<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JULY 31, 1997
Commission file number 1-13026
BLYTH INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-2984916
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
100 FIELD POINT ROAD, GREENWICH, CONNECTICUT 06830
(Address of principal executive offices) (Zip Code)
(203) 661-1926
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
___________ __________
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
49,071,631 COMMON SHARES AS OF AUGUST 29, 1997.
PAGE 1 OF 18
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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 ......... 8,9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ......... 10-13
Part II. Other Information
Item 1. Legal Proceedings ........................................ 14
Item 2. Changes in Securities .................................... 14
Item 3. Defaults upon Senior Securities .......................... 14
Item 4. Submission of Matters to a Vote of Security Holders ...... 14
Item 5. Other Information ...................................... 15,16
Item 6. Exhibits and Reports on Form 8-K ......................... 17
Signatures .............................................................. 18
PAGE 2 OF 18
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Part I. FINANCIAL INFORMATION
Item I. FINANCIAL STATEMENTS
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
- ----------------------------------------------------------------------------
July 31, January 31,
(In thousands, except share data) 1997 1997
- ----------------------------------------------------------------------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,230 $ 27,832
Accounts receivable, less allowance for
doubtful receivables of $1,017 and $1,054,
respectively 36,442 40,558
Inventories (Note 3) 139,899 112,427
Prepaid expenses 1,013 323
Deferred income taxes 2,242 1,000
- ----------------------------------------------------------------------------
Total current assets 188,826 182,140
PROPERTY, PLANT AND EQUIPMENT
Less accumulated depreciation
($35,818 and $30,532, respectively) 142,185 104,850
OTHER ASSETS
Investments 5,761 4,991
Excess of cost over fair value of assets
acquired, net of accumulated amortization
of $1,907 and $1,493, respectively 11,009 11,146
Deposits 903 752
- ----------------------------------------------------------------------------
$ 348,684 $ 303,879
============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank line of credit $ 7,800 $ 4,440
Current maturities of long-term debt 655 1,985
Accounts payable 36,703 36,358
Accrued expenses 23,678 25,265
Income taxes 246 601
- ----------------------------------------------------------------------------
Total current liabilities 69,082 68,649
DEFERRED INCOME TAXES 6,000 4,900
LONG-TERM DEBT, less current maturities 61,630 38,279
EXCESS OF FAIR VALUE OVER COST OF ASSETS ACQUIRED,
NET OF ACCUMULATED AMORTIZATION OF $631 AND
$571 RESPECTIVELY 773 833
MINORITY INTEREST 1,113 1,501
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, 49,071,631 and
48,921,518, respectively 654 651
Additional contributed capital 92,155 89,522
Retained earnings 117,277 99,544
- ----------------------------------------------------------------------------
210,086 189,717
- ----------------------------------------------------------------------------
$ 348,684 $ 303,879
============================================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 3 OF 18
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BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
- ----------------------------------------------------------------------------
SIX MONTHS ENDED JULY 31 (In thousands, except per share data)
1997 1996
- ----------------------------------------------------------------------------
Net sales $ 292,769 $ 219,790
Cost of goods sold 129,572 100,288
- ----------------------------------------------------------------------------
Gross profit 163,197 119,502
Selling and Shipping 97,585 72,070
Administrative 29,314 22,873
- ----------------------------------------------------------------------------
126,899 94,943
- ----------------------------------------------------------------------------
Operating profit 36,298 24,559
Other expense (income)
Interest expense 1,999 1,584
Interest income (302) (698)
Equity in (earnings) loss of investees 90 (107)
Non-recurring transaction costs of
acquired company 5,173 -
- ----------------------------------------------------------------------------
6,960 779
- ----------------------------------------------------------------------------
Earnings before income tax expense and
minority interest 29,338 23,780
Income tax expense 11,618 9,586
- ----------------------------------------------------------------------------
Earnings before minority interest 17,720 14,194
Minority interest (13) 30
- ----------------------------------------------------------------------------
NET EARNINGS $ 17,733 $ 14,164
============================================================================
Net earnings per common and common
equivalent share $ 0.36 $ 0.29
============================================================================
Weighted average number of shares outstanding 49,523 48,473
============================================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 4 OF 18
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BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
- ----------------------------------------------------------------------------
THREE MONTHS ENDED JULY 31 (In thousands, except per share data)
1997 1996
- ----------------------------------------------------------------------------
Net sales $ 137,709 $ 107,106
Cost of goods sold 60,375 48,676
- ----------------------------------------------------------------------------
Gross profit 77,334 58,430
Selling and Shipping 46,068 35,041
Administrative 14,456 11,624
- ----------------------------------------------------------------------------
60,524 46,665
- ----------------------------------------------------------------------------
