**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington D.C. 20549**

 

**FORM 10-Q**

** **

**(Mark One)**

 
| **ý**                         | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF 1934**                                                                                                                                                                                                           |
|------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                               |                                                                                                                                                                                                                                                                                                    |
|                               | **For  the quarterly period ended April 30, 2004**                                                                                                                                                                                                                                                      |
|                               |                                                                                                                                                                                                                                                                                                    |
| **or**                             |
|                               |                                                                                                                                                                                                                                                                                                    |
| **o**                              | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF 1934**                                                                                                                                                                                                          |
|                               |                                                                                                                                                                                                                                                                                                    |
|                               | **For  the transition period from                         to                       ** |
|                               |                                                                                                                                                                                                                                                                                                    |
| **Commission file number 1-13026** |

 

**BLYTH, INC.**

(Exact name of registrantas specified in its charter) 

 
| **DELAWARE**                                                                                                                           |   | **36-2984916**                     |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|
| (State or other  jurisdiction of incorporation or organization)                                                                        |   | (IRS Employer  Identification No.) |
|                                                                                                                                   |   |                               |
| **One East Weaver Street, Greenwich,  Connecticut  06831**                                                                        |
| **(Address of principal executive  offices)             (Zip  Code)** |
|                                                                                                                                   |   |                               |
| **(203)  661-1926**                                                                                                                    |
| (Registrant’s telephone  number, including area code)                                                                             |
|                                                                                                                                   |   |                               |
| **Not Applicable**                                                                                                                     |
| (Former name, former  address and former fiscal year, if changed since last report)                                                    |

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

Yes  ý                                                          No  o

 

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

Yes  ý                                                          No  o

 

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

 

**45,678,927Common Shares as of June 4, 2004**

 

 

#### ****

####  

#### **BLYTH, INC.**

#### ** **

#### **INDEX**

#### ** **

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

 

2

----

 

Part I.   FINANCIAL  INFORMATION

Item 1.   FINANCIAL STATEMENTS

 

**BLYTH, INC. AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

 
| **(In thousands, except share and per share data)**                                                                            |   | **April 30,  2004** |      | **January  31,  2004** |   |
|--------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|-----------|------------------------|--------|
|                                                                                                                           |   | **(Unaudited)**     |      |                   |   |
| **ASSETS**                                                                                                                     |   |                |      |                   |   |
| **Current assets:**                                                                                                            |   |                |      |                   |   |
| Cash and cash equivalents                                                                                                      |   | $                   | 232,267   |                   | $      | 229,726 |   |
| Accounts receivable, less allowance for doubtful  receivables of $3,879 and $4,470 respectively                                |   | 101,533             |      | 104,502                |   |
| Inventories                                                                                                                    |   | 212,388             |      | 208,581                |   |
| Prepaid and other                                                                                                              |   | 45,271              |      | 40,302                 |   |
| Short-term investment                                                                                                          |   | 10,000              |      | —                 |   |
| Assets held for sale                                                                                                           |   | 1,085               |      | 9,437                  |   |
| Deferred income taxes                                                                                                          |   | 13,649              |      | 14,191                 |   |
| Total current assets                                                                                                           |   | 616,193             |      | 606,739                |   |
| **Property, plant and equipment, at  cost:**                                                                                   |   |                |      |                   |   |
| Less accumulated depreciation of $217,623 and  $210,961, respectively                                                          |   | 254,431             |      | 260,497                |   |
| **Other assets:**                                                                                                              |   |                |      |                   |   |
| Investments                                                                                                                    |   | 12,487              |      | 3,510                  |   |
| Goodwill                                                                                                                       |   | 207,120             |      | 204,093                |   |
| Other intangible assets, net of accumulated  amortization of $2,075 and $1,500, respectively                                   |   | 41,025              |      | 41,600                 |   |
| Deposits and other assets                                                                                                      |   | 11,754              |      | 11,524                 |   |
|                                                                                                                           |   | 272,386             |      | 260,727                |   |
| Total assets                                                                                                                   |   | $                   | 1,143,010 |                   | $      | 1,127,963 |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                 |   |                |      |                   |   |
| **Current liabilities:**                                                                                                       |   |                |      |                   |   |
| Bank lines of credit                                                                                                           |   | $                   | 20,727    |                   | $      | 13,621 |   |
| Current maturities of long-term debt                                                                                           |   | 4,476               |      | 4,522                  |   |
| Accounts payable                                                                                                               |   | 58,220              |      | 78,407                 |   |
| Accrued expenses                                                                                                               |   | 103,048             |      | 97,395                 |   |
| Dividend payable                                                                                                               |   | 7,757               |      | —                 |   |
| Liability associated with assets held for sale                                                                                 |   | —              |      | 508                    |   |
| Income taxes                                                                                                                   |   | 17,689              |      | 11,746                 |   |
| Total current liabilities                                                                                                      |   | 211,917             |      | 206,199                |   |
| **Deferred income taxes**                                                                                                      |   | 35,393              |      | 33,773                 |   |
| **Long-term debt,**less  current maturities                                                                                    |   | 275,409             |      | 275,743                |   |
| **Minority interest and other**                                                                                                |   | 23,542              |      | 23,278                 |   |
| **Commitments and contingencies**                                                                                              |   | —              |      | —                 |   |
| **Stockholders’ equity:**                                                                                                 |   |                |      |                   |   |
| Preferred stock - authorized 10,000,000 shares of  $0.01 par value; no shares issued                                           |   | —              |      | —                 |   |
| Common stock - authorized 100,000,000 shares of  $0.02 par value; issued 50,180,027 shares and 49,975,502 shares, respectively |   | 1,004               |      | 999                    |   |
| Additional contributed capital                                                                                                 |   | 113,486             |      | 107,965                |   |
| Retained earnings                                                                                                              |   | 580,089             |      | 570,171                |   |
| Accumulated other comprehensive income                                                                                         |   | 14,216              |      | 15,224                 |   |
| Treasury stock, at cost, 4,546,800 shares and  4,345,100 shares, respectively                                                  |   | (112,046            | )         | (105,389               | )      |
| Total stockholders’ equity                                                                                                |   | 596,749             |      | 588,970                |   |
| Total liabilities and stockholders’ equity                                                                                |   | $                   | 1,143,010 |                   | $      | 1,127,963 |   |

 

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

 

3

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**BLYTH,INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF EARNINGS**

 
| **Three  months ended April 30,****(Unaudited, in thousands, except per share data)** |   | **2004** |       | **2003** |       |
|---------------------------------------------------------------------------------------|--------|----------|------------|----------|------------|
|                                                                                  |   |     | ** ** |     | ** ** |
| Net sales                                                                             |   | $        | 358,980    |     | $          | 311,991 |   |
| Cost of goods sold                                                                    |   | 175,969  |       | 150,595  |       |
| Gross profit                                                                          |   | 183,011  |       | 161,396  |       |
| Selling                                                                               |   | 115,075  |       | 97,069   |       |
| Administrative                                                                        |   | 33,675   |       | 30,069   |       |
|                                                                                  |   | 148,750  |       | 127,138  |       |
| Operating profit                                                                      |   | 34,261   |       | 34,258   |       |
| Other expense (income):                                                               |   |     |       |     |       |
| Interest expense                                                                      |   | 5,209    |       | 3,590    |       |
| Interest income and other                                                             |   | (891     | )          | (591     | )          |
| Equity in loss of investee                                                            |   | 23       |       | 135      |       |
|                                                                                  |   | 4,341    |       | 3,134    |       |
| Earnings before income taxes and minority interest                                    |   | 29,920   |       | 31,124   |       |
| Income tax expense                                                                    |   | 12,195   |       | 11,453   |       |
| Earnings before minority interest                                                     |   | 17,725   |       | 19,671   |       |
| Minority interest                                                                     |   | (50      | )          | (44      | )          |
| Net earnings                                                                          |   | $        | 17,675     |     | $          | 19,627 |   |
| Basic:                                                                                |   |     |       |     |       |
| Net earnings per common share                                                         |   | $        | 0.39       |     | $          | 0.43 |   |
| Weighted average number of shares outstanding                                         |   | 45,665   |       | 46,080   |       |
| Diluted:                                                                              |   |     |       |     |       |
| Net earnings per common share                                                         |   | $        | 0.38       |     | $          | 0.42 |   |
| Weighted average number of shares outstanding                                         |   | 46,105   |       | 46,208   |       |

 

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

 

4

----

 

**BLYTH,INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OFSTOCKHOLDERS’ EQUITY**

 

