United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 2005 Commission File Number 1-878
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Blair Corporation
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(Exact name of registrant as specified in its charter)
DELAWARE 25-0691670
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
220 HICKORY STREET, WARREN,
PENNSYLVANIA 16366-0001
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(Address of principal executive offices) (Zip Code)
(814) 723-3600
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(Registrant's telephone number, including area code)
Not applicable
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(Former name,former address and former fiscal year,if changed since last report)
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 periods that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act.) YES X NO
----- -----
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act.) YES NO X
----- -----
As of November 4, 2005 the registrant had outstanding 3,936,728 shares of its
common stock without nominal or par value.
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS (UNAUDITED)
BLAIR CORPORATION AND SUBSIDIARIES
September 30, 2005
-2-
Blair Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
September 30 December 31
2005 2004
-------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 16,898,044 $ 50,559,995
Customer accounts receivable, less allowances
for doubtful accounts and returns of
$29,008,652 in 2005 and $38,924,914 in 2004 129,946,368 148,171,292
Inventories: (Note I)
Merchandise 74,658,371 67,597,084
Advertising and shipping supplies 19,169,769 16,697,349
-------------------------------
93,828,140 84,294,433
Deferred income taxes (Note W) 6,659,000 10,657,000
Prepaid and refundable federal and state taxes 306,296 -0-
Prepaid expenses 2,673,884 2,210,181
-------------------------------
Total current assets 250,311,732 295,892,901
Property, plant and equipment:
Land (Note Z) 1,142,144 1,142,144
Buildings and leasehold improvements (Note Z) 66,820,222 66,803,458
Equipment 72,470,311 74,793,330
Construction in progress 5,331,039 1,686,408
-------------------------------
145,763,716 144,425,340
Less allowances for depreciation 96,905,520 95,066,355
-------------------------------
48,858,196 49,358,985
Trademark 361,738 415,921
Other long-term assets 1,623,833 473,037
-------------------------------
Total assets $301,155,499 $346,140,844
===============================
See accompanying notes.
-3-
Blair Corporation and Subsidiaries
Consolidated Balance Sheets - Continued
(Unaudited)
September 30 December 31
2005 2004
-------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable (Note S) $143,000,000 $ 15,000,000
Trade accounts payable 30,900,098 24,831,335
Advance payments from customers 3,171,955 1,854,086
Accrued expenses (Note T) 18,195,397 15,406,631
Accrued federal and state taxes -0- 3,689,994
Current portion of capital lease obligations (Note U) 18,144 111,254
-------------------------------
Total current liabilities 195,285,594 60,893,300
Capital lease obligations, less current portion (Note U) 21,294 12,270
Deferred income taxes (Note W) 1,924,000 2,668,000
Other long term liability 814,542 -0-
Stockholders' equity:
Common stock without par value:
Authorized 12,000,000 shares
issued 10,075,440 shares (including shares
held in treasury) -- stated value 419,810 419,810
Additional paid-in capital 13,478,759 13,238,311
Retained earnings 311,724,442 306,544,284
Accumulated other comprehensive loss (71,061) (118,634)
-------------------------------
325,551,950 320,083,771
Less 6,138,712 shares in 2005 and 1,846,542
shares in 2004 of common stock
in treasury -- at cost (Note V) 221,768,448 35,955,582
Less receivable and deferred compensation
from stock plans 673,433 1,560,915
-------------------------------
Total stockholders' equity 103,110,069 282,567,274
-------------------------------
Total liabilities and stockholders' equity $301,155,499 $346,140,844
===============================
See accompanying notes.
-4-
Blair Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
2005 2004 2005 2004
-------------------------------------------------------------
Net sales $ 98,106,952 $107,074,331 $326,499,410 $362,709,317
Other revenue (Note X) 10,237,923 10,291,717 31,814,077 33,671,280
-------------------------------------------------------------
108,344,875 117,366,048 358,313,487 396,380,597
Cost and expenses:
Cost of goods sold (Note C) 42,634,240 51,152,018 150,113,495 172,194,162
Advertising 25,265,481 25,764,964 84,523,176 94,576,401
General and administrative (Note C) 34,352,624 31,232,772 100,656,767 97,727,526
Provision for doubtful accounts 3,289,124 4,476,095 10,196,089 18,067,391
Interest expense (income), net (Note D ) 538,469 (24,098) 104,479 (20,178)
Other expense (income), net 17,453 22,962 (189,400) 86,581
-------------------------------------------------------------
106,097,391 112,624,713 345,404,606 382,631,883
-------------------------------------------------------------
Income before income taxes 2,247,484 4,741,335 12,908,881 13,748,714
Income taxes (Note W) 832,000 1,800,000 4,779,000 5,225,000
-------------------------------------------------------------
Net income $ 1,415,484 $ 2,941,335 $ 8,129,881 $ 8,523,714
=============================================================
Basic earnings per share based on
weighted average shares outstanding (Note V) $0.23 $0.36 $1.09 $1.05
=============================================================
Diluted earnings per share based on
weighted average shares outstanding
and assumed conversions (Note V) $0.23 $0.36 $1.07 $1.04
=============================================================
See accompanying notes.
-5-
Blair Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
2005 2004 2005 2004
-------------------------------------------------------------
Common Stock $ 419,810 $ 419,810 $ 419,810 $ 419,810
Additional Paid-in Capital:
Balance at beginning of period 13,194,889 13,488,871 13,238,311 14,134,983
Issuance of 0 shares for the three months ended
September 30, 2005 and 2004 and 5,550 and 4,050
shares for the nine months ended September 30, 2005
and 2004 of common stock to non-employee directors
(Note V) -0- -0- 5,044 (24,358)
Issuance of 3,000 and 0 shares for the three months ended
September 30, 2005 and 2004 and 17,913 and 0 shares for
the nine months ended September 30, 2005 and 2004 of
common stock under Omnibus Stock Plan-Executive
Officer Stock Awards (Note V) (5,654) -0- (26,911) -0-
Forfeitures of 6,150 and 10,850 shares for the three
months ended September 30, 2005 and 2004 and 8,100 and
16,850 shares for the nine months ended September 30,
2005 and 2004 of common stock under Omnibus Stock and
Employee Stock Purchase Plans (Note V) 7,594 (71,223) (1,506) (94,746)
Exercise of options for the purchase of 82,565 and 6,560
shares for the three months ended September 30, 2005 and
2004 and 92,467 and 90,630 shares for the nine months
ended September 30, 2005 and 2004 of common stock under
Omnibus Stock Plan-Non-Qualified Stock Options (148,070) (56,766) (216,179) (856,997)
Tax benefit on exercise of Non-Qualified Stock Options 430,000 19,000 480,000 221,000
-------------------------------------------------------------
Balance at end of period 13,478,759 13,379,882 13,478,759 13,379,882
Retained Earnings:
Balance at beginning of period 310,866,152 299,630,497 306,544,284 296,397,999
Net income 1,415,484 2,941,335 8,129,881 8,523,714
Cash dividends (Note V) (557,194) (1,183,228) (2,949,723) (3,533,109)
-------------------------------------------------------------
Balance at end of period 311,724,442 301,388,604 311,724,442 301,388,604
Accumulated Other Comprehensive Loss:
Balance at beginning of period (122,951) (20,028) (118,634) (20,016)
Foreign currency translation 51,890 14,031 47,573 14,019
-------------------------------------------------------------
Balance at end of period (71,061) (5,997) (71,061) (5,997)
Treasury Stock:
Balance at beginning of period (35,126,743) (37,097,422) (35,955,582) (39,514,841)
Purchase of 4,400,000 and 0 shares for the three months
and nine months ended September 30, 2005 and 2004
of Common Stock for Treasury (188,934,078) -0- (188,934,078) -0-
Issuance of 0 shares for the three months ended
September 30, 2005 and 2004 and 5,550 and 4,050 shares
for the nine months ended September 30, 2005 and 2004
of common stock to non-employee directors (Note V) -0- -0- 158,868 126,509
Issuance of 3,000 and 0 shares for the three months ended
September 30, 2005 and 2004 and 17,913 and 0 shares for
the nine months ended September 30, 2005 and 2004 of
common stock under Omnibus Stock Plan-Executive
Officer Stock Awards (Note V) 85,875 -0- 512,758 -0-
Forfeitures of 6,150 and 10,850 shares for the three months
ended September 30, 2005 and 2004 and 8,100 and 16,850
shares for the nine months ended September 30, 2005 and
2004 of common stock under Omnibus Stock and Employee
Stock Purchase Plans (Note V) (156,917) (162,288) (197,273) (277,873)
Exercise of options for the purchase of 82,565 and 6,560
shares for the three months ended September 30, 2005 and
2004 and 92,467 and 90,630 shares for the nine months
ended September 30, 2005 and 2004 of common stock under
Omnibus Stock Plan-Non-Qualified Stock Options 2,363,415 187,780 2,646,859 2,594,275
-------------------------------------------------------------
Balance at end of period (221,768,448) (37,071,930) (221,768,448) (37,071,930)
See accompanying notes.
-6-
Blair Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity - Continued
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
2005 2004 2005 2004
-------------------------------------------------------------
Receivable and Deferred Compensation from Stock Plans:
Balance at beginning of year (1,007,856) (1,995,815) (1,560,915) (2,616,826)
Issuance (net of forfeitures) of common stock under
Omnibus Stock Plan - Restricted Stock Awards and
Executive Officer Awards: (Note V)
Receivable 36,226 48,832 48,728 84,350
Amortization of deferred compensation,
net of forfeitures 64,308 63,545 155,443 182,433
Amortization of Executive Officer Stock awards,
net of vesting and forfeitures 81,685 238,093 356,098 565,984
Applications of dividends and cash repayments 152,204 44,968 327,213 183,682
-------------------------------------------------------------
Balance at end of period (673,433) (1,600,377) (673,433) (1,600,377)
-------------------------------------------------------------
Total stockholders' equity $103,110,069 $276,509,992 $103,110,069 $276,509,992
=============================================================
Comprehensive Income:
Net income $ 1,415,484 $ 2,941,335 $ 8,129,881 $ 8,523,714
Adjustment from foreign currency translation 51,890 14,031 47,573 14,019
-------------------------------------------------------------
Comprehensive income $ 1,467,374 $ 2,955,366 $ 8,177,454 $ 8,537,733
=============================================================
See accompanying notes.
-7-
Blair Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30
2005 2004
-------------------------------
Operating activities
Net income $ 8,129,881 $ 8,523,714
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 6,021,372 6,584,394
Amortization 1,362,905 249,922
Gain on disposal of assets (243,845) -0-
Provision for doubtful accounts 10,196,089 18,067,391
Provision for deferred income taxes 3,254,000 444,000
Tax benefit on exercise of non-qualified
stock options 480,000 221,000
Compensation expense (net of forfeitures)
for stock awards 1,126,327 701,711
Changes in operating assets and liabilities
providing (using) cash:
Customer accounts receivable 8,028,283 (5,244,164)
Inventories (9,533,708) (15,771,195)
Prepaid expenses and other assets (2,924,409) (673,730)
Trade accounts payable 6,069,153 (4,899,541)
Advance payments from customers 1,317,868 177,437
Accrued expenses and other long term liability 3,596,751 (2,571,438)
Accrued federal and state taxes (3,996,289) (1,866,174)
-------------------------------
Net cash provided by operating activities 32,884,378 3,943,327
Investing activities
Purchases of property, plant and equipment (5,923,938) (2,924,292)
Proceeds from sale of assets 647,510 -0-
-------------------------------
Net cash used in investing activities (5,276,428) (2,924,292)
Financing activities
Net proceeds from bank borrowings 128,000,000 -0-
Principal repayments on capital lease obligations (84,086) (256,592)
Dividends paid (2,949,723) (3,533,109)
Purchase of Common Stock for treasury (188,934,078) -0-
Exercise of non-qualified stock options 2,430,679 1,737,278
Repayments of notes receivable from stock plans 212,135 44,270
-------------------------------
Net cash used in financing activities (61,325,073) (2,008,153)
Effect of exchange rate changes on cash 55,172 10,978
-------------------------------
Net decrease in cash (33,661,951) (978,140)
Cash and cash equivalents at beginning of period 50,559,995 36,380,049
-------------------------------
Cash and cash equivalents at end of period $ 16,898,044 $ 35,401,909
===============================
See accompanying notes.
-8-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Blair
Corporation (the "Company" or "Blair") and its wholly-owned subsidiaries have
been prepared in accordance with U.S. generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by U.S. generally accepted accounting
principles for complete financial statements. All adjustments that were
considered necessary for a fair presentation have been included. These
adjustments were of a normal recurring nature. Operating results for the nine
months ended September 30, 2005 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2005. For further
information refer to the financial statements and footnotes included in the
Company's annual report on Form 10-K for the year ended December 31, 2004.
On January 25, 2005, the Company decided to phase out its Allegheny Trail
wholesale business. This process was substantially completed by April 30, 2005.
The Company's intention is to more fully focus new business development efforts
on the core Blair brand and its proven appeal to significant market segments.
The decision to focus on core operations is based in part on the historical
success of the Blair brand and an extensive consumer and brand strategy study
undertaken by the company as part of its efforts to enhance profitability and
shareholder value. The Company has evaluated the impact of phasing out the
Allegheny Trail business on all assets associated with this operation. All
appropriate reserves have been recorded. This decision did not have a
significant negative effect on 2004 profitability, and is not expected to
negatively impact 2005 performance.
On April 26, 2005, the Company, Blair Factoring Company, Blair Credit Services
Corporation, and JLB Service Bank, each a wholly-owned subsidiary of the
Company, entered into a Purchase, Sale and Servicing Transfer Agreement (the
"Purchase Agreement") with World Financial Capital Bank ("World Financial"), a
wholly-owned subsidiary of Alliance Data Systems Corporation ("Alliance").
