BLYTH INC - FORM 10-Q - August 6, 2015

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q 
           (Mark One)
x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
or
o    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File number 1-13026
BLYTH, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
36-2984916
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
One East Weaver Street
Greenwich, Connecticut
 
06831
(Address of Principal Executive Offices)
(Zip Code)

 (203) 661-1926
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter 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  x      No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes  x         No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o 
Non-accelerated filer o
Accelerated filer x 
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  o     No  x 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
16,138,413 Common Shares as of July 31, 2015





TABLE OF CONTENTS

 
 
 
 
 
 
 
PART I. Financial Information
Item 1.
Financial Statements (Unaudited):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
Item 3.
 
Item 4.
 
 
PART II. Other Information
Item 1.
 
Item 1A.
 
Item 2.
 
Item 3.
 
Item 4.
 
Item 5.
 
Item 6.
 
 
 


2

CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All of our statements in this quarterly report other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, by way of example, any projections of future earnings, revenue, capital expenditures, cash flow from operations or other financial items; any statements regarding our, PartyLite's or Silver Star Brands' plans, strategies or objectives for future operations; any statements as to our belief; and any assumptions underlying any forward-looking statements. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and often include words such as “may,” “will,” “estimate,” “intend,” “believe,” “expect” or “anticipate” and any other similar words.

Although we believe that the expectations reflected in our forward-looking statements are reasonable, our actual results could differ materially from those projected, estimated or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed or incorporated by reference in our filings with the Securities and Exchange Commission. Important factors that could cause our actual results, performance and achievements to differ materially from those indicated in
our forward-looking statements include, among others, the following:

•
our ability to improve our financial and operational performance;
•
our ability to respond appropriately to changing consumer preferences and demand for our current and new products
or product enhancements;
• our dependence on sales by independent consultants and our ability to recruit, retain and motivate them;
• the loss by PartyLite of a significant number of its consultants;
• the attractiveness of PartyLite's compensation plans to current and prospective independent consultants;
• our ability to influence or control our consultants;
• our ability to manufacture candles at required quantity and quality levels, including any impact from the recent fire at PartyLite’s manufacturing facility in Batavia, IL;
• federal, state and foreign regulations applicable to our products (including advertising and labeling), promotional
programs and compensation plans;
• susceptibility to excess and obsolete inventory due to changing consumer preferences;
• adverse publicity directed at our products or business models, or those of similar companies;
• product liability claims;
• competition;
• an economic downturn;
• our ability to grow our business in existing and new markets, including risks associated with international operations;
• legal actions by or against current or former independent consultants;
• our reliance on third-party manufacturers for the supply of some of our products;
• disruptions to transportation channels;
• shortages or increases in the cost of raw materials;
• our dependence on key employees;
•
certain taxes or assessments relating to the activities of our independent consultants for which we may be held responsible;
• our ability to identify, consummate and integrate suitable acquisition candidates on favorable terms and conditions;
• the covenants in our revolving loan agreement and term loan limit our operating and financial flexibility, including, among other things, our ability to pay dividends and repurchase our common stock;
• increased borrowing costs and reduced access to capital;
• our ability to protect our intellectual property;
• interruptions in our information-technology systems;
• our storage of user and employee data;
• information security or data breaches;
• credit card and debit card fraud;
• changes in our effective tax rate;

3

• fluctuations in our periodic results of operations;
• increased paper, mailing and shipping costs;
• increased risk and write-offs associated with Silver Star Brands' credit program;
• speculative trading and volatility in our stock price;
• the failure of securities or industry analysts to publish research reports about our business, or the publication of
negative reports about our business; and
• our compliance with the Sarbanes-Oxley Act of 2002.

We operate in a very competitive and rapidly changing environment, where new risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any of our forward-looking statements. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this quarterly report may not occur, and our actual results could differ materially and adversely from those anticipated, estimated or implied in any forward-looking statements. Forward-looking statements are neither historical facts nor assurances of future performance. Additional factors that could cause our actual results to differ materially from our forward-looking statements are set forth in this quarterly report, especially under the headings “Risk Factors” and “Management's Discussion and Analysis of Financial Condition and Results of Operations” and in our Condensed Consolidated Financial Statements and the related Notes.

You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Forward-looking statements in this quarterly report speak only as of the date of this report, and forward-looking statements in documents attached or to be filed with the Securities and Exchange Commission that are incorporated by reference speak only as of the date of those documents. We do not undertake any obligation to update or release any revisions to any forward-looking statement, whether as a result of new information, future developments or otherwise.



4


Part I. FINANCIAL INFORMATION
Item I. FINANCIAL STATEMENTS
                                                 BLYTH, INC. AND SUBSIDIARIES
                                             Condensed Consolidated Balance Sheets
 
 
 
 
June 30, 2015
 
December 31, 2014
(In thousands, except share and per share data)
(unaudited)
 
 
ASSETS
 
 

Current assets:
 
 
 
Cash and cash equivalents
$
53,900

 
$
94,329

Short-term investments
—

 
18,961

Accounts receivable, less allowance for doubtful receivables of $5,699 and $5,481, respectively
12,291

 
11,133

Inventories
53,839

 
45,784

Prepaid assets
13,516

 
15,168

Deferred income taxes
814

 
—

Other current assets
9,149

 
7,515

Assets held for sale
3,508

 
—

Total current assets
147,017

 
192,890

Property, plant and equipment, at cost:
 

 
 

 Less accumulated depreciation of $133,536 and $152,287, respectively
60,115

 
68,266

Other assets:
 

 
 

Investments
6,850

 
7,951

Goodwill
5,872

 
2,298

Other intangible assets, net of accumulated amortization of $15,400 and $15,372, respectively
7,951

 
6,593

Deferred income taxes
518

 
624

Other assets
10,915

 
8,731

Total other assets
32,106

 
26,197

Total assets
$
239,238

 
$
287,353

LIABILITIES AND STOCKHOLDERS' EQUITY
 

 
 

Current liabilities:
 

 
 

Current maturities of long-term debt
$
1,360

 
$
50,907

Accounts payable
24,898

 
23,358

Accrued expenses
34,451

 
41,327

Income taxes payable
1,224

 
1,193

Deferred income taxes
3,569

 
4,086

Other current liabilities
3,849

 
8,387

Total current liabilities
69,351

 
129,258

Long-term debt, less current maturities
38,669

 
4,556

Deferred income taxes
11,364

 
7,309

Other liabilities
11,711

 
12,087

 
 
 
 
Stockholders' equity:
 

 
 

Common stock - authorized 50,000,000 shares of $0.02 par value; issued 26,729,416 shares and 26,642,250 shares, respectively
535

 
533

Additional contributed capital
170,378

 
169,897

Retained earnings
382,164

 
403,463

Accumulated other comprehensive income
6,717

 
11,849

Treasury stock, at cost, 10,591,003 shares and 10,572,020 shares, respectively
(452,322
)
 
(452,171
)
Total stockholders' equity
107,472

 
133,571

Noncontrolling interest
671

 
572

Total equity
108,143

 
134,143

Total liabilities and equity
$
239,238

 
$
287,353

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

5

BLYTH, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Loss
(Unaudited)
 
Three months ended
Six months ended
(In thousands, except per share data)
June 30, 2015
June 30, 2014
June 30, 2015
June 30, 2014
 
 
 
 
 
Net sales
$
87,989

$
104,233

$
191,716

$
222,471

Cost of goods sold
36,125

40,307

81,316

84,163

Gross profit
51,864

63,926

110,400

138,308

Selling
41,508

47,587

91,520

102,240

Administrative and other expense
17,453

18,475

35,113

38,336

Total operating expense
58,961

66,062

126,633

140,576

Operating loss
(7,097
)
(2,136
)
(16,233
)
(2,268
)
Other expense (income):
 

 

 

 

Interest expense
790

1,014

2,990

1,991

Interest income
(83
)
(98
)
(270
)
(150
)
Foreign exchange and other, net
292

(132
)
1,690

88

Total other expense
999

784

4,410

1,929

Loss from continuing operations before income taxes and noncontrolling interest
(8,096
)
(2,920
)
(20,643
)
(4,197
)
Income tax expense (benefit)
637

(327
)
467

(968
)
Loss from continuing operations
(8,733
)
(2,593
)
(21,110
)
(3,229
)
Loss from discontinued operations, net of income tax expense
—

(1,760
)
—

(3,798
)
Net loss
(8,733
)
(4,353
)
(21,110
)
(7,027
)
Less: Net earnings attributable to noncontrolling interests
98

87

189

175

Net loss attributable to Blyth, Inc.
$
(8,831
)
$
(4,440
)
$
(21,299
)
$
(7,202
)
Basic and Diluted loss per share:
 

 
 
 

Net loss from continuing operations
$
(0.55
)
$
(0.17
)
$
(1.32
)
$
(0.21
)
Net loss from discontinued operations
—

(0.11
)
—

(0.24
)
Net loss attributable per share of Blyth, Inc.
$
(0.55
)
$
(0.28
)
$
(1.32
)
$
(0.45
)
Weighted average number of shares outstanding
16,193

16,111

16,168

16,096

Cash dividend declared per share
$
—

$
—

$
—

$
0.05


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

6


BLYTH, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
 
Six months ended
(In thousands)
June 30, 2015
 
June 30, 2014
 Net loss
$
(21,110
)
 
$
(7,027
)
Other comprehensive income (loss), net of tax:
 
 
 
Foreign currency translation adjustments
(5,181
)
 
365

Net unrealized gain (loss) on certain investments
44

 
(24
)
Net unrealized gain on cash flow hedging instruments
261

 
10

Less: Reclassification adjustments for (gain) loss included in net income
(256
)
 
121

Other comprehensive income (loss)
(5,132
)
 
472

Total comprehensive loss, net of tax
(26,242
)
 
(6,555
)
Less: net earnings attributable to noncontrolling interests
98

 
175

Comprehensive loss attributable to Blyth, Inc.
$
(26,340
)
 
$
(6,730
)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


7

BLYTH, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
 
Blyth, Inc.'s Stockholders
 
 
 
 
(In thousands)
Common
Stock
 
Additional
Contributed
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury
Stock
 
Noncontrolling
Interest
 
Total
Equity
For the six months ended June 30, 2014:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2014
$
532

 
$
168,732

 
$
312,036

 
$
16,362

 
$
(452,040
)
 
$
406

 
$
46,028

Net earnings (loss) for the period
 

 
 

 
(7,202
)
 
 

 
 

 
175

 
(7,027
)
Distribution to noncontrolling interest
 

 
 

 
 

 
 

 
 

 
(90
)
 
(90
)
Accretion to redemption value for ViSalus redeemable preferred stock
 
 
 
 
(957
)
 
 
 
 
 
 
 
(957
)
Other comprehensive income
 

 
 

 
 

 
472

 
 

 
 

 
472

Stock-based compensation
1

 
725

 
 

 
 

 
 

 
 

 
726

Dividends paid ($0.05 per share)
 

 
 

 
(805
)
 
 

 
 

 
 

 
(805
)
Treasury stock purchases (1)
 

 
 

 
 

 
 

 
(126
)
 
 

 
(126
)
Balance, June 30, 2014
$
533

 
$
169,457

 
$
303,072

 
$
16,834

 
$
(452,166
)
 
$
491

 
$
38,221

 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the six months ended June 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2015
$
533

 
$
169,897

 
$
403,463

 
$
11,849

 
$
(452,171
)
 
$
572

 
$
134,143

Net earnings (loss) for the period
 

 
 

 
(21,299
)
 
 

 
 

 
189

 
(21,110
)
Distribution to noncontrolling interest
 

 
 

 
 

 
 

 
 

 
(90
)
 
(90
)
Other comprehensive loss
 

 
 

 
 

 
(5,132
)
 
 

 
 

 
(5,132
)
Stock-based compensation
2

 
481

 
 

 
 

 
 

 
 

 
483

Treasury stock purchases (1)
 

 
 

 
 

 
 

 
(151
)
 
 

 
(151
)
Balance, June 30, 2015
$
535

 
$
170,378

 
$
382,164

 
$
6,717

 
$
(452,322
)
 
$
671

 
$
108,143

(1) This includes shares withheld in order to satisfy employee withholding taxes upon the distribution of vested restricted stock units.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 

8

BLYTH, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six months ended
(In thousands)
June 30, 2015
 
June 30, 2014
Cash flows from operating activities:
 
 
 
Loss from continuing operations
$
(21,110
)
 
$
(3,229
)
Adjustments to reconcile earnings to net cash provided by (used in) operating activities:
 

 
 

Depreciation and amortization
3,675

 
4,274

Loss on sale of assets
90

 
14

Stock-based compensation expense
483

 
726

Deferred income taxes
(330
)
 
(2,564
)
Loss on impairment of assets
957

 
—

Changes in operating assets and liabilities:
 

 
 

Accounts receivable
(1,290
)
 
(114
)
Inventories
(8,714
)
 
(2,532
)
Prepaid and other
(353
)
 
1,622

Other long-term assets
(2,146
)
 
558

Accounts payable
1,105

 
(7,657
)
Accrued expenses
(5,932
)
 
(3,365
)
Income taxes payable
(505
)
 
33

Other liabilities and other
(2,026
)
 
(8,068
)
Net cash used in operating activities of continuing operations
(36,096
)
 
(20,302
)
Net cash used in operating activities of discontinued operations
—

 
(4,162
)
Net cash used in operating activities
(36,096
)
 
(24,464
)
Cash flows from investing activities:
 

 
 

Purchases of property, plant and equipment, net of disposals
(1,274
)
 
(1,420
)
Purchases of short-term investments
—

 
(20,000
)
Purchases of long-term investments
—

 
(32
)
Proceeds from sale of short-term investments
19,002

 
4,000

Proceeds from sale of long-term investments
1,101

 
—

Proceeds from sales of assets
11

 
10

Payment for purchase of business
(4,951
)
 
—

Net cash provided by (used in) investing activities of continuing operations
13,889

 
(17,442
)
Net cash provided by investing activities of discontinued operations
—

 
3,477

Net cash provided by (used in) investing activities
13,889

 
(13,965
)
Cash flows from financing activities:
 

 
 

Borrowings on long-term debt
35,000

 
—

Repayments on long-term debt
(50,359
)
 
(332
)
Payments on capital lease obligations
(97
)
 
(179
)
Dividends paid
—

 
(805
)
Distributions to noncontrolling interest
(90
)
 
(90
)
Net cash used in financing activities of continuing operations
(15,546
)
 
(1,406
)
Effect of exchange rate changes on cash
(2,676
)
 
313

Net decrease in cash and cash equivalents
(40,429
)
 
(39,522
)
Cash and cash equivalents at beginning of period
94,329

 
106,933

Cash and cash equivalents at end of period
$
53,900

 
$
67,411

 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

9

BLYTH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
 (Unaudited)
Blyth, Inc. (the “Company”) is a multi-channel company primarily focused on the direct-to-consumer market. The Company's products include an extensive array of decorative and functional household products, such as candles, accessories, seasonal decorations, household convenience items and personalized gifts, as well as health, wellness and beauty related products. The Company’s products can primarily be found throughout the United States, Canada, Mexico, Europe and Australia. The Company's financial results are reported in two segments: the Candles & Home Décor segment (PartyLite) and the Catalog & Internet segment (Silver Star Brands).

Note 1. Basis of Presentation

The unaudited interim condensed financial statements included herein have been prepared pursuant to the rules and regulations of the SEC.  Accordingly, they do not include all information and disclosures necessary for a presentation of the Company’s financial position, results of operations and cash flows in conformity with generally accepted accounting principles in the United States of America (“GAAP”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report, as is permitted by SEC rules and regulations; however, the Company believes that the disclosures are adequate to make the information presented not misleading.  The condensed balance sheet data for the year ended December 31, 2014 were derived from audited financial statements, but do not include all disclosures required by GAAP.

The unaudited condensed financial statements include the accounts of the Company and its subsidiaries. The Company’s Catalog & Internet subsidiaries operate on a 52 or 53-week fiscal year ending on the Saturday closest to December 31. The Company consolidates entities in which it owns or controls more than 50% of the voting shares and/or investments where the Company has been determined to have control. The portion of the entity not owned by the Company is reflected as the noncontrolling interest within the Equity section of the Condensed Consolidated Balance Sheets. All inter-company balances and transactions have been eliminated in consolidation.

In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments (consisting only of items that are normal and recurring in nature) necessary for the fair presentation of the Company's condensed consolidated financial position as of June 30, 2015, the condensed consolidated results of its operations for the six months ended June 30, 2015 and 2014, and the condensed consolidated statement of cash flows for the six months ended June 30, 2015 and 2014. These interim statements should be read in conjunction with the Company's Condensed Consolidated Financial Statements for the year ended December 31, 2014, as set forth in the Company's Annual Report on Form 10-K. Operating results for the six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.

Recently Issued Accounting Guidance

In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30) ("ASU 2015-03"). ASU 2015-03 requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the new amendment. The new guidance will be applied on a retrospective basis to each prior reporting period presented. Upon transition, the Company will be required to comply with applicable disclosures for a change in accounting principle. The amendment is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted. The impact of this adoption is limited to reclassification of accounts within the condensed consolidated financial position and related disclosures.

In January 2015, the FASB issued ASU 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items ("ASU 2015-01"). ASU 2015-01 eliminates the concept of an extraordinary item from GAAP. As a result, an entity is no longer required to separately classify, present, or disclose extraordinary events and transactions; however, the presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained. The new standard is effective for annual reporting periods beginning after December 15, 2015. The standard permits the use of applying changes prospectively and retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The adoption of this standard is not expected to have a material impact on the Company’s condensed consolidated financial position, results of operations and related disclosures.