(Unaudited, in thousands,except share data)

 
|                                                                |   |              |       |            |       | **Additional** |       |                |       |              |       |       |       | **Accumulated  other** |       |      |       |
|---------------------------------------------------------------------|--------|-------------------|------------|-----------------|------------|----------------|------------|---------------------|------------|-------------------|------------|------------|------------|------------------------|------------|-----------|------------|
|                                                                |   | **Common  stock** |       | **contributed** |       | **Retained**   |       | **Treasury  stock** |       | **comprehensive** |       |       |       |
|                                                                |   | **Shares**        |       | **Amount**      |       | **capital**    |       | **earnings**        |       | **Shares**        |       | **Amount** |       | **income  (loss)**     |       | **Total** |       |
|                                                                |   |              | ** ** |            | ** ** |           | ** ** |                | ** ** |              | ** ** |       | ** ** |                   | ** ** |      | ** ** |
| **For the three  months ended April 30, 2003:**                     |   |              |       |            |       |           |       |                |       |              |       |       |       |                   |       |      |       |
|                                                                |   |              |       |            |       |           |       |                |       |              |       |       |       |                   |       |      |       |
| Balance, January 31, 2003                                           |   | 49,703,682        |       | $               | 994        |           | $          | 101,567             |       | $                 | 496,627    |       | (3,644,100 | )                      | $          | (86,585   | )          | $ | (4,751 | ) | $ | 507,852 |   |
|                                                                |   |              |       |            |       |           |       |                |       |              |       |       |       |                   |       |      |       |
| Net earnings for the period                                         |   |              |       |            |       |           |       | 19,627              |       |              |       |       |       |                   |       | 19,627    |       |
| Foreign currency  translation adjustments                           |   |              |       |            |       |           |       |                |       |              |       |       |       | (544                   | )          | (544      | )          |
| Unrealized holding gain on  certain investments (net of tax of $31) |   |              |       |            |       |           |       |                |       |              |       |       |       | 52                     |       | 52        |       |
| Net loss on cash flow  hedging instruments (net of tax of $217)     |   |              |       |            |       |           |       |                |       |              |       |       |       | (373                   | )          | (373      | )          |
| Comprehensive income                                                |   |              |       |            |       |           |       |                |       |              |       |       |       |                   |       | 18,762    |       |
|                                                                |   |              |       |            |       |           |       |                |       |              |       |       |       |                   |       |      |       |
| Common stock issued in  connection with exercise of stock options   |   | 29,545            |       | 1               |       | 334            |       |                |       |              |       |       |       |                   |       | 335       |       |
| Tax benefit from stock  options                                     |   |              |       |            |       | 5              |       |                |       |              |       |       |       |                   |       | 5         |       |
| Dividends declared                                                  |   |              |       | —          |       |           |       | (5,979              | )          |              |       |       |       |                   |       | (5,979    | )          |
|                                                                |   |              |       |            |       |           |       |                |       |              |       |       |       |                   |       |      |       |
| Treasury stock purchases                                            |   | —            |       |            |       |           |       |                |       | (111,800          | )          | (2,828     | )          |                   |       | (2,828    | )          |
|                                                                |   |              |       |            |       |           |       |                |       |              |       |       |       |                   |       |      |       |
| Balance, April 30, 2003                                             |   | 49,733,227        |       | $               | 995        |           | $          | 101,906             |       | $                 | 510,275    |       | (3,755,900 | )                      | $          | (89,413   | )          | $ | (5,616 | ) | $ | 518,147 |   |
|                                                                |   |              |       |            |       |           |       |                |       |              |       |       |       |                   |       |      |       |
| **For the  three months ended April 30, 2004:**                     |   |              | ** ** |            | ** ** |           | ** ** |                | ** ** |              | ** ** |       | ** ** |                   | ** ** |      | ** ** |
|                                                                |   |              | ** ** |            | ** ** |           | ** ** |                | ** ** |              | ** ** |       | ** ** |                   | ** ** |      | ** ** |
| Balance, January 31, 2004                                           |   | 49,975,502        |       | $               | 999        |           | $          | 107,965             |       | $                 | 570,171    |       | (4,345,100 | )                      | $          | (105,389  | )          | $ | 15,224 |   | $ | 588,970 |   |
|                                                                |   |              |       |            |       |           |       |                |       |              |       |       |       |                   |       |      |       |
| Net earnings for the period                                         |   |              |       |            |       |           |       | 17,675              |       |              |       |       |       |                   |       | 17,675    |       |
| Foreign currency  translation adjustments                           |   |              |       |            |       |           |       |                |       |              |       |       |       | (1,192                 | )          | (1,192    | )          |
| Unrealized holding loss on  certain investments (net of tax of $13) |   |              |       |            |       |           |       |                |       |              |       |       |       | (24                    | )          | (24       | )          |
| Net gain on cash flow  hedging instruments (net of tax of $117)     |   |              |       |            |       |           |       |                |       |              |       |       |       | 208                    |       | 208       |       |
|                                                                |   |              |       |            |       |           |       |                |       |              |       |       |       |                   |       |      |       |
| Comprehensive income                                                |   |              |       |            |       |           |       |                |       |              |       |       |       |                   |       | 16,667    |       |
|                                                                |   |              |       |            |       |           |       |                |       |              |       |       |       |                   |       |      |       |
| Common stock issued in  connection with exercise of stock options   |   | 204,525           |       | 5               |       | 5,385          |       |                |       |              |       |       |       |                   |       | 5,390     |       |
|                                                                |   |              |       |            |       |           |       |                |       |              |       |       |       |                   |       |      |       |
| Tax benefit from stock  options                                     |   |              |       |            |       | 136            |       |                |       |              |       |       |       |                   |       | 136       |       |
| Dividends declared                                                  |   |              |       |            |       | —         |       | (7,757              | )          |              |       |       |       |                   |       | (7,757    | )          |
|                                                                |   |              |       |            |       |           |       |                |       |              |       |       |       |                   |       |      |       |
| Treasury stock purchases                                            |   |              |       |            |       |           |       | —              |       | (201,700          | )          | (6,657     | )          |                   |       | (6,657    | )          |
|                                                                |   |              |       |            |       |           |       |                |       |              |       |       |       |                   |       |      |       |
| Balance, April 30, 2004                                             |   | 50,180,027        |       | $               | 1,004      |           | $          | 113,486             |       | $                 | 580,089    |       | (4,546,800 | )                      | $          | (112,046  | )          | $ | 14,216 |   | $ | 596,749 |   |

 

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

 

5

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**BLYTH,INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| **Three  months ended April 30,****(Unaudited, in thousands)**                        |   | **2004** |    | **2003** |   |
|---------------------------------------------------------------------------------------|--------|----------|---------|----------|--------|
| Cash flows from operating activities:                                                 |   |     |    |     |   |
| Net earnings                                                                          |   | $        | 17,675  |     | $      | 19,627 |   |
| Adjustments to reconcile net earnings to net cash  provided by operating activities:  |   |     |    |     |   |
| Depreciation and amortization                                                         |   | 9,048    |    | 7,872    |   |
| Tax benefit from stock options                                                        |   | 136      |    | 5        |   |
| Deferred income taxes                                                                 |   | 2,357    |    | (598     | )      |
| Equity in earnings of investee                                                        |   | 23       |    | 135      |   |
| Minority interest                                                                     |   | (13      | )       | 150      |   |
| Gain on sale of assets held for sale                                                  |   | (364     | )       | —   |   |
| Changes in operating assets and liabilities, net of  effect of business acquisitions: |   |     |    |     |   |
| Accounts receivable                                                                   |   | 2,452    |    | 569      |   |
| Inventories                                                                           |   | (4,518   | )       | (1,370   | )      |
| Prepaid and other                                                                     |   | (1,234   | )       | (4,584   | )      |
| Deposits and other assets                                                             |   | (240     | )       | (305     | )      |
| Goodwill disposed of due to sale of assets held for  sale                             |   | (3,621   | )       | —   |   |
| Accounts payable                                                                      |   | (18,859  | )       | (3,651   | )      |
| Accrued expenses                                                                      |   | 6,156    |    | (7,889   | )      |
| Other liabilities                                                                     |   | 628      |    | 1,109    |   |
| Income taxes                                                                          |   | 6,124    |    | 10,606   |   |
| Total adjustments                                                                     |   | (1,925   | )       | 2,049    |   |
| Net cash provided by operating activities                                             |   | 15,750   |    | 21,676   |   |
| Cash flows from investing activities:                                                 |   |     |    |     |   |
| Purchases of property, plant and equipment                                            |   | (2,953   | )       | (2,875   | )      |
| Purchases of investments                                                              |   | (19,000  | )       | —   |   |
| Purchases of long-term investment                                                     |   | —   |    | (360     | )      |
| Proceeds from sale of assets held for sale                                            |   | 9,752    |    | —   |   |
| Purchase of businesses, net of cash acquired                                          |   | (6,565   | )       | (65,974  | )      |
| Net cash used in investing activities                                                 |   | (18,766  | )       | (69,209  | )      |
| Cash flows from financing activities:                                                 |   |     |    |     |   |
| Proceeds from issuance of common stock                                                |   | 5,390    |    | 335      |   |
| Purchase of treasury stock                                                            |   | (6,657   | )       | 2,828    |   |
| Borrowings from bank line of credit                                                   |   | 13,816   |    | 11,643   |   |
| Repayments on bank line of credit                                                     |   | (6,716   | )       | (3,663   | )      |
| Repayments on long-term debt                                                          |   | (188     | )       | (114     | )      |
| Net cash provided by financing activities                                             |   | 5,645    |    | 11,029   |   |
| Effect of exchange rate changes on cash                                               |   | (88      | )       | (4,045   | )      |
| Net increase (decrease) in cash and cash equivalents                                  |   | 2,541    |    | (40,549  | )      |
| Cash and cash equivalents at beginning of period                                      |   | 229,726  |    | 168,596  |   |
| Cash and cash equivalents at end of period                                            |   | $        | 232,267 |     | $      | 128,047 |   |
| Non-cash financing activities:                                                        |   |     |    |     |   |
| Cash dividend declared, $0.17 per share in 2004 and  $0.13 in 2003                    |   | $        | 7,757   |     | $      | 5,979 |   |

 

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

 

6

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**BLYTH, INC. AND SUBSIDIARIES**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

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

 

Blyth is a global competitorin the gift and decorative accessories market, which the Company calls the homeexpressions industry.  At January 31, 2004 the Company reported itsfinancial results in five segments: Direct Selling, Wholesale Home Fragrance,Wholesale Creative Expressions, Catalog & Internet and All Other. As aresult of certain organizational changes we have implemented, we havereevaluated our reporting segments pursuant to FASB Statement No. 131,“Disclosures about Segments of an Enterprise and Related Information”, anddetermined to report financial information with respect to three segmentsbeginning with the period ended April 30, 2004. These new reporting segmentsare as follows - the Direct Selling segment, the Wholesale segment, and theCatalog & Internet segment.  TheCompany’s reportable segments are based on similarities in distributionchannels, customers and management oversight.

