**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington D.C. 20549**

 

**FORM 10-Q**

** **

**(Mark One)**

** **
| **x**      | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**  |
|------------|----------------------------------------------------------------------------------------------------------|
|       |                                                                                                     |
| ** ** | **For  the quarterly period ended April 30, 2008**                                                  |
|       | ** **                                                                                               |
| **or**     |
|       | ** **                                                                                               |
| **o**      | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |

 

**For thetransition period from               to              **

** **

**CommissionFile Number 1-13026**

 

**BLYTH,INC.**

(Exact name ofregistrant 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, Connecticut06831**

### **(Address of principal executive offices)  **(Zip Code)

### ** **

**(203)661-1926**

(Registrant’stelephone number, including area code)

 

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

Yes x                                    No o    

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act.(Check one):

 

| Large accelerated filer  o                     |   | Accelerated filer x          |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated filer o                        |   | Smaller reporting  company o |
| (Do not check if a smaller  reporting company) |   |                              |

 

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

Yes o                                    No x    

 

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

 

**36,237,352Common Shares as of May 31, 2008**

 

 

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**BLYTH, INC.**

** **

#### **INDEX**

#### ** **

| ** **    | ** ** |                   |                                                                                        |                                                            |   | **Page** |
|---------------|------------|------------------------|---------------------------------------------------------------------------------------------|-----------------------------------------------------------------|--------|----------|
|          |       |                   |                                                                                        |                                                            |   |     |
| Part I.  |       | Financial  Information |                                                                                        |                                                            |   |     |
|          |       |                   |                                                                                        |                                                            |   |     |
|          | Item  1.   |                   | Financial  Statements (Unaudited):                                                          |                                                            |   |
|          |       |                   |                                                                                        |                                                            |   |     |
|          |       |                   |                                                                                        | Condensed Consolidated  Balance Sheets                          |   | 3        |
|          |       |                   |                                                                                        |                                                            |   |     |
|          |       |                   |                                                                                        | Condensed Consolidated  Statements of Earnings                  |   | 4        |
|          |       |                   |                                                                                        |                                                            |   |     |
|          |       |                   |                                                                                        | Condensed Consolidated  Statements of Stockholders’ Equity |   | 5        |
|          |       |                   |                                                                                        |                                                            |   |     |
|          |       |                   |                                                                                        | Condensed Consolidated  Statements of Cash Flows                |   | 6        |
|          |       |                   |                                                                                        |                                                            |   |     |
|          |       |                   |                                                                                        | Notes to  Condensed Consolidated Financial Statements           |   | 7-18     |
|          |       |                   |                                                                                        |                                                            |   |     |
|          | Item 2.    |                   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |                                                            | 19-25  |
|          |       |                   |                                                                                        |                                                            |   |     |
|          | Item 3.    |                   | Quantitative  and Qualitative Disclosures About Market Risk                                 |                                                            | 26-27  |
|          |       |                   |                                                                                        |                                                            |   |     |
|          | Item 4.    |                   | Controls and  Procedures                                                                    |                                                            | 28     |
|          |       |                   |                                                                                        |                                                            |   |     |
| Part II. |       | Other Information      |                                                                                        |                                                            |   |     |
|          |       |                   |                                                                                        |                                                            |   |     |
|          | Item 1.    |                   | Legal Proceedings                                                                           |                                                            | 29     |
|          |       |                   |                                                                                        |                                                            |   |     |
|          |       | Item 1A.               |                                                                                        | Risk Factors                                                    |   | 29       |
|          |       |                   |                                                                                        |                                                            |   |     |
|          |       | Item 2.                |                                                                                        | Unregistered  Sales of Equity Securities and Use of Proceeds    |   | 30       |
|          |       |                   |                                                                                        |                                                            |   |     |
|          |       | Item 3.                |                                                                                        | Defaults  upon Senior Securities                                |   | 30       |
|          |       |                   |                                                                                        |                                                            |   |     |
|          |       | Item 4.                |                                                                                        | Submission  of Matters to a Vote of Security Holders            |   | 30       |
|          |       |                   |                                                                                        |                                                            |   |     |
|          |       | Item 5.                |                                                                                        | Other Information                                               |   | 30       |
|          |       |                   |                                                                                        |                                                            |   |     |
|          |       | Item 6.                |                                                                                        | Exhibits                                                        |   | 31       |
|          |       |                   |                                                                                        |                                                            |   |     |
| Signatures    |       |                   |                                                                                        |                                                            |   | 32       |
|               |            |                        |                                                                                             |                                                                 |        |          |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

2

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**BLYTH, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                                      | ** ** | **April 30,** | ** ** | **January 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|----------------------|------------|
| **(In thousands, except share and  per share data)**                                                                            | ** ** | **2008**           | ** ** | **2008**             | ** ** |
| ** **                                                                                                                      |       | **(Unaudited)**    |       |                 |       |
| **ASSETS**                                                                                                                      |       |               |       |                 |       |
| **Current  assets:**                                                                                                            |       |               |       |                 |       |
| Cash and cash  equivalents                                                                                                      |       | $                  | 147,494    |                 | $          | 163,021 |   |
| Short-term  investments                                                                                                         |       | 15,022             |       | 30,375               |       |
| Accounts  receivable, less allowance for doubtful receivables of $1,941 and $2,006  respectively                                |       | 37,551             |       | 35,054               |       |
| Inventories                                                                                                                     |       | 140,939            |       | 132,585              |       |
| Prepaid and  other                                                                                                              |       | 37,534             |       | 31,968               |       |
| Deferred income  taxes                                                                                                          |       | 35,274             |       | 36,841               |       |
| Total current  assets                                                                                                           |       | 413,814            |       | 429,844              |       |
| **Property,  plant and equipment, at cost:**                                                                                    |       |               |       |                 |       |
| Less accumulated  depreciation of $220,257 and $214,874, respectively                                                           |       | 140,132            |       | 140,021              |       |
| **Other  assets:**                                                                                                              |       |               |       |                 |       |
| Investments                                                                                                                     |       | 21,655             |       | 22,315               |       |
| Goodwill                                                                                                                        |       | 31,854             |       | 31,854               |       |
| Other intangible  assets, net of accumulated amortization of $9,625 and $9,250, respectively                                    |       | 31,125             |       | 31,500               |       |
| Deposits and  other assets                                                                                                      |       | 11,108             |       | 11,888               |       |
| Total other  assets                                                                                                             |       | 95,742             |       | 97,557               |       |
| Total assets                                                                                                                    |       | $                  | 649,688    |                 | $          | 667,422 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                  |       |               |       |                 |       |
| **Current  liabilities:**                                                                                                       |       |               |       |                 |       |
| Current  maturities of long-term debt                                                                                           |       | 945                |       | 928                  |       |
| Accounts payable                                                                                                                |       | 38,635             |       | 55,167               |       |
| Accrued expenses                                                                                                                |       | 80,486             |       | 78,045               |       |
| Dividends  payable                                                                                                              |       | 9,784              |       | —               |       |
| Income taxes payable                                                                                                            |       | 3,294              |       | 10,926               |       |
| Total current  liabilities                                                                                                      |       | 133,144            |       | 145,066              |       |
| **Deferred  income taxes**                                                                                                      |       | 34,820             |       | 29,563               |       |
| **Long-term  debt, less current maturities**                                                                                    |       | 155,215            |       | 157,887              |       |
| **Other  liabilities**                                                                                                          |       | 35,049             |       | 35,838               |       |
| **Commitments  and contingencies**                                                                                              |       | —             |       | —               |       |
| **Stockholders’  equity:**                                                                                                 |       |               |       |                 |       |
| Preferred stock  - authorized 10,000,000 shares of $0.01 par value; no shares issued                                            |       | —             |       | —               |       |
| Common stock -  authorized 100,000,000 shares of $0.02 par value; issued 50,926,836 shares  and 50,922,460 shares, respectively |       | 1,019              |       | 1,018                |       |
| Additional  contributed capital                                                                                                 |       | 139,576            |       | 138,163              |       |
| Retained  earnings                                                                                                              |       | 513,704            |       | 522,328              |       |
| Accumulated  other comprehensive income                                                                                         |       | 27,556             |       | 25,444               |       |
| Treasury stock,  at cost, 14,689,484 shares and 14,557,351 shares, respectively                                                 |       | (390,395           | )          | (387,885             | )          |
| Total  stockholders’ equity                                                                                                |       | 291,460            |       | 299,068              |       |
| Total  liabilities and stockholders’ equity                                                                                |       | $                  | 649,688    |                 | $          | 667,422 |   |

 

***Theaccompanying notes are an integral part of these financial statements.***

 

3

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**BLYTH,INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF EARNINGS**

**(Unaudited)**

 
| **Three months ended April 30 ****(In thousands, except per share data)** | ** ** | **2008** | ** ** | **2007** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Net sales                                                                                                                   |       | $        | 249,848    |     | $          | 270,367 |   |
| Cost of goods  sold                                                                                                         |       | 110,417  |       | 128,663  |       |
| Gross profit                                                                                                                |       | 139,431  |       | 141,704  |       |
| Selling                                                                                                                     |       | 98,674   |       | 93,649   |       |
| Administrative  and other                                                                                                   |       | 30,796   |       | 31,399   |       |
| Total operating  expense                                                                                                    |       | 129,470  |       | 125,048  |       |
| Operating profit                                                                                                            |       | 9,961    |       | 16,656   |       |
| Other expense  (income):                                                                                                    |       |     |       |     |       |
| Interest expense                                                                                                            |       | 2,423    |       | 3,721    |       |
| Interest income                                                                                                             |       | (1,312   | )          | (1,989   | )          |
| Foreign exchange  and other                                                                                                 |       | 3,681    |       | (548     | )          |
| Total other  expense                                                                                                        |       | 4,792    |       | 1,184    |       |
| Earnings before  income taxes                                                                                               |       | 5,169    |       | 15,472   |       |
| Income tax  expense                                                                                                         |       | 3,980    |       | 3,713    |       |
| Earnings before  minority interest                                                                                          |       | 1,189    |       | 11,759   |       |
| Minority interest                                                                                                           |       | 29       |       | 27       |       |
| Net earnings                                                                                                                |       | $        | 1,160      |     | $          | 11,732 |   |
| Basic:                                                                                                                      |       |     |       |     |       |
| Net earnings per  common share                                                                                              |       | $        | 0.03       |     | $          | 0.30 |   |
| Weighted average  number of shares outstanding                                                                              |       | 36,276   |       | 39,313   |       |
| Diluted:                                                                                                                    |       |     |       |     |       |
| Net earnings per  common share                                                                                              |       | $        | 0.03       |     | $          | 0.30 |   |
| Weighted average  number of shares outstanding                                                                              |       | 36,608   |       | 39,672   |       |

