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 June 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 August 12, 1999 the registrant had outstanding 8,151,523 shares of its
common stock without nominal or par value.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS (UNAUDITED)
BLAIR CORPORATION AND SUBSIDIARY
June 30, 1999
<PAGE>
CONSOLIDATED BALANCE SHEETS
BLAIR CORPORATION AND SUBSIDIARY
June 30 December 31
1999 1998
------------ ------------
ASSETS
Current assets:
Cash $ 9,798,959 $ 3,211,376
Customer accounts receivable,
less allowances for doubtful
accounts and returns of
$33,324,513 in 1999 and
$35,474,323 in 1998 150,072,808 158,191,826
Inventories - Note F
Merchandise 73,501,488 102,152,680
Advertising and shipping supplies 10,166,829 12,982,870
83,668,317 115,135,550
Deferred income taxes - Note E 9,563,000 7,781,000
Prepaid and refundable federal
and state taxes 6,453,198 12,455,216
Prepaid expenses 579,585 344,482
------------ ------------
Total current assets 260,135,867 297,119,450
Property, plant and equipment:
Land 1,142,144 1,142,144
Buildings 63,188,780 63,433,347
Equipment 40,554,718 39,255,983
------------ ------------
104,885,642 103,831,474
Less allowances for depreciation 57,963,870 55,787,582
------------ ------------
46,921,772 48,043,892
Trademarks 813,259 849,380
------------ ------------
TOTAL ASSETS $307,870,898 $346,012,722
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - Note H $ 15,000,000 $ 22,750,000
Trade accounts payable 30,975,862 52,135,922
Advance payments from customers 2,690,884 1,182,829
Accrued expenses - Note D 9,684,184 12,074,736
------------ ------------
Total current liabilities 58,350,930 88,143,487
Deferred income taxes 1,189,000 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 14,262,505 14,278,828
Retained earnings 245,633,927 240,798,008
------------ ------------
260,316,242 255,496,646
Less 1,923,917 shares in 1999
and 1,168,097 shares in 1998
of common stock in treasury
- at cost 39,844,165 26,756,067
Less receivable from Employee Stock
Purchase Plan 2,141,109 2,239,344
------------ ------------
218,330,968 226,501,235
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $307,870,898 $346,012,722
============ ============
See accompanying notes.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
BLAIR CORPORATION AND SUBSIDIARY
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $133,431,331 $126,726,735 $255,453,945 $242,613,611
Other income - Note G 10,360,894 9,579,288 19,326,720 20,504,877
------------ ------------ ------------ ------------
143,792,225 136,306,023 274,780,665 263,118,488
Costs and expenses:
Cost of goods sold 68,655,947 61,241,208 130,930,219 118,156,653
Advertising 34,527,423 31,475,698 67,735,814 60,681,874
General and administrative 26,520,982 25,887,831 52,890,406 51,611,671
Provision for doubtful accounts 5,353,133 5,787,829 9,937,556 11,316,607
Interest 769,390 483,718 1,705,929 1,059,594
------------ ------------ ------------ ------------
135,826,875 124,876,284 263,199,924 242,826,399
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 7,965,350 11,429,739 11,580,741 20,292,089
Income taxes - Note E 2,967,000 4,338,000 4,261,000 7,682,000
------------ ------------ ------------ ------------
NET INCOME $ 4,998,350 $ 7,091,739 $ 7,319,741 $ 12,610,089
============ ============ ============ ============
Basic and diluted earnings per share
based on weighted average shares
outstanding - Note C $ .60 $ .80 $ .87 $1.41
===== ===== ===== =====
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
BLAIR CORPORATION AND SUBSIDIARY
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 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 14,265,053 13,202,657 14,278,828 13,230,251
Issuance of Common Stock to
non-employee directors 12,000 22,588 12,000 22,588
Forfeitures of Common Stock under
Employee Stock Purchase Plan (14,548) (32,037) (28,323) (59,631)
------------ ------------ ------------ ------------
Balance at end of period 14,262,505 13,193,208 14,262,505 13,193,208
Retained Earnings:
Balance at beginning of period 241,858,342 228,036,839 240,798,008 223,868,940
Net income 4,998,350 7,091,739 7,319,741 12,610,089
Cash dividends declared - Note B (1,222,765) (1,337,286) (2,483,822) (2,687,737)
------------ ------------ ------------ ------------
