UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

ý

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

 

 

For the quarterly period ended July 31, 2004

 

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)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   ý             No   o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes   ý             No   o

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

40,901,011  Common Shares as of August 31, 2004

 

 



 

BLYTH, INC.

 

INDEX

 

Part I.

Financial Information

 

 

 

Item 1.

Financial Statements:

 

 

Consolidated Balance Sheets

 

 

 

 

 

Consolidated Statements of Earnings

 

 

 

 

 

Consolidated Statements of Stockholders’ Equity

 

 

 

 

 

Consolidated Statements of Cash Flows

 

 

 

 

 

Notes to Consolidated Financial Statements

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

 

 

Item 4.

Controls and Procedures

 

 

 

Part II.

Other Information

 

 

 

Item 1.

Legal Proceedings

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

 

 

Item 3.

Defaults upon Senior Securities

 

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

 

 

 

 

Item 5.

Other Information

 

 

 

 

Item 6.

Exhibits and Reports on Form 8-K

 

 

 

Signatures

 

 

2



 

Part I.   FINANCIAL INFORMATION

Item I.   FINANCIAL STATEMENTS

 

BLYTH, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

(In thousands, except share and per share data)

 

July 31,
2004

 

January 31,
2004

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

84,197

 

$

229,726

 

Accounts receivable, less allowance for doubtful receivables of $3,783 and $4,470, respectively

 

84,640

 

104,502

 

Inventories

 

274,526

 

208,581

 

Prepaid and other

 

28,595

 

40,302

 

Short-term investment

 

10,000

 

 

Assets held for sale

 

1,085

 

9,437

 

Deferred income taxes

 

14,130

 

14,191

 

Total current assets

 

497,173

 

606,739

 

Property, plant and equipment, at cost:

 

 

 

 

 

Less accumulated depreciation of $223,584 and $210,961, respectively

 

250,837

 

260,497

 

Other assets:

 

 

 

 

 

Investments

 

14,556

 

3,510

 

Goodwill

 

206,916

 

204,093

 

Other intangible assets, net of accumulated amortization of $2,650 and $1,500, respectively

 

40,450

 

41,600

 

Deposits and other assets

 

12,061

 

11,524

 

 

 

273,983

 

260,727

 

Total assets

 

$

1,021,993

 

$

1,127,963

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Bank lines of credit

 

$

118,360

 

$

13,621

 

Current maturities of long-term debt

 

4,458

 

4,522

 

Accounts payable

 

58,873

 

78,407

 

Liabilities associated with assets held for sale

 

 

508

 

Accrued expenses

 

74,364

 

97,395

 

Income taxes

 

 

11,746

 

Total current liabilities

 

256,055

 

206,199

 

Deferred income taxes

 

35,170

 

33,773

 

Long-term debt, less current maturities

 

271,153

 

275,743

 

Minority interest and other

 

23,844

 

23,278

 

Commitments and contingencies

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock - authorized 10,000,000 shares of $0.01 par value; no shares issued and outstanding

 

 

 

Common stock - authorized 100,000,000 shares of $0.02 par value; issued 50,351,927 shares and 49,975,502 shares, respectively

 

1,007

 

999

 

Additional contributed capital

 

117,652

 

107,965

 

Retained earnings

 

589,533

 

570,171

 

Accumulated other comprehensive income

 

11,617

 

15,224

 

Treasury stock, at cost, 9,453,416 shares and 4,345,100 shares, respectively

 

(284,038

)

(105,389

)

Total stockholders’ equity

 

435,771

 

588,970

 

Total liabilities and stockholders’ equity

 

$

1,021,993

 

$

1,127,963

 

 

The accompanying notes are an integral part of these financial statements.

 

3



 

BLYTH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

 

Six months ended July 31 (In thousands, except per share data)

 

2004

 

2003

 

Net sales

 

$

648,043

 

$

587,259

 

Cost of goods sold

 

318,921

 

291,311

 

Gross profit

 

329,122

 

295,948

 

Selling

 

208,702

 

179,298

 

Administrative

 

67,147

 

61,673

 

 

 

275,849

 

240,971

 

Operating profit

 

53,273

 

54,977

 

Other expense (income):

 

 

 

 

 

Interest expense

 

10,258

 

7,102

 

Interest income and other

 

(1,302

)

(1,282

)

Equity in (earnings)/loss of investee

 

(46

)

199

 

 

 

8,910

 

6,019

 

Earnings before income taxes and minority interest

 

44,363

 

48,958

 

Income tax expense

 

17,243

 

18,014

 

Earnings before minority interest

 

27,120

 

30,944

 

Minority interest

 

 

71

 

Net earnings

 

$

27,120

 

$

30,873

 

Basic:

 

 

 

 

 

Net earnings per common share

 

$

0.60

 

$

0.67

 

Weighted average number of shares

 

45,381

 

45,991

 

Diluted:

 

 

 

 

 

Net earnings per common share

 

$

0.59

 

$

0.67

 

Weighted average number of shares

 

45,804

 

46,174

 

 

The accompanying notes are an integral part of these financial statements.

 

4



 

BLYTH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

 

Three months ended July 31 (In thousands, except per share data)

 

2004

 

2003

 

Net sales

 

$

289,063

 

$

275,268

 

Cost of goods sold

 

142,952

 

140,716

 

Gross profit

 

146,111

 

134,552

 

Selling

 

93,627

 

82,229

 

Administrative

 

33,472

 

31,604

 

 

 

127,099

 

113,833

 

Operating profit

 

19,012

 

20,719

 

Other expense (income):

 

 

 

 

 

Interest expense

 

5,049

 

3,512

 

Interest income and other

 

(411

)

(691

)

Equity in (earnings)/loss of investee

 

(69

)

64

 

 

 

4,569

 

2,885

 

Earnings before income taxes and minority interest

 

14,443

 

17,834

 

Income tax expense

 

5,048

 

6,561

 

Earnings before minority interest

 

9,395

 

11,273

 

Minority interest

 

(50

)

27

 

Net earnings

 

$

9,445

 

$

11,246

 

Basic:

 

 

 

 

 

Net earnings per common share

 

$

0.21

 

$

0.25

 

Weighted average number of shares outstanding

 

45,097

 

45,903

 

Diluted:

 

 

 

 

 

Net earnings per common share

 

$

0.21

 

$

0.24

 

Weighted average number of shares outstanding

 

45,502

 

46,155

 

 

The accompanying notes are an integral part of these financial statements.

 

5



 

BLYTH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

(in thousands, except share date)

 

 

Common stock

 

Additional
contributed
capital

 

Retained
earnings

 

Treasury stock

 

Accumulated
other
comprehensive
income (loss)

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

Amount

 

 

 

Shares

 

Amount

 

 

 

For the six months ended July 31, 2003:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 31, 2003

 

49,703,682

 

$

994

 

$

101,567

 

$

496,627

 

(3,644,100

)

$

(86,585

)

$

(4,751

)

$

507,852

 

Net earnings for the period

 

 

 

 

 

 

 

30,873

 

 

 

 

 

 

 

30,873

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

6,266

 

6,266

 

Unrealized holding losses on certain investments (net of tax of $74)

 

 

 

 

 

 

 

 

 

 

 

 

 

(126

)

(126

)

Net loss on cash flow hedging instruments (net of tax of $171)

 

 

 

 

 

 

 

 

 

 

 

 

 

(294

)

(294

)

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

36,719

 

Common stock issued in connection with long-term incentive plan

 

73,495

 

1

 

1,419

 

 

 

 

 

 

 

 

 

1,420

 

Tax benefit from stock options

 

 

 

 

 

100

 

 

 

 

 

 

 

 

 

100

 

Dividends

 

 

 

 

 

 

 

(5,983

)

 

 

 

 

 

 

(5,983

)

Treasury stock purchases

 

 

 

 

 

 

 

 

 

(371,200

)

(9,849

)

 

 

(9,849

)

Balance, July 31, 2003

 

49,777,177

 

$

995

 

$

103,086

 

$

521,517

 

(4,015,300

)

$

(96,434

)

$

1,095

 

$

530,259

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the six months ended July 31, 2004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 31, 2004

 

49,975,502

 

$

999

 

$

107,965

 

$

570,171

 

(4,345,100

)

$

(105,389

)

$

15,224

 

$

588,970

 

Net earnings for the period

 

 

 

 

 

 

 

27,120

 

 

 

 

 

 

 

27,120

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,503

)

(3,503

)

Unrealized holding losses on certain investments (net of tax of $20)

 

 

 

 

 

 

 

 

 

 

 

 

 

(35

)

(35

)

Net loss on cash flow hedging instruments (net of tax of $39)

 

 

 

 

 

 

 

 

 

 

 

 

 

(69

)

(69

)

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23,513

 

Common stock issued in connection with long-term incentive plan

 

376,425

 

8

 

9,057

 

 

 

 

 

 

 

 

9,065

 

Tax benefit from stock options

 

 

 

 

 

630

 

 

 

 

 

 

 

 

 

630

 

Dividends

 

 

 

 

 

 

 

(7,758

)

 

 

 

 

 

 

(7,758

)

Treasury stock purchases

 

 

 

 

 

 

 

 

 

(5,108,316

)

(178,649

)

 

 

(178,649

)

Balance, July 31, 2004

 

50,351,927

 

$

1,007

 

$

117,652

 

$

589,533

 

(9,453,416

)

$

(284,038

)

$

11,617

 

$

435,771

 

 

The accompanying notes are an integral part of these financial statements.

