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 September 30, 2003 Commission File Number 1-878
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BLAIR CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 25-0691670
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 HICKORY STREET, WARREN, PENNSYLVANIA 16366-0001
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(Address of principal executive offices) (Zip Code)
(814) 723-3600
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- ----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES X NO
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As of November 7, 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
September 30, 2003
CONSOLIDATED BALANCE SHEETS -3-
BLAIR CORPORATION AND SUBSIDIARIES
September 30 December 31
2003 2002
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 39,319,137 $ 49,975,503
Customer accounts receivable, less
allowances for doubtful accounts and
returns of $46,205,601 in 2003 and
$44,765,764 in 2002 141,330,290 149,229,882
Inventories - Note H
Merchandise 65,343,987 55,101,925
Advertising and shipping supplies 25,787,705 19,115,380
------------ ------------
91,131,692 74,217,305
Deferred income taxes - Note G 10,195,000 11,623,000
Prepaid and refundable federal and state
taxes 2,169,490 -0-
Prepaid expenses 2,609,936 1,937,635
------------ ------------
Total current assets 286,755,545 286,983,325
Property, plant and equipment:
Land 692,144 692,144
Buildings and leasehold improvements 65,468,805 65,280,676
Equipment 71,886,236 58,956,855
Construction in progress 1,367,580 9,376,463
------------ ------------
139,414,765 134,306,138
Less allowances for depreciation 86,601,267 80,000,142
------------ ------------
52,813,498 54,305,996
Assets held for sale - Note L 1,368,526 1,669,299
Trademarks 506,225 560,407
Other long-term assets 621,821 578,405
TOTAL ASSETS $342,065,615 $344,097,432
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - Note J $ 15,000,000 $ 15,000,000
Trade accounts payable 46,856,586 40,805,116
Advance payments from customers 3,711,442 3,959,801
Accrued expenses - Note E 14,556,246 19,970,241
Accrued federal and state taxes -0- 4,587,124
Current portion of capital lease
obligations - Note F 369,877 350,016
------------ ------------
Total current liabilities 80,494,151 84,672,298
Capital lease obligations, less current
portion - Note F 199,650 480,320
Deferred income taxes - Note G 1,567,000 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 14,323,421 14,428,903
Retained earnings 288,427,188 286,511,847
Accumulated other comprehensive income (30,663) 12,686
------------ ------------
303,139,756 301,373,246
Less 2,016,631 shares in 2003 and
2,037,793 shares in 2002 of common stock
in treasury - at cost (40,839,791) (41,264,330)
Less receivable and deferred compensation
from stock plans (2,495,151) (2,775,102)
------------ ------------
Total stockholders' equity 259,804,814 257,333,814
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $342,065,615 $344,097,432
============ ============
See accompanying notes.
CONSOLIDATED STATEMENTS OF INCOME -4-
BLAIR CORPORATION AND SUBSIDIARIES
Three Months Ended Nine Months Ended
September 30 September 30
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net sales $124,100,444 $117,830,052 $415,458,938 $400,604,838
Other income - Note I 11,001,885 10,094,534 30,664,888 30,044,685
------------ ------------ ------------ ------------
135,102,329 127,924,586 446,123,826 430,649,523
Costs and expenses:
Cost of goods sold 60,780,989 58,053,703 201,407,864 191,533,278
Advertising 33,746,291 31,608,249 113,821,111 102,647,505
General and administrative 32,530,994 30,990,706 98,991,016 94,798,015
Provision for doubtful accounts 6,702,356 6,738,419 22,950,454 21,247,530
Interest 72,159 118,123 256,999 365,000
------------ ------------ ------------ ------------
133,832,789 127,509,200 437,427,444 410,591,328
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 1,269,540 415,386 8,696,382 20,058,195
Income tax expense - Note G 477,000 136,000 3,303,000 7,145,000
------------ ------------ ------------ ------------
NET INCOME $ 792,540 $ 279,386 $ 5,393,382 $ 12,913,195
============ ============ ============ ============
Basic and diluted earnings per share based on
weighted average shares outstanding - Note D $.10 $.03 $.67 $1.61
==== ==== ==== =====
See accompanying notes.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -5-
BLAIR CORPORATION AND SUBSIDIARIES
Three Months Ended Nine Months Ended
September 30 September 30
2003 2002 2003 2002
------------ ------------ ------------ ------------
Common Stock $ 419,810 $ 419,810 $ 419,810 $ 419,810
Additional Paid-in Capital:
Balance at beginning of period 14,311,675 14,559,818 4,428,903 14,589,838
Issuance of Common Stock to non-employee directors 11,746 -0- (6,356) (2,619)
