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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
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, 2001 COMMISSION FILE NO. 1-13026
BLYTH, 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.)
ONE EAST WEAVER STREET
GREENWICH, CONNECTICUT 06831
(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. __
As of April 16, 2001, the aggregate market value of the voting stock held
by non-affiliates of the registrant was approximately $1,078,294,040 billion
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 16, 2001, there were 47,087,076 outstanding shares of Common
Stock, $0.02 par value.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the 2001 Proxy Statement for the Annual Meeting of
Shareholders to be held on June 12, 2001 (Incorporated into Part
III)
TABLE OF CONTENTS
PART I
Item 1. Business...........................................................3
Item 2. Properties.........................................................13
Item 3. Legal Proceedings..................................................14
Item 4. Submission of Matters to a Vote of Security Holders................14
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters..........................................................14
Item 6. Selected Consolidated Financial Data...............................15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 16-23
Item 7A. Quantitative and Qualitative Disclosures about Market Risk......24-26
Item 8. Financial Statements and Supplementary Data.....................28-46
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.........................................47
PART III
Item 10. Directors and Executive Officers of the Registrant.................47
Item 11. Executive Compensation.............................................47
Item 12. Security Ownership of Certain Beneficial Owners and Management.....47
Item 13. Certain Relationships and Related Transactions.....................47
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....47
2
PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF THE BUSINESS
Blyth, Inc. (together with its subsidiaries, the "Company", which may be
referred to as "we", "us" or "our") designs, manufactures, markets and
distributes an extensive line of candles and home fragrance products and
non-fragranced products. The Company has operations within and outside the
United States and sells its products worldwide.
Since becoming a public company, our net sales have grown substantially in the
last seven years. Internal growth and acquisitions have contributed to such
growth. Internal growth has been generated by increased sales of candles and
home fragrance products and non-fragranced 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.blythinc.com. You can learn more about
us by visiting that site. That information, however, is not incorporated herein
by reference and is not a part of this Annual Report on Form 10-K.
(B) DESCRIPTION OF AND FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS
During the fourth quarter of fiscal 2001, the Company announced a realignment of
its business strategy and the formation of a new business segment, the
non-fragranced products segment. The Company operates in two business segments:
candles and home fragrance products, and non-fragranced products, which
accounted for approximately 88.8% and 11.2%, respectively, of consolidated net
sales for the fiscal year ended January 31, 2001. The financial information
relating to these business segments for each of the years in the periods ended
January 31, 2001, 2000 and 1999 appearing in Note 13 to the Company's
consolidated financial statements in this Annual Report on Form 10-K is
incorporated herein by reference. Further description of each business segment
is provided below:
CANDLES AND HOME FRAGRANCE PRODUCTS
The candles and home fragrance products designed, manufactured, marketed and
distributed by the Company primarily include scented and unscented candles,
aromatherapy candles, potpourri and environmental fragrance products, including
air fresheners, filters and sprays, and a broad range of candle accessories.
These products are sold under various brand names through a wide variety of
distribution channels.
In managing our day to day business, as well as evaluating strategic
3
opportunities, the Company is focused on the worldwide consumer market for
candles and home fragrance products and related accessories.
Within the worldwide consumer market for candles and home fragrance products, we
focus on two primary areas: the consumer market in the United States and markets
outside the United States.
UNITED STATES CONSUMER MARKET
With respect to the consumer market in the United States, our candles and home
fragrance brands continued to grow in fiscal year 2001. Through the activities
of PartyLite Gifts, Inc., Candle Corporation of America, Endar Corp., and
Fragrance Solutions, Inc., we market our candles and home fragrance 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 candles and home fragrance products direct to the
consumer through a network of independent sales consultants, as well as to
department and gift stores, specialty chains, food and drug stores, and mass
merchandisers, and through independent sales representatives and Company sales
managers. We support all of the above by providing them with comprehensive
product catalogues and samples to market our everyday, promotional and seasonal
product lines.
Our direct selling activities reach consumers by utilizing a network of
independent sales consultants to sell candles and home fragrance 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, as well as through home parties organized by other consultants
recruited by them. Over 35,000 independent sales consultants were selling in the
United States in fiscal year 2001; and, we were represented by independent sales
consultants in all 50 states. Our direct selling activity continued to
demonstrate growth in fiscal year 2001.
We believe that certain advantages arise from having a broad mix of distribution
channels. For example, successful new ideas and research can be shared across
channels among our marketing groups. We believe that our competitive position in
all 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.
MARKETS OUTSIDE THE UNITED STATES
We continue to focus on becoming a worldwide home fragrance company built mainly
around candles, but also including related products. We market our candles and
home fragrance products outside (as well as inside) the United States direct to
the consumer through a network of independent sales consultants, as well as to
department and gift stores, specialty chains, and mass merchandisers and through
independent sales representatives, and Company sales managers. During fiscal
year 2001, the Company had independent direct selling sales consultants in the
following geographical areas: Austria, England, Finland, France, Germany, Italy,
Luxembourg, Northern Ireland, Switzerland, and Canada. The Company has a total
of approximately 49,000 active selling consultants
4
worldwide (including the United States). In fiscal year 2002, we have begun our
direct selling operations in Mexico. The Company is the leading manufacturer and
marketer of fragranced candles and related products to mass merchants,
department and gift stores in Europe through the activities of the Colony Group,
the Gies Group and Wax Lyrical, Ltd., our specialty retailer in the United
Kingdom. Our Ambria(TM), Asp-Holmblad(TM), Carolina Designs(R), Colony(R)(1)(2),
Gies(TM)(1), Liljeholmens(R), and Wax Lyrical(TM) brand products are sold
through retailers and have their highest market shares in the United Kingdom,
Germany, Sweden and Denmark. In fiscal year 2001, the Colony Group expanded its
business operations into Italy and Spain through joint ventures, and the Company
successfully completed the restructuring of its Gies/Liljeholmens Group.
We believe that international markets, including Canada, offer the Company
significant potential for growth. In fiscal year 2001, approximately 27.5% of
our total sales were outside of the United States and our international sales
growth rate was approximately 2%.
Our international operations also include exports of products sold through
Company sales managers and independent sales representatives, which compete in
the markets of Canada, Europe, Latin America and the Pacific Rim, to independent
distributors, department and gift stores, mass merchandisers and Foodservice
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 13
to the Company's consolidated financial statements.
In fiscal year 2002, we plan to grow the candles and home fragrance products
segment of our business for the most part organically, both domestically and
internationally, with the possibility of some smaller acquisition-related
growth.
NON-FRAGRANCED PRODUCTS
The Company designs, manufactures, markets and distributes a broad range of
non-fragranced products, including decorative gift bags and tags and seasonal
decorations under the brand names Jeanmarie(R) and Impact(TM). We are also a
producer of portable heating fuel and other institutional products sold under
various brand names, including Sterno(R) and HandyFuel(R). We sell these
products, both domestically and internationally, through independent sales
representatives and distributors.
Through the activities of JMC Impact, Inc.(3), we market our decorative gift
bags, tags and seasonal decorations primarily to the mass market and tailor our
non-fragranced products, designs and packaging to meet the varying demands of
customers within these channels.
The Company also services, through its institutional products group, the
Foodservice market where it is a supplier of institutional non-fragranced
products to restaurants, hotels and other institutional customers. We sell these
products through independent sales representatives, independent Foodservice
distributors, and Company sales managers. Sales of the Sterno(R) and
HandyFuel(R) brands grew in fiscal year 2001 at 2.5 times industry
5
growth rates. Institutional sales in fiscal year 2001 were less than ten percent
of the Company's total sales. In fiscal year 2002, we plan to continue our
growth in the non-fragranced products segment through internal sales growth, as
well as acquisitions.
On April 11, 2001, the Company acquired Midwest of Cannon Falls, Inc., a leading
creative expressions company in the wholesale decorative products and giftware
industry. The Midwest of Cannon Falls(R) brand of holiday giftware, home accents
and garden products is sold by over 17,000 retailers nationwide.
In fiscal year 2001, we exited two product lines, citronella candles and
religious candles, since we believe these products no longer offer the sales and
profit growth opportunities we foresee for the Company overall.
The Company continues actively to pursue strategic acquisitions in the following
areas: paper-related and seasonal decorative products and Foodservice products,
mirroring businesses in which the Company is already engaged, as well as
giftware and premium personal care products, both of which are closely related
to current established product lines.
PRODUCT BRAND NAMES
Our key brand names under which our candles and home fragrance products are
sold, in alphabetical order, are:
Ambria(TM)
Ambria Natural Elements(R)
Aromatics(TM)
Asp-Holmblad(TM)(1)
Being(TM)
Candle Corporation of America(TM)
Canterbury(R)
Carolina Designs(R)
Colonial Candle of Cape Cod(R)
Colonial at HOME(R)
Colony(R)(1) (2)
Eclipse Candles(TM)(1) (2)
Endar(TM)
FilterMate(R)
Florasense(R)
Fragrance Originals(R)
Fragrance Solutions(TM)
Gies(TM)(1)
Indulgences(TM)
Kate's Original Recipe(TM)
Kate's Simple Pleasures(TM)
Liljeholmens(R)
Old Harbor Candles(R)
Original Recipe(R)
PartyLite(R)
Wax Lyrical(TM)
Our key brand names for our non-fragranced products, in alphabetical order, are:
Canned Heat(TM)
HandyFuel(R)
Impact(TM)
Jeanmarie(R)
Midwest of Cannon Falls(R)(5)
Sterno(R)
6
NEW PRODUCT DEVELOPMENT
Each year we develop and introduce new products for the candles and home
fragrance products segment and non-fragranced products segment to satisfy
changing consumer tastes. The new product development process is coordinated by
the Company on a worldwide basis by teams comprised of brand managers, product
managers, designers, global sourcing personnel, research and development
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 technical
research, fragrance studies, market research, comparative analysis, engineering
specifications, feasibility studies, safety assessments, testing and evaluation
can require from 3 to 18 months to complete. In total, new products have
typically accounted for at least 15% of our net sales in the first full year
following introduction.
The Company's focus on new product development and product line extensions
specific to each channel of distribution and segment has been an important
element of its efforts to become a leading candles and home fragrance products
and non-fragranced products company. With continual introduction of new designs,
new forms, new shapes, new fragrances, and innovative packaging, the Company
continues to enjoy its sales growth and profitability. In fiscal year 2001 the
Company introduced new products such as the Frosted Line and Simmer Snaps(TM) in
the Colonial at HOME(R) product line and Kate's Simple Pleasures(TM), an
extension of the Kate's Original Recipe(TM) brand, as well as Being(TM) and
Ambria Natural Elements(R), to name a few.
MANUFACTURING, SOURCING AND DISTRIBUTION
In both our business segments, we are continuously attempting to reduce our
costs through more efficient worldwide production, sourcing and distribution
methods, technological advancements and consolidating and rationalizing acquired
equipment and facilities. Since our 1994 initial public offering, we have
invested over $250 million in new facilities and more advanced equipment in
order to lower manufacturing costs, improve product quality and significantly
increase manufacturing capacity so that we may meet expected future sales growth
and improve time to market. However, in fiscal year 2001, in order to
rationalize and restructure our European consumer activities encompassing the
Colony Group, the Gies Group and Wax Lyrical, Ltd., our specialty retailer in
the United Kingdom, we took steps to close four manufacturing facilities. We
believe that these closings will permit us to reposition these businesses more
effectively for growth and profitability in fiscal year 2002.
The manufacture of the Company's candles and home fragrance products and
non-fragranced 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 and process control systems
that we believe have resulted and will continue to result in significant cost
savings and capacity expansion.
