-----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, WryfLPhEETs/deLh0+ZYtwuFw6CLoQmuGzMQrabWDcZShASefmrAxdS0qkZXhW5G ouy4Ws9iTEHfLdqaog6csg== 0000950128-96-000217.txt : 19960318 0000950128-96-000217.hdr.sgml : 19960318 ACCESSION NUMBER: 0000950128-96-000217 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960315 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-00878 FILM NUMBER: 96535167 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-K405 1 BLAIR CORP 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, 1995 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. X ----- The aggregate market value of the voting stock held by nonaffiliates of the registrant as of February 23, 1996 was $172,557,344.25. There were 9,322,132 shares of common stock outstanding as of February 23, 1996. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the 1996 Annual Meeting of Stockholders and the Annual Report to Stockholders for the fiscal year ended December 31, 1995 are incorporated by reference into Parts II, III, and IV of this Form 10-K. 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 over 2,300 people. (b) Information Regarding Industry Segments. The Company's business consists of only one industry segment, which is the retail and direct mail 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 chosen by the Company in accordance with their ability to produce high quality products in a cost-effective manner. Historically, the Company has marketed its products by mailing letters and color folders depicting 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, tools, electronics, and exercise and personal care items) directly to existing and prospective customers. Sales of the Company's menswear and womenswear products accounted for approximately 85% of the Company's total sales in 1995, and sales of the Company's home products accounted for the remaining 15% (approximately) of the Company's total sales in 1995. Media and co-op prospect advertising programs are used extensively and are essential components of the Company's customer acquisition strategy. In 1993, the Company tested a catalog format to market its home products and other non-apparel merchandise. In 1995, the Company tested a catalog format to market its menswear and in early 1996, the Company tested a catalog format to market its womenswear. The success of the Company's pilot catalog mailing programs prompted the Company to successfully -2- 3 expand its distribution in 1994 and 1995, and the Company anticipates that such success should continue in 1996. All orders for merchandise are received and processed at the Company's corporate offices in Warren, Pennsylvania. All letter mailings originate from the Company's Mailing Center, and all orders are filled and mailed from the Company's Distribution Center, both in nearby Irvine, Pennsylvania. All catalog mailings are mailed from commercial printers engaged by the Company. The Company serves customers throughout the fifty states. The Company's outlet stores enable it to more efficiently promote and liquidate discontinued, overstock and returned merchandise. The Delaware retail store is the first Company facility to be located outside of its home state of Pennsylvania, and represents the Company's growing market. The Company considers its merchandise to be low/medium-priced and competes for sales with other direct mail businesses, retail department stores, specialty shops, and discount store chains. The Company competes based on its sales expertise, customer service, pricing, customer credit privileges, and diverse product mix. During 1995, the Company continued its efforts to broaden its customer information systems. Several database models were rewritten to enhance its ability to market to both customer files and prospect files, including the use of new data and analysis techniques. (d) Foreign Operations and Export Sales. The Company does not derive any revenue from sales of merchandise outside of the United States. ITEM 2. PROPERTIES The Company owns the following properties: I. Blair Headquarters (220 Hickory Street, Warren, Pennsylvania) -- a 284,000 square foot multi-story brick facility containing the Company's corporate offices and Accounting, Advertising, Electronic Data Processing, Human Resources, Merchandise, Order Handling and Planning departments. II. Blair Distribution Center (Route 62, Irvine, Pennsylvania) -- a 542,275 square foot cement block and sheet metal warehouse and distribution facility. -3- 4 III. Blair Mailing Center (Route 62, Irvine, Pennsylvania) -- a 293,400 square foot cement block and sheet metal mailing facility. IV. Blair Warehouse Outlet (Route 62, Starbrick, Pennsylvania) -- a 53,250 square foot metal warehouse outlet facility. V. Blair Warehouse Outlet (Millcreek Mall, Erie, Pennsylvania) -- a 38,600 square foot block and brick warehouse outlet facility. VI. Bell Warehouse Building (Liberty Street, Warren, Pennsylvania) -- a 9,000 square foot metal warehouse facility. VII. Starbrick Warehouse Building (Route 62, Starbrick, Pennsylvania) -- a 12,000 square foot metal warehouse facility. The Company leases the following properties: VIII. Blair Retail Store (Wilmington, Delaware) -- a 11,765 square foot retail facility. IX. Warehouse Building (Route 62, Starbrick, Pennsylvania) -- a 30,000 square foot metal warehouse facility. X. Telephone Call Center (Erie, Pennsylvania) -- a 16,120 square foot metal call center facility. In addition, the Company's wholly-owned subsidiary, Blair Holdings, Inc., leases approximately 600 square feet of 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 foreseeable future. ITEM 3. LEGAL PROCEEDINGS Not applicable. 