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 September 30, 1996 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 November 12, 1996 the registrant had outstanding 9,290,332 shares of its
common stock without nominal or par value.
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS (UNAUDITED)
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1996
CONSOLIDATED BALANCE SHEETS
BLAIR CORPORATION AND SUBSIDIARY
September 30 December 31
1996 1995
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,638,781 $ 3,667,363
Customer accounts receivable,
less allowances for doubtful accounts
and returns of $55,414,572 in 1996
and $47,184,071 in 1995 197,444,181 191,399,482
Inventories - Note F
Merchandise 80,332,128 64,597,476
Advertising and shipping supplies 19,761,849 15,795,329
------------ ------------
100,093,977 80,392,805
Deferred income taxes 20,587,000 18,669,000
Prepaid federal and state income taxes 6,646,261 1,306,403
Prepaid expenses 805,037 528,291
------------ ------------
Total current assets 330,215,237 295,963,344
Property, plant and equipment:
Land 1,130,454 1,130,454
Buildings 62,022,867 61,620,547
Equipment 35,953,322 35,406,049
------------ ------------
99,106,643 98,157,050
Less allowances for depreciation 44,847,201 41,844,738
------------ ------------
54,259,442 56,312,312
Trademarks 1,004,100 1,057,892
------------ ------------
TOTAL ASSETS $385,478,779 $353,333,548
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 24,200,000 $ 4,300,000
Trade accounts payable 53,535,053 48,223,146
Advance payments from customers 1,120,659 1,155,159
Accrued expenses - Note D 11,696,231 11,396,086
Federal income taxes -0- 666,142
------------ ------------
Total current liabilities 90,551,943 65,740,533
Deferred income taxes 1,953,000 2,027,000
Long-term debt 80,000,000 80,000,000
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 12,928,260 12,372,697
Retained earnings 218,320,435 211,588,111
------------ ------------
231,668,505 224,380,618
Less 720,608 shares in 1996 and 753,308
shares in 1995 of Common Stock in
treasury - at cost 16,746,159 16,927,008
Less receivable from Employee Stock
Purchase Plan 1,948,510 1,887,595
------------ ------------
212,973,836 205,566,015
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $385,478,779 $353,333,548
============ ============
See accompanying notes.
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
BLAIR CORPORATION AND SUBSIDIARY
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $112,095,417 $124,985,566 $391,753,104 $403,245,648
Other income - Note G 11,323,596 8,535,341 33,661,982 23,297,650
------------ ------------ ------------ ------------
123,419,013 133,520,907 425,415,086 426,543,298
Costs and expenses:
Cost of goods sold 55,223,666 64,050,156 192,356,038 198,650,272
Advertising 29,512,152 29,833,707 99,081,478 98,218,425
General and administrative 26,563,760 25,569,104 77,959,005 74,638,138
Provision for doubtful accounts 8,414,274 6,727,954 28,390,677 21,398,487
Interest 1,369,523 981,196 3,961,576 2,510,130
------------ ------------ ------------ ------------
121,083,375 127,162,117 401,748,774 395,415,452
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 2,335,638 6,358,790 23,666,312 31,127,846
Income taxes - Note E 855,000 2,418,000 9,002,000 12,649,000
------------ ------------ ------------ ------------
NET INCOME $ 1,480,638 $ 3,940,790 $ 14,664,312 $ 18,478,846
============ ============ ============ ============
Net income per share based on average
shares outstanding - Note C $ .16 $ .42 $1.57 $1.99
===== ===== ===== =====
<FN>
See accompanying notes.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
BLAIR CORPORATION AND SUBSIDIARY
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Common Stock $ 419,810 $ 419,810 $ 419,810 $ 419,810
