**FORM 10-Q**

 

**SECURITIES AND EXCHANGE COMMISSION**

**Washington D.C. 20549**

 

| **(Mark One)**                     |                                                                                                                                                                                                       |
|------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                               |
| **ý**                         | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                               |
|                               |                                                                                                                                                                                                       |
|                               | **For the quarterly  period ended April 30, 2003**                                                                                                                                                         |
|                               |                                                                                                                                                                                                       |
| **or**                             |
|                               |                                                                                                                                                                                                       |
| **o**                              | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                              |
|                               |                                                                                                                                                                                                       |
|                               | **For the transition period from                 to              ** |
|                               |                                                                                                                                                                                                       |
| **Commission file number 1-13026** |
|                                    |                                                                                                                                                                                                            |  |

 

**BLYTH, INC.**

(Exact name of registrant as specified in itscharter)

 

| **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 Act of1934 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 whetherthe registrant is an accelerated filed (as defined in Exchange Act Rule 12b-2).

Yes  ý      No  o

 

Indicate the number of sharesoutstanding of each of the registrant’s classes of common stock, as of thelatest practicable date.

 

**45,946,727 Common Shares as of May 31, 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.                                               | Control  and Procedures |   |
|                 |                                                  |
| Part  II.            | Other  Information                                    |   |
|                 |                                                  |
|                 | Item 1.                                               | Legal  Proceedings |   |
|                 |                                                  |
|                 | Item 2.                                               | Changes in Securities |   |
|                 |                                                  |
|                 | Item 3.                                               | Defaults upon Senior Securities |   |
|                 |                                                  |
|                 | Item 4.                                               | Submission of Matters to a Vote of Security  Holders |   |
|                 |                                                  |
|                 | Item 5.                                               | Other Information |   |
|                 |                                                  |
|                 | Item 6.                                               | Exhibits and Reports on Form 8-K |   |
|                 |                                                  |
| Signatures           |                                                  |
|                 |                                                  |
| Certifications       |                                                  |
|                      |                                                       |  |  |  |  |

 

2

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Part I.   FINANCIAL INFORMATION

Item 1.   FINANCIAL STATEMENTS

 

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

 
| **(In thousands, except share and per share data)**                                                                             |   | **April 30,  2003** |    | **January  31,  2003** |   |
|---------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|---------|------------------------|--------|
|                                                                                                                            |   | **(Unaudited)**     |    |                   |   |
| **ASSETS**                                                                                                                      |   |                |    |                   |   |
| **Current assets:**                                                                                                             |   |                |    |                   |   |
| Cash and cash equivalents                                                                                                       |   | $                   | 122,391 |                   | $      | 168,596 |   |
| Accounts receivable, less allowance for  doubtful receivables of $3,731 and $4,093, respectively                                |   | 83,972              |    | 82,913                 |   |
| Inventories                                                                                                                     |   | 200,450             |    | 187,935                |   |
| Prepaid and other                                                                                                               |   | 21,972              |    | 15,226                 |   |
| Deferred income taxes                                                                                                           |   | 20,628              |    | 17,767                 |   |
| Total current assets                                                                                                            |   | 449,413             |    | 472,437                |   |
| **Property, plant and equipment, at cost:**                                                                                     |   |                |    |                   |   |
| Less accumulated depreciation of $186,119  and $178,397, respectively                                                           |   | 260,227             |    | 244,798                |   |
| **Other assets:**                                                                                                               |   |                |    |                   |   |
| Investments                                                                                                                     |   | 3,795               |    | 3,564                  |   |
| Excess of cost over fair value of assets  acquired                                                                              |   | 196,141             |    | 149,365                |   |
| Other intangible assets, net of accumulated  amortization of $150                                                               |   | 24,950              |    | —                 |   |
| Deposits and other assets                                                                                                       |   | 18,118              |    | 16,494                 |   |
|                                                                                                                            |   | 242,999             |    | 169,423                |   |
| Total assets                                                                                                                    |   | $                   | 952,639 |                   | $      | 886,658 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                   |   |                |    |                   |   |
| **Current liabilities:**                                                                                                        |   |                |    |                   |   |
| Bank lines of credit                                                                                                            |   | $                   | 15,372  |                   | $      | 7,377 |   |
| Current maturities of long-term debt                                                                                            |   | 4,411               |    | 4,037                  |   |
| Accounts payable                                                                                                                |   | 60,317              |    | 58,571                 |   |
| Accrued expenses                                                                                                                |   | 75,520              |    | 80,953                 |   |
| Dividend payable                                                                                                                |   | 5,979               |    | —                 |   |
| Income taxes                                                                                                                    |   | 16,007              |    | 2,685                  |   |
| Total current liabilities                                                                                                       |   | 177,606             |    | 153,623                |   |
| **Deferred income taxes**                                                                                                       |   | 36,700              |    | 24,280                 |   |
| **Long-term debt,**  less current maturities                                                                                    |   | 176,084             |    | 165,079                |   |
| **Minority interest and other**                                                                                                 |   | 10,933              |    | 4,212                  |   |
| **Commitments and contingencies**                                                                                               |   | —              |    | —                 |   |
| **Stockholders’ equity:**                                                                                                  |   |                |    |                   |   |
| Preferred stock - authorized 10,000,000  shares of $0.01 par value; no shares issued                                            |   | —              |    | —                 |   |
| Common stock - authorized 100,000,000  shares of $0.02 par value; issued 49,733,227 shares and 49,703,682 shares,  respectively |   | 995                 |    | 994                    |   |
| Additional contributed capital                                                                                                  |   | 101,906             |    | 101,567                |   |
| Retained earnings                                                                                                               |   | 537,513             |    | 523,865                |   |
| Accumulated other comprehensive income  (loss)                                                                                  |   | 315                 |    | (377                   | )      |
| Treasury stock, at cost, 3,755,900 shares and  3,644,100 shares, respectively                                                   |   | (89,413             | )       | (86,585                | )      |
| Total stockholders’ equity                                                                                                 |   | 551,316             |    | 539,464                |   |
| Total liabilities and stockholders’ equity                                                                                 |   | $                   | 952,639 |                   | $      | 886,658 |   |

 

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

 

