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 March 31, 1997 Commission File Number 1-878
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BLAIR CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 25-0691670
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 HICKORY STREET, WARREN, PENNSYLVANIA 16366-0001
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(Address of principal executive offices) (Zip Code)
(814) 723-3600
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(Registrant's telephone number, including area code)
Not applicable
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(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 May 9, 1997 the registrant had outstanding 9,089,532 shares of its
common stock without nominal or par value.
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS (UNAUDITED)
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1997
CONSOLIDATED BALANCE SHEETS
BLAIR CORPORATION AND SUBSIDIARY
March 31 December 31
1997 1996
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 6,553,833 $ 4,115,533
Customer accounts receivable,
less allowances for doubtful
accounts and returns of $42,244,807
in 1997 and $44,464,572 in 1996 179,559,967 193,772,056
Inventories - Note F
Merchandise 76,144,633 74,537,691
Advertising and shipping supplies 21,577,672 13,310,907
------------ ------------
97,722,305 87,848,598
Deferred income taxes 13,294,000 17,022,000
Prepaid federal and state taxes 12,145,010 10,142,009
Prepaid expenses 740,568 655,915
------------ ------------
Total current assets 310,015,683 313,556,111
Property, plant and equipment:
Land 1,130,454 1,130,454
Buildings 62,802,904 62,788,129
Equipment 37,078,157 36,540,127
------------ ------------
101,011,515 100,458,710
Less allowances for depreciation 47,577,968 46,251,580
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53,433,547 54,207,130
Trademarks 975,806 993,867
------------ ------------
TOTAL ASSETS $364,425,036 $368,757,108
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 25,400,000 $ 27,000,000
Trade accounts payable 46,919,458 40,497,362
Advance payments from customers 2,282,983 1,145,382
Accrued expenses - Note D 9,064,634 9,536,481
------------ ------------
Total current liabilities 83,667,075 78,179,225
Deferred income taxes 1,887,000 1,979,000
Long-term debt 70,000,000 80,000,000
Stockholders' equity:
Common stock without par value:
Authorized 12,000,000 shares;
issued 10,075,440 shares
(including shares held in
treasury) - stated value 419,810 419,810
Additional paid-in capital 12,928,260 12,928,260
Retained earnings 216,647,961 216,068,537
------------ ------------
229,996,031 229,416,607
Less 859,608 shares in 1997 and
840,908 in 1996 of common stock
in treasury - at cost 19,355,540 19,013,814
Less receivable from Employee Stock
Purchase Plan 1,769,530 1,803,910
------------ ------------
208,870,961 208,598,883
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $364,425,036 $368,757,108
============ ============
See accompanying notes.
CONSOLIDATED STATEMENTS OF INCOME
BLAIR CORPORATION AND SUBSIDIARY
Three Months Ended
March 31
1997 1996
------------ ------------
Net sales $110,882,091 $140,727,028
Other income - Note G 10,695,619 11,093,086
------------ ------------
121,577,710 151,820,114
Costs and expenses:
Cost of goods sold 55,117,089 69,823,696
Advertising 30,714,086 34,710,085
General and administrative 24,583,043 25,675,947
Provision for doubtful accounts 6,575,490 9,929,165
Interest 1,485,398 1,294,327
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118,475,106 141,433,220
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INCOME BEFORE INCOME TAXES 3,102,604 10,386,894
------------ ------------
Income taxes - Note E 1,138,000 3,964,000
------------ ------------
NET INCOME $ 1,964,604 $ 6,422,894
============ ============
Net income per share based on average
shares outstanding - Note C $.21 $.69
==== ====
See accompanying notes.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
BLAIR CORPORATION AND SUBSIDIARY
Three Months Ended
March 31
1997 1996
------------ ------------
Common stock $ 419,810 $ 419,810
Additional paid-in capital 12,928,260 12,372,697
Retained earnings:
Balance at beginning of period 216,068,537 211,588,111
Net income 1,964,604 6,422,894
Cash dividend declared - Note B (1,385,180) (3,262,747)
------------ ------------
Balance at end of period 216,647,961 214,748,258
Treasury stock:
Balance at beginning of period (19,013,814) (16,927,008)
Purchase of 18,700 shares in 1997 and
-0-shares in 1996 (341,726) -0-
------------ ------------
Balance at end of period (19,355,540) (16,927,008)
Receivable from Employee Stock Purchase Plan:
Balance at beginning of period (1,803,910) (1,887,595)
Repayments 34,380 82,058
------------ ------------
Balance at end of period (1,769,530) (1,805,537)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY $208,870,961 $208,808,220
