<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 OCTOBER 31, 1998
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.
49,187,376 COMMON SHARES AS OF NOVEMBER 30, 1998.
PAGE 1 OF 19
<PAGE>
BLYTH INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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..........10-15
Part II. Other Information
Item 1. Legal Proceedings...........................................16
Item 2. Changes in Securities.......................................16
Item 3. Defaults upon Senior Securities.............................16
Item 4. Submission of Matters to a Vote of Security Holders.........16
Item 5. Other Information........................................16,17
Item 6. Exhibits and Reports on Form 8-K............................18
Signatures....................................................................19
</TABLE>
PAGE 2 OF 19
<PAGE>
Part I. FINANCIAL INFORMATION
Item I. FINANCIAL STATEMENTS
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
OCTOBER 31, JANUARY 31,
(In thousands, except share data) 1998 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 11,420 $ 21,273
Accounts receivable, less allowance for doubtful receivables
of $1,710 and $1,353, respectively 86,327 51,980
Inventories (Note 3) 152,536 135,524
Prepaid expenses 1,367 612
Deferred income taxes 1,700 2,442
- ---------------------------------------------------------------------------------------------------------------------------------
Total current assets 253,350 211,831
PROPERTY, PLANT AND EQUIPMENT:
Less accumulated depreciation ($54,869 and $41,749, respectively) 187,118 170,710
OTHER ASSETS:
Investment 12,870 6,438
Excess of cost over fair value of assets acquired, net of
accumulated amortization of $3,930 and $2,417, respectively 56,226 57,419
Deposits 1,038 992
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $ 510,602 $ 447,390
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 5,634 $ 1,013
Accounts payable 39,578 39,138
Accrued expenses 32,763 29,574
Income taxes 7,100 2,005
- ---------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 85,075 71,730
DEFERRED INCOME TAXES 8,787 7,100
LONG-TERM DEBT, less current maturities 116,046 119,617
EXCESS OF FAIR VALUE OVER COST OF ASSETS ACQUIRED, net of
accumulated amortization of $781 and $691, respectively 623 713
MINORITY INTEREST 913 1,398
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Preferred stock, authorized 10,000,000 shares of $0.01
par value; no shares issued and outstanding -- --
Common stock, authorized 100,000,000 shares of $0.02
par value; issued and outstanding, including shares in treasury, 49,188,376
and 49,100,953, respectively 984 982
Additional contributed capital 92,980 92,357
Retained earnings 205,422 153,493
Treasury stock, at cost, 10,000 shares and 0 shares, respectively (228) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 299,158 246,832
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 510,602 $ 447,390
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 3 OF 19
<PAGE>
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED OCTOBER 31 (In thousands, except per share data)
1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 622,807 $ 485,226
Cost of goods sold 265,234 215,424
- -------------------------------------------------------------------------------------------------------------------------------
Gross profit 357,573 269,802
Selling and shipping 209,281 156,369
Administrative 56,441 42,971
Amortization of goodwill 1,531 636
- -------------------------------------------------------------------------------------------------------------------------------
267,253 199,976
- -------------------------------------------------------------------------------------------------------------------------------
Operating profit 90,320 69,826
Other expense (income)
Interest expense 5,221 3,577
Interest income (255) (486)
Equity in earnings of investee (106) (367)
Non-recurring transaction costs of acquired company -- 5,173
- -------------------------------------------------------------------------------------------------------------------------------
4,860 7,897
- -------------------------------------------------------------------------------------------------------------------------------
Earnings before income tax expense and minority interest 85,460 61,929
Income tax expense 33,546 24,316
- -------------------------------------------------------------------------------------------------------------------------------
Earnings before minority interest 51,914 37,613
Minority interest (15) 254
- -------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 51,929 $ 37,359
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Basic:
Net earnings per common share (1) $ 1.06 $ 0.76
Weighted average number of shares outsanding 49,158 49,054
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Diluted:
Net earnings per common share (1) $ 1.05 $ 0.75
Weighted average number of shares outstanding 49,652 49,544
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
(1) SEE NOTE 2 AND NOTE 4 TO THE CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 4 OF 19
<PAGE>
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED OCTOBER 31 (In thousands, except per share data)
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 240,766 $ 192,457
Cost of goods sold 106,392 85,852
