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 Period Ended June 30, 2003 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
incorporation or organization) Identification No.)
220 HICKORY STREET, WARREN, PENNSYLVANIA 16366-0001
- -----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(814) 723-3600
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(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 an accelerated
filer (as defined in Rule 12b-2 of the Act.) YES X NO
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As of August 8, 2003 the registrant had outstanding 8,058,809 shares of its
common stock without nominal or par value.
PART I FINANCIAL INFORMATION
-2-
ITEM I. FINANCIAL STATEMENTS (UNAUDITED)
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
CONSOLIDATED BALANCE SHEETS -3-
BLAIR CORPORATION AND SUBSIDIARIES
June 30 December 31
2003 2002
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 42,990,269 $ 49,975,503
Customer accounts receivable, less
allowances for doubtful accounts
and returns of $46,859,164 in 2003
and $47,206,228 in 2002 146,702,292 149,229,882
Inventories - Note H
Merchandise 52,053,743 55,101,925
Advertising and shipping supplies 12,154,647 19,115,380
------------ ------------
64,208,390 74,217,305
Deferred income taxes - Note G 15,367,000 11,623,000
Prepaid expenses 1,744,596 1,937,635
------------ ------------
Total current assets 271,012,547 286,983,325
Property, plant and equipment:
Land 692,144 692,144
Buildings and leasehold improvements 65,428,934 65,280,676
Equipment 71,163,153 58,956,855
Construction in progress 880,357 9,376,463
------------ ------------
138,164,588 134,306,138
Less allowances for depreciation 84,628,379 80,000,142
------------ ------------
53,536,209 54,305,996
Assets held for sale - Note L 1,368,526 1,669,299
Trademarks 524,286 560,407
Other long-term assets 580,261 578,405
------------ ------------
TOTAL ASSETS $327,021,829 $344,097,432
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - Note J $ 15,000,000 $ 15,000,000
Trade accounts payable 28,217,022 40,805,116
Advance payments from customers 4,067,947 3,959,801
Accrued expenses - Note E 14,972,998 19,970,241
Accrued federal and state taxes 3,175,090 4,587,124
Current portion of capital lease
obligations - Note F 361,283 350,016
------------ ------------
Total current liabilities 65,794,340 84,672,298
Capital lease obligations, less current
portion - Note F 295,326 480,320
Deferred income taxes - Note G 846,000 1,611,000
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 14,311,675 14,428,903
Retained earnings 288,795,224 286,511,847
Accumulated other comprehensive income (18,562) 12,686
------------ ------------
303,508,147 301,373,246
Less 2,017,206 shares in 2003 and
2,032,610 shares in 2002 of common stock
in treasury - at cost (40,840,954) (41,264,330)
Less receivable and deferred compensation
from stock plans (2,581,030) (2,775,102)
------------ ------------
Total stockholders' equity 260,086,163 257,333,814
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY $327,021,829 $344,097,432
============ ============
See accompanying notes.
CONSOLIDATED STATEMENTS OF INCOME -4-
BLAIR CORPORATION AND SUBSIDIARIES
Three Months Ended Six Months Ended
June 30 June 30
2003 2002 2003 2002
----------- ------------ ------------ ------------
Net sales $154,344,950 $147,513,331 $291,358,494 $282,774,786
Other income - Note I 9,874,658 9,877,074 19,663,003 19,950,151
------------ ------------ ------------ ------------
164,219,608 157,390,405 311,021,497 302,724,937
Costs and expenses:
Cost of goods sold 72,765,263 68,944,579 140,626,875 133,479,575
Advertising 41,491,211 36,854,894 80,074,820 71,039,256
General and administrative 34,879,262 33,243,599 66,460,022 63,807,309
Provision for doubtful accounts 8,355,839 7,238,809 16,248,098 14,509,111
Interest 95,380 125,846 184,840 246,877
------------ ------------ ------------ ------------
157,586,955 146,407,727 303,594,655 283,082,128
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 6,632,653 10,982,678 7,426,842 19,642,809
Income tax expense - Note G 2,532,000 3,950,000 2,826,000 7,009,000
------------ ------------ ------------ ------------
NET INCOME $ 4,100,653 $ 7,032,678 $ 4,600,842 $ 12,633,809
============ ============ ============ ============
Basic and diluted earnings per share based on
weighted average shares outstanding - Note D $ .51 $ .88 $ .57 $1.58
===== ===== ===== =====
See accompanying notes.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -5-
BLAIR CORPORATION AND SUBSIDIARIES
Three Months Ended Six Months Ended
June 30 June 30
2003 2002 2003 2002
------------ ------------ ------------ ------------
Common Stock $ 419,810 $ 419,810 $ 419,810 $ 419,810
Additional Paid-in Capital:
Balance at beginning of period 14,333,503 14,589,838 14,428,903 14,589,838
Issuance of Common Stock to non-employee
directors (14,558) (2,619) (18,102) (2,619)
Issuance of Common Stock under Omnibus Stock
Plan -0- 23,257 -0- 23,257
Forfeitures of Common Stock under Omnibus
Stock and Employee Stock Purchase Plans (7,537) (3,249) (18,576) (3,249)
Exercise of non-qualified stock options under
Omnibus Stock Plan (4,733) (47,409) (109,550) (47,409)
Tax benefit on exercise of non-qualified
stock options 5,000 -0- 29,000 -0-
------------ ------------ ------------ ------------
Balance at end of period 14,311,675 14,559,818 14,311,675 14,559,818
Retained Earnings:
Balance at beginning of period 285,854,604 276,360,466 286,511,847 271,954,815
Net income 4,100,653 7,032,678 4,600,842 12,633,809
Cash dividends - Note B (1,160,033) (1,197,597) (2,317,465) (2,393,077)
Balance at end of period 288,795,224 282,195,547 288,795,224 282,195,547
------------ ------------ ------------ ------------
Accumulated Other Comprehensive Income:
Balance at beginning of period (2,493) 4,465 12,686 -0-
Foreign currency translation (16,069) 2,983 (31,248) 7,448
------------ ------------ ------------ ------------
Balance at end of period (18,562) 7,448 (18,562) 7,448
Treasury Stock:
Balance at beginning of period (40,995,507) (43,187,542) (41,264,330) (43,187,542)
Issuance of Common Stock to non-employee
directors 120,938 63,279 129,057 63,279
Issuance of Common Stock under Omnibus Stock
Plan -0- 246,118 -0- 246,118
Forfeitures of Common Stock under Omnibus
Stock Plan and Employee Stock Purchase
Plans (11,063) (4,064) (37,599) (4,064)
Exercise of non-qualified stock options under
Omnibus Stock Plan 44,678 155,703 331,918 155,703
------------ ------------ ------------ ------------
Balance at end of period (40,840,954) (42,726,506) (40,840,954) (42,726,506)
Receivable and Deferred Compensation from Stock
Plans:
Balance at beginning of period (2,677,235) (1,935,763) (2,775,102) (1,987,850)
Issuance of Common Stock under Omnibus Stock
Plan -0- (87,083) -0- (87,083)
Forfeitures of Common Stock under Omnibus
Stock Plan and Employee Stock Purchase Plans 4,943 3,750 13,513 3,750
Amortization of deferred compensation, net of
forfeitures 42,175 -0- 79,852 -0-
Applications of dividends and cash repayments 49,087 52,552 100,707 104,639
------------ ------------ ------------ ------------
Balance at end of period (2,581,030) (1,966,544) (2,581,030) (1,966,544)
------------ ------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY $260,086,163 $252,489,573 $260,086,163 $252,489,573
============ ============ ============ ============
Comprehensive Income:
Net income 4,100,653 7,032,678 4,600,842 12,633,809
Adjustment from foreign currency translation (16,069) 2,983 (31,248) 7,448
------------ ------------ ------------ ------------
Comprehensive income $ 4,084,584 $ 7,035,661 $ 4,569,594 $ 12,641,257
============ ============ ============ =============
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS -6-
BLAIR CORPORATION AND SUBSIDIARIES
Six
Months Ended
June 30
2003 2002
----------- -----------
OPERATING ACTIVITIES
Net income $ 4,600,842 $12,633,809
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 4,782,433 4,269,900
Provision for doubtful accounts 16,248,098 14,509,111
Provision for deferred income taxes (4,509,000) (5,261,000)
Compensation expense (net of
forfeitures) for stock awards 148,145 239,389
Changes in operating assets and
liabilities providing (using) cash:
Customer accounts receivable (13,720,874) (2,477,034)
Inventories 10,008,915 38,054,575
Prepaid expenses and other assets 191,798 (782,083)
Trade accounts payable (12,588,410) (19,645,802)
Advance payments from customers 108,146 900,513
Accrued expenses (4,996,129) 5,201,954
Federal and state taxes (1,382,068) 8,977,532
----------- -----------
NET CASH (USED IN)PROVIDED BY OPERATING
ACTIVITIES (1,108,104) 56,620,864
INVESTING ACTIVITIES
Purchases of property, plant
and equipment (3,675,599) (5,835,626)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (3,675,599) (5,835,626)
FINANCING ACTIVITIES
Principle repayments on capital lease
obligations (173,558) (169,093)
Dividends paid (2,317,465) (2,393,077)
Exercise of non-qualified stock options 222,368 108,294
Repayments of notes receivable
from stock plans 100,707 104,639
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (2,167,948) (2,349,237)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (33,583) 17,081
----------- -----------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS EQUIVALENTS (6,985,234) 48,453,082
Cash and cash equivalents at beginning of year 49,975,503 5,712,495
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $42,990,269 $54,165,577
=========== ===========
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -7-
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Blair
Corporation and its wholly-owned subsidiaries have been prepared in accordance
with accounting principles generally accepted in the United States 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 generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six months ended June 30, 2003 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2003. 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, 2002.
