**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WashingtonD.C. 20549**

 

**FORM 10-Q/A**

**(AmendmentNo. 1)**

 

**(MarkOne)**

 
| ý                                                                                                                                                         | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934**  |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------|
|                                                                                                                                                           |
| ** **                                                                                                                                                     | **For the quarterly period  ended October 31, 2003**                                          |
|                                                                                                                                                           |
| **or**                                                                                                                                                         |
|                                                                                                                                                           |
| o                                                                                                                                                              | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                           |
| **For  the transition period  from          to          ** |
| ** **                                                                                                                                                     |
| **Commission  file number 1-13026**                                                                                                                            |

 

**BLYTH, INC.**

(Exact name ofregistrant as specified in its charter) 

 

| **DELAWARE**                                                                                                                                                                                               | ** ** | **36-2984916**                     |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------|
| (State or other  jurisdiction of incorporation or organization)                                                                                                                                            |       | (IRS Employer  Identification No.) |
|                                                                                                                                                                                                       |       |                               |
| **One East Weaver Street,  Greenwich, Connecticut 06831**                                                                                                                                                  |
| (Address of  principal executive offices)                          (Zip Code) |

### ** **

**(203)661-1926**

(Registrant’stelephone number, including area code)

 

#### **Not Applicable**

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

 

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

Yes   ý                  No   o   

 

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

Yes   ý                  No   o   

 

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

 

**45,442,077Common Shares as of November 30, 2003**

#### ** **

#### ** **

----

 

#### **Explanatory Note**

** **

**Thepurpose for this Amendment No. 1 to Blyth, Inc.’s Quarterly Report on Form10-Q/A for the period ended October 31, 2003, is to restate our financialstatement footnotes to reflect our segments as revised as of January 31,2004 based on FASB Statement No. 131, “Disclosures about Segments of anEnterprise and Related Information”.**  This revision ofsegments had the related effect of requiring changes in the Company’s reportingunits for purposes of goodwill impairment reviews under SFAS 142, retroactiveto the February 1, 2002 adoption date of SFAS 142.  Thisresulted in the need toperform impairment reviews of several additional reporting units as ofFebruary 1, 2002 and each subsequent year-end balance sheet date,thereafter. These impairment reviews indicated the need to record additionalimpairment charges as of the February 1, 2002 adoption of SFAS 142,specifically to write-off $20.9 million in goodwill associated with the 1999acquisition of the Gies Group and $6.3 million in goodwill associated with the1999 acquisition of the Colony Group.  Asa result, we have restated our 2003 financial statements as discussed in Note 2to the Consolidated Financial Statements to reflect this goodwill impairmentcharge as a cumulative effect of accounting change for the adoption of SFAS 142as of February 1, 2002 and such restatement is reflected throughoutmanagement’s discussion and analysis that is set forth below.

** **

**We haverestated footnotes 4, 5, 7 and 9 to our financial statements and made changesto Management’s Discussion and Analysis of Financial Condition and Results ofOperations as necessary to reflect the results of the restatements discussedabove.  No other changes have been madeto our Quarterly Report for the period ended October 31, 2003.  No attempt has been made in this Form 10-Q/Ato modify or update any disclosures except as required to reflect the resultsof the restatements discussed above and any changes made to prior periodfinancial information for which a Form 10-Q/A was not filed.  This Form 10-Q/A does not reflect eventsoccurring after the filing of the original Form 10-Q or modify or update thosedisclosures affected by subsequent events.**

 

2

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**BLYTH,INC.**

 

#### **INDEX**

 
| Form 10-Q Cover Page                                          |       |
|---------------------------------------------------------------|------------|
|                                                          |       |
| Explanatory  Note                                             |       |
|                                                          |       |
| Form 10-Q Index                                               |       |
|                                                          |       |   |   |
| Part  I.      Financial Information: |       |
|                                                          |       |   |   |
|                                                          | Item  1.   | Financial  Statements (Unaudited): |   |
|                                                          |       |   | Consolidated  Balance Sheets |   |
|                                                          |       |   |   |   |
|                                                          |       |   | Consolidated  Statements of Earnings |   |
|                                                          |       |   |   |   |
|                                                          |       |   | Consolidated  Statements of Stockholders’ Equity |   |
|                                                          |       |   |   |   |
|                                                          |       |   | Consolidated  Statements of Cash Flows |   |
|                                                          |       |   |   |   |
|                                                          |       |   | Notes to  Consolidated Financial Statements |   |
|                                                          |       |   |   |
|                                                          | Item 2.    | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   |
|                                                          |       |   |   |
|                                                          | Item  3.   | Quantitative  and Qualitative Disclosures About Market Risk |   |
|                                                          |       |   |   |
|                                                          | Item  4.   | Controls  and Procedures |   |
|                                                          |       |   |   |
|                                                          |       |   |   |
| Part II.    Other Information                  |       |
|                                                          |       |   |   |
|                                                          | Item  1.   | Legal  Proceedings |   |
|                                                          |       |   |   |
|                                                          | Item  2.   | Changes  in Securities |   |
|                                                          |       |   |   |
|                                                          | Item 3.    | Defaults upon  Senior Securities |   |
|                                                          |       |   |   |
|                                                          | Item  4.   | Submission  of Matters to a Vote of Security Holders |   |
|                                                          |       |   |   |
|                                                          | Item  5.   | Other  Information |   |
|                                                          |       |   |   |
|                                                          | Item 6.    | Exhibits and  Reports on Form 8-K |   |
|                                                          |       |   |   |
|                                                          | Signatures |   |
|                                                               |            |  |  |  |  |

 

3

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PartI.   FINANCIAL  INFORMATION

Item I.   FINANCIAL STATEMENTS

 

**BLYTH,INC. AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

 
| **(In  thousands, except share and per share data)**                                                                            | ** ** | **October 31,  2003** | ** ** | **January 31,  2003** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                                                                                                                      | ** ** | **(Unaudited)**            | ** ** | **Restated  (Note 2)**     | ** ** |
| **ASSETS**                                                                                                                      |       |                       |       |                       |       |
| **Current assets:**                                                                                                             |       |                       |       |                       |       |
| Cash  and cash equivalents                                                                                                      |       | $                          | 165,851    |                       | $          | 168,596 |   |
| Accounts  receivable, less allowance for doubtful receivables of $4,587 and $4,093,  respectively                               |       | 194,108                    |       | 82,913                     |       |
| Inventories                                                                                                                     |       | 246,078                    |       | 187,935                    |       |
| Prepaid  and other                                                                                                              |       | 31,726                     |       | 23,044                     |       |
| Assets  held for sale                                                                                                           |       | —                     |       | 690                        |       |
| Deferred  income taxes                                                                                                          |       | 17,591                     |       | 14,297                     |       |
| Total  current assets                                                                                                           |       | 655,354                    |       | 477,475                    |       |
| **Property, plant and equipment, at cost:**                                                                                     |       |                       |       |                       |       |
| Less  accumulated depreciation of $219,869 and $178,397, respectively                                                           |       | 270,905                    |       | 244,798                    |       |
| **Other assets:**                                                                                                               |       |                       |       |                       |       |
| Investment                                                                                                                      |       | 3,440                      |       | 3,564                      |       |
| Excess  of cost over fair value of assets acquired                                                                              |       | 177,993                    |       | 113,534                    |       |
| Other  intangible assets, net of accumulated amortization of $1,050                                                             |       | 28,269                     |       | 4,219                      |       |
| Deposits  and other assets                                                                                                      |       | 12,674                     |       | 16,494                     |       |
|                                                                                                                            |       | 222,376                    |       | 137,811                    |       |
| Total  assets                                                                                                                   |       | $                          | 1,148,635  |                       | $          | 860,084 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                   |       |                       |       |                       |       |
| **Current liabilities:**                                                                                                        |       |                       |       |                       |       |
| Bank  lines of credit                                                                                                           |       | $                          | 45,826     |                       | $          | 7,377 |   |
| Current  maturities of long-term debt                                                                                           |       | 4,533                      |       | 4,037                      |       |
| Accounts  payable                                                                                                               |       | 67,682                     |       | 58,571                     |       |
| Accrued  expenses                                                                                                               |       | 96,321                     |       | 80,953                     |       |
| Dividend  payable                                                                                                               |       | 6,828                      |       | —                     |       |
| Income  taxes                                                                                                                   |       | 4,043                      |       | 2,477                      |       |
| Total  current liabilities                                                                                                      |       | 225,233                    |       | 153,415                    |       |
| **Deferred income taxes**                                                                                                       |       | 37,357                     |       | 20,810                     |       |
| **Long-term debt, less current maturities**                                                                                     |       | 311,047                    |       | 165,079                    |       |
| **Minority interest and other**                                                                                                 |       | 20,566                     |       | 12,928                     |       |
| **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 49,787,177  shares and 49,703,682 shares, respectively |       | 996                        |       | 994                        |       |
| Additional  contributed capital                                                                                                 |       | 103,367                    |       | 101,567                    |       |
| Retained  earnings                                                                                                              |       | 549,464                    |       | 496,627                    |       |
| Accumulated  other comprehensive income (loss)                                                                                  |       | 3,340                      |       | (4,751                     | )          |
| Treasury  stock, at cost, 4,255,300 shares and 3,644,100 shares, respectively                                                   |       | (102,735                   | )          | (86,585                    | )          |
| Total  stockholders’ equity                                                                                                |       | 554,432                    |       | 507,852                    |       |
| Total  liabilities and stockholders’ equity                                                                                |       | $                          | 1,148,635  |                       | $          | 860,084 |   |

 

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

 

4

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**BLYTH,INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF EARNINGS**

