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, 2002 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 (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
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As of August 12, 2002 the registrant had outstanding 8,043,480 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, 2002
CONSOLIDATED BALANCE SHEETS -3-
BLAIR CORPORATION AND SUBSIDIARIES
June 30 December 31
2002 2001
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 54,165,577 $ 5,712,49
Customer accounts receivable, less allowances
for doubtful accounts and returns of
$44,568,852 in 2002 and $45,967,160 in 2001 146,270,128 158,302,205
Inventories - Note G
Merchandise 48,076,063 73,249,927
Advertising and shipping supplies 9,281,506 22,162,217
------------- ------------
57,357,569 95,412,144
Deferred income taxes - Note F 15,491,000 10,675,000
Prepaid expenses 1,399,538 878,870
------------ ------------
Total current assets 274,683,812 270,980,714
Property, plant and equipment:
Land 1,142,144 1,142,144
Buildings 65,098,446 64,443,439
Equipment 58,594,992 56,396,816
Construction in progress 5,634,937 3,611,748
------------ ------------
130,470,519 125,594,147
Less allowances for depreciation 76,828,409 73,553,885
------------ ------------
53,642,110 52,040,262
Trademarks 596,529 632,651
Other long-term assets 711,484 459,702
------------ ------------
TOTAL ASSETS $329,633,935 $324,113,329
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - Note I $ 15,000,000 $ 15,000,000
Trade accounts payable 27,986,475 47,632,277
Advance payments from customers 2,826,132 1,925,619
Accrued expenses - Note D 17,020,500 11,818,546
Accrued federal and state taxes 11,754,517 2,776,985
Current portion of capital lease
obligations - Note E 339,804 336,865
------------ ------------
Total current liabilities 74,927,428 79,490,292
Capital lease obligations, less current
portion - Note E 652,934 824,966
Deferred income taxes - Note F 1,564,000 2,009,000
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 14,559,818 14,589,838
Retained earnings 282,195,547 271,954,815
Accumulated other comprehensive income 7,448 -0-
------------ ------------
297,182,623 286,964,463
Less 2,085,127 shares in 2002 and
2,105,571 shares in 2001 of common stock
in treasury - at cost 42,726,506 43,187,542
Less receivable from stock plans 1,966,544 1,987,850
------------ ------------
Total stockholders' equity 252,489,573 241,789,071
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $329,633,935 $324,113,329
============ ============
See accompanying notes.
CONSOLIDATED STATEMENTS OF INCOME -4-
BLAIR CORPORATION AND SUBSIDIARIES
Three Months Ended Six Months Ended
June 30 June 30
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net sales $147,513,331 $164,093,069 $282,774,786 $297,148,214
Other income - Note H 9,877,074 11,122,746 19,950,151 22,425,685
Interest from tax settlement -0- 4,061,253 -0- 4,061,253
------------ ------------ ------------ ------------
157,390,405 179,277,068 302,724,937 323,635,152
Costs and expenses:
Cost of goods sold 68,944,579 78,838,780 133,479,575 143,249,625
Advertising 36,854,894 48,822,315 71,039,256 87,512,602
General and administrative 33,243,599 32,721,729 63,807,309 65,330,117
Provision for doubtful accounts 7,238,809 9,467,386 14,509,111 17,761,407
Interest 125,846 736,592 246,877 1,464,081
------------ ------------ ------------ ------------
146,407,727 170,586,802 283,082,128 315,317,832
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 10,982,678 8,690,266 19,642,809 8,317,320
Income tax expense - Note F 3,950,000 3,211,000 7,009,000 3,070,000
------------ ------------ ------------ -----------
NET INCOME $7,032,678 $5,479,266 $ 12,633,809 $5,247,320
=========== ========== ============ ==========
Basic and diluted earnings per share based on $ .88 $ .69 $1.58 $ .66
===== ===== ===== =====
weighted average shares outstanding - Note C
See accompanying notes.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -5-
BLAIR CORPORATION AND SUBSIDIARIES
Three Months Ended Six Months Ended
June 30 June 30
2002 2001 2002 2001
------------ ------------ ------------ ------------
Common Stock $ 419,810 $ 419,810 $ 419,810 $ 419,810
Additional paid-in capital:
Balance at beginning of period 14,589,838 14,612,333 14,589,838 14,612,333
Issuance of Common Stock to non-employee directors (2,619) (5,871) (2,619) (5,871)
Issuance of Common Stock under Omnibus Stock Plan 23,257 -0- 23,257 -0-
Forfeitures of Common Stock under Employee Stock
Purchase Plan (3,249) (6,908) (3,249) (6,908)
Exercise of non-qualified stock options under
Omnibus Stock Plan (47,409) -0- (47,409) -0-
------------ ------------ ------------ ------------
Balance at end of period 14,559,818 14,599,554 14,559,818 14,599,554
Retained earnings:
Balance at beginning of period 276,360,466 266,017,142 271,954,815 267,444,414
Net income 7,032,678 5,479,266 12,633,809 5,247,320
Cash dividends declared - Note B (1,197,597) (1,195,507) (2,393,077) (2,390,833)
------------ ------------ ------------ ------------
Balance at end of period 282,195,547 270,300,901 282,195,547 270,300,901
Accumulated other comprehensive income:
Balance at beginning of period 4,465 -0- -0- -0-
Foreign currency translation 2,983 -0- 7,448 -0-
------------ ------------ ------------ ------------
Balance at end of period 7,448 -0- 7,448 -0-
Treasury Stock:
Balance at beginning of period (43,187,542) (43,218,782) (43,187,542) (43,218,782)
Issuance of Common Stock to non-employee directors 63,279 31,746 63,279 31,746
Issuance of Common Stock under Omnibus Stock Plan 246,118 -0- 246,118 -0-
Forfeitures of Common Stock under
Employee Stock Purchase Plan (4,064) (2,543) (4,064) (2,543)
Exercise of non-qualified stock options under
Omnibus Stock Plan 155,703 -0- 155,703 -0-
------------ ------------ ------------ ------------
Balance at end of period (42,726,506) (43,189,579) (42,726,506) (43,189,579)
Receivable from stock plans:
Balance at beginning of period (1,935,763) (2,178,287) (1,987,850) (2,231,623)
