**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington D.C. 20549**

 

**FORM 10-Q**

 

**(MarkOne)**

 

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

 

## **For the quarterlyperiod ended October 31, 2005**

 

**or**

 

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

 

**For the transition period from                  to                   **

 

**Commission File Number 1-13026**

 

**BLYTH, INC.**

(Exact name of registrant as specified in its charter) 

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

 

**(203) 661-1926**

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such 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-2 ofthe Exchange Act).

Yes  ý              No  o

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

Yes  o              No  ý

 

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

 

**40,991,644 Common Shares as of November 30,2005**

 

 

----

 

**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

----

 

Part I.  FINANCIAL INFORMATION

Item I.  FINANCIAL STATEMENTS

 

**BLYTH,INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

 
| **(In thousands, except share and  per share data)**                                                                           | ** ** | **October 31,  2005** | ** ** | **January 31,  2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| **ASSETS**                                                                                                                     |       |                       |       |                       |       |
| **Current assets:**                                                                                                            |       |                       |       |                       |       |
| Cash and cash equivalents                                                                                                      |       | $                          | 44,820     |                       | $          | 91,695 |   |
| Accounts receivable, less allowance for doubtful  receivables of $4,807 and $4,028, respectively                               |       | 194,291                    |       | 124,603                    |       |
| Inventories                                                                                                                    |       | 280,655                    |       | 234,984                    |       |
| Prepaid and other                                                                                                              |       | 52,032                     |       | 43,832                     |       |
| Assets held for sale                                                                                                           |       | 3,027                      |       | 3,949                      |       |
| Deferred income taxes                                                                                                          |       | 18,687                     |       | 15,068                     |       |
| Total current assets                                                                                                           |       | 593,512                    |       | 514,131                    |       |
| **Property, plant and equipment, at cost:**                                                                                    |       |                       |       |                       |       |
| Less accumulated depreciation of $263,334 and  $262,685, respectively                                                          |       | 233,100                    |       | 258,896                    |       |
| **Other assets:**                                                                                                              |       |                       |       |                       |       |
| Investments                                                                                                                    |       | 3,282                      |       | 3,446                      |       |
| Goodwill                                                                                                                       |       | 247,612                    |       | 246,182                    |       |
| Other intangible assets, net of accumulated  amortization of $5,417 and $3,867, respectively                                   |       | 37,683                     |       | 39,233                     |       |
| Deposits and other assets                                                                                                      |       | 12,858                     |       | 13,932                     |       |
|                                                                                                                           |       | 301,435                    |       | 302,793                    |       |
| Total assets                                                                                                                   |       | $                          | 1,128,047  |                       | $          | 1,075,820 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                  |       |                       |       |                       |       |
| **Current liabilities:**                                                                                                       |       |                       |       |                       |       |
| Bank lines of credit                                                                                                           |       | $                          | 80,803     |                       | $          | 11,813 |   |
| Current maturities of long-term debt                                                                                           |       | 753                        |       | 4,489                      |       |
| Accounts payable                                                                                                               |       | 66,538                     |       | 81,333                     |       |
| Dividends payable                                                                                                              |       | 9,425                      |       | —                     |       |
| Accrued expenses                                                                                                               |       | 95,876                     |       | 94,847                     |       |
| Income taxes                                                                                                                   |       | 3,650                      |       | 9,477                      |       |
| Total current liabilities                                                                                                      |       | 257,045                    |       | 201,959                    |       |
| **Deferred income taxes**                                                                                                      |       | 51,167                     |       | 47,740                     |       |
| **Long-term debt, less current maturities**                                                                                    |       | 269,839                    |       | 271,573                    |       |
| **Other long-term liabilities**                                                                                                |       | 34,142                     |       | 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 50,525,060 shares and 50,367,827 shares, respectively |       | 1,010                      |       | 1,007                      |       |
| Additional contributed capital                                                                                                 |       | 127,525                    |       | 118,148                    |       |
| Retained earnings                                                                                                              |       | 670,285                    |       | 651,156                    |       |
| Accumulated other comprehensive income                                                                                         |       | 8,178                      |       | 36,102                     |       |
| Unearned compensation on restricted stock                                                                                      |       | (3,405                     | )          | —                     |       |
| Treasury stock, at cost, 9,533,416 shares and  9,468,416 shares, respectively                                                  |       | (287,739                   | )          | (285,064                   | )          |
| Total stockholders’ equity                                                                                                |       | 515,854                    |       | 521,349                    |       |
| Total liabilities and stockholders’ equity                                                                                |       | $                          | 1,128,047  |                       | $          | 1,075,820 |   |

 

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

 

3

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**BLYTH,INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF EARNINGS**

**(Unaudited)**

 
| **Nine  months ended October 31****(In thousands, except per share  data)** | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Net sales                                                                        |       | $        | 1,092,449  |     | $          | 1,087,487 |   |
| Cost of goods sold                                                               |       | 599,125  |       | 557,685  |       |
| Gross profit                                                                     |       | 493,324  |       | 529,802  |       |
| Selling                                                                          |       | 318,726  |       | 322,199  |       |
| Administrative                                                                   |       | 111,752  |       | 103,268  |       |
|                                                                             |       | 430,478  |       | 425,467  |       |
| Operating profit                                                                 |       | 62,846   |       | 104,335  |       |
| Other expense (income):                                                          |       |     |       |     |       |
| Interest expense                                                                 |       | 16,173   |       | 16,451   |       |
| Other expense (income), net                                                      |       | 340      |       | (1,757   | )          |
|                                                                             |       | 16,513   |       | 14,694   |       |
| Earnings before income taxes and minority interest                               |       | 46,333   |       | 89,641   |       |
| Income tax expense                                                               |       | 9,788    |       | 32,398   |       |
| Earnings before minority interest                                                |       | 36,545   |       | 57,243   |       |
| Minority interest                                                                |       | (611     | )          | (120     | )          |
| Net earnings                                                                     |       | $        | 37,156     |     | $          | 57,363 |   |
| Basic:                                                                           |       |     |       |     |       |
| Net earnings per common share                                                    |       | $        | 0.91       |     | $          | 1.31 |   |
| Weighted average number of shares                                                |       | 40,948   |       | 43,885   |       |
| Diluted:                                                                         |       |     |       |     |       |
| Net earnings per common share                                                    |       | $        | 0.90       |     | $          | 1.29 |   |
| Weighted average number of shares                                                |       | 41,190   |       | 44,338   |       |

 

***The accompanying notesare an integral part of these financial statements.***

 

4

----

 

**BLYTH,INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF EARNINGS**

**(Unaudited)**

 
| **Three  months ended October 31****(In thousands, except per share  data)** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Net sales                                                                         |       | $        | 444,527    |     | $          | 439,444 |   |
| Cost of goods sold                                                                |       | 258,608  |       | 238,764  |       |
| Gross profit                                                                      |       | 185,919  |       | 200,680  |       |
| Selling                                                                           |       | 115,108  |       | 113,497  |       |
| Administrative                                                                    |       | 37,096   |       | 36,121   |       |
|                                                                              |       | 152,204  |       | 149,618  |       |
| Operating profit                                                                  |       | 33,715   |       | 51,062   |       |
| Other expense (income):                                                           |       |     |       |     |       |
| Interest expense                                                                  |       | 5,519    |       | 6,193    |       |
| Other (income), net                                                               |       | (136     | )          | (409     | )          |
|                                                                              |       | 5,383    |       | 5,784    |       |
| Earnings before income taxes and minority interest                                |       | 28,332   |       | 45,278   |       |
| Income tax expense                                                                |       | 5,288    |       | 15,155   |       |
| Earnings before minority interest                                                 |       | 23,044   |       | 30,123   |       |
| Minority interest                                                                 |       | 3        |       | (120     | )          |
| Net earnings                                                                      |       | $        | 23,041     |     | $          | 30,243 |   |
| Basic:                                                                            |       |     |       |     |       |
| Net earnings per common share                                                     |       | $        | 0.56       |     | $          | 0.74 |   |
| Weighted average number of shares outstanding                                     |       | 40,978   |       | 40,893   |       |
| Diluted:                                                                          |       |     |       |     |       |
| Net earnings per common share                                                     |       | $        | 0.56       |     | $          | 0.73 |   |
| Weighted average number of shares outstanding                                     |       | 41,141   |       | 41,287   |       |

 

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

 

5

----

 

