** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington D.C. 20549**

** **

**FORM 10-Q**

**(Mark One)**

** **

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

** **

## **                Forthe quarterly period ended October 31, 2004**

** **

**Or**

** **

**o****       ****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

** **

**For the transition period from                 to                   .**

** **

**Commission File Number 1–13026**

 

**BLYTH, INC.**

(Exact name of registrantas specified in its charter) 

 

| **DELAWARE**                                                    | ** ** | **36–2984916**                |
|-----------------------------------------------------------------|------------|------------------------------------|
| (State or other  jurisdiction of incorporation or organization) |       | (IRS Employer  Identification No.) |
|                                                            |       |                               |
| **One East Weaver  Street, Greenwich, Connecticut**             | ** ** | **06831**                          |
| **(Address of principal executive offices)**                    | ** ** | **(Zip Code)**                     |
| ** **                                                      | ** ** | ** **                         |
| **(203)  661–1926**                                   |
| **(Registrant’s telephone number, including area  code)**  |

### ** **

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.     Yeso     Noý  SeeExplanatory Note on Page 3

 

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

 

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

 

**40,901,811Common Shares as of November 30, 2004**

 

----

 

**BLYTH, INC.**

 

#### **INDEX**

 

 
|                                                        |                                                                                                                              |
|-------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------|
|                                                        |                                                                                                                              |
| Part  I.     Financial Information |                                                                                                                              |
|                                                        |                                                                                                                              |   |   |   |   |
|                                                        | Item  1.     Financial Statements:                                                                       |   |
|                                                        |                                                                                                                              | Condensed  Consolidated Balance Sheets |   |
|                                                        |                                                                                                                              |   |   |   |   |
|                                                        |                                                                                                                              | Condensed  Consolidated Statements of Earnings |   |
|                                                        |                                                                                                                              |   |   |   |   |
|                                                        |                                                                                                                              | Condensed  Consolidated Statements of Stockholders’ Equity |   |
|                                                        |                                                                                                                              |   |   |   |   |
|                                                        |                                                                                                                              | Condensed  Consolidated Statements of Cash Flows |   |
|                                                        |                                                                                                                              |   |   |   |   |
|                                                        |                                                                                                                              | Notes  to Condensed Consolidated Financial Statements |   |
|                                                        |                                                                                                                              |   |   |   |   |
|                                                        | Item  2.     Management’s Discussion and Analysis of  Financial Condition and Results of Operations |   |
|                                                        |                                                                                                                              |   |   |   |   |
|                                                        | Item  3.     Quantitative and Qualitative Disclosures  About Market Risk                                 |   |
|                                                        |                                                                                                                              |   |   |   |   |
|                                                        | Item  4.     Controls and Procedures                                                                     |   |
|                                                        |                                                                                                                              |   |   |   |   |
| Part  II.     Other Information    |                                                                                                                              |
|                                                        |                                                                                                                              |   |   |   |   |
|                                                        | Item  1.     Legal Proceedings                                                                           |   |
|                                                        |                                                                                                                              |   |   |   |   |
|                                                        | Item  2.     Unregistered Sales of Equity Securities and  Use of Proceeds                                |   |
|                                                        |                                                                                                                              |   |   |   |   |
|                                                        | Item  3.     Defaults upon Senior Securities                                                             |   |
|                                                        |                                                                                                                              |   |   |   |   |
|                                                        | Item  4.     Submission of Matters to a Vote of Security  Holders                                        |   |
|                                                        |                                                                                                                              |   |   |   |   |
|                                                        | Item  5.     Other Information                                                                           |   |
|                                                        |                                                                                                                              |   |   |   |   |
|                                                        | Item  6.     Exhibits and Reports on Form 8–K                                                       |   |
|                                                        |                                                                                                                              |   |   |   |   |
| Signatures                                                  |                                                                                                                              |
|                                                             |                                                                                                                                   |  |  |  |  |  |

 

 

2

----

 

**Explanatory Note**

 

As of January 31, 2004, we revised our reporting segments based onStatement of Financial Accounting Standards No. 131, “Disclosures aboutSegments of an Enterprise and Related Information”. This revision of segmentshad the related effect of requiring changes in our reporting units for purposesof goodwill impairment reviews under Statement of Financial AccountingStandards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”),retroactive to the February 1, 2002 adoption date. This resulted in the need toperform impairment reviews of several additional reporting units as of February1, 2002 and each subsequent year–end balance sheet date. These impairmentreviews indicated the need to record additional impairment charges as of theFebruary 1, 2002 adoption of SFAS 142. On August 4, 2004, we filed amendmentson Form 10–Q/A restating our Consolidated Financial Statements for the interimperiods ended April 30, July 31, and October 31, 2003 to reflect these changes.Our predecessor independent public accountants had performed the reviews thatwe were required to have performed by Section 10–01(d) of Regulation S–X of ourConsolidated Financial Statements as included in our Quarterly Reports on Form10–Q as initially filed for the interim periods ended April 30, July 31, andOctober 31, 2003. The amendments filed on Form 10-Q/A were filed after ourtermination of our predecessor independent public accountants. The ConsolidatedFinancial Statements included in our amended quarterly reports were notreviewed by any independent public accountant, and such amended quarterlyreports are therefore not considered fully compliant with the requirements ofthe Exchange Act and the rules and regulations of the Commission. In addition,because the financial statements as of April 30, July 31, and October 31, 2003and for the periods then ended as set forth in our Quarterly Reports for theperiods ended April 30 and July 31, 2004 and in this Quarterly Report have notbeen the subject of such a review, these Quarterly Reports on Form 10–Q are alsonot considered to be compliant with the Exchange Act and the rules andregulations of the Commission. We have had preliminary discussions with andplan to re-engage our predecessor independent public accountants to performsuch a review, and we presently expect those reviews to be completed by ourpredecessor independent public accountants prior to January 31, 2005, althoughthere can be no assurance that they will be able to do so. We do not expectthat the reviews of our amended quarterly reports or our quarterly reportsfiled in fiscal 2005 will require any change to the Consolidated FinancialStatements.

 

In light of the absence of the reviews, the Section 906 certificationsof our Chief Executive Officer and Chief Financial Officer required by 18U.S.C. § 1350 and attached as Exhibits 32.1 and 32.2 to this Quarterly Reporton Form 10–Q have been qualified by reference to this Item.

 

Deloitte & Touche LLP, our current independent public accountants,have performed the review required by Section 10–01(d) of Regulation S–X of ourCondensed Consolidated Financial Statements for all interim periods in ourcurrent fiscal year (but not for any periods in fiscal 2004) as included in ourquarterly reports for the interim periods ended April 30, July 31, and October31, 2004.

 

We intend to file amendments to our fiscal 2004 Form 10-Q/A filings toreflect the fact that the financial information included in those reports wasnot reviewed by any independent public accountant. We also intend to fileamendments to our fiscal 2005 Form 10-Q filings for the interim periods endedApril 30 and July 31, 2004 to reflect the fact that the financial informationwith respect to fiscal 2004 was not reviewed by any independent public accountant.At the appropriate time, we intend to file additional amendments to thoseamended reports, and to this Report on Form 10-Q, to reflect the completion ofthe review.

 

The staff of the Commission may take the position that because certaininformation relating to our prior fiscal year in this Quarterly Report on Form10–Q, our quarterly reports filed for the periods ended April 30 and July 31,2004, and the amended quarterly reports have not been reviewed by anyindependent public accountants prior to filing as required by Section 10–01(d)of Regulation S–X, we would not be viewed as having made all required filingsuntil the reports are amended to reflect the required review, and even thenthat the filings were not filed timely. If so, the Company would be ineligibleto use Forms S–2 and S–3 to register securities (or amend an existingregistration statement) until all required reports under the Exchange Act havebeen timely filed for the 12 months prior to the filing of the registrationstatement or amendment. While ineligibility to use Form S–2 or S–3 wouldinvolve additional expense should we need to file or amend a registrationstatement, we do not view ineligibility as having a material adverse effect onour access to capital resources. Second, the safe harbor from registrationcontained in Rule 144 under the Securities Act of 1933 may be unavailable toour executive officers, directors and other affiliates wishing to sell oursecurities. We have instructed such persons not to resell securities in relianceupon Rule 144 until otherwise advised. As a precautionary matter, to beconsistent with these instructions, on the cover page of this filing, we havechecked the box that indicates that we have not made all filings required inthe last 90 days.

 

3

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** **

Part I.  FINANCIAL  INFORMATION

Item I.  FINANCIAL STATEMENTS

 

**BLYTH,INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

** **
| **(In  thousands, except share and per share data)**                                                                                 | ** ** | **October  31, 2004** | ** ** | **January  31, 2004** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                                                                           | ** ** | **(Unaudited)**       | ** ** | ** **            |       |
| **ASSETS**                                                                                                                           |       |                  |       |                  |       |
| **Current  assets:**                                                                                                                 |       |                  |       |                  |       |
| Cash and cash  equivalents                                                                                                           |       | $                     | 45,437     |                  | $          | 229,726 |   |
| Accounts  receivable, less allowance for doubtful receivables of $4,292 and $4,470,  respectively                                    |       | 214,191               |       | 104,502               |       |
| Inventories                                                                                                                          |       | 267,537               |       | 208,581               |       |
| Prepaid and  other                                                                                                                   |       | 28,105                |       | 40,302                |       |
| Assets held for  sale                                                                                                                |       | 6,597                 |       | 9,437                 |       |
| Deferred income  taxes                                                                                                               |       | 14,480                |       | 14,191                |       |
| Total current  assets                                                                                                                |       | 576,347               |       | 606,739               |       |
| **Property,  plant and equipment, at cost:**                                                                                         |       |                  |       |                  |       |
| Less accumulated  depreciation of $247,939 and $210,961, respectively                                                                |       | 250,567               |       | 260,497               |       |
| **Other  assets:**                                                                                                                   |       |                  |       |                  |       |
| Investments                                                                                                                          |       | 3,616                 |       | 3,510                 |       |
| Goodwill                                                                                                                             |       | 245,129               |       | 204,093               |       |
| Other intangible  assets, net of accumulated amortization of $3,225 and $1,500, respectively                                         |       | 39,875                |       | 41,600                |       |
| Deposits and  other assets                                                                                                           |       | 12,526                |       | 11,524                |       |
|                                                                                                                                 |       | 301,146               |       | 260,727               |       |
| Total assets                                                                                                                         |       | $                     | 1,128,060  |                  | $          | 1,127,963 |   |
| **LIABILITIES  AND STOCKHOLDERS' EQUITY**                                                                                            |       |                  |       |                  |       |
| **Current  liabilities:**                                                                                                            |       |                  |       |                  |       |
| Bank lines of  credit                                                                                                                |       | $                     | 144,254    |                  | $          | 13,621 |   |
| Current  maturities of long–term debt                                                                                           |       | 4,448                 |       | 4,522                 |       |
| Accounts payable                                                                                                                     |       | 70,656                |       | 78,407                |       |
| Dividends  payable                                                                                                                   |       | 7,771                 |       | —                |       |
| Liabilities  associated with assets held for sale                                                                                    |       | —                |       | 508                   |       |
| Accrued expenses                                                                                                                     |       | 110,848               |       | 97,395                |       |
| Income taxes                                                                                                                         |       | —                |       | 11,746                |       |
| Total current  liabilities                                                                                                           |       | 337,977               |       | 206,199               |       |
| **Deferred  income taxes**                                                                                                           |       | 35,425                |       | 33,773                |       |
| **Long–term  debt, less current maturities**                                                                                    |       | 271,158               |       | 275,743               |       |
| **Minority  interest and other**                                                                                                     |       | 24,117                |       | 23,278                |       |
| **Commitments  and contingencies**                                                                                                   |       | —                |       | —                |       |
| **Stockholders'  equity:**                                                                                                           |       |                  |       |                  |       |
| Preferred stock –  authorized 10,000,000 shares of $0.01 par value; no shares issued and  outstanding                           |       | —                |       | —                |       |
| Common stock –  authorized 100,000,000 shares of $0.02 par value; issued 50,355,227 shares  and 49,975,502 shares, respectively |       | 1,007                 |       | 999                   |       |
| Additional contributed  capital                                                                                                      |       | 117,767               |       | 107,965               |       |
| Retained  earnings                                                                                                                   |       | 612,006               |       | 570,171               |       |
| Accumulated  other comprehensive income                                                                                              |       | 13,198                |       | 15,224                |       |
| Treasury stock,  at cost, 9,453,416 shares and 4,345,100 shares, respectively                                                        |       | (284,595              | )          | (105,389              | )          |
| Total  stockholders' equity                                                                                                          |       | 459,383               |       | 588,970               |       |
| Total  liabilities and stockholders' equity                                                                                          |       | $                     | 1,128,060  |                  | $          | 1,127,963 |   |
|                                                                                                                                      |            |                       |            |                       |            |  |  |  |

