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 March 31, 2001 Commission File Number 1-878
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BLAIR CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 25-0691670
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 HICKORY STREET, WARREN, PENNSYLVANIA 16366-0001
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(Address of principal executive offices) (Zip Code)
(814) 723-3600
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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As of May 11, 2001 the registrant had outstanding 7,970,044 shares of its common
stock without nominal or par value.
PART I. FINANCIAL INFORMATION -2-
ITEM I. FINANCIAL STATEMENTS (UNAUDITED)
BLAIR CORPORATION AND SUBSIDIARIES
March 31, 2001
CONSOLIDATED BALANCE SHEETS -3-
BLAIR CORPORATION AND SUBSIDIARIES
March 31 December 31
2001 2000
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ASSETS
Current assets:
Cash $ 5,149,129 $ 7,497,907
Customer accounts receivable,
less allowances for doubtful
accounts and returns of
$46,384,983 in 2001 and
$46,764,673 in 2000 162,599,071 172,393,572
Inventories - Note F
Merchandise 110,996,334 94,912,349
Advertising and shipping supplies 21,194,215 14,660,290
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132,190,549 109,572,639
Deferred income taxes - Note E 11,278,000 11,728,000
Prepaid and refundable federal
and state taxes 9,725,917 -0-
Prepaid expenses 1,207,062 958,849
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Total current assets 322,149,728 302,150,967
Property, plant and equipment:
Land 1,142,144 1,142,144
Buildings 64,240,428 64,235,385
Equipment 56,763,838 54,664,689
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122,146,410 120,042,218
Less allowances for depreciation 68,236,218 66,391,927
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53,910,192 53,650,291
Trademarks 686,833 704,894
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TOTAL ASSETS $376,746,753 $356,506,152
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - Note H $ 60,000,000 $ 25,000,000
Trade accounts payable 64,094,988 76,038,528
Advance payments from customers 3,982,849 2,077,053
Accrued expenses - Note D 11,927,700 14,289,318
Accrued federal and state taxes -0- 929,101
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Total current liabilities 140,005,537 118,334,000
Deferred income taxes - Note E 1,089,000 1,146,000
Stockholders' equity:
Common Stock without par value:
Authorized 12,000,000 shares; issued
10,075,440 shares (including shares held
in treasury) - stated value 419,810 419,810
Additional paid-in capital 14,612,333 14,612,333
Retained earnings 266,017,142 267,444,414
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281,049,285 282,476,557
Less 2,106,596 shares
of common stock
in treasury - at cost 43,218,782 43,218,782
Less receivable from stock plans 2,178,287 2,231,623
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235,652,216 237,026,152
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $376,746,753 $356,506,152
============ ============
See accompanying notes.
CONSOLIDATED STATEMENTS OF INCOME -4-
BLAIR CORPORATION AND SUBSIDIARIES
Three Months Ended
March 31
2001 2000
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Net sales $133,055,145 $130,063,638
Other income - Note G 11,302,939 10,660,820
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144,358,084 140,724,458
Costs and expenses:
Cost of goods sold 64,410,845 64,034,434
Advertising 38,690,287 29,320,067
General and administrative 32,608,388 28,497,903
Provision for doubtful accounts 8,294,021 7,262,461
Interest 727,489 455,437
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144,731,030 129,570,302
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(LOSS) INCOME BEFORE INCOME TAXES (372,946) 11,154,156
Income taxes (benefit) - Note E (141,000) 4,216,000
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NET (LOSS) INCOME $ (231,946) $ 6,938,156
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Basic and diluted (loss) earnings per