**BLYTH,INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**

**(Unaudited)**

(In thousands, except share data)

 
| ** **                                                           | ** ** | ** **       | ** ** | ** **      | ** ** | ** **     | ** ** | ** **   | ** ** | ** **   | ** ** | ** **        | ** ** | **Accumulated**   | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------|------------|------------------|------------|-----------------|------------|----------------|------------|--------------|------------|--------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                                           | ** ** | ** **       | ** ** | ** **      | ** ** | **Additional** | ** ** | ** **   | ** ** | ** **   | ** ** | ** **        | ** ** | **other**         | ** ** | ** ** | ** ** |
| ** **                                                           | ** ** | **Common stock** | ** ** | **contributed** | ** ** | **Retained**   | ** ** | **Treasury** | ** ** | **Unearned** | ** ** | **comprehensive** | ** ** | ** **        | ** ** |
| ** **                                                           | ** ** | **Shares**       | ** ** | **Amount**      | ** ** | **capital**    | ** ** | **earnings** | ** ** | **Stock**    | ** ** | **Compensation**  | ** ** | **income (loss)** | ** ** | **Total**  | ** ** |
| **For the nine months ended October 31, 2004:**                 |       |             |       |            |       |           |       |         |       |         |       |              |       |              |       |       |       |   |   |   |   |   |   |   |
| Balance, February 1, 2004                                       |       | 49,975,502       |       | $               | 999        |           | $          | 107,965      |       | $            | 570,171    |              | $          | (105,389          | )          | $          | —     |   | $ | 15,224 |   | $ | 588,970 |   |
| Net earnings for the period                                          |       |             |       |            |       |           |       | 57,363       |       |         |       |              |       |              |       | 57,363     |       |
| Foreign currency translation adjustments                             |       |             |       |            |       |           |       |         |       |         |       |              |       | (1,194            | )          | (1,194     | )          |
| Unrealized holding gains on certain investments (net  of tax of $21) |       |             |       |            |       |           |       |         |       |         |       |              |       | 37                |       | 37         |       |
| Net loss on cash flow hedging instruments (net of tax  of $474)      |       |             |       |            |       |           |       |         |       |         |       |              |       | (869              | )          | (869       | )          |
| Comprehensive income                                                 |       |             |       |            |       |           |       |         |       |         |       |              |       |              |       | 55,337     |       |
| Common stock issued in connection with long-term  incentive plan     |       | 379,725          |       | 8               |       | 9,162          |       |         |       |         |       |              |       |              |       | 9,170      |       |
| Tax benefit from stock options                                       |       |             |       |            |       | 640            |       |         |       |         |       |              |       |              |       | 640        |       |
| Dividends                                                            |       |             |       |            |       |           |       | (15,528      | )          |         |       |              |       |              |       | (15,528    | )          |
| Treasury stock purchases                                             |       |             |       |            |       |           |       |         |       | (179,206     | )          |              |       |              |       | (179,206   | )          |
| Balance, October 31, 2004                                       |       | 50,355,227       |       | $               | 1,007      |           | $          | 117,767      |       | $            | 612,006    |              | $          | (284,595          | )          | $          | —     |   | $ | 13,198 |   | $ | 459,383 |   |
| **For the nine months ended October 31, 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                                          |       |             |       |            |       |           |       | 37,156       |       |         |       |              |       |              |       | 37,156     |       |
| Foreign currency translation adjustments                             |       |             |       |            |       |           |       |         |       |         |       |              |       | (31,702           | )          | (31,702    | )          |
| Unrealized holding gains on certain investments (net  of tax of $40) |       |             |       |            |       |           |       |         |       |         |       |              |       | 123               |       | 123        |       |
| Net gain on hedging instruments (net of tax of $1,218)               |       |             |       |            |       |           |       |         |       |         |       |              |       | 3,655             |       | 3,655      |       |
| Comprehensive income                                                 |       |             |       |            |       |           |       |         |       |         |       |              |       |              |       | 9,232      |       |
| Common stock issued in connection with long-term  incentive plan     |       | 155,733          |       | 3               |       | 3,511          |       |         |       |         |       |              |       |              |       | 3,514      |       |
| Tax benefit from stock options                                       |       |             |       |            |       | 316            |       |         |       |         |       |              |       |              |       | 316        |       |
| Issuance of restricted stock, net of cancellations                   |       | 1,500            |       |            |       | 5,550          |       |         |       | (604         | )          | (4,946            | )          |              |       | —     |       |
| Amortization of unearned compensation                                |       |             |       |            |       |           |       |         |       |         |       | 1,541             |       |              |       | 1,541      |       |
| Dividends                                                            |       |             |       |            |       |           |       | (18,027      | )          |         |       |              |       |              |       | (18,027    | )          |
| Treasury stock purchases                                             |       |             |       |            |       |           |       |         |       | (2,071       | )          |              |       |              |       | (2,071     | )          |
| Balance, October 31, 2005                                       |       | 50,525,060       |       | $               | 1,010      |           | $          | 127,525      |       | $            | 670,285    |              | $          | (287,739          | )          | $          | (3,405     | ) | $ | 8,178 |   | $ | 515,854 |   |

 

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

 

6

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**BLYTH,INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| **Nine months ended October 31  (In thousands)**                                 | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Cash flows from operating activities:                                                 |       |     |       |     |       |
| Net earnings                                                                          |       | $        | 37,156     |     | $          | 57,363 |   |
| Adjustments to reconcile net earnings to net cash  provided by operating activities:  |       |     |       |     |       |
| Depreciation and amortization                                                         |       | 27,170   |       | 26,080   |       |
| Gain on disposition of fixed assets                                                   |       | (18      | )          | —   |       |
| Tax benefit from stock options                                                        |       | 316      |       | 640      |       |
| Deferred income taxes                                                                 |       | 840      |       | 1,454    |       |
| Equity in (earnings)/loss of investee                                                 |       | 164      |       | (108     | )          |
| Minority interest                                                                     |       | (730     | )          | (253     | )          |
| Loss/(Gain) on assets held for sale                                                   |       | 1,159    |       | (364     | )          |
| Changes in operating assets and liabilities, net of  effect of business acquisitions: |       |     |       |     |       |
| Accounts receivable                                                                   |       | (80,049  | )          | (85,689  | )          |
| Inventories                                                                           |       | (56,004  | )          | (41,520  | )          |
| Prepaid and other                                                                     |       | (9,503   | )          | 5,299    |       |
| Deposits and other assets                                                             |       | 1,161    |       | (493     | )          |
| Goodwill disposed of due to sale of assets held for  sale                             |       | —   |       | (3,621   | )          |
| Accounts payable                                                                      |       | (11,411  | )          | (10,921  | )          |
| Accrued expenses                                                                      |       | 4,418    |       | 2,108    |       |
| Other liabilities                                                                     |       | 2,213    |       | 1,102    |       |
| Income taxes                                                                          |       | (5,259   | )          | 1,365    |       |
| Total adjustments                                                                     |       | (125,533 | )          | (104,921 | )          |
| Net cash used in operating activities                                                 |       | (88,377  | )          | (47,558  | )          |
| Cash flows from investing activities:                                                 |       |     |       |     |       |
| Purchases of property, plant and equipment                                            |       | (10,820  | )          | (14,338  | )          |
| Purchases of long-term investments                                                    |       | —   |       | (21,000  | )          |
| Proceeds from sales of long term investments                                          |       | —   |       | 21,000   |       |
| Proceeds from sale of assets held for sale                                            |       | —   |       | 9,752    |       |
| Purchase of businesses, net of cash acquired                                          |       | (7,121   | )          | (54,221  | )          |
| Net cash used in investing activities                                                 |       | (17,941  | )          | (58,807  | )          |
| Cash flows from financing activities:                                                 |       |     |       |     |       |
| Proceeds from issuance of common stock                                                |       | 3,514    |       | 9,170    |       |
| Purchases of treasury stock                                                           |       | (2,071   | )          | (179,206 | )          |
| Borrowings from bank line of credit                                                   |       | 115,008  |       | 177,201  |       |
| Repayments on bank line of credit                                                     |       | (43,450  | )          | (72,747  | )          |
| Repayments of long-term debt                                                          |       | (4,613   | )          | (4,713   | )          |
| Dividends paid                                                                        |       | (8,602   | )          | (7,758   | )          |
| Net cash provided by (used in) financing activities                                   |       | 59,786   |       | (78,053  | )          |
| Effect of exchange rate changes on cash                                               |       | (343     | )          | 129      |       |
| Net decrease in cash and cash equivalents                                             |       | (46,875  | )          | (184,289 | )          |
| Cash and cash equivalents at beginning of period                                      |       | 91,695   |       | 229,726  |       |
| Cash and cash equivalents at end of period                                            |       | $        | 44,820     |     | $          | 45,437 |   |

 

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

 

7

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**BLYTH, INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

**(Unaudited)**

 

**1.**                                      Basis of Presentation

 

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

 

Within the Direct Selling segment, the Companydesigns, manufactures or sources, markets and distributes an extensive line ofproducts including scented candles, candle-related accessories, fragranced bathgels and body lotions and other fragranced products under the PartyLite®brand.  The Company also operates a smalldirect selling craft company under the name of Purple Tree and a small directselling gourmet food company named Two Sisters Gourmet.  All direct selling products are sold directlyto the consumer through a network of independent sales consultants using theparty plan method of direct selling. PartyLite® brand products are sold in North America, Europe and Australia.  Purple TreeTM and Two Sisters GourmetTM brandproducts are sold in North America.

