**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WashingtonD.C. 20549**

 

**FORM 10-Q/A**

**(Amendment No. 3)**

 
| **(Mark One)**                                                                                                                                                                                                                                         | ** ** | ** **                                                                                               |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                   |       |                                                                                                     |
| **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** |
|                                                                                                                                                                                                                                                   |       |                                                                                                     |
| **For the  transition period from                    to                   ** |
|                                                                                                                                                                                                                                                        |            |                                                                                                          |  |  |  |  |

 

**Commissionfile number 1-13026**

 

**BLYTH, INC.**

(Exact name of registrant asspecified in its charter) 

 

| **DELAWARE**                                                    | ** ** | **36-2984916**                     |
|-----------------------------------------------------------------|------------|------------------------------------|
| (State or  other jurisdiction of incorporation or organization) |       | (IRS  Employer Identification No.) |

 

| **One East Weaver Street, Greenwich,  Connecticut 06831** |
|-----------------------------------------------------------|
| ** **                                                | **(Address  of principal executive offices)** | (Zip Code) |

 

**(203)661-1926**

(Registrant’s telephone number,including area code)

 

#### **Not Applicable**

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

 

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

Yes  ý    No  o

 

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

Yes  ý    No  o

 

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

 

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

 

 

----

 

#### **Explanatory Note**

####  

In our filing on Form 10-Q/A Amendment No. 2 for thequarter ended April 30, 2003 filed with the Securities and ExchangeCommission on December 16, 2004 we disclosed that the interim financialstatements included therein had not been reviewed by an independent registeredpublic accounting firm, as required by Section 10-01(d) ofRegulation S-X.  This Form 10-Q/AAmendment No. 3 is being filed to remedy that deficiency.  This amended quarterly report has notrequired any change to the Consolidated Financial Statements except for arestatement of the Consolidated Statements of Cash Flows as discussed in Note 2to more properly reflect the impact of foreign currency exchange rates on cashfor fiscal 2003 and fiscal 2004.  Noattempt has been made in this Form 10-Q/A to modify or update anydisclosures except as required to reflect the results of the restatementsdiscussed above.  This Form 10-Q/Adoes not reflect events occurring after the filing of the original Form 10-Qor modify or update those disclosures affected by subsequent events unlessspecifically noted.

 

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 4.  | Controls and Procedures |   |
|                      |     |   |   |   |
| Part II.             |     | Other Information |   |
|                      |     |   |   |   |
|                      | Item 5.  | Other Information |   |
|                      |     |   |   |   |
|                      | Item  6. | Exhibits |   |
|                      |     |   |   |   |
| Signatures                |     |   |
|                           |          |  |  |  |  |  |  |  |

 

3

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Part I                    FINANCIALINFORMATION

Item 1.             FINANCIAL STATEMENTS

 

**BLYTH, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS**

 
| **(Unaudited, in thousands, except share and per share data)**                                                                  | ** ** | **April 30,  2003** | ** ** | **January 31,  2003** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|----------------------------|------------|
| ** **                                                                                                                      | ** ** | **Restated (Note 2)**    | ** ** | **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 SUBSIDIARIESCONSOLIDATED STATEMENTS OFEARNINGS**

 
| **Three  months ended April 30,****(Unaudited, in thousands,  except per share data)**               | ** ** | **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 accompanyingnotes are an integral part of these financial statements.***

 

5

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**BLYTH, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OFSTOCKHOLDERS’ EQUITY**

 
| **(Unaudited, in thousands, except share data)**                     | ** **         | ** ** | ** ** | ** ** | ** ** | **Additional    contributed   capital** | ** ** | **Retained    earnings** | ** ** | ** ** | ** ** | ** ** | ** ** | **Accumulated    other   comprehensive   income (loss)** | ** ** | **Total** | ** ** |
|----------------------------------------------------------------------|--------------------|------------|------------|------------|------------|-----------------------------------------|------------|--------------------------|------------|------------|------------|------------|------------|----------------------------------------------------------|------------|-----------|------------|
| **Common stock**                                                     | **Treasury stock** |
| **Shares**                                                           | ** **         | **Amount** | **Shares** | ** ** | **Amount** |
|                                                                 |               |       |       |       |       |                                    |       |                     |       |       |       |       |       |                                                     |       |      |       |
| **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 - Restated (Note 2)                     |               | 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 - Restated  (Note 2)        |               |       |       |       |       |                                    |       |                     |       |       |       |       |       | (544                                                     | )          | (544      | )          |
| Unrealized holding gain 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 - Restated (Note 2)                             |               |       |       |       |       |                                    |       |                     |       |       |       |       |       |                                                     |       | 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 - Restated (Note 2)                     |               | 49,733,227 |       | $          | 995        |                                    | $          | 101,906                  |       | $          | 510,275    |       | (3,755,900 | )                                                        | $          | (89,413   | )          | $ | (5,616 | ) | $ | 518,147 |   |

 

***The accompanying notes are an integral partof these financial statements.***

 

6

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**BLYTH, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OFCASH FLOWS**

 
| **Three months ended April 30, (Unaudited, in thousands)**                       | ** ** | **2003**               | ** ** | **2002**               | ** ** |
|---------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                            | ** ** | **Restated  (Note 2)** | ** ** | **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                 | )          | (3,503                 | )          |
| Accrued  expenses                                                                     |       | (7,889                 | )          | (1,648                 | )          |
| Other  liabilities                                                                    |       | 1,109                  |       | 708                    |       |
| Income taxes                                                                          |       | 10,606                 |       | 4,958                  |       |
| Total  adjustments                                                                    |       | 2,049                  |       | 44,716                 |       |
| Net cash  provided by operating activities                                            |       | 21,676                 |       | 30,267                 |       |
| 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 changes on cash                                              |       | (4,045                 | )          | 947                    |       |
| 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 SUBSIDIARIESNOTES TO CONSOLIDATEDFINANCIAL STATEMENTS(Unaudited)**

 

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

 