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. -4- 5 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 14 of the Company's 1995 Annual Report to Stockholders. ITEM 6. SELECTED FINANCIAL DATA The information required by this item is incorporated by reference to page 14 of the Company's 1995 Annual Report to Stockholders. 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 15 and 16 of the Company's 1995 Annual Report to Stockholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is incorporated by reference to pages 7 through 14 of the Company's 1995 Annual Report to Stockholders. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. -5- 6 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 1996 Annual Meeting of Stockholders (the "1996 Proxy Statement") is hereby incorporated by reference. ITEM 11. EXECUTIVE COMPENSATION Information appearing under the caption "Executive Compensation" in the 1996 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 1996 Proxy Statement is hereby incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 10-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 1995 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 -6- 7 statements of the Company described in Item 14(a)(1) above. 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 *11 Computation of Earnings per Share (incorporated by reference to page 7 of the 1995 Annual Report to Stockholders) *13 1995 Annual Report to Stockholders (informational filing by paper only) 21 Subsidiaries of Registrant *23 Consents of Experts and Counsel *27 Financial Data Schedule (filed electronically only) (b) REPORTS ON FORM 8-K. The registrant has filed no forms 8-K during the quarter ended December 31, 1995. (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. -7- 8 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 15, 1996 By: /s/ GILES W. SCHUTTE ------------------------------ Giles W. Schutte Executive 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 15, 1996 By: /s/ MURRAY K. MCCOMAS ------------------------------ Murray K. McComas President and Director (Principal Executive Officer and Director) Date: March 15, 1996 By: /s/ GILES W. SCHUTTE ------------------------------ Giles W. Schutte Executive Vice President, Treasurer, and Director (Principal Financial and Accounting Officer) Date: March 15, 1996 By: /s/ BLAIR T. SMOULDER ------------------------------ Blair T. Smoulder Executive Vice President and Director 9 Date: March 15, 1996 By: /s/ MICHAEL J. SAMARGYA ------------------------------ Michael J. Samargya Vice President - Data Processing and Director Date: March 15, 1996 By: /s/ STEVEN M. BLAIR ------------------------------ Steven M. Blair Vice President - Order Handling and Director Date: March 15, 1996 By: /s/ JOHN E. ZAWACKI ------------------------------ John E. Zawacki Vice President - Womenswear and Director Date: March 15, 1996 By: /s/ DAVID A. BLAIR ------------------------------ David A. Blair Secretary and Director Date: March 15, 1996 By: /s/ ROBERT D. CROWLEY ------------------------------ Robert D. Crowley Vice President - Menswear and Director Date: March 15, 1996 By: /s/ THOMAS P. MCKEEVER ------------------------------ Thomas P. McKeever Vice President - Employee and Public Relations and Director EX-13 2 BLAIR CORP 10-K405 1 Exhibit 13 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, 1995 2 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, 1995, are incorporated by reference in Item 8: -- Consolidated Balance Sheets -- December 31, 1995 and 1994 -- Consolidated Statements of Income -- Years ended December 31, 1995, 1994 and 1993 -- Consolidated Statements of Stockholders' Equity -- Years ended December 31, 1995, 1994 and 1993 -- Consolidated Statements of Cash Flows -- Years ended December 31, 1995, 1994 and 1993 -- Notes to Consolidated Financial Statements -- December 31, 1995 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. 3 Blair Corporation and Subsidiary Schedule II Valuation and Qualifying Accounts December 31, 1995
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E ADDITIONS- BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND DEDUCTIONS- AT END OF PERIOD EXPENSES DESCRIBE OF PERIOD --------- -------- -------- --------- DESCRIPTION Year ended December 31, 1995: Allowance deducted from asset accounts (customer accounts receivable): For doubtful accounts........... $ 32,256,161 $ 31,774,283(A) $ 23,522,373(B) $ 40,508,071 For estimated loss on returns... 7,571,000 96,320,044 97,215,044(C) 6,676,000 -------------------------------------------------------------------------- Totals.................................. $ 39,827,161 $128,094,327 $120,737,417 $ 47,184,071 ========================================================================== Year ended December 31, 1994: Allowance deducted from asset accounts (customer accounts receivable): For doubtful accounts........... $ 28,324,648 $ 27,022,560(A) $ 23,091,047(B) $ 32,256,161 For estimated loss on returns... 5,931,000 91,464,304 89,824,304(C) 7,571,000 -------------------------------------------------------------------------- Totals.................................. $ 34,255,648 $118,486,864 $112,915,351 $ 39,827,161 ========================================================================== Year ended December 31, 1993: Allowance deducted from asset accounts (customer accounts receivable): For doubtful accounts........... $ 17,756,739 $ 26,218,300(A) $ 15,650,391(B) $ 28,324,648 For estimated loss on returns... 5,795,000 90,891,470 90,755,470(C) 5,931,000 -------------------------------------------------------------------------- Totals.................................. $ 23,551,739 $117,109,770 $106,405,861 $ 34,255,648 ========================================================================== - ---------- 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.
