**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WashingtonD.C. 20549**

 

**FORM 10-Q**

 

| **(Mark One)**                                                                                                                                                                                                                                                             |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                       |   |
| **ý**                                                                                                                                                                                                                                                                 | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934** |
|                                                                                                                                                                                                                                                                       |   |
|                                                                                                                                                                                                                                                                       | **For the quarterly period ended  July 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 of  registrant 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’s telephone  number, including area code)                                                                    |
|                                                                                                                          |   |   |
| **Not Applicable**                                                                                                            |
| (Former name, former  address and former fiscal year, if changed since last report)                                           |
|                                                                                                                               |  |  |  |  |

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Actof 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

Yes   ý          No   o

 

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

Yes   ý          No   o

 

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

 

**45,521,877Common Shares as of August 29, 2003**

 

 

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**BLYTH, INC.**

 

**INDEX**

 
| Form  10-Q Cover Page                      |
|--------------------------------------------|
|                                       |
| Form  10-Q Index                           |
|                                       |
| Part  I.  Financial Information: |
|                                       |   |
| Item 1.                                    | Financial Statements: |
|                                       | Consolidated Balance Sheets |
|                                       |   |
|                                       | Consolidated Statements  of Earnings |
|                                       |   |
|                                       | Consolidated  Statements of Stockholders’ Equity |
|                                       |   |
|                                       | Consolidated Statements  of Cash Flows |
|                                       |   |
|                                       | Notes to Consolidated  Financial Statements |
|                                       |   |
| Item  2.                                   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |
|                                       |   |
| Item  3.                                   | Quantitative  and Qualitative Disclosures About Market Risk |
|                                       |   |
| Item 4.                                    | 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                                 |

 

2

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Part I. FINANCIAL INFORMATION

Item I. FINANCIAL STATEMENTS

 

**BLYTH,INC. AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

 
| **(In  thousands, except share and per share data)**                                                                           |   | **July 31,  2003** |    | **January 31,  2003** |   |
|--------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|----------------------------|--------|
|                                                                                                                           |   | **(Unaudited)**         |    |                       |   |
| **ASSETS**                                                                                                                     |   |                    |    |                       |   |
| **Current assets:**                                                                                                            |   |                    |    |                       |   |
| Cash and cash equivalents                                                                                                      |   | $                       | 67,977  |                       | $      | 168,596 |   |
| Accounts receivable, less allowance for doubtful  receivables of $4,163 and $4,093, respectively                               |   | 101,673                 |    | 82,913                     |   |
| Inventories                                                                                                                    |   | 256,121                 |    | 187,935                    |   |
| Prepaid and other                                                                                                              |   | 22,242                  |    | 15,226                     |   |
| Deferred income taxes                                                                                                          |   | 20,456                  |    | 17,767                     |   |
| Total current assets                                                                                                           |   | 468,469                 |    | 472,437                    |   |
| **Property, plant and equipment, at  cost:**                                                                                   |   |                    |    |                       |   |
| Less accumulated depreciation of $211,296 and  $178,397, respectively                                                          |   | 277,350                 |    | 244,798                    |   |
|                                                                                                                           |   |                    |    |                       |   |
| **Other assets:**                                                                                                              |   |                    |    |                       |   |
| Investments                                                                                                                    |   | 3,380                   |    | 3,564                      |   |
| Excess of cost over fair value of assets acquired                                                                              |   | 210,672                 |    | 149,365                    |   |
| Other intangible assets, net of accumulated  amortization of $600                                                              |   | 24,500                  |    | —                     |   |
| Deposits and other assets                                                                                                      |   | 12,678                  |    | 16,494                     |   |
|                                                                                                                           |   | 251,230                 |    | 169,423                    |   |
| Total assets                                                                                                                   |   | $                       | 997,049 |                       | $      | 886,658 |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                 |   |                    |    |                       |   |
| **Current liabilities:**                                                                                                       |   |                    |    |                       |   |
| Bank lines of credit                                                                                                           |   | $                       | 28,971  |                       | $      | 7,377 |   |
| Current maturities of long-term debt                                                                                           |   | 4,592                   |    | 4,037                      |   |
| Accounts payable                                                                                                               |   | 62,256                  |    | 58,571                     |   |
| Accrued expenses                                                                                                               |   | 72,579                  |    | 80,953                     |   |
| Income taxes                                                                                                                   |   | 2,721                   |    | 2,685                      |   |
| Total current liabilities                                                                                                      |   | 171,119                 |    | 153,623                    |   |
| **Deferred income taxes**                                                                                                      |   | 40,239                  |    | 24,280                     |   |
| **Long-term debt, less current  maturities**                                                                                   |   | 210,453                 |    | 165,079                    |   |
| **Minority interest and other**                                                                                                |   | 11,619                  |    | 4,212                      |   |
| **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 49,777,177 shares and 49,703,682 shares, respectively |   | 995                     |    | 994                        |   |
| Additional contributed capital                                                                                                 |   | 103,086                 |    | 101,567                    |   |
| Retained earnings                                                                                                              |   | 548,758                 |    | 523,865                    |   |
| Accumulated other comprehensive income (loss)                                                                                  |   | 7,214                   |    | (377                       | )      |
| Treasury stock, at cost, 4,015,300 shares and  3,644,100 shares, respectively                                                  |   | (96,434                 | )       | (86,585                    | )      |
| Total stockholders’ equity                                                                                                |   | 563,619                 |    | 539,464                    |   |
| Total liabilities and stockholders’ equity                                                                                |   | $                       | 997,049 |                       | $      | 886,658 |   |

 

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

 

3

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**BLYTH,INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF EARNINGS**

**(Unaudited)**

** **

** **
| **Six months ended July 31 (In thousands, except  per share data)**                                 |   | **2003** |    | **2002** |   |
|----------------------------------------------------------------------------------------------------------|--------|----------|---------|----------|--------|
| Net sales                                                                                                |   | $        | 587,259 |     | $      | 545,917 |   |
| Cost of goods sold                                                                                       |   | 291,311  |    | 263,577  |   |
| Gross profit                                                                                             |   | 295,948  |    | 282,340  |   |
| Selling                                                                                                  |   | 179,298  |    | 163,642  |   |
| Administrative                                                                                           |   | 61,673   |    | 54,133   |   |
|                                                                                                     |   | 240,971  |    | 217,775  |   |
| Operating profit                                                                                         |   | 54,977   |    | 64,565   |   |
| Other expense (income):                                                                                  |   |     |    |     |   |
| Interest expense                                                                                         |   | 7,102    |    | 7,570    |   |
| Interest income and other                                                                                |   | (1,282   | )       | (695     | )      |
| Equity in loss of investee                                                                               |   | 199      |    | 190      |   |
|                                                                                                     |   | 6,019    |    | 7,065    |   |
| Earnings before income taxes, minority interest and  cumulative effect of change in accounting principle |   | 48,958   |    | 57,500   |   |
| Income tax expense                                                                                       |   | 18,014   |    | 21,390   |   |
| Earnings before minority interest and cumulative  effect of change in accounting principle               |   | 30,944   |    | 36,110   |   |
| Minority interest                                                                                        |   | (71      | )       | —   |   |
| Cumulative effect of change in accounting principle,  net of taxes of $2,887                             |   | —   |    | (4,515   | )      |
| Net earnings                                                                                             |   | $        | 30,873  |     | $      | 31,595 |   |
| Basic:                                                                                                   |   |     |    |     |   |
| Earnings per common share before cumulative effect  of change in accounting principle                    |   | $        | 0.67    |     | $      | 0.78 |   |
| Cumulative effect of change in accounting principle                                                      |   | —   |    | (0.10    | )      |
|                                                                                                     |   | $        | 0.67    |     | $      | 0.68 |   |
| Weighted average number of shares outstanding                                                            |   | 45,991   |    | 46,310   |   |
| Diluted:                                                                                                 |   |     |    |     |   |
| Earnings per common share before cumulative effect  of change in accounting principle                    |   | $        | 0.67    |     | $      | 0.78 |   |
| Cumulative effect of change in accounting principle                                                      |   | —   |    | (0.10    | )      |
|                                                                                                     |   | $        | 0.67    |     | $      | 0.68 |   |
| Weighted average number of shares outstanding                                                            |   | 46,174   |    | 46,591   |   |

 

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

 

4

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**BLYTH,INC. AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF EARNINGS**

