SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 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, 1999
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.
48,489,332 COMMON SHARES AS OF AUGUST 31, 1999.
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.............. 4-5
Consolidated Statements of Stockholders' Equity.. 6
Consolidated Statements of Cash Flows............ 7
Notes to Consolidated Financial Statements....... 8-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations... 11-17
Part II. Other Information
Item 1. Legal Proceedings.................................. 18
Item 2. Changes in Securities.............................. 18
Item 3. Defaults upon Senior Securities.................... 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information................................. 18-20
Item 6. Exhibits and Reports on Form 8-K.................. 20
Signatures.......................................................... 21
PAGE 2 OF 21
Part I. FINANCIAL INFORMATION
Item I. FINANCIAL STATEMENTS
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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JULY 31, JANUARY 31,
(In thousands, except share data) 1999 1999
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ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 20,172 $ 18,571
Accounts receivable, less allowance for doubtful receivables
of $2,143 and $1,404, respectively 75,081 60,810
Inventories 234,093 169,749
Prepaid expenses 4,481 2,831
Deferred income taxes 755 600
- -------------------------------------------------------------------------------------------------------------
Total current assets 334,582 252,561
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Less accumulated depreciation of $69,994 and $58,184, respectively 252,317 236,273
OTHER ASSETS:
Investments 9,214 18,914
Excess of cost over fair value of assets acquired, net of
accumulated amortization of $5,781 and $4,446, respectively 92,614 67,534
Deposits 2,358 1,501
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Total assets $691,085 $576,783
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank lines of credit $ 52,523 $ 3,455
Current maturities of long-term debt 13,162 9,339
Accounts payable 48,237 51,336
Accrued expenses 39,780 44,074
Income taxes 119 1,197
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Total current liabilities 153,821 109,401
DEFERRED INCOME TAXES 22,362 18,978
LONG-TERM DEBT, less current maturities 178,422 114,246
EXCESS OF FAIR VALUE OVER COST OF ASSETS ACQUIRED, net of
accumulated amortization of $871 and $811, respectively 533 593
MINORITY INTEREST 822 11,533
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, 49,221,632 and 49,200,474, respectively 984 984
Additional contributed capital 93,557 93,281
Retained earnings 262,962 227,995
Treasury stock, at cost, 734,700 shares and 10,000 shares, respectively (17,449) (228)
Accumulated other comprehensive loss (4,929) -
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Total stockholders' equity 335,125 322,032
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Total liabilities and stockholders' equity $691,085 $576,783
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 3 OF 21
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
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SIX MONTHS ENDED JULY 31 (In thousands, except per share data)
1999 1998
- -------------------------------------------------------------------------------------------------------------
Net sales $474,136 $382,041
Cost of goods sold 201,991 158,842
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Gross profit 272,145 223,199
Selling and shipping 163,790 135,132
Administrative 44,399 38,748
Amortization of goodwill 1,275 1,018
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209,464 174,898
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Operating profit 62,681 48,301
Other expense (income):
Interest expense 4,376 3,368
Interest income (184) (124)
Equity in earnings of investees 1,276 202
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5,468 3,446
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Earnings before income taxes and minority interest 57,213 44,855
Income tax expense 21,970 17,623
- -------------------------------------------------------------------------------------------------------------
Earnings before minority interest 35,243 27,232
Minority interest 276 (165)
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Net earnings $ 34,967 $ 27,397
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Basic: Net earnings per common share $ 0.72 $ 0.56
Weighted average number of shares outstanding 48,714 49,144
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Diluted: Net earnings per common share $ 0.71 $ 0.55
Weighted average number of shares outstanding 49,076 49,643
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
PAGE 4 OF 21
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JULY 31 (In thousands, except per share data)
1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Net sales $229,863 $ 181,011
Cost of goods sold 98,198 76,235
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Gross profit 131,665 104,776
Selling and shipping 78,405 62,768
Administrative 22,535 18,906
Amortization of goodwill 639 511
- ----------------------------------------------------------------------------------------------------------------------------
101,579 82,185
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Operating profit 30,086 22,591
Other expense (income):
Interest expense 2,492 1,645
Interest income (64) (68)
Equity in earnings of investees 863 162
- ----------------------------------------------------------------------------------------------------------------------------
3,291 1,739
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Earnings before income taxes and minority interest 26,795 20,852
Income tax expense 10,287 8,195
