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, 1999 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 November 10, 1999 the registrant had outstanding 8,210,023 shares of its
common stock without nominal or par value.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS (UNAUDITED)
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1999
<PAGE>
CONSOLIDATED BALANCE SHEETS
BLAIR CORPORATION AND SUBSIDIARY
September 30 December 31
1999 1998
------------ ------------
ASSETS
Current assets:
Cash $ 7,557,357 $ 3,211,376
Customer accounts receivable,
less allowances for doubtful
accounts and returns of $35,317,323
in 1999 and $35,474,323 in 1998 149,750,666 158,191,826
Inventories - Note F
Merchandise 72,749,154 102,152,680
Advertising and shipping supplies 19,910,004 12,982,870
------------ ------------
92,659,158 115,135,550
Deferred income taxes - Note E 6,966,000 7,781,000
Prepaid and refundable federal
and state taxes 14,383,241 12,455,216
Prepaid expenses 871,501 344,482
------------ ------------
Total current assets 272,187,923 297,119,450
Property, plant and equipment:
Land 1,142,144 1,142,144
Buildings 63,524,405 63,433,347
Equipment 41,290,524 39,255,983
------------ ------------
105,957,073 103,831,474
Less allowances for depreciation 59,159,210 55,787,582
------------ ------------
46,797,863 48,043,892
Trademarks 795,198 849,380
------------ ------------
TOTAL ASSETS $319,780,984 $346,012,722
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - Note H $ 9,450,000 $ 22,750,000
Trade accounts payable 51,725,849 52,135,922
Advance payments from customers 4,090,259 1,182,829
Accrued expenses - Note D 11,179,562 12,074,736
------------ ------------
Total current liabilities 76,445,670 88,143,487
Deferred income taxes 1,145,000 1,368,000
Long-term debt - Note H 25,000,000 30,000,000
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 14,635,935 14,278,828
Retained earnings 243,670,023 240,798,008
------------ ------------
258,725,768 255,496,646
Less 1,865,417 shares in 1999 and
1,168,097 shares in 1998 of
common stock in treasury - at cost 39,075,558 26,756,067
Less receivable from Employee Stock
Purchase Plan 2,459,896 2,239,344
------------ ------------
217,190,314 226,501,235
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $319,780,984 $346,012,722
============ ============
See accompanying notes.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
BLAIR CORPORATION AND SUBSIDIARY
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $111,652,415 $111,872,529 $367,106,360 $354,486,140
Other income - Note G 9,916,760 9,669,514 29,243,480 30,174,391
Insurance proceeds - Note M -0- 2,800,000 -0- 2,800,000
------------ ------------ ------------ ------------
121,569,175 124,342,043 396,349,840 387,460,531
Costs and expenses:
Cost of goods sold 59,991,630 57,683,795 190,921,849 175,840,448
Advertising 30,310,711 31,882,655 98,046,525 92,564,529
General and administrative 27,264,128 26,966,308 80,154,534 78,577,979
Provision for doubtful accounts 4,900,116 5,055,849 14,837,672 16,372,456
Interest 474,990 448,981 2,180,919 1,508,575
------------ ------------ ------------ ------------
122,941,575 122,037,588 386,141,499 364,863,987
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (1,372,400) 2,304,455 10,208,341 22,596,544
Income taxes - Note E (640,000) (284,000) 3,621,000 7,398,000
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (732,400) $ 2,588,455 $ 6,587,341 $ 15,198,544
============ ============ ============ ============
Basic and diluted earnings per share
based on weighted average shares
outstanding - Note C $(.08) $ .29 $ .79 $1.70
===== ===== ===== =====
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
BLAIR CORPORATION AND SUBSIDIARY
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Common Stock $ 419,810 $ 419,810 $ 419,810 $ 419,810
Additional paid-in capital:
