<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 Commission file number 1-878
BLAIR CORPORATION
Incorporated in Delaware I.R.S. Employer Identification Number:
220 Hickory Street
Warren, Pennsylvania 16366 25-0691670
(814) 723-3600
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock, without nominal or par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 period 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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
---
The aggregate market value of the voting stock held by nonaffiliates of
the registrant as of February 25, 2000 was $118,373,747. There were 8,126,469
shares of common stock outstanding as of February 25, 2000, which amount
represents the figure reported outstanding by the Company's transfer agent as of
the record date (8,156,516 shares) reduced by 30,047 shares repurchased by the
Company prior to the record date but not reflected on the books of the transfer
agent.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the Annual Report to Stockholders for the fiscal year ended
December 31, 1999 (the "Annual Report") are incorporated by reference into Part
II and Part IV of this Form 10-K. Portions of the Proxy Statement for the 2000
Annual Meeting of Stockholders (the "Proxy Statement") are incorporated by
reference into Part III of this Form 10-K.
================================================================================
<PAGE> 2
PART I
------
ITEM 1. BUSINESS
(a) GENERAL.
Blair Corporation (the "Company") was founded in 1910 by John L. Blair,
Sr., and was incorporated in 1924 under the laws of the State of Delaware. The
Company's business consists of the sale of fashion apparel for men and women,
plus a wide range of home products, primarily through direct mail merchandising.
The Company operates two retail stores, one in Pennsylvania and one in Delaware,
and two outlet stores in Pennsylvania. The Company employs approximately 2,300
people. None of the Company's employees are subject to collective bargaining
agreements.
(b) INFORMATION REGARDING INDUSTRY SEGMENTS.
The Company's business consists of only one industry segment, which is
the direct mail and retail merchandising of men's and women's fashion apparel
and home products.
(c) DESCRIPTION OF BUSINESS.
The Company markets a wide range of merchandise, manufactured by a
number of independent suppliers, both domestic and foreign. Most of these
suppliers have been associated with the Company for many years and manufacture
products based upon the Company's specifications. Suppliers are selected in
accordance with their ability to produce high quality products in a
cost-effective manner.
The Company markets its products mainly by direct mail. Catalogs and
letters containing color folders depict the current styles of womenswear (such
as coordinates, dresses, tops, pants, skirts, lingerie, sportswear, suits,
jackets, outerwear and shoes), menswear (such as suits, shirts, outerwear,
active wear, slacks, shoes, and accessories), and home products (such as
bedspread ensembles, draperies, furniture covers, area rugs, bath accessories,
kitchenware, gifts, collectibles and personal care items) and are mailed
directly to existing and prospective customers. Sales of the menswear and
womenswear products accounted for approximately 86% of the Company's total sales
in 1999, and sales of home products accounted for the remaining 14%
(approximately). Media and co-op prospect advertising programs continue to be
used as components of the Company's customer acquisition strategy. The Company
had minimal presence on the Internet in 1999, less than $2 million in sales, but
will be expanding its Internet presence in 2000 as it has contracted with IBM to
build an internet commerce site, with phased implementation to begin mid-year
2000.
Catalog mailings are mailed from commercial printers engaged by the
Company and letter mailings originate from the Company's Mailing Center in
nearby Irvine, Pennsylvania. Orders for merchandise are processed at the Company
corporate offices in Warren, Pennsylvania (telephone orders via the call
centers) and orders are filled and mailed from the Company's Distribution Center
in Irvine, Pennsylvania. The Company serves customers throughout the fifty
states.
The Company's outlet stores enable it to more efficiently promote and
liquidate discontinued, overstocked and returned merchandise. The Delaware
retail store is the only Company retail facility located outside of its home
state of Pennsylvania.
The Company considers its merchandise to be low/medium-priced and
competes for sales with other direct marketers, retail department stores,
specialty shops, discount store chains and e-commerce and multi-channel
marketers. The Company competes based on its sales expertise - it's unique
combination of product, quality, price, credit, guarantee and service.
During 1999, the Company continued to broaden its customer information
database systems. The marketing and credit departments are continually updated
in order to enhance the Company's ability to market to both customers and
prospects.
(d) FOREIGN OPERATIONS AND EXPORT SALES.
The Company does not derive any revenue from sales of merchandise
outside of the United States.
-2-
<PAGE> 3
ITEM 2. PROPERTIES
The Company owns the following properties:
1. Blair Headquarters (220 Hickory Street, Warren, Pennsylvania).
2. Blair Distribution Center (Route 62, Irvine, Pennsylvania).
3. Blair Mailing Center (Route 62, Irvine, Pennsylvania).
4. Blair Warehouse Outlet (Route 62, Starbrick, Pennsylvania).
5. Blair Warehouse Outlet (Millcreek Mall, Erie, Pennsylvania).
6. Bell Warehouse Building (Liberty Street, Warren, Pennsylvania).
7. Starbrick Warehouse Building (Route 62, Starbrick, Pennsylvania).
The Company leases the following properties:
1. Blair Retail Store (Wilmington, Delaware).
2. Warehouse Building (Route 62, Starbrick, Pennsylvania).
3. Telephone Call Center (Erie, Pennsylvania).
4. Telephone Call Center (Franklin, Pennsylvania).
In addition, the Company's wholly-owned subsidiary, Blair Holdings,
Inc., leases office space in Newark, Delaware, which it uses as its principal
office.
Management believes that these properties are capable of meeting the
Company's anticipated needs for the near future. The Company's marketing
strategy will possibly require expansion of the Company's distribution and call
center capabilities.
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 legal proceedings, individually or in the aggregate,
will have a material adverse impact on the results of operations or financial
condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this report.
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference to
page 16 of the Company's 1999 Annual Report to Stockholders.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to
page 16 of the Company's 1999 Annual Report to Stockholders.
-3-
<PAGE> 4
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this item is incorporated by reference to
pages 17 through 20 of the Company's 1999 Annual Report to Stockholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference to
pages 10 through 16 of the Company's 1999 Annual Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information regarding directors and executive officers of the Company
appearing under the caption "Election of Directors" in the Company's Proxy
Statement for the 2000 Annual Meeting of Stockholders filed with the Securities
and Exchange Commission on March 17, 2000 (the "2000 Proxy Statement") is hereby
incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information appearing under the caption "Executive Compensation" in the
2000 Proxy Statement is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Information setting forth the security ownership of certain beneficial
owners and management appearing under the captions "Security Ownership of
Certain Beneficial Owners" and "Security Ownership of Management" in the 2000
Proxy Statement is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) EXHIBITS AND FINANCIAL STATEMENTS AND SCHEDULES.
