**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, 2007 |
| or                                               |
| **o**                                            |   | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE****SECURITIES EXCHANGE ACT OF 1934** |

** **

For the transition period from ______________ to______________

** **

**Commission File Number 1-13026**

** **

**BLYTH, INC.**

(Exact Name of Registrantas Specified in Its Charter)

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

 

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

Securitiesregistered pursuant to Section 12(b) of the Act:

|                                         |   | **Name of each exchange** |
|-----------------------------------------|--------|---------------------------|
| **Title of each class**                 |   | **on which registered**   |
| Common Stock, par value $0.02 per share |   | New York Stock Exchange   |

** **

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

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

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

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.   Yes   x   No   o

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-Kis not contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment tothis Form 10-K.   o

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

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

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

The aggregate marketvalue of the voting common equity held by non-affiliates of the registrant wasapproximately $463.8 million based on the closing price of the registrant’sCommon Stock on the New York Stock Exchange on July 31, 2006 and based onthe assumption, for purposes of this computation only, that all of theregistrant’s directors and executive officers are affiliates.

As of March 31,2007, there were 39,301,262 outstanding shares of Common Stock.

**DOCUMENTSINCORPORATED BY REFERENCE**

Portions of the 2007 Proxy Statement for the AnnualMeeting of Shareholders to be held on June 6,2007 (Incorporated into Part III).

 

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**TABLE OF CONTENTS**
| **PART I**   |
|-------------------|
| Item 1.           |   | Business | 2 |
| Item  1A.         |   | Risk Factors | 6 |
| Item 1B.          |   | Unresolved Staff Comments | 8 |
| Item  2.          |   | Properties | 9 |
| Item  3.          |   | Legal  Proceedings | 9 |
| Item 4.           |   | Submission of Matters to a Vote of Security Holders | 9 |
| **PART II**  |
| Item 5.           |   | Market for Registrant’s Common Equity, Related  Stockholder Matters and Issuer Purchases of Equity Securities | 10 |
| Item 6.           |   | Selected Financial Data | 13 |
| Item 7.           |   | Management’s Discussion and Analysis of Financial  Condition and Results of Operations | 14 |
| Item 7A.          |   | Quantitative and Qualitative Disclosures About Market  Risk | 33 |
| Item 8.           |   | Financial Statements and Supplementary Data | 35 |
| Item 9.           |   | Changes in and Disagreements with Accountants on  Accounting and Financial Disclosure | 73 |
| Item 9A.          |   | Controls and Procedures | 73 |
| Item  9B.         |   | Other  Information | 75 |
| **PART III** |
| Item 10.          |   | Directors and Executive Officers of the Registrant | 75 |
| Item 11.          |   | Executive Compensation | 75 |
| Item 12.          |   | Security Ownership of Certain Beneficial Owners and  Management and Related Stockholder Matters    | 75 |
| Item 13.          |   | Certain Relationships and Related Transactions, and  Director Independence | 75 |
| Item 14.          |   | Principal Accountant Fees and Services | 75 |
| **PART IV**  |
| Item 15.          |   | Exhibits and Financial Statement Schedules | 76 |
|                   |  |  |  |  |  |  |

 

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**PART I**

**Item 1.**                        Business

**(a)**   GeneralDevelopment of Business

Blyth, Inc. (togetherwith its subsidiaries, the “Company,” which may be referred to as “we,” “us” or“our”) is a Home Expressions company competing primarily in the home fragranceand decorative accessories industry. The Company designs, markets anddistributes an extensive array of candles, decorative accessories, seasonaldecorations and household convenience items, as well as tabletop lighting,accessories and chafing fuel for the Away From Home or foodservice trade. TheCompany’s sales and operations take place primarily in the United States,Canada and Europe, with additional activity in Mexico, Australia and the FarEast.

**Recent Developments**

In September 2005, we announced our proposedintention to spin off the Wholesale segment to our stockholders. We requestedand received from the Internal Revenue Service a ruling on the tax-free statusfor the transaction. In March 2006, we announced our intention to evaluateadditional strategic opportunities that had been identified since theannouncement of the spin off, which would likely focus on one or more of ourEuropean Wholesale businesses. In fiscal 2007, we sold all of our EuropeanWholesale businesses.

During the third quarterof fiscal 2007, we began the restructuring of our North American mass channelhome fragrance business with the announcement that we will be closing ourTijuana, Mexico manufacturing facility. In addition, in fiscal 2007, wecommenced the elimination of less profitable customers and streamlining of theStock Keeping Unit (“SKU”) base of the mass business.

**Additional Information**

Additional information isavailable on our website, www.blyth.com. Our annual reports on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-Kand any amendments thereto filed or furnished pursuant to the SecuritiesExchange Act of 1934 are available on our website free of charge as soon asreasonably practicable following submission to the SEC. Also available on ourwebsite are our Corporate Governance Guidelines, Code of Conduct, and thecharters for the Audit Committee, Compensation Committee, and Nominating andCorporate Governance Committee, each of which is available in print to anyshareholder who makes a request to Blyth, Inc., One East Weaver Street,Greenwich, CT 06831, Attention: Secretary. The information posted towww.blyth.com, however, is not incorporated herein by reference and is not apart of this Annual Report on Form 10-K.

**(b)**   FinancialInformation about Segments

We report our financialresults in three business segments: the Direct Selling segment, the Catalog &Internet segment and the Wholesale segment. These segments accounted forapproximately 57%, 16% and 27% of consolidated net sales, respectively, forfiscal 2007. Financial information relating to these business segments for fiscal2005, 2006 and 2007 appears in Note 18 of the consolidated financial statementsand is incorporated herein by reference.

**(c)**   NarrativeDescription of Business

In fiscal 2007, there wasa change in our senior management structure with the departure of the Presidentof the Wholesale segment. Robert B. Goergen, Jr., the President of theCatalog & Internet segment, assumed responsibility for the Wholesalesegment in addition to his other responsibilities. We refer to this newreporting structure as the Multi-channel Group. For segment reporting purposes,we 

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continueto report individual segment operating results for the Direct Selling, Catalog &Internet and Wholesale segments.

**Direct SellingSegment**

In fiscal 2007, the Direct Selling segment representedapproximately 57% of total sales. Our principal Direct Selling business isPartyLite. PartyLiteâ brandproducts are marketed in North America, Europe and Australia through a networkof independent sales consultants using the party plan method of direct selling.These products include fragranced and non-fragranced candles, bath products anda broad range of related accessories.

In fiscal 2006, theCompany acquired a party plan company called Two Sisters Gourmet, which isfocused on gourmet food. Two Sisters Gourmet represents substantially less than1% of total sales of the Direct Selling segment. In fiscal 2007, the Companyceased operations of Purple Tree, which was focused on the craft industry. Inthe future, the Company may pursue other direct selling business opportunities.

