-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CTpwrVF5rvIKFYC0t1BCwXO/z7RHNmWPutPQ513A4RR8mY9AwaDHA9NCd4glqlm6 pKryVgIa/gC7PAv/JH8Ynw== 0000071525-01-500003.txt : 20010516 0000071525-01-500003.hdr.sgml : 20010516 ACCESSION NUMBER: 0000071525-01-500003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLAIR CORP CENTRAL INDEX KEY: 0000071525 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 250691670 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00878 FILM NUMBER: 1635378 BUSINESS ADDRESS: STREET 1: 220 HICKORY ST CITY: WARREN STATE: PA ZIP: 16366 BUSINESS PHONE: 8147233600 FORMER COMPANY: FORMER CONFORMED NAME: NEW PROCESS CO DATE OF NAME CHANGE: 19890507 10-Q 1 mar200110-q.txt 1ST QUARTER FILING 2001 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 March 31, 2001 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 - --------------------------------------------------------------------------- (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 ----- ----- As of May 11, 2001 the registrant had outstanding 7,970,044 shares of its common stock without nominal or par value. PART I. FINANCIAL INFORMATION -2- ITEM I. FINANCIAL STATEMENTS (UNAUDITED) BLAIR CORPORATION AND SUBSIDIARIES March 31, 2001 CONSOLIDATED BALANCE SHEETS -3- BLAIR CORPORATION AND SUBSIDIARIES March 31 December 31 2001 2000 ------------ ------------ ASSETS Current assets: Cash $ 5,149,129 $ 7,497,907 Customer accounts receivable, less allowances for doubtful accounts and returns of $46,384,983 in 2001 and $46,764,673 in 2000 162,599,071 172,393,572 Inventories - Note F Merchandise 110,996,334 94,912,349 Advertising and shipping supplies 21,194,215 14,660,290 ------------ ------------ 132,190,549 109,572,639 Deferred income taxes - Note E 11,278,000 11,728,000 Prepaid and refundable federal and state taxes 9,725,917 -0- Prepaid expenses 1,207,062 958,849 ------------ ------------ Total current assets 322,149,728 302,150,967 Property, plant and equipment: Land 1,142,144 1,142,144 Buildings 64,240,428 64,235,385 Equipment 56,763,838 54,664,689 ------------ ------------ 122,146,410 120,042,218 Less allowances for depreciation 68,236,218 66,391,927 ------------ ------------ 53,910,192 53,650,291 Trademarks 686,833 704,894 ------------ ------------ TOTAL ASSETS $376,746,753 $356,506,152 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable - Note H $ 60,000,000 $ 25,000,000 Trade accounts payable 64,094,988 76,038,528 Advance payments from customers 3,982,849 2,077,053 Accrued expenses - Note D 11,927,700 14,289,318 Accrued federal and state taxes -0- 929,101 ------------ ------------ Total current liabilities 140,005,537 118,334,000 Deferred income taxes - Note E 1,089,000 1,146,000 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 14,612,333 14,612,333 Retained earnings 266,017,142 267,444,414 ------------ ------------ 281,049,285 282,476,557 Less 2,106,596 shares of common stock in treasury - at cost 43,218,782 43,218,782 Less receivable from stock plans 2,178,287 2,231,623 ------------ ------------ 235,652,216 237,026,152 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $376,746,753 $356,506,152 ============ ============ See accompanying notes. CONSOLIDATED STATEMENTS OF INCOME -4- BLAIR CORPORATION AND SUBSIDIARIES Three Months Ended March 31 2001 2000 ------------ ------------ Net sales $133,055,145 $130,063,638 Other income - Note G 11,302,939 10,660,820 ------------ ------------ 144,358,084 140,724,458 Costs and expenses: Cost of goods sold 64,410,845 64,034,434 Advertising 38,690,287 29,320,067 General and administrative 32,608,388 28,497,903 Provision for doubtful accounts 8,294,021 7,262,461 Interest 727,489 455,437 ------------ ------------ 144,731,030 129,570,302 ------------ ------------ (LOSS) INCOME BEFORE INCOME TAXES (372,946) 11,154,156 Income taxes (benefit) - Note E (141,000) 4,216,000 ------------ ------------ NET (LOSS) INCOME $ (231,946) $ 6,938,156 ============ ============ Basic and diluted (loss) earnings per share based on weighted average shares outstanding - Note C $(.03) $.85 ===== ==== See accompanying notes. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -5- BLAIR CORPORATION AND SUBSIDIARIES Three Months Ended March 31 2001 2000 ------------ ------------ Common Stock $ 419,810 $ 419,810 Additional paid-in capital: Balance at beginning of period 14,612,333 14,625,722 Forfeitures of Common Stock under Employee Stock Purchase Plan -0- (46,746) ------------ ------------ Balance at end of period 14,612,333 14,578,976 Retained earnings: Balance at beginning of period 267,444,414 251,163,905 Net income (loss) (231,946) 6,938,156 Cash dividends declared - Note B (1,195,326) (1,221,383) ------------ ------------ Balance at end of period 266,017,142 256,880,678 Treasury Stock: Balance at beginning of period (43,218,782) (39,829,081) Purchase of 130,876 shares in 2000 -0- (2,182,279) Forfeitures of Common Stock under Employee Stock Purchase Plan -0- (16,898) ------------ ------------ Balance at end of period (43,218,782) (42,028,258) Receivable