Balance at end of period 245,633,927 233,791,292 245,633,927 233,791,292
Treasury Stock:
Balance at beginning of period (35,853,192) (24,424,861) (26,756,067) (23,161,169)
Purchase of Common Stock for treasury (4,001,884) (1,725,984) (13,095,634) (2,983,258)
Issuance of Common Stock to
non-employee directors 14,344 13,037 14,344 13,037
Forfeitures of Common Stock under
Employee Stock Purchase Plan (3,433) (6,713) (6,808) (13,131)
------------ ------------ ------------ ------------
Balance at end of period (39,844,165) (26,144,521) (39,844,165) (26,144,521)
Receivable from Employee Stock
Purchase Plan:
Balance at beginning of period (2,189,261) (1,879,854) (2,239,344) (1,928,786)
Forfeitures of Common Stock under
Employee Stock Purchase Plan 5,775 7,075 11,275 14,702
Repayments 42,377 30,405 86,960 71,710
------------ ------------ ------------ ------------
Balance at end of period (2,141,109) (1,842,374) (2,141,109) (1,842,374)
------------ ------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY $218,330,968 $219,417,415 $218,330,968 $219,417,415
============ ============ ============ ============
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
BLAIR CORPORATION AND SUBSIDIARY
Six Months Ended
June 30
1999 1998
------------ ------------
OPERATING ACTIVITIES
Net income $ 7,319,741 $ 12,610,089
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 2,476,152 2,566,978
Provision for doubtful accounts 9,937,556 11,316,607
Provision for deferred income taxes (1,961,000) (589,000)
Changes in operating assets and
liabilities providing (using) cash:
Customer accounts receivable (1,818,538) (726,764)
Inventories 31,467,233 (2,870,658)
Federal and state taxes 6,002,018 1,250,185
Prepaid expenses (235,103) (222,983)
Trade accounts payable (21,160,060) (10,269,270)
Advance payments from customers 1,508,055 1,047,838
Accrued expenses (2,390,552) (1,491,769)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 31,145,502 15,604,791
INVESTING ACTIVITIES
Purchases of property, plant and equipment (1,317,911) (652,195)
------------ ------------
NET CASH (USED IN) INVESTING ACTIVITIES (1,317,911) (652,195)
FINANCING ACTIVITIES
Net (repayments) from bank borrowings (7,750,000) (6,425,000)
Dividends paid (2,483,822) (2,687,737)
Purchase of Common Stock for treasury (13,095,634) (2,983,258)
Issuance of Common Stock to non-employee
directors 26,344 35,625
Forfeitures of Common Stock under
Employee Stock Purchase Plan (23,856) (58,060)
Payments on receivable from
Employee Stock Purchase Plan 86,960 71,710
------------ ------------
NET CASH (USED IN) FINANCING ACTIVITIES (23,240,008) (12,046,720)
------------ ------------
INCREASE IN CASH 6,587,583 2,905,876
Cash at beginning of year 3,211,376 3,468,483
------------ ------------
CASH AT END OF PERIOD $ 9,798,959 $ 6,374,359
============ ============
See accompanying notes.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BLAIR CORPORATION AND SUBSIDIARY
June 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 six months ended June 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
NOTE C - BASIC AND DILUTED EARNINGS PER SHARE
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
----------- ----------- ----------- -----------
Net income $ 4,998,350 $ 7,091,739 $ 7,319,741 $12,610,089
Weighted average shares
outstanding 8,254,521 8,924,666 8,391,402 8,957,298
Basic and diluted earnings
per share $ .60 $ . 80 $ .87 $1.41
NOTE D - ACCRUED EXPENSES Accrued expenses consist of:
June 30 December 31
1999 1998
----------- -----------
Employee compensation $ 6,644,893 $ 7,537,456
Contribution to profit sharing
and retirement plan 779,843 2,371,992
Taxes, other than taxes on income 771,413 524,687
Other accrued items 1,488,035 1,640,601
----------- -----------
$ 9,684,184 $12,074,736
=========== ===========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 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 are as follows:
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
----------- ----------- ----------- -----------
Currently payable:
Federal $ 5,125,000 $ 6,401,000 $ 5,651,000 $ 7,389,000
State 680,000 912,000 571,000 882,000
----------- ----------- ---------- -----------
5,805,000 7,313,000 6,222,000 8,271,000
Deferred (credit) (2,838,000) (2,975,000) (1,961,000) (589,000)
----------- ----------- ----------- -----------
