United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended September 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 November 10, 2000 the registrant had outstanding 8,004,573 shares of its
common stock without nominal or par value.
<PAGE>
-2-
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS (UNAUDITED)
BLAIR CORPORATION AND SUBSIDIARY
September 30, 2000
<PAGE>
CONSOLIDATED BALANCE SHEETS -3-
BLAIR CORPORATION AND SUBSIDIARY
September 30 December 31
2000 1999
------------ ------------
ASSETS
Current assets:
Cash $ 3,855,418 $ 1,625,236
Customer accounts receivable,
less allowances for doubtful
accounts and returns of $43,063,711
in 2000 and $37,920,826 in 1999 160,763,888 165,829,079
Inventories - Note F
Merchandise 84,570,819 68,408,229
Advertising and shipping supplies 18,832,875 11,639,598
------------ ------------
103,403,694 80,047,827
Deferred income taxes - Note E 10,698,000 9,234,000
Prepaid and refundable federal
and state taxes 2,729,977 7,487,288
Prepaid expenses 874,910 1,068,936
------------ ------------
Total current assets 282,325,887 265,292,366
Property, plant and equipment:
Land 1,142,144 1,142,144
Buildings 64,090,518 63,583,170
Equipment 51,568,142 42,550,368
------------ ------------
116,800,804 107,275,682
Less allowances for depreciation 64,622,748 60,390,643
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52,178,056 46,885,039
Trademarks 722,955 777,137
------------ ------------
TOTAL ASSETS $335,226,898 $312,954,542
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - Note H $ 17,300,000 $ 11,800,000
Trade accounts payable 58,216,921 53,245,921
Advance payments from customers 3,542,372 2,058,651
Accrued expenses - Note D 12,937,695 10,742,545
------------ ------------
Total current liabilities 91,996,988 77,847,117
Deferred income taxes 902,000 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 14,607,384 14,625,722
Retained earnings 261,991,705 251,163,905
------------ ------------
277,018,899 266,209,437
Less 2,051,123 shares in 2000
and 1,917,574 shares in 1999 of
common stock in treasury - at cost 42,050,463 39,829,081
Less receivable from stock plans 2,640,526 2,402,931
------------ ------------
232,327,910 223,977,425
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $335,226,898 $312,954,542
============ ============
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME -4-
BLAIR CORPORATION AND SUBSIDIARY
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $115,183,322 $111,652,415 $402,310,426 $367,106,360
Other income - Note G 11,077,735 9,916,760 33,461,735 29,243,480
------------ ------------ ------------ ------------
126,261,057 121,569,175 435,772,161 396,349,840
Costs and expenses:
Cost of goods sold 57,529,507 59,991,630 198,937,016 190,921,849
Advertising 30,660,837 30,310,711 96,847,026 98,046,525
General and administrative 30,974,991 27,264,128 91,177,258 80,154,534
Provision for doubtful accounts 8,132,343 4,900,116 24,453,411 14,837,672
Interest 385,856 474,990 1,265,401 2,180,919
------------ ------------ ------------ ------------
127,683,534 122,941,575 412,680,112 386,141,499
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (1,422,477) (1,372,400) 23,092,049 10,208,341
Income taxes - Note E (649,000) (640,000) 8,641,000 3,621,000
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (773,477) $ (732,400) $ 14,451,049 $ 6,587,341
============ ============ ============ ============
Basic and diluted earnings per share based on
weighted average shares outstanding - Note C $ (.09) $ (.08) $1.80 $ .79
====== ====== ===== =====
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -5-
BLAIR CORPORATION AND SUBSIDIARY
Three Months Ended Nine Months Ended
September 30 September 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 14,552,382 14,262,505 14,625,722 14,278,828
Issuance (net of forfeitures) of
Common Stock under stock plans 55,002 373,430 (18,779) 345,107
Issuance of Common Stock to
non-employee directors -0- -0- 441 12,000
------------ ------------ ------------ ------------
Balance at end of period 14,607,384 14,635,935 14,607,384 14,635,935
Retained earnings:
Balance at beginning of period 263,968,830 245,633,927 251,163,905 240,798,008
Net income (loss) (773,477) (732,400) 14,451,049 6,587,341
Cash dividends declared - Note B (1,203,648) (1,231,504) (3,623,249) (3,715,326)
