<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, 1996 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:
Name of each exchange
Title of Each Class on which registered
- - ------------------- ---------------------
Common Stock, without nominal or par value American Stock Exchange
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 21, 1997 was $113,889,362. There were
9,234,532 shares of common stock outstanding as of February 21, 1997.
Documents Incorporated by Reference
-----------------------------------
The Annual Report to Stockholders for the fiscal year ended December
31, 1996 (the "Annual Report") is incorporated by reference into Part II and
Part IV of this Form 10-K. Portions of the Proxy Statement for the 1997 Annual
Meeting of Stockholders (the "Proxy Statement") are incorporated by reference
into Part III 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 approximately 2,200 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, exercise and personal care items) directly to
existing and prospective customers. Sales of the Company's menswear and
womenswear products accounted for approximately 83% of the Company's total
sales in 1996, and sales of the Company's home products accounted for the
remaining 17% (approximately) of the Company's total sales in 1996. Media and
co-op prospect advertising programs continue to be used extensively as they 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, which was well-received by its existing customer base.
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
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programs prompted the Company to successfully expand its catalog distribution
in 1994, 1995 and 1996, and the Company anticipates that such success should
continue in 1997.
All orders for merchandise are 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.
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 1996, the Company continued its efforts to broaden its customer
information systems. Detailed marketing and credit studies have been undertaken
in order to enhance its ability to market to both customers and prospects.
(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:
1. 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.
2. Blair Distribution Center (Route 62, Irvine, Pennsylvania) -- a
542,275 square foot cement block and sheet metal warehouse and
distribution facility.
3. Blair Mailing Center (Route 62, Irvine, Pennsylvania) -- a 293,400
square foot cement block and sheet metal mailing facility.
4. Blair Warehouse Outlet (Route 62, Starbrick, Pennsylvania) -- a
53,250 square foot metal warehouse outlet facility.
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<PAGE> 4
5. Blair Warehouse Outlet (Millcreek Mall, Erie, Pennsylvania) -- a
38,600 square foot block and brick warehouse outlet facility.
6. Bell Warehouse Building (Liberty Street, Warren, Pennsylvania) -- a
9,000 square foot metal warehouse facility.
7. Starbrick Warehouse Building (Route 62, Starbrick, Pennsylvania) --
a 12,000 square foot metal warehouse facility.
The Company leases the following properties:
1. Blair Retail Store (Wilmington, Delaware) -- a 11,765 square foot
retail facility.
2. Warehouse Building (Route 62, Starbrick, Pennsylvania) -- a 30,000
square foot metal warehouse facility.
3. Telephone Call Center (Erie, Pennsylvania) -- a 21,870 square foot
metal call center facility.
4. Telephone Call Center (Franklin, Pennsylvania) -- a 17,500 square
foot cement block 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.
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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 1996 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 1996 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 through 18 of the Company's 1996 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 1996 Annual Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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<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 1997 Annual Meeting of Stockholders (the "1997 Proxy
Statement") is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information appearing under the caption "Executive Compensation" in
the 1997 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 1997
Proxy Statement is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-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 1996 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 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 1996 Annual Report to
Stockholders)
*13 1996 Annual Report to Stockholders
21 Subsidiaries of Registrant
*23 Consents of Experts and Counsel
*27 Financial Data Schedule
(b) Reports on Form 8-K.
The registrant has filed no Forms 8-K during the quarter ended
December 31, 1996.
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<PAGE> 8
(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.
