**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WashingtonD.C. 20549**

 

**FORM 10-Q/A**

**(AmendmentNo. 1)**

**(MarkOne)**

 

| **ý** | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**  |
|------------|------------|-----------------------------------------------------------------------------------------------|
|       |       |                                                                                          |
| ** ** | ** ** | **For the quarterly period ended April 30, 2003**                                             |
|       |       |                                                                                          |
|       |       | **or**                                                                                        |
|       |       |                                                                                          |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |

 

**Forthe transition period from                   to                   **

 

**Commission file****number 1-13026**

 

**BLYTH, INC.**

(Exact name ofregistrant 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’stelephone number, including area code)

 

#### **Not Applicable**

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

 

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

Yes ý                                     Noo

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Exchange Act Rule12b-2).

Yes ý                                     Noo

 

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

 

**45,946,727Common Shares as of May 31, 2003**

 

 

----

 

#### **Explanatory Note**

 

**The purpose for this AmendmentNo. 1 to Blyth, Inc.’s Quarterly Report on Form 10-Q/A for the period endedApril 30, 2003, is to restate our financial statement footnotes to reflect oursegments as revised as of January 31, 2004 based on FASB Statement No. 131,“Disclosures about Segments of an Enterprise and Related Information”.**  Thisrevision of segments had the related effect of requiring changes in the Company’sreporting units for purposes of goodwill impairment reviews under SFAS 142,retroactive to the February 1, 2002 adoption date of SFAS 142.  Thisresulted in the need to perform impairment reviewsof several additional reporting units as of February 1, 2002 and eachsubsequent year-end balance sheet date, thereafter. These impairment reviewsindicated the need to record additional impairment charges as of the February1, 2002 adoption of SFAS 142, specifically to write-off $20.9 million ingoodwill associated with the 1999 acquisition of the Gies Group and $6.3million in goodwill associated with the 1999 acquisition of the ColonyGroup.  As a result, we have restated our2003 financial statements as discussed in Note 2 to the Consolidated FinancialStatements to reflect this goodwill impairment charge as a cumulative effect ofaccounting change for the adoption of SFAS 142 as of February 1, 2002 and suchrestatement is reflected throughout management’s discussion and analysis thatis set forth below.

** **

**We have restated footnotes 4, 5,7 and 9 to our financial statements and made changes to Management’s Discussionand Analysis of Financial Condition and Results of Operations as necessary toreflect the results of the restatements discussed above.  No other changes have been made to ourQuarterly Report for the period ended April 30, 2003.  No attempt has been made in this Form 10-Q/Ato modify or update any disclosures except as required to reflect the resultsof the restatements discussed above and any changes made to prior periodfinancial information for which a Form 10-Q/A was not filed.  This Form 10-Q/A does not reflect eventsoccurring after the filing of the original Form 10-Q or modify or update thosedisclosures affected by subsequent events.**

 

2

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**BLYTH,INC.**

 

**INDEX**

 
| Form 10-Q Cover Page |                   |
|----------------------|------------------------|
|                 |                   |
| Explanatory  Note    |                   |
|                 |                   |
| Form 10-Q 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.                | Control and Procedures |   |
|                 |                   |   |   |
| Part II.             | Other Information      |   |
|                 |                   |   |   |
|                 | Item  1.               | Legal  Proceedings |   |
|                 |                   |   |   |
|                 | Item 2.                | Changes in Securities |   |
|                 |                   |   |   |
|                 | 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           |                   |
|                      |                        |  |  |  |  |

 

3

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PartI.  FINANCIAL INFORMATION

Item1. FINANCIAL STATEMENTS

 

**BLYTH, INC. AND SUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**

 
| **(In  thousands, except share and per share data)**                                                                            | ** ** | **April 30,  2003** | ** ** | **January 31,  2003**  | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|------------------------|------------|
| ** **                                                                                                                      | ** ** | **(Unaudited)**     | ** ** | **Restated  (Note 2)** | ** ** |
| **ASSETS**                                                                                                                      |       |                |       |                   |       |
| **Current assets:**                                                                                                             |       |                |       |                   |       |
| Cash  and cash equivalents                                                                                                      |       | $                   | 122,391    |                   | $          | 168,596 |   |
| Accounts  receivable, less allowance for doubtful receivables of $3,731 and $4,093,  respectively                               |       | 83,972              |       | 82,913                 |       |
| Inventories                                                                                                                     |       | 200,450             |       | 187,935                |       |
| Prepaid  and other                                                                                                              |       | 30,479              |       | 23,044                 |       |
| Assets  held for sale                                                                                                           |       | —              |       | 690                    |       |
| Deferred  income taxes                                                                                                          |       | 17,158              |       | 14,297                 |       |
| Total  current assets                                                                                                           |       | 454,450             |       | 477,475                |       |
| **Property, plant and equipment, at cost:**                                                                                     |       |                |       |                   |       |
| Less  accumulated depreciation of $186,119 and $178,397, respectively                                                           |       | 260,227             |       | 244,798                |       |
| **Other assets:**                                                                                                               |       |                |       |                   |       |
| Investments                                                                                                                     |       | 3,795               |       | 3,564                  |       |
| Excess  of cost over fair value of assets acquired                                                                              |       | 158,753             |       | 113,534                |       |
| Other  intangible assets, net of accumulated amortization of $150                                                               |       | 29,169              |       | 4,219                  |       |
| Deposits  and other assets                                                                                                      |       | 18,113              |       | 16,494                 |       |
|                                                                                                                            |       | 209,830             |       | 137,811                |       |
| Total  assets                                                                                                                   |       | $                   | 924,507    |                   | $          | 860,084 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                   |       |                |       |                   |       |
| **Current liabilities:**                                                                                                        |       |                |       |                   |       |
| Bank  lines of credit                                                                                                           |       | $                   | 15,372     |                   | $          | 7,377 |   |
| Current  maturities of long-term debt                                                                                           |       | 4,411               |       | 4,037                  |       |
| Accounts  payable                                                                                                               |       | 60,317              |       | 58,571                 |       |
| Accrued  expenses                                                                                                               |       | 75,520              |       | 80,953                 |       |
| Dividend  payable                                                                                                               |       | 5,979               |       | —                 |       |
| Income  taxes                                                                                                                   |       | 15,798              |       | 2,477                  |       |
| Total  current liabilities                                                                                                      |       | 177,397             |       | 153,415                |       |
| **Deferred income taxes**                                                                                                       |       | 33,230              |       | 20,810                 |       |
| **Long-term debt,** less current maturities                                                                                     |       | 176,084             |       | 165,079                |       |
| **Minority interest and other**                                                                                                 |       | 19,649              |       | 12,928                 |       |
| **Commitments and contingencies**                                                                                               |       | —              |       | —                 |       |
| **Stockholders’ equity:**                                                                                                  |       |                |       |                   |       |
| Preferred  stock - authorized 10,000,000 shares of $0.01 par value; no shares issued                                            |       | —              |       | —                 |       |
| Common  stock - authorized 100,000,000 shares of $0.02 par value; issued 49,733,227  shares and 49,703,682 shares, respectively |       | 995                 |       | 994                    |       |
| Additional  contributed capital                                                                                                 |       | 101,906             |       | 101,567                |       |
| Retained  earnings                                                                                                              |       | 510,275             |       | 496,627                |       |
| Accumulated  other comprehensive income (loss)                                                                                  |       | (5,616              | )          | (4,751                 | )          |
| Treasury  stock, at cost, 3,755,900 shares and 3,644,100 shares, respectively                                                   |       | (89,413             | )          | (86,585                | )          |
| Total  stockholders’ equity                                                                                                |       | 518,147             |       | 507,852                |       |
| Total  liabilities and stockholders’ equity                                                                                |       | $                   | 924,507    |                   | $          | 860,084 |   |

 

***The accompanying notes are an integral part of these financialstatements.***

 

4

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**BLYTH, INC. AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF EARNINGS**

 

**Three monthsended April 30,** (Unaudited, in thousands, except per sharedata)

 
| ** **                                                                                                | ** ** | **2003**   | ** ** | **2002**               | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|------------|------------|------------------------|------------|
| ** **                                                                                                | ** ** | ** ** | ** ** | **Restated  (Note 2)** | ** ** |
| Net  sales                                                                                                |       | $          | 311,991    |                   | $          | 277,896 |   |
| Cost  of goods sold                                                                                       |       | 150,595    |       | 132,888                |       |
| Gross  profit                                                                                             |       | 161,396    |       | 145,008                |       |
| Selling                                                                                                   |       | 97,069     |       | 88,407                 |       |
| Administrative                                                                                            |       | 30,069     |       | 25,693                 |       |
|                                                                                                      |       | 127,138    |       | 114,100                |       |
| Operating  profit                                                                                         |       | 34,258     |       | 30,908                 |       |
| Other  expense (income):                                                                                  |       |       |       |                   |       |
| Interest  expense                                                                                         |       | 3,590      |       | 3,823                  |       |
| Interest  income and other                                                                                |       | (591       | )          | (441                   | )          |
| Equity  in (earnings) loss of investee                                                                    |       | 135        |       | (28                    | )          |
|                                                                                                      |       | 3,134      |       | 3,354                  |       |
| Earnings  before income taxes, minority interest and cumulative effect of change in  accounting principle |       | 31,124     |       | 27,554                 |       |
| Income  tax expense                                                                                       |       | 11,453     |       | 10,250                 |       |
| Earnings  before minority interest and cumulative effect of change in accounting principle                |       | 19,671     |       | 17,304                 |       |
| Minority  interest                                                                                        |       | (44        | )          | —                 |       |
| Cumulative  effect of change in accounting principle, net of taxes of $2,887                              |       | —     |       | (31,753                | )          |
| Net  earnings                                                                                             |       | $          | 19,627     |                   | $          | (14,449 | ) |
| Basic:                                                                                                    |       |       |       |                   |       |
| Earnings  per common share before cumulative effect of change in accounting principle                     |       | $          | 0.43       |                   | $          | 0.37 |   |
| Cumulative  effect of change in accounting principle                                                      |       | —     |       | (0.69                  | )          |
|                                                                                                      |       | $          | 0.43       |                   | $          | (0.32 | ) |
| Weighted  average number of shares outstanding                                                            |       | 46,080     |       | 46,290                 |       |
| Diluted:                                                                                                  |       |       |       |                   |       |
| Earnings  per common share before cumulative effect of change in accounting principle                     |       | $          | 0.42       |                   | $          | 0.37 |   |
| Cumulative  effect of change in accounting principle                                                      |       | —     |       | (0.68                  | )          |
|                                                                                                      |       | $          | 0.42       |                   | $          | (0.31 | ) |
| Weighted  average number of shares outstanding                                                            |       | 46,208     |       | 46,474                 |       |