Issuance of Common Stock under Omnibus Stock Plan -0- (89,530) -0- (66,273)
Forfeitures of Common Stock under Omnibus Stock
and Employee Stock Purchase Plans -0- (14,030) (18,576) (17,279)
Exercise of non-qualified stock options under
Omnibus Stock Plan -0- (21,687) (109,550) (69,096)
Tax benefit on exercise of non-qualified stock
options -0- -0- 29,000 -0-
------------ ------------ ------------ ------------
Balance at end of period 14,323,421 14,434,571 14,323,421 14,434,571
Retained Earnings:
Balance at beginning of period 288,795,224 282,195,547 286,511,847 271,954,815
Net income 792,540 279,386 5,393,382 12,913,195
Cash dividends - Note B (1,160,576) (1,039,587) (3,478,041) (3,432,664)
------------- ------------ ------------ -----------
Balance at end of period 288,427,188 281,435,346 288,427,188 281,435,346
Accumulated Other Comprehensive Income:
Balance at beginning of period (18,562) 7,448 12,686 -0-
Foreign currency translation (12,101) (1,570) (43,349) 5,878
------------- ------------ ------------ ------------
Balance at end of period (30,663) 5,878 (30,663) 5,878
Treasury Stock:
Balance at beginning of period (40,840,954) (42,726,506) (41,264,330) (43,187,542)
Issuance of Common Stock to non-employee
directors 1,163 -0- 130,220 63,279
Issuance of Common Stock under Omnibus Stock
Plan -0- 1,389,905 -0- 1,636,023
Forfeitures of Common Stock under Omnibus
Stock -0- (130,451) (37,599) (134,515)
Plan and Employee Stock Purchase Plans
Exercise of non-qualified stock options under
Omnibus Stock Plan -0- 61,599 331,918 217,302
------------- ------------ ------------ ------------
Balance at end of period (40,839,791) (41,405,453) (40,839,791) (41,405,453)
Receivable and Deferred Compensation from Stock Plans:
Balance at beginning of period (2,581,030) (1,966,544) (2,775,102) (1,987,850)
Issuance of Common Stock under Omnibus Stock Plan -0- (1,482,667) -0- (1,569,750)
Forfeitures of Common Stock under Omnibus Stock
Plan and Employee Stock Purchase Plans
Amortization of deferred compensation, net of -0- 47,000 13,513 50,750
forfeitures 37,493 31,068 117,345 31,068
Applications of dividends and cash repayments 48,386 68,875 149,093 173,514
------------- ------------ ------------ ------------
Balance at end of period (2,495,151) (3,302,268) (2,495,151) (3,302,268)
------------- ------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY $259,804,814 $251,587,884 $259,804,814 $251,587,884
============ ============ ============ ============
Comprehensive Income:
Net income 792,540 279,386 5,393,382 12,913,195
Adjustment from foreign currency translation (12,101) (1,570) (43,349) 5,878
------------- ------------ ------------ ------------
Comprehensive income $ 780,439 $ 277,816 $ 5,350,033 $ 12,919,073
============= ============ ============ ============
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS -6-
BLAIR CORPORATION AND SUBSIDIARIES
Nine Months Ended
September 30
2003 2002
----------- -----------
OPERATING ACTIVITIES
Net income $ 5,393,382 $12,913,195
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 6,886,499 6,479,351
Provision for doubtful accounts 22,950,454 21,247,530
Provision for deferred income taxes 1,384,000 (3,020,000)
Compensation expense (net of forfeitures)
for stock awards 198,547 (9,316)
Changes in operating assets and
liabilities providing (using) cash:
Customer accounts receivable (15,051,162) (1,796,444)
Inventories (16,914,387) 23,682,950
Prepaid expenses and other assets (714,349) (913,959)
Trade accounts payable 6,051,133 (7,929,867)
Advance payments from customers (248,359) 1,710,097
Accrued expenses (5,413,061) 4,929,324
Federal and state taxes (6,726,577) 4,622,185
----------- -----------
NET CASH (USED IN)PROVIDED BY OPERATING ACTIVITIES (2,203,880) 61,915,046
INVESTING ACTIVITIES
Purchases of property, plant and equipment (5,037,015) (9,004,513)
NET CASH USED IN INVESTING ACTIVITIES (5,037,015) (9,004,513)
FINANCING ACTIVITIES
Principle repayments on capital lease
obligations (260,809) (253,086)
Dividends paid (3,478,041) (3,432,664)
Exercise of non-qualified stock options 222,368 148,206
Repayments of notes receivable from stock plans 149,093 173,514
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (3,367,389) (3,364,030)
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (48,082) 21,728
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (10,656,366) 49,568,231
Cash and cash equivalents at beginning of year 49,975,503 5,712,495
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $39,319,137 $55,280,726
=========== ===========
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -7-
BLAIR CORPORATION AND SUBSIDIARIES
September 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 accounting principles generally accepted in the United
States 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 nine months
ended September 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.