4 CONSOLIDATED FINANCIAL STATEMENTS BLAIR CORPORATION AND SUBSIDIARY YEARS ENDED DECEMBER 31, 1995 AND 1994 WITH REPORT OF INDEPENDENT AUDITORS 5 Blair Corporation and Subsidiary Consolidated Financial Statements Years ended December 31, 1995 and 1994 CONTENTS Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . 1 Audited Consolidated Financial Statements Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . 2 Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . 4 Consolidated Statements of Stockholders' Equity . . . . . . . . . . . . . . 5 Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . 6 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 7
6 Report of 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, 1995 and 1994 and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. 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 generally accepted auditing standards. 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, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. February 2, 1996 ERNST & YOUNG LLP -1- 7 Blair Corporation and Subsidiary Consolidated Balance Sheets
DECEMBER 31 1995 1994 --------------------------------- ASSETS Current assets: Cash and cash equivalents $ 3,667,363 $ 2,183,136 Customer accounts receivable, less allowances for doubtful accounts and returns of $47,184,071 in 1995 and $39,827,161 in 1994 191,399,482 130,517,140 Inventories: Merchandise 64,597,476 70,562,969 Advertising and shipping supplies 15,795,329 13,394,493 --------------------------------- 80,392,805 83,957,462 Deferred income taxes 18,669,000 18,386,000 Prepaid state income taxes 1,306,403 222,109 Prepaid expenses 528,291 558,370 --------------------------------- Total current assets 295,963,344 235,824,217 Property, plant, and equipment: Land 1,130,454 1,130,454 Buildings 61,620,547 57,422,042 Equipment 35,406,049 32,195,892 Construction in progress - 335,122 --------------------------------- 98,157,050 91,083,510 Less allowances for depreciation 41,844,738 38,025,818 --------------------------------- 56,312,312 53,057,692 Trademarks 1,057,892 - --------------------------------- Total assets $353,333,548 $288,881,909 =================================
-2- 8
DECEMBER 31 1995 1994 --------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable (Note 2) $ 4,300,000 $ 34,300,000 Trade accounts payable 48,223,146 34,832,191 Advance payments from customers 1,155,159 1,419,582 Accrued expenses (Note 3) 11,396,086 12,725,522 Federal income taxes 666,142 3,648,934 --------------------------------- Total current liabilities 65,740,533 86,926,229 Deferred income taxes 2,027,000 1,939,000 Long-term debt (Note 2) 80,000,000 - 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 12,372,697 11,017,130 Retained earnings 211,588,111 207,683,352 --------------------------------- 224,380,618 219,120,292 Less 753,308 shares in 1995 and 801,958 shares in 1994 of common stock in treasury -- at cost 16,927,008 17,238,660 Less receivable from Employee Stock Purchase Plan 1,887,595 1,864,952 --------------------------------- 205,566,015 200,016,680 --------------------------------- Total liabilities and stockholders' equity $353,333,548 $288,881,909 =================================
See accompanying notes. -3- 9 Blair Corporation and Subsidiary Consolidated Statements of Income
YEAR ENDED DECEMBER 31 1995 1994 1993 ---------------------------------------------- Net sales $560,889,612 $535,792,222 $519,174,324 Other income (Note 5) 31,927,853 23,370,104 19,467,438 ---------------------------------------------- 592,817,465 559,162,326 538,641,762 Costs and expenses: Cost of goods sold 277,278,340 257,921,482 251,136,064 Advertising 138,001,203 117,654,135 122,861,345 General and administrative 99,773,037 93,275,059 86,721,374 Provision for doubtful accounts 31,774,283 27,022,560 26,218,300 Interest 3,743,692 676,380 153,626 ---------------------------------------------- 550,570,555 496,549,616 487,090,709 ---------------------------------------------- Income before income taxes 42,246,910 62,612,710 51,551,053 Income taxes (Note 6) 16,979,000 24,934,000 20,698,000 ---------------------------------------------- Net income $ 25,267,910 $ 37,678,710 $ 30,853,053 ============================================== Net income per share based on average shares outstanding $2.72 $4.07 $3.34 ==============================================
See accompanying notes. -4- 10 Blair Corporation and Subsidiary Consolidated Statements of Stockholders' Equity
YEAR ENDED DECEMBER 31 1995 1994 1993 -------------------------------------------------- COMMON STOCK $ 419,810 $ 419,810 $ 419,810 ADDITIONAL PAID-IN CAPITAL Balance at beginning of year 11,017,130 9,595,875 7,775,814 Issuance (net of forfeitures) of common stock under Employee Stock Purchase Plan (Note 4) 1,355,567 1,421,255 1,820,061 -------------------------------------------------- Balance at end of year 12,372,697 11,017,130 9,595,875 RETAINED EARNINGS Balance at beginning of year 207,683,352 188,957,972 182,111,957 Net income 25,267,910 37,678,710 30,853,053 Cash dividends declared per share -- $2.30 in 1995; $2.05 in 1994; $2.60 in 1993 (21,363,151) (18,953,330) (24,007,038) -------------------------------------------------- Balance at end of year 211,588,111 207,683,352 188,957,972 TREASURY STOCK Balance at beginning of year (17,238,660) (16,056,017) (16,418,906) Purchase of 35,000 shares of common stock for treasury - (1,470,000) - Issuance (net of forfeitures) of common stock under Employee Stock Purchase Plan (Note 4) 311,652 287,357 362,889 -------------------------------------------------- Balance at end of year (16,927,008) (17,238,660) (16,056,017) RECEIVABLE FROM EMPLOYEE STOCK PURCHASE PLAN Balance at beginning of year (1,864,952) (1,713,840) (1,454,490) Issuance (net of forfeitures) of common stock under Employee Stock Purchase Plan (Note 4) (530,468) (551,850) (712,800) Repayments 507,825 400,738 453,450 -------------------------------------------------- Balance at end of year (1,887,595) (1,864,952) (1,713,840) -------------------------------------------------- Total stockholders' equity $205,566,015 $200,016,680 $181,203,800 ==================================================