3

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**BLYTH, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF EARNINGS**

 
| **Three months ended April 30, (Unaudited, in thousands,  except per share data)**                       |   | **2003** |    | **2002** |   |
|----------------------------------------------------------------------------------------------------------|--------|----------|---------|----------|--------|
|                                                                                                     |   |     |    |     |   |
| Net sales                                                                                                |   | $        | 311,991 |     | $      | 277,896 |   |
| Cost of goods sold                                                                                       |   | 150,595  |    | 132,888  |   |
| Gross profit                                                                                             |   | 161,396  |    | 145,008  |   |
| Selling                                                                                                  |   | 97,069   |    | 88,407   |   |
| Administrative                                                                                           |   | 30,069   |    | 25,693   |   |
|                                                                                                     |   | 127,138  |    | 114,100  |   |
| Operating profit                                                                                         |   | 34,258   |    | 30,908   |   |
| Other expense (income):                                                                                  |   |     |    |     |   |
| Interest expense                                                                                         |   | 3,590    |    | 3,823    |   |
| Interest income and other                                                                                |   | (591     | )       | (441     | )      |
| Equity in (earnings) loss of investee                                                                    |   | 135      |    | (28      | )      |
|                                                                                                     |   | 3,134    |    | 3,354    |   |
| Earnings before income taxes, minority  interest and cumulative effect of change in accounting principle |   | 31,124   |    | 27,554   |   |
| Income tax expense                                                                                       |   | 11,453   |    | 10,250   |   |
| Earnings before minority interest and  cumulative effect of change in accounting principle               |   | 19,671   |    | 17,304   |   |
| Minority interest                                                                                        |   | (44      | )       | —   |   |
| Cumulative effect of change in accounting  principle, net of taxes of $2,887                             |   | —   |    | (4,515   | )      |
| Net earnings                                                                                             |   | $        | 19,627  |     | $      | 12,789 |   |
| Basic:                                                                                                   |   |     |    |     |   |
| Earnings per common share before cumulative  effect of change in accounting principle                    |   | $        | 0.43    |     | $      | 0.37 |   |
| Cumulative effect of change in accounting  principle                                                     |   | —   |    | (0.10    | )      |
|                                                                                                     |   | $        | 0.43    |     | $      | 0.28 |  (1) |
| Weighted average number of shares  outstanding                                                           |   | 46,080   |    | 46,290   |   |
| Diluted:                                                                                                 |   |     |    |     |   |
| Earnings per common share before cumulative  effect of change in accounting principle                    |   | $        | 0.42    |     | $      | 0.37 |   |
| Cumulative effect of change in accounting  principle                                                     |   | —   |    | (0.10    | )      |
|                                                                                                     |   | $        | 0.42    |     | $      | 0.28 |  (1) |
| Weighted average number of shares  outstanding                                                           |   | 46,208   |    | 46,474   |   |

 

----

(1)  Net earnings per shareamounts for the three months ended April 30, 2002 do not foot due to rounding.

 

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

 

4

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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 three months ended April 30, 2002:**                      |       |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       |   |   |   |   |
|                                                                |       |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       |   |   |   |   |
| Balance, January 31, 2002                                           |       | 49,509,776       |       | $                                    | 990        |                   | $          | 97,879             |       | $                                                    | 449,038    |      | (2,630,900 | ) | $ | (62,950 | ) | $ | (16,894 | ) | $ | 468,063 |   |
|                                                                |       |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       |   |   |   |   |
| Net earnings for the period                                         |       |             |       |                                 |       |                   |       | 12,789             |       |                                                 |       |      |       |   |   | 12,789 |   |
| Foreign currency translation adjustments                            |       |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       | (2,914 | ) | (2,914 | ) |
| Unrealized holding gains on certain investments (net of tax of $27) |       |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       | 44 |   | 44 |   |
| Net loss on cash flow hedging instruments (net of tax of $9)        |       |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       | (15 | ) | (15 | ) |
| Comprehensive income                                                |       |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       |   |   | 9,904 |   |
|                                                                |       |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       |   |   |   |   |
| Common stock issued in connection with exercise of stock options    |       | 105,065          |       | 2                                    |       | 1,709                  |       |               |       |                                                 |       |      |       |   |   | 1,711 |   |
| Tax benefit from stock options                                      |       |             |       |                                 |       | 124                    |       |               |       |                                                 |       |      |       |   |   | 124 |   |
| Dividends declared                                                  |       |             |       | —                               |       |                   |       | (5,098             | )          |                                                 |       |      |       |   |   | (5,098 | ) |
|                                                                |       |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       |   |   |   |   |
| Treasury stock purchases                                            |       | —           |       |                                 |       |                   |       |               |       | (638,700                                             | )          | (13,660   | )          |   |   | (13,660 | ) |
|                                                                |       |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       |   |   |   |   |
| Balance, April 30, 2002                                             |       | 49,614,841       |       | $                                    | 992        |                   | $          | 99,712             |       | $                                                    | 456,729    |      | (3,269,600 | ) | $ | (76,610 | ) | $ | (19,779 | ) | $ | 461,044 |   |
|                                                                |       |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       |   |   |   |   |
| **For the three months ended April 30, 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                                         |       |             |       |                                 |       |                   |       | 19,627             |       |                                                 |       |      |       |   |   | 19,627 |   |
| Foreign currency translation adjustments                            |       |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       | 1,117 |   | 1,117 |   |
| Unrealized holding loss on certain investments (net of tax of $31)  |       |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       | (52 | ) | (52 | ) |
| Net loss on cash flow hedging instruments (net of tax of $217)      |       |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       | (373 | ) | (373 | ) |
|                                                                |       |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       |   |   |   |   |
| Comprehensive income                                                |       |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       |   |   | 20,319 |   |
|                                                                |       |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       |   |   |   |   |
| Common stock issued in connection with exercise of stock options    |       | 29,545           |       | 1                                    |       | 334                    |       |               |       |                                                 |       |      |       |   |   | 335 |   |
|                                                                |       |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       |   |   |   |   |
| Tax benefit from stock options                                      |       |             |       |                                 |       | 5                      |       |               |       |                                                 |       |      |       |   |   | 5 |   |
| Dividends declared                                                  |       |             |       |                                 |       | —                 |       | (5,979             | )          |                                                 |       |      |       |   |   | (5,979 | ) |
|                                                                |       |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       |   |   |   |   |
| Treasury stock purchases                                            |       |             |       |                                 |       |                   |       | —             |       | (111,800                                             | )          | (2,828    | )          |   |   | (2,828 | ) |
|                                                                |       |             |       |                                 |       |                   |       |               |       |                                                 |       |      |       |   |   |   |   |
| Balance, April 30, 2003                                             |       | 49,733,227       |       | $                                    | 995        |                   | $          | 101,906            |       | $                                                    | 537,513    |      | (3,755,900 | ) | $ | (89,413 | ) | $ | 315 |   | $ | 551,316 |   |