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 134,374 106,605
Selling and shipping 74,149 58,784
Administrative 17,693 14,081
Amortization of goodwill 513 212
- ------------------------------------------------------------------------------------------------------------------------------------
92,355 73,077
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit 42,019 33,528
Other expense (income)
Interest expense 1,853 1,578
Interest income (131) (184)
Equity in earnings of investee (308) (457)
- ------------------------------------------------------------------------------------------------------------------------------------
1,414 937
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before income tax expense and minority interest 40,605 32,591
Income tax expense 15,923 12,698
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before minority interest 24,682 19,893
Minority interest 150 267
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 24,532 $ 19,626
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Basic:
Net earnings per common share (1) $ 0.50 $ 0.40
Weighted average number of shares outsanding 49,186 49,074
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted:
Net earnings per common share (1) $ 0.49 $ 0.40
Weighted average number of shares outstanding 49,610 49,590
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
(1) SEE NOTE 4 TO THE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 5 OF 19
<PAGE>
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
OCTOBER 31, (In thousands, except share data)
ADDITIONAL TOTAL
COMMON STOCK CONTRIBUTED RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE NINE MONTHS ENDED OCTOBER 31, 1997:
Balance, February 1, 1997 48,921,518 $ 651 $ 89,522 $ 99,230 $ -- $ 189,403
Net earnings for the period -- -- -- 37,359 37,359
Common stock issued in connection with 3 for 2
stock split in the form of a dividend -- 327 -- (327) --
Endar options exercised prior to Endar acquisition 108,713 2 2,296 -- 2,298
Common stock issued in connection with
exercise of stock options 47,400 1 357 -- 358
----------------------------------------------------------------------------
Balance, October 31, 1997 49,077,631 $ 981 $ 92,175 $ 136,262 $ -- $ 229,418
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED OCTOBER 31, 1998:
Balance, February 1, 1998 49,100,953 $ 982 $ 92,357 $ 153,493 $ -- $ 246,832
Net earnings for the period 51,929 51,929
Common stock issued in connection with
exercise of stock options 87,423 2 623 625
Treasury stock purchase (10,000) (228) (228)
----------------------------------------------------------------------------
Balance, October 31, 1998 49,178,376 $ 984 $ 92,980 $ 205,422 $ (228) $ 299,158
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 6 OF 19
<PAGE>
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED OCTOBER 31 (In thousands) 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 51,929 $ 37,359
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 14,650 9,194
Deferred income taxes 2,429 308
Equity in earnings of investee (106) (367)
Minority interest (15) 254
Changes in operating assets and liabilities, net of effect of
business acquisition:
Accounts receivable (34,347) (32,621)
Inventories (17,012) (24,473)
Prepaid expenses (755) (66)
Other assets (46) (338)
Accounts payable 440 (1,032)
Accrued expenses 3,189 6,023
Income taxes 5,095 2,802
- -------------------------------------------------------------------------------------------------------------------------
Total adjustments (26,478) (40,316)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 25,451 (2,957)
Cash flows from investing activities:
Purchases of property, plant, and equipment (29,529) (58,646)
Investments in investee (6,434) (814)
Purchase of businesses, net of cash acquired (788) (15,652)
- -------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (36,751) (75,112)
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 625 358
Purchase of treasury stock (228) 0
Borrowings from bank lines of credit 374,643 81,500
Repayments on bank lines of credit (374,710) (85,940)
Proceeds from issuance of long-term debt -- 75,467
Borrowings (payments) on long-term debt 1,117 (4,904)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,447 66,481
- -------------------------------------------------------------------------------------------------------------------------
Net decrease in cash (9,853) (11,588)
Cash and cash equivalents at beginning of period 21,273 27,832
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 11,420 $ 16,244
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 7 OF 19
<PAGE>
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 intercompany 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
October 31, 1998 and the consolidated results of its operations and
cash flows for the three and nine month periods ended October 31, 1998
and 1997. 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, in
which the Company acquired Endar Corp., all consolidated financial
statements and related schedules presented for the nine month period
ended October 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, 1998, as set forth in the Company's Form 10-K Annual
Report. Operating results for the nine months ended October 31, 1998
are not necessarily indicative of the results that may be expected for
the year ending January 31, 1999.