10


In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"), which requires an entity to recognize the amount of revenue which it expects to be entitled to for the transfer of promised goods and services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. The new standard is effective for annual reporting periods beginning after December 15, 2016. Early adoption is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the impact of the adoption on its condensed consolidated financial position, results of operations and related disclosures.

Other Comprehensive Income

The following table discloses the tax effects allocated to each component of Accumulated other comprehensive income (loss) (“AOCI”) in the financial statements:
 
 
 
 (In thousands)
 
June 30, 2015
 
June 30, 2014
 
 
Before-Tax Amount
Tax (Expense) or Benefit
Net-of-tax Amount
 
Before-Tax Amount
Tax (Expense) or Benefit
Net-of-tax Amount
Foreign currency translation adjustments
 
$
(539
)
$
(4,642
)
$
(5,181
)
 
$
551

$
(186
)
$
365

Net unrealized gain (loss) on certain investments
 
68

(24
)
44

 
(37
)
13

(24
)
Net unrealized gain (loss) on cash flow hedging instruments
 
402

(141
)
261

 
16

(6
)
10

Less: Reclassification adjustments for (gain) loss included in net income
 
(394
)
138

(256
)
 
186

(65
)
121

Other comprehensive income (loss)
 
$
(463
)
$
(4,669
)
$
(5,132
)
 
$
716

$
(244
)
$
472

 
The components of AOCI, net of tax, for the six months ended June 30, 2015 are as follows:
 (In thousands)
Foreign Currency Translation Adjustment
Net unrealized gain (loss) on certain investments
Net unrealized gain (loss) on cash flow hedging instruments
Net Investment Hedge gain
Total
Beginning balance at January 1, 2015
$
6,565

$
194

$
244

$
4,846

$
11,849

Other comprehensive income (loss) before reclassifications
(5,264
)
44

261

83

(4,876
)
Less: amounts reclassified from accumulated other comprehensive income (loss) (1) (2)
—

(57
)
313

—

256

Net current period other comprehensive income (loss)
(5,264
)
101

(52
)
83

(5,132
)
Ending balance at June 30, 2015
$
1,301

$
295

$
192

$
4,929

$
6,717

(1) All amounts net of a 35% tax rate.
(2) Reclassified from AOCI into Foreign exchange and other, net and Cost of goods sold.
 
Note 2. Restructuring and Impairment Charges

Manufacturing Facility Closure

PartyLite has in recent years manufactured substantially all of its candles at its facilities in Batavia, Illinois and Cumbria, United Kingdom. On January 13, 2015, as part of the Company's efforts to centralize PartyLite’s manufacturing operations and reduce duplication of functions, the Company's Board of Directors approved PartyLite’s creation of a “Global Center of Excellence” in Batavia, Illinois and the closing of its manufacturing facility located in Cumbria, United Kingdom. The closure of this facility commenced in the first quarter of 2015. As of June 30, 2015, the Company has recorded total restructuring charges of $4.9 million for the Cumbria, United Kingdom facility closure, which includes $1.7 million of severance, $0.8 million of fixed asset write-offs, $0.6 million of transition costs and $1.8 million in other charges. All assets have been classified as held for sale as of June 30, 2015.

Corporate Relocation

On March 31, 2015, the Company informed its employees that it intends to close its corporate headquarters in Greenwich, CT by the end of September 2015, when the current office lease expires, and relocate the corporate headquarters to Plymouth, MA, where the Company will occupy and share the building that is owned by PartyLite.

11


The Company estimates that the costs of implementing the relocation of its corporate headquarters, all of which will be cash costs, will be up to $1.7 million, consisting of employee severance payments estimated to be up to $0.7 million, employee benefit payments estimated to be up to $0.2 million, retention payments estimated to be up to $0.4 million, recruiting fees estimated to be up to $0.3 million, and outplacement fees estimated to be up to $0.1 million. The Company expects that these costs will be recorded in the second, third and fourth quarters of 2015. These costs are estimates and the actual costs could vary materially based on a number of factors, including the level of employee terminations. As of June 30, 2015, the Company has recorded $0.6 million in Administrative and other expenses in the Condensed Consolidated Statements of Loss.

Batavia Fire

In late April 2015, PartyLite’s manufacturing facility in Batavia, IL suffered a fire in a portion of the facility. Our preliminary assessment is that the fire will not materially disrupt PartyLite’s manufacturing operations, but in light of the recentness of the fire, that preliminary assessment is subject to change as we continue to evaluate the impact of the fire.

Note 3. Discontinued Operations
 
The Company has early adopted ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity" ("ASU 2014-08").
On September 4, 2014, the Company, ViSalus and certain of ViSalus’s preferred stockholders entered into a recapitalization agreement pursuant to which ViSalus was recapitalized by exchanging each share of ViSalus preferred stock for 38.2 shares of ViSalus common stock, thereby (i) reducing the Company’s ownership interest in ViSalus from approximately 80.9% to 10.0% and (ii) eliminating the obligation of ViSalus to redeem the preferred stock in 2017 (for approximately $143.2 million) and the related guaranty by the Company of ViSalus’s performance of such obligation. In addition, the Company agreed to make available to ViSalus a revolving credit facility.
On October 17, 2014, the Company and ViSalus entered into a revolving loan agreement (the "Blyth Revolving Loan Agreement") pursuant to which the Company agreed to lend ViSalus up to $6.0 million. Loans under the Blyth Revolving Loan Agreement bear interest at a rate of 10% per annum. Interest will be paid monthly and there will be no higher default rate of interest. The revolving loan involves related parties. Robert B. Goergen, Robert B. Goergen, Jr. and Todd A. Goergen own 8.29%, 0.34% and 2.81%, respectively, of the outstanding capital stock of ViSalus. On October 17, 2014, the founders of ViSalus and Robert B. Goergen (the “Founder Lenders”) entered into a substantially similar loan agreement with ViSalus (the “Founder Revolving Loan Agreement”) pursuant to which they made a revolving credit facility available to ViSalus in an amount up to $6.0 million on terms that are substantially identical to the terms of the Blyth Revolving Loan Agreement. Loans made under the Blyth Revolving Loan Agreement and loans made under the Founder Revolving Loan Agreement will be made at the same time in equal amounts and will rank equally with each other. As of June 30, 2015, ViSalus owed the Company $3.8 million under the Blyth Revolving Loan Agreement. In July 2015, the Company lent an additional $0.5 million to ViSalus, bringing the amount outstanding to $4.3 million.
As a result of its reduced ownership in ViSalus, the Company does not consolidate ViSalus's results in the Company's financial statements; rather, the ViSalus investment is recorded on a cost basis subject to annual impairment reviews to ensure the investment is properly stated. As of June 30, 2015 the fair value of the ViSalus investment was $6.9 million. ViSalus operating results are presented as discontinued operations in the Condensed Consolidated Financial Statements and results of operations for the six months ended June 30, 2014.

The following table details the net loss of discontinued operations for the six months ended June 30, 2014:
(In thousands)
2014
Net sales
$
110,991

Cost of goods sold
34,490

Selling, administrative and other expenses
79,678

Other income and expenses
27

Loss before income taxes and noncontrolling interest
(3,204
)
Income tax expense
1,488

Less: Net loss attributable to noncontrolling interests
(894
)
Net loss attributable to discontinued operations
$
(3,798
)
 



12


Note 4. Financing Receivables

During 2012, Silver Star Brands entered into an agreement with a financial services company to offer financing services, including originating, collecting, and servicing customer receivables related to the purchase of Silver Star Brands products through a private credit financing program. New financing originations, which represent the amounts of financing provided by the service provider to customers, were approximately $13.1 million and $12.3 million for the six months ended June 30, 2015 and 2014, respectively. As of June 30, 2015 and December 31, 2014, the Company's net financing receivables balances were $7.1 million and $7.2 million, respectively. This balance is recorded in accounts receivable in the Condensed Consolidated Balance Sheets and includes income from financing fees which represents income from interest earned on outstanding balances and late fees.

Silver Star Brands maintains an allowance to cover expected financing receivable credit losses and evaluates credit loss expectations based on its total portfolio. The allowance for credit losses is determined based on various factors, including historical and anticipated experience, past due receivables, receivable type, and customer risk profile. Accounts become past due and accrue interest 30 days after the first initial billing cycle when a payment due date is missed or only a partial payment is received. As of June 30, 2015 and December 31, 2014, the allowance for credit losses was $4.9 million and $4.8 million, respectively. Provisions for the allowance of credit losses are recorded to selling expenses for product sales. Provisions for the allowance of interest income from financing or late fees is charged directly against net sales within the Condensed Consolidated Statements of Loss. For the six months ended June 30, 2015, provisions recorded to selling expense for product sales were $2.6 million and provisions recorded directly against sales for interest income and late fees were $1.1 million. The Company continues to monitor broader economic indicators and their potential impact on future loss performance. The Company has an extensive process to manage its exposure to customer credit risk, including active management of credit lines and its collection activities. Based on its assessment of the customer financing receivables, the Company believes it is adequately reserved. Write-offs were 5.1% and 4.0% of 2015 and 2014 sales, respectively. The Company's policy is to write-off financing receivables greater than 180 days past due with no collection activity and no receivable is placed on non-accrual status until it is written off. All write-offs are submitted to a third party collection agency.

The majority of Silver Star Brands' financing receivables are considered sub-prime credit risk, which represent lower credit quality accounts that are comparable to FICO scores below 600. Credit decisions are based on propriety scorecards, which include the customer's credit history, payment history, credit usage and other credit agency-related elements. Credit scores are obtained prior to a customer's initial mailing and then rescored each season and adjusted accordingly. At a minimum each customer is rescored at least every six months.

The following table summarizes the changes in the allowance for financing receivables credit losses for the respective periods:
(In thousands)
June 30, 2015
December 31, 2014
Allowance for financing receivable credit losses:
 
 
Balance at the beginning of period
$
4,767

$
2,988

Provision for credit losses
3,708

7,279

Write-offs
(3,653
)
(5,639
)
Recoveries
97

139

Balance at the end of period
$
4,919

$
4,767


The following table summarizes the age of Silver Star Brands' customer financing receivables, gross, including interest and other finance charges, as of June 30, 2015:
(In thousands)
Current
Past Due 1 - 90 Days
91 - 180 Days
Total
Financing Receivables
$7,831
$2,974
$1,185
$11,990

Note 5. Investments

The Company considers all money market funds and debt instruments, including certificates of deposit and commercial paper, purchased with an original maturity of three months or less to be cash equivalents, unless the assets are restricted. The carrying value of cash and cash equivalents approximates its fair value.


13

The following table summarizes, by major security type, the amortized costs and fair value of the Company’s investments: 
 
June 30, 2015
 
December 31, 2014
(In thousands)
Cost Basis(1)
 
Fair Value
 
Net unrealized loss in AOCI
 
Cost Basis(1)
 
Fair Value
 
Net unrealized
loss in AOCI
Investment in ViSalus
$
6,850

 
$
6,850

 
$
—

 
$
6,850

 
$
6,850

 
$
—

Certificates of deposit
—

 
—

 
—

 
1,101

 
1,101

 
—

Short-term bond mutual funds
—

 
—

 
—

 
19,092

 
18,961

 
(131
)
Total investments
$
6,850

 
$
6,850

 
$
—

 
$
27,043

 
$
26,912

 
$
(131
)
(1) The cost basis represents the actual amount paid less any permanent impairment of that asset.

The Company’s investment as of June 30, 2015 consisted of a 10% ownership interest in a former subsidiary now treated as a cost investment. The Company accounts for its cost investments in accordance with ASC 325, “Investments – Other.” 
This transaction involves related parties as discussed in Note 13 to the Condensed Consolidated Financial Statements.

Included in long-term investments are certificates of deposit of $1.1 million as of December 31, 2014. These certificates of deposit were held as collateral for the Company’s outstanding standby letters of credit. These investments were recorded at fair value which approximated cost; interest earned on these investments was recorded in Interest income in the Condensed Consolidated Statements of Loss.

As of December 31, 2014, the Company held $19.0 million of short-term bond mutual funds, which were classified as short-term available for sale investments. Unrealized losses on these investments that are considered temporary are recorded in AOCI.  These securities are valued based on quoted prices in active markets. As of December 31, 2014, the Company recorded $0.1 million in unrealized losses, net of tax.

In addition to the investments noted above, the Company holds mutual funds as part of a deferred compensation plan which are classified as available for sale. As of June 30, 2015 and December 31, 2014, the fair value of these securities was $1.0 million. These securities are valued based on quoted prices in an active market. Unrealized gains and losses on these securities are recorded in AOCI.  These mutual funds are included in Other assets in the Condensed Consolidated Balance Sheets.

The following table summarizes the proceeds and realized gains and losses on the sale of available for sale investments recorded in Foreign exchange and other within the Condensed Consolidated Statements of Loss for the six months ended June 30, 2015 and 2014. Gains and losses reclassified from AOCI, net to foreign exchange, in the Condensed Consolidated Statement of Loss are calculated using the specific identification method.
 (In thousands)
June 30, 2015
 
June 30, 2014
Net proceeds
$
19,002

 
$
4,000

Realized losses
$
(90
)
 
$
—

 
Note 6. Inventories

The major components of Inventories are as follows:
(In thousands)
June 30, 2015
 
December 31, 2014
Raw materials
$
5,055

 
$
3,259

Finished goods
48,784

 
42,525

Total
$
53,839

 
$
45,784


As of June 30, 2015 and December 31, 2014, the inventory valuation reserves totaled $5.0 million.

Note 7. Derivatives and Other Financial Instruments
 
The Company uses foreign exchange forward contracts to hedge the impact of foreign currency fluctuations on foreign denominated inventory purchases, net assets of its foreign operations, intercompany payables and loans. The Company does not hold or issue derivative financial instruments for trading purposes. The Company has hedged the net assets of certain of its foreign operations through foreign currency forward contracts. The realized and unrealized gains/losses on these hedges are recorded within AOCI until the investment is sold or disposed of. As of June 30, 2015, there was one outstanding net investment hedge. The cumulative net after-tax gain related to net investment hedges in AOCI as of June 30, 2015 and December 31, 2014 was $4.9 million and $4.8 million, respectively.

14

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

The Company has designated forward exchange contracts on forecasted intercompany inventory purchases and future purchase commitments as cash flow hedges; as long as the hedge remains effective and the underlying transaction remains probable, the effective portion of the changes in the fair value of these contracts will be recorded in AOCI until earnings are affected by the variability of the cash flows being hedged. Upon settlement of each commitment, the underlying forward contract is closed and the corresponding gain or loss is transferred from AOCI and is included in the measurement of the cost of the acquired asset upon sale.  If a hedging instrument is sold or terminated prior to maturity, gains and losses are deferred in AOCI until the hedged item is settled.  However, if the hedged item is no longer probable of occurring, the resultant gain or loss on the terminated hedge is recognized into earnings immediately.  The net after-tax unrealized gain included in AOCI at June 30, 2015 for cash flow hedges was $0.2 million and is expected to be transferred into earnings within the next twelve months upon settlement of the underlying commitment. The net after-tax unrealized gain included in AOCI at December 31, 2014 for cash flow hedges was $0.2 million.

For financial statement presentation, net cash flows from such hedges are classified in the categories of the Condensed Consolidated Statement of Cash Flows with the items being hedged. Forward contracts held with each bank are presented within the Condensed Consolidated Balance Sheets as a net asset or liability, based on netting agreements with each bank and whether the forward contracts are in a net gain or loss position. The foreign exchange contracts outstanding have maturity dates through December 2015.

The table below details the fair value and location of the Company’s hedges in the Condensed Consolidated Balance Sheets: 
(In thousands)
June 30, 2015
 
December 31, 2014
 Derivatives designated as hedging instruments
Prepaid Assets
 
Prepaid Assets
Foreign exchange forward contracts in an asset position
$
655

 
$
405

Foreign exchange forward contracts in a liability position
(97
)
 
(8
)
Net derivatives at fair value
$
558

 
$
397


For the three and six months ended June 30, 2015, the Company recorded gains of $0.5 million and $0.3 million, respectively, compared to losses of $0.1 million and $0.2 million in both comparable prior year periods related to foreign exchange forward contracts accounted for as Fair Value hedges to Foreign exchange and other.

Gain and loss activity recorded to Cost of goods sold and reclassified from AOCI to the Company’s cash flow hedges for six months ended June 30, are as follows:
 
Cash Flow Hedging Relationships
Amount of Gain
Recognized in AOCI on Derivative
(Effective Portion)
 
Amount of Gain (Loss)
Reclassified from AOCI into Income
(Effective Portion)
 
 
 
 
Three months ended
Six months ended
(In thousands)
2015
2014
 
2015
2014
2015
2014
Foreign exchange forward contracts
$
213

$
16

 
$
172

$
(39
)
$
460

$
(118
)
 
Note 8. Goodwill and Other Intangibles
 
Goodwill is subject to an assessment for impairment using a two-step fair value-based test and, as such, other intangibles are also subject to impairment reviews, which must be performed at least annually or more frequently if events or circumstances indicate that goodwill or other indefinite-lived intangibles might be impaired. As of June 30, 2015, there were no indications
that a review was necessary.

As of June 30, 2015 and December 31, 2014, the carrying amount of the Company’s goodwill within the Candles & Home Décor segment was $2.3 million.