Pursuant to the Purchase Agreement, the Company's credit portfolio was sold at
par plus a premium. Additionally, on April 26, 2005, the Company and World
Financial entered into an agreement to form a long-term marketing and servicing
alliance under a Private Label Credit Program Agreement (the "Program
Agreement") having a term of ten (10) years. The agreement has renewal
provisions that require the mutual consent of the Company and World Financial.
On July 20, 2005, the Company commenced a tender offer at $42.00 per share, for
the purchase of 4.4 million shares of its outstanding common stock, or
approximately 53% at an aggregate price of $184.8 million. The total purchase
price of the stock of $184.8 million, plus related expenses of $4.1 million, was
recorded as treasury stock effective August 16, 2005.
On November 4, 2005, subsequent to the end of the third quarter of 2005, the
Company closed the sales transaction of its credit portfolio to World Financial.
Gross sale proceeds were $166.2 million. The Company used $143 million of the
proceeds to repay debt primarily incurred in association with its August 2005
tender offer for 4.4 million shares. The Company has reserved $750,000 to
provide for any adjustments, which may occur under the purchase price
adjustments provisions of the Purchase Agreement. The accounting treatment for
this transaction, to be recorded in the fourth quarter of 2005, will result in a
gain on the sale of approximately $30.7 million. The gain on the sale will
include the reversal of the allowance for doubtful accounts. The allowance for
doubtful accounts at September 30, 2005 was $24.3 million. The gain will be
reduced by legal, professional and severance costs associated with closing the
transaction. The estimated total of these costs is $3 million.
NOTE B - REVENUE RECOGNITION
Sales (cash, Blair Credit, or third-party credit card) are recorded when the
merchandise is shipped to the customer, in accordance with the provisions of
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
and Staff Accounting Bulletin No. 104, Revenue Recognition, as issued by the
Securities & Exchange Commission. Blair Credit sales are made under Easy Payment
Plan sales arrangements. Monthly, a provision for doubtful accounts is charged
against income based on management's estimate of realization. Any recoveries of
bad debts previously written-off are credited back against the allowance for
doubtful accounts in the period received. As reported in the balance sheet, the
carrying amount, net of allowances for doubtful accounts and returns, for
customer accounts receivable on Blair Credit sales approximates fair value.
-9-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
NOTE B - REVENUE RECOGNITION - Continued
Shipping and processing revenue is included in net sales.
Finance charges on time payment accounts are recognized on an accrual basis of
accounting. The decrease in finance charges compared to the third quarter of
2004 and the nine months ended September 30, 2004 (see NOTE X - OTHER REVENUE)
primarily resulted from reduced finance charge revenues associated with the
previously announced discontinuance of the Crossing Pointe catalog title and
lower credit sales.
NOTE C - COSTS AND EXPENSES
The Company includes the following costs in the line items listed below in its
Consolidated Statements of Income:
Cost of Goods Sold
Cost of goods sold consists of merchandise costs, including sourcing, importing
and inbound freight costs. In addition, cost of goods sold includes writedowns,
shipping cartons, shipping supplies, and merchandise samples.
The Company records internally incurred shipping and handling costs in cost of
sales.
General and Administrative Expenses
Occupancy and warehousing costs consist of compensation, employee benefit
expenses and related building costs. Examples of building costs include
depreciation, repairs and maintenance, utilities, rent, real estate taxes and
maintenance contracts. Occupancy and warehousing costs incurred in support of
the Company's order fulfillment process were $9,198,074 and $27,872,079 for the
three months and nine months ended September 30, 2005 compared to $9,168,215 and
$27,652,565 for the three months and nine months ended September 30, 2004. The
Company does not separately track purchasing and related costs which are also
included in general and administrative expenses. In addition, the general and
administrative costs incurred to support the Company's product development,
circulation planning and customer file maintenance efforts are included in
general and administrative expenses.
NOTE D - INTEREST EXPENSE (INCOME), NET
Interest expense (income), net, consists of the following:
Three Months Ended Nine Months Ended
September 30 September 30
2005 2004 2005 2004
-------------------------------------------------------------
Interest expense $ 811,605 $ 94,838 $1,089,879 $ 260,893
Interest income (273,136) (118,936) (985,400) (281,071)
-------------------------------------------------------------
Interest expense (income), net $ 538,469 $ (24,098) $ 104,479 $ (20,178)
=============================================================
Interest expense primarily reflects the impact of $85 million of borrowings
under the receivables securitization and $58 million of borrowings under the
revolving credit facility. These borrowings were primarily used to finance the
tender offer as described in Note V - STOCKHOLDERS' EQUITY. Interest income
results from the Company's investment of surplus cash into money market
securities and other investments with a maturity of three months or less when
purchased.
NOTE E - USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
-10-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
NOTE F - CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of available cash, money market securities and
other investments with a maturity of three months or less when purchased.
Amounts reported in the Unaudited Consolidated Balance Sheets approximate fair
values.
NOTE G - RETURNS
A provision for anticipated returns is recorded monthly as a percentage of gross
sales based upon historical experience. This provision is charged directly
against gross sales to arrive at net sales as reported in the Unaudited
Consolidated Statements of Income. Actual returns are charged against the
allowance for returns, which is netted against accounts receivable on the
balance sheet. The provision for returns charged against income for the three
months and nine months ended September 30, 2005 amounted to $12,705,094 and
$45,934,391, respectively. The provision for returns charged against income for
the three months and nine months ended September 30, 2004 amounted to
$14,539,609 and $54,125,168, respectively. Management believes these provisions
are adequate based upon the relevant information presently available. However,
changes in facts or circumstances could result in an additional adjustment to
the Company's provisions.
NOTE H - ACCOUNTS RECEIVABLE AND DOUBTFUL ACCOUNTS
A provision for doubtful accounts is recorded monthly as a percentage of gross
credit sales based upon experience of delinquencies (accounts over 30 days past
due) and charge-offs (accounts removed from accounts receivable for non-payment)
and current credit market conditions. Management believes these provisions are
adequate based upon the relevant information presently available. However,
changes in facts or circumstances could result in additional adjustment to the
Company's provisions. In connection with the discontinuance of the Crossing
Pointe catalog title, on March 30, 2005, the Company sold all open Crossing
Pointe credit accounts receivable to a third party at a discount. After
comparing the proceeds of the sale to the net carrying value of this asset, the
Company realized a gain of approximately $643,000. In connection with the sale
of the credit portfolio (see Note A), the Company will no longer need to provide
for doubtful accounts.
NOTE I - INVENTORIES
Inventories are valued at the lower of cost or market. Cost of merchandise
inventories is determined principally on the last-in, first-out (LIFO) method.
An actual valuation of inventory under the LIFO method can be made only at the
end of each year. However, an interim analysis is performed based on
management's estimates of expected year-end inventory levels and costs. Because
these are subject to many forces beyond management's control, the results of
interim estimates are subject to the final year-end LIFO inventory valuation. A
favorable adjustment of $660,000 was recorded in the third quarter pursuant to
the interim calculation that was performed. If the FIFO method had been used,
merchandise inventories would have increased by approximately $2.8 million at
September 30, 2005 and $3.8 million at December 31, 2004.
The Company has a reserve for slow moving and obsolete inventory amounting to
$2.6 million at September 30, 2005, $3.6 million at December 31, 2004, and $2.9
million at September 30, 2004. A monthly provision for obsolete inventory is
added to the reserve and expensed to cost of goods sold, based on the levels of
merchandise inventory and merchandise purchases. The reduction in the reserve
for slow moving inventory as compared to December 31, 2004 is related to actual
writedowns associated with the Company's decisions to discontinue its Crossing
Pointe catalog title and the Allegheny Trail wholesale business in 2005, which
resulted in writedowns of $1.9 million. These writedowns were primarily provided
for in the December 31, 2004 obsolescence reserve.
Cost of advertising and shipping supplies is determined on the first-in,
first-out (FIFO) method. Advertising and shipping supplies include printed
advertising material and related mailing supplies for promotional mailings,
which are generally scheduled to occur within two months. These direct response
advertising costs are then expensed over the period of expected future benefit,
based on buying patterns, generally nine weeks or less.
-11-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
NOTE J - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated on the basis of cost. Depreciation has
been provided principally by the straight-line method using rates, which are
estimated to be sufficient to depreciate the cost of the assets over their
period of usefulness. Amortization of assets recorded under capital lease
obligations is included with depreciation expense. Estimated useful lives of
property, plant and equipment range from 3 to 39.5 years. Maintenance and
repairs are charged to expense as incurred.
NOTE K - TRADEMARK
Trademark, net of accumulated amortization of $721,911 at September 30, 2005 and
$649,667 at September 30, 2004, is stated on the basis of cost. The Company has
one trademark, which is held by its wholly-owned subsidiary Blair Holdings, Inc.
and which is being amortized by the straight-line method for a period of 15
years. Amortization expense amounted to $18,061 and $54,183 for the three months
and nine months ended September 30, 2005.
NOTE L - ASSET IMPAIRMENT
The Company analyzes its long-lived and intangible assets for events and
circumstances that might indicate that the assets may be impaired and the
undiscounted net cash flows estimated to be generated by those assets are less
than their carrying amounts. There are no indications of impairment present at
September 30, 2005.
NOTE M - EMPLOYEE BENEFITS
The Company's employee benefits include a profit sharing and retirement feature
available to all eligible employees. Contributions are dependent on net income
of the Company and recognized on an accrual basis of accounting. The
contributions to the plan charged against income for the three months and nine
months ended September 30, 2005 amounted to $254,173 and $966,126, and for the
three months and nine months ended September 30, 2004 amounted to $300,004 and
$870,241, respectively. As part of the same benefit plan, the Company has a
contributory savings feature whereby all eligible employees may contribute up to
25% of their annual base salaries. The Company's matching contribution to the
plan is based upon a percentage formula as set forth in the plan agreement. The
Company's matching contributions to the plan charged against income for the
three months and nine months ended September 30, 2005 amounted to $493,781 and
$1,502,767, and for the three months and nine months ended September 30, 2004
amounted to $481,407 and $1,339,786, respectively.
NOTE N - FINANCIAL INSTRUMENTS
The carrying amounts of cash, customer accounts receivable, accounts payable and
accrued liabilities approximate fair value due to the short-term maturities of
these assets and liabilities. The interest rates on the Company's securitized
and revolving credit facilities are adjusted regularly to reflect current market
rates. Accordingly, the carrying amounts of the Company's borrowings also
approximate fair value.
NOTE O - NEW ACCOUNTING PRONOUNCEMENTS
On December 16, 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123 (R) (revised 2004),
Share-Based Payment, which is a revision of SFAS No. 123, Accounting for
Stock-Based Compensation. SFAS No.123(R) supersedes Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and
amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS
No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS
No. 123(R) requires all share-based payments to employees, including grants of
employee stock options, to be recognized on the income statement based on fair
values. Pro forma disclosure is no longer an alternative. SFAS No. 123(R)
must be adopted no later than January 1, 2006. We expect to adopt SFAS No.
123(R) on January 1, 2006.
-12-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
NOTE O - NEW ACCOUNTING PRONOUNCEMENTS - Continued
As permitted by SFAS No. 123, the Company currently accounts for share-based
payments to employees using Opinion 25's intrinsic value method and, as such,
generally recognizes no compensation cost for employee stock options.
Accordingly, the adoption of SFAS No. 123(R)'s fair value method will have a
significant impact on our results of operations, although it will have no impact
on our overall financial position. The impact of the adoption of SFAS No. 123(R)
cannot be predicted at this time because it will depend on levels of share-based
payments granted in the future. However, had we adopted SFAS No. 123(R) in prior
periods, the impact of that standard would have approximated the impact of SFAS
No. 123 as described in the disclosure of pro forma net income and earnings per
share in Note P to our consolidated financial statements. SFAS No. 123(R) also
requires the benefits of tax deductions in excess of recognized compensation
cost to be reported as a financing cash flow, rather than as an operating cash
flow as required under current literature. This requirement will reduce net
operating cash flows and increase net financing cash flows in periods after
adoption. While the Company cannot estimate what those amounts will be in the
future (because they depend on, among other things, when employees exercise
stock options), the amount of operating cash flows recognized in prior periods
for such excess tax deductions for the three months and nine months ended
September 30, 2005 amounted to $430,000 and $480,000, and for the three months
and nine months ended September 30, 2004 amounted to $19,000 and $221,000,
respectively.
NOTE P - STOCK COMPENSATION
In accordance with the provisions of SFAS No. 123, the Company has elected to
continue applying the provisions of Accounting Principles Board Opinion No. 25
and related interpretations in accounting for its stock-based compensation
plans. Accordingly, the Company does not recognize compensation expense for
stock options when the stock option price at the grant date is equal to or
greater than the fair market value of the stock at that date.
Stock activity in the third quarter of 2005 and 2004 generally includes
transactions pertaining to stock awarded and forfeited via the Company's Omnibus
Stock and Employee Stock Purchase Plans. Activity is accounted for by comparing
the market value of the awards, as required by the Plans, to the cost of the
treasury shares used for these transactions. The difference is recorded as
additional paid-in capital.