**(Unaudited)**

 
| **Nine months ended October 31****(In  thousands, except per share data)**                           | ** ** | **2003**   | ** ** | **2002**               | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|------------|------------|------------------------|------------|
| ** **                                                                                                | ** ** | ** ** | ** ** | **Restated  (Note 2)** | ** ** |
| Net  sales                                                                                                |       | $          | 1,019,160  |                   | $          | 908,098 |   |
| Cost  of goods sold                                                                                       |       | 526,274    |       | 453,271                |       |
| Gross  profit                                                                                             |       | 492,886    |       | 454,827                |       |
| Selling                                                                                                   |       | 283,698    |       | 252,958                |       |
| Administrative                                                                                            |       | 93,676     |       | 85,330                 |       |
| Restructuring  and impairment charges                                                                     |       | 767        |       | —                 |       |
|                                                                                                      |       | 378,141    |       | 338,288                |       |
| Operating  profit                                                                                         |       | 114,745    |       | 116,539                |       |
| Other  expense (income):                                                                                  |       |       |       |                   |       |
| Interest  expense                                                                                         |       | 11,795     |       | 11,146                 |       |
| Interest  income and other                                                                                |       | (1,250     | )          | (753                   | )          |
| Equity  in earnings of investee                                                                           |       | 141        |       | 120                    |       |
|                                                                                                      |       | 10,686     |       | 10,513                 |       |
| Earnings  before income taxes, minority interest and cumulative effect of change in  accounting principle |       | 104,059    |       | 106,026                |       |
| Income  tax expense                                                                                       |       | 38,292     |       | 39,442                 |       |
| Earnings  before minority interest and cumulative effect of change in accounting  principle               |       | 65,767     |       | 66,584                 |       |
| Minority  interest                                                                                        |       | (120       | )          | —                 |       |
| Cumulative  effect of change in accounting principle, net of tax of $2,887                                |       | —     |       | (31,753                | )          |
| Net  earnings                                                                                             |       | $          | 65,647     |                   | $          | 34,831 |   |
| Basic:                                                                                                    |       |       |       |                   |       |
| Earnings  per common share before cumulative effect of change in accounting principle                     |       | $          | 1.43       |                   | $          | 1.44 |   |
| Cumulative  effect of change in accounting principle                                                      |       | —     |       | (0.69                  | )          |
|                                                                                                      |       | $          | 1.43       |                   | $          | 0.75 |   |
| Weighted  average number of shares outstanding                                                            |       | 45,836     |       | 46,306                 |       |
| Diluted:                                                                                                  |       |       |       |                   |       |
| Earnings  per common share before cumulative effect of change in accounting principle                     |       | $          | 1.43       |                   | $          | 1.43 |   |
| Cumulative  effect of change in accounting principle                                                      |       | —     |       | (0.68                  | )          |
|                                                                                                      |       | $          | 1.43       |                   | $          | 0.75 |   |
| Weighted  average number of shares outstanding                                                            |       | 46,036     |       | 46,589                 |       |

 

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

 

5

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**BLYTH,INC. AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF EARNINGS**

**(Unaudited)**

 
| **Three months ended October 31,****(In  thousands, except per share data)** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-----------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Net  sales                                                                        |       | $        | 431,901    |     | $          | 362,181 |   |
| Cost  of goods sold                                                               |       | 234,963  |       | 189,694  |       |
| Gross  profit                                                                     |       | 196,938  |       | 172,487  |       |
| Selling                                                                           |       | 104,400  |       | 89,316   |       |
| Administrative                                                                    |       | 32,003   |       | 31,197   |       |
| Restructuring  and impairment charges                                             |       | 767      |       | —   |       |
|                                                                              |       | 137,170  |       | 120,513  |       |
| Operating  profit                                                                 |       | 59,768   |       | 51,974   |       |
| Other  expense (income):                                                          |       |     |       |     |       |
| Interest  expense                                                                 |       | 4,693    |       | 3,576    |       |
| Interest  income and other                                                        |       | 32       |       | (58      | )          |
| Equity  in loss of investee                                                       |       | (58      | )          | (70      | )          |
|                                                                              |       | 4,667    |       | 3,448    |       |
| Earnings  before income taxes and minority interest                               |       | 55,101   |       | 48,526   |       |
| Income  tax expense                                                               |       | 20,278   |       | 18,052   |       |
| Earnings  before minority interest                                                |       | 34,823   |       | 30,474   |       |
| Minority  interest                                                                |       | (49      | )          | —   |       |
| Net  earnings                                                                     |       | $        | 34,774     |     | $          | 30,474 |   |
| Basic:     Net earnings per common  share                     |       | $        | 0.76       |     | $          | 0.66 |   |
| Weighted  average number of shares outstanding                                    |       | 45,526   |       | 46,299   |       |
| Diluted:  Net earnings per common share                                      |       | $        | 0.76       |     | $          | 0.65 |   |
| Weighted  average number of shares outstanding                                    |       | 45,764   |       | 46,602   |       |

 

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

 

6

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**BLYTH, INC. AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ EQUITY**

**(Unaudited)****(In thousands, exceptshare data)**

 
| ** **                                                             | ** ** | ** **       | ** ** | ** ** | ** **             | ** **                           | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Accumulated  other  comprehensive  income (loss)** | ** ** | ** ** | ** ** |
|------------------------------------------------------------------------|------------|------------------|------------|------------|------------------------|--------------------------------------|--------------------|------------|------------|------------|------------|------------|------------|------------------------------------------------------|------------|------------|------------|
| ** **                                                             | ** ** | ** **       | ** ** | ** ** | ** **             | **Additional  contributed  capital** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                                           | ** ** | ** ** |
| ** **                                                             | ** ** | **Common stock** | ** ** | ** ** | **Retained  earnings** | ** **                           | **Treasury stock** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                             | ** ** | **Shares**       | ** ** | **Amount** | ** **             | ** **                           | ** **         | **Shares** | ** ** | **Amount** | ** ** | ** ** | **Total**  | ** **                                           |
| **For the nine months ended  October 31, 2002:**                  |       |             |       |       |                   |                                 |               |       |       |       |       |       |       |                                                 |       |       |       |
| Balance, January 31, 2002                                         |       | 49,509,776       |       | $          | 990                    |                                 | $                  | 97,879     |       | $          | 449,038    |       | (2,630,900 | )                                                    | $          | (62,950    | )          | $ | (16,894 | ) | $ | 468,063 |   |
| Net earnings for the period - Restated (Note  2)                       |       |             |       |       |                   |                                 |               | 34,831     |       |       |       |       |       |                                                 |       | 34,831     |       |
| Foreign currency translation adjustments - Restated (Note  2)          |       |             |       |       |                   |                                 |               |       |       |       |       |       |       | 6,182                                                |       | 6,182      |       |
| Unrealized holding losses on certain investments  (net of tax of $26)  |       |             |       |       |                   |                                 |               |       |       |       |       |       |       | (44                                                  | )          | (44        | )          |
| Net loss on cash flow hedging instruments (net of  tax of $303)        |       |             |       |       |                   |                                 |               |       |       |       |       |       |       | (512                                                 | )          | (512       | )          |
| Comprehensive income - Restated (Note 2)                               |       |             |       |       |                   |                                 |               |       |       |       |       |       |       |                                                 |       | 40,457     |       |
| Common stock issued in connection with exercise of  stock options      |       | 177,506          |       | 4          |                   | 2,987                                |               |       |       |       |       |       |       |                                                 |       | 2,991      |       |
| Tax benefit from stock options                                         |       |             |       |       |                   | 312                                  |               |       |       |       |       |       |       |                                                 |       | 312        |       |
| Dividends                                                              |       |             |       |       |                   |                                 |               | (10,184    | )          |       |       |       |       |                                                 |       | (10,184    | )          |
| Treasury stock purchases                                               |       |             |       |       |                   |                                 |               |       |       | (813,300   | )     | (18,604    | )          |                                                 |       | (18,604    | )          |
| Balance, October 31, 2002                                         |       | 49,687,282       |       | $          | 994                    |                                 | $                  | 101,178    |       | $          | 473,685    |       | (3,444,200 | )                                                    | $          | (81,554    | )          | $ | (11,268 | ) | $ | 483,035 |   |
| **For the nine months ended  October 31, 2003:**                  |       |             |       |       |                   |                                 |               |       |       |       |       |       |       |                                                 |       |       |       |
| Balance, January 31, 2003 - Restated (Note 2)                     |       | 49,703,682       |       | $          | 994                    |                                 | $                  | 101,567    |       | $          | 496,627    |       | (3,644,100 | )                                                    | $          | (86,585    | )          | $ | (4,751 | ) | $ | 507,852 |   |
| Net earnings for the period                                            |       |             |       |       |                   |                                 |               | 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 exercise of  stock options      |       | 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 |   |

 

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

 

7

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**BLYTH,INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| **Nine  months ended October 31, (In thousands)**                                  | ** ** | **2003**   | ** ** | **2002**               | ** ** |
|-----------------------------------------------------------------------------------------|------------|------------|------------|------------------------|------------|
| ** **                                                                              | ** ** | ** ** | ** ** | **Restated  (Note 2)** | ** ** |
| Cash  flows from operating activities:                                                  |       |       |       |                   |       |
| Net  earnings                                                                           |       | $          | 65,647     |                   | $          | 34,831 |   |
| Adjustments  to reconcile net earnings to net cash used in operating activities:        |       |       |       |                   |       |
| Cummulative  effect of change in accounting principle, net of tax                       |       | —     |       | 31,753                 |       |
| Depreciation  and amortization                                                          |       | 25,656     |       | 22,740                 |       |
| Loss  on fixed asset disposal                                                           |       | (190       | )          | —                 |       |
| Tax  benefit from stock options                                                         |       | 112        |       | 312                    |       |
| Deferred  income taxes                                                                  |       | (48        | )          | 2,386                  |       |
| Equity  in loss of investee                                                             |       | 141        |       | 120                    |       |
| Minority  interest                                                                      |       | 120        |       | —                 |       |
| Gain  on sales of long-term investment                                                  |       | (497       | )          | —                 |       |
| Changes  in operating assets and liabilities, net of effect of business acquisitions:   |       |       |       |                   |       |
| Accounts  receivable                                                                    |       | (103,316   | )          | (85,021                | )          |
| Inventories                                                                             |       | (22,246    | )          | (16,340                | )          |
| Prepaid  and other                                                                      |       | 517        |       | 4,279                  |       |
| Deposits  and other assets                                                              |       | (55        | )          | (826                   | )          |
| Accounts  payable                                                                       |       | (1,040     | )          | (4,873                 | )          |
| Accrued  expenses                                                                       |       | 9,625      |       | (9                     | )          |
| Other  liabilities                                                                      |       | 1,876      |       | 1,713                  |       |
| Income  taxes                                                                           |       | (2,501     | )          | (1,722                 | )          |
| Total  adjustments                                                                      |       | (91,846    | )          | (45,488                | )          |
| Net  cash used in operating activities                                                  |       | (26,199    | )          | (10,657                | )          |
| Cash  flows from investing activities:                                                  |       |       |       |                   |       |
| Purchases  of property, plant and equipment                                             |       | (15,847    | )          | (11,405                | )          |
| Purchases  of long-term investment                                                      |       | (1,377     | )          | —                 |       |
| Proceeds  from sales of long-term investment                                            |       | 1,874      |       | 26                     |       |
| Cash  impact of Wax Lyrical receivership                                                |       | 1,902      |       | —                 |       |
| Purchase  of businesses, net of cash acquired                                           |       | (94,809    | )          | (51,037                | )          |
| Net  cash used in investing activities                                                  |       | (108,257   | )          | (62,416                | )          |
| Cash  flows from financing activities:                                                  |       |       |       |                   |       |
| Proceeds  from issuance of common stock                                                 |       | 1,690      |       | 2,991                  |       |
| Purchases  of treasury stock                                                            |       | (16,150    | )          | (18,604                | )          |
| Borrowings  from bank line of credit                                                    |       | 60,147     |       | 68,071                 |       |
| Repayments  on bank line of credit                                                      |       | (32,552    | )          | (53,210                | )          |
| Borrowings  on long-term debt                                                           |       | 130,463    |       | 517                    |       |
| Repayments  on long-term debt                                                           |       | (4,131     | )          | (19,648                | )          |
| Dividends  paid                                                                         |       | (5,983     | )          | (5,098                 | )          |
| Net  cash provided by (used in) financing activities                                    |       | 133,484    |       | (24,981                | )          |
| Effect  of exchange rate charges on cash                                                |       | (1,773     | )          | —                 |       |
| Net  decrease in cash and cash equivalents                                              |       | (2,745     | )          | (98,054                | )          |
| Cash  and cash equivalents at beginning of period                                       |       | 168,596    |       | 135,357                |       |
| Cash  and cash equivalents at end of period                                             |       | $          | 165,851    |                   | $          | 37,303 |   |
| Cash  dividend declared, $0.15 per share 3rd quarter 2003  and $0.11 per share in 2002. |       | $          | 6,828      |                   | $          | 5,086 |   |