- ----------------------------------------------------------------------------------------------------------------------------
Earnings before minority interest 16,508 12,657
Minority interest 78 (68)
- ----------------------------------------------------------------------------------------------------------------------------
Net earnings $ 16,430 $ 12,725
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Basic: Net earnings per common share $ 0.34 $ 0.26
Weighted average number of shares outstanding 48,488 49,173
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Diluted: Net earnings per common share $ 0.34 $ 0.26
Weighted average number of shares outstanding 48,893 49,653
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 5 of 21
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------
JULY 31, (In thousands, except share data)
- -----------------------------------------------------------------------------------------------------------------------
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
------------------- CONTRIBUTED RETAINED TREASURY COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS STOCK LOSS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JULY 31, 1998
Balance, January 31, 1998 49,100,953 $ 982 $ 92,357 $ 153,493 $ - $ - $ 246,832
Net earnings for the period - - - 27,397 - - 27,397
Common stock issued in connection with
exercise of stock options 82,323 2 575 - - - 577
---------------------------------------------------------------------------------------
Balance, July 31, 1998 49,183,276 $ 984 $ 92,932 $ 180,890 $ - $ - $ 274,806
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- ------------------------------------------------------------------------------------------------------------------------------------
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 (4,929) 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
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 6 of 21
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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SIX MONTHS ENDED JULY 31 (In thousands) 1999 1998
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Cash flows from operating activities:
Net earnings $ 34,967 $ 27,397
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 13,085 9,614
Deferred income taxes 201 1,997
Equity in earnings of investees 1,276 202
Minority interest 276 (165)
Changes in operating assets and liabilities, net of effect of business
acquisitions:
Accounts receivable (5,785) 3,520
Inventories (47,625) (26,035)
Prepaid expenses (704) (306)
Deposits 235 (3)
Accounts payable (9,499) (1,529)
Accrued expenses (9,545) (2,159)
Income taxes (1,145) (1,015)
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Total adjustments (59,230) (15,879)
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Net cash provided by (used in) operating activities (24,263) 11,518
Cash flows from investing activities:
Purchases of property, plant and equipment (11,225) (14,624)
Net decrease in long term investments 674 -
Purchase of businesses, net of cash acquired (38,922) (788)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (49,473) (15,412)
Cash flows from financing activities:
Proceeds from issuance of common stock 276 577
Purchase of treasury stock (17,221) -
Borrowings from bank line of credit 287,356 212,600
Repayments on bank line of credit (255,000) (218,810)
Borrowings on long-term debt 59,926 453
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Net cash provided by (used in) financing activities 75,337 (5,180)
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Net increase (decrease) in cash and cash equivalents 1,601 (9,074)
Cash and cash equivalents at beginning of period 18,571 21,273
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Cash and cash equivalents at end of period $ 20,172 $ 12,199
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 7 of 21
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The Company, which operates in a single category, home fragrance
products, designs, manufactures, markets and distributes an extensive
line of home fragrance products including scented candles, outdoor
citronella candles, potpourri and environmental fragrance products and
markets a broad range of related candle accessories and decorative gift
bags and tags.
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.
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, 1999 and the consolidated results of its
operations and cash flows for the six month period ended July 31, 1999
and 1998. These interim statements should be read in conjunction with
the Company's consolidated financial statements for the year ended
January 31, 1999, as set forth in the Company's Annual Report on Form
10-K. Operating results for the six months ended July 31, 1999 are not
necessarily indicative of the results that may be expected for the year
ending January 31, 2000.
2. BUSINESS ACQUISITIONS
In May 1999, the Company acquired the remaining 50% of Colony Gift
Corporation Ltd., a U.K. candle manufacturer, for approximately $10.0
million in cash. The excess of the purchase price over the estimated
fair value of assets acquired approximated $8.0 million and is being
amortized over 15 years.
In June 1999, the Company acquired additional Class A and Class B
common shares of Liljeholmens Stearinfabriks AB ("Liljeholmens"),
through a tender offer for approximately $28.3 million in cash. As a
result, the Company has increased its economic ownership percentage in
Liljeholmens to approximately 99% from approximately 39%. The Company
is currently in the process of acquiring the remaining 1% economic
interest in Liljeholmens through a compulsory purchase procedure
pursuant to Swedish law. The excess of the purchase price over the
estimated fair value of assets acquired from this additional investment
approximated $15.9 million and is being amortized over 40 years.