 

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

 

4

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**BLYTH, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**

**(Unaudited)**

**(Inthousands)**

 
| ** **                                                                | ** ** | ** ** | ** ** | ** **      | ** ** | ** **   | ** ** | ** **   | ** ** | **Accumulated**        | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------------|------------|------------|------------|-----------------|------------|--------------|------------|--------------|------------|------------------------|------------|------------|------------|
| ** **                                                                | ** ** | ** ** | ** ** | **Additional**  | ** ** | ** **   | ** ** | ** **   | ** ** | **Other**              | ** ** | ** ** | ** ** |
| ** **                                                                | ** ** | **Common** | ** ** | **Contributed** | ** ** | **Retained** | ** ** | **Treasury** | ** ** | **Comprehensive**      | ** ** | ** ** | ** ** |
| ** **                                                                | ** ** | **Stock**  | ** ** | **Capital**     | ** ** | **Earnings** | ** ** | **Stock**    | ** ** | **Income (Loss)** | ** ** | **Total**  | ** ** |
| For the three  months ended April 30, 2007:                          | ** ** | ** ** | ** ** | ** **      | ** ** | ** **   | ** ** | ** **   | ** ** | ** **             | ** ** | ** ** | ** ** |
| Balance,  February 1, 2007                                           |       | $          | 1,013      |            | $          | 129,367      |       | $            | 534,897    |                   | $          | (323,714   | )          | $ | 22,130 |   | $ | 363,693 |   |
| FIN 48 adoption  adjustment                                               |       |       |       |            |       | (2,769       | )          |         |       |                   |       | (2,769     | )          |
| Adjusted  balance, February 1, 2007                                  |       | $          | 1,013      |            | $          | 129,367      |       | $            | 532,128    |                   | $          | (323,714   | )          | $ | 22,130 |   | $ | 360,924 |   |
| Net earnings for the period                                               |       |       |       |            |       | 11,732       |       |         |       |                   |       | 11,732     |       |
| Foreign currency  translation adjustments                                 |       |       |       |            |       |         |       |         |       | 471                    |       | 471        |       |
| Unrealized gain  on certain investments (net of tax $65)                  |       |       |       |            |       |         |       |         |       | 106                    |       | 106        |       |
| Net loss on cash  flow hedging instruments (net of tax of $172)           |       |       |       |            |       |         |       |         |       | (319                   | )          | (319       | )          |
| Comprehensive  income                                                     |       |       |       |            |       |         |       |         |       |                   |       | 11,990     |       |
| Common stock  issued in connection with long-term incentive plan          |       | 1          |       | 1,792           |       |         |       |         |       |                   |       | 1,793      |       |
| Tax benefit from  stock options                                           |       |       |       | 55              |       |         |       |         |       |                   |       | 55         |       |
| Amortization of  unearned compensation                                    |       |       |       | 550             |       |         |       |         |       |                   |       | 550        |       |
| Dividends                                                                 |       |       |       |            |       | (10,608      | )          |         |       |                   |       | (10,608    | )          |
| Balance,  April 30, 2007                                             |       | $          | 1,014      |            | $          | 131,764      |       | $            | 533,252    |                   | $          | (323,714   | )          | $ | 22,388 |   | $ | 364,704 |   |
|                                                                      |       |       |       |            |       |         |       |         |       |                   |       |       |       |
| For the three  months ended April 30, 2008:                          | ** ** | ** ** | ** ** | ** **      | ** ** | ** **   | ** ** | ** **   | ** ** | ** **             | ** ** | ** ** | ** ** |
| Balance,  February 1, 2008                                           |       | $          | 1,018      |            | $          | 138,163      |       | $            | 522,328    |                   | $          | (387,885   | )          | $ | 25,444 |   | $ | 299,068 |   |
| Net earnings for  the period                                              |       |       |       |            |       | 1,160        |       |         |       |                   |       | 1,160      |       |
| Foreign currency  translation adjustments                                 |       |       |       |            |       |         |       |         |       | 4,154                  |       | 4,154      |       |
| Net unrealized  loss on certain investments (net of tax benefit of $194)  |       |       |       |            |       |         |       |         |       | (316                   | )          | (316       | )          |
| Net loss on cash  flow hedging instruments (net of tax benefit of $1,058) |       |       |       |            |       |         |       |         |       | (1,726                 | )          | (1,726     | )          |
| Comprehensive  income                                                     |       |       |       |            |       |         |       |         |       |                   |       | 3,272      |       |
| Common stock  issued in connection with long-term incentive plan          |       | 1          |       |            |       |         |       |         |       |                   |       | 1          |       |
| Amortization of  unearned compensation                                    |       |       |       | 1,413           |       |         |       |         |       |                   |       | 1,413      |       |
| Dividends                                                                 |       |       |       |            |       | (9,784       | )          |         |       |                   |       | (9,784     | )          |
| Treasury stock  purchases                                                 |       |       |       |            |       |         |       | (2,510       | )          |                   |       | (2,510     | )          |
| Balance, April 30,  2008                                             |       | $          | 1,019      |            | $          | 139,576      |       | $            | 513,704    |                   | $          | (390,395   | )          | $ | 27,556 |   | $ | 291,460 |   |

 

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

 

5

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**BLYTH,INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**
| **Three months ended April 30 (In thousands)**                            | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Cash flows from  operating activities:                                                                  |       |     |       |     |       |
| Net earnings                                                                                            |       | $        | 1,160      |     | $          | 11,732 |   |
| Adjustments to  reconcile net earnings to net cash provided by (used in) operating  activities:         |       |     |       |     |       |
| Depreciation and  amortization                                                                          |       | 5,106    |       | 7,018    |       |
| Write down of  investments                                                                              |       | 5,471    |       | —   |       |
| Loss on sale of  assets                                                                                 |       | 10       |       | 521      |       |
| Unrealized gain  on trading investments                                                                 |       | (30      | )          | —   |       |
| Stock-based  compensation expense                                                                       |       | 731      |       | 550      |       |
| Deferred income  taxes                                                                                  |       | 3,500    |       | 4,679    |       |
| Equity in  (earnings) losses of investee                                                                |       | 13       |       | 2        |       |
| Minority  interest                                                                                      |       | 10       |       | 7        |       |
| Changes in  operating assets and liabilities, net of effect of business acquisitions and  divestitures: |       |     |       |     |       |
| Accounts  receivable                                                                                    |       | (1,931   | )          | (18,181  | )          |
| Inventories                                                                                             |       | (6,379   | )          | 6,269    |       |
| Prepaid and  other                                                                                      |       | (4,914   | )          | (6,109   | )          |
| Other long-term  assets                                                                                 |       | 790      |       | 2,451    |       |
| Accounts payable                                                                                        |       | (17,763  | )          | (10,347  | )          |
| Accrued expenses                                                                                        |       | 960      |       | 3,485    |       |
| Other  liabilities                                                                                      |       | (224     | )          | (22      | )          |
| Income taxes                                                                                            |       | (7,966   | )          | (1,768   | )          |
| Net cash  provided by (used in) operating activities                                                    |       | (21,456  | )          | 287      |       |
| Cash flows from  investing activities:                                                                  |       |     |       |     |       |
| Purchases of  property, plant and equipment, net of disposals                                           |       | (2,317   | )          | (2,422   | )          |
| Purchases of  short-term investments                                                                    |       | (24,431  | )          | (480,700 | )          |
| Proceeds from  sales of short-term investments                                                          |       | 34,342   |       | 484,125  |       |
| Proceeds from  the sales of businesses, net of cash disposed                                            |       | —   |       | 514      |       |
| Proceeds from  sale of assets                                                                           |       | —   |       | 21,830   |       |
| Proceeds from  sale of long-term investments                                                            |       | 100      |       | —   |       |
| Net cash provided  by investing activities                                                              |       | 7,694    |       | 23,347   |       |
| Cash flows from  financing activities:                                                                  |       |     |       |     |       |
| Proceeds from  issuance of common stock                                                                 |       | —   |       | 1,793    |       |
| Tax benefit from  stock options                                                                         |       | —   |       | 55       |       |
| Purchases of  treasury stock                                                                            |       | (2,510   | )          | —   |       |
| Repayments of  long-term debt                                                                           |       | (2,559   | )          | (3,925   | )          |
| Payments on  capital lease obligations                                                                  |       | (116     | )          | (80      | )          |
| Net cash used in  financing activities                                                                  |       | (5,185   | )          | (2,157   | )          |
| Effect of  exchange rate changes on cash                                                                |       | 3,420    |       | (68      | )          |
| Net increase  (decrease) in cash and cash equivalents                                                   |       | (15,527  | )          | 21,409   |       |
| Cash and cash  equivalents at beginning of period                                                       |       | 163,021  |       | 103,808  |       |
| Cash and cash  equivalents at end of period                                                             |       | $        | 147,494    |     | $          | 125,217 |   |

 

***Theaccompanying notes are an integral part of these financial statements.***

 

6

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** **

**BLYTH, INC. ANDSUBSIDIARIES**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**1.**             Basis of Presentation

** **

The condensedconsolidated financial statements include the accounts of Blyth, Inc. (“theCompany”) and its subsidiaries.  Allintercompany accounts and transactions have been eliminated.  The investment in a company that is notmajority owned or controlled is reported using the equity method and isrecorded as an investment.  Certain ofthe Company’s subsidiaries operate on a 52 or 53-week fiscal year ending on theSaturday closest to January 31. European operations maintain a calendar year accounting period, which isconsolidated with the Company’s fiscal period. In the opinion of management, the accompanying unaudited condensed consolidatedfinancial statements include all adjustments necessary for fair presentation ofthe Company’s consolidated financial position at April 30, 2008 and theconsolidated results of its operations and cash flows for the three-monthperiods ended April 30, 2008 and 2007. These interim statements should be read in conjunction with the Company’sconsolidated financial statements for the fiscal year ended January 31,2008, as set forth in the Company’s Annual Report on Form 10-K.  Operating results for the three months ended April 30,2008 are not necessarily indicative of the results that may be expected for thefiscal year ending January 31, 2009.

 

**2.**             Divestitures

** **

During the firstquarter of fiscal 2008, the Company sold certain assets and liabilities of itsBlyth HomeScents International North American mass channel candle business (“BHINA”), which was part of the Wholesale segment. The net assets were sold for $25.3 million (including overstockinventory proceeds of $1.3 million) of which $21.8 million was received atclosing during the first quarter of fiscal 2008, with the remaining amountreceived subsequently during fiscal 2008.

