-----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, G45D+aZdCX2mgbtJeh3ZE5rfwFdodSWUmbn0EL8gli1ERFI6gIEoplkb9BPK/mIx 8HyyacOUY18gl7kh51qU3g== 0000071525-97-000031.txt : 19971114 0000071525-97-000031.hdr.sgml : 19971114 ACCESSION NUMBER: 0000071525-97-000031 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 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: SEC FILE NUMBER: 001-00878 FILM NUMBER: 97713013 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 3RD 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 September 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 November 10, 1997 the registrant had outstanding 9,033,980 shares of its common stock without nominal or par value. PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS (UNAUDITED) BLAIR CORPORATION AND SUBSIDIARY September 30, 1997 CONSOLIDATED BALANCE SHEETS BLAIR CORPORATION AND SUBSIDIARY September 30 December 31 1997 1996 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 6,330,021 $ 4,115,533 Customer accounts receivable,less allowances for doubtful accounts and returns of $36,819,548 in 1997 and $44,464,572 in 1996 155,170,937 193,772,056 Inventories - Note F Merchandise 70,716,057 74,537,691 Advertising and shipping supplies 23,098,660 13,310,907 ------------ ------------ 93,814,717 87,848,598 Deferred income taxes 12,706,000 17,022,000 Prepaid federal and state taxes 3,480,801 10,142,009 Prepaid expenses 626,446 655,915 ------------ ------------ Total current assets 272,128,922 313,556,111 Property, plant and equipment: Land 1,130,454 1,130,454 Buildings 63,120,926 62,788,129 Equipment 38,416,181 36,540,127 ------------ ------------ 102,667,561 100,458,710 Less allowances for depreciation 50,062,522 46,251,580 ------------ ------------ 52,605,039 54,207,130 Trademarks 939,684 993,867 ------------ ------------ TOTAL ASSETS $325,673,645 $368,757,108 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 15,950,000 $ 27,000,000 Trade accounts payable 51,568,343 40,497,362 Advance payments from customers 2,460,959 1,145,382 Accrued expenses - Note D 9,891,707 9,536,481 ------------ ------------ Total current liabilities 79,871,009 78,179,225 Deferred income taxes 1,728,000 1,979,000 Long-term debt 35,000,000 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 13,230,251 12,928,260 Retained earnings 219,807,719 216,068,537 ------------ ------------ 233,457,780 229,416,607 Less 1,028,275 shares in 1997 and 840,908 shares in 1996 of Common Stock in treasury - at cost 22,414,473 19,013,814 Less receivable from Employee Stock Purchase Plan 1,968,671 1,803,910 ------------ ------------ 209,074,636 208,598,883 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $325,673,645 $368,757,108 ============ ============ See accompanying notes. CONSOLIDATED STATEMENTS OF INCOME BLAIR CORPORATION AND SUBSIDIARY
Three Months Ended Nine Months Ended September 30 September 30 1997 1996 1997 1996 ------------ ------------ ------------ ------------ Net sales $102,809,800 $112,095,417 $341,237,544 $391,753,104 Other income - Note G 9,036,032 11,323,596 30,085,087 33,661,982 ------------ ------------ ------------ ------------ 111,845,832 123,419,013 371,322,631 425,415,086 Costs and expenses: Cost of goods sold 52,629,516 55,223,666 171,385,242 192,356,038 Advertising 22,628,018 29,512,152 88,243,489 99,081,478 General and administrative 24,678,613 26,563,760 73,978,148 77,959,005 Provision for doubtful accounts 7,572,550 8,414,274 21,978,459 28,390,677 Interest 791,478 1,369,523 3,370,582 3,961,576 ------------ ------------ ------------ ------------ 108,300,175 121,083,375 358,955,920 401,748,774 ------------ ------------ ------------ ------------ INCOME BEFORE INCOME TAXES 3,545,657 2,335,638 12,366,711 23,666,312 Income taxes - Note E 1,290,000 855,000 4,526,000 9,002,000 ------------ ------------ ------------ ------------ NET INCOME $ 2,255,657 $ 1,480,638 $ 7,840,711 $ 14,664,312 ============ ============ ============ ============ Net income per share based on average shares outstanding - Note C $ .25 $ .16 $ .86 $1.57 ===== ===== ===== ===== See accompanying notes.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY BLAIR CORPORATION AND SUBSIDIARY