**(Unaudited)**

 
| **Three months ended July 31 (In thousands,  except per share data)** |   | **2003** |    | **2002** |   |
|----------------------------------------------------------------------------|--------|----------|---------|----------|--------|
| Net sales                                                                  |   | $        | 275,268 |     | $      | 268,021 |   |
| Cost of goods sold                                                         |   | 140,716  |    | 130,689  |   |
| Gross profit                                                               |   | 134,552  |    | 137,332  |   |
| Selling                                                                    |   | 82,229   |    | 75,235   |   |
| Administrative                                                             |   | 31,604   |    | 28,440   |   |
|                                                                       |   | 113,833  |    | 103,675  |   |
| Operating profit                                                           |   | 20,719   |    | 33,657   |   |
| Other expense (income):                                                    |   |     |    |     |   |
| Interest expense                                                           |   | 3,512    |    | 3,747    |   |
| Interest income and other                                                  |   | (691     | )       | (254     | )      |
| Equity in loss of investee                                                 |   | 64       |    | 218      |   |
|                                                                       |   | 2,885    |    | 3,711    |   |
| Earnings before income taxes and minority interest                         |   | 17,834   |    | 29,946   |   |
| Income tax expense                                                         |   | 6,561    |    | 11,140   |   |
| Earnings before minority interest                                          |   | 11,273   |    | 18,806   |   |
| Minority interest                                                          |   | (27      | )       | —   |   |
| Net earnings                                                               |   | $        | 11,246  |     | $      | 18,806 |   |
| Basic:                                                                     |   |     |    |     |   |
| Net earnings per common share                                              |   | $        | 0.25    |     | $      | 0.41 |   |
| Weighted average number of shares outstanding                              |   | 45,903   |    | 46,330   |   |
| Diluted:                                                                   |   |     |    |     |   |
| Net earnings per common share                                              |   | $        | 0.24    |     | $      | 0.40 |   |
| Weighted average number of shares outstanding                              |   | 46,155   |    | 46,710   |   |

 

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

 

5

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**BLYTH, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**

**(Unaudited)**

(In thousands, except share data)

 
|                                                                  |   | **Common stock** |       | **Additional  contributed  capital** |       | **Retained  earnings** |       | **Treasury stock** |       | **Accumulated  other  comprehensive  income (loss)** |       | **Total** |       |
|-----------------------------------------------------------------------|--------|------------------|------------|--------------------------------------|------------|------------------------|------------|--------------------|------------|------------------------------------------------------|------------|-----------|------------|
|                                                                  |   | **Shares**       |       | **Amount**                           |       | **Shares**             |       | **Amount**         |       |
|                                                                  |   |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       |   |   |   |   |
| **For the six months ended July 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                                          |   |             |       |                                 |       |                   |       | 31,595             |       |                                                 |       |      |       |   |   | 31,595 |   |
| Foreign  currency translation adjustments                             |   |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       | 9,057 |   | 9,057 |   |
| Unrealized  holding losses on certain investments (net of tax of $20) |   |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       | (34 | ) | (34 | ) |
| Net loss on  cash flow hedging instruments (net of tax of $253)       |   |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       | (427 | ) | (427 | ) |
| Comprehensive  income                                                 |   |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       |   |   | 40,191 |   |
|                                                                  |   |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       |   |   |   |   |
| Common stock  issued in connection with exercise of stock options     |   | 149,706          |       | 3                                    |       | 2,490                  |       |               |       |                                                 |       |      |       |   |   | 2,493 |   |
| Tax benefit  from stock options                                       |   |             |       |                                 |       | 311                    |       |               |       |                                                 |       |      |       |   |   | 311 |   |
| Dividends                                                             |   |             |       |                                 |       |                   |       | (5,098             | )          |                                                 |       |      |       |   |   | (5,098 | ) |
| Treasury stock  purchases                                             |   |             |       |                                 |       |                   |       |               |       | (712,100                                             | )          | (15,709   | )          |   |   | (15,709 | ) |
|                                                                  |   |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       |   |   |   |   |
| Balance,  July 31, 2002                                          |   | 49,659,482       |       | $                                    | 993        |                   | $          | 100,680            |       | $                                                    | 475,535    |      | (3,343,000 | ) | $ | (78,659 | ) | $ | (8,298 | ) | $ | 490,251 |   |
|                                                                  |   |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       |   |   |   |   |
| **For the six months ended July 31, 2003**                       |   |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       |   |   |   |   |
| Balance, January 31,  2003                                       |   | 49,703,682       |       | $                                    | 994        |                   | $          | 101,567            |       | $                                                    | 523,865    |      | (3,644,100 | ) | $ | (86,585 | ) | $ | (377 | ) | $ | 539,464 |   |
| Net earnings  for the period                                          |   |             |       |                                 |       |                   |       | 30,873             |       |                                                 |       |      |       |   |   | 30,873 |   |
| Foreign  currency translation adjustments                             |   |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       | 8,011 |   | 8,011 |   |
| Unrealized  holding losses on certain investments (net of tax of $74) |   |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       | (126 | ) | (126 | ) |
| Net loss on  cash flow hedging instruments (net of tax of $171)       |   |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       | (294 | ) | (294 | ) |
|                                                                  |   |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       |   |   |   |   |
| Comprehensive  income                                                 |   |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       |   |   | 38,464 |   |
|                                                                  |   |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       |   |   |   |   |
| Common stock  issued in connection with exercise of stock options     |   | 73,495           |       | 1                                    |       | 1,419                  |       |               |       |                                                 |       |      |       |   |   | 1,420 |   |
| Tax benefit  from stock options                                       |   |             |       |                                 |       | 100                    |       |               |       |                                                 |       |      |       |   |   | 100 |   |
| Dividends                                                             |   |             |       |                                 |       |                   |       | (5,980             | )          |                                                 |       |      |       |   |   | (5,980 | ) |
| Treasury stock  purchases                                             |   |             |       |                                 |       |                   |       |               |       | (371,200                                             | )          | (9,849    | )          |   |   | (9,849 | ) |
|                                                                  |   |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       |   |   |   |   |
| Balance,  July 31, 2003                                          |   | 49,777,177       |       | $                                    | 995        |                   | $          | 103,086            |       | $                                                    | 548,758    |      | (4,015,300 | ) | $ | (96,434 | ) | $ | 7,214 |   | $ | 563,619 |   |

*** ***

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

 

6

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**BLYTH, INC. AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(Unaudited)**

 

 
| **Six months ended July 31 (In thousands)**                                      |   | **2003** |   | **2002** |   |
|---------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|
| Cash flows from operating activities:                                                 |   |     |   |     |   |
| Net earnings                                                                          |   | $        | 30,873 |     | $      | 31,595 |   |
| Adjustments to reconcile net earnings to net cash  used in operating activities:      |   |     |   |     |   |
| Cumulative effect of change in accounting principle,  net of tax                      |   | —   |   | 4,515    |   |
| Depreciation and amortization                                                         |   | 16,633   |   | 15,134   |   |
| Tax benefit from stock options                                                        |   | 100      |   | 311      |   |
| Deferred income taxes                                                                 |   | 517      |   | 1,812    |   |
| Equity in loss of investee                                                            |   | 199      |   | 190      |   |
| Minority interest                                                                     |   | 71       |   | —   |   |
| Gain on sales of long-term investment                                                 |   | (487     | )      | —   |   |
| Changes in operating assets and liabilities, net of  effect of business acquisitions: |   |     |   |     |   |
| Accounts receivable                                                                   |   | (15,530  | )      | (14,593  | )      |
| Inventories                                                                           |   | (36,889  | )      | (31,854  | )      |
| Prepaid and other                                                                     |   | 2,814    |   | (8,443   | )      |
| Deposits and other assets                                                             |   | 171      |   | (142     | )      |
| Accounts payable                                                                      |   | (4,003   | )      | (1,457   | )      |
| Accrued expenses                                                                      |   | (12,239  | )      | (9,145   | )      |
| Other liabilities                                                                     |   | 1,548    |   | 1,463    |   |
| Income taxes                                                                          |   | (3,716   | )      | (2,020   | )      |
| Total adjustments                                                                     |   | (50,811  | )      | (44,229  | )      |
| Net cash used in operating activities                                                 |   | (19,938  | )      | (12,634  | )      |
| Cash flows from investing activities:                                                 |   |     |   |     |   |
| Purchases of property, plant and equipment                                            |   | (11,115  | )      | (9,624   | )      |
| Purchases of long-term investment                                                     |   | (1,377   | )      | —   |   |
| Proceeds from sales of long term investment                                           |   | 1,874    |   | —   |   |
| Purchase of businesses, net of cash acquired                                          |   | (94,736  | )      | (51,010  | )      |
| Net cash used in investing activities                                                 |   | (105,354 | )      | (60,634  | )      |
| Cash flows from financing activities:                                                 |   |     |   |     |   |
| Proceeds from issuance of common stock                                                |   | 1,420    |   | 2,493    |   |
| Purchases of treasury stock                                                           |   | (9,849   | )      | (15,709  | )      |
| Borrowings from bank line of credit                                                   |   | 18,560   |   | 36,452   |   |
| Repayments on bank line of credit                                                     |   | (6,303   | )      | (21,892  | )      |
| Borrowings on long-term debt                                                          |   | 30,678   |   | 517      |   |
| Repayments of long-term debt                                                          |   | (3,853   | )      | (3,880   | )      |
| Dividends paid                                                                        |   | (5,980   | )      | (5,098   | )      |
| Net cash provided by (used in) financing activities                                   |   | 24,673   |   | (7,117   | )      |
| Net decrease in cash and cash equivalents                                             |   | (100,619 | )      | (80,385  | )      |
| Cash and cash equivalents at beginning of period                                      |   | 168,596  |   | 135,357  |   |
| Cash and cash equivalents at end of period                                            |   | $        | 67,977 |     | $      | 54,972 |   |