============ ============
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS
BLAIR CORPORATION AND SUBSIDIARY
Three Months Ended
March 31
1997 1996
------------ ------------
OPERATING ACTIVITIES
Net income $ 1,964,604 $ 6,422,894
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,348,456 1,341,539
Provision for doubtful accounts 6,575,490 9,929,165
Provision for deferred income taxes 3,636,000 (1,171,000)
Changes in operating assets and
liabilities (using) providing cash:
Customer accounts receivable 7,636,599 (20,121,497)
Inventories (9,873,707) (4,008,271)
Prepaid expenses (84,653) (225,893)
Trade accounts payable 6,422,096 7,720,547
Advance payments from customers 1,137,601 146,560
Accrued expenses (471,847) (1,908,999)
Federal and state taxes (2,003,001) 2,835,000
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NET CASH PROVIDED BY OPERATING ACTIVITIES 16,287,638 960,045
INVESTING ACTIVITIES
Purchases of property, plant and equipment (556,812) (531,987)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (556,812) (531,987)
FINANCING ACTIVITIES
Net proceeds from lines of credit (11,600,000) 5,450,000
Dividend paid (1,385,180) (3,262,747)
Purchase of common stock for treasury (341,726) -0-
Decrease in notes receivable from
Employee Stock Purchase Plan 34,380 82,058
------------ ------------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (13,292,526) 2,269,311
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 2,438,300 2,697,369
Cash and cash equivalents
at beginning of year 4,115,533 3,667,363
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,553,833 $ 6,364,732
============ ============
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BLAIR CORPORATION AND SUBSIDIARY
March 31, 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 three months ended March 31, 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., a Delaware corporation.
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
7-16-96 .25
10-16-96 .25
NOTE C - NET INCOME PER COMMON SHARE
Three Months Ended
March 31
1997 1996
----------- -----------
Net income $ 1,964,604 $ 6,422,894
Average shares outstanding 9,225,182 9,322,132
Net income per common share $.21 $.69
NOTE D - ACCRUED EXPENSES
Accrued expenses consist of:
March 31 December 31
1997 1996
----------- -----------
Employee compensation $ 6,407,939 $ 6,089,723
Contribution to profit sharing
and retirement plan 211,188 1,568,137
Taxes, other than taxes on income 817,542 322,053
Other accrued items 1,627,965 1,556,568
----------- -----------
$ 9,064,634 $ 9,536,481
=========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1997
NOTE E - INCOME TAXES
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax basis of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
The components of income tax expense are as follows:
Three Months Ended
March 31
1997 1996
----------- -----------
Current:
Federal $(1,970,000) $ 4,562,000
State (528,000) 573,000
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(2,498,000) 5,135,000
Deferred (credit) 3,636,000 (1,171,000)
----------- -----------
$ 1,138,000 $ 3,964,000
=========== ===========
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
March 31
1997 1996
----------- -----------
Statutory rate applied to
pre-tax income $ 1,085,911 $ 3,635,413
State income taxes, net
of federal tax benefit 9,750 260,650
Other items 42,339 67,937
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$ 1,138,000 $ 3,964,000
=========== ===========
Components of the provision for deferred income tax (credit) expense are as
follows:
Three Months Ended
March 31
1997 1996
----------- -----------
Provision for estimated
returns $ (149,000) $ (846,000)
Provision for doubtful accounts 568,000 (1,887,000)
Advertising costs 3,365,000 1,640,000
Other items - net (148,000) (78,000)
----------- -----------
$ 3,636,000 $(1,171,000)
=========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1997
NOTE E - INCOME TAXES - Continued
Components of the deferred tax asset and liability under the liability method as
of March 31, 1997 and December 31, 1996 are as follows:
March 31 December 31
1997 1996
----------- -----------
Current net deferred tax asset:
Doubtful accounts $13,873,000 $14,441,000
Returns allowances 2,002,000 1,853,000
Inventory obsolescence 1,937,000 1,937,000
Inventory costs 898,000 876,000
Vacation pay 1,280,000 1,257,000
Advertising costs (7,515,000) (4,150,000)
Other items 819,000 808,000
----------- -----------
$13,294,000 $17,022,000
=========== ===========
Long-term deferred tax liability:
Property, plant and equipment $ 1,887,000 $ 1,979,000
=========== ===========
NOTE F - INVENTORIES
Inventories are valued at the lower of cost or market. Cost of merchandise
inventories is determined principally on the last-in, first-out (LIFO) method.
