**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington D.C. 20549**

**FORM 10-Q**

**(MarkOne)**

**x****                             ****QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

## **For the quarterly period ended July 31, 2006**

**or**

**o****                                ****TRANSITION REPORT PURSUANTTO 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)                                                        |   | (IRS Employer  Identification No.) |
|                                                                                                                   |   |                               |
| **One  East Weaver Street, Greenwich, Connecticut  06831**                                                   |
| (Address of  principal executive offices)           (Zip  Code) |

**(203) 661-1926**

(Registrant’s telephone number, including area code)

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

Yes  x   No  o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large acceleratedfiler  x        Accelerated filer  o         Non-Acceleratedfiler  o

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).

Yes  o      No  x

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

**39,179,262 Common Shares as of August31, 2006**

 

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**BLYTH, INC.**

#### **INDEX**

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

 

2

----

 

Part I.   FINANCIAL INFORMATION

Item I.   FINANCIAL STATEMENTS

**BLYTH,INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**
| ** **                                                                                                                      | ** ** | **July 31,** | ** ** | **January 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|----------------------|------------|
| **(In thousands, except share and per share data)**                                          | ** ** | **2006**          | ** ** | **2006**             | ** ** |
| **ASSETS**                                                                                                                      |       |              |       |                 |       |
| **Current assets:**                                                                                                             |       |              |       |                 |       |
| Cash and cash  equivalents                                                                                                      |       | $                 | 83,586     |                 | $          | 242,068 |   |
| Short-term investments                                                                                                          |       | 73,135            |       | —               |       |
| Accounts receivable,  less allowance for doubtful receivables of $2,513 and $3,892, respectively                                |       | 59,413            |       | 109,857              |       |
| Inventories                                                                                                                     |       | 199,891           |       | 237,753              |       |
| Prepaid and other                                                                                                               |       | 37,745            |       | 35,643               |       |
| Assets held for sale                                                                                                            |       | —            |       | 3,027                |       |
| Deferred income taxes                                                                                                           |       | 16,943            |       | 20,645               |       |
| Assets of discontinued  operations                                                                                              |       | 49,176            |       | —               |       |
| Total current  assets                                                                                                           |       | 519,889           |       | 648,993              |       |
| **Property, plant and equipment,  at cost:**                                                                                    |       |              |       |                 |       |
| Less accumulated  depreciation of $194,015 and $264,941, respectively                                                           |       | 166,735           |       | 225,826              |       |
| **Other assets:**                                                                                                               |       |              |       |                 |       |
| Investment                                                                                                                      |       | 3,336             |       | 3,397                |       |
| Goodwill                                                                                                                        |       | 90,650            |       | 185,127              |       |
| Other intangible  assets, net of accumulated amortization of $6,850 and $5,917, respectively                                    |       | 36,250            |       | 37,183               |       |
| Other long-term assets                                                                                                          |       | 15,784            |       | 15,994               |       |
|                                                                                                                            |       | 146,020           |       | 241,701              |       |
| Total assets                                                                                                                    |       | $                 | 832,644    |                 | $          | 1,116,520 |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                  |       |              |       |                 |       |
| **Current liabilities:**                                                                                                        |       |              |       |                 |       |
| Bank lines of credit                                                                                                            |       | $                 | —     |                 | $          | 25,772 |   |
| Current maturities of  long-term debt                                                                                           |       | 860               |       | 1,049                |       |
| Accounts payable                                                                                                                |       | 57,248            |       | 75,735               |       |
| Accrued expenses                                                                                                                |       | 67,183            |       | 93,000               |       |
| Income taxes payable                                                                                                            |       | 4,473             |       | 14,296               |       |
| Liabilities of  discontinued operations                                                                                         |       | 48,280            |       | —               |       |
| Total current  liabilities                                                                                                      |       | 178,044           |       | 209,852              |       |
| **Deferred income taxes**                                                                                                       |       | 21,192            |       | 39,383               |       |
| **Long-term debt, less current  maturities**                                                                                    |       | 265,736           |       | 344,921              |       |
| **Other long-term liabilities**                                                                                                 |       | 23,431            |       | 28,540               |       |
| **Commitments and contingencies**                                                                                               |       | —            |       | —               |       |
| **Stockholders’ equity:**                                                                                                  |       |              |       |                 |       |
| Preferred stock -  authorized 10,000,000 shares of $0.01 par value; no shares issued and  outstanding                           |       | —            |       | —               |       |
| Common stock -  authorized 100,000,000 shares of $0.02 par value; issued 50,528,060 shares  and 50,528,060 shares, respectively |       | 1,010             |       | 1,010                |       |
| Additional contributed  capital                                                                                                 |       | 125,398           |       | 127,580              |       |
| Retained earnings                                                                                                               |       | 528,705           |       | 657,983              |       |
| Accumulated other  comprehensive income                                                                                         |       | 12,297            |       | (1,935               | )          |
| Unearned compensation  on restricted stock                                                                                      |       | —            |       | (3,070               | )          |
| Treasury stock, at  cost, 11,335,798 shares 9,533,416 shares, respectively                                                      |       | (323,169          | )          | (287,744             | )          |
| Total  stockholders’ equity                                                                                                |       | 344,241           |       | 493,824              |       |
| Total liabilities and  stockholders’ equity                                                                                |       | $                 | 832,644    |                 | $          | 1,116,520 |   |

 

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

3

----

 

**BLYTH, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF EARNINGS (LOSS)**

**(Unaudited)**
| **Six months ended July 31 (In thousands, except per share data)** | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Net sales                                                                                                            |       | $        | 542,864    |     | $          | 545,098 |   |
| Cost of goods  sold                                                                                                  |       | 273,484  |       | 261,468  |       |
| Gross profit                                                                                                         |       | 269,380  |       | 283,630  |       |
| Selling                                                                                                              |       | 183,856  |       | 182,306  |       |
| Administrative                                                                                                       |       | 62,417   |       | 62,795   |       |
| Goodwill  impairment                                                                                                 |       | 36,769   |       | —   |       |
|                                                                                                                 |       | 283,042  |       | 245,101  |       |
| Operating profit (loss)                                                                                              |       | (13,662  | )          | 38,529   |       |
| Other expense  (income):                                                                                             |       |     |       |     |       |
| Interest expense                                                                                                     |       | 9,989    |       | 9,257    |       |
| Interest income                                                                                                      |       | (3,533   | )          | (739     | )          |
| Foreign exchange and other                                                                                           |       | (592     | )          | 875      |       |
|                                                                                                                 |       | 5,864    |       | 9,393    |       |
| Earnings (loss) before income taxes and minority  interest                                                           |       | (19,526  | )          | 29,136   |       |
| Income tax  expense (benefit)                                                                                        |       | (6,975   | )          | 8,427    |       |
| Earnings (loss) before minority interest                                                                             |       | (12,551  | )          | 20,709   |       |
| Minority  interest                                                                                                   |       | 74       |       | (561     | )          |
| Earnings (loss) from continuing operations                                                                           |       | (12,625  | )          | 21,270   |       |
| Loss from  discontinued operations, net of income tax benefit of ($1,041) in 2006 and  ($3,927) in 2005 (note 3)     |       | (107,351 | )          | (7,156   | )          |
| Net earnings (loss)                                                                                                  |       | $        | (119,976   | )        | $          | 14,114 |   |
| Basic:                                                                                                               |       |     |       |     |       |
| Earnings (loss) from continuing operations per  common share                                                         |       | $        | (0.31      | )        | $          | 0.52 |   |
| Loss from discontinued operations per common share                                                                   |       | (2.66    | )          | (0.17    | )          |
| Net earnings (loss) per common share                                                                                 |       | $        | (2.98      | )        | $          | 0.34 |   |
| Weighted average number of shares outstanding                                                                        |       | 40,312   |       | 40,933   |       |
| Diluted:                                                                                                             |       |     |       |     |       |
| Earnings (loss) from continuing operations per  common share                                                         |       | $        | (0.31      | )        | $          | 0.52 |   |
| Loss from discontinued operations per common share                                                                   |       | (2.66    | )          | (0.17    | )          |
| Net earnings (loss) per common share                                                                                 |       | $        | (2.98      | )        | $          | 0.34 |   |
| Weighted average  number of shares outstanding                                                                       |       | 40,312   |       | 41,214   |       |

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

4

----

 

 

**BLYTH, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTSOF EARNINGS (LOSS)**

**(Unaudited)**

 
| **Three months ended July 31 (In thousands, except per share data)** | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Net sales                                                                                                              |       | $        | 262,617    |     | $          | 256,276 |   |
| Cost of goods  sold                                                                                                    |       | 134,571  |       | 124,437  |       |
| Gross profit                                                                                                           |       | 128,046  |       | 131,839  |       |
| Selling                                                                                                                |       | 86,744   |       | 82,864   |       |
| Administrative                                                                                                         |       | 32,258   |       | 32,051   |       |
| Goodwill  impairment                                                                                                   |       | 36,769   |       | —   |       |
|                                                                                                                   |       | 155,771  |       | 114,915  |       |
| Operating profit (loss)                                                                                                |       | (27,725  | )          | 16,924   |       |
| Other expense  (income):                                                                                               |       |     |       |     |       |
| Interest expense                                                                                                       |       | 5,288    |       | 4,867    |       |
| Interest income                                                                                                        |       | (1,747   | )          | (229     | )          |
| Foreign exchange and other                                                                                             |       | (103     | )          | (109     | )          |
|                                                                                                                   |       | 3,438    |       | 4,529    |       |
| Earnings (loss) before income taxes and minority  interest                                                             |       | (31,163  | )          | 12,395   |       |
| Income tax  expense (benefit)                                                                                          |       | (10,434  | )          | 4,026    |       |
| Earnings (loss) before minority interest                                                                               |       | (20,729  | )          | 8,369    |       |
| Minority  interest                                                                                                     |       | 40       |       | (296     | )          |
| Earnings (loss) from continuing operations                                                                             |       | (20,769  | )          | 8,665    |       |
| Loss from  discontinued operations, net of income tax expense (benefit) of $892 in 2006  and ($3,501) in 2005 (note 3) |       | (68,598  | )          | (4,511   | )          |
| Net earnings (loss)                                                                                                    |       | $        | (89,367    | )        | $          | 4,154 |   |
| Basic:                                                                                                                 |       |     |       |     |       |
| Earnings (loss) from continuing operations per  common share                                                           |       | $        | (0.52      | )        | $          | 0.21 |   |
| Loss from discontinued operations per common share                                                                     |       | (1.72    | )          | (0.11    | )          |
| Net earnings (loss) per common share                                                                                   |       | $        | (2.24      | )        | $          | 0.10 |   |
| Weighted average number of shares outstanding                                                                          |       | 39,821   |       | 40,962   |       |
| Diluted:                                                                                                               |       |     |       |     |       |
| Earnings (loss) from continuing operations per  common share                                                           |       | $        | (0.52      | )        | $          | 0.21 |   |
| Loss from discontinued operations per common share                                                                     |       | (1.72    | )          | (0.11    | )          |
| Net earnings (loss) per common share                                                                                   |       | $        | (2.24      | )        | $          | 0.10 |   |
| Weighted average  number of shares outstanding                                                                         |       | 39,821   |       | 41,207   |       |

 

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

5

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**BLYTH, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**

