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 March 31, 2006 Commission File Number 1-878
--------------------------------------------------------------------------------
Blair Corporation
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 25-0691670
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
220 HICKORY STREET, WARREN, PENNSYLVANIA 16366-0001
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(814) 723-3600
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
--------------------------------------------------------------------------------
(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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
------------
Accelerated filer X
------------
Non-accelerated filer
------------
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 May 3, 2006 the registrant had outstanding 3,983,403 shares of its common
stock without nominal or par value.
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS (UNAUDITED)
BLAIR CORPORATION AND SUBSIDIARIES
March 31, 2006
-2-
Blair Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
March 31 December 31
2006 2005
--------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 22,781,744 $ 53,099,129
Receivables, less allowances for doubtful accounts
of $145,019 in 2006 and $158,471 in 2005 4,961,346 2,987,832
Inventories:
Merchandise 76,995,377 71,217,282
Advertising and shipping supplies 16,076,116 12,146,732
--------------------------------
93,071,493 83,364,014
Deferred income taxes 118,000 731,000
Prepaid and refundable federal and state taxes 2,313,911 -0-
Prepaid expenses 2,528,284 2,781,777
--------------------------------
Total current assets 125,774,778 142,963,752
Property, plant and equipment:
Land 1,142,144 1,142,144
Buildings and leasehold improvements 66,687,821 66,609,565
Equipment 75,689,509 75,320,297
Construction in progress 4,987,922 3,961,206
--------------------------------
148,507,396 147,033,212
Less allowances for depreciation 99,789,067 98,350,258
--------------------------------
48,718,329 48,682,954
Trademark 325,617 343,678
Other long-term assets 1,047,608 1,103,903
--------------------------------
Total assets $175,866,332 $193,094,287
================================
See accompanying notes.
-3-
Blair Corporation and Subsidiaries
Consolidated Balance Sheets - Continued
(Unaudited)
March 31 December 31
2006 2005
--------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 24,288,094 $ 29,137,285
Advance payments from customers 3,566,052 1,873,803
Reserve for sales returns 4,995,000 4,602,000
Accrued expenses 18,472,220 20,994,747
Accrued federal and state taxes -0- 6,782,444
Current portion of capital lease obligations 18,640 19,198
--------------------------------
Total current liabilities 51,340,006 63,409,477
Capital lease obligations, less current portion 11,472 14,695
Deferred income taxes 2,395,000 2,582,000
Other long-term liability 858,094 679,720
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 13,700,346 13,553,937
Retained earnings 328,093,229 334,023,925
Accumulated other comprehensive loss (78,166) (48,579)
--------------------------------
342,135,219 347,949,093
Less 6,109,239 shares in 2006 and 6,124,818
shares in 2005 of common stock
in treasury -- at cost 220,844,951 221,381,619
Less receivable and deferred compensation
from stock plans 28,508 159,079
--------------------------------
Total stockholders' equity 121,261,760 126,408,395
--------------------------------
Total liabilities and stockholders' equity $175,866,332 $193,094,287
================================
See accompanying notes.
-4-
Blair Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 31
2006 2005
--------------------------------
Net sales $ 102,682,991 $ 107,557,919
Other revenue 1,511,280 10,715,572
--------------------------------
104,194,271 118,273,491
Cost and expenses:
Cost of goods sold 47,920,130 52,774,761
Advertising 31,543,715 29,458,705
General and administrative 32,421,844 31,859,818
Provision for doubtful accounts 50,877 3,492,632
Interest (income) expense, net (316,161) (125,229)
Other expense (income), net 47,596 (209,519)
--------------------------------
111,668,001 117,251,168
--------------------------------
(Loss) income before income taxes (7,473,730) 1,022,323
Income taxes (benefit) provision (2,679,000) 372,000
--------------------------------
Net (loss) income $ (4,794,730) $ 650,323
================================
Basic (loss) earnings per share based on
weighted average shares outstanding $(1.23) $.08
================================
Diluted (loss) earnings per share based on
weighted average shares outstanding
and assumed conversions $(1.23) $.08
================================
See accompanying notes.