Cost of advertising and shipping supplies is determined on the first-in, first-
out (FIFO) method. Advertising and shipping supplies include printed
advertising material and related mailing supplies for promotional mailings
which are generally scheduled to occur within two months. These costs are
expensed when mailed. If the FIFO method had been used for all inventories,
the total amount would have increased by approximately $8,908,000 at March 31,
1997 and $8,833,000 at December 31, 1996, respectively.
NOTE G - OTHER INCOME
Other income consists of:
Three Months Ended
March 31
1997 1996
----------- -----------
Finance charges on time
payment accounts $10,388,977 $10,816,787
Other items 306,642 276,299
----------- -----------
$10,695,619 $11,093,086
=========== ===========
Finance charges on time payment accounts are recognized on an accrual basis of
accounting.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 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 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 March 31, 1997, the
company was in compliance with all the agreement's covenants. At March 31,
1997 and December 31, 1996, the company had borrowed $95,400,000 and
$107,000,000 under the agreement of which $70,000,000 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1997
Results of Operations
- ---------------------
Comparison of First Quarter 1997 and First Quarter 1996
Net income for the first quarter of 1997 decreased 69.4% from the first quarter
of 1996. The first quarter of 1997 was impacted by a reduction in credit
marketing promotion, an increase in catalog advertising and a tightening of
credit management.
Net sales for the first quarter of 1997 were 21.2% lower than first quarter
1996 net sales. Sales declined in 1997 due to the stoppage of pre-approved
credit offers to prospects and an increase in the number of orders turned down.
Response rates were mixed - customer circular mailings down 12%, prospect
circular mailings down 62% (pre-approved credit offers), customer catalogs up
10%, prospect catalogs down 27%, co-op and media up 27%. Gross revenue
generated per advertising dollar decreased 10.3%. In 1997, the total number of
orders shipped increased 2.7% but the average order size decreased 22.3% as
compared to first quarter 1996. Returns as a percentage of adjusted gross
sales increased to 16.7% in the 1997 quarter from 15.6% in the 1996 quarter. A
higher rate of return is experienced on Blair Credit (Easy Payment Plan) and
credit card sales and these sales (combined) grew to 70.5% of gross mail order
sales in 1997 from 65.4% in 1996.
Other income decreased 3.6% in the first quarter 1997 as compared to first
quarter 1996. Finance charges assessed on Easy Payment Plan accounts
receivable decreased 4.0%. Average first quarter Easy Payment Plan accounts
receivable decreased 4.7% (approximately $11.2 million).
Cost of goods sold as a percentage of net sales increased slightly to 49.7% in
first quarter 1997 from 49.6% in first quarter 1996. Increased returns were
nearly offset by reductions in incentive priced offers.
Advertising expense in the first quarter of 1997 decreased 11.5% from the first
quarter of 1996. Increased catalog mailings were more than offset by
reductions in paper costs, circular letter mailings and co-op media volume.
The total number of circular mailings released in first quarter 1997 was 24.9%
less than in first quarter 1996 (36.3 million vs. 48.4 million). An 18.1%
decrease in multi-product customer mailings, a 65.6% decrease in multi-product
prospect mailings, a 5.5% decrease in single-product mailings and an
approximate 25% decrease in paper costs resulted in a circular mailings cost
decrease of $6,207,000 from first quarter 1996. Circular mailings have
decreased primarily due to the expansion of the catalog advertising program.