On February 9, 2015, Silver Star Brands acquired certain of the assets and assumed certain liabilities of Native Remedies LLC (“Native Remedies”) for approximately $5.0 million. Native Remedies® is a direct-to-consumer eCommerce marketer of natural herbal dietary supplements and homeopathic products. The asset purchase agreement includes a provision requiring Silver Star Brands to pay contingent consideration on sales of Native Remedies products to the extent such sales exceed a threshold during the 12-month period from March 1, 2015 and there is no cap on the amount of the contingent consideration. As of March 31, 2015, no

15

amounts have been accrued under this provision since sales of Native Remedies products are not expected to exceed the threshold. The agreement also requires the annual payment of $0.5 million to the former owners of Native Remedies for consulting services. This amount has been considered compensation and will be expensed over the service period. The Native Remedies brand is part of Silver Star Brands. Financial results from the date of the acquisition are included in the Company's Catalog & Internet segment for reporting purposes. As of June 30, 2015, the carrying amount of the Company’s goodwill within the Catalog & Internet segment was $3.6 million.

Other intangible assets include indefinite-lived trade names, trademarks, formulations and customer relationships related to the Company’s acquisition of Native Remedies, Miles Kimball and Walter Drake, which are reported in the Catalog & Internet segment. The Company does not amortize the indefinite-lived trade names, trademarks and formulations, but rather tests for impairment annually and upon the occurrence of a triggering event.

As of June 30, 2015, the acquisition of Native Remedies included $1.0 million of formulation intangibles as well as $0.6 million of trade names. These assets are accounted for as indefinite-lived intangibles.

During the quarter ended March 31, 2015, the Exposures brand under the Silver Star Brands business experienced substantial declines in revenues when compared to its forecasts and prior years. The Company believes this shortfall in revenue was primarily attributable to decreased consumer spending due to changes in the business environment and adverse economic conditions. As a result of the impairment analysis performed, the indefinite-lived trade name was determined to be partly impaired, as the fair value of this brand was less than its carrying value. Accordingly, the Company recorded a non-cash pre-tax impairment charge of $0.2 million to Administrative and other expenses in the Condensed Consolidated Statements of Loss reducing the carrying value to $0.4 million.

Other intangible assets within the Catalog & Internet segment include the following:
(In thousands)
Indefinite-lived trade names, formulations and trademarks
 
Customer relationships
Other intangibles at gross value
$
28,100

 
$
15,400

Accumulated amortization
—

 
(15,373
)
Impairments
(21,534
)
 
—

Other intangibles at December 31, 2014
$
6,566

 
$
27

Additions
1,557

 
—

Impairments
(172
)
 
—

Amortization
—

 
(27
)
Other intangibles at June 30, 2015
$
7,951

 
$
—


Amortization expense is recorded on an accelerated basis over the estimated lives of the customer lists ranging from 5 to 12 years.  For the six months ended June 30, 2015 and 2014, amortization expense was insignificant and $0.1 million, respectively. 

Note 9. Fair Value Measurements
 
The fair-value hierarchy established in ASC 820 prioritizes the inputs used in valuation techniques into three levels as follows:
 
Level-1 – Observable inputs – quoted prices in active markets for identical assets and liabilities
 
Level-2 – Observable inputs other than the quoted prices in active markets for identical assets and liabilities – such as quoted prices for similar instruments, quoted prices for identical or similar instruments in inactive markets, or other inputs that are observable or can be corroborated by observable market data
 
Level-3 – Unobservable inputs – includes amounts derived from valuation models where one or more significant inputs are unobservable and require the Company to develop relevant assumptions.
 
Assets and Liabilities Measured at Fair Value on a Recurring Basis
 
The following tables summarize the financial assets and liabilities measured at fair value on a recurring basis as of  June 30, 2015 and December 31, 2014, and the basis for that measurement, by level within the fair value hierarchy:
(In thousands)
Balance as of June 30, 2015
 
Quoted prices in active markets for identical assets (Level 1)
 
Significant
other observable inputs
(Level 2)
 
Significant
unobservable inputs
(Level 3)
Financial assets
 
 
 
Foreign exchange forward contracts
$
655

 
$
—

 
$
655

 
$
—

Deferred compensation plan assets (1)
1,003

 
1,003

 
—

 
—

Total
$
1,658

 
$
1,003

 
$
655

 
$
—

Financial liabilities
 
 
 
 
 
 
 
Foreign exchange forward contracts
$
(97
)
 
$
—

 
$
(97
)
 
$
—

(1) Recorded as an Other asset with an offsetting liability for the obligation to employees in Other liabilities.

16

(In thousands)
Balance as of December 31, 2014
 
Quoted prices in active markets for identical assets (Level 1)
 
Significant
other observable inputs
(Level 2)
 
Significant
unobservable inputs
(Level 3)
Financial assets
 
 
 
Short-term bond mutual funds
$
18,961

 
$
18,961

 
$
—

 
$
—

Certificates of deposit
1,101

 
—

 
1,101

 
—

Foreign exchange forward contracts
405

 

 
405

 

Deferred compensation plan assets (1)
962

 
962

 
—

 
—

Total
$
21,429

 
$
19,923

 
$
1,506

 
$
—

Financial liabilities
 
 
 
 
 
 
 
Foreign exchange forward contracts
$
(8
)
 
$
—

 
$
(8
)
 
$
—

(1) Recorded as an Other asset with an offsetting liability for the obligation to employees in Other liabilities.
 
The Company values its investments in equity securities within the deferred compensation plan and its investments in short-term bond mutual funds using level 1 inputs, by obtaining quoted prices in active markets.  The deferred compensation plan assets consist of shares of mutual funds. The Company also enters into both cash flow and fair value hedges by purchasing foreign currency exchange forward contracts. These contracts are valued using level 2 inputs, primarily observable forward foreign exchange rates. The certificates of deposit that are used to collateralize some of the Company’s letters of credit have been valued using information classified as level 2, as these are not traded on the open market and are held unsecured by one counterparty.
 
The carrying values of cash and cash equivalents, trade and other receivables and trade payables are considered to be representative of their respective fair values. 
 
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
 
The Company is required, on a non-recurring basis, to adjust the carrying value or provide valuation allowances for certain assets using fair value measurements in accordance with ASC 820. The Company’s assets and liabilities measured at fair value on a nonrecurring basis include property, plant and equipment, goodwill, intangibles, its ViSalus investment and other assets. These assets are not measured at fair value on a recurring basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence that impairment may exist. The Company used a discounted cash flow model to estimate the fair value of its ViSalus investment.  This model incorporated the most recent long term strategic forecast of the business to determine the estimated cash flows, which were then discounted to arrive at its net present value. The discount rate used to determine its present value considers the time value of money, certain growth rate assumptions, other investment risk factors and the terminal value of the business.
 
Goodwill and indefinite-lived intangibles are subject to impairment testing on an annual basis, or sooner if circumstances indicate a condition of impairment may exist. The valuation uses assumptions such as interest and discount rates, growth projections and other assumptions of future business conditions. These valuation methods require a significant degree of management judgment concerning the use of internal and external data. In the event these methods indicate that fair value is less than the carrying value, the asset is recorded at fair value as determined by the valuation models. As such, the Company classifies goodwill and other intangibles subjected to nonrecurring fair value adjustments as level 3.

The fair value of the Company’s long-lived assets, primarily property, plant and equipment, is reviewed whenever events or changes in circumstances indicate that carrying amounts of a long-lived assets may not be recoverable. Management determines whether there has been an impairment of long-lived assets held for use in the business by comparing anticipated undiscounted future cash flows from the use and eventual disposition of the asset or asset group to the carrying value of the asset.  The amount of any resulting impairment is calculated by comparing the carrying value to the fair value. For the six months ended June 30, 2015, loss within the Candles & Home Décor segment included asset impairment charges of $0.8 million on certain machinery and equipment held for sale at the Cumbria, United Kingdom facility (see Note 2 to the Condensed Consolidated Financial Statements). Long-lived assets that meet the definition of held for sale are valued at the lower of carrying amount or net realizable value.  Assets or asset groups are determined at the lowest level possible for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For assets whose aggregate undiscounted cash flows are less than carrying value, the assets are considered potentially impaired and actual impairments, if any, would be determined to the extent the assets' carrying values exceed its aggregate fair values.

The valuation of these assets uses a significant amount of management’s judgment and uses information provided by third parties. The local real estate market, regional comparatives, estimated concessions and transaction costs are all considered when determining the fair value of these assets. Due to the nature of this information and the assumptions made by management, the Company has classified the inputs used in valuing these assets as level 3.

17


Note 10. Accrued Expenses
 
Accrued expenses consist of the following:
(In thousands)
June 30, 2015
 
December 31, 2014
Compensation and benefits
$
9,721

 
$
9,707

Deferred revenue
9,060

 
9,928

Promotional
5,360

 
6,109

Interest payable
3

 
2,341

Postage & Freight
1,255

 
2,476

Professional fees
824

 
2,734

Taxes, other than income
1,041

 
1,516

Self insurance reserves
755

 
717

Inventory
2,207

 
502

Other
4,225

 
5,297

Total
$
34,451

 
$
41,327


Note 11. Long-Term Debt
 
On May 10, 2013, the Company issued $50.0 million principal amount of 6.00% Senior Notes. In connection with the ViSalus recapitalization, the Company amended the indenture governing the Senior Notes to provide for notice of the mandatory redemption of the Senior Notes on the earlier of March 4, 2015 or the date, if any, that the Company consummated a new financing in the amount of at least $50.0 million. In early March 2015, the Company provided the notice of the mandatory redemption of the Senior Notes, which became due and were repaid on March 10, 2015. This amendment was accounted for as a modification in accordance with ASC section 470-50 “Debt -Modifications and Extinguishments.” As a result, the Company was required to a pay a $3.0 million redemption premium in addition to accrued interest on the redemption date. The redemption premium was expensed on a pro rata basis from September 4, 2014 through the redemption date. For the six months ended June 30, 2015, the Company recorded $1.0 million of additional interest expense associated with the redemption premium. To secure the obligations under the indenture, the Company granted a security interest to the lender in substantially all of its personal property and certain of its real property. 

On March 9, 2015, the Company, together with all of its domestic subsidiaries, except the subsidiary through which it holds its interest in ViSalus (collectively, the “domestic subsidiaries”), entered into a Term Loan and Security Agreement with GFIE, LLC, as term lender. The agreement provides for a five-year term loan in an original principal amount equal to $35.0 million. The obligations under the agreement are secured by, among other assets, (i) a first priority lien on and security interest in PartyLite’s manufacturing facility in Batavia, IL and the intellectual property and various stock and other equity interests owned by the Company and the domestic subsidiaries and (ii) a second priority lien on and security interest in the Company's and the domestic subsidiaries' accounts receivable, inventory, chattel paper and deposit and securities accounts, as well as PartyLite’s office building in Plymouth, MA. The term loan bears interest at a non-default rate of the greater of 1.00% or LIBOR, in each case plus 5%, payable quarterly in arrears. The principal amount of the term loan will be paid in installments as follows: beginning on March 31, 2016, and continuing on the last day of each calendar quarter thereafter, up to and including December 31, 2019, the Company will pay equal quarterly installments of $437.5 thousand. The entire remaining balance of principal and accrued interest on the term loan, and all other charges and/or amounts then due in connection with the term loan, will be due and payable in full on March 9, 2020. The term loan may be prepaid, in whole or in part, from time to time, without penalty or premium. In addition, commencing in 2017 (based on our 2016 results), the Company is required to prepay the term loan annually in an amount up to 25% of “excess cash flow,” if any. For these purposes, excess cash flow is the Company's consolidated EBITDA for the most recently completed fiscal year, determined as set forth in the term loan, less certain capital expenditures, certain repayments of debt, certain interest expenses, and certain cash and other expenditures.

The term loan contains covenants that restrict, subject to certain exceptions, the Company's and all of its subsidiaries' ability to, among other things: (i) incur indebtedness; (ii) create liens on assets; (iii) engage in mergers or consolidations; (iv) engage in certain dispositions or acquisitions of assets; (v) make investments, loans, guarantees or advances; (vi) pay dividends and distributions or repurchase its common stock; (vii) repay or prepay certain indebtedness; (viii) enter into sale and leaseback transactions; (ix) engage in certain transactions with affiliates; and (x) change the nature of its or any of its subsidiaries’ business. In addition, the term loan (a) requires the Company to maintain a fixed charge coverage ratio (“FCCR”) of 1.0 to 1.0 upon the occurrence of certain events or conditions, (b) with certain exceptions, prohibits the Company from making acquisitions if the FCCR is less than 1.0 to 1.0, and (c) among other conditions, generally prohibits the Company from paying dividends or repurchasing its common stock:

• for amounts in excess of $2.5 million in any twelve-month period;

18

• at times when there are no loans outstanding under the revolving loan agreement, if availability (on a pro forma basis) is less than $3.0 million; and
• at times when there are loans outstanding under the revolving loan agreement, if (a) availability (on a pro forma basis) is less than the greater of 30.0% of the revolving loan commitment or $2.25 million, (b) immediately after such dividend or repurchase, availability (on a pro forma basis) would be less than the greater of 30.0% of the revolving loan commitment or $2.25 million or (c) the FCCR is less than 1.1 to 1.0.

The FCCR was less than 1.0 to 1.0 at June 30, 2015. The term loan agreement also contains additional affirmative, negative and financial covenants and events of default.

The proceeds of the term loan, together with available cash, were used to fund the mandatory redemption of the 6.00% Senior Notes.

On March 9, 2015, the Company and the domestic subsidiaries also entered into a Loan and Security Agreement, which it refers to as the revolving loan agreement, with Bank of America, N.A., as revolver lender. The revolving loan agreement provides for an asset-based five-year revolving line of credit facility in an aggregate principal amount up to the lesser of $15.0 million or an amount determined by reference to a “borrowing base,” which deducts such reserves as the revolver lender may require in its reasonable discretion. The Company's borrowing base under the revolving loan agreement will be comprised principally of specified percentages of eligible inventory, accounts receivables and PartyLite’s office building in Plymouth, MA. The obligations under the revolving loan agreement are secured by, among other assets, (i) a first priority lien on and security interest in the Company's and the domestic subsidiaries' accounts receivable, inventory, chattel paper and deposit and securities accounts, as well as PartyLite’s office building in Plymouth, MA, and (ii) a second priority lien on and security interest in various other assets of the Company and the domestic subsidiaries, including PartyLite’s manufacturing facility in Batavia, IL, and its and the domestic subsidiaries' intellectual property and various stock and other equity interests.

Based on the value of eligible inventory, accounts receivable and PartyLite’s office building in Plymouth, MA, as of June 30, 2015, the Company's borrowing base was $15.0 million. As of June 30, 2015, the Company has not made any borrowings under the revolving loan agreement and has outstanding thereunder only an existing letter of credit for approximately $0.9 million.

Loans under the revolving loan agreement will bear non-default interest at a rate equal to either (i) LIBOR plus an applicable margin ranging from 1.75% to 2.25% or (ii) a base rate equal, at the time of determination, to the greater of (a) the revolver lender’s prime rate; (b) the Federal Funds Rate (as defined) plus 0.50%; or (c) LIBOR for a 30, 60 or 90 day interest period plus 1.00%, in each case plus an applicable margin ranging from 0.75% to 1.25%. All loans under the revolving loan agreement will be due and payable in full on March 9, 2020, and may be prepaid, in whole or in part, from time to time, without penalty or premium (except as may be necessary to cover certain funding losses in connection with LIBOR loans). If an overadvance, as determined pursuant to the revolving loan agreement, exists at any time, or accounts receivable are disposed of, the Company will be required to repay a portion of the loans under the revolving loan agreement determined as set forth in the revolving loan agreement.

The revolving loan agreement contains affirmative, negative and financial covenants that are substantially similar to those contained in the term loan agreement and that restrict and impose obligations on the Company and the domestic subsidiaries in the same manner. The revolving loan agreement also contains events of default that are substantially similar to those contained in the term loan agreement.

Loans under the revolving loan agreement will be used primarily for working capital and other general corporate purposes.
The relative rights of the term lender and the revolver lender with respect to their respective liens and remedies are governed by an intercreditor agreement.

The term loan agreement and the intercreditor agreement involve related parties since the term lender is owned by Robert B. Goergen, our executive Chairman of the Board, and Pamela Goergen, Mr. Goergen’s wife and a former member of the Company's board of directors. The term loan was approved by a special committee of the Company's Board of Directors comprised solely of independent directors.  The special committee received legal advice from Wachtell, Lipton, Rosen & Katz and a fairness opinion from Duff & Phelps.

As of June 30, 2015 and December 31, 2014, Silver Star Brands had approximately $4.5 million and $4.9 million, respectively, of long-term debt outstanding under a real estate mortgage note payable which matures June 1, 2020.  Under the terms of the note, payments of principal and interest are required monthly at a fixed interest rate of 7.89%.

The Company’s debt is recorded at its amortized cost basis which approximates its fair value.

As of June 30, 2015, the Company had $0.9 million in standby letters of credit outstanding that are collateralized by the revolving loan agreement and have an expiration date of March 1, 2016.

19


Note 12. Income Taxes

The Company's effective tax rate for the three months ended June 30, 2015 was negative 7.9% which resulted in an income tax expense of $0.6 million on a loss from operations of $8.1 million. This compares to 11.2% for the three months ended June 30, 2014, which resulted in a tax benefit of $0.3 million on a loss from operations of $2.9 million. The Company's effective tax rate for the six months ended June 30, 2015 was negative 2.3% which resulted in an income tax expense of $0.5 million on a loss from operations of $20.6 million. This compares to 23.1% for the six months ended June 30, 2014, which resulted in a tax benefit of $1.0 million on a loss from operations of $4.2 million. No tax benefits were recorded this year for U.S. and certain foreign net operating losses, as well as foreign tax credits, which results in a low tax rate as compared to the U.S. statutory rate.