Operating profit 16,810 11,765
Other expense (income)
Interest expense 1,095 797
Interest income (76) (290)
Equity in (earnings) loss of investees 171 (26)
Non-recurring transaction costs of
acquired company 5,173 -
- ----------------------------------------------------------------------------
6,363 481
- ----------------------------------------------------------------------------
Earnings before income tax expense and
minority interest 10,447 11,284
Income tax expense 4,003 4,549
- ----------------------------------------------------------------------------
Earnings before minority interest 6,444 6,735
Minority interest 25 28
- ----------------------------------------------------------------------------
Net earnings $ 6,419 $ 6,707
============================================================================
Net earnings per common and common
equivalent share $ 0.13 $ 0.14
============================================================================
Weighted average number of shares outstanding 49,600 48,509
============================================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 5 OF 18
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<TABLE>
<CAPTION>
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
JULY 31, (In thousands, except share data)
- ----------------------------------------------------------------------------------------------------------------------------------
Additional Total
Common Stock contributed Retained Stockholders'
Shares Amount capital earnings equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JULY 31, 1996:
Balance, February 1, 1996 47,813,693 $ 639 $ 88,701 $ 51,951 $ 141,291
Net earnings for the period - - - 14,164 14,164
Common stock issued in connection with
exercise of stock options and other 91,271 2 630 - 632
------------------------------------------------------------------------------------
Balance, July 31, 1996 47,904,964 $ 641 $ 89,331 $ 66,115 $ 156,087
==================================================================================================================================
FOR THE SIX MONTHS ENDED JULY 31, 1997:
Balance, February 1, 1997 48,921,518 $ 651 $ 89,522 $ 99,544 $ 189,717
Net earnings for the period 17,733 17,733
Endar options exercised prior to
Endar acquisition 108,713 2 2,296 2,298
Common stock issued in connection with
exercise of stock options and other 41,400 1 337 - 338
------------------------------------------------------------------------------------
Balance, July 31, 1997 49,071,631 $ 654 $ 92,155 $ 117,277 $ 210,086
==================================================================================================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
PAGE 6 OF 18
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BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
- ----------------------------------------------------------------------------
SIX MONTHS ENDED JULY 31 (In thousands) 1997 1996
- ----------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 17,733 14,164
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Depreciation and amortization 5,918 4,242
Deferred income taxes (142) 500
Equity in earnings of investees 90 (107)
Minority interest (13) 30
Changes in operating assets and liabilities,
net of effect of business acquisition:
Accounts receivable 4,116 (5,120)
Inventories (27,472) (33,332)
Prepaid expenses (690) 96
Other assets (151) (109)
Accounts payable 345 6,093
Accrued expenses (1,587) 4,142
Income taxes (473) 692
- ----------------------------------------------------------------------------
Total adjustments (20,059) (22,873)
- ----------------------------------------------------------------------------
Net cash used in operating activities (2,326) (8,709)
Cash flows from investing activities:
Purchases of property, plant,
and equipment (42,827) (15,793)
Investments in investees (814) -
Purchase of businesses net of
cash acquired (652) (8,893)
- ----------------------------------------------------------------------------
Net cash used in investing activities (44,293) (24,686)
- ----------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 338 533
Borrowings from bank line of credit 30,450 7,718
Repayments on bank line of credit (27,090) (4,600)
Proceeds from issuance of long-term debt 30,000 -
Payments on long-term debt (5,681) (321)
- ----------------------------------------------------------------------------
Net cash provided by
financing activities 28,017 3,330
- ----------------------------------------------------------------------------
Net decrease in cash (18,602) (30,065)
Cash and cash equivalents at beginning of period 27,832 46,149
- ----------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 9,230 $ 16,084
============================================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 7 OF 18
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BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company, its wholly owned subsidiaries and their subsidiaries. All
significant inter-company accounts and transactions have been
eliminated. 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, 1997 and the consolidated results of its operations and cash flows
for the three and six month periods ended July 31, 1997 and 1996. In
June 1997, the Company effected a three-for-two stock split in the form
of a stock dividend. All share quantities, per share amounts and
options data have been retroactively restated to reflect the stock
split. As a result of the May 1997 pooling transaction, as described in
Note 2 below, all consolidated financial statements and related
schedules presented for the three and six month periods ended July 31,
1997 and 1996 and the year ended January 31, 1997 have been adjusted to
include the results of operations and financial position of Endar Corp.,
and all share quantities and per share amounts give effect to the Endar
acquisition. These interim statements should be read in conjunction
with the Company's consolidated financial statements for the year ended
January 31, 1997, as set forth in the Company's Form 10-K Annual Report.
