**UNITEDSTATES**

**SECURITIES AND EXCHANGECOMMISSION**

**WashingtonD.C. 20549**

**FORM 10-Q**

(Mark One)
| **x**      | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|------------|-----------------------------------------------------------------------------------------------|
| ** ** | ** **                                                                                    |
| ** ** | **For the  quarterly period ended April 30, 2007**                                            |
|       |                                                                                          |
|       | **Or**                                                                                        |
| ** ** | ** **                                                                                    |
| **o**      | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For thetransition period from                         to                             **

**CommissionFile Number 1-13026**

**BLYTH,INC.**

(Exact name of registrantas 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’stelephone number, including area code)

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

Yes  x      No  o

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

| Large accelerated  filer   o |   | Accelerated  filer   x |   | Non-Accelerated  filer   o |
|---------------------------------------------|--------|---------------------------------------|--------|-------------------------------------------|

 

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

Yes  o      No  x

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

**39,442,162Common Shares as of May 31, 2007**

 

----

**BLYTH,INC.**

#### **INDEX**

|            | ** ** | ** **                                                   | ** **                                                      | **Page** |
|------------|------------|--------------------------------------------------------------|-----------------------------------------------------------------|----------|
| Part  I.   |       | Financial  Information                                       |                                                            |
|       |       |                                                         |                                                            |
|       | Item  1.   | Financial  Statements (Unaudited):                           |                                                            |
|       |       |                                                         |                                                            |     |
|       |       |                                                         | Condensed Consolidated Balance Sheets                           | 3        |
|       |       |                                                         |                                                            |     |
|       |       |                                                         | Condensed Consolidated Statements of Earnings                   | 4        |
|       |       |                                                         |                                                            |     |
|       |       |                                                         | Condensed Consolidated Statements of Stockholders’  Equity | 5        |
|       |       |                                                         |                                                            |     |
|       |       |                                                         | Condensed Consolidated Statements of Cash Flows                 | 6        |
|       |       |                                                         |                                                            |     |
|       |       |                                                         | Notes to Condensed Consolidated Financial Statements            | 7-16     |
|       |       |                                                         |                                                            |
|       | Item 2.    | Management’s Discussion and Analysis of                 |                                                            |
|       |       |                                                         | Financial Condition and Results of Operations                   | 17-22    |
|       |       |                                                         |                                                            |
|       | Item 3.    | Quantitative and Qualitative Disclosures About Market  Risk  | 23-24                                                           |
|       |       |                                                         |                                                            |
|       | Item 4.    | Controls and Procedures                                      | 25                                                              |
|       |       |                                                         |                                                            |
| Part  II.  |       | Other  Information                                           |                                                            |
|       |       |                                                         |                                                            |
|       | Item  1.   | Legal  Proceedings                                           | 26                                                              |
|       |       |                                                         |                                                            |
|       | Item 1A.   | Risk Factors                                                 | 26                                                              |
|       |       |                                                         |                                                            |
|       | Item 2.    | Unregistered Sales of Equity Securities and Use of  Proceeds | 27                                                              |
|       |       |                                                         |                                                            |
|       | Item 3.    | Defaults upon Senior Securities                              | 27                                                              |
|       |       |                                                         |                                                            |
|       | Item 4.    | Submission of Matters to a Vote of Security Holders          | 27                                                              |
|       |       |                                                         |                                                            |
|       | Item  5.   | Other  Information                                           | 27                                                              |
|       |       |                                                         |                                                            |
|       | Item 6.    | Exhibits                                                     | 28                                                              |
|       |       |                                                         |
| Signatures |       | 29                                                           |
|            |            |                                                              |                                                                 |          |  |  |  |  |

 

2

----

Part I.   FINANCIAL INFORMATION

Item I.   FINANCIAL STATEMENTS

**BLYTH, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCESHEETS**

**(Unaudited)**
| **(In thousands, except share and per share data)**                                          | ** ** | **April 30,  2007** | ** ** | **January 31,  2007** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|----------------------------|------------|
| **ASSETS**                                                                                                                      |       |                     |       |                       |       |
| **Current assets:**                                                                                                             | ** ** | ** **               |       |                       |       |
| Cash and cash  equivalents                                                                                                      |       | $                        | 125,217    |                       | $          | 103,808 |   |
| Short-term investments                                                                                                          |       | 126,300                  |       | 129,725                    |       |
| Accounts receivable,  less allowance for doubtful receivables of $1,685 and $1,533, respectively                                |       | 45,986                   |       | 35,040                     |       |
| Inventories                                                                                                                     |       | 125,774                  |       | 148,321                    |       |
| Prepaid and other                                                                                                               |       | 40,922                   |       | 33,317                     |       |
| Deferred income taxes                                                                                                           |       | 27,862                   |       | 29,707                     |       |
| Total current  assets                                                                                                           |       | 492,061                  |       | 479,918                    |       |
| **Property, plant and equipment,  at cost:**                                                                                    |       |                     |       |                       |       |
| Less accumulated  depreciation of $212,441 and $209,160, respectively                                                           |       | 154,370                  |       | 159,484                    |       |
| **Other assets:**                                                                                                               |       |                     |       |                       |       |
| Investment                                                                                                                      |       | 3,608                    |       | 3,610                      |       |
| Goodwill                                                                                                                        |       | 78,682                   |       | 78,682                     |       |
| Other intangible  assets, net of accumulated amortization of $8,125 and $7,750, respectively                                    |       | 34,975                   |       | 35,350                     |       |
| Deposits and other  assets                                                                                                      |       | 18,161                   |       | 17,594                     |       |
|                                                                                                                            |       | 135,426                  |       | 135,236                    |       |
| Total assets                                                                                                                    |       | $                        | 781,857    |                       | $          | 774,638 |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                  |       |                     |       |                       |       |
| **Current liabilities:**                                                                                                        | ** ** | ** **               | ** ** | ** **                 | ** ** |
| Current maturities of  long-term debt                                                                                           |       | 1,004                    |       | 987                        |       |
| Accounts payable                                                                                                                |       | 45,430                   |       | 56,450                     |       |
| Accrued expenses                                                                                                                |       | 80,425                   |       | 77,738                     |       |
| Dividends payable                                                                                                               |       | 10,608                   |       | —                     |       |
| Income taxes payable                                                                                                            |       | 3,201                    |       | 4,925                      |       |
| Total current  liabilities                                                                                                      |       | 140,668                  |       | 140,100                    |       |
| **Deferred income taxes**                                                                                                       |       | 35,670                   |       | 35,002                     |       |
| **Long-term debt, less current  maturities**                                                                                    |       | 210,772                  |       | 214,792                    |       |
| **Other liabilities**                                                                                                           |       | 30,043                   |       | 21,051                     |       |
| **Commitments and contingencies**                                                                                               |       | —                   |       | —                     |       |
| **Stockholders’ equity:**                                                                                                  |       |                     |       |                       |       |
| Preferred stock -  authorized 10,000,000 shares of $0.01 par value; no shares issued                                            |       | —                   |       | —                     |       |
| Common stock -  authorized 100,000,000 shares of $0.02 par value; issued 50,711,360 shares  and 50,637,060 shares, respectively |       | 1,014                    |       | 1,013                      |       |
| Additional contributed  capital                                                                                                 |       | 131,764                  |       | 129,367                    |       |
| Retained earnings                                                                                                               |       | 533,252                  |       | 534,897                    |       |
| Accumulated other  comprehensive income                                                                                         |       | 22,388                   |       | 22,130                     |       |
| Treasury stock, at  cost, 11,335,798 shares at April 30 and January 31, 2007.                                                   |       | (323,714                 | )          | (323,714                   | )          |
| Total  stockholders’ equity                                                                                                |       | 364,704                  |       | 363,693                    |       |
| Total liabilities and  stockholders’ equity                                                                                |       | $                        | 781,857    |                       | $          | 774,638 |   |

 

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

3

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**BLYTH, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)**

**(Unaudited)**
| **Three months ended April 30 **(In thousands, except per share data) | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Net sales                                                                                                               |       | $        | 270,367    |     | $          | 280,247 |   |
| Cost of goods  sold                                                                                                     |       | 128,663  |       | 138,913  |       |
| Gross profit                                                                                                            |       | 141,704  |       | 141,334  |       |
| Selling                                                                                                                 |       | 93,649   |       | 97,112   |       |
| Administrative  and other                                                                                               |       | 31,399   |       | 30,159   |       |
|                                                                                                                    |       | 125,048  |       | 127,271  |       |
| Operating profit                                                                                                        |       | 16,656   |       | 14,063   |       |
| Other expense  (income):                                                                                                |       |     |       |     |       |
| Interest expense                                                                                                        |       | 3,721    |       | 4,701    |       |
| Interest income                                                                                                         |       | (1,989   | )          | (1,786   | )          |
| Foreign exchange and other                                                                                              |       | (548     | )          | (489     | )          |
|                                                                                                                    |       | 1,184    |       | 2,426    |       |
| Earnings from continuing operations before income  taxes                                                                |       | 15,472   |       | 11,637   |       |
| Income tax  expense                                                                                                     |       | 3,713    |       | 3,459    |       |
| Earnings from continuing operations before minority  interest                                                           |       | 11,759   |       | 8,178    |       |
| Minority  interest                                                                                                      |       | 27       |       | 34       |       |
| Earnings from continuing operations                                                                                     |       | 11,732   |       | 8,144    |       |
| Loss from  discontinued operations, net of income tax benefit $1,924                                                    |       | —   |       | (38,753  | )          |
| Net earnings  (loss)                                                                                                    |       | $        | 11,732     |     | $          | (30,609 | ) |
| Basic:                                                                                                                  |       |     |       |     |       |
| Earnings from continuing operations per common share                                                                    |       | $        | 0.30       |     | $          | 0.20 |   |
| Loss from discontinued operation per common share                                                                       |       | —   |       | (0.95    | )          |
| Net earnings (loss) per common share                                                                                    |       | $        | 0.30       |     | $          | (0.75 | ) |
| Weighted average number of shares outstanding                                                                           |       | 39,313   |       | 40,803   |       |
| Diluted:                                                                                                                |       |     |       |     |       |
| Earnings from continuing operations per common share                                                                    |       | $        | 0.30       |     | $          | 0.20 |   |
| Loss from discontinued operation per common share                                                                       |       | —   |       | (0.95    | )          |
| Net earnings (loss) per common share                                                                                    |       | $        | 0.30       |     | $          | (0.75 | ) |
| Weighted average  number of shares outstanding                                                                          |       | 39,672   |       | 40,985   |       |

