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, 1998 Commission File Number 1-878
-------------- ---------------
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 8, 1998 the registrant had outstanding 8,938,900 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, 1998
CONSOLIDATED BALANCE SHEETS
BLAIR CORPORATION AND SUBSIDIARY
March 31 December 31
1998 1997
------------ ------------
ASSETS
Current assets:
Cash $ 10,985,979 $ 3,468,483
Customer accounts receivable, less allowances
for doubtful accounts and returns of
$36,498,410 in 1998 and $38,479,888 in 1997 149,490,002 157,636,096
Inventories - Note F
Merchandise 73,199,631 68,143,275
Advertising and shipping supplies 16,645,035 10,584,134
------------ ------------
89,844,666 78,727,409
Deferred income taxes 7,409,000 9,910,000
Prepaid federal and state taxes 10,388,499 6,499,412
Prepaid expenses 230,006 391,532
------------ ------------
Total current assets 268,348,152 256,632,932
Property, plant and equipment:
Land 1,142,144 1,142,144
Buildings 63,329,033 63,263,399
Equipment 39,084,205 38,859,725
------------ ------------
103,555,382 103,265,268
Less allowances for depreciation 52,560,720 51,322,255
------------ ------------
50,994,662 51,943,013
Trademarks 903,563 921,623
------------ ------------
TOTAL ASSETS $320,246,377 $309,497,568
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable _ Note H $ 42,500,000 $ 38,600,000
Trade accounts payable 46,896,755 46,358,297
Advance payments from customers 3,228,295 1,393,814
Accrued expenses - Note D 10,698,736 9,033,411
------------ ------------
Total current liabilities 103,323,786 95,385,522
Deferred income taxes 1,568,000 1,683,000
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 13,202,657 13,230,251
Retained earnings 228,036,839 223,868,940
------------ ------------
241,659,306 237,519,001
Less 1,126,656 shares in 1998 and
1,067,724 in 1997 of common stock
in treasury - at cost 24,424,861 23,161,169
Less receivable from Employee Stock
Purchase Plan 1,879,854 1,928,786
------------ ------------
215,354,591 212,429,046
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $320,246,377 $309,497,568
============ ============
See accompanying notes.
CONSOLIDATED STATEMENTS OF INCOME
BLAIR CORPORATION AND SUBSIDIARY
Three Months Ended
March 31
1998 1997
------------ ------------
Net sales $115,886,876 $110,882,091
Other income - Note G 10,925,589 10,695,619
------------ ------------
126,812,465 121,577,710
Costs and expenses:
Cost of goods sold 56,915,445 55,117,089
Advertising 29,206,176 30,714,086
General and administrative 25,723,840 24,583,043
Provision for doubtful accounts 5,528,778 6,575,490
Interest 575,876 1,485,398
------------ ------------
117,950,115 118,475,106
------------ ------------
INCOME BEFORE INCOME TAXES 8,862,350 3,102,604
Income taxes - Note E 3,344,000 1,138,000
------------ ------------
NET INCOME $ 5,518,350 $ 1,964,604
============ ============
Basic and diluted earnings per share based on
weighted average shares outstanding - Note C $.61 $.21
==== ====
See accompanying notes.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
BLAIR CORPORATION AND SUBSIDIARY
Three Months Ended
March 31
1998 1997
------------ ------------
Common Stock $ 419,810 $ 419,810
Additional paid-in capital:
Balance at beginning of period 13,230,251 12,928,260
Forfeitures of Common Stock under
Employee Stock Purchase Plan (27,594) -0-
------------ ------------
Balance at end of period 13,202,657 12,928,260
Retained earnings:
Balance at beginning of period 223,868,940 216,068,537
Net income 5,518,350 1,964,604
Cash dividend declared - Note B (1,350,451) (1,385,180)
------------ ------------
Balance at end of period 228,036,839 216,647,961
Treasury Stock:
Balance at beginning of period (23,161,169) (19,013,814)
Purchase of 57,982 shares in 1998 and
18,700 shares in 1997 (1,257,274) (341,726)
Forfeitures of Common Stock under
Employee Stock Purchase Plan (6,418) -0-
------------ ------------
Balance at end of period (24,424,861) (19,355,540)
Receivable from Employee Stock Purchase Plan:
Balance at beginning of period (1,928,786) (1,803,910)
Forfeitures of Common Stock under
Employee Stock Purchase Plan 7,627 -0-
Repayments 41,305 34,380
------------ ------------
Balance at end of period (1,879,854) (1,769,530)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY $215,354,591 $208,870,961
============ ============
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS
BLAIR CORPORATION AND SUBSIDIARY
Three Months Ended
March 31
1998 1997
------------ ------------
OPERATING ACTIVITIES
Net income $ 5,518,350 $ 1,964,604
