United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended June 30, 2003 Commission File Number 1-878
-------------- --------
BLAIR CORPORATION
- -----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 25-0691670
- -----------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 HICKORY STREET, WARREN, PENNSYLVANIA 16366-0001
- -----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(814) 723-3600
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(Registrant's telephone number, including area code)
Not applicable
- -----------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- ---
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Act.) YES X NO
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As of August 8, 2003 the registrant had outstanding 8,058,809 shares of its
common stock without nominal or par value.
PART I FINANCIAL INFORMATION
-2-
ITEM I. FINANCIAL STATEMENTS (UNAUDITED)
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
CONSOLIDATED BALANCE SHEETS -3-
BLAIR CORPORATION AND SUBSIDIARIES
June 30 December 31
2003 2002
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 42,990,269 $ 49,975,503
Customer accounts receivable, less
allowances for doubtful accounts
and returns of $46,859,164 in 2003
and $47,206,228 in 2002 146,702,292 149,229,882
Inventories - Note H
Merchandise 52,053,743 55,101,925
Advertising and shipping supplies 12,154,647 19,115,380
------------ ------------
64,208,390 74,217,305
Deferred income taxes - Note G 15,367,000 11,623,000
Prepaid expenses 1,744,596 1,937,635
------------ ------------
Total current assets 271,012,547 286,983,325
Property, plant and equipment:
Land 692,144 692,144
Buildings and leasehold improvements 65,428,934 65,280,676
Equipment 71,163,153 58,956,855
Construction in progress 880,357 9,376,463
------------ ------------
138,164,588 134,306,138
Less allowances for depreciation 84,628,379 80,000,142
------------ ------------
53,536,209 54,305,996
Assets held for sale - Note L 1,368,526 1,669,299
Trademarks 524,286 560,407
Other long-term assets 580,261 578,405
------------ ------------
TOTAL ASSETS $327,021,829 $344,097,432
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - Note J $ 15,000,000 $ 15,000,000
Trade accounts payable 28,217,022 40,805,116
Advance payments from customers 4,067,947 3,959,801
Accrued expenses - Note E 14,972,998 19,970,241
Accrued federal and state taxes 3,175,090 4,587,124
Current portion of capital lease
obligations - Note F 361,283 350,016
------------ ------------
Total current liabilities 65,794,340 84,672,298
Capital lease obligations, less current
portion - Note F 295,326 480,320
Deferred income taxes - Note G 846,000 1,611,000
Stockholders' equity:
Common Stock without par value:
Authorized 12,000,000 shares; issued
10,075,440 shares (including shares held
in treasury) - stated value 419,810 419,810
Additional paid-in capital 14,311,675 14,428,903
Retained earnings 288,795,224 286,511,847
Accumulated other comprehensive income (18,562) 12,686
------------ ------------
303,508,147 301,373,246
Less 2,017,206 shares in 2003 and
2,032,610 shares in 2002 of common stock
in treasury - at cost (40,840,954) (41,264,330)
Less receivable and deferred compensation
from stock plans (2,581,030) (2,775,102)
------------ ------------
Total stockholders' equity 260,086,163 257,333,814
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY $327,021,829 $344,097,432
============ ============
See accompanying notes.
CONSOLIDATED STATEMENTS OF INCOME -4-
BLAIR CORPORATION AND SUBSIDIARIES
Three Months Ended Six Months Ended
June 30 June 30
2003 2002 2003 2002
----------- ------------ ------------ ------------
Net sales $154,344,950 $147,513,331 $291,358,494 $282,774,786
Other income - Note I 9,874,658 9,877,074 19,663,003 19,950,151
------------ ------------ ------------ ------------
164,219,608 157,390,405 311,021,497 302,724,937
Costs and expenses:
Cost of goods sold 72,765,263 68,944,579 140,626,875 133,479,575
Advertising 41,491,211 36,854,894 80,074,820 71,039,256
General and administrative 34,879,262 33,243,599 66,460,022 63,807,309
Provision for doubtful accounts 8,355,839 7,238,809 16,248,098 14,509,111
Interest 95,380 125,846 184,840 246,877
------------ ------------ ------------ ------------
157,586,955 146,407,727 303,594,655 283,082,128
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 6,632,653 10,982,678 7,426,842 19,642,809
Income tax expense - Note G 2,532,000 3,950,000 2,826,000 7,009,000
------------ ------------ ------------ ------------
NET INCOME $ 4,100,653 $ 7,032,678 $ 4,600,842 $ 12,633,809
============ ============ ============ ============
Basic and diluted earnings per share based on
weighted average shares outstanding - Note D $ .51 $ .88 $ .57 $1.58
===== ===== ===== =====
See accompanying notes.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -5-
BLAIR CORPORATION AND SUBSIDIARIES
Three Months Ended Six Months Ended
June 30 June 30
2003 2002 2003 2002
------------ ------------ ------------ ------------
Common Stock $ 419,810 $ 419,810 $ 419,810 $ 419,810
Additional Paid-in Capital:
Balance at beginning of period 14,333,503 14,589,838 14,428,903 14,589,838
Issuance of Common Stock to non-employee
directors (14,558) (2,619) (18,102) (2,619)
Issuance of Common Stock under Omnibus Stock
Plan -0- 23,257 -0- 23,257
Forfeitures of Common Stock under Omnibus
Stock and Employee Stock Purchase Plans (7,537) (3,249) (18,576) (3,249)
Exercise of non-qualified stock options under
Omnibus Stock Plan (4,733) (47,409) (109,550) (47,409)
Tax benefit on exercise of non-qualified
stock options 5,000 -0- 29,000 -0-
------------ ------------ ------------ ------------
Balance at end of period 14,311,675 14,559,818 14,311,675 14,559,818
Retained Earnings:
Balance at beginning of period 285,854,604 276,360,466 286,511,847 271,954,815
Net income 4,100,653 7,032,678 4,600,842 12,633,809
Cash dividends - Note B (1,160,033) (1,197,597) (2,317,465) (2,393,077)
Balance at end of period 288,795,224 282,195,547 288,795,224 282,195,547
------------ ------------ ------------ ------------
Accumulated Other Comprehensive Income:
Balance at beginning of period (2,493) 4,465 12,686 -0-
Foreign currency translation (16,069) 2,983 (31,248) 7,448
------------ ------------ ------------ ------------
Balance at end of period (18,562) 7,448 (18,562) 7,448
Treasury Stock:
Balance at beginning of period (40,995,507) (43,187,542) (41,264,330) (43,187,542)
Issuance of Common Stock to non-employee
directors 120,938 63,279 129,057 63,279
Issuance of Common Stock under Omnibus Stock
Plan -0- 246,118 -0- 246,118
Forfeitures of Common Stock under Omnibus
Stock Plan and Employee Stock Purchase
Plans (11,063) (4,064) (37,599) (4,064)
Exercise of non-qualified stock options under
Omnibus Stock Plan 44,678 155,703 331,918 155,703
------------ ------------ ------------ ------------
Balance at end of period (40,840,954) (42,726,506) (40,840,954) (42,726,506)
Receivable and Deferred Compensation from Stock
Plans:
Balance at beginning of period (2,677,235) (1,935,763) (2,775,102) (1,987,850)
Issuance of Common Stock under Omnibus Stock
Plan -0- (87,083) -0- (87,083)
Forfeitures of Common Stock under Omnibus
Stock Plan and Employee Stock Purchase Plans 4,943 3,750 13,513 3,750
Amortization of deferred compensation, net of
forfeitures 42,175 -0- 79,852 -0-
Applications of dividends and cash repayments 49,087 52,552 100,707 104,639
------------ ------------ ------------ ------------
Balance at end of period (2,581,030) (1,966,544) (2,581,030) (1,966,544)
------------ ------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY $260,086,163 $252,489,573 $260,086,163 $252,489,573
============ ============ ============ ============
Comprehensive Income:
Net income 4,100,653 7,032,678 4,600,842 12,633,809
Adjustment from foreign currency translation (16,069) 2,983 (31,248) 7,448
------------ ------------ ------------ ------------
Comprehensive income $ 4,084,584 $ 7,035,661 $ 4,569,594 $ 12,641,257
============ ============ ============ =============
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS -6-
BLAIR CORPORATION AND SUBSIDIARIES
Six
Months Ended
June 30
2003 2002
----------- -----------
OPERATING ACTIVITIES
Net income $ 4,600,842 $12,633,809
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 4,782,433 4,269,900
Provision for doubtful accounts 16,248,098 14,509,111
Provision for deferred income taxes (4,509,000) (5,261,000)
Compensation expense (net of
forfeitures) for stock awards 148,145 239,389
Changes in operating assets and
liabilities providing (using) cash:
Customer accounts receivable (13,720,874) (2,477,034)
Inventories 10,008,915 38,054,575
Prepaid expenses and other assets 191,798 (782,083)
Trade accounts payable (12,588,410) (19,645,802)
Advance payments from customers 108,146 900,513
Accrued expenses (4,996,129) 5,201,954
Federal and state taxes (1,382,068) 8,977,532
----------- -----------
NET CASH (USED IN)PROVIDED BY OPERATING
ACTIVITIES (1,108,104) 56,620,864
INVESTING ACTIVITIES
Purchases of property, plant
and equipment (3,675,599) (5,835,626)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (3,675,599) (5,835,626)
FINANCING ACTIVITIES
Principle repayments on capital lease
obligations (173,558) (169,093)
Dividends paid (2,317,465) (2,393,077)
Exercise of non-qualified stock options 222,368 108,294
Repayments of notes receivable
from stock plans 100,707 104,639
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (2,167,948) (2,349,237)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (33,583) 17,081
----------- -----------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS EQUIVALENTS (6,985,234) 48,453,082
Cash and cash equivalents at beginning of year 49,975,503 5,712,495
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $42,990,269 $54,165,577
=========== ===========
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -7-
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Blair
Corporation and its wholly-owned subsidiaries have been prepared in accordance
with accounting principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six months ended June 30, 2003 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2003. For further information refer to the financial statements
and footnotes included in the Company's annual report on Form 10-K for the year
ended December 31, 2002.
The consolidated financial statements include the accounts of Blair Corporation
and its wholly-owned subsidiaries. All significant intercompany accounts are
eliminated upon consolidation.
As of June 30, 2003 the Company formed a new wholly-owned subsidiary, Allegheny
Trail Corp., to launch a wholesale business targeted primarily at outdoor
sporting goods and recreational retailers. Allegheny Trail will offer a core
product line of men's and women's outdoor apparel basics at entry-level price
points allowing retailers to be more competitive with major brands. Virtually
no activity took place with regard to this entity in the second quarter
of 2003.
NOTE B - DIVIDENDS DECLARED
2-13-02 $.15 per share 2-21-03 $.15 per share
4-16-02 .15 4-15-03 .15
7-16-02 .15 7-15-03 .15
10-15-02 .15
Blair Corporation has declared a dividend for 280 consecutive quarters.
NOTE C - Stock Compensation
In accordance with the provisions of Statement of Financial Accounting
Standards No. 123 the Company has elected to continue applying the provisions
of Accounting Principles Board Opinion No. 25 and related interpretations in
accounting for its stock-based compensation plans. Accordingly, the Company
does not recognize compensation expense for stock options when the stock
option price at the grant date is equal to or greater than the fair market
value of the stock at that date. The following illustrates the pro forma
effect on net income and earnings per share if the Company had applied the
fair value recognition provisions of SFAS No. 123:
Three Months Ended Six Months Ended
June 30 June 30
2003 2002 2003 2002
---------- ---------- ---------- -----------
Net income as reported $4,100,653 $7,032,678 $4,600,842 $12,633,809
Deduct: Total stock-based
employee compensation
expense determined under
fair value method for all
awards, net of related
tax effects 199,136 103,828 315,407 140,113
---------- ---------- ---------- -----------
Pro forma net income $3,901,517 $6,928,850 $4,285,435 $12,493,696
========== ========== ========== ===========
Earnings per share:
Basic - as reported $.51 $.88 $.57 $1.58
========== ========== ========== ===========
Basic - pro forma $.48 $.87 $.53 $1.57
========== ========== ========== ===========
Diluted - as reported $.51 $.88 $.57 $1.58
========== ========== ========== ===========
Diluted - pro forma $.48 $.87 $.53 $1.57
========== ========== ========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -8-
BLAIR CORPORATION AND SUBSIDIARY
June 30, 2003
NOTE C - Stock Compensation - continued
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
stock options under the fair value method of SFAS No. 123. The fair value for
these options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions: risk-free
interest rates of 3.49%, 4.95% and 5.20% for stock options issued 4/15/03,
4/15/02 and 4/16/01, respectively; dividend yields of 2.54%, 3.11% and 3.50% for
stock options issued 4/15/03, 4/15/02 and 4/16/01, respectively; volatility
factors of the expected market price of the Company's common stock of .540, .564
and .547 for stock options issued 4/15/03, 4/15/02 and 4/16/01, respectively;
and a weighted-average expected life of 7 years for the stock options issued
4/15/03, 4/15/02 and 4/16/01. The per share fair value of the options granted
was determinded to be $10.63, $8.83 and $7.40 for stock options issued 4/15/03,
4/15/02 and 4/16/01, respectively.
NOTE D - EARNINGS PER SHARE AND WEIGHTED AVERAGE SHARES OUTSTANDING Earnings per
share are computed in accordance with Statement of Financial Accounting
Standards No. 128, "Earnings per Share." Basic earnings per share are computed
using the weighted average number of shares of common stock outstanding during
the period. For diluted earnings per share, the weighted average number of
shares includes common stock equivalents related to stock options.