Issuance of Common Stock under Omnibus Stock Plan (87,083) -0- (87,083) -0-
Forfeitures of Common Stock under Employee Stock
Purchase Plan 3,750 3,150 3,750 3,150
Repayments 52,552 57,817 104,639 111,153
------------ ------------ ------------ ------------
Balance at end of period (1,966,544) (2,117,320) (1,966,544) (2,117,320)
------------ ------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY $252,489,573 $240,013,366 $252,489,573 $240,013,366
============ ============ ============ ============
See accompanying notes
CONSOLIDATED STATEMENTS OF CASH FLOWS -6-
BLAIR CORPORATION AND SUBSIDIARIES
Six Months Ended
June 30
2002 2001
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OPERATING ACTIVITIES
Net income $12,633,809 $5,247,320
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 4,269,900 3,870,502
Provision for doubtful accounts 14,509,111 17,761,407
Provision for deferred income taxes (5,261,000) (1,150,000)
Compensation expense from stock
awards (net of forfeitures) 239,389 19,574
Changes in operating assets and
liabilities providing (using) cash:
Customer accounts receivable (2,477,034) (6,672,202)
Inventories 38,054,575 1,644,135
Prepaid expenses (782,083) (456,342)
Trade accounts payable (19,645,802) (34,007,049)
Advance payments from customers 900,513 282,297
Accrued expenses 5,201,954 (2,739,576)
Accrued federal and state taxes 8,977,532 2,771,823
NET CASH PROVIDED BY (USED IN) OPERATING ----------- -----------
ACTIVITIES 56,620,864 (13,428,111)
INVESTING ACTIVITIES
Purchases of property, plant and equipment (5,835,626) (4,477,450)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (5,835,626) (4,477,450)
FINANCING ACTIVITIES
Net proceeds from bank borrowings -0- 25,000,000
Repayments of principal on capital leases (169,093) -0-
Dividends paid (2,393,077) (2,390,833)
Exercise of non-qualified stock options 108,294 -0-
Repayments of notes receivable from stock
plans 104,639 111,153
----------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES (2,349,237) 22,720,320
EFFECT OF EXCHANGE RATE CHANGES ON CASH 17,081 -0-
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 48,453,082 4,814,759
Cash and cash equivalents at beginning of year 5,712,495 7,497,907
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $54,165,577 $12,312,666
=========== ===========
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -7-
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2002
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 generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by 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, 2002 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2002. 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, 2001.
The consolidated financial statements include the accounts of Blair Corporation
and its wholly-owned subsidiaries. All significant intercompany accounts are
eliminated upon consolidation.
NOTE B - DIVIDENDS DECLARED
2-09-01 $.15 per share 2-13-02 $.15 per share
4-17-01 .15 4-16-02 .15
8-20-01 .15 7-16-02 .15
11-16-01 .15
NOTE C - 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
2002 2001 2002 2001
---------- ---------- ----------- ----------
Numerator:
Net income $7,032,678 $5,479,266 $12,633,809 $5,247,320
Denominator:
Denominator for basic
earnings per share-
weighted average shares
outstanding 7,979,883 7,969,819 7,975,591 7,969,401
Effect of dilutive securities:
Employee stock options 26,157 235 14,716 117
---------- --------- --------- ---------
Denominator for diluted
earnings per share-
weighted average shares
outstanding and assumed
conversions 8,006,040 7,970,054 7,990,307 7,969,518
Basic earnings per share $.88 $.69 $1.58 $.66
Diluted earnings per share $.88 $.69 $1.58 $.66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -8-
Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 2002
NOTE D - ACCRUED EXPENSES
Accrued expenses consist of:
June 30 December 31
2002 2001
----------- -----------
Employee compensation $10,698,049 $ 7,274,766
Contribution to profit sharing
and retirement plan feature 1,535,841 880,397
Taxes, other than taxes on income 769,948 456,421
Voluntary separation program 1,254,583 1,379,243
Other accrued items 2,762,079 1,827,719
----------- -----------
$17,020,500 $11,818,546
=========== ===========
NOTE E - 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, 2002:
2002 $210,784
2003 411,334
2004 405,615
2005 101,404
----------
1,129,137
Less amount representing interest (136,399)
----------
Present value of minimum lease payments 992,738
Less current portion (339,804)
----------
Long-term portion of capital lease
obligations $652,934
==========
Operating Leases
The Company leases certain data processing, office and telephone equipment under
agreements that expire in various years through 2006. 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, 2002:
2002 $ 1,451,321
2003 2,617,907
2004 2,044,298
2005 1,608,621
2006 1,382,748
Thereafter 4,971,416
-----------
$14,076,311
===========
NOTE F - 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
2002 2001 2002 2001
---------- ---------- ----------- ----------
Currently payable:
Federal $6,471,000 $4,379,000 $11,322,000 $4,045,000
Foreign 26,000 -0- 66,000 -0-
State 600,000 375,000 882,000 175,000
---------- ---------- ---------- ----------
7,097,000 4,754,000 12,270,000 4,220,000
Deferred credit (3,147,000) (1,543,000) (5,261,000) (1,150,000)
---------- ---------- ----------- ----------
$3,950,000 $3,211,000 $ 7,009,000 $3,070,000
========== ========== =========== ==========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -9-
BLAIR CORPORATION AND SUBSIDIARY
June 30, 2002
NOTE F - 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
2002 2001 2002 2001
---------- ---------- ---------- ----------
Statutory rate applied to
pre-tax income $3,843,937 $3,041,593 $6,874,983 $2,911,062
State income taxes, net
of federal tax benefit 97,500 115,700 119,600 18,200
Other items 8,563 53,707 14,417 140,738
---------- ---------- ---------- ----------
$3,950,000 $3,211,000 $7,009,000 $3,070,000
