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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED
JANUARY 31, 1999 COMMISSION FILE NO. 1-13026
BLYTH INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-2984916
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 FIELD POINT ROAD
GREENWICH, CONNECTICUT 06830
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (203) 661-1926
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
------------------- ------------------------------------
Common Stock, $0.02 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
As of April 15, 1999, the aggregate market value of the voting stock
held by non-affiliates of the registrant was approximately $767 million based
on the closing price of the registrant's Common Stock on the New York Stock
Exchange on such date and based on the assumption, for purposes of this
computation only, that all of the registrant's directors and executive officers
are affiliates.
As of April 15, 1999, there were outstanding 48,680,474 shares of
Common Stock, $0.02 par value.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the 1999 Annual Report to Shareholders for the
fiscal year ended January 31, 1999 (Incorporated into Parts I
and II)
(2) Portions of the 1999 Proxy Statement for the 1999 Annual
Meeting of Shareholders to be held on June 8, 1999
(Incorporated into Part III)
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TABLE OF CONTENTS
PART I
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Item 1. Business...............................................................................................3
Item 2. Properties............................................................................................11
Item 3. Legal Proceedings.....................................................................................12
Item 4. Submission of Matters to a Vote of Security Holders...................................................12
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................................12
Item 6. Selected Financial Data...............................................................................12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations...........................................................................................12
Item 7A. Quantitative and Qualitative Disclosure about Market Risk.............................................13
Item 8. Financial Statements and Supplementary Data...........................................................13
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure...........................................................................................13
PART III
Item 10. Directors and Executive Officers of the Registrant....................................................14
Item 11. Executive Compensation................................................................................14
Item 12. Security Ownership of Certain Beneficial Owners and Management........................................14
Item 13. Certain Relationships and Related Transactions........................................................14
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................................14
</TABLE>
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PART I
ITEM 1. BUSINESS
Blyth Industries, Inc. (the "Company", which may be referred to as "we", "us" or
"our") operates in the home fragrance products market. The Company is a leader
in the design, manufacture, marketing and distribution of 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. These products are sold under various brand names through a wide variety
of distribution channels. We are also a producer of portable heating fuel and
other institutional products sold, under various brand names, both domestically
and internationally through independent sales representatives and distributors.
The Company has operations within and outside the United States and sells its
products worldwide.
Our net sales have grown substantially in the last five years. Internal growth
and acquisitions have contributed to such growth. Internal growth has been
generated by increased sales of home fragrance products to consumers worldwide,
the introduction of new products and product line extensions, and geographic
expansion. We have successfully integrated numerous acquisitions and investments
into our operations since the Company's formation in 1977.
Our home page on the Internet is at www.blythindustries.com. You can learn more
about us by visiting that site. That information, however, is not incorporated
herein by reference.
In managing our day to day business, as well as evaluating strategic
opportunities, the Company is organized toward the worldwide consumer market for
home fragrance products.
Within the worldwide consumer market, which in fiscal year 1999 accounted for
over 90% of our net sales, we focus on three primary areas: the retail consumer
channel in the United States; the direct selling channel in the United States;
and markets outside the United States.
THE U.S. RETAIL CONSUMER CHANNEL
With respect to the retail consumer channel in the United States, our brands
continued to grow in fiscal year 1999. Through the activities of Candle
Corporation of America, Endar Corp., Jeanmarie Creations, Inc., and New Ideas
International, Inc., we market our products through a variety of distribution
channels and tailor our products, designs, packaging and prices to satisfy
the varying demands of customers within each distribution channel.
Specifically, we sell our products to department and gift stores, specialty
chains, food and drug stores, and mass
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merchandisers, through a network of independent sales representatives and
Company sales managers. We support these independent sales representatives by
providing them with comprehensive product catalogues and samples to market our
everyday and seasonal product lines. We believe that our competitive position in
these markets is enhanced by our ability to respond quickly to new orders and
our ability to assist customers through inventory management and control and to
satisfy delivery requirements through on-line ordering.
U.S. DIRECT SELLING CHANNEL
Our direct selling channel reaches consumers by utilizing a network of
independent sales consultants to sell products through the home party plan
method of selling. Our independent sales consultants receive their earnings
based on sales of our products at home parties organized by them. This channel
utilized over 28,000 independent sales consultants selling in the United States
in fiscal year 1999, and we were represented by independent sales consultants in
all 50 states. Our direct selling channel demonstrated excellent growth in
fiscal year 1999, with its sales in the United States growing over 25%.
MARKETS OUTSIDE THE U.S.
We also market our products outside the United States to department and gift
stores, specialty chains, and mass merchandisers through a network of
independent sales representatives and Company sales managers, including
representatives and managers of subsidiaries of the Company (some of which
are Colony Gift Corporation Limited, Eclipse Candles Limited, PartyLite
Gifts, Inc. and, as of December 1998, Liljeholmens Stearinfabriks AB). Our
recent long term investment in Liljeholmens strengthened the Company's
position in the European candle market, making us a leader in mass retailers
in Sweden, Denmark, Germany and Switzerland.
International markets offer the Company significant potential for growth. In
fiscal year 1999, approximately 18% of our total sales were outside of the
United States and our international growth rate exceeded 40%. The Company's
brands currently have the leading share of market for fragrance candles in
England, Germany, Switzerland and Austria.
Our international operations include exports of products sold through Company
sales managers and independent sales representatives, which products compete
in the candle markets of Canada, Europe, Latin America and the Pacific Rim,
to distributors, department and gift stores, mass merchandisers and food
service distributors. We currently plan to continue to expand internationally
through the establishment of foreign-based marketing and distribution
operations.
More detailed information regarding geographic area data is set forth in
Note 11 to the Company's consolidated financial statements, appearing in the
Company's 1999 Annual Report to Shareholders. This information is incorporated
herein by reference.
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OTHER
The Company is also a supplier of institutional products to restaurants, hotels
and other institutional customers. We sell these products through independent
sales representatives, independent food service distributors, and Company sales
managers. Sales of our institutional products grew in fiscal year 1999 in part
due to the strength of our new products and the combination of our table-top
illumination products and our new catering products, namely the Sterno(R) and
Handy-Fuel(R) brands, which we acquired from the Colgate-Palmolive Company in
December 1997. Institutional sales in fiscal year 1999 were less than ten
percent of the Company's total sales.
PRODUCTS AND BRANDS
The primary products we sell are:
Candles, scented and unscented
Candle accessories
Aromatherapy candles
Potpourri
Citronella, candles and liquid wax
Air fresheners, filters and sprays
Decorative gift bags and tags
Liquid wax lamps
Food warmers
Portable heating fuel
Our "flagship" key brand names under which these products are sold are:
Colonial Candle of Cape Cod(R)
PartyLite(R)
Ambria(TM)
Carolina Designs(TM)
Colony(R) (1) (2)
Sterno(R)
GIES(TM) (1)
Our other key brand names are, in alphabetical order:
Aromatics(TM)
Asp-Holmblad(TM) (1)
Candle Corporation of America(TM)
Canned Heat(TM)
Canterbury(TM)
Eclipse Candles(TM) (1) (2)
Endar(TM)
Eternalux(R)
FanMate(R)
FilterMate(R)
Florasense(R)
Fragrance Originals(R)
Handy Fuel(R)
Jeanmarie(R)
Liljeholmens(R)
New Ideas(TM)
Old Harbor Candles(R)
Original Recipe(TM)
NEW PRODUCT DEVELOPMENT
We develop and introduce new products each year to satisfy changing consumer
tastes. The new product development process is managed on a worldwide basis
- --------------------------------------------------------------------------------
(1) Sold only outside of the United States.
(2) The Colony(R) and Eclipse Candles(TM) trademarks are registered in the
United Kingdom and other countries outside of the United States. Our
products under the Colony(R) and Eclipse Candles(TM) marks are offered and
sold only outside of the United States, and are not available in the
United States. Colony and Eclipse Candles brand products sold in the
United States are in no way associated with us, and are made and sold by
another company.
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by teams comprised of brand managers, product managers, designers, foreign
sourcing personnel, laboratory technicians, manufacturing engineers and sales
managers.
New product concepts are directed to the marketing departments from all areas
within the Company, as well as from the Company's independent sales
representatives. The new product development process, including market research,
comparative analysis, engineering specifications, feasibility studies, testing
and evaluation, can require from 3 to 18 months to complete. New products have
typically accounted for at least 15% of our net sales in the first full year
following introduction.
MANUFACTURING AND DISTRIBUTION
We are continuously attempting to reduce our costs through more efficient
production and distribution methods, technological advancements and
consolidating and rationalizing acquired equipment and facilities. Since our
1994 initial public offering, we have invested over $150 million in new, more
advanced equipment in order to lower manufacturing costs, improve product
quality and significantly increase manufacturing capacity so that we may meet
historical and expected future sales growth. As a result, we have more than
doubled our manufacturing and distribution capacity in recent years.
During fiscal year 1999, the Company continued with its planned construction
of a European distribution facility of approximately 327,000 square feet,
which was completed in February 1999. In December 1998, the Company entered
into a construction and operating lease agreement for a manufacturing
facility in Monterrey, Mexico of approximately 200,000 square feet, which we
expect to be fully completed by August 1999.
The manufacture of the Company's products involves the use of various highly
automated processes and technologies, as well as certain hand crafting and
finishing. During recent years, we have invested in new automated machinery that
we believe has resulted, and will continue to result, in significant cost
savings and capacity expansion.
To maximize distribution efficiencies, we operate a network of stand-alone
distribution facilities in addition to distribution facilities in our
manufacturing plants.
CUSTOMERS
Customers for our home fragrance products include department and gift stores and
specialty chains, food and drug stores, mass merchandisers, and individual
consumers (through the home party plan network). Our institutional customers are
primarily distributors servicing that market. No single customer accounts for
10% or more of our sales. In each of the channels of distribution in which we do
business, our five largest customers have been customers for at least five
years.
COMPETITION
Our business is highly competitive. The principal competitive factors are new
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product introductions, product quality, delivery time, customer service and
price. The domestic and international consumer market for home fragrance
products is highly fragmented. Numerous suppliers serve this market. Because
there are relatively low barriers to entry, the Company may face future
competition from other consumer product companies, which may have substantially
greater financial and marketing resources than those available to the Company.
EMPLOYEES
As of January 1999, the Company had approximately 3,500 full-time employees. Of
those, approximately 2,700 are non-salaried. Approximately 200 hourly workers in
the Company's Chicago, Illinois and Brooklyn, New York facilities are
represented by Local 777 of the Teamsters and Local 422-S of the AFL-CIO.
Contracts with these unions will expire in June 2000 and June 1999,
respectively. The remaining employees, approximately 94% of total employees, are
salaried and non-salaried, non-unionized employees. We believe that our
relations with our employees are good. Since its formation in 1977, the Company
has never experienced a work stoppage.
RAW MATERIALS
All of the raw materials used by us, principally petroleum based wax and glass
containers, have historically been available in adequate supply from multiple
sources.
TRADEMARKS
The Company owns numerous United States trademark registrations and has
trademark applications pending in the United States Patent and Trademark Office
with respect to certain of its products. In addition, from time to time we
register certain trademarks in certain foreign countries. All of our United
States trademark registrations can be maintained and renewed provided that the
trademarks are still in use for the goods and services covered by such
registrations. We regard these trademarks as valuable assets. Although we own
certain patents which we consider valuable, our business is not dependent upon
any single patent or group of patents.
ENVIRONMENTAL LAW COMPLIANCE
Most of our manufacturing, distribution and certain research operations are
affected by federal, state and local environmental laws. These laws relate to
the discharge of materials or otherwise with respect to the protection of the
environment. We have made and intend to continue to make necessary expenditures
for compliance with applicable laws. We do not believe these expenditures will
have any material effect on our capital expenditures, earnings or competitive
position.
