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, 2001
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
of incorporation or organization) Identification No.)
ONE EAST WEAVER STREET, GREENWICH, CONNECTICUT 06831
(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.
47,064,776 COMMON SHARES AS OF MAY 31, 2001
BLYTH, INC.
INDEX
PAGE
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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...........................................7-9
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
==========================================================================================================================
APRIL 30, JANUARY 31,
(In thousands, except share data) 2001 2001
- --------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 36,734 $ 93,036
Accounts receivable, less allowance for doubtful receivables
of $2,779 and $2,120, respectively 85,949 66,974
Inventories 225,482 201,086
Prepaid and other 9,296 4,803
Deferred income taxes 10,804 7,808
- --------------------------------------------------------------------------------------------------------------------------
Total current assets 368,265 373,707
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Less accumulated depreciation of $151,036 and $142,738, respectively 263,311 269,438
OTHER ASSETS:
Investments 10,512 15,180
Excess of cost over fair value of assets acquired, net of
accumulated amortization of $12,232 and $11,240, respectively 119,588 95,472
Deposits and other assets 11,686 9,673
- --------------------------------------------------------------------------------------------------------------------------
141,786 120,325
- --------------------------------------------------------------------------------------------------------------------------
Total assets $ 773,362 $ 763,470
==========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank lines of credit $ 33,761 $ 27,278
Current maturities of long-term debt 5,725 5,374
Accounts payable 50,330 54,820
Accrued expenses 41,509 47,520
Dividend Payable 4,707 -
Income taxes 3,301 14,302
- --------------------------------------------------------------------------------------------------------------------------
Total current liabilities 139,333 149,294
DEFERRED INCOME TAXES 24,579 24,552
LONG-TERM DEBT, less current maturities 177,932 167,316
MINORITY INTEREST AND OTHER 3,638 514
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, 47,064,776 shares and 47,074,776 shares, respectively 989 989
Additional contributed capital 97,078 96,912
Retained earnings 401,414 390,447
Accumulated other comprehensive loss (14,030) (9,595)
Treasury stock, at cost, 2,383,600 shares and 2,356,800 shares, respectively (57,571) (56,959)
- --------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 427,880 421,794
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 773,362 $ 763,470
==========================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
BLYTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
==========================================================================================================================
THREE MONTHS ENDED APRIL 30, (In thousands, except per share data) 2001 2000
==========================================================================================================================
Net sales $ 261,153 $ 291,368
Cost of goods sold 122,496 132,889
- ---------------------------------------------------------------------------------------------------------------------------
Gross profit 138,657 158,479
Selling and shipping 85,441 96,465
Administrative 24,941 23,638
Amortization of goodwill 990 1,048
- ---------------------------------------------------------------------------------------------------------------------------
111,372 121,151
- ---------------------------------------------------------------------------------------------------------------------------
Operating profit 27,285 37,328
Other expense (income):
Interest expense 4,026 4,153
Interest income and other (2,184) (579)
Equity in earnings of investee 485 851
- ---------------------------------------------------------------------------------------------------------------------------
2,327 4,425
- ---------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes, minority interest and
cumulative effect of accounting change 24,958 32,903
Income tax expense 9,284 12,373
- ---------------------------------------------------------------------------------------------------------------------------
Earnings before minority interest and cumulative effect
of accounting change 15,674 20,530
Minority interest - (352)
- ---------------------------------------------------------------------------------------------------------------------------
Earnings before cumulative effect of accounting change 15,674 20,882
Cumulative effect of accounting change, net of taxes - (1,153)
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings $ 15,674 $ 19,729
- ---------------------------------------------------------------------------------------------------------------------------
Basic:
Net earnings per common share before cumulative
effect of accounting change 0.33 0.44
Cumulative effect of accounting change - (0.02)
- ---------------------------------------------------------------------------------------------------------------------------
0.33 0.41
Weighted average number of shares outstanding 47,086 47,982
===========================================================================================================================
Diluted:
Net earnings per common share before cumulative
effect of accounting change 0.33 0.43
Cumulative effect of accounting change - (0.02)
