United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
---------
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended September 30, 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 November 10, 1997 the registrant had outstanding 9,033,980 shares of its
common stock without nominal or par value.
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS (UNAUDITED)
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1997
CONSOLIDATED BALANCE SHEETS
BLAIR CORPORATION AND SUBSIDIARY
September 30 December 31
1997 1996
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 6,330,021 $ 4,115,533
Customer accounts receivable,less
allowances for doubtful accounts and
returns of $36,819,548 in 1997 and
$44,464,572 in 1996 155,170,937 193,772,056
Inventories - Note F
Merchandise 70,716,057 74,537,691
Advertising and shipping supplies 23,098,660 13,310,907
------------ ------------
93,814,717 87,848,598
Deferred income taxes 12,706,000 17,022,000
Prepaid federal and state taxes 3,480,801 10,142,009
Prepaid expenses 626,446 655,915
------------ ------------
Total current assets 272,128,922 313,556,111
Property, plant and equipment:
Land 1,130,454 1,130,454
Buildings 63,120,926 62,788,129
Equipment 38,416,181 36,540,127
------------ ------------
102,667,561 100,458,710
Less allowances for depreciation 50,062,522 46,251,580
------------ ------------
52,605,039 54,207,130
Trademarks 939,684 993,867
------------ ------------
TOTAL ASSETS $325,673,645 $368,757,108
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 15,950,000 $ 27,000,000
Trade accounts payable 51,568,343 40,497,362
Advance payments from customers 2,460,959 1,145,382
Accrued expenses - Note D 9,891,707 9,536,481
------------ ------------
Total current liabilities 79,871,009 78,179,225
Deferred income taxes 1,728,000 1,979,000
Long-term debt 35,000,000 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 13,230,251 12,928,260
Retained earnings 219,807,719 216,068,537
------------ ------------
233,457,780 229,416,607
Less 1,028,275 shares in 1997 and 840,908
shares in 1996 of Common Stock in
treasury - at cost 22,414,473 19,013,814
Less receivable from Employee Stock
Purchase Plan 1,968,671 1,803,910
------------ ------------
209,074,636 208,598,883
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $325,673,645 $368,757,108
============ ============
See accompanying notes.
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
BLAIR CORPORATION AND SUBSIDIARY
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $102,809,800 $112,095,417 $341,237,544 $391,753,104
Other income - Note G 9,036,032 11,323,596 30,085,087 33,661,982
------------ ------------ ------------ ------------
111,845,832 123,419,013 371,322,631 425,415,086
Costs and expenses:
Cost of goods sold 52,629,516 55,223,666 171,385,242 192,356,038
Advertising 22,628,018 29,512,152 88,243,489 99,081,478
General and administrative 24,678,613 26,563,760 73,978,148 77,959,005
Provision for doubtful accounts 7,572,550 8,414,274 21,978,459 28,390,677
Interest 791,478 1,369,523 3,370,582 3,961,576
------------ ------------ ------------ ------------
108,300,175 121,083,375 358,955,920 401,748,774
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 3,545,657 2,335,638 12,366,711 23,666,312
Income taxes - Note E 1,290,000 855,000 4,526,000 9,002,000
------------ ------------ ------------ ------------
NET INCOME $ 2,255,657 $ 1,480,638 $ 7,840,711 $ 14,664,312
============ ============ ============ ============
Net income per share based on average
shares outstanding - Note C $ .25 $ .16 $ .86 $1.57
===== ===== ===== =====
<FN>
See accompanying notes.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
BLAIR CORPORATION AND SUBSIDIARY
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
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 12,919,478 12,303,101 12,928,260 12,372,697
Issuance (net of forfeitures) of
Common Stock under Employee Stock
Purchase Plan 310,773 625,159 288,303 555,563
Issuance of Common Stock to
non-employee directors -0- -0- 13,688 -0-
------------ ------------ ------------ ------------
Balance at end of period 13,230,251 12,928,260 13,230,251 12,928,260
Retained earnings:
Balance at beginning of period 218,910,178 219,178,505 216,068,537 211,588,111
Net income 2,255,657 1,480,638 7,840,711 14,664,312
Cash dividends declared - Note B (1,358,116) (2,338,708) (4,101,529) (7,931,988)
------------ ------------ ------------ ------------
Balance at end of period 219,807,719 218,320,435 219,807,719 218,320,435
Treasury Stock:
Balance at beginning of period (21,913,986) (16,940,787) (19,013,814) (16,927,008)
Purchase of treasury stock (900,613) -0- (3,804,742) -0-
Issuance (net of forfeitures) of
Common Stock under Employee Stock
Purchase Plan 400,126 194,628 395,646 180,849
Issuance of Common Stock to
non-employee directors -0- -0- 8,437 -0-
------------ ------------ ------------ ------------
Balance at end of period (22,414,473) (16,746,159) (22,414,473) (16,746,159)
Receivable from Employee Stock Purchase Plan:
Balance at beginning of period (1,676,959) (1,726,270) (1,803,910) (1,887,595)
Issuance (net of forfeitures) of
Common Stock under Employee Stock
Purchase Plan (368,100) (260,250) (362,765) (243,400)
Repayments 76,388 38,010 198,004 182,485
------------ ------------ ------------ ------------
Balance at end of period (1,968,671) (1,948,510) (1,968,671) (1,948,510)
------------ ------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY $209,074,636 $212,973,836 $209,074,636 $212,973,836
============ ============ ============ ============
<FN>
See accompanying notes.
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
BLAIR CORPORATION AND SUBSIDIARY
Nine Months Ended
September 30
1997 1996
------------ ------------
OPERATING ACTIVITIES
Net income $ 7,840,711 $ 14,664,312
Adjustments to reconcile net income
to net cash used in
operating activities:
Depreciation and amortization 4,010,407 4,030,987
Provision for doubtful accounts 21,978,459 28,390,677
Provision for deferred income taxes 4,065,000 (1,992,000)
Changes in operating assets and
liabilities providing (using) cash:
Customer accounts receivable 16,622,660 (34,435,376)
Inventories (5,966,119) (19,701,172)
Prepaid expenses 29,469 (276,746)
Trade accounts payable 11,070,981 5,311,907
Advance payments from customers 1,315,577 (34,500)
Accrued expenses 355,226 300,145
Federal and state taxes 6,661,208 (6,006,000)
------------ ------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 67,983,579 (9,747,766)
INVESTING ACTIVITIES
Purchases of property, plant and equipment (2,354,133) (1,924,325)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (2,354,133) (1,924,325)
FINANCING ACTIVITIES
Net (repayments) proceeds from
lines of credit (56,050,000) 19,900,000
Dividends paid (4,101,529) (7,931,988)
Purchase of Common Stock for treasury (3,804,742) -0-
Issuance (net of forfeitures) of
Common Stock under Employee Stock
Purchase Plan 683,949 736,412
Increase in notes receivable from
Employee Stock Purchase Plan (164,761) (60,915)
Issuance of Common Stock to
non-employee directors 22,125 -0-
------------ ------------
NET CASH (USED IN) PROVIDED
BY FINANCING ACTIVITIES (63,414,958) 12,643,509
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,214,488 971,418
Cash and cash equivalents at beginning of year 4,115,533 3,667,363
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,330,021 $ 4,638,781
============ ============
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BLAIR CORPORATION AND SUBSIDIARY
September 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 nine months ended September 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 10-21-97 .15
NOTE C - NET INCOME PER COMMON SHARE
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
----------- ----------- ----------- -----------
Net income $ 2,255,657 $ 1,480,638 $ 7,840,711 $14,664,312
Average shares outstanding 9,063,214 9,346,157 9,142,530 9,331,642
Net income per common share $ .25 $. 16 $ .86 $1.57
NOTE D - ACCRUED EXPENSES
Accrued expenses consist of:
September 30 December 31
1997 1996
----------- -----------
Employee compensation $ 7,006,892 $ 6,089,723
Contribution to profit sharing
and retirement plan 835,351 1,568,137
Taxes, other than taxes on income 161,593 322,053
Other accrued items 1,887,871 1,556,568
----------- -----------
$ 9,891,707 $ 9,536,481
