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, 2000 Commission File Number 1-878
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BLAIR CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 25-0691670
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 HICKORY STREET, WARREN, PENNSYLVANIA 16366-0001
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(Address of principal executive offices) (Zip Code)
(814) 723-3600
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
As of August 10, 2000 the registrant had outstanding 8,024,717 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, 2000
<PAGE>
CONSOLIDATED BALANCE SHEETS
BLAIR CORPORATION AND SUBSIDIARY
June 30 December 31
2000 1999
------------ ------------
ASSETS
Current assets:
Cash $ 3,584,018 $ 1,625,236
Customer accounts receivable,
less allowances for doubtful
accounts and returns of
$41,200,054 in 2000 and
$37,920,826 in 1999 170,508,731 165,829,079
Inventories - Note F
Merchandise 63,352,465 68,408,229
Advertising and shipping supplies 9,236,252 11,639,598
------------ ------------
72,588,717 80,047,827
Deferred income taxes - Note E 12,920,000 9,234,000
Prepaid federal and state taxes -0- 7,487,288
Prepaid expenses 1,538,740 1,068,936
------------ ------------
Total current assets 261,140,206 265,292,366
Property, plant and equipment:
Land 1,142,144 1,142,144
Buildings 63,591,968 63,583,170
Equipment 48,601,323 42,550,368
------------ ------------
113,335,435 107,275,682
Less allowances for depreciation 62,947,761 60,390,643
------------ ------------
50,387,674 46,885,039
Trademarks 741,016 777,137
------------ ------------
TOTAL ASSETS $312,268,896 $312,954,542
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - Note H $ 10,350,000 $ 11,800,000
Trade accounts payable 40,679,975 53,245,921
Advance payments from customers 3,304,313 2,058,651
Accrued federal and state taxes 910,483 -0-
Accrued expenses - Note D 12,717,797 10,742,545
------------ ------------
Total current liabilities 67,962,568 77,847,117
Deferred income taxes 969,000 1,130,000
Long-term debt - Note H 10,000,000 10,000,000
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 14,552,382 14,625,722
Retained earnings 263,968,830 251,163,905
------------ ------------
278,941,022 266,209,437
Less 2,117,975 shares in 2000
and 1,917,574 shares in 1999
of common stock in treasury - at cost 43,332,138 39,829,081
Less receivable from Employee Stock
Purchase Plan 2,271,556 2,402,931
------------ ------------
233,337,328 223,977,425
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $312,268,896 $312,954,542
============ ============
See accompanying notes.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
BLAIR CORPORATION AND SUBSIDIARY
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $157,063,466 $133,431,331 $287,127,104 $255,453,945
Other income - Note G 11,723,180 10,360,894 22,384,000 19,326,720
------------ ------------- ------------ ------------
168,786,646 143,792,225 309,511,104 274,780,665
Costs and expenses:
Cost of goods sold 77,373,075 68,655,947 141,407,509 130,930,219
Advertising 36,866,122 34,527,423 66,186,189 67,735,814
General and administrative 31,704,364 26,520,982 60,202,267 52,890,406
Provision for doubtful accounts 9,058,607 5,353,133 16,321,068 9,937,556
Interest 424,108 769,390 879,545 1,705,929
------------ ------------ ------------ ------------
155,426,276 135,826,875 284,996,578 263,199,924
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 13,360,370 7,965,350 24,514,526 11,580,741
Income taxes - Note E 5,074,000 2,967,000 9,290,000 4,261,000
------------ ------------ ------------ ------------
NET INCOME $ 8,286,370 $ 4,998,350 $ 15,224,526 $ 7,319,741
============ ============ ============ ============
Basic and diluted earnings per share
based on weighted average shares
outstanding - Note C $1.04 $ .60 $1.89 $ .87
===== ===== ===== =====
</TABLE>
See accompanying notes.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