- ---------------------------------------------------------------------------------------------------------------------------
0.33 0.41
Weighted average number of shares outstanding 47,264 48,265
===========================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
BLYTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(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, 2000:
Balance, January 31, 2000 48,037,309 $ 985 $ 93,784 $320,384 $(30,179) $ (4,760) $380,214
Net earnings for the period 19,729 19,729
Foreign currency translation adjustments (3,035) 3,035)
---------
Comprehensive income 16,694
Common stock issued in connection with
exercise of stock options 107,675 2 1,237 1,239
Dividends delcared - (4,793) (4,793)
Treasury stock purchases (187,600) (4,478) (4,478)
---------------------------------------------------------------------------------------
Balance, April 30, 2000 47,957,384 $ 987 $ 95,021 $335,320 $ (34,657) $ (7,795) $388,876
===================================================================================================================================
FOR THE THREE MONTHS ENDED APRIL 30, 2001:
Balance, January 31, 2001 47,074,776 $ 989 $ 96,912 $390,447 $ (56,959) $ (9,595) $421,794
Net earnings for the period 15,674 15,674
Foreign currency translation adjustments (4,672) (4,672)
Unrealized gains on certain
investments (net of tax of $140) 237 237
---------
Comprehensive income 11,239
Common stock issued in connection with
exercise of stock options 16,800 - 166 166
Dividends declared (4,707) (4,707)
Treasury stock purchases (26,800) (612) (612)
---------------------------------------------------------------------------------------
Balance, April 30, 2001 47,064,776 $ 989 $ 97,078 $401,414 $(57,571) $(14,030) $427,880
===================================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
BLYTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
===========================================================================================================================
THREE MONTHS ENDED APRIL 30, (In thousands) 2001 2000
===========================================================================================================================
Cash flows from operating activities:
Net earnings $ 15,674 $ 19,729
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Cumulative effect of accounting change - 1,153
Depreciation and amortization 9,288 8,488
Deferred income taxes (46) 13
Equity in earnings of investees 485 851
Minority interest and other 714 (352)
Changes in operating assets and liabilities, net of
effect of business acquisitions:
Accounts receivable (4,496) 6,607
Inventories (7,260) (10,911)
Prepaid and other (953) (310)
Deposits and other assets (1,148) (8)
Accounts payable (7,962) 5,935
Accrued expenses (10,603) (12,838)
Income taxes (6,008) 9,261
- ---------------------------------------------------------------------------------------------------------------------------
Total adjustments (27,989) 7,889
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (12,315) 27,618
Cash flows from investing activities:
Purchases of property, plant and equipment, net (3,258) (6,608)
Long term investments 4,593 (4,774)
Purchase of businesses, net of cash acquired (61,332) 1,264
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (59,997) (10,118)
Cash flows from financing activities:
Proceeds from issuance of common stock 166 1,239
Purchase of treasury stock (612) (4,478)
Borrowings from bank line of credit 6,483 25,919
Repayments on bank line of credit - (1,003)
Borrowings on long-term debt 9,973 1,860
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 16,010 23,537
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (56,302) 41,037
Cash and cash equivalents at beginning of period 93,036 46,047
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 36,734 $ 87,084
===========================================================================================================================
Non-cash investing and financing activities:
Cash dividend declared, $0.10 per share $ 4,707 $ 4,793
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
6
BLYTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The Company operates in two business segments - Candles and Home Fragrance
Products segment and Creative Expressions and Foodservice segment (formerly
Non-Fragranced Products). The Company has operations outside of the United
States and sells its products in both segments worldwide. The Candles and
Home Fragrance Products segment designs, manufactures and markets an
extensive line of products including scented candles, potpourri and other
fragrance products and markets a broad range of complementary candle
accessories. These products are sold direct to the consumer under the
PartyLite(R) brand, to retailers in the mid-tier and premium retail
channels, under the Colonial Candle of Cape Cod(R), Kate's Original
Recipe(TM) and Carolina Designs(R) brands, and in the mass retail channel
under the Ambria(TM), Florasense(R) and FilterMate(R) brands. In Europe,
these products are also sold under the Gies(TM), Liljeholmens(R),
Colony(R), Carolina Designs(R) and Wax Lyrical(TM) brands. The Creative
Expressions and Foodservice segment designs, manufactures and markets a
broad range of complementary specialty products for the consumer market,
including decorative seasonal products under the Midwest of Cannon Falls(R)
and Impact(R) brand names, paper-related products under the Jeanmarie(R)
brand, and tabletop illumination products and portable heating fuel
products for the hotel, restaurant and catering trade, under the
Ambria(TM), Sterno(R) and HandyFuel(R) brand names.