Additional paid-in capital:
Balance at beginning of period 12,303,101 11,017,130 12,372,697 11,017,130
Issuance (net of forfeitures) of
Common Stock under Employee Stock
Purchase Plan 625,159 1,355,567 555,563 1,355,567
------------ ------------ ------------ ------------
Balance at end of period 12,928,260 12,372,697 12,928,260 12,372,697
Retained earnings:
Balance at beginning of period 219,178,505 207,383,836 211,588,111 207,683,352
Net income 1,480,638 3,940,790 14,664,312 18,478,846
Cash dividends declared - Note B (2,338,708) (3,262,834) (7,931,988) (18,100,406)
------------ ------------ ------------ ------------
Balance at end of period 218,320,435 208,061,792 218,320,435 208,061,792
Treasury Stock:
Balance at beginning of period (16,940,787) (17,238,660) (16,927,008) (17,238,660)
Issuance (net of forfeitures) of
Common Stock under Employee Stock
Purchase Plan 194,628 311,652 180,849 311,652
------------ ------------ ------------ ------------
Balance at end of period (16,746,159) (16,927,008) (16,746,159) (16,927,008)
Receivable from Employee Stock Purchase Plan:
Balance at beginning of period (1,726,270) (1,519,135) (1,887,595) (1,864,952)
Issuance (net of forfeitures) of
Common Stock under Employee Stock
Purchase Plan (260,250) (533,400) (243,400) (533,400)
Repayments 38,010 82,183 182,485 428,000
------------ ------------ ------------ ------------
Balance at end of period (1,948,510) (1,970,352) (1,948,510) (1,970,352)
------------ ------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY $212,973,836 $201,956,939 $212,973,836 $201,956,939
============ ============ ============ ============
<FN>
See accompanying notes.
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
BLAIR CORPORATION AND SUBSIDIARY
Nine Months Ended
September 30
1996 1995
------------ ------------
OPERATING ACTIVITIES
Net income $ 14,664,312 $ 18,478,846
Adjustments to reconcile net income
to net cash used in
operating activities:
Depreciation and amortization 4,030,987 3,473,100
Provision for doubtful accounts 28,390,677 21,398,487
Provision for deferred income taxes (1,992,000) 1,611,000
Changes in operating assets and
liabilities (using) providing cash:
Customer accounts receivable (34,435,376) (56,747,826)
Inventories (19,701,172) (3,829,297)
Prepaid expenses (276,746) (87,287)
Trade accounts payable 5,311,907 10,446,786
Advance payments from customers (34,500) (226,156)
Accrued expenses 300,145 (1,156,343)
Federal and state income taxes (6,006,000) (9,717,462)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (9,747,766) (16,356,152)
INVESTING ACTIVITIES
Purchases of property, plant and equipment (1,924,325) (7,253,532)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (1,924,325) (7,253,532)
FINANCING ACTIVITIES
Net proceeds from lines of credit 19,900,000 39,200,000
Dividends paid (7,931,988) (18,100,406)
Issuance (net of forfeitures) of
Common Stock under Employee Stock
Purchase Plan 736,412 1,667,219
Increase in notes receivable from
Employee Stock Purchase Plan (60,915) (105,400)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 12,643,509 22,661,413
------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 971,418 (948,271)
Cash and cash equivalents
at beginning of year 3,667,363 2,183,136
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,638,781 $ 1,234,865
============ ============
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1996
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 nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996. 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, 1995.
The consolidated financial statements include the accounts of Blair Corporation
and its wholly-owned subsidiary, Blair Holdings, Inc. All significant
intercompany accounts are eliminated upon consolidation.