-8-
<PAGE> 9
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 14, 1997 By: /s/ Kent R. Sivillo
------------------------------
Kent R. Sivillo
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 14, 1997 By: /s/ Murray K. McComas
------------------------------
Murray K. McComas
President and Director
(Principal Executive Officer
and Director)
Date: March 14, 1997 By: /s/ Blair T. Smoulder
------------------------------
Blair T. Smoulder
Executive Vice President
and Director
Date: March 14, 1997 By: /s/ Michael J. Samargya
------------------------------
Michael J. Samargya
Vice President, Data
Processing, and Director
Date: March 14, 1997 By: /s/ Steven M. Blair
------------------------------
Steven M. Blair
Vice President, Order
Handling, and Director
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<PAGE> 10
Date: March 14, 1997 By: /s/ John E. Zawacki
------------------------------
John E. Zawacki
Vice President, Womenswear,
and Director
Date: March 14, 1997 By: /s/ David A. Blair
------------------------------
David A. Blair
Secretary and Director
Date: March 14, 1997 By: /s/ Kent R. Sivillo
------------------------------
Kent R. Sivillo
Vice President,
Treasurer and Director
(Principal Financial and
Accounting Officer)
Date: March 14, 1997 By: /s/ Robert D. Crowley
------------------------------
Robert D. Crowley
Vice President, Menswear,
and Director
Date: March 14, 1997 By: /s/ Thomas P. McKeever
------------------------------
Thomas P. McKeever
Vice President, Corporate Affairs
and Human Resources, and Director
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<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, 1996
<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, 1996, are incorporated by reference in Item 8:
-- Consolidated Balance Sheets -- December 31, 1996 and 1995
-- Consolidated Statements of Income -- Years ended December 31,
1996, 1995 and 1994
-- Consolidated Statements of Stockholders' Equity -- Years
ended December 31, 1996, 1995 and 1994
-- Consolidated Statements of Cash Flows -- Years ended December
31, 1996, 1995 and 1994
-- Notes to Consolidated Financial Statements -- December 31,
1996
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, 1996
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- - -------------------------------------------------------------------------------------------------------------------
ADDITIONS-
BALANCE AT CHARGED TO BALANCE
DESCRIPTION BEGINNING COSTS AND DEDUCTIONS- AT END
- - ----------- OF PERIOD EXPENSES DESCRIBE OF PERIOD
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance deducted from
asset accounts (customer
accounts receivable):
For doubtful accounts $ 40,508,071 $ 47,550,310(A) $ 50,785,809(B) $ 37,272,572
For estimated loss on returns 6,676,000 100,976,722 100,460,722(C) 7,192,000
------------------------------------------------------------------------
Totals $ 47,184,071 $148,527,032 $151,246,531 $ 44,464,572
========================================================================
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
========================================================================
</TABLE>
- - ----------
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.
<PAGE> 4
Consolidated Financial Statements
Blair Corporation and Subsidiary
Years ended December 31, 1996 and 1995
with Report of Independent Auditors
<PAGE> 5
Blair Corporation and Subsidiary
Consolidated Financial Statements
Years ended December 31, 1996 and 1995
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, 1996 and 1995 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
-----------------------
Ernst & Young LLP
Erie, Pennsylvania
January 31, 1997
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<PAGE> 7
Blair Corporation and Subsidiary
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,115,533 $ 3,667,363
Customer accounts receivable, less allowances for
doubtful accounts and returns of $44,464,572 in 1996
and $47,184,071 in 1995 193,772,056 191,399,482
Inventories:
Merchandise 74,537,691 64,597,476
Advertising and shipping supplies 13,310,907 15,795,329
------------- ------------
87,848,598 80,392,805
Deferred income taxes (Note 6) 17,022,000 18,669,000
Prepaid federal and state taxes 10,142,009 1,306,403
Prepaid expenses 655,915 528,291
------------- ------------
Total current assets 313,556,111 295,963,344
Property, plant, and equipment:
Land 1,130,454 1,130,454
Buildings 62,788,129 61,620,547
Equipment 36,540,127 35,406,049
------------- ------------
100,458,710 98,157,050
Less allowances for depreciation 46,251,580 41,844,738
------------- ------------
54,207,130 56,312,312
Trademarks 993,867 1,057,892
------------- ------------
Total assets $ 368,757,108 $353,333,548
============= ============
</TABLE>
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<PAGE> 8
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 2) $ 27,000,000 $ 4,300,000
Trade accounts payable 40,497,362 48,223,146
Advance payments from customers 1,145,382 1,155,159
Accrued expenses (Note 3) 9,536,481 11,396,086
Federal income taxes -- 666,142
------------ ------------
Total current liabilities 78,179,225 65,740,533
Deferred income taxes (Note 6) 1,979,000 2,027,000
Long-term debt (Note 2) 80,000,000 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 12,928,260 12,372,697
Retained earnings 216,068,537 211,588,111
------------ ------------
229,416,607 224,380,618
Less 840,908 shares in 1996 and 753,308 shares in 1995
of common stock in treasury-- at cost 19,013,814 16,927,008
Less receivable from Employee Stock Purchase Plan 1,803,910 1,887,595
------------ ------------
208,598,883 205,566,015
------------ ------------
Total liabilities and stockholders' equity $368,757,108 $353,333,548
============ ============
</TABLE>
See accompanying notes.