BLAIR CORPORATION AND SUBSIDIARY
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Common Stock $ 419,810 $ 419,810 $ 419,810 $ 419,810
Additional paid-in capital:
Balance at beginning of period 14,578,976 14,265,053 14,625,722 14,278,828
Issuance of Common Stock to
non-employee directors 441 12,000 441 12,000
Forfeitures of Common Stock under
Employee Stock Purchase Plan (27,035) (14,548) (73,781) (28,323)
------------ ------------ ------------ ------------
Balance at end of period 14,552,382 14,262,505 14,552,382 14,262,505
Retained Earnings:
Balance at beginning of period 256,880,678 241,858,342 251,163,905 240,798,008
Net income 8,286,370 4,998,350 15,224,526 7,319,741
Cash dividends declared - Note B (1,198,218) (1,222,765) (2,419,601) (2,483,822)
------------ ------------ ------------ ------------
Balance at end of period 263,968,830 245,633,927 263,968,830 245,633,927
Treasury Stock:
Balance at beginning of period (42,028,258) (35,853,192) (39,829,081) (26,756,067)
Purchase of Common Stock for treasury (1,318,943) (4,001,884) (3,501,222) (13,095,634)
Issuance of Common Stock to
non-employee directors 22,434 14,344 22,434 14,344
Forfeitures of Common Stock under
Employee Stock Purchase Plan (7,371) (3,433) (24,269) (6,808)
------------ ------------ ------------ ------------
Balance at end of period (43,332,138) (39,844,165) (43,332,138) (39,844,165)
Receivable from Employee Stock Purchase Plan:
Balance at beginning of period (2,333,951) (2,189,261) (2,402,931) (2,239,344)
Forfeitures of Common Stock under
Employee Stock Purchase Plan 7,975 5,775 22,370 11,275
Repayments 54,420 42,377 109,005 86,960
------------ ------------ ------------ ------------
Balance at end of period (2,271,556) (2,141,109) (2,271,556) (2,141,109)
------------ ------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY $233,337,328 $218,330,968 $233,337,328 $218,330,968
============ ============ ============ ============
</TABLE>
See accompanying notes.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
BLAIR CORPORATION AND SUBSIDIARY
Six Months Ended
June 30
2000 1999
------------ ------------
OPERATING ACTIVITIES
Net income $ 15,224,526 $ 7,319,741
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 2,744,902 2,476,152
Provision for doubtful accounts 16,321,068 9,937,556
Provision for deferred income taxes (3,847,000) (1,961,000)
Changes in operating assets and
liabilities providing (using) cash:
Customer accounts receivable (21,000,720) (1,818,538)
Inventories 7,459,110 31,467,233
Federal and state taxes 8,397,771 6,002,018
Prepaid expenses (469,804) (235,103)
Trade accounts payable (12,565,946) (21,160,060)
Advance payments from customers 1,245,662 1,508,055
Accrued expenses 1,975,252 (2,390,552)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 15,484,821 31,145,502
INVESTING ACTIVITIES
Purchases of property, plant and equipment (6,211,416) (1,317,911)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (6,211,416) (1,317,911)
FINANCING ACTIVITIES
Net repayments of bank borrowings (1,450,000) (7,750,000)
Dividends paid (2,419,601) (2,483,822)
Purchase of Common Stock for treasury (3,501,222) (13,095,634)
Issuance of Common Stock to non-employee
directors 22,875 26,344
Forfeitures of Common Stock under
Employee Stock Purchase Plan (75,680) (23,856)
Payments on receivable from
Employee Stock Purchase Plan 109,005 86,960
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (7,314,623) (23,240,008)
------------ ------------
INCREASE IN CASH 1,958,782 6,587,583
Cash at beginning of year 1,625,236 3,211,376
------------ ------------
CASH AT END OF PERIOD $ 3,584,018 $ 9,798,959
============ ============
See accompanying notes.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BLAIR CORPORATION AND SUBSIDIARY
June 30, 2000
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, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000. 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, 1999.