 

The sale includedworking capital net assets as well as fixed assets and leases related to theMemphis, Tennessee distribution facility and Bentonville, Arkansasoperations.  The Company retained allother offices and its Elkin, North Carolina manufacturing and distributionfacilities, which produce the Company’s premium wholesale Colonial Candle brandproduct. The net assets sold related to the BHI business were comprisedprimarily of customer relationships, accounts receivable of $7.4 million,inventory of $16.6 million and distribution equipment of $1.1 million lessliabilities assumed of $1.7 million.

 

The Company isentitled to receive a portion of the proceeds from the sale of the overstockinventory by the buyer per the terms of the agreement, which would be recordedas a reduction to Administrative and other expense upon receipt.

 

Revenue and costsrelated to operating the retained facilities and certain agreed upontransitional support services are included in the Condensed ConsolidatedStatements of Earnings.

 

**3.**             Restructuring

** **

Duringfiscal 2007 the Company initiated restructuring plans within the North Americanmass channel home fragrance business within the Wholesale segment and the NorthAmerican operations of the Company’s Direct Selling segment. The execution ofthese plans continued throughout fiscal 2007, 2008 and into fiscal 2009.

 

AtJanuary 31, 2008, the Company had an accrual for approximately $1.4million for restructuring charges relating to the severance liabilities andlease obligations.  As a result ofpayments made during the quarter ended April 30, 2008 approximately $0.9million of lease and severance obligations were remaining on the balance sheetas of April 30, 2008.  The remainingseverance liability will be paid within the next six months, and the remaininglease obligations will be paid through fiscal 2013.

 

7

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**BLYTH, INC. ANDSUBSIDIARIES**

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**3.****            ****Restructuring***(continued)*

 

The following is atabular rollforward of the restructuring accruals described above that areincluded in Accrued expenses:

 
| ** **                        | ** ** | **Wholesale   Segment** | ** ** | **Direct Selling  Segment** | ** ** | ** **               | ** ** |
|-----------------------------------|------------|------------------------------|------------|----------------------------------|------------|--------------------------|------------|
| **(In thousands)**           | ** ** | **Severance Costs**     | ** ** | **Lease  Obligation**            | ** ** | **Severance Costs** | ** ** | **Total** | ** ** |
| Balance at  January 31, 2008 |       | $                            | 138        |                             | $          | 1,151                    |       | $ | 100 |   | $ | 1,389 |   |
| Payments made in  fiscal 2009     |       | (117                         | )          | (259                             | )          | (100                     | )          | (476 | ) |
| Balance at  April 30, 2008   |       | $                            | 21         |                             | $          | 892                      |       | $ | — |   | $ | 913 |   |

** **

**4.**             Investments

** **

TheCompany invests in a number of financial securities including debt instruments,preferred and common stocks, a joint venture, and a limited partnership thatprimarily invests in other limited partnerships who invest in real estateinvestment trusts and marketable securities.  The Company accounts for itsinvestments in debt instruments and preferred and common stocks in accordancewith Financial Accounting Standards Board (“FASB”) Statement of FinancialAccounting Standards (“SFAS”) No. 115, “Accounting for Certain Investmentsin Debt and Equity Securities”.

 

Certainpreferred stocks are bought and sold on a short-term basis with the solepurpose of generating a profit on price differences.  Accordingly, thesepreferred stocks are classified as trading securities and as such all realizedand unrealized gains and losses are recorded in the Condensed ConsolidatedStatements of Earnings in the Foreign exchange and other expense (income)line.  These securities are valued based on quoted prices in inactivemarkets.

 

TheCompany also holds other debt and equity auction rate securities (“ARS”) whichare classified as available-for-sale.  These securities are valued basedon many factors including the credit quality of both the issuer and itsinsurer, the Company’s discounted cash flow analysis and input frombroker-dealers in these types of securities. Realized gains and losseson these securities are determined using the specific identification method andare recorded in Foreign exchange and other expense (income) line. Unrealized gains and temporary unrealized losses on these securities arerecorded in Accumulated other comprehensive income (“AOCI”) within Stockholders’equity.  Unrealized losses that are considered other than temporary arerecorded in the Condensed Consolidated Statements of Earnings in the Foreignexchange and other expense (income) line.

 

TheCompany has an investment in a limited partnership that is accounted for underthe cost method. The Company does not influence any operating and financialpolicies of the investee and the Company’s ownership interest is less thanthree percent.  To the extent that there is an other than temporarydecline in the fair value of these investments below their carrying value, theinvestments would be written down to their estimated fair value.  Thefactors considered in making impairment assessments include, but are notlimited to, the severity and duration of the impairment, market prices, marketconditions, other third party information and management’s ability and intentto hold the security for a reasonable period of time for the security torecover its value.

 

The Company has an investment in a joint venture company which sellsand manufactures charcoal and candle related products in Australia that isaccounted for under the equity method.  To the extent that there is another than temporary decline in the fair value of this investment below itscarrying value, the investment would be written down to its estimated fairvalue.

 

8

----

 

**BLYTH, INC. ANDSUBSIDIARIES**

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**4.**             Investments *(continued)*

** **

Investments, by category and classification:

 
| **(In thousands)**              | ** ** | **April 30, 2008** | ** ** | **January 31, 2008** | ** ** |
|--------------------------------------|------------|------------------------------|------------|--------------------------------|------------|
| Debt securities                      |       | $                            | 9,653      |                           | $          | 15,000 |   |
| Equity  securities                   |       | 9,700                        |       | 15,186                         |       |
| Total  available-for-sale securities |       | 19,353                       |       | 30,186                         |       |
| Preferred stock                      |       | 10,292                       |       | 10,184                         |       |
| Other                                |       | 15                           |       | 5                              |       |
| Total trading  securities            |       | 10,307                       |       | 10,189                         |       |
| Limited  partnership                 |       | 4,715                        |       | 10,000                         |       |
| Joint Venture                        |       | 2,302                        |       | 2,315                          |       |
| Total  investments                   |       | $                            | 36,677     |                           | $          | 52,690 |   |

 

Asof April 30, 2008 and January 31, 2008, the Company held $19.4million and $25.0 million, respectively, of ARS classified asavailable-for-sale securities. Auction rate securities are generally long termdebt instruments that provide liquidity through a Dutch auction process thatresets the applicable interest rate at predetermined intervals in days. This mechanismgenerally allows existing investors to rollover their holdings and continue toown their respective securities or liquidate their holdings by selling theirsecurities at par value. The Company generally invests in these securities forshort periods of time as part of its cash management program. The Company’sauction rate securities are all AAA/Aaa rated investments and consist of astudent loan portfolio with the vast majority of the student loans guaranteedby the U.S. Government under the Federal Family Education Loan Program,municipal bonds guaranteed by a monoline insurance company and a closed-endfund consisting of preferred stock of various utilities that maintains assetsequal to or greater than 200% of the liquidation preference of its preferredstock. These securities’ valuations considered the financial conditions of theissuer and the bond insurers as well as the value of the collateral.  If the credit ratings of the issuer, the bondinsurers or the collateral deteriorate, the Company may adjust the carryingvalue of these investments.

 

Therecent uncertainties in the credit markets have prevented the Company and otherinvestors from liquidating their holdings by selling their securities at parvalue. Historically, the par value of these securities approximated fair valueas a result of the resetting of the interest rate. In the first quarter offiscal year 2009 market auctions, including auctions for substantially all ofour auction rate securities portfolio, began to fail due to insufficientbuyers. As a result of these failed auctions and the uncertainty of when theseinvestments could successfully be liquidated at par, the Company has recordedan unrealized loss of $0.5 million to AOCI during the first quarter of fiscal2009 to reflect liquidity risk related to the securities. As a result of theuncertainty as to when the liquidity issues relating to these investments willimprove, the Company has classified these securities as non-current investmentsas of April 30, 2008.

 

**Debt securities by**contractualmaturity, at par, are as follows:

** **
| **(In thousands)**         | ** ** | **April 30, 2008** | ** ** | **January 31, 2008** | ** ** |
|---------------------------------|------------|------------------------------|------------|--------------------------------|------------|
| Due within one  year            |       | $                            | —     |                           | $          | — |   |
| Due between one  and five years |       | —                       |       | —                         |       |
| Due after ten  years            |       | 9,900                        |       | 15,000                         |       |
| Total                           |       | $                            | 9,900      |                           | $          | 15,000 |   |

** **

All incomegenerated from these debt securities was recorded as Interest income. Actualmaturities may differ from contractual maturities should the borrower have theright to call certain obligations.

 

9

----

 

**BLYTH, INC. ANDSUBSIDIARIES**

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**4.**             Investments *(continued)*

** **

As of January 31, 2008, the Company had a $5.2 million investmentin the equity securities of RedEnvelope, Inc., that was classified asavailable-for-sale.  As of April 30,2008, the RedEnvelope, Inc., investment was deemed to be other thantemporarily impaired as a result of their filing for bankruptcy protection.Accordingly, a charge of $5.2 million was recorded during the quarter ended April 30,2008 to write off the full balance of this investment.

 

The total unrealized gain on those investments classified as tradingthat is reflected in****the Company’sConsolidated Statements of Earnings as Foreign exchange and other expense(income) for the period ended April 30, 2008 was not significant.

 

The investment inthe limited partnership was purchased in fiscal 2008, at a cost of $10.0million. During the first quarter of fiscal 2009 the Company redeemed $5.0million of its investment in the partnership, resulting in a loss of $0.3million. The remaining balance of this investment as of the end of the firstquarter of fiscal 2009 was $4.7 million.