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<PAGE> 9
Blair Corporation and Subsidiary
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $544,129,005 $560,889,612 $535,792,222
Other income (Note 5) 44,291,914 31,927,853 23,370,104
------------ ------------ ------------
588,420,919 592,817,465 559,162,326
Costs and expenses:
Cost of goods sold 268,757,869 277,278,340 257,921,482
Advertising 141,035,288 138,001,203 117,654,135
General and administrative 102,209,670 99,773,037 93,275,059
Provision for doubtful accounts 47,550,310 31,774,283 27,022,560
Interest 5,524,561 3,743,692 676,380
------------ ------------ ------------
565,077,698 550,570,555 496,549,616
------------ ------------ ------------
Income before income taxes 23,343,221 42,246,910 62,612,710
Income taxes (Note 6) 8,617,000 16,979,000 24,934,000
------------ ------------ ------------
Net income $ 14,726,221 $ 25,267,910 $ 37,678,710
============ ============ ============
Net income per share based on average
shares outstanding $1.58 $2.72 $4.07
============ ============ ============
</TABLE>
See accompanying notes.
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<PAGE> 10
Blair Corporation and Subsidiary
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
COMMON STOCK $ 419,810 $ 419,810 $ 419,810
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year 12,372,697 11,017,130 9,595,875
Issuance (net of forfeitures) of common stock under
Employee Stock Purchase Plan (Note 4) 555,563 1,355,567 1,421,255
------------ ------------ ------------
Balance at end of year 12,928,260 12,372,697 11,017,130
RETAINED EARNINGS
Balance at beginning of year 211,588,111 207,683,352 188,957,972
Net income 14,726,221 25,267,910 37,678,710
Cash dividends declared per share $1.10 in 1996;
$2.30 in 1995; $2.05 in 1994 (10,245,795) (21,363,151) (18,953,330)
------------ ------------ ------------
Balance at end of year 216,068,537 211,588,111 207,683,352
TREASURY STOCK
Balance at beginning of year (16,927,008) (17,238,660) (16,056,017)
Purchase of 120,300 shares in 1996; -0- shares in 1995; and
35,000 shares in 1994 of common stock for treasury (2,267,655) - (1,470,000)
Issuance (net of forfeitures) of common stock under
Employee Stock Purchase Plan (Note 4) 180,849 311,652 287,357
------------ ------------ ------------
Balance at end of year (19,013,814) (16,927,008) (17,238,660)
RECEIVABLE FROM EMPLOYEE STOCK PURCHASE PLAN
Balance at beginning of year (1,887,595) (1,864,952) (1,713,840)
Issuance (net of forfeitures) of common stock under
Employee Stock Purchase Plan (Note 4) (177,635) (530,468) (551,850)
Repayments 261,320 507,825 400,738
------------ ------------ ------------
Balance at end of year (1,803,910) (1,887,595) (1,864,952)
------------ ------------ ------------
Total stockholders' equity $208,598,883 $205,566,015 $200,016,680
============ ============ ============
</TABLE>
See accompanying notes.