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.
Prior to this acquisition, Endar incurred one-time, non-recurring
transaction costs totaling $5.2 million pre-tax ($3.2 million, net of
tax). The following table sets forth the results of the Company for the
nine month period ended October 31, 1997 excluding these one-time,
non-recurring transaction costs incurred by Endar compared to the same
period this year.
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended October 31, Ended October 31,
1998 1997
---------------- ----------------
<S> <C> <C>
Net earnings excluding the
non-recurring transaction costs
of Endar $51,929 $40,551
BASIC:
Net earnings per common share
excluding the non-recurring
transaction costs of Endar $1.06 $0.83
Weighted average number of
shares outstanding 49,158 49,054
DILUTED:
Net earnings per common share
excluding the non-recurring
transaction costs of Endar $1.05 $0.82
Weighted average number of
shares outstanding 49,652 49,544
---------------------------------------------------------------------------------------------------------------
</TABLE>
PAGE 8 OF 19
<PAGE>
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. INVENTORIES
The components of inventory consist of the following (in thousands):
<TABLE>
<CAPTION>
October 31, 1998 January 31, 1998
--------------------------------------------------------
<S> <C> <C>
Finished goods $ 123,447 $ 113,273
Work in progress 2,986 2,263
Raw materials 26,103 19,988
--------------------------------------------------------
$ 152,536 $ 135,524
--------------------------------------------------------
--------------------------------------------------------
</TABLE>
4. EARNINGS PER SHARE
The components of basic and diluted earnings per share are as follows
(in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months Three Months Nine Months
Ended October 31, Ended October 31, Ended October 31, Ended October 31,
1998 1998 1997 1997
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings $24,532 $51,929 $19,626 $37,359
------------------------------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding:
Basic 49,186 49,158 49,074 49,054
Dilutive effect of stock 424 494 516 490
options
------------------------------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding:
Diluted 49,610 49,652 49,590 49,544
------------------------------------------------------------------------------------------------------------------------
</TABLE>
5. COMPREHENSIVE INCOME
The Company has adopted FASB Statement No. 130 "Reporting Comprehensive
Income". This Statement establishes new standards for the presentation
and disclosure of other comprehensive income. There were no material
items in the three and nine month periods ended October 31, 1998 and
1997 and for the year ended January 31, 1998.
6. STOCK PURCHASE 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. As of
October 31, 1998, the Company had purchased on the open market 10,000
common shares for a total cost of $228,000. The acquired shares are
held as common stock in treasury.
7. SUBSEQUENT EVENT
On December 6, 1998, the Company entered into an agreement to acquire
an approximately 39% economic interest and 79% voting interest in
Liljeholmens Stearinfabriks AB, a candle manufacturer based in Sweden,
in a private sale, subject to anti-trust clearances. The shares to be
acquired consist of 9,431,000 shares of Class A common stock of
Liljeholmens. The Company has not previously owned any shares of
Liljeholmens. Class A and B shares of Liljeholmens are traded on the
Stockholm Stock Exchange. The Company does not expect the purchase to
be dilutive to its Diluted Net Earnings Per Share.