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
2-05-99 $.15 per share 2-08-00 $.15 per share
4-20-99 .15 4-18-00 .15
7-20-99 .15 7-18-00 .15
10-19-99 .15
NOTE C - BASIC AND DILUTED EARNINGS PER SHARE
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
----------- ----------- ------------ -----------
Net income $ 8,286,370 $ 4,998,350 $ 15,224,526 $ 7,319,741
Weighted average shares
outstanding 7,991,961 8,254,521 8,057,701 8,391,402
Basic and diluted earnings
per share $1.04 $ .60 $1.89 $ .87
NOTE D - ACCRUED EXPENSES Accrued expenses consist of:
June 30 December 31
2000 1999
----------- -----------
Employee compensation $ 8,244,653 $ 7,145,761
Contribution to profit sharing
and retirement plan 1,641,473 1,630,652
Taxes, other than taxes on income 831,437 285,775
Other accrued items 2,000,234 1,680,357
----------- -----------
$12,717,797 $10,742,545
=========== ===========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 2000
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
2000 1999 2000 1999
----------- ----------- ----------- -----------
Currently payable:
Federal $ 7,791,000 $ 5,125,000 $11,817,000 $ 5,651,000
State 1,081,000 680,000 1,320,000 571,000
----------- ----------- ----------- -----------
8,872,000 5,805,000 13,137,000 6,222,000
Deferred credit (3,798,000) (2,838,000) (3,847,000) (1,961,000)
----------- ----------- ----------- -----------
$ 5,074,000 $ 2,967,000 $ 9,290,000 $ 4,261,000
=========== =========== =========== ===========
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
2000 1999 2000 1999
----------- ----------- ----------- -----------
Statutory rate applied
to pre-tax income $ 4,676,130 $ 2,787,872 $ 8,580,084 $ 4,053,259
State income taxes,
net of federal tax
benefit 386,100 167,050 692,250 181,350
Other items 11,770 12,078 17,666 26,391
----------- ----------- ----------- -----------
$ 5,074,000 $ 2,967,000 $ 9,290,000 $ 4,261,000
=========== =========== =========== ===========
Components of the provision for deferred income tax credit are as follows:
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
----------- ----------- ----------- ------------
Provision for estimated
returns $ (44,000) $ (281,000) $ 865,000 $ 40,000
Provision for doubtful
accounts 886,000 491,000 1,741,000 402,000
Advertising costs 2,691,000 2,280,000 888,000 1,024,000
Other items - net 265,000 348,000 353,000 495,000
----------- ----------- ----------- -----------
$ 3,798,000 $ 2,838,000 $ 3,847,000 $ 1,961,000
=========== =========== =========== ===========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 2000
NOTE E - INCOME TAXES - Continued
Components of the deferred tax assets and liability under the liability method
as of June 30, 2000 and December 31, 1999 are as follows:
June 30 December 31
2000 1999
----------- -----------
Current net deferred tax assets:
Doubtful accounts $10,883,000 $ 9,142,000
Returns allowances 2,447,000 1,582,000
Inventory obsolescence 1,948,000 1,551,000
Inventory costs (1,110,000) (1,166,000)
Vacation pay 1,419,000 1,440,000
Advertising costs (3,524,000) (4,412,000)
Other items 857,000 1,097,000
----------- -----------
$12,920,000 $ 9,234,000
=========== ===========
Long-term deferred tax liability:
Property, plant and equipment $ 969,000 $ 1,130,000
=========== ===========
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 $7,989,000 at June 30, 2000 and
$7,869,000 at December 31, 1999, respectively.