3. INVENTORIES
The components of inventory consist of the following (in thousands):
JULY 31, 1999 JANUARY 31, 1999
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Raw materials $ 40,809 $ 34,807
Work in process 4,632 2,658
Finished goods 188,652 132,284
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$234,093 $169,749
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PAGE 8 OF 21
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. 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,
1999 1999 1998 1998
- ---------------------------------------------------------------------------------------------------------------------
Net earnings $ 16,430 $ 34,967 $ 12,725 $ 27,397
- ---------------------------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding:
Basic 48,488 48,714 49,173 49,144
Dilutive effect of stock options 405 362 480 499
- ---------------------------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding:
Diluted 48,893 49,076 49,653 49,643
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5. STOCK REPURCHASE PLAN
On September 10, 1998, the Company's Board of Directors authorized the
Company to repurchase up to 1,000,000 shares of its common stock and on
June 8, 1999 it authorized the repurchase of up to an additional
1,000,000 shares. As of August 31, 1999, the Company had purchased on
the open market 734,700 common shares for a total cost of approximately
$17.5 million. The acquired shares are held as common stock in
treasury.
6. SEGMENT INFORMATION
The Company operates in a single category, home fragrance products. The
Company designs, manufactures, markets and distributes an extensive
line of home fragrance products including scented candles, outdoor
citronella candles, potpourri and environmental fragrance products.
Closely complementing these products are a broad range of candle
accessories and decorative gift bags and tags. The Company has
operations outside of the United States and sells its products
worldwide.
PAGE 9 of 21
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. SEGMENT INFORMATION (CONTINUED)
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. This data is presented in accordance with
FASB No. 131 "Disclosures about Segments of an Enterprise and Related
Information," which the Company has adopted for all periods presented.
THREE MONTHS ENDED JULY 31, SIX MONTHS ENDED JULY 31,
----------------------------------- ----------------------------------
(In thousands) 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Net Sales:
United States $ 181,924 $ 147,779 $ 363,697 $ 314,048
International(1)(2) 47,939 33,232 110,439 67,993
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Total $ 229,863 $ 181,011 $ 474,136 $ 382,041
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THREE MONTHS ENDED JULY 31, SIX MONTHS ENDED JULY 31,
----------------------------------- ----------------------------------
(In thousands) 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Net Earnings:
United States $ 14,081 $ 10,913 $ 29,563 $ 23,911
International(1)(2) 2,349 1,812 5,404 3,486
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Total $ 16,430 $ 12,725 $ 34,967 $ 27,397
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JULY 31, JANUARY 31,
(In thousands) 1999 1999
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Long-Lived Assets:
United States $ 257,870 $ 240,251
International(2) 96,273 82,470
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Total $ 354,143 $ 322,721
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(1) Due to the purchase of approximately 79% of the voting interest and 39%
economic interest of Liljeholmens in December 1998, the current year's net
sales include 100% of Liljeholmens' sales while the current year's net
earnings include only 39% of Liljeholmens' earnings.
(2) No individual country repesents a material amount of net sales, net earnings
or long-lived assets.
PAGE 10 of 21
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
NET SALES
Net sales increased $92.1 million, or 24.1%, to $474.1 million in the
first six months of fiscal 2000 from $382.0 million in the first six
months of fiscal 1999. Net sales in the second quarter ended July 31,
1999, increased $48.9 million, or 27.0%, to $229.9 million compared
with $181.0 million a year earlier. Most all of this increase was
attributable to unit sales growth in sales of the Company's everyday
products, particularly scented candles and candle accessories, which
was primarily a result of strong sales of new products introduced in
the last fiscal year and growth of the Company's direct selling channel
worldwide. The inclusion of Liljeholmens' sales since the beginning of
the fiscal year has also contributed to the increase in sales (when
compared to the same period in the prior year), by approximately 8.7%
for the first six months.