 

Within the Wholesale segment, the Company designs,manufactures or sources, markets and distributes an extensive line of homefragrance products, candle-related accessories, seasonal decorations such asornaments, artificial trees and trim, and home décor products such as pictureframes, lamps and textiles.  Products inthis segment are sold in North America and Europe to retailers in the premium,specialty and mass channels under the CBK®, Carolina®, Colonial®(1), ColonialCandle of Cape Cod®, Colonial at HOMEâ, Edelman®, Euro-Decor®(1), Florasense®, Gies®(1),KaemingkTM(2),Liljeholmens®, Seasons of Cannon Falls® and Triumph Tree®(1) brands.  In addition, chafing fuel and tabletoplighting products and accessories for the Away From Home or foodservice tradeare sold through this segment under the Ambria®, FilterMate®, HandyFuelTM andSterno® brands.

 

Within the Catalog & Internet segment, theCompany designs, sources and markets a broad range of household convenienceitems, premium photo albums, frames, holiday cards, personalized gifts, kitchenaccessories and gourmet coffee and tea. These products are sold directly to the consumer under the Boca JavaTM,Easy ComfortsTM, Exposuresâ, Home Marketplace®, Miles Kimballâ and Walter Drakeâ brands.  These products are sold primarily in NorthAmerica.

 

The condensed consolidated financial statementsinclude the accounts of the Company and its direct and indirectsubsidiaries.  All significantintercompany accounts and transactions have been eliminated.  Investments in companies that are notmajority owned or controlled are reported using the equity method and arerecorded in investments.  Other expense(income), net consists of interest income earned from investments, foreigncurrency gains and losses, gains and losses from sales of investments and theCompany’s equity in the income or losses of unconsolidated investments.  Certain of the Company’s subsidiaries operateon a 52 or 53-week fiscal 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 alladjustments necessary for fair presentation of the Company’s consolidatedfinancial position at October 31, 2005 and the consolidated results of itsoperations for the three and nine-month periods and cash flows for thenine-month periods ended October 31, 2005 and 2004.  These interim statements should be read inconjunction with the Company’s consolidated financial statements for the yearended January 31, 2005, as set forth in the Company’s Annual Report on Form 10-K.  Operating results for the nine months ended October 31,2005 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 sold onlyoutside the United States.

**(2) **Kaemingk is sold only outside theUnited States.

 

8

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**EmployeeStock Options**

 

The Company has elected to adopt the disclosure onlyprovisions of Statement 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 compensationexpense is recorded for the stock options issued to employees unless the optionprice is below market at the measurement date. The Company does not at this time issue stock options below marketvalue, therefore no compensation expense has been recorded in the 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 October 31,** | ** ** | **Nine months ended October 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|
| **(In thousands except per share  data)**                                                                        | ** ** | **2005**                                | ** ** | **2004**                               | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net earnings:                                                                                                    |       |                                    |       |                                   |       |   |   |   |   |
| As reported                                                                                                      |       | $                                       | 23,041     |                                   | $          | 30,243 |   | $ | 37,156 |   | $ | 57,363 |   |
| Stock-based employee compensation expense determined  under SFAS No. 123 for all awards, net of related tax |       | 293                                     |       | 506                                    |       | 899 |   | 1,555 |   |
| Pro forma                                                                                                        |       | $                                       | 22,748     |                                   | $          | 29,737 |   | $ | 36,257 |   | $ | 55,808 |   |
| Net earnings per common share:                                                                                   |       |                                    |       |                                   |       |   |   |   |   |
| As reported:                                                                                                     |       |                                    |       |                                   |       |   |   |   |   |
| Basic                                                                                                            |       | $                                       | 0.56       |                                   | $          | 0.74 |   | $ | 0.91 |   | $ | 1.31 |   |
| Diluted                                                                                                          |       | 0.56                                    |       | 0.73                                   |       | 0.90 |   | 1.29 |   |
| Pro forma:                                                                                                       |       |                                    |       |                                   |       |   |   |   |   |
| Basic                                                                                                            |       | $                                       | 0.56       |                                   | $          | 0.73 |   | $ | 0.89 |   | $ | 1.27 |   |
| Diluted                                                                                                          |       | 0.55                                    |       | 0.72                                   |       | 0.88 |   | 1.26 |   |

 

9

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**2.**                                      Business Acquisitions

 

On September 10, 2004, the Company acquired100% interests in Edelman B.V. (“Edelman”), a designer and marketer of everydayhome, garden and seasonal décor, and Euro-Decor B.V. (“Euro-Decor”), a designerand marketer of traditional 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 and recordedin fiscal 2005 is a $9.2 million earn out, based on a multiple of 2004 earningsbefore interest and income taxes that the combined companies had achieved.  The earn out was paid in the first quarter offiscal 2006.  The Company also assumedEdelman and Euro-Decor’s long-term debt of approximately $7.2 million.  During the fourth quarter of fiscal 2005, anadjustment was recorded to reflect the final appraised value of the acquiredproperty, plant and equipment for $3.8 million, as well as the net pensionasset of $0.6 million.  The excess of thepurchase price over the estimated fair value of the net assets acquiredapproximated $33.0 million, which will not be deductible for income taxpurposes.  The results of operations ofEdelman 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 followingprovides an allocation of the purchase price of Edelman and Euro-Decor (inthousands):

 
| 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 lines 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 |   |

 

10

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** **

The following unaudited pro forma summary financialinformation summarizes the estimated combined results of operations of theCompany, Edelman and Euro-Decor assuming that the acquisitions of Edelman andEuro-Decor had taken place on February 1, 2004.  The unaudited pro forma combined results ofoperations were prepared on the basis of information provided to the Company bythe former management of Edelman and Euro-Decor and no representation is madeby the Company with respect to the accuracy of such information.  The pro forma combined results of operationsreflect adjustments for interest income, additional depreciation based on thefair market value of Edelman’s and Euro-Decor’s property, plant, and equipment,and income tax expense.

 
| ** **                                | ** ** | **Three months ended October 31,** | ** ** | **Nine months ended October 31,** | ** ** |
|-------------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|
| **(In thousands except per share  data)** | ** ** | **2005**                                | ** ** | **2004**                               | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net sales                                 |       | $                                       | 444,527    |                                   | $          | 467,528 |   | $ | 1,092,449 |   | $ | 1,149,805 |   |
| Net earnings                              |       | 23,041                                  |       | 33,166                                 |       | 37,156 |   | 59,420 |   |
| Basic:                                    |       |                                    |       |                                   |       |   |   |   |   |
| Net earnings per common share             |       | $                                       | 0.56       |                                   | $          | 0.81 |   | $ | 0.91 |   | $ | 1.35 |   |
| Diluted:                                  |       |                                    |       |                                   |       |   |   |   |   |
| Net earnings per common share             |       | $                                       | 0.56       |                                   | $          | 0.80 |   | $ | 0.90 |   | $ | 1.34 |   |

 

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

 

**3.**                                      Inventories

 

The components of inventory are as follows (inthousands):

 
| ** **      | ** ** | **October 31, 2005** | ** ** | **January 31, 2005** | ** ** |
|-----------------|------------|---------------------------|------------|---------------------------|------------|
| Raw materials   |       | $                         | 32,805     |                      | $          | 27,286 |   |
| Work in process |       | 909                       |       | 2,641                     |       |
| Finished goods  |       | 246,941                   |       | 205,057                   |       |
| Total           |       | $                         | 280,655    |                      | $          | 234,984 |   |

 

11

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**4.****                                      Goodwilland Other Intangibles**

 

**The following table shows changesin the carrying amount of goodwill for the nine months ended October 31,2005, by operating segment (in thousands):**

 
| **(In thousands)**                                                                            | ** ** | **Direct Selling** | ** ** | **Wholesale** | ** ** | **Catalog &  Internet** | ** ** | **Total** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|--------------------|------------|---------------|------------|----------------------------------|------------|-----------|------------|
| Goodwill at January 31, 2005                                                             |       | $                  | 307        |          | $          | 171,353                          |       | $         | 74,522     |   | $ | 246,182 |   |
| Kaemingk earn out payment                                                                     |       |               |       | 3,932         |       |                             |       | 3,932     |       |
| Edelman and Euro-Decor acquisition costs                                                      |       |               |       | 22            |       |                             |       | 22        |       |
| Additional investment in Two Sisters Gourmet                                                  |       | 1,992              |       |          |       |                             |       | 1,992     |       |
| Boca Java acquisition                                                                         |       |               |       |          |       | 2,512                            |       | 2,512     |       |
| Foreign currency translation adjustment related to  Kaemingk, Edelman and Euro-Decor goodwill |       |               |       | (7,028        | )          |                             |       | (7,028    | )          |
| Total adjustments                                                                             |       | 1,992              |       | (3,074        | )          | 2,512                            |       | 1,430     |       |
| Goodwill at October 31, 2005                                                             |       | $                  | 2,299      |          | $          | 168,279                          |       | $         | 77,034     |   | $ | 247,612 |   |

