form10q.htm
SECURITIES
AND EXCHANGE COMMISSION
Washington
D.C. 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
|
|
|
For
the quarterly period ended October 31, 2009
|
|
|
or
|
|
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For the
transition period from ______________ to _____________
Commission
File Number 1-13026
BLYTH,
INC.
(Exact name of registrant as specified
in its charter)
DELAWARE
|
36-2984916
|
(State
or other jurisdiction of incorporation or organization)
|
(IRS
Employer Identification No.)
|
One
East Weaver Street, Greenwich, Connecticut 06831
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(203)
661-1926
(Registrant’s
telephone number, including area code)
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 whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files) Yes
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
Non-accelerated
filer
|
Accelerated
filer x
Smaller
reporting company
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
No
x
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
8,897,844
Common Shares as of November 30, 2009
BLYTH,
INC.
INDEX
|
|
Page
|
|
|
|
|
|
Part
I. Financial Information
|
|
|
|
|
|
|
Item
1.
|
Financial
Statements (Unaudited):
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
7-26
|
|
|
|
|
|
Item
2.
|
|
27-36
|
|
|
|
|
|
Item
3.
|
|
36-37
|
|
|
|
|
|
Item
4.
|
|
38
|
|
|
|
|
|
Part
II. Other Information
|
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
Item
1A.
|
|
39
|
|
|
|
|
|
Item
2.
|
|
40
|
|
|
|
|
|
Item
3.
|
|
40
|
|
|
|
|
|
Item
4.
|
|
41
|
|
|
|
|
|
Item
5.
|
|
41
|
|
|
|
|
|
Item
6.
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
Part
I. FINANCIAL INFORMATION
|
|
|
|
|
|
|
Item
I. FINANCIAL STATEMENTS
|
|
|
|
|
|
|
BLYTH, INC. AND SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
(Unaudited)
|
|
|
|
October
31,
|
|
|
January
31,
|
|
(In
thousands, except share and per share data)
|
|
2009
|
|
|
2009
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
128,656 |
|
|
$ |
146,424 |
|
Accounts
receivable, less allowance for doubtful receivables of $2,217
and $3,438, respectively
|
|
|
46,775 |
|
|
|
29,525 |
|
Inventories
|
|
|
122,433 |
|
|
|
137,087 |
|
Prepaid
and other
|
|
|
29,345 |
|
|
|
30,669 |
|
Deferred
income taxes
|
|
|
11,258 |
|
|
|
40,574 |
|
Total
current assets
|
|
|
338,467 |
|
|
|
384,279 |
|
Property,
plant and equipment, at cost:
|
|
|
|
|
|
|
|
|
Less
accumulated depreciation of $207,560 and $199,524,
respectively
|
|
|
111,001 |
|
|
|
120,354 |
|
Other
assets:
|
|
|
|
|
|
|
|
|
Investments
|
|
|
23,266 |
|
|
|
24,975 |
|
Goodwill
|
|
|
2,298 |
|
|
|
13,988 |
|
Other
intangible assets, net of accumulated amortization of $11,947 and
$10,897, respectively
|
|
|
12,483 |
|
|
|
16,840 |
|
Other
assets
|
|
|
24,779 |
|
|
|
13,667 |
|
Total
other assets
|
|
|
62,826 |
|
|
|
69,470 |
|
Total
assets
|
|
$ |
512,294 |
|
|
$ |
574,103 |
|
LIABILITIES
AND EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Current
maturities of long-term debt
|
|
$ |
568 |
|
|
$ |
37,936 |
|
Accounts
payable
|
|
|
53,444 |
|
|
|
47,014 |
|
Accrued
expenses
|
|
|
71,151 |
|
|
|
64,893 |
|
Dividends
payable
|
|
|
894 |
|
|
|
- |
|
Income
taxes payable
|
|
|
13,886 |
|
|
|
17,291 |
|
Total
current liabilities
|
|
|
139,943 |
|
|
|
167,134 |
|
Deferred
income taxes
|
|
|
1,160 |
|
|
|
21,778 |
|
Long-term
debt, less current maturities
|
|
|
107,428 |
|
|
|
107,795 |
|
Other
liabilities
|
|
|
23,471 |
|
|
|
28,005 |
|
Commitments
and contingencies
|
|
|
- |
|
|
|
- |
|
Redeemable
noncontrolling interest
|
|
|
(903 |
) |
|
|
893 |
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock - authorized 10,000,000 shares of $0.01 par value; no shares
issued
|
|
|
- |
|
|
|
- |
|
Common
stock - authorized 50,000,000 shares of $0.02 par value;
|
|
|
|
|
|
|
|
|
issued
12,764,924 shares and 12,733,209 shares, respectively
|
|
|
255 |
|
|
|
255 |
|
Additional
contributed capital
|
|
|
143,899 |
|
|
|
141,307 |
|
Retained
earnings
|
|
|
471,558 |
|
|
|
486,548 |
|
Accumulated
other comprehensive income
|
|
|
25,368 |
|
|
|
19,366 |
|
Treasury
stock, at cost, 3,867,080 and 3,842,224 shares,
respectively
|
|
|
(399,879 |
) |
|
|
(398,978 |
) |
Total
stockholders' equity
|
|
|
241,201 |
|
|
|
248,498 |
|
Noncontrolling
interest
|
|
|
(6 |
) |
|
|
- |
|
Total equity
|
|
|
241,195 |
|
|
|
248,498 |
|
Total
liabilities and equity
|
|
$ |
512,294 |
|
|
$ |
574,103 |
|
The
accompanying notes are an integral part of these financial
statements.
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
(Unaudited)
|
|
|
|
Three
months ended October 31,
|
|
|
Nine
months ended October 31,
|
|
(In
thousands, except per share data)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net
sales
|
|
$ |
221,578 |
|
|
$ |
250,805 |
|
|
$ |
635,656 |
|
|
$ |
737,439 |
|
Cost
of goods sold
|
|
|
106,545 |
|
|
|
118,555 |
|
|
|
296,902 |
|
|
|
337,751 |
|
Gross
profit
|
|
|
115,033 |
|
|
|
132,250 |
|
|
|
338,754 |
|
|
|
399,688 |
|
Selling
|
|
|
83,557 |
|
|
|
95,838 |
|
|
|
245,707 |
|
|
|
282,203 |
|
Administrative
and other
|
|
|
28,491 |
|
|
|
29,971 |
|
|
|
82,425 |
|
|
|
93,019 |
|
Goodwill
and other intangibles impairment
|
|
|
- |
|
|
|
45,851 |
|
|
|
16,498 |
|
|
|
45,851 |
|
Total
operating expense
|
|
|
112,048 |
|
|
|
171,660 |
|
|
|
344,630 |
|
|
|
421,073 |
|
Operating
profit (loss)
|
|
|
2,985 |
|
|
|
(39,410 |
) |
|
|
(5,876 |
) |
|
|
(21,385 |
) |
Other
expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
1,905 |
|
|
|
2,547 |
|
|
|
6,140 |
|
|
|
7,419 |
|
Interest
income
|
|
|
(206 |
) |
|
|
(897 |
) |
|
|
(1,092 |
) |
|
|
(3,252 |
) |
Foreign
exchange and other
|
|
|
1,663 |
|
|
|
1,770 |
|
|
|
981 |
|
|
|
6,007 |
|
Total
other expense
|
|
|
3,362 |
|
|
|
3,420 |
|
|
|
6,029 |
|
|
|
10,174 |
|
Loss
before income taxes
|
|
|
(377 |
) |
|
|
(42,830 |
) |
|
|
(11,905 |
) |
|
|
(31,559 |
) |
Income
tax expense (benefit)
|
|
|
1,062 |
|
|
|
(9,948 |
) |
|
|
2,940 |
|
|
|
(2,900 |
) |
Net
loss
|
|
|
(1,439 |
) |
|
|
(32,882 |
) |
|
|
(14,845 |
) |
|
|
(28,659 |
) |
Less:
Net earnings (loss) attributable to the noncontrolling
interests
|
|
|
(469 |
) |
|
|
30 |
|
|
|
(748 |
) |
|
|
88 |
|
Net
loss attributable to Blyth, Inc.
|
|
$ |
(970 |
) |
|
$ |
(32,912 |
) |
|
$ |
(14,097 |
) |
|
$ |
(28,747 |
) |
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable per Blyth, Inc. common share
|
|
$ |
(0.11 |
) |
|
$ |
(3.70 |
) |
|
$ |
(1.58 |
) |
|
$ |
(3.20 |
) |
Weighted
average number of shares outstanding
|
|
|
8,930 |
|
|
|
8,891 |
|
|
|
8,922 |
|
|
|
8,984 |
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable per Blyth, Inc. common share
|
|
$ |
(0.11 |
) |
|
$ |
(3.70 |
) |
|
$ |
(1.58 |
) |
|
$ |
(3.20 |
) |
Weighted
average number of shares outstanding
|
|
|
8,930 |
|
|
|
8,891 |
|
|
|
8,922 |
|
|
|
8,984 |
|
Cash
dividend declared per share
|
|
$ |
0.10 |
|
|
$ |
1.08 |
|
|
$ |
0.20 |
|
|
$ |
2.16 |
|
The
accompanying notes are an integral part of these financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Blyth,
Inc.'s Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
|
|
|
|
|
|
|
Common
|
|
|
Contributed
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
|
|
Comprehensive
|
|
(In
thousands) |
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
(Loss)
|
|
|
Stock
|
|
|
Interest
|
|
|
Equity
|
|
|
|
|
|
Income
(Loss)
|
|
For
the nine months ended October 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
February 1, 2008
|
|
$ |
254 |
|
|
$ |
138,927 |
|
|
$ |
522,328 |
|
|
$ |
25,444 |
|
|
$ |
(387,885 |
) |
|
$ |
- |
|
|
$ |
299,068 |
|
|
$ |
- |
|
|
$ |
- |
|
Net
earnings (loss) for the period
|
|
|
|
|
|
|
|
|
|
|
(28,747 |
) |
|
|
|
|
|
|
|
|
|
|
88 |
|
|
|
(28,659 |
) |
|
|
|
|
|
|
(28,659 |
) |
Distribution
to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(88 |
) |
|
|
(88 |
) |
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,064 |
) |
|
|
|
|
|
|
|
|
|
|
(6,064 |
) |
|
|
|
|
|
|
(6,064 |
) |
Net
unrealized loss on certain investments (net of tax
benefit of $442)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(968 |
) |
|
|
|
|
|
|
|
|
|
|
(968 |
) |
|
|
|
|
|
|
(968 |
) |
Net
unrealized loss on cash flow hedging instruments (net of tax
liability of $893)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,457 |
|
|
|
|
|
|
|
|
|
|
|
1,457 |
|
|
|
|
|
|
|
1,457 |
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,234 |
) |
Comprehensive
income attributable to
the
noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(88 |
) |
Comprehensive
loss attributable to Blyth, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(34,322 |
) |
Common
stock issued in connection with long-term incentive plan
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
|
|
|
|
1,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,916 |
|
|
|
|
|
|
|
|
|
Dividends
($2.16 per share)
|
|
|
|
|
|
|
|
|
|
|
(19,393 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,393 |
) |
|
|
|
|
|
|
|
|
Treasury
stock purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,093 |
) |
|
|
|
|
|
|
(11,093 |
) |
|
|
|
|
|
|
|
|
Balance,
October 31, 2008
|
|
$ |
255 |
|
|
$ |
140,843 |
|
|
$ |
474,188 |
|
|
$ |
19,869 |
|
|
$ |
(398,978 |
) |
|
$ |
- |
|
|
$ |
236,177 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the nine months ended October 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
February 1, 2009
|
|
$ |
255 |
|
|
$ |
141,307 |
|
|
$ |
486,548 |
|
|
$ |
19,366 |
|
|
$ |
(398,978 |
) |
|
$ |
- |
|
|
|
248,498 |
|
|
$ |
893 |
|
|
$ |
- |
|
Net
earnings (loss) for the period
|
|
|
|
|
|
|
|
|
|
|
(14,097 |
) |
|
|
|
|
|
|
|
|
|
|
155 |
|
|
|
(13,942 |
) |
|
|
(903 |
) |
|
|
(14,845 |
) |
Distribution
to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(161 |
) |
|
|
(161 |
) |
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
(net
of tax benefit of $2,050)
|
|
|
|
|
|
|
|
|
|
|
|
7,035 |
|
|
|
|
|
|
|
|
|
|
|
7,035 |
|
|
|
|
|
|
|
7,035 |
|
Net
unrealized gain on certain investments(net of tax liability
of $226)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
367 |
|
|
|
|
|
|
|
|
|
|
|
367 |
|
|
|
|
|
|
|
367 |
|
Realized
loss on permanent impairment of
investment
(net of tax benefit of $197)
|
|
|
|
|
|
|
|
322 |
|
|
|
|
|
|
|
|
|
|
|
322 |
|
|
|
|
|
|
|
322 |
|
Realized
gain on pension termination (net
of
tax liability of $749)
|
|
|
|
|
|
|
|
|
|
|
|
(1,153 |
) |
|
|
|
|
|
|
|
|
|
|
(1,153 |
) |
|
|
|
|
|
|
(1,153 |
) |
Net
unrealized loss on cash flow hedging instruments (net of tax
benefit of $309)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(569 |
) |
|
|
|
|
|
|
|
|
|
|
(569 |
) |
|
|
|
|
|
|
(569 |
) |
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,843 |
) |
Comprehensive
loss attributable to the
noncontrolling
interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
748 |
|
Comprehensive
loss attributable to Blyth, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(8,095 |
) |
Stock-based
compensation
|
|
|
|
|
|
|
2,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,592 |
|
|
|
|
|
|
|
|
|
Dividends
($0.20 per share)
|
|
|
|
|
|
|
|
|
|
|
(1,786 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,786 |
) |
|
|
|
|
|
|
|
|
Reversal
of accretion of redeemable noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
893 |
|
|
|
(893 |
) |
|
|
|
|
Treasury
stock purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(901 |
) |
|
|
|
|
|
|
(901 |
) |
|
|
|
|
|
|
|
|
Balance,
October 31, 2009
|
|
$ |
255 |
|
|
$ |
143,899 |
|
|
$ |
471,558 |
|
|
$ |
25,368 |
|
|
$ |
(399,879 |
) |
|
$ |
(6 |
) |
|
$ |
241,195 |
|
|
$ |
(903 |
) |
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
|
|
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
(Unaudited)
|
|
Nine months ended October 31
(In thousands)
|
|
2009
|
|
|
2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
earnings (loss)
|
|
$ |
(14,845 |
) |
|
$ |
(28,659 |
) |
Adjustments
to reconcile net earnings to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
12,254 |
|
|
|
14,856 |
|
Goodwill
and other intangibles impairment
|
|
|
16,498 |
|
|
|
45,851 |
|
Impairment
of assets
|
|
|
1,226 |
|
|
|
6,126 |
|
Stock-based
compensation expense
|
|
|
2,362 |
|
|
|
1,439 |
|
Deferred
income taxes
|
|
|
(2,651 |
) |
|
|
(9,225 |
) |
Gain
on pension termination
|
|
|
(1,902 |
) |
|
|
- |
|
Gain
on sale of assets
|
|
|
(863 |
) |
|
|
- |
|
Other
|
|
|
75 |
|
|
|
(210 |
) |
Changes
in operating assets and liabilities, net of effect of business
acquisitions and divestitures:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(16,800 |
) |
|
|
(30,914 |
) |
Inventories
|
|
|
16,868 |
|
|
|
(40,691 |
) |
Prepaid
and other
|
|
|
(4,488 |
) |
|
|
(6,181 |
) |
Other
long-term assets
|
|
|
619 |
|
|
|
370 |
|
Accounts
payable
|
|
|
5,881 |
|
|
|
(9,979 |
) |
Accrued
expenses
|
|
|
3,832 |
|
|
|
(4,478 |
) |
Other
liabilities
|
|
|
362 |
|
|
|
1,600 |
|
Income
taxes payable
|
|
|
(3,552 |
) |
|
|
684 |
|
Net
cash provided by (used in) operating activities
|
|
|
14,876 |
|
|
|
(59,411 |
) |
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment, net of disposals
|
|
|
(4,080 |
) |
|
|
(6,332 |
) |
Purchases
of short-term investments
|
|
|
- |
|
|
|
(60,322 |
) |
Proceeds
from sales of short-term investments
|
|
|
- |
|
|
|
75,190 |
|
Note
receivable issued under revolving credit facility
|
|
|
- |
|
|
|
(4,416 |
) |
Proceeds
from the repayment of note receivable
|
|
|
- |
|
|
|
4,416 |
|
Purchases
of long-term investments
|
|
|
(390 |
) |
|
|
- |
|
Proceeds
from sale of long-term investments
|
|
|
2,110 |
|
|
|
7,204 |
|
Proceeds
from sale of assets, net of costs
|
|
|
3,939 |
|
|
|
- |
|
Purchase
of businesses, net of cash acquired
|
|
|
- |
|
|
|
(15,813 |
) |
Cash
settlement of net investment hedges
|
|
|
6,563 |
|
|
|
- |
|
Net
cash provided by (used in) investing activities
|
|
|
8,142 |
|
|
|
(73 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Purchases
of treasury stock
|
|
|
(540 |
) |
|
|
(11,093 |
) |
Borrowings
from bank line of credit
|
|
|
- |
|
|
|
560,800 |
|
Repayments
on bank line of credit
|
|
|
- |
|
|
|
(560,800 |
) |
Repayments
of long-term debt
|
|
|
(37,657 |
) |
|
|
(11,174 |
) |
Payments
on capital lease obligations
|
|
|
(170 |
) |
|
|
(375 |
) |
Dividends
paid
|
|
|
(892 |
) |
|
|
(9,802 |
) |
Distributions
to noncontrolling interest
|
|
|
(161 |
) |
|
|
- |
|
Net
cash used in financing activities
|
|
|
(39,420 |
) |
|
|
(32,444 |
) |
Effect
of exchange rate changes on cash
|
|
|
(1,366 |
) |
|
|
(8,684 |
) |
Net
decrease in cash and cash equivalents
|
|
|
(17,768 |
) |
|
|
(100,612 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
146,424 |
|
|
|
163,021 |
|
Cash
and cash equivalents at end of period
|
|
$ |
128,656 |
|
|
$ |
62,409 |
|
The
accompanying notes are an integral part of these financial
statements.