 

**5.**             Inventories

** **

The components ofinventory are as follows:

 
| **(In thousands)** | ** ** | **April 30, 2008** | ** ** | **January 31, 2008** | ** ** |
|-------------------------|------------|------------------------------|------------|--------------------------------|------------|
| Raw materials           |       | $                            | 6,756      |                           | $          | 6,490 |   |
| Work in process         |       | 411                          |       | —                         |       |
| Finished goods          |       | 133,772                      |       | 126,095                        |       |
| Total                   |       | $                            | 140,939    |                           | $          | 132,585 |   |

 

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

 

**Goodwill and other indefinitelived intangibles are subject to an assessment for impairment using a two-stepfair value-based test and such other intangibles are also subject to impairmentreviews, which must be performed at least annually or more frequently if eventsor circumstances indicate that goodwill or other indefinite lived intangiblesmight be impaired.**

** **

The Company performs its annual assessment ofimpairment as of January 31, which is our fiscal year-end date.  For goodwill, the first step is to identifywhether a potential impairment exists. This is done by comparing the fair valueof a reporting unit to its carrying amount, including goodwill.  Fair value for each of our reporting units isestimated utilizing a combination of valuation techniques, namely thediscounted cash flow methodology and the market multiple methodology.  The discounted cash flow methodology assumesthe fair value of an asset can be****estimated by the economicbenefit or net cash flows the asset will generate over the life of the asset,discounted to its present value. The discounting process uses a rate of returnthat accounts for both the time value of money and investment riskfactors.  The market multiple methodologyestimates fair value based on what other participants in the market haverecently paid for reasonably similar assets. Adjustments are made to compensatefor differences between the reasonably similar assets and the assets beingvalued. If the fair value of the reporting unit exceeds the carrying value, nofurther analysis is necessary. The fair value of the reporting units is derivedby calculating the average of the outcomes of the two valuation techniquesdescribed above.  If the carrying amountof the reporting unit exceeds its fair value, the second step is performed. Thesecond step compares the carrying amount of the goodwill to the estimated fairvalue of the goodwill. If fair value is less than the carrying amount, animpairment loss is reported as a reduction to the goodwill and a charge tooperating expense.

 

10

----

 

**BLYTH, INC. AND SUBSIDIARIES**

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**6.****            ****Goodwill and Other Intangibles***(continued**)***

 

**The following table shows the carrying amount of goodwill,by operating segment, for the as of April 30, 2008 and January 31,2008:**

 
| ** **              | ** ** | ** **              | ** ** | **Catalog &** | ** ** | ** ** | ** ** |
|-------------------------|------------|-------------------------|------------|------------------------|------------|------------|------------|
| **(In thousands)** | ** ** | **Direct Selling** | ** ** | **Internet**           | ** ** | **Total**  | ** ** |
| Goodwill                |       | $                       | 2,298      |                   | $          | 29,556     |       | $ | 31,854 |   |
|                         |            |                         |            |                        |            |            |            |  |  |  |

** **

**Other intangible assets consistedof indefinite-lived trade names and trademarks and customer lists related tothe Company’s acquisition of Miles Kimball and Walter Drake in fiscal 2004 andare reported in the Catalog and Internet segment. The Company does not amortizethe indefinite-lived trade names and trademarks, but rather test for impairmentannually as of January 31, or upon the occurrence of a triggering event.**

** **

Otherintangible assets consisted of the following (In thousands):

 
| ** **                                   | ** ** | ** ** | **April 30, 2008** | ** **                    | ** ** | ** ** | ** ** | ** ** | **January 31, 2008** | ** **                    | ** ** | ** ** |
|----------------------------------------------|------------|------------|------------------------------|-------------------------------|------------|------------|------------|------------|--------------------------------|-------------------------------|------------|------------|
| **(In thousands)**                      | ** ** | **Gross**  | ** **                   | **Accumulated  Amortization** | ** ** | **Net**    | ** ** | **Gross**  | ** **                     | **Accumulated  Amortization** | ** ** | **Net**    | ** ** |
| Indefinite-lived  trade names and trademarks |       | $          | 25,750                       |                          | $          | —     |       | $          | 25,750                         |                          | $          | 25,750     |   | $ | — |   | $ | 25,750 |   |
| Customer lists                               |       | 15,000     |                         | 9,625                         |       | 5,375      |       | 15,000     |                           | 9,250                         |       | 5,750      |   |
| Total                                        |       | $          | 40,750                       |                          | $          | 9,625      |       | $          | 31,125                         |                          | $          | 40,750     |   | $ | 9,250 |   | $ | 31,500 |   |

 

Amortizationexpense for other intangible assets was $0.4 million and $0.4 million for thethree months ended April 30, 2008 and 2007, respectively.  The estimated annual amortization expense forfiscal year 2009 is $1.5 million.  Theestimated amortization expense for the next five fiscal years beginning withfiscal 2010 is as follows:  $1.1 million,$1.0 million, $0.8 million, $0.6 million and $0.5 million.

 

**7.****            ****Fair ValueMeasurements**

 

On February 1, 2008,the Company adopted SFAS No. 157, Fair Value Measurements (“SFAS No. 157”),for our financial assets and liabilities. This statement provides a frameworkfor measuring fair value and requires expanded disclosures regarding fair valuemeasurements. SFAS No. 157 defines fair value as the price that would bereceived to sell an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date, which for thefirst quarter of fiscal 2009 is April 30, 2008.

 

Thefair-value hierarchy established in FAS 157 prioritizes the inputs used invaluation techniques into three levels as follows:

 

·      Level 1 – Observable inputs –quoted prices in active markets for identical assets and liabilities;

 

·                  Level 2 –Observable inputs other than the quoted prices in active markets for identicalassets and liabilities – such as quoted prices for similar instruments, quotedprices for identical or similar instruments in inactive markets, or otherinputs that are observable or can be corroborated by observable market data;

 

·                  Level 3 –Unobservable inputs – includes amounts derived from valuation models where oneor more significant inputs are unobservable and require us to develop relevantassumptions.

 

11

----

 

**BLYTH, INC. AND SUBSIDIARIES**

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**7.****            ****Fair ValueMeasurements** (*continued*)

 

Thefollowing table summarizes the financial assets and liabilities measured atfair value on a recurring basis as of the measurement date, April 30,2008, and the basis for that measurement, by level within the fair valuehierarchy:

 
| **(In thousands)**                     | ** ** | **Balance as of   April 30, 2008** | ** ** | **Quoted prices in   active markets for   identical assets   (Level 1)** | ** ** | **Significant other  observable inputs   (Level 2)** | ** ** | **Significant   unobservable   inputs (Level 3)** | ** ** |
|----------------------------------------|------------|-------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| **Financial  assets**                  | ** ** |                                                        | ** ** | ** **                                                                                                            | ** ** | ** **                                                               | ** ** | ** **                                                            | ** ** |
| Equity  securities                     |       | $                                                           | 19,992     |                                                                                                                  | $          | —                                                                   |       | $                                                                     | 10,292     |   | $ | 9,700 |   |
| Debt securities                        |       | 9,653                                                       |       | —                                                                                                                |       | —                                                                   |       | 9,653                                                                 |       |
| Deferred  compensation plan assets (1) |       | 3,610                                                       |       | 3,610                                                                                                                 |       | —                                                                   |       | —                                                                |       |
| Other                                  |       | 15                                                          |       | —                                                                                                                |       | 15                                                                       |       | —                                                                |       |
| Total                                  |       | $                                                           | 33,270     |                                                                                                                  | $          | 3,610                                                                    |       | $                                                                     | 10,307     |   | $ | 19,353 |   |
| **Financial  liabilities**             |       |                                                        |       |                                                                                                                  |       |                                                                     |       |                                                                  |       |
| Foreign exchange  forward contracts    |       | $                                                           | (3,822     | )                                                                                                                     | $          | —                                                                   |       | $                                                                     | (3,822     | ) | $ | — |   |

 

----

(1) There is anoffsetting liability for the obligation to its employees on the Company’sbooks.

 

Thetable below summarizes the change in the fair value of level 3 financial assetsand liabilities for the quarter ended April 30, 2008:

 
| **(In thousands)**           | ** ** | **Significant unobservable   inputs (Level 3)** | ** ** |
|-----------------------------------|------------|---------------------------------------------------------------------|------------|
|                              |       |                                                                |       |
| Fair value  February 1, 2008 |       | $                                                                   | 25,000     |   |
| Settlements                       |       | (5,100                                                              | )          |
| Unrealized loss  (1)              |       | (547                                                                | )          |
| Fair value  April 30, 2008   |       | $                                                                   | 19,353     |   |

 

----

(1) All unrealized losseson our available for sale investments are recorded as a component of othercomprehensive income.

 

TheCompany values its investments in equity securities using level 1 inputs, byobtaining quoted prices in active markets. The deferred compensation plan assets consist of shares of mutual funds,for which there are quoted prices in an active market. The Company also entersinto both cash flow and fair value hedges, by purchasing forward contracts.These contracts are valued using level 2 inputs, primarily observable forwardforeign exchange rates. The Company values certain preferred stock investmentsusing information classified as level 2. This data consists of quoted prices ofidentical instruments in an inactive market and third party bid offers. Thedebt and equity securities consist of auction rate securities that take intoconsideration many factors including the credit quality of both the issuer andits insurer, value of the collateral, the Company’s discounted cash flowanalysis and input from broker-dealers in these types of securities. Sincethere is not an active, observable, market currently for these securities, theyhave been classified as a level 3 input.

 

12

----

 

**BLYTH, INC. AND SUBSIDIARIES**

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**8.****            ****Earnings per Share**

 

The components ofbasic and diluted earnings per share are as follows:

 
| ** **                                              | ** ** | **Three months ended April 30,** | ** ** |
|---------------------------------------------------------|------------|------------------------------------------------------|------------|
| **(In thousands)**                                 | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| Net earnings                                            |       | $                                                    | 1,160      |   | $ | 11,732 |   |
| Weighted average  number of common shares outstanding:  |       |                                                 |       |   |   |
| Basic                                                   |       | 36,276                                               |       | 39,313 |   |
| Dilutive effect  of stock options and restricted shares |       | 332                                                  |       | 359 |   |
| Weighted average number of common shares  outstanding:  |       |                                                 |       |   |   |
| Diluted                                                 |       | 36,608                                               |       | 39,672 |   |
|                                                         |            |                                                      |            |  |  |  |  |

** **

For thethree-month period ended April 30, 2008 and 2007, options to purchase408,100 and 716,000 shares of common stock, respectively, are not included inthe computation of earnings per share because the effect would beanti-dilutive.