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 Saturday
closest to January 31. 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, 2001 and the consolidated
results of its operations and cash flows for the three-month periods ended
April 30, 2001 and 2000. These interim statements should be read in
conjunction with the Company's consolidated financial statements for the
year ended January 31, 2001, as set forth in the Company's Annual Report on
Form 10-K. Operating results for the three months ended April 30, 2001 are
not necessarily indicative of the results that may be expected for the year
ending January 31, 2002.
2. ACCOUNTING CHANGES
Effective February 1, 2001 the Company adopted the provisions of the
Financial Accounting Standards Board Statement No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities" and its
corresponding amendment under SFAS 138. These statements establish
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. It requires that all derivative instruments be recorded on the
balance sheet at their fair value. If the derivative is designated and is
effective as a fair value hedge, the changes in the value of the derivative
and of the hedged item attributable to the hedged risk are recognized in
earnings in the same period. If the derivative is designated and is
effective as a cash flow hedge, the effective portions of changes in the
fair value of the derivative are recorded in other comprehensive income
("OCI") and are recognized in the income statement when the hedged item
affects earnings. Ineffective portions of changes in the fair value of cash
flow hedges are recognized in earnings. The adoption of SFAS 133 and 138 on
February 1, 2001 resulted in an insignificant impact to results of
operations.
Derivative gains or losses included in OCI are reclassified into earnings
at the time the forecasted revenue or expense is recognized. During the
three months ended April 30, 2001, minimal gain and loss amounts were
reclassified to cost of sales. No significant derivative gains or losses
are included in OCI at April 30, 2001, and therefore no significant amount
will be transferred to earnings within the next twelve months.
The Company uses forward foreign exchange contracts to hedge the impact of
foreign currency fluctuations on certain committed capital expenditures,
certain inventory purchases, Canadian intercompany payables and on certain
intercompany loans. The Company does not hold or issue derivative financial
instruments for trading purposes.
7
BLYTH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. BUSINESS ACQUISITIONS
On April 11, 2001, the Company acquired Midwest of Cannon Falls, Inc., a
leading creative expressions company in the decorative products and
giftware industry for approximately $61.0 million in cash. The excess of
the purchase price over the estimated fair value of the net assets acquired
approximated $25.4 million and is being amortized over 20 years.
4. INVENTORIES
The components of inventory consist of the following (in thousands):
APRIL 30, 2001 JANUARY 31, 2001
- ------------------------------------------------------------------------
Raw materials $ 49,011 $ 40,943
Work in process 2,983 2,747
Finished goods 173,488 157,396
- ------------------------------------------------------------------------
$ 225,482 $ 201,086
========================================================================
5. EARNINGS PER SHARE
The components of basic and diluted earnings per share are as follows (in
thousands):
THREE MONTHS ENDED APRIL 30, 2001 2000
=================================================================================================
Net earnings $ 15,674 $ 19,729
=================================================================================================
Weighted average number of common
shares outstanding:
Basic 47,086 47,982
Dilutive effect of stock options 178 283
- -------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding:
Diluted 47,264 48,265
=================================================================================================
As of April 30, 2001 and 2000, options to purchase 218,975 and 104,268
shares of common stock, respectively, are not included in the computation
of earnings per share because the effect would be antidilutive.
