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, 1999 Commission File Number 1-878
-------------- -----------
BLAIR CORPORATION
- ------------------------------------------------------------------------
(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
- ------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(814) 723-3600
- ------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
- ------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter periods that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
As of May 10, 1999 the registrant had outstanding 8,307,993 shares of
its common stock without nominal or par value.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS (UNAUDITED)
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1999
CONSOLIDATED BALANCE SHEETS
BLAIR CORPORATION AND SUBSIDIARY
March 31 December 31
1999 1998
------------ ------------
ASSETS
Current assets:
Cash $ 9,396,149 $ 3,211,376
Customer accounts receivable,
less allowances for doubtful
accounts and returns of $33,653,854
in 1999 and $35,474,323 in 1998 148,914,970 158,191,826
Inventories - Note F
Merchandise 101,369,283 102,152,680
Advertising and shipping supplies 15,666,595 12,982,870
------------ ------------
117,035,878 115,135,550
Deferred income taxes - Note E 6,817,000 7,781,000
Prepaid and refundable federal
and state taxes 11,637,197 12,455,216
Prepaid expenses 499,898 344,482
------------ ------------
Total current assets 294,301,092 297,119,450
Property, plant and equipment:
Land 1,142,144 1,142,144
Buildings 63,433,347 63,433,347
Equipment 39,891,980 39,255,983
------------ ------------
104,467,471 103,831,474
Less allowances for depreciation 56,977,435 55,787,582
------------ ------------
47,490,036 48,043,892
Trademarks 831,320 849,380
------------ ------------
TOTAL ASSETS $342,622,448 $346,012,722
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - Note H $ 40,300,000 $ 22,750,000
Trade accounts payable 39,595,234 52,135,922
Advance payments from customers 2,479,635 1,182,829
Accrued expenses - Note D 10,465,827 12,074,736
------------ ------------
Total current liabilities 92,840,696 88,143,487
Deferred income taxes - Note E 1,281,000 1,368,000
Long-term debt - Note H 30,000,000 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 14,265,053 14,278,828
Retained earnings 241,858,342 240,798,008
------------ ------------
256,543,205 255,496,646
Less 1,668,647 shares in 1999 and
1,168,097 in 1998 of common stock
in treasury - at cost 35,853,192 26,756,067
Less receivable from Employee Stock
Purchase Plan 2,189,261 2,239,344
------------ ------------
218,500,752 226,501,235
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $342,622,448 $346,012,722
============ ============
See accompanying notes.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
BLAIR CORPORATION AND SUBSIDIARY
Three Months Ended
March 31
1999 1998
------------ ------------
Net sales $122,022,614 $115,886,876
Other income - Note G 8,965,826 10,925,589
------------ ------------
130,988,440 126,812,465
Costs and expenses:
Cost of goods sold 62,274,272 56,915,445
Advertising 33,208,391 29,206,176
General and administrative 26,369,424 25,723,840
Provision for doubtful accounts 4,584,423 5,528,778
Interest 936,539 575,876
------------ ------------
127,373,049 117,950,115
------------ -----------
INCOME BEFORE INCOME TAXES 3,615,391 8,862,350
Income taxes - Note E 1,294,000 3,344,000