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<PAGE> 11
Blair Corporation and Subsidiary
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 14,726,221 $ 25,267,910 $ 37,678,710
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 5,418,237 4,821,652 4,606,470
Provision for doubtful accounts 47,550,310 31,774,283 27,022,560
Provision for deferred income taxes 1,599,000 (195,000) (2,566,000)
(Gain) loss on disposition of equipment 2,948 (3,278) (238,024)
Changes in operating assets and liabilities
(using) providing cash:
Customer accounts receivable (49,922,884) (92,656,626) (45,087,034)
Inventories (7,455,793) 3,564,657 (21,885,221)
Prepaid expenses (127,624) 30,079 (148,808)
Trade accounts payable (7,725,784) 13,390,955 253,151
Advance payments from customers (9,777) (264,423) (466,604)
Accrued expenses (1,859,605) (1,329,436) 3,074,168
Federal and state taxes (9,501,748) (4,067,087) (1,331,859)
------------ ------------ ------------
Net cash (used in) provided by operating activities (7,306,499) (19,666,314) 911,509
INVESTING ACTIVITIES
Purchases of property, plant, and equipment (3,252,375) (8,059,101) (5,974,779)
Purchase of trademark -- (1,075,822) --
Proceeds from sale of equipment 397 4,039 474,804
------------ ------------ ------------
Net cash used in investing activities (3,251,978) (9,130,884) (5,499,975)
FINANCING ACTIVITIES
Net proceeds from bank borrowings 22,700,000 50,000,000 22,700,000
Dividends paid (10,245,795) (21,363,151) (18,953,330)
Purchase of Common Stock for treasury (2,267,655) -- (1,470,000)
Issuance (net of forfeitures) of Common Stock under
Employee Stock Purchase Plan 736,412 1,667,219 1,708,612
Increase in notes receivable from Employee Stock
Purchase Plan 83,685 (22,643) (151,112)
------------ ------------ ------------
Net cash provided by financing activities 11,006,647 30,281,425 3,834,170
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 448,170 1,484,227 (754,296)
Cash and cash equivalents at beginning of year 3,667,363 2,183,136 2,937,432
------------ ------------ ------------
Cash and cash equivalents at end of year $ 4,115,533 $ 3,667,363 $ 2,183,136
============ ============ ============
</TABLE>
See accompanying notes.
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<PAGE> 12
Blair Corporation and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The consolidated financial statements include the accounts of Blair Corporation
and its wholly-owned subsidiary, Blair Holdings, Inc., a Delaware Corporation
(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.
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.
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 1996, 1995
and 1994 amounted to $100,976,722, $96,320,044 and $91,464,304, respectively.
-7-
<PAGE> 13
Blair Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 $8,833,000 and $8,662,000 at December 31, 1996 and
1995, respectively.
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
$71,852 at December 31, 1996 and $17,930 at December 31, 1995.
-8-
<PAGE> 14
Blair Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 1996, 1995 and 1994
amounted to $1,568,137, $2,799,706 and $4,023,519, 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 1996, 1995 and 1994
amounted to $1,925,675, $1,787,053 and $1,527,508, respectively.
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.
FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, customer accounts
receivable, accounts payable, and accrued liabilities approximate fair value
due to the short-term maturities of these assets and liabilities. The interest
rates on the Company's revolving credit facility is adjusted regularly to
reflect current market rates. Accordingly, the carrying amounts of the
Company's borrowings also approximate fair value.
-9-
<PAGE> 15
Blair Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
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 is unsecured
and 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, 1996 and
1995, the Company was in compliance with all the agreement's covenants. At
December 31, 1996 and 1995, the Company had borrowed $107,000,000 and
$84,300,000 respectively under the agreement of which $80,000,000 was
classified as long-term.
Interest paid during 1996, 1995 and 1994 amounted to $5,506,851, $3,630,505 and
$676,380, respectively. The weighted average interest rate on average debt
outstanding was 5.89%, 6.53%, and 5.34% for the years ended December 31, 1996,
1995 and 1994, respectively.
The Company has outstanding letters of credit amounting to approximately
$10,700,000 at December 31, 1996 related to inventory purchases.
