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 QUARTER ENDED APRIL 30, 2000
Commission file number 1-13026
BLYTH INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-2984916
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
100 FIELD POINT ROAD, GREENWICH, CONNECTICUT 06830
(Address of principal executive offices) (Zip Code)
(203) 661-1926
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter 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 the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
47,924,884 COMMON SHARES AS OF MAY 31, 2000
BLYTH INDUSTRIES, INC.
INDEX
PAGE
----
Form 10-Q Cover Page ....................................................... 1
Form 10-Q Index ............................................................ 2
Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets ............................ 3
Consolidated Statements of Earnings .................... 4
Consolidated Statements of Stockholders' Equity ........ 5
Consolidated Statements of Cash Flows .................. 6
Notes to Consolidated Financial Statements ............. 7,8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .......... 9-12
Item 3. Quantitative and Qualitative Disclosures About Market Risk .. 13
Part II. Other Information
Item 1. Legal Proceedings ........................................... 14
Item 2. Changes in Securities ....................................... 14
Item 3. Defaults upon Senior Securities ............................. 14
Item 4. Submission of Matters to a Vote of Security Holders ......... 14
Item 5. Other Information ........................................... 14,15
Item 6. Exhibits and Reports on Form 8-K ............................ 16
Signatures ................................................................. 17
2
Part I. FINANCIAL INFORMATION
Item I. FINANCIAL STATEMENTS
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
==========================================================================================================
APRIL 30, JANUARY 31,
(In thousands, except share data) 2000 2000
- ----------------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 87,084 $ 46,047
Accounts receivable, less allowance for doubtful receivables
of $1,867 and $2,154, respectively 77,320 84,919
Inventories 201,904 186,696
Prepaid expenses 4,485 3,000
Deferred income taxes 1,209 1,200
- ----------------------------------------------------------------------------------------------------------
Total current assets 372,002 321,862
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Less accumulated depreciation of $121,532 and $113,044, respectively 272,355 273,528
OTHER ASSETS:
Investments 8,472 10,303
Excess of cost over fair value of assets acquired, net of
accumulated amortization of $8,368 and $7,290, respectively 103,966 102,328
Deposits and other assets 5,109 5,075
- ----------------------------------------------------------------------------------------------------------
117,547 117,706
- ----------------------------------------------------------------------------------------------------------
Total assets $761,904 $713,096
==========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank lines of credit $ 30,488 $ 5,572
Current maturities of long-term debt 15,983 14,063
Accounts payable 64,668 53,359
Accrued expenses 38,491 51,819
Dividend payable 4,793 -
Income taxes 16,222 5,792
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 170,645 130,605
DEFERRED INCOME TAXES 23,219 24,202
LONG-TERM DEBT, less current maturities 176,930 176,587
MINORITY INTEREST AND OTHER 941 1,488
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
Preferred stock - authorized 10,000,000 shares of $0.01
par value; no shares issued and outstanding - -
Common stock - authorized 100,000,000 shares of $0.02 par value; issued
and outstanding, 47,957,384 shares and 48,037,309 shares, respectively 987 985
Additional contributed capital 95,021 93,784
Retained earnings 336,612 320,384
Accumulated other comprehensive loss (7,794) (4,760)
Treasury stock, at cost, 1,396,300 shares and 1,208,700 shares, respectively (34,657) (30,179)
- ----------------------------------------------------------------------------------------------------------
Total stockholders' equity 390,169 380,214
- ----------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $761,904 $713,096
==========================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
==========================================================================================================
THREE MONTHS ENDED APRIL 30 (In thousands, except per share data)
2000 1999
==========================================================================================================
Net sales $274,880 $244,273
Cost of goods sold 111,560 103,793
- ----------------------------------------------------------------------------------------------------------
Gross profit 163,320 140,480
Selling and shipping 100,669 85,385
Administrative 24,070 21,864
Amortization of goodwill 1,048 636
- ----------------------------------------------------------------------------------------------------------
125,787 107,885
- ----------------------------------------------------------------------------------------------------------
Operating profit 37,533 32,595
Other expense (income):
Interest expense 4,153 1,884
Interest income and other (579) (120)
Equity in earnings of investees 851 413
- ----------------------------------------------------------------------------------------------------------