-13-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
NOTE P - STOCK COMPENSATION - Continued
The following illustrates the pro forma effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of SFAS
No. 123:
Pro Forma Pro Forma
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------------------------------------------
2005 2004 2005 2004
-------------------------------------------------------------
Net income as reported $1,415,484 $2,941,335 $8,129,881 $8,523,714
Add: Total stock-based employee compensation
expense recorded for all awards, net of related
tax effects 225,757 211,165 1,156,641 536,487
Deduct: Total stock-based employee
compensation expense determined under fair
value method for all awards, net of related tax
effects 320,353 387,031 1,524,919 1,105,307
-------------------------------------------------------------
Pro forma net income $1,320,888 $2,765,469 $7,761,603 $7,954,894
=============================================================
Earnings per share:
Basic - as reported $.23 $.36 $1.09 $1.05
=============================================================
Basic - pro forma $.22 $.34 $1.04 $.98
=============================================================
Diluted - as reported $.23 $.36 $1.07 $1.04
=============================================================
Diluted - pro forma $.21 $.34 $1.02 $.97
=============================================================
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
stock options under the fair value method of SFAS No. 123. The fair value for
these options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions:
Options Options Options
Issued Issued Issued
4/15/03 4/15/02 4/16/01
---------------------------------------------
Risk-free interest rate 3.49% 4.95% 5.20%
Dividend yields 2.54% 3.11% 3.50%
Volatility .540 .564 .547
Weighted-average expected life 7 years 7 years 7 years
Per share fair value $10.63 $8.83 $7.40
NOTE Q - RECLASSIFICATIONS
Certain amounts in the prior year Consolidated Statement of Income have been
reclassified to conform with the current year presentation.
-14-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
NOTE R - CONTINGENCIES
The Company is involved in certain items of litigation, arising in the normal
course of business. While it cannot be predicted with certainty, management
believes that the outcome will not have a material effect on the Company's
financial condition or results of operations.
NOTE S - FINANCING ARRANGEMENTS
On July 18, 2005, the Company announced the execution of an amendment to its
Receivables Purchase Agreement ("RPA") and execution of the Company's Amended
and Restated Credit Agreement (the "Credit Agreement"), which together provide
the Company up to $200 million in financing. The funds made available to the
Company pursuant to these agreements were used to fund, in part, Blair's tender
offer (see Note A - BASIS OF PRESENTATION) which was completed in August, 2005,
and for general corporate purposes. Total debt outstanding on September 30, 2005
was $143 million, and was repaid with the proceeds from the sale of the credit
portfolio. Proceeds from the sale were used first to repay and terminate Blair's
outstanding RPA, second to pay any amounts outstanding and extinguish the
commitment under the $25 million term loan, and third to reduce amounts
outstanding under the revolving credit facility. In addition, the sale of the
credit portfolio resulted in additional cash funds of $23.2 million, which was
invested.
The amendment to the RPA, dated as of July 15, 2005, is by, between and amongst
Blair Factoring Company and Blair Credit Services Corporation, each a
wholly-owned subsidiary of Blair, and PNC Bank, N.A. as administrator for
certain conduit purchasers. The RPA has a purchase limit of $100 million and the
Company's receivables have been pledged as collateral for the facility. The RPA
has a commitment fee rate of 0.50% and a program fee rate of 1.0%, which
converts to a 2.0% fee on March 31, 2006.
The Credit Agreement dated as of July 15, 2005 is by, between and amongst the
Company, and PNC Capital Markets, Inc. as lead arranger and PNC Bank, N.A. and
three other lending institutions. The Credit Agreement is guaranteed by Blair
Holdings, Inc., Blair Payroll LLC, Blair Credit Services Corporation and Blair
International Holdings, Inc., each a wholly-owned subsidiary of the Company. The
Credit Agreement provides for $100 million in first and second lien credit
facilities consisting of a senior secured first lien revolving credit facility
not to exceed $75 million, which matures in July 2010, and a $25 million senior
secured second lien term loan, which matured on November 4, 2005, the date of
the close of the sale of the Company's receivables and credit granting activity
pursuant to the Purchase Agreement. Upon the occurrence of an Event of Default
(as such term is defined in the Credit Agreement), PNC and/or the other lending
institutions may declare a default of the Credit Agreement and accelerate the
loan pursuant to the terms of the Credit Agreement.
Transactions entered into under the RPA are considered secured borrowings and
collateral transactions under the provisions of Statement of Financial
Accounting Standards No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities. The securitization requires
certain performance standards for the Company's accounts receivable portfolio in
addition to complying with the covenants in the Credit Agreement. At September
30, 2005, $85 million was outstanding under the RPA. At December 31, 2004 and
September 30, 2004, $15 million had been borrowed under the securitization.
Borrowings are reflected on the balance sheet as short-term notes payable. For
the nine months ended September 30, 2005 and September 30, 2004, the weighted
average interest rate was 4.28% and 2.05%, respectively. The interest rate
increases are due to the facilities' varying interest rates that fluctuate based
on certain LIBOR indices, which tend to follow the recent increase in Federal
Reserve rates. Interest paid for the three months and nine months ended
September 30, 2005 was approximately $553,000 and $828,000, and for the three
months and nine months ended September 30, 2004 were approximately $88,000 and
$234,000, respectively.
The collateral for the Credit Agreement's revolving credit facility consists of
all of Blair's (other than Blair's receivables pledged pursuant to the RPA) and
its subsidiaries assets, including, but not limited to, inventory, equipment,
furniture, general intangibles, intellectual property, fixtures, certain real
property and improvements, the common stock of Blair's domestic subsidiaries
(excluding JLB Service Bank), as well as a negative and double negative pledge
on the assets of Blair's direct and indirect foreign subsidiaries. The
collateral for the Credit Agreement's term loan consists of a lien subordinate
to the revolving credit facility on all the aforementioned assets. At Blair's
option, any loan under the revolving credit facility or term loan shall bear
interest at the Euro-Rate (calculated with reference to a LIBOR-based formula in
accordance with the Credit Agreement) or a Base Rate (as that term is defined in
the Credit Agreement), plus a margin, such margin to be calculated in accordance
with a performance based pricing grid in the case of the revolving credit
facility and a locked fixed spread in the case of the term loan. Blair is also
required to pay a commitment fee, a letter of credit fee and reasonable
out-of-pocket expenses pursuant to the Credit Agreement.
-15-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
NOTE S - FINANCING ARRANGEMENTS - Continued
At September 30, 2005, the Company had borrowings outstanding of $143 million
under the borrowing facilities. The Company had letters of credit totaling $15.4
million outstanding, which reduces the amount of borrowings available under the
Credit Agreement. Outstanding letters of credit totaled $16.1 million at
December 31, 2004, and $16.2 million at September 30, 2004. Letters of credit
are comprised mainly of two categories. One such category is comprised of
commercial letters of credit used for the purpose of purchasing goods from
non-U.S. suppliers. The other category is comprised of performance guarantees
for a consolidated subsidiary and insurance bonding purposes. All letters of
credit have a term of one year or less.
NOTE T - ACCRUED EXPENSES
Accrued expenses consist of:
September 30 December 31
2005 2004
------------------------------
Employee compensation $12,460,807 $ 9,904,200
Contribution to profit sharing and
retirement plan 966,126 1,525,158
Health insurance 1,316,622 809,297
Voluntary Separation Program 254,257 494,790
Taxes, other than taxes on income 166,971 325,335
Other accrued items 3,030,614 2,347,851
-------------------------------
$18,195,397 $15,406,631
===============================
NOTE U - LEASES
Capital Leases
The Company leases certain office and digital camera equipment under agreements
that expire in various years through 2008. The following is a schedule by year
of future minimum capital lease payments required under capital leases that have
initial or remaining noncancelable lease terms in excess of one year as of
September 30, 2005:
2005 $ 4,730
2006 21,568
2007 12,280
2008 5,211
-------------
43,789
Less amount representing interest 4,351
-------------
Present value of minimum lease payments 39,438
Less current portion 18,144
-------------
Long-term portion of capital lease obligations $21,294
=============
The Company did not enter any capital lease obligations in the third quarter of
2005 and 2004, respectively.
-16-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
NOTE U - LEASES - Continued
Operating Leases
The Company leases certain data processing, office and telephone equipment under
agreements that expire in various years through 2009. The Company has also
entered into several lease agreements for buildings, expiring in various years
through 2012. The following is a schedule by years of future minimum rental
payments required under operating leases that have initial or remaining
noncancelable lease terms in excess of one year as of September 30, 2005:
2005 $ 855,762
2006 2,987,849
2007 2,153,200
2008 1,399,125
2009 1,072,328
Thereafter 1,551,002
-------------
$10,019,266
=============
NOTE V - STOCKHOLDERS' EQUITY
On July 20, 2005, the Company commenced a tender offer at $42.00 per share, for
the purchase of 4.4 million shares of its outstanding common stock, or
approximately 53% at an aggregate price of $184.8 million. The tender offer
expired on August 16, 2005. The total cost of $184.8 million, plus related
expenses of $4.1 million, were recorded as treasury stock effective August 16,
2005.
Earnings Per Share and Weighted Average Shares Outstanding
The following per share results for the third quarter and nine months ended
September 30, 2005 reflect the reduction of weighted average shares outstanding
during the third quarter resulting from the tender offer. Without the reduction
in outstanding shares, earnings per basic and diluted share, for the third
quarter of 2005 were $0.17 and for the nine months ended September 30, 2005 were
$0.99 and $0.98, respectively. In part, the Company financed the tender offer
with cash on hand supplemented by borrowings on the RPA and Credit Agreement.
See Note S - FINANCING ARRANGEMENTS.
The following table sets forth the computations of basic and diluted earnings
per share as required by Statement of Financial Accounting Standards No. 128:
Three Months Ended Nine Months Ended
September 30 September 30
2005 2004 2005 2004
-------------------------------------------------------------
Numerator:
Net income $1,415,484 $2,941,335 $8,129,881 $8,523,714
Denominator:
Weighted average shares outstanding 6,112,494 8,190,664 7,529,107 8,156,965
Contingently issueable shares -
Omnibus Stock Purchase Plan (52,986) (68,536) (52,986) (68,536)
-------------------------------------------------------------
Denominator for basic earnings per share 6,059,508 8,122,128 7,476,121 8,088,429
Effect of dilutive securities:
Employee stock options 110,464 82,736 125,648 72,900
-------------------------------------------------------------
Denominator for diluted earnings per share 6,169,972 8,204,864 7,601,769 8,161,329
=============================================================
Basic earnings per share $.23 $.36 $1.09 $1.05
=============================================================
Diluted earnings per share $.23 $.36 $1.07 $1.04
=============================================================
-17-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
NOTE V - STOCKHOLDERS' EQUITY - Continued
For the three months and nine months ended September 30, 2005, the Company
declared dividends of $590,753 and $3,064,801, of which $557,194 and $2,949,723
were paid directly to shareholders and charged to retained earnings. For the
three months and nine months ended September 30, 2004, the Company declared
dividends of $1,228,236 and $3,672,520 of which $1,183,228 and $3,533,109 were
paid directly to shareholders and charged to retained earnings. The remaining
dividends declared for the three months and nine months ended September 30, 2005
of $33,559 and $115,078, and the three months and nine months ended September
30, 2004 of $45,008 and $139,411, were associated with the shares of stock held
by the Company according to the provisions of the restricted stock awards. These
remaining dividends were applied against the receivable from stock plans and
were charged to compensation in the financial statements.
NOTE W - INCOME TAXES
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
the enacted tax rate(s) expected to apply to taxable income in the periods in
which the deferred tax liability or asset is expected to be settled or realized.
The Company accounts for the tax benefit from the exercise of non-qualified
stock options by reducing its accrued income tax liability and increasing
additional paid-in capital.
The components of income tax expense (benefits) are as follows:
Three Months Ended Nine Months Ended
September 30 September 30
2005 2004 2005 2004
-------------------------------------------------------------
Currently payable:
Federal $(3,668,000) $(1,936,000) $ 935,000 $4,006,000
Foreign 80,000 105,000 154,000 147,000
State (473,000) (235,000) 436,000 628,000
-------------------------------------------------------------
(4,061,000) (2,066,000) 1,525,000 4,781,000
Deferred 4,893,000 3,866,000 3,254,000 444,000
-------------------------------------------------------------
$ 832,000 $ 1,800,000 $4,779,000 $5,225,000
=============================================================
The differences between total tax expense and the amount computed by applying
the statutory federal income tax rate of 35% to income before income taxes are
as follows:
Three Months Ended Nine Months Ended
September 30 September 30
2005 2004 2005 2004
-------------------------------------------------------------
Statutory rate applied to pretax income $786,638 $1,659,467 $4,518,108 $4,812,050
State income taxes, net of Federal tax benefit 49,400 226,200 258,700 323,700
Other items (4,038) (85,667) 2,192 89,250
-------------------------------------------------------------
$832,000 $1,800,000 $4,779,000 $5,225,000
=============================================================
-18-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
NOTE W - INCOME TAXES - Continued
The Company has approximately $2.0 million of a Pennsylvania net operating loss
carry forward that can be used to offset future Pennsylvania Taxable Income. A
deferred tax asset has been established based on the $2.0 million net operating
loss available to be carried forward. The deferred tax asset is offset by a
valuation allowance because it is uncertain as to whether the Company will
generate sufficient income in the State of Pennsylvania in the future to absorb
the net operating losses before they expire in 2011.