========== ========== ========== ==========
Components of the provision for deferred income tax credit are as follows:
Three Months Ended Six Months Ended
June 30 June 30
2002 2001 2002 2001
---------- ---------- ---------- ----------
Provision for estimated
returns $ (198,000) $ 22,000 $ 475,000 $ 891,000
Provision for doubtful
accounts (372,000) (345,000) (186,000) 145,000
Advertising costs 3,556,000 2,938,000 4,440,000 (60,000)
Severance (19,000) (310,000) (48,000) 645,000
Inventory obsolescence (54,000) (901,000) 66,000 (700,000)
Depreciation 203,000 125,000 445,000 182,000
Other items - net 31,000 14,000 69,000 47,000
---------- ---------- ---------- ----------
$3,147,000 $1,543,000 $5,261,000 $1,150,000
========== ========== ========== ==========
Components of the deferred tax assets and liability under the liability method
as of June 30, 2002 and December 31, 2001 are as follows:
June 30 December 31
2002 2001
----------- -----------
Current net deferred tax asset:
Doubtful accounts $13,495,000 $13,681,000
Returns allowances 2,296,000 1,821,000
Inventory obsolescence 1,650,000 1,584,000
Inventory costs (924,000) (924,000)
Vacation pay 1,469,000 1,469,000
Advertising costs (3,514,000) (7,954,000)
State net operating loss 540,000 600,000
Other items 1,019,000 998,000
----------- -----------
Total deferred tax asset $16,031,000 $11,275,000
State valuation allowance (540,000) (600,000)
----------- -----------
Deferred tax asset,
net of valuation allowance $15,491,000 $10,675,000
=========== ===========
Long-term deferred tax liability:
Property, plant and equipment $ 1,564,000 $ 2,009,000
=========== ===========
NOTE G - 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, the total
amount would have increased by approximately $5,366,000 at both June 30, 2002
and December 31, 2001.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -10-
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2002
NOTE H - OTHER INCOME
Other income consists of:
Three Months Ended Six Months Ended
June 30 June 30
2002 2001 2002 2001
---------- ----------- ----------- -----------
Finance charges on time
payment accounts $8,757,726 $ 9,536,325 $17,891,770 $19,324,657
Commissions earned 579,539 1,020,645 978,170 1,909,848
Other items 539,809 565,776 1,080,211 1,191,180
---------- ----------- ---------- -----------
$9,877,074 $11,122,746 $19,950,151 $22,425,685
========== =========== =========== ===========
Finance charges on time payment accounts are recognized on an accrual basis of
accounting.
NOTE I - 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 puts 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. At the
present time, $28 million of the $30 million is available to the Company, with
the balance obtainable upon meeting certain provisions. The interest rate is, at
the Company's option, based on a base rate option (greater of Prime or Fed Funds
Rate plus .5%), 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 specifically 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, 2002, the
Company was in compliance with all the Credit Agreement's covenants. At June 30,
2002, the Company had no borrowings (loans) outstanding and had letters of
credit totaling $13.6 million outstanding, which reduces the amount of
borrowings available, under the Credit Agreement. At December 31, 2001, nothing
was 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. The Company sold all right, title
and interest in and to certain of its accounts receivables to Blair Factoring
Company, a wholly-owned subsidiary. Blair Factoring Company is a separate
bankruptcy remote special purpose entity that entered into a Receivable 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 Receivable Purchase Agreement
are considered secured borrowings and collateral transactions under the
provisions of Statement of Financial Accounting Standards No. 140, Accounting
for Transfers and Services of Financial Assets and Extinguishment of
Liabilities. At the present time, $50 million of the $100 million is available
to the Company, with the balance obtainable upon meeting certain provisions. The
interest rate approximates 1-month LIBOR plus the appropriate spread (55 basis
points at June 30, 2002) 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, 2002, the Company was in compliance with all the
requirements of the Receivables Purchase Agreement. At both June 30, 2002 and
December 31, 2001, the Company had $15 million outstanding, the minimum amount
required to be outstanding, under the Receivables Purchase Agreement, all of
which was classified as short-term.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -11-
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2002
NOTE I - FINANCING ARRANGEMENTS - Continued Both the revolving credit facility
and the securitization have three-year terms expiring December 20, 2004. The two
new agreements replaced a $55,000,000 Revolving Credit Facility that was to
expire on December 31, 2001. The $55,000,000 Revolving Credit Facility was an
extension, and reduction, of the $95,000,000 Revolving Credit Facility that
expired on November 13, 2001. At June 30, 2001, the Company had $50 million
outstanding under the $95,000,000 Revolving Credit Facility, all of which was
classified as short-term.
Additionally, the Company had available a $25 million line for letters of
credit. As of December 20, 2001, no new letters of credit can be issued under
the $25 million line and the line will expire around mid-year 2002 when the last
letter of credit is scheduled to expire. Outstanding letters of credit amounted
to approximately $18,000 at June 30, 2002 and $10,000,000 at December 31, 2001
and related primarily to inventory purchases. New letters of credit issued after
December 20, 2001 will be issued under the Credit Agreement dated December 20,
2001. As previously stated, no letters of credit were issued under the Credit
Agreement as of December 31, 2001 and $13.6 million of letters of credit were
outstanding under the Credit Agreement as of June 30, 2002.