------------------------------------------------
(1) Financial Statements. The Company's consolidated financial
statements to be included in Part II, Item 8 are incorporated herein by
reference to the Company's 1999 Annual Report to Stockholders, a copy of which
accompanies this report on Form 10-K.
(2) Financial Statement Schedules. SCHEDULE II -- VALUATION AND
QUALIFYING ACCOUNTS is being filed as part of this report on Form 10-K, and
should be read in conjunction with the consolidated financial statements of the
Company described in Item 14(a)(1) above.
-4-
<PAGE> 5
All other schedules set forth in the applicable accounting regulations
of the Securities and Exchange Commission either are not required under the
related instructions or are not applicable and, therefore, have been omitted.
(3) List of Exhibits.
3 (i) Certificate of Incorporation of the Company
3 (ii) Bylaws of the Company
10 Stock Accumulation and Deferred Compensation Plan for
Directors
*11 Computation of Earnings per Share (incorporated by
reference to page 10 of the 1999 Annual Report to
Stockholders)
*13 1999 Annual Report to Stockholders
21 Subsidiaries of Registrant
*23 Consents of Experts and Counsel
*27 Financial Data Schedule
99 2000 Proxy Statement
(b) REPORTS ON FORM 8-K.
The registrant has filed no Forms 8-K during the quarter ended December
31, 1999.
(c) EXHIBITS.
All exhibits listed above were previously filed with the Commission,
except for those marked with an asterisk, which are being filed with this Form
10-K.
-5-
<PAGE> 6
CONFORMED
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
BLAIR CORPORATION
(Registrant)
Date: March 17, 2000 By: /s/ KENT R. SIVILLO
----------------------------
Kent R. Sivillo
Vice President and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the date indicated.
Date: March 17, 2000 By: /s/ MURRAY K. MCCOMAS
------------------------------
Murray K. McComas
Chairman of the Board of Directors
Date: March 17, 2000 By: /s/ JOHN E. ZAWACKI
----------------------------
John E. Zawacki
President, Chief Executive Officer
and Director
(Principal Executive Officer)
Date: March 17, 2000 By: /s/ BLAIR T. SMOULDER
------------------------------
Blair T. Smoulder
Executive Vice President
and Director
Date: March 17, 2000 By: /s/ STEVEN M. BLAIR
----------------------------
Steven M. Blair
Vice President, Order
Handling, and Director
Date: March 17, 2000 By: /s/ DAVID A. BLAIR
---------------------------
David A. Blair
Secretary and Director
Date: March 17, 2000 By: /s/ KENT R. SIVILLO
----------------------------
Kent R. Sivillo
Vice President,
Treasurer and Director
(Principal Financial and
Accounting Officer)
-6-
<PAGE> 7
Date: March 17, 2000 By: /s/ ROBERT D. CROWLEY
------------------------------
Robert D. Crowley
Vice President, Menswear,
and Director
Date: March 17, 2000 By: /s/ THOMAS P. MCKEEVER
-------------------------------
Thomas P. McKeever
Vice President, Corporate Affairs
and Human Resources, and Director
-7-
<PAGE> 8
Annual Report on Form 10-K
Item 14(a)(1) and (2), and (d)
List of Financial Statements and Financial Statement Schedules
Blair Corporation and Subsidiary
Warren, Pennsylvania
Year ended December 31, 1999
-8-
<PAGE> 9
Blair Corporation and Subsidiary
List of Financial Statements and Financial Statement Schedules
Form 10-K -- Item 14(a)(1) and (2), and (d)
The following consolidated financial statements of Blair Corporation, included
in the annual report of the registrant to its stockholders for the year ended
December 31, 1999, are incorporated by reference in Item 8:
-- Consolidated Balance Sheets -- December 31, 1999 and 1998
-- Consolidated Statements of Income -- Years ended December 31,
1999, 1998 and 1997
-- Consolidated Statements of Stockholders' Equity -- Years ended
December 31, 1999, 1998 and 1997
-- Consolidated Statements of Cash Flows -- Years ended December 31,
1999, 1998 and 1997
-- Notes to Consolidated Financial Statements -- December 31, 1999
The following financial statement schedule of Blair Corporation is included in
Item 14(d):
-- Schedule II -- Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
-9-
<PAGE> 10
Blair Corporation and Subsidiary
Schedule II
Valuation and Qualifying Accounts
December 31, 1999
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------------------------------------------------------------------------------
ADDITIONS-
BALANCE AT CHARGED TO BALANCE
DESCRIPTION BEGINNING COSTS AND DEDUCTIONS- AT END
OF PERIOD EXPENSES DESCRIBE OF PERIOD
<S> <C> <C> <C> <C>
Year ended December 31, 1999:
Allowance deducted from
asset account (customer
accounts receivable):
For doubtful accounts $29,224,323 $ 22,468,075(A) $ 20,203,245(B) $31,489,153
For estimated loss on returns 6,250,000 83,262,638 83,020,965(C) 6,431,673
----------- ------------ ------------ -----------
Totals $35,474,323 $105,730,713 $103,284,210 $37,920,826
=========== ============ ============ ===========
Year ended December 31, 1998:
Allowance deducted from
asset account (customer
accounts receivable):
For doubtful accounts $31,984,888 $ 22,033,466(A) $ 24,794,032(B) $29,224,323
For estimated loss on returns 6,495,000 88,927,593 89,172,593(C) 6,250,000
----------- ------------ ------------ -----------
Totals $38,479,888 $110,961,059 $113,966,625 $35,474,323
=========== ============ ============ ===========
Year ended December 31, 1997:
Allowance deducted from
asset account (customer
accounts receivable):
For doubtful accounts $37,272,572 $ 32,222,092(A) $ 37,509,776(B) $31,984,888
For estimated loss on returns 7,192,000 94,114,182 94,811,182(C) 6,495,000
----------- ------------ ------------ -----------
Totals $44,464,572 $126,336,274 $132,320,958 $38,479,888
=========== ============ ============ ===========
</TABLE>
- ----------
Note (A) -- Current year provision for doubtful accounts, charged against
income.
Note (B) -- Accounts charged off, net of recoveries.
Note (C) -- Sales value of merchandise returned.