 

***The accompanying notes are anintegral part of these financial statements.***

 

5

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**BLYTH, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| **Three months ended April 30, (Unaudited, in thousands)**                            |   | **2003** |    | **2002** |   |
|---------------------------------------------------------------------------------------|--------|----------|---------|----------|--------|
| Cash flows from operating activities:                                                 |   |     |    |     |   |
| Net earnings                                                                          |   | $        | 19,627  |     | $      | 12,789 |   |
| Adjustments to reconcile net earnings to  net cash provided by operating activities:  |   |     |    |     |   |
| Cumulative effect of change in accounting  principle, net of tax                      |   | —   |    | 4,515    |   |
| Depreciation and amortization                                                         |   | 7,872    |    | 7,549    |   |
| Tax benefit from stock options                                                        |   | 5        |    | 124      |   |
| Deferred income taxes                                                                 |   | (409     | )       | 529      |   |
| Equity in earnings of investee                                                        |   | 135      |    | (28      | )      |
| Minority interest                                                                     |   | 44       |    | —   |   |
| Changes in operating assets and  liabilities, net of effect of business acquisitions: |   |     |    |     |   |
| Accounts receivable                                                                   |   | 65       |    | 8,520    |   |
| Inventories                                                                           |   | (2,532   | )       | 2,965    |   |
| Prepaid and other                                                                     |   | (4,721   | )       | (7,043   | )      |
| Deposits and other assets                                                             |   | (330     | )       | (168     | )      |
| Accounts payable                                                                      |   | (4,772   | )       | (2,556   | )      |
| Accrued expenses                                                                      |   | (7,081   | )       | (1,648   | )      |
| Other liabilities                                                                     |   | 884      |    | 708      |   |
| Income taxes                                                                          |   | 10,713   |    | 4,958    |   |
| Total adjustments                                                                     |   | (127     | )       | 18,425   |   |
| Net cash provided by operating activities                                             |   | 19,500   |    | 31,214   |   |
| Cash flows from investing activities:                                                 |   |     |    |     |   |
| Purchases of property, plant and equipment                                            |   | (4,751   | )       | (2,984   | )      |
| Purchases of long-term investment                                                     |   | (360     | )       | —   |   |
| Purchase of businesses, net of cash  acquired                                         |   | (65,974  | )       | (10      | )      |
| Net cash used in investing activities                                                 |   | (71,085  | )       | (2,994   | )      |
| Cash flows from financing activities:                                                 |   |     |    |     |   |
| Proceeds from issuance of common stock                                                |   | 335      |    | 1,711    |   |
| Purchase of treasury stock                                                            |   | (2,828   | )       | (13,660  | )      |
| Borrowings from bank line of credit                                                   |   | 9,325    |    | 4,031    |   |
| Repayments on bank line of credit                                                     |   | (1,335   | )       | (324     | )      |
| Repayments on long-term debt                                                          |   | (117     | )       | (201     | )      |
| Net cash provided by (used in) financing  activities                                  |   | 5,380    |    | (8,443   | )      |
| Net increase (decrease) in cash and cash equivalents                                  |   | (46,205  | )       | 19,777   |   |
| Cash and cash equivalents at beginning of  period                                     |   | 168,596  |    | 135,357  |   |
| Cash and cash equivalents at end of period                                            |   | $        | 122,391 |     | $      | 155,134 |   |
| Non-cash financing activities:                                                        |   |     |    |     |   |
| Cash dividend declared, $0.13 per share in  2003 and $0.11 in 2002                    |   | $        | 5,979   |     | $      | 5,098 |   |

 

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

 

6

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**BLYTH, INC. ANDSUBSIDIARIES**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**1.****                                      Basisof Presentation**

 

Blyth is a global competitor in the gift and decorative accessoriesmarket, which the Company calls the Home Expressions category.  Within this category, the Company reportsits financial results in two segments – the Candles & Home Fragrancesegment and the Creative Expressions segment.

 

Within the Candles & Home Fragrance segment, the Company designs,manufactures and markets an extensive line of products including scentedcandles, potpourri and other fragranced products, and markets a broad range ofrelated candle accessories, as well as tabletop illumination products andchafing fuel.  These products are solddirect to the consumer under the PartyLite® brand, to retailers in the premium andspecialty retail channels under the Colonial Candle of Cape Cod®, Colonial atHOMEâ, Carolina®, andKate’sTM brands, in the mass retail channel under the Florasense®, AmbriaTM, andFilterMate® brands and to the foodservice, or Away From Home, industry underthe Sterno®, AmbriaTM, 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 Company designs, sourcesor manufactures and markets a broad range of home décor, household convenienceitems, premium photo albums, frames, holiday cards and giftware products underthe CBK®, Miles Kimballâand Exposuresâ brands, seasonal accents under the Seasons ofCannon FallsÔ and ImpactÔbrands, and decorative gift bags under the Jeanmarie® brand.

 

The consolidated financial statements include the accounts of theCompany, and its direct and indirect subsidiaries.  All significant intercompany accounts and transactions have beeneliminated.  Investments in companies,which are not majority owned or controlled, are reported using the equitymethod and are recorded in 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 year accounting period,which is consolidated with the Company’s fiscal period.  In the opinion of management, theaccompanying unaudited consolidated financial statements include all normalrecurring accruals necessary for fair presentation of the Company’sconsolidated financial position at April 30, 2003 and the consolidated resultsof its operations and cash flows for the three-month periods ended April 30,2003 and 2002. These interim statements should be read in conjunction with theCompany’s consolidated financial statements for the year ended January 31,2003, as set forth in the Company’s Annual Report on Form 10-K.  Operating results for the three months endedApril 30, 2003 are not necessarily indicative of the results that may be expectedfor the year ending January 31, 2004.

 

**Reclassifications**

 

Certain reclassifications have been made in prior years’ financialstatements to conform to classifications used in the current year.

 

----

(1)             Gies is registered and sold only outsidethe United States.