3. ACCRUED EXPENSES
Accrued expenses consist of:
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
Employee compensation $6,089,723 $ 6,162,097
Contribution to profit sharing and retirement plan 1,568,137 2,799,706
Taxes, other than taxes on income 322,053 713,176
Other accrued items 1,556,568 1,721,107
---------- -----------
$9,536,481 $11,396,086
========== ===========
</TABLE>
-10-
<PAGE> 16
Blair Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
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, 1996 and 1995, 195,250 and 227,950
shares, respectively, were available to be issued under the Plan. The Company
follows APB Opinion 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 $559,538, $1,148,881 and $1,156,762 for the years
ended December 31, 1996, 1995 and 1994, respectively. A summary of the activity
under the Plan is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- ---------
<S> <C> <C> <C>
Shares granted and issued 34,700 49,150 42,450
Grant and issue price per share $7.50 $11.00 $13.00
Market value per share at date of issue $23.625 $34.375 $40.250
Shares canceled and forfeited 2,000 500 --
Original price per share $13.00 to $15.00 $13.00 to $16.00 --
Weighted average price per share $14.00 $14.50 --
</TABLE>
Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123") requires the use of option valuation models to
determine the fair value of employee stock options. The Company's net income
and earnings per share amounts as reported would not be significantly
different than what would be required under SFAS No. 123.
-11-
<PAGE> 17
Blair Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
5. OTHER INCOME
Other income consists of:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Finance charges on time payment accounts $42,503,052 $30,339,372 $21,721,018
Miscellaneous 1,788,862 1,588,481 1,649,086
----------- ----------- -----------
$44,291,914 $31,927,853 $23,370,104
=========== =========== ===========
</TABLE>
6. INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- -----------
<S> <C> <C> <C>
Currently payable:
Federal $6,682,000 $15,366,000 $22,632,000
State 336,000 1,808,000 4,868,000
---------- ----------- -----------
7,018,000 17,174,000 27,500,000
Deferred (credit) 1,599,000 (195,000) (2,566,000)
---------- ----------- -----------
$8,617,000 $16,979,000 $24,934,000
========== =========== ===========
</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>
1996 1995 1994
---------- ----------- -----------
<S> <C> <C> <C>
Statutory rate applied to pretax income $8,170,127 $14,786,419 $21,914,449
State income taxes, net of federal benefit 365,950 1,833,000 2,848,300
Other items 80,923 359,581 171,251
---------- ----------- -----------
$8,617,000 $16,979,000 $24,934,000
========== =========== ===========
</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, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Current net deferred tax asset:
Doubtful accounts $14,441,000 $15,672,000
Returns allowance 1,853,000 1,878,000
Inventory obsolescence 1,937,000 1,934,000
Inventory costs 876,000 1,456,000
Vacation pay 1,257,000 1,323,000
Advertising costs (4,150,000) (4,038,000)
Other items 808,000 444,000
----------- -----------
$17,022,000 $18,669,000
=========== ===========
Long-term deferred tax liability:
Property, plant, and equipment $ 1,979,000 $ 2,027,000
=========== ===========
</TABLE>
Income taxes paid during 1996, 1995 and 1994 amounted to $15,553,202,
$21,241,087 and $28,831,859, 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 which offer the
Company's items.
Sales of the men's and women's fashion wearing apparel and accessories
merchandise line accounted for 83%, 85%, and 87% of total 1996, 1995 and 1994
sales, respectively. The home products 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, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
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.............. $140,727 $138,931 $112,095 $152,376 $127,641 $150,619 124,986 $157,644
Cost of goods sold..... 69,824 67,308 55,224 76,402 62,104 72,496 64,050 78,628
Net income............. 6,423 6,761 1,480 62 7,104 7,434 3,941 6,789
Net income per share... .69 .72 .16 .01 .77 .80 .42 0.73
</TABLE>
Quarter ended December 31, 1996 includes additional provisions for doubtful
accounts of $9.5 million (pretax), $.59 net income per share, due to
deterioration of bad debt experience.
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, 1996
was 2,912.
<TABLE>
<CAPTION>
1996 1995
SALES PRICE DIVIDENDS Sales Price Dividends
HIGH LOW DECLARED High Low Declared
<S> <C> <C> <C> <C> <C> <C>
First Quarter.............. $35 $24 5/8 $.35 $40 $32 3/4 $1.25
Second Quarter............. 27 22 .25 35 32 1/8 .35
Third Quarter.............. 24 20 3/4 .25 34 1/8 32 3/8 .35
Fourth Quarter............. 21 3/8 16 3/8 .25 31 5/8 27 5/8 .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 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net Sales................. $544,129,005 $560,889,612 $535,792,222 $519,174,324 $500,168,164
Net Income ............... 14,726,221 25,267,910 37,678,710 30,853,053 35,195,644
Total assets.............. 368,757,108 353,333,548 288,881,909 245,605,064 227,787,780
Long-Term Debt............ 80,000,000 80,000,000 -0- -0- -0-
Per share: ...............