-10-
<PAGE> 1
Exhibit 13
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales .............................................. $522,197,334 $506,803,591 $486,581,737
Other income--Note 5 ................................... 40,686,195 43,862,320 39,931,577
------------ ------------ ------------
562,883,529 550,665,911 526,513,314
Costs and expenses:
Cost of goods sold .................................. 269,460,019 251,832,019 242,828,539
Advertising ......................................... 134,892,301 132,274,259 128,117,432
General and administrative .......................... 109,340,500 108,567,387 98,352,175
Provision for doubtful accounts ..................... 22,468,075 22,033,466 32,222,092
Interest ............................................ 2,557,945 2,116,772 4,102,148
------------ ------------ ------------
538,718,840 516,823,903 505,622,386
------------ ------------ ------------
INCOME BEFORE INCOME TAXES ............................. 24,164,689 33,842,008 20,890,928
Income taxes--Note 6 ................................... 8,852,000 11,553,000 7,637,000
------------ ------------ ------------
NET INCOME ............................................. $ 15,312,689 $ 22,289,008 $ 13,253,928
============ ============ ============
Basic and diluted earnings per share based on
weighted average shares outstanding ................. $1.84 $2.49 $1.45
===== ===== =====
</TABLE>
See accompanying notes.
Report of Ernst & Young LLP,
Independent Auditors
Board of Directors and Stockholders
Blair Corporation and Subsidiary
We have audited the accompanying consolidated balance sheets of Blair
Corporation and Subsidiary as of December 31, 1999 and 1998 and the
related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of Blair Corporation
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Blair Corporation and Subsidiary at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Buffalo, New York
February 2, 2000
10
<PAGE> 2
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31 1999 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash ...................................................... $ 1,625,236 $ 3,211,376
Customer accounts receivable, less
allowances for doubtful accounts and
returns of $37,920,826 in 1999 and
$35,474,323 in 1998 .................................... 165,829,079 158,191,826
Inventories:
Merchandise ............................................ 68,408,229 102,152,680
Advertising and shipping supplies ...................... 11,639,598 12,982,870
------------ ------------
80,047,827 115,135,550
Deferred income taxes--Note 6 ............................. 9,234,000 7,781,000
Prepaid and refundable federal and state taxes ............ 7,487,288 12,455,216
Prepaid expenses .......................................... 1,068,936 344,482
------------ ------------
TOTAL CURRENT ASSETS ......................................... 265,292,366 297,119,450
PROPERTY, PLANT AND EQUIPMENT
Land ...................................................... 1,142,144 1,142,144
Buildings ................................................. 63,583,170 63,433,347
Equipment ................................................. 42,550,368 39,255,983
------------ ------------
107,275,682 103,831,474
Less allowances for depreciation .......................... 60,390,643 55,787,582
------------ ------------
46,885,039 48,043,892
TRADEMARKS ................................................... 777,137 849,380
------------ ------------
TOTAL ASSETS ................................................. $312,954,542 $346,012,722
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable--Note 2 ..................................... $ 11,800,000 $ 22,750,000
Trade accounts payable .................................... 53,245,921 52,135,922
Advance payments from customers ........................... 2,058,651 1,182,829
Accrued expenses--Note 3 .................................. 10,742,545 12,074,736
------------ ------------
TOTAL CURRENT LIABILITIES .................................... 77,847,117 88,143,487
DEFERRED INCOME TAXES--Note 6 ................................ 1,130,000 1,368,000
LONG-TERM DEBT--Note 2 ....................................... 10,000,000 30,000,000
STOCKHOLDERS' EQUITY--Note 4 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 ................................ 14,625,722 14,278,828
Retained earnings ......................................... 251,163,905 240,798,008
------------ ------------
266,209,437 255,496,646
Less 1,917,574 shares in 1999 and 1,168,097
shares in 1998 of Common Stock in
treasury--at cost ...................................... 39,829,081 26,756,067
Less receivable from Employee Stock Purchase Plan ......... 2,402,931 2,239,344
------------ ------------
223,977,425 226,501,235
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................... $312,954,542 $346,012,722
============ ============
</TABLE>
See accompanying notes,
11
<PAGE> 3
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK ............................................... $ 419,810 $ 419,810 $ 419,810
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of year ............................ 14,278,828 13,230,251 12,928,260
Issuance (net of forfeitures)
of Common Stock under
Employee Stock Purchase
Plan--Note 4 ......................................... 334,894 1,025,989 288,303
Issuance of Common Stock to
non-employee directors ............................... 12,000 22,588 13,688
------------- ------------- -------------
Balance at end of year .................................. 14,625,722 14,278,828 13,230,251
RETAINED EARNINGS:
Balance at beginning of year ............................ 240,798,008 223,868,940 216,068,537
Net income .............................................. 15,312,689 22,289,008 13,253,928
Cash dividends declared per share--
$0.60 in 1999, 1998 and 1997 ......................... (4,946,792) (5,359,940) (5,453,525)
------------- ------------- -------------
Balance at end of year .................................. 251,163,905 240,798,008 223,868,940
TREASURY STOCK:
Balance at beginning of year ............................ (26,756,067) (23,161,169) (19,013,814)
Purchase of 808,127 shares in 1999;
147,573 shares in 1998; and 276,866 shares
in 1997 of Common Stock for treasury ................. (13,847,120) (4,001,471) (4,551,438)
Issuance (net of forfeitures)
of Common Stock under
Employee Stock Purchase
Plan--Note 4 ......................................... 759,762 393,536 395,646
Issuance of 1,500 shares in 1999, 1998 & 1997 of
Common Stock to non-employee directors ............... 14,344 13,037 8,437
------------- ------------- -------------
Balance at end of year ................................. (39,829,081) (26,756,067) (23,161,169)
RECEIVABLE FROM EMPLOYEE STOCK PURCHASE PLAN:
Balance at beginning of year ............................ (2,239,344) (1,928,786) (1,803,910)
Issuance (net of forfeitures)
of Common Stock under
Employee Stock Purchase
Plan--Note 4 ......................................... (371,551) (494,285) (362,765)
Repayments .............................................. 207,964 183,727 237,889
------------- ------------- -------------
Balance at end of year .................................. (2,402,931) (2,239,344) (1,928,786)
------------- ------------- -------------
TOTAL STOCKHOLDERS' EQUITY ................................. $ 223,977,425 $ 226,501,235 $ 212,429,046
============= ============= =============
</TABLE>
See accompanying notes.