 

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

 

7

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**BLYTH,INC. AND SUBSIDIARIES**

**NOTES TOCONSOLIDATED FINANCIAL STATEMEN****TS**

**(Unaudited)**

 

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

 

Blyth is a global competitor in the gift anddecorative accessories market, which the Company calls the Home Expressionscategory.  Within this category, theCompany reports its financial results in two segments – the Candles & HomeFragrance segment and the Creative Expressions segment.

 

Within the Candles & Home Fragrance segment, theCompany designs, manufactures and markets an extensive line of productsincluding scented candles, potpourri and other fragranced products and marketsa broad range of related candle accessories, as well as tabletop illuminationproducts and chafing fuel.  These productsare sold direct to the consumer under the PartyLite® brand, to retailers in thepremium and specialty retail channels under the Colonial Candle of Cape Cod®,Colonial at HOMEâ, Carolina®, andKate’sTM brands, in the mass retail channel under the Florasense®, Ambria®, andFilterMate® brands and to the foodservice, or Away From Home, industry underthe Sterno®, Ambria®, and HandyFuel® brand names.  In Europe, these products are also sold under the Colonial,Ambria®, Carolina Designs®, Gies® (1) and Liljeholmens® brands.

 

Within the Creative Expressions segment, the Companydesigns, sources and markets a broad range of home décor, household convenienceitems, premium photo albums, frames, holiday cards and giftware products underthe CBK®, Miles Kimballâ and Exposuresâbrands, seasonal accents under the Seasons of Cannon FallsÔand ImpactÔ brands, and decorative gift bags under theJeanmarie® brand.  In Europe, a widerange of premium seasonal decorations are sold under the Kaemingk brand.

 

The consolidated financial statements include theaccounts of the Company and its direct and indirect subsidiaries.  All significant intercompany accounts andtransactions have been eliminated. Investments in companies that are not majority owned or controlled arereported using the equity method and are recorded in investments.  Interest income and other consists ofinterest income earned from investments, foreign currency gains and losses andgains and losses from sales of investments. Certain of the Company’s subsidiaries operate on a 52 or 53-week fiscalyear ending on the Saturday closest to January 31.  European operations maintain a calendar yearaccounting period, which is consolidated with the Company’s fiscal period.  In the opinion of management, theaccompanying unaudited consolidated financial statements include all accrualsnecessary for fair presentation of the Company’s consolidated financialposition at July 31, 2003 and the consolidated results of its operationsand cash flows for the six-month periods ended July 31, 2003 and 2002.These interim statements should be read in conjunction with the Company’sconsolidated financial statements for the year ended January 31, 2003, asset forth in the Company’s Annual Report on Form 10-K.  Operating results for the six months endedJuly 31, 2003 are not necessarily indicative of the results that may beexpected for the year ending January 31, 2004.

 

**Reclassifications**

 

Certain reclassifications have been made in prioryears’ financial statements to conform to classifications used in the currentyear.

 

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(1)                                  Giesis registered and sold only outside the United States.

 

8

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**Employee Stock Options**

 

The Company has elected to adopt the disclosure onlyprovisions of Statement of Financial Accounting Standards (SFAS) No. 148,“Accounting for Stock-Based Compensation – Transition and Disclosure”, andcontinues to follow Accounting Principles Board (APB) opinion No. 25, “Accountingfor Stock Issued to Employees” and related interpretations in accounting forstock options granted to its employees and directors under the intrinsic valuemethod.  Accordingly, no compensationexpense is recorded for the stock options issued to employees unless the optionprice is below market at the measurement date. The Company does not at this time, issue stock options below marketvalue, therefore no compensation 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 July 31,** |   | **Six months  ended July 31,** |   |
|-------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|-------------------------------------|--------|
| **(In  thousands except per share data)**                                                                   |   | **2003**                              |   | **2002**                            |   | **2003** |   | **2002** |   |
|                                                                                                        |   |                                  |   |                                |   |   |   |   |   |
| Net earnings:                                                                                               |   |                                  |   |                                |   |   |   |   |   |
| As reported                                                                                                 |   | $                                     | 11,246 |                                | $      | 18,806 |   | $ | 30,873 |   | $ | 31,595 |   |
| Stock-based employee compensation expense determined  under SFAS No. 123 for all awards, net of related tax |   | 908                                   |   | 945                                 |   | 1,844 |   | 1,932 |   |
| Pro forma                                                                                                   |   | $                                     | 10,338 |                                | $      | 17,861 |   | $ | 29,029 |   | $ | 29,663 |   |
| Net earnings per common share:                                                                              |   |                                  |   |                                |   |   |   |   |   |
| As reported:                                                                                                |   |                                  |   |                                |   |   |   |   |   |
| Basic                                                                                                       |   | $                                     | 0.25   |                                | $      | 0.41 |   | $ | 0.67 |   | $ | 0.68 |   |
| Diluted                                                                                                     |   | 0.24                                  |   | 0.40                                |   | 0.67 |   | 0.68 |   |
| Pro forma:                                                                                                  |   |                                  |   |                                |   |   |   |   |   |
| Basic                                                                                                       |   | $                                     | 0.23   |                                | $      | 0.39 |   | $ | 0.63 |   | $ | 0.64 |   |
| Diluted                                                                                                     |   | 0.22                                  |   | 0.37                                |   | 0.61 |   | 0.62 |   |

 

**2.****                                      NewAccounting Pronouncements**

 

In January 2003, the FASB issued FinancialInterpretation No. 46, “Consolidation of Variable Interest Entities,” which isan interpretation of Accounting Research Bulletin No. 51, “ConsolidatedFinancial Statements,” and addresses consolidation by business enterprises ofvariable interest entities that have specific characteristics as described inthe Interpretation. This Interpretation was effective immediately with respectto variable interest entities created after January 31, 2003, and tovariable interest entities in which an enterprise obtains an interest afterthat date. It applies in the first fiscal year or interim period beginningafter June 15, 2003, to variable interest entities in which an enterpriseholds a variable interest that it acquired before February 1, 2003.  The implementation of this standard had noimpact on our financial statements.

 

In April 2003, the FASB issued SFAS No. 149,“Amendment of Statement 133 on Derivative Instruments and HedgingActivities.”  This statement amends andclarifies financial accounting and reporting for derivative instruments,including certain derivative instruments embedded in other contracts(collectively referred to as derivatives) and for hedging activities under FASBStatement No. 133, “Accounting for Derivative Instruments and HedgingActivities.”  This standard is effectivefor derivative contracts entered into or modified after June 30,2003.  The implementation of thisstandard had no impact on our financial statements.

 

9

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In May 2003, the FASB issued SFAS No. 150,“Accounting for Certain Financial Instruments with Characteristics of bothLiabilities and Equity.” This Statement establishes standards for how an issuerclassifies and measures certain financial instruments with characteristics ofboth liabilities and equity. It requires that an issuer classify a financialinstrument that is within its scope as a liability (or an asset in somecircumstances).  This standard iseffective for financial instruments entered into or modified after May 31,2003. The implementation of this standard had no impact on our financialstatements.