7
Since many of our products, especially our candle-related accessories and
non-fragranced products, are manufactured by others based on our design
specifications, our global sourcing approach is very important to our new
product development process, as well as to managing product quality and cost. To
maximize distribution efficiencies, we operate a network of stand-alone highly
automated distribution facilities in addition to distribution facilities in our
manufacturing plants.
In fiscal year 2001, we expanded our corporate research and development space
located in Batavia, Illinois. This state-of-the-art research and development
center became the Company's worldwide center of technical and product
innovation.
TECHNOLOGICAL ADVANCEMENTS
We have invested substantial sums in technological initiatives, including
Internet-based technology, and we are seeing the benefits. PLANET - or PartyLite
Application for the NET - is a Web-based Extranet being rolled out to all
PartyLite independent sales consultants in North America. We believe that
PLANET's automated order entry system will help to eliminate most common errors
and speed orders through faster processing and delivery, resulting in superior
customer service. Further, by easing the administrative workload and providing
tools with which to track sales and programs, we believe PLANET will help
consultants build their businesses more effectively. And, as an added benefit,
the improved accuracy of an automated order entry system should result in
administrative cost savings for the Company.
CUSTOMERS
Throughout the world, customers for our candles and home fragrance products and
non-fragranced products include department and gift stores, mass merchandisers
including specialty chains, food and drug stores, and individual consumers
(served by independent sales consultants through the home party plan method).
Our institutional customers are primarily major hotel and restaurant chains and
distributors servicing the institutional Foodservice market. No single customer
accounts for 10% or more of our sales of candles and home fragrance products and
non-fragranced products.
COMPETITION
Both of our business segments are highly competitive. The principal competitive
factors are new product introductions, product quality, delivery time and
reliability, customer service and price. The domestic and international markets
for candles and home fragrance products, as well as for non-fragranced products,
are highly fragmented. Numerous suppliers service these markets. 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 31, 2001, the Company had approximately 4,600 full-time employees.
Of those, approximately 3,600 are non-salaried, of which approximately 35% are
outside the United States. Approximately 150 hourly workers in the Company's
Chicago, Illinois and Brooklyn, New
8
York(4) 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 2003 and June
2002, respectively. Also, approximately 50 workers for the Gies Group are
represented by the IG Chemie union in our facility in Germany. The contracts
with this union will expire in April 2002. The remaining employees,
approximately 97% 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 the Company for its candles and home fragrance
products and non-fragranced products, principally petroleum based wax, fragrance
and glass containers, have historically been available in adequate supply from
multiple sources.
TRADEMARKS AND PATENTS
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 candles and home fragrance products and non-fragranced
products. In addition, 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 for our candles and home fragrance products and non-fragranced products
business segments. Although we own certain patents used primarily in the
non-fragranced products segment that we consider valuable, our total business is
not dependent upon any single patent or group of patents.
ENVIRONMENTAL LAW COMPLIANCE
Most of our manufacturing and distribution and certain research operations are
affected by federal, state and local environmental laws and international
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.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
OUR DISCLOSURE AND ANALYSIS IN THIS REPORT AND IN OUR 2001 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,
9
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 2001 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.
|X| RISK OF INABILITY TO MAINTAIN GROWTH RATE
The Company has grown substantially in past years. We expect that our future
growth will be generated by sales to the faster-growing worldwide consumer
market for candles and home fragrance products and non-fragranced products. The
market for our Foodservice 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, our ability to recruit new independent
sales consultants, sourcing of raw materials, and increases in production and
distribution capacity to meet demand. The candles and home fragrance products
and the non-fragranced products industries are driven by consumer tastes.
Accordingly, there can be no assurance that our existing or future products will
maintain or achieve market acceptance. In addition, our sales and earnings
results have recently been impacted negatively by a slowing of the United States
economy as a whole and by a drop in consumer confidence at both the individual
and retailer levels. There can be no assurance that our sales and earnings
results will not be materially adversely affected by these factors in the
future. If the United States economy continues to slow and/or consumer
confidence continues to drop, our operating results may be materially adversely
affected. Also recently, we have incurred certain one-time expenses in
connection with the restructuring of our U.S. and European consumer wholesale
operations and our exit from certain lower margin product lines. While we expect
these actions to position us more effectively for continued growth and
profitability, there can be no assurance that we will achieve these results. We
expect that, as we grow, our rate of growth will be less than our historical
growth rate. Our growth in both the candles and home fragrance products segment
and the non-fragranced
10
products segment has been due, in part, to acquisitions. We expect our future
growth in the candles and home fragrance segment to be primarily organic, with
the possibility of selective acquisitions. We continue to pursue strategic
acquisitions in certain areas of the non-fragranced segment. 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 integrate successfully acquired operations. In the
future, acquisitions may contribute more to the overall Company's sales growth
rate than historically.
|X| 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 candles,
accessories and decorative gift bags and seasonal decor 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. In particular, during fiscal year 2001,
declining European currencies had a significant negative impact on our
international sales results. If European currencies remain weak or decline
further, our operating results may be materially adversely affected.
|X| ABILITY TO RESPOND TO INCREASED PRODUCT DEMAND
Our 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 candles and home fragrance products and
non-fragranced 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.
|X| 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.
|X| DEPENDENCE ON KEY MANAGEMENT PERSONNEL
Our success depends upon the contributions of key management personnel,
particularly our Chairman, Chief Executive Officer and President,
11
Robert B. Goergen. We do not have employment contracts with any of our key
management personnel except for Mr. Goergen, nor do we maintain any key person
life insurance policies. Also, certain of our senior executives have assumed new
positions recently. The loss of any of the key management personnel or the
inability of executives to perform their new positions could have a material
adverse effect on the Company.
|X| COMPETITION
Our business is highly competitive, both in terms of price and new product
introductions. The worldwide market for candles and home fragrance products, as
well as for non-fragranced 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 candles and
home fragrance products and non-fragranced products industries, 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 compete with
companies offering candles manufactured in foreign countries, particularly
China. In addition, certain competitors focus on a particular geographic or
single-product market and attempt to gain or maintain market share solely on the
basis of price.
- --------
(1) Sold only outside the United States.
(2) The Colony(R) trademark is registered in the United Kingdom and other
countries outside of the United States. In the United States they are sold by
another company.
(3) Formerly Jeanmarie Creations, Inc.
(4) The Company entered into an agreement on January 18, 2001 pursuant to which
the assets and employees located at the Brooklyn facility are expected to be
assigned to another company.
(5) The Company acquired the Midwest of Cannon Falls(R) trademark on April 11,
2001.
12
ITEM 2. PROPERTIES
The following table sets forth the location and approximate square footage
of the Company's major manufacturing and distribution facilities:
LOCATION USE APPROXIMATE SQUARE FEET
- -------- --- -----------------------
OWNED LEASED
----- ------
Batavia, Illinois(1)........ Manufacturing 334,000 []
Brooklyn, New York.......... Distribution [] 30,000
Caldas da Rainha, Portugal . Manufacturing and
related distribution 230,000 []
Carol Stream, Illinois...... Distribution [] 651,000
Chicago, Illinois........... Manufacturing and
related distribution 168,000 []
Clara City, Minnesota....... Manufacturing and
related distribution 220,000
Cumbria, England............ Manufacturing and
related distribution 263,000 52,000
Diessenhofen, Switzerland(2) Manufacturing and
related distribution 146,000 []
Elkin, North Carolina....... Manufacturing and
related distribution 690,000 []
Glinde, Germany............ Manufacturing and
related distribution 172,000 []
Heidelberg, Germany......... Distribution 55,000
Maynard, Minnesota.......... Manufacturing and
related distribution 54,000
Miami, Florida(3)........... Manufacturing and
related distribution 22,000 []
Hyannis, Massachusetts...... Manufacturing 69,000 []
Memphis, Tennessee ......... Distribution 406,000
Monterrey, Mexico........... Manufacturing [] 181,000
Montgomery, Illinois(4)..... Distribution [] 183,000
Ontario, Canada............. Distribution [] 41,000
Oskarshamm, Sweden.......... Manufacturing and
related distribution [] 123,000
Plymouth, Massachusetts..... Distribution 59,000 []
Temecula, California....... Manufacturing and
related distribution [] 305,000
Texarkana, Texas............ Manufacturing and
related distribution 149,000 []
Thomasville, Georgia........ Manufacturing and
related distribution 66,000 []
Tilburg, Netherlands........ Distribution 327,000 []
Tijuana, Mexico............. Manufacturing [] 105,000
Tulsa, Oklahoma............. Distribution 98,000 81,000
=========================================================================
The Company's executive offices, administrative offices and outlet
stores are generally located in leased space (except for certain offices
located in owned space).
- ------------
1 The number shown does not include 32,000 square feet of Research &
Development space used for office and laboratories.
2 The Company is currently engaged in negotiations with a third party to
sell this facility and possibly lease it back from such third party.
3 The Company entered into an agreement on January 18, 2001 pursuant to
which the Company sold this facility on February 27, 2001.
4 Facility is leased by third party service provider; the Company pays
provider an all-inclusive service fee.
13
Most of the Company's properties are currently being utilized for their intended
purpose except as footnoted above.
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 2001 annual meeting of stockholders will be held on June 12,
2001. No matter was submitted to a vote of security holders in the fourth
quarter of the fiscal year ended January 31, 2001.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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:
FISCAL 2000
(ENDED JANUARY 31, 2000)
HIGH LOW
---- ---
First Quarter $28.00 $21.50
Second Quarter $34.56 $23.00
Third Quarter $31.75 $23.63
Fourth Quarter $26.75 $22.19
FISCAL 2001
(ENDED JANUARY 31, 2001)
HIGH LOW
---- ---
First Quarter $32.56 $21.50
Second Quarter $33.13 $27.13
Third Quarter $29.94 $21.94
Fourth Quarter $27.38 $21.44
FISCAL 2002
(ENDED JANUARY 31, 2002)
HIGH LOW
---- ---
First Quarter (through April 16, 2001) $24.37 $22.10
As of April 16, 2001, there were 2,727 registered holders of record of the
Company's Common Stock. On March 28, 2001, the Company's Board of Directors
declared a regular semi-annual cash dividend in the amount of $0.10 per share of
Common Stock payable in the second quarter of fiscal year 2002.
14
ITEM 6.
SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below are selected summary consolidated financial and operating data
of the Company for fiscal years 1997 through 2001, 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 on Form 10-K.
