**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**WashingtonD.C. 20549**

 

**FORM 10-Q/A**

**(Amendment No. 3)**

** **

| **(Mark One)** | ** ** | ** ** |
|----------------|------------|------------|

 
| **ý**                                                                                                                                                                                                                                                                   | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934**  |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                         |                                                                                                |
| ** **                                                                                                                                                                                                                                                                   | **For the quarterly period ended October 31,  2003**                                           |
| ** **                                                                                                                                                                                                                                                                   | ** **                                                                                          |
| **or**                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                         |                                                                                                |
| **o**                                                                                                                                                                                                                                                                        | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934** |
|                                                                                                                                                                                                                                                                         |                                                                                                |
| **For the  transition period from                    to                     ** |

 

**Commissionfile number 1-13026**

 

**BLYTH, INC.**

(Exact name of registrant asspecified 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 addressand former fiscal year, if changed since last report)

 

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

Yes ý       Noo

 

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

Yes ý       Noo

 

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

 

**45,442,077Common Shares as of November 30, 2003**

 

 

----

 

#### **Explanatory Note**

#### ** **

In our filing onForm 10-Q/A Amendment No. 2 for the quarter ended October 31, 2003 filedwith the Securities and Exchange Commission on December 16, 2004 wedisclosed that the interim financial statements included therein had not beenreviewed by an independent registered public accounting firm, as required by Section 10-01(d)of Regulation S-X.  This Form 10-Q/AAmendment No. 3 is being filed to remedy that deficiency. This amendedquarterly report has not required any change to the Consolidated FinancialStatements except for a restatement to the Consolidated Statements of CashFlows as discussed in Note 2 to more properly reflect the impact of foreigncurrency exchange rates on cash for fiscal 2003 and fiscal 2004.  No attempt has been made inthis Form 10-Q/A to modify or update any disclosures except as required toreflect the results of the restatements discussed above. This Form 10-Q/A doesnot reflect events occurring after the filing of the original Form 10-Q ormodify or update those disclosures affected by subsequent events unlessspecifically noted.

 

2

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**BLYTH,INC.**

 

#### **INDEX**

#### ** **

| Form 10-Q Cover Page                                  |                                                                                        |
|-------------------------------------------------------|---------------------------------------------------------------------------------------------|
|                                                  |                                                                                        |
| Explanatory Note                                      |                                                                                        |
|                                                  |                                                                                        |
| Form 10-Q Index                                       |                                                                                        |
|                                                  |                                                                                        |
|                                                  |                                                                                        |
| Part I.                                               | Financial Information:                                                                      |   |
|                                                  |                                                                                        |
| Item 1.                                               | Financial Statements (Unaudited):                                                           |   |
|                                                  |                                                                                        |
| 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 4.                                               | Controls  and Procedures                                                                    |   |
|                                                  |                                                                                        |
|                                                  |                                                                                        |
| Part II.                                              | Other  Information                                                                          |   |
|                                                  |                                                                                        |
| Item 5.                                               | Other  Information                                                                          |   |
|                                                  |                                                                                        |
| Item 6.                                               | Exhibits                                                                                    |   |
|                                                  |                                                                                        |
|                                                  |                                                                                        |
| Signatures                                            |                                                                                        |
|                                                       |                                                                                             |  |  |

 

3

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Part I.   FINANCIAL INFORMATION

Item I.   FINANCIAL STATEMENTS

 

**BLYTH, INC. AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                                      | ** ** | **October 31,**  | ** ** | **January 31,**  | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| **(Unaudited, in thousands, except share and per share data)**                                                                  | ** ** | **2003**              | ** ** | **2003**              | ** ** |
| ** **                                                                                                                      | ** ** | **Restated (Note 2)** | ** ** | **Restated (Note 2)** | ** ** |
| **ASSETS**                                                                                                                      |       |                  |       |                  |       |
| **Current  assets:**                                                                                                            |       |                  |       |                  |       |
| Cash and  cash equivalents                                                                                                      |       | $                     | 165,851    |                  | $          | 168,596 |   |
| Accounts  receivable, less allowance for doubtful receivables of $4,587 and $4,093,  respectively                               |       | 194,108               |       | 82,913                |       |
| Inventories                                                                                                                     |       | 246,078               |       | 187,935               |       |
| Prepaid and  other                                                                                                              |       | 31,726                |       | 23,044                |       |
| Assets held  for sale                                                                                                           |       | —                |       | 690                   |       |
| Deferred  income taxes                                                                                                          |       | 17,591                |       | 14,297                |       |
| Total  current assets                                                                                                           |       | 655,354               |       | 477,475               |       |
| **Property,  plant and equipment, at cost:**                                                                                    |       |                  |       |                  |       |
| Less  accumulated depreciation of $219,869 and $178,397, respectively                                                           |       | 270,905               |       | 244,798               |       |
| **Other  assets:**                                                                                                              |       |                  |       |                  |       |
| Investment                                                                                                                      |       | 3,440                 |       | 3,564                 |       |
| Excess of  cost over fair value of assets acquired                                                                              |       | 177,993               |       | 113,534               |       |
| Other  intangible assets, net of accumulated amortization of $1,050                                                             |       | 28,269                |       | 4,219                 |       |
| Deposits and  other assets                                                                                                      |       | 12,674                |       | 16,494                |       |
|                                                                                                                            |       | 222,376               |       | 137,811               |       |
| Total assets                                                                                                                    |       | $                     | 1,148,635  |                  | $          | 860,084 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                  |       |                  |       |                  |       |
| **Current  liabilities:**                                                                                                       |       |                  |       |                  |       |
| Bank lines  of credit                                                                                                           |       | $                     | 45,826     |                  | $          | 7,377 |   |
| Current  maturities of long-term debt                                                                                           |       | 4,533                 |       | 4,037                 |       |
| Accounts  payable                                                                                                               |       | 67,682                |       | 58,571                |       |
| Accrued  expenses                                                                                                               |       | 96,321                |       | 80,953                |       |
| Dividend  payable                                                                                                               |       | 6,828                 |       | —                |       |
| Income taxes                                                                                                                    |       | 4,043                 |       | 2,477                 |       |
| Total  current liabilities                                                                                                      |       | 225,233               |       | 153,415               |       |
| **Deferred  income taxes**                                                                                                      |       | 37,357                |       | 20,810                |       |
| **Long-term  debt, less current maturities**                                                                                    |       | 311,047               |       | 165,079               |       |
| **Minority  interest and other**                                                                                                |       | 20,566                |       | 12,928                |       |
| **Commitments  and contingencies**                                                                                              |       | —                |       | —                |       |
| **Stockholders’  equity:**                                                                                                 |       |                  |       |                  |       |
| Preferred  stock - authorized 10,000,000 shares of $0.01 par value; no shares issued and  outstanding                           |       | —                |       | —                |       |
| Common stock  - authorized 100,000,000 shares of $0.02 par value; issued 49,787,177 shares  and 49,703,682 shares, respectively |       | 996                   |       | 994                   |       |
| Additional  contributed capital                                                                                                 |       | 103,367               |       | 101,567               |       |
| Retained  earnings                                                                                                              |       | 549,464               |       | 496,627               |       |
| Accumulated  other comprehensive income (loss)                                                                                  |       | 3,340                 |       | (4,751                | )          |
| Treasury  stock, at cost, 4,255,300 shares and 3,644,100 shares, respectively                                                   |       | (102,735              | )          | (86,585               | )          |
| Total  stockholders’ equity                                                                                                |       | 554,432               |       | 507,852               |       |
| Total  liabilities and stockholders’ equity                                                                                |       | $                     | 1,148,635  |                  | $          | 860,084 |   |

 

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

 

4

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**BLYTH, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF EARNINGS**

**(Unaudited)**

 
| **Nine months ended October 31****(In  thousands, except per share data)**                                 | ** ** | **2003**   | ** ** | **2002**              | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|------------|------------|-----------------------|------------|
| ** **                                                                                                      | ** ** | ** ** | ** ** | **Restated (Note 2)** | ** ** |
| Net sales                                                                                                       |       | $          | 1,019,160  |                  | $          | 908,098 |   |
| Cost of  goods sold                                                                                             |       | 526,274    |       | 453,271               |       |
| Gross profit                                                                                                    |       | 492,886    |       | 454,827               |       |
| Selling                                                                                                         |       | 283,698    |       | 252,958               |       |
| Administrative                                                                                                  |       | 93,676     |       | 85,330                |       |
| Restructuring  and impairment charges                                                                           |       | 767        |       | —                |       |
|                                                                                                            |       | 378,141    |       | 338,288               |       |
| Operating  profit                                                                                               |       | 114,745    |       | 116,539               |       |
| Other  expense (income):                                                                                        |       |       |       |                  |       |
|  Interest  expense                                                                                         |       | 11,795     |       | 11,146                |       |
|  Interest  income and other                                                                                |       | (1,250     | )          | (753                  | )          |
|  Equity  in earnings of investee                                                                           |       | 141        |       | 120                   |       |
|                                                                                                            |       | 10,686     |       | 10,513                |       |
|  Earnings  before income taxes, minority interest and cumulative effect of change in  accounting principle |       | 104,059    |       | 106,026               |       |
| Income tax  expense                                                                                             |       | 38,292     |       | 39,442                |       |
|  Earnings  before minority interest and cumulative effect  of change in accounting principle               |       | 65,767     |       | 66,584                |       |
| Minority  interest                                                                                              |       | (120       | )          | —                |       |
| Cumulative  effect of change in accounting principle, net of tax of $2,887                                      |       | —     |       | (31,753               | )          |
| Net earnings                                                                                                    |       | $          | 65,647     |                  | $          | 34,831 |   |
| Basic:                                                                                                          |       |       |       |                  |       |
| Earnings per  common share before cumulative effect of change in accounting principle                           |       | $          | 1.43       |                  | $          | 1.44 |   |
| Cumulative  effect of change in accounting principle                                                            |       | —     |       | (0.69                 | )          |
|                                                                                                            |       | $          | 1.43       |                  | $          | 0.75 |   |
| Weighted  average number of shares outstanding                                                                  |       | 45,836     |       | 46,306                |       |
| Diluted:                                                                                                        |       |       |       |                  |       |
| Earnings per  common share before cumulative effect of change in accounting principle                           |       | $          | 1.43       |                  | $          | 1.43 |   |
| Cumulative  effect of change in accounting principle                                                            |       | —     |       | (0.68                 | )          |
|                                                                                                            |       | $          | 1.43       |                  | $          | 0.75 |   |
| Weighted  average number of shares outstanding                                                                  |       | 46,036     |       | 46,589                |       |

 

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

 

5

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**BLYTH, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF EARNINGS**

**(Unaudited)**

 
| **Three months ended October 31,****(In  thousands, except per share data)** | ** **                                     | **2003** | ** ** | **2002** | ** ** |
|-----------------------------------------------------------------------------------|------------------------------------------------|----------|------------|----------|------------|
| Net sales                                                                         |                                           | $        | 431,901    |     | $          | 362,181 |   |
| Cost of goods  sold                                                               |                                           | 234,963  |       | 189,694  |       |
| Gross profit                                                                      |                                           | 196,938  |       | 172,487  |       |
| Selling                                                                           |                                           | 104,400  |       | 89,316   |       |
| Administrative                                                                    |                                           | 32,003   |       | 31,197   |       |
| Restructuring  and impairment charges                                             |                                           | 767      |       | —   |       |
|                                                                              |                                           | 137,170  |       | 120,513  |       |
| Operating  profit                                                                 |                                           | 59,768   |       | 51,974   |       |
| Other  expense (income):                                                          |                                           |     |       |     |       |
| Interest  expense                                                                 |                                           | 4,693    |       | 3,576    |       |
| Interest  income and other                                                        |                                           | 32       |       | (58      | )          |
| Equity in  loss of investee                                                       |                                           | (58      | )          | (70      | )          |
|                                                                              |                                           | 4,667    |       | 3,448    |       |
| Earnings  before income taxes and minority interest                               |                                           | 55,101   |       | 48,526   |       |
| Income tax  expense                                                               |                                           | 20,278   |       | 18,052   |       |
| Earnings  before minority interest                                                |                                           | 34,823   |       | 30,474   |       |
| Minority  interest                                                                |                                           | (49      | )          | —   |       |
| Net earnings                                                                      |                                           | $        | 34,774     |     | $          | 30,474 |   |
| Basic:                                                                            | Net earnings  per common share                 |     | $          | 0.76     |       | $ | 0.66 |   |
|                                                                              | Weighted  average number of shares outstanding |     | 45,526     |     | 46,299     |   |
| Diluted:                                                                          | Net earnings  per common share                 |     | $          | 0.76     |       | $ | 0.65 |   |
|                                                                              | Weighted  average number of shares outstanding |     | 45,764     |     | 46,602     |   |