4,425 2,177
- ----------------------------------------------------------------------------------------------------------
Earnings before income taxes and minority interest 33,108 30,418
Income tax expense 12,439 11,683
- ----------------------------------------------------------------------------------------------------------
Earnings before minority interest 20,669 18,735
Minority interest (352) 198
- ----------------------------------------------------------------------------------------------------------
Net earnings $ 21,021 $ 18,537
==========================================================================================================
Basic: Net earnings per common share $ 0.44 $ 0.38
Weighted average number of shares outstanding 47,982 48,941
==========================================================================================================
Diluted: Net earnings per common share $ 0.44 $ 0.38
Weighted average number of shares outstanding 48,265 49,262
==========================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
APRIL 30, (In thousands, except share data)
=============================================================================================================================
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
----------------- CONTRIBUTED RETAINED TREASURY COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS STOCK LOSS TOTAL
=============================================================================================================================
FOR THE THREE MONTHS ENDED APRIL 30, 1999:
Balance, January 31, 1999 49,190,474 $984 $93,281 $227,995 $ (228) $ - $322,032
Net earnings for the period - - - 18,537 - - 18,537
Foreign currency translation adjustments - - - - - (242) (242)
---------------------
Comprehensive income - - - - - (242) 18,295
Common stock issued in connection with
exercise of stock options 4,800 - 63 - - - 63
Treasury stock purchase (573,300) - - - (13,641) - (13,641)
----------------------------------------------------------------------------
Balance, April 30, 1999 48,621,974 $984 $93,344 $246,532 $(13,869) $ (242) $326,749
=============================================================================================================================
FOR THE THREE MONTHS ENDED APRIL 30, 2000:
Balance, January 31, 2000 48,037,309 $985 $93,784 $320,384 $(30,179) $(4,760) $380,214
Net earnings for the period - - - 21,021 - - 21,021
Foreign currency translation adjustments - - - - - (3,034) (3,034)
---------------------
Comprehensive income (3,034) 17,987
Common stock issued in connection with
exercise of stock options 107,675 2 1,237 - - - 1,239
Dividends declared - 0 - (4,793) - - (4,793)
Treasury stock purchase (187,600) - - - (4,478) - (4,478)
----------------------------------------------------------------------------
Balance, April 30, 2000 47,957,384 $987 $95,021 $336,612 $(34,657) $(7,794) $390,169
=============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
==========================================================================================================
THREE MONTHS ENDED APRIL 30 (In thousands) 2000 1999
==========================================================================================================
Cash flows from operating activities:
Net earnings $ 21,021 $ 18,537
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 8,488 6,508
Deferred income taxes 13 226
Equity in earnings of investees 851 413
Minority interest (352) 198
Changes in operating assets and liabilities, net of effect of business
acquisitions:
Accounts receivable 7,599 (4,154)
Inventories (12,719) (16,415)
Prepaid expenses (310) (196)
Deposits and other assets (8) 83
Accounts payable 5,935 (6,659)
Accrued expenses (12,227) 2,389
Income taxes 9,327 9,294
- ----------------------------------------------------------------------------------------------------------
Total adjustments 6,597 (8,313)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 27,618 10,224
Cash flows from investing activities:
Purchases of property, plant and equipment (6,608) (4,894)
Long term investments (4,774) 6,496
Purchase of businesses, net of cash acquired 1,264 (782)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (10,118) 820
Cash flows from financing activities:
Proceeds from issuance of common stock 1,239 63
Purchase of treasury stock (4,478) (13,641)
Borrowings from bank line of credit 25,919 127,019
Repayments on bank line of credit (1,003) (114,400)
Borrowings (repayments) on long-term debt 1,860 (10,006)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 23,537 (10,965)
- ----------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 41,037 79
Cash and cash equivalents at beginning of period 46,047 18,571
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 87,084 $ 18,650
==========================================================================================================
Non-cash investing and financing activities:
Cash dividend declared, $0.10 per share $ 4,793 $ -
==========================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
6
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The Company, which operates in a single segment, home fragrance products,
designs, manufactures, and markets an extensive line of candles and home
fragrance products including scented candles, outdoor lighting products,
potpourri and environmental fragrance products and markets a broad range of
related candle accessories and decorative seasonal products.