The following table sets forth the computations of basic and diluted earnings
per share as required by Statement No. 128:
Three Months Ended Six Months Ended
June 30 June 30
2003 2002 2003 2002
---------- ---------- ---------- -----------
Numerator:
Net income $4,100,653 $7,032,678 $4,600,842 $12,633,809
Denominator:
Denominator for basic
earnings per share -
weighted average
shares outstanding 8,056,104 7,979,883 8,050,201 7,975,591
Effect of dilutive securities:
Employee stock options 23,107 26,157 27,246 14,716
Denominator for diluted
earnings per share -
weighted average shares
outstanding and assumed
conversions $8,079,211 $8,006,040 $8,077,447 $7,990,307
========== ========== ========== ==========
Basic earnings per share $.51 $.88 $.57 $1.58
========== ========== ========== ==========
Diluted earnings per share $.51 $.88 $.57 $1.58
========== ========== ========== ==========
NOTE E - ACCRUED EXPENSES
Accrued expenses consist of:
June 30 December 31
2003 2002
----------- -----------
Employee compensation $10,327,622 $12,923,615
Profit sharing contribution 518,389 2,094,327
Health insurance 1,184,236 1,767,850
Voluntary separation program 936,764 1,098,103
Taxes, other than taxes on income 830,217 919,183
Other accrued items 1,175,770 1,167,163
----------- -----------
$14,972,998 $19,970,241
=========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -9-
BLAIR CORPORATION AND SUBSIDIARY
June 30, 2003
NOTE F - Leases
Capital Leases
The Company leases certain data processing and telephone equipment under
agreements that expire in various years through 2005. The following is a
schedule by year of future minimum capital lease payments required under capital
leases that have initial or remaining noncancelable lease terms in excess of one
year as of June 30, 2003:
2003 $ 203,992
2004 407,983
2005 103,377
---------
715,352
Less amount representing interest (58,743)
---------
Present value of minimum lease payments 656,609
Less current portion (361,283)
---------
Long-term portion of capital lease obligations $ 295,326
=========
Operating Leases
The Company leases certain data processing, office and telephone equipment under
agreements that expire in various years through 2008. The Company has also
entered into several lease agreements for buildings, expiring in various years
through 2012. The following is a schedule by years of future minimum rental
payments required under operating leases that have initial or remaining
noncancelable lease terms in excess of one year as of June 30, 2003:
2003 $ 1,522,461
2004 2,565,790
2005 2,028,641
2006 1,590,985
2007 1,276,752
Thereafter 3,893,171
-----------
$12,877,800
===========
NOTE G - INCOME TAXES
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax basis of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
The components of income tax expense are as follows:
Three Months Ended Six Months Ended
June 30 June 30
2003 2002 2003 2002
---------- ---------- ---------- -----------
Currently payable:
Federal $3,595,000 $6,471,000 $6,253,000 $11,322,000
Foreign 195,000 26,000 320,000 66,000
State 437,000 600,000 762,000 882,000
---------- ---------- ---------- -----------
4,227,000 7,097,000 7,335,000 12,270,000
Deferred credit (1,695,000) (3,147,000) (4,509,000) (5,261,000)
---------- ---------- ---------- -----------
$2,532,000 $3,950,000 $2,826,000 $ 7,009,000
========== ========== ========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -10-
BLAIR CORPORATION AND SUBSIDIARIES
June 30,2003
NOTE G - INCOME TAXES - continued
The differences between total tax expense and the amount computed by applying
the statutory federal income tax rate of 35% to income before income taxes are
as follows:
Three Months Ended Six Months Ended
June 30 June 30
2003 2002 2003 2002
---------- ---------- ---------- ----------
Statutory rate applied
to pre-tax income $2,321,429 $3,843,937 $2,599,395 $6,874,983
State income taxes,
net of federal tax
benefit 155,350 97,500 146,250 119,600
Other items 55,221 8,563 80,355 14,417
---------- ---------- ---------- ----------
$2,532,000 $3,950,000 $2,826,000 $7,009,000
========== ========== ========== ==========
In a previous year, the Company incurred a net operating loss of approximately
$21 million in the State of Pennsylvania. Only $20 million of the net operating
loss is available to offset future income in the state because Pennsylvania
limits the annual net operating loss carry forward to $2 million for 10 years. A
deferred tax asset has been established based on the $20 million net operating
loss available to be carried forward. The deferred tax asset is offset by a
valuation allowance because it is uncertain as to whether the Company will
generate sufficient income in the State of Pennsylvania in the future to absorb
the net operating loss before they expire in 2011.
Components of the provision for deferred income tax (benefit) expense are as
follows:
Three Months Ended Six Months Ended
June 30 June 30
2003 2002 2003 2002
----------- ----------- ----------- ----------
Provision for
estimated returns $ 386,000 $ 198,000 $ (636,000) $ (475,000)
Provision for
doubtful accounts (134,000) 372,000 (314,000) 186,000
Advertising costs (1,630,000) (3,556,000) (2,745,000) (4,440,000)
Severance 59,000 19,000 62,000 48,000
Inventory obsolescence 189,000 54,000 23,000 (66,000)
Depreciation (493,000) (203,000) (765,000) (445,000)
Other items - net (72,000) (31,000) (134,000) (69,000)
----------- ----------- ----------- ----------
$(1,695,000) $(3,147,000) $(4,509,000) $(5,261,000)
=========== =========== =========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -11-
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
NOTE G - INCOME TAXES - continued
Components of the deferred tax assets and liability under the liability method
as of June 30, 2003 and December 31, 2002 are as follows:
June 30 December 31
2003 2002
----------- -----------
Current net deferred tax asset:
Doubtful accounts $14,362,000 $14,048,000
Returns allowances 2,223,000 1,587,000
Inventory obsolescence 1,504,000 1,527,000
Inventory costs (328,000) (328,000)
Vacation pay 1,670,000 1,670,000
Advertising costs (4,626,000) (7,371,000)
State net operating loss 490,000 490,000
Other items 562,000 490,000
----------- -----------
Total deferred tax asset 15,857,000 12,113,000
State valuation allowance (490,000) (490,000)
----------- -----------
Deferred tax asset,
net of valuation allowance $15,367,000 $11,623,000
=========== ===========
Long-term deferred tax liability:
Property, plant and equipment $ 846,000 $ 1,611,000
=========== ===========
NOTE H - INVENTORIES
Inventories are valued at the lower of cost or market. Cost of merchandise
inventories is determined principally on the last-in, first-out (LIFO) method.
Cost of advertising and shipping supplies is determined on the first-in,
first-out (FIFO) method. Advertising and shipping supplies include printed
advertising material and related mailing supplies for promotional mailings which
are generally scheduled to occur within two months. These costs are expensed
when mailed. If the FIFO method had been used for all inventories, inventories
would have increased by approximately $5,676,000 at both June 30, 2003 and
December 31, 2002. The Company has a reserve for slow moving and obsolete
inventory amounting to $3,940,000 at June 30, 2003, $4,000,000 at December 31,
2002 and $4,321,000 at June 30, 2002.
NOTE I - OTHER INCOME Other income consists of:
Three Months Ended Six Months Ended
June 30 June 30
2003 2002 2003 2002
---------- ---------- ----------- -----------
Finance charges on time
payment accounts $8,578,328 $8,757,726 $17,313,575 $17,891,770
Commissions earned 342,328 579,539 564,979 978,170
Other items 954,002 539,809 1,784,449 1,080,211
---------- ---------- ----------- -----------
$9,874,658 $9,877,074 $19,663,003 $19,950,151
========== ========== =========== ===========
Finance charges on time payment accounts are recognized on an accrual basis of
accounting.
NOTE J - FINANCING ARRANGEMENTS
On December 20, 2001, the Company entered into a Credit Agreement with PNC Bank,
National Association, as agent, and certain other banks. The Agreement put in
place a syndicated revolving credit facility of up to $30 million, secured by
inventory and certain other assets of the Company and its subsidiaries. As of
June 30, 2003, the facility had lender commitments of $28 million. The revolving
credit facility expires on December 20, 2004. The credit agreement was amended
on July 25, 2003 to increase the commitments to the facility from $28 million to
$30 million. See Footnote Q Subsequent Events for further discussion. For each
borrowing tranche, the Company may select from three options to determine the
interest rate.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -12-
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
NOTE J - FINANCING ARRANGEMENTS - continued
The options are: a base rate option (greater of Prime or Fed Funds Rate plus .5%
as of June 30, 2003); swing loan rate option (as quoted by PNC Bank); or
Euro-rate option (Euro-rate plus 1.50%) as defined in the Credit Agreement. The
Company is required to meet certain covenants that relate to tangible net worth,
maintaining a defined leverage ratio and fixed charge coverage ratio, and
complying with certain indebtedness restrictions. As of June 30, 2003, the
Company was in compliance with all the Agreement's covenants. At June 30, 2003,
the Company had no borrowings (loans) outstanding, but had letters of credit
totaling $14.8 million outstanding, which reduces the amount of borrowings
available under the Credit Agreement. At December 31, 2002, the Company had no
borrowings (loans) outstanding, but had letters of credit totaling $16.2 million
outstanding. At June 30, 2002, the Company had no borrowings (loans)
outstanding, but had letters of credit totaling $13.6 million outstanding under
the Credit Agreement.
Also, on December 20, 2001, the Company completed a securitization of up to $100
million in accounts receivable with PNC Bank, National Association, as
administrator, and certain conduit purchasers. At December 20, 2001, the
securitization had initial lender commitments of $50 million. On April 9, 2003,
the securitization was amended to increase the commitment level from $50 million
to $70 million and extend the term to April 7, 2006. The interest rate charged
approximates 1-month LIBOR plus 55 basis points. The amended securitization
increased the interest rate spread to 80 basis points. The Company sells all
right, title and interest in and to certain of its accounts receivable to Blair
Factoring Company, a wholly-owned subsidiary. Blair Factoring Company is a
separate bankruptcy remote special purpose entity that entered into a
Receivables Purchase Agreement with PNC Bank, National Association, as
administrator, and certain conduit purchasers. The Company's consolidated
financial statements reflect all the accounts of Blair Factoring Company,
including the receivables and secured borrowings. Transactions entered into
under the Receivables Purchase Agreement are considered secured borrowings and
collateral transactions under the provisions of Statement of Financial
Accounting Standards No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities. At June 30, 2003, $70
million of the $100 million was available to the Company. The interest rate
approximates 1-month LIBOR plus 80 basis points as defined in the Receivables
Purchase Agreement. The securitization requires certain performance standards
for the Company's accounts receivable portfolio in addition to complying with
the covenants in the Credit Agreement. As of June 30, 2003, the Company was in
compliance with all the requirements of the Receivables Purchase Agreement. At
June 30, 2003, December 31, 2002, and June 30, 2002 the Company had $15 million
outstanding, the minimum amount required to be outstanding under the terms of
the Receivables Purchase Agreement, all of which was classified as short-term.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -13-
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
NOTE K - NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2002, the Company adopted the provisions of SFAS No.
142 Goodwill and Other Intangible Assets and SFAS No. 143 Accounting For
Asset Retirement Obligations. The Company adopted SFAS No. 148,
Accounting For Stock-Based Compensation Transition and Disclosure an
amendment of SFAS No. 123, Accounting for Stock-Based Compensation
effective the year ending December 31,2002.
SFAS No. 145, Recission of FASB No. 4, 44 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections, and FASB Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others were adopted by the Company effective
January 1, 2003. The adoption of these standards did not have a material impact
on the Company's results of operations or financial condition.
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets which supersedes SFAS No. 121 Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of. Although retaining many of the provisions of SFAS No. 121, SFAS
No. 144 establishes a uniform accounting model for long-lived assets to be
disposed. The Company's adoption of this statement in the first quarter of
2002 did not have an impact on the Company's financial results, but does
impact the accounting treatment of the planned sale of the Blair Outlet
Store in Erie, Pa. (See Note L)
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities when the liability is incurred and not as a result
of an entity's commitment to an exit plan. The statement is effective for exit
or disposal activities initiated after December 31, 2002. The Company's adoption
of this statement in the first quarter 2003 did not have an impact on the
Company's financial results, but does impact the accounting treatment of the
voluntary separation of employees due to the planned sale of the Blair Outlet
Store in Erie. (See Note M)
In April 2003, the FASB issued SFAS No. 149 Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. This statement is generally effective for contracts entered
into or modified after June 30, 2003. The Company believes the adoption of this
standard will not have a material impact on its results of operations or
financial condition.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This statement
establishes standards for how an issuer classifies and measures in its statement
of financial position certain financial instruments with characteristics of both
liabilities and equity. This statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise at the beginning of
the Company's fourth quarter. The Company believes the adoption of this standard
will not have a material impact on its results of operations or financial
condition.
NOTE L - Long-lived AssetS Classified as Held for Sale Upon review of the
Company's inventory liquidation strategy, the Company made the decision in
January 2003 to close its liquidation outlet store located in Erie, Pa. This
closure was effective at the close of business on March 28, 2003. The Company
intends to sell the building and believes that the sale will be completed by
March 2004. Evolvement of the Company's inventory liquidation strategy into more
rapid and profitable methods of disposing obsolete and excess inventory led to
this decision. Over the past three years, package insertions, telephone upsell
promotions, sale catalogs and the growing e-commerce channel have proven to be
more successful and profitable in moving inventory than the traditional outlet
sales process. The
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -14-
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
NOTE L - Long-lived AssetS Classified as Held for Sale - continued
$1,368,526 shown as Assets Held for Sale at June 30, 2003 and the $1,669,299
shown as Assets Held for Sale at December 31, 2002 consist of the net book value
of the land, land improvements and building. The carrying value of the asset was
reduced as a result of the level of interest in the asset.
NOTE M - VOLUNTARY SEPARATION PROGRAM
In the first quarter of 2003, the Company accrued and charged to expense $75,000
in separation costs. The costs were charged to General and Administrative
Expense in the income statement. The one-time $75,000 charge represents
severance pay, related payroll taxes and medical benefits due the 32 eligible
employees who accepted the voluntary separation program offered in connection
with closing the Company's Outlet Store located in Erie, Pennsylvania on March
28, 2003. As of June 30, 2003, $53,000 has been paid. This liability is
considered satisfied and resulted in $22,000 being taken back to income.
In the first quarter of 2001, the Company accrued and charged to expense $2.5
million in separation costs. The costs were charged to General and
Administrative Expense in the income statement. The one-time $2.5 million charge
represents severance pay, related payroll taxes and medical benefits due the 56
eligible employees who accepted the voluntary separation program rather than
relocate or accept other positions in the Company. The program was offered to
eligible employees of the Blair Mailing Center from which the merchandise
returns operations have been relocated and the mailing operations have been
outsourced. As of June 30, 2003, approximately $1.56 million of the $2.5 million
has been paid.
NOTE N - CONTINGENCIES
The Company is involved in certain items of litigation, arising in the normal
course of business. While it cannot be predicted with certainty, management
believes that the outcome will not have a material effect on the Company's
financial condition or results of operations.
NOTE O - USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
NOTE P - RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been reclassified to
conform with the current year presentation.
NOTE Q - SUBSEQUENT EVENTS
The Company amended its December 20, 2001 revolving credit facility as of July
25, 2003. The amendment increases the total commitments, including letters of
credit, from $28 million to $30 million. The limit for letters of credit
increased from $20 million to $30 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -15-
CONDITION AND RESULTS OF OPERATIONS
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
Results of Operations
Comparison of Second Quarter 2003 and Second Quarter 2002
Net income for the second quarter ended June 30, 2003 decreased 41.7% to
$4,100,653 or $.51 per basic and diluted share, compared to net income of
$7,032,678, or $.88 per basic and diluted share, for the second quarter ended
June 30, 2002. Results for the second quarter of 2003 reflect the impact of
increases in cost of goods sold and advertising expenses.
Net sales for the second quarter of 2003 increased $6.8 million to $154.3
million or 4.6% compared to net sales for the second quarter of 2002. The
increase in net sales was primarily attributable to strategic increases in
catalog mailings to current customers that served to generate sales and improve
inventory management. Actual response rates were lower in the second quarter of
2003 than in the second quarter of 2002. Gross sales revenue generated per
advertising dollar decreased approximately 7% in the second quarter of 2003 as
compared to the second quarter of 2002. The total number of orders shipped
increased 7% while the average order size decreased 3% in the second quarter of
2003 as compared to the second quarter of 2002. The provision for returned
merchandise as a percentage of gross mail order sales decreased 6% or $1.4
million in the second quarter of 2003 as compared to the second quarter of 2002.
Management believes that this decrease is attributed to ongoing efforts to
improve product quality and fit.
Other income is flat in the second quarter of 2003 as compared to the second
quarter of 2002.