 

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

4

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**BLYTH,INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**

**(Unaudited)**

** **
| **(In thousands)**                                           | ** ** | ** **        | ** ** | ** **                           | ** ** | ** **             | ** ** | ** **          | ** ** | ** **                 | ** ** | ** **                                                | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------|------------|-------------------|------------|--------------------------------------|------------|------------------------|------------|---------------------|------------|----------------------------|------------|-----------------------------------------------------------|------------|------------|------------|
| ** **                                                        | ** ** | **Common  Stock** | ** ** | **Additional  Contributed  Capital** | ** ** | **Retained  Earnings** | ** ** | **Treasury  Stock** | ** ** | **Unearned  Compensation** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** | **Total**  | ** ** |
| **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 gain on  certain investments  (net of tax $56)         |       |              |       |                                 |       |                   |       |                |       |                       |       | 92                                                        |       | 92         |       |
| Net loss on cash flow  hedging instruments  (net of tax of $88)   |       |              |       |                                 |       |                   |       |                |       |                       |       | (163                                                      | )          | (163       | )          |
| Reclassification of  unearned  compensation                       |       |              |       | (3,070                               | )          |                   |       |                |       | 3,070                      |       |                                                      |       | —     |       |
| Comprehensive  loss                                               |       |              |       |                                 |       |                   |       |                |       |                       |       |                                                      |       | (24,328    | )          |
| Restricted stock net of  cancellations                            |       |              |       | 31                                   |       |                   |       | (31                 | )          |                       |       |                                                      |       | —     |       |
| 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 |   |
| **For the three months ended April 30, 2007:**                    | ** ** |
| Balance, February 1,  2007                                        |       | $                 | 1,013      |                                 | $          | 129,367                |       | $                   | 534,897    |                       | $          | (323,714                                                  | )          | $          | —     |   | $ | 22,130 |   | $ | 363,693 |   |
| FIN 48 adoption  adjustment                                       |       |              |       |                                 |       | (2,769                 | )          |                |       |                       |       |                                                      |       | (2,769     | )          |
| Adjusted Balance,  February 1, 2007                               |       | $                 | 1,013      |                                 | $          | 129,367                |       | $                   | 532,128    |                       | $          | (323,714                                                  | )          | $          | —     |   | $ | 22,130 |   | $ | 360,924 |   |
| Net earnings for the  period                                      |       |              |       |                                 |       | 11,732                 |       |                |       |                       |       |                                                      |       | 11,732     |       |
| Foreign currency  translation  adjustments                        |       |              |       |                                 |       |                   |       |                |       |                       |       | 471                                                       |       | 471        |       |
| Unrealized gain on  certain investments  (net of tax $65)         |       |              |       |                                 |       |                   |       |                |       |                       |       | 106                                                       |       | 106        |       |
| Net loss on cash flow  hedging instruments  (net of tax of $172)  |       |              |       |                                 |       |                   |       |                |       |                       |       | (319                                                      | )          | (319       | )          |
| Comprehensive  income                                             |       |              |       |                                 |       |                   |       |                |       |                       |       |                                                      |       | 11,990     |       |
| Common stock issued in  connection with  long-term incentive plan |       | 1                 |       | 1,792                                |       |                   |       |                |       |                       |       |                                                      |       | 1,793      |       |
| Tax benefit from stock  options                                   |       |              |       | 55                                   |       |                   |       |                |       |                       |       |                                                      |       | 55         |       |
| Amortization of  unearned compensation                            |       |              |       | 550                                  |       |                   |       |                |       |                       |       |                                                      |       | 550        |       |
| Dividends                                                         |       |              |       |                                 |       | (10,608                | )          |                |       |                       |       |                                                      |       | (10,608    | )          |
| Balance, April 30, 2007                                           |       | $                 | 1,014      |                                 | $          | 131,764                |       | $                   | 533,252    |                       | $          | (323,714                                                  | )          | $          | —     |   | $ | 22,388 |   | $ | 364,704 |   |
|                                                                   |            |                   |            |                                      |            |                        |            |                     |            |                            |            |                                                           |            |            |            |  |  |  |  |  |  |  |  |  |

 

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

5

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**BLYTH,INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**
| **Three months ended April 30 (In thousands)**                            | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Cash flows from  operating activities:                                                                  |       |     |       |     |       |
| Net earnings (loss)                                                                                     |       | $        | 11,732     |     | $          | (30,609 | ) |
| Adjustments to reconcile net earnings (loss) to net  cash provided by (used in) operating 

activities: |       |     |       |     |       |
| Loss on sale of discontinued operation, net of tax                                                      |       | —   |       | 35,092   |       |
| Depreciation and amortization                                                                           |       | 7,018    |       | 8,652    |       |
| Loss on disposition of fixed assets                                                                     |       | —   |       | 7        |       |
| Loss on sale of assets                                                                                  |       | 521      |       | —   |       |
| Amortization of unearned stock based compensation                                                       |       | 550      |       | 311      |       |
| Deferred income taxes                                                                                   |       | 4,679    |       | (374     | )          |
| Equity in losses of investee                                                                            |       | 2        |       | 106      |       |
| Minority interest                                                                                       |       | 7        |       | 13       |       |
| 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                                                                                     |       | (18,181  | )          | 9,077    |       |
| Inventories                                                                                             |       | 6,269    |       | 1,927    |       |
| Prepaid and other                                                                                       |       | (6,109   | )          | (5,895   | )          |
| Other long-term assets                                                                                  |       | 2,451    |       | 1,802    |       |
| Accounts payable                                                                                        |       | (10,347  | )          | (10,567  | )          |
| Accrued expenses                                                                                        |       | 3,485    |       | (1,206   | )          |
| Other liabilities                                                                                       |       | (22      | )          | 67       |       |
| Income taxes                                                                                            |       | (1,768   | )          | (8,927   | )          |
| Net cash provided by (used in) operating activities                                                     |       | 287      |       | (445     | )          |
| Cash flows from  investing activities:                                                                  |       |     |       |     |       |
| Purchases of property, plant and equipment                                                              |       | (2,422   | )          | (2,679   | )          |
| Purchases of short-term investments                                                                     |       | (480,700 | )          | (329,250 | )          |
| Proceeds from sales of short-term investments                                                           |       | 484,125  |       | 207,150  |       |
| Proceeds from the sales of businesses, net of cash  disposed                                            |       | 514      |       | 31,366   |       |
| Proceeds from sale of assets                                                                            |       | 21,830   |       | 2,917    |       |
| Purchase of businesses, net of cash acquired                                                            |       | —   |       | (6,654   | )          |
| Net cash provided by (used in) investing activities                                                     |       | 23,347   |       | (97,150  | )          |
| Cash flows from  financing activities:                                                                  |       |     |       |     |       |
| Proceeds from issuance of common stock                                                                  |       | 1,793    |       | —   |       |
| Tax benefit from stock options                                                                          |       | 55       |       | —   |       |
| Purchases of treasury stock                                                                             |       | —   |       | (11,442  | )          |
| Borrowings from bank lines of credit                                                                    |       | —   |       | 9,850    |       |
| Repayments on bank lines of credit                                                                      |       | —   |       | (16,566  | )          |
| Repayments of long-term debt                                                                            |       | (3,925   | )          | (526     | )          |
| Payments on capital lease obligations                                                                   |       | (80      | )          | —   |       |
| Net cash used in financing activities                                                                   |       | (2,157   | )          | (18,684  | )          |
| Effect of  exchange rate changes on cash                                                                |       | (68      | )          | 1,413    |       |
| Net increase (decrease) in cash and cash equivalents                                                    |       | 21,409   |       | (114,866 | )          |
| Cash and cash  equivalents at beginning of period                                                       |       | 103,808  |       | 242,068  |       |
| Cash and cash  equivalents at end of period                                                             |       | $        | 125,217    |     | $          | 127,202 |   |

 

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

6

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**BLYTH, INC. ANDSUBSIDIARIES**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**1.             Basis of Presentation**

The condensedconsolidated financial statements include the accounts of the Company and itssubsidiaries.  All intercompany accountsand transactions have been eliminated. Our investment in a company that is not majority owned or controlled isreported using the equity method and is recorded as an investment.  Certain of the Company’s subsidiaries operateon a 52 or 53-week fiscal year ending on the Saturday closest to January31.  European operations maintain acalendar year accounting period, which is consolidated with the Company’sfiscal period.  In the opinion ofmanagement, the accompanying unaudited condensed consolidated financial statementsinclude all adjustments necessary for fair presentation of the Company’sconsolidated financial position at April 30, 2007 and the consolidated resultsof its operations and cash flows for the three-month periods ended April 30,2007 and 2006.  These interim statementsshould be read in conjunction with the Company’s consolidated financialstatements for the fiscal year ended January 31, 2007, as set forth in theCompany’s Annual Report on Form 10-K. Operating results for the three months ended April 30, 2007 are notnecessarily indicative of the results that may be expected for the fiscal yearending January 31, 2008.