share based on weighted average shares
outstanding - Note C $(.03) $.85
===== ====
See accompanying notes.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -5-
BLAIR CORPORATION AND SUBSIDIARIES
Three Months Ended
March 31
2001 2000
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Common Stock $ 419,810 $ 419,810
Additional paid-in capital:
Balance at beginning of period 14,612,333 14,625,722
Forfeitures of Common Stock under
Employee Stock Purchase Plan -0- (46,746)
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Balance at end of period 14,612,333 14,578,976
Retained earnings:
Balance at beginning of period 267,444,414 251,163,905
Net income (loss) (231,946) 6,938,156
Cash dividends declared - Note B (1,195,326) (1,221,383)
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Balance at end of period 266,017,142 256,880,678
Treasury Stock:
Balance at beginning of period (43,218,782) (39,829,081)
Purchase of 130,876 shares in 2000 -0- (2,182,279)
Forfeitures of Common Stock under
Employee Stock Purchase Plan -0- (16,898)
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Balance at end of period (43,218,782) (42,028,258)
Receivable from stock plans:
Balance at beginning of period (2,231,623) (2,402,931)
Forfeitures of Common Stock under
Employee Stock Purchase Plan -0- 20,575
Repayments 53,336 48,405
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Balance at end of period (2,178,287) (2,333,951)
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TOTAL STOCKHOLDERS' EQUITY $235,652,216 $227,517,255
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See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS -6-
BLAIR CORPORATION AND SUBSIDIARIES
Three Months Ended
March 31
2001 2000
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OPERATING ACTIVITIES
Net (loss) income $ (231,946) $ 6,938,156
Adjustments to reconcile net (loss) income
to net cash used in
operating activities:
Depreciation and amortization 1,862,998 1,358,793
Provision for doubtful accounts 8,294,021 7,262,461
Provision for deferred income taxes 393,000 (49,000)
Forfeitures of stock awards -0- (43,069)
Changes in operating assets and
liabilities providing (using) cash:
Customer accounts receivable 1,500,480 (7,294,171)
Inventories (22,617,910) (5,904,426)
Federal and state taxes (10,655,018) 1,935,000
Prepaid expenses (248,213) (76,378)
Trade accounts payable (11,943,540) (6,470,844)
Advance payments from customers 1,905,796 2,100,231
Accrued expenses (2,361,618) (736,156)
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NET CASH USED IN OPERATING ACTIVITIES (34,101,950) (979,403)
INVESTING ACTIVITIES
Purchases of property, plant and equipment (2,104,838) (2,286,624)
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NET CASH USED IN INVESTING ACTIVITIES (2,104,838) (2,286,624)
FINANCING ACTIVITIES
Net proceeds from bank borrowings 35,000,000 9,900,000
Dividend paid (1,195,326) (1,221,383)
Purchase of Common Stock for treasury -0- (2,182,279)
Decrease in notes receivable from
stock plans 53,336 48,405
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NET CASH PROVIDED BY FINANCING ACTIVITIES 33,858,010 6,544,743
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NET (DECREASE) INCREASE IN CASH (2,348,778) 3,278,716
Cash at beginning of year 7,497,907 1,625,236
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CASH AT END OF PERIOD $ 5,149,129 $ 4,903,952
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See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -7-
BLAIR CORPORATION AND SUBSIDIARIES
March 31, 2001
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Blair
Corporation and its wholly-owned subsidiaries 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 three months ended March 31, 2001 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2001. 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, 2000.
The consolidated financial statements include the accounts of Blair Corporation
and its wholly owned subsidiaries. All significant intercompany accounts are
eliminated upon consolidation.