Cost of goods sold increased $3.8 million or 5.5% to $72.8 million in the second
quarter of 2003 as compared to the second quarter of 2002. As a percentage of
net sales, cost of goods sold increased to 47.1% in the second quarter of 2003
from 46.7% in the second quarter of 2002. The increase in cost of goods sold
reflects an increase in sales generated from promotional activities intended to
address lower response rates. In addition, higher inbound freight expenses and
the postal rate increase of approximately 10% that took place on June 30, 2002
and impacted outbound shipping expense, contributed to the increase.
Advertising expenses in the second quarter of 2003 increased $4.6 million or
12.6% to $41.5 million from the second quarter of 2002. Strategic increases in
catalog mailings to current customers account for the majority of the increase.
The June 30, 2002 postal rate increase and a 2% increase in printing costs
effective April 1, 2003 also contributed to this variance.
The total number of catalog mailings released in the second quarter of 2003
increased by 9.5 million or 20% as compared to the second quarter of 2002. The
total number of prospect catalog mailings decreased by 1.1 million or 6%
compared to the second quarter of 2002. Print advertising for Crossing Pointe is
all via catalog and is included in the catalog mailings numbers.
The total number of letter mailings released in the second quarter of 2003
decreased by 1.2 million or 6% versus the second quarter of 2002.
Total circulation of the co-op and media advertising programs increased by 2.9
million pieces or 2% in the second quarter of 2003 as compared to the second
quarter of 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -16-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
Results of Operations - continued
Comparison of Second Quarter 2003 and Second Quarter 2002 -
Continued
The Company launched e-commerce sites for Blair www.blair.com and Crossing
Pointe www.crossingpointe.com in the third quarter of 2000. In the second
quarter of 2003, the Company generated $22.8 million in e-commerce gross sales
demand, as compared to $16.1 million in the second quarter of 2002.
General and administrative expense increased $1.6 million or 4.9% to $34.9
million in the second quarter of 2003 as compared to the second quarter of 2002.
The higher general and administrative expense was primarily attributable to
increased employee costs and additional bank fees incurred as part of rate
increases for check processing and costs associated with the amended
securitization. The amended securitization, which is discussed further in the
"Liquidity and Sources of Capital" section, provided additional liquidity and
extended the term.
The provision for doubtful accounts increased $1.1 million or 15.4% to $8.4
million from the second quarter of 2003 to the second quarter of 2002. The
estimated bad debt rate used in the second quarter of 2003 was approximately 12%
or 89 basis points higher than the bad debt rate used in the second quarter of
2002. The estimated bad debt rate has increased primarily due to increased
credit offers to both Blair and Crossing Pointe prospects, which traditionally
result in higher bad debts. These offers to prospects are intended to increase
sales and the Company's customer file.
The provision for doubtful accounts is based on current expectations (consumer
credit and economic trends, etc.), sales mix (prospect/customer) and current and
prior years' experience, especially delinquencies (accounts over 30 days past
due) and actual charge-offs (accounts removed from accounts receivable for
non-payment). At June 30, 2003, the delinquency rate of open accounts receivable
was approximately 10% or 121 basis points higher than at June 30, 2002.
Conversely, the charge-off rate for the second quarter of 2003 was 3% or 4 basis
points less than the charge-off rate for the first quarter of 2002. Recoveries
of bad debts previously charged off have been credited back against the
allowance for doubtful accounts. The allowance for doubtful accounts as a
percentage of delinquent accounts decreased 5% or 861 basis points at June 30,
2003 as compared to June 30, 2002. The allowance for doubtful accounts as a
percentage of open accounts is the same at June 30, 2003 and June 30, 2002. At
this time, the Company feels that the allowance for doubtful accounts is
sufficient to cover the charge-offs from the current customer accounts
receivable portfolio. Also, credit granting, collection and behavior models
continue to be updated and improved, and, along with expanding database
capabilities, provide valuable credit-marketing opportunities.
Interest expense decreased approximately $30,000 or 24% to $95,380 in the second
quarter of 2003 as compared to the second quarter of 2002. Interest expense
results primarily from the Company's required borrowings under the Receivables
Purchase Agreement. Interest rates have been lower in the second quarter of
2003.
Income taxes as a percentage of income before income taxes were 38.2% in the
second quarter of 2003 and 36.0% in the second quarter of 2002. The federal
income tax rate was 35% in both years. The difference in the total income tax
rate was caused by a change in the Company's effective state income tax rate.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -17-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
Results of Operations - continued
Comparison of Six Month Periods Ended June 30, 2003 and June 30,2002
Net income for the six months ended June 30, 2003 decreased 63.6% to $4,600,842,
or $.57 per share, as compared to $12,633,809, or $1.58 per share, for the six
months ended June 30, 2002. Results for the first six months of 2003 reflect
increases in cost of goods sold, advertising expenses, general & administrative
expenses and the provision for doubtful accounts.
Net sales for the first six months of 2003 increased $8.6 million to $291.4
million or 3% greater than net sales for the first six months of 2002. The
increase in net sales was primarily attributable to strategic increases in
catalog and letter mailings to current and prospective customers that served to
generate sales, grow the customer file and improve inventory management. Actual
response rates in the first six months of 2003 were lower than in the first six
months of 2002. Gross sales revenue generated per advertising dollar decreased
approximately 8% in the first six months of 2003 as compared to the first six
months of 2002. The provision for returned merchandise as a percentage of gross
mail order sales decreased 3.5% or $1.6 million in the first six months of 2003
as compared to the first six months of 2002. Management attributes this
favorable change to improved product quality and fit.
Other income decreased approximately $287,000 or 1.4% to $19.7 million in the
first six months of 2003 as compared to the first six months of 2002. Lower
finance charges and commissions were primarily responsible for the small
reduction in other income. The lower finance charges resulted from decreased
customer accounts receivable and the lower commissions resulted from decreased
continuity program activity.
Cost of goods sold increased $7.1 million or 5.4% to $140.6 million in the first
six months of 2003 as compared to the same period in 2002. As a percentage of
net sales, cost of goods sold increased to 48.3% in the first six months of 2003
from 47.2% in the first half 2002. The increase in cost of goods sold reflects
an increase in sales generated from promotional activities intended to address
lower response rates. Further, higher inbound freight expenses, a greater mix of
outbound packages in excess of one pound that increased shipping costs and the
postal rate increase of approximately 10% that took place on June 30, 2002
contributed to the increase.
Advertising expenses in the first six months of 2003 increased $9.0 million or
12.7% to $80.1 million. Strategic increases in catalog and letter mailings to
current and prospective customers account for the majority of the increase. The
June 30, 2002 postal rate increase and a 2% increase in printing costs effective
April 1, 2003 also contributed to this variance.
The total number of catalog mailings released in the first six months of 2003
was 24.0 million or 28.1% greater than those released in the first six months of
2002.
The total number of letter mailings released in the first six months of 2003 was
33.5 million or 2.7% greater than those released in the first six months of
2002.
Total circulation of the co-op and media advertising programs increased 19.6
million pieces or 4.3% in the first six months of 2003 as compared to the first
six months of 2002.
The Company launched e-commerce sites for Blair www.blair.com and Crossing
Pointe www.crossingpointe.com in the third quarter of 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -18-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
Results of Operations - continued
Comparison of Six Month Periods Ended June 30, 2003 and June 30,2002 - continued
In the first six months of 2003, the Company has generated $41.7 million in
e-commerce gross sales demand, an increase of 30.7% in the first six months of
2002. In all of 2002, the Company generated $65.7 million in e-commerce orders.
General and administrative expense increased $2.7 million from $63.8 million to
$66.5 million or 4.2% in the first six months of 2003 as compared to the first
six months of 2002. The higher general and administrative expense in the first
six months of 2003 was primarily attributable to increased employee costs,
additional bank fees and costs incurred to service an expanded credit program.
The increased employee costs were associated with the completion of enhancements
and automation of the Company's fulfillment capabilities. The additional bank
fees were incurred as part of rate increases for check processing and costs
associated with the amended securitization. The amended securitization, which is
discussed further in the "Liquidity and Sources of Capital" section, provided
additional liquidity and extended the term.
The provision for doubtful accounts increased $1.7 million from $14.5 million to
$16.2 million or 12.0% from the first six months of 2003 compared to the same
period in 2002. The estimated bad debt rate used in the first six months of 2003
was approximately 10% or 78 basis points higher than the bad debt rate used in
the first six months of 2002. The estimated bad debt rate has increased
primarily due to increased credit offers to both Blair and Crossing Pointe
prospects, which traditionally result in higher bad debts. These offers to
prospects are made to increase sales and to build the customer file.
The provision for doubtful accounts is based on current expectations (consumer
credit and economic trends, etc.), sales mix (prospect/customer) and current and
prior years' experience, especially delinquencies (accounts over 30 days past
due) and actual charge-offs (accounts removed from accounts receivable for
non-payment). At June 30, 2003, the delinquency rate of open accounts receivable
was approximately 10% or 121 basis points higher than at June 30, 2002. The
charge-off rate for the first six months of 2003 was 4% or 5 basis points
greater than the charge-off rate for the first six months of 2002. Recoveries of
bad debts previously charged off have been credited back against the allowance
for doubtful accounts. The allowance for doubtful accounts as a percentage of
delinquent accounts decreased 5% or 861 basis points at June 30, 2003 as
compared to June 30, 2002. The allowance for doubtful accounts as a percentage
of open accounts receivable is the same at June 30, 2003 and June 30, 2002. At
this time, the Company feels that the allowance for doubtful accounts is
sufficient to cover the charge-offs from the current customer accounts
receivable portfolio. Also, credit granting, collection and behavior models
continue to be updated and improved, and, along with expanding database
capabilities, provide valuable credit-marketing opportunities.
Interest expense decreased approximately $62,000 to $184,840 or 25.1% in the
first six months of 2003 as compared to the first six months of 2002. Interest
expense results primarily from the Company's required borrowings under the
Receivables Purchase Agreement. Interest rates have been lower in the first six
months of 2003.
Income taxes as a percentage of income before income taxes were 38.1% in the
first six months of 2003 and 35.7% in the first six months of 2002. The federal
income tax rate was 35% in both years. The difference in the total income tax
rate was caused by a change in the Company's effective state income tax rate.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -19-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
Liquidity and Sources of Capital
All working capital and cash requirements for the first six months of 2003 were
met using funds from operations and surplus cash.
On December 20, 2001, the Company entered into a Credit Agreement with PNC Bank,
National Association, as agent, and certain other banks. The Agreement put in
place a syndicated revolving credit facility of up to $30 million, secured by
inventory and certain other assets of the Company and its subsidiaries. As of
June 30, 2003, the facility had lender commitments of $28 million. The revolving
credit facility expires on December 20, 2004. For each borrowing tranche, the
Company may select from three options to determine the interest rate. The
options are: a base rate option (greater of Prime or Fed Funds Rate plus .5% as
of June 30, 2003); swing loan rate option (as quoted by PNC Bank); or Euro-rate
option (Euro-rate plus 1.50%) as defined in the Credit Agreement. The Company is
required to meet certain covenants that relate to tangible net worth,
maintaining a defined leverage ratio and fixed charge coverage ratio, and
complying with certain indebtedness restrictions. As of June 30, 2003, the
Company was in compliance with all the Credit Agreement's covenants. At June 30,
2003, the Company had no borrowings (loans) outstanding, but had letters of
credit totaling $14.8 million outstanding, which reduces the amount of
borrowings available under the Credit Agreement. At December 31, 2002, the
Company had no borrowings (loans) outstanding, but had letters of credit
totaling $16.2 million outstanding. At June 30, 2002, the Company had no
borrowings (loans) outstanding, but letters of credit totaling $13.6 million
outstanding under the Credit Agreement.
Also, on December 20, 2001, the Company completed a securitization of up to $100
million in accounts receivable with PNC Bank, National Association, as
administrator, and certain conduit purchasers. At December 20, 2001, the
securitization had initial lender commitments of $50 million. On April 9, 2003,
the securitization was amended to increase the commitment level from $50 million
to $70 million and extend the term to April 7, 2006. The interest rate charged
approximates 1-month libor plus 55 basis points. The amended securitization
increased the interest rate spread to 80 basis points. The Company sells all
right, title and interest in and to certain of its accounts receivable to Blair
Factoring Company, a wholly-owned subsidiary. Blair Factoring Company is a
separate bankruptcy remote special purpose entity that entered into a
Receivables Purchase Agreement with PNC Bank, National Association, as
administrator, and certain conduit purchasers. The Company's consolidated
financial statements reflect all the accounts of Blair Factoring Company,
including the receivables and secured borrowings. Transactions entered into
under the Receivables Purchase Agreement are considered secured borrowings and
collateral transactions under the provisions of Statement of Financial
Accounting Standards No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities. At June 30, 2003, $70
million of the $100 million was available to the Company. The securitization
requires certain performance standards for the Company's accounts receivable
portfolio in addition to complying with the covenants in the Credit Agreement.
As of June 30, 2003, the Company was in compliance with all the requirements of
the Receivables Purchase Agreement. At June 30, 2003, December 31, 2002, and
June 30, 2002, the Company had $15 million outstanding, the minimum amount
required to be outstanding under the terms of the Receivables Purchase
Agreement, all of which was classified as short-term.
The ratio of current assets to current liabilities was 4.12 at June 30, 2003,
3.39 at December 31, 2002 and 3.67 at June 30, 2002. Working capital increased
$2.9 million to $205.2 million in the first six months of 2003 primarily due to
a smaller amount of purchases of property, plant and equipment. The 2003
increase was primarily reflected in decreased trade accounts payable and
accruals for expenses exceeding decreases in cash and cash equivalents and
customer accounts receivable.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -20-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
Liquidity and Sources of Capital - Continued
Merchandise inventory turnover was 3.6 times at June 30, 2003, 3.4 times at
December 31, 2002 and 2.9 times at June 30, 2002. Merchandise inventory as of
June 30, 2003 of $52.1 million was $3 million or 6% lower than at December 31,
2002 and $4 million or 8% greater than at June 30, 2002. The merchandise
inventory levels are net of the Company's reserve for inventory obsolescence.
The reserve totaled $3.9 million at June 30, 2003, $4.0 million at December 31,
2002 and $4.3 million at June 30, 2002. Inventory write-offs and write-downs
(reductions to below cost) charged against the reserve for obsolescence were
$2.4 million in the first six months of 2003 and $3.4 million in the first six
months of 2002. A monthly provision for obsolete inventory is added to the
reserve and expensed to cost of goods sold, based on the levels of merchandise
inventory and merchandise purchases.
An operating segment is identified as a component of an enterprise for which
separate financial information is available for evaluation by the chief
decision-maker, or decision-making group, in deciding on how to allocate
resources and assess performance. The Company operates as one business segment
consisting of the Womenswear, Menswear, Home and Crossing Pointe product lines.
Crossing Pointe was added in the third quarter of 2000 and is becoming a
significant source of revenue.