 

6



 

BLYTH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

Six months ended July 31 (In thousands)

 

2004

 

2003

 

Cash flows from operating activities:

 

 

 

 

 

Net earnings

 

$

27,120

 

$

30,873

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

17,756

 

16,633

 

Loss on fixed asset disposal

 

 

(190

)

Tax benefit from stock options

 

630

 

100

 

Deferred income taxes

 

1,679

 

119

 

Equity in (earnings)/loss of investee

 

(46

)

199

 

Minority interest

 

(99

)

71

 

Gain on sale of assets held for sale

 

(364

)

(497

)

Changes in operating assets and liabilities, net of effect of business acquisitions:

 

 

 

 

 

Accounts receivable

 

18,748

 

(13,640

)

Inventories

 

(67,584

)

(33,285

)

Prepaid and other

 

3,466

 

1,489

 

Deposits and other assets

 

(41

)

22

 

Goodwill disposed of due to sale of assets held for sale

 

(3,621

)

 

Accounts payable

 

(18,858

)

(6,009

)

Accrued expenses

 

(22,276

)

(14,397

)

Other liabilities

 

684

 

1,542

 

Income taxes

 

251

 

(4,011

)

Total adjustments

 

(69,675

)

(51,854

)

Net cash used in operating activities

 

(42,555

)

(20,981

)

Cash flows from investing activities:

 

 

 

 

 

Purchases of property, plant and equipment

 

(8,888

)

(9,525

)

Purchases of investments

 

(21,000

)

 

Purchases of long-term investment

 

 

(1,377

)

Proceeds from sales of long term investments

 

 

1,874

 

Proceeds from sale of assets held for sale

 

9,752

 

 

Cash impact of Wax Lyrical receivership

 

 

1,902

 

Purchase of businesses, net of cash acquired

 

(6,757

)

(94,736

)

Net cash used in investing activities

 

(26,893

)

(101,862

)

Cash flows from financing activities:

 

 

 

 

 

Proceeds from issuance of common stock

 

9,065

 

1,420

 

Purchases of treasury stock

 

(178,649

)

(9,849

)

Borrowings from bank line of credit

 

121,170

 

20,095

 

Repayments on bank line of credit

 

(16,321

)

(8,368

)

Borrowings on long-term debt

 

 

30,678

 

Repayments of long-term debt

 

(4,468

)

(3,853

)

Dividends paid

 

(7,758

)

(5,983

)

Net cash provided by (used in) financing activities

 

(76,961

)

24,140

 

Effect of exchange rate changes on cash

 

880

 

(1,916

)

Net decrease in cash and cash equivalents

 

(145,529

)

(100,619

)

Cash and cash equivalents at beginning of period

 

229,726

 

168,596

 

Cash and cash equivalents at end of period

 

$

84,197

 

$

67,977

 

 

The accompanying notes are an integral part of these financial statements.

 

7



 

BLYTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.                                      Basis of Presentation

 

Blyth is a global competitor in the gift and decorative accessories market, which the Company calls the home expressions industry.  At January 31, 2004 the Company reported its financial results in five segments: Direct Selling, Wholesale Home Fragrance, Wholesale Creative Expressions, Catalog & Internet and All Other.  As a result of certain organizational changes we have implemented, we have reevaluated our reporting segments pursuant to FASB Statement No. 131, “Disclosures about Segments of an Enterprise and Related Information,” and determined to report financial information with respect to three segments beginning with the period ended April 30, 2004. These new reporting segments are as follows - the Direct Selling segment, the Wholesale segment and the Catalog & Internet segment.  The Company’s reportable segments are based on similarities in distribution channels, customers and management oversight.

 

Within the Direct Selling segment, the Company designs, manufactures or sources, markets and distributes an extensive line of products including scented candles, related accessories, fragranced bath gels and body lotions and other fragranced products.  These products are sold direct to the consumer under the PartyLite® brand in North America, Europe and Australia through a network of more than 51,000 active independent sales consultants.

 

Within the Wholesale segment, the Company designs, manufactures or sources, markets and distributes an extensive line of home fragrance, home décor, seasonal decorations and Away From Home products.  Products in this segment are sold worldwide to retailers in the premium and specialty retail channels under the Colonial®(1), Colonial Candle of Cape Cod®, Colonial at HOME®, Carolina®, CBK®, Holiday365™, Kaemingk®(1) and Seasons of Cannon Falls® brands and to retailers in the mass retail and foodservice channel under the Ambria®, FilterMate®, Florasense®, Gies®(1), Liljeholmens®, and Sterno® brands.

 

Within the Catalog & Internet segment, the Company designs, sources, markets and distributes a broad range of household convenience items, premium photo albums, frames, holiday cards and gifts sold direct to the consumer under the Miles Kimball®, Exposures®, Walter Drake®, Home Marketplace® and Directions…The Path To Better Health® brands.  These products are sold in North America.

 

The consolidated financial statements include the accounts of the Company and its direct and indirect subsidiaries.  All significant intercompany accounts and transactions have been eliminated.  Investments in companies that are not majority owned or controlled are reported using the equity method and are recorded in investments.   Interest income and other consists of interest income earned from investments, foreign currency gains and losses and gains and losses from sales of investments.  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 maintain a calendar year accounting period, which is consolidated with the Company’s fiscal period.  In the opinion of management, the accompanying unaudited consolidated financial statements include all accruals necessary for fair presentation of the Company’s consolidated financial position at July 31, 2004 and the consolidated results of its operations and cash flows for the six-month periods ended July 31, 2004 and 2003.  These interim statements should be read in conjunction with the Company’s consolidated financial statements for the year ended January 31, 2004, as set forth in the Company’s Annual Report on Form 10-K.  Operating results for the six months ended July 31, 2004 are not necessarily indicative of the results that may be expected for the year ending January 31, 2005.

 

Reclassifications

 

Certain reclassifications have been made in prior years’ financial statements to conform to classifications used in the current year.

 


(1)     Colonial, Gies and Kaemingk trademarks are registered and sold only outside the United States.

 

8



 

Employee Stock Options

 

The Company has elected to adopt the disclosure only provisions of Statement of Financial Accounting Standards (SFAS) No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” and continues to follow Accounting Principles Board (APB) opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for stock options granted to its employees and directors under the intrinsic value method.  Accordingly, no compensation expense is recorded for the stock options issued to employees unless the option price is below market at the measurement date.  The Company does not at this time, issue stock options below market value, therefore no compensation expense has been recorded in the financial statements.  Had compensation expense for the Company’s stock options been determined in accordance with the fair value method in SFAS No. 123, “Accounting for Stock-Based Compensation” and SFAS No. 148, the Company’s reported net income and earnings per share would have been adjusted to the pro forma amounts indicated below:

 

 

 

Three months ended July 31,

 

Six months ended July 31,

 

(In thousands except per share data)

 

2004

 

2003

 

2004

 

2003

 

 

 

 

 

 

 

 

 

 

 

Net earnings:

 

 

 

 

 

 

 

 

 

As reported

 

$

9,445

 

$

11,246

 

$

27,120

 

$

30,873

 

Stock-based employee compensation expense determined under SFAS No. 123 for all awards, net of related tax

 

598

 

908

 

1,043

 

1,844

 

Pro forma

 

$

8,847

 

$

10,338

 

$

26,077

 

$

29,029

 

Net earnings per common share:

 

 

 

 

 

 

 

 

 

As reported:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.21

 

$

0.25

 

$

0.60

 

$

0.67

 

Diluted

 

0.21

 

0.24

 

0.59

 

0.67

 

Pro forma:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.20

 

$

0.23

 

$

0.57

 

$

0.63

 

Diluted

 

0.19

 

0.22

 

0.57

 

0.63

 

 

2.                                      Business Acquisitions

 

On April 1, 2003, the Company acquired 100% of the Miles Kimball Company (“Miles Kimball”), a direct marketer of giftware, home décor and household convenience items, premium photo albums, frames and holiday cards under the Miles Kimball® and Exposures® catalog titles for approximately $66.2 million in cash.  The acquisition of Miles Kimball aligns with one component of the Company’s overall growth strategy, which is to grow through selected acquisitions in the home expressions industry.  The excess of the purchase price over the estimated fair value of the net assets acquired approximated $46.0 million, which will not be deductible for income tax purposes.  The other intangibles acquired consist of $16.1 million of trade names and trademarks, which are deemed to have an indefinite life and will not be amortized, plus $9.0 million of customer lists, which will be amortized on an accelerated basis over 12 years.  Amortization expense recorded in fiscal 2004 totaled $1.4 million.  Estimated amortization expense for the next 5 fiscal years is as follows:  $1.5 million, $1.5 million, $1.2 million, $0.9 million and $0.9 million.  The results of operations of Miles Kimball are included in the Consolidated Statements of Earnings of the Company since April 2, 2003.  For segment reporting purposes, Miles Kimball is included in the Catalog & Internet segment.

 

9



 

On June 20, 2003, the Company acquired a 100% interest in Kaemingk B.V. (“Kaemingk”), a designer and marketer of a wide range of premium seasonal decorations. Kaemingk’s product lines feature Christmas décor, including ornaments, lighting, trim, glassware, candles and plush animals, as well as spring and summer decorative accents.  The acquisition of Kaemingk aligns with one component of the Company’s overall growth strategy, which is to grow through selected acquisitions in the home expressions industry.  The cash purchase price was approximately $36.2 million less cash acquired of $7.7 million resulting in net cash paid of $28.5 million.  Approximately $30.6 million of the cash purchase price was borrowed under the Company’s $200 million unsecured revolving credit facility.  The Company also assumed Kaemingk’s long-term debt of approximately $14.4 million.  The excess of the purchase price over the estimated fair value of the net assets acquired approximated $17.6 million, which will not be deductible for income tax purposes.  During the quarter ended October 31, 2003, an adjustment was recorded to reflect the final appraised value of the acquired property, plant and equipment.  In addition to the fixed purchase price, there is contingent consideration payable in the form of a three-year earn out provision based on a pre-defined formula related to a multiple of earnings before interest and income taxes. A $3.4 million liability for the first annual earn out payment was recorded in the quarter ended April 30, 2004. The results of operations of Kaemingk are included in the Consolidated Statements of Earnings of the Company since June 21, 2003.  For segment reporting purposes, Kaemingk is included in the Wholesale segment.

 

On December 22, 2003, the Company acquired 100% of Walter Drake, a direct marketer of value-priced household products including household gifts, gadgets and convenience products, personalized merchandise, home décor and holiday cards under the Walter Drake and Home Marketplace catalog titles, for approximately $54.2 million in cash.  The acquisition of Walter Drake aligns with the one component of the Company’s overall growth strategy, which is to grow through selected acquisitions in the home expressions industry.  The excess of the purchase price over the estimated fair value of the net assets acquired approximated $25.4 million, which will be deductible for income tax purposes.  During the quarter ended April 30, 2004, the Company recorded an adjustment to record additional liabilities primarily related to severance of employees of the Colorado Springs facility as of the acquisition date.  These additional costs relate to the integration of the Walter Drake business into Miles Kimball, which is expected to be completed by the end of the third quarter of fiscal 2005.  These adjustments increased the goodwill by approximately $3.1 million to $28.5 million.  The other intangibles acquired consist of approximately $12.0 million of trade names and trademarks, which are deemed to have an indefinite life and will not be amortized, plus approximately $6.0 million of customer lists, which will be amortized on an accelerated basis over 10 years. Estimated amortization expense for the next 5 fiscal years is as follows:  $0.9 million, $0.9 million, $0.9 million, $0.6 million and $0.6 million.  The results of operations of Walter Drake are included in the Consolidated Statements of Earnings of the Company since December 23, 2003.  For segment reporting purposes, Walter Drake is included in the Catalog & Internet segment.

 

The following provides an allocation of the purchase price of Walter Drake (in thousands)

 

Cash Purchase Price

 

$

54,188

 

Less:  Assets acquired

 

 

 

Accounts receivable

 

539

 

Inventories

 

6,010

 

Prepaid and other

 

5,743

 

Property, plant and equipment

 

4,667

 

Intangible assets

 

18,000

 

 

 

34,959

 

Plus:  Liabilities assumed

 

 

 

Cash overdraft

 

580

 

Accounts payable

 

3,442

 

Accrued expenses

 

5,057

 

Other

 

189

 

 

 

9,268

 

Unallocated purchase price (goodwill)

 

$

28,497

 

 

10



 

The following unaudited pro forma summary financial information summarizes the estimated combined results of operations of the Company, Miles Kimball, Kaemingk and Walter Drake assuming that the acquisitions of Miles Kimball, Kaemingk and Walter Drake had taken place on February 1, 2003.  The unaudited pro forma combined results of operations were prepared on the basis of information provided to the Company by the former management of Miles Kimball, Kaemingk and Walter Drake and no representation is made by the Company with respect to the accuracy of such information.  The pro forma combined results of operations reflect adjustments for interest income, additional depreciation based on the fair market value of Miles Kimball’s and Walter Drake’s property, plant, and equipment, amortization of identifiable intangibles of Miles Kimball and Walter Drake and income tax expense.

 

 

 

Three months ended July 31,

 

Six months ended July 31,

 

(In thousands except per share data)

 

2004

 

2003

 

2004

 

2003

 

Net sales

 

$

289,063

 

$

294,539

 

$

648,043

 

$

649,954

 

Net earnings

 

9,445

 

10,150

 

27,120

 

28,364

 

Basic:

 

 

 

 

 

 

 

 

 

Net earnings per common share

 

$

0.21

 

$

0.22

 

$

0.60

 

$

0.62

 

Diluted:

 

 

 

 

 

 

 

 

 

Net earnings per common share

 

$

0.21

 

$

0.22

 

$

0.59

 

$

0.61

 

 

The unaudited pro forma combined results of operations are not necessarily indicative of, and do not purport to represent, what the Company’s results of operations or financial condition actually would have been had the acquisitions been made as of February 1, 2003.

 

The following table shows changes in the carrying amount of goodwill for the quarter ended July 31, 2004, by operating segment:

 

 

 

Wholesale

 

Catalog &
Internet

 

Total

 

Goodwill at April 30, 2004

 

$

132.5

 

$

74.6

 

$

207.1

 

Foreign currency translation adjustment related to Kaemingk goodwill

 

(0.2

)

 

(0.2

)

Total adjustments

 

(0.2

)

 

(0.2

)

Goodwill at July 31, 2004

 

$

132.3

 

$

74.6

 

$

206.9

 

 

3.                                      Inventories

 

The components of inventory are as follows (in thousands):

 

 

 

July 31, 2004

 

January 31, 2004

 

Raw materials

 

$

32,742

 

$

25,104

 

Work in process

 

1,489

 

915

 

Finished goods

 

240,295

 

182,562

 

 

 

$

274,526

 

$

208,581

 

 

11



 

4.                                      Earnings per Share

 

The components of basic and diluted earnings per share are as follows (in thousands):

 

 

 

Three months ended July 31,

 

Six months ended July 31,

 

 

 

2004

 

2003

 

2004

 

2003

 

Net earnings

 

$

9,445

 

$

11,246

 

$

27,120

 

$

30,873

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

45,097

 

45,903

 

45,381

 

45,991

 

Dilutive effect of stock options

 

405

 

252

 

423

 

183

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

Diluted

 

45,502

 

46,155

 

45,804

 

46,174

 

 

For the three and six month periods ended July 31, 2004 and 2003, options to purchase 3,000, 13,000, 460,300 and 912,500 shares of common stock, respectively, are not included in the computation of earnings per share because the effect would be antidilutive.