See accompanying notes. -5- 11 Blair Corporation and Subsidiary Consolidated Statements of Cash Flows
YEAR ENDED DECEMBER 31 1995 1994 1993 -------------------------------------------------- OPERATING ACTIVITIES Net income $ 25,267,910 $ 37,678,710 $ 30,853,053 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 4,821,652 4,606,470 4,506,177 Provision for doubtful accounts 31,774,283 27,022,560 26,218,300 Provision for deferred income taxes (195,000) (2,566,000) (2,400,000) (Gain) loss on disposition of equipment (3,278) (238,024) 511,404 Changes in operating assets and liabilities (using) providing cash: Customer accounts receivable (92,656,626) (45,087,034) (42,824,657) Inventories 3,564,657 (21,885,221) 598,753 Prepaid expenses 30,079 (148,808) (69,991) Trade accounts payable 13,390,955 253,151 (327,388) Advance payments from customers (264,423) (466,604) (422,234) Accrued expenses (1,329,436) 3,074,168 (1,591,804) Federal and state income taxes (4,067,087) (1,331,859) (116,905) -------------------------------------------------- Net cash (used in) provided by operating activities (19,666,314) 911,509 14,934,708 INVESTING ACTIVITIES Purchases of property, plant, and equipment (8,059,101) (5,974,779) (11,547,441) Purchase of trademark (1,075,822) - - Proceeds from maturity or sale of short-term investments - - 902,576 Proceeds from sale of equipment 4,039 474,804 12,177 -------------------------------------------------- Net cash used in investing activities (9,130,884) (5,499,975) (10,632,688) FINANCING ACTIVITIES Net proceeds from bank borrowings 50,000,000 22,700,000 11,600,000 Dividends paid (21,363,151) (18,953,330) (24,007,038) Purchase of Common Stock for treasury - (1,470,000) - Issuance (net of forfeitures) of Common Stock under Employee Stock Purchase Plan 1,667,219 1,708,612 2,182,950 Increase in notes receivable from Employee Stock Purchase Plan (22,643) (151,112) (259,350) -------------------------------------------------- Net cash provided by (used in) financing activities 30,281,425 3,834,170 (10,483,438) -------------------------------------------------- Net increase (decrease) in cash and cash equivalents 1,484,227 (754,296) (6,181,418) Cash and cash equivalents at beginning of year 2,183,136 2,937,432 9,118,850 -------------------------------------------------- Cash and cash equivalents at end of year $ 3,667,363 $ 2,183,136 $ 2,937,432 ==================================================
See accompanying notes. -6- 12 Blair Corporation and Subsidiary Notes to Consolidated Financial Statements December 31, 1995 1. SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION On September 2, 1993, Blair Corporation formed a new wholly-owned subsidiary, Blair Holdings, Inc., a Delaware Corporation. The consolidated financial statements include the accounts of Blair Corporation and its subsidiary (Company). All significant intercompany accounts are eliminated upon consolidation. REVENUE RECOGNITION Sales, cash or credit, are recorded when the merchandise is shipped to the customer. Credit sales are made under Easy Payment Plan and Seven Day Credit 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 credit sales approximates fair value. Finance charges on time payment accounts are recognized on an accrual basis of accounting. CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The carrying amount reported in the balance sheet for cash and cash equivalents approximates fair value. 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 $8,662,000 and $8,690,000 at December 31, 1995 and 1994, respectively. -7- 13 Blair Corporation and Subsidiary Notes to Consolidated Financial Statements (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 amounted to $17,930 at December 31, 1995. 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 1995, 1994 and 1993 amounted to $96,320,044, $91,464,304 and $90,891,470, respectively. 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 1995, 1994 and 1993 amounted to $2,799,706, $4,023,519 and $3,294,397, 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 1995, 1994 and 1993 amounted to $1,787,053, $1,527,508 and $1,224,570, respectively. -8- 14 Blair Corporation and Subsidiary Notes to Consolidated Financial Statements (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. ALLOWANCES FOR DOUBTFUL ACCOUNTS A provision for doubtful accounts is recorded monthly as a percentage of gross sales based upon experience of delinquencies and charge-offs. 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. FINANCIAL INSTRUMENTS SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," as amended, requires disclosure of fair value information for financial instruments. SFAS No. 107 defines fair values as the estimated amount at which the financial instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The carrying amounts reported in the consolidated balance sheets for these financial instruments subject to the requirements of SFAS No. 107 (principally customer accounts receivable) approximates those assets' and liabilities' fair values primarily due to their short-term nature. 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. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD In March 1995, the FASB issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present -9- 15 Blair Corporation and Subsidiary Notes to Consolidated Financial Statements (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD (CONTINUED) and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying value. The Company will adopt Statement No. 121 in the first quarter of 1996 and, based on current circumstances, does not believe the effect of adoption will be material. RECLASSIFICATIONS Certain amounts in prior years financial statements have been reclassified to conform with the 1995 presentation. 