PAGE 9 OF 19
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
NET SALES
Net sales increased $137.6 million, or 28.4%, from $485.2 million in
the first nine months of fiscal 1998 to $622.8 million in the first
nine months of fiscal 1999. Net sales increased $48.3 million, or
25.1%, from $192.5 million in the quarter ended October 31, 1997 to
$240.8 million in the quarter ended October 31, 1998. Virtually all of
this increase was attributable to unit growth in sales of the Company's
everyday and seasonal holiday products, particularly scented candles
and candle accessories. Two areas of the business experienced a growth
rate higher than the Company average for the nine months ended October
31, 1998: PartyLite Gifts, our party plan direct seller in the United
States; and International, particularly Europe and Canada. The increase
in sales to domestic customers was attributable to improved penetration
of select channels of distribution and to geographic expansion in the
United States, particularly by the Company's direct selling activities
and mass channel brands. International sales, including sales in
Canada, grew at a faster rate than the Company as a whole, and
accounted for approximately 20% of the net sales increase.
International sales accounted for approximately 16% of the total net
sales for the nine months ended October 31, 1998.
GROSS PROFIT
Gross profit increased $87.8 million, or 32.5%, from $269.8 million in
the first nine months of fiscal 1998 to $357.6 million in the first
nine months of fiscal 1999. Gross profit margin increased from 55.6%
for the first nine months of fiscal 1998 to 57.4% for the first nine
months of fiscal 1999. Gross profit increased $27.8 million, or 26.1%,
from $106.6 million in the quarter ended October 31, 1997 to $134.4
million in the quarter ended October 31, 1998. Gross profit margin
increased from 55.4% for the quarter ended October 31, 1997 to 55.8%
for the quarter ended October 31, 1998. The Company is benefiting from
the capital investments made over the last three years in process
technology improvements and automated pick and pack systems, as well as
cost savings from two new distribution centers, which were not
operational during most of the first nine months of fiscal 1998. Also
contributing to the increase in gross profit percentage were product
and market mix, reflecting sales of scented candles and candle
accessories, particularly in the International market, which carry a
higher gross profit percentage than our other product channels.
SELLING AND SHIPPING EXPENSE
Selling and shipping expense increased $52.9 million, or 33.8%, from
$156.4 million in the first nine months of fiscal 1998 (32.2% of net
sales), to $209.3 million in the first nine months of fiscal 1999
(33.6% of net sales). Selling and shipping expense increased $15.3
million, or 26.0%, from $58.8 million in the quarter ended October 31,
1997 (30.5% of net sales), to $74.1 million in the quarter ended
October 31, 1998 (30.8% of net sales). The increases were partially
attributable to increased sales to the consumer market, particularly
sales through the Company's home party plan direct selling activities
and International, in which sales expenses, as a percentage of net
sales, are relatively higher. The increase is also reflective of the
continued marketing and selling investment in support of existing and
new account and country development.
ADMINISTRATIVE EXPENSE
Administrative expense increased $13.4 million, or 31.2%, from $43.0
million in the first nine months of fiscal 1998 (8.9% of net sales) to
$56.4 million in the first nine months of fiscal 1999 (9.1% of net
sales). Administrative expense increased $3.6 million, or 25.5%, from
$14.1 million in the quarter ended October 31, 1997 (7.3% of net sales)
to $17.7 million in the quarter ended October 31, 1998 (7.4% of net
sales). Such increases were primarily a result of increases in
investment in infrastructure to support International sales growth and
increased spending associated with improvements in information and
administrative support systems including Year 2000 related expenses.
PAGE 10 OF 19
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTEREST EXPENSE
Interest expense increased $1.6 million, or 44.4%, from $3.6 million in
the first nine months of fiscal 1998 to $5.2 million in the first nine
months of fiscal 1998. Interest expense increased $.3 million, or
18.8%, from $1.6 million in the quarter ended October 31, 1997 to $1.9
in the quarter ended October 31, 1998. Such increase was primarily
attributable to increased borrowing to fund capital expenditures.