 

Within the Direct Sellingsegment, the Company designs, manufactures or sources, markets and distributesan extensive line of products including scented candles, related accessories,fragranced bath gels and body lotions and other fragranced products. These products are sold direct to the consumer under the PartyLite® brand inNorth America, Europe and Australia through a network of more than 52,000independent sales consultants.

 

Within the Wholesalesegment, the Company designs, manufactures or sources, markets and distributesan extensive line of home fragrance, home décor, seasonal decorations and AwayFrom Home products.  Products in thissegment are sold worldwide to retailers in the premium and specialtyretail channels under the Colonial®(1), Colonial Candle of Cape Cod®,Colonial at HOME®, Carolina®, CBK®, Holiday365TM, Kaemingk®(1) and Seasonsof Cannon FallsTM brands and to retailers in the mass retail and foodservicechannel under the Ambria®, FilterMate®, Florasense®, Gies®(1), Liljeholmens®,and Sterno® brands.

 

Within the Catalog & Internet segment, the Companydesigns, sources, markets and distributes a broad range of householdconvenience items, premium photo albums, frames, holiday cards and gifts solddirect to the consumer under the Miles Kimball®, Exposures®, Walter Drake®,Home Marketplace® and Directions...The Path To Better Health® brands.  Theseproducts are sold primarily in North America.

 

The consolidatedfinancial statements include the accounts of the Company, and its direct andindirect subsidiaries.  All significantintercompany accounts and transactions have been eliminated.  Investments in companies that are notmajority owned or controlled are reported using the equity method and arerecorded in investments.  Certain of theCompany’s subsidiaries operate on a 52 or 53-week fiscal year ending on theSaturday closest to January 31. European operations maintain a calendar year accounting period, which isconsolidated with the Company’s fiscal period. In the opinion of management, the accompanying unaudited consolidatedfinancial statements include all normal recurring accruals necessary for fairpresentation of the Company’s consolidated financial position at April 30, 2004and the consolidated results of its operations and cash flows for thethree-month periods ended April 30, 2004 and 2003. These interim statementsshould be read in conjunction with the Company’s consolidated financialstatements for the year ended January 31, 2004, as set forth in the Company’sAnnual Report on Form 10-K.  Operatingresults for the three months ended April 30, 2004 are not necessarilyindicative of the results that may be expected for the year ending January 31,2005.

 

**Reclassifications**

** **

Certain reclassificationshave been made in prior years’ financial statements to conform toclassifications used in the current year.

 

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(1)          Colonial,Gies and Kaemingk trademarks are registered and sold only outside the UnitedStates.

 

7

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**Employee Stock Options**

** **

The Company has electedto adopt the disclosure only provisions of Statement of Financial AccountingStandards (SFAS) No. 148, “Accounting for Stock-Based Compensation – Transitionand Disclosure,” and continues to follow Accounting Principles Board (APB)opinion No. 25, “Accounting for Stock Issued to Employees” and relatedinterpretations in accounting for stock options granted to its employees anddirectors under the intrinsic value method. Accordingly, no compensation expense is recorded for the stock optionsissued to employees unless the option price is below market at the measurementdate.  The Company does not at thistime, issue stock options below market value, therefore no compensation expensehas been recorded in the financial statements. Had compensation expense for the Company’s stock options been determinedin accordance with the fair value method in SFAS No. 123, “Accounting forStock-Based Compensation” and SFAS No. 148, the Company’s reported net incomeand earnings per share would have been adjusted to the pro forma amountsindicated below:

 

Three months ended (In thousands, except per sharedata)

 
|                                                                                                        |   | **April 30,  2004** |   | **April 30,  2003** |   |
|-------------------------------------------------------------------------------------------------------------|--------|---------------------|--------|---------------------|--------|
| Net earnings:                                                                                               |   |                |   |                |   |
| As reported                                                                                                 |   | $                   | 17,675 |                | $      | 19,627 |   |
| Stock-based employee compensation expense determined  under SFAS No. 123 for all awards, net of related tax |   | 439                 |   | 510                 |   |
| Pro forma                                                                                                   |   | $                   | 17,236 |                | $      | 19,117 |   |
| Net earnings per common share:                                                                              |   |                |   |                |   |
| As reported:                                                                                                |   |                |   |                |   |
| Basic                                                                                                       |   | $                   | 0.39   |                | $      | 0.43 |   |
| Diluted                                                                                                     |   | 0.38                |   | 0.42                |   |
| Pro forma:                                                                                                  |   |                |   |                |   |
| Basic                                                                                                       |   | $                   | 0.38   |                | $      | 0.41 |   |
| Diluted                                                                                                     |   | 0.36                |   | 0.40                |   |

 

**2.**                                      Business Acquisitions

 

On April 1, 2003, theCompany acquired 100% of the Miles Kimball Company (“Miles Kimball”), a directmarketer of giftware, home décor and household convenience items, premium photoalbums, frames and holiday cards under the Miles Kimball® and Exposures®catalog titles for approximately $66.2 million in cash.  The acquisition of Miles Kimball aligns withone component of the Company’s overall growth strategy, which is to growthrough selected acquisitions.  Theexcess of the purchase price over the estimated fair value of the net assetsacquired approximated $46.0 million, which will not be deductible for incometax purposes.  The other intangiblesacquired consist of $16.1 million of trade names and trademarks, which aredeemed to have an indefinite life and will not be amortized, plus $9.0 millionof customer lists, which will be amortized on an accelerated basis over 12years.  Amortization expense recorded infiscal 2004 totaled $1.4 million. Estimated amortization expense for the next 5 fiscal years is asfollows:  $1.5 million, $1.5 million,$1.2 million, $0.9 million and $0.9 million. The results of operations of Miles Kimball are included in theConsolidated Statements of Earnings of the Company since April 2, 2003.  For segment reporting purposes, MilesKimball is included in the Catalog & Internet segment.

 

8

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On June 20, 2003, theCompany acquired a 100% interest in Kaemingk B.V. (“Kaemingk”), a designer andmarketer of a wide range of premium seasonal decorations. Kaemingk’s productlines feature Christmas décor, including ornaments, lighting, trim, glassware,candles and plush animals, as well as spring and summer decorativeaccents.  The acquisition of Kaemingkaligns with one component of the Company’s overall growth strategy, which is togrow through selected acquisitions.  Thecash purchase price was approximately $36.2 million less cash acquired of $7.7million resulting in net cash paid of $28.5 million.  Approximately $30.6 million of the cash purchase price wasborrowed under the Company’s $200 million unsecured revolving creditfacility.  The Company also assumedKaemingk’s long-term debt of approximately $14.4 million.  The excess of the purchase price over theestimated fair value of the net assets acquired approximated $17.6 million,which will not be deductible for income tax purposes.  During the quarter ended October 31, 2003, an adjustment wasrecorded to reflect the final appraised value of the acquired property, plantand equipment.  In addition to the fixedpurchase price, there is contingent consideration payable in the form of athree-year earn out provision based on a pre-defined formula related to amultiple of earnings before interest and income taxes. A $3.4 million liabilityfor the first annual earn out payment was recorded in the quarter ended April30, 2004. The results of operations of Kaemingk are included in theConsolidated Statements of Earnings of the Company since June 21, 2003.  For segment reporting purposes, Kaemingk isincluded in the Wholesale segment.

 

OnDecember 22, 2003, the Company acquired 100% of Walter Drake, a direct marketerof value-priced household products including household gifts, gadgets andconvenience products, personalized merchandise, home décor and holiday cardsunder the Walter Drake and Home Marketplace catalog titles, for approximately$53.8 million in cash.  The acquisition of Walter Drake alignswith the one component of the Company’s overall growth strategy, which is togrow through selected acquisitions.  The excess ofthe purchase price over the estimated fair value of the net assets acquiredapproximated $25.4 million, which will be deductible for income taxpurposes.  During the quarter endedApril 30, 2004, the Company recorded an adjustment to record additionalliabilities primarily related to severance of employees of the Colorado Springsfacility as of the acquisition date. These additional costs relate to the integration of the Walter Drakebusiness into Miles Kimball, which is expected to be completed by the end ofthe third quarter of fiscal 2005.  Theseadjustments increased the goodwill by approximately $3.1 million to $28.5million.  The other intangibles acquired consist ofapproximately $12.0 million of trade names and trademarks, which are deemed tohave an indefinite life and will not be amortized, plus approximately $6.0million of customer lists, which will be amortized on an accelerated basis over10 years. Estimated amortization expense for the next 5 fiscal years is asfollows:  $0.9 million, $0.9 million,$0.9 million, $0.6 million and $0.6 million. The results of operations of Walter Drake are included in theConsolidated Statements of Earnings of the Company since December 23,2003.  For segment reporting purposes,Walter Drake is included in the Catalog & Internet segment.

