**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WashingtonD.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

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

 

**For the quarterly period ended April 30,2005**

 

**or**

 

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

 

**For thetransition period from                       to                       **

** **

**CommissionFile Number 1-13026**

 

**BLYTH,INC.**

(Exact name ofregistrant as specified in its charter) 

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

 

**(203)661-1926**

(Registrant’stelephone number, including area code)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe 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 tosuch filing requirements for the past 90 days.

Yes                            ý                                    No                                o

 

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

Yes                            ý                                    No                                o

 

Indicate the number of sharesoutstanding of each of the issuer’s classes of common stock, as of the latestpracticable date.

 

**40,963,744Common Shares as of May 31, 2005**

 

 

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**BLYTH, INC.**

 

#### **INDEX**

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

 

2

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Part I.  FINANCIAL  INFORMATION

Item I.  FINANCIAL STATEMENTS

 

**BLYTH,INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCESHEETS**

 
| ** **                                                                                                                      | ** ** | **April 30,**   | ** ** | **January 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|------------|-----------------|------------|
| **(In thousands, except share and  per share data)**                                                                            | ** ** | **2005**        | ** ** | **2005**        | ** ** |
| ** **                                                                                                                      | ** ** | **(Unaudited)** | ** ** | ** **      | ** ** |
| **ASSETS**                                                                                                                      |       |            |       |            |       |
| **Current  assets:**                                                                                                            |       |            |       |            |       |
| Cash and cash  equivalents                                                                                                      |       | $               | 92,726     |            | $          | 91,695 |   |
| Accounts receivable,  less allowance for doubtful receivables of $3,515 and $4,028, respectively                                |       | 111,536         |       | 124,603         |       |
| Inventories                                                                                                                     |       | 230,675         |       | 234,984         |       |
| Prepaid and  other                                                                                                              |       | 52,621          |       | 43,832          |       |
| Assets held for  sale                                                                                                           |       | 4,060           |       | 3,949           |       |
| Deferred income  taxes                                                                                                          |       | 15,081          |       | 15,068          |       |
| Total current  assets                                                                                                           |       | 506,699         |       | 514,131         |       |
| **Property,  plant and equipment, at cost:**                                                                                    |       |            |       |            |       |
| Less accumulated  depreciation of $271,805 and $262,685, respectively                                                           |       | 249,073         |       | 258,896         |       |
| **Other  assets:**                                                                                                              |       |            |       |            |       |
| Investments                                                                                                                     |       | 3,243           |       | 3,446           |       |
| Goodwill                                                                                                                        |       | 243,461         |       | 246,182         |       |
| Other intangible  assets, net of accumulated amortization of $4,417 and $3,867, respectively                                    |       | 38,683          |       | 39,233          |       |
| Deposits and  other assets                                                                                                      |       | 13,729          |       | 13,932          |       |
|                                                                                                                            |       | 299,116         |       | 302,793         |       |
| Total assets                                                                                                                    |       | $               | 1,054,888  |            | $          | 1,075,820 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                  |       |            |       |            |       |
| **Current  liabilities:**                                                                                                       |       |            |       |            |       |
| Bank lines of  credit                                                                                                           |       | $               | 9,369      |            | $          | 11,813 |   |
| Current  maturities of long-term debt                                                                                           |       | 4,452           |       | 4,489           |       |
| Accounts payable                                                                                                                |       | 61,052          |       | 81,333          |       |
| Accrued expenses                                                                                                                |       | 97,202          |       | 94,847          |       |
| Dividends  payable                                                                                                              |       | 8,601           |       | —          |       |
| Income taxes                                                                                                                    |       | 11,178          |       | 9,477           |       |
| Total current  liabilities                                                                                                      |       | 191,854         |       | 201,959         |       |
| **Deferred  income taxes**                                                                                                      |       | 46,211          |       | 47,740          |       |
| **Long-term  debt, less current maturities**                                                                                    |       | 271,062         |       | 271,573         |       |
| **Other  long-term liabilities**                                                                                                |       | 32,388          |       | 33,199          |       |
| **Commitments  and contingencies**                                                                                              |       | —          |       | —          |       |
| **Stockholders’  equity:**                                                                                                 |       |            |       |            |       |
| Preferred stock  - authorized 10,000,000 shares of $0.01 par value; no shares issued and  outstanding                           |       | —          |       | —          |       |
| Common stock -  authorized 100,000,000 shares of $0.02 par value; issued 50,492,660 shares  and 50,367,827 shares, respectively |       | 1,010           |       | 1,007           |       |
| Additional  contributed capital                                                                                                 |       | 126,208         |       | 118,148         |       |
| Retained  earnings                                                                                                              |       | 652,515         |       | 651,156         |       |
| Accumulated  other comprehensive income                                                                                         |       | 24,811          |       | 36,102          |       |
| Unearned  compensation on restricted stock                                                                                      |       | (4,036          | )          | —          |       |
| Treasury stock,  at cost, 9,533,416 shares and 9,468,416 shares, respectively                                                   |       | (287,135        | )          | (285,064        | )          |
| Total  stockholders’ equity                                                                                                |       | 513,373         |       | 521,349         |       |
| Total  liabilities and stockholders’ equity                                                                                |       | $               | 1,054,888  |            | $          | 1,075,820 |   |

 

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

 

3

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**BLYTH,INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTSOF EARNINGS**

**(Unaudited)**

 
| **Three  months ended April 30****(In thousands, except per share data)** | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Net sales                                                                 |       | $        | 355,768    |     | $          | 358,980 |   |
| Cost of goods  sold                                                       |       | 187,423  |       | 175,969  |       |
| Gross profit                                                              |       | 168,345  |       | 183,011  |       |
| Selling                                                                   |       | 111,861  |       | 115,075  |       |
| Administrative                                                            |       | 36,853   |       | 33,675   |       |
|                                                                      |       | 148,714  |       | 148,750  |       |
| Operating profit                                                          |       | 19,631   |       | 34,261   |       |
| Interest expense                                                          |       | 5,081    |       | 5,209    |       |
| Other expense  (income), net                                              |       | 844      |       | (868     | )          |
|                                                                      |       | 5,925    |       | 4,341    |       |
| Earnings before  income taxes and minority interest                       |       | 13,706   |       | 29,920   |       |
| Income tax  expense                                                       |       | 3,975    |       | 12,195   |       |
| Earnings before  minority interest                                        |       | 9,731    |       | 17,725   |       |
| Minority interest                                                         |       | (229     | )          | 50       |       |
| Net earnings                                                              |       | $        | 9,960      |     | $          | 17,675 |   |
| Basic:                                                                    |       |     |       |     |       |
| Net earnings per  common share                                            |       | $        | 0.24       |     | $          | 0.39 |   |
| Weighted average  number of shares outstanding                            |       | 40,904   |       | 45,665   |       |
| Diluted:                                                                  |       |     |       |     |       |
| Net earnings per  common share                                            |       | $        | 0.24       |     | $          | 0.38 |   |
| Weighted average  number of shares outstanding                            |       | 41,221   |       | 46,105   |       |

 

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

 

4

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**BLYTH,INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF STOCKHOLDERS’EQUITY**

