**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington D.C. 20549**

**FORM 10-Q**

**(Mark One)**

| **x** |   | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934** |
|-------|--------|---------------------------------------------------------------------------------------------------------|

** **

**Forthe quarterly period ended April 30, 2006**

**or**

| **o** |   | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934** |
|-------|--------|----------------------------------------------------------------------------------------------------------|

** **

**For the transition periodfrom                      to                  **

** **

**Commission File Number 1-13026**

** **

**BLYTH, INC.**

(Exact name of registrant as specified in its charter)

 

| ** DELAWARE**                                              |   | **36-2984916**                     |
|-----------------------------------------------------------------|--------|------------------------------------|
| (State or other  jurisdiction of incorporation or organization) |   | (IRS Employer  Identification No.) |
|                                                            |   |                               |
| **One  East Weaver Street, Greenwich, Connecticut**             |   | **06831**                          |
| (Address of  principal executive offices)                       |   | (Zip Code)                         |
|                                                            |   |                               |

###  

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

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

Yes    x No    o

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

Large acceleratedfiler    x Accelerated filer    o           Non-Accelerated filer    o

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).

Yes    o                 No    x

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

**40,459,044Common Shares as of May 31, 2006**

 

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**BLYTH,INC.**

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

 

2

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Part I.  FINANCIAL INFORMATION

Item I.  FINANCIAL STATEMENTS

**BLYTH,INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)**
| ** **                                                                                                                      | ** **   | **April 30,** | ** **   | **January 31,** | ** **   |
|---------------------------------------------------------------------------------------------------------------------------------|--------------|--------------------|--------------|----------------------|--------------|
| **(In thousands, except share and per share data)**                                          | ** **   | **2006**           | ** **   | **2006**             | ** **   |
| **ASSETS**                                                                                                                      |         |               |         |                 |         |
| **Current assets:**                                                                                                             |         |               |         |                 |         |
| Cash and cash  equivalents                                                                                                      |         | $                  | 127,202      |                 | $            | 242,068 |   |
| Short-term  investments                                                                                                         |         | 122,100            |         | —               |         |
| Accounts  receivable, less allowance for doubtful receivables of $3,139 and $3,892,  respectively                               |         | 93,921             |         | 109,857              |         |
| Inventories                                                                                                                     |         | 227,763            |         | 237,753              |         |
| Prepaid and  other                                                                                                              |         | 40,808             |         | 35,643               |         |
| Assets held for  sale                                                                                                           |         | —             |         | 3,027                |         |
| Deferred income  taxes                                                                                                          |         | 20,776             |         | 20,645               |         |
| Total current assets                                                                                                            |         | 632,570            |         | 648,993              |         |
| **Property, plant and equipment,  at cost:**                                                                                    |         |               |         |                 |         |
| Less accumulated depreciation of $264,272 and  $264,941, respectively                                                           |         | 209,594            |         | 225,826              |         |
| **Other assets:**                                                                                                               |         |               |         |                 |         |
| Investments                                                                                                                     |         | 3,291              |         | 3,397                |         |
| Goodwill                                                                                                                        |         | 144,781            |         | 185,127              |         |
| Other intangible  assets, net of accumulated amortization of $6,400 and $5,917, respectively                                    |         | 36,700             |         | 37,183               |         |
| Other long-term  assets                                                                                                         |         | 15,717             |         | 15,994               |         |
|                                                                                                                            |         | 200,489            |         | 241,701              |         |
| Total assets                                                                                                                    |         | $                  | 1,042,653    |                 | $            | 1,116,520 |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                  |         |               |         |                 |         |
| **Current liabilities:**                                                                                                        |         |               |         |                 |         |
| Bank lines of  credit                                                                                                           |         | $                  | 22,504       |                 | $            | 25,772 |   |
| Current  maturities of long-term debt                                                                                           |         | 509                |         | 1,049                |         |
| Accounts payable                                                                                                                |         | 63,788             |         | 75,735               |         |
| Accrued expenses                                                                                                                |         | 91,031             |         | 93,000               |         |
| Dividends  payable                                                                                                              |         | 9,302              |         | —               |         |
| Income taxes                                                                                                                    |         | 5,514              |         | 14,296               |         |
| Total current liabilities                                                                                                       |         | 192,648            |         | 209,852              |         |
| **Deferred  income taxes**                                                                                                      |         | 37,516             |         | 39,383               |         |
| **Long-term  debt, less current maturities**                                                                                    |         | 335,047            |         | 344,921              |         |
| **Other  long-term liabilities**                                                                                                |         | 28,379             |         | 28,540               |         |
| **Commitments  and contingencies**                                                                                              |         | —             |         | —               |         |
| **Stockholders’ equity:**                                                                                                  |         |               |         |                 |         |
| Preferred stock  - authorized 10,000,000 shares of $0.01 par value; no shares issued and  outstanding                      |         | —             |         | —               |         |
| Common stock -  authorized 100,000,000 shares of $0.02 par value; issued 50,528,060 shares  and 50,528,060 shares, respectively |         | 1,010              |         | 1,010                |         |
| Additional  contributed capital                                                                                                 |         | 124,852            |         | 127,580              |         |
| Retained  earnings                                                                                                              |         | 618,072            |         | 657,983              |         |
| Accumulated  other comprehensive income                                                                                         |         | 4,346              |         | (1,935               | )            |
| Unearned  compensation on restricted stock                                                                                      |         | —             |         | (3,070               | )            |
| Treasury stock,  at cost, 10,069,016 shares 9,533,416 shares, respectively                                                      |         | (299,217           | )            | (287,744             | )            |
| Total stockholders’ equity                                                                                                 |         | 449,063            |         | 493,824              |         |
| Total liabilities and stockholders’ equity                                                                                 |         | $                  | 1,042,653    |                 | $            | 1,116,520 |   |
| *** ***                                                                                                                    | *** *** | *** ***       | *** *** | *** ***         | *** *** |

 

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

 

3

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**BLYTH, INC. ANDSUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)(Unaudited)**
| **Three months ended April 30 (In thousands, except per share data)** | ** **   | **2006**     | ** **   | **2005**     | ** **   |
|-------------------------------------------------------------------------------------------------------------------------|--------------|--------------|--------------|--------------|--------------|
| Net sales                                                                                                               |         | $            | 327,459      |         | $            | 342,777 |   |
| Cost of goods  sold                                                                                                     |         | 177,469      |         | 178,153      |         |
| Gross profit                                                                                                            |         | 149,990      |         | 164,624      |         |
| Selling                                                                                                                 |         | 105,534      |         | 109,079      |         |
| Administrative                                                                                                          |         | 34,738       |         | 35,773       |         |
| Goodwill  impairment                                                                                                    |         | 16,655       |         | —       |         |
|                                                                                                                    |         | 156,927      |         | 144,852      |         |
| Operating profit (loss)                                                                                                 |         | (6,937       | )            | 19,772       |         |
| Other expense (income):                                                                                                 |         |         |         |         |         |
| Interest expense                                                                                                        |         | 5,286        |         | 4,952        |         |
| Interest income                                                                                                         |         | (1,647       | )            | (216         | )            |
| Foreign exchange and other                                                                                              |         | (460         | )            | 1,084        |         |
|                                                                                                                    |         | 3,179        |         | 5,820        |         |
| Earnings (loss) before income taxes and minority  interest                                                              |         | (10,116      | )            | 13,952       |         |
| Income tax  expense                                                                                                     |         | 1,700        |         | 4,051        |         |
| Earnings (loss) before minority interest                                                                                |         | (11,816      | )            | 9,901        |         |
| Minority  interest                                                                                                      |         | 71           |         | (229         | )            |
| Earnings (loss) from continuing operations                                                                              |         | (11,887      | )            | 10,130       |         |
| Loss from  discontinued operation, net of income tax benefit of ($165) in 2006 and ($76)  in 2005                       |         | (286         | )            | (170         | )            |
| Loss on sale of  discontinued operation, net of tax of $0                                                               |         | (18,436      | )            | —       |         |
| Net earnings  (loss)                                                                                                    |         | $            | (30,609      | )            | $            | 9,960 |   |
| Basic:                                                                                                                  |         |         |         |         |         |
| Earnings (loss)  from continuing operations per common share                                                            |         | $            | (0.29        | )            | $            | 0.25 |   |
| Loss from  discontinued operation per common share                                                                      |         | (0.01        | )            | (0.01        | )            |
| Loss from sale  of discontinued operation per common share                                                              |         | (0.45        | )            | —       |         |
| Net earnings  (loss) per common share                                                                                   |         | $            | (0.75        | )            | $            | 0.24 |   |
| Weighted average  number of shares outstanding                                                                          |         | 40,803       |         | 40,904       |         |
| Diluted:                                                                                                                |         |         |         |         |         |
| Earnings (loss)  from continuing operations per common share                                                            |         | $            | (0.29        | )            | $            | 0.25 |   |
| Loss from  discontinued operation per common share                                                                      |         | (0.01        | )            | (0.01        | )            |
| Loss from sale  of discontinued operation per common share                                                              |         | (0.45        | )            | —       |         |
| Net earnings  (loss) per common share                                                                                   |         | $            | (0.75        | )            | $            | 0.24 |   |
| Weighted average  number of shares outstanding                                                                          |         | 40,803       |         | 41,221       |         |
| *** ***                                                                                                            | *** *** | *** *** | *** *** | *** *** | *** *** |