12
<PAGE> 4
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income ............................................... $ 15,312,689 $ 22,289,008 $ 13,253,928
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization ......................... 5,073,618 4,979,582 5,369,394
Provision for doubtful accounts ....................... 22,468,075 22,033,466 32,222,092
Provision for deferred income taxes ................... (1,691,000) 1,814,000 6,816,000
Compensation expense for stock awards ................. 830,850 1,094,025 375,525
Changes in operating assets and liabilities
providing (using) cash:
Customer accounts receivable .................... (30,105,328) (22,589,196) 3,913,868
Inventories ..................................... 35,087,723 (36,408,141) 9,121,189
Prepaid expenses ................................ (724,454) 47,050 264,383
Trade accounts payable .......................... 1,109,999 5,777,625 5,860,935
Advance payments from customers ................. 875,822 (210,985) 248,432
Accrued expenses ................................ (1,332,191) 3,041,325 (503,070)
Federal and state taxes ......................... 4,967,928 (5,955,804) 3,642,597
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES ..................................... 51,873,731 (4,088,045) 80,585,273
INVESTING ACTIVITIES
Purchases of property, plant and equipment ............... (3,842,522) (1,008,218) (3,033,033)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES ....................... (3,842,522) (1,008,218) (3,033,033)
FINANCING ACTIVITIES
Net (repayments of) proceeds from bank borrowings ........ (30,950,000) 14,150,000 (68,400,000)
Dividends paid ........................................... (4,946,792) (5,359,940) (5,453,525)
Purchase of Common Stock for treasury .................... (13,847,120) (4,001,471) (4,551,438)
Decrease in notes receivable from
Employee Stock Purchase Plan .......................... 126,563 50,567 205,673
------------ ------------ ------------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES ..................................... (49,617,349) 4,839,156 (78,199,290)
------------ ------------ ------------
NET DECREASE IN CASH ........................................ (1,586,140) (257,107) (647,050)
Cash at beginning of year ................................ 3,211,376 3,468,483 4,115,533
------------ ------------ ------------
CASH AT END OF YEAR ......................................... $ 1,625,236 $ 3,211,376 $ 3,468,483
============ ============ ============
</TABLE>
See accompanying notes.
13
<PAGE> 5
Notes to Consolidated Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
ORGANIZATION
the consolidated financial statements include the accounts of Blair Corporation
and its wholly-owned subsidiary, Blair Holdings, Inc., a Delaware Corporation
(Company). All significant intercompany accounts are eliminated upon
consolidation.
REVENUE RECOGNITION
Sales (cash, Blair credit, or third party credit card) are recorded when the
merchandise is shipped to the customer. Blair credit sales are made under Easy
Payment Plan sales arrangements. Monthly, a provision for potentially doubtful
accounts is charged against income based on management's estimate of
realization. Any recoveries of bad debts previously written-off are credited
back against the allowance for doubtful accounts in the period received. As
reported in the balance sheet, the carrying amount, net of allowances for
doubtful accounts and returns for customer accounts receivable on Blair credit
sales, approximates fair value.
Finance charges on time payment accounts are recognized on an accrual basis of
accounting.
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.
RETURNS
A provision for anticipated returns is recorded monthly as a percentage of gross
sales based upon historical experience. This provision is charged directly
against gross sales to arrive at net sales as reported in the consolidated
statements of income. Actual returns are charged against the allowance for
returns which is netted against accounts receivable in the balance sheet. The
provision for returns charged against income in 1999, 1998 and 1997 amounted to
$83,262,638, $88,927,593 and $94,114,182, respectively. Management believes
these provisions are adequate based upon the relevant information presently
available. However, it is reasonably possible that the Company's provisions may
change in the near term.
DOUBTFUL ACCOUNTS
A provision for doubtful accounts is recorded monthly as a percentage of gross
sales based upon experience of delinquencies and charge-offs and current credit
market conditions. Management believes these provisions are adequate based upon
the relevant information presently available. However, it is reasonably possible
that the Company's provisions may change in the near term.
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, inventories would have increased
by approximately $7,869,000 and $7,662,000 at December 31, 1999 and 1998,
respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated on the basis of cost. Depreciation has
been provided principally by the straight-line method using rates which are
estimated to be sufficient to amortize the cost of the assets over their period
of usefulness.
TRADEMARKS
Trademarks are stated on the basis of cost. All trademarks are being amortized
by the straight-line method for a period of 15 years. Amortization expense
amounted to $72,243 in 1999, 1998 and 1997.
EMPLOYEE BENEFITS
The Company's employee benefits include a profit sharing and retirement feature
available to all eligible employees. Contributions are dependent on net income
of the Company and recognized on an accrual basis of accounting. The
contributions to the plan charged against income in 1999, 1998 and 1997 amounted
to $1,630,652, $2,371,992 and $1,407,745, respectively.
As part of the same benefit plan, the Company has a contributory savings feature
whereby all eligible employees may contribute up to 10% of their annual base
salaries. The Company's matching contribution to the plan is based upon a
percentage formula as set forth in the plan agreement. The Company's matching
contributions to the plan charged against income in 1999, 1998 and 1997 amounted
to $1,940,441, $1,871,906 and $1,852,557, respectively.
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.
FINANCIAL INSTRUMENTS
The carrying amounts of cash, customer accounts receivable, accounts payable and
accrued liabilities approximate fair value due to the short-term maturities of
these assets and liabilities. The interest rates on the Company's revolving
credit facility is adjusted regularly to reflect current market rates.
Accordingly, the carrying amounts of the Company's borrowings also approximate
fair value.
NEW ACCOUNTING PRONOUNCEMENTS
Accounting for the Costs of Computer Software Developed For or Obtained For
Internal Use Statement of Position 98-1, (SOP 98-1) "Accounting for the Costs of
Computer Software Developed For or Obtained For Internal Use," requires
capitalization of costs to purchase or develop internal use software and
amortization of those costs to income over the software's estimated useful life.
These costs include external direct costs, payroll and payroll-related costs for
employees who are directly associated with the project, and interest costs.
Training and research and development costs are to be expensed as incurred.
Allocations of overhead are not permitted. The SOP was adopted prospectively on
January 1, 1999 and did not have a significant impact on the financial
statements of the Company.
Accounting for Derivative Instruments and Hedging Activities The Financial
Accounting Standards Board issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted in years
beginning after June 15, 2000. The Company expects to adopt the new statement
effective January 1, 2001. The statement will require the Company to recognize
all derivatives on the balance sheet at fair value. The Company has historically
not invested in derivative instruments, and management believes the adoption of
this statement will have no impact on the financial statements of the Company.
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.
14
<PAGE> 6
2. 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 December 31, 1999 and 1998, the Company
was in compliance with all the agreement's covenants. At December 31, 1999 and
1998, the Company had borrowed $21,800,000 and $52,750,000, respectively, of
which $10,000,000 and $30,000,000 was classified as long-term, respectively.