NOTE B - DIVIDENDS DECLARED
2-07-95 $1.25 per share 2-07-96 $ .35 per share
4-18-95 .35 5-10-96 .25
7-19-95 .35 7-16-96 .25
10-18-95 .35 10-16-96 .25
NOTE C - NET INCOME PER COMMON SHARE
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
----------- ----------- ----------- -----------
Net income $ 1,480,638 $ 3,940,790 $14,664,312 $18,478,846
Average shares outstanding 9,346,157 9,310,095 9,331,642 9,288,127
Net income per common share $ .16 $ .42 $1.57 $1.99
NOTE D - ACCRUED EXPENSES
Accrued expenses consist of:
September 30 December 31
1996 1995
----------- -----------
Employee compensation $ 7,495,019 $ 6,162,097
Contribution to profit sharing
and retirement plan 1,575,175 2,799,706
Taxes, other than taxes on income 827,639 713,176
Other accrued items 1,798,398 1,721,107
----------- -----------
$11,696,231 $11,396,086
=========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1996
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 expense (credit) are as follows:
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
----------- ----------- ----------- -----------
Currently payable:
Federal $(1,071,000) $ (103,000) $ 9,891,000 $ 9,932,000
State (373,000) (204,000) 1,103,000 1,106,000
----------- ----------- ----------- -----------
(1,444,000) (307,000) 10,994,000 11,038,000
Deferred 2,299,000 2,725,000 (1,992,000) 1,611,000
----------- ----------- ----------- -----------
$ 855,000 $ 2,418,000 $ 9,002,000 $12,649,000
=========== =========== =========== ===========
The differences between total tax expense and the amount computed by applying
the statutory federal income tax rate of 35% to income before income taxes are
as follows:
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
----------- ----------- ----------- -----------
Statutory rate applied
to pre-tax income $ 817,473 $ 2,225,576 $ 8,283,209 $10,894,746
State income taxes,
net of federal tax
benefit (22,750) 126,100 527,150 1,555,450
Other items 60,277 66,324 191,641 198,804
----------- ----------- ----------- -----------
$ 855,000 $ 2,418,000 $ 9,002,000 $12,649,000
=========== =========== =========== ===========
Components of the provision for deferred income tax expense (credit)
are as follows:
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
----------- ----------- ----------- -----------
Provision for estimated
returns $ 435,000 $ (48,000) $ (316,000) $ (115,000)
Provision for doubtful
accounts (507,000) (842,000) (3,320,000) (1,460,000)
Advertising costs 2,807,000 3,682,000 2,213,000 3,221,000
Other items - net (436,000) (67,000) (569,000) (35,000)
----------- ----------- ----------- -----------
$ 2,299,000 $ 2,725,000 $(1,992,000) $ 1,611,000
=========== =========== =========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1996
NOTE E - INCOME TAXES - Continued
Components of the deferred tax asset and liability under the liability method
as of September 30, 1996 and December 31, 1995 are as follows:
September 30 December 31
1996 1995
----------- -----------
Current net deferred tax asset:
Doubtful accounts $18,992,000 $15,672,000
Returns allowance 2,194,000 1,878,000
Inventory obsolescence 1,934,000 1,934,000
Vacation pay 1,403,000 1,456,000
Inventory costs 1,526,000 1,323,000
Advertising costs (6,251,000) (4,038,000)
Other items 789,000 444,000
----------- -----------
$20,587,000 $18,669,000
=========== ===========
Long-term deferred tax liability:
Property, plant and equipment $ 1,953,000 $ 2,027,000
=========== ===========
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 $8,887,000 at September
30, 1996 and $8,662,000 at December 31, 1995, respectively.
NOTE G - OTHER INCOME
Other income consists of:
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
----------- ----------- ----------- -----------
Finance charges on time
payment accounts $11,017,766 $ 8,170,531 $32,727,709 $22,182,650
Other items 305,830 364,810 934,273 1,115,000
----------- ----------- ----------- -----------
$11,323,596 $ 8,535,341 $33,661,982 $23,297,650
=========== =========== =========== ===========
Finance charges on time payment accounts are recognized on an accrual basis of
accounting.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1996
NOTE H - FINANCING ARRANGEMENTS
In November 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 September 30, 1996, the company was
in compliance with all the agreement's covenants. As of September 30, 1996 and
December 31, 1995, respectively, the company had borrowed $104,200,000 and
$84,300,000 under the agreement of which $80,000,000 was classified as long-
term.
At September 30, 1995, the company had $82,500,000 available in lines of
credit, $10,000,000 with no specified expiration date, $7,500,000 expiring
November 17, 1995 and $65,000,000 expiring November 30, 1995. $73,500,000 was
outstanding at September 30, 1995, all short-term.
