Tableof Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WashingtonD.C. 20549**

 

**FORM 10-Q**

** **

**(Mark One)**

 

**x****                             ****QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934**

 

## **For the quarterly period ended July 31, 2008**

**or**

 

**o****                                ****TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934**

 

**For thetransition period from                            to                            **

 

**CommissionFile Number 1-13026**

 

**BLYTH,INC.**

(Exact name ofregistrant as specified in its charter)

 

| **DELAWARE**                                                    | ** ** | **36-2984916**                     |
|-----------------------------------------------------------------|------------|------------------------------------|
| (State or other  jurisdiction of incorporation or organization) |       | (IRS Employer  Identification No.) |

 

| **One East Weaver Street, Greenwich, Connecticut  06831**                                                                            |
|--------------------------------------------------------------------------------------------------------------------------------------|
| **(Address of principal executive offices)             **(Zip Code) |

### ** **

**(203)661-1926**

(Registrant’stelephone number, including area code)

 

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

 

Yes   x                  No   o

 

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

 

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

 

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

 

Yes   o                  No   x

 

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

 

**35,563,940Common Shares as of August 31, 2008**

 

 

 

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**BLYTH, INC.**

** **

#### **INDEX**

#### ** **

| ** **    | ** **                                                                                  | **Page** |
|---------------|---------------------------------------------------------------------------------------------|----------|
|          |                                                                                        |     |
| Part I.  | Financial Information                                                                       |     |
|          |                                                                                        |
| Item 1.       | Financial Statements (Unaudited):                                                           |     |
|          |                                                                                        |
|          | Condensed  Consolidated Balance Sheets                                                      | 3        |
|          |                                                                                        |     |
|          | Condensed Consolidated Statements of Earnings                                               | 4-5      |
|          |                                                                                        |     |
|          | Condensed  Consolidated Statements of Stockholders’ Equity                             | 6        |
|          |                                                                                        |     |
|          | Condensed  Consolidated Statements of Cash Flows                                            | 7        |
|          |                                                                                        |     |
|          | Notes to  Condensed Consolidated Financial Statements                                       | 8-20     |
|          |                                                                                        |
| Item 2.       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 21-27    |
|          |                                                                                        |     |
| Item 3.       | Quantitative  and Qualitative Disclosures About Market Risk                                 | 28-29    |
|          |                                                                                        |     |
| Item 4.       | Controls and  Procedures                                                                    | 30       |
|          |                                                                                        |
| Part II. | Other Information                                                                           |     |
|          |                                                                                        |
| Item 1.       | Legal Proceedings                                                                           | 31       |
|          |                                                                                        |     |
| Item 1A.      | Risk Factors                                                                                | 31       |
|          |                                                                                        |     |
| Item 2.       | Unregistered  Sales of Equity Securities and Use of Proceeds                                | 32       |
|          |                                                                                        |     |
| Item 3.       | Defaults  upon Senior Securities                                                            | 32       |
|          |                                                                                        |     |
| Item 4.       | Submission  of Matters to a Vote of Security Holders                                        | 33       |
|          |                                                                                        |     |
| Item 5.       | Other Information                                                                           | 33       |
|          |                                                                                        |     |
| Item 6.       | Exhibits                                                                                    | 34       |
|          |                                                                                        |     |
| Signatures    |                                                                                        | 35       |
|               |                                                                                             |          |  |  |  |  |

 

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Part I.  FINANCIAL  INFORMATION

Item I. FINANCIAL STATEMENTS

 

**BLYTH, INC.AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                                      | ** ** | **July 31,** | ** ** | **January 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|----------------------|------------|
| **(In thousands, except share and per share data)**                                          | ** ** | **2008**          | ** ** | **2008**             | ** ** |
| ** **                                                                                                                      | ** ** | **(Unaudited)**   | ** ** | ** **           | ** ** |
| **ASSETS**                                                                                                                      |       |              |       |                 |       |
| **Current  assets:**                                                                                                            |       |              |       |                 |       |
| Cash and cash  equivalents                                                                                                      |       | $                 | 106,166    |                 | $          | 163,021 |   |
| Short-term  investments                                                                                                         |       | 11,034            |       | 30,375               |       |
| Accounts  receivable, less allowance for doubtful receivables of $2,449 and $2,006  respectively                                |       | 54,036            |       | 35,054               |       |
| Inventories                                                                                                                     |       | 170,040           |       | 132,585              |       |
| Prepaid and  other                                                                                                              |       | 31,611            |       | 31,968               |       |
| Deferred income  taxes                                                                                                          |       | 35,374            |       | 36,841               |       |
| Total current  assets                                                                                                           |       | 408,261           |       | 429,844              |       |
| Property, plant  and equipment, at cost:                                                                                        |       |              |       |                 |       |
| Less accumulated  depreciation of $222,218 and $214,874, respectively                                                           |       | 137,576           |       | 140,021              |       |
| **Other  assets:**                                                                                                              |       |              |       |                 |       |
| Investments                                                                                                                     |       | 21,720            |       | 22,315               |       |
| Goodwill                                                                                                                        |       | 31,854            |       | 31,854               |       |
| Other intangible  assets, net of accumulated amortization of $10,000 and $9,250, respectively                                   |       | 30,750            |       | 31,500               |       |
| Deposits and  other assets                                                                                                      |       | 14,717            |       | 11,888               |       |
| Total other  assets                                                                                                             |       | 99,041            |       | 97,557               |       |
| Total assets                                                                                                                    |       | $                 | 644,878    |                 | $          | 667,422 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                  |       |              |       |                 |       |
| **Current  liabilities:**                                                                                                       |       |              |       |                 |       |
| Bank lines of  credit                                                                                                           |       | $                 | 20,000     |                 | $          | — |   |
| Current  maturities of long-term debt                                                                                           |       | 846               |       | 928                  |       |
| Accounts payable                                                                                                                |       | 47,807            |       | 55,167               |       |
| Accrued expenses                                                                                                                |       | 64,985            |       | 78,045               |       |
| Income taxes  payable                                                                                                           |       | 5,508             |       | 10,926               |       |
| Total current  liabilities                                                                                                      |       | 139,146           |       | 145,066              |       |
| Deferred income  taxes                                                                                                          |       | 32,572            |       | 29,563               |       |
| Long-term debt,  less current maturities                                                                                        |       | 151,806           |       | 157,887              |       |
| Other  liabilities                                                                                                              |       | 33,390            |       | 35,838               |       |
| Commitments and  contingencies                                                                                                  |       | —            |       | —               |       |
| **Stockholders’  equity:**                                                                                                 |       |              |       |                 |       |
| Preferred stock  - authorized 10,000,000 shares of $0.01 par value; no shares issued                                            |       | —            |       | —               |       |
| Common stock -  authorized 100,000,000 shares of $0.02 par value; issued 50,932,836 shares  and 50,922,460 shares, respectively |       | 1,019             |       | 1,018                |       |
| Additional  contributed capital                                                                                                 |       | 139,978           |       | 138,163              |       |
| Retained  earnings                                                                                                              |       | 516,699           |       | 522,328              |       |
| Accumulated  other comprehensive income                                                                                         |       | 29,246            |       | 25,444               |       |
| Treasury stock,  at cost, 15,368,896 shares and 14,557,351 shares, respectively                                                 |       | (398,978          | )          | (387,885             | )          |
| Total  stockholders’ equity                                                                                                |       | 287,964           |       | 299,068              |       |
| Total  liabilities and stockholders’ equity                                                                                |       | $                 | 644,878    |                 | $          | 667,422 |   |

 

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

 

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**BLYTH, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OFEARNINGS**

**(Unaudited)**

 
| **Six months ended July 31 ****(In thousands, except per share data)** | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Net sales                                                                                                                |       | $        | 486,634    |     | $          | 505,238 |   |
| Cost of goods  sold                                                                                                      |       | 219,196  |       | 242,164  |       |
| Gross profit                                                                                                             |       | 267,438  |       | 263,074  |       |
| Selling                                                                                                                  |       | 186,365  |       | 172,645  |       |
| Administrative  and other                                                                                                |       | 63,048   |       | 66,103   |       |
| Total operating  expense                                                                                                 |       | 249,413  |       | 238,748  |       |
| Operating profit                                                                                                         |       | 18,025   |       | 24,326   |       |
| Other expense  (income):                                                                                                 |       |     |       |     |       |
| Interest expense                                                                                                         |       | 4,872    |       | 7,346    |       |
| Interest income                                                                                                          |       | (2,355   | )          | (4,050   | )          |
| Foreign exchange  and other                                                                                              |       | 4,237    |       | (151     | )          |
| Total other  expense                                                                                                     |       | 6,754    |       | 3,145    |       |
| Earnings before  income taxes and minority interest                                                                      |       | 11,271   |       | 21,181   |       |
| Income tax  expense                                                                                                      |       | 7,048    |       | 6,223    |       |
| Earnings before  minority interest                                                                                       |       | 4,223    |       | 14,958   |       |
| Minority  interest                                                                                                       |       | 58       |       | 54       |       |
| Net earnings                                                                                                             |       | $        | 4,165      |     | $          | 14,904 |   |
| Basic:                                                                                                                   |       |     |       |     |       |
| Net earnings per  common share                                                                                           |       | $        | 0.11       |     | $          | 0.38 |   |
| Weighted average  number of shares outstanding                                                                           |       | 36,290   |       | 39,400   |       |
| Diluted:                                                                                                                 |       |     |       |     |       |
| Net earnings per  common share                                                                                           |       | $        | 0.11       |     | $          | 0.37 |   |
| Weighted average  number of shares outstanding                                                                           |       | 36,660   |       | 39,751   |       |

 

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

 

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**BLYTH,INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OFEARNINGS**

**(Unaudited)**

 
| **Three months ended July 31 ****(In thousands, except per share data)** | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Net sales                                                                                                                  |       | $        | 236,786    |     | $          | 234,871 |   |
| Cost of goods  sold                                                                                                        |       | 108,779  |       | 113,501  |       |
| Gross profit                                                                                                               |       | 128,007  |       | 121,370  |       |
| Selling                                                                                                                    |       | 87,691   |       | 78,996   |       |
| Administrative  and other                                                                                                  |       | 32,252   |       | 34,704   |       |
| Total operating  expense                                                                                                   |       | 119,943  |       | 113,700  |       |
| Operating profit                                                                                                           |       | 8,064    |       | 7,670    |       |
| Other expense  (income):                                                                                                   |       |     |       |     |       |
| Interest expense                                                                                                           |       | 2,449    |       | 3,625    |       |
| Interest income                                                                                                            |       | (1,043   | )          | (2,061   | )          |
| Foreign exchange  and other                                                                                                |       | 556      |       | 397      |       |
| Total other  expense                                                                                                       |       | 1,962    |       | 1,961    |       |
| Earnings before  income taxes and minority interest                                                                        |       | 6,102    |       | 5,709    |       |
| Income tax  expense                                                                                                        |       | 3,068    |       | 2,510    |       |
| Earnings before  minority interest                                                                                         |       | 3,034    |       | 3,199    |       |
| Minority  interest                                                                                                         |       | 29       |       | 27       |       |
| Net earnings                                                                                                               |       | $        | 3,005      |     | $          | 3,172 |   |
| Basic:                                                                                                                     |       |     |       |     |       |
| Net earnings per  common share                                                                                             |       | $        | 0.08       |     | $          | 0.08 |   |
| Weighted average  number of shares outstanding                                                                             |       | 36,304   |       | 39,488   |       |
| Diluted:                                                                                                                   |       |     |       |     |       |
| Net earnings per  common share                                                                                             |       | $        | 0.08       |     | $          | 0.08 |   |
| Weighted average  number of shares outstanding                                                                             |       | 36,712   |       | 39,835   |       |

 

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

 

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**BLYTH, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OFSTOCKHOLDERS’ EQUITY**

