<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission file number 1-878
BLAIR CORPORATION
Incorporated in Delaware I.R.S. Employer Identification Number:
220 Hickory Street
Warren, Pennsylvania 16366 25-0691670
(814) 723-3600
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of Each Class on which registered
------------------- ---------------------
<S> <C>
Common Stock, without nominal or par value American Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
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 period 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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
-----
The aggregate market value of the voting stock held by nonaffiliates of
the registrant as of February 23, 1996 was $172,557,344.25. There were
9,322,132 shares of common stock outstanding as of February 23, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1996 Annual Meeting of
Stockholders and the Annual Report to Stockholders for the fiscal year ended
December 31, 1995 are incorporated by reference into Parts II, III, and IV of
this Form 10-K.
<PAGE> 2
PART I
ITEM 1. BUSINESS
(a) General.
Blair Corporation (the "Company") was founded in 1910 by John L. Blair,
Sr., and was incorporated in 1924 under the laws of the State of Delaware. The
Company's business consists of the sale of fashion apparel for men and women,
plus a wide range of home products, primarily through direct mail
merchandising. The Company operates two retail stores, one in Pennsylvania and
one in Delaware, and two outlet stores in Pennsylvania. The Company employs
over 2,300 people.
(b) Information Regarding Industry Segments.
The Company's business consists of only one industry segment, which is
the retail and direct mail merchandising of men's and women's fashion apparel
and home products.
(c) Description of Business.
The Company markets a wide range of merchandise, manufactured by a
number of independent suppliers, both domestic and foreign. Most of these
suppliers have been associated with the Company for many years and manufacture
products based upon the Company's specifications. Suppliers are chosen by the
Company in accordance with their ability to produce high quality products in a
cost-effective manner.
Historically, the Company has marketed its products by mailing letters
and color folders depicting the current styles of womenswear (such as
coordinates, dresses, tops, pants, skirts, lingerie, sportswear, suits, jackets,
outerwear, and shoes); menswear (such as suits, shirts, outerwear, active wear,
slacks, shoes, and accessories); and home products (such as bedspread ensembles,
draperies, furniture covers, area rugs, bath accessories, kitchenware, tools,
electronics, and exercise and personal care items) directly to existing and
prospective customers. Sales of the Company's menswear and womenswear products
accounted for approximately 85% of the Company's total sales in 1995, and sales
of the Company's home products accounted for the remaining 15% (approximately)
of the Company's total sales in 1995. Media and co-op prospect advertising
programs are used extensively and are essential components of the Company's
customer acquisition strategy. In 1993, the Company tested a catalog format to
market its home products and other non-apparel merchandise. In 1995, the
Company tested a catalog format to market its menswear and in early 1996, the
Company tested a catalog format to market its womenswear. The success of the
Company's pilot catalog mailing programs prompted the Company to successfully
-2-
<PAGE> 3
expand its distribution in 1994 and 1995, and the Company anticipates that such
success should continue in 1996.
All orders for merchandise are received and processed at the Company's
corporate offices in Warren, Pennsylvania. All letter mailings originate from
the Company's Mailing Center, and all orders are filled and mailed from the
Company's Distribution Center, both in nearby Irvine, Pennsylvania. All
catalog mailings are mailed from commercial printers engaged by the Company.
The Company serves customers throughout the fifty states.
The Company's outlet stores enable it to more efficiently promote and
liquidate discontinued, overstock and returned merchandise. The Delaware retail
store is the first Company facility to be located outside of its home state of
Pennsylvania, and represents the Company's growing market.
The Company considers its merchandise to be low/medium-priced and
competes for sales with other direct mail businesses, retail department stores,
specialty shops, and discount store chains. The Company competes based on its
sales expertise, customer service, pricing, customer credit privileges, and
diverse product mix.
During 1995, the Company continued its efforts to broaden its customer
information systems. Several database models were rewritten to enhance its
ability to market to both customer files and prospect files, including the use
of new data and analysis techniques.
(d) Foreign Operations and Export Sales.
The Company does not derive any revenue from sales of merchandise
outside of the United States.
ITEM 2. PROPERTIES
The Company owns the following properties:
I. Blair Headquarters (220 Hickory Street, Warren, Pennsylvania) -- a
284,000 square foot multi-story brick facility containing the
Company's corporate offices and Accounting, Advertising, Electronic
Data Processing, Human Resources, Merchandise, Order Handling and
Planning departments.
II. Blair Distribution Center (Route 62, Irvine, Pennsylvania) -- a
542,275 square foot cement block and sheet metal warehouse and
distribution facility.
-3-
<PAGE> 4
III. Blair Mailing Center (Route 62, Irvine, Pennsylvania) -- a 293,400
square foot cement block and sheet metal mailing facility.
IV. Blair Warehouse Outlet (Route 62, Starbrick, Pennsylvania) --
a 53,250 square foot metal warehouse outlet facility.
V. Blair Warehouse Outlet (Millcreek Mall, Erie, Pennsylvania) --
a 38,600 square foot block and brick warehouse outlet facility.
VI. Bell Warehouse Building (Liberty Street, Warren, Pennsylvania) --
a 9,000 square foot metal warehouse facility.
VII. Starbrick Warehouse Building (Route 62, Starbrick, Pennsylvania) --
a 12,000 square foot metal warehouse facility.
The Company leases the following properties:
VIII. Blair Retail Store (Wilmington, Delaware) -- a 11,765 square foot
retail facility.
IX. Warehouse Building (Route 62, Starbrick, Pennsylvania) -- a 30,000
square foot metal warehouse facility.
X. Telephone Call Center (Erie, Pennsylvania) -- a 16,120 square foot
metal call center facility.
In addition, the Company's wholly-owned subsidiary, Blair Holdings,
Inc., leases approximately 600 square feet of office space in Newark, Delaware,
which it uses as its principal office.
Management believes that these properties are capable of meeting the
Company's anticipated needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this report.
-4-
<PAGE> 5
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information required by this item is incorporated by reference to
page 14 of the Company's 1995 Annual Report to Stockholders.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to
page 14 of the Company's 1995 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is incorporated by reference to
pages 15 and 16 of the Company's 1995 Annual Report to Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference to
pages 7 through 14 of the Company's 1995 Annual Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-5-
<PAGE> 6
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information regarding directors and executive officers of the Company
appearing under the caption "Election of Directors" in the Company's Proxy
Statement for the 1996 Annual Meeting of Stockholders (the "1996 Proxy
Statement") is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information appearing under the caption "Executive Compensation" in the
1996 Proxy Statement is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information setting forth the security ownership of certain beneficial
owners and management appearing under the captions "Security Ownership of
Certain Beneficial Owners" and "Security Ownership of Management" in the 1996
Proxy Statement is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 10-K
(a) EXHIBITS AND FINANCIAL STATEMENTS AND SCHEDULES.