Blyth is a global competitor in the gift anddecorative accessories market, which the Company calls the Home Expressionscategory. Within this category, the Company reports its financial results infive segments – the Direct Selling segment, the Wholesale Home Fragrancesegment, the Wholesale Creative Expressions segment, the Catalog &Internet segment, and the All Other segment. Miles Kimball, acquired in April 2003is included in the Catalog & Internet segment. Prior to January 31,2004, the Company reported its financial results in two reporting segments, theCandles & Home Fragrance segment and the Creative Expressions segment.The Company reevaluated its operating segments based on the application of FASBStatement No. 131, “Disclosures about Segments of an Enterprise andRelated Information,” and determined that the appropriate number of reportablesegments should have been five in fiscal 2004 and four in fiscal 2003 and 2002(The increase in segments in fiscal 2004 was due to acquisitions that wereconsummated in fiscal 2004.) The Company’s financial statement footnotes havebeen restated to reflect the revised segments. In addition, the revision ofsegments had the related effect of requiring changes in the Company’s reportingunits for purposes of goodwill impairment reviews under FASB Statement No. 142,“Goodwill and Other Intangible Assets”, retroactive to the February 1,2002 adoption date of SFAS 142. This resulted in a restatement for anadditional impairment charge as of February 1, 2002. See Notes 2 and 9 tothe financial statements for further details. The Company’s reportable andoperating segments are based on financial information regularly evaluated bythe chief operating decision maker in determining resource allocation and assessingperformance. Revenues are not reported by product or group of similar products,as it is impractical to do so. The Company has operations outside of the UnitedStates and sells products in the Direct Selling and Wholesale Home Fragrancesegments worldwide. The majority of sales in the Wholesale CreativeExpressions, Catalog & Internet and All Other segments aredomestically based.

 

Within the Direct Selling segment, theCompany designs, manufactures and markets an extensive line of products includingscented candles, fragranced bath gels and body lotions and other fragrancedproducts. It also designs and markets a broad range of related candleaccessories. These products are sold direct to the consumer under thePartyLite® brand in North America, Europe and Australia through a network ofmore than 56,000 independent sales consultants.

 

Within the Wholesale Home Fragrance segment,the Company designs, manufactures and markets an extensive line of productsincluding scented candles, potpourri and other fragranced products. It alsodesigns and markets a wide range of related candle accessories. Products inthis segment are sold worldwide to retailers in the premium and specialtywholesale channels under the Ambria®, Carolina®, ColonialTM(1), Colonial Candleof Cape Cod®, Colonial at HOMEâ,Gies®(1),Kate’sTM and Liljeholmens® brands and in the mass retail channel under theAmbria®, FilterMate®, Florasense® and Gies®(1) brands.

 

Within the Wholesale Creative Expressionssegment, the Company designs, sources and markets a broad range of home décorproducts under the CBK® brand, seasonal decorations under the Holiday365Ô,JMC ImpactÔ and Seasons of Cannon FallsÔbrands, and, until Jeanmarie was sold in April 2004, decorative gift bagsunder the Jeanmarie® brand. These products are sold primarily in North America.

 

Within the Catalog & Internetsegment, the Company designs, sources and markets a broad range of householdconvenience items, premium photo albums, frames, holiday cards and gifts underthe Exposuresâ and Miles Kimballâbrands. These products are sold primarily in North America.

 

Within the All Other segment, the Companydesigns, manufactures or sources and markets a variety of chafing fuel, candlesand tabletop lighting products to the Away From Home or foodservice trade underthe brand names Ambriaâ,HandyFuelâ and Sternoâ.These products are sold primarily in North America. 

 

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(1) Colonial and Gies are registered and sold only outside theUnited States.

 

8

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The consolidated financial statements includethe accounts of the Company, and its direct and indirect subsidiaries. Allsignificant intercompany accounts and transactions have been eliminated. Investmentsin companies, which are not majority owned or controlled, are reported usingthe equity method and are recorded in investments. Certain of the Company’ssubsidiaries operate on a 52 or 53-week fiscal year ending on theSaturday closest to January 31. European operations maintain a calendaryear accounting period, which is consolidated with the Company’s fiscal period.In the opinion of management, the accompanying unaudited consolidated financialstatements include all normal recurring accruals necessary for fairpresentation of the Company’s consolidated financial position at April 30,2003 and the consolidated results of its operations and cash flows for thethree-month periods ended April 30, 2003 and 2002. These interimstatements should be read in conjunction with the Company’s consolidatedfinancial statements for the year ended January 31, 2003, as set forth inthe Company’s Annual Report on Form 10-K. Operating results for thethree months ended April 30, 2003 are not necessarily indicative of theresults that may be expected for the year ending January 31, 2004.

 

**Reclassifications**

 

Certain reclassifications have been made inprior years’ financial statements to conform to classifications used in thecurrent year.

 

**Employee Stock Options**

 

The Company accounts for stock-basedcompensation under the intrinsic value-based method of accounting, whereby nocompensation expense is recorded for stock options issued to employees unlessthe option price is below market at the time options are granted. The Companydoes not at this time, issue stock options below market value, therefore nocompensation expense has been recorded in the financial statements. Thefollowing pro forma net earnings and net earnings per common share data arepresented for informational purposes only and have been computed using the fairvalue method of accounting for 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                    | )          |

 

The fair value of each option is estimated onthe date of grant, using the Black-Scholes option pricing model with thefollowing weighted-average assumptions used for grants in fiscal quarters endedApril 30, 2003 and April 30, 2002, respectively: expected volatilitywas 40.75% for the first quarter of fiscal 2004 and 39.82% for the firstquarter of fiscal 2003; risk-free interest rates at 2.71% for the first quarterof fiscal 2004 and 2.76% to 4.66% for the first quarter of fiscal 2003;expected life of 5 years for the first quarter of fiscal 2004 and 2003 and anexpected dividend yield of 0.99%.

 

9

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**2.****                                      Restatement**

 

Prior to January 31, 2004, the Companyreported its financial results in two reporting segments, the Candles &Home Fragrance segment and the Creative Expressions segment. The Companyreevaluated its operating segments based on the application of FASB Statement No. 131,“Disclosures about Segments of an Enterprise and Related Information” (“SFAS131”), and determined that the appropriate number of reportable segments shouldhave been five during fiscal 2004 and four during fiscal 2003 and 2002 (Theincrease in segments in fiscal 2004 was due to the acquisitions that wereconsummated in fiscal 2004.) 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 1,2002 adoption date of SFAS 142.  Thisresulted in the need to perform impairment reviews of several additionalreporting units as of February 1, 2002 and each subsequent year-endbalance 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 ofthese businesses are components of the Wholesale Home Fragrance Segment. TheCompany’s fiscal 2003 financial statements have been restated to reflect therecording of these $27.2 million in goodwill impairment charges as part of thecumulative effect of adopting SFAS 142 as of February 1, 2002. There wasno income tax impact for these impairment charges.  A restatement of the Consolidated Statements of Cash Flows has also beenmade to more properly reflect the impact of foreign currency exchange rates oncash for fiscal 2003 and 2004.  TheCompany has now presented the effect of foreign currency rate changes on cashas a separate line on the cash flow statements, instead of including thiseffect within cash flows from operating, investing and financing activities aspreviously reported. Also, fiscal 2004 cash flows have been revised to reflectthe reporting currency equivalent of foreign currency cash flows using weightedaverage exchange rates that approximated the actual exchange rates in effect atthe time of the cash flows, rather than using period-end exchange rates.