 

***The accompanying notes are an integral part of thesefinancial statements.***

 

5

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**BLYTH,INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OFSTOCKHOLDERS’ EQUITY**

 

(Unaudited, in thousands,except share data)

 
| ** **                                                           | ** ** | ** **       | ** ** | ** ** | ** **             | ** **                           | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Accumulated  other  comprehensive  income (loss)** | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------|------------|------------------|------------|------------|------------------------|--------------------------------------|--------------------|------------|------------|------------|------------|------------|------------|------------------------------------------------------|------------|------------|------------|
| ** **                                                           | ** ** | ** **       | ** ** | ** ** | ** **             | **Additional  contributed  capital** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                                           | ** ** | ** ** |
| ** **                                                           | ** ** | **Common stock** | ** ** | ** ** | **Retained  earnings** | ** **                           | **Treasury stock** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                           | ** ** | **Shares**       | ** ** | **Amount** | ** **             | ** **                           | ** **         | **Shares** | ** ** | **Amount** | ** ** | ** ** | **Total**  | ** **                                           |
|                                                                 |       |             |       |       |                   |                                 |               |       |       |       |       |       |       |                                                 |       |       |       |
| **For  the three months ended April 30, 2002:**                      |       |             |       |       |                   |                                 |               |       |       |       |       |       |       |
|                                                                 |       |             |       |       |                   |                                 |               |       |       |       |       |       |       |                                                 |       |       |       |
| Balance,  January 31, 2002                                           |       | 49,509,776       |       | $          | 990                    |                                 | $                  | 97,879     |       | $          | 449,038    |       | (2,630,900 | )                                                    | $          | (62,950    | )          | $ | (16,894 | ) | $ | 468,063 |   |
|                                                                 |       |             |       |       |                   |                                 |               |       |       |       |       |       |       |                                                 |       |       |       |
| Net  earnings for the period -  Restated (Note 2)                    |       |             |       |       |                   |                                 |               | (14,449    | )          |       |       |       |       |                                                 |       | (14,449    | )          |
| Foreign  currency translation adjustments - Restated (Note 2)        |       |             |       |       |                   |                                 |               |       |       |       |       |       |       | (2,305                                               | )          | (2,305     | )          |
| Unrealized  holding gains on certain investments (net of tax of $27) |       |             |       |       |                   |                                 |               |       |       |       |       |       |       | 44                                                   |       | 44         |       |
| Net  loss on cash flow hedging instruments (net of tax of $9)        |       |             |       |       |                   |                                 |               |       |       |       |       |       |       | (15                                                  | )          | (15        | )          |
| Comprehensive  income - Restated (Note  2)                           |       |             |       |       |                   |                                 |               |       |       |       |       |       |       |                                                 |       | (16,725    | )          |
|                                                                 |       |             |       |       |                   |                                 |               |       |       |       |       |       |       |                                                 |       |       |       |
| Common  stock issued in connection with exercise of stock options    |       | 105,065          |       | 2          |                   | 1,709                                |               |       |       |       |       |       |       |                                                 |       | 1,711      |       |
| Tax  benefit from stock options                                      |       |             |       |       |                   | 124                                  |               |       |       |       |       |       |       |                                                 |       | 124        |       |
| Dividends  declared                                                  |       |             |       | —     |                   |                                 |               | (5,098     | )          |       |       |       |       |                                                 |       | (5,098     | )          |
|                                                                 |       |             |       |       |                   |                                 |               |       |       |       |       |       |       |                                                 |       |       |       |
| Treasury  stock purchases                                            |       | —           |       |       |                   |                                 |               |       |       | (638,700   | )          | (13,660    | )          |                                                 |       | (13,660    | )          |
|                                                                 |       |             |       |       |                   |                                 |               |       |       |       |       |       |       |                                                 |       |       |       |
| Balance,  April 30, 2002                                             |       | 49,614,841       |       | $          | 992                    |                                 | $                  | 99,712     |       | $          | 429,491    |       | (3,269,600 | )                                                    | $          | (76,610    | )          | $ | (19,170 | ) | $ | 434,415 |   |
|                                                                 |       |             |       |       |                   |                                 |               |       |       |       |       |       |       |                                                 |       |       |       |
| **For  the three months ended April 30, 2003:**                      |       |             |       |       |                   |                                 |               |       |       |       |       |       |       |
|                                                                 |       |             |       |       |                   |                                 |               |       |       |       |       |       |       |                                                 |       |       |       |
| Balance,  January 31, 2003 - Restated  (Note 2)                      |       | 49,703,682       |       | $          | 994                    |                                 | $                  | 101,567    |       | $          | 496,627    |       | (3,644,100 | )                                                    | $          | (86,585    | )          | $ | (4,751 | ) | $ | 507,852 |   |
| Net  earnings for the period                                         |       |             |       |       |                   |                                 |               | 19,627     |       |       |       |       |       |                                                 |       | 19,627     |       |
| Foreign  currency translation adjustments                            |       |             |       |       |                   |                                 |               |       |       |       |       |       |       | (544                                                 | )          | (544       | )          |
| Unrealized  holding loss on certain investments (net of tax of $31)  |       |             |       |       |                   |                                 |               |       |       |       |       |       |       | 52                                                   |       | 52         |       |
| Net  loss on cash flow hedging instruments (net of tax of $217)      |       |             |       |       |                   |                                 |               |       |       |       |       |       |       | (373                                                 | )          | (373       | )          |
|                                                                 |       |             |       |       |                   |                                 |               |       |       |       |       |       |       |                                                 |       |       |       |
| Comprehensive  income                                                |       |             |       |       |                   |                                 |               |       |       |       |       |       |       |                                                 |       | 18,762     |       |
|                                                                 |       |             |       |       |                   |                                 |               |       |       |       |       |       |       |                                                 |       |       |       |
| Common  stock issued in connection with exercise of stock options    |       | 29,545           |       | 1          |                   | 334                                  |               |       |       |       |       |       |       |                                                 |       | 335        |       |
|                                                                 |       |             |       |       |                   |                                 |               |       |       |       |       |       |       |                                                 |       |       |       |
| Tax  benefit from stock options                                      |       |             |       |       |                   | 5                                    |               |       |       |       |       |       |       |                                                 |       | 5          |       |
| Dividends  declared                                                  |       |             |       |       |                   | —                               |               | (5,979     | )          |       |       |       |       |                                                 |       | (5,979     | )          |
|                                                                 |       |             |       |       |                   |                                 |               |       |       |       |       |       |       |                                                 |       |       |       |
| Treasury  stock purchases                                            |       |             |       |       |                   |                                 |               | —     |       | (111,800   | )          | (2,828     | )          |                                                 |       | (2,828     | )          |
|                                                                 |       |             |       |       |                   |                                 |               |       |       |       |       |       |       |                                                 |       |       |       |
| Balance,  April 30, 2003                                             |       | 49,733,227       |       | $          | 995                    |                                 | $                  | 101,906    |       | $          | 510,275    |       | (3,755,900 | )                                                    | $          | (89,413    | )          | $ | (5,616 | ) | $ | 518,147 |   |

 

***The accompanying notes are an integral part of thesefinancial statements.***

 

6

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**BLYTH, INC. AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

 

 