2. 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 December 31, 1995, the Company was in compliance with all the agreement's covenants. At December 31, 1995, the Company had borrowed $84,300,000 under the agreement of which $80,000,000 was classified as long-term. The weighted average interest rate was 5.8% at December 31, 1995. In 1994, the Company had $40,000,000 available in lines of credit, $10,000,000 which had no expiration date and $30,000,000 which expired on May 31, 1995. Borrowings aggregated $34,300,000 under these lines of credit at December 31, 1994. Interest paid during 1995, 1994 and 1993 amounted to $3,630,505, $676,380 and $153,626, respectively. The weighted average interest rate on average debt outstanding was 6.53%, 5.34%, and 4.06% for the years ended December 31, 1995, 1994 and 1993, respectively. The Company has outstanding letters of credit amounting to approximately $15,400,000 at December 31, 1995 related to inventory purchases. -10- 16 Blair Corporation and Subsidiary Notes to Consolidated Financial Statements (continued) 3. ACCRUED EXPENSES Accrued expenses consist of:
1995 1994 --------------------------- Employee compensation $ 6,162,097 $ 6,426,098 Contribution to profit sharing and retirement plan 2,799,706 4,023,519 Taxes, other than taxes on income 713,176 699,387 Other accrued items 1,721,107 1,576,518 --------------------------- $11,396,086 $12,725,522 ===========================
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, 1995 and 1994, 227,950 and 276,600 shares, respectively, were available to be issued under the Plan. The Company follows APBO No. 25, "Accounting for Stock Issued to Employees" and related Interpretations 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 options amounted to $1,148,881, $1,156,762 and $1,470,150 for the years ended December 31, 1995, 1994 and 1993, respectively. A summary of the activity under the Plan is as follows:
1995 1994 1993 ------------------------------------- Shares issued 49,150 42,450 44,550 Issue price per share $11.00 $13.00 $16.00 Market value per share at date of issue $34.375 $40.250 $49.000 Shares forfeited 500 - - Original price per share $13.00 TO $16.00 - -
-11- 17 Blair Corporation and Subsidiary Notes to Consolidated Financial Statements (continued) 5. OTHER INCOME Other income consists of:
1995 1994 1993 ----------------------------------------------- Finance charges on time payment accounts $30,339,372 $21,721,018 $18,300,280 Miscellaneous 1,588,481 1,649,086 1,167,158 ----------------------------------------------- $31,927,853 $23,370,104 $19,467,438
6. INCOME TAXES The components of income tax expense are as follows:
1995 1994 1993 ----------------------------------------------- Currently payable: Federal $15,366,000 $22,632,000 $18,585,000 State 1,808,000 4,868,000 4,513,000 ----------------------------------------------- 17,174,000 27,500,000 23,098,000 Deferred (credit) (195,000) (2,566,000) (2,400,000) ----------------------------------------------- $16,979,000 $24,934,000 $20,698,000 ===============================================
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:
1995 1994 1993 ----------------------------------------------- Statutory rate applied to pretax income $14,786,419 $21,914,449 $18,042,869 State income taxes, net of federal benefit 1,833,000 2,848,300 2,659,150 Other items 359,581 171,251 (4,019) ----------------------------------------------- $16,979,000 $24,934,000 $20,698,000 ===============================================
-12- 18 Blair Corporation and Subsidiary Notes to Consolidated Financial Statements (continued) 6. INCOME TAXES (CONTINUED) Components of the deferred tax asset and liability under the liability method as of December 31, 1995 and 1994 are as follows:
1995 1994 ----------------------------- Current net deferred tax asset: Doubtful accounts $15,672,000 $13,066,000 Returns allowance 1,878,000 2,443,000 Inventory obsolescence 1,934,000 1,883,000 Inventory costs 1,456,000 1,479,000 Vacation pay 1,323,000 1,264,000 Advertising costs (4,038,000) (2,162,000) Other items 444,000 413,000 ----------------------------- $18,669,000 $18,386,000 ============================= Long-term deferred tax liability: Property, plant, and equipment $ 2,027,000 $ 1,939,000 =============================
Income taxes paid during 1995, 1994 and 1993 amounted to $21,241,087, $28,831,859 and $23,215,000, respectively. 7. DOMINANT BUSINESS SEGMENT The Company is primarily in the business of selling men's and women's fashion wearing apparel and accessories and home furnishing items to individuals throughout the United States, comprising a customer base that is diverse in both geographic and demographic terms. Selling is done mainly by means of direct mail letters and catalogs with individual order forms. Sales of the men's and women's fashion wearing apparel and accessories merchandise lines accounted for 85%, 87% and 90% of total 1995, 1994 and 1993 sales, respectively. The home furnishings merchandise line accounted for the remaining sales volumes. -13- 19 QUARTERLY RESULTS OF OPERATIONS ================================================================================ The following is a summary of unaudited quarterly results of operations for the years ended December 31, 1995 and 1994.
1995 1994 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) Net sales................... $127,641 $150,619 $124,986 $157,644 $118,440 $142,718 $115,000 $159,634 Cost of goods sold.......... 62,104 72,496 64,050 78,628 56,550 67,438 55,054 78,879 Net income.................. 7,104 7,434 3,941 6,789 8,180 12,706 5,238 11,555 Net income per share........ .77 .80 .42 .73 .88 1.38 .56 1.25
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, 1995 was 3,009.
