UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
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For the fiscal year ended January 31, 2004 |
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
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For the transition period from __________________ to __________________ |
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Commission File number 1-13026 |
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BLYTH, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware |
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36-2984916 |
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(State or Other Jurisdiction of |
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(I.R.S. Employer |
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One East Weaver Street |
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06831 |
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(Address of Principal Executive Offices) |
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(Zip Code) |
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Registrant’s telephone number, including area code: (203) 661-1926 |
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Securities registered pursuant to Section 12(b) of the Act: |
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Title of Each Class |
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Name of Each Exchange on Which Registered |
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Common Stock, $0.02 par value |
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ý No o
As of July 31, 2003, the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $853 million based on the closing price of the registrant’s Common Stock on the New York Stock Exchange on such date and based on the assumption, for purposes of this computation only, that all of the registrant’s directors and executive officers are affiliates.
As of April 27, 2004, there were 45,618,927 outstanding shares of Common Stock, $0.02 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 2004 Proxy Statement for the Annual Meeting of Shareholders to be held on June 24, 2004 (Incorporated into Part III).
TABLE OF CONTENTS
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(a) General Development of the Business
Blyth, Inc. (together with its subsidiaries, the “Company,” which may be referred to as “we,” “us” or “our”) is a home expressions company competing primarily in the home décor, seasonal decorations and gift industry. The Company designs, markets and distributes an extensive array of candles, home fragrance products, decorative accessories, seasonal decorations and household convenience items, as well as tabletop lighting and chafing fuel for the Away From Home or foodservice trade. Blyth manufactures most of its candles and sources nearly all of its other products. The Company’s sales and operations take place primarily in the United States, Canada and Europe, with additional activity in Mexico, Australia and the Far East.
Blyth became a publicly traded company in 1994, at which time net sales were approximately $157.5 million. Both internal growth and acquisitions have contributed to significant overall growth since that time. Internal growth has been generated by (a) increased sales of existing home expressions products to consumers and retailers, (b) the introduction of new products and product line extensions and (c) geographic expansion. The Company has also integrated numerous acquisitions and investments into its operations since its formation in 1977.
Additional information is available on our website, www.blyth.com. The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments thereto filed or furnished pursuant to the Securities Exchange Act of 1934 are available on our website free of charge as soon as reasonably practicable following submission to the SEC. Also available on the Company’s website are its Corporate Governance Guidelines, its Code of Conduct, and the charters for its Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, each of which is available in print to any shareholder who makes a request to Blyth, Inc., One East Weaver Street, Greenwich, CT 06831; Attention Bruce D. Kreiger, Secretary. The information posted to www.blyth.com, however, is not incorporated herein by reference and is not a part of this Annual Report on Form 10-K.
(b) Business Segments
The Company reports its financial results in five business segments: the Direct Selling segment, the Wholesale Home Fragrance segment, the Wholesale Creative Expressions segment, the Catalog & Internet segment, and the All Other segment. These segments accounted for approximately 51%, 25%, 14%, 7% and 4% of consolidated net sales, respectively, for the fiscal year ended January 31, 2004.* Financial information relating to these business segments for the years ended January 31, 2004, 2003 and 2002 appears in Note 18 of the Company’s consolidated financial
* Percentages do not add up to 100% due to rounding.
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statements and is incorporated herein by reference.
In fiscal year 2004, this segment represented approximately 51% of Blyth’s total sales. Products sold globally in the Direct Selling segment are marketed through a network of independent sales consultants using the party plan method of direct selling. Products designed, manufactured or sourced, marketed and distributed within this segment include fragranced and non-fragranced candles, bath products and a broad range of related accessories. These products are sold in North America, Europe and Australia under the brand name PartyLite®.
Within the United States market, candles, other home fragrance products, bath products and related accessories are sold directly to consumers through a network of independent sales consultants. Independent sales consultants are compensated on the basis of PartyLite® brand product sales at parties organized by them and parties organized by consultants recruited by them. Over 36,000 independent sales consultants located in the US were selling PartyLite® brand products in the US at fiscal 2004 year-end. Our products are designed, packaged and priced in a manner appropriate to the premium nature of their quality and exclusivity and distribution channel through which they are sold.
We support our independent sales consultants with inventory management and control and satisfy delivery requirements through on-line ordering, which is available to all independent sales consultants in the United States, Canada and Germany.