 

**9.****            ****Treasury and Common Stock**

** **
| **Treasury Stock**                                                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                                                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Changes in Treasury Stock were (In thousands, except shares):** | ** ** | **Shares** | ** ** | **Amount** | ** ** |
| Balance at  February 1, 2007                                                                         |       | 11,335,798 |       | $          | (323,714   | ) |
| Balance at  April 30, 2007                                                                           |       | 11,335,798 |       | $          | (323,714   | ) |
|                                                                                                      |       |       |       |       |       |
| Balance at  February 1, 2008                                                                         |       | 14,557,351 |       | $          | (387,885   | ) |
| Treasury stock  purchases                                                                                 |       | 132,133    |       | $          | (2,510     | ) |
| Balance at  April 30, 2008                                                                           |       | 14,689,484 |       | $          | (390,395   | ) |

 
| **Common Stock**                                                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                                                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Changes in Common Stock were (In thousands, except shares):** | ** ** | **Shares** | ** ** | **Amount** | ** ** |
| Balance at  February 1, 2007                                                                       |       | 50,637,060 |       | $          | 1,013      |   |
| Common stock  issued in connection with long-term incentive plan                                        |       | 74,300     |       | 1          |       |
| Balance at April 30, 2007                                                                          |       | 50,711,360 |       | 1,014      |       |
|                                                                                                    |       |       |       |       |       |
| Balance at  February 1, 2008                                                                       |       | 50,922,460 |       | $          | 1,018      |   |
| Common stock  issued in connection with long-term incentive plan                                        |       | 4,376      |       | 1          |       |
| Balance at  April 30, 2008                                                                         |       | 50,926,836 |       | $          | 1,019      |   |

 

13

----

 

**BLYTH, INC. AND SUBSIDIARIES**

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**10.****         ****Bank Lines of Credit**

 

On October 2,2006, the Company executed Amendment No. 1 (the “Amendment”) to itsunsecured revolving credit facility (“Credit Facility”) dated as of June 2,2005.  The Amendment (i) reduced theamount available for borrowing under the Credit Agreement from $150.0 millionto $75.0 million, (ii) changed the initial termination date from June 2,2010 to June 1, 2009, (iii) increased the rate of interest applicableto loans under the Credit Agreement and (iv) modified some of thecovenants.  The Company has the abilityto increase the amount available for borrowing, under certain circumstances, byan additional $50.0 million.  The CreditFacility may be used for seasonal working capital needs and general corporatepurposes, including strategic acquisitions. The Credit Facility contains, amongother provisions, requirements for maintaining certain financial ratios andlimitations on certain payments.  As of April 30,2008, the Company was in compliance with such provisions.  Amounts outstanding under the amended CreditFacility bear interest, at the Company’s option, at either the JPMorgan ChaseBank’s prime rate or the Eurocurrency rate plus a spread ranging from 0.80% to1.70% calculated on the basis of the Company’s senior unsecured long-term debt rating. Amounts available for borrowing under this facility were approximately$71.4 million as of April 30, 2008, reflecting $3.6 million in outstandingletters of credit.

 

**11**.          **Income Taxes**

 

The Company’s effective taxrate for the three months ended April 30, 2008 and 2007 was 77% and 24%,respectively, which resulted in a provision for income taxes of $4.0 millionand $3.7 million, respectively. The higher effective tax rate in the threemonths ended April 30, 2008 was primarily related to a $1.8 millionvaluation allowance for the capital loss recorded during the quarter related tothe write down of the RedEnvelope investment discussed in Note 4. Such expenseaccounted for 35 percentage points of the effective rate in the quarter.  For the three months ended April 30,2007, the Company’s effective rate reflected a benefit of 15 % related to areversal of a valuation allowance previously recorded.

 

TheCompany adopted the provisions of FASB Interpretation No. 48, Accountingfor Uncertainty in Income Taxes (“FIN 48”), on February 1, 2007.  Inaccordance with FIN 48, the Company recorded $0.2 million of accrued interestrelated to uncertain tax positions in the three months ended April 30,2008. The Company recognizes interest and penalties related to unrecognized taxbenefits as a component of income tax expense.

 

TheCompany believes that it is reasonably possible that the total amount ofunrecognized tax benefits as of April 30, 2008 that may be resolved withinthe next 12 months is approximately $7.0 million, as a result of the filing ofamended tax returns, closing of statutes, and audit settlements.  Dueto the various jurisdictions in which the Company files tax returns and theuncertainty regarding the timing of the settlement of tax audits, it ispossible that there could be other significant changes in the amount ofunrecognized tax benefits in fiscal 2009, but the amount cannot be reasonablyestimated.

 

14

----

 

**BLYTH, INC. ANDSUBSIDIARIES**

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**12.**          Stock Based Compensation

 

As of April 30, 2008, the Company had one active stock-basedcompensation plan, the 2003 Long-Term Incentive Plan (“2003 Plan”), availableto grant future awards and two inactive stock-based compensation plans (theAmended 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. As of April 30, 2008,6,500,100 shares were authorized and approximately 3,600,000 shares wereavailable for grant under these plans.  The Company’s policy is to issuenew shares of common stock for all stock options exercised and restricted stockgrants.

 

The Board of Directors and the stockholders of the Company haveapproved the adoption and subsequent amendments of the 2003 Plan. The 2003 Planprovides for grants of incentive and nonqualified stock options, stockappreciation rights, restricted stock, restricted stock units, performanceshares, performance units, dividend equivalents and other stock unit awards toofficers and employees. The 2003 Plan also provides for grants of nonqualifiedstock options to directors of the Company who are not, and who have not beenduring the immediately preceding 12-month period, officers or employees of theCompany or any of its subsidiaries. Restricted stock and restricted stock units(“RSUs”) are granted to certain employees to incent performance and retention.RSUs issued under the plans provide that shares awarded may not be sold orotherwise transferred until restrictions have lapsed. The release of RSUs oneach of the vesting dates is contingent upon continued active employment by theemployee until the vesting dates. During the first quarter of fiscal 2009 atotal of 106,385 RSUs were granted to the Company’s management, under the 2003Plan.

 

Total compensation expense related to all stock-based compensationplans for the three months ended April 30, 2008 and 2007 was approximately$0.7 million and $0.6 million, respectively. The tax benefit recognized for thethree months ended April 30, 2008 and 2007 was approximately $0.2 million.

 

Stock-basedcompensation expense recognized during the period is based on the value of theportion of stock-based payment awards that is ultimately expected to vestduring the period. Stock-based compensation expense recognized in the Company’sCondensed Consolidated Statements of Earnings for the three months ended April 30,2008 and 2007 includes compensation expense for restricted stock, RSUs andother stock-based awards granted subsequent to January 31, 2006 based onthe grant date fair value estimated in accordance with the provisions of SFAS123(R). The Company recognizes these compensation costs net of a forfeiturerate for only those awards expected to vest, on a straight-line basis over therequisite service period of the award, which is over periods of 3 years forstock options; 2 to 5 years for employee restricted stock and RSUs; and 1 to 2years for non-employee restricted stock and RSUs. SFAS 123(R) requiresforfeitures to be estimated at the time of grant and revised, if necessary, insubsequent periods if actual forfeitures differ from those estimates.

 

**Transactions involving restricted stock and RSUs aresummarized as follows:**

** **
| ** **                                                    | ** ** | ** ** | ** ** | **Weighted Average**                | ** ** | **Aggregate**            | ** ** |
|---------------------------------------------------------------|------------|------------|------------|------------------------------------------|------------|--------------------------|------------|
| ** **                                                    | ** ** | **Shares** | ** ** | **Grant date Fair Value** | ** ** | **Intrinsic Value** | ** ** |
| ** **                                                    | ** ** | ** ** | ** ** | ** **                               | ** ** | **(In thousands)**  | ** ** |
| Nonvested  restricted stock and RSUs at January 31, 2008 |       | 279,370    |       | $                                        | 24.30      |                     |       |   |
| Granted                                                       |       | 106,385    |       | 20.33                                    |       |                     |       |
| Vested                                                        |       | (12,235    | )          | 32.54                                    |       |                     |       |
| Forfeited                                                     |       | (1,320     | )          | 27.52                                    |       |                     |       |
| Nonvested  restricted stock and RSUs at April 30, 2008   |       | 372,200    |       | $                                        | 22.57      |                     | $          | 6,268 |   |
| Total restricted  stock and RSUs at April 30, 2008       |       | 405,650    |       | $                                        | 23.15      |                     | $          | 6,831 |   |

 

Compensationexpense related to restricted stock and RSUs for three months ended April 30,2008 and 2007 was approximately $0.7 million and $0.6 million, respectively.

 

15

----

 

**BLYTH, INC. ANDSUBSIDIARIES**

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**12.**          Stock Based Compensation *(continued)*

 

As of April 30,2008, there was $3.7 million of unearned compensation expense related tonon-vested restricted stock and RSU awards. This cost is expected to berecognized over a weighted average period of 1.5 years. As of April 30,2008, approximately 370,000 restricted stock awards with a weighted averagegrant date fair value of $22.57 are expected to vest.  The total unrecognized stock-basedcompensation cost to be recognized in future periods as of April 30, 2008does not consider the effect of stock-based awards that may be issued insubsequent periods.

 

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

 
| ** **                                          | ** ** | ** ** | ** ** | ** **                | ** ** | **Weighted Average** | ** ** | ** **               | ** ** |
|-----------------------------------------------------|------------|------------|------------|---------------------------|------------|---------------------------|------------|--------------------------|------------|
| ** **                                          | ** ** | **Option** | ** ** | **Weighted Average** | ** ** | **Remaining**             | ** ** | **Aggregate**            | ** ** |
| ** **                                          | ** ** | **Shares** | ** ** | **Exercise Price**   | ** ** | **Contractual Life** | ** ** | **Intrinsic Value** | ** ** |
| Outstanding at  January 31, 2008               |       | 447,400    |       | 27.01                     |       | 3.97                      |       |                     |       |
| Options granted                                     |       | —     |       | —                    |       |                      |       |                     |       |
| Options  exercised                                  |       | —     |       | —                    |       |                      |       |                     |       |
| Options  forfeited                                  |       | (5,000     | )          | 19.24                     |       |                      |       |                     |       |
| Options expired                                     |       | (31,800    | )          | 30.77                     |       |                      |       |                     |       |
| Outstanding and  exercisable at April 30, 2008 |       | 410,600    |       | $                         | 26.81      |                      | 3.88       |                     | $          | — |   |
|                                                     |            |            |            |                           |            |                           |            |                          |            |  |  |

 

AtApril 30, 2008 and January 31, 2008, options to purchase 410,600 and442,400 shares, respectively, were exercisable. There were no options granted in the first quarter of fiscal 2009.

 

All non-vestedstock options are vested as of April 30, 2008, and therefore no expensewas recorded during the first quarter of fiscal 2009.

 

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

 

**13.**          Segment Information

 

Blyth is adesigner and marketer of home fragrance products and accessories, home décor,seasonal decorations, household convenience items, personalized gifts andproducts for the foodservice trade.  Wecompete in the global Home Expressions industry, and our products can be foundthroughout North America, Europe and Australia. Our financial results are reported in three segments - the DirectSelling segment, the Catalog & Internet segment and the Wholesalesegment.  These reportable segments arebased on similarities in distribution channels, customers and managementoversight.