GROSS PROFIT
Gross profit increased $48.9 million, or 21.9%, from $223.2 million in
the first six months of fiscal 1999 to $272.1 million in the first six
months of fiscal 2000. Gross profit margin decreased from 58.4% for the
first six months of fiscal 1999 to 57.4% for the first six months of
fiscal 2000. Gross profit in the second quarter ended July 31, 1999
increased $26.9 million, or 25.7%, from $104.8 million for the quarter
ended July 31, 1998 to $131.7 million. Gross profit margin decreased
from 57.9% for the quarter ended July 31, 1998 to 57.3% for the quarter
ended July 31, 1999. The gross profit as a percentage of net sales was
negatively impacted by the inclusion of Liljeholmens, which has a lower
gross profit percentage than the rest of the Company. Before including
Liljeholmens, gross profit as a percentage of net sales in the second
quarter increased compared to the same period a year ago. The increase
in gross profits before the inclusion of Liljeholmens in the second
quarter of fiscal 2000 resulted from a relatively higher sales growth
of premium priced products in the United States. In addition, the
Company continues to benefit from the capital investments made over the
last several years in manufacturing and distribution, as well as cost
savings in product sourcing.
SELLING AND SHIPPING EXPENSE
Selling and shipping expense increased $28.7 million, or 21.2%, from
$135.1 million in the first six months of fiscal 1999 (35.4% of net
sales), to $163.8 million in the first six months of fiscal 2000 (34.5%
of net sales). Selling and shipping expense increased $15.6 million, or
24.8%, from $62.8 million in the quarter ended July 31, 1998 (34.7% of
net sales), to $78.4 million in the quarter ended July 31, 1999 (34.1%
of net sales). The decreases in selling and shipping expense as a
percentage of net sales were attributable to the inclusion of
Liljeholmens which incurs relatively lower selling and shipping
expenses as a percentage of net sales, and overall percentage decreases
in other areas of the Company.
ADMINISTRATIVE EXPENSE
Administrative expense increased $5.7 million, or 14.7%, from $38.7
million in the first six months of fiscal 1999 (10.1% of net sales) to
$44.4 million in the first six months of fiscal 2000 (9.4% of net
sales). Administrative expense increased $3.6 million, or 19.0%, from
$18.9 million in the quarter ended July 31, 1998 (10.4% of net sales)
to $22.5 million in the quarter ended July 31, 1999 (9.8% of net
sales). Administrative expenses as a percentage of sales declined
versus the same period last year for two main reasons: the economies of
scale (the ability to spread administrative expense over a larger net
sales base); and the inclusion of Liljeholmens (which experiences
relatively lower administrative expense as a percentage of sales).
PAGE 11 OF 21
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: (CONTINUED)
INTEREST EXPENSE
Interest expense increased $1.0 million, or 29.4%, from $3.4 million in
the first six months of fiscal 1999 to $4.4 million in the first six
months of fiscal 2000. Interest expense increased $.9 million, or
56.3%, from $1.6 million in the quarter ended July 31, 1998 to $2.5
million in the quarter ended July 31, 1999. The increase in interest
expense is primarily attributable to borrowings to fund the
acquisitions of Liljeholmens and Colony Gifts as well as debt assumed
as part of these acquired companies.
INCOME TAXES
Income tax expense increased $4.4 million, or 25.0%, from $17.6 million
in the first six months of fiscal 1999 to $22.0 million in the first
six months of fiscal 2000. Income tax expense increased $2.1 million,
or 25.6%, from $8.2 million in the quarter ended July 31, 1998 to $10.3
million in the quarter ended July 31, 1999. The effective income tax
rate decreased from approximately 39.3% in the quarter ended July 31,
1998 to approximately 38.4% in the quarter ended July 31, 1999 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 $7.6 million, or
27.7%, from $27.4 million for the six months ended July 31, 1998 to
$35.0 million for the six months ended July 31, 1999. Net earnings
increased $3.7 million, or 29.1%, from $12.7 million in the quarter
ended July 31, 1998 to $16.4 million in the quarter ended July 31,
1999.
Basic earnings per share based upon the weighted average number of
shares outstanding for the six months ended July 31, 1999 increased
$0.16 or 28.6%, to $0.72 compared to $0.56 for the six months ended
July 31, 1998. Basic earnings per share based upon the weighted average
number of shares outstanding for the quarter ended July 31, 1999
increased $0.08, or 30.8%, to $0.34 compared to $0.26 for the quarter
ended July 31, 1998. Diluted earnings per share based upon the
potential dilution that could occur if options to issue Common Stock
were exercised or converted were $0.71 for the six months ended July
31, 1999 compared to $0.55 for the same period last year, an increase
of $0.16, or 29.1%. Diluted earnings per share based upon the potential
dilution that could occur if options to issue Common Stock were
exercised or converted were $0.34 for the quarter ended July 31, 1999
compared to $0.26 for the same period last year, an increase of $0.08
or 30.8%.