On August 20, 2003 the Company commenced operations of a new wholly-owned
subsidiary, JLB Service Bank. The establishment of JLB Service Bank will enable
the Company to manage its credit portfolio in a more cost-effective and
efficient manner. The bank's products will involve the extension of credit on an
unsecured basis to individuals who are customers of Blair Corporation to
facilitate their purchases of Blair's merchandise. As of September 30, 2003, JLB
Service Bank's total assets represented .90% of the total consolidated assets of
the Company. Gross revenue of JLB Service Bank was .45% and .14% of the
Company's consolidated gross revenue for the quarter ended and year to date
September 30, 2003, respectively.
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 10-21-03 .15
Blair Corporation has declared a dividend for 281 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -8-
BLAIR CORPORATION AND SUBSIDIARY
September 30, 2003
NOTE C - Stock Compensation - continued
The following illustrates the pro forma effect on net income and
earnings per share if the Company had applied the fair value recognition
provisions of SFAS No. 123:
Three Months Ended Nine Months Ended
September 30 September 30
2003 2002 2003 2002
-------- -------- ---------- -----------
Net income as reported $792,540 $279,386 $5,393,382 $12,913,195
Deduct: Total stock-based
employee compensation expense
determined under fair value
method for all awards, net of
related tax effects 214,401 116,271 529,408 256,384
-------- -------- ---------- -----------
Pro forma net income $578,139 $163,115 $4,863,974 $12,656,811
======== ======== ========== ===========
Earnings per share:
Basic - as reported $0.10 $0.03 $0.67 $1.61
======== ======== ========== ===========
Basic - pro forma $0.07 $0.02 $0.60 $1.58
======== ======== ========== ===========
Diluted - as reported $0.10 $0.03 $0.67 $1.61
======== ======== ========== ===========
Diluted - pro forma $0.07 $0.02 $0.60 $1.58
======== ======== ========== ===========
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 determined 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued -9-
BLAIR CORPORATION AND SUBSIDIARY
September 30, 2003
NOTE D - EARNINGS PER SHARE AND WEIGHTED AVERAGE SHARES OUTSTANDING - continued
The following table sets forth the computations of basic and diluted earnings
per share as required by Statement No. 128:
Three Months Ended Nine Months Ended
September 30 September 30
2003 2002 2003 2002
---------- ---------- ---------- -----------
Numerator:
Net income $ 792,540 $ 279,386 $5,393,382 $12,913,195
Denominator:
Denominator for basic
earnings per share -
weighted average shares
outstanding 8,058,665 8,027,272 8,052,783 7,994,791
Effect of dilutive securities:
Employee stock options 19,211 28,075 24,596 26,139
---------- ---------- ---------- -----------
Denominator for diluted
earnings per share -
weighted average shares
outstanding and assumed
conversions 8,077,876 8,055,347 8,077,379 8,020,930
========== ========== ========== ==========
Basic earnings per share $0.10 $0.03 $0.67 $1.61
========== ========== ========== ==========
Diluted earnings per share $0.10 $0.03 $0.67 $1.61
========== ========== ========== ==========
NOTE E - ACCRUED EXPENSES
Accrued expenses consist of:
September 30 December 31
2003 2002
------------ -----------
Employee compensation $ 9,706,513 $12,923,615
Profit sharing contribution 606,016 2,094,327
Health insurance 1,285,656 1,767,850
Voluntary separation program 849,688 1,098,103
Taxes, other than taxes on income 466,580 919,183
Other accrued items 1,641,793 1,167,163
------------ -----------
$ 14,556,246 $19,970,241
============ ===========
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 September 30, 2003:
2003 $102,010
2004 408,042
2005 103,426
--------
613,478
Less amount representing interest (43,951)
--------
Present value of minimum lease payments 569,527
Less current portion (369,877)
--------
Long-term portion of capital lease obligations $199,650
========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -10-
BLAIR CORPORATION AND SUBSIDIARIES
September 30,2003
NOTE F - Leases - continued
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 September 30, 2003:
2003 $ 833,605
2004 2,900,063
2005 2,362,914
2006 1,774,218
2007 1,276,752
Thereafter 3,893,171
-----------
$13,040,723
===========
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 (benefit) are as follows:
Three Months Ended Nine Months Ended
September 30 September 30
2003 2002 2003 2002
----------- ----------- ----------- -----------
Currently payable:
Federal $(4,845,000) $(1,797,000) $ 1,539,000 $ 9,525,000
Foreign 163,000 93,000 352,000 159,000
State (734,000) (401,000) 28,000 481,000
----------- ----------- ----------- -----------
(5,416,000) (2,105,000) 1,919,000 10,165,000
Deferred (credit) 5,893,000 2,241,000 1,384,000 (3,020,000)
----------- ----------- ----------- -----------
$ 477,000 $ 136,000 $ 3,303,000 $ 7,145,000
=========== =========== =========== ===========
The differences between total tax expense and the amount computed by applying
the statutory federal income tax rate of 35% to income before income taxes are
as follows:
Three Months Ended Nine Months Ended
September 30 September 30
2003 2002 2003 2002
-------- --------- ---------- ---------
Statutory rate applied
to pre-tax income $444,339 $ 145,385 $3,043,734 $7,020,368
State income taxes,
net of federal tax
benefit (3,900) (74,100) 142,350 45,500
Other items 36,561 64,715 116,916 79,132
$477,000 $ 136,000 $3,303,000 $7,145,000
======== ========= ========== ==========
In a previous year, the Company incurred a net operating loss of approximately
$21 million in the State of Pennsylvania. Only $16 million of the net operating
loss remains available to offset future income in the state of Pennsylvania.