Due to the various jurisdictions in which the Company files tax returns and the uncertainty regarding the timing of the settlement of tax audits, it is possible that there could be other significant changes in the amount of unrecognized tax benefits in 2015, but the amount cannot be estimated.
 
Note 13. Related Party Transactions

The acquisition and recapitalization of ViSalus involved related parties. ViSalus was owned in part by Ropart Asset Management Fund, LLC and related entities (collectively, “RAM”), which owned a significant non-controlling interest in ViSalus at the time of acquisition and through September 2012. In September 2012, RAM distributed its interest in ViSalus to its members, including Robert B. Goergen (executive Chairman of the Board of Directors), Robert B. Goergen, Jr. (President and Chief Executive Officer) and Todd A. Goergen (son of Robert B. Goergen and brother of Robert B. Goergen, Jr.). Robert B. Goergen beneficially owns approximately 36.0% of the Company’s outstanding common stock, and together with members of his family, owns substantially all of RAM. Todd A. Goergen is currently a member of the Board of Directors and an executive officer of ViSalus and was such at the time of the acquisition and recapitalization.

Revolving Loan Agreement with ViSalus. In connection with the ViSalus recapitalization, the Company agreed to make available to ViSalus a $6.0 million revolving credit facility. On October 17, 2014, the founders of ViSalus and Robert B. Goergen (the “Founder Lenders”) entered into a substantially similar loan agreement with ViSalus (the “Founder Revolving Loan Agreement”) pursuant to which they made a revolving credit facility available to ViSalus in an amount up to $6.0 million on terms that are substantially identical to the terms of the Blyth Revolving Loan Agreement. Loans made under the Blyth Revolving Loan Agreement and loans made under the Founder Revolving Loan Agreement will be made at the same time in equal amounts and will rank equally with each other. The revolving loan involves related parties. Robert B. Goergen, Robert B. Goergen, Jr. and Todd A. Goergen own 8.29%, 0.34% and 2.81%, respectively, of the outstanding capital stock of ViSalus as of June 30, 2015. As of June 30, 2015, ViSalus owed the Company $3.8 million under the Blyth Revolving Loan Agreement. In July 2015, the Company lent an additional $0.5 million to ViSalus, bringing the amount outstanding to $4.3 million.

Management and Transition Services with ViSalus. In July 2012, ViSalus and the Company entered into a management services agreement under which the Company provided certain administrative support services to ViSalus for what was believed to be an arm's length price for such services. The basis for determining the price for the services under the management services agreement was on a cost recovery basis and required ViSalus to pay for such services within 30 days of receipt of the invoice. In connection with the recapitalization of ViSalus in September 2014, the Company and ViSalus entered into a new transition services agreement pursuant to which the Company agreed to provide certain transition services to ViSalus, including general administrative services, certain business support services, payroll services and maintenance of certain insurance policies and employee benefit programs. Transition services will be provided for terms that vary by service and are generally considered sufficient to allow ViSalus to arrange for such services on its own behalf following the recapitalization. The transition services will be provided at a fee that is 6% greater than the Company’s actual, out-of-pocket expenses in providing the applicable transition service. The estimated management fee for administrative services for 2015 is $0.2 million.

RAM Sublease. For the six months ended June 30, 2015 and 2014, RAM paid the Company $0.1 million, respectively, to sublet office space, which the Company believes approximates the fair market rental for the rental period.

Term Loan and the Intercreditor Agreement. The term loan and the intercreditor agreement involve related parties since the term lender is owned by Robert B. Goergen, the executive Chairman of the Board, and Pamela Goergen, Mr. Goergen’s wife and a former member of the Company’s board of directors.








20

Note 14. Stock-Based Compensation

As of June 30, 2015, the Company had one active stock-based compensation plan, the Second Amended and Restated Omnibus Incentive Plan (“2003 Plan”), available to grant future awards. There were 2,040,897 shares authorized for grant as of June 30, 2015, and approximately 1,516,005 shares available for grant under the 2003 Plan. The Company’s policy is to issue new shares of common stock for all stock options exercised and restricted stock grants.
 
The Board of Directors and the stockholders of the Company have approved the adoption and subsequent amendments of the 2003 Plan. The 2003 Plan provides for grants of incentive and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, dividend equivalents and other stock unit awards to officers and employees. The 2003 Plan also provides for grants of nonqualified stock options to directors of the Company who are not, and who have not been during the immediately preceding 12-month period, officers or employees of the Company or any of its subsidiaries. Restricted stock and restricted stock units (“RSUs”) are granted to certain employees and directors to incent performance and retention. RSUs issued under these plans provide that shares awarded may not be sold or otherwise transferred until restrictions have lapsed. The release of RSUs on each of the vesting dates is contingent upon continued active employment or service by the employee or director until the vesting dates.
 
Stock-based compensation expense recognized during the period is based on the value of the portion of stock-based payment awards that is ultimately expected to vest during the period. Stock-based compensation expense recognized in the Company’s Condensed Consolidated Statements of Loss for the six months ended June 30, 2015 and 2014 included compensation expense for restricted stock, RSUs and stock-based awards granted subsequent to January 31, 2006 based on the grant date fair value estimated in accordance with the provisions of ASC 718, “Compensation—Stock Compensation” (“ASC 718”). The Company recognizes these compensation costs net of a forfeiture rate for only those awards expected to vest, on a straight-line basis over the requisite service period of the award, which is over periods of 3 years for stock options; 2 to 5 years for employee restricted stock and RSUs; and 1 to 2 years for non-employee restricted stock and RSUs. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Transactions related to restricted stock and RSUs are summarized as follows:
 
Shares
 
Weighted Average
Grant Date Fair Value
 
Aggregate Intrinsic Value
(In thousands)
Nonvested restricted stock and RSUs at December 31, 2014
165,885

 
$
10.95

 
$
1,518

Granted
58,073

 
7.67

 
 

Vested
(83,575
)
 
12.31

 
 

Nonvested restricted stock and RSUs at June 30, 2015
137,081

 
$
8.74

 
$
871

Total restricted stock and RSUs at June 30, 2015
194,862

 
$
15.42

 
$
1,237

 
Compensation expense related to restricted stock and RSUs for the three months ended June 30, 2015 and 2014 was
approximately $0.1 million and $0.3 million, respectively, and the total recognized tax benefit was approximately $0.1 million, respectively. Compensation expense related to restricted stock and RSUs for the six months ended June 30, 2015 and 2014 was approximately $0.5 million and $0.7 million, respectively, and the total recognized tax benefit was approximately $0.2 million and $0.3 million, respectively.

As of June 30, 2015, there was $0.5 million of unearned compensation expense related to non-vested restricted stock and RSU awards.  This cost is expected to be recognized over a weighted average period of 1.7 years. The total unrecognized stock-based compensation cost to be recognized in future periods as of June 30, 2015 does not consider the effect of stock-based awards that may be issued in subsequent periods.

Note 15. Loss Per Share
 
Vested restricted stock units issued under the Company’s stock-based compensation plans participate in a cash equivalent of the dividends paid to common shareholders and are not considered contingently issuable shares. Accordingly, these RSUs are included in the calculation of basic and diluted loss per share as common stock equivalents. RSUs that have not vested and are subject to a risk of forfeiture are included solely in the calculation of diluted loss per share.


21

The components of basic and diluted loss per share are as follows:
 
Three months ended
Six months ended
(In thousands)
June 30, 2015
June 30, 2014
June 30, 2015
June 30, 2014
Net loss attributable to Blyth, Inc.
$
(8,831
)
$
(4,440
)
$
(21,299
)
$
(7,202
)
Weighted average number outstanding:
 
 
 

 

Common shares
16,137

16,047

16,113

16,034

Vested restricted stock units
56

64

55

62

Weighted average number of common shares outstanding:
 
 
 

 

Basic and diluted
16,193

16,111

16,168

16,096

 
 
 
 
 
Basic and diluted loss per share:
 
 
 

 

Net loss from continuing operations
$
(0.55
)
$
(0.17
)
$
(1.32
)
$
(0.21
)
Net loss from discontinued operations
—

(0.11
)
—

(0.24
)
Net loss attributable per share of Blyth, Inc.
$
(0.55
)
$
(0.28
)
$
(1.32
)
$
(0.45
)

Note 16. Treasury and Common Stock
 
Treasury Stock (In thousands, except shares)
Shares
 
Amount
Balance at January 1, 2014
10,557,342

 
$
(452,040
)
Treasury stock withheld in connection with long-term incentive plan
14,678

 
(131
)
December 31, 2014
10,572,020

 
$
(452,171
)
Treasury stock withheld in connection with long-term incentive plan
18,983

 
(151
)
Balance at June 30, 2015
10,591,003

 
$
(452,322
)

Common Stock (In thousands, except shares)
Shares
 
Amount
Balance at January 1, 2014
26,574,031

 
$
532

Common stock issued in connection with long-term incentive plan
68,219

 
1

December 31, 2014
26,642,250

 
$
533

Common stock issued in connection with long-term incentive plan
87,166

 
2

Balance at June 30, 2015
26,729,416

 
$
535


Note 17. Segment Information
 
The Company’s products include an extensive array of decorative and functional household products, such as candles, accessories, seasonal decorations, household convenience items and personalized gifts, as well as health, wellness and beauty related products. The Company's products can be found primarily throughout the United States, Canada, Mexico, Europe and Australia. The Company's financial results are reported in two segments: the Candles & Home Décor segment and the Catalog & Internet segment.
 
Within the Candles & Home Décor segment, the Company designs, manufactures or sources, markets and distributes an extensive line of products including scented candles, candle-related accessories and other fragranced products under the PartyLite® brand. Products in this segment are primarily sold through networks of independent sales consultants. PartyLite brand products are sold primarily in the United States, Canada, Mexico, Europe and Australia.

Within the Catalog & Internet segment, the Company designs, sources and markets a broad range of household convenience items, health, wellness and beauty products, holiday cards, personalized gifts, kitchen accessories, premium photo albums and frames. These products are sold directly to the consumer under the Miles Kimball®, Walter Drake®, Easy Comforts®, As We Change®, Exposures® and Native Remedies® brands. These products are sold in the United States and Canada.

Operating loss in all segments represents net sales less operating expenses directly related to the business segments and corporate expenses allocated to the business segments.  Other expense includes Interest expense, Interest income, and Foreign exchange and other which are not allocated to the business segments.  Identifiable assets for each segment consist of assets used directly in its operations and intangible assets, if any, resulting from purchase business combinations.  Unallocated Corporate within the identifiable assets include cash and cash equivalents, short-term investments, discontinued operations, prepaid income tax, corporate

22

fixed assets, deferred debt costs and other long-term investments, which are not allocated to the business segments. Corporate expenses are allocated to each segment based on budgeted sales.

The geographic area data includes net sales based on product shipment destination and long-lived assets, which consist of fixed assets, based on physical location.

Operating Segment Information 
(In thousands)
Three months ended
Six months ended
Financial Information
June 30, 2015
June 30, 2014
June 30, 2015
June 30, 2014
Net Sales
 
 
 
 
Candles & Home Décor
$
53,005

$
72,745

$
118,697

$
153,603

Catalog & Internet
34,984

31,488

73,019

68,868

Total
$
87,989

$
104,233

$
191,716

$
222,471

Earnings
 

 

 

 

Candles & Home Décor
$
(5,640
)
$
(1,168
)
$
(11,987
)
$
62

Catalog & Internet
(1,457
)
(968
)
(4,246
)
(2,330
)
Operating profit
(7,097
)
(2,136
)
(16,233
)
(2,268
)
Other Expense
999

784

4,410

1,929

Loss before income taxes and non-controlling interest
$
(8,096
)
$
(2,920
)
$
(20,643
)
$
(4,197
)
 
 
 
 
 
Identifiable Assets
 
 
June 30, 2015
December 31, 2014
Candles & Home Décor
 
 
$
142,248

$
148,658

Catalog & Internet
 
 
56,899

51,393

Unallocated  Corporate
 
 
40,091

87,302

Total
 
 
$
239,238

$
287,353



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a multi-channel company primarily focused on the direct-to-consumer market. Our products include an extensive array of decorative and functional household products, such as candles, accessories, seasonal decorations, household convenience items and personalized gifts, as well as health, wellness and beauty related products. Our products can be found primarily throughout the United States, Canada, Mexico, Europe and Australia. Our financial results are reported in two segments: the Candles & Home Décor segment (PartyLite) and the Catalog & Internet segment (Silver Star Brands).

On September 4, 2014, we entered into a recapitalization agreement with the ViSalus founders and certain other preferred stockholders to exchange the ViSalus redeemable preferred stock for ViSalus common stock, which reduced our ownership in ViSalus from approximately 80.9% to 10.0%. This transaction is more fully detailed in Note 3 to the Condensed Consolidated Financial Statements. The results of operations for ViSalus have been presented as discontinued operations for all periods presented.

Our current focus is driving sales growth and profitability of our brands so we may leverage more fully our infrastructure, as
well as supporting new infrastructure requirements of some of our businesses. New product development continues to be
critical to both segments of our business. In the Candles & Home Décor segment, monthly sales and productivity incentives are designed to attract, retain and increase the earnings opportunity of independent sales consultants. In the Catalog & Internet segment, product, merchandising and circulation strategy are designed to drive strong sales growth in smaller brands and expand the sales and customer base of our flagship brands.

Results of operations - Three and six months ended June 30, 2015 versus 2014

Net Sales
 
Net sales decreased 16%, or approximately $16.2 million, to $88.0 million for the three months ended June 30, 2015 from $104.2 million in the comparable prior year period. Net sales decreased 14%, or approximately $30.8 million, to $191.7 million

23

for the six months ended June 30, 2015 from $222.5 million in the comparable prior year period. These declines were primarily due to the strengthening of the U.S. dollar as well as a decline within the Candles & Home Décor segment.

Net Sales – Candles & Home Décor Segment

Net sales for PartyLite decreased $19.7 million, or 27%, to $53.0 million for the three months ended June 30, 2015 from $72.7 million in the comparable prior year period. This decline was principally due to a decrease at PartyLite Europe of 31%, or down 15% in local currency, and a decrease at PartyLite North America of 18%. Net sales for PartyLite decreased $34.9 million, or 23%, to $118.7 million for the six months ended June 30, 2015 from $153.6 million in the comparable prior year period. This decline was principally due to a decrease at PartyLite Europe of 25%, or down 8% in local currency, and a decrease at PartyLite North America of 20%. These declines were principally due to a reduction in consultant counts which resulted in a lower number of shows.

PartyLite's European active independent sales consultants decreased to approximately 21,900 at June 30, 2015 from approximately 23,300 at June 30, 2014. North American active independent sales consultants decreased to approximately 10,200 at June 30, 2015 from approximately 13,000 at June 30, 2014.

Net Sales – Catalog & Internet Segment

Net sales for Silver Star Brands increased $3.5 million, or 11%, to $35.0 million for the three months ended June 30, 2015 from $31.5 million in the comparable prior year period principally due to sales in the Native Remedies product line (which was acquired in February 2015) and strengthening customer demand in the Miles Kimball brand.

Net sales for Silver Star Brands increased $4.1 million, or 6.0%, to $73.0 million for the six months ended June 30, 2015 from $68.9 million in the comparable prior year period principally due to sales in the Native Remedies product line partly offset by decreases in existing catalog sales and lower freight revenue.

Gross Profit and Operating Expenses

Blyth’s consolidated gross profit decreased $12.0 million, or 19%, to $51.9 million for the three months ended June 30, 2015 from $63.9 million for the quarter ended June 30, 2014. This decrease was principally due to the impact of lower sales. In addition, gross profit was negatively impacted by restructuring costs associated with the Cumbria, United Kingdom facility closure of $2.4 million and higher freight expenses within the Catalog & Internet Segment. Gross margin decreased to 58.9% for the three months ended June 30, 2015 from 61.3% for the comparable prior year period primarily due to restructuring charges and increased freight expenses.

Blyth’s consolidated gross profit decreased $27.9 million, or 20%, to $110.4 million for the six months ended June 30, 2015 from $138.3 million for the comparable prior year period. This decrease was principally due to the impact of lower sales. In addition, gross profit was negatively impacted by restructuring costs associated with the Cumbria, United Kingdom facility closure of $4.9 million and higher freight expenses within the Catalog & Internet Segment. Gross margin decreased to 57.6% for the six months ended June 30, 2015 from 62.2% for the comparable prior year period primarily due to restructuring charges and increased freight expenses.
 
Blyth’s consolidated selling expenses decreased $6.1 million, or approximately 13%, to $41.5 million for the three months ended June 30, 2015 from $47.6 million for the quarter ended June 30, 2014. Blyth’s consolidated selling expenses decreased $10.7 million, or approximately 10%, to $91.5 million for the six months ended June 30, 2015 from $102.2 million for the comparable prior year period. These decreases were primarily due to lower commission expenses at PartyLite associated with their sales decline. Selling expenses as a percentage of net sales increased to 47.2% for the three months ended June 30, 2015 from 45.7% for the comparable prior year period. Selling expenses as a percentage of net sales increased to 47.7% for the six months ended June 30, 2015 from 46.0% for the comparable prior year period. These increases were mainly due to the impact of a lower sales base.


24

Blyth’s consolidated administrative and other expenses decreased $1.0 million, or 6%, to $17.5 million for the three months ended June 30, 2015 from $18.5 million for the quarter ended June 30, 2014. Blyth’s consolidated administrative and other expenses decreased $3.2 million, or 8%, to $35.1 million for the six months ended June 30, 2015 from $38.3 million for the comparable prior year period. These declines were principally due to lower administrative overhead and other cost saving initiatives throughout the company partly offset by Native Remedies integration costs. Administrative expenses as a percentage of net sales increased to 19.8% for the three months ended June 30, 2015 from 17.7% for the comparable prior year period. Administrative expenses as a percentage of net sales increased to 18.3% for the six months ended June 30, 2015 from 17.2% for the comparable prior year period. These increases were mainly due to the impact of a lower sales base.

