<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED APRIL 30, 1999
Commission file number 1-13026
BLYTH INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-2984916
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
100 FIELD POINT ROAD, GREENWICH, CONNECTICUT 06830
(Address of principal executive offices) (Zip Code)
(203) 661-1926
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--------- ---------
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
48,473,574 COMMON SHARES AS OF MAY 28, 1999.
PAGE 1 OF 18
<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
Consolidated Statements of Stockholders' Equity........................................5
Consolidated Statements of Cash Flows..................................................6
Notes to Consolidated Financial Statements..........................................7, 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..............................................9-14
Part II. Other Information
Item 1. Legal Proceedings..............................................................................15
Item 2. Changes in Securities..........................................................................15
Item 3. Defaults upon Senior Securities................................................................15
Item 4. Submission of Matters to a Vote of Security Holders............................................15
Item 5. Other Information...........................................................................15-16
Item 6. Exhibits and Reports on Form 8-K...............................................................17
Signatures.......................................................................................................18
</TABLE>
PAGE 2 OF 18
<PAGE>
Part I. FINANCIAL INFORMATION
Item I. FINANCIAL STATEMENTS
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
APRIL 30, JANUARY 31,
(In thousands, except share data) 1999 1999
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 18,650 $ 18,571
Accounts receivable, less allowance for doubtful receivables
of $1,471 and $1,404, respectively 64,964 60,810
Inventories 186,164 169,749
Prepaid expenses 3,027 2,831
Deferred income taxes 675 600
- ------------------------------------------------------------------------------------------------------------------------------
Total current assets 273,480 252,561
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Less accumulated depreciation of $64,056 and $58,184, respectively 235,295 236,273
OTHER ASSETS:
Investments 11,598 18,914
Excess of cost over fair value of assets acquired, net of
accumulated amortization of $5,029 and $4,446, respectively 66,951 67,534
Deposits 1,418 1,501
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $ 588,742 $ 576,783
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank lines of credit $ 16,074 $ 3,455
Current maturities of long-term debt 9,755 9,339
Accounts payable 44,064 51,336
Accrued expenses 46,463 44,074
Income taxes 10,491 1,197
- ------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 126,847 109,401
DEFERRED INCOME TAXES 19,279 18,978
LONG-TERM DEBT, less current maturities 103,574 114,246
EXCESS OF FAIR VALUE OVER COST OF ASSETS ACQUIRED, net of
accumulated amortization of $841 and $811, respectively 563 593
MINORITY INTEREST 11,730 11,533
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
Preferred stock - authorized 10,000,000 shares of $0.01
par value; no shares issued and outstanding - -
Common stock - authorized 100,000,000 shares of $0.02
par value; issued, 49,205,274 and 49,200,474, respectively 984 984
Additional contributed capital 93,344 93,281
Retained earnings 246,532 227,995
Treasury stock, at cost, 583,300 shares and 10,000 shares, respectively (13,869) (228)
Accumulated other comprehensive loss (242) -
- ------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 326,749 322,032
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 588,742 $ 576,783
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 3 OF 18
<PAGE>
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED APRIL 30 (In thousands, except per share data)
1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $244,273 $201,030
Cost of goods sold 103,793 82,607
- ----------------------------------------------------------------------------------------------------------------------------------
Gross profit 140,480 118,423
Selling and shipping 85,385 72,364
Administrative 21,864 19,842
Amortization 636 507
- ----------------------------------------------------------------------------------------------------------------------------------
107,885 92,713
- ----------------------------------------------------------------------------------------------------------------------------------
Operating profit 32,595 25,710
Other expense (income):
Interest expense 1,884 1,723
Interest income (120) (56)
Equity in earnings of investees 413 40
- ----------------------------------------------------------------------------------------------------------------------------------
2,177 1,707
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes and minority interest 30,418 24,003
Income tax expense 11,683 9,428
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings before minority interest 18,735 14,575
Minority interest 198 (97)