Three Months Ended Nine Months Ended September 30 September 30 1997 1996 1997 1996 ------------ ------------ ------------ ------------ Common Stock $ 419,810 $ 419,810 $ 419,810 $ 419,810 Additional paid-in capital: Balance at beginning of period 12,919,478 12,303,101 12,928,260 12,372,697 Issuance (net of forfeitures) of Common Stock under Employee Stock Purchase Plan 310,773 625,159 288,303 555,563 Issuance of Common Stock to non-employee directors -0- -0- 13,688 -0- ------------ ------------ ------------ ------------ Balance at end of period 13,230,251 12,928,260 13,230,251 12,928,260 Retained earnings: Balance at beginning of period 218,910,178 219,178,505 216,068,537 211,588,111 Net income 2,255,657 1,480,638 7,840,711 14,664,312 Cash dividends declared - Note B (1,358,116) (2,338,708) (4,101,529) (7,931,988) ------------ ------------ ------------ ------------ Balance at end of period 219,807,719 218,320,435 219,807,719 218,320,435 Treasury Stock: Balance at beginning of period (21,913,986) (16,940,787) (19,013,814) (16,927,008) Purchase of treasury stock (900,613) -0- (3,804,742) -0- Issuance (net of forfeitures) of Common Stock under Employee Stock Purchase Plan 400,126 194,628 395,646 180,849 Issuance of Common Stock to non-employee directors -0- -0- 8,437 -0- ------------ ------------ ------------ ------------ Balance at end of period (22,414,473) (16,746,159) (22,414,473) (16,746,159) Receivable from Employee Stock Purchase Plan: Balance at beginning of period (1,676,959) (1,726,270) (1,803,910) (1,887,595) Issuance (net of forfeitures) of Common Stock under Employee Stock Purchase Plan (368,100) (260,250) (362,765) (243,400) Repayments 76,388 38,010 198,004 182,485 ------------ ------------ ------------ ------------ Balance at end of period (1,968,671) (1,948,510) (1,968,671) (1,948,510) ------------ ------------ ------------ ------------ TOTAL STOCKHOLDERS' EQUITY $209,074,636 $212,973,836 $209,074,636 $212,973,836 ============ ============ ============ ============ See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS BLAIR CORPORATION AND SUBSIDIARY Nine Months Ended September 30 1997 1996 ------------ ------------ OPERATING ACTIVITIES Net income $ 7,840,711 $ 14,664,312 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 4,010,407 4,030,987 Provision for doubtful accounts 21,978,459 28,390,677 Provision for deferred income taxes 4,065,000 (1,992,000) Changes in operating assets and liabilities providing (using) cash: Customer accounts receivable 16,622,660 (34,435,376) Inventories (5,966,119) (19,701,172) Prepaid expenses 29,469 (276,746) Trade accounts payable 11,070,981 5,311,907 Advance payments from customers 1,315,577 (34,500) Accrued expenses 355,226 300,145 Federal and state taxes 6,661,208 (6,006,000) ------------ ------------ NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 67,983,579 (9,747,766) INVESTING ACTIVITIES Purchases of property, plant and equipment (2,354,133) (1,924,325) ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES (2,354,133) (1,924,325) FINANCING ACTIVITIES Net (repayments) proceeds from lines of credit (56,050,000) 19,900,000 Dividends paid (4,101,529) (7,931,988) Purchase of Common Stock for treasury (3,804,742) -0- Issuance (net of forfeitures) of Common Stock under Employee Stock Purchase Plan 683,949 736,412 Increase in notes receivable from Employee Stock Purchase Plan (164,761) (60,915) Issuance of Common Stock to non-employee directors 22,125 -0- ------------ ------------ NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (63,414,958) 12,643,509 ------------ ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 2,214,488 971,418 Cash and cash equivalents at beginning of year 4,115,533 3,667,363 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,330,021 $ 4,638,781 ============ ============ See accompanying notes. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BLAIR CORPORATION AND SUBSIDIARY September 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 nine months ended September 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 10-21-97 .15 NOTE C - NET INCOME PER COMMON SHARE Three Months Ended Nine Months Ended September 30 September 30 1997 1996 1997 1996 ----------- ----------- ----------- ----------- Net income $ 2,255,657 $ 1,480,638 $ 7,840,711 $14,664,312 Average shares outstanding 9,063,214 9,346,157 9,142,530 9,331,642 Net income per common share $ .25 $. 16 $ .86 $1.57 NOTE D - ACCRUED EXPENSES Accrued expenses consist of: September 30 December 31 1997 1996 ----------- ----------- Employee compensation $ 7,006,892 $ 6,089,723 Contribution to profit sharing and retirement plan 835,351 1,568,137 Taxes, other than taxes on income 161,593 322,053 Other accrued items 1,887,871 1,556,568 ----------- ----------- $ 9,891,707 $ 9,536,481 =========== =========== NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued BLAIR CORPORATION AND SUBSIDIARY September 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 (credit) are as follows: Three Months Ended Nine Months Ended September 30 September 30 1997 1996 1997 1996 ----------- ----------- ----------- ----------- Currently payable: Federal $(1,534,000) $(1,071,000) $ 897,000 $ 9,891,000 State (460,000) (373,000) (436,000) 1,103,000 ----------- ----------- ----------- ----------- (1,994,000) (1,444,000) 