(1) Financial Statements. The Company's consolidated financial
statements to be included in Part II, Item 8 are incorporated
herein by reference to the Company's 1995 Annual Report to
Stockholders, a copy of which accompanies this report on Form
10-K.
(2) Financial Statement Schedules. SCHEDULE II -- VALUATION AND
QUALIFYING ACCOUNTS is being filed as part of this report on
Form 10-K, and should be read in conjunction with the consolidated
financial
-6-
<PAGE> 7
statements of the Company described in Item 14(a)(1) above.
All other schedules set forth in the applicable accounting
regulations of the Securities and Exchange Commission either are
not required under the related instructions or are not applicable
and, therefore, have been omitted.
(3) List of Exhibits.
3(i) Certificate of Incorporation of the Company
3(ii) Bylaws of the Company
*11 Computation of Earnings per Share (incorporated by reference
to page 7 of the 1995 Annual Report to Stockholders)
*13 1995 Annual Report to Stockholders (informational filing
by paper only)
21 Subsidiaries of Registrant
*23 Consents of Experts and Counsel
*27 Financial Data Schedule (filed electronically only)
(b) REPORTS ON FORM 8-K.
The registrant has filed no forms 8-K during the quarter ended December
31, 1995.
(c) EXHIBITS.
All exhibits listed above were previously filed with the Commission,
except for those marked with an asterisk, which are being filed with
this Form 10-K.
-7-
<PAGE> 8
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
BLAIR CORPORATION
(Registrant)
Date: March 15, 1996 By: /s/ GILES W. SCHUTTE
------------------------------
Giles W. Schutte
Executive Vice President
and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the date indicated.
Date: March 15, 1996 By: /s/ MURRAY K. MCCOMAS
------------------------------
Murray K. McComas
President and Director
(Principal Executive Officer
and Director)
Date: March 15, 1996 By: /s/ GILES W. SCHUTTE
------------------------------
Giles W. Schutte
Executive Vice President,
Treasurer, and Director
(Principal Financial and
Accounting Officer)
Date: March 15, 1996 By: /s/ BLAIR T. SMOULDER
------------------------------
Blair T. Smoulder
Executive Vice President
and Director
<PAGE> 9
Date: March 15, 1996 By: /s/ MICHAEL J. SAMARGYA
------------------------------
Michael J. Samargya
Vice President - Data
Processing and Director
Date: March 15, 1996 By: /s/ STEVEN M. BLAIR
------------------------------
Steven M. Blair
Vice President - Order
Handling and Director
Date: March 15, 1996 By: /s/ JOHN E. ZAWACKI
------------------------------
John E. Zawacki
Vice President - Womenswear
and Director
Date: March 15, 1996 By: /s/ DAVID A. BLAIR
------------------------------
David A. Blair
Secretary and Director
Date: March 15, 1996 By: /s/ ROBERT D. CROWLEY
------------------------------
Robert D. Crowley
Vice President - Menswear
and Director
Date: March 15, 1996 By: /s/ THOMAS P. MCKEEVER
------------------------------
Thomas P. McKeever
Vice President - Employee
and Public Relations and Director
<PAGE> 1
Exhibit 13
Annual Report on Form 10-K
Item 14(a) (1) and (2), and (d)
List of Financial Statements and Financial Statement Schedules
Blair Corporation and Subsidiary
Warren, Pennsylvania
Year ended December 31, 1995
<PAGE> 2
Blair Corporation and Subsidiary
List of Financial Statements and Financial Statement Schedules
Form 10-K -- Item 14(a) (1) and (2), and (d)
The following consolidated financial statements of Blair Corporation, included
in the annual report of the registrant to its stockholders for the year ended
December 31, 1995, are incorporated by reference in Item 8:
-- Consolidated Balance Sheets -- December 31, 1995 and 1994
-- Consolidated Statements of Income -- Years ended December 31, 1995, 1994
and 1993
-- Consolidated Statements of Stockholders' Equity -- Years ended December
31, 1995, 1994 and 1993
-- Consolidated Statements of Cash Flows -- Years ended December 31, 1995,
1994 and 1993
-- Notes to Consolidated Financial Statements -- December 31, 1995
The following financial statement schedule of Blair Corporation is included in
Item 14(d):
-- Schedule II -- Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
<PAGE> 3
Blair Corporation and Subsidiary
Schedule II
Valuation and Qualifying Accounts
December 31, 1995
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS-
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND DEDUCTIONS- AT END
OF PERIOD EXPENSES DESCRIBE OF PERIOD
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
DESCRIPTION
Year ended December 31, 1995:
Allowance deducted from asset
accounts (customer accounts
receivable):
For doubtful accounts........... $ 32,256,161 $ 31,774,283(A) $ 23,522,373(B) $ 40,508,071
For estimated loss on returns... 7,571,000 96,320,044 97,215,044(C) 6,676,000
--------------------------------------------------------------------------
Totals.................................. $ 39,827,161 $128,094,327 $120,737,417 $ 47,184,071
==========================================================================
Year ended December 31, 1994:
Allowance deducted from asset
accounts (customer accounts
receivable):
For doubtful accounts........... $ 28,324,648 $ 27,022,560(A) $ 23,091,047(B) $ 32,256,161
For estimated loss on returns... 5,931,000 91,464,304 89,824,304(C) 7,571,000
--------------------------------------------------------------------------
Totals.................................. $ 34,255,648 $118,486,864 $112,915,351 $ 39,827,161
==========================================================================
Year ended December 31, 1993:
Allowance deducted from asset
accounts (customer accounts
receivable):
For doubtful accounts........... $ 17,756,739 $ 26,218,300(A) $ 15,650,391(B) $ 28,324,648
For estimated loss on returns... 5,795,000 90,891,470 90,755,470(C) 5,931,000
--------------------------------------------------------------------------
Totals.................................. $ 23,551,739 $117,109,770 $106,405,861 $ 34,255,648
==========================================================================
<FN>
- ----------
Note (A) -- Current year provision for doubtful accounts, charged against income.