 

7

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**Employee Stock Options**

 

TheCompany accounts for stock-based compensation under the intrinsic value-basedmethod of accounting, whereby no compensation expense is recorded for stockoptions issued to employees unless the option price is below market at the timeoptions are granted.  The Company doesnot at this time, issue stock options below market value, therefore nocompensation expense has been recorded in the financial statements.  The following pro forma net earnings and netearnings per common share data are presented for informational purposes onlyand have been computed using the fair value method of accounting forstock-based compensation:

 

Threemonths ended (In thousands, except per share data)

 
|                                                                                                        |   | **April 30,  2003** |   | **April 30,  2002** |   |
|-------------------------------------------------------------------------------------------------------------|--------|---------------------|--------|---------------------|--------|
| Net earnings:                                                                                               |   |                |   |                |   |
| As reported                                                                                                 |   | $                   | 19,627 |                | $      | 12,789 |   |
| Stock-based employee compensation expense determined under SFAS No.  123 for all awards, net of related tax |   | 927                 |   | 993                 |   |
| Pro forma                                                                                                   |   | $                   | 18,700 |                | $      | 11,796 |   |
| Net earnings per common share:                                                                              |   |                |   |                |   |
| As reported:                                                                                                |   |                |   |                |   |
| Basic                                                                                                       |   | $                   | 0.43   |                | $      | 0.28 |   |
| Diluted                                                                                                     |   | 0.42                |   | 0.28                |   |
| Pro forma:                                                                                                  |   |                |   |                |   |
| Basic                                                                                                       |   | $                   | 0.41   |                | $      | 0.25 |   |
| Diluted                                                                                                     |   | 0.39                |   | 0.25                |   |

 

The fair value of each option is estimated onthe date of grant, using the Black-Scholes option pricing model with thefollowing weighted-average assumptions used for grants in fiscal quarters endedApril 30, 2003 and April 30, 2002, respectively: expected volatility was 40.75%for the first quarter of fiscal 2004 and 39.82% for the first quarter of fiscal2003; risk-free interest rates at 2.71% for the first quarter of fiscal 2004and 2.76% to 4.66% for the first quarter of fiscal 2003; expected life of 5years for the first quarter of fiscal 2004 and 2003 and an expected dividendyield of 0.99%.

 

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

 

In June 2002, the FASB issued SFAS No. 146, “Accounting for CostsAssociated with Exit or Disposal Activities.” This standard addresses financial accounting and reporting for costsassociated with exit or disposal activities and nullifies Emerging Issues TaskForce (EITF) Issue No. 94-3, “Liability Recognition for Certain EmployeeTermination Benefits and Other Costs to Exit an Activity (including CertainCosts incurred in a Restructuring).” This standard was effective for exit or disposal activities that areinitiated after December 31, 2002.  Theimplementation of this standard has not had an impact on our financialstatements.

 

In January 2003, the FASB issued Financial Interpretation No. 46,“Consolidation of Variable Interest Entities,” which is an interpretation ofAccounting Research Bulletin No. 51, “Consolidated Financial Statements,” andaddresses consolidation by business enterprises of variable interest entitiesthat have specific characteristics as described in the Interpretation. ThisInterpretation was effective immediately to variable interest entities createdafter January 31, 2003, and to variable interest entities in which anenterprise obtains an interest after that date. It applies in the first fiscalyear or interim period beginning after June 15, 2003, to variable interestentities in which an enterprise holds a variable interest that it acquiredbefore February 1, 2003.  The Companyhas evaluated the impact of this interpretation and we do not expect it to havea significant impact on our financial statements.

 

8

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In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement133 on Derivative Instruments and Hedging Activities.”  This statement amends and clarifies financialaccounting and reporting for derivative instruments, including certainderivative instruments embedded in other contracts (collectively referred to asderivatives) and for hedging activities under FASB Statement No. 133,“Accounting for Derivative Instruments and Hedging Activities.”  This standard is effective for derivativecontracts entered into or modified after June 30, 2003. We do not expect thatimplementation of this standard will have a significant impact on our financialstatements.

 

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

 

**3.****                                      GoodwillImpairment**

 

The Company adopted SFAS 142, effective February 1, 2002. In accordancewith the new standard, Blyth ceased amortization of goodwill and performed anassessment for impairment of its goodwill. As a result of the impairmentreview, Blyth reduced the carrying value of the goodwill related to itsacquisition of the Sternoâbrand in 1997 by $7.4 million. The fair value of The Sterno Group wasdetermined through an independent valuation utilizing market comparableanalysis, as well as discounted cash flow models reflecting the expected rangeof future cash flow outcomes over the life of the model. These cash flows werediscounted to 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 by $4.5 million (after tax) or$0.10 per share.

 

**4.****                                      BusinessAcquisitions**

 

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

 

On April 1, 2003, the Company acquired 100% of the Miles KimballCompany (“MK”), a direct marketer of giftware, home décor and householdconvenience items, premium photo albums, frames and holiday cards under theMiles Kimball and Exposures catalog titles for approximately $66.0 million incash.  The excess of the purchase priceover the estimated fair value of the net assets acquired approximated $45.2million, which will not be deductible for income tax purposes.  The other intangibles acquired consist of$16.1 million of trade names and trademarks, which are deemed to have anindefinite life and will not be amortized, plus $9.0 million of customer lists,which will be amortized on an accelerated basis over 12 years.  Estimated amortization expense for the next5 fiscal years is as follows:  $1.5million, $1.5 million, $1.2 million, $0.9 million and $0.9 million.  The results of operations of MK are includedin the Consolidated Statements of Earnings of the Company since April 1,2003.  For segment reporting purposes,MK is included in the Creative Expressions segment.

 

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

 

9

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The following provides apreliminary allocation of the purchase price of Miles Kimball (in thousands)

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

 

The following unaudited pro forma summaryfinancial information summarizes the estimated combined results of operationsof the Company, CBK and MK assuming that the acquisitions of CBK and MK hadtaken place on February 1, 2002.  Theunaudited pro forma combined results of operations were prepared on the basisof information provided to the Company by the former management of CBK and MKand no representation is made by the Company with respect to the accuracy ofsuch information.  The pro formacombined results of operations reflect adjustments for interest income,additional depreciation based on the fair market value of CBK’s and MK’sproperty, plant, and equipment, amortization of identifiable intangibles of MKand income tax expense.

 
|                                                                                      |   | **Three months ended April 30,** |    |
|-------------------------------------------------------------------------------------------|--------|----------------------------------|---------|
| **(In thousands except per share data)**                                                  |   | **2003**                         |    | **2002** |   |
| Net sales                                                                                 |   | $                                | 324,664 |   | $ | 316,245 |   |
| Earnings before cumulative effect of change in accounting principle                       |   | 17,994                           |    | 18,006 |   |
| Net earnings                                                                              |   | 17,994                           |    | 13,491 |   |
|                                                                                      |   |                             |    |   |   |
| Basic:                                                                                    |   |                             |    |   |   |
| Earnings per common share before the cumulative effect of change in  accounting principle |   | $                                | 0.39    |   | $ | 0.39 |   |
| Net earnings per common share                                                             |   | 0.39                             |    | 0.29 |   |
|                                                                                      |   |                             |    |   |   |
| Diluted:                                                                                  |   |                             |    |   |   |
| Earnings per common share before the cumulative effect of change in  accounting principle |   | $                                | 0.39    |   | $ | 0.39 |   |
| Net earnings per common share                                                             |   | 0.39                             |    | 0.29 |   |

 

10

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The unaudited pro forma combined results ofoperations are not necessarily indicative of, and do not purport to represent,what the Company’s results of operations or financial condition actually wouldhave been had the acquisitions been made as of February 1, 2002.