YEAR 2000 COMPUTER SYSTEMS COMPLIANCE
Information on the Company's Year 2000 Computer Systems Compliance is
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incorporated by reference to pages 17-18 of the Company's Annual Report to
Shareholders for the fiscal year ended January 31, 1999. The referenced pages of
such annual report have been filed as part of Exhibit 13 to this report.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
OUR DISCLOSURE AND ANALYSIS IN THIS REPORT AND IN OUR 1999 ANNUAL REPORT TO
SHAREHOLDERS CONTAIN SOME FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS
GIVE OUR CURRENT EXPECTATIONS OR FORECASTS OF FUTURE EVENTS. YOU CAN USUALLY
IDENTIFY THESE STATEMENTS BY THE FACT THAT THEY DO NOT RELATE STRICTLY TO
HISTORICAL OR CURRENT FACTS. THEY OFTEN USE WORDS SUCH AS "ANTICIPATE",
"ESTIMATE", "EXPECT", "PROJECT", "INTEND", "PLAN", "BELIEVE," AND OTHER WORDS
AND TERMS OF SIMILAR MEANING IN CONNECTION WITH ANY DISCUSSION OF FUTURE
OPERATING OR FINANCIAL PERFORMANCE. IN PARTICULAR, THESE INCLUDE STATEMENTS
RELATING TO FUTURE ACTIONS, PROSPECTIVE PRODUCTS OR PRODUCT APPROVALS, FUTURE
PERFORMANCE OR RESULTS OF CURRENT AND ANTICIPATED PRODUCTS, SALES EFFORTS,
EXPENSES, THE OUTCOME OF CONTINGENCIES SUCH AS LEGAL PROCEEDINGS, AND FINANCIAL
RESULTS. FROM TIME TO TIME, WE ALSO MAY PROVIDE ORAL OR WRITTEN FORWARD-LOOKING
STATEMENTS IN OTHER MATERIALS WE RELEASE TO THE PUBLIC.
ANY OR ALL OF OUR FORWARD-LOOKING STATEMENTS IN THIS REPORT, IN OUR 1999
ANNUAL REPORT TO SHAREHOLDERS AND IN ANY OTHER PUBLIC STATEMENTS WE MAKE MAY
TURN OUT TO BE WRONG. THEY CAN BE AFFECTED BY INACCURATE ASSUMPTIONS WE MIGHT
MAKE OR BY KNOWN OR UNKNOWN RISKS AND UNCERTAINTIES. MANY FACTORS MENTIONED
IN THIS DISCUSSION, FOR EXAMPLE, PRODUCT COMPETITION AND THE COMPETITIVE
ENVIRONMENT, WILL BE IMPORTANT IN DETERMINING FUTURE RESULTS. CONSEQUENTLY,
NO FORWARD-LOOKING STATEMENT CAN BE GUARANTEED. ACTUAL FUTURE RESULTS MAY
VARY MATERIALLY.
WE UNDERTAKE NO OBLIGATION TO PUBLICLY UPDATE ANY FORWARD-LOOKING STATEMENT,
WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. YOU ARE
ADVISED, HOWEVER, TO CONSULT ANY FURTHER DISCLOSURES WE MAKE ON RELATED SUBJECTS
IN OUR 10-Q, 8-K AND 10-K REPORTS TO THE SEC. ALSO NOTE THAT WE PROVIDE THE
FOLLOWING CAUTIONARY DISCUSSION OF RISKS, UNCERTAINTIES AND POSSIBLY INACCURATE
ASSUMPTIONS RELEVANT TO OUR BUSINESS. THESE ARE SOME OF THE FACTORS THAT WE
THINK COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM EXPECTED AND
HISTORICAL RESULTS. OTHER FACTORS BESIDES THOSE LISTED HERE COULD ALSO ADVERSELY
AFFECT THE COMPANY. THIS DISCUSSION IS PROVIDED AS PERMITTED BY THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.
|_| 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
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capacity to meet demand. The home fragrance products industry is driven by
consumer tastes. Accordingly, there can be no assurance that our existing or
future products will maintain or achieve market acceptance. We expect that, as
we grow, our rate of growth will be less than our historical growth rate. In
addition, we have grown in part through acquisitions and there can be no
assurance that we will be able to continue to identify suitable acquisition
candidates, to consummate acquisitions on terms favorable to the Company, to
finance acquisitions or to successfully integrate acquired operations. In the
future, acquisitions may contribute more to the overall Company's sales growth
rate than historically.
|_| ABILITY TO RESPOND TO INCREASED PRODUCT DEMAND
Our significant internal growth has required increases in personnel, expansion
of production and distribution facilities, and enhancement of management
information systems. Our ability to meet future demand for products will be
dependent upon success in (1) training, motivating and managing new employees,
(2) bringing new production and distribution facilities on line in a timely
manner, (3) improving management information systems in order to respond
promptly to customer orders and (4) improving our ability to forecast
anticipated product demand in order to continue to fill customer orders
promptly. If we are unable to meet future demand for products in a timely and
efficient manner, our operating results could be materially adversely affected.
|_| RISKS ASSOCIATED WITH INTERNATIONAL SALES AND FOREIGN-SOURCED PRODUCTS
Our international business has grown at a faster rate than sales in the United
States. In addition, we source a portion of our candle accessories and
decorative gift bags from independent manufacturers in the Pacific Rim, Europe
and Mexico. For these reasons we are subject to the following risks inherent in
foreign manufacturing and sales: fluctuations in currency exchange rates,
economic and political instability, transportation delays, difficulty in
maintaining quality control, restrictive actions by foreign governments,
nationalizations, the laws and policies of the United States affecting
importation of goods (including duties, quotas and taxes) and trade and foreign
tax laws.
|_| RAW MATERIALS
For certain raw materials, there may be temporary shortages due to weather or
other factors, including disruptions in supply caused by raw material
transportation or production delays. Such raw material shortages have not
previously had, and are not expected to have, a material adverse effect on the
Company's operations.
|_| DEPENDENCE ON KEY MANAGEMENT PERSONNEL
Our success depends upon the contributions of key management personnel,
particularly our Chairman, Chief Executive Officer and President, Robert B.
Goergen. We do not have
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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.
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ITEM 2. PROPERTIES
The following table sets forth the location and approximate square footage
of the Company's major manufacturing and distribution facilities[1]:
<TABLE>
<CAPTION>
Location Use Approximate Square Feet
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Owned Leased
<S> <C> <C> <C>
Batavia, Illinois......................... Manufacturing 120,000 --
Brooklyn, New York........................ Distribution -- 30,000
Caldas da Rainha, Portugal................ Manufacturing and
related distribution 42,000 --
Carol Stream, Illinois.................... Distribution -- 651,000
Carson, California........................ Manufacturing and
related distribution -- 38,000
Chicago, Illinois......................... Manufacturing and
related distribution 168,000 --
Cumbria, England.......................... Manufacturing and
related distribution 163,000 52,000
Diessen, Netherlands...................... Distribution -- 78,000
Diessenhofen, Switzerland................. Manufacturing and
related distribution 11,000 --
Elkin, North Carolina..................... Manufacturing and
related distribution 690,000 --
Glinde, Germany........................... Manufacturing and
related distribution 32,000 --
Miami, Florida............................ Manufacturing and
related distribution 22,000 --
Huckelhoven, Germany...................... Manufacturing and
related distribution 11,000 --
Hyannis, Massachusetts.................... Manufacturing 69,000 --
Isle of Wight, England.................... Manufacturing 55,000 --
Monterrey, Mexico[2]...................... Manufacturing -- 200,000
Montgomery, Illinois[3]................... Distribution -- 344,000
Ontario, Canada........................... Distribution -- 41,000
Oskarshamm, Sweden........................ Manufacturing and
related distribution -- 123,000
Plymouth, Massachusetts................... Distribution 59,000 --
Temecula, California..................... Manufacturing and
related distribution -- 361,000
Texarkana, Texas.......................... Manufacturing and
related distribution 130,000 --
Thomasville, Georgia...................... Manufacturing and
related distribution 66,000 --
Tilburg, Netherlands...................... Distribution 327,000 --
Tijuana, Mexico........................... Manufacturing -- 120,000
Tulsa, Oklahoma........................... Distribution 98,000 81,000
Vordingborg, Denmark...................... Manufacturing and
related distribution 21,000 --
Weston-Super-Mare, England................ Manufacturing and
related distribution -- 62,000
</TABLE>
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[1] Chart includes major manufacturing and distribution facilities for
Liljeholmens Stearinfabriks AB, in which the Company acquired approximately 79%
Class A voting common stock in December 1998.
[2] Lease signed December 1998 for August 1999 completion to replace current
plant of 85,000 square feet.
[3] Facility is leased by third party service provider; the Company pays
provider an all-inclusive service fee.
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The Company's executive offices, administrative offices and outlet
stores are generally located in leased space (except for certain offices located
in owned space). All of the Company's properties are currently being utilized
for their intended purpose.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in litigation arising in the ordinary course of its
business. In the opinion of the Company's management, existing litigation will
not have a material adverse effect on the Company's financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1999 annual meeting of stockholders will be held on June 8,
1999. No matter was submitted to a vote of security holders in the fourth
quarter of the fiscal year ended January 31, 1999.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The principal market for our Common Stock is the New York Stock Exchange.
Information required by this Item is incorporated by reference to page 1 of the
Company's Annual Report to Shareholders for the fiscal year ended January 31,
1999. The referenced page of our annual report has been filed as part of Exhibit
13 to this report.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this Item is incorporated by reference to page 11
of the Company's Annual Report to Shareholders for the fiscal year ended January
31, 1999. The referenced page of such annual report has been filed as part of
Exhibit 13 to this report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information required by this Item is incorporated by reference to pages 12
through 18 of the Company's Annual Report to Shareholders for the fiscal year
ended January 31, 1999. The referenced pages of such annual report have been
filed as part of Exhibit 13 to this report.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this Item is incorporated by reference to page 16
of the Company's Annual Report to Shareholders for the fiscal year ended January
31, 1999. The referenced pages of such annual report have been filed as part of
Exhibit 13 to this report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this Item is incorporated by reference to pages 19
through 33 of the Company's Annual Report to Shareholders for the fiscal year
ended January 31, 1999. The referenced pages of such annual report have been
filed as part of Exhibit 13 to this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On April 8, 1997, the Board of Directors of the Company, acting upon the
recommendation of its Audit Committee, appointed Coopers & Lybrand L.L.P.
(now PricewaterhouseCoopers LLP) as the independent accountants of the
Company for the fiscal year ended January 31, 1998, and determined not to
engage Grant Thornton LLP ("Grant Thornton") as the independent certified
public accountants of the Company for the fiscal year ended January 31, 1998.
Grant Thornton had been previously engaged to audit the Company's financial
statements for seven years, including the fiscal year ended January 31, 1997.
Grant Thornton's report on the financial statements of the Company for the
fiscal year ended January 31, 1997 did not contain any adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty,
audit scope or accounting principles. There were no disagreements with Grant
Thornton on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to Grant Thornton's satisfaction, would have caused Grant
Thornton to make reference to the subject matter of the disagreement(s) in
connection with its reports on the Company's financial statements. Pursuant
to a letter from Grant Thornton to the Securities and Exchange Commission
(the "SEC"), dated May 2, 1997, a copy of which is attached as Exhibit 16 to
Blyth's Current Report on Form 8-K/A filed on the same date with the SEC,
Grant Thornton agrees with the above statements.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Items 10 through 13 is included in the
Company's proxy statement dated April 30, 1999, on pages 3 through 12.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1). Financial Statements
The following consolidated financial statements are contained on the
indicated pages of this report:
<TABLE>
<CAPTION>
Page No.
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<S> <C>
Report of Independent Accountants................................................... *
Report of Independent Certified Public Accountants.................................. *
Statements:
Consolidated Balance Sheets.................................................... *
Consolidated Statements of Earnings............................................ *
Consolidated Statements of Stockholders' Equity................................ *
Consolidated Statements of Cash Flows.......................................... *
Notes to Consolidated Financial Statements..................................... *
</TABLE>
* Incorporated herein by reference to the appropriate portions of the
Company's Annual Report to Shareholders for the fiscal year ended January
31, 1999. (See Part II.)