Operating results for the six months ended July 31, 1997 are not
necessarily indicative of the results that may be expected for the year
ending January 31, 1998.
2. BUSINESS ACQUISITIONS
On May 20, 1997 the Company acquired Endar Corp., a manufacturer of
potpourri, scented candles and other fragrance products. The Company
issued 1,900,786 shares of its common stock as consideration. This
transaction was accounted for as a pooling of interests.
The accompanying financial statements contain information for the period
of February 1, 1997 to May 20, 1997 which was prior to the acquisition.
All such information was derived from the separate statements of the
Company and Endar. Operating revenue and net earnings for the
individual entities for the period preceding the merger was as follows:
Company Endar Combined
---------------------------------------------
PERIOD ENDED
MAY 20, 1997:
Operating revenue $196,229 $9,540 $205,769
Net earnings 14,674 (2,857) 11,817
The net earnings of Endar for the period ended May 20, 1997 include
one-time non-recurring transaction costs of $3.1 million after income
taxes.
3. INVENTORIES
The components of inventory consist of the following (in thousands):
July 31, 1997 January 31, 1997
-----------------------------------------
Finished goods $ 117,688 $ 92,156
Work in progress 2,766 3,352
Raw materials 19,445 16,919
-----------------------------------------
$ 139,899 $ 112,427
PAGE 8 OF 18
<PAGE>
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
The Company uses forward foreign exchange contracts to hedge the impact
of foreign currency fluctuations on certain committed capital
expenditures and on Canadian operations. The Company does not hold or
issue derivative financial instruments for trading purposes.
With regard to commitments for machinery and equipment in foreign
currencies, upon payment of each commitment the underlying forward
contract is closed and the corresponding gain or loss is included in the
measurement of the cost of the acquired asset. With regard to forward
exchange contracts used to hedge Canadian operations, gain or loss on
such hedges are recognized in income 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 income.
For consolidated financial statement presentation, net cash flows from
such hedges are classified in the categories of the cash flows with the
items being hedged.
PAGE 9 OF 18
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Net Sales
Net sales increased $73.0 million, or 33.2%, from $219.8 million in the
first six months of fiscal 1997 to $292.8 million in the first six
months of fiscal 1998. Net sales increased $30.6 million, or 28.6%,
from $107.1 million in the quarter ended July 31, 1996 to $137.7 million
in the quarter ended July 31, 1997. Virtually all of these increases
were attributable to unit growth in sales of the Company's consumer
everyday products, particularly scented candles and accessories. In
particular, three areas of the business experienced the highest growth
rate for the three and six months ended July 31, 1997: PartyLite Gifts,
our party plan direct seller in the United States; International,
particularly Europe and Canada; and Consumer retail sales. Several
factors contributed to the increase in unit sales. The increase in
sales to new domestic customers was attributable to improved penetration
of existing channels of distribution and to geographic expansion in the
United States, particularly by the Company's direct selling activities.
