<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED OCTOBER 31, 2000
Commission file number 1-13026
BLYTH, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-2984916
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1 EAST WEAVER STREET, GREENWICH, CONNECTICUT 06831
(Address of principal executive offices) (Zip Code)
(203) 661-1926
(Registrant's telephone number, including area code)
100 FIELD POINT ROAD, GREENWICH, CONNECTICUT 06830
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--------------- ---------------
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
47,063,874 COMMON SHARES AS OF NOVEMBER 30, 2000
<PAGE>
BLYTH, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Form 10-Q Cover Page..........................................................................1
Form 10-Q Index...............................................................................2
Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets........................................3
Consolidated Statements of Earnings..............................4,5
Consolidated Statements of Stockholders' Equity....................6
Consolidated Statements of Cash Flows..............................7
Notes to Consolidated Financial Statements.......................8,9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.........................10-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................14
Part II. Other Information
Item 1. Legal Proceedings..........................................................15
Item 2. Changes in Securities......................................................15
Item 3. Defaults upon Senior Securities............................................15
Item 4. Submission of Matters to a Vote of Security Holders........................15
Item 5. Other Information.......................................................15,16
Item 6. Exhibits and Reports on Form 8-K...........................................17
Signatures...................................................................................18
</TABLE>
2
<PAGE>
Part I. FINANCIAL INFORMATION
Item I. FINANCIAL STATEMENTS
BLYTH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
==========================================================================================================================
OCTOBER 31, JANUARY 31,
(In thousands, except share data) 2000 2000
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 27,176 $ 46,047
Accounts receivable, less allowance for doubtful receivables
of $2,284 and $2,154, respectively 137,964 84,919
Inventories 224,890 186,696
Prepaid expenses 4,957 3,000
Deferred income taxes 1,438 1,200
--------------------------------------------------------------------------------------------------------------------------
Total current assets 396,425 321,862
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Less accumulated depreciation of $135,628 and $113,044, respectively 265,220 273,528
OTHER ASSETS:
Investments 15,052 10,303
Excess of cost over fair value of assets acquired, net of
accumulated amortization of $10,418 and $7,290, respectively 99,031 102,328
Deposits and other assets 9,503 5,075
--------------------------------------------------------------------------------------------------------------------------
123,586 117,706
--------------------------------------------------------------------------------------------------------------------------
Total assets $785,231 $713,096
==========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank lines of credit $ 51,711 $ 5,572
Current maturities of long-term debt 12,909 14,063
Accounts payable 52,883 53,359
Accrued expenses 45,470 51,819
Dividend payable 4,706 -
Income taxes 9,818 5,792
--------------------------------------------------------------------------------------------------------------------------
Total current liabilities 177,497 130,605
DEFERRED INCOME TAXES 26,310 24,202
LONG-TERM DEBT, less current maturities 172,817 176,587
MINORITY INTEREST AND OTHER 383 1,488
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, 47,063,874 shares and 48,037,309 shares, respectively 988 985
Additional contributed capital 96,661 93,784
Retained earnings 380,436 320,384
Accumulated other comprehensive loss (12,902) (4,760)
Treasury stock, at cost, 2,356,800 shares and 1,208,700 shares, respectively (56,959) (30,179)
--------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 408,224 380,214
--------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $785,231 $713,096
==========================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
<PAGE>
BLYTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
==========================================================================================================================
NINE MONTHS ENDED OCTOBER 31, (In thousands, except per share data)
2000 1999
==========================================================================================================================
<S> <C> <C>
Net sales $826,885 $768,577
Cost of goods sold 350,808 332,994
------------------------------------------------------------------------------------------------------------------------
Gross profit 476,077 435,583
Selling and shipping 281,050 252,781
Administrative 70,574 65,869
Amortization of goodwill 3,144 2,090
------------------------------------------------------------------------------------------------------------------------
354,768 320,740
------------------------------------------------------------------------------------------------------------------------