The consolidated financial statements include the accounts of Blair Corporation
and its wholly-owned subsidiaries. All significant intercompany accounts are
eliminated upon consolidation.
As of June 30, 2003 the Company formed a new wholly-owned subsidiary, Allegheny
Trail Corp., to launch a wholesale business targeted primarily at outdoor
sporting goods and recreational retailers. Allegheny Trail will offer a core
product line of men's and women's outdoor apparel basics at entry-level price
points allowing retailers to be more competitive with major brands. Virtually
no activity took place with regard to this entity in the second quarter
of 2003.
NOTE B - DIVIDENDS DECLARED
2-13-02 $.15 per share 2-21-03 $.15 per share
4-16-02 .15 4-15-03 .15
7-16-02 .15 7-15-03 .15
10-15-02 .15
Blair Corporation has declared a dividend for 280 consecutive quarters.
NOTE C - Stock Compensation
In accordance with the provisions of Statement of Financial Accounting
Standards 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. 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:
Three Months Ended Six Months Ended
June 30 June 30
2003 2002 2003 2002
---------- ---------- ---------- -----------
Net income as reported $4,100,653 $7,032,678 $4,600,842 $12,633,809
Deduct: Total stock-based
employee compensation
expense determined under
fair value method for all
awards, net of related
tax effects 199,136 103,828 315,407 140,113
---------- ---------- ---------- -----------
Pro forma net income $3,901,517 $6,928,850 $4,285,435 $12,493,696
========== ========== ========== ===========
Earnings per share:
Basic - as reported $.51 $.88 $.57 $1.58
========== ========== ========== ===========
Basic - pro forma $.48 $.87 $.53 $1.57
========== ========== ========== ===========
Diluted - as reported $.51 $.88 $.57 $1.58
========== ========== ========== ===========
Diluted - pro forma $.48 $.87 $.53 $1.57
========== ========== ========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -8-
BLAIR CORPORATION AND SUBSIDIARY
June 30, 2003
NOTE C - Stock Compensation - continued
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: risk-free
interest rates of 3.49%, 4.95% and 5.20% for stock options issued 4/15/03,
4/15/02 and 4/16/01, respectively; dividend yields of 2.54%, 3.11% and 3.50% for
stock options issued 4/15/03, 4/15/02 and 4/16/01, respectively; volatility
factors of the expected market price of the Company's common stock of .540, .564
and .547 for stock options issued 4/15/03, 4/15/02 and 4/16/01, respectively;
and a weighted-average expected life of 7 years for the stock options issued
4/15/03, 4/15/02 and 4/16/01. The per share fair value of the options granted
was determinded to be $10.63, $8.83 and $7.40 for stock options issued 4/15/03,
4/15/02 and 4/16/01, respectively.
NOTE D - EARNINGS PER SHARE AND WEIGHTED AVERAGE SHARES OUTSTANDING Earnings per
share are computed in accordance with Statement of Financial Accounting
Standards No. 128, "Earnings per Share." Basic earnings per share are computed
using the weighted average number of shares of common stock outstanding during
the period. For diluted earnings per share, the weighted average number of
shares includes common stock equivalents related to stock options.
The following table sets forth the computations of basic and diluted earnings
per share as required by Statement No. 128:
Three Months Ended Six Months Ended
June 30 June 30
2003 2002 2003 2002
---------- ---------- ---------- -----------
Numerator:
Net income $4,100,653 $7,032,678 $4,600,842 $12,633,809
Denominator:
Denominator for basic
earnings per share -
weighted average
shares outstanding 8,056,104 7,979,883 8,050,201 7,975,591
Effect of dilutive securities:
Employee stock options 23,107 26,157 27,246 14,716
Denominator for diluted
earnings per share -
weighted average shares
outstanding and assumed
conversions $8,079,211 $8,006,040 $8,077,447 $7,990,307
========== ========== ========== ==========
Basic earnings per share $.51 $.88 $.57 $1.58
========== ========== ========== ==========
Diluted earnings per share $.51 $.88 $.57 $1.58
========== ========== ========== ==========
NOTE E - ACCRUED EXPENSES
Accrued expenses consist of:
June 30 December 31
2003 2002
----------- -----------
Employee compensation $10,327,622 $12,923,615
Profit sharing contribution 518,389 2,094,327
Health insurance 1,184,236 1,767,850
Voluntary separation program 936,764 1,098,103
Taxes, other than taxes on income 830,217 919,183
Other accrued items 1,175,770 1,167,163
----------- -----------
$14,972,998 $19,970,241
=========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -9-
BLAIR CORPORATION AND SUBSIDIARY
June 30, 2003
NOTE F - Leases
Capital Leases
The Company leases certain data processing and telephone equipment under
agreements that expire in various years through 2005. 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 June 30, 2003:
2003 $ 203,992
2004 407,983
2005 103,377
---------
715,352
Less amount representing interest (58,743)
---------
Present value of minimum lease payments 656,609
Less current portion (361,283)
---------
Long-term portion of capital lease obligations $ 295,326
=========
Operating Leases
The Company leases certain data processing, office and telephone equipment under
agreements that expire in various years through 2008. 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 June 30, 2003:
2003 $ 1,522,461
2004 2,565,790
2005 2,028,641
2006 1,590,985
2007 1,276,752
Thereafter 3,893,171
-----------
$12,877,800
===========
NOTE G - INCOME TAXES
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax basis of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
The components of income tax expense are as follows:
Three Months Ended Six Months Ended
June 30 June 30
2003 2002 2003 2002
---------- ---------- ---------- -----------
Currently payable:
Federal $3,595,000 $6,471,000 $6,253,000 $11,322,000
Foreign 195,000 26,000 320,000 66,000
State 437,000 600,000 762,000 882,000
---------- ---------- ---------- -----------
4,227,000 7,097,000 7,335,000 12,270,000
Deferred credit (1,695,000) (3,147,000) (4,509,000) (5,261,000)
---------- ---------- ---------- -----------
$2,532,000 $3,950,000 $2,826,000 $ 7,009,000
========== ========== ========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -10-
BLAIR CORPORATION AND SUBSIDIARIES
June 30,2003
NOTE G - INCOME TAXES - continued
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 Six Months Ended
June 30 June 30
2003 2002 2003 2002
---------- ---------- ---------- ----------
Statutory rate applied
to pre-tax income $2,321,429 $3,843,937 $2,599,395 $6,874,983
State income taxes,
net of federal tax
benefit 155,350 97,500 146,250 119,600
Other items 55,221 8,563 80,355 14,417
---------- ---------- ---------- ----------
$2,532,000 $3,950,000 $2,826,000 $7,009,000
========== ========== ========== ==========
In a previous year, the Company incurred a net operating loss of approximately
$21 million in the State of Pennsylvania. Only $20 million of the net operating
loss is available to offset future income in the state because Pennsylvania
limits the annual net operating loss carry forward to $2 million for 10 years. A
deferred tax asset has been established based on the $20 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 loss before they expire in 2011.