International sales, including sales in Canada, grew at a faster rate
than the Company as a whole, and accounted for approximately 29% of the
net sales increase. International sales accounted for approximately 16%
of total net sales for the six months ended July 31, 1997. The net
sales increase was partially offset by the lower than expected sales of
patio and outdoor products due to the unseasonably cool weather in the
Spring and early Summer months in the Northeast and Midwest. Although,
as indicated in the notes to the financial statements, the Company's net
sales for all periods give effect to the acquisition of Endar Corp., the
net sales of Endar did not have a material impact on the Company's net
sales.
Sales of scented candles, which are typically higher gross profit margin
products, also continued to grow at a substantially faster rate than
unscented products. Consumable products (which consist of candles,
potpourri and home fragrance products) accounted for approximately 65%
of the Company's net sales for the six months ended July 31, 1997.
Candle accessories continued to account for the balance of net sales.
Gross Profit
Gross profit increased $43.7 million, or 36.6%, from $119.5 million in
the first six months of fiscal 1997 to $163.2 million in the first six
months of fiscal 1998. Gross profit margin increased from 54.4% for the
first six months of fiscal 1997 to 55.7% for the first six months of
fiscal 1998. Gross profit increased $18.9 million, or 32.4%. from $58.4
million in the quarter ended July 31, 1996 to $77.3 million in the
quarter ended July 31, 1997. Gross profit margin increased from 54.5%
for the quarter ended July 31, 1996 to 56.1% for the quarter ended July
31, 1997. Such increases were due, in substantial part, to the
continued increased sales of the Company's products to the consumer
market, which products generally carry higher gross profit margins than
other of the Company's products, as well as to a continued shift in the
mix of the Company's products for the consumer market to a greater
percentage of higher gross profit margin products, such as scented
candles and candle accessories. In fiscal 1998, the Company experienced
cost benefits from continuing capital investments in process and
technology improvements.
Selling and Shipping Expense
Selling and shipping expense increased $25.5 million, or 35.4%, from
$72.1 million in the first six months of fiscal 1997 (32.8% of net
sales), to $97.6 million in the first six months of fiscal 1998 (33.3%
of net sales). Selling and shipping expense increased $11.1 million, or
31.7%, from $35.0 million in the quarter ended July 31, 1996 (32.7% of
net sales), to $46.1 million in the quarter ended July 31, 1997 (33.5%
of net sales). The decrease in selling and shipping expense as a
percentage of net sales was attributable to lower spending in fiscal
1998, compared to higher selling expenses in fiscal 1997 related to
fixtures and business development due to the introduction of Ambria,
Colonial Candle of Cape Cod and Mrs. Baker brands for Hallmark.
PAGE 10 OF 18
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Administrative Expense
Administrative expense increased $6.4 million, or 27.9%, from $22.9
million in the first six months of fiscal 1997 (10.4% of net sales) to
$29.3 million in the first six months of fiscal 1998 (10.0% of net
sales). Administrative expense increased $2.9 million, or 25.0%, from
$11.6 million in the quarter ended July 31, 1996 (10.8% of net sales) to
$14.5 million in the quarter ended July 31, 1997 (10.5% of net sales).
Such increases were a result of increases in personnel (from
approximately 386 administrative employees at July 31, 1996 to
approximately 483 administrative employees at July 31, 1997) and
substantially increased spending for new computer systems company-wide
which are expected to be year 2000 compliant. In connection with
anticipated growth in its consumer product sales, which generally
require somewhat greater administrative expenditures, the Company
expects further increases in administrative expenses due to expected
increases in the number of employees.
Non-recurring Transaction Costs of Acquired Company
Endar Corp. incurred one-time, non-recurring transaction costs of
approximately $5.1 million prior to its acquisition by the Company.
These one-time, non-recurring transaction costs consisted of a non-cash
exercise of options, payment of bonuses and payment of legal and
professional fees.
Interest Expense
Interest expense increased $0.4 million, or 25.0%, from $1.6 million in
the first six months of fiscal 1997 to $2.0 million in the first six
months of fiscal 1998. Interest expense increased $0.3 million, or
37.5%, from $0.8 million in the quarter ended July 31, 1996 to $1.1 in
the quarter ended July 31, 1997. Interest expense was higher primarily
due to the borrowing under the $20.0 million Elkin Term loan and $15.0
million Cumbria Term loan during fiscal 1998 as further described below.