Balance at beginning of period 14,262,505 13,193,208 14,278,828 13,230,251
Issuance (net of forfeitures) of
Common Stock under Employee Stock
Purchase Plan 373,430 1,085,620 345,107 1,025,989
Issuance of Common Stock to
non-employee directors -0- -0- 12,000 22,588
------------ ------------ ------------ -----------
Balance at end of period 14,635,935 14,278,828 14,635,935 14,278,828
Retained earnings:
Balance at beginning of period 245,633,927 233,791,292 240,798,008 223,868,940
Net income (loss) (732,400) 2,588,455 6,587,341 15,198,544
Cash dividends declared - Note B (1,231,504) (1,336,101) (3,715,326) (4,023,838)
------------ ------------ ------------ ------------
Balance at end of period 243,670,023 235,043,646 243,670,023 235,043,646
Treasury Stock:
Balance at beginning of period (39,844,165) (26,144,521) (26,756,067) (23,161,169)
Purchase of treasury stock -0- (1,018,213) (13,095,634) (4,001,471)
Issuance (net of forfeitures) of
Common Stock under Employee Stock
Purchase Plan 768,607 406,667 761,799 393,536
Issuance of Common Stock to
non-employee directors -0- -0- 14,344 13,037
------------ ------------ ------------ -----------
Balance at end of period (39,075,558) (26,756,067) (39,075,558) (26,756,067)
Receivable from Employee Stock
Purchase Plan:
Balance at beginning of period (2,141,109) (1,842,374) (2,239,344) (1,928,786)
Issuance (net of forfeitures) of
Common Stock under Employee Stock
Purchase Plan (372,100) (508,987) (360,825) (494,285)
Repayments 53,313 65,517 140,273 137,227
------------ ------------ ------------ ------------
Balance at end of period (2,459,896) (2,285,844) (2,459,896) (2,285,844)
------------ ------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY $217,190,314 $220,700,373 $217,190,314 $220,700,373
============ ============ ============ ============
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
BLAIR CORPORATION AND SUBSIDIARY
Nine Months Ended
September 30
1999 1998
------------ ------------
OPERATING ACTIVITIES
Net income $ 6,587,341 $ 15,198,544
Adjustments to reconcile
net income to net cash
provided by operating activities:
Depreciation and amortization 3,762,167 3,772,375
Provision for doubtful accounts 14,837,672 16,372,456
Provision for deferred income taxes 592,000 2,680,000
Changes in operating assets and
liabilities providing (using) cash:
Customer accounts receivable (6,396,512) (3,520,174)
Inventories 22,476,392 (36,348,680)
Federal and state taxes (1,928,025) (11,175,124)
Prepaid expenses (527,019) (398,454)
Trade accounts payable (410,073) 20,440,860
Advance payments from customers 2,907,430 2,588,932
Accrued expenses (895,174) 3,649,544
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 41,006,199 13,260,279
INVESTING ACTIVITIES
Purchases of property, plant and equipment (2,461,956) (1,224,013)
------------ ------------
NET CASH (USED IN) INVESTING ACTIVITIES (2,461,956) (1,224,013)
FINANCING ACTIVITIES
Net (repayments) from bank borrowings (18,300,000) (1,100,000)
Dividends paid (3,715,326) (4,023,838)
Purchase of Common Stock for treasury (13,095,634) (4,001,471)
Issuance (net of forfeitures) of
Common Stock under Employee Stock
Purchase Plan 1,106,906 1,419,525
Increase in notes receivable from
Employee Stock Purchase Plan (220,552) (357,058)
Issuance of Common Stock to
non-employee directors 26,344 35,625
------------ ------------
NET CASH (USED IN) FINANCING ACTIVITIES (34,198,262) (8,027,217)
------------ ------------
NET INCREASE IN CASH 4,345,981 4,009,049
Cash at beginning of year 3,211,376 3,468,483
------------ ------------
CASH AT END OF PERIOD $ 7,557,357 $ 7,477,532
============ ============
See accompanying notes.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1999
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, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999. 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, 1998.