NOTE I - IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD
The company adopted FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", in the first
quarter of 1996. Currently, adoption of the statement has no effect on the
company.
NOTE J - EMPLOYEE STOCK PURCHASE PLAN
The company has an Employee Stock Purchase Plan wherein shares of treasury
stock may be issued to certain employees at a price established at the
discretion of the Employee Stock Purchase Plan Committee. The stock issued
under the Plan was 34,700 shares on July 22, 1996 and 49,150 shares on July 10,
1995.
NOTE K - RECLASSIFICATIONS
Certain amounts previously reported in the 1995 financial statements have been
reclassified to conform with current year classifications.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1996
Results of Operations
- ---------------------
Comparison of Third Quarter 1996 and Third Quarter 1995
Net income for the third quarter of 1996 was down 62.4% from the third quarter
of 1995. Lower net sales, an increased provision for doubtful accounts and
higher professional service fees were primarily responsible for the lower
earnings in the third quarter 1996.
Third quarter 1996 net sales were 10.3% lower than third quarter 1995 net
sales. Sales fell due to a lower overall response rate (6.5% fewer orders) and
a 34.1% increase in orders turned down (tightened credit policies). The
stoppage of pre-approved credit offers to prospects was primarily responsible
for the drop in orders received. Third quarter 1996 response rates, net of
turndowns, as compared to third quarter 1995 rates were as folows - down 3.8%
for customer multi-product mailings, down 19.3% for prospect multi-product
mailings, up 20.7% for co-op and media, down 12.1% for customer catalogs and
down 10.0% for prospect catalogs. The decrease in catalog response rates was
all in the home products area where the tightened credit policies have had the
most impact. Gross sales revenue generated per advertising dollar decreased
8.2%. In the third quarter of 1996, the total number of orders shipped
decreased 9.1% and the average order size was approximately the same as
compared to the third quarter of 1995. Returns as a percentage of adjusted
gross sales increased to 15.4% in the 1996 quarter from 14.8% in the 1995
quarter. A higher rate of return is experienced on Blair credit (Easy Payment
Plan) and credit card sales and these sales (combined) grew to 70.7% of gross
mail order sales in the third quarter of 1996 from 57.7% in the third quarter
of 1995.
Other income increased 32.7% in the third quarter of 1996 as compared to the
third quarter of 1995. The increase was due to finance charges assessed on
increased Easy Payment Plan accounts receivable. Finance charges increased
34.8% and average Easy Payment Plan accounts receivable increased 28.1%
(approximately $54,000,000).
Cost of goods sold as a percentage of net sales decreased to 49.2% in the third
quarter of 1996 from 51.2% in the third quarter of 1995. Higher returns in
1996 were more than offset by larger than usual inventory writedowns in 1995.
The inventory writedowns were primarily attributable to the special sale of
excess inventory held in Wilmington, Delaware during September 1995.
Advertising expense in the third quarter of 1996 decreased 1.1% from the third
quarter of 1995. Reductions in customer circular mailings, co-op and media
advertising and paper costs caused the reduction in advertising costs.
The total number of circular mailings released in the third quarter of 1996 was
3.1% less than in the third quarter of 1995 (42.3 million in 1996, 43.7 million
in 1995). A 6.6% decrease in multi-product customer mailings (33.6 million in
1996, 36.0 million in 1995), a 14.4% increase in multi-product prospect
mailings (7.3 million in 1996, 6.4 million in 1995), a 9.0% increase in single-
product mailings (1.4 million in 1996, 1.3 million in 1995) and a slight
decrease in paper costs resulted in a circular mailings net cost decrease of
approximately $636,000 from the third quarter of 1995.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1996
Results of Operations - Continued
- ---------------------
Comparison of Third Quarter 1996 and Third Quarter 1995 - Continued
Total volume of the co-op and media advertising programs decreased 32.4% in the
1996 third quarter as compared to the 1995 third quarter (226.6 million in
1996, 335.0 million in 1995). A 50.2% decrease in co-op advertising, a 23.5%
decrease in media advertising and a decrease in placement costs resulted in a
co-op and media cost decrease of $2,267,000 from the third quarter of 1995.