-5-
Blair Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Unaudited)
Three Months Ended
March 31
2006 2005
--------------------------------
Common Stock $ 419,810 $ 419,810
Additional Paid-in Capital:
Balance at beginning of period 13,553,937 13,238,311
Issuance of 425 shares in 2006 and 300 shares in
2005 of common stock to non-employee directors (4,841) (4,013)
Issuance of 12,420 shares in 2006 and 7,928 shares in
2005 of common stock under Omnibus Stock Plan-
Executive Officer Stock Awards (34,907) (37,198)
Forfeitures of 750 shares in 2006 and 1,150 shares in
2005 of common stock under Omnibus Stock and
Employee Stock Purchase Plans (10,685) (9,144)
Exercise of 3,484 shares in 2006 and 6,200 shares in
2005 of common stock under Omnibus Stock Plan-
Non-Qualified Stock Options (35,216) (39,324)
Tax benefit on exercise of Non-Qualified Stock Options 69,000 30,000
Unvested Stock Options under Omnibus Stock Plan 163,058 -0-
--------------------------------
Balance at end of period 13,700,346 13,178,632
Retained Earnings:
Balance at beginning of period 334,023,925 306,544,284
Net (loss) income (4,794,730) 650,323
Cash dividends per share- $.30 in 2006 and $.15 in 2005 (1,135,966) (1,194,993)
--------------------------------
Balance at end of period 328,093,229 305,999,614
Accumulated Other Comprehensive Loss:
Balance at beginning of period (48,579) (118,634)
Foreign currency translation losses (29,587) (3,230)
--------------------------------
Balance at end of period (78,166) (121,864)
Treasury Stock:
Balance at beginning of period (221,381,619) (35,955,582)
Issuance of 425 shares in 2006 and 300 shares in
2005 of common stock to non-employee directors 14,478 8,588
Issuance of 12,420 shares in 2006 and 7,928 shares in
2005 of common stock under Omnibus Stock Plan-
Executive Officer Stock Awards 410,844 226,938
Forfeitures of 750 shares in 2006 and 1,150 shares in
2005 of common stock under Omnibus Stock and
Employee Stock Purchase Plans -0- (22,706)
Exercise of 3,484 shares in 2006 and 6,200 shares in
2005 of common stock under Omnibus Stock Plan-
Non-Qualified Stock Options 111,346 165,674
--------------------------------
Balance at end of period (220,844,951) (35,577,088)
See accompanying notes.
-6-
Blair Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity - Continued
(Unaudited)
Three Months Ended
March 31
2006 2005
--------------------------------
Receivable and Deferred Compensation from Stock Plans:
Balance at beginning of year (159,079) (1,560,915)
Issuance (net of forfeitures) of common stock under
Omnibus Stock Plan - Restricted Stock Awards and
Executive Officer Awards:
Receivable (2,738) 7,347
Deferred compensation -0- -0-
Amortization of deferred compensation,
net of forfeitures 79,104 47,786
Amortization of Executive Officer Stock awards,
net of vesting and forfeitures (1,071) 92,845
Applications of dividends and cash repayments 55,276 76,771
--------------------------------
Balance at end of period (28,508) (1,336,166)
--------------------------------
Total stockholders' equity $ 121,261,760 $ 282,562,938
================================
Comprehensive (loss) income:
Net (loss) income $ (4,794,730) $ 650,323
Adjustment from foreign currency translation (29,587) (3,230)
--------------------------------
Comprehensive(loss) income $ (4,824,317) $ 647,093
================================
See accompanying notes.
-7-
Blair Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31
2006 2005
--------------------------------
Operating activities
Net (loss) income $ (4,794,730) $ 650,323
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation 1,880,103 2,161,925
Amortization 74,356 82,528
Loss (gain) on disposal of assets 73,310 (208,366)
Provision for doubtful accounts 50,877 3,492,632
Provision for deferred income taxes 426,000 290,000
Compensation expense (net of forfeitures)
for stock awards 664,424 351,814
Changes in operating assets and liabilities
providing (using) cash:
Customer accounts receivable 71,876 9,226,671
Receivables (2,095,238) (691,345)
Inventories (9,707,479) 3,438,767
Prepaid expenses and other assets 254,259 (530,591)
Trade accounts payable (4,848,566) 3,246,439
Advance payments from customers 1,692,249 1,303,513
Accrued returns 389,887 231,667
Accrued expenses and other long-term liability (2,344,153) (1,295,842)
Federal and state taxes (9,096,355) (4,309,869)
--------------------------------
Net cash (used in) provided by operating activities (27,309,180) 17,440,266
Investing activities
Purchases of property, plant and equipment (1,988,376) (1,708,593)
Proceeds from sale of assets 200 505,349
--------------------------------
Net cash used in investing activities (1,988,176) (1,203,244)
Financing activities
Principal repayments on capital lease obligations (3,781) (69,920)
Dividends paid (1,135,966) (1,194,993)
Exercise of non-qualified stock options 76,129 126,350
Repayments of notes receivable from stock plans 4,095 35,400
Tax benefit on exercise of non-qualified stock options 69,000 30,000
--------------------------------
Net cash used in financing activities (990,523) (1,073,163)
Effect of exchange rate changes on cash (29,506) (2,992)
--------------------------------
Net (decrease) increase in cash (30,317,385) 15,160,867
Cash and cash equivalents at beginning of period 53,099,129 50,559,995
--------------------------------
Cash and cash equivalents at end of period $ 22,781,744 $ 65,720,862
================================
Supplemental disclosures of cash flow information:
Cash Paid For:
Interest $ 682 $ 124,059
Income taxes $6,000,000 $4,071,100
See accompanying notes.
