-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NSXJDQG2DqIR+S1HTse0T7LkZlE0a8abp/6qocS4O2ZFdul3oli6psVvovHXjH5y ntxu5nXlqQQeS+rkTX1Xbw== 0000071525-97-000019.txt : 19970814 0000071525-97-000019.hdr.sgml : 19970814 ACCESSION NUMBER: 0000071525-97-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLAIR CORP CENTRAL INDEX KEY: 0000071525 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 250691670 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-00878 FILM NUMBER: 97657796 BUSINESS ADDRESS: STREET 1: 220 HICKORY ST CITY: WARREN STATE: PA ZIP: 16366 BUSINESS PHONE: 8147233600 FORMER COMPANY: FORMER CONFORMED NAME: NEW PROCESS CO DATE OF NAME CHANGE: 19890507 10-Q 1 2ND QTR FILING 1997 United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-Q ---------- QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period Ended June 30, 1997 Commission File Number 1-878 -------------- ----------------- BLAIR CORPORATION - ----------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 25-0691670 - ----------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 220 HICKORY STREET, WARREN, PENNSYLVANIA 16366-0001 - ----------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (814) 723-3600 - ----------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not applicable - ----------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- As of August 11, 1997 the registrant had outstanding 9,081,245 shares of its common stock without nominal or par value. PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS (UNAUDITED) BLAIR CORPORATION AND SUBSIDIARY June 30, 1997 CONSOLIDATED BALANCE SHEETS BLAIR CORPORATION AND SUBSIDIARY June 30 December 31 1997 1996 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 5,172,828 $ 4,115,533 Customer accounts receivable, less allowances for doubtful accounts and returns of $38,556,565 in 1997 and $44,464,572 in 1996 169,538,738 193,772,056 Inventories - Note F Merchandise 61,019,818 74,537,691 Advertising and shipping supplies 10,464,238 13,310,907 ------------ ------------ 71,484,056 87,848,598 Deferred income taxes 16,066,000 17,022,000 Prepaid federal and state taxes 1,091,662 10,142,009 Prepaid expenses 707,234 655,915 ------------ ------------ Total current assets 264,060,518 313,556,111 Property, plant and equipment: Land 1,130,454 1,130,454 Buildings 62,830,862 62,788,129 Equipment 37,557,730 36,540,127 ------------ ------------ 101,519,046 100,458,710 Less allowances for depreciation 48,873,635 46,251,580 ------------ ------------ 52,645,411 54,207,130 Trademarks 957,745 993,867 ------------ ------------ TOTAL ASSETS $317,663,674 $368,757,108 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 14,100,000 $ 27,000,000 Trade accounts payable 31,610,557 40,497,362 Advance payments from customers 2,937,896 1,145,382 Accrued expenses - Note D 8,552,700 9,536,481 ------------ ------------ Total current liabilities 57,201,153 78,179,225 Deferred income taxes 1,804,000 1,979,000 Long-term debt 50,000,000 80,000,000 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 12,919,478 12,928,260 Retained earnings 218,910,178 216,068,537 ------------ ------------ 232,249,466 229,416,607 Less 1,021,103 shares in 1997 and 840,908 shares in 1996 of Common Stock in treasury - at cost 21,913,986 19,013,814 Less receivable from Employee Stock Purchase Plan 1,676,959 1,803,910 ------------ ------------ 208,658,521 208,598,883 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $317,663,674 $368,757,108 ============ ============ See accompanying notes. CONSOLIDATED STATEMENTS OF INCOME BLAIR CORPORATION AND SUBSIDIARY
Three Months Ended Six Months Ended June 30 June 30 1997 1996 1997 1996 ------------ ------------ ------------ ------------ Net sales $127,545,653 $138,930,659 $238,427,744 $279,657,687 Other income - Note G 10,353,436 11,245,300 21,049,055 22,338,386 ------------ ------------ ------------ ------------ 137,899,089 150,175,959 259,476,799 301,996,073 Costs and expenses: Cost of goods sold 63,638,637 67,308,676 118,755,726 137,132,372 Advertising 34,901,385 34,859,241 65,615,471 69,569,326 General and administrative 24,716,492 25,719,298 49,299,535 51,395,245 Provision for doubtful accounts 7,830,419 10,047,238 14,405,909 19,976,403 Interest 1,093,706 1,297,726 2,579,104 2,592,053 ------------ ------------ ------------ ------------ 132,180,639 139,232,179 250,655,745 280,665,399 ------------ ------------ ------------ ------------ INCOME BEFORE INCOME TAXES 5,718,450 10,943,780 8,821,054 21,330,674 Income taxes - Note E 2,098,000 4,183,000 3,236,000 8,147,000 ------------ ------------ ------------ ------------ NET INCOME $ 3,620,450 $ 6,760,780 $ 5,585,054 $ 13,183,674 ============ ============ ============ ============ Net income per share based on average shares outstanding - Note C $ .40 $ .72 $ .61 $1.41 ===== ===== ===== ===== See accompanying notes.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY BLAIR CORPORATION AND SUBSIDIARY