from stock plans: Balance at beginning of period (2,231,623) (2,402,931) Forfeitures of Common Stock under Employee Stock Purchase Plan -0- 20,575 Repayments 53,336 48,405 ------------ ------------ Balance at end of period (2,178,287) (2,333,951) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY $235,652,216 $227,517,255 ============ ============ See accompanying notes. CONSOLIDATED STATEMENTS OF CASH FLOWS -6- BLAIR CORPORATION AND SUBSIDIARIES Three Months Ended March 31 2001 2000 ------------ ------------ OPERATING ACTIVITIES Net (loss) income $ (231,946) $ 6,938,156 Adjustments to reconcile net (loss) income to net cash used in operating activities: Depreciation and amortization 1,862,998 1,358,793 Provision for doubtful accounts 8,294,021 7,262,461 Provision for deferred income taxes 393,000 (49,000) Forfeitures of stock awards -0- (43,069) Changes in operating assets and liabilities providing (using) cash: Customer accounts receivable 1,500,480 (7,294,171) Inventories (22,617,910) (5,904,426) Federal and state taxes (10,655,018) 1,935,000 Prepaid expenses (248,213) (76,378) Trade accounts payable (11,943,540) (6,470,844) Advance payments from customers 1,905,796 2,100,231 Accrued expenses (2,361,618) (736,156) ------------ ------------ NET CASH USED IN OPERATING ACTIVITIES (34,101,950) (979,403) INVESTING ACTIVITIES Purchases of property, plant and equipment (2,104,838) (2,286,624) ------------- ------------ NET CASH USED IN INVESTING ACTIVITIES (2,104,838) (2,286,624) FINANCING ACTIVITIES Net proceeds from bank borrowings 35,000,000 9,900,000 Dividend paid (1,195,326) (1,221,383) Purchase of Common Stock for treasury -0- (2,182,279) Decrease in notes receivable from stock plans 53,336 48,405 ------------- ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 33,858,010 6,544,743 ------------- ------------ NET (DECREASE) INCREASE IN CASH (2,348,778) 3,278,716 Cash at beginning of year 7,497,907 1,625,236 ------------- ------------ CASH AT END OF PERIOD $ 5,149,129 $ 4,903,952 ============= ============ See accompanying notes. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -7- BLAIR CORPORATION AND SUBSIDIARIES March 31, 2001 NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Blair Corporation and its wholly-owned subsidiaries have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. 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, 2000. The consolidated financial statements include the accounts of Blair Corporation and its wholly owned subsidiaries. All significant intercompany accounts are eliminated upon consolidation. NOTE B - DIVIDENDS DECLARED 2-08-00 $ .15 per share 2-09-01 $ .15 per share 4-18-00 .15 4-17-01 .15 7-18-00 .15 10-17-00 .15 NOTE C - BASIC AND DILUTED EARNINGS PER SHARE Three Months Ended March 31 2001 2000 ----------- ----------- Net (loss) income $ (231,946) $ 6,938,156 Weighted average shares outstanding 7,968,844 8,115,214 Basic and diluted (loss) earnings per share $(.03) $.85 NOTE D - ACCRUED EXPENSES Accrued expenses consist of: March 31 December 31 2001 2000 ----------- ----------- Employee compensation $ 6,076,569 $ 9,476,660 Contribution to profit sharing and retirement plan feature -0- 2,288,916 Taxes, other than taxes on income 1,324,819 745,312 Voluntary separation program 2,500,000 -0- Other accrued items 2,026,312 1,778,430 ----------- ----------- $11,927,700 $14,289,318 =========== =========== NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -8- BLAIR CORPORATION AND SUBSIDIARIES March 31, 2001 NOTE E - 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 (credit) expense are as follows: Three Months Ended March 31 2001 2000 ----------- ----------- Currently (refundable) payable: Federal $ (334,000) $ 4,026,000 State (200,000) 239,000 ----------- ----------- (534,000) 4,265,000 Deferred 393,000 (49,000) ----------- ----------- $ (141,000) $ 4,216,000 =========== =========== The differences between total tax (refund) 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 March 31 2001 2000 ----------- ----------- Statutory rate applied to pre-tax income $ (130,531) $ 3,903,955 State income taxes, net of federal tax benefit (97,500) 306,150 Other items 87,031 5,895 ----------- ----------- $ (141,000) $ 4,216,000 =========== =========== Components of the provision for deferred income tax expense (credit) are as follows: Three Months Ended March 31 2001 2000 ----------- ----------- Advertising costs $ 2,998,000 $ 1,803,000 Provision for doubtful accounts (490,000) (855,000) Provision for estimated returns (869,000) (909,000) Severance costs (955,000) -0- Other items - net (291,000) (88,000) ----------- ----------- $ 393,000 $ (49,000) =========== =========== NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -9- BLAIR CORPORATION AND SUBSIDIARIES March 31, 2001 NOTE E - INCOME TAXES - Continued Components of the deferred tax asset and liability under the liability method as of March 31, 2001 and December 31, 2000 are as follows: March 31 December 31 2001 2000 ----------- ----------- Current net deferred tax asset: Doubtful accounts $13,538,000 $ 13,048,000 Returns allowances 2,367,000 1,498,000 Inventory obsolescence 2,587,000 2,386,000 Inventory costs (2,085,000) (2,085,000) Vacation pay 1,408,000 1,408,000 Advertising costs (8,009,000) (5,011,000) Severance costs 955,000 -0- Other items 517,000 484,000 ----------- ----------- $11,278,000 $11,728,000 Long-term deferred tax liability: Property, plant and equipment $ 1,089,000 $ 1,146,000 =========== =========== NOTE F - INVENTORIES Inventories are valued at the lower of cost or market. Cost of merchandise inventories is determined principally on the last-in, first-out (LIFO) method. Cost of advertising and shipping supplies is determined on the first-in, first-out (FIFO) method. Advertising and shipping supplies include printed advertising material and related mailing supplies for promotional mailings which are generally scheduled to occur within two months. These costs are expensed when mailed. If the FIFO method had been used for all inventories, the total amount would have increased by approximately $6,717,000 at both March 31, 2001 and December 31, 2000. NOTE G - OTHER INCOME Other income consists of: Three Months Ended March 31 2001 2000 ----------- ----------- Finance charges on time payment accounts $ 9,784,595 $ 9,056,564 Commissions earned 899,203 741,268 Other items 629,141 862,988 ----------- ----------- $11,302,939 $10,660,820 Finance charges on time payment accounts are recognized on an accrual basis of accounting. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -10- BLAIR CORPORATION AND SUBSIDIARIES March 31, 2001 NOTE H - FINANCING ARRANGEMENTS On November 13, 1998, the Company entered into an amended and restated $95,000,000 Revolving Credit Facility, which expires on November 13, 2001. The interest rate is, at the Company's option, based on a base rate option, swing loan rate option or Euro-rate option as defined in the agreement. The Revolving Credit Facility is unsecured and requires the Company to meet certain covenants, as outlined in the agreement, some of which have been amended since November 13, 1998. These covenants specifically relate to tangible net worth, maintaining a defined leverage ratio, interest coverage ratio and fixed charge coverage ratio and complying with certain indebtedness restrictions. As of March 31, 2001 and December 31, 2000, the Company was in compliance with all the agreement's covenants. At March 31, 2001, the Company had borrowed $60,000,000 all of which was classified as short term and at December 31, 2000, $25,000,000 all of which was classified as short term. As of May 11, 2001, the Company's borrowings outstanding totaled $50,000,000. The increase in borrowings in 2001 has been primarily attributable to the growth in inventories. NOTE I - NEW ACCOUNTING PRONOUNCEMENTS Accounting for Derivative Instruments and Hedging Activities The Financial Accounting Standards Board issued Statement No.133, "Accounting for Derivative Instruments and Hedging Activities." The Company adopted the new statement effective January 1, 2001. The Company has historically not invested in derivative instruments, and as a result, the adoption of this statement has had no impact on the financial statements of the Company. Revenue Recognition in Financial Statements In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." This SAB formalizes the SEC's position on application of revenue recognition rules. SAB No. 101 was adopted by the Company in the fourth quarter of 2000 and did not have a substantial effect on the Company. NOTE J - VOLUNTARY SEPARATION PROGRAM In the first quarter of 2001, the Company accrued and charged to expense $2.5 million in separation costs. The costs were charged to General and Administrative Expense in the income statement. The one-time $2.5 million charge represents severance pay, related payroll taxes and medical benefits due the 56 eligible employees who accepted the voluntary separation program rather than relocate or accept other positions in the Company. The program was offered to eligible employees of the Blair Mailing Center from which the merchandise returns operations will be relocated and the mailing operations have been outsourced. None of the $2.5 million was paid as of March 31, 2001. NOTE K - 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 L - 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 M - RECLASSIFICATIONS Certain amounts in the prior year financial statements have been reclassified to conform with the current year presentation. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -11- CONDITION AND RESULTS OF OPERATIONS BLAIR CORPORATION AND SUBSIDIARIES March 31, 2001 Results of Operations - --------------------- Comparison of First Quarter 2001 and First Quarter 2000 The first quarter of 2001 resulted in a net loss of $231,946 ($.03 per share), a 103% decrease from the net income of $6,938,156 ($.85 per share) for the first quarter of 2000. What primarily affected the results for the first quarter of 2001 were lower than expected response rates, reflecting decreased consumer spending and uncertain economic conditions. The quarter was also negatively impacted by costs associated with investments in several initiatives including e-commerce, Crossing Pointe and recently introduced men's and women's targeted apparel catalogs. The costs of these initiatives were reflected in higher advertising and general and administrative expenses. It is expected that these investments will continue, subject to adjustment, during the remainder of the year. The provision for doubtful accounts increased 14% in the first quarter of 2001 as compared to the first quarter of 2000. The first quarter of 2001 also included a one-time $2.5 million cost attributable to the Company's voluntary separation program. Without the one-time charge, the Company would have reported net income of $1,225,575 ($.15 per share) for the first quarter of 2001. Net sales for the first quarter of 2001 were 2.3% higher than net sales for the first quarter of 2000. Response rates in the first quarter of 2001 were lower than in the first quarter of 2000. Response rates were below expected levels in the first quarter of 2001 but exceeded expected levels in the first quarter of 2000. Gross sales revenue generated per advertising dollar decreased approximately 23% in the first quarter of 2001 as compared to the first quarter of 2000. The total number of orders shipped decreased while the average order size increased in the first quarter of 2001 as compared to the first quarter of 2000. The provision for returned merchandise as a percentage of gross sales decreased slightly in the first quarter of 2001 as compared to the first quarter of 2000. Other income increased approximately 6% in the first quarter of 2001 as compared to the first quarter of 2000. Increased finance charges, resulting from higher accounts receivable, were primarily responsible for the increase in other income in the first quarter of 2001. Cost of goods sold as a percentage of net sales decreased to 48.4% in the first quarter of 2001 from 49.2% in the first quarter of 2000. The improvement in cost of goods is attributable to stable or declining product costs and the Company's efforts to improve gross margins. Advertising expense in the first quarter of 2001 increased 32% from the first quarter of 2000. A planned larger advertising effort, a postal rate increase and new marketing initiatives (e-commerce, Crossing Pointe and men's and women's targeted apparel catalogs) were primarily responsible for the increased advertising costs in the first quarter of 2001. The total number of catalog mailings released in the first quarter of 2001 was 48% more than in the first quarter of 2000 (37 million vs. 25 million). Crossing Pointe print advertising is all via catalog and is included in the catalog mailings number for the first quarter of 2001. The total number of letter mailings released in the first quarter of 2001 was 26% less than in the first quarter of 2000 (17.2 million vs. 23.2 million). Letter mailings are most productive when targeting the Company's female customers and, since mid-year 2000, have been used only to promote our women's apparel lines. Total volume of the co-op and media advertising programs increased 30% in the first quarter of 2001 as compared to the first quarter of 2000 (442 million vs. 340 million). ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -12- CONDITION AND RESULTS OF OPERATIONS - Continued BLAIR CORPORATION AND SUBSIDIARIES March 31, 2001 Results of Operations - Continued - --------------------- Comparison of First Quarter 2001 and First Quarter 2000 - Continued The Company launched e-commerce sites for Crossing Pointe www.crossingpointe.com, and the Blair Online Outlet early in the third quarter of 2000. The Blair website, www.blair.com, including the Online Outlet, was launched late third quarter/early fourth quarter of 2000. A redesigned www.blair.com was introduced in the first quarter of 2001 and features improved navigation and quicker access to our expanded product offerings. The Company has also launched e-commerce sites for Scandia Woods and Irvine Park, new men's targeted apparel catalogs. General and administrative expense increased 14.4% in the first quarter of 2001 as compared to the first quarter of 2000. The higher general and administrative expense in 2001 was primarily attributable to the one-time $2.5 million charge for the Company's voluntary separation program, and to the costs associated with e-commerce, Crossing Pointe and recently introduced men's and women's targeted apparel catalogs. The $2.5 million charge represents the cost of the severance pay, related payroll taxes and medical benefits due the 56 eligible employees who accepted the voluntary separation program rather than relocate or accept other positions in the Company. The program was offered to eligible employees of the Blair Mailing Center from which the merchandise returns operations will be relocated