 

Other intangibleassets consisted of the following (in thousands):

 
| ** **                                  | ** ** | **October 31, 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                    |       | 5,417                         |       | 9,583 |   | 15,000 |   | 3,867 |   | 11,133 |   |
| Total                                       |       | $                         | 43,100     |                          | $          | 5,417 |   | $ | 37,683 |   | $ | 43,100 |   | $ | 3,867 |   | $ | 39,233 |   |

 

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

 

**5.****                                      Earningsper Share**

 

The components of basic and diluted earnings pershare are as follows (in thousands):

 
| ** **                                              | ** ** | **Three months ended October 31,** | ** ** | **Nine months ended October 31,** | ** ** |
|---------------------------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|
| ** **                                              | ** ** | **2005**                                | ** ** | **2004**                               | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net earnings                                            |       | $                                       | 23,041     |                                   | $          | 30,243 |   | $ | 37,156 |   | $ | 57,363 |   |
| Weighted average number of common shares  outstanding:  |       |                                    |       |                                   |       |   |   |   |   |
| Basic                                                   |       | 40,978                                  |       | 40,893                                 |       | 40,948 |   | 43,885 |   |
| Dilutive effect of stock options and restricted  shares |       | 163                                     |       | 394                                    |       | 242 |   | 453 |   |
| Weighted average number of common shares  outstanding:  |       |                                    |       |                                   |       |   |   |   |   |
| Diluted                                                 |       | 41,141                                  |       | 41,287                                 |       | 41,190 |   | 44,338 |   |
|                                                         |            |                                         |            |                                        |            |  |  |  |  |  |  |  |  |

 

For the three and nine-month periods ended October 31,2005, options to purchase 993,200 and 440,633 shares of common stock,respectively, are not included in the computation of earnings per share becausethe effect would be anti-dilutive.  Also,for the three and nine-month periods ended October 31, 2004, options topurchase 57,700 and 50,200 shares of common stock, respectively, are notincluded in the computation of earnings per share because the effect would beanti-dilutive.

 

12

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**6.**                                      Segment Information

 

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

 

Operating profit in all segments represent net salesless operating expenses directly related to the business segments and corporateexpenses allocated to the business segments. Other expense includes interest expense, interest income and equity inearnings 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 October 31,** | ** ** | **Nine months ended October 31,** | ** ** |
|---------------------------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|
| **(In thousands)**                                      | ** ** | **2005**                                | ** ** | **2004**                               | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Net Sales**                                           |       |                                    |       |                                   |       |   |   |   |   |
| Direct Selling                                          |       | $                                       | 154,711    |                                   | $          | 156,087 |   | $ | 469,147 |   | $ | 496,259 |   |
| Wholesale                                               |       | 238,155                                 |       | 229,234                                |       | 500,814 |   | 460,310 |   |
| Catalog & Internet                             |       | 51,661                                  |       | 54,123                                 |       | 122,488 |   | 130,918 |   |
| **Total**                                               |       | $                                       | 444,527    |                                   | $          | 439,444 |   | $ | 1,092,449 |   | $ | 1,087,487 |   |
| **Operating profit**                                    |       |                                    |       |                                   |       |   |   |   |   |
| Direct Selling                                          |       | $                                       | 12,173     |                                   | $          | 19,334 |   | $ | 61,077 |   | $ | 82,387 |   |
| Wholesale                                               |       | 21,507                                  |       | 28,354                                 |       | 6,032 |   | 21,420 |   |
| Catalog & Internet                             |       | 35                                      |       | 3,374                                  |       | (4,263 | ) | 528 |   |
|                                                    |       | 33,715                                  |       | 51,062                                 |       | 62,846 |   | 104,335 |   |
| Other expense                                           |       | (5,383                                  | )          | (5,784                                 | )          | (16,513 | ) | (14,694 | ) |
| **Earnings before income taxes and minority  interest** |       | $                                       | 28,332     |                                   | $          | 45,278 |   | $ | 46,333 |   | $ | 89,641 |   |

 
| ** **                  | ** ** | **October 31, 2005** | ** ** | **January 31, 2005** | ** ** |
|-----------------------------|------------|---------------------------|------------|---------------------------|------------|
| **Identifiable Assets**     |       |                      |       |                      |       |   |   |   |   |
| Direct Selling              |       |                      |       | $                         | 234,726    |   |   |   | $ | 249,126 |   |
| Wholesale                   |       |                      |       | 683,647                   |       |   |   | 613,819 |   |
| Catalog & Internet |       |                      |       | 177,828                   |       |   |   | 164,237 |   |
| Unallocated Corporate       |       |                      |       | 31,846                    |       |   |   | 48,638 |   |
| **Total**                   |       |                      |       | $                         | 1,128,047  |   |   |   | $ | 1,075,820 |   |

 

13

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**7.**                                      Assets Held for Sale

 

**During the third quarter of fiscal2005, the Colorado Springs facility, purchased as part of the Walter Drakeacquisition, became available for sale and management maintains an activeprogram to locate a buyer.  During thethird quarter of fiscal 2006, the Company recorded an impairment charge inrelation to the facility of $1.2 million due to the deterioration of local realestate market conditions.  The netrealizable value of the building as of October 31, 2005 is $3.0 million,which approximates the carrying value less selling costs.  The building is classified as assets held forsale in the Condensed Consolidated Balance Sheet as of October 31, 2005and January 31, 2005.**

** **

**8.****                                      BankLines of Credit**

 

On June 2, 2005, theCompany replaced its prior $200 million credit facility with a new $150 millionunsecured revolving credit facility having a five year term (the “CreditFacility”).  The Company has the abilityto increase the Credit Facility, under certain circumstances, by an additional$50 million.  The Credit Facility may beused for seasonal working capital needs and general corporate purposes,including strategic acquisitions.  TheCredit Facility contains, among other provisions, requirements for maintainingcertain financial 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 October 31, 2005,approximately $46.6 million (including letters of credit) was outstanding underthe Credit Facility.

 

**9.****                                      TenderOffer**

 

On June 7, 2004, the Company announced that itsBoard of Directors approved a repurchase of up to 4,000,000 outstanding sharesof the Company’s common stock, with the right to repurchase up to an additional2% of the Company’s outstanding shares, at a price per share not greater than$35.00 nor less than $30.00 through a Dutch auction cash tender offer.  The final number of shares repurchased underthe tender offer, which expired on July 9, 2004, was 4,906,616 shares 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 prior$200 million Credit Facility.

 

**10.**                               Hedges of NetInvestments in Foreign Operations

 

Management reevaluated its net investment hedgingstrategy in the third quarter of fiscal 2006 and decided to hedge the netassets of certain of its foreign operations through foreign currency forwardcontracts.  Any increase or decrease inthe fair value of the forwards related to changes in the spot foreign exchangerates is offset by the change in the value of the hedged net assets of theforeign operations relating to changes in spot foreign exchange rates.  The net after-tax gain related to thederivative net investment hedge instruments recorded in OCI totaled $3.3million as of October 31, 2005.

 

**11.**                               Contingencies

 

The Company has contingent liabilities that havearisen in the ordinary course of its business, including pendinglitigation.  The Company believes theoutcome of these matters will not have a material adverse effect on its consolidatedfinancial position, results of operations or cash flows.

 

14

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

 

**RESULTS OF OPERATIONS:**

 

**Overview**

 

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

 

Today, on an annualized net sales basis consideringthe full year impact of recent acquisitions, Blyth is comprised of anapproximately $700 million direct selling business, an approximately $700million wholesale business and an approximately $200 million Catalog andInternet business.  Sales and earningsgrowth differ in each segment depending on geographic location, marketpenetration, our relative market share and product and marketing execution,among other business factors.  Over thelong term, all three segments should experience single-digit growth, mostlikely within the low to mid-single digit range, again depending on thebusiness factors previously noted.

 

Our current focus is driving sales growth of ourbrands so we may leverage more fully our infrastructure.  New product development continues to becritical to all three segments of our business. In the Direct Selling segment, monthly sales and productivity incentivesare designed to attract, retain and increase the earnings opportunity ofindependent sales consultants.  As partof our strategy to invest in strategic initiatives we have developed PurpleTree, a new direct selling company, which markets crafts.  In addition we completed the acquisition of asmall gourmet food company, Two Sisters Gourmet that also markets its productsthrough the direct selling channel.  Inthe Wholesale segment, we have numerous collaborative initiatives underway,which we believe will help drive sales and leverage the sales and marketingtalents across this segment.  Theseinitiatives include customer information sharing and leveraging our in-housesales forces, as well as ongoing global sourcing objectives and other organicstrategic initiatives into which we are investing resources.  We entered the Catalog and Internet channelof direct to consumer distribution, giving us a presence in all of our desiredchannels in 2003.  Our latestacquisition, Boca Java, a small gourmet coffee and tea company was in this segment.