INCOME TAXES
Income tax expense increased $9.2 million, or 37.9%, from $24.3 million
in the first nine months of fiscal 1998 to $33.5 million in the first
nine months of fiscal 1999. Income tax expense increased $3.2 million,
or 25.2%, from $12.7 million in the quarter ended October 31, 1997 to
$15.9 million in the quarter ended October 31, 1998. The effective
income tax rate was approximately 39% for the first nine months of
fiscal 1998 and fiscal 1999.
NET EARNINGS
As a result of the foregoing, net earnings increased $14.5 million, or
38.8% from $37.4 million for the nine months ended October 31, 1997 to
$51.9 million for the nine months ended October 31, 1998. Net earnings
increased $4.9 million, or 25.0%, from $19.6 million in the quarter
ended October 31, 1997 to $24.5 million in the quarter ended October
31, 1998. Net earnings for the nine month period ended October 31, 1997
include one-time, non-recurring transaction costs of $3.2 million
incurred by Endar Corp. prior to its acquisition by the Company.
Basic earnings per share based upon the weighted average number of
shares outstanding for the nine months ended October 31, 1998 increased
$0.30 or 39.5% to $1.06 compared to $0.76 for the nine months ended
October 31, 1997. Basic earnings per share based upon the weighted
average number of shares outstanding for the quarter ended October 31,
1998 increased $0.10 or 25.0% to $0.50 compared to $0.40 for the
quarter ended October 31, 1997. Diluted earnings per share based upon
the potential dilution that could occur if options to issue Common
Stock were exercised or converted were $1.05 for the nine months ended
October 31, 1998 compared to $0.75 for the same period last year, an
increase of $0.30 or 40.0%. Diluted earnings per share based upon the
potential dilution that could occur if options to issue Common Stock
were exercised or converted were $0.49 for the quarter ended October
31, 1998 compared to $0.40 for the same period last year, an increase
of $0.09 or 22.5%.
As a result of the aforementioned one-time, non-recurring transaction
costs incurred by Endar prior to the acquisition, basic and diluted
earnings per share decreased $0.07 for the nine month period ended
October 31, 1997. Excluding the non-recurring transaction costs, basic
earnings per share for the nine months ended October 31, 1998 were
$1.06 compared to $0.83 for the same period last year, an increase of
$0.23 or 27.7%. Diluted earnings per share increased $0.23 or 28.0%
from $0.82 for the nine months ended October 31, 1997 excluding the
non-recurring transaction costs compared to $1.05 for the nine months
ended October 31, 1998.
PAGE 11 OF 19
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Inventory increased from $135.5 million at January 31, 1998 to $152.5
million at October 31, 1998, an increase of 12.5%, which continues to
grow at a rate less than the Company's net sales, which grew 28.4%
during the same period. Accounts receivable increased $34.3 million, or
66.0% from $52.0 million at the end of fiscal 1998 to $86.3 million at
October 31, 1998. Such increase is due to normal seasonal fluctuation
and expanded sales. Accounts payable and accrued expenses increased
$3.6 million, or 5.2% from $68.7 million at the end of fiscal 1998 to
$72.3 million at October 31, 1998. The increase in accounts payable and
accrued expenses reflects the normal payment pattern of operating
expenses.
Capital expenditures for property, plant and equipment were $29.5
million in the nine months ended October 31, 1998. Capital expenditures
were primarily investments in a new distribution center, new equipment
and improvements to existing plant and equipment. The Company
anticipates total capital spending of approximately $40.0 million for
fiscal 1999, of which approximately $20.0 million will be used for a
new distribution facility in the Netherlands, with the balance of
approximately $20.0 million to be used for upgrades to machinery and
equipment in existing facilities, improvements to leased 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 credit facilities will be
sufficient to fund its operating requirements, capital expenditures,
the stock repurchase program described below, and all other obligations
for the next twelve months.