**Three months ended April 30,** (Unaudited, in thousands)

 
| ** **                                                                            | ** ** | **2003**   | ** ** | **2002**               | ** ** |
|---------------------------------------------------------------------------------------|------------|------------|------------|------------------------|------------|
| ** **                                                                            | ** ** | ** ** | ** ** | **Restated  (Note 2)** | ** ** |
| Cash  flows from operating activities:                                                |       |       |       |                   |       |
| Net  earnings                                                                         |       | $          | 19,627     |                   | $          | (14,449 | ) |
| Adjustments  to reconcile net earnings to net cash provided by operating activities:  |       |       |       |                   |       |
| Cumulative  effect of change in accounting principle, net of tax                      |       | —     |       | 31,753                 |       |
| Depreciation  and amortization                                                        |       | 7,872      |       | 7,549                  |       |
| Tax  benefit from stock options                                                       |       | 5          |       | 124                    |       |
| Deferred  income taxes                                                                |       | (598       | )          | 529                    |       |
| Equity  in earnings of investee                                                       |       | 135        |       | (28                    | )          |
| Minority  interest                                                                    |       | 150        |       | —                 |       |
| Changes  in operating assets and liabilities, net of effect of business acquisitions: |       |       |       |                   |       |
| Accounts  receivable                                                                  |       | 569        |       | 8,520                  |       |
| Inventories                                                                           |       | (1,370     | )          | 2,965                  |       |
| Prepaid  and other                                                                    |       | (4,584     | )          | (7,043                 | )          |
| Deposits  and other assets                                                            |       | (305       | )          | (168                   | )          |
| Accounts  payable                                                                     |       | (3,651     | )          | (2,556                 | )          |
| Accrued  expenses                                                                     |       | (7,889     | )          | (1,648                 | )          |
| Other  liabilities                                                                    |       | 1,109      |       | 708                    |       |
| Income  taxes                                                                         |       | 10,606     |       | 4,958                  |       |
| Total  adjustments                                                                    |       | 2,049      |       | 45,663                 |       |
| Net  cash provided by operating activities                                            |       | 21,676     |       | 31,214                 |       |
| Cash  flows from investing activities:                                                |       |       |       |                   |       |
| Purchases  of property, plant and equipment                                           |       | (2,875     | )          | (2,984                 | )          |
| Purchases  of long-term investment                                                    |       | (360       | )          | —                 |       |
| Purchase  of businesses, net of cash acquired                                         |       | (65,974    | )          | (10                    | )          |
| Net  cash used in investing activities                                                |       | (69,209    | )          | (2,994                 | )          |
| Cash  flows from financing activities:                                                |       |       |       |                   |       |
| Proceeds  from issuance of common stock                                               |       | 335        |       | 1,711                  |       |
| Purchase  of treasury stock                                                           |       | (2,828     | )          | (13,660                | )          |
| Borrowings  from bank line of credit                                                  |       | 11,643     |       | 4,031                  |       |
| Repayments  on bank line of credit                                                    |       | (3,663     | )          | (324                   | )          |
| Repayments  on long-term debt                                                         |       | (114       | )          | (201                   | )          |
| Net  cash provided by (used in) financing activities                                  |       | 5,373      |       | (8,443                 | )          |
| Effect  of exchange rate charges on cash                                              |       | (4,045     | )          | —                 |       |
| Net  increase (decrease) in cash and cash equivalents                                 |       | (46,205    | )          | 19,777                 |       |
| Cash  and cash equivalents at beginning of period                                     |       | 168,596    |       | 135,357                |       |
| Cash  and cash equivalents at end of period                                           |       | $          | 122,391    |                   | $          | 155,134 |   |
| Non-cash  financing activities:                                                       |       |       |       |                   |       |
| Cash  dividend declared, $0.13 per share in 2003 and $0.11 in 2002                    |       | $          | 5,979      |                   | $          | 5,098 |   |

 

***The accompanyingnotes are an integral part of these financial statements.***

 

7

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**BLYTH,INC. AND SUBSIDIARIES**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**1.****                                     ****Basis of Presentation**

 

Blyth is a globalcompetitor in the gift and decorative accessories market, which the Companycalls the home expressions industry. Within this category, the Company reports its financial results in fivesegments – the Direct Selling segment, the Wholesale Home Fragrance segment,the Wholesale Creative Expressions segment, the Catalog & Internet segment,and the All Other segment.  MilesKimball, acquired in April 2003 and Walter Drake, acquired in December 2003,are included in the Catalog & Internet segment.  Kaemingk, acquired in June 2003, is includedin the Wholesale Home Fragrance segment. Prior to January 31, 2004, the Company reported its financial results intwo reporting segments, the Candles & Home Fragrance segment and the CreativeExpressions segment.  The Company reevaluatedits operating segments based on the application of FASB Statement No. 131,“Disclosures about Segments of an Enterprise and Related Information,” anddetermined that the appropriate number of reportable segments should have beenfive in fiscal 2004 and four in fiscal 2003 and 2002 (The increase in segmentsin fiscal 2004 was due to the acquisitions that were consummated in fiscal2004.)  The Company’s financial statementfootnotes have been restated to reflect the revised segments.  The Company’s reportable and operatingsegments are based on financial information regularly evaluated by the chiefoperating decision maker in determining resource allocation and assessingperformance.  Revenues are not reportedby product or group of similar products, as it is impractical to do so.  The Company has operations outside of theUnited States and sells products in the Direct Selling and Wholesale HomeFragrance segments worldwide.  Themajority of sales in the Wholesale Creative Expressions, Catalog & Internetand All Other segments are domestically based.

 

Within the DirectSelling segment, the Company designs, manufactures and markets an extensiveline of products including scented candles, fragranced bath gels and bodylotions and other fragranced products.  Italso designs and markets a broad range of related candle accessories.  These products are sold direct to theconsumer under the PartyLite® brand in North America, Europe and Australiathrough a network of more than 56,000 independent sales consultants.

 

Withinthe Wholesale Home Fragrance segment, the Company designs, manufactures andmarkets an extensive line of products including scented candles, potpourri andother fragranced products.  It alsodesigns and markets a wide range of related candle accessories.  In addition, within it’sKaemingk business unit, the Company designs and markets seasonal decorations toindependent and specialty retailers. Products in this segment are sold worldwide to retailers in the premiumand specialty wholesale channels under the Ambria®, Carolina®, ColonialTM(1),Colonial Candle of Cape Cod®, Colonial at HOMEâ, Gies®(1),Kaemingk®(1), Kate’sTM and Liljeholmens® brands and in the mass retail channelunder the Ambria®, FilterMate®, Florasense® and Gies®(1)brands.

 

Within theWholesale Creative Expressions segment, the Company designs, sources andmarkets a broad range of home décor products under the CBK® brand, seasonaldecorations under the Holiday365Ô, JMC ImpactÔ andSeasons of Cannon FallsÔ brands, and, until Jeanmarie was sold inApril 2004, decorative gift bags under the Jeanmarie® brand.  These products are sold primarily in NorthAmerica.

 

Within the Catalog& Internet segment, the Company designs, sources and markets a broad rangeof household convenience items, premium photo albums, frames, holiday cards andgifts under the Exposuresâ, Miles Kimballâ andWalter Drakeâ brands. These products are sold primarily in North America.

** **

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

 

8

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Within the AllOther segment, the Company designs, manufactures or sources and markets avariety of chafing fuel, candles and tabletop lighting products to the AwayFrom Home or foodservice trade under the brand names Ambriaâ,HandyFuelâ and Sternoâ.  These products are sold primarily in NorthAmerica.

 

The consolidatedfinancial statements include the accounts of the Company, and its direct andindirect subsidiaries.  All significantintercompany accounts and transactions have been eliminated.  Investments in companies, which are notmajority owned or controlled, are reported using the equity method and arerecorded in investments.  Certain of theCompany’s subsidiaries operate on a 52 or 53-week fiscal year ending on theSaturday closest to January 31.  Europeanoperations maintain a calendar year accounting period, which is consolidatedwith the Company’s fiscal period.  In theopinion of management, the accompanying unaudited consolidated financial statementsinclude all normal recurring accruals necessary for fair presentation of theCompany’s consolidated financial position at April 30, 2003 and theconsolidated results of its operations and cash flows for the three-monthperiods ended April 30, 2003 and 2002. These interim statements should be readin conjunction with the Company’s consolidated financial statements for theyear ended January 31, 2003, as set forth in the Company’s Annual Report onForm 10-K.  Operating results for thethree months ended April 30, 2003 are not necessarily indicative of the resultsthat may be expected for the year ending January 31, 2004.

 

**Reclassifications**

 

Certainreclassifications have been made in prior years’ financial statements toconform to classifications used in the current year.

** **

**EmployeeStock Options**

 

The Companyaccounts for stock-based compensation under the intrinsic value-based method ofaccounting, whereby no compensation expense is recorded for stock optionsissued to employees unless the option price is below market at the time optionsare granted.  The Company does not atthis time, issue stock options below market value,therefore no compensation expense has been recorded in the financialstatements.  The following pro forma netearnings and net earnings per common share data are presented for informationalpurposes only and have been computed using the fair value method of accountingfor stock-based compensation:

** **

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

** **
| ** **                                                                                                   | ** ** | **April 30,  2003** | ** ** | **April 30,  2002**   | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|-----------------------|------------|
| ** **                                                                                                   | ** ** | ** **          | ** ** | **Restated (Note 2)** | ** ** |
| Net earnings:                                                                                                |       |                |       |                  |       |
| As  reported                                                                                                 |       | $                   | 19,627     |                  | $          | (14,449 | ) |
| Stock-based  employee compensation expense determined under SFAS No. 123 for all awards,  net of related tax |       | 927                 |       | 993                   |       |
|  Pro  forma                                                                                             |       | $                   | 18,700     |                  | $          | (15,442 | ) |
|  Net earnings per  common share:                                                                        |       |                |       |                  |       |
| As  reported:                                                                                                |       |                |       |                  |       |
| Basic                                                                                                        |       | $                   | 0.43       |                  | $          | (0.32 | ) |
| Diluted                                                                                                      |       | 0.42                |       | (0.31                 | )          |
|  Pro forma:                                                                                             |       |                |       |                  |       |
| Basic                                                                                                        |       | $                   | 0.41       |                  | $          | (0.33 | ) |
| Diluted                                                                                                      |       | 0.39                |       | (0.33                 | )          |

 

9

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The fair value ofeach option is estimated on the date of grant, using the Black-Scholes optionpricing model with the following weighted-average assumptions used for grantsin fiscal quarters ended April 30, 2003 and April 30, 2002, respectively:expected volatility was 40.75% for the first quarter of fiscal 2004 and 39.82%for the first quarter of fiscal 2003; risk-free interest rates at 2.71% for thefirst quarter of fiscal 2004 and 2.76% to 4.66% for the first quarter of fiscal2003; expected life of 5 years for the first quarter of fiscal 2004 and 2003and an expected dividend yield of 0.99%.