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
2-05-98 $.15 per share 2-05-99 $.15 per share
4-21-98 .15 4-20-99 .15
7-21-98 .15 7-20-99 .15
10-20-98 .15 10-19-99 .15
NOTE C - BASIC AND DILUTED EARNINGS PER SHARE
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
----------- ----------- ----------- ------------
Net income $ (732,400) $ 2,588,455 $ 6,587,341 $15,198,544
Weighted average
shares outstanding 8,195,811 8,911,043 8,337,153 8,945,447
Basic and diluted
earnings per share $(.08) $ .29 $ .79 $1.70
NOTE D - ACCRUED EXPENSES
Accrued expenses consist of:
September 30 December 31
1999 1998
----------- -----------
Employee compensation $ 8,029,809 $ 7,537,456
Contribution to profit sharing
and retirement plan 701,826 2,371,992
Taxes, other than taxes on income 447,440 524,687
Other accrued items 2,000,487 1,640,601
----------- -----------
$11,179,562 $12,074,736
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1999
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
1999 1998 1999 1998
----------- ----------- ----------- -----------
Currently payable:
Federal $(2,549,000) $(2,856,000) $ 3,102,000 $ 4,533,000
State (644,000) (697,000) (73,000) 185,000
----------- ----------- ----------- -----------
(3,193,000) (3,553,000) 3,029,000 4,718,000
Deferred 2,553,000 3,269,000 592,000 2,680,000
----------- ----------- ----------- -----------
$ (640,000) $ (284,000) $ 3,621,000 $ 7,398,000
=========== =========== =========== ===========
The differences between total tax expense (credit) and the amount computed by
applying the statutory federal income tax rate of 35% to income (loss) before
income taxes are as follows:
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
----------- ----------- ----------- -----------
Statutory rate applied to
pre-tax income (loss) $ (480,340) $ 806,559 $ 3,572,919 $ 7,908,790
State income taxes, net
of federal tax benefit (170,950) (135,850) 10,400 379,600
Insurance proceeds -0- (980,000) -0- (980,000)
Other items 11,290 25,291 37,681 89,610
----------- ----------- ----------- -----------
$ (640,000) $ (284,000) $ 3,621,000 $ 7,398,000
=========== =========== =========== ===========
Components of the provision for deferred income tax expense are as follows:
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
----------- ----------- ----------- -----------
Advertising costs $ 3,768,000 $ 3,248,000 $ 2,744,000 $ 2,889,000
Provision for doubtful
accounts (490,000) 71,000 (892,000) 990,000
Provision for estimated
returns (622,000) (262,000) (662,000) (1,230,000)
Other items - net (103,000) 212,000 (598,000) 31,000
----------- ----------- ----------- -----------
$ 2,553,000 $ 3,269,000 $ 592,000 $ 2,680,000
=========== =========== =========== ===========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1999
NOTE E - INCOME TAXES - Continued
Components of the deferred tax asset and liability under the liability method as
of September 30, 1999 and December 31, 1998 are as follows:
September 30 December 31
1999 1998
----------- -----------
Current net deferred tax asset:
Doubtful accounts $ 7,805,000 $ 6,913,000
Returns allowance 2,485,000 1,823,000
Inventory obsolescence 2,259,000 1,997,000
Vacation pay 1,399,000 1,399,000
Inventory costs 168,000 130,000
Advertising costs (7,683,000) (4,939,000)
Other items 533,000 458,000
----------- -----------
$ 6,966,000 $ 7,781,000
=========== ===========
Long-term deferred tax liability:
Property, plant and equipment $ 1,145,000 $ 1,368,000
=========== ===========
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 $7,752,000 at September 30, 1999
and $7,662,000 at December 31, 1998, respectively.
NOTE G - OTHER INCOME Other income consists of:
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
----------- ----------- ----------- -----------
Finance charges on time
payment accounts $ 7,982,611 $ 7,950,997 $25,138,978 $25,626,182
Commissions earned 1,039,374 631,116 1,968,057 1,690,209
Other items 894,775 1,087,401 2,136,445 2,858,000
----------- ----------- ----------- -----------
$ 9,916,760 $ 9,669,514 $29,243,480 $30,174,391
=========== =========== =========== ===========
Finance charges on time payment accounts are recognized on an accrual basis of
accounting.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1999
NOTE H - FINANCING ARRANGEMENTS
On November 13, 1998, the Company entered into an amended and restated
$95,000,000 Revolving Credit Facility, which expires on November 13, 2001. This
agreement replaced the $125,000,000 Revolving Credit Facility which expired on
November 17, 1998. The interest rate is, at the Company's option, based on a
base rate option, swing loan 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,
interest coverage ratio and fixed charge coverage ratio and complying with
certain indebtedness restrictions. As of September 30, 1999 and December 31,
1998, the Company was in compliance with all the agreement's covenants. At
September 30, 1999, the Company had borrowed $34,450,000 of which $25,000,000
was classified as long-term and at December 31, 1998, $52,750,000 of which
$30,000,000 was classified as long-term.
NOTE I - NEW ACCOUNTING PRONOUNCEMENTS
Accounting for the Costs of Computer Software Developed for or Obtained for
Internal Use Statement of Position 98-1, (SOP 98-1) "Accounting for the Costs of
Computer Software Developed For or Obtained For Internal Use," requires
capitalization of costs to purchase or develop internal use software and
amortization of those costs to income over the software's estimated useful life.
These costs include external direct costs, payroll and payroll-related costs for
employees who are directly associated with the project and interest costs.
Training and research and development costs are to be expensed as incurred.
