UNITED STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





(Mark
One)





x              ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934





For the
fiscal year ended January 31, 2009





or






            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
      EXCHANGE ACT OF 1934





For the
transition period from ______________ to ______________





Commission
File number 1-13026





BLYTH,
INC.


(Exact
Name of Registrant as Specified in Its Charter)





Delaware
            36-2984916(State
      or Other Jurisdiction of
              Incorporation
      or Organization)
            (I.R.S.
      Employer
              Identification
      No.)One
      East Weaver Street
              Greenwich,
      Connecticut
            06831(Address
      of Principal Executive Offices)
            (Zip
      Code)





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





Securities
registered pursuant to Section 12(b) of the Act:





Title of each class
            Name
      of each exchange
              on which registeredCommon
      Stock, par value $0.02 per share
            New
      York Stock Exchange






Securities
registered pursuant to Section 12(g) of the Act:  None







Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes  
    No  x







Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  Yes  
    No  x














x




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  x





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





Large accelerated filer
              
              Non-accelerated
      filer
            Accelerated
      filer x
              
              Smaller
      reporting company 




Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes       No  x







The
aggregate market value of the voting common equity held by non-affiliates of the
registrant was approximately $351.9 million based on the closing price of the
registrant’s Common Stock on the New York Stock Exchange on July 31, 2008 and
based on the assumption, for purposes of this computation only, that all of the
registrant’s directors and executive officers are affiliates.





As of
March 31, 2009, there were 8,892,665 outstanding shares of Common
Stock.





DOCUMENTS
INCORPORATED BY REFERENCE





Portions
of the 2009 Proxy Statement for the Annual Meeting of Shareholders to be held on
June 10, 2009 (Incorporated into Part III).


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TABLE
OF CONTENTS


PART
      IItem
      1.
            
            Business
            
            4Item
      1A.
            
            Risk Factors
            
            9Item
      1B.
            
            Unresolved Staff Comments
            
            14Item
      2.
            
            Properties
            
            14Item
      3.
            
            Legal Proceedings
            
            15Item
      4.
            
            Submission of Matters to a Vote of Security
      Holders
            
            15PART
      IIItem
      5.
            
            Market for Registrant’s Common Equity, Related
      Stockholder Matters and Issuer Purchases of Equity
      Securities
            
            16Item
      6.
            
            Selected Financial Data
            
            20Item
      7.
            
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            
            22Item
      7A.
            
            Quantitative and Qualitative Disclosures About Market
      Risk
            
            42Item
      8.
            
            Financial Statements and Supplementary
    Data
            
            44Item
      9.
            
            Changes in and Disagreements with Accountants on Accounting
      and Financial Disclosure
            
            83Item
      9A.
            
            Controls and Procedures
            
            83Item
      9B.
            
            Other Information
            
            86PART
      IIIItem
      10.
            
            Directors, Executive Officers and Corporate
      Governance
            
            87Item
      11.
            
            Executive Compensation
            
            87Item
      12.
            
            Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
            
            87Item
      13.
            
            Certain Relationships and Related Transactions, and
      Director Independence
            
            87Item
      14.
            
            Principal Accountant Fees and Services
            
            87PART
      IVItem
      15.
            
            Exhibits, Financial Statement Schedules
            
            88








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PART
      I


Item 1.  Business


(a)  General
Development of Business





Blyth,
Inc. (together with its subsidiaries, the “Company,” which may be referred to as
“we,” “us” or “our”) is a multi-channel company competing primarily in the home
fragrance and decorative accessories industry.  We design, market and
distribute an extensive array of decorative and functional household products
including candles, accessories, seasonal decorations, household convenience
items and personalized gifts. We also marketchafing
fuel and other products forthe foodservice trade,nutritional supplements
and weight management products. Our distribution channels include direct sales,
catalog & Internet and wholesale.  Sales and operations take place
primarily in the United States, Canada and Europe, with additional activity in
Mexico, Australia and the Far East.





Business
Acquisition





On August
4, 2008, we signed a definitive agreement to purchase ViSalus Holdings, LLC
(“ViSalus”), a direct seller of vitamins and other related nutritional
supplements, through a series of investments.  On October 21, 2008, we
completed the initial investment and acquired a 43.6% equity interest in ViSalus
for $13.0 million in cash.  In addition, we may be required to make
additional purchases of ViSalus’s equity interest to increase our equity
ownership over time to 57.5%, 72.7% and 100.0%.  These additional
purchases are conditioned upon ViSalus meeting certain operating targets in
calendar year 2009, 2010 and 2011, subject to a one-time, one-year
extension.  The purchase prices of the additional investments are
based on ViSalus’s future operating results. We have the option to acquire the
remaining interest in ViSalus even if they do not meet the predefined operating
targets.





Additional
Information




Additional
information is available on our website, www.blyth.com.  Our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and any amendments thereto filed or furnished pursuant to the Securities
Exchange Act of 1934 are available on our website free of charge as soon as
reasonably practicable following submission to the SEC.  Also
available on our website are our corporate governance guidelines, code of
conduct, and the charters for the audit committee, compensation committee, and
nominating and corporate governance committee, each of which is available in
print to any shareholder who makes a request to Blyth, Inc., One East Weaver
Street, Greenwich, CT 06831, Attention: Secretary. The information posted to
www.blyth.com, however, is not incorporated herein by reference and is not a
part of this report.





(b)  Financial
Information about Segments





We report
our financial results in three business segments: the Direct Selling segment,
the Catalog & Internet segment and the Wholesale segment.  These
segments accounted for approximately 63%, 18% and 19% of consolidated net sales,
respectively, for fiscal 2009. Financial information relating to these business
segments for fiscal 2007, 2008 and 2009 appears inNote 17 to the
Consolidated Financial Statements and is incorporated herein by
reference.













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(c)           Narrative Description of
Business





Direct
Selling Segment





In fiscal
2009, the Direct Selling segment represented approximately 63% of total
sales.  Our principal Direct Selling business is PartyLite, which
sells premium candles and home fragrance products and related decorative
accessories.  PartyLiteâbrand
products are marketed in North America, Europe and Australia through a network
of independent sales consultants using the party plan method of direct
selling.  These products include fragranced and non-fragranced
candles, bath products and a broad range of related accessories.





In fiscal
2006, we acquired a party plan company called Two Sisters Gourmet, which is
focused on selling gourmet food. Effective March 31, 2009, we combined the
Two Sisters Gourmet brand into our PartyLite business and will continue to offer
these products as part of the PartyLite party concept.  In October
2008, we acquired our interest in ViSalus, a distributor-based
business that sells nutritional supplements, energy drinks and weight
management products. Both businesses represented approximately 1% of total sales
of the Direct Selling segment in fiscal 2009.





United
States Market





Within
the United States market, PartyLiteâ brand products are sold directly to consumers through
a network of independent sales consultants.  These consultants are
compensated on the basis of PartyLite product sales at parties organized by them
and parties organized by consultants recruited by them.  Over 21,000
independent sales consultants located in the United States were selling
PartyLite products at January 31, 2009.  PartyLite products are
designed, packaged and priced in accordance with their premium quality,
exclusivity and the distribution channel through which they are sold.
Independent distributors sell ViSalus brand products using a one-to-one direct
sales model.





International
Market





In fiscal
2009, PartyLite products were sold internationally by more than 42,000
independent sales consultants located outside the United
States.  These consultants were the exclusive distributors of
PartyLite brand products internationally. PartyLite’s international markets
during fiscal 2009 were Australia, Austria, Canada, Denmark, Finland,
France, Germany, Ireland, Mexico, Norway, Switzerland and the United
Kingdom.





We
support our independent sales consultants with inventory management and control,
and satisfy delivery requirements through an Internet-based order entry system,
which is available to all independent sales consultants in the United States,
Canada and Europe.





Catalog
& Internet Segment





In fiscal
2009, this segment represented approximately 18% of total sales.  We
design, market and distribute a wide range of household convenience items,
personalized gifts and photo storage products, as well as coffee and tea, within
this segment.  These products are sold through the Catalog and
Internet distribution channel under brand names that include As We Changeâ, Boca Javaâ, Easy Comfortsâ, Exposuresâ, Home
Marketplaceâ,
Miles Kimballâ
and Walter Drakeâ.





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Wholesale
Segment





In fiscal
2009, this segment represented approximately 19% of total sales. Products within
this segment include candles and related accessories, seasonal decorations and
home décor products such as lamps, picture frames and decorative metal
accessories. In addition, chafing fuel and tabletop lighting products and
accessories for the “away from home” or foodservice trade are sold in this
segment.  Our wholesale products are designed, packaged and priced to
satisfy the varying demands of retailers and consumers within each distribution
channel.




In April
2007, we sold certain assets and liabilities of our Blyth
HomeScents International North American mass channel candle business (“BHI
NA”),which was
part of the Wholesale segment.





Products
sold in the Wholesale segment in the United States are marketed through the
premium consumer wholesale channels and sold to independent gift shops,
specialty chains, department stores, food and drug outlets, mass retailers,
hotels, restaurants and independent foodservice distributors through independent
sales representatives, our key account managers and our sales managers. Our
sales force supports our customers with product catalogs and samples,
merchandising programs and selective fixtures.  Our sales force also
receives training on the marketing and proper use of our products.





Product
Brand Names





The key
brand names under which our Direct Selling segment products are sold
are:





PartyLiteâ
              Well
      Being by PartyLiteâ
            Two
      Sisters Gourmetâ
              ViSalus
      Sciencesâ





The key
brand names under which our Catalog & Internet segment products are sold
are:





As
      We Changeâ
              Boca
      Javaâ
              Easy
      Comfortsâ
              Exposuresâ
            Home
      Marketplaceâ
              Miles
      Kimballâ
              Walter
      Drakeâ





The key
brand names under which our Wholesale segment products are sold
are:





Ambriaâ
              CBKâ
              Colonial
      Candleâ
              Colonial
      Candle of Cape Codâ
            Colonial
      at HOMEâ
              HandyFuelâ
              Seasons
      of Cannon Fallsâ
              Sternoâ





New
Product Development





Concepts
for new products and product line extensions are directed to the marketing
departments of our business units from within all areas of the Company, as well
as from our independent sales representatives and worldwide product
manufacturing partners.  The new product development process may
include technical research, consumer market research, fragrance studies,
comparative analyses, the formulation of engineering specifications, feasibility
studies, safety assessments, testing and evaluation.


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Manufacturing,
Sourcing and Distribution





In all of
our business segments, management continuously works to increase value and lower
costs through increased efficiency in worldwide production, sourcing and
distribution practices, the application of new technologies and process control
systems, and consolidation and rationalization of equipment and
facilities.  Net capital expenditures over the past five years have
totaled $73.6 million and are targeted to technological advancements and normal
maintenance and replacement projects at our manufacturing and distribution
facilities.  We have also closed several facilities and written down
the values of certain machinery and equipment in recent years in response to
changing market conditions.





We
manufacture most of our candles using highly automated processes and
technologies, as well as certain hand crafting and finishing, and source nearly
all of our other products, primarily from independent manufacturers in the
Pacific Rim, Europe and Mexico.  Many of our products are manufactured
by others based on our design specifications, making our global supply chain
approach critically important to new product development, quality control and
cost management.  We have also built a network of stand-alone highly
automated distribution facilities in our core markets.





Customers





Customers
in the Direct Selling segment are individual consumers served by independent
sales consultants.  Sales within the Catalog & Internet segment
are also made directly to consumers.  Wholesale segment customers
primarily include independent gift and department stores, specialty chains,
foodservice distributors, hotels and restaurants.  No single customer
accounts for 10% or more of sales.





Competition





All of
our business segments are highly competitive, both in terms of pricing and new
product introductions.  The worldwide market for home expressions
products is highly fragmented with numerous suppliers serving one or more of the
distribution channels served by us.  In addition, we compete for
direct selling consultants with other direct selling
companies.  Because there are relatively low barriers to entry in all
of our business segments, we may face increased competition from other
companies, some of which may have substantially greater financial or other
resources than those available to us. Competition includes companies selling
candles manufactured at lower costs outside of the United
States.  Moreover, certain competitors focus on a single geographic or
product market and attempt to gain or maintain market share solely on the basis
of price.





Employees





As of
January 31, 2009, we had approximately 2,600 full-time employees, of whom
approximately 18% were based outside of the United
States.  Approximately 60% of our employees are
non-salaried.  We do not have any unionized employees. We believe that
relations with our employees are good.  Since our formation in 1977,
we have never experienced a work stoppage.





Raw
Materials





All of
the raw materials used for our candles, home fragrance products and chafing
fuel, principally petroleum-based wax, fragrance, glass containers and
corrugate, have historically been available in adequate supply from multiple
sources.  In fiscal 2009, costs continued to


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increase
for certain raw materials, such as paraffin and other wax products, dyethelene
glycol (DEG) and ethanol, as well as steel and paper, which negatively impacted
profitability of certain products in all three segments.





Seasonality





Our
business is seasonal, with our net sales strongest in the third and fourth
fiscal quarters due to increased shipments to meet year-end holiday season
demand for our products. For additional information, see “Management’s
Discussion and Analysis of Financial Condition and Results of Operations –
Seasonality.”





Trademarks
and Patents





We own
and have pending numerous trademark and patent registrations and applications in
the United States Patent and Trademark Office related to our
products.  We also register certain trademarks and patents in other
countries.  While we regard these trademarks and patents as valuable
assets to our business, we are not dependent on any single trademark or patent
or group thereof.





Environmental
Law Compliance





Most of
the our manufacturing, distribution and research operations are affected by
federal, state, local and international environmental laws relating to the
discharge of materials or otherwise to the protection of the
environment.  We have made and intend to continue to make expenditures
necessary to comply with applicable environmental laws, and do not believe that
such expenditures will have a material effect on our capital expenditures,
earnings or competitive position.





(d)           Financial
Information about Geographic Areas





For
information on net sales from external customers attributed to the United States
and international geographies and on long-lived assets located in the United
States and outside the United States, see Note 17 to the Consolidated Financial
Statements.
















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Item 1A.  Risk Factors





We
may be unable to increase sales or identify suitable acquisition
candidates.





Our
ability to increase sales depends on numerous factors, including market
acceptance of existing products, the successful introduction of new products,
growth of consumer discretionary spending, our ability to recruit new
independent sales consultants, sourcing of raw materials and demand-driven
increases in production and distribution capacity.  Business in all of
our segments is driven by consumer preferences.  Accordingly, there
can be no assurances that our current or future products will maintain or
achieve market acceptance.  Our sales and earnings results can be
negatively impacted by the worldwide economic environment, particularly the
United States, Canadian and European economies.  There can be no
assurances that our financial results will not be materially adversely affected
by these factors in the future.





Our
historical growth has been due in part to acquisitions, and we continue to
consider additional strategic acquisitions.  There can be no
assurances that we will continue to identify suitable acquisition candidates,
consummate acquisitions on terms favorable to us, finance acquisitions
successfully integrate acquired operations or that companies we acquire
will perform as anticipated.





We
may be unable to respond to changes in consumer preferences.





Our
ability to manage our inventories properly is an important factor in our
operations. The nature of our products and the rapid changes in customer
preferences leave us vulnerable to an increased risk of inventory obsolescence.
Excess inventories can result in lower gross margins due to the excessive
discounts and markdowns that might be necessary to reduce inventory levels. Our
ability to meet future product demand in all of our business segments will
depend upon our success in sourcing adequate supplies of our products; bringing
new production and distribution capacity on line in a timely manner; improving
our ability to forecast product demand and fulfill customer orders promptly;
improving customer service-oriented management information systems; and
training, motivating and managing new employees.  The failure of any
of the above could result in a material adverse effect on our financial
results.




A
downturn in the economy may affect consumer purchases of discretionary items
such as our products which could have a material adverse effect on our business,
financial condition and results of operations.





Our
results of operations may be materially affected by conditions in the global
capital markets and the economy generally, both in the United States and
elsewhere around the world. The stress experienced by global capital markets
that began in the second half of fiscal 2008 continued and substantially
increased during fiscal 2009. Recently, concerns over inflation, energy
costs, geopolitical issues, the availability and cost of credit, the U.S.
mortgage market and a declining real estate market in the United States have
contributed to increased volatility and diminished expectations for the economy.
A continued or protracted downturn in the economy could adversely impact
consumer purchases of discretionary items including demand for our products.
Factors that could affect consumers’ willingness to make such discretionary
purchases include general business conditions, levels of employment, energy
costs, interest rates and tax rates, the availability of consumer credit and
consumer confidence. A reduction in consumer spending could significantly reduce
our sales and leave us with unsold inventory. The occurrence of these events
could have a material adverse effect on our business, financial condition and
results of operations.




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The
recent turmoil in the financial markets could increase our cost of borrowing and
impede access to or increase the cost of financing our operations and
investments and could result in additional impairments to our
businesses.




United
States and global credit and equity markets have recently undergone significant
disruption, making it difficult for many businesses to obtain financing on
acceptable terms. In addition, equity markets are continuing to experience rapid
and wide fluctuations in value. If these conditions continue or worsen, our cost
of borrowing, if needed, may increase and it may be more difficult to
obtain financing for our businesses. In addition, our borrowing costs can be
affected by short and long-term debt ratings assigned by independent rating
agencies. A decrease in these ratings would likely increase our cost of
borrowing and/or make it more difficult for us to obtain financing. In the event
current market conditions continue we will more than likely be subject to higher
interest costs than we are currently incurring and may require our providing
security to guarantee such borrowings.  Alternatively, we may not be
able to obtain unfunded borrowings in that amount, which may require us to seek
other forms of financing, such as term debt, at higher interest rates and with
additional expenses.




In
addition, we may be subject to future impairments of our assets, including
accounts receivable, investments, inventories, property, plant and equipment,
goodwill and other intangibles, if the valuation of these assets or businesses
continues to decline.




We
face diverse risks in our international business, which could adversely affect
our operating results.




We are
dependent on international sales for a substantial amount of our total revenue.
For fiscal 2007, 2008 and 2009, revenue from outside the United States was 27%,
33% and 41% of our total revenue, respectively. We expect that international
sales will continue to represent a substantial portion of our revenue for the
foreseeable future.





Due to
our reliance on sales to customers outside the United States, we are subject to
the risks of conducting business internationally, including:





•
            
            United
      States and foreign government trade restrictions, including those which
      may
              impose
      restrictions on imports to or from the United
  States;




•
            
            foreign
      government taxes and regulations, including foreign taxes that we may not
      be able
              to
      offset against taxes imposed upon us in the United States, and foreign tax
      and other
              laws
      limiting our ability to repatriate funds to the United
    States;





•
            
            the
      laws and policies of the United States, Canada and certain European
      countries affecting the importation of goods (including duties, quotas and
      taxes);•
            
            foreign
      labor laws, regulations and
restrictions;





•
            
            difficulty
      in staffing and managing foreign operations and difficulty in maintaining
      quality control;




•
                
                adverse
      fluctuations in foreign currency exchange rates and interest rates,
      including
                  risks
      related to any interest rate swap or other hedging activities we
      undertake;•
                
                political
      instability, natural disasters, health crises, war or events of
      terrorism;




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•
              
              transportation
      costs and delays; and




•
            
            the
      strength of international
economies.




We
are dependent upon sales by independent consultants.





A
significant portion of our products are marketed and sold through the direct
selling method of distribution, where products are primarily marketed and sold
by independent consultants to consumers without the use of retail
establishments. This distribution system depends upon the successful
recruitment, retention and motivation of a large number of independent
consultants to offset frequent turnover. The recruitment and retention of
independent consultants depends on the competitive environment among direct
selling companies and on the general labor market, unemployment levels, economic
conditions, and demographic and cultural changes in the workforce. The
motivation of our consultants depends, in large part, upon the effectiveness of
our compensation and promotional programs, its competitiveness compared with
other direct selling companies, the successful introduction of new products, and
the ability to advance through the consultant ranks.





Our sales
are directly tied to the levels of activity of our consultants, which is a
part-time working activity for many of them. Activity levels may be affected by
the degree to which a market is penetrated by the presence of our consultants,
the amount of average sales per party, the amount of sales per consultant, the
mix of high-margin and low-margin products in our product line and the
activities and actions of our competitors.




Earnings
of PartyLite’s independent sales consultants are subject to taxation, and in
some instances, legislation or governmental agencies impose obligations on us to
collect or pay taxes, such as value added taxes, and to maintain appropriate
records.  In addition, we may be subject to the risk in some
jurisdictions of new liabilities being imposed for social security and similar
taxes with respect to PartyLite’s independent sales consultants.  In
the event that local laws and regulations or the interpretation of local laws
and regulations change to require us to treat PartyLite’s independent sales
consultants as employees, or that PartyLite’s independent sales consultants are
deemed by local regulatory authorities in one or more of the jurisdictions in
which we operate to be our employees rather than independent contractors or
agents under existing laws and interpretations, we may be held responsible for
social charges and related taxes in those jurisdictions, plus related
assessments and penalties, which could harm our financial condition and
operating results.


Our
profitability may be affected by shortages of raw materials.





Certain
raw materials could be in short supply due to price changes, capacity,
availability, a change in production requirements, weather or other factors,
including supply disruptions due to production or transportation
delays.  While the price of crude oil is only one of several factors
impacting the price of petroleum wax, it is possible that recent fluctuations in
oil prices may have a material adverse affect on the cost of petroleum-based
products used in the manufacture or transportation of our products, particularly
in the Direct Selling and Wholesale segments.  In recent years,
substantial cost increases for certain raw materials, such as paraffin,
dyethelene glycol (DEG) and ethanol, as well as aluminum and paper, negatively
impacted profitability of certain products in all three
segments.


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


Our
businesses are subject to the risks from increased competition.
 
 Our
business is highly competitive both in terms of pricing and new product
introductions.  The worldwide market for decorative and functional
products for the home is highly fragmented with numerous suppliers serving one
or more of the distribution channels served by us.  In addition, we
compete for independent sales consultants with other direct selling
companies.  Because there are





We
may be adversely affected by proposed FTC regulations.




In April
2006, the U.S. Federal Trade Commission ("FTC") issued a notice of proposed
rulemaking that if implemented, as originally proposed, will regulate all
sellers of “business opportunities” in the United States. The proposed rule, as
originally proposed, would, among other things, require all sellers of business
opportunities, which would likely include PartyLite, to implement a seven-day
waiting period before entering into an agreement with a prospective business
opportunity purchaser and provide all prospective business opportunity
purchasers with substantial disclosures in writing regarding the business
opportunity and the company.  In March 2008, the FTC revised the
proposed rulemaking to remove from the coverage of the rule
certain  types of direct selling companies, including PartyLite. Based
on information currently available, we anticipate that the final rule may
require several years to become final and effective, and may differ
substantially from the rule as currently proposed.




We
depend upon our information technology systems.





Our
information technology systems depend on global communications providers,
telephone systems, hardware, software and other aspects of Internet
infrastructure that have experienced significant system failures and outages in
the past.  Our systems are susceptible to outages due to fire, floods,
power loss, telecommunications failures, break-ins and similar
events.  Despite the implementation of network security measures, our
systems are vulnerable to computer viruses, break-ins and similar disruptions
from unauthorized tampering with our systems.  The occurrence of these
or other events could disrupt or damage our information technology systems and
inhibit internal operations, the ability to provide customer service or the
ability of customers or sales personnel to access our information
systems.




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Changes
      in our effective tax rate may have an adverse effect on our reported
      earnings.




Our
effective tax rate and the amount of our provision for income taxes may be
adversely affected by a number of factors, including:




•
            
            the
      jurisdictions in which profits are determined to be earned and
      taxed;




•
            
            adjustments
      to estimated taxes upon finalization of various tax
    returns;




•
            
            changes
      in available tax credits;




•
              
              changes
      in the valuation of our deferred tax assets and
    liabilities;




•
              
              changes
      in accounting standards or tax laws and regulations, or interpretations
      thereof;




•
              
              the
      resolution of issues arising from uncertain positions and tax audits with
      various tax authorities;
and




•
            
            penalties
      and/or interest expense that we may be required to recognize on
      liabilities associated with uncertain tax
  positions.




ViSalus’s
business is affected by extensive laws, governmental regulations and similar
constraints, and their failure to comply with those constraints may have a
material adverse effect on ViSalus’s financial condition and operating
results.





ViSalus
is affected by extensive laws, governmental regulations, administrative
determinations, court decisions and similar constraints. Such laws, regulations
and other constraints exist at the federal, state or local levels in the United
States, including regulations pertaining to: (1) the formulation, manufacturing,
packaging, labeling, distribution, importation, sale and storage of ViSalus’s
products; (2) product claims and advertising, including direct claims and
advertising by ViSalus, as well as claims and advertising by distributors, for
which ViSalus may be held responsible; (3) ViSalus’s network marketing program;
and (4) taxation of ViSalus’s independent distributors (which in some instances
may impose an obligation on ViSalus to collect the taxes and maintain
appropriate records).  There can be no assurance that ViSalus or its
distributors are in compliance with all of these regulations, and the failure by
ViSalus or its distributors’ failure to comply with these regulations or new
regulations could lead to the imposition of significant penalties or claims and
could negatively impact ViSalus’s business. In addition, the adoption of new
regulations or changes in the interpretations of existing regulations may result
in significant compliance costs or discontinuation of product sales and may
negatively impact the marketing of ViSalus’s products, resulting in significant
loss of sales revenues.





In
addition, ViSalus’s network marketing program is subject to a number of federal
and state regulations administered by the FTC and various state agencies in the
United States. ViSalus is subject to the risk that, in one or more markets, its
network marketing program could be found not to be in compliance with applicable
law or regulations.  Regulations applicable to network marketing
organizations generally are directed at preventing fraudulent or deceptive
schemes, often referred to as “pyramid” or “chain sales” schemes, by ensuring
that product sales ultimately are made to consumers and that advancement within
an organization is based on sales of the organization’s products rather than
investments in the organization or other non-retail sales-related criteria. The
regulatory requirements concerning network marketing programs do not













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Failure
to comply with Section 404 of the Sarbanes-Oxley Act of 2002 might have an
impact on market confidence in our reported financial information.
 
 We must
continue to document, test, monitor and enhance our internal controls over
financial reporting in order to satisfy the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002. In connection with the preparation of this report,
we identified and reported a material weakness in our internal controls over
financial reporting relating to accounting for income taxes. As a result of this
material weakness, we were unable to conclude that our internal control over
financial reporting was effective as of January 31,
2009.




Item 1B.  Unresolved Staff Comments




None.


Item 2.  Properties





The
following table sets forth the location and approximate square footage of our
major manufacturing and distribution facilities:


Location
              Use
              Business
      Segment
              
              Approximate
      Square FeetOwned
              
              
              LeasedArndell
      Park, Australia
              Distribution
              Direct
      Selling
              
              
              —
              
              
              
              38,000Batavia,
      Illinois
              Manufacturing
      and
                Research
      &
                Development
              Direct
      Selling and Wholesale
              
              
              486,000
              
              
              
              —Cannon
      Falls, Minnesota
              Distribution
              Wholesale
              
              
              —
              
              
              
              192,000Carol
      Stream, Illinois
              Distribution
              Direct
      Selling
              
              
              —
              
              
              
              651,000Cumbria,
      England
              Manufacturing
      and
                related
      distribution
              Direct
      Selling
              
              
              90,000
              
              
              
              —Deerfield
      Beach, Florida
              Roasting,
      packaging
                and
      distribution
              Catalog
      & Internet
              
              
              —
              
              
              
              22,000Elkin,
      North Carolina
              Manufacturing
      and
                related
      distribution
              Wholesale
              
              
              280,000
              
              
              
              —Heidelberg,
      Germany
              Distribution
              Direct
      Selling
              
              
              —
              
              
              
              6,000Monterrey,
      Mexico
              Distribution
              Direct
      Selling
              
              
              —
              
              
              
              45,000Oshkosh,
      Wisconsin
              Distribution
              Catalog
      & Internet
              
              
              —
              
              
              
              386,000Texarkana,
      Texas
              Manufacturing
      and
                related
      distribution
              Wholesale
              
              
              154,000
              
              
              
              65,000Tilburg,
      Netherlands
              Distribution
              Direct
      Selling
              
              
              442,500
              
              
              
              —Union
      City, Tennessee
              Warehouse
      and
                distribution
              Wholesale
              
              
              360,000
              
              
              
              12,500



























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Our
executive and administrative offices are generally located in leased space
(except for certain offices located in owned space).  Most of our
properties are currently being utilized for their intended purpose.
 
 Item 3.  Legal Proceedings
 
 We are involved in litigation arising in the
ordinary course of business.  In our opinion, existing litigation will
not have a material adverse effect on our financial position, results of
operations or cash flows.
 Item 4.  Submission of Matters to a Vote of Security
Holders





We held a
Special Meeting of Stockholders on January 29, 2009 at which the stockholders
approved an amendment to our Restated Certificate of Incorporation that: (1)
effects a reverse stock split of our common stock at one of two split ratios to
be selected by our Board of Directors, either 1-for-3 or 1-for-4 (“Proposal No.
1”), and (2) decreases the total number of authorized shares from 110,000,000
shares to 60,000,000 shares, 50,000,000 shares of which will be common stock,
par value $0.02 per share, and 10,000,000 shares of which will be preferred
stock, par value $0.01 per share (“Proposal No.
2”).   Immediately following stockholder approval, the Board of
Directors approved the implementation of the reverse stock split at the ratio of
1-for-4.





The
number of votes cast for and against, as well as the number of abstentions, as
to Proposal Nos. 1 and 2 were:





For
                        
                        
                        Against
                        
                        
                        AbstentionsProposal
      No. 1
                        
                        
                        25,494,738
                        
                        
                        
                        3,442,260
                        
                        
                        
                        8,062Proposal
      No. 2
                        
                        
                        25,555,772
                        
                        
                        
                        3,376,943
                        
                        
                        
                        12,345





There
were no votes withheld or broker non-votes as to Proposal No. 1 or
2.





The
reverse stock split was effective at 6:01 p.m., Eastern Time, on January 30,
2009.



































































15
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PART II





Item
      5.
            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities





Our
Common Stock is traded on the New York Stock Exchange under the symbol
BTH.  Effective as of 6:01 p.m., Eastern Time, on January 30, 2009 we
implemented a 1-for-4 reverse stock split of our Common Stock.  The
following table provides the closing price range for the Common Stock on the New
York Stock Exchange, all of which amounts have been retroactively adjusted to
give effect to the reverse stock split (such adjustment has been calculated
by multiplying the historic stock price by four, the reverse stock split
multiple; none of the information in the following table represents actual
closing prices of the Common Stock):





High
                    
                    
                    LowFiscal
      2008First Quarter
                    
                    $
                    109.24
                    
                    
                    $
                    79.48Second Quarter
                    
                    
                    120.88
                    
                    
                    
                    89.28Third Quarter
                    
                    
                    94.00
                    
                    
                    
                    64.00Fourth Quarter
                    
                    
                    96.12
                    
                    
                    
                    70.52Fiscal
      2009First
      Quarter
                    
                    $
                    89.44
                    
                    
                    $
                    67.36Second Quarter
                    
                    
                    78.88
                    
                    
                    
                    47.72Third Quarter
                    
                    
                    64.56
                    
                    
                    
                    25.60Fourth Quarter
                    
                    
                    35.40
                    
                    
                    
                    13.64





As of
March 31, 2009, there were approximately 1,500 registered holders of record of
the Common Stock.





On April
7, 2009, the Board of Directors declared a regular semi-annual cash dividend in
the amount of $0.10 per share payable in the second quarter of fiscal 2010.
D fiscal
2009 and 2008, the Board of Directors declared dividends as follows (such
amounts have been adjusted to give effect to the reverse stock split by
multiplying the actual amount of the dividend by four, the reverse stock split
multiple): $1.08 per share payable in the second and fourth quarters of fiscal
2009 and $1.08 per share payable in the second and fourth quarters of fiscal
2008. Our ability to pay cash dividends in the future is dependent upon, among
other things, our ability to operate profitably and to generate significant cash
flows from operations in excess of investment and financing requirements that
may increase in the future to, for example, fund new acquisitions or retire


























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The
following table sets forth, for the equity compensation plan categories listed
below, information as of January 31, 2009 (which information has been adjusted
to give effect to the reverse stock split):





Equity
Compensation Plan Information







Plan
      Category
              
              (a)
                
                
                Number of securities to be issued upon exercise
      of outstanding options, warrants and rights1
              
              
              (b)
                
                Weighted-average
                exercise price of outstanding options, warrants
      and rights1
              
              
              (c)
                
                Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (a))Equity
      compensation plans approved by security holders
              
              
              79,425
              
              
              $
              107.10
              
              
              
              909,656Equity
      compensation plans not approved by security holders
              
              
              -
              
              
              
              -
              
              
              
              -Total
              
              
              79,425
              
              
              $
              107.10
              
              
              
              909,656


1The
information in this column excludes 90,947 restricted stock units outstanding as
of January 31, 2009.