**2.             Discontinued Operations andDivestitures**

On April 12, 2006, theCompany sold its European seasonal decorations business, Kaemingk B.V. (“Kaemingk”),in the Wholesale segment to an entity controlled by the management ofKaemingk.  On June 16, 2006, the Companysold its European everyday home, garden and seasonal business, Edelman B.V. (“Edelman”),and its European gift and florist products business, Euro-Decor B.V. (“Euro-Decor”),both in the Wholesale segment to an entity with which members of the managementof Edelman and Euro-Decor are affiliated. On August 17, 2006, the Company sold its European mass candle business,Gies, which was part of the Wholesale segment. On December 20, 2006, the Company sold its European premium candlebusiness, Colony, which was part of the Wholesale segment.  Accordingly, these businesses have all beenreported as discontinued operations for all periods presented in the CondensedConsolidated Statements of Earnings (Loss).

Included in the earnings (loss)from discontinued operations in the Condensed Consolidated Statements ofEarnings (Loss) for the three months ended April 30, 3007 and 2006 are as follows:

|                                                      | ** ** | **Three months ended April 30,** | ** ** |
|------------------------------------------------------|------------|------------------------------------------------------|------------|
| **(In thousands)**                              | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| Net Sales                                            |       | $                                                    | —     |   | $ | 60,933 |   |
| Loss from  discontinued operations, net of tax       |       | —                                               |       | (3,661 | ) |
| Loss on sale of  discontinued operations, net of tax |       | —                                               |       | (35,092 | ) |
|                                                      |            |                                                      |            |  |  |  |  |

 

Included in the loss fromdiscontinued operations were operating losses of $0.3 million related toKaemingk, $0.4 million related to Edelman and Euro-Decor, $2.0 million relatedto Gies and $1.0 million related to Colony for the three months ended April 30,2006.  In the first quarter, ended April30, 2006, the Company recorded a non-tax deductible loss from discontinuedoperations of $18.4 million related to the sale of Kaemingk and a non-taxdeductible goodwill impairment charge of $16.7 million related to Edelman andEuro-Decor.

On April 27, 2007, theCompany sold certain assets and liabilities of its Blyth HomeScentsInternational (“BHI”) North American mass channel candle business, which waspart of the Wholesale segment.  The netassets were sold for $24.0 million of which $21.8 million was received atclosing and the remaining $2.2 million, which is based on a working capitaladjustment, is expected to be received in the second quarter of fiscal2008.  As stated in the asset saleagreement, the buyer has the right to review and challenge the working capitaladjustment as calculated by the Company. The sale resulted in a pre-tax loss of $0.5 million, which is recordedon the Administrative and other line in the Condensed Consolidated Statementsof Earnings (Loss).

7

----

**BLYTH, INC. ANDSUBSIDIARIES**

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**2.             DiscontinuedOperations and Divestitures***(continued)*

Included in the sale wereworking capital net assets, as well as fixed assets and leases related to theMemphis, Tennessee distribution facility and Bentonville, Arkansasoperations.  The Company retained allother offices and its Elkin, North Carolina manufacturing and distributionfacilities, which produce the Company’s premium wholesale Colonial Candle brandproduct, and continues to manufacture and distribute candles under a transitionservices agreement for the buyer. The net assets sold related to the BHIbusiness were comprised primarily of customer relationships, accountsreceivable of $7.4 million, inventory of $16.6 million and distributionequipment of $1.1 million less liabilities assumed of $1.7 million.

In addition, the Companyentered into an inventory overstock agreement with the buyer that provides forrevenue sharing in future sales of excess and obsolete inventory, transferredto the buyer as part of the sale of certain assets and liabilities of BHI.  The Company is entitled to receive a portionof the proceeds from the sale of the overstock inventory by the buyer per theterms of the agreement, which would be recorded as income upon receipt.

Revenue and costs relatedto operating the retained facilities and certain agreed upon transitionalsupport services will continue to be reported in continuing operations in theCondensed Consolidated Statements of Earnings (Loss).

**3.             Restructuring**

During the third and fourthquarters of fiscal 2007 the Company recorded restructuring charges related tothe restructuring plan for our North American mass channel home fragrancebusiness, the major components of which were the closing of our Tijuana, Mexicomanufacturing facility, the elimination of less profitable customers, thestreamlining of the stock keeping unit (“SKU”) base of the mass business, theoutsourcing of certain products currently being manufactured and head countreductions.  These charges included $1.4million of severance costs associated with the termination of 149 employees.

Also, during the fourthquarter of fiscal 2007, the Company recorded charges related to therestructuring of the North American operations of our Direct Selling segment inrecognition of the recent decline in sales in this channel.  These costs were comprised of $1.5 million ofseverance costs associated with the termination of 91 employees and $0.5million of lease termination costs.

At January 31, 2007, theCompany had an accrual for approximately $2.5 million for restructuring chargesin the Condensed Consolidated Balance Sheet, which related to theaforementioned severance liabilities and lease obligations.  During the first quarter of fiscal 2008, anadditional $0.5 million of lease termination charges were recorded in cost ofgoods sold and $0.3 million in severance charges were recorded inadministrative and other expense.  As aresult of payments made during the quarter ended April 30, 2007 approximately$1.1 million of severance liabilities and $0.8 million of lease obligationswere remaining on the balance sheet at April 30, 2007.  The remaining severance liability and leaseobligations will be paid within the next twelve months.

The following is atabular rollforward of the restructuring accruals described above that wererecorded on the balance sheet of the Company:

|                              | ** ** | **Wholesale  Segment**   | ** ** | **Direct Selling  Segment** | ** ** |
|------------------------------|------------|--------------------------|------------|----------------------------------|------------|
| **(In thousands)**      | ** ** | **Severance Costs** | ** ** | **Lease  Obligation**            | ** ** | **Severance Costs** | ** ** | **Total** | ** ** |
| Balance at  January 31, 2007 |       | $                        | 469        |                             | $          | 450 |   | $ | 1,541 |   | $ | 2,460 |   |
| Charges incurred in 2008     |       | 325                      |       | 541                              |       | — |   | $ | 866 |   |
| Payments made in fiscal 2008 |       | (203                     | )          | (195                             | )          | (1,070 | ) | (1,468 | ) |
| Balance at April 30,  2007   |       | $                        | 591        |                             | $          | 796 |   | $ | 471 |   | $ | 1,858 |   |

 

8

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**BLYTH, INC. AND SUBSIDIARIES**

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**4.             Short-Term Investments**

**The Company accounts for its short-term investments inaccordance with Statement of Financial Accounting Standards No. 115, “Accountingfor Certain Investments in Debt and Equity Securities.”  The Company’s short-term investments consistof auction rate securities and variable rate demand obligations classified asavailable-for-sale securities.  Ourshort-term investments in these securities are recorded at cost, whichapproximates fair market value due to their variable interest rates, whichtypically reset every 7 to 49 days. Despite the long-term nature of their stated contractual maturities, theCompany generally has the ability to liquidate these securities in 49 days orless.  Management’s intent is to holdthese securities as liquid assets convertible to cash for applicableoperational needs as they may arise.**

**At April 30, 2007 and January 31, 2007, the Companyheld $126.3 million and $129.7 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, 2007** | ** ** | **January 31, 2007** | ** ** |
|---------------------------------|------------|------------------------------|------------|--------------------------------|------------|
| Due within one  year            |       | $                            | 10,000     |                           | $          | 7,000 |   |
| Due between one  and five years |       | —                       |       | —                         |       |
| Due after ten  years            |       | 116,300                      |       | 122,725                        |       |
| Total                           |       | $                            | 126,300    |                           | $          | 129,725 |   |

 

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

**5.             Inventories**

The components ofinventory are as follows:

| (In thousands) | ** ** | **April 30, 2007** | ** ** | **January 31, 2007** | ** ** |
|---------------------|------------|------------------------------|------------|--------------------------------|------------|
| Raw materials       |       | $                            | 12,634     |                           | $          | 22,462 |   |
| Work in process     |       | 421                          |       | 90                             |       |
| Finished goods      |       | 112,719                      |       | 125,769                        |       |
| Total               |       | $                            | 125,774    |                           | $          | 148,321 |   |

 

**6.             Goodwill and Other Intangibles**

Goodwilland other indefinite lived intangibles are subject to an assessment forimpairment using a two-step fair value-based test and such other intangiblesare also subject to impairment reviews, which must be performed at leastannually or more frequently if events or circumstances indicate that goodwillor other indefinite lived intangibles might be impaired.