and the mailing operations have been outsourced. None of the $2.5 million was paid in the first quarter of 2001. The provision for doubtful accounts as a percentage of credit sales increased 15.2% in the first quarter of 2001 as compared to the first quarter of 2000. The estimated provision for doubtful accounts is based on current expectations (consumer credit and economic trends, etc...), sales mix (prospect/customer) and current and prior years' experience, especially delinquencies (accounts over 30 days past due) and actual charge-offs (accounts removed from accounts receivable for non-payment). The estimated bad debt rate used for the first quarter of 2001 was approximately 15% higher than the bad debt rate used in the first quarter of 2000. The estimated bad debt rate increased primarily due to a larger credit marketing program to prospects (new customers) and uncertain economic conditions. At March 31, 2001, the delinquency rate of open accounts receivable was approximately 2% lower than at March 31, 2000. The delinquency rate for established credit customers (95.8% of open receivable at March 31, 2001 vs. 95.9% at March 31, 2000) decreased 1.6%. The charge-off rate for the first quarter of 2001 was 37.8% more than the charge-off rate for the first quarter of 2000, primarily due to the expanded credit-marketing program to prospects. Recoveries of bad debts previously charged off have been credited back against the allowance for doubtful accounts. 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 increased 60% in the first quarter of 2001 as compared to the first quarter of 2000. Interest expense results primarily from the Company's borrowings necessary to finance customer accounts receivable and inventories. At March 31, 2001, inventories were up 54% and gross customer accounts receivable were up 1.6% as compared to March 31, 2000. Income taxes as a percentage of income (loss) before income taxes were 37.8% in both the first quarter of 2001 the first quarter of 2000. The federal income tax rate was 35% in both years. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -13- CONDITION AND RESULTS OF OPERATIONS - Continued BLAIR CORPORATION AND SUBSIDIARIES March 31, 2001 Liquidity and Sources of Capital - -------------------------------- All working capital and cash requirements for the first quarter of 2001 were met. In November 1998, the Company entered into an amended and restated $95,000,000 Revolving Credit Facility, which expires on November 13, 2001. This unsecured Revolving Credit Facility requires the Company to meet certain covenants, some of which have been amended since November 1998, and as of March 31, 2001, the Company was in compliance with all the covenants. Borrowings outstanding at March 31, 2001 were $60,000,000, all classified as current. Borrowings outstanding at December 31, 2000 were $25,000,000, all classified as current. As of May 11, 2001, the Company's borrowings outstanding totaled $50,000,000. The increase in borrowings in 2001 is primarily attributable to the growth in inventories. The ratio of current assets to current liabilities was 2.30 at March 31, 2001, 2.55 at December 31, 2000 and 3.30 at March 31, 2000. Working capital decreased $1,672,776 in the first quarter of 2001 primarily due to the net loss. The 2001 decrease was primarily reflected in decreased customer accounts receivable and increased notes payable more than offsetting increased inventories and prepaid and refundable federal and state taxes and decreased trade accounts payable. Merchandise inventory turnover was 2.5 at March 31, 2001, 2.8 at December 31, 2000 and 2.8 at March 31,2000. Merchandise inventory as of March 31, 2001 increased 17% from December 31, 2000 and 59% from March 31, 2000. Inventory levels have increased due to lower than expected response rates since mid-2000 and the start up of new catalogs in 2000 and early 2001. An operating segment is identified as a component of an enterprise for which separate financial information is available for evaluation by the chief decision maker, or decision making group, in deciding on how to allocate resources and assess performance. The Company operates as one business segment consisting of four product lines. The fourth product line, Crossing Pointe, was added in the third quarter of 2000 and is expected to become a significant revenue source over the next few years. Home Products net sales as a percentage of total net sales were 14.3% ($19.0 million) in the first quarter of 2001 as compared to 13.6% ($17.6 million) in the first quarter of 2000. Menswear net sales as a percentage of total net sales were 18.1% ($24.1 million) as compared to 18.7% ($24.4 million). Womenswear net sales as a percentage of total net sales were 66.2% ($88.1 million) as compared to 67.7% ($88.0 million). Crossing Pointe net sales as a percentage of total net sales were 1.4% ($1.9 million) in the first quarter of 2001. Home Products merchandise inventory totaled $16.0 million at March 31, 2001, $17.1 million at