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 remaining
$16 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -11-
BLAIR CORPORATION AND SUBSIDIARIES
September 30, 2003
NOTE G - INCOME TAXES - continued
Components of the provision for deferred income tax expense (benefit) are as
follows:
Three Months Ended Nine Months Ended
September 30 September 30
2003 2002 2003 2002
--------- --------- --------- -----------
Provision for
estimated returns $ 13,000 $ (81,000) $(623,000) $ (556,000)
Provision for
doubtful accounts 216,000 6,000 (98,000) 192,000
Advertising costs 4,927,000 2,299,000 2,182,000 (2,141,000)
Severance 33,000 33,000 95,000 81,000
Inventory obsolescence 23,000 (283,000) 46,000 (349,000)
Depreciation 721,000 (118,000) (44,000) (563,000)
Restricted Stock (16,000) 391,000 (44,000) 391,000
Other items - net (24,000) (6,000) (130,000) (75,000)
---------- ---------- ---------- -----------
$5,893,000 $2,241,000 $1,384,000 $(3,020,000)
========== ========== ========== ===========
Components of the deferred tax assets and liability under the liability method
as of September 30, 2003 and December 31, 2002 are as follows:
September 30 December 31
2003 2002
------------ -----------
Current net deferred tax asset:
Doubtful accounts $14,146,000 $14,048,000
Returns allowances 2,210,000 1,587,000
Inventory obsolescence 1,481,000 1,527,000
Inventory costs (328,000) (328,000)
Vacation pay 1,670,000 1,670,000
Advertising costs (9,553,000) (7,371,000)
State net operating loss 490,000 490,000
Other items 569,000 490,000
------------ -----------
Total deferred tax asset 10,685,000 12,113,000
State valuation allowance (490,000) (490,000)
------------ -----------
Deferred tax asset,
net of valuation allowance $10,195,000 $11,623,000
=========== ===========
Long-term deferred tax liability:
Property, plant and equipment $ 1,567,000 $ 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 September 30, 2003 and
December 31, 2002. The Company has a reserve for slow moving and obsolete
inventory amounting to $3,880,000 at September 30, 2003, $4,000,000 at December
31, 2002 and $5,063,000 at September 30, 2002.
NOTE I - OTHER INCOME
Other income consists of: Three Months Ended Nine Months Ended
September 30 September 30
2003 2002 2003 2002
----------- ----------- ----------- -----------
Finance charges on
time payment accounts $ 9,010,271 $ 8,443,430 $26,323,846 $26,335,200
Commissions earned 437,783 554,575 1,002,762 1,532,745
Other items 1,553,831 1,096,529 3,338,280 2,176,740
----------- ----------- ----------- -----------
$11,001,885 $10,094,534 $30,664,888 $30,044,685
============ =========== ============ ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -12-
BLAIR CORPORATION AND SUBSIDIARIES
September 30, 2003
NOTE I - OTHER INCOME - continued
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. 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. As of September 30, 2003, the facility had lender
commitments of $30 million. 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 September 30, 2003);
swing loan rate option (as quoted by PNC Bank); or Euro-rate option (Euro-rate
plus 1.75%) 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 September 30, 2003, the Company was in
compliance with all the Agreement's covenants. At September 30, 2003, the
Company had no borrowings (loans) outstanding, but had letters of credit
totaling $20.7 million outstanding, which reduces the amount of borrowings
available under the Credit Agreement. At December 31, 2002,and September
30,2002, the Company had no borrowings (loans) outstanding, but had outstanding
letters of credit totaling $16.2 million and $9.7 million, respectively.
Also, on December 20, 2001, the Company completed a securitization of up to $100
million in accounts receivable. 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.
The securitization had initial lender commitments of $50 million. On April 9,
2003, the lender commitment level increased to $70 million. Also, the
securitization was amended to extend the term to April 7, 2006. The interest
rate charged was amended from 1-month LIBOR plus 55 basis points to 1-month
LIBOR plus 80 basis points. At September 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
September 30, 2003, the Company was in compliance with all the requirements of
the Receivables Purchase Agreement. At September 30, 2003, December 31,2002, and
September 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.