TheCompany performs its annual assessment of impairment as of January 31, which isour fiscal year-end date.  For goodwill,the first step is to identify whether a potential impairment exists. This isdone by comparing the fair value of a reporting unit to its carrying amount, includinggoodwill.  Fair value for each of ourreporting units is estimated utilizing a combination of valuation techniques,namely the discounted cash flow methodology and the market multiplemethodology.  The discounted cash flowmethodology assumes the fair value of an asset can be****estimated bythe economic benefit or net cash flows the asset will generate over the life ofthe asset, discounted to

9

----

**BLYTH, INC. ANDSUBSIDIARIES**

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

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

itspresent value. The discounting process uses a rate of return that accounts forboth the time value of money and investment risk factors.  The market multiple methodology estimatesfair value based on what other participants in the market have recently paidfor reasonably similar assets. Adjustments are made to compensate fordifferences between the reasonably similar assets and the assets being valued.If the fair value of the reporting unit exceeds the carrying value, no furtheranalysis is necessary. The fair value of the reporting units is derived bycalculating the average of the outcomes of the two valuation techniquesdescribed above.  If the carrying amountof the reporting unit exceeds its fair value, the second step is performed. Thesecond step compares the carrying amount of the goodwill to the estimated fairvalue of the goodwill. If fair value is less than the carrying amount, animpairment loss is reported as a reduction to the goodwill and a charge to operatingexpense.

Thefollowing table shows the carrying amount of goodwill, by operating segment,for the periods ended April 30, 2007 and January 31, 2007:

| (In thousands) | ** ** | **Direct Selling** | ** ** | **Catalog &  Internet** | ** ** | **Total** | ** ** |
|---------------------|------------|-------------------------|------------|----------------------------------|------------|-----------|------------|
| Goodwill            |       | $                       | 2,298      |                             | $          | 76,384    |       | $ | 78,682 |   |
|                     |            |                         |            |                                  |            |           |            |  |  |  |

 

Other intangible assets,all reported in the Catalog & Internet segment, consisted of the following:

|                                              | ** ** | **April 30, 2007** | ** ** | **January 31, 2007**      | ** ** |
|----------------------------------------------|------------|------------------------------|------------|-------------------------------------|------------|
| **(In thousands)**                      | ** ** | **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                       |       | 8,125                               |       | 6,875 |   | 15,000 |   | 7,750 |   | 7,250 |   |
| Total                                        |       | $                            | 43,100     |                                | $          | 8,125 |   | $ | 34,975 |   | $ | 43,100 |   | $ | 7,750 |   | $ | 35,350 |   |

 

Amortization expense forother intangible assets was $0.4 million and $0.5 million for the three monthsended April 30, 2007 and 2006, respectively. The estimated annual amortization expense for the fiscal 2008 is $1.5 million.  The estimated amortization expense for thenext five fiscal years beginning with fiscal 2009 is as follows:  $1.5 million, $1.1 million, $1.0 million,$0.8 million and $0.6 million.

 

10

----

**BLYTH,INC. AND SUBSIDIARIES**

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**7.             Earnings per Share**

The components of basicand diluted earnings per share are as follows:

|                                                         | ** ** | **Three months ended April 30,** | ** ** |
|---------------------------------------------------------|------------|------------------------------------------------------|------------|
| **(In thousands)**                                 | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| Net earnings  (loss)                                    |       | $                                                    | 11,732     |   | $ | (30,609 | ) |
| Weighted average  number of common shares outstanding:  |       |                                                 |       |   |   |
| Basic                                                   |       | 39,313                                               |       | 40,803 |   |
| Dilutive effect of stock options and restricted  shares |       | 359                                                  |       | 182 |   |
| Weighted average  number of common shares outstanding:  |       |                                                 |       |   |   |
| Diluted                                                 |       | 39,672                                               |       | 40,985 |   |
|                                                         |            |                                                      |            |  |  |  |  |

 

For the three-monthperiod ended April 30, 2007 and 2006, options to purchase 716,000 and 1,198,400shares of common stock, respectively, are not included in the computation ofearnings 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, 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   | ) |
|                                                           |       |       |       |       |       |
| Balance at  February 1, 2007                                   |       | 11,335,798 |       | $          | (323,714   | ) |
| Balance at April 30,  2007                                     |       | 11,335,798 |       | $          | (323,714   | ) |

 

| **Common Stock**                                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|------------|------------|
| Changes in  Common Stock were (In thousands, except shares):     | ** ** | **Shares** | ** ** | **Amount** | ** ** |
| Balance at  February 1, 2006                                     |       | 50,528,060 |       | $          | 1,010      |   |
| Balance at April  30, 2006                                       |       | 50,528,060 |       | $          | 1,010      |   |
|                                                             |       |       |       |       |       |
| Balance at  February 1, 2007                                     |       | 50,637,060 |       | $          | 1,013      |   |
| Common stock  issued in connection with long-term incentive plan |       | 74,300     |       | 1          |       |
| Balance at April 30,  2007                                       |       | 50,711,360 |       | $          | 1,014      |   |

 

11

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**BLYTH,INC. AND SUBSIDIARIES**

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**9.             Bank Lines of Credit**

On October 2, 2006, theCompany executed Amendment No. 1 (the “Amendment”) to its unsecured revolvingcredit facility (“Credit Facility”) dated as of June 2, 2005.  The Amendment (i) reduced the amountavailable for borrowing under the Credit Agreement from $150.0 million to $75.0million, (ii) changed the initial termination date from June 2, 2010 to June 1,2009, (iii) increased the rate of interest applicable to loans under the CreditAgreement and (iv) modified some of the covenants.  The Company has the ability to increase theamount available for borrowing, under certain circumstances, by an additional$50.0 million.  The Credit Facility maybe used for seasonal working capital needs and general corporate purposes,including strategic acquisitions. The Credit Facility contains, among otherprovisions, requirements for maintaining certain financial ratios andlimitations on certain payments.  As ofApril 30, 2007, the Company was in compliance with such provisions.  Amounts outstanding under the amended CreditFacility bear interest, at the Company’s option, at either the JPMorgan ChaseBank’s prime rate or the Eurocurrency rate plus a spread ranging from 0.80% to1.70% calculated on the basis of the Company’s senior unsecured long-term debt rating. Amounts available for borrowing under this facility were approximately$68.5 million as of April 30, 2007, reflecting $6.5 million in outstandingletters of credit.

**10**.          **Income Taxes**

The Company adopted theprovisions of FASB Interpretation No. 48, Accounting for Uncertainty in IncomeTaxes (“FIN 48”), on February 1, 2007. As a result of the adoption of FIN 48, the Company recognized anincrease of $6.1 million in the liability for unrecognized tax benefits and anasset of $3.3 million.  These amountswere accounted for as a net $2.8 million reduction to the Company’s February 1,2007 retained earnings balance.

As of the date of adoptionand after the impact of recognizing the increase in the liability noted above,the Company’s unrecognized tax benefits totaled $17.1 million.  Of that amount, $13.1 million, if recognized,would affect our effective tax rate.  Anyprospective adjustments to our reserves for income taxes will be recorded as anincrease or decrease to our provision for income taxes and would impact oureffective tax rate.

The Company will nowrecognize interest and penalties related to unrecognized tax benefits as acomponent of income tax expense. In the past interest and penalties werereflected as part of pre-tax income.  TheCompany will make a change in accounting principle related to interest andpenalties as part of the adoption of FIN 48. As of the adoption date, the Company has accrued interest of $2.6million and penalties of $3.3 million in relation to the above unrecognized taxbenefits.

The Company estimates thatwithin the next 12 months, the above indicated unrecognized tax benefits willbe decreased between $1.8 million and $1.9 million as of a result of the filingof amended tax returns, closing of statutes, and audit settlements.

Blyth, Inc. files income taxreturns in the U.S. federal jurisdiction, various state and localjurisdictions, and many foreign jurisdictions.  The number of years with open tax audits varies depending on the taxjurisdiction.  Our major taxingjurisdictions include the U.S., including state jurisdictions of Illinois andMassachusetts, Canada, Germany, and Switzerland.  In the U.S, we are not currently under auditby the Internal Revenue Service but we are open to examination for the fiscalyears 2005 through 2007.  We arecurrently under audit in the state of Illinois for the fiscal years 2002, 2003,& 2004 and are open to examination for the fiscal years 2005 through2007.  We are also currently under auditin the state of Massachusetts for the years fiscal years 2001, 2002, 2003,& 2004 and are open to examination for the fiscal years 2005 through2007.  In Canada, we are currently underaudit for fiscal years 2005 and 2006 and are open to examination for 2007.  In Germany, we are currently underexamination for the fiscal year 2004 and open to examination for fiscal years2005 through 2007.  In Switzerland, weare open to examination for fiscal year 2007. We do not anticipate that the resolution of the Illinois, Massachusetts,Canadian and German audits will materially impact our financial statements

12

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**BLYTH,INC. AND SUBSIDIARIES**

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**10**.          **Income Taxes***(continued*)

Of the $2.8 million net FIN48 retained earnings adjustment, $3.6 million liability relates to a potentialtax adjustment for which correlative relief would be available.  A corresponding tax asset of $3.3 million hasseparately been established on the balance sheet to record the benefit that theCompany would realize upon resolution of this issue through the competentauthority process.  The adjustment toreflect this asset has been recorded as an increase in retained earningsconcurrent with the FIN 48 retained earnings adjustment.