 

At April 30,2003, the Company had a total of $196.1 million of goodwill on its balancesheet compared to $149.4 million at January 31, 2003.  Goodwill attributable to the Candles & Home Fragrance segmentat April 30, 2003 was $72.2 million, an increase of $1.5 million from $70.7million at January 31, 2003.  Suchincrease is a result of the effects of foreign currency exchange rate increasesversus the US dollar on our European businesses goodwill.  Goodwill attributable to the CreativeExpressions segment at April 30, 2003 was $123.9 million, an increase of $45.2million, from $78.7 million at January 31, 2003.  Such increase is a result of the goodwill from the acquisition ofMiles Kimball.

 

**5.****                                      Inventories**

 

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

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

 

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

 

The components of basic and diluted earningsper share are as follows (in thousands):

 
| **Three  months ended April 30,**                     |   | **2003** |   | **2002** |   |
|-------------------------------------------------------|--------|----------|--------|----------|--------|
| Net earnings                                          |   | $        | 19,627 |     | $      | 12,789 |   |
| Weighted average number of common shares outstanding: |   |     |   |     |   |
| Basic                                                 |   | 46,080   |   | 46,290   |   |
| Dilutive effect of stock options                      |   | 128      |   | 184      |   |
| Weighted average number of common shares outstanding: |   |     |   |     |   |
| Diluted                                               |   | 46,208   |   | 46,474   |   |
|                                                       |        |          |        |          |        |  |  |

 

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

 

**7.****                                      UnusualCharges**

 

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

 

11

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The following is a tabular roll forward of the unusual chargesdescribed above that were recorded on the balance sheet of the Company:

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

 

**8.****                                      SegmentInformation**

 

The Companyoperates in two business segments – the Candles& Home Fragrance segment and the Creative Expressions segment.  Miles Kimball, acquired in April 2003, isincluded in the Creative Expressions segment. The Company has operations both inside and outside the United States andsells its products in the Candles & Home Fragrance segment worldwide.  The majority of sales in the CreativeExpressions segment are in the United States.

 

In the segmentsummary table below, earnings represent net sales less operating expensesdirectly related to the business segments and corporate expenses allocated tothe business 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 April 30, (In thousands)**                                                             |   | **2003** |    | **2002** |   |
|--------------------------------------------------------------------------------------------------------------|--------|----------|---------|----------|--------|
| **Net Sales**                                                                                                |   |     |    |     |   |
| Candles & Home Fragrance                                                                                 |   | $        | 270,095 |     | $      | 260,205 |   |
| Creative Expressions                                                                                         |   | 41,896   |    | 17,691   |   |
| **Total**                                                                                                    |   | $        | 311,991 |     | $      | 277,896 |   |
|                                                                                                         |   |     |    |     |   |
| **Earnings**                                                                                                 |   |     |    |     |   |
| Candles & Home Fragrance                                                                                 |   | $        | 34,843  |     | $      | 32,663 |   |
| Creative Expressions                                                                                         |   | (585     | )       | (1,755   | )      |
|                                                                                                         |   | 34,258   |    | 30,908   |   |
| Other expense                                                                                                |   | (3,134   | )       | (3,354   | )      |
| **Earnings before income taxes, minority interest and  cumulative effect of change in accounting principle** |   | $        | 31,124  |     | $      | 27,554 |   |

 
| **At April 30,**             |   | **2003** | ** ** | **2002** | ** ** |
|------------------------------|--------|----------|------------|----------|------------|
| **Identifiable Assets**      |   |     |       |     |       |
| Candles & Home Fragrance |   | $        | 672,863    |     | $          | 703,997 |   |
| Creative Expressions         |   | 265,922  |       | 90,789   |       |
| Other                        |   | 13,854   |       | 12,824   |       |
| **Total**                    |   | $        | 952,639    |     | $          | 807,610 |   |

 

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**9.****                                      Contingencies**

 

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

 

On June 2, 2003, the parties agreed in open court to settle and resolveall matters involving or in any way relating to the previously reported legalproceedings by and between the Company and its wholly-owned subsidiary, EndarCorp., on the one hand, and Ennio Racinelli, Darlene Racinelli and others, onthe other hand, by means of a written settlement and release agreement, withoutany payment by any party.

 

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

 

**RESULTS OFOPERATIONS:**

 

**Net Sales**

 

Net sales inthe quarter ended April 30, 2003, increased $34.1 million, or 12.3% to $312.0million when compared with $277.9 million a year earlier.  Sales in the quarter ended April 30, 2003were affected by four main factors. First, the favorable impact of the inclusion of sales from theacquisitions of Miles Kimball in April 2003 and CBK in May 2002 and thenegative impact of the closure of our UK retailer Wax Lyrical in December 2002.Second, PartyLite Worldwide posted a 9% increase in net sales when compared tothe prior year, which we believe is partly attributable to an early launch ofPartyLite’s spring product line and strong sales of the PartyLite 30thanniversary promotional votive sampler. Third, the continued weakness in the USand European economies negatively impacted sales. Lastly, the favorable impactof foreign exchange rates versus the US dollar positively impacted reportedsales. Excluding the effect of the acquisitions of Miles Kimball and CBK andthe closing of Wax Lyrical our UK specialty retailer, net sales in the firstquarter ended April 30, 2003 increased approximately 4% when compared to thesame period last year.