|
|
BLYTH, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Blyth,
Inc. (the “Company”) is a multi-channel company competing primarily in the home
fragrance and decorative accessories industries. The Company designs,
markets and distributes an extensive array of decorative and functional
household products including candles, accessories, seasonal decorations,
household convenience items and personalized gifts, as well as products for the
foodservice trade, nutritional supplements
and weight management products. The Company competes primarily in the global
home expressions industry and its products can be found throughout North
America, Europe and Australia. Our financial results are reported in three
segments: the Direct Selling segment, the Catalog & Internet segment and the
Wholesale segment.
1. Basis
of Presentation
The
condensed consolidated financial statements include the accounts of the Company
and its subsidiaries. All intercompany accounts and transactions have
been eliminated. The investment in a company that is not majority
owned or controlled is reported using the equity method and is recorded as an
investment. Certain of the Company’s subsidiaries operate on a 52 or
53-week fiscal year ending on the Saturday closest to January
31. European operations and one domestic direct selling entity
maintain a calendar year accounting period, which is consolidated with the
Company’s fiscal period. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements include all
adjustments (consisting only of items that are normal and recurring in nature)
necessary for fair presentation of the Company's consolidated financial position
as of October 31, 2009, the consolidated results of its operations for the three
and nine month periods ended October 31, 2009 and 2008, and cash flows for the
nine month periods ended October 31, 2009 and 2008. These
interim statements should be read in conjunction with the Company's Consolidated
Financial Statements for the fiscal year ended January 31, 2009, as set forth in
the Company’s Annual Report on Form 10-K. Certain reclassifications
of prior period amounts have been made to conform to current year presentation.
Operating results for the three and nine months ended October 31, 2009 are not
necessarily indicative of the results that may be expected for the fiscal year
ending January 31, 2010.
Effective
January 30, 2009, the Company’s common stock and related equity based
instruments were subject to a 1-for-4 reverse stock split. All historical share,
per share, earnings (loss) per share (“EPS”) and stock-based compensation
disclosures have been adjusted accordingly.
Recently
Adopted Accounting Guidance
In June
2009, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 168, now referred to as Accounting
Standards Codification (“ASC”) 105, “Generally Accepted Accounting Principals”
(“GAAP”) (“ASC 105”). ASC 105 established the Codification as the single source
of authoritative U.S. GAAP superseding all prior guidance, and eliminating the
GAAP hierarchy and establishing one level of authoritative GAAP. All other
literature is considered non-authoritative. ASC 105 is effective for reporting
periods beginning after September 15, 2009, and as such has been adopted for the
third quarter of fiscal 2010. The adoption of this standard has
significantly changed the Company’s U.S. GAAP references, however it did not
have an impact on the Company’s financial statements.
Effective
February 1, 2009, the Company has adopted the requirements of ASC 810,
“Consolidation”, which establishes accounting and reporting standards for
noncontrolling interests, including changes in a parent’s ownership interest in
a subsidiary, and requires, among other things, that noncontrolling interests in
subsidiaries be classified within equity. As a result of the adoption, the
Company has reported noncontrolling interests, other than Redeemable
noncontrolling interests, as a component of equity in the unaudited Condensed
Consolidated Balance Sheets and the Net earnings (loss) attributable to the
noncontrolling interests has been separately disclosed in the unaudited
Condensed Consolidated Statements of Operations. The prior periods presented
have also been retrospectively restated to conform to the current classification
required by ASC 810.
BLYTH,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation (continued)
The
Company has adopted the disclosure requirements of ASC 815, “Derivatives and
Hedging”, effective February 1, 2009. ASC 815 amends and expands the
disclosure related to accounting for derivative instruments and hedging
activities”.
Effective
February 1, 2009, the Company adopted the accounting requirements of ASC 805,
“Business Combinations”, which significantly changed the accounting for business
combinations and also began applying the provisions of ASC 820, “Fair Value
Measurements and Disclosures”, to non-financial assets and liabilities, as
permitted by FASB Staff Position (“FSP”) FAS 157-2, “Effective Date of FASB
Statement No. 157”. Neither of these adopted pronouncements had an impact
on the Company’s financial condition or results of operations for the first nine
months of fiscal 2010.
ASC
320-10-65, “Investments—Debt and Equity Securities - Transition and Open
Effective Date Information”, requires entities to separate an
other-than-temporary impairment of a debt security into two components when
there are credit related losses associated with the impaired debt security for
which management asserts that it does not have the intent to sell the security,
and it is more likely than not that it will not be required to sell the security
before recovery of its cost basis. The amount of the other-than-temporary
impairment related to a credit loss is recognized in earnings, and the amount of
the other-than-temporary impairment related to other factors is recorded in
Accumulated other comprehensive income (loss) (“AOCI”). The recognition
and presentation requirements of ASC 320-10-65 are effective for periods ending
after June 15, 2009, with early adoption permitted for periods ending after
March 15, 2009. The Company elected to adopt the requirements of ASC
320-10-65, effective April 30, 2009. The application of this guidance did
not have any effect on the Company’s consolidated financial condition or results
of operations.
ASC
825-10-65, “Financial Instruments- Transition and Open Effective Date
Information” requires disclosures about fair value of financial instruments in
interim and annual financial statements. The disclosure requirements of
ASC 825-10-65 are effective for periods ending after June 15, 2009, with early
adoption permitted for periods ending after March 15, 2009. The Company
has adopted the requirements of ASC 825-10-65, and has included required
disclosures in the Company’s Notes to Condensed Consolidated Financial
Statements.
ASC 855,
“Subsequent Events”, establishes principles and requirements for reviewing and
reporting subsequent events. This requires disclosure of the date
through which subsequent events are evaluated and whether the date corresponds
with the time at which the financial statements are available for issuance or
were issued. This accounting guidance was adopted for our second quarter of
fiscal 2010. The adoption of this standard did not have an impact on the
Company’s financial statements.
ASC
820-10-65 clarifies the approach to and provides additional factors to consider
in, measuring fair value when there has been a significant decrease in market
activity for an asset or liability and quoted prices associated with
transactions are not orderly. The requirements of ASC 820-10-65 are
effective for periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009. The Company elected to
adopt the guidance of ASC 820-10-65, effective April 30, 2009. This adoption did
not have an effect on the Company’s consolidated financial condition or results
of operations.
In August
2009, the FASB issued Accounting Standards Update 2009-05, “Fair Value
Measurements and Disclosures (Topic 820) – Measuring Liabilities at Fair Value”
(“ASU 2009-05”). ASU 2009-05 amends Topic 820-10, “Fair Value Measurements and
Disclosures – Overall”. This update clarifies techniques that may be used to
determine the fair value of a liability if an active market for an identical
liability does not exist. This new guidance is effective for the
third quarter of fiscal 2010 for the Company. The adoption of this update did
not have an impact on the Company’s financial statements.
BLYTH,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation (continued)
Reclassification
On
January 30, 2009, the Company executed a 1-for-4 reverse stock
split. Concurrent with this split the Company reduced its authorized
common shares from 100,000,000 to 50,000,000 but did not adjust the par value of
each common share, which was and remains at $0.02 per share. The fiscal 2009
Common stock and Additional contributed capital balances should have reflected
this change. The Company has corrected the classification between these two
equity accounts. The following table displays the impact to the individual line
items of the Condensed Consolidated Balance Sheets as of January 31,
2009:
|
|
|
|
|
|
|
|
|
|
|
Originally
Reported
|
|
|
As
Now Reported
|
|
|
Net
Difference
|
|
|
Common
stock
|
|
$ |
1,019 |
|
|
$ |
255 |
|
|
$ |
(764 |
) |
|
Additional
contributed capital
|
|
|
140,543 |
|
|
|
141,307 |
|
|
|
764 |
|
This
reclassification had no impact on the Company’s consolidated financial position,
results of operations or cash flows.
Subsequent
Events
The
Company assessed events occurring subsequent to October 31, 2009 through
December 7, 2009, the date the condensed consolidated financials were
filed, for potential recognition and disclosure. There were no notable events
that warranted further disclosure between the reporting period end and the
filing date.
2. Business
Acquisitions
In August
2008, the Company signed a definitive agreement to purchase ViSalus Holdings,
LLC (“ViSalus”), a direct seller of vitamins, weight management products and
other related nutritional supplements, through a series of
investments.
On
October 21, 2008, the Company completed its initial investment and acquired a
43.6% equity interest in ViSalus for $13.0 million in cash. Additionally, as
provided in the acquisition agreement, and amended in September 2009, the
Company has provided ViSalus with a $3.0 million revolving credit facility, of
which $2.9 million was outstanding as of October 31, 2009. In
addition, the Company is required, subject to the conditions in the acquisition
agreement, to make additional purchases of ViSalus’ equity interest to increase
its equity ownership over time to 57.5%, 72.7% and 100.0%. The
requirement for additional purchases is conditioned upon ViSalus meeting certain
operating targets during the current year and fiscal 2011 and 2012, subject to a
one-time, one-year extension in any year. The purchase prices of the
additional investments are based on ViSalus’ future operating results as defined
in the agreement. The Company has the option to acquire the remaining interest
in ViSalus even if ViSalus does not meet the predefined operating
targets.
The
Company has accounted for the acquisition of ViSalus as a business combination
under SFAS No. 141 “Business Combinations”, since the Company obtained control
of ViSalus prior to the effective date of ASC 805. The Company analyzed the
criteria for consolidation in accordance with ASC 810, and has determined it has
control of ViSalus based on the following factors. ViSalus is
currently majority owned collectively by Blyth and Ropart Asset Management Fund,
LLC and Ropart Asset Management Fund II, LLC (collectively, “RAM”), a related
party (see Note 15 to the Condensed Consolidated Financial Statements for
additional information). Moreover, the Company has taken into account
the composition of ViSalus’ six-member board of managers, two of whom are the
Company’s executive officers, one of whom is a principal of RAM, two of whom are
founders and executive officers of ViSalus and one of whom is
independent. Additionally, the Company and RAM together control
ViSalus’ compensation committee and control the compensation of the two ViSalus
executive officers who
BLYTH,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Business Acquisitions (continued)
serve on
ViSalus’ board of managers. Consequently, five of the six members of
ViSalus’ board of managers may be deemed to operate under the Company’s
influence.
The
Company has also taken into account ViSalus’ governing documents, which afford
the Company significant rights with respect to major corporate actions and the
right to force the other owners of ViSalus’ equity instruments to sell them in
some corporate transactions. Finally, the Company considered the
mechanisms that are in place to permit it to purchase the remaining
noncontrolling interest in ViSalus over the next several years.
As
discussed above, the Company is required to purchase the remaining
noncontrolling interests in ViSalus if ViSalus meets certain operating
targets. As a result, these noncontrolling interests were determined
to be redeemable and are accounted for in accordance with the guidance of ASC
480-10-S99-3A, and the non-codified portions of Emerging Issues Task Force Topic
D-98, “Classification and Measurement of Redeemable Securities.” Accordingly,
the Company had recognized these noncontrolling interests outside of permanent
equity and accreted changes in their redemption value through the date of
redemption during the time at which it was probable that the noncontrolling
interests would be redeemed. The accretion of the redemption value
had been recognized as a charge to retained earnings, and to the extent that the
resulting redemption value exceeds the fair value of the noncontrolling
interests, the differential was reflected in the Company’s
EPS. During the second quarter of fiscal 2010 ViSalus’ revenues
forecast for the current fiscal year were revised downward as a result of lower
demand for its product, reflecting lower consumer spending attributed to the
domestic economic recession and a higher than anticipated attrition rate in its
distributor base. These factors together have required management to focus its
efforts on stabilizing its distributor base and curtailing its international
expansion plans. Accordingly, management has reduced its current year and
long-term forecasts in response to the weakening demand for its products. The
Company has taken a number of actions in response to its lower forecasts
including the review of ViSalus assets for impairment (see Note 6 for further
detail) and assessing whether it was probable that the noncontrolling interest
would be redeemed based on revised forecasts. The current revisions in ViSalus’
near-term and long-term projections have resulted in management concluding that
it is no longer probable that Blyth would be obligated to purchase the remaining
ownership interest in ViSalus. As of October 31, 2009 the redeemable
noncontrolling interest reflects only the allocation of losses equivalent to the
noncontrolling interest’s share of ViSalus, as a result of this redemption
feature no longer being probable. Accordingly, during the second quarter of
fiscal 2010, the Company reversed its accretion of its redeemable noncontrolling
interest to zero on its Condensed Consolidated Balance Sheet and reversed
previous EPS accretion adjustments for the portion in excess of fair
value. If ViSalus meets its current projected operating targets, the total
expected redemption value of noncontrolling interest will be approximately
$2.8 million paid through 2013. However at these levels Blyth would not be
obligated to purchase the remaining interest in ViSalus but could do so at its
discretion. The total expected redemption value could increase or decrease
depending upon whether ViSalus exceeds or falls short of its operating
projections. Upon expiration of the redemption feature the entire amount of
noncontrolling interest will be reclassified into the Equity section of the
Condensed Consolidated Balance Sheets.