Components of the deferred tax assets and liabilities under the liability method
as of September 30, 2005 and December 31, 2004 are as follows:
September 30, December 31,
2005 2004
-------------------------------
Current deferred tax assets:
Doubtful accounts $ 8,541,000 $11,737,000
Returns allowance 1,762,000 1,922,000
Inventory obsolescence 990,000 1,374,000
State net operating loss 64,000 72,000
Vacation pay 1,362,000 1,466,000
Group insurance 563,000 431,000
Accrued severance 735,000 349,000
Other items 773,000 597,000
-------------------------------
Gross current deferred tax assets 14,790,000 17,948,000
State valuation allowance (64,000) (121,000)
-------------------------------
14,726,000 17,827,000
Current deferred tax liabilities:
Advertising costs $ 7,291,000 $ 6,152,000
Inventory costs 776,000 776,000
Other items -0- 242,000
-------------------------------
Gross current deferred tax liabilities 8,067,000 7,170,000
-------------------------------
Net current deferred tax asset $ 6,659,000 $10,657,000
===============================
Long term deferred tax liability:
Property, plant and equipment $ 1,924,000 $ 2,668,000
===============================
NOTE X - OTHER REVENUE
Three Months Ended Nine Months Ended
Other revenue consists of: September 30 September 30
2005 2004 2005 2004
-------------------------------------------------------------
Finance charges on time payment accounts $ 9,125,907 $ 9,268,447 $28,620,361 $30,401,349
Commissions earned 266,435 229,524 670,060 1,365,945
Other items 845,581 793,746 2,523,656 1,903,986
-------------------------------------------------------------
$10,237,923 $10,291,717 $31,814,077 $33,671,280
=============================================================
The decrease in finance charges in 2005 compared to 2004 primarily resulted from
reduced finance charge revenues associated with the previously announced
discontinuance of the Crossing Pointe catalog title and lower credit sales.
Subsequent to the sale of the credit portfolio, the Company will no longer
realize finance charges on time payment accounts. As part of the marketing and
servicing alliance under the 10 year Program Agreement, the Company will receive
certain monetary benefits arising from future credit sales.
-19-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
NOTE X - OTHER REVENUE - Continued
Commissions earned pertain to the Company's continuity program. An arrangement
exists under which a third party sells jewelry to the Company's customers and
all related significant activities are conducted by, and are the responsibility
of, the third party. The Company receives payments from the customer and makes
remittances, net of commissions to the third party.
Other items are comprised of items such as customer list rentals, dishonored
check service charges and package insert income.
NOTE Y - BUSINESS SEGMENT AND CONCENTRATION OF BUSINESS RISK
The Company operates as one segment in the business of selling women's and men's
fashion apparel and accessories and home furnishing items. Specifically, the
segment includes the Womenswear, Menswear, Home, Crossing Pointe, Stores and
Allegheny Trail product lines. The Stores product line was added in the first
quarter of 2004 reflecting a reclassification within the segment from the other
product lines to this product line. As previously announced on May 3, 2004, the
Company formally discontinued circulation of its Crossing Pointe catalog title
as of March 31, 2005. The Company's intention is to more fully focus new
business development efforts on the core Blair brand and its proven appeal to
significant market segments. The decision to focus on core operations is based
in part on the historical success of the Blair brand and an extensive consumer
and brand strategy study undertaken by the Company as part of its efforts to
enhance profitability and shareholder value. The Company has evaluated the
impact of discontinuing circulation of the Crossing Pointe catalog title on all
assets associated with this operation. All appropriate reserves have been
recorded. This decision did not have a negative effect on 2004 profitability,
and is expected to moderately benefit 2005 performance.
On January 25, 2005, the Company decided to phase out its Allegheny Trail
wholesale business. This process was substantially completed by April 30, 2005.
This decision is consistent with the Company's intention to more fully focus new
business development efforts on the core Blair brand and its proven appeal to
significant market segments. The Company has evaluated the impact of phasing out
the Allegheny Trail business on all assets associated with this operation. All
appropriate reserves have been recorded. This decision did not have a
significant negative effect on 2004 profitability, and is not expected to
negatively impact 2005 performance.
The Company's segment reporting is consistent with the presentation made to the
Company's chief operating decision-maker. The Company's customer base is
comprised of individuals throughout the United States and is diverse in both
geographic and demographic terms. Advertising is done mainly by means of
catalogs, direct mail letters and the internet, which offer the Company's
merchandise.
The following table illustrates the percent of net sales that each product line
represents:
Nine Months Nine Months
Ended Ended
9/30/05 Percent of 9/30/04 Percent of
Net Sales Total Net Net Sales Total Net
Product Line (in millions) Sales (in millions) Sales
----------------------------------------------------------------------------
Womenswear $212.1 65.0% $232.9 64.2%
Menswear 60.1 18.4% 61.0 16.8%
Home 50.4 15.4% 49.2 13.6%
Crossing Pointe 0.3 0.1% 16.4 4.5%
Stores 2.0 0.6% 2.2 0.6%
Allegheny Trail 1.6 0.5% 1.0 0.3%
-----------------------------------------------------------
Total $326.5 100.0% $362.7 100.0%
=========================================================--
-20-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
NOTE Z - LONG-LIVED ASSETS PREVIOUSLY CLASSIFIED AS HELD FOR SALE
In January 2003, the Company made the decision to close its liquidation outlet
store located in Erie, Pennsylvania. This closure was effective at the close of
business on March 28, 2003. While the Company continues to hold the assets for
sale, the sales process has taken longer than anticipated and the assets are no
longer being classified as Held for Sale in accordance with SFAS No. 144. The
building was not depreciated while classified as Held for Sale. A catch up
journal entry was recorded for depreciation expense when the building was moved
back to property, plant and equipment in the third quarter of 2004. The $1.3
million carrying value of the asset, after considering a $300,773 impairment
charge taken in 2003 to reduce the value of the asset to its fair value less
costs to sell, is deemed to be stated fairly at September 30, 2005.
NOTE AA- SEPARATION PROGRAMS
In the third quarter of 2005, the Company accrued and charged to expense
$607,000 in separation costs. The costs were charged to General and
Administrative Expense in the income statement. The $607,000 charge represents
severance pay and related payroll taxes due to those associates whose services
were no longer required after the sale of the credit portfolio. The total
liability is estimated to be $668,000. As of the end of the third quarter of
2005, none of the $607,000 has been paid.
In the second and third quarters of 2005, the Company accrued and charged to
expense a total of $1.2 million in separation costs. The costs were charged to
General and Administrative Expense in the income statement. The $1.2 million
charge represents severance pay and related payroll taxes due certain executive
officers who have left the Company or announced plans to retire from the
Company. In addition to these charges, the Company anticipates incurring
additional severance costs in the fourth quarter of 2005 of $1.5 million to $2.5
million, as part of previously announced changes to its organizational structure
and leadership team. Going forward, the Company's business operations will
consist of three principal groups: Merchandising and Design, Merchandise
Procurement and Marketing Services. For more than a year, the Company has been
refocusing its energies on its core businesses in an effort to better position
itself for long-term growth and to increase shareholder value. This focus has
been the impetus for recent major business decisions made by the Company, which
include selling its credit portfolio to World Financial, expanding its internal
marketing and advertising capabilities, closing its Crossing Pointe and
Allegheny Trail divisions and investing in its distribution center. As of the
end of the third quarter of 2005, $121,000 of the $1.2 million costs expensed to
date has been paid.
In the first quarter of 2004, the Company accrued and charged to expense $67,000
in separation costs. The costs were charged to General and Administrative
Expense in the income statement. The $67,000 charge represents severance pay,
related payroll taxes and medical benefits due the 33 eligible employees who
accepted the voluntary separation program offered in connection with closing the
Company's Outlet Store located in Warren, Pennsylvania on January 16, 2004. As
of the end of the first quarter of 2004, $67,000 had been paid. This liability
is considered satisfied.
In the first quarter of 2001, the Company accrued and charged to expense $2.5
million in separation costs. The costs were charged to General and
Administrative Expense in the income statement. The $2.5 million charge
represents severance pay, related payroll taxes and medical benefits due the 56
eligible employees who accepted the voluntary separation program rather than
relocate or accept other positions in the Company. The program was offered to
eligible employees of the Blair Mailing Center from which the merchandise
returns operations have been relocated and the mailing operations have been
outsourced. As of the end of the third quarter of 2005, $2.2 million of the $2.5
million has been paid.
-21-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
NOTE AA-SEPARATION PROGRAMS - Continued
The following table summarizes the charges to income and related accruals as of
September 30, 2005, December 31, 2004 and December 31, 2003 pertaining to the
voluntary separation programs described above.
Blair Starbrick Credit
Mailing Outlet Portfolio Executive
Center Store Sale Officers
------------------------------------------------------------
Accrual at December 31, 2003 $767,000 $ - $ - $ -
Expense - 67,000 - -
Payments 267,000 67,000 - -
------------------------------------------------------------
Accrual at December 31, 2004 500,000 - - -
Expense - - - -
Payments 100,000 - - -
------------------------------------------------------------
Accrual at March 31, 2005 $400,000 $ - $ - $ -
Expense - - - 425,000
Payments 100,000 - - 20,000
------------------------------------------------------------
Accrual at June 30, 2005 $300,000 $ - $ - $ 405,000
Expense - - 607,000 800,000
Payments 50,000 - - 101,000
------------------------------------------------------------
Accrual at September 30, 2005 $250,000 $ - $607,000 $1,104,000
============================================================
NOTE AB- SUBSEQUENT EVENT
On April 26, 2005, the Company, Blair Factoring Company, Blair Credit Services
Corporation, and JLB Service Bank, each a wholly-owned subsidiary of Blair,
entered into a Purchase, Sale and Servicing Transfer Agreement (the "Purchase
Agreement") with World Financial Capital Bank ("World Financial"), a
wholly-owned subsidiary of Alliance Data Systems Corporation ("Alliance").
Pursuant to the Purchase Agreement, Blair's credit portfolio has been sold at
par plus a premium. Additionally, on April 26, 2005, the Company and World
Financial entered into an agreement to form a long-term marketing and servicing
alliance under a Private Label Credit Program Agreement (the "Program
Agreement") having a term of ten (10) years. The agreement has renewal
provisions that require the mutual consent of the Company and World Financial.
On November 4, 2005, subsequent to the end of the third quarter of 2005, the
Company closed the sale transaction to World Financial. Gross sale proceeds were
$166.2 million. The Company used $143 million of the proceeds to repay debt
incurred in association with its August 2005 tender offer for 4.4 million
shares. The Company has reserved $750,000 to provide for any adjustments that
may occur under the purchase price adjustments provisions of the Purchase
Agreement. The accounting treatment for this transaction, to be recorded in the
fourth quarter of 2005, will result in a gain on the sale of approximately $30.7
million. The gain on the sale will include the reversal of the allowance for
doubtful accounts. The allowance for doubtful accounts at September 30, 2005 was
$24.3 million. The gain will be reduced by legal, professional and severance
costs associated with closing the transaction. The estimated total of these
costs is $3 million.
-22-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
Results of Operations
Comparison of Third Quarter 2005 and Third Quarter 2004
Net income for the three months ended September 30, 2005 was $1.4 million or
$.23 per basic share and diluted share, compared to net income of $2.9 million
or $.36 per basic share and diluted share, for the three months ended September
30, 2004. These per share results for the third quarter of 2005 reflect the
reduction of weighted average shares outstanding during the quarter resulting
from Blair's repurchase of 4.4 million outstanding shares on August 16, 2005.
Without the reduction in outstanding shares, earnings per basic and diluted
share, for the third quarter of 2005 were $0.17.
Results for the third quarter of 2005 reflect expenses of $3.1 million, or $0.33
and $0.32 per basic and diluted share respectively, based on weighted average
basic and diluted outstanding shares of 6,059,508 and 6,169,972, respectively,
primarily associated with the Company's tender offer and the sale of the
Company's proprietary credit portfolio, which closed on November 4, 2005.
Net sales for the third quarter of 2005 totaled $98.1 million and were 8.4%
lower ($9 million) than net sales for the third quarter of 2004. This net sales
reduction primarily reflects the Company's strategic decision to discontinue the
Crossing Pointe catalog title, which was completed in March 2005 and lower than
anticipated response rates to the Company's traditional letter style mailings.
The circulation of letter style advertising mailings increased while incoming
orders received from this advertising method decreased in the third quarter of
2005 as compared to the third quarter of 2004. Gross sales revenue generated per
advertising dollar decreased almost 7% in the third quarter of 2005 compared to
the third quarter of 2004. The total number of orders shipped decreased 6.3% and
the average order size decreased 2.2% in the third quarter of 2005 as compared
to the third quarter of 2004. Management also believes that the devastation and
destruction caused by hurricanes Katrina and Rita, which hit the Gulf region
within a few weeks of one another in August and September of 2005, contributed
to the decline in the Company's net sales during the third quarter of 2005. In
addition, management believes that the widespread economic effects of the sharp
increase in gasoline prices during the third quarter of 2005, coupled with the
impact on consumer spending of the forecast for significant increases in home
heating costs this winter, may have had a negative effect on customer demand in
the northern region of the country, which accounts for approximately 40% of the
Company's total demand. The Company experienced a decline in sales from the
northern part of the country of about 3.5% this September as compared to
September 2004.
Other revenue decreased 1.0% from $10.3 million to $10.2 million in the third
quarter of 2005 versus the third quarter of 2004 primarily due to decreases in
finance charge revenues and commissions earned. Decreased finance charges
resulted from lower credit sales. The implementation of stricter credit
requirements contributed to the lower credit sales. The decrease in commissions
earned is related to a decline in customer response to the Continuity Program in
the third quarter of 2005 compared to the third quarter of 2004. The Continuity
Program is an arrangement under which a third party sells jewelry to the
Company's customers and all related significant activities are conducted by, and
are the responsibility of, the third party. The Company receives payments from
the customer and makes remittances, net of commissions to the third party. The
Company bears the credit risk and recognizes a credit loss when the customer
does not honor its payment obligation.