Components of the provision for deferred income tax (benefit) expense are as
follows:
Three Months Ended Six Months Ended
June 30 June 30
2003 2002 2003 2002
----------- ----------- ----------- ----------
Provision for
estimated returns $ 386,000 $ 198,000 $ (636,000) $ (475,000)
Provision for
doubtful accounts (134,000) 372,000 (314,000) 186,000
Advertising costs (1,630,000) (3,556,000) (2,745,000) (4,440,000)
Severance 59,000 19,000 62,000 48,000
Inventory obsolescence 189,000 54,000 23,000 (66,000)
Depreciation (493,000) (203,000) (765,000) (445,000)
Other items - net (72,000) (31,000) (134,000) (69,000)
----------- ----------- ----------- ----------
$(1,695,000) $(3,147,000) $(4,509,000) $(5,261,000)
=========== =========== =========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -11-
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
NOTE G - INCOME TAXES - continued
Components of the deferred tax assets and liability under the liability method
as of June 30, 2003 and December 31, 2002 are as follows:
June 30 December 31
2003 2002
----------- -----------
Current net deferred tax asset:
Doubtful accounts $14,362,000 $14,048,000
Returns allowances 2,223,000 1,587,000
Inventory obsolescence 1,504,000 1,527,000
Inventory costs (328,000) (328,000)
Vacation pay 1,670,000 1,670,000
Advertising costs (4,626,000) (7,371,000)
State net operating loss 490,000 490,000
Other items 562,000 490,000
----------- -----------
Total deferred tax asset 15,857,000 12,113,000
State valuation allowance (490,000) (490,000)
----------- -----------
Deferred tax asset,
net of valuation allowance $15,367,000 $11,623,000
=========== ===========
Long-term deferred tax liability:
Property, plant and equipment $ 846,000 $ 1,611,000
=========== ===========
NOTE H - 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.
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 costs are expensed
when mailed. If the FIFO method had been used for all inventories, inventories
would have increased by approximately $5,676,000 at both June 30, 2003 and
December 31, 2002. The Company has a reserve for slow moving and obsolete
inventory amounting to $3,940,000 at June 30, 2003, $4,000,000 at December 31,
2002 and $4,321,000 at June 30, 2002.
NOTE I - OTHER INCOME Other income consists of:
Three Months Ended Six Months Ended
June 30 June 30
2003 2002 2003 2002
---------- ---------- ----------- -----------
Finance charges on time
payment accounts $8,578,328 $8,757,726 $17,313,575 $17,891,770
Commissions earned 342,328 579,539 564,979 978,170
Other items 954,002 539,809 1,784,449 1,080,211
---------- ---------- ----------- -----------
$9,874,658 $9,877,074 $19,663,003 $19,950,151
========== ========== =========== ===========
Finance charges on time payment accounts are recognized on an accrual basis of
accounting.
NOTE J - FINANCING ARRANGEMENTS
On December 20, 2001, the Company entered into a Credit Agreement with PNC Bank,
National Association, as agent, and certain other banks. The Agreement put in
place a syndicated revolving credit facility of up to $30 million, secured by
inventory and certain other assets of the Company and its subsidiaries. As of
June 30, 2003, the facility had lender commitments of $28 million. The revolving
credit facility expires on December 20, 2004. The credit agreement was amended
on July 25, 2003 to increase the commitments to the facility from $28 million to
$30 million. See Footnote Q Subsequent Events for further discussion. For each
borrowing tranche, the Company may select from three options to determine the
interest rate.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -12-
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
NOTE J - FINANCING ARRANGEMENTS - continued
The options are: a base rate option (greater of Prime or Fed Funds Rate plus .5%
as of June 30, 2003); swing loan rate option (as quoted by PNC Bank); or
Euro-rate option (Euro-rate plus 1.50%) as defined in the Credit Agreement. The
Company is required to meet certain covenants that relate to tangible net worth,
maintaining a defined leverage ratio and fixed charge coverage ratio, and
complying with certain indebtedness restrictions. As of June 30, 2003, the
Company was in compliance with all the Agreement's covenants. At June 30, 2003,
the Company had no borrowings (loans) outstanding, but had letters of credit
totaling $14.8 million outstanding, which reduces the amount of borrowings
available under the Credit Agreement. At December 31, 2002, the Company had no
borrowings (loans) outstanding, but had letters of credit totaling $16.2 million
outstanding. At June 30, 2002, the Company had no borrowings (loans)
outstanding, but had letters of credit totaling $13.6 million outstanding under
the Credit Agreement.
Also, on December 20, 2001, the Company completed a securitization of up to $100
million in accounts receivable with PNC Bank, National Association, as
administrator, and certain conduit purchasers. At December 20, 2001, the
securitization had initial lender commitments of $50 million. On April 9, 2003,
the securitization was amended to increase the commitment level from $50 million
to $70 million and extend the term to April 7, 2006. The interest rate charged
approximates 1-month LIBOR plus 55 basis points. The amended securitization
increased the interest rate spread to 80 basis points. The Company sells all
right, title and interest in and to certain of its accounts receivable to Blair
Factoring Company, a wholly-owned subsidiary. Blair Factoring Company is a
separate bankruptcy remote special purpose entity that entered into a
Receivables Purchase Agreement with PNC Bank, National Association, as
administrator, and certain conduit purchasers. The Company's consolidated
financial statements reflect all the accounts of Blair Factoring Company,
including the receivables and secured borrowings. Transactions entered into
under the Receivables Purchase Agreement 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. At June 30, 2003, $70
million of the $100 million was available to the Company. The interest rate
approximates 1-month LIBOR plus 80 basis points as defined in the Receivables
Purchase Agreement. The securitization requires certain performance standards
for the Company's accounts receivable portfolio in addition to complying with
the covenants in the Credit Agreement. As of June 30, 2003, the Company was in
compliance with all the requirements of the Receivables Purchase Agreement. At
June 30, 2003, December 31, 2002, and June 30, 2002 the Company had $15 million
outstanding, the minimum amount required to be outstanding under the terms of
the Receivables Purchase Agreement, all of which was classified as short-term.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -13-
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
NOTE K - NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2002, the Company adopted the provisions of SFAS No.