=========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 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 (credit) are as follows:
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
----------- ----------- ----------- -----------
Currently payable:
Federal $(1,534,000) $(1,071,000) $ 897,000 $ 9,891,000
State (460,000) (373,000) (436,000) 1,103,000
----------- ----------- ----------- -----------
(1,994,000) (1,444,000) 461,000 10,994,000
Deferred 3,284,000 2,299,000 4,065,000 (1,992,000)
----------- ----------- ----------- -----------
$ 1,290,000 $ 855,000 $ 4,526,000 $ 9,002,000
=========== =========== =========== ===========
The differences between total tax expense and the amount computed by applying
the statutory federal income tax rate of 35% to income before income taxes are
as follows:
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
----------- ----------- ----------- -----------
Statutory rate applied to
pre-tax income $ 1,240,980 $ 817,473 $ 4,328,349 $ 8,283,209
State income taxes, net
of federal tax benefit 19,500 (22,750) 111,150 527,150
Other items 29,520 60,277 86,501 191,641
----------- ----------- ----------- -----------
$ 1,290,000 $ 855,000 $ 4,526,000 $ 9,002,000
=========== =========== =========== ===========
Components of the provision for deferred income tax expense (credit) are as
follows:
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
----------- ----------- ----------- -----------
Provision for estimated
returns $ 74,000 $ 435,000 $ (83,000) $ (316,000)
Provision for doubtful
accounts 604,000 (507,000) 2,397,000 (3,320,000)
Advertising costs 4,960,000 2,807,000 4,164,000 2,213,000
Customer accounts
receivable (2,246,000) -0- (2,246,000) -0-
Other items - net (108,000) (436,000) (167,000) (569,000)
----------- ----------- ----------- -----------
$ 3,284,000 $ 2,299,000 $ 4,065,000 $(1,992,000)
=========== =========== =========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1997
NOTE E - INCOME TAXES - Continued
Components of the deferred tax asset and liability under the liability method
as of September 30, 1997 and December 31, 1996 are as follows:
September 30 December 31
1997 1996
----------- -----------
Current net deferred tax asset:
Doubtful accounts $12,044,000 $14,441,000
Customer accounts receivable 2,246,000 -0-
Returns allowance 1,936,000 1,853,000
Inventory obsolescence 1,937,000 1,937,000
Vacation pay 1,327,000 876,000
Inventory costs 945,000 1,257,000
Advertising costs (8,314,000) (4,150,000)
Other items 585,000 808,000
----------- -----------
$12,706,000 $17,022,000
=========== ===========
Long-term deferred tax liability:
Property, plant and equipment $ 1,728,000 $ 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 $9,058,000 at
September 30, 1997 and $8,833,000 at December 31, 1996, respectively.
NOTE G - OTHER INCOME
Other income consists of:
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
----------- ----------- ----------- -----------
Finance charges on time
payment accounts $ 8,401,016 $11,017,766 $28,411,295 $32,727,709
Other items 635,016 305,830 1,673,792 934,273
----------- ----------- ----------- -----------
$ 9,036,032 $11,323,596 $30,085,087 $33,661,982
=========== =========== =========== ===========
Finance charges on time payment accounts are recognized on an accrual basis of
accounting.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 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 September 30, 1997, the company was in compliance
with all the agreement's covenants. As of September 30, 1997 and
December 31, 1996, respectively, the company had borrowed $50,950,000
and $107,000,000 under the agreement of which $35,000,000 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
September 30, 1997
Results of Operations
- ---------------------
Comparison of Third Quarter 1997 and Third Quarter 1996
Net income for the third quarter of 1997 increased 52.3% from the third
quarter of 1996. In comparison, the third quarter of 1997 was favorably
impacted by increased response to our catalog and circular letter
mailings and by reductions in advertising expense, professional service
fees, wages and benefits, interest expense and the provision for
doubtful accounts.
