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, 1994 Commission File Number 1-878
-------------- ---------------
BLAIR CORPORATION
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 25-0691670
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 HICKORY STREET, WARREN, PENNSYLVANIA 16366-0001
- ---------------------------------------------------------------------------
(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
---- ----
As of May 10, 1994 the registrant had outstanding 9,231,032 shares of its
common stock without nominal or par value.
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS (UNAUDITED)
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1994
CONSOLIDATED BALANCE SHEETS
BLAIR CORPORATION AND SUBSIDIARY
March 31 December 31
1994 1993
------------ -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,047,912 $ 2,937,432
Customer accounts receivable,
less allowances for doubtful
accounts and returns of $35,537,512
in 1994 and $34,255,648 in 1993 108,157,206 112,452,666
Inventories - Note F
Merchandise 51,187,780 47,419,661
Advertising and shipping supplies 15,029,245 14,652,580
------------ ------------
66,217,025 62,072,241
Deferred income taxes 16,560,000 15,807,000
Prepaid expenses 674,426 409,562
------------ ------------
TOTAL CURRENT ASSETS 193,656,569 193,678,901
PROPERTY, PLANT AND EQUIPMENT - at cost
Land 1,169,791 719,791
Buildings 55,267,905 54,816,920
Equipment 30,148,902 29,721,911
Construction in progress 505,522 522,692
------------ ------------
87,092,120 85,781,314
Less allowances for depreciation 34,977,445 33,855,151
------------ ------------
52,114,675 51,926,163
------------ ------------
TOTAL ASSETS $245,771,244 $245,605,064
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable to bank $ 17,000,000 $ 11,600,000
Trade accounts payable 34,396,641 34,579,040
Advance payments from customers 3,114,940 1,886,186
Accrued expenses - Note D 7,485,720 9,651,354
Federal and state income taxes 3,005,684 4,758,684
------------ ------------
TOTAL CURRENT LIABILITIES 65,002,985 62,475,264
DEFERRED INCOME TAXES 1,910,000 1,926,000
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 9,595,875 9,595,875
Retained earnings 187,906,481 188,957,972
------------ ------------
197,922,166 198,973,657
Less 844,408 shares in 1994 and
809,408 shares in 1993 of Common
Stock in treasury - at cost 17,526,017 16,056,017
Less receivable from Employee Stock
Purchase Plan 1,537,890 1,713,840
------------ ------------
178,858,259 181,203,800
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $245,771,244 $245,605,064
============ ============
See accompanying notes.
CONSOLIDATED STATEMENTS OF INCOME
BLAIR CORPORATION AND SUBSIDIARY
Three Months Ended
March 31
1994 1993
------------ ------------
Net sales $118,440,298 $119,501,351
Other income - Note G 6,035,556 5,205,886
------------ ------------
124,475,854 124,707,237
Costs and expenses:
Cost of goods sold 56,550,194 58,063,207
Selling 27,501,365 31,711,327
General and administrative 21,242,945 20,110,560
Provision for doubtful accounts 5,538,809 4,676,859
------------ ------------
110,833,313 114,561,953
------------ ------------
INCOME BEFORE INCOME TAXES 13,642,541 10,145,284
Income taxes - Note E 5,463,000 4,119,000
------------ ------------
NET INCOME $ 8,179,541 $ 6,026,284
============ ============
Net income per share based on average
shares outstanding - Note C $.88 $.65
==== ====
See accompanying notes.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
BLAIR CORPORATION AND SUBSIDIARY
Three Months Ended
March 31
1994 1993
------------ ------------
Common Stock $ 419,810 $ 419,810
Additional paid-in capital 9,595,875 7,775,814
Retained Earnings:
Balance at beginning of period 188,957,972 182,111,957
Net income 8,179,541 6,026,284
Cash dividend declared - Note B (9,231,032) (14,293,297)
------------ ------------
Balance at end of period 187,906,481 173,844,944
Treasury Stock:
Balance at beginning of period (16,056,017) (16,418,906)
Purchase of common stock for treasury (1,470,000) -0-
------------ ------------
Balance at end of period (17,526,017) (16,418,906)
Receivable from Employee Stock Purchase Plan:
Balance at beginning of period (1,713,840) (1,454,490)
Payments 175,950 284,295
------------ ------------
Balance at end of period (1,537,890) (1,170,195)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY $178,858,259 $164,451,467
============ ============
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS
BLAIR CORPORATION AND SUBSIDIARY
Three Months Ended
March 31
1994 1993
------------ ------------
OPERATING ACTIVITIES
Net income $ 8,179,541 $ 6,026,284
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 1,123,018 1,138,554
Provision for doubtful accounts 5,538,809 4,676,859
Provision for deferred income taxes (769,000) (1,240,000)
Changes in operating assets and
liabilities (using) providing cash:
Customer accounts receivable (1,243,349) (4,907,745)
Inventories (4,144,784) (2,448,178)
Prepaid expenses (264,864) (107,034)
Trade accounts payable (182,399) 787,501
Advance payments from customers 1,228,754 439,314
Accrued expenses (2,165,634) (3,654,818)
Federal and state income taxes (1,753,000) (671,000)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,547,092 39,737
INVESTING ACTIVITIES
Purchases of property, plant and equipment (1,311,530) (3,601,153)
Proceeds from sale of short-term investments -0- 902,576
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (1,311,530) (2,698,577)
FINANCING ACTIVITIES
Proceeds from line of credit 40,900,000 16,200,000
Repayments on line of credit (35,500,000) (6,900,000)
Dividend paid (9,231,032) (14,293,297)
Purchase of common stock for treasury (1,470,000) -0-
Payments on receivable from
Employee Stock Purchase Plan 175,950 284,295
------------ ------------
NET CASH USED BY FINANCING ACTIVITIES (5,125,082) (4,709,002)
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS (889,520) (7,367,842)
Cash and cash equivalents at beginning of year 2,937,432 9,118,850
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,047,912 $ 1,751,008
============ ============
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1994
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
Blair Corporation and its wholly-owned subsidiary 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, 1994 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1994. 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, 1993.