***United States Market***

Within the United Statesmarket, PartyLiteâ brand products are sold directly to consumersthrough a network of independent sales consultants. These consultants arecompensated on the basis of PartyLite product sales at parties organized bythem and parties organized by consultants recruited by them. Over 46,000independent sales consultants located in the United States were sellingPartyLite products at January 31, 2007. PartyLite products are designed,packaged and priced in accordance with their premium quality, exclusivity andthe distribution channel through which they are sold.

***International Market***

**In fiscal 2007, PartyLite productswere sold internationally by more than 20,000 independent sales consultantslocated outside the United States. These consultants were the exclusivedistributors of PartyLite products internationally. The following werePartyLite’s international markets during fiscal 2007: Australia, Austria,Canada, Denmark, Finland, France, Germany, Ireland, Mexico, Switzerland and theUnited Kingdom.**

We support our independentsales consultants with inventory management and control and satisfy deliveryrequirements through on-line ordering, which is available to all independentsales consultants in the United States and Canada, as well as in most ofEurope.

**Catalog &Internet Segment**

In fiscal 2007, thissegment represented approximately 16% of total sales. We design, market anddistribute a wide range of household convenience items, personalized gifts,coffee and tea, and photo storage products within this segment. These productsare sold through the catalog and Internet distribution channel under brandnames that include Boca Javaä,Easy Comfortsä, Exposuresâ,Home Marketplaceâ,Miles Kimballâ and Walter Drakeâ.

**Wholesale Segment**

In fiscal 2007, this segment represented approximately27% of total sales. Products within this segment include candles and other homefragrance products, a broad range of candle-related accessories, seasonaldecorations, and home décor products such as picture frames, lamps and textiles.In addition, chafing fuel and tabletop lighting products and accessories forthe Away From Home or foodservice trade are sold in this segment. Our wholesaleproducts are designed, packaged and priced to satisfy the varying demands ofretailers and consumers within each distribution channel.

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Products sold in theWholesale segment in the United States are marketed through the premium andmass consumer wholesale channels and sold to independent gift shops, specialtychains, department stores, food and drug outlets, mass retailers, hotels,restaurants and independent foodservice distributors through independent salesrepresentatives, our key account managers and our sales managers. Our salesforce supports our customers with product catalogs and samples, merchandisingprograms and selective fixtures. Our sales force also receives training on themarketing and proper use of our products.

**Product Brand Names**

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

PartyLiteâWell Being by PartyLiteäTwo Sisters Gourmetâ

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

Boca JavaäEasy ComfortsäExposuresâHome MarketplaceâMiles KimballâWalter Drakeâ

The key brand namesunder which our Wholesale segment products are sold are:
| Ambriaâ  Carolinaâ  CBKâ  Colonial Candleâ  Colonial Candle of Cape Codâ |   | Colonial at HOMEâ  Florasenseâ  HandyFuelâ  Seasons of Cannon Fallsâ  Sternoâ |
|---------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------|

 

**New ProductDevelopment**

Concepts for new productsand product line extensions are directed to the marketing departments of ourbusiness units from within all areas of the Company, as well as from ourindependent sales consultants and worldwide product manufacturing partners. Thenew product development process may include technical research, consumer marketresearch, fragrance studies, comparative analyses, the formulation ofengineering specifications, feasibility studies, safety assessments, testingand evaluation.

**Manufacturing,Sourcing and Distribution**

In all of our business segments, managementcontinuously works to increase value and lower costs through increasedefficiency in worldwide production, sourcing and distribution practices, theapplication of new technologies and process control systems, and consolidationand rationalization of equipment and facilities. Capital expenditures over thepast five years have totaled $92.2 million and are targeted to technologicaladvancements or capital investments with short payback time frames. We havealso closed several facilities and written down the values of certain machineryand equipment in recent years in response to changing market conditions.

We manufacture most of ourcandles using highly automated processes and technologies, as well as certainhand 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 

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criticallyimportant to new product development, quality control and cost management. Wehave also built a network of stand-alone highly automated distributionfacilities in our core markets.

**Technological Advancements**

We continue to see thebenefit of our substantial investment in technological initiatives,particularly Internet-based ordering technology. An Internet-based order-entryand business management system is available to all PartyLite independent salesconsultants in the United States, Canada and most of Europe. By fiscal 2007year-end, show orders placed via the PartyLite extranet had increased to over90% of total show orders in North America and over 70% of total show orders inEurope. The extranet’s automated features eliminate errors common onhand-written paper forms and speed orders through processing and distribution,improving customer service. Furthermore, by easing the administrative workloadand providing tools with which to track sales and programs, the extranet hashelped PartyLite independent sales consultants build their businesses moreefficiently. The improved accuracy of the automated system also results inadministrative savings for the Company.

**Customers**

Customers in the Direct Sellingsegment are individual consumers served by independent sales consultants. Saleswithin the Catalog & Internet segment are also made directly toconsumers. Wholesale segment customers include independent gift and departmentstores, garden centers, mass merchandisers, food and drug stores, specialtychains, foodservice distributors, hotels and restaurants. No single customeraccounts for 10% or more of sales.

**Competition**

All of our businesssegments are highly competitive, both in terms of pricing and new productintroductions. The worldwide market for Home Expressions products is highlyfragmented with numerous suppliers serving one or more of the distributionchannels served by the Company. In addition, we compete for direct sellingconsultants with other direct selling companies. Because there are relativelylow barriers to entry in all of our business segments, we may face increasedcompetition from other companies, some of which may have substantially greaterfinancial or other resources than those available to us. Competition includescompanies selling candles manufactured at low cost outside of the United States.Moreover, certain competitors focus on a single geographic or product marketand attempt to gain or maintain market share solely on the basis of price.

**Employees**

As of January 31,2007, we had approximately 4,000 full-time employees, of whom approximately 12%were based outside of the United States. Approximately 75% of our employees arenon-salaried. We do not have any unionized employees. We believe that relationswith our employees are good. Since our formation in 1977, we have neverexperienced a work stoppage.

**Raw Materials**

All of the raw materialsused for our candles, home fragrance products and chafing fuel, principallypetroleum-based wax, fragrance, glass containers and corrugate, havehistorically been available in adequate supply from multiple sources. In fiscal2007, substantial cost increases for certain raw materials, such as paraffin,dyethelene glycol (DEG) and ethanol, as well as aluminum and paper, negativelyimpacted profitability of certain products in all three segments.

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**Seasonality**

Our business is highlyseasonal, and our net sales are strongest in the third and fourth fiscalquarters due to increased shipments to meet year-end holiday season demand forour products.