NOTE G - OTHER INCOME Other income consists of:
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
----------- ----------- ----------- -----------
Finance charges on time
payment accounts $ 9,496,722 $ 8,700,024 $18,553,286 $17,156,367
Commissions earned 1,004,132 905,511 1,745,400 928,683
Other items 1,222,326 755,359 2,085,314 1,241,670
----------- ----------- ----------- -----------
$11,723,180 $10,360,894 $22,384,000 $19,326,720
=========== =========== =========== ===========
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, 2000
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, 2000 and December 31, 1999,
the Company was in compliance with all the agreement's covenants. At June 30,
2000, the Company had borrowed $20,350,000 of which $10,000,000 was classified
as long-term and at December 31, 1999, $21,800,000 of which $10,000,000 was
classified as long-term. As of August 10, 2000, the Company's borrowings
outstanding totaled $20,000,000.
NOTE I - NEW ACCOUNTING PRONOUNCEMENTS
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 as the Company has
not invested in derivative instruments.
Revenue Recognition in Financial Statements In December 1999, the Securities and
Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue
Recognition in Financial Statements." This SAB formalizes the SEC's position on
application of revenue recognition rules. Adoption of this SAB is for the fourth
quarter of fiscal years beginning after December 15, 1999. The Company believes
that adoption of the provision of this SAB will not have a material impact on
the Company's results of operations.
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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 2000
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.
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
31,852 shares on July 19, 2000 and 60,150 shares on August 4, 1999.
NOTE M - OMNIBUS STOCK PLAN
The Company has an Omnibus Stock Plan that gives the Company the ability to
offer a variety of equity based awards to persons who are key to the Company's
growth, development and financial success. Awards are valued in accordance with
the terms and conditions of the Omnibus Stock Plan as determined by the Omnibus
Stock Plan Committee. Restricted stock awards totaling 35,400 shares of treasury
stock were issued to certain employees on July 19, 2000.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BLAIR CORPORATION AND SUBSIDIARY
June 30, 2000
Results of Operations
---------------------
Comparison of Second Quarter 2000 and Second Quarter 1999
Net income for the second quarter of 2000 increased 66% as compared to the
second quarter of 1999. Results for the second quarter of 2000 reflect increased
response rates to catalog and letter style mailings, lower return levels and
reduced liquidation costs as compared to the second quarter of 1999. Increased
response rates are greatly attributable to the Company's improved target
marketing capabilities; the Company has the ability to leverage the marketing
and credit information contained in the corporate database.
Record net sales were achieved in the second quarter of 2000. Net sales for the
second quarter of 2000 were 17.7% higher than net sales for the second quarter
of 1999. Response rates exceeded expected levels in the second quarter of 2000
but were below expected levels in the second quarter of 1999. Gross sales
revenue generated per advertising dollar increased 8.4%, catalog mailings
increased 22% and letter style mailings increased 19%. The total number of
orders shipped increased significantly while the average order size decreased
slightly in the second quarter of 2000 as compared to the second quarter of
1999. The provision for returned merchandise as a percentage of gross sales
decreased approximately 9% in the second quarter of 2000 as compared to the
second quarter of 1999 primarily due to the Company's efforts to improve product
quality and sizing.
Other income increased approximately 13% in the second quarter of 2000 as
compared to the second quarter of 1999. Increased finance charges, resulting
from higher Blair Easy Payment Plan credit sales and accounts receivable, were
primarily responsible for the increase in other income.
Cost of goods sold as a percentage of net sales decreased to 49.3% in the second
quarter of 2000 from 51.5% in the second quarter of 1999. Cost of goods sold in
the second quarter of 2000 was favorably impacted by lower return levels and
reduced liquidation costs as compared to the second quarter of 1999. Merchandise
inventory at June 30, 2000 was down 13.8% from June 30, 1999.
Advertising expense in the second quarter of 2000 increased 6.8% from the second
quarter of 1999. Increases in catalog and letter style mailings were primarily
responsible for the increased advertising expense. Improved predictive modeling
techniques applied to the Company's marketing database information make it
possible to maintain and/or grow order volume on a reduced advertising volume.
The total number of catalog mailings released in the second quarter of 2000 was
22% more than in the second quarter of 1999 (40.6 million vs. 33.2 million).