 

**2.**                                      Restatement

** **

**Prior to January 31, 2004, theCompany reported its financial results in two reporting segments, the Candles& Home Fragrance segment and the Creative Expressions segment.  The Company reevaluated its operatingsegments based on the application of FASB Statement No. 131, “Disclosures aboutSegments of an Enterprise and Related Information” (“SFAS 131”), and determinedthat the appropriate number of reportable segments should have been five duringfiscal 2004 and four during fiscal 2003 and 2002 (The increase in segments infiscal 2004 was due to the acquisitions that were consummated in fiscal2004.)  See Note 9 for further details.  This revision of segments had the relatedeffect of requiring changes in the Company’s reporting units for purposes ofgoodwill impairment reviews under SFAS 142, retroactive to the February 1, 2002adoption date of SFAS 142.  This**resulted in the needto perform impairment reviews of several additional reporting units as ofFebruary 1, 2002 and each subsequent year-end balance sheet date,thereafter.  These impairment reviewshave indicated the need to record additional impairment charges as of theFebruary 1, 2002 adoption of SFAS 142, specifically to write-off $20.9 millionin goodwill associated with the 1999 acquisition of the Gies Group and $6.3million in goodwill associated with the 1999 acquisition of the ColonyGroup.  Both of these businesses are componentsof the Wholesale Home Fragrance Segment. The Company’s fiscal 2003 financial statements have been restated toreflect the recording of these $27.2 million in goodwill impairment charges aspart of the cumulative effect of adopting SFAS 142 as of February 1, 2002.  There was no income tax impact for theseimpairment charges.

** **

A summary of the effectsof the restatement on the Company’s financial statements is as follows:

 
| ** **                                              | ** ** | **Quarter ended April 30, 2002** | ** ** |
|---------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                              | ** ** | **As Previously  Reported**      | ** ** | **As Restated** | ** ** |
| **Statement of Earnings:**                              |       |                             |       |   |   |
| Earnings  before cumulative effect of accounting change |       | $                                | 17,304     |   | $ | 17,304 |   |
| Cumulative  effect of accounting change                 |       | (4,515                           | )          | (31,753 | ) |
| Net  earnings                                           |       | $                                | 12,789     |   | $ | (14,449 | ) |
| Basic  earnings per share:                              |       |                             |       |   |   |
| Before  cumulative effect of accounting change          |       | $                                | 0.37       |   | $ | 0.37 |   |
| Cumulative  effect of accounting change                 |       | (0.10                            | )          | (0.69 | ) |
|                                                    |       | $                                | 0.27       |   | $ | (0.32 | ) |
| Diluted  earnings per share:                            |       |                             |       |   |   |
| Before  cumulative effect of accounting change          |       | $                                | 0.37       |   | $ | 0.37 |   |
| Cumulative  effect of accounting change                 |       | (0.10                            | )          | (0.68 | ) |
|                                                    |       | $                                | 0.27       |   | $ | (0.31 | ) |
| **Statement of Stockholders’ Equity**              |       |                             |       |   |   |
| Foreign  currency translation adjustments               |       | $                                | (2,914     | ) | $ | (2,305 | ) |
| Comprehensive  income                                   |       | 9,904                            |       | (16,725 | ) |

 

10

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**3.**                                      NewAccounting Pronouncements

 

In April 2003, theFASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instrumentsand Hedging Activities.”  This statementamends and clarifies financial accounting and reporting for derivativeinstruments, including certain derivative instruments embedded in othercontracts (collectively referred to as derivatives) and for hedging activitiesunder FASB Statement No. 133, “Accounting for Derivative Instruments andHedging Activities.”  This standard iseffective for derivative contracts entered into or modified after June 30,2003. We do not expect that implementation of this standard will have asignificant impact on our financial statements.

 

In May 2003, theFASB issued SFAS No. 150, “Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity.” This Statement establishesstandards for how an issuer classifies and measures certain financialinstruments with characteristics of both liabilities and equity. It requiresthat an issuer classify a financial instrument that is within its scope as aliability (or an asset in some circumstances). This standard is effective for financial instruments entered into ormodified after May 31, 2003. We do not expect that implementation of thisstandard will have an impact on our financial statements.

 

**4.**                                      Excessof Cost Over Fair Value of Assets Acquired

 

Prior to February1, 2002, excess of costs of acquisitions over fair value of identifiable netassets acquired less liabilities assumed (“goodwill”) was being amortized on astraight-line basis over estimated lives ranging from 15-40 years. Amortizationof goodwill ceased on February 1, 2002, upon adoption of the new goodwill rulesunder SFAS 142.

 

In June 2001, theFASB issued SFAS No. 142, “Goodwill and Other Intangible Assets.”  Under SFAS No. 142, goodwill and any otherintangibles deemed to have indefinite lives are no longer subject toamortization; however, goodwill is subject to an assessment for impairmentusing a two-step fair value-based test and such other intangibles are alsosubject to impairment reviews, which must be performed at least annually, ormore frequently if events or circumstances indicate that goodwill or otherindefinite lived intangibles might be impaired. The Company performs its annualassessment of impairment in the fourth fiscal quarter.  For goodwill the first step compares the fairvalue of a reporting unit to its carrying amount, including goodwill. If thecarrying amount of the reporting unit exceeds its fair value, the second stepis performed. The second step compares the carrying amount of the goodwill tothe fair value of the goodwill.  If fairvalue is less than the carrying amount, an impairment loss is reported as areduction to the asset and a charge to operating expense, except at the transitiondate, when the loss was reflected as a cumulative effect of a change inaccounting principle.

 

As of January 31,2002, Blyth’s Consolidated Balance Sheets reflected approximately $108.1million in goodwill net of accumulated amortization, including $27.2 millionrelated to the Wholesale Home Fragrance segment businesses, $42.2 millionrelated to the All Other segment and $38.7 million related to the WholesaleCreative Expressions segment businesses. The Company adopted SFAS 142,effective February 1, 2002. In accordance with the new standard, Blyth ceasedamortization of goodwill and performed an assessment for impairment of itsgoodwill. As a result of the impairment review, Blyth reduced the carryingvalue of the goodwill related to its 1997 acquisition of the Sternoâbrand by $7.4 million, which is included in the All Other segment.  In addition, a recent revision of itsoperating and reporting segments by the Company (See Note 2), required changesin the Company’s reporting units for purposes of goodwill impairment reviewsunder SFAS 142, retroactive to the February 1, 2002 adoption date of SFAS142.  This resulted in the need toperform impairment reviews of several additional reporting units as of February1, 2002 and each subsequent year-end balance sheet date thereafter.  These impairment reviews have indicated theneed to record additional impairment charges as of the February 1, 2002adoption of SFAS 142, specifically to write-off $20.9 million in goodwillassociated with the 1999 acquisition of the Gies Group and $6.3 million ingoodwill associated with the 1999 acquisition of the Colony Group.  Both of these businesses are components ofthe Wholesale Home Fragrance Segment, and the impairment charges reducedgoodwill in that segment to zero at February 1, 2002.  The fair values of the Sterno Group, the GiesGroup and the Colony Group were determined through independent valuationsutilizing market-comparable

 

11

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analysis, as well as discounted cash flow modelsreflecting the expected range of future cash flow outcomesover the life of the models. These cash flows were discounted to February 1,2002 using a risk-adjusted discount rate. The impairment of the Sterno Group’s goodwill, which was recorded as a cumulative effectof a change in accounting principle, had the effect of reducing net income by$4.5 million (after tax) or $0.10 per share. The impairments of the Gies Group and Colony Group goodwill, which werenot deductible for tax purposes, were, via restatement of the fiscal 2003financial statements, also recorded as a cumulative effect of change inaccounting principle, and had the effect of reducing net income by $27.2million or $0.58 per share.

 

**5.**                                      BusinessAcquisitions

 

On May 10, 2002,the Company purchased all of the interests in CBK Styles, Inc., formerly CBK,Ltd., LLC (“CBK”), a designer and marketer of premium everyday giftware andhome décor, for approximately $51.0 million in cash*.*  The excess of thepurchase price over the estimated fair value of the net assets acquiredapproximated $40.0 million, which will be deductible for income tax purposesover 15 years.  The results of operationsof CBK are included in the Consolidated Statements of Earnings of the Companysince May 11, 2002.  For segmentreporting purposes CBK is included in the Wholesale Creative Expressionssegment.

 

On April 1, 2003,the Company acquired 100% of the Miles Kimball Company (“MK”), a directmarketer of giftware, home décor and household convenience items, premium photoalbums, frames and holiday cards under the Miles Kimball and Exposures catalogtitles for approximately $66.0 million in cash. The excess of the purchase price over the estimated fair value of the netassets acquired approximated $45.2 million, which will not be deductible forincome tax purposes.  The otherintangibles 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 basisover 12 years.  Estimated amortizationexpense 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.  Theresults of operations of MK are included in the Consolidated Statements ofEarnings of the Company since April 1, 2003. For segment reporting purposes, MK is included in the Catalog &Internet segment.

 

At April 30, 2003,Miles Kimball had approximately $10.2 million of long-term debt outstandingunder a real estate mortgage note payable to John Hancock Life InsuranceCompany, which matures June 1, 2020. Under the terms of the note, payments ofprincipal and interest are required monthly at a fixed interest rate of 7.89%.

