United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
----------
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period Ended June 30, 1997 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 August 11, 1997 the registrant had outstanding 9,081,245 shares of its
common stock without nominal or par value.
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS (UNAUDITED)
BLAIR CORPORATION AND SUBSIDIARY
June 30, 1997
CONSOLIDATED BALANCE SHEETS
BLAIR CORPORATION AND SUBSIDIARY
June 30 December 31
1997 1996
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,172,828 $ 4,115,533
Customer accounts receivable,
less allowances for doubtful accounts
and returns of $38,556,565 in 1997
and $44,464,572 in 1996 169,538,738 193,772,056
Inventories - Note F
Merchandise 61,019,818 74,537,691
Advertising and shipping supplies 10,464,238 13,310,907
------------ ------------
71,484,056 87,848,598
Deferred income taxes 16,066,000 17,022,000
Prepaid federal and state taxes 1,091,662 10,142,009
Prepaid expenses 707,234 655,915
------------ ------------
Total current assets 264,060,518 313,556,111
Property, plant and equipment:
Land 1,130,454 1,130,454
Buildings 62,830,862 62,788,129
Equipment 37,557,730 36,540,127
------------ ------------
101,519,046 100,458,710
Less allowances for depreciation 48,873,635 46,251,580
------------ ------------
52,645,411 54,207,130
Trademarks 957,745 993,867
------------ ------------
TOTAL ASSETS $317,663,674 $368,757,108
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 14,100,000 $ 27,000,000
Trade accounts payable 31,610,557 40,497,362
Advance payments from customers 2,937,896 1,145,382
Accrued expenses - Note D 8,552,700 9,536,481
------------ ------------
Total current liabilities 57,201,153 78,179,225
Deferred income taxes 1,804,000 1,979,000
Long-term debt 50,000,000 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 12,919,478 12,928,260
Retained earnings 218,910,178 216,068,537
------------ ------------
232,249,466 229,416,607
Less 1,021,103 shares in 1997 and 840,908
shares in 1996 of Common Stock in
treasury - at cost 21,913,986 19,013,814
Less receivable from Employee Stock
Purchase Plan 1,676,959 1,803,910
------------ ------------
208,658,521 208,598,883
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $317,663,674 $368,757,108
============ ============
See accompanying notes.
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
BLAIR CORPORATION AND SUBSIDIARY
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $127,545,653 $138,930,659 $238,427,744 $279,657,687
Other income - Note G 10,353,436 11,245,300 21,049,055 22,338,386
------------ ------------ ------------ ------------
137,899,089 150,175,959 259,476,799 301,996,073
Costs and expenses:
Cost of goods sold 63,638,637 67,308,676 118,755,726 137,132,372
Advertising 34,901,385 34,859,241 65,615,471 69,569,326
General and administrative 24,716,492 25,719,298 49,299,535 51,395,245
Provision for doubtful accounts 7,830,419 10,047,238 14,405,909 19,976,403
Interest 1,093,706 1,297,726 2,579,104 2,592,053
------------ ------------ ------------ ------------
132,180,639 139,232,179 250,655,745 280,665,399
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 5,718,450 10,943,780 8,821,054 21,330,674
Income taxes - Note E 2,098,000 4,183,000 3,236,000 8,147,000
------------ ------------ ------------ ------------
NET INCOME $ 3,620,450 $ 6,760,780 $ 5,585,054 $ 13,183,674
============ ============ ============ ============
Net income per share based on average
shares outstanding - Note C $ .40 $ .72 $ .61 $1.41
===== ===== ===== =====
<FN>
See accompanying notes.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
BLAIR CORPORATION AND SUBSIDIARY
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Common Stock $ 419,810 $ 419,810 $ 419,810 $ 419,810