The
following table sets forth certain information concerning the repurchases of
Common Stock made by us during the fourth quarter of fiscal 2009 (the amounts
set forth under “Maximum Number of Shares that May Yet Be Purchased Under the
Plans or Programs” have been
adjustedto give effect to the reverse stock split):





Issuer
      Purchases of Equity Securities1





Period
                              
                              Total
      Number of Shares Purchased
                              
                              
                              Average
      Price Paid per Share
                              
                              
                              Total
      Number of Shares Purchased as Part of Publicly Announced Plans or
      Programs
                              
                              
                              Maximum
      Number of Shares that May Yet Be Purchased Under the Plans or
      ProgramsNovember
      1, 2008 -November 30, 2008
                              
                              
                              -
                              
                              
                              $
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,884,430December
      1, 2008 -December 31, 2008
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,884,430January
      1, 2009 -January 31, 2009
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,884,430Total
                              
                              
                              -
                              
                              
                              $
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,884,430


_____________________________





1 On
September 10, 1998, our Board of Directors approved a share repurchase program
pursuant to which we were originally authorized to repurchase up to 250,000
shares of Common Stock in open market transactions. From June 1999 to June
2006, the Board of Directors increased the


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authorization
under this repurchase program, five times (on June 8, 1999 to increase the
authorization by 250,000 shares to 500,000 shares; on March 30, 2000 to increase
the authorization by 250,000 shares to 750,000 shares; on December 14, 2000 to
increase the authorization by 250,000 shares to 1.0 million shares; on April 4,
2002 to increase the authorization by 500,000 shares to 1.5 million shares; and
on June 7, 2006 to increase the authorization by 1.5 million shares to 3.0
million shares). On December 13, 2007, the Board of Directors authorized a new
repurchase program, for 1.5 million shares, which will become effective after we
exhaust the authorized amount under the old repurchase program.  As of
January 31, 2009, we have purchased a total of 2,615,570 shares of Common Stock
under the old repurchase program.  The repurchase programs do not have
expiration dates.  We intend to make further purchases under the repurchase
programs from time to time. The amounts set forth in this paragraph have been
adjusted to give effect to the reverse stock split.








































































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Performance
Graph





The
performance graph set forth below reflects the yearly change in the cumulative
total stockholder return (price appreciation and reinvestment of dividends) on
our Common Stock compared to the S&P 500 Index and the S&P 400 Midcap
Index for the five fiscal years ended January 31, 2009. The graph assumes
the investment of $100 in Common Stock and the reinvestment of all dividends
paid on such Common Stock into additional shares of Common Stock and such
indexes over the five-year period.  We believe that we are unique and
do not have comparable industry peers. Since our competitors are typically not
public companies or are themselves subsidiaries or divisions of public companies
engaged in multiple lines of business, we believe that it is not possible to
compare our performance against that of our competition. In the absence of a
satisfactory peer group, we believe that it is appropriate to compare us to
companies comprising the S&P 400 Midcap Indexes.










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Item 6.   Selected Financial Data





Set forth
below are selected summary consolidated financial and operating data for fiscal
years 2005 through 2009, which have been derived from our audited financial
statements for those years.  The information presented below should be
read in conjunction with “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our consolidated financial statements,
including the notes thereto, appearing elsewhere in this Report. The per share
amounts and number of shares outstanding have been adjusted to give effect to
the 1-for-4 reverse stock split of our common stock that we implemented at the
end of January 2009.








Year
      ended January 31,(In
      thousands, except per share and percent data)
                              
                              2005
                              
                              
                              2006
                              
                              
                              2007
                              
                              
                              2008
                              
                              
                              2009Statement
      of Earnings Data: (1)Net
      sales
                              
                              $
                              1,301,365
                              
                              
                              $
                              1,254,261
                              
                              
                              $
                              1,220,611
                              
                              
                              $
                              1,164,950
                              
                              
                              $
                              1,050,793Gross
      profit
                              
                              
                              694,588
                              
                              
                              
                              635,785
                              
                              
                              
                              596,669
                              
                              
                              
                              615,471
                              
                              
                              
                              577,216Operating
      profit (2)
      (3)
                              
                              
                              144,783
                              
                              
                              
                              45,167
                              
                              
                              
                              15,644
                              
                              
                              
                              30,887
                              
                              
                              
                              4,028Interest
      expense
                              
                              
                              18,936
                              
                              
                              
                              20,602
                              
                              
                              
                              19,074
                              
                              
                              
                              15,540
                              
                              
                              
                              10,001Earnings
      (loss) from continuing operationsbefore
      income taxes and minority interest
                              
                              
                              128,268
                              
                              
                              
                              26,444
                              
                              
                              
                              5,369
                              
                              
                              
                              21,725
                              
                              
                              
                              (11,525
                              )Earnings
      (loss) from continuing operationsbefore
      minority interest
                              
                              
                              82,106
                              
                              
                              
                              20,065
                              
                              
                              
                              2,705
                              
                              
                              
                              11,178
                              
                              
                              
                              (15,365
                              )Earnings
      (loss) from continuing operations
                              
                              
                              82,364
                              
                              
                              
                              20,531
                              
                              
                              
                              2,555
                              
                              
                              
                              11,072
                              
                              
                              
                              (15,480
                              )Earnings
      (loss) from discontinued operations(4)
                              
                              
                              14,150
                              
                              
                              
                              4,326
                              
                              
                              
                              (105,728
                              )
                              
                              
                              -
                              
                              
                              
                              -Net
      earnings (loss)
                              
                              
                              96,514
                              
                              
                              
                              24,857
                              
                              
                              
                              (103,173
                              )
                              
                              
                              11,072
                              
                              
                              
                              (15,480
                              )Basic
      net earnings (loss) from continuing operationsper
      common share
                              
                              $
                              7.64
                              
                              
                              $
                              2.01
                              
                              
                              $
                              0.26
                              
                              
                              $
                              1.15
                              
                              
                              $
                              (1.73
                              )Basic net earnings (loss) from discontinued operationsper
      common share
                              
                              $
                              1.31
                              
                              
                              $
                              0.42
                              
                              
                              $
                              (10.63
                              )
                              
                              $
                              -
                              
                              
                              $
                              -Net
      earnings (loss) per basic common share
                              
                              $
                              8.95
                              
                              
                              $
                              2.43
                              
                              
                              $
                              (10.37
                              )
                              
                              $
                              1.15
                              
                              
                              $
                              (1.73
                              )Diluted net earnings (loss) from continuing operationsper
      common share
                              
                              $
                              7.56
                              
                              
                              $
                              1.99
                              
                              
                              $
                              0.26
                              
                              
                              $
                              1.14
                              
                              
                              $
                              (1.73
                              )Diluted net earnings (loss) from discontinued operationsper
      common share
                              
                              $
                              1.30
                              
                              
                              $
                              0.42
                              
                              
                              $
                              (10.56
                              )
                              
                              $
                              -
                              
                              
                              $
                              -Net
      earnings (loss) per diluted common share
                              
                              $
                              8.86
                              
                              
                              $
                              2.41
                              
                              
                              $
                              (10.30
                              )
                              
                              $
                              1.14
                              
                              
                              $
                              (1.73
                              )Cash
      dividends paid, per share
                              
                              $
                              1.44
                              
                              
                              $
                              1.76
                              
                              
                              $
                              2.00
                              
                              
                              $
                              2.16
                              
                              
                              $
                              2.16Basic
      weighted average numberof
      common shares outstanding
                              
                              
                              10,784
                              
                              
                              
                              10,239
                              
                              
                              
                              9,945
                              
                              
                              
                              9,648
                              
                              
                              
                              8,971Diluted
      weighted average numberof
      common shares outstanding
                              
                              
                              10,889
                              
                              
                              
                              10,294
                              
                              
                              
                              10,014
                              
                              
                              
                              9,732
                              
                              
                              
                              8,971Operating
      Data:Gross
      profit margin
                              
                              
                              53.4
                              %
                              
                              
                              50.7
                              %
                              
                              
                              48.9
                              %
                              
                              
                              52.8
                              %
                              
                              
                              54.9
                              %Operating
      profit margin
                              
                              
                              11.1
                              %
                              
                              
                              3.6
                              %
                              
                              
                              1.3
                              %
                              
                              
                              2.7
                              %
                              
                              
                              0.4
                              %Net
      capital expenditures
                              
                              $
                              20,976
                              
                              
                              $
                              17,272
                              
                              
                              $
                              17,714
                              
                              
                              $
                              9,421
                              
                              
                              $
                              8,173Depreciation
      and amortization
                              
                              
                              35,600
                              
                              
                              
                              35,875
                              
                              
                              
                              34,630
                              
                              
                              
                              31,974
                              
                              
                              
                              18,628Balance
      Sheet Data:Total
      assets
                              
                              $
                              1,075,820
                              
                              
                              $
                              1,116,520
                              
                              
                              $
                              774,638
                              
                              
                              $
                              667,422
                              
                              
                              $
                              574,103Total
      debt
                              
                              
                              287,875
                              
                              
                              
                              371,742
                              
                              
                              
                              215,779
                              
                              
                              
                              158,815
                              
                              
                              
                              145,731Total
      stockholders' equity
                              
                              
                              521,349
                              
                              
                              
                              493,824
                              
                              
                              
                              363,693
                              
                              
                              
                              299,068
                              
                              
                              
                              248,498





(1)
            Statement
      of Earnings Data includes the results of operations for periods subsequent
      to the respective purchase acquisitions of As We Change, acquired in
      August 2008, and ViSalus, acquired in October 2008, none of which
      individually or in the aggregate had a material effect on the Company’s
      results of operations.





(2)
            Fiscal
      2007 and 2008 earnings include restructuring charges recorded in the
      Wholesale and Direct Selling segments of $24.0 million and $2.3 million,
      respectively. Fiscal 2009 earnings include restructuring charges recorded
      in the Direct Selling segment of $1.7 million (See Note 5 to the
      Consolidated Financial
Statements).


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(3)
            Fiscal
      2006 and 2007 pre-tax earnings include goodwill and other intangibles
      impairment charges of $53.3 million and $48.8 million in the Wholesale
      segment, respectively.  Fiscal 2008, and 2009 pre-tax earnings
      include goodwill and other intangibles impairment charges of $49.2 million
      and $48.8 million in the Catalog & Internet segment,
      respectively (See Note 9 to the Consolidated Financial
      Statements).






(4)
            In
      fiscal 2007, the Kaemingk Edelman., Euro-Decor, Gies and Colony businesses
      were sold (See Note 4 to the Consolidated Financial
      Statements).  The results of operations for these business units
      have been reclassified to discontinued operations for all periods
      presented.


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Item 7.Management’s Discussion and
      Analysis of Financial Condition and Results of
  Operations





The
financial and business analysis below provides information that we believe is
relevant to an assessment and understanding of our consolidated financial
condition, changes in financial condition and results of operations. This
financial and business analysis should be read in conjunction with our
consolidated financial statements and accompanying notes to the Consolidated
Financial Statements set forth in Item 8.





Overview





Blyth is
a designer and marketer of home fragrance products and accessories, home décor,
seasonal decorations, household convenience items and personalized
gifts.  We also market chafing fuel and other products for the
foodservice trade, nutritional supplements, and weight management
products.  We compete in the global home expressions industry, and our
products can be found throughout North America, Europe and
Australia.  Our financial results are reported in three segments, the
Direct Selling segment, the Catalog & Internet segment and the Wholesale
segment.





Fiscal
2009 net sales are comprised of an approximately $660 million Direct Selling
business, an approximately $190 million Catalog & Internet business and an
approximately $200 million Wholesale business.  Sales and earnings
growth differ in each segment depending on geographic location, market
penetration, our relative market share and product and marketing execution,
among other business factors.





Our
current focus is driving sales growth of our brands so we may leverage more
fully our infrastructure.  New product development continues to be
critical to all three segments of our business.  In the Direct Selling
segment, monthly sales and productivity incentives are designed to attract,
retain and increase the earnings opportunity of independent sales
consultants.  In the Catalog & Internet channel, product,
merchandising and circulation strategy are designed to drive strong sales growth
in newer brands and expand the sales and customer base of our flagship
brands.  In the Wholesale segment, sales initiatives are targeted to
independent retailers and national accounts.





Reverse
Stock Split





At the
end of January 2009, we implemented a 1-for-4 reverse stock split of our
outstanding common stock that reduced the number of outstanding shares of common
stock from 35.6 million to 8.9 million. The per share amounts within this
section have been adjusted to give effect to the reverse stock
split.





Business
Acquisition





On August
4, 2008, we signed an agreement to purchase ViSalus, a direct seller of vitamins
and other related nutritional supplements, through a series of
investments.  On October 21, 2008, we completed the initial investment
and acquired a 43.6% equity interest in ViSalus for $13.0 million in
cash.  In addition, we may be required to make additional purchases of
ViSalus’s equity interest to increase our equity ownership over time to 57.5%,
72.7% and 100.0%.  These additional purchases are conditioned upon
ViSalus meeting certain operating targets in calendar year 2009, 2010 and 2011,
subject to a one-time, one-year extension in any year.  The purchase
prices of the additional investments are based on ViSalus’s future operating
results.  We have the


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Sale
of Mass Channel Candle Business




On April
27, 2007, we sold certain assets and liabilities of our BHI NA mass channel
candle business, which was part of the Wholesale segment. The net assets were
sold for $25.3 million, including proceeds from the sale of overstock inventory
of $1.3 million. Of this amount, $21.8 million was received at closing and a
total of $3.5 million was received subsequently in fiscal 2008. The sale
resulted in a pre-tax loss of $0.6 million, which was recorded in Administrative
expenses in the Consolidated Statements of Earnings (Loss).




Segments





Within
the Direct Selling segment, the Company designs, manufactures or sources,
markets and distributes an extensive line of products including scented candles,
candle-related accessories and other fragranced products under the
PartyLite®
brand.  The Company also has an interest in another direct selling
business, ViSalus Sciences®,
which sells nutritional supplements and weight management products. All products
in this segment are sold in North America through networks of independent sales
consultants. PartyLite brand products are also sold in Europe and
Australia.





Within
the Catalog & Internet segment, we design, source and market a broad range
of household convenience items, premium photo albums, frames, holiday cards,
personalized gifts, kitchen accessories and gourmet coffee and
tea.  These products are sold directly to the consumer under the As We
Change ®, Boca Java®, Easy
Comforts®,
Exposures®, Home
Marketplace®, Miles
Kimball® and
Walter Drake®
brands.  These products are sold in North America.





Within
the Wholesale segment, we design, manufacture or source, market and distribute
an extensive line of home fragrance products, candle-related accessories,
seasonal decorations such as ornaments and trim, and home décor products such as
picture frames, lamps and textiles.  Products in this segment are sold
primarily in North America to retailers in the premium and specialty markets
under the CBK®,
Colonial Candle of Cape Cod®,
Colonial at HOME® and
Seasons of Cannon Falls®
brands.  In addition, chafing fuel and tabletop lighting products and
accessories for the “away from home” or foodservice trade are sold through this
segment under the Ambria®,
HandyFuel® and
Sterno®
brands.





The
following table sets forth, for the periods indicated, the percentage
relationship to net sales and the percentage increase or decrease of certain
items included in our Consolidated Statements of Earnings (Loss):




Percentage
      Increase (Decrease)
                          from
      Prior PeriodPercentage
      of Net Sales
                        
                        
                        Fiscal
      2008 Compared to Fiscal 2007
                        
                        
                        Fiscal
      2009 Compared to Fiscal 2008Years
      Ended January 312007
                        
                        
                        2008
                        
                        
                        2009Net
      sales
                        
                        
                        100.0
                        
                        
                        
                        100.0
                        
                        
                        
                        100.0
                        
                        
                        
                        (4.6
                        )
                        
                        
                        (9.8
                        )Cost
      of goods sold
                        
                        
                        51.1
                        
                        
                        
                        47.2
                        
                        
                        
                        45.1
                        
                        
                        
                        (11.9
                        )
                        
                        
                        (13.8
                        )Gross
      profit
                        
                        
                        48.9
                        
                        
                        
                        52.8
                        
                        
                        
                        54.9
                        
                        
                        
                        3.2
                        
                        
                        
                        (6.2
                        )Selling
                        
                        
                        33.6
                        
                        
                        
                        34.8
                        
                        
                        
                        38.1
                        
                        
                        
                        (1.1
                        )
                        
                        
                        (1.1
                        )Administrative
                        
                        
                        10.0
                        
                        
                        
                        11.2
                        
                        
                        
                        11.8
                        
                        
                        
                        6.2
                        
                        
                        
                        (4.9
                        )Operating
      profit
                        
                        
                        1.3
                        
                        
                        
                        2.7
                        
                        
                        
                        0.4
                        
                        
                        
                        N/M
                        
                        
                        
                        N/MEarnings
      from continuing operations
                        
                        
                        0.2
                        
                        
                        
                        1.0
                        
                        
                        
                        (1.5
                        )
                        
                        
                        N/M
                        
                        
                        
                        N/M
  N/M -
Percent change from the prior year is not meaningful in concluding on our
performance.


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Fiscal
2009 Compared to Fiscal 2008





Consolidated
Net Sales
 
 Net sales
decreased $114.2 million, or approximately 10%, from $1,165.0 million in fiscal
2008 to $1,050.8 million in fiscal 2009.  The decrease is a result of
a decline in sales in PartyLite’s North American businesses and overall declines
in sales in our Wholesale and Catalog & Internet segments. This decrease was
partially offset by an increase in sales within PartyLite’s International
markets.
 
 Net Sales
– Direct Selling Segment
 
 Net sales
in the Direct Selling segment decreased $22.3 million, or 3%, from $686.8
million in fiscal 2008 to $664.5 million in fiscal 2009.  PartyLite’s
U.S. sales decreased approximately 23% compared to the prior year, this decrease
was driven by a decline in the number of sales consultants, which declined from
over 27,000 as of January 31, 2008 to over 21,000 as of January 31, 2009, as
well as fewer shows. The reduction in sales consultants is partially the result
of an increase in competition to attract and retain consultants due to more
companies entering the direct selling channel. Additionally, the recent economic
downturn in the U.S. economy has led to lower consumer discretionary spending,
which resulted in fewer shows and opportunities to promote our products and
recruit new consultants.  We have been initiating new and expanded
means to maintain our consultant count such as increased training and
promotional initiatives.
 
 PartyLite
Canada reported an approximately 10% decrease compared to the prior year in U.S.
dollars, or 6% on a local currency basis. The sales decrease in Canada is
primarily due to the decrease in its consultant base.
 
 In
PartyLite’s European markets, sales increased approximately 14% in U.S. dollars,
driven by strong sales in the newer markets, an increase of about 5,000
consultants and favorable foreign currency translation.  On a local
currency basis, PartyLite Europe sales increased approximately 10%. PartyLite Europe
represented approximately 42% of PartyLite’s worldwide net sales in fiscal 2008
compared to 50% in fiscal 2009, reflecting the continued sales
growth.
 
 Net sales
in the Direct Selling segment represented approximately 59% of total Blyth net
sales in fiscal 2008 compared to 63% in fiscal 2009.
 
 Net Sales
– Catalog & Internet Segment
 
 Net sales
in the Catalog & Internet segment decreased $16.7 million, or 8%, from
$206.8 million in fiscal 2008 to $190.1 million in fiscal 2009.  This
decrease is due to lower consumer discretionary spending, as well as order
processing difficulties associated with the implementation of a new Enterprise
Resource Planning (“ERP “) system.
 
 Net sales
in the Catalog & Internet segment accounted for approximately 18% of total
Blyth net sales in fiscal 2008 and 2009.
 
 Net Sales
– Wholesale Segment
 
 Net sales
in the Wholesale segment decreased $75.2 million, or 28%, from $271.4 million in
fiscal 2008 to $196.2 million in fiscal 2009.  The decrease is a
result of reduced sales within our home décor and seasonal decor product lines,
which were adversely impacted by the weak housing market. In addition, sales
were negatively impacted by $31.8 million, as a result of
the


24
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sale of
our mass channel candle business, which occurred at the end of the first quarter
of fiscal 2008.





Net sales
in the Wholesale segment represented approximately 23% of total Blyth net sales
in fiscal 2008 compared to 19% in fiscal 2009.





Consolidated
Gross Profit and Operating Expenses





Blyth’s
consolidated gross profit decreased $38.3 million, or 6%, from $615.5 million in
fiscal 2008 to $577.2 million in fiscal 2009. The decrease in gross profit is
primarily attributable to the 10% decrease in sales, partially offset by efforts
to control costs including reductions in workforce within the manufacturing and
distribution operations and renegotiations of certain vendor and supplier
contracts. The gross profit margin increased from 52.8% in fiscal 2008 to 54.9%
in fiscal 2009.  This increase from prior year is due in part to
nonrecurring charges of $8.9 million, or 0.8%, relating to severance, inventory
write-downs and asset impairments in connection with the sale of BHI NA during
fiscal 2008. The balance of this increase was primarily due to the absence of
BHI NA sales in fiscal 2009 since BHI NA operated at lower margins than Blyth’s
other businesses in the prior year.
 
 Blyth’s
consolidated selling expense decreased $4.6 million, or approximately 1%, from
$405.3 million in fiscal 2008 to $400.7 million in fiscal 2009.  The
decrease in selling expense relates to the reduced sales in PartyLite U.S. (from
$303.8 million is fiscal 2008 to $234.9 million in fiscal 2009) and the
Wholesale and Catalog & Internet segments. Offsetting the impact in reduced
sales are strategic initiatives undertaken by PartyLite to increase sales. These
initiatives include various independent consultant promotional programs aimed at
increasing sales and recruiting new consultants. Selling expense as a percentage
of net sales increased from 34.8% in fiscal 2008 to 38.1% in fiscal
2009.  Overall, the increase in selling expense as a percent of sales
is primarily a result of sales decreasing at a greater rate than selling
expenses.
 
 Blyth
consolidated administrative expenses decreased $6.3 million, or 5%, from $130.1
million in fiscal 2008 to $123.8 million in fiscal 2009.  This decline
was principally due to severance related charges ($3.2 million) and the
termination of an office lease ($2.4 million) taken during fiscal 2008
associated with the sale of BHI NA, as well as improved expense management on a
year over year basis.  Administrative expenses as a percentage of sales
were approximately 11.2% for fiscal 2008 and 11.8% for fiscal 2009.
 
 Impairment
charges of $49.2 million for goodwill and other intangibles were recognized in
the Catalog & Internet segment in fiscal 2008, compared to $48.8 million in
fiscal 2009. In both years we reviewed the performance of the Miles Kimball
business and its projected outlook. The Miles Kimball business experienced lower
revenue growth and reduced operating margins than anticipated during both fiscal
2008 and 2009. This shortfall in revenues and profit was primarily attributable
to decreased consumer spending due to changes in the business environment, an
overall weak economic climate and higher postage, paper and printing costs. As a
result, the goodwill and intangibles in the Catalog & Internet segment were
determined to be impaired in fiscal 2008 and further impaired in fiscal
2009.
 
 Blyth’s
consolidated operating profit decreased $26.9 million from $30.9 million in
fiscal 2008 to $4.0 million in fiscal 2009.  The decrease is primarily
due to the decrease in sales partially offset by a corresponding decrease in
selling, general and administrative expenses as a result of initiatives to
maintain sales, as well as severance incurred due to reductions in
personnel .








25
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Operating
Profit - Direct Selling Segment





Operating
profit in the Direct Selling segment decreased $24.3 million, or 25%, from $98.7
million in fiscal 2008 to $74.4 million in fiscal 2009. The decrease was
primarily due to a 20% reduction in sales for PartyLite’s North American
operations and increased promotional costs of $5.0 million. Partially offsetting
this decline was an improvement in sales within PartyLite Europe, including the
positive effects of stronger foreign currencies.





Operating
Loss – Catalog & Internet Segment





Operating
loss in the Catalog & Internet segment increased by $10.2 million, from
$48.9 million in fiscal 2008, to $59.1 million in fiscal 2009.  This
increased loss was primarily due to the issues associated with the
implementation of the new ERP at the Miles Kimball Company and continued lower
consumer spending resulting from the weakening economy. Operating losses for
fiscal 2008 and 2009 included goodwill and other intangibles impairments charges
of $49.2 million and $48.8 million, respectively. Partially offsetting these
charges were a reduction in losses at the Boca Java Company of $2.7 million,
excluding the $1.9 million goodwill impairment.
 
 Operating
Loss – Wholesale Segment
 
 Operating
loss in the Wholesale segment decreased from $19.0 million in fiscal 2008 to
$11.2 million in fiscal 2009. This reduction is primarily the result of the sale
of the BHI NA business in fiscal 2008, which had contributed $18.0 million in
operating losses in the prior year, improving operating income this year by
$16.3 million. This was partially offset by lower sales  and profit
across the segment due to a soft housing market and weakening
economy.
 
 Consolidated
Other Expense (Income)
 
 Interest
expense decreased $5.5 million, or 35%, from $15.5 million in fiscal 2008 to
$10.0 million in fiscal 2009, primarily due to a decrease in outstanding
debt.
 
 Interest
income decreased $3.3 million, from $7.6 million in fiscal 2008 to $4.3 million
in fiscal 2009, mainly due to lower amounts of cash and short-term investments
and lower interest rates during fiscal 2009.
 
 Foreign
exchange and other losses were $1.3 million in fiscal 2008 compared to $9.8
million in fiscal 2009.  The loss in fiscal 2008 includes a $1.2
million impairment charge related to an available-for-sale equity investment in
RedEnvelope, Inc. and a $0.9 million impairment charge on an Australian joint
venture investment accounted for under the equity method. The loss recorded in
fiscal 2009 includes $5.2 million for the permanent impairment of our investment
in RedEnvelope and an unrealized loss of $2.1 million related to our preferred
stock portfolio that are classified as trading
investments.


Income
tax expense decreased $6.7 million from $10.5 million in fiscal 2008 to $3.8
million in fiscal 2009.  The decrease in income tax expense was
primarily due to a pretax loss in the United States. This decrease was offset by
continued strong foreign sourced earnings as well as the tax impact of the
non-deductible portion of goodwill and other intangible impairments and
impairments of investments for which no tax benefit was recorded. The effective
tax rate was 48.6% in fiscal 2008 compared to a negative 33.3% for the current
year as result of our net loss. The current year rate reflects the strong
foreign sourced earnings offset in part by the pretax loss in the United States
and the partial benefit taken on the Goodwill and intangible impairments in the
Catalog and Internet segment.




26
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As a
result of the foregoing, earnings from continuing operations decreased $26.6
million, from $11.1 million in fiscal 2008 to a loss of $15.5 million in fiscal
2009.  Basic earnings per share from continuing operations were $1.15
for fiscal 2008 compared to a loss of $1.73 for fiscal 2009.  Diluted earnings
per share from continuing operations were $1.14 for fiscal 2008 compared to a
loss of $1.73 for fiscal 2009.





Fiscal
2008 Compared to Fiscal 2007





Consolidated
Net Sales





Net sales
decreased $55.6 million, or approximately 5%, from $1,220.6 million in fiscal
2007 to $1,165.0 million in fiscal 2008.  The decrease is a result of
lower Wholesale sales of $53.9 million due to the sale of BHI NA mass channel
candle business in our Wholesale segment and a decrease in PartyLite’s U.S.
sales of $51.9 million.  This decrease was partially offset by an
increase in sales within both PartyLite’s European and Canadian operations and
the Catalog & Internet segment.





Net Sales
– Direct Selling Segment





Net sales
in the Direct Selling segment decreased $7.2 million, or 1%, from $694.0 million
in fiscal 2007 to $686.8 million in fiscal 2008.  PartyLite’s U.S.
sales decreased approximately 15% compared to prior
year.   Management believes this sales decrease was driven by a
decline in the number of sales consultants as a result of increased channel
competition, as well as fewer shows per consultant.





PartyLite
Canada reported an
approximately 13% increase compared to theprior year in U.S. dollars, or
4% on a local currency basis. Sales in Canada increased due to a higher number
of guests per show and shows per consultant.





In
PartyLite’s European markets, sales increased approximately 16% in U.S. dollars,
driven by strong sales in the newer markets and favorable foreign currency
translation.  On a local currency basis, PartyLite Europe sales
increased approximately 5%. PartyLite Europe represented approximately 37% of
PartyLite’s worldwide net sales in fiscal 2007 compared to 42% in fiscal
2008.





Net sales
in the Direct Selling segment represented approximately 57% of net sales in
fiscal 2007 compared to 59% in fiscal 2008.





Net Sales
– Catalog & Internet Segment





Net sales
in the Catalog & Internet segment increased $7.5 million, or 4%, from $199.3
million in fiscal 2007 to $206.8 million in fiscal 2008.  This
increase was due to increased sales in our Miles Kimball and Easy Comforts
catalogs and sales growth in Boca Java.





Net sales
in the Catalog & Internet segment accounted for approximately 16% of net
sales in fiscal 2007 compared to 18% in fiscal 2008.





Net Sales
– Wholesale Segment





Net sales
in the Wholesale segment decreased $55.8 million, or 17%, from $327.2 million in
fiscal 2007 to $271.4 million in fiscal 2008.  The decrease was a
result of lower mass candle sales due to the sale of the BHI NA business, as
well as reduced sales in our home décor channel, which was adversely impacted by
the weak housing market. Partially offsetting these declines





27
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was an
increase in sales for the Sterno business of approximately 4% and in the
seasonal décor business of 2%.




Net sales
in the Wholesale segment represented approximately 27% of total Blyth net sales
in fiscal 2007 compared to 23% in fiscal 2008.





Consolidated
Gross Profit and Operating Expenses





Blyth’s
consolidated gross profit increased $18.8 million, from $596.7 million
in fiscal 2007 to $615.5 million in fiscal 2008. As a percent of sales,
gross margin was 48.9% in fiscal 2007 and 52.8% in fiscal 2008, an increase of
3.9%.  This increase was principally related to the following
factors:  (1)  a reduction of severance, inventory
write-downs and asset impairments related to BHI NA, or 0.9%; (2) improvements
at PartyLite largely due to selected price increases, reduced shipping and
handling costs and favorable product mix, or 1.2%; and (3) improvements in the
Wholesale businesses, mostly due to the sale of BHI NA in the first quarter of
fiscal 2008 (whose gross margins are significantly lower than our other
businesses), as well as improvements in our other Wholesale businesses resulting
from selected price increases, better cost control and favorable product mix, or
0.6%. Partially offsetting these increases were higher commodities costs,
primarily in wax and other chemicals, which decreased gross profit margin by
0.2%.





Blyth’s
consolidated selling expense decreased $4.4 million, or approximately 1%,
from $409.7 million in fiscal 2007 to $405.3 million in fiscal 2008.
The decrease in selling expense relates to reduced sales resulting from the sale
of BHI NA late in the first quarter of fiscal 2008 ($93.2 million in sales in
fiscal 2007 compared to $39.3 million in fiscal 2008). Selling expense decreased
by $4.9 million as a result of the sale of BHI NA. Selling expense as a
percentage of net sales increased from 33.6% in fiscal 2007 to 34.8% in fiscal
2008 since BHI NA had a very low ratio of selling expense to net sales.
PartyLite’s selling expense was flat since PartyLite Europe’s increased sales
were offset by PartyLite U.S.’s reduced selling expense, which was consistent
with the overall sales trends in these businesses.





Blyth
consolidated administrative expenses increased $7.6 million, or 6%, from $122.5
million in fiscal 2007 to $130.1 million in fiscal 2008.  The increase
in administrative expenses was primarily due to severance charges and an
impairment of a lease and other fixed asset impairments related to the sale of
BHI NA, partially offset in fiscal 2007 and 2008 by $5.2 million and $1.4
million, respectively, of collections of notes receivable which had previously
been reserved for as part of the Gies sale.  Administrative expenses
as a percentage of sales were approximately 10.0% for fiscal 2007 and 11.2% for
fiscal 2008.