YEAR ENDED JANUARY 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENT DATA)
- -----------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF EARNINGS DATA:
Net sales (1) $ 557,601 $ 721,221 $ 915,342 $ 1,149,994 $ 1,197,197
Gross profit (1) 287,210 383,234 489,077 597,610 625,725
Operating profit 74,047 98,774 128,237 164,001 145,244
Interest expense 3,554 4,816 6,653 12,104 15,876
Earnings before income taxes, minority interest
and cumulative effect of accounting change 71,939 89,930 122,890 150,390 130,690
Earnings before minority interest and
cumulative effect of accounting change 42,951 54,862 74,503 92,847 80,715
Net earnings (3) 42,757 54,590 74,502 92,389 79,562
Basic net earnings per common share
before cumulative effect of accounting change (2,3) 0.89 1.11 1.52 1.91 1.69
Cumulative effect of accounting change (3) -- -- -- -- (0.02)
----------- ----------- ----------- ----------- -----------
0.89 1.11 1.52 1.91 1.67
Diluted net earnings per common share
before cumulative effect of accounting change (2,3) 0.88 1.10 1.50 1.89 1.69
Cumulative effect of accounting change (3) -- -- -- -- (0.02)
----------- ----------- ----------- ----------- -----------
0.88 1.10 1.50 1.89 1.66
Cash dividends paid -- -- -- -- 0.20
Basic weighted average number
of common shares outstanding (2) 47,974 49,063 49,165 48,471 47,629
Diluted weighted average number
of common shares outstanding (2) 48,476 49,543 49,604 48,818 47,902
Operating Data:
Gross profit margin 51.5% 53.1% 53.4% 52.0% 52.3%
Operating profit margin 13.3% 13.7% 14.0% 14.3% 12.1%
Capital expenditures $ 50,526 $ 62,481 $ 42,611 $ 47,740 $ 25,322
Depreciation and amortization 8,778 12,396 19,798 28,107 33,383
Balance Sheet Data:
Working capital (2, 3) $ 113,177 $ 140,101 $ 143,160 $ 191,257 $ 224,413
Total assets (2, 3) 303,879 447,390 576,783 713,096 763,470
Total debt (2) 44,704 120,630 127,040 196,222 199,968
Total stockholders' equity (3) 189,403 246,832 322,032 380,214 421,794
- -----------------------------------------------------------------------------------------------------------------------------------
- ----------
(1) ALL PERIODS HAVE BEEN RESTATED TO REFLECT THE ADOPTION OF "EMERGING ISSUES
TASK FORCE" ("EITF") 00-10, "ACCOUNTING FOR SHIPPING AND HANDLING FEES AND
COSTS" (SEE NOTE 2 TO THE CONSOLIDATED FINANCIAL STATEMENTS, "ACCOUNTING
CHANGES").
(2) RESTATED FOR A JUNE 1997 THREE-FOR-TWO STOCK SPLIT, WHICH WAS EFFECTED AS
A STOCK DIVIDEND. EARNINGS PER COMMON SHARE FOR FISCAL 1997 REFLECTS THE
ISSUANCE OF 993,745 SHARES OF COMMON STOCK IN CONNECTION WITH THE
ACQUISITION OF NEW IDEAS INTERNATIONAL, INC. IN DECEMBER 1996. EARNINGS
PER COMMON SHARE FOR ALL PERIODS GIVE EFFECT TO 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 RESULTS OF OPERATIONS OF JEANMARIE CREATIONS, INC., 100%
OWNED, OF WHICH 80% WAS ACQUIRED IN APRIL 1995, WITH AN ADDITIONAL 4%
BEING ACQUIRED EACH SUBSEQUENT YEAR BEGINNING IN MAY 1996, THE RESULTS OF
OPERATIONS OF NEW IDEAS INTERNATIONAL, INC., WHICH WAS ACQUIRED IN
DECEMBER 1996, THE DECEMBER 1997 ACQUISITION OF THE STERNO(TM) AND
HANDYFUEL(TM) ASSETS, AND THE RESULTS OF OPERATIONS FROM THE COMPANY'S
ACQUISITION OF THE REMAINING 50% OF COLONY GIFT CORPORATION, LTD., IN MAY
1999 WHICH WAS PREVIOUSLY INCLUDED AS AN EQUITY INVESTMENT, 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
ACQUISITIONS OF LILJEHOLMENS STEARINFABRIKS AB ("LILJEHOLMENS") CLASS A
AND CLASS B COMMON STOCK IN DECEMBER 1998 AND JUNE 1999, BALANCE SHEET
AMOUNTS BEGINNING IN JANUARY 1999 INCLUDE THE BALANCES OF LILJEHOLMENS AND
RESULTS OF OPERATIONS INCLUDE LILJEHOLMENS BEGINNING IN FEBRUARY 1999.
(3) THE COMPANY RECORDED A ONE-TIME CUMULATIVE EFFECT OF ACCOUNTING CHANGE IN
JANUARY 2001 TO REFLECT THE ADOPTION OF STAFF ACCOUNTING BULLETIN ("SAB")
101, "REVENUE RECOGNITION IN FINANCIAL STATEMENTS" (SEE NOTE 2 TO THE
CONSOLIDATED FINANCIAL STATEMENTS, "ACCOUNTING CHANGES").
15
ITEM 7.
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:
PERCENTAGE INCREASE (DECREASE)
FROM PRIOR PERIOD
PERCENTAGE OF NET SALES ------------------------------
YEARS ENDED JANUARY 31 FISCAL 2000 FISCAL 2001
------------------------- COMPARED COMPARED
TO FISCAL TO FISCAL
1999 2000 2001 1999 2000
- ---------------------------------------------------------------------------------
Net sales 100.0 100.0 100.0 25.6 4.1
Cost of goods sold 46.6 48.0 47.7 29.6 3.5
Gross profit 53.4 52.0 52.3 22.2 4.7
Selling and shipping 30.7 29.7 31.0 21.5 8.5
Administrative 8.5 7.7 8.1 14.5 9.9
Operating profit 14.0 14.3 12.1 27.9 (11.4)
Net earnings 8.1 8.0 6.6 24.0 (13.9)
FISCAL 2001 COMPARED TO FISCAL 2000
CONSOLIDATED OPERATIONS
Net sales increased $47.2 million, or 4.1%, from $1,150.0 million in fiscal 2000
to $1,197.2 million in fiscal 2001. This increase was attributable to sales
growth both in the Candles and Home Fragrance Products and the Non-Fragranced
Products segments as well as the inclusion of sales from businesses acquired.
The continued weakness of European currencies versus the dollar had a negative
impact on the overall sales growth rate of the Company. Excluding the negative
effect of the deterioration of European currencies, net sales increased
approximately 6.8% in fiscal 2001 when compared to last year. International
sales represented approximately 26% of total net sales in fiscal 2001, which is
approximately the same percentage as in the prior year despite the deterioration
of foreign currencies. Net sales in the US market increased approximately 5%
when compared to last year.
Gross profit increased $28.1 million, or 4.7%, from $597.6 million in fiscal
2000 to $625.7 million in fiscal 2001. Gross profit margin increased from 52.0%
for fiscal 2000 to 52.3% for fiscal 2001. A key factor that favorably impacted
the gross margin was the relatively higher sales growth of premium priced
products. The Company recorded one-time charges in cost of goods sold of
approximately $9.0 million in fiscal 2001, (which are included in the $16.7
million in total restructuring and other one-time charges as described in Note 4
to the Consolidated Financial Statements, "Unusual Charges") which reduced the
gross profit margin by 0.8%. Excluding these one-time charges gross profit
margin increased 1.1% compared to fiscal 2000.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
FISCAL 2001 COMPARED TO FISCAL 2000 (CONTINUED)
CONSOLIDATED OPERATIONS (CONTINUED)
Selling and shipping expense increased $29.3 million, or 8.5%, from $341.9
million in fiscal 2000 to $371.2 million in fiscal 2001. Selling and shipping
expense as a percentage of net sales increased in fiscal 2001 when compared to
fiscal 2000 primarily due to the higher percentage of sales of premium priced
products for which selling expenses are relatively higher. Unexpected bad debt
expenses (discussed in Note 4 to the Consolidated Financial Statements) of
approximately $2.3 million also contributed to the increase in selling expenses.
Administrative expense increased $8.7 million, or 9.8%, from $88.7 million in
fiscal 2000 to $97.4 million in fiscal 2001. The increase in administrative
expense in fiscal 2001 versus a year ago is due to investments in product
development, e-business initiatives and to the overall growth of the Company.
The Company recorded other one-time charges of approximately $7.7 million
reported as a component of operating expenses in fiscal 2001, (which are
included in the $16.7 million in total restructuring and other one-time charges
as described in Note 4 to the Consolidated Financial Statements, "Unusual
Charges") which reduced the operating profit margin by 0.6%.
The Company, for strategic reasons, decided during fiscal 2001 to exit certain
lower margin product lines, including the religious and citronella product
lines. Expenses related to this activity include asset write-offs, inventory
write-downs and severance payments made to employees, which were recorded as
restructuring and one-time charges and are included in the amounts discussed
above as part of "Gross Profit" and the immediately preceding paragraph
discussing other one-time charges. The following table sets forth net sales and
operating profit data for these discontinued product lines for fiscal 2001 and
fiscal 2000. These amounts were reported as part of the Candles and Home
Fragrance Products segment in Note 13 to the Consolidated Financial Statements,
"Segment Information".
Year ended January 31, (In thousands)
- -----------------------------------------------------------------------------
2000 2001
- -----------------------------------------------------------------------------
Net sales $ 31,753 $ 18,679
Operating loss (779) (4,281)
Interest expense increased $3.8 million, or 31.4%, from $12.1 million in fiscal
2000 to $15.9 million in fiscal 2001. The increase in interest expense is
primarily attributable to borrowing under the Company's public debt offering
which was in effect for the full 2001 fiscal year and to increases in short term
interest rates (as further described in "Liquidity and Capital Resources").
Income tax expense decreased $7.5 million, or 13.0%, from $57.5 million in
fiscal 2000 to $50.0 million in fiscal 2001. The reduction in income tax expense
is primarily attributable to the decrease in earnings subject to income tax. The
Company's effective tax rate remained at approximately 38.2% during fiscal 2001.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
FISCAL 2001 COMPARED TO FISCAL 2000 (CONTINUED)
CONSOLIDATED OPERATIONS (CONTINUED)
The Company recorded a one-time charge of $1.2 million, which is reflected as a
cumulative effect of accounting change, in fiscal 2001 as a result of adopting
Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial
Statements" (See Note 2 to the Consolidated Financial Statements, "Accounting
Changes").
As a result of the foregoing, net earnings decreased $12.8 million, or 13.9%,
from $92.4 million in fiscal 2000 to $79.6 million in fiscal 2001.
Basic earnings per share before cumulative effect of accounting change based
upon the weighted average number of shares outstanding were $1.69 compared to
$1.91 for the same period last year. The cumulative effect of accounting change
previously discussed had an effect on basic earnings per share equal to $.02.
Basic earnings per share after cumulative effect of accounting change based on
the weighted average number of shares outstanding were $1.67 compared to $1.91
for the same period last year. Diluted earnings per share before cumulative
effect of accounting change based upon the potential dilution that could occur
if options to issue common stock were exercised were $1.69 compared to $1.89 for
the same period last year. The cumulative effect of accounting change had an
effect on diluted earnings per share equal to $.02. Diluted earnings per share
after cumulative effect of accounting change based upon the potential dilution
that could occur if options to issue common stock were exercised were $1.66
compared to $1.89 for the same period last year.
During the fourth quarter of fiscal 2001, the Company announced a realignment of
its business strategy and the formation of a new business segment, the
Non-Fragranced Products segment. The Company operates in two business segments -
Candles and Home Fragrance Products and Non-Fragranced Products. A discussion
about these segments follows.
SEGMENT REVIEW - CANDLES AND HOME FRAGRANCE PRODUCTS
Net sales of the Candles and Home Fragrance Products segment increased $10.0
million, or 0.9%, from $1,053.4 million in fiscal 2000 to $1,063.4 million in
fiscal 2001 inclusive of the sales of Wax Lyrical a U.K. retailer that became a
consolidated subsidiary in April 2000. The continued weakness of European
currencies against the dollar had a negative impact on the net sales growth rate
as discussed under the heading "Consolidated Operations" above. International
sales accounted for approximately 27.5% of total net sales in the Candles and
Home Fragrance Products segment for fiscal 2001. In the US market, the Candles
and Home Fragrance Products segment experienced a modest overall sales increase
versus a year ago. This modest sales increase for the year, driven by strong
first half net sales, occurred despite the impact of the overall weakening of
the economy in the second half of fiscal 2001, particularly the fourth quarter.
In fiscal 2002, the Company plans to grow the Candles and Home Fragrance
Products segment for the most part organically, with the possibility of some
smaller acquisition-related growth.