NOTE J - NEW ACCOUNTING PRONOUNCEMENTS
Accounting for Derivative Instruments and Hedging Activities The Financial
Accounting Standards Board issued Statement No.133, "Accounting for Derivative
Instruments and Hedging Activities." The Company adopted the new statement
effective January 1, 2001. The Company has historically not invested in
derivative instruments, and as a result, the adoption of this statement has had
no impact on the financial statements of the Company.
Business Combinations and Goodwill and Other Intangible Assets
The Financial Accounting Standards Board issued Statements of Financial
Accounting Standards No. 141, "Business Combinations," and No. 142,
"Goodwill and Other Intangible Assets." The Company adopted the new rules
on accounting for goodwill and other intangible assets effective January
1, 2002. The adoption of these statements did not have an impact on the
Company.
NOTE K - VOLUNTARY SEPARATION PROGRAM
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, 2002, approximately $1.25 million of the $2.5 million
has been paid.
NOTE L - OMNIBUS STOCK PLAN
The Company has an Omnibus Stock Plan that gives the Company the ability to
offer a variety of equity based awards to persons who are key to the Company's
growth, development and financial success. Awards are valued in accordance with
the terms and conditions of the Omnibus Stock Plan as determined by the Omnibus
Stock Plan Committee. Non-qualified stock options totaling 167,229 options were
awarded to certain employees on April 15, 2002. Non-qualified stock options
totaling 90,519 options were awarded to the executive officers on April 16,
2001. Restricted stock awards totaling 11,611 shares of treasury stock were
issued to certain employees on May 1, 2002.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -12-
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2002
NOTE M - 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 N - 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 O - 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 -13-
CONDITION AND RESULTS OF OPERATIONS
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2002
Results of Operations
Comparison of Second Quarter 2002 and Second Quarter 2001
Net income for the second quarter ended June 30, 2002 increased 28% to
$7,032,678, or $.88 per share, compared to net income of $5,479,266, or $.69 per
share, for the second quarter ended June 30, 2001. Results for the second
quarter of 2002 reflect decreases in operating costs, cost of goods sold and the
provision for doubtful accounts. Operating costs, which include advertising,
general and administrative and interest expenses, decreased 14.7% in the second
quarter of 2002 as compared to the second quarter of 2001. Cost of goods sold as
a percentage of net sales decreased to 46.7% for the second quarter of 2002 from
48.1% for the second quarter of 2001. The provision for doubtful accounts
decreased 23.5% in the second quarter of 2002 as compared to the second quarter
of 2001. Net income for the second quarter ended June 30, 2001 includes $4
million of pre-tax interest income resulting from a favorable Internal Revenue
tax settlement. Without the one-time gain in interest income, net income for the
2001 second quarter would have been $2,920,444, or $.37 per share.
Net sales for the second quarter of 2002 were 10% lower than net sales for the
second quarter of 2001. Actual response rates in the second quarter of 2002 were
higher than in the second quarter of 2001 and were higher than expected levels
for the first quarter of 2002. Gross sales revenue generated per advertising
dollar increased approximately 17% in the second quarter of 2002 as compared to
the second quarter of 2001. The provision for returned merchandise as a
percentage of gross sales decreased in the second quarter of 2002 as compared to
the second quarter of 2001. The decrease in sales was attributable to several
reasons. Weaker economic conditions and a softer retail market negatively
impacted the Company's sales. Additionally, the Company intentionally reduced
advertising expenditures and did not mail to less productive and less profitable
customers, who are greater credit risks.
Other income decreased 11.2% in the second quarter of 2002 as compared to the
second quarter of 2001. Decreased finance charges and commissions were primarily
responsible for the lower other income. The lower finance charges resulted from
decreased customer accounts receivable and the lower commissions resulted from
decreased continuity program activity.
In the second quarter of 2001, the Company received a one-time $4 million
interest payment resulting from a favorable Internal Revenue tax settlement. The
Company also recovered approximately $9 million in federal income tax refunds
from the settlement.
Cost of goods sold as a percentage of net sales decreased to 46.7% in the second
quarter of 2002 from 48.1% in the second quarter of 2001. The improvement in
cost of goods sold is attributable to stable or declining product costs, the
Company's efforts to improve gross margins and the lower rate of merchandise
returned.
Advertising expense in the second quarter of 2002 decreased 24.5% from the
second quarter of 2001. Reductions in advertising volume and paper costs were
primarily responsible for the lower advertising cost in the second quarter of
2002. Paper costs have fallen more than 20% from the beginning of 2001 up to the
current time
The total number of catalog mailings released in the second quarter of 2002 was
13% less than in the second quarter of 2001 (48.5 million vs. 55.9 million). The
total number of prospect catalogs was approximately the same in the second
quarters of both years. Print advertising for Crossing Pointe is all via catalog
and is included in the catalog mailings numbers.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -14-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2002
Results of Operations - Continued
Comparison of Second Quarter 2002 and Second Quarter 2001 -
Continued
The total number of letter mailings released in the second quarter of 2002 was
35% less than in the second quarter of 2001 (18.6 million vs. 28.6 million).
Letter mailings are most productive when targeting the Company's female
customers and are currently used only to promote our women's apparel lines.
Total volume of the co-op and media advertising programs decreased 44% in the
second quarter of 2002 as compared to the second quarter of 2001 (172 million
vs. 305 million).
The Company launched e-commerce sites for Crossing Pointe
www.crossingpointe.com, and the Blair Online Outlet early in the third quarter
of 2000. The Blair website, www.blair.com, incorporating the Online Outlet, was
launched late third quarter/early fourth quarter of 2000. A redesigned Blair
website was introduced in the first quarter of 2001 featuring improved
navigation and quicker access to the Company's expanded product offerings. In
the second quarter of 2002, the Company has generated $14.1 million in
e-commerce sales demand as compared to $8.0 million in the second quarter of
2001.