Three Months Ended Six Months Ended June 30 June 30 1997 1996 1997 1996 ------------ ------------ ------------ ------------ Common Stock $ 419,810 $ 419,810 $ 419,810 $ 419,810 Additional paid-in capital: Balance at beginning of period 12,928,260 12,372,697 12,928,260 12,372,697 Issuance of Common Stock to non-employee directors 13,688 -0- 13,688 -0- Forfeitures of Common Stock under Employee Stock Purchase Plan (22,470) (69,596) (22,470) (69,596) ------------ ------------ ------------ ------------ Balance at end of period 12,919,478 12,303,101 12,919,478 12,303,101 Retained Earnings: Balance at beginning of period 216,647,961 214,748,258 216,068,537 211,588,111 Net income 3,620,450 6,760,780 5,585,054 13,183,674 Cash dividends declared - Note B (1,358,233) (2,330,533) (2,743,413) (5,593,280) ------------ ------------ ------------ ------------ Balance at end of period 218,910,178 219,178,505 218,910,178 219,178,505 Treasury Stock: Balance at beginning of period (19,355,540) (16,927,008) (19,013,814) (16,927,008) Purchase of Common Stock for treasury (2,562,403) -0- (2,904,129) -0- Issuance of Common Stock to non-employee directors 8,437 -0- 8,437 -0- Forfeitures of Common Stock under Employee Stock Purchase Plan (4,480) (13,779) (4,480) (13,779) ------------ ------------ ------------ ------------ Balance at end of period (21,913,986) (16,940,787) (21,913,986) (16,940,787) Receivable from Employee Stock Purchase Plan: Balance at beginning of period (1,769,530) (1,805,537) (1,803,910) (1,887,595) Payments 87,236 62,417 121,616 144,475 Forfeitures of common stock under Employee Stock Purchase Plan 5,335 16,850 5,335 16,850 ------------ ------------ ------------ ------------ Balance at end of period (1,676,959) (1,726,270) (1,676,959) (1,726,270) ------------ ------------ ------------ ------------ TOTAL STOCKHOLDERS' EQUITY $208,658,521 $213,234,359 $208,658,521 $213,234,359 ============ ============ ============ ============ See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS BLAIR CORPORATION AND SUBSIDIARY Six Months Ended June 30 1997 1996 ------------ ------------ OPERATING ACTIVITIES Net income $ 5,585,054 $ 13,183,674 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 2,669,410 2,685,668 Provision for doubtful accounts 14,405,909 19,976,403 Provision for deferred income taxes 781,000 (4,291,000) Changes in operating assets and liabilities (using) providing cash: Customer accounts receivable 9,827,409 (31,922,525) Inventories 16,364,542 4,049,883 Prepaid expenses (51,319) (119,562) Trade accounts payable (8,886,805) (6,580,074) Advance payments from customers 1,792,514 (66,527) Accrued expenses (983,781) (1,290,814) Federal and state taxes 9,050,347 3,538,000 ------------ ------------ NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 50,554,280 (836,874) INVESTING ACTIVITIES Purchases of property, plant and equipment (1,071,569) (876,031) ------------ ------------ NET CASH (USED IN) INVESTING ACTIVITIES (1,071,569) (876,031) FINANCING ACTIVITIES Net proceeds from lines of credit (42,900,000) 8,550,000 Dividends paid (2,743,413) (5,593,280) Purchase of Common Stock for treasury (2,904,129) -0- Issuance of Common Stock to non-employee directors 22,125 -0- Forfeitures of Common Stock under Employee Stock Purchase Plan (21,615) (66,525) Payments on receivable from Employee Stock Purchase Plan 121,616 144,475 ------------ ------------ NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (48,425,416) 3,034,670 ------------ ------------ INCREASE IN CASH AND CASH EQUIVALENTS 1,057,295 1,321,765 Cash and cash equivalents at beginning of year 4,115,533 3,667,363 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,172,828 $ 4,989,128 ============ ============ See accompanying notes. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BLAIR CORPORATION AND SUBSIDIARY June 30, 1997 NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Blair Corporation and its wholly-owned subsidiary have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. 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, 1996. 