Earnings of the Candles and Home Fragrance Products segment decreased $24.8
million, or 16.1%, from $153.8 million in fiscal 2000 to $129.0 million in
fiscal 2001. The decrease in earnings is largely attributable to the unusual
charges, which included restructuring and one-time costs and unexpected bad debt
expenses totaling approximately $19.0 million (as further described in Note 4 to
the Consolidated Financial Statements, "Unusual Charges") and the further
deterioration in foreign currency exchange rates versus the dollar.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
FISCAL 2001 COMPARED TO FISCAL 2000 (CONTINUED)
SEGMENT REVIEW - NON-FRAGRANCED PRODUCTS
Net sales of the Non-Fragranced Products segment increased $37.2 million, or
38.5%, from $96.6 million in fiscal 2000 to $133.8 million in fiscal 2001. This
sales growth is primarily due to the acquisition of Impact Plastics, which
occurred at the end of fiscal 2000. The deterioration in the US economy in the
latter part of the 2001 fiscal year adversely affected the overall sales growth
of the Non-Fragranced Products segment. In fiscal 2002, the Company plans to
continue to grow the Non-Fragranced Products segment through internal growth, as
well as acquisitions.
Earnings of the Non-Fragranced Products segment increased $6.0 million, or
58.8%, from $10.2 million in fiscal 2000 to $16.2 million in fiscal 2001. This
increase is primarily due to the acquisition of Impact Plastics.
FISCAL 2000 COMPARED TO FISCAL 1999
CONSOLIDATED OPERATIONS
Net sales increased $234.7 million, or 25.6%, from $915.3 million in fiscal 1999
to $1,150.0 million in fiscal 2000. Most of this increase was attributable to
unit sales growth in sales of the Company's consumer everyday and seasonal
holiday products, which was achieved through a combination of four key factors:
market growth, new products, new customers and acquisitions which will be
discussed further in the segments review below. Despite the deterioration of
European currencies during the year, international net sales continued to grow.
International sales accounted for approximately 26% of total net sales in fiscal
2000, compared to approximately 18% in fiscal 1999, and continued to grow at a
faster rate than the Company as a whole, accounting for approximately 58% of the
net sales increase in fiscal 2000.
Gross profit increased $108.5 million, or 22.2%, from $489.1 million in fiscal
1999 to $597.6 million in fiscal 2000. Gross profit margin decreased from 53.4%
for fiscal 1999 to 52.0% for fiscal 2000. The gross profit margin as a
percentage of net sales was lower in fiscal 2000 due to the inclusion of
Liljeholmens, which contributes relatively lower gross margin than the rest of
the Company and was not included in the fiscal 1999 operating results. Before
including Liljeholmens, gross profit as a percentage of net sales increased more
than one full percentage point to 54.6% compared to 53.4% a year earlier.
Several key operational factors continued to favorably impact the gross margin:
relatively higher sales growth of premium priced products; global product
sourcing benefits across our businesses both in raw materials and accessories;
and, cost efficiencies as a result of capital investments made over several
previous years, particularly in manufacturing process technology, and
distribution technology, including two new distribution facilities.
Selling and shipping expense increased $60.6 million, or 21.5%, from $281.3
million in fiscal 1999 (30.7% of net sales), to $341.9 million in fiscal 2000
(29.7% of net sales). Selling and shipping expense, as a percentage of net
sales, decreased in fiscal 2000 when compared to fiscal 1999 due to, among other
factors, the continued improvement in shipping efficiencies. The inclusion of
Liljeholmens' operating results in fiscal 2000 also contributed to the lower
selling and shipping expense as a percentage of net sales due to their
relatively lower selling expenses.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
FISCAL 2000 COMPARED TO FISCAL 1999 (CONTINUED)
CONSOLIDATED OPERATIONS (CONTINUED)
Administrative expense increased $11.2 million, or 14.5%, from $77.5 million in
fiscal 1999 (8.5% of net sales) to $88.7 million in fiscal 2000 (7.7% of net
sales). Administrative expense as a percentage of net sales declined during
fiscal 2000 versus fiscal 1999 for two main reasons: the economies of scale (the
ability to leverage administrative expense over a larger sales base); and, the
inclusion of Liljeholmens (which experiences relatively lower administrative
expense as a percentage of sales).
Interest expense increased $5.4 million, or 80.6%, from $6.7 million in fiscal
1999 to $12.1 million in fiscal 2000. The increase in interest expense was
primarily attributable to borrowings to fund the acquisitions and long-term
investments made during fiscal 2000 including debt assumed in such acquisitions
and to a lesser extent the Company's public debt offering (as further described
in "Liquidity and Capital Resources").
Income tax expense increased $9.1 million, or 18.8%, from $48.4 million in
fiscal 1999 to $57.5 million in fiscal 2000. The Company's effective tax rate
decreased from approximately 39.4% during fiscal 1999 to approximately 38.3% for
fiscal 2000, reflecting the on-going globalization of the Company's business
portfolio and effective use of foreign tax planning strategies.
As a result of the foregoing, net earnings increased $17.9 million, or 24.0%,
from $74.5 million in fiscal 1999 to $92.4 million in fiscal 2000.
Basic earnings per share based upon the weighted average number of shares
outstanding were $1.91 for fiscal 2000 compared to $1.52 for fiscal 1999.
Diluted earnings per share based upon the potential dilution that could occur if
options to issue common stock were exercised were $1.89 for fiscal 2000 compared
to $1.50 for fiscal 1999.
SEGMENT REVIEW - CANDLES AND HOME FRAGRANCE PRODUCTS
Net sales in the Candles and Home Fragrance Products segment increased $223.8
million, or 27.0%, from $829.6 million in fiscal 1999 to $1,053.4 million in
fiscal 2000. Most of this increase was attributable to unit sales growth in
sales of the Company's consumer everyday and seasonal holiday products, which
was achieved through a combination of four key factors: market growth, new
products, new customers and acquisitions. First, in terms of market growth in
fiscal 2000, the Company was the largest competitor in the large market for home
fragrance products, which was still growing in fiscal 2000: namely fragrance
candles, potpourri, and related accessories. The Company also had the most
diverse home fragrance product assortment in Europe. Despite the deterioration
of European currencies during fiscal 2000, international net sales continued to
grow at a faster rate than the Candles and Home Fragrance Products segment as a
whole and represented approximately 27% of total sales in this segment in fiscal
2000. Second, new products continued to be a key contributor to the Candles and
Home Fragrance Products segment's sales growth. During fiscal 2000 the Company
introduced three major new fragrance initiatives in the Candles and Home
Fragrance Products segment in three distinct market channels: Colonial at
Home(TM) for our US premium channel - independent giFT stores; Indulgences(TM)
for our direct selling channel worldwide; and Ambria by Gies for oUR European
mass market merchandisers. Third, the Company increased its customer base in
this segment in three major channels of distribution: direct selling
consultants, premium retail outlets and mass retail outlets. Lastly, the
acquisition of Liljeholmens contributed to growing sales and share of market.
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
FISCAL 2000 COMPARED TO FISCAL 1999 (CONTINUED)
SEGMENT REVIEW - CANDLES AND HOME FRAGRANCE PRODUCTS (CONTINUED)
Earnings of the Candles and Home Fragrance Products segment increased $32.2
million, or 26.5%, from $121.6 million in fiscal 1999 to $153.8 million in
fiscal 2000. The previously discussed factors leading to the growth in sales all
contributed to the increase in earnings in the Candles and Home Fragrance
Products segment as well as the favorable impact of: global product sourcing
benefits across our businesses both in raw materials and accessories; and, cost
efficiencies as a result of capital investments made over several previous
years, particularly in manufacturing process technology and distribution
technology including two new distribution facilities.
SEGMENT REVIEW - NON-FRAGRANCED PRODUCTS
Net sales in the Non-Fragranced Products segment increased $10.8 million, or
12.6%, from $85.8 million in fiscal 1999 to $96.6 million in fiscal 2000. Most
of this increase was attributable to unit sales growth in sales of the segment's
consumer everyday and seasonal holiday products, which was achieved primarily
through a combination of new products and new customers.
Earnings of the Non-Fragranced Products segment increased $3.5 million, or
52.2%, from $6.7 million in fiscal 1999 to $10.2 million in fiscal 2000. The
previously discussed increases in total sales along with a relatively higher
sales growth of higher operating margin products contributed to the increased
earnings as well as the cost efficiencies as a result of capital investments
made over several previous years.
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. 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, 2000 to January 31,
2001 due to both the Company's internally generated growth and acquisitions.
Inventory increased from $186.7 million at January 31, 2000 to $201.1 million at
January 31, 2001. Inventory at January 31, 2001 includes an adjustment to
inventory as a result of the adoption of SAB 101. Excluding this adjustment
inventory increased approximately 4.3% when compared to last year. Accounts
receivable decreased $17.9 million from $84.9 million at the end of fiscal 2000
to $67.0 million at the end of fiscal 2001. Excluding the adjustment to accounts
receivable as a result of the adoption of SAB 101, accounts receivable at
January 31, 2001, decreased $5.4 million, which is due to reduced sales in the
fourth quarter. Accounts payable and accrued expenses decreased $2.9 million
from $105.2 million at the end of fiscal 2000 to $102.3 million at the end of
fiscal 2001.
Capital expenditures for property, plant and equipment were approximately $25.3
million in fiscal 2001. The Company anticipates total capital spending of
approximately $25.0 million for fiscal 2002, which will be used primarily for
upgrades to machinery and equipment in existing facilities, and technology.
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
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. We expect our future growth in
the Candles and Home Fragrance Products segment to be primarily organic, with
the possibility of selective acquisitions. We continue to pursue strategic
acquisitions in certain areas of the Non-Fragranced Products segment.
Pursuant to the Company's revolving credit facility ("Credit Facility"), as
amended on September 14, 1999, 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 (9.00% at January 31, 2001) or
at the Eurocurrency rate plus a credit spread ranging from 0.25% to 0.50%, based
on a pre-defined financial ratio. At January 31, 2001, approximately $2.3
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 January 31,
2001, the Company was in compliance with such covenants.
At December 31, 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 December 31, 2000 under the loan
agreements was approximately $5.0 million with variable interest rates ranging
from 3.80% to 5.55%, of which $1.5 million relates to current maturities. The
loans are collateralized by certain of Liljeholmens' real estate.
As of January 31, 2001, the Company had a total of $10.0 million available under
an uncommitted bank line of credit. Amounts outstanding under the line of credit
bear interest at short term fixed rates. No amount was outstanding under the
uncommitted line of credit at January 31, 2001.
As of December 31, 2000, Liljeholmens had available lines of credit of
approximately $36.3 million of which approximately $2.1 million was outstanding.
The amounts outstanding under the lines of credit bear interest at a weighted
average rate of 5.22% at December 31, 2000. The lines of credit are renewed
annually.
Colony Gift 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 $29.9
million, collateralized by certain of Colony Gifts' assets. As of December 31,
2000, Colony Gift had borrowings under the credit facility of approximately
$25.2 million, at a weighted average interest rate of 6.62%.
In May 1999, the Company filed a shelf registration statement for up to $250.0
million in debt securities with the Securities and Exchange Commission. On
September 24, 1999, the Company issued $150.0 million of 7.90% Senior Notes due
October 1, 2009 at a discount of approximately $1.0 million, which is being
amortized over the life of the notes. Such notes contain, among other
provisions, restrictions on liens of principal property or stock issued to
collateralize debt. At January 31, 2001, the Company was in compliance with such
covenants. Interest is payable semiannually on April 1 and October 1. The
proceeds of the offering were used to repay substantially all of the Company's
outstanding debt under its revolving and uncommitted lines of credit in the
United States.