**(Unaudited)**

**(Inthousands, except share data)**

 
| ** **                                                            | ** ** | ** **       | ** ** | ** **      | ** ** | ** **     | ** ** | ** **   | ** ** | ** **   | ** ** | ** **        | ** ** | **Accumulated**   | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------|------------|------------------|------------|-----------------|------------|----------------|------------|--------------|------------|--------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                                            | ** ** | ** **       | ** ** | ** **      | ** ** | **Additional** | ** ** | ** **   | ** ** | ** **   | ** ** | ** **        | ** ** | **other**         | ** ** | ** ** | ** ** |
| ** **                                                            | ** ** | **Common stock** | ** ** | **contributed** | ** ** | **Retained**   | ** ** | **Treasury** | ** ** | **Unearned** | ** ** | **comprehensive** | ** ** | ** **        | ** ** |
| ** **                                                            | ** ** | **Shares**       | ** ** | **Amount**      | ** ** | **capital**    | ** ** | **earnings** | ** ** | **Stock**    | ** ** | **Compensation**  | ** ** | **income (loss)** | ** ** | **Total**  | ** ** |
| **For the  Three months ended April 30, 2004:**                       |       |             |       |            |       |           |       |         |       |         |       |              |       |              |       |       |       |
| Balance,  February 1, 2004                                            |       | 49,975,502       |       | $               | 999        |           | $          | 107,965      |       | $            | 570,171    |              | $          | (105,389          | )          | $          | —     |   | $ | 15,224 |   | $ | 588,970 |   |
| Net earnings for  the period                                          |       |             |       |            |       |           |       | 17,675       |       |         |       |              |       |              |       | 17,675     |       |
| Foreign currency  translation adjustments                             |       |             |       |            |       |           |       |         |       |         |       |              |       | (1,192            | )          | (1,192     | )          |
| Unrealized  holding losses on certain investments (net of tax of $13) |       |             |       |            |       |           |       |         |       |         |       |              |       | (24               | )          | (24        | )          |
| Net gain on cash  flow hedging instruments (net of tax of $117)       |       |             |       |            |       |           |       |         |       |         |       |              |       | 208               |       | 208        |       |
| Comprehensive  income                                                 |       |             |       |            |       |           |       |         |       |         |       |              |       |              |       | 16,667     |       |
| Common stock  issued in connection with long-term incentive plan      |       | 204,525          |       | 5               |       | 5,385          |       |         |       |         |       |              |       |              |       | 5,390      |       |
| Tax benefit from  stock options                                       |       |             |       |            |       | 136            |       |         |       |         |       |              |       |              |       | 136        |       |
| Dividends                                                             |       |             |       |            |       |           |       | (7,757       | )          |         |       |              |       |              |       | (7,757     | )          |
| Treasury stock  purchases                                             |       |             |       |            |       |           |       |         |       | (6,657       | )          |              |       |              |       | (6,657     | )          |
| Balance, April  30, 2004                                              |       | 50,180,027       |       | $               | 1,004      |           | $          | 113,486      |       | $            | 580,089    |              | $          | (112,046          | )          | $          | —     |   | $ | 14,216 |   | $ | 596,749 |   |
| **For the  Three months ended April 30, 2005:**                       | ** ** | ** **       | ** ** | ** **      | ** ** | ** **     | ** ** | ** **   | ** ** | ** **   | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
| Balance,  February 1, 2005                                            |       | 50,367,827       |       | $               | 1,007      |           | $          | 118,148      |       | $            | 651,156    |              | $          | (285,064          | )          | $          | —     |   | $ | 36,102 |   | $ | 521,349 |   |
| Net earnings for  the period                                          |       |             |       |            |       |           |       | 9,960        |       |         |       |              |       |              |       | 9,960      |       |
| Foreign currency  translation adjustments                             |       |             |       |            |       |           |       |         |       |         |       |              |       | (11,475           | )          | (11,475    | )          |
| Unrealized  holding losses on certain investments (net of tax of $23) |       |             |       |            |       |           |       |         |       |         |       |              |       | (45               | )          | (45        | )          |
| Net gain on cash  flow hedging instruments (net of tax of $118)       |       |             |       |            |       |           |       |         |       |         |       |              |       | 229               |       | 229        |       |
| Comprehensive  loss                                                   |       |             |       |            |       |           |       |         |       |         |       |              |       |              |       | (1,331     | )          |
| Common stock  issued in connection with long-term incentive plan      |       | 124,833          |       | 3               |       | 2,996          |       |         |       |         |       |              |       |              |       | 2,999      |       |
| Tax benefit from  stock options                                       |       |             |       |            |       | 281            |       |         |       |         |       |              |       |              |       | 281        |       |
| Unearned  compensation relating to issuance of restricted stock       |       |             |       |            |       | 4,783          |       |         |       |         |       | (4,954            | )          |              |       | (171       | )          |
| Amortization of  unearned compensation                                |       |             |       |            |       |           |       |         |       |         |       | 918               |       |              |       | 918        |       |
| Dividends                                                             |       |             |       |            |       |           |       | (8,601       | )          |         |       |              |       |              |       | (8,601     | )          |
| Treasury stock  purchases                                             |       |             |       |            |       |           |       |         |       | (2,071       | )          |              |       |              |       | (2,071     | )          |
| Balance, April  30, 2005                                              |       | 50,492,660       |       | $               | 1,010      |           | $          | 126,208      |       | $            | 652,515    |              | $          | (287,135          | )          | $          | (4,036     | ) | $ | 24,811 |   | $ | 513,373 |   |

 

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

 

5

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**BLYTH,INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| **Three months ended April 30 (In  thousands)**                                       | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Cash flows from  operating activities:                                                |       |     |       |     |       |
| Net earnings                                                                          |       | $        | 9,960      |     | $          | 17,675 |   |
| Adjustments to  reconcile net earnings to net cash provided by operating activities:  |       |     |       |     |       |
| Depreciation and  amortization                                                        |       | 9,670    |       | 9,048    |       |
| Tax benefit from  stock options                                                       |       | 281      |       | 136      |       |
| Deferred income  taxes                                                                |       | (1,140   | )          | 2,357    |       |
| Equity in loss  of investee                                                           |       | 204      |       | 23       |       |
| Minority  interest                                                                    |       | (268     | )          | (13      | )          |
| Gain on sale of  assets held for sale                                                 |       | —   |       | (364     | )          |
| Changes in  operating assets and liabilities, net of effect of business acquisitions: |       |     |       |     |       |
| Accounts  receivable                                                                  |       | 9,952    |       | 2,452    |       |
| Inventories                                                                           |       | 1,074    |       | (4,518   | )          |
| Prepaid and  other                                                                    |       | (9,423   | )          | (1,234   | )          |
| Deposits and  other assets                                                            |       | 141      |       | (240     | )          |
| Goodwill  disposed of due to sale of assets held for sale                             |       | —   |       | (3,621   | )          |
| Accounts payable                                                                      |       | (18,892  | )          | (18,859  | )          |
| Accrued expenses                                                                      |       | 3,901    |       | 6,156    |       |
| Other  liabilities                                                                    |       | 544      |       | 628      |       |
| Income taxes                                                                          |       | 2,048    |       | 6,124    |       |
| Total  adjustments                                                                    |       | (1,908   | )          | (1,925   | )          |
| Net cash  provided by operating activities                                            |       | 8,052    |       | 15,750   |       |
| Cash flows from  investing activities:                                                |       |     |       |     |       |
| Purchases of  property, plant and equipment                                           |       | (3,380   | )          | (2,953   | )          |
| Purchases of  long-term investments                                                   |       | —   |       | (19,000  | )          |
| Proceeds from  sale of assets held for sale                                           |       | —   |       | 9,752    |       |
| Purchase of  businesses, net of cash acquired                                         |       | (22      | )          | (6,565   | )          |
| Net cash used in  investing activities                                                |       | (3,402   | )          | (18,766  | )          |
| Cash flows from  financing activities:                                                |       |     |       |     |       |
| Proceeds from  issuance of common stock                                               |       | 2,999    |       | 5,390    |       |
| Purchases of  treasury stock                                                          |       | (2,071   | )          | (6,657   | )          |
| Borrowings from  bank line of credit                                                  |       | 8,001    |       | 13,816   |       |
| Repayments on  bank line of credit                                                    |       | (10,097  | )          | (6,716   | )          |
| Repayments of  long-term debt                                                         |       | (183     | )          | (188     | )          |
| Net cash  provided by (used in) financing activities                                  |       | (1,351   | )          | 5,645    |       |
| Effect of  exchange rate changes on cash                                              |       | (2,268   | )          | (88      | )          |
| Net increase in  cash and cash equivalents                                            |       | 1,031    |       | 2,541    |       |
| Cash and cash  equivalents at beginning of period                                     |       | 91,695   |       | 229,726  |       |
| Cash and cash  equivalents at end of period                                           |       | $        | 92,726     |     | $          | 232,267 |   |

 

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

 

6

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**BLYTH,INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED**CONSOLIDATED FINANCIAL STATEMENTS

**(Unaudited)**

** **

**1.**                                      Basis of Presentation

 

Blyth is a designer and marketer of home fragrance products andaccessories, home décor, seasonal decorations, household convenience items,personalized gifts and products for the foodservice trade.  We compete in the global Home Expressions industry,and our products can be found throughout North America, Europe andAustralia.  Our financial results arereported in three segments - the Direct Selling segment, the Wholesale segmentand the Catalog & Internet segment. These reportable segments are based on similarities in distributionchannels, customers and management oversight.