**(Unaudited)**
| ** **                                                           | ** ** | ** ** | ** ** | ** **      | ** ** | ** **   | ** ** | ** **   | ** ** | ** **       | ** ** | **Accumulated**        | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------|------------|------------|------------|-----------------|------------|--------------|------------|--------------|------------|------------------|------------|------------------------|------------|------------|------------|
| ** **                                                           | ** ** | ** ** | ** ** | **Additional**  | ** ** | ** **   | ** ** | ** **   | ** ** | ** **       | ** ** | **Other**              | ** ** | ** ** | ** ** |
| ** **                                                           | ** ** | **Common** | ** ** | **Contributed** | ** ** | **Retained** | ** ** | **Treasury** | ** ** | **Unearned**     | ** ** | **Comprehensive**      | ** ** | ** ** | ** ** |
| **(In thousands, except share data)**            | ** ** | **Stock**  | ** ** | **Capital**     | ** ** | **Earnings** | ** ** | **Stock**    | ** ** | **Compensation** | ** ** | **Income (Loss)** | ** ** | **Total**  | ** ** |
| **For the  six months ended July 31, 2005:**                         |       |       |       |            |       |         |       |         |       |             |       |                   |       |       |       |
| Balance, February  1, 2005                                           |       | $          | 1,007      |            | $          | 118,148      |       | $            | 651,156    |             | $          | (285,064               | )          | $          | —     |   | $ | 36,102 |   | $ | 521,349 |   |
| Net earnings for  the period                                         |       |       |       |            |       | 14,114       |       |         |       |             |       |                   |       | 14,114     |       |
| Foreign currency  translation adjustments                            |       |       |       |            |       |         |       |         |       |             |       | (29,312                | )          | (29,312    | )          |
| Unrealized  holding gains on certain investments (net of tax of $57) |       |       |       |            |       |         |       |         |       |             |       | 151                    |       | 151        |       |
| Net gain on  hedging instruments  (net of tax of $441)               |       |       |       |            |       |         |       |         |       |             |       | 1,079                  |       | 1,079      |       |
| Comprehensive  loss                                                  |       |       |       |            |       |         |       |         |       |             |       |                   |       | (13,968    | )          |
| Common stock  issued in connection with long-term incentive plan     |       | 3          |       | 3,399           |       |         |       |         |       |             |       |                   |       | 3,402      |       |
| Tax benefit from  stock options                                      |       |       |       | 313             |       |         |       |         |       |             |       |                   |       | 313        |       |
| Issuance of  restricted stock, net of cancellations                  |       |       |       | 5,603           |       |         |       | (495         | )          | (5,108           | )          |                   |       | —     |       |
| Amortization of  unearned compensation                               |       |       |       |            |       |         |       |         |       | 1,150            |       |                   |       | 1,150      |       |
| Dividends                                                            |       |       |       |            |       | (8,601       | )          |         |       |             |       |                   |       | (8,601     | )          |
| Treasury stock  purchases                                            |       |       |       |            |       |         |       | (2,071       | )          |             |       |                   |       | (2,071     | )          |
| Balance, July 31,  2005                                              |       | $          | 1,010      |            | $          | 127,463      |       | $            | 656,669    |             | $          | (287,630               | )          | $          | (3,958     | ) | $ | 8,020 |   | $ | 501,574 |   |
| **For the  six months ended July 31, 2006:**                         | ** ** | ** ** | ** ** | ** **      | ** ** | ** **   | ** ** | ** **   | ** ** | ** **       | ** ** | ** **             | ** ** | ** ** | ** ** |
| Balance, February  1, 2006                                           |       | $          | 1,010      |            | $          | 127,580      |       | $            | 657,983    |             | $          | (287,744               | )          | $          | (3,070     | ) | $ | (1,935 | ) | $ | 493,824 |   |
| Net loss for the  period                                             |       |       |       |            |       | (119,976     | )          |         |       |             |       |                   |       | (119,976   | )          |
| Foreign currency  translation adjustments                            |       |       |       |            |       |         |       |         |       |             |       | 14,288                 |       | 14,288     |       |
| Unrealized  holding gains on certain investments (net of tax of $4)  |       |       |       |            |       |         |       |         |       |             |       | 6                      |       | 6          |       |
| Net loss on  hedging instruments  (net of tax of $33)                |       |       |       |            |       |         |       |         |       |             |       | (62                    | )          | (62        | )          |
| Comprehensive  loss                                                  |       |       |       |            |       |         |       |         |       |             |       |                   |       | (105,744   | )          |
| Reclassification  of unearned compensation                           |       |       |       | (3,070          | )          |         |       |         |       | 3,070            |       |                   |       | —     |       |
| Cancellations of  restricted stock                                   |       |       |       | 438             |       |         |       | (438         | )          |             |       |                   |       | —     |       |
| Amortization of  unearned compensation                               |       |       |       | 450             |       |         |       |         |       |             |       |                   |       | 450        |       |
| Dividends                                                            |       |       |       |            |       | (9,302       | )          |         |       |             |       |                   |       | (9,302     | )          |
| Treasury stock  purchases                                            |       |       |       |            |       |         |       | (34,987      | )          |             |       |                   |       | (34,987    | )          |
| Balance, July 31, 2006                                               |       | $          | 1,010      |            | $          | 125,398      |       | $            | 528,705    |             | $          | (323,169               | )          | $          | —     |   | $ | 12,297 |   | $ | 344,241 |   |

 

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

6

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**BLYTH, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**
| **Six months ended July 31 (In thousands)**                              | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Cash flows from  operating activities:                                                                 |       |     |       |     |       |
| Net earnings (loss)                                                                                    |       | $        | (119,976   | )        | $          | 14,114 |   |
| Adjustments to reconcile net earnings (loss) to net  cash used in operating activities:                |       |     |       |     |       |
| Loss on sale of discontinued operations, net of tax                                                    |       | 92,897   |       | —   |       |
| Depreciation and amortization                                                                          |       | 17,234   |       | 18,843   |       |
| Loss (gain) on disposition of fixed assets                                                             |       | 1,144    |       | (18      | )          |
| Tax benefit from stock options                                                                         |       | —   |       | 313      |       |
| Amortization of unearned compensation on restricted  stock                                             |       | 450      |       | —   |       |
| Deferred income taxes                                                                                  |       | (10,094  | )          | (1,120   | )          |
| Equity in loss of investee                                                                             |       | 60       |       | 243      |       |
| Minority interest                                                                                      |       | (45      | )          | (674     | )          |
| Goodwill impairment                                                                                    |       | 36,769   |       | —   |       |
| Loss on sale of assets held for sale                                                                   |       | 79       |       | —   |       |
| Changes in operating assets and liabilities, net of effect  of business acquisitions and divestitures: |       |     |       |     |       |
| Accounts receivable                                                                                    |       | 16,253   |       | 20,700   |       |
| Inventories                                                                                            |       | (24,030  | )          | (70,394  | )          |
| Prepaid and other                                                                                      |       | (12,724  | )          | (7,438   | )          |
| Deposits and other assets                                                                              |       | 1,067    |       | (128     | )          |
| Accounts payable                                                                                       |       | (6,449   | )          | (14,382  | )          |
| Accrued expenses                                                                                       |       | (14,392  | )          | (20,914  | )          |
| Other liabilities                                                                                      |       | (1,945   | )          | 1,601    |       |
| Income taxes                                                                                           |       | (10,990  | )          | (8,913   | )          |
| Net cash used in operating activities                                                                  |       | (34,692  | )          | (68,167  | )          |
| Cash flows from  investing activities:                                                                 |       |     |       |     |       |
| Purchases of property, plant and equipment                                                             |       | (8,743   | )          | (7,445   | )          |
| Purchases of short-term investments                                                                    |       | (744,341 | )          | —   |       |
| Proceeds from sales of short-term investments                                                          |       | 671,206  |       | —   |       |
| Proceeds from sale of property, plant and equipment                                                    |       | 5,458    |       | —   |       |
| Proceeds from sale of businesses, net of cash  disposed                                                |       | 69,208   |       | —   |       |
| Purchases of businesses, net of cash acquired                                                          |       | (6,654   | )          | (3,954   | )          |
| Net cash used in investing activities                                                                  |       | (13,866  | )          | (11,399  | )          |
| Cash flows from  financing activities:                                                                 |       |     |       |     |       |
| Proceeds from issuance of common stock                                                                 |       | —   |       | 3,402    |       |
| Purchases of treasury stock                                                                            |       | (34,987  | )          | (2,071   | )          |
| Borrowings from bank lines of credit                                                                   |       | 32,903   |       | 57,149   |       |
| Repayments on bank lines of credit                                                                     |       | (26,664  | )          | (10,094  | )          |
| Repayments of long-term debt                                                                           |       | (72,607  | )          | (4,398   | )          |
| Dividends paid                                                                                         |       | (9,302   | )          | (8,601   | )          |
| Net cash provided by (used in) financing activities                                                    |       | (110,657 | )          | 35,387   |       |
| Effect of  exchange rate changes on cash                                                               |       | 3,661    |       | (3,196   | )          |
| Net decrease in cash and cash equivalents                                                              |       | (155,554 | )          | (47,375  | )          |
| Less: cash and  cash equivalents of discoutinued operations at end of period                           |       | 2,928    |       | —   |       |
| Cash and cash  equivalents at beginning of period                                                      |       | 242,068  |       | 91,695   |       |
| Cash and cash  equivalents at end of period                                                            |       | $        | 83,586     |     | $          | 44,320 |   |
|                                                                                                   |       |     |       |     |       |
| Supplemental  disclosure of cash flow information:                                                     |       |     |       |     |       |
| Non-cash transactions:                                                                                 |       |     |       |     |       |
| Capital lease  for equipment                                                                           |       | $        | 997        |     | —     |   |

 

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

7

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**BLYTH, INC. AND SUBSIDIARIES**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**1.             Basis of Presentation**

The condensedconsolidated financial statements include the accounts of the Company and itsdirect and indirect subsidiaries.  Allsignificant intercompany accounts and transactions have been eliminated.  Investments in companies that are notmajority owned or controlled are reported using the equity method and arerecorded in investments.  Certain of theCompany’s subsidiaries operate on a 52- or 53-week fiscal year ending on theSaturday closest to January 31.  Europeanoperations maintain a calendar year accounting period, which is consolidatedwith the Company’s fiscal period.  In theopinion of management, the accompanying unaudited condensed consolidatedfinancial statements include all adjustments necessary for fair presentation ofthe Company’s consolidated financial position at July 31, 2006 and theconsolidated results of its operations and cash flows for the six month periodsended July 31, 2006 and 2005.  Theseinterim statements should be read in conjunction with the Company’sconsolidated financial statements for the fiscal year ended January 31, 2006,as set forth in the Company’s Annual Report on Form 10-K.  Operating results for the six months endedJuly 31, 2006 are not necessarily indicative of the results that may beexpected for the fiscal year ending January 31, 2007.

**Stock Based Compensation**

**Summary of Plans**

AtJuly 31, 2006, the Company had one stock-based compensation plan, the 2003Long-Term Incentive Plan (“2003 Plan”), available to grant future awards, asdescribed below, and two terminated or expired stock-based compensation plans(the Amended and Restated 1994 Employee Stock Option Plan and the Amended andRestated 1994 Stock Option Plan for Non-Employee Directors), under which vestedand unexercised options remain outstanding. At July 31, 2006, there were 6,500,100 shares authorized for grant underthese plans.

**On April 1, 2003, the Board of Directors of theCompany unanimously approved the adoption of the 2003 Plan and the stockholdersapproved the 2003 Plan on June 4, 2003. The 2003 Plan provides for grants of incentive and nonqualified stockoptions, stock appreciation rights, restricted stock, restricted stock units,performance shares, performance units, dividend equivalents and other stockunit awards to officers and employees. The 2003 Plan also provides for grants of nonqualified stock options todirectors of the Company who are not, and who have not been during theimmediately preceding 12-month period officers or employees of the Company orany of its subsidiaries.**

**On March 31, 2004, the Board of Directors of theCompany unanimously approved Amendment No. 1 to the 2003 Plan, and thestockholders approved Amendment No. 1 to the 2003 Plan at the Annual Meeting ofStockholders on June 24, 2004 (the “2004 Annual Meeting”), effective as of suchapproval, non-employee directors will no longer receive option grants.  Instead, annual awards will be determined bythe Company’s full Board of Directors, subject to an annual limit of awards of5,000 shares of Common Stock or share equivalents for new non-employeedirectors and 2,500 shares of Common Stock or share equivalents for continuingnon-employee directors.  At the 2004Annual Meeting, each non-employee director with at least six months service wasgranted 1,500 restricted stock units vesting in two equal installmentsbeginning on the first anniversary of the date of grant.  At the 2005 Annual Meeting, each non-employeedirector was granted 1,500 restricted stock units (except one non-employeedirector was granted 2,500 restricted stock units) vesting in two equalinstallments beginning on the first anniversary of the date of grant.  At the 2006 Annual Meeting, each non-employeedirector was granted 1,500 restricted stock units vesting in two equalinstallments beginning on the first anniversary of the date of grant.**

Restricted stock and restricted stock units (RSUs) aregranted to certain employees to incent performance and retention.  RSUs issued under the plans provide thatshares awarded may not be sold or otherwise transferred until restrictions havelapsed.  The release of RSUs on each ofthe Vesting Dates is contingent upon continued active employment by theemployee until the Vesting Dates.