Additional paid-in capital:
Balance at beginning of period 12,928,260 12,372,697 12,928,260 12,372,697
Issuance of Common Stock to
non-employee directors 13,688 -0- 13,688 -0-
Forfeitures of Common Stock under
Employee Stock Purchase Plan (22,470) (69,596) (22,470) (69,596)
------------ ------------ ------------ ------------
Balance at end of period 12,919,478 12,303,101 12,919,478 12,303,101
Retained Earnings:
Balance at beginning of period 216,647,961 214,748,258 216,068,537 211,588,111
Net income 3,620,450 6,760,780 5,585,054 13,183,674
Cash dividends declared - Note B (1,358,233) (2,330,533) (2,743,413) (5,593,280)
------------ ------------ ------------ ------------
Balance at end of period 218,910,178 219,178,505 218,910,178 219,178,505
Treasury Stock:
Balance at beginning of period (19,355,540) (16,927,008) (19,013,814) (16,927,008)
Purchase of Common Stock for treasury (2,562,403) -0- (2,904,129) -0-
Issuance of Common Stock to
non-employee directors 8,437 -0- 8,437 -0-
Forfeitures of Common Stock under
Employee Stock Purchase Plan (4,480) (13,779) (4,480) (13,779)
------------ ------------ ------------ ------------
Balance at end of period (21,913,986) (16,940,787) (21,913,986) (16,940,787)
Receivable from Employee Stock Purchase Plan:
Balance at beginning of period (1,769,530) (1,805,537) (1,803,910) (1,887,595)
Payments 87,236 62,417 121,616 144,475
Forfeitures of common stock under
Employee Stock Purchase Plan 5,335 16,850 5,335 16,850
------------ ------------ ------------ ------------
Balance at end of period (1,676,959) (1,726,270) (1,676,959) (1,726,270)
------------ ------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY $208,658,521 $213,234,359 $208,658,521 $213,234,359
============ ============ ============ ============
<FN>
See accompanying notes.
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
BLAIR CORPORATION AND SUBSIDIARY
Six Months Ended
June 30
1997 1996
------------ ------------
OPERATING ACTIVITIES
Net income $ 5,585,054 $ 13,183,674
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,669,410 2,685,668
Provision for doubtful accounts 14,405,909 19,976,403
Provision for deferred income taxes 781,000 (4,291,000)
Changes in operating assets and
liabilities (using) providing cash:
Customer accounts receivable 9,827,409 (31,922,525)
Inventories 16,364,542 4,049,883
Prepaid expenses (51,319) (119,562)
Trade accounts payable (8,886,805) (6,580,074)
Advance payments from customers 1,792,514 (66,527)
Accrued expenses (983,781) (1,290,814)
Federal and state taxes 9,050,347 3,538,000
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 50,554,280 (836,874)
INVESTING ACTIVITIES
Purchases of property, plant and equipment (1,071,569) (876,031)
------------ ------------
NET CASH (USED IN) INVESTING ACTIVITIES (1,071,569) (876,031)
FINANCING ACTIVITIES
Net proceeds from lines of credit (42,900,000) 8,550,000
Dividends paid (2,743,413) (5,593,280)
Purchase of Common Stock for treasury (2,904,129) -0-
Issuance of Common Stock to non-employee
directors 22,125 -0-
Forfeitures of Common Stock under
Employee Stock Purchase Plan (21,615) (66,525)
Payments on receivable from
Employee Stock Purchase Plan 121,616 144,475
------------ ------------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (48,425,416) 3,034,670
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 1,057,295 1,321,765
Cash and cash equivalents at beginning of year 4,115,533 3,667,363
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,172,828 $ 4,989,128
============ ============
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BLAIR CORPORATION AND SUBSIDIARY
June 30, 1997
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 six months ended June 30, 1997 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997. 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, 1996.