 

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

 

8

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**BLYTH, INC. ANDSUBSIDIARIES**

**NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS**

**(Unaudited)**

** **

**1.**             Basisof Presentation

 

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

 

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

 

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

 

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

 

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

** **

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

 

----

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

 

9

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The consolidatedfinancial statements include the accounts of the Company and its direct andindirect subsidiaries.  All significantintercompany accounts and transactions have been eliminated.  Investments in companies that are notmajority-owned or controlled are reported using the equity method and are recordedin investment.  Interest income and otherconsists of interest income earned from investments, foreign currency gains andlosses 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 toJanuary 31.  European operationsmaintain a calendar year accounting period, which is consolidated with theCompany’s fiscal period.  In the opinionof management, the accompanying unaudited consolidated financial statementsinclude all adjustments necessary for fair presentation of the Company’sconsolidated financial position at October 31, 2003 and the consolidatedresults of its operations and cash flows for the nine-month periods endedOctober 31, 2003 and 2002. These interim statements should be read inconjunction with the Company’s consolidated financial statements for the yearended January 31, 2003, as set forth in the Company’s Annual Report onForm 10-K.  Operating results for thenine months ended October 31, 2003 are not necessarily indicative of theresults that may be expected for the year ending January 31, 2004.

 

**Reclassifications**

 

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

 

**Employee Stock Options**

 

The Company haselected to adopt the disclosure only provisions of Statement of FinancialAccounting Standards (SFAS) No. 148, “Accounting for Stock-Based Compensation –Transition and Disclosure,” and continues to follow Accounting Principles Board(APB) opinion No. 25, “Accounting for Stock Issued to Employees” and 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 time,issue stock options below market value, therefore nocompensation expense has been recorded in the financial statements.  Had compensation expense for the Company’sstock options been determined in accordance with the fair value method in SFASNo. 123, “Accounting for Stock-Based Compensation” and SFAS No. 148, theCompany’s reported net income and earnings per share would have been adjustedto the pro forma amounts indicated below:

 
| ** **                                                                                                   | ** ** | **Three months ended October 31,** | ** ** | **Nine months ended October 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|
| **(In  thousands except per share data)**                                                                    | ** ** | **2003**                                | ** ** | **2002**                               | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                                                   | ** ** | ** **                              | ** ** | ** **                             | ** ** | ** ** | ** ** | **Restated  (Note 2)** | ** ** |
| Net  earnings:                                                                                               |       |                                    |       |                                   |       |   |   |   |   |
| As  reported                                                                                                 |       | $                                       | 34,774     |                                   | $          | 30,474 |   | $ | 65,647 |   | $ | 34,831 |   |
| Stock-based  employee compensation expense determined under SFAS No. 123 for all awards,  net of related tax |       | 645                                     |       | 652                                    |       | 1,962 |   | 1,727 |   |
| Pro  forma                                                                                                   |       | $                                       | 34,129     |                                   | $          | 29,822 |   | $ | 63,685 |   | $ | 33,104 |   |
| Net  earnings per common share:                                                                              |       |                                    |       |                                   |       |   |   |   |   |
| As  reported:                                                                                                |       |                                    |       |                                   |       |   |   |   |   |
| Basic                                                                                                        |       | $                                       | 0.76       |                                   | $          | 0.66 |   | $ | 1.43 |   | $ | 0.75 |   |
| Diluted                                                                                                      |       | 0.76                                    |       | 0.65                                   |       | 1.43 |   | 0.75 |   |
| Pro  forma:                                                                                                  |       |                                    |       |                                   |       |   |   |   |   |
| Basic                                                                                                        |       | $                                       | 0.75       |                                   | $          | 0.64 |   | $ | 1.39 |   | $ | 0.71 |   |
| Diluted                                                                                                      |       | 0.72                                    |       | 0.62                                   |       | 1.34 |   | 0.68 |   |

** **

**10**

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** **

**2.****             Restatement**

 

**Prior to January 31, 2004, the Company reported itsfinancial results in two reporting segments, the Candles & Home Fragrancesegment and the Creative Expressions segment. The Company reevaluated its operating segments based on the applicationof FASB Statement No. 131, “Disclosures about Segments of an Enterprise andRelated Information” (“SFAS 131”), and determined that the appropriate numberof reportable segments should have been five during fiscal 2004 and four duringfiscal 2003 and 2002 (The increase in segments in fiscal 2004 was due to theacquisitions that were consummated in fiscal 2004.)  See Note 9 for further details.   This revision of segments had the relatedeffect of requiring changes in the Company’s reporting units for purposes ofgoodwill impairment reviews under SFAS 142, retroactive to the February 1,2002 adoption date of SFAS 142.  This**resultedin the need to perform impairment reviews of several additional reporting unitsas of February 1, 2002 and each subsequent year-end balance sheet date,thereafter.  These impairment reviewshave indicated the need to record additional impairment charges as of theFebruary 1, 2002 adoption of SFAS 142, specifically to write-off $20.9million in goodwill associated with the 1999 acquisition of the Gies Group and$6.3 million in goodwill associated with the 1999 acquisition of the ColonyGroup.  Both of these businesses arecomponents of the Wholesale Home Fragrance Segment.  The Company’s fiscal 2003 financialstatements have been restated to reflect the recording of these $27.2 millionin goodwill impairment charges as part of the cumulative effect of adoptingSFAS 142 as of February 1, 2002. There was no income tax impact for these impairment charges.

 

**A summary of the effects of the restatement on theCompany’s financial statements is as follows:**

 
| ** **                                              | ** ** | **Nine months ended October 31, 2002** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                              | ** ** | **As Previously  Reported**                 | ** ** | **As Restated** | ** ** |
| **Statement of Earnings:**                              |       |                                        |       |   |   |
| Earnings  before cumulative effect of accounting change |       | $                                           | 66,584     |   | $ | 66,584 |   |
| Cumulative  effect of accounting change                 |       | (4,515                                      | )          | (31,753 | ) |
| Net  earnings                                           |       | $                                           | 62,069     |   | $ | 34,831 |   |
| Basic  earnings per share:                              |       |                                        |       |   |   |
| Before  cumulative effect of accounting change          |       | $                                           | 1.44       |   | $ | 1.44 |   |
| Cumulative  effect of accounting change                 |       | (0.10                                       | )          | (0.69 | ) |
|                                                    |       | $                                           | 1.34       |   | $ | 0.75 |   |
| Diluted  earnings per share:                            |       |                                        |       |   |   |
| Before  cumulative effect of accounting change          |       | $                                           | 1.43       |   | $ | 1.43 |   |
| Cumulative  effect of accounting change                 |       | (0.10                                       | )          | (0.68 | ) |
|                                                    |       | $                                           | 1.33       |   | $ | 0.75 |   |
| **Statement of Stockholders’ Equity**              |       |                                        |       |   |   |
| Foreign  currency translation adjustments               |       | $                                           | 8,949      |   | $ | 6,182 |   |
| Comprehensive  income                                   |       | 70,462                                      |       | 40,457 |   |

 

**3.**             NewAccounting Pronouncements

 

InJanuary 2003, the Financial Accounting Standards Board (FASB) issuedFinancial Interpretation No. 46 (FIN 46), “Consolidation of Variable InterestEntities.  FIN 46 clarifies theapplication of Accounting Research Bulletin No. 51, “Consolidated FinancialStatements.”  The interpretation wasimmediately applicable to variable interest entities (“VIEs”) created afterJanuary 31, 2003, and to VIEs in which an enterprise obtains an interestafter that date.  As originally issued,it applied in the fiscal year or interim period beginning after June

** **

**11**

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** **

15, 2003, for VIEsin which an enterprise acquired a variable interest prior to February 1,2003.  In October 2003, the FASBissued FASB Staff Position No. 46-6, which defers the effective date for FIN 46to the first interim or annual period ending after December 15, 2003 forVIEs created before February 1, 2003. FIN 46 requires consolidation of entities in which the Company absorbs amajority of the entity’s expected losses, receives a majority of the entity’sexpected residual returns, or both, as a result of ownership, contractual orother financial interests in the entity. Currently, entities are consolidated when the Company has a controllingfinancial interest through ownership of a majority voting interest in anentity.  The implementation of thisstandard is not expected to have a material impact on our financial statements.

 

InApril 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 onDerivative Instruments and Hedging Activities.” This statement amends and clarifies financial accounting and reportingfor derivative instruments, including certain derivative instruments embeddedin other contracts (collectively referred to as derivatives) and for hedgingactivities under FASB Statement No. 133, “Accounting for Derivative Instrumentsand Hedging Activities.”  This standardis effective for derivative contracts entered into or modified afterJune 30, 2003.  The implementationof this standard had no impact on our financial statements.

 

In May 2003, theFASB issued SFAS No. 150, “Accounting for Certain Financial Instruments withCharacteristics of Both Liabilities and Equity.”  As originally issued, SFAS 150 is effectivefor mandatorily redeemable financial instruments of public entities entered intoor modified after May 31, 2003, and for all other instruments for interimperiods beginning after June 15, 2003. In November 2003, the FASB issued FASB Staff Position No. 150-3,“Effective Date, Disclosures, and Transition for Mandatorily Redeemable FinancialInstruments of Certain Nonpublic Entities and Certain Mandatorily RedeemableNoncontrolling Interests under FASB Statement No. 150”, which defersindefinitely the classification and measurement provisions for certainmandatorily redeemable noncontrolling interests associated with finite-livedsubsidiaries pending further FASB action. For other mandatorily redeemable noncontrolling interests that wereissued before November 5, 2003, only the measurement provisions of SFAS150 are deferred indefinitely, both for the parent in consolidated financialstatements and for the subsidiary that issued the instruments that result inthe mandatorily redeemable noncontrolling interest, pending further FASBaction.  The original implementation ofSFAS 150 had no impact on our financial statements and we do not expect thedeferral provisions of FSP FAS 150-3 to have a significant impact on ourfinancial statements.