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 18,537 $ 14,672
- ----------------------------------------------------------------------------------------------------------------------------------
Basic: Net earnings per common share $ 0.38 $ 0.30
Weighted average number of shares outstanding 48,941 49,115
- ----------------------------------------------------------------------------------------------------------------------------------
Diluted: Net earnings per common share $ 0.38 $ 0.30
Weighted average number of shares outstanding 49,262 49,633
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
PAGE 4 OF 18
<PAGE>
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
APRIL 30, (In thousands, except share data)
- --------------------------------------------------------------------------------------------------------------------------
COMMON STOCK ADDITIONAL
----------------------------- CONTRIBUTED RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE THREE MONTHS ENDED APRIL 30, 1998
Balance, January 31, 1998 49,100,953 $ 982 $ 92,357 $ 153,493 $ -
Net earnings for the period - - - 14,672 -
Common stock issued in connection with
exercise of stock options 38,173 1 294 - -
--------------------------------------------------------------------------
Balance, April 30, 1998 49,139,126 $ 983 $ 92,651 $ 168,165 $ -
==========================================================================================================================
FOR THE THREE MONTHS ENDED APRIL 30, 1999:
Balance, January 31, 1999 49,190,474 $ 984 $ 93,281 $ 227,995 $ (228)
Net earnings for the period - - - 18,537 -
Foreign currency translation adjustments - - - - -
Comprehensive income
Common stock issued in connection with
exercise of stock options 4,800 - 63 - -
Treasury stock purchase (573,300) - - - (13,641)
--------------------------------------------------------------------------
Balance, April 30, 1999 48,621,974 $ 984 $ 93,344 $ 246,532 $ (13,869)
==========================================================================================================================
- -----------------------------------------------------------------------------------
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS TOTAL
- -----------------------------------------------------------------------------------
<S> <C> <C>
FOR THE THREE MONTHS ENDED APRIL 30, 1998
Balance, January 31, 1998 $ - $ 246,832
Net earnings for the period - 14,672
Common stock issued in connection with
exercise of stock options - 295
-----------------------------------
Balance, April 30, 1998 $ - $ 261,799
===================================================================================
FOR THE THREE MONTHS ENDED APRIL 30, 1999:
Balance, January 31, 1999 $ - $ 322,032
Net earnings for the period - 18,537
Foreign currency translation adjustments (242) (242)
-----------------------------------
Comprehensive income (242) 18,295
Common stock issued in connection with
exercise of stock options - 63
Treasury stock purchase - (13,641)
-----------------------------------
Balance, April 30, 1999 $ (242) $ 326,749
===================================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 5 OF 18
<PAGE>
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED APRIL 30 (In thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 18,537 $ 14,672
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 6,508 4,606
Deferred income taxes 226 1,569
Equity in earnings of investees 413 40
Minority interest 198 (97)
Changes in operating assets and liabilities, net of
effect of business acquisitions:
Accounts receivable (4,154) 1,043
Inventories (16,415) (14,579)
Prepaid expenses (196) 198
Deposits 83 17
Accounts payable (6,659) 3,368
Accrued expenses 2,389 7,941
Income taxes 9,294 5,444
- ------------------------------------------------------------------------------------------------------------------------------
Total adjustments (8,313) 9,550
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 10,224 24,222
Cash flows from investing activities:
Purchases of property, plant and equipment (4,894) (5,318)
Proceeds from sale of investment 6,496 -
Purchase of businesses, net of cash acquired (782) (788)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 820 (6,106)
Cash flows from financing activities:
Proceeds from issuance of common stock 63 295
Purchase of treasury stock (13,641) -
Borrowings from bank line of credit 127,019 65,000
Repayments on bank line of credit (114,400) (89,600)
Payments on long-term debt (10,006) (206)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (10,965) (24,511)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 79 (6,395)
Cash and cash equivalents at beginning of period 18,571 21,273
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 18,650 $ 14,878
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 6 OF 18
<PAGE>
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The Company, which operates in a single category, home fragrance
products, designs, manufactures, markets and distributes an extensive
line of home fragrance products including scented candles, outdoor
citronella candles, potpourri and environmental fragrance products and
markets a broad range of related candle accessories and decorative gift
bags and tags.