Income Tax Expense
Income tax expense increased $2.0 million, or 20.8%, from $9.6 million
in the first six months of fiscal 1997 to $11.6 million in the first six
months of fiscal 1998. Income tax expense decreased $0.5 million, or
11.1%, from $4.5 million in the quarter ended July 31, 1996 to $4.0
million in the quarter ended July 31, 1997. The effective income tax
rate was approximately 40.0% for the first six months of fiscal 1998 and
fiscal 1997.
Net Earnings
As a result of the foregoing, net earnings increased $3.5 million, or
24.6%, from $14.2 million in the first six months of fiscal 1997 to
$17.7 million in the first six months of fiscal 1998. Net earnings
decreased $0.3 million, or 4.5%, from $6.7 million in the quarter ended
July 31, 1996 to $6.4 million in the quarter ended July 31, 1997 due to
the one-time, non-recurring transaction costs incurred by Endar prior to
the acquisition, of $3.1 million after income taxes.
Earnings per share based upon the weighted average number of shares
outstanding for the six months ended July 31, 1997 were $0.36 compared
to $0.29 for the same period last year. Earnings per share for the
quarter ended July 31, 1997 were $0.13 compared to $0.14 for the quarter
ended July 31, 1996. Earnings per share have been restated for a 3 for
2 stock split effected as a stock dividend in June 1997 and to include
the shares issued in connection with the acquisition of Endar Corp.
As a result of the aforementioned one-time, non-recurring transaction
costs incurred by Endar prior to the acquisition, earnings per share
decreased $.07 for the three and six month periods ended July 31, 1997.
PAGE 11 OF 18
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Operating assets and liabilities increased from January 31, 1997 to July
31, 1997 due to the Company's internally generated growth. Measured in
terms of number of days' worth of cost of goods sold, inventory
decreased from 199 days' worth of inventory at July 31, 1996 to 194
days' worth of inventory at July 31, 1997. When compared to January 31,
1997 inventory increased from 165 days' worth of inventory at the end of
fiscal 1997 to 194 days' worth of inventory at July 31, 1997. Inventory
increased from $112.4 million at January 31, 1997 to $139.9 million at
July 31, 1997. This increase was primarily due to the build up of
inventory to meet increased demand and maintain a high level of customer
service during the second six months of fiscal 1998. Accounts
receivable decreased $4.2 million, or 10.3%, from $40.6 million at the
end of fiscal 1997 to $36.4 million at July 31, 1997. Accounts payable
and accrued expenses decreased $1.2 million, or 1.9%, from $61.6 million
at the end of fiscal 1997 to $60.4 million at July 31, 1997. The
decrease in accounts payable and accrued expenses reflects the normal
payment pattern of operating expenses.
Capital expenditures for property, plant and equipment were $42.8
million in the first six months of fiscal 1998. The Company anticipates
total capital spending of approximately $50.0 million for fiscal 1998,
of which approximately $16.0 million will be used for the new candle
manufacturing facility in Cumbria, England, approximately $10.0 million
will be used for a new office building in Plymouth, Massachusetts and
approximately $5.0 million for the new distribution facility in Elkin,
North Carolina, with the balance of approximately $19.0 million to be
used for 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 opportunities
to acquire other companies, assets and product lines that either
complement or expand its existing business. The Company expects to
effect one or more such acquisitions in the next twelve months, although
the Company currently has no arrangements, agreements or understandings
with respect to any such acquisitions.
The Company's primary capital requirements are for working capital to
fund the increased inventory and accounts receivable to sustain the
Company's sales growth and for capital expenditures (including capital
expenditures related to planned facilities expansion). The Company is
building its inventory to meet increased demand. The Company believes
that cash on hand, cash from operations and available borrowings under
the Credit Facility described below and the $20.0 million and $15.0
million credit facilities relating to the Elkin and Cumbria plants will
be sufficient to fund its operating requirements, capital expenditures
and all other obligations for the next twelve months. However, the
Company is also evaluating the terms and conditions of a possible new
credit facility which would replace the existing facilities.