 

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

 

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

 

In June 2001,the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets.”  Under SFAS No. 142, goodwill and any otherintangibles deemed to have indefinite lives are no longer subject to amortization;however, goodwill is subject to an assessment for impairment using a two-stepfair value-based test and such other intangibles are also subject to impairmentreviews, which must be performed at least annually, or more frequently ifevents or circumstances indicate that goodwill or other indefinite livedintangibles might be impaired. The Company performs its annual assessment ofimpairment in the fourth fiscal quarter. For goodwill the first step compares the fair value of a reporting unitto its carrying amount, including goodwill. If the carrying amount of thereporting unit exceeds its fair value, the second step is performed. The secondstep compares the carrying amount of the goodwill to the fair value of thegoodwill.  If fair value is less than thecarrying amount, an impairment loss is reported as a reduction to the asset anda charge to operating expense, except at the transition date, when the loss wasreflected as a cumulative effect of a change in accounting principle.

** **

**12**

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** **

As ofJanuary 31, 2002, Blyth’s Consolidated Balance Sheets reflectedapproximately $108.1 million in goodwill net of accumulated amortization,including $27.2 million related to the Wholesale Home Fragrance segmentbusinesses, $42.2 million related to the All Other segment and $38.7 millionrelated to the Wholesale Creative Expressions segment businesses. The Companyadopted SFAS 142, effective February 1, 2002. In accordance with the newstandard, Blyth ceased amortization of goodwill and performed an assessment forimpairment of its goodwill. As a result of the impairment review, Blyth reducedthe carrying value of the goodwill related to its 1997 acquisition of theSternoâ brand by $7.4 million, which is includedin the All Other segment.  In addition, arecent revision of its operating and reporting segments by the Company (SeeNote 2), required changes in the Company’s reporting units for purposes ofgoodwill impairment reviews under SFAS 142, retroactive to the February 1,2002 adoption date of SFAS 142.  Thisresulted in the need to perform impairment reviews of several additionalreporting units as of February 1, 2002 and each subsequent year-endbalance sheet date thereafter.  Theseimpairment reviews have indicated the need to record additional impairmentcharges as of the February 1, 2002 adoption of SFAS 142, specifically towrite-off $20.9 million in goodwill associated with the 1999 acquisition of theGies Group and $6.3 million in goodwill associated with the 1999 acquisition ofthe Colony Group.  Both of thesebusinesses are components of the Wholesale Home Fragrance Segment, and theimpairment charges reduced goodwill in that segment to zero at February 1,2002.  The fair values of the SternoGroup, the Gies Group and the Colony Group were determined through independentvaluations utilizing market-comparable analysis, as well as discounted cashflow models reflecting the expected range of future cash flow outcomesover the life of the models. These cash flows were discounted toFebruary 1, 2002 using a risk-adjusted discount rate.  The impairment of the Sterno Group’s goodwill, which wasrecorded as a cumulative effect of a change in accounting principle, had theeffect of reducing net income by $4.5 million (after tax) or $0.10 pershare.  The impairments of the Gies Groupand Colony Group goodwill, which were not deductible for tax purposes, were,via restatement of the fiscal 2003 financial statements, also recorded as a cumulativeeffect of change in accounting principle, and had the effect of reducing netincome by $27.2 million or $0.58 per share.

 

**5.**             BusinessAcquisitions

 

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

 

On April 1,2003, the Company acquired 100% of the Miles Kimball Company (“MK”), a directmarketer of gifts, home décor and household convenience items, premium photoalbums, frames and holiday cards under the Miles Kimball® and Exposures®catalog titles for approximately $66.2 million in cash.  The excess of the purchase price over theestimated fair value of the net assets acquired approximated $46.0 million,which will not be deductible for income tax purposes.  The other intangibles acquired consist of$16.1 million of trade names and trademarks, which are deemed to have anindefinite life and will not be amortized, plus $9.0 million of customer lists,which will be amortized on an accelerated basis over 12 years.  Amortization expense was $0.45 million forthe three months ended October 31, 2003 and $1.05 million for the ninemonths ended October 31, 2003. Estimated amortization expense for the next 5 fiscal years is asfollows:  $1.5 million, $1.5 million,$1.2 million, $0.9 million and $0.9 million. The results of operations of MK are included in the ConsolidatedStatements of Earnings of the Company since April 2, 2003.  For segment reporting purposes, MK isincluded in the Catalog & Internet segment.

 

13

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** **

The following providesan allocation of the purchase price of Miles Kimball (in thousands):

 
| Cash  Purchase Price                   |   | $      | 66,219 |   |
|----------------------------------------|--------|--------|--------|--------|
| Less:  Assets acquired            |   |   |   |
| Accounts  receivable                   |   | 1,124  |   |
| Inventories                            |   | 9,983  |   |
| Property,  plant and equipment         |   | 17,959 |   |
| Intangible  assets                     |   | 25,100 |   |
| Other                                  |   | 1,706  |   |
| Total  assets acquired                 |   | 55,872 |   |
| Plus:  Liabilities assumed        |   |   |   |
| Accounts  payable                      |   | 3,610  |   |
| Accrued  expenses                      |   | 1,783  |   |
| Deferred  income taxes                 |   | 11,155 |   |
| Debt                                   |   | 10,729 |   |
| Other                                  |   | 8,412  |   |
| Total  liabilities assumed             |   | 35,689 |   |
| Unallocated  purchase price (goodwill) |   | $      | 46,036 |   |

 

On June 20,2003, the Company acquired a 100% interest in Kaemingk B.V. (“Kaemingk”), adesigner and marketer of a wide range of premium seasonal decorations.Kaemingk’s product lines feature Christmas décor, including ornaments,lighting, trim, glassware, candles and plush animals, as well as spring andsummer decorative accents and tabletop products.  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 acquiredapproximated $17.9 million, which will not be deductible for income taxpurposes.  During the quarter endedOctober 31, 2003, an adjustment was recorded to reflect the final appraisedvalue of the acquired property, plant and equipment.  In addition to the fixed purchase price,there is contingent consideration payable in the form of a three-year earn outprovision based on a pre-defined formula related to a multiple of earningsbefore interest and income taxes.  Theresults of operations of Kaemingk are included in the Consolidated Statementsof Earnings of the Company since June 21, 2003.  For segment reporting purposes, Kaemingk isincluded in the Wholesale Home Fragrance segment.

 

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

 
| Cash  Purchase Price                   |   | $      | 36,237 |   |
|----------------------------------------|--------|--------|--------|--------|
| Less:  Assets acquired            |   |   |   |
| Cash  and cash equivalents             |   | 7,681  |   |
| Accounts  receivable                   |   | 2,106  |   |
| Inventories                            |   | 25,514 |   |
| Property,  plant and equipment         |   | 14,647 |   |
| Other                                  |   | 606    |   |
| Total  assets acquired                 |   | 50,554 |   |
| Plus:  Liabilities assumed        |   |   |   |
| Bank  lines of credit                  |   | 9,335  |   |
| Accounts  payable                      |   | 2,479  |   |
| Accrued  expenses                      |   | 2,079  |   |
| Deferred  income taxes                 |   | 2,786  |   |
| Debt                                   |   | 14,364 |   |
| Other                                  |   | 1,143  |   |
| Total  liabilities assumed             |   | 32,186 |   |
| Unallocated  purchase price (goodwill) |   | $      | 17,869 |   |

 

14

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The followingunaudited pro forma financial information summarizes the estimated combinedresults of operations of the Company, CBK, MK and Kaemingk assuming that theacquisitions of CBK, MK and Kaemingk had taken place on February 1,2002.  The unaudited pro forma combinedresults of operations were prepared on the basis of information provided to theCompany by the former management of CBK, MK and Kaemingk and no representationis made by the Company with respect to the accuracy of such information.  The pro forma combined results of operationsreflect adjustments for interest income, additional depreciation based on the fairmarket value of CBK’s and MK’s property, plant, and equipment, amortization ofidentifiable intangibles of MK and income tax expense.

 
| ** **                                                                                 | ** ** | **Three months ended October 31,** | ** ** | **Nine months ended October 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|
| **(In  thousands except per share data)**                                                  | ** ** | **2003**                                | ** ** | **2002**                               | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                                 | ** ** | ** **                              | ** ** | ** **                             | ** ** | ** ** | ** ** | **Restated  (Note 2)** | ** ** |
| Net  sales                                                                                 |       | $                                       | 431,901    |                                   | $          | 434,767 |   | $ | 1,042,212 |   | $ | 1,049,548 |   |
| Earnings  before cumulative effect of change in accounting principle                       |       | 34,774                                  |       | 37,817                                 |       | 63,336 |   | 72,138 |   |
| Net  earnings                                                                              |       | 34,774                                  |       | 37,817                                 |       | 63,336 |   | 40,385 |   |
| Basic:                                                                                     |       |                                    |       |                                   |       |   |   |   |   |
| Earnings  per common share before the cumulative effect of change in accounting  principle |       | $                                       | 0.76       |                                   | $          | 0.82 |   | $ | 1.38 |   | $ | 1.56 |   |
| Net  earnings per common share                                                             |       | 0.76                                    |       | 0.82                                   |       | 1.38 |   | 0.87 |   |
| Diluted:                                                                                   |       |                                    |       |                                   |       |   |   |   |   |
| Earnings  per common share before the cumulative effect of change in accounting  principle |       | $                                       | 0.76       |                                   | $          | 0.81 |   | $ | 1.38 |   | $ | 1.55 |   |
| Net  earnings per common share                                                             |       | 0.76                                    |       | 0.81                                   |       | 1.38 |   | 0.87 |   |

 

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

 

At October 31, 2003, the Company had a total of $178.0 million ofexcess of cost over fair value of assets acquired  (“goodwill”) on its balance sheetcompared to $113.5 million at January 31, 2003.  Goodwill attributable to the Wholesale HomeFragrance segment at October 31, 2003 was $18.5 million as a result of theacquisition of Kaemingk in June 2003. Goodwill attributable to the Wholesale Creative Expressions segment atOctober 31, 2003 was $78.7 million, unchanged from January 31,2003.   Goodwill attributable to theCatalog & Internet segment at October 31, 2003 was $46.0 million, as aresult of the April 2003 acquisition of Miles Kimball.  Goodwill in the All Other segment atOctober 31, 2003 was unchanged from January 31, 2003 at $34.8million.