Catalog mailings, 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
June 30, 2000
Results of Operations - Continued
---------------------
Comparison of Second Quarter 2000 and Second Quarter 1999 -
Continued
The total number of letter style mailings released in the second quarter of 2000
was 19% more than in the second quarter of 1999 (30.9 million vs. 26.1 million).
Letter mailings tend to be more productive when targeting the Company's older
(60+) women customers.
Total volume of the co-op and media advertising programs decreased 1% in the
second quarter of 2000 as compared to the second quarter of 1999 (275 million
vs. 277 million). The Company has reduced the volume primarily due to increased
cost and/or lower response.
General and administrative expense increased 19.5% in the second quarter of 2000
as compared to the second quarter of 1999. The higher general and administrative
expense was primarily the result of an 18.4% increase in wages and benefits. The
higher wages and benefits resulted from normal pay increases, from new hires to
help support our marketing strategy and from increases in benefits tied to
corporate income.
The provision for doubtful accounts as a percentage of credit sales increased
34.8% in the second quarter of 2000 as compared to the second quarter of 1999.
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 for doubtful accounts in 1995, 1996 and 1997. Once
stronger credit controls were implemented, provisions for doubtful accounts and
delinquencies as a percentage of actual charge-offs declined in 1998 and 1999.
The estimated bad debt rate used for the second quarter of 2000 was
approximately 29% higher than the bad debt rate used for the second quarter of
1999. The estimated bad debt rate increased primarily due to a larger credit
marketing program to prospects and a larger continuity sales program. Both
programs result in higher bad debts. At June 30, 2000, the delinquency rate of
open accounts receivable was approximately 10% higher than at June 30, 1999.
This again was the result of increased prospect and continuity sales programs.
The delinquency rate was approximately 1% higher for established credit
customers (95.5% of open receivables at June 30, 2000, 98.3% at June 30, 1999)
while the delinquency rate for prospects increased 9%. The charge-off rate for
the second quarter of 2000 was 32% more than the charge-off rate for the second
quarter of 1999, primarily due to a larger credit marketing program to
prospects. 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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 2000
Results of Operations - Continued
---------------------
Comparison of Second Quarter 2000 and Second Quarter 1999 -
Continued
Interest expense decreased 45% in the second quarter of 2000 as compared to the
second quarter of 1999. Interest expense results primarily from the Company's
borrowings necessary to finance customer accounts receivable and inventories.
Improved inventory and accounts receivable turns were primarily responsible for
the reduction in interest expense.
Income taxes as a percentage of income before income taxes were 38.0% in the
second quarter of 2000 and 37.2% in the second quarter of 1999. The federal
income tax rate was 35% in both years. The increase in the total income tax rate
was caused by a change in the Company's effective state income tax rate.
Comparison of Six Month Periods Ended June 30, 2000 and June
30, 1999
Net income for the first six months of 2000 increased 108% as compared to the
first six months of 1999. Results for the six months of 2000 reflect increased
response rates to catalog and letter style mailings, lower return levels and
reduced liquidation costs as compared to the first six months of 1999.
Record net sales were achieved in the first six months of 2000. Net sales for
the first six months of 2000 were 12.4% higher than net sales for the first six
months of 1999. Response rates exceeded expected levels in the six months of
2000 but were below expected levels in the first six months of 1999. Gross sales
revenue generated per advertising dollar increased 14.2%, catalog mailings
increased .4% and letter style mailings increased 20%. The total number of
orders shipped increased significantly while the average order size decreased
slightly in the first six months of 2000 as compared to the first six months of
1999. The provision for returned merchandise as a percentage of gross sales
decreased 6.5% in the first six months of 2000 as compared to the first six
months of 1999 primarily due to the Company's efforts to improve product quality
and sizing.
Other income increased approximately 16% in the six months of 2000 as compared
to the first six months of 1999. Increased finance charges (higher Blair Easy
Payment Plan credit sales and customer accounts receivable) and commissions
earned (higher continuity program sales) were primarily responsible for the
increase in other income.