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 2-07-96 $.35 per share 2-06-97 $.15 per share 5-10-96 .25 5-12-97 .15 7-16-96 .25 7-15-97 .15 10-16-96 .25 NOTE C - NET INCOME PER COMMON SHARE Three Months Ended Six Months Ended June 30 June 30 1997 1996 1997 1996 ----------- ----------- ----------- ----------- Net income $ 3,620,450 $ 6,760,780 $ 5,585,054 $13,183,674 Average shares outstanding 9,135,472 9,321,632 9,175,255 9,321,703 Net income per common share $ .40 $ .72 $ .61 $1.41 NOTE D - ACCRUED EXPENSES Accrued expenses consist of: June 30 December 31 1997 1996 ----------- ----------- Employee compensation $ 5,566,685 $ 6,089,723 Contribution to profit sharing and retirement plan 594,967 1,568,137 Taxes, other than taxes on income 714,561 322,053 Other accrued items 1,676,487 1,556,568 ----------- ----------- $ 8,552,700 $ 9,536,481 =========== =========== NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued BLAIR CORPORATION AND SUBSIDIARY June 30, 1997 NOTE E - INCOME TAXES The liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The components of income tax expense are as follows: Three Months Ended Six Months Ended June 30 June 30 1997 1996 1997 1996 ----------- ----------- ----------- ----------- Currently payable: Federal $ 4,401,000 $ 6,400,000 $ 2,431,000 $10,962,000 State 552,000 903,000 24,000 1,476,000 ----------- ----------- ----------- ----------- 4,953,000 7,303,000 2,455,000 12,438,000 Deferred (credit) (2,855,000) (3,120,000) 781,000 (4,291,000) ----------- ----------- ----------- ----------- $ 2,098,000 $ 4,183,000 $ 3,236,000 $ 8,147,000 =========== =========== =========== =========== The differences between total tax expense and the amount computed by applying the statutory federal income tax rate of 35% to income before income taxes are as follows: Three Months Ended Six Months Ended June 30 June 30 1997 1996 1997 1996 ----------- ----------- ----------- ----------- Statutory rate applied to pre-tax income $ 2,001,458 $ 3,830,323 $ 3,087,369 $ 7,465,736 State income taxes, net of federal tax benefit 81,900 289,250 91,650 549,900 Other items 14,642 63,427 56,981 131,364 ----------- ----------- ----------- ----------- $ 2,098,000 $ 4,183,000 $ 3,236,000 $ 8,147,000 =========== =========== =========== =========== Components of the provision for deferred income tax credit (expense) are as follows: Three Months Ended Six Months Ended June 30 June 30 1997 1996 1997 1996 ----------- ----------- ----------- ----------- Provision for estimated returns $ 8,000 $ (95,000) $ 157,000 $ 751,000 Provision for doubtful accounts (1,225,000) 926,000 (1,793,000) 2,813,000 Advertising costs 4,161,000 2,234,000 796,000 594,000 Other items - net (89,000) 55,000 59,000 133,000 ----------- ----------- ----------- ----------- $ 2,855,000 $ 3,120,000 $ (781,000) $ 4,291,000 =========== =========== =========== =========== NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued BLAIR CORPORATION AND SUBSIDIARY June 30, 1997 NOTE E - INCOME TAXES - Continued Components of the deferred tax assets and liability under the liability method as of June 30, 1997 and December 31, 1996 are as follows: June 30 December 31 1997 1996 ----------- ----------- Current net deferred tax assets: Doubtful accounts $12,648,000 $14,441,000 Returns allowances 2,010,000 1,853,000 Inventory obsolescence 1,937,000 1,937,000 Vacation pay 1,304,000 876,000 Inventory costs 922,000 1,257,000 Advertising costs (3,354,000) (4,150,000) Other items 599,000 808,000 ----------- ----------- $16,066,000 $17,022,000 =========== =========== Long-term deferred tax liability: Property, plant and equipment $ 1,804,000 $ 1,979,000 =========== =========== 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 $8,983,000 at June 30, 1997 and $8,833,000 at December 31, 1996, respectively. NOTE G - OTHER INCOME Other income consists of: Three Months Ended Six Months Ended June 30 June 30 1997 1996 1997 1996 ----------- ----------- ----------- ----------- Finance charges on time payment accounts $ 9,621,302 $10,893,156 $20,010,279 $21,709,943 Other items 732,134 352,144 1,038,776 628,443 ----------- ----------- ----------- ----------- $10,353,436 $11,245,300 $21,049,055 $22,338,386 =========== =========== =========== =========== Finance charges on time payment accounts are recognized on an accrual basis of accounting. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued BLAIR CORPORATION AND SUBSIDIARY June 30, 1997 NOTE H - FINANCING ARRANGEMENTS In 1995, the company entered into a $125,000,000 Revolving Credit Facility, which expires on November 17, 1998. The interest rate is, at the company's option, based on a base rate option, federal funds rate option or euro-rate option as defined in the agreement. The Revolving Credit Facility 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 and fixed charge coverage ratio and complying with certain indebtedness restrictions. As of June 30, 1997, the company was in compliance with all the agreement's covenants. As of June 30, 1997 and December 31, 1996, respectively, the company had borrowed $64,100,000 and $107,000,000 under the agreement of which $50,000,000 and $80,000,000 was classified as long-term. NOTE I - 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 J - 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 49,600 shares on July 23, 1997 and 34,700 shares on July 22, 1996. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BLAIR CORPORATION AND SUBSIDIARY June 30, 1997 Results of Operations - --------------------- Comparison of Second Quarter 1997 and Second Quarter 1996 Net income for the second quarter of 1997 decreased 46.4% from the second quarter of 1996. The second quarter of 1997 was impacted by reduced credit marketing promotion, increased catalog advertising, tightened credit management and deteriorating bad debt experience. Net sales for the second quarter of 1997 were 8.2% lower than second quarter 1996 net sales. Sales declined in the 1997 quarter due to the stoppage of pre- approved credit offers to prospects and limited experience in catalog inventory management (resulted in a greater number of stock outages). Response rates, while mixed, were up overall - customer circular mailings down 7%, prospect circular mailings down 49% (pre-approved credit offers), customer catalogs up 51%, prospect catalogs up 40%, co-op and media up 7%. Gross sales revenue generated per advertising dollar decreased 7.7%. Returns as a percentage of adjusted gross sales increased to 17.0% in the second quarter 1997 from 16.2% in the second quarter 1996. Returns are higher on Blair Credit (Easy Payment Plan) and credit card sales and these sales (combined) grew to 70% of gross mail order sales in second quarter 1997 from 66% in second quarter 1996. Also, returns are higher on womenswear sales which grew to 66% of gross sales in second quarter 1997 from 59% in second quarter 1996. Other income decreased 7.9% in the second quarter 1997 as compared to second quarter 1996 due to an 11.7% drop in finance charges assessed on Easy Payment Plan accounts receivable. Average second quarter Easy Payment Plan accounts receivable decreased 14.9% (approximately $37.2 million). Cost of goods sold as a percentage of net sales increased to 49.9% in second quarter 1997 from 48.4% in second quarter 1996. Increased returns and inventory writedowns were primarily responsible for the higher cost of goods sold. Advertising expense in the second quarter of 1997 was approximately the same as in the second quarter of 1996. Increased catalog mailings were offset by reductions in paper costs, circular letter mailings and co-op and media volume. The total number of circular mailings released in the second quarter 1997 was 26% less than in second quarter 1996 (32.3 million vs. 43.4 million). A 24% decrease in multi-product customer mailings, a 39% decrease in multi-product prospect mailings, a 1.5% decrease in single-product mailings and decreased paper costs resulted in a circular mailings cost decrease of $5,147,000 from second quarter 1996. Circular mailings have decreased primarily due to the expansion of the catalog advertising program. Total volume of the co-op and media advertising programs decreased 27% in second quarter 1997 as compared to second quarter 1996 (277 million vs. 381 million). A 3% increase in co-op advertising, a 35% decrease in media advertising and reduced paper costs resulted in a net co-op and media cost decrease of $830,000 from second quarter 1996. The total number of catalog mailings released in the second quarter of 1997 was ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued BLAIR CORPORATION AND SUBSIDIARY June 30, 1997 Results of Operations - Continued - --------------------- Comparison of Second Quarter 1997 and Second Quarter 1996 - Continued 111% higher than in the second quarter of 1996 (31.8 million vs. 15.1 million). The catalog has been the primary advertising format for home products for over two years. The company started test mailing menswear catalogs in July 1995 and started full mailings to prospects and customers in September 1996. The company started test mailing womenswear catalogs in January 