Blyth’s consolidated operating loss increased $5.0 million to $7.1 million for the three months ended June 30, 2015 from $2.1 million for the quarter ended June 30, 2014. Blyth’s consolidated operating loss increased $14.0 million to $16.2 million for the six months ended June 30, 2015 from $2.3 million for the comparable prior year period. This increase was principally due to increased operational losses at both PartyLite and Silver Star Brands and restructuring charges incurred by both entities.

Operating Profit (Loss) – Candles & Home Décor Segment
 
Operating loss for PartyLite was $5.6 million for the three months ended June 30, 2015 versus a $1.2 million loss for the comparable prior year period. This increased loss was principally due to the impact of sales declines at PartyLite Europe and PartyLite North America and the aforementioned Cumbria, United Kingdom restructuring charges of $2.4 million.  In addition, PartyLite Europe was affected by the stronger U.S. dollar, which negatively impacted the second quarter profits by approximately $0.6 million. These decreases were partly offset by cost reduction programs. Corporate expenses charged to PartyLite were $2.5 million for the three months ended June 30, 2015 and $2.4 million for the comparable prior year period.

Operating loss for PartyLite was $12.0 million for the six months ended June 30, 2015 versus operating profit of $0.1 million for the comparable prior year period. This increased loss was principally due to the impact of sales declines at PartyLite Europe and PartyLite North America and the aforementioned Cumbria, United Kingdom restructuring charges of $4.9 million.  In addition, PartyLite Europe was affected by the stronger U.S. dollar, which negatively impacted the six months ended June 30, 2015 profits by approximately $1.6 million. These decreases were partly offset by cost reduction programs. Corporate expenses charged to PartyLite were $4.7 million for the six months ended June 30, 2015 and $5.3 million for the comparable prior year period.
 
Operating Loss – Catalog & Internet Segment

Operating loss for Silver Star Brands was $1.5 million for the three months ended June 30, 2015 versus a $1.0 million loss for the comparable prior year period. This increased loss was due to integration costs associated with Native Remedies of $0.5 million and higher freight expenses. Corporate expenses charged to Silver Star Brands were $1.2 million for the three months ended June 30, 2015 and $0.9 million for the comparable prior year period.

Operating loss for Silver Star Brands was $4.2 million for the six months ended June 30, 2015 versus a $2.3 million loss for the comparable prior year period. This increased loss was due to integration costs associated with Native Remedies of $1.1 million and higher freight expenses. Corporate expenses charged to Silver Star Brands were $2.2 million for the six months ended June 30, 2015 and $2.0 million for the comparable prior year period.
 
Other Expense (Income)

Interest expense decreased $0.2 million to $0.8 million for the three months ended June 30, 2015 from $1.0 million in the prior year quarter due to lower outstanding debt . Interest expense increased $1.0 million to $3.0 million for the six months ended June 30, 2015 from $2.0 million in the comparable prior year period. This increase was principally due to charges associated with the debt modification of our 6.00% $50.0 million Senior Notes, which were originally due in 2017, of $1.0 million and accelerated amortization of previously deferred costs of $0.3 million partly offset by lower outstanding debt.
 
Interest income remained constant at $0.1 million for the three months ended June 30, 2015 and 2014. Interest income increased $0.1 million to $0.3 million for the six months ended June 30, 2015 from $0.2 million in the comparable prior year period. This was mainly due to interest received from ViSalus under the Blyth Revolving Loan Agreement.

Foreign exchange and other expense was $0.3 million for the three months ended June 30, 2015 compared to income of $0.1 million in the comparable prior year period. Foreign exchange and other expense was $1.7 million for the six months ended June 30, 2015 compared to $0.1 million in the comparable prior year period. This increased expense was due to foreign exchange losses mainly resulting from the U.S. dollar strengthening.

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Income tax benefit decreased $0.9 million to an expense of $0.6 million for the three months ended June 30, 2015 from a benefit of $0.3 million in the three months ended June 30, 2014. The effective tax rate was negative 7.9% in 2015 compared to 11.2% for 2014. Income tax benefit decreased $1.5 million to an expense of $0.5 million for the six months ended June 30, 2015 from $1.0 million in the comparable prior year period. The effective tax rate was negative 2.3% in 2015 compared to 23.1% benefit for 2014. No tax benefits were recorded this year for U.S. and certain foreign net operating losses, as well as foreign tax credits, which results in a low tax rate as compared to the U.S. statutory rate.

The net loss from discontinued operations for the three and six months ended June 30, 2014 was $1.8 million and $3.8 million, respectively.

The net earnings attributable to noncontrolling interests remained constant at $0.1 million for the three months ended June 30, 2015 and 2014. The net earnings attributable to noncontrolling interests remained constant at $0.2 million for the six months ended June 30, 2015 and 2014.

Net loss attributable to Blyth, Inc. increased $4.4 million to $8.8 million for the three months ended June 30, 2015 from $4.4 million in the comparable prior year period.  This increased loss is primarily attributable to increased operating loss of $5.0 million.

Net loss attributable to Blyth, Inc. increased $14.1 million to $21.3 million for the six months ended June 30, 2015 from $7.2 million in the comparable prior year period. This increased loss is primarily attributable to higher other expenses of $2.5 million and increased operating loss of $14.0 million.

Liquidity and Capital Resources

Cash and cash equivalents decreased $40.4 million to $53.9 million at June 30, 2015 from $94.3 million at December 31, 2014. This decrease in cash was primarily attributed to cash used from continuing operations, net repurchase of long-term debt, purchase of a business and foreign exchange losses. These cash declines were partly offset by proceeds from the sale of investments. Cash held in foreign locations was approximately $36 million and $47 million as of June 30, 2015 and December 31, 2014, respectively.

Net cash used in operating activities from continuing operations was $36.1 million for the six months ended June 30, 2015 compared to $20.3 million for the six months ended June 30, 2014. The increase in cash used in operations reflects a decline in operating profits. Included in net losses for the six months ended June 30, 2015 were non-cash charges for depreciation and amortization of $3.7 million and stock-based compensation of $0.5 million.
 
Net cash provided by investing activities from continuing operations was $13.9 million for the six months ended June 30, 2015, compared to cash used in investing activities of $17.4 million for the six months ended June 30, 2014. Cash provided by investing activities this year mainly reflects proceeds from the sale of investments of $20.1 million partly offset by the payment for the purchase of business of $5.0 million and capital expenditures of $1.3 million. Prior year's cash used in investing activities mainly reflects the purchase of investments of $20.0 million and capital expenditures of $1.4 million partly offset by proceeds from the sale of short-term investments of $4.0 million.

Net cash used in financing activities from continuing operations for the six months ended June 30, 2015 was $15.5 million compared to $1.4 million for the six months ended June 30, 2014. This year’s activity gives effect to the repayment of the $50.0 million principal amount of Senior Notes in March 2015, partly offset by the proceeds from the $35.0 million term loan, which was used, along with available cash, to repay the Senior Notes. Prior year's cash used in financing activities mainly reflects $0.8 million of dividends paid.

We will continue to monitor carefully our cash position, and will only make additional repurchases of treasury shares and pay dividends when we have sufficient cash surpluses available and are permitted to do so under the terms of our revolving loan agreement and term loan. Our revolving loan agreement and term loan currently prohibit us from paying dividends and repurchasing our common stock.

A significant portion of our business is outside of the United States. A significant downturn in our business in our international markets would adversely impact our ability to generate operating cash flows. In addition, if the U.S. dollar continues to strengthen, this could lead to a decline in the amount of translated cash repatriated from Europe. Operating cash flows would also be negatively impacted if we experienced difficulties in the recruitment, retention and our ability to maintain the productivity of our independent consultants. Management's key areas of focus have included stabilizing and increasing the

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consultant base within PartyLite through training and promotional incentives. PartyLite has had several continuous years of decline in the United States and Canada. While we are making efforts to stabilize and increase the number of active independent sales consultants within PartyLite, it may be difficult to do so. If PartyLite's consultant count continues to decline it will have a negative impact on our liquidity and financial results.

In connection with the ViSalus recapitalization, we agreed to make available to ViSalus a revolving credit facility. On October 17, 2014, we and ViSalus entered into a revolving loan agreement (the “Blyth Revolving Loan Agreement”) pursuant to which we agreed to lend ViSalus up to $6.0 million. Loans under the Blyth Revolving Loan Agreement bear interest at a rate of 10% per annum. Interest will be paid monthly, in arrears, and there is no higher default rate of interest. The Blyth Revolving Loan Agreement will terminate on the later of (i) October 17, 2019 or (ii) resolution of the putative class action that is pending against ViSalus and others in the United States District Court in the Eastern District of Michigan, Southern Division (the “ViSalus Lawsuit”). Loans made under the Blyth Revolving Loan Agreement may be voluntarily repaid and the Blyth Revolving Loan Agreement may be terminated by ViSalus, subject to certain conditions. Loans made under the Blyth Revolving Loan Agreement will be unsecured. On October 17, 2014, the founders of ViSalus and Robert B. Goergen (the “Founder Lenders”) entered into a substantially similar loan agreement with ViSalus (the “Founder Revolving Loan Agreement”) pursuant to which they made a revolving credit facility available to ViSalus in an amount up to $6.0 million on terms that are substantially identical to the terms of the Blyth Revolving Loan Agreement. Loans made under the Blyth Revolving Loan Agreement and loans made under the Founder Revolving Loan Agreement will be made at the same time in equal amounts and will rank equally with each other. There are no financial performance covenants under the Blyth Revolving Loan Agreement and limited negative covenants. ViSalus is permitted to obtain financing from other parties, whether that financing is secured or unsecured. In addition, we agreed to reimburse and pay on behalf of ViSalus 80% of the legal fees and disbursements reasonably charged by ViSalus’s legal counsel and reasonable out-of-pocket expenses incurred by ViSalus in defending ViSalus and certain others against the claims asserted by the plaintiffs in the ViSalus Lawsuit, up to a maximum amount of $4.0 million.

On May 10, 2013, we issued $50.0 million principal amount of 6.00% Senior Notes. The Senior Notes bore interest payable semi-annually in arrears on May 15 and November 15. In connection with the ViSalus recapitalization, we amended the indenture governing the Senior Notes to provide for notice of the mandatory redemption of the Senior Notes on the earlier of March 4, 2015 or the date, if any, that we consummated a new financing in the amount of at least $50.0 million. In early March 2015, we provided the notice of the mandatory redemption of the Senior Notes, which became due and were repaid on March 10, 2015. As a result, we were also required to pay a $3.0 million redemption premium in addition to accrued interest.

On March 9, 2015, we, together with all of our domestic subsidiaries, except the subsidiary through which we hold our interest in ViSalus, entered into a term loan and security agreement, which we refer to as the term loan, with GFIE, LLC, as term lender. The agreement provides for a five-year term loan in an original principal amount equal to $35.0 million. The obligations under the term loan are secured by, among other assets, (i) a first priority lien on and security interest in PartyLite’s manufacturing facility in Batavia, IL, intellectual property and various stock and other equity interests and (ii) a second priority lien on and security interest in all accounts receivable, inventory, chattel paper and deposit and securities accounts, as well as PartyLite’s office building in Plymouth, MA. The term loan bears interest at a rate of the greater of 1.00% or LIBOR, in each case plus 5%. The principal amount of the term loan will be paid in installments as follows: beginning on March 31, 2016, and continuing on the last day of each calendar quarter thereafter, up to and including December 31, 2019, we will pay equal quarterly installments of $437,500. The entire remaining balance of principal and accrued interest on the term loan, and all other charges and/or amounts then due in connection with the term loan, will be due and payable in full on March 9, 2020. The term loan may be prepaid, in whole or in part, from time to time, without penalty or premium. In addition, commencing in 2017 (based on our 2016 results), we are required to prepay the term loan annually in an amount up to 25% of “excess cash flow,” if any. For these purposes, excess cash flow is our consolidated EBITDA for the most recently completed fiscal year, determined as set forth in the term loan, less certain capital expenditures, certain repayments of debt, certain interest expenses, and certain cash and other expenditures.

The term loan contains covenants that restrict, subject to certain exceptions, our and the domestic subsidiaries’ ability to, among other things: (i) incur indebtedness; (ii) create liens on assets; (iii) engage in mergers or consolidations; (iv) engage in certain dispositions or acquisitions of assets; (v) make investments, loans, guarantees or advances; (vi) pay dividends and distributions or repurchase our common stock; (vii) repay certain indebtedness; (viii) enter into sale and leaseback transactions; (ix) engage in certain transactions with affiliates; and (x) change the nature of our or the domestic subsidiaries’ business. In addition, the term loan (a) requires us to maintain a fixed charge coverage ratio (“FCCR”) upon the occurrence of certain events or conditions, (b) with certain exceptions, prohibits us from making acquisitions if the FCCR is less than 1.0 to 1.0, and (c) among other conditions, generally prohibits us from paying dividends or repurchasing our common stock:

• for amounts in excess of $2.5 million in any twelve-month period;

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• at times when there are no loans outstanding under the revolving loan agreement, if availability (on a pro forma basis) is less than $3.0 million; and
• at times when there are loans outstanding under the revolving loan agreement, if (a) availability (on a pro forma basis) is less than the greater of 30.0% of the revolving loan commitment or $2.25 million, (b) immediately after such dividend or repurchase, availability (on a pro forma basis) would be less than the greater of 30.0% of the revolving loan commitment or $2.25 million or (c) the FCCR is less than 1.1 to 1.0.

Our FCCR was less than 1.0 to 1.0 at June 30, 2015. The term loan also contains certain additional affirmative, negative and financial covenants and events of default.    

On March 9, 2015, we and the domestic subsidiaries also entered into a loan and security agreement, which we refer to as the revolving loan agreement, with Bank of America, N.A., as revolver lender. The revolving loan agreement provides for an asset-based five-year revolving line of credit facility in an aggregate principal amount up to the lesser of $15.0 million or an amount determined by reference to a “borrowing base,” which deducts such reserves as the revolver lender may require in its reasonable discretion. Our borrowing base under the revolving loan agreement will be comprised principally of specified percentages of eligible inventory, accounts receivables and PartyLite’s office building in Plymouth, MA. The obligations under the revolving loan agreement are secured by, among other assets, (i) a first priority lien on and security interest in accounts receivable, inventory, chattel paper and deposit and securities accounts, as well as PartyLite’s office building in Plymouth, MA, and (ii) a second priority lien on and security interest in various other assets, including PartyLite’s manufacturing facility in Batavia, IL, and our intellectual property and various stock and other equity interests.

Based on the value of eligible inventory, accounts receivable and PartyLite’s office building in Plymouth, MA, as of June 30, 2015, our borrowing base was $15.0 million. As of June 30, 2015, we have not made any borrowings under the revolving loan agreement and have outstanding thereunder only an existing letter of credit for approximately $0.9 million.

Advances under the revolving loan agreement will bear interest at a rate equal to either (i) LIBOR plus an applicable margin ranging from 1.75% to 2.25% or (ii) a base rate equal, at the time of determination, to the greater of (a) the revolver lender’s prime rate; (b) the Federal Funds Rate (as defined) plus 0.50%; or (c) LIBOR for a 30, 60 or 90 day interest period plus 1.00%, in each case plus an applicable margin ranging from 0.75% to 1.25%. All loans under the revolving loan agreement will be due and payable in full on March 9, 2020, and may be prepaid, in whole or in part, from time to time, without penalty or premium (except as may be necessary to cover certain funding losses in connection with LIBOR loans). If an overadvance, as determined pursuant to the revolving loan agreement, exists at any time, or accounts receivable are disposed of, we will be required to repay a portion of the loans under the revolving loan agreement determined as set forth in the revolving loan agreement.
    
The revolving loan agreement contains affirmative and negative covenants that are substantially similar to those contained in the term loan and that restrict us and our domestic subsidiaries, and impose obligations on us and them, in the same manner. The revolving loan agreement also contains certain customary events of default that are substantially similar to those contained in the term loan. Loans under the revolving loan agreement will be used primarily for working capital and other general corporate purposes.

A portion of our cash and cash equivalents is held by our international subsidiaries in foreign banks and, as such, may be subject to foreign and domestic taxes, unfavorable exchange rate fluctuations and other factors, including foreign working capital requirements, limiting our ability to repatriate funds to the United States.

In addition, if economic conditions decline, we may be subject to future impairments of our assets, including accounts receivable, inventories, property, plant and equipment, investments, goodwill and other intangibles, if the valuations of these assets or businesses decline.

As of June 30, 2015, we had $0.9 million in standby letter of credit outstanding that is collateralized by the revolving loan agreement and has an expiration date of March 1, 2016.

As of June 30, 2015 and December 31, 2014, Silver Star Brands had approximately $4.5 million and $4.9 million, respectively, of long-term debt outstanding under a real estate mortgage note payable which matures June 1, 2020.  Under the terms of the note, payments of principal and interest are required monthly at a fixed interest rate of 7.89%.

On March 31, 2015, we informed our employees that we intend to close our corporate headquarters in Greenwich, CT by the end of September 2015, when the current office lease expires, and relocate the corporate headquarters to Plymouth, MA, where we will occupy and share the building that is owned by PartyLite.