 

A summary of the effects of the restatements on the Company’s financialstatements is as follows:

 
| ** **                                                                           | ** ** | **As of April 30, 2003**         | ** ** |
|--------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| **(In thousands)**                                                                   | ** ** | **As Previously   Reported**          | ** ** | **As Restated** | ** ** |
| **Balance  sheet :**                                                                 | * *   | * *                              | * *   | * * | * * |
| Excess of  cost over fair value of assets acquired                                   |       | $                                     | 191,922    | *(a)* | $ | 158,753 | *(b)* |
| Total assets                                                                         |       | 957,676                               | *(a)*      | 924,507 | * * |
| Retained  earnings                                                                   |       | 537,513                               |       | 510,275 | * * |
| Accumulated  other comprehensive income (loss)                                       |       | 315                                   |       | (5,616 | )*(b)* |
| Total  stockholders’ equity                                                     |       | 551,316                               |       | 518,147 |   |
| Total  liabilities and stockholders’ equity                                     |       | 957,676                               | *(a)*      | 924,507 |   |
| **Statement  of Stockholders’ Equity:**                                         | * *   | * *                              | * *   | * * |   |
| Retained  earnings                                                                   |       | $                                     | 537,513    |   | $ | 510,275 |   |
| Foreign  currency translation adjustments, for the quarter ended April 30, 2003 |       | 1,117                                 |       | (544 | ) |
| Comprehensive  income, for the quarter ended April 30, 2003                     |       | 20,423                                | *(a)*      | 18,762 |   |
| Accumulated  other comprehensive income (loss)                                       |       | 315                                   |       | (5,616 | ) |
| Total  stockholders’ equity                                                     |       | 551,316                               |       | 518,147 |   |
|                                                                                 |       |                                  |       |   | * * |
| ** **                                                                           | ** ** | **Quarter ended April 30, 2003** | ** ** |
| ** **                                                                           | ** ** | **As Previously  Reported**           | ** ** | **As Restated** | ** ** |
| **Statement  of Cash Flows:**                                                        |       |                                  |       |   | * * |
| Total  adjustments to reconcile net earnings to net  cash from operations       |       | $                                     | (127       | ) | $ | 2,049 | * * |
| Net cash  provided by operating activities                                           |       | 19,500                                |       | 21,676 | * * |
| Net cash  used in investing activities                                               |       | (71,085                               | )          | (69,209 | ) |
| Net cash  provided by financing activities                                           |       | 5,380                                 |       | 5,373 | * * |
| Effect of  exchange rate changes on cash                                             |       | —                                |       | (4,045 | ) |

 

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*(a)**                               Reflectscertain other reclassifications to conform with current year presentation.*

*(b)**                               Includesthe reversal of $5,931 of foreign currency translation adjustments on the Giesand Colony goodwill written off.*

 

10

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A summary of the effects of the restatements on theCompany’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:**                                   |       |                                   |       |   |   |
| Retained  earnings, as of April 30, 2002                                  |       | $                                      | 456,729    |   | $ | 429,491 |   |
| Foreign  currency translation adjustments                                      |       | (2,914                                 | )          | (2,305 | ) |
| Comprehensive  income (loss)                                                   |       | 9,904                                  |       | (16,725 | ) |
| Accumulated  other comprehensive loss, as of April 30, 2002               |       | (19,779                                | )          | (19,170 | ) |
| Total  stockholders’ equity, as of April 30, 2002                    |       | 461,044                                |       | 434,415 |   |
| **Statement  of Cash Flows:**                                                  |       |                                   |       |   |   |
| Total  adjustments to reconcile net earnings to net  cash from operations |       | $                                      | 18,425     |   | $ | 44,716 |   |
| Net cash  provided by operating activities                                     |       | 31,214                                 |       | 30,267 |   |
| Effect of  exchange rate changes on cash                                       |       | —                                 |       | 947 |   |

 

**3.****                                     ****New Accounting Pronouncements**

 

In June 2002, the FASB issued SFAS No. 146, “Accounting forCosts Associated with Exit or Disposal Activities.” This standard addressesfinancial accounting and reporting for costs associated with exit or disposalactivities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,“Liability Recognition for Certain Employee Termination Benefits and OtherCosts to Exit an Activity (including Certain Costs incurred in aRestructuring).” This standard was effective for exit or disposal activitiesthat 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 Variable Interest Entities,” which is an interpretation ofAccounting Research Bulletin No. 51, “Consolidated Financial Statements,”and addresses consolidation by business enterprises of variable interestentities that have specific characteristics as described in the Interpretation.This Interpretation was effective immediately to variable interest entitiescreated after January 31, 2003, and to variable interest entities in whichan enterprise obtains an interest after that date. It applies in the firstfiscal year or interim period beginning after June 15, 2003, to variableinterest entities in which an enterprise holds a variable interest that itacquired before February 1, 2003. The Company has evaluated the impact ofthis interpretation and we do not expect it to have a significant impact on ourfinancial statements.

 

11

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**3.****                                      NewAccounting Pronouncements**

 

In April 2003, the FASB issued SFAS No. 149, “Amendment ofStatement 133 on Derivative Instruments and 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 is effective for derivative contractsentered into or modified after June 30, 2003. We do not expect thatimplementation of this standard will have a significant impact on our financialstatements.

 

In May 2003, the FASB issued SFAS No. 150, “Accounting forCertain Financial Instruments with Characteristics of both Liabilities andEquity.” This Statement establishes standards for how an issuer classifies andmeasures certain financial instruments with characteristics of both liabilitiesand equity. It requires that an issuer classify a financial instrument that iswithin its scope as a liability (or an asset in some circumstances). Thisstandard is effective for financial instruments entered into or modified after May 31,2003. We do not expect that implementation of this standard will have an impacton our financial statements.

 

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

 

Prior to February 1, 2002, excess of costs of acquisitions overfair value of identifiable net assets acquired less liabilities assumed (“goodwill”)was being amortized on a straight-line basis over estimated lives ranging from15-40 years. Amortization of goodwill ceased on February 1, 2002,upon adoption of the new goodwill rules under SFAS 142.