*** ***

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

4

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**BLYTH, INC. ANDSUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(Unaudited)**
| ** **                                                                        | ** ** | ** ** | ** ** | ** **      | ** ** | ** **   | ** ** | ** **   | ** ** | ** **       | ** ** | **Accumulated**        | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------------------|------------|------------|------------|-----------------|------------|--------------|------------|--------------|------------|------------------|------------|------------------------|------------|------------|------------|
| ** **                                                                        | ** ** | ** ** | ** ** | **Additional**  | ** ** | ** **   | ** ** | ** **   | ** ** | ** **       | ** ** | **Other**              | ** ** | ** ** | ** ** |
| ** **                                                                        | ** ** | **Common** | ** ** | **Contributed** | ** ** | **Retained** | ** ** | **Treasury** | ** ** | **Unearned**     | ** ** | **Comprehensive**      | ** ** | ** ** | ** ** |
| **(In thousands,  except share data)**                                            | ** ** | **Stock**  | ** ** | **Capital**     | ** ** | **Earnings** | ** ** | **Stock**    | ** ** | **Compensation** | ** ** | **Income (Loss)** | ** ** | **Total**  | ** ** |
| **For the three months ended  April 30, 2005:**                              | ** ** | ** ** | ** ** | ** **      | ** ** | ** **   | ** ** | ** **   | ** ** | ** **       |       |                   |       |       |       |
| Balance,  February 1, 2005                                                   |       | $          | 1,007      |            | $          | 118,148      |       | $            | 651,156    |             | $          | (285,064               | )          | $          | —     |   | $ | 36,102 |   | $ | 521,349 |   |
| Net earnings for the  period                                                      |       |       |       |            |       | 9,960        |       |         |       |             |       |                   |       | 9,960      |       |
| Foreign currency  translation adjustments                                         |       |       |       |            |       |         |       |         |       |             |       | (11,475                | )          | (11,475    | )          |
| Unrealized holding  losses on certain investments (net of tax of $23)             |       |       |       |            |       |         |       |         |       |             |       | (45                    | )          | (45        | )          |
| Net gain on hedging  instruments (net of tax of $118)                             |       |       |       |            |       |         |       |         |       |             |       | 229                    |       | 229        |       |
| Comprehensive  loss                                                               |       |       |       |            |       |         |       |         |       |             |       |                   |       | (1,331     | )          |
| Common stock issued loss  in  connection with long-term  incentive plan |       | 3          |       | 2,996           |       |         |       |         |       |             |       |                   |       | 2,999      |       |
| Tax benefit from stock  options                                                   |       |       |       | 281             |       |         |       |         |       |             |       |                   |       | 281        |       |
| Issuance of restricted  stock,  net of cancellations                         |       |       |       | 4,783           |       |         |       |         |       | (4,954           | )          |                   |       | (171       | )          |
| Amortization of unearned  compensation                                            |       |       |       |            |       |         |       |         |       | 918              |       |                   |       | 918        |       |
| Dividends                                                                         |       |       |       |            |       | (8,601       | )          |         |       |             |       |                   |       | (8,601     | )          |
| Treasury stock purchases                                                          |       |       |       |            |       |         |       | (2,071       | )          |             |       |                   |       | (2,071     | )          |
| Balance, April 30,  2005                                                     |       | $          | 1,010      |            | $          | 126,208      |       | $            | 652,515    |             | $          | (287,135               | )          | $          | (4,036     | ) | $ | 24,811 |   | $ | 513,373 |   |
| **For the three months ended  April 30, 2006:**                              | ** ** | ** ** | ** ** | ** **      | ** ** | ** **   | ** ** | ** **   | ** ** | ** **       | ** ** | ** **             | ** ** | ** ** | ** ** |
| Balance,  February 1, 2006                                                   |       | $          | 1,010      |            | $          | 127,580      |       | $            | 657,983    |             | $          | (287,744               | )          | $          | (3,070     | ) | $ | (1,935 | ) | $ | 493,824 |   |
| Net loss for the period                                                           |       |       |       |            |       | (30,609      | )          |         |       |             |       |                   |       | (30,609    | )          |
| Foreign currency  translation adjustments                                         |       |       |       |            |       |         |       |         |       |             |       | 6,352                  |       | 6,352      |       |
| Unrealized holding gains  on certain investments (net of tax of $56)              |       |       |       |            |       |         |       |         |       |             |       | 92                     |       | 92         |       |
| Net loss on hedging  instruments (net of tax of $88)                              |       |       |       |            |       |         |       |         |       |             |       | (163                   | )          | (163       | )          |
| Comprehensive  loss                                                               |       |       |       |            |       |         |       |         |       |             |       |                   |       | (24,328    | )          |
| Reclassification of  unearned compensation                                        |       |       |       | (3,039          | )          |         |       | (31          | )          | 3,070            |       |                   |       | —     |       |
| Amortization of unearned  compensation                                            |       |       |       | 311             |       |         |       |         |       | —           |       |                   |       | 311        |       |
| Dividends                                                                         |       |       |       |            |       | (9,302       | )          |         |       |             |       |                   |       | (9,302     | )          |
| Treasury stock purchases                                                          |       |       |       |            |       |         |       | (11,442      | )          |             |       |                   |       | (11,442    | )          |
| Balance, April 30, 2006                                                      |       | $          | 1,010      |            | $          | 124,852      |       | $            | 618,072    |             | $          | (299,217               | )          | $          | —     |   | $ | 4,346 |   | $ | 449,063 |   |

 

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

5

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** **

**BLYTH, INC. ANDSUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)**

** **
| **Three months ended April 30 (In thousands)**                            | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Cash flows from  operating activities:                                                                  |       |     |       |     |       |
| Net earnings (loss)                                                                                     |       | $        | (30,609    | )        | $          | 9,960 |   |
| Adjustments to  reconcile net earnings (loss) to net cash provided by (used in) operating  activities:  |       |     |       |     |       |
| Loss on sale of discontinued operation, net of tax                                                      |       | 18,436   |       | —   |       |
| Depreciation and amortization                                                                           |       | 8,652    |       | 9,670    |       |
| Loss on disposition of fixed assets                                                                     |       | 7        |       | —   |       |
| Tax benefit from stock options                                                                          |       | —   |       | 281      |       |
| Amortization of unearned compensation on restricted  stock                                              |       | 311      |       | —   |       |
| Deferred income taxes                                                                                   |       | (374     | )          | (1,140   | )          |
| Equity in loss of investee                                                                              |       | 106      |       | 204      |       |
| Minority interest                                                                                       |       | 13       |       | (268     | )          |
| Goodwill impairment                                                                                     |       | 16,655   |       | —   |       |
| Loss on sale of assets held for sale                                                                    |       | 79       |       | —   |       |
| Changes in  operating assets and liabilities, net of effect of business acquisitions and  divestitures: |       |     |       |     |       |
| Accounts receivable                                                                                     |       | 9,077    |       | 9,952    |       |
| Inventories                                                                                             |       | 1,927    |       | 1,074    |       |
| Prepaid and other                                                                                       |       | (5,895   | )          | (9,423   | )          |
| Other long-term assets                                                                                  |       | 1,802    |       | 141      |       |
| Accounts payable                                                                                        |       | (10,567  | )          | (18,892  | )          |
| Accrued expenses                                                                                        |       | (1,205   | )          | 3,901    |       |
| Other liabilities                                                                                       |       | 67       |       | 544      |       |
| Income taxes                                                                                            |       | (8,927   | )          | 2,048    |       |
| Net cash provided by (used in) operating activities                                                     |       | (445     | )          | 8,052    |       |
| Cash flows from  investing activities:                                                                  |       |     |       |     |       |
| Purchases of property, plant and equipment                                                              |       | (2,679   | )          | (3,380   | )          |
| Purchases of short-term investments                                                                     |       | (329,250 | )          | —   |       |
| Proceeds from sales of short-term investments                                                           |       | 207,150  |       | —   |       |
| Proceeds from sale of assets held for sale                                                              |       | 2,917    |       | —   |       |
| Proceeds from sale of business, net of cash                                                             |       | 31,366   |       | —   |       |
| Purchase of businesses, net of cash acquired                                                            |       | (6,654   | )          | (22      | )          |
| Net cash used in investing activities                                                                   |       | (97,150  | )          | (3,402   | )          |
| Cash flows from financing  activities:                                                                  |       |     |       |     |       |
| Proceeds from issuance of common stock                                                                  |       | —   |       | 2,999    |       |
| Purchases of treasury stock                                                                             |       | (11,442  | )          | (2,071   | )          |
| Borrowings from bank lines of credit                                                                    |       | 9,850    |       | 8,001    |       |
| Repayments on bank lines of credit                                                                      |       | (16,566  | )          | (10,097  | )          |
| Repayments of long-term debt                                                                            |       | (526     | )          | (183     | )          |
| Net cash used in financing activities                                                                   |       | (18,684  | )          | (1,351   | )          |
| Effect of  exchange rate changes on cash                                                                |       | 1,413    |       | (2,268   | )          |
| Net increase (decrease) in cash and cash equivalents                                                    |       | (114,866 | )          | 1,031    |       |
| Cash and cash  equivalents at beginning of period                                                       |       | 242,068  |       | 91,695   |       |
| Cash and cash  equivalents at end of period                                                             |       | $        | 127,202    |     | $          | 92,726 |   |

 

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

6

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**BLYTH, INC. ANDSUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)**

**1.             Basis of Presentation**

The condensedconsolidated financial statements include the accounts of the Company and itsdirect and indirect subsidiaries. All significant intercompany accounts andtransactions have been eliminated. Investments in companies that are notmajority owned or controlled are reported using the equity method and are recordedin investments. Certain of the Company’s subsidiaries operate on a 52 or 53-weekfiscal year ending on the Saturday closest to January 31. Europeanoperations maintain a calendar year accounting period, which is consolidatedwith the Company’s fiscal period. In the opinion of management, theaccompanying unaudited condensed consolidated financial statements include alladjustments necessary for fair presentation of the Company’s consolidatedfinancial position at April 30, 2006 and the consolidated results of itsoperations and cash flows for the three-month periods ended April 30, 2006and 2005. These interim statements should be read in conjunction with theCompany’s consolidated financial statements for the fiscal year ended January 31,2006, as set forth in the Company’s Annual Report on Form 10-K. Operatingresults for the three months ended April 30, 2006 are not necessarilyindicative of the results that may be expected for the fiscal year ending January 31,2007.