 

5.                                      Restructuring Charges

 

During the third and fourth quarters of fiscal 2004 the Company recorded severance payments to employees of $0.5 million pre-tax related to the closure of its Hyannis, MA manufacturing facility. In conjunction with the closing, the Company eliminated 43 jobs comprised of manufacturing and management positions. This manufacturing facility, which was the Company’s smallest, is located in a busy downtown area of Cape Cod, making transportation of raw materials and finished products to and from the location challenging. Operations are being consolidated into Blyth’s manufacturing facility in Batavia, Illinois.

 

During the fourth quarter of fiscal 2004, the Company recorded additional pre-tax restructuring charges.  These charges consist of $2.1 million related to severance costs primarily associated with the restructuring of Blyth HomeScents International – North America and the consolidation of the Company’s Temecula, California potpourri operations, and $0.9 million of lease termination costs associated with the closure of five of the Company’s candle outlet stores.  As a result of these restructuring activities, the Company eliminated 40 jobs, comprised of administrative and management positions.

 

At January 31, 2004, the Company had approximately $3.3 million of restructuring charges included in the Consolidated Balance Sheet, which related to the aforementioned severance liabilities and lease obligations.  As a result of payments made during the quarter ended July 31, 2004 approximately $0.8 million of severance liabilities and $0.6 million of lease obligations were remaining on the balance sheet at July 31, 2004.  The remaining severance liability and lease obligations will be paid within the next twelve months.

 

(In thousands)

 

Lease
Obligations

 

Severence
Costs

 

Total

 

 

 

 

 

 

 

 

 

Balance at January 31, 2004

 

$

905

 

$

2,395

 

$

3,300

 

Payments made against 2004 charges

 

(321

)

(1,594

)

(1,915

)

Balance at July 31, 2004

 

$

584

 

$

801

 

$

1,385

 

 

12



 

6.                                      Segment Information

 

Blyth is a global competitor in the gift and decorative accessories market, which the Company calls the home expressions industry.  At January 31, 2004 the Company reported its financial results in five segments: Direct Selling, Wholesale Home Fragrance, Wholesale Creative Expressions, Catalog & Internet and All Other.  As a result of certain organizational changes we have implemented, we have reevaluated our reporting segments pursuant to FASB Statement No. 131, “Disclosures about Segments of an Enterprise and Related Information,” and determined to report financial information with respect to three segments beginning with the period ended April 30, 2004. These new reporting segments are as follows - the Direct Selling segment, the Wholesale segment and the Catalog & Internet segment.  As required by FASB Statement No.131, we have restated the corresponding information for the prior year to report in the current composition of our reportable segments.  The Company’s reportable segments are based on similarities in distribution channels, customers and management oversight.  Revenues are not reported by product or group of similar products, as it is impractical to do so.

 

Within the Direct Selling segment, the Company designs, manufactures or sources, markets and distributes an extensive line of products including scented candles, related accessories, fragranced bath gels and body lotions and other fragranced products.  These products are sold direct to the consumer under the PartyLite® brand in North America, Europe and Australia through a network of more than 51,000 active independent sales consultants.

 

Within the Wholesale segment, the Company designs, manufactures or sources, markets and distributes an extensive line of home fragrance, home décor, seasonal decorations and Away From Home products.  Products in this segment are sold worldwide to retailers in the premium and specialty retail channels under the Colonial®(1), Colonial Candle of Cape Cod®, Colonial at HOME®, Carolina®, CBK®, Holiday365™, Kaemingk®(1), and Seasons of Cannon Falls® brands and to retailers in the mass retail and foodservice channel under the Ambria®, FilterMate®, Florasense®, Gies®(1), Liljeholmens®, and Sterno® brands.

 

Within the Catalog & Internet segment, the Company designs, sources, markets and distributes a broad range of household convenience items, premium photo albums, frames, holiday cards and gifts sold direct to the consumer under the Miles Kimball®, Exposures®, Walter Drake®, Home Marketplace® and Directions…The Path To Better Health® brands.  These products are sold in North America.

 

Earnings in all segments represent net sales less operating expenses directly related to the business segments and corporate expenses allocated to the business segments.  Other income (expense) includes interest expense, interest income and equity in earnings of investees, which are not allocated to the business segments.  Identifiable assets for each segment 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, deferred bond costs and other long-term investments, which are not allocated to the business segments.

 


(1)     Colonial, Gies and Kaemingk trademarks are registered and sold only outside the United States.

 

13



 

 

 

Three months ended July 31,

 

Six months ended July 31,

 

(In thousands)

 

2004

 

2003

 

2004

 

2003

 

Net Sales

 

 

 

 

 

 

 

 

 

Direct selling

 

$

150,309

 

$

143,219

 

$

340,172

 

$

334,458

 

Wholesale

 

103,313

 

114,484

 

231,076

 

229,266

 

Catalog & Internet

 

35,441

 

17,565

 

76,795

 

23,535

 

Total

 

$

289,063

 

$

275,268

 

$

648,043

 

$

587,259

 

Earnings

 

 

 

 

 

 

 

 

 

Direct Selling

 

$

25,051

 

$

23,845

 

$

63,053

 

$

61,250

 

Wholesale

 

(4,255

)

(1,631

)

(6,934

)

(4,280

)

Catalog & Internet

 

(1,784

)

(1,495

)

(2,846

)

(1,993

)

 

 

19,012

 

20,719

 

53,273

 

54,977

 

Other expense

 

(4,569

)

(2,885

)

(8,910

)

(6,019

)

Earnings before income taxes and minority interest

 

$

14,443

 

$

17,834

 

$

44,363

 

$

48,958

 

 

 

 

 

 

July 31, 2004

 

 

 

January 31, 2004

 

Identifiable Assets

 

 

 

 

 

 

 

 

 

Direct Selling

 

 

 

$

274,013

 

 

 

$

273,900

 

Wholesale

 

 

 

532,232

 

 

 

526,133

 

Catalog & Internet

 

 

 

167,193

 

 

 

160,380

 

Unallocated Corporate

 

 

 

48,555

 

 

 

167,550

 

Total

 

 

 

$

1,021,993

 

 

 

$

1,127,963

 

 

7.                                      Assets Held for Sale

 

During the fourth quarter of fiscal 2004, the Company decided to divest of its decorative gift bag business, Jeanmarie Creations, in the Wholesale segment through a sale to Jeanmarie’s senior management.  Therefore, the assets of Jeanmarie were classified as assets held for sale in the Company’s Consolidated Balance Sheet as of January 31, 2004.  The assets held for sale related to Jeanmarie were comprised principally of accounts receivable of $3.1 million, inventory of $3.4 million and property, plant and equipment of $1.7 million.  The operating results related to Jeanmarie were immaterial to the consolidated operating results of the Company.  On April 6, 2004 the Company sold the business to Jeanmarie’s management and associated investors for $10.0 million in cash.  The sale resulted in a taxable gain of approximately $4.0 million.  In addition, $3.6 million of goodwill attributable to Jeanmarie, which was not tax deductible, was disposed of.

 

There is an additional $1.1 million classified as assets held for sale in the Consolidated Balance Sheet as of January 31, 2004 and July 31, 2004 related to the Hyannis, MA manufacturing facility the closure of which is discussed in Note 5.

 

8.                                      Tender Offer

 

On June 7, 2004 the Company announced that its Board of Directors approved a repurchase of up to 4,000,000 outstanding shares of the Company’s common stock, with the right to repurchase up to an additional 2% of the Company’s outstanding shares, at a price per share not greater than $35.00 nor less than $30.00 through a Dutch auction cash tender offer.  The final number of shares repurchased under the tender offer, which expired on July 9, 2004, was 4,906,616 shares for an aggregate purchase price of $171.9 million including fees and expenses paid to date.  The tender offer was funded with $85.4 million of available cash and $86.5 million of borrowings against our $200 million Credit Facility.  The Company does not expect the tender offer to affect its share repurchase program, capital expenditures, dividend policy or acquisitions.

 

14



 

9.                                      Contingencies

 

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 effect on its consolidated financial position, results of operations or cash flows.

 

15



 

Item 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

RESULTS OF OPERATIONS:

 

Overview

 

Blyth is a designer and marketer of home fragrance products and accessories, home décor, seasonal decorations, household convenience items, personalized gifts and products such as chafing fuel and tabletop lighting for the Away From Home trade.  As a competitor in the global home expressions industry, the Company’s products can be found throughout North America, Europe and Australia.  The Company reports its financial results in three segments - the Direct Selling segment, the Wholesale segment and the Catalog & Internet segment.  The Company’s reportable segments are based on similarities in distribution channels, customers and management oversight.