 

Net sales in the Candles & Home Fragrance segmentincreased $9.9 million, or 4% to $270.1 million in the first quarter endedApril 30, 2003, compared with $260.2 million in the same period last year.  As mentioned above, PartyLite our directselling channel, increased net sales 9% in the current quarter when compared tolast year.  Net sales of Blyth’s NorthAmerican premium and mass channel businesses in this segment decreasedapproximately 9% and 12%, respectively, in the quarter ended April 30, 2003compared to the prior year period. Net sales of our European wholesalebusinesses in the first quarter of fiscal 2004 showed increases of 9% and 18%(after translation into US dollars) in the premium and mass channelsrespectively when compared to the prior year period.  Much of this increase reflects current favorable foreign exchangerates.  Net sales in the Europeanpremium and mass channels showed decreases of 4% and 2%, respectively, whenreported in local currencies. Net sales of The Sterno Group, our foodservice,or Away From Home business, decreased approximately 9% in the first quarter offiscal 2004 versus the same period last year as the travel industry wasimpacted by the war in the Middle East and SARS.

 

Net sales in the CreativeExpressions segment increased $24.2 million to $41.9 million in the quarterended April 30, 2003 compared to $17.7 million in the prior year period. Thisincrease is entirely attributable to the effect of the inclusion of the salesof Miles Kimball, acquired in April 2003, and CBK, acquired in May 2002. Excludingthese acquisitions, segment sales were down 17% as both Midwest and JeanmarieCreations are seeing the effect of the slowdown in consumer spending andwholesaler wariness about placing orders.

 

**Gross Profit**

 

Gross profit as a percent of sales was 51.7%, in thefirst quarter of fiscal 2004, a decrease of 0.5% when compared to 52.2% in theprior year’s first quarter.  This wasprimarily due to a mix shift of sales among our businesses. Excluding the MilesKimball and CBK acquisitions and Wax Lyrical, which was closed late last year,gross margin improved by 0.5%.

 

**Selling Expense**

 

Sellingexpense increased $8.7 million, or 9.8%, from $88.4 million in the quarterended April 30, 2002 to $97.1 million in the quarter ended April 30, 2003*.* As a percent of sales, selling expense was 31.1% in the mostrecent fiscal quarter compared to 31.8% a year earlier primarily due to a mixshift in sales to businesses with lower selling expenses as a percentage ofsales.

 

##### **AdministrativeExpense**

 

Administrative expense increased $4.4 million, or17.1%, from $25.7 million in the quarter ended April 30, 2002 to $30.1 millionin the quarter ended April 30, 2003. Administrative expenses increased due to the addition of expenses ofMiles Kimball and CBK, as well as costs related to compliance with theSarbanes-Oxley Act of 2002 and related regulations.

 

14

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**OperatingProfit**

 

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

 

**Interest Expense**

 

Interest expense decreased approximately $0.2 millionin the current fiscal year’s first quarter when compared to the prioryear.  This decrease was a result of thebenefit of the interest rate swap, as described in Item 3, Quantitative andQualitative Disclosures About Market Risk, under the heading Interest RateRisk, entered into in March 2002, for the full first fiscal quarter of 2004.

 

**Income Taxes**

 

Income tax expense increased $1.2 million, from $10.3million in the quarter ended April 30, 2002 to $11.5 million in the quarterended April 30, 2003.  This increase isdue to the increased earnings in the most recent quarter.  The effective tax rate decreased toapproximately 36.8% from 37.2% in the prior year.

 

**Cumulative Effect of Change inAccounting Principle**

 

As a result of adopting SFAS No. 142, “Goodwill andOther Intangible Assets,” the Company recorded a one-time charge of $7.4million pre-tax, $4.5 million net of income taxes, on February 1, 2002, whichis reflected as the cumulative effect of a change in accounting principle (SeeNote 3 to the Consolidated Financial Statements).

 

**NetEarnings**

 

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

 

Basic earnings per share before the cumulative effectof change in accounting principle, based upon the weighted average number ofshares outstanding for the quarter ended April 30, 2003, were $0.43, anincrease of $.06, or 16.2% compared to $0.37 for the quarter ended April 30,2002.  Basic earnings per share afterthe cumulative effect of change in accounting principle, based upon the weightedaverage number of shares outstanding for the quarter ended April 30, 2003, were$0.43, an increase of $0.15 compared to $0.28 for the quarter ended April 30,2002.  Diluted earnings per share beforethe cumulative effect of change in accounting principle, based upon thepotential dilution that could occur if options to issue common stock wereexercised, were $0.42 compared to $0.37 for the same period the prior year. Thecumulative effect of change in accounting principle on diluted earnings pershare equaled $0.10.  Diluted earningsper share after the cumulative effect of change in accounting principle, basedupon the potential dilution that could occur if options to issue common stockwere exercised, were $0.42 compared to $0.28 for the same period the prioryear.

 

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**Liquidityand Capital Resources**

 

Inventoryincreased from $187.9 million at January 31, 2003 to $200.5 million at April30, 2003.  The increase in inventory isprimarily due to the inclusion of inventory of Miles Kimball acquired in April2003.** Accounts receivable increased $1.1 million from $82.9 million atthe end of fiscal 2003 to $84.0 million at April 30, 2003.* *Theincrease in accounts receivable is due to the inclusion of Miles Kimball. * *Accountspayable and accrued expenses decreased $3.7 million from $139.5 million at theend of fiscal 2003 to $135.8 million at April 30, 2003.* *Thedecrease in accounts payable and accrued expenses is attributable to normalpatterns of payment of operating expenses including the semi-annual payment ofaccrued interest and incentive bonuses.

 

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

 

The Company has a $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 April 30, 2003,the Company was in compliance with such covenants.  Amounts outstanding under the Credit Facility bear interest, atthe Company’s option, at JPMorgan Chase Bank’s prime rate (4.25% at April 30,2003) or at the Eurocurrency rate plus a credit spread ranging from 0.525% to1.5%, calculated on the basis of a combination of the Company’s seniorunsecured long-term debt rating and the Company’s usage of the CreditFacility.  On April 30, 2003,approximately $3.2 million of letters of credit were outstanding under theCredit Facility.

 

As of April 30, 2003, the Companyhad a total of $15.0 million available under an uncommitted bank line of creditwith La Salle Bank National Association, which matures in June 2003.  Amounts outstanding under the line of creditbear interest at short-term fixed rates. No amounts were outstanding under the uncommitted line of credit atApril 30, 2003.

 

At April 30, 2003, theCompany 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 April 30, 2003, approximately $1.6million of letters of credit were outstanding under this credit line.

 

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

** **

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

 

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

 

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

 

Net cash provided by operating activities amounted to$21.5 million for the three months ended April 30, 2003 compared to $31.2million provided from operating activities for the three months ended April 30,2002.  The decrease in cash flow fromoperations compared to the prior year is primarily attributable to changes inworking capital, which more than offset the improvement in net earnings.