Allocations of overhead are not permitted. SOP 98-1 was adopted in the financial
statements for the year ended December 31, 1999 and has not had a significant
impact on the financial statements of the Company.
Accounting for Derivative Instruments and Hedging Activities
In June 1998, Statement of Financial Accounting Standards No. 133 (SFAS 133),
"Accounting for Derivative Instruments and Hedging Activities", was issued. SFAS
133 provides new guidelines for derivative instruments. SFAS 133 requires
companies to recognize all derivatives on the balance sheet at fair value. Gains
or losses resulting from changes in the values of the derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. SFAS 133 is effective for fiscal periods beginning after
June 15, 2000. Management believes the adoption of this Statement will not have
a significant impact on the financial statements of the Company.
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 - 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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1999
NOTE L - 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
60,150 shares on August 4, 1999 and 50,400 shares on July 27, 1998.
NOTE M - INSURANCE PROCEEDS
The $2,800,000 in insurance proceeds in 1998 resulted from the death of John L.
Blair, former President and Chairman of the Company. The Company was the owner
and beneficiary of a life insurance policy on Mr. Blair, who died on August 29,
1998.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1999
Results of Operations
- --------------------
Comparison of Third Quarter 1999 and Third Quarter 1998
The third quarter of 1999 resulted in a net loss of $732,400 as compared to net
income of $2,588,455 for the third quarter of 1998. However, the third quarter
of 1998 included income from non-recurring insurance proceeds of $2.8 million.
Net of the insurance proceeds, the third quarter of 1998 resulted in a net
operating loss of $211,545. The third quarter of 1999 was negatively impacted by
the disposition of excess inventory (approximately $1.6 million pre-tax
inventory writedown and increased volume of sale-priced offerings) and by
increased postage costs (approximately $.9 million pre-tax). These increased
costs were primarily reflected in cost of goods sold and advertising expense.
Net sales for the third quarter of 1999 were approximately the same (down .2%)
as net sales for the third quarter of 1998. Overall, response rates in the third
quarter of 1999 were slightly higher than in the third quarter of 1998 and were
at expected levels for 1999. Gross sales revenue generated per advertising
dollar increased approximately 4.3% in third quarter 1999 as compared to third
quarter 1998. The total number of orders shipped increased slightly and the
average order size decreased slightly in the third quarter of 1999 from the
third quarter of 1998. The provision for returned merchandise as a percentage of
gross sales decreased approximately 6% in the third quarter of 1999 as compared
to the third quarter of 1998 primarily due to the Company's efforts to improve
product quality.
Other income increased 2.6% in the third quarter of 1999 as compared to the
third quarter of 1998. Commissions earned on continuity programs were primarily
responsible for the increased other income.
There were no insurance proceeds in 1999. Insurance proceeds in the third
quarter of 1998 were the result of the Company owned term life policy on John L.
Blair, former President and Chairman of the Company. John died on August 29,
1998.
Cost of goods sold as a percentage of net sales increased to 52.7% in the third
quarter of 1999 from 51.6% in the third quarter of 1998. Cost of goods sold has
been negatively impacted by the disposition of excess inventory (approximately
$1.6 million pre-tax inventory writedown) and by increased shipping (postage)
costs. Excess inventory had resulted from the Company's transition to a larger
catalog operation and lower than expected response in the fourth quarter of 1998
and the first quarter of 1999.
Advertising expense in the third quarter of 1999 decreased 4.9% from the third
quarter of 1998. Increased catalog mailings and postal rates were more than
offset by decreased letter mailings and co-op and media volume.
The total number of catalog mailings released in the third quarter of 1999 was
3% higher than in the third quarter of 1998 (35.4 million vs. 34.2 million).
Catalog mailings from all three product lines, including combined product line
offerings, are continually reviewed as to mailing frequency, page density,
product content, number of pages and trim size.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1999
Results of Operations - Continued
- ---------------------
Comparison of Third Quarter 1999 and Third Quarter 1998 - Continued
The total number of letter mailings released in the third quarter of 1999 was 2%
less than in the third quarter of 1998 (16.5 million vs. 16.8 million). The
increased volume of sale-priced offerings, to help move excess inventory, is
included in the third quarter 1999 letter mailings.
Total volume of the co-op and media advertising programs decreased 49% in the
third quarter of 1999 as compared to the third quarter of 1998 (108 million vs.
211 million). The Company reduced the volume primarily due to increased costs
and/or lower response.