Cost of goods sold as a percentage of net sales decreased to 49.3% in the six
months of 2000 from 51.3% in the first six months of 1999. Cost of goods sold in
2000 was favorably impacted by lower return levels and reduced liquidation costs
as compared to the first six months of 1999.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 2000
Results of Operations - Continued
---------------------
Comparison of Six Month Periods Ended June 30, 2000 and June 30,
1999 - Continued
Advertising expense for the six months of 2000 was 2.3% less than for the first
six months of 1999. Reductions in co-op and media volume and in printing costs
were primarily responsible for the reduced advertising costs. Larger production
runs have brought down the average print cost for catalog and letter style
mailings.
The total number of catalog mailings released in the six months of 2000 was .4%
more than in the first six months of 1999 (65.5 million vs. 65.3 million).
Catalog mailings, 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 six months of 2000 was 20%
more than in the first six months of 1999 (54.1 million vs. 45.0 million).
Letter mailings tend to be more productive when targeting the Company's older
(60+) women customers.
Total volume of the co-op and media advertising programs decreased 20% in the
first six months of 2000 as compared to the first six months of 1999 (614
million vs. 769 million). The Company has reduced the volume primarily due to
increased cost and/or lower response.
General and administrative expense increased 13.8% in the first half of 2000 as
compared to the first half of 1999. The higher general and administrative
expense was primarily the result of a 14.4% increase in wages and benefits. The
higher wages and benefits resulted from normal pay increases, from new hires to
help support our marketing strategy and from increases in benefits tied to
corporate income.
The provision for doubtful accounts as a percentage of credit sales increased
29.2% in the first six months of 2000 as compared to the first six months of
1999. 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. Once
stronger credit controls were implemented, provisions for doubtful accounts and
delinquencies as a percentage of actual charge-offs declined in 1998 and 1999.
The estimated bad debt rate used for the first six months of 2000 was
approximately 25% higher than the bad debt rate used for the first six months of
1999. The estimated bad debt rate increased primarily due to a larger credit
marketing program to prospects and a larger continuity sales program. Both
programs result in higher bad debts. At June 30, 2000, the delinquency rate of
open accounts receivable was approximately 10% higher than at June 30, 1999.
This again was the result of increased prospect and continuity sales programs.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 2000
Results of Operations - Continued
---------------------
Comparison of Six Month Periods Ended June 30, 2000 and June 30,
1999 - Continued
The delinquency rate was approximately 1% higher for established credit
customers (95.5% of open receivables at June 30, 2000, 98.3% at June 30,
1999) while the delinquency rate for prospects increased 9%. The charge-off
rate for the first six months of 2000 was 9.6% less than the charge-off
rate for the first six months of 1999. 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 decreased 48% in the first six months of 2000 as compared to
the first six months of 1999. Interest expense results primarily from the
Company's borrowings necessary to finance customer accounts receivable and
inventories. The purchase of Blair Common Stock from the Estate of John L. Blair
in the first half of 1999 and improved inventory and accounts receivable turns
in 2000 were primarily responsible for the reduction in interest expense.
Income taxes as a percentage of income before income taxes were 37.9% in the
first six months of 2000 and 36.8% in the first six months of 1999. The federal
income tax rate was 35% in both years. The increase in the total income tax rate
was caused by a change 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, 2000 the Company was in compliance with all the
covenants. Borrowings outstanding at June 30, 2000 were $20,350,000 of which
$10,000,000 was classified as long-term. Borrowings outstanding at December 31,
1999 were $21,800,000 of which $10,000,000 was classified as long-term. As of
August 10, 2000, the Company's borrowings outstanding totaled $20,000,000.