The consolidated financial statements include the accounts of the
Company, and its direct and indirect subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Investments in companies which are not majority owned or controlled are
reported using the equity method and are recorded in other assets.
European operations maintain a calendar year accounting period which is
consolidated with the Company's fiscal period. In the opinion of the
Management, the accompanying unaudited consolidated financial
statements include all accruals (consisting only of normal recurring
accruals) necessary for fair presentation of the Company's consolidated
financial position at April 30, 1999 and the consolidated results of
its operations and cash flows for the three month period ended April
30, 1999 and 1998. These interim statements should be read in
conjunction with the Company's consolidated financial statements for
the year ended January 31, 1999, as set forth in the Company's Annual
Report on Form 10-K. Operating results for the three months ended April
30, 1999 are not necessarily indicative of the results that may be
expected for the year ending January 31, 2000.
2. INVENTORIES
The components of inventory consist of the following (in thousands):
<TABLE>
<CAPTION>
APRIL 30, 1999 JANUARY 31, 1999
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 31,876 $ 34,807
Work in process 3,754 2,658
Finished goods 150,534 132,284
- ---------------------------------------------------------------------------------------------------------
$ 186,164 $ 169,749
- ---------------------------------------------------------------------------------------------------------
</TABLE>
3. EARNINGS PER SHARE
The components of basic and diluted earnings per share are as follows
(in thousands):
<TABLE>
<CAPTION>
APRIL 30, 1999 1998
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net earnings $ 18,537 $ 14,672
- ---------------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding:
Basic 48,941 49,115
Dilutive effect of stock options 321 518
- ---------------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding:
Diluted 49,262 49,633
- ---------------------------------------------------------------------------------------------------------
</TABLE>
PAGE 7 OF 18
<PAGE>
BLYTH INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. STOCK REPURCHASE PLAN
On September 10, 1998, the Company's Board of Directors authorized the
Company to repurchase up to 1,000,000 shares of its common stock and on
June 8, 1999 it authorized the repurchase of up to an additional
1,000,000 shares. As of May 28, 1999, the Company had purchased on
the open market 734,700 common shares for a total cost of
approximately $17,450,000. The acquired shares are held as common
stock in treasury.
5. SEGMENT INFORMATION
The Company operates in a single category, home fragrance products. The
Company designs, manufactures, markets and distributes an extensive
line of home fragrance products including scented candles, outdoor
citronella candles, potpourri and environmental fragrance products.
Closely complementing these products are a broad range of candle
accessories and decorative gift bags and tags. The Company has
operations outside of the United States and sells its products
worldwide.
The following geographic area data include trade net sales and net
earnings based on product shipment destination and long-lived assets
(which consist of fixed assets, goodwill and long term investments)
based on physical location. This data is presented in accordance with
FASB No. 131 "Disclosures about Segments of an Enterprise and Related
Information," which the Company has adopted for all periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 30, (In thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Sales:
United States $ 181,773 $ 166,269
International(1)(2) 62,500 34,761
- -------------------------------------------------------------------------------------------------------------
Total $ 244,273 $ 201,030
- -------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED APRIL 30, (In thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------------
Net Earnings:
United States $ 15,584 $ 12,998
International(1)(2) 2,953 1,674
- -------------------------------------------------------------------------------------------------------------
Total $ 18,537 $ 14,672
- -------------------------------------------------------------------------------------------------------------
AS OF APRIL 30, (In thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------------
Long-Lived Assets:
United States $ 233,582 $ 208,624
International(2) 80,262 26,902
- -------------------------------------------------------------------------------------------------------------
Total $ 313,844 $ 235,526
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Due to the purchase of approximately 79% of the voting interest and 39%
economic interest of Liljeholmens in December 1998, the current years net
sales include 100% of Liljeholmens' sales while the current years net
earnings include only 39% of Liljeholmens' earnings.
