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 JULY 31, 2000
Commission file number 1-13026
BLYTH, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-2984916
(State or other jurisdiction (IRS Employer Identification No.)
of 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.
47,963,374 COMMON SHARES AS OF AUGUST 31, 2000
BLYTH, 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.....................4,5
Consolidated Statements of Stockholders' Equity...........6
Consolidated Statements of Cash Flows.....................7
Notes to Consolidated Financial Statements..............8,9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............10-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....14
Part II. Other Information
Item 1. Legal Proceedings..............................................15
Item 2. Changes in Securities..........................................15
Item 3. Defaults upon Senior Securities................................15
Item 4. Submission of Matters to a Vote of Security Holders............15
Item 5. Other Information........................................15-17
Item 6. Exhibits and Reports on Form 8-K............................17
Signatures....................................................................18
2
Part I. FINANCIAL INFORMATION
Item I. FINANCIAL STATEMENTS
BLYTH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31, January 31,
(In thousands, except share data) 2000 2000
--------- -----------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 35,302 $ 46,047
Accounts receivable, less allowance for doubtful receivables
of $2,162 and $2,154, respectively 77,569 84,919
Inventories 236,782 186,696
Prepaid expenses 5,281 3,000
Deferred income taxes 1,364 1,200
--------- ---------
Total current assets 356,298 321,862
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Less accumulated depreciation of $128,102 and $113,044, respectively 270,764 273,528
OTHER ASSETS:
Investments 13,698 10,303
Excess of cost over fair value of assets acquired, net of
accumulated amortization of $9,362 and $7,290, respectively 102,574 102,328
Deposits and other assets 6,848 5,075
--------- ---------
123,120 117,706
--------- ---------
Total assets $ 750,182 $ 713,096
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank lines of credit $ 34,521 $ 5,572
Current maturities of long-term debt 9,900 14,063
Accounts payable 49,989 53,359
Accrued expenses 41,559 51,819
Dividend payable - -
Income taxes 7,095 5,792
--------- ---------
Total current liabilities 143,064 130,605
DEFERRED INCOME TAXES 26,247 24,202
LONG-TERM DEBT, less current maturities 173,119 176,587
MINORITY INTEREST AND OTHER 413 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, 47,960,674 shares and 48,037,309 shares, respectively 988 985
Additional contributed capital 96,237 93,784
Retained earnings 354,770 320,384
Accumulated other comprehensive loss (8,841) (4,760)
Treasury stock, at cost, 1,435,800 shares and 1,208,700 shares, respectively (35,815) (30,179)
--------- ---------
Total stockholders' equity 407,339 380,214
--------- ---------
Total liabilities and stockholders' equity $ 750,182 $ 713,096
========= =========
The accompanying notes are an integral part of these financial statements.
3
BLYTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
SIX MONTHS ENDED JULY 31 (In thousands, except per share data)
2000 1999
------ ------
Net sales $ 510,288 $ 474,136
Cost of goods sold 210,889 201,991
--------- ---------
Gross profit 299,399 272,145
Selling and shipping 181,777 163,790
Administrative 46,705 44,399
Amortization of goodwill 2,096 1,275
--------- ---------
230,578 209,464
--------- ---------
Operating profit 68,821 62,681
Other expense (income):
Interest expense 8,341 4,376
Interest income and other (1,164) (184)
Equity in earnings of investees 787 1,276
--------- ---------
7,964 5,468
--------- ---------
Earnings before income taxes and minority interest 60,857 57,213
Income tax expense 22,762 21,970
--------- ---------
Earnings before minority interest 38,095 35,243
Minority interest (1,084) 276
--------- ---------
Net earnings $ 39,179 $ 34,967
========= =========
Basic: Net earnings per common share $ 0.82 $ 0.72
Weighted average number of shares outstanding 47,959 48,714
--------- ---------
Diluted: Net earnings per common share $ 0.81 $ 0.71
Weighted average number of shares outstanding 48,288 49,076
========= =========
The accompanying notes are an integral part of these financial statements.