On September 2, 1993, Blair formed a new wholly-owned subsidiary,
Blair Holdings, Inc., a Delaware Corporation. The consolidated
financial statements include the accounts of Blair Corporation and
its subsidiary. All significant intercompany accounts are
eliminated upon consolidation.
NOTE B - DIVIDENDS DECLARED
2-10-93 $1.55 per share 2-09-94 $1.00 per share
5-12-93 .35
8-10-93 .35
11-10-93 .35
NOTE C - NET INCOME PER COMMON SHARE
Three Months Ended
March 31
1994 1993
----------- -----------
Net income $ 8,179,541 $ 6,026,284
Average shares outstanding 9,248,532 9,221,482
Net income per common share $.88 $.65
NOTE D - ACCRUED EXPENSES
Accrued expenses consist of:
March 31 December 31
1994 1993
----------- -----------
Employee compensation $ 4,948,450 $ 5,081,753
Contribution to profit sharing
and retirement plan 874,021 3,294,397
Taxes, other than taxes on income 376,434 199,687
Other accrued items 1,286,815 1,075,517
----------- -----------
$ 7,485,720 $ 9,651,354
=========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1994
NOTE E - INCOME TAXES
The components of income tax expense are as follows:
Three Months Ended
March 31
1994 1993
----------- -----------
Currently payable:
Federal $ 5,107,000 $ 3,807,000
State 1,125,000 1,552,000
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6,232,000 5,359,000
Deferred (credit) (769,000) (1,240,000)
----------- -----------
$ 5,463,000 $ 4,119,000
=========== ===========
The currently payable state income tax provision for the three
months ended March 31, 1994 reflects a reduction in the company's
effective state tax rate as compared to the three months ended
March 31, 1993.
The differences between total tax expense and the amount computed by
applying the statutory federal income tax rate, 35% in 1994 and 34%
in 1993, to income before income taxes are as follows:
Three Months Ended
March 31
1994 1993
----------- -----------
Statutory rate applied to
pre-tax income $ 4,774,889 $ 3,449,397
State income taxes, net
of federal tax benefit 625,300 826,320
Other items 62,811 (156,717)
----------- -----------
$ 5,463,000 $ 4,119,000
=========== ===========
The increase in the statutory federal income tax rate from 34% to 35% was
enacted into law in August 1993, effective January 1, 1993.
Components of the provision for deferred income tax credit are as
follows:
Three Months Ended
March 31
1994 1993
----------- -----------
Provision for estimated
returns $ 1,009,000 $ 435,000
Provision for doubtful accounts 330,000 470,000
Cumulative effect adjustment
as of January 1, 1993 of change
in method of accounting for income taxes -0- 207,000
Advertising costs (619,000) -0-
Other items - net 49,000 128,000
----------- -----------
$ 769,000 $ 1,240,000
=========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1994
NOTE E - INCOME TAXES - Continued
In the first quarter of 1993, the company adopted Financial
Accounting Standards Board Statement No. 109 on accounting for
income taxes. Prior to the adoption of Statement No. 109, income
tax expense was determined using the deferred method. This
accounting change did not have a material impact on the company -
financial position increased by $207,000, $.02 per share.