The total number of catalog mailings released in the third quarter of 1996 was
61.3% more than in the third quarter of 1995 (10.9 million in 1996, 6.8 million
in 1995). The catalog has been the primary advertising format for home
products for the last two years. Men's started test mailing catalogs in July
1995 and started full mailings to prospects and the customer file in September
1996. Women's started test mailing catalogs in January 1996 - full mailings
are scheduled to start in first quarter 1997. A 45.4% increase in customer
catalogs (7.5 million in 1996, 5.2 million in 1995) and a 111.8% increase in
prospect catalogs (3.4 million in 1996, 1.6 million in 1995) resulted in a
catalog mailings cost increase of $2,615,000. In third quarter 1996, 6.7
million home products (5.6 million customer, 1.1 million prospect), 2.5 million
men's (1.1 million customer, 1.4 million prospect) and 1.7 million women's (.8
million customer, .9 million prospect) catalogs were mailed. In third quarter
1995, 6.0 million home products (4.8 million customer, 1.2 million prospect)
and .8 million men's (.4 million customer, .4 million prospect) catalogs were
mailed. Catalog mailings in all three product lines will be continually tested
as to mailing frequency, page density, product mix and number of pages.
General and administrative expense increased 3.9% in the third quarter of 1996
as compared to the third quarter of 1995. The increased expense was primarily
the result of a $1,200,000 increase in professional service fees. The
company's strategic plan to target the "over 50" low-to-moderate income market
has required a study of it's existing marketing programs. The multi- faceted
study was at its height during the third quarter. Conclusions and a plan of
action will be forthcoming. The company's expansion of its 800-number
capabilities, again supporting the strategic plan, has also added to operating
costs. Since September 1, 1995, all catalog mailings have been offering toll-
free telephone ordering. The company opened a second call center, located in
Erie, Pennsylvania, in August 1995. Due to the increasing telephone order
volume from the expanding catalog mailing programs, the company added 75% more
capacity to the Erie Call Center in September 1996 and will be opening a third
call center in Franklin, Pennsylvania in January 1997. Once the Franklin Call
Center is fully operational, the company intends to offer toll-free telephone
ordering in all advertising.
The provision for doubtful accounts as a percentage of credit sales increased
41.6% in the third quarter comparison. Total credit sales decreased 11.7% and
total finance charges increased 34.8%. Prospect credit sales decreased 34.9%
and prospect finance charges increased 100.6%. Prospect (first-time buyer)
credit sales and finance charges carry a higher credit risk. The estimated bad
debt rate used in providing for doubtful accounts is based on current
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1996
Results of Operations - Continued
- ---------------------
Comparison of Third Quarter 1996 and Third Quarter 1995 - Continued
expectations, sales mix (prospect vs. customer) and prior years' experience.
Due to increasing delinquency and charge off rates, the third quarter 1996
provision for doubtful accounts was approximately $1,900,000 higher. The rate
used in providing for bad debts was increased and an additional provision of
$1,000,000 was made. Recoveries of bad debts previously charged off have been
credited back against the allowance for doubtful accounts. The company
recently completed a study of its credit policies and is currently implementing
improved policies. Revised credit granting and collection policies already
implemented have resulted in turning down more bad credit risks and in
shortening and strengthening the collection cycle. The full impact of the
improved credit policies will not be felt until mid 1997.
Interest expense increased 39.6% in the third quarter of 1996 as compared to
the third quarter of 1995. Interest expense has resulted primarily from the
company's borrowings necessary to finance customer accounts receivable.
Borrowings outstanding averaged approximately $95,100,000 in the third quarter
of 1996 as compared to $62,000,000 in the third quarter of 1995.