 

The following provides an allocation of the purchaseprice of Walter Drake (in thousands)

 
| Cash Purchase Price                   |   | $      | 54,195 |   |
|---------------------------------------|--------|--------|--------|--------|
| Less:  Assets  acquired          |   |   |   |
| Accounts receivable                   |   | 539    |   |
| Inventories                           |   | 6,010  |   |
| Prepaid and other                     |   | 5,743  |   |
| Property, plant and equipment         |   | 4,667  |   |
| Intangible assets                     |   | 18,000 |   |
|                                  |   | 34,959 |   |
| Plus:   Liabilities assumed      |   |   |   |
| Cash overdraft                        |   | 580    |   |
| Accounts payable                      |   | 3,442  |   |
| Accrued expenses                      |   | 5,057  |   |
| Other                                 |   | 189    |   |
|                                  |   | 9,268  |   |
| Unallocated purchase price (goodwill) |   | 28,504 |   |

 

9

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The following unauditedpro forma summary financial information summarizes the estimated combinedresults of operations of the Company, Miles Kimball, Kaemingk and Walter Drakeassuming that the acquisitions of Miles Kimball, Kaemingk and Walter Drake hadtaken place on February 1, 2003.  Theunaudited pro forma combined results of operations were prepared on the basisof information provided to the Company by the former management of MilesKimball, Kaemingk and Walter Drake and no representation is made by the Companywith respect to the accuracy of such information.  The pro forma combined results of operations reflect adjustmentsfor interest income, additional depreciation based on the fair market value ofMiles Kimball’s and Walter Drake’s property, plant, and equipment, amortizationof identifiable intangibles of Miles Kimball and Walter Drake and income taxexpense.

 
|                                     |   | **Three  months ended April 30,** |    |
|------------------------------------------|--------|-----------------------------------|---------|
| **(In thousands except per share data)** |   | **2004**                          |    | **2003** |   |
| Net sales                                |   | $                                 | 358,980 |   | $ | 355,418 |   |
| Net earnings                             |   | 17,675                            |    | 18,214 |   |
| Basic:                                   |   |                              |    |   |   |
| Net earnings per common share            |   | $                                 | 0.39    |   | $ | 0.40 |   |
| Diluted:                                 |   |                              |    |   |   |
| Net earnings per common share            |   | $                                 | 0.38    |   | $ | 0.39 |   |

 

The unaudited pro formacombined results of operations are not necessarily indicative of, and do notpurport to represent, what the Company’s results of operations or financialcondition actually would have been had the acquisitions been made as ofFebruary 1, 2003.

 

Thefollowing table shows changes in the carrying amount of goodwill for thequarter ended April 30, 2004, by operating segment:

 
|                                                                  |   | **Wholesale** |   | **Catalog  &  Internet** |   | **Total** |   |
|-----------------------------------------------------------------------|--------|---------------|--------|------------------------------|--------|-----------|--------|
| Goodwill at January 31, 2004                                          |   | $             | 133.0  |                         | $      | 71.1      |   | $ | 204.1 |   |
| Increase related to acquisitions:                                     |   |          |   |                         |   |      |   |
| Kaemingk earn out payment                                             |   | 3.4           |   | —                       |   | 3.4       |   |
| Walter Drake integration costs                                        |   | —        |   | 3.1                          |   | 3.1       |   |
| Total increase related to acquisitions                                |   | 3.4           |   | 3.1                          |   | 6.5       |   |
| Goodwill disposed of related to sale of Jeanmarie  Creations          |   | (3.6          | )      | —                       |   | (3.6      | )      |
| Miles Kimball pension liability adjustment                            |   | —        |   | 0.4                          |   | 0.4       |   |
| Foreign currency translation adjustment related to  Kaemingk goodwill |   | (0.3          | )      | —                       |   | (0.3      | )      |
| Total adjustments                                                     |   | (0.5          | )      | 3.5                          |   | 3.0       |   |
| Goodwill at April 30, 2004                                            |   | $             | 132.5  |                         | $      | 74.6      |   | $ | 207.1 |   |

 

10

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**3.**                                      Inventories

** **

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

 
|            |   | **April 30,  2004** |    | **January  31, 2004** |   |
|-----------------|--------|---------------------|---------|-----------------------|--------|
| Raw materials   |   | $                   | 27,412  |                  | $      | 25,104 |   |
| Work in process |   | 1,508               |    | 915                   |   |
| Finished goods  |   | 183,468             |    | 182,562               |   |
|            |   | $                   | 212,388 |                  | $      | 208,581 |   |

 

**4.**                                      Earnings per Share

** **

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

 
| **Three  months ended April 30,**                      |   | **2004** |   | **2003** |   |
|--------------------------------------------------------|--------|----------|--------|----------|--------|
| Net earnings                                           |   | $        | 17,675 |     | $      | 19,627 |   |
| Weighted average number of common shares  outstanding: |   |     |   |     |   |
| Basic                                                  |   | 45,665   |   | 46,080   |   |
| Dilutive effect of stock options                       |   | 440      |   | 128      |   |
| Weighted average number of common shares  outstanding: |   |     |   |     |   |
| Diluted                                                |   | 46,105   |   | 46,208   |   |
|                                                        |        |          |        |          |        |  |  |

 

As of April 30, 2004 and2003, options to purchase 645 and 102,754 shares of common stock, respectively,are not included in the computation of earnings per share because the effectwould be anti-dilutive.

 

**5.**                                      Restructuring Charges

** **

During the third andfourth quarters of fiscal 2004 the Company recorded severance payments toemployees of $0.5 million pre-tax related to the closure of its Hyannis,manufacturing facility. In conjunction with the closing, the Company eliminated43 jobs, comprised of manufacturing and management positions. Thismanufacturing facility, which was the Company’s smallest, is located in a busydowntown area of Cape Cod, making transportation of raw materials and finishedproducts to and from the location challenging. Operations are beingconsolidated into Blyth’s manufacturing facility in Batavia, Illinois.

 

During the fourth quarterof fiscal 2004, the Company recorded additional pre-tax restructuringcharges.  These charges consist of $2.1million related to severance costs primarily associated with the restructuringof Blyth HomeScents International – North America and the consolidation of theCompany’s Temecula, California potpourri operations, and $0.9 million of leasetermination costs associated with the closure of five of the Company’s candleoutlet stores.  As a result of theserestructuring activities, the Company eliminated 40 jobs, comprised ofadministrative and management positions.

 

At January 31, 2004, theCompany had approximately $3.3 million of restructuring charges included in theConsolidated Balance Sheet, which related to the aforementioned severanceliabilities and lease obligations.  As aresult of payments made during the quarter ended April 30, 2004 approximately$1.3 million of severance liabilities and $0.6 million of lease obligations wereremaining on the balance sheet at April 30, 2004.  The remaining severance liability and lease obligations will bepaid within the next twelve months.

 

11

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The following is atabular roll forward of the charges described above that were recorded on thebalance sheet of the Company:

 
| **(In thousands)**                 |   | **Lease  Obligations** |   | **Severence  Costs** |   | **Total** |   |
|------------------------------------|--------|------------------------|--------|----------------------|--------|-----------|--------|
|                               |   |                   |   |                 |   |      |   |
| Balance at January 31, 2004        |   | $                      | 905    |                 | $      | 2,395     |   | $ | 3,300 |   |
| Payments made against 2004 charges |   | (321                   | )      | (1,045               | )      | (1,366    | )      |
| Balance at April 30, 2004          |   | $                      | 584    |                 | $      | 1,350     |   | $ | 1,934 |   |

 

**6.**                                      Segment Information

** **

Blyth is a global competitorin the gift and decorative accessories market, which the Company calls the homeexpressions industry.  At January 31, 2004 the Company reported itsfinancial results in five segments: Direct Selling, Wholesale Home Fragrance,Wholesale Creative Expressions, Catalog & Internet and All Other. As aresult of certain organizational changes we have implemented, we havereevaluated our reporting segments pursuant to FASB Statement No. 131,“Disclosures about Segments of an Enterprise and Related Information”, anddetermined to report financial information with respect to three segmentsbeginning with the period ended April 30, 2004. These new reporting segmentsare as follows - the Direct Selling segment, the Wholesale segment, and theCatalog & Internet segment.  Asrequired by FASB Statement No.131, we have restated the corresponding informationfor the prior year to report in the current composition of our reportablesegments.  The Company’sreportable segments are based on similarities in distribution channels,customers and management oversight. Revenues are not reported by product or group of similar products, as itis impractical to do so.

 

Within the Direct Sellingsegment, the Company designs, manufactures or sources, markets and distributesan extensive line of products including scented candles, related accessories,fragranced bath gels and body lotions and other fragranced products. These products are sold direct to the consumer under the PartyLite® brand inNorth America, Europe and Australia through a network of more than 52,000independent sales consultants.