8

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OnDecember 9, 2005, the Board of Directors of the Company approved theacceleration of the vesting of all unvested stock options.  Stock option awards granted from December 10,2000 through the date of acceleration with respect to approximately 350,000shares of the Company’s common stock, which represented 100% of the unvestedoptions, were subject to this acceleration, which was effective as of December9, 2005.  Virtually all of these optionshad exercise prices in excess of the current market values and were not fullyachieving their original objectives of incentive compensation and employeeretention.

The total compensationexpense related to all stock-based compensation plans for the three- andsix-month periods ended July 31, 2006 was approximately $0.4 million and $0.7million, respectively.  The totalcompensation expense related to all stock-based compensation plans for thethree- and six-month periods ended July 31, 2005 was approximately $0.2 millionand $0.4 million, respectively.  The taxbenefit recognized for the three- and six-month periods ended July 31, 2006 wasapproximately $0.1 million and $0.2 million, respectively.  The tax benefit recognized for the three- andsix-month periods ended July 31, 2005 was approximately $0.1 million and $0.2million, respectively.  Included indiscontinued operations is a benefit related to stock-based compensation forthe three- and six-month periods ended July 31, 2006 of approximately $0.2million.  Total stock-based compensationexpense included in discontinued operations for the three- and six-monthperiods ended July 31, 2005 was approximately $0.0 million and $0.1 million,respectively. No compensation cost was capitalized as part of inventory.

**Transactions involving stock options are summarizedas follows:**

|                                  | ** ** | ** ** | ** ** | ** **                | ** ** | **Weighted Average** | ** ** |
|----------------------------------|------------|------------|------------|---------------------------|------------|---------------------------|------------|
| ** **                       | ** ** | ** ** | ** ** | **Weighted Average** | ** ** | **Remaining**             | ** ** |
| ** **                       | ** ** | **Shares** | ** ** | **Exercise Price**   | ** ** | **Contractual Life** | ** ** |
| Outstanding at  January 31, 2006 |       | 1,236,400  |       | $                         | 26.12      |                      | 5.16       |   |
| Options granted                  |       | 17,500     |       | 20.63                     |       | 4.79                      |       |
| Options exercised                |       | —     |       | —                    |       |                      |       |
| Options forfeited                |       | (105,500   | )          | 25.76                     |       |                      |       |
| Outstanding at  July 31, 2006    |       | 1,148,400  |       | 26.07                     |       | 4.70                      |       |
| Exercisable at July 31,  2006    |       | 1,130,900  |       | 26.15                     |       | 4.70                      |       |
|                                  |            |            |            |                           |            |                           |            |  |

 

The aggregate intrinsicvalue (the difference between the Company’s closing stock price on the lasttrading day of the six months ended July 31, 2006 and the exercise price,multiplied by the number of in-the-money options) that would have been receivedby the option holders had all option holders exercised their options on July31, 2006 was immaterial.  This amountwill change in future periods based on the fair market value of the Company’sstock.  Compensation expense in the threeand six months ended July 31, 2006 related to stock options wasimmaterial.  As of July 31, 2006, $0.1million of total unrecognized compensation cost related to stock options isexpected to be recognized over a weighted average period of 3 years.

9

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** **

**Transactions involving restricted stock andrestricted stock units are summarized as follows:**

|                                  | ** ** | ** ** | ** ** | **Weighted Average** | ** ** |
|----------------------------------|------------|------------|------------|---------------------------|------------|
| ** **                       | ** ** | **Shares** | ** ** | **Exercise Price**   | ** ** |
| Outstanding at  January 31, 2006 |       | 152,970    |       | $                         | 31.94      |   |
| Units granted                    |       | 100,790    |       | 20.93                     |       |
| Units exercised                  |       | —     |       | —                    |       |
| Units forfeited                  |       | (23,950    | )          | 31.98                     |       |
| Outstanding at July 31,  2006    |       | 229,810    |       | 27.11                     |       |
|                                  |            |            |            |                           |            |  |

** **

Compensation expenserelated to restricted stock and restricted stock units for the three- andsix-month periods ended July 31, 2006 was approximately $0.4 million and $0.6million, respectively.  Compensationexpense related to restricted stock units for the three- and six-month periodsended July 31, 2005 was approximately $0.2 million and $0.4 million, respectively.Included in discontinued operations is a benefit related to restricted stockand restricted stock units for the three- and six-month periods ended July 31,2006 of approximately $0.2 million. Restricted and restricted stock units expense included in discontinuedoperations for the three- and six-month periods ended July 31, 2005 wasapproximately $0.0 million and $0.1 million, respectively.  Also, as a result of the adoption of theStatement of Financial Accounting Standards No. 123 (revised 2004), “Share-BasedPayment,” (“SFAS 123(R)”), $3.1 million of unearned compensation recorded inshareholder’s equity as of February 1, 2006 was reclassified to and reduced thebalance of additional contributed capital. As of July 31, 2006, there was $4.0 million of unearned compensationexpense related to non-vested restricted stock and restricted stock unitawards.  The total unrecognizedstock-based compensation cost to be recognized in future periods as of July 31,2006 does not consider the effect of stock-based awards that may be issued insubsequent periods.  This cost isexpected to be recognized over a weighted average period of 3.1 years.

**Impactof Adoption of 123(R)**

On February 1, 2006, theCompany adopted SFAS 123(R) which requires the measurement and recognition ofcompensation expense for all share-based payment awards made to employees anddirectors, including employee stock options, restricted stock and restrictedstock units based on estimated fair values. SFAS 123(R) supersedes the Company’s previous disclosure only provisionsof SFAS No. 148, “Accounting for Stock-Based Compensation-Transition andDisclosure” (“SFAS 148”), and Accounting Principles Board (APB) opinion No. 25,“Accounting for Stock Issued to Employees” (“APB 25”) and related interpretationsin accounting for stock options granted to its employees and directors underthe intrinsic value method employed by the Company for periods prior to fiscal2007.  In March 2005, the Securities andExchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”)relating to SFAS 123(R).  The Company hasapplied the provisions of SAB 107 in its adoption of SFAS 123(R).

SFAS 123(R) requirescompanies to estimate the fair value of stock-based payment awards on the dateof grant using an option-pricing model, where applicable.  The value of the portion of the award that isultimately expected to vest is recognized as expense over the requisite serviceperiod in the Company’s Condensed Consolidated Statement of Earnings.  Prior to the adoption of SFAS 123(R), theCompany accounted for stock-based awards to employees and directors using theintrinsic value method in accordance with APB 25 as allowed under Statement ofFinancial Accounting Standards No. 123, “Accounting for Stock-Based Compensation”(“SFAS 123”).  Under the intrinsic valuemethod, no stock-based compensation expense had been recognized in the Company’sCondensed Consolidated Statements of Earnings, because the exercise price ofthe Company’s stock options granted to employees and directors equaled the fairvalue of the underlying stock at the date of grant.

10

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Stock-based compensationexpense recognized during the period is based on the value of the portion ofstock-based payment awards that is ultimately expected to vest during theperiod.  Stock-based compensation expenserecognized in the Company’s Condensed Consolidated Statement of Earnings (Loss)for the three and six months ended July 31, 2006 includes compensation expensefor restricted stock, restricted stock units and stock-based awards grantedsubsequent to January 31, 2006 based on the grant date fair value estimated inaccordance with the provisions of SFAS 123(R). The Company recognizes thesecompensation costs net of a forfeiture rate for only those awards expected tovest, on a straight-line basis over the requisite service period of the award,which is the vesting term of 3 years for stock options and cliff vesting of 50%over 4 years and 50% over 5 years for employee restricted stock and restrictedstock units and cliff vesting of 50% over 1 year and 50% over 2 years fornon-employee restricted stock and restricted stock units.  SFAS 123(R) requires forfeitures to beestimated at the time of grant and revised, if necessary, in subsequent periodsif actual forfeitures differ from those estimates.  In the Company’s pro forma informationrequired under SFAS 123 for periods prior to fiscal 2007, the Company accountedfor forfeitures of stock options as they occurred.  There was no stock-based compensation expenserecognized in the Company’s Condensed Consolidated Statement of Earnings (Loss)for the first half of fiscal 2007 for stock options granted prior to February1, 2006 because no portion of those stock-based payment awards wasunvested.  In accordance with themodified prospective transition method, the Company’s Condensed ConsolidatedFinancial Statements for prior periods have not been restated to reflect, anddo not include, the impact of SFAS 123(R).

Upon adoption of SFAS123(R), the Company elected to continue to use the Black-Scholes option-pricingmodel (“Black-Scholes model”) to determine fair value.  The Company’s determination of fair value ofstock-based payment awards on the date of grant using an option-pricing modelis affected by the Company’s stock price as well as assumptions regarding anumber of highly complex and subjective variables.  These variables include, but are not limitedto, the Company’s expected stock price volatility over the term of the awards,and actual and projected employee stock option exercise behaviors.

**Assumptionsused to estimate fair value**

The fair value of stockoptions is estimated on the date of grant using the Black-Scholes model.  The Company granted 17,500 stock optionsduring the six months ended July 31, 2006. The Company granted no stock options during the six months ended July31, 2005.  The fair value of these stockoptions was determined using the following weighted average assumptions.
|                           | ** ** | **Six months ended July 31,** | ** ** |
|---------------------------|------------|---------------------------------------------------|------------|
| ** **                | ** ** | **2006**                                          | ** ** | **2005** | ** ** |
| Expected  volatility      |       | 2.9                                               | %          | N/A |   |
| Risk free  interest rates |       | 4.94                                              | %          | N/A |   |
| Expected lives            |       | 3.5                                               |       | N/A |   |
| Expected dividend yield   |       | 2.23                                              | %          | N/A |   |

** **

The weighted average fairvalue of options granted for the six months ended July 31, 2006 was $4.78.

11

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** **

**Pro formaImpact of 123(R)**

Ifcompensation expense for the Company’s stock options had been determined inaccordance with the fair value method in SFAS 123 and SFAS 148, the Company’sreported net income and earnings per share at July 31, 2005 would have beenadjusted to the pro forma amounts indicated below:
|                                                                                                             | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| **(In thousands except per share data)**                                           | ** ** | **July 31, 2005**      | ** ** | **July 31, 2005**    | ** ** |
| Net earnings:                                                                                               |       |                             |       |                           |       |
| As reported                                                                                                 |       | $                                | 4,154      |                           | $          | 14,114 |   |
| Stock-based employee compensation expense determined  under SFAS No. 123 for all awards, net of related tax |       | 272                              |       | 606                            |       |
| Pro forma                                                                                                   |       | $                                | 3,882      |                           | $          | 13,508 |   |
| Net earnings per  common share:                                                                             |       |                             |       |                           |       |
| As reported:                                                                                                |       |                             |       |                           |       |
| Basic                                                                                                       |       | $                                | 0.10       |                           | $          | 0.34 |   |
| Diluted                                                                                                     |       | 0.10                             |       | 0.34                           |       |
| Pro forma:                                                                                                  |       |                             |       |                           |       |
| Basic                                                                                                       |       | $                                | 0.09       |                           | $          | 0.33 |   |
| Diluted                                                                                                     |       | 0.09                             |       | 0.33                           |       |

 

**Other Information**

Authorized unissued shares may be used under thestock-based compensation plans.  TheCompany intends to issue shares of its common stock to meet the stockrequirements of its awards in the future.

**2.             BusinessAcquisitions**

** **

On August 15, 2005, theCompany acquired a 100% interest in Boca Java, a small gourmet coffee and teacompany.  The results of operations ofBoca Java, which were not material, are included in the Condensed ConsolidatedStatements of Earnings (Loss) of the Company since August 16, 2005.  For segment reporting purposes, Boca Java isincluded in the Catalog & Internet segment.