**Trademarks andPatents**

We own and have pendingnumerous trademark and patent registrations and applications in the UnitedStates Patent and Trademark Office related to our products. We also registercertain trademarks and patents in other countries. While we regard thesetrademarks and patents as valuable assets to our business, we are not dependenton any single trademark or patent or group thereof.

**Environmental LawCompliance**

Mostof the our manufacturing, distribution and research operations are affected byfederal, state, local and international environmental laws relating to thedischarge of materials or otherwise to the protection of the environment. Wehave made and intend to continue to make expenditures necessary to comply withapplicable environmental laws, and do not believe that such expenditures willhave a material effect on our capital expenditures, earnings or competitiveposition.

**(d)**   FinancialInformation about Geographic Areas

For information on netsales from external customers attributed to the United States and foreigncountries and on long-lived assets located in the United States and outside theUnited States, see Note 18 to the Consolidated Financial Statements.

**Item 1A.**                RiskFactors

**Risk of Inabilityto Increase Sales or Identify Suitable Acquisition Candidates**

Our ability to increase sales depends on numerousfactors, including market acceptance of existing products, the successfulintroduction of new products, growth of consumer discretionary spending, ourability to recruit new independent sales consultants, sourcing of raw materialsand demand-driven increases in production and distribution capacity. Businessin all of our segments is driven by consumer preferences. Accordingly, therecan be no assurances that our current or future products will maintain orachieve market acceptance. Our sales and earnings results can be negativelyimpacted by the worldwide economic environment, particularly the United States,Canadian and European economies. There can be no assurances that our financialresults will not be materially adversely affected by these factors in thefuture.

Our historical growth hasbeen due in part to acquisitions, and management continues to consideradditional strategic acquisitions. There can be no assurances that we willcontinue to identify suitable acquisition candidates, consummate acquisitionson terms favorable to us, finance acquisitions or successfully integrateacquired operations.

**Risks Associatedwith International Sales and Foreign-Sourced Products**

Our international salesgrowth rate has outpaced that of our United States growth rate in recent years.Moreover, we source a portion of our products in all of our business segmentsfrom independent manufacturers in the Pacific Rim, Europe and Mexico. For thesereasons, we are subject to the following risks associated with internationalmanufacturing and sales:  fluctuations incurrency exchange rates; economic or political instability; internationalpublic health crises; transportation costs and delays; difficulty inmaintaining quality control; restrictive governmental actions;nationalizations; the laws and 

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policiesof the United States, Canada and certain European countries affecting theimportation of goods (including duties, quotas and taxes); and the trade andtax laws of other nations.

**Ability to Respondto Increased Product Demand**

Our ability to meet futureproduct demand in all of our business segments will depend upon our success in:sourcing adequate supplies of products; bringing new production anddistribution capacity on line in a timely manner; improving our ability toforecast product demand and fulfill customer orders promptly; improvingcustomer service-oriented management information systems; and training,motivating and managing new employees. The failure of any of the above couldresult in a material adverse effect on our financial results.

**Risk of Shortagesof Raw Materials**

Certain raw materialscould be in short supply due to price changes, capacity, availability, a changein requirements, weather or other factors, including supply disruptions due toproduction or transportation delays. While the price of crude oil is only oneof several factors impacting the price of petroleum wax, it is possible thatrecent fluctuations in oil prices may have a material adverse affect on thecost of petroleum-based products used in the manufacture or transportation ofour products, particularly in the Direct Selling and Wholesale businesssegments. In fiscal 2007, substantial cost increases for certain raw materials,such as paraffin, dyethelene glycol (DEG) and ethanol, as well as aluminum andpaper, negatively impacted profitability of certain products in all threesegments.

**Dependence on KeyCorporate Management Personnel**

Our success depends inpart on the contributions of key corporate management, including our Chairmanand Chief Executive Officer, Robert B. Goergen, as well as the members of theOffice of the Chairman: Robert H. Barghaus, Vice President and Chief FinancialOfficer; Robert B. Goergen, Jr., Vice President and President,Multi-Channel Group; and Frank P. Mineo, Senior Vice President and President,Direct Selling Segment. We do not have employment contracts with any of our keycorporate management personnel, except the Chairman and Chief ExecutiveOfficer, nor do we maintain any key person life insurance policies. The loss ofany of the key corporate management personnel could have a material adverseeffect on the Company.

**Risk of IncreasedCompetition**

Our business is highlycompetitive both in terms of pricing and new product introductions. Theworldwide market for Home Expressions products is highly fragmented withnumerous suppliers serving one or more of the distribution channels served byus. In addition, we compete for direct selling consultants with other directselling companies. Because there are relatively low barriers to entry in all ofour business segments, we may face increased competition from other companies,some of which may have substantially greater financial or other resources thanthose available to us. Competition includes companies selling candlesmanufactured at low cost outside of the United States. Moreover, certaincompetitors focus on a single geographic or product market and attempt to gainor maintain market share solely on the basis of price.

**Risks Associatedwith Proposed FTC Regulations**

In April 2006, theU.S. Federal Trade Commission issued a notice of proposed rulemaking that ifimplemented, will regulate all sellers of “business opportunities” in theUnited States. The proposed rule would, among other things, require allsellers of business opportunities, which would likely include PartyLite and TwoSisters Gourmet, to implement a seven-day waiting period before entering intoan 

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agreementwith a prospective business opportunity purchaser and provide all prospectivebusiness opportunity purchasers with substantial disclosures in writingregarding the business opportunity and the company. Based on informationcurrently available, we anticipate that the final rule may require severalyears to become final and effective, and may differ substantially from the rule asoriginally proposed. Nevertheless the proposed rule, if implemented in its originalform, would negatively impact our Direct Selling businesses.

**Risks Related toInformation Technology Systems**

Our information technologysystems are dependent on global communications providers, telephone systems,hardware, software and other aspects of Internet infrastructure that haveexperienced significant system failures and outages in the past. Our systemsare susceptible to outages due to fire, floods, power loss, telecommunicationsfailures, break-ins and similar events. Despite the implementation of networksecurity measures, our systems are vulnerable to computer viruses, break-insand similar disruptions from unauthorized tampering with our systems. Theoccurrence of these or other events could disrupt or damage our informationtechnology systems and inhibit internal operations, the ability to providecustomer service or the ability of customers or sales personnel to access ourinformation systems.