142 Goodwill and Other Intangible Assets and SFAS No. 143 Accounting For
Asset Retirement Obligations. The Company adopted SFAS No. 148,
Accounting For Stock-Based Compensation Transition and Disclosure an
amendment of SFAS No. 123, Accounting for Stock-Based Compensation
effective the year ending December 31,2002.
SFAS No. 145, Recission of FASB No. 4, 44 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections, and FASB Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others were adopted by the Company effective
January 1, 2003. The adoption of these standards did not have a material impact
on the Company's results of operations or financial condition.
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets which supersedes SFAS No. 121 Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of. Although retaining many of the provisions of SFAS No. 121, SFAS
No. 144 establishes a uniform accounting model for long-lived assets to be
disposed. The Company's adoption of this statement in the first quarter of
2002 did not have an impact on the Company's financial results, but does
impact the accounting treatment of the planned sale of the Blair Outlet
Store in Erie, Pa. (See Note L)
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities when the liability is incurred and not as a result
of an entity's commitment to an exit plan. The statement is effective for exit
or disposal activities initiated after December 31, 2002. The Company's adoption
of this statement in the first quarter 2003 did not have an impact on the
Company's financial results, but does impact the accounting treatment of the
voluntary separation of employees due to the planned sale of the Blair Outlet
Store in Erie. (See Note M)
In April 2003, the FASB issued SFAS No. 149 Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. This statement is generally effective for contracts entered
into or modified after June 30, 2003. The Company believes the adoption of this
standard will not have a material impact on its results of operations or
financial condition.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This statement
establishes standards for how an issuer classifies and measures in its statement
of financial position certain financial instruments with characteristics of both
liabilities and equity. This statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise at the beginning of
the Company's fourth quarter. The Company believes the adoption of this standard
will not have a material impact on its results of operations or financial
condition.
NOTE L - Long-lived AssetS Classified as Held for Sale Upon review of the
Company's inventory liquidation strategy, the Company made the decision in
January 2003 to close its liquidation outlet store located in Erie, Pa. This
closure was effective at the close of business on March 28, 2003. The Company
intends to sell the building and believes that the sale will be completed by
March 2004. 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 growing e-commerce channel have proven to be
more successful and profitable in moving inventory than the traditional outlet
sales process. The
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -14-
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
NOTE L - Long-lived AssetS Classified as Held for Sale - continued
$1,368,526 shown as Assets Held for Sale at June 30, 2003 and the $1,669,299
shown as Assets Held for Sale at December 31, 2002 consist of the net book value
of the land, land improvements and building. The carrying value of the asset was
reduced as a result of the level of interest in the asset.
NOTE M - VOLUNTARY SEPARATION PROGRAM
In the first quarter of 2003, the Company accrued and charged to expense $75,000
in separation costs. The costs were charged to General and Administrative
Expense in the income statement. The one-time $75,000 charge represents
severance pay, related payroll taxes and medical benefits due the 32 eligible
employees who accepted the voluntary separation program offered in connection
with closing the Company's Outlet Store located in Erie, Pennsylvania on March
28, 2003. As of June 30, 2003, $53,000 has been paid. This liability is
considered satisfied and resulted in $22,000 being taken back to income.
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 one-time $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 June 30, 2003, approximately $1.56 million of the $2.5 million
has been paid.
NOTE N - 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 O - USE OF ESTIMATES
The preparation of financial statements in conformity with 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 P - RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been reclassified to
conform with the current year presentation.
NOTE Q - SUBSEQUENT EVENTS
The Company amended its December 20, 2001 revolving credit facility as of July
25, 2003. The amendment increases the total commitments, including letters of
credit, from $28 million to $30 million. The limit for letters of credit
increased from $20 million to $30 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -15-
CONDITION AND RESULTS OF OPERATIONS
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
Results of Operations
Comparison of Second Quarter 2003 and Second Quarter 2002
Net income for the second quarter ended June 30, 2003 decreased 41.7% to
$4,100,653 or $.51 per basic and diluted share, compared to net income of
$7,032,678, or $.88 per basic and diluted share, for the second quarter ended
June 30, 2002. Results for the second quarter of 2003 reflect the impact of
increases in cost of goods sold and advertising expenses.
Net sales for the second quarter of 2003 increased $6.8 million to $154.3
million or 4.6% compared to net sales for the second quarter of 2002. The
increase in net sales was primarily attributable to strategic increases in
catalog mailings to current customers that served to generate sales and improve
inventory management. Actual response rates were lower in the second quarter of
2003 than in the second quarter of 2002. Gross sales revenue generated per
advertising dollar decreased approximately 7% in the second quarter of 2003 as
compared to the second quarter of 2002. The total number of orders shipped
increased 7% while the average order size decreased 3% in the second quarter of
2003 as compared to the second quarter of 2002. The provision for returned
merchandise as a percentage of gross mail order sales decreased 6% or $1.4
million in the second quarter of 2003 as compared to the second quarter of 2002.
Management believes that this decrease is attributed to ongoing efforts to
improve product quality and fit.
Other income is flat in the second quarter of 2003 as compared to the second
quarter of 2002.
Cost of goods sold increased $3.8 million or 5.5% to $72.8 million in the second
quarter of 2003 as compared to the second quarter of 2002. As a percentage of
net sales, cost of goods sold increased to 47.1% in the second quarter of 2003
from 46.7% in the second quarter of 2002. The increase in cost of goods sold
reflects an increase in sales generated from promotional activities intended to
address lower response rates. In addition, higher inbound freight expenses and
the postal rate increase of approximately 10% that took place on June 30, 2002
and impacted outbound shipping expense, contributed to the increase.
Advertising expenses in the second quarter of 2003 increased $4.6 million or
12.6% to $41.5 million from the second quarter of 2002. Strategic increases in
catalog mailings to current customers account for the majority of the increase.
The June 30, 2002 postal rate increase and a 2% increase in printing costs
effective April 1, 2003 also contributed to this variance.
The total number of catalog mailings released in the second quarter of 2003
increased by 9.5 million or 20% as compared to the second quarter of 2002. The
total number of prospect catalog mailings decreased by 1.1 million or 6%
compared to the second quarter of 2002. Print advertising for Crossing Pointe is
all via catalog and is included in the catalog mailings numbers.
The total number of letter mailings released in the second quarter of 2003
decreased by 1.2 million or 6% versus the second quarter of 2002.
Total circulation of the co-op and media advertising programs increased by 2.9
million pieces or 2% in the second quarter of 2003 as compared to the second
quarter of 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -16-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
Results of Operations - continued
Comparison of Second Quarter 2003 and Second Quarter 2002 -
Continued
The Company launched e-commerce sites for Blair www.blair.com and Crossing
Pointe www.crossingpointe.com in the third quarter of 2000. In the second
quarter of 2003, the Company generated $22.8 million in e-commerce gross sales
demand, as compared to $16.1 million in the second quarter of 2002.
General and administrative expense increased $1.6 million or 4.9% to $34.9
million in the second quarter of 2003 as compared to the second quarter of 2002.
The higher general and administrative expense was primarily attributable to
increased employee costs and additional bank fees incurred as part of rate
increases for check processing and costs associated with the amended
securitization. The amended securitization, which is discussed further in the
"Liquidity and Sources of Capital" section, provided additional liquidity and
extended the term.
The provision for doubtful accounts increased $1.1 million or 15.4% to $8.4
million from the second quarter of 2003 to the second quarter of 2002. The
estimated bad debt rate used in the second quarter of 2003 was approximately 12%
or 89 basis points higher than the bad debt rate used in the second quarter of
2002. The estimated bad debt rate has increased primarily due to increased
credit offers to both Blair and Crossing Pointe prospects, which traditionally
result in higher bad debts. These offers to prospects are intended to increase
sales and the Company's customer file.