General and administrative expense increased 1.6% in the second quarter of 2002
as compared to the second quarter of 2001. Increased employee costs, primarily
benefits determined by corporate income, were responsible for the higher general
and administrative expense in the second quarter of 2002.
The provision for doubtful accounts as a percentage of credit sales decreased
15.9% in the second quarter of 2002 as compared to the second quarter of 2001.
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). The estimated bad debt rate used in the second quarter of 2002 was
112 basis points lower than the bad debt rate used in the second quarter of
2001. The estimated bad debt rate has declined due to a tightening of credit
granting and improving or stable delinquency and charge-off rates. At June 30,
2002, the delinquency rate of open accounts receivable was approximately 3%
lower than at June 30, 2001. The charge-off rate for the first six months of
2002 was approximately 3% less than the charge-off rate for the first six months
of 2001. 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 remained unchanged at June 30, 2002 as
compared to June 30, 2001. 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 83% in the second quarter of 2002 as compared to the
second quarter of 2001. Interest expense results primarily from the Company's
borrowings necessary to finance customer accounts receivable, inventories and
growth initiatives. At June 30, 2002, inventories were 47% lower and gross
customer accounts receivable were 8.5% lower as compared to June 30, 2001. As a
result, average borrowings have been much lower in the second quarter of 2002
than in the second quarter of 2001. Also, interest rates have been substantially
lower in 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -15-
CONDITION AND RESULTS OF OPERATIONS -
Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2002
Results of Operations - Continued
Comparison of Second Quarter 2002 and Second Quarter 2001 -
Continued
Income taxes as a percentage of income before income taxes were 36.0% in the
second quarter of 2002 and 36.9% in the second quarter of 2001. 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.
Comparison of Six Month Periods Ended June 30, 2002 and June
30,2001
Net income for the six months ended June 30, 2002 increased to $12,623,809, or
$1.58 per share, as compared to $5,247,320, or $.66 per Share, for the six
months ended June 30, 2001. Results for the first six months of 2002 reflect
decreases in operating costs, cost of goods sold and the provision for doubtful
accounts. Operating costs, which include advertising, general and administrative
and interest expenses, decreased 12.5% in the first six months of 2002 as
compared to the first six months of 2001. Cost of goods sold as a percentage of
net sales decreased to 47.2% for the first six months of 2002 from 48.2% for the
first six months of 2001. The provision for the doubtful accounts decreased
18.3% in the first six months of 2002 as compared to the first six months of
2001. The first six months of 2001 included $4 million of interest income
resulting from a favorable Internal Revenue tax settlement. The one-time gain in
interest income increased net income for the first six months of 2001 by 2.6
million, $.32 per share. The first six months of 2001 also included a $2.5
million charge attributable to the Company's voluntary separation program. The
one-time charge decreased net income for the first six months by 2001 by $1.5
million, $.18 per share.
Net sales for the first six months of 2002 were 5% lower than net sales for the
first six months of 2001. Actual response rates in the first six months of 2002
were higher than in the first six months of 2001 and were higher than expected
levels for the first six months of 2002. Gross sales revenue generated per
advertising dollar increased approximately 16% in the first six months of 2002
as compared to the first six months of 2001. The provision for returned
merchandise as a percentage of gross sales decreased in the first six months of
2002 as compared to the first six months of 2001. The decrease in sales was
attributable to several reasons. Weaker economic conditions and a softer retail
market negatively impacted the Company's sales. Additionally, the Company
intentionally reduced advertising expenditures and did not mail to less
productive and less profitable customers, who are greater credit risks.
Other income decreased 11.0% in the first six months of 2002 as compared to the
first six months of 2001. Decreased finance charges and commissions were
primarily responsible for the lower other income. The lower finance charges
resulted from decreased customer accounts receivable and the lower commissions
resulted from decreased continuity program activity.
In June 2001, the Company received a one-time $4 million interest payment
resulting from a favorable Internal Revenue tax settlement. The Company also
recovered approximately $9 million in federal tax refunds from the settlement.
Cost of goods sold as a percentage of net sales decreased to 47.2% for the first
six months of 2002 from 48.2% for the first six months of 2001. The improvement
in cost of goods sold is attributable to stable or declining product costs, the
Company's efforts to improve gross margins, the lower rate of merchandise
returned and more effective inventory management resulting in lower inventory
liquidation costs.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -16-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2002
Results of Operations - Continued
Comparison of Six Month Periods Ended June 30, 2002 and June 30,2001 - continued
Advertising expense in the first six months of 2002 decreased 18.8%. Reductions
in advertising volume and paper costs were primarily responsible for the lower
advertising cost in the first six months of 2002. Paper costs have fallen more
than 20% from the beginning of 2001 up to the current time.
The total number of catalog mailings released in the first six months of 2002
was 9% less than in the first six months of 2001 (85.4 million vs. 93.9
million).
The total number of letter mailings released in the first six months of 2002 was
33% less than in the first six months of 2001 (32.6 million vs. 48.5 million).
Total volume of the co-op and media advertising programs decreased 39% in the
first six months of 2002 as compared to the first six months of 2001 (457
million vs. 747 million).
The Company launched e-commerce sites for Crossing Pointe,
www.crossingpointe.com, and the Blair Online Outlet early in the third quarter
of 2000. The Blair website, www.blair.com, incorporating the Online Outlet, was
launched late third quarter/early fourth quarter of 2000. A redesigned Blair
website was introduced in the first quarter of 2001 featuring improved
navigation and quicker access to the Company's expanded product offerings. In
the first six months of 2002, the Company has generated $25.3 million in
e-commerce sales demand as compared to $13.6 million in the first six months of
2001. In all of 2001, the Company generated $35 million in e-commerce orders.
General and administrative expense decreased 2.3% in the first six months of
2002 as compared to the first six months of 2001. The lower general and
administrative expense in the first six months of 2002 was primarily
attributable to the one-time $2.5 million charge for the Company's voluntary
separation program in the first quarter of 2001. The $2.5 million charge
represents the cost of the 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 former Blair Mailing Center
from which the merchandise returns operations have been relocated and the
mailing operations have been outsourced. As of June 30, 2002, $1.25 million of
the $2.5 million charge has been paid.