Total volume of the co-op and media advertising programs decreased 31.0% in
first quarter 1997 as compared to first quarter 1996 (410 million vs. 594
million). A 55.0% decrease in co-op advertising, a 22.2% decrease in media
advertising and reduced paper costs resulted in a co-op and media cost decrease
of $908,000 from first quarter 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1997
Results of Operations - Continued
- ---------------------
Comparison of First Quarter 1997 and First Quarter 1996 - Continued
The total number of catalog mailings released in the first quarter of 1997 was
82.0% higher than in the first quarter of 1996 (16.7 million vs. 9.2 million).
The catalog has been the primary advertising format for home products for over
two years. The company started test mailings 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 64.1% increase in customer
catalogs, a 111.2% increase in prospect catalogs and reduced paper prices
resulted in a net catalog mailings cost increase of $3,386,000 over first
quarter 1996. In the first quarter of 1997, 7.8 million women's, 5.2 million
men's and 3.7 million home products catalogs were mailed. In first quarter
1996, 1.4 million women's, 1.3 million men's and 6.5 million home products 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 decreased 4.3% in the 1997 quarter as
compared to the first quarter of 1996. The increased cost associated with
offering toll-free telephone ordering has been more than offset by a decline in
wages and benefits. The average number of employees dropped 8.8% in the first
quarter of 1997 as compared to the first quarter of 1996.
The provision for doubtful accounts as a percentage of credit sales was
approximately the same in the first quarters of 1997 and 1996. A reduction in
the provision due to lower credit sales, primarily prospect, and finance
charges was offset by an additional provision resulting from deterioration of
bad debt experience. Total credit sales decreased 34.2% and total finance
charges decreased 4.0%. Prospect credit sales decreased 75.3% and prospect
finance charges decreased 69.5%. Prospect (first-time buyer) credit sales and
finance charges carry a higher credit risk. The estimated bad debt rate used
in providing for doubtful accounts is based on current 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 the first quarter of 1997 was higher than the rate
used in the first quarter of 1996. The first quarter of 1997 also includes an
additional provision of $295,000 due to the deterioration of bad debts
experience. Recoveries of bad debts previously charged off have been credited
back against the allowance for doubtful accounts. The company, having recently
completed a study of its credit policies, is currently implementing improved
policies. Revised credit grating 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 14.8% in the first quarter of 1997 as compared to
the first quarter of 1996. Interest expense has resulted primarily from the
company's borrowings necessary to finance customer accounts receivable.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1997
Results of Operations - Continued
- ---------------------
Comparison of First Quarter 1997 and First Quarter 1996 - Continued
Borrowings outstanding averaged approximately $100,000,000 in the first quarter
of 1997 as compared to $87,000,000 in the first quarter of 1996.
Income taxes as a percentage of income before income taxes were 36.7% in the
first quarter of 1997 and 38.2% in the first quarter of 1996. 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.
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 March 31, 1997 the company was in
compliance with all the covenants. Borrowings outstanding at March 31, 1997
were $95,400,000 of which $70,000,000 was classified as long-term. Borrowings
outstanding at March 31, 1996 were $89,750,000 of which $80,000,000 was
classified as long-term. As of May 9, 1997, the company's borrowings
outstanding totaled $72,300,000.
The ratio of current assets to current liabilities was 3.71 at March 31, 1997,
4.01 at December 31, 1996 and 3.92 at March 31, 1996. Working capital
decreased $9,028,278 in the first quarter of 1997. The decrease was primarily
reflected in decreased customer accounts receivable and increased trade
accounts payable more than offsetting increased inventories. Primarily, the
1997 decrease in working capital was attributable to the reduction in long-term
debt.