 

Today, on an annualized net sales basis, the Company is comprised of an approximately $750 million direct selling business, an approximately $650 million wholesale business and an approximately $200 million catalog and Internet business.  Sales and earnings growth differ in each segment depending on geographic location, market penetration, our relative market share, and product and marketing execution, among other business factors.  Over the long term, all three segments should experience single-digit growth, most likely within the low to mid-single digit range, again depending on the business factors previously noted.

 

Our current focus is driving sales growth of our brands so we may more fully leverage our infrastructure, particularly in the Wholesale segment.  As a result, we have numerous collaborative initiatives underway within this segment, which we believe will help drive sales and maximize the sales and marketing talents across this segment.  These initiatives include joint trade show promotions, customer information sharing and leveraging our in-house sales forces, as well as ongoing global sourcing objectives and other organic strategic initiatives into which we are investing resources.

 

With the acquisitions of Miles Kimball in April 2003 and Walter Drake in December 2003, we entered the catalog and Internet channel of distribution, giving us a presence in all of our desired channels.  We are beginning to benefit from the operational efficiencies of integrating the Walter Drake business into Miles Kimball, particularly in the areas of distribution and customer service.  We expect some of these efficiencies to be offset by one-time costs associated with the integration of Walter Drake’s operations into Miles Kimball, which is near completion.

 

16



 

Net Sales

 

Net sales increased $60.7 million, or 10.3%, to $648.0 million in the first six months of fiscal 2005 from $587.3 million in the first six months of fiscal 2004.  Net sales in the quarter ended July 31, 2004 increased $13.8 million or 5.0% to $289.1 million compared with $275.3 million a year earlier.  Sales in the quarter ended July 31, 2004 were affected by three main factors.  First, approximately 5 percentage points of the increase in net sales may be attributed to the net effect of the inclusion of sales of Kaemingk, acquired in June 2003, and Walter Drake, acquired in December 2003, which was partially offset by the divestiture of Jeanmarie Creations in April 2004.  Second, a 10% sales shortfall in our North American Wholesale business had a negative impact on total sales of approximately 4 percentage points. Third, sales increases in our PartyLite Direct Selling business segment had a positive sales impact of approximately 3 percentage points.

 

Net Sales - Direct Selling Segment

 

Net sales in the Direct Selling segment increased $7.1 million, or 5.0%, to $150.3 million in the quarter ended July 31, 2004, compared with $143.2 million in the same period last year.  In North America, PartyLite’s US sales were approximately even with the prior year.  In both dollars and local currency, PartyLite Canada reported an approximately 15% decrease versus the prior year.  Canada is PartyLite’s most heavily penetrated market, and generating positive sales momentum has been challenging in recent years.  Booking shows has become more competitive in this market as a result of an increase in Direct Selling companies using the Party Plan method of selling.  In PartyLite’s European markets, sales increased approximately 24% in US dollars (16% in local currencies), on account of continued positive momentum following a 10-month leadership program in Germany, PartyLite’s largest European market, which resulted in a net increase of nearly 1,000 consultants.  Corresponding activity improvement resulted in a higher number of reactivations and fewer inactive consultants in Germany.  In addition, the new 2004 spring catalog and product line was well received throughout Europe.

 

Net Sales – Wholesale Segment

 

Net sales in the Wholesale segment decreased $11.2 million, or 9.8%, to $103.3 million in the quarter ended July 31, 2004, compared with $114.5 million in the same period in fiscal 2004.  The decrease in this segment is primarily a result of a significant sales shortfall in the North American Wholesale business.   Feedback from our independent retailers at the 2004 trade shows indicated apprehension and uncertainty relative to the expected sales trends for the upcoming holiday selling season.  These retailers are very concerned that reduced discretionary income, resulting from the recent severe spike in gasoline prices, will negatively impact holiday season sales, making them reluctant to commit to holiday inventory purchases.  Similar trends are also occurring in the specialty and mass retail channels.  Net sales were also negatively impacted by the divestiture of Jeanmarie Creations in April 2004, which approximately offset the benefit of a full quarter of net sales from Kaemingk, acquired in June 2003.  Our European wholesale businesses experienced double digit sales growth in the second quarter, driven by increases in seasonal decorations and mass channel candles.

 

Net Sales - Catalog & Internet Segment

 

Net sales in the Catalog & Internet Segment increased $17.8 million to $35.4 million in the quarter ended July 31, 2004, compared with $17.6 million in the same period in fiscal 2004.  Sales in this segment more than doubled due to the addition of Walter Drake in December 2003.  The integration of Walter Drake’s operations into those of Miles Kimball is nearly complete.  All second quarter shipments took place from the Miles Kimball distribution center, telephone orders were handled by our two Miles Kimball call centers and Internet orders were all processed by the Miles Kimball team.

 

17



 

Gross Profit

 

Gross profit increased $33.2 million, or 11.2% from $295.9 million in the first six months of fiscal 2004 to $329.1 million in the first six months of fiscal 2005.  Gross profit margin increased from 50.4% for the first six months of fiscal 2004 to 50.8% for the first six months of fiscal 2005.  Gross profit in the quarter ended July 31, 2004 increased $11.6 million, or 8.6% from $134.5 million for the quarter ended July 31, 2003 to $146.1 million for the quarter ended July 31, 2004.  Gross profit margin increased from 48.9% for the quarter ended July 31, 2003 to 50.5% for the quarter ended July 31, 2004.  This improvement was due to favorable product mix and improvements in the Direct Selling segment related to reduced shipping and handling expenses, and profitability improvements due to the recent restructuring efforts of our North American home fragrance operations, offset somewhat by commodity cost increases experienced by some of our businesses.  In addition, a mix shift due to recent acquisitions also had a negative impact on gross profit margin.  These acquired businesses are quite profitable but have lower gross margins than the overall Company average.

 

Selling Expense

 

Selling expense increased $29.4 million, or 16.4%, from $179.3 million in the first six months of fiscal 2004, when selling expense was 30.6% of net sales, to $208.7 million in the first six months of fiscal 2005, or 32.2% of net sales.  Selling expense increased $11.4 million, or 13.9%, from $82.2 million in the quarter ended July 31, 2003 to $93.6 million in the quarter ended July 31, 2004.  As a percent of sales, selling expense was 32.4% in the most recent fiscal quarter compared to 29.9% a year earlier.  The increase in selling expense is primarily due to the addition of Walter Drake as its selling expense to sales ratio is higher than Blyth’s overall average.  Second, the sales mix shift to the Direct Selling segment, which also has a higher selling expense, impacted Blyth’s selling expense to sales ratio.  In addition, promotion and program spending, particularly in the Wholesale segment, was reduced at a rate below the rate of the sales shortfall, which further negatively impacted Blyth’s selling expense to sales ratio.

 

Administrative Expense

 

Administrative expense increased $5.4 million, or 8.8%, from $61.7 million in the first six months of fiscal 2004 to $67.1 million in the first six months of fiscal 2005.  Administrative expense increased $1.9 million or 6.0% from $31.6 million in the quarter ended July 31, 2003 to $33.5 million in the quarter ended July 31, 2004.  As a percent of sales, administrative expense was 11.6% in the second quarter of fiscal 2005 versus 11.5% in the same period last year.  Administrative expenses increased due to the addition of Walter Drake, investment spending in various organic strategic initiatives and compliance costs associated with the Sarbanes-Oxley Act of 2002.

 

Operating Profit

 

Operating profit decreased $1.7 million, or 3.1%, from $55.0 million in the first six months of fiscal 2004 to $53.3 million in the first six months of fiscal 2005.  Operating profit decreased $1.7 million, or 8.2%, from $20.7 million in the quarter ended July 31, 2003 to $19.0 million in the quarter ended July 31, 2004.  The sales shortfall in the Wholesale segment is the primary reason for the decrease in operating profit.  We believe this shortfall to be the result of retailer caution and, specifically, their reluctance to commit to holiday product orders, which typically begin shipping in the second quarter.  Secondly, operating profit was negatively impacted by expenses related to compliance with the Sarbanes-Oxley Act of 2002.  The decline also reflects the negative impact of the seasonality of our recent Catalog & Internet segment acquisitions, the impact of higher raw material costs as well as our investment in a number of organic strategic initiatives.