------------ ------------
NET INCOME $ 2,321,391 $ 5,518,350
============ ============
Basic and diluted earnings per share based on
weighted average shares outstanding - Note C $.27 $.61
==== ====
See accompanying notes.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
BLAIR CORPORATION AND SUBSIDIARY
Three Months Ended
March 31
1999 1998
------------ ------------
Common Stock $ 419,810 $ 419,810
Additional paid-in capital:
Balance at beginning of period 14,278,828 13,230,251
Forfeitures of Common Stock under
Employee Stock Purchase Plan (13,775) (27,594)
------------ ------------
Balance at end of period 14,265,053 13,202,657
Retained earnings:
Balance at beginning of period 240,798,008 223,868,940
Net income 2,321,391 5,518,350
Cash dividends declared - Note B (1,261,057) (1,350,451)
------------ ------------
Balance at end of period 241,858,342 228,036,839
Treasury Stock:
Balance at beginning of period (26,756,067) (23,161,169)
Purchase of 500,000 shares in 1999 and
57,982 shares in 1998 (9,093,750) (1,257,274)
Forfeitures of Common Stock under
Employee Stock Purchase Plan (3,375) (6,418)
------------ ------------
Balance at end of period (35,853,192) (24,424,861)
Receivable from Employee Stock Purchase Plan:
Balance at beginning of period (2,239,344) (1,928,786)
Forfeitures of Common Stock under
Employee Stock Purchase Plan 5,500 7,627
Repayments 44,583 41,305
------------ ------------
Balance at end of period (2,189,261) (1,879,854)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY $218,500,752 $215,354,591
============ ============
See accompanying notes.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
BLAIR CORPORATION AND SUBSIDIARY
Three Months Ended
March 31
1999 1998
------------ ------------
OPERATING ACTIVITIES
Net income $ 2,321,391 $ 5,518,350
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 1,227,106 1,317,787
Provision for doubtful accounts 4,584,423 5,528,778
Provision for deferred income taxes 877,000 2,386,000
Changes in operating assets and
liabilities providing (using) cash:
Customer accounts receivable 4,692,433 2,617,316
Inventories (1,900,328) (11,117,257)
Federal and state taxes 818,019 (3,889,087)
Prepaid expenses (155,416) 161,526
Trade accounts payable (12,540,688) 538,458
Advance payments from customers 1,296,806 1,834,481
Accrued expenses (1,608,909) 1,665,325
------------ ------------
NET CASH (USED IN) PROVIDED
BY OPERATING ACTIVITIES (388,163) 6,561,677
INVESTING ACTIVITIES
Purchases of property, plant and equipment (655,190) (351,376)
------------ ------------
NET CASH (USED IN) INVESTING ACTIVITIES (655,190) (351,376)
FINANCING ACTIVITIES
Net proceeds from bank borrowings 17,550,000 3,900,000
Dividend paid (1,261,057) (1,350,451)
Purchase of Common Stock for treasury (9,093,750) (1,257,274)
Decrease in notes receivable from
Employee Stock Purchase Plan 32,933 14,920
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,228,126 1,307,195
------------ ------------
NET INCREASE IN CASH 6,184,773 7,517,496
Cash at beginning of year 3,211,376 3,468,483
------------ ------------
CASH AT END OF PERIOD $ 9,396,149 $ 10,985,979
============ ============
See accompanying notes.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BLAIR CORPORATION AND SUBSIDIARY
March 31, 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 three months ended March 31, 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., a Delaware corporation.