Percent Percent
June 30, 2003 of Total June 30, 2002 of Total
Product Line Net Sales Net Sales Net Sales Net Sales
- ------------ -------------- --------- -------------- ---------
Womenswear $187.4 million 64.3% $185.3 million 65.5%
Menswear 47.7 million 16.4% 52.9 million 18.7%
Home 35.2 million 12.1% 28.7 million 10.2%
Crossing Pointe 21.1 million 7.2% 15.9 million 5.6%
-------------- --------- -------------- ---------
Total $291.4 million 100.0% $282.8 million 100.0%
============== ========= ============== =========
June 30, 2003 December 31, 2002 June 30,2002
Merchandise Merchandise Merchandise
Product Line Inventory Inventory Inventory
- ------------ ------------- ----------------- -------------
Womenswear $31.8 million $32.1 million $33.5 million
Menswear 8.4 million 11.0 million 8.3 million
Home 4.8 million 5.0 million 3.3 million
Crossing Pointe 7.1 million 7.0 million 3.0 million
------------- ----------------- -------------
Total $52.1 million $55.1 million $48.1 million
============= ================= =============
The Company looks upon its credit granting (Blair Credit) as a marketing
advantage. Blair Credit customers, on average, buy more, buy more often and are
more loyal than cash and credit card customers. The Company has determined that
the benefit from the increased sales volume achieved by offering the Blair
Credit is significant and more than outweighs the cost of the credit program.
The cost of the credit program is comparable to the discount rates of third
party credit cards. The Company's gross credit sales increased 3.5% in the first
six months of 2003 as compared to the first six months of 2002.
The Company has added new facilities, modernized its existing facilities and
acquired new cost-saving equipment during the last several years. Capital
expenditures for property, plant and equipment totaled $3.7 million during the
first six months of 2003 and $5.8 million during the first six months of 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -21-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
Liquidity and Sources of Capital - Continued
Capital expenditures had been projected to be $15 million plus for each of the
years 2001 and 2002 and nearly $10 million for 2003. However, capital
expenditures for 2001 were delayed due to economic conditions. This included
slowing the implementation of the previously announced modernization and
enhancement of the Company's fulfillment operations. The fulfillment project was
completed in the second quarter at a total cost of $13.2 million, down from
earlier estimates of $21 million. The Company anticipates that this equipment
will increase the productivity of its fulfillment operations.
The Company continues to hold for sale its liquidation outlet store located in
Erie, Pa. The Company believes the sale will be completed by March, 2004.
The Company has contractual obligations consisting of capital leases for data
processing and telephone equipment, and operating leases for buildings and data
processing, office and telephone equipment.
Payments Due by Period
Contractual
Obligations Total 2003 2004-2005 2006-2007 Thereafter
- ------------- ----------- ---------- ---------- --------- ----------
Capital
lease
Obligations $ 656,609 $176,421 $ 480,188 --- ---
Operating
leases 12,877,800 1,522,461 4,594,431 2,867,737 3,893,171
----------- ---------- ---------- --------- ---------
Total $13,534,409 $1,698,882 $5,074,619 $2,867,737 $3,893,171
=========== ========== ========== ========== ==========
The Company has other commercial commitments consisting of a revolving credit
facility of up to $30 million and a securitization of up to $100 million in
accounts receivable.
Amount of Commitment
Expiration Per Period
Other Total Less After
Commercial Amounts than 1 - 3 4 - 5 5
Commitments Committed 1 year years years Years
- ------------------- ----------- ------ ------------ ------ ------
Line of Credit-
Revolving
effective 7/25/03 $ 30,000,000 -0- $ 30,000,000 -0- -0-
Line of Credit-
Securitization
effective 4/9/2003 70,000,000 -0- 70,000,000 -0- -0-
------------ ------ ------------ ------ ------
Total $100,000,000 -0- $100,000,000 -0- -0-
============ ====== ============ ====== ======
If an event of default should occur, payments and/or maturity of the lines of
credit could be accelerated. The Company is not in default and does not expect
to be in default of any of the provisions of the credit facilities.
The Company continues to have significant deferred tax assets primarily
resulting from reserves against accounts receivable. The Company believes these
assets are realizable based upon past earnings and availability in the
carry-back period.
The Company recently declared a quarterly dividend of $.15 per share payable on
September 15, 2003. The Company has declared dividends for 280 consecutive
quarters. It is the Company's intent to continue paying dividends; however, the
Company will evaluate its dividend practice on an ongoing basis. See "Future
Considerations".
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -22-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
Liquidity and Sources of Capital - continued
The Company has, from the fourth quarter of 1996 through the year 2000,
repurchased a total of 1,620,940 shares of its Common Stock. No shares were
repurchased in 2001, 2002, or in the first six months of 2003.
Future cash needs will be financed by cash flow from operations, the existing
borrowing arrangement and, if needed, other financing arrangements that may be
available to the Company. The Company's current projection of future cash
requirements, however, may be affected in the future by numerous factors,
including changes in customer payments on accounts receivable, consumer credit,
industry trends, sales volume, operating cost fluctuations, revised capital
spending plans and unplanned capital spending.
Critical Accounting Policies
Preparation of the Company's financial statements requires the application of a
number of accounting policies which are described in "Note 1, Significant
Accounting Policies" in the "Notes to Consolidated Financial Statements" in the
Company's 2002 Annual Report. The critical accounting policies, which if
interpreted differently under different conditions or circumstances could result
in material changes to the reported results, deal with properly valuing accounts
receivable and inventory. Properly valuing accounts receivable and inventory
requires establishing proper reserve and allowance levels, specifically the
allowances for doubtful accounts and returns and the reserve for inventory
obsolescence. The Company's senior financial management reviews the critical
accounting policies and estimates with the Audit Committee of the Board of
Directors.
The allowance for doubtful accounts and related items, provision for doubtful
accounts and Blair Credit, are discussed in "Results of Operations," "Liquidity
and Sources of Capital" and "Future Considerations." A change in the charge off
rate would cause changes in the provision for doubtful accounts and the
allowance for doubtful accounts. Based on the Company's 2002 level of credit
sales and finance charges, net income would change by approximately $2.5
million, or $.31 per share, from a 1% change in the charge off rate.
The allowance for returns is a deduction from customer accounts receivable. A
monthly provision for anticipated returns is recorded as a percentage of gross
sales, based upon historical experience. The provision is charged against gross
sales to arrive at net sales, and actual returns are charged against the
allowance for returns. Returns are generally more predictable as they settle
within two-to three months, but are impacted by season, new products and/or
product lines, type of sale (cash, credit card, Blair Credit) and sales mix
(prospect/customer). The Company feels that the allowance for returns is
sufficient to cover the returns that will occur after June 30, 2003 from sales
prior to July 1, 2003. A change in the returns rate would cause changes in the
provision for returns and the allowance for returns. Based on the Company's 2002
level of sales, net income would change by approximately $2.8 million, or $.35
per share, from a 1% change in the returns rate.
The reserve for inventory obsolescence and related items, inventory levels and
write-downs, are discussed in "Liquidity and Sources of Capital" and "Future
Considerations". The Company feels that the reserve for inventory obsolescence
is sufficient to cover the write-offs and write-downs that will occur after June
30, 2003 on merchandise inventory as of June 30, 2003. A change in the
obsolescence rate would cause changes in cost of goods sold and the reserve for
inventory obsolescence. Based on the Company's 2002 level of merchandise subject
to obsolescence, net income would change by approximately $1.8 million, or $.22
per share, from a 1% change in the obsolescence rate.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -23-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
Impact of Inflation and Changing Prices
Although inflation has moderated in our economy, the Company is continually
seeking ways to cope with its impact. To the extent permitted by competition,
increased costs are passed on to customers by selectively increasing selling
prices over a period of time. Historically, profit margins have been pressured
by postal and paper rate increases. Paper rates have moderated over the
reporting period. Postal rates increased on January 10, 1999, on January 7,
2001, on July 1, 2001 and again on June 30, 2002. Based on recent public
communications by the United States Postal Service, it is anticipated that
postal rates will not increase again until 2006. The Company spent approximately
$97 million for postage and delivery services in 2002.
The Company principally uses the LIFO method of accounting for its merchandise
inventories. Under this method, the cost of products sold reported in the
financial statements approximates current costs and thus reduces distortion in
reported income due to increasing costs. However, the Company has been
experiencing consistent to declining merchandise costs and the LIFO reserve has
remained relatively constant-$5.7 million at June 30, 2003 and at December 31,
2002. At June 30, 2002, the LIFO reserve was $5.4 million.
Property, plant and equipment are continuously being expanded and updated. Major
projects are discussed under "Liquidity and Sources of Capital". Assets acquired
in prior years will be replaced at higher costs but this will take place over
many years. New assets, when acquired, will result in higher depreciation
charges, but in many cases, due to technological improvements, savings in
operating costs should result. The charges to operations for depreciation
represent the allocation of historical costs incurred over past years and are
significantly less than if they were based on the current cost of productive
capacity being used.
Accounting Pronouncements
Effective January 1, 2002, the Company adopted the provisions
of SFAS No. 142 Goodwill and Other Intangible Assets and SFAS
No. 143 Accounting For Asset Retirement Obligations. The
Company adopted SFAS No. 148, Accounting For Stock-Based
Compensation Transition and Disclosure an amendment of SFAS No.
123, Accounting for Stock-Based Compensation effective the year
ending December 31,2002.
SFAS No. 145, Recission of FASB No. 4, 44 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections, and FASB Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others were adopted by the Company effective
January 1, 2003. The adoption of these standards did not have a material impact
on the Company's results of operations or financial condition.
In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets which supersedes SFAS
No. 121 Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of. Although retaining many
of the provisions of SFAS No. 121, SFAS No. 144 establishes a
uniform accounting model for long-lived assets to be disposed.
The Company's adoption of this statement in the first quarter of
2002 did not have an impact on the Company's financial results,
but does impact the accounting treatment of the planned sale of
the Blair Outlet Store in Erie, Pa. (See Note L)
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities when the liability is incurred and not as a result
of an entity's commitment to an exit plan. The statement is effective for exit
or disposal activities initiated after December 31, 2002. The Company's adoption
of
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -24-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
Accounting Pronouncements-continued
this statement in the first quarter 2003 did not have an impact on the
Company's financial results, but does impact the accounting treatment of
the voluntary separation of employees due to the planned sale of the Blair
Outlet Store in Erie. (See Note M)
In April 2003, the FASB issued SFAS No. 149 Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. This statement is generally effective for contracts entered
into or modified after June 30, 2003. The Company believes the adoption of this
standard will not have a material impact on its results of operations or
financial condition.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This statement
establishes standards for how an issuer classifies and measures in its statement
of financial position certain financial instruments with characteristics of both
liabilities and equity. This statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise at the beginning of
the Company's fourth quarter. The Company believes the adoption of this standard
will not have a material impact on its results of operations or financial
condition.
Future Considerations
The Company is faced with the ever-present challenge of maintaining and
expanding its customer file. This involves the acquisition of new customers
(prospects), the conversion of new customers to established customers (active
repeat buyers) and the retention and/or reactivation of established customers.
These actions are vital in growing the business but are being negatively
impacted by increased operating costs, increased competition in the retail
sector, high levels of consumer debt, varying consumer response rates and an
uncertain economy. The preceding factors can also negatively impact the
Company's ability to properly value accounts receivable and inventories by
making it more difficult to establish proper reserve and allowance levels,
specifically, the allowances for doubtful accounts and returns and the reserve
for inventory obsolescence.
The Company's marketing strategy includes targeting customers in the "40 to 60,
low-to-moderate income" market and in the "60+, low-to-moderate income" market.
The "40 to 60" market is the fastest growing segment of the population. Also,
customers in the "low-to-moderate income" market tend to be more credit-needy
and utilize Blair credit to a greater degree. Success of the Company's marketing
strategy requires investment in database management, financial and operating
systems, prospecting programs, catalog marketing, new product lines, telephone
call centers, e-commerce, fulfillment operations and credit management.
Management believes that these investments should improve Blair Corporation's
position in new and existing markets and provide opportunities for future
earnings growth.
The Company has a working arrangement with accomplished actress, artist, author
and mother, Jane Seymour, to launch the "Jane Seymour Signature Collection" of
women's apparel. The Jane Seymour inspired womens fashions are being sold
exclusively through the Company's Crossing Pointe catalog and website
(www.crossingpointe.com). The first "Jane Seymour Signature Collection" fashions
previewed in early January 2002 on the Crossing Pointe website and debuted in
the Crossing Pointe Spring 2002 Catalog mailed at the end of January 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -25-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
Safe Harbor Statement Under the Private Securities Litigation
Reform Act of 1995 - continued
Forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.
Words such as "believes", "anticipates", "plans", "expects", and similar
expressions are intended to identify forward-looking statements. Any statements
contained in this report that are not statements of historical fact may be
deemed to be forward-looking statements. Such forward-looking statements are
included in, but not limited to, the following sections of the report:
- The paragraph on the provision for doubtful accounts in the Results of
Operations, Comparison of Second Quarter 2003 and Second Quarter 2002.
- The paragraph on the provision for doubtful accounts in the Results of
Operations, Comparison of Six Month Periods Ended June 30, 2003 and June
30, 2002.
- Liquidity and Sources of Capital.
- Critical Accounting Policies.
- The Impact of Inflation and Changing Prices.
- Future Considerations.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties which could cause actual results to differ materially from those
in the forward-looking statements, including without limitation the following:
(i) the Company's plans, strategies, objectives, expectations and intentions are
subject to change at any time at the discretion of the Company; (ii) the
Company's plans and results of operations will be affected by the Company's
ability to manage its growth, accounts receivable and inventory;(iii) external
factors such as, but not limited to, changes in consumer response rates, changes
in consumer credit trends, success of new business lines and increases in
postal, paper and printing costs; and (iv) other risks and uncertainties
indicated from time to time in the Company's filings with the Securities and
Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The carrying amounts of cash, customer accounts receivable, accounts payable,
and accrued liabilities approximate fair value due to the short-term maturities
of these assets and liabilities. The interest rates on the Company's securitized
and revolving credit facilities are adjusted regularly to reflect current market
rates. Accordingly, the carrying amounts of the Company's borrowings also
approximate fair value.
ITEM 4. CONTROLS AND
PROCEDURES
As of the end of the period covered by this report, based on an evaluation of
the Company's disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e)under the Securities Exchange Act of 1934) each of the Chief
Executive Officer and the Chief Financial Officer of the Company has concluded
that the Company's disclosure controls and procedures are effective to ensure
that information required
ITEM 4. CONTROLS AND PROCEDURES - continued -26-
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
to be disclosed by the Company in its Exchange Act reports is recorded,
processed, summarized and reported within the applicable time periods specified
by the SEC's rules and forms.
There were no significant changes in the Company's internal controls or in any
other factors that could significantly affect those controls subsequent to the
date of the most recent evaluation of the Company's internal controls by the
Company, including any corrective actions with regard to any significant
deficiencies or material weaknesses.
PART II. OTHER INFORMATION -27-
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
Item 1. Legal Proceedings
The Company is from time to time a party to ordinary routine litigation
incidental to various aspects of its operations. Management is not currently
aware of any litigation that will have a material adverse impact on the
Company's financial condition or results of operations.
Item 2. Changes in Securities and Use of Proceeds
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The Company's Annual Meeting of Stockholders was held April 15, 2003.