Note (B) -- Accounts charged off, net of recoveries.
Note (C) -- Sales value of merchandise returned.
</TABLE>
<PAGE> 4
CONSOLIDATED FINANCIAL STATEMENTS
BLAIR CORPORATION AND SUBSIDIARY
YEARS ENDED DECEMBER 31, 1995 AND 1994
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE> 5
Blair Corporation and Subsidiary
Consolidated Financial Statements
Years ended December 31, 1995 and 1994
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . 1
Audited Consolidated Financial Statements
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Stockholders' Equity . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 7
</TABLE>
<PAGE> 6
Report of Independent Auditors
Board of Directors and Stockholders
Blair Corporation and Subsidiary
We have audited the accompanying consolidated balance sheets of Blair
Corporation and Subsidiary as of December 31, 1995 and 1994 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of Blair Corporation management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Blair Corporation
and Subsidiary at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
February 2, 1996 ERNST & YOUNG LLP
-1-
<PAGE> 7
Blair Corporation and Subsidiary
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
---------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,667,363 $ 2,183,136
Customer accounts receivable, less allowances for doubtful accounts
and returns of $47,184,071 in 1995 and $39,827,161 in 1994 191,399,482 130,517,140
Inventories:
Merchandise 64,597,476 70,562,969
Advertising and shipping supplies 15,795,329 13,394,493
---------------------------------
80,392,805 83,957,462
Deferred income taxes 18,669,000 18,386,000
Prepaid state income taxes 1,306,403 222,109
Prepaid expenses 528,291 558,370
---------------------------------
Total current assets 295,963,344 235,824,217
Property, plant, and equipment:
Land 1,130,454 1,130,454
Buildings 61,620,547 57,422,042
Equipment 35,406,049 32,195,892
Construction in progress - 335,122
---------------------------------
98,157,050 91,083,510
Less allowances for depreciation 41,844,738 38,025,818
---------------------------------
56,312,312 53,057,692
Trademarks 1,057,892 -
---------------------------------
Total assets $353,333,548 $288,881,909
=================================
</TABLE>
-2-
<PAGE> 8
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
---------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 2) $ 4,300,000 $ 34,300,000
Trade accounts payable 48,223,146 34,832,191
Advance payments from customers 1,155,159 1,419,582
Accrued expenses (Note 3) 11,396,086 12,725,522
Federal income taxes 666,142 3,648,934
---------------------------------
Total current liabilities 65,740,533 86,926,229
Deferred income taxes 2,027,000 1,939,000
Long-term debt (Note 2) 80,000,000 -
Stockholders' equity (Note 4):
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 12,372,697 11,017,130
Retained earnings 211,588,111 207,683,352
---------------------------------
224,380,618 219,120,292
Less 753,308 shares in 1995 and 801,958 shares in 1994
of common stock in treasury -- at cost 16,927,008 17,238,660
Less receivable from Employee Stock Purchase Plan 1,887,595 1,864,952
---------------------------------
205,566,015 200,016,680
---------------------------------
Total liabilities and stockholders' equity $353,333,548 $288,881,909
=================================
</TABLE>
See accompanying notes.
-3-
<PAGE> 9
Blair Corporation and Subsidiary
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
----------------------------------------------
<S> <C> <C> <C>
Net sales $560,889,612 $535,792,222 $519,174,324
Other income (Note 5) 31,927,853 23,370,104 19,467,438
----------------------------------------------
592,817,465 559,162,326 538,641,762
Costs and expenses:
Cost of goods sold 277,278,340 257,921,482 251,136,064
Advertising 138,001,203 117,654,135 122,861,345
General and administrative 99,773,037 93,275,059 86,721,374
Provision for doubtful accounts 31,774,283 27,022,560 26,218,300
Interest 3,743,692 676,380 153,626
----------------------------------------------
550,570,555 496,549,616 487,090,709
----------------------------------------------
Income before income taxes 42,246,910 62,612,710 51,551,053
Income taxes (Note 6) 16,979,000 24,934,000 20,698,000
----------------------------------------------
Net income $ 25,267,910 $ 37,678,710 $ 30,853,053
==============================================
Net income per share based on average shares outstanding $2.72 $4.07 $3.34
==============================================
</TABLE>
See accompanying notes.
-4-
<PAGE> 10
Blair Corporation and Subsidiary
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
--------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK $ 419,810 $ 419,810 $ 419,810
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year 11,017,130 9,595,875 7,775,814
Issuance (net of forfeitures) of common stock under
Employee Stock Purchase Plan (Note 4) 1,355,567 1,421,255 1,820,061
--------------------------------------------------
Balance at end of year 12,372,697 11,017,130 9,595,875
RETAINED EARNINGS
Balance at beginning of year 207,683,352 188,957,972 182,111,957
Net income 25,267,910 37,678,710 30,853,053
Cash dividends declared per share -- $2.30 in 1995;
$2.05 in 1994; $2.60 in 1993 (21,363,151) (18,953,330) (24,007,038)
--------------------------------------------------
Balance at end of year 211,588,111 207,683,352 188,957,972
TREASURY STOCK
Balance at beginning of year (17,238,660) (16,056,017) (16,418,906)
Purchase of 35,000 shares of common stock for treasury - (1,470,000) -
Issuance (net of forfeitures) of common stock under
Employee Stock Purchase Plan (Note 4) 311,652 287,357 362,889
--------------------------------------------------
Balance at end of year (16,927,008) (17,238,660) (16,056,017)
RECEIVABLE FROM EMPLOYEE STOCK PURCHASE PLAN
Balance at beginning of year (1,864,952) (1,713,840) (1,454,490)
Issuance (net of forfeitures) of common stock under
Employee Stock Purchase Plan (Note 4) (530,468) (551,850) (712,800)
Repayments 507,825 400,738 453,450
--------------------------------------------------
Balance at end of year (1,887,595) (1,864,952) (1,713,840)
--------------------------------------------------
Total stockholders' equity $205,566,015 $200,016,680 $181,203,800
==================================================
</TABLE>
See accompanying notes.