 

Within the Wholesalesegment, the Company designs, manufactures or sources, markets and distributesan extensive line of home fragrance, home décor, seasonal decorations and AwayFrom Home products.  Products in thissegment are sold worldwide to retailers in the premium and specialtyretail channels under the Colonial®(1),Colonial Candle of Cape Cod®, Colonial at HOME®, Carolina®, CBK®,Holiday365TM, Kaemingk®(1), and Seasonsof Cannon FallsTM brands and to retailers in the mass retail and foodservicechannel under the Ambria®, FilterMate®, Florasense®, Gies®(1), Liljeholmens®,and Sterno® brands.

 

Within the Catalog & Internet segment, the Companydesigns, sources, markets and distributes a broad range of householdconvenience items, premium photo albums, frames, holiday cards and gifts solddirect to the consumer under the Miles Kimball®, Exposures®, Walter Drake®,Home Marketplace® and Directions...The Path To Better Health® brands.  Theseproducts are sold primarily in North America.

 

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

** **

**12**

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** **

Earnings in all segmentsrepresent net sales less operating expenses directly related to the businesssegments and corporate expenses allocated to the business segments.  Other income (expense) includes interestexpense, interest income and equity in earnings of investees, which are notallocated to the business segments. Identifiable assets for each segment consist of assets used directly inits operations and intangible assets, if any, resulting from purchase businesscombinations.  Unallocated Corporatewithin the identifiable assets include corporate cash and cash equivalents,deferred bond costs and other long-term investments, which are not allocated tothe business segments.

 

Three months ended April30, (In thousands)

 
|                                                    |   | **2004** |    | **2003** |   |
|---------------------------------------------------------|--------|----------|---------|----------|--------|
| **Net Sales**                                           |   |     |    |     |   |
| Direct Selling                                          |   | $        | 189,863 |     | $      | 191,240 |   |
| Wholesale                                               |   | 127,763  |    | 114,781  |   |
| Catalog & Internet                                  |   | 41,354   |    | 5,970    |   |
| **Total**                                               |   | $        | 358,980 |     | $      | 311,991 |   |
| **Earnings**                                            |   |     |    |     |   |
| Direct Selling                                          |   | $        | 38,002  |     | $      | 37,405 |   |
| Wholesale                                               |   | (2,679   | )       | (2,648   | )      |
| Catalog & Internet                                  |   | (1,062   | )       | (499     | )      |
|                                                    |   | 34,261   |    | 34,258   |   |
| Other expense                                           |   | (4,341   | )       | (3,134   | )      |
| **Earnings before income taxes and  minority interest** |   | $        | 29,920  |     | $      | 31,124 |   |

 
| **At April  30,**       |   | **2004** |      | **2003** |   |
|-------------------------|--------|----------|-----------|----------|--------|
| **Identifiable Assets** |   |     |      |     |   |
| Direct Selling          |   | $        | 280,740   |     | $      | 258,667 |   |
| Wholesale               |   | 513,453  |      | 456,617  |   |
| Catalog & Internet  |   | 163,868  |      | 103,021  |   |
| Unallocated Corporate   |   | 184,949  |      | 106,199  |   |
| **Total**               |   | $        | 1,143,010 |     | $      | 924,504 |   |

 

**7.**                                      Assets Held for Sale

** **

During the fourth quarter of fiscal 2004, the Companydecided to divest of its decorative gift bag business, Jeanmarie Creations, inthe Wholesale segment through a sale to Jeanmarie’s senior management.  Therefore, the assets of Jeanmarie were classifiedas assets held for sale in the Company’s Consolidated Balance Sheet as ofJanuary 31, 2004.  The assets held forsale related to Jeanmarie were comprised principally of accounts receivable of$3.1 million, inventory of $3.4 million and property, plant and equipment of$1.7 million.  The operating resultsrelated to Jeanmarie were immaterial to the consolidated operating results ofthe Company.  On April 6, 2004 theCompany sold the business to Jeanmarie’s management and associated investorsfor $10.0 million in cash.  The saleresulted in a taxable gain of approximately $4.0 million.  In addition, $3.6 million of goodwillattributable to Jeanmarie, which was not tax deductible, was disposed of.

 

There is an additional $1million classified as assets held for sale in the Consolidated Balance Sheet asof January 31, 2004 and April 30, 2004 related to the Hyannis, MA manufacturingfacility the closure of which is discussed in Note 5.

 

13

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**8.**                                      Contingencies

** **

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

 

**9.****                                      Subsequent Event**

 

On June 7, 2004the Company announced that its Board of Directors approved a repurchase of upto 4,000,000 outstanding shares of the Company’s common stock at a price pershare that is not greater than $35.00 nor less than $30.00 through, a Dutchauction cash tender offer.  The tenderoffer will expire on July 9, 2004 unless the Company extends the tender offer.

 

14

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

** **

**RESULTS OF OPERATIONS:**

** **

**Overview**

 

Blyth is a global competitor in the gift anddecorative accessories market, which the Company calls the home expressionsindustry.  At January 31, 2004 the Company reported its financial resultsin five segments: Direct Selling, Wholesale Home Fragrance, Wholesale CreativeExpressions, Catalog & Internet and All Other. As a result of certainorganizational changes we have implemented, we have reevaluated our reportingsegments pursuant to FASB Statement No. 131, “Disclosures about Segments of anEnterprise and Related Information”, and determined to report financialinformation with respect to three segments beginning with the period endedApril 30, 2004. These new reporting segments are as follows - the DirectSelling segment, the Wholesale segment, and the Catalog & Internetsegment.  The Company’sreportable segments are based on similarities in distribution channels,customers and management oversight.

 

Today, on anannualized basis, we have, approximately, a $750 million plus direct sellingbusiness, a $650 million wholesale business and a $200 million catalog andInternet business.  We expect organicsales and earnings growth in all three segments this year, with different ratesof growth in each segment depending on geographic location, market penetrationfor our types of products, our relative market share and product and marketingexecution, among others.  Over the longterm, each segment should experience single-digit growth, most likely withinthat low to mid-single digit range that we have discussed in the past, againdepending on the business factors previously noted.

 

In addition to organic sales growth, we expect all three segments to beprofitable this fiscal year.  Clearlythe challenges and opportunities here lie most within our Wholesale segment asparts of that business have struggled in recent years, and the need to find theright balance between manufacturing and sourcing and the associated implicationthis has for our asset base are evident. We’ve done a lot of work in this area over the past four years and havemade very good progress.

 

Today, our focus is driving sales growth of our core wholesale candleand chafing fuel brands in order to leverage more fully our worldwide manufacturinginfrastructure.  At the same time, wehave numerous collaborative initiatives taking place within our Wholesalesegment that we believe will help drive sales and maximize the sales andmarketing talents across this organization. These initiatives include joint trade show promotions, customerinformation sharing and leveraging our in-house sales forces, as well asongoing global sourcing objectives and other organic strategic initiatives intowhich we are investing considerable resources already.

 

**With theacquisitions of Miles Kimball in April 2003 and Walter Drake in December 2003we entered the catalog and Internet channel of distribution giving us apresence in all of our desired channels. Although the operating margin in this channel was lower than expected infiscal 2004 we believe this was business specific rather than a channelspecific issue.  Miles Kimball faced anumber of operational challenges last year that management has been working toaddress, and we believe we will see improvement by the end of fiscal 2005. Someof this improvement is expected to be offset by one-time costs associated withthe integration of Walter Drake’s operations into Miles Kimball.**

** **

**15**

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** **

**Net Sales**

** **

Net sales in thequarter ended April 30, 2004, increased$47.0 million, or 15.1%, to $359.0 million from $312.0 million a yearearlier.  Sales in the quarter ended April 30, 2004 were affectedby three main factors.  First,approximately 15% of the increase innet sales may be attributed to the net effect of the positive sales impact ofrecent acquisitions slightly offset by the negative impact of a recentdivestiture.  Miles Kimball, acquired inApril 2003, Kaemingk, acquired in June 2003, and Walter Drake, acquired in December2003 all had a positive sales impact, which was partially offset by thedivestiture of Jeanmarie Creations in April 2004.  Second, the relativestrength of foreign currencies versus the US dollar had a positive impact onfiscal 2005 sales growth equal to approximately 4 percentage points. Third, mixed sales results among our existing businesses had a negative salesimpact of approximately 4 percentage points.

 

Net Sales - Direct Selling Segment

 

Net sales in the Direct Selling segment for the quarterended April 30, 2004, decreased $1.3 million, or 0.7%, from $191.2 million infiscal 2004 to $189.9 million in fiscal 2005.  In North America,PartyLite’s US sales were 13% below the prior year.  Results in this market can be partially attributed to relativelyweaker reaction to the spring catalog and product line versus last year as lastyear’s spring product line was particularly strong.  Timing also played a role in last year’s very strong firstquarter results as promotions surrounding the celebration of PartyLite’s 30thanniversary in the US had a positive sales impact.  PartyLite Canada reported a 13% increase versus the prioryear.  In local currency, PartyLite Canada’s sales increased 2% from theprior year.  In PartyLite’s Europeanmarkets, fiscal 2005 sales increased approximately 36%.  In localcurrencies, PartyLite’s European sales were 17% above the prior year, driven byoverall positive reception to the new 2004 product line and combined witheffective sponsoring and productivity incentives.