**StockBased Compensation**

**Summary of Plans**

AtApril 30, 2006, the Company had one stock-based compensation plan, the2003 Long-Term Incentive Plan (“2003 Plan”), available to grant future awards,as described below, and two terminated or expired stock-based compensationplans (the Amended and Restated 1994 Employee Stock Option Plan and the Amendedand Restated 1994 Stock Option Plan for Non-Employee Directors), under whichvested and unexercised options remain outstanding. At April 30, 2006,there were 6,500,100 shares authorized for grant under these plans and5,062,215 shares available for issuance under these plans.

**On April 1, 2003, the Board of Directors of theCompany unanimously approved the adoption of the 2003 Plan and the stockholdersapproved the 2003 Plan on June 4, 2003. The 2003 Plan provides for grantsof incentive and nonqualified stock options, stock appreciation rights,restricted stock, restricted stock units, performance shares, performanceunits, dividend equivalents and other stock unit awards to officers and employees.The 2003 Plan also provides for grants of nonqualified stock options todirectors of the Company who are not, and who have not been during theimmediately preceding 12-month period officers or employees of theCompany or any of its subsidiaries. A total of 3,373,526 shares of commonstock may be granted pursuant to the 2003 Plan.**

**On March 31, 2004, the Board of Directors ofthe Company unanimously approved Amendment No. 1 to the 2003 Plan, and thestockholders approved Amendment No. 1 to the 2003 Plan at the AnnualMeeting of Stockholders on June 24, 2004 (the “2004 Annual Meeting”),effective as of such approval, non-employee directors will no longer receiveoption grants. Instead, annual awards will be determined by the Company’s fullBoard of Directors, subject to an annual limit of awards of 5,000 shares ofCommon Stock or share equivalents for new non-employee directors and 2,500shares of Common Stock or share equivalents for continuing non-employeedirectors. At the 2004 Annual Meeting, each non-employee director with at leastsix months service was granted 1,500 restricted stock units vesting in twoequal installments beginning on the first anniversary of the date of grant. Atthe 2005 Annual Meeting, each non-employee director was granted 1,500 restrictedstock units (except one non-employee director was granted 2,500 restrictedstock units) vesting in two equal installments beginning on the firstanniversary of the date of grant.**

Restricted stock and restricted stock units (RSUs) aregranted to certain employees to incent performance and retention. RSUs issuedunder the plans provide that shares awarded may not be sold or otherwisetransferred until restrictions have lapsed. The release of RSUs on each of theVesting Dates is contingent upon continued active employment by the employeeuntil the Vesting Dates.

7

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On December 9, 2005,the Board of Directors of the Company approved the acceleration of the vestingof all unvested stock options. Stock option awards granted from December 10,2000 through the date of acceleration with respect to approximately 350,000shares of the Company’s common stock, which represented 100% of the unvestedoptions, were subject to this acceleration, which was effective as of December 9,2005. Virtually all of these options had exercise prices in excess of thecurrent market values and were not fully achieving their original objectives ofincentive compensation and employee retention.

The total compensationexpense related to all stock-based compensation plans for both three month periodsended April 30, 2006 and 2005 was approximately $0.3 million. The taxbenefit recognized for the three months ended April 30, 2006 and 2005 wasapproximately $0.1 million. No compensation cost was capitalized as part ofinventory.

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

|                                       | ** ** | ** ** | ** ** | ** **                | ** ** | **Weighted Average** | ** ** |
|---------------------------------------|------------|------------|------------|---------------------------|------------|---------------------------|------------|
| ** **                            | ** ** | ** ** | ** ** | **Weighted Average** | ** ** | **Remaining**             | ** ** |
| ** **                            | ** ** | **Shares** | ** ** | **Exercise Price**   | ** ** | **Contractual Life** | ** ** |
| Outstanding at  January 31, 2006 |       | 1,236,400  |       | $                         | 26.12      |                      | 5.16       |   |
| Options granted                       |       | 10,000     |       | 21.67                     |       | 5.00                      |       |
| Options exercised                     |       | —     |       | —                    |       |                      |       |
| Options cancelled                     |       | (48,000    | )          | 24.64                     |       |                      |       |
| Outstanding at  April 30, 2006   |       | 1,198,400  |       | $                         | 26.14      |                      | 4.98       |   |
| Exercisable at  April 30, 2006   |       | 1,188,400  |       | $                         | 26.18      |                      | 4.98       |   |

 

The aggregate intrinsicvalue (the difference between the Company’s closing stock price on the lasttrading day of the three months ended April 30, 2006 and the exerciseprice, multiplied by the number of in-the-money options) that would have beenreceived by the option holders had all option holders exercised their optionson April 30, 2006 was immaterial. This amount will change in futureperiods based on the fair market value of the Company’s stock. Compensationexpense in the quarter ended April 30, 2006 related to stock options wasimmaterial. As of April 30, 2006, $0.1 million of total unrecognizedcompensation cost related to stock options is expected to be recognized over aweighted average period of 3 years.

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

|                                       | ** ** | ** ** | ** ** | **Weighted Average** | ** ** |
|---------------------------------------|------------|------------|------------|---------------------------|------------|
| ** **                            | ** ** | **Shares** | ** ** | **Exercise Price**   | ** ** |
| Outstanding at  January 31, 2006 |       | 152,970    |       | $                         | 31.94      |   |
| Units granted                         |       | 87,965     |       | 21.18                     |       |
| Units exercised                       |       | —     |       | —                    |       |
| Units cancelled                       |       | (1,450     | )          | 32.57                     |       |
| Outstanding at  April 30, 2006   |       | 239,485    |       | $                         | 27.98      |   |

** **

Compensation expenserelated to restricted stock and restricted stock units for both three month periodsended April 30, 2006 and 2005 was approximately $0.3 million. Also, as aresult of the adoption of Financial Accounting Standards No. 123 (revised2004), “Share-Based Payment,” (“SFAS 123(R)”), $3.1 million of unearnedcompensation recorded in shareholder’s equity as of February 1, 2006 wasreclassified to and reduced the

8

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** **

balance of additional contributedcapital. As of April 30, 2006, there was $4.6 million of unearnedcompensation expense related to non-vested restricted stock and restrictedstock unit awards. The total unrecognized stock-based compensation cost to berecognized in future periods as of April 30, 2006 does not consider theeffect of stock-based awards that may be issued in subsequent periods. Thiscost is expected to be recognized over a weighted average period of 3.2 years.

**Impactof Adoption of 123(R)**

On February 1, 2006,the Company adopted SFAS 123(R) which requires the measurement andrecognition of compensation expense for all share-based payment awards made toemployees and directors, including employee stock options, restricted stock andrestricted stock units based on estimated fair values. SFAS 123(R) supersedesthe Company’s previous disclosure only provisions of SFAS No. 148, “Accountingfor Stock-Based Compensation-Transition and Disclosure” (“SFAS 148”), andAccounting Principles Board (APB) opinion No. 25, “Accounting for StockIssued to Employees” (“APB 25”) and related interpretations in accounting forstock options granted to its employees and directors under the intrinsic valuemethod employed by the Company for periods prior to fiscal 2007. In March 2005,the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107(“SAB 107”) relating to SFAS 123(R). The Company has applied the provisions ofSAB 107 in its adoption of SFAS 123(R).

SFAS 123(R) requirescompanies to estimate the fair value of stock-based payment awards on the dateof grant using an option-pricing model, where applicable. The value of theportion of the award that is ultimately expected to vest is recognized asexpense over the requisite service period in the Company’s CondensedConsolidated Statement of Earnings. Prior to the adoption of SFAS 123(R), theCompany accounted for stock-based awards to employees and directors using theintrinsic value method in accordance with APB 25 as allowed under Statement ofFinancial Accounting Standards No. 123, “Accounting for Stock-BasedCompensation” (“SFAS 123”). Under the intrinsic value method, no stock-basedcompensation expense had been recognized in the Company’s CondensedConsolidated Statements of Earnings, because the exercise price of the Company’sstock options granted to employees and directors equaled the fair value of theunderlying stock at the date of grant.