-8-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
March 31, 2006
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 three
months ended March 31, 2006 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2006. 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, 2005.
NOTE B - REVENUE RECOGNITION
Sales 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.
NOTE C - COSTS AND EXPENSES
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, merchandise samples and internally incurred
shipping and handling costs.
NOTE D - 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.
NOTE E - RETURNS
The provision for returns charged against income for the first quarter of 2006
and 2005 amounted to $14,450,142 and $15,809,659, 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 F - 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. Results
of the interim analysis for the first quarter of 2006 were comparable to
year-end calculations. If the FIFO method had been used, merchandise inventories
would have increased by approximately $1,160,000 at March 31, 2006 and December
31, 2005.
NOTE G - STOCK COMPENSATION
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
("Opinion No. 25"), 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 as an expense based on fair values. Pro forma disclosure is no longer
an alternative. The Company adopted SFAS No. 123(R) on January 1, 2006 using
the modified-prospective method. As allowed under the modified-prospective
method, the financial results for prior periods have not been restated.
-9-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
March 31, 2006
NOTE G - STOCK COMPENSATION - Continued
Prior to January 1, 2006, the Company accounted for its share-based payments to
employees using Opinion No. 25's intrinsic value method and, as such, generally
recognized no compensation cost for employee stock options, as permitted by SFAS
No. 123. Prior to the adoption of SFAS No. 123(R), the Company presented all tax
benefits resulting from the exercise of stock options as operating cash inflows
in the consolidated statements of cash flows, in accordance with the provisions
of the Emerging Issues Task Force ("EITF") Issue No. 00-15, "Classification in
the Statement of Cash Flows of the Income Tax Benefit Received by a Company upon
Exercise of a Non-qualified Employee Stock Option." SFAS No. 123(R) requires the
benefits of tax deductions in excess of the recognized compensation cost
recognized for those options to be classified as financing cash inflows rather
than operating cash inflows, on a prospective basis. This excess amount was
$69,000 and $30,000 in the first quarter of 2006 and 2005, respectively, and is
shown as "Tax benefit on exercise of non-qualified stock options" in the
consolidated statement of cash flows.
As a result of adopting SFAS No. 123(R) on January 1, 2006, the Company's loss
before income taxes and net income for the three months ended March 31, 2006 are
$218,000 and $140,000 greater, respectively, than if the Company had continued
to account for share-based compensation under Opinion No. 25. Basic and diluted
earnings per share for the three months ended March 31, 2006 would have been a
loss of $1.19 per share, if the Company had not adopted SFAS No. 123(R),
compared to reported basic and diluted earnings per share of a loss of $1.23.
Stock activity in 2006 generally includes transactions pertaining to stock
awarded to non-employee directors as well as 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
booked to additional paid-in capital. The following table presents the pro forma
net earnings and net earnings per share for the quarter ending March 31, 2005,
as if the Company had applied the provisions of SFAS No. 123(R) during that
period:
Pro Forma
2005
------------
Net income as reported $ 650,323
Add: Total stock-based employee compensation expense
recorded for all awards, net of related tax effects 403,398
Deduct: Total stock-based employee compensation expense
determined under fair value method for all awards, net of
related tax effects
(570,571)
------------
Pro forma net income $ 483,150
============
Earnings per share:
Basic - as reported $0.08
============
Basic - pro forma $0.06
============
Diluted - as reported $0.08
============
Diluted - pro forma $0.06
============
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:
Risk-free interest rate 3.49%
Dividend yields 2.54%
Volatility .540
Weighted-average expected life 7 years
Per share fair value $10.63
-10-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
March 31, 2006
NOTE H - RECLASSIFICATIONS
Certain amounts in the prior year Consolidated Statements of Cash Flows have
been reclassified to conform with the current year presentation.
NOTE I - 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 of such litigation will not have a material effect on
the Company's financial condition or results of operations.
NOTE J - ACCRUED EXPENSES
Accrued expenses consist primarily of employee compensation and benefit related
items.