Income taxes as a percentage of income before income taxes were 36.6% in the
third quarter of 1996 and 38.0% in the third quarter of 1995. The federal
income tax rate was 35% in both years. The change in the total income tax rate
was caused by a reduction in the company's effective state income tax rate.
Comparison of Nine Month Periods Ended September 30, 1996 and September 30, 1995
Net income for the nine months of 1996 decreased 20.6% as compared to the first
nine months of 1995. Lower net sales and increased provision for doubtful
accounts, call center operating costs, interest expense and professional
service fees were primarily responsible for the reduction in earnings.
Nine month 1996 net sales were 2.9% lower than nine month 1995 net sales.
Sales fell due to the stoppage of pre-approved credit offers to prospects and
an increase in orders turned down (tightened credit policies in third quarter).
Overall response rate was similar in both years (.3% fewer orders). Nine month
1996 response rates, net of turndowns, as compared to nine month 1995 rates
were as follows - up .4% for customer multi-product mailings, up 56.6% for
prospect multi-product mailings, the same for co-op and media and up 9.1% for
catalogs. Gross sales revenue generated per advertising dollar decreased 2.0%.
In the nine months of 1996, the total number of orders shipped decreased 4.9%
and the average order size increased 3.7% as compared to the first nine months
of 1995. Returns as a percentage of adjusted gross sales increased to 15.7%
from 14.9%. Changes in sales mix (more prospects) and sales type (more Blair
credit and credit card) in 1996 contributed to the slippage in returns.
Other income increased 44.5% in the nine months of 1996 as compared to the
first nine months of 1995. The increase was due to finance charges assessed on
increased Easy Payment Plan accounts receivable. Finance charges increased
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1996
Results of Operations - Continued
- ---------------------
Comparison of Nine Month Periods Ended September 30, 1996
and September 30, 1995 - Continued
47.5% and average Easy Payment Plan accounts receivable increased 36.7%
(approximately $66,000,000).
Cost of goods sold as a percentage of net sales decreased to 49.1% in the nine
months of 1996 from 49.3% in the first nine months of 1995. The impact of
incentive pricing (reduced price offers on excess inventory and promotional
offers of free shipping and handling) in 1996 was overshadowed by the impact of
larger than usual inventory writedowns in 1995.
Advertising expense in the nine months of 1996 increased .9% from the first
nine months of 1995. Increased catalog volume was the prime cause of the
higher advertising costs. 1996 paper prices fell below 1995 prices during the
third quarter and will improve further in the fourth quarter.
The total number of circular mailings released in the nine months of 1996 was
8.7% less than in the first nine months of 1995 (134.1 million in 1996, 146.9
million in 1995). A 5.8% decrease in multi-product customer mailings (106.3
million in 1996, 112.8 million in 1995), a 22.2% decrease in multi-product
prospect mailings (22.2 million in 1996, 28.6 million in 1995) and a 1.6%
increase in single-product mailings (5.5 million in 1996, 5.4 million in 1995)
resulted in a net circular mailings cost decrease of approximately $4,592,000
from the first nine months of 1995.
Total volume of the co-op and media advertising programs decreased 13.8% in the
nine months of 1996 as compared to the first nine months of 1995 (1.2 billion
in 1996, 1.4 billion in 1995). A 32.3% decrease in co-op advertising, a 5.5%
decrease in media advertising and a decrease in placement costs resulted in a
co-op and media cost decrease of $3,507,000 from the first nine months of 1995.
The total number of catalog mailings released in the nine months of 1996 was
35.4% more than in the first nine months of 1995 (35.2 million in 1996, 26.0
million in 1995). A 36.8% increase in customer catalogs (20.7 million in 1996,
15.1 million in 1995) and a 33.4% increase in prospect catalogs (14.5 million
in 1996, 10.9 million in 1995) resulted in a catalog mailings cost increase of
$8,862,000 over the first nine months of 1995. In 1996, 23.9 million home
products (16.1 million customer, 7.8 million prospect), 5.8 million men's (2.1
million customer, 3.7 million prospect) and 5.5 million women's (2.5 million
customer, 3.0 million prospect) catalogs were mailed. In 1995, 25.2 million
home products (14.7 million customer, 10.5 million prospect) and .8 million
men's (.4 million customer, .4 million prospect) catalogs were mailed.