Stock-based compensationexpense recognized during the period is based on the value of the portion ofstock-based payment awards that is ultimately expected to vest during theperiod. Stock-based compensation expense recognized in the Company’s CondensedConsolidated Statement of Earnings for the three months ended April 30,2006 includes compensation expense for restricted stock, restricted stock unitsand stock-based awards granted subsequent to January 31, 2006 based on thegrant 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 the vesting term of 3 years forstock options and cliff vesting of 50% over 4 years and 50% over 5 years foremployee restricted stock and restricted stock units and cliff vesting of 50%over 1 year and 50% over 2 years for non-employee restricted stock andrestricted stock units. SFAS 123(R) requires forfeitures to be estimatedat the time of grant and revised, if necessary, in subsequent periods if actualforfeitures differ from those estimates. In the Company’s pro forma informationrequired under SFAS 123 for periods prior to fiscal 2007, the Company accountedfor forfeitures of stock options as they occurred. There was no stock-basedcompensation expense recognized in the Company’s Condensed ConsolidatedStatement of Earnings for the first quarter of fiscal 2007 for stock optionsgranted prior to February 1, 2006 because no portion of those stock-basedpayment awards were unvested. In accordance with the modified prospectivetransition method, the Company’s Condensed Consolidated Financial Statementsfor prior periods have not been restated to reflect, and do not include, theimpact of SFAS 123(R).

9

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Upon adoption of SFAS123(R), the Company elected to continue to use the Black-Scholes option-pricingmodel (“Black-Scholes model”) to determine fair value. The Company’sdetermination of fair value of stock-based payment awards on the date of grantusing an option-pricing model is affected by the Company’s stock price as wellas assumptions regarding a number of highly complex and subjective variables. Thesevariables include, but are not limited to, the Company’s expected stock pricevolatility over the term of the awards, and actual and projected employee stockoption exercise behaviors.

**Assumptionsused to estimate fair value**

The fair value of stockoptions is estimated on the date of grant using the Black-Scholes model. TheCompany granted 10,000 stock options during the three months ended April 30,2006. The Company granted no stock options during the quarter ended April 30,2005. The fair value of these stock options was determined using the followingweighted average assumptions.

|                           | ** ** | **Three months ended April 30,** | ** ** |
|---------------------------|------------|------------------------------------------------------|------------|
| ** **                | ** ** | **2006**                                             | ** ** | **2005** | ** ** |
| Expected volatility       |       | 29.2%                                                |       | N/A |   |
| Risk free  interest rates |       | 4.97%                                                |       | N/A |   |
| Expected lives            |       | 3.5                                   |       | N/A |   |
| Expected dividend yield   |       | 2.10%                                                |       | N/A |   |

** **

The weighted average fairvalue of options granted during the quarter ended April 30, 2006 was$5.11.

**Proforma Impact of 123(R)**

If compensation expense for the Company’s stockoptions had been determined in accordance with the fair value method in SFAS123 and SFAS 148, the Company’s reported net income and earnings per share at April 30,2005 would have been adjusted to the pro forma amounts indicated below:

** **

|                                                                                                                  | ** ** | **Three months ended** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| **(In thousands except per share data)**                                                | ** ** | **April 30, 2005**     | ** ** |
| Net earnings:                                                                                                    |       |                             |       |
| As reported                                                                                                      |       | $                                | 9,960      |   |
| Stock-based employee compensation expense determined  under SFAS No. 123 for all awards, net of related tax |       | 478                              |       |
| Pro forma                                                                                                        |       | $                                | 9,482      |   |
| Net earnings per  common share:                                                                                  |       |                             |       |
| As reported:                                                                                                     |       |                             |       |
| Basic                                                                                                            |       | $                                | 0.24       |   |
| Diluted                                                                                                          |       | 0.24                             |       |
| Pro forma:                                                                                                       |       |                             |       |
| Basic                                                                                                            |       | $                                | 0.23       |   |
| Diluted                                                                                                          |       | 0.23                             |       |

** **

**Other Information**

Authorized unissued shares may be used under thestock-based compensation plans. The company intends to issue shares of itscommon stock to meet the stock requirements of its awards in the future.

10

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** **

**2.             Business Acquisitions**

On August 15, 2005,the Company acquired a 100% interest in Boca Java, a small gourmet coffee andtea company. The results of operations of Boca Java, which were not material,are included in the Consolidated Statements of Earnings of the Company since August 16,2005. For segment reporting purposes, Boca Java is included in the Catalog &Internet segment.

**3.             Business Divestitures**

During the fourth quarterof fiscal 2006, the Company divested its North American mass channel seasonaldecorations business, Impact Plastics, in the Wholesale segment through a sale.The operating results of Impact Plastics were immaterial to the consolidatedoperating results of the Company. On January 20, 2006, the Company soldthe business for approximately $7.6 million in cash and a promissory note of$2.0 million. The sale resulted in a pre-tax loss of approximately $1.6 million.In addition, $7.8 million of goodwill attributable to Impact Plastics, whichwas tax deductible, was disposed of as part of this divestiture.

On April 12, 2006,the Company sold its European seasonal decorations business, Kaemingk B.V. (“Kaemingk”),in the Wholesale segment, pursuant to a Share Sale and Purchase Agreement, toan entity controlled by the management of Kaemingk. The results of operationsfor Kaemingk have been reclassified as discontinued operations for all periodspresented. The net carrying value of Kaemingk’s assets as of April 12,2006 was $60.0 million. A loss on the sale of Kaemingk, net of tax, of $18.4million ($0.45 per diluted share) was recorded in the quarter ended April 30,2006. The net sales and pre-tax loss of Kaemingk for the quarter ended April 30,2006 were $12.3 million and $0.5 million, respectively, and for the quarterended April 30, 2005 were $13.0 million and $0.2 million, respectively.

**4.             Short-Term Investments**

The Company accounts forits short-term investments in accordance with Statement of Financial AccountingStandards No. 115, “Accounting for Certain Investments in Debt and EquitySecurities.”  The Company’s short-terminvestments consist of auction rate securities and variable rate demandobligations classified as available-for-sale securities. Our short-terminvestments in these securities are recorded at cost, which approximates fairmarket value due to their variable interest rates, which typically reset every7 to 35 days.

Despite the long-termnature of their stated contractual maturities, the Company generally has theability to liquidate these securities in 35 days or less. Management’s intentis to hold these securities as liquid assets easily convertible to cash forapplicable operational needs as they may arise.

**At April 30, 2006 and January 31, 2006,the Company held $122.1 million and $0.0 million, respectively, of short-terminvestments, which consist of auction rate securities and variable rate demandobligations classified as available-for-sale securities.**

**Short-term investments by contractual maturity areas follows:**

| (In thousands)             | ** ** | **April 30, 2006** | ** ** | **January 31, 2006** | ** ** |
|---------------------------------|------------|------------------------------|------------|--------------------------------|------------|
| Due within one  year            |       | $                            | 11,000     |                           | $          | — |   |
| Due between one  and five years |       | —                       |       | —                         |       |
| Due after ten  years            |       | 111,100                      |       | —                         |       |
| **Total**                       |       | $                            | 122,100    |                           | $          | — |   |

 

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

 

11

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**5.             Inventories**

The components ofinventory are as follows (in thousands):

|                 | ** ** | **April 30, 2006** | ** ** | **January 31, 2006** | ** ** |
|-----------------|------------|------------------------------|------------|--------------------------------|------------|
| Raw materials   |       | $                            | 31,655     |                           | $          | 31,954 |   |
| Work in process |       | 691                          |       | 361                            |       |
| Finished goods  |       | 195,417                      |       | 205,438                        |       |
| Total           |       | $                            | 227,763    |                           | $          | 237,753 |   |

 

**6.             Goodwill and Other Intangibles**

Asdiscussed in note 3, the Company sold its European seasonal decorationsbusiness, Kaemingk, in the first quarter of fiscal 2007. The transaction wasconsidered a triggering event, which required the Company to perform animpairment analysis of the remaining goodwill in the reporting unit thatcontained the divested business. As a result of this analysis the remaininggoodwill was determined to be impaired, as the fair value of the remainingbusinesses in the reporting unit do not exceed their carrying value includinggoodwill. The decrease in the fair value of these businesses is due to pooroperating results in the first quarter and a significant decrease in theprojected results for the full fiscal year. Additionally, the value of theremaining businesses in the reporting unit was impacted by the sale of Kaemingkin the first quarter. Thefair value of the reporting unit was estimated using the proceeds from thepotential sale of the reporting unit. Therefore, the Company recorded anon-cash non-tax deductible goodwill impairment charge of $16.7 million in theWholesale segment.