NOTE K - STOCKHOLDERS' EQUITY
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
March 31
2006 2005
--------------------------------
Numerator:
Net (loss) income $(4,794,730) $ 650,323
Denominator:
Weighted average shares outstanding 3,958,687 8,238,350
Contingently issuable shares -
Omnibus Stock Purchase Plan 52,286 61,436
--------------------------------
Denominator for basic earnings per share 3,906,401 8,176,914
Effect of dilutive securities:
Employee stock options N/A 133,496
--------------------------------
Denominator for diluted earnings per share 3,906,401 8,310,410
================================
Basic earnings per share ($1.23) $0.08
================================
Diluted earnings per share ($1.23) $0.08
================================
As a result of the loss incurred for the three month period ended March 31,
2006, the common stock equivalents would be anti-dilutive (i.e., reduced the
loss) and, therefore, were excluded.
NOTE L - 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 $2.7 million tax benefit for the first quarter of 2006 was generated as a
result of the net loss before income taxes and consists primarily of amounts
available from a Federal Net Operating Loss carryback . This benefit is
reflected on the balance sheet as a current asset labeled prepaid and refundable
federal and state taxes.
-11-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
March 31, 2006
NOTE M - 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 and Stores product lines.
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.
NOTE N - SEPARATION PROGRAMS
In 2005, the Company accrued and charged to expense $933,000 in separation
costs. The costs were charged against the gain on the sale of the credit
portfolio in the income statement. The $933,000 charge represents severance pay
and related payroll taxes for personnel whose services were no longer required
after the sale of the credit portfolio. As of March 31, 2006, $366,000 of the
$933,000 remains unpaid and recognized as an accrued liability.
In 2005, in addition to the $933,000 of separation costs related to the sale of
the credit portfolio, the Company accrued and charged to expense an additional
$2.6 million in separation costs. In the first quarter of 2006, the Company
accrued and charged to expense $1.5 million in separation costs. The costs were
charged to General and Administrative Expense in the income statement. The
aggregate $4.1 million charge represents severance pay, related payroll taxes
and medical benefits due to former employees who have separated from the
Company. These charges are in connection with the previously announced changes
to the Company's 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 Capital Bank, an industrial bank subsidiary of
Alliance Data Systems Corporation, expanding its internal marketing and
advertising capabilities, closing its Crossing Pointe and Allegheny Trail
divisions and investing in its distribution center. As of March 31, 2006, $3.2
million of the $4.1 million remains unpaid and recognized as an accrued
liability.
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 to 56
eligible employees who accepted a 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 first quarter of 2006, $2.4 million of the $2.5
million has been paid.
The following table summarizes the charges to income and related accruals as of
March 31, 2006, December 31, 2005 and December 31, 2004 pertaining to the
voluntary separation programs described above.
Blair Credit Changes in
Mailing Portfolio Organizational
Center Sale Structure
--------------------------------------------------
Accrual at December 31, 2004 $495,000 $ - $ -
Expense - 933,000 2,600,000
Payments 367,000 395,000 416,000
--------------------------------------------------
Accrual at December 31, 2005 128,000 538,000 2,184,000
Expense - - 1,475,000
Payments 50,000 172,000 416,000
--------------------------------------------------
Accrual at March 31, 2006 $ 78,000 $366,000 $3,243,000
-12-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
March 31, 2006
Comparison of First Quarter 2006 and First Quarter 2005
Overview
During the first quarter of 2006, the Company incurred costs, made investments
and adjusted its business model in support of its strategy to focus on its core
customers and enhance shareholder value.
Net sales for the first quarter ended March 31, 2006 were $102.7 million, a
decrease of 4.5%, compared to $107.6 million reported for the first quarter
ended March 31, 2005. The Company reported a net loss for the first quarter
ended March 31, 2006 of $4.8 million, or $1.23 per basic and diluted share,
compared to net income of $650,000, or $0.08 per basic and diluted share,
reported for the first quarter of 2005.
The per share results for 2006 reflect the reduction of weighted-average shares
outstanding resulting from Blair's tender offer for the repurchase of 4.4
million outstanding shares on August 16, 2005. The Company had 4.0 million
shares of common stock outstanding at March 31, 2006, compared to 8.2 million
shares at March 31, 2005. Without the reduction in outstanding shares for the
first quarter of 2006, basic per share results would have been a loss of $0.58.
The decrease in net sales for the first quarter of 2006 is primarily
attributable to a continuing softness in response rates to the traditional
letter mailings channel of the Company's direct marketing programs. The Company
plans to address the declining response to these traditional letter mailings by
introducing a newly designed and successfully tested special catalogue in the
second half of 2006. Higher energy related costs, which generally reduced
consumer discretionary income and an assumption by management that there was
hesitancy on the part of the Company's credit reliant customers to purchase
using the new Blair credit card ("Blair Credit") also contributed to the decline
in sales. Blair Credit is granted by a third party as part of a long-term
marketing and servicing alliance under a Private Label Credit Program Agreement
(the "Program Agreement") having a term of ten (10) years. Sales for the quarter
also reflect some decreases in average unit selling prices as a result of
price-point repositioning in key product areas for our core customers.