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(a)(2). FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is contained on the indicated
pages of this report:
<TABLE>
<CAPTION>
Page No.
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<S> <C>
Report of Independent Accountants S-1
Report of Independent Certified Public Accountants S-2
Allowance for Doubtful Receivables S-3
</TABLE>
All other schedules are omitted because they are inapplicable or the
requested information is shown in the consolidated financial statements or
related notes.
(a)(3). EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
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<S> <C>
3.1* Restated Certificate of Incorporation of the Registrant
3.2* Restated By-laws of the Registrant
4.1+ Amended and Restated 1994 Employee Stock Option Plan of the
Registrant (incorporated by reference to Exhibit 4.1 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 31, 1996)
4.1(a)+ Amended and Restated 1994 Employee Stock Option Plan of the
Registrant (incorporated by reference to Exhibit 4.1 to the
Registrant's Current Report on Form 8-K/A filed April 20,
1998)
4.2+ Form of Nontransferable Incentive Stock Option Agreement under
the Amended and Restated 1994 Employee Stock Option Plan of
the Registrant (incorporated by reference to Exhibit 4.2 to
the Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 31, 1996)
4.3+ Form of Nontransferable Non-Qualified Stock Option Agreement
under the Amended and Restated 1994 Employee Stock Option Plan
of the Registrant (incorporated by reference to Exhibit 4.3 to
the Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 31, 1996)
4.4+ 1994 Stock Option Plan for Non-Employee Directors of the
Registrant (incorporated by reference to Exhibit 4.4 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 31, 1996)
4.5*+ Form of Stock Option Agreement under the 1994 Stock Option
Plan for Non-Employee Directors of the Registrant
10.1 Credit Agreement, dated as of October 17, 1997, among the
Registrant, the Banks listed therein, Morgan Guaranty Trust
Company of New York, as documentation agent, and Bank of
America National Trust and Savings Association, as
administrative agent (incorporated by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended October 31, 1997)
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
10.2 Note Purchase Agreement, dated July 7, 1995 (the "Note
Purchase Agreements"), relating to the 7.54% Senior Notes due
June 30, 2005, among Candle Corporation Worldwide, Inc.,
Candle Corporation of America, and PartyLite Gifts, Inc., as
Issuers, the Registrant, as guarantor, and the Purchasers
named therein (incorporated by reference to Exhibit 10.2 to
the Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 31, 1995)
10.2(a) Fourth Amendment, dated as of October 17, 1997, to Note
Purchase Agreements (incorporated by reference to Exhibit 10.2
to the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended October 31, 1997)
10.2(b) Assumption Agreement, dated as of October 17, 1997, of Note
Purchase Agreements, among Candle Corporation Worldwide, Inc.,
Candle Corporation of America, and PartyLite Gifts, Inc., as
assignors, and the Registrant, as assignee (incorporated by
reference to Exhibit 10.3 to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended October 31, 1997)
10.2(c) Guaranty Agreement, dated as of October 17, 1997, by Candle
Corporation Worldwide, Inc. (incorporated by reference to
Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended October 31, 1997)
10.2(d) Form of 7.54% Senior Notes due June 30, 2005 (incorporated by
reference to Exhibit 10.5 to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended October 31, 1997)
10.3 Master Equipment Lease Agreement between MetLife Capital,
Limited Partnership, as lessor, and Candle Corporation of
America, as lessee (incorporated by reference to Exhibit 10.21
to the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1995)
10.4* Standard Form Industrial Lease dated April 22, 1993, between
Carol Point Builders I General Partnership and PartyLite
Gifts, Inc.
10.4(a) First Amendment, dated August 21, 1995, between ERI-CP, Inc.,
a Delaware corporation, as successor to Carol Point Builders I
General Partnership, and PartyLite Gifts, Inc., to Standard
Form Industrial Lease dated April 22, 1993, between Carol
Point Builders II General Partnership and PartyLite Gifts,
Inc. (incorporated by reference to Exhibit 10.4(a) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 31, 1996)
10.5 Lease Agreement, dated June 25, 1997, between Carol Stream I
Development Company, as landlord, PartyLite Gifts, Inc., as
tenant, and the Registrant, as guarantor (incorporated by
reference to Exhibit 10.5 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31, 1998)
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
10.6*+ Form of Indemnity Agreement between the Registrant and each of
its directors
10.7*+ Amended and Restated Stock Appreciation Unit Agreement
originally dated as of September 10, 1992, between the
Registrant and Thomas K. Kreilick
10.8+ Promissory Note, dated March 17, 1995, payable by Elwood L. La
Forge, Jr. and Mary G. La Forge to the Registrant
(incorporated by reference to Exhibit 10.8 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended January
31, 1998)
10.9+ Mortgage, dated March 17, 1995, between Elwood L. La Forge,
Jr. and Mary G. La Forge, as mortgagor, to the Registrant, as
mortgagee (incorporated by reference to Exhibit 10.9 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 31, 1998)
13.** Annual Report to Shareholders for the fiscal year ended
January 31, 1999 (Pages 1 and 11 through 33)
21.** List of Subsidiaries
23.1** Consent of PricewaterhouseCoopers LLP, independent accountants
23.2** Consent of Grant Thornton LLP, independent certified public
accountants
24.1** Power of Attorney
24.2** Certified Resolutions of the Board of Directors of the
Registrant
27.** Financial Data Schedule as of and for the period ended January
31, 1999.
</TABLE>
- -------------------------
* Included as an exhibit to the Registrant's Registration Statement on
Form S-1 (No. 33-77458) and incorporated herein by reference.
** Filed herewith.
+ Management contract or compensatory plan required to be filed by Item
14(c) of this report.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the fourth quarter of
the fiscal year ended January 31, 1999:
Current Report on Form 8-K, dated December 4, 1998, attaching earnings press
release.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: April 30, 1999
BLYTH INDUSTRIES, INC.
By: /s/ Robert B. Goergen
------------------------
Robert B. Goergen
Chairman, Chief Executive Officer
and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert B. Goergen Chairman, Chief Executive Officer and President; April 30, 1999
- ------------------------------ Director (Principal Executive Officer)
Robert B. Goergen
/s/ Richard T. Browning Vice President and Chief Financial Officer April 30, 1999
- ------------------------------ (Principal Financial and Accounting Officer)
Richard T. Browning
/s/ Howard E. Rose Vice Chairman and Director April 30, 1999
- ------------------------------
Howard E. Rose
/s/ Roger A. Anderson Director April 30, 1999
- ------------------------------
Roger A. Anderson
/s/ John W. Burkhart Director April 30, 1999
- ------------------------------
John W. Burkhart
/s/ Pamela M. Goergen Director April 30, 1999
- ------------------------------
Pamela M. Goergen
/s/ Neal I. Goldman Director April 30, 1999
- ------------------------------
Neal I. Goldman
/s/ Roger H. Morley Director April 30, 1999
- ------------------------------
Roger H. Morley
/s/ John E. Preschlack Director April 30, 1999
- ------------------------------
John E. Preschlack
/s/ Frederick H. Stephens, Jr. Director April 30, 1999
- ------------------------------
Frederick H. Stephens, Jr.
</TABLE>
18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Blyth Industries, Inc.
Our report on the consolidated financial statements of Blyth Industries, Inc.
and Subsidiaries as of January 31, 1999 and 1998 and for each of the two years
in the period ended January 31, 1999, has been incorporated by reference in this
Form 10-K from page 32 of the 1999 Annual Report to Shareholders of Blyth
Industries, Inc. and Subsidiaries. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule listed in the index at Item 14(a)(2) of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
March 25, 1999
S-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Blyth Industries, Inc.
In connection with our audit of the consolidated financial statements of Blyth
Industries, Inc. and Subsidiaries referred to in our report dated March 28,
1997, which is included in the Annual Report to the Shareholders and
incorporated by reference in Part IV of this Form 10-K, we have also audited
Schedule II for the year ended January 31, 1997. In our opinion, this schedule
presents fairly, in all material respects, the information required to be set
forth therein.
/s/ Grant Thornton LLP
Chicago, Illinois GRANT THORNTON LLP
March 28, 1997
S-2
<PAGE>
BLYTH INDUSTRIES, INC.
SCHEDULE II - ALLOWANCE FOR DOUBTFUL RECEIVABLES
For the years ended January 31, 1997, 1998 and 1999
(In thousands)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
<S> <C> <C> <C> <C>
1997 .................... $ 627 $ 1,483 $ 1,056 $ 1,054
1998 .................... 1,054 3,514 3,215 1,353
1999 .................... 1,353 1,356 1,305 1,404
</TABLE>
S-3
<PAGE>
Exhibit 13
- --------------------
FINANCIAL HIGHLIGHTS
- --------------------
[GRAPHIC]
NET SALES
(IN MILLIONS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
YEARS ENDED JANUARY 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1999 INCREASE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING RESULTS(1)
Net Sales.................................... $687,474 $875,065 27%
Gross Profit................................. 388,912 507,548 31%
Operating Profit............................. 98,774 128,237 30%
Net Earnings................................. 54,590(2) 74,502 36%
Diluted Net Earnings Per Common and
Common Equivalent Share(3).................. $ 1.10(2) $ 1.50 36%
Diluted Weighted Average Number of
Common Shares Outstanding(3)................ 49,543 49,604
FINANCIAL POSITION
Total Assets................................. $447,390 $576,783(1)
Total Debt................................... 120,630 127,040(1)
Total Stockholders' Equity................... 246,832 322,032
</TABLE>
[GRAPHIC]
OPERATING PROFIT
(IN MILLIONS)
MARKET FOR COMMON STOCK (3)
The price range for the Company's Common Stock on the New York Stock Exchange
as reported by the New York Stock Exchange was as follows:
<TABLE>
<CAPTION>
FISCAL 1998
(ENDED JANUARY 31, 1998)
HIGH LOW
- -----------------------------------------------------------------------------
<S> <C> <C>
First Quarter.................................... $26.25 $21.08
Second Quarter................................... $38.44 $24.17
Third Quarter.................................... $39.13 $23.25
Fourth Quarter................................... $31.25 $22.63
FISCAL 1999
(ENDED JANUARY 31, 1999)
HIGH LOW
- -----------------------------------------------------------------------------
<S> <C> <C>
First Quarter.................................... $37.63 $28.81
Second Quarter................................... $37.56 $29.56
Third Quarter.................................... $30.19 $22.94
Fourth Quarter................................... $34.19 $27.63
FISCAL 2000
(ENDED JANUARY 31, 2000)
HIGH LOW
- -----------------------------------------------------------------------------
<S> <C> <C>
First Quarter (through April 9, 1999)............ $28.00 $21.63
</TABLE>
[GRAPHIC]
NET EARNINGS
(IN MILLIONS)
(1) Financial position amounts include the balance sheet of Liljeholmens
Stearinfabriks AB as of December 31, 1998 as a result of the Company's
investment in Liljeholmens as further described in the footnotes to the
financial statements. Due to the timing of the investment the operating
results of Liljeholmens are not included in the operating results of the
Company.
(2) Net Earnings and Diluted Net Earnings Per Share include one-time
non-recurring transaction costs of $3.2 million aftertax incurred by
Endar Corp. prior to its acquisition by Blyth.
(3) Reflects the June 1997 three-for-two stock split effected as a stock
dividend.
1
<PAGE>
FINANCIAL REVIEW
SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below are selected summary consolidated financial and operating data
of the Company for fiscal years 1995 through 1999, which have been derived from
the Company's audited financial statements for those years. The information
presented below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
consolidated financial statements, including the notes thereto, appearing
elsewhere in this Annual Report to Shareholders.