1995 1994 SALES PRICE DIVIDENDS Sales Price Dividends HIGH LOW DECLARED High Low Declared First Quarter....... $40 $32-3/4 $1.25 $46-1/8 $36-1/2 $1.00 Second Quarter...... 35 32-1/8 .35 45-5/8 39-3/4 .35 Third Quarter....... 34-1/8 32-3/8 .35 46-7/8 40-3/4 .35 Fourth Quarter...... 31-5/8 27-5/8 .35 43-1/4 39 .35
The payment of dividends is not subject to any restrictions. Although the payment of dividends is dependent on future earnings, capital requirements and financial condition, the company expects to continue its policy of paying regular cash dividends. SELECTED FINANCIAL DATA ================================================================================
Year Ended December 31 1995 1994 1993 1992 1991 Net sales........... $560,889,612 $535,792,222 $519,174,324 $500,168,164 $493,121,796 Net income.......... 25,267,910 37,678,710 30,853,053 35,195,644 30,857,403 Total assets........ 353,333,548 288,881,909 245,605,064 227,787,780 210,952,549 Per share: Net income........ 2.72 4.07 3.34 3.82 3.37 Cash dividends declared........ 2.30 2.05 2.60 .75 2.00
14 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net sales for 1995 were a new company record, having now increased for the eighteenth consecutive year. Net income for 1995 decreased 32.9% from 1994 - 1994 earnings were the company's second highest. The reduction in earnings was primarily attributable to increased postage, paper, payroll, interest and catalog prospecting costs. The increased postage and paper costs negatively impacted cost of goods sold, advertising expense and general and administrative expense. The total pretax impact of the increased postage and paper costs on 1995 has been estimated at $20,000,000. Net sales for 1995 increased 4.7% over 1994, 1994 increased 3.2% over 1993. The company's extension of higher credit limits to our better customers and reduction of the minimum payment on our revolving Easy Payment Plan contributed to the record sales. Gross Easy Payment Plan credit sales increased 14.1% in 1995 and comprised 54.5% of total mail order sales in 1995 as compared to 50.0% in 1994. Response rates in 1995 have been mixed - up 2.2% for customer multi-product mailings, down 5.3% for prospect multi-product mailings, down 6.7% for co-op and media, up 4.5% for customer catalogs and down 1.9% for prospect catalogs - as compared to 1994. Gross sales revenue generated per advertising dollar decreased 11.2% in 1995 primarily due to increased advertising cost (postage, paper and catalog prospecting). The number of orders shipped in 1995 decreased 3.6% but the average order size increased 8.6%. Returns as a percentage of adjusted gross sales were 14.8% in 1995 and 14.7% in 1994. The record 1994 sales resulted from increased response rates. Response to customer multi-product circular mailings increased 8.3% in 1994 over 1993. Response to the home products customer catalogs was 23.9% better than the response to home products customer multi-product mailings in 1993. Response to the co-op and media programs increased 3.1 in 1994. The company generated 7.2% more gross sales per advertising dollar in 1994. The number of orders filled in 1994 decreased 4.3% but the average order size increased 7.0%. Returns as a percentage of adjusted gross sales improved to 14.7% in 1994 from 15.0% in 1993. Other income increased 36.6% in 1995 as compared to 1994 and 20.0% in 1994 as compared to 1993. The increases were primarily due to finance charges earned on increased Easy Payment Plan accounts receivable. Prospect multi-product circular mailings (since 1992) and prospect catalogs (since fourth quarter 1993) offer revolving credit to first-time buyers via the Easy Payment Plan. These programs along with the extension of higher credit limits to our better customers and the reduction in our minimum payment schedule (effective January 1, 1995 - from 10% to 5% on average) have been greatly responsible for increases in average Easy Payment Plan accounts 21 receivable of 35.2% (approximately $49,133,000) in 1995 as compared to 1994 and 17.6% (approximately $20,907,000) in 1994 as compared to 1993. Easy Payment Plan gross sales increased 14.1% in 1995 over 1994 and 10.3% in 1994 over 1993. Finance charges increased 39.7% in 1995 and 18.7% in 1994. Cost of goods sold as a percentage of net sales increased to 49.4% in 1995 from 48.1% in 1994. The higher cost of goods primarily resulted from increased delivery costs, change in product mix and larger than usual inventory writedowns. Increased postal rates and the higher cost to ship larger and heavier merchandise in the expanded line of home products drove delivery costs up. Home products sales increased in 1995 and have a lower gross margin than the men's and women's apparel lines. The larger writedowns were primarily on the excess inventory resulting from the lower than anticipated customer response in the fourth quarter 1994. Cost of goods sold as a percentage of net sales decreased to 48.1% in 1994 from 48.4% in 1993. Fewer prospect (first-time buyers) orders at incentive pricing were primarily responsible for the improved margin in 1994. Gross prospect sales were approximately 20% lower in 1994 as compared to 1993. Advertising expense increased 17.3% in 1995 as compared to 1994. Advertising expense decreased 4.2% in 1994 as compared to 1993. The total number of circular mailings released in 1995 was 5.5% less than in 1994 (200.8 million in 1995, 212.5 million in 1994). A 3.8% decrease in multi-product customer mailings (151.7 million in 1995, 157.6 million in 1994), a 7.2% decrease in multi-product prospect mailings (41.7 million in 1995, 44.9 million in 1994), a 26.3% decrease in single-product mailings (7.4 million in 1995, 10.0 million in 1994), an 11.3% increase in average mailing cost (postage) and a 15.7% increase in average printing cost (primarily paper) resulted in a net circular mailings cost increase of approximately $6,827,000 over 1994. The number of circular mailings decreased in 1995 primarily due to the increased mailings of catalogs to both customers and prospects. The total number of circular mailings released in 1994 was 18.1% less than in 1993 (212.5 million in 1994, 259.6 million in 1993). A 12.5% decrease in multi-product customer mailings (157.6 million in 1994, 180.2 million in 1993), a 35.9% decrease in multi-product prospect mailings (44.9 million in 1994, 70.1 million in 1993), a 7.8% increase in single-product mailings (10.0 million in 1994, 9.3 million in 1993) and a 1.8% average increase in production costs resulted in a net cost reduction of approximately $14,788,000 from 1993. Customer circular mailings have decreased in 1994 primarily due to the better targeting of mailings, the removal of non-responding names from the customer file and mailing of the home products catalogs to the full customer file. Prospect circular mailings have decreased in 1994 due to the elimination of poorly performing acquired mailing lists and increased prospect home products catalog mailings. 