**(Unaudited)**

 
| ** **                                                               | ** ** | ** ** | ** ** | ** **      | ** ** | ** **   | ** ** | ** **   | ** ** | **Accumulated**        | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------|------------|------------|------------|-----------------|------------|--------------|------------|--------------|------------|------------------------|------------|------------|------------|
| ** **                                                               | ** ** | ** ** | ** ** | **Additional**  | ** ** | ** **   | ** ** | ** **   | ** ** | **Other**              | ** ** | ** ** | ** ** |
| ** **                                                               | ** ** | **Common** | ** ** | **Contributed** | ** ** | **Retained** | ** ** | **Treasury** | ** ** | **Comprehensive**      | ** ** | ** ** | ** ** |
| **(In thousands)**                                                  | ** ** | **Stock**  | ** ** | **Capital**     | ** ** | **Earnings** | ** ** | **Stock**    | ** ** | **Income (Loss)** | ** ** | **Total**  | ** ** |
|                                                                     | ** ** | ** ** | ** ** | ** **      | ** ** | ** **   | ** ** | ** **   | ** ** | ** **             | ** ** | ** ** | ** ** |
| For the six  months ended July 31, 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                                             |       |       |       |            |       | 14,904       |       |         |       |                   |       | 14,904     |       |
| Foreign currency  translation adjustments                                |       |       |       |            |       |         |       |         |       | 1,746                  |       | 1,746      |       |
| Net unrealized  gain on certain investments (net of tax $51)             |       |       |       |            |       |         |       |         |       | 84                     |       | 84         |       |
| Net loss on cash  flow hedging instruments (net of tax of $348)          |       |       |       |            |       |         |       |         |       | (647                   | )          | (647       | )          |
| Comprehensive  income                                                    |       |       |       |            |       |         |       |         |       |                   |       | 16,087     |       |
| Common stock  issued in connection with long-term incentive plan         |       | 6          |       | 7,073           |       |         |       |         |       |                   |       | 7,079      |       |
| Common stock  cancelled in connection with long-term incentive plan      |       | (1         | )          |            |       |         |       |         |       |                   |       | (1         | )          |
| Tax benefit from  stock options                                          |       |       |       | 303             |       |         |       |         |       |                   |       | 303        |       |
| Amortization of  unearned compensation                                   |       |       |       | 552             |       |         |       |         |       |                   |       | 552        |       |
| Dividends                                                                |       |       |       |            |       | (10,631      | )          |         |       |                   |       | (10,631    | )          |
| Treasury stock  purchases                                                |       |       |       |            |       |         |       | (2,700       | )          |                   |       | (2,700     | )          |
| Balance,  July 31, 2007                                             |       | $          | 1,018      |            | $          | 137,295      |       | $            | 536,401    |                   | $          | (326,414   | )          | $ | 23,313 |   | $ | 371,613 |   |
|                                                                     |       |       |       |            |       |         |       |         |       |                   |       |       |       |
| For the six  months ended July 31, 2008:                            |       |       |       |            |       |         |       |         |       |                   |       |       |       |
| Balance,  February 1, 2008                                          |       | $          | 1,018      |            | $          | 138,163      |       | $            | 522,328    |                   | $          | (387,885   | )          | $ | 25,444 |   | $ | 299,068 |   |
| Net earnings for  the period                                             |       |       |       |            |       | 4,165        |       |         |       |                   |       | 4,165      |       |
| Foreign currency  translation adjustments                                |       |       |       |            |       |         |       |         |       | 5,669                  |       | 5,669      |       |
| Net unrealized  loss on certain investments (net of tax benefit of $269) |       |       |       |            |       |         |       |         |       | (437                   | )          | (437       | )          |
| Net loss on cash  flow hedging instruments (net of tax benefit of $876)  |       |       |       |            |       |         |       |         |       | (1,430                 | )          | (1,430     | )          |
| Comprehensive  income                                                    |       |       |       |            |       |         |       |         |       |                   |       | 7,967      |       |
| Common stock  issued in connection with long-term incentive plan         |       | 1          |       |            |       |         |       |         |       |                   |       | 1          |       |
| Amortization of  unearned compensation                                   |       |       |       | 1,815           |       |         |       |         |       |                   |       | 1,815      |       |
| Dividends                                                                |       |       |       |            |       | (9,794       | )          |         |       |                   |       | (9,794     | )          |
| Treasury stock  purchases                                                |       |       |       |            |       |         |       | (11,093      | )          |                   |       | (11,093    | )          |
| Balance,  July 31, 2008                                             |       | $          | 1,019      |            | $          | 139,978      |       | $            | 516,699    |                   | $          | (398,978   | )          | $ | 29,246 |   | $ | 287,964 |   |

 

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

 

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**BLYTH,INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OFCASH FLOWS**

**(Unaudited)**

 
| **Six months ended July 31 (In thousands)**                               | ** ** | **2008** | ** ** | **2007**   | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|----------|------------|------------|------------|
| Cash flows from  operating activities:                                                                  |       |     |       |       |       |
| Net earnings                                                                                            |       | $        | 4,165      |       | $          | 14,904 |   |
| Adjustments to  reconcile net earnings to net cash provided by (used in) operating  activities:         |       |     |       |       |       |
| Depreciation and  amortization                                                                          |       | 10,279   |       | 14,435     |       |
| Write down of  investments                                                                              |       | 6,034    |       | —     |       |
| Loss on  disposition of fixed assets                                                                    |       | 10       |       | 39         |       |
| Gain on sale of  assets                                                                                 |       | —   |       | (594       | )          |
| Unrealized gain  on trading investments                                                                 |       | (42      | )          | —     |       |
| Stock-based  compensation expense                                                                       |       | 1,362    |       | 983        |       |
| Deferred income  taxes                                                                                  |       | 2,301    |       | 8,247      |       |
| Equity in  earnings of investee                                                                         |       | (52      | )          | (34        | )          |
| Minority  interest                                                                                      |       | 13       |       | 15         |       |
| Changes in  operating assets and liabilities, net of effect of business acquisitions and  divestitures: |       |     |       |       |       |
| Accounts receivable                                                                                     |       | (18,488  | )          | (29,007    | )          |
| Inventories                                                                                             |       | (35,310  | )          | (11,145    | )          |
| Prepaid and  other                                                                                      |       | 874      |       | (12,394    | )          |
| Other long-term  assets                                                                                 |       | (419     | )          | 2,406      |       |
| Accounts payable                                                                                        |       | (8,786   | )          | (7,344     | )          |
| Accrued expenses                                                                                        |       | (14,305  | )          | (9,647     | )          |
| Other  liabilities                                                                                      |       | (1,817   | )          | 1,607      |       |
| Income taxes                                                                                            |       | (5,755   | )          | (1,337     | )          |
| Net cash used in  operating activities                                                                  |       | (59,936  | )          | (28,866    | )          |
| Cash flows from  investing activities:                                                                  |       |     |       |       |       |
| Purchases of  property, plant and equipment, net of disposals                                           |       | (4,524   | )          | (4,034     | )          |
| Purchases of  short-term investments                                                                    |       | (40,294  | )          | (1,167,030 | )          |
| Proceeds from  sales of short-term investments                                                          |       | 53,643   |       | 1,170,770  |       |
| Note receivable  issued under revolving credit facility                                                 |       | (2,516   | )          | —     |       |
| Proceeds from  the sales of businesses, net of cash disposed                                            |       | —   |       | 514        |       |
| Proceeds from  sale of assets                                                                           |       | —   |       | 25,423     |       |
| Proceeds from  sale of long-term investments                                                            |       | 100      |       | —     |       |
| Net cash  provided by investing activities                                                              |       | 6,409    |       | 25,643     |       |
| Cash flows from  financing activities:                                                                  |       |     |       |       |       |
| Proceeds from  issuance of common stock                                                                 |       | —   |       | 7,079      |       |
| Tax benefit from  stock options                                                                         |       | —   |       | 303        |       |
| Purchases of  treasury stock                                                                            |       | (11,093  | )          | (2,700     | )          |
| Borrowings from  bank line of credit                                                                    |       | 123,000  |       |       |       |
| Repayments on  bank line of credit                                                                      |       | (103,000 | )          |       |       |
| Repayments of  long-term debt                                                                           |       | (5,955   | )          | (3,995     | )          |
| Payments on  capital lease obligations                                                                  |       | (249     | )          | (217       | )          |
| Dividends paid                                                                                          |       | (9,794   | )          | (10,631    | )          |
| Net cash used in  financing activities                                                                  |       | (7,091   | )          | (10,161    | )          |
| Effect of  exchange rate changes on cash                                                                |       | 3,763    |       | 409        |       |
| Net decrease in  cash and cash equivalents                                                              |       | (56,855  | )          | (12,975    | )          |
| Cash and cash  equivalents at beginning of period                                                       |       | 163,021  |       | 103,808    |       |
| Cash and cash  equivalents at end of period                                                             |       | $        | 106,166    |       | $          | 90,833 |   |

 

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

 

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**BLYTH,INC. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**1.**             Basis of Presentation

 

The condensed consolidated financial statements include the accounts ofBlyth, Inc. (“the Company”) and its subsidiaries.  All intercompany accounts and transactionshave been eliminated.  The investment ina company that is not majority owned or controlled is reported using the equitymethod and is recorded as an investment. Certain of the Company’s subsidiaries operate on a 52 or 53-week fiscalyear ending on the Saturday closest to January 31.  European operations maintain a calendar yearaccounting period, which is consolidated with the Company’s fiscal period.  In the opinion of management, theaccompanying unaudited condensed consolidated financial statements include alladjustments necessary for fair presentation of the Company’s consolidatedfinancial position at July 31, 2008, the consolidated results of its operations for the three and six month periods ended July 31,2008 and 2007 and cash flows for the six month periods ended July 31, 2008and 2007.  These interim statements shouldbe read in conjunction with the Company’s consolidated financial statements forthe fiscal year ended January 31, 2008, as set forth in the Company’sAnnual Report on Form 10-K. Operating results for the three and six months ended July 31, 2008are not necessarily indicative of the results that may be expected for thefiscal year ending January 31, 2009.

 

**2.**             Divestitures

 

During the first quarter of last year, the Company sold certain assets andliabilities of its Blyth HomeScents International North American mass channelcandle business (“BHI NA”), which was part of the Wholesale segment.  The net assets were sold for $25.3 million(including overstock inventory proceeds of $1.3 million) of which $21.8 millionwas received at closing during the first quarter of fiscal 2008, with theremaining amount received subsequently during fiscal 2008.

 

The sale included working capital net assets as well as fixed assets andleases related to the Memphis, Tennessee distribution facility and Bentonville,Arkansas operations.  The Companyretained all other offices and its Elkin, North Carolina manufacturing anddistribution facilities, which produce the Company’s premium wholesale ColonialCandle brand product. The net assets sold related to the BHI business werecomprised primarily of customer relationships, accounts receivable of $7.4million, inventory of $16.6 million and distribution equipment of $1.1 millionless liabilities assumed of $1.7 million.

 

The Company is entitled to receive a portion of the proceeds from anyadditional sales of the overstock inventory by the buyer per the terms of theagreement, which will continue to be recorded as a reduction to Administrativeand other expense upon receipt.

 

Revenue and costs related to operating the retained facilities and certainagreed-upon transitional support services are included in the CondensedConsolidated Statements of Earnings.

 

**3.**             Restructuring

 

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

 

AtJanuary 31, 2008, the Company had an accrual for approximately $1.4million for restructuring charges relating to severance and a lease obligation,net of estimated sublease income.  As aresult of a change in estimate relating to future sublease income and paymentsmade during the six month period ended July 31, 2008, the restructuringaccrual approximated $1.7 million as of July 31, 2008. The remaining leaseobligation will be paid through fiscal 2013.