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 1,317,787 1,348,456
Provision for doubtful accounts 5,528,778 6,575,490
Provision for deferred income taxes 2,386,000 3,636,000
Changes in operating assets and
liabilities providing (using) cash:
Customer accounts receivable 2,617,316 7,636,599
Inventories (11,117,257) (9,873,707)
Prepaid federal and state taxes (3,889,087) (2,003,001)
Prepaid expenses 161,526 (84,653)
Trade accounts payable 538,458 6,422,096
Advance payments from customers 1,834,481 1,137,601
Accrued expenses 1,665,325 (471,847)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,561,677 16,287,638
INVESTING ACTIVITIES
Purchases of property, plant and equipment (351,376) (556,812)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (351,376) (556,812)
FINANCING ACTIVITIES
Net proceeds (repayments) from bank borrowings 3,900,000 (11,600,000)
Dividends paid (1,350,451) (1,385,180)
Purchase of Common Stock for treasury (1,257,274) (341,726)
Decrease in notes receivable from
Employee Stock Purchase Plan 14,920 34,380
------------ ------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 1,307,195 (13,292,526)
------------ ------------
INCREASE IN CASH 7,517,496 2,438,300
Cash at beginning of year 3,468,483 4,115,533
------------ ------------
CASH AT END OF PERIOD $ 10,985,979 $ 6,553,833
============ ============
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1998
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, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998. 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, 1997.
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.
The Company changed its interim closing procedures in the first quarter of
1998, to a 5 week, 4 week, 4 week quarter from a calendar quarter. The
change had no impact on the first quarter of 1998 as the Company had the same
number of shipping days in the first quarter of 1998 as in the first quarter
of 1997. The year end closing will not be affected by this change.
NOTE B - DIVIDENDS DECLARED
2-06-97 $ .15 per share 2-05-98 $ .15 per share
5-12-97 .15 4-21-98 .15
7-15-97 .15
10-21-97 .15
NOTE C - BASIC AND DILUTED EARNINGS PER SHARE
Three Months Ended
March 31
1998 1997
----------- -----------
Net income $ 5,518,350 $ 1,964,604
Weighted average shares outstanding 8,987,802 9,225,182
Basic and diluted earnings per share $.61 $.21
NOTE D - ACCRUED EXPENSES
Accrued expenses consist of:
March 31 December 31
1998 1997
----------- -----------
Employee compensation $ 7,460,631 $ 5,674,054
Contribution to profit sharing
and retirement plan 588,938 1,407,745
Taxes, other than taxes on income 1,004,962 297,457
Other accrued items 1,644,205 1,654,155
----------- -----------
$10,698,736 $ 9,033,411
=========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1998
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
1998 1997
----------- -----------
Current:
Federal $ 988,000 $(1,970,000)
State (30,000) (528,000)
----------- -----------
958,000 (2,498,000)
Deferred 2,386,000 3,636,000
----------- -----------
$ 3,344,000 $ 1,138,000
=========== ===========
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
1998 1997
----------- -----------
Statutory rate applied to
pre-tax income $ 3,101,823 $ 1,085,911
State income taxes, net
of federal tax benefit 211,250 9,750
Other items 30,927 42,339
----------- -----------
$ 3,344,000 $ 1,138,000
=========== ===========
Components of the provision for deferred income tax expense are as follows:
Three Months Ended
March 31
1998 1997
----------- -----------
Advertising costs $ 2,308,000 $ 3,365,000
Provision for doubtful accounts 539,000 568,000
Provision for estimated returns (533,000) (149,000)
Other items - net 72,000 (148,000)
----------- -----------
$ 2,386,000 $ 3,636,000
=========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1998
NOTE E - INCOME TAXES - Continued
Components of the deferred tax asset and liability under the liability method as
of March 31, 1998 and December 31, 1997 are as follows:
March 31 December 31
1998 1997
----------- -----------
Current net deferred tax asset:
Doubtful accounts $ 6,421,000 $ 6,960,000
Returns allowances 2,546,000 2,013,000
Inventory obsolescence 1,937,000 1,937,000
Inventory costs 802,000 778,000
Vacation pay 1,321,000 1,321,000
Advertising costs (6,421,000) (4,113,000)
Other items 803,000 1,014,000
----------- -----------
$ 7,409,000 $ 9,910,000
=========== ===========
Long-term deferred tax liability:
Property, plant and equipment $ 1,568,000 $ 1,683,000
=========== ===========
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 $8,598,000 at March 31,
1998 and $8,538,000 at December 31, 1997, respectively.