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We estimate that the costs of implementing the relocation of our corporate headquarters, all of which be cash costs, will be up to $1.7 million, consisting of employee severance payments estimated to be up to $0.7 million, employee benefit payments estimated to be up to $0.2 million, retention payments estimated to be up to $0.4 million, recruiting fees estimated to be up to $0.3 million, and outplacement fees estimated to be up to $0.1 million. We expect that these costs will be recorded in the second, third and fourth quarters of 2015. These costs are estimates and the actual costs could vary materially based on a number of factors, including the level of employee terminations. As of June 30, 2015, we have recorded $0.6 million in Administrative and other expenses in the Condensed Consolidated Statements of Loss.

We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to a have a material current or future effect upon our financial statements. We utilize foreign exchange forward contracts for operational purposes.

Critical Accounting Policies

There were no changes to our critical accounting policies in the first six months of 2015. For a discussion of our
critical accounting policies, see our Annual Report on Form 10-K for the year ended December 31, 2014.


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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market Risk

We have operations outside of the United States and sell our products worldwide.  Our activities expose us to a variety of market risks, including the effects of changes in interest rates, foreign currency exchange rates and commodity prices. These financial exposures are actively monitored and, where considered appropriate, managed by us. We enter into contracts with only those counterparties that we deem to be creditworthy, with the intention of limiting these risks and also in order to mitigate our non-performance risk. International sales represented 49% of total sales for the six months ended June 30, 2015.

Investment Risk

We are subject to investment risks on our investments due to market volatility.  As of June 30, 2015, we held a long-term cost basis investment in ViSalus of approximately $6.9 million which may be subject to future impairments based upon ViSalus' performance.
 
Foreign Currency Risk
 
We use foreign exchange forward contracts to hedge the impact of foreign currency fluctuations on foreign denominated inventory purchases, net assets of our foreign operations, intercompany payables and certain foreign denominated loans. We do not hold or issue derivative financial instruments for trading purposes.

We have hedged the net assets of certain of our foreign operations through foreign currency forward contracts. The realized and unrealized gains/losses on these hedges are recorded within AOCI until the investment is sold or disposed. The cumulative net after-tax gain related to net investment hedges in AOCI as of June 30, 2015 and December 31, 2014 was $4.9 million and $4.8 million, respectively.

We have designated our foreign currency forward contracts related to certain foreign denominated loans and intercompany payables as fair value hedges.  The gains or losses on the fair value hedges are recognized into earnings and generally offset the transaction gains or losses in the foreign denominated loans that they are intended to hedge.

We have designated forward exchange contracts on forecasted intercompany inventory purchases and future purchase commitments as cash flow hedges; as long as the hedge remains effective and the underlying transaction remains probable, the effective portion of the changes in the fair value of these contracts will be recorded in AOCI until earnings are affected by the variability of the cash flows being hedged. Upon settlement of each commitment, the underlying forward contract is closed and the corresponding gain or loss is transferred from AOCI and is included in the measurement of the cost of the acquired asset upon sale.  If a hedging instrument is sold or terminated prior to maturity, gains and losses are deferred in AOCI until the hedged item is settled.  However, if the hedged item is no longer probable of occurring, the resultant gain or loss on the terminated hedge is recognized into earnings immediately.  The net after-tax unrealized gain included in AOCI at June 30, 2015 for cash flow hedges is $0.2 million and is expected to be transferred into earnings within the next twelve months upon settlement of the underlying commitment. The net after-tax gain included in AOCI at December 31, 2014 for cash flow hedges was $0.2 million.
  
For consolidated financial statement presentation, net cash flows from such hedges are classified in the categories of the Condensed Consolidated Statement of Cash Flows with the items being hedged.

The following table provides information about our foreign exchange forward contracts accounted for as cash flow hedges as of June 30, 2015:
(In thousands, except average contract rate)
U.S. Dollar Notional Amount
 
Average Contract Rate
 
Unrealized Gain
Euro
$
7,910

 
$
1.13

 
$
129

 
The outstanding foreign exchange contracts have maturity dates through December 2015.
 

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Item 4.  Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

We conducted an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2014. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2015.

(b) Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the first six months ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
PART II
 
Item 1.  Legal Proceedings.

We are involved in litigation arising in the ordinary course of business, which, in our opinion, will not have a material adverse effect on our financial position, results of operations or cash flows.

Item 1A.    Risk Factors.

We encounter substantial risks in our business, any one of which may adversely affect our business, results of operations or financial condition. The fact that some of these risk factors may be the same or similar to those that we have filed with the Securities and Exchange Commission in prior reports means only that the risks are present in multiple periods. We believe that many of the risks that are described here are part of doing business in the industries in which we operate and will likely be present in all periods. The fact that certain risks are endemic to these industries does not lessen their significance. These risk factors should be read together with the other items in this report, including “Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.” We use the terms “we”, “us” or “our” to refer to Blyth, Inc. and its subsidiaries, unless suggested otherwise by the context.

We incurred an operating loss and net loss for the six months ended June 30, 2015 and our success depends on our ability to improve our financial and operational performance.

We had an operating loss and net loss of $16.2 million and $21.3 million, respectively, for the six months ended June 30, 2015. Our ability to improve our financial and operational performance depends upon a number of factors, including our ability to recruit, retain and motivate consultants; reverse declines in our net sales and earnings; implement our cost savings programs and other initiatives and achieve anticipated savings and benefits; reinvest certain of those savings effectively in our business, while effectively managing our cost base; improve working capital, effectively manage inventory and implement initiatives to reduce inventory levels, including the potential impact on cash flows and obsolescence; and appropriately address the other factors described below in “Risk Factors.”

The failure by our businesses to respond appropriately to changing consumer preferences and demand for new products or product enhancements could harm our business, financial condition and results of operations.

Our ability to increase our sales and earnings depends on numerous factors, including market acceptance of our existing
products and the successful introduction of new products. Sales of PartyLite's candles and accessories and Silver Star Brands' consumer products fluctuate according to changes in consumer preferences. If our businesses are unable to anticipate, identify or react to changing preferences, our sales may decline. PartyLite's candles represent a substantial portion of our sales. If consumer demand for these products decreases significantly, then our business, financial condition and results of operations would be harmed. In addition, if our businesses miscalculate consumer tastes and are no longer able to offer products that appeal to their customers, their brand images may suffer and sales and earnings would decline.

PartyLite depends upon sales by its independent sales force to drive its business, and its failure to continue to recruit, retain and motivate consultants would harm its business and our financial condition and results of operations.

PartyLite markets its products through its independent consultants primarily using a party plan direct selling model. This marketing system depends upon the successful recruitment, retention and motivation of a large number of consultants to offset frequent

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turnover, which is a common characteristic found in the direct selling industry. Our consultants may terminate their services at any time. Many of them market and sell our products on a part-time basis, join us for a short-period of time and likely engage in other business activities, some of which may compete with us. If PartyLite is unable to grow its consultant sales forces and reverse declines in their total number of consultants, our business would be materially harmed. The rate of turnover of PartyLite's consultants can be very high and volatile from time to time, which may materially hinder its ability to increase its total consultant count.

Our ability to recruit, retain and motivate consultants depends on a number of factors, including, but not limited to, our prominence among direct selling companies and the general labor market, the attractiveness of our products and compensation and promotional programs, the number of people interested in direct selling, unemployment levels, economic conditions, and demographic and cultural changes in the workforce. PartyLite relies primarily upon the efforts of its consultants to attract, train and motivate new consultants, so our sales directly depend upon their efforts. The failure by PartyLite to recruit, retain and motivate consultants and to reverse declines in its total number of consultants could negatively impact sales of its products, which could harm our business, financial condition and results of operations.

The loss by PartyLite of a significant number of its consultants could harm our business, financial condition and results of operations.

The loss by PartyLite of a significant number of its consultants for any reason could negatively impact the sales of its products, impair its ability to recruit new consultants and harm our business, financial condition and results of operations. During 2014, the total number of PartyLite’s consultants declined to approximately 48,000 at December 31, 2014 from approximately 52,100 at December 31, 2013. In addition, the total number of PartyLite’s consultants declined from approximately 40,700 at June 30, 2014 to approximately 36,900 at June 30, 2015.

In general, PartyLite does not have non-competition arrangements with its consultants that would prohibit them from promoting competing products if they terminate their relationship. Pursuant to agreements that all of PartyLite's top consultants are requested to sign, the consultant is not permitted to solicit or recruit PartyLite's consultants to participate in any other direct selling company for a period of time following the termination of their agreement. We cannot ensure that PartyLite's consultants will abide by any non-solicitation obligations or that we will be able to enforce them. Some of PartyLite’s consultants have not abided by these non-solicitation agreements following their departure and while we have, in some cases, taken legal action and other steps to seek to enforce these non-solicitation agreements, we have not always been able to do so. If PartyLite's consultants do not abide by these non-solicitation obligations or if we are unable to enforce them, our competitive position may be compromised, which could harm our business, financial condition and results of operations.

PartyLite's compensation plan, or changes that are made to its plan, may be viewed negatively by some of its consultants, could fail to achieve our desired objectives and could have a negative impact on our business.

Direct selling is highly competitive and sensitive to the introduction of new competitors, new products and/or new compensation plans. Companies commonly attempt to attract new consultants by offering generous compensation plans. From time to time, PartyLite modifies components of its compensation plan in an effort to:

•
keep it competitive and attractive to existing and potential consultants,
•
cause or address a change in the behavior of its consultants,
•
motivate consultants to grow our business,
•
conform to legal and regulatory requirements, and
•
address other business needs.

In light of the size and diversity of our consultant sales force and the complexity of our compensation plan, it is difficult to predict how any changes to the plan would be viewed by PartyLite's consultants and whether such changes will achieve their desired results. There can be no assurance that PartyLite's compensation plan will allow us to successfully attract or retain consultants, nor can we assure that any changes we make to our compensation plan will achieve our desired results.

Since we cannot exert the same level of influence or control over our consultants as we could if they were our employees, we may be unable to enforce compliance with our policies and procedures, which could result in claims against us.

PartyLite's consultants are independent contractors and, accordingly, PartyLite is not in a position to provide the same direction, motivation and oversight as it could if they were its employees. As a result, there can be no assurance that PartyLite's consultants will participate in its marketing strategies or plans, accept the introduction of new products or comply with policies and procedures. Extensive federal, state, local and foreign laws regulate our businesses, products and programs. While we have implemented policies and procedures that are designed to govern consultant conduct so that they comply with this regulatory regime, it can be difficult to enforce these policies and procedures because of the large number of consultants and their independent status. Violations

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by our consultants of applicable laws or of our policies and procedures could reflect negatively on our products and operations, harm our business reputation or lead to the imposition of penalties or claims.

If PartyLite is unable to manufacture its candles at required levels of quantity and quality, then our business, financial
condition and results of operations could be harmed.

PartyLite manufactures substantially all of its candles at its manufacturing facility in Batavia, IL. As a result, PartyLite depends upon the uninterrupted and efficient operation of one manufacturing facility. Those operations are subject to power failures, the breakdown, failure or substandard performance of equipment, the improper installation, maintenance and operation of equipment, natural or other disasters, and the need to comply with the requirements or directives of government agencies. If PartyLite's manufacturing facility were to experience a catastrophic loss, it would disrupt our operations and could result in personal injury or property damage, damage relationships with PartyLite's consultants and customers or result in large expenses to repair or replace the facility, as well as result in other liabilities and adverse impacts. In late April 2015, PartyLite’s manufacturing facility in Batavia, IL suffered a fire in a portion of the facility. Our preliminary assessment is that the fire will not materially disrupt PartyLite’s manufacturing operations, but in light of the recentness of the fire, that preliminary assessment is subject to change as we continue to evaluate the impact of the fire. If PartyLite were to become unable to provide candles in required volumes and at suitable quality levels we would be required to identify and obtain acceptable replacement third party manufacturing sources. There is no assurance that we would be able to obtain alternative manufacturing sources on a timely basis. An extended interruption in the supply of candles would result in loss of sales by PartyLite, which could negatively impact our business, financial condition and results of operations. In addition, any actual or perceived degradation of product quality as a result of reliance on third party manufacturers instead of PartyLite for the manufacture of its candles could have an adverse effect on sales or result in increased product returns.

PartyLite's manufacturing facility is subject to a variety of environmental laws relating to the storage, discharge, handling,
emission, generation, manufacture, use and disposal of chemicals, solid and hazardous waste, and other toxic and hazardous
materials. PartyLite's manufacturing operations presently do not result in the generation of material amounts of hazardous or
toxic substances. Nevertheless, complying with new or more stringent laws or regulations, or more vigorous enforcement of
current or future policies of regulatory agencies, could require substantial expenditures by us that could have a material adverse
effect on our business, financial condition or results of operations. Environmental laws and regulations require us to maintain
and comply with a number of permits, authorizations and approvals and to maintain and update training programs and safety
data regarding materials used in our processes. Violations of those requirements could result in financial penalties and other
enforcement actions and could require us to halt one or more portions of our operations until a violation is cured. The
combined costs of curing incidents of non-compliance, resolving enforcement actions that might be initiated by government
authorities or of satisfying new legal requirements could have a material adverse effect on our business, financial condition or
results of operations.

The failure of our product advertising, promotional programs and recruitment techniques to comply with current or newly adopted regulations could negatively impact our business in a particular market or in general.

There are federal, state, provincial and foreign laws of general application, such as the FTC Act and state, provincial or foreign unfair and deceptive trade practices laws that could potentially be invoked to challenge our advertising, compensation practices or recruitment techniques. In particular, our recruiting efforts include promotional materials for recruits that describe the potential opportunity available to them if they become consultants. These materials, as well as our other recruiting efforts and those of consultants, are subject to scrutiny by the FTC, other enforcement agencies, our competitors, and current or former consultants with respect to misleading statements, including misleading earnings claims made to convince potential new recruits to become consultants. If claims or recruiting techniques used by PartyLite or by its consultants are deemed to be misleading, it could result in violations of the FTC Act or comparable state, provincial or foreign statutes prohibiting unfair or deceptive trade practices, result in reputational harm, or be subject to court challenge under the Lanham Act and state law by our competitors and current and former consultants, any of which could materially harm our business, financial condition and results of operations.

We are subject to the risk that, in one or more markets, our party plan programs could be found not to be in compliance with applicable law or regulations since regulatory requirements concerning direct selling programs do not include “bright line” rules. The failure of our compensation programs to comply with current or newly adopted regulations over “pyramid” or “chain sales” schemes would negatively impact our business in a particular market or in general.

PartyLite's promotional and compensation programs are subject to a number of federal and state regulations administered by the FTC and various state agencies in the United States and the equivalent provincial and federal government agencies in Canada and in the other countries in which it operates. We are subject to the risk that, in one or more markets, our party plan programs could be found not to be in compliance with applicable law or regulations. Regulations applicable to direct selling organizations generally are directed at preventing fraudulent or deceptive schemes, often referred to as “pyramid” or “chain sales” schemes, by ensuring that product sales ultimately are made to consumers and that advancement within an organization is based on sales of the organization's products rather than investments in the organization or other non-retail, non-product sales related criteria. The regulatory

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requirements concerning party plan programs do not include “bright line” rules, and therefore, even in jurisdictions where we believe that our compensation programs are in compliance with applicable laws or regulations, we are subject to the risk that these laws or regulations or the enforcement or interpretation of these laws and regulations by governmental agencies or courts can change. The failure of our compensation programs to comply with current or newly adopted regulations could negatively impact our business in a particular market or in general.

Our products are subject to government regulation, both in the United States and abroad, which could increase our costs significantly and limit or prevent the sale of our products.
The sale, advertisement and promotion of foods, dietary supplements, vitamins, minerals, herbal and homeopathic products and cosmetics that we sell are subject to regulation by the FDA, FTC, USPS, the U.S. Department of Agriculture and state regulatory authorities. Any of these government agencies, as well as legislative bodies, can change existing regulations, or impose new ones, or could take aggressive measures, causing or contributing to a variety of negative consequences, including:
•
requirements for the reformulation of products to meet new standards,
•
the recall or discontinuance of products,
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additional record keeping,
•
expanded documentation of the properties of products,
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expanded or different labeling,
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adverse event tracking and reporting and
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additional scientific substantiation.

Any or all of these requirements could have a material adverse effect on us. There can be no assurance that the regulatory environment in which we operate will not change or that such regulatory environment, or any specific action taken against us, will not result in a material adverse effect on us.

If we do not respond appropriately to changing consumer preferences, we could be vulnerable to increased exposure to
excess and obsolete inventory.

The ability of our businesses to respond to changing consumer preferences and demand for new products or product
enhancements and to manage their inventories properly is an important factor in their operations. The nature of their products
and the rapid changes in consumer preferences leave them vulnerable to an increased risk of inventory obsolescence. Excess or
obsolete inventories can result in lower gross margins due to the excessive discounts and markdowns that might be necessary to
reduce inventory levels. Our success depends in part on the ability of our businesses to anticipate and respond to these changes, and they may not respond in a timely or commercially appropriate manner to such changes. We have in the past written down and written off excess or obsolete inventories. The ability of our businesses to meet future product demand will depend, among other things, upon their success in improving their ability to forecast product demand and fulfill customer orders promptly.

We may incur material product liability claims, which could increase our costs and harm our business.

PartyLite and Silver Star Brands primarily market products for consumer use, although some of their products are also intended for human consumption. As such, we may be subject to product liability claims if the use of our products is alleged to have resulted in injury to consumers, whether from consumption or otherwise. We also may be subjected to product liability claims that relate to the use of candles and claims that our candles and accessories include inadequate instructions as to their uses or inadequate warnings concerning side effects. We cannot ensure that any of our products will never be associated with consumer injury. In addition, many of our products are manufactured by third-party manufacturers that also provide raw materials, which prevent us from having full control over the ingredients contained in many of our products.