Operating profit 121,309 114,843
Other expense (income):
Interest expense 12,521 8,055
Interest income and other (1,139) (440)
Equity in earnings of investees 723 1,549
------------------------------------------------------------------------------------------------------------------------
12,105 9,164
------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes and minority interest 109,204 105,679
Income tax expense 40,737 40,396
------------------------------------------------------------------------------------------------------------------------
Earnings before minority interest 68,467 65,283
Minority interest (1,084) 428
------------------------------------------------------------------------------------------------------------------------
Net earnings $ 69,551 $ 64,855
==========================================================================================================================
Basic: Net earnings per common share 1.45 1.34
Weighted average number of shares outstanding 47,817 48,558
==========================================================================================================================
Diluted: Net earnings per common share 1.45 1.33
Weighted average number of shares outstanding 48,105 48,925
==========================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
<PAGE>
BLYTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
==========================================================================================================================
THREE MONTHS ENDED OCTOBER 31, (In thousands, except per share data)
2000 1999
==========================================================================================================================
<S> <C> <C>
Net sales $316,597 $294,441
Cost of goods sold 139,919 131,003
---------------------------------------------------------------------------------------------------------------------------
Gross profit 176,678 163,438
Selling and shipping 99,273 88,991
Administrative 23,869 21,470
Amortization of goodwill 1,048 815
---------------------------------------------------------------------------------------------------------------------------
124,190 111,276
---------------------------------------------------------------------------------------------------------------------------
Operating profit 52,488 52,162
Other expense (income):
Interest expense 4,180 3,679
Interest income and other 25 (256)
Equity in earnings of investees (64) 273
---------------------------------------------------------------------------------------------------------------------------
4,141 3,696
---------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes and minority interest 48,347 48,466
Income tax expense 17,975 18,426
---------------------------------------------------------------------------------------------------------------------------
Earnings before minority interest 30,372 30,040
Minority interest - 152
---------------------------------------------------------------------------------------------------------------------------
Net earnings $ 30,372 $ 29,888
==========================================================================================================================
Basic: Net earnings per common share $ 0.64 $ 0.62
Weighted average number of shares outstanding 47,531 48,365
==========================================================================================================================
Diluted: Net earnings per common share $ 0.64 $ 0.61
Weighted average number of shares outstanding 47,747 48,748
==========================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
<PAGE>
BLYTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
OCTOBER 31, (In thousands, except share data)
---------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
------------------ CONTRIBUTED RETAINED TREASURY COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS STOCK LOSS TOTAL
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE NINE MONTHS ENDED OCTOBER 31, 1999:
Balance, January 31, 1999 49,190,474 $984 $93,281 $227,995 $ (228) $ - $322,032
Net earnings for the period 64,855 64,855
Foreign currency translation adjustments (2,050) (2,050)
--------
Comprehensive income 62,805
Common stock issued in connection with
exercise of stock options 23,686 324 324
Treasury stock purchase (1,138,700) (28,562) (28,562)
------------------------------------------------------------------------------------
Balance, October 31, 1999 48,075,460 $984 $93,605 $292,850 $(28,790) $ (2,050) $356,599
==================================================================================================================================
FOR THE NINE MONTHS ENDED OCTOBER 31, 2000:
Balance, January 31, 2000 48,037,309 $985 $93,784 $320,384 $(30,179) $ (4,760) $380,214
Net earnings for the period 69,551 69,551
Foreign currency translation adjustments (9,796) (9,796)
Unrealized holding gains on certain
investments (net of tax $989) 1,654 1,654
---------
Comprehensive income 61,409
Common stock issued in connection with
exercise of stock options 174,665 3 2,388 2,391
Tax benefit from stock options 489 489
Dividends declared (4,706) (4,706)
Dividends paid (4,793) (4,793)
Treasury stock purchase (1,148,100) (26,780) (26,780)
------------------------------------------------------------------------------------
Balance, October 31, 2000 47,063,874 $988 $96,661 $380,436 $(56,959) $(12,902) $408,224
==================================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
6
<PAGE>
BLYTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
==========================================================================================================================
NINE MONTHS ENDED OCTOBER 31, (IN THOUSANDS) 2000 1999
==========================================================================================================================
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 69,551 $ 64,855
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 25,732 20,481
Tax benefit from stock options 489 -
Deferred income taxes 2,874 838
Equity in earnings of investees 723 1,549
Minority interest (1,084) 428
Changes in operating assets and liabilities, net of effect of business
acquisitions:
Accounts receivable (53,045) (53,327)
Inventories (35,705) (44,865)
Prepaid expenses (783) 1,422
Deposits and other assets (3,717) (3,545)
Accounts payable (2,534) (2,742)
Accrued expenses (5,244) 2,984
Income taxes 2,922 8,989
---------------------------------------------------------------------------------------------------------------------------
Total adjustments (69,372) (67,788)
---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 179 (2,933)
Cash flows from investing activities:
Purchases of property, plant and equipment, net (20,617) (35,618)
Long term investments (9,629) 655
Purchase of businesses, net of cash acquired (434) (38,967)
---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (30,680) (73,930)
Cash flows from financing activities:
Proceeds from issuance of common stock 2,391 324
Purchase of treasury stock (26,780) (28,562)
Borrowings from bank line of credit 64,692 385,902
Repayments on bank line of credit (18,553) (365,000)
Proceeds from issuance of long term debt - 150,000
Repayments on long-term debt (5,327) (70,839)
Dividends paid (4,793) -
---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 11,630 71,825
---------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (18,871) (5,038)
Cash and cash equivalents at beginning of period 46,047 18,571
---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 27,176 $ 13,533
==========================================================================================================================
Non-cash investing and financing activities:
Cash dividend declared, $0.10 per share $ 4,706 $ -
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
7
<PAGE>
BLYTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The Company, which operates in a single segment, home fragrance
products, designs, manufactures, and markets an extensive line of
candles and home fragrance products including scented candles, outdoor
lighting products, potpourri and environmental fragrance products and
markets a broad range of related candle accessories and decorative
seasonal products.
The consolidated financial statements include the accounts of the
Company, and its direct and indirect subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Investments in companies which are not majority owned or controlled are
reported using the equity method and are recorded in other assets.
Certain of the Company's subsidiaries operate on a 52 or 53 week fiscal
year ending on the last Saturday in January. European operations
maintain a calendar year accounting period which is consolidated with
the Company's fiscal period. In the opinion of the Management, the
accompanying unaudited consolidated financial statements include all
accruals (consisting only of normal recurring accruals) necessary for
fair presentation of the Company's consolidated financial position at
October 31, 2000 and the consolidated results of its operations and
cash flows for the nine-month periods ended October 31, 2000 and 1999.
These interim statements should be read in conjunction with the
Company's consolidated financial statements for the year ended January
31, 2000, as set forth in the Company's Annual Report on Form 10-K.
Operating results for the nine months ended October 31, 2000 are not
necessarily indicative of the results that may be expected for the year
ending January 31, 2001.
2. INVENTORIES
The components of inventory consist of the following (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31, 2000 JANUARY 31, 2000
------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 43,666 $ 40,071
Work in procress 2,515 4,625
Finished goods 178,709 142,000
------------------------------------------------------------------------
$224,890 $186,696
========================================================================
</TABLE>
3. EARNINGS PER SHARE
The components of basic and diluted earnings per share are as follows
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2000 2000 1999 1999
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings $30,372 $69,551 $29,888 $64,855
-----------------------------------------------------------------------------------------------------------------
Weighted average number of common shares outstanding:
Basic 47,531 47,817 48,365 48,558
Dilutive effect of stock options 216 288 383 367
-----------------------------------------------------------------------------------------------------------------
Weighted average number of common shares outstanding:
Diluted 47,747 48,105 48,748 48,925
-----------------------------------------------------------------------------------------------------------------
</TABLE>
As of October 31, 2000 and 1999, options to purchase 79,439 and 56,527
shares of common stock, respectively, are not included in the
computation of earnings per share because the effect would be
antidilutive.