 

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**BLYTH, INC. AND SUBSIDIARIES**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

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

 

The following is a tabular rollforward of the restructuring accrualsdescribed above that are included in Accrued expenses:

 
| ** **                             | ** ** | **Wholesale  Segment**   | ** ** | **Direct Selling  Segment** | ** ** | ** **               | ** ** |
|----------------------------------------|------------|--------------------------|------------|----------------------------------|------------|--------------------------|------------|
| **(In thousands)**                | ** ** | **Severance Costs** | ** ** | **Lease  Obligation**            | ** ** | **Severance Costs** | ** ** | **Total** | ** ** |
| Balance at  January 31, 2008      |       | $                        | 138        |                             | $          | 1,151                    |       | $ | 100 |   | $ | 1,389 |   |
| Change in  estimate during fiscal 2009 |       | $                        | —     |                             | $          | 1,034                    |       | $ | — |   | $ | 1,034 |   |
| Payments made in  fiscal 2009          |       | (138                     | )          | (458                             | )          | (100                     | )          | (696 | ) |
| Balance at  July 31, 2008         |       | $                        | —     |                             | $          | 1,727                    |       | $ | — |   | $ | 1,727 |   |

 

**4.**             Investments

 

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

 

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

 

TheCompany also holds other debt and equity auction rate securities (“ARS”) whichare classified as available-for-sale.  These securities are valued basedon many factors including thecredit quality of the issuer and its insurer, the Company’s discounted cashflow analysis and input from broker-dealers in these types of securities. Realized gains and losses on these securitiesare determined using the specific identification method and are recorded inForeign exchange and other expense (income).  Unrealized gains andtemporary unrealized losses on these securities are recorded in Accumulatedother comprehensive income (“AOCI”) within Stockholders’ equity. Unrealized losses that are considered other than temporary are recorded in theCondensed Consolidated Statements of Earnings in Foreign exchange and otherexpense (income).

 

TheCompany has an investment in a limited partnership that is accounted for underthe cost method. The Company does not influence any operating and financialpolicies of the investee and the Company’s ownership interest is less thanthree percent.  To the extent that there is a decline in the fair value ofthese investments below their carrying value that is considered to beother-than-temporary, the investments would be written down to their estimatedfair value.  The factors considered in making impairment assessmentsinclude, but are not limited to, the severity and duration of the impairment,market prices, market conditions, other third party information and management’sability and intent to hold the security for a reasonable period of time for thesecurity to recover its value.

 

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

 

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**BLYTH,INC. AND SUBSIDIARIES**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

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

 

Investments, by category and classification:

 
| **(In thousands)**              | ** ** | **July 31, 2008** | ** ** | **January 31, 2008** | ** ** |
|--------------------------------------|------------|-----------------------------|------------|--------------------------------|------------|
| Debt securities                      |       | $                           | 9,653      |                           | $          | 15,000 |   |
| Equity  securities                   |       | 9,700                       |       | 15,186                         |       |
| Total  available-for-sale securities |       | 19,353                      |       | 30,186                         |       |
| Preferred stock                      |       | 10,386                      |       | 10,184                         |       |
| Other                                |       | 25                          |       | 5                              |       |
| Total trading  securities            |       | 10,411                      |       | 10,189                         |       |
| Limited  partnership                 |       | 623                         |       | 10,000                         |       |
| Joint venture                        |       | 2,367                       |       | 2,315                          |       |
| Total  investments                   |       | $                           | 32,754     |                           | $          | 52,690 |   |

 

Asof July 31, 2008 and January 31, 2008, the Company held $19.4 millionand $25.0 million, respectively, of ARS classified as available-for-salesecurities. ARS are generally long-term debt instruments that provide liquiditythrough a Dutch auction process that resets the applicable interest rate atpredetermined intervals in days. This mechanism generally allows investors torollover their holdings and continue to own their respective securities orliquidate their holdings by selling their securities at par value. The Companygenerally invests in these securities for short periods of time as part of itscash management program. The Company’s auction rate securities are all AAA/Aaarated investments and consist of a student loan portfolio with the vastmajority of the student loans guaranteed by the U.S. Government under theFederal Family Education Loan Program, municipal bonds guaranteed by a monolineinsurance company and a closed-end fund consisting of preferred stock ofvarious utilities that maintains assets equal to or greater than 200% of theliquidation preference of its preferred stock. These securities’ valuationsconsidered the financial conditions of the issuer and the bond insurers as wellas the value of the collateral.  If thecredit ratings of the issuer, the bond insurers or the collateral deteriorate,the Company may adjust the carrying value of these investments.

 

Therecent uncertainties in the credit markets have prevented the Company and otherinvestors from liquidating their holdings by selling their securities at parvalue. Historically, the par value of these securities approximated fair valueas a result of the resetting of the interest rate. In the first quarter offiscal year 2009 market auctions, including auctions for substantially all ourauction rate securities, began to fail due to insufficient buyers. As a resultof these failed auctions and the uncertainty of when these investments couldsuccessfully be liquidated at par, the Company has recorded unrealized lossesof $0.5 million during fiscal 2009 to reflect liquidity risk related to thesecurities. As a result of the uncertainty as to when the liquidity issuesrelating to these investments will improve, the Company has classified thesesecurities as non-current investments as of July 31, 2008.

 

**Debt securities by**contractual maturity, at par, are as follows:

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

 

All income generated from these debt securities was recorded as Interestincome. Actual maturities may differ from contractual maturities should theborrower have the right to call certain obligations.

 

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**BLYTH,INC. AND SUBSIDIARIES**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

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

 

As of January 31, 2008, the Company had a $5.2million investment in the equity securities of RedEnvelope, Inc. (“RedEnvelope”),that was classified as available-for-sale. In the first quarter of fiscal 2009, this investment was deemed to beother-than-temporarily impaired as a result of RedEnvelope’s filing forbankruptcy protection. Accordingly, a charge of $5.2 million was recorded towrite off the full balance of this investment.

 

The investment in the limited partnership was purchased in fiscal 2008, ata cost of $10.0 million. During the six-month period ended July 31, 2008,the Company redeemed $8.5 million of its investment in the partnership, andrecorded a permanent impairment of $0.9 million. The remaining balance of thisinvestment as of July 31, 2008 was $0.6 million.

 

The total unrealized gain related to tradinginvestments for the six-month period ended July 31, 2008 was notsignificant.

 

**5.**             Inventories

 

The components of inventory are as follows:

 
| **(In thousands)** | ** ** | **July 31, 2008** | ** ** | **January 31, 2008** | ** ** |
|-------------------------|------------|-----------------------------|------------|--------------------------------|------------|
| Raw materials           |       | $                           | 6,191      |                           | $          | 6,490 |   |
| Work in process         |       | 762                         |       | —                         |       |
| Finished goods          |       | 163,087                     |       | 126,095                        |       |
| Total                   |       | $                           | 170,040    |                           | $          | 132,585 |   |

 

**6.****             Goodwill and OtherIntangibles**

 

**Goodwill and other indefinitelived intangibles are subject to an assessment for impairment which must beperformed at least annually or more frequently if events or circumstancesindicate that goodwill or other indefinite lived intangibles might be impaired.**

 

The Company performs its annual assessmentof impairment as of January 31, which is our fiscal year-end date.  For goodwill, the first step is to identifywhether a potential impairment exists. This is done by comparing the fair valueof a reporting unit to its carrying amount, including goodwill.  Fair value for each of our reporting units isestimated utilizing a combination of valuation techniques, namely thediscounted cash flow methodology and the market multiple methodology.  The discounted cash flow methodology assumesthe fair value of an asset can be****estimated by the economic benefit or net cash flows the asset willgenerate over the life of the asset, discounted to its present value. Thediscounting process uses a rate of return that accounts for both the time valueof money and investment risk factors. The market multiple methodology estimates fair value based on what otherparticipants in the market have recently paid for reasonably similar assets.Adjustments are made to compensate for differences between the reasonablysimilar assets and the assets being valued. If the fair value of the reportingunit exceeds the carrying value, no further analysis is necessary. The fairvalue of the reporting units is derived by calculating the average of theoutcomes of the two valuation techniques described above.  If the carrying amount of the reporting unitexceeds its fair value, the second step is performed. The second step comparesthe carrying amount of the goodwill to the estimated fair value of thegoodwill. If fair value is less than the carrying amount, an impairment loss isreported as a reduction to the goodwill and a charge to operating expense.

 

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**BLYTH,INC. AND SUBSIDIARIES**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**6.****             Goodwill and OtherIntangibles***(continued**)***

 

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

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

 

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

 

Otherintangible assets consisted of the following (In thousands):

 
| ** **                                   | ** ** | **July 31, 2008** | ** ** | **January 31, 2008** | ** ** |
|----------------------------------------------|------------|-----------------------------|------------|--------------------------------|------------|
| **(In thousands)**                      | ** ** | **Gross**                   | ** ** | **Accumulated  Amortization**  | ** ** | **Net** | ** ** | **Gross** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
| Indefinite-lived  trade names and trademarks |       | $                           | 25,750     |                           | $          | — |   | $ | 25,750 |   | $ | 25,750 |   | $ | — |   | $ | 25,750 |   |
| Customer lists                               |       | 15,000                      |       | 10,000                         |       | 5,000 |   | 15,000 |   | 9,250 |   | 5,750 |   |
| Total                                        |       | $                           | 40,750     |                           | $          | 10,000 |   | $ | 30,750 |   | $ | 40,750 |   | $ | 9,250 |   | $ | 31,500 |   |

 

Amortization expense for customer lists was $0.8 million for the sixmonths periods ended July 31, 2008 and 2007.  The estimated annual amortization expense forfiscal year 2009 is $1.5 million.  Theestimated amortization expense for the next five fiscal years beginning withfiscal 2010 is as follows:  $1.1 million,$1.0 million, $0.8 million, $0.6 million and $0.5 million.

 

**7.****            ****Fair Value Measurements**

 

On February 1, 2008,the Company adopted SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”),for our financial assets and liabilities. This statement provides a frameworkfor measuring fair value and requires expanded disclosures regarding fair valuemeasurements. SFAS No. 157 defines fair value as the price that would bereceived to sell an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date, which for thesecond quarter of fiscal 2009 is July 31, 2008.

 

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

 

Level-1 – Observable inputs – quoted prices in active markets foridentical assets and liabilities;

 

Level-2 – Observable inputs other than the quoted prices in activemarkets for identical assets and liabilities – such as quoted prices for similarinstruments, quoted prices for identical or similar instruments in inactivemarkets, or other inputs that are observable or can be corroborated byobservable market data;

 

Level-3 – Unobservable inputs – includes amounts derived from valuationmodels where one or more significant inputs are unobservable and require us todevelop relevant assumptions.

 

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**BLYTH, INC. ANDSUBSIDIARIES**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**7.****            ****Fair Value Measurements** (*continued*)

 

Thefollowing table summarizes the financial assets and liabilities measured atfair value on a recurring basis as of the measurement date, July 31, 2008,and the basis for that measurement, by level within the fair value hierarchy:

 
| **(In thousands)**                | ** ** | **Balance as of  July 31, 2008** | ** ** | **Quoted prices in  active markets for  identical assets  (Level-1)** | ** ** | **Significant other  observable inputs  (Level-2)** | ** ** | **Significant  unobservable  inputs (Level-3)** | ** ** |
|----------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|------------------------------------------------------|------------|
| **Financial  assets**                  | ** ** | ** **                                           | ** ** | ** **                                                                                     | ** ** | ** **                                                    | ** ** | ** **                                           | ** ** |
| Equity  securities                     |       | $                                                    | 20,086     |                                                                                           | $          | —                                                        |       | $                                                    | 10,386     |   | $ | 9,700 |   |
| Debt securities                        |       | 9,653                                                |       | —                                                                                         |       | —                                                        |       | 9,653                                                |       |
| Deferred  compensation plan assets (1) |       | 3,560                                                |       | 3,560                                                                                          |       | —                                                        |       | —                                               |       |
| Other                                  |       | 25                                                   |       | —                                                                                         |       | 25                                                            |       | —                                               |       |
| Total                                  |       | $                                                    | 33,324     |                                                                                           | $          | 3,560                                                         |       | $                                                    | 10,411     |   | $ | 19,353 |   |
| **Financial  liabilities**             |       |                                                 |       |                                                                                           |       |                                                          |       |                                                 |       |
| Foreign exchange  forward contracts    |       | $                                                    | (3,296     | )                                                                                              | $          | —                                                        |       | $                                                    | (3,296     | ) | $ | — |   |

 

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(1) There is an offsetting liability for the obligation to its employeeson the Company’s books.