*** ***

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

 

4

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**BLYTH,INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OFEARNINGS**

**(Unaudited)**

 
| **Nine months ended October 31****(In  thousands, except per share data)** | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Net sales                                                                  |       | $        | 1,087,487  |     | $          | 1,019,160 |   |
| Cost of goods  sold                                                        |       | 557,685  |       | 526,274  |       |
| Gross profit                                                               |       | 529,802  |       | 492,886  |       |
| Selling                                                                    |       | 322,199  |       | 283,698  |       |
| Administrative                                                             |       | 103,268  |       | 93,676   |       |
| Restructuring  and impairment charges                                      |       | —   |       | 767      |       |
|                                                                       |       | 425,467  |       | 378,141  |       |
| Operating profit                                                           |       | 104,335  |       | 114,745  |       |
| Other expense  (income):                                                   |       |     |       |     |       |
| Interest expense                                                           |       | 16,451   |       | 11,795   |       |
| Interest income  and other                                                 |       | (1,649   | )          | (1,250   | )          |
| Equity in  earnings/loss of investee                                       |       | (108     | )          | 141      |       |
|                                                                       |       | 14,694   |       | 10,686   |       |
| Earnings before  income taxes and minority interest                        |       | 89,641   |       | 104,059  |       |
| Income tax  expense                                                        |       | 32,398   |       | 38,292   |       |
| Earnings before  minority interest                                         |       | 57,243   |       | 65,767   |       |
| Minority  interest                                                         |       | (120     | )          | 120      |       |
| Net earnings                                                               |       | $        | 57,363     |     | $          | 65,647 |   |
| Basic:                                                                     |       |     |       |     |       |
| Net earnings per  common share                                             |       | $        | 1.31       |     | $          | 1.43 |   |
| Weighted average  number of shares                                         |       | 43,885   |       | 45,836   |       |
| Diluted:                                                                   |       |     |       |     |       |
| Net earnings per  common share                                             |       | $        | 1.29       |     | $          | 1.43 |   |
| Weighted average  number of shares                                         |       | 44,338   |       | 46,036   |       |
|                                                                            |            |          |            |          |            |  |  |  |

*** ***

***Theaccompanying notes are an integral part of these financial statements.***

 

5

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**BLYTH,INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF EARNINGS**

**(Unaudited)**

 
| **Three months ended October 31****(In  thousands, except per share data)** | ** ** | **2004** | ** **    | **2003** | ** ** |
|-----------------------------------------------------------------------------|------------|----------|---------------|----------|------------|
| Net sales                                                                   |       | $        |  439,444 |     | $          |  431,901 |   |
| Cost of goods  sold                                                         |       | 238,764  |          | 234,963  |       |
| Gross profit                                                                |       | 200,680  |          | 196,938  |       |
| Selling                                                                     |       | 113,497  |          | 104,400  |       |
| Administrative                                                              |       | 36,121   |          | 32,003   |       |
| Restructuring  and impairment charges                                       |       | —   |          | 767      |       |
|                                                                        |       | 149,618  |          | 137,170  |       |
| Operating profit                                                            |       | 51,062   |          | 59,768   |       |
| Other expense  (income):                                                    |       |     |          |     |       |
| Interest expense                                                            |       | 6,193    |          | 4,693    |       |
| Interest income  and other                                                  |       | (347     | )             | 32       |       |
| Equity in  earnings of investee                                             |       | (62      | )             | (58      | )          |
|                                                                        |       | 5,784    |          | 4,667    |       |
| Earnings before  income taxes and minority interest                         |       | 45,278   |          | 55,101   |       |
| Income tax  expense                                                         |       | 15,155   |          | 20,278   |       |
| Earnings before  minority interest                                          |       | 30,123   |          | 34,823   |       |
| Minority  interest                                                          |       | (120     | )             | 49       |       |
| Net earnings                                                                |       | $        |  30,243  |     | $          |  34,774 |   |
| Basic:                                                                      |       |     |          |     |       |
| Net earnings per  common share                                              |       | $        |  0.74    |     | $          |  0.76 |   |
| Weighted average  number of shares outstanding                              |       | 40,893   |          | 45,526   |       |
| Diluted:                                                                    |       |     |          |     |       |
| Net earnings per  common share                                              |       | $        |  0.73    |     | $          |  0.76 |   |
| Weighted average  number of shares outstanding                              |       | 41,287   |          | 45,764   |       |

*** ***

***Theaccompanying notes are an integral part of these financial statements.***

 

6

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**BLYTH,INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY**

**(Unaudited)**

 

 
| **(In  thousands, except share data)**                                 | ** ** | **Common  stock** | ** ** | **Additional  contributed** | ** **  | **Retained** | ** **   | **Treasury  stock** | ** ** | **Accumulated  other comprehensive** | ** ** | ** ** | ** **         |
|------------------------------------------------------------------------|------------|-------------------|------------|-----------------------------|-------------|--------------|--------------|---------------------|------------|--------------------------------------|------------|------------|--------------------|
| ** **                                                             | **Shares** | ** **        | **Amount** | ** **                  | **capital** | ** **   | **earnings** | ** **          | **Shares** | ** **                           | **Amount** | ** ** | **income  (loss)** | ** ** | **Total** | ** ** |
| **For the Nine months ended October 31, 2003:**                        |       |              |       |                        |        |         |         |                |       |                                 |       |       |               |   |   |
| Balance, January  31, 2003                                             |       | 49,703,682        |       | $                           | 994         |         | $            | 101,567             |       | $                                    | 496,627    |       | (3,644,100         | ) | $ | (86,585 | ) | $ | (4,751 | ) | $ | 507,852 |   |
| Net earnings for  the period                                           |       |              |       |                        |        |         |         | 65,647              |       |                                 |       |       |               |   |   | 65,647 |   |
| Foreign currency  translation adjustments                              |       |              |       |                        |        |         |         |                |       |                                 |       |       |               | 9,109 |   | 9,109 |   |
| Unrealized  holding losses on certain investments (net of tax of $122) |       |              |       |                        |        |         |         |                |       |                                 |       |       |               | (210 | ) | (210 | ) |
| Net loss on cash  flow hedging instruments (net of tax of $471)        |       |              |       |                        |        |         |         |                |       |                                 |       |       |               | (808 | ) | (808 | ) |
| Comprehensive income                                                   |       |              |       |                        |        |         |         |                |       |                                 |       |       |               |   |   | 73,738 |   |
| Common stock  issued in connection with long–term incentive plan  |       | 83,495            |       | 2                           |        | 1,688        |         |                |       |                                 |       |       |               |   |   | 1,690 |   |
| Tax benefit from  stock options                                        |       |              |       |                        |        | 112          |         |                |       |                                 |       |       |               |   |   | 112 |   |
| Dividends                                                              |       |              |       |                        |        |         |         | (12,810             | )          |                                 |       |       |               |   |   | (12,810 | ) |
| Treasury stock  purchases                                              |       |              |       |                        |        |         |         |                |       | (611,200                             | )          | (16,150    | )                  |   |   | (16,150 | ) |
| Balance, October  31, 2003                                             |       | 49,787,177        |       | $                           | 996         |         | $            | 103,367             |       | $                                    | 549,464    |       | (4,255,300         | ) | $ | (102,735 | ) | $ | 3,340 |   | $ | 554,432 |   |
| ** **                                                             | ** ** | ** **        | ** ** | ** **                  | ** **  | ** **   | ** **   | ** **          | ** ** | ** **                           | ** ** | ** ** | ** **         | ** ** | ** ** |
| **For the Nine months ended October 31, 2004**                         | ** ** | ** **        | ** ** | ** **                  | ** **  | ** **   | ** **   | ** **          | ** ** | ** **                           | ** ** | ** ** | ** **         | ** ** | ** ** |
| Balance, January  31, 2004                                             |       | 49,975,502        |       | $                           | 999         |         | $            | 107,965             |       | $                                    | 570,171    |       | (4,345,100         | ) | $ | (105,389 | ) | $ | 15,224 |   | $ | 588,970 |   |
| Net earnings for  the period                                           |       |              |       |                        |        |         |         | 57,363              |       |                                 |       |       |               |   |   | 57,363 |   |
| Foreign currency  translation adjustments                              |       |              |       |                        |        |         |         |                |       |                                 |       |       |               | (1,194 | ) | (1,194 | ) |
| Unrealized  holding gains on certain investments (net

of tax of $21)  |       |              |       |                        |        |         |         |                |       |                                 |       |       |               | 37 |   | 37 |   |
| Net loss on cash  flow hedging instruments (net of tax of $474)        |       |              |       |                        |        |         |         |                |       |                                 |       |       |               | (869 | ) | (869 | ) |
| Comprehensive  income                                                  |       |              |       |                        |        |         |         |                |       |                                 |       |       |               |   |   | 55,337 |   |
| Common stock  issued in connection with long–term incentive plan  |       | 379,725           |       | 8                           |        | 9,162        |         |                |       |                                 |       |       |               |   |   | 9,170 |   |
| Tax benefit from  stock options                                        |       |              |       |                        |        | 640          |         |                |       |                                 |       |       |               |   |   | 640 |   |
| Dividends                                                              |       |              |       |                        |        |         |         | (15,528             | )          |                                 |       |       |               |   |   | (15,528 | ) |
| Treasury stock  purchases                                              |       |              |       |                        |        |         |         |                |       | (5,108,316                           | )          | (179,206   | )                  |   |   | (179,206 | ) |
| Balance, October  31, 2004                                             |       | 50,355,227        |       | $                           | 1,007       |         | $            | 117,767             |       | $                                    | 612,006    |       | (9,453,416         | ) | $ | (284,595 | ) | $ | 13,198 |   | $ | 459,383 |   |
|                                                                        |            |                   |            |                             |             |              |              |                     |            |                                      |            |            |                    |  |  |  |  |  |  |  |  |  |  |  |  |

*** ***

***Theaccompanying notes are an integral part of these financial statements.***

 