Any product liability claim brought against any of our businesses, with or without merit, could result in an increase of our product liability insurance rates. Insurance coverage varies in cost and can be difficult to obtain, and we cannot guarantee that we will be able to obtain insurance coverage in the future on terms acceptable to us or at all. In addition, such liability claims could cause our customers to lose confidence in our products and stop purchasing our products, which would harm our business, financial condition and results of operations.

All of our businesses are subject to risks from increased competition, and our failure to maintain our competitive position
would harm us.

PartyLite's business of selling candles and accessories and Silver Star Brands' business of selling a wide variety of consumer products through catalogs and the Internet are highly competitive both in terms of pricing and new product introductions. The worldwide markets for these products are highly fragmented, with numerous suppliers serving one or more of the distribution channels served by us. In addition, we anticipate that we will be subject to increasing competition in the future from sellers that utilize eCommerce. Some of these competitors have longer operating histories, significantly greater financial, technical, product

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development, marketing and sales resources, greater name recognition, larger established customer bases, and better-developed distribution channels than our businesses. Our current or future competitors may be able to develop products that are comparable or superior to those that we offer, offer competitive products at more attractive prices, adapt more quickly than we do to new technologies, evolving industry trends and standards or consumer requirements, or devote greater resources to the development, promotion and sale of their products than our businesses. Competitors in PartyLite's target market include Yankee Candle and numerous retail establishments, including big-box retailers, that sell a wide variety of candles and accessories. Silver Star Brands competes with numerous general merchandise catalogs, online retailers and retail establishments. In addition, because the industries in which our businesses operate are not particularly capital intensive or otherwise subject to high barriers to entry, it is relatively easy for new competitors to emerge to compete with us for consultants and customers.

PartyLite is subject to significant competition for the recruitment of consultants from other direct selling organizations, including those that market candles and home accessories, as well as other types of products. Furthermore, the fact that our consultants may easily enter and exit our programs contributes to the level of competition that we face. Our ability to remain competitive depends, in significant part, on our success in recruiting and retaining consultants through attractive compensation plans, the maintenance of attractive product portfolios and other incentives. If our businesses are unable to compete effectively in their markets, if competition in their markets intensifies or if we are unable to recruit and retain consultants, our business, financial condition and results of operations would be harmed.

A downturn in the economy may affect consumer purchases of discretionary items such as our products.

Recently, concerns over the global economy, including the recent financial crisis in Europe (including concerns that certain
European countries may default on payments due on their national debt) and the resulting economic uncertainty, as well as
concerns over unemployment in the United States and Europe, inflation, energy costs, geopolitical issues, and the availability
and cost of credit have contributed to increased volatility and diminished expectations for the United States and global
economies. A continued or protracted downturn in the economy could adversely impact consumer purchases of discretionary
items, including all of our products. Factors that could affect consumers' willingness to make such discretionary purchases
include general business conditions, levels of unemployment, political uncertainty, energy costs, interest rates and tax rates, the
availability of consumer credit and consumer confidence. A reduction in consumer spending could significantly reduce our
sales and leave us with unsold inventory.

Our results of operations are significantly affected by our success in increasing sales in our existing markets, as well as
opening new markets. As we continue to expand into international markets, our business becomes increasingly subject to
political, economic, legal and other risks. Changes in these markets could adversely affect our business.

PartyLite has a history of expanding into new international markets. We believe that our ability to achieve future growth is dependent in part on our ability to continue our international expansion efforts. There can be no assurance, however, that we will be able to grow in our existing international markets, enter new international markets on a timely basis or that new markets will be profitable. We must overcome significant regulatory and legal barriers before we can begin marketing in any international market. Also, before marketing commences in a new country or market, it is difficult to assess the extent to which our products and sales techniques will be accepted or successful in any given country. In addition to significant regulatory barriers, we may also encounter problems conducting operations in new markets with different cultures, languages, legal systems and payment methods from those encountered elsewhere. Once we have entered a market, we must adhere to the regulatory and legal requirements of that market. There can be no assurance that we will be able to obtain and retain necessary permits and approvals in new markets, or that we will have sufficient capital to finance our expansion efforts in a timely manner.

In many markets, other direct selling companies already have significant market penetration which may have the
effect of desensitizing the local population to a new opportunity from PartyLite, or to make it more difficult for us to attract qualified consultants. Even if PartyLite is able to commence operations in new markets, there may not be a sufficient population of individuals who are interested in direct selling in general or our business model in particular. We believe our future success will depend in part on our ability to seamlessly integrate PartyLite's compensation plans across all markets where legally permissible. There can be no assurance, however, that we will be able to utilize our compensation plans seamlessly in all existing or future markets.

We face diverse risks in our international business.

We depend on international sales for a substantial amount of our total revenue. For the six months ended June 30, 2015 and the year ended December 31, 2014, revenue from outside the United States represented 49% and 58%, respectively, of our total revenue. We expect international sales to continue to represent a substantial portion of our revenue for the foreseeable future and we plan to expand further into international markets. During 2014 and into 2015, our results of operations were negatively impacted by the significant increase in the value of the U.S. dollar against the euro. Due to our reliance on sales to customers outside the United States, we are subject to the risks of conducting business internationally, including:

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• the acceptability of our products and sales models to international consumers;
• the interest in PartyLite's business, products and compensation programs to prospective overseas consultants;
• adverse fluctuations in world currency exchange rates and interest rates, including risks related to any interest rate
swap or other hedging activities we undertake;
• United States and foreign government trade restrictions, including those which may impose restrictions on imports to
or from the United States;
• foreign government taxes and regulations, including foreign taxes that we may not be able to offset against taxes
imposed upon us in the United States, and foreign tax and other laws limiting our ability to repatriate funds to the
United States;
• laws and policies affecting the importation of goods (including duties, quotas and taxes);
• foreign employment and labor laws, regulations and restrictions;
• difficulty in staffing and managing international operations and difficulty in maintaining quality control;
• political instability, natural disasters, health crises, war or events of terrorism;
• transportation costs and delays; and
• the strength of international economies.

Legal actions by PartyLite's former consultants or third parties against us could harm our business.

PartyLite monitors and reviews the compliance of its consultants with its policies and procedures as well as the laws and regulations applicable to their businesses. From time to time, some consultants fail to adhere to these policies and procedures. In such cases, PartyLite may take disciplinary action against that consultant based on the facts and circumstances of the particular case, which may include, for example, warnings for minor violations to termination of the relationship for more serious violations. From time to time, we become involved in litigation with a former consultant who voluntarily terminated their relationship or whose relationship has been terminated. Sometimes those former consultants have become associated with one of our competitors and that competitor may join in the action. We consider this type of litigation to be routine and incidental to our business. While neither the existence nor the outcome of this type of litigation is typically material to our business, we may become involved in litigation of this nature that results in a large cash award against us. Our competitors have also been involved in this type of litigation and, in some cases, class actions, where the result has been a large cash award against the competitor. These types of challenges, awards or settlements could provide incentives for similar actions by former consultants against us in the future. Any such challenge involving us or others in our industry could harm our business by resulting in fines or damages against us, creating adverse publicity about us or our industry, or hurting our ability to attract and retain consultants. We believe that compliance by consultants with our policies and procedures is critical to the integrity of our business, and, therefore, we will continue to be aggressive in enforcing them. As such, there can be no assurance that this type of litigation will not occur again in the future or result in an award or settlement that has an adverse effect on our business.

Since our businesses rely on independent third parties to manufacture and supply many of their products, if these third
parties fail to reliably supply products at required levels of quantity and quality, then our business, financial condition and
results of operations would be harmed.

PartyLite manufactures substantially all of its candles, but all of its accessories are manufactured by third parties, primarily based overseas. All of Silver Star Brands' products are manufactured and supplied by third party manufacturers, primarily based overseas. If any of the third party manufacturers were to become unable or unwilling to continue to provide products in required volumes and at suitable quality levels, we would be required to identify and obtain acceptable replacement manufacturing sources. There is no assurance that we would be able to obtain alternative manufacturing sources on a timely basis. An extended interruption in the supply of products would result in loss of sales, which could negatively impact our business, financial condition and results of operations. In addition, any actual or perceived degradation of product quality as a result of reliance on third party manufacturers may have an adverse effect on sales or result in increased product returns.

Disruptions to transportation channels that we use to distribute our products may adversely affect us.

We may experience disruptions to the transportation channels used to distribute or import our products, including increased airport and shipping port congestion, lack of transportation capacity, increased fuel expenses and a shortage of manpower. Disruptions in our container shipments may result in increased costs, including the additional use of air freight to meet demand. Silver Star Brands' profitability during the first half of 2015 was negatively impacted by increased outbound freight rates as well as the recent West Coast port strike, with higher order cancellations and additional shipping costs related to backorders. Congestion in ports can affect previously negotiated contracts with shipping companies, resulting in unexpected increases in shipping costs.

Our profitability may be affected by shortages or increases in the cost of raw materials.

Certain raw materials could be in short supply due to price changes, capacity, availability, a change in production requirements,

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weather or other factors, including supply disruptions due to production or transportation delays. PartyLite sources petroleum-based paraffin wax (which is used to manufacture candles) from several suppliers. While the price of crude oil is only one of several factors impacting the price of paraffin, it is possible that fluctuations in oil prices may have a material adverse effect on the cost and availability of petroleum-based products used in the manufacture or transportation of PartyLite's products. In recent years, substantial cost increases for certain raw materials, such as paraffin, soy and paper, negatively impacted our profitability, and the global supply of paraffin has declined. There can be no assurance that PartyLite will have continued access to an adequate supply of paraffin or alternative fuels or that it will able to identify and procure an adequate supply of a suitable replacement if required to do so. In addition, a number of governmental authorities in the United States and abroad have introduced or are contemplating enacting legal requirements, including emissions limitations, cap and trade systems and other measures to reduce production of greenhouse gases, in response to the potential impacts of climate change. These measures may have an indirect effect on us by affecting the prices of products made from fossil fuels, including paraffin. Given the wide range of potential future climate change regulations and their effects on these raw materials, the potential indirect impact to our operations is uncertain. In addition, climate change might contribute to severe weather in the locations where fossil fuel-based raw materials are produced, such as increased hurricane activity in the Gulf of Mexico, which could disrupt the production, availability or pricing of these raw materials. Volatility in the prices of raw materials could increase our cost of sales and reduce our profitability. Moreover, we may not be able to implement price increases for products to cover any increased costs, and any price increases we implement may result in lower sales volumes. If our businesses are not successful in managing ingredient costs, if they are unable to increase their prices to cover increased costs or if such price increases reduce their sales volume, then such increases could harm our business, financial condition and results of operations.

If we lose the services of key employees, then our business, financial condition and results of operations would be harmed.

We depend on the continued services of Robert B. Goergen, our executive Chairman of the Board; Robert B. Goergen, Jr., our President and Chief Executive Officer and President PartyLite Worldwide; and Jane F. Casey, our Vice President and Chief Financial Officer. In addition, PartyLite depends upon the continued services of the other members of its current senior management teams, including the relationships that they have developed with PartyLite's senior independent consultants. The loss or departure of these key employees could negatively impact PartyLite's relationship with its senior independent consultants and harm our business, financial condition and results of operations. If any of these key employees does not remain with us, our business could suffer. The loss of any key employees could negatively impact our ability to implement our business strategy. Our continued success will also depend upon our ability to retain existing, and attract additional, qualified personnel to meet our needs. Replacing key employees may be difficult and may require an extended period of time because of the limited number of individuals in our industry with the necessary breadth of skills and experience.

We may be held responsible for certain taxes or assessments relating to the activities of our consultants.

The earnings of consultants are subject to taxation, and, in some instances, legislation or governmental regulations impose obligations on PartyLite to collect or pay taxes, such as value-added taxes, and to maintain appropriate records. In addition, we may be subject to the risk in some jurisdictions of new liabilities being imposed for social security and similar taxes with respect to consultants. If local laws and regulations or the interpretation of local laws and regulations change to require PartyLite to treat consultants as employees, or if consultants are deemed by local regulatory authorities in one or more of the jurisdictions in which we operate to be our employees rather than independent contractors or agents under existing laws and interpretations, we may be held responsible for social charges and related taxes in those jurisdictions, plus related assessments and penalties.

There can be no assurances that we will identify suitable acquisition candidates, complete acquisitions on terms favorable to
us, successfully integrate acquired operations or that companies we acquire will perform as anticipated.

We seek to grow through strategic acquisitions in addition to internal growth. There can be no assurances that we will identify suitable acquisition candidates, complete acquisitions on terms favorable to us or be able to finance acquisitions. We also may
encounter difficulties in integrating acquisitions with our operations, applying our internal controls processes to these
acquisitions or in managing strategic investments. Additionally, we may not realize the degree or timing of benefits we
anticipate when we first enter into a transaction. We will not be required to submit acquisitions for stockholder approval,
except in certain situations that have not applied to any of our acquisitions and that are unlikely to apply to any future
acquisitions. In addition, accounting requirements relating to business combinations, including the requirement to expense
certain acquisition costs as incurred, may cause us to incur greater earnings volatility and generally lower earnings during
periods in which we acquire new businesses. Furthermore, covenants in our revolving loan agreement and term loan limit or restrict our and our subsidiaries' ability to engage in acquisitions.

The covenants in our revolving loan agreement and term loan limit our operating and financial flexibility.

The asset-based revolving loan agreement and term loan contain covenants that restrict, subject to certain exceptions, our and our domestic subsidiaries’ ability to, among other things: (i) incur indebtedness; (ii) create liens on assets; (iii) engage in mergers or

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consolidations; (iv) engage in certain dispositions or acquisitions of assets; (v) make investments, loans, guarantees or advances; (vi) pay dividends and distributions or repurchase our common stock; (vii) repay certain indebtedness; (viii) enter into sale and leaseback transactions; (ix) engage in certain transactions with affiliates; and (x) change the nature of our or our domestic subsidiaries’ business. In addition, the revolving loan agreement and term loan (a) require us to maintain a fixed charge coverage ratio (“FCCR”) of 1.0 to 1.0 upon the occurrence of certain events or conditions, (b) with certain exceptions, prohibit us from making acquisitions if the FCCR is less than 1.0 to 1.0, and (c) among other conditions, prohibit us from paying dividends or repurchasing our common stock under certain circumstances. Our FCCR was less than 1.0 to 1.0 at June 30, 2015. The term loan also requires us to make certain prepayments out of "excess cash flow" starting in 2017. The revolving loan agreement and term loan also contains certain additional affirmative, negative and financial covenants and events of default.

If our businesses fail to protect their intellectual property, then our ability to compete could be negatively affected.

All of our businesses attempt to protect their intellectual property rights, both in the United States and elsewhere, through a
combination of patent, trademark, copyright and trade secret laws, as well as licensing agreements and third-party nondisclosure and assignment agreements. The failure by our businesses to obtain or maintain adequate protection of their intellectual property rights for any reason could have a material adverse effect on our business, financial condition and results of operations.

We also possess trade secret rights in our consultant lists and related contact information. To protect our trade secrets and other proprietary information, we currently require most of our employees, consultants, advisors and collaborators to enter into confidentiality agreements. We cannot ensure that these agreements will provide meaningful protection for any of our trade secrets, knowhow or other proprietary information in the event of any unauthorized use, misappropriation or disclosure. If we are unable to maintain the proprietary and/or secret nature of our products and consultant lists, we could be materially adversely affected. Further, loss of protection for our consultant lists could harm our ability to recruit and retain consultants, which could harm our financial condition and results of operations.

The market for our products depends to a significant extent upon the goodwill associated with our trademarks and trade names.
We own most of the material trademarks and trade-name rights used in connection with the packaging, marketing and
distribution of our products in the markets where those products are sold. We rely on these trademarks, trade names, trade
dress and brand names to distinguish our products from the products of our competitors, and have registered or applied to
register many of these trademarks. We may not be successful in asserting trademark or trade-name protection against third
parties or otherwise successfully defending against a challenge to our trademarks or trade names. In addition, the laws of
other countries may not protect our intellectual property rights to the same extent as the laws of the United States. In the event that our trademarks or trade names are successfully challenged, we could be forced to rebrand our products, remove products from the market or pay a settlement, which could result in loss of brand recognition, and could require us to devote resources to advertising and marketing new brands and building goodwill in these new brands, trademarks and trade names. Further, we cannot ensure that competitors will not infringe our trademarks, pass off themselves or their goods and services as being ours or associated with ours or otherwise deprecate the value of the goodwill associated with our trademarks and trade names or that we will have adequate resources to enforce our trademarks. Infringement of our trademarks or trade names, passing off by a competitor or deprecating the goodwill associated with our trademarks could impair the goodwill associated with our brands and harm our reputation, which could materially harm our financial condition and results of operations.

We face the risk of claims that we have infringed third parties' intellectual property rights. Any claims of intellectual property
infringement, even those without merit, could be expensive and time consuming to defend; cause us to cease making, licensing,
selling or using products that incorporate the challenged intellectual property; require us to redesign, reengineer, or rebrand our
products or packaging, if feasible; divert management's attention and resources; or require us to enter into royalty or licensing
agreements in order to obtain the right to use a third party's intellectual property. Any royalty or licensing agreements, if
required, may not be available to us on acceptable terms or at all.

We depend upon our information-technology systems, and if we experience interruptions in these systems, our business,
financial condition and results of operations could be negatively impacted.

