<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, 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.
49,183,276 COMMON SHARES AS OF AUGUST 31, 1998.
Page 1 of 17
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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.............................................10-13
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...........................................................................14-16
Item 6. Exhibits and Reports on Form 8-K...............................................................16
Signatures.......................................................................................................17
</TABLE>
Page 2 of 17
<PAGE>
Part I. FINANCIAL INFORMATION
Item I. FINANCIAL STATEMENTS
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
JULY 31, JANUARY 31,
(In thousands, except share data) 1998 1998
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 12,199 $ 21,273
Accounts receivable, less allowance for doubtful receivables
of $1,402 and $1,353, respectively 48,460 51,980
Inventories (Note 3) 161,559 135,524
Prepaid expenses 918 612
Deferred income taxes 1,600 2,442
- ---------------------------------------------------------------------------------------------------------------------------------
Total current assets 224,736 211,831
PROPERTY, PLANT AND EQUIPMENT:
Less accumulated depreciation ($50,346 and $41,749, respectively) 176,736 170,710
OTHER ASSETS:
Investment 6,164 6,438
Excess of cost over fair value of assets acquired, net of
accumulated amortization of $3,422 and $2,417, respectively 56,736 57,419
Deposits 995 992
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $ 465,367 $ 447,390
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 5,025 $ 1,013
Accounts payable 37,612 39,138
Accrued expenses 27,415 29,574
Income taxes 990 2,005
- ---------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 71,042 71,730
DEFERRED INCOME TAXES 8,255 7,100
LONG-TERM DEBT, less current maturities 109,848 119,617
EXCESS OF FAIR VALUE OVER COST OF ASSETS ACQUIRED, net of
accumulated amortization of $751 and $691 respectively 653 713
MINORITY INTEREST 763 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, 49,183,276 and
49,100,953, respectively 984 982
Additional contributed capital 92,932 92,357
Retained earnings 180,890 153,493
- ---------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 274,806 246,832
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 465,367 $ 447,390
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 3 of 17
<PAGE>
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JULY 31 (In thousands, except per share data)
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $382,041 $292,769
Cost of goods sold 158,842 129,572
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 223,199 163,197
Selling and shipping 135,132 97,585
Administrative 38,748 28,890
Amortization of goodwill 1,018 424
- ------------------------------------------------------------------------------------------------------------------------------------
174,898 126,899
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit 48,301 36,298
Other expense (income)
Interest expense 3,368 1,999
Interest income (124) (302)
Equity in earnings of investee 202 90
Non-recurring transaction costs of acquired company - 5,173
- ------------------------------------------------------------------------------------------------------------------------------------
3,446 6,960
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before income tax expense and minority interest 44,855 29,338
Income tax expense 17,623 11,618
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before minority interest 27,232 17,720
Minority interest (165) (13)
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 27,397 $ 17,733
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Basic:
Net earnings per common share (1) $ 0.56 $ 0.36
Weighted average number of shares outsanding 49,144 49,045
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted:
Net earnings per common share (1) $ 0.55 $ 0.36
Weighted average number of shares outstanding 49,643 49,523
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) SEE NOTE 2 TO THE CONSOLIDATED FINANCIAL STATEMENTS
See notes to consolidated financial statements
Page 4 of 17
<PAGE>
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JULY 31 (In thousands, except per share data)
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $181,011 $137,709
Cost of goods sold 76,235 60,375
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 104,776 77,334
Selling and shipping 62,768 46,068
Administrative 18,906 14,242
Amortization of goodwill 511 214
- ------------------------------------------------------------------------------------------------------------------------------------
82,185 60,524
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit 22,591 16,810
Other expense (income)
Interest expense 1,645 1,095
Interest income (68) (76)
Equity in earnings of investee 162 171
Non-recurring transaction costs of acquired company - 5,173
- ------------------------------------------------------------------------------------------------------------------------------------
1,739 6,363
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before income tax expense and minority interest 20,852 10,447
Income tax expense 8,195 4,003
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before minority interest 12,657 6,444
Minority interest (68) 25
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 12,725 $ 6,419
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Basic:
Net earnings per common share (1) $ 0.26 $ 0.13
Weighted average number of shares outsanding 49,173 49,057
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted:
Net earnings per common share (1) $ 0.26 $ 0.13
Weighted average number of shares outstanding 49,653 49,600
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) SEE NOTE 2 TO THE CONSOLIDATED FINANCIAL STATEMENTS.