NOTE B - DIVIDENDS DECLARED
2-08-00 $ .15 per share 2-09-01 $ .15 per share
4-18-00 .15 4-17-01 .15
7-18-00 .15
10-17-00 .15
NOTE C - BASIC AND DILUTED EARNINGS PER SHARE
Three Months Ended
March 31
2001 2000
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Net (loss) income $ (231,946) $ 6,938,156
Weighted average shares outstanding 7,968,844 8,115,214
Basic and diluted (loss) earnings per share $(.03) $.85
NOTE D - ACCRUED EXPENSES
Accrued expenses consist of:
March 31 December 31
2001 2000
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Employee compensation $ 6,076,569 $ 9,476,660
Contribution to profit sharing
and retirement plan feature -0- 2,288,916
Taxes, other than taxes on income 1,324,819 745,312
Voluntary separation program 2,500,000 -0-
Other accrued items 2,026,312 1,778,430
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$11,927,700 $14,289,318
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -8-
BLAIR CORPORATION AND SUBSIDIARIES
March 31, 2001
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 (credit) expense are as follows:
Three Months Ended
March 31
2001 2000
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Currently (refundable) payable:
Federal $ (334,000) $ 4,026,000
State (200,000) 239,000
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(534,000) 4,265,000
Deferred 393,000 (49,000)
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$ (141,000) $ 4,216,000
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The differences between total tax (refund) 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
March 31
2001 2000
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Statutory rate applied to
pre-tax income $ (130,531) $ 3,903,955
State income taxes, net
of federal tax benefit (97,500) 306,150
Other items 87,031 5,895
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$ (141,000) $ 4,216,000
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Components of the provision for deferred income tax expense (credit) are as
follows:
Three Months Ended
March 31
2001 2000
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Advertising costs $ 2,998,000 $ 1,803,000
Provision for doubtful accounts (490,000) (855,000)
Provision for estimated returns (869,000) (909,000)
Severance costs (955,000) -0-
Other items - net (291,000) (88,000)
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$ 393,000 $ (49,000)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -9-
BLAIR CORPORATION AND SUBSIDIARIES
March 31, 2001
NOTE E - INCOME TAXES - Continued
Components of the deferred tax asset and liability under the liability method as
of March 31, 2001 and December 31, 2000 are as follows:
March 31 December 31
2001 2000
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Current net deferred tax asset:
Doubtful accounts $13,538,000 $ 13,048,000
Returns allowances 2,367,000 1,498,000
Inventory obsolescence 2,587,000 2,386,000
Inventory costs (2,085,000) (2,085,000)
Vacation pay 1,408,000 1,408,000
Advertising costs (8,009,000) (5,011,000)
Severance costs 955,000 -0-
Other items 517,000 484,000
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$11,278,000 $11,728,000
Long-term deferred tax liability:
Property, plant and equipment $ 1,089,000 $ 1,146,000
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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 $6,717,000 at both March 31, 2001
and December 31, 2000.
NOTE G - OTHER INCOME
Other income consists of:
Three Months Ended
March 31
2001 2000
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Finance charges on time
payment accounts $ 9,784,595 $ 9,056,564
Commissions earned 899,203 741,268
Other items 629,141 862,988
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$11,302,939 $10,660,820
Finance charges on time payment accounts are recognized on an accrual basis of
accounting.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued -10-
BLAIR CORPORATION AND SUBSIDIARIES
March 31, 2001
NOTE H - FINANCING ARRANGEMENTS
On November 13, 1998, the Company entered into an amended and restated
$95,000,000 Revolving Credit Facility, which expires on November 13, 2001. The
interest rate is, at the Company's option, based on a base rate option, swing
loan rate option or Euro-rate option as defined in the agreement. The Revolving
Credit Facility is unsecured and requires the Company to meet certain covenants,
as outlined in the agreement, some of which have been amended since November 13,
1998. These covenants specifically relate to tangible net worth, maintaining a
defined leverage ratio, interest coverage ratio and fixed charge coverage ratio
and complying with certain indebtedness restrictions. As of March 31, 2001 and
December 31, 2000, the Company was in compliance with all the agreement's
covenants. At March 31, 2001, the Company had borrowed $60,000,000 all of which
was classified as short term and at December 31, 2000, $25,000,000 all of which
was classified as short term. As of May 11, 2001, the Company's borrowings
outstanding totaled $50,000,000. The increase in borrowings in 2001 has been
primarily attributable to the growth in inventories.
NOTE I - NEW ACCOUNTING PRONOUNCEMENTS
Accounting for Derivative Instruments and Hedging Activities
The Financial Accounting Standards Board issued Statement No.133, "Accounting
for Derivative Instruments and Hedging Activities." The Company adopted the new
statement effective January 1, 2001. The Company has historically not invested
in derivative instruments, and as a result, the adoption of this statement has
had no impact on the financial statements of the Company.