 

**Within the Direct Selling segment, the Companydesigns, manufactures or sources, markets and distributes an extensive line ofproducts including scented candles, candle-related accessories, fragranced bathgels and body lotions and other fragranced products under the PartyLite®brand.  The Company also operates a smallDirect Selling business, Two Sisters Gourmet®, which is focused on sellinggourmet foods.  All direct sellingproducts are sold directly to the consumer through a network of independentsales consultants using the party plan method of direct selling.  PartyLite brand products are sold in NorthAmerica, Europe and Australia.  Two SistersGourmet brand products 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.  These products are sold directly to theconsumer under the Boca Java**®**, EasyComforts**®**, Exposuresâ,Home Marketplace®, Miles Kimballâ and Walter Drakeâbrands.  These products are sold in NorthAmerica.

 

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**BLYTH, INC. ANDSUBSIDIARIES**

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**13.**          Segment Information *(continued)*

 

Within theWholesale segment, the Company designs, manufactures or sources, markets anddistributes an extensive line of home fragrance products, candle-related accessories,seasonal decorations such as ornaments and trim and home décor products such aspicture frames, lamps and textiles. Products in this segment are sold primarily in North America toretailers in the premium and specialty channels under the CBK®, Colonial Candleof Cape Cod®, Colonial at HOMEâ and Seasons of Cannon Falls®brands.  In addition, chafing fuel andtabletop lighting products and accessories for the Away From Home orfoodservice trade are sold through this segment under the Ambria®, HandyFuel**®** and Sterno® brands.

 

Operating profitin all segments represents net sales less operating expenses directly relatedto the business segments and corporate expenses allocated to the businesssegments.  Other expense includesinterest expense, interest income and equity in earnings of investee, which arenot allocated to the business segments. Identifiable assets for each segment consist of assets used directly inits operations and intangible assets, if any, resulting from purchase businesscombinations.  Unallocated Corporatewithin the identifiable assets include corporate cash and cash equivalents,short-term investments, prepaid income tax, corporate fixed assets, deferredbond costs and other long-term investments, which are not allocated to the businesssegments.

 
| ** **                                                 | ** ** | **Three months ended April 30,** | ** ** |
|------------------------------------------------------------|------------|------------------------------------------------------|------------|
| **(In thousands)**                                    | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| **Net  Sales**                                             |       |                                                 |       |   |   |
| Direct Selling                                             |       | $                                                    | 168,663    |   | $ | 160,244 |   |
| Multi-channel  Group:                                      |       |                                                 |       |   |   |
| Catalog &  Internet                               |       | 36,664                                               |       | 39,896 |   |
| Wholesale                                                  |       | 44,521                                               |       | 70,227 |   |
| Subtotal  Multi-channel Group                              |       | 81,185                                               |       | 110,123 |   |
| **Total**                                                  |       | $                                                    | 249,848    |   | $ | 270,367 |   |
| **Operating  profit (loss)**                               |       |                                                 |       |   |   |
| Direct Selling                                             |       | $                                                    | 19,778     |   | $ | 26,931 |   |
| Multi-channel  Group:                                      |       |                                                 |       |   |   |
| Catalog &  Internet                               |       | (3,963                                               | )          | (2,153 | ) |
| Wholesale                                                  |       | (5,854                                               | )          | (8,122 | ) |
| Subtotal  Multi-channel Group                              |       | (9,817                                               | )          | (10,275 | ) |
|                                                       |       | 9,961                                                |       | 16,656 |   |
| Other expense                                              |       | 4,792                                                |       | 1,184 |   |
| **Earnings  before income taxes and****minority interest** |       | $                                                    | 5,169      |   | $ | 15,472 |   |

 
| ** **                    | ** ** | **April 30, 2008** | ** ** | **January 31, 2008** | ** ** |
|-------------------------------|------------|------------------------------|------------|--------------------------------|------------|
| **Identifiable  Assets**      |       |                         |       |                           |       |
| Direct Selling                |       | $                            | 292,495    |                           | $          | 306,484 |   |
| Multi-channel  Group:         |       |                         |       |                           |       |
| Catalog &  Internet  |       | 116,295                      |       | 103,677                        |       |
| Wholesale                     |       | 126,564                      |       | 146,612                        |       |
| Subtotal  Multi-channel Group |       | 242,859                      |       | 250,289                        |       |
| Unallocated  Corporate        |       | 114,334                      |       | 110,649                        |       |
| **Total**                     |       | $                            | 649,688    |                           | $          | 667,422 |   |

 

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**BLYTH, INC. ANDSUBSIDIARIES**

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**14.**          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 adverseaffect on its consolidated financial position, results of operations or cashflows.

 

In October 2007, U.S. Customs and Border Protection (“Customs”)made a demand to the Company for payment of duties allegedly owed by one of itssubsidiaries. In November 2007, the Company filed a petition disputingCustoms’ claims. In May 2008, Customs notified the Company that it hadrescinded the demand for duties.

 

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**Item2.**   MANAGEMENT’SDISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

**RESULTS OF OPERATIONS-**Three months ended April 30,2008 versus 2007:

 

**Overview**

 

Blyth is a designerand marketer 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 throughout NorthAmerica, 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, annualizednet sales are comprised of an approximately $700 million Direct Sellingbusiness, an approximately $200 million Catalog & Internet businessand an approximately $200 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, depending on the business factors previously noted inthe January 31, 2008 Form 10-K.

 

Ourcurrent focus is driving sales growth of our brands so we may more fullyleverage our infrastructure.  New productdevelopment continues to be critical to all three segments of ourbusiness.  In the Direct Selling segment,monthly sales and productivity incentives are designed to attract, retain andincrease the earnings opportunity of independent sales consultants.  In the Catalog & Internet segment,product, merchandising and circulation strategy are designed to drive strongsales growth in newer brands and expand further the sales and customer base ofour flagship brands.  In the Wholesale segment,sales initiatives are targeted to independent retailers, distributors andnational accounts.

 

**Saleof Mass Channel Candle Business**

 

On April 27,2007, the Company sold certain assets and liabilities of its Blyth HomeScentsInternational North American mass channel candle business (“BHI NA”), which waspart of the Wholesale segment.  The netassets were sold for $25.3 million, including $1.3 million of sales of surplusinventory, of which $21.8 million was received at closing during the firstquarter of fiscal 2008, with the remaining amount received subsequently duringfiscal 2008.

 

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**NetSales**

 

Net sales during the three months ended April 30, 2008 decreased$20.6 million, or 8%, to $249.8 million from $270.4 million in the prioryear.  The decrease is primarily a resultof the sale of BHI NA in fiscal 2008, and an overall weak economic environment.

 

Net Sales - Direct SellingSegment

 

Net sales in the DirectSelling segment for the quarter ended April 30, 2008 increased $8.5million, or 5%, to $168.7 million from $160.2 million in the prior year.Excluding the impact of foreign currency, sales would have decreased by 3%. InPartyLite’s European markets, sales increased approximately 19% in U.S.dollars, a 4% increase in sales in local currency, principally due to growth indeveloping new markets. Offsetting this was PartyLite’s U.S. sales decrease of17% compared to the prior year partially due to a decline in the number ofsales consultants.  Also, PartyLiteCanada reported a 7% decline in sales in local currency, which translated to a7% increase as measured in U.S. dollars.

 

Net Sales - Catalog & Internet Segment

 

Net sales in the Catalog & Internet segment decreased $3.2million, or 8%, to $36.7 million, from $39.9 million in the same prior yearperiod.  This decline was in part due todecreased sales as a result of the implementation of a new ERP system thatcaused orders that ordinarily would have shipped and earned revenue to betemporarily unfulfilled.

 

Net Sales - Wholesale Segment

 

**Net salesin the Wholesale segment decreased $25.7 million, or approximately 37%, to$44.5 million from $70.2 million in the same period a year earlier. Thedecrease in sales is primarily due to the sale of BHI NA, as well as decliningsales of our home and seasonal décor businesses, which continue to benegatively impacted by the weak housing market.**

 

**GrossProfit**

 

Gross profitdecreased $2.3 million, or 2% to $139.4 million from $141.7 million in theprior year quarter.  The decrease in gross profit is attributableto lower sales and increased commodity and shipping costs throughout allsegments. Gross profit margin increased to 55.8% from 52.4% in the prioryear quarter. The increase in grossprofit margin is primarily attributable to the sale of BHI NA in the prioryear, whose mass market margins were below that of Blyth’s other businesses.

 

**SellingExpense**

 

**Selling expense increased $5.1 million, or 5%, to $98.7million in the first three months of fiscal 2009, from $93.6 million in thesame period in fiscal 2008. The increase in selling expense is primarily due toinitiatives undertaken by the North American PartyLite businesses and theWholesale segment to increase sales. This includes consultant programs,supplier and customer rebates. This is partially offset by the decrease inselling expense related to BHI NA of $1.1 million. As a percentage of sales,selling expense was 39.5% in the first three months of fiscal 2009, compared to34.6% in the comparable prior year period. This increase is due to the aforementioned PartyLite initiatives as wellas the divesture of BHI NA, which had a lower selling expense to sales ratiothan our other businesses.**

 

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**Administrativeand Other Expense**

 

**Administrativeand other expense decreased $0.6 million, or 2%, to $30.8 million in the firstthree months of fiscal 2009 from $31.4 million in the same period of fiscal2008.  This decline was principally dueto restructuring charges taken in the prior year as well as with the loss onthe sale of BHI NA in April 2007. As a percent of sales, administrative expense was 12.3% in the firstthree months of fiscal 2009 versus 11.6% in the same period of fiscal 2008.This increase is primarily due to the impact of reduced sales.**

 

**OperatingProfit (Loss)**

 

Operating profit decreased $6.7 million to $10.0 million in the firstthree months of fiscal 2009 from $16.7 million in the same period of fiscal2008.   The decrease in operating profitis primarily a result of decreased sales at PartyLite U.S. and the MilesKimball Company, combined with increased commodity and shipping costs andselling expenses incurred to increase revenue.

 

Operating Profit - Direct Selling Segment

 

Operating profit in the Direct Selling segment****for the first three months of fiscal 2009 decreased$7.1 million, or 26.4%, to $19.8 million from $26.9 million in the same perioda year earlier.  The decrease isprimarily due to lower sales in PartyLite U.S. as well as additional promotionalinitiatives to increase the number of consultant in all markets.

 

Operating Loss - Catalog & Internet Segment

 

Operating loss in the quarter ended April 30, 2008 in the Catalog & Internet segmentwas $4.0 million compared to $2.2 million in the same period a yearearlier.  This increased loss is related to the impact of lower sales resulting from the aforementioned ERPimplementation, as well as higher shipping and handling costs.