 

Within the Direct Selling segment, the Company designs, manufactures orsources, markets and distributes an extensive line of products includingscented candles, candle-related accessories, fragranced bath gels and bodylotions and other fragranced products. These products are sold directly to the consumer under the PartyLite®brand in North America, Europe and Australia through a network of independentsales consultants using the party plan method of direct selling.

 

Within the Wholesale segment, the Company designs, manufactures orsources, markets and distributes an extensive line of home fragrance products,candle-related accessories, seasonal decorations such as ornaments, artificialtrees and trim, and home décor products such as picture frames, lamps andtextiles.  Products in this segment aresold in North America and Europe to retailers in the premium, specialty andmass channels under the CBK®, Carolina®, Colonial®(1), Colonial Candle of CapeCod®, Colonial at HOMEâ, Edelman®, Euro-Decor®(1), Florasense®, Gies®(1), Holiday365TM, KaemingkTM(2), Liljeholmens®, Seasons of Cannon Falls® andTriumph Tree®(1) brands.  In addition,chafing fuel and tabletop lighting products and accessories for the Away FromHome or foodservice trade are sold through this segment under the Ambria®,FilterMate®, HandyFuel® and Sterno® brands.

 

Within the Catalog & Internet segment, the Company designs,sources and markets a broad range of household convenience items, premium photoalbums, frames, holiday cards, personalized gifts and kitchen accessories underthe Exposuresâ, Miles Kimballâ, Walter Drakeâ, The Home Marketplace® andDirections...the path to better healthâ brands.  Theseproducts are sold primarily in North America.

 

The condensed consolidated financial statements include the accounts ofthe Company and its direct and indirect subsidiaries.  All significant intercompany accounts andtransactions have been eliminated. Investments in companies that are not majority owned or controlled arereported using the equity method and are recorded in investments.  Other expense (income), net consists ofinterest income earned from investments, foreign currency gains and losses,gains and losses from sales of investments and the Company’s equity in theincome or losses of unconsolidated investments. Certain of the Company’s subsidiaries operate on a 52 or 53-weekfiscal year ending on the Saturday closest to January 31.  European operations maintain a calendar yearaccounting period, which is consolidated with the Company’s fiscal period.  In the opinion of management, theaccompanying unaudited condensed consolidated financial statements include allaccruals necessary for fair presentation of the Company’s consolidatedfinancial position at April 30, 2005 and the consolidated results of itsoperations and cash flows for the three-month periods ended April 30, 2005and 2004.  These interim statementsshould be read in conjunction with the Company’s consolidated financialstatements for the year ended January 31, 2005, as set forth in theCompany’s Annual Report on Form 10-K.  Operating results for the three months ended April 30,2005 are not necessarily indicative of the results that may be expected for theyear ending January 31, 2006.

 

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(1)Colonial, Euro-Decor, Gies and Triumph Tree trademarks are registered and soldonly outside the United States.

**(2)** Kaemingk is sold onlyoutside the United States.

** **

**7**

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** **

**EmployeeStock Options**

** **

The Company has elected to adopt the disclosure only provisions ofStatement of Financial Accounting Standards (SFAS) No. 148, “Accountingfor Stock-Based Compensation — Transition and Disclosure,” and continues tofollow Accounting Principles Board (APB) opinion No. 25, “Accounting forStock Issued to Employees” and related interpretations in accounting for stockoptions granted to its employees and directors under the intrinsic valuemethod.  Accordingly, no compensation expenseis recorded for the stock options issued to employees unless the option priceis below market at the measurement date. The Company does not at this time issue stock options below marketvalue, therefore no compensation expense has been recorded in the financialstatements.  Had compensation expense forthe Company’s stock options been determined in accordance with the fair valuemethod in SFAS No. 123, “Accounting for Stock-Based Compensation” and SFASNo. 148, the Company’s reported net income and earnings per share wouldhave been adjusted to the pro forma amounts indicated below:

 
| ** **                                                                                                   | ** ** | **Three months ended April 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| **(In thousands except per share  data)**                                                                    | ** ** | **2005**                         | ** ** | **2004** | ** ** |
| Net earnings:                                                                                                |       |                             |       |   |   |
| As reported                                                                                                  |       | $                                | 9,960      |   | $ | 17,675 |   |
| Stock-based  employee compensation expense determined under SFAS No. 123 for all awards,  net of related tax |       | 478                              |       | 439 |   |
| Pro forma                                                                                                    |       | $                                | 9,482      |   | $ | 17,236 |   |
| Net earnings per  common share:                                                                              |       |                             |       |   |   |
| As reported:                                                                                                 |       |                             |       |   |   |
| Basic                                                                                                        |       | $                                | 0.24       |   | $ | 0.39 |   |
| Diluted                                                                                                      |       | 0.24                             |       | 0.38 |   |
| Pro forma:                                                                                                   |       |                             |       |   |   |
| Basic                                                                                                        |       | $                                | 0.23       |   | $ | 0.38 |   |
| Diluted                                                                                                      |       | 0.23                             |       | 0.36 |   |

 

8

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**2.**                                      Business Acquisitions

** **

On September 10, 2004, the Company acquired 100% interests in EdelmanB.V. (“Edelman”), a designer and marketer of everyday home, garden and seasonaldécor, and Euro-Decor B.V. (“Euro-Decor”), a designer and marketer oftraditional and contemporary gift and florist products.  The acquisitions align with one component ofthe Company’s overall growth strategy, which is to grow through selectedacquisitions in the Home Expressions industry. The cash purchase price was approximately $48.6 million less cashacquired of $1.1 million resulting in net cash paid of $47.5 million.  Included in the purchase price is a $9.2million earn out that was paid in the first quarter of fiscal 2006 and wasbased on a multiple of 2004 earnings before interest and income taxes that thecombined companies had achieved.  TheCompany also assumed Edelman and Euro-Decor’s long-term debt of approximately$7.2 million.  During the fourth quarterof fiscal 2005, an adjustment was recorded to reflect the final appraised valueof the acquired property, plant and equipment for $3.8 million, as well as thenet pension asset of $0.6 million.  Theexcess of the purchase price over the estimated fair value of the net assetsacquired approximated $33.0 million, which will not be deductible for incometax purposes.  The results of operationsof Edelman and Euro-Decor have been included in the Condensed ConsolidatedStatements of Earnings of the Company since September 11, 2004.  For segment reporting purposes, Edelman andEuro-Decor are included in the Wholesale segment.