22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Net cash provided by operating activities amounted to $112.7 million in fiscal
2001 compared to $119.4 million in fiscal 2000, a modest decrease of $6.7
million or 5.6%. The key factors contributing to the continued strong cash flow
from operations were net earnings of $79.6 million and depreciation and
amortization of $33.4 million.
On December 14, 2000, the Company's Board of Directors authorized the Company to
repurchase up to 1,000,000 additional shares of its common stock bringing the
total authorization to 4,000,000 shares. During the course of fiscal 2001, a
total of 1,148,100 shares were repurchased for a total cost of approximately
$26.8 million. As of March 31, 2001, the Company had cumulatively purchased on
the open market 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 March 28, 2001, the Company announced that it has declared a cash dividend of
$0.10 per share of the Company's common stock for the six months ended January
31, 2001. The dividend, authorized at the Company's March 28, 2001 Board of
Directors meeting, will be payable to shareholders of record as of May 1, 2001,
and will be paid on May 15, 2001.
The Company's primary capital requirements are for working capital to fund the
necessary levels of inventory and accounts receivable to sustain the Company's
sales growth, and 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 previously described will be sufficient
to fund its operating requirements, capital expenditures, stock repurchase
program, dividends and all other obligations for fiscal 2002 and fiscal 2003.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A.
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 January 31, 2001 the Company is subject to interest rate risk on
approximately $30.2 million of variable rate debt, including the debt
attributable to Liljeholmens and Colony Gift. Each 1.00% increase in the
interest rate would impact pre-tax earnings by approximately $302,000 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, certain
inventory purchases, 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 and inventory 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 January 31, 2001.
U.S. DOLLAR AVERAGE ESTIMATED
(In thousands, except average contract NOTIONAL AMOUNT CONTRACT RATE FAIR VALUE
- ----------------------------------------------------------------------------------
Canadian Dollar $ 3,920 1.51 $ 8
Swiss Franc 7,944 1.67 (85)
Euro 34,341 0.92 (250)
Pound Sterling 4,355 1.50 115
- ----------------------------------------------------------------------------------
$ 50,560 $ (212)
==================================================================================
The foreign exchange contracts outstanding as of January 31, 2001 had maturity
dates ranging from February 2001 through January 2002.
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
IMPACT OF ADOPTION OF RECENTLY ISSUED ACCOUNTING STANDARDS
For the fiscal year ended January 31, 2001, the Company adopted the provisions
of Emerging Issues Task Force ("EITF") 00-10, "Accounting for Shipping and
Handling Fees and Costs" which requires that amounts billed to customers for
shipping and handling fees be classified as revenues and shipping and handling
costs be classified as cost of goods sold. All prior periods have been restated
to reflect the reclassification of shipping and handling fees and costs
previously reported in selling and shipping expense in the Consolidated
Statements of Earnings. The adoption has no impact on net earnings.
For the fiscal year ended January 31, 2001, the Company adopted the
newly-effective Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in
Financial Statements". As a result of adopting SAB 101, the Company changed its
revenue recognition policy to recognize revenue upon delivery, when both title
and risk of loss are transferred to the customer. In accordance with the
provisions of SAB 101, the Company recorded a one-time charge of $1.2 million,
net of tax, which is reflected as a cumulative effect of an accounting change in
the Consolidated Statements of Earnings. This one-time charge had an effect
equal to $.02 Diluted Earnings Per Share. This adoption by the Company affected
certain amounts reported in the fiscal 2001 fourth quarter and full year
Consolidated Statements of Earnings and certain year-end Consolidated Balance
Sheet amounts such as a decrease in accounts receivable of approximately $12.5
million. The change in accounting method would not have had a material effect on
the Consolidated Statements of Earnings in fiscal 2000 or 1999 if adopted in
these periods.
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.
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 such as
discounts, coupons, rebates and free products. The effective date has been
delayed until June 30, 2001. EITF 00-14 becomes effective in the Company's
second quarter of fiscal 2002 at which time the Company will report the cost of
sales incentives covered by EITF 00-14 as a reduction of revenue. The adoption
will have no impact on net earnings.
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 will
remain legal tender in the participating countries during a transition period
from January 1, 1999 through January 1, 2002.
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.
25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EUROPEAN MONETARY UNION - EURO (CONTINUED)
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 Euro. 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 on Form 10-K 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 on Form 10-K
and in the Company's subsequent filings with the Securities and Exchange
Commission.
26
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Blyth, 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, Inc. and its
subsidiaries at January 31, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended January 31,
2001 in conformity with accounting principles generally accepted in the United
States of America. 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 auditing standards generally accepted in the
United States of America, 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 our opinion.
As discussed in Note 2 of the Notes to Consolidated Financial Statements, the
Company changed its method of accounting for revenue recognition.
/s/ PricewaterhouseCoopers LLP
------------------------------
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
March 14, 2001, except for Note 14, as to which
the date is March 31, 2001, and except for Note
17, as to which the date is April 11, 2001
27
ITEM 8.
BLYTH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------
JANUARY 31, (In thousands, except share data) 2000 2001
- ---------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 46,047 $ 93,036
Accounts receivable, less allowance for doubtful receivables
of $2,154 in 2000 and $2,120 in 2001 84,919 66,974
Inventories 186,696 201,086
Prepaid expenses 3,000 4,803
Deferred income taxes 1,200 7,808
- ---------------------------------------------------------------------------------------------------------
Total current assets 321,862 373,707
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land and buildings 122,691 131,008
Leasehold improvements 9,517 19,219
Machinery and equipment 195,934 196,349
Office furniture, data processing equipment and software 47,106 50,969
Construction in progress 11,324 14,631
- ---------------------------------------------------------------------------------------------------------
386,572 412,176
Less accumulated depreciation 113,044 142,738
- ---------------------------------------------------------------------------------------------------------
273,528 269,438
OTHER ASSETS:
Investments 10,303 15,180
Excess of cost over fair value of assets acquired, net of
accumulated amortization of $7,290 in 2000 and $11,240 in 2001 102,328 95,472
Deposits and other assets 5,075 9,673
- ---------------------------------------------------------------------------------------------------------
117,706 120,325
- ---------------------------------------------------------------------------------------------------------
Total assets $ 713,096 $ 763,470
=========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank lines of credit $ 5,572 $ 27,278
Current maturities of long-term debt 14,063 5,374
Accounts payable 53,359 54,820
Accrued expenses 51,819 47,520
Income taxes 5,792 14,302
- ---------------------------------------------------------------------------------------------------------
Total current liabilities 130,605 149,294
DEFERRED INCOME TAXES 24,202 24,552
LONG-TERM DEBT, less current maturities 176,587 167,316
MINORITY INTEREST AND OTHER 1,488 514
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, 48,037,309 shares in 2000 and 47,074,776 shares in 2001 985 989
Additional contributed capital 93,784 96,912
Retained earnings 320,384 390,447
Accumulated other comprehensive loss (4,760) (9,595)
Treasury stock, at cost, 1,208,700 shares in 2000 and 2,356,800 shares in 2001 (30,179) (56,959)
- ---------------------------------------------------------------------------------------------------------
Total stockholders' equity 380,214 421,794
- ---------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 713,096 $ 763,470
=========================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
28
BLYTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEAR ENDED JANUARY 31, (In thousands, except per share data) 1999 2000 2001
- --------------------------------------------------------------------------------------------------
Net sales $ 915,342 $ 1,149,994 $ 1,197,197
Cost of goods sold 426,265 552,384 562,471
Restructuring and one-time charges -- -- 9,001
- --------------------------------------------------------------------------------------------------
Gross profit 489,077 597,610 625,725
Selling and shipping 281,282 341,924 371,156
Administrative 77,465 88,692 97,432
Amortization of goodwill 2,093 2,993 4,191
Other one-time charges -- -- 7,702
- --------------------------------------------------------------------------------------------------
360,840 433,609 480,481
- --------------------------------------------------------------------------------------------------
Operating profit 128,237 164,001 145,244
Other expense (income):
Interest expense 6,653 12,104 15,876
Interest income and other (481) 1,361 (1,988)
Equity in earnings of investees (825) 146 666
- --------------------------------------------------------------------------------------------------
5,347 13,611 14,554
- --------------------------------------------------------------------------------------------------
Earnings before income taxes, minority interest, and
cumulative effect of accounting change 122,890 150,390 130,690
Income tax expense 48,387 57,543 49,975
- --------------------------------------------------------------------------------------------------
Earnings before minority interest and
cumulative effect of accounting change 74,503 92,847 80,715
Minority interest 1 458 --
- --------------------------------------------------------------------------------------------------
Earnings before cumulative effect of accounting cha74,502 92,389 80,715
Cumulative effect of accounting change, net of taxes -- -- (1,153)
- --------------------------------------------------------------------------------------------------
Net earnings $ 74,502 $ 92,389 $ 79,562
==================================================================================================
Basic:
Net earnings per common share before cumulative
effect of accounting change $ 1.52 $ 1.91 $ 1.69
Cumulative effect of accounting change -- -- (0.02)
- --------------------------------------------------------------------------------------------------
$ 1.52 $ 1.91 $ 1.67
Weighted average number of shares outstanding 49,165 48,471 47,629
- --------------------------------------------------------------------------------------------------
Diluted:
Net earnings per common share before cumulative
effect of accounting change $ 1.50 $ 1.89 $ 1.69
Cumulative effect of accounting change -- -- (0.02)
- --------------------------------------------------------------------------------------------------
$ 1.50 $ 1.89 $ 1.66
Weighted average number of shares outstanding 49,604 48,818 47,902
==================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
29
BLYTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
- ------------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
-------------------- CONTRIBUTED RETAINED TREASURY COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS STOCK INCOME (LOSS) TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at January 31, 1998 49,100,953 $ 982 $ 92,357 $ 153,493 $ -- $ -- $ 246,832
Net earnings and comprehensive
income for the year -- -- -- 74,502 -- -- 74,502
Common stock issued in connection
with exercise of stock options 99,521 2 924 -- -- -- 926
Treasury stock purchases (10,000) -- -- -- (228) -- (228)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at January 31, 1999 49,190,474 984 93,281 227,995 (228) -- 322,032
Net earnings for the year -- -- -- 92,389 -- -- 92,389
Foreign currency translation adjustments -- -- -- -- -- (4,760) (4,760)
-----------
Comprehensive income 87,629
Common stock issued in connection
with exercise of stock option 45,535 1 503 -- -- -- 504
Treasury stock purchases (1,198,700) -- -- -- (29,951) -- (29,951)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at January 31, 2000 48,037,309 985 93,784 320,384 (30,179) (4,760) 380,214
Net earnings for the year -- -- -- 79,562 -- -- 79,562
Foreign currency translation adjustments -- -- -- -- -- (5,913) (5,913)
Unrealized gains on certain
investments (net of tax of $639) -- -- -- -- -- 1,078 1,078
-----------
Comprehensive income 74,727
Common stock issued in connection
with exercise of stock options 185,567 4 2,616 -- -- -- 2,620
Tax benefit from stock options -- -- 512 -- -- -- 512
Dividends paid ($.20 per share) -- -- -- (9,499) -- -- (9,499)
Treasury stock purchases (1,148,100) -- -- -- (26,780) -- (26,780)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at January 31, 2001 47,074,776 $ 989 $ 96,912 $ 390,447 $(56,959) $ (9,595) $ 421,794
====================================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
30
BLYTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JANUARY 31, (In thousands) 1999 2000 2001
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 74,502 $ 92,389 $ 79,562
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Cumulative effect of accounting change -- -- 1,153
Depreciation and amortization 19,798 28,107 33,383
Tax benefit from stock options -- -- 512
Deferred income taxes 4,680 3,422 (5,253)
Equity in earnings of investees (825) 146 666
Minority interest 1 458 --
Restructuring and one-time charges -- -- 15,383
Changes in operating assets and liabilities, net of
effect of business acquisitions:
Accounts receivable 627 (9,336) 5,716
Inventories (16,850) 3,523 (14,003)
Prepaid expenses (566) 996 (630)
Deposits and other assets (509) (2,339) (4,676)
Accounts payable 1,332 (5,192) (5,314)
Accrued expenses 6,881 2,712 (1,895)
Income taxes (1,655) 4,528 8,099
- -----------------------------------------------------------------------------------------------------------------------
Total adjustments 12,914 27,025 33,141
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 87,416 119,414 112,703
Cash flows from investing activities:
Purchases of property, plant and equipment (42,611) (47,740) (25,322)
Investment in investees (10,492) 609 (9,629)
Purchase of businesses, net of cash acquired (22,176) (59,422) (447)
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (75,279) (106,553) (35,398)
Cash flows from financing activities:
Proceeds from issuance of common stock 926 504 2,620
Purchases of treasury stock (228) (29,951) (26,780)
Borrowings from bank line of credit 454,900 385,902 44,259
Repayments on bank line of credit (453,200) (400,497) (22,553)
Proceeds from issuance of long-term debt 135,620 149,000 --
Payments on long-term debt (152,857) (90,343) (18,363)
Dividends paid -- -- (9,499)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (14,839) 14,615 (30,316)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (2,702) 27,476 46,989
Cash and cash equivalents at beginning of year 21,273 18,571 46,047
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 18,571 $ 46,047 $ 93,036
=======================================================================================================================
Supplemental disclosure of cash flow information: Cash paid during the year for:
Interest $ 6,994 $ 11,463 $ 16,695
Income taxes, net of refunds 45,700 49,937 46,621
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
31
BLYTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
During the fourth quarter of fiscal 2001, the Company announced a realignment of
its business strategy and the formation of a new business segment, the
Non-Fragranced Products segment. The Company operates in two business segments -
Candles and Home Fragrance Products and Non-Fragranced Products. The Company has
operations outside of the United States and sells its products in both segments
worldwide. The Candles and Home Fragrance Products segment designs, manufactures
and markets an extensive line of products including scented candles, potpourri
and other fragrance products and markets a broad range of complimentary candle
accessories. These products are sold direct to the consumer under the
PartyLite(R) brand, to retailers in the mid-tier and premium retail channels,
under the Colonial Candle of Cape Cod(R), Kate's Original Recipe(TM) and
Carolina Designs(R) brands, and in the mass retail channel under the Ambria(TM),
Florasense(R) and FilterMate(R) brands. In Europe, these products are also sold
under the Gies(TM), Liljeholmens(R), Colony(R), Carolina Designs(R) and Wax
Lyrical(TM) brands. The Non-Fragranced Products segment designs, manufactures
and markets a broad range of products including decorative seasonal products for
the consumer market, under the Jeanmarie(R) and Impact(R) brand names, tabletop
illumination products, and portable heating fuel products for the hotel,
restaurant and catering trade, under the Sterno(R) and HandyFuel(R) brand names.