 

The following provides a preliminary allocation of thepurchase price of Miles Kimball (in thousands)

 
| Cash  Purchase Price                   |   | $      | 65,974 |   |
|----------------------------------------|--------|--------|--------|--------|
| Less:  Assets acquired            |   |   |   |
| Accounts  receiveable                  |   | 1,124  |   |
| Inventories                            |   | 9,983  |   |
| Property,  plant and equipment         |   | 18,399 |   |
| Intangible  assets                     |   | 25,100 |   |
| Other                                  |   | 1,706  |   |
|                                   |   | 56,312 |   |
| Plus:  Liabilities assumed        |   |   |   |
| Accounts  Payable                      |   | 3,610  |   |
| Accrued  expense                       |   | 1,649  |   |
| Deferred  income tax                   |   | 11,155 |   |
| Debt                                   |   | 10,729 |   |
| Other                                  |   | 8,412  |   |
|                                   |   | 35,555 |   |
| Unallocated  purchase price (goodwill) |   | 45,217 |   |

 

12

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The followingunaudited pro forma summary financial information summarizes the estimatedcombined results of operations of the Company, CBK and MK assuming that theacquisitions of CBK and MK had taken place on February 1, 2002.  The unaudited pro forma combined results ofoperations were prepared on the basis of information provided to the Company bythe former management of CBK and MK and no representation is made by the Companywith respect to the accuracy of such information.  The pro forma combined results of operationsreflect adjustments for interest income, additional depreciation based on thefair market value of CBK’s and MK’s property, plant, and equipment, amortizationof identifiable intangibles of MK and income tax expense.

** **
| ** **                                                                                 | ** ** | **Three months ended April 30,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| **(In  thousands except per share data)**                                                  | ** ** | **2003**                         | ** ** | **2002** | ** ** |
| ** **                                                                                 | ** ** | ** **                       | ** ** | **Restated (Note 2)** | ** ** |
| Net  sales                                                                                 |       | $                                | 324,664    |   | $ | 316,245 |   |
| Earnings  before cumulative effect of change in accounting principle                       |       | 17,994                           |       | 18,006 |   |
| Net  earnings                                                                              |       | 17,994                           |       | (13,747 | ) |
|                                                                                       |       |                             |       |   |   |
| Basic:                                                                                     |       |                             |       |   |   |
| Earnings  per common share before the cumulative effect of change in accounting  principle |       | $                                | 0.39       |   | $ | 0.39 |   |
| Net  earnings per common share                                                             |       | 0.39                             |       | (0.30 | ) |
|                                                                                       |       |                             |       |   |   |
| Diluted:                                                                                   |       |                             |       |   |   |
| Earnings  per common share before the cumulative effect of change in accounting  principle |       | $                                | 0.39       |   | $ | 0.39 |   |
| Net  earnings per common share                                                             |       | 0.39                             |       | (0.30 | ) |

 

 

The unaudited proforma combined results of operations are not necessarily indicative of, and donot purport to represent, what the Company’s results of operations or financialcondition actually would have been had the acquisitions been made as ofFebruary 1, 2002.

 

At April 30, 2003,the Company had a total of $158.8 million of goodwill on its balance sheetcompared to $113.5 million at January 31, 2003. Goodwill attributable to theWholesale Creative Expressions segment at April 30, 2003 was $78.7 million,unchanged from January 31, 2003. Goodwill attributable to the Catalog & Internet segment at April 30,2003 was $45.3 million as a result of the April 2003 acquisition of MilesKimball. Goodwill attributable to the All Other segment at April 30, 2003 was$34.8 million, unchanged from January 31, 2003.

 

13

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**6.**                                      Inventories

 

The components ofinventory consist of the following (in thousands):

 
| ** **       | ** ** | **April 30, 2003** | ** ** | **January 31, 2003** | ** ** |
|------------------|------------|--------------------|------------|----------------------|------------|
| Raw  materials   |       | $                  | 28,573     |                 | $          | 33,950 |   |
| Work  in process |       | 2,151              |       | 2,509                |       |
| Finished  goods  |       | 169,726            |       | 151,476              |       |
|             |       | $                  | 200,450    |                 | $          | 187,935 |   |

 

**7.**                                      Earningsper Share

 

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

 
| **Three  months ended April 30,**                      | ** ** | **2003**   | ** ** | **2002**              | ** ** |
|--------------------------------------------------------|------------|------------|------------|-----------------------|------------|
| ** **                                             | ** ** | ** ** | ** ** | **Restated (Note 2)** | ** ** |
| Net  earnings                                          |       | $          | 19,627     |                  | $          | (14,449 | ) |
| Weighted  average number of common shares outstanding: |       |       |       |                  |       |
| Basic                                                  |       | 46,080     |       | 46,290                |       |
| Dilutive  effect of stock options                      |       | 128        |       | 184                   |       |
| Weighted  average number of common shares outstanding: |       |       |       |                  |       |
| Diluted                                                |       | 46,208     |       | 46,474                |       |
|                                                        |            |            |            |                       |            |  |  |

 

As of April 30,2003 and 2002, options to purchase 102,754 and 95,004 shares of common stock,respectively, are not included in the computation of earnings per share becausethe effect would be anti-dilutive.

 

**8.**                                      UnusualCharges

 

At January 31,2003, the Company had approximately $0.4 million of restructuring chargesincluded in the Consolidated Balance Sheet, which related to leaseobligations.  As a result of paymentsmade during the quarter ended April 30, 2003 approximately $0.3 million oflease obligations were remaining on the balance sheet at April 30, 2003.  The lease obligation continues through thethird quarter of fiscal 2004.

 

The following is a tabular roll forward of the unusual charges described above thatwere recorded on the balance sheet of the Company:

 
| **(In  thousands)**                 | ** ** | **Lease  Obligations** | ** ** | **Severence  Costs** | ** ** | **Total** | ** ** |
|-------------------------------------|------------|------------------------|------------|----------------------|------------|-----------|------------|
|                                |       |                   |       |                 |       |      |       |
| Balance  at January 31, 2003        |       | $                      | 405        |                 | $          | —    |       | $ | 405 |   |
| Payments  made against 2002 charges |       | (67                    | )          | —               |       | (67       | )          |
| Balance  at April 30, 2003          |       | $                      | 338        |                 | $          | —    |       | $ | 338 |   |

 

14

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**9.**                                      SegmentInformation

 

Blyth is a globalcompetitor in the gift and decorative accessories market, which the Companycalls the home expressions industry. Within this category, the Company reports its financial results in fivesegments – the Direct Selling segment, the Wholesale Home Fragrance segment,the Wholesale Creative Expressions segment, the Catalog & Internet segment,and the All Other segment.  MilesKimball, acquired in April 2003 and Walter Drake, acquired in December 2003,are included in the Catalog & Internet segment.  Kaemingk, acquired in June 2003, is includedin the Wholesale Home Fragrance segment. Prior to January 31, 2004, the Company reported its financial results intwo reporting segments, the Candles & Home Fragrance segment and theCreative Expressions segment.  The Companyreevaluated its operating segments based on the application of FASB StatementNo. 131, “Disclosures about Segments of an Enterprise and Related Information,”and determined that the appropriate number of reportable segments should havebeen five in fiscal 2004 and four in fiscal 2003 and 2002 (The increase insegments in fiscal 2004 was due to the acquisitions that were consummated infiscal 2004.)  The Company’s financialstatement footnotes have been restated to reflect the revised segments.  The Company’s reportable and operatingsegments are based on financial information regularly evaluated by the chiefoperating decision maker in determining resource allocation and assessingperformance.  Revenues are not reportedby product or group of similar products, as it is impractical to do so.  The Company has operations outside of theUnited States and sells products in the Direct Selling and Wholesale HomeFragrance segments worldwide.  Themajority of sales in the Wholesale Creative Expressions, Catalog & Internetand All Other segments are domestically based.

 

Within the DirectSelling segment, the Company designs, manufactures and markets an extensiveline of products including scented candles, fragranced bath gels and bodylotions and other fragranced products. It also designs and markets a broad range of related candleaccessories.  These products are solddirect to the consumer under the PartyLite® brand in North America, Europe andAustralia through a network of more than 56,000 independent sales consultants.

 

Withinthe Wholesale Home Fragrance segment, the Company designs, manufactures andmarkets an extensive line of products including scented candles, potpourri andother fragranced products.  It alsodesigns and markets a wide range of related candle accessories.  In addition, within it’sKaemingk business unit, the Company designs and markets seasonal decorations toindependent and specialty retailers. Products in this segment are sold worldwide to retailers in the premiumand specialty wholesale channels under the Ambria®, Carolina®, ColonialTM(1),Colonial Candle of Cape Cod®, Colonial at HOMEâ, Gies®(1),Kaemingk®(1), Kate’sTM and Liljeholmens® brands and in the mass retail channelunder the Ambria®, FilterMate®, Florasense® and Gies®(1)brands.

 

Within theWholesale Creative Expressions segment, the Company designs, sources andmarkets a broad range of home décor products under the CBK® brand, seasonaldecorations under the Holiday365Ô, JMC ImpactÔ andSeasons of Cannon FallsÔ brands, and, until Jeanmarie was sold inApril 2004, decorative gift bags under the Jeanmarie® brand.  These products are sold primarily in NorthAmerica.

 

Within the Catalog& Internet segment, the Company designs, sources and markets a broad rangeof household convenience items, premium photo albums, frames, holiday cards andgifts under the Exposuresâ, Miles Kimballâ andWalter Drakeâ brands. These products are sold primarily in North America.

 

Within the AllOther segment, the Company designs, manufactures or sources and markets avariety of chafing fuel, candles and tabletop lighting products to the AwayFrom Home or foodservice trade under the brand names Ambriaâ,HandyFuelâ and Sternoâ.  These products are sold primarily in NorthAmerica.

 

----

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

 

15

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Earnings in allsegments represent net sales less operating expenses directly related to thebusiness segments and corporate expenses allocated to the businesssegments.  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 consistof assets used directly in its operations and intangible assets, if any,resulting from purchase business combinations. Unallocated Corporate within the identifiable assets include corporatecash and cash equivalents, deferred bond costs and other long-term investments,which are not allocated to the business segments.