 

The following provides a preliminary allocation of thepurchase price of Edelman and Euro-Decor (in thousands):

 
| Cash Purchase  Price                   |   | $      | 48,609 |   |
|----------------------------------------|--------|--------|--------|--------|
| Less: Assets  acquired                 |   |   |   |
| Cash                                   |   | 1,112  |   |
| Accounts  receivable                   |   | 23,684 |   |
| Inventories                            |   | 16,964 |   |
| Prepaid and  other                     |   | 4,044  |   |
| Property, plant  and equipment         |   | 10,109 |   |
| Other assets                           |   | 624    |   |
| Total assets  acquired                 |   | 56,537 |   |
| Plus:  Liabilities assumed             |   |   |   |
| Bank line of  credit                   |   | 18,523 |   |
| Accounts payable                       |   | 3,227  |   |
| Accrued expenses                       |   | 11,911 |   |
| Other  liabilities                     |   | 22     |   |
| Debt                                   |   | 7,195  |   |
| Total  liabilities assumed             |   | 40,878 |   |
| Unallocated  purchase price (goodwill) |   | $      | 32,950 |   |

 

9

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The following unaudited pro forma summary financial information summarizesthe estimated combined results of operations of the Company, Edelman andEuro-Decor assuming that the acquisitions of Edelman and Euro-Decor had takenplace on February 1, 2004.  Theunaudited pro forma combined results of operations were prepared on the basisof information provided to the Company by the former management of Edelman andEuro-Decor and no representation is made by the Company with respect to theaccuracy of such information.  The proforma combined results of operations reflect adjustments for interest income,additional depreciation based on the fair market value of Edelman’s andEuro-Decor’s property, plant, and equipment, and income tax expense.

 
| ** **                                | ** ** | **Three months ended April 30,** | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|
| **(In thousands except per share  data)** | ** ** | **2005**                         | ** ** | **2004** | ** ** |
| Net sales                                 |       | $                                | 355,768    |   | $ | 381,572 |   |
| Net earnings                              |       | 9,960                            |       | 18,230 |   |
| Basic:                                    |       |                             |       |   |   |
| Net earnings per  common share            |       | $                                | 0.24       |   | $ | 0.40 |   |
| Diluted:                                  |       |                             |       |   |   |
| Net earnings per  common share            |       | $                                | 0.24       |   | $ | 0.40 |   |

 

The unaudited pro forma combined results of operations are not necessarilyindicative of, and do not purport to represent, what the Company’s results ofoperations or financial condition actually would have been had the acquisitionsbeen made as of February 1, 2004.

 

**3.**                                      Inventories

** **

The components of inventory are as follows (in thousands):

 
| ** **      | ** ** | **April 30, 2005** | ** ** | **January 31, 2005** | ** ** |
|-----------------|------------|--------------------|------------|----------------------|------------|
| Raw materials   |       | $                  | 25,519     |                 | $          | 27,286 |   |
| Work in process |       | 838                |       | 2,641                |       |
| Finished goods  |       | 204,318            |       | 205,057              |       |
|            |       | $                  | 230,675    |                 | $          | 234,984 |   |

 

10

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**4.****                                      Goodwill andOther Intangibles**

 

**The following table shows changes in the carrying amount ofgoodwill for the quarter ended April 30, 2005, by operating segment (inthousands):**

** **
| ** **                                                                                    | ** ** | ** **         | ** ** | ** **    | ** ** | **Catalog &** | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|--------------------|------------|---------------|------------|-------------------|------------|------------|------------|
| ** **                                                                                    | ** ** | **Direct Selling** | ** ** | **Wholesale** | ** ** | **Internet**      | ** ** | **Total**  | ** ** |
| Goodwill at  January 31, 2005                                                                 |       | $                  | 307        |          | $          | 171,353           |       | $          | 74,522     |   | $ | 246,182 |   |
| Edelman and  Euro-Decor acquisition costs                                                     |       | —             |       | 22            |       | —            |       | 22         |       |
| Foreign currency  translation adjustment related to Kaemingk, Edelman and Euro-Decor goodwill |       | —             |       | (2,743        | )          | —            |       | (2,743     | )          |
| Total  adjustments                                                                            |       | —             |       | (2,721        | )          | —            |       | (2,721     | )          |
| Goodwill at  April 30, 2005                                                                   |       | $                  | 307        |          | $          | 168,632           |       | $          | 74,522     |   | $ | 243,461 |   |

** **

Other intangible assetsconsisted of the following (in thousands):

 
| ** **                                   | ** ** | **April 30, 2005** | ** ** | **January 31, 2005**         | ** ** |
|----------------------------------------------|------------|--------------------|------------|------------------------------|------------|
| ** **                                   | ** ** | **Gross**          | ** ** | **Accumulated Amortization** | ** ** | **Net** | ** ** | **Gross** | ** ** | **Accumulated Amortization** | ** ** | **Net** | ** ** |
| Indefinite-lived  trade names and trademarks |       | $                  | 28,100     |                         | $          | — |   | $ | 28,100 |   | $ | 28,100 |   | $ | — |   | $ | 28,100 |   |
| Customer lists                               |       | 15,000             |       | 4,417                        |       | 10,583 |   | 15,000 |   | 3,867 |   | 11,133 |   |
| Total                                        |       | $                  | 43,100     |                         | $          | 4,417 |   | $ | 38,683 |   | $ | 43,100 |   | $ | 3,867 |   | $ | 39,233 |   |

 

Estimated amortizationexpense for the next five fiscal years is as follows:  $2.1 million, $1.8 million, $1.5 million,$1.5 million and $1.2 million.

 

**5.****                                      Earnings perShare**

 

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

 
| ** **                                              | ** ** | **Three months ended April 30,** | ** ** |
|---------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                              | ** ** | **2005**                         | ** ** | **2004** | ** ** |
| Net earnings                                            |       | $                                | 9,960      |   | $ | 17,675 |   |
| Weighted average  number of common shares outstanding:  |       |                             |       |   |   |
| Basic                                                   |       | 40,904                           |       | 45,665 |   |
| Dilutive effect  of stock options and restricted shares |       | 317                              |       | 440 |   |
| Weighted average  number of common shares outstanding:  |       |                             |       |   |   |
| Diluted                                                 |       | 41,221                           |       | 46,105 |   |
|                                                         |            |                                  |            |  |  |  |  |

 

For the three-month period ended April 30, 2005 and 2004, options topurchase 53,000 and 645 shares of common stock, respectively, are not includedin the computation of earnings per share because the effect would beanti-dilutive.

 

11

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**6.**                                      Segment Information

** **

Blyth is a designer and marketer of home fragrance products andaccessories, home décor, seasonal decorations, household convenience items,personalized gifts and products for the foodservice trade.  We compete in the global Home Expressionsindustry, and our products can be found throughout North America, Europe andAustralia.  Our financial results arereported in three segments - the Direct Selling segment, the Wholesale segmentand the Catalog & Internet segment. These reportable segments are based on similarities in distributionchannels, customers and management oversight.

 

Earnings in all segments 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 investees,which are not allocated to the business segments.  Identifiable assets for each segment consistof assets used directly in its operations and intangible assets, if any,resulting from purchase business combinations. Unallocated Corporate within the identifiable assets include corporatecash and cash equivalents, prepaid income tax, corporate fixed assets, deferredbond costs and other long-term investments, which are not allocated to thebusiness segments.

 
|                                                    |       | **Three months ended April 30,** |       |
|---------------------------------------------------------|------------|----------------------------------|------------|
| **(In thousands)**                                      |       | **2005**                         |       | **2004** |   |
| **Net  Sales**                                          |       |                             |       |   |   |   |   |
| Direct Selling                                          |       | $                                | 173,251    |   | $ | 189,863 |   |
| Wholesale                                               |       | 146,319                          |       | 127,763 |   |
| Catalog &  Internet                                 |       | 36,198                           |       | 41,354 |   |
| **Total**                                               |       | $                                | 355,768    |   | $ | 358,980 |   |
| **Earnings**                                            |       |                             |       |   |   |
| Direct Selling                                          |       | $                                | 27,994     |   | $ | 38,002 |   |
| Wholesale                                               |       | (6,657                           | )          | (2,679 | ) |
| Catalog &  Internet                                 |       | (1,706                           | )          | (1,062 | ) |
|                                                    |       | 19,631                           |       | 34,261 |   |
| Other expense                                           |       | (5,925                           | )          | (4,341 | ) |
| **Earnings  before income taxes and minority interest** |       | $                                | 13,706     |   | $ | 29,920 |   |
| ** **                                              |       |                             |       |   |   |   |   |
| ** **                                              | ** ** | **April 30, 2005**               | ** ** | **January 31, 2005** | ** ** |
| **Identifiable  Assets**                                |       |                             |       |   |   |
| Direct Selling                                          |       | $                                | 255,262    |   | $ | 249,126 |   |
| Wholesale                                               |       | 593,890                          |       | 613,819 |   |
| Catalog &  Internet                                 |       | 166,843                          |       | 164,237 |   |
| Unallocated  Corporate                                  |       | 38,893                           |       | 48,638 |   |
| **Total**                                               |       | $                                | 1,054,888  |   | $ | 1,075,820 |   |