The
acquisition of ViSalus by Blyth involves related parties, as discussed in Note
15 to the Condensed Consolidated Financial Statements. In addition to Blyth, the
other owners of ViSalus consist of: its three founders (each of whom currently
own approximately 11.7% of ViSalus for a total of 35.3%), RAM which currently
owns 15.2%, and a small group of employees who collectively own approximately
5.9% of ViSalus. Blyth’s initial investment in ViSalus of $13.0
million was paid to ViSalus ($2.5 million), RAM ($3.0 million) and each of the
three founders ($2.5 million each). Mr. Goergen, Blyth’s chairman and
chief executive officer, beneficially owns approximately 31% of the Blyth’s
outstanding common stock, and together with members of his family, owns
substantially all of RAM. ViSalus paid a management fee to RAM in the amount of
$0.2 million in fiscal 2009, and has agreed to pay a management fee to RAM in
the amount of $0.1 million during fiscal 2010.
BLYTH,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Business Acquisitions (continued)
ViSalus
is included in the Direct Selling segment, and its operating results since
October 21, 2008, the date of acquisition, are included in the Company’s
Condensed Consolidated Statements of Operations.
During
fiscal 2009, the Company acquired certain assets of As We Change, a catalog and
internet retailer, for $2.3 million in cash. The results of operations for As We
Change, which were not material, are included in the Condensed Consolidated
Statements of Operations of the Company since August 3, 2008, the date of
acquisition. As We Change is included in the Catalog & Internet reporting
segment.
3. Restructuring
During
fiscal 2007, the Company initiated a restructuring plan within the North
American operations of the Company’s Direct Selling segment. As of October 31,
2009, the Company had an accrual for approximately $1.4 million for
restructuring charges relating to a lease obligation. The remaining
lease payments will be made through fiscal 2013.
The
following is a tabular rollforward of the lease obligation accrual
described above, included in Accrued expenses:
|
(In
thousands)
|
|
Lease
Obligation
|
|
|
Balance
at January 31, 2009
|
|
$ |
1,987 |
|
|
Payments
made in fiscal 2010
|
|
|
(597 |
) |
|
Balance
at October 31, 2009
|
|
$ |
1,390 |
|
4. Cash
and Cash Equivalents and Investments
The
Company considers all money market funds and debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
The
Company’s investments as of October 31, 2009 consisted of a number of financial
securities including debt instruments, preferred stocks, mutual funds, an
investment in a limited liability company and restricted cash. The Company
accounts for its investments in debt and equity instruments in accordance with
ASC 320, “Investments – Debt & Equity Securities”.
The
following table summarizes, by major security type, the amortized costs and fair
value of the Company’s cash and cash equivalents and investments:
|
|
|
October
31, 2009
|
|
|
January
31, 2009
|
|
|
(In
thousands)
|
|
Cost
Basis
(1)
|
|
|
Fair
Value
|
|
|
Net
unrealized gain (loss) in AOCI
|
|
|
Cost
Basis
|
|
|
Fair
Value
|
|
|
Net
unrealized gain (loss) in AOCI
|
|
|
Cash
|
|
$ |
123,656 |
|
|
$ |
123,656 |
|
|
$ |
- |
|
|
$ |
141,424 |
|
|
$ |
141,424 |
|
|
$ |
- |
|
|
Money
market funds
|
|
|
5,000 |
|
|
|
5,000 |
|
|
|
- |
|
|
|
5,000 |
|
|
|
5,000 |
|
|
|
- |
|
|
Total
cash and cash equivalents
|
|
|
128,656 |
|
|
|
128,656 |
|
|
|
- |
|
|
|
146,424 |
|
|
|
146,424 |
|
|
|
- |
|
|
Equity
securities
|
|
|
16,223 |
|
|
|
15,677 |
|
|
|
(546 |
) |
|
|
10,000 |
|
|
|
9,034 |
|
|
|
(966 |
) |
|
Debt
securities
|
|
|
4,150 |
|
|
|
4,150 |
|
|
|
- |
|
|
|
5,000 |
|
|
|
4,481 |
|
|
|
(519 |
) |
|
Collateral
- certificates of deposit
|
|
|
2,413 |
|
|
|
2,413 |
|
|
|
- |
|
|
|
3,070 |
|
|
|
3,070 |
|
|
|
- |
|
|
Total
available for sale investments
|
|
$ |
22,786 |
|
|
$ |
22,240 |
|
|
$ |
(546 |
) |
|
$ |
18,070 |
|
|
$ |
16,585 |
|
|
$ |
(1,485 |
) |
|
Equity
securities
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
7,209 |
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
81 |
|
|
|
|
|
|
Total
trading investments
|
|
|
|
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
$ |
7,290 |
|
|
|
|
|
|
Equity
method investment in LLC (2)
|
|
|
|
|
|
|
1,026 |
|
|
|
|
|
|
|
|
|
|
|
1,100 |
|
|
|
|
|
|
Total
cash and cash equivalents and investments
|
|
|
|
|
|
$ |
151,922 |
|
|
|
|
|
|
|
|
|
|
$ |
171,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
The cost basis may represent the actual amount paid or the basis assumed
following a permanent impairment of that asset. The equity securities
consist of $10.0 million for ARS and $6.2
|
|
|
million
for preferred stock as of October 31, 2009. The basis for the preferred
stock is their fair value as of February 1, 2009, the date that they were
reclassified from trading to available for sale.
|
|
|
(2)
The equity method investment is reported at cost, adjusted by the
Company's proportionate share of investee's gain or loss. This may not be
equal to the investment's fair market value.
|
|
BLYTH,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Cash and Cash Equivalents and
Investments (continued)
The
Company’s investments in preferred stocks were originally bought and sold on a
short-term basis with the sole purpose of generating a profit on price
differences. Accordingly, these investments were classified as short-term
trading investments. Realized and unrealized gains and losses on these
securities were recorded in the Condensed Consolidated Statements of Operations
in Foreign exchange and other through January 31, 2009.
The
Company changed its investment strategy and, in connection with that change,
changed the classification of the preferred stock investments to long-term
available for sale securities. With the change in designation to available for
sale, the unrealized losses on these investments that are considered temporary
are now recorded in AOCI. These securities are valued based on
quoted prices in inactive markets. As of October 31, 2009, the Company has
recorded a net of tax unrealized gain of $0.1 million in AOCI.
The
Company holds other debt and equity auction rate securities (“ARS”) which are
classified as long-term, available for sale investments. Realized gains and
losses on these securities are determined using the specific identification
method and are recorded in Foreign exchange and other. Unrealized losses on
these securities that are considered temporary and are not the result of a
credit loss are recorded in AOCI. Unrealized losses that are considered
other than temporary are recorded in the Condensed Consolidated Statements of
Operations in Foreign exchange and other.
As of
October 31, 2009 and January 31, 2009, the Company held $13.5 million of ARS
classified as available-for-sale securities. ARS are generally long-term debt
instruments that provide liquidity through a Dutch auction process that resets
the applicable interest rate at predetermined intervals in days. This mechanism
generally allows investors to rollover their holdings and continue to own their
respective securities or liquidate their holdings by selling their securities at
par value. The Company generally invested in these securities for short periods
of time as part of its cash management program. The Company’s auction rate
securities are all AAA/Aaa rated investments and consist of a student loan
portfolio with the vast majority of the student loans guaranteed by the U.S.
Government under the Federal Family Education Loan Program and a closed-end fund
consisting of preferred stock of various utilities that maintains assets equal
to or greater than 200% of the liquidation preference of its preferred stock.
These securities’ valuations considered the financial conditions of the issuer
and its guarantor as well as the value of the collateral. The Company has
assessed the credit risk associated with the ARS to be minimal. If the credit
ratings of the issuer or the collateral deteriorate, the Company may adjust the
carrying value of these investments.
The
weakness within the credit markets has prevented the Company and other investors
from liquidating all of their holdings by selling their securities at par value.
Historically, the par value of these securities approximated fair value as a
result of the resetting of the interest rate. In the first quarter of fiscal
2009 market auctions, including auctions for substantially all the Company’s
ARS, began to fail due to insufficient buyers. As a result of these failed
auctions and the uncertainty of when these securities could successfully be
liquidated at par (liquidity risk), the Company had recorded a pre-tax
unrealized loss of $1.5 million to AOCI as of January 31, 2009 and classified
these securities as non-current investments. In November 2009 management made
the decision to liquidate the debt ARS, at a price below par value and recorded
an impairment of $0.9 million to Foreign exchange and other within the Condensed
Consolidated Statements of Operations during the third quarter. As of
October 31, 2009, the Company has assessed the pre-tax unrealized loss to be
$0.6 million. Both the equity and debt instruments have been in a continuous
loss position for greater than 12 months, however the Company deems the equity
ARS to be temporarily impaired as management has made the decision to hold the
investment until it can be redeemed at par value and the underlying liquidity of
the issuer does not indicate that a condition of a permanent impairment
exists.
BLYTH,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Cash and Cash Equivalents and
Investments (continued)
The
following table summarizes the proceeds and gross realized gains and losses on
the sale of available for sale investments recorded in Foreign exchange and
other within the Condensed Consolidated Statements of Operations. Gains and
losses are calculated using the specific identification method.
|
(In
thousands)
|
|
Three
months ended October 31,
|
|
|
Nine
months ended October 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Net
proceeds
|
|
$ |
359 |
|
|
$ |
5,642 |
|
|
$ |
973 |
|
|
$ |
14,271 |
|
|
Realized
gains (losses)
|
|
$ |
(12 |
) |
|
$ |
119 |
|
|
$ |
(15 |
) |
|
$ |
(729 |
) |
The
Company holds an investment in a limited liability company (“LLC”) obtained
through its ViSalus acquisition. The LLC is accounted for under the equity
method as the Company holds a significant minority interest in this
company. The Company records its share of the LLC’s earnings or loss
to its investment balance. All earnings and losses are recorded in the Condensed
Consolidated Statements of Operations in Foreign exchange and
other. Through October 31, 2009 the Company has recorded losses of
$0.1 million related to this investment. The investment in this LLC
involves related parties as discussed in Note 15.
Also
included in long-term investments are certificates of deposit that are held as
collateral for the Company’s outstanding standby letters of
credit. These are recorded at cost and interest earned on these is
realized in Interest income in the Condensed Consolidated Statements of
Operations.
As of
October 31, 2009 and January 31, 2009, the Company held debt securities totaling
$5.0 million, at par, with contractual maturities greater than ten years from
the Balance Sheet date. All income generated from these debt securities was
recorded as Interest income. Actual maturities may differ from contractual
maturities as the borrower has the right to call its obligations.
In
addition to the investments noted above, the Company holds mutual funds as part
of a deferred compensation plan which are classified as available for sale. As
of October 31, 2009 and January 31, 2009 the fair value of these securities was
$1.0 million and $1.3 million, respectively. These securities are
valued based on quoted prices in an active market. Unrealized gains and losses
on these securities are recorded in AOCI. These mutual funds are included
in Deposits and other assets in the Condensed Consolidated Balance
Sheets.
5. Inventories
The
components of inventory are as follows:
|
|
|
October
31, 2009
|
|
|
January
31, 2009
|
|
|
Raw
materials
|
|
$ |
10,607 |
|
|
$ |
9,643 |
|
|
Work
in process
|
|
|
457 |
|
|
|
- |
|
|
Finished
goods
|
|
|
111,369 |
|
|
|
127,444 |
|
|
Total
|
|
$ |
122,433 |
|
|
$ |
137,087 |
|
|
As
of October 31, 2009 and January 31, 2009, the inventory valuation
adjustments totaled $13.3 million and $15.8 million,
respectively.
|
BLYTH,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Goodwill
and Other Intangibles
Goodwill
and other indefinite lived intangibles are subject to an assessment for
impairment using a two-step fair value-based test, which must be performed at
least annually or more frequently if events or circumstances indicate that
goodwill or other indefinite lived intangibles might be impaired.
The
Company performs its annual assessment of impairment as of January
31. For goodwill, the first step is to identify whether a potential
impairment exists. This is done by comparing the fair value of a reporting unit
to its carrying amount, including goodwill. Fair value for each of
the Company’s reporting units is estimated utilizing a combination of valuation
techniques, namely the discounted cash flow methodology and the market multiple
methodology. The discounted cash flow methodology assumes the fair value of an
asset can be estimated by the economic benefit or net cash flows the asset will
generate over the life of the asset, discounted to its present value. The
discounting process uses a rate of return that accounts for both the time value
of money and the investment risk factors. The market multiple methodology
estimates fair value based on what other participants in the market have
recently paid for reasonably similar assets. Adjustments are made to compensate
for differences between the reasonably
similar assets and the assets being valued. If the fair value of the reporting
unit exceeds the carrying value, no further analysis is necessary. If the
carrying amount of the reporting unit exceeds its fair value, the second step is
performed. The second step compares the carrying amount of the goodwill to the
estimated fair value of the goodwill. If fair value is less than the carrying
amount, an impairment loss is reported as a reduction to the goodwill and a
charge to operating expense.
In the
second quarter of fiscal 2010, the ViSalus business, within the Direct Selling
segment, revised downward its revenues forecast for the current fiscal year as a
result of lower demand for its product reflecting lower consumer spending
attributed to the domestic economic recession and a higher than anticipated
attrition rate in its distributor base. These factors together have required
management to focus its efforts on stabilizing its distributor base and
curtailing its international expansion plans. Accordingly management has reduced
its current year and long-term forecasts in response to the weakening demand for
its products. The impairment analysis performed indicated that the goodwill in
ViSalus was fully impaired, as its fair value was less than its carrying value,
including goodwill. Accordingly, the Company recorded a non-cash pre-tax
goodwill impairment charge of $13.2 million, during the second quarter of fiscal
2010.
The
following table shows the changes in the carrying amount of goodwill within the
Direct Selling segment from January 31, 2009 through October 31,
2009:
|
(In
thousands)
|
|
|
|
|
Goodwill
at January 31, 2009
|
|
$ |
13,988 |
|
|
ViSalus
acquisition purchase adjustment
|
|
|
1,501 |
|
|
Impairment
of ViSalus goodwill
|
|
|
(13,191 |
) |
|
Goodwill
at October 31, 2009
|
|
$ |
2,298 |
|
The
Company uses the relief from royalty method to estimate the fair value for
indefinite-lived intangible assets. The underlying concept of the relief from
royalty method is that the inherent economic value of intangibles is directly
related to the timing of future cash flows associated with the intangible asset.