**Item 1B.**               UnresolvedStaff Comments

None

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**Item 2.**                        Properties

Thefollowing table sets forth the location and approximate square footage of theour major manufacturing and distribution facilities:

| ** **                        | ** ** | ** **                                         | ** ** | ** **                                  | ** ** | ** **           | ** ** | **Approximate  Square Feet** |
|-----------------------------------|------------|----------------------------------------------------|------------|---------------------------------------------|------------|----------------------|------------|------------------------------|
| Location                          | ** ** | ** **                                         | ** ** | **Use**                                     | ** ** | **Business Segment** | ** ** | **Owned**                    | ** ** | **Leased** |
| Arndell Park, Australia           |       | Distribution                                       |       | Direct Selling                              |       | —               |       | 18,500                       |
| Batavia, Illinois                 |       | Manufacturing and  Research & Development |       | Direct Selling and Wholesale |       | 486,000              |       | —                       |
| Cannon Falls, Minnesota |       | Distribution                                       |       | Wholesale                                   |       | —               |       | 192,000                      |
| Carol Stream, Illinois            |       | Distribution                                       |       | Direct Selling                              |       | —               |       | 651,000                      |
| Cumbria, England                  |       | Manufacturing and  related distribution            |       | Direct Selling                              |       | 90,000               |       | —                       |
| Deerfield Beach, Florida          |       | Roasting,  packaging and distribution              |       | Catalog &  Internet                |       | —               |       | 22,000                       |
| Elkin, North Carolina             |       | Manufacturing and  related distribution            |       | Wholesale                                   |       | 699,000              |       | —                       |
| Heidelberg, Germany               |       | Distribution                                       |       | Direct Selling                              |       | —               |       | 6,000                        |
| Monterrey, Mexico                 |       | Distribution                                       |       | Direct Selling                              |       | —               |       | 45,000                       |
| Ontario, Canada                   |       | Distribution                                       |       | Direct Selling                              |       | —               |       | 25,000                       |
| Orlando, Florida                  |       | Warehouse and  distribution                        |       | Direct Selling                              |       | —               |       | 19,000                       |
| Oshkosh, Wisconsin                |       | Distribution                                       |       | Catalog &  Internet                |       | —               |       | 386,000                      |
| Plymouth, Massachusetts           |       | Distribution                                       |       | Direct Selling                              |       | 59,000               |       | —                       |
| Tampa, Florida                    |       | Warehouse and  distribution                        |       | Direct Selling                              |       | —               |       | 12,000                       |
| Texarkana, Texas                  |       | Manufacturing and  related distribution            |       | Wholesale                                   |       | 154,000              |       | 65,000                       |
| Tilburg, Netherlands              |       | Distribution                                       |       | Direct Selling                              |       | 442,000              |       | —                       |
| Union City, Tennessee             |       | Distribution                                       |       | Wholesale                                   |       | 360,000              |       | 94,000                       |

 

Our executive offices,administrative offices and outlet stores are generally located in leased space(except for certain offices located in owned space). Most of our properties arecurrently being utilized for their intended purpose.

**Item 3.**                        LegalProceedings

We are involved inlitigation arising in the ordinary course of business. In our opinion, existinglitigation will not have a material adverse effect on our financial position orresults of operations.

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

None

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**PART II**

**Item 5.**                        Marketfor Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities

OurCommon Stock is traded on the New York Stock Exchange under the symbol BTH. Theprice range for the Common Stock on the New York Stock Exchange was as follows:

| ** **     | ** ** | **High** | ** ** | **Low** | ** ** |
|----------------|------------|----------|------------|---------|------------|
| Fiscal 2006    |       |     |       |    |       |
| First Quarter  |       | $        | 33.84      |    | $          | 26.80 |   |
| Second Quarter |       | 29.60    |       | 27.24   |       |
| Third Quarter  |       | 28.48    |       | 17.70   |       |
| Fourth Quarter |       | 23.68    |       | 17.95   |       |
| Fiscal 2007    |       |     |       |    |       |
| First Quarter  |       | $        | 23.12      |    | $          | 20.00 |   |
| Second Quarter |       | 21.98    |       | 17.07   |       |
| Third Quarter  |       | 26.25    |       | 16.29   |       |
| Fourth Quarter |       | 26.15    |       | 20.50   |       |

 

As of March 31, 2007, there were 1,905 registeredholders of record of the Common Stock.

On March 27, 2007, the Board of Directorsdeclared a regular semi-annual cash dividend in the amount of $0.27 per sharepayable in the second quarter of fiscal 2008. During fiscal 2007 and 2006, theBoard of Directors declared dividends as follows: $0.23 per share payable inthe second quarter of fiscal 2007; $0.27 per share payable in the fourthquarter of fiscal 2007; $0.21 per share payable in the second quarter of fiscal2006; and $0.23 per share payable in the fourth quarter of fiscal 2006. Currently,we expect to pay semi-annual cash dividends in the future.

The following table setsforth, for the equity compensation plan categories listed below, information asof January 31, 2007:

**EquityCompensation Plan Information**
| Plan Category                                          | ** ** | ** ** | ** ** | **(a)  Number of securities to  be issued upon exercise  of outstanding options,  warrants and rights**(1) | ** ** | **(b)  Weighted-average  exercise price of  outstanding options,  warrants and rights**(1) | ** ** | **(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     |       |       | 829,500    |                                                                                                                                                         |       |                                                                                                                | $          | 26.39                                                                                                                                                                                                                 |       |   |   | 3,589,118 |   |   |
| Equity  compensation plans not approved by security holders |       |       | N/A        |                                                                                                                                                         |       |                                                                                                                | N/A        |                                                                                                                                                                                                                  |       |   | N/A |   |   |
| Total.                                                      |       |       | 829,500    |                                                                                                                                                         |       |                                                                                                                | $          | 26.39                                                                                                                                                                                                                 |       |   |   | 3,589,118 |   |   |

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(1)          The information in thiscolumn excludes 13,000 shares of restricted stock and 342,030 restricted stockunits outstanding as of January 31, 2007.

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The following table sets forth certain informationconcerning the repurchase of Common Stock made by the Company during the fourthquarter of fiscal 2007.

**ISSUER PURCHASES OFEQUITY SECURITIES**(1)
| Period                                             | ** ** | ** ** | ** ** | **(a)  Total  Number of  Shares  Purchased** | ** ** | **(b)  Average  Price Paid  per Share** | ** ** | **(c)  Total  Number of  Shares Purchased  as Part of Publicly  Announced Plans  or Programs** | ** ** | **(d)  Maximum  Number (or  Approximate Dollar  Value) of Shares  that May Yet Be  Purchased Under the  Plans or Programs** | ** ** |
|----------------------------------------------------|------------|------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| November 1,  2006—November 30, 2006 |       |       | 0          |                                              |       |                                              | —     |                                                                                                                              |       |                                                                                                                                                                               | 0          |   |   |   | 5,570,818 shares |   |   |
| December 1, 2006—December 31, 2006  |       |       | 0          |                                              |       |                                              | —     |                                                                                                                              |       |                                                                                                                                                                               | 0          |   |   |   | 5,570,818 shares |   |   |
| January 1, 2007—January 31, 2007    |       |       | 0          |                                              |       |                                              | —     |                                                                                                                              |       |                                                                                                                                                                               | 0          |   |   |   | 5,570,818 shares |   |   |
| Total                                              |       |       | 0          |                                              |       |                                              | —     |                                                                                                                              |       |                                                                                                                                                                               | 0          |   |   |   | 5,570,818 shares |   |   |