 

12

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**7.**                                      Assets Heldfor Sale

** **

**During the third quarter of fiscal 2005, the ColoradoSprings facility, purchased as part of the Walter Drake acquisition, becameavailable for sale and management maintains an active program to locate abuyer.  The fair value of the building of$4.1 million, which approximates the carrying value less selling costs, isclassified as assets held for sale in the Condensed Consolidated Balance Sheetas of January 31, 2005 and April 30, 2005.**

** **

**8.****                                      Tender Offer**

 

On June 7, 2004, theCompany announced that its Board of Directors approved a repurchase of up to4,000,000 outstanding shares of the Company’s common stock, with the right torepurchase up to an additional 2% of the Company’s outstanding shares, at aprice per share not greater than $35.00 nor less than $30.00 through a Dutchauction cash tender offer.  The finalnumber of shares repurchased under the tender offer, which expired on July 9,2004, was 4,906,616 shares for an aggregate purchase price of $172.6 millionincluding fees and expenses.  The tenderoffer was funded with $86.1 million of available cash and $86.5 million ofborrowings against our $200 million Credit Facility.  The Company does not expect the tender offerto affect its share repurchase program, capital expenditures, dividend policyor acquisitions.

 

**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 thesematters will not have a material adverse effect on its consolidated financialposition, results of operations or cash flows.

 

13

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

 

**RESULTS OF OPERATIONS:**

 

**Overview**

 

Blyth is a designer and marketer of home fragrance products andaccessories, home décor, seasonal decorations, household convenience items,personalized gifts and products for the foodservice trade.  We compete in the global Home Expressionsindustry, and our products can be found throughout North America, Europe andAustralia.  Our financial results arereported in three segments - the Direct Selling segment, the Wholesale segmentand the Catalog & Internet segment. These reportable segments are based on similarities in distributionchannels, customers and management oversight.

 

Today, on an annualized net sales basis considering the full year impactof recent acquisitions, Blyth is comprised of an approximately $740 milliondirect selling business, an approximately $720 million wholesale business andan approximately $200 million catalog and Internet business.  Sales and earnings growth differ in each segmentdepending on geographic location, market penetration, our relative market shareand product and marketing execution, among other business factors.  Over the long term, all three segments shouldexperience single-digit growth, most likely within the low to mid-single digitrange, again depending on the business factors previously noted.

 

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

 

With the acquisitions of Miles Kimball in April 2003 and Walter Drakein December 2003, we entered the Catalog and Internet channel ofdistribution, giving us a presence in all of our desired channels.  The operations of Walter Drake have beenintegrated into those of Miles Kimball and form the core of our Catalog &Internet segment.

 

14

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**NetSales**

** **

Net Sales in the quarterended April 30, 2005, decreased $3.2 million, or 0.9%, to $355.8 millionfrom $359.0 million a year earlier.  Thedecline in Net Sales was primarily due to soft sales in the North AmericanDirect Selling markets and the Wholesale home fragrance businesses.

 

Net Sales - Direct Selling Segment

 

Net Sales in the Direct Selling segment for thequarter ended April 30, 2005 decreased $16.6 million, or 8.7%, to $173.3million in fiscal 2006 from $189.9 million in fiscal 2005.  PartyLite’s U.S. sales decreasedapproximately 16.7% compared to the prior year. PartyLite Canada reported an approximate 8.5% decrease versus the prioryear in U.S. dollars.  Managementbelieves that sales in the U.S. and Canadian markets continued to be negativelyimpacted by increased competition for hostesses and party guests due to asubstantial increase in channel competition. There was a reduction in the number of shows principally due to thedecrease in active consultants.  A numberof leadership development and promotional programs have been instituted toaddress these issues.  In PartyLite’sEuropean markets, sales increased approximately 7.4% in U.S. dollars (2.2% inlocal currencies),**driven bystrong sales in the developing markets.

 

Net Sales - Wholesale Segment

 

Net Sales in the Wholesale segment in the quarterended April 30, 2005, increased $18.5 million, or 14.5%, to $146.3 millionfrom $127.8 million a year earlier.  Theincrease in this segment is due to the addition of sales from Edelman andEuro-Decor, which were acquired in September 2004, partially offset by adecrease in worldwide sales in the home fragrance businesses.

 

Net Sales - Catalog & Internet Segment

 

Net Sales in the Catalog & Internet segment decreased $5.2million, or 12.6%, to $36.2 million in the quarter ended April 30, 2005,compared with $41.4 million in the same period in fiscal 2005.  The decline from last year is primarilyattributable to the absence of one of this segment’s catalogs, the number ofeditions of which has been limited this year, as well as sales softness and thetiming of catalog mailings among the existing titles.

 

**GrossProfit**

** **

Gross profit in the quarter ended April 30, 2005 decreased $14.7million, or 8.0% to $168.3 million from $183.0 million in fiscal 2005.  Gross profit margin decreased from 51.0% inthe first quarter of fiscal 2005 to 47.3% in fiscal 2006.  This decline is principally due to salesshortfalls within our North American Direct Selling channel, the margins ofwhich are higher than Blyth’s overall average, as well as gross margin declinesin our Wholesale businesses, principally due to business mix and highercommodity and freight costs, which were not offset by price increases.

 

**SellingExpense**

** **

Selling expense decreased $3.2 million, or 2.8%,from $115.1 million in the first three months ended April 30, 2004, whenselling expense was 32.1% of net sales, to $111.9 million in the first threemonths of fiscal 2006, or 31.4% of net sales. The decrease in selling expense is primarily due to the impact of reducedsales in the North American Direct Selling channel.

 

15

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**AdministrativeExpense**

** **

**Administrative expenseincreased $3.2 million, or 9.5%, from $33.7 million in the first quarter ended April 30,2004 to $36.9 million in the first three months of fiscal 2006.  Administrative expenses increased due to theacquisitions of Edelman and Euro-Decor. As a percent of sales, administrative expense was 10.4% in the firstquarter of fiscal 2006 versus 9.4% in the same period last year.**

** **

**OperatingProfit**

** **

Operatingprofit decreased $14.7 million, or 42.9%, from $34.3 million in the quarterended April 30, 2004 to $19.6 million in the quarter ended April 30,2005.  The sales shortfall in the DirectSelling segment is the primary reason for the decrease in operating profit*.*

 

Operating Profit - Direct Selling Segment

 

**Operating profit in thequarter ended April 30, 2005 in the Direct Selling segment decreased $10.0million, or 26.3%, to $28.0 million when compared to $38.0 million a yearearlier.  The decreased profitabilityresulted from the sales shortfall in PartyLite’s North American operations, asnoted above, and continued investments in organic strategic initiatives.**

** **

Operating Loss - Wholesale Segment

 

Operating loss in the quarter ended April 30,2005 in the Wholesale segment was $6.7 million versus a loss of $2.7 million ayear earlier.  Sales volume declines andcontinued pressure on raw materials costs more than offset the benefit of therecent acquisitions on operating profit.

 

Operating Loss - Catalog & Internet Segment

 

Operating loss in the quarter ended April 30,2005 in the Catalog & Internet segment was $1.7 million versus a lossof $1.1 million a year earlier. Operating loss was above prior year due to the impact of reduced sales.

 

**InterestExpense**

** **

Interest expense decreased approximately $0.1 million from $5.2 million inthe quarter ended April 30, 2004 to $5.1 million in the quarter ended April 30,2005.  This decrease is due to a decreasein foreign borrowings and payments on private placement notes.