1996 - full mailings started in the first quarter of 1997. A 111% increase in both customer and prospect catalogs and reduced paper prices resulted in a net catalog mailing cost increase of $6,050,000 over second quarter 1996. Catalog mailings in all three product lines are continually tested as to mailing frequency, page density, product mix, number of pages and size. General and administrative expense decreased 3.9% in the second quarter of 1997 as compared to the second quarter of 1996. The lower general and administrative expense was primarily the result of a decline in wages and benefits. The average number of employees dropped 7.1% in the second quarter of 1997 as compared to the second quarter of 1996. The provision for doubtful accounts as a percentage of credit sales was approximately 17% higher in the second quarter of 1997 as compared to the second quarter of 1996. A reduction in the provision due to lower credit sales and finance charges was more than offset by an additional provision required to cover deteriorating bad debt experience. Total credit sales decreased 29% and total finance charges decreased 12%. The estimated provision for doubtful accounts is based on current expectations, sales mix (prospect vs. customers) and prior years' experience. Due to increases in the delinquency and charge- off rates being experienced on prior years' receivables, the second quarter of 1997 included an additional provision of $1,740,000. The second quarter of 1996 included an additional provision of $1,000,000. Recoveries of bad debts previously charged off have been credited back against the allowance for doubtful accounts. The company, having recently completed a study of its credit policies, is currently implementing improved policies. Revised credit granting and collection policies already implemented have resulted in turning down more bad credit risks and in shortening and strengthening the collection cycle. It is anticipated that the full impact of the improved credit policies will not be realized until late 1997. Interest expense decreased 16% in the second quarter of 1997 as compared to the second quarter of 1996. Interest expense has resulted primarily from the company's borrowings necessary to finance customer accounts receivable. Average borrowings outstanding have decreased to approximately $76,000,000 during the second quarter of 1997 from $90,000,000 during the second quarter of 1996. The reduction in Blair Credit sales and the increase in credit card sales are greatly responsible for lowering the level of borrowings. Income taxes as a percentage of income before income taxes were 36.7% in the second quarter of 1997 and 38.2% in the second quarter of 1996. The federal income tax rate was 35% in both years. The difference in the total income tax rate was caused by a reduction in the company's effective state income tax rate. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued BLAIR CORPORATION AND SUBSIDIARY June 30, 1997 Results of Operations - Continued - --------------------- Comparison of Six Month Periods Ended June 30, 1997 and June 30, 1996 Net income for the first six months of 1997 decreased 57.6% as compared to the first six months of 1996. The six months of 1997 have been impacted by reduced credit marketing promotion, increased catalog advertising, tightened credit management and deteriorating bad debt experience. Net sales for the first half of 1997 were 14.7% lower than first half 1996 net sales. Sales declined in 1997 due to the stoppage of pre-approved credit offers to prospects, an increase in the number of orders turned down and limited experience in catalog inventory management (resulted in a greater number of stock outages). Response rates were mixed - customer circular mailings down 10%, prospect circular mailings down 57% (pre-approved credit offers), customer catalogs up 33%, prospect catalogs up 6% and co-op and media up 17%. Gross sales revenue generated per advertising dollar decreased 8.9%. Returns as a percentage of adjusted gross sales increased to 16.9% from 15.9%. Returns are higher on Blair Credit (Easy Payment Plan) and credit card sales and these sales (combined) grew to 70% of gross mail order sales in 1997 from 66% in the first half of 1996. Also, returns are higher on womenswear sales which grew to 64% of gross sales in 1997 from 60% in the first six months of 1996. Other income decreased 5.8% in the six months of 1997 as compared to the first six months of 1996 due to a 7.8% drop in finance charges assessed on Easy Payment Plan