461,000 10,994,000 Deferred 3,284,000 2,299,000 4,065,000 (1,992,000) ----------- ----------- ----------- ----------- $ 1,290,000 $ 855,000 $ 4,526,000 $ 9,002,000 =========== =========== =========== =========== 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 Nine Months Ended September 30 September 30 1997 1996 1997 1996 ----------- ----------- ----------- ----------- Statutory rate applied to pre-tax income $ 1,240,980 $ 817,473 $ 4,328,349 $ 8,283,209 State income taxes, net of federal tax benefit 19,500 (22,750) 111,150 527,150 Other items 29,520 60,277 86,501 191,641 ----------- ----------- ----------- ----------- $ 1,290,000 $ 855,000 $ 4,526,000 $ 9,002,000 =========== =========== =========== =========== Components of the provision for deferred income tax expense (credit) are as follows: Three Months Ended Nine Months Ended September 30 September 30 1997 1996 1997 1996 ----------- ----------- ----------- ----------- Provision for estimated returns $ 74,000 $ 435,000 $ (83,000) $ (316,000) Provision for doubtful accounts 604,000 (507,000) 2,397,000 (3,320,000) Advertising costs 4,960,000 2,807,000 4,164,000 2,213,000 Customer accounts receivable (2,246,000) -0- (2,246,000) -0- Other items - net (108,000) (436,000) (167,000) (569,000) ----------- ----------- ----------- ----------- $ 3,284,000 $ 2,299,000 $ 4,065,000 $(1,992,000) =========== =========== =========== =========== NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued BLAIR CORPORATION AND SUBSIDIARY September 30, 1997 NOTE E - INCOME TAXES - Continued Components of the deferred tax asset and liability under the liability method as of September 30, 1997 and December 31, 1996 are as follows: September 30 December 31 1997 1996 ----------- ----------- Current net deferred tax asset: Doubtful accounts $12,044,000 $14,441,000 Customer accounts receivable 2,246,000 -0- Returns allowance 1,936,000 1,853,000 Inventory obsolescence 1,937,000 1,937,000 Vacation pay 1,327,000 876,000 Inventory costs 945,000 1,257,000 Advertising costs (8,314,000) (4,150,000) Other items 585,000 808,000 ----------- ----------- $12,706,000 $17,022,000 =========== =========== Long-term deferred tax liability: Property, plant and equipment $ 1,728,000 $ 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 $9,058,000 at September 30, 1997 and $8,833,000 at December 31, 1996, respectively. NOTE G - OTHER INCOME Other income consists of: Three Months Ended Nine Months Ended September 30 September 30 1997 1996 1997 1996 ----------- ----------- ----------- ----------- Finance charges on time payment accounts $ 8,401,016 $11,017,766 $28,411,295 $32,727,709 Other items 635,016 305,830 1,673,792 934,273 ----------- ----------- ----------- ----------- $ 9,036,032 $11,323,596 $30,085,087 $33,661,982 =========== =========== =========== =========== Finance charges on time payment accounts are recognized on an accrual basis of accounting. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued BLAIR CORPORATION AND SUBSIDIARY September 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 September 30, 1997, the company was in compliance with all the agreement's covenants. As of September 30, 1997 and December 31, 1996, respectively, the company had borrowed $50,950,000 and $107,000,000 under the agreement of which $35,000,000 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 September 30, 1997 Results of Operations - --------------------- Comparison of Third Quarter 1997 and Third Quarter 1996 Net income for the third quarter of 1997 increased 52.3% from the third quarter of 1996. In comparison, the third quarter of 1997 was favorably impacted by increased response to our catalog and circular letter mailings and by reductions in advertising expense, professional service fees, wages and benefits, interest expense and the provision for doubtful accounts. Net sales for the third quarter of 1997 were 8.3% lower than third quarter 1996 net sales. Sales declined in the 1997 quarter due to a smaller prospect advertising program, tightened credit management, elimination of high-dollar, high credit risk items in the Home Products line and limited experience in catalog inventory management (higher cancellations). Response rates were up overall - customer circular mailings up 30%, prospect circular mailings down 27%, customer catalogs up 47%, prospect catalogs up 117%, co-op and media down 2%. Gross sales revenue generated per advertising dollar increased 18.6%. Returns as a percentage of adjusted gross sales increased to 15.9% in the third quarter of 1997 from 15.4% in the third quarter 1996. Returns are higher on Blair Credit (Easy Payment Plan) and credit card sales and these sales grew to 71% of gross mail order sales in third quarter 1997 from 