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 June 30, 2003, the delinquency rate of open accounts receivable
was approximately 10% or 121 basis points higher than at June 30, 2002.
Conversely, the charge-off rate for the second quarter of 2003 was 3% or 4 basis
points less than the charge-off rate for the first quarter of 2002. Recoveries
of bad debts previously charged off have been credited back against the
allowance for doubtful accounts. The allowance for doubtful accounts as a
percentage of delinquent accounts decreased 5% or 861 basis points at June 30,
2003 as compared to June 30, 2002. The allowance for doubtful accounts as a
percentage of open accounts is the same at June 30, 2003 and June 30, 2002. 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.
Interest expense decreased approximately $30,000 or 24% to $95,380 in the second
quarter of 2003 as compared to the second quarter of 2002. Interest expense
results primarily from the Company's required borrowings under the Receivables
Purchase Agreement. Interest rates have been lower in the second quarter of
2003.
Income taxes as a percentage of income before income taxes were 38.2% in the
second quarter of 2003 and 36.0% in the second quarter of 2002. The federal
income tax rate was 35% in both years. The difference in the total income tax
rate was caused by a change in the Company's effective state income tax rate.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -17-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
Results of Operations - continued
Comparison of Six Month Periods Ended June 30, 2003 and June 30,2002
Net income for the six months ended June 30, 2003 decreased 63.6% to $4,600,842,
or $.57 per share, as compared to $12,633,809, or $1.58 per share, for the six
months ended June 30, 2002. Results for the first six months of 2003 reflect
increases in cost of goods sold, advertising expenses, general & administrative
expenses and the provision for doubtful accounts.
Net sales for the first six months of 2003 increased $8.6 million to $291.4
million or 3% greater than net sales for the first six months of 2002. The
increase in net sales was primarily attributable to strategic increases in
catalog and letter mailings to current and prospective customers that served to
generate sales, grow the customer file and improve inventory management. Actual
response rates in the first six months of 2003 were lower than in the first six
months of 2002. Gross sales revenue generated per advertising dollar decreased
approximately 8% in the first six months of 2003 as compared to the first six
months of 2002. The provision for returned merchandise as a percentage of gross
mail order sales decreased 3.5% or $1.6 million in the first six months of 2003
as compared to the first six months of 2002. Management attributes this
favorable change to improved product quality and fit.
Other income decreased approximately $287,000 or 1.4% to $19.7 million in the
first six months of 2003 as compared to the first six months of 2002. Lower
finance charges and commissions were primarily responsible for the small
reduction in other income. The lower finance charges resulted from decreased
customer accounts receivable and the lower commissions resulted from decreased
continuity program activity.
Cost of goods sold increased $7.1 million or 5.4% to $140.6 million in the first
six months of 2003 as compared to the same period in 2002. As a percentage of
net sales, cost of goods sold increased to 48.3% in the first six months of 2003
from 47.2% in the first half 2002. The increase in cost of goods sold reflects
an increase in sales generated from promotional activities intended to address
lower response rates. Further, higher inbound freight expenses, a greater mix of
outbound packages in excess of one pound that increased shipping costs and the
postal rate increase of approximately 10% that took place on June 30, 2002
contributed to the increase.
Advertising expenses in the first six months of 2003 increased $9.0 million or
12.7% to $80.1 million. Strategic increases in catalog and letter mailings to
current and prospective customers account for the majority of the increase. The
June 30, 2002 postal rate increase and a 2% increase in printing costs effective
April 1, 2003 also contributed to this variance.
The total number of catalog mailings released in the first six months of 2003
was 24.0 million or 28.1% greater than those released in the first six months of
2002.
The total number of letter mailings released in the first six months of 2003 was
33.5 million or 2.7% greater than those released in the first six months of
2002.
Total circulation of the co-op and media advertising programs increased 19.6
million pieces or 4.3% in the first six months of 2003 as compared to the first
six months of 2002.
The Company launched e-commerce sites for Blair www.blair.com and Crossing
Pointe www.crossingpointe.com in the third quarter of 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -18-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
Results of Operations - continued
Comparison of Six Month Periods Ended June 30, 2003 and June 30,2002 - continued
In the first six months of 2003, the Company has generated $41.7 million in
e-commerce gross sales demand, an increase of 30.7% in the first six months of
2002. In all of 2002, the Company generated $65.7 million in e-commerce orders.
General and administrative expense increased $2.7 million from $63.8 million to
$66.5 million or 4.2% in the first six months of 2003 as compared to the first
six months of 2002. The higher general and administrative expense in the first
six months of 2003 was primarily attributable to increased employee costs,
additional bank fees and costs incurred to service an expanded credit program.
The increased employee costs were associated with the completion of enhancements
and automation of the Company's fulfillment capabilities. The additional bank
fees were incurred as part of rate increases for check processing and costs
associated with the amended securitization. The amended securitization, which is
discussed further in the "Liquidity and Sources of Capital" section, provided
additional liquidity and extended the term.
The provision for doubtful accounts increased $1.7 million from $14.5 million to
$16.2 million or 12.0% from the first six months of 2003 compared to the same
period in 2002. The estimated bad debt rate used in the first six months of 2003
was approximately 10% or 78 basis points higher than the bad debt rate used in
the first six months of 2002. The estimated bad debt rate has increased
primarily due to increased credit offers to both Blair and Crossing Pointe
prospects, which traditionally result in higher bad debts. These offers to
prospects are made to increase sales and to build the customer file.
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 June 30, 2003, the delinquency rate of open accounts receivable
was approximately 10% or 121 basis points higher than at June 30, 2002. The
charge-off rate for the first six months of 2003 was 4% or 5 basis points
greater than the charge-off rate for the first six months of 2002. Recoveries of
bad debts previously charged off have been credited back against the allowance
for doubtful accounts. The allowance for doubtful accounts as a percentage of
delinquent accounts decreased 5% or 861 basis points at June 30, 2003 as
compared to June 30, 2002. The allowance for doubtful accounts as a percentage
of open accounts receivable is the same at June 30, 2003 and June 30, 2002. 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.
Interest expense decreased approximately $62,000 to $184,840 or 25.1% in the
first six months of 2003 as compared to the first six months of 2002. Interest
expense results primarily from the Company's required borrowings under the
Receivables Purchase Agreement. Interest rates have been lower in the first six
months of 2003.
Income taxes as a percentage of income before income taxes were 38.1% in the
first six months of 2003 and 35.7% in the first six months of 2002. The federal
income tax rate was 35% in both years. The difference in the total income tax
rate was caused by a change in the Company's effective state income tax rate.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -19-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
Liquidity and Sources of Capital
All working capital and cash requirements for the first six months of 2003 were
met using funds from operations and surplus cash.
On December 20, 2001, the Company entered into a Credit Agreement with PNC Bank,
National Association, as agent, and certain other banks. The Agreement put in
place a syndicated revolving credit facility of up to $30 million, secured by
inventory and certain other assets of the Company and its subsidiaries. As of
June 30, 2003, the facility had lender commitments of $28 million. The revolving
credit facility expires on December 20, 2004. For each borrowing tranche, the
Company may select from three options to determine the interest rate. The
options are: a base rate option (greater of Prime or Fed Funds Rate plus .5% as
of June 30, 2003); swing loan rate option (as quoted by PNC Bank); or Euro-rate
option (Euro-rate plus 1.50%) as defined in the Credit Agreement. The Company is
required to meet certain covenants that relate to tangible net worth,
maintaining a defined leverage ratio and fixed charge coverage ratio, and
complying with certain indebtedness restrictions. As of June 30, 2003, the
Company was in compliance with all the Credit Agreement's covenants. At June 30,
2003, the Company had no borrowings (loans) outstanding, but had letters of
credit totaling $14.8 million outstanding, which reduces the amount of
borrowings available under the Credit Agreement. At December 31, 2002, the
Company had no borrowings (loans) outstanding, but had letters of credit
totaling $16.2 million outstanding. At June 30, 2002, the Company had no
borrowings (loans) outstanding, but letters of credit totaling $13.6 million
outstanding under the Credit Agreement.