Revenue Recognition in Financial Statements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." This SAB formalizes the SEC's position on application of
revenue recognition rules. SAB No. 101 was adopted by the Company in the
fourth quarter of 2000 and did not have a substantial effect on the Company.
NOTE J - VOLUNTARY SEPARATION PROGRAM
In the first quarter of 2001, the Company accrued and charged to expense $2.5
million in separation costs. The costs were charged to General and
Administrative Expense in the income statement. The one-time $2.5 million charge
represents severance pay, related payroll taxes and medical benefits due the 56
eligible employees who accepted the voluntary separation program rather than
relocate or accept other positions in the Company. The program was offered to
eligible employees of the Blair Mailing Center from which the merchandise
returns operations will be relocated and the mailing operations have been
outsourced. None of the $2.5 million was paid as of March 31, 2001.
NOTE K - CONTINGENCIES
The Company is involved in certain items of litigation, arising in the normal
course of business. While it cannot be predicted with certainty, management
believes that the outcome will not have a material effect on the Company's
financial condition or results of operations.
NOTE L - 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 M - RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been reclassified to
conform with the current year presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -11-
CONDITION AND RESULTS OF OPERATIONS
BLAIR CORPORATION AND SUBSIDIARIES
March 31, 2001
Results of Operations
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Comparison of First Quarter 2001 and First Quarter 2000
The first quarter of 2001 resulted in a net loss of $231,946 ($.03 per share), a
103% decrease from the net income of $6,938,156 ($.85 per share) for the first
quarter of 2000. What primarily affected the results for the first quarter of
2001 were lower than expected response rates, reflecting decreased consumer
spending and uncertain economic conditions. The quarter was also negatively
impacted by costs associated with investments in several initiatives including
e-commerce, Crossing Pointe and recently introduced men's and women's targeted
apparel catalogs. The costs of these initiatives were reflected in higher
advertising and general and administrative expenses. It is expected that these
investments will continue, subject to adjustment, during the remainder of the
year. The provision for doubtful accounts increased 14% in the first quarter of
2001 as compared to the first quarter of 2000. The first quarter of 2001 also
included a one-time $2.5 million cost attributable to the Company's voluntary
separation program. Without the one-time charge, the Company would have reported
net income of $1,225,575 ($.15 per share) for the first quarter of 2001.
Net sales for the first quarter of 2001 were 2.3% higher than net sales for the
first quarter of 2000. Response rates in the first quarter of 2001 were lower
than in the first quarter of 2000. Response rates were below expected levels in
the first quarter of 2001 but exceeded expected levels in the first quarter of
2000. Gross sales revenue generated per advertising dollar decreased
approximately 23% in the first quarter of 2001 as compared to the first quarter
of 2000. The total number of orders shipped decreased while the average order
size increased in the first quarter of 2001 as compared to the first quarter of
2000. The provision for returned merchandise as a percentage of gross sales
decreased slightly in the first quarter of 2001 as compared to the first quarter
of 2000.
Other income increased approximately 6% in the first quarter of 2001 as compared
to the first quarter of 2000. Increased finance charges, resulting from higher
accounts receivable, were primarily responsible for the increase in other income
in the first quarter of 2001.
Cost of goods sold as a percentage of net sales decreased to 48.4% in the first
quarter of 2001 from 49.2% in the first quarter of 2000. The improvement in cost
of goods is attributable to stable or declining product costs and the Company's
efforts to improve gross margins.
Advertising expense in the first quarter of 2001 increased 32% from the first
quarter of 2000. A planned larger advertising effort, a postal rate increase and
new marketing initiatives (e-commerce, Crossing Pointe and men's and women's
targeted apparel catalogs) were primarily responsible for the increased
advertising costs in the first quarter of 2001.