8
<PAGE>
BLYTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. SEGMENT INFORMATION
The Company operates in a single segment, home fragrance products. The
Company designs, manufactures, and markets an extensive line of candles
and home fragrance products including scented candles, outdoor lighting
products, potpourri and environmental fragrance products. Closely
complementing these products are a broad range of candle accessories
and decorative seasonal products. 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER 31, NINE MONTHS ENDED OCTOBER 31,
------------------------------ ----------------------------
(In thousands) 2000 1999 2000 1999
===================================================================================================================
<S> <C> <C> <C> <C>
Net Sales:
United States $256,338 $234,876 $639,299 $598,573
International(1) 60,259 59,565 187,586 170,004
-------------------------------------------------------------------------------------------------------------------
Total $316,597 $294,441 $826,885 $768,577
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER 31, NINE MONTHS ENDED OCTOBER 31,
------------------------------ -----------------------------
(In thousands) 2000 1999 2000 1999
==================================================================================================================
<S> <C> <C> <C> <C>
Net Earnings:
United States $29,439 $28,159 $62,412 $57,722
International(1) 933 1,729 7,139 7,133
-------------------------------------------------------------------------------------------------------------------
Total $ 30,372 $ 29,888 $ 69,551 $ 64,855
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
(In thousands) 2000 2000
============================================================================
<S> <C> <C>
Long-Lived Assets:
United States $295,263 $289,480
International(1) 84,040 96,679
-----------------------------------------------------------------------------
Total $379,303 $386,159
=============================================================================
</TABLE>
(1) No individual country represents a significant amount of net sales, net
earnings or long-lived assets.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
NET SALES
Net sales increased $58.3 million, or 7.6%, to $826.9 million in the
first nine months of fiscal 2001 from $768.6 million in the first nine
months of fiscal 2000. Net sales in the third quarter ended October 31,
2000, increased $22.2 million, or 7.5% to $316.6 million compared with
$294.4 million a year earlier. This increase in sales is primarily
attributable to sales growth in the Company's US business units which,
taken together, grew 9.1% versus the third quarter a year ago. This
includes sales of an acquired business as well as the adverse impact on
sales of discontinued and de-emphasized businesses. The Company's
overall sales growth in the third quarter, when compared to last year,
was adversely impacted by more than two percentage points (similar to
the first six months results) due to the further deterioration of
European currencies against the dollar whereby the euro has decreased
approximately 14% and the pound sterling has decreased approximately 8%
from year ago levels. The Company's European business units achieved
sales growth in excess of 10% in the third quarter compared to the same
period last year, when measured in local currencies.
GROSS PROFIT
Gross profit increased $40.5 million, or 9.3%, from $435.6 million in
the first nine months of fiscal 2000 to $476.1 million in the first
nine months of fiscal 2001. Gross profit margin increased from 56.7%
for the first nine months of fiscal 2000 to 57.6% for the first nine
months of fiscal 2001. Gross profit in the third quarter ended October
31, 2000 increased $13.3 million, or 8.1%, from $163.4 million for the
quarter ended October 31, 1999 to $176.7 million. Gross profit margin
increased from 55.5% for the quarter ended October 31, 1999 to 55.8%
for the quarter ended October 31, 2000. The increase in gross profit as
a percentage of net sales is reflective of a higher percentage of total
sales of premium priced products.