**3.             Discontinued Operations andDivestitures**

** **

***Discontinued Operations***

In March 2006, the Companyannounced its intention to evaluate additional strategic opportunitiesidentified since the September 2005 announcement of the proposed spin off ofthe entire Wholesale segment, and stated that the focus would likely be on oneor more of the European wholesale businesses.

On April 12, 2006, theCompany sold its European seasonal decorations business, Kaemingk B.V. (“Kaemingk”),in the Wholesale segment, to an entity controlled by the management ofKaemingk.  On June 16, 2006, the Companysold its European everyday home, garden and seasonal business, Edelman B.V. (“Edelman”),and its European gift and florist products business, Euro-Decor B.V. (“Euro-Decor”),both in the Wholesale segment, to an entity with which members of themanagement of Edelman and Euro-Decor are affiliated.  Also, during the second quarter of fiscal2007, the Company made the decision to hold two additional European businessesfor sale, Gies and Colony, both candle businesses in the Wholesale segment.  Accordingly, these businesses have all beenreported as discontinued operations for all periods presented.  The aggregate carrying value of thediscontinued businesses was a net asset of $0.9 million at July 31, 2006.  These businesses have been classifiedseparately in the

12

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Condensed ConsolidatedBalance Sheet at July 31, 2006 as discontinued operations.  Prior periods’ balance sheets have not beenadjusted to reflect the effect of the discontinued businesses.  The major classes of assets and liabilitiesof discontinued operations included in the Condensed Consolidated Balance Sheetat July 31, 2006 are summarized as follows:
| (In thousands)                               | ** ** | **July 31, 2006** | ** ** |
|---------------------------------------------------|------------|-----------------------------|------------|
| ** Assets of Discontinued Operations:**      | ** ** | ** **                  | ** ** |
| Cash and cash equivalents                         |       | $                           | 2,928      |   |
| Accounts receivable                               |       | 13,971                      |       |
| Inventories                                       |       | 31,706                      |       |
| Prepaid and other                                 |       | 571                         |       |
| Property, plant and equipment, net                |       | —                      |       |
|                                              |       | $                           | 49,176     |   |
|                                              |       |                        |       |
| ** Liabilities of Discontinued Operations:** | ** ** | ** **                  | ** ** |
| Bank lines of credit                              |       | 24,481                      |       |
| Accounts payable                                  |       | 7,747                       |       |
| Accrued expenses                                  |       | 9,298                       |       |
| Income taxes                                      |       | 767                         |       |
| Deferred income taxes                             |       | 4,834                       |       |
| Noncurrent liabilities                            |       | 1,153                       |       |
|                                              |       | $                           | 48,280     |   |

 

Included in the net loss from discontinuedoperations in the Condensed Consolidated Statement of Earnings (Loss) for thethree and six months ended July 31, 2006 and 2005 are the following:
|                                                            | ** ** | **Three months ended July 31,** | ** ** | **Six months ended July 31,** | ** ** |
|------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| **(In thousands)**                                    | ** ** | **2006**                                            | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                       |       |                                                |       |                                              |       |   |   |   |   |
|  Net sales                                            |       | $                                                   | 27,379     |                                              | $          | 35,877 |   | $ | 86,625 |   | $ | 102,824 |   |
|  Loss from discontinued operations, net of  tax       |       | $                                                   | (10,791    | )                                                 | $          | (4,511 | ) | $ | (14,454 | ) | $ | (7,156 | ) |
|  Loss on sale of discontinued operations, net  of tax |       | $                                                   | (57,807    | )                                                 | —     |   | $ | (92,897 | ) | — |   |

 

Included in the net loss fromdiscontinued operations were a net operating loss related to Kaemingk of $0.0million and $0.3 million, respectively, for the three and six months ended July31, 2006, and a net operating loss of $0.1 million and $0.2 million,respectively, for the three and six months ended July 31, 2005.  In the first quarter of fiscal 2007, theCompany recorded a non-tax deductible loss from discontinued operations of$18.4 million on the sale of Kaemingk.

Includedin the net loss from discontinued operations were net operating losses relatedto Edelman and Euro-Decor of $1.9 million and $2.2 million, respectively, forthe three and six months ended July 31, 2006, and net operating losses of $2.1million and $1.8 million, respectively, for the three and six months ended July31, 2005.  In the first quarter of fiscal2007, the Company recorded a non-tax deductible goodwill impairment charge of$16.7 million 

13

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related to thesebusinesses, which has been included in the net loss from discontinuedoperations.  In the second quarter offiscal 2007, the net loss from discontinued operations includes a non-taxablegain on the sale of Edelman and Euro-Decor of $1.9 million.

Included in the net loss fromdiscontinued operations were net operating losses related to Gies and Colony of$8.9 million and $11.9 million, respectively, for the three and six monthsended July 31, 2006, and net operating losses of $2.3 million and $5.1 million,respectively, for the three and six months ended July 31, 2005.  Also included in the net loss fromdiscontinued operations for the three and six months ended July 31, 2006 werenon-tax deductible charges of $31.1 million and $28.6 million for theimpairment of the Gies and Colony businesses, respectively.  These charges reflected the amount by whichthe carrying value of the net assets exceeded the estimated fair value of thebusinesses.  The Gies business was soldon August 17, 2006 (see note 14).

***Divestitures***

During the fourth quarterof fiscal 2006, the Company divested its North American mass channel seasonaldecorations business, Impact Plastics, in the Wholesale segment through asale.  The operating results of ImpactPlastics were immaterial to the consolidated operating results of theCompany.  On January 20, 2006, theCompany sold the business for approximately $7.6 million in cash and apromissory note of $2.0 million.  Thesale resulted in a pre-tax loss of approximately $1.6 million.  In addition, $7.8 million of goodwillattributable to Impact Plastics, which was tax deductible, was disposed of aspart of this divestiture.

**4.**             Short-Term Investments

The Company accounts forits short-term investments in accordance with Statement of Financial AccountingStandards No. 115, “Accounting for Certain Investments in Debt and EquitySecurities.”  The Company’s short-terminvestments consist of auction rate securities and variable rate demand obligationsclassified as available-for-sale securities. Our short-term investments in these securities are recorded at cost,which approximates fair market value due to their variable interest rates,which typically reset every 7 to 35 days.

Despite the long-termnature of their stated contractual maturities, the Company generally has theability to liquidate these securities in 35 days or less.  Management’s intent is to hold thesesecurities as liquid assets convertible to cash for applicable operational needsas they may arise.

**At July 31, 2006 and January 31, 2006, the Companyheld $73.1 million and $0.0 million, respectively, of short-term investments,which consist of auction rate securities and variable rate demand obligationsclassified as available-for-sale securities.**

**Short-term investments by contractual maturity areas follows:**
| (In thousands)                  | ** ** | **July 31, 2006** | ** ** | **January 31, 2006** | ** ** |
|--------------------------------------|------------|-----------------------------|------------|--------------------------------|------------|
|  Due within one year            |       | $                           | 21,100     |                           | $          | — |   |
|  Due between one and five years |       | —                      |       | —                         |       |
|  Due after ten years            |       | 52,035                      |       | —                         |       |
| ** Total**                      |       | $                           | 73,135     |                           | $          | — |   |

 

There were no cumulativegross unrealized holding gains (losses) or gross realized gains (losses) fromour short-term investments. All income generated from these short-terminvestments was recorded as interest income. Actual maturities may differ fromcontractual maturities should the borrower have the right to call certainobligations.

14

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**5.****             Inventories**

The components ofinventory are as follows (in thousands):
|                 | ** ** | **July 31, 2006** | ** ** | **January 31, 2006** | ** ** |
|-----------------|------------|-----------------------------|------------|--------------------------------|------------|
| Raw materials   |       | $                           | 26,146     |                           | $          | 31,954 |   |
| Work in process |       | 873                         |       | 361                            |       |
| Finished goods  |       | 172,872                     |       | 205,438                        |       |
| Total           |       | $                           | 199,891    |                           | $          | 237,753 |   |

 

**6.****             Goodwill and Other Intangibles**

Goodwill and otherindefinite lived intangibles are subject to an annual assessment for impairment,which the Company performs in the fourth fiscal quarter, or more frequently ifevents or circumstances indicate the goodwill or other indefinite livedintangibles might be impaired.

During the second quarter offiscal 2007, the Company identified triggering events in two reporting unitswithin the Wholesale segment. In the first reporting unit, the Company’sdecision to discontinue sales of a new product line coupled with sharply risingcommodity costs led the Company to perform an impairment analysis of goodwillin the reporting unit. In the second reporting unit, new management with asignificantly changed near-term outlook for the businesses that gives effect tothe changing business environment led the Company to perform an impairmentanalysis of the goodwill in this reporting unit. As a result of these analyses,the goodwill in both reporting units was determined to be impaired, as the fairvalue of the reporting units was less than the carrying values of the reportingunits including goodwill. The decrease in the fair value of the reporting unitsis due to a significant decrease in the projected results for the full fiscalyear and future years as a result of the factors previously discussed. Theestimated fair value of the reporting units was determined utilizing acombination of valuation techniques, namely the discounted cash flowmethodology and the market multiple methodology. As a result, the Companyrecorded a non-cash pre-tax goodwill impairment charge of $36.8 million in theWholesale segment.

As discussed in note 3, theCompany sold its European seasonal and everyday decorations businesses,Kaemingk, Edelman and Euro-Decor, in the first half of fiscal 2007, whichresulted in a reduction in goodwill attributable to these businesses totaling$66.5 million.

15

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The following table shows changes in the carrying amount of goodwillfor the six months ended July 31, 2006, by operating segment (in thousands):
|                                               | ** ** | ** **              | ** ** | **Catalog &** | ** ** | ** **    | ** ** | ** ** | ** ** |
|-----------------------------------------------|------------|-------------------------|------------|------------------------|------------|---------------|------------|------------|------------|
| ** **                                    | ** ** | **Direct Selling** | ** ** | **Internet**           | ** ** | **Wholesale** | ** ** | **Total**  | ** ** |
| Goodwill at  January 31, 2006                 |       | $                       | 2,298      |                   | $          | 76,308        |       | $          | 106,521    |   | $ | 185,127 |   |
| Euro-Decor  pension adjustment                |       |                    |       |                   |       | 212           |       | 212        |       |
| Kaemingk earn  out payment                    |       |                    |       |                   |       | 6,659         |       | 6,659      |       |
| Goodwill  disposed of related to the sale of: |       |                    |       |                   |       |          |       |       |       |
|  Kaemingk                                |       |                    |       |                   |       | (31,775       | )          | (31,775    | )          |
|  Edelman and  Euro-Decor                 |       |                    |       |                   |       | (34,736       | )          | (34,736    | )          |
| Impairment  charges                           |       |                    |       |                   |       | (36,769       | )          | (36,769    | )          |
| Foreign currency  translation adjustment      |       |                    |       |                   |       | 1,932         |       | 1,932      |       |
| Total  adjustments                            |       | —                  |       | —                 |       | (94,477       | )          | (94,477    | )          |
| Goodwill at July 31,  2006                    |       | $                       | 2,298      |                   | $          | 76,308        |       | $          | 12,044     |   | $ | 90,650 |   |

 

Other intangible assets,all of which are included in the Catalog & Internet segment, consisted ofthe following (in thousands):
|                                                   | ** ** | **July 31, 2006** | ** ** | **January 31, 2006** | ** ** |
|---------------------------------------------------|------------|-----------------------------|------------|--------------------------------|------------|
| ** **                                        | ** ** | **Gross**                   | ** ** | **Accumulated  Amortization**  | ** ** | **Net** | ** ** | **Gross** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
|  Indefinite-lived trade names and trademarks |       | $                           | 28,100     |                           | $          | — |   | $ | 28,100 |   | $ | 28,100 |   | $ | — |   | $ | 28,100 |   |
|  Customer lists                              |       | 15,000                      |       | 6,850                          |       | $ | 8,150 |   | 15,000 |   | 5,917 |   | 9,083 |   |
|  Total                                       |       | $                           | 43,100     |                           | $          | 6,850 |   | $ | 36,250 |   | $ | 43,100 |   | $ | 5,917 |   | $ | 37,183 |   |

 

Amortizationexpense for other intangible assets was $0.9 million and $1.1 million for thesix months ended July 31, 2006 and 2005, respectively.  Estimated amortization expense for the nextfive fiscal years, beginning with fiscal 2008, is as follows:  $1.5 million, $1.5 million, $1.2 million,$1.0 million and $0.7 million.