67% in second quarter 1996. Returns are also higher on Womenswear sales which grew to 69% of gross sales in third quarter 1997 from 63% in third quarter 1996. Other income decreased 20.2% in the third quarter 1997 as compared to third quarter 1996 due to a 23.8% drop in finance charges assessed on Easy Payment Plan accounts receivable. Average third quarter Easy Payment Plan accounts receivable decreased 20.2%, approximately $50,000,000. Cost of goods sold as a percentage of net sales increased to 51.2% in third quarter 1997 from 49.3% in third quarter 1996. Increased returns and inventory writedowns were primarily responsible for the higher cost of goods sold. Advertising expense in the third quarter of 1997 decreased 23.3% from the third quarter of 1996. Increased catalog mailings and co-op and media volume were more than offset by reductions in circular letter mailings and paper costs. The total number of circular mailings released in the third quarter 1997 was 51% less than in the third quarter 1996 (20.5 million vs. 42.3 million). A 45% decrease in multi-product customer mailings, an 86% decrease in multi-product prospect mailings, a 28% decrease in single- product mailings and decreased paper costs resulted in a circular mailings cost decrease of $9,889,000 from third 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 increased 23% in third quarter 1997 as compared to third quarter 1996 (278 million vs. 225 million). A 53% increase in co-op advertising, a 14% increase in media advertising and reduced paper costs resulted in a net co-op and media cost increase of $180,000 from third quarter 1996. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued BLAIR CORPORATION AND SUBSIDIARY September 30, 1997 Results of Operations - Continued - --------------------- Comparison of Third Quarter 1997 and Third Quarter 1996 - Continued The total number of catalog mailings released in the third quarter of 1997 was 73% higher than in the third quarter of 1996 (18.9 million vs. 10.9 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 119% increase in customer catalogs, a 28% decrease in prospect catalogs and reduced paper costs resulted in a net catalog mailing cost increase of $2,713,000 over third 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 7.1% in the third quarter of 1997 as compared to the third quarter of 1996. The lower general and administrative expense was primarily the result of declines in professional service fees and in wages and benefits. The company's ongoing study of it's existing marketing programs, in support of the strategic plan to target the "over 40" low-to-moderate income market, is coming to a close and thus professional service fees are declining. Wages and benefits were down due to a 4.4% drop in the average number of employees in the third quarter of 1997 as compared to the third quarter of 1996. The provision for doubtful accounts as a percentage of credit sales was approximately 19% highter in the third quarter of 1997 as compared to the third 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. Credit sales and finance charges both decreased 24%. The estimated 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 third quarter of 1997 included an additional provision of $2,458,000. The third quarter of 1996 included an additional provision of $710,000. 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 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. After some delay, credit granting models addressing prospects (first-time buyers) were implemented in mid-September and early-October 1997. The full impact of the credit policies is not likely to be realized until 1998. Interest expense decreased 42% in the third quarter of 1997 as compared to the third 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 $54,000,000 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued BLAIR CORPORATION AND SUBSIDIARY September 30, 1997 Results of Operations - Continued - --------------------- Comparison of Third Quarter 1997 and Third Quarter 1996 - Continued during the third quarter of 1997 from $95,000,000 during the third quarter of 1996. The reduction in Blair Credit sales, the increase in credit card sales and improving credit policies are greatly responsible for lowering the levels of customer accounts receivable and borrowings. Income taxes as a percentage of income before income taxes were 36.4% in the third quarter of 1997 and 36.6% in the third 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. Comparison of Nine Month Periods Ended September 30, 1997 and September 30, 1996 Net income for the first nine months of 1997 decreased 46.5% as compared to the first nine months of 1996. The nine months of 1997 have been impacted by reduced credit