 

Operating Profit/Loss - Direct Selling Segment

 

Operating profit in the quarter ended July 31, 2004 in the Direct Selling segment increased $1.3 million, or 5.5%, to $25.1 million when compared to $23.8 million a year earlier.  The improved profitability resulted from reduced shipping and handling expenses in North America as well as from efficiencies gained as a result of increased scale in PartyLite’s European operations.

 

18



 

Operating Profit/Loss - Wholesale Segment

 

Operating loss in the quarter ended July 31, 2004 in the Wholesale segment was $4.3 million versus a loss of $1.6 million a year earlier.  A profitability decline due to lower sales in our North American wholesale business, as discussed earlier, across all products and distribution channels, more than offset the profitability improvements we have been making due to the recent restructuring of our North American home fragrance operations.  Increased raw material costs also negatively impacted this segment’s operating profit.

 

Operating Profit/Loss - Catalog & Internet Segment

 

Operating loss in the quarter ended July 31, 2004 in the Catalog & Internet segment was $1.8 million versus a loss of $1.5 million a year earlier.  The operating loss was expected given the seasonal nature of this segment and includes expenses associated with the integration of Walter Drake into Miles Kimball.  The major facets of the infrastructure transition, including that of Walter Drake’s call center and distribution center, are nearly complete.

 

Interest Expense

 

Interest expense increased approximately $3.2 million from $7.1 million in the first six months of fiscal 2004 to $10.3 million in the first six months of fiscal 2005.  Interest expense increased approximately $1.5 million from $3.5 million in the quarter ended July 31, 2003 to $5.0 million in the quarter ended July 31, 2004.  This increase is mostly due to higher interest costs related to the $100 million of 5.5% Senior Notes issued in October 2003.

 

Income Taxes

 

Income tax expense decreased $0.8 million, or 4.4%, from $18.0 million in the first six months of fiscal 2004 to $17.2 million in the same period in the current fiscal year.  Income tax expense decreased $1.6 million, or 24.2 %, from $6.6 million in the quarter ended July 31, 2003 to $5.0 million in the quarter ended July 31, 2004.  This decrease is primarily due to the decrease in earnings and to a lower expected effective tax rate for fiscal 2005.  The effective tax rate for the quarter ended July 31, 2004 was approximately 35% compared to 36.8% in the second quarter of fiscal 2004. We anticipate that our full year effective income tax rate for fiscal 2005 will be approximately 36.0%.

 

Net Earnings

 

As a result of the foregoing, net earnings decreased $3.8 million, or 12.3%, from $30.9 million in the six months ended July 31, 2003 to $27.1 million for the six months ended July 31, 2004.  Net earnings decreased $1.8 million, or 16.1%, from $11.2 million in the second quarter of fiscal 2004 to $9.4 million in the second quarter of fiscal 2005.

 

Basic earnings per share based upon the weighted average number of shares outstanding for the six months ended July 31, 2004, were $0.60, a decrease of $0.07, or 10.4%, compared to $0.67 for the six months ended July 31, 2003.  Basic earnings per share based upon the weighted average number of shares outstanding for the quarter ended July 31, 2004, were $0.21, a decrease of $0.04, or 16.0%, compared to $0.25 for the quarter ended July 31, 2003.  Diluted earnings per share based upon the potential dilution that could occur if options to issue common stock were exercised, were $0.59 for the six months ended July 31, 2004, compared to $0.67 for the same period the prior year.  Diluted earnings per share were $0.21 for the quarter ended July 31, 2004, compared to $0.24 for the same period last year, a decrease of $0.03 or 12.5%.

 

19



 

Liquidity and Capital Resources

 

Inventory increased from $208.6 million at January 31, 2004 to $274.5 million at July 31, 2004.  The increase in inventory is primarily due to normal inventory purchases of seasonal product in our Direct Selling and Wholesale segment and to the weak sales in the North American Wholesale segment in the quarter ended July 31, 2004.  Accounts receivable decreased $19.9 million from $104.5 million at the end of fiscal 2004 to $84.6 million at July 31, 2004.  The decrease in accounts receivable is due to the collections of accounts receivable related to seasonal sales in the third and fourth quarter of fiscal 2004 and weak sales in the North American Wholesale segment in the first six months of fiscal 2005.  Accounts payable and accrued expenses decreased $42.5 million from $175.8 million at the end of fiscal 2004 to $133.3 million at July 31, 2004.  The decrease in accounts payable and accrued expenses is attributable to normal patterns of payment of operating expenses including the semi-annual payment of accrued interest and incentive bonuses.

 

Capital expenditures for property, plant and equipment were $5.9 million in the quarter ended July 31, 2004 compared to $6.6 million in the prior year period. Capital expenditures consisted primarily of investments in information technology and upgrades of equipment and facilities.  The Company expects total capital spending of approximately $20.0 million for fiscal 2005.

 

The Company has a $200 million unsecured revolving credit facility, which matures on August 5, 2005 (the “Credit Facility”).  The Company has the ability to increase the Credit Facility, under certain circumstances, by an additional $50 million.  The Credit Facility may be used for general corporate purposes, which includes funding for strategic acquisitions and seasonal working capital needs.  The Credit Facility contains, among other provisions, requirements for maintaining certain financial ratios including, among others, a minimum level of net worth and a maximum level of financial leverage.  The Credit Facility also imposes limitations on, among other things, certain payments, the imposition of liens on our assets, indebtedness that may be incurred by our subsidiaries, investments we may make and sales of our assets.  At July 31, 2004, the Company was in compliance with such covenants.  Amounts outstanding under the Credit Facility bear interest, at the Company’s option, at either JPMorgan Chase Bank’s prime rate (4.25% at July 31, 2004) or at the Eurocurrency rate plus a credit spread ranging from 0.525% to 1.5%, calculated on the basis of a combination of the Company’s senior unsecured long-term debt rating and the Company’s usage of the Credit Facility.  On July 31, 2004, approximately $95.5 million (including letters of credit) was outstanding under the Credit Facility.

 

As of July 31, 2004, the Company had a total of $15.0 million available under an uncommitted bank line of credit with LaSalle Bank National Association, which matures in June 2005.  Amounts outstanding under the line of credit bear interest at short-term fixed rates.  No amounts were outstanding under the uncommitted line of credit at July 31, 2004.

 

At July 31, 2004, the Company had a total of $10.0 million available under an uncommitted line of credit with Bank of America to be used for letters of credit.  At July 31, 2004, approximately $0.1 million of letters of credit were outstanding under this credit line.

 

As of June 30, 2004, The Gies Group (“Gies”) had available lines of credit of approximately $38.6 million of which approximately $13.5 million was outstanding.  The amounts outstanding under the lines of credit bear interest at a weighted average rate of 3.23% at June 30, 2004.  The lines of credit are renewed annually.

 

As of June 30, 2004, Kaemingk had available lines of credit of approximately $33.5 million with ING Bank N.V.  The lines of credit are collateralized by certain real estate and equipment owned by Kaemingk.  At June 30, 2004, approximately $7.7 million was outstanding at a weighted average interest rate of 2.75%.

 

Colony Gift Corporation Limited (“Colony”) has a $21.8 million short-term revolving credit facility with Barclays Bank, which matures in June 2005.  As of June 30, 2004, Colony had borrowings under the credit facility of approximately $5.0 million, at a weighted average interest rate of 5.23%.

 

20



 

At July 31, 2004, Miles Kimball had approximately $10.1 million of long-term debt outstanding under a real estate mortgage note payable to John Hancock Life Insurance Company, 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%.

 

At June 30, 2004, Kaemingk had approximately $8.1 million of long-term debt outstanding under six loans with ING Bank N.V. at a weighted average interest rate of 5.1%.  The bank loans have maturity dates ranging from 2005 through 2020.  The loans are collateralized by certain real estate and equipment owned by Kaemingk.

 

In July 1995, the Company privately placed $25.0 million aggregate principal amount of 7.54% Senior Notes due 2005.  As of July 31, 2004, $3.6 million of principal remained outstanding.  Such senior notes contain, among other provisions, requirements for maintaining certain financial ratios and net worth.  At July 31, 2004, the Company was in compliance with such provisions.  Payment on the notes commenced in June 1999 and annual installments of principal and interest are required to be paid through June 2005.