Subsequent to the sale of the receivable portfolio, the Company will no longer
realize finance charge revenue on time payment accounts. For the three months
ended September 30, 2005, finance charge revenues were $9.1 million.
Cost of goods sold decreased $8.6 million (16.8%) to $42.6 million in the third
quarter of 2005 as compared to the third quarter of 2004. Cost of goods sold as
a percentage of net sales for the third quarter of 2005 was 43.5% compared to
47.8% for the third quarter of 2004. The improved percentage reflects an
increase in direct sourcing, which significantly lowered merchandise acquisition
costs. The Company plans to continue to expand internal product development and
international sourcing as part of its strategic initiatives to further reduce
cost of goods and increase profitability. Other factors that contributed to
improvement in the above percentage include a reduction in customer returns
reflecting ongoing programs to improve merchandise quality, internal efforts to
lower overall shipping costs and initiatives to lower overall liquidation costs.
-23-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
Results of Operations - Continued
Comparison of Third Quarter 2005 and Third Quarter 2004- Continued
Advertising expenses in the third quarter of 2005 decreased $500,000 (1.9%) to
$25.3 million from the third quarter of 2004. The Company's more targeted
mailings led to strategic decreases in catalog mailings. The catalog reduction
includes the reduction in Crossing Pointe mailings as a result of the Company's
decision to discontinue circulation of its five-year-old Crossing Pointe catalog
title, which was completed as of March 31, 2005.
The total number of catalog mailings released in the third quarter of 2005
decreased by 1% (365,939) as compared to the third quarter of 2004. The total
number of prospect catalog mailings increased 125,056 or 2.18% in the third
quarter of 2005 as compared to the third quarter of 2004. The increase in
prospect circulation is part of a planned strategy to positively impact the
customer file.
The total number of letter mailings released in the third quarter of 2005
increased by 13% (1.1 million) as compared to the third quarter of 2004. The
increase in letter mailings primarily pertains to the Company's customer
reactivation and retention contact strategy.
Total circulation of the co-op and media advertising programs increased 68.8%
(91.6 million pieces) in the third quarter of 2005 as compared to the third
quarter of 2004. The pace of media advertising was increased in the third
quarter of 2005 in support of a more aggressive prospecting strategy.
The Company maintains two e-commerce sites, www.blair.com and
www.irvinepark.com. In the third quarter of 2005, the Company generated $19.1
million in e-commerce gross sales demand as compared to $20.5 million in the
third quarter of 2004, a 6.8% decrease. The year-over-year decrease is primarily
attributable to the following factors. First, the discontinuance of the Crossing
Pointe catalog title and related e-commerce site resulted in lower Crossing
Pointe e-commerce gross sales demand in the third quarter of 2005. Crossing
Pointe e-commerce gross sales were $0 in the third quarter of 2005 compared to
$1.9 million in the third quarter of 2004. Second, the Company has improved its
merchandise purchasing forecasting abilities which have resulted in less
merchandise available to liquidate via its internet clearance site.
General and administrative expense increased 10.3% ($3.2 million) in the third
quarter of 2005 as compared to the third quarter of 2004. The third quarter
general and administrative expenses include approximately $2.3 million of costs
associated with financing the Company's tender offer and the sale of the
Company's proprietary credit portfolio, which closed on November 4, 2005.
Expenses associated with these events include the amortization of loan
origination fees of $1.1 million, interest expense of $811,000 and a
compensation expenditure resulting from the Company's decision to repurchase
stock acquired by employees under its stock option award program as part of the
tender offer of $427,000. Expenses also included severance costs for certain
executive officers that have either left, or announced plans to retire from the
company of $756,000.
After considering these additional expenses, general and administrative expenses
as a percent of net sales were 32.7% for the quarter ended September 30, 2005
compared to 29.2% for the quarter ended September 30, 2004. Reduced variable
employee costs associated with lower sales volume were more than offset by
increased employee costs and professional fees. Increased employee costs
resulted from annual merit increases and unfavorable health and workers
compensation claims experience. Increased professional fees pertained to costs
associated with organizational restructuring and communication initiatives.
The provision for doubtful accounts decreased $1.2 million from $4.5 million to
$3.3 million or 26.7% in the third quarter of 2005 as compared to the third
quarter of 2004. The decrease is primarily related to a 16.8% reduction in
credit sales in the third quarter of 2005 compared to the third quarter of 2004,
implementation of stricter credit requirements, and the discontinuance of the
Crossing Pointe catalog title in the first quarter of 2005. These factors
contributed to the estimated bad debt rate used in the third quarter of 2005
being 66 basis points lower than the bad debt rate used in the third quarter of
2004.
-24-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
Results of Operations - Continued
Comparison of Third Quarter 2005 and Third Quarter 2004- Continued
The provision for doubtful accounts is based on current expectations (consumer
credit and economic trends, etc.), sales mix (prospect/customer) and current and
prior years' experience, especially delinquencies (accounts over 30 days past
due) and actual charge-offs (accounts removed from accounts receivable for
non-payment). At September 30, 2005, the delinquency rate of open accounts
receivable was 189 basis points lower than at September 30, 2004. The charge-off
rate for the third quarter of 2005 was 21 basis points lower than the charge-off
rate for the third quarter of 2004.
At this time, the Company feels that the allowance for doubtful accounts is
sufficient to cover the charge-offs from the current customer accounts
receivable portfolio. Also, credit granting, collection and behavior models
continue to be updated and improved and, along with expanding database
capabilities, provide valuable credit-marketing opportunities and improve the
ability to forecast doubtful accounts.
In connection with the sale of the credit portfolio, the Company will no longer
need to provide for doubtful accounts after November 4, 2005. For the three
months ended September 30, 2005, the provision for doubtful accounts was $3.3
million.
The net of interest expense and (income) increased by $562,000 in the third
quarter of 2005 compared to the third quarter of 2004 and resulted in net
interest expense of $538,000. Interest expense primarily reflects the impact of
$85 million of borrowings under the receivables securitization and $58 million
of borrowings under the revolving credit facility incurred to finance the tender
offer. Interest rates were higher in the third quarter of 2005 than in the third
quarter of 2004. Interest income increased due to higher average cash balances
and increased interest rates.
Other expense (income), net, is comparable for the third quarter 2005 and 2004.
Income taxes as a percentage of income before income taxes were 37% in the third
quarter of 2005 and 38.0% in the third quarter of 2004. The federal income tax
rate was 35% in both years. The Company's interim effective state income tax
rate used for 2005 is based on the overall 2004 actual annual rate while the
2004 interim rate was based on estimates. In addition, the Company had total
gross deferred tax assets of $14.8 million. These assets relate principally to
asset valuation reserves including bad debts, returns and inventory
obsolescence. Based on recent historical earnings performance and current
projections, management believes that a valuation allowance is not required
against these deferred tax assets, except for the valuation allowance against
state net operating losses and the Allegheny Trail inventory obsolescence
reserve. The state net operating loss valuation allowance was provided due to
its uncertainty of realization based upon the state's net operating loss
carryforward rules. The Allegheny Trail inventory obsolescence reserve valuation
allowance was provided due to the Company's decision to phase out this business
by April 30, 2005.
-25-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
Results of Operations - Continued
Comparison of Nine Month Periods ended September 30, 2005 and September 30, 2004
Net income for the nine months ended September 30, 2005 was $8.1 million or
$1.09 per basic share and $1.07 per diluted share, compared to net income of
$8.5 million or $1.05 per basic and $1.04 per diluted share, for the nine months
ended September 30, 2004. These per share results for the nine months ended
September 30, 2005 reflect the reduction of weighted average shares outstanding
during the nine months resulting from the Company's repurchase of 4.4 million
outstanding shares on August 16, 2005. Without the reduction in outstanding
shares, earnings per basic and diluted share, for the nine months ended
September 30, 2005 were $0.99 and $0.98, respectively.
Results for the first nine months of 2005 reflect expenses of $3.8 million, or
$0.32 per basic and diluted share, based on weighted average basic and diluted
outstanding shares of 7,476,121 and 7,601,769, respectively, primarily
associated with the Company's tender offer and the sale of the Company's
proprietary credit portfolio, which closed on November 4, 2005.
Net sales for the first nine months of 2005 totaled $326.5 million and were 10%
lower ($36.2 million) than net sales for the first nine months of 2004. This net
sales reduction primarily reflects the Company's strategic decision to
discontinue the Crossing Pointe catalog title, which was completed in March
2005, a continued focus on more targeted mailings for greater efficiency and
optimized yield and lower than anticipated response rates to the Company's
traditional letter style mailings. The circulation of letter style advertising
mailings increased while incoming orders received from this advertising method
decreased in the first nine months of 2005 as compared to the first nine months
of 2004. Gross sales revenue generated per advertising dollar increased 1% in
the first nine months of 2005 compared to the first nine months of 2004. The
total number of orders shipped decreased 8.7% and the average order size
decreased 1.6% in the first nine months of 2005 as compared to the first nine
months of 2004. The reduction in average order size is the result of further
targeting the core customer by providing them with greater values.
The provision for returned merchandise as a percentage of gross sales decreased
414 basis points in the first nine months of 2005 as compared to the first nine
months of 2004. Management attributes this favorable change to improved product
quality and fit.
Other revenue decreased 5.6% from $33.7 million to $31.8 million in the first
nine months of 2005 versus the first nine months of 2004 primarily due to
decreases in finance charge revenues and commissions earned. Decreased finance
charges resulted from the previously announced discontinuance of the Crossing
Pointe catalog title and lower credit sales. The decrease in commissions earned
is related to a decline in customer response to the Continuity Program in the
first nine months of 2005 compared to the first nine months of 2004.
Subsequent to the sale of the receivable portfolio, the Company will no longer
realize finance charge revenue on time payment accounts after November 4, 2005.
For the nine months ended September 30, 2005, finance charge revenues were $28.6
million.
Cost of goods sold decreased $22 million (12.8%) to $150.1 million in the first
nine months of 2005 as compared to the first nine months of 2004. Cost of goods
sold as a percentage of net sales for the first nine months of 2005 was 46.0%, a
significant improvement from 47.5% for the first nine months of 2004. The
improved percentage reflects an increase in direct sourcing, which significantly
lowered merchandise acquisition costs. The Company plans to continue to expand
internal product development and international sourcing as part of its strategic
initiatives to further reduce cost of goods and increase profitability. Other
factors that contributed to improvement in the above percentage include a
reduction in customer returns reflecting ongoing programs to improve merchandise
quality, internal efforts to lower overall shipping costs and initiatives to
lower overall liquidation costs.
Advertising expenses in the first nine months of 2005 decreased $10.1 million
(10.7%) to $84.5 million from the first nine months of 2004. The Company's more
targeted mailings led to strategic decreases in catalog mailings. The catalog
reduction includes the reduction in Crossing Pointe mailings as a result of the
Company's decision to discontinue circulation of its five year old Crossing
Pointe catalog title, which was completed as of March 31, 2005.
-26-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
Results of Operations - Continued
Comparison of Nine Month Periods ended September 30, 2005 and September 30, 2004
- Continued
The total number of catalog mailings released in the first nine months of 2005
decreased by 8.6% (12.2 million) as compared to the first nine months of 2004.
The total number of prospect catalog mailings decreased 12.4 million or 33.6% in
the first nine months of 2005 as compared to the first nine months of 2004. The
reduction in prospect circulation is primarily attributable to the
discontinuance of the Crossing Pointe catalog title in the first quarter of
2005.
The total number of letter mailings released in the first nine months of 2005
increased by 4.5% (1.2 million) as compared to the first nine months of 2004.
The increase in letter mailings primarily pertains the Company's customer
reactivation and retention contact strategy.
Total circulation of the co-op and media advertising programs increased 42.5%
(207.8 million pieces) in the first nine months of 2005 as compared to the first
nine months of 2004. The pace of media advertising was increased in the first
nine months of 2005 in support of a more aggressive prospecting strategy.
The Company maintains two e-commerce sites, www.blair.com and
www.irvinepark.com. In the first nine months of 2005, the Company generated
$67.8 million in e-commerce gross sales demand as compared to $66.1 million in
the first nine months of 2004, a 2.6% increase. The year-over-year increase was
mitigated by the discontinuance of the Crossing Pointe catalog title and related
e-commerce site, which resulted in significantly lower Crossing Pointe
e-commerce gross sales demand in the first nine months of 2005. Crossing Pointe
e-commerce gross sales were $556,000 in the first nine months of 2005, compared
to $6.3 million in the first nine months of 2004.
General and administrative expense increased 3.1% ($3.0 million) in the first
nine months of 2005 as compared to the first nine months of 2004. The first nine
months of 2005 general and administrative expenses include approximately $2.7
million of costs associated with financing the Company's tender offer and the
sale of the Company's proprietary credit portfolio, which closed on November 4,
2005. Expenses associated with these events primarily include the amortization
of loan origination fees of $1.1 million, interest expense of $811,000 and a
compensation expenditure resulting from the Company's decision to repurchase
stock acquired by employees under its stock option award program as part of the
tender offer of $427,000. Expenses also included severance costs for certain
executive officers that have either left, or announced plans to retire from the
Company of $1.2 million.
After considering these additional expenses, general and administrative expenses
as a percent of net sales were 29.9% for the quarter ended September 30, 2005,
compared to 29.2% for the quarter ended September 30, 2004. Reduced variable
employee costs associated with lower sales volume were more than offset by
increased employee costs and professional fees. Increased employee costs
resulted from annual merit increases and unfavorable health and workers
compensation claims experience. Increased professional fees pertained to costs
associated with organizational restructuring and communication initiatives.