The ratio of current assets to current liabilities was 3.84 at June 30, 2000,
3.41 at December 31, 1999 and 4.46 at June 30, 1999. Working capital increased
$5,732,389 in the first six months of 2000 primarily due to the higher net
income. The 2000 increase was primarily reflected in increased customer accounts
receivable and decreased trade accounts payable more than offsetting decreased
inventories and prepaid federal and state taxes.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 2000
Liquidity and Sources of Capital - Continued
--------------------------------
Merchandise inventory turnover was 3.0 at June 30, 2000, 2.5 at December 31,
1999 and 2.3 at June 30, 1999. Merchandise inventory as of June 30, 2000
decreased 7.4% from December 31, 1999 and 13.8% from June 30, 1999. Inventory
turnover has improved due to the Company's movement of excess inventory in 1999
and better than expected response rates in the fourth quarter of 1999 and first
six months of 2000.
An operating segment is identified as a component of an enterprise for which
separate financial information is available for evaluation by the chief decision
maker, or decision making group, in deciding on how to allocate resources and
assess performance. The Company operates as one business segment consisting of
three product lines. A fourth product line, Crossing Pointe, will be added in
the third quarter of 2000. Crossing Pointe is expected to become a significant
revenue source over the next few years. Home Products net sales as a percentage
of total net sales were 14.0% ($40.1 million) in the first six months of 2000 as
compared to 14.2% ($36.3 million) in the first six months of 1999. Menswear net
sales were 19.6% ($56.2 million) as compared to 23.4% ($59.8 million).
Womenswear net sales were 66.4%, ($190.8 million) as compared to 62.4% ($159.4
million). Home Products inventory totaled $17.0 million at June 30, 2000, $11.3
million at December 31, 1999 and $12.6 million at June 30, 1999. Menswear
merchandise inventory was $13.7 million at June 30, 2000, $16.9 million at
December 31, 1999 and $21.5 million at June 30, 1999. Womenswear merchandise
inventory was $31.4 million at June 30, 2000, $40.2 million at December 31, 1999
and $39.5 million at June 30, 1999. Crossing Pointe merchandise inventory
totaled $1.2 million at June 30, 2000.
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. Blair Credit was offered only to established
customers prior to that 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 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 six months of 2000, finance charges were
$18,553,286 and the provision for doubtful accounts was $16,321,068 (net of
$2,232,218) as compared to 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). This 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
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 2000
Liquidity and Sources of Capital - Continued
--------------------------------
sales. The Company's gross credit sales increased 26% in the first six months of
2000 as compared to the first six months of 1999.
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 $6,211,416 during the
first six months of 2000 and $1,317,911 during the first six months of 1999.
Capital expenditures are projected to be $9 million to $12 million for the year
2000, $5 million for the year 2001 and $4 million for the year 2002. The
increased capital expenditures will result primarily from developing our own
Internet commerce site, from maintaining a higher inventory level, from
expanding database capabilities, from developing new product lines, from
expanding customer service capabilities and from installing new financial and
operational software systems. The Company has signed a contract with IBM to
build our Internet commerce site, with phased implementation to begin in the
third quarter of 2000.
The Company recently declared a quarterly dividend of $.15 per share payable on
September 15, 2000. 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 first six months of
2000, repurchased a total of 1,551,467 shares of its Common Stock - 795,247
shares purchased on the open market and 756,220 shares from the Estate of John
L. Blair. In 1999, the Company purchased the 756,220 shares from the Estate of
John L. Blair (500,000 in January, 100,000 in April and 156,220 in May) and
51,907 shares on the open market (November and December). In the first six
months of 2000, the Company purchased 198,601 shares on the open market. The
reduction in shares outstanding, due to the repurchase of shares for treasury,
caused earnings per share to increase by approximately $.08 in the first six
months of 2000.
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, revised capital
spending plans and unplanned capital spending.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 2000
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
were lower in 1999 than in 1998, but are increasing in 2000. Postal rates
increased on January 10, 1999. The Company estimates that the January 10, 1999
postal rate increase raised the Company's 1999 postage bill by 4.7%
(approximately $3.9 million pre-tax). Postal rates may increase again in 2001.
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 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 an impact on the
financial statements of the Company as the Company has not
invested in derivative instruments.