**The following table shows changesin the carrying amount of goodwill for the three months ended April 30,2006, by operating segment (in thousands):**

|                                                       | ** ** | ** **              | ** ** | ** **    | ** ** | **Catalog &** | ** ** | ** ** | ** ** |
|-------------------------------------------------------|------------|-------------------------|------------|---------------|------------|------------------------|------------|------------|------------|
| ** **                                            | ** ** | **Direct Selling** | ** ** | **Wholesale** | ** ** | **Internet**           | ** ** | **Total**  | ** ** |
| Goodwill at  January 31, 2006                    |       | $                       | 2,298      |          | $          | 106,521                |       | $          | 76,308     |   | $ | 185,127 |   |
| Euro-Decor  pension adjustment                        |       |                    |       | 212           |       |                   |       | 212        |       |
| Kaemingk earn  out payment                            |       |                    |       | 6,659         |       |                   |       | 6,659      |       |
| Goodwill  disposed of related to the sale of Kaemingk |       |                    |       | (31,775       | )          |                   |       | (31,775    | )          |
| Impairment  charge                                    |       |                    |       | (16,655       | )          |                   |       | (16,655    | )          |
| Foreign currency  translation adjustment              |       |                    |       | 1,213         |       |                   |       | 1,213      |       |
| Total  adjustments                                    |       | —                  |       | (40,346       | )          | —                 |       | (40,346    | )          |
| Goodwill at  April 30, 2006                      |       | $                       | 2,298      |          | $          | 66,175                 |       | $          | 76,308     |   | $ | 144,781 |   |

 

Other intangible assetsconsisted of the following (in thousands):

|                                              | ** ** | **April 30, 2006** | ** ** | **January 31, 2006** | ** ** |
|----------------------------------------------|------------|------------------------------|------------|--------------------------------|------------|
| ** **                                   | ** ** | **Gross**                    | ** ** | **Accumulated  Amortization**  | ** ** | **Net** | ** ** | **Gross** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
| Indefinite-lived  trade names and trademarks |       | $                            | 28,100     |                           | $          | — |   | $ | 28,100 |   | $ | 28,100 |   | $ | — |   | $ | 28,100 |   |
| Customer lists                               |       | 15,000                       |       | 6,400                          |       | $ | 8,600 |   | 15,000 |   | 5,917 |   | 9,083 |   |
| Total                                        |       | $                            | 43,100     |                           | $          | 6,400 |   | $ | 36,700 |   | $ | 43,100 |   | $ | 5,917 |   | $ | 37,183 |   |

 

Amortizationexpense for other intangible assets was $0.5 million and $0.6 million for thethree months ended April 30, 2006 and 2005, respectively. Estimatedamortization expense for the next five fiscal years, beginning with fiscal 2008,is as follows:  $1.5 million, $1.5million, $1.2 million, $1.0 million and $0.7 million.

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** **

**7.             Earnings per Share**

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

|                                                         | ** ** | **Three months ended April 30,** | ** ** |
|---------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                              | ** ** | **2006**                                             | ** ** | **2005** | ** ** |
| Net earnings  (loss)                                    |       | $                                                    | (30,609    | ) | $ | 9,960 |   |
| Weighted average  number of common shares outstanding:  |       |                                                 |       |   |   |
| Basic                                                   |       | 40,803                                               |       | 40,904 |   |
| Dilutive effect of stock options and restricted  shares |       | —                                               |       | 317 |   |
| Weighted average  number of common shares outstanding:  |       |                                                 |       |   |   |
| Diluted                                                 |       | 40,803                                               |       | 41,221 |   |
|                                                         |            |                                                      |            |  |  |  |  |

** **

For the three-monthperiod ended April 30, 2006 and 2005, options to purchase 1,198,400 and53,000 shares of common stock, respectively, are not included in thecomputation of earnings per share because the effect would be anti-dilutive.

**8.             Treasury and Common Stock**

| Treasury Stock                                                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **Changes in Treasury Stock were  (In thousands, except shares):** | ** ** | **Shares** | ** ** | **Amount** | ** ** |
| Balance at  February 1, 2005                                                                     |       | 9,468,416  |       | $          | (285,064   | ) |
| Treasury stock  purchases                                                                             |       | 65,000     |       | (2,071     | )          |
| Balance at  April 30, 2005                                                                       |       | 9,533,416  |       | (287,135   | )          |
| Balance at  February 1, 2006                                                                     |       | 9,533,416  |       | (287,744   | )          |
| Restricted stock  cancellations                                                                       |       | —     |       | (31        | )          |
| Treasury stock  purchases                                                                             |       | 535,600    |       | (11,442    | )          |
| Balance at  April 30, 2006                                                                       |       | 10,069,016 |       | $          | (299,217   | ) |

 

| Common Stock                                                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **Changes in Common Stock were  (In thousands, except shares):** | ** ** | **Shares** | ** ** | **Amount** | ** ** |
| Balance at  February 1, 2005                                                                   |       | 50,367,827 |       | $          | 1,007      |   |
| Common stock  issued in connection with long-term incentive plan                               |       | 124,833    |       | 3          |       |
| Balance at  April 30, 2005                                                                     |       | 50,492,660 |       | 1,010      |       |
| Balance at  February 1, 2006                                                                   |       | 50,528,060 |       | 1,010      |       |
| Balance at  April 30, 2006                                                                     |       | 50,528,060 |       | $          | 1,010      |   |

 

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**9.             Segment Information**

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

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

Within the Wholesalesegment, the Company designs, manufactures or sources, markets and distributesan extensive line of home fragrance products, candle-related accessories,seasonal decorations such as ornaments, artificial trees and trim, and homedécor products such as picture frames, lamps and textiles. Products in thissegment are sold in North America and Europe to retailers in the premium,specialty and mass channels under the CBK®, Carolina®, Colonial®(1), ColonialCandle of Cape Cod®, Colonial at HOMEâ, Edelman®, Euro-Decor®(1), Florasense®,Gies®(1), Liljeholmens®, Seasons of Cannon Falls® and Triumph Tree®(1) brands. Inaddition, chafing fuel and tabletop lighting products and accessories for theAway From Home or foodservice trade are sold through this segment under theAmbria®, FilterMate®, HandyFuelTM and Sterno® brands.

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

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

----

(1) Colonial,Euro-Decor, Gies and Triumph Tree trademarks are registered and sold onlyoutside the United States.

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** **

|                                                                | ** ** | **Three months ended April 30,** | ** ** |
|----------------------------------------------------------------|------------|------------------------------------------------------|------------|
| **(In thousands)**                                        | ** ** | **2006**                                             | ** ** | **2005** | ** ** |
| **Net  Sales**                                                 | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Direct Selling                                                 |       | $                                                    | 164,989    |   | $ | 173,251 |   |
| Wholesale                                                      |       | 125,980                                              |       | 133,328 |   |
| Catalog & Internet                                    |       | 36,490                                               |       | 36,198 |   |
| **Total**                                                      |       | $                                                    | 327,459    |   | $ | 342,777 |   |
| **Operating  profit (loss)**                                   | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Direct Selling                                                 |       | $                                                    | 20,556     |   | $ | 27,994 |   |
| Wholesale                                                      |       | (23,731                                              | )          | (6,516 | ) |
| Catalog & Internet                                    |       | (3,762                                               | )          | (1,706 | ) |
|                                                           |       | (6,937                                               | )          | 19,772 |   |
| Other expense                                                  |       | (3,179                                               | )          | (5,820 | ) |
| **Earnings (loss) before income  taxes and minority interest** | ** ** | $                                                    | (10,116    | ) | $ | 13,952 | ** ** |

 

|                             | ** ** | **April 30, 2006** | ** ** | **January 31, 2006** | ** ** |
|-----------------------------|------------|------------------------------|------------|--------------------------------|------------|
| **Identifiable Assets**     |       |                         |       |                           |       |
| Direct Selling              |       | $                            | 243,855    |                           | $          | 230,097 |   |
| Wholesale                   |       | 423,887                      |       | 522,386                        |       |
| Catalog & Internet |       | 162,584                      |       | 165,672                        |       |
| Unallocated Corporate       |       | 212,327                      |       | 198,365                        |       |
| **Total**                   |       | $                            | 1,042,653  |                           | $          | 1,116,520 |   |

 

**10.          AssetsHeld for Sale**

**During the third quarter of fiscal2005, the Colorado Springs facility, purchased as part of the Walter Drakeacquisition, became available for sale. During the third quarter of fiscal2006, the Company recorded an impairment charge in relation to the facility of$1.2 million due to the deterioration of local real estate market conditions. Thefacility was sold on April 7, 2006 for $2.9 million, net of relatedtransaction costs, and resulted in a loss of approximately $0.1 million. Thebuilding was classified as assets held for sale in the Condensed ConsolidatedBalance Sheet as of January 31, 2006.**

**11.          Bank Lines of Credit**

On June 2, 2005, the Company replaced its prior $200million credit facility with a new $150 million unsecured revolving creditfacility having a five year term; the “Credit Facility” matures June 2010.The Company has the ability to increase the Credit Facility, under certaincircumstances, by an additional $50 million. The Credit Facility may be usedfor seasonal working capital needs and general corporate purposes, includingstrategic acquisitions. The Credit Facility contains, among other provisions,requirements for maintaining certain financial ratios and limitations oncertain payments. As of April 30, 2006, the Company was in compliance withthese provisions. Amounts outstanding under the Credit Facility bear interest,at the Company’s option, at JPMorgan Chase Bank’s prime rate or at theEurocurrency rate plus a credit spread ranging from 0.360% to 0.800%,calculated on the basis of the Company’s senior unsecured long-term debt rating.As of April 30, 2006, approximately $72.6 million (including letters ofcredit) was outstanding under the Credit Facility.

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**12.          Contingencies**

The Company hascontingent liabilities that have arisen in the ordinary course of its business,including pending litigation. The Company believes the outcome of these matterswill not have a material adverse effect on its consolidated financial position,results of operations or cash flows.