LIQUIDITY AND CAPITAL RESOURCES
Inventory increased from $169.7 million at January 31, 1999 to $234.1
million at July 31, 1999. The increase was due primarily to the
inclusion of inventory acquired from Liljeholmens and Colony Gift and
to meet anticipated demand. Accounts receivable increased $14.3
million, or 23.5% from $60.8 million at the end of fiscal 1999 to $75.1
million at July 31, 1999 which reflects the sales growth of the
Company. Accounts receivable also increased due to the inclusion of
Liljeholmens and Colony Gifts. Accounts payable and accrued expenses
decreased $7.4 million, or 7.8%, from $95.4 million at the end of
fiscal 1999 to $88.0 million at July 31, 1999. The decrease in accounts
payable and accrued expenses is attributable to normal payment patterns
of operating expenses.
PAGE 12 of 21
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Capital expenditures for property, plant and equipment were $11.2
million in the six months ended July 31, 1999. Capital expenditures
were primarily investments in a new distribution center in the
Netherlands, new equipment and improvements to existing plant and
equipment. The Company anticipates capital spending of approximately
$55.0 - $60.0 million for fiscal 2000, of which approximately $5.0
million has been used for the new distribution facility, with the
balance to be used primarily for increased manufacturing and
distribution capacity, upgrades to machinery and equipment in existing
facilities, and computer hardware and software.
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. 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 its
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 and for capital expenditures
(including capital expenditures related to planned facilities
expansion). The Company believes that cash on hand, cash from
operations and available borrowings under the Credit Facility and lines
of credit described below, will be sufficient to fund its operating
requirements, capital expenditures, the Company's stock repurchase
program and all other obligations for the next twelve months.
Pursuant to the Company's revolving credit facility ("Credit
Facility"), which matures on October 17, 2002, the 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 $140.0 million and to provide, under certain circumstances, an
additional $35.0 million. Amounts outstanding under the Credit Facility
bear interest, at the Company's option, at Bank of America's prime rate
(8.0% at July 31, 1999) 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 5.39% at July 31, 1999.
At July 31, 1999, $138.5 million (including outstanding letters of
credit) was outstanding under the Credit Facility.
In August 1999 and January 1999 the Company entered into agreements
with three banks to provide uncommitted one year lines of credit with
total available borrowing of $70.0 million. Borrowings under the
agreements bear interest, at the Company's option, at short term fixed
rates, at the banks' prime rate (8.0% at July 31, 1999) or at the
Eurocurrency rate plus a credit spread, for a weighted average interest
rate of approximately 5.47% at July 31, 1999. There was $22.9 million
outstanding under the uncommitted lines of credit at July 31, 1999.
Liljeholmens has a line of credit which is renewed annually, with
available borrowing of approximately $31.0 million. As of June 30,
1999, Liljeholmens had borrowings under the line of credit of
approximately $13.4 million. Amounts outstanding under the line of
credit bear interest of 3.59% at June 30, 1999.
PAGE 13 of 21
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
At June 30, 1999, 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, 1999
under the loan agreements was approximately $27.1 million with interest
rates ranging from 2.75% to 8.46%, of which $15.9 million relates to
the credit facility. The loans are collateralized by certain of
Liljeholmens' real estate and by a pledge of Liljeholmens' shares in
its subsidiaries.
Colony Gift Corporation Ltd. ("Colony"), has a revolving credit
facility with Barclays Bank ("Barclays"), which matures on May 20,
2000, pursuant to which Barclays has agreed to provide a revolving
credit facility in an amount up to L16.0 million, secured by certain of
Colony's assets. As of June 30, 1999, Colony had borrowings under the
credit facility of L10.2 million ($16.3 million at the June 30, 1999
exchange rate), at a weighted average interest rate of 5.79%.
Net cash used in operating activities amounted to $24.3 million for the
six months ended July 31, 1999 compared to $11.5 million provided by
operating activities for the six months ended July 31, 1998 when timing
fluctuations favorably impacted working capital levels.
In May 1999, the Company filed a shelf registration statement for up to
$250 million in debt securities with the Securities and Exchange
Commission. The proceeds of any offering will be used for general
corporate purposes, including the repayment of existing floating rate
debt, acquisitions, long-term investments, capital expenditures, and
growth-related working capital needs. As of the date hereof, no
issuance has occurred.