The total number of catalog mailings released in the first quarter of 2001 was
48% more than in the first quarter of 2000 (37 million vs. 25 million). Crossing
Pointe print advertising is all via catalog and is included in the catalog
mailings number for the first quarter of 2001.
The total number of letter mailings released in the first quarter of 2001 was
26% less than in the first quarter of 2000 (17.2 million vs. 23.2 million).
Letter mailings are most productive when targeting the Company's female
customers and, since mid-year 2000, have been used only to promote our women's
apparel lines.
Total volume of the co-op and media advertising programs increased 30% in the
first quarter of 2001 as compared to the first quarter of 2000 (442 million vs.
340 million).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -12-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
March 31, 2001
Results of Operations - Continued
---------------------
Comparison of First Quarter 2001 and First Quarter 2000 - Continued
The Company launched e-commerce sites for Crossing Pointe
www.crossingpointe.com, and the Blair Online Outlet early in the third quarter
of 2000. The Blair website, www.blair.com, including the Online Outlet, was
launched late third quarter/early fourth quarter of 2000. A redesigned
www.blair.com was introduced in the first quarter of 2001 and features improved
navigation and quicker access to our expanded product offerings. The Company has
also launched e-commerce sites for Scandia Woods and Irvine Park, new men's
targeted apparel catalogs.
General and administrative expense increased 14.4% in the first quarter of 2001
as compared to the first quarter of 2000. The higher general and administrative
expense in 2001 was primarily attributable to the one-time $2.5 million charge
for the Company's voluntary separation program, and to the costs associated with
e-commerce, Crossing Pointe and recently introduced men's and women's targeted
apparel catalogs. The $2.5 million charge represents the cost of the severance
pay, related payroll taxes and medical benefits due the 56 eligible employees
who accepted the voluntary separation program rather than relocate or accept
other positions in the Company. The program was offered to eligible employees of
the Blair Mailing Center from which the merchandise returns operations will be
relocated and the mailing operations have been outsourced. None of the $2.5
million was paid in the first quarter of 2001.
The provision for doubtful accounts as a percentage of credit sales increased
15.2% in the first quarter of 2001 as compared to the first quarter of 2000. The
estimated provision for doubtful accounts is based on current expectations
(consumer credit and economic trends, etc...), sales mix (prospect/customer) and
current and prior years' experience, especially delinquencies (accounts over 30
days past due) and actual charge-offs (accounts removed from accounts receivable
for non-payment). The estimated bad debt rate used for the first quarter of 2001
was approximately 15% higher than the bad debt rate used in the first quarter of
2000. The estimated bad debt rate increased primarily due to a larger credit
marketing program to prospects (new customers) and uncertain economic
conditions. At March 31, 2001, the delinquency rate of open accounts receivable
was approximately 2% lower than at March 31, 2000. The delinquency rate for
established credit customers (95.8% of open receivable at March 31, 2001 vs.
95.9% at March 31, 2000) decreased 1.6%. The charge-off rate for the first
quarter of 2001 was 37.8% more than the charge-off rate for the first quarter of
2000, primarily due to the expanded credit-marketing program to prospects.
Recoveries of bad debts previously charged off have been credited back against
the allowance for doubtful accounts. Credit granting, collection and behavior
models continue to be updated and improved, and, along with expanding database
capabilities, provide valuable credit-marketing opportunities.
Interest expense increased 60% in the first quarter of 2001 as compared to the
first quarter of 2000. Interest expense results primarily from the Company's
borrowings necessary to finance customer accounts receivable and inventories. At
March 31, 2001, inventories were up 54% and gross customer accounts receivable
were up 1.6% as compared to March 31, 2000.
Income taxes as a percentage of income (loss) before income taxes were 37.8% in
both the first quarter of 2001 the first quarter of 2000. The federal income tax
rate was 35% in both years.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -13-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
March 31, 2001
Liquidity and Sources of Capital
--------------------------------
All working capital and cash requirements for the first quarter of 2001 were
met. In November 1998, the Company entered into an amended and restated
$95,000,000 Revolving Credit Facility, which expires on November 13, 2001. This
unsecured Revolving Credit Facility requires the Company to meet certain
covenants, some of which have been amended since November 1998, and as of March
31, 2001, the Company was in compliance with all the covenants. Borrowings
outstanding at March 31, 2001 were $60,000,000, all classified as current.