 

In June 2001, the FASB issued SFAS No. 142, “Goodwill andOther 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 firststep compares the fair value of a reporting unit to its carrying amount,including goodwill. If the carrying amount of the reporting unit exceeds itsfair value, the second step is performed. The second step compares the carryingamount of the goodwill to the fair value of the goodwill. If fair value is lessthan the carrying amount, an impairment loss is reported as a reduction to theasset and a charge to operating expense, except at the transition date, whenthe loss was reflected as a cumulative effect of a change in accountingprinciple.

 

As of January 31, 2002, Blyth’s Consolidated Balance Sheetsreflected approximately $108.1 million in goodwill net of accumulatedamortization, including $27.2 million related to the Wholesale Home Fragrancesegment businesses, $42.2 million related to the All Other segment and $38.7million related to the Wholesale Creative Expressions segment businesses. TheCompany adopted SFAS 142, effective February 1, 2002. In accordance withthe new standard, Blyth ceased amortization of goodwill and performed anassessment for impairment of its goodwill. As a result of the impairmentreview, Blyth reduced the carrying value of the goodwill related to its 1997acquisition of the Sternoâ brand by $7.4 million, which is includedin the All Other segment. In addition, a revision of its operating andreporting segments by the Company (See Note 2), required 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 reviews of several additionalreporting units as of February 1, 2002 and each subsequent year-endbalance sheet date thereafter. These impairment reviews have indicated the needto 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 ofthese businesses are components of the Wholesale Home Fragrance Segment, andthe impairment charges reduced goodwill in that segment to zero at February 1,2002. The fair values of the Sterno Group, the Gies Group and the Colony Groupwere determined through independent valuations utilizing market-comparable 

 

12

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analysis, as well as discounted cash flow models reflecting theexpected range of future cash flow outcomes over the life of themodels. These cash flows were discounted to February 1, 2002 using a risk-adjusteddiscount rate. The impairment of the Sterno Group’s goodwill, which wasrecorded as a cumulative effect of a change in accounting principle, had theeffect of reducing net income by $4.5 million (after tax) or $0.10 per share. Theimpairments of the Gies Group and Colony Group goodwill, which were notdeductible for tax purposes, were, via restatement of the fiscal 2003 financialstatements, also recorded as a cumulative effect of change in accountingprinciple, and had the effect of reducing net income by $27.2 million or $0.58per share.

 

**5.****                                     ****Business Acquisitions**

 

On May 10, 2002, the Company purchased all of the interests in CBKStyles, Inc., formerly CBK, Ltd., LLC (“CBK”), a designer and marketer ofpremium everyday giftware and home décor, for approximately $51.0 million incash*.* The excess of the purchaseprice over the estimated fair value of the net assets acquired approximated$40.0 million, which will be deductible for income tax purposes over 15 years. Theresults of operations of CBK are included in the Consolidated Statements ofEarnings of the Company since May 11, 2002. For segment reporting purposesCBK is included in the Wholesale Creative Expressions segment.

 

On April 1, 2003, the Company acquired 100% of the Miles KimballCompany (“MK”), a direct marketer of giftware, home décor and householdconvenience items, premium photo albums, frames and holiday cards under theMiles Kimball and Exposures catalog titles for approximately $66.0 million incash. 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 other intangibles acquired consist of $16.1 million oftrade names and trademarks, which are deemed to have an indefinite life andwill not be amortized, plus $9.0 million of customer lists, which will beamortized on an accelerated basis over 12 years. Estimated amortization expensefor the next 5 fiscal years is as follows: $1.5 million, $1.5 million, $1.2million, $0.9 million and $0.9 million. The results of operations of MK areincluded in the Consolidated Statements of Earnings 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 millionof long-term debt outstanding under a real estate mortgage note payable to JohnHancock Life Insurance Company, which matures June 1, 2020. Under theterms of the note, payments of principal and interest are required monthly at afixed interest rate of 7.89%. 

 

The followingprovides a preliminary allocation of the purchase price of Miles Kimball (inthousands)

 
| 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 |   |

 

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The following unaudited pro forma summaryfinancial information summarizes the estimated combined results of operationsof the Company, CBK and MK assuming that the acquisitions of CBK and MK hadtaken place on February 1, 2002. The unaudited pro forma combined resultsof operations were prepared on the basis of information provided to the Companyby the former management of CBK and MK and no representation is made by theCompany with respect to the accuracy of such information. The pro formacombined results of operations reflect adjustments for interest income,additional depreciation based on the fair market value of CBK’s and MK’s property,plant, and equipment, amortization of identifiable intangibles of MK and incometax 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 pro forma combined results ofoperations are not necessarily indicative of, and do not purport to represent,what the Company’s results of operations or financial condition actually wouldhave been had the acquisitions been made as of February 1, 2002.

 

At April 30, 2003, the Company had atotal of $158.8 million of goodwill on its balance sheet compared to $113.5million at January 31, 2003. Goodwill attributable to the WholesaleCreative 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 2003acquisition of Miles Kimball. Goodwill attributable to the All Other segment atApril 30, 2003 was $34.8 million, unchanged from January 31, 2003.

 

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**6.**                                      Inventories

 

The components of inventory 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.**                                      Earnings per Share

** **

The components of basic 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 and95,004 shares of common stock, respectively, are not included in thecomputation of earnings per share because the effect would be anti-dilutive.

 

**8.**                                      Unusual Charges

** **

At January 31, 2003, the Company had approximately $0.4 million ofrestructuring charges included in the Consolidated Balance Sheet, which relatedto lease obligations.  As a result ofpayments made during the quarter ended April 30, 2003 approximately $0.3million of lease obligations were remaining on the balance sheet at April 30,2003.  The lease obligation continuesthrough the third quarter of fiscal 2004.

 

The following is a tabular roll forward of the unusual chargesdescribed above that were 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 |   |

 

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**9.**                                      Segment Information

** **

Blyth is a global competitor in the gift and decorative accessoriesmarket, which the Company calls the Home Expressions category.  Within this category, the Company reports itsfinancial results in five segments – the Direct Selling segment, the WholesaleHome Fragrance segment, the Wholesale Creative Expressions segment, the Catalog &Internet segment, and the All Other segment. Miles Kimball, acquired in April 2003 is included in the Catalog &Internet segment.  Prior to January 31,2004, the Company reported its financial results in two reporting segments, theCandles & Home Fragrance segment and the Creative Expressionssegment.  The Company reevaluated itsoperating segments based on the application of FASB Statement No. 131, “Disclosuresabout Segments of an Enterprise and Related Information,” and determined thatthe appropriate number of reportable segments should have been five in fiscal2004 and four in fiscal 2003 and 2002 (The increase in segments in fiscal 2004was due to the acquisitions that were consummated in fiscal 2004.)  The Company’s financial statement footnoteshave 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 &Internet and All Other segments are domestically based.