SELLING AND SHIPPING EXPENSE
Selling and shipping expense increased $28.3 million, or 11.2%, from
$252.8 million in the first nine months of fiscal 2000 (32.9% of net
sales), to $281.1 million in the first nine months of fiscal 2001
(34.0% of net sales). Selling and shipping expense increased $10.3
million, or 11.6%, from $89.0 million in the quarter ended October 31,
1999 (30.2% of net sales), to $99.3 million in the quarter ended
October 31, 2000 (31.4% of net sales). The increases were primarily
attributable to the higher percentage of total sales of premium priced
products, for which sales expenses, as a percentage of net sales, are
relatively higher.
ADMINISTRATIVE EXPENSE
Administrative expense increased $4.7 million, or 7.1%, from $65.9
million in the first nine months of fiscal 2000 (8.6% of net sales) to
$70.6 million in the first nine months of fiscal 2001 (8.5% of net
sales). Administrative expense increased $2.4 million, or 11.2%, from
$21.5 million in the quarter ended October 31, 1999 (7.3% of net sales)
to $23.9 million in the quarter ended October 31, 2000 (7.5% of net
sales). The decrease in administrative expenses as a percentage of net
sales for the nine months ended October 31, 2000 versus a year ago
reflects the continued leveraging of the Company's administrative
overhead.
OPERATING PROFIT
Operating profit increased $6.5 million, or 5.7%, to $121.3 million in
the nine months ended October 31, 2000 compared with $114.8 million a
year earlier. Operating profit in the third quarter ended October 31,
2000 increased $0.3 million, or 0.6%, to $52.5 million compared to
$52.2 million in the same period last year. The increase in operating
profit in the third quarter was negatively impacted by the
deterioration of European currencies as discussed above. In addition
third quarter operating profit reflects sluggish sales in the US mass
candle channel as well as lower operating performance in the UK
consumer retail businesses.
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: (CONTINUED)
INTEREST EXPENSE
Interest expense increased $4.4 million, or 54.3%, from $8.1 million in
the first nine months of fiscal 2000 to $12.5 million in the first nine
months of fiscal 2001. Interest expense increased $0.5 million, or
13.5%, from $3.7 million in the quarter ended October 31, 1999 to $4.2
million in the quarter ended October 31, 2000. The increase in interest
expense is primarily attributable to the Company's $150.0 million
public debt offering in September 1999.
INCOME TAXES
Income tax expense increased $0.3 million, or 0.7%, from $40.4 million
in the first nine months ended October 31, 1999 to $40.7 million in the
first nine months ended October 31, 2000. Income tax expense decreased
$0.4 million, or 2.2%, from $18.4 million in the quarter ended October
31, 1999 to $18.0 million in the quarter ended October 31, 2000. The
effective income tax rate decreased from approximately 38.2% in the
first nine months ended October 31, 1999 to approximately 37.4% in the
first nine months ended October 31, 2000 due to the growth in countries
with lower tax rates than the US.
NET EARNINGS
As a result of the foregoing, net earnings increased $4.7 million, or
7.2%, from $64.9 million for the nine months ended October 31, 1999 to
$69.6 million for the nine months ended October 31, 2000. Net earnings
increased $0.5 million, or 1.7%, from $29.9 million in the quarter
ended October 31, 1999 to $30.4 million in the quarter ended October
31, 2000.
Basic earnings per share based upon the weighted average number of
shares outstanding for the nine months ended October 31, 2000 increased
$0.11 or 8.2%, to $1.45 compared to $1.34 for the nine months ended
October 31, 1999. Basic earnings per share based upon the weighted
average number of shares outstanding for the quarter ended October 31,
2000 increased $0.02, or 3.2%, to $0.64 compared to $0.62 for the
quarter ended October 31, 1999. Diluted earnings per share based upon
the potential dilution that could occur if options to issue common
stock were exercised or converted were $1.45 for the nine months ended
October 31, 2000 compared to $1.33 for the same period last year, an
increase of $0.12, or 9.0%. Diluted earnings per share based upon the
potential dilution that could occur if options to issue common stock
were exercised or converted were $0.64 for the quarter ended October
31, 2000 compared to $0.61 for the same period last year, an increase
of $0.03 or 4.9%.