-5-
<PAGE> 11
Blair Corporation and Subsidiary
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
--------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 25,267,910 $ 37,678,710 $ 30,853,053
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 4,821,652 4,606,470 4,506,177
Provision for doubtful accounts 31,774,283 27,022,560 26,218,300
Provision for deferred income taxes (195,000) (2,566,000) (2,400,000)
(Gain) loss on disposition of equipment (3,278) (238,024) 511,404
Changes in operating assets and liabilities (using)
providing cash:
Customer accounts receivable (92,656,626) (45,087,034) (42,824,657)
Inventories 3,564,657 (21,885,221) 598,753
Prepaid expenses 30,079 (148,808) (69,991)
Trade accounts payable 13,390,955 253,151 (327,388)
Advance payments from customers (264,423) (466,604) (422,234)
Accrued expenses (1,329,436) 3,074,168 (1,591,804)
Federal and state income taxes (4,067,087) (1,331,859) (116,905)
--------------------------------------------------
Net cash (used in) provided by operating activities (19,666,314) 911,509 14,934,708
INVESTING ACTIVITIES
Purchases of property, plant, and equipment (8,059,101) (5,974,779) (11,547,441)
Purchase of trademark (1,075,822) - -
Proceeds from maturity or sale of short-term investments - - 902,576
Proceeds from sale of equipment 4,039 474,804 12,177
--------------------------------------------------
Net cash used in investing activities (9,130,884) (5,499,975) (10,632,688)
FINANCING ACTIVITIES
Net proceeds from bank borrowings 50,000,000 22,700,000 11,600,000
Dividends paid (21,363,151) (18,953,330) (24,007,038)
Purchase of Common Stock for treasury - (1,470,000) -
Issuance (net of forfeitures) of Common Stock under
Employee Stock Purchase Plan 1,667,219 1,708,612 2,182,950
Increase in notes receivable from Employee Stock
Purchase Plan (22,643) (151,112) (259,350)
--------------------------------------------------
Net cash provided by (used in) financing activities 30,281,425 3,834,170 (10,483,438)
--------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,484,227 (754,296) (6,181,418)
Cash and cash equivalents at beginning of year 2,183,136 2,937,432 9,118,850
--------------------------------------------------
Cash and cash equivalents at end of year $ 3,667,363 $ 2,183,136 $ 2,937,432
==================================================
</TABLE>
See accompanying notes.
-6-
<PAGE> 12
Blair Corporation and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
On September 2, 1993, Blair Corporation 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
(Company). All significant intercompany accounts are eliminated upon
consolidation.
REVENUE RECOGNITION
Sales, cash or credit, are recorded when the merchandise is shipped to the
customer. Credit sales are made under Easy Payment Plan and Seven Day Credit
sales arrangements. Monthly, a provision for potentially doubtful accounts is
charged against income based on management's estimate of realization. Any
recoveries of bad debts previously written-off are credited back against the
allowance for doubtful accounts in the period received. As reported in the
balance sheet, the carrying amount, net of allowances for doubtful accounts and
returns for customer accounts receivable on credit sales approximates fair
value.
Finance charges on time payment accounts are recognized on an accrual basis of
accounting.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. The carrying amount
reported in the balance sheet for cash and cash equivalents approximates fair
value.
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, inventories would have
increased by approximately $8,662,000 and $8,690,000 at December 31, 1995 and
1994, respectively.
-7-
<PAGE> 13
Blair Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment is stated on the basis of cost. Depreciation has
been provided principally by the straight-line method using rates which are
estimated to be sufficient to amortize the cost of the assets over their period
of usefulness.
TRADEMARKS
Trademarks are stated on the basis of cost. All trademarks are being amortized
by the straight-line method for a period of 15 years. Amortization amounted to
$17,930 at December 31, 1995.
RETURNS
A provision for anticipated returns is recorded monthly as a percentage of
gross sales based upon historical experience. This provision is charged
directly against gross sales to arrive at net sales as reported in the
consolidated statements of income. Actual returns are charged against the
allowance for returns which is netted against accounts receivable in the
balance sheet. The provision for returns charged against income in 1995, 1994
and 1993 amounted to $96,320,044, $91,464,304 and $90,891,470, respectively.
EMPLOYEE BENEFITS
The Company's employee benefits include a profit sharing and retirement feature
available to all eligible employees. Contributions are dependent on net income
of the Company and recognized on an accrual basis of accounting. The
contributions to the plan charged against income in 1995, 1994 and 1993
amounted to $2,799,706, $4,023,519 and $3,294,397, respectively.
As part of the same benefit plan, the Company has a contributory savings
feature whereby all eligible employees may contribute up to 10% of their annual
base salaries. The Company's matching contribution to the plan is based upon a
percentage formula as set forth in the plan agreement. The Company's matching
contributions to the plan charged against income in 1995, 1994 and 1993
amounted to $1,787,053, $1,527,508 and $1,224,570, respectively.
-8-
<PAGE> 14
Blair Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
ALLOWANCES FOR DOUBTFUL ACCOUNTS
A provision for doubtful accounts is recorded monthly as a percentage of gross
sales based upon experience of delinquencies and charge-offs. Management
believes these provisions are adequate based upon the relevant information
presently available. However, it is reasonably possible that the Company's
provisions may change in the near term.
FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," as
amended, requires disclosure of fair value information for financial
instruments. SFAS No. 107 defines fair values as the estimated amount at which
the financial instrument could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale. The carrying
amounts reported in the consolidated balance sheets for these financial
instruments subject to the requirements of SFAS No. 107 (principally customer
accounts receivable) approximates those assets' and liabilities' fair values
primarily due to their short-term nature.
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.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present
-9-
<PAGE> 15
Blair Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD (CONTINUED)
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying value. The Company will adopt Statement No. 121
in the first quarter of 1996 and, based on current circumstances, does not
believe the effect of adoption will be material.
RECLASSIFICATIONS
Certain amounts in prior years financial statements have been reclassified to
conform with the 1995 presentation.
2. FINANCING ARRANGEMENTS
In 1995, the Company entered into a $125,000,000 Revolving Credit Facility,
which expires on November 17, 1998. The interest rate is, at the Company's
option, based on a base rate option, federal funds rate option or euro-rate
option as defined in the agreement. The Revolving Credit Facility requires the
Company to meet certain covenants as outlined in the agreement. These covenants
specifically relate to tangible net worth, maintaining a defined leverage ratio
and fixed charge coverage ratio, and complying with certain indebtedness
restrictions. As of December 31, 1995, the Company was in compliance with all
the agreement's covenants. At December 31, 1995, the Company had borrowed
$84,300,000 under the agreement of which $80,000,000 was classified as
long-term. The weighted average interest rate was 5.8% at December 31, 1995.