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(1)          OnSeptember 10, 1998, the Board of Directors approved our share repurchaseprogram (the “Repurchase Program”) pursuant to which we were authorized torepurchase up to 1,000,000 shares of Common Stock in open market transactions. OnJune 8, 1999, the Board amended the Repurchase Program and increased thenumber of shares authorized to be repurchased by 1,000,000 shares, from1,000,000 to 2,000,000 shares. On March 30, 2000, the Board furtheramended the Repurchase Program and increased the number of shares authorized tobe repurchased by 1,000,000 shares, from 2,000,000 to 3,000,000 shares. On December 14,2000, the Board further amended the Repurchase Program and increased the numberof shares authorized to be repurchased by 1,000,000 shares, from 3,000,000 to4,000,000 shares. On April 4, 2002, the Board further amended theRepurchase Program and increased the number of shares authorized to berepurchased by 2,000,000 shares, from 4,000,000 to 6,000,000 shares. On June 7,2006, the Board further amended the Repurchase Program and increased the numberof shares authorized to be repurchased by 6,000,000 shares, from 6,000,000shares to 12,000,000 shares. As of January 31, 2007, we have purchased atotal of 6,429,182 shares of Common Stock under the Repurchase Program. TheRepurchase Program does not have an expiration date. We intend to make furtherpurchases under the Repurchase Program from time to time.

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**Performance Graph**

The performance graph setforth below reflects the yearly change in the cumulative total stockholderreturn (price appreciation and reinvestment of dividends) on the Company’sCommon Stock compared to the S&P 500 Index and the S&P 400 Midcap Indexfor the five fiscal years ended January 31, 2007. The graph assumes theinvestment of $100 in Common Stock and the reinvestment of all dividends paidon such Common Stock into additional shares of Common Stock and such indexesover the five-year period. TheCompany believes that it is unique and does not have comparable industry peers.Since the Company’s competitors are typically not public companies or arethemselves subsidiaries or divisions of public companies engaged in multiplelines of business, the Company believes that it is not possible to compare theCompany’s performance against that of its competition. In the absence of asatisfactory peer group, the Company believes that it is appropriate to comparethe Company to companies comprising the S&P 400 Midcap Indexes.

**Blyth, Inc. Performance GraphComparison of Total Stockholder Return**

****

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**Item6.**                        SelectedConsolidated Financial Data

Setforth below are selected summary consolidated financial and operating data ofthe Company for fiscal years 2003 through 2007, which have been derived fromour audited financial statements for those years. The information presentedbelow should be read in conjunction with “Management’s Discussion and Analysisof Financial Condition and Results of Operations” and our consolidatedfinancial statements, including the notes thereto, appearing elsewhere in thisAnnual Report on Form 10-K.
|                                                                                                                               | ** ** | **Year ended January 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| (In thousands, except per share and percent data)                                          | ** ** | **2003**                                  | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** |
| **Statement of Earnings Data:****(1)(2)**                                                                                     |       |                                      | ** ** | ** ** | ** ** | ** ** |   |   | ** ** | ** ** | ** ** |
| Net sales                                                                                                                     |       | $                                         | 1,163,457  |   | $ | 1,286,937 |   | $ | 1,301,365 |   | $ | 1,254,261 | ** ** | **$** | **1,220,611** | ** ** |
| Gross profit                                                                                                                  |       | 613,852                                   |       | 669,512 |   | 694,588 |   | 635,785 | ** ** | **596,669** | ** ** |
| Operating profit                                                                                                              |       | 152,971                                   |       | 133,427 |   | 144,783 |   | 45,167 | ** ** | **15,644** | ** ** |
| Interest expense                                                                                                              |       | 11,331                                    |       | 13,889 |   | 18,936 |   | 20,602 | ** ** | **19,074** | ** ** |
| Earnings from  continuing operations before income taxes, minority interest and cumulative  effect of accounting change(3)(5) |       | 142,752                                   |       | 119,806 |   | 128,268 |   | 26,444 | ** ** | **5,369** | ** ** |
| Earnings from  continuing operations before minority interest and cumulative effect of accounting  change                     |       | 90,838                                    |       | 75,866 |   | 82,106 |   | 20,065 | ** ** | **2,705** | ** ** |
| Earnings from  continuing operations                                                                                          |       | 59,085                                    |       | 75,774 |   | 82,364 |   | 20,531 | ** ** | **2,555** | ** ** |
| Earnings (loss)  from discontinued operations(2)                                                                              |       | (1,313                                    | )          | 10,577 |   | 14,150 |   | 4,326 | ** ** | **(105,728** | **)** |
| Net earnings  (loss)(3)(4)                                                                                                    |       | 57,772                                    |       | 86,351 |   | 96,514 |   | 24,857 | ** ** | **(103,173** | **)** |
| Basic net earnings  from continuing operations per common share before cumulative effect of  accounting change(6)             |       | $                                         | 1.96       |   | $ | 1.66 |   | $ | 1.91 |   | $ | 0.50 |   | $ | 0.06 |   |
| Basic net earnings  (loss) from discontinued operations per common share before cumulative effect  of accounting change       |       | $                                         | (0.03      | ) | $ | 0.23 |   | $ | 0.33 |   | $ | 0.11 |   | $ | (2.66 | ) |
| Cumulative effect  of accounting change(4)                                                                                    |       | (0.69                                     | )          | — |   | — |   | — |   | — |   |
|                                                                                                                          |       | $                                         | 1.25       |   | $ | 1.89 |   | $ | 2.24 |   | $ | 0.61 | ** ** | **$** | **(2.59** | **)** |
| Diluted net  earnings from continuing operations per common sharebefore cumulative effect of accounting change                |       | $                                         | 1.95       |   | $ | 1.65 |   | $ | 1.89 |   | $ | 0.50 |   | $ | 0.06 |   |
| Diluted net  earnings (loss) from discontinued operations per common sharebefore cumulative effect of accounting change       |       | $                                         | (0.03      | ) | $ | 0.23 |   | $ | 0.32 |   | $ | 0.11 |   | $ | (2.64 | ) |
| Cumulative effect  of accounting change(4)                                                                                    |       | (0.68                                     | )          | — |   | — |   | — |   | — |   |
|                                                                                                                          |       | $                                         | 1.24       |   | $ | 1.88 |   | $ | 2.22 |   | $ | 0.60 | ** ** | **$** | **(2.58** | **)** |
| Cash dividends  paid, per share                                                                                               |       | $                                         | 0.22       |   | $ | 0.28 |   | $ | 0.36 |   | $ | 0.44 | ** ** | **$** | **0.50** | ** ** |
| Basic weighted  average number of common shares outstanding                                                                   |       | 46,256                                    |       | 45,771 |   | 43,136 |   | 40,956 | ** ** | **39,781** | ** ** |
| Diluted weighted  average number of common shares outstanding                                                                 |       | 46,515                                    |       | 46,027 |   | 43,556 |   | 41,176 | ** ** | **40,057** | ** ** |
| **Operating  Data:**                                                                                                          |       |                                      |       |   |   |   |   |   | ** ** | ** ** | ** ** |
| Gross profit margin                                                                                                           |       | 52.8                                      | %          | 52.0 | % | 53.4 | % | 50.7 | % | **48.9** | **%** |
| Operating profit margin                                                                                                       |       | 13.1                                      | %          | 10.4 | % | 11.1 | % | 3.6 | % | **1.3** | **%** |
| Capital expenditures                                                                                                          |       | $                                         | 14,322     |   | $ | 21,963 |   | $ | 20,976 |   | $ | 17,272 | ** ** | **$** | **17,714** | ** ** |
| Depreciation and  amortization                                                                                                |       | 30,212                                    |       | 35,954 |   | 35,600 |   | 35,875 | ** ** | **34,630** | ** ** |
| **Balance  Sheet Data:**                                                                                                      |       |                                      |       |   |   |   |   |   | ** ** | ** ** | ** ** |
| Total assets                                                                                                                  |       | $                                         | 860,084    |   | $ | 1,127,963 |   | $ | 1,075,820 |   | $ | 1,116,520 | ** ** | **$** | **774,638** | ** ** |
| Total debt                                                                                                                    |       | 176,493                                   |       | 293,886 |   | 287,875 |   | 371,742 | ** ** | **215,779** | ** ** |
| Total stockholders' equity                                                                                                    |       | 507,852                                   |       | 588,970 |   | 521,349 |   | 493,824 | ** ** | **363,693** | ** ** |