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 ended December 31, 2002.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -13-
BLAIR CORPORATION AND SUBSIDIARIES
September 30, 2003
NOTE K - NEW ACCOUNTING PRONOUNCEMENTS - continued
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. However, the provisions of the
statement 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. However, the provisions of the statement impact the
accounting treatment of the voluntary separation of employees due to the planned
sale of the Blair Outlet Store in Erie, Pa. (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 adopted the new statement
effective July 1, 2003. The Company has historically not utilized derivative
instruments, and as a result, the adoption of this statement has had no impact
on the financial statements of the Company.
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 third quarter. The effective dates of certain provisions of SFAS
No. 150 have been deferred. 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -14-
BLAIR CORPORATION AND SUBSIDIARIES
September 30, 2003
NOTE L - Long-lived Assets Classified as Held for Sale - continued
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 $1,368,526 shown as Assets Held for Sale at September 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 the end of the second quarter of 2003, $53,000 had been paid.
This liability is considered satisfied and resulted in $22,000 being taken back
to income in the second quarter of 2003.
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 September 30, 2003, approximately $1.65 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 accounting principles
generally accepted in the United States 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -15-
CONDITION AND RESULTS OF OPERATIONS
BLAIR CORPORATION AND SUBSIDIARIES
September 30, 2003
Results of Operations
Comparison of Third Quarter 2003 and Third Quarter 2002
Net income for the third quarter ended September 30, 2003 increased $513,154 to
$792,540 or $.10 per basic and diluted share, compared to net income of
$279,386, or $.03 per basic and diluted share, for the third quarter ended
September 30, 2002. Results for the third quarter of 2003 reflect the impact of
increased sales offset to a large extent by increases in cost of goods sold and
advertising expenses.
Net sales for the third quarter of 2003 increased $6.3 million to $124.1 million
or 5.3% compared to net sales for the third 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 third quarter of 2003 than
in the third quarter of 2002. Gross sales revenue generated per advertising
dollar decreased slightly in the third quarter of 2003 as compared to the third
quarter of 2002. The provision for returned merchandise as a percentage of gross
mail order sales decreased 1.7% or $700,000 in the third quarter of 2003 as
compared to the third quarter of 2002. Management believes that this decrease is
attributed to ongoing efforts to improve product quality and fit.
Other income increased 9.0% in the third quarter of 2003 as compared to the
third quarter 2002. Increased finance charges were primarily responsible for the
higher other income.
Cost of goods sold increased $2.7 million or 4.7% to $60.8 million in the third
quarter of 2003 as compared to the third quarter of 2002. As a percentage of net
sales, cost of goods sold decreased to 49.0% in the third quarter of 2003 from
49.3% in the third quarter of 2002. The increase in cost of goods sold primarily
relates to the increase in sales.
Advertising expenses in the third quarter of 2003 increased $2.2 million or 6.8%
to $33.7 million from the third quarter of 2002. Strategic increases in catalog
mailings to current customers account for the majority of the increase. A 2%
increase in printing costs effective April 1, 2003 also contributed to this
variance.
The total number of catalog mailings released in the third quarter of 2003
increased by 7.2 million or 18.0% as compared to the third 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 third quarter of 2003
increased by 3.4 million or 32.3% versus the third quarter of 2002.
Total circulation of the co-op and media advertising programs increased by 44.9
million pieces or 45.8% in the third quarter of 2003 as compared to the third
quarter 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. In the third quarter
of 2003, the Company generated $18.7 million in e-commerce gross sales demand,
as compared to $14.3 million in the third quarter of 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -16-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
September 30, 2003
Results of Operations - continued
Comparison of Third Quarter 2003 and Third Quarter 2002 - Continued
General and administrative expense increased $1.5 million or 5.0% to $32.5
million in the third quarter of 2003 as compared to the third quarter of 2002.
The higher general and administrative expense was primarily attributable to
increased employee costs, additional bank fees incurred as part of rate
increases for check processing along with amortization costs associated with the
amended securitization, and legal fees incurred for the establishment of the JLB
Service Bank and Allegheny Trail subsidiaries. The amended securitization, which
is discussed further in the "Liquidity and Sources of Capital" section, provided
additional liquidity and extended the term of the financing arrangement. JLB
Service Bank enables the company to manage its accounts receivable portfolio in
a more cost-effective and efficient manner. The formation of Allegheny Trail
represents the launch of a wholesale business targeted at outdoor sporting goods
and recreational retailers.