In 1994, the Company had $40,000,000 available in lines of credit, $10,000,000
which had no expiration date and $30,000,000 which expired on May 31, 1995.
Borrowings aggregated $34,300,000 under these lines of credit at December 31,
1994.
Interest paid during 1995, 1994 and 1993 amounted to $3,630,505, $676,380 and
$153,626, respectively. The weighted average interest rate on average debt
outstanding was 6.53%, 5.34%, and 4.06% for the years ended December 31, 1995,
1994 and 1993, respectively.
The Company has outstanding letters of credit amounting to approximately
$15,400,000 at December 31, 1995 related to inventory purchases.
-10-
<PAGE> 16
Blair Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
3. ACCRUED EXPENSES
Accrued expenses consist of:
<TABLE>
<CAPTION>
1995 1994
---------------------------
<S> <C> <C>
Employee compensation $ 6,162,097 $ 6,426,098
Contribution to profit sharing and retirement plan 2,799,706 4,023,519
Taxes, other than taxes on income 713,176 699,387
Other accrued items 1,721,107 1,576,518
---------------------------
$11,396,086 $12,725,522
===========================
</TABLE>
4. EMPLOYEE STOCK PURCHASE PLAN
The Company has an Employee Stock Purchase Plan (Plan) (amended in 1992) which
provides for 400,000 shares of the Company's treasury stock to be reserved for
sale and issuance to employees at a price to be established by the Stock
Purchase Plan Committee. At December 31, 1995 and 1994, 227,950 and 276,600
shares, respectively, were available to be issued under the Plan. The Company
follows APBO No. 25, "Accounting for Stock Issued to Employees" and related
Interpretations in accounting for its Employee Stock Purchase Plan.
Compensation expense equals the difference between the exercise price and the
market price of the shares at the date of grant. Compensation expense related
to these options amounted to $1,148,881, $1,156,762 and $1,470,150 for the
years ended December 31, 1995, 1994 and 1993, respectively. A summary of the
activity under the Plan is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------------------
<S> <C> <C> <C>
Shares issued 49,150 42,450 44,550
Issue price per share $11.00 $13.00 $16.00
Market value per share at date of issue $34.375 $40.250 $49.000
Shares forfeited 500 - -
Original price per share $13.00 TO $16.00 - -
</TABLE>
-11-
<PAGE> 17
Blair Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
5. OTHER INCOME
Other income consists of:
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------------------
<S> <C> <C> <C>
Finance charges on time payment accounts $30,339,372 $21,721,018 $18,300,280
Miscellaneous 1,588,481 1,649,086 1,167,158
-----------------------------------------------
$31,927,853 $23,370,104 $19,467,438
</TABLE>
6. INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------------------
<S> <C> <C> <C>
Currently payable:
Federal $15,366,000 $22,632,000 $18,585,000
State 1,808,000 4,868,000 4,513,000
-----------------------------------------------
17,174,000 27,500,000 23,098,000
Deferred (credit) (195,000) (2,566,000) (2,400,000)
-----------------------------------------------
$16,979,000 $24,934,000 $20,698,000
===============================================
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------------------
<S> <C> <C> <C>
Statutory rate applied to pretax income $14,786,419 $21,914,449 $18,042,869
State income taxes, net of federal benefit 1,833,000 2,848,300 2,659,150
Other items 359,581 171,251 (4,019)
-----------------------------------------------
$16,979,000 $24,934,000 $20,698,000
===============================================
</TABLE>
-12-
<PAGE> 18
Blair Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES (CONTINUED)
Components of the deferred tax asset and liability under the liability method
as of December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
-----------------------------
<S> <C> <C>
Current net deferred tax asset:
Doubtful accounts $15,672,000 $13,066,000
Returns allowance 1,878,000 2,443,000
Inventory obsolescence 1,934,000 1,883,000
Inventory costs 1,456,000 1,479,000
Vacation pay 1,323,000 1,264,000
Advertising costs (4,038,000) (2,162,000)
Other items 444,000 413,000
-----------------------------
$18,669,000 $18,386,000
=============================
Long-term deferred tax liability:
Property, plant, and equipment $ 2,027,000 $ 1,939,000
=============================
</TABLE>
Income taxes paid during 1995, 1994 and 1993 amounted to $21,241,087,
$28,831,859 and $23,215,000, respectively.
7. DOMINANT BUSINESS SEGMENT
The Company is primarily in the business of selling men's and women's fashion
wearing apparel and accessories and home furnishing items to individuals
throughout the United States, comprising a customer base that is diverse in
both geographic and demographic terms. Selling is done mainly by means of
direct mail letters and catalogs with individual order forms.
Sales of the men's and women's fashion wearing apparel and accessories
merchandise lines accounted for 85%, 87% and 90% of total 1995, 1994 and 1993
sales, respectively. The home furnishings merchandise line accounted for the
remaining sales volumes.
-13-
<PAGE> 19
QUARTERLY RESULTS OF OPERATIONS
================================================================================
The following is a summary of unaudited quarterly results of
operations for the years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
QUARTER ENDED Quarter Ended
March June September December March June September December
31 30 30 31 31 30 30 31
----------------------------------------------- -----------------------------------------------
(Thousands of dollars, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................... $127,641 $150,619 $124,986 $157,644 $118,440 $142,718 $115,000 $159,634
Cost of goods sold.......... 62,104 72,496 64,050 78,628 56,550 67,438 55,054 78,879
Net income.................. 7,104 7,434 3,941 6,789 8,180 12,706 5,238 11,555
Net income per share........ .77 .80 .42 .73 .88 1.38 .56 1.25
</TABLE>
COMMON STOCK MARKET PRICES AND DIVIDENDS
DECLARED PER SHARE
================================================================================
The company's Common Stock is traded on the American Stock Exchange
(symbol BL). The number of record holders of the company's Common
Stock at December 31, 1995 was 3,009.
<TABLE>
<CAPTION>
1995 1994
SALES PRICE DIVIDENDS Sales Price Dividends
HIGH LOW DECLARED High Low Declared
<S> <C> <C> <C> <C> <C> <C>
First Quarter....... $40 $32-3/4 $1.25 $46-1/8 $36-1/2 $1.00
Second Quarter...... 35 32-1/8 .35 45-5/8 39-3/4 .35
Third Quarter....... 34-1/8 32-3/8 .35 46-7/8 40-3/4 .35
Fourth Quarter...... 31-5/8 27-5/8 .35 43-1/4 39 .35
</TABLE>
The payment of dividends is not subject to any restrictions. Although
the payment of dividends is dependent on future earnings, capital
requirements and financial condition, the company expects to continue
its policy of paying regular cash dividends.