<TABLE>
<CAPTION>
Year Ended January 31, 1995 1996 1997 1998 1999
- ------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share and percent data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net sales $229,617 $356,702 $531,480 $687,474 $875,065
Gross profit 113,528 185,369 287,402 388,912 507,548
Operating profit 23,659 43,682 74,047 98,774 128,237
Interest expense 1,240 2,662 3,554 4,816 6,653
Earnings before income taxes
and minority interest 22,752 42,474 71,939 89,930 122,890
Earnings before minority interest 13,605 25,552 42,951 54,862 74,503
Net earnings 13,605 25,175 42,757 54,590 74,502
Basic earnings per common share (1) 0.32 0.56 0.89 1.11 1.52
Diluted net earnings per common share (1) 0.32 0.55 0.88 1.10 1.50
Basic weighted average number
of common shares outstanding (1) 42,040 45,089 47,974 49,063 49,165
Diluted weighted average number
of common shares outstanding (1) 42,208 45,373 48,476 49,543 49,604
OPERATING DATA:
Gross profit margin 49.4% 52.0% 54.1% 56.6% 58.0%
Operating profit margin 10.3% 12.2% 13.9% 14.4% 14.7%
Capital expenditures $ 10,448 $ 35,878 $ 50,526 $ 62,481 $ 42,611
Depreciation and amortization 2,890 4,683 8,778 12,396 19,798
BALANCE SHEET DATA:
Working capital (1) $ 42,494 $110,538 $113,177 $140,101 $143,160
Total assets (1) 102,591 223,469 303,879 447,390 576,783
Total debt (1) 9,837 36,662 44,704 120,630 127,040
Total stockholders' equity 61,196 141,879 189,403 246,832 322,032
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Restated for a December 1995 two-for-one stock split and a June 1997
three-for-two stock split, each of which was effected as a stock dividend.
Earnings per common share for fiscal 1995, fiscal 1996, and fiscal 1997 reflects
the issuance of 6,000,000 shares of Common Stock as part of the Company's
initial public offering in May 1994, the issuance of 3,600,000 shares of Common
Stock in a secondary offering in October 1995, and the issuance of 993,745
shares of Common Stock in connection with the acquisition of New Ideas
International, Inc. in December 1996, respectively. Earnings per common share
for all periods gives effect to the issuance of 2,999,808 shares of Common Stock
upon conversion of certain convertible notes in April 1994 and the issuance of
1,900,786 shares of Common Stock in connection with the acquisition of Endar
Corp. in May 1997. Earnings per common share for the applicable periods also
includes the Company's equity in earnings from its investments in Colony Gift
Corporation Ltd. in September 1993 and March 1995, results of operations of
Jeanmarie Creations, Inc., 92% owned, of which 80% was acquired in April 1995,
4% was acquired in May 1996, 4% was acquired in May 1997, and 4% was acquired in
May 1998, the results of operations from the Company's acquisition of 75%
ownership in Eclipse Candles Ltd. in July 1995 and October 1996, the results of
operations of New Ideas International, Inc., which was acquired in December
1996, and the December 1997 acquisition of the STERNO brand and HANDY FUEL brand
assets, none of which had a material effect on the Company's results of
operations in the period during which they occurred, or thereafter, and also
includes the results of operations of Endar Corp., which was acquired through a
pooling of interests in May 1997 (the Company's results have been restated to
include the historical results of operations of Endar Corp.). As a result of the
acquisition of approximately 79% of Liljeholmens Stearinfabriks AB Class A
voting common stock in December 1998, balance sheet amounts for 1999 include the
December 31, 1998 balances of Liljeholmens. Before including Liljeholmens,
balance sheet data would be: Working capital $135,534; Total assets $516,903;
Total debt $105,094. Due to the timing of the investment in Liljeholmens, the
operating results of Liljeholmens are not included in the Consolidated Statement
of Earnings of the Company.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to net sales, and the percentage increase, of certain items
included in the Company's consolidated statements of earnings:
<TABLE>
<CAPTION>
Increase from Prior Period
Percentage of Net Sales ----------------------------
Years Ended January 31, Fiscal 1998 Fiscal 1999
--------------------------------- Compared to Compared to
1997 1998 1999 Fiscal 1997 Fiscal 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 29.4% 27.3%
Cost of goods sold 45.9 43.4 42.0 22.3 23.1
Gross profit 54.1 56.6 58.0 35.3 30.5
Selling and shipping 30.9 32.9 33.9 37.7 31.3
Administrative 9.1 9.2 9.2 30.5 27.2
Operating profit 13.9 14.4 14.7 33.4 29.8
Net earnings 8.0 7.9 8.5 27.6 36.5
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
FISCAL 1999 COMPARED TO FISCAL 1998
Net sales increased $187.6 million, or 27.3%, from $687.5 million in fiscal 1998
to $875.1 million in fiscal 1999, which percentage increase is similar to the
increase of 29.4% in fiscal 1998 when compared to fiscal 1997. Virtually all of
these increases were attributable to unit growth in sales of the Company's
consumer everyday and seasonal holiday products, particularly scented candles
and accessories. Two areas experienced the highest growth rates for fiscal 1999:
our party plan direct selling channel in the United States; and International,
particularly Europe and Canada. Growth in our United States direct selling
activities was driven by both geographic expansion and higher household
penetration. As our sales in this channel have grown in size over the last
several years, they are less likely to sustain their historical rates of growth
in percentage terms. For fiscal 1999, International net sales (which accounted
for approximately 18% of total sales, compared to approximately 17% in fiscal
1998) continued to grow at a faster rate than the Company as a whole and
accounted for approximately 25% of the net sales increase. International is
likely to exhibit growth at or above the overall Company rate of sales increase
for the foreseeable future. In addition, the Company was able to increase sales
to existing domestic customers, particularly independent stores and specialty
chains. The Company's presence in the mass channel was further strengthened with
the acquisition in May 1997 of Endar Corp., a leading supplier of potpourri and
other fragrance products to the retail consumer market. Increased sales to the
institutional channel were to a large extent due to the acquisition of the
STERNO brand and HANDY FUEL brand assets in December 1997 and the success in
cross-selling our tabletop lighting and portable heating fuel products to our
customers. Sales of scented candles, which are typically higher gross profit
margin products, continued to grow at a substantially faster rate than unscented
products.
Gross profit increased $118.6 million, or 30.5%, from $388.9 million in
fiscal 1998 to $507.5 million in fiscal 1999. Gross profit margin increased from
56.6% for fiscal 1998 to 58.0% for fiscal 1999. The Company continues to benefit
from the capital investments made over the last several years in process
technology improvements and automated pick and pack systems, as well as cost
savings from two new distribution centers. Also contributing to the increase in
gross profit percentage was the growth in International sales which carry a
higher gross profit percentage than the Company's overall average.
Selling and shipping expense increased $70.9 million, or 31.3% from $225.9
million in fiscal 1998 (32.9% of net sales), to $296.8 million in fiscal 1999
(33.9% of net sales). Selling and shipping expense consists of advertising,
sales commissions, printed promotional materials and business development costs,
all of which increased in part due to the increased sales to the consumer
channel, particularly sales through the Company's direct selling activities and
International, in which selling expenses as a percentage of net sales, are
relatively higher. The increase is also reflective of the
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
continued investment in marketing and product development costs in support of
existing and new account and new country development.
Administrative expense increased $17.2 million, or 27.2%, from $63.3
million in fiscal 1998 (9.2% of net sales) to $80.5 million in fiscal 1999 (9.2%
of net sales). Such increases were partially a result of increases in personnel
(from approximately 451 administrative employees at January 31, 1998 to
approximately 492 administrative employees at January 31, 1999). The Company
expects increases in investment in infrastructure to support International sales
growth and continued spending associated with improvements in information and
administrative support systems including Year 2000 related expenses. See "Year
2000 Compliance" below.
Interest expense increased $1.9 million, or 39.6%, from $4.8 million in
fiscal 1998 to $6.7 million in fiscal 1999. Such increase was attributable to
increased borrowing to fund working capital requirements, capital expenditures
and long term investments. Borrowing at the end of fiscal 1998 to acquire the
STERNO brand and HANDY FUEL brand assets also contributed to the increased
interest expense during fiscal 1999.
Income tax expense increased $13.3 million, or 38.0%, from $35.1 million in
fiscal 1998 to $48.4 million in fiscal 1999. The effective income tax rate
remained at approximately 39% for fiscal 1999.
As a result of the foregoing, net earnings increased $19.9 million, or
36.5%, from $54.6 million in fiscal 1998 to $74.5 million in fiscal 1999.
Basic earnings per share based upon the weighted average number of shares
outstanding were $1.52 compared to $1.11 for the same period last year. Diluted
earnings per share based upon the potential dilution that could occur if options
to issue common stock were exercised or converted were $1.50 compared to $1.10
for the same period last year.
FISCAL 1998 COMPARED TO FISCAL 1997
Net sales increased $156.0 million, or 29.4%, from $531.5 million in fiscal 1997
to $687.5 million in fiscal 1998. Virtually all of these increases were
attributable to unit growth in sales of the Company's consumer everyday and
seasonal holiday products, particularly scented candles and accessories. In
particular, two areas experienced the highest growth rate for fiscal 1998: our
party plan direct seller in the United States; and International, particularly
Europe and Canada. Several factors contributed to the increase in unit sales.
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, including sales in Canada, grew at a faster rate than the
Company as a whole, and accounted for approximately 25% of the net sales
increase. International sales accounted for approximately 17% of the total net
sales for fiscal 1998. The Company's results were restated to include the
historical results of operations of Endar Corp. (which was acquired in a pooling
of interests transaction in May 1997). The acquisition of the STERNO brand and
HANDY FUEL brand assets on December 31, 1997 did not have a material impact on
the Company's results of operations. Sales of scented candles, which are
typically higher gross profit margin products, also continued to grow at a
substantially faster rate than unscented products.
Gross profit increased $101.5 million, or 35.3%, from $287.4 million in
fiscal 1997 to $388.9 million in fiscal 1998. Gross profit margin increased from
54.1% for fiscal 1997 to 56.6% for fiscal 1998. Such increases were due, in
substantial part, to the continued increased direct sales of the Company's
products, such as scented candles and candle accessories; these products
generally carry higher gross profit margins than other of the Company's
products. The increase in gross profit margin was also attributable to increased
international sales and to cost savings from the recent implementation of two
automated pick and pack systems, which have lower operational costs than the
manual processes historically used. As in fiscal 1997, the Company experienced
cost benefits from continuing capital investments in process and technology
improvements.
Selling and shipping expense increased $61.9 million, or 37.7%, from $164.0
million in fiscal 1997 (30.9% of net sales), to $225.9 million in fiscal 1998
(32.9% of net sales). Selling and shipping expense consists of advertising,
sales commissions, printed promotional materials and business development costs,
all of which was higher due to increased sales to the consumer
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
channel, particularly sales through the Company's direct selling activities in
which sales expenses, as a percentage of sales, are relatively higher. In
addition, the Company's consumer products generally require a higher level of
product development and sales and marketing expense than the Company's
institutional products. Finally, the increase in selling and shipping expense as
a percentage of net sales was also attributable, in part, to bad debt write-offs
of $2.1 million (principally related to the bankruptcy of one customer) and to
non-recurring one-time costs incurred during and after the United Parcel Service
strike of approximately $2.0 million.
Administrative expense increased $14.8 million, or 30.5%, from $48.5
million in fiscal 1997 (9.1% of net sales) to $63.3 million in fiscal 1998 (9.2%
of net sales). Such increases were a result of increases in personnel (from
approximately 388 administrative employees at January 31, 1997 to approximately
451 administrative employees at January 31, 1998) and the incurrence of
approximately $1.1 million in transition expenses due to the shutdown of
duplicative facilities.
Endar Corp. incurred one-time, non-recurring transaction costs of
approximately $5.2 million prior to its acquisition by the Company. These
one-time, non-recurring transaction costs consisted of a non-cash exercise of
options, payment of bonuses and payment of legal and professional fees.