In fiscal year 2004, this segment represented approximately 25% of Blyth’s total sales. Blyth is a global wholesale home fragrance company. Products designed, manufactured or sourced, marketed and distributed within this segment include fragranced and non-fragranced candles, potpourri, seasonal decorations, environmental fragrance products such as air fresheners and filters and a broad range of related accessories. These products are sold in multiple channels of distribution in North America and Europe under brand names that include Ambria®, Colonial™1, Colonial Candle of Cape Cod®, Colonial at HOME®, Carolina®, Florasense®, Gies®1,Kaemingk®1 and Liljeholmens®. Our wholesale home fragrance products are designed, packaged and priced to satisfy the varying demands of consumers within each distribution channel.
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Products sold in the Wholesale Home Fragrance segment in the United States are marketed through the premium and mass consumer wholesale channels. Within these channels, we sell candles, home fragrance products and related accessories to independent gift shops, specialty chains, department stores, food and drug outlets and mass retailers through independent sales representatives, Company key account managers and Company sales managers. This sales force supports the Company’s customers with comprehensive product catalogs and samples, merchandising programs and selective fixtures. The independent sales representatives, Company key account managers and Company sales managers also receive training on the marketing and proper use of our products.
In June 2003, Blyth acquired Kaemingk, B.V., a European wholesaler of premium seasonal decorations. Its products are sold to more than 3,000 garden centers, and department and gift stores in 20 European countries under the brand name Kaemingk®1. Kaemingk’s customer base and sourcing requirements are similar to those of our other Wholesale Home Fragrance businesses, and one management team handles oversight responsibility for all businesses in this segment.
Blyth’s international wholesale operations also include exports of products from the United States and various European countries to Canada, Europe, Latin America and the Pacific Rim. Exported products are sold through Company sales managers and independent sales representatives to premium and mass retailers. The Company may expand its international presence through the establishment of additional non-US based marketing and distribution operations.
The Company believes that competing in multiple distribution channels offers certain advantages. Successful new ideas and research can be shared among and adapted by Blyth’s marketing groups. Blyth’s competitive position in these channels is enhanced by its ability to respond quickly to changes in consumer preferences and new product trends. Moreover, the Company effectively supports customers with inventory management and control and satisfies delivery requirements through electronic ordering, which is available to independent sales representatives and sales managers in the premium wholesale channel.
Wholesale Creative Expressions Segment
In fiscal year 2004, this segment represented approximately 14% of Blyth’s total sales. Blyth designs, markets and distributes home décor products and seasonal decorations within this segment. These products are sold through multiple distribution channels under brand names that include CBK®, Holiday365™ and Seasons of Cannon Falls™.
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Home décor products and seasonal decorations are sold in the United States to premium and mass retailers. Premium everyday home décor products and gifts, including decorative metal and wicker accessories, picture frames, lamps and textiles are designed for and marketed and distributed to more than 25,000 premium independent retailers. Blyth also designs, markets and distributes seasonal decorations for the premium and mass distribution channels. During fiscal year 2004, the Impact Plastics seasonal decorations business was realigned with that of our other Wholesale Creative Expressions business, Midwest, in order to concentrate these seasonal businesses into one unit.
Catalog & Internet Segment
In fiscal year 2004, this segment represented approximately 7% of Blyth’s total sales. Blyth designs, markets and distributes a wide range of household convenience items, personalized gifts and photo storage products within this segment. These products are sold through the catalog and Internet distribution channel under brand names that include Exposures®, Miles Kimball®, Walter Drake® and The Home Marketplace®.
Blyth acquired the Miles Kimball Company, a catalog and Internet marketer of household convenience products, personalized gifts, photo albums, frames and holiday cards, in April 2003. In December 2003, the Company acquired Jackson Acquisition Company, LLC, doing business as Walter Drake, which markets similar products through the catalog and Internet distribution channel. In fiscal year 2005, we began consolidating the operations of Walter Drake into those of Miles Kimball in Oshkosh, Wisconsin as the seasonality of the Miles Kimball business is complemented by the relatively less seasonal selling pattern of Walter Drake, thereby enhancing distribution center capacity utilization throughout the year.
All Other Segment
In fiscal year 2004, this segment represented approximately 4% of Blyth’s total sales. Within this segment, we manufacture and source chafing fuel and tabletop illumination products sold under brand names including Sterno®, HandyFuel® and Ambria® for the Away From Home or foodservice channel. These products are sold primarily in the United States, as well as in Canada, Europe, Latin America and the Pacific Rim through independent sales representatives and foodservice distributors.
Products sold in the All Other segment in the United States are marketed by the Company to the foodservice industry. Chafing fuel and tabletop lighting products such as candles, liquid fuel lamps and accessories are sold to restaurants, caterers, hotels and other institutional customers. Sales are solicited by independent sales representatives, independent foodservice distributors and Company sales managers.