 

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

 

6

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**BLYTH, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**

**(Unaudited)**

 
| ** **                                                             | ** ** | ** **        | ** ** | ** **      | ** ** | ** **     | ** ** | ** **          | ** ** | ** **        | ** ** | ** ** | ** ** | **Accumulated**    | ** ** | ** ** | ** ** |
|------------------------------------------------------------------------|------------|-------------------|------------|-----------------|------------|----------------|------------|---------------------|------------|-------------------|------------|------------|------------|--------------------|------------|------------|------------|
| ** **                                                             | ** ** | ** **        | ** ** | ** **      | ** ** | **Additional** | ** ** | ** **          | ** ** | ** **        | ** ** | ** ** | ** ** | **other**          | ** ** | ** ** | ** ** |
| ** **                                                             | ** ** | **Common  stock** | ** ** | **Contributed** | ** ** | **Retained**   | ** ** | **Treasury  stock** | ** ** | **comprehensive** | ** ** | ** ** | ** ** |
| **(In thousands, except share data)**                                  | ** ** | **Shares**        | ** ** | **Amount**      | ** ** | **capital**    | ** ** | **earnings**        | ** ** | **Shares**        | ** ** | **Amount** | ** ** | **income  (loss)** | ** ** | **Total**  | ** ** |
| **For the  nine months ended October 31, 2002:**                  | ** ** | ** **        | ** ** | ** **      | ** ** | ** **     | ** ** | ** **          | ** ** | ** **        | ** ** | ** ** | ** ** | ** **         | ** ** | ** ** | ** ** |
| Balance, January 31,  2002                                        |       | 49,509,776        |       | $               | 990        |           | $          | 97,879              |       | $                 | 449,038    |       | (2,630,900 | )                  | $          | (62,950    | )          | $ | (16,894 | ) | $ | 468,063 |   |
| Net earnings for the period  - Restated (Note 2)                       |       |              |       |            |       |           |       | 34,831              |       |              |       |       |       |               |       | 34,831     |       |
| Foreign currency  translation adjustments - Restated (Note 2)          |       |              |       |            |       |           |       |                |       |              |       |       |       | 6,182              |       | 6,182      |       |
| Unrealized holding losses  on certain investments (net of tax of $26)  |       |              |       |            |       |           |       |                |       |              |       |       |       | (44                | )          | (44        | )          |
| Net loss on cash flow  hedging instruments (net of tax of $303)        |       |              |       |            |       |           |       |                |       |              |       |       |       | (512               | )          | (512       | )          |
| Comprehensive income - Restated (Note  2)                              |       |              |       |            |       |           |       |                |       |              |       |       |       |               |       | 40,457     |       |
| Common stock issued in  connection with exercise of stock options      |       | 177,506           |       | 4               |       | 2,987          |       |                |       |              |       |       |       |               |       | 2,991      |       |
| Tax benefit from stock  options                                        |       |              |       |            |       | 312            |       |                |       |              |       |       |       |               |       | 312        |       |
| Dividends                                                              |       |              |       |            |       |           |       | (10,184             | )          |              |       |       |       |               |       | (10,184    | )          |
| Treasury stock purchases                                               |       |              |       |            |       |           |       |                |       | (813,300          | )          | (18,604    | )          |               |       | (18,604    | )          |
| Balance, October 31,  2002 - Restated (Note 2)                    |       | 49,687,282        |       | $               | 994        |           | $          | 101,178             |       | $                 | 473,685    |       | (3,444,200 | )                  | $          | (81,554    | )          | $ | (11,268 | ) | $ | 483,035 |   |
| **For the  nine months ended October 31, 2003:**                  | ** ** | ** **        | ** ** | ** **      | ** ** | ** **     | ** ** | ** **          | ** ** | ** **        | ** ** | ** ** | ** ** | ** **         | ** ** | ** ** | ** ** |
| Balance, January 31,  2003 - Restated (Note 2)                    |       | 49,703,682        |       | $               | 994        |           | $          | 101,567             |       | $                 | 496,627    |       | (3,644,100 | )                  | $          | (86,585    | )          | $ | (4,751 | ) | $ | 507,852 |   |
| Net earnings for the period                                            |       |              |       |            |       |           |       | 65,647              |       |              |       |       |       |               |       | 65,647     |       |
| Foreign currency  translation adjustments - Restated (Note 2)          |       |              |       |            |       |           |       |                |       |              |       |       |       | 9,109              |       | 9,109      |       |
| Unrealized holding losses  on certain investments (net of tax of $122) |       |              |       |            |       |           |       |                |       |              |       |       |       | (210               | )          | (210       | )          |
| Net loss on cash flow  hedging instruments (net of tax of $471)        |       |              |       |            |       |           |       |                |       |              |       |       |       | (808               | )          | (808       | )          |
| Comprehensive income - Restated (Note  2)                              |       |              |       |            |       |           |       |                |       |              |       |       |       |               |       | 73,738     |       |
| Common stock issued in  connection with exercise of stock options      |       | 83,495            |       | 2               |       | 1,688          |       |                |       |              |       |       |       |               |       | 1,690      |       |
| Tax benefit from stock  options                                        |       |              |       |            |       | 112            |       |                |       |              |       |       |       |               |       | 112        |       |
| Dividends                                                              |       |              |       |            |       |           |       | (12,810             | )          |              |       |       |       |               |       | (12,810    | )          |
| Treasury stock purchases                                               |       |              |       |            |       |           |       |                |       | (611,200          | )          | (16,150    | )          |               |       | (16,150    | )          |
| Balance, October 31,  2003 - Restated (Note 2)                    |       | 49,787,177        |       | $               | 996        |           | $          | 103,367             |       | $                 | 549,464    |       | (4,255,300 | )                  | $          | (102,735   | )          | $ | 3,340 |   | $ | 554,432 |   |

 

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

 

7

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**BLYTH, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| **Nine months ended October 31, (In thousands)**                                   | ** ** | **2003**              | ** ** | **2002**              | ** ** |
|-----------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                              | ** ** | **Restated (Note 2)** | ** ** | **Restated (Note 2)** | ** ** |
| Cash flows  from operating activities:                                                  |       |                  |       |                  |       |
| Net earnings                                                                            |       | $                     | 65,647     |                  | $          | 34,831 |   |
| Adjustments  to reconcile net earnings to net cash used in operating activities:        |       |                  |       |                  |       |
| Cummulative  effect of change in accounting principle, net of tax                       |       | —                |       | 31,753                |       |
| Depreciation  and amortization                                                          |       | 25,656                |       | 22,740                |       |
| Loss on  fixed asset disposal                                                           |       | (190                  | )          | —                |       |
| Tax benefit  from stock options                                                         |       | 112                   |       | 312                   |       |
| Deferred  income taxes                                                                  |       | (48                   | )          | 2,386                 |       |
| Equity in  loss of investee                                                             |       | 141                   |       | 120                   |       |
| Minority  interest                                                                      |       | 120                   |       | —                |       |
| Gain on  sales of long-term investment                                                  |       | (497                  | )          | —                |       |
| Changes in  operating assets and liabilities, net of effect of business acquisitions:   |       |                  |       |                  |       |
| Accounts  receivable                                                                    |       | (103,316              | )          | (85,021               | )          |
| Inventories                                                                             |       | (22,246               | )          | (16,340               | )          |
| Prepaid and  other                                                                      |       | 517                   |       | 4,279                 |       |
| Deposits and  other assets                                                              |       | (55                   | )          | (826                  | )          |
| Accounts  payable                                                                       |       | (1,040                | )          | 1,131                 |       |
| Accrued  expenses                                                                       |       | 9,625                 |       | (9                    | )          |
| Other  liabilities                                                                      |       | 1,876                 |       | 1,713                 |       |
| Income taxes                                                                            |       | (2,501                | )          | (1,722                | )          |
| Total  adjustments                                                                      |       | (91,846               | )          | (39,484               | )          |
| Net cash  used in operating activities                                                  |       | (26,199               | )          | (4,653                | )          |
| Cash flows  from investing activities:                                                  |       |                  |       |                  |       |
| Purchases of  property, plant and equipment                                             |       | (15,847               | )          | (11,405               | )          |
| Purchases of  long-term investment                                                      |       | (1,377                | )          | —                |       |
| Proceeds  from sales of long-term investment                                            |       | 1,874                 |       | 26                    |       |
| Cash impact  of Wax Lyrical receivership                                                |       | 1,902                 |       | —                |       |
| Purchase of  businesses, net of cash acquired                                           |       | (94,809               | )          | (51,037               | )          |
| Net cash  used in investing activities                                                  |       | (108,257              | )          | (62,416               | )          |
| Cash flows  from financing activities:                                                  |       |                  |       |                  |       |
| Proceeds  from issuance of common stock                                                 |       | 1,690                 |       | 2,991                 |       |
| Purchases of  treasury stock                                                            |       | (16,150               | )          | (18,604               | )          |
| Borrowings  from bank line of credit                                                    |       | 60,147                |       | 68,071                |       |
| Repayments  on bank line of credit                                                      |       | (32,552               | )          | (53,210               | )          |
| Borrowings  on long-term debt                                                           |       | 130,463               |       | 517                   |       |
| Repayments  on long-term debt                                                           |       | (4,131                | )          | (19,648               | )          |
| Dividends  paid                                                                         |       | (5,983                | )          | (5,098                | )          |
| Net cash  provided by (used in) financing activities                                    |       | 133,484               |       | (24,981               | )          |
| Effect of  exchange rate changes on cash                                                |       | (1,773                | )          | (6,004                | )          |
| Net decrease  in cash and cash equivalents                                              |       | (2,745                | )          | (98,054               | )          |
| Cash and  cash equivalents at beginning of period                                       |       | 168,596               |       | 135,357               |       |
| Cash and  cash equivalents at end of period                                             |       | $                     | 165,851    |                  | $          | 37,303 |   |
| Cash  dividend declared, $0.15 per share 3rd quarter 2003 and $0.11 per share in  2002. |       | $                     | 6,828      |                  | $          | 5,086 |   |

 

***The accompanying notes are an integral part of these financialstatements.***

 

8

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**BLYTH, INC. ANDSUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**1.**                                      Basis of Presentation

** **

Blyth is a global competitor in the gift and decorative accessoriesmarket, which the Company calls the Home Expressions category.  Within this category, the Company reports itsfinancial results in five segments – the Direct Selling segment, the WholesaleHome Fragrance segment, the Wholesale Creative Expressions segment, the Catalog& Internet segment, and the All Other segment.  Miles Kimball, acquired in April 2003 isincluded in the Catalog & Internet segment. Kaemingk, acquired in June 2003, is included in the Wholesale HomeFragrance segment.  Prior to January 31,2004, the Company reported its financial results in two reporting segments, theCandles & Home Fragrance segment and the Creative Expressions segment.  The Company reevaluated its operatingsegments based on the application of FASB Statement No. 131, “Disclosures aboutSegments of an Enterprise and Related Information,” and determined that theappropriate number of reportable segments should have been five in fiscal 2004and four in fiscal 2003 and 2002 (The increase in segments in fiscal 2004 wasdue to the acquisitions that were consummated in fiscal 2004.)  The Company’s financial statement footnoteshave been restated to reflect the revised segments. In addition, the revisionof segments had the related effect of requiring changes in the Company’sreporting units for purposes of goodwill impairment reviews under FASBStatement No. 142, “Goodwill and Other Intangible Assets”, retroactive to the February 1,2002 adoption date of SFAS 142. This resulted in a restatement for anadditional impairment charge as of February 1, 2002. See Notes 2 and 9 tothe financial statements for further details. The Company’s reportable and operating segments are based on financialinformation regularly evaluated by the chief operating decision maker indetermining resource allocation and assessing performance.  Revenues are not reported by product or groupof similar products, as it is impractical to do so.  The Company has operations outside of theUnited States and sells products in the Direct Selling and Wholesale HomeFragrance segments worldwide.  Themajority of sales in the Wholesale Creative Expressions, Catalog & Internetand All Other segments are domestically based.