 

NetSales - Wholesale Segment

 

Net sales in the Wholesalesegment in the quarter ended April 30, 2004, increased $13.0 million, or 11.3%, to $127.8million from $114.8 million a year earlier. Almost all of this increase was attributable to the inclusion of salesof Kaemingk, which was acquired in June 2003. Partially offsetting this increase was a 3% decrease in sales ofour North American home fragrance products as decreased sales of discontinuedbrands continued to offset sales growth in the three brands behind which mostof our resources are being committed: ColonialTM, Carolina® andFlorasense®.  Each of these brandsexperienced first quarter sales increases lead by growth in specialty and massaccounts.  Independent accounts in thepremium channel remain under pressure and, though retailers indicated goodbuying interest at recent trade shows, the pattern of delaying order placementwitnessed throughout much of last year continued in the first quarter.

 

NetSales - Catalog & Internet Segment

 

Net sales in the Catalog& Internet segment were $41.4 million in the quarter ended April 30,2004, due entirely to theacquisitions of Miles Kimball and Walter Drake.  Sales in this segment in the first quarter of fiscal 2004 werediminimus as Miles Kimball was acquired in April 2003 and Walter Drake wasacquired in December 2003.  Net sales inthe Catalog & Internet segment were approximately on plan with respect toour pre-acquisition assumptions.  Withthe initial acquisition of Miles Kimball and the addition of Walter Drake, theoperations of which have been integrated into those of Miles Kimball, we arenow operating in all of our desired distribution channels, and, we believe, wecan now reach consumers however they choose to shop.

 

**Gross Profit**

** **

Gross profit as a percentof sales was 51.0%, in the first quarter of fiscal 2005, a decrease of 0.7%when compared to 51.7% in the prior year’s first quarter.  This decrease was due to the fiscal 2004acquisitions, which are quite profitable but have lower gross profit marginsthan the overall Company average.

 

16

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**Selling Expense**

** **

Selling expense increased$18.0 million, or 18.5%, from $97.1 million in the quarter ended April 30, 2003to $115.1 million in the quarter ended April 30, 2004*.* As a percent ofsales, selling expense was 32.1% in the most recent fiscal quarter compared to31.1% a year earlier.  The increase inselling expense is primarily due to the selling expenses of Miles Kimball,Kaemingk and Walter Drake, which were acquired in fiscal 2004.

 

**Administrative Expense**

** **

Administrative expenseincreased $3.6 million, or 12.0%, from $30.1 million in the quarter ended April30, 2003 to $33.7 million in the quarter ended April 30, 2004.  As a percent of sales, administrativeexpense was 9.4% in the first quarter of fiscal 2005 versus 9.6% in the sameperiod last year.  Administrativeexpenses increased due to the addition of expenses of Miles Kimball, Kaemingkand Walter Drake, as well as costs related to compliance with theSarbanes-Oxley Act of 2002 and related regulations.

 

**Operating Profit**

** **

Operating profit in thequarter ended April 30, 2004 wasapproximately even with the same period last year at $34.3 million. The seasonality of our recent acquisitionsoffset profitability improvements from recent restructuring activities.  In addition, operating profit was impactedby our investment in a number of organic strategic initiatives which, ifsuccessful should provide sales and earnings growth in the future.

 

Operating Profit/Loss -Direct Selling Segment

 

Operating profit in thequarter ended April 30, 2004 inthe Direct Selling segment increased $0.6 million, or 1.6%, to $38.0 millionwhen compared to $37.4 million a year earlier.  The same factors thatimpacted net sales in this segment also impacted operating profit in thissegment.

 

OperatingProfit/Loss - Wholesale Segment

 

Operating loss in thequarter ended April 30, 2004 inthe Wholesale segment was $2.7 million versus a loss of $2.6 million a yearearlier.  A profitability decline in ourNorth American home and seasonal decorative brands due to a sales decrease ofapproximately 6%, offset profitability improvements in our North American homefragrance operations of more than 50%, which benefited from recent restructuring.  In addition, Kaemingk our European seasonaldecorations business acquired in June 2003, was profitable in the first quarterdue to stronger than expected sales, whereas this business has historically experienceda first quarter loss.

 

OperatingProfit/Loss - Catalog & Internet Segment

 

Operating loss in theCatalog & Internet segment was $1.1 million in 2005 due entirely to thefiscal 2004 acquisitions of Miles Kimball and Walter Drake.  Theoperating loss was expected given the seasonal nature of the Miles Kimballbusiness and was approximately on plan relative to our pre-acquisitionassumptions which included expenses associated with the integration of WalterDrake into Miles Kimball.

 

**Interest Expense**

** **

Interest expenseincreased approximately $1.6 million from $3.6 million in the quarter endedApril 30, 2003 to $5.2 million in the quarter ended April 30, 2004.  This increase is mostly due to higherinterest costs related to the $100 million of 5.5% Senior Notes issued inOctober 2003.  In addition, interestexpense was impacted by the additions of Miles Kimball and Kaemingk.

 

17

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**Income Taxes**

** **

Income tax expenseincreased $0.7 million, from $11.5 million in the quarter ended April 30, 2003to $12.2 million in the quarter ended April 30, 2004.  This increase is due to the taxable gain on the sale of JeanmarieCreations in April 2004.  The effectivetax rate for the quarter ended April 30, 2004 was approximately 40.8% comparedto 36.8% in the first quarter of fiscal 2004. This increase is due to the disposal of non tax-deductible goodwill of$3.6 million related to the sale of Jeanmarie. We anticipate that our full year income tax rate for fiscal 2005 will beapproximately 36.0%.

 

**Net Earnings**

** **

As a result of theforegoing, net earnings decreased $1.9 million, or 9.7%, from $19.6 million inthe first quarter of fiscal 2004 to $17.7 million in the first quarter offiscal 2005.

 

Basic earnings per sharebased upon the weighted average number of shares outstanding for the quarterended April 30, 2004, were $0.39, a decrease of $0.04, or 9.3%, compared to$0.43 for the quarter ended April 30, 2003. Diluted earnings per share based upon the potential dilution that couldoccur if options to issue common stock were exercised, were $0.38 compared to$0.42 for the same period the prior year.

 

**Liquidity and Capital Resources**

** **

Inventory increased from$208.6 million at January 31, 2004 to $212.4 million at April 30, 2004.  The increase in inventory is primarily dueto normal inventory purchases of seasonal product in our Wholesale segment.** Accounts receivable decreased $3.0 million from $104.5 million atthe end of fiscal 2004 to $101.5 million at April 30, 2004.* *Thedecrease in accounts receivable is due to the collections of accountsreceivable related to seasonal sales in the third and fourth quarter of fiscal2004. * *Accounts payable and accrued expenses decreased $18.0million from $175.8 million at the end of fiscal 2004 to $157.8 million atApril 30, 2004.* *The decrease in accounts payable and accrued expensesis attributable to normal patterns of payment of operating expenses includingthe semi-annual payment of accrued interest and incentive bonuses.

 

Capital expenditures forproperty, plant and equipment were $3.0 million in the quarter ended April 30,2004 compared to $2.9 million in the prior year period*.*Capital expenditures consisted primarilyof investments in information technology and upgrades of equipment andfacilities.  The Company expects totalcapital spending of approximately $25 million for fiscal 2005.

 

The Company has a $200million unsecured revolving credit facility, which matures on August 5, 2005(the “Credit Facility”).  The Companyhas the ability to increase the Credit Facility, under certain circumstances,by an additional $50 million.  TheCredit Facility may be used for general corporate purposes, which includesfunding for strategic acquisitions and seasonal working capital needs.  The Credit Facility contains, among otherprovisions, requirements for maintaining certain financial ratios including,among others, a minimum level of net worth and a maximum level of financialleverage.  The Credit Facility alsoimposes limitations on, among other things, certain payments, the imposition ofliens on our assets, indebtedness that may be incurred by our subsidiaries,investments we may make and sales of our assets.  At April 30, 2004, the Company was in compliance with suchcovenants.  Amounts outstanding underthe Credit Facility bear interest, at the Company’s option, at either JPMorganChase Bank’s prime rate (4.0% at April 30, 2004) or at the Eurocurrency rateplus a credit spread ranging from 0.525% to 1.5%, calculated on the basis of acombination of the Company’s senior unsecured long-term debt rating and theCompany’s usage of the Credit Facility. On April 30, 2004, $3.3 million letters of credit were outstanding underthe Credit Facility.

 

Asof April 30, 2004, the Company had a total of $15.0 million available under anuncommitted bank line of credit with LaSalle Bank National Association, whichmatures in June 2004.  Amountsoutstanding under the line of credit bear interest at short-term fixedrates.  No amounts were outstandingunder the uncommitted line of credit at April 30, 2004.

 

18

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At April 30, 2004, the Company had a total of $10.0 million availableunder an uncommitted line of credit with Bank of America to be used for lettersof credit.  At April 30, 2004,approximately $0.6 million of letters of credit were outstanding under thiscredit line.

 

Asof March 31, 2004, The Gies Group (“Gies”) had available lines of credit ofapproximately $37.7 million of which approximately $13.0 million wasoutstanding.  The amounts outstandingunder the lines of credit bear interest at a weighted average rate of 3.1% atMarch 31, 2004.  The lines of credit arerenewed annually.

 

As of March 31, 2004,Kaemingk had available lines of credit of approximately $33.8 million with INGBank N.V.  The lines of credit arecollateralized by certain real estate and equipment owned by Kaemingk.  At March 31, 2004, approximately $0.8million was outstanding at a weighted average interest rate of 2.75%.