The consolidated financial statements include the accounts of the Company,
and its direct and indirect subsidiaries. All significant intercompany
accounts and transactions have been eliminated. Investments in companies
which are not majority owned or controlled are reported using the equity
method and are recorded in other assets. Certain of the Company's
subsidiaries operate on a 52 or 53 week fiscal year ending on the last
Saturday in January. European operations maintain a calendar year
accounting period which is consolidated with the Company's fiscal period.
In the opinion of the Management, the accompanying unaudited consolidated
financial statements include all accruals (consisting only of normal
recurring accruals) necessary for fair presentation of the Company's
consolidated financial position at April 30, 2000 and the consolidated
results of its operations and cash flows for the three-month periods ended
April 30, 2000 and 1999. These interim statements should be read in
conjunction with the Company's consolidated financial statements for the
year ended January 31, 2000, as set forth in the Company's Annual Report on
Form 10-K. Operating results for the three months ended April 30, 2000 are
not necessarily indicative of the results that may be expected for the year
ending January 31, 2001.
2. INVENTORIES
The components of inventory consist of the following (in thousands):
APRIL 30, 2000 JANUARY 31, 2000
- ----------------------------------------------------------------------------------------
Raw materials $ 44,331 $ 40,071
Work in process 3,728 4,625
Finished goods 153,845 142,000
- ----------------------------------------------------------------------------------------
$201,904 $186,696
========================================================================================
3. EARNINGS PER SHARE
The components of basic and diluted earnings per share are as follows (in
thousands):
THREE MONTHS ENDED APRIL 30, 2000 1999
========================================================================================
Net earnings $ 21,021 $ 18,537
========================================================================================
Weighted average number of common
shares outstanding:
Basic 47,982 48,941
Dilutive effect of stock options 283 321
- ----------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding:
Diluted 48,265 49,262
========================================================================================
As of April 30, 2000 and 1999, options to purchase 104,268 and 100,014
shares of common stock, respectively, are not included in the computation
of earnings per share because the effect would be antidilutive.
7
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. SEGMENT INFORMATION
The Company operates in a single segment, home fragrance products. The
Company designs, manufactures, and markets an extensive line of candles and
home fragrance products including scented candles, outdoor lighting
products, potpourri and environmental fragrance products. Closely
complementing these products are a broad range of candle accessories and
decorative seasonal products. The Company has operations outside of the
United States and sells its products worldwide.
The following geographic area data include trade net sales and net earnings
based on product shipment destination and long-lived assets (which consist
of fixed assets, goodwill and long term investments) based on physical
location.
THREE MONTHS ENDED APRIL 30, (In thousands) 2000 1999
========================================================================================
Net Sales:
United States $204,725 $181,773
International(1) 70,155 62,500
- ----------------------------------------------------------------------------------------
Total $274,880 $244,273
========================================================================================
THREE MONTHS ENDED APRIL 30, (In thousands) 2000 1999
========================================================================================
Net Earnings:
United States $ 17,719 $ 15,584
International(1) 3,302 2,953
- ----------------------------------------------------------------------------------------
Total $ 21,021 $ 18,537
========================================================================================
APRIL 30, JANUARY 31,
(In thousands) 2000 2000
========================================================================================
Long-Lived Assets:
United States $291,938 $289,480
International(1) 92,855 96,679
- ----------------------------------------------------------------------------------------
Total $384,793 $386,159
========================================================================================
(1) No individual country represents a significant amount of net sales, net
earnings or long-lived assets.
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
NET SALES
Net sales in the first quarter ended April 30, 2000 increased $30.6
million, or 12.5%, to $274.9 million compared with $244.3 million a year
earlier. In particular, the premium brands, PartyLite and Colonial at
retail, experienced the strongest growth rate in the first quarter. Sales
growth was experienced both in the United States and international markets;
however the deterioration of European currencies had a negative impact of
two percentage points on the overall sales growth rate of the Company in
the quarter ended April 30, 2000. International sales accounted for
approximately 26% of the total net sales for the quarter ended April 30,
2000.