 

**Recent Developments**

 

In September 2005, the Company announced itsproposed intention to spin off the Wholesale segment to its stockholders.  The Company expects to receive a ruling fromthe Internal Revenue Service relating to certain aspects of the proposedtax-free spin off prior to the end of the calendar year.  Management intends to evaluate additionalstrategic opportunities that have been identified since the announcement of thespin off.  Initiatives intended toseparate the Wholesale segment continue, though management has paused in itsimmediate efforts to complete the spin off.

 

15

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**NetSales**

** **

Net Sales in the nine months ended October 31,2005 increased $4.9 million to $1,092.4 million from $1,087.5 million in thesame period a year earlier.  Thisincrease in net sales is primarily due to the acquisitions of Edelman andEuro-Decor, which were partially offset by lower sales in the Direct Sellingsegment and most Wholesale businesses.

 

Net sales increased $5.1 million, or 1.2%, to $444.5million in the third quarter of fiscal 2006 from $439.4 million in the thirdquarter of fiscal 2005.  The increase in net sales was primarily dueto the acquisitions of Edelman and Euro-Decor, and increased sales of NorthAmerican mass channel home fragrance products. These increases were partially offset by decreased sales in PartyLiteU.S., across the remaining Wholesale product lines and within the Catalog andInternet businesses.

 

Net Sales - Direct SellingSegment

 

NetSales in the Direct Selling segment for the first nine months of fiscal 2006decreased $27.2 million, or 5.5%, to $469.1 million from $496.3 million a yearearlier.  PartyLite’s U.S. salesdecreased 12.5%, which includes the effect of the unclaimed property settlementin the second quarter resulting in the reversal of $5.5 million ofreserves.  Management believes that salesin the U.S. market continue to be negatively impacted by increased competitionfor hostesses and party guests in the Direct Selling channel.* *PartyLiteCanada’s sales increased 6.8% and PartyLite Europe’s sales increased 5.8%.

 

NetSales in the Direct Selling segment for the quarter ended October 31, 2005decreased $1.4 million, or 0.9%, to $154.7 million, from $156.1 million in thequarter ended October 31, 2004. PartyLite’s U.S. sales decreased approximately 7.4% compared to theprior year.  PartyLite Canada reported an**approximate 25.2% increase versus the prior year due to thestrength of the holiday product line and successful promotions to recruit newconsultants*. *InPartyLite’s European markets, sales increased approximately 4.5%**as a result ofstrong holiday product line sales in most markets.

 

Net Sales - Wholesale Segment

 

NetSales in the Wholesale segment increased $40.5 million, or 8.8%, to $500.8million in the nine months ended October 31, 2005 from $460.3 million inthe nine months ended October 31, 2004. Edelman and Euro-Decor, which were acquired in September 2004,contributed an increase in net sales of $59.3 million to the segment.  This increase was partially offset by salesdeclines in most of the other Wholesale businesses, which the company believesis caused by a reluctance of retailers to make significant purchases due towidespread reduced consumer spending.

 

NetSales in the Wholesale segment in the quarter ended October 31, 2005increased $9.0 million, or 3.9%, to $238.2 million from $229.2 million in thesame period a year earlier.  Edelman andEuro-Decor contributed increased sales of $24.5 million.  Additionally, net sales of our North Americanmass channel home fragrance products increased. These increases were partially offset by decreased sales across the remaining Wholesale product lines andmarkets in the quarter.  The Company believes these decreased saleswere caused by continued hesitation of retailers to make purchases because ofreduced consumer spending due to higher fuel and commodity costs.

 

Net Sales - Catalog & Internet Segment

 

Net Sales in the Catalog &Internet segment for the first nine months of fiscal 2006 decreased $8.4million, or 6.4%, to $122.5 million from $130.9 million in the same period ayear earlier.  This decline from lastyear is

 

16

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attributable to sales shortfalls in our primarycatalogs, which the Company believes is due to limited discretionary spendingby consumers as mentioned in the Wholesale segment.

 

Net Sales in the Catalog &Internet segment decreased $2.4 million, or 4.4%, to $51.7 million in thequarter ended October 31, 2005, compared with $54.1 million in the sameperiod in fiscal 2005.  The decline fromlast year is driven by lower sales in all four major catalogs, which aspreviously mentioned, the Company believes is due to limitations ondiscretionary consumer spending.

 

**GrossProfit**

** **

Gross profit in the first nine months of fiscal 2006decreased $36.5 million, or 6.9% to $493.3 million, from $529.8 million in thefirst nine months of fiscal 2005.  Grossprofit margin decreased from 48.7% for the first nine months of fiscal 2005 to45.2% for the first nine months of fiscal 2006. The decrease from prior year is principally due to sales shortfallswithin PartyLite U.S., the margins of which are higher than Blyth’s overallaverage, as well as higher commodity costs.

 

Gross profit decreased $14.8 million, or 7.4% from$200.7 million in the quarter ended October 31, 2004 to $185.9 million in thequarter ended October 31, 2005. Gross profit margin decreased from 45.7% for the third quarter of fiscal2005 to 41.8% in the third quarter of fiscal 2006.  This decline is primarily dueto lower PartyLite U.S. sales, and higher commodity costs across all businessunits.

 

**SellingExpense**

** **

Selling expense decreased $3.5 million, or 1.1%,from $322.2 million in the first nine months of fiscal 2005, when sellingexpense was 29.6% of net sales, to $318.7 million in the same period in fiscal2006, or 29.2% of net sales.  Thedecrease in selling expense is primarily due to reduced sales in the NorthAmerican Direct Selling channel, which was offset by the full year impact ofthe September 2004 acquisitions of Edelman and Euro-Decor.

 

Selling expense increased $1.6 million, or 1.4%,from $113.5 million in the quarter ended October 31, 2004 to $115.1million in the quarter ended October 31, 2005.  As a percent of sales, selling expense wasessentially flat at 25.9% in the most recent quarter compared to 25.8% a yearearlier.  As previously mentioned, theincrease is primarily due to a full quarter of Edelman and Euro-Decor sellingexpenses.

 

**AdministrativeExpense**

** **

**Administrative expenseincreased $8.5 million, or 8.2%, from $103.3 million in the first nine monthsof fiscal 2005 to $111.8 million in the same period of fiscal 2006.  As a percent of sales, administrative expensewas 10.2% in the first nine months of fiscal 2006 versus 9.5% in the sameperiod last year.  The increase inadministrative expenses versus the prior year is primarily due to theacquisitions of Edelman and Euro-Decor.**

** **

**Administrative expenseincreased $1.0 million or 2.8% from $36.1 million in the quarter ended October 31,2004 to $37.1 million in quarter ended October 31, 2005.  As a percent of sales, administrative expensewas 8.3% in the third quarter of fiscal 2006 versus 8.2% in the same periodlast year.  Administrative expenses primarily increased due to the acquisitions ofEdelman and Euro-Decor and the $1.2 million write-down of the Colorado Springsfacility, which is currently held for sale. This increase was offset by a reduction in administrative expenses inthe Direct Selling segment and the U.S. Wholesale businesses.**

** **

**17**

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** **

**OperatingProfit**

** **

Operating profit decreased $41.5 million, or 39.8%, from $104.3 million inthe first nine months of fiscal 2005 to $62.8 million in the same period offiscal 2006.  This decline is primarilydue to lower PartyLite U.S., Wholesale and Catalog & Internet segmentsales, investments in organic strategic initiatives and higher commodity costsacross our businesses.

 

Operating profit decreased $17.4 million, or 34.1%, from $51.1 million inthe quarter ended October 31, 2004 to $33.7 million in the quarter ended October 31,2005.  The decrease is primarily due toreduced sales at PartyLite U.S., in many of our Wholesale businesses and in theCatalog & Internet segment, as well as higher commodity costs.

 

Operating Profit - Direct Selling Segment

 

Operating profit in the Direct Selling segment****for the first nine months of fiscal2006 decreased $21.3 million, or 25.8%, to $61.1 million from $82.4 million inthe same period a year earlier.  This decrease was primarily driven by the previously mentioned 12.5% salesshortfall of PartyLite U.S., increased commodity costs, and the ongoinginvestments being made in the organic strategic initiatives, Purple Tree andTwo Sisters Gourmet.  These items morethan offset the favorable impact of the reversal of the contingent reservefor the settlement of an unclaimed property matter in the second quarter.