 

Operating Loss - Wholesale Segment

 

Operating loss inthe quarter ended April 30, 2008 in the Wholesale segment was $5.9 millionversus a loss of $8.1 million the same period a year earlier.  The improvement is primarily a result ofselling the BHI NA business, which incurred significant operating lossesincluding severance and asset impairment charges in the prior year, as well asprofit improvements in the Sterno business. Partially offsetting those profitgains was a decline in the seasonal and home décor businesses, and additionalcharges associated with our Wholesale candle manufacturing and distributionoperations.

 

**InterestExpense, Interest Income, and Foreign Exchange and Other**

 

Interest expensedecreased approximately $1.3 million, or 35%, to $2.4 million in the first three months offiscal 2009 from $3.7 million in the sameprior year period, primarily due to a decrease in outstanding debt, resultingfrom debt repurchases in the second half of fiscal 2008.

 

Interest income decreasedapproximately $0.7 million to $1.3 million in the first three months of fiscal2009 from $2.0 million in the comparable prior year period, due to lowershort-term investment balances.

 

Foreign exchange and otherlosses were $3.7 million in the quarter ended April 30, 2008, compared toincome of $0.5 million in the comparable prior year period. The current year’sloss includes a $5.2 million write-off of our RedEnvelope, Inc. investmentin April 2008.

 

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**IncomeTaxes**

 

Our effective tax rate forthe three months ended April 30, 2008 and 2007 was 77% and 24%,respectively, which resulted in a provision for income taxes of $4.0 millionand $3.7 million, respectively. The higher effective tax rate in the threemonths ended April 30, 2008 was primarily related to a $1.8 millionvaluation allowance for the capital loss recorded during the quarter related tothe write down of the RedEnvelope investment discussed in Note 4. Such expenseaccounted for 35 percentage points of the effective rate in the quarter.  For the three months ended April 30,2007 our effective rate reflected a benefit of 15 % related to a reversal ofvaluation allowance previously recorded.

 

**NetEarnings**

 

Net earningsdecreased $10.5 million, or 90%, to $1.2 million in the first three months offiscal 2009 from$11.7 million for the same period in fiscal 2008.

 

Basic and dilutedearnings per share for the quarter ended April 30, 2008, was $0.03, adecrease of $0.27 compared to $0.30 for the quarter ended April 30, 2007.

 

**Liquidityand Capital Resources**

 

Cash and cashequivalents decreased $15.5 million to $147.5 million at April 30, 2008from $163.0 million at January 31, 2008. The decrease in cash during thefirst three months of fiscal 2009 was primarily related to cash used to meetworking capital needs and reduced earnings from operations.

 

Net cash used byoperations was $21.5 million for the first three months of fiscal 2009 comparedto $0.3 million provided in the prior year period. The decrease in cash is dueto a net earnings decrease of $10.5 million to $1.2 million, primarily due todecreased earnings in our Direct Selling and Catalog & Internetsegments, and net changes in operating assets and liabilities decreased cash by$37.4 million. Included in earnings were non-cash charges for depreciation andamortization of $5.1 million.

 

Net cash providedby investing activities was $7.7 million. Net capital expenditures forproperty, plant and equipment were $2.3 million for the first three months offiscal 2009 compared to $2.4 million in the prior year period.  We liquidated $5.1 million of our auctionrate securities (“ARS”) and reduced our investment in the limited partnershipby $5.0 million.

 

We anticipatetotal capital spending of approximately $12.0 million for fiscal 2009 orapproximately $1.0 million less than fiscal year 2008. We have grown in partthrough acquisitions and, as part of this growth strategy, we expect tocontinue from time to time in the ordinary course of its business to evaluateand pursue acquisition opportunities as appropriate.  We believe our financing needs in the shortand long term can be met from cash generated internally and through ourborrowing capacity from our existing credit agreements.

 

Net cash used infinancing activities was $5.2 million. This was due to the reduction of our long-term debt and capital leaseobligations of $2.7 million and the purchase of treasury stock of $2.5 million.

 

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On October 2,2006, we executed Amendment No. 1 (the “Amendment”) to its unsecuredrevolving credit facility (“Credit Facility”) dated as of June 2,2005.  The Amendment (i) reduced theamount available for borrowing under the Credit Agreement from $150.0 millionto $75.0 million, (ii) changed the initial termination date from June 2,2010 to June 1, 2009, (iii) increased the rate of interest applicableto loans under the Credit Agreement and (iv) modified some of thecovenants.  We have the ability toincrease the amount available for borrowing, under certain circumstances, by anadditional $50.0 million.  The CreditFacility may be used for seasonal working capital needs and general corporatepurposes, including strategic acquisitions. The Credit Facility contains, amongother provisions, requirements for maintaining certain financial ratios andlimitations on certain payments.  As of April 30,2008, the Company was in compliance with such provisions.  Amounts outstanding under the amended CreditFacility bear interest, at our option, at either the JPMorgan Chase Bank’sprime rate or the Eurocurrency rate plus a spread ranging from 0.80% to 1.70%calculated on the basis of our senior unsecuredlong-term debt rating.  Amounts availablefor borrowing under this facility were approximately $71.4 million as of April 30,2008, reflecting $3.6 million in outstanding letters of credit.

 

As of April 30,2008, we had a total of $2.0 million available under an uncommitted facilitywith Bank of America, to be used for letters of credit through January 31,2009.  As of April 30, 2008, noletters of credit were outstanding under this facility.

 

In May 1999, we filed a shelfregistration statement for issuance of up to $250.0 million in debt securitieswith the Securities and Exchange Commission. On September 24, 1999, we issued $150.0 million of 7.90% SeniorNotes due October 1, 2009 at a discount of approximately $1.4 million,which is being amortized over the life of the notes. Through April 30,2008, we have repurchased a total of $102.9 million of these notes.  Such notes contain, among other provisions,restrictions on liens on principal property or stock issued to collateralizedebt.  As of April 30, 2008, we werein compliance with such provisions. Interest is payable semi-annually in arrears on April 1 and October 1.  On October 20, 2003, we issued $100.0million of 5.50% Senior Notes due on November 1, 2013 at a discount ofapproximately $0.2 million, which is being amortized over the life of thenotes.  Such notes contain provisions andrestrictions similar to those in the 7.90% Senior Notes.  As of April 30, 2008, we were incompliance with such provisions. Interest is payable semi-annually in arrears on May 1 and November 1.  The notes may be redeemed in whole or in partat any time at a specified redemption price. The proceeds of the debt issuances were used for general corporatepurposes.

 

As of April 30, 2008, Miles Kimball hadapproximately $8.5 million of long-term debt outstanding under a real estatemortgage note payable to John Hancock Life Insurance Company, which matures June 1,2020.  Under the terms of the note,payments of principal and interest are required monthly at a fixed interestrate of 7.89%.

 

As of April 30, 2008, CBK had $0.1 million oflong-term debt outstanding under an Industrial Revenue Bond (“IRB”), whichmatures on January 1, 2025.  Thebond is backed by an irrevocable letter of credit issued by LaSalle BankNational Association.  The loan iscollateralized by certain of CBK’s assets. The amount outstanding under the IRB bears interest at short-termfloating rates, which equaled a weighted average interest rate of 2.8% at April 30,2008.  Payments of principal are requiredannually and interest payments are required monthly under the terms of thebond.

 

On December 13,2007, our Board of Directors authorized a new stock repurchase program for6,000,000 shares that will become effective after we exhaust the 12,000,000shares authorized for repurchase under the old repurchase program.  Since January 31, 2008, we havepurchased 132,133 shares on the open market, for a cost of $2.5 million, bringingthe cumulative total purchased shares to 9,782,868 as of April 30, 2008,for a total cost of approximately $216.2 million.  Additionally in fiscal 2005, 4,906,616 shareswere repurchased through a Dutch auction cash tender offer for an aggregate purchaseprice of $172.6 million, including fees and expenses.  The acquired shares are held as common stockin treasury at cost.

 

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On April 8,2008, we announced that we had declared a cash dividend of $0.27 per share ofcommon stock.  The dividend authorized atour April 8, 2008 Board of Directors meeting was payable to shareholdersof record as of May 1, 2008, and was paid on May 15, 2008.  The total payment was $9.8 million.

 

**CriticalAccounting Policies**

 

There were nochanges to our critical accounting policies in the first quarter of fiscal2009.  For a discussion of the Company’scritical accounting policies see our Annual Report on Form 10-K for thefiscal year ended January 31, 2008.

 

**RecentAccounting Pronouncements**

 

InSeptember 2006, the Financial Accounting Standards Board (“FASB”) issuedSFAS No. 157, “Fair Value Measurements” (SFAS No. 157).  SFAS No. 157 defines fair value,establishes a framework for measuring fair value in generally accepted accountingprinciples, and expands disclosures regarding fair value measurements.  SFAS No. 157 applies under otheraccounting pronouncements that require or permit fair value measurements.  Accordingly, SFAS No. 157 does notrequire any new fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15,2007. In February 2008, the FASB issued FASB Staff Position No. FAS157-2 (“FSP FAS 157-2”) “Effective Date of FASB Statement No. 157”, whichallows for the deferral of the adoption date of SFAS No. 157 for allnonfinancial assets and nonfinancial liabilities, except those that arerecognized or disclosed at fair value in the financial statements on arecurring basis. We have elected to defer the adoption of SFAS No. 157 forthe assets and liabilities within the scope of FSP FAS 157-2. Refer to Note 7,Fair Value Measurements, of this Form 10-Q, for our disclosures pursuantto the effective portion of SFAS No. 157. The adoption of SFAS No. 157for those assets and liabilities within the scope of FSP FAS 157-2 is notexpected to have a material impact on our financial positions.

 

In February 2007, the FASB issued Statement of FinancialAccounting Standards No. 159, “The Fair Value Option for Financial Assetsand Financial Liabilities, including an amendment of FASB Statements No. 115”(SFAS No. 159).  SFAS No. 159permits entities to choose, at specified election dates, to measure eligibleitems at fair value (the “fair value option”). A business entity shall report unrealized gains and losses on items forwhich the fair value option has been elected in earnings at each subsequentreporting period. We have adopted FAS 159 as of February 1, 2008. Theadoption of FAS 159 did not have an effect on our financial condition orresults of operations as we did not elect this fair value option. The expectedimpact on future periods is not determinable, as the election of this optionfor our financial instruments is not known at this time.