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(1)             Statement of Earnings Data includes theresults of operations for periods subsequent to the respective purchaseacquisitions of CBK, Ltd., LLC (now CBK Styles, Inc.) acquired in May 2002,Miles Kimball Company acquired in April 2003, and Walter Drake acquired inDecember 2003, none of which individually had a material effect on the Company’sresults of operations in the period during which they occurred, or thereafter.

(2)             In fiscal 2007, Kaemingk B.V., EdelmanB.V., Euro-Decor B.V., Gies and Colony were sold (See Note 4 to theConsolidated Financial Statements). The results of operations for thesebusiness units have been reclassified to discontinued operations for allperiods presented.

(3)             Fiscal 2003 pre-tax earnings include animpairment charge of $2.6 million as a result of putting Wax Lyrical intoreceivership. Fiscal 2004 pre-tax earnings include restructuring and impairmentcharges of $23.8 million related to manufacturing equipment impairment, closureof the Company’s Hyannis manufacturing facility, the discontinuance of theCanterbury® brand, and the closure of five of the Company’s candle outletstores. Fiscal 2007 earnings include restructuring charges recorded in theWholesale and Direct Selling segments of $24.0 million (See Note 5 to theConsolidated Financial Statements).

(4)             The Company recorded a one-time cumulativeeffect of accounting change in February 2002 of $31.8 million to reflectthe adoption of SFAS No. 142, “Goodwill and Other Intangible Assets”.

(5)             Fiscal 2006 and 2007 pre-tax earningsinclude goodwill impairment charges of $53.3 million and $48.8 million in theWholesale segment, respectively. (See Note 10 to the Consolidated FinancialStatements).

(6)             The sum of the per share amounts may notequal the amount reported for the year because computations are madeindependently.

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**Item7.   Management’s Discussion and Analysis of Financial Condition andResults of Operations**  

The financial and businessanalysis below provides information that we believe is relevant to anassessment and understanding of our consolidated financial condition, changesin financial condition and results of operations. This financial and businessanalysis should be read in conjunction with our consolidated financialstatements and accompanying notes to the consolidated financial statements setforth in Item 8. below.

**Overview**

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

Today, annualized netsales are comprised of an approximately $700 million Direct Selling business,an approximately $200 million Catalog & Internet business and an approximately$330 million Wholesale business. Sales and earnings growth differ in eachsegment depending on geographic location, market penetration, our relativemarket share and product and marketing execution, among other business factors.Over the long term, all three segments should experience single-digit growth,most likely within the low to mid-single digit range, again depending on thebusiness factors previously noted.

Our current focus isdriving sales growth of our brands so we may more fully leverage ourinfrastructure. New product development continues to be critical to all threesegments of our business. In the Direct Selling segment, monthly sales andproductivity incentives are designed to attract, retain and increase theearnings opportunity of independent sales consultants. In the Catalog andInternet channel, product, merchandising and circulation strategy are designedto drive strong sales growth in newer brands and expand further the sales andcustomer base of our flagship brands. In the Wholesale segment, salesinitiatives are targeted to independent retailers and national accounts.

**RecentDevelopments**

In September 2005, weannounced our proposed intention to spin off the Wholesale segment. Werequested and received from the Internal Revenue Service a ruling on thetax-free status for the transaction. In March 2006, we announced ourintention to evaluate additional strategic opportunities that had beenidentified since the announcement of the spin off, which would likely focus onone or more of our European Wholesale businesses, believing that substantialupside opportunities exist in the North American Wholesale businesses despitechallenging market conditions impacting the Home Expressions industry.

In accordance with thisintention to explore strategic alternatives with respect to our EuropeanWholesale businesses, (a) on April 12, 2006, we sold Kaemingk B.V. (“Kaemingk”)to an entity controlled by the management of this business, (b) on June 16,2006, we sold Edelman B.V. (“Edelman”) and Euro-Decor B. V. (“Euro-Decor”) toan entity with which members of the management of Edelman and Euro-Decor areaffiliated, (c) on August 17, 2006, we sold the Gies Group and (d) onDecember 20, 2006, we sold Colony Gifts Corporation Ltd. (“Colony”). Accordingly,the results of operations for Kaemingk, Edelman, Euro-Decor, Gies and Colonyhave been reclassified as discontinued operations for all periods presented.

In the third quarter offiscal 2007, the Company approved a restructuring plan for its North Americanmass channel home fragrance business. The major components of the restructuringplan are the closing of our Tijuana, Mexico manufacturing facility, theelimination of less profitable customers, the streamlining 

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of thestock keeping unit (“SKU”) base of the mass business, the outsourcing ofcertain products currently being manufactured and head count reductions. Theseinitial steps of the restructuring project resulted in fiscal 2007 thirdquarter charges totaling $5.2 million. The charges consisted of inventorywrite-downs of $3.9 million, equipment impairments of $0.6 million andseverance costs of approximately $0.3 million which were charged to cost ofgoods sold, while the remaining $0.4 million related to severance was chargedto administrative expense.