4
BLYTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
THREE MONTHS ENDED JULY 31 (In thousands, except per share data)
2000 1999
---------- ---------
Net sales $ 235,408 $ 229,863
Cost of goods sold 99,329 98,198
---------- ---------
Gross profit 136,079 131,665
Selling and shipping 81,108 78,405
Administrative 22,635 22,535
Amortization of goodwill 1,048 639
---------- ---------
104,791 101,579
---------- ---------
Operating profit 31,288 30,086
Other expense (income):
Interest expense 4,188 2,492
Interest income and other (585) (64)
Equity in earnings of investees (64) 863
---------- ---------
3,539 3,291
---------- ---------
Earnings before income taxes and minority interest 27,749 26,795
Income tax expense 10,323 10,287
---------- ---------
Earnings before minority interest 17,426 16,508
Minority interest (732) 78
---------- ---------
Net earnings $ 18,158 $ 16,430
========== =========
Basic: Net earnings per common share $ 0.38 $ 0.34
Weighted average number of shares outstanding 47,940 48,488
========== =========
Diluted: Net earnings per common share $ 0.38 $ 0.34
Weighted average number of shares outstanding 48,317 48,893
========== =========
The accompanying notes are an integral part of these financial statements.
5
BLYTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
JULY 31, (In thousands, except share data)
Accumulated
Common stock Additional other
------------------------ contributed Retained Treasury comprehensive
Shares Amount capital earnings stock income (loss) Total
------ ------ ----------- -------- -------- ------------- -----
FOR THE SIX MONTHS ENDED JULY 31, 1999:
Balance, January 31, 1999 49,190,474 $ 984 $ 93,281 $227,995 $ (228) $ - $322,032
Net earnings for the period 34,967 34,967
Foreign currency translation adjustments (4,929) (4,929)
---------
Comprehensive income 30,038
Common stock issued in connection with
exercise of stock options 21,158 276 276
Treasury stock purchase (724,700) (17,221) (17,221)
----------- ----- -------- --------- --------- -------- ----------
Balance, July 31, 1999 48,486,932 $ 984 $ 93,557 $262,962 $(17,449) $ (4,929) $335,125
=========== ========== ======== ======== ========= ======== ==========
FOR THE SIX MONTHS ENDED JULY 31, 2000:
Balance, January 31, 2000 48,037,309 $ 985 $ 93,784 $320,384 $(30,179) $ (4,760) $380,214
Net earnings for the period 39,179 39,179
Foreign currency translation adjustments (4,590) (4,590)
Unrealized holding gains on certain
investments (net of tax of $304) 509 509
----------
Comprehensive income 35,098
Common stock issued in connection with
exercise of stock options 150,465 3 2,056 2,059
Tax benefit from stock options 397 397
Dividends paid (4,793) (4,793)
Treasury stock purchase (227,100) (5,636) (5,636)
----------- ----- -------- --------- --------- -------- ----------
Balance, July 31, 2000 47,960,674 $ 988 $ 96,237 $354,770 $(35,815) $ (8,841) $407,339
=========== ========== ======== ========= ======== ======== ==========
The accompanying notes are an integral part of these financial statements.
6
BLYTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED JULY 31 (In thousands) 2000 1999
---- ----
Cash flows from operating activities:
Net earnings $ 39,179 $ 34,967
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 17,156 13,085
Tax benefit from stock options 397 -
Deferred income taxes 2,886 201
Equity in earnings of investees 787 1,276
Minority interest (1,084) 276
Changes in operating assets and liabilities, net of
effect of business acquisitions:
Accounts receivable 7,350 (5,785)
Inventories (47,597) (47,625)
Prepaid expenses (1,106) (704)
Deposits and other assets (1,063) 235
Accounts payable (8,734) (9,499)
Accrued expenses (9,156) (9,545)
Income taxes 199 (1,145)
-------- --------
Total adjustments (39,965) (59,230)
-------- --------
Net cash used in operating activities (786) (24,263)
Cash flows from investing activities:
Purchases of property, plant and equipment (12,635) (11,225)
Long term investments (9,439) 674
Purchase of businesses, net of cash acquired (430) (38,922)
-------- --------
Net cash used in investing activities (22,504) (49,473)
Cash flows from financing activities:
Proceeds from issuance of common stock 2,059 276
Purchase of treasury stock (5,636) (17,221)
Borrowings from bank line of credit 29,952 287,356
Repayments on bank line of credit (1,003) (255,000)
Borrowings (repayments) on long-term debt (8,034) 59,926
Dividends paid (4,793) -
-------- --------
Net cash provided by financing activities 12,545 75,337
-------- --------
Net increase (decrease) in cash and cash equivalents (10,745) 1,601
Cash and cash equivalents at beginning of period 46,047 18,571
-------- --------
Cash and cash equivalents at end of period $ 35,302 $ 20,172
======== =========
The accompanying notes are an integral part of these financial statements.