Net income.............. 1.58 2.72 4.07 3.34 3.82
Cash Dividends
declared............ 1.10 2.30 2.05 2.60 .75
</TABLE>
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF 1996 AND 1995
Net sales for 1996 declined for the first time in nineteen
years. Net income for 1996 decreased 41.7% from 1995. Lower net sales and
increases in the provision for doubtful accounts, interest expense,
professional service fees and call center operating costs were primarily
responsible for the reduction in earnings.
Net sales for 1996 were 3.0% lower than 1995 net sales. Sales
declined due to the stoppage of pre-approved credit offers to prospects and an
8.5% increase in the number of orders turned down (tightened credit granting
policies in the third quarter of 1996). The overall response rate was similar
in both years (.5% fewer orders received). Gross revenue generated per
advertising dollar decreased 3.5%. In 1996, the total number of orders shipped
decreased 2.7% and the average order size increased 1.3% as compared to 1995.
Returns as a percentage of adjusted gross sales increased to 15.7% in 1996 from
14.8% in 1995. A higher rate of return is experienced on Blair Credit (Easy
Payment Plan) and credit card sales and these sales (combined) grew to 67.6% of
gross mail order sales in 1996 from 56.8% in 1995.
Other income increased 38.7% in 1996 as compared to 1995. The
increase was primarily due to finance charges assessed on increased Easy
Payment Plan accounts receivable. Finance charges increased 40.1% and average
Easy Payment Plan accounts receivable increased 29.7% (approximately
$56,000,000).
Cost of goods sold as a percentage of net sales was
approximately the same in 1996 (49.39%) and 1995 (49.44%). The slight decrease
in cost of goods sold resulted from the impact of incentive pricing (reduced
price offers on excess inventory and promotional offers of free shipping and
handling) and higher returns in 1996 being more than offset by the impact of
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 1996 increased 2.2% from 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 ended the
year slightly above year-end 1994 prices.
The total number of circular mailings released in 1996 was
12.3% less than in 1995 (176.0 million in 1996, 200.8 million in 1995). An 8.9%
decrease in multi-product customer mailings (138.2 million in 1996, 151.7
million in 1995), a 26.0% decrease in multi-product prospect mailings (30.9
million in 1996, 41.7 million in 1995)
-2-
<PAGE> 21
and a 6.5% decrease in single-product mailings (6.9 million in 1996, 7.4 million
in 1995) resulted in a circular mailings cost decrease of $9,882,000 from 1995.
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 8.5% in 1996 as compared to 1995 (1.83 billion in 1996, 2.00 billion
in 1995). A 25.8% decrease in co-op advertising and an .8% decrease in media
advertising resulted in a co-op and media cost decrease of $2,425,000 from
1995.
The total number of catalog mailings released in 1996 was
52.6% more than in 1995 (60.3 million in 1996, 39.5 million in 1995). 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 are
starting in the first quarter of 1997. A 53.5% increase in customer catalogs
(30.5 million in 1996, 19.9 million in 1995) and a 51.7% increase in prospect
catalogs (29.8 million in 1996, 19.6 million in 1995) resulted in a catalog
mailings cost increase of $15,356,000 over 1995. In 1996, 37.2 million home
products (22.8 million customer, 14.4 million prospect), 14.6 million menswear
(4.3 million customer, 10.3 million prospect), and 8.5 million womenswear (3.4
million customer, 5.1 million prospect) catalogs were mailed. In 1995, 35.9
million home products (19.0 million customer, 16.9 million prospect) and 3.6
million menswear (.9 million customer, 2.7 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 2.4% in 1996 as
compared to 1995. The increased expense was primarily the result of a
$1,637,000 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
its existing marketing programs. The multi-faceted marketing study was at its
height during the second half of 1996. 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 opened a third call center in
Franklin, Pennsylvania in January 1997. The company now offers toll-free
telephone ordering in all advertising mailings (circular letter and catalog).