Interest paid during 1999, 1998 and 1997 amounted to $2,558,409, $2,030,379 and
$4,186,967, respectively. The weighted average interest rate on average debt
outstanding was 5.77%, 5.97% and 5.96% for the years ended December 31, 1999,
1998 and 1997, respectively.
Additionally, the Company has available a $25 million line for letters of
credit. Outstanding letters of credit amounted to approximately $10,123,568 at
December 31, 1999 and related primarily to inventory purchases.
3. ACCRUED EXPENSES
- --------------------------------------------------------------------------------
Accrued expenses consist of:
1999 1998
----------- -----------
Employee compensation $ 7,145,761 $ 7,537,456
Contribution to Profit Sharing and
Retirement Plan 1,630,652 2,371,992
Taxes, other than taxes on income 285,775 524,687
Other accrued items 1,680,357 1,640,601
----------- -----------
$10,742,545 $12,074,736
=========== ===========
4. EMPLOYEE STOCK PURCHASE PLAN
- --------------------------------------------------------------------------------
The Company has an Employee Stock Purchase Plan (Plan) (amended in 1992) which
provides for 400,000 shares of the Company's treasury stock to be reserved for
sale and issuance to employees at a price to be established by the Stock
Purchase Plan Committee. At December 31, 1999 and 1998, 43,850 and 101,000
shares, respectively, were available to be issued under the Plan. The Company
follows APB Opinion No. 25, "Accounting for Stock Issued to Employees" and
related Interpretations and Statement of Financial Accounting Standard No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123) in accounting for its
Employee Stock Purchase Plan. Compensation expense equals the difference between
the exercise price and the market price of the shares at the date of grant.
Compensation expense related to these awards amounted to $804,506, $1,058,400
and $353,400 for the years ended December 31, 1999, 1998 and 1997, respectively.
A summary of the activity under the Plan is as follows:
1999 1998 1997
-------- -------- --------
Shares granted and issued 60,150 50,400 49,600
Grant and issue price per share $6.50 $10.50 $7.50
Market value per share
at date of issue $19.875 $31.50 $14.625
Shares cancelled and forfeited 3,000 4,700 1,050
Original price per share $7.50 to $7.50 to $7.50 to
$16.00 $16.00 $16.00
Weighted average price per share $11.75 $11.75 $11.75
5. OTHER INCOME
- --------------------------------------------------------------------------------
Other income consists of:
1999 1998 1997
----------- ----------- -----------
Finance charges on time
payment accounts $33,906,734 $34,006,347 $36,416,174
Insurance proceeds -0- 2,800,000 -0-
Miscellaneous 6,779,461 7,055,973 3,515,403
----------- ----------- -----------
$40,686,195 $43,862,320 $39,931,577
=========== =========== ===========
6. INCOME TAXES
- --------------------------------------------------------------------------------
The components of income tax expense are as follows:
1999 1998 1997
----------- ----------- -----------
Currently payable:
Federal $ 9,710,000 $ 8,949,000 $ 2,012,000
State 833,000 790,000 (1,191,000)
----------- ----------- -----------
10,543,000 9,739,000 821,000
Deferred (1,691,000) 1,814,000 6,816,000
----------- ----------- -----------
$ 8,852,000 $11,553,000 $ 7,637,000
=========== =========== ===========
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:
1999 1998 1997
---------- ----------- ----------
Statutory rate applied to
pretax income $8,457,641 $11,844,703 $7,311,825
State income taxes, net
of federal benefit 375,700 643,500 256,100
Non taxable insurance
proceeds -0- (980,000) -0-
Other items 18,659 44,797 69,075
---------- ----------- ----------
$8,852,000 $11,553,000 $7,637,000
========== =========== ==========
Components of the deferred tax asset and liability under the liability method as
of December 31, 1999 and 1998 are as follows:
1999 1998
----------- -----------
Current net deferred tax asset:
Doubtful accounts $ 9,142,000 $ 6,913,000
Returns allowance 1,582,000 1,823,000
Inventory obsolescence 1,551,000 1,997,000
Inventory costs (1,166,000) 130,000
Vacation pay 1,440,000 1,399,000
Advertising costs (4,412,000) (4,939,000)
Other items 1,097,000 458,000
----------- -----------
$ 9,234,000 $ 7,781,000
=========== ===========
Long-term deferred tax liability:
Property, plant and equipment $ 1,130,000 $ 1,368,000
=========== ===========
Income taxes paid (refunded) during 1999, 1998 and 1997 amounted to $6,161,685,
$14,985,120 and ($2,224,794), respectively.
7. BUSINESS SEGMENT AND CONCENTRATION
OF BUSINESS RISK
- --------------------------------------------------------------------------------
The Company operates as one segment in the business of selling men's and women's
fashion wearing apparel and accessories and home furnishing items. The Company's
customer base is comprised of individuals throughout the United States and is
diverse in both geographic and demographic terms. Advertising is done mainly by
means of catalogs and direct mail letters which offer the Company's merchandise.
Sales of the men's and women's fashion wearing apparel and accessories accounted
for 86%, 88% and 87% of total 1999, 1998 and 1997 sales, respectively. Home
products accounted for the remaining sales volume.
15
<PAGE> 7
Quarterly Results of Operations
The following is a summary of unaudited quarterly results of operations for the
years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
QUARTER ENDED Quarter Ended
March June September December March June September December
31 30 30 31 31 30 30 31
------------------------------------------------- -----------------------------------------------
(Thousands of dollars, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ......... $122,023 $133,431 $ 111,652 $155,091 $115,887 $126,727 $111,873 $152,317
Cost of goods
solid .......... 62,274 68,656 59,992 79,836 56,915 61,241 57,684 75,992
Net income ........ 2,321 4,998 (732) 8,275 5,518 7,092 2,588 7,090
Basic and diluted
earnings
per share ...... .27 .60 (.08) 1.05 .61 .80 .29 .79
</TABLE>
Quarter ended September 30, 1998 includes non-taxable insurance proceeds of $2.8
million ($.31 per share). Quarter ended December 31, 1998 includes additional
net income of $2.7 million ($.31 per share) due to reductions in the provisions
for doubtful accounts and returns resulting from improved experience.
Common Stock Market Prices and
Dividends Declared Per Share
The Company's Common Stock is traded on the American Stock Exchange (symbol BL).
The number of record holders of the Company's Common Stock at December 31, 1999
was 2,492.