$ 2,967,000 $ 4,338,000 $ 4,261,000 $ 7,682,000
=========== =========== =========== ===========
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 Six Months Ended
June 30 June 30
1999 1998 1999 1998
----------- ----------- ----------- -----------
Statutory rate applied to
pre-tax income $ 2,787,872 $ 4,000,408 $ 4,053,259 $ 7,102,231
State income taxes, net
of federal tax benefit 167,050 304,200 181,350 515,450
Other items 12,078 33,392 26,391 64,319
----------- ----------- ----------- -----------
$ 2,967,000 $ 4,338,000 $ 4,261,000 $ 7,682,000
=========== =========== =========== ===========
Components of the provision for deferred income tax credit (expense) are as
follows:
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
----------- ----------- ----------- ----------
Provision for estimated
returns $ (281,000) $ 435,000 $ 40,000 $ 968,000
Provision for doubtful
accounts 491,000 (380,000) 402,000 (919,000)
Advertising costs 2,280,000 2,667,000 1,024,000 359,000
Other items - net 348,000 253,000 495,000 181,000
----------- ----------- ----------- -----------
$ 2,838,000 $ 2,975,000 $ 1,961,000 $ 589,000
=========== =========== =========== ===========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 1999
NOTE E - INCOME TAXES - Continued
Components of the deferred tax assets and liability under the liability method
as of June 30, 1999 and December 31, 1998 are as follows:
June 30 December 31
1999 1998
----------- -----------
Current net deferred tax assets:
Doubtful accounts $ 7,315,000 $ 6,913,000
Returns allowances 1,863,000 1,823,000
Inventory obsolescence 2,026,000 1,997,000
Inventory costs 168,000 130,000
Vacation pay 1,399,000 1,399,000
Advertising costs (3,915,000) (4,939,000)
Other items 707,000 458,000
----------- -----------
$ 9,563,000 $ 7,781,000
=========== ===========
Long-term deferred tax liability:
Property, plant and equipment $ 1,189,000 $ 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 $7,722,000 at June 30, 1999 and
$7,662,000 at December 31, 1998, respectively.
NOTE G - OTHER INCOME Other income consists of:
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
----------- ----------- ----------- -----------
Finance charges on time
payment accounts $ 8,700,024 $ 8,377,930 $17,156,367 $17,675,185
Commissions earned 905,511 464,127 928,683 1,059,093
Other items 755,359 737,231 1,241,670 1,770,599
----------- ----------- ----------- -----------
$10,360,894 $ 9,579,288 $19,326,720 $20,504,877
=========== =========== =========== ===========
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
June 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 June 30, 1999 and December 31, 1998,
the Company was in compliance with all the agreement's covenants. At June 30,
1999, the Company had borrowed $45,000,000 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.
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
June 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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BLAIR CORPORATION AND SUBSIDIARY
June 30, 1999
Results of Operations
- ---------------------
Comparison of Second Quarter 1999 and Second Quarter 1998
Net income for the second quarter of 1999 decreased 30% as compared to the
second quarter of 1998. The second quarter of 1999 was negatively impacted by
increased efforts to move excess inventory and by increased postage costs. These
increases were primarily reflected in cost of goods sold.
Net sales for the second quarter of 1999 were 5.3% higher than second quarter
1998 net sales. Overall, response rates in the second quarter of 1999 were
approximately the same as in the second quarter of 1998 and were slightly below
expected levels for 1999. Gross sales revenue generated per advertising dollar
decreased 6%. The total number of orders shipped and the average order size both
increased slightly in the second quarter of 1999 from the second quarter of
1998. The returns percentage improved in the second quarter of 1999 as compared
to the second quarter of 1998 primarily due to a change in return policy. The
Company stopped refunding shipping and handling charges on returns during the
first quarter of 1998. This policy is in line with the Company's competitors in
the direct marketing industry and reduces returns by approximately 10%.