In the fourth quarter offiscal 2007, the Company recorded an additional $14.9 million of chargesrelated to the restructuring of our North American mass channel home fragrancebusiness. In the fourth quarter, we completed the identification andnotification of less profitable customers that would be eliminated. Inaddition, the remaining SKUs to be discontinued were identified and thedetermination of realizable value was made in the fourth quarter. As a resultof these restructuring steps, a $12.1 million charge was recorded in cost ofgoods sold to adjust excess and obsolete inventory to its estimated realizablevalue. The remainder of the fourth quarter charges of $2.8 million consistedprimarily of equipment impairments of $2.1 million and severance of $0.7million charged to cost of goods sold. Employee terminations totaled 149 infiscal 2007 related to this restructuring.

These restructuringefforts are expected to continue into fiscal 2008, with additional chargesrelated to severance and equipment impairment estimated to be in a range of$6.0 million - $10.0 million.

Also, during the fourthquarter of fiscal 2007, the Company recorded approximately $3.9 million ofcharges related to the restructuring of the North American operations of our DirectSelling segment in recognition of the recent decline in sales in this channel. Thesecosts were comprised of a $2.4 million charge to cost of goods sold for leaseobligations and equipment impairments related to a reduction in seasonaldistribution capacity and $1.5 million of severance costs associated with thetermination of 91 employees. Of the $1.5 million of severance costs, $0.4million was recorded in cost of goods sold and $1.1 million was recorded inselling and administrative expense.

**Segments**

During fiscal 2007 therewas a change in our senior management structure with the departure of ourWholesale segment President. Our Catalog & Internet segment Presidentassumed responsibility for the Wholesale segment in addition to his currentresponsibilities. We refer to this new reporting structure as the Multi-channelGroup. For segment reporting purposes, Blyth continues to report individualsegment operating results for the Direct Selling, Catalog & Internetand Wholesale segments.

Within the Direct Sellingsegment, the Company designs, manufactures or sources, markets and distributesan extensive line of products including scented candles, candle-relatedaccessories, fragranced bath gels, body lotions and other fragranced productsunder the PartyLite® brand. The Company also operates a smalldirect selling business, Two Sisters Gourmet, which is focused on gourmet food.All direct selling products are sold directly to the consumer through a networkof independent sales consultants using the party plan method of direct selling.PartyLite® brand products are sold in North America,Europe and Australia. Two Sisters Gourmet® brand products aresold in North America.

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

Within the Wholesalesegment, the Company designs, manufactures or sources, markets and distributesan extensive line of home fragrance products, candle-related accessories,seasonal decorations such as ornaments and trim, and home décor products suchas picture frames, lamps and textiles. Products 

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in thissegment are sold primarily in North America to retailers in the premium,specialty and mass channels under the CBK®, Carolina®, Colonial Candle of Cape Cod®, Colonial at HOME®, Florasense®, and Seasons of Cannon Falls® brands. In addition, chafing fuel and tabletoplighting products and accessories for the Away From Home or foodservice tradeare sold through this segment under the Ambria®, HandyFuel® andSterno® brands.

Thefollowing table sets forth, for the periods indicated, the percentagerelationship to net sales and the percentage increase or decrease of certainitems included in the Company’s Consolidated Statements of Earnings (Loss):

| ** **                          | ** ** | **Percentage of Net Sales** | ** ** | **Percentage Increase (Decrease)  from Prior Period** | ** ** |
|-------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------------------------------|------------|
| ** **                          | ** ** | **Years Ended January 31**  | ** ** | **    Fiscal 2006    **      | ** ** | **    Fiscal 2007    ** | ** ** |
| ** **                          | ** ** | **2005**                                   | ** ** | **2006**                                                                  | ** ** | **2007** | ** ** | **Compared to  Fiscal 2005** | ** ** | **Compared to  Fiscal 2006** | ** ** |
| Net sales                           |       | 100.0                                      |       | 100.0                                                                     |       | 100.0 |   |   | (3.6 | ) |   |   | (2.7 | ) |   |
| Cost of goods sold                  |       | 46.6                                       |       | 49.3                                                                      |       | 51.1 |   |   | 1.9 |   |   |   | 0.9 |   |   |
| Gross profit                        |       | 53.4                                       |       | 50.7                                                                      |       | 48.9 |   |   | (8.5 | ) |   |   | (6.2 | ) |   |
| Selling                             |       | 32.5                                       |       | 32.8                                                                      |       | 33.6 |   |   | (2.9 | ) |   |   | (0.4 | ) |   |
| Administrative                      |       | 9.7                                        |       | 10.1                                                                      |       | 10.0 |   |   | (0.2 | ) |   |   | (2.9 | ) |   |
| Operating profit                    |       | 11.1                                       |       | 3.6                                                                       |       | 1.3 |   |   | (68.8 | ) |   |   | (65.4 | ) |   |
| Earnings from continuing operations |       | 6.3                                        |       | 1.6                                                                       |       | 0.2 |   |   | (75.1 | ) |   |   | (87.6 | ) |   |

 

**Fiscal2007 Compared to Fiscal 2006**

Net sales decreased $33.7million, or approximately 3%, from $1,254.3 million in fiscal 2006 to $1,220.6million in fiscal 2007. The decrease is a result of the sale of Impact Plasticsin January 2006, a decrease in PartyLite’s U.S. sales and lower masscandle sales in our Wholesale business. This decrease was partially offset byan increase in sales within both PartyLite’s European operations and theCatalog & Internet segment as well as increased sales in our seasonal,home décor and Sterno Wholesale businesses.

*Net Sales—Direct Selling Segment*

Net sales in the DirectSelling segment decreased $10.1 million, or 1%, from $704.1 million in fiscal2006 to $694.0 million in fiscal 2007. PartyLite’s U.S. sales decreasedapproximately 12% compared to prior year.  Management believes this sales decrease wasdriven by a decline in the number of sales consultants as a result of increasedchannel competition, as well as fewer shows per consultant. Additionally,fiscal 2006 sales benefited from the reversal of a contingent reserve in theamount of $5.5 million for a settlement of an unclaimed property matterassociated with gift cards sold since the inception of the gift card program inthe Direct Selling business.

PartyLite Canada reportedan approximately 3% increase versus the prior year in U.S. dollars. Sales inCanada increased due to a higher number of guests per show and shows perconsultant partially offset by a decrease in the number of consultants.