 

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

 

On April 1, 2003 the Companydeclared a cash dividend of $0.13 per share of the Company’s common stock forthe six months ended January 31, 2003. The dividend was payable to shareholders of record as of May 1, 2003 andwas paid on May 15, 2003 in the amount of $6.0 million.

 

**Critical AccountingPolicies**

 

For adiscussion of the Company’s critical accounting policies see our Annual Reporton Form 10-K for the fiscal year ended January 31, 2003.

 

**Impactof Adoption of Recently Issued Accounting Standards**

 

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

 

In January 2003, the FASB issued Financial Interpretation No. 46,“Consolidation of Variable Interest Entities,” which is an interpretation ofAccounting Research Bulletin No. 51, “Consolidated Financial Statements,” andaddresses consolidation by business enterprises of variable interest entitiesthat have specific characteristics as described in the Interpretation. ThisInterpretation was effective immediately to variable interest entities createdafter January 31, 2003, and to variable interest entities in which anenterprise obtains an interest after that date. It applies in the first fiscalyear or interim period beginning after June 15, 2003, to variable interest entitiesin which an enterprise holds a variable interest that it acquired beforeFebruary 1, 2003.  The Company hasevaluated the impact of this interpretation and we do not expect it to have asignificant impact on our financial statements.

 

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement133 on Derivative Instruments and Hedging Activities.”  This statement amends and clarifiesfinancial accounting and reporting for derivative instruments, includingcertain derivative instruments embedded in other contracts (collectivelyreferred to as derivatives) and for hedging activities under FASB Statement No.133, “Accounting for Derivative Instruments and Hedging Activities.”  This standard is effective for derivativecontracts entered into or modified after June 30, 2003. We do not expect thatimplementation of this standard will have a significant impact on our financialstatements.

 

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

 

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Item 3.             **Quantitative and Qualitative Disclosures About MarketRisk**

 

**MarketRisk**

 

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

 

**InterestRate Risk**

 

As of April 30, 2003 theCompany is subject to interest rate risk on approximately $20.1 million ofvariable rate debt.  Each 10% increasein the interest rate would impact pre-tax earnings by approximately $2.0million if applied to the total.

 

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

 

**Foreign Currency Risk**

 

The Company 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 doesnot hold or issue derivative financial instruments for trading purposes.

 

The Companyhas designated its forward exchange contracts on Canadian intercompanypurchases and forecasted future purchase commitments as cash flow hedges and,as such, as long as the hedge remains effective and the underlying transactionremains probable, the effective portion of the changes in the fair value ofthese contracts will be recorded in accumulated other comprehensive income(loss) (“OCI”) until earnings are affected by the variability of the cash flowsbeing hedged.  With regard tocommitments for machinery and equipment and inventory purchases, upon paymentof each commitment, the underlying forward contract is closed and thecorresponding gain or loss is transferred from accumulated OCI and is includedin the measurement cost of the acquired asset. If a hedging instrument is soldor terminated prior to maturity, gains and losses are deferred in accumulatedOCI until the hedged item is settled. However, if the hedged item is no longerlikely to occur, the resultant gain or loss on the terminated hedge isrecognized into earnings immediately. Approximately $373,000 of hedge lossesare included in accumulated OCI at April 30, 2003, and are expected to betransferred into earnings within the next twelve months.

 

The Companyhas designated its foreign currency forward contracts related to intercompanyloans as 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.

 

Forconsolidated financial statement presentation, net cash flows from such hedgesare classified in the categories of the cash flow with the items being hedged.

 

The following table provides informationabout the Company’s foreign exchange forward contracts at April 30, 2003.

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

 

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

 

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Item 4.**Controls and Procedures**

 

Within the 90 days prior to thedate of this report, our principal executive officer and principal financialofficer reviewed our disclosure controls and procedures.  As of the date of this report, we and ourprincipal executive officer and principal financial officer believe that ourdisclosure controls and procedures are operating effectively as designed.

 

There have been no significantchanges in the Company’s internal controls or in other factors that couldsignificantly affect these controls subsequent to the date that the Companycarried out its evaluation.

 

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Part II.  **OTHER INFORMATION**

 

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

 

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

 

**Item2. Changes in Securities**

None

 

**Item3. Defaults upon Senior Securities**

None

 

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

None

 

**Item5. Other Information**

 

The Company isincluding the following cautionary statement in this Report to make applicable,and to take advantage of, the safe harbor provisions of the Private SecuritiesLitigation Reform Act of 1995 for any forward-looking statements made by, or onbehalf of, the Company.  Forward-lookingstatements include statements concerning plans, objectives, goals, strategies,future events or performance and underlying assumptions and other statementswhich 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 differ materiallyfrom 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 beno assurance that management’s expectations, beliefs or projections will occuror be achieved or accomplished.  Inaddition to other factors and matters discussed elsewhere in this Report and inthe Company’s other public filings and statements, the following are importantfactors that, in the view of the Company, could cause actual results to differmaterially from those discussed in the Company’s forward-lookingstatements.  The Company disclaims anyobligation to update any forward-looking statements, or the following factors,to reflect events or circumstances after the date of this Report.

 

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Risk of Inability to MaintainGrowth Rate

 

The Companyhas grown substantially in past years. While we expect continued growth, we expect that our future rate ofgrowth will be less than our historical growth rate.  In the Candles & Home Fragrance segment, we expect theinternational market to grow faster than the domestic market.  The market for our foodservice, or Away FromHome products has grown, but more slowly, and we expect it will continue to doso.  Our ability to continue to growdepends on several factors, including the following:  market acceptance of existing products, the successfulintroduction of new products, our ability to recruit new independent salesconsultants, sourcing of raw materials, and increases in production anddistribution capacity to meet demand. The Candles & Home Fragrance and Creative Expressions industries aredriven by consumer tastes.  Accordingly,there can be no assurance that our existing or future products will maintain orachieve market acceptance.  Our salesand earnings results have recently been impacted negatively by a slowing of theUnited States economy and the economies of certain European countries and by adrop in consumer confidence at both the individual and retailer levels.  There can be no assurance that our sales andearnings results will not be materially adversely affected by these factors 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 theCompany, to finance acquisitions or to integrate successfully acquiredoperations.  In the future, acquisitionsmay contribute more to the overall Company’s sales growth rate thanhistorically.