Other income increased 8% in the second quarter of 1999 as compared to the
second quarter of 1998. Increases in finance charges resulting from higher
credit sales and strengthened credit procedures and in commissions earned on
continuity programs were primarily responsible for the increase in other income.
Cost of goods sold as a percentage of net sales increased to 51.5% in the second
quarter of 1999 from 48.3% in the second quarter of 1998. Cost of goods sold has
been negatively impacted by the sale of excess inventory and by increased
shipping costs. 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 second quarter of 1999 increased 9.7% from the second
quarter of 1998. Increased catalog mailings, letter mailings and postal rates
were responsible for the higher advertising expense.
The total number of catalog mailings released in the second quarter of 1999 was
3% higher than in the second quarter of 1998 (33.2 million vs. 32.1 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 letter mailings released in the second quarter of 1999 was
5% more than in the second quarter of 1998 (26.1 million vs. 24.8 million).
Sale-priced offerings to help move excess inventory caused the increase in
letter mailing volume.
Total volume of the co-op and media advertising programs decreased 10% in the
second quarter of 1999 as compared to the second quarter of 1998 (277 million
vs. 307 million).
General and administrative expense increased 2.4% in the second quarter of 1999
as compared to the second quarter of 1998. The higher general and administrative
expense was primarily the result of a 3.5% increase in wages
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 1999
Results of Operations - Continued
- ---------------------
Comparison of Second Quarter 1999 and Second Quarter 1998 - Continued
and benefits. The higher wages and benefits resulted from normal pay
increases and an increase in the number of employees.
The provision for doubtful accounts as a percentage of credit sales was 14.3%
lower in the second quarter of 1999 as compared to the second 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
used for the second quarter of 1999 was approximately 15% less than the
estimated bad debt rate used for the second quarter of 1998. At June 30, 1999,
the delinquency rate (accounts over 30 days past due) of open accounts
receivable was 11% lower than at June 30, 1998. The charge off rate for the
second quarter of 1999 was 17% less than the charge off rate for the second
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 gain effectiveness and, along with
expanding database capabilities, should provide valuable credit marketing
opportunities.
Interest expense increased 59% in the second quarter of 1999 as compared to the
second 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, inventory levels, though
greatly improved, have averaged significantly higher in 1999 than in 1998. 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 37.2% in the
second quarter of 1999 and 38.0% in the second 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.
Comparison of Six Month Periods Ended June 30, 1999 and June 30, 1998
Net income for the first six months of 1999 decreased 42% as compared to the
first six months of 1998. The six months of 1999 were negatively impacted by
increased efforts to move excess inventory, by lower than expected response to a
higher advertising volume and by increased postage costs.
Net sales for the first half of 1999 were 5.3% higher than net sales for the
first half of 1998. Overall, response rates were approximately the same in the
first six months of 1999 and 1998. Gross sales revenue generated per advertising
dollar decreased 8%. The total number of orders shipped decreased while the
average order size increased. The returns percentage improved in the first six
months of 1999 as compared to the first six months of 1998 primarily due to a
change in return policy. The Company stopped refunding shipping and handling
charges on returns during the first quarter of 1998. This policy change reduces
returns by approximately 10%.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 1999
Results of Operations - Continued
- ---------------------
Comparison of Six Month Periods Ended June 30, 1999 and June 30, 1998
- Continued
Other income decreased 6% in the first six months of 1999 as compared to the
first six months 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 51.3% in the first
half of 1999 from 48.7% in the first half of 1998. Cost of goods sold has been
negatively impacted by the sale of excess inventory and by increased shipping
costs. 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 six months of 1999 increased 11.6% from the first six
months 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 six months of 1999 was 15%
higher than in first six months of 1998 (65.3 million vs. 56.7 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 letter mailings released in the first half of 1999 was 6%
less than in the first half of 1998 (45.0 million vs. 47.7 million).
Total volume of the co-op and media advertising programs increased 8% in the
first half of 1999 as compared to the first half of 1998 (769 million vs. 714
million).