NOTE G - OTHER INCOME
Other income consists of:
Three Months Ended
March 31
1998 1997
----------- -----------
Finance charges on time
payment accounts $ 9,297,255 $10,388,977
Commissions earned 594,966 20,057
Other items 1,033,368 286,585
----------- -----------
$10,925,589 $10,695,619
=========== ===========
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, 1998
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, 1998 and
December 31, 1997, the company was in compliance with all the agreement's
covenants. At March 31, 1998 and December 31, 1997, the company had borrowed
$42,500,000 and $38,600,000 under the agreement, all of which was classified
as current.
NOTE I - NEW ACCOUNTING PRONOUNCEMENTS
Earnings Per Share
In February 1997, Statement of Financial Accounting Standards No. 128 (SFAS
128), "Earnings Per Share," was issued. SFAS 128 establishes standards for
computing and presenting earnings per share (EPS) and simplifies the existing
standards. This statement replaces the presentation of primary EPS with a
presentation of basic and diluted EPS. SFAS 128 was adopted in the financial
statements for the year ended December 31, 1997. The adoption of this
statement had no impact on the Company's earnings per share amounts.
Comprehensive Income
In June 1997, Statement of Financial Accounting Standards No. 130 (SFAS 130),
"Comprehensive Income," was issued. SFAS 130 establishes standards for
reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. SFAS 130 was adopted in the
financial statements for the quarter ended March 31, 1998. The adoption of
this statement had no impact on the financial statements of the Company.
Disclosures about Segments of an Enterprise and Related Information
In June 1997, Statement of Financial Accounting Standards No. 131 (SFAS 131),
"Disclosures about Segments of an Enterprise and Related Information," was
issued. SFAS 131 establishes standards for the way that a public enterprise
reports information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. SFAS 131 is
effective for fiscal years beginning after December 15, 1997, and requires
restatement of earlier periods presented _ but not for interim periods in the
initial year of adoption. Management believes adoption of this statement will
not have a significant impact on the financial statements of the Company.
Employers' Disclosures about Pension and Other Postretirement Benefits
In February 1998, Statement of Financial Accounting Standards No. 132 (SFAS
132), "Employers' Disclosures about Pension and Other Postretirement
Benefits", was issued. SFAS 132 revises employers' disclosures of pensions
and other postretirement benefits, requires additional information on
changes in benefit obligations and fair value of plan assets and eliminates
certain disclosures. SFAS 132 is effective for the year ending December 31,
1998, and requires restatement of disclosures for earlier periods.
Management believes adoption of this statement will not have a significant
impact on the financial statements of the Company.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1998
NOTE J _ CONTINGENCIES
The Company is involved in certain items of litigation, arising in the normal
course of business. While it cannot be predicted with certainty, management
believes that the outcome will not have a material effect on the Company's
financial condition or results of operations.
NOTE K _ RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been reclassified to
conform with the current year presentation.
NOTE L _ 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, 1998
Results of Operations
- ---------------------
Comparison of First Quarter 1998 and First Quarter 1997
Net income for the first quarter of 1998 increased 181% as compared to the
first quarter of 1997. The first quarter of 1998 was favorably impacted by
improved customer and prospect response and reduced costs and expenses,
primarily advertising, provision for doubtful accounts, interest and cost of
goods sold.