In the first quarter offiscal 2008 the Company recorded a $6.1 million reversal of a previouslyestablished valuation allowance against capital loss carryforwards.  This resulted from a capital gain generatedon the sale of certain assets and liabilities of the BHI business.

**11.          Stock Based Compensation**

**Summary of Plans**

Asof April 30, 2007, the Company had one active stock-based compensationplan, the 2003 Long-Term Incentive Plan (“2003 Plan”), available to grantfuture awards and two inactive stock-based compensation plans (the Amended andRestated 1994 Employee Stock Option Plan and the Amended and Restated 1994Stock Option Plan for Non-Employee Directors), under which vested andunexercised options remain outstanding. As of April 30, 2007, 6,500,100 shareswere authorized and approximately 3,600,000 shares were available for grantunder these plans.  The Company’s policy is to issue new shares of commonstock for all stock options exercised and restricted stock grants.

TheBoard of Directors and the stockholders of the Company have approved theadoption and subsequent amendments of the 2003 Plan. The 2003 Plan provides forgrants of 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 andemployees. The 2003 Plan also provides for grants of nonqualified stock optionsto directors of the Company who are not, and who have not been during theimmediately preceding 12-month period, officers or employees of the Company orany of its subsidiaries. Restricted stock and restricted stock units (“RSUs”)are granted to certain employees to incent performance and retention. RSUsissued under 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.

Thetotal compensation expense related to all stock-based compensation plans forthe three months ended April 30, 2007 and 2006 was approximately $0.6 millionand $0.3 million, respectively. The tax benefit recognized for the three monthsended April 30, 2007 and 2006 was approximately $0.2 million and $0.1 million,respectively.

**Impactof Adoption of 123(R)**

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

13

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**BLYTH, INC. ANDSUBSIDIARIES**

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

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

In accordance with themodified prospective transition method, the Company’s Condensed ConsolidatedFinancial Statements for prior periods have not been restated to reflect, anddo not include, the impact of SFAS 123(R). As a result of the adoption of SFAS123(R), $3.1 million of unearned compensation recorded in stockholders’ equityas of February 1, 2006 was reclassified to and reduced the balance ofadditional contributed capital.

**Transactions involving restrictedstock and RSUs are summarized as follows:**

|                                                          | ** ** | **Shares** | ** ** | **Weighted Average**Grant date Fair Value | ** ** | **Aggregate  Intrinsic Value**(In thousands) | ** ** | ** ** |
|----------------------------------------------------------|------------|------------|------------|---------------------------------------------------------------|------------|--------------------------------------------------------|------------|------------|
| Nonvested  restricted stock and RSUs at January 31, 2007 |       | 343,430    |       | $                                                             | 24.63      |                                                   |       |       |   |
| Granted                                                  |       | —     |       | —                                                        |       |                                                   |       |       |
| Vested                                                   |       | —     |       | —                                                        |       |                                                   |       |       |
| Forfeited                                                |       | (6,900     | )          | 24.71                                                         |       |                                                   |       |       |
| Nonvested  restricted stock and RSUs at April 30, 2007   |       | 336,530    |       | $                                                             | 24.63      |                                                   | $          | 8,783      |   |   |
| Total restricted stock  and RSUs at April 30, 2007       |       | 355,030    |       | $                                                             | 25.02      |                                                   | $          | 9,266      |   |   |

 

Compensation expenserelated to restricted stock and RSUs for three months ended April 30, 2007 and2006 was approximately $0.6 million and $0.3 million, respectively.   There were no grants of restricted stock andRSUs in the first quarter of fiscal 2008.

As of April 30, 2007,there was $5.2 million of unearned compensation expense related to non-vestedrestricted stock and RSU awards. This cost is expected to be recognized over aweighted average period of 2.32 years. As of April 30, 2007, approximately 0.3million restricted stock awards with a weighted average grant date fair valueof $24.63 are expected to vest.  Thetotal unrecognized stock-based compensation cost to be recognized in futureperiods as of April 30, 2007 does not consider the effect of stock-based awardsthat may be issued in subsequent periods.

**Transactions involving stockoptions are summarized as follows:**

|                                  | ** ** | **Option  Shares** | ** ** | **Weighted Average  Exercise Price** | ** ** | **Weighted Average  Remaining  Contractual Life** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
|----------------------------------|------------|--------------------|------------|--------------------------------------|------------|---------------------------------------------------|------------|--------------------------------|------------|
| Outstanding at  January 31, 2007 |       | 877,500            |       | 26.32                                |       | 4.56                                              |       |                           |       |
| Options granted                  |       | —             |       | —                               |       |                                              |       |                           |       |
| Options exercised                |       | (74,300            | )          | 24.13                                |       |                                              |       |                           |       |
| Options forfeited and expired    |       | (55,167            | )          | 24.71                                |       |                                              |       |                           |       |
| Outstanding at  April 30, 2007   |       | 748,033            |       | $                                    | 26.66      |                                              | 4.13       |                           | $          | 598,000 |   |
| Exercisable at April  30, 2007   |       | 740,533            |       | $                                    | 26.73      |                                              | 4.13       |                           | $          | 546,000 |   |

 

At April 30, 2007 andJanuary 31, 2007, options to purchase 740,533 and 860,000 shares, respectively,were exercisable.  There were no optionsgranted in the first quarter of fiscal 2008.

The compensation benefitfor the three months ended April 30, 2007 related to stock options wasapproximately $4 thousand. As of April 30, 2007, $34 thousand of totalunrecognized compensation cost related to stock options is expected to berecognized over a weighted average period of 2.1 years.  All outstandingstock options at April 30, 2007 are expected to vest.

 

14

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**BLYTH, INC. ANDSUBSIDIARIES**

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

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

**OtherInformation**

Authorized unissuedshares may be used under the stock-based compensation plans. The Companyintends to issue shares of its common stock to meet the stockrequirements of its awards in the future.

**12.          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 theglobal Home Expressions industry, and our products can be found throughoutNorth America, Europe and Australia.  Ourfinancial results are reported in three segments - the Direct Selling segment,the Catalog & Internet segment and the Wholesale segment.  These reportable segments are based onsimilarities in distribution channels, customers and management oversight.

Duringfiscal 2007 there was a change in our senior management structure with thedeparture of our Wholesale segment President. Our Catalog & Internet segment President assumed responsibility forthe Wholesale segment in addition to his current responsibilities.  We refer to this new reporting structure asthe Multi-channel Group, which includes our Catalog & Internet andWholesale segments.  For segmentreporting purposes, Blyth continues to report individual segment operatingresults for the Direct Selling, Catalog & Internet and Wholesale segments.

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.  TheCompany also operates a small Direct Selling business, Two Sisters GourmetTM, which is focused on selling gourmet foods.  All direct selling products are sold directlyto the consumer through a network of independent sales consultants using theparty plan method of direct selling. PartyLite® brand products are sold in North America, Europe andAustralia.  Two Sisters GourmetTM brandproducts are sold in North America.

Within the Catalog &Internet segment, the Company designs, sources and markets a broad range ofhousehold convenience items, premium photo albums, frames, holiday cards,personalized gifts, kitchen accessories and gourmet coffee and tea.  These products are sold directly to theconsumer under the Boca JavaTM, Easy ComfortsTM, Exposuresâ,Home Marketplace®, Miles Kimballâ and Walter Drakeâbrands.  These products are sold in NorthAmerica.

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 and trim and home décor products such aspicture frames, lamps and textiles. Products in this segment are sold primarily in North America to retailersin the premium and specialty channels under the CBK®, Colonial Candle of CapeCod®, Colonial at HOMEâ and Seasons of Cannon Falls®brands.  In addition, chafing fuel andtabletop lighting products and accessories for the Away From Home orfoodservice trade are sold through this segment under the Ambria®, HandyFuelTMand Sterno® brands.

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

15

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**BLYTH, INC. ANDSUBSIDIARIES**

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**12.          Segment Information***(continued)*
| ** **                                                     | ** ** | **Three months ended April 30,** | ** ** |
|----------------------------------------------------------------|------------|------------------------------------------------------|------------|
| **(In thousands)**                                        | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| **Net  Sales**                                                 |       |                                                 |       |   |   |
| Direct Selling                                                 |       | $                                                    | 160,244    |   | $ | 164,989 |   |
| Multi-channel  Group:                                          |       |                                                 |       |   |   |
| Catalog & Internet                                         |       | 39,896                                               |       | 36,490 |   |
| Wholesale                                                      |       | 70,227                                               |       | 78,768 |   |
| Subtotal  Multi-channel Group                                  |       | 110,123                                              |       | 115,258 |   |
| **Total**                                                      |       | $                                                    | 270,367    |   | $ | 280,247 |   |
| **Operating  profit (loss)**                                   |       |                                                 |       |   |   |
| Direct Selling                                                 |       | $                                                    | 26,931     |   | $ | 20,556 |   |
| Multi-channel  Group:                                          |       |                                                 |       |   |   |
| Catalog & Internet                                         |       | (2,153                                               | )          | (3,762 | ) |
| Wholesale                                                      |       | (8,122                                               | )          | (2,731 | ) |
| Subtotal  Multi-channel Group                                  |       | (10,275                                              | )          | (6,493 | ) |
|                                                           |       | 16,656                                               |       | 14,063 |   |
| Other expense                                                  |       | (1,184                                               | )          | (2,426 | ) |
| **Earnings  (loss) before income taxes and minority interest** |       | $                                                    | 15,472     |   | $ | 11,637 |   |
| ** **                                                     | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| ** **                                                     | ** ** | **April 30, 2007**                                   | ** ** | **January 31, 2007** | ** ** |
| **Identifiable Assets**                                        |       |                                                 |       |   |   |
| Direct Selling                                                 |       | $                                                    | 251,134    |   | $ | 238,194 |   |
| Multi-channel Group:                                           |       |                                                 |       |   |   |
| Catalog & Internet                                         |       | 154,975                                              |       | 152,068 |   |
| Wholesale                                                      |       | 157,184                                              |       | 181,384 |   |
| Subtotal Multi-channel Group                                   |       | 312,159                                              |       | 333,452 |   |
| Unallocated Corporate                                          |       | 218,564                                              |       | 202,992 |   |
| ** Total**                                                |       | $                                                    | 781,857    |   | $ | 774,638 |   |