 

**IncomeTaxes**

** **

Income tax expense decreased $8.2 million, or 67.2%, from $12.2 million inthe quarter ended April 30, 2004 to $4.0 million in the same period in thecurrent fiscal year.  This decrease isprimarily due to the decrease in earnings and to a lower expected effective taxrate for fiscal 2006.  The effective taxrate for the quarter ended April 30, 2005 was approximately 29.0% comparedto 40.8% in the first quarter of fiscal 2005 due to more income being earned inlower tax jurisdictions, as well as the disposal of non tax-deductible goodwillof $3.6 million related to the sale of Jeanmarie Creations in fiscal 2005.

 

16

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**NetEarnings**

** **

As a result of the foregoing, net earnings decreased $7.7 million, or43.5%, from $17.7 million in the first quarter of fiscal 2005 to $10.0 millionfor the quarter ended April 30, 2005.

 

Basic earnings pershare for the quarter ended April 30, 2005, were $0.24, a decrease of$0.15, or 38.5%, compared to $0.39 for the quarter ended April 30,2004.  Diluted earnings per share were$0.24 for the quarter ended April 30, 2005, compared to $0.38 for the sameperiod last year, a decrease of $0.14 or 36.8%.

 

**Liquidityand Capital Resources**

** **

Net cash provided by operating activities decreased to $8.1 million in thefirst three months of fiscal 2006 from $15.8 million in the same three-monthperiod of fiscal 2005.  The 48.7%decrease in cash provided by operations in fiscal 2006 was primarily due to thereduction in net earnings.

 

Capital expenditures for property, plant and equipment were $3.4 millionin the quarter ended April 30, 2005 compared to $3.0 million in the prioryear period.  Capital expendituresconsisted primarily of investments in information technology and upgrades ofequipment and facilities.  The Companyexpects total capital spending of approximately $20 million for fiscal 2006.

 

On June 2, 2005, the Company replaced its prior$200 million credit facility with a new $150 million unsecured revolving creditfacility having a five year term (the “Credit Facility”).  The Company has the ability to increase theCredit Facility, under certain circumstances, by an additional $50million.  The Credit Facility may be usedfor seasonal working capital needs, general corporate purpose, funding forstrategic acquisitions and borrowing to repatriate retained earnings from itsEuropean subsidiaries.  The CreditFacility contains, among other provisions, requirements for maintaining certainfinancial ratios and limitations on certain payments.  Amounts outstanding under the Credit Facilitybear interest, at the Company’s option, at JPMorgan Chase Bank’s prime rate orat the Eurocurrency rate plus a credit spread ranging from 0.360% to 0.800%,calculated on the basis of the Company’s senior unsecured long-term debtrating.  On April 30, 2005, therewere no amounts outstanding under the prior $200 million credit facility.

 

As of April 30, 2005, the Company had a total of $15.0 million availableunder an uncommitted bank line of credit with LaSalle Bank NationalAssociation, which matures in June 2005. Amounts outstanding under the line of credit bear interest at short-termfixed rates.  No amounts were outstandingunder the uncommitted line of credit at April 30, 2005.

 

At April 30, 2005, the Company had a total of $10.0 million availableunder an uncommitted line of credit with Bank of America to be used for lettersof credit.  At April 30, 2005,approximately $5.7 million of letters of credit were outstanding under thiscredit line.

 

As of March 31, 2005, The Gies Group (“Gies”) had available lines ofcredit of approximately $35.0 million of which approximately $1.3 million wasoutstanding.  The amounts outstandingunder the lines of credit bear interest at a weighted average rate of 2.7% at March 31,2005.  The lines of credit are renewedannually.

 

17

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As of March 31, 2005, Kaemingk had available lines of credit ofapproximately $35.6 million with ING Bank N.V. The lines of credit are collateralized by certain real estate andequipment owned by Kaemingk.  No amountswere outstanding at March 31, 2005.

 

Colony Gift Corporation Limited (“Colony”) has a $17.0million short-term revolving credit facility with Barclays Bank, which maturesin August 2005.  As of March 31,2005, Colony had borrowings under the credit facility of approximately $5.5million, at a weighted average interest rate of 5.8%.

 

As of March 31, 2005, Edelman B.V. and Euro-Decor B.V. had availablelines of credit of approximately $32.4 million with ABN Amro Bank N.V.  The lines of credit are collateralized byinventory and receivables owned by Edelman B.V. and Euro-Decor B.V.  At March 31, 2005, approximately $2.6million was outstanding at a weighted average interest rate of 2.9%.

 

At April 30, 2005, Miles Kimball hadapproximately $9.8 million of long-term debt outstanding under a real estatemortgage note payable to John Hancock Life Insurance Company, which matures June 1,2020.  Under the terms of the note,payments of principal and interest are required monthly at a fixed interestrate of 7.89%.

 

At March 31, 2005, Kaemingk had approximately $8.3 million oflong-term debt outstanding under six loans with ING Bank N.V. at a weightedaverage interest rate of 5.0%.  The bankloans have maturity dates ranging from 2008 through 2020.  The loans are collateralized by certain realestate and equipment owned by Kaemingk.

 

In July 1995, the Company privately placed $25.0 million aggregateprincipal amount of 7.54% Senior Notes due 2005.  As of April 30, 2005, $3.6 million ofprincipal remained outstanding.  Suchsenior notes contain, among other provisions, requirements for maintainingcertain financial ratios and net worth. At April 30, 2005, the Company was in compliance with suchprovisions.  Payment on the notescommenced in June 1999 and annual installments of principal and interestare required to be paid through June 2005.

 

In May 1999, the Company filed a shelf registration statement forissuance of up to $250.0 million in debt securities with the Securities andExchange Commission.  On September 24,1999, the Company issued $150.0 million of 7.90% Senior Notes due October 1,2009 at a discount of approximately $1.4 million, which is being amortized overthe life of the notes.  Such notescontain, among other provisions, restrictions on liens on principal property orstock issued to collateralize debt.  At April 30,2005, the Company was in compliance with such provisions.  Interest is payable semi-annually in arrearson April 1 and October 1.  On October 20,2003, the Company issued $100.0 million 5.50% Senior Notes due on November 1,2013 at a discount of approximately $0.2 million, which is being amortized overthe life of the notes.  Such notescontain provisions and restrictions similar to those in the 7.90% SeniorNotes.  At April 30, 2005, theCompany was in compliance with such provisions. Interest is payable semi-annually in arrears on May 1 and November 1.  The notes may be redeemed in whole or in partat any time at a specified redemption price. The proceeds of the debt issuance were used for general corporatepurposes.

 

At April 30, 2005, CBK had $4.5 million of long-term debt outstandingunder an Industrial Revenue Bond (“IRB”), which matures on January 1,2025.  The bond is backed by anirrevocable letter of credit issued by La Salle Bank National Association.  The loan is collateralized by certain of CBK’sassets.  The amount outstanding under theIRB bears interest at short-term floating rates, which equaled a weightedaverage interest rate of 3.0% at April 30, 2005.  Payments of principal are required annuallyand interest payments are required monthly under the terms of the bond.

 

18

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The Company’s Board of Directors has authorized the Company to repurchaseup to 6,000,000 shares of common stock under the Company’s share repurchaseprogram.  Since January 31, 2005,the Company has purchased an additional 65,000 shares on the open market for acost of $2.1 million, bringing the cumulative total purchased shares to4,626,800 as of April 30, 2005 for a total cost of approximately $114.5million.  The acquired shares are held ascommon stock in treasury at cost.

 

On June 7, 2004 the Company announced that its Board of Directorsapproved a repurchase of up to 4,000,000 outstanding shares of the Company’scommon stock, with the right to repurchase up to an additional 2% of theCompany’s outstanding shares, at a price per share not greater than $35.00 norless than $30.00 through a Dutch auction cash tender offer.  The final number of shares repurchased underthe tender offer, which expired on July 9, 2004, was 4,906,616 shares foran aggregate purchase price of $172.6 million including fees and expenses.  The tender offer was funded with $86.1million of available cash and $86.5 million of borrowings against our old $200million credit facility.  The Companydoes not expect the tender offer to affect its share repurchase program,capital expenditures, dividend policy or acquisitions.