accounts receivable. Average Easy Payment Plan accounts receivable decreased 9.8% (approximately $24,000,000). Cost of goods sold as a percentage of net sales increased to 49.8% in the first half of 1997 from 49.0% in the first half of 1996. Increased returns and inventory writedowns were primarily responsible for the higher cost of goods. Advertising expense in the six months of 1997 decreased 5.7% from the first six months of 1996. Increased catalog mailings were more than offset by reductions in paper costs, circular letter mailings and co-op and media volume. The total number of circular mailings released in the six months of 1997 was 25% less than in the first six months of 1996 (68.6 million vs. 91.8 million). A 21% decrease in multi-product customer mailings, a 53% decrease in multi-product prospect mailings, a 3.5% decrease in single-product mailings and decreased paper costs resulted in a circular mailings cost decrease of $11,354,000 from the first six months of 1996. Circular mailings have decreased primarily due to the expansion of the catalog advertising program. Total volume of the co-op and media advertising programs decreased 30% in the six months of 1997 as compared to the first six months of 1996 (687 million vs. 975 million). A 36% decrease in co-op advertising, a 27% decrease in media advertising and reduced paper costs resulted in a co-op and media cost decrease of $1,739,000 from the first six months of 1996. The total number of catalog mailings released in the first half of 1997 was nearly double the number released in the first half of 1996 (48.5 million vs. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued BLAIR CORPORATION AND SUBSIDIARY June 30, 1997 Results of Operations - Continued - --------------------- Comparison of Six Month Periods Ended June 30, 1997 and June 30, 1996 - Continued 24.3 million). A 91% increase in customer catalogs, a 111% increase in prospect catalogs and reduced paper prices resulted in a net catalog mailing cost increase of $9,436,000 over the first half of 1996. General and administrative expense decreased 4.1% in the six months of 1997 as compared to the first six months of 1996. The lower general and administrative expense was primarily the result of a decline in wages and benefits. The average number of employees dropped 7.4% in the six months of 1997 as compared to the first six months of 1996. The provision for doubtful accounts as a percentage of credit sales increased 13% in the six months comparison. A reduction in the provision due to lower credit sales and finance charges was more than offset by an additional provision required to cover deteriorating bad debt experience. Total credit sales decreased 32% and finance charges decreased 8%. The estimated bad debt provision for doubtful accounts is based on current expectations, sales mix (prospect vs. customer) and prior years' experience. Due to increases in the delinquency and charge off rates being experienced on prior years' receivables, the six months of 1997 included an additional provision of $2,035,000. The first six months of 1996 included an additional provision of $1,000,000. Interest expense was approximately the same in the half years' comparison. Interest expense has resulted primarily from the company's borrowings necessary to finance customer accounts receivable. Average borrowings outstanding approximated $88,000,000 in the first six months of both 1997 and 1996. Income taxes as a percentage of income before income taxes were 36.7% in the first half of 1997 and 38.2% in the first half of 1996. The change in the total income tax rate was caused by a reduction in the company's effective state income tax rate. Liquidity and Sources of Capital - -------------------------------- All working capital and cash requirements were met. In November 1995, the company entered into a $125,000,000 Revolving Credit Facility which expires on November 17, 1998. The unsecured Revolving Credit Facility requires the company to meet certain covenants and as of June 30, 1997 the company was in compliance with all the covenants. Borrowings outstanding at June 30, 1997 were $64,100,000 of which $50,000,000 was classified as long-term. Borrowings outstanding at June 30, 1996 were $92,850,000 of which $80,000,000 was classified as long-term. As of August 11, 1997, the company's borrowings outstanding totaled $50,900,000. The ratio of current assets to current liabilities was 4.62 at June 30, 1997, 4.01 at December 31, 1996 and 4.42 at June 30, 1996. Working capital decreased $28,517,521 in the first six months of 1997. The decrease was primarily reflected in decreased customer accounts receivable and inventories. Primarily, the 1997 decrease in working capital was attributable to the reduction in long-term debt. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued BLAIR CORPORATION AND SUBSIDIARY June 30, 1997 Liquidity and Sources of Capital - Continued - -------------------------------- Merchandise inventory turnover was 2.6 at June 30, 1997, 2.9 at December 31, 1996 and 3.2 at June 30, 1996. Merchandise inventory as of June 30, 1996 decreased 18.1% from December 31, 1996 and 4.1% from June 30, 1996. Inventory levels have been impacted by the continuing effort to increase order fulfillment rates and by the transition to a larger catalog operation. Currently, the company is installing a new catalog inventory management system that is expected to come on line later in 1997. Home Products net sales as a percentage of total net sales were 13.0% ($30.9 million) in 1997 as compared to 17.3% ($48.4 million) in the first half of 1996. Menswear net sales were 24.4% ($58.2 million) and 24.8% ($69.4 million). Womenswear net sales were 62.6% ($149.3 million) and 57.9% ($161.8 million). Home Products inventory totaled $10.0 million at June 30, 1997 as compared to $18.5 million at December 31, 1996 and $16.8 million at June 30, 1996. Menswear inventory was $20.3 million at June 30, 1997, $21.6 million at December 31, 1996 and $16.6 million at June 30, 1996. Womenswear inventory was $30.8 million at June 30, 1997, $34.4 million at December 31, 1996 and $30.2 million at June 30, 1996. The company has added new facilities, modernized its existing facilities and acquired new cost saving equipment during the last several years. Capital expenditures for property, plant and equipment totaled $1,071,569 during the first half of 1997 and $876,031 during the first half of 1996. Capital expenditures for the year 1997, not including expenditures required by the new marketing strategy, are projected to be similar to the total for the year 1996. In August 1995, the company's second call center was opened in Erie, Pennsylvania. A 75% expansion of the Erie Call Center was completed in September 1996. A third call center, located in Franklin, Pennsylvania, was added in January 1997. Further expansion of the call centers is planned to be completed by September 1997. See "Future Considerations". The company recently declared a quarterly dividend of $.15 per share payable on September 15, 1997. 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 bought back 120,300 shares of its common stock at a price of $2,267,655 in 1996. The company bought back 18,700 shares at a price of $341,726 in the first quarter of 1997 and 162,445 shares at a price of $2,562,403 in the second quarter of 1997. As of August 11, 1997, the company has bought back 22,442 shares at a price of $360,139 in the third quarter of 1997. The company will assess future buy-back opportunities on an on-going basis. 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 1997 cash requirements, however, may be affected in the future by numerous factors, including changes in customer payments on accounts receivable, consumer credit industry trends, sales volume, operating cost fluctuations and unplanned capital spending. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued BLAIR CORPORATION AND SUBSIDIARY June 30, 1997 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. During the past several years, selling prices have been raised sufficiently to offset increased merchandise costs, thereby realizing profit margins that continue to build fiscal strength. Profit margins were pressured by postal rate and paper cost increases in 1996. Paper prices were at their lowest level since 1994 in the first quarter of 1997, but increased in the second quarter of 1997, and will again increase in the third quarter of 1997. Postage rates haven't changed since 1996 but are expected to increase in early 1998. 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. Recent 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. The company considers these matters in setting pricing policies. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued BLAIR CORPORATION AND SUBSIDIARY June 30, 1997 Future Considerations - --------------------- The company is faced with the ever-present challenge of keeping the customer file alive and growing. This involves the acquisition of new customers (prospects), the conversion of new customers to established customers (active repeat buyers) and the retention of established customers. These steps are vital in growing the business but are being impacted by the decline in consumer retail spending, increased operating costs, increased competition in the retail sector and record levels of consumer debt. The company has been undergoing a strategic planning study (since early 1995) in which our current marketing programs, operating systems and competitive position have been assessed and looked at with future application and effectiveness in mind. The continuing study has resulted in a new marketing strategy whose development will require utilizing our existing strengths, changing business processes and organizational structure and improving information systems. A prime aspect of the new marketing strategy involves targeting customers in the "over 40, low-to-moderate income" market. This redefinition of our target customer from "over 50" to "over 40" has been made possible by the ability of our catalog advertising to reach younger buyers within our traditional list sources. This market, though younger in age than our existing customer file, is the fastest growing segment of the population. Success of the new marketing strategy will require investment in database management, operating systems, prospecting programs, catalog marketing, telephone call centers, and, possibly, a second distribution center. Management believes that these investments should improve Blair Corporation's position in new and existing markets and provide opportunities for future earnings growth. 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. PART II. OTHER INFORMATION BLAIR CORPORATION AND SUBSIDIARY June 30, 1997 Item 4. Submission of Matters to a Vote of Security Holders. ----------------------------------------------------- (a) The company's Annual Meeting of Stockholders was held April 15, 1997. (b) At the Annual Meeting of Stockholders, all of the company's directors were elected at said meeting, as follows: David A. Blair Gerald A. Huber Kent R. Sivillo Robert W. Blair Craig N. Johnson Blair T. Smoulder Steven M. Blair Murray K. McComas John E. Zawacki Robert D. Crowley Thomas P. McKeever John O. Hanna Michael J. Samargya Since all of the directors of the company were elected at the Annual Meeting of Stockholders, there are no directors whose term of office as a director continued after the meeting. (c) The following other matter was voted upon at the meeting, and the following number of affirmative votes and negative votes were cast with respect to such matter: The reappointment by the company's Board of Directors of the firm of Ernst & Young L.L.P. as independent certified public accountants to examine the financial statements and perform the annual audit of the company for the year ending December 31, 1997 was ratified. This ratification received 8,504,885 affirmative votes and 34,845 negative votes. Item 5. Other Information ------------------ The company filed a Registration Statement on Form S-8 on July 17, 1997 registering 49,600 shares of the company's Common Stock which was offered for purchase on July 23, 1997 to selected employees of the company under and in accordance with the company's Employee Stock Purchase Plan. Item 6. Exhibits and Reports on Form 8-K --------------------------------- (a) Exhibits ----------- None (b) Reports on Form 8-K -------------------- No reports on Form 8-K were filed during the quarter ended June 30, 1997. SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant had duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BLAIR CORPORATION ---------------------------- (Registrant) Date August 12, 1997 By Kent R. Sivillo ------------------ -------------------------------- Kent R. Sivillo Vice President and Treasurer (Principal Financial Officer) EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BLAIR CORPORATIONS' 6/30/97 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SECOND QUARTER, 1997 10-Q FILING FOR BLAIR CORPORATION. 0000071525 BLAIR CORPORATION 6-MOS DEC-31-1997 JUN-30-1997 5,172,828 0 169,538,738 38,556,565 71,484,056 264,060,518 101,519,046 48,873,635 317,663,674 57,201,153 0 0 0 419,810 208,238,711 317,663,674 238,427,744 259,476,799 118,755,726 250,655,745 0 14,405,909 2,579,104 8,821,054 3,236,000 5,585,054 0 0 0 5,585,054 .61 .61 AMOUNT REPRESENTS NET ACCOUNTS RECEIVABLE. AMOUNT INCLUDES ADDITIONAL PAID-IN CAPITAL, RETAINED EARNINGS, TREASURY STOCK, AND THE EMPLOYEE STOCK PURCHASE PLAN RECEIVABLE.
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