SELECTED FINANCIAL DATA
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net sales........... $560,889,612 $535,792,222 $519,174,324 $500,168,164 $493,121,796
Net income.......... 25,267,910 37,678,710 30,853,053 35,195,644 30,857,403
Total assets........ 353,333,548 288,881,909 245,605,064 227,787,780 210,952,549
Per share:
Net income........ 2.72 4.07 3.34 3.82 3.37
Cash dividends
declared........ 2.30 2.05 2.60 .75 2.00
</TABLE>
14
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for 1995 were a new company record, having now increased for the
eighteenth consecutive year. Net income for 1995 decreased 32.9% from 1994 -
1994 earnings were the company's second highest. The reduction in earnings was
primarily attributable to increased postage, paper, payroll, interest and
catalog prospecting costs. The increased postage and paper costs negatively
impacted cost of goods sold, advertising expense and general and administrative
expense. The total pretax impact of the increased postage and paper costs on
1995 has been estimated at $20,000,000.
Net sales for 1995 increased 4.7% over 1994, 1994 increased 3.2% over 1993.
The company's extension of higher credit limits to our better customers and
reduction of the minimum payment on our revolving Easy Payment Plan contributed
to the record sales. Gross Easy Payment Plan credit sales increased 14.1% in
1995 and comprised 54.5% of total mail order sales in 1995 as compared to 50.0%
in 1994. Response rates in 1995 have been mixed - up 2.2% for customer
multi-product mailings, down 5.3% for prospect multi-product mailings, down
6.7% for co-op and media, up 4.5% for customer catalogs and down 1.9% for
prospect catalogs - as compared to 1994. Gross sales revenue generated per
advertising dollar decreased 11.2% in 1995 primarily due to increased
advertising cost (postage, paper and catalog prospecting). The number of
orders shipped in 1995 decreased 3.6% but the average order size increased
8.6%. Returns as a percentage of adjusted gross sales were 14.8% in 1995 and
14.7% in 1994. The record 1994 sales resulted from increased response rates.
Response to customer multi-product circular mailings increased 8.3% in 1994
over 1993. Response to the home products customer catalogs was 23.9% better
than the response to home products customer multi-product mailings in 1993.
Response to the co-op and media programs increased 3.1 in 1994. The company
generated 7.2% more gross sales per advertising dollar in 1994. The number of
orders filled in 1994 decreased 4.3% but the average order size increased 7.0%.
Returns as a percentage of adjusted gross sales improved to 14.7% in 1994 from
15.0% in 1993.
Other income increased 36.6% in 1995 as compared to 1994 and 20.0% in 1994 as
compared to 1993. The increases were primarily due to finance charges earned
on increased Easy Payment Plan accounts receivable. Prospect multi-product
circular mailings (since 1992) and prospect catalogs (since fourth quarter
1993) offer revolving credit to first-time buyers via the Easy Payment Plan.
These programs along with the extension of higher credit limits to our better
customers and the reduction in our minimum payment schedule (effective January
1, 1995 - from 10% to 5% on average) have been greatly responsible for
increases in average Easy Payment Plan accounts
<PAGE> 21
receivable of 35.2% (approximately $49,133,000) in 1995 as compared to 1994 and
17.6% (approximately $20,907,000) in 1994 as compared to 1993. Easy Payment
Plan gross sales increased 14.1% in 1995 over 1994 and 10.3% in 1994 over 1993.
Finance charges increased 39.7% in 1995 and 18.7% in 1994.
Cost of goods sold as a percentage of net sales increased to 49.4% in 1995 from
48.1% in 1994. The higher cost of goods primarily resulted from increased
delivery costs, change in product mix and larger than usual inventory
writedowns. Increased postal rates and the higher cost to ship larger and
heavier merchandise in the expanded line of home products drove delivery costs
up. Home products sales increased in 1995 and have a lower gross margin than
the men's and women's apparel lines. The larger writedowns were primarily on
the excess inventory resulting from the lower than anticipated customer
response in the fourth quarter 1994. Cost of goods sold as a percentage of net
sales decreased to 48.1% in 1994 from 48.4% in 1993. Fewer prospect
(first-time buyers) orders at incentive pricing were primarily responsible for
the improved margin in 1994. Gross prospect sales were approximately 20% lower
in 1994 as compared to 1993.
Advertising expense increased 17.3% in 1995 as compared to 1994. Advertising
expense decreased 4.2% in 1994 as compared to 1993.
The total number of circular mailings released in 1995 was 5.5% less than in
1994 (200.8 million in 1995, 212.5 million in 1994). A 3.8% decrease in
multi-product customer mailings (151.7 million in 1995, 157.6 million in 1994),
a 7.2% decrease in multi-product prospect mailings (41.7 million in 1995, 44.9
million in 1994), a 26.3% decrease in single-product mailings (7.4 million in
1995, 10.0 million in 1994), an 11.3% increase in average mailing cost
(postage) and a 15.7% increase in average printing cost (primarily paper)
resulted in a net circular mailings cost increase of approximately $6,827,000
over 1994. The number of circular mailings decreased in 1995 primarily due to
the increased mailings of catalogs to both customers and prospects. The total
number of circular mailings released in 1994 was 18.1% less than in 1993 (212.5
million in 1994, 259.6 million in 1993). A 12.5% decrease in multi-product
customer mailings (157.6 million in 1994, 180.2 million in 1993), a 35.9%
decrease in multi-product prospect mailings (44.9 million in 1994, 70.1 million
in 1993), a 7.8% increase in single-product mailings (10.0 million in 1994, 9.3
million in 1993) and a 1.8% average increase in production costs resulted in a
net cost reduction of approximately $14,788,000 from 1993. Customer circular
mailings have decreased in 1994 primarily due to the better targeting of
mailings, the removal of non-responding names from the customer file and
mailing of the home products catalogs to the full customer file. Prospect
circular mailings have decreased in 1994 due to the elimination of poorly
performing acquired mailing lists and increased prospect home products catalog
mailings.