 

**13.          Contingencies**

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

16

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**Item 2.**    MANAGEMENT’S DISCUSSION AND ANALYSIS OF

**FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

**RESULTS OF OPERATIONS:**

**Overview**

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

Today, annualized netsales are comprised of an approximately $700 million Direct Selling business,an approximately $200 million Catalog & Internet business and anapproximately $250 million Wholesale business. Sales and earnings growth differ in each segment depending on geographiclocation, market penetration, our relative market share and product and marketingexecution, among other business factors. Over the long term, all three segments should experience single-digitgrowth, most likely within the low to mid-single digit range, again dependingon the business factors previously noted in the January 31, 2007 Form 10-K.

Our current focus is drivingsales growth of our brands so we may more fully leverage ourinfrastructure.  New product developmentcontinues to be critical to all three segments of our business.  In the Direct Selling segment, monthly salesand productivity incentives are designed to attract, retain and increase theearnings opportunity of independent sales consultants.  In the Catalog & Internet segment,product, merchandising and circulation strategy are designed to drive strongsales growth in newer brands and expand further the sales and customer base ofour flagship brands.  In the Wholesalesegment, sales initiatives are targeted to independent retailers and nationalaccounts.

**RecentDevelopments**

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

In accordance with thisintention to explore strategic alternatives with respect to our EuropeanWholesale businesses, (a) on April 12, 2006, we sold Kaemingk B.V. (“Kaemingk”)to an entity controlled by the management of this business, (b) on June 16,2006, we sold Edelman B.V. (“Edelman”) and Euro-Decor B. V. (“Euro-Decor”) toan entity with which members of the management of Edelman and Euro-Decor areaffiliated, (c) on August 17, 2006, we sold the Gies Group and (d) on December20, 2006, we sold Colony Gifts Corporation Ltd. (“Colony”). Accordingly, theresults of operations for Kaemingk, Edelman, Euro-Decor, Gies and Colony havebeen reclassified as discontinued operations for all periods presented.

On April 27, 2007, wesold certain assets and liabilities of our Blyth HomeScents International (“BHI”)North American mass channel candle business, which was part of the Wholesalesegment.  The business was sold for $24.0million of which $21.8 million was received at closing and the remaining $2.2million, which is based on a working capital adjustment, is expected to bereceived in the second quarter of fiscal 2008. As stated in the asset sale agreement, the buyer has the right to reviewand challenge the working capital adjustment as calculated by the Company.  The sale resulted in a pre-tax loss of $0.5million, which is recorded on the Administrative and other line in theCondensed Consolidated Statements of Earnings (Loss).

17

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**Item2**.    MANAGEMENT’SDISCUSSION AND ANALYSIS OF

**FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

**Resultsof operations:***(continued)*

**NetSales**

NetSales in the three months ended April 30, 2007 decreased $9.8 million, orapproximately 3%, to $270.4 million from $280.2 million in the first quarter offiscal 2007.  The decrease is primarily aresult of a shortfall of sales within the Wholesale segment.

NetSales – Direct Selling Segment

Net Sales in the DirectSelling segment for the quarter ended April 30, 2007 decreased $4.8 million, or3%, to $160.2 million from $165.0 million in the quarter ended April 30,2006.  PartyLite’s U.S. sales decreasedapproximately 14% compared to the prior year due to a decline in the number ofsales consultants.  PartyLite Canadareported an approximate 9% increase in sales as measured in U.S. Dollars, a 10%increase in sales in local currency, versus the prior year.  In PartyLite’s European markets, salesincreased approximately 17% in U.S. Dollars, 8% increase in sales in localcurrency, as a result of an increase in the number of consultants in most ofits geographic markets.

Net Sales – Catalog &Internet Segment

NetSales in the Catalog & Internet segment increased $3.4 million, or 9%, to$39.9 million in the quarter ended April 30, 2007, from $36.5 million in thesame period in fiscal 2007.  Thisincrease was primarily due to increased sales in our Boca Java business as aresult of investment in new member acquisitions as well as the Walter Drake,Easy Comforts, Exposures and Home Marketplace catalogs.

Net Sales – Wholesale Segment

**Net Sales in the Wholesale segment in the quarter endedApril 30, 2007 decreased $8.6 million, or approximately 11%, to $70.2 millionfrom $78.8 million in the same period a year earlier. The decrease in sales isthroughout all of the wholesale businesses due to market softness and theplanned sales reduction in the mass candle business.**

**GrossProfit**

Gross profit increased$0.4 million, or 0.3% to $141.7 million in the quarter ended April 30, 2007from $141.3 million in the quarter ended April 30, 2006.  Gross profit margin increased to 52.4% forthe first quarter of fiscal 2008 from 50.4% in the first quarter of fiscal 2007. This increase is attributable to higher sales in our PartyLite Europeand PartyLite Canada markets as well as price increases and margin improvementsin both the Direct Selling and Catalog & Internet segments on newerproducts. These items were partially offset by sales shortfalls and highercommodity costs experienced in other businesses.

**SellingExpense**

**Selling expense decreased $3.5 million,or 4%, to $93.6 million in the first three months of fiscal 2008, when sellingexpense was 34.6% of net sales, from $97.1 million in the same period in fiscal2007, or 34.7% of net sales.  Thedecrease in selling expense in dollars is primarily due to reduced sales andthe related reduction in variable selling expenses and the positive effects ofcost management initiatives.**

**Administrativeand Other Expense**

**Administrative and other expense increased $1.2million, or 4%, to $31.4 million in the first three months of fiscal 2008 from$30.2 million in the same period of fiscal 2007.  As a percent of sales, administrative expensewas 11.6% in the first three months of fiscal 2008 versus 10.8% in the sameperiod of fiscal 2007.  Included in theadministrative and other expense for the three months ended April 30, 2007 isthe $0.5 million loss on sale of BHI assets.**

18

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**Item2.    MANAGEMENT’S DISCUSSION AND ANALYSISOF**

**FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

**Resultsof operations: **(*continued*)

**Operating Profit (Loss)**

Operatingprofit increased $2.6 million to $16.7 million in the first three months offiscal 2008 from $14.1 million in the same period of fiscal 2007.    The increase in operating profit is aresult of increased sales in the PartyLite Europe and PartyLite Canada marketsas well as price increases, cost savings initiatives and margin improvementsthroughout several businesses.

Operating Profit – Direct SellingSegment

Operatingprofit in the Direct Selling segment****for the first three months of fiscal 2008increased $6.3 million, or 31%, to $26.9 million from $20.6 million in the sameperiod a year earlier.  The increase isprimarily due to increased sales in PartyLite Europe and Canada as well asgross margin improvement from price increases and lower product costs withinPartyLite U.S. which offset the sales shortfall.

Operating Loss – Catalog &Internet Segment

Operatingloss in the quarter ended April 30, 2007 in the Catalog & Internet segment was $2.2 million compared to$3.8 million in the same period a year earlier. The improvement is related to the previously mentioned increase in salesas well as price increases and margin improvements.

Operating Loss – WholesaleSegment

Operating loss in thequarter ended April 30, 2007 in the Wholesale segment was $8.1 million versus aloss of $2.7 million the same period a year earlier.  The decreased profitability is a result oflower sales throughout the segment as well as increases in commodity costs.  Additionally, included in the operating lossfor the period ended April 30, 2007 are $0.8 million in restructuring chargesrelated to the North American mass candle business and $0.5 million loss on thesale of certain assets and liabilities of BHI.

**InterestExpense**

Interest expensedecreased approximately $1.0 million, or 21%, to $3.7 million in the first three months offiscal 2008 from $4.7million in the same period of fiscal 2007, due to a decrease in borrowings.

**IncomeTaxes**

Income tax expenseincreased $0.2 million, or 6%, to $3.7 million in the first three months offiscal 2008 from $3.5million in the same period in the prior fiscal year.  The effective tax rate for the three monthsended April 30, 2007 was approximately 24.0% compared to 29.7% in the prioryear.  The effective tax rate for the firstquarter of fiscal 2008 was favorably impacted by the reversal of a previouslyestablished valuation allowance against capital loss carryforwards which waspartially offset by taxes on unremitted foreign earnings. The valuationallowance was reversed as a result of a capital gain generated on the sale ofcertain assets and liabilities of the BHI business.

**Earningsfrom Continuing Operations**

Earnings from continuingoperations increased $3.6 million, or 44%, to $11.7 million in the first three months offiscal 2008 from $8.1million for the same period in fiscal 2007.