(b) At the Annual Meeting of Stockholders, all of the Company's
directors were elected at said meeting, as follows:
Steven M. Blair 6,320,776 Votes For, 894,552 Votes Withheld
Robert D. Crowley 6,391,472 Votes For, 823,856 Votes Withheld
Harriet Edelman 6,491,507 Votes For, 723,821 Votes Withheld
Bryan J. Flanagan 6,390,592 Votes For, 824,736 Votes Withheld
John O. Hanna 6,368,886 Votes For, 846,442 Votes Withheld
Craig N. Johnson 6,369,761 Votes For, 845,567 Votes Withheld
Murray K. McComas 6,355,281 Votes For, 860,047 Votes Withheld
Thomas P. McKeever 6,375,985 Votes For, 839,343 Votes Withheld
Ronald L. Ramseyer 6,525,547 Votes For, 689,781 Votes Withheld
Michael A. Schuler 6,496,944 Votes For, 718,384 Votes Withheld
John E. Zawacki 6,391,651 Votes For, 823,677 Votes Withheld
Since all of the directors of the Company were elected at the Annual
Meeting of Stockholders, there are no directors whose term of
office as a director continued after the meeting.
(c) The following other matters were voted upon at the meeting, and the
following number of affirmative votes and negative votes were
cast with respect to each such matter:
The reappointment by the Company's Board of Directors of
the firm of Ernst & Young LLP as independent certified public
accountants to examine the financial statements and perform
the annual audit of the Company for the year ending December 31,
2003 was ratified. This matter received 7,088,628 affirmative
votes, 106,828 negative votes and 19,872 votes withheld.
The Company's Omnibus Stock Plan was amended to increase the total
number of shares of common stock that may be issued with respect to
awards granted under the Plan from 750,000 shares to 1,150,000
shares, an increase of 400,000 shares. This matter received
5,447,282 affirmative votes, 1,695,308 negative votes and 72,738
votes withheld.
PART II. OTHER INFORMATION - continued -28-
BLAIR CORPORATION AND SUBSIDIARIES
June 30, 2003
Item 5. Other Information
The Company's Bylaws were amended by the Company's Board of Directors on July
15, 2003. A copy of the Company's Amended and Restated Bylaws is attached as
Exhibit 3.2.
The Company also has amended its December 20, 2001 credit facility as of July
25, 2003. The amendment increases the total commitments, including letters of
credit, from $28 million to $30 million. The limit for letters of credit
increased from $20 million to $30 million. A copy of Amendment No.2 to Credit
Agreement, dated July 25, 2003, amending the Company's revolving credit facility
is attached hereto as Exhibit 10.4.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
3.1 Restated Certificate of Incorporation(1)
3.2 Amended and Restated Bylaws of Blair Corporation
4 Specimen Common Stock Certificate(2)
10.1 Stock Accumulation and Deferred Compensation Plan for
Directors(3)
10.2 Blair Corporation 2000 Omnibus Stock Plan(4)
10.3 Blair Credit Agreement(5)
10.4 Amendment No. 2 to Credit Agreement(6)
11 Statement regarding computation of per share earnings(7)
31.1 Section 302 Certification-CEO 31.2 Section 302 Certification-CFO
32.1 Section 906 Certification-CEO 32.2 Section 906 Certification-CFO
(b) Reports on Form 8-K
On July 21, 2003, the Company filed a Form 8-K announcing its
earnings for the quarter and six months ended June 30, 2003.
- ------------------
(1) Incorporated by reference to Exhibit A to the Quarterly Report on Form 10-Q
of the Company filed with the SEC on August 10, 1995 (SEC File No. 1-878).
(2) Incorporated by reference to Exhibit 4.1 to the Form S-8 Registration
Statement filed with the SEC on July 19, 2000 (SEC File No. 333-41770).
(3) Incorporated herein by reference to Exhibit A to the Company's Proxy
Statement filed with the SEC on March 20, 1998 (SEC File No. 1-878).
(4) Incorporated herein by reference to Exhibit A to the Company's Proxy
Statement filed with the SEC on March 17, 2000 (SEC File No. 1-878).
(5) Incorporated herein by reference to Exhibit 99.1 to the Company's Form 8-K
filed with the SEC on January 9, 2002 (SEC File No. 1-878).
(6) Certain schedules to the agreement have been omitted.
(7) Incorporated by reference to Note D of the financial statements included
herein.
-29-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BLAIR CORPORATION
(Registrant)
Date August 8, 2003 By JOHN E. ZAWACKI
- ------------------------ -------------------------------
JOHN E. ZAWACKI
President and Chief Executive
Officer
By BRYAN J. FLANAGAN
-------------------------------
BRYAN J. FLANAGAN
Senior Vice President and Chief
Financial Officer
[Certifications to follow]
-30-
Exhibit 31.1
CERTIFICATION
I, John E. Zawacki, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Blair Corporation;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of registrant's board
of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: August 8, 2003
JOHN E. ZAWACKI
------------------------
JOHN E. ZAWACKI
President and
Chief Executive Officer
-31-
Exhibit 31.2
CERTIFICATION
I, Bryan J. Flanagan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Blair Corporation;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of registrant's board
of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: August 8, 2003
BRYAN J. FLANAGAN
-------------------------
BRYAN J. FLANAGAN
Senior Vice President and
Chief Financial Officer
-32-
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Blair Corporation (the "Company") on
Form 10-Q for the period ended June 30, 2003 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, John E. Zawacki, Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects,the financial condition and result
of
operations of the Company.
August 8, 2003 JOHN E. ZAWACKI
-------------- -----------------------
JOHN E. ZAWACKI
President and
Chief Executive Officer
A signed original of this written statement required by Section 906, or
other document authentication, acknowledging, or otherwise adopting the
signature that appears in typed form within the electronic version of this
written statement required by section 906, has been provided to Blair
Corporation and will be retained by Blair Corporation and furnished to the
Securities and Exchange Commission or its staff upon request.
-33-
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Blair Corporation (the "Company") on
Form 10-Q for the period ended June 30, 2003 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Bryan J. Flanagan,
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result
of operations
of the Company.
August 8, 2003 BRYAN J. FLANAGAN
-------------- --------------------------
BRYAN J. FLANAGAN
Senior Vice President and
Chief Financial Officer
A signed original of this written statement required by Section 906, or
other document authentication, acknowledging, or otherwise adopting the
signature that appears in typed form within the electronic version of this
written statement required by section 906, has been provided to Blair
Corporation and will be retained by Blair Corporation and furnished to the
Securities and Exchange Commission or its staff upon request.
-34-
Exhibit 3.2
-------------------------------------------------------------------
BY-LAWS
of
BLAIR CORPORATION
As Adopted at a Meeting of the Stockholders
held on May 23, 1927
and as amended to
July 15, 2003
-------------------------------------------------------------------
-35-
Exhibit 3.2
BY-LAWS
of
BLAIR CORPORATION
----------
ARTICLE I.
Offices
[1] Principal Registered Office. The Corporation's principal registered
office shall be located in the City of Wilmington, County of New Castle, State
of Delaware and the name of the Resident Agent in Charge is Corporation Trust
Company of America, 7 West 10th Street, Wilmington, Delaware.
[2] Other Offices. The Corporation may have other offices, either within
or outside of the State of Delaware, at such place or places as the board of
directors may from time to time appoint or the business of the Corporation may
require.
ARTICLE II
Seal
The Corporate seal shall be in circular form and shall have inscribed
thereon "Blair Corporation Corporate Seal Delaware
1924."
The seal shall be in the charge of the Secretary. If and when so directed
by the board of directors or a committee thereof, duplicates of the seal may be
kept and used by the Chief Financial Officer or by any other officer of the
Corporation.
ARTICLE III
Meeting of Stockholders
[1] Annual Meetings. An annual meeting of the stockholders, for the
election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting shall
be held at such place, on such date, and at such time as the board of directors
shall each year fix, which date shall be within thirteen (13) months subsequent
to the later of the date of incorporation or the last annual meeting of
stockholders.
[2] Special Meetings. Special meetings of stockholders, for any purposes
other than those required by statute, may be called by the Chairman of the Board
or the President, and shall be called by the Secretary at the direction of such
officer(s) or a majority of the board of directors. Such request shall state the
purpose or purposes of the meeting and shall be delivered by the Chairman of the
Board, the President or the Secretary. No business, other than that specified in
the notice of meeting, shall be transacted at any special meeting.
[3] Notice. Notice of the annual meeting of stockholders shall be mailed
or as otherwise permitted by law to each stockholder entitled to vote thereat,
at his address, as the same appears on the books of the Corporation, not less
than ten (10) nor more than sixty (60) days before the date on which the meeting
is to be held, except as otherwise provided herein or required by law. Such
notice need not specify the business to be transacted.
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Exhibit 3.2
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date of which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
[4] Quorum. Except as otherwise required by law, by the Certificate of
Incorporation of this Corporation or by these Bylaws, the presence, in person or
by proxy, of stockholders entitled to cast a majority in number of the aggregate
number of votes to which the Common Stock shall be entitled, shall constitute a
quorum at all meetings of the stockholders. Where a separate vote by a class or
classes is required, a majority of the shares of such class or classes present
in person or represented by proxy and entitled to vote shall constitute a quorum
entitled to take action with respect to that vote on that matter.. If a quorum
shall fail to attend any meeting, the Chairman of the Board or the President of
the Corporation may adjourn the meeting to another place, date, or time. At any
such adjourned meeting at which the requisite amount of voting stock shall be
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed.
[5] Organization. Such person as the board of directors may have
designated or, in the absence of such a person, the Chairman of the Board of the
Corporation or, in his or her absence, such person as may be chosen by the
holders of a majority of the shares entitled to vote who are present, in person
or by proxy, shall call to order any meeting of the stockholders and act as
chairman of the meeting. In the absence of the Secretary of the Corporation, the
secretary of the meeting shall be such person as the chairman of the meeting
appoints.
[6] Conduct of Business.
(a) The chairman of any meeting of stockholders shall determine the
order of business and the procedures at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seem
to him or her in order. The date and time of the opening and closing of
the polls for each matter upon which the stockholders will vote at the
meeting shall be announced at the meeting.
(b) At any annual meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting: (i) by
or at the direction of the board of directors or (ii) by any stockholder
of the Corporation who is entitled to vote with respect thereto and who
complies with the notice procedures set forth in this Section 6(b). For
business to be properly brought before an annual meeting by a stockholder,
the business must relate to a proper subject matter for stockholder action
and the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice
must be delivered or mailed to and received at the principal executive
offices of the Corporation not less than ninety (90) days prior to the
date of the annual meeting; provided, however, that in the event that less
than one hundred (100) days' notice or prior public disclosure of the date
of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be received not later than the close of business on the
10th day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure was made. A stockholder's
notice to the Secretary shall set forth as to each matter such stockholder
proposes to bring before the annual meeting: (i) a brief description of
the business desired to be brought before the annual meeting and the
reasons for conducting such business at the annual meeting; (ii) the name
and address,
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Exhibit 3.2
as they appear on the Corporation's books, of the stockholder proposing
such business; (iii) the class and number of shares of the Corporation's
capital stock that are beneficially owned by such stockholder; and (iv)
any material interest of such stockholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be brought before or conducted at an annual meeting except in
accordance with the provisions of this Section 6(b). The officer of the
Corporation or other person presiding over the annual meeting shall, if
the facts so warrant, determine and declare to the meeting that business
was not properly brought before the meeting in accordance with the
provisions of this Section 6(b) and, if he should so determine, he shall
so declare to the meeting and any such business so determined to be not
properly brought before the meeting shall not be transacted.
At any special meeting of the stockholders, only such business shall
be conducted as shall have been brought before the meeting by or at the
direction of the board of directors.
(c) Only persons who are nominated in accordance with the procedures
set forth in these Bylaws shall be eligible for election as directors.
Nominations of persons for election to the board of directors of the
Corporation may be made at a meeting of stockholders at which directors
are to be elected only: (i) by or at the direction of the board of
directors; or (ii) by any stockholder of the Corporation entitled to vote
for the election of directors at the meeting who complies with the notice
procedures set forth in this Section 6(c). Such nominations, other than
those made by or at the direction of the board of directors, shall be made
by timely notice in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice shall be delivered or mailed to and
received at the principal executive offices of the Corporation not less
than ninety (90) days prior to the date of the meeting; provided, however,
that in the event that less than one hundred (100) days' notice or prior
disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than
the close of business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was
made. Such stockholder's notice shall set forth: (i) as to each person
whom such stockholder proposes to nominate for election or re-election as
a director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is
otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); and (ii) as to the stockholder giving
the notice (x) the name and address, as they appear on the Corporation's
books, of such stockholder and (y) the class and number of shares of the
Corporation's capital stock that are beneficially owned by such
stockholder. At the request of the board of directors, any person
nominated by the Board of directors for election as a director shall
furnish to the Secretary of the Corporation that information required to
be set forth in a stockholder's notice of nomination which pertains to the
nominee. The officer of the Corporation or other person presiding at the
meeting shall, if the facts so warrant, determine that a nomination was
not made in accordance with such provisions and, if he or she shall so
determine, he or she shall so declare to the meeting and the defective
nomination shall be disregarded.
[7] Proxies. Any stockholder entitled to vote at any meeting of
stockholders may be represented and vote thereat by proxy appointed by
instrument in writing subscribed by such stockholder and filed in accordance
with the procedure established for the meeting. Any facsimile telecommunications
or other reliable reproduction of the writing or transmission created pursuant
to this paragraph may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
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Exhibit 3.2
or other reproduction shall be a complete reproduction of the entire original
writing or transmission. A proxy shall not be valid for more than three (3)
months, unless a longer time is expressly provided therein, and unless
irrevocable, a proxy shall be revocable at will. The grant of a later proxy
revokes any earlier proxy unless the earlier proxy is irrevocable. The presence
at any meeting of any stockholder who has given a proxy does not revoke the
proxy unless the stockholder files written notice of the revocation with the
secretary of the meeting prior to the voting of the proxy or votes the shares
subject to the proxy by written ballot.
[8] Vote by Ballot. The vote for directors, and, upon the demand of any
stockholder, the vote upon any question before the meeting, shall be by ballot.
Except as otherwise required by law or the Certificate of Incorporation, all
matters shall be determined by a majority vote of all outstanding shares of the
Corporation's voting stock present in person or represented by proxy.
[9] Voting Lists. The Secretary shall prepare, at least ten days before
each election of directors, a complete list of the stockholders entitle to vote,
arranged in alphabetical order, with the residence of and the number of voting
shares held by each stockholder, which shall be open for the examination of any
stockholder, at the place where said election is to be held, during the whole
time of the election.
ARTICLE IV
Directors
[1] Powers. The business and affairs of the Corporation shall be under the
direction of its board of directors. The board of directors shall annually elect
a Chairman of the Board from among its members who shall, when present, preside
at its meetings.
[2] Number. The number of directors constituting the board of directors
shall be not less than six (6) in number, but the board of directors is
authorized by the vote of a majority of the board of directors to increase the
number of directors up to fifteen (15) and to fill any vacancies created by any
such increase.
[3] Term of Office. Except as otherwise provided in the Certificate of
Incorporation of this Corporation, each director shall be elected to serve until
the next annual meeting of stockholders and until their successor is chosen and
qualified. In case one or more vacancies shall occur in the board of directors,
the remaining directors, although less than a quorum, may, by a majority vote,
elect a successor or successors for the unexpired term or terms.
[4] Vacancies and Newly Created Directorships. Unless the board of
directors otherwise determines, newly created directorships resulting from any
increase in the authorized number of directors or any vacancies in the board of
directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled by a majority vote of the
directors then in office, though less than a quorum, and directors so chosen
shall hold office until such director's successor shall have been duly elected
and qualified.