General and administrative expense increased 1.1% in the third quarter of 1999
as compared to the third quarter of 1998. The higher general and administrative
expense was primarily the result of a 2.8% increase in wages and benefits. The
higher wages and benefits resulted primarily from normal pay increases.
The provision for doubtful accounts as a percentage of credit sales was 11.6%
lower in the third quarter of 1999 as compared to the third quarter of 1998. The
estimated provision for doubtful accounts is based on current expectations
(consumer credit and economic trends, etc...), sales mix (prospect / customer)
and prior years' experience (delinquencies, accounts over 30 days past due;
actual charge-offs, accounts removed from accounts receivable). Prior to 1994,
actual charge-offs were consistently below delinquencies. In 1994, this trend
reversed itself - actual charge-offs started exceeding delinquencies, resulting
in additional provisions in 1995, 1996 and 1997. Now that stronger credit
controls have been implemented, provisions for doubtful accounts and
delinquencies as a percentage of actual charge-offs have been declining (1998
and 1999). The estimated bad debt rate used for the third quarter of 1999 was
approximately 14% less than the estimated bad debt rate used for the third
quarter of 1998. At September 30, 1999, the delinquency rate of open accounts
receivable was 5% lower than at September 30, 1998. The charge-off rate for the
third quarter of 1999 was 20% less than the charge-off rate for the third
quarter of 1998. Recoveries of bad debts previously charged off have been
credited back against the allowance for doubtful accounts. Credit granting,
collection and behavior models continue to improve and, along with expanding
database capabilities, provide valuable credit marketing opportunities.
Interest expense increased 6% in the third quarter of 1999 as compared to the
third quarter of 1998. Interest expense results primarily from the Company's
borrowings necessary to finance customer accounts receivable and inventories.
Higher average inventory levels and the repurchase of Blair Common Stock from
the Estate of John L. Blair have been responsible for the increased level of
interest expense.
Income taxes as a percentage of the operating losses before income taxes
(excludes insurance proceeds in 1998) were 46.6% in the third quarter of 1999
and 57.3% in the third quarter of 1998. The federal income tax rate was 35% in
both years. The total income tax rate, in both years, was the result of a
decrease in the Company's effective state income tax rate.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1999
Results of Operations - Continued
- ---------------------
Comparison of Nine Month Periods Ended September 30, 1999 and September 30, 1998
Net income for the first nine months of 1999 decreased 57% as compared to the
first nine months of 1998. The first nine months of 1999 were negatively
impacted by the disposition of excess inventory (approximately $5.3 million
pre-tax inventory writedown and increased volume of sales-priced offerings) and
by increased postage costs (approximately $2.8 million pre-tax). The first nine
months of 1998 included non-recurring insurance proceeds of $2.8 million ($.31
per share).
Net sales for the first nine months of 1999 were 3.6% higher than net sales for
the first nine months of 1998. Overall, response rates have been slightly higher
in the first nine months of 1999 as compared to the first nine months of 1998.
Gross sales revenue generated per advertising dollar decreased 4%. The total
number of orders shipped decreased slightly and the average order size increased
slightly in the first nine months of 1999 as compared to the first nine months
of 1998. The provision for returned merchandise as a percentage of gross sales
has improved approximately 10% in the first nine months of 1999 as compared to
the first nine months of 1998. The returns improvement in 1999 was primarily due
to the Company's efforts to improve product quality and to a change in return
policy. The Company stopped refunding shipping and handling charges on returned
merchandise during the first quarter of 1998. This return policy is in line with
the Company's competitors in the direct marketing industry.
Other income decreased 3% in the first nine months of 1999 as compared to the
first nine months of 1998. A 1.9% decrease in finance charges, resulting from
strengthened credit procedures, was primarily responsible for the decrease in
other income.
There were no insurance proceeds in 1999. Insurance proceeds in 1998 were the
result of the Company owned term life policy on John L. Blair, former President
and Chairman of the Company. John died on August 29, 1998.
Cost of goods sold as a percentage of net sales increased to 52.0% in the first
nine months of 1999 from 49.6% in the first nine months of 1998. Cost of goods
sold has been negatively impacted by the disposition of excess inventory
(approximately $5.3 million pre-tax inventory writedown) and by increased
shipping (postage) costs. Excess inventory had resulted from the Company's
transition to a larger catalog operation and lower than expected response in the
fourth quarter of 1998 and the first quarter of 1999.