6. UNUSUAL CHARGES
The Company recorded restructuring and one-time charges in the fourth
quarter of fiscal 2001 of approximately $16.7 million pre-tax. Of the
amounts recorded as restructuring and one-time charges during fiscal 2001,
there were no amounts included in the Consolidated Balance Sheet at April
30, 2001.
8
BLYTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. SEGMENT INFORMATION
The Company operates in two business segments - Candles and Home Fragrance
Products segment and Creative Expressions and Foodservice segment (formerly
Non-Fragranced Products). The Company has operations outside of the United
States and sells its products in both segments worldwide.
Earnings represents net sales less operating expenses directly related to
the business segments and corporate expenses allocated to the business
segments. Other income (expense) includes interest expense, interest income
and equity in earnings of investees which are not allocated to the business
segments.
The geographic area data includes net trade sales based on product shipment
destination and long-lived assets (which consists of fixed assets, goodwill
and long-term investments) based on physical location.
Three months ended April 30, (In thousands)
=============================================================================================================
2001 2000
===========================================
NET SALES
Candles and Home Fragrance Products $ 237,930 $ 270,181
Creative Expressions and Foodservice 23,223 21,187
-------------------------------------------
TOTAL $ 261,153 $ 291,368
EARNINGS
Candles and Home Fragrance Products $ 27,641 $ 37,558
Creative Expressions and Foodservice (356) (230)
-------------------------------------------
27,285 37,328
Other expense (2,327) (4,425)
-------------------------------------------
EARNINGS BEFORE INCOME TAXES, MINORITY INTEREST
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 24,958 $ 32,903
=============================================================================================================
GEOGRAPHIC INFORMATION
NET SALES
United States $ 191,076 $ 221,213
International 70,077 70,155
-------------------------------------------
TOTAL $ 261,153 $ 291,368
==========================================
APRIL 30, 2001 JANUARY 31, 2001
==========================================
LONG LIVED ASSETS
United States $ 316,882 $ 294,383
International 76,543 85,706
-------------------------------------------
TOTAL $ 393,425 $ 380,089
=============================================================================================================
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
CONSOLIDATED OPERATIONS
NET SALES
Net sales in the first quarter ended April 30, 2001 decreased $30.2
million, or 10.4%, to $261.2 million compared with $291.4 million a
year earlier. There were three key factors that negatively affected
the first quarter net sales: first the slowdown in our North American
direct selling activities, which the Company believes is temporary;
second the weakened levels of consumer confidence in North America
and Europe; and lastly the continuing deterioration of European
currencies versus the dollar, whereby the euro has declined
approximately 7% versus last year's first quarter and the British
pound has declined approximately 9% versus the prior year. The
combined effect of this weakening in European currencies negatively
impacted the Company's reported net sales by approximately
2 percentage points. International sales accounted for approximately
27% of the total net sales for the quarter ended April 30, 2001.
GROSS PROFIT
Gross profit in the first quarter ended April 30, 2001 decreased $19.8
million, or 12.5%, from $158.5 million for the quarter ended April 30,
2000 to $138.7 million. Gross profit margin decreased from 54.4% for
the quarter ended April 30, 2000 to 53.1% for the quarter ended April
30, 2001. The decrease in gross profit margin is primarily a result of
a shift in product mix in sales among business units in the first
quarter of fiscal 2002. This product mix shift is also masking the
positive effects on margins from the recent investments in global
sourcing, technology and distribution and savings related to the
restructuring efforts implemented in the fourth quarter of fiscal
2001.
SELLING AND SHIPPING EXPENSE
Selling and shipping expense decreased $11.1 million, or 11.5%, from
$96.5 million in the quarter ended April 30, 2000 to $85.4 million in
the quarter ended April 30, 2001. The decreases were primarily
attributable to decreased sales in the first quarter of fiscal 2002.