See notes to consolidated financial statements
Page 5 of 17
<PAGE>
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
JULY 31, (In thousands, except share data)
- -----------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL TOTAL
COMMON STOCK CONTRIBUTED RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JULY 31, 1997:
Balance, February 1, 1997 48,921,518 $651 $89,522 $ 99,230 $189,403
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 41,400 1 337 - 338
---------------------------------------------------------------------
Balance, July 31, 1997 49,071,631 $654 $92,155 $116,963 $209,772
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JULY 31, 1998:
Balance, February 1, 1998 49,100,953 $982 $92,357 $153,493 $246,832
Net earnings for the period - - - 27,397 27,397
Common stock issued in connection with
exercise of stock options 82,323 2 575 - 577
---------------------------------------------------------------------
Balance, July 31, 1998 49,183,276 $984 $92,932 $180,890 $274,806
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 6 of 17
<PAGE>
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JULY 31 (In thousands) 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 27,397 $ 17,733
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 9,614 5,918
Deferred income taxes 1,997 (142)
Equity in earnings of investee 202 90
Minority interest (165) (13)
Changes in operating assets and liabilities, net of effect of
business acquisition:
Accounts receivable 3,520 4,116
Inventories (26,035) (27,472)
Prepaid expenses (306) (690)
Other assets (3) (151)
Accounts payable (1,529) 345
Accrued expenses (2,159) (1,587)
Income taxes (1,015) (473)
- ----------------------------------------------------------------------------------------------------------------------
Total adjustments (15,879) (20,059)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 11,518 (2,326)
Cash flows from investing activities:
Purchases of property, plant, and equipment (14,624) (42,827)
Investments in investee - (814)
Purchase of businesses net of cash acquired (788) (652)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (15,412) (44,293)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 577 338
Borrowings from bank line of credit 212,600 30,450
Repayments on bank line of credit (218,810) (27,090)
Proceeds from issuance of long-term debt - 30,000
Borrowings (payments) on long-term debt 453 (5,681)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (5,180) 28,017
- ----------------------------------------------------------------------------------------------------------------------
Net decrease in cash (9,074) (18,602)
Cash and cash equivalents at beginning of period 21,273 27,832
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 12,199 $ 9,230
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 7 of 17
<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 July 31, 1998 and the consolidated results of its
operations and cash flows for the three and six month periods ended July
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 three and six month periods ended July
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 six months
ended July 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 ($3.2 million, net of tax). The
following table sets forth the results of the Company for the three and six
month periods ended July 31, 1997, excluding these one-time, non-recurring
transaction costs incurred by Endar, compared to the same periods this
year.
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended July 31, Ended July 31, Ended July 31, Ended July 31,
1998 1997 1998 1997
-------------------- ------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Net earnings excluding the
non-recurring transaction costs
of Endar $12,725 $9,611 $27,397 $20,925
BASIC:
Net earnings per common share
excluding the non-recurring
transaction costs of Endar $0.26 $0.20 $0.56 $0.43
Weighted average number of
shares outstanding 49,173 49,057 49,144 49,045
DILUTED:
Net earnings per common share
excluding the non-recurring
transaction costs of Endar $0.26 $0.19 $0.55 $0.42
Weighted average number of
shares outstanding 49,653 49,600 49,643 49,523
-------------------------------------- -------------------- ------------------- -------------------- -------------------
</TABLE>
Page 8 of 17
<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>
July 31, 1998 January 31, 1998
---------------------------- ----------------------------
<S> <C> <C>
Finished goods $ 134,025 $ 113,273
Work in progress 2,743 2,263
Raw materials 24,791 19,988
============================ ============================
$ 161,559 $ 135,524
============================ ============================
</TABLE>
4. EARNINGS PER SHARE
The components of basic and diluted earnings per share are as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Six Months Three Months Six Months
Ended July 31, Ended July 31, Ended July 31, Ended July 31,
1998 1998 1997 1997
-------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Net earnings $12,725 $27,397 $6,419 $17,733
-------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Weighted average number of common shares outstanding:
Basic 49,173 49,144 49,057 49,045
Dilutive effect of stock options 480 499 543 478
-------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Weighted average number of common shares outstanding:
Diluted 49,653 49,643 49,600 49,523
-------------------------------------------------- ---------------- ----------------- ---------------- -----------------
</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 quarters ended July 31, 1998 and 1997 and for the year ended January
31, 1998.