Interest expense increased $1.2 million, or 33.3%, from $3.6 million in
fiscal 1997 to $4.8 million in fiscal 1998. Such increase was attributable to
increased borrowing to fund working capital requirements, capital expenditures
and the acquisition of the STERNO brand and HANDY FUEL brand assets.
Income tax expense increased $6.1 million, or 21.0%, from $29.0 million in
fiscal 1997 to $35.1 million in fiscal 1998. The effective income tax rate
decreased from approximately 40.0% for fiscal 1997 to approximately 39.0% for
fiscal 1998 due to growth in sales in countries with lower tax rates than U.S.
tax rates.
As a result of the foregoing, net earnings increased $11.8 million, or
27.6%, from $42.8 million in fiscal 1997 to $54.6 million in fiscal 1998.
Excluding the one-time non-recurring transaction costs incurred by Endar prior
to the date of acquisition, the net earnings for fiscal 1998 increased 35.1%
compared to the prior year.
Basic earnings per share based upon the weighted average number of shares
outstanding were $1.11 compared to $0.89 for the same period last year. Diluted
earnings per share based upon the potential dilution that could occur if options
to issue common stock were exercised or converted were $1.10 compared to $0.88
for the same period last year. Earnings per share have been restated for a
3-for-2 stock split effected as a stock dividend in June 1997 and to include the
shares issued in connection with the acquisition of Endar Corp.
SEASONALITY
Approximately 44% of the Company's annual net sales typically occur in the first
and second fiscal quarters of the fiscal year, with the larger balance
experienced in the third and fourth fiscal quarters, generally due to consumer
buying patterns. The Company's net sales are strongest in the third and fourth
fiscal quarters due to increased shipments to meet year-end holiday season
demand for the Company's products. In addition, during the third and fourth
fiscal quarters, the mix of products shipped by the Company shifts to a greater
percentage of higher gross profit margin products. Operating profit largely
follows these patterns, although a somewhat larger portion of the Company's
annual operating profit is earned in the second half of the fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Operating assets and liabilities increased from January 31, 1998 to January 31,
1999 due to the Company's internally generated growth and from the Company's
investment in Liljeholmens Stearinfabriks AB ("Liljeholmens") Class A voting
common stock, as described below. Inventory increased from $135.5 million at
January 31, 1998 to $169.7 million at January 31, 1999. Approximately $17.4
million of this $34.2 million increase was due to the inclusion of the
Liljeholmens inventory while the balance of the increase was attributable to
increases to meet anticipated demand. The Company's percentage increase in sales
(27.3%) was significantly greater than the percentage increase in inventory
(12.4% excluding Liljeholmens) during fiscal 1999. Accounts receivable increased
$8.8 million from $52.0 million at the end
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
of fiscal 1998 to $60.8 million at the end of fiscal 1999. Excluding the
Liljeholmens accounts receivable of $9.5 million, accounts receivable was $51.3
million at January 31, 1999. Accounts payable and accrued expenses increased
$26.7 million ($9.3 million excluding Liljeholmens) from $68.7 million at the
end of fiscal 1998 to $95.4 million ($78.0 million excluding Liljeholmens) at
the end of fiscal 1999. Except for the inclusion of Liljeholmens amounts, the
changes in accounts receivable and in accounts payable and accrued expenses
reflect normal seasonal fluctuations and normal payment patterns of operating
expenses. The Company's outstanding balance under its revolving credit facility
at January 31, 1999 is attributable to working capital requirements, capital
expenditures, the investment in Liljeholmens and other long term investments.
Capital expenditures for property, plant and equipment were $42.6 million
in fiscal 1999. The Company anticipates total capital spending of approximately
$60.0 million for fiscal 2000, which will 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. In the future, acquisitions may contribute more to the overall
Company's sales growth rate than historically. 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. In December, 1998 the Company acquired an approximately 39% economic
interest and 79% voting interest in Liljeholmens, a leading European candle
manufacturer based in Sweden, in a private sale.
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 January 31, 1999) or at the Eurocurrency rate plus a credit
spread ranging from 0.25% to 0.50%, based on a pre-defined financial ratio, for
a weighted average interest rate of 5.28% at January 31, 1999. At January 31,
1999, $76.7 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 January 31, 1999) or at the Eurocurrency rate plus a credit spread, for a
weighted average interest rate of approximately 5.18% at January 31, 1999. There
was $1.7 million outstanding under the uncommitted lines of credit at January
31, 1999.
Liljeholmens has a line of credit which is renewed annually, with available
borrowing of approximately $31.0 million. As of December 31, 1998 Liljeholmens
had borrowings under the line of credit of approximately $1.8 million. Amounts
outstanding under the line of credit bear interest at 3.75% at December 31,
1998.
At December 31, 1998, 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 December 31, 1998 under the loan
agreements was approximately $20.2 million with interest rates ranging from
3.95% to 8.46%, of which $14.6 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 $87.4 million in
fiscal 1999 compared to $43.6 million in fiscal 1998, an improvement of $43.8
million. Subsequent to January 31, 1999, the Company has continued to purchase
common stock on the open market as part of its stock repurchase program. As of
March 31, 1999, a total of approximately 500,000 shares have been repurchased.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's primary capital requirements are for working capital to fund
the increased inventory and accounts receivable to sustain the Company's sales
growth and for capital expenditures. The Company is building its inventory to
meet increased demand. The Company believes that its cash from operations and
available borrowings under the Credit Facility, uncommitted lines of credit and
the Liljeholmens line of credit will be sufficient to fund its operating
requirements, capital expenditures, the Company's stock repurchase program and
all other obligations for fiscal 2000 and fiscal 2001.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
As of March 31, 1999, the Company is subject to interest rate risk on
approximately $97.0 million of variable rate debt, including Liljeholmens. The
majority of the Company's variable rate debt, approximately $74.9 million at
January 31, 1999, bears interest at the bank's prime rate (7.75% at January 31,
1999) or at the Eurocurrency rate plus a credit spread ranging from 0.25% to
0.50%. Each 1.00% increase in the interest rate would impact pre-tax earnings by
approximately $970,000 if applied to the total.
FOREIGN CURRENCY RISK
The Company uses forward foreign exchange contracts to hedge the impact of
foreign currency fluctuations on certain committed capital expenditures,
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 January 31, 1999.
<TABLE>
<CAPTION>
U.S. Dollar Average
(In thousands, except Notional Contract Estimated
average contract rate) Amount Rate Fair Value
- -------------------------------------------------------------
<S> <C> <C> <C>
Canadian Dollar $22,704 1.53 $(305)
Swiss Franc 5,943 1.45 (241)
German Deutsche Mark 474 1.69 (7)
- -------------------------------------------------------------
$29,121 $(553)
- -------------------------------------------------------------
</TABLE>
The foreign exchange contracts outstanding as of January 31, 1999 have maturity
dates ranging from February 1999 through September 1999.
IMPACT OF ADOPTION OF RECENTLY ISSUED ACCOUNTING STANDARDS
On June 15, 1998, the Financial Accounting Standards Board issued Statement No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities". SFAS 133 is effective for all fiscal years beginning after June 15,
1999. SFAS 133 requires that all derivative instruments be recorded on the
balance sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of transaction. The Company anticipates that, due to its
limited use of derivative instruments, the adoption of SFAS 133 will not have a
significant effect on the Company's results of operations or its financial
position.
16
<PAGE>
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 near completion. The remediation process is
substantially complete on critical IT and non-IT systems, and the Company
presently anticipates that remediation and testing of remaining systems will be
complete by April 30, 1999. 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. The
Company expects to complete, in all material respects, the third party
evaluation phase by April 30, 1999.
If needed modifications and conversions of computer systems are not made on
a timely basis by the Company or its key business partners, the Company could be
affected by business disruption, operational problems, and financial loss, any
of which could have a material adverse effect on the Company's results of
operations, and consolidated financial position.
Although not anticipated, the most reasonably likely worst case scenario of
failure by the Company or its key business partners to resolve the Year 2000
issue would be a short-term slowdown or cessation of manufacturing operations at
one or more of the Company's facilities, and a short-term inability on the part
of the Company to process orders and billings in a timely manner and to deliver
product to customers in a timely manner.
In addition to the readiness measures described above, the Company intends
to mitigate, through the development of contingency plans as deemed appropriate,
the possible disruption in business operations that may result from the Year
2000 issue. Contingency plans may include stockpiling raw materials, increasing
finished goods inventory levels, securing alternate sources of supply, and other
appropriate measures.
Once developed, contingency plans and related cost estimates will be
continually refined as additional information becomes available. The Company
intends
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
to complete the development of its contingency plans, in all material respects,
by the end of July, 1999.
It is currently estimated that the aggregate cost of the Company's Year
2000 compliance efforts will be approximately $3.0 million, of which
approximately $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.
EUROPEAN MONETARY UNION -- EURO
On January 1, 1999, several member countries of the European Union established
fixed conversion rates between their existing sovereign currencies, and adopted
the Euro as their new common legal currency. Since that date, the Euro has been
traded on currency exchanges while at the same time the legacy currencies remain
legal tender in the participating countries during a transition period from
January 1, 1999 through January 1, 2001.
During the transition period, cashless payments can be made in the Euro,
and parties can elect to pay for goods and services and transact business using
either the Euro or a legacy currency.
Between January 1, 2002 and July 1, 2002, the participating countries will
introduce Euro notes and coins and withdraw all legacy currencies so that they
will no longer be available.
The Company began assessing the effect of the Euro's introduction in late
1997. The Company believes that its business and financial systems are capable
of handling the conversion to the Euro. Testing of transactions processed using
the new Euro currency has not yet been completed. The Euro conversion may affect
cross-border competition by creating cross-border price transparency. The
Company is assessing its pricing/marketing strategy in order to insure that it
remains competitive in a broader European market. The Company will continue to
evaluate issues involving introduction of the Euro. Based on current information
and the Company's current assessment, the Company does not expect that the Euro
conversion will have a material adverse effect on its business, results of
operations, cash flows or financial condition.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
Certain statements contained in this Annual Report may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements involve a number of risks,
uncertainties and other factors that could cause actual results to differ
materially, as discussed more fully elsewhere in this Annual Report and in the
Company's filings with the Securities and Exchange Commission, including the
Company's Form 10-K for fiscal 1999 to be filed on or about April 28, 1999.