Also, on December 20, 2001, the Company completed a securitization of up to $100
million in accounts receivable with PNC Bank, National Association, as
administrator, and certain conduit purchasers. At December 20, 2001, the
securitization had initial lender commitments of $50 million. On April 9, 2003,
the securitization was amended to increase the commitment level from $50 million
to $70 million and extend the term to April 7, 2006. The interest rate charged
approximates 1-month libor plus 55 basis points. The amended securitization
increased the interest rate spread to 80 basis points. The Company sells all
right, title and interest in and to certain of its accounts receivable to Blair
Factoring Company, a wholly-owned subsidiary. Blair Factoring Company is a
separate bankruptcy remote special purpose entity that entered into a
Receivables Purchase Agreement with PNC Bank, National Association, as
administrator, and certain conduit purchasers. The Company's consolidated
financial statements reflect all the accounts of Blair Factoring Company,
including the receivables and secured borrowings. Transactions entered into
under the Receivables Purchase Agreement 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. At June 30, 2003, $70
million of the $100 million was available to the Company. The securitization
requires certain performance standards for the Company's accounts receivable
portfolio in addition to complying with the covenants in the Credit Agreement.
As of June 30, 2003, the Company was in compliance with all the requirements of
the Receivables Purchase Agreement. At June 30, 2003, December 31, 2002, and
June 30, 2002, the Company had $15 million outstanding, the minimum amount
required to be outstanding under the terms of the Receivables Purchase
Agreement, all of which was classified as short-term.
The ratio of current assets to current liabilities was 4.12 at June 30, 2003,
3.39 at December 31, 2002 and 3.67 at June 30, 2002. Working capital increased
$2.9 million to $205.2 million in the first six months of 2003 primarily due to
a smaller amount of purchases of property, plant and equipment. The 2003
increase was primarily reflected in decreased trade accounts payable and
accruals for expenses exceeding decreases in cash and cash equivalents and
customer accounts receivable.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -20-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
Liquidity and Sources of Capital - Continued
Merchandise inventory turnover was 3.6 times at June 30, 2003, 3.4 times at
December 31, 2002 and 2.9 times at June 30, 2002. Merchandise inventory as of
June 30, 2003 of $52.1 million was $3 million or 6% lower than at December 31,
2002 and $4 million or 8% greater than at June 30, 2002. The merchandise
inventory levels are net of the Company's reserve for inventory obsolescence.
The reserve totaled $3.9 million at June 30, 2003, $4.0 million at December 31,
2002 and $4.3 million at June 30, 2002. Inventory write-offs and write-downs
(reductions to below cost) charged against the reserve for obsolescence were
$2.4 million in the first six months of 2003 and $3.4 million in the first six
months of 2002. 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.
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. The Company operates as one business segment
consisting of the Womenswear, Menswear, Home and Crossing Pointe product lines.
Crossing Pointe was added in the third quarter of 2000 and is becoming a
significant source of revenue.
Percent Percent
June 30, 2003 of Total June 30, 2002 of Total
Product Line Net Sales Net Sales Net Sales Net Sales
- ------------ -------------- --------- -------------- ---------
Womenswear $187.4 million 64.3% $185.3 million 65.5%
Menswear 47.7 million 16.4% 52.9 million 18.7%
Home 35.2 million 12.1% 28.7 million 10.2%
Crossing Pointe 21.1 million 7.2% 15.9 million 5.6%
-------------- --------- -------------- ---------
Total $291.4 million 100.0% $282.8 million 100.0%
============== ========= ============== =========
June 30, 2003 December 31, 2002 June 30,2002
Merchandise Merchandise Merchandise
Product Line Inventory Inventory Inventory
- ------------ ------------- ----------------- -------------
Womenswear $31.8 million $32.1 million $33.5 million
Menswear 8.4 million 11.0 million 8.3 million
Home 4.8 million 5.0 million 3.3 million
Crossing Pointe 7.1 million 7.0 million 3.0 million
------------- ----------------- -------------
Total $52.1 million $55.1 million $48.1 million
============= ================= =============
The Company looks upon its credit granting (Blair Credit) as a marketing
advantage. Blair Credit customers, on average, buy more, buy more often and are
more loyal than cash and credit card customers. The Company has determined that
the benefit from the increased sales volume achieved by offering the Blair
Credit is significant and more than outweighs the cost of the credit program.
The cost of the credit program is comparable to the discount rates of third
party credit cards. The Company's gross credit sales increased 3.5% in the first
six months of 2003 as compared to the first six months of 2002.
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 $3.7 million during the
first six months of 2003 and $5.8 million during the first six months of 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -21-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
Liquidity and Sources of Capital - Continued
Capital expenditures had been projected to be $15 million plus for each of the
years 2001 and 2002 and nearly $10 million for 2003. However, capital
expenditures for 2001 were delayed due to economic conditions. This included
slowing the implementation of the previously announced modernization and
enhancement of the Company's fulfillment operations. The fulfillment project was
completed in the second quarter at a total cost of $13.2 million, down from
earlier estimates of $21 million. The Company anticipates that this equipment
will increase the productivity of its fulfillment operations.
The Company continues to hold for sale its liquidation outlet store located in
Erie, Pa. The Company believes the sale will be completed by March, 2004.
The Company has contractual obligations consisting of capital leases for data
processing and telephone equipment, and operating leases for buildings and data
processing, office and telephone equipment.
Payments Due by Period
Contractual
Obligations Total 2003 2004-2005 2006-2007 Thereafter
- ------------- ----------- ---------- ---------- --------- ----------
Capital
lease
Obligations $ 656,609 $176,421 $ 480,188 --- ---
Operating
leases 12,877,800 1,522,461 4,594,431 2,867,737 3,893,171
----------- ---------- ---------- --------- ---------
Total $13,534,409 $1,698,882 $5,074,619 $2,867,737 $3,893,171
=========== ========== ========== ========== ==========
The Company has other commercial commitments consisting of a revolving credit
facility of up to $30 million and a securitization of up to $100 million in
accounts receivable.
Amount of Commitment
Expiration Per Period
Other Total Less After
Commercial Amounts than 1 - 3 4 - 5 5
Commitments Committed 1 year years years Years
- ------------------- ----------- ------ ------------ ------ ------
Line of Credit-
Revolving
effective 7/25/03 $ 30,000,000 -0- $ 30,000,000 -0- -0-
Line of Credit-
Securitization
effective 4/9/2003 70,000,000 -0- 70,000,000 -0- -0-
------------ ------ ------------ ------ ------
Total $100,000,000 -0- $100,000,000 -0- -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.
The Company continues to have significant deferred tax assets primarily
resulting from reserves against accounts receivable. The Company believes these
assets are realizable based upon past earnings and availability in the
carry-back period.
The Company recently declared a quarterly dividend of $.15 per share payable on
September 15, 2003. The Company has declared dividends for 280 consecutive
quarters. It is the Company's intent to continue paying dividends; however, the
Company will evaluate its dividend practice on an ongoing basis. See "Future
Considerations".
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -22-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
Liquidity and Sources of Capital - continued
The Company has, from the fourth quarter of 1996 through the year 2000,
repurchased a total of 1,620,940 shares of its Common Stock. No shares were
repurchased in 2001, 2002, or in the first six months of 2003.