Advertising expense in the first nine months of 1999 increased 5.9% from the
first nine months of 1998. Increased catalog mailings and postal rates were
responsible for the higher advertising expense.
The total number of catalog mailings released in the first nine months of 1999
was 11% higher than in the first nine months of 1998 (100.6 million vs. 91.0
million). Catalog mailings from all three product lines, including combined
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1999
Results of Operations - Continued
- ---------------------
Comparison of Nine Month Periods Ended September 30, 1999 and September 30,
1998 - Continued
product line offerings, are continually reviewed as to mailing frequency, page
density, product content, number of pages and trim size.
The total number of letter mailings released in the first nine months of 1999
was 5% less than in the first nine months of 1998 (61.5 million vs. 63.5
million).
Total volume of the co-op and media advertising programs decreased 5% in the
first nine months of 1999 as compared to the first nine months of 1998 (878
million vs. 925 million).
General and administrative expense increased 2.0% in the first nine months of
1999 as compared to the first nine months of 1998. Increased wages and benefits
(2.2%) and the costs associated with implementing and maintaining expanded
database capabilities in marketing, credit management and advertising were
primarily responsible for the higher general and administrative expense.
The provision for doubtful accounts as a percentage of credit sales was 17%
lower in the first nine months of 1999 as compared to the first nine months of
1998. Due to continued improvement in delinquency and charge off rates, the
estimated bad debt rate used for the first nine months of 1999 was approximately
15% less than the estimated bad debt rate used for the first nine months of
1998. At September 30, 1999, the delinquency rate (accounts over 30 days past
due) of open accounts receivable was 5% lower than at September 30, 1998. The
charge off rate for the first nine months of 1999 was 20% less than the charge
off rate for the first nine months of 1998. Recoveries of bad debts previously
charged off have been credited back against the allowance for doubtful accounts.
Interest expense increased 45% in the first nine months of 1999 as compared to
the first nine months of 1998. Interest expense results primarily from the
Company's borrowings necessary to finance customer accounts receivable and
inventories. Higher average inventory levels and the repurchase of Blair Common
Stock from the Estate of John L. Blair have been responsible for the increased
level of interest expense.
Income taxes as a percentage of income before income taxes were 35.5% in the
first nine months of 1999 and 32.7% in the first nine months of 1998. The
federal income tax rate was 35% in both years. The lower total tax rate in 1998
was due to the non-taxable insurance proceeds ($2.8 million).
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1999
Liquidity and Sources of Capital
- --------------------------------
All working capital and cash requirements were met. In November 1998, the
Company entered into a $95,000,000 Revolving Credit Facility, which expires on
November 13, 2001. This agreement replaced the $125,000,000 Revolving Credit
Facility which expired on November 17, 1998. The unsecured Revolving Credit
Facility requires the Company to meet certain covenants, and as of September 30,
1999 the Company was in compliance with all the covenants. Borrowings
outstanding at September 30, 1999 were $34,450,000 of which $25,000,000 was
classified as long-term. Borrowings outstanding at December 31, 1998 were
$52,750,000 of which $30,000,000 was classified as long-term. Borrowings
outstanding at September 30, 1998 were $37,500,000, all classified as current.
As of November 10, 1999, the Company's borrowings outstanding totaled
$30,000,000.
The ratio of current assets to current liabilities was 3.56 at September 30,
1999, 3.37 at December 31, 1998 and 2.42 at September 30, 1998. Working capital
decreased $13,233,710 in the first nine months of 1999 primarily due to the
purchase of Common Stock for treasury from the Estate of John L. Blair and the
reduction of long-term debt. The 1999 decrease was primarily reflected in
decreased inventories and customer accounts receivable more than offsetting
decreased notes payable.
Merchandise inventory turnover was 2.3 at September 30, 1999, 2.4 at December
31, 1998 and 2.5 at September 30, 1998. Merchandise inventory as of September
30, 1999 decreased 28.8% from December 31, 1998 and 25.1% from September 30,
1998. Inventory turnover has been impacted by transition to a larger catalog
operation, by the continuing efforts to improve customer service, by lower than
expected response in the fourth quarter of 1998 and the first quarter of 1999
and, most recently, by increased efforts to move excess inventory.
The Company operates as one business segment consisting of three product lines.