Borrowings outstanding at December 31, 2000 were $25,000,000, all classified as
current. As of May 11, 2001, the Company's borrowings outstanding totaled
$50,000,000. The increase in borrowings in 2001 is primarily attributable to the
growth in inventories.
The ratio of current assets to current liabilities was 2.30 at March 31, 2001,
2.55 at December 31, 2000 and 3.30 at March 31, 2000. Working capital decreased
$1,672,776 in the first quarter of 2001 primarily due to the net loss. The 2001
decrease was primarily reflected in decreased customer accounts receivable and
increased notes payable more than offsetting increased inventories and prepaid
and refundable federal and state taxes and decreased trade accounts payable.
Merchandise inventory turnover was 2.5 at March 31, 2001, 2.8 at December 31,
2000 and 2.8 at March 31,2000. Merchandise inventory as of March 31, 2001
increased 17% from December 31, 2000 and 59% from March 31, 2000. Inventory
levels have increased due to lower than expected response rates since mid-2000
and the start up of new catalogs in 2000 and early 2001.
An operating segment is identified as a component of an enterprise for which
separate financial information is available for evaluation by the chief decision
maker, or decision making group, in deciding on how to allocate resources and
assess performance. The Company operates as one business segment consisting of
four product lines. The fourth product line, Crossing Pointe, was added in the
third quarter of 2000 and is expected to become a significant revenue source
over the next few years. Home Products net sales as a percentage of total net
sales were 14.3% ($19.0 million) in the first quarter of 2001 as compared to
13.6% ($17.6 million) in the first quarter of 2000. Menswear net sales as a
percentage of total net sales were 18.1% ($24.1 million) as compared to 18.7%
($24.4 million). Womenswear net sales as a percentage of total net sales were
66.2% ($88.1 million) as compared to 67.7% ($88.0 million). Crossing Pointe net
sales as a percentage of total net sales were 1.4% ($1.9 million) in the first
quarter of 2001. Home Products merchandise inventory totaled $16.0 million at
March 31, 2001, $17.1 million at December 31, 2000 and $16.7 million at March
31, 2000. Menswear merchandise inventory was $26.7 million at March 31, 2001,
$20.7 million at December 31, 2000 and $16.0 million at March 31, 2000.
Womenswear merchandise inventory was $64.5 million at March 31 2001, $54.3
million at December 31, 2000 and $37.2 million at March 31, 2000. Crossing
Pointe merchandise inventory was $3.9 million at March 31, 2001 and $2.8 million
at December 31, 2000.
The Company looks upon its credit granting (Blair Credit) as a marketing
advantage. In the early 1990's, the Company started extending revolving credit
to first-time (prospect) buyers. Blair Credit was offered only to established
customers prior to that time. Prospects responded. This led to a broad offering
of pre-approved lines of credit to prospects in 1995 and 1996. Sales, accounts
receivable and bad debts expectedly increased. However, as the receivables aged,
bad debts greatly exceeded expected levels. The Company recognized that it
didn't have all the necessary credit controls in place and put a hold (second
quarter 1996) on pre-approved credit offers and reviewed and strengthened
(mid-1996 and on) credit controls. Blair Credit customers, on average, buy more,
buy more often and are more loyal than cash and credit card customers. The
benefit from the increased sales volume achieved by offering Blair Credit is
significant and more than outweighs the cost of the credit program. The cost
and/or contribution of the credit program itself can be quickly assessed by
comparing finance charges (included in other income) to the provision for
doubtful accounts. For the firstquarter of 2001, finance charges were $9.8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -14-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
March 31, 2001
Liquidity and Sources of Capital - Continued
--------------------------------
million and the provision for doubtful accounts was $8.3 million (net of $1.5
million) as compared to the first quarter of 2000, finance charges were $9.1
million and the provision for doubtful accounts was $7.3 million (net of $1.8
million). This assessment does not take into consideration the administrative
cost of the credit program (included in general and administrative expense),
the cost of money and the impact on sales. The Company's gross credit sales
decreased approximately 1% in the first quarter of 2001 as compared to the
first quarter of 2000.