 

In December 2007, the FASB issued SFAS No. 141(revised 2007),“Business Combinations”**(“SFAS No. 141R”). SFAS No. 141Rwill significantly change the accounting for business combinations in a numberof areas including the treatment of contingent consideration, contingencies,acquisition costs, IPR&D and restructuring costs. In addition, underSFAS No. 141R, changes in deferred tax asset valuation allowances andacquired income tax uncertainties in a business combination after themeasurement period will impact income tax expense. SFAS No. 141R iseffective for fiscal years beginning after December 15, 2008 and, as such,we will adopt this standard in fiscal 2010. We will be required to account forany acquisition entered into subsequent to January 31, 2009 in accordancewith the provisions of this statement, and we have not determine the financialimpact of the adoption of this statement.

 

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**In December 2007, the FASB issued SFAS No. 160,“Noncontrolling Interests inConsolidated Financial Statements, an amendment of ARB No. 51” (“SFAS No. 160”).SFAS No. 160 will change the accounting and reporting for minorityinterests, which will be recharacterized as noncontrolling interests andclassified as a component of equity. This new consolidation method will significantlychange the accounting for transactions with minority interest holders.SFAS No. 160 is effective for fiscal years beginning after December 15,2008 and, as such, we will adopt this standard in fiscal 2010. We do not expecta significant impact of SFAS No. 160 on our consolidated financialstatements.**

 

**In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments andHedging Activities, an amendment of FASB Statement No. 133” (“SFAS No. 161”).**SFAS No. 161 requiresdisclosures of how and why an entity uses derivative instruments, howderivative instruments and related hedged items are accounted for under SFAS No. 133and how derivative instruments and related hedged items affect an entity’sfinancial position, financial performance, and cash flows. SFAS No. 161 iseffective for fiscal years beginning after November 15, 2008, with earlyadoption permitted. We have not yet determined the impact of the expandeddisclosures, if any, of SFAS No. 161 on our consolidated financial statements.**

 

**In May 2008,the**FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). The new standard isintended to improve financial reporting by identifying a consistent framework,for selecting accounting principles to be used in preparing financialstatements that are presented in conformity with U.S. generally acceptedaccounting principles (GAAP) for nongovernmental entities. SFAS 162 iseffective 60 days following the Securities and Exchanges Commission’s approvalof the Public Company Accounting Oversight Board Auditing amendments to AU Section 411,“The Meaning of Present Fairly inConformity with Generally Accepted Accounting Principles.”  We do notexpect a significant impact of SFAS No. 162 on our consolidatedfinancial statements.

 

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**Item 3.   QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

**MarketRisk**

 

We have operationsoutside of the United States and sell our products worldwide.  Our activities expose us to a variety ofmarket risks, including the effects of changes in foreign currency exchangerates, interest rates and commodity prices. These financial exposures are actively monitored and, where consideredappropriate, managed.

 

**InterestRate Risk**

 

We are subject to interest rate risk on both variable rate debt and ourinvestments in auction rate securities. As of April 30, 2008, the company is subject to interest rate riskon approximately $0.1 million of variable rate debt.  A 1-percentage point increase in the interestrate would not have a material impact. As of April 30, 2008, we held $19.9 million of non-currentinvestments, which consist of auction rate securities and variable rate demandobligations.  A 1-percentage pointdecrease in the rate of return would impact pre-tax earnings by approximately$0.2 million if applied to the total.

 

On July 10,2003, we terminated the interest rate swap agreement in relation to $50.0million of our outstanding 7.90% Senior Notes, which mature on October 1,2009.  This termination resulted in adeferred gain of approximately $5.0 million, which is being amortized over theremaining term of the notes.  At April 30,2008, there was $1.1 million remaining to be amortized.

 

**ForeignCurrency Risk**

 

We use foreignexchange forward and options contracts to hedge the impact of foreign currencyfluctuations on foreign denominated inventory purchases, intercompany payablesand certain foreign denominated loans. We do not hold or issue derivativefinancial instruments for trading purposes. We have and continue to hedge the net assets of certain of our foreignoperations through foreign currency forward contracts. The net after-tax lossrelated to the derivative net investment hedge instruments recorded inAccumulated othercomprehensive income (loss) (“AOCI”) during the three months ended April 30,2008 was $1.8 million. The balance in AOCI related to net investment hedges sumto an insignificant amount.

 

We have designatedour forward exchange and options contracts on forecasted intercompany purchasesand future purchase commitments as cash flow hedges and, as such, as long asthe hedge remains effective and the underlying transaction remains probable,the effective portion of the changes in the fair value of these contracts willbe recorded in AOCI until earnings are affected by the variability of the cashflows being hedged.  With regard tocommitments for inventory purchases, upon payment of each commitment, theunderlying forward contract is closed and the corresponding gain or loss istransferred from AOCI and is included in the measurement of the cost of theacquired asset.  If a hedging instrumentis sold or terminated prior to maturity, gains and losses are deferred in AOCIuntil the hedged item is settled.  However,if the hedged item is no longer likely to occur, the resultant gain or loss onthe terminated hedge is recognized into earnings immediately.  During the first quarter of fiscal 2009 theamount transferred to earnings was insignificant. Amounts included inaccumulated AOCI at April 30, 2008 are $0.5 million and are expected to betransferred into earnings within the next twelve months upon payment of theunderlying commitment.

 

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

 

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

 

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The following table provides information about our foreign exchangeforward and options contracts at April 30, 2008:

 
| ** **                                                                | ** ** | **U.S. Dollar**     | ** ** | **Average**            | ** ** | **Unrealized**       | ** ** |
|---------------------------------------------------------------------------|------------|--------------------------|------------|------------------------|------------|----------------------|------------|
| **(In thousands, except average contract rate)** | ** ** | **Notional Amount** | ** ** | **Contract Rate** | ** ** | **Gain (Loss)** | ** ** |
| Canadian Dollar                                                           |       | $                        | 3,296      |                   | 0.99       |                 | $          | (71 | ) |
| Euro                                                                      |       | 58,721                   |       | 1.56                   |       | (3,651               | )          |
|                                                                      |       | $                        | 62,017     |                   |       |                 | $          | (3,722 | ) |

 

The foreign exchange contracts outstandinghave maturity dates through October 2008.

 

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**Item 4.   CONTROLSAND PROCEDURES**

 

(a) Evaluation of disclosure controls andprocedures.

 

Our management, with theparticipation of our principal executive officer and our principal financialofficer, evaluated the effectiveness of our disclosure controls and procedures(as defined in Securities Exchange Act of 1934 (“Exchange Act”) Rules 13a-15(e) or15d-15(e)) as of the end of the period covered by this quarterly report asrequired by paragraph (b) of Exchange Act Rules 13a-15 or15d-15.  Based upon this evaluation, ourprincipal executive officer and our principal financial officer have concludedthat our disclosure controls and procedures are effective as of April 30,2008.

 

(b) Changes in internal control over financialreporting.

 

There have been no changes in our internal controlover financial reporting identified in connection with the evaluation requiredby paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurredduring the first quarter of fiscal 2009 that has materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

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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-Kfor the fiscal year ended January 31, 2008.

 

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**Item 2.    UnregisteredSales of Equity Securities and Use of Proceeds**

 

The followingtable sets forth certain information concerning the repurchase of the Company’sCommon Stock made by the Company during the first quarter of the fiscal yearending January 31, 2009.

 

##### **ISSUER PURCHASES 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 of Shares  that May Yet Be  Purchased Under the  Plans or Programs** | ** ** |
|------------------------------------------------------|------------|-------------------------------------------------------|------------|---------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------|------------|
| February 1,  2008 – February 29, 2008 |       | 0                                                     |       | —                                            |       | 0                                                                                                                             |       | 8,349,265                                                                                                                            |       |
| March 1,  2008 – March 31, 2008       |       | 132,133                                               |       | $                                                 | 19.00      |                                                                                                                          | 132,133    |                                                                                                                                 | 8,217,132  |   |
| April 1,  2008 – April 30, 2008       |       | 0                                                     |       | —                                            |       | 0                                                                                                                             |       | 8,217,132                                                                                                                            |       |
| Total                                                |       | 132,133                                               |       | $                                                 | 19.00      |                                                                                                                          | 132,133    |                                                                                                                                 | 8,217,132  |   |

 

OnSeptember 10, 1998, the Company’s Board of Directors approved the Company’sshare repurchase program (the “Repurchase Program”) pursuant to which theCompany was authorized to repurchase up to 1,000,000 shares of its issued andoutstanding Common Stock in open market transactions.  From June 1999 to June 2006, theBoard of Directors increased the authorization under this repurchase programfive times (on June 8, 1999 to increase the authorization by 1.0 millionshares to 2.0 million shares; on March 30, 2000 to increase theauthorization by 1.0 million shares to 3.0 million;  on December 14, 2000 to increase theauthorization by 1.0 million shares to 4.0 million shares; on April 4,2002 to increase the authorization by 2.0 million shares to 6.0 millionshares;  and on June 7, 2006 toincrease the authorization by 6.0 million shares to 12.0 million shares). On December 13,2007, the Board of Directors authorized a new repurchase program, for 6.0million shares, which will become effective after we exhaust the authorizedamount under the old repurchase program.  As of April 30, 2008, wehave purchased a total of 9,782,868 shares of Common Stock under the oldrepurchase program.  The repurchase programs do not have expirationdates.  We intend to make further purchases under the repurchase programsfrom time to time.

 

**Item 3.    Defaultsupon Senior Securities**

 

None

 

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

 

None

 

**Item5.    Other Information**

 

None

 

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**Item 6.    Exhibits**

 

Exhibits

 
| 31.1   |   | Certification of Chairman and Chief Executive  Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act  of 1934.       |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                          |
| 31.2   |   | Certification of Vice President and Chief Financial  Officer pursuant to Rule 13a-14(a) under the Securities Exchange  Act of 1934. |
|   |   |                                                                                                                                          |
| 32.1   |   | Certification  of Chairman and Chief Executive Officer pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                       |
|   |   |                                                                                                                                          |
| 32.2   |   | Certification  of Vice President and Chief Financial Officer pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002.                 |

 

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**SIGNATURES**

 

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

 

 
|   | BLYTH,  INC.                                |
|--------|---------------------------------------------|
|   |                                        |
|   |                                        |
| Date:  | June 5,  2008                          |   | By: | /s/Robert  B. Goergen |
|   | Robert  B. Goergen                          |
|   | Chairman and Chief Executive  Officer       |
|   |                                        |
|   |                                        |
| Date:  | June 5,  2008                          |   | By: | /s/Robert  H. Barghaus |
|   | Robert  H. Barghaus                         |
|   | Vice  President and Chief Financial Officer |

 

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