December 31, 2000 and $16.7 million at March 31, 2000. Menswear merchandise inventory was $26.7 million at March 31, 2001, $20.7 million at December 31, 2000 and $16.0 million at March 31, 2000. Womenswear merchandise inventory was $64.5 million at March 31 2001, $54.3 million at December 31, 2000 and $37.2 million at March 31, 2000. Crossing Pointe merchandise inventory was $3.9 million at March 31, 2001 and $2.8 million at December 31, 2000. The Company looks upon its credit granting (Blair Credit) as a marketing advantage. In the early 1990's, the Company started extending revolving credit to first-time (prospect) buyers. Blair Credit was offered only to established customers prior to that time. Prospects responded. This led to a broad offering of pre-approved lines of credit to prospects in 1995 and 1996. Sales, accounts receivable and bad debts expectedly increased. However, as the receivables aged, bad debts greatly exceeded expected levels. The Company recognized that it didn't have all the necessary credit controls in place and put a hold (second quarter 1996) on pre-approved credit offers and reviewed and strengthened (mid-1996 and on) credit controls. Blair Credit customers, on average, buy more, buy more often and are more loyal than cash and credit card customers. The benefit from the increased sales volume achieved by offering Blair Credit is significant and more than outweighs the cost of the credit program. The cost and/or contribution of the credit program itself can be quickly assessed by comparing finance charges (included in other income) to the provision for doubtful accounts. For the firstquarter of 2001, finance charges were $9.8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -14- CONDITION AND RESULTS OF OPERATIONS - Continued BLAIR CORPORATION AND SUBSIDIARIES March 31, 2001 Liquidity and Sources of Capital - Continued - -------------------------------- million and the provision for doubtful accounts was $8.3 million (net of $1.5 million) as compared to the first quarter of 2000, finance charges were $9.1 million and the provision for doubtful accounts was $7.3 million (net of $1.8 million). This assessment does not take into consideration the administrative cost of the credit program (included in general and administrative expense), the cost of money and the impact on sales. The Company's gross credit sales decreased approximately 1% in the first quarter of 2001 as compared to the first quarter of 2000. The Company has added new facilities, modernized its existing facilities and acquired new cost-saving equipment during the last several years. Capital expenditures for property, plant and equipment totaled $2.1 million during the first quarter of 2001 and $2.3 million during the first quarter of 2000. 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 will be delayed due to the current economic conditions. This includes delaying the implementation of the previously announced $23 million modernization and enhancement of the Company's fulfillment operations. Capital expenditures for the year 2001 are now projected to be $6 million. The Company recently declared a quarterly dividend of $.15 per share payable on June 15, 2001. It is the Company's intent to continue paying dividends; however, the Company will evaluate its dividend practice on an on-going basis. See "Future Considerations." The Company has, from the fourth quarter of 1996 through the first quarter of 2000, repurchased a total of 1,620,940 shares of its Common Stock - 864,720 shares purchased on the open market and 756,220 shares from the Estate of John L. Blair. In 2000, the Company purchased 268,704 shares on the open market No shares have been repurchased in 2001. 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 intends to renew its current borrowing arrangement, which expires in November 2001, in the same or similar form. 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. Impact of Inflation and Changing Prices - --------------------------------------- Although inflation has moderated in our economy, the Company is continually seeking ways to cope with its impact. To the extent permitted by competition, increased costs are passed on to customers by selectively increasing selling prices over a period of time. Profit margins have been pressured by paper cost and postal rate increases. Paper prices were higher in 1998 than in 1997 lower in 1999 than in 1998, again higher in 2000 than in 1999 and fairly stable at this time. Postal rates increased on January 10, 1999 and on January 7, 2001, and will increase again on July 1, 2001. The Company principally uses the LIFO method of accounting for its merchandise inventories. Under this method, the cost of products sold reported in the financial statements approximates current costs and thus reduces distortion in reported income due to increasing costs. The charges to operations for ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -15- CONDITION AND RESULTS OF OPERATIONS - Continued BLAIR CORPORATION AND SUBSIDIARIES March 31, 2001 Impact of Inflation and Changing Prices - Continued - --------------------------------------- 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. 