 

**6.**             Inventories

 

The components ofinventory consist of the following (in thousands):
| ** **        | ** ** | **October 31, 2003** | ** ** | **January 31, 2003** | ** ** |
|-------------------|------------|---------------------------|------------|---------------------------|------------|
| Raw  materials    |       | $                         | 25,487     |                      | $          | 33,950 |   |
| Work  in procress |       | 2,798                     |       | 2,509                     |       |
| Finished  goods   |       | 217,793                   |       | 151,476                   |       |
|              |       | $                         | 246,078    |                      | $          | 187,935 |   |

** **

**15**

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** **

**7.**             Earnings per Share

 

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

 
| ** **                                             | ** ** | **Three months ended October 31,** | ** ** | **Nine months ended October 31,** | ** ** |
|--------------------------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|
| ** **                                             | ** ** | **2003**                                | ** ** | **2002**                               | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                             | ** ** | ** **                              | ** ** | ** **                             | ** ** | ** ** | ** ** | **Restated  (Note 2)** | ** ** |
| Net  earnings                                          |       | $                                       | 34,774     |                                   | $          | 30,474 |   | $ | 65,647 |   | $ | 34,831 |   |
| Weighted  average number of common shares outstanding: |       |                                    |       |                                   |       |   |   |   |   |
| Basic                                                  |       | 45,526                                  |       | 46,299                                 |       | 45,836 |   | 46,306 |   |
| Dilutive  effect of stock options                      |       | 238                                     |       | 303                                    |       | 200 |   | 283 |   |
| Weighted  average number of common shares outstanding: |       |                                    |       |                                   |       |   |   |   |   |
| Diluted                                                |       | 45,764                                  |       | 46,602                                 |       | 46,036 |   | 46,589 |   |
|                                                        |            |                                         |            |                                        |            |  |  |  |  |  |  |  |  |

 

As ofOctober 31, 2003 and 2002, options to purchase 51,291 and 38,313 shares ofcommon stock, respectively, are not included in the computation of earnings pershare because the effect would be antidilutive.

** **

**8.**             Restructuringand Impairment Charges

 

AtJanuary 31, 2003, the Company had approximately $0.4 million ofrestructuring changes related to lease obligations included in the ConsolidatedBalance Sheet.  As a result of paymentsmade during the nine month period ended October 31, 2003, the leaseobligations have been satisfied in full as of the end of the third quarter offiscal 2004.

 

OnSeptember 30, 2003, the Company announced its decision to close itsHyannis, Massachusetts candle manufacturing facility.  This closure was the final phase of thewind-down of the Hyannis operation, and is consistent with the Company’songoing attempts to rationalize its operations. The Company was able to move the production associated with the Hyannisfacility to another existing facility, and expects to incur lower operatingcosts in the Candles & Home Fragrance segment as a result of theclosure.   The shutdown of this facilityis expected to be complete in the fourth quarter of fiscal 2004.  In conjunction with the closing, the Companyeliminated 43 jobs, comprised of manufacturing and management positions.

 

During the threemonths ended October 31, 2003, $0.8 million of costs were incurred relatedto the Hyannis plant closure including $0.6 million of severance and relatedcosts and $0.2 million of equipment impairment charges.  The Company expects additional charges in thefourth quarter of  $0.04to $0.06 per share, related primarily to the impairment of equipment.

 

The following is a tabular roll forward of the restructuring and impairment chargesdescribed above that were recorded in the balance sheet of the Company:

 
| **(In  thousands)**                 | ** ** | **Lease  Obligations** | ** ** | **Severence  Costs** | ** ** | **Total** | ** ** |
|-------------------------------------|------------|------------------------|------------|----------------------|------------|-----------|------------|
|                                |       |                   |       |                 |       |      |       |
| Balance  at January 31, 2003   |       | $                      | 405        |                 | $          | —    |       | $ | 405 |   |
| Payments  made against 2002 charges |       | (405                   | )          |                 |       | (405      | )          |
| Charges  recorded in third quarter  |       | —                 |       | 580                  |       | 580       |       |
| Balance  at October 31, 2003   |       | $                      | —     |                 | $          | 580       |       | $ | 580 |   |

 

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**9.**             SegmentInformation

 

Blyth is a globalcompetitor in the gift and decorative accessories market, which the Companycalls the home expressions industry. Within this category, the Company reports its financial results in fivesegments – the Direct Selling segment, the Wholesale Home Fragrance segment,the Wholesale Creative Expressions segment, the Catalog & Internet segment,and the All Other segment.  MilesKimball, acquired in April 2003 and Walter Drake, acquired inDecember 2003, are included in the Catalog & Internet segment.  Kaemingk, acquired in June 2003, isincluded in the Wholesale Home Fragrance segment.  Prior to January 31, 2004, the Companyreported its financial results in two reporting segments, the Candles &Home Fragrance segment and the Creative Expressions segment.  The Company reevaluated its operating segmentsbased on the application of FASB Statement No. 131, “Disclosures about Segmentsof an Enterprise and Related Information,” and determined that the appropriatenumber of reportable segments should have been five in fiscal 2004 and four infiscal 2003 and 2002 (The increase in segments in fiscal 2004 was due to theacquisitions that were consummated in fiscal 2004.)  The Company’s financial statement footnoteshave been restated to reflect the revised segments.  The Company’s reportable and operating segmentsare based on financial information regularly evaluated by the chief operatingdecision maker in determining resource allocation and assessingperformance.  Revenues are not reportedby product or group of similar products, as it is impractical to do so.  The Company has operations outside of theUnited States and sells products in the Direct Selling and Wholesale HomeFragrance segments worldwide.  Themajority of sales in the Wholesale Creative Expressions, Catalog & Internetand All Other segments are domestically based.

 

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

 

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

 

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

 

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

 

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

** **

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

** **

**17**

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** **

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

 
| ** **                                                                                                   | ** ** | **Three months ended October 31,** | ** ** | **Nine months ended October 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|
| **(In  thousands)**                                                                                          | ** ** | **2003**                                | ** ** | **2002**                               | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Net Sales**                                                                                                |       |                                    |       |                                   |       |   |   |   |   |
| Direct  Selling                                                                                              |       | $                                       | 172,470    |                                   | $          | 164,329 |   | $ | 506,928 |   | $ | 486,330 |   |
| Wholesale  Home Fragrance                                                                                    |       | 128,227                                 |       | 89,440                                 |       | 244,987 |   | 209,311 |   |
| Wholesale  Creative Expressions                                                                              |       | 83,082                                  |       | 94,276                                 |       | 170,578 |   | 170,578 |   |
| Catalog  & Internet                                                                                      |       | 34,511                                  |       | —                                 |       | 58,046 |   | — |   |
| All  Other                                                                                                   |       | 13,611                                  |       | 14,136                                 |       | 38,621 |   | 41,879 |   |
| **Total**                                                                                                    |       | $                                       | 431,901    |                                   | $          | 362,181 |   | $ | 1,019,160 |   | $ | 908,098 |   |
| **Earnings**                                                                                                 |       |                                    |       |                                   |       |   |   |   |   |
| Direct  Selling                                                                                              |       | $                                       | 29,720     |                                   | $          | 31,656 |   | $ | 93,188 |   | $ | 100,300 |   |
| Wholesale  Home Fragrance                                                                                    |       | 12,790                                  |       | (343                                   | )          | 2,274 |   | (15,003 | ) |
| Wholesale  Creative Expressions                                                                              |       | 15,201                                  |       | 19,593                                 |       | 20,469 |   | 28,069 |   |
| Catalog  & Internet                                                                                      |       | 2,204                                   |       | —                                 |       | (194 | ) | — |   |
| All  Other                                                                                                   |       | (147                                    | )          | 1,068                                  |       | (992 | ) | 3,173 |   |
|                                                                                                         |       | 59,768                                  |       | 51,974                                 |       | 114,745 |   | 116,539 |   |
| Other  expense                                                                                               |       | (4,667                                  | )          | (3,448                                 | )          | (10,686 | ) | (10,513 | ) |
| **Earnings before income taxes, minority interest and  cumulative effect of change in accounting principle** |       | $                                       | 55,101     |                                   | $          | 48,526 |   | $ | 104,059 |   | $ | 106,026 |   |

 
| ** **                      | ** ** | **October 31, 2003** | ** ** | **January 31, 2003** | ** ** |
|---------------------------------|------------|---------------------------|------------|---------------------------|------------|
| ** **                      | ** ** | ** **                | ** ** | **Restated (note 2)**     | ** ** |
| **Identifiable Assets**         | ** ** | ** **                | ** ** | ** **                | ** ** |
| Direct  Selling                 |       | $                         | 275,256    |                      | $          | 246,607 |   |
| Wholesale  Home Fragrance       |       | 361,168                   |       | 238,829                   |       |
| Wholesale  Creative Expressions |       | 208,219                   |       | 174,827                   |       |
| Catalog  & Internet         |       | 113,654                   |       | —                    |       |
| All  Other                      |       | 63,135                    |       | 61,816                    |       |
| Unallocated  Corporate          |       | 127,203                   |       | 138,005                   |       |
| **Total**                       |       | $                         | 1,148,635  |                      | $          | 860,084 |   |

** **

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**10.**          Contingencies

 

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

 

On June 2,2003, the parties agreed in open court to settle and resolve all mattersinvolving or in any way relating to the previously reported legal proceedingsby and between the Company and its wholly-owned subsidiary, Endar Corp., on theone hand, and Ennio Racinelli, Darlene Racinelli and others, on the other hand,by means of a written settlement and release agreement, without any payment byany party.  On August 25, 2003, thecase was dismissed by the Riverside Superior Court.

 

**11.**          Debt

 

AtOctober 31, 2003, Miles Kimball had approximately $10.4 million oflong-term debt outstanding under a real estate mortgage note payable to JohnHancock Life Insurance Company, which matures June 1, 2020.  Under the terms of the note, payments ofprincipal and interest are required monthly at a fixed interest rate of 7.89%.

 

As ofSeptember 30, 2003, Kaemingk had available lines of credit ofapproximately $39.4 million maturing in March 2004.  The lines of credit are collateralized bycertain real estate and equipment owned by Kaemingk.  At September 30, 2003, approximately$10.6 million was outstanding at a weighted average interest rate of 3.38%.

 

AtSeptember 30, 2003, Kaemingk had approximately $14.2 million of long-termdebt outstanding under seven loans with ING Bank N.V.at a weighted average interest rate of 4.9%. The bank loans have maturity dates ranging from 2005 through 2021.  The loans are collateralized by certain realestate and equipment owned by Kaemingk.

 

In May 1999, theCompany filed a shelf registration statement for issuance of up to $250.0million in debt securities with the Securities and Exchange Commission.  On September 24, 1999, the Companyissued $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.  AtOctober 31, 2003, the Company was in compliance with such provisions.  Interest is payable semi-annually onApril 1 and October 1.  OnOctober 20, 2003, the Company issued $100.0 million, 5.50% Senior Notesdue on November 1, 2013 at a discount of approximately $0.2 million, whichis being amortized over the life of the notes. Such notes contain provisions and restrictions similar to those in the7.9% Senior Notes.  At October 31,2003, the Company was in compliance with such covenants.  Interest on the notes will accrue fromOctober 23, 2003 and will be payable semiannually in arrears on May 1 andNovember 1 of each year, commencing May 1, 2004.  The notes may be redeemed in whole or in partat any time at a specified redemption price. The proceeds of the debt issuance will be used for general corporatepurposes, which may include repayment of certain debt.