22 Total volume of the co-op and media advertising programs decreased 5.7% in 1995 as compared to 1994 (2.00 billion in 1995, 2.12 billion in 1994). The decreased volume and a 12.5% increase in average product and placement costs (primarily paper and postage) resulted in a net cost increase of approximately $514,000 over 1994. Total volume of the co-op and media advertising programs increased 2.2% in 1994 as compared to 1993 (2.12 billion in 1994, 2.08 billion in 1993). The increased volume and a 7.4% reduction in average production and placement costs resulted in a net cost decrease of approximately $1,040,000 from 1993. The total number of catalog mailings released in 1995 was 94.3% more than in 1994 (39.5 million in 1995, 20.3 million in 1994). The catalog format is the primary advertising format for home products and is currently being tested for men's (started July 1995) and women's (started January 1996) apparel. A 44.1% increase in customer catalogs (19.9 million in 1995, 13.8 million in 1994), a 199.8% increase in prospect catalogs (19.6 million in 1995, 6.5 million in 1994), an 8.9% increase in average mailing cost (postage) and increased printing cost (primarily paper) resulted in a catalog mailings cost increase of approximately $12,945,000 from 1994. All of the catalogs mailed in 1993, 1994 and 1995 were home products catalogs except for 3.6 million men's test catalogs mailed in the second half of 1995. The total number of catalog mailings released in 1994 was 20.3 million (6.6 million to prospects) as compared to 1.6 million (.6 million to prospects) in 1993. Catalog mailings costs increased approximately $10,090,000 in 1994 over 1993. General and administrative expense increased 7.0% in 1995 over 1994 and 7.6% in 1994 over 1993. In 1995, increases in wages and benefits and telephone expense were primarily responsible for the increased general and administrative expense. Wages and benefits increased 6.9% due to normal pay increases, a larger work force and an increase in the normal work week from 37 1/4 hours to 40 hours. On average, the number of employees has increased 3.7% in 1995. The work week was extended to 40 hours at the beginning of the fourth quarter of 1994. Telephone expense has increased because the company has been improving and expanding its 800-number capabilities for both customer ordering and customer service. As of September 1, 1995, all catalog mailings have been offering an 800 ordering number. The company opened a second call center, located in Erie, Pennsylvania, in August 1995 to help handle the increasing telephone order volume. In 1994, a 6.6% increase in wages and benefits and increased professional services were primarily responsible for the increased general and administrative expenses. Wages and benefits were higher due to normal pay increases and a larger work force. On average, the number of employees increased 5% in 1994. Professional services were higher primarily due to consulting fees related to the study of the existing distribution center and a possible second distribution center. 23 The provision for doubtful accounts as a percentage of credit sales increased 7.6% in 1995 as compared to 1994. Total credit sales increased 9.2% and total finance charges increased 39.7%. Prospect (first-time buyer) credit sales and finance charges carry a higher credit risk. Prospect credit sales increased 16.7% and were 10.1% of total credit sales in 1995. Prospect finance charges increased 20.8% and were 5.0% of total finance charges. The estimated bad debt rate used in providing for doubtful accounts is based on current expectations, sales mix (prospect vs. customer) and prior years' experience. The rates used in providing for bad debts have remained relatively constant since mid-1994. There has been no adjustment made to the 1995 provision but the 1994 provision included an unfavorable adjustment of prior period provisions of approximately $1,060,000. The provision for doubtful accounts as a percentage of credit sales decreased 2.5% in 1994 as compared to 1993. Total credit sales increased 6.1% and total finance charges increased 18.7%. Prospect credit sales decreased 20.1% and were 9.4% of total credit sales in 1994. Both the 1994 and 1993 provisions included unfavorable adjustments of prior period provisions - - approximately $1,060,000 in 1994 and $4,420,000 in 1993. Recoveries of bad debts previously charged off have been credited back against the allowance for doubtful accounts. Income taxes as a percentage of income before income taxes were 40.2% in 1995, 39.8% in 1994 and 40.2% in 1993. The federal income tax rate was 35% in all three years. Small changes in the company's effective state income rate caused the slight variance in the company's total tax rate. Interest expense increased to $3,743,692 in 1995 from $676,380 in 1994 and $153,626 in 1993. Interest expense has resulted primarily from the company's borrowings necessary to finance the increasing level of customer accounts receivable. The average borrowings outstanding were $57,202,000 during 1995 as compared to $12,505,000 during 1994 and $3,038,000 during 1993. The weighted average interest rate on average debt outstanding was 6.53%, 5.34% and 4.06% for 1995, 1994 and 1993. LIQUIDITY AND SOURCES OF CAPITAL All working capital and cash requirements were met and suppliers' invoices were timely paid in order to maximize discounts. In 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 December 31, 1995 the company was in compliance with all the covenants. Borrowings outstanding at December 31, 1995 were $84,300,000 of which $80,000,000 was classified as long-term. In 1994, the company had $40,000,000 available in lines of credit, $10,000,000 with no specified expiration date and $30,000,000 expiring May 31, 1995. Short-term borrowings outstanding at December 31, 1994 were $34,300,000. 