Net sales for the first quarter of 1998 were 4.5% higher than first quarter
1997 net sales. Net sales improved in 1998 due to increased response to all
the Company's advertising formats. Gross sales revenue generated per
advertising dollar increased 9.8%. The total number of orders shipped
increased and the average order size remained at approximately $60. Returns as
a percentage of adjusted gross sales improved slightly to 16.6% in first
quarter 1998 from 16.7% in first quarter 1997.
Other income increased 2.2% in the first quarter of 1998 as compared to the
first quarter of 1997. A 10.5% decrease in finance charges assessed on Easy
Payment Plan accounts receivable, which decreased 17.3% on average
(approximately $39,000,000), was more than offset by increases in commissions
earned and other miscellaneous income items. Commissions are earned on
continuity program sales serviced by our vendors.
Cost of goods sold as a percentage of net sales decreased slightly to 49.1% in
first quarter 1998 from 49.7% in first quarter 1997. The 1997 first quarter
was negatively impacted by the liquidation of high-dollar, high-credit-risk
electronics items in the Home Products merchandise line.
Advertising expense in the first quarter of 1998 decreased 4.9% from the first
quarter of 1997. Improved forecasting, file segmentation and mail stream
management techniques have allowed for more efficient target marketing to
active customers and prospects and increased reactivation of lapsed buyers.
Increased catalog mailings and paper costs were more than offset by reductions
in circular letter mailings and co-op and media volume.
The total number of catalog mailings released in first quarter 1998 was 48%
higher than in first quarter 1997 (24.8 million vs. 16.7 million). Catalogs
have been the primary advertising format for Home Products for over three
years. The Company began full release, to both customers and prospects, of
Menswear catalogs in September 1996 and Womenswear catalogs in the first
quarter of 1997. Catalog mailings from all three product lines, including
combined product line offerings, are continually tested as to mailing
frequency, page density, product content, number of pages and size.
The total number of circular letter mailings in first quarter 1998 was 37% less
than in first quarter 1997 (22.9 million vs. 36.3 million). Circular letter
mailings have decreased due to the expansion of catalog advertising.
Total volume of the co-op and media advertising programs decreased
approximately 1% in first quarter 1998 as compared to first quarter 1997 (407
million vs. 410 million).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1998
Results of Operations _ Continued
- ---------------------
Comparison of First Quarter 1998 and First Quarter 1997 - Continued
General and administrative expense increased 4.6% in the 1998 quarter as
compared to the first quarter of 1997. The higher general and administrative
expense was primarily the result of an 8.6% increase in wages and benefits.
The higher wages and benefits resulted from normal pay increases, an increase
in the number of employees and increases in net income related benefits.
The provision for doubtful accounts as a percentage of credit sales was 13.5%
lower in the first quarter of 1998 as compared to the first quarter of 1997.
The 1998 provision was lower due to a 10.5% decrease in finance charges and a
reduction in the estimated bad debt rate. The estimated provision for doubtful
accounts is based on current expectations, sales mix (prospect/customer) and
prior years' experience. Due to improvement in the delinquency and charge-off
rates experienced in 1998, no additional provision was needed for prior years
and, as stated above, the estimated bad debt rate for 1998 credit sales and
finance charges was lowered. The first quarter of 1997 included an additional
provision of $295,000. The 1998 provision for doubtful accounts increased the
allowance for doubtful accounts to a higher percentage of delinquencies, at
March 31, 1998, than at any time in 1997. Recoveries of bad debts previously
charged off have been credited back against the allowance for doubtful
accounts. The Company, having previously completed a study of its credit
policies, continues to implement improved credit procedures. 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. Credit granting models addressing prospects (first-time buyers) were
implemented in mid-September and early-October 1997. Behavior and collection
models were implemented in the first quarter of 1998. The full impact of the
credit models is not likely to be realized until later in 1998.
Interest expense decreased 61.2% in the first quarter of 1998 as compared to
the first quarter of 1997. Interest expense has resulted primarily from the
Company's borrowings necessary to finance customer accounts receivable.
Average borrowings outstanding have decreased to $38,993,000 during the first
quarter of 1998 from $99,929,000 during the first quarter of 1997. The
increase in credit card sales and improved credit policies are greatly
responsible for lowering the levels of customer accounts receivable and related
borrowings.