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 $2.1 million during the
first quarter of 2001 and $2.3 million during the first quarter of 2000. Capital
expenditures had been projected to be $15 million plus for each of the years
2001 and 2002 and nearly $10 million for 2003. However, capital expenditures for
2001 will be delayed due to the current economic conditions. This includes
delaying the implementation of the previously announced $23 million
modernization and enhancement of the Company's fulfillment operations. Capital
expenditures for the year 2001 are now projected to be $6 million.
The Company recently declared a quarterly dividend of $.15 per share payable on
June 15, 2001. It is the Company's intent to continue paying dividends; however,
the Company will evaluate its dividend practice on an on-going basis. See
"Future Considerations."
The Company has, from the fourth quarter of 1996 through the first quarter of
2000, repurchased a total of 1,620,940 shares of its Common Stock - 864,720
shares purchased on the open market and 756,220 shares from the Estate of John
L. Blair. In 2000, the Company purchased 268,704 shares on the open market No
shares have been repurchased in 2001.
Future cash needs will be financed by cash flow from operations, the existing
borrowing arrangement and, if needed, other financing arrangements that may be
available to the Company. The Company intends to renew its current borrowing
arrangement, which expires in November 2001, in the same or similar form. The
Company's current projection of future cash requirements, however, may be
affected in the future by numerous factors, including changes in customer
payments on accounts receivable, consumer credit industry trends, sales volume,
operating cost fluctuations, revised capital spending plans and unplanned
capital spending.
Impact of Inflation and Changing Prices
---------------------------------------
Although inflation has moderated in our economy, the Company is continually
seeking ways to cope with its impact. To the extent permitted by competition,
increased costs are passed on to customers by selectively increasing selling
prices over a period of time. Profit margins have been pressured by paper cost
and postal rate increases. Paper prices were higher in 1998 than in 1997 lower
in 1999 than in 1998, again higher in 2000 than in 1999 and fairly stable at
this time. Postal rates increased on January 10, 1999 and on January 7, 2001,
and will increase again on July 1, 2001.
The Company principally uses the LIFO method of accounting for its merchandise
inventories. Under this method, the cost of products sold reported in the
financial statements approximates current costs and thus reduces distortion in
reported income due to increasing costs. The charges to operations for
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -15-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
March 31, 2001
Impact of Inflation and Changing Prices - Continued
---------------------------------------
depreciation represent the allocation of historical costs incurred over past
years and are significantly less than if they were based on the current cost of
productive capacity being used.
Property, plant and equipment are continuously being expanded and updated. Major
projects are discussed under Liquidity and Sources of Capital. Assets acquired
in prior years will, of course, be replaced at higher costs but this will take
place over many years. New assets, when acquired, will result in higher
depreciation charges, but in many cases, due to technological improvements,
savings in operating costs should result.
Accounting Pronouncement
------------------------
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities", was
issued. Statement No. 133 provides new guidelines for accounting for
derivative instruments and requires companies to recognize all derivatives
on the balance sheet at fair value. Gains or losses resulting from
changes in the values of the derivatives would be accounted for depending
on the use of the derivative and whether it qualifies for hedge
accounting. The Company adopted Statement No. 133 effective January 1,
2001. The adoption of Statement No. 133 did not have an impact on the
financial statements of the Company, as the Company has historically not
invested in derivative instruments.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." Bulletin No. 101 formalizes the SEC's position on application
of revenue recognition rules. The Company adopted Bulletin No. 101 in the
fourth quarter of 2000 and the adoption did not have a substantial effect on
the Company.