Impairment
charges for goodwill of $48.8 million were recognized in the Wholesale segment
in fiscal 2007. Impairment charges of $49.2 million for goodwill and other
intangibles were recognized in the Catalog & Internet segment in fiscal
2008.  The amount recorded in fiscal 2007 was the result of our
decision to discontinue the sales of a new Sterno product, rising commodity
costs and a continued decline in operating performance in the Sterno reporting
unit and a business restructuring which resulted in a significantly changed
near-term outlook of the business in the Wholesale premium reporting unit. In
fiscal 2008, as part of our annual impairment review, we assessed the recent
performance of the Miles Kimball business and its fiscal outlook. The Miles
Kimball business experienced lower revenue growth than anticipated and reduced
operating margins due to higher postage, paper and printing costs. This
shortfall was primarily attributable to decreased consumer spending due to
changes in the Catalog & Internet business environment and an overall weak
economic climate. As a result, the goodwill and intangibles in the Catalog &
Internet segment was determined to be impaired.





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Blyth’s
consolidated operating profit increased $15.3 million from $15.6 million in
fiscal 2007 to $30.9 million in fiscal 2008.  The increase is
primarily due to higher profits within the Direct Selling segment, in particular
for PartyLite Europe and Canada, and reduced operating losses within the
Wholesale segment.


Operating
Profit - Direct Selling Segment





Operating
profit in the Direct Selling segment increased $11.8 million, or 14%, from $86.9
million in fiscal 2007 to $98.7 million in fiscal 2008.  The increase
was primarily due to the impact of increased sales within PartyLite Europe and
Canada, including the effects of stronger foreign currencies, partially offset
by reduced sales for PartyLite U.S. and continued cost increases for wax and
other commodities.





Operating
Profit/Loss – Catalog & Internet Segment





Operating
loss in the Catalog & Internet segment increased by $52.6 million, from a
profit of $3.7 million in fiscal 2007 to a loss of $48.9 million in fiscal
2008.  This profit decline was primarily due to the impairment charge
for goodwill and other intangible assets of $49.2 million related to the Miles
Kimball business unit, higher postage, paper and printing costs within the Miles
Kimball business and an increase in Selling expense of $3.1 million at Boca
Java, primarily related to sales promotions.





Operating
Loss – Wholesale Segment





Operating
loss in the Wholesale segment decreased from $74.9 million in fiscal 2007 to
$19.0 million in fiscal 2008. Included in the loss for fiscal 2007 was the
previously mentioned goodwill impairment charge of $48.8 million. Also
contributing to the improvement for fiscal 2008 was increased operating profit
at Sterno and Midwest of Cannon Falls businesses, totaling $8.2
million.





Consolidated
Other Expense (Income)





Interest
expense decreased $3.6 million, or 19%, from $19.1 million in fiscal 2007 to
$15.5 million in fiscal 2008, primarily due to a decrease in outstanding
debt.





Interest
income increased $0.2 million, from $7.4 million in fiscal 2007 to $7.6 million
in fiscal 2008, mainly due to higher amounts of cash and short-term investments
held during fiscal 2008.





Foreign
exchange and other reported income of $1.4 million in fiscal 2007 compared to a
loss of $1.3 million in fiscal 2008.  The loss of $1.3 million in
fiscal 2008 includes a $1.2 million impairment charge related to an
available-for-sale equity investment in RedEnvelope, Inc., whose decline in
value was deemed other than temporary and a $0.9 million impairment charge on an
Australian joint venture investment accounted for under the equity
method.  Partially offsetting these charges in fiscal 2008 were
foreign exchange gains and other income of $0.8 million.





Income
tax expense increased $7.8 million from $2.7 million in fiscal 2007 to $10.5
million in fiscal 2008.  The increase in income tax expense was
primarily due to the increase in profit before tax and the increase in our tax
reserves for ongoing tax audits. This increase was offset by continued strong
foreign sourced earnings, which are taxed at a lower rate than U.S earnings. The
offsets led to a slight decrease in the effective tax rate from 49.6% in fiscal
2007 to 48.6% in fiscal 2008.





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As a
result of the foregoing, earnings from continuing operations increased $8.5
million, from $2.6 million in fiscal 2007 to $11.1 million in fiscal
2008.  Basic earnings per share from continuing operations were $0.26
for fiscal 2007 compared to $1.15 for fiscal 2008.  Diluted earnings
per share from continuing operations were $0.26 for fiscal 2007 compared to
$1.14 for fiscal 2008.


The loss
from discontinued operations, net of tax, for fiscal 2007 was $105.7 million, or
$10.56 per diluted share.  The loss includes (a) a non-tax deductible
loss of $18.4 million on the sale of the Kaemingk business, (b) a non-tax
deductible loss on the sale of the Edelman and Euro-Decor businesses of $14.5
million, which includes a goodwill impairment charge of $16.7 million, (c) a net
of tax loss on the sale of the Gies business of $28.0 million, which includes an
impairment charge of $31.1 million and (d) net of tax loss on sale of the Colony
business of $19.9 million, which includes an impairment charge of $28.6 million.
The loss from discontinued operations includes an operating loss, net of tax, of
$24.9 million, or $2.48 per diluted share, for fiscal 2007. There were no
discontinued operations during fiscal 2008.





Seasonality
 
 Historically,
our operating cash flow for the first nine months of the fiscal year shows a
utilization of cash, due to requirements for meeting working capital needs for
inventory purchases and the extension of credit through the holiday season. Our
fourth quarter, however, historically generated a surplus of cash resulting from
a large concentration of our business occurring during the fourth quarter
holiday season.
 Liquidity
and Capital Resources
 
 We
recognize that the cash provided by operations of $37.8 million in fiscal 2009
is significantly lower than the $91.8 million in the prior year. However, we are
addressing this matter in the following ways. First, we have begun to execute an
aggressive working capital management program designed to conserve
cash.  Second, we will continue to focus on cost cutting measures
throughout the Company with the goal to save cash. Third, we will consider the
timing and level of future dividends and treasury share buybacks. Fourth, we
have long-term investments on our balance sheet that we could convert into cash
should the need arise. These initiatives will support our expectation that we
will be able to fund our working capital requirements in the foreseeable future
from operational cash flows.
  Cash
and cash equivalents decreased $16.6 million from $163.0 million at January 31,
2008 to $146.4 million at January 31, 2009.  We have limited our
decrease in cash by liquidating some of our investments and reducing our share
repurchases during fiscal 2009.
  We
typically generate positive cash flow from operations due to favorable gross
margins and the variable nature of selling expenses, which constitute a
significant percentage of operating expenses.  We generated $91.8
million in cash from operations in fiscal 2008 compared to $37.8 million in
fiscal 2009.  This decline was largely due to the reduction in net
earnings. Operating profit decreased $26.9 million to $4.0 million primarily due
to lower sales, increased commodity and shipping costs and selling expense as a
percentage of sales. Included in earnings from continuing operations were
non-cash charges for depreciation and amortization, goodwill and other
intangible impairments and amortization of unearned stock-based compensation of
$18.6 million, $48.8 million and $1.8 million, respectively.


Net
changes in operating assets and liabilities resulted in a use of cash of $12.6
million. Due to the seasonal nature of our businesses we generally do not have
positive cash flow from operations


30
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until our
fourth quarter. Our working capital needs are the highest in late summer prior
to the start of the holiday season. If demand for our products falls short of
expectations this could require us to maintain higher inventory balances than
forecasted and could negatively impact our liquidity. Additionally, the existing
credit crisis may also negatively impact the ability of our customers to obtain
credit and consequently could negatively impact our sales and the collection of
our receivables.


Net cash
provided by investing activities was $94.9 million in fiscal 2008, compared to a
use of cash of $4.8 million in fiscal 2009. Our investments decreased from $52.7
million as of January 31, 2008 to $25.0 million at January 31, 2009. Net capital
expenditures for property, plant and equipment were $8.2 million in fiscal 2009,
down from $9.4 million in fiscal 2008.  During fiscal 2008 we received
proceeds from the sale of certain assets and liabilities of the BHI NA business
of $25.3 million and proceeds from the sale of one of our European Wholesale
discontinued operations of $0.5 million compared to a use of cash of $15.8
million in the current year to obtain our interest in ViSalus and certain assets
of As We Change.
 
 Net cash
used in financing activities in fiscal 2009 was $43.7 million which included the
reduction of our long-term debt and capital lease obligations by $13.2 million,
compared to long-term debt and capital lease payments of $57.1 million in the
prior year. We also purchased treasury stock of $11.1 million and paid dividends
of $19.4 million. Our 7.90% Senior Notes, with a remaining principal amount of
$37.3 million as of January 31, 2009, are due on October 1, 2009. We anticipate
the ability to repay these notes using existing cash balances as well as
expected cash flows from operations. We will continue to carefully monitor our
cash position, and will only make additional repurchases of outstanding debt or
shares and will only pay dividends when we have sufficient cash surpluses
available for us to do so.
 
 The
primary factor impacting our operating cash flow in fiscal 2009 is the decrease
in PartyLite sales in the U.S. market of $68.9 million, which was driven by
fewer active independent sales consultants, as well as lower activity by
existing consultants and reduced sales per show resulting from difficult
economic conditions that made booking and holding shows more challenging.
Management’s key areas of focus include stabilizing the consultant base through
training and promotional incentives, which has resulted in an increase in our
selling expense during fiscal 2009. PartyLite’s active independent sales
consultants have declined in recent years, primarily in the United
States.  In the United States, the number of active independent sales
consultants has declined from over 27,000 at the end of fiscal 2008 to over
21,000 at the end of fiscal 2009. While we are making efforts to stabilize and
increase the number of active independent sales consultants, it may be difficult
to do so in the current economic climate due to reduced consumer discretionary
spending. If our U.S. consultant count continues to decline it will have a
negative impact on our liquidity and financial results.
 
 In
addition, our operating cash flow is impacted by decreased sales within the
Wholesale and Catalog & Internet segments.  Sales within our
Wholesale segment have declined from $271.4 million in fiscal 2008 to $196.2
million in fiscal 2009 and sales in our Catalog & Internet segment have
declined from $206.8 million in fiscal 2008 to $190.1 million in fiscal 2009.
Furthermore, we expect that the current recession, with a decline in consumer
spending and its negative impact on sales, to continue. If the current recession
is prolonged and/or the actions already initiated by management are not
successful in improving the operating performances of our businesses, it may
become necessary to undertake additional measures to preserve our liquidity.
These initiatives could include additional dispositions, overhead cost
reductions, lower levels of in-stock inventory and reduced promotional
activities.
 
 We
anticipate total capital spending of approximately $6 million for fiscal 2010,
or about $2 million less than our net expenditures in fiscal year 2009, due to
our plans to invest in only
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necessary
updates and repairs and only investing capital where significant returns are
provided with minimal risk. Our focus is on improving our information technology
systems. We have grown in part through acquisitions and, as part of our growth
strategy, we expect to continue from time to time in the ordinary course of
business to evaluate and pursue acquisition opportunities as
appropriate.  We believe our financing needs in the short and long
term can be met from cash generated internally.  Information on debt
maturities is presented in Note 12 to the Consolidated Financial
Statements.
 
 On
October 21, 2008, we acquired a 43.6% interest in ViSalus for $13.0 million and
incurred acquisition costs of $1.0 million for a total cash acquisition cost of
$14.0 million.  We intend to and may be required to purchase
additional interests in ViSalusthat will require
additional capital resources, increasing our ownership to 100%. The requirement
for additional purchases is conditioned upon ViSalus meeting certain operating
targets in fiscal 2010, 2011 and 2012, subject to a one-time, one-year
extension. We have the option to acquire the remaining interest in ViSalus even
if they do not meet these operating targets.  If ViSalus meets its
current projected operating targets, the total expected redemption value of the
noncontrolling interest will be approximately $19.4 million over fiscal 2011,
2012 and 2013. The purchase prices of the additional investments are equal to a
multiple of ViSalus’s earnings before interest, taxes, depreciation and
amortization, exclusive of certain extraordinary items. The payment, if any,
will be out of existing cash balances and expected future cash flows from
operations.
 
 In
October 2006, we executed Amendment No. 1 to our unsecured revolving credit
facility (“Credit Facility”) dated as of June 2, 2005.  The amendment
provided for borrowing under the Credit Facility of $75.0 million, contingent
upon the adherence to predefined covenants. As a result of noncompliance with
two of the covenants we terminated the Credit Facility on December 5, 2008,
after providing cash collateral to the issuing bank such that all standby
letters of credit are fully satisfied and are no longer considered outstanding
under the Credit Facility.
 
 United
States and global credit and equity markets have recently undergone significant
disruption, making it difficult for many businesses to obtain financing on
acceptable terms.  In addition, equity markets are continuing to
experience rapid and wide fluctuations in value.  If these conditions
continue or worsen, our cost of borrowing may increase and it may be more
difficult to obtain financing for our businesses. In addition, our borrowing
costs can be affected by short and long-term debt ratings assigned by
independent rating agencies.  A decrease in these ratings would likely
increase our cost of borrowing and/or make it more difficult for us to obtain
financing.  Obtaining a new credit facility will more than likely
require higher interest costs and may require our providing security to
guarantee such borrowings.  Alternatively, we may not be able to
obtain unfunded borrowings, which may require us to seek other forms of
financing, such as term debt, at higher interest rates and additional
expense.
 
 In
addition, if the economic conditions continue to worsen, we may be subject to
future impairments of our assets, including accounts receivable, inventories,
property, plant and equipment, investments, goodwill and other intangibles, if
the valuation of these assets or businesses continues to decline.
 
 As of
January 31, 2009, we had a total of $2.0 million available under an uncommitted
facility with Bank of America to be used for letters of credit through January
31, 2010.  As of January 31, 2009, no letters of credit were
outstanding under this facility.
 
 In May
1999, we filed a shelf registration statement for the issuance of up to $250.0
million in debt securities with the Securities and Exchange
Commission.  On September 24, 1999, we issued $150.0 million of 7.90%
Senior Notes due October 1, 2009 at a discount of approximately $1.4 million,
which is being amortized over the life of the notes. In fiscal 2008 and 2009,
we
  32
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repurchased
$48.4 million and $12.3 million, respectively, of these notes.  Such
notes contain, among other provisions, restrictions on liens on principal
property or stock issued to collateralize debt.  As of January 31,
2009, we were in compliance with such provisions.  Interest is payable
semi-annually in arrears on April 1 and October 1.  On October 20,
2003, we issued $100.0 million 5.50% Senior Notes due on November 1, 2013 at a
discount of approximately $0.2 million, which is being amortized over the life
of the notes.  Such notes contain provisions and restrictions similar
to those in the 7.90% Senior Notes.  As of January 31, 2009, we were
in compliance 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 part at any time at a specified redemption price.  The
proceeds of the debt issuances were used for general corporate
purposes.
 
 As of
January 31, 2008 and 2009, Miles Kimball had approximately $8.6 million and $8.2
million, respectively, of long-term debt (including current portion) outstanding
under a real estate mortgage note payable, which matures on June 1,
2020.  Under the terms of the note, payments of principal and interest
are required monthly at a fixed interest rate of 7.89%.
 
 As of
January 31, 2008 and 2009, 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.  The loan is
collateralized by certain of CBK’s assets.  The amount outstanding
under the IRB bears interest at short-term floating rates, which on
a weighted average was2.0% as of January 31, 2009. Interest
payments are required monthly and the principal is due upon
maturity.
 
 The
estimated fair value of our $158.8 million and $145.7 million total long-term
debt (including current portion) at January 31, 2008 and 2009 was approximately
$141.9 million and $120.6 million, respectively.  The fair value is
determined by quoted market prices, where available, and from analyses performed
by investment bankers using current interest rates considering our credit rating
and the remaining terms to maturity.
 
 The
following table summarizes the maturity dates of our contractual obligations as
of January 31, 2009:


Payments Due by PeriodLess
      than
                      
                      
                      
                      
                      
                      
                      
                      
                      More
      thanContractual
      Obligations(In
      thousands)
                      
                      Total
                      
                      
                      1
      year
                      
                      
                      1
      - 3 Years
                      
                      
                      3
      - 5 Years
                      
                      
                      5
      YearsLong-Term
      Debt(1)
                      
                      $
                      145,476
                      
                      
                      $
                      37,753
                      
                      
                      $
                      1,037
                      
                      
                      $
                      101,111
                      
                      
                      $
                      5,575Capital
      Leases(2)
                      
                      
                      255
                      
                      
                      
                      183
                      
                      
                      
                      72
                      
                      
                      
                      -
                      
                      
                      
                      -Interest(3)
                      
                      
                      32,370
                      
                      
                      
                      8,093
                      
                      
                      
                      12,155
                      
                      
                      
                      10,580
                      
                      
                      
                      1,542Purchase
      Obligations(4)
                      
                      
                      39,033
                      
                      
                      
                      37,799
                      
                      
                      
                      894
                      
                      
                      
                      340
                      
                      
                      
                      -Operating
      Leases
                      
                      
                      42,535
                      
                      
                      
                      14,305
                      
                      
                      
                      18,390
                      
                      
                      
                      7,125
                      
                      
                      
                      2,715Unrecognized
      Tax Benefits(5)
                      
                      
                      24,526
                      
                      
                      
                      1,880
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Total
      Contractual Obligations
                      
                      $
                      284,195
                      
                      
                      $
                      100,013
                      
                      
                      $
                      32,548
                      
                      
                      $
                      119,156
                      
                      
                      $
                      9,832(1) Long-term
      debt includes 7.90% Senior Notes due October 1, 2009, 5.5% Senior Notes
      due November 1, 2013, a mortgage note payable-maturity June 1, 2020, and
      an Industrial
      Revenue Bond ("IRB") with a maturity date of January 1, 2025 (See Note 12
      to the Consolidated Financial Statements).(2)
      Amounts represent future lease payments, excluding interest, due on five
      capital leases, which end between fiscal 2010 and fiscal 2012 (See Note 12
      to the Consolidated Financial Statements).(3) Interest
      expense on long-term debt is comprised of $28.1 million relating to Senior
      Notes, $4.3 million in mortgage interest, $32 thousand of interest
      due on the CBK Industrial Revenue Bond and approximately $21 thousand of
      interest relating to future capital lease obligations.(4) Purchase
      obligations consist primarily of open purchase orders for
      inventory.(5) Unrecognized
      tax benefits consist of $1.9 million which is expected to be realized
      within the next 12 months, and $22.6 million for which we are not
      able to reasonably estimate the timing of the potential future
      payments(See
      Note 15 to the Consolidated Financial Statements).





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Since
January 31, 2008, we have purchased 202,887 shares on the open market, for a
cost of $11.1 million, bringing the cumulative total purchased shares to
2,615,570 as of January 31, 2009, for a total cost of approximately $224.8
million.  Additionally in fiscal 2005, 1,226,654 shares were
repurchased through a Dutch auction cash tender offer for an aggregate purchase
price of $172.6 million, including fees and expenses.  The acquired
shares are held as common stock in treasury at cost.
  On
April 7, 2009, we declared a cash dividend of $0.10 per share of common
stock. The dividend will be payable to shareholders of record as of May 1,
2009 and will be paid on May 15, 2009.
 
 Our
ability to pay cash dividends in the future is dependent upon, among other
things, our ability to operate profitably and to generate significant cash flows
from operations in excess of investment and financing requirements that may
increase in the future to, for example, fund new acquisitions or retire debt. As
we normally do, we will review our dividend policy prior to our next dividend
payment (historically we have paid dividends in May and November), and may
adjust the rate of our semi-annual dividend if necessary. During fiscal 2009 we
paid a total of $19.4 million in dividends.
 
 We do not
maintain any off-balance sheet arrangements, transactions, obligations or other
relationships with unconsolidated entities that would be expected to a have a
material current or future effect upon our financial statements. We do not
utilize derivatives for trading purposes.





Critical
Accounting Policies





Our
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United
States.  The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities.  On an ongoing basis, we evaluate our estimates,
including those related to bad debts, inventories, income taxes, restructuring
and impairments, contingencies and litigation.  We base our estimates
on historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources.  Actual results may differ
from these estimates under different assumptions or conditions.
 
 Note 1 to
the Consolidated Financial Statements includes a summary of the significant
accounting policies and methods used in the preparation of our consolidated
financial statements. The following are our critical accounting policies and
methods.
 
 Revenue
Recognition
 
 Revenues
consist of sales to customers, net of returns and allowances.  We
recognize revenue upon delivery, when both title and risk of loss are
transferred to the customer. We present revenues net of any taxes collected from
customers and remitted to government authorities.
 
 Generally,
our sales are based on fixed prices from published price lists.  We
record estimated reductions to revenue for customer programs, which may include
special pricing agreements for specific customers, volume incentives and other
promotions.  Should market conditions decline, we may increase
customer incentives with respect to future sales.  We also record
reductions to revenue, based primarily on historical experience, for estimated
customer returns and chargebacks that may arise as a result of shipping errors,
product damage in transit or for other reasons that can only become known
subsequent to recognizing the revenue.  If the amount
of


34
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actual
customer returns and chargebacks were to increase significantly from the
estimated amount, revisions to the estimated allowance would be
required.  In some instances, we receive payment in advance of product
delivery.  Such advance payments occur primarily in our direct selling
and direct marketing channels and are recorded as deferred revenue in Accrued
expenses in the Consolidated Balance Sheets.  Upon delivery of product
for which advance payment has been made, the related deferred revenue is
reversed and recorded as revenue.
 
 We
establish an allowance for doubtful accounts for trade and note
receivables.  The allowance is determined based on our evaluation of
specific customers’ ability to pay, aging of receivables, historical experience
and the current economic environment. While we believe we have appropriately
considered known or expected outcomes, our customers’ ability to pay their
obligations, including those to us, could be adversely affected by declining
retail sales resulting from such factors as contraction in the economy or a
general decline in consumer spending.
 
 Some of
our wholesale business units offer seasonal dating programs pursuant to which
customers that qualify for such programs are offered extended payment terms for
seasonal product shipments, which is a common practice in some of our channels.
The sales price for our products sold pursuant to such seasonal dating programs
is fixed prior to the time of shipment to the customer.  Customers do
not have the right to return product, except for rights to return that we
believe are typical of our industry for such reasons as damaged goods, shipping
errors or similar occurrences. We are not required to repurchase products from
our customers, nor do we have any regular practice of doing so. We believe that
we are reasonably assured of payment for products sold pursuant to such seasonal
dating programs based on our historical experience with the established list of
customers eligible for such programs. If, however, product sales by our
customers during the seasonal selling period should fall significantly below
expectations, such customers’ financial condition could be adversely affected,
increasing the risk of not collecting these seasonal dating receivables and,
possibly, resulting in additional bad debt charges.  We do not make
any sales under consignment or similar arrangements.
 
 Inventory
valuation
 
 Inventories
are valued at the lower of cost or market.  Cost is determined by the
first-in, first-out method.  We write down our inventory for estimated
obsolete, excess and unmarketable inventory by an amount equal to the difference
between the cost of inventory and the estimated market value based upon
assumptions about future demand, market conditions, customer planograms and
sales forecasts.  If market acceptance of our existing products or the
successful introduction of new products should significantly decrease,
additional inventory write-downs could be required.  Potential
additional inventory write-downs could result from unanticipated additional
quantities of obsolete finished goods and raw materials, and/or from lower
disposition values offered by the parties who normally purchase surplus
inventories.
 
 Restructuring
and impairment charges on long-lived assets
 
 In
response to changing market conditions and competition, our management regularly
updates our business model and market strategies, including the evaluation of
facilities, personnel and products.  Future adverse changes in
economic and market conditions could result in additional organizational changes
and possibly additional restructuring and impairment charges. Historically, we
have reviewed long-lived assets, including property, plant and equipment and
other intangibles with definite lives for impairment annually and whenever
events or changes in circumstances indicated that the carrying amount of such an
asset might not be recoverable.  Management determines whether there
has been a permanent impairment on long-lived assets held for use in the
business by comparing anticipated undiscounted future cash flow from the use and
eventual disposition of the asset or asset group to the carrying value of the
asset.  The amount








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of any
resulting impairment is calculated by comparing the carrying value to the fair
value, which may be estimated using the present value of the same cash
flows.  Long-lived assets that meet the definition of held for sale
are valued at the lower of carrying amount or net realizable value.
 
 Goodwill
and other indefinite lived intangibles
 
 Goodwill
and other indefinite lived intangibles are subject to an assessment for
impairment using a two-step fair value-based test and such other intangibles are
also subject to impairment reviews, which must be performed at least annually or
more frequently if events or circumstances indicate that goodwill or other
indefinite lived intangibles might be impaired.
 
 We
perform our annual assessment of impairment as of January 31, which is our
fiscal year-end date, or as deemed necessary. For goodwill, the first step is to
identify whether a potential impairment exists. This first step compares the
fair value of a reporting unit to its carrying amount, including
goodwill.  Fair value for each of our reporting units is estimated
utilizing a combination of valuation techniques, namely the discounted cash flow
methodology and the market multiple methodology. The fair value of the reporting
units is derived by calculating the average of the outcome of the two valuation
techniques.  The discounted cash flow methodology assumes the fair
value of an asset can be estimated by the economic benefit or net cash flows the
asset will generate over the life of the asset, discounted to its present value.
The discounting process uses a rate of return that accounts for both the time
value of money and the investment risk factors. The market multiple methodology
estimates fair value based on what other participants in the market have
recently paid for reasonably similar assets. Adjustments are made to compensate
for differences between the reasonably similar assets and the assets being
valued. If the fair value of the reporting unit exceeds the carrying value, no
further analysis is necessary. If the carrying amount of the reporting unit
exceeds its fair value, the second step is performed. The second step compares
the carrying amount of the goodwill to the estimated fair value of the goodwill.
If fair value is less than the carrying amount, an impairment loss is reported
as a reduction to goodwill and a charge to operating expense.
 
 Our
assumptions in the discounted cash flow methodology used to support
recoverability include the reporting unit’s five year business outlook. The
business outlook is a five year projection of the business unit’s financial
performance.  The business outlook includes the cash expected to be
generated from the reporting unit based on certain assumptions for revenue
growth, capital spending and profit margins. This serves as the basis for the
discounted cash flow model in determining fair value. Additionally, the discount
rate utilized in the cash flow model values the reporting unit to its net
present value taking into consideration the time value of money, other
investment risk factors and the terminal value of the business. For the terminal
value, we used a multiple of earnings before income taxes, depreciation and
amortization (“EBITDA”) multiplied by a certain factor for which an independent
third party would pay for a similar business in an arms length
transaction.  In determining this factor we used information that was
available for similar transactions executed in the marketplace. The multiple of
EBITDA used contemplates, among other things, the expected revenue growth of the
business, which in turn would require the use of a higher EBITDA multiple if
revenue were expected to grow at a higher rate than normal.  The
following circumstances could impact our cash flow and cause further impairments
to reported goodwill:


·unexpected
      increase in competition resulting in lower prices or lower
      volumes,·entry
      of new products into the marketplace from competitors,·lack
      of acceptance of our new products into the marketplace,·loss
      of a key employee or customer,·significantly
      higher raw material costs, and·macroeconomic
      factors.






















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Miles
Kimball




As a
result of our January 31, 2008 annual impairment assessment, we determined that
the goodwill related to the Miles Kimball reporting unit, in the Catalog &
Internet segment, was impaired. In fiscal 2008, the Miles Kimball business
experienced lower revenue growth than anticipated when compared to the fiscal
2008 budget. We believe this shortfall in performance was primarily attributable
to decreased consumer spending due to changes in the business environment and
adverse economic conditions that were prevailing during the later part of fiscal
2008. As a result of this analysis, the goodwill in this reporting unit was
determined to be impaired, as the fair value of the reporting unit was less than
the carrying value of the reporting unit including goodwill. Accordingly, we
recorded a non-cash pre-tax goodwill impairment charge of $46.8 million in the
fourth quarter of fiscal 2008.





In the
third quarter of fiscal 2009, the Miles Kimball Company continued to experience
substantial declines in operating performance when compared to prior years’
results and its strategic outlook. We believe this shortfall in
performance was primarily attributable to decreased consumer spending due
to changes in the business environment and adverse economic conditions. As a
result of the impairment analysis performed, the goodwill was determined to be
fully impaired, as the fair value of the reporting unit was less than its
carrying value, including goodwill. Accordingly, we recorded a non-cash pre-tax
goodwill impairment charge of $29.0 million, which included the $1.3
million related to As We Change, during the third quarter of fiscal
2009.





The table
below is a summary of estimated fair values as of January 31, 2008 and October
31, 2008 and the assumptions used in comparison to the carrying values in
assessing recoverability of goodwill for the Miles Kimball reporting unit of the
Catalog & Internet segment.




($'s in millions)
                            
                            January
      31, 2008
                            
                            
                            October
      31, 2008Estimated
      fair value
                            
                            $
                            108.4
                            
                            
                            $
                            64.9Recorded
      carrying value of assets
                            
                            
                            146.6
                            
                            
                            
                            105.1Excess
      (impaired) value to recorded value
                            
                            $
                            (38.2
                            )
                            
                            $
                            (40.2
                            )Assumptions and other
      information:Discount
      rate
                            
                            
                            13.0
                            %
                            
                            
                            15.0
                            %Average
      revenue growth rate
                            
                            
                            4.1
                            %
                            
                            
                            1.4
                            %Tax
      rate
                            
                            
                            39.8
                            %
                            
                            
                            39.8
                            %Terminal
      multiple of EBITDA
                            
                            
                            6.0
                            
                            
                            
                            4.5Capital
      expenditures
                            
                            $
                            7.6
                            
                            
                            $
                            7.8Goodwill
      at risk
                            
                            $
                            27.7
                            
                            
                            $
                            29.0Other
      long lived assets at risk
                            
                            $
                            20.3
                            
                            
                            $
                            20.0







As a
result of the reduced near term outlook and the changing business environment,
the terminal multiple of EBITDA was reduced from 6.0 to 4.5. The change in this
assumption reflects the continued changes in the business environment and
adverse business conditions we are currently experiencing due to decreased
consumer spending. Management believes the adverse conditions currently being
experienced are not temporary, but rather reflect the additional risk in the
marketplace as a result of additional economic and pricing
pressures.








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Other





In August
2005, we acquired a 100% interest in Boca Java, a small gourmet coffee and tea
company. Boca Java sells its products primarily through the internet and is
included in the Catalog & Internet segment. Boca Java represents a separate
reporting unit and is reviewed for impairment on an annual basis. We completed
an impairment assessment as of October 31, 2008 which indicated that the
goodwill of $1.9 million was fully impaired and recorded a charge to write off
the goodwill.


Our
Direct Selling segment had approximately $2.3 million of goodwill as of January
31, 2008. With the addition of ViSalus in the third quarter of fiscal 2009
goodwill increased by approximately $11.7 million, to $14.0 million, as of
January 31, 2009. The January 31, 2009 impairment assessment of this segment
indicates that the goodwill is fully recoverable.





Significant
assumptions





If actual
revenue growth, profit margins, costs and capital spending should differ
significantly from the assumptions included in our business outlook used in the
cash flow models, the reporting unit’s fair value could fall significantly below
expectations and additional impairment charges could be required to write down
goodwill to its fair value and, if necessary, other long lived assets could be
subject to a similar fair value test and possible impairment.  Long
lived assets represent primarily fixed assets and other long term assets
excluding goodwill and other intangibles.





There are
two main assumptions that are used for the discounted cash flow analysis: first,
the discount rate and second the terminal multiple. This discount rate is used
to value the gross cash flows expected to be derived from the business to its
net present value. The discount rate uses a rate of return to account for the
time value of money and an investment risk factor. For the terminal multiple, we
used EBITDA multiplied by a factor for which an independent third party would
pay for a similar business in an arms length transaction.  In
determining this factor we used information that was available for similar
transactions executed in the marketplace. The multiple of EBITDA used
contemplates, among other things, the expected revenue growth of the business
which in turn would require the use of a higher EBITDA multiple if revenue were
expected to grow at a higher rate than normal. A change in the discount rate is
often used by management to alter or temper the discounted cash flow model if
there is a higher degree of risk that the business outlook objectives might not
be achieved. These risks are often based upon the business units past
performance, competition, confidence in the business unit management, position
in the marketplace, acceptance of new products in the marketplace and other
macro and microeconomic factors surrounding the business.





If
management believes there is additional risk associated with the business
outlook it will adjust the discount rate and terminal value accordingly. The
terminal value is generally a multiple of EBITDA and is discounted to its net
present value using the discount rate. Capital expenditures are included and are
consistent with the historical business trend plus any known significant
expenditures.





Trade
Names and Trademarks





Our trade
name and trademark intangible assets related to our acquisitions of Miles
Kimball and Walter Drake (reported in the Catalog & Internet segment) and
our acquisition of a controlling interest in ViSalus in October 2008 (reported
in the Direct Selling segment). We had approximately $25.8 million and $12.1
million in trade names and trademarks as of January 31, 2008 and 2009,
respectively.