PAGE 12 OF 18
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (continued)
In August 1997, the Company extended and improved the terms of its
credit facility (the "Credit Facility") with Harris Trust and Savings
Bank ("Harris") and the Bank of America Illinois (together with Harris,
the "Banks") through November 30, 1998. Pursuant to the Credit Facility
the Banks have agreed, subject to certain conditions, to provide an
unsecured revolving credit facility to the Company in an aggregate
amount of up to $35.0 million to fund ongoing working capital
requirements, letter of credit requirements and general corporate
purposes of the Company. Amounts which may be outstanding under the
Credit Facility bear interest, at the Company's option, at Harris' prime
rate (8.50% at July 31, 1997) or at LIBOR plus 0.40%. In connection with
the Credit Facility, the Company pays a commitment fee of 0.125% per
annum on the unused portion of the revolving credit facility. The
Credit Facility contains standard covenants, including maintenance of
certain financial ratios and limitations on certain restricted payments,
including dividends. The Company does not believe that such covenants
will have a material adverse effect on its operations.
Net cash used in operating activities amounted to $2.3 million in the
first six months of fiscal 1998 compared to $8.7 million in the first
six months of fiscal 1997. At July 31, 1997, $7.8 million was
outstanding under the Credit Facility and approximately $3.4 million
face amount of letters of credit were outstanding under the Credit
Facility as of July 31, 1997.
Impact of Adoption of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement No. 128 ("SFAS 128"), "Earnings per Share," which
specifies the computation, presentation, and disclosure requirements for
earnings per share. SFAS 128, which is effective for financial
statements ending after December 15, 1997, is not expected to have a
significant impact on the Company's reported earnings per share.
Also in February 1997 the FASB issued Statement No. 129 ("SFAS 129"),
"Disclosure of Information about Capital Structure," which is effective
for periods ending after December 15, 1997. This statement establishes
standards for disclosing information about an entity's capital structure
by superseding and consolidating previously issued accounting standards.
The financial statements of the Company are prepared in accordance with
the requirements of SFAS 129.
In June 1997 the FASB issued Statement No. 130 ("SFAS 130"), "Reporting
Comprehensive Income." This statement, effective for fiscal years
beginning after December 15, 1997, would require the Company to report
components of comprehensive income in a financial statement that is
displayed with the same prominence as other financial statements.
Comprehensive income is defined by Concepts Statement No. 8, Elements of
Financial Statements as the change in equity of a business enterprise
during a period from transactions and other events and circumstances
from nonowner sources. It includes all changes in equity during a
period except those resulting from investments by owners and
distributions to owners. The Company has not yet determined its
comprehensive income, and is evaluating the effects of this
pronouncement.
Also in June 1997 the FASB issued Statement No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related Information."
This statement, effective for financial statements for periods beginning
after December 15, 1997, requires that a public business enterprise
report financial and descriptive information about its reportable
operating segments. Generally, financial information is required to be
reported on the basis that it is used internally for evaluating segment
performance and deciding how to allocate resources to segments. The
Company is evaluating the effects of this pronouncement.
PAGE 13 OF 18
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
(a), (b) None
(c) During the most recently completed fiscal quarter, the Registrant
issued an aggregate of 1,900,786 shares of Common Stock (as adjusted to give
effect to the Company's three-for-two stock split effected as a stock dividend)
to the 20 former shareholders and warrantholders of Endar Corp., which the
Company acquired on May 20, 1997 pursuant to a merger of a wholly-owned
subsidiary of the Company with and into Endar Corp., with Endar Corp. being the
surviving corporation in the merger. The issuance of Common Stock to such
shareholders and warrantholders was effected in reliance upon the exemption from
the registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), contained in Section 4(2) of the Securities Act on the basis
that the transaction did not involve any public offering.
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 4, 1997, 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 opposite his or
her name:
For Against Withheld
----------------------------------------------
Roger A. Anderson 41,617,599 0 67,391
Pamela M. Goergen 41,617,425 0 67,565
Roger H. Morley 41,617,566 0 67,424
2) A proposal to ratify the appointment of Coopers & Lybrand L.L.P.
as independent certified public accountants received 41,610,725
votes for, 61,897 votes against, and 12,368 votes withheld.