Similar to the income approach or discounted cash flow methodology used to
determine the fair value of goodwill, the fair value of indefinite-lived
intangible assets is equal to the present value of after-tax cash flows
associated with the intangible asset based on an applicable royalty rate. The
royalty rate is determined by using existing market comparables for royalty
agreements using an intellectual property data base. The arms-length agreements
generally support a rate that is a percentage of direct sales. This approach is
based on the premise that the free cash flow is a more valid criterion for
measuring value than “book” or accounting profits.
BLYTH,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Goodwill and Other Intangibles
(continued)
Other
intangible assets include indefinite-lived trade names and trademarks and
customer relationships related to the Company’s acquisition of Miles Kimball and
Walter Drake in fiscal 2004 and As We Change during fiscal 2009, which are
reported in the Catalog and Internet segment and ViSalus, acquired during fiscal
2009, which is reported in the Direct Selling segment. The Company does not
amortize the indefinite-lived trade names and trademarks, but rather test for
impairment annually as of January 31st, or
sooner if circumstances indicate a condition of impairment may exist. As of
October 31, 2009, there were no indications that a review was
necessary.
As part
of the previously mentioned impairment analysis performed for the ViSalus
business during the second quarter of fiscal 2010, the Company recorded an
impairment charge of $3.1 million related to certain of the Company’s trade
names and $ 0.2 million related to customer relationships. These impairments are
due to adverse economic conditions currently experienced due to decreased
consumer spending and the failure to obtain and retain distributors, as noted
previously.
Other
intangible assets consisted of the following:
|
|
|
Direct
Selling Segment
|
|
|
Catalog
& Internet Segment
|
|
|
Total
|
|
|
(In
thousands)
|
|
Indefinite-lived
trade names and trademarks
|
|
|
Customer
relationships
|
|
|
Indefinite-lived
trade names and trademarks
|
|
|
Customer
relationships
|
|
|
Indefinite-lived
trade names and trademarks
|
|
|
Customer
relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
intangibles at January 31, 2009
|
|
$ |
4,200 |
|
|
$ |
271 |
|
|
$ |
7,850 |
|
|
$ |
4,519 |
|
|
$ |
12,050 |
|
|
$ |
4,790 |
|
|
Amortization
|
|
|
- |
|
|
|
(64 |
) |
|
|
- |
|
|
|
(986 |
) |
|
|
- |
|
|
|
(1,050 |
) |
|
Impairments
|
|
|
(3,100 |
) |
|
|
(207 |
) |
|
|
- |
|
|
|
- |
|
|
|
(3,100 |
) |
|
|
(207 |
) |
|
Other
intangibles at October 31, 2009
|
|
$ |
1,100 |
|
|
$ |
- |
|
|
$ |
7,850 |
|
|
$ |
3,533 |
|
|
$ |
8,950 |
|
|
$ |
3,533 |
|
Amortization
expense is recorded on an accelerated basis over the estimated lives of the
customer lists ranging from 5 to 12 years. Amortization expense for
other intangible assets was $1.1 million and $1.2 million for the nine months
ended October 31, 2009 and 2008, respectively. The estimated annual
amortization expense for fiscal year 2010 is $1.4 million. The
estimated amortization expense for the next five fiscal years beginning with
fiscal 2011 is as follows: $1.1 million, $0.7 million, $0.6 million,
$0.6 million and $0.1 million.
7. Fair
Value Measurements
The
fair-value hierarchy established in ASC 820, prioritizes the inputs used in
valuation techniques into three levels as follows:
|
•
|
|
Level
1 – Observable inputs – quoted prices in active markets for identical
assets and liabilities;
|
|
•
|
|
Level
2 – Observable inputs other than the quoted prices in active markets for
identical assets and liabilities – such as quoted prices for similar
instruments, quoted prices for identical or similar instruments in
inactive markets, or other inputs that are observable or can be
corroborated by observable market data;
|
|
•
|
|
Level
3 – Unobservable inputs – includes amounts derived from valuation models
where one or more significant inputs are unobservable and require us to
develop relevant assumptions.
|
For
fiscal 2010, the Company is no longer subject to previously existing deferral
provisions and is applying the framework for measuring fair value to all
nonfinancial assets and liabilities, including those that are not recognized or
disclosed at fair value in the financial statements on a recurring basis, and
has expanded disclosures to meet these requirements.
BLYTH,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Fair Value Measurements (continued)
Assets
and Liabilities Measured at Fair Value on a Recurring Basis
The
following table summarizes the assets and liabilities measured at fair value on
a recurring basis as of the measurement date, October 31, 2009, and the
basis for that measurement, by level within the fair value
hierarchy:
|
|
|
Balance
as of October 31, 2009
|
|
|
Quoted
prices in active markets for identical assets (Level 1)
|
|
|
Significant
other observable inputs
(Level
2)
|
|
|
Significant
unobservable inputs (Level 3)
|
|
|
Financial
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates
of deposit
|
|
$ |
2,413 |
|
|
$ |
- |
|
|
$ |
2,413 |
|
|
$ |
- |
|
|
Equity
securities
|
|
|
15,677 |
|
|
|
- |
|
|
|
6,370 |
|
|
|
9,307 |
|
|
Debt
securities
|
|
|
4,150 |
|
|
|
- |
|
|
|
- |
|
|
|
4,150 |
|
|
Deferred
compensation plan assets 1
|
|
|
951 |
|
|
|
951 |
|
|
|
- |
|
|
|
- |
|
|
Total
|
|
$ |
23,191 |
|
|
$ |
951 |
|
|
$ |
8,783 |
|
|
$ |
13,457 |
|
|
Financial
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange forward contracts
|
|
$ |
(1,187 |
) |
|
$ |
- |
|
|
$ |
(1,187 |
) |
|
$ |
- |
|
|
(1)
There is an offsetting liability for the obligation to its employees in
Other liabilities
|
|
The table
below summarizes the changes in the fair value of level 3 financial assets,
consisting of debt and equity ARS, for the nine month period ended October 31,
2009:
|
(In
thousands)
|
|
Significant
unobservable inputs (Level 3)
|
|
|
|
|
|
|
|
Fair
value February 1, 2009
|
|
$ |
13,515 |
|
|
Unrealized
gain 1
|
|
|
405 |
|
|
Reversal
of unrealized loss1
|
|
|
387 |
|
|
Other
than temporary impairment
|
|
|
(850 |
) |
|
Fair
value October 31, 2009
|
|
$ |
13,457 |
|
|
(1) These
unrealized gains/losses on our available for sale investments are recorded
as a component of other comprehensive income.
|
|
The
Company values its investments in equity securities within the deferred
compensation plan using level 1 inputs, by obtaining quoted prices in active
markets. The deferred compensation plan assets consist of shares of
mutual funds,
for which there are quoted prices in an active market. The Company also enters
into both cash flow and fair value hedges by purchasing forward contracts. These
contracts are valued using level 2 inputs, primarily observable forward foreign
exchange rates. The Company values certain preferred stock investments using
information classified as level 2. This data consists of quoted prices of
identical instruments in an inactive market and third party bid offers. The
certificates of deposit that are used to collateralize some of the Company’s
letters of credit have been valued using information classified as level 2, as
these are not traded on the open market and are held unsecured by one
counterparty. The debt and equity securities consist of auction rate securities
that take into consideration many factors including the credit quality of both
the issuer and its guarantor, value of the collateral, the Company’s discounted
cash flow analysis and input from broker-dealers in these types of securities.
Since there is not an active observable market currently for these securities,
they have been classified as a level 3 input.
BLYTH,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Fair Value Measurements (continued)
The
carrying values of cash and cash equivalents, trade and other receivables and
trade payables are considered to be representative of their respective fair
values.
Assets
and Liabilities Measured at Fair Value on a Nonrecurring Basis
The
Company is required, on a non-recurring basis, to adjust the carrying value or
provide valuation allowances for certain assets using fair value measurements in
accordance with ASC 820. The Company’s assets and liabilities measured at fair
value on a nonrecurring basis include property, plant and equipment, goodwill,
intangibles and other assets. These assets are not measured at fair value on an
ongoing basis; however, they are subject to fair value adjustments in certain
circumstances, such as when there is evidence that an impairment may
exist.
The
following table summarizes the assets and liabilities measured at fair value on
a nonrecurring basis as of the measurement date, October 31, 2009, by level
within the fair value hierarchy and identifies the losses recorded during the
fiscal year:
|
(In
thousands)
|
|
Balance
as of October 31, 2009
|
|
|
Quoted
prices in active markets for identical assets (Level 1)
|
|
|
Significant
other observable inputs
(Level
2)
|
|
|
Significant
unobservable inputs (Level 3)
|
|
|
Total
impairment losses
|
|
|
Goodwill
|
|
$ |
2,298 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
2,298 |
|
|
$ |
(13,191 |
) |
|
Indefinite-lived
trade names and trademarks
|
|
|
8,950 |
|
|
|
- |
|
|
|
- |
|
|
|
8,950 |
|
|
|
(3,100 |
) |
|
Customer
Relationships
|
|
|
3,533 |
|
|
|
- |
|
|
|
- |
|
|
|
3,533 |
|
|
|
(207 |
) |
|
Assets
held for sale
|
|
|
6,868 |
|
|
|
- |
|
|
|
- |
|
|
|
6,868 |
|
|
|
(376 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(16,874 |
) |
Goodwill
and intangibles are subject to impairment testing on an annual basis, or sooner
if circumstances indicate a condition of impairment may exist. The valuation
uses assumptions such as interest and discount rates, growth projections and
other assumptions of future business conditions. These valuation methods require
a significant degree of management judgment concerning the use of internal and
external data. In the event these methods indicate that fair value is less than
the carrying value, the asset is recorded at fair value as determined by the
valuation models. As such, the Company classifies goodwill and other intangibles
subjected to nonrecurring fair value adjustments as level 3. See Note 6 for
further details on the asset impairment review performed during the second
quarter of fiscal 2010.
The fair
value of the Company’s assets held for sale is reviewed periodically, as the
market for these assets change. For fiscal 2010 these assets consisted of both a
building and land that are classified as assets held for sale and are reported
as non-current assets in Deposits and other assets within the Condensed
Consolidated Balance Sheets. The valuation of these assets uses a significant
amount of management’s judgment and relies heavily on the information provided
by third parties. The current local real estate market, regional comparatives,
estimated concessions and transaction costs are all considered when determining
the fair value of these assets. Due to the nature of this information and the
assumptions made by management the Company has classified the inputs used in
valuing these assets as level 3.
The
estimated fair value of the Company’s $108.0 million in debt, including the $100
million Senior Notes, recorded at an amortized cost, as of October 31, 2009 was
approximately $85.8 million. The fair value of the liability is
determined using the fair value of its notes when traded as an asset in an
inactive market and is based on current interest rates, relative credit risk and
time to maturity. Due to nature of the information used the Company
considers these inputs to be level 2.
BLYTH,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. Derivative
Instruments and Hedging Activities
The
Company uses foreign exchange forward contracts to hedge the impact of foreign
currency fluctuations on foreign denominated inventory purchases, intercompany
payables and certain loans. It does not hold or issue derivative financial
instruments for trading purposes. The Company has hedged the net
assets of certain of its foreign operations through foreign currency forward
contracts. The cumulative net after-tax gain related to the derivative net
investment hedges in AOCI as of October 31, 2009 and January 31, 2009 was $5.2
million and $5.4 million, respectively.
The
Company has designated forward exchange contracts on forecasted intercompany
purchases and future purchase commitments as cash flow hedges and, as such, as
long as the hedge remains effective and the underlying transaction remains
probable, the effective portion of the changes in the fair value of these
contracts will be recorded in AOCI until earnings are affected by the
variability of the cash flows being hedged. With regard to
commitments for inventory purchases, upon payment of each commitment, the
underlying forward contract is closed and the corresponding gain or loss is
transferred from AOCI and is realized in the Condensed Consolidated Statements
of Operations. If a hedging instrument is sold or terminated prior to
maturity,
gains and
losses are deferred in AOCI 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
immediately. The net after-tax loss included in accumulated AOCI at
October 31, 2009 is $0.5 million and is expected to be transferred into earnings
within the next twelve months upon payment of the underlying
commitment.
The
Company has designated its foreign currency forward contracts related to certain
foreign denominated loans and intercompany payables as fair value
hedges. The gains or losses on the fair value hedges are recognized
into earnings and generally offset the transaction gains or losses in the
foreign denominated loans that they are intended to hedge.
For
consolidated financial statement presentation, net cash flows from such hedges
are classified in the categories of the Condensed Consolidated Statement of Cash
Flows with the items being hedged. Forward contracts held with each bank are
presented within the Condensed Consolidated Balance Sheets as a net asset or
liability, based on netting agreements with each bank and whether the forward
contracts are in a net gain or loss position. The foreign exchange contracts
outstanding have maturity dates through April 2010.
The table
below details the fair value and location of the Company’s hedges in the
Condensed Consolidated Balance Sheets:
|
Fair
Values of Derivative Instruments
|
|
As of October 31, 2009
(In thousands)
|
|
|
|
|
Derivatives
designated as hedging instruments under Subtopic 815-20 |
|
Accrued
Expenses |
|
|
Foreign
exchange forward contract in an asset position
|
|
$ |
41 |
|
|
Foreign
exchange forward contract in a liability position
|
|
|
(1,228 |
) |
|
Net
derivatives at fair value
|
|
$ |
(1,187 |
) |
BLYTH,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. Derivative
Instruments and Hedging Activities (continued)
Gain and
loss activity related to the Company’s Cash Flow hedges for the three and nine
months ended October 31, 2009 are as follows:
|
Derivatives
in Subtopic 815-20 Cash
Flow
Hedging
Relationships
|
|
Amount
of Loss Recognized in AOCI on Derivative (Effective
Portion)
|
|
Location
of Loss Reclassified from AOCI into
Income
(Effective Portion)
|
|
Amount
of Loss Reclassified from AOCI into Income (Effective
Portion)
|
|
|
(In
thousands)
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
Foreign
exchange forward contract
|
|
$ |
(878 |
) |
Cost
of goods sold
|
|
$ |
(868 |
) |
|
$ |
(842 |
) |
For the
nine month period ended October 31, 2009, the Company recorded a gain of $0.7
million to AOCI related to foreign exchange forward contracts accounted for as
Net Investment hedges.
For the
three and nine month period ended October 31, 2009, the Company recorded losses
of $0.1 million and $1.0 million respectively to Foreign exchange and
other related to foreign exchange forward contracts accounted for as Fair Value
hedges.
9. Long-Term
Debt
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 $1.4
million, which was amortized over the life of the notes. During the
first nine months of fiscal 2010 the Company repurchased $12.6 million of these
notes, settling the debt early, and made principal payments of $24.7 million,
upon maturity.