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We
perform our annual assessment of impairment for indefinite-lived intangible
assets as of January 31, which is our fiscal year-end, or upon the occurrence of
a triggering event.  We use the relief from royalty method to estimate
the fair value for indefinite-lived intangible assets. The underlying concept of
the relief from royalty method is that the inherent economic value of
intangibles is directly related to the timing of future cash flows associated
with the intangible asset. Similar to the income approach or discounted cash
flow methodology used to determine the fair value of goodwill, the fair value of
indefinite-lived intangible assets is equal to the present value of after-tax
cash flows associated with the intangible asset based on an applicable royalty
rate. The royalty rate is determined by using existing market comparables for
royalty agreements using an intellectual property data base. The arms-length
agreements generally support a rate that is a percentage of direct sales. This
approach is based on the premise that the free cash flow is a more valid
criterion for measuring value than “book” or accounting profits.
  As a
result of our fiscal 2008 and 2009 impairment assessments, we determined that
the recorded values of trade names and trademarks in the Miles Kimball reporting
unit, in the Catalog & Internet segment, were impaired. In fiscal 2008, the
Miles Kimball business experienced lower revenue growth than anticipated when
compared to the fiscal budget and forecasts. In the third and fourth quarters of
fiscal 2009 we performed additional impairment assessments due to changes in the
business environment and adverse economic conditions currently experienced due
to the continued decrease in consumer spending. As a result of these impairment
analyses performed, the trade names and trademarks in this reporting unit were
determined to be impaired, as their fair value was less than their carrying
value. Accordingly, we recorded a non-cash pre-tax impairment charge of $2.4
million in fiscal 2008, and $15.0 million and $2.9 million in the third and
fourth quarters, respectively of fiscal 2009.
 
 The trade
names associated with ViSalus were not found to be impaired as of January 31,
2009.
  The two
primary assumptions used in the relief from royalty method are the discount rate
and the royalty rate. This discount rate is used to value the expected net cash
flows to be derived from the royalty to its net present value. The discount rate
uses a rate of return to account for the time value of money and an investment
risk factor. The royalty rate is based upon past royalty performance as well as
the expected royalty growth rate using both macro and microeconomic factors
surrounding the business. A change in the discount rate is often used by
management to alter or temper the discounted cash flow analysis if there is a
higher degree of risk that the estimated cash flows from the indefinite-lived
intangible asset may not be fully achieved. These risks are often based upon the
business units’ past performance, competition, position in the marketplace,
acceptance of new products in the marketplace and other macro and microeconomic
factors surrounding the business. If, however, actual cash flows should fall
significantly below expectations, this could result in an impairment of our
indefinite-lived intangible assets.  If, as of January 31, 2009,
the discount rate would have increased by 1% and the royalty rate would have
decreased by half of one percent, the fair value of the Catalog &
Internet trade names and trademarks would have decreased by $6.7 million to
$4.1 million. This decrease would have required us to take an additional
impairment charge of $3.8 million to write-down our indefinite lived
intangibles to its estimated fair value. Conversely, if the discount rate would
have decreased by 1% and the royalty rate would have increased by half of one
percent, the fair value of the Catalog & Internet trade names and
trademarks would have increased by $1.2 million, resulting in no impairment
charge.





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Accounting
for income taxes
 
 As
part of the process of preparing our Consolidated Financial Statements, we are
required to estimate our actual current tax exposure (state, federal and
foreign), together with assessing permanent and temporary differences resulting
from differing bases and treatment of items for tax and accounting purposes,
such as the carrying value of intangibles, deductibility of expenses,
depreciation of property and equipment, and valuation of inventories. Temporary
differences result in deferred tax assets and liabilities, which are included
within our Consolidated Balance Sheets. We must then assess the likelihood that
our deferred tax assets will be recovered from future taxable income. Actual
results could differ from this assessment if sufficient taxable income is not
generated in future periods. To the extent we determine the need to establish a
valuation allowance or increase such allowance in a period, we must include an
expense within the tax provision in the accompanying Consolidated Statements of
Earnings (Loss). Management periodically estimates our probable tax obligations
using historical experience in tax jurisdictions and informed judgments. There
are inherent uncertainties related to the interpretation of tax regulations in
the jurisdictions in which we transact business. The judgments and estimates
made at a point in time may change based on the outcome of tax audits, as well
as changes to or further interpretations of regulations. If such changes take
place, there is a risk that the tax rate may increase or decrease in any period.
Amounts accrued for the tax uncertainties, primarily recorded in long-term
liabilities, total $25.1 million and $24.5 million at January 31,
2008 and 2009, respectively. Accruals relate to tax issues for U.S. federal,
domestic state and taxation of foreign earnings.
  During
fiscal 2008 and 2009, we determined that a portion of our fiscal 2008 and 2009
undistributed foreign earnings are not reinvested indefinitely by our non-U.S.
subsidiaries, and accordingly, recorded a deferred income tax expense on these
undistributed earnings. We periodically determine whether the non-U.S.
subsidiaries will invest their undistributed earnings indefinitely and
reassesses this determination as appropriate.
  As
of January 31, 2009, we determined that $93.3 million of undistributed
foreign earnings were not reinvested indefinitely by our non-U.S. subsidiaries.
During fiscal 2009, deferred income taxes of $4.1 million were recorded as a
reduction to our Net Earnings on these unremitted earnings. We periodically
determine whether the non-U.S. subsidiaries will invest their undistributed
earnings indefinitely and reassess this determination as
appropriate.


Impact
of Adoption of Recently Issued Accounting Standards





In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 141(revised 2007),
“Business Combinations”(“SFAS No. 141R”).
SFAS No. 141R will significantly change the accounting for business
combinations in a number of areas including the treatment of contingent
consideration, acquisition costs, in-process research and development and
restructuring costs. In addition, under SFAS No. 141R, changes in deferred
tax asset valuation allowances and acquired income tax uncertainties in a
business combination 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 have not been able to estimate the impact of the adoption of SFAS No.
141R.


In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51”
(“SFAS No. 160”). SFAS No. 160 will change the accounting and
reporting for minority interests, which will be recharacterized as
noncontrolling interests and classified as a component of equity. SFAS No.
160 is effective for fiscal years beginning after December 15, 2008 and, as
such, we will adopt this standard in fiscal 2010. SFAS No. 160 will change
the way in which we classify our noncontrolling interests on our





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Consolidated
Balance Sheets, and manor in which we present our net income (loss) in the
Consolidated Statement of Earnings (Loss). None of these changes are expected to
have a significant impact on our consolidated financial statements.




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





Forward-looking
and Cautionary Statements





Certain
statements contained in this report may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of
1995.  These statements involve a number of risks, uncertainties and
other factors that could cause actual results to differ materially, as discussed
more fully elsewhere in this report and in our previous filings with the
Securities and Exchange Commission.




















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Item
7A.   Quantitative and Qualitative
Disclosures About Market Risk





Market
Risk





We have
operations outside of the United States and sell our products
worldwide.  Our activities expose us to a variety of market risks, including the effects of changes
in interest rates, foreign currency exchange rates and commodity prices. These
financial exposures are actively monitored and, where considered appropriate,
managed by us.We enter
into contracts, with the intention of limiting these risks, with only those
counterparties that we deem to be creditworthy, in order to also mitigate our
non-performance risk.





Interest
Rate Risk





We are
subject to interest rate risk on both variable rate debt and our investments in
auction rate securities.  As of January 31, 2009, we are subject to
interest rate risk on approximately $0.1 million of variable rate
debt.  A 1-percentage point increase in the interest rate would not
have a material impact on pre-tax earnings.  As of January 31, 2009,
we held $15.0 million of auction rate securities, at par value.  A
1-percentage point decrease in the rate of return would impact pre-tax earnings
by approximately $0.2 million if applied to the total.





Investment
Risk





We are
subject to investment risks on our marketable securities due to market
volatility.  As of January 31, 2009 we held $20.7 million in equity
and debt instruments which have been adjusted to fair value based on current
market data.





Foreign
Currency Risk





We use
foreign exchange forward contracts to hedge the impact of foreign currency
fluctuations on foreign denominated inventory purchases, intercompany payables
and certain foreign denominated loans. We do not hold or issue derivative
financial instruments for trading purposes.  We hedge the net assets
of certain of our foreign operations through foreign currency forward contracts.
The net after-tax gain related to the derivative net investment hedges recorded
in Accumulated other comprehensive income (loss) (“AOCI”) during fiscal 2009 was
$3.7 million. The after-tax gain in AOCI related to net investment hedges as of
January 31, 2009 was $5.4 million





We have
designated our forward exchange contracts on forecasted intercompany purchases
and future purchase commitments as cash flow hedges and as such, as long as the
hedge remains effective and the underlying transaction remains probable, the
effective portion of the changes in the fair value of these contracts will be
recorded in AOCI until earnings are affected by the variability of the cash
flows being hedged.  With regard to commitments for inventory
purchases, upon payment of each commitment, the underlying forward contract is
closed and the corresponding gain or loss is transferred from AOCI and is
included in the measurement of the cost of the acquired asset.  If a
hedging instrument is sold or terminated prior to maturity, gains and losses are
deferred in AOCI until the hedged item is settled.  However, if the
hedged item is no longer likely to occur, the resulting gain or loss on the
terminated hedge is recognized into earnings immediately.  During
fiscal 2009 the amount transferred to earnings was insignificant. Gains included
in AOCI at January 31, 2009 are insignificant, and are expected to be
transferred into earnings within the next twelve months upon payment of the
underlying commitment.





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





For
consolidated financial statement presentation, net cash flows from such forward
contracts are classified in the categories of the Consolidated Statements of
Cash Flows with the items being hedged.





Forward
contracts held with each bank are presented in a net asset or liability position
based netting agreements with each bank.





The
following table provides information about our foreign exchange forward
contracts at January 31, 2009:




US
      Dollar
                                        
                                        
                                        Average
                                        
                                        
                                        Unrealized(In
      thousands, except average contract rate)
                                        
                                        Notional
      Amount
                                        
                                        
                                        Contract
      Rate
                                        
                                        
                                        Gain
      (Loss)Canadian
      Dollar
                                        
                                        $
                                        1,400
                                        
                                        
                                        
                                        0.87
                                        
                                        
                                        $
                                        93Euro
                                        
                                        
                                        55,085
                                        
                                        
                                        
                                        1.46
                                        
                                        
                                        
                                        5,862$
                                        56,485
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        5,955





The
foreign exchange contracts outstanding have maturity dates through August
2009.





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Item 8.  Financial Statements and Supplementary
Data




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To the
Board of Directors and Stockholders of Blyth, Inc.


Greenwich,
Connecticut




We have
audited the accompanying consolidated balance sheets of Blyth, Inc. and
subsidiaries (the "Company") as of January 31, 2009 and 2008, and the related
consolidated statements of earnings (loss), stockholders' equity, and cash flows
for each of the three years in the period ended January 31, 2009.  Our
audits also included the financial statement schedule listed in the Index at
Item 15.  These financial statements and financial statement schedule are
the responsibility of the Company's management.  Our responsibility is to
express an opinion on the financial statements and financial statement schedule
based on our audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe that
our audits provide a reasonable basis for our opinion.
  In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Blyth, Inc. and subsidiaries as of January
31, 2009 and 2008, and the results of their operations and their cash flows for
each of the three years in the period ended January 31, 2009, in conformity with
accounting principles generally accepted in the United States of America. 
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein.
  As
discussed in Note 15 to the consolidated financial statements, on February 1,
2007, the Company adopted Financial Accounting Standards Board Interpretation
No. 48, Accounting for
Uncertainty in Income Taxes an Interpretation of FASB Statement No.
109.
  We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company's internal control over financial
reporting as of January 31, 2009, based on the criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated April 13, 2009 expressed an adverse
opinion on the Company's internal control over financial reporting because of a
material weakness.




/s/
DELOITTE & TOUCHE LLP







Stamford,
Connecticut


April 13,
2009






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BLYTH, INC. AND
      SUBSIDIARIESConsolidated Balance SheetsAs of January 31,(In thousands, except share and
      per share data)
                                                                
                                                                2008
                                                                
                                                                
                                                                2009ASSETSCurrent
      assets:Cash
      and cash equivalents
                                                                
                                                                $
                                                                163,021
                                                                
                                                                
                                                                $
                                                                146,424Short-term
      investments
                                                                
                                                                
                                                                30,375
                                                                
                                                                
                                                                
                                                                -Accounts
      receivable, less allowance for doubtful receivables $2,006 in 2008 and
      $3,438 in 2009
                                                                
                                                                
                                                                35,054
                                                                
                                                                
                                                                
                                                                29,525Inventories
                                                                
                                                                
                                                                132,585
                                                                
                                                                
                                                                
                                                                137,087Prepaid
      and other
                                                                
                                                                
                                                                31,968
                                                                
                                                                
                                                                
                                                                30,669Deferred
      income taxes
                                                                
                                                                
                                                                36,841
                                                                
                                                                
                                                                
                                                                40,574Total
      current assets
                                                                
                                                                
                                                                429,844
                                                                
                                                                
                                                                
                                                                384,279Property,
      plant and equipment, at cost:Land
      and buildings
                                                                
                                                                
                                                                126,305
                                                                
                                                                
                                                                
                                                                108,803Leasehold
      improvements
                                                                
                                                                
                                                                11,516
                                                                
                                                                
                                                                
                                                                10,010Machinery
      and equipment
                                                                
                                                                
                                                                148,430
                                                                
                                                                
                                                                
                                                                133,032Office
      furniture, data processing equipment and software
                                                                
                                                                
                                                                63,396
                                                                
                                                                
                                                                
                                                                66,888Construction
      in progress
                                                                
                                                                
                                                                5,248
                                                                
                                                                
                                                                
                                                                1,145354,895
                                                                
                                                                
                                                                
                                                                319,878Less
      accumulated depreciation
                                                                
                                                                
                                                                214,874
                                                                
                                                                
                                                                
                                                                199,524140,021
                                                                
                                                                
                                                                
                                                                120,354Other
      assets:Investments
                                                                
                                                                
                                                                22,315
                                                                
                                                                
                                                                
                                                                24,975Goodwill
                                                                
                                                                
                                                                31,854
                                                                
                                                                
                                                                
                                                                13,988Other
      intangible assets, net of accumulated amortization of $9,250 in 2008 and
      $10,897 in 2009
                                                                
                                                                
                                                                31,500
                                                                
                                                                
                                                                
                                                                16,840Deposits
      and other assets
                                                                
                                                                
                                                                11,888
                                                                
                                                                
                                                                
                                                                13,66797,557
                                                                
                                                                
                                                                
                                                                69,470Total
      assets
                                                                
                                                                $
                                                                667,422
                                                                
                                                                
                                                                $
                                                                574,103LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Current
      maturities of long-term debt
                                                                
                                                                $
                                                                928
                                                                
                                                                
                                                                $
                                                                37,936Accounts
      payable
                                                                
                                                                
                                                                55,167
                                                                
                                                                
                                                                
                                                                47,014Accrued
      expenses
                                                                
                                                                
                                                                78,045
                                                                
                                                                
                                                                
                                                                64,893Income
      taxes payable
                                                                
                                                                
                                                                10,926
                                                                
                                                                
                                                                
                                                                17,291Total
      current liabilities
                                                                
                                                                
                                                                145,066
                                                                
                                                                
                                                                
                                                                167,134Deferred
      income taxes
                                                                
                                                                
                                                                29,563
                                                                
                                                                
                                                                
                                                                21,778Long-term
      debt, less current maturities
                                                                
                                                                
                                                                157,887
                                                                
                                                                
                                                                
                                                                107,795Other
      liabilities
                                                                
                                                                
                                                                35,838
                                                                
                                                                
                                                                
                                                                28,898Commitments
      and contingencies
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -Stockholders'
      equity:Preferred
      stock - authorized 10,000,000 shares of $0.01 par value; no shares
      issued
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -Common
      stock - authorized 50,000,000 shares of $0.02 par value; issued 12,730,615
      shares in 2008 and 12,733,209 shares in 2009
                                                                
                                                                
                                                                1,018
                                                                
                                                                
                                                                
                                                                1,019Additional
      contributed capital
                                                                
                                                                
                                                                138,163
                                                                
                                                                
                                                                
                                                                140,543Retained
      earnings
                                                                
                                                                
                                                                522,328
                                                                
                                                                
                                                                
                                                                486,548Accumulated
      other comprehensive income
                                                                
                                                                
                                                                25,444
                                                                
                                                                
                                                                
                                                                19,366Treasury
      stock, at cost, 3,639,338 shares in 2008 and 3,842,224 shares in
      2009
                                                                
                                                                
                                                                (387,885
                                                                )
                                                                
                                                                
                                                                (398,978
                                                                )Total
      stockholders' equity
                                                                
                                                                
                                                                299,068
                                                                
                                                                
                                                                
                                                                248,498Total
      liabilities and stockholders' equity
                                                                
                                                                $
                                                                667,422
                                                                
                                                                
                                                                $
                                                                574,103The
      accompanying notes are an integral part of these consolidated financial
      statements.




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BLYTH, INC. AND SUBSIDIARIESConsolidated Statements of Earnings
    (Loss)For
      the year ended January 31, (In thousands, except per share
      data)
                                                                  
                                                                  2007
                                                                  
                                                                  
                                                                  2008
                                                                  
                                                                  
                                                                  2009Net
      sales
                                                                  
                                                                  $
                                                                  1,220,611
                                                                  
                                                                  
                                                                  $
                                                                  1,164,950
                                                                  
                                                                  
                                                                  $
                                                                  1,050,793Cost
      of goods sold
                                                                  
                                                                  
                                                                  623,942
                                                                  
                                                                  
                                                                  
                                                                  549,479
                                                                  
                                                                  
                                                                  
                                                                  473,577Gross
      profit
                                                                  
                                                                  
                                                                  596,669
                                                                  
                                                                  
                                                                  
                                                                  615,471
                                                                  
                                                                  
                                                                  
                                                                  577,216Selling
                                                                  
                                                                  
                                                                  409,742
                                                                  
                                                                  
                                                                  
                                                                  405,316
                                                                  
                                                                  
                                                                  
                                                                  400,658Administrative
                                                                  
                                                                  
                                                                  122,471
                                                                  
                                                                  
                                                                  
                                                                  130,090
                                                                  
                                                                  
                                                                  
                                                                  123,779Goodwill
      and other intangibles impairment
                                                                  
                                                                  
                                                                  48,812
                                                                  
                                                                  
                                                                  
                                                                  49,178
                                                                  
                                                                  
                                                                  
                                                                  48,751Total
      operating expense
                                                                  
                                                                  
                                                                  581,025
                                                                  
                                                                  
                                                                  
                                                                  584,584
                                                                  
                                                                  
                                                                  
                                                                  573,188Operating
      profit
                                                                  
                                                                  
                                                                  15,644
                                                                  
                                                                  
                                                                  
                                                                  30,887
                                                                  
                                                                  
                                                                  
                                                                  4,028Other
      expense (income):Interest
      expense
                                                                  
                                                                  
                                                                  19,074
                                                                  
                                                                  
                                                                  
                                                                  15,540
                                                                  
                                                                  
                                                                  
                                                                  10,001Interest
      income
                                                                  
                                                                  
                                                                  (7,398
                                                                  )
                                                                  
                                                                  
                                                                  (7,635
                                                                  )
                                                                  
                                                                  
                                                                  (4,261
                                                                  )Foreign
      exchange and other, net
                                                                  
                                                                  
                                                                  (1,401
                                                                  )
                                                                  
                                                                  
                                                                  1,257
                                                                  
                                                                  
                                                                  
                                                                  9,813Total
      other expense
                                                                  
                                                                  
                                                                  10,275
                                                                  
                                                                  
                                                                  
                                                                  9,162
                                                                  
                                                                  
                                                                  
                                                                  15,553Earnings
      (loss) from continuing operations before income taxes and minority
      interest
                                                                  
                                                                  
                                                                  5,369
                                                                  
                                                                  
                                                                  
                                                                  21,725
                                                                  
                                                                  
                                                                  
                                                                  (11,525
                                                                  )Income
      tax expense
                                                                  
                                                                  
                                                                  2,664
                                                                  
                                                                  
                                                                  
                                                                  10,547
                                                                  
                                                                  
                                                                  
                                                                  3,840Earnings
      (loss)  from continuing operations before minority
      interest
                                                                  
                                                                  
                                                                  2,705
                                                                  
                                                                  
                                                                  
                                                                  11,178
                                                                  
                                                                  
                                                                  
                                                                  (15,365
                                                                  )Minority
      interest
                                                                  
                                                                  
                                                                  150
                                                                  
                                                                  
                                                                  
                                                                  106
                                                                  
                                                                  
                                                                  
                                                                  115Earnings
      (loss) from continuing operations
                                                                  
                                                                  
                                                                  2,555
                                                                  
                                                                  
                                                                  
                                                                  11,072
                                                                  
                                                                  
                                                                  
                                                                  (15,480
                                                                  )Earnings
      (loss) from discontinued operations, net of income taxbenefit of
      $3,985
                                                                  
                                                                  
                                                                  (105,728
                                                                  )
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -Net
      earnings (loss)
                                                                  
                                                                  $
                                                                  (103,173
                                                                  )
                                                                  
                                                                  $
                                                                  11,072
                                                                  
                                                                  
                                                                  $
                                                                  (15,480
                                                                  )Basic:Earnings
      (loss) from continuing operations per common share
                                                                  
                                                                  $
                                                                  0.26
                                                                  
                                                                  
                                                                  $
                                                                  1.15
                                                                  
                                                                  
                                                                  $
                                                                  (1.73
                                                                  )Loss
      from discontinued operations per common share
                                                                  
                                                                  
                                                                  (10.63
                                                                  )
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -Net
      earnings (loss) per common share
                                                                  
                                                                  $
                                                                  (10.37
                                                                  )
                                                                  
                                                                  $
                                                                  1.15
                                                                  
                                                                  
                                                                  $
                                                                  (1.73
                                                                  )Weighted
      average number of shares outstanding
                                                                  
                                                                  
                                                                  9,945
                                                                  
                                                                  
                                                                  
                                                                  9,648
                                                                  
                                                                  
                                                                  
                                                                  8,971Diluted:Earnings
      (loss) from continuing operations per common share
                                                                  
                                                                  $
                                                                  0.26
                                                                  
                                                                  
                                                                  $
                                                                  1.14
                                                                  
                                                                  
                                                                  $
                                                                  (1.73
                                                                  )Loss
      from discontinued operations per common share
                                                                  
                                                                  
                                                                  (10.56
                                                                  )
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -Net
      earnings (loss) per common share
                                                                  
                                                                  $
                                                                  (10.30
                                                                  )
                                                                  
                                                                  $
                                                                  1.14
                                                                  
                                                                  
                                                                  $
                                                                  (1.73
                                                                  )Weighted
      average number of shares outstanding
                                                                  
                                                                  
                                                                  10,014
                                                                  
                                                                  
                                                                  
                                                                  9,732
                                                                  
                                                                  
                                                                  
                                                                  8,971The
      accompanying notes are an integral part of these consolidated financial
      statements.







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BLYTH, INC. AND SUBSIDIARIESConsolidated Statements of Stockholders'
      EquityCommon
      stock
                                                              
                                                              
                                                              Additional
      contributed capital
                                                              
                                                              
                                                              Retained
      earnings
                                                              
                                                              
                                                              Treasury
      stock
                                                              
                                                              
                                                              Unearned
      compensation
                                                              
                                                              
                                                              Accumulated
      other comprehensive income (loss)
                                                              
                                                              
                                                              Total(In
      thousands)Balance
      at February 1, 2006
                                                              
                                                              $
                                                              1,010
                                                              
                                                              
                                                              $
                                                              127,580
                                                              
                                                              
                                                              $
                                                              657,983
                                                              
                                                              
                                                              $
                                                              (287,744
                                                              )
                                                              
                                                              $
                                                              (3,070
                                                              )
                                                              
                                                              $
                                                              (1,935
                                                              )
                                                              
                                                              $
                                                              493,824Net
      (loss) for the year
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (103,173
                                                              )
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (103,173
                                                              )Foreign
      currency translation adjustments
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              21,413
                                                              
                                                              
                                                              
                                                              21,413Unrealized
      gain on certain investments (net of tax of $195)
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              319
                                                              
                                                              
                                                              
                                                              319Net
      gain on cash flow hedging instruments (net of tax of $36)
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              67
                                                              
                                                              
                                                              
                                                              67Reversal
      of minimum pension liability(net
      of tax of $578) due to sale of   Edelman and
      Euro-Décor
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              1347
                                                              
                                                              
                                                              
                                                              1,347Reclassification
      of unearned compensation
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (3,070
                                                              )
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              3,070
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              -Comprehensive
      income (loss)
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (80,027
                                                              )Common
      stock issued in connection with long-term incentive plan
                                                              
                                                              
                                                              3
                                                              
                                                              
                                                              
                                                              2,472
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              2,475Tax
      benefit from stock options
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              118
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              118Restricted
      stock net of cancellations
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              982
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (982
                                                              )
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              -SFAS
      158 adoption adjustment (net of tax $563)
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              919
                                                              
                                                              
                                                              
                                                              919Amortization
      of unearned compensation
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              1,285
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              1,285Dividends
      paid ($2.00 per share)
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (19,913
                                                              )
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (19,913
                                                              )Treasury
      stock purchases
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (34,988
                                                              )
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (34,988
                                                              )Balance
      at January 31, 2007
                                                              
                                                              $
                                                              1,013
                                                              
                                                              
                                                              $
                                                              129,367
                                                              
                                                              
                                                              $
                                                              534,897
                                                              
                                                              
                                                              $
                                                              (323,714
                                                              )
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              22,130
                                                              
                                                              
                                                              $
                                                              363,693FIN
      48 adoption adjustment
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              $
                                                              (2,769
                                                              )
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              $
                                                              (2,769
                                                              )Adjusted
      Balance, February 1, 2007:
                                                              
                                                              $
                                                              1,013
                                                              
                                                              
                                                              $
                                                              129,367
                                                              
                                                              
                                                              $
                                                              532,128
                                                              
                                                              
                                                              $
                                                              (323,714
                                                              )
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              22,130
                                                              
                                                              
                                                              $
                                                              360,924Net
      earnings for the year
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              11,072
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              11,072Foreign
      currency translation adjustments
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              3,693
                                                              
                                                              
                                                              
                                                              3,693SFAS
      158 adjustment (net of tax $167)
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              253
                                                              
                                                              
                                                              
                                                              253Unrealized
      gain on
      certain                    
      investments (net of tax of $10)
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              16
                                                              
                                                              
                                                              
                                                              16Net
      loss on cash flow hedging
                                                                instruments
      (net of a tax benefit of $392)
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (648
                                                              )
                                                              
                                                              
                                                              (648
                                                              )Comprehensive
      income (loss)
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              14,386Common
      stock issued in connection with long-term incentive plan
                                                              
                                                              
                                                              5
                                                              
                                                              
                                                              
                                                              7,073
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              7,078Tax
      benefit from stock options
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              303
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              303Amortization
      of unearned compensation
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              1,420
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              1,420Dividends
      paid ($2.16 per share)
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (20,872
                                                              )
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (20,872
                                                              )Treasury
      stock purchases
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (64,171
                                                              )
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (64,171
                                                              )Balance
      at January 31, 2008
                                                              
                                                              $
                                                              1,018
                                                              
                                                              
                                                              $
                                                              138,163
                                                              
                                                              
                                                              $
                                                              522,328
                                                              
                                                              
                                                              $
                                                              (387,885
                                                              )
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              25,444
                                                              
                                                              
                                                              $
                                                              299,068Net
      loss for the year
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (15,480
                                                              )
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (15,480
                                                              )Foreign
      currency translation adjustments
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (4,318
                                                              )
                                                              
                                                              
                                                              (4,318
                                                              )Net
      unrealized loss on certain investments
                                                                (net
      of tax benefit of $546)
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (2,375
                                                              )
                                                              
                                                              
                                                              (2,375
                                                              )Net
      gain on cash flow hedging
                                                                instruments
      (net of a tax liability of $377)
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              615
                                                              
                                                              
                                                              
                                                              615Comprehensive
      income (loss)
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (21,558
                                                              )Common
      stock issued in connection with long-term incentive plan
                                                              
                                                              
                                                              1
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              1Amortization
      of unearned compensation
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              2,380
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              2,380Dividends
      paid ($2.16 per share)
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (19,406
                                                              )
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (19,406
                                                              )Treasury
      stock purchases
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (11,093
                                                              )
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (11,093
                                                              )Accretion
      of redeemable noncontrolling interest
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (893
                                                              )
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (893
                                                              )Balance
      at January 31, 2009
                                                              
                                                              $
                                                              1,019
                                                              
                                                              
                                                              $
                                                              140,543
                                                              
                                                              
                                                              $
                                                              486,549
                                                              
                                                              
                                                              $
                                                              (398,978
                                                              )
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              19,366
                                                              
                                                              
                                                              $
                                                              248,499The
      accompanying notes are an integral part of these consolidated financial
      statements.