Future cash needs will be financed by cash flow from operations, the existing
borrowing arrangement and, if needed, other financing arrangements that may be
available to the Company. The Company's current projection of future cash
requirements, however, may be affected in the future by numerous factors,
including changes in customer payments on accounts receivable, consumer credit,
industry trends, sales volume, operating cost fluctuations, revised capital
spending plans and unplanned capital spending.
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 2002 Annual Report. 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 reviews the critical
accounting policies and estimates with the Audit Committee of the Board of
Directors.
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 charge off
rate would cause changes in the provision for doubtful accounts and the
allowance for doubtful accounts. Based on the Company's 2002 level of credit
sales and finance charges, net income would change by approximately $2.5
million, or $.31 per share, from a 1% change in the charge off 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). The Company feels that the allowance for returns is
sufficient to cover the returns that will occur after June 30, 2003 from sales
prior to July 1, 2003. A change in the returns rate would cause changes in the
provision for returns and the allowance for returns. Based on the Company's 2002
level of sales, net income would change by approximately $2.8 million, or $.35
per share, from a 1% 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". The Company feels that the reserve for inventory obsolescence
is sufficient to cover the write-offs and write-downs that will occur after June
30, 2003 on merchandise inventory as of June 30, 2003. 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 2002 level of merchandise subject
to obsolescence, net income would change by approximately $1.8 million, or $.22
per share, from a 1% change in the obsolescence rate.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -23-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
Impact of Inflation and Changing Prices
Although inflation has moderated in our 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 have moderated over the
reporting period. Postal rates increased on January 10, 1999, on January 7,
2001, on July 1, 2001 and again on June 30, 2002. Based on recent public
communications by the United States Postal Service, it is anticipated that
postal rates will not increase again until 2006. The Company spent approximately
$97 million for postage and delivery services in 2002.
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 consistent to declining merchandise costs and the LIFO reserve has
remained relatively constant-$5.7 million at June 30, 2003 and at December 31,
2002. At June 30, 2002, the LIFO reserve was $5.4 million.
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 will 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
Effective January 1, 2002, the Company adopted the provisions
of SFAS No. 142 Goodwill and Other Intangible Assets and SFAS
No. 143 Accounting For Asset Retirement Obligations. The
Company adopted SFAS No. 148, Accounting For Stock-Based
Compensation Transition and Disclosure an amendment of SFAS No.
123, Accounting for Stock-Based Compensation effective the year
ending December 31,2002.
SFAS No. 145, Recission of FASB No. 4, 44 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections, and FASB Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others were adopted by the Company effective
January 1, 2003. The adoption of these standards did not have a material impact
on the Company's results of operations or financial condition.
In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets which supersedes SFAS
No. 121 Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of. Although retaining many
of the provisions of SFAS No. 121, SFAS No. 144 establishes a
uniform accounting model for long-lived assets to be disposed.
The Company's adoption of this statement in the first quarter of
2002 did not have an impact on the Company's financial results,
but does impact the accounting treatment of the planned sale of
the Blair Outlet Store in Erie, Pa. (See Note L)
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities when the liability is incurred and not as a result
of an entity's commitment to an exit plan. The statement is effective for exit
or disposal activities initiated after December 31, 2002. The Company's adoption
of
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -24-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
Accounting Pronouncements-continued
this statement in the first quarter 2003 did not have an impact on the
Company's financial results, but does impact the accounting treatment of
the voluntary separation of employees due to the planned sale of the Blair
Outlet Store in Erie. (See Note M)
In April 2003, the FASB issued SFAS No. 149 Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. This statement is generally effective for contracts entered
into or modified after June 30, 2003. The Company believes the adoption of this
standard will not have a material impact on its results of operations or
financial condition.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This statement
establishes standards for how an issuer classifies and measures in its statement
of financial position certain financial instruments with characteristics of both
liabilities and equity. This statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise at the beginning of
the Company's fourth quarter. The Company believes the adoption of this standard
will not have a material impact on its results of operations or financial
condition.
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, 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 60,
low-to-moderate income" market and in the "60+, low-to-moderate income" market.
The "40 to 60" market is the fastest growing segment of the population. Also,
customers in the "low-to-moderate income" market tend to be more credit-needy
and utilize Blair credit to a greater degree. Success of the Company's marketing
strategy requires investment in database management, financial and operating
systems, prospecting programs, catalog marketing, new product lines, telephone
call centers, e-commerce, fulfillment operations and credit management.
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 has a working arrangement with accomplished actress, artist, author
and mother, Jane Seymour, to launch the "Jane Seymour Signature Collection" of
women's apparel. The Jane Seymour inspired womens fashions are being sold
exclusively through the Company's Crossing Pointe catalog and website
(www.crossingpointe.com). The first "Jane Seymour Signature Collection" fashions
previewed in early January 2002 on the Crossing Pointe website and debuted in
the Crossing Pointe Spring 2002 Catalog mailed at the end of January 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -25-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
Safe Harbor Statement Under the Private Securities Litigation
Reform Act of 1995 - continued
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, the following sections of the report:
- The paragraph on the provision for doubtful accounts in the Results of
Operations, Comparison of Second Quarter 2003 and Second Quarter 2002.
- The paragraph on the provision for doubtful accounts in the Results of
Operations, Comparison of Six Month Periods Ended June 30, 2003 and June
30, 2002.
- Liquidity and Sources of Capital.
- Critical Accounting Policies.
- The Impact of Inflation and Changing Prices.
- Future Considerations.
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.
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 Rules 13a-15(e)
and 15d-15(e)under the Securities Exchange Act of 1934) 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
ITEM 4. CONTROLS AND PROCEDURES - continued -26-
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
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.
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.
PART II. OTHER INFORMATION -27-
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
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. Changes in 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
---------------------------------------------------
(a) The Company's Annual Meeting of Stockholders was held April 15, 2003.
(b) At the Annual Meeting of Stockholders, all of the Company's
directors were elected at said meeting, as follows:
Steven M. Blair 6,320,776 Votes For, 894,552 Votes Withheld
Robert D. Crowley 6,391,472 Votes For, 823,856 Votes Withheld
Harriet Edelman 6,491,507 Votes For, 723,821 Votes Withheld
Bryan J. Flanagan 6,390,592 Votes For, 824,736 Votes Withheld
John O. Hanna 6,368,886 Votes For, 846,442 Votes Withheld
Craig N. Johnson 6,369,761 Votes For, 845,567 Votes Withheld
Murray K. McComas 6,355,281 Votes For, 860,047 Votes Withheld
Thomas P. McKeever 6,375,985 Votes For, 839,343 Votes Withheld
Ronald L. Ramseyer 6,525,547 Votes For, 689,781 Votes Withheld
Michael A. Schuler 6,496,944 Votes For, 718,384 Votes Withheld
John E. Zawacki 6,391,651 Votes For, 823,677 Votes Withheld
Since all of the directors of the Company were elected at the Annual
Meeting of Stockholders, there are no directors whose term of
office as a director continued after the meeting.
(c) The following other matters were voted upon at the meeting, and the
following number of affirmative votes and negative votes were
cast with respect to each such matter:
The reappointment by the Company's Board of Directors of
the firm of Ernst & Young LLP as independent certified public
accountants to examine the financial statements and perform
the annual audit of the Company for the year ending December 31,
2003 was ratified. This matter received 7,088,628 affirmative
votes, 106,828 negative votes and 19,872 votes withheld.
The Company's Omnibus Stock Plan was amended to increase the total
number of shares of common stock that may be issued with respect to
awards granted under the Plan from 750,000 shares to 1,150,000
shares, an increase of 400,000 shares. This matter received
5,447,282 affirmative votes, 1,695,308 negative votes and 72,738
votes withheld.