7
BLYTH, 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
July 31, 2000 and the consolidated results of its operations and cash
flows for the six-month periods ended July 31, 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 six months ended July 31, 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):
July 31, 2000 January 31, 2000
------------- ----------------
Raw materials $ 50,732 $ 40,071
Work in process 3,960 4,625
Finished goods 182,090 142,000
------------- ----------------
$ 236,782 $ 186,696
============= ================
3. EARNINGS PER SHARE
The components of basic and diluted earnings per share are as follows
(in thousands):
Three Months Six Months Three Months Six Months
Ended July 31, Ended July 31, Ended July 31, Ended July 31,
2000 2000 1999 1999
-------------- -------------- -------------- --------------
Net earnings $ 18,158 $ 39,179 $ 16,430 $ 34,967
============== ============== ============== ==============
Weighted average number of common
shares outstanding:
Basic 47,940 47,959 48,488 48,714
Dilutive effect of stock options 377 329 405 362
-------------- -------------- -------------- --------------
Weighted average number of common
shares outstanding:
Diluted 48,317 48,288 48,893 49,076
============== ============== ============== ==============
As of July 31, 2000 and 1999, options to purchase 56,176 and 59,523
shares of common stock, respectively, are not included in the
computation of earnings per share because the effect would be
antidilutive.
8
BLYTH, 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 July 31, Six months ended July 31,
-------------------------- -------------------------
(In thousands) 2000 1999 2000 1999
------ ------ ------ ------
Net Sales:
United States $ 178,236 $ 181,924 $ 382,961 $ 363,697
International(1) 57,172 47,939 127,327 110,439
--------- --------- --------- ---------
Total $ 235,408 $ 229,863 $ 510,288 $ 474,136
========= ========= ========= =========
Three months ended July 31, Six months ended July 31,
--------------------------- -------------------------
(In thousands) 2000 1999 2000 1999
------ ------ ------ ------
Net Earnings:
United States $ 15,254 $ 14,081 $ 32,973 $ 29,563
International(1) 2,904 2,349 6,206 5,404
--------- --------- --------- ---------
Total $ 18,158 $ 16,430 $ 39,179 $ 34,967
========= ========= ========= =========
July 31, January 31,
(In thousands) 2000 2000
-------- -----------
Long-Lived Assets:
United States $ 297,108 $ 289,480
International(1) 89,928 96,679
--------- -----------
Total $ 387,036 $ 386,159
========= ===========
(1) No individual country represents a significant amount of net sales, net
earnings or long-lived assets.
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
NET SALES
Net sales increased $36.2 million, or 7.6%, to $510.3 million in the
first six months of fiscal 2001 from $474.1 million in the first six
months of fiscal 2000. Net sales in the second quarter ended July 31,
2000, increased $5.5 million, or 2.4% to $235.4 million compared with
$229.9 million a year earlier. This increase was mostly attributable to
unit sales growth of the Company's everyday products. The sales growth
in the second quarter when compared to last year was adversely impacted
by several factors: further deterioration of European currencies
against the dollar whereby the euro has decreased approximately 11% and
the pound sterling has decreased approximately 7% from year ago levels;
a temporary slowdown of recruiting in the U.S. direct selling channel;
and the effect of de-emphasizing less profitable product lines in U.S.
and European markets.