24 The ratio of current assets to current liabilities was 4.50 at December 31, 1995, 2.71 at December 31, 1994 and 3.10 at December 31, 1993. Working capital increased $81,324,823, $17,694,351 and $2,157,932 during 1995, 1994 and 1993. The 1995 increase resulted primarily from the $80,000,000 long-term borrowing under the company's new three year $125,000,000 Revolving Credit Facility. In 1994 and 1993, the increases resulted primarily from working capital provided by operations exceeding the internal financing of capital expenditures and dividend payments. The 1995 increase was primarily reflected in increased customer accounts receivable and reduced notes payable. The 1994 increase was primarily reflected in increased inventories, customer accounts receivable and deferred income taxes offsetting increased notes payable and accrued expenses. The 1993 increase was primarily reflected in increased customer accounts receivable and deferred income taxes and decreased accrued expenses offsetting increased notes payable and decreased cash and cash equivalents. Although working capital has increased, net cash provided by operating activities has decreased $20,577,823 in 1995 and $14,023,199 in 1994. These reductions in cash flow from operations resulted primarily from increasing customer accounts receivable. Merchandise inventory turnover was 3.0 in 1995, as compared to 3.3 in 1994 and 3.8 in 1993. Merchandise inventory as of December 31, 1995 decreased 8.5% from December 31, 1994 and increased 36.2% from December 31, 1993. Net sales for 1995 increased 4.7% from 1994 and 8.0% from 1993. The level of merchandise inventory in 1995 did not fall below the 1994 level until the fourth quarter of 1995. Inventory levels have been impacted by the continuing effort to increase order fulfillment rates, lower than anticipated customer response in the fourth quarter of 1994 and the expansion of product lines due to the catalogs. Home products net sales as a percentage of total net sales increased to 16.1% ($90.5 million) in 1995 as compared to 13.6% ($73.0 million) in 1994 and 10.9% ($56.3 million) in 1993. Men's net sales decreased to 24.0% ($134.6 million) in 1995 from 26.3% ($140.7 million) in 1994 and 27.9 ($144.9 million) in 1993. Women's decreased to 59.9% ($335.8 million) in 1995 from 60.1% ($322.1 million) in 1994 and 61.2% ($318.0 million) in 1993. Home products inventory totaled $10.0 million at December 31, 1995 as compared to $13.3 million at December 31, 1994 and $3.5 million at December 31, 1993. Men's inventory was $18.4 million at December 31, 1995, $18.9 million at December 31, 1994 and $13.8 million at December 31, 1993. Women's inventory was $36.2 million at December 31, 1995, $38.4 million at December 31, 1994 and $30.1 million at December 31, 1993. The company has added new facilities, modernized its existing facilities and acquired net cost saving equipment during the last several years. Capital expenditures for property, plant and equipment totaled $8,059,101, $5,974,779 and $11,547,441 during 1995, 1994 and 1993. 25 The company has completed the renovation of its headquarters facility in Warren. The lower two levels were completed in February 1993 and the upper two levels were mostly completed by the end of 1994. Total cost of the renovation was $13,600,000. The company completed its new Erie, Pennsylvania outlet store. Total cost of the new store, which opened May 23, 1994, was $2.1 million. The old Erie store building was sold in August 1994. The company has undertaken a study of its distribution center, focused on operational and customer service improvements. As a result of the study, a 64,475 square-foot warehouse addition, on which construction began January 1995, was completed in September 1995 at a cost of $6.9 million. The continuing study includes examining the merits of a variety of service-enhancing options, including a possible second distribution center located outside of the Warren, Pennsylvania area. Future cash needs for expansion of the business and capital expenditures will be financed by cash flow from operations, the current borrowing arrangement and other financing arrangements available to the company. 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 reduced by postal rate and paper cost increases in 1995 and will continue to be pressured in 1996. Paper costs have retreated slightly from their high point at 1995 year end. 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, saving in operating costs should result. The company considers these matters in setting pricing policies. 26 IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD In March 1995, the Financial Accounting Standard Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". The Statement requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying value. The company will adopt Statement No. 121 in the first quarter of 1996 and, based on current circumstances, does not believe the effect of adoption will be material. 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 and increased competition in the retail sector. 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 50", low-to-moderate income market. 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. EX-23 3 BLAIR CORP 10-K405 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, 1996, included in the 1995 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 the Company'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 Statements on Form S-8 dated July 7, 1995, Form S-8 dated July 6, 1994, and Form S-8 dated July 2, 1993, pertaining to the Blair Corporation Employee Stock Purchase Plan, of our report dated February 2, 1996, 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 Erie, Pennsylvania March 15, 1996 EX-27 4 BLAIR CORP. 10-K405
5 This schedule contains summary financial information extracted from Blair Corporation's 12/31/95 Financial Statements and is qualified in its entirety by reference to such fourth quarter, 1995 10-K filing for Blair Corporation. 0000071525 BLAIR CORPORATION YEAR DEC-31-1995 DEC-31-1995 3,667,363 0 191,399,482 47,184,071 80,392,805 295,963,344 98,157,050 41,844,738 353,333,548 65,740,533 0 419,810 0 0 205,146,205 353,333,548 560,889,612 592,817,465 277,278,340 550,570,555 0 31,774,283 3,743,692 42,246,910 16,979,000 25,267,910 0 0 0 25,267,910 2.72 2.72 Amount includes additional paid-in capital retained earnings, treasury stock, and the employee stock purchase plan receivable.
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