In December 1999, the Securities and Exchange Commisssion issued
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in
Financial Statements." Bulletin No. 101 formalizes the SEC's
position on application of revenue recognition rules. Bulletin
No. 101 becomes effective for the fourth quarter of fiscal years
beginning after December 15, 1999. The Company believes that
adoption of Bulletin No. 101 will not have a material impact on
the Company's results of operations.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 2000
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, a declining labor pool, 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 "40 to 60" market, is the fastest growing segment of the population. Success
of the Company's marketing strategy requires investment in database management,
financial and 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
-------------------
The Company has not experienced any disruptions of its business operations due
to the Year 2000 issue. Minor computer system problems were corrected over the
New Year's holiday weekend. No problems have occurred in our dealings with our
suppliers. The absence of Year 2000 problems to date doesn't guarantee that a
problem or problems couldn't arise in the future. The total Year 2000 project
cost the Company $825,000, all of which was expensed as incurred.
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, 2000
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
(a) The Company's Annual Meeting of Stockholders was held April 18, 2000.
(b) At the Annual Meeting of Stockholders, all of the Company's directors
were elected at said meeting, as follows:
David A. Blair 6,720,714 Votes For, 377,094 Votes Withheld
Robert W. Blair 6,935,098 Votes For, 162,710 Votes Withheld
Steven M. Blair 6,920,094 Votes For, 177,714 Votes Withheld
Robert D. Crowley 6,984,444 Votes For, 113,364 Votes Withheld
John O. Hanna 6,965,475 Votes For, 132,333 Vote Withheld
Gerald A. Huber 6,966,370 Votes For, 131,438 Votes Withheld
Craig N. Johnson 6,964,380 Votes For, 133,428 Votes Withheld
Murray K. McComas 6,969,273 Votes For, 128,535 Votes Withheld
Thomas P. McKeever 6,971,028 Votes For, 126,780 Votes Withheld
Kent R. Sivillo 6,985,803 Votes For, 112,005 Votes Withheld
Blair T. Smoulder 6,961,839 Votes For, 135,969 Votes Withheld
John E. Zawacki 6,614,509 Votes For, 483,299 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 matters were voted upon at the meeting, and the
following number of affirmative votes and negative votes were cast with
respect to each 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, 2000 was ratified.
This matter received 7,073,802 affirmative votes, 14,848 negative
votes and 9,158 votes withheld.
The Blair Corporation Omnibus Stock Plan was approved. This matter
received 5,005,267 affirmative votes, 153,765 negative votes,
61,560 votes withheld and 1,877,216 non-votes.
<PAGE>
PART II. OTHER INFORMATION - Continued
BLAIR CORPORATION AND SUBSIDIARY
June 30, 2000
Item 5. Other Information
-----------------
The company filed a Registration Statement on Form S-8 on July 19, 2000
registering 47,150 shares of the Company's Common Stock. Of this amount,
31,852 shares were offered for purchase to selected employees of the
Company under and in accordance with the Company's Employee Stock
Purchase Plan.
The company filed a Registration Statement on Form S-8 on July 19, 2000
registering 750,000 shares of the Company's Common Stock. Of this
amount, 35,400 shares were offered for purchase to selected employees of
the Company under and in accordance with the Company's Omnibus Stock
Plan.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
3(i) Restated Certificate of Incorporation*
3(ii) Amended Bylaws of Blair Corporation**
11 Statement regarding computation of per share earnings***
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended June 30,
2000
-------------------------------
*Incorporated by reference to Exhibit A to the Quarterly Report on Form 10-Q of
the Company dated August 1, 1995 (SEC File No. 1-878).
**Incorporated by reference to Exhibit 4.3 to the Form S-8 Registration
Statement dated July 19, 2000 (SEC File No. 333-41770)
***Incorporated by reference to Note C herein.
<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 10, 2000 By KENT R. SIVILLO
------------------------- --------------------------------
Kent R. Sivillo
Vice President and Treasurer
(Principal Financial Officer)