------------ ------------ ------------ ------------
Balance at end of period 261,991,705 243,670,023 261,991,705 243,670,023
Treasury Stock:
Balance at beginning of period (43,332,138) (39,844,165) (39,829,081) (26,756,067)
Purchase of treasury stock -0- -0- (3,501,222) (13,095,634)
Issuance (net of forfeitures) of
Common Stock under stock plans 1,281,675 768,607 1,257,406 761,799
Issuance of Common Stock to
non-employee directors -0- -0- 22,434 14,344
------------ ------------ ------------ ------------
Balance at end of period (42,050,463) (39,075,558) (42,050,463) (39,075,558)
Receivable from stock plans:
Balance at beginning of period (2,271,556) (2,141,109) (2,402,931) (2,239,344)
Issuance (net of forfeitures) of
Common Stock under stock plans (433,418) (372,100) (411,048) (360,825)
Repayments 64,448 53,313 173,453 140,273
------------ ------------ ------------ ------------
Balance at end of period (2,640,526) (2,459,896) (2,640,526) (2,459,896)
------------ ------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY $232,327,910 $217,190,314 $232,327,910 $217,190,314
============ ============ ============ ============
</TABLE>
See accompanying notes.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS -6-
BLAIR CORPORATION AND SUBSIDIARY
Nine Months Ended
September 30
2000 1999
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OPERATING ACTIVITIES
Net income $ 14,451,049 $ 6,587,341
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 4,453,557 3,762,167
Provision for doubtful accounts 24,453,411 14,837,672
Provision for deferred income taxes (1,692,000) 592,000
Changes in operating assets and
liabilities providing (using) cash:
Customer accounts receivable (19,388,220) (6,396,512)
Inventories (23,355,867) 22,476,392
Federal and state taxes 4,757,311 (1,928,025)
Prepaid expenses 194,026 (527,019)
Trade accounts payable 4,971,000 (410,073)
Advance payments from customers 1,483,721 2,907,430
Accrued expenses 2,195,150 (895,174)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 12,523,138 41,006,199
INVESTING ACTIVITIES
Purchases of property, plant and equipment (9,692,392) (2,461,956)
------------ ------------
NET CASH (USED IN) INVESTING ACTIVITIES (9,692,392) (2,461,956)
FINANCING ACTIVITIES
Net proceeds from (repayments of)
bank borrowings 5,500,000 (18,300,000)
Dividends paid (3,623,249) (3,715,326)
Purchase of Common Stock for treasury (3,501,222) (13,095,634)
Issuance (net of forfeitures) of
Common Stock under stock plans 1,238,627 1,106,906
Decrease in notes receivable
from stock plans (237,595) (220,552)
Issuance of Common Stock to
non-employee directors 22,875 26,344
------------ ------------
NET CASH (USED IN) FINANCING ACTIVITIES (600,564) (34,198,262)
------------ ------------
NET INCREASE IN CASH 2,230,182 4,345,981
Cash at beginning of year 1,625,236 3,211,376
------------ ------------
CASH AT END OF PERIOD $ 3,855,418 $ 7,557,357
============ ============
See accompanying notes.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -7-
BLAIR CORPORATION AND SUBSIDIARY
September 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 nine months ended September 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 10-17-00 .15
NOTE C - BASIC AND DILUTED EARNINGS PER SHARE
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
----------- ----------- ----------- -----------
Net income (loss) $ (773,477) $ (732,400) $14,451,049 $ 6,587,341
Weighted average
shares outstanding 8,007,704 8,195,811 8,047,726 8,337,153
Basic and diluted
earnings per share $(.09) $(.08) $ 1.80 $ .79
NOTE D - ACCRUED EXPENSES Accrued expenses consist of:
September 30 December 31
2000 1999
----------- -----------
Employee compensation $ 7,605,022 $ 7,145,761
Contribution to profit sharing
and retirement plan 1,558,793 1,630,652
Taxes, other than taxes on income 977,311 285,775
Other accrued items 2,796,569 1,680,357
----------- -----------
$12,937,695 $10,742,545
=========== ===========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -8-
BLAIR CORPORATION AND SUBSIDIARY
September 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 (credit) are as follows:
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
----------- ------------ ---------- -----------
Currently payable:
Federal $(2,281,000) $(2,549,000) $ 9,536,000 $ 3,102,000