 

**3.****                                      GoodwillImpairment**

 

The Company adopted SFAS No. 142, “Goodwill and OtherIntangible Assets”, 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 acquisition of the Sternoâbrand in 1997 by $7.4 million.  The fairvalue of the Sterno Group was determined through an independent valuationutilizing market comparable analysis, as well as discounted cash flow modelsreflecting the expected range of future cash flow outcomes over the life of themodel.  These cash flows were discountedto January 31, 2002 using a risk-adjusted discount rate.  The impairment of the Sterno Group’sgoodwill, which was recorded as a cumulative effect of a change in accountingprinciple, had the effect of reducing net income in the quarter endedApril 30, 2002 by $4.5 million (after tax) or $0.10 per share.

 

**4.****                                      BusinessAcquisitions**

 

On May 10, 2002, the Company purchased all of theinterests in CBK, Ltd., LLC, now known as CBK Styles, Inc. (“CBK”), a designerand marketer of premium everyday home décor and giftware, for approximately$51.0 million in cash*.*  The excess of the purchase price over theestimated fair value of the net assets acquired approximated $40.0 million,which will be deductible for income tax purposes over 15 years.  The results of operations of CBK areincluded in the Consolidated Statements of Earnings of the Company sinceMay 11, 2002.  For segmentreporting purposes, CBK is included in the Creative Expressions segment.

 

On April 1, 2003, the Company acquired 100% ofthe Miles Kimball Company (“MK”), a direct marketer of giftware, home décor andhousehold convenience items, premium photo albums, frames and holiday cardsunder the Miles Kimball® and Exposures® catalog titles for approximately $66.2million in cash.  The excess of thepurchase price over the estimated fair value of the net assets acquiredapproximated $46.0 million, which will not be deductible for income taxpurposes.  The other intangiblesacquired consist of $16.1 million of trade names and trademarks, which aredeemed to have an indefinite life and will not be amortized, plus $9.0 millionof customer lists, which will be amortized on an accelerated basis over 12years.  Amortization expense was $0.45million for the three months ended July 31, 2003 and $0.6 million for thesix months ended July 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 Creative Expressions segment.

 

10

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The following provides anallocation 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 |   |

 

11

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On June 20, 2003,the Company acquired a 100% interest in Kaemingk B.V. (“Kaemingk”), a designerand marketer of a wide range of premium seasonal decorations. Kaemingk’s productlines feature Christmas décor, including ornaments, lighting, trim, glassware,candles and plush animals, as well as spring and summer decorative accents andtabletop products.  The cash purchaseprice was approximately $36.2 million less cash acquired of $7.7 millionresulting in net cash paid of $28.5 million.  Approximately $30.6 million of the cash purchase price was borrowedunder the Company’s $200 million unsecured revolving credit facility.  The Company also assumed Kaemingk’slong-term debt of approximately $14.4 million. The excess of the purchase price over the estimated fair value of thenet assets acquired approximated $13.5 million, which will not be deductiblefor income tax purposes.  In addition tothe fixed purchase price, there is contingent consideration payable in the formof a three-year earn out provision based on a pre-defined formula related to amultiple of earnings before interest and income taxes.  The results of operations of Kaemingk areincluded in the Consolidated Statements of Earnings of the Company sinceJune 21, 2003.  For segmentreporting purposes, Kaemingk is included in the Creative Expressions segment.

 

Thefollowing provides a preliminary allocation of the purchase price of Kaemingk(in thousands)

 
| Cash Purchase Price                   |   | $      |  36,176 |   |
|---------------------------------------|--------|--------|--------------|--------|
| Less: Assets acquired                 |   |   |         |
| Cash and cash equivalents             |   | 7,681  |         |
| Accounts receivable                   |   | 2,106  |         |
| Inventories                           |   | 25,514 |         |
| Property, plant and equipment         |   | 18,930 |         |
| Other                                 |   | 606    |         |
| Total assets acquired                 |   | 54,837 |         |
| 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) |   | $      | 13,525       |   |

 

12

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

 
|                                                                                      |   | **Three  months ended July 31,** | ** ** | **Six months  ended July 31,** | ** ** |
|-------------------------------------------------------------------------------------------|--------|---------------------------------------|------------|-------------------------------------|------------|
| **(In  thousands except per share data)**                                                 |   | **2003**                              | ** ** | **2002**                            | ** ** | **2003** | ** ** | **2002** | ** ** |
| Net sales                                                                                 |   | $                                     | 276,575    |                                | $          | 291,789 |   | $ | 610,311 |   | $ | 614,781 |   |
| Earnings before cumulative effect of change in  accounting principle                      |   | 10,793                                |       | 17,109                              |       | 28,562 |   | 34,321 |   |
| Net earnings                                                                              |   | 10,793                                |       | 17,109                              |       | 28,562 |   | 29,806 |   |
| Basic:                                                                                    |   |                                  |       |                                |       |   |   |   |   |
| Earnings per common share before the cumulative  effect of change in accounting principle |   | $                                     | 0.24       |                                | $          | 0.37 |   | $ | 0.62 |   | $ | 0.74 |   |
| Net earnings per common share                                                             |   | 0.24                                  |       | 0.37                                |       | 0.62 |   | 0.64 |   |
| Diluted:                                                                                  |   |                                  |       |                                |       |   |   |   |   |
| Earnings per common share before the cumulative  effect of change in accounting principle |   | $                                     | 0.23       |                                | $          | 0.37 |   | $ | 0.62 |   | $ | 0.74 |   |
| Net earnings per common share                                                             |   | 0.23                                  |       | 0.37                                |       | 0.62 |   | 0.64 |   |

 

13

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

 

AtJuly 31, 2003, the Company had a total of $210.7 million of excess of costover fair value of assets acquired (“goodwill”) on its balance sheet compared to $149.4 million atJanuary 31, 2003.  Goodwillattributable to the Candles & Home Fragrance segment at July 31, 2003was $72.4 million, an increase of $1.7 million from $70.7 million atJanuary 31, 2003.  Such increase isa result of the effects of foreign currency exchange rate increases versus theUS dollar on our European businesses goodwill. Goodwill attributable to the Creative Expressions segment atJuly 31, 2003 was $138.3 million, an increase of $59.6 million, from $78.7million at January 31, 2003.  Suchincrease is a result of the goodwill from the acquisitions of Miles Kimball andKaemingk.

 

**5.****                                      Inventories**

 

The components ofinventory are as follows (in thousands):

 
|            |   | **July 31,  2003** |    | **January 31,  2003** |   |
|-----------------|--------|-------------------------|---------|----------------------------|--------|
| Raw materials   |   | $                       | 29,333  |                       | $      | 33,950 |   |
| Work in process |   | 3,757                   |    | 2,509                      |   |
| Finished goods  |   | 223,031                 |    | 151,476                    |   |
|            |   | $                       | 256,121 |                       | $      | 187,935 |   |

 

**6.****                                      Earningsper Share**

 

The components of basicand diluted earnings per share are as follows (in thousands):

 
|                                                   |   | **Three  months ended July 31,** | ** ** | **Six months  ended July 31,** | ** ** |
|--------------------------------------------------------|--------|---------------------------------------|------------|-------------------------------------|------------|
|                                                   |   | **2003**                              |       | **2002**                            | ** ** | **2003** | ** ** | **2002** | ** ** |
| Net earnings                                           |   | $                                     | 11,246     |                                | $          | 18,806 |   | $ | 30,873 |   | $ | 31,595 |   |
| Weighted average number of common shares  outstanding: |   |                                  |       |                                |       |   |   |   |   |
| Basic                                                  |   | 45,903                                |       | 46,330                              |       | 45,991 |   | 46,310 |   |
| Dilutive effect of stock options                       |   | 252                                   |       | 380                                 |       | 183 |   | 281 |   |
| Weighted average number of common shares  outstanding: |   |                                  |       |                                |       |   |   |   |   |
| Diluted                                                |   | 46,155                                |       | 46,710                              |       | 46,174 |   | 46,591 |   |
|                                                        |        |                                       |            |                                     |            |  |  |  |  |  |  |  |  |

 

As of July 31, 2003and 2002, options to purchase 60,423 and 40,468 shares of common stock,respectively, are not included in the computation of earnings per share becausethe effect would be antidilutive.