General and administrative expense increased 2.5% in the six months of 1999 as
compared to the first six months of 1998. Increased wages and benefits 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 half of 1999 as compared to the first half of 1998. Due to
continued improvement in delinquency and charge off rates, the estimated bad
debt rate used for the first six months of 1999 was approximately 16% less than
the estimated bad debt rate used for the first six months of 1998. At June 30,
1999, the delinquency rate (accounts over 30 days past due) of open accounts
receivable was 11% lower than at June 30, 1998. The charge off rate for the
first six months of 1999 was 20% less than the charge off rate for the first six
months of 1998. Recoveries of bad debts previously charged off have been
credited back against the allowance for doubtful accounts.
Interest expense increased 61% in the first half of 1999 as compared to the
first half of 1998. Interest expense results primarily from the Company's
borrowings necessary to finance customer accounts receivable and inventories.
Higher inventory levels and the repurchase of Blair Common Stock from the Estate
of John L. Blair have been responsible for the increased levels of interest
expense and borrowings.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 1999
Results of Operations - Continued
- ---------------------
Comparison of Six Month Periods Ended June 30, 1999 and June 30,
1998 - Continued
Income taxes as a percentage of income before income taxes were 36.8% in the
first half of 1999 and 37.9% in the first half 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 June 30, 1999, the Company was in compliance with all the
covenants. Borrowings outstanding at June 30, 1999 were $45,000,000 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 June 30, 1998 were $32,175,000, all classified as
current. As of August 12, 1999, the Company's borrowings outstanding totaled
$30,000,000.
The ration of current assets to current liabilities was 4.46 at June 30, 1999,
3.37 at December 31, 1998 and 3.09 at June 30, 1998. Working capital decreased
$7,191,026 in the first six months 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 inventories and customer accounts
receivable more than offsetting decreased trade accounts payable and notes
payable.
Merchandise inventory turnover was 2.3 at June 30, 1999, 2.4 at December 31,
1998 and 2.6 at June 30, 1998. Merchandise inventory as of June 30, 1999
decreased 28% from December 31, 1998 and increased 2% from June 30, 1998.
Inventory levels have been impacted by the transition to a larger catalog
operation, by the continuing effort 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 14.2% ($36.3
million) in the six months of 1999 as compared to 13.4% ($32.5 million) in the
first six months of 1998. Menswear net sales were 23.4% ($59.8 million) as
compared to 23.3% ($56.5 million). Womenswear net sales were 62.4% ($159.4
million) as compared to 63.3% ($153.6 million). Home Products inventory totaled
$12.6 million at June 30, 1999, $18.2 million at December 31, 1998 and $12.1
million at June 30, 1998. Menswear inventory was $21.5 million at June 30, 1999,
$26.6 million at December 31, 1998 and $16.9 million at June 30, 1998.
Womenswear inventory was $39.5 million at June 30, 1999, $57.4 million at
December 31, 1998 and $42.9 million at June 30, 1998.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 1999
Liquidity and Sources of Capital - Continued
- --------------------------------
The Company looks upon its credit granting (Blair Credit) as a marketing tool
and advantage. Blair Credit customers, on average, buy more, buy more often and
are more loyal than cash and credit card customers. 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 six months of
1999, finance charges were $17,156,367 and the provision for doubtful accounts
was $9,937,556 (net of $7,218,811) as compared to the first six months of 1998,
finance charges were $17,675,185 and the provision for doubtful accounts was
$11,316,607 (net of $6,358,578). The administrative cost of the credit program,
included in general and administrative expense, was less than the net of finance
charges and the provision for doubtful accounts in both the 1999 and 1998 six
month periods.
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 $1,317,911 during the
first half of 1999 and $652,195 during the first half 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
September 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
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 credit
industry 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. 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 estimates that the January 10,
1999 postal rate increase will increase the Company's 1999 postage bill by
approximately 4.7%.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 1999
Impact of Inflation and Changing Prices - Continued
- ---------------------------------------
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, 2000. The Company believes that adoption of Statement No. 133 will not
have a significant impact on the financial statements of the Company.
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
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 1999
Future Considerations - Continued
- ---------------------
marketing, 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 $750,000 to $850,000 all of which will be
expensed as incurred. To date, the Company has incurred and expensed
approximately $700,000. The project cost has been funded by cash flow from
operations.
The project is estimated to be completed not later than September 30, 1999,
which is prior to any anticipated impact on our business operations. 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 95% complete.