The provision for doubtful accounts as a percentage of credit sales decreased
13.5% in the first six months of 2002 as compared to the first six months of
2001. 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). The estimated bad debt rate used in the first six months of
2002 was 87 basis points lower than the bad debt rate used in the first six
months of 2001. The estimated bad debt rate has declined due to a tightening of
credit granting and improving delinquency and charge-off rates. At June 30,
2002, the delinquency rate of open accounts receivable was approximately 3%
lower than at June 30, 2001. The charge-off rate for the first six months of
2002 was approximately 3% less than the charge-off rate for the first six months
of 2001. 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 remained unchanged at June 30, 2002 as
compared
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -17-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2002
Results of Operations - Continued
Comparison of Six Month Periods Ended June 30, 2002 and June 30,2001 - continued
to June 30, 2001. 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 83% in the first six months of 2002 as compared to
the first six months of 2001. Interest expense results primarily from the
Company's borrowings necessary to finance customer accounts receivable,
inventories and growth initiatives. At June 30, 2002, inventories were 47% lower
and gross customer accounts receivable were 8.5% lower as compared to June 30,
2001. As a result, average borrowings have been much lower in the first six
months of 2002 than in the first six months of 2001. Also, interest rates have
been substantially lower in 2002.
Income taxes as a percentage of income before income taxes were 35.7% in the
first six months of 2002 and 36.9% in the first six months of 2001. 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 six months of 2002 were
met. Short-term funding was provided by operating activities, a revolving line
of credit and a securitization of receivables.
On December 20, 2001, the Company entered into a Credit Agreement with PNC Bank,
National Association, as agent, and certain other banks. The Agreement puts 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. At the
present time, $28 million of the $30 million is available to the Company, with
the balance obtainable upon meeting certain provisions. The interest rate is, at
the Company's option, based on a base rate option (greater of Prime or Fed Funds
Rate plus .5%), 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 specifically 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, 2002, the
Company was in compliance with all the Credit Agreement's covenants. At June 30,
2002, the Company had no borrowings (loans) outstanding and had letters of
credit totaling $13.6 million outstanding, which reduces the amount of
borrowings available, under the Credit Agreement. At December 31, 2001, nothing
was 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. The Company sold all right, title
and interest in and to certain of its accounts receivables to Blair Factoring
Company, a wholly-owned subsidiary. Blair Factoring Company is a separate
bankruptcy remote special purpose entity that entered into a Receivable 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 Receivable Purchase Agreement
are considered secured borrowings and collateral transactions under the
provisions of
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -18-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2002
Liquidity and Sources of Capital - Continued
Statement of Financial Accounting Standards No. 140, Accounting for Transfers
and Services of Financial Assets and Extinguishment of Liabilities. At the
present time, $50 million of the $100 million is available to the Company, with
the balance obtainable upon meeting certain provisions. The interest rate
approximates 1-month LIBOR plus the appropriate spread (55 basis points at June
30, 2002) 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, 2002, the Company was in compliance with all the requirements of
the Receivables Purchase Agreement. At both June 30, 2002 and December 31, 2001,
the Company had $15 million outstanding, the minimum amount required to be
outstanding, under the Receivables Purchase Agreement, all of which was
classified as short-term.
Both the revolving credit facility and the securitization have three-year terms
expiring December 20, 2004. The two new agreements replaced a $55,000,000
Revolving Credit Facility that was to expire on December 31, 2001. The
$55,000,000 Revolving Credit Facility was an extension, and reduction, of the
$95,000,000 Revolving Credit Facility that expired on November 13, 2001. At June
30, 2001 the Company had $50 million outstanding under the $95,000,000 Revolving
Credit Facility, all of which was classified as short-term.
Additionally, the Company had available a $25 million line for letters of
credit. As of December 20, 2001, no new letters of credit can be issued under
the $25 million line and the line will expire around mid-year 2002 when the last
letter of credit is scheduled to expire. Outstanding letters of credit amounted
to approximately $18,000 at June 30, 2002 and $10,000,000 at December 31, 2001
and related primarily to inventory purchases. New letters of credit issued after
December 20, 2001 will be issued under the Credit Agreement dated December 20,
2001. As previously stated, no letters of credit were issued under the Credit
Agreement as of December 31, 2001 and $13.6 million of letters of credit were
outstanding under the Credit Agreement as of June 30, 2002.
The ratio of current assets to current liabilities was 3.67 at June 30, 2002,
3.41 at December 31, 2001 and 2.70 at June 30, 2001. Working capital increased
$8,265,962 in the first six months of 2002 primarily due to the net income. The
2002 increase was primarily reflected in increased cash and cash equivalents and
decreased trade accounts payable more than offsetting decreased inventories and
customer accounts receivable.