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**7.****             Earnings per Share**

The components of basicand diluted earnings per share are as follows (in thousands):
|                                                         | ** ** | **Three months ended July 31,** | ** ** | **Six months ended July 31,** | ** ** |
|---------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                              | ** ** | **2006**                                            | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net earnings                                            |       | $                                                   | (89,367    | )                                                 | $          | 4,154 |   | $ | (119,976 | ) | $ | 14,114 |   |
| Weighted average  number of common shares outstanding:  |       |                                                |       |                                              |       |   |   |   |   |
| Basic                                                   |       | 39,821                                              |       | 40,962                                            |       | 40,312 |   | 40,933 |   |
| Dilutive effect of stock options and restricted  shares |       | —                                              |       | 245                                               |       | — |   | 281 |   |
| Weighted average  number of common shares outstanding:  |       |                                                |       |                                              |       |   |   |   |   |
| Diluted                                                 |       | 39,821                                              |       | 41,207                                            |       | 40,312 |   | 41,214 |   |
|                                                         |            |                                                     |            |                                                   |            |  |  |  |  |  |  |  |  |

 

For the three- andsix-month periods ended July 31, 2006, options to purchase 1,148,400 shares ofcommon stock are not included in the computation of earnings per share becausethe effect would be anti-dilutive.  Also,for the three- and six-month periods ended July 31, 2005, options to purchase275,700 and 118,000 shares of common stock, respectively, are not included inthe computation of earnings per share because the effect would beanti-dilutive.

**8.****                                      Treasuryand Common Stock**
| Treasury Stock (In  thousands, except shares) | ** ** | **Shares** | ** ** | **Amount** | ** ** |
|----------------------------------------------------|------------|------------|------------|------------|------------|
| For the six  months ended July 31, 2005:           |       |       |       |       |       |
| Balance at  February 1, 2005                       |       | 9,468,416  |       | $          | (285,064   | ) |
| Restricted stock  cancellations                    |       | —     |       | (495       | )          |
| Treasury stock  purchases                          |       | 65,000     |       | (2,071     | )          |
| Balance at July  31, 2005                          |       | 9,533,416  |       | (287,630   | )          |
|                                               |       |       |       |       |       |
| For the six  months ended July 31, 2006:           |       |       |       |       |       |
| Balance at  February 1, 2006                       |       | 9,533,416  |       | (287,744   | )          |
| Restricted stock  cancellations                    |       | —     |       | (438       | )          |
| Treasury stock  purchases                          |       | 1,802,382  |       | (34,987    | )          |
| Balance at July  31, 2006                          |       | 11,335,798 |       | $          | (323,169   | ) |

 
| Common Stock (In  thousands, except shares)                 | ** ** | **Shares** | ** ** | **Amount** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|------------|------------|
| For the six  months ended July 31, 2005:                         |       |       |       |       |       |
| Balance at  February 1, 2005                                     |       | 50,367,827 |       | $          | 1,007      |   |
| Common stock  issued in connection with long-term incentive plan |       | 151,333    |       | 3          |       |
| Balance at July  31, 2005                                        |       | 50,519,160 |       | 1,010      |       |
|                                                             |       |       |       |       |       |
| For the six  months ended July 31, 2006:                         |       |       |       |       |       |
| Balance at  February 1, 2006                                     |       | 50,528,060 |       | 1,010      |       |
| Balance at July 31,  2006                                        |       | 50,528,060 |       | $          | 1,010      |   |

** **

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**9.****             SegmentInformation**

Blyth is a designer andmarketer of home fragrance products and accessories, home décor, seasonaldecorations, household convenience items, personalized gifts and products forthe foodservice trade. We compete in the global Home Expressions industry, andour products can be found throughout North America, Europe and Australia. Ourfinancial results are reported in three segments - the Direct Selling segment,the Catalog & Internet segment and the Wholesale segment. These reportablesegments are based on similarities in distribution channels, customers andmanagement oversight.

Within the Direct Sellingsegment, the Company designs, manufactures or sources, markets and distributesan extensive line of products including scented candles, candle-relatedaccessories, fragranced bath gels and body lotions and other fragrancedproducts under the PartyLite® brand. The Company also operates a small DirectSelling business, Two Sisters Gourmet. All direct selling products are solddirectly to the consumer through a network of independent sales consultantsusing the party plan method of direct selling. PartyLite® brand products aresold in North America, Europe and Australia. Two Sisters GourmetTM brandproducts are sold in North America.

Within the Catalog &Internet segment, the Company designs, sources and markets a broad range ofhousehold convenience items, premium photo albums, frames, holiday cards,personalized gifts, kitchen accessories and gourmet coffee and tea. Theseproducts are sold directly to the consumer under the Boca JavaTM, EasyComfortsTM, Exposuresâ, Home Marketplace®, Miles Kimballâ andWalter Drakeâ brands. These products are soldprimarily in North America.

Within the Wholesalesegment, the Company designs, manufactures or sources, markets and distributesan extensive line of home fragrance products, candle-related accessories,seasonal decorations such as ornaments, artificial trees and trim, and homedécor products such as picture frames, lamps and textiles. Products in thissegment are sold primarily in North America to retailers in the premium,specialty and mass channels under the CBK®, Carolina®, Colonial®(1), ColonialCandle of Cape Cod®, Colonial at HOMEâ, Florasense® and Seasons of CannonFalls® brands. In addition, chafing fuel and tabletop lighting products andaccessories for the Away From Home or foodservice trade are sold through thissegment under the Ambria®, FilterMate®, HandyFuelTM and Sterno® brands.

Operating profit in allsegments represent net sales less operating expenses directly related to thebusiness segments and corporate expenses allocated to the business segments. Otherexpense includes interest expense, interest income and equity in earnings ofinvestee, which are not allocated to the business segments. Identifiable assetsfor each segment consist of assets used directly in its operations andintangible assets, if any, resulting from purchase business combinations. UnallocatedCorporate within the identifiable assets include corporate cash and cashequivalents, short-term investments, prepaid income tax, corporate fixedassets, deferred bond costs and other long-term investments, which are notallocated to the business segments.

----

(1)Colonial trademark is registered and sold only outside the United States.

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|                                                                | ** ** | **Three months ended July 31,** | ** ** | **Six months ended July 31,** | ** ** |
|----------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| **(In thousands)**                                        | ** ** | **2006**                                            | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Net  Sales**                                                 | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Direct Selling                                                 |       | $                                                   | 143,999    |                                              | $          | 141,185 |   | $ | 308,988 |   | $ | 314,435 |   |
| Catalog & Internet                                         |       | 38,423                                              |       | 34,629                                            |       | 74,912 |   | 70,828 |   |
| Wholesale                                                      |       | 80,195                                              |       | 80,462                                            |       | 158,964 |   | 159,835 |   |
| **Total**                                                      |       | $                                                   | 262,617    |                                              | $          | 256,276 |   | $ | 542,864 |   | $ | 545,098 |   |
| **Operating  profit (loss)**                                   | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Direct Selling                                                 |       | $                                                   | 14,359     |                                              | $          | 20,908 |   | $ | 34,914 |   | $ | 48,904 |   |
| Catalog & Internet                                         |       | (2,303                                              | )          | (2,590                                            | )          | (6,063 | ) | (4,298 | ) |
| Wholesale                                                      |       | (39,781                                             | )          | (1,394                                            | )          | (42,513 | ) | (6,077 | ) |
|                                                           |       | (27,725                                             | )          | 16,924                                            |       | (13,662 | ) | 38,529 |   |
| Other expense                                                  |       | (3,438                                              | )          | (4,529                                            | )          | (5,864 | ) | (9,393 | ) |
| **Earnings  (loss) before income taxes and minority interest** |       | $                                                   | (31,163    | )                                                 | $          | 12,395 |   | $ | (19,526 | ) | $ | 29,136 |   |

 
|                                   | ** ** | ** ** | ** ** | **July 31, 2006** | ** ** | ** ** | ** ** | **January 31, 2006** | ** ** |
|-----------------------------------|------------|------------|------------|-------------------|------------|------------|------------|----------------------|------------|
| **Identifiable Assets**           | ** ** | ** ** | ** ** | ** **        | ** ** |       |       | ** **           |       |
| Direct Selling                    |       |       |       | $                 | 232,443    |       |       |                 | $          | 230,097 |   |
| Catalog & Internet            |       |       |       | 171,949           |       |       |       | 165,672              |       |
| Wholesale                         |       |       |       | 249,435           |       |       |       | 522,386              |       |
| Unallocated Corporate             |       |       |       | 129,641           |       |       |       | 198,365              |       |
| Assets of discontinued operations |       |       |       | 49,176            |       |       |       | —               |       |
| **Total**                         |       |       |       | $                 | 832,644    |       |       |                 | $          | 1,116,520 |   |

 

**10.**          AssetsHeld for Sale

**During the thirdquarter of fiscal 2005, the Colorado Springs facility, purchased as part of theWalter Drake acquisition, became available for sale.  During the third quarter of fiscal 2006, theCompany recorded an impairment charge in relation to the facility of $1.2million due to the deterioration of local real estate market conditions.  The facility was sold on April 7, 2006 for$2.9 million, net of related transaction costs, and resulted in a loss ofapproximately $0.1 million.  The buildingwas classified as assets held for sale in the Condensed Consolidated BalanceSheet as of January 31, 2006.**

**11.****          Bank Lines of Credit**

On June 2, 2005, the Companyreplaced its prior $200 million credit facility with a new $150 millionunsecured revolving credit facility having a five year term; the “CreditFacility” matures June 2010.  The Companyhas the ability to increase the Credit Facility, under certain circumstances,by an additional $50 million.  The CreditFacility may be used for seasonal working capital needs and general corporatepurposes, including strategic acquisitions. The Credit Facility contains, among other provisions, requirements formaintaining certain financial ratios and limitations on certain payments.  As of July 31, 2006, the Company was not incompliance with one of these provisions, the minimum net worth test, primarilyas a result of shares repurchased under our share buyback program.  Also, as expected and as a result of thedivestiture activity discussed in note 3, the Company did not meet one of theprovisions of the Credit Facility, an assets sold test, upon the sale of theGies business on

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August 17, 2006 (see note14).  The Company has obtained temporarywaivers and is in the process of amending the terms of the Credit Facility.  Amountsoutstanding under the Credit Facility bear interest, at the Company’s option,at JPMorgan Chase Bank’s prime rate or at the Eurocurrency rate plus a creditspread ranging from 0.36% to 0.80%, calculated on the basis of the Company’ssenior unsecured long-term debt rating. As of July 31, 2006, approximately $31.2 million (including letters ofcredit) was outstanding under the Credit Facility.

**12.**          Debt

**On September 24, 1999, the Company issued $150.0 million of7.90% Senior Notes due October 1, 2009 at a discount of approximately $1.4million, which is being amortized over the life of the notes. In June 2006, theCompany repurchased $25.1 million of these notes at a 1% premium.**

**13.**          Contingencies

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

**14.**          Subsequent Event

**On August 17, 2006, the Company sold its mass market homefragrance business, Gies, located in Europe. This business was part of theWholesale segment.**

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**Item 2.**             MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

**RESULTS OF OPERATIONS:**

**Overview**

Blyth is a designer andmarketer of home fragrance products and accessories, home décor, seasonaldecorations, household convenience items, personalized gifts and products forthe foodservice trade.  We compete in theglobal Home Expressions industry, and our products can be found throughoutNorth America, Europe and Australia.  Ourfinancial results are reported in three segments - the Direct Selling segment,the Catalog & Internet segment and the Wholesale segment.  These reportable segments are based onsimilarities in distribution channels, customers and management oversight.

Today, on an annualizednet sales basis considering the full year impact of recent acquisitions anddivestitures, Blyth is comprised of an approximately $700 million directselling business, an approximately $200 million catalog and internet businessand an approximately $350 million wholesale business.  Sales and earnings growth differ in eachsegment depending on geographic location, market penetration, our relativemarket share and product and marketing execution, among other businessfactors.  Over the long term, all threesegments should experience single-digit growth, most likely within the low tomid-single digit range, again depending on the business factors previouslynoted.