Net sales for the third quarter of 1997 were 8.3% lower than third
quarter 1996 net sales. Sales declined in the 1997 quarter due to a
smaller prospect advertising program, tightened credit management,
elimination of high-dollar, high credit risk items in the Home Products
line and limited experience in catalog inventory management (higher
cancellations). Response rates were up overall - customer circular
mailings up 30%, prospect circular mailings down 27%, customer catalogs
up 47%, prospect catalogs up 117%, co-op and media down 2%. Gross sales
revenue generated per advertising dollar increased 18.6%. Returns as a
percentage of adjusted gross sales increased to 15.9% in the third
quarter of 1997 from 15.4% in the third quarter 1996. Returns are
higher on Blair Credit (Easy Payment Plan) and credit card sales and
these sales grew to 71% of gross mail order sales in third quarter 1997
from 67% in second quarter 1996. Returns are also higher on Womenswear
sales which grew to 69% of gross sales in third quarter 1997 from 63% in
third quarter 1996.
Other income decreased 20.2% in the third quarter 1997 as compared to
third quarter 1996 due to a 23.8% drop in finance charges assessed on
Easy Payment Plan accounts receivable. Average third quarter Easy
Payment Plan accounts receivable decreased 20.2%, approximately
$50,000,000.
Cost of goods sold as a percentage of net sales increased to 51.2% in
third quarter 1997 from 49.3% in third quarter 1996. Increased returns
and inventory writedowns were primarily responsible for the higher cost
of goods sold.
Advertising expense in the third quarter of 1997 decreased 23.3% from
the third quarter of 1996. Increased catalog mailings and co-op and
media volume were more than offset by reductions in circular letter
mailings and paper costs.
The total number of circular mailings released in the third quarter 1997
was 51% less than in the third quarter 1996 (20.5 million vs. 42.3
million). A 45% decrease in multi-product customer mailings, an 86%
decrease in multi-product prospect mailings, a 28% decrease in single-
product mailings and decreased paper costs resulted in a circular
mailings cost decrease of $9,889,000 from third 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 increased 23%
in third quarter 1997 as compared to third quarter 1996 (278 million vs.
225 million). A 53% increase in co-op advertising, a 14% increase in
media advertising and reduced paper costs resulted in a net co-op and
media cost increase of $180,000 from third quarter 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1997
Results of Operations - Continued
- ---------------------
Comparison of Third Quarter 1997 and Third Quarter 1996 - Continued
The total number of catalog mailings released in the third quarter of
1997 was 73% higher than in the third quarter of 1996 (18.9 million vs.
10.9 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 119% increase in customer catalogs, a 28% decrease
in prospect catalogs and reduced paper costs resulted in a net catalog
mailing cost increase of $2,713,000 over third 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 7.1% in the third quarter
of 1997 as compared to the third quarter of 1996. The lower general and
administrative expense was primarily the result of declines in
professional service fees and in wages and benefits. The company's
ongoing study of it's existing marketing programs, in support of the
strategic plan to target the "over 40" low-to-moderate income market, is
coming to a close and thus professional service fees are declining.
Wages and benefits were down due to a 4.4% drop in the average number of
employees in the third quarter of 1997 as compared to the third quarter
of 1996.
The provision for doubtful accounts as a percentage of credit sales was
approximately 19% highter in the third quarter of 1997 as compared to
the third 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. Credit
sales and finance charges both decreased 24%. The estimated 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 third quarter of 1997 included an additional
provision of $2,458,000. The third quarter of 1996 included an
additional provision of $710,000. 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 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. After some delay, credit granting models addressing
prospects (first-time buyers) were implemented in mid-September and
early-October 1997. The full impact of the credit policies is not
likely to be realized until 1998.
Interest expense decreased 42% in the third quarter of 1997 as compared
to the third 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 $54,000,000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1997
Results of Operations - Continued
- ---------------------
Comparison of Third Quarter 1997 and Third Quarter 1996 - Continued
during the third quarter of 1997 from $95,000,000 during the third
quarter of 1996. The reduction in Blair Credit sales, the increase in
credit card sales and improving credit policies are greatly responsible
for lowering the levels of customer accounts receivable and borrowings.
Income taxes as a percentage of income before income taxes were 36.4% in
the third quarter of 1997 and 36.6% in the third 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.
Comparison of Nine Month Periods Ended September 30, 1997 and September
30, 1996
Net income for the first nine months of 1997 decreased 46.5% as compared
to the first nine months of 1996. The nine months of 1997 have been
impacted by reduced credit marketing promotion, increased catalog
advertising, tightened credit management and deteriorating bad debt
experience.