On
October 20, 2003, the Company issued $100.0 million 5.50% Senior Notes due on
November 1, 2013 at a discount of approximately $0.2 million, which is being
amortized over the life of the notes. Such notes contain among other
provisions, restrictions on liens on principal property or stock issued to
collateralize debt. As of October 31, 2009, the Company was in
compliance with such provisions. Interest is payable semi-annually in
arrears on May 1 and November 1. The notes may be redeemed in whole or in part
at any time at a specified redemption price. The proceeds of the debt
issuances were used for general corporate purposes.
As of
October 31, 2009 and January 31, 2009, Miles Kimball had approximately $7.8
million and $8.2 million, respectively, of long-term debt outstanding under a
real estate mortgage note payable which matures June 1, 2020. Under
the terms of the note, payments of principal and interest are required monthly
at a fixed interest rate of 7.89%.
As of
October 31, 2009 and January 31, 2009, Midwest-CBK had $0.1 million of long-term
debt outstanding under an Industrial Revenue Bond (“IRB”), which matures on
January 1, 2025. The bond is backed by an irrevocable letter of credit issued by
a bank and is collateralized by certain of Midwest-CBK’s assets. The
amount outstanding under the IRB bears interest at short-term floating rates,
which on a weighted average was 0.4% at October 31, 2009. Payments of
interest are required monthly under the terms of the bond.
The
Company’s debt is recorded at its amortized cost basis. The estimated fair value
of the Company’s $108.0 million total long-term debt (including current portion)
at October 31, 2009 was approximately $85.8 million. The fair value
of the liability is determined using the fair value of its notes when traded as
an asset in an inactive market and is based on current interest rates, relative
credit risk and time to maturity.
As of
October 31, 2009, the Company had a total of $2.0 million available under an
uncommitted bank facility to be used for letters of credit. The issuance of
letters of credit under this facility will be available until January 31,
2010. As of October 31, 2009, no letters of credit were outstanding
under this facility.
BLYTH,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Long-Term Debt (continued)
As of
October 31, 2009 the Company had $2.4 million in standby letters of credit
outstanding that are collateralized with a certificate of deposit.
10. Earnings
per Share
Effective
January 30, 2009, the Company’s common stock and related equity-based
instruments were subject to a 1-for-4 reverse stock split. In accordance with
ASC 260, “Earnings Per Share” all historical earnings per share amounts have
been adjusted accordingly.
Vested
restricted stock units issued under the Company’s stock-based compensation plans
participate in a cash equivalent of the dividends paid to common shareholders
and are not considered contingently issuable shares. Accordingly these RSUs are
included in the calculation of basic and diluted earnings per share as common
stock equivalents. RSUs that have not vested and are subject to a risk of
forfeiture are included in the calculation of diluted earnings per
share.
In
accordance with ASC 480-10-S99-3A, the accretion of the redeemable
noncontrolling interest’s carrying value in excess of its fair value has been
reflected in determining EPS for the Company’s common shareholders for the three
and nine month periods ended October 31, 2009. As discussed in Note 2, there was
no effect on EPS for the three and
nine month period ended October 31, 2009 as the Company’s redeemable
noncontrolling interest obligation was reversed as management has determined it
was no longer probable that the Company would be obligated to make future
investments.
The
components of basic and diluted earnings per share are as follows:
|
|
|
Three
months ended October 31,
|
|
|
Nine
months ended October 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Net
earnings attributable to Blyth, Inc.
|
|
$ |
(970 |
) |
|
$ |
(32,912 |
) |
|
$ |
(14,097 |
) |
|
$ |
(28,747 |
) |
|
Weighted
average number outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares
|
|
|
8,905 |
|
|
|
8,891 |
|
|
|
8,901 |
|
|
|
8,984 |
|
|
Vested
restricted stock units
|
|
|
25 |
|
|
|
- |
|
|
|
21 |
|
|
|
- |
|
|
Weighted
average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
8,930 |
|
|
|
8,891 |
|
|
|
8,922 |
|
|
|
8,984 |
|
|
Dilutive
effect of stock options and non-vested restricted shares
units
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Diluted
|
|
|
8,930 |
|
|
|
8,891 |
|
|
|
8,922 |
|
|
|
8,984 |
|
|
Basic
earnings per share
|
|
$ |
(0.11 |
) |
|
$ |
(3.70 |
) |
|
$ |
(1.58 |
) |
|
$ |
(3.20 |
) |
|
Diluted
earnings per share
|
|
$ |
(0.11 |
) |
|
$ |
(3.70 |
) |
|
$ |
(1.58 |
) |
|
$ |
(3.20 |
) |
For the
three and nine month periods ended October 31, 2009 and 2008, options to
purchase 62,875 shares and 95,025 shares, respectively, of common stock are not
included in the computation of earnings per share because the effect would be
anti-dilutive.
In
accordance with ASC 260, diluted earnings per share for both the three and nine
month periods ended October 31, 2008 and 2009 have been computed in the same
manner as basic earnings per share due to the net loss from continuing
operations.
BLYTH,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. Treasury
and Common Stock
|
|
|
|
|
|
|
|
|
Changes
in Treasury Stock were (In thousands, except shares):
|
|
Shares
|
|
|
Amount
|
|
|
Balance
at February 1, 2008
|
|
|
3,639,338 |
|
|
$ |
387,885 |
|
|
Treasury
stock purchases
|
|
|
202,886 |
|
|
|
11,093 |
|
|
Balance
at October 31, 2008
|
|
|
3,842,224 |
|
|
$ |
398,978 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at February 1, 2009
|
|
|
3,842,224 |
|
|
$ |
398,978 |
|
|
Treasury
stock purchases
|
|
|
15,268 |
|
|
|
540 |
|
|
Treasury
stock withheld in connection with long-term incentive plan
|
|
|
9,588 |
|
|
|
361 |
|
|
Balance
at October 31, 2009
|
|
|
3,867,080 |
|
|
$ |
399,879 |
|
|
|
|
|
|
|
|
|
|
Changes
in Common Stock were (In thousands, except shares):
|
|
Shares
|
|
|
Amount
|
|
|
Balance
at February 1, 2008
|
|
|
12,730,615 |
|
|
$ |
254 |
|
|
Common
stock issued in connection with long-term incentive plan
|
|
|
2,594 |
|
|
|
1 |
|
|
Balance
at October 31, 2008
|
|
|
12,733,209 |
|
|
$ |
255 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at February 1, 2009
|
|
|
12,733,209 |
|
|
$ |
255 |
|
|
Common
stock issued in connection with long-term incentive plan
|
|
|
31,715 |
|
|
|
- |
|
|
Balance
at October 31, 2009
|
|
|
12,764,924 |
|
|
$ |
255 |
|
12. Income Taxes
The
Company’s effective tax rate for the nine months ended October 31, 2009 was
a negative 24.7%, resulting in an income tax expense of $2.9 million, compared
to the prior year effective tax rate of 9.2%, resulting in an income tax benefit
of $2.9 million. Included in this year’s pretax operating loss of
$11.9 million was the ViSalus goodwill impairment of $13.2 million and operating
losses incurred in various international jurisdictions for which no tax benefit
was recorded. In addition, the current year’s effective tax rate
includes the fiscal 2009 income tax return-to-provision adjustments which
increased the tax expense by $0.9 million.
Included
in last year’s pre-tax operating loss of $31.6 million was an impairment of
goodwill in the amount of $30.9 million and a write-off of an investment of $5.2
million for which no tax benefit was recorded. The prior year’s
effective tax rate also included a tax benefit of approximately $7.0 million
recorded as a result of an international restructuring plan that was completed
in the third quarter of fiscal 2009. This benefit was offset in part by an
additional tax provision of $1.9 million related to a state voluntary disclosure
settlement proposal.
The
effective tax rate for the three months ended October 31, 2009 was a negative
281.7% compared to 23.2% in the prior year. The change in the
effective tax rate for the current quarter is due primarily to the fiscal 2009
income tax return-to-provision adjustments, as well as operating losses incurred
in various international jurisdictions for which no tax benefit was
recorded. The effective tax rate for the three months ended October
31, 2008 included an additional tax provision of $1.9 million related to a state
voluntary disclosure settlement proposal, which was offset in part by a tax
benefit of approximately $7.0 million recorded as a result of an international
restructuring plan that was completed in the third quarter of the prior
year.
BLYTH,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
12. Income Taxes (continued)
The
Company believes that it is reasonably possible that the total amount of
unrecognized tax benefits as of October 31, 2009 that may be resolved
within the next 12 months is approximately $13.6 million, as a result of the
filing of amended tax returns, closing of statutes, and audit
settlements. Due to the various jurisdictions in which the Company
files tax returns and the uncertainty regarding the timing of the settlement of
tax audits, it is possible that there could be other significant changes in the
amount of unrecognized tax benefits in fiscal 2010, but the amount cannot be
reasonably estimated.
13. Stock
Based Compensation
Effective
January 30, 2009, the Company’s common stock and related equity based
instruments were subject to a 1-for-4 reverse stock split. All historical
stock-based compensation disclosures have been adjusted
accordingly.
As of
October 31, 2009, the Company had one active stock-based compensation plan,
the 2003 Long-Term Incentive Plan (“2003 Plan”), available to grant future
awards and two inactive stock-based compensation plans (the Amended and Restated
1994 Employee Stock Option Plan and the Amended and Restated 1994 Stock Option
Plan for Non-Employee Directors), under which vested and unexercised options
remain outstanding. As of October 31, 2009, 1,020,449 shares were authorized and
approximately 840,000 shares were available for grant under these plans.
The Company’s policy is to issue new shares of common stock for all stock
options exercised and restricted stock grants.
The Board
of Directors and the stockholders of the Company have approved the adoption and
subsequent amendments of the 2003 Plan. The 2003 Plan provides for grants of
incentive and nonqualified stock options, stock appreciation rights, restricted
stock, restricted stock units, performance shares, performance units, dividend
equivalents and other stock unit awards to officers and employees. The 2003 Plan
also provides for grants of nonqualified stock options to
directors of the Company who are not, and who have not been during
the immediately preceding 12-month period, officers or employees of
the Company or any of its subsidiaries. Restricted stock and restricted stock
units (“RSUs”) are granted to certain employees to incent performance and
retention. RSUs issued under the plans provide that shares awarded may not be
sold or otherwise transferred until restrictions have lapsed. The release of
RSUs on each of the vesting dates is contingent upon continued active employment
by the employee until the vesting dates. During the nine months ended October
31, 2009 a total of 83,089 RSUs were granted.
Stock-based
compensation expense recognized during the period is based on the value of the
portion of stock-based payment awards that is ultimately expected to vest during
the period. Stock-based compensation expense recognized in the Company’s
Condensed Consolidated Statements of Operations for the three and nine months
ended October 31, 2009 and 2008 includes compensation expense for restricted
stock, RSUs and other stock-based awards granted subsequent to January 31,
2006 based on the grant date fair value estimated in accordance with the
provisions of ASC 718, “Compensation—Stock Compensation” (“ASC 718”). The
Company recognizes these compensation costs net of a forfeiture rate for only
those awards expected to vest, on a straight-line basis over the requisite
service period of the award, which is over periods of 3 years for stock options;
2 to 5 years for employee restricted stock and RSUs; and 1 to 2 years for
non-employee restricted stock and RSUs. Forfeitures are estimated at the time of
grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates.
BLYTH,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
13. Stock
Based Compensation (continued)
Transactions
involving restricted stock and RSUs are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted
Average Grant Date Fair
Value
|
|
|
|
|
|
Nonvested
restricted stock and RSUs at January 31, 2009
|
|
|
75,119 |
|
|
$ |
89.51 |
|
|
|
|
|
Granted
|
|
|
83,089 |
|
|
|
32.64 |
|
|
|
|
|
Vested
|
|
|
(45,987 |
) |
|
|
89.74 |
|
|
|
|
|
Forfeited
|
|
|
(7,178 |
) |
|
|
64.73 |
|
|
|
|
|
Nonvested
restricted stock and RSUs at October 31, 2009
|
|
|
105,043 |
|
|
|
43.28 |
|
|
$ |
3,722 |
|
|
Total
restricted stock and RSUs at October 31, 2009
|
|
|
135,120 |
|
|
$ |
55.25 |
|
|
$ |
4,787 |
|
Compensation
expense related to restricted stock and RSUs for three and nine months ended
October 31, 2009 was approximately $0.7 million and $2.4 million,
respectively. Compensation expense related to restricted stock and
RSUs for the three and nine month periods ended October 31, 2008 was
approximately $0.1 million and $1.4 million, respectively.
As of
October 31, 2009, there was $2.0 million of unearned compensation expense
related to non-vested restricted stock and RSU awards. This cost is expected to
be recognized over a weighted average period of 1.6 years. As of October 31,
2009, approximately 105,000 restricted stock awards with a weighted average
grant date fair value of $43.28 are unvested. The total unrecognized
stock-based compensation cost to be recognized in future periods as of October
31, 2009 does not consider the effect of stock-based awards that may be issued
in subsequent periods.
Transactions
involving stock options are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
Weighted
Average
|
|
|
Weighted
Average Remaining
|
|
|
Aggregate
|
|
|
|
|
Shares
|
|
|
Exercise
Price
|
|
|
Contractual
Life
|
|
|
Intrinsic
Value
|
|
|
Outstanding
at January 31, 2009
|
|
|
79,425 |
|
|
$ |
107.10 |
|
|
|
3.30 |
|
|
$ |
- |
|
|
Options
expired
|
|
|
(16,550 |
) |
|
|
105.33 |
|
|
|
- |
|
|
|
- |
|
|
Outstanding
and exercisable at October 31, 2009
|
|
|
62,875 |
|
|
$ |
107.56 |
|
|
|
2.64 |
|
|
$ |
- |
|
Authorized
unissued shares may be used under the stock-based compensation plans. The
Company intends to issue shares of its common stock to meet the stock
requirements of its awards in the future.
14. Segment
Information
Blyth
designs, markets and distributes an extensive array of decorative and functional
household products including candles, accessories, seasonal decorations,
household convenience items and personalized gifts, as well as products for the
foodservice trade, nutritional supplements
and weight management products. The Company competes in the global home
expressions industry and the Company’s products can be found throughout North
America, Europe and Australia. Our financial results are reported in three
segments: the Direct Selling segment, the Catalog & Internet segment and the
Wholesale segment.
Within
the Direct Selling segment, the Company designs, manufactures or sources,
markets and distributes an extensive line of products including scented candles,
candle-related accessories, fragranced bath gels and body lotions and other
fragranced products under the PartyLite® brand. Effective March 31,
2009, the Company has combined the Two Sisters Gourmet brand into our PartyLite
business and will continue to offer these products as part of the PartyLite
brand. The Company also holds a controlling interest in ViSalus, a
distributor-based
BLYTH,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
14. Segment
Information (continued)
business that
sells nutritional supplements, energy drinks and weight management
products. All direct selling products are sold directly to the
consumer through a network of independent sales consultants and
distributors. Products in this segment are sold primarily in North
America, Europe and Australia.
Within
the Catalog & Internet segment, the Company designs, sources and markets a
broad range of household convenience items, premium photo albums, frames,
holiday cards, personalized gifts, kitchen accessories and gourmet coffee and
tea. These products are sold directly to the consumer under the As We
Change®, Boca Java®, Easy Comforts®, Exposuresâ, Home Marketplace®,
Miles Kimballâ
and Walter Drakeâ
brands. These products are sold in North America.