Home Products net sales as a percentage of total net sales were 14.8% ($54.4
million) in the first nine months of 1999 as compared to 13.7% ($48.6 million)
in the first nine months of 1998. Menswear net sales were 22.0% ($80.8 million)
compared to 22.5% ($79.9 million). Womenswear net sales were 63.2% ($231.9
million) compared to 63.8% ($226.0 million). Home Products inventory totaled
$12.8 million at September 30, 1999, $18.2 million at December 31, 1998 and
$18.0 million at September 30, 1998. Menswear inventory was $21.8 million at
September 30, 1999, $26.6 million at December 31, 1998 and $25.0 million at
September 30, 1998. Womenswear inventory was $38.1 million at September 30,
1999, $57.4 million at December 31, 1998 and $54.1 million at September 30,
1998.
The Company looks upon its credit granting (Blair Credit) as a marketing
advantage. In the early 1990's, the Company started extending revolving credit
to first-time (prospect) buyers - only offered credit to customers prior to this
time. Prospects responded. This led to a broad offering of pre-approved lines of
credit to prospects in 1995 and 1996. Sales, accounts receivable and bad debts
expectedly increased. However, as the receivables aged, bad debts greatly
exceeded expected levels. The Company recognized that
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1999
Liquidity and Sources of Capital - Continued
- --------------------------------
it didn't have all the necessary credit controls in place and put a hold (second
quarter 1996) on pre-approved credit offers and reviewed and strengthened
(mid-1996 and on) credit controls. Blair Credit customers, on average, buy more,
buy more often and are more loyal than cash and credit card customers. The
benefit from the increased sales volume achieved by offering Blair Credit is
significant and more than outweighs the cost of the credit program. The cost
and/or contribution of the credit program itself can be quickly assessed by
comparing finance charges (included in other income) to the provision for
doubtful accounts. For the first nine months of 1999, finance charges were
$25,138,978 and the provision for doubtful accounts was $14,837,672 (net of
$10,301,306) as compared to the first nine months of 1998, finance charges were
$25,626,182 and the provision for doubtful accounts was $16,372,456 (net of
$9,253,726). This quick assessment does not take into consideration the
administrative cost of the credit program (included in general and
administrative expense), the cost of money and the increased sales.
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 $2,461,956 during the
first nine months of 1999 and $1,224,013 during the first nine months of 1998.
Capital expenditures are projected to be $3.5 million for 1999 and $9 million
for 2000. The increased capital expenditures will result primarily from
developing our own internet commerce site, from maintaining a higher inventory
level, from expanding database capabilities and from developing new product
lines. The Company has recently signed a contract with IBM to build our internet
commerce site, with phased implementation to begin mid-year 2000.
The Company recently declared a quarterly dividend of $.15 per share payable on
December 15, 1999. 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 has, from the fourth quarter of 1996 through the third quarter of
1998, repurchased on the open market 544,730 shares of its Common Stock. In
1999, the Company has repurchased 756,220 shares (500,000 in January, 100,000 in
April and 156,220 in May) of its Common Stock from the Estate of John L. Blair.
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 revised capital
spending plans.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1999
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. Profit margins have been pressured by paper cost
and postal rate increases. Paper prices were higher in 1998 than in 1997 and
have been lower in 1999 than in 1998, but are expected to increase in 2000.
Postal rates increased on January 10, 1999. The Company estimates that the
January 10, 1999 postal rate increase will increase the Company's 1999 postage
bill by approximately 4.7%.
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. 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.
Accounting Pronouncements
- -------------------------
In March 1998, Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," was issued. SOP 98-1 requires
capitalization of costs to purchase or develop internal use software and
amortization of those costs to income over the software's estimated useful life.
The Company adopted SOP 98-1 in the 1999 financial statements, and the adoption
has not had a significant impact on the Company's financial statements.
In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities," was issued. Statement No.
133 provides new guidelines for accounting for derivative instruments and
requires companies to recognize all derivatives on the balance sheet at fair
value. Gains or losses resulting from changes in the values of the derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. Statement No. 133 is effective for fiscal
periods beginning after June 15, 2000. The Company believes that adoption of
Statement No. 133 will not have a significant impact on the financial statements
of the Company.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1999
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 and/or reactivation of established customers.
These actions are vital in growing the business but are being impacted by
increased operating costs and a declining labor pool and by increased
competition in the retail sector, high levels of consumer debt and varying
consumer response rates.
The Company's marketing strategy includes targeting customers in the "40 to 60,
low-to-moderate income" market and in the "60+, low-to-moderate income" market
(the Company's traditional market). The "40 to 60" market, though younger in age
than our traditional market, is the fastest growing segment of the population.