In 2005, Blair sold its credit portfolio to World Financial Capital Bank, a
wholly-owned subsidiary of Alliance Data Systems Corporation. Net income and
earnings per share results for the first quarter of 2006 reflect the impact of
the transition from the Company managing its proprietary credit program to
having a third party administer the Blair Credit program. As a result of the
sale of the credit portfolio, the Company no longer receives finance charge
revenue, does not incur bad debts and has lower general and administrative costs
associated with the administration of the credit portfolio. Excluding the net
results generated by the credit portfolio in the first quarter of 2005, the
Company would have incurred a net loss of $1.7 million or $0.21 per basic share
compared to the reported net income of $650,000, or $0.08 per basic and diluted
share in the first quarter of 2005.
During the first quarter of 2006, Blair Credit sales as a payment method were
not yet comparable to prior levels of its proprietary credit program. The
Company continues to work closely with its credit partner to develop and refine
marketing initiatives that will provide additional customer benefits and improve
Blair Credit usage when buying products. The Company anticipates that over time
Blair Credit activity levels will approach historical proprietary credit program
levels.
Several additional factors adversely affected results for the first quarter of
2006. The inflationary impact of the January 2006 postage and paper rate
increases, higher customer acquisitions costs and the soft response to the
Company's traditional letter mailings all reduced advertising efficiency and
adversely impacted pre-tax earnings by $3.5 million or $0.58 per basic share.
Throughout 2005 and into 2006, the Company has been reevaluating its business
practices in light of changes in the marketplace and its business model. During
the quarter, the Company incurred expenses associated with reconfiguring its
operations. The reported results for the first quarter include a pre-tax
severance charge of $1.5 million or $0.25 per basic share associated with
continuing restructuring efforts. Also in the first quarter, the Company
incurred an increase in pre-tax professional fees of $560,000 or $.09 per basic
share primarily related to an extensive consumer and brand strategy study for
its Home business. In addition, first quarter results include a pre-tax
compensation expense of $220,000 or $0.04 per basic share related to the
adoption of FASB Statement No. 123(R) which requires all share-based payments to
employees, including grants of employee stock options, to be recognized as an
expense in the income statement based on fair values.
-13-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
March 31, 2006
Overview - Continued
Comparison of First Quarter 2006 and First Quarter 2005 - Continued
The Company continued to realize favorable improvements in the product
procurement area. Cost of goods sold as a percentage of net sales for the first
quarter of 2006 was 46.7%, a significant improvement from 49.1% for the first
quarter of 2005. This improvement is the result of continued efforts to reduce
the cost of merchandise due to increased direct sourcing by the Company as well
as lower inventory liquidation costs.
In recent years, the Company has experienced generally lower results in the
first quarter. In this regard, the loss for the first quarter of 2006 may not be
indicative of future results.
Results of Operations
Net loss for the first quarter ended March 31, 2006 was $4.8 million or $1.23
per basic share, compared to net income of $650,000 or $.08 per basic and
diluted share, for the first quarter ended March 31, 2005.
Net sales for the first quarter of 2006 totaled $102.7 million and were 4.5%
lower ($4.9 million) than net sales for the first quarter of 2005. In addition
to the internal and external factors discussed in the overview, first quarter
2005 net sales included $620,000 from the Crossing Pointe catalog and the
Allegheny Trail business which were closed in 2005. Gross sales revenue
generated per advertising dollar decreased almost 11% in the first quarter of
2006 compared to the first quarter of 2005. The primary reasons for the
reduction in advertising efficiency include January 2006 postage and paper rate
increases, reduced response to the Company's traditional letter mailings channel
of its direct marketing programs and increased customer acquisition efforts. The
total number of orders shipped decreased approximately 4% and the average order
size decreased approximately 4% in the first quarter of 2006 as compared to the
first quarter of 2005. The Company has reduced average selling prices in key
product areas for its core customers as part of a price-point repositioning
strategy. The provision for returned merchandise as a percentage of gross sales
decreased 65 basis points in the first quarter of 2006 as compared to the first
quarter of 2005. Management attributes this favorable change to continued
emphasis on improved product quality and fit.
Other revenue decreased 85.9% from $10.7 million to $1.5 million in the first
quarter of 2006 versus the first quarter of 2005 primarily due to the
elimination of finance charge revenues. The elimination of finance charges
resulted from the previously announced sale of the Company's proprietary credit
portfolio in November 2005. As a result of the sale, the Company no longer
realizes finance charge revenue, maintains provisions for doubtful accounts and
incurs general and administrative expenses associated with supporting the
proprietary credit program.