Merchandise inventory turnover was 2.9 at June 30, 2002, 2.4 at December 31,
2001 and 2.4 at June 30, 2001. Merchandise inventory as of June 30, 2002 was 34%
lower than at December 31, 2001 and 49% lower than at June 30, 2001. Merchandise
inventory levels have been generally higher from September 30, 2000 through
September 30, 2001 due to lower than expected response rates since mid-2000 and
the introduction of new catalogs in late 2000 and early 2001. Inventory
liquidation efforts, including sales mailings, were increased in the second,
third and forth quarters of 2001 and resulted in lower merchandise inventory
levels at December 31, 2001 and in 2002. The merchandise inventory levels are
net of the Company's reserve for inventory obsolescence. The reserve totaled
$4.3 million at June 30,2002, $4.2 million at December 31, 2001 and $4.4 million
at June 30, 2001. Inventory write-offs and write-downs (reductions to below
cost) charged against the reserve for obsolescence were $3.4 million in the
first six months of 2002 and $5.5 million in the first six months of 2001. 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -19-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2002
Liquidity and Sources of Capital - Continued
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 four product lines. The fourth product line, Crossing Pointe, was
added in the third quarter of 2000 and is expected to become a significant
revenue source over the next few years. Home net sales as a percentage of total
net sales were 10.2% ($28.7 million) in the first six months of 2002 as compared
to 13.4% ($39.9 million) in the first six months of 2001. Menswear net sales as
a percentage of total net sales were 18.7% ($52.9 million) in the first six
months of 2002 as compared to 18.9% ($56.1 million) in the first six months of
2001. Womenswear net sales as a percentage of total net sales were 65.5% ($185.3
million) in the first six months of 2002 as compared to 65.5% ($194.6 million)
in the first six months of 2001. Crossing Pointe net sales as a percentage of
total net sales were 5.6% ($15.9 million) in the first six months of 2002 as
compared to 2.2% ($6.5 million) in the first six months of 2001. Home
merchandise inventory totaled $3.3 million at June 30, 2002, $4.0 million at
December 31, 2001 and $11.5 million at June 30, 2001. Menswear merchandise
inventory was $8.3 million at June 30, 2002, $13.1 million at December 31, 2001
and $20.6 million at June 30, 2001. Womenswear merchandise inventory was $33.5
million at June 30, 2002, $51.9 million at December 31, 2001 and $58.7 million
at June 30, 2001. Crossing Pointe merchandise inventory was $3.0 million at June
30, 2002, $4.2 million at December 31, 2001 and $3.6 million at June 30, 2001.
The Company looks upon its credit granting (Blair Credit) as a marketing
advantage. In the early 1990's, the Company started extending revolving credit
to first-time (prospect) buyers. Blair Credit was offered only to established
customers prior to that time. Prospects responded. This led to a broad offering
of pre-approved lines of credit to prospects in 1995 and 1996. Sales, accounts
receivable and bad debts expectedly increased. However, as the receivables aged,
bad debts greatly exceeded expected levels. The Company recognized that it
didn't have all the necessary credit controls in place and put a hold (second
quarter 1996) on pre-approved credit offers and reviewed and strengthened
(mid-1996 and on) credit controls. Blair Credit customers, on average, buy more,
buy more often and are more loyal than cash and credit card customers. The
benefit from the increased sales volume achieved by offering Blair Credit is
significant and more than outweighs the cost of the credit program. The cost
and/or contribution of the credit program itself can be quickly assessed by
comparing finance charges (included in other income) to the provision for
doubtful accounts. For the first six months of 2002, finance charges were $17.9
million and the provision for doubtful accounts was $14.5 million (net of $3.4
million). For the first six months of 2001, finance charges were $19.3 million
and the provision for doubtful accounts was $17.8 million (net of $1.6 million).
The assessments do not take into consideration the administrative cost of the
credit program (included in general and administrative expense), the cost of
money and the impact on sales. The Company's gross credit sales decreased 5.6%
in the first six months of 2002 as compared to the first six months of 2001.
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 $5.8 million during the
first six months of 2002 and $4.5 million during the first six months of 2001.
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. Capital expenditures are
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -20-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2002
Liquidity and Sources of Capital - Continued
projected to be approximately $41 million in total for the years 2002, 2003, and
2004. Approximately $21 million of the $41 million is attributable to the
fulfillment project. Most of the $5.8 million in capital expenditures in 2002
are attributable to the fulfillment project.
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 2002 2003-2004 2005-2006 Thereafter
- ----------- ----- ---- --------- --------- ----------
Capital lease
Obligations $ 992,738 $ 167,453 $ 725,454 $ 99,831 ---
Operating
leases 14,076,311 1,451,321 4,662,205 2,991,369 4,971,416
----------- ---------- ---------- ---------- ---------
Total $15,069,049 $1,618,774 $5,387,659 $3,091,200 $4,971,416
=========== ========== ========== ========== ==========
The Company has other commercial commitments consisting of a revolving credit
facility of up to $30 million, a securitization of up to $100 million in
accounts receivable, and a credit line for letters of credit.
Amount of Commitment
Expiration Per Period
Other Total
Commercial Amounts Less than 1 - 3 4 - 5 After 5
Commitments Committed 1 year years years Years
Line of Credit-
Revolving $28,000,000 -0- $28,000,000 -0- -0-
Line of Credit-
Securitization 50,000,000 -0- 50,000,000 -0- -0-
Line of Credit-
Letters of Credit 18,500 18,500 -0- -0- -0-
----------- ------- ----------- --- ---
Total $78,018,500 $18,500 $78,000,000 -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 doesn't 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, 2002. 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".
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 - 864,720 shares
purchased on the open market and 756,220 shares from the Estate of John L.
Blair. In 2000, the Company purchased 268,704 shares on the open market. No
shares were repurchased in 2001 or in the first six months of 2002.
Future cash needs will be financed by cash flow from operations, the existing
borrowing arrangements and, if needed, other financing arrangements that may be
available to the Company. The Company's current projection of future cash
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -21-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2002
Liquidity and Sources of Capital - Continued
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 2001 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 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."
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, 2002 from sales
prior to July 1, 2002.
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, 2002 on merchandise inventory as of July 1, 2002.
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. Profit margins have been pressured by postal rate
increases. Postal rates increased on January 10, 1999, on January 7, 2001, on
July 1, 2001 and again on June 30, 2002. It is anticipated that postal rates
will increase at a greater percentage and more frequently, starting with the
last increase on June 30, 2002. The Company spent approximately $90 million on
postage in 2001.