 

Thetable below summarizes the change in the fair value of Level-3 financial assetsand liabilities for the three and six month periods ended July 31, 2008:

 
| **(In thousands)**           | ** ** | **Significant unobservable  inputs (Level-3)** | ** ** |
|-----------------------------------|------------|----------------------------------------------------------|------------|
|                              |       |                                                     |       |
| Fair value  February 1, 2008 |       | $                                                        | 25,000     |   |
| Settlements                       |       | (5,100                                                   | )          |
| Unrealized loss (1)               |       | (547                                                     | )          |
| Fair value  July 31, 2008    |       | $                                                        | 19,353     | (1) |

 

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(1)   All unrealized losses on our available forsale investments are recorded as a component of accumulated other comprehensiveincome.

 

TheCompany values its deferred compensation plan assets using Level-1 inputs.  These assets consist of shares of mutualfunds, for which there are quoted prices in an active market. The Company alsoenters into both cash flow and fair value hedges, by purchasing forwardcontracts. These contracts are valued using Level-2 inputs, primarilyobservable forward foreign exchange rates. The Company values certain preferredstock investments using information classified as Level-2. This data consistsof quoted prices of identical instruments in an inactive market and third partybid offers. The debt and equity securities classified as Level-3 consist ofauction rate securities, the value of which takes into consideration manyfactors including the credit quality of both the issuer and its insurer, valueof the collateral, the Company’s discounted cash flow analysis and input frombroker-dealers in these types of securities. Since there is not an active,observable, market currently for these securities, they have been classified asa Level-3 input.

 

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**BLYTH, INC. ANDSUBSIDIARIES**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

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

 

The components of basic and diluted earnings per share are as follows:

 
| ** **                                             | ** ** | **Three months ended July 31,** | ** ** | **Six months ended July 31,** | ** ** |
|--------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| **(In thousands)**                                | ** ** | **2008**                                            | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net earnings                                           |       | $                                                   | 3,005      |                                              | $          | 3,172 |   | $ | 4,165 |   | $ | 14,904 |   |
| Weighted average  number of common shares outstanding: |       |                                                |       |                                              |       |   |   |   |   |
| Basic                                                  |       | 36,304                                              |       | 39,488                                            |       | 36,290 |   | 39,400 |   |
| Dilutive effect  of restricted shares                  |       | 408                                                 |       | 347                                               |       | 370 |   | 351 |   |
| Weighted average  number of common shares outstanding: |       |                                                |       |                                              |       |   |   |   |   |
| Diluted                                                |       | 36,712                                              |       | 39,835                                            |       | 36,660 |   | 39,751 |   |
|                                                        |            |                                                     |            |                                                   |            |  |  |  |  |  |  |  |  |

 

For both the three and six-month periods ended July 31,2008, options to purchase 386,100 shares of common stock are not included inthe computation of earnings per share because the effect would beanti-dilutive.  Also, for the three and six-month periods ended July 31,2007, options to purchase 231,200 and 463,400 shares of common stock,respectively, are not included in the computation of earnings per share becausethe effect would be anti-dilutive.

 

**9.****             Treasury and CommonStock**

 

**TreasuryStock**

 
| **Changes in Treasury Stock were (In thousands, except shares):** | ** ** | **Shares** | ** ** | **Amount** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| Balance at  February 1, 2007                                                                         |       | 11,335,798 |       | $          | (323,714   | ) |
| Treasury stock  purchases                                                                                 |       | 100,000    |       | (2,700     | )          |
| Balance at  July 31, 2007                                                                            |       | 11,435,798 |       | $          | (326,414   | ) |
|                                                                                                      |       |       |       |       |       |
| Balance at  February 1, 2008                                                                         |       | 14,557,351 |       | $          | (387,885   | ) |
| Treasury stock  purchases                                                                                 |       | 811,545    |       | (11,093    | )          |
| Balance at  July 31, 2008                                                                            |       | 15,368,896 |       | $          | (398,978   | ) |

 

**CommonStock**

 
| **Changes in Common Stock were (In thousands, except shares):** | ** ** | **Shares** | ** ** | **Amount** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| Balance at  February 1, 2007                                                                       |       | 50,637,060 |       | $          | 1,013      |   |
| Common stock  issued in connection with  long-term incentive plan                                       |       | 283,400    |       | 6          |       |
| Common stock  cancelled in connection with long-term incentive plan                                     |       | (4,000     | )          | (1         | )          |
| Balance at  July 31, 2007                                                                          |       | 50,916,460 |       | 1,018      |       |
|                                                                                                    |       |       |       |       |       |
| Balance at  February 1, 2008                                                                       |       | 50,922,460 |       | $          | 1,018      |   |
| Common stock  issued in connection with long-term incentive plan                                        |       | 10,376     |       | 1          |       |
| Balance at  July 31, 2008                                                                          |       | 50,932,836 |       | $          | 1,019      |   |

 

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**BLYTH, INC. ANDSUBSIDIARIES**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

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

 

On October 2, 2006, the Company executed Amendment No. 1 (the “Amendment”)to its unsecured revolving credit facility (“Credit Facility”) dated as of June 2,2005.  The Amendment (i) reduced theamount available for borrowing under the Credit Agreement from $150.0 millionto $75.0 million, (ii) changed the initial termination date from June 2,2010 to June 1, 2009, (iii) increased the rate of interest applicableto loans under the Credit Agreement and (iv) modified some of thecovenants.  The Company has the abilityto increase the amount available for borrowing, under certain circumstances, byan additional $50.0 million.  The CreditFacility may be used for seasonal working capital needs and general corporatepurposes, including strategic acquisitions. The Credit Facility contains, amongother provisions, requirements for maintaining certain financial ratios andlimitations on certain payments.  As of July 31,2008, the Company was in compliance with such provisions.  Amounts outstanding under the amended CreditFacility bear interest, at the Company’s option, at either the JPMorgan ChaseBank’s prime rate or the Eurocurrency rate plus a spread ranging from 0.80% to1.70% calculated on the basis of the Company’s senior unsecured long-term debt rating. Amounts available for borrowing under this facility were approximately$51.5 million as of July 31, 2008, reflecting $20.0 million of outstandingloans and $3.5 million in outstanding letters of credit.

 

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

 

The Company’s effective taxrate for the six months ended July 31, 2008 and 2007 was 62.5% and 29.4%,respectively, which resulted in a provision for income taxes of $7.0 millionand $6.2 million, respectively. The higher effective tax rate in the six monthsended July 31, 2008 was primarily related to a $1.8 million valuationallowance for the capital loss recorded during the first quarter related to thewrite down of the RedEnvelope investment discussed in Note 4, as well as theimpact of additional taxes recorded during the current quarter resulting fromthe filing of amended tax returns for the tax years ended 2005 through 2007.  In addition, for the six months ended July 31,2007, the Company’s effective rate reflected a benefit of 11% for the reversalof a valuation allowance previously recorded.

 

The effective tax rate forthe three months ended July 31, 2008 was 50.3% compared to 43.9% in theprior year*.* The increase in the effective tax rate forthe current quarter is due primarily to the impact of additional taxesrecorded during the current quarter resulting from the filing of amended taxreturns for the tax years 2005 through 2007.

 

TheCompany adopted the provisions of FASB Interpretation No. 48, Accountingfor Uncertainty in Income Taxes (“FIN 48”), on February 1, 2007.  Inaccordance with FIN 48, the Company recorded $0.6 million of accrued interestrelated to uncertain tax positions in the six months ended July 31, 2008as compared to $0.3 million for the same period in 2007. The Company recognizesinterest and penalties related to unrecognized tax benefits as a component ofincome tax expense.

 

TheCompany believes that it is reasonably possible that the total amount ofunrecognized tax benefits as of July 31, 2008 that may be resolved withinthe next 12 months is approximately $6.9 million, as a result of the filing ofamended tax returns, closing of statutes, and audit settlements.  Dueto the various jurisdictions in which the Company files tax returns and theuncertainty regarding the timing of the settlement of tax audits, it ispossible that there could be other significant changes in the amount ofunrecognized tax benefits in fiscal 2009, but the amount cannot be reasonablyestimated.

 

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**BLYTH, INC. ANDSUBSIDIARIES**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**12.**          Stock Based Compensation

 

As of July 31, 2008, the Company had one activestock-based compensation plan, the Amended and Restated 2003 Omnibus IncentivePlan (“2003 Plan”), available to grant future awards. In addition, the Companymaintains two inactive stock-based compensation plans (the Amended and Restated1994 Employee Stock Option Plan and the Amended and Restated 1994 Stock OptionPlan for Non-Employee Directors), under which vested and unexercised optionsremain outstanding. As of July 31, 2008, 6,500,100 shares were authorizedand approximately 3,600,000 shares were available for grant under these plans. The Company’s policy is to issue new shares of common stock for all stockoptions exercised and restricted stock grants.

 

The Board of Directors and the stockholders of theCompany have approved the adoption and subsequent amendments of the 2003 Plan.The 2003 Plan provides for grants of incentive and nonqualified stock options,stock appreciation rights, restricted stock, restricted stock units,performance shares, performance units, dividend equivalents and other stockunit awards to officers and employees. The 2003 Plan also provides for grantsof nonqualified stock options to directors of the Company who are not, and whohave not been during the immediately preceding 12-month period, officers oremployees of the Company or any of its subsidiaries. Restricted stock andrestricted stock units (“RSUs”) are granted to certain employees to incentperformance and retention. RSUs issued under the plans provide that sharesawarded may not be sold or otherwise transferred until restrictions havelapsed. The release of RSUs on each of the vesting dates is contingent uponcontinued active employment by the employee until the vesting dates. During thesecond quarter of fiscal 2009 a total of 10,500 RSUs were granted to thenon-employee directors, with vesting in two equal annual installments beginningon the first anniversary of the grant date. This grant brought the total for fiscal2009 to 116,885 RSUs.

 

The total compensation expense related to all stock-based compensationplans for the three and six-month periods ended July 31, 2008 wasapproximately $0.7 million and $1.4 million, respectively. The totalcompensation expense related to all stock-based compensation plans for thethree and six-month periods ended July 31, 2007 was approximately $0.1million and $0.5 million, respectively.  The tax benefit recognized forthe three and six-month periods ended July 31, 2008 was approximately $0.2million and $0.5 million, respectively.  The taxbenefit recognized for the three and six-month periods ended July 31, 2007was approximately $0.0 million and $0.2 million, respectively.

 

Stock-based compensation expense recognized during the period is based onthe value of the portion of stock-based payment awards that are ultimatelyexpected to vest. Stock-based compensation expense recognized in the Company’sCondensed Consolidated Statements of Earnings for the three and six monthsended July 31, 2008 and 2007 includes compensation expense for restrictedstock, RSUs and other stock-based awards granted subsequent to January 31,2006 based on the grant date fair value estimated in accordance with theprovisions of SFAS 123(R). The Company recognizes these compensation costs netof a forfeiture rate for only those awards expected to vest, on a straight-linebasis over the requisite service period of the award, which is over periods of3 years for stock options; 2 to 5 years for employee restricted stock and RSUs;and 1 to 2 years for non-employee restricted stock and RSUs. 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.

 

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**BLYTH, INC. ANDSUBSIDIARIES**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

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

 

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

** **
| ** **                                                    | ** ** | ** ** | ** ** | **Weighted Average**                | ** ** | **Aggregate**            | ** ** |
|---------------------------------------------------------------|------------|------------|------------|------------------------------------------|------------|--------------------------|------------|
| ** **                                                    | ** ** | **Shares** | ** ** | **Grant date Fair Value** | ** ** | **Intrinsic Value** | ** ** |
| ** **                                                    | ** ** | ** ** | ** ** | ** **                               | ** ** | **(In thousands)**  | ** ** |
| Nonvested  restricted stock and RSUs at January 31, 2008 |       | 279,370    |       | $                                        | 24.30      |                     |       |   |
| Granted                                                       |       | 116,885    |       | 20.22                                    |       |                     |       |
| Vested                                                        |       | (25,985    | )          | 28.40                                    |       |                     |       |
| Forfeited                                                     |       | (24,131    | )          | 23.70                                    |       |                     |       |
| Nonvested  restricted stock and RSUs at July 31, 2008    |       | 346,139    |       | $                                        | 22.66      |                     | $          | 5,036 |   |
| Total restricted  stock and RSUs at July 31, 2008        |       | 384,839    |       | $                                        | 23.21      |                     | $          | 5,599 |   |

 

Compensation expense related to restricted stock andRSUs for the three and six-month periods ended July 31, 2008 wasapproximately $0.7 million and $1.4 million, respectively. Compensation expenserelated to restricted stock and RSUs for the three andsix-month periods ended July 31, 2007 was approximately $0.1 million and$0.5 million, respectively. There were 10,500 RSUs granted to the Board ofDirectors in the second quarter of fiscal 2009.