Future Considerations
---------------------
The Company is faced with the ever-present challenge of maintaining and
expanding the customer file. This involves the acquisition of new customers
(prospects), the conversion of new customers to established customers (active
repeat buyers) and the retention and/or reactivation of established customers.
These actions are vital in growing the business but are being impacted by
increased operating costs, a declining labor pool, increased competition in the
retail sector, high levels of consumer debt and varying consumer response rates.
The Company's marketing strategy includes targeting customers in the "40 to 60,
low-to-moderate income" market and in the "60+, low-to-moderate income" market.
The "40 to 60" market, is the fastest growing segment of the population. Success
of the Company's marketing strategy requires investment in database management,
financial and operating systems, prospecting programs, catalog marketing, new
product lines, telephone call centers, Internet commerce and fulfillment
capabilities and capacity. Management believes that these investments should
improve Blair Corporation's position in new and existing markets and provide
opportunities for future earnings growth.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL -16-
CONDITION AND RESULTS OF OPERATIONS - Continued
BLAIR CORPORATION AND SUBSIDIARIES
March 31, 2001
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
--------------------------------------------------------------------------------
Forward-looking statements in 10-Q 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.
Words such as "believes," "anticipates," "plans," "expects," and similar
expressions are intended to identify forward-looking statements. Any statements
contained in this report that are not statements of historical fact may be
deemed to be forward-looking statements. Such forward-looking statements are
included in, but not limited to, the following sections of the report.
- The paragraph on the provision for doubtful accounts in the Results of
Operations, Comparison of First Quarter 2001 and First Quarter 2000..
- The last sentence (Inventory levels have increased ...) of the
paragraph on merchandise inventory in Liquidity and Sources of Capital.
- The third sentence (The fourth product line, Crossing Pointe...) of the
paragraph on operating segment in Liquidity and Sources of Capital.
- The paragraph on credit granting as a marketing advantage in Liquidity
and Sources of Capital.
- The paragraph on capital expenditures in Liquidity and Sources of
Capital.
- The second sentence (It is the Company's intent to...) of the paragraph
on recently declared dividend in Liquidity and Sources of Capital.
- The paragraph on future cash needs in Liquidity and Sources of Capital.
- The Impact of Inflation and Changing Prices.
- Future Considerations.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties including without limitation the following: (i) the Company's
plans, strategies, objectives, expectations and intentions are subject to change
at any time at the discretion of the Company; (ii) the Company's plans and
results of operations will be affected by the Company's ability to manage its
growth, accounts receivable and inventory; and (iii) other risks and
uncertainties indicated from time to time in the Company's filings with the
Securities and Exchange Commission.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION -17-
BLAIR CORPORATION AND SUBSIDIARIES
March 31, 2001
ITEM 1. Legal Proceedings
The Company is from time to time a party to ordinary routine litigation
incidental to various aspects of its operations. Management is not currently
aware of any litigation that will have a material adverse impact on the
Company's financial condition or results of operations.
Item 2. Changes in Securities and Use of Proceeds
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not Applicable.
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
3.1 Restated Certificate of Incorporation*
3.2 Amended Bylaws of Blair Corporation**
4 Specimen Common Stock Certificate***
11 Statement regarding computation of per share earnings****
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
2001
------------------
* Incorporated by reference to Exhibit A to the Quarterly Report on Form 10-Q of
the Company filed with the SEC on August 10, 1995 (SEC File No. 1-878).
** Incorporated by reference to Exhibit 4.3 to the Form S-8 Registration
Statement filed with the SEC on July 19, 2000 (SEC File No. 333-41770).
*** Incorporated by reference to Exhibit 4.1 to the Form S-8 Registration
Statement filed with the SEC on July 19, 2000 (SEC File No. 333-41770).
**** Incorporated by reference to Note C of the financial statements included
herein.
-18-
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 May 11, 2001 By KENT R. SIVILLO
--------------------------- ---------------------------------
KENT R. SIVILLO
Vice President and Treasurer
(Principal Financial Officer
and Duly Authorized Officer)