The provision for doubtful accounts as a percentage of credit
sales increased 55.6% in 1996 as compared to 1995. Total credit sales decreased
4.8% and total finance charges increased 40.1%. Prospect credit sales decreased
13.5% and prospect finance charges increased 81.0%. Prospect (first-time buyer)
credit sales and finance charges carry a higher credit risk. The estimated bad
debt rate used in
-3-
<PAGE> 22
providing for doubtful accounts is based on current expectations, sales mix
(prospect vs. customer) and prior years' experience. Due to increasing
delinquency and charge off rates experienced in 1996, the rate used in providing
for bad debts in 1996 was increased. 1996 includes additional provisions for
doubtful accounts of $11.5 million (pretax), $.71 per share, due to
deterioration of bad debt experience. $9.5 million (pretax), $.59 per share, of
the $11.5 million was provided in the fourth quarter of 1996. 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. It is
anticipated that the full impact of the improved credit policies will not be
realized until late 1997.
Interest expense increased 47.6% in 1996 as compared to 1995.
Interest expense has resulted primarily from the company's borrowings necessary
to finance customer accounts receivable. Borrowings outstanding averaged
approximately $92,806,000 in 1996 as compared to $57,202,000 in 1995. The
weighted average interest rate on average debt outstanding was 5.89% for 1996
and 6.53% for 1995.
Income taxes as a percentage of income before income taxes
were 36.9% in 1996 and 40.2% in 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 1995 AND 1994
Net sales for 1995 were a new company record, having
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 costs of goods sold, advertising expense and
general and administrative expense. The total pretax impact of the increased
postage and paper cost on 1995 has been estimated at $20,000,000.
Net sales for 1995 increased 4.7% over 1994. 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 were 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 costs (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.
-4-
<PAGE> 23
Other income increased 36.6% in 1995 as compared to 1994. The
increase was 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 an increase in average Easy Payment
Plan accounts receivable of 35.2% (approximately $49,133,000) in 1995 as
compared to 1994. Easy Payment Plan gross sales increased 14.1% and finance
charges increased 39.7% in 1995 over 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 sold 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.
Advertising expense increased 17.3% in 1995 as compared to 1994.
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.
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). This decreased volume and a 12.5% increase in average production and
placement costs (primarily paper and postage) resulted in a net cost increase
of approximately $514,000 over 1994.
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 menswear (started July 1995) and womenswear (started
January 1996). 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 catalog mailings cost
increase of approximately $12,945,000 from 1994. All
-5-
<PAGE> 24
of the catalogs mailed in 1994 and 1995 were home products catalogs except for
3.6 million menswear test catalogs mailed in the second half of 1995.
General and administrative expense increased 7.0% in 1995
over 1994. 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.
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. Recoveries of bad debts
previously charged off have been credited back against the allowance for
doubtful accounts.
Interest expense increased to $3,743,692 in 1995 from
$676,380 in 1994. 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. The weighted average interest rate on
average debt outstanding was 6.53% for 1995 and 5.34% for 1994.
Income taxes as a percentage of income before income taxes
were 40.2% in 1995 and 39.8% in 1994. The federal income tax rate was 35% in
both years. The change in the total income tax rate was caused by a slight
variance 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
-6-
<PAGE> 25
meet certain covenants and as of December 31, 1996 the company was in compliance
with all the covenants. Borrowings outstanding at December 31, 1996 were
$107,000,000 of which $80,000,000 was classified as long-term. Borrowings
outstanding at December 31, 1995 were $84,300,000 of which $80,000,000 was
classified as long-term.
The ratio of current assets to current liabilities was 4.01
at December 31, 1996, 4.50 at December 31, 1995 and 2.71 at December 31, 1994.