 

As of July 31, 2008, there was $3.0 million of unearned compensationexpense related to non-vested restricted stock and RSU awards. This cost isexpected to be recognized over a weighted average period of 1.2 years. As of July 31,2008, approximately 350,000 restricted stock awards with a weighted averagegrant date fair value of $22.66 are expected to vest.  The total unrecognized stock-basedcompensation cost to be recognized in future periods as of July 31, 2008does not consider the effect of stock-based awards that may be issued insubsequent periods.

 

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

** **
| ** **                                         | ** ** | ** ** | ** ** | ** **                | ** ** | **Weighted Average** | ** ** | ** **               | ** ** |
|----------------------------------------------------|------------|------------|------------|---------------------------|------------|---------------------------|------------|--------------------------|------------|
| ** **                                         | ** ** | **Option** | ** ** | **Weighted Average** | ** ** | **Remaining**             | ** ** | **Aggregate**            | ** ** |
| ** **                                         | ** ** | **Shares** | ** ** | **Exercise Price**   | ** ** | **Contractual Life** | ** ** | **Intrinsic Value** | ** ** |
| Outstanding at  January 31, 2008              |       | 447,400    |       | 27.01                     |       | 3.97                      |       |                     |       |
| Options granted                                    |       | —     |       | —                    |       |                      |       |                     |       |
| Options  exercised                                 |       | —     |       | —                    |       |                      |       |                     |       |
| Options  forfeited                                 |       | (5,000     | )          | 19.24                     |       |                      |       |                     |       |
| Options expired                                    |       | (56,300    | )          | 28.57                     |       |                      |       |                     |       |
| Outstanding and  exercisable at July 31, 2008 |       | 386,100    |       | $                         | 26.88      |                      | 3.92       |                     | $          | — |   |
|                                                    |            |            |            |                           |            |                           |            |                          |            |  |  |

 

AtJuly 31, 2008 and January 31, 2008, options to purchase 386,100 and442,400 shares, respectively, were exercisable. There were no options granted in the first six months of fiscal 2009.

 

All outstanding stock options are vested as of July 31, 2008, andtherefore no expense was recorded during the first six months of fiscal 2009and an insignificant amount was recorded in fiscal 2008.

 

Authorized unissued shares may be used under the stock-based compensationplans. The Company intends to issue sharesof its common stock to meet the stock requirements of its awards in the future.

 

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**BLYTH, INC. AND SUBSIDIARIES**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**13.**          Related Party Transactions

 

On August 4, 2008, theCompany signed a definitive agreement (the “Agreement”) to purchase ViSalusHoldings, LLC (“ViSalus”), a direct seller of vitamins and other relatednutritional supplements, through a series of investments through 2012.  The completion of this transaction iscontingent upon ViSalus meeting certain operating targets and implementingcertain operating plans. As part of the transaction, the Company and ViSalusentered into a $5.0 million revolving credit facility that permits Visalus toborrow from the Company at interest rates comparable to those that the Companyreceives when borrowing from a third-party lender, except as describedbelow.  On July 30, 2008, theCompany advanced ViSalus approximately $2.5 million under this credit facility,which is due no earlier than 2014. Upon the implementation of certain operatingplans referred to previously, the $2.5 million will be converted to a 7.69%equity interest in ViSalus and the Company will execute rights under theAgreement to acquire an additional 32.31% equity interest for $10.5 million,bringing its total ownership interest in ViSalus to 40%.   This transaction is expected to occur beforeDecember 31, 2008. In addition, as permitted under the terms of theAgreement, the Company intends to make an additional series of purchases ofViSalus’s equity interests to increase its equity ownership over time to 55.0%,70.0% and 100.0%.  These additionalpurchases are dependent on ViSalus meeting certain operating targets incalendar year 2009, 2010 and 2011, respectively, subject to a one-time,one-year extension in any year as defined in the Agreement.  The purchase prices of the additionalinvestments are based on ViSalus’s future operating results as defined in theAgreement.

 

The acquisition of ViSalusby Blyth involves related parties. ViSalus is currently owned in part by RopartAsset Management Fund, LLC and Ropart Asset Management Fund II, LLC(collectively, “RAM”), which together own a significant minority interest inViSalus.  Robert B. Goergen, Chairman ofthe Board and Chief Executive Officer of Blyth, Robert B. Goergen, Jr.,Vice President of Blyth and President of the Multi-Channel Group, and Todd A.Goergen, son of Robert B. Goergen and Pamela Goergen (who is also a director ofBlyth), and brother of Robert B. Goergen, Jr., own, directly orindirectly, substantially all of the interests in RAM.  Todd A. Goergen is a member of the Board ofManagers of ViSalus.

 

As of July 31, 2008,the Company classified the $2.5 million outstanding under the revolving creditfacility within Deposits and other assets. The $2.5 million amount outstandingas of July 31, 2008 is non-interest bearing due to its anticipatedconversion to equity, as discussed above. Through July 31, 2008, theCompany has incurred $1.0 million in costs related to the transaction that havebeen deferred and are classified in Deposits and other assets. If the equityacquisition (as described above) does not take place, the Company willrecognize the $1.0 million in deferred costs as a current period expense.

 

**14.**          Segment Information

 

Blyth is a designer and marketer of home fragrance products andaccessories, home décor, seasonal decorations, household convenience items,personalized gifts and products for the foodservice trade.  We compete in the global Home Expressionsindustry, and our products can be found throughout North America, Europe andAustralia.  Our financial results arereported in three segments - the Direct Selling segment, the Catalog &Internet segment and the Wholesale segment. These reportable segments are based on similarities in distributionchannels, customers and management oversight.

 

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

 

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**BLYTH, INC. ANDSUBSIDIARIES**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**14.**          Segment Information *(continued)*

 

Within the Catalog & Internet segment, the Company designs,sources and markets a broad range of household convenience items, premium photoalbums, frames, holiday cards, personalized gifts, kitchen accessories andgourmet coffee and tea.  These productsare sold directly to the consumer under the Boca Java**®**,Easy Comforts**®**, Exposuresâ, Home Marketplace®, Miles Kimballâ and Walter Drakeâ brands.  These products are sold in North America.

 

Within the Wholesale segment, the Company designs, manufactures orsources, markets and distributes an extensive line of home fragrance products,candle-related accessories, seasonal decorations such as ornaments and trim andhome décor products such as picture frames, lamps and textiles.  Products in this segment are sold primarilyin North America to retailers in the premium and specialty channels under theCBK®, Colonial Candle of Cape Cod®, Colonial at HOMEâ and Seasons of Cannon Falls®brands.  In addition, chafing fuel andtabletop lighting products and accessories for the Away From Home orfoodservice trade are sold through this segment under the Ambria®, HandyFuel**®** and Sterno® brands.

 

Operating profit in all segments represents net sales less operatingexpenses directly related to the business segments and corporate expensesallocated to the business segments. Other expense includes interest expense, interest income and equity inearnings of investee, which are not allocated to the business segments.  Identifiable assets for each segment consistof assets used directly in its operations and intangible assets, if any, resultingfrom purchase business combinations. Unallocated Corporate within the identifiable assets include corporatecash and cash equivalents, short-term investments, prepaid income tax,corporate fixed assets, deferred bond costs and other long-term investments,which are not allocated to the business segments.

 
| ** **                                                                                | ** ** | **Three months ended July 31,** | ** ** | **Six months ended July 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| **(In thousands)**                                                                   | ** ** | **2008**                                            | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Net  Sales**                                                                            |       |                                                |       |                                              |       |   |   |   |   |
| Direct Selling                                                                            |       | $                                                   | 141,418    |                                              | $          | 130,219 |   | $ | 310,081 |   | $ | 290,463 |   |
| Multi-channel  Group:                                                                     |       |                                                |       |                                              |       |   |   |   |   |
| Catalog &  Internet                                                              |       | 39,324                                              |       | 40,176                                            |       | 75,988 |   | 80,072 |   |
| Wholesale                                                                                 |       | 56,044                                              |       | 64,476                                            |       | 100,565 |   | 134,703 |   |
| Subtotal  Multi-channel Group                                                             |       | 95,368                                              |       | 104,652                                           |       | 176,553 |   | 214,775 |   |
| **Total**                                                                                 |       | $                                                   | 236,786    |                                              | $          | 234,871 |   | $ | 486,634 |   | $ | 505,238 |   |
| **Operating  profit (loss)**                                                              |       |                                                |       |                                              |       |   |   |   |   |
| Direct Selling                                                                            |       | $                                                   | 12,486     |                                              | $          | 15,377 |   | $ | 32,262 |   | $ | 42,308 |   |
| Multi-channel  Group:                                                                     |       |                                                |       |                                              |       |   |   |   |   |
| Catalog &  Internet                                                              |       | (4,266                                              | )          | (2,903                                            | )          | (8,229 | ) | (5,056 | ) |
| Wholesale                                                                                 |       | (156                                                | )          | (4,804                                            | )          | (6,008 | ) | (12,926 | ) |
| Subtotal Multi-channel  Group                                                             |       | (4,422                                              | )          | (7,707                                            | )          | (14,237 | ) | (17,982 | ) |
|                                                                                      |       | 8,064                                               |       | 7,670                                             |       | 18,025 |   | 24,326 |   |
| Other expense                                                                             |       | (1,962                                              | )          | (1,961                                            | )          | (6,754 | ) | (3,145 | ) |
| **Earnings  (loss) from continuing operations before income taxes and minority interest** |       | $                                                   | 6,102      |                                              | $          | 5,709 |   | $ | 11,271 |   | $ | 21,181 |   |

 
|                          |   | **July 31, 2008** |    | **January 31, 2008** |   |
|-------------------------------|--------|-----------------------------|---------|--------------------------------|--------|
| **Identifiable  Assets**      |   |                        |    |                           |   |
| Direct Selling                |   | $                           | 310,694 |                           | $      | 306,484 |   |
| Multi-channel  Group:         |   |                        |    |                           |   |
| Catalog &  Internet  |   | 118,948                     |    | 103,677                        |   |
| Wholesale                     |   | 145,081                     |    | 146,612                        |   |
| Subtotal  Multi-channel Group |   | 264,029                     |    | 250,289                        |   |
| Unallocated  Corporate        |   | 70,155                      |    | 110,649                        |   |
| **Total**                     |   | $                           | 644,878 |                           | $      | 667,422 |   |

 

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** **

**BLYTH, INC. ANDSUBSIDIARIES**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**15.**                               Contingencies

** **

The Company has contingent liabilities that have arisen in the ordinarycourse of its business, including pending litigation.  The Company believes the outcome of thesematters will not have a material adverse affect on its consolidated financialposition, results of operations or cash flows.

 

In August 2008, a state department of revenueproposed to assess additional corporate income taxes on the Company for fiscal2002, 2003 and 2004 in the net amount of $34.9 million, which includesinterest.  In August 2008, the Company filed a protest of the assessment,which it intends to vigorously contest.  During fiscal 2008, the Companyestablished a reserve for this matter that it believes is adequate based onexisting facts and circumstances.  Although final resolution of thismatter is uncertain, based on currently available information, the Companybelieves that the ultimate outcome will not have a material adverse effect onits financial position, cash flows or results of operations.