[5] Removal. Any director or directors may, by vote of a majority of all
the shares of stock outstanding and entitled to vote, be removed from the office
with or without cause and his successor or their successors may be elected at
such meeting, or the remaining directors may, in the absence of such election,
fill any vacancy created by such removal.
[6] Meetings.
(a) Regular meetings of the board of directors shall be held at such
place or places, on such date or dates, and at such time or times as shall have
been
-39-
Exhibit 3.2
established by the board of directors and publicized among all
directors. A notice of each regular meeting shall not be
required.
(b) Special meetings of the board of directors may be called by or at the
request of the Chairman of the Board, President, or one-third of the directors,
or, in the event that the President or Chairman of the Board are incapacitated
or otherwise unable to call such a meeting, by the Secretary, and shall be held
at such place, on such date and at such time as they, or he or she, shall fix.
Notice of the place, date, and time of each such special meeting shall be given
each director by whom it is not waived by mailing written notice not less than
three (3) days before the meeting or by telephone or electronic transmission or
by facsimile transmission of the same not less than forty-eight (48) hours
before the meeting. Unless otherwise indicated in the notice thereof, any and
all business may be transacted at a special meeting.
[7] Place of Meetings. The board of directors may hold its meetings and
have one or more offices and keep the books of the Corporation (except such
books as are required by law to be kept within the State of Delaware), either
within or outside of the State of Delaware at such place or places as it may
from time to time determine.
[8] Quorum and Powers of a Majority. At all meetings of the board of
directors, a majority of the directors shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the act of a majority
of the directors present at any meeting at which a quorum is present shall be
the act of the board of directors, except as specifically required by statute,
or by the Certificate of Incorporation of this Corporation, or by these Bylaws.
If a quorum shall fail to attend any meeting, a majority of those present may
adjourn the meeting to another place, date, or time, without further notice on
waiver thereof.
[9] Participation in Meetings By Conference Telephone. Members of the
board of directors, or of any committee thereof, may participate in a meeting of
such board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other and such participation shall constitute presence at
such meeting.
[10] Compensation of Directors. Directors, as such, may receive, pursuant
to resolution of the board of directors, fixed fees and other compensation for
their services as directors, including, without limitation, their services as
members of committees of the board of directors.
ARTICLE V
Committees
[1] Committees of the Board of Directors. The board of directors may from
time to time designate committees of the board, with such lawfully delegable
powers and duties as it thereby confers, to serve at the pleasure of the board
and shall, for these committees and any others provided for herein, elect a
director or directors to serve as the member or members, designating, if it
desires, a director or directors as alternate members who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of any member of any committee and any alternate member in his
or her place, the member or members of the committee present at the meeting and
not disqualified from voting, whether or not he or she or they constitute a
quorum, may by unanimous vote appoint another member of the board of directors
to act at the meeting in the place of the absent or disqualified member.
[2] Conduct of Business. Each committee may determine the procedural rules
for meeting and conducting its business and shall act in accordance therewith,
except as otherwise provided herein or required by law. Adequate provision shall
be made for notice to members of all meetings. The quorum requirements for each
such committee shall be a majority of the members of such
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Exhibit 3.2
committee unless otherwise determined by the board of directors by a majority
vote of the board of directors which such quorum determined by a majority of the
board may be one-third of such members and all matters considered by such
committees shall be determined by a majority vote of the members present. Action
may be taken by any committee without a meeting if all members thereof consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of such committee.
ARTICLE VI
Executive Committee
[1] Powers. The board of directors may designate two or more of their
members, including the President, to constitute an Executive Committee to serve
at the pleasure of the board of directors. The board of directors is authorized
to remove at any time, without notice, any member of the Executive Committee,
and elect another member in his place and stead.
Subject to applicable law, the board of directors may delegate to such
Committee any or all of the powers of the board of directors in the management
of the business and affairs of the Corporation and may from time to time extend,
modify, curtail or restrict the powers so delegated. During the temporary
absence of a member of the Executive Committee, the remaining member or members
may appoint a member of the board of directors to act in his place, but
vacancies in the membership of the Committee shall be filled by the board of
directors at a regular meeting or at a special meeting called for that purpose.
The Executive Committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law.
[2] Meetings. The Executive Committee may meet at stated times, or on not
less than twenty-four hours' notice given personally or mailed or sent by
facsimile or electronic transmission to all by any one of their own number.
During the intervals between meetings of the board of directors, such Committee
shall advise with and aid the officers of the Corporation in all matters
concerning the interests and management of its business.
[3] Minutes. The Executive Committee shall keep regular minutes of its
proceedings and report the same to the board of directors when requested.
ARTICLE VII
Nominating Committee
The board of directors shall appoint a Nominating Committee of the board,
consisting of not less than three (3) members. The Nominating Committee shall be
made up solely of independent directors as defined by applicable securities
laws. The Nominating Committee shall have authority, among other things: (a) to
review any nominations for election to the board of directors made by a
stockholder of the Corporation pursuant to Section 6(c) of Article III of these
Bylaws in order to determine compliance with such Bylaw; and (b) to recommend to
the board nominees for election to the board of directors to replace those
directors whose terms expire at the annual meeting of stockholders next ensuing.
The Nominating Committee shall maintain a charter which should be regularly
updated and provided to stockholders as required by applicable securities laws.
ARTICLE VIII
Audit Committee
The board of directors shall appoint an Audit Committee of
the board, consisting of not less than three (3) members. The
Audit Committee shall be made up solely of independent directors
as defined by applicable securities laws. The
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Exhibit 3.2
Audit Committee shall, among other things, (i) be directly responsible for the
appointment, compensation, and oversight of the work of any registered public
accounting firm employed by the Corporation; (ii) establish procedures for the
receipt, retention, and treatment of complaints received by the issuer regarding
accounting, internal accounting controls, or auditing matters; and the
confidential, anonymous submission by employees of concerns regarding
questionable accounting or auditing matters; and (iii) have the authority to
engage independent counsel and other advisers, as it determines is necessary to
carry out its duties. The Corporation shall provide for appropriate funding, as
determined by the audit committee for payment of compensation to the registered
public accounting firm employed by the Corporation for purpose of rendering or
issuing an audit report; and to any advisers employed by the audit committee.
The Audit Committee shall maintain a charter which should be regularly updated
and provided to stockholders as required by applicable securities laws.
ARTICLE IX
Compensation Committee
The board of directors shall appoint a Compensation Committee of the
board, consisting of not less than three (3) members. The Compensation Committee
shall be made up solely of independent directors as defined by applicable
Securities laws. The Compensation Committee shall be responsible for, among
other things, setting the compensation of the Chief Executive Officer and each
of the other executive officers of the Corporation. The Compensation Committee
shall maintain a charter which should be regularly updated and provided to
stockholders as required by applicable securities laws.
ARTICLE X
Officers
[1] Election. The officers of the Corporation shall be a Chairman of the
Board, President and Chief Executive Officer, one or more Vice-Presidents, a
Chief Financial Officer, a Secretary, and such other officers as shall be
determined by the board of directors, all of whom shall be elected by the board
of directors. None of the officers, except the Chairman of the Board and the
President, need be a director. The officers shall be elected at the first
meeting of the board of directors after each annual meeting of stockholders.
[2] Hold Two Offices. Any two of the above offices, except those of
President and Vice-President, may be held by the same person, but no officer
shall execute, acknowledge or verify any instrument in more than one capacity,
if such instrument is required by law or by the Bylaws to be executed,
acknowledged or verified by any two or more officers.
[3] Term of Office. The officers hereinbefore mentioned shall hold office
until the next annual election of officers and until their successors are chosen
and qualify. Any vacancy occurring among the officers shall be filled by the
board of directors, but the person so elected to fill the vacancy shall hold
office only until the first meeting of the board of directors after the next
annual meeting of stockholders and until his successor is chosen and qualified.
[4] Salaries. The salaries of all executive officers of the Corporation
shall be fixed by the board of directors or by a committee appointed by said
board.
[5] Removal. Any officer chosen by the board of directors may be removed
at any time by the affirmative vote of a majority of the board of directors,
with or without cause.
[6] Voting Shares in Other Corporations. The Corporation may vote any and
all shares held by it in any other corporation or corporations by such officers,
agent or proxy as the board of directors may appoint, or in default of any such
appointment, by its President .
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Exhibit 3.2
ARTICLE XI
Chairman of the Board
The Chairman of the Board shall, subject to the provisions of the Bylaws
and to the direction of the board of directors, serve in general executive
capacity and unless the board has designated another person, when present, shall
preside at all meetings of the stockholders of the Corporation. The Chairman of
the Board shall perform all duties and have all powers which are commonly
incident to the office of Chairman of the Board or which are delegated to him by
the board of directors. The Chairman of the Board shall have general
responsibility for the appointment and activities of committees of the board of
directors, as may be designated by the board of directors from time to time.
ARTICLE XII
President and Chief Executive Officer
The President and Chief Executive Officer shall have general
responsibility for the management and control of the business and affairs of the
Corporation. The President and Chief Executive Officer shall be ex-officio a
member of all of the standing or management committees and shall perform all
duties and have all powers which are commonly incident to the office of
President and Chief Executive Officer or which are delegated to him by the board
of directors. Subject to the direction of the board of directors, the President
and Chief Executive Officer shall have the power to sign all stock certificates,
bonds, mortgages, contracts and other instruments of the Corporation which are
authorized and shall affix the seal to any instrument requiring it and when so
affixed the seal shall be attested by the signature of the Secretary or the
Chief Financial Officer. The President shall have general supervision of all of
the other officers (other than the Chairman of the Board), employees and agents
of the Corporation.
ARTICLE XIII
Vice-Presidents
The Vice-President or Vice-Presidents shall perform such duties as shall
be assigned to him or them by the board of directors or by the President.
ARTICLE XIV
Chief Financial Officer
The Chief Financial Officer is the Company's senior financial officer. In
this role, he is responsible directly and through his organization for
safe-guarding the Company's assets, ensuring that accounting records are kept in
accordance with generally accepted accounting principles and ensuring that
appropriate internal controls are in place. Functional responsibilities include
Treasury, Controllership, Budgeting and Forecasting, Taxes, Credit Management
and Corporate Development.
ARTICLE XV
The Secretary
The Secretary shall attend all meetings of the board of directors and all
meetings of the stockholders and shall record all votes and the minutes of all
proceedings in a book to be kept for that purpose and shall perform like duties
for the standing committees when required. He shall give or cause to be
-43-
Exhibit 3.2
given notice of all meetings of the stockholders and of the board of directors,
and shall keep the seal of the Corporation in safe custody. He shall perform
such other duties as may be prescribed by the board of directors or by the
Executive Committee or by the President under whose supervision he shall be. He
shall be sworn to the faithful discharge of his duties.
ARTICLE XVI
Duties of Officers May Be Delegated
In case of absence or disability of any officer of the Corporation, or for
any other reason that the board of directors may deem sufficient, the board of
directors, by majority vote, may delegate for the time being the powers or
duties or any of them of such officer to any other officer or to any director.
ARTICLE XVII
Stock
[1] Certificates of Stock. Each stockholder shall be entitled to a
certificate signed by, or in the name of the Corporation by, the President, a
Vice-President, the Secretary or the Chief Financial Officer, certifying the
number of shares owned by him or her. Any and all of the signatures on the
Certificate may be by facsimile.
[2] Transfer of Stock. The shares of stock shall be transferable on the
books of the Corporation by the person named in the certificate or by attorney,
lawfully constituted in writing, and upon surrender of the certificate thereof.
The board of directors shall have power and authority to make all such rules and
regulations as it shall deem expedient concerning the issue, transfer and
registration of certificates for shares of stock of the Corporation. The board
of directors may appoint and remove transfer agents and registrars of transfers,
and may require all stock certificates to bear the signature of any such
transfer agent and/or of any such registrar of the transfers.
[3] Closing of Transfer Books. The board of directors shall have power to
close the stock transfer books of the Corporation for a period not exceeding
sixty (60) nor less than ten (10) days preceding the date of any meeting of
stockholders or the date for the payment of any dividend or the date for the
allotment of rights; provided, however, that in lieu of closing the stock
transfer books as aforesaid, the board of directors may fix in advance a date,
not exceeding sixty (60) nor less than ten (10) days preceding the date of any
meeting of stockholders or the date for the payment of any dividend, or the date
for the allotment of rights, as a record date for the determination of the
stockholders entitled to notice of , and to vote at, any such meeting, or
entitled to receive payment of any such dividend, or to any such allotment of
rights, and in such case only such stockholders as shall be stockholders of
record on the date so fixed shall be entitled to notice of, and to vote at, such
meeting, or to receive payment of such dividend, or to receive such allotment of
rights, as the case may be, notwithstanding any transfer of any stock on the
books of the Corporation after such record date fixed as aforesaid.
[4] Registered Stockholders. The Corporation shall be entitled to treat
the holder of record of any share or shares of stock as the holder in fact
thereof, and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, save as
expressly provided by the laws of Delaware.
[5] Lost Certificates. Any person claiming a certificate of stock to be
lost, stolen or destroyed shall make an affidavit or affirmation of that fact
and verify the same in such manner as the board of directors may require, and
shall,
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Exhibit 3.2
if the board of directors so requires, give the Corporation, its transfer
agents, registrars, and/or other agents a bond of indemnity in form and with one
or more sureties satisfactory to the board of directors in at least double the
value of the stock represented by said certificate before a new certificate may
be issued of the same tenor and for the same number of shares as the one alleged
to have been lost, stolen or destroyed.
[6] Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders, or
to receive payment of any dividend or other distribution or allotment of any
rights or to exercise any rights in respect of any change, conversion, or
exchange of stock or for the purpose of any other lawful action, the board of
directors may fix a record date, which record date shall not precede the date on
which the resolutions fixing the record date is adopted and which record date
shall not be more that sixty (60) nor less than ten (10) days before the record
date of any meeting of stockholders, nor more than sixty (60) days prior to the
time for such other action as here in before described, provided, however, that
if no record date is fixed by the board of directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given or, if notice is waived, at the close of business on
the next day preceding the day on which the meeting is held, and, for
determining stockholders entitled to receive payment of any dividend or other
distribution or allotment or rights or to exercise any rights of change,
conversion, or exchange of stock or for any other purpose, the records date
shall be at the close of business on the day on which the board of directors
adopts a resolution relating thereto. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the board of directors may
fix a new record date for the adjourned meeting.
[7] Regulations. The issue, transfer, conversion and registration of
certificates of stock shall be governed by such other regulations as the board
of directors may establish.
ARTICLE XVIII
Inspection of Books
The board of directors shall determine from time to time whether, and if
allowed, when and under what conditions and regulations the accounts and books
of the Corporation (except such as may by statute be specifically open to
inspection), or any of them, shall be open to the inspection of the stockholders
and the stockholders' rights in this respect are and shall be restricted and
limited accordingly.
ARTICLE XIX
Checks, Notes, Etc.
All checks, drafts, acceptances, notes and other orders, demands or
instruments in respect of the payment of money shall be signed or endorsed on
behalf of the Corporation by the President or a Vice-President and by the
Secretary or the Chief Financial Officer, unless otherwise directed by the board
of directors.