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, of course, 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. Accounting Pronouncement - ------------------------ In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", was issued. Statement No. 133 provides new guidelines for accounting for derivative instruments and requires companies to recognize all derivatives on the balance sheet at fair value. Gains or losses resulting from changes in the values of the derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The Company adopted Statement No. 133 effective January 1, 2001. The adoption of Statement No. 133 did not have an impact on the financial statements of the Company, as the Company has historically not invested in derivative instruments. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." Bulletin No. 101 formalizes the SEC's position on application of revenue recognition rules. The Company adopted Bulletin No. 101 in the fourth quarter of 2000 and the adoption did not have a substantial effect on the Company. Future Considerations - --------------------- The Company is faced with the ever-present challenge of maintaining and expanding the 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 impacted by increased operating costs, a declining labor pool, increased competition in the retail sector, high levels of consumer debt and varying consumer response rates. 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. 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, Internet commerce and fulfillment capabilities and capacity. Management believes that these investments should improve Blair Corporation's position in new and existing markets and provide opportunities for future earnings growth. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -16- CONDITION AND RESULTS OF OPERATIONS - Continued BLAIR CORPORATION AND SUBSIDIARIES March 31, 2001 Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 - -------------------------------------------------------------------------------- Forward-looking statements in 10-Q 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 First Quarter 2001 and First Quarter 2000.. - The last sentence (Inventory levels have increased ...) of the paragraph on merchandise inventory in Liquidity and Sources of Capital. - The third sentence (The fourth product line, Crossing Pointe...) of the paragraph on operating segment in Liquidity and Sources of Capital. - The paragraph on credit granting as a marketing advantage in Liquidity and Sources of Capital. - The paragraph on capital expenditures in Liquidity and Sources of Capital. - The second sentence (It is the Company's intent to...) of the paragraph on recently declared dividend in Liquidity and Sources of Capital. - The paragraph on future cash needs in Liquidity and Sources of Capital. - The Impact of Inflation and Changing Prices. - Future Considerations. Investors are cautioned that such forward-looking statements involve risks and uncertainties 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; and (iii) 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 Not applicable. PART II. OTHER INFORMATION -17- BLAIR CORPORATION AND SUBSIDIARIES March 31, 2001 ITEM 1. Legal Proceedings The Company is from time to time a party to ordinary routine litigation incidental to various aspects of its operations. Management is not currently aware of any litigation that will have a material adverse impact on the Company's financial condition or results of operations. Item 2. Changes in Securities and Use of Proceeds Not Applicable. Item 3. Defaults Upon Senior Securities Not Applicable. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- Not Applicable. Item 5. Other Information Not Applicable. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits 3.1 Restated Certificate of Incorporation* 3.2 Amended Bylaws of Blair Corporation** 4 Specimen Common Stock Certificate*** 11 Statement regarding computation of per share earnings**** (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended March 31, 2001 - ------------------ * 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). ** Incorporated by reference to Exhibit 4.3 to the Form S-8 Registration Statement filed with the SEC on July 19, 2000 (SEC File No. 333-41770). *** 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). **** Incorporated by reference to Note C of the financial statements included herein. -18- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant had duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BLAIR CORPORATION -------------------------------- (Registrant) Date May 11, 2001 By KENT R. SIVILLO - --------------------------- --------------------------------- KENT R. SIVILLO Vice President and Treasurer (Principal Financial Officer and Duly Authorized Officer) -----END PRIVACY-ENHANCED MESSAGE-----