PART II. OTHER INFORMATION - continued -28-
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
Item 5. Other Information
The Company's Bylaws were amended by the Company's Board of Directors on July
15, 2003. A copy of the Company's Amended and Restated Bylaws is attached as
Exhibit 3.2.
The Company also has amended its December 20, 2001 credit facility as of July
25, 2003. The amendment increases the total commitments, including letters of
credit, from $28 million to $30 million. The limit for letters of credit
increased from $20 million to $30 million. A copy of Amendment No.2 to Credit
Agreement, dated July 25, 2003, amending the Company's revolving credit facility
is attached hereto as Exhibit 10.4.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
3.1 Restated Certificate of Incorporation(1)
3.2 Amended and Restated Bylaws of Blair Corporation
4 Specimen Common Stock Certificate(2)
10.1 Stock Accumulation and Deferred Compensation Plan for
Directors(3)
10.2 Blair Corporation 2000 Omnibus Stock Plan(4)
10.3 Blair Credit Agreement(5)
10.4 Amendment No. 2 to Credit Agreement(6)
11 Statement regarding computation of per share earnings(7)
31.1 Section 302 Certification-CEO 31.2 Section 302 Certification-CFO
32.1 Section 906 Certification-CEO 32.2 Section 906 Certification-CFO
(b) Reports on Form 8-K
On July 21, 2003, the Company filed a Form 8-K announcing its
earnings for the quarter and six months ended June 30, 2003.
- ------------------
(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 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).
(3) 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).
(4) 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).
(5) 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).
(6) Certain schedules to the agreement have been omitted.
(7) Incorporated by reference to Note D of the financial statements included
herein.
-29-
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 August 8, 2003 By JOHN E. ZAWACKI
- ------------------------ -------------------------------
JOHN E. ZAWACKI
President and Chief Executive
Officer
By BRYAN J. FLANAGAN
-------------------------------
BRYAN J. FLANAGAN
Senior Vice President and Chief
Financial Officer
[Certifications to follow]
-30-
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 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: August 8, 2003
JOHN E. ZAWACKI
------------------------
JOHN E. ZAWACKI
President and
Chief Executive Officer
-31-
Exhibit 31.2
CERTIFICATION
I, Bryan J. Flanagan, 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 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: August 8, 2003
BRYAN J. FLANAGAN
-------------------------
BRYAN J. FLANAGAN
Senior Vice President and
Chief Financial Officer
-32-
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 June 30, 2003 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.
August 8, 2003 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.
-33-
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 June 30, 2003 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Bryan J. Flanagan,
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.
August 8, 2003 BRYAN J. FLANAGAN
-------------- --------------------------
BRYAN J. FLANAGAN
Senior Vice President and
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.
-34-
Exhibit 3.2
-------------------------------------------------------------------
BY-LAWS
of
BLAIR CORPORATION
As Adopted at a Meeting of the Stockholders
held on May 23, 1927
and as amended to
July 15, 2003
-------------------------------------------------------------------
-35-
Exhibit 3.2
BY-LAWS
of
BLAIR CORPORATION
----------
ARTICLE I.
Offices
[1] Principal Registered Office. The Corporation's principal registered
office shall be located in the City of Wilmington, County of New Castle, State
of Delaware and the name of the Resident Agent in Charge is Corporation Trust
Company of America, 7 West 10th Street, Wilmington, Delaware.
[2] Other Offices. The Corporation may have other offices, either within
or outside of the State of Delaware, at such place or places as the board of
directors may from time to time appoint or the business of the Corporation may
require.
ARTICLE II
Seal
The Corporate seal shall be in circular form and shall have inscribed
thereon "Blair Corporation Corporate Seal Delaware
1924."
The seal shall be in the charge of the Secretary. If and when so directed
by the board of directors or a committee thereof, duplicates of the seal may be
kept and used by the Chief Financial Officer or by any other officer of the
Corporation.
ARTICLE III
Meeting of Stockholders
[1] Annual Meetings. An annual meeting of the stockholders, for the
election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting shall
be held at such place, on such date, and at such time as the board of directors
shall each year fix, which date shall be within thirteen (13) months subsequent
to the later of the date of incorporation or the last annual meeting of
stockholders.
[2] Special Meetings. Special meetings of stockholders, for any purposes
other than those required by statute, may be called by the Chairman of the Board
or the President, and shall be called by the Secretary at the direction of such
officer(s) or a majority of the board of directors. Such request shall state the
purpose or purposes of the meeting and shall be delivered by the Chairman of the
Board, the President or the Secretary. No business, other than that specified in
the notice of meeting, shall be transacted at any special meeting.
[3] Notice. Notice of the annual meeting of stockholders shall be mailed
or as otherwise permitted by law to each stockholder entitled to vote thereat,
at his address, as the same appears on the books of the Corporation, not less
than ten (10) nor more than sixty (60) days before the date on which the meeting
is to be held, except as otherwise provided herein or required by law. Such
notice need not specify the business to be transacted.
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Exhibit 3.2
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date of which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
[4] Quorum. Except as otherwise required by law, by the Certificate of
Incorporation of this Corporation or by these Bylaws, the presence, in person or
by proxy, of stockholders entitled to cast a majority in number of the aggregate
number of votes to which the Common Stock shall be entitled, shall constitute a
quorum at all meetings of the stockholders. Where a separate vote by a class or
classes is required, a majority of the shares of such class or classes present
in person or represented by proxy and entitled to vote shall constitute a quorum
entitled to take action with respect to that vote on that matter.. If a quorum
shall fail to attend any meeting, the Chairman of the Board or the President of
the Corporation may adjourn the meeting to another place, date, or time. At any
such adjourned meeting at which the requisite amount of voting stock shall be
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed.
[5] Organization. Such person as the board of directors may have
designated or, in the absence of such a person, the Chairman of the Board of the
Corporation or, in his or her absence, such person as may be chosen by the
holders of a majority of the shares entitled to vote who are present, in person
or by proxy, shall call to order any meeting of the stockholders and act as
chairman of the meeting. In the absence of the Secretary of the Corporation, the
secretary of the meeting shall be such person as the chairman of the meeting
appoints.
[6] Conduct of Business.
(a) The chairman of any meeting of stockholders shall determine the
order of business and the procedures at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seem
to him or her in order. The date and time of the opening and closing of
the polls for each matter upon which the stockholders will vote at the
meeting shall be announced at the meeting.
(b) At any annual meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting: (i) by
or at the direction of the board of directors or (ii) by any stockholder
of the Corporation who is entitled to vote with respect thereto and who
complies with the notice procedures set forth in this Section 6(b). For
business to be properly brought before an annual meeting by a stockholder,
the business must relate to a proper subject matter for stockholder action
and the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice
must be delivered or mailed to and received at the principal executive
offices of the Corporation not less than ninety (90) days prior to the
date of the annual meeting; provided, however, that in the event that less
than one hundred (100) days' notice or prior public disclosure of the date
of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be received not later than the close of business on the
10th day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure was made. A stockholder's
notice to the Secretary shall set forth as to each matter such stockholder
proposes to bring before the annual meeting: (i) a brief description of
the business desired to be brought before the annual meeting and the
reasons for conducting such business at the annual meeting; (ii) the name
and address,
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Exhibit 3.2
as they appear on the Corporation's books, of the stockholder proposing
such business; (iii) the class and number of shares of the Corporation's
capital stock that are beneficially owned by such stockholder; and (iv)
any material interest of such stockholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be brought before or conducted at an annual meeting except in
accordance with the provisions of this Section 6(b). The officer of the
Corporation or other person presiding over the annual meeting shall, if
the facts so warrant, determine and declare to the meeting that business
was not properly brough