 

Within the Direct Selling segment, the Company designs, manufacturesand markets an extensive line of products including scented candles, fragrancedbath gels and body lotions and other fragranced products.  It also designs and markets a broad range ofrelated candle accessories.  Theseproducts are sold direct to the consumer under the PartyLite® brand in NorthAmerica, Europe and Australia through a network of more than 56,000 independentsales consultants.

 

Within the Wholesale Home Fragrancesegment, the Company designs, manufactures and markets an extensive line ofproducts including scented candles, potpourri and other fragrancedproducts.  It also designs and markets awide range of related candle accessories. In addition, within it’s Kaemingk business unit, the Company designs andmarkets seasonal decorations to independent and specialty retailers.  Products in this segment are sold worldwideto retailers in the premium and specialty wholesale channels under the Ambria®,Carolina®, ColonialTM(1), Colonial Candle of Cape Cod®, Colonial at HOMEâ, Gies®(1),Kaemingk®(1), Kate’sTM and Liljeholmens® brands and in the mass retail channelunder the Ambria®, FilterMate®, Florasense® and Gies®(1)brands.

 

Within the Wholesale Creative Expressions segment, the Company designs,sources and markets a broad range of home décor products under the CBK® brand,seasonal decorations under the Holiday365Ô, JMCImpactÔ and Seasons of Cannon FallsÔbrands, and, until Jeanmarie was sold in April 2004, decorative gift bagsunder the Jeanmarie® brand.  Theseproducts are sold primarily in North America.

 

Within the Catalog & Internet segment, the Company designs, sourcesand markets a broad range of household convenience items, premium photo albums,frames, holiday cards and gifts under the Exposuresâ andMiles Kimballâ brands. These products are sold primarily in North America.

 

----

(1) Colonial, Gies and Kaemingk are registered andsold only outside the United States.

 

9

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Within the All Other segment, the Company designs, manufactures orsources and markets a variety of chafing fuel, candles and tabletop lightingproducts to the Away From Home or foodservice trade under the brand namesAmbriaâ, HandyFuelâ andSternoâ. These products are sold primarily in North America.

 

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

 

**Reclassifications**

** **

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

 

**EmployeeStock Options**

** **

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

 
| ** **                                                                                                   | ** ** | **Three months ended October 31,** | ** ** | **Nine months ended October 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|
| **(In thousands except per share data)**                                                                     | ** ** | **2003**                                | ** ** | **2002**                               | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                                                   |       |                                    |       |                                   |       |   |   | **Restated (Note 2)** |   |
| Net  earnings:                                                                                               |       |                                    |       |                                   |       |   |   |   |   |
| As reported                                                                                                  |       | $                                       | 34,774     |                                   | $          | 30,474 |   | $ | 65,647 |   | $ | 34,831 |   |
| Stock-based  employee compensation expense determined under SFAS No. 123 for all awards,  net of related tax |       | 645                                     |       | 652                                    |       | 1,962 |   | 1,727 |   |
| Pro forma                                                                                                    |       | $                                       | 34,129     |                                   | $          | 29,822 |   | $ | 63,685 |   | $ | 33,104 |   |
| Net earnings  per common share:                                                                              |       |                                    |       |                                   |       |   |   |   |   |
| As reported:                                                                                                 |       |                                    |       |                                   |       |   |   |   |   |
| Basic                                                                                                        |       | $                                       | 0.76       |                                   | $          | 0.66 |   | $ | 1.43 |   | $ | 0.75 |   |
| Diluted                                                                                                      |       | 0.76                                    |       | 0.65                                   |       | 1.43 |   | 0.75 |   |
| Pro forma:                                                                                                   |       |                                    |       |                                   |       |   |   |   |   |
| Basic                                                                                                        |       | $                                       | 0.75       |                                   | $          | 0.64 |   | $ | 1.39 |   | $ | 0.71 |   |
| Diluted                                                                                                      |       | 0.72                                    |       | 0.62                                   |       | 1.34 |   | 0.68 |   |

 

10

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**2.****                                      Restatement**

 

**Prior to January 31,2004, the Company reported its financial results in two reporting segments, theCandles & Home Fragrance segment and the Creative Expressions segment.  The Company reevaluated its operatingsegments based on the application of FASB Statement No. 131, “Disclosures aboutSegments of an Enterprise and Related Information” (“SFAS 131”), and determinedthat the appropriate number of reportable segments should have been five duringfiscal 2004 and four during fiscal 2003 and 2002 (The increase in segments infiscal 2004 was due to the acquisitions that were consummated in fiscal2004.)  See Note 9 for further details.   This revision of segments had the related effectof requiring changes in the Company’s reporting units for purposes of goodwillimpairment reviews under SFAS 142, retroactive to the February 1, 2002adoption date of SFAS 142.  This**resulted in the need to perform impairment reviewsof several additional reporting units as of February 1, 2002 and eachsubsequent year-end balance sheet date, thereafter.  These impairment reviews have indicated theneed to record additional impairment charges as of the February 1, 2002adoption of SFAS 142, specifically to write-off $20.9 million in goodwillassociated with the 1999 acquisition of the Gies Group and $6.3 million ingoodwill associated with the 1999 acquisition of the Colony Group.  Both of these businesses are components ofthe Wholesale Home Fragrance Segment. The Company’s fiscal 2003 financial statements have been restated toreflect the recording of these $27.2 million in goodwill impairment charges aspart of the cumulative effect of adopting SFAS 142 as of February 1,2002.  There was no income tax impact forthese impairment charges.  A restatement of theConsolidated Statements of Cash Flows has also been made to more properlyreflect the impact of foreign currency exchange rates on cash for fiscal 2003and 2004.   The Company has now presentedthe effect of foreign currency rate changes on cash as a separate line on thecash flow statements, instead of including this effect within cash flows fromoperating, investing and financing activities as previously reported.  Also, fiscal 2004 cash flows have beenrevised to reflect the reporting currency equivalent of foreign currency cashflows using weighted average exchange rates that approximated the actualexchange rates in effect at the time of the cash flows, rather than usingperiod-end exchange rates.

** **

**A summary of theeffects of the restatements on the Company’s financial statements is asfollows:**

** **
| ** **                                                                         | ** ** | **As of October 31, 2003** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                         | ** ** | **As Previously**               | ** ** | ** ** | ** ** |
| **(In thousands)**                                                                 | ** ** | **Reported**                    | ** ** | **As Restated** | ** ** |
| **Balance  sheet :**                                                               |       |                            |       |   |   |
| Excess of  cost over fair value of assets acquired                                 |       | $                               | 212,517    | *(a)* | $ | 177,993 | *(b)* |
| Total assets                                                                       |       | 1,183,158                       | *(a)*      | 1,148,635 |   |
| Retained  earnings                                                                 |       | 576,704                         |       | 549,464 |   |
| Accumulated  other comprehensive income                                            |       | 10,626                          |       | 3,340 | *(b)* |
| Total  stockholders’ equity                                                   |       | 588,958                         |       | 554,432 |   |
| Total  liabilities and stockholders’ equity                                   |       | 1,183,158                       | *(a)*      | 1,148,635 |   |
| **Statement  of Stockholders’ Equity:**                                       |       |                            |       |   |   |
| Retained  earnings                                                                 |       | $                               | 576,704    |   | $ | 549,464 |   |
| Foreign  currency translation adjustments, nine months ended October 31, 2003 |       | 12,021                          |       | 9,109 |   |
| Comprehensive  income, nine months ended October 31, 2003                     |       | 76,650                          |       | 73,738 |   |
| Accumulated  other comprehensive income                                            |       | 10,626                          |       | 3,340 |   |
| Total  stockholders’ equity                                                   |       | 588,958                         |       | 554,432 |   |

 
| ** **                                                               |       | **Nine months ended October 31,  2003** |       |
|--------------------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                               |       | **As Previously**                            |       |   |   |
| ** **                                                               | ** ** | **Reported**                                 | ** ** | **As Restated** |   |
| **Statement  of Cash Flows:**                                            |       |                                         |       |   |   |
| Total  adjustments to reconcile net earnings to net cash from operations |       | $                                            | (93,097    | ) | $ | (91,846 | ) |
| Net cash  used in operating activities                                   |       | (27,450                                      | )          | (26,199 | ) |
| Net cash  used in investing activities                                   |       | (110,295                                     | )          | (108,257 | ) |
| Net cash  provided by financing activities                               |       | 135,000                                      |       | 133,484 |   |
| Effect of  exchange rate changes on cash                                 |       | —                                       |       | (1,773 | ) |
|                                                                          |            |                                              |            |  |  |  |  |

** **

----

*(a)**                               Reflects certain otherreclassifications to conform with current year presentation.*

*(b)**                               Includes the reversal of$7,286 of foreign currency translation adjustments on the Gies and Colonygoodwill written off.*

 

11

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**BLYTH,INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**(Unaudited)**

** **

A summary of the effects of the restatements on the Company’s financialstatements is as follows:

 
| ** **                                                               | ** ** | **Nine months ended October 31,  2002** | ** ** |
|--------------------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                               | ** ** | **As Previously**                            | ** ** | ** ** | ** ** |
| ** **                                                               | ** ** | **Reported**                                 | ** ** | **As Restated** | ** ** |
| **Statement  of Earnings:**                                              |       |                                         |       |   |   |
| Earnings  before cumulative effect of accounting change                  |       | $                                            | 66,584     |   | $ | 66,584 |   |
| Cumulative  effect of accounting change                                  |       | (4,515                                       | )          | (31,753 | ) |
| Net earnings                                                             |       | $                                            | 62,069     |   | $ | 34,831 |   |
| Basic  earnings per share:                                               |       |                                         |       |   |   |
| Before  cumulative effect of accounting change                           |       | $                                            | 1.44       |   | $ | 1.44 |   |
| Cumulative  effect of accounting change                                  |       | (0.10                                        | )          | (0.69 | ) |
|                                                                     |       | $                                            | 1.34       |   | $ | 0.75 |   |
| Diluted  earnings per share:                                             |       |                                         |       |   |   |
| Before  cumulative effect of accounting change                           |       | $                                            | 1.43       |   | $ | 1.43 |   |
| Cumulative  effect of accounting change                                  |       | (0.10                                        | )          | (0.68 | ) |
|                                                                     |       | $                                            | 1.33       |   | $ | 0.75 |   |
| **Statement  of Stockholders’ Equity**                              |       |                                         |       |   |   |
| Retained  earnings, as of October 31, 2002                          |       | $                                            | 500,923    |   | $ | 473,685 |   |
| Foreign  currency translation adjustments                                |       | 8,949                                        |       | 6,182 |   |
| Comprehensive  income                                                    |       | 70,462                                       |       | 40,457 |   |
| Accumulated  other comprehensive loss, as of October 31, 2002       |       | (8,501                                       | )          | (11,268 | ) |
| Total  stockholders’ equity, as of October 31, 2002            |       | 513,040                                      |       | 483,035 |   |
| **Statement  of Cash Flows:**                                            |       |                                         |       |   |   |
| Total  adjustments to reconcile net earnings to net cash from operations |       | $                                            | (72,726    | ) | $ | (39,484 | ) |
| Net cash  used in operating activities                                   |       | (10,657                                      | )          | (4,653 | ) |
| Effect of  exchange rate changes on cash                                 |       | —                                       |       | (6,004 | ) |

 

12

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**3.**                                      New AccountingPronouncements

** **

In January 2003, the Financial Accounting Standards Board (FASB)issued Financial Interpretation No. 46 (FIN 46), “Consolidation of VariableInterest Entities.  FIN 46 clarifies theapplication of Accounting Research Bulletin No. 51, “Consolidated FinancialStatements.”  The interpretation wasimmediately applicable to variable interest entities (“VIEs”) created after January 31,2003, and to VIEs in which an enterprise obtains an interest after thatdate.  As originally issued, it appliedin the fiscal year or interim period beginning after June 15, 2003, forVIEs in which an enterprise acquired a variable interest prior to February 1,2003.  In October 2003, the FASBissued FASB Staff Position No. 46-6, which defers the effective date for FIN 46to the first interim or annual period ending after December 15, 2003 forVIEs created before February 1, 2003. FIN 46 requires consolidation of entities in which the Company absorbs amajority of the entity’s expected losses, receives a majority of the entity’sexpected residual returns, or both, as a result of ownership, contractual orother financial interests in the entity. Currently, entities are consolidated when the Company has a controllingfinancial interest through ownership of a majority voting interest in anentity.  The implementation of thisstandard is not expected to have a material impact on our financial statements.