LIQUIDITY AND CAPITAL RESOURCES
Inventory decreased from $231.3 million at October 31, 1999 to $224.9
million at October 31, 2000. This translates to a decrease of 2.8%
compared to sales growth of 7.6%, which is primarily a result of the
Company's continued focus on effective inventory management. When
compared to January 31, 2000, inventory increased $38.2 million, to
$224.9 million at October 31, 2000. Accounts receivable increased $53.1
million, or 62.5% from $84.9 million at January 31, 2000 to $138.0
million at October 31, 2000, which reflects the normal seasonal
business pattern. Accounts payable and accrued expenses decreased $6.8
million, or 6.5% from $105.2 million at January 31, 2000 to $98.4
million at October 31, 2000. The decrease in accounts payable and
accrued expenses is attributable to normal payment patterns of
operating expenses.
Capital expenditures for property, plant and equipment were $20.6
million in the nine months ended October 31, 2000. Capital expenditures
were primarily investments in new equipment and improvements to
existing plant and equipment and information technology. The Company
anticipates capital spending of approximately $25.0 million for fiscal
2001, to be used primarily for upgrades to machinery and equipment in
existing facilities, and information technology.
11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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 the Company's existing
business.
The Company's primary capital requirements are for working capital to
fund the increased inventory and accounts receivable required to
sustain the Company's sales growth, for capital expenditures and
acquisitions. The Company believes that cash on hand, cash from
operations, and available borrowings under the Credit Facility and
lines of credit described below, will be sufficient to fund its
operating requirements, capital expenditures, stock repurchase program,
dividends, and all other obligations for the next twelve months.
Pursuant to the Company's revolving credit facility as amended on
September 14, 1999 ("Credit Facility"), which matures on October 17,
2002, 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 $135.0 million and to provide, under certain
circumstances, an additional $33.8 million. Amounts outstanding under
the Credit Facility bear interest, at the Company's option, at Bank of
America's prime rate (9.50% at October 31, 2000) or at the eurocurrency
rate plus a credit spread ranging from 0.25% to 0.50%, based on a
pre-defined financial ratio. At October 31, 2000, approximately $2.4
million in letters of credit was outstanding under the Credit Facility.
The Credit Facility contains, among other provisions, requirements for
maintaining certain financial ratios and limitations on certain
payments. At October 31, 2000, the Company was in compliance with such
covenants.
As of October 31, 2000, the Company had a total of $60.0 million
available under uncommitted bank lines of credit maturing in January
2001 and August 2001. Amounts outstanding under the lines of credit
bear interest, at the Company's option, at short term fixed rates, at
the banks' prime rate (9.50% at October 31, 2000) or at the
eurocurrency rate plus a credit spread. At October 31, 2000, $7.4
million was outstanding under the lines of credit at a weighted average
interest rate of 6.94%.
As of September 30, 2000, Liljeholmens Stearinfabriks AB
("Liljeholmens"), had available lines of credit of approximately $32.3
million, of which approximately $16.6 million was outstanding. The
amounts outstanding under the lines of credit bear interest at a
weighted average rate of 5.42% at September 30, 2000. The lines of
credit are renewed annually.
Colony Gift Corporation, Ltd. ("Colony"), has a short term revolving
credit facility with Barclays Bank ("Barclays"), which matures on June
30, 2001, pursuant to which Barclays has agreed to provide a revolving
credit facility in an amount of up to $29.5 million, collateralized by
certain of Colony's assets. As of September 30, 2000, Colony had
borrowings under the credit facility of approximately $27.7 million, at
a weighted average interest rate of 6.55%.