State (523,000) (644,000) 797,000 (73,000)
----------- ----------- ------------ ----------
(2,804,000) (3,193,000) 10,333,000 3,029,000
Deferred 2,155,000 2,553,000 (1,692,000) 592,000
----------- ----------- ----------- -----------
$ (649,000) $ (640,000) $ 8,641,000 $ 3,621,000
=========== =========== =========== ===========
The differences between total tax expense (credit) and the amount computed by
applying the statutory federal income tax rate of 35% to income (loss) before
income taxes are as follows:
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
----------- ----------- ----------- -----------
Statutory rate
applied to
pre-tax income (loss) $ (497,867) $ (480,340) $ 8,082,217 $ 3,572,919
State income taxes,
net of federal
tax benefit (159,900) (170,950) 532,350 10,400
Other items 8,767 11,290 26,433 37,681
----------- ----------- ----------- -----------
$ (649,000) $ (640,000) $ 8,641,000 $ 3,621,000
=========== =========== =========== ===========
Components of the provision for deferred income tax expense are as follows:
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
----------- ----------- ----------- -----------
Advertising costs $ 3,664,000 $ 3,768,000 $ 2,776,000 $ 2,744,000
Provision for
doubtful accounts (956,000) (490,000) (2,697,000) (892,000)
Provision for
estimated returns (89,000) (622,000) (954,000) (662,000)
Other items - net (464,000) (103,000) (817,000) (598,000)
----------- ---------- ----------- -----------
$ 2,155,000 $2,553,000 $(1,692,000) $ 592,000
=========== ========== =========== ===========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -9-
BLAIR CORPORATION AND SUBSIDIARY
September 30, 2000
NOTE E - INCOME TAXES - Continued
Components of the deferred tax asset and liability under the liability method as
of September 30, 2000 and December 31, 1999 are as follows:
September 30 December 31
2000 1999
----------- -----------
Current net deferred tax asset:
Doubtful accounts $11,839,000 $ 9,142,000
Returns allowances 2,536,000 1,582,000
Inventory obsolescence 2,449,000 1,551,000
Inventory costs (1,110,000) 1,440,000
Vacation pay 1,419,000 (1,166,000)
Advertising costs (7,188,000) (4,412,000)
Other items 753,000 1,097,000
----------- -----------
$10,698,000 $ 9,234,000
=========== ===========
Long-term deferred tax liability:
Property, plant and equipment $ 902,000 $ 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 $8,049,000 at September 30, 2000
and $7,869,000 at December 31, 1999, respectively.
NOTE G - OTHER INCOME Other income consists of:
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
----------- ----------- ----------- -----------
Finance charges on time
payment accounts $ 9,109,142 $ 7,982,611 $27,662,428 $25,138,978
Commissions earned 919,566 1,039,374 2,664,966 1,968,057
Other items 1,049,027 894,775 3,134,341 2,136,445
----------- ----------- ----------- -----------
$11,077,735 $ 9,916,760 $33,461,735 $29,243,480
=========== =========== =========== ===========
Finance charges on time payment accounts are recognized on an accrual basis of
accounting.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -10-
BLAIR CORPORATION AND SUBSIDIARY
September 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 September 30, 2000 and December 31,
1999, the Company was in compliance with all the agreement's covenants. At
September 30, 2000, the Company had borrowed $27,300,000 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 November 10, 2000, the Company's
borrowings outstanding totaled $25,000,000.
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 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 -11-
BLAIR CORPORATION AND SUBSIDIARY
September 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, 14,000 shares on November 1, 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 -12-
CONDITION AND RESULTS OF OPERATIONS
BLAIR CORPORATION AND SUBSIDIARY
September 30, 2000
Results of Operations
---------------------
Comparison of Third Quarter 2000 and Third Quarter 1999
The third quarter of 2000 resulted in a net loss of $773,477 as compared to a
net loss of $732,400 for the third quarter of 1999. Results for the third
quarter of 2000 reflect costs associated with the Company's expanding e-commerce
initiatives and the start up of Crossing Pointe, our new women's apparel product
line.