Working capital increased $5,154,075, $81,324,823 and $17,694,351 during 1996,
1995 and 1994. The 1996 increase was primarily reflected in increased
inventories and prepaid federal and state taxes and decreased trade accounts
payable more than offsetting increased notes payable. The 1996 increase
resulted primarily from reductions in dividends paid and purchases of property,
plant and equipment. The 1995 increase was primarily reflected in increased
customer accounts receivable and reduced notes payable. The 1995 increase
resulted primarily from the $80,000,000 long-term borrowing under the company's
three year $125,000,000 Revolving Credit Facility.
Merchandise inventory turnover was 2.9 in 1996, 3.0 in 1995
and 3.3 in 1994. Merchandise inventory as of December 31, 1996, increased 15.4%
from December 31, 1995 and increased 5.6% from December 31, 1994. Over the last
three 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 than
anticipated response and higher turndowns in the second half of 1996. Recently,
management committed to the installation of a new inventory management program
in 1997. Home products net sales as a percentage of total net sales were 17.3%
($94.1 million) in 1996, 16.1% ($90.5 million) in 1995 and 13.6% ($73.0
million) in 1994. Menswear sales were 25.1% ($136.5 million) in 1996, 24.0%
($134.6 million) in 1995 and 26.3% ($140.7 million) in 1994. Womenswear sales
were 57.6% ($313.5 million) in 1996, 59.9% ($335.8 million) in 1995 and 60.1%
($322.1 million) in 1994. Home products inventory totaled $18.4 million at
December 31, 1996, $10.0 million at December 31, 1995 and $13.3 million at
December 31, 1994. Menswear inventory was $21.7 million at December 31, 1996,
$18.4 million at December 31, 1995 and $18.9 million at December 31, 1994.
Womenswear inventory was $34.2 million at December 31, 1996, $36.2 million at
December 31, 1995 and $38.4 million at December 31, 1994. As previously
mentioned, response rates were down and turndowns were up (credit policies) in
the second half 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
$3,252,375, $8,059,101 and $5,974,779 during 1996, 1995 and 1994.
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.
-7-
<PAGE> 26
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 company recently declared a quarterly dividend of $.15
per share payable on March 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 will assess future buy back
opportunities on an ongoing 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 industry credit trends, sales volume, operating cost
fluctuations and unplanned capital spending.
IMPACT OF INFLATION AND CHANGING PRICES
Although inflation has moderated in our economy, the company
is continually seeking ways to cope with its impact. To the extent permitted by
competition, increased costs are passed on to customers by selectively
increasing selling prices over a period of time. 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
continued to be pressured in 1996 by postal rate and paper cost increases.
Postal rates have been further impacted by the USPS Classification Reform which
took effect July 1, 1996. Postage costs have increased 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
-8-
<PAGE> 27
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.
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 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.
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,
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<PAGE> 28
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.
-10-
<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 January 31, 1997, included in
the 1996 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
Blair Corporation'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 Statement
on Form S-8 dated July 17, 1996, pertaining to the Blair Corporation Employee
Stock Purchase Plan, of our report dated January 31, 1997, 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
------------------------
Ernst & Young LLP
Erie, Pennsylvania
March 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BLAIR
CORPORATION'S DECEMBER 31, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FOURTH QUARTER, 1996 10-K FILING FOR BLAIR
CORPORATION.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,115,533
<SECURITIES> 0
<RECEIVABLES> 193,772,056
<ALLOWANCES> 44,464,572
<INVENTORY> 87,848,598
<CURRENT-ASSETS> 313,556,111
<PP&E> 100,458,710
<DEPRECIATION> 46,251,580
<TOTAL-ASSETS> 368,757,108
<CURRENT-LIABILITIES> 78,179,225
<BONDS> 0
0
0
<COMMON> 419,810
<OTHER-SE> 208,179,073<F1>
<TOTAL-LIABILITY-AND-EQUITY> 368,757,108
<SALES> 544,129,005
<TOTAL-REVENUES> 588,420,919
<CGS> 268,757,869
<TOTAL-COSTS> 565,077,698
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 47,550,310
<INTEREST-EXPENSE> 5,524,561
<INCOME-PRETAX> 23,343,221
<INCOME-TAX> 8,617,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,726,221
<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>