 

**12.**          FireLoss

 

In July 2003,the Company’s manufacturing facility located in Monterrey, Mexico was destroyedby fire.  Products manufactured at thisleased facility were primarily for the North American mass market.  Customer service disruptions were minimal asother Company facilities and third party suppliers met the productionrequirements and are expected to meet production requirements for the immediatefuture and therefore, the Company has decided not to rebuild the Monterreyfacility.  The loss of fixed assets andinventory totaled approximately $8.0 million. The Company incurred additional costs of $1.3 million in the quarterended October 31, 2003, primarily for the additional production costs ofmanufacturing product at different facilities.  Some of these costs remain in ending inventory at October 31,2003.   The cumulative charges related tothe fire amount to $1.9 million for the year. The Company is insured for losses related to this fire.

** **

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**13.**          401(k)and Profit Sharing Plan

 

During the thirdquarter, the Company became aware of an issue involving its 401(k) and profitsharing plan.  This issue arose effectiveApril 1, 2002 when the Company amended the plan to allow participants todirect voluntary contributions to be invested in the Company’s common stock,and to permit other investments in the plan to be transferred into theCompany’s common stock.  These amendmentsmay have caused the continued operation of the plan since April 1, 2002 tobe deemed to be an offering of securities that should have been registeredunder the Securities Act of 1933  (the“1933 Act”).  If interests should havebeen registered, the failure of the Company to register interests in the planmay entitle participants to remedies under the 1933 Act, including rescissionor damages.  The Company has ceasedallowing participants to make new investments in Company common stock.  The Company is also investigating itsobligations to undertake any curative action, which may be required under theapplicable securities laws, the Internal Revenue Code and ERISA.  While the Company cannot predict the possibleeffect of federal or state remedial action, the Company does not believe thatremediation of its possible failure to register the interests in the plan willhave a material adverse effect on the Company’s financial position or resultsof operations.

 

**14.**          Terminationof Interest Rate Swap

 

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

 

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

 

**RESULTS OF OPERATIONS:**

 

**Net Sales**

 

Net sales increased$111.1 million or 12.2% to $1,019.2 million in the first nine months of fiscal2004 from $908.1 million in the first nine months of fiscal 2003.  Net sales in the quarter endedOctober 31, 2003 increased $69.7 million or 19.3% to $431.9 millioncompared with $362.2 million a year earlier. There were three primary factors that affected net sales in the thirdquarter.  First, the inclusion of salesfrom the acquisitions of Miles Kimball in April 2003 and Kaemingk inJune 2003 had a favorable impact, which was partially offset by theexclusion of sales from Wax Lyrical, which was closed inDecember 2002.  Second, thecontinued uncertainty in the US and European economies and the resultingcautious ordering by retailers had a negative impact on sales.  Third, the favorable impact of foreigncurrency exchange rates compared to the US Dollar had a positive impact on thereported sales.  International salesaccounted for 28% of total sales for the quarter ended October 31, 2003compared to 19% for the same period a year earlier.  This increase is primarily a result of theacquisition of Kaemingk in Europe.

 

Net sales in the Direct Selling segment increased $8.2 million, or5.0%, to $172.5 million in the quarter ended October 31, 2003, comparedwith $164.3 million in the same period last year. PartyLite Worldwide net salesin the third quarter benefited from favorable foreign exchange effects onEuropean sales.

 

Net sales in theWholesale Home Fragrance segment increased $38.8 million, or 43.4%, to $128.2million in the quarter ended October 31, 2003, compared to $89.4 millionin the same period in the prior year. Such increase in net sales wasattributable to the inclusion of sales of Kaemingk acquired in June 2003.Offsetting this increase was a decrease in net sales in Blyth’s other wholesalebusinesses in this segment in the quarter ended October 31, 2003 comparedwith the prior year period.

 

Net sales in the Wholesale Creative Expressions segment decreased $11.2million, or 11.9%, to $83.1 million in the quarter ended October 31, 2003,compared with $94.3 million in the same period last year.  This decrease is attributable to wholesalers’caution in placing orders given the uncertain retail environment.

 

Net Sales in the Catalog & Internet segment represented by MilesKimball, acquired in April 2003, reported sales of $34.5 million.  This segment did not exist in the prior yearperiod.

 

Net sales in the All Other segment at $13.6 million were essentiallyeven with the same period a year earlier as the hospitality and travelindustries continue to struggle.

 

**Gross Profit**

 

Grossprofit increased $38.1 million or 8.4% from $454.8 million in the first ninemonths of fiscal 2003 to $492.9 million in the first nine months of 2004.  Gross profit margin decreased from 50.1% forthe first nine months of 2003 to 48.4% for the first nine months of 2004.  Gross profit in the quarter endedOctober 31, 2003 increased $24.5 million or 14.2% from $172.5 million forthe quarter ended October 31, 2002 to $196.9 million for the quarter endedOctober 31, 2003.  Gross profitmargin decreased from 47.6% for the quarter ended October 31, 2002 to45.6% for the quarter ended October 31, 2003.  The decrease in gross profit margin islargely attributable to the addition of Kaemingk, which has a lower grossmargin than the overall Company average. Further contributing to the decline was the shift in the sales among thebusinesses.

 

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** **

**Selling Expense**

 

Selling expense increased $30.7 million, or 12.2%, from $253.0 millionin the first nine months of fiscal 2003, when selling expense was 27.9% of netsales, to $283.7 million in the first nine months of fiscal 2004, or 27.8% ofnet sales.  Selling expense increased$15.1 million, or 16.9%, from $89.3 million in the quarter endedOctober 31, 2002 to $104.4 million in the quarter ended October 31,2003.  As a percent of sales, sellingexpense was 24.2% in the third quarter of fiscal 2004 compared to 24.7% a yearearlier.  The increase in sellingexpenses quarter over quarter is attributable to the addition of Miles Kimballand Kaemingk.  The reduction in sellingexpenses as a percentage of net sales reflects the impact of the businessmodels of the recently acquired companies, which have lower selling expensesthan the overall Company average.

 

**Administrative Expense**

 

Administrative expense increased $8.3 million, or 9.8%, from $85.3million in the first nine months of fiscal 2003 to $93.7 million in the firstnine months of fiscal 2004. Administrative expense increased $0.8 million or 2.6% from $31.2 millionin the quarter ended October 31, 2002 to $32.0 million in the quarterended October 31, 2003.  As apercent of sales, administrative expense was 7.4% in the third quarter offiscal 2004 compared to 8.6% a year earlier. Administrative expenses increased due to the addition of Miles Kimballand Kaemingk.  The reduction inadministrative expenses as a percentage of net sales results from the fact thatthe Company’s corporate resources have remained fairly level as the businesshas grown through acquisition.

 

**Restructuring and Impairment Charges**

 

OnSeptember 30, 2003, the Company announced its decision to close itsHyannis, Massachusetts candle manufacturing facility.  This closure was the final phase of thewind-down of the Hyannis operation, and is consistent with the Company’songoing attempts to rationalize its operations. The Company was able to move the production associated with the Hyannisfacility to another existing facility, and expects to incur lower operatingcosts in the Candles & Home Fragrance segment as a result of theclosure.   The shutdown of this facilitywill be complete in the fourth quarter of fiscal 2004.  In conjunction with the closing, the Companyeliminated 43 jobs, comprised of manufacturing and management positions.

 

During the threemonths ended October 31, 2003, $0.8 million of costs were incurred relatedto the Hyannis plant closure including $0.6 million of severance and relatedcosts and $0.2 million of equipment impairment charges.  The Company expects additional charges in thefourth quarter of  $0.04to $0.06 per share, related primarily to the impairment of equipment.

 

**Operating Profit**

 

Operating profit decreased $1.8 million, or 1.5%, from $116.5 millionin the first nine months of fiscal 2003 to $114.7 million in the first ninemonths of fiscal 2004.  The decrease inoperating profit in the nine months ended October 31, 2003 was a result ofthe same factors affecting net sales. Operating profit increased $7.8 million, or 15.0%, from $52.0 million inthe quarter ended October 31, 2002 to $59.8 million in the quarter endedOctober 31, 2003.  This increase inoperating profit in the quarter ended October 31, 2003 is largely drivenby the acquisitions of Miles Kimball and Kaemingk.

 

**Interest Expense**

 

Interest expense increased $0.6 million in the nine-month period endedOctober 31, 2003 as compared with the prior year.  Interest expense increased $1.1 million inthe current fiscal year third quarter from the prior year.  This increase is primarily related to thedebt assumed in the Kaemingk acquisition.

** **

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**Interest Income and Other**

 

Interest income and other, including interest income, foreign exchangegains and losses and the gain on the sale of an investment, increased $0.5million in the nine-month period ended October 31, 2003 versus the sameperiod in the prior year.  This increaseis primarily related to the gain on the sale of an investment recorded in thequarter ended July 31, 2003.

 

**Income Taxes**

 

Income tax expense decreased $1.2 million, or 2.9%, from $39.4 millionin the first nine months of fiscal 2003 to $38.3 million in the same period inthe current fiscal year.  Income taxexpense increased $2.2 million, or 12.3%, from $18.1 million in the quarterended October 31, 2002 to $20.3 million in the quarter endedOctober 31, 2003.  The income taxexpense amounts fluctuate in conjunction with the increases and decreases inincome before income taxes at any given period.   The effective tax rate decreased to 36.8% infiscal 2004 from 37.2% in the prior period. This decrease is a result of a larger amount of income being generatedin jurisdictions with lower tax rates.

 

**Cumulative Effect of Change in Accounting Principle**

 

**As aresult of adopting SFAS No. 142, “Goodwill and Other Intangible Assets,” theCompany recorded a one-time charge of $34.6 million pre-tax, $31.8 million netof income taxes, on February 1, 2002, which is reflected as the cumulativeeffect of a change in accounting principle (See Note 4 to the ConsolidatedFinancial Statements).**

** **

**Net Earnings**

 

As a result of the foregoing, earnings before the cumulative effect ofchange in accounting principle decreased $0.8 million, or 1.2%, from $66.6million in the nine months ended October 31, 2002 to $65.8 million for thenine months ended October 31, 2003. Net earnings after the cumulative effect of change in accountingprinciple increased $30.8 million, or 47.0%, from $34.8 million in the firstnine months of fiscal 2003 to $65.6 in the first nine months of fiscal2004.    Net earnings increased $4.3million, or 14.1%, from $30.5 million in the quarter ended October 31,2002 to $34.8 million in the quarter ended October 31, 2003.

 

Basic earnings per share before the cumulative effect of change inaccounting principle, based upon the weighted average number of sharesoutstanding for the nine months ended October 31, 2003, were $1.43, adecrease of $0.01, or 0.4% compared to $1.44 for the nine months endedOctober 31, 2002.  Basic netearnings per share after the cumulative effect of change in accountingprinciple, based upon the weighted average number of shares outstanding for thenine months ended October 31, 2003, were $1.43, an increase of $0.68,compared to $0.75 for the nine months ended October 31, 2002.  Diluted earnings per share before thecumulative effect of change in accounting principle, based upon the potentialdilution that could occur if options to issue common stock were exercised, were$1.43 for the current and prior year nine month periods. The cumulative effectof change in accounting principle on diluted earnings per share equaled $0.68for the nine months ended October 31, 2002.  Diluted net earnings per share after thecumulative effect of change in accounting principle, based upon the potentialdilution that could occur if options to issue common stock were exercised, were$1.43, compared to $0.75 for the same period the prior year.