(2) No individual country repesents a material amount of net sales, net
earnings or long-lived assets.
6. SUBSEQUENT EVENT
On May 14, 1999 the Company acquired the remaining 50% of Colony Gift
Corporation Ltd., a European candle manufacturer, for approximately $10
million in cash.
PAGE 8 OF 18
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
NET SALES
Net sales in the first quarter ended April 30, 1999 increased $43.3
million or 21.5% to $244.3 million compared with $201.0 million a year
earlier. Virtually all of this increase was attributable to unit growth
in sales of the Company's everyday products, particularly scented
candles and candle accessories and the inclusion of Liljeholmens' sales
in the fiscal quarter for the first time since the Company's December
1998 investment in Liljeholmens. Sales growth was experienced both in
the United States and Internationally with the international business
(which includes Liljeholmens) growing at a faster rate than the Company
as a whole. International sales accounted for approximately 26% of the
total net sales for the quarter ended April 30, 1999.
GROSS PROFIT
Gross profit in the first quarter ended April 30, 1999 increased $22.1
million, or 18.7% from $118.4 million for the quarter ended April 30,
1998 to $140.5 million. Gross profit margin decreased from 58.9% for
the quarter ended April 30, 1998 to 57.5% for the quarter ended April
30, 1999. The gross profit as a percentage of net sales was negatively
impacted by the inclusion of Liljeholmens which has a lower gross
profit percentage than the rest of the Company. Before including
Liljeholmens, gross profit as a percentage of net sales increased
compared to the same period a year ago. Before the inclusion of
Liljeholmens, gross profit in the first quarter of fiscal 2000
benefited from a relatively higher sales growth of premium priced
products in the United States. In addition the Company continues to
benefit from the capital investments made over the last several years
in manufacturing and distribution, as well as cost savings in product
sourcing. International sales, other than Liljeholmens, which carry a
higher gross margin percentage, grew at a rate faster than the overall
Company average.
SELLING AND SHIPPING EXPENSE
Selling and shipping expense increased $13.0 million, or 18.0%, from
$72.4 million in the quarter ended April 30, 1998 (36.0% of net sales),
to $85.4 million in the quarter ended April 30, 1999 (35.0% of net
sales). The increases were primarily attributable to increased sales to
the consumer channel, 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
increases were also attributable to the inclusion of Liljeholmens
expenses.
ADMINISTRATIVE EXPENSE
Administrative expense increased $2.1 million, or 10.6%, from $19.8
million in the quarter ended April 30, 1999 (9.9% of net sales) to
$21.9 million in the quarter ended April 30, 1999 (9.0% of net sales).
Administrative expenses as a percentage of sales declined versus the
same period last year for several reasons: the benefits of scale, the
inclusion of Liljeholmens (which experiences relatively lower
administrative expense as a percentage of sales), and other factors.
INTEREST EXPENSE
Interest expense for the three months ended April 30, 1999 was $1.9
million compared to $1.7 million for the same period in the prior year.
The increase in interest expense is primarily attributable to
borrowings to fund the December 1998 purchase of Lliljeholmens common
stock.
PAGE 9 OF 18
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: (CONTINUED)
INCOME TAXES
Income tax expense increased $2.3 million, or 24.5%, from $9.4 million
in the quarter ended April 30, 1998 to $11.7 million in the quarter
ended April 30, 1999. The effective income tax rate decreased from
approximately 39.0% in the quarter ended April 30, 1998 to
approximately 38.5% in the quarter ended April 30, 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 $3.8 million, or
25.9%, from $14.7 million the quarter ended April 30, 1998 to $18.5
million for the quarter ended April 30, 1999.
Basic earnings per share based upon the weighted average number of
shares outstanding for the quarter ended April 30, 1999 increased $0.08
or 26.7% to $0.38 compared to $0.30 for the quarter ended April 30,
1998.
Diluted earnings per share based upon the potential dilution that could
occur if options to issue Common Stock were exercised or converted were
$0.38 for the quarter ended April 30, 1999 compared to $0.30 for the
same period last year, an increase of $0.08 or 26.7%.