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
2-07-96 $.35 per share 2-06-97 $.15 per share
5-10-96 .25 5-12-97 .15
7-16-96 .25 7-15-97 .15
10-16-96 .25
NOTE C - NET INCOME PER COMMON SHARE
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
----------- ----------- ----------- -----------
Net income $ 3,620,450 $ 6,760,780 $ 5,585,054 $13,183,674
Average shares outstanding 9,135,472 9,321,632 9,175,255 9,321,703
Net income per common share $ .40 $ .72 $ .61 $1.41
NOTE D - ACCRUED EXPENSES
Accrued expenses consist of:
June 30 December 31
1997 1996
----------- -----------
Employee compensation $ 5,566,685 $ 6,089,723
Contribution to profit sharing
and retirement plan 594,967 1,568,137
Taxes, other than taxes on income 714,561 322,053
Other accrued items 1,676,487 1,556,568
----------- -----------
$ 8,552,700 $ 9,536,481
=========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 1997
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 are as follows:
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
----------- ----------- ----------- -----------
Currently payable:
Federal $ 4,401,000 $ 6,400,000 $ 2,431,000 $10,962,000
State 552,000 903,000 24,000 1,476,000
----------- ----------- ----------- -----------
4,953,000 7,303,000 2,455,000 12,438,000
Deferred (credit) (2,855,000) (3,120,000) 781,000 (4,291,000)
----------- ----------- ----------- -----------
$ 2,098,000 $ 4,183,000 $ 3,236,000 $ 8,147,000
=========== =========== =========== ===========
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 Six Months Ended
June 30 June 30
1997 1996 1997 1996
----------- ----------- ----------- -----------
Statutory rate applied to
pre-tax income $ 2,001,458 $ 3,830,323 $ 3,087,369 $ 7,465,736
State income taxes, net
of federal tax benefit 81,900 289,250 91,650 549,900
Other items 14,642 63,427 56,981 131,364
----------- ----------- ----------- -----------
$ 2,098,000 $ 4,183,000 $ 3,236,000 $ 8,147,000
=========== =========== =========== ===========
Components of the provision for deferred income tax credit (expense)
are as follows:
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
----------- ----------- ----------- -----------
Provision for estimated
returns $ 8,000 $ (95,000) $ 157,000 $ 751,000
Provision for doubtful
accounts (1,225,000) 926,000 (1,793,000) 2,813,000
Advertising costs 4,161,000 2,234,000 796,000 594,000
Other items - net (89,000) 55,000 59,000 133,000
----------- ----------- ----------- -----------
$ 2,855,000 $ 3,120,000 $ (781,000) $ 4,291,000
=========== =========== =========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 1997
NOTE E - INCOME TAXES - Continued
Components of the deferred tax assets and liability under the liability method
as of June 30, 1997 and December 31, 1996 are as follows:
June 30 December 31
1997 1996
----------- -----------
Current net deferred tax assets:
Doubtful accounts $12,648,000 $14,441,000
Returns allowances 2,010,000 1,853,000
Inventory obsolescence 1,937,000 1,937,000
Vacation pay 1,304,000 876,000
Inventory costs 922,000 1,257,000
Advertising costs (3,354,000) (4,150,000)
Other items 599,000 808,000
----------- -----------
$16,066,000 $17,022,000
=========== ===========
Long-term deferred tax liability:
Property, plant and equipment $ 1,804,000 $ 1,979,000
=========== ===========
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 $8,983,000 at June 30,
1997 and $8,833,000 at December 31, 1996, respectively.
NOTE G - OTHER INCOME
Other income consists of:
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
----------- ----------- ----------- -----------
Finance charges on time
payment accounts $ 9,621,302 $10,893,156 $20,010,279 $21,709,943
Other items 732,134 352,144 1,038,776 628,443
----------- ----------- ----------- -----------
$10,353,436 $11,245,300 $21,049,055 $22,338,386
=========== =========== =========== ===========
Finance charges on time payment accounts are recognized on an accrual basis of
accounting.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 1997
NOTE H - 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 June 30, 1997, the company was in compliance
with all the agreement's covenants. As of June 30, 1997 and December 31, 1996,
respectively, the company had borrowed $64,100,000 and $107,000,000 under the
agreement of which $50,000,000 and $80,000,000 was classified as long-term.
NOTE I - USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
NOTE 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 49,600 shares on July 23, 1997 and 34,700 shares on July 22,
1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BLAIR CORPORATION AND SUBSIDIARY
June 30, 1997
Results of Operations
- ---------------------
Comparison of Second Quarter 1997 and Second Quarter 1996
Net income for the second quarter of 1997 decreased 46.4% from the second
quarter of 1996. The second quarter of 1997 was impacted by reduced credit
marketing promotion, increased catalog advertising, tightened credit management
and deteriorating bad debt experience.