At September 30, 2000, 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
September 30, 2000 under the loan agreements was approximately $17.8
million with variable interest rates ranging from 3.60% to 6.0%, of
which $9.0 million relates to current maturities. The loans are
collateralized by certain of Liljeholmens' real estate and by a pledge
of Liljeholmens' shares in its subsidiaries.
Net cash provided by operating activities amounted to $0.2 million for
the nine months ended October 31, 2000 compared to a use of $2.9
million for the nine months ended October 31, 1999.
12
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company's Board of Directors has authorized the Company to
repurchase up to 3,000,000 shares of its common stock under the
Company's Stock Repurchase Plan. As of October 31, 2000, the Company
had purchased on the open market an aggregate of 2,356,800 common
shares for a total cost of approximately $57.0 million. The acquired
shares are held as common stock in treasury at cost.
On September 6, 2000 the Company declared a cash dividend of $0.10 per
share of the Company's common stock for the six months ended July 31,
2000. The dividend was payable to shareholders of record as of November
1, 2000 and was paid on November 15, 2000 in the amount of $4.7
million.
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 (as deferred by SFAS 137) is
effective for all fiscal years beginning after June 15, 2000. 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.
During May 2000, the Emerging Issues Task Force ("EITF") issued EITF
Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs."
EITF No. 00-10 addresses the income statement classification for
shipping and handling fees and costs and will be effective for the
fourth quarter of fiscal 2001. The Company is currently evaluating the
effect of the application of EITF Issue No. 00-10 on the presentation
of its results of operations and financial position.
Also, in May 2000, the EITF issued EITF Issue No. 00-14, "Accounting
for Certain Sales Incentives." EITF No. 00-14 addresses the
recognition, measurement and statement of earnings classification of
various sales incentives. The effective date has been delayed until
June 30, 2001. The Company is currently evaluating the effect of the
application of EITF Issue No. 00-14 on the presentation of its results
of operations and financial position.
13
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
The Company has operations outside of the United States and sells its products
worldwide. The Company's activities expose it to a variety of market risks,
including the effects of changes in foreign currency exchange rates, interest
rates and commodity prices. These financial exposures are actively monitored
and, where considered appropriate, managed by the Company.
INTEREST RATE RISK
As of November 30, 2000 the Company is subject to interest rate risk on
approximately $44.1 million of variable rate debt, including Liljeholmens and
Colony Gift. Each 1.00% increase in the interest rate would impact pre-tax
earnings by approximately $441,000 if applied to the total variable rate debt.
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. Gains or losses on
foreign currency forward contracts related to intercompany loans are recognized
currently through income and generally offset the transaction gains or losses in
the foreign currency cash flows which they are intended to hedge. 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 October 31, 2000.
<TABLE>
<CAPTION>
U.S. DOLLAR AVERAGE ESTIMATED
(In thousands, except average contract rate) NOTIONAL AMOUNT CONTRACT RATE FAIR VALUE
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Canadian Dollar $ 4,570 1.47 $167
Swiss Franc 11,038 1.77 192
Euro 6,585 0.90 376
Pound Sterling 7,153 1.49 196
-----------------------------------------------------------------------------------------------------------------------------
$29,346 $931
=============================================================================================================================
</TABLE>
The foreign exchange contracts outstanding as of October 31, 2000 have maturity
dates ranging from November 2000 through January 2001.
14
<PAGE>
Part II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
The Company is including the following cautionary statement in this
Report to make applicable, and to take advantage of, the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 for
any forward-looking statements made by, or on behalf of, the Company.
Forward-looking statements include statements concerning plans,
objectives, goals, strategies, future events or performance and
underlying assumptions and other statements, which are other than
statements of historical facts. From time to time, the Company and its
representatives may publish or otherwise make available forward-looking
statements of this nature. All such forward-looking statements, whether
written or oral, and whether made by or on behalf of the Company, are
expressly qualified by the following cautionary statements.