GROSS PROFIT
Gross profit in the first quarter ended April 30, 2000 increased $22.8
million, or 16.2%, from $140.5 million for the quarter ended April 30, 1999
to $163.3 million. Gross profit margin increased from 57.5% for the quarter
ended April 30, 1999 to 59.4% for the quarter ended April 30, 2000. The
increase in gross profit margin is a result of the growth of PartyLite
sales and other premium brands as a percentage of the total sales, and cost
improvements in distribution resulting from the investments made in this
critical area of the business.
SELLING AND SHIPPING EXPENSE
Selling and shipping expense increased $15.3 million, or 17.9%, from $85.4
million in the quarter ended April 30, 1999 (35.0% of net sales), to $100.7
million in the quarter ended April 30, 2000 (36.6% of net sales). The
increases were primarily attributable to increased sales to the consumer
channel, particularly sales through the Company's home party plan direct
selling activities and of other premium brands, in which sales expenses, as
a percentage of net sales, are relatively higher.
ADMINISTRATIVE EXPENSE
Administrative expense increased $2.2 million, or 10.0%, from $21.9 million
in the quarter ended April 30, 1999 (9.0% of net sales) to $24.1 million in
the quarter ended April 30, 2000 (8.8% of net sales). Administrative
expenses as a percentage of sales declined versus the same period last year
reflecting the continued trend of last fiscal year, as our administrative
expenses are increasing at a rate below our sales growth rate.
OPERATING PROFIT
Operating profit in first quarter ended April 30, 2000 increased $4.9
million, or 15.0%, to $37.5 million compared with $32.6 million a year
earlier. The increase in operating profit was the result of strong premium
brand growth, distribution cost benefits and administrative expense
leveraging. Expressed as a percentage of net sales operating profit was
13.6% for the first quarter ended April 30, 2000 compared to 13.3% for the
quarter ended April 30, 1999.
INTEREST EXPENSE
Interest expense for the three months ended April 30, 2000 was $4.2 million
compared to $1.9 million for the same period in the prior year. The
increase in interest expense is primarily attributable to the Company's
$150.0 million public debt offering.
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: (CONTINUED)
INCOME TAXES
Income tax expense increased $.7 million, or 6.0%, from $11.7 million in
the quarter ended April 30, 1999 to $12.4 million in the quarter ended
April 30, 2000. The effective income tax rate decreased from approximately
38.4% in the quarter ended April 30, 1999 to approximately 37.6% in the
quarter ended April 30, 2000 due to the growth in countries with lower tax
rates than the U.S.
NET EARNINGS
As a result of the foregoing, net earnings increased $2.5 million, or
13.5%, from $18.5 million the quarter ended April 30, 1999 to $21.0 million
for the quarter ended April 30, 2000.
Basic earnings per share based upon the weighted average number of shares
outstanding for the quarter ended April 30, 2000 increased $.06, or 15.8%,
to $.44 compared to $.38 for the quarter ended April 30, 1999.
Diluted earnings per share based upon the potential dilution that could
occur if options to issue Common Stock were exercised or converted, were
$.44 for the quarter ended April 30, 2000 compared to $.38 for the same
period last year, an increase of $.06, or 15.8%.
LIQUIDITY AND CAPITAL RESOURCES
Inventory increased from $186.7 million at January 31, 2000 to $201.9
million at April 30, 2000. This translates to an increase of 8.1% compared
to sales growth of 12.5% which is a result of continued effectiveness of
the Company's inventory management efforts. Accounts receivable decreased
$7.6 million, or 9.0% from $84.9 million at the end of fiscal 2000 to $77.3
million at April 30, 2000 which reflects the normal business payment
pattern. Accounts payable and accrued expenses decreased $2.0 million, or
1.9% from $105.2 million at the end of fiscal 2000 to $103.2 million at
April 30, 2000. The decrease in accounts payable and accrued expenses is
attributable to normal payment patterns of operating expenses.
Capital expenditures for property, plant and equipment were $6.6 million in
the three months ended April 30, 2000. Capital expenditures were primarily
investments in new equipment and improvements to existing plant and
equipment. The Company anticipates capital spending of approximately $35.0
million for fiscal 2001, to be used primarily for upgrades to machinery and
equipment in existing facilities, and technology.
The Company has grown in part through acquisitions and, as part of its
growth strategy, the Company expects to continue from time to time in the
ordinary course of its business to evaluate and pursue acquisition
opportunities as appropriate. In the future, acquisitions may contribute
more to the overall Company's sales growth rate than historically. This
could be in the form of acquiring other companies, selected assets and
product lines, long-term investments, and/or joint ventures that either
complement or expand the Company's existing business.