47
 Return to Top





BLYTH,
      INC. AND SUBSIDIARIES
                                                                    Consolidated Statements of Cash FlowsYear ended January 31,(In thousands)
                                                                  
                                                                  2007
                                                                  
                                                                  
                                                                  2008
                                                                  
                                                                  
                                                                  2009Cash
      flows from operating activities:Net
      earnings (loss)
                                                                  
                                                                  $
                                                                  (103,173
                                                                  )
                                                                  
                                                                  $
                                                                  11,072
                                                                  
                                                                  
                                                                  $
                                                                  (15,480
                                                                  )Adjustments
      to reconcile net earnings (loss) to net
      cash    provided by operating
    activities:Loss
      on sale of discontinued operations, net of tax
                                                                  
                                                                  
                                                                  80,865
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -Depreciation
      and amortization
                                                                  
                                                                  
                                                                  34,630
                                                                  
                                                                  
                                                                  
                                                                  31,974
                                                                  
                                                                  
                                                                  
                                                                  18,628Loss
      on disposition of fixed assets
                                                                  
                                                                  
                                                                  1,304
                                                                  
                                                                  
                                                                  
                                                                  112
                                                                  
                                                                  
                                                                  
                                                                  13Loss
      on impairment of assets
                                                                  
                                                                  
                                                                  2,736
                                                                  
                                                                  
                                                                  
                                                                  1,224
                                                                  
                                                                  
                                                                  
                                                                  8,034Loss
      on sale of business
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  611
                                                                  
                                                                  
                                                                  
                                                                  -Unrealized
      loss (gain) on trading investments
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  (29
                                                                  )
                                                                  
                                                                  
                                                                  2,096Stock-based
      compensation expense
                                                                  
                                                                  
                                                                  1,285
                                                                  
                                                                  
                                                                  
                                                                  2,184
                                                                  
                                                                  
                                                                  
                                                                  1,836Deferred
      income taxes
                                                                  
                                                                  
                                                                  (9,200
                                                                  )
                                                                  
                                                                  
                                                                  (7,192
                                                                  )
                                                                  
                                                                  
                                                                  (13,376
                                                                  )Equity
      in (earnings) losses of investee
                                                                  
                                                                  
                                                                  (214
                                                                  )
                                                                  
                                                                  
                                                                  1,295
                                                                  
                                                                  
                                                                  
                                                                  (116
                                                                  )Minority
      interest
                                                                  
                                                                  
                                                                  (514
                                                                  )
                                                                  
                                                                  
                                                                  27
                                                                  
                                                                  
                                                                  
                                                                  30Goodwill
      and other intangibles impairment charges
                                                                  
                                                                  
                                                                  48,812
                                                                  
                                                                  
                                                                  
                                                                  49,178
                                                                  
                                                                  
                                                                  
                                                                  48,751Loss
      on sale of assets held for sale
                                                                  
                                                                  
                                                                  79
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -Changes
      in operating assets and liabilities, net of effect of business
      acquisitions and divestitures:Accounts
      receivable
                                                                  
                                                                  
                                                                  43,966
                                                                  
                                                                  
                                                                  
                                                                  (6,877
                                                                  )
                                                                  
                                                                  
                                                                  5,062Inventories
                                                                  
                                                                  
                                                                  29,837
                                                                  
                                                                  
                                                                  
                                                                  173
                                                                  
                                                                  
                                                                  
                                                                  (5,972
                                                                  )Prepaid
      and other
                                                                  
                                                                  
                                                                  (12,905
                                                                  )
                                                                  
                                                                  
                                                                  1,772
                                                                  
                                                                  
                                                                  
                                                                  7,566Other
      long-term assets
                                                                  
                                                                  
                                                                  1,280
                                                                  
                                                                  
                                                                  
                                                                  4,917
                                                                  
                                                                  
                                                                  
                                                                  2,510Accounts
      payable
                                                                  
                                                                  
                                                                  (8,739
                                                                  )
                                                                  
                                                                  
                                                                  (2,452
                                                                  )
                                                                  
                                                                  
                                                                  (7,800
                                                                  )Accrued
      expenses
                                                                  
                                                                  
                                                                  (6,284
                                                                  )
                                                                  
                                                                  
                                                                  (891
                                                                  )
                                                                  
                                                                  
                                                                  (15,068
                                                                  )Other
      liabilities
                                                                  
                                                                  
                                                                  (2,809
                                                                  )
                                                                  
                                                                  
                                                                  (763
                                                                  )
                                                                  
                                                                  
                                                                  (5,594
                                                                  )Income
      taxes
                                                                  
                                                                  
                                                                  (6,640
                                                                  )
                                                                  
                                                                  
                                                                  5,506
                                                                  
                                                                  
                                                                  
                                                                  6,722Net
      cash provided by operating activities
                                                                  
                                                                  
                                                                  94,316
                                                                  
                                                                  
                                                                  
                                                                  91,841
                                                                  
                                                                  
                                                                  
                                                                  37,842Cash
      flows from investing activities:Purchases
      of property, plant and equipment, net of disposal proceeds
                                                                  
                                                                  
                                                                  (17,714
                                                                  )
                                                                  
                                                                  
                                                                  (9,421
                                                                  )
                                                                  
                                                                  
                                                                  (8,173
                                                                  )Purchases
      of short-term investments
                                                                  
                                                                  
                                                                  (1,463,335
                                                                  )
                                                                  
                                                                  
                                                                  (1,787,248
                                                                  )
                                                                  
                                                                  
                                                                  (69,716
                                                                  )Proceeds
      from sales of short-term investments
                                                                  
                                                                  
                                                                  1,333,611
                                                                  
                                                                  
                                                                  
                                                                  1,865,403
                                                                  
                                                                  
                                                                  
                                                                  84,777Note
      receivable issued under revolving credit facility
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  (4,416
                                                                  )Proceeds
      from the repayment of note receivable
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  4,416Proceeds
      from sales of assets
                                                                  
                                                                  
                                                                  5,550
                                                                  
                                                                  
                                                                  
                                                                  25,646
                                                                  
                                                                  
                                                                  
                                                                  36Purchases
      of long-term investments
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  (3,070
                                                                  )Proceeds
      from sale of long-term investments
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  7,204Proceeds
      from sales of businesses, net of cash disposed
                                                                  
                                                                  
                                                                  87,822
                                                                  
                                                                  
                                                                  
                                                                  514
                                                                  
                                                                  
                                                                  
                                                                  -Purchase
      of businesses, net of cash acquired
                                                                  
                                                                  
                                                                  (6,654
                                                                  )
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  (15,814
                                                                  )Net
      cash provided by (used in) investing activities
                                                                  
                                                                  
                                                                  (60,720
                                                                  )
                                                                  
                                                                  
                                                                  94,894
                                                                  
                                                                  
                                                                  
                                                                  (4,756
                                                                  )Cash
      flows from financing activities:Proceeds
      from issuance of common stock
                                                                  
                                                                  
                                                                  2,475
                                                                  
                                                                  
                                                                  
                                                                  7,079
                                                                  
                                                                  
                                                                  
                                                                  -Tax
      benefit from stock options
                                                                  
                                                                  
                                                                  118
                                                                  
                                                                  
                                                                  
                                                                  303
                                                                  
                                                                  
                                                                  
                                                                  -Purchases
      of treasury stock
                                                                  
                                                                  
                                                                  (34,988
                                                                  )
                                                                  
                                                                  
                                                                  (64,171
                                                                  )
                                                                  
                                                                  
                                                                  (11,093
                                                                  )Borrowings
      from bank line of credit
                                                                  
                                                                  
                                                                  34,172
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  560,800Repayments
      on bank line of credit
                                                                  
                                                                  
                                                                  (41,188
                                                                  )
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  (560,800
                                                                  )Repayments
      on long-term debt
                                                                  
                                                                  
                                                                  (120,338
                                                                  )
                                                                  
                                                                  
                                                                  (56,676
                                                                  )
                                                                  
                                                                  
                                                                  (12,682
                                                                  )Payments
      on capital lease obligations
                                                                  
                                                                  
                                                                  (309
                                                                  )
                                                                  
                                                                  
                                                                  (445
                                                                  )
                                                                  
                                                                  
                                                                  (507
                                                                  )Dividends
      paid
                                                                  
                                                                  
                                                                  (19,913
                                                                  )
                                                                  
                                                                  
                                                                  (20,872
                                                                  )
                                                                  
                                                                  
                                                                  (19,406
                                                                  )Net
      cash used in financing activities
                                                                  
                                                                  
                                                                  (179,971
                                                                  )
                                                                  
                                                                  
                                                                  (134,782
                                                                  )
                                                                  
                                                                  
                                                                  (43,688
                                                                  )Effect
      of exchange rate changes on cash
                                                                  
                                                                  
                                                                  8,115
                                                                  
                                                                  
                                                                  
                                                                  7,260
                                                                  
                                                                  
                                                                  
                                                                  (5,995
                                                                  )Net
      increase (decrease) in cash and cash equivalents
                                                                  
                                                                  
                                                                  (138,260
                                                                  )
                                                                  
                                                                  
                                                                  59,213
                                                                  
                                                                  
                                                                  
                                                                  (16,597
                                                                  )Cash
      and cash equivalents at beginning of year
                                                                  
                                                                  
                                                                  242,068
                                                                  
                                                                  
                                                                  
                                                                  103,808
                                                                  
                                                                  
                                                                  
                                                                  163,021Cash
      and cash equivalents at end of year
                                                                  
                                                                  $
                                                                  103,808
                                                                  
                                                                  
                                                                  $
                                                                  163,021
                                                                  
                                                                  
                                                                  $
                                                                  146,424Supplemental
      disclosure of cash flow information:Cash
      paid during the year for:Interest
                                                                  
                                                                  $
                                                                  22,615
                                                                  
                                                                  
                                                                  $
                                                                  17,618
                                                                  
                                                                  
                                                                  $
                                                                  9,547Income
      taxes, net of refunds
                                                                  
                                                                  
                                                                  22,942
                                                                  
                                                                  
                                                                  
                                                                  7,458
                                                                  
                                                                  
                                                                  
                                                                  7,643Non-cash
      transactions:Notes
      received for sales of assets
                                                                  
                                                                  $
                                                                  2,936
                                                                  
                                                                  
                                                                  $
                                                                  -
                                                                  
                                                                  
                                                                  $
                                                                  -Capital leases for equipment
                                                                  
                                                                  
                                                                  1,142
                                                                  
                                                                  
                                                                  
                                                                  30
                                                                  
                                                                  
                                                                  
                                                                  30The
      accompanying notes are an integral part of these consolidated financial
      statements.


48
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BLYTH,
INC. AND SUBSIDIARIES


Notes
to Consolidated Financial Statements





Note  1.
            Summary of Significant Accounting
  Policies




Blyth,
Inc. (the “Company”) is a multi-channel company competing primarily in the home
fragrance and decorative accessories industry.  The Company designs,
markets and distributes an extensive array of decorative and functional
household products including candles, accessories, seasonal decorations,
household convenience items and personalized gifts, as well as products for the
foodservice trade,nutritional supplements
and weight management products. The Company competes in the global home
expressions industry, and the Company’s products can be found throughout North
America, Europe and Australia.
 
 Effective
January 30, 2009, the Company’s common stock and related equity based
instruments were subject to a 1-for-4 reverse stock split. All historical share,
per share, earnings per share and stock-based compensation disclosures have been
adjusted accordingly.
 
 A summary
of the significant accounting policies applied in the preparation of the
accompanying consolidated financial statements follows:
 
 Principles
of Consolidation
 
 The
consolidated financial statements include the accounts of Blyth, Inc. and its
subsidiaries.  The Company consolidates entities in which it owns or
controls more than 50% of the voting shares and/or investments where the Company
has been determined to have control. The portion of the entity not owned by the
Company is reflected as the noncontrolling interest in Other liabilities in the
Consolidated Balance Sheets.  Investments in companies that are not
consolidated are reported using the equity method and are recorded in Other
assets in the Consolidated Balance Sheets.  All inter-company balances
and transactions have been eliminated in consolidation.
 
 Certain
of the Company’s subsidiaries operate on a 52 or 53-week fiscal year ending on
the Saturday nearest to January 31.  European operations and one
domestic direct selling entity maintain a calendar year accounting period, which
is consolidated with the Company’s fiscal period.
 
 Estimates
 
 The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period.  Actual results could differ from those
estimates.
 
 Credit
Concentration
 
 The
Company’s credit sales are principally to department and gift stores, mass
merchandisers and distributors, which purchase the Company’s products for
resale.  The Company performs ongoing credit evaluations of its
customers and generally does not require collateral.  The Company
makes provisions for estimated credit losses. No single customer accounts for
10% or more of sales.







49
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BLYTH,
INC. AND SUBSIDIARIES


Notes
to Consolidated Financial Statements





Note  1.
            Summary of Significant
      Accounting Policies(continued)




Foreign
Currency Translation





The
Company’s international subsidiaries use their local currency as their
functional currency.  Therefore, all balance sheet accounts of
international subsidiaries are translated into U.S. dollars at the year-end
rates of exchange, and Statement of Earnings (Loss) items are translated at the
weighted average exchange rates for the period.  Resulting translation
adjustments are included in


Accumulated
other comprehensive income (loss) (“AOCI”). Transactional gains and losses
arising from the impact of currency exchange rate fluctuations on transactions
in a currency other than the local functional currency are included in Foreign
exchange and other, net.





Investments





The
Company makes investments from time to time in the ordinary course of its
business that may include common and preferred equity securities, debt
instruments, and long-term investments and/or joint ventures that either
complement or expand its existing business. The Company’s marketable securities
are accounted for in accordance with Financial Accounting Standards Board
(“FASB”) Statement of Financial Accounting Standards (“SFAS”) 115, “Accounting
for Certain Investments in Debt and Equity Securities” (“SFAS 115”). The Company
reviews investments for impairment using both quantitative and qualitative
factors. Unrealized gains and losses on available-for-sale investment securities
are included in AOCI, net of applicable taxes, while realized gains and losses
are reported in earnings. For investments held as trading all realized and
unrealized gains and losses are reported in earnings. The equity method of
accounting is used to account for investments in common stock in which the
Company owns less than the majority of voting stock and has the ability to
exercise significant influence over the operating and financial policies of the
investee but lacks control.





Derivatives
and Other Financial Instruments





The
Company uses foreign exchange forward contracts to hedge the impact of foreign
currency fluctuations on foreign denominated inventory purchases, intercompany
payables and certain intercompany loans. The Company does not hold or issue
derivative financial instruments for trading purposes. The Company hedges the
investment in net assets of certain of its foreign operations through foreign
currency forward contracts. The net after-tax gain related to the net investment
hedges recorded in AOCI during fiscal 2009 was $3.7 million. The gain in AOCI
related to net investment hedges as of January 31, 2009 was $5.4
million.





The
Company has designated its forward exchange contracts on forecasted intercompany
purchases and future purchase commitments as cash flow hedges and, as such, as
long as the hedge remains effective and the underlying transaction remains
probable, the effective portion of the changes in the fair value of these
contracts will be recorded in AOCI until earnings are affected by the
variability of the cash flows being hedged.  Upon payment of each
commitment, the underlying forward contract is closed and the corresponding gain
or loss is transferred from AOCI and is included in the measurement of the cost
of the acquired asset.  If a hedging instrument is sold or terminated
prior to maturity, gains and losses are deferred in AOCI until the hedged item
is settled.  However, if the hedged item is no longer likely to occur,
the resultant gain or loss on the terminated hedge is recognized into earnings
immediately. Amounts included in AOCI at January 31, 2009 are insignificant and
are expected to be transferred into earnings within


50
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BLYTH,
INC. AND SUBSIDIARIES


Notes
to Consolidated Financial Statements





Note  1.
            Summary of Significant
      Accounting Policies(continued)




the next
twelve months upon payment of the underlying commitment. The foreign exchange
contracts outstanding have maturity dates through August 2009.





The
Company has designated its foreign currency forward contracts related to
intercompany loans and intercompany payables as fair value
hedges.  The gains or losses on the fair value hedges are recognized
into earnings and generally offset the transaction gains or losses in the
foreign denominated loans that they are intended to hedge. Forward contracts
held with each bank are presented in a net asset or liability position based on
netting agreements with each bank.





For
consolidated financial statement presentation, net cash flows from all hedges
are classified in the categories of the Consolidated Statements of Cash Flows
with the items being hedged.





Cash
and Cash Equivalents





The
Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.  Amounts due
from credit card companies for the settlement of credit card transactions are
included in cash equivalents because they are both short-term and highly liquid
instruments and typically take one to three business days to be received by the
Company. The major credit card companies making these payments are highly
accredited businesses, and the Company does not deem them as having material
counterparty credit risk.


The
Company holds its cash investments with high credit quality financial
institutions. Due to regulations put in place during fiscal 2009 the cash
balances in the Company’s U.S. concentration accounts are fully insured by the
Federal Deposit Insurance Corporation through December, 2009. The Company has
$3.1 million in restricted cash used as collateral to standby letters of credit,
which is reported in Investments. This cash will be restricted until the standby
letters of credit are relieved by the beneficiaries.





Inventories





Inventories
are valued at the lower of cost or market.  Cost is determined by the
first-in, first-out method.  The Company records provisions for
obsolete, excess and unmarketable inventory in Cost of goods sold.





Shipping
and Handling





The
Company classifies shipping and handling fees billed to customers as revenue,
and shipping and handling costs are classified as Cost of goods
sold.





Property,
Plant and Equipment





Property,
plant and equipment are stated at cost, less accumulated
depreciation.  Depreciation expense for fiscal 2007, 2008 and 2009 was
$32.8 million, $30.5 million and $17.0 million,
respectively.   Depreciation is provided for principally by use
of the straight-line method for financial reporting
purposes.  Leasehold improvements are amortized over the lives of the
respective leases or the service lives of the improvements, whichever is
shorter.  The Company records gains and losses from the sale of
property, plant and equipment in operating profit. During fiscal 2008, the
Company recorded an $8.3 million impairment charge, including $3.0 million of
accelerated


51
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BLYTH,
INC. AND SUBSIDIARIES


Notes
to Consolidated Financial Statements





Note
1.          Summary of Significant Accounting
Policies(continued)




depreciation,
related to fixed assets at BHI NA. This charge included $0.5 million recorded in
Administrative expense and $7.8 million recorded in Cost of goods sold. During
fiscal 2009, $6.7 million relating to a distribution center within the Wholesale
segment was reclassified to a long-term asset available for sale within Deposits
and other assets in the Consolidated Balance Sheets.





The
principal estimated lives used in determining depreciation are as
follows:








Buildings
                        27
      to 40 yearsLeasehold
      improvements
                        5
      to 10 yearsMachinery
      and equipment
                        5
      to 12 yearsOffice
      furniture, data processing equipment and software
                        3
      to   7
years





Goodwill
and Other Indefinite Lived Intangibles





Goodwill
and other indefinite lived intangibles are subject to an assessment for
impairment using a two-step fair value-based test, which must be performed at
least annually, or more frequently if events or circumstances indicate that
goodwill or other indefinite lived intangibles might be impaired.





The
Company performs its annual assessment of impairment as of January
31.  For goodwill, the first step is to identify whether a potential
impairment exists. This is done by comparing the fair value of a reporting unit
to its carrying amount, including goodwill.  Fair value for each of
the Company’s reporting units is estimated utilizing a combination of valuation
techniques, namely the discounted cash flow methodology and the market multiple
methodology. The discounted cash flow methodology assumes the fair value of an
asset can be estimated by the economic benefit or net cash flows the asset will
generate over the life of the asset, discounted to its present value. The
discounting process uses a rate of return that accounts for both the time value
of money and the investment risk factors. The market multiple methodology
estimates fair value based on what other participants in the market have
recently paid for reasonably similar assets. Adjustments are made to compensate
for differences between the reasonably similar assets and the assets being
valued. If the fair value of the reporting unit exceeds the carrying value, no
further analysis is necessary. The fair value of the reporting units is derived
by calculating the average of the outcome of the two valuation techniques
described above.  If the carrying amount of the reporting unit exceeds
its fair value, the second step is performed. The second step compares the
carrying amount of the goodwill to the estimated fair value of the goodwill. If
fair value is less than the carrying amount, an impairment loss is reported as a
reduction to the goodwill and a charge to operating expense.





Impairment
of Long-Lived Assets





The
Company reviews long-lived assets, including property, plant and equipment, and
finite- lived intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of such an asset may not be
recoverable. An impairment is measured as the excess of the carrying value over
the fair value of the long-lived asset. Management will determine whether there
has been an impairment on such assets held for use in the business by comparing
anticipated undiscounted future cash flows from the use and eventual disposition
of the asset or asset group to the carrying value of the asset.


52
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BLYTH,
INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements





Note
1.         Summary of Significant
Accounting Policies(continued)




Accumulated
Other Comprehensive Income (Loss)





Accumulated
Other Comprehensive income (loss) includes net income (loss), as reported in the
Consolidated Statements of Earnings (Loss) and Other Comprehensive Income
(Loss). AOCI is comprised of foreign currency cumulative translation
adjustments, unrealized gains and losses on certain investments in debt and
equity securities, the net gains and losses on cash flow hedging instruments and
net investment hedges and SFAS 158 adjustments.  The Company reports,
by major components and as a single total, the change in comprehensive income
(loss) during the period as part of the Consolidated Statements of Stockholders’
Equity.





The
following table presents the components of the Company’s AOCI, net of tax, for
the fiscal years ended January 31, 2008 and 2009:




(In
      thousands)
                                                                          
                                                                          Foreign
      currency translation adjustments
                                                                          
                                                                          
                                                                          Unrealized
      gain (loss) on certain investments
                                                                          
                                                                          
                                                                          Net
      gain (loss) on cash flow hedges
                                                                          
                                                                          
                                                                          Net
      gain on net investment hedges
                                                                          
                                                                          
                                                                          SFAS
      158 adjustment
                                                                          
                                                                          
                                                                          Accumulated
      other comprehensive income (loss)Balance
      at January 31, 2008
                                                                          
                                                                          $
                                                                          22,219
                                                                          
                                                                          
                                                                          $
                                                                          878
                                                                          
                                                                          
                                                                          $
                                                                          (603
                                                                          )
                                                                          
                                                                          $
                                                                          1,778
                                                                          
                                                                          
                                                                          $
                                                                          1,172
                                                                          
                                                                          
                                                                          $
                                                                          25,444Balance
      at January 31, 2009
                                                                          
                                                                          $
                                                                          14,244
                                                                          
                                                                          
                                                                          $
                                                                          (1,497
                                                                          )
                                                                          
                                                                          $
                                                                          12
                                                                          
                                                                          
                                                                          $
                                                                          5,435
                                                                          
                                                                          
                                                                          $
                                                                          1,172
                                                                          
                                                                          
                                                                          $
                                                                          19,366





Income
Taxes





Income
tax expense is based on taxable income, statutory tax rates and the impact of
non-deductible items.  Deferred tax assets and liabilities are
recognized for the expected tax consequences of temporary differences between
the tax basis of assets and liabilities and their reported
amounts.  The Company periodically estimates its probable tax
obligations using historical experience in tax jurisdictions and informed
judgments.  There are inherent uncertainties related to the
interpretation of tax regulations in the jurisdictions in which the Company
transacts business.  The judgments and estimates made at a point in
time may change based on the outcome of tax audits, as well as changes to or
further interpretations of regulations.  If such changes take place,
there is a risk that the tax rate may increase or decrease in any
period.
 
 Deferred
tax assets and liabilities reflect the Company’s best estimate of the tax
benefits and costs expected to realize in the future. The Company establishes
valuation allowances to reduce its deferred tax assets to an amount that will
more likely than not be realized.
 
 In
accordance with FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (“FIN 48”) the Company recognizes the tax benefit from an
uncertain tax position only if it is more likely than not that the tax position
will be capable of withstanding examination by the taxing authorities based on
the technical merits of the position. A number of years may elapse before an
uncertain tax position for which we have established a tax reserve is audited
and finally resolved, and the number of years for which we have audits that are
open varies depending on the tax jurisdiction (a current summary is provided in
Note 15 to the Consolidated Financial Statements). When facts and circumstances
change, we reassess these probabilities and record any necessary adjustments to
the provision.











53
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BLYTH,
INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements





Note
1.         Summary of Significant
Accounting Policies(continued)




During
fiscal 2008 and 2009, the Company determined that a portion of its fiscal 2008
and 2009 undistributed foreign earnings are not reinvested indefinitely by its
non-U.S. subsidiaries, and accordingly, recorded a deferred income tax expense
related to these undistributed earnings. The Company periodically reassesses
whether the non-U.S. subsidiaries will invest their undistributed earnings
indefinitely.
 
 Revenue
Recognition
 
 Revenues
consist of sales to customers, net of returns and allowances.  The
Company recognizes revenue upon delivery, when both title and risk of loss are
transferred to the customer.  The Company presents revenues net of any
taxes collected from customers and remitted to governmental
authorities.
 
 The
Company records estimated reductions to revenue for customer programs, which may
include special pricing agreements for specific customers, volume incentives and
other promotions.  The Company also records reductions to revenue,
based primarily on historical experience, for estimated customer returns and
chargebacks that may arise as a result of shipping errors, product damage in
transit or for other reasons that can only become known subsequent to
recognizing the revenue.  In some instances, the Company receives
payment in advance of product delivery.  Such advance payments occur
primarily in the direct selling and direct marketing channels and are recorded
as deferred revenue.  Upon delivery of product for which advance
payment has been made, the related deferred revenue is reversed and recorded to
revenue.  Also included in deferred revenue are gift card sales. Upon
expiration or redemption, the related deferred revenue is reclassified to
revenue. The Company takes into account escheat laws and historical redemption
data into account when realizing gift card revenue.
 
 The
Company has established an allowance for doubtful accounts for its trade and
note receivables.  The allowance is determined based on the Company’s
evaluation of specific customers’ ability to pay, aging of receivables,
historical experience and the current economic environment.
 
 Some of
the Company’s business units offer seasonal dating programs pursuant to which
qualifying customers are offered extended payment terms for seasonal product
shipments, which is a common practice in some of its industries. The sales price
for the Company’s products sold pursuant to such seasonal dating programs is
fixed prior to the time of shipment to the customer.  Customers do not
have the right to return product, except for rights to return that the Company
believes are typical of the industry for such reasons as damaged goods, shipping
errors or similar occurrences. The Company is not required to repurchase
products from its customers, and does not have regular practice of doing
so. The Company does not make any sales under consignment or similar
arrangements.
  54
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BLYTH,
INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements





Note
1.          Summary of Significant
Accounting Policies(continued)




Earnings
per Common and Common Equivalent Share
 
 Earnings
per common and common equivalent share-basic are computed based upon the
weighted average number of shares outstanding during the period. These
outstanding shares include both outstanding common shares and vested restricted
stock units (“RSUs”) as common stock equivalents.  Earnings
per common and common equivalent share-diluted reflects the potential dilution
that could occur if options and fixed awards to be issued under stock-based
compensation arrangements were converted into common stock.
 
 Employee
Stock Option Plans
 
 The
Company has share-based compensation plans as described in Note 16 to the
Consolidated Financial Statements.  On February 1, 2006, the Company
adopted SFAS No. 123(R), “Shared-Based Payment,” (“SFAS No. 123(R)”) using the
modified prospective application transition method, which requires the
measurement and recognition of compensation expense, based on estimated fair
values, for all share-based awards made to employees and directors, including
stock options, restricted stock, restricted stock units and performance share
units.  The Company recognizes compensation expense for share-based
awards expected to vest on a straight line basis over the requisite service
period of the award based on their grant date fair value.
 
 Operating
Expenses
 
 Cost
of goods sold includes the cost of raw materials and their procurement costs,
inbound and outbound freight, and the direct and indirect costs associated with
the personnel, resources and property plant and equipment related to the
manufacturing, warehousing, inventory management and order fulfillment
functions. Selling expenses include customer service costs, the costs associated
with trade shows and showrooms, catalog costs including printing and shipping,
commissions paid to consultants, the salaries and benefits related to personnel
within the marketing and selling functions, costs associated with promotional
offers to independent consultants, and other selling and marketing expenses.
Administrative and other expenses includes salaries and related benefits
associated with various administrative departments, including human resources,
legal, information technology, finance and executive, as well as professional
fees and administrative facility costs associated with leased buildings, rents,
office equipment and supplies.
 
 Promotional
Offers to Independent Consultants, Guests and Hostesses
 
 PartyLite’s
sales are generated by its independent consultants, who strive to maximize three
interrelated objectives, namely selling product, scheduling (or booking) parties
and recruiting new consultants.  In order to encourage its consultants
to accomplish these goals, PartyLite makes monthly promotional offers including
free or discounted product to guests and hostesses attending and holding shows
and annual incentive trips and the payment of bonuses to
consultants.
  Promotions
including free or discounted product are designed to increase revenues by
providing incentives for guests attending the parties and hostesses holding the
shows. These include (1) discounted product offers to hostesses who hold shows
or meet certain sales objectives at the shows, (2) offering free or discounted
products to guests whose purchases exceed a certain level, and (3) offering
special “party only” products that can only be purchased by guests attending a
show. Promotional offers for free product are recorded as a charge to Cost of
goods sold when











55
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BLYTH,
INC. AND SUBSIDIARIES


Notes
to Consolidated Financial Statements





Note
1.          Summary of Significant
Accounting Policies(continued)




incurred,
and promotional offers for discounted product are recorded as a reduction of
revenue when incurred with the full cost of the product being charged to Cost of
goods sold.
  Annual
incentive trips (paid for by PartyLite for consultants) and bonuses (usually in
the form of cash or an allowance against the cost of an incentive trip) are
awarded to consultants who recruit new consultants during promotional periods or
achieve certain sales levels. Estimated costs related to these promotional
offers are recorded as compensation within Selling expense as they are earned.
During fiscal 2007, 2008 and 2009, related promotional expenses were recorded of
$10.1 million, $7.1 million and $9.8 million, respectively.
 
 Advertising
and Catalog Costs
 
 The
Company expenses the costs of advertising as incurred, except the costs for
direct-response advertising, which are capitalized and amortized over the
expected period of future benefit.
  Direct-response
advertising relates to the Miles Kimball business and consists primarily of the
costs to produce direct-mail order catalogs.  The capitalized
production costs are amortized for each specific catalog mailing over the period
following catalog distribution in proportion to revenues (orders) received,
compared to total estimated revenues for that particular catalog
mailing.  The amortization period is generally from three to six
months and does not exceed twelve months.
  In
certain of the Company’s Wholesale and Direct Selling businesses, catalog
production costs are capitalized and expensed as the catalogs are distributed,
generally over less than a twelve month period.


Note
2.       New Accounting
Pronouncements
  In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations”(“SFAS No. 141R”).
SFAS No. 141R will significantly change the accounting for business
combinations in a number of areas including the treatment of contingent
consideration, acquisition costs, in process research and development and
restructuring costs. In addition, under SFAS No. 141R, changes in deferred
tax asset valuation allowances and acquired income tax uncertainties in a
business combination 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, the Company will adopt this standard in
fiscal 2010. The Company has not yet estimated the impact of the adoption of
SFAS No. 141R.
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51”
(“SFAS No. 160”). SFAS No. 160 will change the accounting and
reporting for minority interests, which will be recharacterized as
noncontrolling interests and classified as a component of equity. SFAS No.
160 is effective for fiscal years beginning after December 15, 2008 and, as
such, the Company will adopt this standard in fiscal 2010. SFAS No. 160
will change the way in which the Company classifies its noncontrolling interests
on its Consolidated Balance Sheets, and the manor in which it presents net
income (loss) in the Consolidated Statement of Earnings (Loss). None of these
changes are expected to have a significant impact on the Company’s consolidated
financial statements.
















56
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BLYTH,
INC. AND SUBSIDIARIES


Notes
to Consolidated Financial Statements




Note
2.       New Accounting Pronouncements(continued)




In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133”
(“SFAS No. 161”).  SFAS No. 161
requires disclosures of how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted for under SFAS No.
133 and how derivative instruments and related hedged items affect an entity’s
financial position, financial performance and cash flows. SFAS No. 161 is
effective for reporting period beginning after November 15, 2008, with
early adoption permitted. The Company does not expect the expanded disclosures
of SFAS No. 161 to have a significant impact on its consolidated financial
statements.





Note
3.       Business Acquisitions




On August
4, 2008, the Company signed a definitive agreement to purchase ViSalus Holdings,
LLC (“ViSalus”), a direct seller of vitamins and other related nutritional
supplements, through a series of investments. As part of the transaction, the
Company and ViSalus entered into a $5.0 million revolving credit facility that
permits ViSalus to borrow from the Company at interest rates comparable to those
that the Company receives when borrowing from a third-party lender.





On
October 21, 2008, the Company completed its initial investment and acquired a
43.6% equity interest in ViSalus for $13.0 million in cash. As provided in the
acquisition agreement, the availability under the $5.0 million revolving credit
facility was reduced to $2.5 million, of which $2.1 million was outstanding as
of January 31, 2009. In addition, the Company is required, subject to the
conditions in the acquisition agreement, to make additional purchases of
ViSalus’s equity interest to increase its equity ownership over time to 57.5%,
72.7% and 100.0%.  The requirement for additional purchases is
conditioned upon ViSalus meeting certain operating targets in fiscal 2010, 2011
and 2012,  subject to a one-time, one-year extension in any
year.  The purchase prices of the additional investments are based on
ViSalus’s future operating results as defined in the agreement. The Company has
the option to acquire the remaining interest in ViSalus even if they do not meet
the predefined operating targets.





The
Company has accounted for the acquisition of ViSalus as a business combination
under SFAS No. 141 “Business Combinations”.  The Company analyzed the
criteria for consolidation in accordance with ARB No. 51 “Consolidated Financial
Statements” and its supporting literature, and has determined it has control of
ViSalus based on the following factors.  ViSalus is currently majority
owned collectively by Blyth and Ropart Asset Management Fund, LLC and Ropart
Asset Management Fund II, LLC (collectively, “RAM”), a related party (see Note
22 to the Consolidated Financial Statements for additional
information).  Moreover, the Company has taken into account the
composition of ViSalus’s six-member board of managers, two of whom are the
Company’s executive officers, one of whom is a principal of RAM, two of whom are
founders and executive officers of ViSalus and one of whom is
independent.  Additionally, the Company and RAM together control
ViSalus’s compensation committee and control the compensation of the two ViSalus
executive officers who serve on ViSalus’s board of
managers.  Consequently, five of the six members of ViSalus’s board of
managers may be deemed to operate under the Company’s influence.





The
Company has also taken into account ViSalus’s governing documents, which afford
the Company significant rights with respect to major corporate actions and the
right to force the other owners of ViSalus’s equity instruments to sell them in
some corporate transactions.  Finally, the Company considered the
mechanisms that are in place to permit it to purchase the remaining minority
interest in ViSalus over the next several years.


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BLYTH,
INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements





Note
3.       Business Acquisitions(continued)





As
discussed above, the Company is required to purchase the remaining
noncontrolling interests in ViSalus if ViSalus meets certain operating
targets.  As a result, these redeemable noncontrolling interests have
been accounted for in accordance with the guidance in Emerging Issues Task Force
Topic D-98, Classification and
Measurement of Redeemable Securities.  Accordingly, the Company
has recognized these noncontrolling interests outside of permanent equity, and
will accrete changes in their redemption value through the date of redemption if
it continues to be probable that the noncontrolling interests will be
redeemed.  The accretion of the redemption value is recognized as a
charge to retained earnings, and to the extent that the resulting redemption
value exceeds the fair value of the noncontrolling interests, the differential
will be reflected in the Company’s earnings per share.  As of January
31, 2009, the carrying amount of the redeemable noncontrolling interests was
$0.9 million and has been reflected in Other liabilities in the Consolidated
Balance Sheet.  If ViSalus meets its current projected operating targets,
the total expected redemption value of noncontrolling interest will be
approximately $19.4 million paid over fiscal 2011, 2012 and 2013. The total
expected redemption value could increase or decrease depending upon whether
ViSalus exceeds or falls short of its operating projections.