 

Operating profit in thequarter ended October 31, 2005 in the Direct Selling segment decreased $7.1million, or 36.8%, to $12.2 million when compared to $19.3 million in the sameperiod a year earlier.  This decline was due to the impact of thepreviously discussed 7.4% decrease in PartyLite U.S. sales, lower gross marginsas a result of higher commodity costs, and this year’s expenses related to theNorth American and European national conferences, which were higher than theprevious year.

 

Operating Profit - Wholesale Segment

 

Operating profit in the Wholesale segment decreased $15.4 million, or72.0% in the nine months ended October 31, 2005 to $6.0 million comparedto a profit of $21.4 million in the nine months ended October 31,2004.  Sales shortfalls in most Wholesalebusinesses as well as continued pressure on gross margins due to increased rawmaterial costs were the primary contributors to the decrease in operatingprofit in this segment compared to the prior year.

 

Operating profit in the quarter ended October 31, 2005 in theWholesale segment decreased $6.9 million, or 24.3% to $21.5 million versus aprofit of $28.4 million the same period a year earlier.  Thedecline from last year was due to the impact of reduced sales and gross marginsin almost all of the businesses.  Also,prior year results included a positive gain of $2.2 million from the Monterreyfire insurance recovery.

 

Operating Loss/Profit- Catalog & Internet Segment

 

Operating loss in theCatalog & Internet****segmentwas $4.3 million in the nine months ended October 31, 2005 compared to aprofit of $0.5 million in the nine months ended October 31, 2004.  The decrease in profitability compared to theprior year is primarily due to the impact of the previously mentioned reducedsales and write-down of the Colorado Springs facility.

 

Operatingprofit in the quarter ended October 31, 2005 in the Catalog & Internet segmentdecreased $3.3 million, or 97.1% to $0.1 million versus a profit of $3.4million in the same period a year earlier. The decrease from prior year isprimarily due to sales declines and the write-down of the Colorado Springsfacility.

 

18

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**InterestExpense**

** **

Interest expense decreased approximately $0.3million, or 1.8% from $16.5 million in the first nine months of fiscal 2005 to$16.2 million in the same period of fiscal 2006.  This decrease is mainly due to a decrease inborrowings.

 

Interest expense decreased $0.7 million, or 11.3%from $6.2 million in the quarter ended October 31, 2004 to $5.5 million inthe quarter ended October 31, 2005. This decrease is mainly due tointerest expense incurred last year on additional debt used to fund the Dutchtender offer and the acquisitions of Edelman and Euro-Decor.

 

**IncomeTaxes**

** **

Income tax expense decreased $22.6 million, or69.8%, from $32.4 million in the first nine months of fiscal 2005 to $9.8million in the same period in the current fiscal year.  The effective tax rate for the nine monthsended October 31, 2005 was approximately 21.1% compared to 36.1% in theprior year.  The decrease in the tax rateis primarily due to the decrease in U.S. earnings versus higher foreign sourcedearnings, which are taxed at a lowerrate than U.S. earnings.  Based onour current estimates, we anticipate that our full year effective income taxrate for fiscal 2006 will be approximately 22%.

 

Income tax expense decreased $9.9 million, or 65.1%,from $15.2 million in the quarter ended October 31, 2004 to $5.3 millionin quarter ended October 31, 2005. The effective tax rate for the quarter ended October 31, 2005 wasapproximately 18.7% compared to 33.5% in the third quarter of fiscal 2005.  Thedecrease in the tax rate is primarily due to the decrease in U.S. earningsversus higher foreign sourced earnings, as previously mentioned, and thereversal of tax reserves as a result of the favorable resolution of taxcontingencies during the quarter.

 

**NetEarnings**

** **

As a result of the foregoing, net earnings decreased$20.2 million, or 35.2%, from $57.4 million in the first nine months of fiscal2005 to $37.2 million for the same period in fiscal 2006.  Net earnings decreased $7.2 million, or23.8%, from $30.2 million in the third quarter of fiscal 2005 to $23.0 millionin the third quarter of fiscal 2006.

 

Basic earnings per share based on the weightedaverage number of shares outstanding for the nine months ended October 31,2005, were $0.91, a decrease of $0.40, or 30.5%, compared to $1.31 for the ninemonths ended October 31, 2004. Basic earnings per share for the quarter ended October 31, 2005,were $0.56, a decrease of $0.18, or 24.3%, compared to $0.74 for the quarterended October 31, 2004.  Dilutedearnings per share based on the potential dilution that could occur if optionsto issue common stock were exercised, were $0.90 for the nine months ended October 31,2005, compared to $1.29 for the same period last year, a decrease of $0.39, or30.2%.  Diluted earnings per share were$0.56 for the quarter ended October 31, 2005, compared to $0.73 for thesame period last year, a decrease of $0.17, or 23.3%.

 

**Liquidityand Capital Resources**

** **

Net cash used in operations increased to $88.4million in the first nine months of fiscal 2006 from $47.6 million in the sameperiod of fiscal 2005.  The increase incash used in operations in fiscal 2006 was primarily due to the reduction innet earnings and increases in inventory and prepaids that have resulted in ahigher usage of cash to fund working capital needs in fiscal 2006.

 

Capital expenditures for property, plant andequipment were $10.8 million in the nine months ended October 31, 2005compared to $14.3 million in the prior year period.  Capital expenditures consisted primarily ofinvestments in information technology and upgrades of equipment andfacilities.  The Company expects totalcapital spending of approximately $15.0 million for fiscal 2006.

 

19

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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 and general corporate purposes, includingstrategic acquisitions.  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 October 31, 2005,approximately $46.6 million (including letters of credit) was outstanding underthe Credit Facility.

 

As of October 31, 2005, the Company had a totalof $15.0 million available under an uncommitted bank line of credit withLaSalle Bank National Association, which matures in June 2006.  Amounts outstanding under the line of creditbear interest at prime or LIBOR plus 0.90%. No amounts were outstanding under the uncommitted line of credit at October 31,2005.

 

At October 31, 2005, the Company had a total of$10.0 million available under an uncommitted line of credit with Bank ofAmerica to be used for letters of credit. At October 31, 2005, approximately $2.3 million of letters ofcredit were outstanding under this credit line.

 

As of September 30,2005, The Gies Group (“Gies”) had available lines of credit of approximately$39.9 million of which approximately $6.4 million was outstanding.  The amounts outstanding under the lines ofcredit bear interest at a weighted average rate of 3.1% at September 30,2005.  The lines of credit are renewedannually.

 

As of September 30, 2005, Kaemingk had anavailable line of credit of approximately $33.0 million with ING Bank N.V.  The line of credit is collateralized bycertain real estate and equipment owned by Kaemingk.  $10.3 million was outstanding at September 30,2005, at an interest rate of 3.65%.

 

As of September 30,2005, Colony Gift Corporation Limited (“Colony”) had an $8.8 million short-termrevolving credit facility with Barclays Bank, which matures in August 2006.  Colony had borrowings under the creditfacility of approximately $3.3 million, at a weighted average interest rate of5.6%, as of September 30, 2005.

 

As of September 30, 2005, Edelman B.V. andEuro-Decor B.V. had available lines of credit of approximately $30.0 millionwith ABN Amro Bank N.V.  The lines ofcredit are collateralized by inventory and receivables owned by Edelman B.V.and Euro-Decor B.V.  At September 30,2005, approximately $17.8 million was outstanding at a weighted averageinterest rate of 3.0%.

 

At October 31, 2005,Miles Kimball had approximately $9.5 million of long-term debt outstandingunder a real estate mortgage note payable to John Hancock Life InsuranceCompany, which matures June 1, 2020. Under the terms of the note, payments of principal and interest arerequired monthly at a fixed interest rate of 7.89%.

 

At September 30, 2005, Kaemingk hadapproximately $7.1 million of long-term debt outstanding under six loans withING Bank N.V. at a weighted average interest rate of 4.97%.  The bank loans have maturity dates rangingfrom 2008 through 2020.  The loans arecollateralized by certain real estate and equipment owned by Kaemingk.

 

In July 1995, the Company privately placed$25.0 million aggregate principal amount of 7.54% Senior Notes due 2005.  The final payment on the notes was made on June 30,2005.

 

In May 1999, the Company filed a shelfregistration statement for issuance of up to $250.0 million in debt securitieswith the Securities and Exchange 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 $1.4million, which is being

 

20

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amortized over the life of the notes.  Such notes contain, among other provisions,restrictions on liens on principal property or stock issued to collateralizedebt.  At October 31, 2005, theCompany was in compliance with such provisions. Interest is payable semi-annually in arrears on 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 ofapproximately $0.2 million, which is being amortized over the life of thenotes.  Such notes contain provisions andrestrictions similar to those in the 7.90% Senior Notes.  At October 31, 2005, the Company was incompliance 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 October 31, 2005, CBK had $4.5 million oflong-term debt outstanding under an Industrial Revenue Bond (“IRB”), whichmatures on January 1, 2025.  Thebond is backed by an irrevocable letter of credit issued by La Salle BankNational Association.  The loan iscollateralized by certain of CBK’s assets. The amount outstanding under the IRB bears interest at short-termfloating rates, which equaled a weighted average interest rate of 4.1% at October 31,2005.  Payments of principal are requiredannually and interest payments are required monthly under the terms of thebond.