18
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31, (in thousands, except share data) 1998 1999
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 21,273 $ 18,571
Accounts receivable, less allowance for doubtful receivables of $1,353 in 1998
and $1,404 in 1999 51,980 60,810
Inventories 135,524 169,749
Prepaid expenses 612 2,831
Deferred income taxes 2,442 600
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 211,831 252,561
Property, plant and equipment, at cost:
Land and buildings 63,745 104,436
Leasehold improvements 5,038 5,885
Machinery and equipment 115,635 149,973
Office furniture and data processing equipment 26,541 34,163
Construction in progress 1,500 --
- -----------------------------------------------------------------------------------------------------------------------
212,459 294,457
Less accumulated depreciation and amortization 41,749 58,184
- -----------------------------------------------------------------------------------------------------------------------
170,710 236,273
Other assets:
Investments 6,438 18,914
Excess of cost over fair value of assets acquired, net of accumulated amortization
of $2,417 in 1998 and $4,446 in 1999 57,419 67,534
Deposits 992 1,501
- -----------------------------------------------------------------------------------------------------------------------
64,849 87,949
- -----------------------------------------------------------------------------------------------------------------------
Total Assets $447,390 $576,783
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank lines of credit $ -- $ 3,455
Current maturities of long-term debt 1,013 9,339
Accounts payable 39,138 51,336
Accrued expenses 29,574 44,074
Income taxes 2,005 1,197
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 71,730 109,401
Deferred income taxes 7,100 18,978
Long-term debt, less current maturities 119,617 114,246
Excess of fair value over cost of assets acquired, net of accumulated amortization
of $691 in 1998 and $811 in 1999 713 593
Minority interest 1,398 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 and
outstanding, 49,100,953 shares in 1998 and 49,200,474 shares in 1999 982 984
Additional contributed capital 92,357 93,281
Retained earnings 153,493 227,995
Treasury stock, at cost, 0 shares in 1998 and 10,000 shares in 1999 -- (228)
- -----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 246,832 322,032
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $447,390 $576,783
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Year Ended January 31, (in thousands, except per share data) 1997 1998 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $531,480 $687,474 $875,065
Cost of goods sold 244,078 298,562 367,517
- -----------------------------------------------------------------------------------------------------------------------
Gross profit 287,402 388,912 507,548
Selling and shipping 164,019 225,933 296,753
Administrative 48,500 63,257 80,465
Amortization of goodwill 836 948 2,093
- -----------------------------------------------------------------------------------------------------------------------
213,355 290,138 379,311
- -----------------------------------------------------------------------------------------------------------------------
Operating profit 74,047 98,774 128,237
Other expense (income):
Interest expense 3,554 4,816 6,653
Interest income (872) (486) (481)
Equity in earnings of investees (574) (659) (825)
Non-recurring transaction costs of acquired company -- 5,173 --
- -----------------------------------------------------------------------------------------------------------------------
2,108 8,844 5,347
- -----------------------------------------------------------------------------------------------------------------------
Earnings before income taxes and minority interest 71,939 89,930 122,890
Income tax expense 28,988 35,068 48,387
- -----------------------------------------------------------------------------------------------------------------------
Earnings before minority interest 42,951 54,862 74,503
Minority interest 194 272 1
- -----------------------------------------------------------------------------------------------------------------------
Net earnings $ 42,757 $ 54,590 $ 74,502
- -----------------------------------------------------------------------------------------------------------------------
Basic: Net earnings per common share $ 0.89 $ 1.11 $ 1.52
Weighted average number of shares outstanding 47,974 49,063 49,165
- -----------------------------------------------------------------------------------------------------------------------
Diluted: Net earnings per common share $ 0.88 $ 1.10 $ 1.50
Weighted average number of shares outstanding 48,476 49,543 49,604
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common stock
---------------------- Additional
Number contributed Retained Treasury
(In thousands, except share data) of shares Amount capital earnings stock Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at February 1, 1996 47,813,693 $637 $88,701 $ 52,541 $ -- $141,879
Net earnings for the year -- -- -- 42,757 -- 42,757
Common stock issued in connection with acquisition 993,745 13 -- 3,932 -- 3,945
Common stock issued in connection with
exercise of stock options and other 114,080 1 821 -- -- 822
- -----------------------------------------------------------------------------------------------------------------------
Balance at January 31, 1997 48,921,518 651 89,522 99,230 -- 189,403
Net earnings for the year -- -- -- 54,590 -- 54,590
Endar options exercised prior to Endar acquisition 108,713 2 2,296 -- -- 2,298
Common stock issued in connection with
exercise of stock options 70,722 2 539 -- -- 541
Common stock issued in connection with
3-for-2 stock split in the form of a dividend -- 327 -- (327) -- --
- -----------------------------------------------------------------------------------------------------------------------
Balance at January 31, 1998 49,100,953 982 92,357 153,493 -- 246,832
Net earnings for the year -- -- -- 74,502 -- 74,502
Common stock issued in connection with
exercise of stock options 99,521 2 924 -- -- 926
Treasury stock purchase (10,000) -- -- -- (228) (228)
- -----------------------------------------------------------------------------------------------------------------------
Balance at January 31, 1999 49,190,474 $984 $93,281 $227,995 $(228) $322,032
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended January 31, (in thousands) 1997 1998 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 42,757 $ 54,590 $ 74,502
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 8,778 12,396 19,798
Deferred income taxes 1,500 758 4,680
Equity in earnings of investees (574) (659) (825)
Minority interest 194 272 1
Changes in operating assets and liabilities, net of effect of business
acquisitions:
Accounts receivable (9,944) (11,422) 627
Inventories (31,123) (19,961) (16,850)
Prepaid expenses 69 (289) (566)
Deposits 303 (240) (509)
Accounts payable 14,107 2,780 1,332
Accrued expenses 4,086 4,309 6,881
Income taxes 1,453 1,090 (1,655)
- -----------------------------------------------------------------------------------------------------------------------
Total adjustments (11,151) (10,966) 12,914
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 31,606 43,624 87,416
Cash flows from investing activities:
Purchases of property, plant and equipment (50,526) (62,481) (42,611)
Investment in investees -- (814) (10,492)
Purchase of businesses, net of cash acquired (7,435) (65,652) (22,176)
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (57,961) (128,947) (75,279)
Cash flows from financing activities:
Proceeds from issuance of common stock 758 541 926
Purchase of treasury stock -- -- (228)
Borrowings from bank line of credit 30,963 81,500 454,900
Repayments on bank line of credit (28,395) (85,940) (453,200)
Proceeds from issuance of long-term debt 5,000 107,993 135,620
Payments on long-term debt (648) (25,330) (152,857)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 7,678 78,764 (14,839)
- -----------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (18,677) (6,559) (2,702)
Cash and cash equivalents at beginning of year 46,509 27,832 21,273
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 27,832 $ 21,273 $ 18,571
- -----------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 3,313 $ 4,082 $ 6,994
Income taxes, net of refunds 24,968 31,567 45,700
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Note 2 for non-cash investing and financing activities.
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
A summary of the significant accounting policies applied in the preparation
of the accompanying consolidated financial statements follows:
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the
accounts of Blyth Industries, Inc. 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.
ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CREDIT CONCENTRATION -- The Company's credit sales are principally to department
and gift stores, mass merchandisers and distributors who purchase the Company's
products for resale. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. The Company makes
provisions for estimated credit losses.
FOREIGN CURRENCY TRANSLATION -- All balance sheet accounts of foreign operations
are translated into U.S. dollars at the year-end rate of exchange, and statement
of earnings items are translated at the weighted average exchange rates for the
period. The effect of the foreign currency translation on the financial
statements presented was not material.
INVESTMENTS -- The Company makes investments from time to time in the ordinary
course of its business which may include selected assets and product lines, long
term investments and/or joint ventures that either complement or expand its
existing business.
DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS -- The Company uses forward foreign
exchange contracts to hedge the impact of foreign currency fluctuations on
certain committed capital expenditures, 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
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The Company's financial instruments
include short-term and long-term debt. Management believes the carrying value of
the debt approximates their estimated fair values.
CASH EQUIVALENTS -- The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents.
INVENTORIES -- Inventories are valued at the lower of cost or market. Cost is
determined by the first-in, first-out method. The elements of cost are material,
labor and factory overhead.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated at
cost, less accumulated depreciation and amortization. Depreciation and
amortization are provided principally by use of the straight-line method for
financial reporting purposes. The straight-line method and accelerated methods
are used for income tax reporting purposes. Leasehold improvements are amortized
over the lives of the respective leases or the service lives of the
improvements, whichever is shorter.
The principal estimated lives used in determining depreciation and
amortization are as follows:
<TABLE>
<S> <C>
Buildings 27 to 40 years
Leasehold improvements 5 to 10 years
Machinery and equipment 5 to 12 years
Office furniture and data
processing equipment 5 to 7 years
</TABLE>
EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED -- The excess of costs of the
acquisitions over the value of identifiable assets acquired less liabilities
assumed is being amortized on a straight line basis ranging from 15-40 years. On
an ongoing basis, management reviews the valuation of the intangible assets to
determine possible impairment by comparing the carrying value to the
undiscounted future cash flows of the related assets.
EXCESS OF FAIR VALUE OVER COST OF ASSETS ACQUIRED -- The excess of fair value of
assets acquired over their cost is amortized on a straight line basis over 12
years.
COMPREHENSIVE INCOME -- The Company has adopted Financial Accounting Standards
Board ("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 for the years ended January
31, 1997, 1998 and 1999.
INCOME TAXES -- The Company accounts for income taxes in accordance with the
FASB Statement No. 109, "Accounting for Income Taxes". Deferred income taxes
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and income
tax purposes, based upon enacted tax rates in effect for the periods the taxes
are expected to be recoverable (payable).
REVENUE RECOGNITION -- Revenue is recognized at the time of shipment of the
Company's products.
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE -- 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 option data have been retroactively restated
to reflect this stock split.
Earnings per common and common equivalent share are computed based upon the
weighted average number of shares outstanding during each year, which includes
outstanding options for common stock, when dilutive.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: BUSINESS ACQUISITIONS
In April 1995, the Company acquired 80% of the issued and outstanding capital
stock of Jeanmarie Creations, Inc., a decorative gift bag company, for
approximately $7.1 million (net of cash acquired). During May 1996, 1997 and
1998, the Company increased its investment by an additional 4% each year. Under
the purchase and sale agreements, the Company has the option to acquire, and in
certain circumstances, may be required to acquire, the remaining 8% of common
stock at prices set forth in the agreements. The results of operations prior to
acquisition were not material.
In February 1996, the Company purchased from Hallmark Cards, Incorporated
the Canterbury brand candle product line and related candle manufacturing
equipment for approximately $8.4 million in cash. The results of operations
prior to acquisition were not material.
In December 1997, the Company acquired the STERNO brand and HANDY FUEL
brand assets from a division of the Colgate-Palmolive Company for $65.0 million
in cash. The excess of the purchase price over the estimated fair value of
assets acquired approximated $47.0 million and is being amortized over 40 years.
In December 1998, the Company acquired 9,431,000 shares of Class A voting
common stock of Liljeholmens Stearinfabriks AB ("Liljeholmens"), a leading
European candle manufacturer, in a private sale. Such shares represent an
approximately 39% economic interest and 79% voting interest in Liljeholmens.
After the purchase price was applied to the fair value of assets acquired and
liabilities assumed, goodwill of approximately $12.2 million was generated and
will be amortized over 40 years.
The following unaudited pro forma consolidated results of operations have
been prepared as if the investment in Liljeholmens had occurred as of February
1, 1997 and therefore includes an estimate of incremental operating expenses,
interest expense, amortization of goodwill and income tax expense:
<TABLE>
<CAPTION>
(In thousands,
except per share amounts) 1998 1999
- -------------------------------------------------------
<S> <C> <C>
Net sales $783,178 $974,565
Net earnings 54,289 75,176
Net earnings per common share:
Basic $ 1.11 $ 1.53
Diluted 1.10 1.52
- -------------------------------------------------------
</TABLE>
The unaudited pro forma results do not purport to represent what the Company's
results of operations or financial condition actually would have been had the
investment been made as of February 1, 1997.
The foregoing acquisitions have been recorded under the purchase method of
accounting and, accordingly, the results of the acquired businesses are included
in the consolidated financial statements since the date of acquisition.
In December 1996, the Company issued 993,745 shares of its common stock in
exchange for all of the outstanding capital stock of New Ideas International,
Inc. ("New Ideas"), a manufacturer of home and auto fragrance products. This
transaction was accounted for as a pooling of interests. Since the aggregated
historical operations of New Ideas prior to the date of combination were not
material to the Company's consolidated results of operations and financial
position, prior period financial statements have not been restated.
In May 1997, the Company issued 1,900,786 shares of its common stock in
exchange for all of the outstanding capital stock of Endar Corp. ("Endar"), a
manufacturer of potpourri, scented candles and other
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
fragrance products. The transaction was accounted for as a pooling of interests.
All of the accompanying consolidated financial statements and footnotes have
been restated to include the historical results of operations and financial
position of Endar prior to the acquisition.
NOTE 3: INVENTORIES
The major components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
- -------------------------------------------------------
<S> <C> <C>
Raw materials $ 19,988 $ 34,807
Work in process 2,263 2,658
Finished goods 113,273 132,284
- -------------------------------------------------------
$135,524 $169,749
- -------------------------------------------------------
</TABLE>
NOTE 4: ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
1998 1999
- -------------------------------------------------------
<S> <C> <C>
Compensation and certain benefits $10,330 $15,141
Deferred revenue 6,015 5,679
Promotional expenses 5,217 10,110
Taxes, other than income 4,707 3,670
Other 3,305 9,474
- -------------------------------------------------------
$29,574 $44,074
- -------------------------------------------------------
</TABLE>
NOTE 5: BANK LINES OF CREDIT
As of January 31, 1999, the Company had a total of $75.0 million available under
uncommitted bank lines of credit maturing in August 1999 and January 2000 of
which $1.7 million was outstanding. Amounts outstanding under the lines of
credit bear interest, at the Company's option, at short term fixed rates, at the
banks' prime rate (7.75% at January 31, 1999) or at the Eurocurrency rate plus a
credit spread, for a weighted average interest rate of approximately 5.18% at
January 31, 1999.