Page 9 of 17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
NET SALES
Net sales increased $89.2 million, or 30.5%, from $292.8 million in the
first six months of fiscal 1998 to $382.0 million in the first six months
of fiscal 1999. Net sales increased $43.3 million, or 31.4%, from $137.7
million in the quarter ended July 31, 1997 to $181.0 million in the quarter
ended July 31, 1998. Virtually all of this increase was attributable to
unit growth in sales of the Company's everyday products, particularly
scented candles and candle accessories. Two areas of the business
experienced a growth rate higher than the Company average for the six
months ended July 31, 1998: PartyLite Gifts, our party plan direct seller
in the United States; and International markets. The increase in sales to
new 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. International
sales accounted for approximately 17% of the total net sales for the
quarter ended July 31, 1998.
GROSS PROFIT
Gross profit increased $60.0 million, or 36.8%, from $163.2 million in the
first six months of fiscal 1998 to $223.2 million in the first six months
of fiscal 1999. Gross profit margin increased from 55.7% for the first six
months of fiscal 1998 to 58.4% for the first six months of fiscal 1999.
Gross profit increased $27.5 million, or 35.6%, from $77.3 million in the
quarter ended July 31, 1997 to $104.8 million in the quarter ended July 31,
1998. Gross profit margin increased from 56.1% for the quarter ended July
31, 1997 to 57.9% for the quarter ended July 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 in the first six months of fiscal 1998. Also contributing to
the increase in gross profit percentage were product and market mix,
reflecting sales for scented candles and candle accessories at PartyLite
and International, which carry a higher gross profit percentage than our
other product channels.
SELLING AND SHIPPING EXPENSE
Selling and shipping expense increased $37.5 million, or 38.4%, from $97.6
million in the first six months of fiscal 1998 (33.3% of net sales), to
$135.1 million in the first six months of fiscal 1999 (35.4% of net sales).
Selling and shipping expense increased $16.7 million, or 36.2%, from $46.1
million in the quarter ended July 31, 1997 (33.5% of net sales), to $62.8
million in the quarter ended July 31, 1998 (34.7% 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 accounts and country development.
ADMINISTRATIVE EXPENSE
Administrative expense increased $9.8 million, or 33.9%, from $28.9 million
in the first six months of fiscal 1998 (9.9% of net sales) to $38.7 million
in the first six months of fiscal 1999 (10.1% of net sales). Administrative
expense increased $4.7 million, or 33.1%, from $14.2 million in the quarter
ended July 31, 1997 (10.3% of net sales) to $18.9 million in the quarter
ended July 31, 1998 (10.4% 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 17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTEREST EXPENSE
Interest expense increased $1.4 million, or 70.0%, from $2.0 million in the
first six months of fiscal 1998 to $3.4 million in the first six months of
fiscal 1998. Interest expense increased $.5 million, or 45.5%, from $1.1
million in the quarter ended July 31, 1997 to $1.6 in the quarter ended
July 31, 1998. Such increase was primarily attributable to increased
borrowing to fund capital expenditures including the December 31, 1997
acquisition of the Sterno-Registered Trademark- and Handy Fuel-Registered
Trademark- assets.
INCOME TAXES
Income tax expense increased $6.0 million, or 51.7%, from $11.6 million in
the first six months of fiscal 1998 to $17.6 million in the first six
months of fiscal 1999. Income tax expense increased $4.2 million, or
105.0%, from $4.0 million in the quarter ended July 31, 1997 to $8.2
million in the quarter ended July 31, 1998. The effective income tax rate
decreased from approximately 40% for the first six months of fiscal 1998 to
approximately 39% for the six months of fiscal 1999 due to the growth in
sales in countries with lower tax rates than the U.S.
NET EARNINGS
As a result of the foregoing, net earnings increased $9.7 million, or
54.8%, from $17.7 million the six months ended July 31, 1997 to $27.4
million for the six months ended July 31, 1998. Net earnings increased $6.3
million, or 98.4%, from $6.4 million in the quarter ended July 31, 1997 to
$12.7 million in the quarter ended July 31, 1998. Net earnings for the
three and six month periods ended July 31, 1997 include one-time
non-recurring transaction costs of $3.2 million, net of tax 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 six months ended July 31, 1998 increased $0.20, or
55.6%, to $0.56 compared to $0.36 for the six months ended July 31, 1997.