Income taxes as a percentage of income before income taxes were 37.7% in the
first quarter of 1998 and 36.7% in the first quarter of 1997. The federal
income tax rate was 35% in both years. The change in the total income tax rate
was caused by an increase in the company's effective state income tax rate.
The Company changed its interim closing procedures in the first quarter of 1998
to a 5 week, 4 week, 4 week quarter from a calendar quarter. The change had no
impact as the Company had the same number of shipping days in the first quarter
of 1998 as it had in the first quarter of 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1998
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, 1998, the Company was in
compliance with all the covenants. Borrowings outstanding at March 31, 1998
were $42,500,000, all classified as current. Borrowings outstanding at
December 31, 1997 were $38,600,000, all classified as current. Borrowings
outstanding at March 31, 1997 were $95,400,000 of which $70,000,000 was
classified as long-term. As of May 8, 1998, the Company's borrowings
outstanding totaled $30,550,000. The Company intends to renew the existing or
a similar type credit facility in 1998.
The ratio of current assets to current liabilities was 2.60 at March 31, 1998,
2.69 at December 31, 1997 and 3.71 at March 31, 1997. The ratio has declined
due to reductions in customer accounts receivable and increases in current
notes payable. Working capital increased $3,776,956 in the first quarter of
1998 due to higher net income. The 1998 increase was primarily reflected in
increased inventories and cash more than offsetting decreased customer accounts
receivable.
Merchandise inventory turnover was 2.6 at March 31, 1998, December 31, 1997 and
March 31, 1997. Merchandise inventory as of March 31, 1998 increased 7.4% from
December 31, 1997 and decreased 3.9% from March 31, 1997. Inventory levels
have been impacted by the continuing effort to increase order fulfillment
rates, by the transition to a larger catalog operation and by the elimination
of high-dollar, high-credit-risk electronics items in the Home Products line in
1997. The Company is currently installing a new catalog inventory management
system.
Regarding the Company's three product lines, Home Products net sales as a
percentage of total net sales were 14.6% ($17.0 million) in the first quarter
of 1998 as compared to 14.1% ($15.7 million) in the first quarter of 1997.
Menswear net sales were 20.6% ($23.8 million) and 24.7% ($27.4 million).
Womenswear net sales were 64.8% ($75.1 million) and 61.2% ($67.8 million).
Home Products inventory totaled $12.9 million at March 31, 1998, $6.8 million
at December 31, 1997 and $14.6 million at March 31, 1997. Menswear inventory
was $19.2 million at March 31, 1998, $17.6 million at December 31, 1997 and
$23.5 million at March 31, 1997. Womenswear inventory was $41.1 million at
March 31, 1998, $43.7 million at December 31, 1997 and $38.1 million at March
31, 1997.
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 $351,376 during the
first quarter of 1998 and $556,812 during the first quarter of 1997. Capital
expenditures for 1998, 1999 and 2000 are projected to be approximately
$7,000,000 a year in order to support the Company's marketing strategy. The
increased capital expenditures will result primarily from expanding database
capabilities in target marketing, credit management and mail stream
optimization.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1998
Liquidity and Sources of Capital _ Continued
- --------------------------------
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
June 15, 1998. 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 276,866 shares of its common stock at a total price of
$4,551,438 ($16.44 per share) in 1997. The Company bought 57,982 shares at a
total price of $1,257,274 ($21.68 per share) in the first quarter of 1998. As
of May 8, 1998, the Company bought 23,957 shares at a total price of $688,517
($29.18 per share) in the second quarter of 1998. The Company intends to
continue buying back stock; however, 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 future 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 have been pressured by paper cost and postal rate increases. Paper
prices have fluctuated since 1994 - reached their high point at 1995 year-end,
retreated below 1995 levels during the third quarter of 1996, reached their low
point during the first quarter of 1997, and increased quarterly throughout the
rest of 1997 and the first quarter of 1998. Overall, paper prices were lower
in 1997 than in 1996 and have been higher in 1998 than they were in 1997.
Postal rates increased in 1995, increased again in 1996 (slight increase due to
the USPS Classification Reform) and are expected to increase again later in
1998 or early in 1999.
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1998
Impact of Inflation and Changing Prices _ Continued
- ---------------------------------------
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.