 

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**13465-1-dk.doc- Item2_ManagementsDiscussionAndAna_025846**

**Item 2.**             MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OFOPERATIONS

**RESULTS OFOPERATIONS:**

**Overview**

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

Today, on an annualizednet sales basis considering the full year impact of recent acquisitions anddivestitures, Blyth is comprised of an approximately $700 million direct sellingbusiness, an approximately $600 million wholesale business and an approximately$200 million Catalog and Internet business. Sales and earnings growth differ ineach segment depending on geographic location, market penetration, our relativemarket share and product and marketing execution, among other business factors.Over the long term, all three segments should experience single-digit growth,most likely within the low to mid-single digit range, again depending on thebusiness factors previously noted.

Our current focus isdriving sales growth of our brands so we may leverage more fully ourinfrastructure. New product development continues to be critical to all threesegments of our business. In the Direct Selling segment, monthly sales andproductivity incentives are designed to attract, retain and increase theearnings opportunity of independent sales consultants. As part of our strategyto invest in strategic initiatives in the Direct Selling segment, we havedeveloped Purple Tree, a new party plan company, which markets creativeprojects. In addition in fiscal 2006 we completed the acquisition of a smallgourmet food company, Two Sisters Gourmet, which also markets its productsthrough the Direct Selling channel. In the Wholesale segment, we have numerouscollaborative initiatives underway, which we believe will help drive sales andleverage the sales and marketing talents across this segment. These initiativesinclude customer information sharing and leveraging our in-house sales forces,as well as ongoing global sourcing objectives and other organic strategicinitiatives into which we are investing resources. We entered the Catalog andInternet channel of direct-to-consumer distribution in 2003, giving us apresence in all of our desired channels. Our most recent acquisition, BocaJava, a small gourmet coffee and tea company was in this segment.

**Recent Developments**

**In September 2005, we announced our proposedintention to spin off the Wholesale segment to our stockholders. We requestedand received from the Internal Revenue Service a ruling on the tax-free statusfor the transaction. We intend to evaluate additional strategic opportunitiesthat have been identified since the announcement of the spin off. We haveengaged outside consultants to advise us on potential opportunities within theWholesale segment, and we will likely focus on one or more of our EuropeanWholesale businesses. Believing that substantial upside opportunities exist inthe North American Wholesale business and having made significant investmentsin sales force integration and productivity, as well as new productdevelopment, we remain committed to the success of these and other initiativesdespite challenging market conditions impacting the Home Expressions industry.**

**In accordance with this intention to explorestrategic alternatives with respect to our European Wholesale business, on April 12,2006, we sold Kaemingk B.V. (“Kaemingk”) pursuant to a Share Sale and PurchaseAgreement to an entity controlled by the management of Kaemingk. Accordingly,the results of operations for Kaemingk have been reclassified as discontinuedoperations for all periods presented.**

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**Net Sales**

Net Sales in the threemonths ended April 30, 2006 decreased $15.3 million, or 4.5%, to $327.5million from $342.8 million in the first quarter of fiscal 2006. Increasedparty plan competition within the Direct Selling channel in the United Statesand a weak European consumer environment have negatively impacted sales quarterover quarter.

Net Sales - DirectSelling Segment

Net Sales in the DirectSelling segment for the quarter ended April 30, 2006 decreased $8.3million, or 4.8%, to $165.0 million, from $173.3 million in the quarter ended April 30,2005. PartyLite’s U.S. sales decreased approximately 11.7% compared to theprior year due to continued competition for independent sales Consultants,hostesses and party guests in the Direct Selling channel. PartyLite Canadareported an approximate 14.4% increase versus the prior year due to successfulpromotions to recruit new consultants. In PartyLite’s European markets, salesdecreased approximately 2.5% in U.S. dollars. In local currencies, PartyLiteEurope’s sales were up 6.2% driven by strong sales in the developing markets.

Net Sales - Wholesale Segment

Net Sales in the Wholesale segment in the quarterended April 30, 2006 decreased $7.3 million, or 5.5%, to $126.0 millionfrom $133.3 million in the same period a year earlier. This decline from lastyear is primarily attributable to sales declines in our European businesses. TheCompany believes these decreased sales were caused by continued heavy pricecompetition for its products and an overall soft retail environment in Europefor Blyth’s products. A number of our Wholesale businesses are being impactedby the decrease in consumer spending for discretionary products because ofmajor increases in gasoline and related fuel costs. These sales declines werepartially offset by increased sales of our North American mass channel homefragrance and premium channel home décor products.

Net Sales - Catalog & Internet Segment

Net Sales in the Catalog &Internet segment increased $0.3 million, or 0.8%, to $36.5 million in thequarter ended April 30, 2006, compared with $36.2 million in the sameperiod in fiscal 2006. This increase was primarily due to four of the fivemajor catalogs either equaling or exceeding last year’s performance and theadditional sales from Boca Java, an on-line premium gourmet coffee and tearetailer, that Blyth acquired in August 2005. Offsetting this positiveperformance was a planned reduction in the circulation of the fifth catalog.

**GrossProfit**

Gross profit decreased$14.6 million, or 8.9% from $164.6 million in the quarter ended April 30,2005 to $150.0 million in the quarter ended April 30, 2006. Gross profitmargin decreased from 48.0% for the first quarter of fiscal 2006 to 45.8% inthe first quarter of fiscal 2007. Thisdecline is primarily due to lower PartyLite U.S. sales and higher fuel, freightand commodity costs, particularly paraffin.

**SellingExpense**

Selling expense decreased $3.6 million, or 3.3%, from $109.1 million inthe first three months of fiscal 2006, when selling expense was 31.8% of netsales, to $105.5 million in the same period in fiscal 2007, or 32.2% of netsales. The decrease in selling expense in dollars is primarily due to reducedsales in the North American Direct Selling channel.

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**Administrative Expense**

**Administrative expense decreased $1.1 million, or3.1%, from $35.8 million in the first three months of fiscal 2006 to $34.7million in the same period of fiscal 2007. As a percent of sales,administrative expense was 10.4% in the first three months of fiscal 2006versus 10.6% in the same period of fiscal 2007.**

**GoodwillImpairment**

**A non-tax deductible goodwillimpairment charge of $16.7 million was recognized in the Wholesale segment in April 2006.As discussed in note 3, the Company sold its European seasonal decorationsbusiness, Kaemingk, in the first quarter of fiscal 2007. The transaction wasconsidered a triggering event, which required the Company to perform animpairment analysis of the remaining goodwill in the reporting unit thatcontained the divested business. As a result of this analysis the remaininggoodwill was determined to be impaired, as the fair value of the remainingbusinesses in the reporting unit do not exceed their carrying value includinggoodwill. The decrease in the fair value of these businesses is due to pooroperating results in the first quarter and a significant decrease in theprojected results for the full fiscal year. Additionally, the value of theremaining businesses in the reporting unit was impacted by the sale of Kaemingkin the first quarter.**The fair value of thereporting unit was estimated using the proceeds from the potential sale of thereporting unit.

**OperatingProfit (Loss)**

Operatingprofit decreased $26.7 million from $19.8 million in the first three months offiscal 2006 to a loss of $6.9 million in the same period of fiscal 2007. Thisdecline was primarily due to the previously mentioned goodwill impairment, theimpact of lower PartyLite U.S. sales, and higher fuel, freight and commoditycosts, particularly paraffin.

Operating Profit - Direct Selling Segment

Operating profit in theDirect Selling segment****for thefirst three months of fiscal 2007 decreased $7.4 million, or 26.4% to $20.6million from $28.0 million in the same period a year earlier. This decrease wasprimarily driven by the previously mentioned 11.7% sales shortfall of PartyLiteU.S., as well as increased fuel, freight and commodity costs, particularlyparaffin.

Operating Loss - Wholesale Segment

Operating loss in thequarter ended April 30, 2006 in the Wholesale segment increased $17.2million to $23.7 million versus a loss of $6.5 million the same period a yearearlier. As previously mentioned, the decline was due to the $16.7 milliongoodwill impairment charge recorded in fiscal 2007 and lower sales and grossmargins in our European Wholesale businesses due to heavy price competition andthe soft economic environment in Europe. The decline from the prior year waspartially offset by the impact of increased volume in our North American masschannel home fragrance business.

Operating Loss  —Catalog & Internet Segment

Operating loss in thequarter ended April 30, 2006 in the Catalog & Internet segmentincreased $2.1 million to $3.8 million versus a loss of $1.7 million in thesame period a year earlier. The decrease from prior year is primarily due tooperating losses in Boca Java, in which the Company is making investment togrow the business.

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**InterestExpense**

Interest expenseincreased approximately $0.3 million, or 6.0% from $5.0 million in the first three months offiscal 2006 to $5.3million in the same period of fiscal 2007, due to increases in borrowings andinterest rates.

**IncomeTaxes**

Income tax expensedecreased $2.4 million, or 58.5%, from $4.1 million in the first three months offiscal 2006 to $1.7million in the same period in the current fiscal year. The effective tax ratefor the three months ended April 30, 2006 was approximately (16.8%)compared to 29.0% in the prior year. Although the tax rate was adverselyaffected by the previously mentioned goodwill impairment charge, which was notdeductible for tax purposes, the tax rate was favorably impacted by thedecrease in U.S. earnings versus higher foreign sourced earnings, which aretaxed at a lower rate than U.S. earnings.