Significant components of the company's deferred tax assets and
liability as of March 31, 1994 and December 31, 1993 are as follows:
March 31 December 31
1994 1993
----------- -----------
Current deferred tax assets - net:
Allowance for doubtful accounts $11,835,000 $11,505,000
Allowance for returns 2,742,000 1,733,000
Allowance for inventory obsolescence 1,705,000 1,705,000
Accrued vacation pay 1,070,000 1,061,000
Inventory costs 1,043,000 1,019,000
Advertising costs (2,229,000) (1,610,000)
Other items 394,000 394,000
----------- -----------
$16,560,000 $15,807,000
=========== ===========
Long-term deferred tax liability:
Tax over book depreciation $ 1,910,000 $ 1,926,000
=========== ===========
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. If the FIFO
method had been used for all merchandise inventories, the total
amount would have increased by approximately $8,433,000 at March 31,
1994 and $8,358,000 at December 31, 1993, respectively.
NOTE G - OTHER INCOME
Other income consists of:
Three Months Ended
March 31
1994 1993
----------- -----------
Finance charges on time
payment accounts $ 5,456,544 $ 4,416,916
Other items 579,012 788,970
----------- -----------
$ 6,035,556 $ 5,205,886
=========== ===========
Finance charges on time payment accounts are recognized on an accrual
basis of accounting based upon principal balances outstanding.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1994
Results of Operations
- ---------------------
First quarter 1994 net sales nearly matched the record first quarter
1993 net sales. First quarter 1994 net income increased 35.7% over
1993. The increased first quarter earnings (second highest in
company history) were primarily attributable to an increased
response rate from the existing customer file more than offsetting a
decreased advertising program. Both customer and prospect
advertising mailings were decreased resulting in lower selling
expenses in 1994. The gross margin improved due to the change in
sales mix (fewer prospect orders in 1994).
Net sales for the first quarter of 1994 were .9% lower than the 1993
record net sales. The response to customer advertising mailings
increased 10.3% in 1994 nearly offsetting the reduction in
advertising. Advertising dollars spent in 1994 returned 14.3% more
in gross sales than in 1993. The number of orders filled in 1994
decreased 9.8% from 1993 but the average order size increased 9.6%.
Returns as a percentage of adjusted gross sales improved, decreasing
to 15.3% in 1994 from 15.7% in 1993, due to the change in sales mix.
Other income increased 15.9% in the first quarter of 1994 as
compared to the first quarter of 1993. The increase was due to
finance charges assessed on increased Easy Payment Plan accounts
receivable. The direct mail multi-product prospect advertising
program offers the Easy Payment Plan to first-time buyers. The
program was greatly responsible for a 20.5% increase in Easy Payment
Plan accounts receivable at March 31, 1994 as compared to March 31,
1993. Gross Easy Payment Plan sales were 5.0% higher in the first
quarter of 1994 as compared to 1993.
Cost of goods sold as a percentage of net sales decreased to 47.7%
in 1994 from 48.6% in 1993. The improvement in cost of goods was
attributable to the change in sales mix in 1994. Fewer prospects
(first-time buyers) resulted in fewer orders at incentive pricing
and lower returns (15.3% in 1994, 15.7% in 1993).
Selling expenses in the first quarter of 1994 decreased 13.3% from
1993. The decrease was attributable to the reduction in advertising
mailings.
The total number of advertising mailings released in the first
quarter of 1994 was 21.4% less than in 1993. A 12.8% decrease in
multi-product (31) customer mailings and a 44.7% decrease in multi-
product (16) prospect mailings resulted in a direct mail advertising
cost reduction of approximately $4,970,000.
Total volume of the media and co-op advertising programs increased
11.0% in the first quarter of 1994 as compared to 1993. The
increased volume and a 5.4% reduction in average production and
placement costs resulted in a net cost increase of approximately
$130,000.
Home furnishings catalogs, offering over 300 products, were mailed
in February (test) and March (full list) of 1994. Results continue
to be favorable and three full list releases have been scheduled for
the balance of 1994. The catalog mailings increased selling
expenses in the first quarter of 1994 by approximately $590,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1994
Results of Operations - Continued
- ---------------------
General and administrative expenses increased 5.6% in the first
quarter of 1994 over first quarter 1993. The higher expenses for
1994 resulted from an 8.9% increase in wage and benefit costs.
Wages and benefits were higher due to normal pay increases and
increased health insurance and profit sharing.
The provision for doubtful accounts as a percentage of credit sales
increased 17.0% in the first quarter of 1994 as compared to 1993.
Credit sales increased 1.2% in 1994. First-time buyers (prospects) were
approximately 8% of total credit sales in the first quarter of 1994
and 12% in the first quarter of 1993. In 1994, bad debts have been
provided for using rates based on 1993 experience. Had similar
rates been applied to the first quarter of 1993, the 1993 provision
for doubtful accounts would have been approximately $1,000,000
higher and, as a percentage of credit sales, would have been 3.5%
higher than the provision for the first quarter of 1994.