Within
the Wholesale segment, the Company designs, manufactures or sources, markets and
distributes an extensive line of home fragrance products, candle-related
accessories, seasonal decorations such as ornaments and trim and home décor
products such as picture frames, lamps and textiles. Products in this
segment are sold primarily in North America to retailers in the premium and
specialty channels under the CBK®, Colonial Candle®, Colonial at HOMEâ and Seasons of
Cannon Falls® brands. In addition, chafing fuel and tabletop lighting
products and accessories for the Away From Home or foodservice trade are sold
through this segment under the Ambria®, HandyFuel® and Sterno®
brands.
Operating
profit in all segments represents net sales less operating expenses directly
related to the business segments and corporate expenses allocated to the
business segments. Other expense includes Interest expense, Interest
income, and Foreign exchange and other which are not allocated to the business
segments. Identifiable assets for each segment consist of assets used
directly in its operations and intangible assets, if any, resulting from
purchase business combinations. Unallocated Corporate within the
identifiable assets include corporate cash and cash equivalents, short-term
investments, prepaid income tax, corporate fixed assets, deferred bond costs and
other long-term investments, which are not allocated to the business
segments.
BLYTH,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
14. Segment
Information (continued)
|
|
|
|
Three
months ended October 31,
|
|
|
Nine
months ended October 31,
|
|
|
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Net
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
Selling
|
|
$ |
131,118 |
|
|
$ |
139,190 |
|
|
$ |
402,969 |
|
|
$ |
449,271 |
|
|
Multi-channel
Group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Catalog
& Internet
|
|
|
38,678 |
|
|
|
49,730 |
|
|
|
108,004 |
|
|
|
125,718 |
|
|
Wholesale
|
|
|
51,782 |
|
|
|
61,885 |
|
|
|
124,683 |
|
|
|
162,450 |
|
|
Subtotal
Multi-channel Group
|
|
|
|
90,460 |
|
|
|
111,615 |
|
|
|
232,687 |
|
|
|
288,168 |
|
|
Total
|
|
$ |
221,578 |
|
|
$ |
250,805 |
|
|
$ |
635,656 |
|
|
$ |
737,439 |
|
|
Operating
profit (loss)
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
Selling
|
|
$ |
1,370 |
|
|
$ |
4,813 |
|
|
$ |
4,530 |
|
|
$ |
37,076 |
|
|
Multi-channel
Group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Catalog
& Internet
|
|
|
(1,139 |
) |
|
|
(47,740 |
) |
|
|
(5,760 |
) |
|
|
(55,969 |
) |
|
Wholesale
|
|
|
2,754 |
|
|
|
3,517 |
|
|
|
(4,646 |
) |
|
|
(2,492 |
) |
|
Subtotal
Multi-channel Group
|
|
|
1,615 |
|
|
|
(44,223 |
) |
|
|
(10,406 |
) |
|
|
(58,461 |
) |
|
|
|
|
|
2,985 |
|
|
|
(39,410 |
) |
|
|
(5,876 |
) |
|
|
(21,385 |
) |
|
Other
expense
|
|
|
(3,362 |
) |
|
|
(3,420 |
) |
|
|
(6,029 |
) |
|
|
(10,174 |
) |
|
Loss
before income taxes
|
|
|
$ |
(377 |
) |
|
$ |
(42,830 |
) |
|
$ |
(11,905 |
) |
|
$ |
(31,559 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable
assets |
|
October
31, 2009
|
|
|
January
31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
Selling
|
|
|
$ |
233,442 |
|
|
$ |
317,868 |
|
|
|
|
|
|
|
|
|
|
Multi-channel
Group: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Catalog
& Internet |
|
|
|
70,053 |
|
|
|
66,341 |
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
|
|
102,481 |
|
|
|
103,163 |
|
|
|
|
|
|
|
|
|
|
Subtotal
Multi-channel Group
|
|
|
|
172,534 |
|
|
|
169,504 |
|
|
|
|
|
|
|
|
|
|
Unallocated
Corporate
|
|
|
|
106,318 |
|
|
|
86,731 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$ |
512,294 |
|
|
$ |
574,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
three month period ended October 31, 2009 includes non-cash pre-tax
goodwill and intangibles impairments charges of $16.5 million in
the
|
|
|
|
Direct
Selling segment. The three and nine month periods ended October 31, 2008
include non-cash pre-tax goodwill and intangibles
|
|
|
|
impairments
charges of $45.9 million in the Catalog & Internet
segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15. Related
Party Transactions
As
discussed in Note 2 to the Condensed Consolidated Financial Statements, the
acquisition of ViSalus by Blyth involves related parties. ViSalus is currently
owned in part by RAM, which owns a significant noncontrolling interest in
ViSalus. Robert B. Goergen, Chairman of the Board and Chief Executive
Officer of the Company; Robert B. Goergen, Jr., Vice President of the
Company and President of the Multi-Channel Group; and Todd A. Goergen, son of
Robert B. Goergen and Pamela Goergen (who is also a director of the Company),
and brother of Robert B. Goergen, Jr., own, directly or indirectly,
substantially all of the interests in RAM. Todd A. Goergen was a
member of the Board of Managers of ViSalus at the time of acquisition. Mr.
Goergen, the Company’s chairman and chief executive officer, beneficially owns
approximately 31% of the Company’s outstanding common stock, and together with
members of his family, owns substantially all of RAM.
As
discussed in Note 4 to the Condensed Consolidated Financial Statements, the
investment in the LLC, involves related parties. RAM holds an approximately 12%
interest in the LLC. In addition to this interest they also have significant
influence on the management of the LLC and representation on its board of
managers.
BLYTH,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
16. Contingencies
In August
2008, a state department of revenue proposed to assess additional corporate
income taxes on the Company for fiscal years 2002, 2003 and 2004 in the net
amount of $34.9 million, which includes interest through August 2008. In
August 2008, the Company filed a protest of the assessment, which it intends to
contest vigorously. During fiscal 2008, the Company established a reserve
for this matter that it believes is adequate based on existing facts and
circumstances. The ultimate resolution of this matter could exceed the
Company’s recorded reserve in the event of an unfavorable outcome of this
matter. It is reasonably possible that losses in excess of the
Company’s recorded reserve could be incurred; however, the Company cannot
estimate
such a
loss at this time. The Company is currently in settlement discussions with the
state and believes that the ultimate outcome will not have a material adverse
effect on its financial position, cash flows or results of
operations.
The
Company has contingent liabilities that have arisen in the ordinary course of
its business, including pending litigation. The
Company believes the outcome of these matters will not have a material adverse
affect on its consolidated financial position, results of operations or cash
flows.
Item
2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
Blyth,
Inc. is a multi-channel company competing primarily in the home fragrance and
decorative accessories industry. We design, market and distribute an
extensive array of decorative and functional household products including
candles, accessories, seasonal decorations, household convenience items and
personalized gifts, as well as products for the foodservice trade, nutritional supplements
and weight management products. We compete in the global home expressions
industry, and our products can be found throughout North America, Europe and
Australia. Our financial results are reported in three segments: the
Direct Selling segment, the Catalog & Internet segment and the Wholesale
segment. These reportable segments are based on similarities in
distribution channels, customers and management oversight.
Today,
annualized net sales are comprised of approximately $630 million in Direct
Selling, approximately $170 million in Catalog & Internet and approximately
$155 million in our Wholesale segment. Sales and earnings results
differ in each segment depending on geographic location, market penetration, our
relative market share and product and marketing execution, among other business
factors.
Our
current focus is driving sales growth of our brands so we may more fully
leverage our infrastructure. New product development continues to be
critical to all three segments of our business. In the Direct Selling
segment, monthly sales and productivity incentives are designed to attract,
retain and increase the earnings opportunity of independent sales
consultants. In the Catalog & Internet segment, product,
merchandising and circulation strategy are designed to drive strong sales growth
in newer brands and expand further the sales and customer base of our flagship
brands. In the Wholesale segment, sales initiatives are targeted to
independent retailers, distributors and national accounts.
At the
end of January 2009, we implemented a 1-for-4 reverse stock split of our
outstanding common stock. The per share amounts within this section have been
adjusted to give effect to the reverse stock split.
Item
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS
OF OPERATIONS- Three and nine months ended October 31, 2009 versus
2008:
Net
Sales
Net sales
for the nine months ended October 31, 2009 decreased $101.7 million, or 14%, to
$635.7 million from $737.4 million in the prior year due to the global economic
recession and weak housing market and its impact on consumer discretionary
spending, particularly in the US and Canada.
Net sales
for the three months ended October 31, 2009 decreased $29.2 million, or 12%, to
$221.6 million, from $250.8 million in the comparable prior year period due to
continued decline of consumer discretionary spending through the third quarter
of fiscal 2010, particularly in the US and Canada.
Net Sales
- Direct Selling Segment
Net sales
in the Direct Selling segment for the nine months ended October 31, 2009
decreased $46.3 million, or 10%, to $403.0 million from $449.3 million in the
prior year. The effect of foreign exchange within PartyLite’s international
markets resulted in an approximate 5 percentage point sales decline in U.S.
dollars. This decline was led by decreases in PartyLite U.S. and
Canada of 16% and 25%, respectively. PartyLite Canada’s sales decreased 18% in
local currency when compared to the prior year. The decrease in
revenues within PartyLite North America is primarily the result of a decline in
the number of active independent sales consultants and a decrease in shows per
consultant versus last year, in addition to continued reductions in consumer
discretionary spending. Sales increased within PartyLite’s European markets by
6% in local currency, partly due to sales increases in France and Germany of 10%
and 8%, respectively.
Net sales
in the Direct Selling segment for the three months ended October 31, 2009
decreased $8.1 million, or 6%, to $131.1 million from $139.2 million in the
comparable prior year period. PartyLite’s U.S. sales decreased approximately 21%
compared to the prior year, and PartyLite Canada’s sales decreased 16% in local
currency or 13% as measured in U.S. Dollars. These declines were driven
primarily by lower active independent sales consultants and fewer shows per
consultant in North America, as well as the effects of the current recession and
the associated reduction in consumer discretionary spending. Partially
offsetting these sales decreases were sales increases within the PartyLite’s
European markets of 14% in local currency, primarily due to a strong performance
in Germany. PartyLite Europe’s third quarter sales increased approximately 9% as
measured in U.S. Dollars versus the prior year.
Net Sales
- Catalog & Internet Segment
Net sales
in the Catalog & Internet segment for the nine months ended October 31, 2009
decreased $17.7 million, or 14%, to $108.0 million, from $125.7 million in the
same prior year period. Sales were down across all brands primarily
driven by a 14% decrease in catalog circulation and the impact of reduced
consumer spending.
Net sales
in the Catalog & Internet segment for the three months ended October 31,
2009 decreased $11.0 million, or 22%, to $38.7 million from $49.7 million in the
comparable prior year period. Sales declined for most brands within
the segment, primarily due to lower consumer discretionary spending, and a 15%
decrease in catalog circulation versus the comparable prior year
period.
Net Sales
- Wholesale Segment
Net sales in the Wholesale
segment for the nine months ended October 31, 2009 decreased $37.8 million, or
23%, to $124.7 million from $162.5 million in the same period a year
earlier.The decrease in sales is due to the decline in sales of our home
décor, seasonal décor and food service businesses, which continue to be
negatively impacted by reduced consumer spending resulting from the global
economic recession and weak housing market.
Item
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS- Three and nine months ended October
31, 2009 versus 2008: (continued)
Net sales
in the Wholesale segment in the three months ended October 31, 2009 decreased
$10.1 million, or approximately 16% to $51.8 million from $61.9 million in the
comparable prior year period. The decrease in sales is primarily due to declines
in the home décor, seasonal décor and food service businesses reflecting the
continued economic recession and the aforementioned weak housing
market.
Gross
Profit
Gross
profit for the nine months ended October 31, 2009, decreased $60.9 million, or
15% to $338.8 million from $399.7 million in the comparable prior year
period. The decrease in gross profit is primarily attributed to the
14% sales decline. Gross profit margin for the nine months ended October 31,
2009 decreased to 53.3% from 54.2% in the comparable prior year period. The
decrease in gross profit margin is due to several factors, including the impact
of higher per unit overhead absorption rates due to lower sales volume and
higher hostess and guest offerings within PartyLite U.S., partially offset by
improved operational efficiencies experienced within the Catalog & Internet
segment associated with an ERP implementation completed in the prior
year.
Gross
profit for the three months ended October 31, 2009, decreased $17.3 million, or
13%, to $115.0 million from $132.3 million in the comparable prior year period.
This decrease is primarily due to a 12% decrease in sales. Gross profit margin
for the three months ended October 31, 2009 decreased to 51.9% of sales from
52.7% in the comparable prior year period. The lower gross profit
margin is due largely to increased promotional costs in order to increase sales
within PartyLite, partially offset by improved operational efficiencies
experienced within the Catalog & Internet segment associated with an ERP
implementation completed in the prior year.
Selling
Expense
Selling
expense decreased $36.5 million, or 13%, to $245.7 million in the nine months of
fiscal 2010, from $282.2 million in the same period in fiscal 2009. The decrease
in selling expense is primarily due to its variable relationship with sales,
which decreased 14% versus the prior year period. As a percentage of sales,
selling expense was 38.7% for the nine months ended October 31, 2009, compared
to 38.3% in the comparable prior year period. This increase was principally due
to higher promotional costs incurred within the PartyLite businesses, partially
offset by lower costs experienced due to synergies as a result of the merger of
Midwest-CBK.
Selling
expense for the three months ended October 31, 2009, decreased $12.2 million, or
13%, to $83.6 million from $95.8 million in the comparable prior year period. As
noted above, the decrease in selling expense is primarily related to the
decrease in sales. As a percentage of net sales, selling expense decreased to
37.7% of net sales for the quarter ended October 31, 2009, compared to 38.2% for
the comparable prior year period, as a result of the timing of direct marketing
costs incurred by PartyLite’s U.S., as well as an improvement over the
comparable prior year period experienced due to the merger of
Midwest-CBK.
Administrative
and Other Expense
Administrative
and other expense for the nine months ended October 31, 2009 decreased $10.6
million, or 11%, to $82.4 million from $93.0 million in the comparable prior
year period. This decline was principally due to administrative cost
reductions implemented across all businesses, as well as a $1.9 million gain
realized upon the termination of the Miles Kimball pension plan and a $0.9
million gain realized on the sale of assets, partially offset by a $0.4 million
impairment recorded on an asset held for sale. As a percent of sales,
administrative expense was 13.0% for the nine months ended October 31, 2009 and 12.6% for the
comparable prior year period.
Administrative
and other expense for the three months ended October 31, 2009, decreased $1.5
million, or 5%, to $28.5 million from $30.0 million in the comparable prior year
period. The decline in expense is principally due to the $0.9 million
gain on the sale of assets along with reduced spending across all business
segments, partially offset by a $0.4 million impairment recorded on an asset
held for sale. As a percent of sales, administrative expense was 12.8% for the
quarter ended October 31, 2009 and 12.0% for the comparable prior year
period.