 

Colony Gift Corporation Limited (“Colony”) has a $22.1 millionshort-term revolving credit facility with Barclays Bank, which matures in June2004.  As of March 31, 2004, Colony hadborrowings under the credit facility of approximately $6.9 million, at aweighted average interest rate of 4.64%.

 

At April 30, 2004, Miles Kimball had approximately $10.2 million oflong-term debt outstanding under a real estate mortgage note payable to JohnHancock Life Insurance Company, which matures June 1, 2020. Under the terms ofthe note, payments of principal and interest are required monthly at a fixedinterest rate of 7.89%.

 

At March 31, 2004,Kaemingk had approximately $8.7 million of long-term debt outstanding under sixloans with ING Bank N.V. at a weighted average interest rate of 5.8%.  The bank loans have maturity dates rangingfrom 2005 through 2020.  The loans arecollateralized by certain real estate and equipment owned by Kaemingk.

 

In July 1995, the Companyprivately placed $25.0 million aggregate principal amount of 7.54% Senior Notesdue 2005.  As of April 30, 2004, $7.1million of principal remained outstanding. Such senior notes contain, among other provisions, requirements formaintaining certain financial ratios and net worth.  At April 30, 2004, the Company was in compliance with suchprovisions.  Payment on the notescommenced in June 1999 and annual installments of principal and interest arerequired to be paid through June 2005.

 

In May 1999, the Companyfiled a shelf registration statement for issuance of up to $250.0 million indebt securities with 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 ofapproximately $1.4 million, which is being amortized over the life of thenotes.  Such notes contain, among otherprovisions, restrictions on liens on principal property or stock issued tocollateralize debt.  At April 30, 2004,the Company was in compliance with such provisions.  Interest is payable semi-annually 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 provisionsand restrictions similar to those in the 7.90% Senior Notes.  At April 30, 2004, the Company was incompliance with such covenants. Interest on the notes began accruing on October 23, 2003 and will bepayable semiannually in arrears on May 1 and November 1 of each year,commencing May 1, 2004.  The notes maybe redeemed in whole or in part at any time at a specified redemptionprice.  The proceeds of the debtissuance are used for general corporate purposes, which may include repaymentof certain debt, acquisitions and working capital needs.

 

At April 30, 2004, CBKhad $4.6 million of long-term debt outstanding under an Industrial Revenue Bond(“IRB”), which matures on January 1, 2025. The bond is backed by an irrevocable letter of credit issued by La SalleBank National Association.  The 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 1.2% at April30, 2004.

 

19

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**ContractualCash Obligations**

 

The following tableestimates the Company’s future contractual obligations as of January 31, 2004for each year listed on an annual basis:

 

**(Inthousands)**

 
| **Contractual  Obligations**  |   | **Total** |    | **Less than  1 year** |   | **1 - 3  Years** |   | **3 - 5  Years** |   | **More than  5 Years** |   |
|-------------------------------|--------|-----------|---------|-----------------------|--------|------------------|--------|------------------|--------|------------------------|--------|
| Interest                      |   | $         | 153,740 |                  | $      | 21,263           |   | $                | 41,360 |                   | $      | 40,964 |   | $ | 50,153 |   |
| Capital Leases                |   | 336       |    | 163                   |   | 173              |   | —           |   | —                 |   |
| Purchase Obligations (1)      |   | 40,861    |    | 40,861                |   | —           |   | —           |   | —                 |   |
| Long-Term Debt                |   | 280,265   |    | 4,522                 |   | 5,250            |   | 1,654            |   | 268,839                |   |
| Operating Leases              |   | 65,612    |    | 18,421                |   | 25,819           |   | 11,542           |   | 9,830                  |   |
| Lines of Credit               |   | 13,621    |    | 13,621                |   | —           |   | —           |   | —                 |   |
| Total Contractual Obligations |   | $         | 554,435 |                  | $      | 98,851           |   | $                | 72,602 |                   | $      | 54,160 |   | $ | 328,822 |   |
|                               |        |           |         |                       |        |                  |        |                  |        |                        |        |  |  |  |  |  |  |

 

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(1)  Purchase obligations consist of openpurchase orders for inventory.

 

The Company’s Board ofDirectors has authorized the Company to repurchase up to 6,000,000 shares ofcommon stock under the Company’s share repurchase program. Since January 31,2004, the Company has purchased an additional 201,700 shares on the open marketfor a cost of $6.7 million, bringing the cumulative total purchased shares to4,546,800 as of April 30, 2004 for a total cost of approximately $112.0million.  The acquired shares are heldas common stock in treasury at cost.

 

On March 31, 2004, theCompany announced that it had declared a cash dividend of $0.17 per share ofthe Company’s common stock for the six months ended January 31, 2004.  The dividend, authorized at the Company’sMarch 31, 2004 Board of Directors meeting, was payable to shareholders ofrecord as of April 30, 2004, and was paid on May 14, 2004.

 

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 at a price per sharethat is not greater than $35.00 nor less than $30.00 through a Dutch auctioncash tender offer.  The tender offerwill expire on July 9, 2004 unless the Company extends the tender offer.  The tender offer is expected to be fundedwith available cash and borrowings against our $200 million CreditFacility.  The Company does not expectthe tender offer to effect its share repurchase program, capital expendituresor acquisitions.

 

**Critical Accounting Policies**

** **

There was no changes toour critical accounting policies in the first quarter of fiscal 2005.  For a discussion of the Company’s criticalaccounting policies see our Annual Report on Form 10-K for the fiscal yearended January 31, 2004.

 

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**Item 3**. Quantitativeand Qualitative Disclosures About Market Risk

 

***Market Risk***

*** ***

The Company hasoperations outside of the United States and sells its products worldwide.  The Company’s activities expose it to avariety of market risks, including the effects of changes in interest rates,foreign currency exchange rates, commodity prices and transportationinterruptions.  These financialexposures are actively monitored and, where considered appropriate, managed bythe Company.

 

***Interest Rate Risk***

 

As ofApril 30, 2004 the Company is subject to interest rate risk onapproximately $25.3 million of variable rate debt.  Each 1-percentage point increase in the interest rate wouldimpact pre-tax earnings by approximately $0.3 million if applied to the total.

 

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

 

***Foreign Currency Risk***

 

The Company usesforward foreign exchange contracts to hedge the impact of foreign currencyfluctuations on certain committed capital expenditures, certain inventorypurchases, certain intercompany payables and certain intercompany loans. TheCompany does not hold or issue derivative financial instruments for tradingpurposes.

 

The Company hasdesignated its forward exchange contracts on certain intercompany purchases andforecasted future purchase commitments as cash flow hedges and, as such, aslong as the hedge remains effective and the underlying transaction remainsprobable, the effective portion of the changes in the fair value of thesecontracts will be recorded in accumulated other comprehensive income (loss)(“OCI”) until earnings are affected by the variability of the cash flows beinghedged.  With regard to commitments formachinery and equipment and inventory purchases, upon payment of eachcommitment, the underlying forward contract is closed and the correspondinggain or loss is transferred from accumulated OCI and is included in themeasurement cost of the acquired asset. If a hedging instrument is sold orterminated prior to maturity, gains and losses are deferred in accumulated OCIuntil the hedged item is settled. However, if the hedged item is no longerlikely to occur, the resultant gain or loss on the terminated hedge isrecognized into earnings immediately. Approximately $208,000 of hedge lossesare included in accumulated OCI at April 30, 2004, and are expected to betransferred into earnings within the next twelve months.

 

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

 

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

 

The followingtable provides information about the Company’s foreign exchange forwardcontracts at April 30, 2004.

 
| **(In thousands, except average  contract rate)** |   | **U.S.  Dollar  Notional Amount** |   | **Average  Contract Rate** |   | **Estimated  Fair Value** |   |
|---------------------------------------------------|--------|-----------------------------------|--------|----------------------------|--------|---------------------------|--------|
| Canadian  Dollar                                  |   | $                                 | 6,117  |                       | 1.32   |                      | $      | 221 |   |
| Euro                                              |   | 19,931                            |   | 1.23                       |   | (141                      | )      |
|                                              |   | $                                 | 26,048 |                       |   |                      | $      | 80 |   |

 

The foreignexchange contracts outstanding as of March 31, 2004 have maturity datesranging from April 2004 through December 2004.

 

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**Item 4.**Controls and Procedures

 

(a)Evaluation of disclosure controls and procedures.

 

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

 

(b)Changes in internal control over financial reporting.

 

Therewas no change in our internal control over financial reporting identified inconnection with the evaluation required by paragraph (d) of Exchange Act Rules13a-15 or 15d-15 that occurred during our last fiscal quarter that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

 

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**PART II**.  OTHERINFORMATION

 

**Item 1**.           Legal Proceedings

 

None

 

**Item 2.**           Changes in Securities, Use of Proceeds and Issuer Purchases ofEquity Securities

 

The followingtable sets forth certain information concerning the repurchase of the Company’sCommon Stock made by the Company during the first quarter of the fiscal yearended January 31, 2005.