Cost of goods sold decreased $4.9 million (9.2%) to $47.9 million in the first
quarter of 2006 as compared to the first quarter of 2005. Cost of goods sold as
a percentage of net sales for the first quarter of 2006 was 46.7%, a significant
improvement from 49.1% for the first quarter of 2005. The improvement in cost of
goods sold as a percentage of net sales reflects an increase in direct sourcing,
which significantly lowered merchandise acquisition costs. The Company plans to
continue to expand internal product development and direct sourcing as part of
its strategic initiatives to further reduce cost of goods and increase
profitability. The Company's direct sourcing offices, located in Hong Kong,
Taiwan, Singapore, New Delhi, Shanghai and Pakistan, the Company's only foreign
operations, directly sourced more than 35% of the Company's merchandise from
foreign suppliers in the first quarter of 2006 as compared to approximately 26%
in first quarter of 2005. The existence of these offices serves to lower the
Company's cost of acquiring merchandise. 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 inventory
liquidation costs.
-14-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
March 31, 2006
Results of Operations - Continued
Comparison of First Quarter 2006 and First Quarter 2005 - Continued
Advertising expenses in the first quarter of 2006 increased $2.1 million (7.1%)
to $31.5 million from the first quarter of 2005. The total number of catalog
mailings released in the first quarter of 2006 was 2.8 million or 6.4% greater
than the first quarter of 2005. The increase in catalog circulation reflects the
Company's transitioning to catalogs from traditional letter style mailing and
increased customer acquisition efforts. The total number of prospect catalog
mailings increased 263,000 or 3.8% in the first quarter of 2006 as compared to
the first quarter of 2005. The increase in prospect circulation is the result of
increased customer acquisition efforts.
The total number of letter mailings released in the first quarter of 2006
decreased by 37.2% (3.7 million) as compared to the first quarter of 2005. The
decrease in letter mailings was in recognition of continued soft response to
this channel of the Company's marketing programs. The Company plans to address
the declining response to these traditional letter mailings by introducing a
newly designed and successfully tested special catalog in the second half of
2006.
Total circulation of the co-op and media advertising programs increased 11.4%
(33.5 million pieces) in the first quarter of 2006 as compared to the first
quarter of 2005 as part of the Company's expanded customer acquisition efforts
in the first half of the year.
The Company maintains two e-commerce sites, www.blair.com and
www.irvinepark.com. In the first quarter of 2006, the Company generated $26.5
million in e-commerce net sales as compared to $23.4 million in the first
quarter of 2005, a 13.2% increase. The year-over-year increase reflects
continued customer interest in migrating to the Company's websites and the
impact of internal initiatives designed to encourage customers to purchase
online. During the quarter, web site traffic increased 20% over 2005 levels and
the revenue resulting from advertising investments in search engine marketing
doubled.
General and administrative expenses increased 1.8% ($562,000) in the first
quarter of 2006 as compared to the first quarter of 2005. As a percent of net
sales, general and administrative expenses were 31.6% for the quarter ended
March 31, 2006 compared to 29.6% for the quarter ended March 31, 2005. Reduced
variable employee costs associated with lower sales volume and the sale of the
Company's proprietary credit portfolio on November 2005 were more than offset by
severance costs of $1.5 million, increased professional fees of $560,000 and a
compensation charge of $220,000 associated with the adoption FASB Statement No.
123(R). The severance costs relate to the Company's ongoing evaluation of its
business practices in light of changes in the marketplace and its business
model. The increased professional fees primarily relate to an extensive consumer
and brand strategy study for the Company's Home business. The adoption of FASB
Statement No. 123(R) requires all share-based payments to employees, including
grants of employee stock options, to be recognized as an expense in the income
statement based on fair values.
The provision for doubtful accounts decreased approximately $3.4 million from
$3.5 million to $51,000 or 98.5% in the first quarter of 2006 as compared to the
first quarter of 2005. The 2005 amount represents provisions for doubtful
accounts prior to the sale of the Company's proprietary credit portfolio to
World Financial Capital Bank on November 4, 2005.
Net interest (income) expense, improved by $191,000 in the first quarter of 2006
compared to the first quarter of 2005. Interest income increased due to higher
rates. Interest expense decreased as a result of no borrowings outstanding
during the first quarter of 2006. Subsequent to the sale of the Company's
proprietary credit portfolio in 2005, the Company utilized a portion of the
proceeds from the sale to pay off its outstanding debt.
Net other expense (income), decreased by $257,000 in the first quarter of 2006
compared to the first quarter of 2005. 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 $500,000, which was recorded on this
financial statement line item in 2005.