ADMINISTRATIVE EXPENSE
Administrative expense increased $1.3 million, or 5.5%, from $23.6
million in the quarter ended April 30, 2000 to $24.9 million in the
quarter ended April 30, 2001. The increase in administrative expenses
is primarily due to the Company's commitment to increase its
investment in research and development and e-business initiatives.
INTEREST INCOME AND OTHER
Interest income and other was $2.2 million for the three months ended
April 30, 2001 compared to $.6 million for the same period the prior
year. This increase was primarily a result of gains from long-term
investments of approximately $1.8 million in the quarter ended April
30, 2001.
INCOME TAXES
Income tax expense decreased $3.1 million, or 25.0%, from $12.4
million in the quarter ended April 30, 2000 to $9.3 million in the
quarter ended April 30, 2001. The effective income tax rate decreased
from approximately 37.6% in the quarter ended April 30, 2000 to
approximately 37.2% in the quarter ended April 30, 2001 reflecting the
favorable impact of our global business portfolio.
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: (CONTINUED)
NET EARNINGS
As a result of the foregoing, net earnings decreased $4.0 million, or
20.3%, from $19.7 million the quarter ended April 30, 2000 to $15.7
million for the quarter ended April 30, 2001.
Basic earnings per share based upon the weighted average number of
shares outstanding for the quarter ended April 30, 2001 decreased
$0.08, or 19.5%, to $0.33 compared to $0.41 for the quarter ended
April 30, 2000, which has been restated for the adoption of SAB 101.
Diluted earnings per share based upon the potential dilution that
could occur if options to issue Common Stock were exercised or
converted, were $0.33 for the quarter ended April 30, 2001 compared to
$0.41 for the same period last year, which has been restated for the
adoption of SAB 101, a decrease of $0.08, or 19.5%.
SEGMENT REVIEW - CANDLES AND HOME FRAGRANCE PRODUCTS
Net sales of the Candles and Home Fragrance Products segment decreased
$32.3 million, or 12.0%, to $237.9 million in the first quarter ended
April 30, 2001 compared with $270.2 million a year earlier. The same
factors that negatively affected the consolidated results were the
cause of the decrease in net sales in this year's first quarter versus
the same period last year in the Candles and Home Fragrance Products
segment.
Earnings of the Candles and Home Fragrance Products segment decreased
$10.0 million, or 26.6%, to $27.6 million in the first quarter ended
April 30, 2001 compared with $37.6 million in the same period last
year. This decrease is reflective of the sales shortfall in the
segment particularly in our North American direct selling channel.
SEGMENT REVIEW - CREATIVE EXPRESSIONS AND FOODSERVICE
Net sales of the newly renamed Creative Expressions and Foodservice
segment (formerly Non-Fragranced) increased $2.0 million, or 9.4%, to
$23.2 million in the first quarter ended April 30, 2001 compared with
$21.2 million a year earlier. This increase is primarily attributable
to the inclusion of the net sales of Midwest of Cannon Falls since its
acquisition by the Company on April 11, 2001.
Earnings of the Creative Expressions and Foodservice segment decreased
$.2 million to a loss of $.4 million in the first quarter ended April
30, 2001 compared with a loss of $.2 million in the same period last
year. The earnings are in line with historical results and our
expectations due to the heavily seasonal sales of the businesses in
this segment whose shipments are skewed towards the second and third
fiscal quarters.
11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Inventory increased from $201.1 million at January 31, 2001 to $225.5
million at April 30, 2001. Most of this $24.4 million increase is
attributable to the acquisition of Midwest of Cannon Falls. Accounts
receivable increased $19.0 million from $67.0 million at the end of
fiscal 2001 to $86.0 million at April 30, 2001 primarily due to the
acquisition of Midwest of Cannon Falls. Accounts payable and accrued
expenses decreased $10.5 million from $102.3 million at the end of
fiscal 2001 to $91.8 million at April 30, 2001. The decrease in
accounts payable and accrued expenses is attributable to normal
payment patterns of operating expenses.