7

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**BLYTH,INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| **Nine months ended October 31 (In thousands)**                                         | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Cash flows from  operating activities:                                                  |       |     |       |     |       |
| Net earnings                                                                            |       | $        | 57,363     |     | $          | 65,647 |   |
| Adjustments to  reconcile net earnings to net cash provided by operating activities:    |       |     |       |     |       |
| Depreciation and  amortization                                                          |       | 26,080   |       | 25,656   |       |
| Gain on fixed  asset disposal                                                           |       | —   |       | (190     | )          |
| Tax benefit from  stock options                                                         |       | 640      |       | 112      |       |
| Deferred income  taxes                                                                  |       | 1,454    |       | (48      | )          |
| Equity in  (earnings)/loss of investee                                                  |       | (108     | )          | 141      |       |
| Minority  interest                                                                      |       | (253     | )          | 120      |       |
| Gain on sale of  assets held for sale                                                   |       | (364     | )          | (497     | )          |
| Changes in  operating assets and liabilities, net of   effect of business acquisitions: |       |     |       |     |       |
| Accounts  receivable                                                                    |       | (85,689  | )          | (103,316 | )          |
| Inventories                                                                             |       | (41,520  | )          | (22,246  | )          |
| Prepaid and  other                                                                      |       | 5,299    |       | 517      |       |
| Deposits and  other assets                                                              |       | (493     | )          | (55      | )          |
| Goodwill  disposed of due to sale of assets held for sale                               |       | (3,621   | )          | —   |       |
| Accounts payable                                                                        |       | (10,921  | )          | (1,040   | )          |
| Accrued expenses                                                                        |       | 2,108    |       | 9,625    |       |
| Other  liabilities                                                                      |       | 1,102    |       | 1,876    |       |
| Income taxes                                                                            |       | 1,365    |       | (2,501   | )          |
| Total  adjustments                                                                      |       | (104,921 | )          | (91,846  | )          |
| Net cash used in  operating activities                                                  |       | (47,558  | )          | (26,199  | )          |
| Cash flows from  investing activities:                                                  |       |     |       |     |       |
| Purchases of  property, plant and equipment                                             |       | (14,338  | )          | (15,847  | )          |
| Purchases of  long–term investments                                                |       | (21,000  | )          | (1,377   | )          |
| Proceeds from  sales of long term investments                                           |       | 21,000   |       | 1,874    |       |
| Proceeds from  sale of assets held for sale                                             |       | 9,752    |       | —   |       |
| Cash impact of  Wax Lyrical receivership                                                |       | —   |       | 1,902    |       |
| Purchase of  businesses, net of cash acquired                                           |       | (54,221  | )          | (94,809  | )          |
| Net cash used in  investing activities                                                  |       | (58,807  | )          | (108,257 | )          |
| Cash flows from  financing activities:                                                  |       |     |       |     |       |
| Proceeds from  issuance of common stock                                                 |       | 9,170    |       | 1,690    |       |
| Purchases of  treasury stock                                                            |       | (179,206 | )          | (16,150  | )          |
| Borrowings from  bank line of credit                                                    |       | 177,201  |       | 60,147   |       |
| Repayments on  bank line of credit                                                      |       | (72,747  | )          | (32,552  | )          |
| Borrowings on  long–term debt                                                      |       | —   |       | 130,463  |       |
| Repayments of  long–term debt                                                      |       | (4,713   | )          | (4,131   | )          |
| Dividends paid                                                                          |       | (7,758   | )          | (5,983   | )          |
| Net cash  provided by (used in) financing activities                                    |       | (78,053  | )          | 133,484  |       |
| Effect of  exchange rate changes on cash                                                |       | 129      |       | (1,773   | )          |
| Net decrease in  cash and cash equivalents                                              |       | (184,289 | )          | (2,745   | )          |
| Cash and cash  equivalents at beginning of period                                       |       | 229,726  |       | 168,596  |       |
| Cash and cash  equivalents at end of period                                             |       | $        | 45,437     |     | $          | 165,851 |   |
|                                                                                         |            |          |            |          |            |  |  |  |

*** ***

***Theaccompanying notes are an integral part of these financial statements.***

 

8

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**BLYTH,INC. AND SUBSIDIARIES**

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**1.             Basis of Presentation**

 

Blyth is a global competitorin the gift and decorative accessories market, which the Company calls the homeexpressions industry.  At January 31, 2004 the Company reported itsfinancial results in five segments: Direct Selling, Wholesale Home Fragrance,Wholesale Creative Expressions, Catalog & Internet and All Other.  As a result of certain organizational changeswe have implemented, we have reevaluated our reporting segments pursuant toFASB Statement No. 131, “Disclosures about Segments of an Enterprise andRelated Information,” and determined to report financial information withrespect to three segments beginning with the period ended April 30, 2004. Thesenew reporting segments are as follows – the Direct Selling segment, theWholesale segment and the Catalog & Internet segment.  The Company’s reportable segments are based onsimilarities in distribution channels, customers and management oversight.

 

Within the Direct Sellingsegment, the Company designs, manufactures or sources, markets and distributesan extensive line of products including scented candles, related accessories,fragranced bath gels and body lotions and other fragranced products.  Theseproducts are sold direct to the consumer under the PartyLite® brand in NorthAmerica, Europe and Australia through a network of independent salesconsultants.

 

Within the Wholesalesegment, the Company designs, manufactures or sources, markets and distributesan extensive line of home fragrance, home décor, seasonal decorations and AwayFrom Home products.  Products in thissegment are sold worldwide to retailers in the premium and specialty retail channels under the Colonial®(1),Colonial Candle of Cape Cod®, Colonial at HOME®,Carolina®, CBK®, Edelman®, Euro–Decor®(1), Holiday365TM, Kaemingk®(1) and Seasons of Cannon Falls® brands and toretailers in the mass retail and foodservice channel under the Ambria®,FilterMate®, Florasense®, Gies®(1), Liljeholmens®, and Sterno® brands.

----

(1)   Colonial, Euro–Decor, Gies and Kaemingktrademarks are registered and sold only outside the United States.

 

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

 

The condensedconsolidated financial statements include the accounts of the Company and itsdirect and indirect subsidiaries.  Allsignificant intercompany accounts and transactions have been eliminated.  Investments in companies that are notmajority owned or controlled are reported using the equity method and arerecorded in investments.  Interest incomeand other consists of interest income earned from investments, foreign currencygains and losses and gains and losses from sales of investments.  Certain of the Company’s subsidiaries operateon a 52 or 53–week fiscal year ending on the Saturday closest to January31.  European operations maintain acalendar year accounting period, which is consolidated with the Company’sfiscal period.  In the opinion ofmanagement, the accompanying unaudited condensed consolidated financialstatements include all accruals necessary for fair presentation of the Company’sconsolidated financial position at October 31, 2004 and the consolidatedresults of its operations and cash flows for the nine–month periods endedOctober 31, 2004 and 2003.  These interimstatements should be read in conjunction with the Company’s consolidatedfinancial statements for the year ended January 31, 2004, as set forth in theCompany’s Annual Report on Form 10–K. Operating results for the nine months ended October 31, 2004 are notnecessarily indicative of the results that may be expected for the year endingJanuary 31, 2005.

 

9

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**EmployeeStock Options**

 

The Company has electedto adopt the disclosure only provisions of Statement of Financial AccountingStandards (SFAS) No. 148, “Accounting for Stock–Based Compensation — Transitionand Disclosure,” and continues to follow Accounting Principles Board (APB)opinion No. 25, “Accounting for Stock Issued to Employees” and relatedinterpretations in accounting for stock options granted to its employees anddirectors under the intrinsic value method. Accordingly, no compensation expense is recorded for the stock optionsissued to employees unless the option price is below market at the measurementdate.  The Company does not at this timeissue stock options below market value, therefore no compensation expense hasbeen recorded in the financial statements. Had compensation expense for the Company’s stock options been determinedin accordance with the fair value method in SFAS No. 123, “Accounting for Stock–BasedCompensation” and SFAS No. 148, the Company’s reported net income and earningsper share would have been adjusted to the pro forma amounts indicated below:

 
| ** **                                                                                                        | ** ** | **Three  months ended October 31,** | ** ** | **Nine  months ended October 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|------------------------------------|------------|
| **(In  thousands except per share data)**                                                                         | ** ** | **2004**                            | ** ** | **2003**                           | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net earnings:                                                                                                     |       |                                |       |                               |       |   |   |   |   |
| As reported                                                                                                       |       | $                                   | 30,243     |                               | $          | 34,774 |   | $ | 57,363 |   | $ | 65,647 |   |
| Stock–based  employee compensation expense determined under SFAS No. 123 for all awards,  net of related tax |       | 506                                 |       | 645                                |       | 1,555 |   | 1,962 |   |
| Pro forma                                                                                                         |       | $                                   | 29,737     |                               | $          | 34,129 |   | $ | 55,808 |   | $ | 63,685 |   |
| Net earnings per  common share:                                                                                   |       |                                |       |                               |       |   |   |   |   |
| As reported:                                                                                                      |       |                                |       |                               |       |   |   |   |   |
| Basic                                                                                                             |       | $                                   | 0.74       |                               | $          | 0.76 |   | $ | 1.31 |   | $ | 1.43 |   |
| Diluted                                                                                                           |       | 0.73                                |       | 0.76                               |       | 1.29 |   | 1.43 |   |
| Pro forma:                                                                                                        |       |                                |       |                               |       |   |   |   |   |
| Basic                                                                                                             |       | $                                   | 0.73       |                               | $          | 0.75 |   | $ | 1.27 |   | $ | 1.39 |   |
| Diluted                                                                                                           |       | 0.72                                |       | 0.75                               |       | 1.26 |   | 1.38 |   |

 

 

**2.**             **Business Acquisitions**

** **

On June 20, 2003, theCompany acquired a 100% interest in Kaemingk B.V. (“Kaemingk”), a designer andmarketer of a wide range of premium seasonal decorations.  Kaemingk’s product lines feature Christmasdécor, including ornaments, lighting, trim, glassware, candles and plushanimals, as well as spring and summer decorative accents.  The acquisition of Kaemingk aligns with onecomponent of the Company’s overall growth strategy, which is to grow throughselected acquisitions in the home expressions industry.  The cash purchase price was approximately$36.2 million less cash acquired of $7.7 million resulting in net cash paid of$28.5 million.  Approximately $30.6million of the cash purchase price was borrowed under the Company’s $200million unsecured revolving credit facility. The Company also assumed Kaemingk’s long–term debt of approximately$14.4 million.  The excess of thepurchase price over the estimated fair value of the net assets acquired,recorded as goodwill in the Condensed Consolidated Balance Sheets, approximated$17.6 million, which will not be deductible for income tax purposes.  During the quarter ended October 31, 2003, anadjustment was recorded to reflect the final appraised value of the acquiredproperty, plant and equipment.  In additionto the fixed purchase price, there is contingent consideration payable in theform of a three–year earn out provision based on a pre–defined formula relatedto a multiple of earnings before interest and income taxes.    The first annual earn out of $3.4 millionwas recorded in the first quarter and paid in the second quarter of fiscal2005.   The results of

 

10

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** **

operations of Kaemingkare included in the Condensed Consolidated Statements of Earnings of theCompany since June 21, 2003.  For segmentreporting purposes, Kaemingk is included in the Wholesale segment.

 

OnDecember 22, 2003, the Company acquired 100% of Walter Drake, a direct marketerof value–priced household products including household gifts, gadgets andconvenience products, personalized merchandise, home décor and holiday cardsunder the Walter Drake and Home Marketplace catalog titles, for approximately$54.2 million in cash.  The acquisition of Walter Drake alignswith one component of the Company’s overall growth strategy, which is to growthrough selected acquisitions in the home expressions industry.  The excess of the purchaseprice over the estimated fair value of the net assets acquired approximated$25.4 million, which will be deductible for income tax purposes.  During the quarter ended April 30, 2004, theCompany made an adjustment to the preliminary purchase price for additionalliabilities primarily related to severance of employees of the Colorado Springsfacility as of the acquisition date. These additional costs relate to the integration of the Walter Drakebusiness into Miles Kimball, which is expected to be completed by the end offiscal 2005.  These adjustments increasedthe goodwill by approximately $3.1 million to $28.5 million.  As a result of payments made during the nine–monthperiod ended October 31, 2004, an approximate liability of $0.3 million remainson the balance sheet at October 31, 2004. The otherintangibles acquired consist of approximately $12.0 million of trade names andtrademarks, which are deemed to have an indefinite life and will not beamortized, plus approximately $6.0 million of customer lists, which will beamortized on an accelerated basis over 10 years.  Estimated amortization expense for the nextfive fiscal years is as follows:  $0.9million, $0.9 million, $0.9 million, $0.6 million and $0.6 million.  The results of operations ofWalter Drake are included in the Condensed Consolidated Statements of Earningsof the Company since December 23, 2003. For segment reporting purposes, Walter Drake is included in the Catalog& Internet segment.