On June 8, 1999, 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 2,000,000 shares. As
of August 31, 1999, the Company had purchased 734,700 shares for a
total cost of approximately $17.5 million.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
As of July 31, 1999, the Company is subject to interest rate risk on
approximately $204.7 million, of variable rate debt, including
Liljeholmens and Colony. The majority of the Company's variable rate
debt, approximately $159.1 million at July 31, 1999, bears interest at
the Bank of America prime rate (8.0% at July 31, 1999) or at the
Eurocurrency rate plus a credit spread ranging from 0.25% to 0.50%.
Each 1.00% increase in the interest rate would impact pre-tax earnings
by approximately $2.05 million 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 and Canadian intercompany payables. The Company does not
hold or issue derivative financial instruments for trading purposes.
PAGE 14 of 21
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOREIGN CURRENCY RISK (CONTINUED)
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. 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, 1999.
U.S. DOLLAR AVERAGE
(In thousands, except average contract rate) NOTIONAL CONTRACT ESTIMATED
AMOUNT RATE FAIR VALUE
- ----------------------------------------------------------------------------------------------
Canadian Dollar $ 9,440 1.48 $ 128
Euro 2,607 1.06 44
- ----------------------------------------------------------------------------------------------
$ 12,047 $ 172
- ----------------------------------------------------------------------------------------------
The foreign exchange contracts outstanding as of July 31, 1999 have
maturity dates ranging from August 1999 through December 1999.
IMPACT OF ADOPTION OF RECENTLY ISSUED ACCOUNTING STANDARDS
On June 15, 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities". FASB No. 133 is
effective for all fiscal years beginning after June 15, 2000. FASB No.
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 FASB No. 133 will not have a significant effect on the
Company's results of operations or its financial position.
YEAR 2000 COMPLIANCE
The "Year 2000 Issue" is the result of computer programs that were
written using two digits rather than four digits to define the
applicable year. If the Company's computer programs with date-sensitive
functions are not Year 2000 compliant, they may recognize a date using
"00" as the Year 1900 rather than the Year 2000. This could result in
miscalculations, malfunctions or disruptions when attempting to process
information containing dates that fall after December 31, 1999 or other
dates which could cause computer malfunctions.
PAGE 15 of 21
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 COMPLIANCE (CONTINUED)
Recognizing the importance of the "Year 2000 Issue" the Company began
developing a Year 2000 compliance plan in fiscal 1997. The Company's
efforts have been focused on the elements that are believed to be
critical to business operations ("mission critical"), which includes:
(a) an assessment, and where needed, a remediation, of both information
technology ("IT") and non-IT elements of its business information,
computing, telecommunications, and process control systems, (b) an
assessment, and remediation, as necessary, of equipment with embedded
chips, and (c) an evaluation of the Company's relationships with
significant product and services providers and major customers ("key
business partners").
The compliance plan contains five components as follows: (1) Internal
assessment - a detailed evaluation of the potential Year 2000 effects
on the Company's IT and non-IT systems and on its equipment with
embedded computer chips, (2) Remediation - corrective action including
code enhancements, hardware and software upgrades, system replacements,
vendor certification, equipment repair or replacement, and other
associated changes to achieve Year 2000 compliance, (3) Testing - the
verification that remediation actions are effective and that systems
currently deemed compliant in fact are compliant, (4) Third party
evaluation - an evaluation of the Year 2000 readiness of key suppliers
of goods and services and of key customers, and (5) Contingency
planning - the development of detailed procedures to be put in place
should the Company or key business partners experience a significant
Year 2000 problem. Although we believe the above is a sound plan, there
can be no assurances that this process will identify or remediate all
of the existing Year 2000 exposures.
The assessment phase is complete on currently installed products. The
remediation process is complete on critical IT and non-IT systems, and
the Company presently believes that remediation and testing of
remaining systems is complete in all material respects. The testing
phase, which is done in most instances using simulated data, was
completed in all material respects on critical IT and non-IT systems,
as of August 31, 1999.
The third party evaluation phase is underway with the Company having
identified its key business partners. The Company is in the process of
ascertaining their stage of Year 2000 readiness through questionnaires,
interviews, on-site visits, and other available means. However, the
actual readiness of these third parties is beyond the Company's
control; therefore, there can be no assurances that significant
deficiencies do not exist amongst such third parties. The Company
expects that this phase will be complete in all material respects by
September 30, 1999, but it anticipates having to follow-up on
non-compliant responses thereafter.