As of December 31, 1998, Liljeholmens had available lines of credit of
approximately $31.0 million of which approximately $1.8 million was outstanding.
The amounts outstanding under the lines of credit bear interest at 3.75% at
December 31, 1998. The lines of credit are renewed annually.
NOTE 6: LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1999
- -------------------------------------------------------
<S> <C> <C>
7.54% Senior Notes $ 25,000 $ 25,000
Credit facilities 93,557 89,538
Other 2,073 9,047
- -------------------------------------------------------
120,630 123,585
Less current maturities (1,013) (9,339)
- -------------------------------------------------------
$119,617 $114,246
- -------------------------------------------------------
</TABLE>
In July 1995, the Company privately placed $25.0 million aggregate principal
amount of 7.54% Senior Notes due 2005. Such Senior Notes are guaranteed by
certain of the Company's subsidiaries and contain, among other provisions,
requirements for maintaining certain financial ratios and net worth. At January
31, 1999, the Company was in compliance with such covenants. The notes are
payable in seven annual installments beginning June 30, 1999.
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 January 31, 1999) or at the Eurocurrency rate plus a credit
spread ranging from
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
0.25% to 0.50%, based on a pre-defined financial ratio, for a weighted average
interest rate of 5.28% at January 31, 1999. At January 31, 1999,
approximately $74.9 million was outstanding under the Credit Facility. The
Credit Facility is guaranteed by certain of the Company's subsidiaries and
contains, among other provisions, requirements for maintaining certain financial
ratios and limitations on certain payments. At January 31, 1999, the Company was
in compliance with such covenants.
At December 31, 1998, 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 December 31, 1998 under the loan
agreements was approximately $20.2 million with interest rates ranging from
3.95% to 8.46%, of which $14.6 million relates to the credit facilities. The
loans are collateralized by certain of Liljeholmens' real estate and by
Liljeholmens' shares in its subsidiaries.
Maturities under debt obligations are as follows (in thousands):
<TABLE>
<CAPTION>
For the years ending January 31,
- -------------------------------------------------------
<S> <C>
2000 $ 9,339
2001 11,442
2002 5,794
2003 79,043
2004 4,150
Thereafter 13,817
- -------------------------------------------------------
$123,585
- -------------------------------------------------------
</TABLE>
NOTE 7: EMPLOYEE BENEFIT PLANS
The Company has defined contribution employee benefit plans covering
substantially all eligible non-union employees. The Company is primarily
required to contribute $100 for each participating employee; additional
contributions are discretionary. Liljeholmens participates in a government
sponsored retirement system which provides pension benefits for certain
employees. Expense related to the plans for the years ended January 31, 1997,
1998 and 1999 was $1,182,000, $1,426,000 and $1,696,000, respectively.
NOTE 8: COMMITMENTS
The Company utilizes leases for a portion of its operating facilities and
equipment. Generally, the leases provide that the Company pay real estate taxes,
maintenance, insurance and other occupancy expenses applicable to leased
premises. Certain leases provide for renewal for various periods at stipulated
rates.
The minimum future rental commitments under operating leases are as follows
(in thousands):
<TABLE>
<CAPTION>
For the years ending January 31,
- -------------------------------------------------------
<S> <C>
2000 $14,536
2001 12,853
2002 10,407
2003 8,210
2004 5,419
Thereafter 12,998
- -------------------------------------------------------
$64,423
- -------------------------------------------------------
</TABLE>
Rent expense for the years ended January 31, 1997, 1998 and 1999 was $6,325,000,
$8,072,000 and $12,692,000, respectively.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9: INCOME TAXES
Earnings before provision for income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
- -------------------------------------------------------
<S> <C> <C> <C>
United States $67,146 $81,334 $111,969
Foreign 4,793 8,596 10,921
- -------------------------------------------------------
$71,939 $89,930 $122,890
- -------------------------------------------------------
</TABLE>
Income tax expense consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
- -------------------------------------------------------
<S> <C> <C> <C>
Current income tax
expense:
Federal $21,433 $25,271 $31,288
State 4,123 5,430 9,120
Foreign 1,932 3,609 3,299
- -------------------------------------------------------
27,488 34,310 43,707
Deferred income tax expense:
Federal 1,275 644 3,691
State 225 114 651
Foreign -- -- 338
- -------------------------------------------------------
1,500 758 4,680
- -------------------------------------------------------
$28,988 $35,068 $48,387
</TABLE>
Significant components of the Company's deferred tax assets and liabilities are
as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
- -------------------------------------------------------
<S> <C> <C>
Current deferred tax assets:
Accrued compensation $ 1,557 $ 716
Allowance for doubtful
receivables 117 (173)
Accrued expenses 408 --
Other 360 57
- -------------------------------------------------------
$ 2,442 $ 600
- -------------------------------------------------------
Non-current deferred tax
liabilities:
Depreciation $(7,100) $(18,978)
- -------------------------------------------------------
</TABLE>
As of January 31, 1999, undistributed earnings of foreign subsidiaries
considered permanently invested for which deferred income taxes have not been
provided were approximately $27.5 million.
A reconciliation of the provision for income taxes to the amount computed
at the federal statutory rate is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
- -------------------------------------------------------
<S> <C> <C> <C>
Tax provision at
statutory rate $25,179 $31,471 $43,012
Tax effect of:
State income taxes,
net of federal
benefit 3,419 3,530 5,626
Other, net 390 67 (251)
- -------------------------------------------------------
$28,988 $35,068 $48,387
- -------------------------------------------------------
</TABLE>
NOTE 10: EMPLOYEE STOCK OPTION PLANS
At January 31, 1999, the Company had two stock-based compensation plans, which
are described below.
In accordance with the provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," the Company
has elected to continue to account for stock-based compensation under the
intrinsic value based method of accounting described by Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees."
Under APB No. 25, generally, no cost is recorded for stock options issued
to employees unless the option price is below market at the time options are
granted. The following pro forma net earnings and net earnings per common share
are presented for informational purposes and have been computed using the fair
value method of accounting for stock-based compensation as set forth in SFAS No.
123:
<TABLE>
<CAPTION>
(In thousands,
except per share data) 1997 1998 1999
- -------------------------------------------------------
<S> <C> <C> <C>
Net earnings:
As reported $42,757 $54,590 $74,502
Pro forma 42,426 54,320 74,122
Net earnings per
common share:
As reported:
Basic $ 0.89 $ 1.11 $ 1.52
Diluted 0.88 1.10 1.50
Pro forma:
Basic $ 0.88 $ 1.11 $ 1.51
Diluted 0.88 1.10 1.49
- -------------------------------------------------------
</TABLE>
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of each option is estimated on the date of grant, using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1997, 1998 and 1999, respectively: expected
volatility was 42.5% for 1997 and 1998 and 43.7% for 1999; risk-free interest
rates at 6.14% to 6.85% for 1997, 5.69% to 6.99% for 1998 and 4.27% to 5.67% for
1999; expected life of 7 years for all years and no dividend payments.
The Company has adopted the Amended and Restated 1994 Employee Stock Option
Plan (the "Employee Option Plan"), which provides for the grant to officers and
employees of both "incentive stock options" and stock options that are
non-qualified for Federal income tax purposes. The total number of shares of
common stock for which options may be granted pursuant to the Employee Option
Plan is 1,880,000.
The exercise price of incentive stock options granted under the Employee
Option Plan may not be less than 100% of the fair market value of the common
stock at the time of grant, and the term of any option may not exceed 10 years.
Options generally become exercisable over a five-year period. With respect to
any employee who owns stock representing more than 10% of the voting power of
the outstanding capital stock of the Company, the exercise price of any
incentive stock option may not be less than 110% of the fair market value of
such shares at the time of grant, and the term of such option may not exceed
five years.
The Company has also adopted the 1994 Stock Option Plan for Non-Employee
Directors (the "Non-Employee Director Plan"). A total of 120,000 shares of
common stock may be issued through the exercise of options granted pursuant to
the Non-Employee Director Plan. No option may be granted under the Non-Employee
Director Plan after ten years following May 18, 1994.
Each Non-Employee Director who is elected to office for the first time
after March 1, 1994 will, upon such date, automatically be granted an option to
acquire 3,000 shares of common stock. Each Non-Employee Director who is in
office on November 15 of any year thereafter will, on the immediately succeeding
January 1, automatically be granted an option to acquire 1,500 shares of common
stock. The price of shares that may be purchased upon exercise of an option is
the fair market value of the common stock on the date of grant.
Options granted pursuant to the Non-Employee Director Plan become
exercisable in full on the first anniversary of the date of the grant.
Transactions involving stock options are summarized as follows:
<TABLE>
<CAPTION>
Weighted Average
Option Shares Exercise Price
- ----------------------------------------------------------
<S> <C> <C>
Outstanding at
January 31, 1996 786,000 $ 9.17
Options granted 274,500 26.17
Options exercised (68,100) 6.99
Options cancelled (25,500) 8.47
- ----------------------------------------------------------
Outstanding at
January 31, 1997 966,900 19.23
Options granted 279,000 25.65
Options exercised (70,201) 8.08
Options cancelled (40,800) 19.63
- ----------------------------------------------------------
Outstanding at
January 31, 1998 1,134,899 17.17
Options granted 262,000 31.47
Options exercised (99,521) 9.31
Options cancelled (65,670) 22.67
- ----------------------------------------------------------
Outstanding at
January 31, 1999 1,231,708 $20.55
- ----------------------------------------------------------
</TABLE>
At January 31, 1997, 1998 and 1999, options to purchase 170,700, 308,999 and
461,407 shares, respectively, were exercisable.
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Options outstanding and exercisable as of January 31, 1999, by price range:
<TABLE>
<CAPTION>
Outstanding Exercisable
----------------------------------------------- ---------------------------
Weighted Average
Range of Remaining Weighted Average Weighted Average
Exercise Price Shares Contractual Life Exercise Price Shares Exercise Price
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 5.50 - 14.40 387,101 5.67 $ 8.26 231,701 $ 8.03
14.40 - 25.20 418,052 7.32 22.06 157,952 20.82
25.20 - 36.00 426,555 8.68 30.25 71,754 28.89
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average fair value of options granted during the years ended
January 31, 1997, 1998 and 1999 was $14.81, $14.13 and $16.99, respectively.
NOTE 11: 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 SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information," which the Company has
adopted for all periods presented.
<TABLE>
<CAPTION>
Year ended January 31,
(in thousands) 1997 1998 1999
- -------------------------------------------------------
<S> <C> <C> <C>
Net Sales:
United States $457,418 $573,214 $714,744
International (1) 74,062 114,260 160,321
- -------------------------------------------------------
Total $531,480 $687,474 $875,065
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year ended January 31,
(in thousands) 1997 1998 1999
- -------------------------------------------------------
<S> <C> <C> <C>
Net Earnings:
United States $40,757 $50,599 $67,218
International (1) 2,000 3,991 7,284
- -------------------------------------------------------
Total $42,757 $54,590 $74,502
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
As of January 31,
(in thousands) 1997 1998 1999
- -------------------------------------------------------
<S> <C> <C> <C>
Long-Lived Assets:
United States $112,454 $208,453 $240,251
International (1) 8,533 26,114 82,470
- -------------------------------------------------------
Total $120,987 $234,567 $322,721
- -------------------------------------------------------
</TABLE>
(1) No individual country represents a material amount of net sales, net
earnings or long-lived assets. The long-lived assets amount for 1999 includes
$40,125 of Liljeholmens fixed assets.