Net sales for the third quarter of 2000 were 3.2% higher than net sales for the
third quarter of 1999. Overall, response rates in the third quarter of 2000 were
approximately the same as in the third quarter of 1999, but were slightly below
expected levels for 2000. Gross sales revenue generated per advertising dollar
increased approximately 1.6% in the third quarter of 2000 as compared to the
third quarter of 1999. The total number of orders shipped increased slightly and
the average order size decreased slightly in the third quarter of 2000 from the
third quarter of 1999 - attributable to a higher volume of prospecting in 2000.
The provision for returned merchandise as a percentage of gross sales decreased
approximately 3.3% in the third quarter of 2000 as compared to the third quarter
of 1999 primarily due to the Company's efforts to improve product quality.
Other income increased approximately 12% in the third quarter of 2000 as
compared to the third 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 49.9% in the third
quarter of 2000 from 53.7% in the third quarter of 1999. Cost of goods sold in
the third quarter of 2000 was favorably impacted by lower return levels and
reduced liquidation costs as compared to the third quarter of 1999.
Advertising expense in the third quarter of 2000 increased 1.2% from the third
quarter of 1999. Reductions in catalog and letter style mailings were more than
offset by the start up of Crossing Pointe, increased volume of co-op and media
advertising and the expansion of e-commerce initiatives.
The total number of catalog mailings released in the third quarter of 2000 was
4% less than in the third quarter of 1999 (33.9 million vs. 35.4 million).
Crossing Pointe print advertising is all via catalog and is included in the
catalog mailings number for 2000. 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 style mailings released in the third quarter of 2000
was 23% less than in the third quarter of 1999 (12.5 million vs. 16.2 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 increased 47% in the
third quarter of 2000 as compared to the third quarter of 1999 (160 million vs.
108 million).
The Company launched e-commerce sites for Crossing Pointe and the Blair Online
Outlet early in the third quarter of 2000. Also, the Company started the launch
of the initial phases of its www.blair.com website during the third quarter of
2000, and expects to complete the initial phases in the fourth quarter of 2000.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -13-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 2000
Results of Operations - Continued
---------------------
Comparison of Third Quarter 2000 and Third Quarter 1999 -
Continued
General and administrative expense increased 13.6% in the third quarter of 2000
as compared to the third quarter of 1999. The higher general and administrative
expense was primarily the result of the expansion of e-commerce, the start up of
Crossing Pointe and a 5.7% increase in wages and benefits.
The provision for doubtful accounts as a percentage of credit sales increased
53.8% in the third quarter of 2000 as compared to the third 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
current and prior years' experience, especially delinquencies (accounts over 30
days past due) and actual charge-offs (accounts removed from accounts receivable
for non-payment). 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 actual charge-offs as a percentage of
delinquencies, declined in 1998 and 1999. The estimated bad debt rate used for
the third quarter of 2000 was approximately 42% higher than the bad debt rate
used for the third quarter of 1999. The estimated bad debt rate increased
primarily due to a larger credit marketing program to prospects, a larger
continuity sales program and a deterioration in delinquency rates. At September
30, 2000, the delinquency rate of open accounts receivable was approximately 12%
higher than at September 30, 1999. The delinquency rate for established credit
customers (95.1% of open receivables at September 30, 2000, 97.1% at September
30, 1999) increased 3% and the delinquency rate for prospects increased 65%. The
charge-off rate for the third quarter of 2000 was 28% more than the charge-off
rate for the third quarter of 1999, primarily due to an expanded 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 be updated and improved
and, along with expanding database capabilities, provide valuable credit
marketing opportunities.
Interest expense decreased 19% in the third quarter of 2000 as compared to the
third 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 the loss before income taxes were 45.6% in the
third quarter of 2000 and 46.6% in the third quarter of 1999. The federal income
tax rate was 35% in both years. The total income tax rate, in both years, was
the result of a decrease in the Company's effective state income tax rate.