Basic earnings per share based upon the weighted average number of shares
outstanding for the quarter ended July 31, 1998 increased $0.13, or 100.0%,
to $0.26 compared to $0.13 for the quarter ended July 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 $0.55 for
the six months ended July 31, 1998 compared to $0.36 for the same period
last year, an increase of $0.19, or 52.8%. Diluted earnings per share based
upon the potential dilution that could occur if options to issue Common
Stock were exercised or converted were $0.26 for the quarter ended July 31,
1998 compared to $0.13 for the same period last year, an increase of $0.13,
or 100.0%.
Excluding the non-recurring transaction costs, basic earnings per share for
the six months ended July 31, 1998 were $0.56 compared to $0.43 for the
same period last year, an increase of $0.13, or 30.2%. Diluted earnings per
share increased $0.13, or 31.0%, from $0.42 for the six months ended July
31, 1997 (excluding the non-recurring transaction costs) compared to $0.55
for the six months ended July 31, 1998. Basic earnings per share increased
$0.06, or 30.0%, from $0.20 for the three month period ended July 31, 1997
(excluding the non-recurring transaction costs) compared to $0.26 for the
same period this year. Diluted earnings per share increased $0.07, or
36.8%, from $0.19 for the three months ended July 31, 1997 (excluding the
non-recurring transaction costs) compared to $0.26 for the quarter ended
July 31, 1998.
Page 11 of 17
<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 $161.6
million at July 31, 1998 in order to meet increases in current and
anticipated demand. Inventory increased 15.5% from July 31, 1997 when
compared to July 31, 1998 while net sales for the quarter ended July 31,
1998 increased 31.4%, when compared to the same period last year. Accounts
receivable decreased $3.5 million, or 6.7% from $52.0 million at the end of
fiscal 1998 to $48.5 million at July 31, 1998. Accounts payable and accrued
expenses decreased $3.7 million, or 5.4% from $68.7 million at the end of
fiscal 1998 to $65.0 million at July 31, 1998. The decrease in accounts
payable and accrued expenses reflects the normal payment pattern of
operating expenses.
Capital expenditures for property, plant and equipment were $14.6 million
in the six months ended July 31, 1998. Capital expenditures were primarily
investments in a new distribution center, new equipment and improvements to
existing plant and equipment. The Company anticipates 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 opportunities to
acquire other companies, assets and product lines that either complement or
expand its existing business.
The Company's primary capital requirements are for working capital to fund
the increased inventory and accounts receivable required to sustain the
Company's sales growth and for capital expenditures (including capital
expenditures related to planned facilities expansion). The Company believes
that cash on hand, cash from operations and available borrowings under the
Credit Facility described below, will be sufficient to fund its operating
requirements, capital expenditures, the share repurchase program referred
to below and all other obligations for the next twelve months.
The Company has a revolving credit facility (the "Credit Facility")
arranged by J.P. Morgan Securities, Inc. with participation by a syndicate
of eight banks (together with J.P. Morgan, the "Banks") maturing October
17, 2002. 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 $140.0 million, and the Banks
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 Facility bear interest, at the
Company's option, at Bank of America's prime rate (8.50% at July 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 5.85% at July 31, 1998. The Credit Facility is guaranteed
by certain of the Company's subsidiaries and contains, among other
provisions, requirements to maintain certain financial ratios and
limitations on certain payments. At July 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.
Page 12 of 17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Net cash provided by operating activities amounted to $11.5 million for the
six months ended July 31, 1998 compared to a use of $2.3 million for the
six months ended July 31, 1997. This change 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 July 31, 1998, $87.2 million was outstanding under the
Credit Facility and approximately $2.8 million of letters of credit were
outstanding.
On September 10, 1998, the Company's Board of Directors authorized the
Company to repurchase, from time to time, up to one million shares of its
common stock in the open market, as well as through block or privately
negotiated transactions. The Company has not repurchased any of its shares
since the authorization of the program.
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 Company continues to assess the impact of the Year 2000 on its
information systems, including the Year 2000 readiness of those it conducts
business with, and is developing and implementing a Year 2000 compliance
strategy. The Company expects increased spending to bring its systems into
Year 2000 compliance, but Year 2000 related expenses have not been and are
not expected to be material to the Company's results of operations and
financial position and are being expensed as incurred. The Company is
currently assessing the need for and the implications of a contingency
plan. However, if modifications and conversions by the Company and those it
conducts business with are not completed in a timely manner, the Year 2000
issue may have a material adverse affect on the Company's business, results
of operations and financial position.