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
10-20-98 .15
NOTE C - BASIC AND DILUTED EARNINGS PER SHARE
Three Months Ended
March 31
1999 1998
----------- -----------
Net income $ 2,321,391 $ 5,518,350
Weighted average shares outstanding 8,532,131 8,987,802
Basic and diluted earnings per share $.27 $.61
NOTE D - ACCRUED EXPENSES
Accrued expenses consist of:
March 31 December 31
1999 1998
----------- -----------
Employee compensation $ 7,712,096 $ 7,537,456
Contribution to profit sharing
and retirement plan feature 247,433 2,371,992
Taxes, other than taxes on income 959,607 524,687
Other accrued items 1,546,691 1,640,601
----------- -----------
$10,465,827 $12,074,736
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 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 are as follows:
Three Months Ended
March 31
1999 1998
----------- -----------
Currently payable:
Federal $ 526,000 $ 988,000
State (109,000) (30,000)
----------- -----------
417,000 958,000
Deferred 877,000 2,386,000
----------- -----------
$ 1,294,000 $ 3,344,000
=========== ===========
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
1999 1998
----------- -----------
Statutory rate applied to
pre-tax income $ 1,265,387 $ 3,101,823
State income taxes, net
of federal tax benefit 14,300 211,250
Other items 14,313 30,927
----------- -----------
$ 1,294,000 $ 3,344,000
=========== ===========
Components of the provision for deferred income tax expense are as follows:
Three Months Ended
March 31
1999 1998
----------- -----------
Advertising costs $ 1,256,000 $ 2,308,000
Provision for doubtful accounts 89,000 539,000
Provision for estimated returns (321,000) (533,000)
Other items - net (147,000) 72,000
----------- -----------
$ 877,000 $ 2,386,000
=========== ===========
Components of the deferred tax asset and liability under the liability method as
of March 31, 1999 and December 31, 1998 are as follows:
March 31 December 31
1999 1998
----------- -----------
Current net deferred tax asset:
Doubtful accounts $ 6,824,000 $ 6,913,000
Returns allowances 2,144,000 1,823,000
Inventory obsolescence 2,026,000 1,997,000
Inventory costs 149,000 130,000
Vacation pay 1,399,000 1,399,000
Advertising costs (6,195,000) (4,939,000)
Other items 470,000 458,000
----------- -----------
$ 6,817,000 $ 7,781,000
=========== ===========
Long-term deferred tax liability:
Property, plant and equipment $ 1,281,000 $ 1,368,000
=========== ===========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1999
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 $7,692,000 at March 31, 1999 and
$7,662,000 at December 31, 1998, respectively.
NOTE G - OTHER INCOME
Other income consists of:
Three Months Ended
March 31
1999 1998
----------- -----------
Finance charges on time
payment accounts $ 8,456,343 $ 9,297,255
Commissions earned 23,172 594,966
Other items 486,311 1,033,368
----------- -----------
$ 8,965,826 $10,925,589
=========== ===========
Finance charges on time payment accounts are recognized on an accrual basis of
accounting.
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 March 31, 1999 and December 31, 1998,
the Company was in compliance with all the agreement's covenants. At March 31,
1999, the Company had borrowed $70,300,000 of which $30,000,000 was classified
as long-term and at December 31, 1998, $52,750,000 of which $30,000,000 was
classified as long-term.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1999
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, 1999. 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>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1999
Results of Operations
- ---------------------
Comparison of First Quarter 1999 and First Quarter 1998
Net income for the first quarter of 1999 decreased 58% as compared to the first
quarter of 1998. The first quarter of 1999 was negatively impacted by increased
offerings of sale-priced merchandise to help move excess inventory, by lower
than expected response to a higher advertising volume and by increased postage
costs.
Net sales for the first quarter of 1999 were 5.3% higher than first quarter 1998
net sales. Overall, response rates in the first quarter of 1999 were
approximately the same as in the first quarter of 1998, but were below expected
levels for 1999. Gross sales revenue generated per advertising dollar decreased
9.6%. The total number of orders shipped decreased while the average order size
increased. The returns percentage improved in the first quarter of 1999 as
compared to the first quarter of 1998 primarily due to a change in return
policy.
Other income decreased 18% in the fist quarter of 1999 as compared to the first
quarter of 1998. Reductions in finance charges resulting from strengthened
credit procedures and in commissions earned on continuity program sales were
primarily responsible for the decrease in other income.
Cost of goods sold as a percentage of net sales increased to 51.0% in the first
quarter of 1999 from 49.1% in the first quarter of 1998. Increased offerings of
sale-priced merchandise to help move excess inventory was primarily responsible
for the increased cost of goods sold. Excess inventory has resulted from the
Company's adjustment 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 quarter of 1999 increased 13.7% from the first
quarter of 1998. Increased catalog mailings, co-op and media volume and postal
rates were responsible for the higher advertising expense.
The total number of catalog mailings released in the first quarter of 1999 was
29% higher than in the first quarter of 1998 (32.1 million vs. 24.7 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.