 

Within the Direct Selling segment, the Company designs, manufacturesand markets an extensive line of products including scented candles, fragrancedbath gels and body lotions and other fragranced products.  It also designs and markets a broad range ofrelated candle accessories.  Theseproducts are sold direct to the consumer under the PartyLite® brand in NorthAmerica, Europe and Australia through a network of more than 56,000 independentsales consultants.

 

Within the Wholesale Home Fragrancesegment, the Company designs, manufactures and markets an extensive line ofproducts including scented candles, potpourri and other fragrancedproducts.  It also designs and markets awide range of related candle accessories. 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),Kate’sTM and Liljeholmens® brands and in the mass retail channel under theAmbria®, FilterMate®, Florasense® and Gies®(1) brands.

 

Within the Wholesale Creative Expressions segment, the Company designs,sources and markets a broad range of home décor products under the CBK® brand,seasonal decorations under the Holiday365Ô, JMCImpactÔ and Seasons of Cannon FallsÔbrands, and, until Jeanmarie was sold in April 2004, decorative gift bagsunder the Jeanmarie® brand.  Theseproducts are sold primarily in North America.

 

Within the Catalog & Internet segment, the Company designs,sources and markets a broad range of household convenience items, premium photoalbums, frames, holiday cards and gifts under the Exposuresâ andMiles Kimballâ brands. These products are sold primarily in North America.

 

Within the All Other segment, the Company designs, manufactures orsources and markets a variety of chafing fuel, candles and tabletop lightingproducts to the Away From Home or foodservice trade under the brand namesAmbriaâ, HandyFuelâ andSternoâ. These products are sold primarily in North America.

 

 

----

(1) Colonial and Gies are registered and sold only outside theUnited States.

 

16

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Earnings in all segments represent net sales less operating expensesdirectly related to the business segments and corporate expenses allocated tothe business segments.  Other income(expense) includes interest expense, interest income and equity in earnings ofinvestees, 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 April 30,(In thousands)

 
| ** **                                                                                                    | ** ** | **2003**                | ** ** | **2002**                  | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|---------------------------|------------|
| ** **                                                                                                    | ** ** | **Restated (Note 2)**   | ** ** | **Restated (Note 2)**     | ** ** |
| **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)**   |       | **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 |   |

 

17

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**10.**                               Contingencies

 

The Company has contingent liabilities that have arisen in the ordinarycourse of its business, including pending litigation.  The Company believes the outcome of thesematters will not have a material adverse effect on its consolidated financialposition, results of operations, or cash flows.

 

On June 2, 2003, the parties agreed in open court to settle andresolve all matters involving or in any way relating to the previously reportedlegal proceedings by and between the Company and its wholly-owned subsidiary,Endar Corp., on the one hand, and Ennio Racinelli, Darlene Racinelli andothers, on the other hand, by means of a written settlement and releaseagreement, without any payment by any party.

 

18

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** **

**Item 2.**           MANAGEMENT’SDISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

** **

**RESULTS OF OPERATIONS:**

** **

Priorto January 31, 2004, the Company reported its financial results in tworeporting segments, the Candles & Home Fragrance segment and theCreative Expressions segment.  TheCompany reevaluated its operating segments based on the application of FASBStatement No. 131, “Disclosures about Segments of an Enterprise andRelated Information,” and determined that the appropriate number of reportablesegments should have been five in fiscal 2004 and four in fiscal 2003 and 2002(The increase in segments in fiscal 2004 was due to acquisitions that wereconsummated in fiscal 2004.)  The Company’sfinancial statement footnotes have been restated to reflect the revisedsegments, as has the discussion in this Item 2.  In addition, the revision of segments had therelated effect of requiring changes in the Company’s reporting units forpurposes of goodwill impairment reviews under FASB Statement No. 142, “Goodwilland Other Intangible Assets”, retroactive to the February 1, 2002 adoptiondate of SFAS 142. This resulted in a restatement for an additional impairmentcharge as of February 1, 2002. See Notes 2 and 9 to the financialstatements for further details.  TheCompany’s reportable and operating segments are based on financial informationregularly evaluated by the chief operating decision maker in determiningresource allocation and assessing performance.

 

**NetSales**

** **

Net sales in the quarter ended April 30, 2003, increased $34.1million, or 12.3% to $312.0 million when compared with $277.9 million a yearearlier.  Sales in the quarter ended April 30,2003 were 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 andthe negative 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 the Direct Selling segment, which is represented by ourPartyLite business, increased $13.3 million, or 7.5% to $191.2 million in thefirst quarter ended April 30, 2003, compared with $177.9 million in the sameperiod last year. As mentioned above we believe this sales increase is partlyattributable to an early launch of PartyLite’s spring product line and strongsales of the PartyLite 30th anniversary promotional votive sampler.

 

Net sales in the Wholesale Home Fragrance segment decreased $2.3million, or 3.3% to $66.4 million in the first quarter ended April 30,2003, compared with $68.7 million in the same period last year.  The net sales decrease in this segment isreflective of the continued weakness in the US and European economies which waspartially offset by the positive impact of foreign currency exchange rates onour European businesses reported sales.

 

Net sales in the Wholesale CreativeExpressions segment increased $18.2 million to $35.9 million in the quarterended April 30, 2003 compared to $17.7 million in the prior year period.This increase is entirely attributable to the effect of the inclusion of thesales of CBK acquired in May 2002.

 

Net sales in the Catalog & Internetsegment, which was newly created this quarter as a result of the acquisition ofMiles Kimball in April 2003, contributed sales of $6.0 million.

 

Net sales in the All Other segment decreased $1.2 million, or 8.8% to$12.4 million in the first quarter of fiscal 2004, compared with $13.6 millionin the same period last year as the travel industry was impacted by the war inthe Middle East and SARS.

 

 

19

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**GrossProfit**

** **

Gross profit as a percent of sales was 51.7%, in the first quarter offiscal 2004, a decrease of 0.5% when compared to 52.2% in the prior year’sfirst quarter.  This was primarily due toa mix shift of sales among our businesses.