LIQUIDITY AND CAPITAL RESOURCES
Inventory increased from $169.7 million at January 31, 1999 to $186.2
million at April 30, 1999. The inventory was increased primarily to
meet anticipated demand. Accounts receivable increased $4.2 million, or
6.9% from $60.8 million at the end of fiscal 1999 to $65.0 million at
April 30, 1999 which reflects the normal business payment pattern.
Accounts payable and accrued expenses decreased $4.9 million, or 5.1%
from $9.4 million at the end of fiscal 1999 to $90.5 million at April
30, 1999. The decrease in accounts payable and accrued expenses is
attributable to normal payment patterns of operating expenses.
Capital expenditures for property, plant and equipment were $4.9
million in the three months ended April 30, 1999. 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 $60.0 million for fiscal
2000, of which approximately $5.0 million will be used for a new
distribution facility in the Netherlands, with the balance of
approximately $55.0 million to be used primarily for increased
manufacturing and distribution capacity, upgrades to machinery and
equipment in existing facilities, and computer hardware and software.
The Company has grown in part through acquisitions and, as part of its
growth strategy, the Company expects to continue from time to time in
the ordinary course of its business to evaluate and pursue acquisition
opportunities as appropriate. This could be in the form of acquiring
other companies, selected assets and product lines, long term
investments, and/or joint ventures that either complement or expand its
existing business.
The Company's primary capital requirements are for working capital to
fund the increased inventory and accounts receivable required to
sustain the Company's sales growth and for capital expenditures
(including capital expenditures related to planned facilities
expansion). The Company believes that cash on hand, cash from
operations and available borrowings under the Credit Facility and lines
of credit described below, will be sufficient to fund its operating
requirements, capital expenditures, the Company's stock repurchase
program and all other obligations for the next twelve months.
PAGE 10 OF 18
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Pursuant to the Company's revolving credit facility ("Credit
Facility"), which matures on October 17, 2002, the lending institutions
have agreed, subject to certain conditions, to provide an unsecured
revolving credit facility to the Company in an aggregate amount of up
to $140.0 million and to provide, under certain circumstances, an
additional $35.0 million. Amounts outstanding under the Credit Facility
bear interest, at the Company's option, at Bank of America's prime rate
(7.75% at April 30, 1999) or at the Eurocurrency rate plus a credit
spread ranging from 0.25% to 0.50%, based on a pre-defined financial
ratio, for a weighted average interest rate of 5.17% at April 30, 1999.
At April 30, 1999, $67.3 million (including outstanding letters of
credit) was outstanding under the Credit Facility.
In August 1998 and January 1999 the Company entered into agreements
with four banks to provide uncommitted one year lines of credit with
total available borrowing of $75.0 million. Borrowings under the
agreements bear interest, at the Company's option, at short term fixed
rates, at the banks' prime rate (7.75% at April 30, 1999) or at the
Eurocurrency rate plus a credit spread, for a weighted average interest
rate of approximately 5.30% at April 30, 1999. There was $9.8 million
outstanding under the uncommitted lines of credit at April 30, 1999.
Liljeholmens has a line of credit which is renewed annually, with
available borrowing of approximately $31.0 million. As of March 31,
1999, Liljeholmens had borrowings under the line of credit of
approximately $6.3 million. Amounts outstanding under the line of
credit bear interest of 3.75% at March 31, 1999.
At March 31, 1999, Liljeholmens had various long-term debt agreements
in multiple European currencies maturing at different dates over the
next two to six years. The total amount outstanding as of March 31,
1999 under the loan agreements was approximately $19.8 million with
interest rates ranging from 3.95% to 8.46%, of which $14.5 million
relates to the credit facility. The loans are collateralized by certain
of Liljeholmens' real estate and by Liljeholmens' shares in its
subsidiaries.
Net cash provided by operating activities amounted to $10.2 million for
the three months ended April 30, 1999 compared to $24.2 million for the
three months ended April 30, 1998 when timing fluctuations favorably
impacted working capital levels.