 

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

** **

**RESULTS OF OPERATIONS:**

** **

**Overview**

 

Blyth is a designer and marketer of home fragrance productsand accessories, home décor, seasonal decorations, household convenience items,personalized gifts and products for the foodservice trade.  We compete in the global home expressionsindustry, and our products can be found throughout North America, Europe andAustralia.  Our financial results arereported in three segments - the Direct Selling segment, the Catalog &Internet segment and the Wholesale segment. These reportable segments are based on similarities in distributionchannels, customers and management oversight.

 

Today, annualized net sales are comprised of an approximately $700 millionDirect Selling business, an approximately $200 million Catalog &Internet business and an approximately $200 million Wholesale business.  Sales and earnings growth differ in eachsegment depending on geographic location, market penetration, our relativemarket share and product and marketing execution, among other business factors.

 

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

 

**Sale of Mass Channel Candle Business**

** **

On April 27, 2007, the Company sold certain assets and liabilities ofits Blyth HomeScents International North American mass channel candle business(“BHI NA”), which was part of the Wholesale segment.  The net assets were sold for $25.3 million,including $1.3 million of sales of surplus inventory, of which $21.8 millionwas received at closing during the first quarter of fiscal 2008, with theremaining amount received subsequently during fiscal 2008.

 

**Net Sales**

** **

Net sales for the six months ended July 31, 2008 decreased $18.6 million, or approximately 4%, to $486.6 million from$505.2 million in the first six months of the comparable prior yearperiod.  The decrease is primarily aresult of lower sales in our domestic markets across all segments, whichincluded the sale of BHI NA, partially offset by increased sales in PartyLite’sinternational markets.

 

Net sales for the threemonths ended July 31, 2008 increased $1.9 million, or 1%, to $236.8million, from $234.9 million in the comparable prior year period. Strong saleswithin PartyLite’s international markets, which included the positive impact offoreign exchange translation, were partially offset by lower sales in thedomestic operations within all of our segments.

 

Net Sales - Direct SellingSegment

 

Net sales in the DirectSelling segment for the six months ended July 31, 2008 increased $19.6million, or 7%, to $310.1 million from $290.5 million in the comparable prior year period.In PartyLite’s European markets, sales increased approximately 26% in U.S.Dollars, a 10% increase in local currency. PartyLite Canada reported anapproximate 13% increase in sales as measured in U.S. Dollars, a 2% increase insales in local currency, versus the prior year. Sales increases in theaforementioned markets were driven primarily by an increase in the number ofactive independent sales consultants in Europe and Canada of 16% and 5%,respectively. These increases were partially offset by a decline in PartyLite’sU.S. sales, which decreased 

 

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approximately 17%compared to the prior year primarily due to a decline in the number of activeindependent sales consultants.

 

Net sales in the Direct Selling segment for the threemonths ended July 31, 2008 increased $11.2 million, or 9%, to $141.4million from $130.2 million in the comparableprior year period. In PartyLite’s European markets, sales increasedapproximately 35% as measured in U.S. Dollars, an increase of 16% in sales inlocal currency, versus the prior year. PartyLite Canada’s sales increased 20%as measured in U.S. Dollars, a 13% increase in local currency, versus the prioryear. Sales increases in the aforementioned markets were driven primarily by anincrease in the number of active independent sales consultants. These sales increaseswere partially offset by a decline in PartyLite’s U.S. sales, which decreasedapproximately 16% compared to the prior year mainly due to a decline in activeindependent sales consultants.

 

Net Sales - Catalog & Internet Segment

 

Net sales in the Catalog & Internet segmentfor the six months ended July 31, 2008 decreased $4.1 million, or 5%, to$76.0 million from $80.1 million in the comparableprior year period. Sales declines across the segment, due in part to lower consumerdiscretionary spending, were partially offset by modest increases in the MilesKimball brand catalogs and relatively significant increases in the EasyComforts brand catalogs.

 

Net sales in the Catalog & Internet segment for the three monthsended July 31, 2008 decreased $0.9 million, or 2%, to $39.3 million from$40.2 million in the comparable prior year period.  Sales declines across the segment,due in part to lower consumer discretionary spending, were partially offset bymodest increases in the Miles Kimball brand catalogs and relatively significantincreases in the Easy Comforts brand catalogs.

 

Net Sales - Wholesale Segment

 

**Net sales in the Wholesale segment in the six months ended July 31,2008 decreased $34.1 million, or approximately 25%, to $100.6 million from$134.7 million in the**comparableprior year period. The decrease in sales is primarily dueto the sale of the BHI NA business in the first quarter of last year, as wellas declines in the home décor businesses, reflecting a softer housing market.

** **

**Net sales in the Wholesale segment inthe three months ended July 31, 2008 decreased $8.5 million, orapproximately 13% to $56.0 million from $64.5 million in the**comparable prior year period. The decreasein sales is primarily due to the sale of the BHI NA business, as well asdeclines in the home décor businesses, reflecting a softer housing market.

** **

**Gross Profit**

** **

Gross profit for the six months ended July 31, 2008, increased $4.3million, or 2%, to $267.4 million from $263.1 million in the comparable prior year period. The increase in gross profit isprincipally attributable to the prior year’s nonrecurring impairment andaccelerated depreciation charges of $2.6 million, resulting from the sale ofthe BHI NA business during fiscal 2008, as well as strong sales in PartyLiteEurope, partially offset by a decline in PartyLite’s U.S. sales. Grossprofit margin for the six months ended July 31, 2008 increased to 55.0% ofsales from 52.1% in the comparable prior year period. The increase in gross profit marginis primarily attributable to the prior year sale of BHI NA, the mass marketgross profit margins of which were lower that of Blyth’s other businesses,price increases and effective cost control efforts, partially offset by highercommodity costs in the current year.

 

Gross profit for the three months ended July 31, 2008, increased $6.6million, or 5%, to $128.0 million from $121.4 million in the comparable prior year period. This increase in gross profit is primarily due to the prior year’simpairment and accelerated depreciation charges of $2.1 million, resulting fromthe sale of the BHI NA business during fiscal 2008, as well as strong sales inPartyLite Europe, in part due to foreign currency translation and organic salesgrowth. Gross profit margin for the three months ended July 31,2008 increased to 54.1% of sales from 51.7% in the comparableprior year period.  The gross profit margin improvement is theresult of price increases and effective cost control efforts, partially offsetby a continued increase in commodity costs, and the aforementioned BHI NA salerelated charges.

 

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**Selling Expense**

** **

**Selling expense increased $13.8 million, or 8%, to $186.4million in the six months ended July 31, 2008, from $172.6 million in the**comparable prior year period. The increase in sellingexpense is primarily due to strategic initiatives undertaken by the PartyLitemarkets and the Wholesale segment to increase sales. These initiatives includevarious independent consultant promotional programs as well as customerrebates. These increases are partially offset by the decrease in sellingexpense related to BHI NA of $1.2 million, as a result of the sale of thisbusiness in fiscal 2008. As a percentage of net sales, selling expenseincreased to 38.3% of net sales for the six months ended July 31, 2008,compared to 34.2% of net sales during thecomparable prior year period.

** **

Selling expense for the three months ended July 31, 2008, increased$8.7 million, or 11%, to $87.7 million from $79.0 million in the comparable prior year period. As notedabove, the increase in selling expense is primarily due to initiativesundertaken by the North American PartyLite markets and the Wholesale segment toincrease sales. As a percentage of net sales, selling expense increased to37.0% of net sales for the quarter ended July 31, 2008, compared to 33.6%for the comparable prior year period.

 

**Administrative and Other Expense**

** **

**Administrative and other expense for the six months ended July 31,2008, decreased $3.1 million, or 5%, to $63.0 million from $66.1 million in the**comparable prior year period.  This decline was principally due to severance relatedcharges of $2.9 million taken in the prior year associated with the sale of BHINA in April 2007. As apercent of sales, administrative expense was 13.0% in the six months ended July 31,2008 versus 13.1% in the comparableprior year period.

** **

**Administrative and other expense for the three months ended July 31,2008, decreased $2.4 million, or 7%, to $32.3 million from $34.7 million in the**comparable prior year period.  As apercent of sales, administrative expense was 13.6% for the quarter ended July 31,2008 and 14.8% for the comparableprior year period. This decline was principally dueto severance related charges of $2.2 million taken in the prior year associatedwith the sale of BHI NA in April 2007.

** **

**Operating**Profit(Loss)

** **

Operating profit for the sixmonths ended July 31, 2008 decreased $6.3 million, or 26% to $18.0 millionfrom $24.3 million in the comparable prior year period. The decrease inoperating profit is primarily a result of decreased sales and additionalpromotional expenses at PartyLite U.S. and a higher operating loss at the MilesKimball Company, partially offset by improved performance in the Wholesalesegment and PartyLite Europe.  Theincrease in the loss at the Miles Kimball Company is attributable to lowersales and higher selling expenses resulting from higher shipping and papercosts. The Wholesale segment’s improved operating performance over the prioryear is the result of prior year BHI NA impairment and severance expensesrelated to the sale of BHI NA and improved operating performance at Sterno dueto strategic pricing and better cost management.

 

Operating profit for thethree months ended July 31, 2008 increased $0.4 million, or 5% to $8.1million from $7.7 million in the comparable prior year period.  In theprior year, the Company’s operating profit was negatively affected by theincrease in operating losses in the Wholesale segment as a result of impairmentand severance expenses related to the sale of BHI NA. In the Direct SellingSegment current year operating profits decreased as a result of lower sales atPartyLite U.S. and lower operating profits in the Catalog & InternetSegment.

 

Operating Profit - Direct Selling Segment

 

Operating profit in the Direct Selling segment****for the six months ended July 31,2008 decreased $10.0 million, or 24%, to $32.3 million from $42.3 million in comparable prior year period.  Thedecrease is primarily due to lower sales in PartyLite U.S. as well asadditional promotional initiatives to increase the number of independent salesconsultants. This decrease was partially offset by higher operating profits inPartyLite Europe due to higher sales as a result of an increase in activeindependent sales consultants.

 

Operating profit for the three months ended July 31, 2008 in theDirect Selling segment decreased $2.9 million, or 

 

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19%, to $12.5 million from $15.4 million in the comparable prior yearperiod. The decrease is primarily due to lower sales inPartyLite U.S. as well as continued promotional initiatives to increase thenumber of independent sales consultants in all markets offset in part by higheroperating profits in PartyLite Europe due to higher sales as a result of anincrease in its active independent sales consultants.

 

Operating Loss - Catalog & Internet Segment

 

Operating loss for the sixmonths ended July 31, 2008 in the Catalog & Internet segmentincreased by $3.1 million to $8.2 million, or 61%, from a $5.1 million loss inthe comparable prior year period.  Thisincreased loss is related to lower sales as the result of soft economicconditions and the impact of ERP implementation delays. Also contributing to theincrease in operating loss are higher printing and shipping and handling costs.The operating loss at Boca Java was reduced from last year primarily due tolower marketing and promotion expense.

 

Operating loss for the three months ended July 31, 2008 in theCatalog & Internet segment increased $1.4 million to $4.3 millionversus $2.9 million in the comparable prior year period.  The increase inoperating loss over the prior year is primarily due to lower sales as theresult of soft economic conditions, the aforementioned ERP implementation issuesand higher shipping and handling costs. The operating loss at Boca Javaprimarily was reduced from last year primarily due to lower marketing andpromotion expense.

 

Operating Loss - Wholesale Segment

 

Operating loss for the sixmonths ended July 31, 2008 in the Wholesale segment declined to $6.0million versus $12.9 million in the comparable prior year period. Infiscal 2008, additional costs were incurred due to the sale of the BHI NAbusiness, which included severance of $3.2 million, and the impairment ofcertain fixed assets and accelerated depreciation of $2.6 million. Operatingperformance improved at Sterno due to improved strategic pricing and bettercost management. This was offset in part by lower operating profits in theseasonal home décor businesses as a result of lower sales and the continuedsoft housing market.

 

Operating loss for the threemonths ended July 31, 2008 in the Wholesale segment decreased $4.6 millionto $0.2 million versus a loss of $4.8 million in the comparable prior yearperiod.  In the second quarter of fiscal 2008, additional costs wereincurred due to the sale of the BHI NA business, which included severance of$2.5 million, and the impairment of certain fixed asset and accelerateddepreciation of $2.1 million. Operating performance improved at Sterno due toimproved strategic pricing and better cost management. This was offset in partby lower operating profits in the seasonal home décor businesses as a result oflower sales attributable to the continued soft housing market.