 

Three months ended April30, (In thousands)

 
| ** **                                                                                                          | ** ** | **2003** | ** ** | **2002** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| **Net Sales**                                                                                                       |       |     |       |     |       |
| Direct  Selling                                                                                                     |       | $        | 191,239    |     | 177,915    |   |
| Wholesale  Home Fragrance                                                                                           |       | 66,441   |       | 68,718   |       |
| Wholesale  Creative Expressions                                                                                     |       | 35,926   |       | 17,691   |       |
| Catalog  & Internet                                                                                             |       | 5,970    |       | —   |       |
| All  Other                                                                                                          |       | 12,415   |       | 13,572   |       |
| **Total**                                                                                                           |       | $        | 311,991    |     | $          | 277,896 |   |
|                                                                                                                |       |     |       |     |       |
| **Earnings**                                                                                                        |       |     |       |     |       |
| Direct  Selling                                                                                                     |       | $        | 38,372     |     | $          | 37,137 |   |
| Wholesale  Home Fragrance                                                                                           |       | (3,472   | )          | (5,387   | )          |
| Wholesale  Creative Expressions                                                                                     |       | 22       |       | (1,780   | )          |
| Catalog  & Internet                                                                                             |       | (590     | )          | —   |       |
| All  Other                                                                                                          |       | (74      | )          | 938      |       |
|                                                                                                                |       | 34,258   |       | 30,908   |       |
| Other  expense                                                                                                      |       | (3,134   | )          | (3,354   | )          |
| ** Earnings before  income taxes, minority interest and cumulative effect of change in accounting  principle** |       | $        | 31,124     |     | $          | 27,554 |   |

 
| ** **                      | ** ** | **April 30, 2003** | ** ** | **January 31, 2003**  | ** ** |
|---------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                      | ** ** | ** **         | ** ** | **Restated (Note 2)** | ** ** |
| **Identifiable Assets**         |       |               |       |                  |       |
| Direct  Selling                 |       | $                  | 258,667    |                  | $          | 246,607 |   |
| Wholesale  Home Fragrance       |       | 229,846            |       | 238,829               |       |
| Wholesale  Creative Expressions |       | 165,198            |       | 174,827               |       |
| Catalog  & Internet         |       | 103,021            |       | —                |       |
| All  Other                      |       | 61,573             |       | 61,816                |       |
| Unallocated  Corporate          |       | 106,202            |       | 138,005               |       |
| **Total**                       |       | $                  | 924,507    |                  | $          | 860,084 |   |

 

16

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**10.**                               Contingencies

 

The Company hascontingent liabilities that have arisen in the ordinary course of its business,including pending litigation.  TheCompany believes the outcome of these matters will not have a material adverseeffect on its consolidated financial position, results of operations, or cashflows.

 

On June 2, 2003,the parties agreed in open court to settle and resolve all matters involving orin any way relating to the previously reported legal proceedings by and betweenthe Company and its wholly-owned subsidiary, Endar Corp., on the one hand, andEnnio Racinelli, Darlene Racinelli and others, on the other hand, by means of awritten settlement and release agreement, without any payment by any party.

 

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**Item 2.**             MANAGEMENT’S DISCUSSION AND ANALYSIS OF

** FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**RESULTS OF OPERATIONS:**

 

**Net Sales**

 

Net sales in thequarter ended April 30, 2003, increased $34.1 million, or 12.3% to $312.0million when compared with $277.9 million a year earlier.  Sales in the quarter ended April 30, 2003were affected by four main factors. First, the favorable impact of the inclusion of sales from theacquisitions of Miles Kimball in April 2003 and CBK in May 2002 and thenegative impact of the closure of our UK retailer Wax Lyrical in December 2002.Second, PartyLite Worldwide posted a 9% increase in net sales when compared tothe prior year, which we believe is partly attributable to an early launch ofPartyLite’s spring product line and strong sales of the PartyLite 30thanniversary promotional votive sampler. Third, the continued weakness in the USand European economies negatively impacted sales. Lastly, the favorable impactof foreign exchange rates versus the US dollar positively impacted reportedsales.

 

Net sales in theDirect Selling segment, which is represented by our PartyLite business,increased $13.3 million, or 7.5% to $191.2 million in the first quarter endedApril 30, 2003, compared with $177.9 million in the same period last year. Asmentioned above we believe this sales increase is partly attributable to anearly launch of PartyLite’s spring product line and strong sales of thePartyLite 30th anniversary promotional votive sampler.

 

Net sales in theWholesale Home Fragrance segment decreased $2.3 million, or 3.3% to $66.4million in the first quarter ended April 30, 2003, compared with $68.7 millionin the same period last year.  The netsales decrease in this segment is reflective of the continued weakness in theUS and European economies which was partially offsetby the positive impact of foreign currency exchange rates on our Europeanbusinesses reported sales.

 

Net sales in the Wholesale Creative Expressions segment increased $18.2million to $35.9 million in the quarter ended April 30, 2003 compared to $17.7million in the prior year period. This increase is entirely attributable to theeffect of the inclusion of the sales of CBK acquired in May 2002.

 

Net sales in the Catalog & Internet segment, which was newlycreated this quarter as a result of the acquisition of Miles Kimball in April2003, contributed sales of $6.0 million.

 

Net sales in theAll Other segment decreased $1.2 million, or 8.8% to $12.4 million in the firstquarter of fiscal 2004, compared with $13.6 million in the same period lastyear as the travel industry was impacted by the war in the Middle East andSARS.

 

**Gross Profit**

 

Gross profit as apercent of sales was 51.7%, in the first quarter of fiscal 2004, a decrease of0.5% when compared to 52.2% in the prior year’s first quarter.  This was primarily due to a mix shift ofsales among our businesses.

 

**Selling Expense**

 

Selling expenseincreased $8.7 million, or 9.8%, from $88.4 million in the quarter ended April30, 2002 to $97.1 million in the quarter ended April 30, 2003*.* As a percent of sales, selling expense was31.1% in the most recent fiscal quarter compared to 31.8% a year earlierprimarily due to a mix shift in sales to businesses with lower selling expensesas a percentage of sales.

 

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**AdministrativeExpense**

 

Administrativeexpense increased $4.4 million, or 17.1%, from $25.7 million in the quarterended April 30, 2002 to $30.1 million in the quarter ended April 30, 2003.  Administrative expenses increased due to theaddition of expenses of Miles Kimball and CBK, as well as costs related to compliancewith the Sarbanes-Oxley Act of 2002 and related regulations.

 

**Operating Profit**

 

Operating profitincreased $3.4 million, or 11.0%, to $34.3 million in the quarter ended April30, 2003 compared with $30.9 million a year earlier.  The increase in operating profit in the threemonth period ended April 30, 2003 versus the same period in the prior year isprimarily a result of the increase in PartyLite’s business, the inclusion ofCBK and the favorable impact of foreign exchange rates.

 

**Interest Expense**

 

Interest expensedecreased approximately $0.2 million in the current fiscal year’s first quarterwhen compared to the prior year.  Thisdecrease was a result of the benefit of the interest rate swap, as described inItem 3, Quantitative and Qualitative Disclosures About Market Risk, under theheading Interest Rate Risk, entered into in March 2002, for the full firstfiscal quarter of 2004.

 

**Income Taxes**

 

Income tax expenseincreased $1.2 million, from $10.3 million in the quarter ended April 30, 2002to $11.5 million in the quarter ended April 30, 2003.  This increase is due to the increasedearnings in the most recent quarter.  Theeffective tax rate decreased to approximately 36.8% from 37.2% in the prioryear.

 

**Cumulative Effect ofChange in Accounting Principle**

 

The Companyrecorded a one-time charge of $34.6 million pre-tax, $31.8 million net ofincome taxes on February 1, 2002, which is reflected as the cumulative effectof a change in accounting principle, as a result of adopting SFAS No. 142,“Goodwill and Other Intangible Assets” (See Note 4 to the ConsolidatedFinancial Statements).

 

**Net Earnings**

 

As a result of theforegoing, earnings before the cumulative effect of change in accountingprinciple increased $2.3 million, or 13.3%, from $17.3 million the quarterended April 30, 2002 to $19.6 million for the quarter ended April 30,2003.  Net earnings after the cumulativeeffect of change in accounting principle increased $6.8 million, or 53.1%, from$12.8 million in the first quarter of fiscal 2003 to $19.6 million in the firstquarter of fiscal 2004.

 

Basic earnings pershare before the cumulative effect of change in accounting principle, basedupon the weighted average number of shares outstanding for the quarter endedApril 30, 2003, were $0.43, an increase of $.06, or 16.2% compared to $0.37 forthe quarter ended April 30, 2002.  Basicearnings per share after the cumulative effect of change in accountingprinciple, based upon the weighted average number of shares outstanding for thequarter ended April 30, 2003, were $0.43, an increase of $0.75 compared to aloss of $0.32 for the quarter ended April 30, 2002.  Diluted earnings per share before thecumulative effect of change in accounting principle, based upon the potentialdilution that could occur if options to issue common stock were exercised, were$0.42 compared to $0.37 for the same period the prior year. The cumulativeeffect of change in accounting principle on diluted earnings per share equaled$0.68.  Diluted earnings per share afterthe cumulative effect of change in accounting principle, based upon thepotential dilution that could occur if options to issue common stock wereexercised, were $0.42 compared to a loss of $0.31 for the same period the prioryear.

 

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**Liquidityand Capital Resources**

 

Inventoryincreased from $187.9 million at January 31, 2003 to $200.5 million at April30, 2003.  The increase in inventory isprimarily due to the inclusion of inventory of Miles Kimball acquired in April2003.** Accounts receivableincreased $1.1 million from $82.9 million at the end of fiscal 2003 to $84.0million at April 30, 2003.* *The increase in accountsreceivable is due to the inclusion of Miles Kimball. * *Accounts payable andaccrued expenses decreased $3.7 million from $139.5 million at the end offiscal 2003 to $135.8 million at April 30, 2003.* *The decrease inaccounts payable and accrued expenses is attributable to normal patterns ofpayment of operating expenses including the semi-annual payment of accruedinterest and incentive bonuses.