 

The Company’s Board of Directors has authorized theCompany to repurchase up to 6,000,000 shares of common stock under the Company’sshare repurchase program.  Since January 31,2005, the Company has purchased 65,000 shares on the open market for a cost of$2.1 million, bringing the cumulative total purchased shares to 4,626,800 as ofOctober 31, 2005 for a total cost of approximately $114.5 million.  The acquired shares are held as common stockin treasury at cost.

 

**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 prior $200 million credit facility.**

** **

**On September 8, 2005,the Company announced that it had declared a cash dividend of $0.23 per shareof common stock for the six months ended July 31, 2005.  The dividend authorized at the Company’s September 8,2005 Board of Directors meeting, was payable to shareholders of record as of November 1,2005, and was paid on November 15, 2005. The total payment was $9.4 million.**

** **

**The Board of Directors, atits December 9, 2005 meeting, approved the acceleration of the vesting ofall outstanding, unvested stock options. The Board of Directors decided it was in the best interests ofstockholders to accelerate these options as the Company will avoid compensationexpense of approximately $2.7 million (pre-tax) in future periods that wouldotherwise result from the effectiveness of SFAS 123R for periods beginningsubsequent to February 1, 2006.  Asa result, options to purchase approximately 350,000 shares became exercisableimmediately.  Based on the December 9,2005 closing stock price of $20.11, virtually all of the stock options had anexercise price below fair market value at the acceleration date, and theCompany will record an expense of less than $1,000 in the fourth quarter inconnection with the accelerated vesting.**

** **

**Subject to Boardapproval, the Company intends to repatriate up to €104 million (approximately$130 million) in foreign earnings, which were previously considered permanentlyreinvested in non-U.S. legal entities, under the American Jobs Creation Act of2004.  The funds are expected to bebrought back to the United States late in the fourth quarter and will receivethe favorable tax treatment provided by the Act.  The Company expects to record a one-time taxexpense of up to approximately $9.8 million, or $0.24 per share, in the fourthquarter to recognize the income tax liability associated with repatriatingthese funds.  As part of its repatriationplan, the Company intends to make a domestic investment of the repatriatedamount in a wide range of initiatives, including the hiring and training ofU.S. workers, research and development efforts, qualified retirement planfunding, capital expenditures to support the U.S. businesses, advertising andmarketing with respect to its various trademarks, brand names and rights tointangible property, and acquisitions of U.S.-based businesses, all consistentwith the requirements of the legislation.**

** **

**CriticalAccounting Policies**

** **

There were no changes to our critical accountingpolicies in the third quarter of fiscal 2006. For a discussion of the Company’s critical accounting policies see ourAnnual Report on Form 10-K for the fiscal year ended January 31,2005.

 

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**RecentAccounting Pronouncements**

** **

In December 2004, the FASB issued SFAS No. 123(revised 2004) (SFAS No. 123R), “Share-Based Payment”. This Standardrequires companies to measure share-based payments at grant-date fair value andrecognize the compensation 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.  As described above,the Board of Directors approved the acceleration of all outstanding unvestedstock options on December 9, 2005. The Company is still analyzing the effect of this standard, however,management does not believe the implementation of this standard will have amaterial impact on the financial statements.

 

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**Item 3.** QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK

** **

**MarketRisk**

** **

The Company has operations outside of the UnitedStates and sells its products worldwide. The Company’s activities expose it to a variety of market risks,including the effects of changes in foreign currency exchange rates, interestrates and commodity prices.  Thesefinancial exposures are actively monitored and, where considered appropriate,managed by the Company.

 

**InterestRate Risk**

** **

As of October 31, 2005, the Company is subjectto interest rate risk on approximately $88.0 million of variable ratedebt.  Each 1-percentage point change inthe interest rate would impact pre-tax earnings by approximately $0.9 millionif applied to the total.

 

On July 10, 2003, the Company terminated theinterest rate swap agreement in relation to $50.0 million of our outstanding7.90% Senior Notes, which mature on October 1, 2009.  This termination resulted in a deferred gainof approximately $5.0 million, which is being amortized over the remaining termof the Notes.

 

**ForeignCurrency Risk**

** **

The Company uses foreignexchange forward and options contracts to hedge the impact of foreign currencyfluctuations on the net assets of certain of its foreign operations, foreigndenominated inventory purchases, intercompany payables and certain intercompanyloans.  The Company does not hold orissue derivative financial instruments for trading purposes.

 

The Company has hedged the net assets of certain ofits foreign operations through foreign currency forward contracts.  Any increase or decrease in the fair value ofthe forwards related to changes in the spot foreign exchange rates is offset bythe change in the value of the hedged net assets of the foreign operationsrelating to changes in spot foreign exchange rates.  The net after-tax gain related to thederivative net investment hedge instruments recorded in OCI totaled $3.3million as of October 31, 2005.

 

The Company has designated its forward exchange andoptions contracts on forecasted intercompany purchases and future purchasecommitments as cash flow hedges and, as such, as long as the hedge remainseffective and the underlying transaction remains probable, the effective portionof the changes in the fair value of these contracts will be recorded inaccumulated other comprehensive income (loss) (“OCI”) until earnings areaffected by the variability of the cash flows being hedged.  With regard to commitments for inventorypurchases, upon payment of each commitment, the underlying forward contract isclosed and the corresponding gain or loss is transferred from accumulated OCIand is included in the measurement cost of the acquired asset.  If a hedging instrument is sold or terminatedprior to maturity, gains and losses are deferred in accumulated OCI until thehedged item is settled.  However, if thehedged item is no longer likely to occur, the resultant gain or loss on theterminated hedge is recognized into earnings immediately.  Approximately $0.3 million of hedge gainsrelated to cash flow hedges are included in accumulated OCI at October 31,2005, and are expected to be transferred into earnings within the next twelvemonths upon payment of the underlying commitment.

 

The Company has designated its foreign currencyforward contracts related to intercompany loans as fair value hedges.  The gains or losses on the fair value hedgesare recognized into earnings and generally offset the transaction gains orlosses in the foreign denominated loans that they are intended to hedge.

 

For consolidated financial statement presentation,net cash flows from such hedges are classified in the categories of the cashflow with the items being hedged.

 

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The following table provides information about the Company’s foreignexchange forward and options contracts at October 31, 2005 related to cashflow hedges:

 
| ** **                                       | ** ** | **U.S. Dollar**     | ** ** | **Average**       | ** ** | **Estimated**  | ** ** |
|--------------------------------------------------|------------|---------------------|------------|-------------------|------------|----------------|------------|
| **(In thousands, except average contract rate)** | ** ** | **Notional Amount** | ** ** | **Contract Rate** | ** ** | **Fair Value** | ** ** |
| Canadian Dollar                                  |       | $                   | 8,850      |              | 0.84       |           | $          | (93 | ) |
| Pound Sterling                                   |       | 5,368               |       | 1.79              |       | 119            |       |
| Euro                                             |       | 19,100              |       | 1.23              |       | 395            |       |
|                                             |       | $                   | 33,318     |              |       |           | $          | 421 |   |

 

The foreign exchange contracts outstandinghave maturity dates through 2006.

 

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**Item 4.** CONTROLS ANDPROCEDURES

** **

(a) Evaluation ofdisclosure controls and procedures.

 

Our management, with theparticipation of our principal executive officer and our principal financialofficer, evaluated the effectiveness of our disclosure controls and procedures(as defined in Securities Exchange Act of 1934 (“Exchange Act”) Rules 13a-15(e) or15d-15(e)) as of the end of the period covered by this quarterly report asrequired by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.  Based upon this evaluation, our principalexecutive officer and our principal financial officer have concluded that ourdisclosure controls and procedures are effective as of October 31, 2005.

 

(b) Remediation ofmaterial weakness.

 

As discussed in Item 9A.Controls and Procedures-Management’s Report on Internal Control over FinancialReporting in our Form 10-K, as of January 31, 2005, there was amaterial weakness in our internal control over financial reporting related toour income tax accounting and reconciliation processes, procedures andcontrols, including the identification of income tax contingencies.  In fiscal 2005, and through the date of thisfiling, we have taken the following steps to improve our internal controls aroundour income tax accounting and reconciliation processes, procedures andcontrols:

 

•                                          Enhanced thelevels of review in and accelerated the timing of the preparation of thequarterly and annual income tax provision;

 

•                                          Formalizedprocesses, procedures and documentation standards relating to income taxprovisions;

 

•                                          Enhanced andrestructured our Tax Department to ensure appropriate segregation of dutiesregarding preparation and review of the quarterly and annual income taxprovision; and

 

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

 

The steps above will assistthe Company in improving its internal controls in its income tax accounting andreconciliation processes, procedures and controls.  We believe that we continue to improve thedesign and operating effectiveness of such internal controls to remediate thematerial weakness previously identified. Certain of the corrective processes, procedures and controls have yet tobe tested, some of which relate to annual controls that cannot be tested untilthe preparation of our fiscal 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) Changes in internalcontrol over financial reporting.