Net sales for the second quarter of 1997 were 8.2% lower than second quarter
1996 net sales. Sales declined in the 1997 quarter due to the stoppage of pre-
approved credit offers to prospects and limited experience in catalog inventory
management (resulted in a greater number of stock outages). Response rates,
while mixed, were up overall - customer circular mailings down 7%, prospect
circular mailings down 49% (pre-approved credit offers), customer catalogs up
51%, prospect catalogs up 40%, co-op and media up 7%. Gross sales revenue
generated per advertising dollar decreased 7.7%. Returns as a percentage of
adjusted gross sales increased to 17.0% in the second quarter 1997 from 16.2%
in the second quarter 1996. Returns are higher on Blair Credit (Easy Payment
Plan) and credit card sales and these sales (combined) grew to 70% of gross
mail order sales in second quarter 1997 from 66% in second quarter 1996. Also,
returns are higher on womenswear sales which grew to 66% of gross sales in
second quarter 1997 from 59% in second quarter 1996.
Other income decreased 7.9% in the second quarter 1997 as compared to second
quarter 1996 due to an 11.7% drop in finance charges assessed on Easy Payment
Plan accounts receivable. Average second quarter Easy Payment Plan accounts
receivable decreased 14.9% (approximately $37.2 million).
Cost of goods sold as a percentage of net sales increased to 49.9% in second
quarter 1997 from 48.4% in second quarter 1996. Increased returns and
inventory writedowns were primarily responsible for the higher cost of goods
sold.
Advertising expense in the second quarter of 1997 was approximately the same as
in the second quarter of 1996. Increased catalog mailings were offset by
reductions in paper costs, circular letter mailings and co-op and media volume.
The total number of circular mailings released in the second quarter 1997 was
26% less than in second quarter 1996 (32.3 million vs. 43.4 million). A 24%
decrease in multi-product customer mailings, a 39% decrease in multi-product
prospect mailings, a 1.5% decrease in single-product mailings and decreased
paper costs resulted in a circular mailings cost decrease of $5,147,000 from
second quarter 1996. Circular mailings have decreased primarily due to the
expansion of the catalog advertising program.
Total volume of the co-op and media advertising programs decreased 27% in
second quarter 1997 as compared to second quarter 1996 (277 million vs. 381
million). A 3% increase in co-op advertising, a 35% decrease in media
advertising and reduced paper costs resulted in a net co-op and media cost
decrease of $830,000 from second quarter 1996.
The total number of catalog mailings released in the second quarter of 1997 was
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 1997
Results of Operations - Continued
- ---------------------
Comparison of Second Quarter 1997 and Second Quarter 1996 - Continued
111% higher than in the second quarter of 1996 (31.8 million vs. 15.1 million).
The catalog has been the primary advertising format for home products for over
two years. The company started test mailing menswear catalogs in July 1995 and
started full mailings to prospects and customers in September 1996. The
company started test mailing womenswear catalogs in January 1996 - full
mailings started in the first quarter of 1997. A 111% increase in both
customer and prospect catalogs and reduced paper prices resulted in a net
catalog mailing cost increase of $6,050,000 over second quarter 1996. Catalog
mailings in all three product lines are continually tested as to mailing
frequency, page density, product mix, number of pages and size.
General and administrative expense decreased 3.9% in the second quarter of 1997
as compared to the second quarter of 1996. The lower general and
administrative expense was primarily the result of a decline in wages and
benefits. The average number of employees dropped 7.1% in the second quarter
of 1997 as compared to the second quarter of 1996.
The provision for doubtful accounts as a percentage of credit sales was
approximately 17% higher in the second quarter of 1997 as compared to the
second quarter of 1996. A reduction in the provision due to lower credit sales
and finance charges was more than offset by an additional provision required to
cover deteriorating bad debt experience. Total credit sales decreased 29% and
total finance charges decreased 12%. The estimated provision for doubtful
accounts is based on current expectations, sales mix (prospect vs. customers)
and prior years' experience. Due to increases in the delinquency and charge-
off rates being experienced on prior years' receivables, the second quarter of
1997 included an additional provision of $1,740,000. The second quarter of
1996 included an additional provision of $1,000,000. Recoveries of bad debts
previously charged off have been credited back against the allowance for
doubtful accounts. The company, having recently completed a study of its
credit policies, 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. It is anticipated that the full impact of the improved credit policies
will not be realized until late 1997.
Interest expense decreased 16% in the second quarter of 1997 as compared to the
second quarter of 1996. Interest expense has resulted primarily from the
company's borrowings necessary to finance customer accounts receivable.