29
<PAGE>
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 12: 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. As of January 31,
1999, the Company had purchased on the open market 10,000 common shares for a
total of $228,000. Subsequent to January 31, 1999, the Company has continued to
purchase common stock in the open market. At March 31, 1999, a total of
approximately 500,000 shares have been repurchased. The acquired shares are held
as common stock in treasury.
NOTE 13: EARNINGS PER SHARE
During fiscal year 1998, the Company adopted FASB Statement No. 128, "Earnings
per Share". This new accounting pronouncement eliminates the measure of
performance called "primary" earnings per share and replaces it with "basic"
earnings per share. The essential difference between the two calculations is
that the dilutive effects of stock options are not considered in the basic
computation. The pronouncement also changed the measure previously reported as
"fully diluted" earnings per share to "diluted" earnings per share. All periods
have been restated to conform to this new pronouncement.
The components of basic and diluted earnings per share is as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1998 1999
- -------------------------------------------------------
<S> <C> <C> <C>
Net earnings $42,757 $54,590 $74,502
- -------------------------------------------------------
Weighted average
number of common
shares outstanding:
Basic 47,974 49,063 49,165
Dilutive effect of
stock options 502 480 439
- -------------------------------------------------------
Weighted average
number of common
shares outstanding:
Diluted 48,476 49,543 49,604
- -------------------------------------------------------
</TABLE>
<PAGE>
NOTE 14: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of selected quarterly information for the years ended January 31 is as
follows:
<TABLE>
<CAPTION>
1998 Quarter Ended
- -----------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) April 30 July 31 October 31 January 31 Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $155,060 $137,709 $192,457 $202,248 $687,474
Gross profit 85,863 77,334 106,605 119,110 388,912
Net earnings 11,314 6,419 19,626 17,231 54,590
Net earnings per common and common equivalent share:
Basic $ 0.23 $ 0.13 $ 0.40 $ 0.35 $ 1.11
Diluted 0.22 0.13 0.40 0.35 1.10
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1999 Quarter Ended
- -----------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) April 30 July 31 October 31 January 31 Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $201,030 $181,011 $240,766 $252,258 $875,065
Gross profit 118,423 104,776 134,374 149,975 507,548
Net earnings 14,672 12,725 24,532 22,573 74,502
Net earnings per common and common equivalent share:
Basic $ 0.30 $ 0.26 $ 0.50 $ 0.46 $ 1.52
Diluted 0.30 0.26 0.49 0.45 1.50
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15: SUBSEQUENT EVENT
On April 9, 1999, the Company announced that it has offered to buy for cash,
through its subsidiary Candle Corporation Worldwide Sweden AB ("CCW/Sweden"),
the remaining Class A and Class B common shares of Liljeholmens not already
owned by the Company. If all the outstanding shares were tendered to CCW/Sweden,
the offer would represent an aggregate consideration of SEK 231,717,929, or
approximately $28 million.
31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Blyth Industries, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of Blyth Industries,
Inc. and Subsidiaries at January 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the two years in the period ended
January 31, 1999, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
March 25, 1999, except for Note 12 and Note 15,
as to which the date is April 9, 1999
32
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Blyth Industries, Inc.
We have audited the accompanying consolidated statements of earnings,
stockholders' equity and cash flows of Blyth Industries, Inc. and Subsidiaries,
for the year ended January 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows of
Blyth Industries, Inc. and Subsidiaries, for the year ended January 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
- ----------------------
GRANT THORNTON LLP
Chicago, Illinois
March 28, 1997
33
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF BLYTH INDUSTRIES, INC.
(as of January 31, 1999)
<TABLE>
<CAPTION>
NAME OF ORGANIZATION DOMESTIC
<S> <C>
1. Candle Corporation Worldwide, Inc. Delaware
2. PartyLite Gifts, Inc. Delaware
3. Candle Corporation of America New York
4. Aromatic Industries, Inc. California
5. JMC Holdings, Inc. Delaware
6. Jeanmarie Creations, Inc. Oklahoma
7. FVB, Inc. Delaware
8. Fabrica de Velas Borinquen, Inc. Illinois
9. New Ideas International, Inc. Delaware
10. Endar Corp. California
</TABLE>
<TABLE>
<CAPTION>
NAME OF ORGANIZATION INTERNATIONAL
<S> <C>
11. PartyLite Gifts, Ltd. Canada
12. PartyLite Ireland Limited Ireland
13. PartyLite GmbH Germany
14. PartyLite U.K., Ltd. England
15. PartyLite SA Switzerland
16. PartyLite Trading SA Switzerland
17. PartyLite SARL France
18. PartyLite BV Netherlands
19. PartyLite Handelsgesellschaft m.b.H. Austria
20. Partylite Oy Finland
21. Blyth Industries, Ltd. Barbados
22. Endar de Mexico SA Mexico
23. Candle Corporation UK Limited England
24. CCW Manufacturing Limited England
25. Eclipse Candles Limited England
26. Candle Corporation of America Hong Kong Limited Hong Kong
27. Candle Corporation Europe BV Netherlands
</TABLE>
As of close of fiscal year ended January 31, 1999, Blyth Industries, Inc.
owned 50% of the capital stock of Colony Gift Corporation Limited and 75% of
the capital stock of Eclipse Candles Limited, both companies organized under
the laws of England. Blyth also owned, as of fiscal year end, approximately
79% Class A voting common stock of Liljeholmens Stearinfabriks AB, a company
organized under the laws of Sweden, where its shares are publicly traded on
the Swedish market. Since the close of fiscal year ended January 31, 1999,
Blyth Industries, Inc. has announced that it is purchasing the remaining
interest in Colony Gift Corporation Limited and Eclipse Candles Limited, and
has offered to buy the remaining shares of Liljeholmens Stearinfabriks AB,
through its new subsidiary Candle Corporation Worldwide Sweden AB, which
became a subsidiary after the close of fiscal year ended January 31, 1999.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements of Blyth Industries, Inc. and Subsidiaries on Form S-8 (Nos.
33-91954 and 333-50011) and Form S-3 (No. 333-59847) of our report dated
March 25, 1999, except for Note 12 and Note 15, as to which the date is April
9, 1999, on our audits of the consolidated financial statements and financial
statement schedule of Blyth Industries, Inc. and Subsidiaries as of January
31, 1999 and 1998, and for the two years in the period ended January 31,
1999, which report is included in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
April 30, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements of Blyth Industries, Inc. and Subsidiaries on Form S-8 (Nos. 33-91954
and 333-50011) and Form S-3 (No. 333-59847) of our report dated March 28, 1997,
on our audits of the consolidated financial statements and financial statements
schedule of Blyth Industries, Inc. and Subsidiaries as of January 31, 1997 and
for the year ended January 31, 1997 which report is included in the Annual
Report on Form 10-K for the year ended January 31, 1999.
/s/ Grant Thornton LLP
GRANT THORNTON LLP
Chicago, Illinois
April 30, 1999
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
FORM 10-K ANNUAL REPORT FOR FISCAL 1999
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert B. Goergen, Howard E. Rose, Richard T.
Browning and Bruce D. Kreiger, and each of them, until July 31, 1999, his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and revocation, for him or her and in his or her name, place and stead, in any
and all capacities, to sign the Form 10-K Annual Report of Blyth Industries,
Inc. for the fiscal year ended January 31, 1999, and any amendments thereto, and
to file the same with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents may lawfully do or cause
to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Robert B. Goergen Chairman, Chief Executive Officer April 30, 1999
- ----------------------------- and President, Director
Robert B. Goergen (Principal Executive Officer)
/s/ Richard T. Browning Vice President and Chief April 30, 1999
- ---------------------------- Financial Officer
Richard T. Browning (Principal Financial and
Accounting Officer)
/s/ Howard E. Rose Vice Chairman and Director April 30, 1999
- ------------------------------
Howard E. Rose
/s/ Roger A. Anderson Director April 30, 1999
- ----------------------------
Roger A. Anderson
/s/ John W. Burkhart Director April 30, 1999
- ----------------------------
John W. Burkhart
/s/ Pamela M. Goergen Director April 30, 1999
- --------------------------
Pamela M. Goergen
/s/ Neal I. Goldman Director April 30, 1999
- ---------------------------
Neal I. Goldman
/s/ Roger H. Morley Director April 30, 1999
- ---------------------------
Roger H. Morley
/s/ John E. Preschlack Director April 30, 1999
- ---------------------------
John E. Preschlack
/s/ Frederick H. Stephens, Jr. Director April 30, 1999
- --------------------------------
Frederick H. Stephens, Jr.
</TABLE>
<PAGE>
EXHIBIT 24.2
BLYTH INDUSTRIES, INC.
CERTIFICATION
I, the undersigned Secretary of BLYTH INDUSTRIES, INC., a Delaware
corporation, certify that the attached is a true copy of resolutions adopted by
the Board of Directors of Blyth Industries, Inc. on April 14, 1999, at a meeting
throughout which a quorum was present, and that the same is still in full force
and effect.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of
Blyth Industries, Inc. this 30th day of April, 1999.
/s/ Bruce D. Kreiger
--------------------
Name: Bruce D. Kreiger
Title: Secretary
BLYTH INDUSTRIES, INC.
Board of Directors Resolution
April 14, 1999
* * *
FORM 10-K
RESOLVED, that the form, terms, and provisions of the Annual Report on Form 10-K
(the "Form 10-K") in substantially the draft form presented to this Board, are
approved and that Robert B. Goergen, Howard E. Rose and Richard T. Browning be,
and each of them with full power to act without the other hereby is, authorized
(i) to sign the Form 10-K on behalf of the Corporation and any amendments
thereto as either of them may approve on behalf of the Corporation, in such form
as the officer executing the Form 10-K or any such amendment may approve, with
any changes from the form presented to this meeting as he may approve, such
execution to be conclusive evidence of such approval, and (ii) to file the Form
10-K with the Securities and Exchange Commission (the "Commission"); and be it
further
RESOLVED, that each of the directors, the Chairman, President and Chief
Executive Officer, the Vice Chairman and the Vice President and Chief
Financial Officer, of Blyth Industries, Inc. are each hereby authorized to
execute in their respective capacities, a power of attorney in favor of
Robert B. Goergen, Howard E. Rose, Richard T. Browning and Bruce D. Kreiger
designating each of them as the true and lawful attorneys-in-fact and agents
of the signatory with full power and authority to execute and to cause to be
filed with the Securities and Exchange Commission the Form 10-K Annual Report
for fiscal 1999 with all exhibits and other documents in connection therewith
as such attorneys-in-fact, or any one of them, may deem necessary or
desirable; and to do and perform each and every act and thing necessary or
desirable to be done in and about the premises as fully to all intents and
purposes as such officers and directors could do themselves.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JANUARY 31, 1999 AND THE CONSOLIDATED STATEMENT OF
EARNINGS, STOCKHOLDERS' EQUITY AND CASH FLOWS FOR THE TWELVE MONTHS ENDED
JANUARY 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 18,571
<SECURITIES> 0
<RECEIVABLES> 62,214
<ALLOWANCES> 1,404
<INVENTORY> 169,749
<CURRENT-ASSETS> 252,561
<PP&E> 294,457
<DEPRECIATION> 58,184
<TOTAL-ASSETS> 576,783
<CURRENT-LIABILITIES> 109,401
<BONDS> 0
0
0
<COMMON> 984
<OTHER-SE> 93,281
<TOTAL-LIABILITY-AND-EQUITY> 576,783
<SALES> 875,065
<TOTAL-REVENUES> 875,065
<CGS> 367,517
<TOTAL-COSTS> 367,517
<OTHER-EXPENSES> 378,737
<LOSS-PROVISION> 574
<INTEREST-EXPENSE> 6,653
<INCOME-PRETAX> 122,890
<INCOME-TAX> 48,387
<INCOME-CONTINUING> 74,502
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,502
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.50
</TABLE>