<TABLE>
<CAPTION>
1999 1998
SALES PRICE DIVIDENDS Sales Price Dividends
HIGH LOW DECLARED High Low Declared
<S> <C> <C> <C> <C> <C> <C>
First Quarter ......... $22 1/4 $15 1/4 $.15 $23 5/8 $17 1/8 $.15
Second Quarter ........ 27 1/2 15 9/16 .15 32 5/8 20 5/8 .15
Third Quarter ......... 27 17 .15 33 1/2 24 13/16 .15
Fourth Quarter ........ 18 1/4 12 1/2 .15 30 1/4 17 1/4 .15
</TABLE>
The payment of dividends is not subject to any restrictions. The payment of
dividends is dependent on future earnings, capital requirements and financial
condition. The Company intends to continue its policy of paying regular cash
dividends; however, the Company will evaluate its dividend policy on an on-going
basis.
Selected Financial Data
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net sales ............. $522,197,334 $506,803,591 $486,581,737 $544,129,005 $560,889,612
Net income ............ 15,312,689 22,289,008 13,253,928 14,726,221 25,267,910
Total assets .......... 312,954,542 346,012,722 309,497,568 368,757,108 353,333,548
Long-term debt ........ 10,000,000 30,000,000 -0- 80,000,000 80,000,000
Per share:
Basic and diluted
earnings ....... 1.84 2.49 1.45 1.58 2.72
Cash dividends
declared ........ .60 .60 .60 1.10 2.30
</TABLE>
16
<PAGE> 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
COMPARISON OF 1999 AND 1998
Net income for 1999 was 31% lower than the net income for 1998. The year 1999
was negatively impacted by the disposition of excess inventory (approximately
$5.5 million pre-tax inventory writedown and increased volume of sale-priced
offerings) and by increased postage costs (approximately $3.9 million pre-tax).
These increased costs were primarily reflected in cost of goods sold and
advertising expense in 1999. The year 1998 included non-taxable, non-recurring
insurance proceeds of $2.8 million ($.31 per share).
Net sales for 1999 were 3.0% higher than net sales for 1998. Overall, response
rates were higher in 1999 than in 1998 - up for catalogs and circular letters
and lower for co-op and media. Response rates were above expected levels
especially in the fourth quarter of 1999. Gross sales revenue generated per
advertising dollar was approximately the same in both 1999 and 1998. The total
number of orders shipped and the average order size both increased slightly in
1999 as compared to 1998. The provision for returned merchandise as a percentage
of gross sales decreased approximately 8% in 1999 as compared to 1998 primarily
due to the Company's efforts to improve product quality.
Other income decreased 7.2% in 1999 as compared to 1998. The decrease in other
income was primarily the result of the non-recurring insurance proceeds of $2.8
million included in 1998's other income. The insurance proceeds were from the
Company-owned term life policy on John L. Blair, former President and Chairman
of the Company. Mr. Blair died on August 29, 1998.
Cost of goods sold as a percentage of net sales increased to 51.6% in 1999 from
49.7% in 1998. Cost of goods sold has been negatively impacted by the
disposition of excess inventory (approximately $5.5 million pre-tax inventory
writedown) and by increased shipping (postage) costs. Excess inventory had
resulted from the Company's transition to a larger catalog operation and lower
than expected response in the fourth quarter of 1998 and the first quarter of
1999.
Advertising expense in 1999 increased 2.0% from 1998. Increased catalog mailings
and postal rates more than offset decreased letter mailings and co-op and media
volume.
The total number of catalog mailings released in 1999 was 5% higher than in 1998
(134.5 million vs. 128.2 million). Catalog mailings from all three product
lines, including combined product line offerings, are continually reviewed as to
mailing frequency, page density, product content, number of pages and trim size.
The total number of letter mailings released in 1999 was 5% less than in 1998
(83.8 million vs. 88.5 million). Letter mailing volume has continued to decrease
due to the expansion of catalog advertising.
Total volume of the co-op and media advertising programs decreased 5% in 1999 as
compared to 1998 (1.34 billion vs. 1.41 billion). The Company reduced the volume
due to increased costs and/or lower response to the programs.
General and administrative expense increased .7% in 1999 as compared to 1998.
The higher general and administrative expense was primarily the result of an
increase in wages and benefits. The higher wages and benefits resulted from
normal pay increases and from new hires to help support our marketing strategy.
The provision for doubtful accounts as a percentage of credit sales was 8.2%
lower in 1999 as compared to 1998. The estimated provision for doubtful accounts
is based on current expectations (consumer credit and economic trends, etc.),
sales mix (prospect/customer) and prior years' experience (delinquencies,
accounts over 30 days past due; actual charge-offs, accounts removed from
accounts receivable). Prior to 1994, actual charge-offs were consistently below
delinquencies. In 1994, this trend reversed itself - actual charge-offs started
exceeding delinquencies, resulting in additional provisions in 1995, 1996 and
1997. Now that stronger credit controls have been implemented, provisions for
doubtful accounts and delinquencies as a percentage of actual charge-offs have
been declining (1998 and 1999). The estimated bad debt rate used for 1999 was
approximately 8% less than the estimated bad debt rate used for 1998. At
December 31, 1999, the delinquency rate of open accounts receivable was 3%
higher than at December 31, 1998. A larger credit marketing program to prospects
in 1999 caused the delinquency rate to increase overall. The delinquency rate
for established credit customers was approximately 5% lower (96% of open
receivables in 1999, 98% in 1998) while the delinquency rate for prospects
increased 27%. The charge-off rate for 1999 was 18% less than the charge-off
rate for 1998. Recoveries of bad debts previously charged off have been credited
back against the allowance for doubtful accounts. Credit granting, collection
and behavior models continue to improve and, along with expanding database
capabilities, provide valuable credit marketing opportunities.
Interest expense increased 21% in 1999 as compared to 1998. Interest expense
results primarily from the Company's borrowings necessary to finance customer
accounts receivable and inventories. Higher inventory levels and the repurchase
of Blair Common Stock from the Estate of John L. Blair during the first half of
1999 were responsible for the increased level of interest expense.
Income taxes as a percentage of income before income taxes were 36.6% in 1999
and 34.1% in 1998. The federal income tax rate was 35% in both years. The total
tax rate in 1998 was lower due to the non-taxable insurance proceeds
($2,800,000).
17
<PAGE> 9
COMPARISON OF 1998 AND 1997
Net income for 1998 increased 68% as compared to 1997. The year 1998 was
favorably impacted by improving bad debt and return experience and by
non-taxable, non-recurring insurance proceeds of $2,800,000, $.31 per share.