GROSS PROFIT
Gross profit increased $27.3 million, or 10.0%, from $272.1 million in
the first six months of fiscal 2000 to $299.4 million in the first six
months of fiscal 2001. Gross profit margin increased from 57.4% for the
first six months of fiscal 2000 to 58.7% for the first six months of
fiscal 2001. Gross profit in the second quarter ended July 31, 2000
increased $4.4 million, or 3.3%, from $131.7 million for the quarter
ended July 31, 1999 to $136.1 million. Gross profit margin increased
from 57.3% for the quarter ended July 31, 1999 to 57.8% for the quarter
ended July 31, 2000. Gross profit margin grew at a somewhat higher rate
than sales due to several factors including continued benefits from
investments in technology and leveraging worldwide sourcing.
SELLING AND SHIPPING EXPENSE
Selling and shipping expense increased $18.0 million, or 11.0%, from
$163.8 million in the first six months of fiscal 2000 (34.5% of net
sales), to $181.8 million in the first six months of fiscal 2001 (35.6%
of net sales). Selling and shipping expense increased $2.7 million, or
3.4%, from $78.4 million in the quarter ended July 31, 1999 (34.1% of
net sales), to $81.1 million in the quarter ended July 31, 2000 (34.5%
of net sales). The increases were primarily attributable to the higher
percentage of total sales of premium priced products, for which sales
expenses, as a percentage of net sales, are relatively higher.
OPERATING PROFIT
Operating profit increased $6.1 million, or 9.8%, to $68.8 million in
the six months ended July 31, 2000 compared with $62.7 million a year
earlier. Operating profit in the second quarter ended July 31, 2000
increased $1.2 million, or 4.0%, to $31.3 million compared to $30.1
million in the same period last year. The increase in operating profit
is attributable to the above noted continued benefits from investments
in technology, and leveraging our worldwide sourcing efforts and
administrative overhead, although such increase was negatively impacted
by the deterioration of European currencies as discussed above.
ADMINISTRATIVE EXPENSE
Administrative expense increased $2.3 million, or 5.2%, from $44.4
million in the first six months of fiscal 2000 (9.4% of net sales) to
$46.7 million in the first six months of fiscal 2001 (9.2% of net
sales). Administrative expense increased $0.1 million, or 0.4%, from
$22.5 million in the quarter ended July 31, 1999 (9.8% of net sales) to
$22.6 million in the quarter ended July 31, 2000 (9.6% of net sales).
The decrease in administrative expenses as a percentage of net sales
reflects the continued leveraging of the Company's administrative
overhead.
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: (CONTINUED)
INTEREST EXPENSE
Interest expense increased $3.9 million, or 88.6%, from $4.4 million in
the first six months of fiscal 2000 to $8.3 million in the first six
months of fiscal 2001. Interest expense increased $1.7 million, or
68.0%, from $2.5 million in the quarter ended July 31, 1999 to $4.2
million in the quarter ended July 31, 2000. The increase in interest
expense is primarily attributable to the Company's $150.0 million
public debt offering and debt of acquired companies.
INCOME TAXES
Income tax expense increased $0.8 million, or 3.6%, from $22.0 million
in the first six months of fiscal 2000 to $22.8 million in the first
six months of fiscal 2001. Income tax expense was $10.3 million in the
quarter ended July 31, 1999 and remained $10.3 million in the quarter
ended July 31, 2000. The effective income tax rate decreased from
approximately 38.4% in the quarter ended July 31, 1999 to approximately
37.2% in the quarter ended July 31, 2000 due to the growth in sales in
countries with lower tax rates than the U.S.
NET EARNINGS
As a result of the foregoing, net earnings increased $4.2 million, or
12.0%, from $35.0 million for the six months ended July 31, 1999 to
$39.2 million for the six months ended July 31, 2000. Net earnings
increased $1.8 million, or 11.0%, from $16.4 million in the quarter
ended July 31, 1999 to $18.2 million in the quarter ended July 31,
2000.