 

Capitalexpenditures for property, plant and equipment were $4.8 million in the quarterended April 30, 2003 compared to $3.0 million in the prior year period*.*Capital expenditures consisted primarilyof investments in information technology and upgrades of equipment andfacilities.  The Company expects totalcapital spending of approximately $25.0 million for fiscal 2004.

 

The Company has a $200 million unsecured revolving credit facilityhaving a three-year term (the “Credit Facility”).  The Company has the ability to increase theCredit Facility, under certain circumstances, by an additional $50million.  The Credit Facility may be usedfor seasonal working capital needs, general corporate purposes and funding forstrategic acquisitions.  The CreditFacility contains, among other provisions, requirements for maintaining certainfinancial ratios and limitations on certain payments.  At April 30, 2003, the Company was incompliance with such covenants.  Amountsoutstanding under the Credit Facility bear interest, at the Company’s option,at JPMorgan Chase Bank’s prime rate (4.25% at April 30, 2003) or at theEurocurrency rate plus a credit spread ranging from 0.525% to 1.5%, calculatedon the basis of a combination of the Company’s senior unsecured long-term debtrating and the Company’s usage of the Credit Facility.  On April 30, 2003, approximately $3.2 millionof letters of credit were outstanding under the Credit Facility.

 

As of April 30, 2003, the Company had a total of $15.0 millionavailable under an uncommitted bank line of credit with La Salle Bank NationalAssociation, which matures in June 2003. Amounts outstanding under the line of credit bear interest at short-termfixed rates.  No amounts were outstandingunder the uncommitted line of credit at April 30, 2003.

 

At April 30, 2003, the Company had a total of $10.0 million availableunder an uncommitted line of credit with Bank of America to be used for lettersof credit.  At April 30, 2003, approximately$1.6 million of letters of credit were outstanding under this credit line.

 

As of March 31, 2003, The Gies Group (“Gies”) had available lines ofcredit of approximately $36.6 million of which approximately $9.2 million wasoutstanding.  The amounts outstandingunder the lines of credit bear interest at a weighted average rate of 3.87% atMarch 31, 2003.  The lines of credit arerenewed annually.

 

Colony GiftCorporation Limited (“Colony”) has a short-term revolving credit facility withBarclays Bank (“Barclays”), which matures on June 20, 2003, pursuant to whichBarclays has agreed to provide a revolving credit facility in an amount of upto $23.7 million.  As of March 31, 2003,Colony had borrowings under the credit facility of approximately $6.2 million,at a weighted average interest rate of 4.32%.

 

At April 30, 2003, CBK had $4.7 million of long-term debt outstandingunder an Industrial Revenue Bond (“IRB”), which matures on January 1,2025.  The bond is backed by anirrevocable letter of credit issued by La Salle Bank National Association.  The amount outstanding under the IRB bearsinterest at short-term floating rates for a weighted average interest rate of1.4% at April 30, 2003.

 

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At April 30, 2003,Miles Kimball had approximately $10.2 million of long-term debt outstandingunder a real estate mortgage note payable to John Hancock Life InsuranceCompany, which matures June 1, 2020. Under the terms of the note, payments ofprincipal and interest are required monthly at a fixed interest rate of 7.89%.

 

Net cash providedby operating activities amounted to $21.5 million for the three months endedApril 30, 2003 compared to $31.2 million provided from operating activities forthe three months ended April 30, 2002. The decrease in cash flow from operations compared to the prior year isprimarily attributable to changes in working capital, which more than offsetthe improvement in net earnings.

 

The Company’sBoard of Directors has authorized the Company to repurchase up to 6,000,000shares of common stock under the Company’s share repurchase program.  Since January 31, 2003, the Company haspurchased an additional 111,800 shares on the open market for a total cost of$2.8 million, bringing the cumulative total purchased shares to 3,755,900 as ofMay 31, 2003 for a total cost of approximately $89.4 million.  The acquired shares are held as common stockin treasury at cost.

 

On April 1, 2003 the Company declared a cash dividend of $0.13 pershare of the Company’s common stock for the six months ended January 31,2003.  The dividend was payable toshareholders of record as of May 1, 2003 and was paid on May 15, 2003 in theamount of $6.0 million.

 

**Critical AccountingPolicies**

 

For a discussionof the Company’s critical accounting policies see our Annual Report on Form10-K for the fiscal year ended January 31, 2003.

 

**Impact of Adoption ofRecently Issued Accounting Standards**

 

In June 2002, theFASB issued SFAS No. 146, “Accounting for Costs Associated with Exit orDisposal Activities.”  This standardaddresses financial accounting and reporting for costs associated with exit ordisposal activities and nullifies Emerging Issues Task Force (EITF) Issue No.94-3, “Liability Recognition for Certain Employee Termination Benefits andOther Costs to Exit an Activity (including Certain Costs incurred in aRestructuring).”  This standard waseffective for exit or disposal activities that are initiated after December 31,2002.  The implementation of thisstandard has not had an impact on our financial statements.

 

In January 2003,the FASB issued Financial Interpretation No. 46, “Consolidation of VariableInterest Entities,” which is an interpretation of Accounting Research BulletinNo. 51, “Consolidated Financial Statements,” and addresses consolidation bybusiness enterprises of variable interest entities that have specificcharacteristics as described in the Interpretation. This Interpretation waseffective immediately to variable interest entities created after January 31,2003, and to variable interest entities in which an enterprise obtains aninterest after that date. It applies in the first fiscal year or interim periodbeginning after June 15, 2003, to variable interest entities in which anenterprise holds a variable interest that it acquired before February 1,2003.  The Company has evaluated theimpact of this interpretation and we do not expect it to have a significantimpact on our financial statements.

 

In April 2003, theFASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instrumentsand Hedging Activities.”  This statementamends and clarifies financial accounting and reporting for derivativeinstruments, including certain derivative instruments embedded in othercontracts (collectively referred to as derivatives) and for hedging activitiesunder FASB Statement No. 133, “Accounting for Derivative Instruments andHedging Activities.”  This standard iseffective for derivative contracts entered into or modified after June 30,2003. We do not expect that implementation of this standard will have asignificant impact on our financial statements.

 

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In May 2003, theFASB issued SFAS No. 150, “Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity.” This Statement establishesstandards for how an issuer classifies and measures certain financialinstruments with characteristics of both liabilities and equity. It requiresthat an issuer classify a financial instrument that is within its scope as aliability (or an asset in some circumstances). This standard is effective for financial instruments entered into ormodified after May 31, 2003. We do not expect that implementation of thisstandard will have an impact on our financial statements.

 

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**Item 3.** Quantitative andQualitative Disclosures About Market Risk

 

**Market Risk**

 

The Company hasoperations outside of the United States and sells its products worldwide.  The Company’s activities expose it to avariety of market risks, including the effects of changes in foreign currencyexchange rates, interest rates and commodity prices.  These financial exposures are activelymonitored and, where considered appropriate, managed by the Company.

 

**Interest Rate Risk**

 

As of April 30,2003 the Company is subject to interest rate risk on approximately $20.1million of variable rate debt.  Each1-percentage point increase in the interest rate would impact pre-tax earningsby approximately $0.2 million if applied to the total.

 

On March 1, 2002,the Company entered into an interest rate swap agreement which matures onOctober 1, 2009, in relation to $50.0 million of our outstanding 7.90% SeniorNotes.  The interest rate under the swapagreement is equal to the six-month LIBOR rate plus 2.65% (3.91% at April 1,2003), with interest payable semi-annually on April 1 and October 1.  Each 10% change in the interest rate wouldimpact pre-tax earnings by $5.0 million.

 

**Foreign Currency Risk**

 

The Company usesforward foreign exchange contracts to hedge the impact of foreign currencyfluctuations on certain committed capital expenditures, certain inventorypurchases, Canadian intercompany payables and certain intercompany loans. TheCompany does not hold or issue derivative financial instruments for tradingpurposes.

 

The Company hasdesignated its forward exchange contracts on Canadian intercompany purchasesand forecasted future purchase commitments as cash flow hedges and, as such, aslong as the hedge remains effective and the underlying transaction remainsprobable, the effective portion of the changes in the fair value of thesecontracts will be recorded in accumulated other comprehensive income (loss)(“OCI”) until earnings are affected by the variability of the cash flows beinghedged.  With regard to commitments formachinery and equipment and inventory purchases, upon payment of eachcommitment, the underlying forward contract is closed and the correspondinggain or loss is transferred from accumulated OCI and is included in themeasurement cost of the acquired asset. If a hedging instrument is sold orterminated prior to maturity, gains and losses are deferred in accumulated OCIuntil the hedged item is settled. However, if the hedged item is no longerlikely to occur, the resultant gain or loss on the terminated hedge isrecognized into earnings immediately. Approximately $373,000 of hedge lossesare included in accumulated OCI at April 30, 2003, and are expected to betransferred into earnings within the next twelve months.

 

The Company hasdesignated its foreign currency forward contracts related to intercompany loansas fair value hedges. The gains or losses on the fair value hedges arerecognized into earnings and generally offset the transaction gains or lossesin the foreign denominated loans, that they are intended to hedge.

 

For consolidatedfinancial statement presentation, net cash flows from such hedges areclassified in the categories of the cash flow with the items being hedged.