 

##### **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** |
|---------------------------------------------------------|--------|---------------------------------------------|--------|-----------------------------------------|--------|-------------------------------------------------------------------------------------------------|-----------|------------------------------------------------------------------------------------------------------------------------------|
|                                                    |   |                                        |   |                                    |   |                                                                                            |      |                                                                                                                         |
| Month #1  February 1, 2004 -February 29, 2004 |   | 0                                           |   | 0                                       |   | 4,345,100                                                                                       |      | 1,654,900 shares                                                                                                             |
|                                                    |   |                                        |   |                                    |   |                                                                                            |      |                                                                                                                         |
| Month #2  March 1, 2004 -  March 31, 2004     |   | 201,700                                     |   | $                                       | 33.00  |                                                                                            | 4,546,800 |                                                                                                                         | 1,453,200 shares |
|                                                    |   |                                        |   |                                    |   |                                                                                            |      |                                                                                                                         |
| Month #3  April 1, 2004 -  April 30, 2004     |   | 0                                           |   | 0                                       |   | 4,546,800                                                                                       |      | 1,453,200 shares                                                                                                             |
|                                                    |   |                                        |   |                                    |   |                                                                                            |      |                                                                                                                         |
| Total                                                   |   | 201,700                                     |   | $                                       | 33.00  |                                                                                            | 4,546,800 |                                                                                                                         | 1,453,200 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 can repurchaseup to 1,000,000 shares of its issued and outstanding Common Stock in openmarket 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.  OnApril 4, 2002, the Company’s Board of Directors further amended theRepurchase Program and increased the number of shares of Common Stock to berepurchased by 2,000,000 shares, from 4,000,000 to 6,000,000 shares.  The Repurchase Program does not have anexpiration date.  The Company intends tomake further purchases under the Repurchase Program.

 

23

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**Item 3.**           Defaults upon Senior Securities

None

 

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

None

 

**Item 5.**           Other Information

 

The Company isincluding the following cautionary statement in this Report to make applicable,and to take advantage of, the safe harbor provisions of the Private SecuritiesLitigation Reform Act of 1995 for any forward-looking statements made by, or onbehalf of, the Company.  Forward-lookingstatements include statements concerning plans, objectives, goals, strategies,future events or performance and underlying assumptions and other statements,which are other than statements of historical facts.  From time to time, the Company and its representatives maypublish or otherwise make available forward-looking statements of thisnature.  All such forward-lookingstatements, whether written or oral, and whether made by or on behalf of theCompany, are expressly qualified by the following cautionary statements.  Forward-looking statements involve risks anduncertainties, which could cause actual results or outcomes to differmaterially from those expressed in the forward-looking statements.  Such forward-looking statements are expectedto be based on various assumptions, many of which are based, in turn, uponfurther assumptions.

 

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

 

Risk of Inability toMaintain Growth Rate

 

The Company hasexperienced significant sales growth in past years.  While management expects continued growth, our future growth ratewill likely be less than our historical growth rate.  The Company expects faster sales growth in its internationalmarket versus its United States market, particularly in the Direct Selling andWholesale segments.  The market for ourAway From Home or foodservice products has also grown historically, though at aslower rate, a pattern that is expected to continue.  In recent years, our overall sales for the Away From Home orfoodservice products were flat, reflecting a generally weak economicenvironment during these years.  TheCompany’s ability to increase sales depends on numerous factors, includingmarket acceptance of existing products, the successful introduction of newproducts, 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 resultswill not be materially adversely affected by these factors in the future.

 

The Company’s historicalgrowth has been due in part to acquisitions and management continues toconsider additional strategic acquisitions. There can be no assurances that management will continue to identifysuitable acquisition candidates, consummate acquisitions on terms favorable tothe Company, finance acquisitions or successfully integrate acquiredoperations.

 

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Risks Associated withInternational Sales and Foreign-Sourced Products

 

Our international salesgrowth rate has outpaced our United States growth rate in recent years.  Moreover, the Company sources a portion ofits products in all of its business segments from independent manufacturers inthe Pacific Rim, Europe and Mexico.  Forthese reasons, we are subject to the following risks associated withinternational manufacturing and sales: fluctuations in currency exchange rates, economic or politicalinstability, international public heath crises, transportation costs anddelays, difficulty in maintaining quality control, restrictive governmentalactions, nationalizations, the laws and policies of the United States, Canadaand certain European countries affecting the importation of goods (includingduties, quotas and taxes) and the trade and tax laws of other nations.

 

Ability to Respond toIncreased Product Demand

 

The Company’s ability tomeet future product demand in all of its business segments will depend upon itssuccess in (1) bringing new production and distribution capacity on line in atimely manner, (2) improving its ability to forecast product demand and fulfillcustomer orders promptly, (3) improving customer service-oriented managementinformation systems and (4) training, motivating and managing newemployees.  The failure of any of theabove could result in a material adverse effect on our financial results.

 

Risk of Shortages of RawMaterials

 

Certain raw materialscould be in short supply due to capacity, availability, a change inrequirements, weather or other factors, including supply disruptions due toproduction or transportation delays. Such shortages have not had and are not presently expected to have amaterial adverse effect on the Company’s operations.  While the price of crude oil is only one of several factorsimpacting the price of petroleum wax, it is possible that recent fluctuationsin oil prices may have a material adverse affect on the cost of petroleum-basedproducts used in the manufacture or transportation of our products,particularly in the Direct Selling and Wholesale segments.

 

Dependence on KeyCorporate Management Personnel

 

Our success depends inpart on the contributions of key corporate management, including its Chairmanand Chief Executive Officer, Robert B. Goergen.  The Company does not have employment contracts with any of itskey corporate management personnel except Mr. Goergen, nor does it maintain anykey person life insurance policies.  Theloss of any of the key corporate management personnel could have a materialadverse effect on the Company.

 

Risk of IncreasedCompetition

 

Our business is highlycompetitive both in terms of pricing and new product introductions.  The worldwide market for home expressionsproducts is highly fragmented with numerous suppliers serving one or more ofthe distribution channels served by the Company.  Because there are relatively low barriers to entry in all of ourbusiness segments, the Company may face increased competition from othercompanies, some of which may have substantially greater financial or otherresources than those available to us. Competition includes companies selling candles manufactured at low costoutside of the United States.  Moreover,certain competitors focus on a single geographic or product market and attemptto gain or maintain market share solely on the basis of price.

 

RisksAssociated with Terrorist Attacks or Other Hostilities and the InternationalPolitical Climate

 

Geopolitical conflict,including acts of war and terrorist attacks, have and may in the future affectthe US and global economies and may increase other risk factors faced by theCompany.

 

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# **Risks Relatedto Information Technology Systems**

 

Our informationtechnology systems are dependent on global communications providers, telephonesystems, hardware, software and other aspects of Internet infrastructure thathave experienced significant system failures and outages in the past.  Our systems are susceptible to outages dueto fire, floods, power loss, telecommunications failures, break-ins and similarevents.  Despite the implementation ofnetwork security measures, the Company’s systems are vulnerable to computerviruses, break-ins and similar disruptions from unauthorized tampering withCompany systems.  The occurrence ofthese or other events could disrupt or damage our information technologysystems and inhibit internal operations, the ability to provide customerservice or the ability of customers or sales personnel to access the Company’sinformation systems.

 

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

 

a)              Exhibits

 

31.1                          Certificationof Chairman and Chief Executive Officer pursuant to Rule 13a-14(a) under theSecurities 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.

 

b)             Reportson Form 8-K

 

During the fiscal quarterended April 30, 2004, the Company filed the following Current Reports onForm 8-K:

 

Current Report on Form8-K filed on March 16, 2004 to file as an exhibit the press releasereporting the Company’s fourth quarter and full year results of operations forthe period ended January 31, 2004.

 

Current Report on Form8-K filed on March 23, 2004 to announce the change to the Company’scertifying accountants.

 

Current Report on Form8-K/A filed on March 25, 2004 to amend the announcement of the change inthe Company’s certifying accountants.

 

Current Report on Form8-K filed on April 1, 2004 to file as an exhibit the press releaseannouncing the Company’s declaration of a semi-annual dividend.

 

Current Report on Form8-K filed on April 15, 2004 to announce the blackout period for the fiscalquarter ended April 30, 2004 with respect to purchases of the Company’scommon stock by employees, directors and officers.

 

Current Report on Form8-K filed on April 20, 2004 to file as an exhibit the press release reportingthe filing of the Form 12b-25 Notification of Late Filing with respect to itsForm 10-K and to announce the new Annual Meeting and record dates.

 

Current Report on Form8-K filed on April 27, 2004 to announce the approval by the Company’sBoard of Directors of the adoption of Amendment No. 1 to the Company’s 2003Long-Term Incentive Plan, subject to stockholder approval.

 

Current Report on Form8-K/A filed on April 30, 2004 to further amend the announcement of thechange in the Company’s certifying accountants.

 

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**SIGNATURES**

 

**Pursuant to the requirements of the Securities Exchange Actof 1934, the registrant has duly caused this report to be signed on its behalfby the undersigned thereunto duly authorized.**

 

 
|   |   |              | BLYTH, INC. |
|--------|--------|-------------------|-------------|
|   |   |              |        |
|   |   |              |        |
|   | Date:  | June 9, 2004 |        | By: | /s/Robert B. Goergen |   |
|   |   |              |        |   | Robert B. Goergen |
|   |   |              |        |   | Chairman and Chief Executive Officer |
|   |   |              |        |   |
|   |   |              |        |   |
|   | Date:  | June 9, 2004 |        | By: | /s/Robert H. Barghaus |   |
|   |   |              |        | Robert H. Barghaus |
|   |   |              |        | Vice President and Chief Financial Officer |
|        |        |                   |             |  |  |  |  |

 

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