 

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 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.  At July 31, 2004, the Company was in compliance with such provisions.  Interest is payable semi-annually on April 1 and October 1.  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 provisions and restrictions similar to those in the 7.90% Senior Notes.  At July 31, 2004, the Company was in compliance with such covenants.  Interest on the notes began accruing on October 23, 2003 and will be payable semiannually in arrears on May 1 and November 1 of each year, commencing May 1, 2004.  The notes may be redeemed in whole or in part at any time at a specified redemption price.

 

At July 31, 2004, CBK had $4.6 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 La Salle Bank National Association.  The loan is collateralized by certain of CBK’s assets.  The amount outstanding under the IRB bears interest at short-term floating rates, which equaled a weighted average interest rate of 1.5% at July 31, 2004.

 

The Company’s Board of Directors has authorized the Company to repurchase up to 6,000,000 shares of common stock under the Company’s share repurchase program.  There were no repurchases under this share repurchase program in the quarter ended July 31, 2004.  Since January 31, 2004, the Company has purchased an additional 201,700 shares on the open market for a cost of $6.7 million, bringing the cumulative total purchased shares to 4,546,800 as of July 31, 2004 for a total cost of approximately $112.0 million.  The acquired shares are held as common stock in treasury at cost.

 

21



 

On June 7, 2004 the Company announced that its Board of Directors approved a repurchase of up to 4,000,000 outstanding shares of the Company’s common stock, with the right to repurchase up to an additional 2% of the Company’s outstanding shares, at a price per share not greater than $35.00 nor less than $30.00 through a Dutch auction cash tender offer.  The final number of shares repurchased under the tender offer, which expired on July 9, 2004, was 4,906,616 shares for an aggregate purchase price of $171.9 million including fees and expenses paid to date.  The tender offer was funded with $85.4 million of available cash and $86.5 million of borrowings against our $200 million Credit Facility.  The Company does not expect the tender offer to affect its share repurchase program, capital expenditures, dividend policy or acquisitions.

 

Critical Accounting Policies

 

There were no changes to our critical accounting policies in the second quarter of fiscal 2005.  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, 2004.

 

22



 

Item 3.             QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Market Risk

 

The Company has operations outside of the United States and sells its products worldwide.  The Company’s activities expose it to a variety of market risks, including the effects of changes in foreign currency exchange rates, interest rates and commodity prices.  These financial exposures are actively monitored and, where considered appropriate, managed by the Company.

 

Interest Rate Risk

 

As of July 31, 2004, the Company is subject to interest rate risk on approximately $123.0 million of variable rate debt.  Each 1-percentage point increase in the interest rate would impact pre-tax earnings by approximately $1.23 million if applied to the total.

 

On July 10, 2003, the Company terminated the interest rate swap agreement in relation to $50.0 million of our outstanding 7.90% Senior Notes, which mature on October 1, 2009.  This termination resulted in a deferred gain of approximately $5.0 million, which will be amortized over the remaining term of the Notes.

 

Foreign Currency Risk

 

The Company uses forward foreign exchange contracts to hedge the impact of foreign currency fluctuations on certain committed capital expenditures, certain inventory purchases, certain intercompany payables and certain intercompany loans.  The Company does not hold or issue derivative financial instruments for trading purposes.

 

The Company has designated its forward exchange contracts on Canadian intercompany purchases and forecasted 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 accumulated other comprehensive income (loss) (“OCI”) until earnings are affected by the variability of the cash flows being hedged.  With regard to commitments for machinery and equipment and inventory purchases, upon payment of each commitment, the underlying forward contract is closed and the corresponding gain or loss is transferred from accumulated OCI and is included in the measurement cost of the acquired asset.  If a hedging instrument is sold or terminated prior to maturity, gains and losses are deferred in accumulated OCI 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.  Approximately $69,000 of hedge losses are included in accumulated OCI at July 31, 2004, and are expected to be transferred into earnings within the next twelve months.

 

The Company has designated its foreign currency forward contracts related to intercompany loans 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 cash flow with the items being hedged.

 

23



 

The following table provides information about the Company’s foreign exchange forward contracts at July 31, 2004.

 

(In thousands, except average contract rate)

 

U.S. Dollar
Notional Amount

 

Average
Contract Rate

 

Estimated
Fair Value

 

Canadian Dollar

 

$

4,418

 

1.32

 

$

28

 

Euro

 

23,080

 

1.22

 

(129

)

Australian Dollar

 

684

 

1.00

 

(7

)

 

 

$

28,182

 

 

 

$

(108

)

 

The foreign exchange contracts outstanding as of June 30, 2004, have maturity dates ranging from July 2004 through December 2004.

 

24



 

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 the end of the period covered by this quarterly report.

 

(b) Changes in internal control over financial reporting.

 

There was no change 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 our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

25



 

Part II.  OTHER INFORMATION

 

Item 1.           Legal Proceedings

 

None.

 

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 second quarter of the fiscal year ended January 31, 2005.

 

ISSUER PURCHASES OF EQUITY SECURITIES(1)

 

Period

 

(a) Total
Number
of Shares
Purchased

 

(b)
Average
Price Paid
per Share

 

(c) Total
Number of
Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs

 

(d) Maximum Number (or
Approximate Dollar
Value) of Shares that May
Yet Be Purchased Under
the Plans or Programs

 

 

 

 

 

 

 

 

 

 

 

Month #1

May 1, 2004 -May 31, 2004

 

0

 

0

 

0

 

1,453,200 shares

 

 

 

 

 

 

 

 

 

 

 

Month #2

June 1, 2004 -June 30, 2004

 

0

 

0

 

0

 

1,453,200 shares

 

 

 

 

 

 

 

 

 

 

 

 

Month #3

July 1, 2004 - July 31, 2004

 

4,906,616

(2)

$

35.00

 

0

 

1,453,200 shares

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

4,906,616

 

$

35.00

 

0

 

1,453,200 shares

 

 


(1) On September 10, 1998, the Company’s Board of Directors approved the Company’s share repurchase program (the “Repurchase Program”) pursuant to which the Company can repurchase up to 1,000,000 shares of its issued and outstanding Common Stock in open market transactions.  On June 8, 1999, the Company’s Board of Directors amended the Repurchase Program and increased the number of shares of Common Stock to be repurchased by 1,000,000 shares, from 1,000,000 to 2,000,000 shares.  On March 30, 2000, the Company’s Board of Directors further amended the Repurchase Program and increased the number of shares of Common Stock to be repurchased by 1,000,000 shares, from 2,000,000 to 3,000,000 shares.  On December 14, 2000, the Company’s Board of Directors further amended the Repurchase Program and increased the number of shares of Common Stock to be repurchased by 1,000,000 shares, from 3,000,000 to 4,000,000 shares.  On April 4, 2002, the Company’s Board of Directors further amended the Repurchase Program and increased the number of shares of Common Stock to be repurchased by 2,000,000 shares, from 4,000,000 to 6,000,000 shares.  As of July 31, 2004, the Company has purchased a total of 4,546,800 shares of Common Stock under the Repurchase Program.  The Repurchase Program does not have an expiration date.  The Company intends to make further purchases under the Repurchase Program.

 

(2) On June 7, 2004 the Company announced that its Board of Directors approved a repurchase of up to 4,000,000 outstanding shares of the Company’s common stock, with the right to repurchase up to an additional 2% of the Company’s outstanding shares, at a price per share not greater than $35.00 nor less than $30.00 through a Dutch auction cash tender offer.  The final number of shares repurchased under the tender offer, which expired on July 9, 2004, was 4,906,616 shares for an aggregate purchase price of $ 171.9 million including fees and expenses paid to date.  The tender offer was funded with $85.4 million of available cash and $86.5 million of borrowings against our $200 million Credit Facility.  The Company does not expect the tender offer to affect its share repurchase program, capital expenditures, dividend policy or acquisitions.

 

26



 

Part II.  OTHER INFORMATION

 

Item 3.           Defaults upon Senior Securities

 

None

 

Item 4.           Submission of Matters to a Vote of Security Holders

 

The following matters were voted upon at the Annual Meeting of Stockholders held on June 24, 2004, and received the votes set forth below:

 

1)              Each of the following persons nominated was elected to serve as director and received the number of votes set forth opposite his name.