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 (7.50% at April 30, 2001) or
at the Eurocurrency rate plus a credit spread ranging from 0.25% to
0.50%, based on a pre-defined financial ratio, for a weighted average
interest rate of 5.27% at April 30, 2001. At April 30, 2001,
approximately $13.7 million (including outstanding 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,
2001, the Company was in compliance with such covenants.
As of April 30, 2001, the Company had a total of $10.0 million
available under an uncommitted bank line of credit maturing in
September 2001. Amounts outstanding under the line of credit bear
interest at short term fixed rates. No amounts were outstanding under
the uncommitted line of credit at April 30, 2001.
As of March 31, 2001, The Gies Group ("Gies") had available lines of
credit of approximately $35.0 million of which approximately $10.4
million was outstanding. The amounts outstanding under the lines of
credit bear interest at a weighted average rate of 5.24% at March 31,
2001. 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 $28.3 million, collateralized by certain of Colony's
assets. As of March 31, 2001, Colony had borrowings under the credit
facility of approximately $23.3 million, at a weighted average
interest rate of 6.25% at March 31, 2001.
At March 31, 2001, Gies 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, 2001
under the loan agreements was approximately $4.0 million with variable
interest rates ranging from 3.81% to 5.01%, of which $1.3 million
relates to current maturities. The loans are collateralized by certain
of Gies' real estate and by a pledge of Gies' shares in its
subsidiaries.
Net cash used in operating activities amounted to $12.3 million for
the three months ended April 30, 2001 compared to $27.6 million
provided by operating activities for the three months ended April 30,
2000. This use of cash is primarily a result of timing of payments of
current liabilities and lower earnings in the quarter ended April 30,
2001.
12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
On December 14, 2000, the Company's Board of Directors authorized the
Company to repurchase up to 1,000,000 additional shares of its common
stock bringing the total authorization to 4,000,000 shares. As of
April 30, 2001, the Company had cumulatively purchased on the open
market 2,383,600 common shares for a total cost of approximately $57.6
million. The acquired shares are held as common stock in treasury at
cost.
On March 28, 2001 the Company declared a cash dividend of $0.10 per
share of the Company's common stock for the six months ended January
31, 2001. The dividend was payable to shareholders of record as of May
1, 2001 and was paid on May 15, 2001 in the amount of $4.7 million.
IMPACT OF ADOPTION OF RECENTLY ISSUED ACCOUNTING STANDARDS
Effective February 1, 2001 the Company adopted the provisions of the
Financial Accounting Standards Board Statement No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities" and its
corresponding amendment under SFAS 138. See Note 2. to the
Consolidated Financial Statements for further discussion.
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 such as discounts, coupons, rebates and free
products. The effective date has been delayed until annual or interim
periods beginning after December 15, 2001. EITF 00-14 becomes
effective in the Company's first quarter of fiscal 2003 at which time
the Company will report the cost of sales incentives covered by EITF
00-14 as a reduction of revenue. The adoption will have no impact on
net earnings.
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 April 30, 2001 the Company is subject to interest rate risk on
approximately $44.8 million of variable rate debt, including the debt
of Gies and Colony Gift. Each 1.00% increase in the interest rate
would impact pre-tax earnings by approximately $448,000 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, certain inventory purchases, 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 and inventory
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, 2001.
U.S. DOLLAR AVERAGE ESTIMATED
(In thousands, except average contract rate) NOTIONAL AMOUNT CONTRACT RATE FAIR VALUE
===================================================================================================
Canadian Dollar $ 3,500 1.5648 $ (64)
Swiss Franc 4,855 1.7035 (24)
Euro 37,245 0.90 360
Pound Sterling 1,290 1.4336 2
- --------------------------------------------------------------------------------------------------
$46,890 $ 274
==================================================================================================
The foreign exchange contracts outstanding as of April 30, 2001 have maturity
dates ranging from May 2001 through March 2002.