The
acquisition of ViSalus by the Company involves related parties, as discussed in
Note 22 to the Consolidated Financial Statements. The other owners of ViSalus
include its three founders (each of whom currently own 11.7% of ViSalus) and a
small group of employees who collectively own approximately 5.9% of
ViSalus.  The Company’s initial investment in ViSalus of $13.0 million
was paid to ViSalus ($2.5 million), RAM ($3.0 million) and each of the three
founders ($2.5 million each).  Mr. Goergen, the Company’s chairman and
chief executive officer, beneficially owns approximately 30.0% of the Company’s
outstanding common stock, and together with members of his family, owns
substantially all of RAM.




Through
January 31, 2009, the Company had incurred $1.0 million in costs related to the
ViSalus transaction which have been accounted for as part of the cost of the
acquisition. ViSalus is included in the Direct Selling segment, and its
operating results since October 21, 2008, the date of acquisition, are included
in the Company’s Consolidated Statements of Earnings
(Loss).
  In August
2008, the Company acquired certain assets of As We Change, a catalog and
internet retailer, for $2.3 million in cash. The results of operations for As We
Change, which were not material, are included in the Consolidated Statements of
Earnings (Loss) of the Company since August 3, 2008, the date of acquisition. As
We Change is included in the Catalog & Internet reporting
segment.





Note
4.       Business Divestitures and
Discontinued Operations





On April
12, 2006, the Company sold its European seasonal decorations business, Kaemingk
B.V. (“Kaemingk”), in the Wholesale segment for $41.2 million, to an entity
controlled by the management of Kaemingk.  On June 16, 2006, the
Company sold its European everyday home, garden and seasonal business, Edelman
B.V. (“Edelman”), and its European gift and florist products business,
Euro-Decor B.V. (“Euro-Decor”), both in the Wholesale segment, for $38.5
million, to an entity with which members of the management of Edelman and
Euro-Decor were affiliated.  On August 17, 2006, the Company sold its
European mass candle business, Gies,





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BLYTH,
INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements





Note
4.       Business Divestitures and
Discontinued Operations(continued)
 
 which
was part of the Wholesale segment, for $31.6 million.  On December 20,
2006, the Company sold its European premium candle business, Colony, for $1.2
million.  Accordingly, these businesses have all been reported as
discontinued operations for all periods presented in the Consolidated Statements
of Earnings (Loss).
  Included
in the earnings (loss) from discontinued operations in the Consolidated
Statements of Earnings (Loss) for the year ended January 31, 2007 are the
following:


(In thousands)Net
      Sales
                              
                              $
                              108,134Earnings
      (loss) from discontinued operations, net of tax
                              
                              
                              (24,863
                              )Gain
      (loss) on sale of discontinued operations, net of tax
                              
                              $
                              (80,865
                              )





Included
in the earnings (loss) from discontinued operations was a net operating loss of
$0.3 million for fiscal 2007.  In fiscal 2007, the Company recorded a
non-tax deductible loss on sale of discontinued operations of $18.4 million as a
result of the sale of Kaemingk.
 
 Included
in the earnings (loss) from discontinued operations was a net operating loss of
$2.2 million for fiscal 2007.  In the first quarter of fiscal 2007,
the Company recorded a non-tax deductible goodwill impairment charge of $16.7
million related to these businesses, which has been included in the loss on sale
of discontinued operations.  In fiscal 2007, the Company recorded a
non-taxable gain on the sale of Edelman and Euro-Decor of $2.1
million.
 
 Included
in the earnings (loss) from discontinued operations were net operating losses
related to Gies of $9.9 million in fiscal 2007.Also included in the loss
on sale of discontinued operations was a net of tax loss on the sale of Gies of
$28.0 million, which included a non-taxable charge for the impairment of the
Gies business.
 
 Included
in the earnings (loss) from discontinued operations were net operating losses
related to Colony of $12.4 million for fiscal 2007.  Also included in
the loss on sale of discontinued operations was a net of tax loss of $19.9
million for the sale of the Colony business.
 
 In April
2007, the Company sold certain assets and liabilities of the 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 proceeds from the sale of overstock inventory of $1.3 million. Of this
amount, $21.8 million was received at closing and a total of $3.5 million was
received subsequently in fiscal 2008.
 
 Note
5.       Restructuring and Impairment
Charges
  During
fiscal 2007 and fiscal 2008, the Company recorded charges related to the
restructuring of its North American mass channel home fragrance business. The
major components of the restructuring included the closing of the Tijuana,
Mexico manufacturing facility, the elimination of less profitable customers, the
streamlining of the stock keeping unit base of the mass business, the
outsourcing of certain products previously manufactured by the Company and
personnel reductions.  Related charges included $1.4 million and $0.7
million of severance costs recorded to Cost of goods sold for the termination of
149 employees, in fiscal 2007 and 2008, respectively.
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BLYTH,
INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements





Note
5.       Restructuring and Impairment Charges(continued)





During
fiscal 2007, the Company recorded charges related to the restructuring of the
North American operations of the Direct Selling segment in recognition of the
decline in sales in this channel.  Restructuring charges associated
with the termination of 91 employees included severance costs of $1.5 million,
$0.4 million of which was recorded in cost of goods sold, $0.4 million was
recorded in selling expense and $0.7 million in administrative expense. During
fiscal 2008 an additional $0.1 million of severance costs were recorded to
administrative expense. Lease termination costs of $0.5 million and $1.5 million
were recorded to costs of goods sold, in fiscal 2007 and 2008, respectively. As
a result of a change in estimate relating to future sublease income and payments
made during fiscal 2009, the Company recorded a charge of $1.7 million to Costs
of goods sold. The Company anticipates the lease termination costs to be paid
through fiscal 2013.




The
following is a tabular rollforward of the restructuring charges described above
that were recorded on the Consolidated Balance Sheets of the
Company:




Wholesale
      Segment
                                                                      
                                                                      
                                                                      Direct
      Selling
                                                                        Segment(In
      thousands)
                                                                      
                                                                      Severance
      Costs
                                                                      
                                                                      
                                                                      Lease
      Obligation
                                                                      
                                                                      
                                                                      Severance
      Cost
                                                                      
                                                                      
                                                                      TotalBalance
      at February 1, 2006
                                                                      
                                                                      $
                                                                      -
                                                                      
                                                                      
                                                                      $
                                                                      -
                                                                      
                                                                      
                                                                      $
                                                                      -
                                                                      
                                                                      
                                                                      $
                                                                      -Charges
      incurred during fiscal 2007
                                                                      
                                                                      
                                                                      1,395
                                                                      
                                                                      
                                                                      
                                                                      450
                                                                      
                                                                      
                                                                      
                                                                      1,541
                                                                      
                                                                      
                                                                      
                                                                      3,386Payments
      made against 2007 charges
                                                                      
                                                                      
                                                                      (926
                                                                      )
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (926
                                                                      )Balance
      at January 31, 2007
                                                                      
                                                                      $
                                                                      469
                                                                      
                                                                      
                                                                      $
                                                                      450
                                                                      
                                                                      
                                                                      $
                                                                      1,541
                                                                      
                                                                      
                                                                      $
                                                                      2,460Changes
      in estimate during fiscal 2008
                                                                      
                                                                      
                                                                      726
                                                                      
                                                                      
                                                                      
                                                                      1,486
                                                                      
                                                                      
                                                                      
                                                                      130
                                                                      
                                                                      
                                                                      
                                                                      2,342Payments
      made against 2008 charges
                                                                      
                                                                      
                                                                      (1,057
                                                                      )
                                                                      
                                                                      
                                                                      (785
                                                                      )
                                                                      
                                                                      
                                                                      (1,571
                                                                      )
                                                                      
                                                                      
                                                                      (3,413
                                                                      )Balance
      at January 31, 2008
                                                                      
                                                                      $
                                                                      138
                                                                      
                                                                      
                                                                      $
                                                                      1,151
                                                                      
                                                                      
                                                                      $
                                                                      100
                                                                      
                                                                      
                                                                      $
                                                                      1,389Changes
      in estimate during fiscal 2009
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      1,701
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      1,701Payments
      made in fiscal 2009
                                                                      
                                                                      
                                                                      (138
                                                                      )
                                                                      
                                                                      
                                                                      (865
                                                                      )
                                                                      
                                                                      
                                                                      (100
                                                                      )
                                                                      
                                                                      
                                                                      (1,103
                                                                      )Balance
      at January 31, 2009
                                                                      
                                                                      $
                                                                      -
                                                                      
                                                                      
                                                                      $
                                                                      1,987
                                                                      
                                                                      
                                                                      $
                                                                      -
                                                                      
                                                                      
                                                                      $
                                                                      1,987





Note
6.        
 Investments





The
Company’s investments as of January 31, 2009 consisted of a number of financial
securities including debt instruments, preferred stocks, mutual funds, an
investment in a limited liability company and restricted cash.  The Company
accounts for its investments in debt and equity instruments in accordance with
SFAS No. 115.
 
 As of
January 31, 2009, the Company’s preferred stocks are classified as long-term
trading investments and both realized and unrealized gains and losses on these
securities are recorded in the Consolidated Statements of Earnings (Loss) in
Foreign exchange and other expense (income).  These securities are valued
based on a combination of quoted prices in inactive markets.
  The
Company holds other debt and equity auction rate securities (“ARS”) which are
classified as long-term, available-for-sale investments.  These securities
are valued based on many factors including the credit quality of the issuer and
its insurer, the Company’s discounted cash flow analysis and input from
broker-dealers in these types of securities. Realized gains and losses on these
securities are determined using the specific identification method and are
recorded in Foreign exchange and other expense (income).  Unrealized losses
on these securities that are











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BLYTH,
INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements




Note
6.          Investments(continued)





considered
temporary are recorded in AOCI.  Unrealized losses that are considered
other than temporary are recorded in the Consolidated Statements of Earnings
(Loss) in Foreign exchange and other expense (income).
 
 The
Company holds mutual funds as part of a deferred compensation plan which are
classified as available-for-sale.  These securities are valued based on
quoted prices in an active market. Unrealized gains and losses on these
securities are recorded in AOCI.  These investment balances are included in
Deposits and other assets in the Consolidated Balance Sheets.
 
 The
Company holds an investment in a limited liability company (“LLC”) obtained
through its recent ViSalus acquisition. The LLC is accounted for on the cost
basis as the Company holds an insignificant equity interest in this
company.  The Company assesses the fair value of this investment each
reporting period and if a loss occurs that is deemed to be other than temporary,
an impairment will be recorded in the Consolidated Statements of Earnings (Loss)
in Foreign exchange and other expense (income).
  Also
included in long-term investments are certificates of deposit that are held as
collateral for the Company’s outstanding standby letters of
credit.  These are recorded at cost and interest earned on these will
be realized in Interest income in the Consolidated Statements of Earnings
(Loss).


Investments,
by category:





(In thousands)
                                      
                                      January
      31, 2008
                                      
                                      
                                      January
      31, 2009Debt
      securities
                                      
                                      $
                                      15,000
                                      
                                      
                                      $
                                      4,481Equity
      securities
                                      
                                      
                                      25,370
                                      
                                      
                                      
                                      16,243Limited
      liability partnership
                                      
                                      
                                      10,000
                                      
                                      
                                      
                                      -Collateral
      -certificate of deposit
                                      
                                      
                                      -
                                      
                                      
                                      
                                      3,070Deferred
      compensation plan assets 1
                                      
                                      
                                      3,489
                                      
                                      
                                      
                                      1,314Joint
      Venture
                                      
                                      
                                      2,315
                                      
                                      
                                      
                                      -Investment
      in LLC
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,100Other
                                      
                                      
                                      5
                                      
                                      
                                      
                                      81Total  investments
                                      
                                      $
                                      56,179
                                      
                                      
                                      $
                                      26,2891
      These assets are recorded in Deposits and other assets in the Consolidated
      Balance Sheets





As of
January 31, 2008 and 2009, the Company held $25.0 million and $13.5 million,
respectively, of ARS classified as available-for-sale securities. The reduction
of ARS during the current fiscal year is primarily the result of par value
redemptions. ARS are generally long-term debt instruments that provide liquidity
through a Dutch auction process that resets the applicable interest rate at
predetermined intervals in days. This mechanism generally allows investors to
rollover their holdings and continue to own their respective securities or
liquidate their holdings by selling their securities at par value. The Company
generally invested in these securities for short periods of time as part of its
cash management program. The Company’s auction rate securities are all AAA/Aaa
rated investments and consist of a student loan portfolio with the vast majority
of the student loans guaranteed by the U.S. Government under the Federal Family
Education Loan Program and a closed-end fund consisting of preferred stock of
various utilities that maintains assets equal to or greater than 200% of the
liquidation preference of its preferred stock. These securities’ valuations
considered the financial conditions of the issuer and its
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BLYTH,
INC. AND SUBSIDIARIES


Notes
to Consolidated Financial Statements




Note
6.          Investments(continued)





guarantor
as well as the value of the collateral.  If the credit ratings of the
issuer or the collateral deteriorate, the Company may adjust the carrying value
of these investments.





The
current uncertainties surrounding the credit markets have prevented the Company
and other investors from liquidating all of their holdings by selling their
securities at par value. Historically, the par value of these securities
approximated fair value as a result of the resetting of the interest rate. In
the first quarter of fiscal 2009 market auctions, including auctions for
substantially all the Company’s ARS, began to fail due to insufficient buyers.
As a result of these failed auctions and the uncertainty of when these
securities could successfully be liquidated at par, the Company has recorded a
pre-tax unrealized loss of $1.5 million to AOCI as of January 31, 2009 to
reflect liquidity risk related to the securities, and has classified these
securities as non-current investments as of January 31, 2009. All unrealized
losses are the result of impairments which occurred during fiscal 2009. The
Company deems these securities to be temporarily impaired because of the
Company’s ability to hold these securities to maturity, if necessary, and the
underlying liquidity of the issuer and its insurer or guarantor which does not
indicate that a condition of a permanent impairment exists.





As of
January 31, 2008 and 2009, the Company held debt securities totaling $15.0
million and $5.0 million, at par, respectively, with contractual maturities
greater than ten years from the Balance Sheet date.





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





As of
January 31, 2008, the Company had a $5.2 million 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 be other-than-temporarily impaired as a result of
RedEnvelope’s filing for bankruptcy protection. Accordingly, a charge of $5.2
million was recorded to write off the full balance of this
investment.





During
fiscal 2008 and through most of fiscal 2009, the Company’s investments in
preferred stocks were bought and sold on a short-term basis with the sole
purpose of generating a profit on price differences. Accordingly, these investments were
classified as short-term trading investments.As of January 31, 2009, the
Company has discontinued its short-term trading strategy and has classified
these securities as long-term. As of January 31, 2009, the Company has
recorded $2.1 million of unrealized losses to Foreign Exchange and other,net.


The
Company’s investment in a limited partnership was purchased in fiscal 2008, at a
cost of $10.0 million. The Company fully liquidated its investment in the
partnership and has recorded a net loss of $0.7 million during fiscal
2009.





During
September 2008 the Company sold its investment in an Australian joint venture
for $2.2 million, resulting in a loss of $0.2 million.




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BLYTH,
INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements


Note
7.        
 Inventories





The major
components of Inventories are as follows:




January 31, (In
      thousands)
                                                
                                                2008
                                                
                                                
                                                2009Raw
      materials
                                                
                                                $
                                                6,490
                                                
                                                
                                                $
                                                9,643Finished
      goods
                                                
                                                
                                                126,095
                                                
                                                
                                                
                                                127,444Total
                                                
                                                $
                                                132,585
                                                
                                                
                                                $
                                                137,087





As of
January 31, 2008 and 2009, the inventory valuation reserves totaled $12.4
million and $15.8 million, respectively. The Company recorded provisions for
obsolete, excess and unmarketable inventory to Cost of goods sold in the
Consolidated Statements of Earnings (Loss) for fiscal 2007, 2008 and 2009 of
$29.3 million, $4.8 million and $6.1 million, respectively.


Note
8.          Prepaid and
Other





Prepaid
and other consists of the following:





January 31, (In
      thousands)
                                            
                                            2008
                                            
                                            
                                            2009Income
      and other taxes
                                            
                                            $
                                            4,492
                                            
                                            
                                            $
                                            2,192Catalogs
                                            
                                            
                                            6,654
                                            
                                            
                                            
                                            6,649Promotions
                                            
                                            
                                            5,783
                                            
                                            
                                            
                                            2,844Foreign
      exchange forward contracts
                                            
                                            
                                            -
                                            
                                            
                                            
                                            6,127Other
                                            
                                            
                                            15,039
                                            
                                            
                                            
                                            12,857Total
                                            
                                            $
                                            31,968
                                            
                                            
                                            $
                                            30,669





Due to
weakening of the Euro against the U.S. Dollar in the recent months many of the
Company’s foreign exchange forward contracts are in an asset position as shown
above. As of January 31, 2008 the outstanding hedges were in a net loss
position, and as such, were classified as a liability.





Note
9.Goodwill and Other Intangibles





Goodwill
and other indefinite lived intangibles are subject to an assessment for
impairment using a two-step fair value-based test, which must be performed at
least annually, or more frequently if events or circumstances indicate that
goodwill or other indefinite lived intangibles might be impaired.
 
 The
Company performs its annual assessment of impairment as of January
31.  For goodwill, the first step is to identify whether a potential
impairment exists. This is done by comparing the fair value of a reporting unit
to its carrying amount, including goodwill.  Fair value for each of
the Company’s reporting units is estimated utilizing a combination of valuation
techniques, namely the discounted cash flow methodology and the market multiple
methodology. The discounted cash flow methodology assumes the fair value of an
asset can be estimated by the economic benefit or net cash flows the asset will
generate over the life of the asset, discounted to its present value. The
discounting process uses a rate of return that accounts for both the time value
of money and the investment risk factors. The market multiple methodology
estimates fair value based on what other participants in the market have
recently paid for reasonably similar assets. Adjustments are made to compensate
for differences between the reasonably similar assets and the assets being
valued. If the


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BLYTH,
INC. AND SUBSIDIARIES


Notes
to Consolidated Financial Statements





Note
9.          Goodwill and Other
Intangibles(continued)




fair
value of the reporting unit exceeds the carrying value, no further analysis is
necessary. The fair value of the reporting units is derived by calculating the
average of the outcome of the two valuation techniques described
above.  If the carrying amount of the reporting unit exceeds its fair
value, the second step is performed. The second step compares the carrying
amount of the goodwill to the estimated fair value of the goodwill. If fair
value is less than the carrying amount, an impairment loss is reported as a
reduction to the goodwill and a charge to operating expense.
  As a
result of the Company’s annual fourth quarter impairment analyses in fiscal
2008, the Company determined that the goodwill balance at the Miles Kimball
reporting unit, in the Catalog & Internet segment, was impaired. In fiscal
2008, the Miles Kimball business experienced lower revenue growth than
anticipated when compared to the fiscal 2008 budget and beyond. The Company
recorded a non-cash pre-tax goodwill impairment charge of $46.8 million in the
fourth quarter of fiscal 2008.
 
 During
the first three quarters of fiscal 2009, the Miles Kimball Company and the Boca
Java reporting units, both part of the Catalog & Internet segment,
experienced substantial declines in operating performance when compared to prior
years’ results and their strategic outlook. The Company believes this shortfall
in performance was primarily attributable to decreased consumer spending
due to changes in the business environment and adverse economic conditions. As a
result the Company performed an impairment analysis, and determined that the
goodwill in these reporting units was determined to be fully impaired.
Accordingly, the Company recorded a non-cash pre-tax goodwill impairment charge
of $30.9 million.
 
 The
following table shows changes in goodwill for the fiscal years ended January 31,
2008 and 2009, by operating segment:


(In
      thousands)
                                            
                                            Direct
      Selling
                                            
                                            
                                            Catalog
      & Internet
                                            
                                            
                                            Wholesale
                                            
                                            
                                            TotalGoodwill
      at January 31, 2007
                                            
                                            $
                                            2,298
                                            
                                            
                                            $
                                            76,384
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            78,682Impairment
      charges
                                            
                                            
                                            
                                            
                                            
                                            
                                            (46,828
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (46,828
                                            )Goodwill
      at January 31, 2008
                                            
                                            $
                                            2,298
                                            
                                            
                                            $
                                            29,556
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            31,854ViSalus
      acquisition
                                            
                                            
                                            11,690
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            11,690As
      We Change acquisition
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,295
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,295Impairment
      charges
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (30,851
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (30,851
                                            )Goodwill
      at January 31, 2009
                                            
                                            $
                                            13,988
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            13,988





Other
intangible assets include indefinite-lived trade names and trademarks and
customer relationships related to the Company’s acquisition of Miles Kimball and
Walter Drake in fiscal 2004 and As We Change during fiscal 2009, which are
reported in the Catalog and Internet segment; and ViSalus, acquired during
fiscal 2009, which is reported in the Direct Selling segment. The
indefinite-lived trade names and trademarks were valued at $25.7 million and
$12.1 million as of the fiscal years ended January 31, 2008 and 2009,
respectively.  The Company does not amortize the indefinite-lived
trade names and trademarks, but rather tests for impairment annually as of
January 31, and upon the occurrence of a triggering event.  As part of
the impairment analysis for fiscal 2008, the Company recorded an impairment
charge of $2.4 million, related to certain of the Company’s trade names, which
were determined to be impaired due to changes in the business environment,
adverse economic conditions currently experienced and decreased consumer
spending. As part of the previously mentioned impairment analysis performed for
the third quarter of fiscal 2009 and a subsequent review performed in the
fourth











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BLYTH,
INC. AND SUBSIDIARIES


Notes
to Consolidated Financial Statements





Note
9.          Goodwill and Other
Intangibles(continued)




quarter
for the Catalog & Internet segment, the Company recorded impairment charges
totaling $17.9 million, related to certain of the Company’s trade names, which
were determined to be impaired.




Other
intangible assets include the following (In thousands):





(In
      thousands)
                          
                          Indefinite-lived
      trade names and trademarks
                          
                          
                          Customer
      relationships
                          
                          
                          TotalOther
      Intangibles at January 31, 2007
                          
                          $
                          28,100
                          
                          
                          $
                          7,250
                          
                          
                          $
                          35,350Amortization
                          
                          
                          -
                          
                          
                          
                          (1,500
                          )
                          
                          
                          (1,500
                          )Impairments
                          
                          
                          (2,350
                          )
                          
                          
                          -
                          
                          
                          
                          (2,350
                          )Other
      Intangibles at January 31, 2008
                          
                          $
                          25,750
                          
                          
                          $
                          5,750
                          
                          
                          $
                          31,500ViSalus
      acquisition
                          
                          $
                          4,200
                          
                          
                          $
                          300
                          
                          
                          
                          4,500As
      We Change acquisition
                          
                          
                          -
                          
                          
                          
                          387
                          
                          
                          
                          387Amortization
                          
                          
                          -
                          
                          
                          
                          (1,647
                          )
                          
                          
                          (1,647
                          )Impairments
                          
                          
                          (17,900
                          )
                          
                          
                          -
                          
                          
                          
                          (17,900
                          )Other
      Intangibles at January 31, 2009
                          
                          $
                          12,050
                          
                          
                          $
                          4,790
                          
                          
                          $
                          16,840





Amortization
expense is recorded on an accelerated basis over the estimated lives of the
customer lists ranging from 5 to 12 years.  Amortization expense was
$1.5 million in fiscal 2008 and $1.6 million in fiscal
2009.  Estimated amortization expense for the next five fiscal years,
beginning with fiscal 2010 is as follows:  $1.4 million, $1.2 million,
$0.8 million, $0.6 million and $0.6 million.  The weighted average
remaining life of the Company’s customer lists was 5.6 years at January 31,
2009.





Note
10.       Fair Value
Measurements




On
February 1, 2008, the Company adopted SFAS No. 157, “Fair Value
Measurements” (“SFAS No. 157”), for the Company’s financial assets and
liabilities. This statement provides a framework for measuring fair value and
requires expanded disclosures regarding fair value measurements. SFAS
No. 157 defines fair value as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date, which for fiscal 2009 is January 31,
2009.




The
fair-value hierarchy established in SFAS No. 157 prioritizes the inputs
used in valuation techniques into three levels as follows:





Level-1
      – Observable inputs – quoted prices in active markets for identical assets
      and liabilities;Level-2
      – Observable inputs other than the quoted prices in active markets for
      identical assets and liabilities – such as quoted prices for similar
      instruments, quoted prices for identical or similar instruments in
      inactive markets, or other inputs that are observable or can be
      corroborated by observable market data;Level-3
      – Unobservable inputs – includes amounts derived from valuation models
      where one or more significant inputs are unobservable and require the
      Company to develop relevant
assumptions.























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BLYTH,
INC. AND SUBSIDIARIES


Notes
to Consolidated Financial Statements





Note
10.Fair Value Measurements(continued)




The
following table summarizes the financial assets and liabilities measured at
fair value on a recurring basis as of the measurement date, January 31, 2009,
and the basis for that measurement, by level within the fair value
hierarchy:




(In
      thousands)
                        
                        Balance
      as of
                          January
      31, 2009
                        
                        
                        Quoted
      prices in active markets for identical assets
                          (Level
      1)
                        
                        
                        Significant
      other observable inputs (Level 2)
                        
                        
                        Significant
      unobservable inputs (Level 3)Financial
      assetsEquity
      securities
                        
                        $
                        16,243
                        
                        
                        $
                        -
                        
                        
                        $
                        7,209
                        
                        
                        $
                        9,034Debt
      securities
                        
                        
                        4,481
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        4,481Deferred
      compensation plan assets 1
                        
                        
                        1,314
                        
                        
                        
                        1,314
                        
                        
                        
                        -
                        
                        
                        
                        -Foreign
      exchange forward contracts
                        
                        
                        6,127
                        
                        
                        
                        -
                        
                        
                        
                        6,127
                        
                        
                        
                        -Total
                        
                        $
                        28,165
                        
                        
                        $
                        1,314
                        
                        
                        $
                        13,336
                        
                        
                        $
                        13,5151
      There is an offsetting liability for the obligation to its employees in
      Other liabilities
  The table
below summarizes the change in the fair value of Level-3 financial assets and
liabilities for the twelve month period ended January 31, 2009:




(In
      thousands)
                      
                      Significant
      unobservable inputs (Level 3)Fair
      value February 1, 2008
                      
                      $
                      25,000Settlements
                      
                      
                      (10,000
                      )Unrealized
      loss, net 1
                      
                      
                      (1,485
                      )Fair
      value January 31, 2009
                      
                      $
                      13,5151. All
      unrealized losses on available for sale investments are recorded as a
      component of AOCI





The
Company values its deferred compensation plan assets using Level-1
inputs.  These assets consist of shares of mutual funds, for which
there are quoted prices in an active market. The Company also enters into both
cash flow and fair value hedges by purchasing forward contracts. These contracts
are valued using Level-2 inputs, primarily observable forward foreign exchange
rates and quoted settlement estimates for the Company’s outstanding forwards.
The Company is subject to credit-related losses in the event of nonperformance
by counterparties to these contracts. Counterparties to these agreements are,
however, major international financial institutions with high-quality credit
ratings. The Company enters into agreements with financial institutions where
the risk of loss due to nonperformance is believed to be minimal. The Company
values certain preferred stock investments using information classified as
Level-2. This data consists of quoted prices of identical instruments in an
inactive market. The preferred stock investments are valued using price quotes
from numerous sources and a review of recent trade history. The debt and equity
securities classified as Level-3 consist of auction rate securities, the value
of which takes into consideration many factors including the credit quality of
the issuer, value of the collateral, the Company’s discounted cash flow analysis
and input from broker-dealers in these types of securities. Since there is not
an active, observable, market currently for these securities, they have been
classified as Level-3.











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BLYTH,
INC. AND SUBSIDIARIES


Notes
to Consolidated Financial Statements





Note
11.       Accrued Expenses




Accrued expenses consist of the
following:





January 31, (In
      thousands)
                        
                        2008
                        
                        
                        2009Compensation
      and benefits
                        
                        $
                        23,530
                        
                        
                        $
                        21,121Deferred
      revenue
                        
                        
                        16,350
                        
                        
                        
                        12,759Promotional
                        
                        
                        12,135
                        
                        
                        
                        7,674Interest
      payable
                        
                        
                        4,110
                        
                        
                        
                        2,779Taxes,
      other than income
                        
                        
                        3,206
                        
                        
                        
                        3,248Self-insurance
      reserves
                        
                        
                        2,223
                        
                        
                        
                        1,838Postage
      and freight
                        
                        
                        2,190
                        
                        
                        
                        1,538Other
                        
                        
                        14,301
                        
                        
                        
                        13,936Total
                        
                        $
                        78,045
                        
                        
                        $
                        64,893





Note
12.       Long-Term Debt




Long-term debt consists of the
following:




January 31, (In
    thousands)
                        
                        2008
                        
                        
                        20097.90%
      Senior Notes
                        
                        $
                        49,501
                        
                        
                        $
                        37,2925.50%
      Senior Notes
                        
                        
                        99,876
                        
                        
                        
                        99,897Other
                        
                        
                        9,438
                        
                        
                        
                        8,542158,815
                        
                        
                        
                        145,731Less
      current maturities
                        
                        
                        (928
                        )
                        
                        
                        (37,936
                        )$
                        157,887
                        
                        
                        $
                        107,795





During
fiscal year 2009, the Company repurchased $12.3 million of its 7.9% Senior Notes
and other debt reductions of $0.8 million for a total reduction in long term
debt of $13.1 million.
 
 On
October 2, 2006, the Company executed Amendment No. 1 to its unsecured revolving
credit facility (“Credit Facility”) dated as of June 2, 2005.  The
amendment provided for borrowing under the Credit Agreement of $75.0 million,
contingent upon the adherence to predefined covenants. As a result of
noncompliance with two of the covenants the Company terminated the Credit
Facility on December 5, 2008, after providing cash collateral to the issuing
bank such that all standby letters of credit are fully satisfied and are no
longer considered outstanding under the Credit Facility.
 
 In May
1999, the Company filed a shelf registration statement for issuance of up to
$250.0 million in debt securities with the Securities and Exchange
Commission.  On September 24, 1999, the Company issued $150.0 million
of 7.90% Senior Notes due October 1, 2009 at a discount of approximately $1.4
million, which is being amortized over the life of the notes.  In
fiscal 2008 and 2009, the Company repurchased $48.4 million and $12.3 million,
respectively, of these notes, resulting in $37.3 million outstanding as of
January 31, 2009.  Such notes contain, among other provisions,
restrictions on liens on principal property or stock issued to collateralize
debt.  At January 31, 2009, the Company was in compliance with such
provisions.  Interest is payable semi-annually in arrears on April 1
and October 1.  On October 20, 2003, the Company issued $100.0 million
5.50% Senior Notes due on November 1, 2013 at a discount of approximately $0.2
million, which is being amortized over the life of the notes.  Such
notes
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BLYTH,
INC. AND SUBSIDIARIES


Notes
to Consolidated Financial Statements





Note
12.       Long-Term Debt(continued)





contain
provisions and restrictions similar to those in the 7.90% Senior
Notes.  At January 31, 2009, the Company was in compliance 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 part at any time at a
specified redemption price.  The proceeds of the debt issuances were
used for general corporate purposes.
 
 As of
January 31, 2008 and 2009, Miles Kimball had approximately $8.6 million and $8.2
million, respectively, of long-term debt outstanding under a real estate
mortgage note payable which matures June 1, 2020.  Under the terms of
the note, payments of principal and interest are required monthly at a fixed
interest rate of 7.89%.
 
 As of
January 31, 2008 and 2009, 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 a bank and is
collateralized by certain of CBK’s assets.  The amount outstanding
under the IRB bears interest at short-term floating rates, which on a
weighted average was 2.0% as of January 31, 2009.  Payments of
principal are required annually and interest payments are required monthly under
the terms of the bond.





Maturities under debt
      obligations for the fiscal years ending January 31 are as follows
      (In
      thousands):2010
                      
                      $
                      37,9362011
                      
                      
                      5592012
                      
                      
                      5502013
                      
                      
                      5832014
                      
                      
                      100,528Thereafter
                      
                      
                      5,575$
                      145,731





The
estimated fair value of the Company’s $158.8 million and $145.7 million total
long-term debt (including current portion) at January 31, 2008 and 2009 was
approximately $141.9 million and $120.6 million, respectively.  The
fair value is determined by quoted market prices, where available, and from
analyses performed by investment bankers using current interest rates
considering credit ratings and the remaining terms to maturity.
 