Net sales for 1998 were 4.2% higher than net sales for 1997. Response rates
overall were slightly better in 1998 than in 1997. Total advertising volume was
slightly higher in 1998. Gross sales revenue generated per advertising dollar
was approximately the same in both 1998 and 1997. The total number of orders
shipped increased while the average order size remained approximately the same
in 1998 as compared to 1997. Returns as a percentage of adjusted gross sales
improved to 15.1% in 1998 from 16.4% in 1997. A change in return policy was
primarily responsible for the improvement in the returns percentage. The Company
stopped refunding shipping and handling charges on returns during the first
quarter of 1998. This policy is in line with the Company's competitors in the
direct marketing industry and has reduced returns by approximately 10%.
Other income increased 9.8% in 1998 as compared to 1997. Insurance proceeds and
commissions earned more than offset the drop in finance charges resulting from
strengthened credit procedures. Insurance proceeds of $2,800,000 were the result
of the Company-owned term life policy on John L. Blair, former President and
Chairman of the Company. Mr. Blair died on August 29, 1998.
Cost of goods sold as a percentage of net sales decreased to 49.7% in 1998 from
49.9% in 1997. The improvement in returns was primarily responsible for the
slightly lower cost of goods in 1998.
Advertising expense in 1998 increased 3.2% from 1997. The increase in catalog
mailings was responsible for the higher advertising expense.
The total number of catalog mailings released in 1998 was 27% higher than in
1997 (128.2 million vs. 100.7 million). Catalogs have been the primary
advertising format for Home Products for over four years. The Company began full
release, to both customers and prospects, of Menswear catalogs in September 1996
and Womenswear catalogs in March 1997. Catalog mailings from all three product
lines, including combined product line offerings, are continually reviewed as to
mailing frequency, page density, product content, number of pages and trim size.
The total number of letter mailings released in 1998 was 22% less than in 1997
(88.5 million vs. 114.0 million). Letter mailings have decreased due to the
expansion of catalog advertising.
Total volume of the co-op and media advertising programs decreased 4% in 1998 as
compared to 1997 (1.41 billion vs. 1.47 billion).
General and administrative expense increased 10.4% in 1998 as compared to 1997.
The higher general and administrative expense was primarily the result of a 9.8%
increase in wages and benefits and the costs associated with implementing and
maintaining expanded database capabilities in marketing, credit management and
advertising. The higher wages and benefits resulted from normal pay increases,
an increase in the number of employees and increases in net income related
benefits.
The provision for doubtful accounts as a percentage of credit sales was 35%
lower in 1998 as compared to 1997. The estimated provision for doubtful accounts
is based on current expectations (consumer credit and economic trends, etc.),
sales mix (prospect/customer) and prior years' experience (delinquencies,
accounts over 30 days past due; actual charge-offs, accounts removed from
accounts receivable). Prior to 1994, actual charge-offs were consistently below
delinquencies. In 1994, this trend reversed itself - actual charge-offs started
exceeding delinquencies, resulting in additional provisions in 1995, 1996 and
1997. Now that stronger credit controls have been implemented, provisions for
doubtful accounts and delinquencies as a percentage of actual charge-offs have
been declining (1998). The estimated bad debt rate used for 1998 was
approximately 32% less than the estimated bad debt rate used for 1997. 1997
included an additional provision for doubtful accounts of $8.3 million
(pre-tax), $.52 net income per share. At December 31, 1998, the delinquency rate
of open accounts receivable was 10% less than at December 31, 1997. The
charge-off rate for 1998 was 25% less than the charge-off rate for 1997.
Recoveries of bad debts previously charged off have been credited back against
the allowance for doubtful accounts. The Company has continued to strengthen its
credit procedures. Revised credit granting and collection policies have resulted
in turning down more bad credit risks and in shortening and strengthening the
collection cycle. Credit grant- ing, collection and behavior models continue to
gain effectiveness and, along with expanding database capabilities, should
provide valuable credit marketing opportunities.
Interest expense decreased 48% in 1998 as compared to 1997. Interest expense
results primarily from the Company's borrowings necessary to finance customer
accounts receivable and inventories. While customer accounts receivable have
changed little as of December 31, 1998 ($158.2 million) and December 31, 1997
($157.6 million), inventories have grown 46% ($115.1 million vs. $78.7 million).
Average borrowings outstanding have been lower in 1998 ($34.9 million vs. $66.5
million), but inventory growth has caused higher borrowings outstanding at
year-end 1998 than at year-end 1997.
Income taxes as a percentage of income before income taxes were 34.1% in 1998
and 36.6% in 1997. The federal income tax rate was 35% in both years. The
reduction in the total tax rate in 1998 was due to the non-taxable insurance
proceeds ($2,800,000).
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
18
<PAGE> 10
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 December 31, 1999 the Company was in compliance with all
the covenants. Borrowings outstanding at December 31, 1999 were $21,800,000 of
which $10,000,000 was classified as long-term. Borrowings outstanding at
December 31, 1998 were $52,750,000 of which $30,000,000 was classified as
long-term.
The ratio of current assets to current liabilities was 3.41 at December 31,
1999, 3.37 at December 31, 1998 and 2.69 at December 31, 1997. Working capital
decreased $21,530,714 in 1999 primarily due to the reduction of long-term debt
and the purchase of Common Stock for treasury from the Estate of John L. Blair.
The 1999 decrease was primarily reflected in decreased inventories more than
offsetting decreased notes payable. Working capital increased $47,728,553 in
1998 primarily due to increases in long-term debt and net income. The 1998
increase was primarily reflected in increased inventories and decreased notes
payable.
Merchandise inventory turnover was 2.5 in 1999, 2.4 in 1998 and 2.6 in 1997.
Merchandise inventory as of December 31, 1999 decreased 33% from December 31,
1998 and increased .4% from December 31, 1997. Inventory turnover in 1998 was
impacted by the transition to a larger catalog operation, by the continuing
efforts to improve customer service and by lower than expected response in the
fourth quarter. Inventory turnover in 1999 was impacted by lower than expected
response in the first quarter and, most recently, by increased efforts to move
excess inventory.