<PAGE> 22
Total volume of the co-op and media advertising programs decreased 5.7% in 1995
as compared to 1994 (2.00 billion in 1995, 2.12 billion in 1994). The
decreased volume and a 12.5% increase in average product and placement costs
(primarily paper and postage) resulted in a net cost increase of approximately
$514,000 over 1994. Total volume of the co-op and media advertising programs
increased 2.2% in 1994 as compared to 1993 (2.12 billion in 1994, 2.08 billion
in 1993). The increased volume and a 7.4% reduction in average production and
placement costs resulted in a net cost decrease of approximately $1,040,000
from 1993.
The total number of catalog mailings released in 1995 was 94.3% more than in
1994 (39.5 million in 1995, 20.3 million in 1994). The catalog format is the
primary advertising format for home products and is currently being tested for
men's (started July 1995) and women's (started January 1996) apparel. A 44.1%
increase in customer catalogs (19.9 million in 1995, 13.8 million in 1994), a
199.8% increase in prospect catalogs (19.6 million in 1995, 6.5 million in
1994), an 8.9% increase in average mailing cost (postage) and increased
printing cost (primarily paper) resulted in a catalog mailings cost increase of
approximately $12,945,000 from 1994. All of the catalogs mailed in 1993, 1994
and 1995 were home products catalogs except for 3.6 million men's test catalogs
mailed in the second half of 1995. The total number of catalog mailings
released in 1994 was 20.3 million (6.6 million to prospects) as compared to 1.6
million (.6 million to prospects) in 1993. Catalog mailings costs increased
approximately $10,090,000 in 1994 over 1993.
General and administrative expense increased 7.0% in 1995 over 1994 and 7.6% in
1994 over 1993. In 1995, increases in wages and benefits and telephone expense
were primarily responsible for the increased general and administrative
expense. Wages and benefits increased 6.9% due to normal pay increases, a
larger work force and an increase in the normal work week from 37 1/4 hours to
40 hours. On average, the number of employees has increased 3.7% in 1995. The
work week was extended to 40 hours at the beginning of the fourth quarter of
1994. Telephone expense has increased because the company has been improving
and expanding its 800-number capabilities for both customer ordering and
customer service. As of September 1, 1995, all catalog mailings have been
offering an 800 ordering number. The company opened a second call center,
located in Erie, Pennsylvania, in August 1995 to help handle the increasing
telephone order volume. In 1994, a 6.6% increase in wages and benefits and
increased professional services were primarily responsible for the increased
general and administrative expenses. Wages and benefits were higher due to
normal pay increases and a larger work force. On average, the number of
employees increased 5% in 1994. Professional services were higher primarily
due to consulting fees related to the study of the existing distribution center
and a possible second distribution center.
<PAGE> 23
The provision for doubtful accounts as a percentage of credit sales increased
7.6% in 1995 as compared to 1994. Total credit sales increased 9.2% and total
finance charges increased 39.7%. Prospect (first-time buyer) credit sales and
finance charges carry a higher credit risk. Prospect credit sales increased
16.7% and were 10.1% of total credit sales in 1995. Prospect finance charges
increased 20.8% and were 5.0% of total finance charges. The estimated bad debt
rate used in providing for doubtful accounts is based on current expectations,
sales mix (prospect vs. customer) and prior years' experience. The rates used
in providing for bad debts have remained relatively constant since mid-1994.
There has been no adjustment made to the 1995 provision but the 1994 provision
included an unfavorable adjustment of prior period provisions of approximately
$1,060,000. The provision for doubtful accounts as a percentage of credit
sales decreased 2.5% in 1994 as compared to 1993. Total credit sales increased
6.1% and total finance charges increased 18.7%. Prospect credit sales
decreased 20.1% and were 9.4% of total credit sales in 1994. Both the 1994
and 1993 provisions included unfavorable adjustments of prior period provisions
- - approximately $1,060,000 in 1994 and $4,420,000 in 1993. Recoveries of bad
debts previously charged off have been credited back against the allowance for
doubtful accounts.
Income taxes as a percentage of income before income taxes were 40.2% in 1995,
39.8% in 1994 and 40.2% in 1993. The federal income tax rate was 35% in all
three years. Small changes in the company's effective state income rate caused
the slight variance in the company's total tax rate.
Interest expense increased to $3,743,692 in 1995 from $676,380 in 1994 and
$153,626 in 1993. Interest expense has resulted primarily from the company's
borrowings necessary to finance the increasing level of customer accounts
receivable. The average borrowings outstanding were $57,202,000 during 1995 as
compared to $12,505,000 during 1994 and $3,038,000 during 1993. The weighted
average interest rate on average debt outstanding was 6.53%, 5.34% and 4.06%
for 1995, 1994 and 1993.
LIQUIDITY AND SOURCES OF CAPITAL
All working capital and cash requirements were met and suppliers' invoices were
timely paid in order to maximize discounts. In 1995, the company entered into
a $125,000,000 Revolving Credit Facility which expires on November 17, 1998.
The unsecured Revolving Credit Facility requires the company to meet certain
covenants and as of December 31, 1995 the company was in compliance with all
the covenants. Borrowings outstanding at December 31, 1995 were $84,300,000 of
which $80,000,000 was classified as long-term. In 1994, the company had
$40,000,000 available in lines of credit, $10,000,000 with no specified
expiration date and $30,000,000 expiring May 31, 1995. Short-term borrowings
outstanding at December 31, 1994 were $34,300,000.
<PAGE> 24
The ratio of current assets to current liabilities was 4.50 at December 31,
1995, 2.71 at December 31, 1994 and 3.10 at December 31, 1993. Working capital
increased $81,324,823, $17,694,351 and $2,157,932 during 1995, 1994 and 1993.
The 1995 increase resulted primarily from the $80,000,000 long-term borrowing
under the company's new three year $125,000,000 Revolving Credit Facility. In
1994 and 1993, the increases resulted primarily from working capital provided
by operations exceeding the internal financing of capital expenditures and
dividend payments. The 1995 increase was primarily reflected in increased
customer accounts receivable and reduced notes payable. The 1994 increase was
primarily reflected in increased inventories, customer accounts receivable and
deferred income taxes offsetting increased notes payable and accrued expenses.
The 1993 increase was primarily reflected in increased customer accounts
receivable and deferred income taxes and decreased accrued expenses offsetting
increased notes payable and decreased cash and cash equivalents. Although
working capital has increased, net cash provided by operating activities has
decreased $20,577,823 in 1995 and $14,023,199 in 1994. These reductions in
cash flow from operations resulted primarily from increasing customer accounts
receivable.