marketing promotion, increased catalog advertising, tightened credit management and deteriorating bad debt experience. Nine month 1997 net sales were 12.9% lower than nine month 1996 net sales. Sales declined in 1997 due to the stoppage of pre-approved credit offers to prospects, tightened credit management, elimination of high-dollar, high credit risk items in the Home Products line and limited experience in catalog inventory management (higher cancellations). Response rates were mixed - customer circular mailings the same, prospect circular mailings down 48% (pre-approved credit offers), customer catalogs up 37%, prospect catalogs up 19%, co-op and media up 13%. Gross sales revenue generated per advertising dollar decreased 2%. Returns as a percentage of adjusted gross sales increased to 16.6% from 15.7%. Returns are higher on Blair Credit (Easy Payment Plan) and credit card sales and these sales grew to 71% of gross mail order sales in 1997 from 67% in the first nine months of 1996. Returns are also higher on Womenswear sales which grew to 66% of gross mail order sales in 1997 from 61% in the first nine months of 1996. Other income decreased 10.6% in the nine months of 1997 as compared to the first nine months of 1996 due to a 13.2% drop in finance charges assessed on Easy Payment Plan accounts receivable. Average Easy Payment Plan accounts receivable decreased 13.2%, approximately $32,000,000. Cost of goods sold as a percentage of net sales increased to 50.2% in the nine months of 1997 from 49.1% in the first nine months of 1996. Increased returns and inventory writedowns were primarily responsible for the higher cost of goods. Advertising expense in the nine months of 1997 decreased 10.9% from the first nine months of 1996. Increased catalog mailings were more than offset by reductions in circular letter mailings, co-op and media volume and paper costs. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued BLAIR CORPORATION AND SUBSIDIARY September 30, 1997 Results of Operations - Continued - --------------------- Comparison of Nine Month Periods Ended September 30, 1997 and September 30, 1996 - Continued The total number of circular mailings released in the nine months of 1997 was 34% less than in the first nine months of 1996 (89.2 million vs. 134.1 million). A 28% decrease in multi-product customer mailings, a 64% decrease in multi-product prospect mailings, a 10% decrease in single-product mailings and decreased paper costs resulted in a circular mailings cost decrease of $21,253,000 from the first nine 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 20% in the nine months of 1997 as compared to the first nine months of 1996 (964 million vs. 1,201 million). 20% decreases in co-op advertising and media advertising and reduced paper costs resulted in a co-op and media cost decrease of $1,559,000 from the first nine months of 1996. The total number of catalog mailings released in the nine months of 1997 was 91% higher than the total number released in the first nine months of 1996 (67.4 million vs. 35.2 million). A 101% increase in customer catalogs, a 78% increase in prospect catalogs and reduced paper prices resulted in a net catalog mailing cost increase of $12,149,000 over the first nine months of 1996. General and administrative expense decreased 5.1% in the nine months of 1997 as compared to the first nine months of 1996. The lower general and administrative expense was primarily the result of declines in professional service fees and in wages and benefits. The company's use of outside consultants has declined resulting in a 66% reduction in professional service fees. The average number of employees declined 6.1% in the nine months of 1997 as compared to the nine months of 1996 resulting in a 6.2% drop in wages and benefits in 1997. The provision for doubtful accounts as a percentage of credit sales increased approximately 10% in the nine month 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. Credit sales decreased 30% and finance charges decreased 13%. The estimated bad debt provision 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 nine months of 1997 included an additional provision of $2,978,000. The first nine months of 1996 included an additional provision of $1,103,000. Recoveries of bad debts previously charged off have been credited back against the allowance for doubtful accounts. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued BLAIR CORPORATION AND SUBSIDIARY September 30, 1997 Results of Operations - Continued - --------------------- Comparison of Nine Month Periods Ended September 30, 1997 and September 30, 1996 - Continued Interest expense decreased 15% in the nine months of 1997 as compared to the first nine months 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 nine months of 1997 from $91,500,000 during the first nine months of 1996. Income taxes as a percentage of income before income taxes were 36.6% in the nine months of 1997 and 38.0% in the first nine months 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 September 30, 1997 the company was in compliance with all the covenants. Borrowings outstanding at September 30, 1997 were $50,950,000 of which $35,000,000 was classified as long-term. Borrowings outstanding at September 30, 1996 were $104,200,000 of which $80,000,000 was classified as long-term. As of November 7, 1997, the company's borrowings outstanding totaled $37,950,000. The ratio of current assets to current liabilities was 3.41 at September 30, 1997, 4.01 at December 31, 1996 and 3.65 at September 30, 1996. Working capital decreased $43,118,973 in the nine months of 1997. The decrease was primarily reflected in decreased customer accounts receivable, deferred income taxes and prepaid federal and state taxes. The 1997 decrease in working capital was attributable to the reduction in long-term debt. Merchandise inventory turnover was 2.6 at September 30, 1997, 2.9 at December 31, 1996 and 3.0 at September 30, 1996. Merchandise inventory as of September 30, 1997 decreased 5.1% from December 31, 1996 and 12.0% from September 30, 1996. Inventory levels have been impacted by the continuing effort to increase order fulfillment rates, by transition to a larger catalog operation and by the elimination of high dollar, high credit risk products in the Home Products product line. The company is currently installing a new catalog inventory management system that is expected to come on line late in 1997. Home Products net sales as a percentage of total net sales were 13.1% ($44.8 million) in 1997 as compared to 17.3% ($67.7 million) in the first nine months of 1996. Menswear net sales were 23.1% ($78.9 million) and 23.8% ($93.2 million). Womenswear net sales were 63.8% ($217.5 million) and 58.9% ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued BLAIR CORPORATION AND SUBSIDIARY September 30, 1997 Liquidity and Sources of Capital - Continued - -------------------------------- ($230.9 million). Home Products inventory totaled $9.2 million at September 30, 1997 as compared to $18.5 million at December 31, 1996 and $20.4 million at September 30, 1996. Menswear inventory was $22.5 million at September 30, 1997, $21.6 million at December 31, 1996 and $22.7 million at September 30, 1996. Womenswear inventory was $39.0 million at September 30, 1997, $34.4 million at December 31, 1996 and $37.2 million at September 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 $2,354,133 during the first nine months of 1997 and $1,924,325 during the first nine months of 1996. Capital expenditures for the year 1997 are projected to be similar to the total for the year 1996. Capital expenditures for 1998 are expected to be significantly higher due to expenditures required by the new marketing strategy. 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 and refinement of all three call centers - Warren, Erie and Franklin - was completed by September 1997. See "Future Considerations". The company recently declared a quarterly dividend of $.15 per share payable on December 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 237,417 shares at a price of $3,804,742 during the first nine months of 1997. The company is currently buying back stock and 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 refinancing 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 September 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 and third quarters of 1997, and have again increased in the fourth quarter of 1997. Postage rates haven't changed since 1996 but are expected to increase in 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 September 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 September 30, 1997 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 ofthe 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 September 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 November 10, 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' 9/30/97 financial statements and is qualified in its entirety by reference to such third quarter, 1997 10-Q filing for Blair Corporation. 0000071525 BLAIR CORPORATION 9-MOS DEC-31-1997 SEP-30-1997 6,330,021 0 155,170,937 36,819,548 93,814,717 272,128,922 102,667,561 50,062,522 325,673,645 79,871,009 0 0 0 419,810 208,654,826 325,673,645 341,237,544 371,322,631 171,385,242 358,955,920 0 21,978,459 3,370,582 12,366,711 4,526,000 7,840,711 0 0 0 7,840,711 .86 .86 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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