PAGE 14 OF 18
<PAGE>
Part II. OTHER INFORMATION
Item 5. Other Information
The Company is including the following cautionary statement in this
Report to make applicable, and to take advantage of, the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 for
any forward-looking statements made by, or on behalf of, the Company.
Forward-looking statements include statements concerning plans,
objectives, goals, strategies, future events or performance and
underlying assumptions and other statements which are other than
statements of historical facts. From time to time, the Company and its
representatives may publish or otherwise make available forward-looking
statements of this nature. All such forward-looking statements, whether
written or oral, and whether made by or on behalf of the Company, are
expressly qualified by the following cautionary statements.
Forward-looking statements involve risks and uncertainties which could
cause actual results or outcomes to differ materially from those
expressed in the forward- looking statements. Such forward-looking
statements are expected to be based on various assumptions, many of
which are based, in turn, upon further assumptions. There can be no
assurance that management's expectations, beliefs or projections will
occur or be achieved or accomplished. In addition to other factors and
matters discussed elsewhere in this Report and in the Company's other
public filings and statements, the following are important factors that,
in the view of the Company, could cause actual results to differ
materially from those discussed in the Company's forward- looking
statements. The Company disclaims any obligation to update any
forward-looking statements, or the following factors, to reflect events
or circumstances after the date of this Report.
Risk of Inability to Maintain Growth Rate
The Company has grown substantially in recent years. The Company expects
that its future growth will continue to be generated primarily by sales
to the faster growing consumer market, rather than the food service and
religious markets, which have grown more slowly than the consumer market
and which the Company expects will continue to do so. The Company
believes that its ability to continue to grow at a rate comparable to
its historic growth rate will depend on continuing market acceptance of
its existing products, the successful development and introduction of
new products, the increase in production and distribution capacity to
meet demand and the continued successful implementation of its strategy.
The candle industry is driven by consumer tastes. Accordingly, there can
be no assurance that the Company's existing or future products will
maintain or achieve market acceptance. Although the Company's strategy
has been successful to date, the Company expects that, as the Company
grows, it will become more difficult to maintain its growth rate. In
addition, the Company has grown in part through acquisitions and there
can be no assurance that the Company will be able to continue to
identify suitable acquisition candidates, to consummate acquisitions on
terms favorable to the Company, to finance acquisitions or successfully
to integrate acquired operations. No assurance can be given that the
Company will continue to grow at a rate comparable to its historic
growth rate.
PAGE 15 OF 18
<PAGE>
Part II. OTHER INFORMATION
Ability to Respond to Increased Product Demand
The Company's continuing and significant internal growth has
necessitated increases in personnel, expansion of its production and
distribution facilities and enhancement of its management information
systems. The Company's ability to meet future demand for its products in
a timely and efficient manner will be dependent upon its success in (1)
training, motivating and managing new employees, including a number of
new senior managers, (2) bringing new production and distribution
facilities on line in a timely manner, (3) improving management
information systems in order to continue to be able to respond promptly
to customer orders and (4) improving its ability to forecast anticipated
product demand in order to continue to fill customer orders promptly. If
the Company were unable to meet future demand for its products in a
timely and efficient manner, its operating results could be materially
adversely affected.
Risks Associated with International Sales and Foreign-Sourced Products.
The Company sources a portion of its candle accessories and decorative
gift bags (which together accounted for approximately 35% of the
Company's net sales in fiscal 1997) from independent manufacturers in
the Pacific Rim, Europe and Mexico. In addition, since 1990, the
Company's international business has grown at a faster rate than sales
in the United States. The Company is subject to the following risks
inherent in foreign sales and manufacturing: 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.
Dependence on Key Management Personnel
The Company's success depends to a significant degree upon the continued
contributions of its key management personnel, particularly its
Chairman, Chief Executive Officer and President, Robert B. Goergen. The
Company does not have employment contracts with any of its key
management personnel, nor does the Company maintain any key person life
insurance policies. The loss of any of the Company's key management
personnel could have a material adverse effect on the Company.