Merchandise inventory turnover was 3.0 in 1995, as compared to 3.3 in 1994 and
3.8 in 1993. Merchandise inventory as of December 31, 1995 decreased 8.5% from
December 31, 1994 and increased 36.2% from December 31, 1993. Net sales for
1995 increased 4.7% from 1994 and 8.0% from 1993. The level of merchandise
inventory in 1995 did not fall below the 1994 level until the fourth quarter of
1995. Inventory levels have been impacted by the continuing effort to increase
order fulfillment rates, lower than anticipated customer response in the fourth
quarter of 1994 and the expansion of product lines due to the catalogs. Home
products net sales as a percentage of total net sales increased to 16.1% ($90.5
million) in 1995 as compared to 13.6% ($73.0 million) in 1994 and 10.9% ($56.3
million) in 1993. Men's net sales decreased to 24.0% ($134.6 million) in 1995
from 26.3% ($140.7 million) in 1994 and 27.9 ($144.9 million) in 1993. Women's
decreased to 59.9% ($335.8 million) in 1995 from 60.1% ($322.1 million) in 1994
and 61.2% ($318.0 million) in 1993. Home products inventory totaled $10.0
million at December 31, 1995 as compared to $13.3 million at December 31, 1994
and $3.5 million at December 31, 1993. Men's inventory was $18.4 million at
December 31, 1995, $18.9 million at December 31, 1994 and $13.8 million at
December 31, 1993. Women's inventory was $36.2 million at December 31, 1995,
$38.4 million at December 31, 1994 and $30.1 million at December 31, 1993.
The company has added new facilities, modernized its existing facilities and
acquired net cost saving equipment during the last several years. Capital
expenditures for property, plant and equipment totaled $8,059,101, $5,974,779
and $11,547,441 during 1995, 1994 and 1993.
<PAGE> 25
The company has completed the renovation of its headquarters facility in
Warren. The lower two levels were completed in February 1993 and the upper two
levels were mostly completed by the end of 1994. Total cost of the renovation
was $13,600,000.
The company completed its new Erie, Pennsylvania outlet store. Total cost of
the new store, which opened May 23, 1994, was $2.1 million. The old Erie store
building was sold in August 1994.
The company has undertaken a study of its distribution center, focused on
operational and customer service improvements. As a result of the study, a
64,475 square-foot warehouse addition, on which construction began January
1995, was completed in September 1995 at a cost of $6.9 million. The
continuing study includes examining the merits of a variety of
service-enhancing options, including a possible second distribution center
located outside of the Warren, Pennsylvania area.
Future cash needs for expansion of the business and capital expenditures will
be financed by cash flow from operations, the current borrowing arrangement and
other financing arrangements available to the company.
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. Profit
margins were reduced by postal rate and paper cost increases in 1995 and will
continue to be pressured in 1996. Paper costs have retreated slightly from
their high point at 1995 year end.
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, saving in operating costs should result. The company considers
these matters in setting pricing policies.
<PAGE> 26
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD
In March 1995, the Financial Accounting Standard Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". The Statement requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying value. The company will adopt
Statement No. 121 in the first quarter of 1996 and, based on current
circumstances, does not believe the effect of adoption will be material.
FUTURE CONSIDERATIONS
The company is faced with the ever-present challenge of keeping the customer
file alive and growing. This involves the acquisition of new customers
(prospects), the conversion of new customers to established customers (active
repeat buyers) and the retention of established customers. These steps are
vital in growing the business but are being impacted by the decline in consumer
retail spending, increased operating costs and increased competition in the
retail sector.
The company has been undergoing a strategic planning study (since early 1995) in
which our current marketing programs, operating systems and competitive
position have been assessed and looked at with future application and
effectiveness in mind. The continuing study has resulted in a new marketing
strategy whose development will require utilizing our existing strengths,
changing business processes and organizational structure and improving
information systems.
A prime aspect of the new marketing strategy involves targeting customers in
the "over 50", low-to-moderate income market. This market, though younger in
age than our existing customer file, is the fastest growing segment of the
population. Success of the new marketing strategy will require investment in
database management, operating systems, prospecting programs, catalog
marketing, telephone call centers and, possibly, a second distribution center.
Management believes that these investments should improve Blair Corporation's
position in new and existing markets and provide opportunities for future
earnings growth.
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Blair Corporation
We consent to the incorporation by reference in this Form 10-K of Blair
Corporation and Subsidiary of our report dated February 2, 1996, included in
the 1995 Annual Report to Stockholders of Blair Corporation.
Our audits also included the financial statement schedule of Blair Corporation
and Subsidiary listed in Item 14(a). This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in the Registration
Statements on Form S-8 dated July 7, 1995, Form S-8 dated July 6, 1994, and
Form S-8 dated July 2, 1993, pertaining to the Blair Corporation Employee Stock
Purchase Plan, of our report dated February 2, 1996, with respect to the
consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedule included in this Form 10-K of Blair Corporation.
/s/ ERNST & YOUNG LLP
Erie, Pennsylvania
March 15, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Blair
Corporation's 12/31/95 Financial Statements and is qualified in its entirety by
reference to such fourth quarter, 1995 10-K filing for Blair Corporation.
</LEGEND>
<CIK> 0000071525
<NAME> BLAIR CORPORATION
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,667,363
<SECURITIES> 0
<RECEIVABLES> 191,399,482
<ALLOWANCES> 47,184,071
<INVENTORY> 80,392,805
<CURRENT-ASSETS> 295,963,344
<PP&E> 98,157,050
<DEPRECIATION> 41,844,738
<TOTAL-ASSETS> 353,333,548
<CURRENT-LIABILITIES> 65,740,533
<BONDS> 0
<COMMON> 419,810
0
0
<OTHER-SE> 205,146,205<F1>
<TOTAL-LIABILITY-AND-EQUITY> 353,333,548
<SALES> 560,889,612
<TOTAL-REVENUES> 592,817,465
<CGS> 277,278,340
<TOTAL-COSTS> 550,570,555
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 31,774,283
<INTEREST-EXPENSE> 3,743,692
<INCOME-PRETAX> 42,246,910
<INCOME-TAX> 16,979,000
<INCOME-CONTINUING> 25,267,910
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,267,910
<EPS-PRIMARY> 2.72
<EPS-DILUTED> 2.72
<FN>
<F1>Amount includes additional paid-in capital retained earnings, treasury stock,
and the employee stock purchase plan receivable.
</FN>
</TABLE>