 

Ability to Respond to IncreasedProduct Demand

 

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

 

Risks Associated withInternational Sales and Foreign-Sourced Products

 

Ourinternational business has grown at a faster rate than sales in the UnitedStates in recent years.  In addition, wesource a portion of our candles, accessories and decorative gift bags and homeand seasonal décor products from independent manufacturers in the Pacific Rim,Europe and Mexico.  For these reasons,we are subject to the following risks associated with foreign manufacturing andsales: fluctuations in currency exchange rates, economic and politicalinstability, international public health crises, transportation delays,difficulty in maintaining quality control, restrictive actions by foreign governments,nationalizations, the laws and policies of the United States and certainEuropean markets affecting importation of goods (including duties quotas andtaxes and trade and foreign tax laws.

 

Raw Materials

 

For certainraw materials, there may be temporary shortages due to capacity, availability,a change 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.

 

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Dependence on Key CorporateManagement Personnel

 

Our success depends upon the contributions of key corporate managementpersonnel, including our Chairman, Chief Executive Officer and President,Robert B. Goergen.  We do not haveemployment contracts with any of our key corporate management personnel exceptfor Mr. Goergen, nor do we maintain any key person life insurancepolicies.  The loss of any of the keycorporate management personnel could have a material adverse effect on theCompany.

 

Competition

 

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

 

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

 

a)              Exhibits

 

99.1                           Certificationof Chairman, Chief Executive Officer and President pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002

 

99.2                           Certificationof Vice President and Chief Financial Officer pursuant to Section 906 of theSarbanes-Oxley Act of 2002

 

b)             Reports on Form 8-K

 

During the fiscal quarter ended April 30, 2003, the Company filed thefollowing Current Reports on Form 8-K:

 

Current Report on Form 8-K filed on March 24, 2003 to file as anexhibit the press release reporting the Company’s fourth quarter and full yearresults of operations for the period ended January 31, 2003.

 

Current Report on Form 8-K filed on April 3, 2003 to file as an exhibitthe press release announcing the Company’s declaration of a semi-annualdividend.

 

Current Report on Form 8-K filed on April 9, 2003 to file as an exhibitthe press release announcing the Company’s acquisition of the Miles KimballCompany.

 

Current Report on Form 8-K filed on April 9, 2003 to announce theapproval by the Company’s Board of Directors of the adoption of the Company’s2003 Long-Term Incentive Plan, subject to stockholder approval.

 

Current Report on Form 8-K/A filed on April 17, 2003 to file as anexhibit a corrected copy of the Company’s 2003 Long-Term Incentive Plan.

 

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**SIGNATURES**

 

**Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.**

 

 
|   |   |          |   | BLYTH, INC. |
|--------|--------|---------------|--------|-------------|
|   |   |          |   |        |
|   |   |          |   |        |   |
|   | Date:  | June 16, 2003 |   | By:         | /s/Robert B. Goergen |   |
|   |   |          |   |        | Robert B. Goergen |
|   |   |          |   |        | Chief Executive Officer |
|   |   |          |   |        |   |
|   |   |          |   |        |   |
|   | Date:  | June 16, 2003 |   | By:         | /s/Robert H. Barghaus |   |
|   |   |          |   |        | Robert H. Barghaus |
|   |   |          |   |        | Chief Financial Officer |

 

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CERTIFICATIONS

 

 

I, Robert B. Goergen, certifythat:

 

1.  I have reviewed this quarterly report on Form 10-Q of Blyth,Inc.;

 

2.  Based on my knowledge, this quarterly report does not contain anyuntrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period covered by thisquarterly report;

 

3.  Based on my knowledge, the financial statements, and other financialinformation included in this quarterly report, fairly present in all materialrespects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this quarterly report;

 

4.  The registrant’s other certifying officers and I are responsiblefor establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

 

a)  Designed such disclosure controls and proceduresto ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

 

b)  Evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this quarterly report (the “Evaluation Date”); and

 

c)  Presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5.  The registrant’s other certifying officers and I have disclosed,based on our most recent evaluation, to the registrant’s auditors and the auditcommittee of registrant’s board of directors (or persons performing theequivalent function):

 

a)  All significant deficiencies in the designor operation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

b)  Any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theregistrant’s internal controls; and

 

6.  The registrant’s other certifying officers and I have indicatedin this quarterly report whether or not there were significant changes ininternal controls or in other factors that could significantly affect internalcontrols subsequent to the date of our most recent evaluation, including anycorrective actions with regard to significant deficiencies and materialweaknesses.

 
| Date:  June 16, 2003 |                                               |
|---------------------------|----------------------------------------------------|
|                      |                                               |
|                      |                                               |
|                      | /s/ ROBERT  B. GOERGEN                             |   |
|                      | Robert B.  Goergen                                 |
|                      | *Chairman, Chief Executive Officer and  President* |

 

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CERTIFICATIONS

 

 

I, Robert H. Barghaus, certifythat:

 

1.  I have reviewed this quarterly report on Form 10-Q of Blyth,Inc.;

 

2.  Based on my knowledge, this quarterly report does not contain anyuntrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period covered by thisquarterly report;

 

3.  Based on my knowledge, the financial statements, and otherfinancial information included in this quarterly report, fairly present in allmaterial respects the financial condition, results of operations and cash flowsof the registrant as of, and for, the periods presented in this quarterlyreport;

 

4.  The registrant’s other certifying officers and I are responsiblefor establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

 

a)  Designed such disclosure controls andprocedures to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this quarterly reportis being prepared;

 

b)  Evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this quarterly report (the “Evaluation Date”); and

 

c)  Presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5.  The registrant’s other certifying officers and I have disclosed,based on our most recent evaluation, to the registrant’s auditors and the auditcommittee of registrant’s board of directors (or persons performing theequivalent function):

 

a)  All significant deficiencies in the designor operation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

b)  Any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theregistrant’s internal controls; and

 

6.  The registrant’s other certifying officers and I have indicatedin this quarterly report whether or not there were significant changes ininternal controls or in other factors that could significantly affect internalcontrols subsequent to the date of our most recent evaluation, including anycorrective actions with regard to significant deficiencies and materialweaknesses.

 
| Date:  June 16, 2003 |                                         |
|---------------------------|----------------------------------------------|
|                      |                                         |
|                      |                                         |
|                      | /s/ ROBERT  H. BARGHAUS                      |   |
|                      | Robert H.  Barghaus                          |
|                      | *Vice President and Chief Financial Officer* |

 

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