Nine month 1997 net sales were 12.9% lower than nine month 1996 net
sales. Sales declined in 1997 due to the stoppage of pre-approved
credit offers to prospects, tightened credit management, elimination of
high-dollar, high credit risk items in the Home Products line and
limited experience in catalog inventory management (higher
cancellations). Response rates were mixed - customer circular mailings
the same, prospect circular mailings down 48% (pre-approved credit
offers), customer catalogs up 37%, prospect catalogs up 19%, co-op and
media up 13%. Gross sales revenue generated per advertising dollar
decreased 2%. Returns as a percentage of adjusted gross sales increased
to 16.6% from 15.7%. Returns are higher on Blair Credit (Easy Payment
Plan) and credit card sales and these sales grew to 71% of gross mail
order sales in 1997 from 67% in the first nine months of 1996. Returns
are also higher on Womenswear sales which grew to 66% of gross mail
order sales in 1997 from 61% in the first nine months of 1996.
Other income decreased 10.6% in the nine months of 1997 as compared to
the first nine months of 1996 due to a 13.2% drop in finance charges
assessed on Easy Payment Plan accounts receivable. Average Easy Payment
Plan accounts receivable decreased 13.2%, approximately $32,000,000.
Cost of goods sold as a percentage of net sales increased to 50.2% in
the nine months of 1997 from 49.1% in the first nine months of 1996.
Increased returns and inventory writedowns were primarily responsible
for the higher cost of goods.
Advertising expense in the nine months of 1997 decreased 10.9% from the
first nine months of 1996. Increased catalog mailings were more than
offset by reductions in circular letter mailings, co-op and media volume
and paper costs.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1997
Results of Operations - Continued
- ---------------------
Comparison of Nine Month Periods Ended September 30, 1997
and September 30, 1996 - Continued
The total number of circular mailings released in the nine months of
1997 was 34% less than in the first nine months of 1996 (89.2 million
vs. 134.1 million). A 28% decrease in multi-product customer mailings,
a 64% decrease in multi-product prospect mailings, a 10% decrease in
single-product mailings and
decreased paper costs resulted in a circular mailings cost decrease of
$21,253,000 from the first nine 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 20%
in the nine months of 1997 as compared to the first nine months of 1996
(964 million vs. 1,201 million). 20% decreases in co-op advertising and
media advertising and reduced paper costs resulted in a co-op and media
cost decrease of $1,559,000 from the first nine months of 1996.
The total number of catalog mailings released in the nine months of 1997
was 91% higher than the total number released in the first nine months
of 1996 (67.4 million vs. 35.2 million). A 101% increase in customer
catalogs, a 78% increase in prospect catalogs and reduced paper prices
resulted in a net catalog mailing cost increase of $12,149,000 over the
first nine months of 1996.
General and administrative expense decreased 5.1% in the nine months of
1997 as compared to the first nine months of 1996. The lower general
and administrative expense was primarily the result of declines in
professional service fees and in wages and benefits. The company's use
of outside consultants has declined resulting in a 66% reduction in
professional service fees. The average number of employees declined
6.1% in the nine months of 1997 as compared to the nine months of 1996
resulting in a 6.2% drop in wages and benefits in 1997.
The provision for doubtful accounts as a percentage of credit sales
increased approximately 10% in the nine month 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. Credit sales decreased 30% and finance charges decreased
13%. The estimated bad debt provision 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 nine months of 1997 included an additional
provision of $2,978,000. The first nine months of 1996 included an
additional provision of $1,103,000. Recoveries of
bad debts previously charged off have been credited back against the
allowance for doubtful accounts.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1997
Results of Operations - Continued
- ---------------------
Comparison of Nine Month Periods Ended September 30, 1997
and September 30, 1996 - Continued
Interest expense decreased 15% in the nine months of 1997 as compared to
the first nine months 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 nine months of 1997 from $91,500,000 during the
first nine months of 1996.
Income taxes as a percentage of income before income taxes were 36.6% in
the nine months of 1997 and 38.0% in the first nine months 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 September 30,
1997 the company was in compliance with all the covenants. Borrowings
outstanding at September 30, 1997 were $50,950,000 of which $35,000,000
was classified as long-term. Borrowings outstanding at September 30,
1996 were $104,200,000 of which $80,000,000 was classified as long-term.