 As of
January 31, 2009, the Company had a total of $2.0 million available under an
uncommitted bank facility to be used for letters of credit. The issuance of
letters of credit under this facility will be available until January 31,
2010.  As of January 31, 2009, no letters of credit were
outstanding.
 
 Note
13.       Employee Benefit Plans
  On
January 31, 2007, the Company adopted the recognition and disclosure
requirements of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension
and Other Postretirement Plans”, an amendment of FASB Statements No. 87, 88,
106, and 132R (“SFAS No. 158”).
 
 SFAS No.
158 required the Company to recognize the funded status of its defined benefit
pension plan in the Consolidated Balance Sheets as of the measurement date of
January 31, 2007, with a corresponding adjustment to AOCI.  The funded
status is the difference between the fair value of plan assets and the projected
benefit obligation. The adjustment to AOCI at adoption
represents























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BLYTH,
INC. AND SUBSIDIARIES


Notes
to Consolidated Financial Statements





Note
13.       Employee Benefit Plans(continued)
  the
net unrecognized actuarial gains or losses not yet recorded as a component of
other comprehensive income.
  In
accordance with SFAS No. 158, the Company recorded an adjustment to its
Consolidated Balance Sheet as of January 31, 2007 reducing its projected benefit
obligation by $1.5 million with a corresponding credit to AOCI, net of taxes of
$0.9 million. The adoption of SFAS No.158 had no effect on the Company’s
Consolidated Statements of Earnings (Loss) for the fiscal 2007, 2008 and 2009.
In fiscal 2008 the Company recorded an additional credit to AOCI, net of
deferred taxes, of $0.3 million in order to reflect the changes in the funded
status of the Miles Kimball Company Retirement Plan (“Plan”).
  Certain
employees of Miles Kimball are covered by the Plan.  This
non-contributory, defined benefit retirement plan provides benefits based on
years of service and employee compensation for specified
periods.  When the Company acquired Miles Kimball on April 1, 2003, a
decision was made to cease the accrual of benefits for all Plan participants,
except to the extent that a benefit accrual is required to comply with Section
416 of the Internal Revenue Code.  The Plan was frozen effective May
31, 2003.  All vested benefits that have been accrued as of May 31,
2003 will continue to be held for participants under the terms of the
Plan.  The Plan was terminated effective October 31, 2007. During
fiscal 2009, the Company filed for approval of the plan termination with the
Pension Benefit Guaranty Corporation (“PBGC”) and the Internal Revenue Service
(“IRS”). Pursuant to the termination, the Company purchased an annuity with a
life insurance company, covering all participants in the Plan. Upon approval of
the termination, this annuity will become irrevocable and the Company will be
relieved from primary responsibility of the pension obligation. As a result of
this purchase the estimated liability is offset fully by the plan assets, and
the net periodic benefit cost and the project benefit obligation were no longer
estimated for future periods. Additionally, the Company was not required to make
a contribution to the Plan in fiscal 2009, and does not anticipate any
contributions or benefit payments to the Plan in the future. The Company
received approval from the PBGC during fiscal 2009.
  Certain of the
Company’s non-U.S. subsidiaries provide pension benefits to employees or
participate in government sponsored programs.  The cost of these plans
or government sponsored programs was $1.3 million and $1.7 million in fiscal
2008 and 2009, respectively. Most employees outside the United States are
covered by government sponsored and administered programs. Other
contributions to government-mandated programs are not expected to be
significant.
  The
Company has defined contribution employee benefit plans in both the United
States and certain of its foreign locations, covering substantially all eligible
non-union employees.  Contributions to all such plans are principally
at the Company’s discretion.  Total expense related to all defined
contribution plans for the fiscal years ended January 31, 2007, 2008 and 2009
was $6.8 million, $5.7 million and $4.5 million, respectively. The decrease in
fiscal 2009 from the prior periods is primarily due to the reductions in
personnel made during the year.
  The
Company has entered into an employment agreement with its Chairman and Chief
Executive Officer, Robert B. Goergen, dated as of August 1, 2000. This contract
has been amended and restated from time to time to extend his term of employment
and provide other benefits. Benefits pursuant to the agreement have been funded
by a purchased annuity contract.








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BLYTH,
INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements




Note
14.       Commitments and
Contingencies




In August
2008, a state department of revenue proposed to assess additional corporate
income taxes on the Company for fiscal years 2002, 2003 and 2004 in the net
amount of $34.9 million, which includes interest.  In August 2008, the
Company filed a protest of the assessment, which it intends to contest
vigorously.  During fiscal 2008, the Company established a reserve for this
matter that it believes is adequate based on existing facts and
circumstances.  The ultimate resolution of this matter could exceed the
Company’s recorded reserve in the event of an unfavorable outcome of this
matter.  It is reasonably possible that losses in excess of the
Company’s recorded reserve could be incurred; however, the Company cannot
estimate such a loss at this time. The Company is currently in settlement
discussions with the state and believes that the ultimate outcome will not have
a material adverse effect on its financial position, cash flows or results of
operations.
 
 The
Company utilizes operating and capital leases for a portion of its facilities
and equipment.  Generally, the leases provide that the Company pay
real estate taxes, maintenance, insurance and other occupancy expenses
applicable to leased premises.  Certain leases provide for renewal for
various periods at stipulated rates.





The
      minimum future rental commitments under operating and capital leases are
      as follows (In thousands):For
      the years ending January 31,2010
                                
                                $
                                14,5022011
                                
                                
                                10,6802012
                                
                                
                                7,7892013
                                
                                
                                5,4062014
                                
                                
                                1,7192015
      and thereafter
                                
                                
                                2,715Total
      minimum payments required
                                
                                $
                                42,811





Rent
expense for the years ended January 31, 2007, 2008 and 2009 was $21.4 million,
$18.5 million and $17.2 million, respectively.





Pursuant
to the employment agreement identified above, upon the death of both Mr. Goergen
and his spouse, the Company will, upon the demand of the estate of either Mr.
Goergen or his spouse, buy back from such estate up to 1,875,000 shares of
Company Common Stock within 90 days of such demand at the fair market value
thereof (as defined in the employment agreement) or register the public offer
and sale by such estate of up to 1,875,000 shares of Common Stock.  In
connection with the employment agreement, the Company and Mr. Goergen entered
into a registration rights agreement relating to the registration of up to
1,875,000 shares of Common Stock as described above in the event that the
Company chooses not to purchase such shares upon the death of both Mr. Goergen
and his spouse.  There is no specified effective date or stock price
requirement in the agreements and the Company’s only obligation is to use its
best efforts to have the registration become effective.  The Company
will not be obligated to purchase or register such shares, notwithstanding the
death of both Mr. Goergen and his spouse, if the survivor’s estate, or his or
her beneficiaries, as the case may be, can then sell all of the shares of the
common stock owned by them without registration.  At January 31, 2009
the Company has recorded a liability of approximately $0.2 million related to
the estimated future costs to register the securities.








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BLYTH,
INC. AND SUBSIDIARIES


Notes
to Consolidated Financial Statements




Note
14.       Commitments and
Contingencies(continued)




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





Note
15.       Income Taxes




Earnings
(loss) from continuing operations before income taxes and minority
interest:




Year ended January 31, (In
    thousands)
                      
                      2007
                      
                      
                      2008
                      
                      
                      2009United
      States
                      
                      $
                      (49,549
                      )
                      
                      $
                      (40,159
                      )
                      
                      $
                      (81,843
                      )Foreign
                      
                      
                      54,918
                      
                      
                      
                      61,884
                      
                      
                      
                      70,318$
                      5,369
                      
                      
                      $
                      21,725
                      
                      
                      $
                      (11,525
                      )





Income
tax expense attributable to continuing operations consists of the
following:




Year ended January
      31, (In
      thousands)
                          
                          2007
                          
                          
                          2008
                          
                          
                          2009Current  income
      tax expense:Federal
                          
                          $
                          3,368
                          
                          
                          $
                          211
                          
                          
                          $
                          (40
                          )State
                          
                          
                          1,896
                          
                          
                          
                          8,936
                          
                          
                          
                          2,418Foreign
                          
                          
                          6,824
                          
                          
                          
                          8,592
                          
                          
                          
                          12,69812,088
                          
                          
                          
                          17,739
                          
                          
                          
                          15,076Deferred
      income tax expense (benefit):Federal
                          
                          
                          (7,442
                          )
                          
                          
                          (6,516
                          )
                          
                          
                          (10,277
                          )State
                          
                          
                          (1,386
                          )
                          
                          
                          (673
                          )
                          
                          
                          (757
                          )Foreign
                          
                          
                          (596
                          )
                          
                          
                          (3
                          )
                          
                          
                          (202
                          )(9,424
                          )
                          
                          
                          (7,192
                          )
                          
                          
                          (11,236
                          )$
                          2,664
                          
                          
                          $
                          10,547
                          
                          
                          $
                          3,840





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BLYTH,
INC. AND SUBSIDIARIES


Notes
to Consolidated Financial Statements





Note
15.       Income Taxes(continued)





Significant
components of the Company’s deferred tax assets and liabilities are as
follows:




January 31, (In
      thousands)
                          
                          2008
                          
                          
                          2009Deferred
      tax assets:Amortization
                          
                          $
                          11,376
                          
                          
                          $
                          20,865Accrued
      expenses and other
                          
                          
                          3,107
                          
                          
                          
                          1,520Allowance
      for doubtful receivables
                          
                          
                          1,366
                          
                          
                          
                          1,755Employee
      benefit plans
                          
                          
                          3,063
                          
                          
                          
                          3,564Inventory
      reserves
                          
                          
                          4,740
                          
                          
                          
                          4,911Net
      operating loss and other tax credit carryforwards
                          
                          
                          10,849
                          
                          
                          
                          25,461Capital
      loss carryforward
                          
                          
                          12,359
                          
                          
                          
                          12,345Contingency  reserves
                          
                          
                          8,555
                          
                          
                          
                          7,592Other
      reserves
                          
                          
                          2,450
                          
                          
                          
                          2,998Valuation
      allowance
                          
                          
                          (17,493
                          )
                          
                          
                          (21,533
                          )40,372
                          
                          
                          
                          59,478Deferred
      tax liabilities:Prepaids
                          
                          
                          (5,016
                          )
                          
                          
                          (8,310
                          )Undistributed
      foreign earnings
                          
                          
                          (16,065
                          )
                          
                          
                          (19,689
                          )Depreciation
      and amortization
                          
                          
                          (12,013
                          )
                          
                          
                          (12,497
                          )(33,094
                          )
                          
                          
                          (40,496
                          )Net
      deferred tax asset
                          
                          $
                          7,278
                          
                          
                          $
                          18,982





The
valuation allowance relates to certain U.S. and non-U.S. tax loss carryforwards,
state deferred tax assets, and a U.S. capital loss carryforward, for which the
Company believes, due to various limitations in these foreign jurisdictions
related to the tax loss carryforwards and due to limitations imposed by U.S.
federal and state tax regulations, it is more likely than not that such benefits
will not be realized. As of January 31, 2009, the Company had net operating
loss carryforwards, which consisted of approximately $7.9 million of U.S.
federal net operating losses that will expire on January 31, 2023 and 2026,
$105.0 million of U.S. state net operating losses that will begin to expire
in 2013, and foreign net operating losses of $13.1 million, which will
begin to expire in 2012. Also, as of January 31, 2008, the Company had a
$31.4 million U.S. capital loss carryforward of which the majority will
expire on January 31, 2012.  Finally, the Company has state
deferred tax assets of $0.8 million, that due to the fact that the businesses
that these assets relate to have a history of net operating losses, it is more
likely than not that a benefit for these assets will not be
recognized.
 
 As of
January 31, 2009, the Company determined that $93.3 million of undistributed
foreign earnings were not reinvested indefinitely by its non-U.S.
subsidiaries.  An accumulated deferred tax liability has been recorded
against these undistributed earnings of $19.7 million, an increase of $3.6
million over the prior year.  Of this amount, $4.1 million was
recorded an expense to the Company’s Net Loss in the current
period.











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BLYTH,
INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements





Note
15.       Income Taxes(continued)





The $4.1
million expense that was recorded includes a charge of $11.1 million related to
the effect of current year unremitted earnings of foreign subsidiaries not
permanently reinvested, and a benefit of $7.0 million related to a restructuring
of the Company’s European businesses that occurred during fiscal 2008 and 2009,
that enabled the Company to utilize tax losses from the sales of its European
wholesale businesses. This increase in the deferred tax liability was offset by
a $0.5 million decrease related to the tax effect of changes in foreign exchange
rates on the portion of the Company’s investment in foreign subsidiaries
relating to unremitted earnings not permanently reinvested.  This
portion of the change in the deferred tax liability was recorded in
AOCI.
 
 As of
January 31, 2009, undistributed earnings of foreign subsidiaries considered
permanently reinvested for which deferred income taxes have not been provided
were approximately $36.3 million.
 
 A
reconciliation of the provision for income taxes to the amount computed at the
federal statutory rate is as follows:





Year ended January
      31, (In
      thousands)
                      
                      2007
                      
                      
                      2008
                      
                      
                      2009Tax
      at statutory rate
                      
                      $
                      1,879
                      
                      
                      $
                      7,387
                      
                      
                      $
                      (3,918
                      )Tax
      effect of:U.S.
      state income taxes, net of federal benefit
                      
                      
                      138
                      
                      
                      
                      (1,567
                      )
                      
                      
                      (1,383
                      )Tax
      exempt interest
                      
                      
                      (1,537
                      )
                      
                      
                      (1,677
                      )
                      
                      
                      (200
                      )Permanent
      differences
                      
                      
                      (263
                      )
                      
                      
                      17
                      
                      
                      
                      283Recovery
      of note receivable reported in discontinued operations
                      
                      
                      (1,797
                      )
                      
                      
                      -
                      
                      
                      
                      -Valuation
      allowance on state net operating losses net of federal
    benefit
                      
                      
                      -
                      
                      
                      
                      1,935
                      
                      
                      
                      801Release
      of valuation allowance on capital loss carryforward
                      
                      
                      -
                      
                      
                      
                      (2,742
                      )
                      
                      
                      (931
                      )Change
      in reserve for tax contingencies
                      
                      
                      1,882
                      
                      
                      
                      5,781
                      
                      
                      
                      3,384Non-deductible
      goodwill impairment
                      
                      
                      3,072
                      
                      
                      
                      10,625
                      
                      
                      
                      6,448Foreign
      dividend and subpart F income
                      
                      
                      (1,280
                      )
                      
                      
                      983
                      
                      
                      
                      6,832Tax
      on undistributed foreign earnings
                      
                      
                      12,608
                      
                      
                      
                      275
                      
                      
                      
                      4,079Foreign
      tax rate differential
                      
                      
                      (13,367
                      )
                      
                      
                      (11,932
                      )
                      
                      
                      (12,156
                      )Other
                      
                      
                      1,329
                      
                      
                      
                      1,462
                      
                      
                      
                      601$
                      2,664
                      
                      
                      $
                      10,547
                      
                      
                      $
                      3,840









































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BLYTH,
INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements





Note
15.       Income Taxes(continued)





The
Company adopted the provisions of FIN 48 effective on February 1,
2007.  As a result of the implementation of FIN 48, the Company
recognized a $6.1 million increase in the liability for unrecognized tax
benefits that may not be realized and an asset of $3.3 million. These amounts
accounted for a net $2.8 million reduction to the Company’s February 1, 2007
Retained earnings balance. The following is a reconciliation of the total
amounts of unrecognized tax benefits excluding interest and penalties during the
year ended January 31, 2009




(In
      thousands)Balance
      as of February 1, 2008
                      
                      $
                      25,129Gross
      increases – tax positions prior periods
                      
                      
                      894Gross
      decreases – tax positions prior periods
                      
                      
                      (1,519
                      )Gross
      increases – current period tax positions
                      
                      
                      170Decreases
      – settlements with taxing authorities
                      
                      
                      (148
                      )Balance
      as of January 31, 2009
                      
                      $
                      24,526





As of
January 31, 2009, the Company had $24.5 million of gross unrecognized tax
benefits, excluding interest and penalties. This amount represents the portion
that, if recognized, would impact the effective tax rate.  The Company
recognizes interest and penalties related to unrecognized tax benefits in income
tax expense.  As of January 31, 2009, the Company
had $9.5 million accrued for the payment of interest and penalties, which also
impacted the tax rate.
 
 The
Company believes that it is reasonably possible that the total amount of
unrecognized tax benefits as of January 31, 2009 that may be resolved within
fiscal 2010 is approximately $1.9 million, as a result of filing amended tax
returns, closing of statutes, and audit settlements.  Due to the
various jurisdictions in which the Company files tax returns and the uncertainty
regarding the timing of the settlement of tax audits, it is possible that there
could be other significant changes in the amount of unrecognized tax benefits in
fiscal 2009, but the amount cannot be estimated.
  The
Company files income tax returns in the U.S. federal jurisdiction, various state
and local jurisdictions, and many foreign jurisdictions.   The number
of years with open tax audits varies depending on the tax jurisdiction. 
The Company’s major taxing jurisdictions include the United States (including
the state jurisdictions of Illinois and Massachusetts), Canada, Germany and
Switzerland.  In the United States, the Company is currently under audit by
the Internal Revenue Service for fiscal 2005 through 2008.  The Company is
currently under audit in the state of Illinois for fiscal 2003, 2004 and 2005
and is open to examination for fiscal 2006, 2007 and 2008.  The Company is
currently under audit in the commonwealth of Massachusetts for fiscal 2002, 2003
and 2004 and is open to examination for fiscal 2005 through 2007.  The
Company is currently under audit in the state of Wisconsin for fiscal 2002,
2003, 2004 and 2005 and is open to examination for fiscal 2006 through 2008. In
Germany, the Company is currently under examination for fiscal 2004 and open to
examination for fiscal 2005 through 2008.  In Switzerland, the Company is
open to examination for fiscal 2008.  The Company does not anticipate that
the resolution of the Internal Revenue Service, Illinois, Massachusetts,
Wisconsin, and German audits will materially impact its financial
statements.











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BLYTH,
INC. AND SUBSIDIARIES


Notes
to Consolidated Financial Statements





Note
15.       Income Taxes(continued)




In August
2008, a state department of revenue proposed to assess additional corporate
income taxes on the Company for fiscal years 2002, 2003 and 2004 in the net
amount of $34.9 million, which includes interest.  In August 2008, the
Company filed a protest of the assessment, which it intends to contest
vigorously.  During fiscal 2008, the Company established a reserve for this
matter that it believes is adequate based on existing facts and
circumstances.  The ultimate resolution of this matter could exceed our
recorded reserve in the event of an unfavorable outcome of this
matter.  It is reasonably possible that losses in excess of the
Company’s recorded reserve could be incurred; however, the Company cannot
estimate such a loss at this time. The Company is currently in settlement
discussions with the state and believes the ultimate outcome will not have a
material adverse effect on its financial position, cash flows or results of
operations.
 
 Note
16.       Stock-Based
Compensation
  Effective
January 30, 2009, the Company’s common stock and related equity based
instruments were subject to a 1-for-4 reverse stock split. All historical
stock-based compensation disclosures have been adjusted
accordingly.
 
 Summary
of Plans
 
 As of
January 31, 2009, the Company had one active stock-based compensation plan, the
Amended and Restated 2003 Omnibus Incentive Plan (“2003 Plan”), available to
grant future awards. In addition, the Company maintains two inactive stock-based
compensation plans (the Amended and Restated 1994 Employee Stock Option Plan and
the Amended and Restated 1994 Stock Option Plan for Non-Employee Directors),
under which vested and unexercised options remain outstanding. There were
1,625,025 shares authorized for grant under these plans as of January 31, 2009,
and there were approximately 910,000 shares available for grant under these
plans. The Company’s policy is to issue new shares of common stock for all stock
options exercised and restricted stock grants.
 
 The Board
of Directors and the stockholders of the Company have approved the adoption of
and subsequent amendments to 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 stock unit awards to officers and employees. The 2003 Plan
also provides for grants of nonqualified stock options to directors of the
Company who are not, and who have not been during the immediately preceding
12-month period, officers or employees of the Company or any of its
subsidiaries. Restricted stock and restricted stock units (“RSUs”) are granted
to certain employees to incent performance and retention. RSUs issued under the
plans provide that shares awarded may not be sold or otherwise transferred until
restrictions have lapsed. The release of RSUs on each of the vesting dates is
contingent upon continued active employment by the employee until the vesting
dates. A total of 30,480 RSUs have been granted during fiscal 2009.


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BLYTH,
INC. AND SUBSIDIARIES


Notes
to Consolidated Financial Statements





Note
16.       Stock-Based Compensation(continued)





Impact
of Adoption of 123(R)
 
 On
February 1, 2006, the Company adopted SFAS 123(R) which requires the measurement
and recognition of compensation expense for all share-based payment awards made
to employees and directors, including employee stock options, restricted stock
and RSUs based on estimated fair values.
  Stock-based
compensation expense recognized during the period is based on the value of the
portion of stock-based payment awards that is ultimately expected to vest during
the period.  Stock-based compensation expense recognized in the
Company’s Consolidated Statements of Earnings (Loss) for the fiscal years ended
January 31, 2007, 2008 and 2009 includes compensation expense for restricted
stock, RSUs and stock-based awards granted subsequent to January 31, 2006 based
on the grant date fair value estimated in accordance with the provisions of SFAS
123(R). The Company recognizes these compensation costs on a straight-line basis
over the requisite service period of the award, which is over periods of 3 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.


Transactions
related to restricted stock and RSUs are summarized as follows:




Shares
                              
                              
                              Weighted
      Average Grant Date Fair Value
                              
                              
                              Aggregate Intrinsic
      Value (In thousands)Nonvested
      restricted stock and RSUs at January 31, 2008
                              
                              
                              69,877
                              
                              
                              $
                              97.20Granted
                              
                              
                              30,480
                              
                              
                              
                              79.64Vested
                              
                              
                              (12,650
                              )
                              
                              
                              105.28Forfeited
                              
                              
                              (12,588
                              )
                              
                              
                              92.51Nonvested
      restricted stock and RSUs at January 31, 2009
                              
                              
                              75,119
                              
                              
                              $
                              89.51
                              
                              
                              $
                              1,025Total
      restricted stock and RSUs at January 31, 2009
                              
                              
                              90,947
                              
                              
                              $
                              92.45
                              
                              
                              $
                              1,241





Compensation
expense related to restricted stock and RSUs for fiscal year 2007, 2008 and 2009
was approximately $1.5 million, $1.4 million and $1.8 million, respectively.
Restricted stock and RSUs expense included in discontinued operations for fiscal
2007 was approximately $0.2 million. There was no restricted stock and RSUs
benefit included in discontinued operations for fiscal years 2008 or 2009. There
were no restricted stock or RSU exercises during fiscal 2007. The total
intrinsic value of restricted stock and RSUs vested during fiscal 2008 and
fiscal 2009 was $0.5 million and $0.2 million, respectively.The weighted average
grant date fair value of restricted stock and RSUs granted during 2007, 2008 and
2009 was approximately $87, $105 and $80 per share, respectively. The average
grant date fair value of restricted stock and RSUs vested during fiscal 2007,
2008 and 2009 was approximately $125, $104 and $105 per share,
respectively.





As of
January 31, 2009, there was $1.6 million of unearned compensation expense
related to non-vested RSU awards.  The total unrecognized stock-based
compensation cost to be recognized in future periods as of January 31, 2009 does
not consider the effect of stock-based awards that may be issued in subsequent
periods.  This cost is expected to be recognized over a weighted
average period of 1.0 years.


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BLYTH,
INC. AND SUBSIDIARIES


Notes
to Consolidated Financial Statements





Note
16.       Stock-Based Compensation(continued)





Transactions
involving stock options are summarized as follows:





Option
      Shares
                      
                      
                      Weighted
      Average Exercise Price
                      
                      
                      Weighted
      Average Remaining Contractual Life
                      
                      
                      Aggregate
      Intrinsic ValueOutstanding
      at January 31, 2008
                      
                      
                      111,850
                      
                      
                      $
                      108.03
                      
                      
                      
                      3.97Options
      expired
                      
                      
                      (1,250
                      )
                      
                      
                      76.96Options
      forfeited
                      
                      
                      (31,175
                      )
                      
                      
                      111.66Outstanding
      and exercisable at January 31, 2009
                      
                      
                      79,425
                      
                      
                      $
                      107.10
                      
                      
                      
                      3.30
                      
                      
                      $
                      -





At
January 31, 2008 and 2009, options to purchase 110,600 and 79,425 shares,
respectively, were vested and exercisable.





The
aggregate intrinsic value in the table above represents the difference between
the Company’s closing stock price on the last trading day of fiscal year 2009
and the exercise price, multiplied by the number of in-the-money options that
would have been received by the option holders had all option holders exercised
their options on January 31, 2009.  Intrinsic value will change in
future periods based on the fair market value of the Company’s stock and the
number of shares outstanding.  The total intrinsic value of stock
options exercised during 2007, 2008 and 2009 was approximately $0.3 million,
$0.6 million and $0.0 million, respectively.





Upon
adoption of SFAS 123(R), the Company elected to continue to use the
Black-Scholes option-pricing model (“Black-Scholes model”) to determine fair
value for stock option grants.  The Company’s determination of fair
value of stock-based payment awards on the date of grant using an option-pricing
model is affected by the Company’s stock price as well as assumptions regarding
a number of highly complex and subjective variables.  These variables
include, but are not limited to: the Company’s expected stock price volatility
over the term of the awards, and actual and projected employee stock option
exercise behaviors.





Note
17.       Segment Information




The
Company’s financial results are reported in three segments - the Direct Selling
segment, the Catalog & Internet segment and the Wholesale
segment.  These reportable segments are based on similarities in
distribution channels, customers and management oversight.





Within
the Direct Selling segment, the Company designs, manufactures or sources,
markets and distributes an extensive line of products including scented candles,
candle-related accessories and other fragranced products under the
PartyLite® brand. The Company also operates two small Direct
Selling businesses, Two Sisters Gourmet®, which is focused
on selling gourmet foods, and ViSalus Sciences®, which sells
nutritional supplements and weight management products. All products in this
segment are sold in North America through networks of independent sales
consultants. PartyLite brand products are also sold in Europe and
Australia.





Within
the Catalog & Internet segment, the Company designs, sources and markets a
broad range of household convenience items, premium photo albums, frames,
holiday cards, personalized gifts, kitchen accessories and gourmet coffee and
tea.  These products are sold directly to the consumer under the As We
Change®,
Boca Java®,
Easy Comforts®,
Exposures®,
Home Marketplace®,
Miles Kimball®
and Walter Drake®
brands.  These products are sold in North America.


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BLYTH,
INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements





Note 17.       Segment
Information(continued)




Within
the Wholesale segment, the Company designs, manufactures or sources, markets and
distributes an extensive line of home fragrance products, candle-related
accessories, seasonal decorations such as ornaments and trim, and home décor
products such as picture frames, lamps and textiles.  Products in this
segment are sold primarily in North America to retailers in the premium,
specialty and mass channels under the CBK®,
Colonial Candle of Cape Cod®,
Colonial at HOME®
and Seasons of Cannon Falls®
brands.  In addition, chafing fuel and tabletop lighting products and
accessories for the “away from home” or foodservice trade are sold through this
segment under the Ambria®,
HandyFuel®
and Sterno®
brands.





Operating
profit in all segments represent net sales less operating expenses directly
related to the business segments and corporate expenses allocated to the
business segments.  Other income (expense) includes interest expense,
interest income and equity in earnings of investees, which are not allocated to
the business segments.  Identifiable assets for each segment consist
of assets used directly in its operations and intangible assets, if any,
resulting from the purchase of businesses.  Unallocated Corporate
within the identifiable assets include corporate cash and cash equivalents,
short-term investments, prepaid income tax, corporate fixed assets, deferred
bond costs, deferred income taxes and other long-term investments and assets,
which are not allocated to the business segments.





The
geographic area data includes net trade sales based on product shipment
destination and long-lived assets (which
consists of fixed assets and other long-term assets) based on physical
location.


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BLYTH,
INC. AND SUBSIDIARIES


Notes
to Consolidated Financial Statements





Note 17.       Segment
Information(continued)




Operating
Segment Information




Year
      ended January 31, (In thousands)Financial
      Information
                                  
                                  2007
                                  
                                  
                                  2008
                                  
                                  
                                  2009Net
      SalesDirect  Selling
                                  
                                  $
                                  694,044
                                  
                                  
                                  $
                                  686,800
                                  
                                  
                                  $
                                  664,489Multi-channel
      Group:Catalog
      & Internet
                                  
                                  
                                  199,347
                                  
                                  
                                  
                                  206,767
                                  
                                  
                                  
                                  190,059Wholesale
                                  
                                  
                                  327,220
                                  
                                  
                                  
                                  271,383
                                  
                                  
                                  
                                  196,245Subtotal
      Multi-channel Group
                                  
                                  
                                  526,567
                                  
                                  
                                  
                                  478,150
                                  
                                  
                                  
                                  386,304Total
                                  
                                  $
                                  1,220,611
                                  
                                  
                                  $
                                  1,164,950
                                  
                                  
                                  $
                                  1,050,793Earnings
      (1)Direct  Selling
                                  
                                  $
                                  86,851
                                  
                                  
                                  $
                                  98,749
                                  
                                  
                                  $
                                  74,381Multi-channel
      Group:Catalog
      & Internet
                                  
                                  
                                  3,679
                                  
                                  
                                  
                                  (48,904
                                  )
                                  
                                  
                                  (59,118
                                  )Wholesale
                                  
                                  
                                  (74,886
                                  )
                                  
                                  
                                  (18,958
                                  )
                                  
                                  
                                  (11,235
                                  )Subtotal
      Multi-channel Group
                                  
                                  
                                  (71,207
                                  )
                                  
                                  
                                  (67,862
                                  )
                                  
                                  
                                  (70,353
                                  )Operating
      profit
                                  
                                  
                                  15,644
                                  
                                  
                                  
                                  30,887
                                  
                                  
                                  
                                  4,028Other
      income (expense)
                                  
                                  
                                  (10,275
                                  )
                                  
                                  
                                  (9,162
                                  )
                                  
                                  
                                  (15,553
                                  )Earnings
      before income taxes and minority interest
                                  
                                  $
                                  5,369
                                  
                                  
                                  $
                                  21,725
                                  
                                  
                                  $
                                  (11,525
                                  )Identifiable
      AssetsDirect  Selling
                                  
                                  $
                                  238,194
                                  
                                  
                                  $
                                  306,484
                                  
                                  
                                  $
                                  317,868Multi-channel
      Group:Catalog
      & Internet
                                  
                                  
                                  152,068
                                  
                                  
                                  
                                  103,677
                                  
                                  
                                  
                                  66,341Wholesale
                                  
                                  
                                  181,384
                                  
                                  
                                  
                                  146,612
                                  
                                  
                                  
                                  103,163Subtotal
      Multi-channel Group
                                  
                                  
                                  333,452
                                  
                                  
                                  
                                  250,289
                                  
                                  
                                  
                                  169,504Unallocated  Corporate
                                  
                                  
                                  202,992
                                  
                                  
                                  
                                  110,649
                                  
                                  
                                  
                                  86,731Total
                                  
                                  $
                                  774,638
                                  
                                  
                                  $
                                  667,422
                                  
                                  
                                  $
                                  574,103Capital Expenditures(2)Direct  Selling
                                  
                                  $
                                  10,790
                                  
                                  
                                  $
                                  4,491
                                  
                                  
                                  $
                                  3,287Multi-channel
      Group:Catalog
      & Internet
                                  
                                  
                                  3,415
                                  
                                  
                                  
                                  3,842
                                  
                                  
                                  
                                  1,624Wholesale
                                  
                                  
                                  3,321
                                  
                                  
                                  
                                  2,092
                                  
                                  
                                  
                                  2,876Subtotal
      Multi-channel Group
                                  
                                  
                                  6,736
                                  
                                  
                                  
                                  5,934
                                  
                                  
                                  
                                  4,500Unallocated
      Corporate
                                  
                                  
                                  188
                                  
                                  
                                  
                                  (1,004
                                  )
                                  
                                  
                                  386Total
                                  
                                  $
                                  17,714
                                  
                                  
                                  $
                                  9,421
                                  
                                  
                                  $
                                  8,173Depreciation
      and AmortizationDirect  Selling
                                  
                                  $
                                  12,799
                                  
                                  
                                  $
                                  11,270
                                  
                                  
                                  $
                                  9,961Multi-channel
      Group:Catalog
      & Internet
                                  
                                  
                                  4,587
                                  
                                  
                                  
                                  3,911
                                  
                                  
                                  
                                  4,232Wholesale
                                  
                                  
                                  16,337
                                  
                                  
                                  
                                  16,001
                                  
                                  
                                  
                                  3,875Subtotal
      Multi-channel Group
                                  
                                  
                                  20,924
                                  
                                  
                                  
                                  19,912
                                  
                                  
                                  
                                  8,107Unallocated
      Corporate
                                  
                                  
                                  907
                                  
                                  
                                  
                                  792
                                  
                                  
                                  
                                  560Total
                                  
                                  $
                                  34,630
                                  
                                  
                                  $
                                  31,974
                                  
                                  
                                  $
                                  18,628GEOGRAPHIC
      INFORMATIONNet
      SalesUnited
      States
                                  
                                  $
                                  888,206
                                  
                                  
                                  $
                                  775,789
                                  
                                  
                                  $
                                  624,956International
                                  
                                  
                                  332,405
                                  
                                  
                                  
                                  389,161
                                  
                                  
                                  
                                  425,837Total
                                  
                                  $
                                  1,220,611
                                  
                                  
                                  $
                                  1,164,950
                                  
                                  
                                  $
                                  1,050,793Long
      Lived AssetsUnited
      States
                                  
                                  $
                                  233,998
                                  
                                  
                                  $
                                  162,319
                                  
                                  
                                  $
                                  84,328International
                                  
                                  
                                  43,128
                                  
                                  
                                  
                                  43,370
                                  
                                  
                                  
                                  36,026Total
                                  
                                  $
                                  277,126
                                  
                                  
                                  $
                                  205,689
                                  
                                  
                                  $
                                  120,354


(1)
            Fiscal
      2007, 2008 and 2009 earnings include non-cash pre-tax goodwill and other
      intangibles impairment charges of $48.8 million in the Wholesale segment,
      and $49.2 million and $45.9 million in the Catalog & Internet segment,
      respectively (See Note 9 to the Consolidated Financial
      Statements).