 

**Liquidity and Capital Resources**

 

Compared to January 31, 2003, when inventory levels are typicallyat the lowest point of the fiscal year, inventory increased $58.2 million from$187.9 million at January 31, 2003 to $246.1 million at October 31,2003.  This increase is driven in part bythe acquisitions of Miles Kimball and Kaemingk, which accounted for approximately$28.5 million of such increase.  Theremaining increase is due to the normal seasonal inventory build.

** **

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Accounts receivable increased $111.2 million from $82.9 million atJanuary 31, 2003 to $194.1 million at October 31, 2003.  The acquisitions of Miles Kimball andKaemingk accounted for approximately $38.0 million of this increase.  This increase is consistent with theseasonality of the business.

 

Accounts payable and accrued liabilities increased $24.5 million to$164.0 million at October 31, 2003 from $139.5 million at January 31,2003.  This increase is related toseasonality, the effects of foreign currency exchange rates, and the previouslymentioned acquisitions.

 

In July 2003, the Company’s manufacturing facility located inMonterrey, Mexico was destroyed by fire. Products manufactured at this leased facility were primarily for theNorth American mass market.  Customerservice disruptions were minimal as other Company facilities and third partysuppliers met the production requirements and are expected to meet productionrequirements for the immediate future and therefore, the Company has decidednot to rebuild the Monterrey facility. The loss of fixed assets and inventory totaled approximately $8.0million.  The Company incurred additionalcosts of $1.3 million in the quarter ended October 31, 2003, primarily forthe additional production costs of manufacturing product at differentfacilities.  Some of these costs remainin ending inventory at October 31, 2003. The cumulative charges related to the fire amount to $1.9 million forthe year.  The Company is insured forlosses related to this fire.

 

Capital expenditures for property, plant, and equipment were $16.0million for the nine months ended October 31, 2003 as compared with $11.4million in the prior year period. Capital expenditures consisted primarily of investments in informationtechnology and upgrades of equipment and facilities.  The Company expects total capital spending ofapproximately $25.0 million for fiscal 2004.

 

The Company has a $200 million unsecured revolving credit facilityhaving a three-year term (the “Credit Facility”).  The Company has the ability to increase theCredit Facility, under certain circumstances, by an additional $50million.  The Credit Facility may be usedfor seasonal working capital needs, general corporate purposes and funding forstrategic acquisitions.  The CreditFacility contains, among other provisions, requirements for maintaining certainfinancial ratios and limitations on certain payments.  At October 31, 2003, the Company was incompliance with such covenants.  Amountsoutstanding under the Credit Facility bear interest, at the Company’s option,at JPMorgan Chase Bank’s prime rate (4.0% at October 31, 2003) or at theEurocurrency rate plus a credit spread ranging from 0.525% to 1.5%, calculatedon the basis of a combination of the Company’s senior unsecured long-term debtrating and the Company’s usage of the Credit Facility.  At October 31, 2003, the weightedaverage interest rate was 3.07%.  OnOctober 31, 2003, approximately $33.1 million was outstanding (including$3.2 million of outstanding letters of credit) under the Credit Facility.

 

As of October 31, 2003, the Company had a total of $15.0 millionavailable under an uncommitted bank line of credit with La Salle Bank NationalAssociation, which matures in June 2004. Amounts outstanding under the line of credit bear interest at short-termfixed rates.  No amounts were outstandingunder the uncommitted line of credit at October 31, 2003.

 

At October 31, 2003, the Company had a total of $10.0 millionavailable under an uncommitted line of credit with Bank of America to be usedfor letters of credit.  AtOctober 31, 2003, approximately $0.3 million of letters of credit wereoutstanding under this credit line.

 

As of September 30, 2003, The Gies Group(“Gies”) had available lines of credit of approximately $42.4 million of whichapproximately $28.0 million was outstanding. The amounts outstanding under the lines of credit bear interest at aweighted average rate of 3.5% at September 30, 2003.  The lines of credit are renewed annually.

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** **

Colony Gift Corporation Limited (“Colony”) has a $25.0 millionshort-term revolving credit facility with Barclays Bank, which matures inJune 2004.  As of September 30,2003, Colony had borrowings under the credit facility of approximately $7.2million, at a weighted average interest rate of 3.4%.

 

At October 31, 2003, CBK had $4.7 million of long-term debtoutstanding under an Industrial Revenue Bond (“IRB”), which matures onJanuary 1, 2025.  The bond is backedby an irrevocable letter of credit issued by La Salle Bank NationalAssociation.  The amount outstandingunder the IRB bears interest at short-term floating rates, which equaled aweighted average interest rate of 1.2% at October 31, 2003.

 

At October 31, 2003, Miles Kimball had approximately $10.4 millionof long-term debt outstanding under a real estate mortgage note payable to JohnHancock Life Insurance Company, which matures June 1, 2020. Under theterms of the note, payments of principal and interest are required monthly at afixed interest rate of 7.89%.

 

As of September 30, 2003, Kaemingk had available lines of creditof approximately $39.4 million maturing in March 2004.  The lines of credit are collateralized bycertain real estate and equipment owned by Kaemingk.  At September 30, 2003, approximately$10.6 million was outstanding at a weighted average interest rate of 3.38%.

 

At September 30, 2003, Kaemingk had approximately $14.2 million oflong-term debt outstanding under seven loans with INGBank N.V. at a weighted average interest rate of 4.9%.  The bank loans have maturity dates rangingfrom 2005 through 2021.  The loans arecollateralized by certain real estate and equipment owned by Kaemingk.

 

In May 1999, the Company filed a shelf registration statement forissuance of up to $250.0 million in debt securities with the Securities andExchange Commission.  OnSeptember 24, 1999, the Company issued $15.0 million of 7.90% Senior Notesdue October 1, 2009 at a discount of approximately $1.4 million, which isbeing amortized over the life of the notes. Such notes contain, among other provisions, restrictions on liens onprincipal property or stock issued to collateralize debt.  At October 31, 2003, the Company was incompliance with such provisions. Interest is payable semi-annually on April 1 andOctober 1.  On October 20,2003, the Company issued $100.0 million, 5.50% Senior Notes due onNovember 1, 2013 at a discount of approximately $0.2 million, which isbeing amortized over the life of the notes. Such notes contain provisions and restrictions similar to those in the7.9% Senior Notes.  At October 31,2003, the Company was in compliance with such covenants.  Interest on the notes will accrue fromOctober 23, 2003 and will be payable semiannually in arrears on May 1 andNovember 1 of each year, commencing May 1, 2004.  The notes may be redeemed in whole or in partat any time at a specified redemption price. The proceeds of the debt issuance will be used for general corporatepurposes, which may include repayment of certain debt.

 

Net cash used in operating activities amounted to $27.5 million for thenine months ended October 31, 2003 compared to a use of $10.7 million forthe nine months ended October 31, 2002. The decrease in cash flows from operations relates primarily to changesin the Company’s working capital, the absence of the $4.5 million cumulativeeffect adjustment related to the goodwill impairment at the Sterno Group thatwas recorded in fiscal 2003, the $0.5 million gain on the sale of a long-terminvestment recorded in 2004, and changes in the Company’s deferred income taxesoffset by increased depreciation and amortization expense related to the newacquisitions in fiscal 2004.

 

The Company’s Board of Directors has authorized the Company torepurchase up to 6,000,000 shares of common stock under the share repurchaseprogram.  In the third quarter of fiscal2004, the Company purchased 240,000 shares on the open market for a cost of$6.3 million, bringing the year-to-date total to 611,200 shares at a cost of$16.2 million.  Since the program inception,the Company has purchased 4,255,300 shares at a total cost of $102.7million.  The acquired shares are held ascommon stock in treasury at cost.

 

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**CriticalAccounting Policies**

 

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

** **

**Impact of Adoption of Recently Issued AccountingStandards**

 

In January 2003, the Financial Accounting Standards Board (FASB)issued Financial Interpretation No. 46 (FIN 46), “Consolidation of VariableInterest Entities.  FIN 46 clarifies theapplication of Accounting Research Bulletin No. 51, “Consolidated FinancialStatements.”  The interpretation wasimmediately applicable to variable interest entities (“VIEs”) created afterJanuary 31, 2003, and to VIEs in which an enterprise obtains an interestafter that date.  As originally issued,it applied in the fiscal year or interim period beginning after June 15,2003, for VIEs in which an enterprise acquired a variable interest prior toFebruary 1, 2003.  InOctober 2003, the FASB issued FASB Staff Position No. 46-6, which defersthe effective date for FIN 46 to the first interim or annual period endingafter December 15, 2003 for VIEs created before February 1,2003.  FIN 46 requires consolidation, forfiscal periods ending after December 15, 2003, of entities in which theCompany absorbs a majority of the entity’s expected losses, receives a majorityof the entity’s expected residual returns, or both, as a result of ownership, contractualor other financial interests in the entity. Currently, entities are consolidated when the Company has a controllingfinancial interest through ownership of a majority voting interest in anentity.  The implementation of thisstandard is not expected to have a material impact on our financial statements.

 

In April 2003, the FASB issued SFAS No. 149, “Amendment ofStatement 133 on Derivative Instruments and Hedging Activities.”  This statement amends and clarifies financialaccounting and reporting for derivative instruments, including certainderivative instruments embedded in other contracts (collectively referred to asderivatives) and for hedging activities under FASB Statement No. 133,“Accounting for Derivative Instruments and Hedging Activities.”  This standard is effective for derivativecontracts entered into or modified after June 30, 2003. The implementationof this standard had no impact on our financial statements.

 

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain FinancialInstruments with Characteristics of Both Liabilities and Equity.” As originallyissued, SFAS 150 is effective for mandatorily redeemable financial instrumentsof public entities entered into or modified after May 31, 2003, and for allother instruments for interim periods beginning after June 15, 2003.  In November 2003, the FASB issued FASBStaff Position No. 150-3, “Effective Date, Disclosures, and Transition forMandatorily Redeemable Financial Instruments of Certain Nonpublic Entities andCertain Mandatorily Redeemable Noncontrolling Interests under FASB StatementNo. 150”, which defers indefinitely the classification and measurementprovisions for certain mandatorily redeemable noncontrolling interestsassociated with finite-lived subsidiaries pending further FASB action.  For other mandatorily redeemablenoncontrolling interests that were issued before November 5, 2003, onlythe measurement provisions of SFAS 150 are deferred indefinitely, both for the parentin consolidated financial statements and for the subsidiary that issued theinstruments that result in the mandatorily redeemable noncontrolling interest,pending further FASB action.  Theoriginal implementation of SFAS 150 had no impact on our financial statementsand we do not expect the deferral provisions of FSP FAS 150-3 to have asignificant impact on our financial statements.