 

**7.****                                      UnusualCharges**

 

At January 31, 2003,the Company had approximately $0.4 million of restructuring charges included inthe Consolidated Balance Sheet, which related to lease obligations.  As a result of payments made during thesix-month period ended July 31, 2003, approximately $0.2 million of leaseobligations were remaining on the balance sheet at July 31, 2003.  The lease obligation continues through thethird quarter of fiscal 2005.

 

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The following is atabular roll forward of the unusual charges described above that were recordedin the balance sheet of the Company:

 
| **(In  thousands)**                |   | **Lease  Obligations** |   |
|------------------------------------|--------|------------------------|--------|
| Balance at January 31, 2003   |   | $                      | 405    |   |
| Payments made against 2002 charges |   | (175                   | )      |
| Balance at July 31, 2003      |   | $                      | 230    |   |

 

**8.****                                      SegmentInformation**

 

Blyth is a globalcompetitor in the gift and decorative accessories market, which the Companycalls the Home Expressions category. Within this category, the Company reports its financial results in twosegments – the Candles & Home Fragrance segment and the CreativeExpressions segment.  Miles Kimball,acquired in April 2003 and Kaemingk, acquired in June 2003 areincluded in the Creative Expressions segment. The Company has operations both inside and outside the United States andsells its products worldwide.

 

In the segment summarytable below, earnings represent net sales less operating expenses directlyrelated to the business segments and corporate expenses allocated to thebusiness segments.  Other expenseincludes interest expense, interest income and equity in earnings of investee,which are not allocated to the business segments.  Identifiable assets for each segment consist of assets useddirectly in its operations and intangible assets, if any, resulting frompurchase business combinations.  Otheridentifiable assets include corporate long-term investments and deferred bondcosts, which are not allocated to the business segments.

 
|                                                                                                         |   | **Three  months ended July 31,** | ** ** | **Six months  ended July 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|------------|-------------------------------------|------------|
| **(In  thousands)**                                                                                          |   | **2003**                              | ** ** | **2002**                            | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Net Sales**                                                                                                |   |                                  |       |                                |       |   |   |   |   |
| Candles & Home Fragrance                                                                                 |   | $                                     | 204,603    |                                | $          | 209,410 |   | $ | 474,698 |   | $ | 469,616 |   |
| Creative Expressions                                                                                         |   | 70,665                                |       | 58,611                              |       | 112,561 |   | 76,301 |   |
| **Total**                                                                                                    |   | $                                     | 275,268    |                                | $          | 268,021 |   | $ | 587,259 |   | $ | 545,917 |   |
| **Earnings**                                                                                                 |   |                                  |       |                                |       |   |   |   |   |
| Candles & Home Fragrance                                                                                 |   | $                                     | 16,922     |                                | $          | 23,330 |   | $ | 51,765 |   | $ | 55,994 |   |
| Creative Expressions                                                                                         |   | 3,797                                 |       | 10,327                              |       | 3,212 |   | 8,571 |   |
|                                                                                                         |   | 20,719                                |       | 33,657                              |       | 54,977 |   | 64,565 |   |
| Other expense                                                                                                |   | (2,885                                | )          | (3,711                              | )          | (6,019 | ) | (7,065 | ) |
| **Earnings before income taxes,  minority interest and cumulative effect of change in accounting principle** |   | $                                     | 17,834     |                                | $          | 29,946 |   | $ | 48,958 |   | $ | 57,500 |   |

 
|                         |   |   |   | **July 31,  2003** | ** ** |   | ** ** | **January 31,  2003** | ** ** |
|------------------------------|--------|--------|--------|-------------------------|------------|--------|------------|----------------------------|------------|
| **Identifiable Assets**      |   |   |   |                    |       |   |       |                       |       |
| Candles & Home Fragrance |   |   |   | $                       | 635,841    |   |       |                       | $          | 693,082 |   |
| Creative Expressions         |   |   |   | 348,359                 |       |   |       | 180,339                    |       |
| Other                        |   |   |   | 12,849                  |       |   |       | 13,237                     |       |
| **Total**                    |   |   |   | $                       | 997,049    |   |       |                       | $          | 886,658 |   |

 

15

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**9.****                                      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, theparties agreed in open court to settle and resolve all matters involving or inany way relating to the previously reported legal proceedings by and betweenthe Company and its wholly-owned subsidiary, Endar Corp., on the one hand, andEnnio Racinelli, Darlene Racinelli and others, on the other hand, by means of awritten settlement and release agreement, without any payment by anyparty.  On August 25, 2003, thecase was dismissed by the Riverside Superior Court.

 

**10.****                               Debt**

 

At July 31, 2003,Miles Kimball had approximately $10.1 million of long-term debt outstandingunder a real estate mortgage note payable to John Hancock Life InsuranceCompany, which matures June 1, 2020. Under the terms of the note, payments of principal and interest arerequired monthly at a fixed interest rate of 7.89%.

 

As of June 30, 2003,Kaemingk had available lines of credit of approximately $39.4 million maturingin March 2004.  The lines of creditare collateralized by certain real estate and equipment owned by Kaemingk.  At June 30, 2003, approximately $10.9million was outstanding at a weighted average interest rate of 2.7%.

 

At June 30, 2003,Kaemingk had approximately $14.1 million of long-term debt outstanding underseven loans with ING Bank N.V. at a weighted average interest rate of4.9%.  The bank loans have maturitydates ranging from 2005 through 2021. The loans are collateralized by certain real estate and equipment ownedby Kaemingk.

 

**11.****                               FireLoss**

 

In July 2003, theCompany’s manufacturing facility located in Monterrey, Mexico was destroyed byfire.  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 will continue to meet production requirements for theimmediate future.  The loss of fixedassets and inventory totaled approximately $8.0 million.  The Company recorded a charge of $0.6million in the quarter ended July 31, 2003 for the insurance deductibleand employee related costs as a result of the fire.  The Company is insured for losses related to this fire.

 

16

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| Item 2. | **MANAGEMENT’S DISCUSSION AND ANALYSIS OF****FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |
|---------|---------------------------------------------------------------------------------------------------|

 

**RESULTSOF OPERATIONS:**

 

**NetSales**

 

Net sales increased $41.4million or 7.6% to $587.3 million in the first six months of fiscal 2004 from$545.9 million in the first six months of fiscal 2003.  Net sales in the quarter ended July 31,2003 increased $7.3 million or 2.7% to $275.3 million compared with $268.0million a year earlier.  There are threeprimary factors affecting net sales in the second quarter.  First, the inclusion of sales from theacquisitions of Miles Kimball in April 2003 and Kaemingk in June 2003had a favorable impact offset by the exclusion of sales from Wax Lyrical, whichwas closed in December 2002. Second, the continued weakness in the US and European economies and theresulting cautious ordering by retailers had a negative impact on sales.  Third, the favorable foreign exchange ratescompared to the US Dollar had a positive impact on reported sales.  Excluding the effect of the acquisitions ofMiles Kimball and Kaemingk, the closure of Wax Lyrical, and the favorableforeign exchange effects, net sales in the quarter ended July 31, 2003decreased approximately 8% compared to the same period a year earlier.

 

Net sales in the Candlesand Home Fragrance segment decreased $4.8 million, or 2.3%, to $204.6 millionin the quarter ended July 31, 2003, compared with $209.4 million in thesame period last year.  PartyLite’sreported net sales in the second quarter were flat when compared to the sameperiod in the prior year.  In the UnitedStates, PartyLite’s second quarter sales were negatively impacted by weakenedconsumer demand as well as a timing shift in the introduction of warm weatherproduct lines that benefited PartyLite’s first quarter.  Offsetting this decline in sales in theUnited States, PartyLite’s second quarter sales in Europe increased 20% inlocal currency due to strong sales in April, which were a result of thewell-received 30th anniversary product offerings.  In the quarter ended July 31, 2003, netsales increases in Blyth’s European wholesale businesses were offset bydecreases in net sales in our North American wholesale premium and mass channelbusinesses when compared to the prior year period.  Net sales of the Sterno Group, or Away From Home business,decreased 11% in the second quarter of fiscal 2004 compared with the sameperiod last year as the travel and tourism industry continues to struggle.

 

Net sales in the CreativeExpressions segment increased $12.1 million, or 20.5%, to $70.7 million in thequarter ended July 31, 2003, compared with $58.6 million in the sameperiod last year.  This increase isattributable to the inclusion of sales from Miles Kimball and, to a lesserextent Kaemingk, which was acquired on June 20, 2003.  Excluding these acquisitions, this segment’ssales declined approximately 13% as a result of reduced consumer spending andretailers’ caution in placing orders.