 

                The followingprovides an allocation of the purchase price of Walter Drake (in thousands):

 
| Cash Purchase  Price                   |   | $      | 54,188 |   |
|----------------------------------------|--------|--------|--------|--------|
| Less: Assets  acquired                 |   |   |   |
| Accounts  receivable                   |   | 539    |   |
| Inventories                            |   | 6,010  |   |
| Prepaid and  other                     |   | 5,743  |   |
| Property, plant  and equipment         |   | 4,667  |   |
| Intangible  assets                     |   | 18,000 |   |
|                                   |   | 34,959 |   |
| Plus:  Liabilities assumed             |   |   |   |
| Cash overdraft                         |   | 580    |   |
| Accounts payable                       |   | 3,442  |   |
| Accrued expenses                       |   | 5,057  |   |
| Other                                  |   | 189    |   |
|                                   |   | 9,268  |   |
| Unallocated  purchase price (goodwill) |   | $      | 28,497 |   |

 

 

11

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OnSeptember 10, 2004, the Company acquired 100% interests in Edelman B.V. (“Edelman”),a designer and marketer of everyday home, garden and seasonal décor, and Euro–DecorB.V. (“Euro–Decor”), a designer and marketer of traditional and contemporarygift and florist products.  Theacquisition aligns with one component of the Company’s overall growth strategy,which is to grow through selected acquisitions in the home expressionsindustry.  The cash purchase price wasapproximately $48.6 million less cash acquired of $1.1 million resulting in netcash paid of $47.5 million.  Included inthe purchase price is a $9.2 million earn out based on a multiple of 2004earnings before interest and income taxes that the combined companies haveessentially achieved.  The Company alsoassumed Edelman and Euro–Decor’s long–term debt of approximately $7.2million.  The excess of the purchase priceover the estimated fair value of the net assets acquired, recorded as goodwill,approximated $37.2 million, which will not be deductible for income taxpurposes.  The Company is in the processof completing valuations of Edelman and Euro–Decor’s fixed assets.  The results of operations of Edelman and Euro–Decorare included in the Condensed Consolidated Statements of Earnings of theCompany since September 11, 2004.  Forsegment reporting purposes, Edelman and Euro–Decor are included in theWholesale segment.

 

                                                The following provides a preliminaryallocation of the purchase price of Edelman and Euro–Decor (in thousands):

 
| Cash Purchase  Price                   |   | $      | 48,587 |   |
|----------------------------------------|--------|--------|--------|--------|
| Less: Assets  acquired                 |   |   |   |
| Cash                                   |   | 1,112  |   |
| Accounts  receivable                   |   | 23,684 |   |
| Inventories                            |   | 16,964 |   |
| Prepaid and  other                     |   | 4,044  |   |
| Property, plant  and equipment         |   | 6,335  |   |
| Total assets  acquired                 |   | 52,139 |   |
| Plus:  Liabilities assumed             |   |   |   |
| Bank line of  credit                   |   | 18,523 |   |
| Accounts payable                       |   | 3,227  |   |
| Accrued expenses                       |   | 11,849 |   |
| Debt                                   |   | 7,195  |   |
| Total  liabilities assumed             |   | 40,794 |   |
| Unallocated  purchase price (goodwill) |   | $      | 37,242 |   |

 

 

12

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Thefollowing unaudited pro forma summary financial information summarizes theestimated combined results of operations of the Company, Miles Kimball,Kaemingk, Walter Drake, Edelman and Euro-Decor assuming that the acquisitionsof Miles Kimball, Kaemingk, Walter Drake, Edelman and Euro-Decor had takenplace on February 1, 2003.  The unauditedpro forma combined results of operations were prepared on the basis ofinformation provided to the Company by the former management of Miles Kimball,Kaemingk, Walter Drake, Edelman and Euro-Decor and no representation is made bythe Company with respect to the accuracy of such information.  The pro forma combined results of operationsreflect adjustments for interest income, additional depreciation based on thefair market value of Miles Kimball’s and Walter Drake’s property, plant, andequipment, amortization of identifiable intangibles of Miles Kimball and WalterDrake and income tax expense.

 
| ** **                                | ** ** | **Three  months ended October 31,** | ** ** | **Nine  months ended October 31,** | ** ** |
|-------------------------------------------|------------|-------------------------------------|------------|------------------------------------|------------|
| **(In  thousands except per share data)** | ** ** | **2004**                            | ** ** | **2003**                           | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net sales                                 |       | $                                   | 467,528    |                               | $          | 488,542 |   | $ | 1,149,805 |   | $ | 1,167,559 |   |
| Net earnings                              |       | 33,166                              |       | 41,052                             |       | 59,420 |   | 68,307 |   |
| Basic:                                    |       |                                |       |                               |       |   |   |   |   |
| Net earnings per  common share            |       | $                                   | 0.81       |                               | $          | 0.90 |   | $ | 1.35 |   | $ | 1.49 |   |
| Diluted:                                  |       |                                |       |                               |       |   |   |   |   |
| Net earnings per  common share            |       | $                                   | 0.80       |                               | $          | 0.90 |   | $ | 1.34 |   | $ | 1.48 |   |

** **

** **

Theunaudited pro forma combined results of operations are not necessarilyindicative of, and do not purport to represent, what the Company’s results ofoperations or financial condition actually would have been had the acquisitionsbeen made as of February 1, 2003.

 

Thefollowing table shows changes in the carrying amount of goodwill for thequarter ended October 31, 2004, by operating segment:

 
| **(In  thousands)**                                                                          | ** ** | **Wholesale** | ** ** | **Catalog  & Internet** | ** ** | **Total** | ** ** |
|----------------------------------------------------------------------------------------------|------------|---------------|------------|-----------------------------|------------|-----------|------------|
| Goodwill at July  31, 2004                                                                   |       | 132,394       |       | 74,522                      |       | 206,916   |       |
| Edelman/Euro-Decor  acquisition                                                              |       | 37,242        |       | —                      |       | 37,242    |       |
| Foreign currency  translation adjustment related to Kaemingk and Edelman/Euro-Decor goodwill |       | 971           |       | —                      |       | 971       |       |
| Total  adjustments                                                                           |       | 38,213        |       | —                      |       | 38,213    |       |
| Goodwill at  October 31, 2004                                                                |       | 170,607       |       | 74,522                      |       | 245,129   |       |

** **

** **

**3.             Inventories**

 

The components ofinventory are as follows (in thousands):

 
| ** **      | ** ** | **October  31, 2004** | ** ** | **January  31, 2004** | ** ** |
|-----------------|------------|-----------------------|------------|-----------------------|------------|
| Raw materials   |       | $                     | 28,240     |                  | $          | 25,104 |   |
| Work in process |       | 965                   |       | 915                   |       |
| Finished goods  |       | 238,332               |       | 182,562               |       |
|            |       | $                     | 267,537    |                  | $          | 208,581 |   |

 

13

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**4.             OtherIntangibles**

 

Otherintangible assets consisted of the following (in thousands):

 
| ** **                                   | ** ** | **October  31, 2004** | ** ** | **January  31, 2004** | ** ** |
|----------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                   | ** ** | ** **            |       | **Accumulated**       |       |   |   |   |   | **Accumulated** |   |   |   |
| ** **                                   | ** ** | **Gross**             | ** ** | **Amortization**      | ** ** | **Net** | ** ** | **Gross** | ** ** | **Amortization** | ** ** | **Net** |   |
| Indefinite-lived  trade names and trademarks |       | $                     | 28,100     |                  | $          | — |   | $ | 28,100 |   | $ | 28,100 |   | $ | — |   | $ | 28,100 |   |
| Customer lists                               |       | 15,000                |       | 3,225                 |       | 11,775 |   | 15,000 |   | 1,500 |   | 13,500 |   |
| Total                                        |       | $                     | 43,100     |                  | $          | 3,225 |   | $ | 39,875 |   | $ | 43,100 |   | $ | 1,500 |   | $ | 41,600 |   |

 

 

Estimatedamortization expense for the next five fiscal years is as follows:  $2.4 million, $2.1 million, $1.8 million,$1.5 million and $1.5 million.

 

 

**5.             Earningsper Share**

 

Thecomponents of basic and diluted earnings per share are as follows (inthousands):

 
| ** **                                             | ** ** | **Three  months ended October 31,** | ** ** | **Nine  months ended October 31,** | ** ** |
|--------------------------------------------------------|------------|-------------------------------------|------------|------------------------------------|------------|
| ** **                                             | ** ** | **2004**                            | ** ** | **2003**                           | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net earnings                                           |       | $                                   | 30,243     |                               | $          | 34,774 |   | $ | 57,363 |   | $ | 65,647 |   |
| Weighted average  number of common shares outstanding: |       |                                |       |                               |       |   |   |   |   |
| Basic                                                  |       | 40,893                              |       | 45,526                             |       | 43,885 |   | 45,836 |   |
| Dilutive effect  of stock options                      |       | 394                                 |       | 238                                |       | 453 |   | 200 |   |
| Weighted average  number of common shares outstanding: |       |                                |       |                               |       |   |   |   |   |
| Diluted                                                |       | 41,287                              |       | 45,764                             |       | 44,338 |   | 46,036 |   |
|                                                        |            |                                     |            |                                    |            |  |  |  |  |  |  |  |  |

 

 

Forthe three and nine month periods ended October 31, 2004 and 2003, options topurchase 57,700, 50,200, 498,800 and 526,800 shares of common stock,respectively, are not included in the computation of earnings per share becausethe effect would be antidilutive.

 

 

**6.             Restructuring Charges**

 

Duringthe third and fourth quarters of fiscal 2004 the Company recorded severancepayments to employees of $0.5 million pre-tax related to the closure of itsHyannis, MA manufacturing facility.  Inconjunction with the closing, the Company eliminated 43 jobs comprised of manufacturingand management positions.  Thismanufacturing facility, which was the Company’s smallest, is located in a busydowntown area of Cape Cod, making transportation of raw materials and finishedproducts to and from the location challenging. Operations were consolidated into Blyth’s manufacturing facility inBatavia, Illinois.

 

Duringthe fourth quarter of fiscal 2004, the Company recorded additional pre-taxrestructuring charges.  These chargesconsist of $2.1 million related to severance costs primarily associated withthe restructuring of Blyth

 

14

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HomeScentsInternational — North America and the consolidation of the Company’s Temecula,California potpourri operations, and $0.9 million of lease termination costsassociated with the closure of five of the Company’s candle outlet stores.  As a result of these restructuringactivities, the Company eliminated 40 jobs, comprised of administrative andmanagement positions.

 

AtJanuary 31, 2004, the Company had approximately $3.3 million of restructuringcharges included in the Condensed Consolidated Balance Sheet, which related tothe aforementioned severance liabilities and lease obligations.  As a result of payments made during the ninemonths ended October 31, 2004, approximately $0.5 million of severanceliabilities and $0.6 million of lease obligations were remaining on the balancesheet at October 31, 2004.  The remainingseverance liability and lease obligations will be paid within the next twelvemonths.

 
| ** **                          | ** ** | **Lease**       | ** ** | **Severence** | ** ** | ** ** | ** ** |
|-------------------------------------|------------|-----------------|------------|---------------|------------|------------|------------|
| **(In  thousands)**                 | ** ** | **Obligations** | ** ** | **Costs**     | ** ** | **Total**  | ** ** |
| Balance at  January 31, 2004        |       | $               | 905        |          | $          | 2,395      |       | $ | 3,300 |   |
| Payments made  against 2004 charges |       | (321            | )          | (1,936        | )          | (2,257     | )          |
| Balance at  October 31, 2004        |       | $               | 584        |          | $          | 459        |       | $ | 1,043 |   |

 

 

**7.             Segment Information**

 

Blythis a global competitor in the gift and decorative accessories market, which theCompany calls the home expressions industry. At January 31, 2004 the Company reported its financial results in fivesegments:  Direct Selling, Wholesale HomeFragrance, Wholesale Creative Expressions, Catalog & Internet and AllOther.  As a result of certainorganizational changes we have implemented, we have reevaluated our reportingsegments pursuant to FASB Statement No. 131, “Disclosures about Segments of anEnterprise and Related Information,” and determined to report financialinformation with respect to three segments beginning with the period endedApril 30, 2004.  These new reportingsegments are as follows - the Direct Selling segment, the Wholesale segment andthe Catalog & Internet segment.  Asrequired by FASB Statement No.131, we have restated the correspondinginformation for the prior year to report in the current composition of ourreportable segments.  The Company’sreportable segments are based on similarities in distribution channels,customers and management oversight. Revenues are not reported by product or group of similar products, as itis impractical to do so.