Average borrowings outstanding have decreased to approximately $76,000,000
during the second quarter of 1997 from $90,000,000 during the second quarter of
1996. The reduction in Blair Credit sales and the increase in credit card
sales are greatly responsible for lowering the level of borrowings.
Income taxes as a percentage of income before income taxes were 36.7% in the
second quarter of 1997 and 38.2% in the second quarter of 1996. The federal
income tax rate was 35% in both years. The difference in the total income tax
rate was caused by a reduction in the company's effective state income tax rate.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 1997
Results of Operations - Continued
- ---------------------
Comparison of Six Month Periods Ended June 30, 1997 and June 30, 1996
Net income for the first six months of 1997 decreased 57.6% as compared to the
first six months of 1996. The six months of 1997 have been impacted by reduced
credit marketing promotion, increased catalog advertising, tightened credit
management and deteriorating bad debt experience.
Net sales for the first half of 1997 were 14.7% lower than first half 1996 net
sales. Sales declined in 1997 due to the stoppage of pre-approved credit offers
to prospects, an increase in the number of orders turned down and limited
experience in catalog inventory management (resulted in a greater number of
stock outages). Response rates were mixed - customer circular mailings down
10%, prospect circular mailings down 57% (pre-approved credit offers), customer
catalogs up 33%, prospect catalogs up 6% and co-op and media up 17%. Gross sales
revenue generated per advertising dollar decreased 8.9%. Returns as a
percentage of adjusted gross sales increased to 16.9% from 15.9%. Returns are
higher on Blair Credit (Easy Payment Plan) and credit card sales and these sales
(combined) grew to 70% of gross mail order sales in 1997 from 66% in the first
half of 1996. Also, returns are higher on womenswear sales which grew to 64% of
gross sales in 1997 from 60% in the first six months of 1996.
Other income decreased 5.8% in the six months of 1997 as compared to the first
six months of 1996 due to a 7.8% drop in finance charges assessed on Easy
Payment Plan accounts receivable. Average Easy Payment Plan accounts receivable
decreased 9.8% (approximately $24,000,000).
Cost of goods sold as a percentage of net sales increased to 49.8% in the first
half of 1997 from 49.0% in the first half of 1996. Increased returns and
inventory writedowns were primarily responsible for the higher cost of goods.
Advertising expense in the six months of 1997 decreased 5.7% from the first six
months of 1996. Increased catalog mailings were more than offset by reductions
in paper costs, circular letter mailings and co-op and media volume.
The total number of circular mailings released in the six months of 1997 was 25%
less than in the first six months of 1996 (68.6 million vs. 91.8 million). A
21% decrease in multi-product customer mailings, a 53% decrease in multi-product
prospect mailings, a 3.5% decrease in single-product mailings and decreased
paper costs resulted in a circular mailings cost decrease of $11,354,000 from
the first six months of 1996. Circular mailings have decreased primarily due to
the expansion of the catalog advertising program.
Total volume of the co-op and media advertising programs decreased 30% in the
six months of 1997 as compared to the first six months of 1996 (687 million vs.
975 million). A 36% decrease in co-op advertising, a 27% decrease in media
advertising and reduced paper costs resulted in a co-op and media cost decrease
of $1,739,000 from the first six months of 1996.
The total number of catalog mailings released in the first half of 1997 was
nearly double the number released in the first half of 1996 (48.5 million vs.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 1997
Results of Operations - Continued
- ---------------------
Comparison of Six Month Periods Ended June 30, 1997
and June 30, 1996 - Continued
24.3 million). A 91% increase in customer catalogs, a 111% increase in
prospect catalogs and reduced paper prices resulted in a net catalog mailing
cost increase of $9,436,000 over the first half of 1996.
General and administrative expense decreased 4.1% in the six months of 1997 as
compared to the first six months of 1996. The lower general and administrative
expense was primarily the result of a decline in wages and benefits. The
average number of employees dropped 7.4% in the six months of 1997 as compared
to the first six months of 1996.