 

In April 2003, the FASB issued SFAS No. 149, “Amendment ofStatement 133 on Derivative Instruments and Hedging Activities.”  This statement amends and clarifies financialaccounting and reporting for derivative instruments, including certainderivative instruments embedded in other contracts (collectively referred to asderivatives) and for hedging activities under FASB Statement No. 133, “Accountingfor Derivative Instruments and Hedging Activities.”  This standard is effective for derivativecontracts entered into or modified after June 30, 2003.  The implementation of this standard had noimpact on our financial statements.

 

In May 2003, the FASB issued SFAS No. 150, “Accounting for CertainFinancial Instruments with Characteristics of Both Liabilities and Equity.”  As originally issued, SFAS 150 is effectivefor mandatorily redeemable financial instruments of public entities enteredinto or modified after May 31, 2003, and for all other instruments for interimperiods beginning after June 15, 2003. In November 2003, the FASB issued FASB Staff Position No. 150-3, “EffectiveDate, Disclosures, and Transition for Mandatorily Redeemable FinancialInstruments of Certain Nonpublic Entities and Certain Mandatorily RedeemableNoncontrolling Interests under FASB Statement No. 150”, which defersindefinitely the classification and measurement provisions for certainmandatorily redeemable noncontrolling interests associated with finite-livedsubsidiaries pending further FASB action. For other mandatorily redeemable noncontrolling interests that wereissued before November 5, 2003, only the measurement provisions of SFAS150 are deferred indefinitely, both for the parent in consolidated financialstatements and for the subsidiary that issued the instruments that result inthe mandatorily redeemable noncontrolling interest, pending further FASBaction.  The original implementation ofSFAS 150 had no impact on our financial statements and we do not expect thedeferral provisions of FSP FAS 150-3 to have a significant impact on ourfinancial statements.

 

**4.**                                      Excess of Cost overFair Value of Assets Acquired

** **

Prior to February 1, 2002, excess of costs of acquisitions overfair value of identifiable net assets acquired less liabilities assumed (“goodwill”)was being amortized on a straight-line basis over estimated lives ranging from15-40 years. Amortization of goodwill ceased on February 1, 2002, uponadoption of the new goodwill rules under SFAS 142.

 

13

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In June 2001, the FASB issued SFAS No. 142, “Goodwill and OtherIntangible Assets.”  Under SFAS No. 142,goodwill and any other intangibles deemed to have indefinite lives are nolonger subject to amortization; however, goodwill is subject to an assessmentfor impairment using a two-step fair value-based test and such otherintangibles are also subject to impairment reviews, which must be performed atleast annually, or more frequently if events or circumstances indicate thatgoodwill or other indefinite lived intangibles might be impaired. The Company performsits annual assessment of impairment in the fourth fiscal quarter.  For goodwill the first step compares the fairvalue of a reporting unit to its carrying amount, including goodwill. If thecarrying amount of the reporting unit exceeds its fair value, the second stepis performed. The second step compares the carrying amount of the goodwill tothe fair value of the goodwill.  If fairvalue is less than the carrying amount, an impairment loss is reported as a reductionto the asset and a charge to operating expense, except at the transition date,when the loss was reflected as a cumulative effect of a change in accountingprinciple.

 

As of January 31, 2002, Blyth’s Consolidated Balance Sheetsreflected approximately $108.1 million in goodwill net of accumulatedamortization, including $27.2 million related to the Wholesale Home Fragrancesegment businesses, $42.2 million related to the All Other segment and $38.7million related to the Wholesale Creative Expressions segment businesses. TheCompany adopted SFAS 142, effective February 1, 2002. In accordance withthe new standard, Blyth ceased amortization of goodwill and performed anassessment for impairment of its goodwill. As a result of the impairmentreview, Blyth reduced the carrying value of the goodwill related to its 1997acquisition of the Sternoâ brand by $7.4 million, which is includedin the All Other segment.  In addition, arevision of its operating and reporting segments by the Company (See Note 2),required changes in the Company’s reporting units for purposes of goodwillimpairment reviews under SFAS 142, retroactive to the February 1, 2002adoption date of SFAS 142.  This resultedin the need to perform impairment reviews of several additional reporting unitsas of February 1, 2002 and each subsequent year-end balance sheet datethereafter.  These impairment reviewshave indicated the need to record additional impairment charges as of the February 1,2002 adoption of SFAS 142, specifically to write-off $20.9 million in goodwillassociated with the 1999 acquisition of the Gies Group and $6.3 million ingoodwill associated with the 1999 acquisition of the Colony Group.  Both of these businesses are components ofthe Wholesale Home Fragrance Segment, and the impairment charges reduced goodwillin that segment to zero at February 1, 2002.  The fair values of the Sterno Group, the GiesGroup and the Colony Group were determined through independent valuationsutilizing market-comparable analysis, as well as discounted cash flow modelsreflecting the expected range of future cash flow outcomesover the life of the models. These cash flows were discounted to February 1,2002 using a risk-adjusted discount rate. The impairment of the Sterno Group’s goodwill, which was recorded as a cumulative effectof a change in accounting principle, had the effect of reducing net income by$4.5 million (after tax) or $0.10 per share. The impairments of the Gies Group and Colony Group goodwill, which werenot deductible for tax purposes, were, via restatement of the fiscal 2003financial statements, also recorded as a cumulative effect of change inaccounting principle, and had the effect of reducing net income by $27.2million or $0.58 per share.

 

**5.**                                      Business Acquisitions

** **

On May 10, 2002, the Company purchased all of the interests in CBK,Ltd., LLC, now known as CBK Styles, Inc. (“CBK”), a designer and marketer ofpremium everyday home décor and gifts, for approximately $51.0 million in cash*.* The excess of the purchase price over the estimated fair value of the netassets acquired approximated $40.0 million, which will be deductible for incometax purposes over 15 years.  The resultsof operations of CBK are included in the Consolidated Statements of Earnings ofthe Company since May 11, 2002.  Forsegment reporting purposes, CBK is included in the Wholesale CreativeExpressions segment.

 

On April 1, 2003, the Company acquired 100% of the Miles KimballCompany (“MK”), a direct marketer of gifts, home décor and householdconvenience items, premium photo albums, frames and holiday cards under

 

14

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the Miles Kimball® and Exposures® catalog titles for approximately$66.2 million in cash.  The excess of thepurchase price over the estimated fair value of the net assets acquiredapproximated $46.0 million, which will not be deductible for income taxpurposes.  The other intangibles acquiredconsist of $16.1 million of trade names and trademarks, which are deemed tohave an indefinite life and will not be amortized, plus $9.0 million ofcustomer lists, which will be amortized on an accelerated basis over 12years.  Amortization expense was $0.45million for the three months ended October 31, 2003 and $1.05 million forthe nine months ended October 31, 2003. Estimated amortization expense for the next 5 fiscal years is asfollows:  $1.5 million, $1.5 million,$1.2 million, $0.9 million and $0.9 million. The results of operations of MK are included in the ConsolidatedStatements of Earnings of the Company since April 2, 2003.  For segment reporting purposes, MK isincluded in the Catalog & Internet segment.

 

The following provides an allocation of the purchase price of MilesKimball (in thousands):

 
| Cash  Purchase Price                   |   | $      | 66,219 |   |
|----------------------------------------|--------|--------|--------|--------|
| Less: Assets  acquired                 |   |   |   |
| Accounts  receivable                   |   | 1,124  |   |
| Inventories                            |   | 9,983  |   |
| Property,  plant and equipment         |   | 17,959 |   |
| Intangible  assets                     |   | 25,100 |   |
| Other                                  |   | 1,706  |   |
| Total assets  acquired                 |   | 55,872 |   |
| Plus:  Liabilities assumed             |   |   |   |
| Accounts  payable                      |   | 3,610  |   |
| Accrued  expenses                      |   | 1,783  |   |
| Deferred  income taxes                 |   | 11,155 |   |
| Debt                                   |   | 10,729 |   |
| Other                                  |   | 8,412  |   |
| Total  liabilities assumed             |   | 35,689 |   |
| Unallocated  purchase price (goodwill) |   | $      | 46,036 |   |

 

15

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** **

On June 20, 2003, the Company acquired a 100% interest in KaemingkB.V. (“Kaemingk”), a designer and marketer of a wide range of premium seasonaldecorations. Kaemingk’s product lines feature Christmas décor, includingornaments, lighting, trim, glassware, candles and plush animals, as well asspring and summer decorative accents and tabletop products.  The cash purchase price was approximately$36.2 million less cash acquired of $7.7 million resulting in net cash paid of$28.5 million.   Approximately $30.6million of the cash purchase price was borrowed under the Company’s $200million unsecured revolving credit facility. The Company also assumed Kaemingk’s long-term debt of approximately$14.4 million.  The excess of thepurchase price over the estimated fair value of the net assets acquiredapproximated $17.9 million, which will not be deductible for income taxpurposes.  During the quarter ended October 31,2003, an adjustment was recorded to reflect the final appraised value of theacquired property, plant and equipment. In addition to the fixed purchase price, there is contingentconsideration payable in the form of a three-year earn out provision based on apre-defined formula related to a multiple of earnings before interest andincome taxes.  The results of operationsof Kaemingk are included in the Consolidated Statements of Earnings of theCompany since June 21, 2003.  Forsegment reporting purposes, Kaemingk is included in the Wholesale HomeFragrance segment.

 

The following provides an allocation of the purchase price of Kaemingk(in thousands):

 
| Cash  Purchase Price                   |   | $      | 36,237 |   |
|----------------------------------------|--------|--------|--------|--------|
| Less: Assets  acquired                 |   |   |   |
| Cash and  cash equivalents             |   | 7,681  |   |
| Accounts  receivable                   |   | 2,106  |   |
| Inventories                            |   | 25,514 |   |
| Property,  plant and equipment         |   | 14,647 |   |
| Other                                  |   | 606    |   |
| Total assets  acquired                 |   | 50,554 |   |
| Plus:  Liabilities assumed             |   |   |   |
| Bank lines  of credit                  |   | 9,335  |   |
| Accounts  payable                      |   | 2,479  |   |
| Accrued  expenses                      |   | 2,079  |   |
| Deferred  income taxes                 |   | 2,786  |   |
| Debt                                   |   | 14,364 |   |
| Other                                  |   | 1,143  |   |
| Total  liabilities assumed             |   | 32,186 |   |
| Unallocated  purchase price (goodwill) |   | $      | 17,869 |   |

 

16

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The following unaudited pro forma financial information summarizes theestimated combined results of operations of the Company, CBK, MK and Kaemingkassuming that the acquisitions of CBK, MK and Kaemingk had taken place on February 1,2002.  The unaudited pro forma combinedresults of operations were prepared on the basis of information provided to theCompany by the former management of CBK, MK and Kaemingk and no representationis made by the Company with respect to the accuracy of such information.  The pro forma combined results of operationsreflect adjustments for interest income, additional depreciation based on thefair market value of CBK’s and MK’s property, plant, and equipment,amortization of identifiable intangibles of MK and income tax expense.

 
| ** **                                                                                | ** ** | **Three months ended October 31,** | ** ** | **Nine months ended October 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|
| **(In thousands except per share data)**                                                  | ** ** | **2003**                                | ** ** | **2002**                               | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                                |       |                                    |       |                                   |       |   |   | **Restated (Note 2)** |   |
| Net sales                                                                                 |       | $                                       | 431,901    |                                   | $          | 434,767 |   | $ | 1,042,212 |   | $ | 1,049,548 |   |
| Earnings  before cumulative effect of change in accounting principle                      |       | 34,774                                  |       | 37,817                                 |       | 63,336 |   | 72,138 |   |
| Net earnings                                                                              |       | 34,774                                  |       | 37,817                                 |       | 63,336 |   | 40,385 |   |
| Basic:                                                                                    |       |                                    |       |                                   |       |   |   |   |   |
| Earnings per  common share before the cumulative effect of change in accounting principle |       | $                                       | 0.76       |                                   | $          | 0.82 |   | $ | 1.38 |   | $ | 1.56 |   |
| Net earnings  per common share                                                            |       | 0.76                                    |       | 0.82                                   |       | 1.38 |   | 0.87 |   |
| Diluted:                                                                                  |       |                                    |       |                                   |       |   |   |   |   |
| Earnings per  common share before the cumulative effect of change in accounting principle |       | $                                       | 0.76       |                                   | $          | 0.81 |   | $ | 1.38 |   | $ | 1.55 |   |
| Net earnings  per common share                                                            |       | 0.76                                    |       | 0.81                                   |       | 1.38 |   | 0.87 |   |

 

The unaudited pro forma combined results of operations are notnecessarily indicative of, and do not purport to represent, what the Company’sresults of operations or financial condition actually would have been had theacquisitions been made as of February 1, 2002.

