.7 million, or $0.11 diluted loss per common share, compared to net income of $0.8 million, or $0.12 diluted earnings per common share in the same period of 2008. The net income decline of $1.5 million is attributable to the net sales, gross profit and expense changes as discussed above.
Trade and Other Accounts Receivable, Net: Trade and other accounts receivable decreased $1.1 million, or 6%, as compared to the first quarter of 2008. This decrease is primarily attributable to increased sales to the government channel which pays more timely than other channels, an increase in our allowance for doubtful accounts of $0.3 million, and the collection of receivables from certain of our third party manufacturers for replacement of defective products we purchased from them.
Inventories: Inventories increased $2.0 million, or 8%, from the first quarter of 2008. The increase in inventories was due to an increase in raw materials inventory to support domestic production related to government sales, an increase in European inventories which were acquired in the third quarter of 2008, and the overall increase in sales for the quarter, partially offset by less carryover of outdoor products from a year ago, and improved sales of markdown items.
LIQUIDITY AND CAPITAL RESOURCES
In recent years, we have funded working capital requirements and capital expenditures principally with cash generated from operations. We require working capital to support fluctuating accounts receivable and inventory levels caused by our seasonal business cycle. Working capital requirements are generally the lowest in the first quarter and the highest during the third quarter. We did not borrow against our credit line during the first quarters of 2009 or 2008. Net cash provided by operating activities was $1.2 million and $1.4 million in the first quarters of 2009 and 2008, respectively. Operating cash flows in the first quarter of 2009 included a net loss of $0.7 million, adjustments for non-cash items including depreciation and amortization totaling $0.7 million and $0.2 million of stock-based compensation expense, and changes in working capital components, primarily consisting of a decrease in accounts receivable of $4.3 million, and a decrease in inventory of $0.6 million, a decrease in accounts payable and accrued expenses of $4.2 million. With the seasonality of our business, a decrease in accounts receivable and inventory is normal for the first quarter of the year. The decrease in accounts payable is primarily related to the timing of payments related to inventory. The decrease from year-end in accrued expenses and other primarily relates to the payment of $1.9 million of incentive compensation, which was accrued at year-end.
Operating cash flows in the first quarter of 2008 included net income of $0.8 million, adjustments for non-cash items including depreciation and amortization totaling $0.4 million and $0.2 million of stock-based compensation expense, and changes in working capital components, primarily consisting of a decrease in accounts receivable of $3.3 million, a decrease in inventory of $1.1 million, a decrease in accrued expenses and other of $2.3 million and a decrease in accounts payable of $2.0 million.
Net cash used in investing activities was $2.2 million and $0.2 million in the first quarters of 2009 and 2008, respectively, representing purchases of property and equipment. We anticipate spending $2.8 million on capital expenditures during the balance of 2009.
Net cash used in financing activities in the first quarters of 2009 and 2008, was $0.5 million and $6.3 million, respectively. Cash dividends paid were $0.8 million in the first quarter of 2009, compared to $7.0 million in the first quarter of 2008. Proceeds from the exercise of stock options were $0.3 million in the first quarter of 2008, compared to $0.7 million in the same period of 2008.

A summary of our contractual cash obligations at March 28, 2009 is as follows:

(in thousands)                                               Payments due by year:
                                        Remaining in
Contractual Obligations     Total           2009          2010        2011        2012        2013       Thereafter

Operating leases (1)      $ 19,673      $     1,676     $ 2,305     $ 2,106     $ 2,129     $ 2,151      $    9,306

(1) See Part I, Item 2 - Properties in our Annual Report on Form 10-K for the year ended December 31, 2008 for a description of our leased facilities.