The provision for doubtful accounts was basically flat for the third quarter
2003 as compared to third quarter 2002. The estimated bad debt rate used in the
third quarter of 2003 was 4 basis points lower than the bad debt rate used in
the third quarter of 2002. Favorable experience in the Crossing Pointe credit
portfolio was primarily offset by necessary increases in the estimated bad debt
rate to provide for greater charge off experience attributable to prospect
credit offers, 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 September 30, 2003, the delinquency rate of open accounts
receivable was approximately 2% or 30 basis points higher than at September 30,
2002. The charge-off rate for the third quarter of 2003 was 17% or 20 basis
points greater than the charge-off rate for the third quarter of 2002. The
increased charge off experience is the result of additional prospecting activity
in 2003 compared to 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 is the same at September 30, 2003 and
September 30, 2002. At September 30, 2003, the allowance for doubtful accounts
as a percentage of open accounts is 2.3% or 50 basis points higher than
September 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 $45,000 or 39% to $72,159 in the third
quarter of 2003 as compared to the third 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 third quarter of 2003.
Income taxes as a percentage of income before income taxes were 37.6% in the
third quarter of 2003 and 32.7% in the third 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
September 30, 2003
Results of Operations - continued
Comparison of Nine Month Periods Ended September 30, 2003 and September
30,2002
Net income for the nine months ended September 30, 2003 decreased 58.2% to
$5,393,382, or $.67 per share, as compared to $12,913,195, or $1.61 per share,
for the nine months ended September 30, 2002. Results for the first nine months
of 2003 reflect an increase in sales offset by increases in cost of goods sold,
advertising expenses, general & administrative expenses and the provision for
doubtful accounts.
Net sales for the first nine months of 2003 increased $14.9 million to $415.5
million or 3.7% greater than net sales for the first nine 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 nine months of 2003 were lower than in the first
nine months of 2002. Gross sales revenue generated per advertising dollar
decreased approximately 6% in the first nine months of 2003 as compared to the
first nine months of 2002. The provision for returned merchandise as a
percentage of gross mail order sales decreased 2.9% or $500,000 thousand in the
first nine months of 2003 as compared to the first nine months of 2002.
Management attributes this favorable change to improved product quality and fit.
Other income increased approximately $620,000 or 2.1% to $30.7 million in the
first nine months of 2003 as compared to the first nine months of 2002. The
increase was primarily due to an increase in revenue generated from providing
third party services such as quality control reviews performed by the company's
foreign offices and third party advertising literature being included in
outgoing customer packages.
Cost of goods sold increased $9.9 million or 5.2% to $201.4 million in the first
nine months of 2003 as compared to the same period in 2002. As a percentage of
net sales, cost of goods sold increased to 48.5% in the first nine months of
2003 from 47.8% for the first nine months of 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 nine months of 2003 increased $11.2 million or
10.9% to $113.1 million. Strategic increases in catalog 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 nine months of 2003
was 31.2 million or 24.9% greater than those released in the first nine months
of 2002.
The total number of letter mailings released in the first nine months of 2003
was 47.3 million or 9.9% greater than those released in the first nine months of
2002.
Total circulation of the co-op and media advertising programs increased 64.5
million pieces or 11.6% in the first nine months of 2003 as compared to the
first nine 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
September 30, 2003
Results of Operations - continued
Comparison of Nine Month Periods Ended September 30, 2003 and September
30,2002 - continued
In the first nine months of 2003, the Company has generated $60.4 million in
e-commerce gross sales demand versus $44.9 million for the first nine months of
2002, an increase of 34.5% over the first nine months of 2002. In all of 2002,
the Company generated $65.7 million in e-commerce orders.
General and administrative expense increased $4.2 million from $94.8 million to
$99.0 million or 4.4% in the first nine months of 2003 as compared to the first
nine months of 2002. The higher general and administrative expense in the first
nine months of 2003 was primarily attributable to increased employee costs,
additional bank fees incurred as part of rate increases for check processing
along with amortization costs associated with the amended securitization,
increased costs incurred to service an expanded credit program, depreciation on
the new fulfillment equipment and legal fees incurred for the establishment of
the JLB Service Bank and Allegheny Trail subsidiaries. The increased employee
costs were attributable to overtime incurred to complete the enhancements and
automation of the Company's fulfillment capabilities. The amended
securitization, which is discussed further in the "Liquidity and Sources of
Capital" section, provided additional liquidity and extended the term. JLB
Service Bank enables the company to manage its accounts receivable portfolio in
a more cost-effective and efficient manner. The formation of Allegheny Trail
represents the launch of a wholesale business targeted at outdoor sporting goods
and recreational retailers.