The Company also exports foodservice products from the United States. Exported products are sold through Company sales managers and
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independent sales representatives to retailers and foodservice distributors.
The key brand names under which our Direct Selling segment products are sold are:
PartyLite®
Lavish by PartyLite™
The key brand names under which our Wholesale Home Fragrance segment products are sold are:
Asp-Holmblad®(1)
Carolina®
Colonial™(1)
Colonial Candle of Cape Cod®
Colonial at HOME®
Florasense®
Gies®(1)
Kaemingk®(1)
Liljeholmens®
The key brand names under which our Wholesale Creative Expressions segment products are sold are:
CBK®
Holiday365™
JMC Impact™
Seasons of Cannon Falls™
The key brand names under which our Catalog & Internet segment products are sold are:
Exposures®
Miles Kimball®
The Home Marketplace®
Walter Drake®
The key brand names under which our All Other segment products are sold are:
Ambria®
HandyFuel®
Sterno®
Concepts for new products and product line extensions are directed to the marketing departments of our business units from within all areas of the Company, as well as from the Company’s independent sales representatives and worldwide product manufacturing partners. The new product development process may include technical research, consumer market research, fragrance studies, comparative analyses, the formulation of engineering specifications, feasibility studies, safety assessments, testing and evaluation which can generally require from 3 to 18 months to complete. Each year, new products typically account for at least 25% of our net sales in the first full year following their introduction.
The Company’s focus on new products and product line extensions specific to each distribution channel and segment has been an important element of its efforts to become a leading home expressions products company. The continual introduction of new product forms, shapes, fragrances, packaging and presentation is intended to appeal to the changing tastes of consumers and retailers.
In all of the Company’s business segments, management continuously works to increase value and lower costs through increased efficiency in worldwide production, sourcing and distribution practices, application of new
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technologies and process control systems, and consolidation and rationalization of equipment and facilities. Since our 1994 initial public offering, we have invested over $255 million in new facilities and equipment in order to lower manufacturing costs, improve product quality and increase manufacturing capacity significantly in order to accommodate expected future sales growth, as well as to improve the speed to market of new product introductions. Management has also closed several facilities and written down the values of certain machinery and equipment in recent years in response to changing market conditions.
The manufacture of Blyth’s products involves the use of highly automated processes and technologies, as well as certain hand crafting and finishing. Many of the Company’s products in all of its business segments are manufactured by others based on Blyth’s design specifications, making the Company’s global supply chain approach critically important to its new product development process, quality control and cost management. Management has also built a network of stand-alone highly automated distribution facilities in its core markets.
The Company continues to see the benefit of its substantial investment in technological initiatives, particularly Internet-based ordering technology. An Internet-based order-entry and business management system is available to all PartyLite independent sales consultants in the United States, Canada and Germany. By fiscal year end, show orders placed via the PartyLite Extranet had increased to over 75% of total show orders in the United States and over 85% of total show orders in Canada. The system became available to PartyLite consultants in Germany during the third quarter of fiscal 2004, and approximately 20% of German show orders were being placed via the Extranet by year-end. The Extranet’s automated features eliminate errors common on hand-written paper forms and speed orders through processing and distribution, improving customer service. Furthermore, by easing the administrative workload and providing tools with which to track sales and programs, the Extranet has helped PartyLite independent sales consultants build their businesses more efficiently. The improved accuracy of the automated system also results in administrative savings for the Company.
By fiscal year end, Blyth’s consumer wholesale business in North America introduced UCCnet support with which the Company now supports automated product information synchronization with retailers in the mass channel. This new technical capability enables us to send immediate, up-to-date product information to participating retailers to ensure that they have current Blyth product information to support their supply chain. Today Blyth supports over 200 retail customers with various modes and forms of electronic data interchange (EDI).
Customers in the Direct Selling segment are individual consumers served by independent sales consultants. Sales within the Catalog & Internet segment are also made directly to consumers. Blyth’s Wholesale Home Fragrance segment and Wholesale Creative Expressions segment customers include
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department and independent gift stores, mass merchandisers, specialty chains and food and drug stores. Within its All Other segment, the Company sells to institutional customers such as hotels, restaurants and foodservice distributors. No single customer accounts for 10% or more of Blyth’s sales.
All of the Company’s business segments are very competitive. Principle competitive factors are new product introductions, price, product quality, delivery time and customer service. The domestic and international markets are very fragmented and served by numerous suppliers in all of Blyth’s business segments. Additional information about ways in which the Company’s business may be affected by increased competition appears below under the heading “Risk of Increased Competition.”