Our businesses are increasingly dependent on information-technology systems to operate their websites, communicate with
independent consultants, calculate compensation due to consultants, process transactions, manage inventory, purchase, sell and ship goods on a timely basis and maintain cost-efficient operations, including information technology that they license from third parties. There is no guarantee that our businesses will continue to have access to these third-party information-technology systems after the current license agreements expire, and if they do not obtain licenses to use effective replacement information-technology systems, our business, financial condition and results of operations could be adversely affected.

Previously, our businesses have experienced interruptions resulting from upgrades to some of their information-technology
systems that temporarily reduced the effectiveness of their operations. Our information-technology systems depend on global
communication providers, telephone systems, hardware, software and other aspects of Internet infrastructure that have

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experienced system failures in the past. Our systems are susceptible to outages due to fire, floods, power loss,
telecommunication failures and similar events. Despite the implementation of network security measures, our systems are
vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with our systems. The
occurrence of these or other events could disrupt or damage our information-technology systems and inhibit internal operations,
the ability to provide service to our consultants and customers or their ability to access our information systems. If we are unable to effectively upgrade our systems and network infrastructure and take other steps to improve the efficiency of our systems, it could cause system interruptions or delays and adversely affect our operating results.

The Internet plays a major role in our interaction with customers and consultants. The disruptions described above may make our websites and online services unavailable or slow to respond and prevent us from efficiently fulfilling orders, which may reduce our sales and the attractiveness of our products and services. Risks such as changes in required technology interfaces, website downtime and other technical failures, security breaches and consumer privacy regulations are key concerns related to the Internet. Our failure to respond successfully to these risks and uncertainties could reduce sales, increase costs and damage our relationships.

Management uses information systems to support decision-making and to monitor business performance. We may fail to
generate accurate financial and operational reports essential for making decisions at various levels of management. Failure to
adopt systematic procedures to maintain quality information-technology general controls could impact management's decision making and performance monitoring, which could disrupt our business. In addition, if we do not maintain adequate controls
such as reconciliations, segregation of duties and verification to prevent errors or incomplete information, our ability to operate
our business could be limited.

As a result of our online sales, we process, store and transmit large amounts of data, including personal information. If we fail to prevent or mitigate data loss, security breaches or the circumvention of our security measures, our systems could allow data loss or misappropriation of confidential, proprietary and/or personal information - including that of third parties such as consultants and customers collected in our online businesses - or could interrupt our operations, damage our computers or otherwise harm our reputation and business. Although we have developed systems and processes that are designed to protect this information and prevent data loss and security breaches, such measures cannot provide absolute security. In addition, we rely on third party technology, systems and services in certain aspects of our business, including storage encryption and authentication technology to securely transmit confidential information. These third party systems also cannot provide absolute security.

Our storage of user and employee data subjects us to a number of federal, state and foreign laws and regulations governing the collection, storage, handling or sharing of personal data.

We collect, handle, store and disclose personal data collected from users of our websites and mobile applications, as well as our
employees, consultants, and potential and actual purchasers of our products. In this regard, we are subject to a number of U.S. federal, state and foreign laws and regulations. The FTC, state attorneys general and foreign data protection and consumer protection authorities actively investigate and enforce compliance with laws and regulations governing fair information practices, as they are evolving in practice and being tested in courts. These laws, including the FTC Act, could be interpreted in ways that could harm our business, particularly if we are deemed to engage in unfair or deceptive trade practices with regard to our collection, storage, handling or sharing of personal data. Risks attendant upon our conduct of business on the Internet and data collection practices may involve user or employee privacy, data protection, electronic contracts, consumer protection, taxation and online payment services. The adoption of new laws and regulations or changes in the interpretations of existing laws and regulations regarding the storage, handling, collection and sharing of personal data may result in significant compliance costs or otherwise negatively impact our business. Our consultants also collect, store, handle and process personal data. A violation of law or fair information practices by a consultant could cause us financial or reputational harm.

A breach of information security, including a cybersecurity breach or failure of one or more key information technology systems, networks, hardware, processes, associated sites or service providers could have a material adverse impact on our business or reputation.

Numerous and evolving cybersecurity threats pose a potential risk to the security of our information technology systems, networks and services, as well as the confidentiality, availability and integrity of our data. Since the techniques used in these cyber-attacks change frequently and may be difficult to detect for periods of time, we may face difficulties in anticipating and implementing adequate preventative measures. Our information technology systems have been, and will likely continue to be, subject to computer viruses or other malicious codes, unauthorized access attempts, phishing and other cyber-attacks. To date, we have seen no material impact on our business or operations from these attacks; however, we cannot guarantee that our security efforts will prevent breaches or breakdowns to our or our third party providers’ databases or systems. If the information technology systems, networks or service providers we rely upon fail to function properly, or if we or one of our third-party providers suffer a loss, significant unavailability or disclosure of our business, customer, consultant or other information, due to any number of causes, ranging from catastrophic events or power outages to improper data handling or security breaches, and our business continuity plans do not effectively address these failures on a timely basis, we may be exposed to reputational, competitive and business harm as well as

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litigation and regulatory action. The costs and operational consequences of responding to breaches and implementing remediation measures could be significant.

Our business is susceptible to fraud, including credit card and debit card fraud.

Our customers and consultants typically pay for their orders with debit cards or credit cards. Our reputation, business and results of operations could be negatively impacted if we experience credit card and debit card fraud. Failure to adequately detect and avoid fraudulent credit card and debit card transactions could cause our businesses to lose their ability to accept credit cards or debit cards as forms of payment and/or result in charge-backs of the fraudulently charged amounts and/or significantly decrease revenues. Furthermore, credit card and debit card fraud may lessen customers' and consultants' willingness to purchase our products.

Changes in our effective tax rate may have an adverse effect on our financial results.

Our effective tax rate and the amount of our provision for income taxes may be adversely affected by a number of factors,
including:

• the jurisdictions in which profits are determined to be earned and taxed;
• adjustments to estimated taxes upon finalization of various tax returns;
• changes in available tax credits;
• changes in the valuation of our deferred tax assets and liabilities;
• the resolution of issues arising from uncertain positions and tax audits with various tax authorities;
• the non-deductibility of certain expenditures for tax purposes;
• changes in accounting standards or tax laws and regulations, or interpretations thereof; and
• penalties and/or interest expense that we may be required to recognize on liabilities associated with uncertain tax
positions.

A substantial amount of our deferred tax assets include foreign tax credits. We reduce deferred tax assets by a valuation allowance if, based on the weight of available evidence, some portion or all of the deferred tax assets are unlikely to be realized. Recording of valuation allowances includes estimates and therefore involves inherent uncertainty. In the fourth quarter of 2014, we recorded a $19.6 million valuation allowance on foreign tax credits. We may also be required to record valuation allowances in the future, and our future results and financial condition may be adversely affected if we are required to do so. We may also be affected by future tax regulatory changes since the recordation of deferred tax assets and valuation allowances have been made based on the currently effective tax regulations.

We do not collect sales or consumption taxes in some states.

Some jurisdictions have implemented, or may implement, laws that require out-of-state sellers of tangible personal property to collect and remit taxes. In particular, the Streamlined Sales Tax Project (an ongoing, multi-year effort by U.S. state and local governments to pursue federal legislation that would require collection and remittance of remote sales tax by out-of-state sellers) could allow states that meet certain simplification and other standards to require out-of-state sellers to collect and remit sales taxes on goods purchased by in-state residents. The adoption of remote sales tax collection legislation would result in the imposition of sales taxes and additional costs associated with complex sales tax collection, remittance and audit compliance requirements on us. A successful assertion by one or more states or foreign countries requiring us to collect taxes where we do not do so could result in substantial tax liabilities, including for past sales, as well as penalties and interest.

Since our periodic results of operations may fluctuate, we may fail to meet or exceed the expectations of investors or
securities analysts, which could cause our stock price to decline.

Our periodic results of operations have fluctuated in the past and are likely to fluctuate significantly in the future. Our periodic
results of operations may fluctuate as a result of many factors, including those listed below, many of which are outside of our
control:

• demand for and market acceptance of our products;
• our ability to recruit, retain and motivate consultants;
• the timing and success of introductions of new products by us or our competitors;
• the strength of the economy;
• changes in our pricing policies or those of our competitors;
• competition, including entry into the industry by new competitors and new offerings by existing competitors;
• the impact of seasonality on our business; and
• the international expansion of our operations.


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These factors, among others, make business forecasting difficult, may cause quarter to quarter fluctuations in our results of
operations and may impair our ability to predict financial results accurately, which could reduce the market price of our
common stock. Therefore, you should not rely on the results of any one quarter or year as an indication of future performance.
Furthermore, period to period comparisons of our results of operations may not be as meaningful for our company as they may
be for other public companies.

Our profitability could be adversely affected by increased mailing, printing and shipping costs.

Postal rate increases and paper and printing costs affect the cost of our catalog and promotional mailings. Future additional
increases in postal rates or in paper or printing costs would reduce Silver Star Brands' profitability to the extent that it is unable
to pass those increases directly to customers or offset those increases by raising selling prices or by reducing the number and
size of certain catalog circulations. The sales volume and profitability of both of our businesses could be affected by increased costs to ship our products.

The turmoil in the financial markets in recent years could increase our cost of borrowing and impede access to or increase
the cost of financing our operations and investments and could result in additional impairments to our businesses.

United States and global credit and equity markets have undergone significant disruption in recent years, making it difficult for
many businesses to obtain financing on acceptable terms, if at all. In addition, in recent years equity markets have experienced
rapid and wide fluctuations in value. If these conditions continue or worsen, our cost of borrowing may increase and it may be
more difficult to obtain financing for our businesses. In addition, while our debt is not currently being rated, our future borrowing costs could be affected by short and long-term debt ratings assigned by independent rating agencies if we choose to raise capital with public debt. A decrease in these ratings by the agencies would likely increase our cost of future borrowings and/or make it more difficult for us to obtain financing. In the event current market conditions continue we will more than likely be subject to higher interest costs than we are currently incurring. In addition, we may be subject to future impairments of our assets, including accounts receivable, inventories, property, plant and equipment, goodwill and other intangibles, if the valuation of these assets or businesses declines.

We have agreed to lend ViSalus up to $6.0 million and to reimburse them for up to $4.0 million in legal fees.

In October 2014, we and ViSalus entered into a revolving loan agreement pursuant to which we agreed to lend ViSalus up to $6.0 million. The revolving loan agreement will terminate on the later of (i) October 17, 2019 or (ii) resolution of the putative class action that is pending against ViSalus and others in the United States District Court in the Eastern District of Michigan, Southern Division (the “ViSalus Lawsuit”). Loans made under the revolving loan agreement will be unsecured and there are no financial performance covenants under the loan agreement and limited negative covenants. ViSalus will be permitted to obtain financing from other parties, whether that financing is secured or unsecured. In addition, in connection with the ViSalus recapitalization in September 2014, we agreed to reimburse and pay on behalf of ViSalus 80% of the legal fees and disbursements reasonably charged by ViSalus’s legal counsel and reasonable out-of-pocket expenses incurred by ViSalus in defending ViSalus and certain others against the claims asserted by the plaintiffs in the ViSalus Lawsuit, up to a maximum amount of $4.0 million.

The operation of Silver Star Brands' credit program, including higher than expected rates of customer defaults, could
adversely affect Silver Star Brands' sales and earnings and impact its cash flow from operations.

Silver Star Brands allows some of its customers to purchase products and pay for them with monthly payments over time,
which impacts Silver Star Brands' working capital requirements and cash flow from operations. Although customers are
selected and dollar limits on their purchases under the program are set using parameters that seek to ensure that most customers
will be able to make the monthly payments under the program, some customers default on their obligations under the program
and there is a risk that defaults may occur in larger than anticipated amounts. In addition the program may become subject to
regulatory regimes including, but not limited to, regulations that might be issued by the Consumer Financial Protection Bureau.
The operation of the credit program and the application of such regulatory regimes or changes to them, if either occurs, may
affect Silver Star Brands' sales and/or financial performance.

Our stock price has been volatile, has a small public float and is subject to market conditions.

The trading price of our common stock has been subject to wide fluctuations. Due to the large ownership of our common stock
by Robert B. Goergen and his affiliates, we have a relatively small public float compared to the number of our shares
outstanding. Accordingly, we cannot predict the extent to which investors' interest in our common stock will provide an active
and liquid trading market.

If securities or industry analysts do not publish research reports about our business, or publish negative reports about
our business, our share price and trading volume could decline.

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The trading market for our common stock depends, to some extent, on the research reports that securities or industry
analysts may publish about us. We are not currently followed by securities or industry analysts, and there can be no assurance
that any analysts will begin to follow us. In the event that securities or industry analysts begin to cover us, we will not have
any control over them or the reports that they may issue. If our financial performance fails to meet analyst estimates in the
future or one or more of the analysts who cover us at such time downgrade our shares or change their opinion of our shares, our
share price would likely decline. Since we are not currently followed by analysts, we do not have significant visibility in the
financial markets, which could cause our share price or trading volume to decline. Moreover, since we do not currently have any analyst coverage, the price of our stock may be influenced by articles and opinions expressed in newsletters or on Internet message boards, any of which may contain inaccuracies or misstatements. If analysts begin to cover us and one or
more of such analysts cease coverage of our company or fail to regularly publish reports on us, our share price or trading
volume may decline. Our operating results in future quarters may be below the expectations of securities analysts and
investors. If that were to occur, the price of our common stock would likely decline, perhaps substantially.

If we fail to comply with Section 404 of the Sarbanes-Oxley Act of 2002, the market may have reduced confidence in our
reported financial information.

We must continue to document, test, monitor and enhance our internal control over financial reporting in order to satisfy the
requirements of Section 404 of the Sarbanes-Oxley Act of 2002. We will continue to perform the documentation and
evaluations needed to comply with Section 404. If during this process our management identifies one or more material
weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective,
which may cause market participants to have reduced confidence in our reported financial condition.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth certain information concerning repurchases of our common stock during the quarter ended June 30, 2015.

Issuer Purchases of Equity Securities (1)
Period
Total Number of
Shares Purchased
 
Price Paid
per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
April 1, 2015 - April 30, 2015
—

 
$
—

 
—

 
1,005,578

May 1, 2015 - May 31, 2015
—

 
—

 
—

 
1,005,578

June 1, 2015 - June 30, 2015
—

 
—

 
—

 
1,005,578

Total
—

 
$
—

 
—

 
1,005,578

(1) On September 10, 1998, our Board of Directors approved a share repurchase program pursuant to which we were originally authorized to repurchase up to 500,000 shares of common stock in open market transactions. From June 1999 to June 2006 the Board of Directors increased the authorization under this repurchase program five times (on June 8, 1999 to increase the authorization by 500,000 shares to 1.0 million shares; on March 30, 2000 to increase the authorization by 500,000 shares to 1.5 million shares; on December 14, 2000 to increase the authorization by 500,000 shares to 2.0 million shares; on April 4, 2002 to increase the authorization by 1.0 million shares to 3.0 million shares; and on June 7, 2006 to increase the authorization by 3.0 million shares to 6.0 million shares). On December 13, 2007, the Board of Directors authorized a new repurchase program, for 3.0 million shares, which became effective after we exhausted the authorized amount under the old repurchase program. As of June 30, 2015, we have purchased a total of 7,994,422 shares of common stock under the old and new repurchase programs. The new repurchase program does not have an expiration date. We intend to make further purchases under our repurchase program from time to time. Our revolving loan agreement and term loan limit and restrict our ability to repurchase our common stock. The amounts set forth in this paragraph have been adjusted to give effect to the 1-for-4 reverse stock split implemented in January 2009 and the 2-for-1 stock split implemented in June 2012.


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Item 3.  Defaults upon Senior Securities.
 
None.

Item 4.  Mine Safety Disclosures.

Not applicable.
 
Item 5. Other information
 
A Current Report on Form 8-K triggering event occurred within four business days before the filing of this Quarterly Report on Form 10-Q. We are satisfying the obligations under Form 8-K by including the disclosure required thereby in this Item 5.

Item 2.02 Results of Operations and Financial Condition.

On August 6, 2015, we issued a press release reporting our financial results for the quarterly period ended June 30, 2015. The information contained in this Item 2.02 shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.


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Item 6. Exhibits
Exhibit No.
Description of Exhibit
 
 
4.2(a)*
Amendment No. 1 to Loan and Security Agreement, dated as of May 18, 2015, among Blyth, Inc., certain of Blyth, Inc.’s subsidiaries which are signatory thereto, and Bank of America, N.A.
 
 
10.1*+
Form of Restricted Stock Unit Agreement under the Blyth, Inc. Second Amended and Restated Omnibus
Incentive Plan
 
 
31.1*
Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
 
 
31.2*
Certification of Vice President and Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
 
 
32.1*
Certification of President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
32.2*
Certification of Vice President and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
99.1*
Press release reporting financial results for the quarter ended June 30, 2015.
 
 
101.INS
XBRL Instance Document
 
 
101.SCH
XBRL Taxonomy Extension Schema Document
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document

*
Filed herewith.
+
Management contract or compensatory plan required to be filed by Item 15(a)(3) of this report.



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SIGNATURES

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


BLYTH, INC.


Date:
August 6, 2015
 
By:/s/Robert B. Goergen, Jr. 
 
 
 
Robert B. Goergen, Jr.
 
 
 
President and Chief Executive Officer
 
 
 
 
Date:
August 6, 2015
 
By:/s/Jane F. Casey
 
 
 
Jane F. Casey
 
 
 
Vice President and Chief Financial Officer
 
 
 
 
Date:
August 6, 2015
 
By:/s/Joseph T. Cirillo
 
 
 
Joseph T. Cirillo
 
 
 
Vice President, Controller and Chief Accounting Officer


46

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