 

**GrossProfit**

 

Gross profit increased$13.6 million or 5.0% from $282.3 million in the first six months of fiscal2003 to $295.9 million in the first six months of fiscal 2004.  Gross profit margin decreased from 51.8% forthe first six months of fiscal 2003 to 50.4% for the first six months of fiscal2004.  Gross profit in the quarter endedJuly 31, 2003 decreased $2.7 million or 2.1% from $137.3 million for thequarter ended July 31, 2002 to $134.6 million for the quarter endedJuly 31, 2003.  Gross profit margindecreased from 51.3% for the quarter ended July 31, 2002 to 48.9% for thequarter ended July 31, 2003.  Thedecrease in gross profit margin is largely attributable to the inclusion ofMiles Kimball, which has a lower gross profit margin than the overall Companymargin, reduced overhead absorption at the manufacturing facilities due to thedecline in sales demand, and a shift in sales among the businesses.

 

**SellingExpense**

 

Selling expense increased$15.7 million, or 9.6%, from $163.6 million in the first six months of fiscal2003, when selling expense was 30.0% of net sales, to $179.3 million in the firstsix months of fiscal 2004, or 30.6% of net sales.  Selling expense increased $7.0 million, or 9.3%, from $75.2million in the quarter ended July 31, 2002 to $82.2 million in the quarterended July 31, 2003.  As a percentof sales, selling expense was 29.9% in the second quarter of fiscal 2004compared to 28.1% a year earlier.  Theincrease in selling expense is primarily attributable to the addition of MilesKimball.  The increase in sellingexpense as a percentage of net sales

 

17

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from quarter to quarteris a result of the similar level of expenses applied against a decreased levelof sales.

 

**AdministrativeExpense**

 

Administrative expenseincreased $7.6 million, or 14.0%, from $54.1 million in the first six months offiscal 2003 to $61.7 million in the first six months of fiscal 2004.  Administrative expense increased  $3.2 million or 11.2% from $28.4 million inthe quarter ended July 31, 2002 to $31.6 million in the quarter endedJuly 31, 2003.  Administrativeexpenses increased due to the addition of Miles Kimball and Kaemingk, as wellas the recording of a $0.6 million charge related to the fire at the Monterreyfacility, as discussed under the heading “Liquidity and Capital Resources.”

 

**OperatingProfit**

 

Operating profitdecreased $9.6 million, or 14.9%, from $64.6 million in the first six months offiscal 2003 to $55.0 million in the first six months of fiscal 2004.  Operating profit decreased $13.0 million, or38.5%, from $33.7 million in the quarter ended July 31, 2002 to $20.7million in the quarter ended July 31, 2003.  These decreases were the result of the factors described aboveunder “Gross Profit,” “Selling Expense” and “Administrative Expense.”

 

**InterestExpense**

 

Interest expensedecreased $0.5 million in the six-month period ended July 31, 2003, ascompared with the prior year.  Interestexpense decreased $0.2 million in the three months ended July 31, 2003,when compared to the same period last year. This decrease was primarily a result of reduced interest ratesassociated with the interest rate swap, as described in Item 3, Quantitativeand Qualitative Disclosures About Market Risk, under the heading “Interest RateRisk.”

 

**InterestIncome and Other**

 

Interest income and otherincreased $0.6 million in the six-month period ended July 31, 2003, fromthe six-month period ended July 31, 2002. Interest income and other increased $0.4 million in the quarter endedJuly 31, 2003, when compared to the quarter ended July 31, 2002.  These increases are primarily attributableto the $0.5 million gain on the sale of marketable securities that was recordedin the second quarter.

 

**IncomeTaxes**

 

Income tax expensedecreased $3.4 million, or 15.8%, from $21.4 million in the first six months offiscal 2003 to $18.0 million in the same period in the current fiscalyear.  Income tax expense decreased $4.5million, or 41.1%, from $11.1 million in the quarter ended July 31, 2002,to $6.6 million in the quarter ended July 31, 2003.  This decrease is a result of the decreasedlevel of earnings in the current year. The effective tax rate decreased to 36.8% in fiscal 2004 from 37.2% infiscal 2003.

 

**CumulativeEffect of Change in Accounting Principle**

 

The Company recorded aone-time charge of $7.4 million pre-tax, $4.5 million net of income taxes onFebruary 1, 2002, which is reflected as the cumulative effect of a changein accounting principle, as a result of adopting SFAS No. 142, “Goodwill andOther Intangible Assets” (See Note 3 to the Consolidated Financial Statements).

 

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**NetEarnings**

 

As a result of theforegoing, earnings before the cumulative effect of change in accountingprinciple decreased $5.2 million, or 14.3%, from $36.1 million in the sixmonths ended July 31, 2002 to $30.9 million for the six months endedJuly 31, 2003.  Net earnings afterthe cumulative effect of change in accounting principle decreased $0.7 million,or 2.3%, from $31.6 million in the first six months of fiscal 2003 to $30.9 inthe first six months of fiscal 2004. Net earnings decreased $7.6 million, or 40.2%, from $18.8 million in thequarter ended July 31, 2002 to $11.2 million in the quarter endedJuly 31, 2003.

 

Basic earnings per sharebefore the cumulative effect of change in accounting principle, based upon theweighted average number of shares outstanding for the six months endedJuly 31, 2003, were $0.67, a decrease of $0.11, or 14.1% compared to $0.78for the six months ended July 31, 2002. Basic net earnings per share after the cumulative effect of change inaccounting principle, based upon the weighted average number of sharesoutstanding for the six months ended July 31, 2003, were $0.67, a decreaseof $0.01, compared to $0.68 for the six months ended July 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$0.67 compared to $0.78 for the same period the prior year. The cumulativeeffect of change in accounting principle on diluted earnings per share equaled$0.10.  Diluted net earnings per shareafter the cumulative effect of change in accounting principle, based upon thepotential dilution that could occur if options to issue common stock wereexercised, were $0.67, compared to $0.68 for the same period the prior year.

 

**Liquidityand Capital Resources**

 

Compared toJanuary 31, 2003, when inventory levels are typically at the lowest pointof the fiscal year, inventory increased $68.2 million from $187.9 million atJanuary 31, 2003 to $256.1 million at July 31, 2003.  This increase is driven in part by theacquisition of Miles Kimball and Kaemingk. Excluding these acquisitions, inventory increased $26.1 million fromJanuary 31, 2003, which is normal given the seasonal nature of thebusiness.  Excluding Miles Kimball andKaemingk, inventory levels at July 31, 2003 decreased by $15.6 millionwhen compared to July 31, 2002. This decrease is a result of a continued focus on inventory controlthroughout the Company.

 

Accounts receivableincreased $18.8 million from $82.9 million at January 31, 2003 to $101.7million at July 31, 2003. Excluding the effects of the acquisitions of Miles Kimball and Kaemingk,accounts receivable increased $14.4 million due to seasonality.  Excluding Miles Kimball and Kaemingk,accounts receivable decreased $13.0 million when compared to July 31, 2002due to a decrease in sales.

 

Accounts payable andaccrued expenses decreased $4.7 million to $134.8 million at July 31,2003, from $139.5 million at January 31, 2003.  This decrease is primarily related to payments against accrualsthat existed at January 31, 2003. When compared to July 31, 2002, accounts payable and accruedexpenses increased $25.3 million due partly to the inclusion of Miles Kimballand Kaemingk and the recording of the deferred gain from the termination of theinterest rate swap as further discussed in Item 3, Quantitative and QualitativeDisclosures About Market Risk, under the heading “Interest Rate Risk.”

 

In July 2003, theCompany’s manufacturing facility located in Monterrey, Mexico was destroyed byfire.  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 will continue to meet production requirements for theimmediate future.  The loss of fixedassets and inventory totaled approximately $8.0 million.  The Company recorded a charge of $0.6million in the quarter ended July 31, 2003 for the insurance deductibleand employee related costs as a result of the fire.  The Company is insured for losses related to this fire.

 

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Capital expenditures forproperty, plant, and equipment were $11.1 million for the six months endedJuly 31, 2003, as compared with $9.6 million in the prior yearperiod.  Capital expenditures consistedprimarily of investments in information technology and upgrades of equipmentand facilities.  The Company expectstotal capital spending of approximately $25.0 million for fiscal 2004.