**DiscontinuedOperation**

**On April 12, 2006, the Company sold KaemingkB.V. pursuant to a Share Sale and Purchase Agreement to an entity controlled bythe management of Kaemingk. Accordingly, the results of operations for Kaemingkhave been reclassified as discontinued operations in the Condensed ConsolidatedStatements of Earnings for all periods presented. Since the cash flows andfinancial position of Kaemingk are not significant to the Company’sconsolidated cash flows or balance sheet, the Company has elected not toreclassify prior period amounts in the Condensed Consolidated Statement of CashFlows or the Condensed Consolidated Balance Sheet. A loss on the sale of theKaemingk discontinued operation, net of tax, of $18.4 million ($0.45 perdiluted share) was recorded in the quarter ended April 30, 2006. Lossesfrom the Kaemingk discontinued operation, net of tax, of $0.3 million ($0.01 perdiluted share) and $0.2 million ($0.01 per diluted share) were recorded for thequarters ended April 30, 2006 and 2005, respectively.**

**NetEarnings (Loss)**

As a result of theforegoing, net earnings decreased $40.6 million from earnings of $10.0 millionin the first three months of fiscal 2006 to a net loss of $30.6 million for the same period infiscal 2007.

Basic and dilutedearnings per share for the quarter ended April 30, 2006, were $(0.75), adecrease of $0.99 compared to $0.24 for the quarter ended April 30, 2005.

**Liquidityand Capital Resources**

Net cash used inoperations decreased to approximately $0.4 million in the first three months offiscal 2007 from $8.1 million provided by operations in the same period offiscal 2006. This decrease during the first quarter of fiscal 2007 wasprimarily due to the reduction in net earnings and the payment of withholdingtaxes on funds repatriated under the American Job Creations Act of 2004 (“AJCA”)(see below for further discussion of the repatriation).

Capital expenditures forproperty, plant and equipment were $2.7 million in the three months ended April 30,2006 compared to $3.4 million in the prior year period. The decrease fromhistorical levels is due to the Company continuing to reduce spending on manufacturingfacilities, while moving to more of an outsourced product supply model. TheCompany anticipates total capital spending of approximately $20.0 million forfiscal 2007, primarily for the expansion of the Direct Selling Europeandistribution center in support of ongoing growth, information technology andresearch and development-related equipment and upgrades to machinery andequipment in existing manufacturing and distribution facilities.

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On June 2, 2005, the Company replaced its prior $200 million creditfacility with a new $150 million unsecured revolving credit facility having afive year term; the “Credit Facility” matures June 2010. The Company has the ability to increase theCredit Facility, under certain circumstances, by an additional $50 million. TheCredit Facility may be used for seasonal working capital needs and generalcorporate purposes, including strategic acquisitions. The Credit Facilitycontains, among other provisions, requirements for maintaining certainfinancial ratios and limitations on certain payments. As of April 30,2006, the Company was in compliance with these provisions. Amounts outstandingunder the Credit Facility bear interest, at the Company’s option, at JPMorganChase Bank’s prime rate or at the Eurocurrency rate plus a credit spreadranging from 0.360% to 0.800%, calculated on the basis of the Company’s seniorunsecured long-term debt rating. As of April 30, 2006, approximately $72.6million (including letters of credit) was outstanding under the CreditFacility.

As of April 30,2006, the Company had a total of $15.0 million available under an uncommittedbank line of credit with LaSalle Bank National Association, which matures in June 2006.Management does not intend to renew this bank line of credit. Amounts outstandingunder the line of credit bear interest at prime or LIBOR plus 0.90%. No amountswere outstanding under the uncommitted line of credit at April 30, 2006.

At April 30, 2006,the Company had a total of $10.0 million available under an uncommitted line ofcredit with Bank of America to be used for letters of credit. At April 30,2006, approximately $0.6 million of letters of credit were outstanding underthis credit line.

As of March 31,2006, The Gies Group (“Gies”) had available lines of credit of approximately$39.1 million of which approximately $15.0 million was outstanding. The amountsoutstanding under the lines of credit bear interest at a weighted average rateof 3.3% at March 31, 2006. A portion of the lines of credit arecollateralized by fixed assets owned by Gies. The lines of credit are renewedannually.

As of March 31, 2006, Colony Gift CorporationLimited (“Colony”) had an $8.6 million short-term revolving credit facilitywith Barclays Bank, which matures in August 2006. Colony had borrowings underthe credit facility of approximately $7.6 million, at a weighted averageinterest rate of 5.6%, as of March 31, 2006.

As of March 31,2006, Edelman B.V. and Euro-Decor B.V. had available lines of credit ofapproximately $30.3 million with ABN Amro Bank N.V. The lines of credit arecollateralized by inventory and receivables owned by Edelman B.V. andEuro-Decor B.V. At March 31, 2006, approximately $3.7 million wasoutstanding at a weighted average interest rate of 5.9%.

At April 30, 2006, Miles Kimball hadapproximately $9.3 million of long-term debt outstanding under a real estatemortgage note payable to John Hancock Life Insurance Company, which matures June 1,2020. Under the terms of the note, payments of principal and interest arerequired monthly at a fixed interest rate of 7.89%.

In July 1995, theCompany privately placed $25.0 million aggregate principal amount of 7.54%Senior Notes due 2005. The final payment on the notes was made on June 30,2005.

In May 1999, theCompany filed a shelf registration statement for issuance of up to $250.0million in debt securities with the Securities and Exchange Commission. On September 24,1999, the Company issued $150.0 million of 7.90% Senior Notes due October 1,2009 at a discount of approximately $1.4 million, which is being amortized overthe life of the notes. Such notes contain, among other provisions, restrictionson liens on principal property or stock issued to collateralize debt. At April 30,2006, the Company was in compliance with such provisions. Interest is payablesemi-annually in arrears on April 1 and October 1. On October 20,2003, the Company issued $100.0 million 5.50% Senior Notes due on November 1,2013 at a discount of approximately $0.2 million, which is being amortized overthe life of the notes. Such notes contain provisions and restrictions similarto those in the 7.90% Senior Notes. At April 30, 2006, the Company was incompliance with such provisions. Interest is payable semi-annually in arrearson May 1 and November 1. The notes may be redeemed in whole or inpart at any time at a specified redemption price. The proceeds of the debtissuance were used for general corporate purposes.

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At April 30, 2006, CBK had $4.4 million of long-term debt outstandingunder an Industrial Revenue Bond (“IRB”), which matures on January 1, 2025.The bond is backed by an irrevocable letter of credit issued by LaSalle BankNational Association. The loan is collateralized by certain of CBK’s assets. Theamount outstanding under the IRB bears interest at short-term floating rates,which equaled a weighted average interest rate of 5.5% at April 30, 2006. Paymentsof principal are required annually and interest payments are required monthlyunder the terms of the bond.

The Company’s short-terminvestments consist of auction rate securities and variable rate demandobligations classified as available-for-sale securities. The short-terminvestments in these securities are recorded at cost, which approximates fairmarket value due to their variable interest rates, which typically reset every7 to 35 days, and, despite the long-term nature of their stated contractualmaturities, the Company generally has the ability to liquidate these securitiesin 35 days or less. Management’s intent is to hold these securities as liquidassets easily convertible to cash for applicable operational needs as they mayarise. At April 30, 2006 the Company held $122.1 million of short-terminvestments, which consist of auction rate securities and variable rate demandobligations classified as available-for-sale securities. The contractualmaturities on these short-term investments range from within one year andbeyond ten years.

On January 24, 2006,the Board of Directors approved a domestic reinvestment plan for theapproximately $130 million in foreign earnings, which were previouslyconsidered permanently reinvested in non-U.S. legal entities, which the Companyrepatriated under the AJCA. The funds were brought back to the United Stateslate in the fourth quarter of fiscal 2006 and received the favorable taxtreatment provided by the Act. The Company recorded a one-time tax expense of$9.1 million, which is reflected in the Company’s prior year effective tax rate. As part of its repatriation plan, theCompany intends to make a domestic investment of the repatriated amount in awide range of initiatives, including the hiring and training of U.S. workers,research and development efforts, qualified retirement plan funding, capitalexpenditures to support the U.S. businesses, advertising and marketing withrespect to its various trademarks, brand names and rights to intangibleproperty, and acquisitions of U.S.-based businesses, all consistent with therequirements of the legislation.

On June 7, 2006, theCompany’s Board of Directors amended the Repurchase Program and increased thenumber of shares of common stock authorized to be repurchased by 6,000,000shares, from 6,000,000 shares to 12,000,000 shares. Since January 31,2006, the Company has purchased 535,600 shares on the open market for a cost of$11.4 million, bringing the cumulative total purchased shares to 5,162,400 asof April 30, 2006 for a total cost of approximately $126.0 million. Additionally,the Company repurchased 4,906,616 shares for an aggregate purchase price of$172.6 million in July 2004 through a Dutch auction cash tender offer. Theacquired shares are held as common stock in treasury at cost.

On April 4, 2006,the Company announced that it had declared a cash dividend of $0.23 per shareof common stock for the six months ended January 31, 2006. The dividendauthorized at the Company’s April 4, 2006 Board of Directors meeting, waspayable to shareholders of record as of May 1, 2006, and was paid on May 15,2006. The total payment was $9.3 million.