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, 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. 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.
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
The Company's international subsidiaries use their local currency as their
functional currency. Therefore all balance sheet accounts of international
subsidiaries 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. Resulting translation adjustments are included in
"Accumulated other comprehensive income". Gains and losses on foreign currency
transactions, which are included in income, were not material.
RECLASSIFICATIONS
Certain reclassifications have been made in prior years' financial statements to
conform to classifications used in the current year.
32
BLYTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, certain
purchases of inventory, 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 and inventory 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 (See further discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations").
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include accounts receivable, accounts
payable, short-term and long-term debt. Management believes the carrying value
of these items 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
overhead.
SHIPPING AND HANDLING
The Company classifies shipping and handling fees billed to customers in revenue
and shipping and handling costs are classified as cost of goods sold (See Note 2
to the Consolidated Financial Statements, "Accounting Changes").
33
BLYTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. 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:
Buildings 27 to 40 years
Leasehold improvements 5 to 10 years
Machinery and equipment 5 to 12 years
Office furniture, data processing equipment and software 3 to 7 years
EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED
The excess of costs of the acquisitions over the fair 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.
COMPREHENSIVE INCOME
Comprehensive income is defined as all changes in equity during a period from
non-owner sources. The Company reports, by major components and as a single
total, the change in comprehensive income during the period as part of the
Consolidated Statements of Stockholders' Equity.
INCOME TAXES
Income tax expense is based on pretax financial accounting income. Deferred tax
assets and liabilities are recognized for the expected tax consequences of
temporary differences between the tax basis of assets and liabilities and their
reported amounts.
REVENUE RECOGNITION
Revenue is recognized upon delivery, when both title and risk of loss transfer
to the customer. Prior to fiscal 2001, the Company recognized revenue upon
shipment (See Note 2 to the Consolidated Financial Statements, "Accounting
Changes").
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share are computed based upon the
weighted average number of shares outstanding during the period, which includes
outstanding options for common stock, when dilutive.
34
BLYTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: ACCOUNTING CHANGES
For the fiscal year ended January 31, 2001, the Company adopted the provisions
of Emerging Issues Task Force ("EITF") 00-10, "Accounting for Shipping and
Handling Fees and Costs" which requires that amounts billed to customers for
shipping and handling fees be classified as revenues and shipping and handling
costs be classified as cost of goods sold. All prior periods have been restated
to reflect the reclassification of shipping and handling fees and costs
previously reported in selling and shipping expense in the Consolidated
Statements of Earnings. The adoption has no impact on net earnings.
For the fiscal year ended January 31, 2001, the Company adopted the
newly-effective Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in
Financial Statements". As a result of adopting SAB 101, the Company changed its
revenue recognition policy to recognize revenue upon delivery, when both title
and risk of loss are transferred to the customer. In accordance with the
provisions of SAB 101, the Company recorded a one-time charge of $1.2 million,
net of tax, which is reflected as a cumulative effect of an accounting change in
the Consolidated Statements of Earnings. This one-time charge had an effect
equal to $.02 Diluted Earnings Per Share. This adoption by the Company affected
certain amounts reported in the fiscal 2001 fourth quarter and full year
Consolidated Statements of Earnings and certain year-end Consolidated Balance
Sheet amounts such as a decrease in accounts receivable of approximately $12.5
million. The change in accounting method would not have had a material effect on
the Consolidated Statements of Earnings in fiscal 2000 or 1999 if adopted in
these periods.
NOTE 3: BUSINESS ACQUISITIONS
In December 1998, the Company acquired 9,431,000 shares of Class A voting common
stock of Liljeholmens, a leading European candle manufacturer, in a private
sale. In June 1999, the Company acquired the remaining outstanding Class A and
Class B common stock of Liljeholmens through a tender offer. After the total
purchase price of approximately $51.2 million was applied to the fair value of
assets acquired and liabilities assumed, goodwill of approximately $28.2 million
was generated and is being amortized over 40 years.
In May 1999, the Company acquired the remaining 50% interest in Colony Gift
Corporation, Ltd. ("Colony") for approximately $10.0 million in cash. The excess
of the purchase price over the estimated fair value of the net assets acquired
approximated $7.2 million and is being amortized over 15 years.
In January 2000, the Company acquired the net assets of Impact Plastics, a
seasonal decorative products company, as a product line extension of Jeanmarie
Creations, Inc., for approximately $19.8 million in cash. The excess of the
purchase price over the estimated fair value of the net assets acquired
approximated $13.3 million and is being amortized over 20 years.
35
BLYTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: UNUSUAL CHARGES
During the fourth quarter of fiscal 2001, the Company recorded restructuring and
other one-time charges of approximately $16.7 million pre-tax and unexpected bad
debt expenses of approximately $2.3 million pre-tax. The total of these charges
impacted fourth quarter Diluted Earnings Per Share by $.28. The following
summarizes the components of these charges:
Pre-tax expenses associated with the restructuring of the Company's European
activities, including asset write-offs, redundancy payments made to employees
and inventory write-downs were incurred in (a) its Fragrant Memories and Eclipse
Candles units (part of the Colony Group), (b) its Nordic and Becker units (part
of the Gies Group), and (c) Wax Lyrical, its U.K.-based specialty retailer. The
Company had evaluated its European consumer activities and closed or vacated
four production and warehousing facilities in order to reposition these units
more effectively for growth and profitability in fiscal 2002. Total charges
recorded in the fourth quarter related to these activities impacted fourth
quarter Diluted Earnings Per Share by $.13.
The Company, for strategic reasons, has chosen to exit certain lower margin
product lines, including the religious and citronella product lines. Expenses
associated with this activity includes asset write-offs, inventory write-downs
and severance payments made to employees, which impacted fourth quarter Diluted
Earnings Per Share by $.03.
The restructuring of the Company's U.S. consumer wholesale organizations, which
has been underway since early in fiscal 2001, will be concluded in late Spring,
2001. This initiative, which includes the consolidation of several facilities,
is expected to improve customer service, increase margins and enhance future
profitability. The associated actions resulted in one-time charges, including
the write-off of lease obligations of $1.2 million, severance payments made of
$0.2 million, equipment write-offs of $0.2 million and adjustments to the
carrying value of inventory of $5.2 million. Total pre-tax charges related to
these activities impacted fourth quarter Diluted Earnings Per Share by $.09.
The fourth quarter and full year results also include unexpected bad debt
expenses associated with customer bankruptcy filings by Home Place (formerly
Waccamaw Pottery), Bradlees, Montgomery Ward, Frank's Nursery and Spoils, a U.K.
retailer. Potential losses, net of likely recovery assumptions, impacted fourth
quarter Diluted Earnings Per Share by approximately $.03.
During the fourth quarter of fiscal 2001, the Company recorded a non-cash
impairment charge of approximately $4.0 million related to its specialty
retailer in the Candles and Home Fragrance Products segment, for a write-off of
goodwill of approximately $3.0 million and a write-down of fixed assets of
approximately $1.0 million. The impairment charge was calculated as the present
value of the expected cash flows of the assets compared to the carrying value of
the assets.
Of the amounts recorded as restructuring and one-time charges during fiscal
2001, approximately $1.4 million of accrued liabilities is included in the
Consolidated Balance Sheet at January 31, 2001, relating entirely to lease
obligations.
NOTE 5: INVENTORIES
The major components of inventories are as follows (in thousands):
2000 2001
- -----------------------------------------------------------------------------
Raw materials $ 40,071 $ 40,943
Work in process 4,625 2,747
Finished goods 142,000 157,396
- -----------------------------------------------------------------------------
$ 186,696 $ 201,086
=============================================================================
36
BLYTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6: ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
2000 2001
- -----------------------------------------------------------------
Compensation and certain benefits $16,863 $17,651
Deferred revenue 7,212 5,282
Promotional expenses 11,645 7,115
Taxes, other than income 7,257 9,698
Interest payable 4,337 4,148
Other 4,505 3,626
- -----------------------------------------------------------------
$51,819 $47,520
=================================================================
NOTE 7: BANK LINES OF CREDIT
As of January 31, 2001, the Company had a total of $10.0 million available under
an uncommitted bank line of credit. Amounts outstanding under the line of credit
bear interest at short term fixed rates. No amount was outstanding under the
uncommitted line of credit at January 31, 2001.
As of December 31, 2000, Liljeholmens had available lines of credit of
approximately $36.3 million of which approximately $2.1 million was outstanding.
The amounts outstanding under the lines of credit bear interest at a weighted
average rate of 5.22% at December 31, 2000. The lines of credit are renewed
annually.