 

The followingtable provides information about the Company’s foreign exchange forwardcontracts at April 30, 2003.

 
| **(In  thousands, except average contract rate)** | ** ** | **U.S. Dollar  Notional Amount** | ** ** | **Average  Contract Rate** | ** ** | **Estimated  Fair Value** | ** ** |
|---------------------------------------------------|------------|----------------------------------|------------|----------------------------|------------|---------------------------|------------|
| Canadian  Dollar                                  |       | $                                | 14,239     |                       | 1.51       |                      | $          | (603 | ) |
| Euro                                              |       | 32,900                           |       | 1.09                       |       | (599                      | )          |
| Pound  Sterling                                   |       | 12,394                           |       | 1.55                       |       | (359                      | )          |
|                                              |       | $                                | 59,533     |                       |       |                      | $          | (1,561 | ) |

 

The foreignexchange contracts outstanding as of April 30, 2003 have maturity dates rangingfrom May 2003 through January 2004.

 

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**Item 4.** Controls and Procedures

 

(a) Evaluation of disclosure controls andprocedures.

 

Our management, with theparticipation of our principal executive officer and our principal financialofficer, 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 asrequired by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.  Based upon this evaluation, our principalexecutive officer and our principal financial officer have concluded that ourdisclosure controls and procedures are effective as of the end of the periodcovered by this quarterly report.

 

(b) Changes in internal control over financialreporting.

 

There was no change in our internal control overfinancial reporting identified in connection with the evaluation required byparagraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during ourlast fiscal quarter that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.

 

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**PartII.  OTHER INFORMATION**

 

**Item 1.****           Legal Proceedings**

 

On June 2, 2003,the parties agreed in open court to settle and resolve all matters involving orin any way relating to the previously reported legal proceedings by and betweenthe Company and its wholly-owned subsidiary, Endar Corp., on the one hand, andEnnio Racinelli, Darlene Racinelli and others, on the other hand, by means of awritten settlement and release agreement, without any payment by any party.

 

**Item 2.**           Changes in Securities

 None

 

**Item3.**           Defaults upon SeniorSecurities

 None

 

**Item4.**           Submission of Mattersto a Vote of Security Holders

 None

 

**Item 5.**           Other Information

 

The Company isincluding the following cautionary statement in this Report to make applicable,and to take advantage of, the safe harbor provisions of the Private SecuritiesLitigation Reform Act of 1995 for any forward-looking statements made by, or onbehalf of, the Company.  Forward-lookingstatements include statements concerning plans, objectives, goals, strategies, futureevents or performance and underlying assumptions and other statements, whichare other than statements of historical facts. From time to time, the Company and its representatives may publish orotherwise make available forward-looking statements of this nature.  All such forward-looking statements, whetherwritten or oral, and whether made by or on behalf of the Company, are expresslyqualified by the following cautionary statements.  Forward-looking statements involve risks anduncertainties, which could cause actual results or outcomes to differmaterially from those expressed in the forward-looking statements.  Such forward-looking statements are expectedto be based on various assumptions, many of which are based, in turn, uponfurther assumptions.

 

There can be noassurance that management’s expectations, beliefs or projections will occur orbe achieved or accomplished.  In additionto other factors and matters discussed elsewhere in this Report and in theCompany’s other public filings and statements, the following are importantfactors that, in the view of the Company, could cause actual results to differmaterially from those discussed in the Company’s forward-lookingstatements.  The Company disclaims anyobligation to update any forward-looking statements, or the following factors,to reflect events or circumstances after the date of this Report.

 

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Risk of Inability toMaintain Growth Rate

 

The Company hasgrown substantially in past years.  Whilewe expect continued growth, we expect that our future rate of growth will beless than our historical growth rate.  Inthe Candles & Home Fragrance segment, we expect the international market togrow faster than the domestic market. The market for our foodservice, or Away From Home products has grown,but more slowly, and we expect it will continue to do so.  Our ability to continue to grow depends onseveral factors, including the following: market acceptance of existing products, the successful introduction ofnew products, our ability to recruit new independent sales consultants,sourcing of raw materials, and increases in production and distributioncapacity to meet demand.  The Candles& Home Fragrance and Creative Expressions industries are driven by consumertastes.  Accordingly, there can be noassurance that our existing or future products will maintain or achieve marketacceptance.  Our sales and earningsresults have recently been impacted negatively by a slowing of the UnitedStates economy and the economies of certain European countries and by a drop inconsumer confidence at both the individual and retailer levels.  There can be no assurance that our sales andearnings results will not be materially adversely affected by these factors in thefuture.  If the United States economyand/or the economies in certain European countries in which we sell ourproducts slow further and/or consumer confidence drops further, our operatingresults may be materially adversely affected. Our past growth in both the Candles & Home Fragrance segment and theCreative Expressions segment has been due, in part, to acquisitions.  We expect our future growth in the Candles& Home Fragrance segment to be primarily organic, with the possibility ofselective acquisitions, and we continue to pursue strategic acquisitions in theCreative Expressions segment.  There canbe no assurance that we will be able to continue to identify suitableacquisition candidates, to consummate acquisitions on terms favorable to theCompany, to finance acquisitions or to integrate successfully acquiredoperations.  In the future, acquisitionsmay contribute more to the overall Company’s sales growth rate thanhistorically.

 

Ability to Respond toIncreased Product Demand

 

Our ability tomeet future demand for candles and home fragrance products and creativeexpressions products will be dependent upon success in (1) bringing newproduction and distribution capacity on line in a timely manner, (2) improvingour ability to forecast anticipated product demand in order to continue to fillcustomer orders promptly, (3) improving management information systems in orderto respond promptly to customer orders and (4) training, motivating andmanaging new employees.  If we are unableto meet future demand for products in a timely and efficient manner, ouroperating results could be materially adversely affected.

 

Risks Associated withInternational Sales and Foreign-Sourced Products

 

Our internationalbusiness has grown at a faster rate than sales in the United States in recentyears.  In addition, we source a portionof our candles, accessories and decorative gift bags and home and seasonaldécor products from independent manufacturers in the Pacific Rim, Europe andMexico.  For these reasons, we are subjectto the following risks associated with foreign manufacturing and sales:fluctuations in currency exchange rates, economic and political instability,international public health crises, transportation delays, difficulty inmaintaining quality control, restrictive actions by foreign governments,nationalizations, the laws and policies of the United States and certainEuropean markets affecting importation of goods (including duties quotas andtaxes and trade and foreign tax laws.

 

Raw Materials

 

For certain rawmaterials, there may be temporary shortages due to capacity, availability, achange in raw material requirements, weather or other factors, includingdisruptions in supply caused by raw material transportation or productiondelays.  Such raw material shortages havenot previously had, and are not presently expected to have, a material adverseeffect on the Company’s operations.  Itis possible, however, that recent increases in oilprices may have a material adverse effect on availability of petroleum-basedproducts used in the manufacture of our candles and home fragrance products.

 

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Dependence on KeyCorporate Management Personnel

 

Our successdepends upon the contributions of key corporate management personnel, includingour Chairman, Chief Executive Officer and President, Robert B. Goergen.  We do not have employment contracts with anyof our key corporate management personnel except for Mr. Goergen, nor do wemaintain any key person life insurance policies.  The loss of any of the key corporatemanagement personnel could have a material adverse effect on the Company.

 

Competition

 

Our business ishighly competitive, both in terms of price and new product introductions. Theworldwide market for candles and home fragrance products and creativeexpressions products is highly fragmented, with numerous suppliers serving oneor more of the distribution channels served by the Company.  Because there are relatively low barriers toentry to the Candles & Home Fragrance and Creative Expressions segments, wemay face increased future competition from other companies, some of which mayhave substantially greater financial and marketing resources than thoseavailable to us.  We compete withcompanies offering candles manufactured in foreign countries.  In addition, certain competitors focus on aparticular geographic or single-product market and attempt to gain or maintainmarket share solely on the basis of price.

 

**Item6.**            Exhibits and Reportson Form 8-K

 

a)              Exhibits

 
| 31.1   |   | Certification of Chairman, Chief Executive Officer  and President 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, Chief Executive Officer and President 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)             Reportson Form 8-K

 

During the fiscalquarter ended April 30, 2003, the Company filed the following Current Reportson Form 8-K:

 

Current Report on Form8-K filed on March 24, 2003 to file as an exhibit the press release reportingthe Company’s fourth quarter and full year results of operations for the periodended January 31, 2003.

 

Current Report on Form8-K filed on April 3, 2003 to file as an exhibit the press release announcingthe Company’s declaration of a semi-annual dividend.

 

Current Report on Form8-K filed on April 9, 2003 to file as an exhibit the press release announcingthe Company’s acquisition of the Miles Kimball Company.

 

Current Report on Form8-K filed on April 9, 2003 to announce the approval by the Company’s Board ofDirectors of the adoption of the Company’s 2003 Long-Term Incentive Plan,subject to stockholder approval.

 

Current Report on Form8-K/A filed on April 17, 2003 to file as an exhibit a corrected copy of theCompany’s 2003 Long-Term Incentive Plan.

 

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**SIGNATURES**

 

**Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.**

 

 
|   |           |   | BLYTH, INC. |
|--------|----------------|--------|-------------|
|   |           |   |        |
|   |           |   |        |
| Date:  | August 4, 2004 |   | By:         | /s/ Robert B. Goergen |   |
|   |           |   |        | Robert B. Goergen |
|   |           |   |        | Chairman and Chief  Executive Officer |
|   |           |   |        |   |
|   |           |   |        |   |
| Date:  | August 4, 2004 |   | By:         | /s/ Robert H. Barghaus |   |
|   |           |   |        | Robert H. Barghaus |
|   |           |   |        | Vice President and Chief  Financial Officer |
|        |                |        |             |  |  |  |

 

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