The provision for doubtful accounts increased $1.7 million from $21.2 million to
$22.9 million or 8.0% from the first nine months of 2003 compared to the same
period in 2002. The estimated bad debt rate used in the first nine months of
2003 was approximately 6% or 50 basis points higher than the bad debt rate used
in the first nine 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 September 30, 2003, the delinquency rate of open accounts
receivable was approximately 2% or 30 basis points higher than at September 30,
2002. The charge-off rate for the first nine months of 2003 was 9% or 11 basis
points greater than the charge-off rate for the first nine months of 2002. The
increased charge off experience is the result of additional prospecting activity
in 2003 compared to 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 is the same at September 30, 2003 and
September 30, 2002. At September 30, 2003, the allowance for doubtful accounts
as a percentage of open accounts is 2.3% or 50 basis points higher than
September 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -19-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
September 30, 2003
Results of Operations - continued
Comparison of Nine Month Periods Ended September 30, 2003 and September
30,2002 - continued
Interest expense decreased approximately $108,000 (29.6%) to $256,999 in the
first nine months of 2003 as compared to the first nine 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 nine
months of 2003.
Income taxes as a percentage of income before income taxes were 38.0% in the
first nine months of 2003 and 35.6% in the first nine 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.
Liquidity and Sources of Capital
All working capital and cash requirements for the first nine 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. 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. As of September 30, 2003, the facility had lender
commitments of $30 million. 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 September 30, 2003);
swing loan rate option (as quoted by PNC Bank); or Euro-rate option (Euro-rate
plus 1.75%) 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 September 30, 2003, the Company was in
compliance with all the Agreement's covenants. At September 30, 2003, the
Company had no borrowings (loans) outstanding, but had letters of credit
totaling $20.7 million outstanding, which reduces the amount of borrowings
available under the Credit Agreement. At December 31, 2002, and September
30,2002, the Company had no borrowings (loans), but had letters of credit
outstanding of $16.2 million and $9.7 million respectively.
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 lender commitment level increased to $70 million. Also, the securitization
was amended to extend the term to April 7, 2006. The interest rate charged was
amended from 1-month libor plus 55 basis points to 1-month LIBOR plus 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 September 30, 2003, $70
million of the $100
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -20-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
September 30, 2003
Liquidity and Sources of Capital - Continued
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
September 30, 2003, the Company was in compliance with all the requirements of
the Receivables Purchase Agreement. At September 30, 2003, December 31, 2002,
and September 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 3.56 at September 30,
2003, and 3.39 at both December 31, 2002 and September 30, 2002. Working capital
increased $3.9 million to $206.3 million in the first nine months of 2003. The
2003 net increase was primarily attributable to a $16.9 million increase in
inventories along with a $6.7 million change in federal and state taxes, offset
somewhat by a $7.9 million reduction in accounts receivable and a $10.3 million
reduction in cash and cash equivalents. Inventories typically peak in the third
quarter to reflect the seasonality of the business.
Merchandise inventory turnover was 3.5 times at September 30, 2003, 3.4 times at
December 31, 2002 and 3.1 times at September 30, 2002. Merchandise inventory as
of September 30, 2003 of $65.3 million was $10.2 million or 18.6% greater than
at December 31, 2002 and $9.2 million or 16.4% greater than at September 30,
2002. The merchandise inventory levels are net of the Company's reserve for
inventory obsolescence. The reserve totaled $3.9 million at September 30, 2003,
$4.0 million at December 31, 2002 and $5.1 million at September 30, 2002.
Inventory write-offs and write-downs (reductions to below cost) charged against
the reserve for obsolescence were $4.0 million in the first nine months of 2003
and $4.5 million in the first nine 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, Crossing Pointe and Allegheny
Trail product lines. Allegheny Trail was added in the third quarter of 2003 and
is expected to become a significant revenue source over the next few years.
September 30, Percent September 30, Percent
2003 of Total 2002 of Total
Product Line Net Sales Net Sales Net Sales Net Sales
------------ -------------- --------- -------------- ---------
Womenswear $268.9 million 64.7% $264.3 million 66.0%
Menswear 64.6 million 15.6% 70.1 million 17.5%
Home 50.8 million 12.2% 42.5 million 10.6%
Crossing Pointe 31.0 million 7.5% 23.7 million 5.9%
Allegheny Trail 0.2 million 0.0% 0.0 million 0.0%
-------------- --------- -------------- ---------
Total $415.5 million 100.0% $400.6 million 100.0%
============== ========= ============== =========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -21-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
September 30, 2003
Liquidity and Sources of Capital - Continued
September December September
30, 2003 31, 2002 30, 2002
Merchandise Merchandise Merchandise
Product Line Inventory Inventory Inventory
------------ ------------- ------------ -------------
Womenswear $41.1 million $32.1 million $33.2 million
Menswear 9.1 million 11.0 million 10.8 million
Home 5.2 million 5.0 million 4.8 million
Crossing Pointe 8.5 million 7.0 million 7.4 million
Allegheny Trail 1.4 million 0.0 million 0.0 million
------------- ------------- -------------
Total $65.3 million $55.1 million $56.2 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 4.9% in the first
nine months of 2003 as compared to the first nine months of 2002.