The Company has revolving credit facilities (the "Credit Facilities")
maturing August 1999 and October 2002. Pursuant to the Credit
Facilities, the lenders have agreed, subject to certain conditions, to
provide unsecured revolving credit facilities to the Company in an
aggregate amount of up to $185.0 million, and the lenders have agreed
to provide under certain circumstances an additional $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 Facilities bear interest, at
the Company's option, at Bank of America's prime rate (8.0% at October
31, 1998) 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 5.7% at October 31, 1998. The Credit
Facilities are guaranteed by certain of the Company's subsidiaries and
contain, among other provisions, requirements to maintain certain
financial ratios and limitations on certain payments. At October 31,
1998, the Company was in compliance with such covenants. The Company
does not believe that such covenants will have a material effect on its
operations.
Net cash provided by operating activities amounted to $25.5 million for
the nine months ended October 31, 1998, compared to a net cash used of
$3.0 million for the nine months ended October 31, 1997. This increase
is due to normal fluctuations in inventory, accounts receivable,
accounts payable, and accrued expenses along with higher net earnings
as well as increased depreciation and amortization. At October 31,
1998, approximately $93.6 million was outstanding under the Credit
Facilities and approximately $1.9 million of letters of credit were
outstanding. In September 1998, the Company initiated a stock
repurchase program with an authorized limit of 1,000,000 shares. As of
October 31, 1998, the Company had repurchased 10,000 shares at a total
cost of approximately $.2 million.
PAGE 12 OF 19
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOREIGN CURRENCY RISK
The Company uses forward foreign exchange contracts to hedge the impact
of foreign currency fluctuations on certain committed capital
expenditures and on the forecasted results of the 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 is 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 hedge 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 flow with the items being hedged.
The following table provides information about the Company's foreign
exchange forward contracts at October 31, 1998.
<TABLE>
<CAPTION>
OCTOBER 31, 1998
-----------------------------------------------------------------------
U.S. DOLLAR AVERAGE FORWARD POSITION
(In thousands, except average contract rate) NOTIONAL AMOUNT CONTRACT RATE IN U.S. DOLLARS
------------------------------------------------ ----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Canadian Dollar $22,590 1.53 $22,349
German Deutsche Mark 675 1.74 710
----------------------- -----------------------
$23,265 $23,059
----------------------- -----------------------
----------------------- -----------------------
</TABLE>
The forward position in U.S. dollars approximates the fair value of the
contracts at October 31, 1998. The foreign exchange contracts
outstanding as of October 31, 1998, have maturity dates ranging from
November 1998 through July 1999.
IMPACT OF ADOPTION OF RECENTLY ISSUED ACCOUNTING STANDARDS
On June 15, 1998, the Financial Accounting Standards Board issued
Statement No. 133 ("SFAS 133"), "Accounting for Derivative Instruments
and Hedging Activities". SFAS 133 is effective for all fiscal years
beginning after June 15, 1999. SFAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is,
the type of transaction. The Company anticipates that, due to its
limited use of derivative instruments, the adoption of SFAS 133 will
not have a significant effect on the Company's results of operations or
its financial position.
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 13 OF 19
<PAGE>
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 near completion. The remediation process is
well underway on critical IT and non-IT systems, and the Company
presently anticipates that remediation and testing of remaining systems
will be complete by March 31, 1999. The testing phase, which is done in
most instances using simulated data, has commenced on critical IT and
non-IT systems, and the Company expects to complete, in all material
respects, testing of internal systems by April 30, 1999.
The third party evaluation phase is underway with the Company having
identified its key business partners, and 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 to complete, in all material respects, the third party
evaluation phase by April 30, 1999.
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.
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.