General and administrative expense increased 4.4% in the nine months of 1996 as
compared to the first nine months of 1995. Increased call center costs
(telephone up 84.3%, wages and benefits, data processing, etc...) and
professional service fees (marketing consultants) were primarily responsible
for the higher general and administrative expense.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1996
Results of Operations - Continued
- ---------------------
Comparison of Nine Month Periods Ended September 30, 1996
and September 30, 1995 - Continued
The provision for doubtful accounts as a percentage of credit sales increased
34.7% in the nine months comparison. Total credit sales decreased 1.6% and
total finance charges increased 47.5%. Prospect credit sales increased 13.7%
and prospect finance charges increased 108.2%. Due to increasing delinquency
and charge off rates, the nine month 1996 provision for doubtful accounts was
approximately $4,400,000 higher. The rate used in providing for bad debts was
increased and an additional provision of $2,000,000 was made. Recoveries of
bad debts previously charged off have been credited back against the allowance
for doubtful accounts.
Interest expense increased 57.8% in the nine months of 1996 as compared to the
first nine months of 1995. Borrowings outstanding averaged approximately
$91,500,000 in the nine months of 1996 as compared to $52,500,000 in the first
nine months of 1995.
Income taxes as a percentage of income before income taxes were 38.0% in the
nine months of 1996 and 40.6% in the first nine months of 1995. The change in
the total income tax rate was caused by a reduction in the company's effective
state income tax rate.
Liquidity and Sources of Capital
- --------------------------------
All working capital and cash requirements were met. In November 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 September 30, 1996 the company was
in compliance with all the covenants. Borrowings outstanding at September 30,
1996 were $104,200,000 of which $80,000,000 was classified as long-term. At
September 30, 1995, the company had $82,500,000 available in lines of credit,
$10,000,000 with no specified expiration date, $7,500,000 expiring November 17,
1995 and $65,000,000 expiring November 30, 1995. $73,500,000 was outstanding
at September 30, 1995, all short-term.
The ratio of current assets to current liabilities was 3.65 at September 30,
1996, 4.50 at December 31, 1995 and 2.12 at September 30, 1995. Working
capital increased $9,440,483 in the nine months of 1996. The increase was
primarily reflected in increased inventories, customer accounts receivable and
prepaid income taxes more than offsetting increased notes payable and trade
accounts payable. The increase in working capital was attributable to
reductions in dividends paid and purchases of property, plant and equipment in
the nine months of 1996.
Merchandise inventory turnover was 3.0 at September 30, 1996, at December 31,
1995 and at September 30, 1995. Merchandise inventory as of September 30, 1996
increased 24.4% from December 31, 1995 and 18.1% from September 30, 1995. Over
the last few years, inventory levels have been impacted by the effort to
increase order fulfillment rates, lower than anticipated response in the fourth
quarter of 1994, the expansion of product lines due to the catalogs and lower
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1996
Liquidity and Sources of Capital - Continued
- --------------------------------
than anticipated response and higher turndowns in the third quarter of 1996.
Currently, better inventory management techniques are being investigated and
implemented. Home products net sales as a percentage of total net sales
increased to 17.3% ($67.7 million) in 1996 as compared to 15.5% ($62.3 million)
in the first nine months of 1995. Men's net sales increased to 23.8% ($93.2
million) from 22.5% ($90.8 million). Women's net sales decreased to 58.9%
($230.9 million) from 62.0% ($250.2 million). Home products inventory totaled
$20.4 million at September 30, 1996 as compared to $10.0 million at December
31, 1995 and $11.6 million at September 30, 1995. Men's inventory was $22.7
million at September 30, 1996, $18.4 million at December 31, 1995 and $19.4
million at September 30, 1995. Women's inventory was $37.2 million at
September 30, 1996, $36.2 million at December 31, 1995 and $37.0 million at
September 30, 1995. As previously mentioned, response rates were down and
turndowns were up (credit policies) in the third quarter of 1996.