At March 28, 2009 and March 29, 2008, our pension plan had accumulated benefit obligations in excess of the respective plan assets and accrued pension liabilities. These obligations in excess of plan assets and accrued pension liabilities have resulted in the inclusion of accumulated other comprehensive loss in shareholders' equity net of tax of $3.6 million and $1.0 million as of March 28, 2009 and March 29, 2008, respectively. We contributed $0.3 million to our defined benefit pension plan during the first quarter of 2009 and anticipate contributing an additional $0.9 million during the remainder of 2009. In June 2006, we received a grant of $0.2 million and a non-interest bearing loan of $0.6 million from the Portland Development Commission, which were used to finance certain leasehold improvements at our Portland distribution facility. The grant is recorded as deferred revenue and is being amortized as a reduction of operating expenses on a straight-line basis over five years, which is the estimated useful life of the associated leasehold improvements. In the third quarter of 2008, the loan was forgiven by the Portland Development Commission as we met certain facility usage requirements and employment criteria, including maintaining a minimum number of employees in the city of Portland, Oregon and paying those employees a competitive specified wage and benefits package. Given the forgiveness of this loan, we have reclassified the remaining unamortized long-term debt to deferred revenue and will continue to amortize the balance until 2011.
The Board of Directors, while not declaring future dividends to be paid, established a quarterly dividend policy reflecting its intent to declare and pay a quarterly dividend of $0.125 per share of common stock (approximately $0.8 million per quarter) for the balance of 2009. Accordingly, a quarterly dividend of $0.8 million was paid on March 18, 2009 to shareholders of record as of the close of business on February 22, 2009.
On April 23, 2009, we announced a second quarter cash dividend of twelve and one-half cents ($0.125) per share of our common stock. This dividend will be paid on June 18, 2009 to shareholders of record as of the close of business on May 22, 2009. The total cash payment for this dividend will be approximately $0.8 million.
In the second quarter of 2009, we will have consolidated our two La Crosse, Wisconsin distribution facilities to one location in Indianapolis, Indiana for increased capacity and operating efficiencies. We spent $1.4 million in the first quarter of 2009 and anticipate spending approximately $1.2 million in the second quarter of 2009 for capital assets related to building out this new Midwest consolidated distribution facility including racking, computer systems and other build-out costs. We have evaluated the capital assets in our two distribution centers in La Crosse and have determined that no impairment exists as of March 28, 2009.
From time to time we enter into purchase commitments with our suppliers under customary purchase order terms. Any significant losses implicit in these contracts would be recognized in accordance with generally accepted accounting principles. At March 28, 2009, no such losses existed.
On March 9, 2009, we entered into a new line of credit agreement with Wells Fargo Bank, N.A., which expires June 30, 2012. This line of credit agreement represents a 3-year extension of our previous line of credit agreement with Wells Fargo Bank, N.A. (See Note 5 in our Notes to Unaudited Condensed Consolidated Financial Statements in this Form 10-Q). No amounts were outstanding under this line at March 28, 2009 or at March 29, 2008 under the former credit agreement with Wells Fargo Bank, N.A. We believe that our existing resources and anticipated cash flows from operations will be sufficient to satisfy our working capital needs for the foreseeable future.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our significant accounting policies and estimates are summarized in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2008. There have been no significant changes in these critical accounting policies since December 31, 2008. Some of our accounting policies require us to exercise significant judgment in selecting the appropriate assumptions for calculating financial estimates. Such judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, known trends in our industry, terms of existing contracts and other information from outside sources, as appropriate. Actual results could differ from these estimates. ITEM 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in our disclosures regarding market risk since December 31, 2008. See also Item 7A in our Annual Report on Form 10-K for the year ended December 31, 2008 for further sensitivity analysis regarding our market risk related to interest rates, pension liability and foreign currencies. ITEM 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), as of the end of the period covered by this Quarterly Report on Form 10-Q, our management evaluated, with the participation of our President and Chief Executive Officer and Executive Vice President and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act). Based upon their evaluation of these disclosure controls and procedures, the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer have concluded that the disclosure controls and procedures were effective as of the date of such evaluation in ensuring that information required to be disclosed in our Exchange Act reports is
(1) recorded, processed, summarized and reported in a timely manner, and
(2) accumulated and communicated to management, including our President and Chief Executive Officer and Executive Vice President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
(b) Changes in internal control over financial reporting. There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.