Basic and dilutedearnings per share from continuing operations for the quarter ended April 30,2007, were $0.30, an increase of $0.10 compared to $0.20 for the quarter endedApril 30, 2006.

19

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**Item2**.    MANAGEMENT’SDISCUSSION AND ANALYSIS OF

**FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

**Lossfrom Discontinued Operations**

**The loss from discontinued operations, net of tax,for the three months ended April 30, 2006 was $38.8 million, or $0.95 per dilutedshare.  The loss includes a non-taxdeductible loss of $18.4 million on the sale of Kaemingk and a goodwillimpairment charge of $16.7 million for the Edelman and Euro-Decor businesses.  Also, the loss includes operating losses forthe businesses of $3.7 million for the three months ended April 30, 2006.  There was no income or loss from discontinuedoperations for the three months ended April 30, 2007.**

**Liquidityand Capital Resources**

Cash and cash equivalentsincreased $21.4 million to $125.2 million at April 30, 2007 from $103.8 millionat January 31, 2007. The increase in cash during the first three months offiscal 2008 was primarily related to proceeds received from the sale of theNorth American mass channel home fragrance business.

Net cash provided byoperations was $0.3 million for the first three months of fiscal 2008 comparedto a use of cash of $0.4 million in the prior year period. Earnings fromcontinuing operations increased $3.6 million to $11.7 million primarily due toincreased earnings in our Direct Selling segment. Included in earnings werenon-cash charges for depreciation and amortization of $7.0 million. Net changesin operating assets and liabilities decreased cash by $24.2 million.

Net cash provided byinvesting activities was $23.3 million. Capital expenditures for property,plant and equipment were $2.4 million for the first three months of fiscal 2008compared to $2.7 million in the prior year period.  In the prior year, the Company experiencedincreased expenditures related to the expansion of PartyLite’s Europeandistribution center.  The Companyreceived proceeds from the sale of certain assets and liabilities of the BHIbusiness of $21.8 million and proceeds from the sale of one of our EuropeanWholesale discontinued operations of $0.5 million in the first three months offiscal 2008.

Net cash used infinancing activities was $2.2 million. This was primarily due to the reduction of the Company’s long-term debtand capital lease obligations of $4.0 million which was offset by the proceedsfrom the issuance of the Company’s common stock upon exercise of stock optionsof $1.8 million.

The Company anticipatestotal capital spending of approximately $13.0 million for fiscal 2008 orapproximately $5.0 million less than fiscal year 2007 due to the ongoing effortto reduce spending on manufacturing facilities, while moving to more of anoutsourced product supply model. The Company has grown in part throughacquisitions and, as part of its growth strategy, the Company expects to continuefrom time to time in the ordinary course of its business to evaluate and pursueacquisition opportunities as appropriate. The Company believes our financing needs in the short and long term canbe met from cash generated internally and through our borrowing capacity fromour existing credit agreements.

On October 2, 2006, theCompany executed Amendment No. 1 (the “Amendment”) to its unsecured revolvingcredit facility (“Credit Facility”) dated as of June 2, 2005.  The Amendment (i) reduced the amount availablefor borrowing under the Credit Agreement from $150.0 million to $75.0 million,(ii) changed the initial termination date from June 2, 2010 to June 1, 2009,(iii) increased the rate of interest applicable to loans under the CreditAgreement and (iv) modified some of the covenants.  The Company has the ability to increase theamount available for borrowing, under certain circumstances, by an additional$50.0 million.  The Credit Facility maybe used for seasonal working capital needs and general corporate purposes,including strategic acquisitions. The Credit Facility contains, among otherprovisions, requirements for maintaining certain financial ratios andlimitations on certain payments.  As ofApril 30, 2007, the Company was in compliance with such provisions.  Amounts outstanding under the amended CreditFacility bear interest, at the Company’s option, at either the JPMorgan ChaseBank’s prime rate or the Eurocurrency rate plus a spread ranging from 0.80% to1.70% calculated on the basis of the Company’s senior unsecured long-term debt rating. Amounts available for borrowing under this facility were approximately$68.5 million as of April 30, 2007, reflecting $6.5 million in outstanding lettersof credit.

 

20

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**Item 2.**    MANAGEMENT’S DISCUSSION AND ANALYSIS OF

**FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

**Liquidity andCapital Resources***(continued)*

As of April 30, 2007, theCompany had a total of $2.0 million available under an uncommitted facilitywith LaSalle Bank National Association, to be used for letters of creditthrough November 30, 2007.  As of April30, 2007, approximately $0.1 million of letters of credit were outstandingunder this facility.

As of April 30, 2007, theCompany had a total of $2.0 million available under an uncommitted facilitywith Bank of America, to be used for letters of credit through January 31,2008.  As of April 30, 2007, no lettersof credit were outstanding under this facility.

In May 1999, the Companyfiled a shelf registration statement for issuance of up to $250.0 million indebt securities with the Securities and Exchange Commission.  On September 24, 1999, the Company issued$150.0 million of 7.90% Senior Notes due October 1, 2009 at a discount ofapproximately $1.4 million, which is being amortized over the life of thenotes. In fiscal 2007, the Company repurchased $52.1 million of thesenotes.  Such notes contain, among otherprovisions, restrictions on liens on principal property or stock issued tocollateralize debt.  At April 30, 2007,the Company was in compliance with such provisions.  Interest is payable semi-annually in arrearson April 1 and October 1.  On October 20,2003, the Company issued $100.0 million of 5.50% Senior Notes due on November1, 2013 at a discount of approximately $0.2 million, which is being amortizedover the life of the notes.  Such notescontain provisions and restrictions similar to those in the 7.90% SeniorNotes.  At April 30, 2007, the Companywas in compliance with such provisions. Interest is payable semi-annually in arrears on May 1 and November1.  The notes may be redeemed in whole orin part at any time at a specified redemption price.  The proceeds of the debt issuances were usedfor general corporate purposes.

As of April 30, 2007, MilesKimball had approximately $8.9 million of long-term debt outstanding under areal estate mortgage note payable to John Hancock Life Insurance Company, whichmatures June 1, 2020.  Under the terms ofthe note, payments of principal and interest are required monthly at a fixedinterest rate of 7.89%.

As of April 30,2007, CBK had $4.2 million of long-term debt outstanding under an IndustrialRevenue Bond (“IRB”), which matures on January 1, 2025.  The bond is backed by an irrevocable letterof credit issued by LaSalle Bank National Association.  The loan is collateralized by certain of CBK’sassets.  The amount outstanding under theIRB bears interest at short-term floating rates, which equaled a weightedaverage interest rate of 5.3% at April 30, 2007.  Payments of principal are required annuallyand interest payments are required monthly under the terms of the bond.

On June 7, 2006, theCompany’s Board of Directors amended the stock repurchase program and increasedthe number of shares of common stock authorized to be repurchased by 6,000,000shares to 12,000,000 shares.  No shareshave been repurchased since January 31, 2007. As of April 30, 2007, the Companyhas purchased a cumulative total of 6,429,182 shares for approximately $149.6million.  Additionally, in fiscal 2005,4,906,616 shares were repurchased through a Dutch auction cash tender offer foran aggregate purchase price of $172.6 million, including fees andexpenses.  The acquired shares are heldas common stock in treasury at cost.

On March 27, 2007, theCompany announced that it had declared a cash dividend of $0.27 per share ofcommon stock.  The dividend authorized atthe Company’s March 27, 2007 Board of Directors meeting was payable toshareholders of record as of May 1, 2007, and was paid on May 15, 2007.  The total payment was $10.6 million.

**Critical AccountingPolicies**

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

21

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**Item 2.**    MANAGEMENT’SDISCUSSION AND ANALYSIS OF

**FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

**RecentAccounting Pronouncements**

During the first quarter of fiscal 2007, the FinancialAccounting Standards Board (FASB) issued SFAS No. 155, “Accounting forCertain Hybrid Financial Instruments — an amendment of FASB Statements No. 133and 140” (SFAS No. 155) and SFAS No. 156, “Accounting for Servicingof Financial Instruments — an amendment of FASB Statement No. 140” (SFASNo. 156). SFAS No. 155 requires that interests in securitizedfinancial assets be evaluated to determine whether they contain embeddedderivatives, and permits the accounting for any such hybrid financialinstruments as single financial instruments at fair value with changes in fairvalue recognized directly in earnings. SFAS No. 156 specifies thatservicing assets or liabilities recognized upon the sale of financial assetsmust be initially measured at fair value, and subsequently either measured atfair value or amortized in proportion to and over the period of estimated netservicing income or loss. The Company adopted both standards onFebruary 1, 2007 and there was no impact on the Company’s consolidated financial position, annual resultsof operations or cash flows.

In July 2006, the FASBissued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.” This Interpretation requires that a recorded tax benefit must be more likelythan not to be sustained upon examination by tax authorities based upon itstechnical merits.  The amount of benefit recorded is the largest amount ofbenefit that is greater than 50 percent likely of being realized upon ultimatesettlement.  Upon adoption, any adjustment will be recorded directly tobeginning retained earnings. The Company adopted the Interpretation as ofFebruary 1, 2007 and the effect on the financial statements is disclosed inNote 10 to the Condensed Consolidated Financial Statements.