In May 1999 the Company filed a shelf registration statement for up to
$250 million in debt securities with the Securities and Exchange
Commission. The proceeds of any offering will be used for general
corporate purposes, including acquisitions, long-term investments,
capital expenditures, growth-related working capital needs and the
repayment of existing floating rate debt. As of May 31, 1999 no
issuance has occurred.
On June 8, 1999, the Company's Board of Directors authorized the
Company to repurchase up to an additional 1,000,000 shares of its
common stock. As of May 28, 1999, the Company had purchased 734,700
shares for a total cost of approximately $17,450,000.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
As of April 30, 1999, the Company is subject to interest rate risk on
approximately $95.6 million, of variable rate debt, including
Liljeholmens. The majority of the Company's variable rate debt,
approximately $65.0 million at April 30, 1999, bears interest at the
Bank of America prime rate (7.75% at April 30, 1999) or at the
Eurocurrency rate plus a credit spread ranging from 0.25% to 0.50%.
Each 1.00% increase in the interest rate would impact pre-tax earnings
by approximately $956,000 if applied to the total.
PAGE 11 OF 18
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (CONTINUED)
FOREIGN CURRENCY RISK
The Company uses forward foreign exchange contracts to hedge the impact
of foreign currency fluctuations on certain committed capital
expenditures, Canadian intercompany payables and on certain
intercompany loans. The Company does not hold or issue derivative
financial instruments for trading purposes.
With regard to commitments for machinery and equipment in foreign
currencies, upon payment of each commitment the underlying forward
contract is closed and the corresponding gain or loss is included in
the measurement of the cost of the acquired asset. With regard to
forward exchange contracts used to hedge Canadian intercompany
payables, gain or loss on such hedges is recognized in earnings in the
period in which the underlying hedged transaction occurs. With regard
to cross-currency forward contracts related to certain intercompany
loans, gain or loss on such contracts is recognized into earnings in
the period in which the debt is repaid. If a hedging instrument is sold
or terminated prior to maturity, gains and losses are deferred until
the hedged item is settled.
However, if the hedged item is no longer likely to occur, the resultant
gain or loss on the terminated hedge is recognized into earnings. For
consolidated financial statement presentation, net cash flows from such
hedges are classified in the categories of the cash flow with the items
being hedged.
The following table provides information about the Company's foreign
exchange forward contracts at April 30, 1999.
<TABLE>
<CAPTION>
U.S. DOLLAR AVERAGE
(In thousands, except average contract rate) NOTIONAL CONTRACT ESTIMATED
AMOUNT RATE FAIR VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Canadian Dollar $ 17,796 1.52 $ (274)
Swiss Franc 5,943 1.45 240
German Deutsche Mark 3,278 1.79 (87)
Swedish Kroner 9,936 8.25 (194)
- -------------------------------------------------------------------------------------------------------------------
$ 36,953 $ (315)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The foreign exchange contracts outstanding as of April 30, 1999 have
maturity dates ranging from May 1999 through October 1999.
IMPACT OF ADOPTION OF RECENTLY ISSUED ACCOUNTING STANDARDS
On June 15, 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities". FASB No. 133 is
effective for all fiscal years beginning after June 15, 2000. FASB No.
133 requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of transaction. The Company
anticipates that, due to its limited use of derivative instruments, the
adoption of FASB No. 133 will not have a significant effect on the
Company's results of operations or its financial position.
PAGE 12 OF 18
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
Recognizing the importance of the "Year 2000 Issue" the Company began
developing a Year 2000 compliance plan in fiscal 1997. The Company's
efforts have been focused on the elements that are believed to be
critical to business operations ("mission critical"), which includes:
(a) an assessment, and where needed, a remediation, of both information
technology ("IT") and non-IT elements of its business information,
computing, telecommunications, and process control systems, (b) an
assessment, and remediation, as necessary, of equipment with embedded
chips, and (c) an evaluation of the Company's relationships with
significant product and services providers and major customers ("key
business partners").