 

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**Item 3.**QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK

 

**Market Risk**

 

The Company has operations outside of the United States and sells itsproducts worldwide.  The Company’sactivities expose it to a variety of market risks, including the effects ofchanges in foreign currency exchange rates, interest rates and commodityprices.  These financial exposures areactively monitored and, where considered appropriate, managed by the Company.

 

**Interest Rate Risk**

 

As of October 31, 2003 the Company is subject to interest raterisk on approximately $88.8 million of variable rate debt, including thesubsidiary debt of Gies, Colony Gift, CBK and Kaemingk.  Each 1-percentage point increase in theinterest rate would impact pre-tax earnings by approximately $0.9 million ifapplied to the total.

 

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

 

**Foreign Currency Risk**

 

The Company uses forward foreign exchange contracts to hedge the impactof foreign currency fluctuations on certain committed capital expenditures,Canadian intercompany payables and on certain intercompany loans.  The Company does not hold or issue derivativefinancial instruments for trading purposes.

 

With regard to commitments for machinery and equipment in foreigncurrencies, upon payment of each commitment the underlying forward contract isclosed and the corresponding gain or loss is included in the measurement of thecost of the acquired asset.  With regardto forward exchange contracts used to hedge Canadian intercompany payables,gain or loss on such hedges is recognized in earnings in the period in whichthe underlying hedged transaction is settled. Gains or losses on foreign currency forward contracts related tointercompany loans are recognized currently through income and generally offsetthe transaction gains or losses in the foreign currency cash flows which theyare intended to hedge.  If a hedging instrument is sold orterminated prior to maturity, gains and losses are deferred until the hedgeditem is settled.  However, if the hedgeditem is no longer likely to occur, the resultant gain or loss on the terminatedhedge is recognized in earnings.  Forconsolidated financial statement presentation, net cash flows from such hedgesare classified in the categories of the cash flow with the items being hedged.

 

The following table provides information about the Company’s foreignexchange forward contracts at October 31, 2003.

 
| **(In  thousands, except average contract rate)** | ** ** | **U.S. Dollar  Notional Amount** | ** ** | **Average  Contract Rate** | ** ** | **Estimated  Fair Value** | ** ** |
|---------------------------------------------------|------------|----------------------------------|------------|----------------------------|------------|---------------------------|------------|
| Canadian  Dollar                                  |       | $                                | 12,809     |                       | 1.44       |                      | $          | (1,069 | ) |
| Euro                                              |       | 17,924                           |       | 1.12                       |       | (623                      | )          |
| Pound  Sterling                                   |       | 6,546                            |       | 1.64                       |       | (146                      | )          |
|                                              |       | $                                | 37,279     |                       |       |                      | $          | (1,838 | ) |

 

The foreignexchange contracts outstanding as of October 31, 2003 have maturity datesranging from November 2003 through May 2004.

** **

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** **

**Item 4.**CONTROLS AND PROCEDURES

 

(a)Evaluation of disclosure controls and procedures.

 

Ourmanagement, with the participation of our principal executive officer and ourprincipal financial officer, evaluated the effectiveness of our disclosurecontrols and procedures (as defined in Securities Exchange Act of 1934(“Exchange Act”) Rules 13a-15(e) or 15d-15(e)) as of the end of the periodcovered by this quarterly report as required by paragraph (b) of Exchange ActRules 13a-15 or 15d-15.  Based upon thisevaluation, our principal executive officer and our principal financial officerhave concluded that our disclosure controls and procedures are effective as ofthe end of the period covered by this quarterly report.

 

(b)Changes in internal control over financial 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.

 

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**Part II.** OTHER INFORMATION

 

**Item1.**  LegalProceedings

 

On June 2,2003, the parties agreed in open court to settle and resolve all mattersinvolving or in any way relating to the previously reported legal proceedingsby and between the Company and its wholly-owned subsidiary, Endar Corp., on theone hand, and Ennio Racinelli, Darlene Racinelli and others, on the other hand,by means of a written settlement and release agreement, without any payment byany party.  On August 25, 2003, thecase was dismissed by the Riverside Superior Court.

 

**Item 2.**  Changes in Securities and Use of Proceeds

None

 

**Item 3.**  Defaults upon Senior Securities

None

 

**Item 4.**  Submission of Matters to a Vote ofSecurity Holders

None

 

**Item5.**  OtherInformation

 

The Company isincluding the following cautionary statement in this Report to make applicable,and to take advantage of, the safe harbor provisions of the Private SecuritiesLitigation Reform Act of 1995 for any forward-looking statements made by, or onbehalf of, the Company.  Forward-lookingstatements include statements concerning plans, objectives, goals, strategies,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 such forward-lookingstatements, whether written or oral, and whether made by or on behalf of theCompany, are expressly qualified by the following cautionary statements.  Forward-looking statements involve risks anduncertainties, which could cause actual results or outcomes to differmaterially from those expressed in the forward-looking statements.  Such forward-looking statements are expectedto be based on various assumptions, many of which are based, in turn, upon furtherassumptions.

 

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

 

Risk of Inability to Maintain Growth Rate

 

The Company hasgrown substantially in past years.  Whilewe expect continued growth, we expect that our future rate of growth will beless than our historical growth rate.  Inthe Candles & Home Fragrance segment we expect the international market togrow faster than the domestic market. Historically, the market for our foodservice, or Away From Home productshas grown, but more slowly, and we expect it will continue to do so.  Our ability to continue to grow depends onseveral factors, including the following: market acceptance of existing products, the successful introduction ofnew products, our ability to recruit new independent sales consultants, and thesourcing of raw materials.  The Candles& Home Fragrance and Creative Expressions industries are driven by consumertastes.  Accordingly, there can be noassurance that our existing or future products will maintain or achieve marketacceptance.  Our sales and earningsresults have recently been impacted negatively by economic and geopoliticaluncertainties in North America and Europe. There can be no assurance that our sales and earnings results will notbe materially adversely affected by these factors in the future.  If the economic recovery in our major marketsstalls or reverses, or if retailer confidence drops further, our operatingresults may be materially adversely affected.

 

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Our past growth inboth the Candles & Home Fragrance segment and the Creative Expressionssegment has been due, in part, to acquisitions. We expect our future growth in the Candles & Home Fragrance segmentto be primarily organic, with the possibility of selective acquisitions, and wecontinue to pursue strategic acquisitions in certain areas of the CreativeExpressions segment.  There can be noassurance that we will be able to continue to identify suitable acquisitioncandidates, to consummate acquisitions on terms favorable to the Company, tofinance acquisitions or to integrate successfully acquired operations.  In the future, acquisitions may contributemore to the Company’s overall sales growth rate than historically.

 

Ability to Respond to Increased Product Demand

 

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

 

Risks Associated with International Sales and Foreign-Sourced Products

 

Our internationalbusiness has grown at a faster rate than sales in the United States in recentyears.  In addition, we source a portionof our candles, accessories and Creative Expressions products from independentmanufacturers in the Pacific Rim, Europe and Mexico.  For these reasons we are subject to thefollowing risks associated with foreign manufacturing and sales: fluctuationsin currency exchange rates, economic and political instability, internationalpublic health crises, transportation delays, difficulty in maintaining qualitycontrol, restrictive actions by foreign governments, nationalizations, the lawsand policies of the United States and certain European markets affectingimportation of goods (including duties, quotas and taxes and trade and foreigntax laws).

 

Risks of Shortages of Raw Materials

 

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

** **

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** **

Dependence on Key Corporate Management Personnel

 

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

 

Risk of Increased Competition

 

Our business ishighly competitive, both in terms of price and new product introductions. Theworldwide market for Candles & Home Fragrance and Creative Expressionsproducts is highly fragmented, with numerous suppliers serving one or more ofthe distribution channels served by the Company.  Because there are relatively low barriers toentry into the Candles & Home Fragrance and Creative Expressionsindustries, we may face increased future competition from other companies, someof which may have substantially greater financial and marketing resources thanthose available to us.  We compete withcompanies offering candles manufactured at low cost in foreign countries.  In addition, certain competitors focus on aparticular geographic or single-product market and attempt to gain or maintainmarket share solely on the basis of price.

 

Risks Associated with Terrorist Attacks or Other Hostilities and theInternational Political Climate

 

TheSeptember 11, 2001 terrorist attacks affected and may continue to affectthe US and the global economy and may increase other risks faced by ourbusiness, as may the war with Iraq, tensions relating to other countries andchanges in international political conditions as a result of these events andconditions.

 

Risks Related to Our Information Technology Systems

 

Our information technologysystems are dependent upon global communications providers, web browsers,telephone systems and other aspects of the Internet Infrastructure that haveexperienced significant system failures and outages in the past.  Our systems are susceptible to outages due tofire, floods, power loss, telecommunications failures, break-ins and similarevents.  Despite our implementation ofnetwork security measures, our servers are vulnerable to computer viruses,break-ins and similar disruptions from unauthorized tampering with our computersystems.  The occurrence of any of theseevents could disrupt or damage our information technology systems and inhibitour internal operations, our ability to provide services to our customers andthe ability of our customers and sales personnel to access our informationtechnology systems.

** **

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** **

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

 

a)     Exhibits

 

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

31.2         Certification of Vice President andChief Financial Officer pursuant to Rule 13a-14(a) under the SecuritiesExchange Act of 1934.

32.1         Certification ofChairman, Chief Executive Officer and President pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002.

 

32.2         Certification of VicePresident and Chief Financial Officer pursuant to Section 906 of theSarbanes-Oxley Act of 2002.

 

b)    Reportson Form 8-K

 

During the fiscal quarter ended October 31, 2003,the Company filed the following Current Reports on Form 8-K:

 

Current Report on Form8-K on August 27, 2003 to file as an exhibit the press release reportingthe Company’s results of operations for the fiscal quarter ended July 31,2003.

 

Current Report on Form8-K on September 9, 2003 to file as an exhibit the press releaseannouncing the Company’s declaration of a semi-annual dividend.

 

Current Report on Form8-K on October 17, 2003 to announce the issue related to employeecontributions to the 401(k) and profit sharing plan that were being directedinto the Company’s common stock.

** **

CurrentReport on Form 8-K on October 17, 2003 to announce the blackout period forthe fiscal quarter ended October 31, 2003 with respect to purchases of theCompany’s common stock by employees, directors and officers.

 

Current Report on Form8-K on October 21, 2003 to file as an exhibit the press release announcingthe sale of $100 million of 10-year senior notes.

 

Current Report on Form8-K on October 22, 2003 in conjunction with the filing of the ProspectusSupplement dated October 20, 2003 for the issuance and sale of up to $100million of 5.50% Senior Notes due 2013 to file as exhibits certain informationrelated to the Prospectus Supplement.

** **

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** **

**SIGNATURES**

 

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

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

 

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