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 $1,924,325 during the
nine months of 1996 and $7,253,532 during the first nine months of 1995.
In 1995, the company completed the total renovation of its headquarters
facility in Warren, Pennsylvania. Total cost of the renovation, expended over
more than 3 years, was $13.6 million.
In August 1995, the company's second call center was opened in Erie,
Pennsylvania. A 75% expansion of the Erie Call Center was completed in
September 1996. A third call center, located in Franklin, Pennsylvania, will be
added in January 1997. The Erie and Franklin facilities are leased. See
Future Considerations.
In September 1995, the company completed a 64,475 square-foot warehouse
addition to its distribution center at a cost of $6.9 million. The continuing
study of the distribution center focused on operational and customer service
improvements, includes examining the merits of a variety of service-enhancing
options, including a possible second distribution center located outside of the
Warren, Pennsylvania area.
The company recently declared a quarterly dividend of $.25 per share payable on
December 15, 1996. 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 is currently buying back shares of its Common Stock. From October
30, 1996 thru November 12, 1996, the company has added 64,500 shares to the
treasury at a cost of approximately $1,160,000.
Future cash needs will be financed by cash flow from operations, the current
borrowing arrangement and, if needed, other financing arrangements available to
the company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1996
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
continue to be pressured in 1996. Postal rates have been further impacted by
the USPS Classification Reform which took effect July 1, 1996. Postage costs
will increase slightly due to the Reform. Paper prices have retreated from
their high point at 1995 year-end and fell below 1995 levels during the third
quarter of 1996.
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1996
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 adopted Statement
No. 121 in the first quarter of 1996. Adoption of the Statement has had no
effect on the company.
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.
PART II. OTHER INFORMATION
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1996
Item 5. Other Information
-----------------
The company filed a Registration Statement on Form S-8 on
July 17, 1996 registering 34,700 shares of the company's Common
Stock which was offered for purchase on July 22, 1996 to selected
employees of the company under and in accordance with the company's
Employee Stock Purchase Plan.
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
September 30, 1996.
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 November 12, 1996 By Giles W. Schutte
----------------------- ---------------------------------
Giles W. Schutte
Executive Vice President and Treasurer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BLAIR
CORPORATIONS' 9/30/96 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH THIRD QUARTER, 1996 10-Q FILING FOR BLAIR CORPORATION.
</LEGEND>
<CIK> 0000071525
<NAME> BLAIR CORPORATION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,638,781
<SECURITIES> 0
<RECEIVABLES> 197,444,181<F1>
<ALLOWANCES> 55,414,572
<INVENTORY> 100,093,977
<CURRENT-ASSETS> 330,215,237
<PP&E> 99,106,643
<DEPRECIATION> 44,847,201
<TOTAL-ASSETS> 385,478,779
<CURRENT-LIABILITIES> 90,551,943
<BONDS> 0
0
0
<COMMON> 419,810
<OTHER-SE> 212,554,026<F2>
<TOTAL-LIABILITY-AND-EQUITY> 385,478,779
<SALES> 391,753,104
<TOTAL-REVENUES> 425,415,086
<CGS> 192,356,038
<TOTAL-COSTS> 401,748,774
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 28,390,677
<INTEREST-EXPENSE> 3,961,576
<INCOME-PRETAX> 23,666,312
<INCOME-TAX> 9,002,000
<INCOME-CONTINUING> 14,664,312
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,664,312
<EPS-PRIMARY> 1.57
<EPS-DILUTED> 1.57
<FN>
<F1>AMOUNT REPRESENTS NET RECEIVABLES
<F2>AMOUNT INCLUDES ADDITIONAL PAID-IN CAPITAL, RETAINED EARNINGS, TREASURY
STOCK AND THE EMPLOYEE STOCK PURCHASE PLAN RECEIVABLE.
</FN>
</TABLE>