 

Other than the changediscussed in (b) above, there have been no changes in our internal controlover financial reporting identified in connection with the evaluation requiredby paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurredduring our last fiscal quarter that has materially affected, or is reasonablylikely to materially 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 EquitySecurities and Use of Proceeds

** **

The following table sets forth certain informationconcerning the repurchase of the Company’s Common Stock made by the Companyduring the third quarter of the fiscal year ending January 31, 2006.

 

##### **ISSUER PURCHASES OF EQUITYSECURITIES(1)**

##### ** **

| **Period**                                            | ** ** | **(a) Total  Number of  Shares  Purchased** | ** ** | **(b)  Average  Price Paid  per Share** | ** ** | **(c) Total  Number of  Shares  Purchased as  Part of Publicly  Announced  Plans or  Programs** | ** ** | **(d) Maximum Number (or  Approximate Dollar  Value) of Shares that May  Yet Be Purchased Under  the Plans or Programs** | ** **       |
|-------------------------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------|------------------|
|                                                  |       |                                             |       |                                    |       |                                                                                                      |       |                                                                                                                          |             |   |
| August 1, 2005 – August 31, 2005       |       | 0                                                |       | $                                       | 0          |                                                                                                      | 0          |                                                                                                                          | 1,373,200 shares |   |
|                                                  |       |                                             |       |                                    |       |                                                                                                      |       |                                                                                                                          |             |   |
| September 1, 2005 – September 30, 2005 |       | 0                                                |       | $                                       | 0          |                                                                                                      | 0          |                                                                                                                          | 1,373,200 shares |   |
|                                                  |       |                                             |       |                                    |       |                                                                                                      |       |                                                                                                                          |             |   |
| October 1, 2005 – October 31, 2005     |       | 0                                                |       | $                                       | 0          |                                                                                                      | 0          |                                                                                                                          | 1,373,200 shares |   |
|                                                  |       |                                             |       |                                    |       |                                                                                                      |       |                                                                                                                          |             |   |
| Total                                                 |       | 0                                                |       | $                                       | 0          |                                                                                                      | 0          |                                                                                                                          | 1,373,200 shares |   |

 

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(1) On September 10,1998, the Company’s Board of Directors approved the Company’s share repurchaseprogram (the “Repurchase Program”) pursuant to which the Company was authorizedto repurchase up to 1,000,000 shares of its issued and outstanding Common Stockin open market transactions.  On June 8,1999, the Company’s Board of Directors amended the Repurchase Program andincreased the number of shares of Common Stock to be repurchased by 1,000,000shares, from 1,000,000 to 2,000,000 shares. On March 30, 2000, the Company’s Board of Directors further amendedthe Repurchase Program and increased the number of shares of Common Stock to berepurchased by 1,000,000 shares, from 2,000,000 to 3,000,000 shares.  On December 14, 2000, the Company’sBoard of Directors further amended the Repurchase Program and increased thenumber of shares of Common Stock to be repurchased by 1,000,000 shares, from3,000,000 to 4,000,000 shares.  On April 4,2002, the Company’s Board of Directors further amended the Repurchase Program andincreased the number of shares of Common Stock to be repurchased by 2,000,000shares, from 4,000,000 to 6,000,000 shares. As of October 31, 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.****        OtherInformation**

 

The Company is including the following cautionarystatement in this Report to make applicable, and to take advantage of, the safeharbor provisions of the Private Securities Litigation Reform Act of 1995 forany forward-looking statements made by, or on behalf of, the Company.  Forward-looking statements include statementsconcerning plans, objectives, goals, strategies, future events or performance andunderlying assumptions and other statements, which are other than statements ofhistorical facts.  From time to time, theCompany and its representatives may publish or otherwise make availableforward-looking statements of this nature. All such forward-looking statements, whether written or oral, andwhether made by or on behalf of the Company, are expressly qualified by thefollowing cautionary statements. Forward-looking statements involve risks and uncertainties, which couldcause actual results or outcomes to differ materially from those expressed inthe forward-looking statements.  Suchforward-looking statements are expected to be based on various assumptions,many of which are based, in turn, upon further assumptions.

 

There can be no assurance that management’sexpectations, beliefs or projections will occur or be achieved oraccomplished.  In addition to otherfactors and matters discussed elsewhere in this Report and in the Company’sother public filings and statements, the following are important factors that,in the view of the Company, could cause actual results to differ materiallyfrom those discussed in the Company’s forward-looking statements.  The Company disclaims any obligation toupdate any forward-looking statements, or the following factors, to reflectevents or circumstances after the date of this Report.

 

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Risk of Inability to Maintain Sales Growth Rate

 

TheCompany experienced significant sales growth in past years.  While management expects continued growth,our future growth rate will likely be more gradual than our historical growthrate.  The Company expects faster salesgrowth in its 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 partto acquisitions and management continues to consider additional strategicacquisitions.  There can be no assurancesthat management will continue to identify suitable acquisition candidates,consummate acquisitions on terms favorable to the Company, finance acquisitionsor successfully integrate acquired operations.

 

Risks Associated with International Sales andForeign-Sourced Products

 

Our international sales growth rate has outpaced ourUnited States growth rate in recent years. Moreover, the Company sources a portion of its products in all of itsbusiness segments from independent manufacturers in the Pacific Rim, Europe andMexico.  For these reasons, we aresubject to the following risks associated with international manufacturing andsales:  fluctuations in currency exchangerates, 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 demandin all of its business segments will depend upon its success in (1) sourcingadequate supplies of its products, (2) bringing new production anddistribution capacity on line in a timely manner, (3) improving itsability to forecast product demand and fulfill customer orders promptly, (4) improvingcustomer service-oriented management information systems and (5) training,motivating and managing new employees. The failure of any of the above could result in a material adverseeffect on our financial results.

 

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Risk of Shortages of Raw Materials

 

Certain raw materials could be in short supply dueto price changes, capacity, availability, a change in requirements, weather orother factors, including supply disruptions due to production or transportationdelays.  Such shortages have not had andare not presently 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 ofkey corporate management, 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 ofpricing and new product introductions. The worldwide market for Home Expressions products is highly fragmentedwith numerous suppliers serving one or more of the distribution channels servedby the Company.  In addition, the Companycompetes for direct selling consultants with other direct sellingcompanies.  Because there are relativelylow barriers to entry in all of our business segments, the Company may faceincreased competition from other companies, some of which may havesubstantially greater financial or other resources than those available tous.  Competition includes companiesselling candles manufactured at low cost outside of the United States.  Moreover, certain competitors focus on asingle geographic or product market and attempt to gain or maintain marketshare solely on the basis of price.

 

# **RisksRelated to Information Technology Systems**

# ** **

Our information technology systems are dependent onglobal communications providers, telephone systems, hardware, software andother aspects of Internet infrastructure that have experienced significantsystem failures and outages in the past. Our systems are susceptible to outages due to fire, floods, power loss,telecommunications failures, break-ins and similar events.  Despite the implementation of networksecurity measures, the Company’s systems are vulnerable to computer viruses,break-ins and similar disruptions from unauthorized tampering with Companysystems.  The occurrence of these orother events could disrupt or damage our information technology systems andinhibit internal operations, the ability to provide customer service or theability of customers or sales personnel to access the Company’s informationsystems.

 

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**Item 6.**           Exhibits

** **

Exhibits

 

31.1                         Certificationof Chairman and Chief Executive Officer pursuant to Rule 13a-14(a) underthe Securities Exchange Act of 1934.

 

31.2                         Certificationof Vice President and Chief Financial Officer pursuant to Rule 13a-14(a) underthe Securities Exchange Act of 1934.

 

32.1                         Certificationof Chairman and Chief Executive Officer pursuant to Section 906 of theSarbanes-Oxley Act of 2002.

 

32.2                         Certificationof Vice President and Chief Financial Officer pursuant to Section 906 ofthe 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:  | December 12, 2005                      |   | By: | /s/Robert B.  Goergen |   |
|   | Robert B.  Goergen                          |
|   | Chairman and  Chief Executive Officer       |
|   |                                        |
|   |                                        |
| Date:  | December 12, 2005                      |   | By: | /s/Robert H.  Barghaus |   |
|   | Robert H.  Barghaus                         |
|   | Vice President  and Chief Financial Officer |

 

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