On August 20, 2003 the Company commenced operations of a new wholly-owned
subsidiary, JLB Service Bank. The establishment of JLB Service Bank will enable
the Company to manage its credit portfolio in a more cost-effective and
efficient manner. The bank's products will involve the extension of credit on an
unsecured basis to individuals who are customers of Blair Corporation to
facilitate their purchases of Blair's merchandise. As of September 30, 2003, JLB
Service Bank's total assets represented .90% of the total consolidated assets of
the Company. Gross revenue of JLB Service Bank was .45% and .14% of the
Company's consolidated gross revenue for the quarter ended and year to date
September 30, 2003, respectively.
The Company has added new facilities, modernized its existing facilities and
acquired new cost-saving equipment during the last several years. Capital
expenditures for property, plant and equipment totaled $5.0 million during the
first nine months of 2003 and $9.0 million during the first nine months of 2002.
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -22-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
September 30, 2003
Liquidity and Sources of Capital - continued
Payments Due by Period
Contractual
Obligations Total 2003 2004-2005 2006-2007 Thereafter
------------- --------- -------- ---------- --------- ----------
Capital lease
Obligations $ 569,527 $ 89,250 $ 480,277 --- ---
Operating
leases 13,040,723 833,605 5,262,977 3,050,970 3,893,171
----------- -------- ---------- ---------- ----------
Total $13,610,250 $922,855 $5,743,254 $3,050,970 $3,893,171
=========== ======== ========== ========== ==========
The Company has other lender commitments consisting of a $30 million revolving
credit facility and $70 million of lender commitments under an accounts
receivable securitization.
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 281 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".
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
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -23-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
September 30, 2003
Critical Accounting Policies - continued
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 September 30, 2003 from
sales prior to October 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
September 30, 2003 on merchandise inventory as of September 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.
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 September 30, 2003 and at December
31, 2002. At September 30, 2002, the LIFO reserve was $5.4 million.
Property, plant and equipment are continuously being expanded and updated.
Major
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -24-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
September 30, 2003
Impact of Inflation and Changing Prices - continued
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 ended 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. However, the provisions of this
statement 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. However, the provisions of this statement impact
the accounting treatment of the voluntary separation of employees due to the
planned sale of the Blair Outlet Store in Erie, Pa. (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 adopted the new statement
effective July 1, 2003. The Company has historically not utilized derivative
instruments, and as a result, the adoption of this statement has had no impact
on the financial statements of the Company.
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
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -25-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
September 30, 2003
Accounting Pronouncements - continued
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 third quarter. The effective dates of certain provisions of SFAS
No. 150 have been deferred. 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.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995
Forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.
Words such as "believes", "anticipates", "plans", "expects", and similar
expressions are intended to identify forward-looking statements. Any statements
contained in this report that are not statements of historical fact may be
deemed to be forward-looking statements. Such forward-looking statements are
included in, but not limited to, the following sections of the report:
- The paragraph on the provision for doubtful accounts in the Results of
Operations, Comparison of Third Quarter 2003 and Third Quarter 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -26-
CONDITION AND RESULTS OF OPERATIONS - continued
BLAIR CORPORATION AND SUBSIDIARIES
September 30, 2003
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
- continued
- The paragraph on the provision for doubtful accounts in the Results of
Operations, Comparison of Nine Month Periods Ended September 30, 2003
and September 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 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
September 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
---------------------------------------------------
Not Applicable.
Item 5. Other Information
Not Applicable.
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 August 22, 2003, the Company filed a Form 8-K announcing that it
had formally organized and began operations of JLB Service Bank (the
"Bank"), a Delaware chartered banking corporation which is
wholly-owned by the Company. The Bank is a Delaware state chartered
non-Federal Reserve member bank, which has been approved for Federal
Deposit Insurance by the Federal Deposit Insurance Corporation, which
will serve as a credit card bank to engage only in credit card
origination. The Bank will not accept demand deposits, will not
accept savings or time deposits of less than $100,000, and will not
make commercial loans.
On October 22, 2003, the Company filed a Form 8-K announcing its
earnings for the quarter and nine months ended September 30, 2003.
PART II. OTHER INFORMATION -28-
BLAIR CORPORATION AND SUBSIDIARIES
September 30, 2003
Item 6. Exhibits and Reports on Form 8-K - continued
----------------
(1) Incorporated by reference to Exhibit A to the Quarterly Report on Form 10-Q
of the Company filed with the SEC on August 10, 1995 (SEC File No. 1-878).
(2) Incorporated 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) Incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form
10-Q of the Company filed with the SEC on August 8, 2003 (SEC File No. 1-878).
Certain schedules to the agreement have been omitted.
(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 November 7, 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: November 7, 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: November 7, 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 September 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.
November 7, 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 September 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.
November 7, 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.