The Company's primary capital requirements are for working capital to fund
the increased inventory and accounts receivable required to sustain the
Company's sales growth, for capital expenditures and acquisitions. The
Company believes that cash on hand, cash from operations, proceeds of the
Company's public debt offering, and available borrowings under the Credit
Facility and lines of credit described below, will be sufficient to fund
its operating requirements, capital expenditures, stock repurchase program,
dividends, and all other obligations for the next twelve months.
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Pursuant to the Company's revolving credit facility ("Credit Facility"), as
amended on September 14, 1999, which matures on October 17, 2002, lending
institutions have agreed, subject to certain conditions, to provide an
unsecured revolving credit facility to the Company in an aggregate amount
of up to $135.0 million and to provide, under certain circumstances, an
additional $33.8 million. Amounts outstanding under the Credit Facility
bear interest, at the Company's option, at Bank of America's prime rate
(9.00% at April 30, 2000) or at the Eurocurrency rate plus a credit spread
ranging from 0.25% to 0.50%, based on a pre-defined financial ratio. At
April 30, 2000, approximately $2.6 million in letters of credit was
outstanding under the Credit Facility. The Credit Facility contains, among
other provisions, requirements for maintaining certain financial ratios and
limitations on certain payments. At April 30, 2000, the Company was in
compliance with such covenants.
As of April 30, 2000, the Company had a total of $70.0 million available
under uncommitted bank lines of credit maturing in August 2000 and January
2001. Amounts outstanding under the lines of credit bear interest at the
Company's option, at short term fixed rates, at the banks' prime rate
(9.00% at April 30, 2000), or at the Eurocurrency rate plus a credit
spread. No amounts were outstanding under the uncommitted lines of credit
at April 30, 2000.
As of March 31, 2000, Liljeholmens had available lines of credit of
approximately $35.0 million of which approximately $8.2 million was
outstanding. The amounts outstanding under the lines of credit bear
interest at a weighted average rate of 5.39% at March 31, 2000. The lines
of credit are renewed annually.
Colony Gift has a short term revolving credit facility with Barclays Bank
("Barclays"), which matures on June 20, 2000, pursuant to which Barclays
has agreed to provide a revolving credit facility in an amount of up to
$25.8 million, collateralized by certain of Colony's assets. As of March
31, 2000, Colony had borrowings under the credit facility of approximately
$21.8 million, at a weighted average interest rate of 6.55%.
At March 31, 2000, Liljeholmens had various long-term debt agreements in
multiple European currencies maturing at different dates over the next two
to six years. The total amount outstanding as of March 31, 2000 under the
loan agreements was approximately $20.8 million with variable interest
rates ranging from 3.60% to 5.51%, of which $11.9 million relates to
current maturities. The loans are collateralized by certain of
Liljeholmens' real estate and by a pledge of Liljeholmens' shares in its
subsidiaries.
Net cash provided by operating activities amounted to $27.6 million for the
three months ended April 30, 2000 compared to $10.2 million for the three
months ended April 30, 1999 which was driven by strong earnings of $21.0
million, depreciation and amortization of $8.5 million and net operating
asset and liability growth of $2.4 million.
On both June 8, 1999, and March 30, 2000, the Company's Board of Directors
authorized the Company to repurchase up to an additional 1,000,000 shares
of its common stock bringing the total authorization to 3,000,000 shares.
As of April 30, 2000, the Company had purchased on the open market an
aggregate of 1,396,300 common shares for a total cost of approximately
$34.7 million. The acquired shares are held as common stock in treasury at
cost.
On March 30, 2000 the Company declared a cash dividend of $0.10 per share
of the Company's common stock for the six months ended January 31, 2000.
The dividend reflects the Company's intention to initiate the payment of
semi-annual dividend of $0.10 per share at the discretion of its Board of
Directors. The dividend was payable to shareholders of record as of May 1,
2000 and was paid on May 15, 2000 in the amount of $4.8 million.