 

At October 31, 2003, the Company had atotal of $178.0 million of excess of cost over fair value of assets acquired(“goodwill”) on its balance sheet compared to $113.5 million at January 31,2003.  Goodwill attributable to theWholesale Home Fragrance segment at October 31, 2003 was $18.5 million asa result of the acquisition of Kaemingk in June 2003.  Goodwill attributable to the WholesaleCreative Expressions segment at October 31, 2003 was $78.7 million,unchanged from January 31, 2003.  Goodwill attributable to the Catalog & Internet segment at October 31,2003 was $46.0 million, as a result of the April 2003 acquisition of MilesKimball.  Goodwill in the All Othersegment at October 31, 2003 was unchanged from January 31, 2003 at$34.8 million.

 

**6.**                                      Inventories

** **

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

 
| ** **        | ** ** | **October 31, 2003** | ** ** | **January 31, 2003** | ** ** |
|-------------------|------------|---------------------------|------------|---------------------------|------------|
| Raw  materials    |       | $                         | 25,487     |                      | $          | 33,950 |   |
| Work in  procress |       | 2,798                     |       | 2,509                     |       |
| Finished  goods   |       | 217,793                   |       | 151,476                   |       |
|              |       | $                         | 246,078    |                      | $          | 187,935 |   |

 

17

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**7.**                                      Earnings per Share

** **

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

 
| ** **                                             | ** ** | **Three months ended October 31,** | ** ** | **Nine months ended October 31,** | ** ** |
|--------------------------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|
| ** **                                             | ** ** | **2003**                                | ** ** | **2002**                               | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                             |       |                                    |       |                                   |       |   |   | **Restated (Note 2)** |   |
| Net earnings                                           |       | $                                       | 34,774     |                                   | $          | 30,474 |   | $ | 65,647 |   | $ | 34,831 |   |
| Weighted  average number of common shares outstanding: |       |                                    |       |                                   |       |   |   |   |   |
| Basic                                                  |       | 45,526                                  |       | 46,299                                 |       | 45,836 |   | 46,306 |   |
| Dilutive  effect of stock options                      |       | 238                                     |       | 303                                    |       | 200 |   | 283 |   |
| Weighted  average number of common shares outstanding: |       |                                    |       |                                   |       |   |   |   |   |
| Diluted                                                |       | 45,764                                  |       | 46,602                                 |       | 46,036 |   | 46,589 |   |
|                                                        |            |                                         |            |                                        |            |  |  |  |  |  |  |  |  |

 

As of October 31, 2003 and 2002, options to purchase 51,291 and38,313 shares of common stock, respectively, are not included in thecomputation of earnings per share because the effect would be antidilutive.

 

**8.**                                      Restructuring andImpairment Charges

** **

At January 31, 2003, the Company had approximately $0.4 million ofrestructuring changes related to lease obligations included in the ConsolidatedBalance Sheet.  As a result of paymentsmade during the nine month period ended October 31, 2003, the leaseobligations have been satisfied in full as of the end of the third quarter offiscal 2004.

 

On September 30, 2003, the Company announced its decision to closeits Hyannis, Massachusetts candle manufacturing facility.  This closure was the final phase of thewind-down of the Hyannis operation, and is consistent with the Company’songoing attempts to rationalize its operations. The Company was able to move the production associated with the Hyannisfacility to another existing facility, and expects to incur lower operatingcosts in the Candles & Home Fragrance segment as a result of theclosure.   The shutdown of this facilityis expected to be complete in the fourth quarter of fiscal 2004.  In conjunction with the closing, the Companyeliminated 43 jobs, comprised of manufacturing and management positions.

 

During the three months ended October 31, 2003, $0.8 million ofcosts were incurred related to the Hyannis plant closure including $0.6 millionof severance and related costs and $0.2 million of equipment impairmentcharges.  The Company expects additionalcharges in the fourth quarter of $0.04 to $0.06 per share, related primarily tothe impairment of equipment.

 

The following is a tabular roll forward of the restructuring andimpairment charges described above that were recorded in the balance sheet ofthe Company:

 
| ** **                          | ** ** | **Lease**       | ** ** | **Severence** | ** ** | ** ** | ** ** |
|-------------------------------------|------------|-----------------|------------|---------------|------------|------------|------------|
| **(In thousands)**                  | ** ** | **Obligations** | ** ** | **Costs**     | ** ** | **Total**  | ** ** |
|                                |       |            |       |          |       |       |       |
| Balance at January 31,  2003   |       | $               | 405        |          | $          | —     |       | $ | 405 |   |
| Payments  made against 2002 charges |       | (405            | )          |          |       | (405       | )          |
| Charges  recorded in third quarter  |       | —          |       | 580           |       | 580        |       |
| Balance at October 31,  2003   |       | $               | —     |          | $          | 580        |       | $ | 580 |   |

 

18

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** **

**9.**                                      Segment Information

** **

Blyth is a global competitor in the gift and decorative accessoriesmarket, which the Company calls the Home Expressions category.  Within this category, the Company reports itsfinancial results in five segments – the Direct Selling segment, the WholesaleHome Fragrance segment, the Wholesale Creative Expressions segment, the Catalog& Internet segment, and the All Other segment.  Miles Kimball, acquired in April 2003 isincluded in the Catalog & Internet segment. Kaemingk, acquired in June 2003, is included in the Wholesale HomeFragrance segment.  Prior to January 31,2004, the Company reported its financial results in two reporting segments, theCandles & Home Fragrance segment and the Creative Expressions segment.  The Company reevaluated its operatingsegments based on the application of FASB Statement No. 131, “Disclosures aboutSegments of an Enterprise and Related Information,” and determined that theappropriate number of reportable segments should have been five in fiscal 2004and four in fiscal 2003 and 2002 (The increase in segments in fiscal 2004 wasdue to the acquisitions that were consummated in fiscal 2004.)  The Company’s financial statement footnoteshave been restated to reflect the revised segments.  The Company’s reportable and operatingsegments are based on financial information regularly evaluated by the chiefoperating decision maker in determining resource allocation and assessingperformance.  Revenues are not reportedby product or group of similar products, as it is impractical to do so.  The Company has operations outside of theUnited States and sells products in the Direct Selling and Wholesale HomeFragrance segments worldwide.  Themajority of sales in the Wholesale Creative Expressions, Catalog & Internetand All Other segments are domestically based.

 

Within the Direct Selling segment, the Company designs, manufacturesand markets an extensive line of products including scented candles, fragrancedbath gels and body lotions and other fragranced products.  It also designs and markets a broad range ofrelated candle accessories.  Theseproducts are sold direct to the consumer under the PartyLite® brand in NorthAmerica, Europe and Australia through a network of more than 56,000 independentsales consultants.

 

Within the Wholesale Home Fragrancesegment, the Company designs, manufactures and markets an extensive line ofproducts including scented candles, potpourri and other fragrancedproducts.  It also designs and markets awide range of related candle accessories. In addition, within it’s Kaemingk business unit, the Company designs andmarkets seasonal decorations to independent and specialty retailers.  Products in this segment are sold worldwideto retailers in the premium and specialty wholesale channels under the Ambria®,Carolina®, ColonialTM(1), Colonial Candle of Cape Cod®, Colonial at HOMEâ, Gies®(1),Kaemingk®(1), Kate’sTM and Liljeholmens® brands and in the mass retail channelunder the Ambria®, FilterMate®, Florasense® and Gies®(1)brands.

 

Within the Wholesale Creative Expressions segment, the Company designs,sources and markets a broad range of home décor products under the CBK® brand,seasonal decorations under the Holiday365Ô, JMCImpactÔ and Seasons of Cannon FallsÔbrands, and, until Jeanmarie was sold in April 2004, decorative gift bagsunder the Jeanmarie® brand.  Theseproducts are sold primarily in North America.

 

Within the Catalog & Internet segment, the Company designs, sourcesand markets a broad range of household convenience items, premium photo albums,frames, holiday cards and gifts under the Exposuresâ andMiles Kimballâ brands. These products are sold primarily in North America.

 

**Within the All Other segment, theCompany designs, manufactures or sources and markets a variety of chafing fuel,candles and tabletop lighting products to the Away From Home or foodservicetrade under the brand names Ambria**â, HandyFuelâ and Sternoâ.  These products aresold primarily in North America.

** **

----

**(1) Colonial, Gies and Kaemingkare registered and sold only outside the United States.**

** **

**19**

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** **

Earnings in all segments represent net sales less operating expensesdirectly related to the business segments and corporate expenses allocated tothe business segments.  Other income(expense) includes interest expense, interest income and equity in earnings ofinvestees, which are not allocated to the business segments.  Identifiable assets for each segment consistof assets used directly in its operations and intangible assets, if any,resulting from purchase business combinations. Unallocated Corporate within the identifiable assets include corporatecash and cash equivalents, deferred bond costs and other long-term investments,which are not allocated to the business segments.

 
| ** **                                                                                                    | ** ** | **Three months ended October 31,** | ** ** | **Nine months ended October 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|
| **(In thousands)**                                                                                            | ** ** | **2003**                                | ** ** | **2002**                               | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                                                    | ** ** | **Restated (Note 2)**                   | ** ** | **Restated (Note 2)**                  | ** ** | **Restated (Note 2)** | ** ** | **Restated (Note 2)** | ** ** |
| **Net Sales**                                                                                                 | ** ** | ** **                              | ** ** | ** **                             | ** ** | ** ** | ** ** | ** ** | ** ** |
| Direct  Selling                                                                                               |       | $                                       | 172,470    |                                   | $          | 164,329 |   | $ | 506,928 |   | $ | 486,330 |   |
| Wholesale  Home Fragrance                                                                                     |       | 128,227                                 |       | 89,440                                 |       | 244,987 |   | 209,311 |   |
| Wholesale  Creative Expressions                                                                               |       | 83,082                                  |       | 94,276                                 |       | 170,578 |   | 170,578 |   |
| Catalog  & Internet                                                                                       |       | 34,511                                  |       | —                                 |       | 58,046 |   | — |   |
| All Other                                                                                                     |       | 13,611                                  |       | 14,136                                 |       | 38,621 |   | 41,879 |   |
| **Total**                                                                                                     |       | $                                       | 431,901    |                                   | $          | 362,181 |   | $ | 1,019,160 |   | $ | 908,098 |   |
| **Earnings**                                                                                                  |       |                                    |       |                                   |       |   |   |   |   |
| Direct  Selling                                                                                               |       | $                                       | 29,720     |                                   | $          | 31,656 |   | $ | 93,188 |   | $ | 100,300 |   |
| Wholesale  Home Fragrance                                                                                     |       | 12,790                                  |       | (343                                   | )          | 2,274 |   | (15,003 | ) |
| Wholesale  Creative Expressions                                                                               |       | 15,201                                  |       | 19,593                                 |       | 20,469 |   | 28,069 |   |
| Catalog  & Internet                                                                                       |       | 2,204                                   |       | —                                 |       | (194 | ) | — |   |
| All Other                                                                                                     |       | (147                                    | )          | 1,068                                  |       | (992 | ) | 3,173 |   |
|                                                                                                          |       | 59,768                                  |       | 51,974                                 |       | 114,745 |   | 116,539 |   |
| Other  expense                                                                                                |       | (4,667                                  | )          | (3,448                                 | )          | (10,686 | ) | (10,513 | ) |
| **Earnings  before income taxes, minority interest and cumulative effect of change in  accounting principle** |       | $                                       | 55,101     |                                   | $          | 48,526 |   | $ | 104,059 |   | $ | 106,026 |   |

 
| ** **                      | ** ** | ** ** | ** ** | **October 31, 2003** | ** ** | ** ** | ** ** | **January 31, 2003** | ** ** |
|---------------------------------|------------|------------|------------|---------------------------|------------|------------|------------|---------------------------|------------|
| ** **                      | ** ** | ** ** | ** ** | **Restated (Note 2)**     | ** ** | ** ** | ** ** | **Restated (Note 2)**     | ** ** |
| **Identifiable  Assets**        |       |       |       |                      |       |       |       |                      |       |
| Direct  Selling                 |       |       |       | $                         | 275,256    |       |       |                      | $          | 246,607 |   |
| Wholesale  Home Fragrance       |       |       |       | 361,168                   |       |       |       | 238,829                   |       |
| Wholesale  Creative Expressions |       |       |       | 208,219                   |       |       |       | 174,827                   |       |
| Catalog  & Internet         |       |       |       | 113,654                   |       |       |       | —                    |       |
| All Other                       |       |       |       | 63,135                    |       |       |       | 61,816                    |       |
| Unallocated  Corporate          |       |       |       | 127,203                   |       |       |       | 138,005                   |       |
| **Total**                       |       |       |       | $                         | 1,148,635  |       |       |                      | $          | 860,084 |   |

 

20

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**10.**                               Contingencies

** **

The Company has contingent liabilities that have arisen in the ordinarycourse of its business, including pending litigation.  The Company believes the outcome of thesematters will not have a material adverse effect on its consolidated financialposition, results of operations or cash flows.