 

Withinthe Direct Selling segment, the Company designs, manufactures or sources,markets and distributes an extensive line of products including scentedcandles, related accessories, fragranced bath gels and body lotions and otherfragranced products.  These products aresold direct to the consumer under the PartyLite® brand in North America, Europeand Australia through a network of independent sales consultants.

 

Withinthe Wholesale segment, the Company designs, manufactures or sources, marketsand distributes an extensive line of home fragrance, home décor, seasonaldecorations and Away From Home products. Products in this segment are sold worldwide to retailers in the premiumand specialty retail channels under the Colonial®1, Colonial Candle of Cape Cod®, Colonial at HOME®,Carolina®, CBK®, Edelman®, Euro-Decor®(1),Holiday365TM, Kaemingk®1, and Seasons ofCannon Falls® brands and to retailers in the mass retail and foodservicechannel under the Ambria®, FilterMate®, Florasense®, Gies®1, Liljeholmens®, and Sterno® brands.

 

----

(1)Colonial, Euro-Decor, Gies and Kaemingk trademarks are registered and sold onlyoutside the United States.

 

15

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

 

Earningsin all segments represent net sales less operating expenses directly related tothe business segments and corporate expenses allocated to the businesssegments.  Other income (expense)includes interest expense, interest income and equity in earnings of investees,which are not allocated to the business segments.  Identifiable assets for each segment consistof assets used directly in its operations and intangible assets, if any,resulting from purchase business combinations. Unallocated Corporate within the identifiable assets include corporatecash and cash equivalents, deferred bond costs and other long-term investments,which are not allocated to the business segments.

 
| ** **                                              | ** ** | **Three months ended October 31,** | ** ** | **Nine months ended October 31,** | ** ** |
|---------------------------------------------------------|------------|------------------------------------|------------|-----------------------------------|------------|
| **(In thousands)**                                      | ** ** | **2004**                           | ** ** | **2003**                          | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Net  Sales**                                          |       |                               |       |                              |       |   |   |   |   |
| Direct selling                                          |       | $                                  | 156,087    |                              | $          | 172,470 |   | $ | 496,259 |   | $ | 506,928 |   |
| Wholesale                                               |       | 229,234                            |       | 224,920                           |       | 460,310 |   | 454,186 |   |
| Catalog &  Internet                                 |       | 54,123                             |       | 34,511                            |       | 130,918 |   | 58,046 |   |
| **Total**                                               |       | $                                  | 439,444    |                              | $          | 431,901 |   | $ | 1,087,487 |   | $ | 1,019,160 |   |
| **Earnings**                                            |       |                               |       |                              |       |   |   |   |   |
| Direct Selling                                          |       | $                                  | 19,334     |                              | $          | 27,476 |   | $ | 82,387 |   | $ | 88,726 |   |
| Wholesale                                               |       | 28,354                             |       | 29,642                            |       | 21,420 |   | 25,362 |   |
| Catalog &  Internet                                 |       | 3,374                              |       | 2,650                             |       | 528 |   | 657 |   |
|                                                    |       | 51,062                             |       | 59,768                            |       | 104,335 |   | 114,745 |   |
| Other expense                                           |       | (5,784                             | )          | (4,667                            | )          | (14,694 | ) | (10,686 | ) |
| **Earnings  before income taxes and minority interest** |       | $                                  | 45,278     |                              | $          | 55,101 |   | $ | 89,641 |   | $ | 104,059 |   |
| ** **                                              |       |                               |       |                              |       |   |   |   |   |
| ** **                                              |       |                               |       | **October 31, 2004**              |       |   |   | **January 31, 2004** |   |
| **Identifiable  Assets**                                |       |                               |       |                              |       |   |   |   |   |
| Direct Selling                                          |       |                               |       | $                                 | 244,988    |   |   |   | $ | 273,900 |   |
| Wholesale                                               |       |                               |       | 631,882                           |       |   |   | 526,133 |   |
| Catalog &  Internet                                 |       |                               |       | 166,330                           |       |   |   | 160,380 |   |
| Unallocated  Corporate                                  |       |                               |       | 84,860                            |       |   |   | 167,550 |   |
| **Total**                                               |       |                               |       | $                                 | 1,128,060  |   |   |   | $ | 1,127,963 |   |

** **

**16**

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** **

**8.             AssetsHeld for Sale**

 

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

 

Thereis an additional $1.1 million classified as assets held for sale in theCondensed Consolidated Balance Sheet as of January 31, 2004 and October 31,2004 related to the Hyannis, MA manufacturing facility, the closure of which isdiscussed in Note 6.

 

Duringthe third quarter of fiscal 2005, the Colorado Springs facility, purchased aspart of the Walter Drake acquisition (refer also to Note 2), became availablefor sale and actions were initiated by management with regard to the plannedsale.  The fair value of the building of$4.2 million, which approximated the carrying value, was classified as assetsheld for sale in the Condensed Consolidated Balance Sheet as of October 31,2004.  Also in the third quarter, certainlong-lived assets in the Wholesale segment with an approximate carrying valueof $1.3 million were classified as assets held for sale in the CondensedConsolidated Balance Sheet as of October 31, 2004 as management has begunactively marketing the assets for sale.

 

**9.             TenderOffer**

 

OnJune 7, 2004, the Company announced that its Board of Directors approved arepurchase of up to 4,000,000 outstanding shares of the Company’s common stock,with the right to repurchase up to an additional 2% of the Company’soutstanding shares, at a price per share not greater than $35.00 nor less than$30.00 through a Dutch auction cash tender offer.  The final number of shares repurchased underthe tender offer, which expired on July 9, 2004, was 4,906,616 shares for anaggregate purchase price of $172.5 million including fees and expenses paid todate.  The tender offer was funded with$86.0 million of available cash and $86.5 million of borrowings under our $200million Credit Facility.  The Companydoes not expect the tender offer to affect its share repurchase program, capitalexpenditures, dividend policy or acquisitions.

 

**10.          Contingencies**

 

TheCompany has contingent liabilities that have arisen in the ordinary course ofits business, including pending litigation. The Company believes the outcome of these matters will not have amaterial adverse effect on its consolidated financial position, results ofoperations or cash flows.

 

17

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**Item 2.**    MANAGEMENT’SDISCUSSION AND ANALYSIS OF

**                FINANCIALCONDITION AND RESULTS OF OPERATIONS**

 

**RESULTS OF OPERATIONS:**

 

**Overview**

 

Blyth is a designer and marketer of home fragranceproducts and accessories, home décor, seasonal decorations, householdconvenience items, personalized gifts and products for the foodservicetrade.  We compete in the global homeexpressions industry, and our products can be found throughout North America,Europe and Australia.  Our financialresults are reported in three segments - the Direct Selling segment, theWholesale segment and the Catalog & Internet segment.  These reportable segments are based on similaritiesin distribution channels, customers and management oversight.

 

Today, on an annualized net sales basis, Blyth iscomprised of an approximately $750 million direct selling business, anapproximately $750 million wholesale business and an approximately $200 millioncatalog and Internet business.  Sales andearnings growth differ in each segment depending on geographic location, marketpenetration, our relative market share, and product and marketing execution,among other business factors.  Over thelong term, all three segments should experience single-digit growth, mostlikely within the low to mid-single digit range, again depending on thebusiness factors previously noted.

 

Our current focus isdriving sales growth of our brands so we may more fully leverage ourinfrastructure.  New product developmentcontinues to be critical to all three segments of our business.  In the Direct Selling segment, monthly salesand productivity incentives are designed to attract, retain and increase theearnings opportunity of PartyLite independent sales consultants.  In the Wholesale segment, we have numerouscollaborative initiatives underway, which we believe will help drive sales andleverage the sales and marketing talents across this segment.  These initiatives include customerinformation sharing and leveraging our in-house sales forces, as well asongoing global sourcing objectives and other organic strategic initiatives intowhich we are investing resources.

 

With the acquisitions of Miles Kimball in April 2003and Walter Drake in December 2003, we entered the catalog and Internet channelof distribution, giving us a presence in all of our desired channels.  The operations of Walter Drake have beenintegrated into those of Miles Kimball. This business unit’s personalization capabilities and knowledge of thedirect to consumer market are being leveraged across all three segments.

 

18

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**NetSales**

 

Netsales increased $68.3 million, or 6.7%, to $1,087.5 million in the first ninemonths of fiscal 2005 from $1,019.2 million in the first nine months of fiscal2004.  Net sales in the quarter endedOctober 31, 2004 increased $7.5 million or 1.7% to $439.4 million compared with$431.9 million a year earlier.  Sales inthe quarter ended October 31, 2004 were affected by three main factors.  First, the net effect of the inclusion ofsales of Walter Drake, acquired in December 2003, and 20 days of sales ofEdelman and Euro-Decor, acquired in September 2004, was partially offset by thedivestiture of Jeanmarie Creations in April 2004.  Second, sales increases in certain Wholesalesegment product lines were partially offset by sales shortfalls elsewhere inthe Wholesale segment.  Third, salesdeclined 9.5% in the Direct Selling segment.

 

Net Sales - Direct SellingSegment

 

Netsales in the Direct Selling segment decreased $16.4 million, or 9.5%, to $156.1million in the quarter ended October 31, 2004, compared with $172.5 million inthe same period last year.  PartyLite’sU.S. sales decreased approximately 18% compared to the prior year.  PartyLite Canada reported an approximately 8%decrease versus the prior year in U.S. dollars. Management believes that sales in the U.S. and Canadian markets werenegatively impacted by increased competition for hostesses and party guests dueto a substantial increase in channel competition.  In addition, the lack of a ‘home-run’ productin the 2004 holiday catalog may have contributed to the reduced number ofbooked shows during the quarter.  We believePartyLite’s U.S. operations were also negatively impacted by reduceddiscretionary income, resulting from higher gasoline prices, and by asignificant decrease in sales in Florida, PartyLite’s fourth largest market,due to the August and September hurricanes. In PartyLite’s European markets, sales increased approximately 19% inU.S. dollars (10% in local currencies), driven by strong sales in the newestmarkets.

 

Net Sales - Wholesale Segment

 

Netsales in the Wholesale segment increased $4.3 million, or 1.9%, to $229.2million in the quarter ended October 31, 2004, compared with $224.9 million inthe same period in fiscal 2004.  Theincrease in this segment is principally due to strong sales in European seasonaldecorations and North American home décor products, as well as to the additionof sales from Edelman and Euro-Decor, which were acquired in September2004.  These gains were partially offsetby sales shortfalls in North American home fragrance products and seasonaldecorations.  We believe that throughoutthe third quarter, many North American retailers faced reduced consumerdiscretionary spending, resulting from the recent severe spike in gasolineprices, and distractions from the closely contested U.S. elections and the warin Iraq.  Net sales were also negativelyimpacted by the divestiture of Jeanmarie Creations in April 2004, whichapproximately offset the benefit of 20 days of net sales from Edelman andEuro-Decor.