Income taxes as a percentage of income before income taxes were
40.0% in 1994 and 40.6% in 1993. An increase in the federal income
tax rate from 34% to 35% was enacted into law in August 1993,
retroactive to January 1, 1993. The federal increase was more than
offset by a downward adjustment of the company's effective state
income tax rate. First quarter 1993 income taxes do not reflect the
federal and state changes as they did not come into effect until the
third quarter of 1993. The company adopted Financial Accounting
Standards Board Statement No. 109 on accounting for income taxes in
the first quarter of 1993. Due to the relative insignificance of
the adoption of this change in accounting, it was reported as a
reduction in the company's first quarter 1993 income tax expense in
the amount of $207,000.
On August 30, 1993, the company opened a new retail store in
Wilmington, Delaware. The Delaware site was chosen due to the
population density of Delaware and the surrounding states and the
favorable business climate. In addition, on September 2, 1993,
Blair formed a new wholly-owned subsidiary, Blair Holdings, Inc., a
Delaware corporation.
Liquidity and Sources of Capital
- --------------------------------
The company continued to be in a positive cash position during 1994.
All working capital needs were met and suppliers' invoices were
timely paid in order to maximize dixcounts. The company has
$30,000,000 available in lines of credit, $10,000,000 with no
specified expiration date and $20,000,000 expiring May 31, 1994.
Management anticipates renewing the lines upon their expiration.
The company incurred a total of $40,900,000 in short-term borrowings
during the first quarter of 1994, $17,000,000 of which was
outstanding at March 31, 1994. There were no long-term borrowings
and excess funds when available were invested in federal government
obligations, commercial paper and tax free securities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1994
Liquidity and Sources of Capital - Continued
- --------------------------------
The ratio of current assets to current liabilities was 2.98 at March
31, 1994 and 3.10 at December 31, 1993. Working capital decreased
$2,550,053. The decrease was reflected in decreased customer
accounts receivable and increased note payable to bank and advance
payments from customers offsetting increased inventories and
decreased accrued expenses and federal and state income taxes.
Primarily, the first quarter of 1994 decline in working capital was
attributable to the $9,231,032 dividend declared and paid in the
first quarter.
Merchandise inventory turnover was 3.7 at March 31, 1994, 3.8 at
December 31, 1993 and 3.5 at March 31, 1993. The turnover rate
improved primarily due to better-than-expected customer response
during the fourth quarter of 1993 and first quarter of 1994.
Merchandise inventory increased 6.0% from March 31, 1993 to March
31, 1994 primarily due to the home furnishings catalogs offering a
wider product line than the traditional multi-product customer
mailings.
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 $1,311,530 during the first quarter of 1994 and
$3,601,153 during the first quarter of 1993.
The company has completed over 90% of the renovation of its
headquarters facility in Warren. Renovation of the first two levels
was completed in Feburary 1993. The remaining two levels should be
completed by mid-1994. Total cost of the renovation is estimated at
$13,600,000 (including office furniture). Total cost incurred as of
March 31, 1994 was approximately $13,000,000.
The new Delaware retail store which opened August 30, 1993 and the
new wholly-owned subsidiary, Blair Holdings, Inc., formed September
2, 1993, are both in leased facilities and required little in the
way of capital expenditure.
In December 1993, the company acquired a new site for the Erie,
Pennsylvania outlet store. The new store, estimated to open in May
1994 at the Millcreek Mall, will contain approximately 36,000 square
feet (old store - 15,000 square feet). The total cost of the new
store will be approximately $2.1 million - $1.7 million incurred as
of March 31, 1994.
The company has undertaken a study of the distribution center. The
study will focus on operational and customer service improvements.
The project enlists consultants who have worked with the company on
previous projects. Future capital expenditures for the distribution
center will depend on the results of the study, which aren't
anticipated until Fall 1994.
It is anticipated that planned capital expenditures for the years
ahead will be financed by cash flow from operations and short-term
borrowings.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1994
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.
During the past several years, selling prices have been raised
sufficiently to offset increased merchandise costs, thereby
realizing profit margins that continue to build fiscal strength.
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 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. Recent 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. The
company considers these matters in setting pricing policies.
Present tax laws do not allow deductions for the impact of
inflation. Thus, taxes are levied on the company at rates which, in
real terms, exceed established statutory rates. In general, during
periods of inflation, this tax policy results in a tax on
stockholders' investment in the company.
PART II. OTHER INFORMATION
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1994
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
None
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended
March 31, 1994.
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 10, 1994 By Giles W. Schutte
- ------------------- -------------------------------
Giles W. Schutte
Executive Vice President and Treasurer
(Principal Financial Officer)