As of November 7, 1997, the company's borrowings outstanding totaled
$37,950,000.
The ratio of current assets to current liabilities was 3.41 at September
30, 1997, 4.01 at December 31, 1996 and 3.65 at September 30, 1996.
Working capital decreased $43,118,973 in the nine months of 1997. The
decrease was primarily reflected in decreased customer accounts
receivable, deferred income taxes and prepaid federal and state taxes.
The 1997 decrease in working capital was attributable to the reduction
in long-term debt.
Merchandise inventory turnover was 2.6 at September 30, 1997, 2.9 at
December 31, 1996 and 3.0 at September 30, 1996. Merchandise inventory
as of September 30, 1997 decreased 5.1% from December 31, 1996 and 12.0%
from September 30, 1996. Inventory levels have been impacted by the
continuing effort to increase order fulfillment rates, by transition to
a larger catalog operation and by the elimination of high dollar, high
credit risk products in the Home Products product line. The company is
currently installing a new catalog inventory management system that is
expected to come on line late in 1997. Home Products net sales as a
percentage of total net sales were 13.1% ($44.8 million) in 1997 as
compared to 17.3% ($67.7 million) in the first nine months of 1996.
Menswear net sales were 23.1% ($78.9 million) and 23.8% ($93.2 million).
Womenswear net sales were 63.8% ($217.5 million) and 58.9%
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1997
Liquidity and Sources of Capital - Continued
- --------------------------------
($230.9 million). Home Products inventory totaled $9.2 million at
September 30, 1997 as compared to $18.5 million at December 31, 1996
and $20.4 million at September 30, 1996. Menswear inventory was
$22.5 million at September 30, 1997, $21.6 million at December 31,
1996 and $22.7 million at September 30, 1996. Womenswear inventory
was $39.0 million at September 30, 1997, $34.4 million at December
31, 1996 and $37.2 million at September 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
$2,354,133 during the first nine months of 1997 and $1,924,325 during
the first nine months of 1996. Capital expenditures for the year 1997
are projected to be similar to the total for the year 1996. Capital
expenditures for 1998 are expected to be significantly higher due to
expenditures required by the new marketing strategy.
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 and refinement of all
three call centers - Warren, Erie and Franklin - was completed by
September 1997. See "Future Considerations".
The company recently declared a quarterly dividend of $.15 per share
payable on December 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 237,417 shares at a price
of $3,804,742 during the first nine months of 1997. The company is
currently buying back stock and 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 refinancing
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
September 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 and third quarters of 1997, and
have again increased in the fourth quarter of 1997. Postage rates
haven't changed since 1996 but are expected to increase in 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
September 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
September 30, 1997
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 ofthe company under and in accordance with the company's
Employee Stock Purchase Plan.
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
(a) Exhibits
None
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended
September 30, 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 November 10, 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' 9/30/97 financial statements and is qualified in its entirety by
reference to such third quarter, 1997 10-Q filing for Blair Corporation.
</LEGEND>
<CIK> 0000071525
<NAME> BLAIR CORPORATION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,330,021
<SECURITIES> 0
<RECEIVABLES> 155,170,937<F1>
<ALLOWANCES> 36,819,548
<INVENTORY> 93,814,717
<CURRENT-ASSETS> 272,128,922
<PP&E> 102,667,561
<DEPRECIATION> 50,062,522
<TOTAL-ASSETS> 325,673,645
<CURRENT-LIABILITIES> 79,871,009
<BONDS> 0
0
0
<COMMON> 419,810
<OTHER-SE> 208,654,826<F2>
<TOTAL-LIABILITY-AND-EQUITY> 325,673,645
<SALES> 341,237,544
<TOTAL-REVENUES> 371,322,631
<CGS> 171,385,242
<TOTAL-COSTS> 358,955,920
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 21,978,459
<INTEREST-EXPENSE> 3,370,582
<INCOME-PRETAX> 12,366,711
<INCOME-TAX> 4,526,000
<INCOME-CONTINUING> 7,840,711
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,840,711
<EPS-PRIMARY> .86
<EPS-DILUTED> .86
<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>