 

The Company has a $200million unsecured revolving credit facility having a three-year term (the“Credit Facility”).  The Company has theability to increase the Credit Facility, under certain circumstances, by anadditional $50 million.  The CreditFacility may be used for seasonal working capital needs, general corporatepurposes and funding for strategic acquisitions.  The Credit Facility contains, among other provisions,requirements for maintaining certain financial ratios and limitations oncertain payments.  At July 31,2003, the Company was in compliance with such covenants.  Amounts outstanding under the CreditFacility bear interest, at the Company’s option, at JPMorgan Chase Bank’s primerate (4.0% at July 31, 2003) or at the Eurocurrency rate plus a creditspread ranging from 0.525% to 1.5%, calculated on the basis of a combination ofthe Company’s senior unsecured long-term debt rating and the Company’s usage ofthe Credit Facility.  At July 31,2003, the weighted average interest rate was 3.07%.  On July 31, 2003, approximately $32.3 million wasoutstanding (including $3.2 million of outstanding letters of credit) under theCredit Facility.

 

Asof July 31, 2003, the Company had a total of $15.0 million available underan uncommitted bank line of credit with La Salle Bank National Association,which matures in June 2004. Amounts outstanding under the line of credit bear interest at short-termfixed rates.  No amounts wereoutstanding under the uncommitted line of credit at July 31, 2003.

 

At July 31, 2003,the Company had a total of $10.0 million available under an uncommitted line ofcredit with Bank of America to be used for letters of credit.  At July 31, 2003, approximately $0.5million of letters of credit were outstanding under this credit line.

 

Asof June 30, 2003, The Gies Group (“Gies”) had available lines of credit ofapproximately $40.2 million of which approximately $13.2 million wasoutstanding.  The amounts outstandingunder the lines of credit bear interest at a weighted average rate of 4.0% atJune 30, 2003.  The lines of creditare renewed annually.

 

Colony Gift CorporationLimited (“Colony”) has a $24.8 million short-term revolving credit facilitywith Barclays Bank, which matures in June 2004.  As of June 30, 2003, Colony had borrowings under the creditfacility of approximately $4.8 million, at a weighted average interest rate of4.14%.

 

At July 31, 2003,CBK had $4.7 million of long-term debt outstanding under an Industrial RevenueBond (“IRB”), which matures on January 1, 2025.  The bond is backed by an irrevocable letter of credit issued byLa Salle Bank National Association.  Theamount outstanding under the IRB bears interest at short-term floating rates,which equaled a weighted average interest rate of 1.2% at July 31, 2003.

 

At July 31, 2003,Miles Kimball had approximately $10.1 million of long-term debt outstandingunder a real estate mortgage note payable to John Hancock Life InsuranceCompany, which matures June 1, 2020. Under the terms of the note, paymentsof principal and interest are required monthly at a fixed interest rate of7.89%.

 

As of June 30, 2003,Kaemingk had available lines of credit of approximately $39.4 million maturingin March 2004.  The lines of creditare collateralized by certain real estate and equipment owned by Kaemingk.  At June 30, 2003, approximately $10.9million was outstanding at a weighted average interest rate of 2.7%.

 

At June 30, 2003,Kaemingk had approximately $14.1 million of long-term debt outstanding underseven loans with ING Bank N.V. at a weighted average interest rate of4.9%.  The bank loans have maturitydates ranging from 2005 through 2021. The loans are collateralized by certain real estate and equipment ownedby Kaemingk.

 

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Net cash used inoperating activities amounted to $19.9 million for the six months endedJuly 31, 2003, compared to $12.6 million used in operating activities forthe six months ended July 31, 2002. The decrease in cash flow from operations relates primarily to changesin the Company’s working capital and the absence of the $4.5 million cumulativeeffect adjustment related to the goodwill impairment at the Sterno Group thatwas recorded in fiscal 2003.

 

The Company’s Board ofDirectors has authorized the Company to repurchase up to 6,000,000 shares ofcommon stock under the share repurchase program.  In the second quarter of fiscal 2004, the Company purchased259,400 shares on the open market for a cost of $7.0 million, bringing theyear-to-date total to 371,200 shares at a cost of $9.8 million.  Since the program inception, the Company haspurchased 4,015,300 shares at a total cost of $96.4 million.  The acquired shares are held as common stockin the treasury at cost.

 

On September 4,2003, the Company declared a cash dividend of $0.15 per share of the Company’scommon stock for the six months ended July 31, 2003.  This represents an increase of $0.02 pershare or 15%, above the most recent dividend. The dividend is payable to shareholders of record as of October 31,2003 and will be paid on November 14, 2003.

 

**CriticalAccounting Policies**

 

For a discussion of the Company’scritical accounting policies see our Annual Report on Form 10-K for the fiscalyear ended January 31, 2003.

 

**Impactof Adoption of Recently Issued Accounting Standards**

 

In January 2003, theFASB issued Financial Interpretation No. 46, “Consolidation of VariableInterest Entities,” which is an interpretation of Accounting Research BulletinNo. 51, “Consolidated Financial Statements,” and addresses consolidation bybusiness enterprises of variable interest entities that have specificcharacteristics as described in the Interpretation. This Interpretation waseffective immediately with respect to variable interest entities created afterJanuary 31, 2003, and to variable interest entities in which an enterpriseobtains an interest after that date. It applies in the first fiscal year orinterim period beginning after June 15, 2003, to variable interestentities in which an enterprise holds a variable interest that it acquiredbefore February 1, 2003.  Theimplementation of this standard had no impact on our financial statements.

 

In April 2003, theFASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instrumentsand Hedging Activities.”  This statementamends and clarifies financial accounting and reporting for derivativeinstruments, including certain derivative instruments embedded in othercontracts (collectively referred to as derivatives) and for hedging activitiesunder FASB Statement No. 133, “Accounting for Derivative Instruments andHedging Activities.”  This standard iseffective for derivative contracts entered into or modified after June 30,2003. The implementation of this standard had no impact on our financialstatements.

 

In May 2003, theFASB issued SFAS No. 150, “Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity.” This Statement establishesstandards for how an issuer classifies and measures certain financialinstruments with characteristics of both liabilities and equity.  It requires that an issuer classify afinancial instrument that is within its scope as a liability (or an asset insome circumstances).  This standard iseffective for financial instruments entered into or modified after May 31,2003. The implementation of this standard had no impact on our financialstatements.

 

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Item3.**  QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

**MarketRisk**

 

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

 

**InterestRate Risk**

 

As of July 31, 2003,the Company is subject to interest rate risk on approximately $71.0 million ofvariable rate debt.  Each 10% increasein the interest rate would impact pre-tax earnings by approximately $7.1million if applied to the total.

 

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

 

**ForeignCurrency Risk**

 

TheCompany uses forwardforeign exchange contracts to hedge the impact of foreign currency fluctuationson certain committed capital expenditures, certain inventory purchases,Canadian intercompany payables and certain intercompany loans.  The Company does not hold or issuederivative financial instruments for trading purposes.

 

The Company hasdesignated its forward exchange contracts on Canadian intercompany purchasesand forecasted future purchase commitments as cash flow hedges and, as such, aslong as the hedge remains effective and the underlying transaction remainsprobable, the effective portion of the changes in the fair value of thesecontracts will be recorded in accumulated other comprehensive income (loss)(“OCI”) until earnings are affected by the variability of the cash flows beinghedged.  With regard to commitments formachinery and equipment and inventory purchases, upon payment of eachcommitment, the underlying forward contract is closed and the correspondinggain or loss is transferred from accumulated OCI and is included in themeasurement cost of the acquired asset. If a hedging instrument is sold or terminated prior to maturity, gainsand losses are deferred in accumulated OCI until the hedged item issettled.  However, if the hedged item isno longer likely to occur, the resultant gain or loss on the terminated hedgeis recognized into earnings immediately. Approximately $294,000 of hedge losses are included in accumulated OCIat July 31, 2003, and are expected to be transferred into earnings withinthe next twelve months.