 

On June 2, 2003, the parties agreed in open court to settle andresolve all matters involving or in any way relating to the previously reportedlegal proceedings by and between the Company and its wholly-owned subsidiary,Endar Corp., on the one hand, and Ennio Racinelli, Darlene Racinelli andothers, on the other hand, by means of a written settlement and releaseagreement, without any payment by any party. On August 25, 2003, the case was dismissed by the RiversideSuperior Court.

 

**11.**                               Debt

** **

At October 31, 2003, Miles Kimball had approximately $10.4 millionof long-term debt outstanding under a real estate mortgage note payable to JohnHancock Life Insurance Company, which matures June 1, 2020.  Under the terms of the note, payments ofprincipal and interest are required monthly at a fixed interest rate of 7.89%.

 

As of September 30, 2003, Kaemingk had available lines of creditof approximately $39.4 million maturing in March 2004.  The lines of credit are collateralized bycertain real estate and equipment owned by Kaemingk.  At September 30, 2003, approximately$10.6 million was outstanding at a weighted average interest rate of 3.38%.

 

At September 30, 2003, Kaemingk had approximately $14.2 million oflong-term debt outstanding under seven loans with ING Bank N.V. at a weightedaverage interest rate of 4.9%.  The bankloans have maturity dates ranging from 2005 through 2021.  The loans are collateralized by certain realestate and equipment owned by Kaemingk.

 

In May 1999, the Company filed a shelf registration statement forissuance of up to $250.0 million in debt securities with the Securities andExchange Commission.  On September 24,1999, the Company issued $150.0 million of 7.90% Senior Notes due October 1,2009 at a discount of approximately $1.4 million, which is being amortized overthe life of the notes.  Such notescontain, among other provisions, restrictions on liens on principal property orstock issued to collateralize debt.  At October 31,2003, the Company was in compliance with such provisions.  Interest is payable semi-annually on April 1and October 1.  On October 20,2003, the Company issued $100.0 million, 5.50% Senior Notes due on November 1,2013 at a discount of approximately $0.2 million, which is being amortized overthe life of the notes.  Such notescontain provisions and restrictions similar to those in the 7.9% Senior Notes.  At October 31, 2003, the Company was incompliance with such covenants.  Intereston the notes will accrue from October 23, 2003 and will be payablesemiannually in arrears on May 1 and November 1 of each year, commencingMay 1, 2004.  The notes may be redeemedin whole or in part at any time at a specified redemption price.  The proceeds of the debt issuance will beused for general corporate purposes, which may include repayment of certaindebt.

 

**12.**                               Fire Loss

** **

In July 2003, the Company’s manufacturing facility located inMonterrey, Mexico was destroyed by fire. Products manufactured at this leased facility were primarily for theNorth American mass market.  Customerservice disruptions were minimal as other Company facilities and third partysuppliers met the production requirements and are expected to meet productionrequirements for the immediate future and therefore, the Company has decidednot to rebuild the Monterrey facility. The loss of fixed assets and inventory totaled approximately $8.0million.  The Company incurred additionalcosts of $1.3 million in the quarter ended October 31, 2003, primarily forthe additional production costs of manufacturing product at differentfacilities.   Some of these costs remainin ending inventory at October 31, 2003.  The cumulative charges related to the fire amount to $1.9 million forthe year.  The Company is insured forlosses related to this fire.

 

21

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** **

**13.**                               401(k) and ProfitSharing Plan

** **

During the third quarter, the Company became aware of an issueinvolving its 401(k) and profit sharing plan. This issue arose effective April 1, 2002 when the Company amendedthe plan to allow participants to direct voluntary contributions to be investedin the Company’s common stock, and to permit other investments in the plan tobe transferred into the Company’s common stock. These amendments may have caused the continued operation of the plansince April 1, 2002 to be deemed to be an offering of securities thatshould have been registered under the Securities Act of 1933  (the “1933 Act”).  If interests should have been registered, thefailure of the Company to register interests in the plan may entitleparticipants to remedies under the 1933 Act, including rescission or damages.  The Company has ceased allowing participants tomake new investments in Company common stock. The Company is also investigating its obligations to undertake anycurative action, which may be required under the applicable securities laws,the Internal Revenue Code and ERISA. While the Company cannot predict the possible effect of federal or stateremedial action, the Company does not believe that remediation of its possiblefailure to register the interests in the plan will have a material adverseeffect on the Company’s financial position or results of operations.

 

**14.**                               Termination ofInterest Rate Swap

** **

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

 

22

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

** **

**RESULTS OF OPERATIONS:**

** **

Prior to January 31,2004, the Company reported its financial results in two reporting segments, theCandles & Home Fragrance segment and the Creative Expressions segment.  The Company reevaluated its operatingsegments based on the application of FASB Statement No. 131, “Disclosures aboutSegments of an Enterprise and Related Information,” and determined that theappropriate number of reportable segments should have been five in fiscal 2004and four in fiscal 2003 and 2002 (The increase in segments in fiscal 2004 wasdue to acquisitions that were consummated in fiscal 2004.)  The Company’s financial statement footnoteshave been restated to reflect the revised segments, as has the discussion inthis Item 2.  In addition, the revisionof segments had the related effect of requiring changes in the Company’sreporting units for purposes of goodwill impairment reviews under FASBStatement No. 142, “Goodwill and Other Intangible Assets”, retroactive to the February 1,2002 adoption date of SFAS 142. This resulted in a restatement for anadditional impairment charge as of February 1, 2002. See Notes 2 and 9 tothe financial statements for further details. The Company’s reportable and operating segments are based on financialinformation regularly evaluated by the chief operating decision maker indetermining resource allocation and assessing performance.

 

**NetSales**

** **

Net sales increased $111.1 million or 12.2% to $1,019.2 million in thefirst nine months of fiscal 2004 from $908.1 million in the first nine monthsof fiscal 2003.  Net sales in the quarterended October 31, 2003 increased $69.7 million or 19.3% to $431.9 millioncompared with $362.2 million a year earlier. There were three primary factors that affected net sales in the thirdquarter.  First, the inclusion of salesfrom the acquisitions of Miles Kimball in April 2003 and Kaemingk in June 2003had a favorable impact, which was partially offset by the exclusion of salesfrom Wax Lyrical, which was closed in December 2002.  Second, the continued uncertainty in the USand European economies and the resulting cautious ordering by retailers had anegative impact on sales.  Third, thefavorable impact of foreign currency exchange rates compared to the US Dollarhad a positive impact on the reported sales. International sales accounted for 28% of total sales for the quarterended October 31, 2003 compared to 19% for the same period a yearearlier.  This increase is primarily aresult of the acquisition of Kaemingk in Europe.

 

Net sales in the Direct Selling segment increased$8.2 million, or 5.0%, to $172.5 million in the quarter ended October 31,2003, compared with $164.3 million in the same period last year. PartyLiteWorldwide net sales in the third quarter benefited from favorable foreignexchange effects on European sales.

 

Net sales in the Wholesale Home Fragrance segment increased $38.8million, or 43.4%, to $128.2 million in the quarter ended October 31,2003, compared to $89.4 million in the same period in the prior year. Suchincrease in net sales was attributable to the inclusion of sales of Kaemingkacquired in June 2003. Offsetting this increase was a decrease in netsales in Blyth’s other wholesale businesses in this segment in the quarterended October 31, 2003 compared with the prior year period.

 

Net sales in the Wholesale Creative Expressionssegment decreased $11.2 million, or 11.9%, to $83.1 million in the quarterended October 31, 2003, compared with $94.3 million in the same periodlast year.  This decrease is attributableto wholesalers’ caution in placing orders given the uncertain retailenvironment.

 

Net Sales in the Catalog & Internet segmentrepresented by Miles Kimball, acquired in April 2003, reported sales of$34.5 million.  This segment did notexist in the prior year period.

 

Net sales in the All Other segment at $13.6 millionwere essentially even with the same period a year earlier as the hospitalityand travel industries continue to struggle.

 

**GrossProfit**

** **

Gross profit increased $38.1 million or 8.4% from $454.8 million in thefirst nine months of fiscal 2003 to $492.9 million in the first nine months of2004.  Gross profit margin decreased from50.1% for the first nine months of 2003 to 48.4% for the first nine months of2004.  Gross profit in the quarter ended October 31,2003 increased $24.5 million or 14.2% from $172.5 million for the quarter endedOctober 31, 2002 to $196.9 million for the quarter ended October 31,

 

23

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2003.  Gross profit margin decreasedfrom 47.6% for the quarter ended October 31, 2002 to 45.6% for the quarterended October 31, 2003.  Thedecrease in gross profit margin is largely attributable to the addition ofKaemingk, which has a lower gross margin than the overall Company average.  Further contributing to the decline was theshift in the sales among the businesses.

 

**SellingExpense**

** **

Selling expense increased $30.7 million, or 12.2%,from $253.0 million in the first nine months of fiscal 2003, when sellingexpense was 27.9% of net sales, to $283.7 million in the first nine months offiscal 2004, or 27.8% of net sales. Selling expense increased $15.1 million, or 16.9%, from $89.3 million inthe quarter ended October 31, 2002 to $104.4 million in the quarter ended October 31,2003.  As a percent of sales, sellingexpense was 24.2% in the third quarter of fiscal 2004 compared to 24.7% a yearearlier.  The increase in sellingexpenses quarter over quarter is attributable to the addition of Miles Kimballand Kaemingk.  The reduction in sellingexpenses as a percentage of net sales reflects the impact of the businessmodels of the recently acquired companies, which have lower selling expensesthan the overall Company average.

 

**AdministrativeExpense**

** **

Administrative expense increased $8.3 million, or9.8%, from $85.3 million in the first nine months of fiscal 2003 to $93.7million in the first nine months of fiscal 2004.  Administrative expense increased $0.8 millionor 2.6% from $31.2 million in the quarter ended October 31, 2002 to $32.0million in the quarter ended October 31, 2003.  As a percent of sales, administrative expensewas 7.4% in the third quarter of fiscal 2004 compared to 8.6% a yearearlier.  Administrative expensesincreased due to the addition of Miles Kimball and Kaemingk.  The reduction in administrative expenses as apercentage of net sales results from the fact that the Company’s corporateresources have remained fairly level as the business has grown throughacquisition.

 

**Restructuringand Impairment Charges**

** **

On September 30, 2003, the Company announcedits decision to close its Hyannis, Massachusetts candle manufacturingfacility.  This closure was the finalphase of the wind-down of the Hyannis operation, and is consistent with the Company’songoing attempts to rationalize its operations. The Company was able to move the production associated with the Hyannisfacility to another existing facility, and expects to incur lower operatingcosts in the Candles & Home Fragrance segment as a result of theclosure.   The shutdown of this facilitywill be complete in the fourth quarter of fiscal 2004.  In conjunction with the closing, the Companyeliminated 43 jobs, comprised of manufacturing and management positions.