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 decreasing merchandise costs and the LIFO reserve has fallen to
$5,366,000 at June 30, 2002 from $6,717,000 at December 31, 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -22-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2002
Impact of Inflation and Changing Prices continued
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
In June 1998, Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging
Activities", was issued. The Company adopted Statement No. 133
effective January 1, 2001. The adoption of Statement No. 133
did not have an impact on the financial statements of the
Company, as the Company has historically not utilized
derivative instruments.
In June 2001, Statements of Financial Accounting Standards No.
141, "Business Combinations", and No. 142, "Goodwill and Other
Intangible Assets", were issued.
The Company adopted the Statements effective January 1,2002 and adoption of
these Statements did not have an impact on the Company.
Future Considerations
The Company is faced with the ever-present challenge of maintaining and
expanding its customer file. This involves the acquisition of new customers
(prospects), the conversion of new customers to established customers (active
repeat buyers) and the retention and/or reactivation of established customers.
These actions are vital in growing the business but are being negatively
impacted by increased operating costs, a declining labor pool, increased
competition in the retail sector, high levels of consumer debt, varying consumer
response rates and an uncertain economy. The preceding factors can also
negatively impact the Company's ability to properly value accounts receivable
and inventories by making it more difficult to establish proper reserve and
allowance levels, specifically, the allowances for doubtful accounts and returns
and the reserve for inventory obsolescence.
The Company's marketing strategy includes targeting customers in the "40 to 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 fashions will be sold exclusively
through the Company's Crossing Pointe catalog and website
(www.crossingpointe.com). The first "Jane Seymour Signature Collection" fashions
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -23-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2002
Future Considerations - continued
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. More
information on the "Jane Seymour Signature Collection" and Jane Seymour can be
obtained from the recently launched website www.janeseymour.com. The new site is
automatically linked to the Crossing Pointe website for purchasing.
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 Second Quarter 2002 and Second Quarter 2001.
- The paragraph on the provision for doubtful accounts in the Results of
Operations, Comparison of Six Month Periods Ended June 30, 2002 and June
30, 2001.
- 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 forword-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.
PART II. OTHER INFORMATION -24-
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2002
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 16, 2002.
(b) At the Annual Meeting of Stockholders, all of the
Company's directors were elected at said meeting, as follows:
David A. Blair 7,029,142 Votes For, 68,259 Votes Withheld
Robert W. Blair 7,029,392 Votes For, 68,009 Votes Withheld
Steven M. Blair 7,030,042 Votes For, 67,359 Votes Withheld
Robert D. Crowley 7,029,542 Votes For, 67,859 Votes Withheld
Harriet Edelman 6,808,805 Votes For, 288,596 Votes Withheld
John O. Hanna 7,028,892 Votes For, 68,509 Votes Withheld
Craig N. Johnson 7,027,742 Votes For, 69,659 Votes Withheld
Murray K. McComas 7,029,624 Votes For, 67,777 Votes Withheld
Thomas P. McKeever 7,023,688 Votes For, 73,713 Votes Withheld
Ronald L. Ramseyer 7,026,334 Votes For, 71,067 Votes Withheld
Kent R. Sivillo 7,030,042 Votes For, 67,359 Votes Withheld
Blair T. Smoulder 7,030,322 Votes For, 67,079 Votes Withheld
John E. Zawacki 7,028,868 Votes For, 68,533 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 matter was voted upon at the meeting,
and the following number of affirmative votes and negative votes were
cast with respect to 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,
2002 was ratified. This matter received 7,084,069 affirmative
votes, 7,070 negative votes and 6,262 votes withheld.
PART II. OTHER INFORMATION -25-
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2002
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 Bylaws of Blair Corporation(2)
4 Specimen Common Stock Certificate(3)
10.1 Stock Accumulation and Deferred Compensation Plan for
Directors(4)
10.2 Blair Corporation 2000 Omnibus Stock Plan(5)
10.3 Blair Credit Agreement(6)
11 Statement regarding computation of per share earnings(7)
99.1 CEO Certification - attached
99.2 CFO Certification - attached
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30,
2002
- ------------------
(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 4.3 to the Form S-8 Registration
Statement filed
with the SEC on July 19, 2000 (SEC File No. 333-41770).
(3) Incorporated by reference to Exhibit 4.1 to the Form S-8 Registration
Statement filed
with the SEC on July 19, 2000 (SEC File No. 333-41770).
(4) Incorporated herein by reference to Exhibit A to the Company's Proxy
Statement filed
with the SEC on March 20, 1998 (SEC File No. 1-878).
(5) Incorporated herein by reference to Exhibit A to the Company's Proxy
Statement filed
with the SEC on March 17, 2000 (SEC File No. 1-878).
(6) Incorporated herein by reference to Exhibit 99.1 to the Company's Form
8-K filed
with the SEC on January 9, 2002 (SEC File No. 1-878).
(7) Incorporated by reference to Note C of the financial statements included
herein.
-26-
Exhibit 99.1
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 10Q for the period ending June 30, 2002 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 12, 2002 JOHN E. ZAWACKI
--------------- --------------------------
JOHN E. ZAWACKI
President and
Chief Executive Officer
-27-
Exhibit 99.2
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 10Q for the period ending June 30, 2002 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 12, 2002 BRYAN J. FLANAGAN
--------------- ----------------------
BRYAN J. FLANAGAN
Senior Vice President and
Chief Financial Officer
-28-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BLAIR CORPORATION
---------------------------
(Registrant)
Date August 12, 2002 By KENT R. SIVILLO
- ------------------------ ---------------------------------
KENT R. SIVILLO
Vice President-Finance
(Chief Accounting Officer)
By BRYAN J. FLANAGAN
-----------------------------
BRYAN J. FLANAGAN
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer
and Duly Authorized Officer)