The total number of circular letter mailings released in the first quarter of
1999 was 17% less than in the first quarter of 1998 (18.9 million vs. 22.9
million). Circular letter mailings have continued to decrease due to the
expansion of catalog advertising.
Total volume of the co-op and media advertising programs increased 21% in the
first quarter of 1999 as compared to the first quarter of 1998 (492 million vs.
407 million).
General and administrative expense increased 2.5% in the first quarter of 1999
as compared to the first quarter of 1998. The higher general and administrative
expense was primarily the result of costs associated with implementing and
maintaining expanded database capabilities in marketing, credit management and
advertising.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1999
Results of Operations - Continued
- ---------------------
Comparison of First Quarter 1999 and First Quarter 1998 -Continued
The provision for doubtful accounts as a percentage of credit sales was 20%
lower in the first quarter of 1999 as compared to the first quarter of 1998. The
estimated provision for doubtful accounts is based on current expectations,
sales mix (prospect/customer) and prior years' experience. Due to continued
improvement in delinquency and charge off rates, the estimated bad debt rate for
1999 credit sales and finance charges has been lowered. 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
gain effectiveness and, along with expanding database capabilities, should
provide valuable credit marketing opportunities.
Interest expense increased 63% in the first quarter of 1999 as compared to the
first quarter of 1998. Interest expense results primarily from the Company's
borrowings necessary to finance customer accounts receivable and inventories.
While customer accounts receivable have changed little, inventories have grown
30% ($117.0 million vs. $89.8 million). Also contributing to the higher interest
expense and borrowings has been the repurchase of Blair Common Stock from the
Estate of John L. Blair.
Income taxes as a percentage of income before income taxes were 35.8% in the
first quarter of 1999 and 37.7% in the first quarter of 1998. The federal income
tax rate was 35% in both years. The change in the total income tax rate was
caused by a decrease in the Company's effective state income tax rate.
Liquidity and Sources of Capital
- --------------------------------
All working capital and cash requirements were met. In November 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
unsecured Revolving Credit Facility requires the Company to meet certain
covenants, and as of March 31, 1999 the Company was in compliance with all the
covenants. Borrowings outstanding at March 31, 1999 were $70,300,000 of which
$30,000,000 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 March 31, 1998 were $42,500,000, all classified as
current. As of May 10, 1999, the Company's borrowings outstanding totaled
$55,000,000.
The ratio of current assets to current liabilities was 3.17 at March 31, 1999,
3.37 at December 31, 1998 and 2.60 at March 31, 1998. Working capital decreased
$7,515,567 in the first quarter of 1999 primarily due to the repurchase of
Common Stock for treasury from the Estate of John L. Blair. The 1999 decrease
was primarily reflected in decreased customer accounts receivable and increased
notes payable more than offsetting increased cash and decreased trade accounts
payable.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1999
Liquidity and Sources of Capital - Continued
- --------------------------------
Merchandise inventory turnover was 2.3 at March 31, 1999, 2.4 at December 31,
1998 and 2.6 at March 31, 1998. Merchandise inventory as of March 31, 1999
decreased .8% from December 31, 1998 and increased 38.5% from March 31, 1998.
Inventory levels have been impacted by the transition to a larger catalog
operation, by the continuing effort to improve customer service and by lower
than expected response in the fourth quarter of 1998 and the first quarter of
1999.
The Company operates as one business segment consisting of three product lines.
Home Products net sales as a percentage of total net sales were 14.4% ($17.5
million) in the first quarter of 1999 as compared to 14.6% ($17.0 million) in
the first quarter of 1998. Menswear net sales were 22.9% ($27.9 million) and
20.6% ($23.8 million). Womenswear net sales were 62.7% ($76.6 million) and 64.8%
($75.1 million). Home Products inventory totaled $17.7 million at March 31,
1999, $18.2 million at December 31, 1998 and $12.9 million at March 31, 1998.