 

Net Sales - Catalog &Internet Segment

 

Netsales in the Catalog & Internet Segment increased $19.6 million to $54.1million in the quarter ended October 31, 2004, compared with $34.5 million inthe same period in fiscal 2004.  Sales inthis segment increased more than 50% due to the addition of Walter Drake, whichwas acquired in December 2003.

 

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**GrossProfit**

 

Grossprofit increased $36.9 million, or 7.5% from $492.9 million in the first ninemonths of fiscal 2004 to $529.8 million in the first nine months of fiscal2005.  Gross profit margin increased from48.4% for the first nine months of fiscal 2004 to 48.7% for the first ninemonths of fiscal 2005.  Gross profit inthe quarter ended October 31, 2004 increased $3.8 million, or 1.9%, from $196.9million for the quarter ended October 31, 2003 to $200.7 million for thequarter ended October 31, 2004.  Grossprofit margin increased from 45.6% for the quarter ended October 31, 2003 to45.7% for the quarter ended October 31, 2004. The gross profit improvement was due to favorable product mix andimprovements in the Direct Selling segment related to reduced shipping andhandling expenses, and profitability improvements due to the recentrestructuring efforts of our North American home fragrance operations, alongwith an insurance recovery from the Monterrey fire, which had a $2.2 millioneffect on gross profit, offset somewhat by commodity cost increases experiencedby some of our businesses.  In addition,a mix shift due to recent acquisitions also had a negative impact on gross profitmargin.  These acquired businesses arequite profitable but have lower gross margins than the overall Company average.

** **

**SellingExpense**

 

Sellingexpense increased $38.5 million, or 13.6%, from $283.7 million in the firstnine months of fiscal 2004, when selling expense was 27.8% of net sales, to$322.2 million in the first nine months of fiscal 2005, or 29.6% of netsales.  Selling expense increased $9.1million, or 8.7%, from $104.4 million in the quarter ended October 31, 2003 to$113.5 million in the quarter ended October 31, 2004.  As a percent of sales, selling expense was25.8% in the most recent fiscal quarter compared to 24.2% a year earlier.  The increase in selling expense is primarilydue to the addition of Walter Drake as its selling expense to sales ratio ishigher than Blyth’s overall average.  Inaddition, promotion and program spending was reduced at a rate below the rateof the sales shortfall, which further negatively impacted Blyth’s selling expenseto sales ratio.

 

**AdministrativeExpense**

 

Administrativeexpense increased $9.6 million, or 10.2%, from $93.7 million in the first ninemonths of fiscal 2004 to $103.3 million in the first nine months of fiscal2005.  Administrative expense increased$4.1 million or 12.8% from $32.0 million in the quarter ended October 31, 2003to $36.1 million in the quarter ended October 31, 2004.  As a percent of sales, administrative expensewas 8.2% in the third quarter of fiscal 2005 versus 7.4% in the same periodlast year.  Administrative expenses increaseddue to the addition of Walter Drake, Edelman, and Euro-Decor, investmentspending in various organic strategic initiatives and compliance costsassociated with the Sarbanes-Oxley Act of 2002.

** **

**OperatingProfit**

 

Operatingprofit decreased $10.4 million, or 9.1%, from $114.7 million in the first ninemonths of fiscal 2004 to $104.3 million in the first nine months of fiscal2005.  Operating profit decreased $8.7million, or 14.5%, from $59.8 million in the quarter ended October 31, 2003 to$51.1 million in the quarter ended October 31, 2004.  The sales shortfall in the Direct Sellingsegment is the primary reason for the decrease in operating profit.  We believe this shortfall to be the result ofincreased competition in this channel, compounded by the loss of sales inFlorida due to hurricanes, as well as the impact of unusually high gasolineprices on consumers.  Secondly, salesshortfalls in the North American portion of the Wholesale segment negativelyimpacted operating profit.  Thirdly, theoperating profit increase in the Catalog & Internet segment was lower thananticipated.  The decline also reflectsthe negative impact of higher raw material costs, expenses related tocompliance with the Sarbanes-Oxley Act of 2002 and our investment in a number oforganic strategic initiatives.

 

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Operating Profit/Loss - Direct Selling Segment

 

Operatingprofit in the quarter ended October 31, 2004 in the Direct Selling segmentdecreased $8.2 million, or 29.8%, to $19.3 million when compared to $27.5million a year earlier.  The decreasedprofitability resulted from the sales shortfall in the PartyLite’s NorthAmerican operations, as noted above.

 

Operating Profit/Loss - WholesaleSegment

 

Operatingprofit in the quarter ended October 31, 2004 in the Wholesale segment was $28.4million versus a profit of $29.6 million a year earlier.  A profitability decline due to lower sales ofhome fragrance products and seasonal decorations in North America, as discussedearlier, more than offset the profitability improvements realized from recentrestructuring in our North American home fragrance operations and the insurancerecovery from the Monterrey fire, also discussed earlier.  The benefit of operating profit from theEdelman and Euro-Decor acquisitions offset that of the divested JeanmarieCreations. Increased raw material costs also negatively impacted this segment’soperating profit.

 

Operating Profit/Loss - Catalog& Internet Segment

 

Operatingprofit in the quarter ended October 31, 2004 in the Catalog & Internetsegment was $3.4 million versus a profit of $2.7 million a year earlier.  Operating profit was below management’sexpectations primarily due to higher than expected costs associated with theintegration of Walter Drake’s operations into those of Miles Kimball.  In addition, a backlog of shipments resultingfrom a larger than expected percentage of personalized products negativelyimpacted operating profit, as did decreased list rental sales, which is a highmargin sale.  List rental sales aregenerated by the rental of Miles Kimball’s customer lists to other catalogcompanies.

** **

**InterestExpense**

 

Interestexpense increased approximately $4.7 million from $11.8 million in the firstnine months of fiscal 2004 to $16.5 million in the first nine months of fiscal2005.  Interest expense increasedapproximately $1.5 million from $4.7 million in the quarter ended October 31,2003 to $6.2 million in the quarter ended October 31, 2004.  This increase is primarily due to higherinterest costs related to the $100 million of 5.5% Senior Notes issued inOctober 2003 and borrowings associated with the July 2004 stock tender offer.

** **

**IncomeTaxes**

 

Incometax expense decreased $5.9 million, or 15.4%, from $38.3 million in the first ninemonths of fiscal 2004 to $32.4 million in the same period in the current fiscalyear.  Income tax expense decreased $5.1million, or 25.1%, from $20.3 million in the quarter ended October 31, 2003 to$15.2 million in the quarter ended October 31, 2004.  This decrease is primarily due to thedecrease in earnings and to a lower expected effective tax rate for fiscal2005.  The effective tax rate for thequarter ended October 31, 2004 was approximately 33.5% compared to 36.8% in thethird quarter of fiscal 2004 due to more income being earned in lower taxjurisdictions.  We anticipate that ourfull year effective income tax rate for fiscal 2005 will be approximately35.5%.

 

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**NetEarnings**

 

As aresult of the foregoing, net earnings decreased $8.2 million, or 12.5%, from$65.6 million in the nine months ended October 31, 2003 to $57.4 million forthe nine months ended October 31, 2004. Net earnings decreased $4.6 million, or 13.2%, from $34.8 million in thethird quarter of fiscal 2004 to $30.2 million in the third quarter of fiscal2005.

 

Basicearnings per share based upon the weighted average number of shares outstandingfor the nine months ended October 31, 2004, were $1.31, a decrease of $0.12, or8.4%, compared to $1.43 for the nine months ended October 31, 2003.  Basic earnings per share for the quarterended October 31, 2004, were $0.74, a decrease of $0.02, or 2.6%, compared to$0.76 for the quarter ended October 31, 2003. Diluted earnings per share based upon the potential dilution that couldoccur if options to issue common stock were exercised, were $1.29 for the ninemonths ended October 31, 2004, compared to $1.43 for the same period the prioryear.  Diluted earnings per share were$0.73 for the quarter ended October 31, 2004, compared to $0.76 for the sameperiod last year, a decrease of $0.03 or 3.9%.

** **

**Liquidityand Capital Resources**

 

Netcash used in operating activities increased to $ 47.6 million in the first ninemonths of fiscal 2005 from $26.2 million in the same nine-month period offiscal 2004.  The 82% increase in cashused in operations in fiscal 2005 was primarily due to lower profitability andan increase in the usage of cash to fund working capital needs.

 

Capitalexpenditures for property, plant and equipment were $5.5 million in the quarterended October 31, 2004 compared to $6.3 million in the prior year period.  Capital expenditures consisted primarily ofinvestments in information technology and upgrades of equipment and facilities.  The Company expects total capital spending ofapproximately $20.0 million for fiscal 2005.

 

TheCompany has a $200 million unsecured revolving credit facility, which matureson August 5, 2005 (the “Credit Facility”.) The Company has the ability to increase the Credit Facility, undercertain circumstances, by an additional $50 million.  The Credit Facility may be used for generalcorporate purposes, which includes funding for strategic acquisitions andseasonal working capital needs.  TheCredit Facility contains, among other provisions, requirements for maintainingcertain financial ratios including, among others, a minimum level of net worthand a maximum level of financial leverage. The Credit Facility also imposes limitations on, among other things,certain payments, the imposition of liens on our assets, indebtedness that maybe incurred by our subsidiaries, investments we may make and sales of ourassets.  At October 31, 2004, the Companywas in compliance with such covenants. Amounts outstanding under the Credit Facility bear interest, at theCompany’s option, at either JPMorgan Chase Bank’s prime rate (4.75% at October31, 2004) or at the Eurocurrency rate plus a credit spread ranging from 0.525%to 1.5%, calculated on the basis of a combination of the Company’s seniorunsecured long-term debt rating and the Company’s usage of the CreditFacility.  On October 31, 2004,approximately $108.3 million (including letters of credit) was outstandingunder the Credit Facility.

 

As ofOctober 31, 2004, the Company had a total of $15.0 million available under anuncommitted bank line of credit with LaSalle Bank National Association, whichmatures in June 2005.  Amountsoutstanding under the line of credit bear interest at short-term fixedrates.  No amounts were outstanding underthe uncommitted line of credit at October 31, 2004.

 

AtOctober 31, 2004, the Company had a total of $10.0 million available under anuncommitted line of credit with Bank of America to be used for letters ofcredit.  At October 31, 2004,approximately $0.8 million of letters of credit were outstanding under thiscredit line.

 

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As ofSeptember 30, 2004, The Gies Group (“Gies”) had available lines of credit ofapproximately $39.3 million of which approximately $2.9 million wasoutstanding.  The amounts outstandingunder the lines of credit bear interest at a weighted average rate of 3.1% atSeptember 30, 2004.  The lines of creditare renewed annually.

 

As ofSeptember 30, 2004, Kaemingk had available lines of credit of approximately$34.1 million with ING Bank N.V.  Thelines of credit are collateralized by certain real estate and equipment ownedby Kaemingk.  At September 30, 2004,approximately $8.3 million was outstanding at a weighted average interest rateof 2.75%.

 

ColonyGift Corporation Limited (“Colony”) has a $21.7 million short-term revolvingcredit facility with Barclays Bank, which matures in June 2005.  As of September 30, 2004, Colony hadborrowings under the credit facility of approximately $8.3 million, at aweighted average interest rate of 5.6%.

 

As ofSeptember 30, 2004, Edelman B.V. and Euro-Decor B.V. had available lines ofcredit of approximately $31.0 million with ABN Amro Bank N.V.  The lines of credit are collateralized byinventory and receivables owned by Edelman B.V. and Euro-Decor B.V.  At September 30, 2004, approximately $19.7million was outstanding at a weighted average interest rate of 3.1%.

 

AtOctober 31, 2004, Miles Kimball had approximately $10.0 million of long-termdebt outstanding under a real estate mortgage note payable to John Hancock LifeInsurance Company, which matures June 1, 2020. Under the terms of the note, payments of principal and interest are requiredmonthly at a fixed interest rate of 7.89%.