The provision for doubtful accounts decreased $7.9 million from $18.1 million to
$10.2 million or 43.6% in the first nine months of 2005 as compared to the first
nine months of 2004. The decrease is primarily related to a 18.5% reduction in
credit sales in the first nine months of 2005 compared to the first nine months
of 2004, implementation of stricter credit requirements, reduced prospecting for
non-core customers and the discontinuance of the Crossing Pointe catalog title
in the first quarter of 2005. Prospect credit offers traditionally result in
higher bad debts. These factors contributed to the estimated bad debt rate used
in the first nine months of 2005 being 179 basis points lower than the bad debt
rate used in the first nine months of 2004.
-27-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
Results of Operations - Continued
Comparison of Nine Month Periods ended September 30, 2005 and September 30, 2004
- Continued
The provision for doubtful accounts is based on current expectations (consumer
credit and economic trends, etc.), sales mix (prospect/customer) and current and
prior years' experience, especially delinquencies (accounts over 30 days past
due) and actual charge-offs (accounts removed from accounts receivable for
non-payment). At September 30, 2005, the delinquency rate of open accounts
receivable was 189 basis points lower than at September 30, 2004. The charge-off
rate for the first nine months of 2005 was 1 basis point lower than the
charge-off rate for the first nine months of 2004.
At this time, the Company feels that the allowance for doubtful accounts is
sufficient to cover the charge-offs from the current customer accounts
receivable portfolio. Also, credit granting, collection and behavior models
continue to be updated and improved and, along with expanding database
capabilities, provide valuable credit-marketing opportunities and improve the
ability to forecast doubtful accounts.
In connection with the sale of the credit portfolio, the Company will no longer
need to provide for doubtful accounts. For the nine months ended September 30,
2005, the provision for doubtful accounts was $10.2 million.
The net of interest expense and (income) increased by $125,000 in the first nine
months of 2005 compared to the first nine months of 2004 and resulted in net
interest expense of $104,000. Interest expense primarily reflects the impact of
$85 million of borrowings under the receivables securitization and $58 million
of borrowings under the revolving credit facility incurred to finance the tender
offer. Interest income increased due to higher average cash balances and
increased rates. Interest rates have been higher in the first nine months of
2005.
The net of other (income) and expense improved by $276,000 in the first nine
months of 2005 compared to the first nine months of 2004 and resulted in net
other income of $189,000. In connection with the discontinuance of the Crossing
Pointe catalog title, on March 30, 2005, the Company sold all open Crossing
Pointe credit accounts receivable to a third party at a discount. After
comparing the proceeds of the sale to the net carrying value of this asset, the
Company realized a gain of approximately $643,000, which was recorded on this
financial statement line item.
Income taxes as a percentage of income before income taxes were 37% in the first
nine months of 2005 and 38.0% in the first nine months of 2004. The federal
income tax rate was 35% in both years. The Company's interim effective state
income tax rate used for 2005 is based on the overall 2004 actual annual rate
while the 2004 interim rate was based on estimates.
-28-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
Liquidity and Sources of Capital
On July 18, 2005 the Company announced the execution of an amendment to its
Receivables Purchase Agreement ("RPA") and execution of the Company's Amended
and Restated Credit Agreement (the "Credit Agreement"), which together provide
the Company up to $200 million in financing. The funds made available to the
Company pursuant to these agreements were used to fund, in part, the Company's
tender offer which was completed in August 2005, and for general corporate
purposes. In August, the Company borrowed $120 million and utilized available
cash balances of $68.9 million to fund the tender offer and related costs of
$4.1 million. The total cost of the tender offer was $188.9 million. Total debt
outstanding on September 30, 2005 was $143 million, which was repaid with the
proceeds from the sale of the credit portfolio after the close of the third
quarter of 2005. Proceeds from the sale were used first to repay and terminate
Blair's outstanding RPA, second to pay any amounts outstanding and extinguish
the commitment under the $25 million term loan, and third to reduce amounts
outstanding under the revolving credit facility. In addition, the sale of the
credit portfolio resulted in additional cash funds of $23.2 million, which was
invested.
The amendment to the RPA, dated as of July 15, 2005, is by, between and amongst
Blair Factoring Company and Blair Credit Services Corporation, each a wholly
owned subsidiary of the Company, and PNC Bank, N.A. as administrator for certain
conduit purchasers. The RPA has a purchase limit of $100 million and the
Company's receivables have been pledged as collateral for the facility. The RPA
has a commitment fee rate of 0.50% and a program fee rate of 1.0%, which
converts to a 2.0% fee on the earlier of March 31, 2006 or the date upon which
the Purchase Agreement with World Financial is terminated.
The Credit Agreement dated as of July 15, 2005 is by, between and amongst the
Company, and PNC Capital Markets, Inc. as lead arranger and PNC Bank, N.A. and
three other lending institutions. The Credit Agreement is guaranteed by Blair
Holdings, Inc., Blair Payroll LLC, Blair Credit Services Corporation and Blair
International Holdings, Inc., each a wholly owned subsidiary of the Company. The
Credit Agreement provides for $100 million in first and second lien credit
facilities consisting of a senior secured first lien revolving credit facility
not to exceed $75 million, which matures in July 2010, and a $25 million senior
secured second lien term loan, which matured on November 4, 2005, the date of
the close of the sale of the Company's receivables and credit granting activity
pursuant to the Purchase Agreement. Upon the occurrence of an Event of Default
(as such term is defined in the Credit Agreement), PNC and/or the other lending
institutions may declare a default of the Credit Agreement and accelerate the
loan pursuant to the terms of the Credit Agreement.
Transactions entered into under the RPA are considered secured borrowings and
collateral transactions under the provisions of Statement of Financial
Accounting Standards No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities. The securitization requires
certain performance standards for the Company's accounts receivable portfolio in
addition to complying with the covenants in the Credit Agreement. At September
30, 2005, $85 million was outstanding under the RPA. At December 31, 2004 and
September 30, 2004, $15 million had been borrowed under the securitization.
Borrowings are reflected on the balance sheet as short-term notes payable. For
the nine months ended September 30, 2005 and September 30, 2004, the weighted
average interest rate was 4.28% and 2.05%, respectively. The interest rate
increases are due to the facilities' varying interest rates that fluctuate based
on certain LIBOR indices, which tend to follow the recent increase in Federal
Reserve rates. Interest paid for the three months and nine months ending
September 30, 2005 was approximately $553,000 and $828,000, and for the three
months and nine months ending September 30, 2004 were approximately $88,000 and
$234,000, respectively.
The collateral for the Credit Agreement's revolving credit facility consists of
all of the Company's and its subsidiaries assets, including, but not limited to,
inventory, equipment, furniture, general intangibles, intellectual property,
fixtures, certain real property and improvements, the common stock of the
Company's domestic subsidiaries (excluding JLB Service Bank), as well as a
negative and double negative pledge on the assets of the Company's direct and
indirect foreign subsidiaries. The collateral for the Credit Agreement's term
loan consists of a lien subordinate to the revolving credit facility on all the
aforementioned assets. At the Company's option, any loan under the revolving
credit facility or term loan shall bear interest at the Euro-Rate (calculated
with reference to a LIBOR-based formula in accordance with the Credit Agreement)
or a Base Rate (as that term is defined in the Credit Agreement), plus a margin,
such margin to be calculated in accordance with a performance based pricing grid
in the case of the revolving credit facility and a locked fixed spread in the
case of the term loan. The Company is also required to pay a commitment fee, a
letter of credit fee and reasonable out-of-pocket expenses pursuant to the
Credit Agreement.
-29-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
Liquidity and Sources of Capital- Continued
At September 30, 2005, the Company had borrowings outstanding of $143 million
under the borrowing facilities. The Company had letters of credit totaling $15.4
million outstanding, which reduces the amount of borrowings available under the
Credit Agreement. Outstanding letters of credit totaled $16.1 million at
December 31, 2004, and $16.2 million at September 30, 2004. Letters of credit
are comprised mainly of two categories. One such category is comprised of
commercial letters of credit used for the purpose of purchasing goods from
non-U.S. suppliers. The other category is comprised of performance guarantees
for a consolidated subsidiary and insurance bonding purposes. All letters of
credit have a term of one year or less.
The Company was in compliance with all debt covenants as of September 30, 2005.
The Company believes it has adequate financial resources to support anticipated
short-term and long-term capital needs and commitments.
The following table and narrative highlight significant changes in cash and cash
equivalents for the nine months ended September 30, 2005 and 2004.
Nine Months Ended
September 30
Increase/
2005 2004 (decrease)
-----------------------------------------
Net cash provided by operating activities $ 32,884,378 $ 3,943,327 $ 28,941,051
Net cash used in investing activities (5,276,428) (2,924,292) (2,352,136)
Net cash used in financing activities (61,325,073) (2,008,153) (59,316,920)
Effect of exchange rate changes on cash 55,172 10,978 44,194
------------------------------------------
Net decrease in cash and cash equivalents $(33,661,951) $ (978,140) $(32,683,811)
==========================================
The $33.7 million decrease in cash and cash equivalents is primarily due to
unfavorable cash flow from financing activities, offset to some extent by
improved cash flow from operations. Net cash used in financing activities
primarily resulted from increased borrowings of $128 million to facilitate the
purchase of 4.4 million shares of common stock at $188.9 million in conjunction
with the Company's tender offer, which was completed on August 16, 2005. Net
cash provided by operating activities was $32.9 million for the nine months
ended September 30, 2005, a $28.9 million increase compared to the same period
in fiscal 2004. This increase is primarily attributable to favorable changes in
several components of working capital. The primary factors of improved working
capital are favorable changes to accounts receivable of $24.6 million,
inventories of $7.6 million, trade accounts payable and accrued expenses of $3.7
million and deferred income taxes of $5.6 million, offset somewhat by lower
provisions for doubtful accounts of $12.7 million.
Anticipated cash requirements during the balance of 2005 are primarily to fund
capital expenditures and pay dividends. The Company expects to fund 2005 cash
requirements with cash generated from operations, cash on hand and borrowings on
the recently amended RPA and Amended Credit Agreement and the sale of the credit
portfolio.
On July 20, 2005, the Company commenced a tender offer at $42.00 per share, for
the purchase of 4.4 million shares of its outstanding common stock, or
approximately 53%, at an aggregate price of $184.8 million. The tender offer was
completed on August 16, 2005. The total cost of the tender offer transaction,
including legal and professional fees incurred to execute the tender offer, was
$188.95 million, or $42.94 per share. As a result of the repurchase of the
shares, the Company had 3.9 million shares of common stock outstanding at
September 30, 2005, compared to 8.2 million shares at September 30, 2004.
-30-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
Liquidity and Sources of Capital - Continued
Merchandise inventory turnover was 2.41 times at September 30, 2005, 2.61 times
at December 31, 2004 and 2.81 times at September 30, 2004. Merchandise inventory
as of September 30, 2005 was 10.4% higher than at December 31, 2004 and 9.4%
lower than at September 30, 2004. The decrease in merchandise inventories from
September 30, 2004 is primarily the result of inventory liquidation efforts
associated with the Company's decision to close the Crossing Pointe and
Allegheny Trail product lines.
The merchandise inventory levels are net of the Company's reserve for inventory
obsolescence. The reserve totaled $2.6 million at September 30, 2005, $3.6
million at December 31, 2004 and $2.9 million at September 30, 2004. The
reduction in the reserve for slow moving inventory is related to actual
writedowns associated with the Company's decisions to discontinue its Crossing
Pointe and the Allegheny Trail product lines, which resulted in one time
writedowns of $1.9 million in 2005. These writedowns primarily were provided for
in the December 31, 2004 obsolescence reserve. Due to the nonrecurring nature of
the write-downs related to the discontinuance of these product lines, the
obsolescence reserve at September 30, 2005 was significantly less than the
reserve at December 31, 2004. Inventory write-offs and write-downs (reductions
to below cost) charged against the reserve for obsolescence were $2.4 million in
the first nine months of 2005 and $5.8 million in the first nine months of 2004.
The closing of the Starbrick Outlet Store in January 2004, accounts for $2.4
million of the write-downs in the first nine months of 2004. These write-downs
were primarily provided for in the December 31, 2003 obsolescence reserve.
Management believes that the amount of the reserve for obsolescence is
appropriate. A monthly provision for obsolete inventory is added to the reserve
and expensed to cost of goods sold based on the levels of merchandise inventory
and merchandise purchases.
The Company operates as one business segment consisting of the Womenswear,
Menswear, Home, Crossing Pointe, Allegheny Trail and Store product lines. The
Store product line was added in the first quarter of 2004. It was previously
included in the Womenswear, Menswear, Home and Crossing Pointe product lines.
The following tables illustrate net sales and the percent of net sales and
merchandise inventory that each product line represents.
The reduction in Crossing Pointe net sales is the result of the discontinuance
of the Crossing Pointe catalog title which was completed in March, 2005.
The increase in Allegheny Trail net sales is the result of inventory liquidation
efforts associated with the decision to close this product line.