InSeptember 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFASNo. 157).  SFAS No. 157 defines fairvalue, establishes a framework for measuring fair value in generally acceptedaccounting principles, and expands disclosures regarding fair valuemeasurements.  SFAS No. 157 applies underother accounting pronouncements that require or permit fair valuemeasurements.  Accordingly, SFAS No. 157does not require any new fair value measurements.  SFAS No. 157 is effective for fiscal yearsbeginning after November 15, 2007.   TheCompany has not yet adopted the standard and the effect, if any, on the Company’sconsolidated financial position, annual results of operations or cash flows hasnot been determined.

InFebruary 2007, the FASB issued Statement of Financial Accounting Standards No.159, “The Fair Value Option for Financial Assets and Financial Liabilities,including an amendment of FASB Statements No. 115” (SFAS No. 159).  SFAS No. 159 permits entities to choose, atspecified election dates, to measure eligible items at fair value (the “fairvalue option”).  A business entity shallreport unrealized gains and losses on items for which the fair value option hasbeen elected in earnings at each subsequent reporting period.  This accounting standard is effective as ofthe beginning of an entity’s first fiscal year that begins after November 15,2007.  The effect, if any, of adoptingSFAS No. 159 on the Company’s consolidated financial position, annual resultsof operations or cash flows has not yet been determined.

22

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

**MarketRisk**

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

**InterestRate Risk**

TheCompany is subject to interest rate risk on both variable rate debt and itsinvestments in auction rate securities. As of April 30, 2007, the company is subject to interest rate risk onapproximately $4.2 million of variable rate debt.  A 1-percentage point increase in the interestrate would impact pre-tax earnings by approximately $40 thousand if applied tothe total.  As of April 30, 2007, theCompany held $126.3 million of short-term investments, which consist of auctionrate securities and variable rate demand obligations.  A 1-percentage point decrease in the rate ofreturn would impact pre-tax earnings by approximately $1.3 million if appliedto the total.

On July 10, 2003, theCompany 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 adeferred gain of approximately $5.0 million, which is being amortized over theremaining term of the notes.  At April 30,2007, there was $1.9 million remaining to be amortized.

**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 foreign denominated loans. The Company does not hold or issuederivative financial instruments for trading purposes.

The Company hasdesignated its forward exchange and options contracts on forecastedintercompany purchases and future purchase commitments as cash flow hedges and,as such, as long as the hedge remains effective and the underlying transactionremains probable, the effective portion of the changes in the fair value ofthese contracts will be recorded in OCI until earnings are affected by thevariability of the cash flows being hedged. With regard to commitments for inventory purchases, upon payment of eachcommitment, the underlying forward contract is closed and the correspondinggain or loss is transferred from accumulated OCI and is included in themeasurement of the cost of the acquired asset. If a hedging instrument is sold or terminated prior to maturity, gainsand losses are deferred in accumulated OCI until the hedged item issettled.  However, if the hedged item isno longer likely to occur, the resultant gain or loss on the terminated hedge isrecognized into earnings immediately. Amounts included in accumulated OCI at April 30, 2007 are $0.3 millionand are expected to be transferred into earnings within the next twelve monthsupon payment of the underlying commitment.

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

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

23

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**Item 3.** QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK

**ForeignCurrency Risk***(continued)*

The following table provides information about the Company’s foreignexchange forward and options contracts at April 30, 2007:

| (In thousands, except average contract rate) | ** ** | **U.S. Dollar  Notional Amount** | ** ** | **Average  Contract Rate** | ** ** | **Estimated  Fair Value** | ** ** |
|-----------------------------------------------------------------------|------------|--------------------------------------------|------------|---------------------------------|------------|--------------------------------|------------|
| Canadian Dollar                                                       |       | $                                          | 12,350     |                            | 0.88       |                           | $          | (412 | ) |
| Euro                                                                  |       | 7,200                                      |       | 1.33                            |       | (78                            | )          |
|                                                                  |       | $                                          | 19,550     |                            |       |                           | $          | (490 | ) |

 

The foreign exchange contracts outstanding have maturity dates throughFebruary 2008.

24

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**Item 4.** CONTROLS AND PROCEDURES

(a)Evaluation of disclosure controls and procedures.

Ourmanagement, with the participation of our principal executive officer and ourprincipal financial officer, evaluated the effectiveness of our disclosurecontrols and procedures (as defined in Securities Exchange Act of 1934 (“ExchangeAct”) Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by thisquarterly report as required by paragraph (b) of Exchange Act Rules 13a-15 or15d-15.  Based upon this evaluation, ourprincipal executive officer and our principal financial officer have concludedthat our disclosure controls and procedures are effective as of April 30, 2007.

(b)Changes in internal control over financial reporting.

Therehave been no changes in our internal control over financial reportingidentified in connection with the evaluation required by paragraph (d) ofExchange Act Rules 13a-15 or 15d-15 that occurred during the first quarter offiscal 2008 that has materially affected, or are reasonably likely tomaterially affect, our internal control over financial reporting.

25

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**Part II.** OTHER INFORMATION

**Item 1.    LegalProceedings**

None.

**Item 1A. Risk Factors**

There have been nochanges to the risks described in the Company’s Annual Report on Form 10-K forthe fiscal year ended January 31, 2007 except as follows:

Dependence on KeyCorporate Management Personnel

Our success depends inpart on the contributions of key corporate management, including our Chairmanand Chief Executive Officer, Robert B. Goergen, as well as members of theOffice of the Chairman:  Robert H.Barghaus, Vice President and Chief Financial Officer; Robert B. Goergen Jr.,Vice President and President, Multi-Channel Group; and Anne M. Butler, VicePresident and President PartyLite Worldwide. We do not have employment contracts with any of our key corporatemanagement personnel, except the Chairman and Chief Executive Officer, nor dowe maintain any key person life insurance policies.  The loss of any of the key corporatemanagement personnel could have a material adverse effect on us.

 

26

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**Part II. OTHER INFORMATION *(continued)***

**Item 2.    UnregisteredSales of Equity Securities and 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 endingJanuary 31, 2008.

##### **ISSUER PURCHASES OF EQUITY SECURITIES****1**

| **Period**                                  | ** ** | **(a) Total   Number of   Shares   Purchased** | ** ** | **(b) Average   Price Paid  per Share** | ** ** | **(c) Total   Number of   Shares   Purchased as   Part of Publicly  Announced  Plans or   Programs** | ** ** | **(d) Maximum Number (or   Approximate Dollar   Value) of Shares that May   Yet Be Purchased Under   the Plans or Programs** |
|---------------------------------------------|------------|------------------------------------------------|------------|-----------------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------|
|                                        |       |                                           |       |                                    |       |                                                                                                 |       |                                                                                                                         |
| February 1, 2007 —   February 28, 2007 |       | 0                                              |       | —                                  |       | 0                                                                                                    |       | 5,570,818 shares                                                                                                             |
|                                        |       |                                           |       |                                    |       |                                                                                                 |       |                                                                                                                         |
| March 1, 2007 —   March 31, 2007       |       | 0                                              |       | —                                  |       | 0                                                                                                    |       | 5,570,818 shares                                                                                                             |
|                                        |       |                                           |       |                                    |       |                                                                                                 |       |                                                                                                                         |
| April 1, 2007 —   April 30, 2007       |       | 0                                              |       | —                                  |       | 0                                                                                                    |       | 5,570,818 shares                                                                                                             |
|                                        |       |                                           |       |                                    |       |                                                                                                 |       |                                                                                                                         |
| Total                                       |       | 0                                              |       | —                                  |       | 0                                                                                                    |       | 5,570,818 shares                                                                                                             |

 

1OnSeptember 10, 1998, the Company’s Board of Directors approved the Company’sshare repurchase program (the “Repurchase Program”) pursuant to which theCompany was authorized to repurchase up to 1,000,000 shares of its issued andoutstanding Common Stock in open market transactions.  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’sBoard of Directors further amended the Repurchase Program and increased thenumber of shares of Common Stock to be repurchased by 1,000,000 shares, from2,000,000 to 3,000,000 shares.  OnDecember 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 ofDirectors further amended the Repurchase Program and increased the number ofshares of Common Stock to be repurchased by 2,000,000 shares, from 4,000,000 to6,000,000 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, 2007, the Company haspurchased a total of 6,429,182 shares of Common Stock under the RepurchaseProgram.  The Repurchase Program does nothave an expiration date.  The Companyintends to make further purchases under the Repurchase Program from time totime.

**Item 3.    Defaultsupon Senior Securities**

None

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

None

**Item 5.    Other Information**

None

27

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**Part II. **OTHER INFORMATION*(continued)*

**Item 6.   Exhibits**

Exhibits
|   | 10.1   | Asset Purchase Agreement between MVP Group  International, Inc. and Candle Corporation of   America dated as of April 27, 2007.          |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                     |
|   | 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.                |

** **

28

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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 11, 2007 |                                       | By:    |  /s/Robert B. Goergen  |   |
|   |          | Robert B. Goergen                          |   |                        |   |
|   |          | Chairman and Chief Executive Officer       |   |                        |
|   |          |                                       |   |                        |   |
|   |          |                                       |   |                        |   |
|   |          |                                       |   |                        |   |
| Date:  | June 11, 2007 |                                       | By:    |  /s/Robert H. Barghaus |   |
|   |          | Robert H. Barghaus                         |   |                        |   |
|   |          | Vice President and Chief Financial Officer |   |                        |
|   |          |                                       |   |                        |   |
|        |               |                                            |        |                             |        |  |  |  |  |  |

 

29

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