Page 13 of 17
<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
The following matters were voted upon at the Annual Meeting of
Stockholders held on June 9, 1998, 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:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For Against Withheld
---------------------- ----------------------- ----------------------
Robert B. Goergen 43,214,310 0 47,720
Neal I. Goldman 43,214,710 0 47,320
Howard E. Rose 43,213,910 0 48,120
</TABLE>
2) A proposal to ratify the appointment of PricewaterhouseCoopers
LLP as independent certified public accountants received
38,671,128 votes for, 4,573,465 votes against, and 17,437 votes
withheld.
3) A proposal to ratify the amendment to the Company's Amended and
Restated 1994 Employee Stock Option Plan ("Employee Plan") to
increase the number of shares authorized to be issued under the
Employee Plan by 500,000 shares received 39,648,691 votes for,
3,538,898 votes against, and 74,441 votes withheld.
4) A proposal to ratify the amendment to the Employee Plan to limit
the maximum option grants that may be made to an employee in any
one year (the "162(m) Amendment") received 43,107,593 votes for,
89,135 votes against, and 65,302 votes withheld.
ITEM 5. OTHER INFORMATION
The Company is including the following cautionary statement in this Report
to make applicable, and to take advantage of, the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995 for any
forward-looking statements made by, or on behalf of, the Company.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance and underlying assumptions
and other statements which are other than statements of historical facts.
From time to time, the Company and its representatives may publish or
otherwise make available forward-looking statements of this nature. All
such forward-looking statements, whether written or oral, and whether made
by or on behalf of the Company, are expressly qualified by the following
cautionary statements. Forward-looking statements involve risks and
uncertainties which could cause actual results or outcomes to differ
materially from those expressed in the forward-looking statements. Such
forward-looking statements are expected to be based on various assumptions,
many of which are based, in turn, upon further assumptions. There can be no
assurance that management's expectations, beliefs or projections
Page 14 of 17
<PAGE>
Part II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION (CONTINUED)
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 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.
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, 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.
Page 15 of 17
<PAGE>
Part II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION (CONTINUED)
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27. Financial data schedule as of and for the period ended
July 31, 1998.
b) Reports on Form 8-K
During the fiscal quarter ended July 31, 1998, the Company
filed the following Current Report on Form 8-K:
The Company filed a Current Report on Form 8-K on June 5,
1998 to attach the Company's earnings release relating to
the Company's results of operations for the fiscal quarter
ended April 30, 1998.
Page 16 of 17
<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 14, 1998 By:/s/ Robert B. Goergen
-------------------- ---------------------
Robert B. Goergen
Chief Executive Officer
Date: September 14, 1998 By:/s/ Richard T. Browning
-------------------- -----------------------
Richard T. Browning
Chief Financial Officer
Page 17 of 17
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
<S> <C> <C>
27. Financial data schedule as of and for the period ended
July 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 JULY 31, 1998 AND THE CONSOLIDATED STATEMENT OF
EARNINGS, STOCKHOLDERS' EQUITY AND CASH FLOWS FOR THE SIX MONTHS ENDED JULY 31,
1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JUL-31-1998
<CASH> 12,199
<SECURITIES> 0
<RECEIVABLES> 49,862
<ALLOWANCES> 1,402
<INVENTORY> 161,559
<CURRENT-ASSETS> 224,736
<PP&E> 227,082
<DEPRECIATION> 50,346
<TOTAL-ASSETS> 465,367
<CURRENT-LIABILITIES> 71,042
<BONDS> 0
0
0
<COMMON> 984
<OTHER-SE> 273,822
<TOTAL-LIABILITY-AND-EQUITY> 465,367
<SALES> 382,041
<TOTAL-REVENUES> 382,041
<CGS> 158,842
<TOTAL-COSTS> 158,842
<OTHER-EXPENSES> 174,545
<LOSS-PROVISION> 353
<INTEREST-EXPENSE> 3,368
<INCOME-PRETAX> 44,855
<INCOME-TAX> 17,623
<INCOME-CONTINUING> 27,397
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,397
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.55
</TABLE>