 

During the three months ended October 31, 2003,$0.8 million of costs were incurred related to the Hyannis plant closureincluding $0.6 million of severance and related costs and $0.2 million ofequipment impairment charges.  TheCompany expects additional charges in the fourth quarter of $0.04 to $0.06 pershare, related primarily to the impairment of equipment.

 

**OperatingProfit**

** **

Operating profit decreased $1.8 million, or 1.5%,from $116.5 million in the first nine months of fiscal 2003 to $114.7 millionin the first nine months of fiscal 2004. The decrease in operating profit in the nine months ended October 31,2003 was a result of the same factors affecting net sales.  Operating profit increased $7.8 million, or15.0%, from $52.0 million in the quarter ended October 31, 2002 to $59.8million in the quarter ended October 31, 2003.  This increase in operating profit in thequarter ended October 31, 2003 is largely driven by the acquisitions ofMiles Kimball and Kaemingk.

 

24

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**InterestExpense**

** **

Interest expense increased $0.6 million in thenine-month period ended October 31, 2003 as compared with the prioryear.  Interest expense increased $1.1million in the current fiscal year third quarter from the prior year.  This increase is primarily related to thedebt assumed in the Kaemingk acquisition.

 

**InterestIncome and Other**

** **

Interest income and other, including interest income,foreign exchange gains and losses and the gain on the sale of an investment,increased $0.5 million in the nine-month period ended October 31, 2003versus the same period in the prior year. This increase is primarily related to the gain on the sale of aninvestment recorded in the quarter ended July 31, 2003.

 

**IncomeTaxes**

** **

Income tax expense decreased $1.2 million, or 2.9%,from $39.4 million in the first nine months of fiscal 2003 to $38.3 million inthe same period in the current fiscal year. Income tax expense increased $2.2 million, or 12.3%, from $18.1 millionin the quarter ended October 31, 2002 to $20.3 million in the quarterended October 31, 2003.  The incometax expense amounts fluctuate in conjunction with the increases and decreasesin income before income taxes at any given period.   The effective tax rate decreased to 36.8% infiscal 2004 from 37.2% in the prior period. This decrease is a result of a larger amount of income being generatedin jurisdictions with lower tax rates.

 

**CumulativeEffect of Change in Accounting Principle**

** **

**As a result of adopting SFAS No.142, “Goodwill and Other Intangible Assets,” the Company recorded a one-timecharge of $34.6 million pre-tax, $31.8 million net of income taxes, on February 1,2002, which is reflected as the cumulative effect of a change in accountingprinciple (See Note 4 to the Consolidated Financial Statements).**

** **

**NetEarnings**

** **

As a result of the foregoing, earnings before thecumulative effect of change in accounting principle decreased $0.8 million, or1.2%, from $66.6 million in the nine months ended October 31, 2002 to$65.8 million for the nine months ended October 31, 2003.  Net earnings after the cumulative effect ofchange in accounting principle increased $30.8 million, or 47.0%, from $34.8million in the first nine months of fiscal 2003 to $65.6 in the first ninemonths of fiscal 2004.    Net earningsincreased $4.3 million, or 14.1%, from $30.5 million in the quarter ended October 31,2002 to $34.8 million in the quarter ended October 31, 2003.

 

Basic earnings per share before the cumulative effectof change in accounting principle, based upon the weighted average number ofshares outstanding for the nine months ended October 31, 2003, were $1.43,a decrease of $0.01, or 0.4% compared to $1.44 for the nine months ended October 31,2002.  Basic net earnings per share afterthe cumulative effect of change in accounting principle, based upon theweighted average number of shares outstanding for the nine months ended October 31,2003, were $1.43, an increase of $0.68, compared to $0.75 for the nine monthsended October 31, 2002.  Dilutedearnings per share before the cumulative effect of change in accountingprinciple, based upon the potential dilution that could occur if options toissue common stock were exercised, were $1.43 for the current and prior yearnine month periods. The cumulative effect of change in accounting principle ondiluted earnings per share equaled $0.68 for the nine months ended October 31,2002.  Diluted net earnings per shareafter the cumulative effect of change in accounting principle, based upon thepotential dilution that could occur if options to issue common stock wereexercised, were $1.43, compared to $0.75 for the same period the prior year.

 

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**Liquidityand Capital Resources**

** **

Compared to January 31, 2003, when inventorylevels are typically at the lowest point of the fiscal year, inventoryincreased $58.2 million from $187.9 million at January 31, 2003 to $246.1million at October 31, 2003.  Thisincrease is driven in part by the acquisitions of Miles Kimball and Kaemingk,which accounted for approximately $28.5 million of such increase.  The remaining increase is due to the normalseasonal inventory build.

 

Accounts receivable increased $111.2 million from$82.9 million at January 31, 2003 to $194.1 million at October 31,2003.  The acquisitions of Miles Kimballand Kaemingk accounted for approximately $38.0 million of this increase.  This increase is consistent with theseasonality of the business.

 

Accounts payable and accrued liabilities increased$24.5 million to $164.0 million at October 31, 2003 from $139.5 million atJanuary 31, 2003.  This increase isrelated to seasonality, the effects of foreign currency exchange rates, and thepreviously mentioned acquisitions.

 

In July 2003, the Company’s manufacturingfacility located in Monterrey, Mexico was destroyed by fire.  Products manufactured at this leased facilitywere primarily for the North American mass market.  Customer service disruptions were minimal asother Company facilities and third party suppliers met the productionrequirements and are expected to meet production requirements for the immediatefuture and therefore, the Company has decided not to rebuild the Monterreyfacility.  The loss of fixed assets andinventory totaled approximately $8.0 million. The Company incurred additional costs of $1.3 million in the quarterended October 31, 2003, primarily for the additional production costs ofmanufacturing product at different facilities. Some of these costs remain in ending inventory at October 31,2003.  The cumulative charges related to thefire amount to $1.9 million for the year. The Company is insured for losses related to this fire.

 

Capital expenditures for property, plant, andequipment were $15.8 million for the nine months ended October 31, 2003 ascompared with $11.4 million in the prior year period.  Capital expenditures consisted primarily ofinvestments in information technology and upgrades of equipment andfacilities.  The Company expects totalcapital spending of approximately $25.0 million for fiscal 2004.

 

The Company has a $200 million unsecuredrevolving credit facility having a three-year term (the “CreditFacility”).  The Company has the abilityto increase the Credit Facility, under certain circumstances, by an additional$50 million.  The Credit Facility may beused for seasonal working capital needs, general corporate purposes and fundingfor strategic acquisitions.  The CreditFacility contains, among other provisions, requirements for maintaining certainfinancial ratios and limitations on certain payments.  At October 31, 2003, the Company was incompliance with such covenants.  Amountsoutstanding under the Credit Facility bear interest, at the Company’s option,at JPMorgan Chase Bank’s prime rate (4.0% at October 31, 2003) or at theEurocurrency rate plus a credit spread ranging from 0.525% to 1.5%, calculatedon the basis of a combination of the Company’s senior unsecured long-term debtrating and the Company’s usage of the Credit Facility.  At October 31, 2003, the weightedaverage interest rate was 3.07%.  On October 31,2003, approximately $33.1 million was outstanding (including $3.2 million ofoutstanding letters of credit) under the Credit Facility.

 

As of October 31, 2003, the Company hada total of $15.0 million available under an uncommitted bank line of creditwith La Salle Bank National Association, which matures in June 2004.  Amounts outstanding under the line of creditbear interest at short-term fixed rates. No amounts were outstanding under the uncommitted line of credit at October 31,2003.

 

At October 31, 2003, the Company had atotal of $10.0 million available under an uncommitted line of credit with Bankof America to be used for letters of credit. At October 31, 2003, approximately $0.3 million of letters ofcredit were outstanding under this credit line.

 

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As of September 30,2003, The Gies Group (“Gies”) had available lines of credit of approximately$42.4 million of which approximately $28.0 million was outstanding.  The amounts outstanding under the lines ofcredit bear interest at a weighted average rate of 3.5% at September 30,2003.  The lines of credit are renewedannually.

 

Colony Gift Corporation Limited (“Colony”)has a $25.0 million short-term revolving credit facility with Barclays Bank,which matures in June 2004.  As of September 30,2003, Colony had borrowings under the credit facility of approximately $7.2million, at a weighted average interest rate of 3.4%.

 

At October 31, 2003, CBK had $4.7million of long-term debt outstanding under an Industrial Revenue Bond (“IRB”),which matures on January 1, 2025. The bond is backed by an irrevocable letter of credit issued by La SalleBank National Association.  The amountoutstanding under the IRB bears interest at short-term floating rates, whichequaled a weighted average interest rate of 1.2% at October 31, 2003.

 

At October 31, 2003, Miles Kimball hadapproximately $10.4 million of long-term debt outstanding under a real estatemortgage note payable to John Hancock Life Insurance Company, which matures June 1,2020. Under the terms of the note, payments of principal and interest arerequired monthly at a fixed interest rate of 7.89%.

 

As of September 30, 2003, Kaemingk had availablelines of credit of approximately $39.4 million maturing in March 2004.  The lines of credit are collateralized bycertain real estate and equipment owned by Kaemingk.  At September 30, 2003, approximately$10.6 million was outstanding at a weighted average interest rate of 3.38%.

 

At September 30, 2003, Kaemingk had approximately$14.2 million of long-term debt outstanding under seven loans with ING BankN.V. at a weighted average interest rate of 4.9%.  The bank loans have maturity dates rangingfrom 2005 through 2021.  The loans arecollateralized by certain real estate and equipment owned by Kaemingk.

 

In May 1999, the Company filed a shelf registrationstatement for issuance of up to $250.0 million in debt securities with theSecurities and Exchange Commission.  On September 24,1999, the Company issued $15.0 million of 7.90% Senior Notes due October 1,2009 at a discount of approximately $1.4 million, which is being amortized overthe life of the notes.  Such notescontain, among other provisions, restrictions on liens on principal property orstock issued to collateralize debt.  At October 31,2003, the Company was in compliance with such provisions.  Interest is payable semi-annually on April 1and October 1.  On October 20,2003, the Company issued $100.0 million, 5.50% Senior Notes due on November 1,2013 at a discount of approximately $0.2 million, which is being amortized overthe life of the notes.  Such notescontain provisions and restrictions similar to those in the 7.9% Senior Notes.  At October 31, 2003, the Company was incompliance with such covenants.  Intereston the notes will accrue from October 23, 2003 and will be payablesemiannually in arrears on May 1 and November 1 of each year, commencingMay 1, 2004.  The notes may be redeemedin whole or in part at any time at a specified redemption price.  The proceeds of the debt issuance will beused for general corporate purposes, which may include repayment of certaindebt.

 

Net cash used in operating activities amounted to$26.2 million for the nine months ended October 31, 2003 compared to a useof $4.7 million for the nine months ended October 31, 2002.  The decrease in cash flows from operationsrelates primarily to changes in the Company’s working capital, the $0.5 milliongain on the sale of a long-term investment recorded in 2004, and changes in theCompany’s deferred income taxes offset by increased depreciation andamortization expense related to the new acquisitions in fiscal 2004.

 

The Company’s Board of Directors has authorized theCompany to repurchase up to 6,000,000 shares of common stock under the sharerepurchase program.  In the third quarterof fiscal 2004, the Company purchased 240,000 shares on the open market for acost of $6.3 million, bringing the year-to-date total to 611,200 shares at acost of $16.2 million.  Since the programinception, the Company has purchased 4,255,300 shares at a total cost of $102.7million.  The acquired shares are held ascommon stock in treasury at cost.

 

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**CriticalAccounting Policies**

** **

For a discussion of the Company’s critical accountingpolicies see our Annual Report on Form 10-K for the fiscal year ended January 31,2003.