Forward-looking statements involve risks and uncertainties, which could
cause actual results or outcomes to differ materially from those
expressed in the forward-looking statements. Such forward-looking
statements are expected to be based on various assumptions, many of
which are based, in turn, upon further assumptions.
There can be no assurance that management's expectations, beliefs or
projections will occur or be achieved or accomplished. In addition to
other factors and matters discussed elsewhere in this Report and in the
Company's other public filings and statements, the following are
important factors that, in the view of the Company, could cause actual
results to differ materially from those discussed in the Company's
forward-looking statements. The Company disclaims any obligation to
update any forward-looking statements, or the following factors, to
reflect events or circumstances after the date of this Report.
Risk of Inability to Maintain Growth Rate
The Company has grown substantially in recent years. We expect that our
future growth will be generated by sales to the faster growing
worldwide consumer market for home fragrance products. The market for
our institutional products has grown, but more slowly, and we expect it
will continue to do so. Our ability to continue to grow depends on
several factors, including the following: market acceptance of existing
products, the successful introduction of new products, the ability to
recruit independent sales consultants and increases in production and
distribution capacity to meet demand. The home fragrance products
industry is driven by consumer tastes. Accordingly, there can be no
assurance that our existing or future products will maintain or achieve
market acceptance. We expect that, as we grow, our rate of growth will
be less than our historical growth rate. In addition, we have grown in
part through acquisitions and there can be no assurance that we will be
able to continue to identify suitable acquisition candidates, to
consummate acquisitions on terms favorable to the Company, to finance
acquisitions or to successfully integrate acquired operations. In the
future, acquisitions may contribute more to the overall Company's sales
growth rate than historically.
15
<PAGE>
Part II. OTHER INFORMATION (CONTINUED)
ITEM 5. OTHER INFORMATION (CONTINUED)
Ability to Respond to Increased Product Demand
Our significant internal growth has required increases in personnel,
expansion of production and distribution facilities, and enhancement of
management information systems. Our ability to meet future demand for
products will be dependent upon success in (1) training, motivating and
managing new employees, (2) bringing new production and distribution
facilities on line in a timely manner, (3) improving management
information systems in order to respond promptly to customer orders and
(4) improving our ability to forecast anticipated product demand in
order to continue to fill customer orders promptly. If we are unable to
meet future demand for products in a timely and efficient manner, our
operating results could be materially adversely affected.
Risks Associated with International Sales and Foreign-Sourced Products
Our international business has grown at a faster rate than sales in the
United States in recent years. 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. While we have an employment agreement with Mr. Goergen, we
do not have employment agreements with any of our other key management
personnel. 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.
16
<PAGE>
Part II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10.10 Employment Agreement, dated as of August 1, 2000,
between the Registrant and Robert B. Goergen.
27. Financial data schedule, as of, and for the period
ended October 31, 2000.
b) Reports on Form 8-K
During the fiscal quarter ended October 31, 2000, the Company filed the
following Current Report on Form 8-K:
Current Report on Form 8-K on September 5, 2000 to file
as an exhibit the press release announcing the Company's
results of operations for the fiscal quarter ended
July 31, 2000.
Current Report on Form 8-K on September 5, 2000 to file
as an exhibit a press release reporting the Company's
comments on the full-year outlook.
Current Report on Form 8-K on September 7, 2000 to file
as an exhibit the press release announcing the Company's
declaration of a semi-annual dividend.
17
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
BLYTH, INC.
Date: December 14, 2000 By: /s/ Robert B. Goergen
----------------- -------------------------
Robert B. Goergen
Chief Executive Officer
Date: December 14, 2000 By: /s/ Richard T. Browning
----------------- -------------------------
Richard T. Browning
Chief Financial Officer
18
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
------- ----------- --------
<S> <C> <C>
10.10 Employment Agreement N/A
27. Financial data schedule N/A
</TABLE>