Accounting Pronouncements
- -------------------------
The Financial Accounting Standards Board issued four new statements that the
Company needed to consider.
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," was issued. Statement No. 128 establishes standards for
computing and presenting earnings per share and simplifies the existing
standards. Statement No. 128 replaces the presentation of primary earnings per
share with a presentation of basic and diluted earnings per share. The Company
adopted Statement No. 128 in the December 31, 1997 financial statements, and
the adoption had no impact on the Company's earnings per share amounts.
In June 1997, Statement of Financial Accounting Standards No. 130,
"Comprehensive Income," was issued. Statement No. 130 establishes standards
for reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. The Company adopted Statement No.
130 in the March 31, 1998 financial statements, and the adoption had no impact
on the Company's financial statements.
In June 1997, Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information," was issued.
Statement No. 131 establishes standards for the way that a public enterprise
reports information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders, but not for
interim periods in the initial year of adoption. Statement No. 131 is
effective for fiscal years beginning after December 15, 1997. The Company
believes that it operates as one segment, which includes three product lines
(Home Products, Menswear and Womenswear) and that adoption of Statement No. 131
will not have a significant impact on its financial statements.
In February 1998, Statement of Financial Accounting Standards No. 132,
"Employers' Disclosures about Pension and Other Postretirement Benefits," was
issued. Statement No. 132 revises employers' disclosure of pensions and other
postretirement benefits, requires additional information on changes in benefit
obligations and fair value of plan assets and eliminates certain disclosures.
Statement No. 132 is effective for the year ending December 31, 1998, and
requires restatement of disclosures for earlier periods. The Company believes
that adoption of Statement No. 132 will not have a significant impact on its
financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1998
Future Considerations
- ---------------------
The Company is faced with the ever-present challenge of maintaining and
expanding the customer file. 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 actions are
vital in growing the business but are being impacted by increased operating
costs, increased competition in the retail sector and record levels of consumer
debt.
The company underwent a strategic planning study in 1995 in which our marketing
programs, operating systems and competitive position were thoroughly assessed.
The continuing strategic planning process has resulted in a marketing strategy
that requires utilizing our existing strengths, changing business processes and
organizational structure and improving information systems.
A prime aspect of the 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 traditional customer
file, is the fastest growing segment of the population. Success of the
marketing strategy requires 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.
The Company's plan to become Year 2000 compliant is well underway with
completion expected in the first quarter of 1999 at an estimated cost of
$400,000 ($300,000 in 1998, $100,000 in 1999). The cost of becoming Year 2000
compliant is included in normal operating expense.
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 as 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, 1998
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, 1998.
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 11, 1998 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
CORPORATION'S 3/31/98 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FIRST QUARTER, 1998 10-Q FILING FOR BLAIR CORPORATION.
</LEGEND>
<CIK> 0000071525
<NAME> BLAIR CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 10,985,979
<SECURITIES> 0
<RECEIVABLES> 149,490,002<F1>
<ALLOWANCES> 36,498,410
<INVENTORY> 89,844,666
<CURRENT-ASSETS> 268,348,152
<PP&E> 103,555,382
<DEPRECIATION> 52,560,720
<TOTAL-ASSETS> 320,246,377
<CURRENT-LIABILITIES> 103,323,786
<BONDS> 0
0
0
<COMMON> 419,810
<OTHER-SE> 214,934,781<F2>
<TOTAL-LIABILITY-AND-EQUITY> 320,246,377
<SALES> 115,886,876
<TOTAL-REVENUES> 126,812,465
<CGS> 56,915,445
<TOTAL-COSTS> 117,950,115
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,528,778
<INTEREST-EXPENSE> 575,876
<INCOME-PRETAX> 8,862,350
<INCOME-TAX> 3,344,000
<INCOME-CONTINUING> 5,518,350
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,518,350
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
<FN>
<F1>AMOUNT REPRESENTS NET ACCOUNTS RECEIVABLE.
<F2>AMOUNT INCLUDES ADDITIONAL PAID-IN CAPITAL, RETAINED EARNINGS, TREASURY
STOCK, AND THE EMPLOYEE STOCK PURCHASE PLAN RECEIVABLE.
</FN>
</TABLE>