 

**SellingExpense**

** **

Selling expense increased $8.7 million, or 9.8%, from $88.4 million in thequarter ended April 30, 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.

 

**AdministrativeExpense**

** **

Administrative expense increased $4.4 million, or 17.1%, from $25.7million in the quarter ended April 30, 2002 to $30.1 million in thequarter ended April 30, 2003. Administrative expenses increased due to the addition of expenses ofMiles Kimball and CBK, as well as costs related to compliance with theSarbanes-Oxley Act of 2002 and related regulations.

 

**OperatingProfit**

** **

Operating profit increased $3.4 million, or 11.0%, to $34.3 million inthe quarter ended April 30, 2003 compared with $30.9 million a yearearlier.  The increase in operatingprofit in the three month period ended April 30, 2003 versus the sameperiod in the prior year is primarily a result of the increase in PartyLite’sbusiness, the inclusion of CBK and the favorable impact of foreign exchangerates.

 

**InterestExpense**

** **

Interest expense decreased approximately $0.2 million in the currentfiscal year’s first quarter when compared to the prior year.  This decrease was a result of the benefit ofthe interest rate swap, as described in Item 3, Quantitative and QualitativeDisclosures About Market Risk, under the heading Interest Rate Risk, enteredinto in March 2002, for the full first fiscal quarter of 2004.

 

**IncomeTaxes**

** **

Income tax expense increased $1.2 million, from $10.3 million in thequarter ended April 30, 2002 to $11.5 million in the quarter ended April 30,2003.  This increase is due to theincreased earnings in the most recent quarter. The effective tax rate decreased to approximately 36.8% from 37.2% inthe prior year.

 

**CumulativeEffect of Change in Accounting Principle**

** **

The Company recorded a one-time charge of $34.6 million pre-tax, $31.8million net of income taxes on February 1, 2002, which is reflected as thecumulative effect of a change in accounting principle, as a result of adoptingSFAS No. 142, “Goodwill and Other Intangible Assets” (See Note 4 to theConsolidated Financial Statements).

 

**NetEarnings**

** **

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

 

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Basic earnings per share before the cumulative effect of change inaccounting principle, based upon the weighted average number of sharesoutstanding for the quarter ended April 30, 2003, were $0.43, an increaseof $.06, or 16.2% compared to $0.37 for the quarter ended April 30,2002.  Basic earnings per share after thecumulative effect of change in accounting principle, based upon the weightedaverage number of shares outstanding for the quarter ended April 30, 2003,were $0.43, an increase of $0.75 compared to a loss of $0.32 for the quarterended April 30, 2002.  Dilutedearnings per share before the cumulative effect of change in accountingprinciple, based upon the potential dilution that could occur if options toissue common stock were exercised, were $0.42 compared to $0.37 for the sameperiod the prior year. The cumulative effect of change in accounting principleon diluted earnings per share equaled $0.68. Diluted earnings per share after the cumulative effect of change inaccounting principle, based upon the potential dilution that could occur ifoptions to issue common stock were exercised, were $0.42 compared to a loss of$0.31 for the same period the prior year.

 

**Liquidityand Capital Resources**

** **

Inventory increased from $187.9 million at January 31, 2003 to$200.5 million at April 30, 2003. The increase in inventory is primarily due to the inclusion of inventoryof Miles Kimball acquired in April 2003.** Accounts receivable increased$1.1 million from $82.9 million at the end of fiscal 2003 to $84.0 million at April 30,2003.* *The increase in accounts receivable is due to the inclusionof Miles Kimball. * *Accounts payable and accruedexpenses decreased $3.7 million from $139.5 million at the end of fiscal 2003to $135.8 million at April 30, 2003.* *The decrease in accounts payableand accrued expenses is attributable to normal patterns of payment of operatingexpenses including the semi-annual payment of accrued interest and incentivebonuses.

 

Capital expenditures for property, plant and equipment were $2.9million in the quarter ended April 30, 2003 compared to $3.0 million inthe prior year period*.*Capitalexpenditures consisted primarily of investments in information technology andupgrades of equipment and facilities. The Company expects total capital spending of approximately $25.0million for fiscal 2004.

 

The Company has a $200 million unsecuredrevolving credit facility having 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 $3.2million of letters of credit were outstanding under the Credit Facility.

 

As of April 30, 2003, the Company had atotal of $15.0 million available under an uncommitted bank line of credit withLa Salle Bank National Association, which matures in June 2003.  Amounts outstanding under the line of creditbear interest at short-term fixed rates. No amounts were outstanding under the uncommitted line of credit at April 30,2003.

 

At April 30, 2003, the Company had atotal of $10.0 million available under an uncommitted line of credit with Bankof America to be used for letters of credit. At April 30, 2003, approximately $1.6 million of letters of creditwere outstanding under this credit line.

 

21

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As of March 31, 2003, The Gies Group (“Gies”)had available lines of credit of approximately $36.6 million of whichapproximately $9.2 million was outstanding. The amounts outstanding under the lines of credit bear interest at aweighted average rate of 3.87% at March 31, 2003.  The lines of credit are renewed annually.

 

Colony Gift Corporation Limited (“Colony”) has a short-term revolvingcredit facility with Barclays Bank (“Barclays”), which matures on June 20,2003, pursuant to which Barclays has agreed to provide a revolving creditfacility in an amount of up to $23.7 million. As of March 31, 2003, Colony had borrowings under the creditfacility of approximately $6.2 million, at a weighted average interest rate of4.32%.

 

At April 30, 2003, CBK had $4.7 millionof long-term debt outstanding under an Industrial Revenue Bond (“IRB”), whichmatures on January 1, 2025.  Thebond is backed by an irrevocable letter of credit issued by La Salle BankNational Association.  The amountoutstanding under the IRB bears interest at short-term floating rates for aweighted average interest rate of 1.4% at April 30, 2003.

 

At April 30, 2003, Miles Kimball had approximately $10.2 millionof long-term debt outstanding under a real estate mortgage note payable to JohnHancock Life Insurance Company, which matures June 1, 2020. Under theterms of the note, payments of principal and interest are required monthly at afixed interest rate of 7.89%.

 

Net cash provided by operating activities amounted to $21.7 million forthe three months ended April 30, 2003 compared to $30.3 million providedfrom operating activities for the three months ended April 30, 2002.  The decrease in cash flow from operationscompared to the prior year is primarily attributable to changes in workingcapital, which more than offset the improvement in net earnings.