PAGE 14 OF 19
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 COMPLIANCE (CONTINUED)
Once developed, contingency plans and related cost estimates will be
continually refined as additional information becomes available. The
Company intends to complete the development of its contingency plans,
in all material respects, by the end of July 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 $1.5 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. The Company
anticipates that approximately 10 percent of the costs of the Company's
Year 2000 compliance efforts (exclusive of the costs of implementation
of contingency plans) will be capitalized. Neither such capitalized
costs nor the balance of the costs associated with the Company's Year
2000 compliance efforts are 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 15 OF 19
<PAGE>
Part II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
The Company is including the following cautionary statement in this
Report to make applicable, and to take advantage of, the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 for
any forward-looking statements made by, or on behalf of, the Company.
Forward-looking statements include statements concerning plans,
objectives, goals, strategies, future events or performance and
underlying assumptions and other statements which are other than
statements of historical facts. From time to time, the Company and its
representatives may publish or otherwise make available forward-looking
statements of this nature. All such forward-looking statements, whether
written or oral, and whether made by or on behalf of the Company, are
expressly qualified by the following cautionary statements.
Forward-looking statements involve risks and uncertainties which could
cause actual results or outcomes to differ materially from those
expressed in the forward- looking statements. Such forward-looking
statements are expected to be based on various assumptions, many of
which are based, in turn, upon further assumptions. There can be no
assurance that management's expectations, beliefs or projections will
occur or be achieved or accomplished. In addition to other factors and
matters discussed elsewhere in this Report and in the Company's other
public filings and statements, the following are important factors
that, in the view of the Company, could cause actual results to differ
materially from those discussed in the Company's forward-looking
statements. The Company disclaims any obligation to update any
forward-looking statements, or the following factors, to reflect events
or circumstances after the date of this Report.
Risk of Inability to Maintain Growth Rate
The Company has grown substantially in recent years. The Company
expects that its future growth will continue to be generated primarily
by sales to the faster growing consumer market, rather than the
institutional market, which has 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' strategy has been successful to date,
the Company expects that, as the Company grows, its rate of growth will
be less than its historical 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.
PAGE 16 OF 19
<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 from independent manufacturers in the Pacific Rim, Europe and
Mexico. In addition, 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 17 OF 19
<PAGE>
Part II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27. Financial data schedule as of and for the period ended
October 31, 1998.
b) Reports on Form 8-K
None
PAGE 18 OF 19
<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: December 14, 1998 By: /s/ Robert B. Goergen
----------------- ---------------------------
Robert B. Goergen
Chief Executive Officer
Date: December 14, 1998 By: /s/ Richard T. Browning
----------------- ---------------------------
Richard T. Browning
Chief Financial Officer
PAGE 19 OF 19
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
- ------- ----------- --------
<S> <C> <C>
27. Financial data schedule as of and for the period ended
October 31, 1998. N/A
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT OCTOBER 31, 1998 AND THE CONSOLIDATED STATEMENT OF
EARNINGS, STOCKHOLDER EQUITY AND CASH FLOWS FOR THE NINE MONTHS ENDED OCTOBER
31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 11,420
<SECURITIES> 0
<RECEIVABLES> 88,037
<ALLOWANCES> 1,710
<INVENTORY> 152,536
<CURRENT-ASSETS> 253,350
<PP&E> 241,987
<DEPRECIATION> 54,869
<TOTAL-ASSETS> 510,602
<CURRENT-LIABILITIES> 85,075
<BONDS> 0
0
0
<COMMON> 984
<OTHER-SE> 92,980
<TOTAL-LIABILITY-AND-EQUITY> 510,602
<SALES> 622,807
<TOTAL-REVENUES> 622,807
<CGS> 265,234
<TOTAL-COSTS> 265,234
<OTHER-EXPENSES> 266,637
<LOSS-PROVISION> 616
<INTEREST-EXPENSE> 5,221
<INCOME-PRETAX> 85,460
<INCOME-TAX> 33,546
<INCOME-CONTINUING> 51,929
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,929
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.05
</TABLE>