As of January 31, 2004, the Company had approximately 5,600 full-time employees, of whom approximately 26% are based outside of the United States. Approximately 4,200 of the 5,600 employees are non-salaried. Blyth does not have any unionized employees in the United States. Approximately 50 employees of the Gies Group are represented by the IG Chemie labor union in the Company’s German facility and have a General Agreement in place with no termination period. A Wages Agreement will be under negotiation for renewal beginning in May 2004 and currently may be terminated by the union at the end of that month. Management believes that relations with the Company’s employees are good. Since its formation in 1977, Blyth has never experienced a work stoppage.
All of the raw materials used by Blyth for its candles, home fragrance products and chafing fuel, principally petroleum-based wax, fragrance, glass containers and corrugate, have historically been available in adequate supply from multiple sources. Additional information about ways in which Blyth’s business may be affected by shortages of raw materials appears below under the heading “Risk of Shortages of Raw Materials.”
The Company owns and has pending numerous trademark registrations and applications in the United States Patent and Trademark Office related to its products. Blyth also registers certain trademarks in other countries. While management regards these trademarks and patents as valuable assets to its business, the Company is not dependent on any single trademark or patent or group thereof.
Most of the Company’s manufacturing, distribution and research operations are affected by federal, state, local and international environmental laws relating to the discharge of materials or otherwise to the protection of the environment. Management has made and intends to continue to make the necessary expenditures to comply with applicable environmental laws and does not believe that such expenditures will have a material effect on the Company’s
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capital expenditures, earnings or competitive position.
The disclosure and analysis in this report and in Blyth’s 2004 Annual Report to Shareholders contain forward-looking statements that describe the Company’s current expectations or forecasts of future events. One can usually identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other similar words or terms in connection with any discussion of future operating or financial performance. These include statements relating to future actions, performance or results related to current or future products or product approvals, sales efforts, expenses, the outcome of contingencies such as legal proceedings and financial results. From time to time, the Company may provide oral or written forward-looking statements in other public materials.
Any or all of the forward-looking statements in this report, in our 2004 Annual Report to Shareholders and in any other public statements made by management may turn out to be wrong. They may be affected by inaccurate assumptions or known or unknown risks or uncertainties. Many factors mentioned in this discussion, such as competition or the competitive environment, are important to the outcome of future results. Consequently, no forward-looking statements can be guaranteed, and actual results may vary materially from the Company’s projections.
Management undertakes no obligation to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise. However the public is advised to review any future disclosures the Company makes on related subjects in its quarterly reports on Form 10-Q, current reports on Form 8-K and annual reports on Form 10-K to the SEC. The Company also provides below the following cautionary discussion of risks, uncertainties and potentially inaccurate assumptions relevant to its business. These and other factors could cause actual results to differ materially from expected and historical results and are provided as permitted by the Private Securities Litigation Reform Act of 1995.
The Company has experienced significant sales growth in past years. While management expects continued growth, Blyth’s future growth rate will likely be less than its 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 Home Fragrance business segments. The market for Blyth’s 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
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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 Blyth’s 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. Blyth’s 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.
Blyth’s international sales growth rate has outpaced that of its 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, Blyth is 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.
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 Blyth’s financial results.
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 Blyth’s
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products, particularly in the Direct Selling and Wholesale Home Fragrance business segments.
Blyth’s 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.
As noted above under the heading “Competition,” Blyth’s 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 Blyth’s 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 Blyth. 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.
Blyth’s 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. Blyth’s 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 Blyth’s 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.
(1) Registered and sold outside the United States only.
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Item 2. Properties
The following table sets forth the location and approximate square footage of the Company’s major manufacturing and distribution facilities:
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Approximate Square Feet |
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Location |
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Use |
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Business Segment |
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Owned |
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Leased |
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Aalten, Netherlands |
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Distribution |
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Wholesale Home Fragrance |
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227,500 |
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148,000 |
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Arndell Park, Australia |
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Distribution |
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Direct Selling |
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10,000 |
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Batavia, Illinois |
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Manufacturing and Research & Development |
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Direct Selling and Wholesale Home Fragrance |
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486,000 |
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Caldas da Rainha, Portugal |
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Manufacturing and related distribution |
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Wholesale Home Fragrance |
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230,000 |
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Cannon Falls, Minnesota |
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Distribution |
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Wholesale Creative Expressions |
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192,000 |
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Carol Stream, Illinois |
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Distribution |
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Direct Selling |
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651,000 |
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Clara City, Minnesota |
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Manufacturing and related distribution |
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Wholesale Creative Expressions |
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