The provision for doubtful accounts as a percentage of credit sales increased
13% in the six months comparison. A reduction in the provision due to lower
credit sales and finance charges was more than offset by an additional
provision required to cover deteriorating bad debt experience. Total credit
sales decreased 32% and finance charges decreased 8%. The estimated bad debt
provision for doubtful accounts is based on current expectations, sales mix
(prospect vs. customer) and prior years' experience. Due to increases in the
delinquency and charge off rates being experienced on prior years' receivables,
the six months of 1997 included an additional provision of $2,035,000. The
first six months of 1996 included an additional provision of $1,000,000.
Interest expense was approximately the same in the half years' comparison.
Interest expense has resulted primarily from the company's borrowings necessary
to finance customer accounts receivable. Average borrowings outstanding
approximated $88,000,000 in the first six months of both 1997 and 1996.
Income taxes as a percentage of income before income taxes were 36.7% in the
first half of 1997 and 38.2% in the first half of 1996. 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 June 30, 1997 the company was in
compliance with all the covenants. Borrowings outstanding at June 30, 1997
were $64,100,000 of which $50,000,000 was classified as long-term. Borrowings
outstanding at June 30, 1996 were $92,850,000 of which $80,000,000 was
classified as long-term. As of August 11, 1997, the company's borrowings
outstanding totaled $50,900,000.
The ratio of current assets to current liabilities was 4.62 at June 30, 1997,
4.01 at December 31, 1996 and 4.42 at June 30, 1996. Working capital decreased
$28,517,521 in the first six months of 1997. The decrease was primarily
reflected in decreased customer accounts receivable and inventories.
Primarily, the 1997 decrease in working capital was attributable to the
reduction in long-term debt.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 1997
Liquidity and Sources of Capital - Continued
- --------------------------------
Merchandise inventory turnover was 2.6 at June 30, 1997, 2.9 at December 31,
1996 and 3.2 at June 30, 1996. Merchandise inventory as of June 30, 1996
decreased 18.1% from December 31, 1996 and 4.1% from June 30, 1996. Inventory
levels have been impacted by the continuing effort to increase order fulfillment
rates and by the transition to a larger catalog operation. Currently, the
company is installing a new catalog inventory management system that is expected
to come on line later in 1997. Home Products net sales as a percentage of total
net sales were 13.0% ($30.9 million) in 1997 as compared to 17.3% ($48.4
million) in the first half of 1996. Menswear net sales were 24.4% ($58.2
million) and 24.8% ($69.4 million). Womenswear net sales were 62.6% ($149.3
million) and 57.9% ($161.8 million). Home Products inventory totaled $10.0
million at June 30, 1997 as compared to $18.5 million at December 31, 1996 and
$16.8 million at June 30, 1996. Menswear inventory was $20.3 million at June
30, 1997, $21.6 million at December 31, 1996 and $16.6 million at June 30, 1996.
Womenswear inventory was $30.8 million at June 30, 1997, $34.4 million at
December 31, 1996 and $30.2 million at June 30, 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 $1,071,569 during the
first half of 1997 and $876,031 during the first half of 1996. Capital
expenditures for the year 1997, not including expenditures required by the new
marketing strategy, are projected to be similar to the total for the year 1996.
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, was
added in January 1997. Further expansion of the call centers is planned to be
completed by September 1997. See "Future Considerations".
The company recently declared a quarterly dividend of $.15 per share payable on
September 15, 1997. 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 bought back 120,300 shares of its common stock at a price of
$2,267,655 in 1996. The company bought back 18,700 shares at a price of
$341,726 in the first quarter of 1997 and 162,445 shares at a price of
$2,562,403 in the second quarter of 1997. As of August 11, 1997, the company
has bought back 22,442 shares at a price of $360,139 in the third quarter of
1997. The company will assess future buy-back opportunities on an on-going
basis.
Future cash needs will be financed by cash flow from operations, the current
borrowing arrangement and, if needed, other financing arrangements that may be
available to the company. The company's current projection of 1997 cash
requirements, however, may be affected in the future by numerous factors,
including changes in customer payments on accounts receivable, consumer credit
industry trends, sales volume, operating cost fluctuations and unplanned capital
spending.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 1997
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 pressured by postal rate and paper cost increases in 1996. Paper prices
were at their lowest level since 1994 in the first quarter of 1997, but
increased in the second quarter of 1997, and will again increase in the third
quarter of 1997. Postage rates haven't changed since 1996 but are expected to
increase in early 1998.