Item
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS- Three and nine months ended October
31, 2009 versus 2008: (continued)
Goodwill
and other intangibles impairment
In the
second quarter of fiscal 2010, ViSalus, within the Direct Selling segment,
experienced substantial declines in operating performance when compared to the
growth experienced in prior years and their strategic outlook. Management
believes this shortfall in performance was primarily attributable to
decreased consumer spending and overall adverse economic conditions.
Additionally, the business has been experiencing a higher then anticipated
distributor attrition rate. As a result of these factors, an interim impairment
analysis was performed and determined goodwill to be fully impaired, as the fair
value of the reporting unit was less than its carrying value, including
goodwill. Accordingly, we recorded a non-cash pre-tax goodwill impairment charge
of $13.2 million in the second quarter.
The table
below is a summary of estimated fair value as of July 31, 2009 and the
assumptions used in comparison to the carrying value in assessing recoverability
of goodwill for ViSalus:
|
($'s in millions)
|
|
|
|
|
|
|
|
|
|
Estimated
fair value
|
|
$ |
1.9 |
|
|
Recorded
carrying value of assets
|
|
|
15.1 |
|
|
Excess
(impaired) value to recorded value
|
|
$ |
(13.2 |
) |
|
|
|
|
|
|
|
Assumptions and other
information:
|
|
|
|
|
|
Discount
rate
|
|
|
17.7 |
% |
|
Average
revenue growth rate
|
|
|
11.6 |
% |
|
Tax
rate
|
|
|
38.0 |
% |
|
Perpetuity
growth rate
|
|
|
3.0 |
% |
|
Other
long lived assets at risk
|
|
$ |
3.0 |
|
As a
result of the previously mentioned decline in operating performance, we
performed impairment assessments on the recorded values of trade names,
trademarks and customer relationships within ViSalus, in the Direct Selling
segment. As a result of these impairment analyses performed, the intangible
assets were determined to be impaired, as their fair value was less than their
carrying value. Accordingly, we recorded a non-cash pre-tax impairment charge of
$3.1 million related to the trade names and trademarks and $0.2 million related
to customer relationships during the second quarter of fiscal 2010.
The three
primary assumptions used in the relief from royalty method are the discount
rate, the perpetuity growth rate and the royalty rate. This discount rate is
used to value the expected net cash flows to be derived from the royalty to its
net present value. The discount rate uses a rate of return to account for the
time value of money and an investment risk factor. The perpetuity growth rate
estimates the businesses sustainable long-term growth rate. The royalty rate is
based upon past royalty performance as well as the expected royalty growth rate
using both macro and microeconomic factors surrounding the business. A change in
the discount rate is often used by management to risk adjust the discounted cash
flow analysis if there is a higher degree of risk that the estimated cash flows
from the indefinite-lived intangible asset may not be fully achieved. These
risks are often based upon the business units’ past performance, competition,
position in the marketplace, acceptance of new products in the marketplace and
other economic factors surrounding the business. If, however, actual cash flows
should fall significantly below expectations, this could result in an impairment
of our indefinite-lived intangible assets. If the discount rate would
have increased by 1% and the perpetuity growth rate would have decreased by 1%,
the fair value of ViSalus’ trade names and trademarks would have decreased by
$0.1 million to $1.0 million. Conversely, if the discount rate would
have decreased by 1% and the perpetuity growth rate would have increased by 1 %,
the fair value of ViSalus’ trade names and trademarks would have increased by
$0.1 million, resulting in $0.1 million less of an impairment
charge.
Item
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS- Three and nine months ended October
31, 2009 versus 2008: (continued)
We review
our goodwill and other intangible assets for impairment as of year end or when
indicators exist that suggest the assets may be impaired. As of October 31,
2009, there were no indications that a review was necessary.
Operating
Profit (Loss)
Operating
loss for the nine months ended October 31, 2009 was $5.9 million, compared to a
loss of $21.4 million in the comparable prior year period. The decrease in
operating loss is primarily a result of the impact of the goodwill and
intangible asset impairment of $45.9 million within the Catalog & Internet
segment in the first nine months of the prior year compared to impairment
charges in the Direct Selling segment this year of $16.5 million, as well as the
gain on the termination of the Miles Kimball pension of $1.9 million, the $0.9
million gain on sale of assets and a reduction in Selling and Administrative
expenses. Partially offsetting these improvements were severance and other
related charges of $2.2 million associated with the Midwest-CBK merger,
decreased sales, and lower gross margins.
Operating
profit for the three months ended October 31, 2009 was $3.0 million, compared to
a loss of $39.4 million in the comparable prior year period. The increase
in operating profit is primarily a result of the impact of the aforementioned
goodwill and intangible asset impairment of $45.9 million recorded in the
comparable prior year period, partially offset by the aforementioned $0.9
million gain on sale of assets and the impact of a sales decrease of
12%.
Operating
Profit - Direct Selling Segment
Operating
profit in the Direct Selling segment for the nine months
ended October 31, 2009 decreased $32.6 million to $4.5 million from $37.1
million in comparable prior year period. The decrease is primarily
due to the $16.5 million impairment relating to the goodwill and intangibles of
ViSalus, lower sales within the segment as well as higher spending on
promotional initiatives, partially offset by the $0.9 million gain on the sale
of assets.
Operating
profit for the three months ended October 31, 2009 in the Direct Selling segment
was $1.4 million compared to profit of $4.8 million in the comparable prior year
period. The decrease is primarily due to the lower sales within the North
American markets as well as continued promotional initiatives to increase sales,
shows and the number of independent sales consultants within all markets,
partially offset by the $0.9 million gain on the sale of assets.
Operating
Loss - Catalog & Internet Segment
Operating
loss for the nine months ended October 31, 2009 in the Catalog & Internet
segment decreased to $5.8 million from a $55.9 million loss in the comparable
prior year period. The prior year was significantly impacted by the
aforementioned goodwill and intangible asset impairment of $45.9 million and
higher administrative and shipping and handling costs associated with ERP
implementation issues that were resolved prior to the current fiscal year. Also
contributing to the improvement in the current year is the aforementioned $1.9
million gain as a result of the termination of the Miles Kimball pension plan
and improved operational efficiencies experienced this fiscal year as a result
of the aforementioned ERP implementation.
Operating
loss for the three months ended October 31, 2009 in the Catalog & Internet
segment was $1.1 million compared to $47.7 million in the prior year. This
improvement over the prior year is primarily due to the previously mentioned
goodwill and intangible asset impairment of $45.9 million in the prior year, the
lower costs incurred as a result of reduced catalog circulation compared to the
prior year, and improved operational efficiencies experienced as a result of the
aforementioned ERP implementation.
Item
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS- Three and nine months ended October
31, 2009 versus 2008: (continued)
Operating
Loss - Wholesale Segment
Operating
loss for the nine months ended October 31, 2009 in the Wholesale segment
increased $2.1 million, to $4.6 million versus $2.5 million in the comparable
prior year period. This increase in operating loss is primarily a result of
severance and other related charges of $2.2 million associated with the
Midwest-CBK merger, and the impact of lower sales throughout all of the
Wholesale, partially offset by significant cost reduction
activities.
Operating
profit for the three months ended October 31, 2009 in the Wholesale segment
decreased $0.7 million to $2.8 million versus $3.5 million in the comparable
prior year period. The decreased operating profit is primarily the result
of severance and other related charges of $0.8 million associated with the
Midwest-CBK merger and the impact of reduced sales across all business
units.
Interest
Expense, Interest Income, and Foreign Exchange and Other
Interest
expense decreased approximately $1.3 million, or 18%, to $6.1 million for the
nine months ended October 31, 2009 from $7.4 million in the same prior year
period. Interest expense for the three months ended October 31, 2009 decreased
approximately $0.6 million to $1.9 million from $2.5 million in the comparable
prior year period. These declines were due to lower outstanding debt resulting
from debt repurchases and the maturity of the 7.90% Senior Notes on October 1,
2009.
Interest
income for the nine months ended October 31, 2009 decreased approximately $2.2
million to $1.1 million from $3.3 million in the comparable prior year period.
Interest income for the three months ended October 31, 2009 decreased
approximately $0.7 million to $0.2 million from $0.9 million in the comparable
prior year period. The decrease in interest income is primarily due to lower
interest rates being earned on invested cash.
Foreign
exchange and other expense was $1.0 million for the nine months ended October
31, 2009, compared to a loss of $6.0 million in the comparable prior year
period. The prior year’s charge includes the $5.2 million write-off of our
RedEnvelope, Inc. investment in April 2008. Foreign exchange and other expense
for the three months ended October 31, 2009 was $1.7 million, compared to $1.8
million in the comparable prior year period.
Income
Taxes
The
effective tax rate for the nine months ended October 31, 2009 was a
negative 24.7%, resulting in an income tax expense of $2.9 million, compared to
the prior year effective tax rate of 9.2%, resulting in an income tax benefit of
$2.9 million. Included in this year’s pretax operating loss of $11.9
million was the ViSalus goodwill impairment of $13.2 million and operating
losses incurred in various international jurisdictions for which no tax benefit
was recorded. In addition, the current year’s effective tax rate
includes the fiscal 2009 income tax return-to-provision adjustments which
increased the tax expense by $0.9 million.
Included
in last year’s pre-tax operating loss of $31.6 million was an impairment of
goodwill in the amount of $30.9 million and write-off of an investment of $5.2
million for which no tax benefit was recorded. The prior year’s
effective tax rate also included a tax benefit of approximately $7.0 million
recorded as a result of an international restructuring plan that was completed
in the third quarter of fiscal 2009, which was offset in part by an additional
tax provision of $1.9 million related to a state voluntary disclosure settlement
proposal.
Excluding
these charges and benefits, the effective tax rates for the nine months ended
this year and last year would have been 38.9% and 37.6%
respectively.
Item
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS- Three and nine months ended October
31, 2009 versus 2008: (continued)
The
effective tax rate for the three months ended October 31, 2009 was a negative
281.7% compared to 23.2% in the prior year. The change in the
effective tax rate for the current quarter is due primarily to the fiscal 2009
income tax return-to-provision adjustments, as well as operating losses incurred
in various international jurisdictions for which no tax benefit was
recorded. The effective tax rate for the three months ended October
31, 2008 included an additional tax provision of $1.9 million related to a state
voluntary disclosure settlement proposal, which was offset in part by a tax
benefit of approximately $7.0 million recorded as a result of an international
restructuring plan that was completed in the third quarter of the prior
year.
Excluding
these charges and benefits, the effective tax rates for the three months ended
this year and last year would have been 41.3% and 35.7%
respectively.
Net
Earnings (Loss) Attributable to Blyth
The Net
earnings (loss) attributable to Blyth excludes the earnings (loss) attributable
to the noncontrolling interests. The loss attributable to the noncontrolling
interest of businesses that we consolidate was $0.7 million for the nine months
ended October 31, 2009 compared to earnings of $0.1 million in the comparable
prior year period. For the three months ended October 31, 2009 the loss
attributable to the noncontrolling interests was $0.5 million compared to an
insignificant amount of earnings in the comparable prior year
period.
The Net
loss attributable to Blyth, Inc. for the nine months ended October 31, 2009 was
$14.1 million compared to a loss of $28.7 million for the same period in fiscal
2009. The Net loss attributable to Blyth, Inc. for the three months
ended October 31, 2009 was $1.0 million compared to a loss of $32.9 million for
the same period in fiscal 2009. The improvement is primarily
attributable to the $45.9 million goodwill and intangibles impairments recorded
during the third quarter of fiscal 2009, partially offset by lower sales in
relation to comparable prior year periods.
The basic
and diluted loss attributable per Blyth common share for the nine months ended
October 31, 2009 was $1.58, compared to $3.20 for the comparable prior year
period.
The basic
and diluted loss per share for the three month periods ended October 31, 2009
was $0.11 compared to $3.70 in the comparable prior year period.
Liquidity
and Capital Resources
Cash and
cash equivalents decreased $17.7 million to $128.7 million at October 31, 2009
from $146.4 million at January 31, 2009. This decrease in cash during the first
nine months of fiscal 2010 was primarily related to cash used to retire
long-term debt of $37.7 million, offset by better working capital
management.
Cash
provided by operations was $14.9 million in fiscal 2010. This was an improvement
of $74.3 million compared to a use of $59.4 million in the prior year. This is
the result of our aggressive working capital management program initiated during
the latter half of fiscal 2009 designed to conserve cash. Our efforts
will continue to focus on cost cutting measures and lower working capital
requirements throughout the Company with the goal to generate cash.
Additionally, we have and will continue to consider the timing and level of
future dividends. These ongoing initiatives will support our ability to fund our
working capital requirements in the foreseeable future from operational cash
flows.
On an
annual basis we typically generate positive cash flow from operations due to
favorable gross margins and the variable nature of selling expenses, which
constitute a significant percentage of operating expenses. Due to the
seasonal nature of our businesses we typically do not have positive cash flow
from operations until our fourth quarter. However, we did experience a net
source of cash from operations this year due to the
Item
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity and Capital Resources
(continued)
aforementioned
initiatives intended to conserve cash. Included in operating earnings were
non-cash charges for goodwill and other intangibles impairment, depreciation and
amortization, amortization of unearned stock-based compensation, and asset
impairments of $16.5 million, $12.3 million, $2.4 million and $1.2 million,
respectively.
Net changes in operating assets and
liabilities resulted in a source of cash of $2.7 million, compared to a use of
cash in the first nine months of fiscal 2009 of $89.6 million. This improvement
is a result of our efforts to reduce working capital needs, specifically a
reduction in inventory purchases and liquidation of excess inventory during the
first three quarters of fiscal 2010. Although we had significantly lower
operating cash outflow during the first nine months of fiscal 2010, our working
capital needs are the highest in late summer prior to the start of the holiday
season. Management is presently increasing inventory purchases for this high
demand season, within the guidelines of our working capital management program,
and does not forecast a use of cash near the levels experienced in recent
years. If demand for our products falls short of expectations this
could result in us maintaining higher inventory balances than forecasted and
could negatively impact our liquidity. Additionally, the existing credit crisis
may negatively impact the ability of our customers to obtain credit and
consequently could negatively impact our sales and the collection of our
receivables. We have taken steps to limit our exposure to our customers’ credit
risk, including adjusting payment terms and expanding our credit approval
procedures within some of our businesses.
Net cash
provided by investing activities was $8.1 million in the first nine months of
fiscal 2010. The primary sources of cash are the $6.6 million
received on the cash settlement of a net investment hedge during March 2009 and
$3.9 million received from the sale of assets, offset by a $4.1 million of net
capital expenditures.
We
anticipate total capital spending of approximately $6 million for fiscal 2010 or
approximately $2 million less than fiscal year 2009. We have grown in part
through acquisitions and, as part of this growth strategy, we expect to continue
from time to time in the ordinary course of its business to evaluate and pursue
acquisition opportunities as appropriate. We believe our financing
needs in the short and long-term can be met from cash generated
internally.
Net cash
used in financing activities was $39.4 million. This was primarily
due to the reduction of our long-term debt and capital lease obligations of
$37.7 million, which includes the maturity of our 7.90% Senior Notes in October
2009. Also increasing the use of cash was a dividend distribution of $0.9
million and stock repurchases of $0.5 million.