-15-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
March 31, 2006
Results of Operations - Continued
Comparison of First Quarter 2006 and First Quarter 2005 - Continued
Income taxes (benefit) payable as a percentage of income before income taxes
were 35.8% in the first quarter of 2006 as compared to 36.4% in the first
quarter of 2005. The federal income tax rate was 35% in both years. The change
in the total income tax rate was caused by a change in the Company's effective
state income tax rate.
Liquidity and Sources of Capital
At March 31, 2006, the Company had no borrowings outstanding under its $75
million credit facility. The Company had letters of credit totaling $15.4
million outstanding, which reduces the amount of borrowings available under the
amended and restated credit agreement. Outstanding letters of credit totaled
$19.6 million at December 31, 2005, and $19.1 million at March 31, 2005. 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 March 31, 2006. 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 three months ended March 31, 2006 and 2005.
Three Months Ended
March 31
Increase/
2006 2005 (decrease)
-----------------------------------------------
Net cash (used in) provided by operating activities $(27,309,180) $17,440,266 $(44,749,446)
Net cash used in investing activities (1,988,176) (1,203,244) (784,932)
Net cash used in financing activities (990,523) (1,073,163) 82,640
Effect of exchange rate changes on cash (29,506) (2,992) (26,514)
-----------------------------------------------
Net decrease in cash and cash equivalents $(30,317,385) $15,160,867 $(45,478,252)
===============================================
The $30.3 million decrease in cash and cash equivalents is primarily due to
unfavorable cash flow from operating activities. Net cash used in operating
activities was $27.3 million for the three months ended March 31, 2006, a $44.7
million decrease compared to the same period in fiscal 2005. This decrease is
primarily attributable to unfavorable changes in several components of working
capital. The primary factors are unfavorable changes to accounts receivable of
$9.1 million, inventories of $13.1 million, trade accounts payable and accrued
expenses of $13.9 million and provisions for doubtful accounts of $3.4 million.
Anticipated cash requirements during 2006 are primarily to fund capital
expenditures and pay dividends. The Company expects to fund 2006 cash
requirements with cash provided from operations, cash on hand and borrowings as
needed under the current credit facility.
The Company operates as one business segment consisting of the Womenswear,
Menswear, Home and Stores product lines. An operating segment is identified as a
component of an enterprise for which separate financial information is available
for evaluation by the chief decision-maker, or decision-making group, in
deciding on how to allocate resources and assess performance.
-16-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
March 31, 2006
Liquidity and Sources of Capital - Continued
The following table illustrates net sales and the percent of net sales that each
product line represents.
3/31/06 3/31/05
Net Sales Percent of Net Sales Percent of
Total Net (in Total Net
Product Line (in millions) Sales millions) Sales
--------------------------------------------------------------------------------
Womenswear $67.2 65.4% $69.8 64.8%
Menswear 18.4 17.9% 19.2 17.8%
Home 16.7 16.3% 17.5 16.3%
Crossing Pointe 0.0 0.0% 0.4 0.4%
Stores 0.4 0.4% 0.4 0.4%
Allegheny Trail 0.0 0.0% 0.3 0.3%
-------------------------------------------------------------
Total $102.7 100.0% $107.6 100.0%
=============================================================
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 $2.0 million during the
first quarter of 2006, compared to $1.7 million during the first quarter of
2005. Most of the $2.0 million of capital expenditures in the first quarter of
2006 were attributable to improving the Company's information services
capabilities as they support the order fulfillment and the outsourced credit
origination functions.
Future cash needs beyond 2006 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.
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 2005 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
(in 2005) and inventory, and our policy with regard to the timing of recording
expenses for direct advertising costs . Properly valuing accounts receivable and
inventory requires the establishment of proper reserve and allowance levels,
specifically an allowance for doubtful accounts and returns and a reserve for
inventory obsolescence. The Company's senior financial management and 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 are recorded when
the merchandise is shipped to the customer in accordance with the provisions of
Staff Accounting Bulletin No. 104, Revenue Recognition.
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.
-17-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
March 31, 2006
Critical Accounting Policies - Continued
At March 31, 2006, the Company had total net current deferred tax assets of
$118,000. These assets relate principally to asset valuation reserves including
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 allowances against state net operating losses. 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.
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
(Opinion No. 25), 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 as
expenses in the income statement based on fair values. Pro forma disclosure is
no longer an alternative. As a result of adopting SFAS No. 123(R) on January 1,
2006, the Company's income before income taxes and net income for the three
months ended March 31, 2006 are $218,000 and $140,000 lower, respectively, than
if it had continued to account for share-based compensation under Opinion
No. 25. Basic and diluted earnings per share for the three months ended March
31, 2006 would have been a loss of $1.19 per share, if the Company had not
adopted SFAS No. 123(R), compared to reported basic and diluted earnings per
share of a loss of $1.23.