If needed modifications and conversions of computer systems are not
made on a timely basis by the Company or its key business partners, the
Company could be affected by business disruption, operational problems,
and financial loss, any of which could have a material adverse effect
on the Company's results of operations and consolidated financial
position.
Although not anticipated, the most reasonably likely worst case
scenario of failure by the Company or its key business partners to
resolve the Year 2000 issue would be a short-term slowdown or cessation
of manufacturing operations at one or more of the Company's facilities,
and a short-term inability on the part of the Company to process orders
and billings in a timely manner and to deliver product to customers in
a timely manner.
PAGE 16 of 21
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 COMPLIANCE (CONTINUED)
In addition to the readiness measures described above, the Company
intends to mitigate, through the development of contingency plans as
deemed appropriate, the possible disruption in business operations that
may result from the Year 2000 issue. Contingency plans may include
stockpiling raw materials, increasing finished goods inventory levels,
securing alternate sources of supply, and other appropriate measures.
Once developed, contingency plans and related cost estimates will be
continually refined as additional information becomes available.
Contingency plans currently in development are expected to be completed
in all material respects, by the end of September, 1999.
It is currently estimated that the aggregate cost of the Company's Year
2000 compliance efforts will be approximately $3.0 million, of which
approximately $2.3 million has been spent. These costs are being
expensed as they are incurred except for costs associated with the
replacement of computerized systems, hardware or equipment,
substantially all of which will be capitalized, and are being funded
through operating cash flow. These amounts do not include any costs
associated with the implementation of contingency plans, but such
contingency plan costs are not expected to be significant. The Company
anticipates that substantially all of the costs associated with the
Company's Year 2000 compliance efforts will be expensed. The costs
associated with the Company's Year 2000 compliance efforts are not
expected to be material in relation to the Company's IT budget, and
such efforts are not expected to have a material effect upon the
Company's other IT projects.
While the Company does not expect that it will have any need to obtain
independent verification of its risk or cost estimates, it should be
recognized that the risk and cost estimates herein constitute
forward-looking statements and are based solely on management's best
estimates of future events. The Company's Year 2000 compliance plan is
an ongoing process and the estimates of costs and completion dates for
various components of the Year 2000 compliance plan described above are
subject to change; therefore actual costs could vary significantly from
those currently anticipated and there can be no guarantees regarding
the timing or effectiveness of plan completion.
PAGE 17 OF 21
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 8, 1999, 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
- ----------------------- -----------------------------------------------------
John W. Burkhart 41,450,511 0 204,391
John E. Preschlack 41,459,771 0 195,131
Frederick H. Stephens, Jr. 41,456,171 0 198,731
2) A proposal to ratify the appointment of PricewaterhouseCoopers LLP
as independent certified public accountants received 41,490,993
votes for, 129,025 votes against, and 34,884 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.
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.
PAGE 18 OF 21
Part II. OTHER INFORMATION (CONTINUED)
ITEM 5. OTHER INFORMATION (CONTINUED)
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 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.
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 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.
PAGE 19 OF 21
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 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
4.1 Amended and Restated 1994 Employee Stock Option Plan of
the Company (to be incorporated by reference into the
Company's Registration Statements on Form S-8, Reg. Nos.
33-91954 and 333-50011, which are hereby amended by the
inclusion of such exhibit).
27. Financial data schedule
b) Reports on Form 8-K
During the fiscal quarter ended July 31, 1999, the Company filed
the following Current Report on Form 8-K:
The Company filed a Current Report on Form 8-K on May 28,
1999 to file as an exhibit the press release announcing
the Company's results of operations for the fiscal
quarter ended April 30, 1999.
PAGE 20 OF 21
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: SEPTEMBER 13, 1999 By: /S/ ROBERT B. GOERGEN
-------------------- -----------------------
Robert B. Goergen
Chief Executive Officer
Date: SEPTEMBER 13, 1999 By: /S/ RICHARD T. BROWNING
-------------------- -----------------------
Richard T. Browning
Chief Financial Officer
PAGE 21 OF 21
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE NO.
- ------- ----------- --------
4.1 Amended and Restated 1994 Employee Stock Option Plan N/A
of the Company (to be incorporated by reference into
the Company's Registration Statements on Form S-8,
Reg. Nos. 33-91954 and 333-50011, which are hereby
amended by the inclusion of such exhibit).
27. Financial data schedule N/A