Success of the Company's marketing strategy requires investment in database
management, operating systems, prospecting programs, catalog marketing, new
product lines, telephone call centers, internet commerce 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.
Impact of Year 2000
- -------------------
Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company has completed an assessment of its IT systems and has been modifying
or replacing portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The total Year
2000 project cost is estimated at $825,000, all of which will be expensed as
incurred. To date, the Company has incurred and expensed approximately $800,000.
The project cost has been funded by cash flow from operations.
The project is estimated to be completed not later than November 15, 1999. The
Company believes that with the modifications to existing software and the
conversions to new software, the Year 2000 Issue will not pose significant
operational problems for its computer systems. At this time, all mainframe
software has been modified and/or converted and has been fully tested. The
remaining work to be completed is the upgrading of personal computer operating
software and utilities. Again, this is expected to be completed by November 15,
1999. If the software installations are not completed timely, the Year
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1999
Impact of Year 2000 -Continued
- -------------------
2000 Issue could have a material impact on the operations of the Company.
Operations could be disrupted or stopped for some period of time. Should this
occur, the Company would direct all available resources at the situation in
order to resolve it in as short a time as possible. In order to maintain and
enhance the Company's readiness, ongoing testing will be continued through
year-end.
The Company has made formal communications with all of its significant suppliers
(including suppliers of non-IT systems) to determine the extent to which the
Company's interface systems are vulnerable to those third parties' failure to
remediate their own Year 2000 Issues. The Company has received favorable
response from all of these suppliers, however, there is no guarantee that the
systems of suppliers on which the Company relies will be timely converted and
would not have an adverse effect on the Company's systems.
Open items include the final installation and testing of point of sale terminals
at two of the Company's four stores. This non-IT system is expected to be in
compliance by early December 1999. The old system can be modified as a backup.
At this time, all major vendors, domestic and foreign, have indicated that they
will be Year 2000 compliant by year end 1999. The Company has and will continue
to inquire as to the Year 2000 readiness of its suppliers. If the Company
determines that a vendor is not Year 2000 compliant, the Company, upon further
assessment, may place its business with a different vendor.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1999
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
BLAIR CORPORATION AND SUBSIDIARY
September 30, 1999
Item 5. Other Information
-----------------
The Company filed a Registration Statement on Form S-8 on August
3, 1999 registering 60,150 shares of the Company's Common Stock
which was offered for purchase on August 4, 1999 to selected
employees of the Company under and in accordance with the
Company's Employee Stock Purchase Plan.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
None
(b) Reports on Form 8-K
-------------------
The Company (Registrant) filed a Form 8-K on July 22, 1999. Per
"Item 5. Other Events" of the Form 8-K, the Registrant announced
that, effective December 16, 1999 Mr. Murray K. McComas will
resign as President/CEO of the Registrant. Mr. McComas will
continue to serve as Chairman of the Registrant's Board of
Directors. Mr. John E. Zawacki, currently Vice President/General
Manager of the Registrant's Womenswear Division, will succeed Mr.
McComas as President/CEO of the Registrant. Mark J. Espin, currently
assistant Vice President and Merchandise Director of the Womenswear
Division, will succeed Mr. Zawacki as Vice President/General Manager
of the Registrant's Womenswear Division.
<PAGE>
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, 1999 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 9/30/99 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH THIRD QUARTER, 1999 10-Q FILING FOR
BLAIR CORPORATION.
</LEGEND>
<CIK> 0000071525
<NAME> BLAIR CORPORATION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 7,557,357
<SECURITIES> 0
<RECEIVABLES> 149,750,666<F1>
<ALLOWANCES> 35,317,323
<INVENTORY> 92,659,158
<CURRENT-ASSETS> 272,187,923
<PP&E> 105,957,073
<DEPRECIATION> 59,159,210
<TOTAL-ASSETS> 319,780,984
<CURRENT-LIABILITIES> 76,445,670
<BONDS> 0
0
0
<COMMON> 419,810
<OTHER-SE> 216,770,504<F2>
<TOTAL-LIABILITY-AND-EQUITY> 319,780,984
<SALES> 367,106,360
<TOTAL-REVENUES> 396,349,840
<CGS> 190,921,849
<TOTAL-COSTS> 386,141,499
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 14,837,672
<INTEREST-EXPENSE> 2,180,919
<INCOME-PRETAX> 10,208,341
<INCOME-TAX> 3,621,000
<INCOME-CONTINUING> 6,587,341
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,587,341
<EPS-BASIC> .79
<EPS-DILUTED> .79
<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>