-45-
Exhibit 3.2
ARTICLE XX
Fiscal Year
The fiscal year of the Corporation shall correspond with the calendar
year.
ARTICLE XXI
Dividends
Dividends upon the capital stock of the Corporation may be declared at the
discretion of the board of directors, subject to the provisions of the
Certificate of Incorporation, at any regular or special meeting.
ARTICLE XXII
Notices
[1] How Given. Except as otherwise specifically provided herein or
required by law, all notices required to be given to any stockholder, director,
or officer, employee or agent shall be in writing and may in every instance be
effectively given by hand delivery to the recipient thereof, by depositing such
notice in the mails, postage paid, or other courier. Any such notice shall be
addressed to such stockholders, directors, officers, employee or agent at his or
her last known address as the same appears on the books of the Corporation. The
time when such notice is received if hand delivered, or dispatched, if delivered
through the mails or by telegram or mailgram or other courier, shall be the time
of the giving of the notice.
[2] Waiver of Notice. Notice of the time, place and/or purpose of any
meeting of stockholders or of the board of directors, whether required by these
Bylaws, or by any provision of law, or by the Certificate of Incorporation, may
be dispensed with if every stockholder shall attend, either in person or by
proxy, or if every director shall attend in person, or if every absent
stockholder or director shall, in writing filed with the records of the meeting,
either before or after the holding thereof, waive such notice.
ARTICLE XXIII
Indemnity of Directors and Officers
The Corporation shall indemnify every director or officer, his heirs,
executors and administrators, against expenses reasonably incurred by him
(including, without limitation, reasonable attorneys' fees) in connection with
any action, suit or proceeding to which he may be made a party by reason of his
being or having been a director or officer of the Corporation to the extent
permitted by the Delaware corporation Law, as amended, or any successor
provision thereto.
ARTICLE XXIV
Miscellaneous
[1] Facsimile or Electronic Signatures. In addition to the provisions for
use of facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile or electronic signatures of any officer or officers of the Corporation
may be used whenever and as authorized by the board of directors or a committee
thereof.
-46-
Exhibit 3.2
[2] Reliance Upon Books, Reports, and Records. Each director, each member
of any committee designated by the board of directors, and each officer of the
Corporation shall, in the performance of his or her duties, be fully protected
in relying in good faith upon the books of account or other records of the
Corporation and upon such information, opinions, reports or statements presented
to the Corporation by any of its officers or employees, or committees of the
board of directors so designated, or by any other person as to matters which
such director or committee member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
[3] Time Periods. In applying any provision of these Bylaws which requires
that an act be done or not be done a specified number of days prior to an event
or that an act be done during a period of a specified number of days prior to an
event, calendar days shall be used, the day of the doing of the act shall be
excluded, and the day of the event shall be included.
[4] Adoption of Regulations. The board of directors may, except as
otherwise required by law, adopt from time to time policies and regulations, not
inconsistent with these Bylaws, for the management of the Corporation's business
and affairs.
ARTICLE XXV
Amendments
[1] By Stockholders. These Bylaws may be altered, amended or repealed by
the affirmative vote of a majority of the holders of Common Stock issued and
outstanding at any regular or special meeting of the stockholders, if notice of
the proposed alteration, amendment or repeal be contained in the notice of the
meeting, provided, however, that no change of the time or place for the election
of directors shall be made within sixty (60) days before the day on which such
election is to be held and that in case of any change of such time or place,
notice thereof shall be given to each stockholder entitled to vote for any
director or directors, in person or by letter mailed to his last known post
office address at least (20) days before the election is held.
[2] By Directors. The board of directors shall have the power to make,
alter and repeal Bylaws additional and supplementary to these Bylaws and not
inconsistent with any of the same but any such additional or supplementary
Bylaws may be altered or repealed by the holders of the stock entitled to vote.
-47-
Exhibit 10.4
AMENDMENT NO. 2 TO
CREDIT AGREEMENT
This Amendment No. 2 to Credit Agreement (the "Amendment No. 2") is dated
as of July 25, 2003 and is made by and among BLAIR CORPORATION, a Delaware
corporation (the "Borrower"), the Guarantors now or hereafter party thereto, the
BANKS under the Credit Agreement (as hereafter defined) and PNC BANK, NATIONAL
ASSOCIATION, in its capacity as agent for the Banks under the Credit Agreement
(hereinafter referred to in such capacity as the "Agent").
RECITALS:
WHEREAS, the Borrower, the Guarantors, the Banks and the Agent entered
into that certain Credit Agreement dated as of December 20, 2001, as amended by
that Amendment No.1 to Credit Agreement dated as of July 8, 2002 (as it may
hereafter be amended, the "Credit Agreement"); and
WHEREAS, the Borrower is required by the Federal Deposit Insurance
Corporation ("FDIC") to execute a Capital and Liquidity Agreement substantially
in the form of Exhibit A hereto (the "Capital and Liquidity Agreement") in favor
of JLB Service Bank and the FDIC in order for JLB Service Bank to be insured by
the FDIC; and
WHEREAS, the Borrower desires to make a series of deposits in JLB Service
Bank which shall be used by JLB Service Bank to acquire accounts receivables (in
the case of the Initial Receivables to be Purchased (as defined below)), or to
collateralize the origination of accounts receivable (in the case of receivables
generated after the sale of the Initial Receivables to be Purchased), as more
fully described in the agreements listed on Exhibit B hereto (the " JLB
Deposits"); JLB Deposits shall initially be made daily over a period of time
(the "Initial Receivables Purchase Period") in order that JLB Service Bank may
acquire all accounts receivable of Blair Factoring existing on the day on which
the first JLB Deposit is made (the "Initial Receivables to be Purchased") and;
WHEREAS, the Borrower will fund its JLB Deposits in JLB Service Bank using
its own cash and shall not obtain a loan from the Agent, the Banks or any other
person in order to fund such JLB Deposit;
WHEREAS, the Borrower desires to amend its bylaws (the "Borrower's
Proposed Bylaw Amendment") as substantially as provided in the letter from the
Borrower to the Agent attached hereto as Exhibit C, and in the memorandum from
Borrower's counsel to the Borrower and the redlined draft of the Borrower's
bylaws, each of which are attached to such letter;
WHEREAS, Section 7.2.13 [Changes in Organizational Documents] provides in
part that "Each of the Loan Parties shall not . . . amend in any respect its . .
.. by-laws . . . without providing at least fifteen (15) calendar days' prior
written notice to the Agent and the Banks;" and
WHEREAS, the parties desire (1) to amend the Credit Agreement to permit
the Borrower to establish, organize and begin the operations of JLB Service Bank
and Allegheny Trail Corporation, (2) to amend the Credit Agreement to permit the
Borrower and JLB Service Bank to execute the Capital and Liquidity Agreement and
the Borrower to make the JLB Deposits in JLB Service Bank, (3) to waive the
15-day notice requirement under Section 7.2.13 described in the
-48-
Exhibit 10.4
recital above (the "15-Day Notice Requirement") for Borrower's Proposed Bylaw
Amendment, and (4) to make certain other changes to the Credit Agreement, all as
more fully provided herein; and
WHEREAS, capitalized terms used herein and not otherwise defined herein
shall have the meanings given to them under the Credit Agreement.
NOW, THEREFORE, in consideration of the foregoing and intending to be
legally bound, the parties hereto agree as follows:
1. Amendments to Credit Agreement.
A. Definitions.
The following new definitions shall be inserted in alphabetical order
in Section 1.1 of the Credit Agreement:
"Amendment No. 2 shall mean the Amendment
---------------
No. 2 to this Agreement dated as of July 25 2003 among the
Borrower, the Guarantors and the Banks."
Capital and Liquidity Agreement shall mean the Capital and
Liquidity Agreement to be made among Blair, JLB Service Bank and the FDIC
substantially in the form of Exhibit A to Amendment No. 2."
Capital and Liquidity Agreement Payment shall mean any
amounts paid by the Borrower to JLB Service Bank pursuant to the Capital
and Liquidity Agreement, including any capital contributions made by the
Borrower pursuant to section 2 thereof, and cash, financial support or
other payments, but excluding any of the following payments:
(1) any JLB Deposits made by the Borrower in JLB
Service Bank described in and permitted under clause (viii) of Section
7.2.4;
(2) the initial capital contribution by the Borrower
in JLB Service Bank (which is in the amount of $2,000,000) described in
and permitted under clause (ix)(1) of Section 7.2.4;
(3) the deposit in the amount of $500,000 described in
and permitted under clause (ix)(2) of Section 7.2.4; and
(4) the JLB Letter of Credit described in and
permitted under clause (ix)(3) of Section 7.2.4, or any draws under such
JLB Letter of Credit.
Cash Collateral Condition shall mean that the completion by
the Borrower of all of the following steps:
(1) the opening of a Collateral Account with the
Agent;
(2) the execution and delivery by the Borrower to the
Agent of the Collateral Account Pledge Agreement and UCC-1 financing
statements perfecting the Agent's Liens in the Collateral Account;
-49-
Exhibit 10.4
(3) the delivery by the Borrower of an opinion of its
outside counsel in a form acceptable to the Agent that the Collateral
Account Pledge Agreement has been duly authorized, executed and delivered
and is the binding obligation of the Borrower and that the Borrower has
granted to the Agent a Prior Security Interest in the assets contained in
such Collateral Account.
Collateral Account shall mean that deposit account
established with the Agent by the Borrower to hold cash deposits made by
the Borrower to the Agent.
Collateral Account Pledge Agreement shall mean that
Collateral Account Pledge Agreement between the Borrower and the Agent as
Agent and on behalf of the Banks substantially in the form of Exhibit
1.1(C) pursuant to which the Borrower grants to the Agent for the benefit
of the Banks a Prior Security Interest in the cash contained in the
Collateral Account.
Funding Termination Period shall have the meaning assigned
to such term in Section 7.1.13.
JLB Deposits shall have the meaning assigned to such term
in the recitals to Amendment No. 2.
JLB Letter of Credit shall have the meaning assigned to
such term in Section 7.2.4(ix)."
The following definitions are hereby amended and restated to read as
set forth below:
"Borrowing Base shall mean at any time the sum of (i)50% of
Qualified Inventory, plus (ii) the amount of cash maintained in the
Collateral Account, provided that the Cash Collateral Condition has been
met. Notwithstanding anything to the contrary herein, the Required Banks
may, in their reasonable discretion based on customary or industry
standards, at any time hereafter, increase or decrease the advance
percentage for Qualified Inventory, or increase the level of any reserves
or ineligibles, or define or maintain such other reserves or ineligibles,
as the Required Banks may deem necessary or appropriate. Any such change
shall become effective immediately upon written notice from the Agent to
the Borrower for the purpose of calculating the Borrowing Base hereunder.
Investment shall mean with respect to any Person, (i) loans
made, directly or indirectly, by the Loan Parties to such Person, (ii)
capital or other equity contributions or investments made, directly or
indirectly, by the Loan Parties to such Person, (iii) Guaranties made by
the Loan Parties, directly or indirectly, to or for the benefit of such
Person, (iv) letters of credit made by the Loan Parties, directly or
indirectly, to or for the benefit of such Person or (v) any other
consideration, benefit or investment made or give to or for the benefit of
such Person."
A new clause (xi) is hereby added to the definition of "Permitted
Liens" to follow immediately after clause (x) and to read as follows:
-50-
Exhibit 10.4
"(xi)A pledge of cash to secure letters of credit permitted
under Section 7.2.1(xi) in an amount not to exceed the amount of such
letters of credit."
B. Letter of Credit Sublimit (Section 2.10.1). The phrase in the second
to last sentence of Section
2.10.1 [Issuance of Letters of Credit] which now reads "and providing that in no
event shall (i) the Letters of Credit Outstanding exceed, at any one time,
$20,000,000" is hereby amended to read as follows:
"and providing that in no event shall (i) the Letters of Credit
Outstanding exceed, at any one time, $30,000,000"
C. Conditions to Making Loans or Issuing Letters of Credit (Section 6.2).
"6.2 Each Additional Loan or Letter of
Credit.
At the time of making any Loans or issuing any Letters of Credit
other than Loans made or Letters of Credit issued on the Closing Date and
after giving effect to the proposed extensions of credit: the
representations and warranties of the Loan Parties contained in Section
5.1 and in the other Loan Documents shall be true on and as of the date of
such additional Loan or Letter of Credit with the same effect as though
such representations and warranties had been made on and as of such date
(except representations and warranties which expressly relate solely to an
earlier date or time, which representations and warranties shall be true
and correct on and as of the specific dates or times referred to therein)
and the Loan Parties shall have performed and complied with all covenants
and conditions hereof; no Event of Default or Potential Default shall have
occurred and be continuing or shall exist; no Funding Termination Period
shall be in effect; the making of such Loans or issuance of such Letter of
Credit shall not contravene any Law applicable to any Loan Party or
Subsidiary of any Loan Party or any of the Banks; and the Borrower shall
have delivered to the Agent a duly executed and completed Loan Request or
application for a Letter of Credit as the case may be.
D. Payments Under the Capital and Liquidity Agreement (New Section
7.1.13).
A new Section 7.1.13 is hereby added to Section 7.1 to follow
immediately after Section 7.1.12 and to read as follows:
"7.1.13 Payments Under the Capital and Liquidity Agreement
The Borrower will notify the Agent and the Banks at least
seven (7) Business Days before the Borrower shall make any Capital and
Liquidity Agreement Payment to JLB Service Bank. In the event that, after
giving effect to such Capital and Liquidity Agreement Payment, the
aggregate amount of Capital and Liquidity Agreement Payments shall exceed
$5,000,000 (the "$5,000,000 Limit") over the term of this Credit
Agreement, as it may hereafter be extended (subject to the last sentence
of this Section 7.1.13 below), the Borrower may not request and the Banks
shall not be obligated to fund any additional Loans and the
-51-
Exhibit 10.4
Loan Parties shall not be permitted to request, and Agent shall not shall
be obligated to issue any Letters of Credit, during the period (the
"Funding Termination Period") beginning on the date on which the Borrower
or JLB Service Bank shall have first learned of the obligation of the
Borrower to make such Capital and Liquidity Agreement Payment and ending
upon the earlier of the following events:
(1) The Required Banks shall consent in writing to fund
additional Loans and to permit the Agent to issue additional Letters of
Credit, or
(2) The Borrower shall demonstrate, to the satisfaction of
the Required Banks (as evidenced by written confirmation by the Required
Banks), that the obligation to make such Capital and Liquidity Agreement
Payment has ceased (for example because JLB Service Bank will be
terminating its operations) or has been waived permanently in writing by
the FDIC and by JLB Service Bank.
If the Expiration Date is hereafter extended and any Capital and Liquidity
Agreement Payments have been made prior to the effective date of such
extension, the Loan Parties may request that the $5,000,000 Limit be
increased by an amount not to exceed the lesser of (A) $5,000,000 or (B)
the amount of Capital and Liquidity Agreement Payments which have
previously been made, and the Banks will reasonably consider modifying the
Credit Agreement in response to such request.