 

 

 

For

 

Against

 

Withheld

 

Abstentions

 

Robert B. Goergen

 

42,708,808

 

0

 

256,839

 

0

 

Neal I. Goldman

 

42,845,983

 

0

 

119,754

 

0

 

Howard E. Rose

 

34,052,632

 

0

 

8,913,015

 

0

 

 

 

In addition to the directors elected at the meeting, the directors of the Company whose terms of office continued after the meeting are:  Roger A. Anderson, John W. Burkhart, Pamela M. Goergen, Phillip Greer (Mr. Greer resigned on June 25, 2004), Carol J. Hochman, Wilma H. Jordan and John E. Preschlack.

 

2)              A proposal to ratify the appointment of Deloitte & Touche LLP as independent certified public accountants received 41,987,269 votes for, 962,347 votes against, 0 votes withheld and 16,031 abstentions.

 

3)              A resolution to adopt Amendment No. 1 to the Company’s 2003 Long-Term Incentive Plan received 35,473,414 votes for, 4,811,403 votes against, 0 votes withheld and 571,576 abstentions.  In addition there were 2,109,255 broker non-votes with respect to this resolution.

 

27



 

Item 5.           Other Information

 

The Company is including the following cautionary statement in this Report to make applicable, and to take advantage of, the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by, or on behalf of, the Company.  Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements, which are other than statements of historical facts.  From time to time, the Company and its representatives may publish or otherwise make available forward-looking statements of this nature.  All such forward-looking statements, whether written or oral, and whether made by or on behalf of the Company, are expressly qualified by the following cautionary statements.  Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.  Such forward-looking statements are expected to be based on various assumptions, many of which are based, in turn, upon further assumptions.

 

There can be no assurance that management’s expectations, beliefs or projections will occur or be achieved or accomplished.  In addition to other factors and matters discussed elsewhere in this Report and in the Company’s other public filings and statements, the following are important factors that, in the view of the Company, could cause actual results to differ materially from those discussed in the Company’s forward-looking statements.  The Company disclaims any obligation to update any forward-looking statements, or the following factors, to reflect events or circumstances after the date of this Report.

 

Risk of Inability to Maintain Growth Rate

 

The Company has experienced significant sales growth in past years.  While management expects continued growth, our future growth rate will likely be less than our historical growth rate.  The Company expects faster sales growth in its international market versus its United States market, particularly in the Direct Selling and Wholesale segments.  The market for our Away From Home or foodservice products has also grown historically, though at a slower rate, a pattern that is expected to continue.  In recent years, our overall sales for the Away From Home or foodservice products were flat, reflecting a generally weak economic environment during these years.  The Company’s ability to increase sales depends on numerous factors, including market acceptance of existing products, the successful introduction of new products, the ability to recruit new independent sales consultants, sourcing of raw materials and demand-driven increases in production and distribution capacity.  Business in all of our segments is driven by consumer preferences.  Accordingly, there can be no assurances that the Company’s current or future products will maintain or achieve market acceptance.  Our sales and earnings results can be negatively impacted by the worldwide economic environment, particularly the Canadian, United States and European economies.  There can be no assurances that the Company’s financial results will not be materially adversely affected by these factors in the future.

 

The Company’s historical growth has been due in part to acquisitions and management continues to consider additional strategic acquisitions.  There can be no assurances that management will continue to identify suitable acquisition candidates, consummate acquisitions on terms favorable to the Company, finance acquisitions or successfully integrate acquired operations

 

Risks Associated with International Sales and Foreign-Sourced Products

 

Our international sales growth rate has outpaced our United States growth rate in recent years.  Moreover, the Company sources a portion of its products in all of its business segments from independent manufacturers in the Pacific Rim, Europe and Mexico.  For these reasons, we are subject to the following risks associated with international manufacturing and sales:  fluctuations in currency exchange rates, economic or political instability, international public heath crises, transportation costs and delays, difficulty in maintaining quality control, restrictive governmental actions, nationalizations, the laws and policies of the United States, Canada and certain European countries affecting the importation of goods (including duties, quotas and taxes) and the trade and tax laws of other nations.

 

28



 

Ability to Respond to Increased Product Demand

 

The Company’s ability to meet future product demand in all of its business segments will depend upon its success in (1) bringing new production and distribution capacity on line in a timely manner, (2) improving its ability to forecast product demand and fulfill customer orders promptly, (3) improving customer service-oriented management information systems and (4) training, motivating and managing new employees.  The failure of any of the above could result in a material adverse effect on our financial results.

 

Risk of Shortages of Raw Materials

 

Certain raw materials could be in short supply due to capacity, availability, a change in requirements, weather or other factors, including supply disruptions due to production or transportation delays.  Such shortages have not had and are not presently expected to have a material adverse effect on the Company’s operations.  While the price of crude oil is only one of several factors impacting the price of petroleum wax, it is possible that recent fluctuations in oil prices may have a material adverse affect on the cost of petroleum-based products used in the manufacture or transportation of our products, particularly in the Direct Selling and Wholesale segments.

 

Dependence on Key Corporate Management Personnel

 

Our success depends in part on the contributions of key corporate management, including its Chairman and Chief Executive Officer, Robert B. Goergen.  The Company does not have employment contracts with any of its key corporate management personnel except Mr. Goergen, nor does it maintain any key person life insurance policies.  The loss of any of the key corporate management personnel could have a material adverse effect on the Company.

 

Risk of Increased Competition

 

Our business is highly competitive both in terms of pricing and new product introductions.  The worldwide market for home expressions products is highly fragmented with numerous suppliers serving one or more of the distribution channels served by the Company.  Because there are relatively low barriers to entry in all of our business segments, the Company may face increased competition from other companies, some of which may have substantially greater financial or other resources than those available to us.  Competition includes companies selling candles manufactured at low cost outside of the United States.  Moreover, certain competitors focus on a single geographic or product market and attempt to gain or maintain market share solely on the basis of price.

 

Risks Associated with Terrorist Attacks or Other Hostilities and the International Political Climate

 

Geopolitical conflict, including acts of war and terrorist attacks, have and may in the future affect the US and global economies and may increase other risk factors faced by the Company.

 

Risks Related to Information Technology Systems

 

Our information technology systems are dependent on global communications providers, telephone systems, hardware, software and other aspects of Internet infrastructure that have experienced significant system failures and outages in the past.  Our systems are susceptible to outages due to fire, floods, power loss, telecommunications failures, break-ins and similar events.  Despite the implementation of network security measures, the Company’s systems are vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with Company systems.  The occurrence of these or other events could disrupt or damage our information technology systems and inhibit internal operations, the ability to provide customer service or the ability of customers or sales personnel to access the Company’s information systems.

 

29



 

Item 6.           Exhibits and Reports on Form 8-K

 

a)              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.

 

b)             Reports on Form 8-K

 

During the fiscal quarter ended July 31, 2004, the Company filed the following Current Reports on Form 8-K:

 

Current Report on Form 8-K on May 3, 2004 to announce that the Company’s fiscal 2003 financial statements have been restated to reflect the recording of goodwill impairment charges. The restated financial statements appeared in the Company’s annual report on Form 10-K for the fiscal year ended January 31, 2004, which was filed with the Commission on April 30, 2004.

 

Current Report on Form 8-K/A on May 6, 2004 to announce the blackout period for the fiscal quarter ended April 30, 2004 with respect to the purchase or sale of the Company’s common stock by employees, directors and officers.

 

Current Report on Form 8-K on June 7, 2004 to announce a new record date for its Annual Meeting of Stockholders held on June 24, 2004.

 

Current Report on Form 8-K on June 8, 2004 to file as an exhibit the press release reporting the Company’s results of operations for the fiscal quarter ended April 30, 2004.

 

Current Report on Form 8-K on June 8, 2004 to announce the commencement of a Dutch auction self-tender offer.

 

Current Report on Form 8-K on July 12, 2004 to announce the preliminary results of its Dutch auction self-tender offer.

 

Current Report on Form 8-K on July 16, 2004 to announce the final results of its Dutch auction self-tender offer.

 

Current Report on Form 8-K on July 16, 2004 to announce the blackout period for the fiscal quarter ended July 31, 2004 with respect to the purchase or sale of the Company’s common stock by employees, directors and officers.

 

30



 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

BLYTH, INC.

 

 

 

 

 

 

Date:

September 9, 2004

 

By:

/s/Robert B. Goergen

 

 

 

Robert B. Goergen

 

 

Chairman and Chief Executive Officer

 

 

 

 

 

 

Date:

September 9, 2004

 

By:

/s/Robert H. Barghaus

 

 

 

Robert H. Barghaus

 

 

Vice President and Chief Financial Officer

 

31