Comparison of Nine Month Periods Ended September 30, 2000 and September 30,
1999.
Net income for the first nine months of 2000 increased 119% as compared to the
first nine months of 1999. Results for the nine months of 2000 reflect increased
response to the Company's advertising programs, lower return levels and reduced
liquidation costs as compared to the first nine months of 1999.
Net sales for the first nine months of 2000 were 9.6% higher than net sales for
the first nine months of 1999. Response rates exceeded expected levels in the
nine months of 2000 but were below expected levels in the first nine months of
1999. Gross sales revenue generated per advertising dollar
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -14-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 2000
Results of Operations - Continued
---------------------
Comparison of Nine Month Periods Ended September 30, 2000 and September 30, 1999
- Continued
increased 10.3%. The total number of orders shipped increased significantly
while the average order size decreased slightly in the first nine months of 2000
as compared to the first nine months of 1999. Increased prospecting in 2000 has
affected the number and size of orders shipped. The provision for returned
merchandise as a percentage of gross sales decreased 5.5% in the first nine
months of 2000 as compared to the first nine months of 1999 primarily due to the
Company's efforts to improve product quality.
Other income increased approximately 14.4% in the nine months of 2000 as
compared to the first nine months of 1999. Increased 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 in 2000.
Cost of goods sold as a percentage of net sales decreased to 49.4% in the nine
months of 2000 from 52.0% in the first nine 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 nine months of 1999.
Advertising expense for the nine months of 2000 was 1.2% less than for the first
nine months of 1999. Reductions in catalog volume, 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 and more than offsets the higher cost of paper in 2000.
Improved predictive modeling techniques applied to the Company's marketing
database information are making it possible to maintain and/or grow order volume
on a reduced advertising volume.
The total number of catalog mailings released in the nine months of 2000 was
1.2% less than in the first nine months of 1999 (99.4 million vs. 100.6
million). Catalog mailings, including combined product line offerings, are
continually reviewed as to mailings frequency, page density, product content,
number of pages and trim size.
The total number of letter mailings released in the nine months of 2000 was 8.9%
more than in the first nine months of 1999 (66.6 million vs. 61.1 million).
Letter mailings tend to be more productive when targeting the Company's older
(60+) women customers.
Total volume of the co-op media advertising programs decreased 12% in the first
nine months of 2000 as compared to the first nine months of 1999 (773 million
vs. 878 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 nine months of
2000 as compared to the first nine months of 1999. The higher general and
administrative expense was primarily the result of the expansion of e-commerce,
the start up of Crossing Pointe and an 11.4% 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
36.3% in the first nine months of 2000 as compared to the first nine 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 current and prior years' experience, especially
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -15-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 2000
Results of Operations - Continued
---------------------
Comparison of Nine Month Periods Ended September 30, 2000 and September 30,1999
- Continued
delinquencies (accounts over 30 days past due) and actual charge offs (accounts
removed from accounts receivable for non-payment). 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 actual charge-offs, as a
percentage of delinquencies, declined in 1998 and 1999. The estimated bad debt
rate used for the first nine months of 2000 was approximately 30% higher than
the bad debt rate used for the first nine months of 1999. The estimated bad debt
rate increased primarily due to a larger credit marketing program to prospects,
a larger continuity sales program and a deterioration in delinquency rates. At
September 30, 2000, the delinquency rate of open accounts receivable was
approximately 12% higher than at September 30, 1999. The delinquency rate for
established credit customers (95.1% of open receivables at September 30, 2000,
97.1% at September 30, 1999) increased 3% and the delinquency rate for prospects
increased 65%. The charge-off rate for the first nine months of 2000 was 15%
more than the charge-off rate for the first nine months of 1999, primarily due
to an expanded 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
be updated and improved and, along with expanding database capabilities, provide
valuable credit marketing opportunities.
Interest expense decreased 42% in the first nine months of 2000 as compared to
the first nine 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 37.4% in the
first nine months of 2000 and 35.5% in the first nine 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 September 30, 2000 the Company was in compliance with all
the covenants. Borrowings outstanding at September 30, 2000 were $27,300,000 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. Borrowings outstanding at September 30, 1999 were $34,450,000, of
which $25,000,000 was classified as long-term. As of November 10, 1999, the
Company's borrowings outstanding totaled $25,000,000.