 

The Company’s Board of Directors has authorized the Company torepurchase up to 6,000,000 shares of common stock under the Company’s sharerepurchase program.  Since January 31,2003, the Company has purchased an additional 111,800 shares on the open marketfor a total cost of $2.8 million, bringing the cumulative total purchasedshares to 3,755,900 as of May 31, 2003 for a total cost of approximately$89.4 million.  The acquired shares areheld as common stock in treasury at cost.

 

On April 1, 2003 the Company declared acash dividend of $0.13 per share of the Company’s common stock for the sixmonths ended January 31, 2003.  Thedividend was payable to shareholders of record as of May 1, 2003 and was paidon May 15, 2003 in the amount of $6.0 million.

 

**CriticalAccounting Policies**

** **

For a discussion of the Company’s critical accounting policies see ourAnnual Report on Form 10-K for the fiscal year ended January 31,2003.

 

**Impactof Adoption of Recently Issued Accounting Standards**

** **

In June 2002, the FASB issued SFAS No. 146, “Accounting forCosts Associated with Exit or Disposal Activities.”  This standard addresses financial accountingand reporting for costs associated with exit or disposal activities andnullifies Emerging Issues Task Force (EITF) Issue No. 94-3, “LiabilityRecognition for Certain Employee Termination Benefits and Other Costs to Exitan Activity (including Certain Costs incurred in a Restructuring).”  This standard was effective for exit ordisposal activities that are initiated after December 31, 2002.  The implementation of this standard has nothad an impact on our financial statements.

 

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In January 2003, the FASB issued Financial Interpretation No. 46,“Consolidation of Variable Interest Entities,” which is an interpretation ofAccounting Research Bulletin No. 51, “Consolidated Financial Statements,”and addresses consolidation by business enterprises of variable interestentities that have specific characteristics as described in the Interpretation.This Interpretation was effective immediately to variable interest entitiescreated after January 31, 2003, and to variable interest entities in whichan enterprise obtains an interest after that date. It applies in the firstfiscal year or interim period beginning after June 15, 2003, to variableinterest entities in which an enterprise holds a variable interest that itacquired before February 1, 2003. The Company has evaluated the impact of this interpretation and we donot expect it to have a significant impact on our financial statements.

 

In April 2003, the FASB issued SFAS No. 149, “Amendment ofStatement 133 on Derivative Instruments and Hedging Activities.”  This statement amends and clarifies financialaccounting and reporting for derivative instruments, including certainderivative instruments embedded in other contracts (collectively referred to asderivatives) and for hedging activities under FASB Statement No. 133, “Accountingfor Derivative Instruments and Hedging Activities.”  This standard is effective for derivativecontracts entered into or modified after June 30, 2003. We do not expectthat implementation of this standard will have a significant impact on ourfinancial statements.

 

In May 2003, the FASB issued SFAS No. 150, “Accounting forCertain Financial Instruments with Characteristics of both Liabilities andEquity.” This Statement establishes standards for how an issuer classifies andmeasures certain financial instruments with characteristics of both liabilitiesand equity. It requires that an issuer classify a financial instrument that iswithin its scope as a liability (or an asset in some circumstances).  This standard is effective for financialinstruments entered into or modified after May 31, 2003. We do not expectthat implementation of this standard will have an impact on our financialstatements.

 

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**Item4. Controls and Procedures**

 

(a) Evaluationof disclosure controls and procedures.

 

Ourmanagement, with the participation of our principal executive officer and ourprincipal financial officer, evaluated the effectiveness of our disclosurecontrols and procedures (as defined in Securities Exchange Act of 1934 (“ExchangeAct”) Rules 13a-15(e) or 15d-15(e)) as of the end of theperiod covered by this quarterly report as required by paragraph (b) ofExchange 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 were effective at the reasonable assurancelevel as of the end of the period covered by this quarterly report.

 

Nonetheless,we note that, as discussed in Item 4(b) below, we have made changes in ourinternal controls after the end of the period covered by this quarterly reportin response to the fact that, as discussed in Item 9 “Changes in andDisagreements with Accountants on Accounting and Financial Disclosure” in ourfiscal 2004 Form 10-K, on April 21, 2004,PricewaterhouseCoopers (“PwC”) advised the Company that it had identified aninternal control issue which PwC considered to be a material weakness in thatchanges in circumstances, internal reporting and management structures appearednot to have been properly evaluated by management or considered in connectionwith ongoing compliance with SFAS 131 and SFAS 142 guidance.  PwC recommended that the Company should (A) havea process in place to evaluate changes in management structure and reporting tothe chief operating decision maker that would effect segment determination, (B) strengthenprocedures to monitor all changes in operations that impact accounting andreporting matters and (C) ensure that it has sufficient staffing in itsfinancial reporting function, with appropriate technical qualifications andtasked with ensuring ongoing compliance with relevant accounting and financialreporting requirements.

 

(b) Changesin internal control over financial reporting.

 

There was nochange in our internal control over financial reporting identified inconnection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15or 15d-15 that occurred during our last fiscal quarter covered by thisreport that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

In response tothe matter discussed in Item 9A. “Controls and Procedures” in our fiscal 2004 Form 10-K,whereby PwC had identified an internal control issue which they considered tobe a material weakness, the Company in fiscal 2005 now reviews and evaluatesmore carefully the information that is presented to the Board of Directors andthe chief operating decision maker (“CODM”) on a monthly and quarterly basis,as well as the information that is provided on its website and to investors,with a view toward ensuring that such information is consistent with theCompany’s segment reporting and how the CODM reviews operating results in orderto make decisions about the allocation of resources.  Moreover, the Company believes that, byreason of the Company’s experience in connection with its change in reportingsegments for fiscal 2004, the Company’s financial personnel, as well as itsother members of management, are particularly well informed as to the issuesthat may arise under SFAS 131 and 142 and are sensitive to the need to ensurethat such issues are properly and promptly addressed and resolved.

 

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**PART II.**  **OTHERINFORMATION**

 

**Item5.** **OtherInformation**

 

In our filingon Form 10-Q/A Amendment No. 2 for the quarter ended April 30,2003 filed with the Securities and Exchange Commission on December 16,2004 we disclosed that the interim financial statements included therein hadnot been reviewed by an independent registered public accounting firm, asrequired by Section 10-01(d) of Regulation S-X.  This Form 10-Q/A Amendment No. 3is being filed to remedy that deficiency. This amended quarterly report has not required any change to theConsolidated Financial Statements except for a restatement of the ConsolidatedStatements of Cash Flows as discussed in Note 2 to more properly reflect theimpact of foreign currency exchange rates on cash for fiscal 2003 and fiscal2004.