11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
IMPACT OF ADOPTION OF RECENTLY ISSUED ACCOUNTING STANDARDS
On June 15, 1998, the Financial Accounting Standards Board issued Statement
No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities". SFAS 133 (as deferred by SFAS 137) is effective for all fiscal
years beginning after June 15, 2000. SFAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes
in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative
is designated as part of a hedge transaction and, if it is, the type of
transaction. The Company anticipates that, due to its limited use of
derivative instruments, the adoption of SFAS 133 will not have a
significant effect on the Company's results of operations or its financial
position.
12
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
The Company has operations outside of the United States and sells its products
worldwide. The Company's activities expose it to a variety of market risks,
including the effects of changes in foreign currency exchange rates, interest
rates and commodity prices. These financial exposures are actively monitored
and, where considered appropriate, managed by the Company.
INTEREST RATE RISK
As of April 30, 2000 the Company is subject to interest rate risk on
approximately $31.6 million of variable rate debt, including Liljeholmens and
Colony Gift. Each 1.00% increase in the interest rate would impact pre-tax
earnings by approximately $316,000 if applied to the total.
FOREIGN CURRENCY RISK
The Company uses forward foreign exchange contracts to hedge the impact of
foreign currency fluctuations on certain committed capital expenditures,
Canadian intercompany payables and on certain intercompany loans. The Company
does not hold or issue derivative financial instruments for trading purposes.
With regard to commitments for machinery and equipment in foreign currencies,
upon payment of each commitment the underlying forward contract is closed and
the corresponding gain or loss is included in the measurement of the cost of the
acquired asset. With regard to forward exchange contracts used to hedge Canadian
intercompany payables, gain or loss on such hedges is recognized in earnings in
the period in which the underlying hedged transaction occurs. Gains or losses on
foreign currency forward contracts related to intercompany loans are recognized
currently through income and generally offset the transaction gains or losses in
the foreign currency cash flows which they are intended to hedge. If a hedging
instrument is sold or terminated prior to maturity, gains and losses are
deferred until the hedged item is settled. However, if the hedged item is no
longer likely to occur, the resultant gain or loss on the terminated hedge is
recognized into earnings. For consolidated financial statement presentation, net
cash flows from such hedges are classified in the categories of the cash flow
with the items being hedged.
The following table provides information about the Company's foreign exchange
forward contracts at April 30, 2000.
U.S. DOLLAR AVERAGE ESTIMATED
(In thousands, except average contract rate) NOTIONAL AMOUNT CONTRACT RATE FAIR VALUE
- ----------------------------------------------------------------------------------------------------------------
Canadian Dollar $ 1,785 1.46 $ 36
Swiss Franc 13,183 1.59 986
Euro 431 1.02 (44)
Pound Sterling 3,951 1.58 67
- ----------------------------------------------------------------------------------------------------------------
$19,350 $ 1,045
================================================================================================================
The foreign exchange contracts outstanding as of April 30, 2000 have maturity
dates ranging from May 2000 through June 2000.
13
Part II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
The Company is including the following cautionary statement in this Report
to make applicable, and to take advantage of, the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995 for any
forward-looking statements made by, or on behalf of, the Company.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance and underlying assumptions
and other statements which are other than statements of historical facts.
From time to time, the Company and its representatives may publish or
otherwise make available forward-looking statements of this nature. All
such forward-looking statements, whether written or oral, and whether made
by or on behalf of the Company, are expressly qualified by the following
cautionary statements. Forward-looking statements involve risks and
uncertainties which could cause actual results or outcomes to differ
materially from those expressed in the forward-looking statements. Such
forward-looking statements are expected to be based on various assumptions,
many of which are based, in turn, upon further assumptions.
There can be no assurance that management's expectations, beliefs or
projections will occur or be achieved or accomplished. In addition to other
factors and matters discussed elsewhere in this Report and in the Company's
other public filings and statements, the following are important factors
that, in the view of the Company, could cause actual results to differ
materially from those discussed in the Company's forward-looking
statements. The Company disclaims any obligation to update any
forward-looking statements, or the following factors, to reflect events or
circumstances after the date of this Report.