Colony Gift 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 $29.9
million, collateralized by certain of Colony Gifts' assets. As of December 31,
2000, Colony Gift had borrowings under the credit facility of approximately
$25.2 million, at a weighted average interest rate of 6.62%.
NOTE 8: LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
2000 2001
- --------------------------------------------------------------------------------
7.54% Senior Notes $ 21,429 $ 17,857
7.90% Senior Notes 149,000 149,134
Credit facilities 19,138 4,990
Other 1,083 709
- --------------------------------------------------------------------------------
190,650 172,690
Less current maturities (14,063) (5,374)
- --------------------------------------------------------------------------------
$ 176,587 $ 167,316
================================================================================
In July 1995, the Company privately placed $25.0 million aggregate principal
amount of 7.54% Senior Notes due 2005. Such senior notes contain, among other
provisions, requirements for maintaining certain financial ratios and net worth.
At January 31, 2001, the Company was in compliance with such covenants. Payment
on the notes commenced in June 1999 and require annual installments through June
2005.
37
BLYTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8: LONG-TERM DEBT (CONTINUED)
In May 1999, the Company filed a shelf registration statement for issuance of up
to $250.0 million in debt securities with the Securities and Exchange
Commission. On September 24, 1999, the Company issued $150.0 million of 7.90%
Senior Notes due October 1, 2009 at a discount of approximately $1.0 million,
which is being amortized over the life of the notes. Such notes contain, among
other provisions, restrictions on liens of principal property or stock issued to
collateralize debt. At January 31, 2001, the Company was in compliance with such
covenants. Interest is payable semiannually on April 1 and October 1. The
proceeds of the offering were used to repay substantially all of the Company's
outstanding debt under its revolving and uncommitted lines of credit in the
United States.
Pursuant to the Company's revolving credit facility ("Credit Facility"), as
amended on September 14, 1999, 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 (9.00% at January 31, 2001) or
at the Eurocurrency rate plus a credit spread ranging from 0.25% to 0.50%, based
on a pre-defined financial ratio. At January 31, 2001, approximately $2.3
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 January 31,
2001, the Company was in compliance with such covenants.
At December 31, 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 December 31, 2000 under the loan
agreements was approximately $5.0 million with variable interest rates ranging
from 3.80% to 5.55%, of which $1.5 million relates to current maturities. The
loans are collateralized by certain of Liljeholmens' real estate.
Maturities under debt obligations are as follows (in thousands):
- -----------------------------------------------------------------------------
For the years ending January 31,
2002 $ 5,374
2003 3,701
2004 3,701
2005 3,709
2006 3,573
Thereafter 152,632
- -----------------------------------------------------------------------------
$172,690
=============================================================================
NOTE 9: EMPLOYEE BENEFIT PLANS
The Company has defined contribution employee benefit plans in both the United
States and certain of its foreign locations, covering substantially all eligible
non-union employees. Contributions to all such plans are principally at the
Company's discretion. Liljeholmens contributes to a Swedish government sponsored
retirement system which provides retirement benefits to certain of its
employees. The Company has a supplemental pension benefit agreement with one of
its key executives. Benefits pursuant to the agreement will be provided by a
purchased annuity insurance policy. Total expense related to all plans for the
years ended January 31, 1999, 2000 and 2001 was $1.7 million, $3.0 million and
$3.5 million, respectively.
38
BLYTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10: COMMITMENTS
The Company utilizes operating leases for a portion of its 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):
- -------------------------------------------------------------------------------
For the years ending January 31,
2002 $ 20,150
2003 18,087
2004 14,903
2005 13,141
2006 12,259
Thereafter 16,937
- -------------------------------------------------------------------------------
Total minimum payments required $ 95,477
===============================================================================
Rent expense for the years ended January 31, 1999, 2000 and 2001 was $12.7
million, $14.6 million and $19.6 million, respectively.
NOTE 11: INCOME TAXES
Earnings before provision for income taxes (in thousands):
1999 2000 2001
- --------------------------------------------------------------------------------
United States $111,969 $132,042 $114,956
Foreign 10,921 18,348 15,734
- --------------------------------------------------------------------------------
$122,890 $150,390 $130,690
================================================================================
Income tax expense consists of the following (in thousands):
1999 2000 2001
- --------------------------------------------------------------------------------
Current income tax expense:
Federal $ 31,288 $ 41,062 $ 42,153
State 9,120 7,545 7,552
Foreign 3,299 5,514 5,523
- --------------------------------------------------------------------------------
43,707 54,121 55,228
Deferred income tax expense (benefit):
Federal 3,691 3,485 (3,060)
State 651 615 (540)
Foreign 338 (678) (1,653)
- --------------------------------------------------------------------------------
4,680 3,422 (5,253)
- --------------------------------------------------------------------------------
$ 48,387 $ 57,543 $ 49,975
================================================================================
39
BLYTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11: INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities are
as follows (in thousands):
2000 2001
- --------------------------------------------------------------------------------
Current deferred tax assets:
Accrued compensation $ 1,040 $ 740
Allowance for doubtful receivables 100 320
Net operating loss and other tax credit carryforwards 1,780 2,630
Other 60 8
Inventory Reserves -- 4,480
Restructuring Reserves -- 1,360
Valuation allowance (1,780) (1,730)
- --------------------------------------------------------------------------------
$ 1,200 $ 7,808
================================================================================
Non-current deferred tax liabilities:
Depreciation $(24,202) $(24,552)
================================================================================
The valuation allowance relates principally to certain non-US tax loss
carryforwards, as the Company believes that due to various limitations in these
foreign jurisdictions, it is more likely than not that such benefits will not be
realized.
As of January 31, 2001, undistributed earnings of foreign subsidiaries
considered permanently invested for which deferred income taxes have not been
provided were approximately $20.1 million.
A reconciliation of the provision for income taxes to the amount computed at the
federal statutory rate is as follows (in thousands):
1999 2000 2001
- --------------------------------------------------------------------------------
Tax provision at statutory rate $ 43,012 $ 52,635 $ 45,741
Tax effect of:
State income taxes, net of federal benefit 5,626 4,656 4,910
Other, net (251) 252 (676)
- --------------------------------------------------------------------------------
$ 48,387 $ 57,543 $ 49,975
================================================================================
40
BLYTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12: EMPLOYEE STOCK OPTION PLANS
At January 31, 2001, 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:
(In thousands, except per share data) 1999 2000 2001
- --------------------------------------------------------------------------------
Net earnings:
As reported $ 74,502 $ 92,389 $ 79,562
Pro forma 74,122 92,024 78,390
Net earnings per common share:
As reported:
Basic $ 1.52 $ 1.91 $ 1.67
Diluted 1.50 1.89 1.66
Pro forma:
Basic $ 1.51 $ 1.90 $ 1.65
Diluted 1.49 1.89 1.64
- --------------------------------------------------------------------------------
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 1999, 2000 and 2001, respectively: expected
volatility was 43.7% for 1999 and 43.3% for 2000 and 44.2% for 2001; risk-free
interest rates at 4.27% to 5.67% for 1999, 4.89% to 6.63% for 2000 and 5.11% to
6.70% for 2001; expected life of 7 years for all years and an expected dividend
yield of .73%.
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, subject to shareholder approval for 1,000,000 additional shares, is
2,880,000.
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 May 18, 2004.
41
BLYTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12: EMPLOYEE STOCK OPTION PLANS (CONTINUED)
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:
OPTION WEIGHTED AVERAGE
SHARES EXERCISE PRICE
- --------------------------------------------------------------------------------
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
Options granted 432,000 26.34
Options exercised (45,535) 11.11
Options cancelled (47,156) 23.90
- --------------------------------------------------------------------------------
Outstanding at January 31, 2000 1,571,017 22.32
Options granted 568,500 24.95
Options exercised (185,567) 14.12
Options cancelled (120,500) 26.13
- --------------------------------------------------------------------------------
Outstanding at January 31, 2001 1,833,450 $ 23.72
================================================================================
At January 31, 1999, 2000 and 2001, options to purchase 461,407, 668,417 and
694,749 shares, respectively, were exercisable.
Options outstanding and exercisable as of January 31, 2001, by price range:
OUTSTANDING EXERCISABLE
---------------------------------------------- ----------------------
WEIGHTED AVERAGE
RANGE OF REMAINING WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE PRICE SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
- -------------- ----------- ---------------- ---------------- ---------- ----------------
$ 3.60 - 14.40 253,850 3.63 $ 8.15 253,850 $ 8.15
14.40 - 25.20 613,701 7.57 23.23 235,201 23.22
25.20 - 36.00 965,899 8.14 28.12 205,698 29.73
----------- ----------
1,833,450 694,749
- -------------------------------------------------------------------------------------------
The weighted average fair value of options granted during the years ended
January 31, 1999, 2000 and 2001 was $16.99, $14.46 and $12.91, respectively.
42
BLYTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13: SEGMENT INFORMATION
During the fourth quarter of fiscal 2001, the Company announced a realignment of
its business strategy and the formation of a new business segment, the
Non-Fragranced Products segment. The Company, which previously reported in a
single segment, has changed to reporting two business segments. Prior-year
business segment information has been restated to conform to the current-year
presentation. The Company's reportable segments are based on similarities in
products and represent the aggregation of operating units for which financial
information is regularly evaluated in determining resource allocation and
assessing performance. The Company operates in two business segments - Candles
and Home Fragrance Products and Non-Fragranced Products. The company has
operations outside of the United States and sells its products in both segments
worldwide.
The CANDLES AND HOME FRAGRANCE PRODUCTS segment designs, manufactures and
markets an extensive line of products including scented candles, potpourri and
other fragrance products and markets a broad range of complimentary candle
accessories. These products are sold direct to the consumer under the
PartyLite(R) brand, to retailers in the mid-tier and premium retail channels,
under the Colonial Candle of Cape Cod(R), Kate's Original Recipe(TM) and
Carolina Designs(R) brands, and in the mass retail channel under the Ambria(TM),
Florasense(R) and FilterMate(R) brands. In Europe, these products are also sold
under the Gies(TM), Liljeholmens(R), Colony(R), Carolina Designs(R) and Wax
Lyrical(TM) brands.
The NON-FRAGRANCED PRODUCTS segment designs, manufactures and markets a broad
range of products including decorative seasonal products for the consumer
market, under the Jeanmarie(R) and Impact(R) brand names, tabletop illumination
products, and portable heating fuel productS for the hotel, restaurant and
catering trade, under the Sterno(R) and HandyFuel(R) brand names.
Earnings represents net sales less operating expenses directly related to the
business segments and corporate expenses allocated to the business segments.
Earnings of the Candles and Home Fragrance Products segment for 2001 includes
restructuring and one-time charges of approximately $16.7 million and unexpected
bad debt expenses of approximately $2.3 million (See Note 4 to the Consolidated
Financial Statements, "Unusual Charges"). Other income (expense) includes
interest expense, interest income and equity in earnings of investees which are
not allocated to the business segments. Identifiable assets for each segment
consists of assets used directly in its operations and intangible assets, if
any, resulting from purchase business combinations. Other identifiable assets
includes corporate long-term investments, deferred income taxes and deferred
bond costs which are not allocated to the business segments.
The geographic area data includes net trade sales based on product shipment
destination and long-lived assets (which consists of fixed assets, goodwill and
long-term investments) based on physical location.