**CriticalAccounting Policies**

There were no changes toour critical accounting policies in the first quarter of fiscal 2007. For adiscussion of the Company’s critical accounting policies see our Annual Reporton Form 10-K for the fiscal year ended January 31, 2006.

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**Recent AccountingPronouncements**

** **

During the first quarter of fiscal 2007, the FinancialAccounting Standards Board (FASB) issued SFAS No. 155, “Accountingfor Certain Hybrid Financial Instruments — an amendment of FASB Statements No. 133and 140” (SFAS No. 155) and SFAS No. 156, “Accounting for Servicingof Financial Instruments — an amendment of FASB Statement No. 140” (SFAS No. 156).SFAS No. 155 requires that interests in securitized financial assets beevaluated to determine whether they contain embedded derivatives, and permitsthe accounting for any such hybrid financial instruments as single financialinstruments at fair value with changes in fair value recognized directly inearnings. SFAS No. 156 specifies that servicing assets or liabilitiesrecognized upon the sale of financial assets must be initially measured at fairvalue, and subsequently either measured at fair value or amortized inproportion to and over the period of estimated net servicing income or loss.The Company plans to adopt both standards on February 1, 2007. The Companydoes not expect the adoption of the standards to have a material impact on theCompany’s consolidated financial position, annual results of operations or cashflows.

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

**MarketRisk**

The Company hasoperations outside of the United States and sells its products worldwide. TheCompany’s activities expose it to a variety of market risks, including theeffects of changes in foreign currency exchange rates, interest rates andcommodity prices. These financial exposures are actively monitored and, whereconsidered appropriate, managed by the Company.

**InterestRate Risk**

As of April 30,2006, the Company is subject to interest rate risk on approximately $99.3million of variable rate debt. Each 1-percentage point change in theinterest rate would impact pre-tax earnings by approximately $1.0 million ifapplied to the total.

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

**ForeignCurrency Risk**

The Company uses foreignexchange forward and options contracts to hedge the impact of foreign currencyfluctuations on foreign denominated inventory purchases, intercompany payablesand certain intercompany loans. The Company does not hold or issue derivativefinancial instruments for trading purposes.

TheCompany hedged the net assets of certain of its foreign operations throughforeign currency forward contracts during fiscal 2006. The Company does notintend to continue to hedge the net assets of its foreign operations duringfiscal 2007. Any increase or decrease in the fair value of the forwards relatedto changes in the spot foreign exchange rates was offset by the change in thevalue of the hedged net assets of the foreign operations relating to changes inspot foreign exchange rates. The net after-tax gain related to the derivativenet investment hedge instruments recorded in accumulated other comprehensiveincome (loss) (“OCI”) totaled $1.8 million as of April 30, 2006.

The Company hasdesignated its forward exchange and options contracts on forecastedintercompany purchases and future purchase commitments as cash flow hedges and,as such, as long as the hedge remains effective and the underlying transactionremains probable, the effective portion of the changes in the fair value ofthese contracts will be recorded in OCI until earnings are affected by thevariability of the cash flows being hedged. With regard to commitments forinventory purchases, upon payment of each commitment, the underlying forwardcontract is closed and the corresponding gain or loss is transferred fromaccumulated OCI and is included in the measurement cost of the acquired asset. Ifa hedging instrument is sold or terminated prior to maturity, gains and lossesare deferred in accumulated OCI until the hedged item is settled. However, ifthe hedged item is no longer likely to occur, the resultant gain or loss on theterminated hedge is recognized into earnings immediately. Approximately $0.2million of hedge losses related to cash flow hedges are included in accumulatedOCI at April 30, 2006, and are expected to be transferred into earningswithin the next twelve months upon payment of the underlying commitment.

The Company hasdesignated its foreign currency forward contracts related to intercompany loansand intercompany payables as fair value hedges. The gains or losses on the fairvalue hedges are recognized into earnings and generally offset the transactiongains or losses in the foreign denominated loans that they are intended tohedge.

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

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The following table provides information about theCompany’s foreign exchange forward and options contracts at April 30,2006:
| ** **                                                                | ** ** | **U.S. Dollar**     | ** ** | **Average**            | ** ** | **Estimated**       | ** ** |
|---------------------------------------------------------------------------|------------|--------------------------|------------|------------------------|------------|---------------------|------------|
| **(In thousands, except average contract rate)** | ** ** | **Notional Amount** | ** ** | **Contract Rate** | ** ** | **Fair Value** | ** ** |
| Canadian Dollar                                                           |       | $                        | 8,700      |                   | 0.88       |                | $          | (211 | ) |
| Euro                                                                      |       | 16,470                   |       | 1.21                   |       | (40                 | )          |
|                                                                      |       | $                        | 25,170     |                   |       |                | $          | (251 | ) |

 

The foreign exchangecontracts outstanding have maturity dates through December 2006.

 

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**Item 4.    **CONTROLS AND PROCEDURE****S

(a) Evaluation ofdisclosure controls and procedures.

Our management, with theparticipation of our principal executive officer and our principal financialofficer, evaluated the effectiveness of our disclosure controls and procedures(as defined in Securities Exchange Act of 1934 (“Exchange Act”) Rules 13a-15(e) or15d-15(e)) as of the end of the period covered by this quarterly reportas required by paragraph (b) of Exchange Act Rules 13a-15 or15d-15. Based upon this evaluation, our principal executive officer andour principal financial officer have concluded that our disclosure controls andprocedures are effective as of April 30, 2006.

(b) Changes ininternal control over financial reporting.

There have been nochanges in our internal control over financial reporting identified inconnection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15or 15d-15 that occurred during the first quarter of fiscal 2007 that hasmaterially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

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**Part II.**OTHER INFORMATION

**Item 1.        Legal Proceedings**

None.

**Item 1A.     Risk Factors**

There have been no changesto the risks described in the Company’s Annual Report on Form 10-K for thefiscal year ended January 31, 2006.

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

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

**ISSUER PURCHASESOF EQUITY SECURITIES(1)**
| **Period**                                           | ** ** | **(a) Total  Number of  Shares  Purchased** | ** ** | **(b)  Average  Price Paid  per Share** | ** ** | **(c) Total  Number of  Shares  Purchased as  Part of Publicly  Announced  Plans or  Programs** | ** ** | **(d) Maximum Number  (or Approximate Dollar  Value) of Shares that  May Yet Be Purchased  Under the Plans or  Programs** | ** **       |
|------------------------------------------------------|------------|-------------------------------------------------------|------------|---------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------|
| February 1,  2006 — February 28, 2006 |       | 0                                                     |       | $                                                 | 0          |                                                                                                                          | 0          |                                                                                                                                                                                       | 1,373,200 shares |   |
| March 1,  2006 — March 31, 2006       |       | 0                                                     |       | $                                                 | 0          |                                                                                                                          | 0          |                                                                                                                                                                                       | 1,373,200 shares |   |
| April 1,  2006 — April 30, 2006       |       | 535,600                                               |       | $                                                 | 21.36      |                                                                                                                          | 535,600    |                                                                                                                                                                                       | 837,600 shares   |   |
| Total                                                |       | 535,600                                               |       | $                                                 | 21.36      |                                                                                                                          | 535,600    |                                                                                                                                                                                       | 837,600 shares   |   |

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(1)  On September 10, 1998,the Company’s Board of Directors approved the Company’s share repurchaseprogram (the “Repurchase Program”) pursuant to which the Company was authorizedto repurchase up to 1,000,000 shares of its issued and outstanding Common Stockin open market transactions. On June 8, 1999, the Company’s Board ofDirectors amended the Repurchase Program and increased the number of shares ofCommon Stock to be repurchased by 1,000,000 shares, from 1,000,000 to 2,000,000shares. On March 30, 2000, the Company’s Board of Directors furtheramended the Repurchase Program and increased the number of shares of CommonStock to be repurchased by 1,000,000 shares, from 2,000,000 to 3,000,000 shares.On December 14, 2000, the Company’s Board of Directors further amended theRepurchase Program and increased the number of shares of Common Stock to berepurchased by 1,000,000 shares, from 3,000,000 to 4,000,000 shares. On April 4,2002, the Company’s Board of Directors further amended the Repurchase Programand increased the number of shares of Common Stock to be repurchased by2,000,000 shares, from 4,000,000 to 6,000,000 shares. On June 7, 2006, theCompany’s Board of Directors further amended the Repurchase Program andincreased the number of shares of common stock authorized to be repurchased by6,000,000 shares, from 6,000,000 shares to 12,000,000 shares. As of April 30,2006, the Company has purchased a total of 5,162,400 shares of Common Stockunder the Repurchase Program. The Repurchase Program does not have anexpiration date. The Company intends to make further purchases under theRepurchase Program from time to time.

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**Item 3.**           Defaults upon Senior Securities

None

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

None

**Item 5.    Other Information**

None

**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 9, 2006 |   | By:         |   | /s/Robert B. Goergen |
|   |   |              |   |        |   | Robert B. Goergen |
|   |   |              |   |        |   | Chairman and Chief Executive Officer |
|   |   |              |   |        |   |   |
| Date:  |   | June 9, 2006 |   | By:         |   | /s/Robert H. Barghaus |
|   |   |              |   |        |   | Robert H. Barghaus |
|   |   |              |   |        |   | Vice President and Chief Financial Officer |

 

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