 

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

 

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

 

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The followingtable provides information about the Company’s foreign exchange forwardcontracts at July 31, 2003.

 
| **(In  thousands, except average contract rate)** |   | **U.S.  Dollar  Notional Amount** | ** ** | **Average  Contract Rate** | ** ** | **Estimated  Fair Value** | ** ** |
|---------------------------------------------------|--------|-----------------------------------|------------|----------------------------|------------|---------------------------|------------|
| Canadian Dollar                                   |   | $                                 | 12,821     |                       | 1.47       |                      | $          | (483 | ) |
| Euro                                              |   | 40,831                            |       | 1.09                       |       | (888                      | )          |
| Pound Sterling                                    |   | 12,740                            |       | 1.59                       |       | (119                      | )          |
|                                              |   | $                                 | 66,392     |                       |       |                      | $          | (1,490 | ) |

 

The foreign exchangecontracts outstanding as of July 31, 2003, have maturity dates rangingfrom August 2003 through March 2004.

 

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Item4. ** CONTROLS ANDPROCEDURES**

 

(a) Evaluation of disclosurecontrols and procedures.

 

Our management, with theparticipation of our principal executive officer and our principal financialofficer, evaluated the effectiveness of our disclosure controls and procedures(as defined in Securities Exchange Act of 1934 (“Exchange Act”) Rules 13a-15(e)or 15d-15(e)) as of the end of the period covered by this quarterly report asrequired by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.  Based upon this evaluation, our principalexecutive officer and our principal financial officer have concluded that ourdisclosure controls and procedures are effective as of the end of the periodcovered by this quarterly report.

 

(b) Changes in internalcontrol over financial reporting.

 

There was no change inour internal control over financial reporting identified in connection with theevaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15that occurred during our last fiscal quarter that has materially affected, oris reasonably likely to materially affect, our internal control over financialreporting.

 

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PartII.  **OTHERINFORMATION**

 

**Item1.  LegalProceedings**

 

On June 2, 2003, theparties agreed in open court to settle and resolve all matters involving or inany way relating to the previously reported legal proceedings by and betweenthe Company and its wholly-owned subsidiary, Endar Corp., on the one hand, andEnnio Racinelli, Darlene Racinelli and others, on the other hand, by means of awritten settlement and release agreement, without any payment by anyparty.  On August 25, 2003, thecase was dismissed by the Riverside Superior Court.

 

**Item2.  Changesin Securities**

None

 

**Item3.  Defaults upon Senior Securities**

None

 

**Item4.  Submission of Matters to a Vote ofSecurity Holders**

 

The following matterswere voted upon at the Annual Meeting of Stockholders held on June 4,2003, and received the votes set forth below:

 

1)              Each of thefollowing persons nominated was elected to serve as director and received thenumber of votes set forth opposite his name.

 
|              |   | **For**    |   | **Against** | ** ** | **Withheld** | ** ** | **Abstentions** | ** ** |
|-------------------|--------|------------|--------|-------------|------------|--------------|------------|-----------------|------------|
| Roger A. Anderson |   | 36,324,630 |   | 0           |       | 6,299,499    |       | 0               |       |
| Pamela M. Goergen |   | 42,239,726 |   | 0           |       | 384,403      |       | 0               |       |
| Carol J. Hochman  |   | 42,441,336 |   | 0           |       | 182,793      |       | 0               |       |

 

In addition to the directors elected at the meeting,the directors of the Company whose terms of office continued after the meetingare:  John W. Burkhart, Robert B.Goergen, Neal I. Goldman, Phillip Greer, John E. Preschlack and Howard E. Rose.

 

2)              A proposal to ratifythe appointment of PricewaterhouseCoopers LLP as independent certified publicaccountants received 34,468,292 votes for, 8,140,781 votes against, 0 voteswithheld and 15,056 abstentions.

 

3)              A resolution toadopt the Company’s 2003 Long-Term Incentive Plan received 33,087,013 votesfor, 6,787,506 votes against, 0 votes withheld and 275,538 abstentions.  In addition there were 2,474,072 brokernon-votes with respect to this resolution.

 

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**Item5.  Other Information**

 

On July 16, 2003,the Company provided notice to all of its directors, officers and employeesregarding a blackout period for trading in the Company’s stock.  The blackout period was imposed in order toensure that directors, officers and employees of the Company would not besubject to claims that they traded on the basis of inside information.  The blackout period began on July 31,2003, the last business day of the Company’s second fiscal quarter, andcontinued until three business days after the release of the Company’squarterly earnings report to the public, or September 2, 2003.  The information contained in this Item 5 isbeing furnished pursuant to Item 11 of Form 8-K.

 

The Company is includingthe following cautionary statement in this Report to make applicable, and totake advantage of, the safe harbor provisions of the Private SecuritiesLitigation Reform Act of 1995 for any forward-looking statements made by, or onbehalf of, the Company.  Forward-lookingstatements include statements concerning plans, objectives, goals, strategies,future events or performance and underlying assumptions and other statements,which are other than statements of historical facts.  From time to time, the Company and its representatives maypublish or otherwise make available forward-looking statements of thisnature.  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, uponfurther assumptions.

 

There can be no assurancethat management’s expectations, beliefs or projections will occur or beachieved 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-looking statements.  The Company disclaims any obligation toupdate any forward-looking statements, or the following factors, to reflectevents or circumstances after the date of this Report.

 

Risk of Inability toMaintain Growth Rate

 

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

 

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Ability to Respond toIncreased Product Demand

 

Our ability to meetfuture demand for candles and home fragrance products and creative expressionsproducts will be dependent upon success in (1) bringing new production anddistribution capacity on line in a timely manner, (2) improving our ability toforecast anticipated product demand in order to continue to fill customerorders promptly, (3) improving management information systems in order torespond promptly to customer orders and (4) training, motivating and managingnew employees.  If we are unable to meetfuture demand for products in a timely and efficient manner, our operatingresults could be materially adversely affected.

 

Risks Associated withInternational Sales and Foreign-Sourced Products

 

Our internationalbusiness has grown at a faster rate than sales in the United States in recentyears.  In addition, we source a portionof our candles, accessories and decorative gift bags and home and seasonaldécor products from independent manufacturers in the Pacific Rim, Europe andMexico.  For these reasons, we aresubject to the following risks associated with foreign manufacturing and sales:fluctuations in 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).

 

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 shortageshave not previously had, and are not presently expected to have, a materialadverse effect on the Company’s operations. It is possible, however, that recent increases in oil prices may have amaterial adverse effect on availability of petroleum-based products used in themanufacture of our candles and home fragrance products.

 

Dependence on KeyCorporate Management Personnel

 

Our success depends uponthe contributions of key corporate management personnel, including ourChairman, Chief Executive Officer and President, Robert B. Goergen.  We do not have employment contracts with anyof our key corporate management personnel except for Mr. Goergen, nor do wemaintain any key person life insurance policies.  The loss of any of the key corporate management personnel couldhave a material adverse effect on the Company.

 

Competition

 

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

 

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**Item6.  Exhibits and Reports on Form 8-K**

 

a)              Exhibits

 
| 31.1   |   | Certification of Chairman, Chief Executive Officer  and President pursuant to Rule 13a-14(a) under the Securities Exchange Act of  1934. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                     |
| 31.2   |   | Certification of Vice President and Chief Financial  Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.       |
|   |   |                                                                                                                                     |
| 32.1   |   | Certification  of Chairman, Chief Executive Officer and President pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002        |
|   |   |                                                                                                                                     |
| 32.2   |   | Certification  of Vice President and Chief Financial Officer pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002             |

 

b)             Reports on Form 8-K

 

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

 
| Current Report  on Form 8-K on June 4, 2003 to file as an exhibit the press release  reporting the Company’s results of operations for the fiscal quarter ended  April 30, 2003.                       |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                  |
| Current Report  on Form 8-K on July 10, 2003 to file as an exhibit the press release  announcing the Company’s acquisition of Kaemingk B.V.                                                                 |
|                                                                                                                                                                                                                  |
| Current Report  on Form 8-K on July 25, 2003 to file as an exhibit the press release  reporting the second quarter earnings expectations and full year outlook for  the fiscal year ended January 31, 2004. |

 

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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:  | September 15, 2003 |                                        | By: | /s/Robert B.  Goergen |   |
|   |                    | Robert B.  Goergen                          |
|   |                    | President and Chief  Executive Officer      |
|   |                    |                                        |   |
|   |                    |                                        |   |
| Date:  | September 15, 2003 |                                        | By: | /s/Robert H.  Barghaus |   |
|   |                    | Robert H.  Barghaus                         |
|   |                    | Vice President  and Chief Financial Officer |
|        |                         |                                             |  |  |  |  |

 

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