 

AtSeptember 30, 2004, Kaemingk had approximately $8.1 million of long-term debtoutstanding under six loans with ING Bank N.V. at a weighted average interestrate of 5.1%.  The bank loans havematurity dates ranging from 2005 through 2020. The loans are collateralized by certain real estate and equipment ownedby Kaemingk.

 

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

 

In May1999, the Company filed a shelf registration statement for issuance of up to$250.0 million in debt securities with the Securities and ExchangeCommission.  On September 24, 1999, theCompany issued $150.0 million of 7.90% Senior Notes due October 1, 2009 at adiscount of approximately $1.4 million, which is being amortized over the lifeof the notes.  Such notes contain, amongother provisions, restrictions on liens on principal property or stock issuedto collateralize debt.  At October 31,2004, the Company was in compliance with such provisions.  Interest is payable semi-annually on April 1and October 1.  On October 20, 2003, theCompany issued $100.0 million 5.50% Senior Notes due on November 1, 2013 at adiscount of approximately $0.2 million, which is being amortized over the lifeof the notes.  Such notes containprovisions and restrictions similar to those in the 7.90% Senior Notes.  At October 31, 2004, the Company was incompliance with such provisions. Interest on the notes began accruing on October 23, 2003 and will bepayable semiannually in arrears on May 1 and November 1 of each year,commencing May 1, 2004.  The notes may beredeemed in whole or in part at any time at a specified redemption price.

 

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AtOctober 31, 2004, CBK had $4.6 million of long-term debt outstanding under anIndustrial Revenue Bond (“IRB”), which matures on January 1, 2025.  The bond is backed by an irrevocable letter ofcredit issued by La Salle Bank National Association.  The loan is collateralized by certain ofCBK’s assets.  The amount outstandingunder the IRB bears interest at short-term floating rates, which equaled a weightedaverage interest rate of 2.0% at October 31, 2004.

 

TheCompany’s Board of Directors has authorized the Company to repurchase up to6,000,000 shares of common stock under the Company’s share repurchaseprogram.  There were no repurchases underthis share repurchase program in the quarter ended October 31, 2004.  Since January 31, 2004, the Company haspurchased an additional 201,700 shares on the open market for a cost of $6.7million, bringing the cumulative total purchased shares to 4,546,800 as ofOctober 31, 2004 for a total cost of approximately $112.0 million.  The acquired shares are held as common stockin treasury at cost.

 

OnJune 7, 2004 the Company announced that its Board of Directors approved arepurchase of up to 4,000,000 outstanding shares of the Company’s common stock,with the right to repurchase up to an additional 2% of the Company’soutstanding shares, at a price per share not greater than $35.00 nor less than$30.00 through a Dutch auction cash tender offer.  The final number of shares repurchased underthe tender offer, which expired on July 9, 2004, was 4,906,616 shares for anaggregate purchase price of $172.5 million including fees and expenses paid todate.  The tender offer was funded with$86.0 million of available cash and $86.5 million of borrowings against our$200 million Credit Facility.  TheCompany does not expect the tender offer to affect its share repurchaseprogram, capital expenditures, dividend policy or acquisitions.

 

OnSeptember 9, 2004, the Company announced that it had declared a cash dividendof $0.19 per share of common stock for the six months ended July 31, 2004.  The dividend, authorized at the Company’sSeptember 9, 2004 Board of Directors meeting, was payable to shareholders ofrecord as of November 1, 2004, and was paid on November 15, 2004.  The total dividend payment was $7.8 million.

** **

**CriticalAccounting Policies**

 

Therewere no changes to our critical accounting policies in the third quarter offiscal 2005.  For a discussion of theCompany’s critical accounting policies see our Annual Report on Form 10-K forthe fiscal year ended January 31, 2004.

 

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**Item 3.**    QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

**MarketRisk**

 

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

 

**InterestRate Risk**

 

As of October 31, 2004,the Company is subject to interest rate risk on approximately $148.9 million ofvariable rate debt.  Each 1–percentagepoint change in the interest rate would impact pre–tax earnings byapproximately $1.5 million if applied to the total.

 

On July 10, 2003, theCompany terminated the interest rate swap agreement in relation to $50.0million of our outstanding 7.90% Senior Notes, which mature on October 1,2009.  This termination resulted in adeferred gain of approximately $5.0 million, which is being amortized over theremaining term of the Notes.

 

**ForeignCurrency Risk**

 

TheCompany uses foreign exchange forward and options contracts to hedge the impactof foreign currency fluctuations on foreign denominated inventory purchases,intercompany payables and certain intercompany loans.  The Company does not hold or issue derivativefinancial instruments for trading purposes.

 

The Company hasdesignated its forward exchange and options contracts on forecastedintercompany purchases and future purchase commitments as cash flow hedges and,as such, as long as the hedge remains effective and the underlying transactionremains probable, the effective portion of the changes in the fair value ofthese contracts will be recorded in accumulated other comprehensive income(loss) (“OCI”) until earnings are affected by the variability of the cash flowsbeing hedged.  With regard to commitmentsfor inventory purchases, upon payment of each commitment, the underlyingforward contract is closed and the corresponding gain or loss is transferredfrom accumulated OCI and is included in the measurement cost of the acquiredasset.  If a hedging instrument is soldor terminated prior to maturity, gains and losses are deferred in accumulatedOCI until the hedged item is settled. However, if the hedged item is no longer likely to occur, the resultantgain or loss on the terminated hedge is recognized into earningsimmediately.  Approximately $869,000 ofhedge losses are included in accumulated OCI at October 31, 2004, and areexpected to be transferred into earnings within the next twelve months.

 

The Company hasdesignated its foreign currency forward contracts related to intercompany loansas fair value hedges.  The gains orlosses on the fair value hedges are recognized into earnings and generallyoffset the transaction gains or losses in the foreign denominated loans thatthey are intended to hedge.

 

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

 

 

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The following table provides information about the Company’s foreignexchange forward and options contracts at October 31, 2004.

 
| **(In thousands, except average  contract rate)** | ** ** | **U.S. Dollar Notional Amount** | ** ** | **Average Contract Rate** | ** ** | **Estimated Fair Value** | ** ** |
|---------------------------------------------------|------------|---------------------------------|------------|---------------------------|------------|--------------------------|------------|
| Canadian Dollar                                   |       | $                               | 16,140     |                      | 1.29       |                     | $          | (933 | ) |
| Euro                                              |       | 26,624                          |       | 1.23                      |       | (337                     | )          |
| Mexican Peso                                      |       | 2,000                           |       | 11.56                     |       | (22                      | )          |
| Australian  Dollar                                |       | 1,399                           |       | 0.70                      |       | (50                      | )          |
|                                              |       | $                               | 46,163     |                      |       |                     | $          | (1,342 | ) |

 

Theforeign exchange contracts outstanding have maturity dates through 2005.

 

 

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**Item 4.** CONTROLS AND PROCEDURES

 

(a) Evaluation of disclosure controls and procedures.

Our management, with theparticipation of our principal executive officer and our principal financialofficer, evaluated the effectiveness of our disclosure controls and procedures(as defined in Securities Exchange Act of 1934 (“Exchange Act”) Rules 13a–15(e)or 15d–15(e)) as of the end of the period covered by this quarterly report asrequired by paragraph (b) of Exchange Act Rules 13a–15 or 15d–15.  Based upon this evaluation, our principalexecutive officer and our principal financial officer have concluded that ourdisclosure controls and procedures are effective as of the end of the periodcovered by this quarterly report, except for the matters set forth in theExplanatory Note to this quarterly report and Item 5 of Part II of thisquarterly report.

(b) Changes in internal control overfinancial reporting.

                Therewas no change in our internal control over financial reporting identified inconnection with the evaluation required by paragraph (d) of Exchange Act Rules13a–15 or 15d–15 that occurred during our last fiscal quarter that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

** **

**27**

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** **

**Part II.** OTHER INFORMATION

 

**Item 1.    Legal Proceedings**

 

None.

 

**Item 2.    Unregistered Sales of Equity Securities andUse of Proceeds**

 

The following table setsforth certain information concerning the repurchase of the Company’s CommonStock made by the Company during the third quarter of the fiscal year endingJanuary 31, 2005.

 

##### **ISSUER PURCHASES OF EQUITY SECURITIES(1)**

 
| **Period**                                  | ** ** | **(a)  Total Number of Shares Purchased** | ** ** | **(b)  Average Price Paid per Share** | ** ** | **(c)  Total Number of Shares Purchased as Part of Publicly Announced Plans or  Programs** | ** ** | **(d)  Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be  Purchased Under the Plans or Programs** |
|---------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------|
| August 1, 2004 – August 31, 2004       |       | 0                                         |       | —                                |       | 0                                                                                          |       | 1,453,200 shares                                                                                                       |
|                                        |       |                                      |       |                                  |       |                                                                                       |       |                                                                                                                   |
| September 1, 2004 – September 30, 2004 |       | 0                                         |       | —                                |       | 0                                                                                          |       | 1,453,200 shares                                                                                                       |
|                                        |       |                                      |       |                                  |       |                                                                                       |       |                                                                                                                   |
| October 1, 2004 – October 31, 2004     |       | 0                                         |       | —                                |       | 0                                                                                          |       | 1,453,200 shares                                                                                                       |
|                                        |       |                                      |       |                                  |       |                                                                                       |       |                                                                                                                   |
| Total                                       |       | 0                                         |       | —                                |       | 0                                                                                          |       | 1,453,200 shares                                                                                                       |

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(1) On September 10, 1998, the Company’s Board ofDirectors approved the Company’s share repurchase program (the “RepurchaseProgram”) pursuant to which the Company was authorized to repurchase up to 1,000,000shares of its issued and outstanding Common Stock in open markettransactions.  On June 8, 1999, theCompany’s Board of Directors amended the Repurchase Program and increased thenumber of shares of Common Stock to be repurchased by 1,000,000 shares, from1,000,000 to 2,000,000 shares.  On March30, 2000, the Company’s Board of Directors further amended the RepurchaseProgram and increased the number of shares of Common Stock to be repurchased by1,000,000 shares, from 2,000,000 to 3,000,000 shares.  On December 14, 2000, the Company’s Board ofDirectors further amended the Repurchase Program and increased the number ofshares of Common Stock to be repurchased by 1,000,000 shares, from 3,000,000 to4,000,000 shares.  On April 4, 2002, theCompany’s Board of Directors further amended the Repurchase Program andincreased the number of shares of Common Stock to be repurchased by 2,000,000shares, from 4,000,000 to 6,000,000 shares. As of October 31, 2004, the Company has purchased a total of 4,546,800shares of Common Stock under the Repurchase Program.  The Repurchase Program does not have anexpiration date.  The Company intends tomake further purchases under the Repurchase Program.

 

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** **

**Item 3.    Defaults upon Senior Securities**

 

None

 

**Item 4.    Submission of Matters to a Vote of SecurityHolders**

 

None

 

**Item 5.    Other Information**

 

As of January 31, 2004, we revised our reportingsegments based on Statement of Financial Accounting Standards No. 131, “Disclosuresabout Segments of an Enterprise and Related Information”.  This revision of segments had the relatedeffect of requiring changes in our reporting units for purposes of goodwillimpairment reviews under Statement of Financial Accounting Standards No. 142, “Goodwilland Other Intangible Assets” (“SFAS 142”), retroactive to the February 1, 2002adoption date.  This resulted in the needto perform impairment reviews of several additional reporting units as ofFebruary 1, 2002 and each subsequent year–end balance sheet date.  These impairment reviews indicated the needto record additional impairment charges as of the February 1, 2002 adoption ofSFAS 142.  On August 4, 2004, we filedamendments on Form 10–Q/A restating our Consolidated Financial Statements forthe interim periods ended April 30, July 31, and October 31, 2003 to reflectthese changes.  Our predecessorindependent public accountants had performed the reviews that we were requiredto have performed by Section 10–01(d) of Regulation S–X of our ConsolidatedFinancial Statements as included in our Quarterly Reports on Form 10–Q asinitially filed for the interim periods ended April 30, July 31, and October31, 2003. The amendments filed on Form 10-Q/A were filed after our terminationof our predecessor independent public accountants. The Consolidated FinancialStatements included in our amended quarterly reports were not reviewed by anyindependent public accountants, and such amended quarterly reports aretherefore not considered fully compliant with the requirements of the ExchangeAct and the rules and regulations of the Commission.  In addition, because the financial statementsas of April 30, July 31, and October 31, 2003 and for the periods then ended asset forth in our Quarterly Reports for the periods ended April 30 and July 31,2004 and in this Quarterly Report have not been the subject of such a review,these Quarterly Reports on Form 10–Q are also not considered to be compliantwith the Exchange Act and the rules and regulations of the Commission.  We have had preliminary discussions with andplan to re-engage our predecessor independent public accountants to performsuch a review, and we presently expect those reviews to be completed by ourpredecessor independent public accountants prior to January 31, 2005, althoughthere can be no assurance that they will be able to do so.  We do not expect that the reviews of ouramended quarterly reports or our quarterly reports filed in fiscal 2005 willrequire any change to the Consolidated Financial Statements.  