Our current focus isdriving sales growth of our brands so we may leverage more fully ourinfrastructure.  New product developmentcontinues to be critical to all three segments of our business.  In the Direct Selling segment, monthly salesand productivity incentives are designed to attract, retain and increase theearnings opportunity of independent sales consultants. In fiscal 2006 wecompleted the acquisition of a small gourmet food company, Two Sisters Gourmet,which markets its products through the Direct Selling channel.  We entered the Catalog and Internet channelof direct-to-consumer distribution in 2003, giving us a presence in all of ourdesired channels.  Our most recentacquisition, Boca Java, a small gourmet coffee and tea company, was in theCatalog & Internet segment.   In theWholesale segment, we have numerous collaborative initiatives underway, whichwe believe will help drive sales and leverage the sales and marketing talentsacross this segment.  These initiativesinclude customer information sharing and leveraging our in-house sales forces,as well as ongoing global sourcing objectives and other organic strategicinitiatives into which we are investing resources.

**Recent Developments**

**In September 2005, we announced our proposed intention tospin off the Wholesale segment to our stockholders.  We requested and received from the InternalRevenue Service a ruling on the tax-free status for the transaction.  In March 2006, we announced our intention toevaluate additional strategic opportunities that have been identified since theannouncement of the spin off, which would likely focus on one or more of ourEuropean Wholesale businesses, believing that substantial upside opportunitiesexist in the North American Wholesale business despite challenging marketconditions impacting the Home Expressions industry.**

Inaccordance with this intention to explore strategic alternatives with respectto our European Wholesale business, on April 12, 2006, we sold Kaemingk B.V. (“Kaemingk”)pursuant to a Share Sale and Purchase Agreement to an entity controlled by themanagement of this business, and on June 16, 2006, we sold Edelman B.V. (“Edelman”)and Euro-Decor B. V. (“Euro-Decor”) pursuant to a Share Sale and PurchaseAgreement to an entity with which members of the management of Edelman andEuro-Decor are affiliated. Accordingly, the results of operations for Kaemingk,Edelman and Euro-Decor have been reclassified as discontinued operations forall periods presented.  The two remainingEuropean Wholesale businesses, Gies and Colony, are classified as held for saleas of July 31, 2006. The Gies business was sold on August 17, 2006. Similarly,the results of operations for Gies and Colony have been reclassified asdiscontinued operations for all periods presented.  The assets and liabilities of thesebusinesses to be sold have been classified as assets of discontinued operationsand liabilities of discontinued operations, respectively, in the Company’sCondensed Consolidated Balance Sheet.

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**NetSales**

Netsales in the six months ended July 31, 2006 decreased $2.2 million, or 0.4%, to$542.9 million from $545.1 million in the same period a year earlier.

Netsales increased $6.3 million, or 2.5%, to $262.6 million in the second quarterof fiscal 2007 from $256.3 million in the second quarter of fiscal 2006 as aresult of the sales growth in PartyLite’s international markets and highersales in most catalogs within the Catalog & Internet segment, as well asincreased sales from the acquisition of Boca Java in August 2005.

NetSales - Direct Selling Segment

Net sales in the DirectSelling segment for the first six months of fiscal 2007 decreased $5.4 million,or 1.7%, to $309.0 million from $314.4 million a year earlier.  PartyLite’s U.S. sales decreased 11.6%.Management believes this sales decrease was driven by a decline in the numberof sales consultants as a result of increased channel competition.  Additionally, sales in thesecond quarter of last year benefited from the reversal of a contingent reserve in the amount of $5.5million for a U.S. state settlement of an unclaimed property matter associatedwith gift cards sold since the inception of the gift card program in the DirectSelling business.  PartyLite Canada’s sales increased 15.8%as a result of the increase in active independent consultants, and PartyLiteEurope’s sales increased 7.2% also as a result of an increase in the number ofsales consultants in each of its geographic markets.

Net sales in the DirectSelling segment for the quarter ended July 31, 2006 increased $2.8 million, or2.0%, to $144.0 million, from $141.2 million in the quarter ended July 31,2005. PartyLite’s U.S. sales decreased approximately 11.5% compared to theprior year due to continued competition for independent sales consultants,hostesses and party guests in the Direct Selling channel, as well as thefavorable reversal of a contingent reserve of $5.5 million in the second quarterof last year. Excluding this reserve reversal, PartyLite’s U.S. sales decreasedapproximately 5% in the second quarter compared to the prior year.  PartyLite Canada reported a 17.5% increaseversus the prior year due to both an increased consultant base and increasedshows per consultants.  In PartyLite’sEuropean markets, sales increased approximately 20.0% due to an increase inactive independent consultants across all markets.

Net Sales - Catalog &Internet Segment

Net sales in the Catalog & Internet segment for thefirst six months of fiscal 2007 increased $4.1 million, or 5.8%, to $74.9million from $70.8 million in the same period earlier.  This increase is due to increased sales inmost of our major catalogs and additional sales from the acquisition of BocaJava.

Netsales in the Catalog & Internet segment increased $3.8 million, or 11.0%,to $38.4 million in the quarter ended July 31, 2006, compared with $34.6million in the same period in fiscal 2006. This increase was primarily due to sales growth in most catalogs and theaddition of Boca Java.

Net Sales - Wholesale Segment

Net sales in the Wholesalesegment decreased $0.8 million, or 0.5%, to $159.0 million in the six monthsended July 31, 2006 from $159.8 million in the six months ended July 31, 2005.This decline from last year is primarily attributable to reduced sales in ourseasonal decorations business in the U.S. and the divestiture of ImpactPlastics in January 2006, offset to a large extent by increased mass candlesales in the U.S. and sales in our home décor and Sterno businesses.

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Net sales in the Wholesalesegment in the quarter ended July 31, 2006 decreased $0.3 million to $80.2million from $80.5 million in the same period a year earlier. Lower sales inour seasonal decorations business in the U.S., lower candle sales and thedivestiture of Impact Plastics in January 2006, were partially offset byincreased sales in the home décor and Sterno businesses.

**GrossProfit**

**Gross profit in the first six months of fiscal 2007decreased $14.2 million, or 5.0%, to $269.4 million, from $283.6 million in thefirst six months of fiscal 2006. Gross profit margin decreased from 52.0% forthe first six months of fiscal 2006 to 49.6% for the first six months of fiscal2007. The decrease from prior year is principally due to lower PartyLite U.S.sales, higher sales of lower margin products in the Wholesale segment andhigher wax and other commodity costs.**

Gross profit decreased$3.8 million, or 2.9% from $131.8 million in the quarter ended July 31, 2005 to$128.0 million in the quarter ended July 31, 2006. Gross profit margindecreased from 51.4% for the second quarter of fiscal 2006 to 48.8% in thesecond quarter of fiscal 2007. Thisdecline is primarily due to lower PartyLite U.S. sales, higher sales of lowermargin products in the Wholesale segment and higher fuel, freight and commoditycosts, particularly wax.

**SellingExpense**

**Selling expense increased $1.6 million, or 0.9%, from$182.3 million in the first six months of fiscal 2006, when selling expense was33.4% of net sales, to $183.9 million in the same period in fiscal 2007, or33.9% of net sales.**

Selling expense increased $3.9 million, or 4.7%, from $82.9 million in thesecond quarter of fiscal 2006, when selling expense was 32.3% of net sales, to$86.7 million in the same period in fiscal 2007, or 33.0% of net sales. Theincrease in selling expense is primarily due to the increased sales growth inPartyLite Europe.

**AdministrativeExpense**

**Administrative expense decreased $0.4 million, or 0.6%,from $62.8 million in the first six months of fiscal 2006 to $62.4 million inthe same period of fiscal 2007. As a percent of sales, administrative expensewas 11.5% in both six month periods.**

**Administrative expense increased $0.2 million, or0.6%, from $32.1 million in the second quarter of fiscal 2006 to $32.3 millionin the same period of fiscal 2007. As a percent of sales, administrativeexpense was 12.3% for fiscal 2006 and 12.5% for fiscal 2005.**

**GoodwillImpairment**

Goodwill and otherindefinite lived intangibles are subject to an annual assessment forimpairment, which the Company performs in the fourth fiscal quarter, or morefrequently if events or circumstances indicate the goodwill or other indefinitelived intangibles might be impaired.

**During the second quarter of fiscal2007, the Company identified triggering events in two reporting units withinthe Wholesale segment. In the first reporting unit, the Company’s decision todiscontinue sales of a new product line coupled with sharply rising commoditycosts led the Company to perform an impairment analysis of goodwill in thereporting unit. In the second reporting unit, new management with asignificantly changed near-term outlook for the businesses that gives effect tothe changing business environment led the Company to perform an impairmentanalysis of the goodwill in this reporting unit.  As a result of these analyses, the goodwill inboth**

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**reporting units was determined to be impaired, as the fairvalue of the reporting units was less than the carrying values of the reportingunits including goodwill.  The decreasein the fair value of the reporting units is due to a significant decrease in theprojected results for the full fiscal year and future years as a result of thefactors previously discussed.  Theestimated fair value of the reporting units was determined utilizing acombination of valuation techniques, namely the discounted cash flowmethodology and the market multiple methodology.  As a result, the Company recorded a non-cashpre-tax goodwill impairment charge of $36.8 million in the Wholesale segment.**

**OperatingProfit (Loss)**

Operatingprofit decreased $52.2 million from $38.5 million of profit in the first sixmonths of fiscal 2006 to a loss of $13.7 million in the same period of fiscal2007.  In addition to the goodwillimpairment charge discussed above, operating profit was affected by reducedsales in our PartyLite U.S. business and higher commodity costs.

Operatingprofit decreased $44.6 million from $16.9 million of profit in the quarterended July 31, 2005 to a loss of $27.7 million in the same period of fiscal2007.  This decline was primarily due tothe previously mentioned goodwill impairment, the impact of lower PartyLiteU.S. sales and higher commodity costs.

Operating Profit - Direct SellingSegment

Operating profit in the Direct Selling segment for thefirst six months of fiscal 2007 decreased $13.9 million, or 28.5%, to $35.0million from $48.9 million in the same period a year earlier. This decrease wasdue to a decline in gross margin caused by higher wax and other commodity costsand reduced sales in the U.S., as well as the previously mentioned reversal of thecontingent reserve of $5.5 million for the settlement of an unclaimed propertymatter in the second quarter of fiscal 2006.

Operatingprofit in the quarter ended July 31, 2006 in the Direct Selling segment****decreased $6.5 million, or 31.1%, to $14.4 millionfrom $20.9 million in the same period a year earlier.  This decrease was primarilydriven by the sales decrease in PartyLite U.S., as well as increased commoditycosts, particularly wax, and the previously mentioned reversal of thecontingent reserve of $5.5 million for the settlement of an unclaimed propertymatter in the second quarter of fiscal 2006.

Operating Loss - Catalog &Internet Segment

Operatingloss in the Catalog & Internet segment was $6.1 million in the six monthsended July 31, 2006 compared to a loss of $4.3 million in the six months endedJuly 31, 2005.  The increased operatingloss is due to the continued investment in Boca Java, which was partiallyoffset by the impact of higher catalog sales.

Operatingloss in the quarterended July 31, 2006 in the Catalog & Internet segment decreased$0.3 million to $2.3 million versus a loss of $2.6 million in the same period ayear earlier.  The improvement over theprior year is primarily due to increased catalog sales, which more than offsetthe continued investment in Boca Java for the quarter.

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**Operating Loss - Wholesale Segment**

Operating loss in the Wholesale segment increased $36.4million, in the six months ended July 31, 2006 to $42.5 million compared to aloss of $6.1 million in the six months ended July 31, 2005.  As previously mentioned, a goodwillimpairment charge of $36.8 million was recorded in the second quarter of fiscal2007.

Operating loss in thequarter ended July 31, 2006 in the Wholesale segment increased $38.4 million to$39.8 million versus a loss of $1.4 million the same period a yearearlier.  Aspreviously mentioned, a goodwill impairment charge of $36.8 million wasrecorded in the second quarter of fiscal 2007. The remaining decline in operating profit was primarily driven by the NorthAmerican mass candle business, which experienced lower sales volume and highercommodity costs.