The remaining work to be completed includes upgrading two mainframe utility
software products, upgrading personal computer operating system software and
utilities and final system testing. Again, completion is on schedule for
September 30, 1999. 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. At this time, this is the
extent of the Company's Year 2000 contingency plan. The contingency plan will be
further assessed if completion of the Year 2000 project extends beyond September
30, 1999.
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'
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 two non-IT systems, the
tilt tray sorter at the Distribution Center and point of sale terminals at the
Company's four stores. These systems are estimated to be in compliance by
September 30,1999.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 1999
Impact of Year 2000 - Continued
- -------------------
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.
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
June 30, 1999
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Company's Annual Meeting of Stockholders was held April 20, 1999.
(b) At the Annual Meeting of Stockholders, all of the Company's directors
were elected at said meeting, as follows:
David A. Blair 7,398,722 Votes For, 88,767 Votes Withheld
Robert W. Blair 7,406,663 Votes For, 80,826 Votes Withheld
Steven M. Blair 7,400,984 Votes For, 86,505 Votes Withheld
Robert D. Crowley 7,401,963 Votes For, 85,526 Votes Withheld
John O. Hanna 7,408,339 Votes For, 79,150 Votes Withheld
Gerald A. Huber 7,408,839 Votes For, 78,650 Votes Withheld
Craig N. Johnson 7,404,977 Votes For, 82,512 Votes Withheld
Murray K. McComas 7,409,096 Votes For, 78,393 Votes Withheld
Thomas P. McKeever 7,394,765 Votes For, 92,724 Votes Withheld
Michael J. Samargya 7,400,279 Votes For, 87,210 Votes Withheld
Kent R. Sivillo 7,401,734 Votes For, 85,755 Votes Withheld
Blair T. Smoulder 7,401,334 Votes For, 86,155 Votes Withheld
John E. Zawacki 7,401,963 Votes For, 85,526 Votes Withheld
Since all of the directors of the Company were elected at the Annual
Meeting of Stockholders, there are no directors whose term of
office as a director continued after the meeting.
(c) The following other matter was voted upon at the meeting, and the
following number of affirmative votes and negative votes were
cast with respect to such matter:
The reappointment by the Company's Board of Directors of
the firm of Ernst & Young LLP. as independent certified public
accountants to examine the financial statements and perform
the annual audit of the Company for the year ending December 31,
1999 was ratified. This matter received 7,473,798 affirmative
votes, 7,484 negative votes and 6,207 votes withheld.
<PAGE>
PART II. OTHER INFORMATION - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 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 April 14, 1999.
Per "Item 5. Other Events" of the Form 8-K, the Registrant
announced that it had repurchased 100,000 shares of the
Common Stock of the Registrant.
The Company (Registrant) filed a Form 8-K on May 20, 1999.
Per "Item 5. Other Events" of the Form 8-K, the Registrant
announced that it had repurchased 156,220 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 August 12, 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 6/30/99 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH SECOND QUARTER, 1999 10-Q FILING FOR
BLAIR CORPORATION.
</LEGEND>
<CIK> 0000071525
<NAME> BLAIR CORPORATION
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 9,798,959
<SECURITIES> 0
<RECEIVABLES> 150,072,808<F1>
<ALLOWANCES> 33,324,513
<INVENTORY> 83,668,317
<CURRENT-ASSETS> 260,135,867
<PP&E> 104,885,642
<DEPRECIATION> 57,963,870
<TOTAL-ASSETS> 307,870,898
<CURRENT-LIABILITIES> 58,350,930
<BONDS> 0
0
0
<COMMON> 419,810
<OTHER-SE> 217,911,158<F2>
<TOTAL-LIABILITY-AND-EQUITY> 307,870,898
<SALES> 255,453,945
<TOTAL-REVENUES> 274,780,665
<CGS> 130,930,219
<TOTAL-COSTS> 263,199,924
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9,937,556
<INTEREST-EXPENSE> 1,705,929
<INCOME-PRETAX> 11,580,741
<INCOME-TAX> 4,261,000
<INCOME-CONTINUING> 7,319,741
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,319,741
<EPS-BASIC> .87
<EPS-DILUTED> .87
<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>