Basic earnings per share based upon the weighted average number of
shares outstanding for the six months ended July 31, 2000 increased
$0.10 or 13.9%, to $0.82 compared to $0.72 for the six months ended
July 31, 1999. Basic earnings per share based upon the weighted average
number of shares outstanding for the quarter ended July 31, 2000
increased $0.04, or 11.8%, to $0.38 compared to $0.34 for the quarter
ended July 31, 1999. Diluted earnings per share based upon the
potential dilution that could occur if options to issue Common Stock
were exercised or converted were $0.81 for the six months ended July
31, 2000 compared to $0.71 for the same period last year, an increase
of $0.10, or 14.1%. Diluted earnings per share based upon the potential
dilution that could occur if options to issue Common Stock were
exercised or converted were $0.38 for the quarter ended July 31, 2000
compared to $0.34 for the same period last year, an increase of $0.04
or 11.8%.
LIQUIDITY AND CAPITAL RESOURCES
Inventory increased $2.7 million, or 1.1%, to $236.8 million at July
31, 2000 when compared to $234.1 million at July 31, 1999. This
increase of 1.1% is again less than the sales growth of 2.4% for the
quarter ended July 31, 2000. When compared to January 31, 2000, when
inventory levels are typically at the lowest point of the fiscal year,
inventory increased $50.1 million, from $186.7 million, to $236.8
million at July 31, 2000. Accounts receivable decreased $7.4 million,
to $77.6 million at July 31, 2000 compared to $84.9 million at January
31, 2000. Such decrease is normal due to the high year-end levels of
accounts receivable resulting from increased seasonal sales. Accounts
payable and accrued expenses decreased $13.6 million, to $91.5 million
at July 31, 2000 compared to $105.2 million at year-end due to normal
payment patterns of operating expenses.
Capital expenditures for property, plant and equipment were $12.6
million in the six months ended July 31, 2000. Capital expenditures
were primarily investments in new equipment and enhancements to
existing plant and equipment and technology. The Company anticipates
capital spending in the range of $25.0 to $30.0 million for fiscal
2001, to be used primarily for upgrades to machinery and equipment in
existing facilities, and technology.
11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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.
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 (9.50% at July 31, 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 July 31, 2000, approximately
$4.7 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 July 31, 2000, the Company was in compliance
with such covenants.
As of July 31, 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 (9.50% at July 31, 2000), or at the Eurocurrency rate
plus a credit spread. No amounts were outstanding under the uncommitted
lines of credit at July 31, 2000.
As of June 30, 2000, Liljeholmens had available lines of credit of
approximately $35.0 million of which approximately $11.0 million was
outstanding. The amounts outstanding under the lines of credit bear
interest at a weighted average rate of 5.33% at June 30, 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 30, 2001, pursuant to which
Barclays has agreed to provide a revolving credit facility in an amount
of up to $30.3 million, collateralized by certain of Colony's assets.
As of June 30, 2000, Colony had borrowings under the credit facility of
approximately $23.5 million, at a weighted average interest rate of
6.3% at June 30, 2000.
At June 30, 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 June 30, 2000
under the loan agreements was approximately $14.9 million with variable
interest rates ranging from 3.60% to 6.55%, of which $6.0 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.
12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Net cash used in operating activities amounted to $0.8 million for the
six months ended July 31, 2000 compared to a use of $24.3 million for
the six months ended July 31, 1999 which was driven by strong earnings
of $39.2 million, depreciation and amortization of $17.2 million, and
less net operating asset and liability growth versus last year. The
decrease in the borrowings and repayments of bank lines of credit in
the first six months of fiscal 2001 compared to the same period last
year is attributable to the proceeds from the Company's $150.0 million
bond offering a portion of which was used to repay bank lines of credit
in the United States.
The Company's Board of Directors has authorized the Company to
repurchase up to 3,000,000 shares of its common stock under the
Company's Stock Repurchase Plan. As of August 31, 2000, the Company had
purchased on the open market an aggregate of 1,435,800 common shares
for a total cost of approximately $35.8 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 paid on May 15, 2000 in the
amount of $4.8 million.