 

**Interest Expense, Interest Income, and Foreign Exchange andOther**

** **

Interest expense for the six months ended July 31,2008, decreased approximately $2.4 million, or 33%, to $4.9 million from $7.3million in the comparable prior year period. Interest expense for the threemonths ended July 31, 2008 decreased approximately $1.2 million, or 33% to$2.4 million from $3.6 million in the comparable prior year period. Thedecrease in interest expense for both of these periods is primarily the resultof a decrease in long-term borrowings.

 

Interest income for the sixmonths ended July 31, 2008 decreased approximately $1.6 million to $2.4million from $4.0 million in the comparable prior year period. Interest incomefor the three months ended July 31, 2008 decreased approximately $1.1million to $1.0 million from $2.1 million in the comparable prior year period.The decrease in interest income is primarily due to lower cash and short-terminvestment balances, as well as our shift to lower yielding, less volatiletreasury bills.

 

Foreign exchange and otherlosses for the six months ended July 31, 2008 were $4.2 million comparedto a gain of $0.2 million in the comparable prior year period. The current year’sloss includes a $5.2 million write-off of our RedEnvelope investment in April 2008,partially offset by beneficial foreign exchange rate fluctuations. Foreignexchange and other losses for the three months ended July 31, 2008 were$0.6 million, compared to a loss of $0.4 million in the comparable prior year period.

 

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**Income Taxes**

** **

Our effective tax rate forthe six months ended July 31, 2008 and 2007 was 62.5% and 29.4%,respectively, which resulted in a provision for income taxes of $7.0 millionand $6.2 million, respectively. The higher effective tax rate in the six monthsended July 31, 2008 was primarily related to a $1.8 million valuationallowance for the capital loss recorded during the first quarter related to thewrite down of the RedEnvelope investment discussed in Note 4, as well as theimpact of additional taxes recorded during the current quarter resulting fromthe filing of amended tax returns for the tax years ended 2005 through2007.  In addition for the six monthsended July 31, 2007, our effective rate reflected a benefit of 11% for thereversal of a valuation allowance previously recorded.

 

The effective tax rate forthe three months ended July 31, 2008 was an expense of 50.3% compared toan expense of 43.9% in the prior year*.* The increase in the effective tax rate forthe current quarter is due primarily to the impact of additional taxesrecorded during the current quarter resulting from the filing of amended taxreturns for the tax years 2005 through 2007.

 

**Net Earnings**

** **

Net earnings for the sixmonths ended July 31, 2008 decreased $10.7 million, or 72%, to $4.2million in from $14.9 million for the same period in fiscal 2008.  The decrease is primarily a result ofdecreased sales at PartyLite U.S., lower operating profit at Miles Kimballresulting from lower sales and higher selling expenses driven by highershipping and paper costs, and higher income tax expense.  These decreases were partially offset by theimpact of prior year charges related to the BHI NA sale, as well as improvedoperating performance at Sterno due to strategic price increases and bettercost management.

 

Diluted earnings per share for the six month period ended July 31,2008, was $0.11, a decrease of $0.26 compared to $0.37 for the comparable prioryear period.

 

Net earnings for the three months ended July 31, 2008 decreased $0.2million, or 6%, to $3.0 million from $3.2 million for the same period in fiscal2008.  This decrease is attributed toincreased selling and promotional expenses within the Direct Selling segment,partially offset by the increased sales at ourinternational PartyLite markets.

 

Basic and diluted earnings per share for the three month periods ended July 31,2007 and 2008, were $0.08.

 

**Liquidity and Capital Resources**

** **

Cash and cash equivalents decreased $56.8 million to $106.2 million at July 31,2008 from $163.0 million at January 31, 2008. The decrease in cash duringthe first six months of fiscal 2009 was primarily related to cash used to meetworking capital needs, share repurchases, the payment of dividends, and theretirement of long-term debt.

 

Net cash used by operations was $59.9 million for the first six months offiscal 2009 compared to $28.9 million provided in the prior year period. Theincrease in cash used by operations is due to lower net earnings as well aschanges in working capital. Net changes in operating assets and liabilitiesdecreased cash by $84.0 million, driven primarily by an increase in inventory,due to planned inventory purchases for new product promotions, and accountsreceivable. Included in earnings were non-cash charges for depreciation andamortization of $10.3 million.

 

Net cash provided by investing activities was $6.4 million. Net capitalexpenditures for property, plant and equipment were $4.5 million for the firstsix months of fiscal 2009 compared to $4.0 million in the prior yearperiod.  We reduced our investment in thelimited partnership by $8.5 million and redeemed our investment in auction ratesecurities for $5.1 million. Included in investing activities is the $2.5million outstanding under the revolving credit facility issued to ViSalus.

 

Net cash used in financing activities was $7.1 million.  Use of cash for the six months period ended July 31,2008 included our dividend payment during the second quarter of $9.8 million,reduction of long-term debt and capital lease obligations of $6.2 million, andshare repurchases of $11.1 million. Net cash provided by our revolving creditfacility was $20.0 million.

 

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We anticipate total capital spending of approximately $10.0 million for fiscal2009. We have grown in part through acquisitions and, as part of this growthstrategy, we expect to continue from time to time in the ordinary course of itsbusiness to evaluate and pursue acquisition opportunities as appropriate.  We believe our financing needs in the shortand long term can be met from cash generated internally and through ourborrowing capacity from our existing credit agreements.

 

On August 4, 2008, the Company signed a definitive agreement topurchase ViSalus through a series of cash investments through 2012 as describedin Note 13 of the Condensed Consolidated Financial Statements. The acquisitionis dependent on ViSalus meeting certain operating targets and resolving otheroperating issues. The cost to complete this acquisition, which in part isdetermined by future operating results, will require additional capitalresources. We estimate that we will pay an additional $10.5 million, for atotal of $13.0 million including amounts outstanding under the revolving creditfacility, before December 31, 2008, in order to obtain a 40% interest inViSalus common stock.

 

On October 2, 2006, we executed Amendment No. 1 (the “Amendment”)to its unsecured revolving credit facility (“Credit Facility”) dated as of June 2,2005.  The Amendment (i) reduced theamount available for borrowing under the Credit Agreement from $150.0 millionto $75.0 million, (ii) changed the initial termination date from June 2,2010 to June 1, 2009, (iii) increased the rate of interest applicableto loans under the Credit Agreement and (iv) modified some of thecovenants.  We have the ability toincrease the amount available for borrowing, under certain circumstances, by anadditional $50.0 million.  The CreditFacility may be used for seasonal working capital needs and general corporatepurposes, including strategic acquisitions. The Credit Facility contains, amongother provisions, requirements for maintaining certain financial ratios andlimitations on certain payments.  As of July 31,2008, the Company was in compliance with such provisions.  Amounts outstanding under the amended CreditFacility bear interest, at our option, at the JPMorgan Chase Bank’s prime rateor the Eurocurrency rate plus a spread ranging from 0.80% to 1.70% calculatedon the basis of our senior unsecuredlong-term debt rating.  Amounts availablefor borrowing under this facility were approximately $51.5 million as of July 31,2008, reflecting $20.0 million of outstanding borrowings and $3.5 million inoutstanding letters of credit.

 

As of July 31, 2008, we had a total of $2.0 million available underan uncommitted facility with Bank of America, to be used for letters of creditthrough January 31, 2009.  As of July 31,2008, no letters of credit were outstanding under this facility.

 

In May 1999, we filed a shelfregistration statement for issuance of up to $250.0 million in debt securitieswith the Securities and Exchange Commission. On September 24, 1999, we issued $150.0 million of 7.90% SeniorNotes due October 1, 2009 at a discount of approximately $1.4 million,which is being amortized over the life of the notes. Through July 31,2008, we have repurchased a total of $106.2 million of these notes.  Such notes contain, among other provisions,restrictions on liens on principal property or stock issued to collateralizedebt.  As of July 31, 2008, we werein compliance with such provisions. Interest is payable semi-annually in arrears on April 1 and October 1.  On October 20, 2003, we issued $100.0million of 5.50% Senior Notes due on November 1, 2013 at a discount ofapproximately $0.2 million, which is being amortized over the life of thenotes.  Such notes contain provisions andrestrictions similar to those in the 7.90% Senior Notes.  As of July 31, 2008, we were incompliance with such provisions. Interest is payable semi-annually in arrears on May 1 and November 1.  The notes may be redeemed in whole or in partat any time at a specified redemption price. The proceeds of the debt issuances were used for general corporatepurposes.

 

As of July 31, 2008, Miles Kimball hadapproximately $8.4 million of long-term debt outstanding under a real estatemortgage note payable to John Hancock Life Insurance Company, which matures June 1,2020.  Under the terms of the note,payments of principal and interest are required monthly at a fixed interestrate of 7.89%.

 

As of July 31, 2008, CBK had$0.1 million of long-term debt outstanding under an Industrial Revenue Bond (“IRB”),which matures on January 1, 2025. The bond is backed by an irrevocable letter of credit issued by LaSalleBank National Association.  The loan iscollateralized by certain of CBK’s assets. The amount outstanding under the IRB bears interest at short-termfloating rates, which equaled a weighted average interest rate of 2.6% at July 31,2008.  Payments of principal are requiredannually and interest payments are required monthly under the terms of thebond.

 

On December 13, 2007, our Board of Directors authorized a new stockrepurchase program for 6,000,000 shares that will become effective after weexhaust the 12,000,000 shares authorized for repurchase under the old 

 

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repurchase program.  Since January 31,2008, we have purchased 811,545 shares on the open market, for a cost of $11.1million, bringing the cumulative total purchased shares to 10,462,280 as of July 31,2008, for a total cost of approximately $224.8 million.  Additionally in fiscal 2005, 4,906,616 shareswere repurchased through a Dutch auction cash tender offer for an aggregatepurchase price of $172.6 million, including fees and expenses.  The acquired shares are held as common stock intreasury at cost.

 

**Critical Accounting Policies**

** **

There were no changes to our critical accounting policies in the secondquarter of fiscal 2009.  For a discussionof the Company’s critical accounting policies see our Annual Report on Form 10-Kfor the fiscal year ended January 31, 2008.

 

**Recent Accounting Pronouncements**

** **

**In December 2007, the FASB issuedSFAS No. 141(revised 2007), “BusinessCombinations”**(“SFAS No. 141R”).SFAS No. 141R will significantly change the accounting for businesscombinations in a number of areas including the treatment of contingentconsideration, contingencies, acquisition costs, IPR&D and restructuringcosts. In addition, under SFAS No. 141R, changes in deferred taxasset valuation allowances and acquired income tax uncertainties in a businesscombination after the measurement period will impact income tax expense.SFAS No. 141R is effective for fiscal years beginning after December 15,2008 and, as such, we will adopt this standard in fiscal 2010. We will berequired to account for any acquisition entered into subsequent to January 31,2009 in accordance with the provisions of this statement. . We do not expect asignificant impact of SFAS No. 141R on our consolidated financialstatements.**

** **

**In December 2007, the FASB issuedSFAS No. 160, “NoncontrollingInterests in Consolidated Financial Statements, an amendment of ARB No. 51”(“SFAS No. 160”). SFAS No. 160 will change theaccounting and reporting for minority interests, which will be recharacterizedas noncontrolling interests and classified as a component of equity. This newconsolidation method will significantly change the accounting for transactionswith minority interest holders. SFAS No. 160 is effective for fiscalyears beginning after December 15, 2008 and, as such, we will adopt thisstandard in fiscal 2010. We do not expect a significant impact of SFAS No. 160on our consolidated financial statements.**

** **

**In March 2008, the FASB issued SFASNo. 161, “Disclosures aboutDerivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133”(“SFAS No. 161”).**SFASNo. 161 requires disclosures of how and why an entity uses derivativeinstruments, how derivative instruments and related hedged items are accountedfor under SFAS No. 133 and how derivative instruments and related hedgeditems affect an entity’s financial position, financial performance, and cashflows. SFAS No. 161 is effective for fiscal years beginning after November 15,2008, with early adoption permitted. We do not expect the expanded disclosuresof SFAS No. 161 to have a significant impact on our consolidatedfinancial statements.**

** **

**In May 2008, the**FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”).The new standard is intended to improve financial reporting by identifying aconsistent framework, for selecting accounting principles to be used inpreparing financial statements that are presented in conformity with U.S.generally accepted accounting principles (GAAP) for nongovernmental entities. SFAS162 is effective 60 days following the Securities and Exchanges Commission’sapproval of the Public Company Accounting Oversight Board Auditing amendmentsto AU Section 411, “The Meaningof Present Fairly in Conformity with Generally Accepted Accounting Principles.”  We do not expect a significant impact of SFAS No. 162on our consolidated financial statements.