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
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 past years. We expect that our
future growth will be generated by sales to the faster-growing
worldwide consumer market for candles and home fragrance products and
creative expressions and foodservice products. The market for our
Foodservice 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, our ability to
recruit new independent sales consultants, sourcing of raw materials,
and increases in production and distribution capacity to meet demand.
The candles and home fragrance products and creative expressions and
foodservice industries are driven by consumer tastes. Accordingly,
there can be no assurance that our existing or future products will
maintain or achieve market acceptance. In addition, our sales and
earnings results have recently been impacted negatively by a slowing
of the United States economy as a whole and by a drop in consumer
confidence at both the individual and retailer levels. There can be no
assurance that our sales and earnings results will not be materially
adversely affected by these factors in the future. If the United
States economy continues to slow and/or consumer confidence continues
to drop, our operating results may be materially adversely affected.
Also recently, we have incurred certain one-time expenses in
connection with the restructuring of our U.S. and European consumer
wholesale operations and our exit from certain lower margin products
lines. While we expect
15
Part II. OTHER INFORMATION (CONTINUED)
ITEM 5. OTHER INFORMATION (CONTINUED)
Risk of Inability to Maintain Growth Rate (continued)
these actions to position us more effectively for continued growth and
profitability, there can be no assurance that we will achieve these
results. We expect that, as we grow, our rate of growth will be less
than our historical growth rate. Our growth in both the candles and
home fragrance products segment and the creative expressions and
foodservice segment has been due, in part, to acquisitions. We expect
our future growth in the candles and home fragrance segment to be
primarily organic, with the possibility of selective acquisitions. We
continue to pursue strategic acquisitions in certain areas of the
creative expressions and foodservice segment. 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 integrate successfully
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 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 candles and
home fragrance products and creative expressions and foodservice
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 candles, accessories and decorative gift bags and seasonal decor
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. In particular, during
fiscal year 2001, declining European currencies had a significant
negative impact on our international sales results. If European
currencies remain weak or decline further, our operating results may
be materially adversely affected.
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 except for Mr. Goergen, nor do we
maintain any key person life insurance policies. Also, certain of our
senior executives have assumed new positions recently. The loss of any
of the key management personnel or the inability of executives to
perform their new positions could have a material adverse effect on
the Company.
16
Part II. OTHER INFORMATION (CONTINUED)
ITEM 5. OTHER INFORMATION (CONTINUED)
Competition
Our business is highly competitive, both in terms of price and new
product introductions. The worldwide market for candles and home
fragrance products, as well as for creative expressions and
foodservice 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
candles and home fragrance products and creative expressions and
foodservice industries, 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 compete with
companies offering candles manufactured in foreign countries,
particularly China. In addition, certain 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
None
b) Reports on Form 8-K
During the fiscal quarter ended April 30, 2001, the Company filed
the following Current Reports on Form 8-K:
Current Report on Form 8-K on February 6, 2001 to file as an
exhibit the press release reporting the Company's fourth
quarter outlook for the fiscal year ended January 31, 2001.
Current Report on Form 8-K on March 20, 2001 to file as
exhibits three press releases; the first reported the
Company's results of operations for the fiscal quarter ended
January 31, 2001; the second reported the Company's outlook
for the first quarter of fiscal 2002; the third announced
the Company's senior management team reorganization.
Current Report on Form 8-K on April 2, 2001 to file as an
exhibit the press release announcing the Company's
declaration of a semi-annual dividend.
Current Report on Form 8-K on April 17, 2001 to file as an
exhibit the press release announcing the Company's
acquisition of Midwest of Cannon Falls, 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: June 13, 2001 By:/s/ Robert B. Goergen
----------------------------------- -------------------------
Robert B. Goergen
Chief Executive Officer
Date: June 13, 2001 By:/s/ Robert Barghaus
----------------------------------- --------------------------
Robert Barghaus
Chief Financial Officer
18