 

The staff ofthe Commission may take the position that because certain information relatingto our Quarterly Reports for fiscal 2004 had not been reviewed by anyindependent public accountants prior to filing as required by Section 10–01(d) ofRegulation S–X, we would not have been viewed as having made all requiredfilings until the reports were amended to reflect the required review, and eventhen that the filings were not filed timely. Therefore, we could be ineligible to use Forms S–2 and S–3 to registersecurities (or amend an existing registration statement) until all requiredreports under the Exchange Act have been timely filed for the 12 months priorto the filing of the registration statement or amendment.  While ineligibility to use Form S–2 orS–3 would involve additional expense should we need to file or amend aregistration statement, we do not view ineligibility as having a materialadverse effect on our access to capital resources.

 

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-looking statements include statementsconcerning plans, objectives, goals, strategies, future events or performanceand underlying assumptions and other statements, which are other thanstatements of historical facts.  From time to time, the Company and itsrepresentatives may publish or otherwise make available forward-lookingstatements 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-lookingstatements involve risks and uncertainties, which could cause actual results oroutcomes to differ materially from those expressed in the forward-lookingstatements.  Such forward-looking statements are expected to be based onvarious assumptions, many of which are based, in turn, upon furtherassumptions.  There can be no assurance that management’s expectations,beliefs or projections will occur or be achieved or accomplished.  Inaddition to other factors and matters discussed elsewhere in this Report and inthe Company’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-looking statements. The Company disclaims any obligation to update any forward-looking statements,or the following factors, to reflect events or circumstances after the date ofthis Report.

 

#### **Risk of Inability to Maintain Sales Growth Rate**

####  

The Companyhas experienced significant sales growth in past years.  While managementexpects continued growth, our future growth rate will likely be less than ourhistorical growth rate.  The Company expects faster sales growth in itsinternational market versus its United States market, particularly in theDirect Selling and Wholesale segments.  The Company’s ability to increase salesdepends on numerous factors, including market acceptance of existing products,the successful introduction of new products, the increase in consumers’ discretionaryspending, the ability to recruit new independent sales consultants, sourcing ofraw materials and demand-driven increases in production and distributioncapacity.  Business in all of our segments is driven by consumerpreferences.  Accordingly, there can be no assurances that the Company’scurrent or future products will maintain or achieve market acceptance. Oursales and earnings results can be negatively impacted by the worldwide economicenvironment, particularly the Canadian, United States and European economies.There can be no assurances that the Company’s financial results will not bematerially adversely affected by these factors in the future. The Company’shistorical growth has been due in part to acquisitions and management continuesto consider additional strategic acquisitions.  There can be no assurancesthat management will continue to identify suitable acquisition candidates,consummate acquisitions on terms favorable to the Company, finance acquisitionsor successfully integrate acquired operations.

 

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#### **Risks Associated with International Sales and Foreign-Sourced Products**

####  

Ourinternational sales growth rate has outpaced our United States growth rate inrecent years.  Moreover, the Company sources a portion of its products inall of its business segments from independent manufacturers in the Pacific Rim,Europe and Mexico.  For these reasons, we are subject to the followingrisks associated with international manufacturing and sales:  fluctuationsin currency exchange rates, economic or political instability, internationalpublic heath crises, transportation costs and delays, difficulty in maintainingquality control, restrictive governmental actions, nationalizations, the lawsand policies of the United States, Canada and certain European countriesaffecting the importation of goods (including duties, quotas and taxes) and thetrade and tax laws of other nations.

 

#### **Ability to Respond to Increased Product Demand**

####  

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

 

##### **Risk of Shortages of RawMaterials**

##### ** **

Certain rawmaterials could be in short supply due to capacity, availability, a change inrequirements, weather or other factors, including supply disruptions due toproduction or transportation delays.  Such shortages have not had and arenot presently expected to have a material adverse effect on the Company’soperations.  While the price of crude oil is only one of several factorsimpacting the price of petroleum wax, it is possible that recent fluctuationsin oil prices may have a material adverse affect on the cost of petroleum-basedproducts used in the manufacture or transportation of our products,particularly in the Direct Selling and Wholesale segments.

 

#### **Dependence on Key Corporate Management Personnel**

####  

Our successdepends in part on the contributions of key corporate management, including ourChairman and Chief Executive Officer, Robert B. Goergen.  The Company doesnot have employment contracts with any of its key corporate managementpersonnel except Mr. Goergen, nor does it maintain any key person lifeinsurance policies.  The loss of any of the key corporate managementpersonnel could have a material adverse effect on the Company.

 

#### **Risk of Increased Competition**

####  

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

 

**RisksRelated to Information Technology Systems**

 

Our information technology systems are dependent onglobal communications providers, telephone systems, hardware, software andother aspects of Internet infrastructure that have experienced significantsystem failures and outages in the past.  Our systems are susceptible tooutages due to fire, floods, power loss, telecommunications failures, break-insand similar events.  Despite the implementation of network securitymeasures, the Company’s systems are vulnerable to computer viruses, break-insand similar disruptions from unauthorized tampering with Company systems. The occurrence of these or other events could disrupt or damage our informationtechnology systems and inhibit internal operations, the ability to providecustomer service or the ability of customers or sales personnel to access theCompany’s information systems.

 

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**Item 6.**           Exhibits

** **

a)              Exhibits

 

31.1                           Certification of Chairman,Chief Executive Officer and President pursuant to Rule 13a-14(a) underthe Securities Exchange Act of 1934.

 

31.2                           Certification of VicePresident and Chief Financial Officer pursuant to Rule 13a-14(a) underthe Securities Exchange Act of 1934.

 

32.1                           Certificationof Chairman, Chief Executive Officer and President pursuant to Section 906of the Sarbanes-Oxley Act of 2002.

 

32.2                           Certificationof Vice President and Chief Financial Officer pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002.

 

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**SIGNATURES**

** **

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

 

 
|   | BLYTH, INC. |
|--------|-------------|
|   |        |
|   |        |
|   | Date:       | April 14,  2005 |   | By: | /s/Robert B. Goergen |   |
|   |        |   | Robert B. Goergen |
|   |        |   | Chairman and Chief Executive Officer |
|   |        |   |   |
|   | Date:       | April 14,  2005 |   | By: | /s/Robert H. Barghaus |   |
|   |        |   | Robert H. Barghaus |
|   |        |   | Vice President and Chief Financial Officer |
|        |             |  |  |  |  |  |  |  |  |  |

 

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