 

In light of the absence of the reviews, the Section906 certifications of our Chief Executive Officer and Chief Financial Officerrequired by 18 U.S.C. § 1350 and attached as Exhibits 32.1 and 32.2 to thisQuarterly Report on Form 10–Q have been qualified by reference to thisItem.  

 

Deloitte & Touche LLP, our current independentpublic accountants, have performed the review required by Section 10–01(d) ofRegulation S–X of our Condensed Consolidated Financial Statements for allinterim periods in our current fiscal year (but not for any periods in fiscal2004) as included in our quarterly reports for the interim periods ended April30, July 31, and October 31, 2004.

 

We intend to file amendments to our fiscal 2004 Form10-Q/A filings to reflect the fact that the financial information included inthose reports was not reviewed by any independent public accountant. We alsointend to file amendments to our fiscal 2005 Form 10-Q filings for the interimperiods ended April 30 and July 31, 2004 to reflect the fact that the financialinformation with respect to fiscal 2004 was not reviewed by any independentpublic accountant. At the appropriate time, we intend to file additionalamendments to those amended reports, and to this Report on Form 10-Q, toreflect the completion of the review.

 

The staff of the Commission may take the position thatbecause certain information relating to our prior fiscal year in this QuarterlyReport on Form 10–Q, our quarterly reports filed for the periods ended April 30and July 31, 2004, and the amended quarterly reports have not been reviewed by anyindependent public accountants prior to filing as required by Section 10–01(d)of Regulation S–X, we would not be viewed as having made all required filingsuntil the reports are amended to reflect the required review, and even thenthat the filings were not filed timely. If so, the Company would be ineligibleto use Forms S–2 and S–3 to register securities (or amend an existingregistration statement) until all required reports under the Exchange Act havebeen timely filed for the 12 months prior to the filing of the registrationstatement or amendment.  Whileineligibility to use Form S–2 or S–3 would involve additional expense should weneed to file or amend a registration statement, we do not view ineligibility ashaving a material adverse effect on our access to capital resources. Second,the safe harbor from registration contained in Rule 144 under the SecuritiesAct of 1933 may be unavailable to our executive officers, directors and otheraffiliates wishing to sell our securities**.**  We have instructed such persons not to resellsecurities in reliance upon Rule 144 until otherwise advised.  As a precautionary matter, to be consistentwith these instructions, on the cover page of this filing, we have checked thebox that indicates that we have not made all filings required in the last 90days.

 

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The Company is includingthe following cautionary statement in this Report to make applicable, and totake advantage of, the safe harbor provisions of the Private SecuritiesLitigation Reform Act of 1995 for any forward–looking statements made by, or onbehalf of, the Company.  Forward–lookingstatements include statements concerning plans, objectives, goals, strategies,future events or performance and underlying assumptions and other statements,which are other than statements of historical facts.  From time to time, the Company and itsrepresentatives may publish or otherwise make available forward–lookingstatements of this nature.  All suchforward–looking statements, whether written or oral, and whether made by or onbehalf of the Company, are expressly qualified by the following cautionarystatements.  Forward–looking statements involverisks and uncertainties, which could cause actual results or outcomes to differmaterially from those expressed in the forward–looking statements.  Such forward–looking statements are expectedto be based on various assumptions, many of which are based, in turn, uponfurther assumptions.  There can be noassurance that management’s expectations, beliefs or projections will occur orbe achieved or accomplished.  In additionto other factors and matters discussed elsewhere in this Report and in the Company’sother public filings and statements, the following are important factors that,in the view of the Company, could cause actual results to differ materiallyfrom those discussed in the Company’s forward–looking statements.  The Company disclaims any obligation toupdate any forward–looking statements, or the following factors, to reflectevents or circumstances after the date of this Report.

 

Risk of Inability toMaintain Sales Growth Rate

 

The Company has experienced significant sales growthin past years.  While management expectscontinued growth, our future growth rate will likely be less than ourhistorical growth rate.  The Companyexpects faster sales growth in its international market versus its UnitedStates market, particularly in the Direct 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’discretionary spending, the ability to recruit new independent salesconsultants, sourcing of raw materials and demand–driven increases inproduction and distribution capacity. Business in all of our segments is driven by consumer preferences.  Accordingly, there can be no assurances thatthe Company’s current or future products will maintain or achieve marketacceptance.  Our sales and earningsresults can be negatively impacted by the worldwide economic environment,particularly the Canadian, United States and European economies.  There can be no assurances that the Company’sfinancial results will not be materially adversely affected by these factors inthe future.

 

The Company’s historicalgrowth has been due in part to acquisitions and management continues toconsider additional strategic acquisitions. There can be no assurances that management will continue to identifysuitable acquisition candidates, consummate acquisitions on terms favorable tothe Company, finance acquisitions or successfully integrate acquiredoperations.

 

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Risks Associated withInternational Sales and Foreign–Sourced Products

 

Our international salesgrowth rate has outpaced our United States growth rate in recent years.  Moreover, the Company sources a portion ofits products in all of its business segments from independent manufacturers inthe Pacific Rim, Europe and Mexico.  Forthese reasons, we are subject to the following risks associated withinternational manufacturing and sales: fluctuations in currency exchange rates, economic or politicalinstability, international public heath crises, transportation costs anddelays, difficulty in maintaining quality control, restrictive governmentalactions, nationalizations, the laws and policies of the United States, Canadaand certain European countries affecting the importation of goods (includingduties, quotas and taxes) and the trade and tax laws of other nations.

 

Ability to Respond toIncreased Product Demand

 

The Company’s ability tomeet future product demand in all of its business segments will depend upon itssuccess in (1) bringing new production and distribution capacity on line in atimely manner, (2) improving its ability to forecast product demand and fulfillcustomer orders promptly, (3) improving customer service–oriented managementinformation systems and (4) training, motivating and managing newemployees.  The failure of any of theabove could result in a material adverse effect on our financial results.

 

Risk of Shortages of RawMaterials

 

Certain raw materialscould 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 are not presently expected to have amaterial adverse effect on the Company’s operations.  While the price of crude oil is only one ofseveral factors impacting the price of petroleum wax, it is possible thatrecent fluctuations in oil prices may have a material adverse affect on thecost of petroleum–based products used in the manufacture or transportation ofour products, particularly in the Direct Selling and Wholesale segments.

 

Dependence on KeyCorporate Management Personnel

 

Our success depends inpart on the contributions of key corporate management, including our Chairmanand Chief Executive Officer, Robert B. Goergen. The Company does not have employment contracts with any of its keycorporate management personnel except Mr. Goergen, nor does it maintain any keyperson life insurance policies.  The lossof any of the key corporate management personnel could have a material adverseeffect on the Company.

 

Risk of IncreasedCompetition

 

Our business is highlycompetitive both in terms of pricing and new product introductions.  The worldwide market for home expressionsproducts is highly fragmented with numerous suppliers serving one or more ofthe distribution channels served by the Company.  In addition, the Company competes for directselling consultants with other direct selling companies.  Because there are relatively low barriers toentry in all of our business segments, the Company may face increasedcompetition from other companies, some of which may have substantially greaterfinancial or other resources than those available to us.  Competition includes companies sellingcandles manufactured at low cost outside of the United States.  Moreover, certain competitors focus on asingle geographic or product market and attempt to gain or maintain marketshare solely on the basis of price.

 

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# ** **

# **Risks Related to Information Technology Systems**

 

Ourinformation technology systems are dependent on global communicationsproviders, telephone systems, hardware, software and other aspects of Internetinfrastructure that have experienced significant system failures and outages inthe past.  Our systems are susceptible tooutages due to fire, floods, power loss, telecommunications failures, break–insand similar events.  Despite theimplementation of network security measures, the Company’s systems arevulnerable to computer viruses, break–ins and similar disruptions fromunauthorized tampering with Company systems. The occurrence of these or other events could disrupt or damage ourinformation technology systems and inhibit internal operations, the ability toprovide customer service or the ability of customers or sales personnel toaccess the Company’s information systems.

** **

**32**

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** **

**Item 6.     Exhibits and Reports on Form 8–K**

 

a)              Exhibits

 

31.1                           Certification of Chairman and ChiefExecutive Officer pursuant to Rule 13a–14(a) under the Securities Exchange Actof 1934.

31.2                         Certification of Vice President and ChiefFinancial Officer pursuant to Rule 13a–14(a) under the Securities Exchange Actof 1934.

32.1                           Certification ofChairman and Chief Executive Officer pursuant to Section 906 of the Sarbanes–OxleyAct of 2002.

 

32.2                           Certification ofVice President and Chief Financial Officer pursuant to Section 906 of theSarbanes–Oxley Act of 2002.

 

b)             Reports on Form 8–K

 

During the fiscal quarterended October 31, 2004, the Company filed the following Current Reports on Form8–K:

 

CurrentReport on Form 8–K on August 10, 2004 under Item 12 to report net sales, earningsand identifiable asset information for fiscal years 2003 and 2004 using threereportable segments.

 

                                CurrentReport on Form 8–K on August 25, 2004 under Item 2.02 to file as an exhibit thepress release reporting the Company’s results of operations for the fiscalquarter ended July 31, 2004.

 

                                CurrentReport on Form 8–K on September 13, 2004 under Item 8.01 to file as an exhibitthe press release reporting the declaration of an increase in the Company’ssemi–annual cash dividend to be payable to shareholders of record as ofNovember 1, 2004 and to be paid on November 15, 2004.

 

                                CurrentReport on Form 8–K on September 15, 2004 under Item 1.01 to announce theacquisition by Blyth Holding B.V. (a wholly owned subsidiary of Blyth, Inc.) ofEdelman B.V. and Euro–Decor B.V.

 

                                CurrentReport on Form 8–K on September 15, 2004 under Item 5.02 to announce theelection of James M. McTaggart as a director of the Company.

 

                                CurrentReport on Form 8–K on October 15, 2004 under Item 5.04 to announce the blackoutperiod for the fiscal quarter ended October 31, 2004 with respect to thepurchase or sale of the Company’s common stock by employees, directors andofficers.

 

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**SIGNATURES**

 

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

 

 
|                                            |   | BLYTH,  INC. |                                        |
|-------------------------------------------------|--------|--------------|---------------------------------------------|
|                                            |   |         |                                        |   |
| Date:    December  10, 2004 |   | By:          | /s/  Robert B. Goergen                      |   |
|                                            |   |         | Robert  B. Goergen                          |   |
|                                            |   |         | Chairman and Chief Executive Officer        |   |
|                                            |   |         |                                        |   |
| Date:    December  10, 2004 |   | By:          | /s/  Robert H. Barghaus                     |   |
|                                            |   |         | Robert  H. Barghaus                         |   |
|                                            |   |         | Vice  President and Chief Financial Officer |   |

 

 

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