The compliance plan contains five components as follows: (1) Internal
assessment - a detailed evaluation of the potential Year 2000 effects
on the Company's IT and non-IT systems and on its equipment with
embedded computer chips, (2) Remediation - corrective action including
code enhancements, hardware and software upgrades, system replacements,
vendor certification, equipment repair or replacement, and other
associated changes to achieve Year 2000 compliance, (3) Testing - the
verification that remediation actions are effective and that systems
currently deemed compliant in fact are compliant, (4) Third party
evaluation - an evaluation of the Year 2000 readiness of key suppliers
of goods and services and of key customers, and (5) Contingency
planning - the development of detailed procedures to be put in place
should the Company or key business partners experience a significant
Year 2000 problem. Although we believe the above is a sound plan, there
can be no assurances that this process will identify or remediate all
of the existing Year 2000 exposures.
The assessment phase is complete on currently installed products. The
remediation process is substantially complete on critical IT and non-IT
systems, and the Company presently believes that remediation and
testing of remaining systems is complete in all material respects. The
testing phase, which is done in most instances using simulated data, is
well underway on critical IT and non-IT systems, and the Company
expects to complete, in all material respects, testing of internal
systems by July 31, 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. After completion
of the initial third party evaluation phase the Company has expanded
this process to follow up non-compliant responses which is expected to
be completed by July 31, 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.
PAGE 13 OF 18
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 COMPLIANCE (CONTINUED)
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.
Once developed, contingency plans and related cost estimates will be
continually refined as additional information becomes available.
Contingency plans which are currently in development are expected to be
completed 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 $2.0 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 substantially all of the costs associated with the
Company's Year 2000 compliance efforts (exclusive of the costs of
implementation of contingency plans) will be expensed. The costs
associated with the Company's Year 2000 compliance efforts are not
expected to be material in relation to the Company's IT budget, and
such efforts are not expected to have a material effect upon the
Company's other IT projects.
While the Company does not expect that it will have any need to obtain
independent verification of its risk or cost estimates, it should be
recognized that the risk and cost estimates herein constitute
forward-looking statements and are based solely on management's best
estimates of future events. The Company's Year 2000 compliance plan is
an ongoing process and the estimates of costs and completion dates for
various components of the Year 2000 compliance plan described above are
subject to change; therefore actual costs could vary significantly from
those currently anticipated and there can be no guarantees regarding
the timing or effectiveness of plan completion.
PAGE 14 OF 18
<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. We expect that our
future growth will be generated by sales to the faster growing
worldwide consumer market for home fragrance products. The market for
our institutional products has grown, but more slowly, and we expect it
will continue to do so. Our ability to continue to grow depends on the
following: market acceptance of existing products, the successful
introduction of new products, and increases in production and
distribution capacity to meet demand. The home fragrance products
industry is driven by consumer tastes. Accordingly, there can be no
assurance that our existing or future products will maintain or achieve
market acceptance. We expect that, as we grow, our rate of growth will
be less than our historical growth rate. In addition, we have grown in
part through acquisitions and there can be no assurance that we will be
able to continue to identify suitable acquisition candidates, to
consummate acquisitions on terms favorable to the Company, to finance
acquisitions or to successfully integrate acquired operations. In the
future, acquisitions may contribute more to the overall Company's sales
growth rate than historically.
PAGE 15 OF 18
<PAGE>
Part II. OTHER INFORMATION (CONTINUED)
ITEM 5. OTHER INFORMATION (CONTINUED)
Ability to Respond to Increased Product Demand
Our significant internal growth has required increases in personnel,
expansion of production and distribution facilities, and enhancement of
management information systems. Our ability to meet future demand for
products will be dependent upon success in (1) training, motivating and
managing new employees, (2) bringing new production and distribution
facilities on line in a timely manner, (3) improving management
information systems in order to respond promptly to customer orders and
(4) improving our ability to forecast anticipated product demand in
order to continue to fill customer orders promptly. If we are unable to
meet future demand for products in a timely and efficient manner, our
operating results could be materially adversely affected.