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
June 30, 1997
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, increased competition in the retail
sector and record levels of consumer debt.
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 40, low-to-moderate income" market. This redefinition of our target
customer from "over 50" to "over 40" has been made possible by the ability of
our catalog advertising to reach younger buyers within our traditional list
sources. 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.
Safe Harbor Statement Under the Private Securities Litigation
Reform Act of 1995
- ---------------------------------------------------------------
Forward-looking statements in this report, including without limitation,
statements relating to the company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
Safe Harbor Provisions of the Private Securities Litigation Reform Act of
1995. Investors are cautioned that such forward-looking statements involve
risks and uncertainties including without limitation the following: (i) the
company's plans, strategies, objectives, expectations and intentions are
subject to change at any time at the discretion of the company, (ii) the
company's plans and results of operations will be affected by the company's
ability to manage its growth, accounts receivable and inventory; and (iii)
other risks and uncertainties indicated from time to time in the company's
filings with the Securities and Exchange Commission.
PART II. OTHER INFORMATION
BLAIR CORPORATION AND SUBSIDIARY
June 30, 1997
Item 4. Submission of Matters to a Vote of Security Holders.
-----------------------------------------------------
(a) The company's Annual Meeting of Stockholders was held April 15, 1997.
(b) At the Annual Meeting of Stockholders, all of the company's directors
were elected at said meeting, as follows:
David A. Blair Gerald A. Huber Kent R. Sivillo
Robert W. Blair Craig N. Johnson Blair T. Smoulder
Steven M. Blair Murray K. McComas John E. Zawacki
Robert D. Crowley Thomas P. McKeever
John O. Hanna Michael J. Samargya
Since all of the directors of the company were elected at the Annual
Meeting of Stockholders, there are no directors whose term of
office as a director continued after the meeting.
(c) The following other matter was voted upon at the meeting, and the
following number of affirmative votes and negative votes were
cast with respect to such matter:
The reappointment by the company's Board of Directors of
the firm of Ernst & Young L.L.P. as independent certified public
accountants to examine the financial statements and perform
the annual audit of the company for the year ending December 31,
1997 was ratified. This ratification received 8,504,885 affirmative
votes and 34,845 negative votes.
Item 5. Other Information
------------------
The company filed a Registration Statement on Form S-8 on July 17, 1997
registering 49,600 shares of the company's Common Stock which was offered
for purchase on July 23, 1997 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
June 30, 1997.
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 August 12, 1997 By Kent R. Sivillo
------------------ --------------------------------
Kent R. Sivillo
Vice President and Treasurer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BLAIR
CORPORATIONS' 6/30/97 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH SECOND QUARTER, 1997 10-Q FILING FOR BLAIR CORPORATION.
</LEGEND>
<CIK> 0000071525
<NAME> BLAIR CORPORATION
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,172,828
<SECURITIES> 0
<RECEIVABLES> 169,538,738<F1>
<ALLOWANCES> 38,556,565
<INVENTORY> 71,484,056
<CURRENT-ASSETS> 264,060,518
<PP&E> 101,519,046
<DEPRECIATION> 48,873,635
<TOTAL-ASSETS> 317,663,674
<CURRENT-LIABILITIES> 57,201,153
<BONDS> 0
0
0
<COMMON> 419,810
<OTHER-SE> 208,238,711<F2>
<TOTAL-LIABILITY-AND-EQUITY> 317,663,674
<SALES> 238,427,744
<TOTAL-REVENUES> 259,476,799
<CGS> 118,755,726
<TOTAL-COSTS> 250,655,745
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 14,405,909
<INTEREST-EXPENSE> 2,579,104
<INCOME-PRETAX> 8,821,054
<INCOME-TAX> 3,236,000
<INCOME-CONTINUING> 5,585,054
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,585,054
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
<FN>
<F1>AMOUNT REPRESENTS NET ACCOUNTS RECEIVABLE.
<F2>AMOUNT INCLUDES ADDITIONAL PAID-IN CAPITAL, RETAINED EARNINGS, TREASURY
STOCK, AND THE EMPLOYEE STOCK PURCHASE PLAN RECEIVABLE.
</FN>
</TABLE>