** **

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** **

**Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK**

** **

**Market Risk**

** **

We have operations outside of the United States and sell our productsworldwide.  Our activities expose us 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.

 

**Interest Rate Risk**

** **

We are subject to interest rate risk on bothvariable rate debt and our investments in auction rate securities.  As of July 31, 2008, the company issubject to interest rate risk on approximately $0.1 million of variable ratedebt.  A 1-percentage point increase inthe interest rate would not have a material impact on our financial statements.  As of July 31, 2008, we held $19.9million of non-current investments, which consist of auction ratesecurities.  A 1-percentage pointdecrease in the rate of return would impact annual pre-tax earnings byapproximately $0.2 million if applied to the total.

 

On July 10, 2003, we terminated the interest rate swap agreement inrelation to $50.0 million of our outstanding 7.90% Senior Notes, which matureon October 1, 2009.  Thistermination resulted in a deferred gain of approximately $5.0 million, which isbeing amortized over the remaining term of the notes.  At July 31, 2008, there was $0.8 millionremaining to be amortized.

 

**Foreign Currency Risk**

** **

We use foreign exchange forward and options contracts to hedge the impactof foreign currency fluctuations on foreign denominated inventory purchases,intercompany payables and certain foreign denominated loans. We do not hold orissue derivative financial instruments for trading purposes.  We haveand continue to hedge the net assets of certain of our foreign operationsthrough foreign currency forward contracts. The net after-tax loss related tothe derivative net investment hedges recorded in Accumulated other comprehensiveincome (loss) (“AOCI”) during the six months ended July 31, 2008 was $1.9million. The net loss position in AOCI related to net investment hedges as of July 31,2008 was $0.1 million.

 

We have designated our forward exchange and options contracts onforecasted intercompany purchases and future purchase commitments as cash flowhedges and, as such, as long as the hedge remains effective and the underlyingtransaction remains probable, the effective portion of the changes in the fairvalue of these contracts will be recorded in AOCI until earnings are affectedby the variability of the cash flows being hedged.  With regard to commitments for inventorypurchases, upon payment of each commitment, the underlying forward contract isclosed and the corresponding gain or loss is transferred from AOCI and isincluded in the measurement of the cost of the acquired asset.  If a hedging instrument is sold or terminatedprior to maturity, gains and losses are deferred in AOCI until the hedged itemis settled.  However, if the hedged itemis no longer likely to occur, the resultant gain or loss on the terminatedhedge is recognized into earnings immediately. During the first six months of fiscal 2009 the amount transferred toearnings was insignificant. Losses included in accumulated AOCI at July 31,2008 are $0.2 million and are expected to be transferred into earnings withinthe next twelve months upon payment of the underlying commitment.

 

We have designated our foreign currency forward contracts related tocertain foreign denominated loans and intercompany payables as fair valuehedges.  The gains or losses on the fairvalue hedges are recognized into earnings and generally offset the transactiongains or losses in the foreign denominated loans that they are intended tohedge.

 

For consolidated financial statement presentation, net cash flows fromsuch hedges are classified in the categories of the Condensed ConsolidatedStatement of Cash Flows with the items being hedged.

 

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The following table provides information about our foreign exchangeforward contracts at July 31, 2008:

 
| ** **                                                                | ** ** | **U.S. Dollar**     | ** ** | **Average**            | ** ** | **Unrealized**       | ** ** |
|---------------------------------------------------------------------------|------------|--------------------------|------------|------------------------|------------|----------------------|------------|
| **(In thousands, except average contract rate)** | ** ** | **Notional Amount** | ** ** | **Contract Rate** | ** ** | **Gain (Loss)** | ** ** |
| Canadian Dollar                                                           |       | $                        | 3,400      |                   | 1.00       |                 | $          | 76 |   |
| Euro                                                                      |       | 56,470                   |       | 1.47                   |       | (3,319               | )          |
|                                                                      |       | $                        | 59,870     |                   |       |                 | $          | (3,243 | )  |

 

The foreign exchange contracts outstandinghave maturity dates through December 2008.

 

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** **

**Item 4.  CONTROLSAND PROCEDURES**

** **

(a) Evaluation of disclosure controls andprocedures.

 

Our management, with theparticipation of our principal executive officer and our principal financialofficer, evaluated the effectiveness of our disclosure controls and procedures(as defined in Securities Exchange Act of 1934 (“Exchange Act”) Rules 13a-15(e) or15d-15(e)) as of the end of the period covered by this quarterly report asrequired by paragraph (b) of Exchange Act Rules 13a-15 or15d-15.  Based upon this evaluation, ourprincipal executive officer and our principal financial officer have concludedthat our disclosure controls and procedures are effective as of July 31,2008.

 

(b) Changes in internal control over financialreporting.

 

There have been no changesin our internal control over financial reporting identified in connection withthe evaluation required by paragraph (d) of Exchange Act Rules 13a-15or 15d-15 that occurred during the second quarter of fiscal 2009 that hasmaterially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

 

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**Part II. OTHER INFORMATION**

** **

**Item1.**   Legal Proceedings

** **

None.

 

**Item 1A. RiskFactors**

 

There have been no changes to the risksdescribed in the Company’s Annual Report on Form 10-K for the fiscal yearended January 31, 2008.

 

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**Item2.**   Unregistered Sales ofEquity Securities and Use of Proceeds

** **

The following table sets forth certain information concerning therepurchase of the Company’s Common Stock made by the Company during the secondquarter of the fiscal year ending January 31, 2009.

 

##### **ISSUER PURCHASES OF EQUITYSECURITIES(1)**

 
| **Period**                                   | ** ** | **(a) Total   Number of   Shares   Purchased** | ** ** | **(b)   Average   Price Paid   per Share** | ** ** | **(c) Total   Number of   Shares   Purchased as   Part of Publicly   Announced   Plans or   Programs** | ** ** | **(d) Maximum of Shares   that May Yet Be   Purchased Under the   Plans or Programs** | ** ** |
|----------------------------------------------|------------|-------------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                   | ** ** | ** **                                                              | ** ** | ** **                                                          | ** ** | ** **                                                                                                                                                              | ** ** | ** **                                                                                                                                             | ** ** |
| May 1, 2008  – May 31, 2008   |       | —                                                                  |       | —                                                              |       | —                                                                                                                                                                  |       | 8,217,132                                                                                                                                              |       |
|                                         |       |                                                                    |       |                                                                |       |                                                                                                                                                                    |       |                                                                                                                                                   |       |
| June 1,  2008 – June 30, 2008 |       | 127,700                                                                 |       | $                                                                   | 13.24      |                                                                                                                                                                    | 127,700    |                                                                                                                                                   | 8,089,432  |   |
|                                         |       |                                                                    |       |                                                                |       |                                                                                                                                                                    |       |                                                                                                                                                   |       |
| July 1,  2008 – July 31, 2008 |       | 551,712                                                                 |       | $                                                                   | 12.49      |                                                                                                                                                                    | 557,712    |                                                                                                                                                   | 7,537,720  |   |
|                                         |       |                                                                    |       |                                                                |       |                                                                                                                                                                    |       |                                                                                                                                                   |       |
| Total                                        |       | 679,412                                                                 |       | $                                                                   | 12.63      |                                                                                                                                                                    | 679,412    |                                                                                                                                                   | 7,537,720  |   |

 

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(1)         On September 10,1998, the Company’s Board of Directors approved the Company’s share repurchaseprogram (the “Repurchase Program”) pursuant to which the Company was authorizedto repurchase up to 1,000,000 shares of its issued and outstanding Common Stockin open market transactions.  From June 1999to June 2006, the Board of Directors increased the authorization underthis repurchase program five times (on June 8, 1999 to increase theauthorization by 1.0 million shares to 2.0 million shares; on March 30,2000 to increase the authorization by 1.0 million shares to 3.0 million;  on December 14, 2000 to increase theauthorization by 1.0 million shares to 4.0 million shares; on April 4,2002 to increase the authorization by 2.0 million shares to 6.0 millionshares;  and on June 7, 2006 toincrease the authorization by 6.0 million shares to 12.0 million shares). On December 13,2007, the Board of Directors authorized a new repurchase program, for 6.0million shares, which will become effective after we exhaust the authorizedamount under the old repurchase program.  As of July 31, 2008, wehave purchased a total of 10,462,280 shares of Common Stock under the oldrepurchase program.  The repurchase programs do not have expiration dates. We intend to make further purchases under the repurchase programs from time totime.

 

**Item3.**   Defaults upon SeniorSecurities

** **

None

 

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**Item4.**   Submission of Mattersto a Vote of Security Holders

** **

Thefollowing matters were voted upon at the Annual Meeting of Stockholders held onJune 4, 2008, and received the votes set forth below:

 

1)Each of the following persons nominated was elected to serve as a director andreceived the number of votes set forth opposite their name.

 
| ** **          | ** ** | **For**    | ** ** | **Against** | ** ** | **Withheld** | ** ** | **Abstentions** | ** ** |
|---------------------|------------|------------|------------|-------------|------------|--------------|------------|-----------------|------------|
| Anne M. Busquet     |       | 32,945,737 |       | 0           |       | 347,141      |       | 0               |       |
| Wilma H. Jordan     |       | 32,310,290 |       | 0           |       | 982,588      |       | 0               |       |
| James M.  McTaggart |       | 32,814,027 |       | 0           |       | 478,851      |       | 0               |       |

 

Inaddition to the directors elected at the meeting, the directors of the Companywhose terms of office continued after the meeting are: Pamela M. Goergen andCarol J. Hochman (terms expiring in 2009), and Robert B. Goergen, Neil I.Goldman and Howard E. Rose (terms expiring in 2010).

 

2)  A proposal to approve the Amended andRestated 2003 Omnibus Incentive Plan received 30,709,340 votes for, 837,370votes against, and 30,212 abstentions.

 

3)A proposal to ratify the appointment of Deloitte & Touche LLP asindependent auditors received 33,291,100 votes for, 1,645 votes against, and131 abstentions.

 

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

 

None

 

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**Item6.**   Exhibits

** **

Exhibits

 

31.1        Certification of Chairman and Chief Executive Officerpursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

 

31.2        Certification of Vice President and Chief FinancialOfficer pursuant to Rule 13a-14(a) under the Securities Exchange Actof 1934.

 

32.1        Certification of Chairman and ChiefExecutive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of2002.

 

32.2        Certification of Vice President and ChiefFinancial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of2002.

 

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**SIGNATURES**

** **

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 

 
|   |   |   |                                            | BLYTH, INC.                                 |
|--------|--------|--------|-------------------------------------------------|---------------------------------------------|
|   |   |   |                                            |                                        |
|   |   |   |                                            |                                        |
|   |   | Date:  |     September 4,  2008 |                                        | By: | /s/Robert B. Goergen |
|   |   |   |                                            | Robert B. Goergen                           |
|   |   |   |                                            | Chairman and Chief  Executive Officer       |
|   |   |   |                                            |                                        |
|   |   |   |                                            |                                        |
|   |   | Date:  |     September  4, 2008      |                                        | By: | /s/Robert H. Barghaus |
|   |   |   |                                            | Robert H. Barghaus                          |
|   |   |   |                                            | Vice President and  Chief Financial Officer |

 

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