Risks Associated with International Sales and Foreign-Sourced Products
Our international business has grown at a faster rate than sales in the
United States. In addition, we source a portion of our candle
accessories and decorative gift bags from independent manufacturers in
the Pacific Rim, Europe and Mexico. For these reasons we are subject to
the following risks inherent in foreign manufacturing and sales:
fluctuations in currency exchange rates, economic and political
instability, transportation delays, difficulty in maintaining quality
control, restrictive actions by foreign governments, nationalizations,
the laws and policies of the United States affecting importation of
goods (including duties, quotas and taxes) and trade and foreign tax
laws.
Raw Materials
For certain raw materials, there may be temporary shortages due to
weather or other factors, including disruptions in supply caused by raw
material transportation or production delays. Such raw material
shortages have not previously had, and are not expected to have, a
material adverse effect on the Company's operations.
Dependence on Key Management Personnel
Our success depends upon the contributions of key management personnel,
particularly our Chairman, Chief Executive Officer and President, Robert
B. Goergen. We do not have employment contracts with any of our key
management personnel, nor do we maintain any key person life insurance
policies. The loss of any of the key management personnel could have a
material adverse effect on the Company.
Competition
Our business is highly competitive, both in terms of price and new
product introductions. The worldwide consumer market for home fragrance
products is highly fragmented, with numerous suppliers serving one or
more of the distribution channels served by the Company. Because there
are relatively low barriers to entry to the home fragrance products
industry, we may face increased future competition from other
companies, some of which may have substantially greater financial and
marketing resources than those available to us. From time to time
during the year-end holiday season, we experience competition from
candles manufactured in foreign countries, particularly China. In
addition, certain of our competitors focus on a particular geographic
or single-product market and attempt to gain or maintain market share
solely on the basis of price.
PAGE 16 OF 18
<PAGE>
Part II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27. Financial data schedule
b) Reports on Form 8-K
During the fiscal quarter ended April 30, 1999, the Company filed the
following Current Report on Form 8-K:
The Company filed a Current Report on Form 8-K on April
1, 1999 to file as an exhibit the press release
announcing the Company's results of operations for the
fiscal quarter ended January 31, 1999.
PAGE 17 OF 18
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
BLYTH INDUSTRIES, INC.
Date: June 11, 1999 By:/s/ Robert B. Goergen
-------------------------- ------------------------
Robert B. Goergen
Chief Executive Officer
Date: June 11, 1999 By:/s/ Richard T. Browning
-------------------------- ------------------------
Richard T. Browning
Chief Financial Officer
PAGE 18 OF 18
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
- ------- ----------- --------
<S> <C> <C>
27. Financial data schedule N/A
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT APRIL 30, 1999 AN DTHE CONSOLIDATED STATEMENT OF
EARNINGS, STOCKHOLDERS' EQUITY AND CASH FLOWS FOR THE THREE MONTHS ENDED APRIL
30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> APR-30-1999
<CASH> 18,650
<SECURITIES> 0
<RECEIVABLES> 66,435
<ALLOWANCES> 1,471
<INVENTORY> 186,164
<CURRENT-ASSETS> 273,480
<PP&E> 299,351
<DEPRECIATION> 64,056
<TOTAL-ASSETS> 588,742
<CURRENT-LIABILITIES> 126,847
<BONDS> 0
0
0
<COMMON> 984
<OTHER-SE> 325,765
<TOTAL-LIABILITY-AND-EQUITY> 588,742
<SALES> 244,273
<TOTAL-REVENUES> 244,273
<CGS> 103,793
<TOTAL-COSTS> 103,793
<OTHER-EXPENSES> 107,559
<LOSS-PROVISION> 326
<INTEREST-EXPENSE> 1,884
<INCOME-PRETAX> 30,418
<INCOME-TAX> 11,683
<INCOME-CONTINUING> 18,537
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,537
<EPS-BASIC> 0.38
<EPS-DILUTED> 0.38
</TABLE>