The ratio of current assets to current liabilities was 3.07 at September 30,
2000, 3.41 at December 31, 1999 and 3.56 at September 30, 1999. Working capital
increased $2,883,650 in the first nine months of 2000 primarily due to the
higher net income. The 2000 increase was primarily reflected in increased
inventories more than offsetting decreased customer accounts receivable and
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -16-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 2000
Liquidity and Sources of Capital - Continued
--------------------------------
prepaid federal and state taxes and increased notes payable and trade accounts
payable.
Merchandise inventory turnover was 2.9 at September 30, 2000, 2.5 at December
31, 1999 and 2.3 at September 30, 1999. Merchandise inventory as of September
30, 2000 increased 23.6% from December 31, 1999 and 16.2% from September 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
four product lines. The fourth product line, Crossing Pointe, was added in the
third quarter of 2000 and 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 14.2% ($57.3 million) in the first nine months of 2000 as compared to
14.8% ($54.4 million) in the first nine months of 1999. Menswear net sales were
19.2% ($77.3 million) as compared to 22.0% ($80.8 million). Womenswear net sales
were 66.2% ($266.5 million) as compared to 63.2% ($231.9 million). Crossing
Pointe net sales were .3% ($1.2 million), all in the third quarter of 2000. Home
Products merchandise inventory totaled $21.4 million at September 30, 2000,
$11.3 million at December 31, 1999 and $12.8 million at September 30, 1999.
Menswear merchandise inventory was $20.0 million at September 30, 2000, $16.9
million at December 31, 1999 and $21.8 million at September 30, 1999. Womenswear
merchandise inventory was $41.0 million at September 30, 2000, $40.2 million at
December 31, 1999 and $38.1 million at September 30, 1999. Crossing Pointe
merchandise inventory totaled $2.1 million at September 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 nine months of 2000, finance charges were
$27,662,428 and the provision for doubtful accounts was $24,453,411 (net of
$3,209,017) as compared to the first nine months of 1999, finance charges were
$25,138,978 and the provision for doubtful accounts was $14,837,672 (net of
$10,301,306). 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 sales. The
Company's gross credit sales increased 20% in the first nine months of 2000 as
compared to the first nine 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 $9,692,392 during the
first nine months of 2000 and $2,461,956 during the first nine months of
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -17-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 30, 2000
Liquidity and Sources of Capital - Continued
--------------------------------
1999. Capital expenditures are projected to be $12 million to $15 million for
the year 2000 and over $15 million for each of the years 2001 and 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, from expanding fulfillment 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 having begun in the third quarter of 2000. Many of the
anticipated capital projects are still under study and final cost estimates and
timing haven't been set.
The Company recently declared a quarterly dividend of $.15 per share payable on
December 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 nine 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 nine
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 $.06 in the first nine
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 -18-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 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 have increased 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 Commission 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 -19-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARY
September 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, an
expanded and/or 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 -20-
BLAIR CORPORATION AND SUBSIDIARY
September 30, 2000
Item 3. Legal Proceedings
-----------------
The Company is not involved in any pending legal proceedings
other than Legal proceedings occurring in the ordinary course
of business. Management believes that none of these proceedings,
individually or in the aggregate will have a material adverse
impact on the results of operations or financial condition of
the Company.
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, 45,852 shares (31,852 on July 19, 2000 and 14,000
on November 1, 2000) 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
--------
3.1 Restated Certificate of Incorporation*
3.2 Amended Bylaws of Blair Corporation**
4 Specimen of Common Stock Certificate***
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
September 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 Exhibit 4.1 to the Form S-8 Registration
Statement dated July 19, 2000 (See File No. 333-41770)
****Incorporated by reference to Note C to the Consolidated Financial Statements
included herein.
<PAGE>
-21-
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BLAIR CORPORATION
----------------------------
(Registrant)
Date November 10, 2000 By KENT R SIVILLO
---------------------------------- ----------------------------
KENT R SIVILLO
Vice President and Treasurer
(Principal Financial Officer)