Competition
The Company's business is highly competitive, both in terms of price and
new product introductions. The candle and fragrance products industry 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 candle and fragrance products
industry, the Company may face increased future competition from other
companies, some of which may have substantially greater financial and
marketing resources than those available to the Company. From time to
time during the year-end holiday season, the Company experiences
competition from candles manufactured in foreign countries, particularly
China. In addition, certain of the Company's competitors focus on a
particular geographic or single-product market and attempt to gain or
maintain market share solely on the basis of price.
PAGE 16 OF 18
<PAGE>
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
11. Statement regarding computation of per share earnings.
27. Financial data schedule as of and for the period ended
July 31, 1997.
b) Reports on Form 8-K
During the fiscal quarter ended July 31, 1997, the Company filed
the following Current Reports on Form 8-K:
The Company filed a Current Report on Form 8-K on May 2, 1997 to
report information relating to the Company's change in certified
public accountants.
The Company filed a Current Report on Form 8-K on May 21, 1997
to report the Company's acquisition of Endar Corp.
The Company filed a Current Report on Form 8-K on June 3, 1997
to attach the Company's earnings release relating to the Company's
results of operations for the fiscal quarter ended April 30, 1997.
The Company filed a Current Report on Form 8-K on June 5, 1997
to report the declaration by the Company's Board of Directors
of a three-for-two stock split effected as a stock dividend.
PAGE 17 OF 18
<PAGE>
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 15, 1997 By:/s/ Robert B. Goergen
---------------------
Robert B. Goergen
Chief Executive Officer
Date: September 15, 1997 By:/s/ Howard E. Rose
------------------
Howard E. Rose
Chief Financial Officer
PAGE 18 OF 18
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE NO.
11. Statement regarding computations of N/A
per share earnings.
27. Financial data schedule as of and N/A
for the period ended July 31, 1997.
<PAGE>
EXHIBIT 11
BLYTH INDUSTRIES, INC.
COMPUTATIONS OF EARNINGS PER COMMON SHARE
(In thousands except per share data)
I. Six months ended July 31: 1997 1996
---------------------------
Average number of shares outstanding
during the period 49,045 47,975
Common equivalent shares:
Shares issuable under outstanding
options which are dilutive 1,045 854
Shares which could have been purchased
based upon the market value for the period 567 356
---------------------------
478 498
Weighted average number of common
and common equivalent shares outstanding 49,523 48,473
Net earnings $17,733 $14,164
Earnings per common and common equivalent share $ 0.36 $ 0.29
II. Three months ended July 31: 1997 1996
---------------------------
Average number of shares outstanding
during the period 49,057 47,984
Common equivalent shares:
Shares issuable under outstanding
options which are dilutive 1,091 854
Shares which could have been purchased
based upon the market value for the period 548 329
---------------------------
543 525
Weighted average number of common
and common equivalent shares outstanding 49,600 48,509
Net earnings $ 6,419 $ 6,707
Earnings per common and common equivalent share $ 0.13 $ 0.14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JULY 31, 1997 AND THE CONSOLIDATED STATEMENT OF
EARNINGS, STOCKHOLDERS' EQUITY AND CASH FLOWS FOR THE SIX MONTHS ENDED JULY 31,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JUL-31-1997
<CASH> 8,880
<SECURITIES> 350
<RECEIVABLES> 37,459
<ALLOWANCES> 1,017
<INVENTORY> 139,899
<CURRENT-ASSETS> 188,826
<PP&E> 178,003
<DEPRECIATION> 35,818
<TOTAL-ASSETS> 348,684
<CURRENT-LIABILITIES> 69,082
<BONDS> 0
0
0
<COMMON> 654
<OTHER-SE> 209,432
<TOTAL-LIABILITY-AND-EQUITY> 348,684
<SALES> 292,769
<TOTAL-REVENUES> 292,769
<CGS> 129,572
<TOTAL-COSTS> 129,572
<OTHER-EXPENSES> 126,232
<LOSS-PROVISION> 667
<INTEREST-EXPENSE> 1,999
<INCOME-PRETAX> 29,338
<INCOME-TAX> 11,618
<INCOME-CONTINUING> 17,733
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,733
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
</TABLE>