43
BLYTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13: SEGMENT INFORMATION (CONTINUED)
OPERATING SEGMENT INFORMATION
Year ended January 31, (In thousands)
- ---------------------------------------------------------------------------------------------
1999 2000 2001
------------------------------------------
Net Sales
Candles and Home Fragrance Products $ 829,550 $ 1,053,430 $ 1,063,396
Non-Fragranced Products 85,792 96,564 133,801
------------------------------------------
TOTAL $ 915,342 $ 1,149,994 $ 1,197,197
EARNINGS
Candles and Home Fragrance Products (1) $ 121,560 $ 153,800 $ 129,046
Non-Fragranced Products 6,677 10,201 16,198
------------------------------------------
128,237 164,001 145,244
Other income (expense) (5,347) (13,611) (14,554)
------------------------------------------
EARNINGS BEFORE INCOME TAXES, MINORITY INTEREST
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 122,890 $ 150,390 $ 130,690
IDENTIFIABLE ASSETS
Candles and Home Fragrance Products $ 464,482 $ 583,183 $ 612,488
Non-Fragranced Products 91,286 113,493 118,322
Other 21,015 16,420 32,660
------------------------------------------
TOTAL $ 576,783 $ 713,096 $ 763,470
CAPITAL EXPENDITURES
Candles and Home Fragrance Products $ 40,298 $ 46,401 $ 23,275
Non-Fragranced Products 2,313 1,339 2,047
------------------------------------------
TOTAL $ 42,611 $ 47,740 $ 25,322
DEPRECIATION AND AMORTIZATION
Candles and Home Fragrance Products $ 16,817 $ 24,833 $ 28,949
Non-Fragranced Products 2,981 3,274 4,434
------------------------------------------
TOTAL $ 19,798 $ 28,107 $ 33,383
GEOGRAPHIC INFORMATION
NET SALES
United States $ 750,292 $ 849,704 $ 891,996
International 165,050 300,290 305,201
------------------------------------------
TOTAL $ 915,342 $ 1,149,994 $ 1,197,197
LONG LIVED ASSETS
United States $ 240,251 $ 289,480 $ 294,383
International 82,470 96,679 85,706
------------------------------------------
TOTAL $ 322,721 $ 386,159 $ 380,089
(1) 2001 Candles and Home Fragrance Products includes restructuring and
one-time charges of approximately $16.7 million and unexpected bad debt
expenses of approximately $2.3 million (See Note 4 to the Consolidated
Financial Statements, "Unusual Charges").
44
BLYTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14: STOCK REPURCHASE PLAN
On December 14, 2000, the Company's Board of Directors authorized the Company to
repurchase up to 1,000,000 additional shares of its common stock bringing the
total authorization to 4,000,000 shares. During the course of fiscal 2001, a
total of 1,148,100 shares were repurchased for a total cost of approximately
$26.8 million. As of March 31, 2001, the Company had cumulatively purchased on
the open market 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.
NOTE 15: EARNINGS PER SHARE
The following table presents the components of basic and diluted net earnings
per common share as required under SFAS No. 128 (in thousands):
1999 2000 2001
- ------------------------------------------------------------------------------------
Net earnings $74,502 $92,389 $79,562
- ------------------------------------------------------------------------------------
Weighted average number of common shares outstanding:
Basic 49,165 48,471 47,629
Dilutive effective of stock options 439 347 273
- ------------------------------------------------------------------------------------
Weighted average number of common shares outstanding:
Diluted 49,604 48,818 47,902
====================================================================================
As of January 31, 1999, 2000 and 2001, options to purchase 12,232, 78,321 and
90,886 shares of common stock, respectively, are not included in the computation
of diluted earnings per share because the effect would be antidilutive.
45
BLYTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of selected quarterly information for the years ended January 31 is as
follows:
2000 QUARTER ENDED
-----------------------------------------------------------------------------------
(In thousands, except per share data)
APRIL 30 JULY 31 OCTOBER 31J ANUARY 31
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales (1) $ 258,157 $ 242,824 $ 304,378 $ 344,635
Gross profit (1) 138,070 129,376 156,492 173,672
Net earnings 18,537 16,430 29,888 27,533
Net earnings per common and
common equivalent share:
Basic (2) $ 0.38 $ 0.34 $ 0.62 $ 0.57
Diluted (2) 0.38 0.34 0.61 0.57
====================================================================================================================================
2001 QUARTER ENDED
-----------------------------------------------------------------------------------
(In thousands, except per share data)
APRIL 30(1) JULY 31(1) OCTOBER 31(1) JANUARY 31
------------------------- -------------------------- -------------------------- ----------
As As As As As As
Reported Restated Reported Restated Reported Restated
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $ 274,880 $ 291,368 $ 235,408 $ 248,688 $ 316,597 $ 324,430 $ 332,711
Gross profit 163,320 158,479 136,079 132,203 176,678 166,906 168,137
Earnings before cumulative
effect of accounting change 21,021 20,882 18,158 18,712 30,372 29,934 11,187
Cumulative effect of accounting
change, net of taxes -- (1,153) -- -- -- -- --
----------------------------------------------------------------------------------------------
Net earnings 21,021 19,729 18,158 18,712 30,372 29,934 11,187
Net earnings per common and
common equivalent share:
Basic (2)
Net earnings before cumulative
effect of accounting change $ 0.44 $ 0.44 $ 0.38 $ 0.39 $ 0.64 $ 0.63 $ 0.24
Cumulative effect of
accounting change -- (0.02) -- -- -- -- --
----------------------------------------------------------------------------------------------
0.44 0.41 0.38 0.39 0.64 0.63 0.24
Diluted (2)
Net earnings before cumulative
effect of accounting change $ 0.44 $ 0.43 $ 0.38 $ 0.39 $ 0.64 $ 0.63 $ 0.24
Cumulative effect of
accounting change -- (0.02) -- -- -- -- --
----------------------------------------------------------------------------------------------
0.44 0.41 0.38 0.39 0.64 0.63 0.24
====================================================================================================================================
(1) Restatements have been made to the previously reported fiscal 2001
quarterly information to reflect the adoption of SAB 101. Data presented
for both fiscal 2001 and 2000 have been adjusted to reflect the adoption
of EITF 00-10. (See Note 2 to the Consolidated Financial Statements,
"Accounting Changes").
(2) The sum of per share amounts for the quarters does not necessarily equal
that reported for the year because the computations are made
independently.
NOTE 17: SUBSEQUENT EVENT
On April 11, 2001 the Company acquired Midwest of Cannon Falls, Inc., a leading
creative expressions company in the decorative products and giftware industry,
for approximately $25.0 million in cash plus the assumption of long-term debt of
approximately $30.0 million.
46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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 May 1, 2001, on pages 3 through 13.
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:
PAGE NO.
Report of Independent Accountants........................ 27
Statements:
Consolidated Balance Sheets.......................... 28
Consolidated Statements of Earnings.................. 29
Consolidated Statements of Stockholders' Equity...... 30
Consolidated Statements of Cash Flows................ 31
Notes to Consolidated Financial Statements........... 32-46
(a)(2). FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is contained on the indicated
pages of this report:
PAGE NO.
Report of Independent Accountants S-1
Valuation and Qualifying Accounts S-2
47
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
EXHIBIT NO. DESCRIPTION OF EXHIBIT
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 Report on Form 8-K filed April 17, 2000)
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
4.6(a) Form of Indenture, dated as of May 20, 1999, between the Registrant
and First Union National Bank, as Trustee (incorporated by
reference to the Registrant's Registration Statement on Form S-3
(Reg. No. 333-77721) filed on May 4, 1999)
4.6(b) Form of First Supplemental Indenture dated as of September 29, 1999
between the Registrant and First Union National Bank, Trustee
(incorporated by reference to Exhibit 4.1 to the Registrant's
Current Report on Form 8-K filed on September 28, 1999)
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)
10.1(a) Amendment No. 1 dated as of May 13, 1999 to the Credit Agreement
(incorporated by reference to Exhibit 10.1(a) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended January 31,
2001)
10.1(b) Amendment No. 2 dated as of September 14, 1999 to the Credit
Agreement (incorporated by reference to Exhibit 10.1(b) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 2001)
10.2 Note Purchase Agreement, dated July 7, 1995 (the "Note Purchase
Agreements"), relating to the 7.54% Senior Notes due June 30, 2005,
48
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)
10.2(e) Fifth Amendment, dated as of May 17, 1999, to Note Purchase
Agreements (incorporated by reference to Exhibit 10.2(e) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 2000)
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
I 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)
10.6*+ Form of Indemnity Agreement between the Registrant and each of
its directors
49
10.7+ 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)
10.8+ 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)
10.9+ Blyth Industries, Inc. Non-Qualified Deferred Compensation Plan
(incorporated by reference to Exhibit 4.1 to the Registrant's
Current Report on Form 8-K as filed on December 21, 1999)
10.10+ Employment Agreement dated as of August 1, 2000 by and between the
Registrant and Robert B. Goergen (incorporated by reference to
Exhibit 10.10 to the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended October 31, 2000)
10.11+ Registration Rights Agreement dated as of August 1, 2000 by and
between the Registrant and Robert B. Goergen (incorporated by
reference to Exhibit A to the Employment Agreement filed as Exhibit
10.10 to Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 2001)
21.** List of Subsidiaries
23.** Consent of PricewaterhouseCoopers LLP, independent accountants
24.1** Power of Attorney
24.2** Certified Resolutions of the Board of Directors of the Registrant
- ----------
* 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, 2001:
Current Report on Form 8-K, filed December 15, 2000, attaching share
repurchase authorization press release.
Current Report on Form 8-K, filed December 6, 2000, attaching earnings press
release.
50
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: May 1, 2001 BLYTH, INC.
By: /s/ Robert B. Goergen
----------------------
Name: Robert B. Goergen
Title: 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.
Signature Title Date
--------- ----- ----
/s/ Robert B. Goergen Chairman, Chief Executive Officer and President; May 1, 2001
- --------------------------------- Director (Principal Executive Officer)
Robert B. Goergen
/s/ Robert H. Barghaus Vice President and Chief Financial Officer May 1, 2001
- --------------------------------- (Principal Financial and Accounting Officer)
Robert H. Barghaus
/s/ Roger A. Anderson Director May 1, 2001
- ---------------------------------
Roger A. Anderson
/s/ John W. Burkhart Director May 1, 2001
- ---------------------------------
John W. Burkhart
/s/ Pamela M. Goergen Director May 1, 2001
- ---------------------------------
Pamela M. Goergen
/s/ Neal I. Goldman Director May 1, 2001
- ---------------------------------
Neal I. Goldman
/s/ John E. Preschlack Director May 1, 2001
- ---------------------------------
John E. Preschlack
/s/ Howard E. Rose Director May 1, 2001
- ---------------------------------
Howard E. Rose
/s/ Frederick H. Stephens, Jr. Director May 1, 2001
- ---------------------------------
Frederick H. Stephens, Jr.
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and
Stockholders of Blyth, Inc.:
Our audits of the consolidated financial statements referred to in our report
dated March 14, 2001, except for Note 14, as to which the date is March 31,
2001, and except for Note 17, as to which the date is April 11, 2001, appearing
in the 2001 Annual Report to Stockholders of Blyth, Inc. and Subsidiaries (which
report and consolidated financial statements are incorporated by reference in
this Annual Report on Form 10-K) also included an audit of the financial
statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion,
this financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
------------------------------
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
March 14, 2001
S-1
BLYTH, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the
years ended January 31 1999, 2000 and 2001
(In thousands)
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- --------------------------------------------------------------------------------------
1999
Allowance for doubtful accounts 1,353 1,356 1,305 1,404
Income tax valuation allowance -- 18 -- 18
2000
Allowance for doubtful accounts 1,404 2,060 1,310 2,154
Income tax valuation allowance 18 1,762 -- 1,780
Inventory reserves -- 8,146 5,315 2,831
2001
Allowance for doubtful accounts 2,154 2,761 2,795 2,120
Income tax valuation allowance 1,780 -- 50 1,730
Inventory reserves 2,831 15,762 8,892 9,701
S-2