-31-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
Liquidity and Sources of Capital - Continued
9/30/05 Percent of 9/30/04 Percent of
Net Sales Total Net Net Sales Total Net
Product Line (in millions) Sales (in millions) Sales
--------------------------------------------------------------------------------
Womenswear $212.1 65.0% $232.9 64.2%
Menswear 60.1 18.4% 61.0 16.8%
Home 50.4 15.4% 49.2 13.6%
Crossing Pointe 0.3 0.1% 16.4 4.5%
Stores 2.0 0.6% 2.2 0.6%
Allegheny Trail 1.6 0.5% 1.0 0.3%
-------------------------------------------------------------
Total $326.5 100.0% $362.7 100.0%
=============================================================
9/30/05 9/30/04
Merchandise Merchandise
Inventory Inventory
Product Line (in millions) (in millions)
--------------------------------------------------------------------------------
Womenswear $47.4 $49.6
Menswear 16.4 17.2
Home 10.9 9.5
Crossing Pointe 0.0 3.3
Stores 0.0 0.5
Allegheny Trail 0.0 2.2
-------------------------------------------------------------
Total $74.7 $82.3
=============================================================
On April 26, 2005, the Company entered into the Purchase Agreement
with World Financial. Pursuant to the Purchase Agreement, the Company's credit
portfolio was sold at par plus a premium on November 4, 2005. Additionally, on
April 26, 2005, the Company and World Financial entered into the Program
Agreement having a term of ten (10) years. The agreement has renewal provisions
that require the mutual consent of the Company and World Financial. The
accounting treatment for this transaction, to be recorded in the fourth quarter
of 2005, will result in a gain on the sale of approximately $30.7 million. The
gain on the sale will include the reversal of the allowance for doubtful
accounts. The allowance for doubtful accounts at September 30, 2005 was $24.3
million. The gain will be reduced by legal, professional and severance costs
associated with closing the transaction. The estimated total of these costs is
$3 million.
In addition, under terms of the Program Agreement, Alliance will provide
services including account acquisition and activation, receivables funding,
account authorization, statement generation, marketing services, remittance
processing and customer service functions.
-32-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
Liquidity and Sources of Capital - Continued
The Company anticipates that the annual impact of the transaction to its income
before income taxes will be a net reduction in pre-tax income of $8 to $10
million, as financial benefits from the Alliance partnership will partially
offset the income historically generated by the credit portfolio prior to
divestiture. The impact on pre-tax income is based on the net effect of the
elimination of finance charge revenue on time payment accounts, the provision
for doubtful accounts and variable general and administrative expenses related
to credit processing and administration of the receivable portfolio.
The Company used a portion of the net proceeds from the transaction to pay off
all of its outstanding indebtedness.
The Company has added new facilities, modernized its existing facilities and
acquired new cost-saving equipment during the last several years. Capital
expenditures for property, plant and equipment totaled $5.9 million during the
first nine months of 2005, compared to $2.9 million during the first nine months
of 2004. Most of the $5.9 million capital expenditures in the first nine months
of 2005 were attributable to improving the Company's information services
capabilities as they support the order fulfillment and the outsourced credit
origination functions.
Upon review of the Company's inventory liquidation strategy, the Company made
the following decisions. In January 2004, the Company closed its outlet store
located in Warren, Pennsylvania. This closure was effective at the close of
business on January 16, 2004. The Company is considering alternative uses for
the building. Evolvement of the Company's inventory liquidation strategy into
more rapid and profitable methods of disposing obsolete and excess inventory led
to this decision. Over the past three years, package insertions, telephone
upsell promotions, sale catalogs and the e-commerce channel have proven to be
more successful and profitable in moving inventory than the traditional outlet
sales process. The building is a sheet metal warehouse design and the Company
has considered the possible impairment of the facility. It is continuing to be
used in other areas and maintained in an operating condition. Several options
for additional and/or alternative uses are being explored for its future use.
For these reasons, management believes the carrying value of $1.4 million of the
facility is recoverable.
The Company is not currently using the Blair Warehouse Outlet building in Erie,
Pennsylvania. The Company is seeking prospective buyers for the Erie facility.
However, the sales process has taken longer than anticipated and the assets are
no longer being classified as Held for Sale in accordance with SFAS No. 144. The
building was not depreciated while classified as held for sale. A catch up
journal entry was recorded for depreciation expense when the building was moved
back to property, plant and equipment in the third quarter of 2004. Management
believes the carrying value of the asset, after considering a $300,773
impairment charge taken in 2003 to reduce the value of the asset to its fair
value less costs to sell, is deemed to be stated fairly at September 30, 2005.
The facility will continue to be depreciated.
-33-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
Contractual Obligations
The Company has contractual obligations consisting of capital leases for office
and digital camera equipment, operating leases for buildings, data processing,
office and telephone equipment, revolving credit facility and receivables
purchase agreement.
Payments Due By Period
Contractual Less than 1 - 3 4 - 5 More than
Obligations Total 1 year years years 5 years
----------------------------------------------------------------------------------------------
Capital Lease
Obligations $ 43,789 $ 4,730 $ 39,059 $ -0- $ -0-
Operating Leases 10,019,266 855,762 6,540,174 2,057,055 566,275
Unconditional
Purchase
Obligations -
Outstanding
Letters of Credit 15,400,000 15,400,000 -0- -0- -0-
Revolving Credit
Facility 58,000,000 58,000,000 -0- -0- -0-
Receivables
Purchase Agreement 85,000,000 85,000,000 -0- -0- -0-
----------------------------------------------------------------------------------------------
Total $168,463,055 $159,260,492 $6,579,233 $2,057,055 $566,275
==============================================================================================
The Company has commercial commitments consisting of a revolving credit facility
of $100 million and a receivables purchase agreement of $100 million. At
September 30, 2005, $85 million of undivided interests in the receivables
purchase agreement has been utilized.
Amount of Commitment
Expiration Per Period
Total
Other Commercial Amounts Less than 1 - 3 4 - 5 After 5
Commitments Committed 1 year years years years
-------------------------------------------------------------------------------------------------
Revolving Credit Facility -
effective 7/15/05 $100,000,000 $ -0- $ -0- $100,000,000 $ -0-
Receivables Purchase
Agreement effective 7/15/05 100,000,000 100,000,000 -0- -0- -0-
---------------------------------------------------------------------
Total $200,000,000 $100,000,000 $ -0- $100,000,000 $ -0-
=====================================================================
If an event of default should occur, payments and/or maturity of the lines of
credit could be accelerated. The Company is not in default and does not expect
to be in default of any of the provisions of the credit facilities. (See
"Liquidity and Sources of Capital" for details of the Company's credit
facilities).
The Company recently declared a quarterly dividend of $.15 per share payable on
December 15, 2005. The Company has declared dividends for 288 consecutive
quarters. Also, on November 8, 2005, the Company declared a special cash
dividend of 15 cents per share. It is the Company's present intention to
increase its regular quarterly cash dividend to 30 cents per share. The
Company will continue to evaluate its dividend practice on an ongoing basis.
Future cash needs beyond 2005 will be financed by cash flow from operations,
available cash on hand, existing borrowing arrangements and, if needed, other
financing arrangements that may be available to the Company. However, The
Company's current projection of future cash requirements may be affected by
numerous factors, including changes in sales volume, operating cost fluctuations
and revised capital spending activities.
-34-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
Critical Accounting Policies
Preparation of the Company's financial statements requires the application of a
number of accounting policies, which are described in "Note 1, Significant
Accounting Policies" in the "Notes to Consolidated Financial Statements" in the
Company's 2004 10-K. The critical accounting policies, which if interpreted
differently under different conditions or circumstances could result in material
changes to the reported results; deal with properly valuing accounts receivable
and inventory. Properly valuing accounts receivable and inventory requires
establishing proper reserve and allowance levels, specifically the allowances
for doubtful accounts and returns and the reserve for inventory obsolescence.
The Company's senior financial management and the Company's auditors review the
critical accounting policies and estimates with the Audit Committee of the Board
of Directors.
The Company's revenue recognition policy is as follows: Sales (cash, Blair
Credit, or third party credit card) are recorded when the merchandise is shipped
to the customer in accordance with the provisions of Staff Accounting Bulletin
No. 104, Revenue Recognition.
Finance charges on time payment accounts are recognized on an accrual basis of
accounting.
The allowance for doubtful accounts and related items, provision for doubtful
accounts and Blair Credit, are discussed in "Results of Operations", "Liquidity
and Sources of Capital" and "Future Considerations". A change in the bad debt
rate would cause changes in the provision for doubtful accounts and the
allowance for doubtful accounts. Based on the Company's 2004 level of credit
sales and finance charges, net income would change by approximately $2.3
million, or $.27 per share, from a one percentage point change in the bad debt
rate.
The allowance for returns is a deduction from customer accounts receivable. A
monthly provision for anticipated returns is recorded as a percentage of gross
sales, based upon historical experience. The provision is charged against gross
sales to arrive at net sales, and actual returns are charged against the
allowance for returns. Returns are generally more predictable as they settle
within two-to-three months, but are impacted by season, new products and/or
product lines, type of sale (cash, credit card, Blair Credit) and sales mix
(prospect/customer). Management believes that the allowance for returns is
sufficient to cover the returns that will occur after September 30, 2005 from
sales prior to October 1, 2005. A change in the returns rate would cause changes
in the provision for returns and the allowance for returns. Based on the
Company's 2004 level of sales, net income would change by approximately $1.7
million, or $.21 per share, from a one percentage point change in the returns
rate.
The reserve for inventory obsolescence and related items, inventory levels and
write-downs, are discussed in "Liquidity and Sources of Capital" and "Future
Considerations". Management believes that the reserve for inventory obsolescence
is sufficient to cover the write-offs that will occur in future years on
merchandise in inventory as of September 30, 2005. A change in the obsolescence
rate would cause changes in cost of goods sold and the reserve for inventory
obsolescence. Based on the Company's 2004 level of merchandise subject to
obsolescence, net income would change by approximately $1.7 million, or $.21 per
share, from a one percentage point change in the obsolescence rate.
The Company's advertising expense policy is as follows: Advertising and shipping
supply inventories include printed advertising material and related mailing
supplies for promotional mailings, which are generally scheduled to occur within
two months. These direct-response advertising costs are then expensed over the
period of expected future benefit, generally nine weeks.
At September 30, 2005, the Company had total gross deferred tax assets of $14.8
million. These assets relate principally to asset valuation reserves including
bad debts, returns and inventory obsolescence. Based on recent historical
earnings performance and current projections, management believes that a
valuation allowance is not required against these deferred tax assets, except
for the valuation allowance against state net operating losses and the Allegheny
Trail inventory obsolescence reserve. The state net operating loss valuation
allowance was provided due to its uncertainty of realization based upon the
state's net operating loss carryforward rules. The Allegheny Trail inventory
obsolescence reserve valuation allowance was provided due to the Company's
decision to phase out this business by April 30, 2005.
-35-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
Impact of Inflation and Changing Prices
Although inflation has moderated in the United States economy, the Company is
continually seeking ways to cope with its impact. To the extent permitted by
competition, increased costs are passed on to customers by selectively
increasing selling prices over a period of time. Historically, profit margins
have been pressured by postal and paper rate increases. Paper rates increased
6.8% in the first nine months of 2005 and were unchanged in the first nine
months of 2004. Postal rates increased on January 10, 1999, on January 7, 2001,
on July 1, 2001 and again on September 30, 2002. Based on recent public
communications by the United States Postal Service, postal rates are anticipated
to increase in 2006. The Company spent approximately $55.2 million for postage
and delivery services in the first nine months of 2005 compared to $61.5 million
in the first nine months of 2004. The reduction in postage and delivery costs is
related to the lower sales volume and reduced catalog circulation.
The Company principally uses the LIFO method of accounting for its merchandise
inventories. Under this method, the cost of products sold reported in the
financial statements approximates current costs and thus reduces distortion in
reported income due to increasing costs. However, the Company has been
experiencing declining merchandise costs and the LIFO reserve has fallen to $2.8
million at September 30, 2005 compared to $3.8 million at December 31, 2004 and
$4.5 million at September 30, 2004.
The World Trade Organization agreed that starting in January of 2005, quota on
imported textile products would be removed. The elimination of this quota has
resulted in lower priced textile products from most of the World Trade member
countries. Because some member countries did not charge for quota, not all
products have experienced lower costs. However, in most World Trade member
countries, lower prices have ranged between 5% and 20%, depending on the
category and the country of origin. These lower prices have resulted in lower
landed duty paid prices for American importers.
In the third quarter of 2005, the Company achieved almost all of its merchandise
production goals from the Chinese market and has received earlier than needed
shipments, allowing the Company to take advantage of the pricing reductions.
Concurrent with this activity, the US Government established safeguard quotas by
category and country for the remainder of 2005, thereby reducing the potential
to source merchandise at lower costs. Additionally, the recent natural disasters
in the Gulf region have resulted in higher fuel prices which have negatively
impacted inbound freight charges. The combination of these two factors suggests
the merchandise price reductions realized in the first half of 2005 will be
realized to a lesser extent in the second half of 2005.
Property, plant and equipment are continuously being expanded and updated. Major
projects are discussed under "Liquidity and Sources of Capital". Assets acquired
in prior years may be replaced at higher costs, but this will take place over
many years. New assets, when acquired, will result in higher depreciation
charges, but in many cases, due to technological improvements, savings in
operating costs should result. The charges to operations for depreciation
represent the allocation of historical costs incurred over past years and are
significantly less than if they were based on the current cost of productive
capacity being used.
Accounting Pronouncements
On December 16, 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004),
Share-Based Payment, which is a revision of SFAS No. 123, Accounting for
Stock-Based Compensation. SFAS No. 123(R) supersedes Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and
amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS
No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS
No. 123(R) requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the income statement based on fair
values. Pro forma disclosure is no longer an alternative. SFAS No. 123(R)
must be adopted no later than January 1, 2006. We expect to adopt SFAS No.
123(R) on January 1, 2006.
-36-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
Accounting Pronouncements - Continued
As permitted by SFAS No. 123, the Company currently accounts for share-based
payments to employees using Opinion 25's intrinsic value method and, as such,
generally recognizes no compensation cost for employee stock options.