 

On March 17, 2005, the Company announced that it had declared a cashdividend of $0.21 per share of common stock for the six months ended January 31,2005.  The dividend was payable toshareholders of record as of April 29, 2005, and was paid on May 13,2005.  The total dividend payment was$8.6 million.

 

**CriticalAccounting Policies**

** **

There were no changes to our critical accounting policies in the firstquarter of fiscal 2006.  For a discussionof the Company’s critical accounting policies see our Annual Report on Form 10-Kfor the fiscal year ended January 31, 2005.

 

**RecentAccounting Pronouncements**

** **

In December 2004, the FASB issued SFAS No. 123 (revised 2004)(SFAS No. 123R), “Share-Based Payment”. This Standard requires companiesto measure share-based payments at grant-date fair value and recognize thecompensation expense in their financial statements.  While we previously adopted, for disclosurepurposes only, the fair value based method of accounting pursuant to SFAS No. 123,“Accounting for Stock Based Compensation”, SFAS No. 123R requires aforfeiture assumption for our unvested awards. Additionally, SFAS No. 123Ramends the presentation of the statement of cash flows and requires additionalannual disclosures.  We will apply theprovisions of this Standard using the modified prospective method for theunvested portion of previously issued awards that remain outstanding at February 1,2006.  The implementation of thisstandard is not expected to have a material impact on the financial statements.

 

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

** **

**MarketRisk**

** **

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

 

**InterestRate Risk**

** **

As of April 30, 2005, the Company is subject to interest rate risk onapproximately $16.8 million of variable rate debt.  Each 1-percentage point change in theinterest rate would impact pre-tax earnings by approximately $0.2 million ifapplied to the total.

 

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

 

**ForeignCurrency Risk**

** **

The Company uses foreign exchange forward and options contracts to hedgethe impact of foreign currency fluctuations on foreign denominated inventorypurchases, intercompany payables and certain intercompany loans.  The Company does not hold or issue derivativefinancial instruments for trading purposes.

 

The Company has designated its forward exchange and options contracts onforecasted intercompany purchases and future purchase commitments as cash flowhedges and, as such, as long as the hedge remains effective and the underlyingtransaction remains probable, the effective portion of the changes in the fairvalue of these contracts will be recorded in accumulated other comprehensiveincome (loss) (“OCI”) until earnings are affected by the variability of thecash flows being hedged.  With regard tocommitments for inventory purchases, upon payment of each commitment, theunderlying forward contract is closed and the corresponding gain or loss istransferred from accumulated OCI and is included in the measurement cost of theacquired asset.  If a hedging instrument issold or terminated prior to maturity, gains and losses are deferred inaccumulated OCI 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 $0.2 million of hedge gains are included in accumulatedOCI at April 30, 2005, and are expected to be transferred into earningswithin the next twelve months upon payment of the underlying commitment.

 

The Company has designated its foreign currency forward contracts relatedto intercompany loans as fair value hedges. The gains or losses on the fair value hedges are recognized intoearnings and generally offset the transaction gains or losses in the foreigndenominated loans that they are intended to hedge.

 

For consolidated financial statement presentation, net cash flows fromsuch hedges are classified in the categories of the cash flow with the itemsbeing hedged.

 

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The followingtable provides information about the Company’s foreign exchange forward andoptions contracts at April 30, 2005:

 
| ** **                                        | ** ** | **U.S. Dollar**     | ** ** | **Average**       | ** ** | **Estimated**  | ** ** |
|---------------------------------------------------|------------|---------------------|------------|-------------------|------------|----------------|------------|
| **(In thousands, except average  contract rate)** | ** ** | **Notional Amount** | ** ** | **Contract Rate** | ** ** | **Fair Value** | ** ** |
| Canadian Dollar                                   |       | $                   | 6,344      |              | 0.80       |           | $          | 30 |   |
| Euro                                              |       | 36,405              |       | 1.31              |       | 317            |       |
|                                              |       | $                   | 42,749     |              |       |           | $          | 347 |   |

 

The foreignexchange contracts outstanding have maturity dates through 2005.

 

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**Item 4.** CONTROLS ANDPROCEDURES

** **

(a) Evaluationof disclosure controls and procedures.

 

Our management, with the participation of ourprincipal executive officer and our principal financial officer, evaluated theeffectiveness of our disclosure controls and procedures (as defined inSecurities Exchange Act of 1934 (“Exchange Act”) Rules 13a-15(e) or15d-15(e)) as of the end of the period covered by this quarterly reportas required by paragraph (b) of Exchange Act Rules 13a-15 or15d-15.  Based upon thisevaluation, our principal executive officer and our principal financial officerhave concluded that our disclosure controls and procedures are effective as of April 30,2005.

 

(b) Remediationof material weakness.

 

As discussed in Item 9A. Controls andProcedures-Management’s Report on Internal Control over Financial Reporting inour Form 10-K, as of January 31, 2005, there was a materialweakness in our internal control over financial reporting related to our incometax accounting and reconciliation processes, procedures and controls, includingthe identification of income tax contingencies. In fiscal 2005, and through the date of this filing, we have taken thefollowing steps to improve our internal controls around our income taxaccounting and reconciliation processes, procedures and controls:

 

•                                          Enhanced the levels of review in and acceleratedthe timing of the preparation of the quarterly and annual income tax provision;

 

•                                          Formalized processes, procedures anddocumentation standards relating to income tax provisions;

 

•                                          Enhanced and restructured our TaxDepartment to ensure appropriate segregation of duties regarding preparationand review of the quarterly and annual income tax provision; and

 

•                                          Engaged Ernst & Young LLP to assist theCompany in its accounting for income taxes.

 

We believe we have taken steps necessary to remediatethis material weakness relating to our income tax accounting and reconciliationprocesses, procedures and controls, however, certain of the correctiveprocesses, procedures and controls relate to annual controls that cannot betested until the preparation of our 2006 annual income tax provision.  Accordingly, we will continue to monitor theeffectiveness of our internal controls over financial reporting related to theaccounting for income taxes and will make any further changes managementdetermines appropriate.

 

(c) Changesin internal control over financial reporting.

 

Other than the change discussed in (b) above,there have been no changes in our internal control over financial reportingidentified in connection with the evaluation required by paragraph (d) ofExchange Act Rules 13a-15 or 15d-15 that occurred during ourlast fiscal quarter that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.

 

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**Part II.**  OTHER INFORMATION

** **

**Item 1.**           Legal Proceedings

** **

None.

 

**Item 2.**           Unregistered Sales of Equity Securitiesand Use of Proceeds

 

The following table sets forth certain information concerning therepurchase of the Company’s Common Stock made by the Company during the firstquarter of the fiscal year ending January 31, 2006.