On
October 21, 2008, we acquired a 43.6% interest in ViSalus for $13.0 million and
incurred acquisition costs of $1.0 million for a total cash acquisition cost of
$14.0 million. We may be required to purchase additional interests in
ViSalus that will require additional capital resources, increasing our ownership
to 100%. The requirement for additional purchases is conditioned upon ViSalus
meeting certain operating targets in fiscal 2010, 2011 and 2012, subject to a
one-time, one-year extension. Based upon the latest ViSalus forecasts,
management does not believe that we will be obligated to purchase additional
interests in ViSalus, however we may, at our option, acquire the remaining
interest in ViSalus even if they do not meet these operating
targets. If ViSalus meets its current projected operating targets,
the total expected redemption value of the noncontrolling interest will be
approximately $2.8 million through fiscal 2013. The purchase prices of the
additional investments are equal to a multiple of ViSalus’s earnings before
interest, taxes, depreciation and amortization, exclusive of certain
extraordinary items. The payment, if any, will be out of existing cash balances
and expected future cash flows from operations.
The
current status of the United States and global credit and equity markets have
made it difficult for many businesses to obtain financing on acceptable
terms. In addition, equity markets are continuing to experience rapid
and wide fluctuations in value. If these conditions continue or
worsen, our cost of borrowing may increase and it may be more difficult to
obtain financing for our businesses. In addition, our borrowing costs can be
affected by
Item
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity and Capital Resources
(continued)
short and
long-term debt ratings assigned by independent rating agencies. A
decrease in these ratings would likely increase our cost of borrowing and/or
make it more difficult for us to obtain financing. Obtaining a new
credit facility will more than likely require higher interest costs and may
require our providing security to guarantee such
borrowings. Alternatively, we may not be able to obtain unfunded
borrowings, which may require us to seek other forms of financing, such as term
debt, at higher interest rates and additional expense. A significant portion of
our cash and cash equivalents are held by our international subsidiaries in
foreign banks, and as such may be subject to foreign taxes and other costs
limiting our ability to repatriate funds to the United States.
In
addition, if the economic conditions continue to worsen, we may be subject to
future impairments of our assets, including accounts receivable, inventories,
property, plant and equipment, investments, deferred tax assets, goodwill and
other intangibles, if the valuation of these assets or businesses
decline.
As of
October 31, 2009, we had a total of $2.0 million available under an uncommitted
facility issued by a bank, to be used for letters of credit through January 31,
2010. As of October 31, 2009, no letters of credit were outstanding
under this facility.
As of
October 31, 2009 the Company had $2.4 million in standby letters of credit
outstanding that are fully collateralized through a certificate of deposit
funded by Blyth.
As of
October 31, 2009, Miles Kimball had approximately $7.8 million of long-term debt
outstanding under a real estate mortgage note payable which matures June 1,
2020. Under the terms of the note, payments of principal and interest
are required monthly at a fixed interest rate of 7.89%.
As of
October 31, 2009, Midwest-CBK had $0.1 million of long-term debt outstanding
under an Industrial Revenue Bond (“IRB”), which matures on January 1,
2025. The bond is backed by an irrevocable letter of credit issued by
a bank. The loan is collateralized by certain of Midwest-CBK’s
assets. The amount outstanding under the IRB bears interest at
short-term floating rates, which equaled a weighted average interest rate of
0.4% at October 31, 2009. Payments of interest are required monthly
under the terms of the bond.
On
December 13, 2007, our Board of Directors authorized a new stock repurchase
program for 1,500,000 shares, in addition to 3,000,000 shares authorized under
the previous plan. The new stock repurchase program will become effective after
we exhaust the authorized amount under the old repurchase program. We
have repurchased a total of 15,268 shares during the first nine months of fiscal
2010. As of October 31, 2009, the cumulative total shares purchased under the
original programs was 2,630,838, at a total cost of approximately $225.4
million. The acquired shares are held as common stock in treasury at
cost.
On
September 10, 2009, the Company announced that it had declared a cash dividend
of $0.10 per share of common stock for the six months ended July 31, 2009.
The dividend, authorized at the Company’s September 10, 2009 Board of Directors
meeting, was payable to shareholders of record as of November 2, 2009, and was
paid on November 16, 2009. The total payment was $0.9 million.
Critical
Accounting Policies
There
were no changes to our critical accounting policies in the third quarter of
fiscal 2010. For a discussion of the Company’s critical accounting
policies see our Annual Report on Form 10-K for the fiscal year ended January
31, 2009.
Item
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Recent
Accounting Standards
The
following accounting standards will be adopted in subsequent
periods:
In June
2009, the Financial Accounting Standards Board (“FASB”) Statement of Financial
Accounting Standards (“SFAS”) No. 166 “Accounting for Transfers of Financial
Assets—an amendment of FASB Statement No. 140” (“SFAS No. 166”). SFAS No.
166, an amendment to ASC 860, “Transfers and Services”, will require entities to
provide more information about transfers of financial assets, a transferor’s
continuing involvement and the level of detail and disclosures the reporting
entity provides in its financial statements. It also eliminates the
concept of a qualifying special-purpose entity, changes the requirements for
de-recognition of financial assets, establishes conditions for reporting a
transfer of a portion of a financial asset as a sale, clarifies
other sale-accounting criteria and changes the initial measurement of a
transferor’s interest in transferred financial assets. This amendment
is effective for reporting periods beginning after November 15, 2009 and as such
will be adopted for our fiscal year beginning February 1, 2010. We do not expect
the adoption of this amendment to have a significant impact on our financial
statements.
In June
2009, the FASB issued SFAS No. 167 “Amendments to FASB Interpretation No.
46(R))” (“SFAS No. 167”). SFAS No. 167 amends the guidance of ASC 810,
“Consolidation”, to eliminate the quantitative approach previously required for
determining the primary beneficiary of a variable interest entity (“VIE”) and
requires that the entity identify the primary beneficiary of the VIE as the
enterprise that has both (a) the power to direct activities of the VIE that most
significantly impact the VIE’s economic performance and (b) the obligation to
absorb
losses of the VIE or the right to receive benefits from the VIE. This amendment
also requires an ongoing qualitative reassessments of whether an enterprise is
the primary beneficiary of a VIE and additional disclosures about an
enterprise’s involvement in VIE. The amendment is effective for reporting
periods beginning after November 15, 2009 and as such will be adopted for our
fiscal year beginning February 1, 2010. We do not expect the adoption
of this standard to have a significant impact on our financial
statements.
Item
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Market
Risk
We have
operations outside of the United States and sell our products
worldwide. Our activities expose us to a variety of market risks,
including the effects of changes in interest rates, foreign currency exchange
rates and commodity prices. These financial exposures are actively monitored
and, where considered appropriate, managed by us. We enter into contracts, with
the intention of limiting these risks, with only those counterparties that we
deem to be creditworthy, in order to also mitigate our non-performance
risk.
Interest
Rate Risk
We are
subject to interest rate risk on both variable rate debt and our investments in
auction rate securities. As of October 31, 2009, the company is
subject to interest rate risk on approximately $0.1 million of variable rate
debt. A 1-percentage point increase in the interest rate would not
have a material impact. As of October 31, 2009, we held $15.0 million
of auction rate securities, at par value. A 1-percentage point
decrease in the rate of return would impact pre-tax earnings by approximately
$0.2 million if applied to the total.
Investment
Risk
We are
subject to investment risks on our marketable securities due to market
volatility. As of October 31, 2009 we held $19.8 million in equity
and debt instruments which have been adjusted to fair value based on current
market data.
Item
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Foreign
Currency Risk
We use
foreign exchange forward contracts to hedge the impact of foreign currency
fluctuations on foreign denominated inventory purchases, intercompany payables
and certain foreign denominated loans. We do not hold or issue derivative
financial instruments for trading purposes. We have, in the past,
hedged the net assets of certain of our foreign operations through foreign
currency forward contracts. The net after-tax gain related to the derivative net
investment hedges in Accumulated other comprehensive income (“AOCI”) as of
October 31, 2009 was $5.2 million.
We have
designated our forward exchange contracts on forecasted intercompany purchases
and future purchase commitments as cash flow hedges and, as such, as long as the
hedge remains effective and the underlying transaction remains probable, the
effective portion of the changes in the fair value of these contracts will be
recorded in AOCI until earnings are affected by the variability of the cash
flows being hedged. With regard to commitments for inventory
purchases, upon payment of each commitment, the underlying forward contract is
closed and the corresponding gain or loss is transferred from AOCI and is
included in the measurement of the cost of the acquired asset. If a
hedging instrument is sold or terminated prior to maturity, gains and losses are
deferred in AOCI 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 immediately. The net
after-tax loss included in accumulated AOCI at October 31, 2009 is $0.5 million
and is expected to be transferred into earnings within the next twelve months
upon payment of the underlying commitment.
We have
designated our foreign currency forward contracts related to certain foreign
denominated loans and intercompany payables as fair value hedges. The
gains or losses on the fair value hedges are recognized into earnings and
generally offset the transaction gains or losses in the foreign denominated
loans that they are intended to hedge.
For
consolidated financial statement presentation, net cash flows from such hedges
are classified in the categories of the Condensed Consolidated Statement of Cash
Flows with the items being hedged.
The
following table provides information about our foreign exchange forward
contracts accounted for as cash flow hedges as of October 31, 2009:
|
|
|
U.S.
Dollar
|
|
|
Average
|
|
|
Unrealized
|
|
|
(In
thousands, except average contract rate)
|
|
Notional
Amount
|
|
|
Contract
Rate
|
|
|
Gain
(Loss)
|
|
|
Canadian
Dollar
|
|
$ |
2,550 |
|
|
|
0.81 |
|
|
$ |
(367 |
) |
|
Euro
|
|
|
6,300 |
|
|
|
1.37 |
|
|
|
(456 |
) |
|
|
|
$ |
8,850 |
|
|
|
|
|
|
$ |
(823 |
) |
The
foreign exchange contracts outstanding have maturity dates through April
2010.
Item
4. CONTROLS AND PROCEDURES
(a)
Evaluation of disclosure controls and procedures.
Our
management, with the participation of our principal executive officer and our
principal financial officer, evaluated the effectiveness of our disclosure
controls and procedures (as defined in Securities Exchange Act of 1934
(“Exchange Act”) Rules 13a-15(e) or 15d-15(e)) as of the end of the period
covered by this quarterly report as required by paragraph (b) of Exchange Act
Rules 13a-15 or 15d-15. Based upon this evaluation, our principal
executive officer and our principal financial officer have concluded that our
disclosure controls and procedures are effective as of October 31, 2009 with the
exception of the material weakness noted in our January 31, 2009 Form 10-K,
detailed below.
(b)
Changes in internal control over financial reporting.
There have been no changes in our
internal control over financial reporting identified in connection with the
evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that
occurred during the third quarter of fiscal 2010 that has materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting, with the exception of the remediation plan related to the
financial reporting for income taxes as noted below.
Ineffective Controls Over Financial
Reporting Related to Income Taxes
We are in
the process of remediating our material weakness in internal controls over the
financial reporting for income taxes. In connection with our remediation process
we took the following actions during the first nine months of fiscal
2010.
|
•
|
|
Hired
personnel and allocated sufficient resources to assist with the
preparation and review of the tax provision process;
|
|
•
|
|
Reduced
our external advisors role in the preparation of our tax provision by
transitioning the provision work to our own personnel;
|
|
•
|
|
Improved
documentation and analysis and established a more formalized review
of the tax provision and deferred tax balances with senior
management, financial reporting personnel and external advisors to ensure
an appropriate level of review, analysis and accounting treatment of all
tax balances;
|
|
•
|
|
Use
of tax accounting software to analyze and review our tax provision. This
software was fully implemented as part of our third quarter, fiscal 2010
tax provision process.
|
Management feels that our actions to
date are in line with our remediating the material weakness before the end of
fiscal 2010.
Part II. OTHER
INFORMATION
Item
1. Legal Proceedings
None.
Item
1A. Risk Factors
There
have been no changes to the risks described in the Company’s Annual Report on
Form 10-K for the fiscal year ended January 31, 2009.
Part II. OTHER
INFORMATION (continued)
Item
2. Unregistered Sales of Equity
Securities and Use of Proceeds
The
following table sets forth certain information concerning the repurchase of the
Company’s Common Stock made by the Company during the third quarter of the
fiscal year ending January 31, 2010.
ISSUER
PURCHASES OF EQUITY SECURITIES (1)
|
Period
|
|
(a) Total Number of Shares
Purchased(2)
|
|
(b)
Average Price Paid per Share
|
|
(c)
Total Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
|
(d)
Maximum of Shares that May Yet Be Purchased Under the Plans or
Programs
|
|
August
1, 2009 – August
31, 2009
|
|
0
|
|
-
|
|
0
|
|
1,884,430
|
|
September
1, 2009 – September
30, 2009
|
|
0
|
|
-
|
|
0
|
|
1,884,430
|
|
October
1, 2009 – October
31, 2009
|
|
15,268
|
|
$
35.39
|
|
15,268
|
|
1,869,162
|
|
Total
|
|
15,268
|
|
$
35.39
|
|
15,268
|
|
1,869,162
|
(1) On
September 10, 1998, our Board of Directors approved a share repurchase program
pursuant to which we were originally authorized to repurchase up to 250,000
shares of Common Stock in open market transactions. From June 1999 to June
2006, the Board of Directors increased the authorization under this repurchase
program, five times (on June 8, 1999 to increase the authorization by 250,000
shares to 500,000 shares; on March 30, 2000 to increase the authorization by
250,000 shares to 750,000 shares; on December 14, 2000 to increase the
authorization by 250,000 shares to 1.0 million shares; on April 4, 2002 to
increase the authorization by 500,000 shares to 1.5 million shares; and on June
7, 2006 to increase the authorization by 1.5 million shares to 3.0 million
shares). On December 13, 2007, the Board of Directors authorized a new
repurchase program, for 1.5 million shares, which will become effective after we
exhaust the authorized amount under the old repurchase program. As of
October 31, 2009, we have purchased a total of 2,630,838 shares of Common Stock
under the old repurchase program. The repurchase programs do not have
expiration dates. We intend to make further purchases under the repurchase
programs from time to time. The amounts set forth in this paragraph have been
adjusted to give effect to the reverse stock split.
(2)
This does not include the 4,013 shares that we withheld in order to satisfy
employee withholding taxes upon the distribution of vested restricted stock
units.
Item
3. Defaults upon Senior Securities
None
Item
4. Submission of Matters to a Vote of Security
Holders
None
Item
5. Other Information
None
Item
6. Exhibits
Exhibits
|
31.1
|
Certification
of Chairman and Chief Executive Officer pursuant to Rule 13a-14(a) under
the Securities Exchange Act of
1934.
|
|
31.2
|
Certification
of Vice President and Chief Financial Officer pursuant to Rule 13a-14(a)
under the Securities Exchange Act of
1934.
|
|
32.1
|
Certification
of Chairman and Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certification
of Vice President and Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
BLYTH, INC.
Date: December
7,
2009 By:/s/Robert B.
Goergen
Robert B. Goergen
Chairman and Chief Executive
Officer
Date: December
7,
2009 By:/s/Robert H.
Barghaus
Robert H. Barghaus
Vice President and Chief Financial
Officer