Menswear inventory was $28.5 million at March 31, 1999, $26.6 million at
December 31, 1998 and $19.2 million at March 31, 1998. Womenswear inventory was
$55.2 million at March 31, 1999, $57.4 million at December 31, 1998 and $41.1
million at March 31, 1998.
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 $655,190 during the first
quarter of 1999 and $351,376 during the first quarter of 1998. Capital
expenditures for 1999, 2000, and 2001 are projected to be approximately
$5,000,000 a year in order to support the Company's marketing strategy. The
increased capital expenditures will result primarily from developing our own
internet commerce site, from maintaining a higher inventory level and from
expanding database capabilities.
The Company recently declared a quarterly dividend of $.15 per share payable on
June 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 544,739 shares of its Common Stock. In
January 1999, the Company repurchased 500,000 shares of its Common Stock from
the Estate of John L. Blair. In April 1999, the Company repurchased an
additional 100,000 shares from John Blair's Estate.
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 credit
industry trends, sales volume, operating cost fluctuations and unplanned capital
spending.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 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,
based on current trends, are expected to be lower in 1999 than in 1998. Postal
rates increased on January 10, 1999. The Company's estimate is 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 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, 1999. 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
March 31, 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 erratic
consumer response rates.
A prime aspect of the Company's 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.
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 $700,000 to $850,000 all of which will be
expensed as incurred. To date, the Company has incurred and expensed
approximately $625,000.
The project is estimated to be completed not later than September 30, 1999,
which is prior to any anticipated impact on its operating systems. The Company
believes that with modification to existing software and conversions to new
software, the Year 2000 Issue will not pose significant operational problems for
its computer systems. At this time, all software has been modified and/or
converted but has not been fully tested - testing is approximately 90% complete.
However, if the software installations are not completed timely, the Year 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.
The Company has initiated formal communications with all of its significant
suppliers (includes suppliers of non - IT systems) to determine the extent to
which the Company's interface systems are vulnerable to those third parties'
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
March 31, 1999
Impact of Year 2000 - Continued
- -------------------
failure to remediate their own Year 2000 Issues. The Company has received
favorable response from nearly 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.
Non-responding and/or non-compliant suppliers are being further assessed by the
Company.
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.
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
March 31, 1999
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 January 22,
1999. Per "Item 5. Other Events" of the Form 8-K, the Registrant
announced that it had repurchased 500,000 shares of the Common Stock
of the Registrant.
<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 May 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 3/31/99 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FIRST QUARTER, 1999 10-Q FILING FOR BLAIR CORPORATION.
</LEGEND>
<CIK> 0000071525
<NAME> BLAIR CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 9,396,149
<SECURITIES> 0
<RECEIVABLES> 148,914,970<F1>
<ALLOWANCES> 33,653,854
<INVENTORY> 117,035,878
<CURRENT-ASSETS> 294,301,092
<PP&E> 104,467,471
<DEPRECIATION> 56,977,435
<TOTAL-ASSETS> 342,622,448
<CURRENT-LIABILITIES> 92,840,696
<BONDS> 0
0
0
<COMMON> 419,810
<OTHER-SE> 218,500,752<F2>
<TOTAL-LIABILITY-AND-EQUITY> 342,622,448
<SALES> 122,022,614
<TOTAL-REVENUES> 130,988,440
<CGS> 62,274,272
<TOTAL-COSTS> 127,373,049
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,584,423
<INTEREST-EXPENSE> 936,539
<INCOME-PRETAX> 3,615,391
<INCOME-TAX> 1,294,000
<INCOME-CONTINUING> 2,321,391
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,321,391
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
<FN>
<F1> AMOUNT REPRESENTS NET ACCOUNTS RECEIVABLE.
<F2> AMOUNT INCLUDES ADDITIONAL PAID-IN CAPTIAL, RETAINED EARNINGS, TREASURY
STOCK, AND THE EMPLOYEE STOCK PURCHASE PLAN RECEIVABLE.
</FN>
</TABLE>