 

**Impactof Adoption of Recently Issued Accounting Standards**

** **

In January 2003, the Financial AccountingStandards Board (FASB) issued Financial Interpretation No. 46 (FIN 46),“Consolidation of Variable Interest Entities. FIN 46 clarifies the application of Accounting Research Bulletin No. 51,“Consolidated Financial Statements.”  Theinterpretation was immediately applicable to variable interest entities(“VIEs”) created after January 31, 2003, and to VIEs in which anenterprise obtains an interest after that date. As originally issued, it applied in the fiscal year or interim periodbeginning after June 15, 2003, for VIEs in which an enterprise acquired avariable interest prior to February 1, 2003.  In October 2003, the FASB issued FASBStaff Position No. 46-6, which defers the effective date for FIN 46 to thefirst interim or annual period ending after December 15, 2003 for VIEscreated before February 1, 2003. FIN 46 requires consolidation, for fiscal periods ending after December 15,2003, of entities in which the Company absorbs a majority of the entity’sexpected losses, receives a majority of the entity’s expected residual returns,or both, as a result of ownership, contractual or other financial interests inthe entity.  Currently, entities areconsolidated when the Company has a controlling financial interest throughownership of a majority voting interest in an entity.  The implementation of this standard is notexpected to have a material impact on our financial statements.

 

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

 

In May 2003, the FASB issued SFAS No. 150,“Accounting for Certain Financial Instruments with Characteristics of BothLiabilities and Equity.” As originally issued, SFAS 150 is effective formandatorily redeemable financial instruments of public entities entered into ormodified after May 31, 2003, and for all other instruments for interim periodsbeginning after June 15, 2003.  In November 2003,the FASB issued FASB Staff Position No. 150-3, “Effective Date, Disclosures,and Transition for Mandatorily Redeemable Financial Instruments of CertainNonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interestsunder FASB Statement No. 150”, which defers indefinitely the classification andmeasurement provisions for certain mandatorily redeemable noncontrolling interestsassociated with finite-lived subsidiaries pending further FASB action.  For other mandatorily redeemablenoncontrolling interests that were issued before November 5, 2003, onlythe measurement provisions of SFAS 150 are deferred indefinitely, both for theparent in consolidated financial statements and for the subsidiary that issuedthe instruments that result in the mandatorily redeemable noncontrollinginterest, pending further FASB action. The original implementation of SFAS 150 had no impact on our financialstatements and we do not expect the deferral provisions of FSP FAS 150-3 tohave a significant impact on our financial statements.

 

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**Item 4.****Controls and Procedures**

 

(a) Evaluationof 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 (“ExchangeAct”) Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by thisquarterly report as required by paragraph (b) of Exchange Act Rules 13a-15 or15d-15.   Based upon thisevaluation, our principal executive officer and our principal financial officerhave concluded that our disclosure controls and procedures were effective atthe reasonable assurance level as of the end of the period covered by thisquarterly report.

 

Nonetheless,we note that, as discussed in Item 4(b) below, we have made changes in ourinternal controls after the end of the period covered by this quarterly reportin response to the fact that, as discussed in Item 9 “Changes in andDisagreements with Accountants on Accounting and Financial Disclosure” in ourfiscal 2004 Form 10-K, on April 21, 2004, PricewaterhouseCoopers (“PwC”)advised the Company that it had identified an internal control issue which PwCconsidered to be a material weakness in that changes in circumstances, internalreporting and management structures appeared not to have been properlyevaluated by management or considered in connection with ongoing compliancewith SFAS 131 and SFAS 142 guidance.  PwCrecommended that the Company should (A) have a process in place to evaluatechanges in management structure and reporting to the chief operating decisionmaker that would effect segment determination, (B) strengthen procedures tomonitor all changes in operations that impact accounting and reporting mattersand (C) ensure that it has sufficient staffing in its financial reportingfunction, with appropriate technical qualifications and tasked with ensuringongoing compliance with relevant accounting and financial reportingrequirements.

 

(b) Changes ininternal control over financial reporting.

 

There was nochange 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 covered by thisreport that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

In response tothe matter discussed in Item 9A. “Controls and Procedures” in our fiscal 2004Form 10-K, whereby PwC had identified an internal control issue which theyconsidered to be a material weakness, the Company in fiscal 2005 now reviewsand evaluates more carefully the information that is presented to the Board ofDirectors and the chief operating decision maker (“CODM”) on a monthly andquarterly basis, as well as the information that is provided on its website andto investors, with a view toward ensuring that such information is consistentwith the Company’s segment reporting and how the CODM reviews operating resultsin order to make decisions about the allocation of resources.  Moreover, the Company believes that, byreason of the Company’s experience in connection with its change in reportingsegments for fiscal 2004, the Company’s financial personnel, as well as itsother members of management, are particularly well informed as to the issuesthat may arise under SFAS 131 and 142 and are sensitive to the need to ensurethat such issues are properly and promptly addressed and resolved.

 

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**PART II****.**  **OTHERINFORMATION**

 

**Item 5****.**  **Other Information**

 

 In our filing on Form 10-Q/A Amendment No. 2for the quarter ended October 31, 2003 filed with the Securities andExchange Commission on December 16, 2004 we disclosed that the interimfinancial statements included therein had not been reviewed by an independentregistered public accounting firm, as required by Section 10-01(d) ofRegulation S-X.  This Form 10-Q/AAmendment No. 3 is being filed to remedy that deficiency. This amendedquarterly report has not required any change to the Consolidated FinancialStatements except for a restatement to the Consolidated Statements of CashFlows as discussed in Note 2 to more properly reflect the impact of foreigncurrency exchange rates on cash for fiscal 2003 and fiscal 2004.

 

The staff ofthe Commission may take the position that because certain information relatingto our Quarterly Reports for fiscal 2004 had not been reviewed by anyindependent public accountants prior to filing as required by Section 10–01(d)of Regulation S–X, we would not have been viewed as having made all requiredfilings until the reports were amended to reflect the required review, and eventhen that the filings were not filed timely. Therefore, we could be ineligible to use Forms S–2 and S–3 to registersecurities (or amend an existing registration statement) until all requiredreports under the Exchange Act have been timely filed for the 12 months priorto the filing of the registration statement or amendment.  While ineligibility to use Form S–2 or S–3would involve additional expense should we need to file or amend a registrationstatement, we do not view ineligibility as having a material adverse effect onour access to capital resources.

 

The Company is including the following cautionarystatement in this Report to make applicable, and to take advantage of, the safeharbor provisions of the Private Securities Litigation Reform Act of 1995 forany forward-looking statements made by, or on behalf of, the Company. Forward-looking statements include statements concerning plans, objectives,goals, strategies, future events or performance and underlying assumptions andother statements, which are other than statements of historical facts. From time to time, the Company and its representatives may publish or otherwisemake available forward-looking statements of this nature.  All suchforward-looking statements, whether written or oral, and whether made by or onbehalf of the Company, are expressly qualified by the following cautionary statements. Forward-looking statements involve risks and uncertainties, which could causeactual results or outcomes to differ materially from those expressed in theforward-looking statements.  Such forward-looking statements are expectedto be based on various assumptions, many of which are based, in turn, uponfurther assumptions.  There can be no assurance that management’sexpectations, beliefs or projections will occur or be achieved oraccomplished.  In addition to other factors and matters discussed elsewherein this Report and in the Company’s other public filings and statements, thefollowing are important factors that, in the view of the Company, could causeactual results to differ materially from those discussed in the Company’sforward-looking statements.  The Company disclaims any obligation toupdate any forward-looking statements, or the following factors, to reflectevents or circumstances after the date of this Report.

 

#### **Risk of Inability toMaintain Sales Growth Rate**

#### ** **

The Companyhas experienced significant sales growth in past years.  While managementexpects continued growth, our future growth rate will likely be less than ourhistorical growth rate.  The Company expects faster sales growth in itsinternational market versus its United States market, particularly in theDirect Selling and Wholesale segments.  The Company’s ability to increasesales depends on numerous factors, including market acceptance of existingproducts, the successful introduction of new products, the increase in consumers’discretionary spending, the ability to recruit new independent salesconsultants, sourcing of raw materials and demand-driven increases inproduction and distribution capacity.  Business in all of our segments isdriven by consumer preferences.  Accordingly, there can be no assurancesthat the Company’s current or future products will maintain or achieve marketacceptance. Our sales and earnings results can be negatively impacted by theworldwide economic environment, particularly the Canadian, United States andEuropean economies. There can be no assurances that the Company’s financialresults will not be materially adversely affected by these factors in thefuture. The Company’s historical growth has been due in part to acquisitionsand management continues to consider additional strategic acquisitions. There can be no assurances that management will continue to identify suitableacquisition candidates, consummate acquisitions on terms favorable to theCompany, finance acquisitions or successfully integrate acquired operations.

 

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#### **Risks Associated withInternational Sales and Foreign-Sourced Products**

#### ** **

Ourinternational sales growth rate has outpaced our United States growth rate inrecent years.  Moreover, the Company sources a portion of its products inall of its business segments from independent manufacturers in the Pacific Rim,Europe and Mexico.  For these reasons, we are subject to the followingrisks associated with international manufacturing and sales:  fluctuationsin currency exchange rates, economic or political instability, internationalpublic heath crises, transportation costs and delays, difficulty in maintainingquality control, restrictive governmental actions, nationalizations, the lawsand policies of the United States, Canada and certain European countriesaffecting the importation of goods (including duties, quotas and taxes) and thetrade and tax laws of other nations.

 

#### **Ability to Respond toIncreased Product Demand**

#### ** **

The Company’sability to meet future product demand in all of its business segments willdepend upon its success in (1) bringing new production and distributioncapacity on line in a timely manner, (2) improving its ability to forecastproduct demand and fulfill customer orders promptly, (3) improving customerservice-oriented management information systems and (4) training, motivatingand managing new employees.  The failure of any of the above could resultin a material adverse effect on our financial results.

 

Risk of Shortagesof Raw Materials

 

Certain rawmaterials could 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 arenot presently expected to have a material adverse effect on the Company’soperations.  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 Key CorporateManagement Personnel**

#### ** **

Our success depends in part on the contributions ofkey corporate management, including our Chairman and Chief Executive Officer,Robert B. Goergen.  The Company does not have employment contracts withany of its key corporate management personnel except Mr. Goergen, nor does itmaintain any key person life insurance policies.  The loss of any of thekey corporate management personnel could have a material adverse effect on theCompany.

 

#### **Risk of IncreasedCompetition**

#### ** **

Our businessis highly competitive both in terms of pricing and new productintroductions.  The worldwide market for home expressions products ishighly fragmented with numerous suppliers serving one or more of thedistribution channels served by the Company.  In addition, the Companycompetes for direct selling consultants with other direct sellingcompanies.  Because there are relatively low barriers to entry in all ofour business 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 companiesselling candles manufactured at low cost outside of the United States. Moreover, certain competitors focus on a single geographic or product marketand attempt to gain or maintain market share solely on the basis of price.

 

**RisksRelated to Information Technology Systems**

 

Our information technology systems are dependent on globalcommunications providers, telephone systems, hardware, software and otheraspects of Internet infrastructure that have experienced significant systemfailures and outages in the past.  Our systems are susceptible to outagesdue to fire, floods, power loss, telecommunications failures, break-ins andsimilar events.  Despite the implementation of network security measures,the Company’s systems are vulnerable to computer viruses, break-ins and similardisruptions from unauthorized tampering with Company systems.  Theoccurrence of these or other events could disrupt or damage our informationtechnology systems and inhibit internal operations, the ability to providecustomer service or the ability of customers or sales personnel to access theCompany’s information systems.

 

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**Item 6****.****          ****Exhibits**

 

a)              Exhibits

 

31.1         Certification of Chairman, and ChiefExecutive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Actof 1934.

 

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

 

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

 

32.2         Certificationof Vice President and Chief Financial Officer pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002.

 

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**SIGNATURES**

** **

**Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.**

 
|   |                 |   | BLYTH, INC.                                 |
|--------|----------------------|--------|---------------------------------------------|
|   |                 |   |                                        |
|   |                 |   |                                        |
| Date:  | April 14,  2005 |   | By:                                         | /s/ Robert B. Goergen |   |
|   |                 |   | Robert B.  Goergen                          |
|   |                 |   | Chairman and  Chief Executive Officer       |
|   |                 |   |                                        |
| Date:  | April 14,  2005 |   | By:                                         | /s/ Robert H. Barghaus |   |
|   |                 |   | Robert H.  Barghaus                         |
|   |                 |   | Vice  President and Chief Financial Officer |

 

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