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, which historically had been the accepted
practice. This requirement reduces net operating cash flows and increases net
financing cash flows in periods after adoption. The Company has not completed
its estimate of what those amounts will be in the future (because they depend
on, among other things, when employees exercise stock options), but expects them
to be immaterial to its financial position.
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, increasing energy costs and an uncertain economy. The preceding
factors can also negatively impact the Company's ability to properly value
inventories by making it more difficult to establish proper allowance and
reserve levels, specifically, the allowances for 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, telephone call centers, e-commerce and fulfillment operations.
Management believes that these investments should improve the Company's position
in new and existing markets and provide opportunities for future earnings
growth.
In March 2006, the Company was notified that its main consolidator for outgoing
packages filed for Chapter 7 bankruptcy. The Company has recently engaged
the services of another consolidator and the cost of outbound freight for the
balance of the year is anticipated to be higher than under the previous
arrangement. The Company is exploring ways to mitigate the impact of the
higher expense on future results due to the new arrangement.
-18-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
March 31, 2006
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 and inventory; (iii) external factors such as, but
not limited to, changes in consumer response rates, 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
There have been no material changes in the Company's market risk components
since December 31, 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 ensure that information
required to be disclosed by the Company in its Securities Exchange Act of 1934
reports is recorded, processed, summarized and reported within the applicable
time periods specified by the Securities and Exchange Commission rules and
forms.
There were no significant changes in the Company's internal controls or in any
other factors that could significantly affect those controls subsequent to the
date of the most recent evaluation of the Company's internal controls by the
Company, including any corrective actions with regard to any significant
deficiencies or material weaknesses.
-19-
PART II. OTHER INFORMATION
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
March 31, 2006
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 1A. Risk Factors
There have been no material changes from the risk factors previously
disclosed in Item 1A. to Part I of the Company's Form 10-K filed with the
Securities and Exchange Commission on March 8, 2006 except as follows:
The Company's sales, revenue and operating income may be adversely
impacted by changes in minimum customer credit scores determined by a
third party.
Historically, Blair has managed its own credit portfolio and set the
minimum credit scores a consumer must have to be entitled to purchase
Blair merchandise on credit. Blair sold its receivables portfolio to
World Financial Capital Bank, an industrial bank subsidiary of Alliance
Data Systems Corporation in November 2005, and going forward they will
have discretion over the minimum credit score necessary to be eligible to
purchase Blair merchandise on credit. If the bank decides to raise the
applicable credit rating standards, certain consumers will no longer
qualify to purchase Blair merchandise on credit, which could lower sales
thereby lowering revenue and operating income.
In addition, lower sales may result from hesitancy on the part of the
Company's credit reliant customers to purchase using the new Blair credit
card.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On February 24, 2006 the Company issued a retainer grant of 125 shares of
common stock to Jerel G. Hollens, concurrent with his appointment to the
board of directors, as consideration for his service on the board of
directors of the Company for a period of approximately two months. The
Company relied on the exemption from registration provided for by Rule 506
of Regulation D and alternatively Section 4(2) of the Securities Act of
1933. By virtue of his status as a director of the Company, Mr. Hollens is
an "accelerated investor" as that term is defined in Rule 501 of
Regulation D. The Company did not offer or sell any securities by any form
of general solicitation or general advertising, and the Company used
reasonable care to assure that Mr. Hollens cannot take any action whereby
he may be deemed to be an underwriter within the meaning of Section 2(11)
of the Securities Act of 1933 by, among other things, affixing a legend on
the certificates representing the shares of common stock granted to
Mr. Hollens stating that the securities have not been registered under the
Securities Act of 1933 and referring to the restrictions on
transferability and sale of such securities, and a stop transfer order was
given to the Company's transfer agent.
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.
-20-
PART II. OTHER INFORMATION - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
March 31, 2006
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
(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.
-21-
PART II. OTHER INFORMATION - Continued
BLAIR CORPORATION AND SUBSIDIARIES
(Unaudited)
March 31, 2006
Item 6. Exhibits - Continued
(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).
(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 K of the financial statements included
herein.
-22-
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: May 9, 2006 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]
-23-
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: May 9, 2006 JOHN E. ZAWACKI
----------------- ---------------------------
JOHN E. ZAWACKI
President and
Chief Executive Officer
-24-
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: May 9, 2006 LARRY J. PITORAK
----------------- -------------------------------
LARRY J. PITORAK
Interim Chief Financial Officer
-25-
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 March 31, 2006 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: May 9, 2006 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.
-26-
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 March 31, 2006 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: May 9, 2006 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.
-27-