On September 6, 2000 the Company declared a cash dividend of $0.10 per
share of the Company's common stock for the six months ended July 31,
2000. The dividend will be payable to shareholders of record as of
November 1, 2000, and will be paid on November 15, 2000.
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.
During May 2000, the Emerging Issues Task Force ("EITF") issued EITF
Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs."
EITF No. 00-10 addresses the income statement classification for
shipping and handling fees and costs and will be effective for the
fourth quarter of fiscal 2001. The Company is currently evaluating the
effect of the application of EITF Issue No. 00-10 on its results of
operations and financial position.
Also, in May 2000, the EITF issued EITF Issue No. 00-14, "Accounting
for Certain Sales Incentives." EITF No. 00-14 addresses the
recognition, measurement and statement of earnings classification of
various sales incentives and will be effective for the fourth quarter
of fiscal 2001. The Company is currently evaluating the effect of the
application of EITF Issue No. 00-14 on its results of operations and
financial position.
13
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 July 31, 2000 the Company is subject to interest rate risk on
approximately $38.6 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 $386,000 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 is settled. 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 July 31, 2000.
U.S. DOLLAR AVERAGE ESTIMATED
(In thousands, except average contract rate) NOTIONAL AMOUNT CONTRACT RATE FAIR VALUE
--------------- ------------- ----------
Canadian Dollar $ 7,617 1.47 $ 65
Swiss Franc 9,197 1.63 210
Euro 6,033 0.91 (171)
Pound Sterling 5,858 1.50 11
-------- ------
$ 28,705 $ 115
======== ======
The foreign exchange contracts outstanding as of July 31, 2000 have
maturity dates ranging from August 2000 through January 2001.
14
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
The following matters were voted upon at the Annual Meeting of
Stockholders held on June 14, 2000, and received the votes set forth
below:
1) Each of the following persons nominated was elected to serve as
director and received the number of votes set forth opposite his
name.
FOR AGAINST WITHHELD
- ---------------------------------------------------------------------------------------
Roger A. Anderson 42,651,979 0 217,084
Pamela M. Goergen 42,682,501 0 186,562
2) A proposal to ratify the appointment of PricewaterhouseCoopers LLP
as independent certified public accountants received 42,756,766
votes for, 105,231 votes against, and 7,066 votes withheld.
3) A resolution to adopt the Company's Amended and Restated 1994
Employee Stock Option Plan received 35,146,815 votes for,
4,083,646 votes against, and 3,638,602 votes withheld.
4) A resolution to adopt the Blyth Industries, Inc. Annual
Incentive Compensation Plan received 42,500,726 votes for,
313,000 votes against, and 55,337 votes withheld.
5) A resolution to adopt an amendment to the Corporation's Restated
Certificate of Incorporation received 42,693,575 votes for,
152,017 votes against, and 23,471 votes withheld.
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.
15
Part II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION (CONTINUED)
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, the ability to recruit independent sales consultants in
North America, 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.
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.
16
Part II. OTHER INFORMATION (CONTINUED)
ITEM 5. OTHER INFORMATION (CONTINUED)
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.
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 July 31, 2000, the Company filed
the following reports on Form 8-K:
Current Report on Form 8-K on June 1, 2000 to file as an
exhibit the press release announcing the Company's
results of operations for the fiscal quarter ended April
30, 2000.
Current Report on Form 8-K on June 14, 2000 announcing
the ratification by Shareholders of the amendment to the
Company's Certificate of Incorporation to change the name
of the Company to "Blyth, Inc."
17
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, INC.
Date: September 13, 2000 By: /s/ Robert B. Goergen
-------------------- -----------------------
Robert B. Goergen
Chief Executive Officer
Date: September 13, 2000 By: /s/ Richard T. Browning
-------------------- -----------------------
Richard T. Browning
Chief Financial Officer
18
EXHIBIT INDEX
Exhibit Description Page No.
- ------- ----------- --------
27. Financial data schedule N/A