**Interest Expense and InterestIncome**

**Interestexpense increased approximately $0.7 million, or 7.5% from $9.3 million in thefirst six months of fiscal 2006 to $10.0 million in the same period of fiscal2007, due to increases in borrowings and interest rates.**

**Interestexpense increased approximately $0.4 million, or 8.2% from $4.9 million in thequarter ended July 31, 2005 to $5.3 million in the quarter ended July 31, 2006,due to increases in borrowings and interest rates.**

**Interest income increased approximately $2.8 million from$0.7 million in the first six months of fiscal 2006 to $3.5 million in the sameperiod of fiscal 2007, due to higher cash balances and an increase in interestrates.**

**Interest income increased approximately $1.5 million from$0.2 million in the second quarter of fiscal 2006 to $1.7 million in the sameperiod of fiscal 2007, due to higher cash balances and an increase in interestrates.**

**IncomeTaxes**

**Income tax expense (benefit) decreased $15.4 million froman expense of $8.4 million in the first six months of fiscal 2006 to a benefitof $7.0 million in the same period in the current fiscal year.  The tax benefit was a result of $10.6 millionof tax benefit related to $28.0 million of the goodwill impairment charge thatwas tax deductible.  Taxes were favorablyimpacted by the decrease in U.S. earnings versus higher foreign sourcedearnings, which are taxed at a lower rate than U.S. earnings. The effective taxrate for the six months ended July 31, 2006 was a benefit of approximately35.7% compared to an expense of 28.9% in the prior year.**

Income tax expense(benefit) decreased $14.4 million from an expense of $4.0 million in the threemonths ended July 31, 2005to a benefit of $10.4 million in the three months ended July 31, 2006.The tax benefit was a result of the $10.6 million benefit discussed above.  Taxes were favorably impacted by the decreasein U.S. earnings versus higher foreign sourced earnings, which are taxed at alower rate than U.S. earnings. The effective tax rate for the three monthsended July 31, 2006 was a benefit of 33.5% compared to an expense of 32.5% inthe prior year*.*

**Income(Loss) from Continuing Operations**

**Earnings from continuing operations for six months endedJuly 31, 2006 was a loss $12.6 million, or $0.31 per diluted share, compared toearnings of $21.3 million, or $0.52 per diluted share, for the six months endedJuly 31, 2005.**

**Earnings from continuing operations for three months endedJuly 31, 2006 was a loss $20.8 million, or $0.52 per diluted share, compared toearnings of $8.7 million, or $0.21 per diluted share, for the three monthsended July 31, 2005.**

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**DiscontinuedOperations**

The loss fromdiscontinued operations, net of tax, for the six months ended July 31,2006 was $107.4 million.  The lossincludes a non-tax deductible loss of $18.4 million on the sale of the Kaemingkbusiness in the first quarter of fiscal 2007, and a non-tax deductible net losson the sale of the Edelman and Euro-Decor businesses of $14.7 million, whichincludes a goodwill impairment charge of $16.7 million recorded in the firstquarter.  The loss from discontinuedoperations also includes non-tax deductible impairment charges of $31.1 millionfor the Gies business and $28.6 million for the Colony business both of whichare classified as held for sale.  Theloss from discontinued operations, net of tax, for the six months endedJuly 31, 2005 was $7.2 million.

**Loss from discontinued operations, net of tax, for thethree months ended July 31, 2006 was $68.6 million.  The loss includes non-tax deductibleimpairment charges of $31.1 million for the Gies business and $28.6 million forthe Colony business, both of which were classified as held for sale in thesecond quarter of fiscal 2007 and stated at fair value less cost to sell, and again on the sale of Edelman and Euro-Decor of $1.9 million.  The loss from discontinued operations, net oftax, for the three months ended July 31, 2005 was $4.5 million.**

**Liquidityand Capital Resources**

Net cash used inoperations decreased to approximately $34.7 million in the first six months offiscal 2007 from $68.2 million in the same period of fiscal 2006.  This improvement in cash from operations infiscal 2007 is primarily due to the impact of divestitures.

Capital expenditures forproperty, plant and equipment were $8.7 million in the six months ended July31, 2006 compared to $7.4 million in the prior year period.  The decrease from historical levels is due tothe Company continuing to reduce spending on manufacturing facilities, whilemoving to more of an outsourced product supply model.  The Company anticipates total capitalspending of approximately $18.0 million for fiscal 2007, primarily for the expansionof the Direct Selling European distribution center in support of ongoinggrowth, information technology and research and development-related equipmentand upgrades to machinery and equipment in existing manufacturing anddistribution facilities.

OnJune 2, 2005, the Company replaced its prior $200 million credit facility witha new $150 million unsecured revolving credit facility having a five year term;the “Credit Facility” matures June 2010. The Company has the ability to increase the Credit Facility, undercertain circumstances, by an additional $50 million.  The Credit Facility may be used for seasonalworking capital needs and general corporate purposes, including strategicacquisitions. The Credit Facility contains, among other provisions, requirementsfor maintaining certain financial ratios and limitations on certainpayments.  As of July 31, 2006, the Company was not in compliancewith one of these provisions, the minimum net worth test, primarily as a resultof shares repurchased under our share buyback program.  Also, as expected and as a result of thedivestiture activity discussed in note 3, the Company did not meet one of theprovisions of the Credit Facility, an assets sold test, upon the sale of theGies business on August 17, 2006 (see note 14). The Company has obtained temporary waivers and is in the process ofamending the terms of the Credit Facility. Amounts outstanding under the CreditFacility bear interest, at the Company’s option, at JPMorgan Chase Bank’s primerate or at the Eurocurrency rate plus a credit spread ranging from 0.36% to0.80%, calculated on the basis of the Company’s senior unsecured long-term debtrating.  As of July 31, 2006,approximately $31.2 million (including letters of credit) was outstanding underthe Credit Facility.

At July 31, 2006, theCompany had a total of $10.0 million available under an uncommitted line ofcredit with Bank of America to be used for letters of credit.  At July 31, 2006, approximately $0.3 millionof letters of credit were outstanding under this credit line.

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Asof June 30, 2006, the Gies Group (“Gies”) had available lines of credit ofapproximately $31.1 million of which approximately $15.9 million wasoutstanding.  The amounts outstandingunder the lines of credit bear interest at a weighted average rate of 3.9% atJune 30, 2006.  A portion of the lines ofcredit are collateralized by fixed assets owned by Gies.  The lines of credit are renewed annually. The Gies business was sold on August 17, 2006.

As of June 30, 2006, Colony Gift Corporation Limited (“Colony”)had a $9.2 million short-term revolving credit facility with Barclays Bank,which matured in July 2006.  Thisrevolving credit facility is pending renewal and, borrowings will continue on amonth to month basis.  Colony hadborrowings under the credit facility of approximately $8.6 million, at aweighted average interest rate of 5.4%, as of June 30, 2006.

At July 31, 2006, Miles Kimball had approximately $9.2million of long-term debt outstanding under a real estate mortgage note payableto John Hancock Life Insurance Company, which matures June 1, 2020.  Under the terms of the note, payments ofprincipal and interest are required monthly at a fixed interest rate of 7.89%.

In July 1995, the Companyprivately placed $25.0 million aggregate principal amount of 7.54% Senior Notesdue 2005.  The final payment on the noteswas made on June 30, 2005.

In May 1999, the Companyfiled a shelf registration statement for issuance of up to $250.0 million indebt securities with the Securities and Exchange Commission.  On September 24, 1999, the Company issued$150.0 million of 7.90% Senior Notes due October 1, 2009 at a discount ofapproximately $1.4 million, which is being amortized over the life of thenotes.  In June 2006, the Companyrepurchased $25.1 million of these notes at a 1% premium.  Such notes contain, among other provisions,restrictions on liens on principal property or stock issued to collateralizedebt.  At July 31, 2006, the Company wasin compliance with such provisions. Interest is payable semi-annually in arrears on April 1 and October1.  On October 20, 2003, the Companyissued $100.0 million 5.50% Senior Notes due on November 1, 2013 at a discountof approximately $0.2 million, which is being amortized over the life of thenotes.  Such notes contain provisions andrestrictions similar to those in the 7.90% Senior Notes.  At July 31, 2006, the Company was incompliance with such provisions. Interest is payable semi-annually in arrears on May 1 and November1.  The notes may be redeemed in whole orin part at any time at a specific redemption price.  The proceeds of the debt issuance were usedfor general corporate purposes.

At July 31, 2006, CBK had $4.4million of debt outstanding under an Industrial Revenue Bond (“IRB”), whichmatures on January 1, 2025.  The bond isbacked by an irrevocable letter of credit issued by LaSalle Bank NationalAssociation.  The loan is collateralizedby certain of CBK’s assets.  The amountoutstanding under the IRB bears interest at short-term floating rates, whichequaled a weighted average interest rate of 5.2% at July 31, 2006.  Payments of principal are required annuallyand interest payments are required monthly under the terms of the bond.

TheCompany’s short-term investments consist of auction rate securities andvariable rate demand obligations classified as available-for-salesecurities.  The short-term investmentsin these securities are recorded at cost, which approximates fair market valuedue to their variable interest rates, which typically reset every 7 to 35 days,and, despite the long-term nature of their stated contractual maturities, theCompany generally has the ability to liquidate these securities in 35 days orless.  Management’s intent is to holdthese securities as liquid assets convertible to cash for applicableoperational needs as they may arise.  AtJuly 31, 2006, the Company held $73.1 million of short-term investments, whichconsist of auction rate securities and variable rate demand obligationsclassified as available-for-sale securities. The contractual maturities on these short-term investments range fromwithin one year and beyond ten years.

OnJanuary 24, 2006, the Board of Directors approved a domestic reinvestment planfor the approximately $130 million in foreign earnings, which were previouslyconsidered permanently reinvested in non-U.S. legal entities,

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whichthe Company repatriated under the American Job Creations Act of 2004.  The funds were brought back to the UnitedStates late in the fourth quarter of fiscal 2006 and received the favorable taxtreatment provided by the Act.  TheCompany recorded a one-time tax expense of $9.1 million, which is reflected inthe Company’s prior year effective tax rate. As part of its repatriation plan, the Company intends to make a domesticinvestment of the repatriated amount in a wide range of initiatives, includingthe hiring and training of U.S. workers, research and development efforts,qualified retirement plan funding, capital expenditures to support the U.S.businesses, advertising and marketing with respect to its various trademarks,brand names and rights to intangible property, and acquisitions of U.S.-basedbusinesses, all consistent with the requirements of the legislation.

On June 7, 2006, theCompany’s Board of Directors amended the Repurchase Program and increased thenumber of shares of common stock authorized to be repurchased by 6,000,000shares, from 6,000,000 shares to 12,000,000 shares. Since January 31, 2006, theCompany has purchased 1,802,382 shares on the open market for a cost ofapproximately $35.0 million, bringing the cumulative total purchased shares to6,429,182 as of July 31, 2006 for a total cost of approximately $149.6million.  Additionally, the Companyrepurchased 4,906,616 shares for an aggregate purchase price of $172.6 millionin July 2004 through a Dutch auction cash tender offer.  The acquired shares are held as common stockin treasury at cost.

On September 7, 2006, theCompany announced that it had declared a cash dividend of $0.27 per share ofcommon stock for the six months ended July 31, 2006.  The dividend, authorized at the Company’sSeptember 7, 2006 Board of Directors meeting, will be payable to shareholdersof record as of November 1, 2006, and will be paid on November 15, 2006.

**CriticalAccounting Policies**

There were no changes toour critical accounting policies in the second quarter of fiscal 2007.  For a discussion of the Company’s criticalaccounting policies see our Annual Report on Form 10-K for the fiscal year endedJanuary 31, 2006.