E. Pledge of Stock of JLB Service Bank (New Section 7.1.14).
A new Section 7.1.14 is hereby added to Section 7.1 to follow
immediately after Section 7.1.13 and to read as follows:
"7.1.14 Pledge of Stock of JLB Service Bank
Following the occurrence of an Event of Default, the
Borrower, the Agent or the Required Banks may at any time request that the
Borrower pledge the stock of JLB Service Bank to the Agent for the benefit
of the Banks. Upon receipt of such request, the Borrower shall use
reasonable commercial efforts (1) to obtain promptly the consent of any
Person required in order for the Borrower to pledge such stock to the
Agent, such efforts to include initiating written application therefore
within thirty (30) days after the date of receiving such request from the
Agent or the Required Banks, and (2) to complete the pledge of such stock
to the Agent (including the grant of a Priority Security Interest in such
stock to the Agent and the delivery to the Agent and the Banks of a
satisfactory opinion of the Borrower's outside counsel confirming that
such Priority Security Interest has been granted) within 15 days after the
later of (i) the date of such request for pledge, or (ii) the date on
which all consents described in clause (1) of this sentence have been
obtained in the event that any such consents are required for such pledge.
F. Indebtedness (Section 7.2.1).
New clauses (viii), (ix) and (x) are herby added to Section 7.2.1
[Indebtedness] of the Credit Agreement to follow immediately after clause
(vii) of such Section and to read as follows:
-52-
Exhibit 10.4
"(viii) JLB Deposits in JLB Service Bank from the Borrower, provided
that each of the conditions set forth in clauses (1), (2) and (3) of
Section 7.2.4(viii) is met with respect to each such JLB Deposit.
(ix)Indebtedness incurred by JLB Service Bank under the Capital and
Liquidity Agreement (subject to the limitation on payments made thereunder
as provided in clause (ix) of Section 7.2.4[Loans and Investments]).
(x) letters of credit incurred by the Loan Parties in an amount not
to exceed $2,000,000 which may be secured by cash collateral."
G. Guaranties.
Section 7.2.3 of the Credit Agreement is hereby amended and
restated in its entirety as follows:
"7.2.3 Guaranties.
Each of the Loan Parties shall not, and shall not permit
any of its Subsidiaries to, at any time, directly or indirectly, become or
be liable in respect of any Guaranty, or assume, guarantee, become surety
for, endorse or otherwise agree, become or remain directly or contingently
liable upon or with respect to any obligation or liability of any other
Person, except for Guaranties of Indebtedness of the Loan Parties
permitted hereunder and except for the Capital and Liquidity Agreement
provided that the aggregate payments made by the Borrower thereunder do
not exceed the amounts permitted under clause (ix) of Section 7.2.4 [Loans
and Investments]."
H. Loans and Investments.
Clause (vi) of Section 7.2.4 [Loans and Investments] of the
Credit Agreement is hereby deleted and the following clauses (viii) and (ix) are
hereby added to such Section 7.2.4:
"(viii) JLB Deposits made by the Borrower in JLB Service Bank,
provided that each of the following conditions is met:
A. JLB Deposits Used to Fund the Initial Receivables to be
Purchased.
With respect to any JLB Deposit that shall be used to fund the
Initial Receivables to be Purchased (each an "Initial JLB Deposit"):
(i) the first Initial JLB Deposit shall be made no more
than sixty (60) days after the date of Amendment No. 2 to this Credit
Agreement.
(ii) all subsequent Initial JLB Deposits shall be made
within thirty (30) days after the first Initial JLB Deposit (so that in no
event shall any Initial JLB Deposit be made more than ninety (90) days
after the date of Amendment No. 2 to this Agreement).
-53-
Exhibit 10.4
(iii) the Borrower shall notify the Agent of each such
Initial JLB Deposit at least one (1) day before it makes such Initial JLB
Deposit;
(iv) the amount of each Initial JLB Deposit shall not
exceed the amount of the trade receivables purchased by JLB Service Bank
from Blair Factoring at the time that such Initial JLB Deposit is made and
that JLB Service Bank shall then sell such trade receivables back to Blair
Factoring and then return such Initial JLB Deposit to the Borrower.
(v) JLB Service Bank shall return to the Borrower each
Initial JLB Deposit on or before the close of business on the day in which
such Initial JLB Deposit is made, and
B. JLB Deposits Used to Fund the Subsequent Receivables to be
Purchased.
With respect to any JLB Deposit that shall be used to
collateralize the origination by JLB Service Bank of trade receivables
after the Initial Receivables Purchase Period (and not be used to purchase
any of the Initial Receivables to be Purchased) (each a "Collateralization
JLB Deposit"), the Borrower and JLB Service Bank will comply with the
following requirements:
(i) the amount of Collateralization JLB Deposits shall not
at any time exceed $10 million; and
(ii) JLB Service Bank shall use its best efforts to return
to the Borrower each Collateralization JLB Deposit on or before the close
of business on the day in which such Collateralization JLB Deposit is made
provided that (1) in no event shall any Collateralization JLB Deposit
remain outstanding for more than 2 Business Days, and (2) if on at the end
of any Business Day the Borrower shall fail to repay all Collateralization
JLB Deposits then outstanding, the Borrower shall repay all outstanding
Collateralization JLB Deposits at the close of business on the next
succeeding Business Day.
(ix) The following Investments in JLB Service Bank (such Investments
are in addition to the JLB Deposits described in, and permitted under, clause
(viii) of this Section 7.2.4):
(1) an initial capital contribution by the Borrower in JLB
Service Bank (which is in the amount of $2,000,000);
(2) a deposit in the amount of $500,000;
(3) a Letter of Credit issued under this Agreement in an amount
not to exceed $10,000,000 naming JLB Service Bank as the beneficiary
thereof (the "JLB Letter of Credit") in satisfaction of the obligation of
the Borrower under Section 3(A)(i) of the Capital and Liquidity Agreement
to do the following: "maintain a liquidity reserve deposit . . . of $10
million in cash or unencumbered securities acceptable to the FDIC" with an
unaffiliated FDIC-insured depository institution to meet any credit card
funding obligations of the Applicant".
-54-
Exhibit 10.4
(4) Capital and Liquidity Agreement Payments, subject to the
provisions of Section 7.1.13 [Payments Under the Capital and Liquidity
Agreement]."
I. Notices or Payments Under the Capital and Liquidity
Agreement (New Section 7.3.10).
A new Section 7.3.10 is hereby added to Section 7.3 to follow
immediately after Section 7.3.9 and to read as follows:
"7.3.10 Notices or Payments Under the Capital and
Liquidity Agreement
7.3.10.1 Notices
The Borrower will notify the Agent and the Banks as soon as
possible but in any event within three (3) days after the Borrower or JLB
Service Bank receives any deficiency notice or other notice from the Federal
Deposit Insurance Corporation under the Capital and Liquidity Agreement.
7.3.10.2 Payments.
The Borrower will notify the Agent and the Banks within the time
period required in Section 7.1.13 before the Borrower shall make any Capital and
Liquidity Agreement Payment to the extent that such notice is required under
such Section 7.1.13.
J. Events of Default (Section 8.1).
Section 8.1.10 of the Credit Agreement is hereby amended and
restated in its entirety as follows:
"8.1.10 Insolvency; Capital Adequacy.
----------------------------
8.1.10.1 Insolvency.
Any Loan Party or any Subsidiary of any Loan Party ceases
to be Solvent or admits in writing its inability to pay its debts as they
mature
8.1.10.21 Capital Adequacy.
The capital ratios of JLB Service Bank shall at any time
fall below the "Minimum Capital Ratios" or the "Revised Capital
Ratios" as such terms are defined in Sections 2(A) and (B) of the Capital
and Liquidity Agreement."
K. Joinder of Guarantors (Section 10.19).
The words "Section 7.2.7" contained in the first sentence of
Section 10.19 [Joinder of Guarantors] are hereby amended to read "Section
7.2.9".
-55-
Exhibit 10.4
L. Commitments.
1. Schedule 1.1(B).
Schedule 1.1(B) is hereby amended and restated to read as set
forth on Schedule 1.1(B) hereto.
2. Repayment and Reborrowing.
On the effective date of this Amendment, (1) the Borrower shall repay all
outstanding Loans and may reborrow Loans on such date according to the Ratable
Shares of the Banks after giving effect to the increase in the Commitment of PNC
Bank on the date hereof (the "New Ratable Shares"), and (2) the Banks shall
participate in outstanding Letters of Credit according to the New Ratable
Shares. All repayments of Loans shall be subject to the Loan Parties' indemnity
obligations under Section 4.6.2 (i.e. breakage).
M. Other Schedules.
The following additional Schedules to the Credit Agreement are
hereby amended and restated to read as set forth on the attached Schedules
hereto:
Schedule 5.1.1 - Qualifications To Do
Business
Schedule 5.1.3 - Subsidiaries
Schedule 5.1.8 - Owned And Leased Real
Property
Schedule 5.1.20- Material Contracts
Schedule 5.1.22- Employee Benefit Plan
Disclosures
2. Waiver of 15-Day Notice Requirement For Borrower's
Proposed Bylaw Amendment and Consent.
The Agent and the Banks hereby waive the 15-Day Notice
Requirement and consent to Borrower's Proposed Bylaw Amendment.
3 Representations and Warranties.
A. Warranties Under the Credit Agreement. The representations and
warranties of the Loan Parties contained in the Credit Agreement, after giving
effect to the amendments thereto on the date hereof, are true and correct on and
as of the date hereof with the same force and effect as though
made by the Loan Parties on such date, except to the extent that any such
representation or warranty expressly relates solely to a previous date. The Loan
Parties are in compliance with all terms, conditions, provisions, and covenants
contained in the Credit Agreement.
B. Power and Authority; Validity and Binding Effect; No Conflict.
Each Loan Party has full power to enter into, execute, deliver and carry out
this Amendment No. 2, and such actions have been duly authorized by all
necessary proceedings on its part. This Amendment No. 2 has been duly and
validly executed and delivered by each of the Loan Parties. This Amendment No. 2
constitutes the legal, valid and binding obligation of each of the Loan Parties
which is enforceable against such Loan Party in accordance with its terms.
Neither the execution and delivery of this Amendment No. 2, nor the
-56-
Exhibit 10.4
consummation of the transactions herein contemplated will conflict with,
constitute a default under or result in any breach of (i) the terms and
conditions of any organizational documents of any Loan Party or (ii) any Law or
any material agreement or instrument or other obligation to which any Loan Party
or any of its Subsidiaries is a party or by which any Loan Party or any of its
Subsidiaries is bound, or result in the creation or enforcement of any
Lien upon any property of any Loan Party or any of its Subsidiaries other than
as set forth herein.
C. Consents and Approvals; No Event of Default. No consent, approval,
exemption, order or authorization of any Person other than the parties hereto is
required by any Law or any agreement in connection with the execution, delivery
and carrying out of this Amendment No. 2. No event has occurred and is
continuing and no condition exists or will exist after giving effect to this
Amendment No. 2 which constitutes an Event of Default or Potential Default.
4. Conditions to Effectiveness.
This Amendment No. 2 shall be effective on the date (the "Effective
Date") on which each of the following conditions have been satisfied. The
Effective Date shall be the same as the date of this Amendment No. 2 first
written above:
A. Execution.
The Loan Parties, the Banks and the Agent shall have executed
this Amendment No.
B. Joinder.
Allegheny Trail Corporation ("Allegheny Trail") shall have
executed and delivered a Guarantor Joinder under which it shall join the Credit
Agreement as a Guarantor and Allegheny Trail shall have executed and delivered
the following documents in connection therewith as required under Section 10.9
[Joinder of Guarantors]:
(a) Officer's Certificate.
An officers' certificate of the Vice President and Secretary of
Allegheny Trail.
(B) Secretary's Certificate. A secretary's certificate of the
secretary of
Allegheny Trail.
(c) Lien Searches
The Agent shall have received satisfactory results of a Lien
search demonstrating that the Agent's Lien constitutes a Prior Security Interest
in favor of the Banks and their exist no other Liens on the assets of Allegheny
Trail, including UCC filings, judgments, suits and tax and other claims, except
for Permitted Liens.
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Exhibit 10.4
(d) Financing Statements.
The Agent shall have received executed originals of financing
statements necessary to perfect the Lien of the Banks on the Collateral held by
Allegheny Trail.
(e) Schedules to Security Agreement. The Agent shall have
received an amended Schedule
A to the Security Agreement including the requisite information related to
Allegheny Trail together with an update Schedule B to the Security Agreement, if
applicable.
(f) Schedule to Pledge Agreement. The Agent shall have received
an amended Schedule
A to the Pledge Agreement including the pledge of stock of Allegheny Trail by
Blair, together with stock certificates and signed, undated stock powers
relating to such stock.
(g) Revolving Credit Note.
The Agent shall have received an executed Amended and Restated
Revolving Credit Note made in favor of PNC Bank, National Association evidencing
PNC's increased Commitment.
C. Amendment Fees; Other Fees and Expenses. The Borrower shall have
paid an amendment fee in
the amount of $5,000 to each of the Banks (a total of $15,000) and such other
fees and expenses as may be due and payable.
D. Opinion of Counsel.
An opinion of outside counsel confirming (1) execution, delivery
and enforceability of this Amendment against the Loan Parties, and (2) all
matters covered in the opinion (including perfection of Liens) delivered on the
Closing Date as such matters relate to Allegheny Trail.
5. References to Credit Agreement, Loan Documents
Any reference to the Credit Agreement or other Loan Documents in any
document, instrument, or agreement shall hereafter mean and include the Credit
Agreement or such Loan Document, including such schedules and exhibits, as
amended hereby. In the event of irreconcilable inconsistency between the terms
or provisions hereof and the terms or provisions of the Credit Agreement or such
Loan Document, including such schedules and exhibits, the terms and provisions
hereof shall control.
6. Force and Effect.
Each Loan Party a signatory hereto reconfirms, restates, and
ratifies the Credit Agreement, and all other documents executed in connection
therewith except to the extent any such documents are expressly modified by this
Amendment No. 2 and each Loan Party confirms that all such documents have
remained in full force and effect since the date of their execution.
-58-
Exhibit 10.4
7 Governing Law.
This Amendment No. 2 shall be deemed to be a contract under the laws
of the Commonwealth of Pennsylvania and for all purposes shall be governed by
and construed and enforced in accordance with the internal laws of the
Commonwealth of Pennsylvania without regard to its conflict of laws principles.
8. Counterparts.
This Amendment No. 2 may be signed in any number of counterparts each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
-59-
Exhibit 10.4
The undersigned have executed this Amendment No. 2 as
of the day and year first above written.
BORROWER:
BLAIR CORPORATION
By:
----------------------------
Title:
-------------------------
GUARANTORS:
BLAIR HOLDINGS, INC.
By:
----------------------------
Title:
BLAIR PAYROLL, LLC
By:
----------------------------
Title:
BLAIR INTERNATIONAL HOLDINGS,
INC.
By:
----------------------------
Title:
BLAIR CREDIT SERVICES
CORPORATION
By:
----------------------------
Title:
ALLEGHENY TRAIL CORPORATION
By:
----------------------------
Title:
-------------------------
-60-
Exhibit 10.4
BANKS:
PNC BANK, NATIONAL
ASSOCIATION, individually and
as Agent
By:
----------------------------
Title:
-------------------------
LASALLE BANK, N.A.
By:
----------------------------
Title:
-------------------------
HSBC BANK USA
By:
----------------------------
Title:
-------------------------