(2)
            Capital
      Expenditures are presented net of disposals and transfers. The unallocated
      corporate balance is net of transfers to other
  divisions.


79
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BLYTH,
INC. AND SUBSIDIARIES


Notes
to Consolidated Financial Statements





Note
18.       Stock Repurchase Plan




During
the year ended January 31, 2009, the Company has purchased 202,887 shares on the
open market, for a cost of $11.1 million, bringing the cumulative total
purchased shares to 2,615,570 and a total cost of approximately $224.8 million.
A total of 1,884,430 shares remain authorized for purchase under the existing
plan.  Additionally in fiscal 2005, 1,226,654 shares were repurchased
through a Dutch auction cash tender offer for an aggregate purchase price of
$172.6 million, including fees and expenses.  The acquired shares are
held as common stock in treasury at cost.





Note
19.       Earnings Per Share




Effective
January 30, 2009, the Company’s common stock and related equity-based
instruments were subject to a 1-for-4 reverse stock split. In accordance with
SFAS No. 128, “Earnings per Share” all historical earnings per share
calculations have been adjusted accordingly.





Vested
restricted stock units issued under the Company’s stock-based compensation plans
participate in all dividends paid to common shareholders and are not considered
contingently issuable shares. Accordingly these RSUs are included in the
calculation of basic and diluted earnings per share as common stock equivalents.
RSUs that have not vested and are subject to a risk of forfeiture are included
in the calculation of diluted earnings per share.





The
following table presents the components of basic and diluted net earnings (loss)
per common share:




Year ended January 31, (In
      thousands)
                            
                            2007
                            
                            
                            2008
                            
                            
                            2009Net
      earnings (loss)
                            
                            $
                            (103,173
                            )
                            
                            $
                            11,072
                            
                            
                            $
                            (15,480
                            )Weighted
      average number outstanding:Common
      shares
                            
                            
                            9,945
                            
                            
                            
                            9,648
                            
                            
                            
                            8,961Vested
      restricted stock units
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            10Weighted
      average number of common shares outstanding:Basic
                            
                            
                            9,945
                            
                            
                            
                            9,648
                            
                            
                            
                            8,971Dilutive
      effect of stock options and non-vested restricted shares
    units
                            
                            
                            69
                            
                            
                            
                            84
                            
                            
                            
                            -Weighted
      average number of common shares outstanding:Diluted
                            
                            
                            10,014
                            
                            
                            
                            9,732
                            
                            
                            
                            8,971Basic
      earnings per share
                            
                            $
                            (10.37
                            )
                            
                            $
                            1.15
                            
                            
                            $
                            (1.73
                            )Diluted
      earnings per share
                            
                            $
                            (10.30
                            )
                            
                            $
                            1.14
                            
                            
                            $
                            (1.73
                            )





As of
January 31, 2007, 2008 and 2009, options to purchase 261,257, 108,100 and 79,425
shares of common stock, respectively, are not included in the computation of
diluted earnings per share because the effect would be
antidilutive.































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BLYTH,
INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements







Note
20.       Treasury and Common
Stock




Treasury
      Stock(In
      thousands, except shares)
                          
                          Shares
                          
                          
                          AmountBalance
      at February 1, 2006
                          
                          
                          2,383,354
                          
                          
                          $
                          (287,744
                          )Restricted
      stock cancellations
                          
                          
                          -
                          
                          
                          
                          (982
                          )Treasury
      stock purchases
                          
                          
                          450,596
                          
                          
                          
                          (34,988
                          )Balance
      at January 31, 2007
                          
                          
                          2,833,950
                          
                          
                          
                          (323,714
                          )Treasury
      stock purchases
                          
                          
                          805,388
                          
                          
                          
                          (64,171
                          )Balance
      at January 31, 2008
                          
                          
                          3,639,338
                          
                          
                          
                          (387,885
                          )Treasury
      stock purchases
                          
                          
                          202,886
                          
                          
                          
                          (11,093
                          )Balance
      at January 31, 2009
                          
                          
                          3,842,224
                          
                          
                          $
                          (398,978
                          )








Common Stock(In
      thousands, except shares)
                                                              
                                                              Shares
                                                              
                                                              
                                                              AmountChanges
      in Common Stock were:Balance
      at February 1, 2006
                                                              
                                                              
                                                              12,632,015
                                                              
                                                              
                                                              
                                                              1,010Common
      stock issued in connection with long-term incentive
    plan
                                                              
                                                              
                                                              27,250
                                                              
                                                              
                                                              
                                                              3Balance
      at January 31, 2007
                                                              
                                                              
                                                              12,659,265
                                                              
                                                              
                                                              
                                                              1,013Common
      stock issued in connection with long-term incentive
    plan
                                                              
                                                              
                                                              72,350
                                                              
                                                              
                                                              
                                                              6Common
      stock cancelled in connection with long-term incentive
      plan
                                                              
                                                              
                                                              (1,000
                                                              )
                                                              
                                                              
                                                              (1
                                                              )Balance
      at January 31, 2008
                                                              
                                                              
                                                              12,730,615
                                                              
                                                              
                                                              $
                                                              1,018Common
      stock issued in connection with long-term incentive
    plan
                                                              
                                                              
                                                              2,594
                                                              
                                                              
                                                              
                                                              1Balance
      at January 31, 2009
                                                              
                                                              
                                                              12,733,209
                                                              
                                                              
                                                              $
                                                              1,019























































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BLYTH,
INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements





Note
21.       Selected Quarterly Financial Data
(Unaudited)




A summary
of selected quarterly information for the years ended January 31 is as
follows:




2008
      Quarter Ended(In
      thousands, except per share data)April
      30
                                  
                                  
                                  July
      31
                                  
                                  
                                  October
      31
                                  
                                  
                                  January
      31Net
      sales
                                  
                                  $
                                  270,367
                                  
                                  
                                  $
                                  234,871
                                  
                                  
                                  $
                                  285,869
                                  
                                  
                                  $
                                  373,843Gross
      profit
                                  
                                  
                                  141,704
                                  
                                  
                                  
                                  121,370
                                  
                                  
                                  
                                  144,165
                                  
                                  
                                  
                                  208,232Net
      earnings (loss)
                                  
                                  
                                  11,732
                                  
                                  
                                  
                                  3,172
                                  
                                  
                                  
                                  6,577
                                  
                                  
                                  
                                  (10,409
                                  )
                                  (2)BasicNet
      earnings (loss) per common share (1)
                                  
                                  $
                                  1.20
                                  
                                  
                                  $
                                  0.32
                                  
                                  
                                  $
                                  0.68
                                  
                                  
                                  $
                                  (1.13
                                  )DilutedNet
      earnings (loss) per common share (1)
                                  
                                  $
                                  1.20
                                  
                                  
                                  $
                                  0.32
                                  
                                  
                                  $
                                  0.68
                                  
                                  
                                  $
                                  (1.12
                                  )





2009
      Quarter Ended(In
      thousands, except per share data)April
      30
                                    
                                    
                                    July
      31
                                    
                                    
                                    October
      31
                                    
                                    
                                    
                                    January
      31Net
      sales
                                    
                                    $
                                    249,848
                                    
                                    
                                    $
                                    236,786
                                    
                                    
                                    $
                                    250,805
                                    
                                    
                                    
                                    $
                                    313,354Gross
      profit
                                    
                                    
                                    139,431
                                    
                                    
                                    
                                    128,007
                                    
                                    
                                    
                                    132,250
                                    
                                    
                                    
                                    
                                    177,528Net
      earnings (loss)
                                    
                                    
                                    1,160
                                    
                                    
                                    
                                    3,005
                                    
                                    
                                    
                                    (32,912
                                    )
                                    (3)
                                    
                                    
                                    13,267
                                    (3)BasicNet
      earnings (loss) per common share (1)
                                    
                                    $
                                    0.13
                                    
                                    
                                    $
                                    0.33
                                    
                                    
                                    $
                                    (3.70
                                    )
                                    
                                    
                                    $
                                    1.49DilutedNet
      earnings (loss) per common share (1)
                                    
                                    $
                                    0.13
                                    
                                    
                                    $
                                    0.33
                                    
                                    
                                    $
                                    (3.70
                                    )
                                    
                                    
                                    $
                                    1.49(1)The
      sum of per share amounts for the quarters does not necessarily equal that
      reported for the year because the computations are made
      independently.(2)Fourth quarter, fiscal 2008 net earnings, includes goodwill and
      other intangible asset impairment charges of $49.2 million in the Catalog
      & Internet segment(See Note 9 to the Consolidated Financial Statements).(3)Third quarter, fiscal 2009 net loss, includes a goodwill and other
      intangible asset impairment charge of $45.9 million and the fourth
      quarter, fiscal 2009 net earnings,includes an other intangible asset impairment
      charge of $2.9 million with in the Catalog & Internet segment (See
      Note 9 to the Consolidated Financial Statements).
                                      Fourth quarter fiscal 2009 Net earnings
      reflect a benefit of $2.7 million resulting from a deferred tax adjustment
      related to the third quarter of fiscal
  2009.




Note
22.       Related Party
Transactions





As
discussed in Note 3 to the Consolidated Financial Statements, the acquisition of
ViSalus by Blyth involves related parties. ViSalus is currently owned in part by
RAM, which owns a significant minority interest in ViSalus.  Robert B.
Goergen, Chairman of the Board and Chief Executive Officer of the Company;
Robert B. Goergen, Jr., Vice President of the Company and President of the
Multi-Channel Group; and Todd A. Goergen, son of Robert B. Goergen and Pamela
Goergen (who is also a director of the Company), and brother of Robert B.
Goergen, Jr., own, directly or indirectly, substantially all of the
interests in RAM.  Todd A. Goergen was a member of the Board of
Managers of ViSalus at the time of acquisition. Mr. Goergen, the Company’s
chairman and chief executive officer, beneficially owns approximately 30.0% of
the Company’s outstanding common stock, and together with members of his family,
owns substantially all of RAM








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Note
23.       Subsequent Events
  As discussed
in Note 13 to the Consolidated Financial Statements the Company’s request for
approval of the pension plan termination was approved by the PBGC during fiscal
2009, and subsequent to year end, approval from the IRS was obtained. In the
first quarter of fiscal 2010 all related balances within AOCI, representing the
deferred gain of approximately $1.2 million, net of tax, will be recognized as a
reduction in Administrative expenses in the Consolidated Statements of Earnings
(Loss).





Item
9.      Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure





None.





Item 9A.   Controls and
Procedures





(a) Evaluation of Disclosure
Controls and Procedures





We
conducted an evaluation, under the supervision and with the participation of
management, including the Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures (as such term is defined in Rules 13a−15(e) and 15d−15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of January
31, 2009. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that, due to a material weakness in internal control
over financial reporting related to income taxes, as described below in
Management’s Annual Report on Internal Control Over Financial Reporting, the
Company’s disclosure controls and procedures were not effective as of January
31, 2009.





(b) Management’s Assessment of
Internal Control over Financial Reporting





Management
is responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rules 13a−15(f) and 15d−15(f) under the
Exchange Act. Our internal control system over financial reporting is designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. Because of inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.





Management
has assessed the effectiveness of our internal control over financial reporting
as of January 31, 2009. In making this assessment, management used the criteria
established in Internal
Control - Integrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). During this evaluation,
management identified a material weakness in our internal control over financial
reporting. A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the Company’s annual or
interim financial statements will not be prevented or detected on a timely
basis. As a result of the following material weakness, management has concluded
that our internal control over financial reporting was not effective as of
January 31, 2009 based upon the criteria issued by COSO.





83
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The
Company’s processes, procedures and controls related to financial reporting
related to income taxes were not effective to ensure that amounts related to
certain deferred taxes were accurate. The Company transitioned certain
responsibilities related to the tax provision preparation and review process
from its external tax advisors to newly-hired and existing personnel in its tax
department, and did not allocate sufficient resources to prepare and review
required analysis of deferred taxes.   In addition, the Company
did not maintain a sufficient level of documentation and
analysis.  This resulted in inaccurate calculations of deferred taxes
that required correction in order to be recorded in accordance with generally
accepted accounting principles.
 
 Our
independent registered public accounting firm has issued an attestation report
on our assessment of our internal control over financial reporting. The report
appears herein below.
 
 (c) Changes in Internal Control
Over Financial Reporting
 
 Other
than the material weakness noted above, there was no change in our internal
control over financial reporting during the quarterly period covered by this
report that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
 
 (d) Remediation Plan for Material
Weakness in Internal Control Over Financial Reporting
 
 The
Company developed the following plan to remediate the material weakness
identified above:
 
 ●
              Allocate
      sufficient resources to the preparation and review of the tax provision,
      which includes review of the deferred tax accounts. Management recognizes
      the importance of these responsibilities as they relate to the Company
      maintaining effective internal control, and has hired personnel to assist
      in performing these activities;●
              Improve
      documentation and analysis and establish a more formalized review
      of  the tax provision and deferred tax balances with senior
      management, financial reporting personnel and external advisors to ensure
      an appropriate level of review, analysis and accounting treatment of all
      tax balances;
 ●
              Evaluate
      and, if necessary, supplement our current resources with external advisors
      as deemed necessary;●
              Implement
      tax accounting software to enable the accounting related to the tax
      provision process to be more efficient and thereby allow more time for
      review.
 
 We
anticipate the actions described above and resulting improvements in controls
will strengthen our internal control over financial reporting and will, over
time, address the related material weakness that we identified as of January 31,
2009. However, because the remedial actions relate to developing processes and
training personnel, and because many of the controls in our system of internal
controls rely extensively on manual review and approval, the successful
operation of these controls will be required prior to management being able to
conclude that the material weakness has been remediated, which may take six
months to one year.
 
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REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To the
Board of Directors and Stockholders of Blyth, Inc.


Greenwich,
Connecticut




We have
audited Blyth, Inc. and subsidiaries' (the "Company's") internal control over
financial reporting as of January 31, 2009, based on criteria established in
Internal Control — Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission.  The Company's management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control over
Financial Reporting.  Our responsibility is to express an opinion on the
Company's internal control over financial reporting based on our
audit.
  We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects.  Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on that risk, and performing such other procedures as
we considered necessary in the circumstances.  We believe that our audit
provides a reasonable basis for our opinion.
  A
company's internal control over financial reporting is a process designed by, or
under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.  A company's internal control
over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
  Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis.  Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
  A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company’s annual or interim financial
statements will not be prevented or detected on a timely basis.  The
following material weakness has been identified and included in management's
assessment: internal control over financial reporting related to income
taxes.  This material weakness was considered in determining the
nature, timing, and extent of audit tests applied in our audit of the
consolidated financial statements and financial statement schedule as of and
for


85
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the year
ended January 31, 2009, of the Company and this report does not affect our
report on such financial statements and financial statement
schedule.
  In our
opinion, because of the effect of the material weakness identified above on the
achievement of the objectives of the control criteria, the Company has not
maintained effective internal control over financial reporting as of January 31,
2009, based on the criteria established in Internal Control — Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission.
  We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements and
financial statement schedule as of and for the year ended January 31, 2009 of
the Company and our report dated April 13, 2009 expressed an unqualified opinion
on those financial statements and financial statement schedule and included an
explanatory paragraph regarding the Company’s adoption of Financial Accounting
Standards Board Interpretation No. 48, Accounting for Uncertainty in Income
Taxes — an interpretation of FASB Statement 109.


/s/
DELOITTE & TOUCHE LLP


Stamford,
Connecticut


April 13,
2009






Item 9B.     Other
Information
 
 None.



















































86
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PART III


Item 10.     Directors,
Executive Officers and Corporate Governance





The information required by this Item
will be set forth in our Proxy Statement for our annual meeting of stockholders
scheduled to be held on June 10, 2009 (the “Proxy Statement”) under the captions
“Nominees for Election at the 2009 Annual Meeting for Terms Expiring in 2012,”
“Continuing Directors with Terms Expiring in 2010,” “Continuing Directors with
Terms Expiring in 2011,” “Executive Officers,” “Section 16(a) Beneficial
Ownership Reporting Compliance,” “Code of Conduct” and “Board of Director and
Committee Meetings” and is incorporated herein by reference.





Item 11.       Executive
Compensation





The information required by this Item
will be set forth in our Proxy Statement under the captions “Executive
Compensation,” “Employment Contracts and Severance Arrangements” and
“Compensation Committee Interlocks and Insider Participation and is incorporated
herein by reference.





Item 12.     
      Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters





The
information required by this Item will be set forth in our Proxy Statement under
the caption “Security Ownership of Management and Certain Beneficial Owners” and
is incorporated herein by reference.





Item 13.     Certain
      Relationships and Related Transactions, and
      Director  Independence





The
information required by this Item will be set forth in our Proxy Statement under
the caption “Certain Relationships and Related Transactions” and is incorporated
herein by reference.





Item 14.    Principal
Accountant Fees and Services





The information required by this Item
will be set forth in our Proxy Statement under the caption “Independent
Accountant Fees” and is incorporated herein by reference.


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PART
IV





Item 15.   Exhibits,
Financial Statement Schedules





(a)(1).                 Financial
Statements





The following consolidated financial
statements are contained on the indicated pages of this report:





Page No.Reports of Independent Registered Public Accounting
      Firm
                        
                        44Statements:Consolidated Balance Sheets
                        
                        45Consolidated Statements of Earnings
                        
                        46Consolidated Statements of Stockholders’
      Equity
                        
                        47Consolidated Statements of Cash Flows
                        
                        48Notes to Consolidated Financial
    Statements
                        
                        49








(a)(2).                 Financial Statement
Schedules





The following financial statement
schedule is contained on the indicated page of this report:


Page No.





Valuation and Qualifying
Accounts                                                                   S-2





All other schedules are omitted
because they are inapplicable or the requested information is shown in the
consolidated financial statements or related notes.




(a)(3).                 Exhibits
 
 Exhibit No.
              Description of Exhibit2.1
              Membership
      Interest Purchase Agreement, dated as of August 4, 2008, among Blyth,
      Inc., Blyth VSH Acquisition Corporation, ViSalus Holdings, LLC and the
      members of ViSalus Holdings, LLC (incorporated by reference to Exhibit 2.1
      to the Registrant’s Current Report on Form 8-K filed on August 5,
      2008)3.1
              Restated
      Certificate of Incorporation (incorporated by reference to the
      Registrant’s Registration Statement on Form S-1 (No.
      33-77458))3.2
              Restated
      By-laws (incorporated by reference to the Registrant’s Registration
      Statement on Form S-1 (No. 33-77458))3.3
              Certificate
      of Amendment to the Restated Certificate of Incorporation (incorporated by
      reference to Exhibit 3.3 the Registrant’s Current Report on Form 8-K filed
      on January 30, 2009)
 
 88
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 4.1(a)
              Form
      of Indenture, dated as of May 20, 1999, between the Registrant and First
      Union National Bank, as Trustee (incorporated by reference to the
      Registrant’s Registration Statement on Form S-3 (Reg. No. 333-77721) filed
      on May 4, 1999)4.1(b)
              Form
      of First Supplemental Indenture dated as of September 29, 1999 between the
      Registrant and First Union National Bank, Trustee (incorporated by
      reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K
      filed on September 28, 1999)4.1I
              Form
      of Second Supplemental Indenture dated as of October 23, 2003 between the
      Registrant and Wachovia Bank, National Association, Trustee (incorporated
      by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K
      filed on October 22, 2003)10.1
              Standard
      Form Industrial Lease dated April 22, 1993, between Carol Point Builders I
      General Partnership and PartyLite Gifts, Inc. (incorporated by reference
      to the Registrant’s Registration Statement on Form S-1 (No.
      33-77458))10.1(a)
              First
      Amendment, dated August 21, 1995, between ERI-CP, Inc., a Delaware
      corporation, as successor to Carol Point Builders I General Partnership,
      and PartyLite Gifts, Inc., to Standard Form Industrial Lease dated April
      22, 1993, between Carol Point Builders I General Partnership and PartyLite
      Gifts, Inc. (incorporated by reference to Exhibit 10.4(a) to the
      Registrant’s Annual Report on Form 10-K for the fiscal year ended January
      31, 1996)10.1(b)
              Second
      Amendment, dated August 4, 2000, between Carol Point LLC, a Massachusetts
      limited liability company, as successor landlord to ERI-CP Inc., and
      PartyLite Gifts, Inc., to Standard Form Industrial Lease dated April 22,
      1993, between Carol Point Builders I General Partnership and PartyLite
      Gifts, Inc. (incorporated by reference to Exhibit 10.4(a) to the
      Registrant’s Annual Report on Form 10-K for the fiscal year ended January
      31, 1996) (incorporated by reference to Exhibit 10.3(b) to the
      Registrant’s Annual Report on Form 10-K for the fiscal year ended January
      31, 2002)10.1I
              Third
      Amendment, dated February 28, 2001, between Carol Point LLC, a
      Massachusetts limited liability company, as successor landlord to ERI-CP
      Inc., and PartyLite Worldwide, Inc., as tenant, pursuant to Assignment and
      Assumption Agreement, dated January 31, 2001, between PartyLite Gifts,
      Inc. (assignor) and PartyLite Worldwide, Inc. (assignee), to Standard Form
      Industrial Lease dated April 22, 1993, between Carol Point Builders I
      General Partnership and PartyLite Gifts, Inc. (incorporated by reference
      to Exhibit 10.4(a) to the Registrant’s Annual Report on Form 10-K for the
      fiscal year ended January 31, 1996) (incorporated by reference to Exhibit
      10.3(c) to the Registrant’s Annual Report on Form 10-K for the fiscal year
      ended January 31, 2002)10.2
              Lease
      Agreement, dated June 25, 1997, between Carol Stream I Development
      Company, as landlord, PartyLite Gifts, Inc., as tenant, and the
      Registrant, as guarantor (incorporated by reference to Exhibit 10.5 to the
      Registrant’s Annual Report on Form 10-K for the fiscal year ended January
      31, 1998)
 
 89
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  10.2(a)
              First
      Amendment to Lease, dated February 1, 2001, between MP 437 Tower CS, Inc.
      by RREEF Management Company, as landlord, as successor to Carol Stream I
      Development Company, and PartyLite Worldwide, Inc., as tenant, pursuant to
      Assignment and Assumption Agreement, dated January 31, 2001, between
      PartyLite Gifts, Inc. (assignor) and PartyLite Worldwide, Inc. (assignee)
      (incorporated by reference to Exhibit 10.4(a) to the Registrant’s Annual
      Report on Form 10-K for the fiscal year ended January 31,
      2002)10.3+
              Form
      of Indemnity Agreement between the Registrant and each of its directors
      (incorporated by reference to the Registrant’s Registration Statement on
      Form S-1 (No. 33-77458))10.4+
              Blyth
      Industries, Inc. Non-Qualified Deferred Compensation Plan (incorporated by
      reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K as
      filed on December 21, 1999)10.5+
              Amended
      and Restated Employment Agreement dated as of December 11, 2008 by and
      between the Registrant and Robert B. Goergen (incorporated by reference to
      Exhibit 10.1 to the Registrant’s Current Report on Form 8-K as filed
      on December 12, 2008)10.6+
              Registration
      Rights Agreement dated as of August 1, 2000 by and between the Registrant
      and Robert B. Goergen (incorporated by reference to Exhibit 10.10 to the
      Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended
      October 31, 2000)10.6(a)+
              Amendment
      No. 1 dated as of March 12, 2004 to the Registration Rights Agreement
      dated as of August 1, 2000 by and between the Registrant and Robert B.
      Goergen (incorporated by reference to Exhibit 10.7(a) to the Registrant’s
      Annual Report on Form 10-K for the fiscal year ended January 31,
      2004)10.7+
              Amended
      and Restated 1994 Employee Stock Option Plan of the Registrant
      (incorporated by reference to Exhibit 4.1 to the Registrant’s Current
      Report on Form 8-K filed April 17, 2000)10.7(a)+
              Amendment
      No. 1 to the Amended and Restated 1994 Employee Stock Option Plan of the
      Registrant (incorporated by reference to Exhibit 10.9(a) to the
      Registrant’s Annual Report on Form 10-K for the fiscal year ended January
      31, 2004)10.8+
              Form
      of Non-transferable Incentive Stock Option Agreement under the Amended and
      Restated 1994 Employee Stock Option Plan of the Registrant (incorporated
      by reference to Exhibit 4.2 to the Registrant’s Quarterly Report on Form
      10-Q for the fiscal quarter ended July 31, 1996)10.9+
              Form
      of Non-transferable Non-Qualified Stock Option Agreement under the Amended
      and Restated 1994 Employee Stock Option Plan of the Registrant
      (incorporated by reference to Exhibit 4.3 to the Registrant’s Quarterly
      Report on Form 10-Q for the fiscal quarter ended July 31,
      1996)10.10+
              Amended
      and Restated 1994 Stock Option Plan for Non-Employee Directors of the
      Registrant (incorporated by reference to Exhibit 4.1 to the Registrant’s
      Current Report on Form 8-K filed April 19,
2002)
  90
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  10.10(a)+
              Amendment
      No. 1 to the Amended and Restated 1994 Stock Option Plan for Non-Employee
      Directors of the Registrant (incorporated by reference to Exhibit 10.12(a)
      to the Registrant’s Annual Report on Form 10-K for the fiscal year ended
      January 31, 2004)10.11+
              Form
      of Stock Option Agreement under the 1994 Stock Option Plan for
      Non-Employee Directors of the Registrant (incorporated by reference to the
      Registrant’s Registration Statement on Form S-1 (No.
      33-77458))10.12+
              Amended
      and Restated 2003 Omnibus Incentive Plan  (incorporated by
      reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
      filed June 6, 2008)21.1*
              List
      of Subsidiaries23.1*
              Consent
      of Deloitte & Touche LLP31.1*
              Section
      302 Certification of Chairman and Chief Executive
  Officer31.2*
              Section
      302 Certification of Vice President and Chief Financial
      Officer32.1*
              Certification
      of Chairman and Chief Executive Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 200232.2*
              Certification
      of Vice President and Chief Financial Officer pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002
 
 *
              Filed
      herewith.
 +
              Management
      contract or compensatory plan required to be filed by Item 15(a)(3) of
      this report.


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SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.




Date:  April
13,
2009                                                                                                                                                              
BLYTH, INC.











By: /s/ Robert B.
Goergen


Name: Robert B. Goergen


Title: Chairman and Chief Executive Officer










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Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





Signature
                                  
                                  Title
                                  
                                  Date/s/ Robert B. Goergen
                                  
                                  Chairman
      and Chief Executive Officer;
                                  
                                  April 13
      2009Robert
      B. Goergen
                                  
                                  Director
      (Principal Executive Officer)/s/ Robert H. Barghaus
                                  
                                  Vice
      President and Chief Financial Officer
                                  
                                  April
      13, 2009Robert
      H. Barghaus
                                  
                                  (Principal
      Financial and Accounting Officer)/s/ Anne M. Busquet
                                  
                                  Director
                                  
                                  April
      13, 2009Anne
      M. Busquet/s/ Pamela M. Goergen
                                  
                                  Director
                                  
                                  April
      13, 2009Pamela
      M. Goergen/s/ Neal I. Goldman
                                  
                                  Director
                                  
                                  April
      13, 2009Neal
      I. Goldman/s/ Carol J. Hochman
                                  
                                  Director
                                  
                                  April
      13, 2009Carol
      J. Hochman/s/ Wilma H. Jordan
                                  
                                  Director
                                  
                                  April
      13, 2009Wilma
      H. Jordan/s/ James M. McTaggart
                                  
                                  Director
                                  
                                  April
      13, 2009James
      M. McTaggart/s/ Howard E. Rose
                                  
                                  Director
                                  
                                  April
      13, 2009Howard
      E. Rose











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SCHEDULE II- VALUATION AND QUALIFYING ACCOUNTS


For
the years ended January 31, 2007, 2008 and 2009


(In
thousands)








Balance
      at
                                  
                                  
                                  Charged
      to
                                  
                                  
                                  
                                  
                                  
                                  Balance
      atBeginning
                                  
                                  
                                  Costs
      and
                                  
                                  
                                  
                                  
                                  
                                  End
      ofDescription
                                  
                                  of
      Period
                                  
                                  
                                  Expenses
                                  
                                  
                                  Deductions
                                  (1)
                                  
                                  Period2007Allowance
      for doubtful accounts
                                  
                                  $
                                  3,892
                                  
                                  
                                  $
                                  998
                                  
                                  
                                  $
                                  (3,357
                                  )
                                  
                                  $
                                  1,533Income
      tax valuation allowance
                                  
                                  
                                  4,704
                                  
                                  
                                  
                                  15,171
                                  
                                  
                                  
                                  (1,265
                                  )
                                  
                                  
                                  18,610Inventory
      reserve
                                  
                                  
                                  22,319
                                  
                                  
                                  
                                  29,251
                                  
                                  
                                  
                                  (27,286
                                  )
                                  
                                  
                                  24,2842008Allowance
      for doubtful accounts
                                  
                                  $
                                  1,533
                                  
                                  
                                  $
                                  2,044
                                  
                                  
                                  $
                                  (1,571
                                  )
                                  
                                  $
                                  2,006Income
      tax valuation allowance
                                  
                                  
                                  18,610
                                  
                                  
                                  
                                  2,583
                                  
                                  
                                  
                                  (3,700
                                  )
                                  
                                  
                                  17,493Inventory
      reserve
                                  
                                  
                                  24,284
                                  
                                  
                                  
                                  4,754
                                  
                                  
                                  
                                  (16,647
                                  )
                                  
                                  
                                  12,3912009Allowance
      for doubtful accounts
                                  
                                  $
                                  2,006
                                  
                                  
                                  $
                                  5,648
                                  
                                  
                                  $
                                  (4,216
                                  )
                                  
                                  $
                                  3,438Income
      tax valuation allowance
                                  
                                  
                                  17,493
                                  
                                  
                                  
                                  7,467
                                  
                                  
                                  
                                  (3,427
                                  )
                                  
                                  
                                  21,533Inventory
      reserve
                                  
                                  
                                  12,391
                                  
                                  
                                  
                                  5,795
                                  
                                  
                                  
                                  (2,369
                                  )
                                  
                                  
                                  15,8171. Deductions
      in 2007 and 2008 include the sale of Wholesale Europe and BHI NA,
      respectively.





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