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. Home Products net sales as a percentage of total net sales
were 14.9% ($77.8 million) in 1999, 13.9% ($70.3 million) in 1998 and 13.4%
($65.3 million) in 1997. Menswear net sales were 23.3% ($121.8 million) in 1999,
24.0% ($121.6 million) in 1998 and 23.2% ($112.7 million) in 1997. Womenswear
net sales were 61.8% ($322.6 million) in 1999, 62.1% ($314.9 million) in 1998
and 63.4% ($308.5 million) in 1997. Home Products merchandise inventory totaled
$11.3 million at December 31, 1999, $18.2 million at December 31, 1998 and $6.8
million at December 31, 1997. Menswear inventory was $16.9 million at December
31, 1999, $26.6 million at December 31, 1998 and $17.6 million at December 31,
1997. Womenswear inventory was $40.2 million at December 31, 1999, $57.4 million
at December 31, 1998 and $43.7 million at December 31, 1997.
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 this time. Prospects responded. This led to a broad offering
of pre-approved lines of credit to prospects in 1995 and 1996. Sales, accounts
receivable and bad debts expectedly increased. However, as the receivables aged,
bad debts greatly exceeded expected levels. The Company recognized that 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 1999, finance charges were $33,906,734 and the provision
for doubtful accounts was $22,468,075 (net of $11,438,659) as compared to 1998,
finance charges were $34,006,347 and the provision for doubtful accounts was
$22,033,466 (net of $11,972,881) and to 1997, finance charges were $36,416,174
and the provision for doubtful accounts was $32,222,092 (net of $4,194,082).
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 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 $3,842,522, $1,008,218
and $3,033,033 during 1999, 1998 and 1997. Capital expenditures are projected to
be $9 million for 2000, $5 million for 2001 and $4 million for 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 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 mid-year 2000.
The Company recently declared a quarterly dividend of $.15 per share payable on
March 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 third quarter of
1998, repurchased on the open market 544,739 shares of its Common Stock. In
1999, the Company repurchased 756,220 shares (500,000 in January, 100,000 in
April and 156,220 in May) from the Estate of John L. Blair and 51,907 shares on
the open market (November and December). The reduction in shares outstanding,
due to the repurchase of shares for treasury, caused earnings per share to
increase by approximately $.13 in 1999.
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
19
<PAGE> 11
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.
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 expected to increase 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).
The Company principally uses the LIFO method of accounting for its merchandise
inventories. Under this method, the cost of products sold reported in the
financial statements approximates current costs and thus reduces distortion in
reported income due to increasing costs. The charges to operations for
depreciation represent the allocation of historical costs incurred over past
years and are significantly less than if they were based on the current cost of
productive capacity being used.
Property, plant and equipment are continuously being expanded and updated. Major
projects are discussed under Liquidity and Sources of Capital. Assets acquired
in prior years will, of course, be replaced at higher costs but this will take
place over many years. New assets, when acquired, will result in higher
depreciation charges, but in many cases, due to technological improvements,
savings in operating costs should result.
ACCOUNTING PRONOUNCEMENTS
- --------------------------------------------------------------------------------
In March 1998, Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," was issued. SOP 98-1 requires
capitalization of costs to purchase or develop internal use software and
amortization of those costs to income over the software's estimated useful life.
The Company adopted SOP 98-1 in the 1999 financial statements, and the adoption
has not had a significant impact on the Company's financial statements.
In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities," was issued. Statement No.
133 provides new guidelines for accounting for derivative instruments and
requires companies to recognize all derivatives on the balance sheet at fair
value. Gains or losses resulting from changes in the values of the derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. Statement No. 133 is effective for fiscal
periods beginning after June 15, 2000. The Company believes that adoption of
Statement No. 133 will not have an impact on the financial statements of the
Company as the Company has not invested in derivative instruments.
FUTURE CONSIDERATIONS
- --------------------------------------------------------------------------------
The Company is faced with the ever-present challenge of maintaining and
expanding the customer file. This involves the acquisition of new customers
(prospects), the conversion of new customers to established customers (active
repeat buyers) and the retention and/or reactivation of established customers.
These actions are vital in growing the business but are being impacted by
increased operating costs and a declining labor pool and by increased
competition in the retail sector, high levels of consumer debt and varying
consumer response rates.
The Company's marketing strategy includes targeting customers in the "40 to 60,
low-to-moderate income" market and in the "60+, low-to-moderate income" market
(the Company's traditional market). The "40 to 60" market, though younger in age
than our traditional market, is the fastest growing segment of the population.
Success of the Company's marketing strategy requires investment in database
management, 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.
20
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Blair Corporation
We consent to the incorporation by reference in this Form 10-K of Blair
Corporation and Subsidiary of our report dated February 2, 2000, included in the
1999 Annual Report to Stockholders of Blair Corporation.
Our audits also included the financial statement schedule of Blair Corporation
and Subsidiary listed in Item 14(a). This schedule is the responsibility of
Blair Corporation's management. Our responsibility is to express an opinion
based on our audits. In our opinion, the financial statement schedule referred
to above, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in the Registration Statement
on Form S-8 dated August 3, 1999, pertaining to the Blair Corporation Employee
Stock Purchase Plan, of our report dated February 2, 2000, with respect to the
consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedule included in this Form 10-K of Blair Corporation.
/s/ ERNST & YOUNG LLP
Buffalo, New York
March 16, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Blair
Corporation's 12/31/99 Financial Statements and is qualified in its entirety by
reference to such year end, 1999 10-K filing for Blair Corporation.
</LEGEND>
<CIK> 0000071525
<NAME> BLAIR CORPORATION
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,625,236
<SECURITIES> 0
<RECEIVABLES> 165,829,079<F1>
<ALLOWANCES> 37,920,826
<INVENTORY> 80,047,827
<CURRENT-ASSETS> 265,292,366
<PP&E> 107,275,682
<DEPRECIATION> 60,390,643
<TOTAL-ASSETS> 312,954,542
<CURRENT-LIABILITIES> 77,847,117
<BONDS> 0
0
0
<COMMON> 419,810
<OTHER-SE> 223,557,615<F2>
<TOTAL-LIABILITY-AND-EQUITY> 312,954,542
<SALES> 522,197,334
<TOTAL-REVENUES> 562,883,529
<CGS> 269,460,019
<TOTAL-COSTS> 538,718,840
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 22,468,075
<INTEREST-EXPENSE> 2,557,945
<INCOME-PRETAX> 24,164,689
<INCOME-TAX> 8,852,000
<INCOME-CONTINUING> 15,312,689
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,312,689
<EPS-BASIC> 1.84
<EPS-DILUTED> 1.84
<FN>
<F1>Amount represents net accounts receivable.
<F2>Amount indicates additional paid-in capital, retained earnings, treasury stock,
and the employee stock purchase plan receivable.
</FN>
</TABLE>