 

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

 

| **Period**                                            | ** ** | **(a) Total  Number of  Shares   Purchased** | ** ** | **(b)  Average  Price Paid  per Share** | ** ** | **(c) Total  Number of  Shares  Purchased as  Part of Publicly  Announced  Plans or   Programs** | ** ** | **(d) Maximum Number (or   Approximate Dollar  Value) of Shares that May  Yet Be Purchased Under  the Plans or Programs** | ** **       |
|-------------------------------------------------------|------------|---------------------------------------------------|------------|-----------------------------------------|------------|------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------|------------------|
| ** **                                            | ** ** | ** **                                        | ** ** | ** **                              | ** ** | ** **                                                                                                 | ** ** | ** **                                                                                                                     | ** **       |
| February 1, 2005 –   February 28, 2005 |       | 47,500                                            |       | $                                       | 31.86      |                                                                                                       | 47,500     |                                                                                                                           | 1,390,700 shares |   |
|                                                  |       |                                              |       |                                    |       |                                                                                                       |       |                                                                                                                           |             |
| March 1, 2005 –   March 31, 2005       |       | 17,500                                            |       | $                                       | 31.86      |                                                                                                       | 17,500     |                                                                                                                           | 1,373,200 shares |   |
|                                                  |       |                                              |       |                                    |       |                                                                                                       |       |                                                                                                                           |             |
| April 1, 2005 –   April 30, 2005       |       | 0                                                 |       | —                                  |       | 0                                                                                                          |       | 1,373,200 shares                                                                                                               |             |
|                                                  |       |                                              |       |                                    |       |                                                                                                       |       |                                                                                                                           |             |
| Total                                                 |       | 65,000                                            |       | $                                       | 31.86      |                                                                                                       | 65,000     |                                                                                                                           | 1,373,200 shares |   |

 

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(1) On September 10, 1998, the Company’s Board of Directorsapproved the Company’s share repurchase program (the “Repurchase Program”)pursuant to which the Company was authorized to repurchase up to 1,000,000shares of its issued and outstanding Common Stock in open market transactions.  On June 8, 1999, the Company’s Board ofDirectors amended the Repurchase Program and increased the number of shares ofCommon Stock to be repurchased by 1,000,000 shares, from 1,000,000 to 2,000,000shares.  On March 30, 2000, theCompany’s Board of Directors further amended the Repurchase Program andincreased the number of shares of Common Stock to be repurchased by 1,000,000shares, from 2,000,000 to 3,000,000 shares. On December 14, 2000, the Company’s Board of Directors furtheramended the Repurchase Program and increased the number of shares of CommonStock to be repurchased by 1,000,000 shares, from 3,000,000 to 4,000,000shares.  On April 4, 2002, theCompany’s Board of Directors further amended the Repurchase Program andincreased the number of shares of Common Stock to be repurchased by 2,000,000shares, from 4,000,000 to 6,000,000 shares. As of April 30, 2005, the Company has purchased a total of4,626,800 shares of Common Stock under the Repurchase Program.  The Repurchase Program does not have anexpiration date.  The Company intends tomake further purchases under the Repurchase Program.

 

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**Item 3.**           Defaults upon Senior Securities

** **

None

 

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

** **

None

 

**Item5.****           Other Information**

 

The Company is including the following cautionary statement in this Reportto make applicable, and to take advantage of, the safe harbor provisions of thePrivate Securities Litigation Reform Act of 1995 for any forward-lookingstatements made by, or on behalf of, the Company.  Forward-looking statements include statementsconcerning plans, objectives, goals, strategies, future events or performanceand underlying assumptions and other statements, which are other thanstatements of historical facts.  Fromtime to time, the Company and its representatives may publish or otherwise makeavailable forward-looking statements of this nature.  All such forward-looking statements, whetherwritten or oral, and whether made by or on behalf of the Company, are expresslyqualified by the following cautionary statements.  Forward-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 be no assurance that management’s expectations, beliefs orprojections will occur or be achieved or accomplished.  In addition to other factors and mattersdiscussed elsewhere in this Report and in the Company’s other public filingsand statements, the following are important factors that, in the view of theCompany, could cause actual results to differ materially from those discussedin the Company’s forward-looking statements. The Company disclaims any obligation to update any forward-lookingstatements, or the following factors, to reflect events or circumstances afterthe date of this Report.

 

Risk of Inability to Maintain Sales Growth Rate

 

The Company hasexperienced significant sales growth in past years.  While management expects continued growth,our future growth rate will likely be less than our historical growth rate.  The Company expects faster sales growth inits international market versus its United States market.  The Company’s ability to increase salesdepends on numerous factors, including market acceptance of existing products,the successful introduction of new products, growth of consumer discretionaryspending, the ability to recruit new independent sales consultants, sourcing ofraw materials and demand-driven increases in production and distributioncapacity.  Business in all of oursegments is driven by consumer preferences. Accordingly, there can be no assurances that the Company’s current orfuture products will maintain or achieve market acceptance.  Our sales and earnings results can benegatively impacted by the worldwide economic environment, particularly theCanadian, United States and European economies. There can be no assurances that the Company’s financial results will notbe materially adversely affected by these factors in the future.

 

The Company’s historical growth has been due in part to acquisitions andmanagement continues to consider additional strategic acquisitions.  There can be no assurances that managementwill continue to identify suitable acquisition candidates, consummateacquisitions on terms favorable to the Company, finance acquisitions orsuccessfully integrate acquired operations.

 

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Risks Associated with International Sales andForeign-Sourced Products

 

Our international sales growth rate has outpaced our United States growthrate in recent years.  Moreover, theCompany sources a portion of its products in all of its business segments fromindependent manufacturers in the Pacific Rim, Europe and Mexico.  For these reasons, we are subject to thefollowing risks associated with international manufacturing and sales:  fluctuations in currency exchange rates,economic or political instability, international public heath crises,transportation costs and delays, difficulty in maintaining quality control,restrictive governmental actions, nationalizations, the laws and policies ofthe United States, Canada and certain European countries affecting theimportation of goods (including duties, quotas and taxes) and the trade and taxlaws of other nations.

 

Ability to Respond to Increased Product Demand

 

The Company’s ability to meet future product demand in all of its businesssegments will depend upon its success in (1) sourcing adequate supplies of itsproducts, (2) bringing new production and distribution capacity on line ina timely manner, (3) improving its ability to forecast product demand andfulfill customer orders promptly, (4) improving customer service-orientedmanagement information systems and (5) training, motivating and managingnew employees.  The failure of any of theabove could result in a material adverse effect on our financial results.

 

Risk of Shortages of Raw Materials

 

Certain raw materials could be in short supply due to price changes,capacity, availability, a change in requirements, weather or other factors,including supply disruptions due to production or transportation delays.  Such shortages have not had and are notpresently expected to have a material adverse effect on the Company’soperations.  While the price of crude oilis only one of several factors impacting the price of petroleum wax, it ispossible that recent fluctuations in oil prices may have a material adverseaffect on the cost of petroleum-based products used in the manufacture ortransportation of our products, particularly in the Direct Selling andWholesale business segments.

 

Dependence on Key Corporate Management Personnel

 

Our success depends in part on the contributions of key corporatemanagement, including our Chairman and Chief Executive Officer, Robert B.Goergen, as well as the members of the Office of the Chairman:  Robert H. Barghaus, Vice President and ChiefFinancial Officer; Bruce G. Crain, Senior Vice President and PresidentWholesale Group; Robert B. Goergen, Jr., Vice President and President,Catalog & Internet Group; and Frank P. Mineo, Senior Vice Presidentand President, Direct Selling Group.  TheCompany does not have employment contracts with any of its key corporatemanagement personnel except the Chairman and Chief Executive Officer, nor doesit maintain any key person life insurance policies.  The loss of any of the key corporatemanagement personnel could have a material adverse effect on the Company.

 

Risk of Increased Competition

 

Our business is highly competitive both in terms of pricing and newproduct introductions.  The worldwidemarket for Home Expressions products is highly fragmented with numeroussuppliers serving one or more of the distribution channels served by theCompany.  In addition, the Companycompetes for direct selling consultants

 

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with other direct selling companies. Because there are relatively low barriers to entry in all of ourbusiness segments, the Company may face increased competition from othercompanies, some of which may have substantially greater financial or otherresources than those available to us. Competition includes companies selling candles manufactured at low costoutside of the United States.  Moreover,certain competitors focus on a single geographic or product market and attemptto gain or maintain market share solely on the basis of price.

 

# **Risks Related to Information Technology Systems**

# ** **

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

 

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**Item 6.**           Exhibits

** **

Exhibits

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

 

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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 9,  2005 |   | By:                                         | /s/Robert B.  Goergen |   |
|   |                                 |   | Robert B.  Goergen                          |
|   |                                 |   | Chairman and Chief  Executive Officer       |
|   |                                 |   |                                        |   |
|   |                                 |   |                                        |   |
| Date:  |    June 9,  2005 |   | By:                                         | /s/Robert H.  Barghaus |   |
|   |                                 |   | Robert H.  Barghaus                         |
|   |                                 |   | Vice President  and Chief Financial Officer |

 

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