**RecentAccounting Pronouncements**

During the first quarter of fiscal 2007, the FinancialAccounting Standards Board (FASB) issued SFAS No. 155, “Accounting forCertain Hybrid Financial Instruments — an amendment of FASB Statements No. 133and 140” (SFAS No. 155) and SFAS No. 156, “Accounting for Servicingof Financial Instruments — an amendment of FASB Statement No. 140” (SFASNo. 156). SFAS No. 155 requires that interests in securitizedfinancial assets be evaluated to determine whether they contain embeddedderivatives, and permits the accounting for any such hybrid financialinstruments as single financial instruments at fair value with changes in fairvalue recognized directly in earnings. SFAS No. 156 specifies thatservicing assets or liabilities recognized upon the sale of financial assetsmust be initially measured at fair value, and subsequently either measured atfair value or amortized in proportion to and over the period of estimated netservicing income or loss. The Company plans to adopt both standards onFebruary 1, 2007.  The Company does not expect the adoption ofthe standards to have a material impact on the Company’s consolidated financialposition, annual results of operations or cash flows.

In July 2006, the FASB issuedInterpretation No. 48, “Accounting for Uncertainty in Income Taxes.” This Interpretation requires that a recorded tax benefit must be more likelythan not of being sustained upon examination by tax authorities based upon itstechnical merits.  The amount of benefit recorded is the largest amount ofbenefit that is greater than 50 percent likely of being realized upon ultimatesettlement.  Upon adoption, any adjustment will be recorded directly tobeginning retained earnings. The Interpretation is effective for the Companybeginning no later than February 1, 2007.  The Company has not yet adoptedthe Interpretation and has not analyzed its potential effect on the Company’sfinancial statements.

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

**MarketRisk**

The Company hasoperations outside of the United States and sells its products worldwide.  The Company’s activities expose it to avariety of market risks, including the effects of changes in foreign currencyexchange rates, interest rates and commodity prices.  These financial exposures are activelymonitored and, where considered appropriate, managed by the Company.

**InterestRate Risk**

As of July 31, 2006, theCompany is subject to interest rate risk on approximately $56.2 million of variablerate debt.  Each 1-percentage pointchange in the interest rate would impact pre-tax earnings by approximately $0.6million if applied to the total.

On July 10, 2003, theCompany terminated the interest rate swap agreement in relation to $50.0 millionof its outstanding 7.90% Senior Notes, which mature on October 1, 2009.  This termination resulted in a deferred gainof approximately $5.0 million, which is being amortized over the remaining termof the Notes.

**ForeignCurrency Risk**

TheCompany uses foreign exchange forward and options contracts to hedge the impactof foreign currency fluctuations on foreign denominated inventory purchases,intercompany payables and certain intercompany loans.  The Company does not hold or issue derivativefinancial instruments for trading purposes.

TheCompany hedged the net assets of certain of its foreign operations throughforeign currency forward contracts during fiscal 2006.  The Company does not intend to continue tohedge the net assets of its foreign operations during fiscal 2007.  Any increase or decrease in the fair value ofthe forwards related to changes in the spot foreign exchange rates was offsetby the change in the value of the hedged net assets of the foreign operationsrelating to changes in spot foreign exchange rates.  The net after-tax gain related to thederivative net investment hedge instruments recorded in accumulated othercomprehensive income (loss) (“OCI”) totaled $1.8 million as of July 31, 2006.

The Company hasdesignated its forward exchange and options contracts on forecastedintercompany purchases and future purchase commitments as cash flow hedges and,as such, as long as the hedge remains effective and the underlying transactionremains probable, the effective portion of the changes in the fair value ofthese contracts will be recorded in OCI until earnings are affected by thevariability of the cash flows being hedged. With regard to commitments for inventory purchases, upon payment of eachcommitment, the underlying forward contract is closed and the correspondinggain or loss is transferred from accumulated OCI and is included in themeasurement cost of the acquired asset. If a hedging instrument is sold or terminated prior to maturity, gainsand losses are deferred in accumulated OCI until the hedged item issettled.  However, if the hedged item isno longer likely to occur, the resultant gain or loss on the terminated hedgeis recognized into earnings immediately. Approximately $0.1 million of hedge losses related to cash flow hedgesare included in accumulated OCI at July 31, 2006, and are expected to betransferred into earnings within the next twelve months upon payment of theunderlying commitment.

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

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

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The following tableprovides information about the Company’s foreign exchange forward and optionscontracts at July 31, 2006:
|                                                                           | ** ** | **U.S. Dollar**     | ** ** | **Average**            | ** ** | **Estimated**       | ** ** |
|---------------------------------------------------------------------------|------------|--------------------------|------------|------------------------|------------|---------------------|------------|
| **(In thousands, except average contract rate)** | ** ** | **Notional Amount** | ** ** | **Contract Rate** | ** ** | **Fair Value** | ** ** |
| Canadian Dollar                                                           |       | $                        | 5,600      |                   | 0.88       |                | $          | (15 | ) |
| Pound Sterling                                                            |       | 500                      |       | 1.85                   |       | —              |       |
| Euro                                                                      |       | 5,650                    |       | 1.27                   |       | (79                 | )          |
|                                                                      |       | $                        | 11,750     |                   |       |                | $          | (94 | ) |

 

The foreignexchange contracts outstanding have maturity dates through December 2006.

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**Item 4.** CONTROLS AND PROCEDURES

(a) Evaluation ofdisclosure controls and procedures.

Our management, with theparticipation of our principal executive officer and our principal financialofficer, evaluated the effectiveness of our disclosure controls and procedures(as defined in Securities Exchange Act of 1934 (“Exchange Act”) Rules 13a-15(e)or 15d-15(e)) as of the end of the period covered by this quarterly report asrequired by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.  Based upon this evaluation, our principalexecutive officer and our principal financial officer have concluded that ourdisclosure controls and procedures are effective as of July 31, 2006.

(b) Changes in internalcontrol over financial reporting.

There have been nochanges in our internal control over financial reporting identified inconnection with the evaluation required by paragraph (d) of Exchange Act Rules13a-15 or 15d-15 that occurred during the second quarter of fiscal 2007 thathas materially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

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** **Part II.  OTHER INFORMATION

**Item 1.**    Legal Proceedings

None.

**Item 1A. Risk Factors**

There have been nochanges to the risks described in the Company’s Annual Report on Form 10-K forthe fiscal year ended January 31, 2006.

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

The following table setsforth certain information concerning the repurchase of the Company’s CommonStock made by the Company during the second quarter of the fiscal year endingJanuary 31, 2007.

##### **ISSUERPURCHASES OF EQUITY SECURITIES(1)**

| Period                             | ** ** | **(a) Total  Number of  Shares  Purchased** | ** ** | **(b)  Average  Price Paid  per Share** | ** ** | **(c) Total  Number of  Shares  Purchased as  Part of Publicly  Announced  Plans or  Programs** | ** ** | **(d) Maximum Number (or  Approximate Dollar  Value) of Shares that May  Yet Be Purchased Under  the Plans or Programs** | ** ** |
|------------------------------------|------------|-------------------------------------------------------|------------|---------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| May 1, 2006 –  May 31, 2006   |       | 0                                                     |       | $                                                 | 0          |                                                                                                                          | 0          |                                                                                                                                                                                           | 837,600    |   |
|                               |       |                                                  |       |                                              |       |                                                                                                                          |       |                                                                                                                                                                                           |       |
| June 1, 2006 –  June 30, 2006 |       | 887,582                                               |       | $                                                 | 19.08      |                                                                                                                          | 887,582    |                                                                                                                                                                                           | 5,950,018  |   |
|                               |       |                                                  |       |                                              |       |                                                                                                                          |       |                                                                                                                                                                                           |       |
| July 1, 2006 –  July 31, 2006 |       | 379,200                                               |       | $                                                 | 17.44      |                                                                                                                          | 379,200    |                                                                                                                                                                                           | 5,570,818  |   |
|                               |       |                                                  |       |                                              |       |                                                                                                                          |       |                                                                                                                                                                                           |       |
| Total                              |       | 1,266,782                                             |       | $                                                 | 18.59      |                                                                                                                          | 1,266,782  |                                                                                                                                                                                           | 5,570,818  |   |

 

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(1)On September10, 1998, the Company’s Board of Directors approved the Company’s sharerepurchase program (the “Repurchase Program”) pursuant to which the Company wasauthorized to repurchase up to 1,000,000 shares of its issued and outstandingCommon Stock in open market transactions. On June 8, 1999, the Company’s Board of Directors amended the RepurchaseProgram and increased the number of shares of Common Stock to be repurchased by1,000,000 shares, from 1,000,000 to 2,000,000 shares.  On March 30, 2000, the Company’s Board ofDirectors further amended the Repurchase Program and increased the number ofshares of Common Stock to be repurchased by 1,000,000 shares, from 2,000,000 to3,000,000 shares.  On December 14, 2000,the Company’s Board of Directors further amended the Repurchase Program andincreased the number of shares of Common Stock to be repurchased by 1,000,000shares, from 3,000,000 to 4,000,000 shares. On April 4, 2002, the Company’s Board of Directors further amended theRepurchase Program and increased the number of shares of Common Stock to berepurchased by 2,000,000 shares, from 4,000,000 to 6,000,000 shares.  On June 7, 2006, the Company’s Board ofDirectors further amended the Repurchase Program and increased the number ofshares of common stock authorized to be repurchased by 6,000,000 shares, from6,000,000 shares to 12,000,000 shares. As of July 31, 2006, the Company has purchased a total of 6,429,182shares of Common Stock under the Repurchase Program.  The Repurchase Program does not have anexpiration date.  The Company intends tomake further purchases under the Repurchase Program from time to time.

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**Item 3.**    Defaults upon Senior Securities

None

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

Thefollowing matters were voted upon at the Annual Meeting of Stockholders held onJune 7, 2006, and received the votes set forth below:

1)             Each of the following persons nominated waselected to serve as a director and received the number of votes set forthopposite their name.
|                    | ** ** | **For**    | ** ** | **Against** | ** ** | **Withheld** | ** ** | **Abstentions** | ** ** |
|--------------------|------------|------------|------------|-------------|------------|--------------|------------|-----------------|------------|
| Roger A.  Anderson |       | 38,065,445 |       | 0           |       | 814,390      |       | 0               |       |
| Pamela M.  Goergen |       | 37,718,618 |       | 0           |       | 1,161,217    |       | 0               |       |
| Carol J. Hochman   |       | 38,622,754 |       | 0           |       | 257,081      |       | 0               |       |

 

Inaddition to the directors elected at the meeting, the directors of the Companywhose terms of office continued after the meeting are: Robert B. Goergen, NealI. Goldman and Howard E. Rose (terms expiring in 2007) and John W. Burkhart,Wilma H. Jordan and James M. McTaggart (terms expiring in 2008).

2)             A proposal to ratify the appointment of Deloitte& Touche LLP as independent auditors received 38,162,955 votes for, 715,128votes against, 0 votes withheld and 1,752 abstentions.

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

None

**Item 6.**    Exhibits

Exhibits

10.16       Share Sale and Purchase Agreement dated April 12, 2006 between SMFManagement Consultants B.V. (as Purchaser) and Blyth Holding B.V. (as Seller)and Blyth, Inc. (as Guarantor) and Johannes Van Tol.

10.17       Share Sale and Purchase Agreement dated June 16, 2006 between MonceauDeelnemingen I B.V. (as Purchaser), Blyth Holding B.V. (as Seller) and Blyth,Inc. (as Guarantor).

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

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

32.1         Certification of Chairman and Chief Executive Officer pursuant toSection 906 of the Sarbanes-Oxley Act of 2002.

32.2         Certification of Vice President and Chief Financial Officer pursuant toSection 906 of the Sarbanes-Oxley Act of 2002.

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** **

**SIGNATURES**

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

|        |                     | BLYTH, INC.                                |
|--------|--------------------------|--------------------------------------------|
|   |                     |                                       |
|   |                     |                                       |
| Date:  |  September 11, 2006 |                                       | By: | /s/Robert B. Goergen |   |
|   |                     |                                       | Robert B. Goergen |
|   |                     |                                       | Chairman and Chief Executive Officer |
|   |                     |                                       |   |
|   |                     |                                       |   |
| Date:  |  September 11, 2006 |                                       | By: | /s/Robert H. Barghaus |   |
|   |                     | Robert H. Barghaus                         |
|   |                     | Vice President and Chief Financial Officer |

 

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