Merchandise inventory turnover was 2.6 at March 31, 1997, 2.9 at December 31,
1996 and 3.2 at March 31, 1996. Merchandise inventory as of March 31, 1997
increased 2.2% from December 31, 1996 and 17.1% from March 31, 1996. Over the
last few years, inventory levels have been impacted by the continuing effort to
increase order fulfillment rates, the expansion of product lines due to the
catalogs and lower than anticipated response and higher turndowns in the second
half of 1996 and first quarter of 1997. Currently, the company is installing a
new inventory management program that will come on line later in 1997. Home
products net sales as a percentage of total net sales were 14.1% ($15.7
million) in first quarter 1997 as compared to 16.1% ($22.6 million) in first
quarter 1996. Menswear net sales were 24.7% ($27.4 million) and 25.7% ($36.1
million). Womenswear net sales were 61.2% ($67.8 million) and 58.2% ($81.9
million). Home products inventory totaled $14.6 million at March 31, 1997 as
compared to $18.5 million at December 31, 1996 and $13.1 million at March 31,
1996. Menswear inventory was $23.5 million at March 31, 1997, $21.6 million at
December 31, 1996 and $16.9 million at March 31, 1996. Womenswear inventory
was $38.1 million at March 31, 1997, $34.4 million at December 31, 1996 and
$35.0 million at March 31, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1997
Liquidity and Sources of Capital - Continued
- --------------------------------
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 $556,812 during the
first quarter of 1997 and $531,987 during the first quarter of 1996. Capital
expenditures for the year 1997, not including expenditures required by the new
marketing strategy, are projected to be similar to the total for the year 1996.
In August 1995, the company's second call center was opened in Erie,
Pennsylvania. A 75% expansion of the Erie Call Center was completed in
September 1996. A third call center, located in Franklin, Pennsylvania, was
added in January 1997. The Erie and Franklin facilities are leased. See
"Future Considerations."
The company recently declared a quarterly dividend of $.15 per share payable on
June 15, 1997. It is the company's intent to continue paying dividends;
however, the company will evaluate its dividend practice on an on-going basis.
See "Future Considerations".
The company bought back 120,300 shares of its common stock at a price of
$2,267,655 in 1996. The company bought back 18,700 shares of its common stock
at a price of $341,726 in the first quarter of 1997. As of May 9, 1997, the
company has bought back 127,800 shares of its common stock at a price of
$1,975,800 in the second quarter of 1997. The company will assess future buy
back opportunities on an on-going basis.
Future cash needs will be financed by cash flow from operations, the current
borrowing arrangement and, if needed, other financing arrangements that may be
available to the company. The company's current projection of 1997 cash
requirements, however, may be affected in the future by numerous factors,
including changes in customer payments on accounts receivable, consumer
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 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
are expected to increase slightly in the second quarter of 1997. Postage rates
haven't changed since 1996 but are expected to increase in early 1998.
The company principally uses the LIFO method of accounting for its merchandise
inventories. Under this method, the cost of products sold reported in the
financial statements approximates current costs and thus reduces distortion in
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1997
Impact of Inflation and Changing Prices - Continued
- ---------------------------------------
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.
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1997
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
March 31, 1997
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
March 31, 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 May 9, 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' 3/31/97 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FIRST QUARTER, 1997 10-Q FILING FOR BLAIR CORPORATION.
</LEGEND>
<CIK> 0000071525
<NAME> BLAIR CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 6,553,833
<SECURITIES> 0
<RECEIVABLES> 179,559,967<F1>
<ALLOWANCES> 42,244,807
<INVENTORY> 97,722,305
<CURRENT-ASSETS> 310,015,683
<PP&E> 101,011,515
<DEPRECIATION> 47,577,968
<TOTAL-ASSETS> 364,425,036
<CURRENT-LIABILITIES> 83,667,075
<BONDS> 0
0
0
<COMMON> 419,810
<OTHER-SE> 208,451,151<F2>
<TOTAL-LIABILITY-AND-EQUITY> 364,425,036
<SALES> 110,882,091
<TOTAL-REVENUES> 121,577,710
<CGS> 55,117,089
<TOTAL-COSTS> 118,475,106
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6,575,490
<INTEREST-EXPENSE> 1,485,398
<INCOME-PRETAX> 3,102,604
<INCOME-TAX> 1,138,000
<INCOME-CONTINUING> 1,964,604
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,964,604
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
<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>