Accordingly, the adoption of SFAS No. 123(R)'s fair value method will have a
significant impact on our results of operations, although it will have no impact
on our overall financial position. The impact of the adoption of SFAS No. 123(R)
cannot be predicted at this time because it will depend on levels of share-based
payments granted in the future. However, had we adopted SFAS No. 123(R) in prior
periods, the impact of that standard would have approximated the impact of SFAS
No. 123 as described in the disclosure of pro forma net income and earnings per
share in Note P to our consolidated financial statements. SFAS No. 123(R) also
requires the benefits of tax deductions in excess of recognized compensation
cost to be reported as a financing cash flow, rather than as an operating cash
flow as required under current literature. This requirement will reduce net
operating cash flows and increase net financing cash flows in periods after
adoption. While the Company cannot estimate what those amounts will be in the
future (because they depend on, among other things, when employees exercise
stock options), the amount of operating cash flows recognized in prior periods
for such excess tax deductions for the three months and nine months ended
September 30, 2005 amounted to $430,000 and $480,000, and for the three months
and nine months ended September 30, 2004 amounted to $19,000 and $221,000,
respectively.
Future Considerations
The Company is faced with the ever-present challenge of maintaining and
expanding its customer file. This involves the acquisition of new customers
(prospects), the conversion of new customers to established customers (active
repeat buyers) and the retention and/or reactivation of established customers.
These actions are vital in growing the business but are being negatively
impacted by increased operating costs, a declining labor pool, increased
competition in the retail sector, high levels of consumer debt, varying consumer
response rates and an uncertain economy. The preceding factors can also
negatively impact the Company's ability to properly value accounts receivable
and inventories by making it more difficult to establish proper reserve and
allowance levels, specifically, the allowances for doubtful accounts and returns
and the reserve for inventory obsolescence.
The Company's marketing strategy includes targeting customers in the "40 to 75,
low-to-moderate income" market. Success of the Company's marketing strategy
requires investment in database management, digital asset management, campaign
management, financial and operating systems, prospecting programs, catalog
marketing, new product lines, telephone call centers, e-commerce, fulfillment
operations and the management of credit extension. Management believes that
these investments should improve Blair Corporation's position in new and
existing markets and provide opportunities for future earnings growth.
The Company announced on May 3, 2004, that it would discontinue circulation of
its four year-old Crossing Pointe catalog title in 2005. The Company's intention
is to more fully focus new business development efforts on the core Blair brand
and its proven appeal to significant market segments. The decision to focus on
core operations is based in part on the historical success of the Blair brand
and an extensive consumer and brand strategy study undertaken by the Company as
part of its efforts to enhance profitability and shareholder value. This
decision did not have a negative effect on 2004 profitability, and is expected
to benefit 2005 performance.
On January 25, 2005, the Company decided to phase out its Allegheny Trail
wholesale business. This process was substantially completed by April 30, 2005.
The remaining products will be transferred to other existing product lines. This
decision is consistent with the Company's intention to more fully focus new
business development efforts on the core Blair brand and its proven appeal to
significant market segments. The Company has evaluated the impact of phasing out
the Allegheny Trail business on all assets associated with this operation. All
appropriate reserves have been recorded. This decision did not have a negative
effect on 2004 profitability and is not expected to negatively impact 2005
performance.
-37-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
Future Considerations - Continued
Requirements adopted by the Securities and Exchange Commission in response to
the passage of the Sarbanes-Oxley Act of 2002 require an ongoing review and
evaluation of our internal control systems and attestation of these systems by
our independent auditors. We will review our internal control procedures and
consider further documentation of such procedures that may be necessary in the
future on an ongoing basis. While we currently believe we have identified and
committed the appropriate resources to meet all of the requirements, there is
always a risk inherent in any control system that not all errors or
misstatements will be detected. Any improvements in our internal control systems
or in documentation of such control systems could be costly to prepare or
implement, could divert attention of management of our finance staff, and may
cause our operating expenses to increase over the ensuing year.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.
Words such as "believes", "anticipates", "plans", "expects" and similar
expressions are intended to identify forward-looking statements. Any statements
contained in this report that are not statements of historical fact may be
deemed to be forward-looking statements. Such forward-looking statements are
included in, but not limited to, this Item 2.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties which could cause actual results to differ materially from those
in the forward-looking statements, including without limitation the following:
(i) the Company's plans, strategies, objectives, expectations and intentions are
subject to change at any time at the discretion of the Company; (ii) the
Company's plans and results of operations will be affected by the Company's
ability to manage its growth, accounts receivable and inventory; (iii) external
factors such as, but not limited to, changes in consumer response rates, changes
in consumer credit trends, success of new business lines and increases in
postal, paper and printing costs; and (iv) other risks and uncertainties
indicated from time to time in the Company's filings with the Securities and
Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The carrying amounts of cash, customer accounts receivable, accounts payable,
and accrued liabilities approximate fair value due to the short-term maturities
of these assets and liabilities. The interest rates on the Company's securitized
and revolving credit facilities are adjusted regularly to reflect current market
rates. Accordingly, the carrying amounts of the Company's borrowings also
approximate fair value.
The Company is subject to market interest rate risk from exposure to changes in
interest rates based upon its financing, investing and cash management
activities. The Company utilizes variable-rate debt to manage its exposure to
changes in interest rates. The Company does not expect changes in interest rates
to have a material adverse effect on its income or cash flow in 2005. Based on
the average daily balance of notes payable outstanding for the nine month period
ended September 30, 2005 and 2004, a change of one percentage point in the
interest rate would cause a change in interest expense of approximately $341,000
and $150,000, respectively.
-38-
ITEM 4. CONTROLS AND PROCEDURES
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, based on an evaluation of
the Company's disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)), each of the Chief Executive Officer and the
Chief Financial Officer of the Company has concluded that the Company's
disclosure controls and procedures are effective to reasonably ensure that
information required to be disclosed by the Company in its Exchange Act reports
is recorded, processed, summarized and reported within the applicable time
periods specified by the SEC's rules and forms.
The management of the Company, with the participation of each of the Chief
Executive Officer and the Interim Chief Financial Officer of the Company, has
evaluated the Company's internal control over financial reporting. On the basis
of such evaluation, it has been determined that there have been no significant
changes in the Company's internal control over financial reporting that
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting. As a result, no corrective
actions with regard to any significant deficiencies or material weaknesses were
taken.
-39-
PART II. OTHER INFORMATION
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is from time to time a party to ordinary routine litigation
incidental to various aspects of its operations. Management is not
currently aware of any litigation that will have a material adverse
impact on the Company's financial condition or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 5. Other Information
Not Applicable.
Item 6. Exhibits
(a) Exhibits
3.1 Restated Certificate of Incorporation (1)
3.2 Amended and Restated Bylaws of Blair Corporation (2)
4 Specimen Common Stock Certificate (3)
10.1 Stock Accumulation and Deferred Compensation Plan for
Directors (4)
10.2 Blair Corporation 2000 Omnibus Stock Plan (5)
10.3 Blair Credit Agreement (6)
10.4 Amendment No. 2 to Credit Agreement (7)
10.5 Amendment No. 3 to Credit Agreement (8)
10.6 Amendment No. 4 to Credit Agreement (9)
10.7 Amendment No. 5 to Credit Agreement (10)
10.8 Change in Control Severance Agreement-Vice Presidents (11)
10.9 Change in Control Severance Agreement-CEO and Senior Vice
Presidents (12)
10.10 Purchase, Sale and Capital Servicing Transfer Agreement (13)
10.11 Private Label Credit Program Agreement (14)
10.12 Amendment Agreement, dated as of July 15, 2005, which amends
the Receivables Purchase Agreement (15)
10.13 Amended and Restated Credit Agreement, dated as of
July 15, 2005 (16)
10.14 Agreement among Blair Corporation and Loeb, dated as of
May 24, 2005 (17)
10.15 Agreement among Blair Corporation, and Mr. Phillip Goldstein
and Mr. Andrew Dakos, dated as of May 24, 2005 (18)
10.16 Agreement among Blair Corporation, and Santa Monica and
Mr. Lawrence Goldstein, dated as of May 25, 2005 (19)
11 Statement regarding computation of per share earnings (20)
31.1 CEO Certification pursuant to Section 302
31.2 CFO Certification pursuant to Section 302
32.1 CEO Certification pursuant to Section 906
32.2 CFO Certification pursuant to Section 906
-40-
PART II. OTHER INFORMATION - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, 2005
Item 6. Exhibits - Continued
(1) Incorporated by reference to Exhibit A to the Quarterly Report on Form 10-Q
of the Company filed with the SEC on August 10, 1995 (SEC File No. 1-878).
(2) Incorporated herein by reference to Exhibit 3.2 to the Companies Quarterly
Report on Form 10-Q filed with the SEC on August 14, 2003 (SEC File No. 1-878).
(3) Incorporated by reference to Exhibit 4.1 to the Form S-8 Registration
Statement filed with the SEC on July 19, 2000 (SEC File No. 333-41770).
(4) Incorporated herein by reference to Exhibit A to the Company's Proxy
Statement filed with the SEC on March 20, 1998 (SEC File No. 1-878).
(5) Incorporated herein by reference to Exhibit A to the Company's Proxy
Statement filed with the SEC on March 17, 2000 (SEC File No. 1-878).
(6) Incorporated herein by reference to Exhibit 99.1 to the Company's Form 8-K
filed with the SEC on January 9, 2002 (SEC File No. 1-878).
(7) Incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form
10-Q of the Company filed with the SEC on August 8, 2003 (SEC File No. 1-878).
Certain schedules to the Agreement have been omitted.
(8) Incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form
10-Q of the Company filed with the SEC on November 9, 2004 (SEC File No. 1-878).
Certain schedules to the Agreement have been omitted.
(9) Incorporated by reference to Exhibit 10.6 to the Annual Report on Form 10-K
of the Company filed with the SEC on March 1, 2005 (SEC File No. 1-878). Certain
schedules to the Agreement have been omitted.
(10) Incorporated by reference to Exhibit 10.7 to the Quarterly Report on Form
10-Q of the Company filed with the SEC on May 6, 2005 (SEC File No. 1-878).
Certain schedules to the Agreement have been omitted.
(11) Incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form
10-Q of the Company filed with the SEC on November 9, 2004 (SEC File No. 1-878).
(12) Incorporated by reference to Exhibit 10.7 to the Quarterly Report on Form
10-Q of the Company filed with the SEC on November 9, 2004 (SEC File No. 1-878).
(13) Incorporated herein by reference to Exhibit 10.1 to the Company's Form 8-K
filed with the SEC on April 27, 2005 (SEC File No. 1-878). Certain schedules to
the agreement have been omitted.
(14) Incorporated herein by reference to Exhibit 10.2 to the Company's Form 8-K
filed with the SEC on April 27, 2005 (SEC File No. 1-878). Certain schedules to
the agreement have been omitted.
(15) Incorporated herein by reference to (b) (i) to the Company's Schedule TO
filed with the SEC on July 20, 2005 (SEC File No. 1-878). Certain schedules to
the agreement have been omitted.
(16) Incorporated herein by reference to (b) (ii) to the Company's Schedule TO
filed with the SEC on July 20, 2005 (SEC File No. 1-878). Certain schedules to
the agreement have been omitted.
(17) Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed
with the SEC on May 27, 2005 (SEC File No. 1-878).
(18) Incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed
with the SEC on May 27, 2005 (SEC File No. 1-878).
-41-
PART II. OTHER INFORMATION - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited) September 30, 2005
Item 6. Exhibits - Continued
(19) Incorporated by reference to Exhibit 10.3 to the Company's Form 8-K filed
with the SEC on May 27, 2005 (SEC File No. 1-878).
(20) Incorporated by reference to Note V of the financial statements included
herein.
-42-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BLAIR CORPORATION
-------------------------------------
(Registrant)
Date: November 9, 2005 By JOHN E. ZAWACKI
--------------------------- -------------------------------------
JOHN E. ZAWACKI
President and Chief Executive Officer
By LARRY J. PITORAK
-------------------------------------
LARRY J. PITORAK
Interim Chief Financial Officer
By MICHAEL R. DELPRINCE
-------------------------------------
MICHAEL R. DELPRINCE
Controller
[Certifications to follow]
-43-
Exhibit 31.1
CERTIFICATION
I, John E. Zawacki, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Blair
Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under supervision,
to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: November 9, 2005 JOHN E. ZAWACKI
---------------------- ----------------------------
JOHN E. ZAWACKI
President and
Chief Executive Officer
-44-
Exhibit 31.2
CERTIFICATION
I, Larry J. Pitorak, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Blair
Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under supervision,
to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: November 9, 2005 LARRY J. PITORAK
---------------------- -------------------------------
LARRY J. PITORAK
Interim Chief Financial Officer
-45-
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Blair Corporation (the "Company") on
Form 10-Q for the period ended September 30, 2005 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, John E. Zawacki,
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934;
and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
Date: November 9, 2005 JOHN E. ZAWACKI
---------------------- -----------------------------
JOHN E. ZAWACKI
President and
Chief Executive Officer
A signed original of this written statement required by Section 906, or other
document authentication, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to Blair Corporation and will be
retained by Blair Corporation and furnished to the Securities and Exchange
Commission or its staff upon request.
-46-
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Blair Corporation (the "Company") on
Form 10-Q for the period ended September 30, 2005 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Larry J. Pitorak,
Interim Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934;
and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
Date: November 9, 2005 LARRY J. PITORAK
---------------------- -------------------------------
LARRY J. PITORAK
Interim Chief Financial Officer
A signed original of this written statement required by Section 906, or other
document authentication, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to Blair Corporation and will be
retained by Blair Corporation and furnished to the Securities and Exchange
Commission or its staff upon request.
-47-