Risk of Inability to Maintain Growth Rate
The Company has grown substantially in recent years. We expect that our
future growth will be generated by sales to the faster growing worldwide
consumer market for home fragrance products. The market for our
institutional products has grown, but more slowly, and we expect it will
continue to do so. Our ability to continue to grow depends on several
factors, including the following: market acceptance of existing products,
the successful introduction of new products, and increases in production
and distribution capacity to meet demand. The home fragrance products
industry is driven by consumer tastes. Accordingly, there can be no
assurance that our existing or future products will maintain or achieve
market acceptance. We expect that, as we grow, our rate of growth will be
less than our historical growth rate. In addition, we have grown in part
through acquisitions and there can be no assurance that we will be able to
continue to identify suitable acquisition candidates, to consummate
acquisitions on terms favorable to the Company, to finance acquisitions or
to successfully integrate acquired operations. In the future, acquisitions
may contribute more to the overall Company's sales growth rate than
historically.
14
Part II. OTHER INFORMATION (CONTINUED)
ITEM 5. OTHER INFORMATION (CONTINUED)
Ability to Respond to Increased Product Demand
Our significant internal growth has required increases in personnel,
expansion of production and distribution facilities, and enhancement of
management information systems. Our ability to meet future demand for
products will be dependent upon success in (1) training, motivating and
managing new employees, (2) bringing new production and distribution
facilities on line in a timely manner, (3) improving management information
systems in order to respond promptly to customer orders and (4) improving
our ability to forecast anticipated product demand in order to continue to
fill customer orders promptly. If we are unable to meet future demand for
products in a timely and efficient manner, our operating results could be
materially adversely affected.
Risks Associated with International Sales and Foreign-Sourced Products
Our international business has grown at a faster rate than sales in the
United States in recent years. In addition, we source a portion of our
candle accessories and decorative gift bags from independent manufacturers
in the Pacific Rim, Europe and Mexico. For these reasons we are subject to
the following risks inherent in foreign manufacturing and sales:
fluctuations in currency exchange rates, economic and political
instability, transportation delays, difficulty in maintaining quality
control, restrictive actions by foreign governments, nationalizations, the
laws and policies of the United States affecting importation of goods
(including duties, quotas and taxes) and trade and foreign tax laws.
Raw Materials
For certain raw materials, there may be temporary shortages due to weather
or other factors, including disruptions in supply caused by raw material
transportation or production delays. Such raw material shortages have not
previously had, and are not expected to have, a material adverse effect on
the Company's operations.
Dependence on Key Management Personnel
Our success depends upon the contributions of key management personnel,
particularly our Chairman, Chief Executive Officer and President, Robert B.
Goergen. We do not have employment contracts with any of our key management
personnel, nor do we maintain any key person life insurance policies. The
loss of any of the key management personnel could have a material adverse
effect on the Company.
Competition
Our business is highly competitive, both in terms of price and new product
introductions. The worldwide consumer market for home fragrance products is
highly fragmented, with numerous suppliers serving one or more of the
distribution channels served by the Company. Because there are relatively
low barriers to entry to the home fragrance products industry, we may face
increased future competition from other companies, some of which may have
substantially greater financial and marketing resources than those
available to us. From time to time during the year-end holiday season, we
experience competition from candles manufactured in foreign countries,
particularly China. In addition, certain of our competitors focus on a
particular geographic or single-product market and attempt to gain or
maintain market share solely on the basis of price.
15
Part II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27. Financial data schedule
b) Reports on Form 8-K
During the fiscal quarter ended April 30, 2000, the Company filed the
following Current Report on Form 8-K:
Current Report on Form 8-K on March 17, 2000 to file as an
exhibit the press release announcing the Company's results of
operations for the fiscal quarter ended January 31, 2000.
Current Report on Form 8-K on April 3, 2000 to file as exhibits
two press releases: announcing the Company's initiation of a
semi-annual dividend; and announcing the increase in the number
of shares authorized under the share repurchase program.
Current Report on Form 8-K on April 17, 2000 to file as an
exhibit the amended Employee Stock Option Plan.
16
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
BLYTH INDUSTRIES, INC.
Date: June 13, 2000 By: /s/ Robert B. Goergen
------------------------ --------------------------------
Robert B. Goergen
Chief Executive Officer
Date: June 13, 2000 By: /s/ Richard T. Browning
------------------------ --------------------------------
Richard T. Browning
Chief Financial Officer
17
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE NO.
- ------- ----------- --------
27. Financial data schedule N/A