In PartyLite’s Europeanmarkets, sales increased approximately 11% in U.S. dollars, driven by strongsales in the newer markets. On a local currency basis PartyLite Europe salesincreased approximately 9%*.*PartyLiteEurope represented approximately 37% of PartyLite’s worldwide net sales infiscal 2007 compared to 32% in fiscal 2006.

Net sales in the DirectSelling segment represented approximately 57% of total Blyth sales in fiscal2007 compared to 56% in fiscal 2006.

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*Net Sales—Catalog & Internet Segment*

Net sales in the Catalog &Internet segment increased $12.0 million, or 6%, from $187.3 million in fiscal2006 to $199.3 million in fiscal 2007. This increase is due to increased salesin our Walter Drake, Easy Comforts and Exposures catalogs and accretive salesfrom the acquisition of Boca Java, which was acquired on August 15, 2005.

Net sales in the Catalog &Internet segment accounted for approximately 16% of Blyth’s total net sales infiscal 2007 compared to 15% in fiscal 2006.

*Net Sales—Wholesale Segment*

Net sales in the Wholesalesegment decreased $35.6 million, or 10%, from $362.8 million in fiscal 2006 to$327.2 million in fiscal 2007. The decrease is due to lower sales in our masscandle business and the loss of sales due to the divestiture of Impact Plasticsin January 2006, which were partially offset by increased sales in theseasonal, home décor and Sterno businesses.

Net sales in the Wholesalesegment represented approximately 27% of total Blyth sales in fiscal 2007compared to 29% in fiscal 2006.

Blyth’s consolidated grossprofit decreased $39.1 million, or 6%, from $635.8 million in fiscal 2006 to$596.7 million in fiscal 2007. The gross profit margin decreased from 50.7% infiscal 2006 to 48.9% in fiscal 2007. This decrease from prior year isprincipally due to lower PartyLite U.S. sales, restructuring charges of $19.7million in the Wholesale segment and $2.8 million in the Direct Selling segmentand higher commodity costs.

Blyth’s consolidatedselling expense decreased $1.6 million, or approximately 1%, from $411.3million in fiscal 2006 to $409.7 million in fiscal 2007. The decrease inselling expense relates to the reduced sales in the U.S. direct selling andmass candle businesses, along with tighter cost controls in many businessunits, partially offset by restructuring charges in the Wholesale and DirectSelling segment. Selling expense as a percentage of net sales increased from32.8% in fiscal 2006 to 33.6% in fiscal 2007. The increase in selling expenseas a percent of sales is a result of sales decreasing at a greater rate thanselling expenses.

Blyth consolidatedadministrative expenses decreased $3.6 million, or 3%, from $126.1 million infiscal 2006 to $122.5 million in fiscal 2007. The decrease in administrativeexpenses versus the prior year was primarily due to non-recurring expensesrelated to the proposed spin-off of the Wholesale segment and the loss on saleof Impact Plastics of $1.6 million included in fiscal 2006. Additionally, infiscal 2007 the Company collected $5.2 million for a note receivable which hadbeen reserved for as part of the Gies sale. Administrative expenses as apercentage of sales were approximately 10% for both fiscal 2006 and fiscal2007.

Goodwill impairmentcharges of $53.3 million and $48.8 million were recognized in the Wholesalesegment in fiscal 2006 and 2007, respectively. The charge in fiscal 2006 wasthe result of a substantial decline in the operating performance of thereporting units when compared to prior years’ results and budgeted expectations.The amount recorded in fiscal 2007 was the result of the Company’s decision todiscontinue the sales of a new product, rising commodity costs and a continueddecline in operating performance in the Sterno reporting unit, and a businessrestructuring resulted in a significantly changed near-term outlook of thebusiness in the Wholesale Premium reporting unit. The charges incurred infiscal 2007 included the write-off of the remaining goodwill balances withinthe Wholesale segment (See Critical Accounting Policies and Note 10 of theConsolidated Financial Statements).

Blyth’s consolidated operatingprofit decreased $29.6 million from $45.2 million in fiscal 2006 to $15.6million in fiscal 2007. The decrease is related to reduced sales in ourPartyLite U.S. business, the previously mentioned goodwill impairment charges,restructuring charges in our North American mass candle business and DirectSelling segment and higher commodity costs throughout the Company.

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*Operating Profit/Loss—Direct Selling Segment*

Operating profit in theDirect Selling segment decreased $20.8 million, or 19%, from $107.7 million infiscal 2006 to $86.9 million in fiscal 2007. The decrease was primarily drivenby the previously mentioned sales shortfall of PartyLite U.S., lower grossprofit due to increased commodity costs and restructuring charges in fiscal2007. Additionally, in fiscal 2006 the Company benefited from the previouslymentioned reversal of a contingent reserve of $5.5 million for the settlementof an unclaimed property matter.

*Operating Profit/Loss—Catalog & InternetSegment*

Operating profit in theCatalog & Internet segment increased from a loss of $0.4 million infiscal 2006 to a gain of $3.7 million in fiscal 2007. The improvement over theprior year is primarily due to increased sales from the catalog titlespreviously mentioned and reduced promotional spending.

*Operating Profit/Loss—Wholesale Segment*

Operating loss in theWholesale segment increased from $62.1 million in fiscal 2006 to $74.9 millionin fiscal 2007. The increased loss is primarily related to the $20.1 million inrestructuring charges in the North American mass candle business, salesdecreased sales in the mass candle business and higher commodity costs. Additionally,included in the loss for fiscal 2006 and 2007 are the previously mentionedgoodwill impairment charges of $53.3 million and $48.8 million, respectively.

Interest expense decreased$1.5 million, or 7%, from $20.6 million in fiscal 2006 to $19.1 million infiscal 2007, due to a decrease in outstanding debt.

Interest income and otherincreased $6.9 million from $1.9 million in fiscal 2006 to $8.8 million infiscal 2007. This increase was primarily due to increased interest incomeearned on higher amounts of cash and short-term investments.

Income tax expensedecreased $3.7 million, or 58%, from $6.4 million in fiscal 2006 to $2.7 millionin fiscal 2007. This decrease in income tax expense was primarily due to thedecrease in U.S. earnings versus higher foreign sourced earnings, which aretaxed at a lower rate than U.S earnings and the income tax expense of $9.1million recorded in fiscal 2006 related to the AJCA dividend which did notrecur in fiscal 2007. This decrease was offset by the recording of income taxeson unremitted foreign earnings, the tax impact of non-deductible goodwillimpairments, and an increase in the Company’s contingent tax reserve. Theseoffsets led to an increase in the effective tax rate from 24.1% in fiscal 2006to 49.6% in fiscal 2007.

As a result of theforegoing, earnings from continuing operations decreased $17.9 million, or 87%,from $20.5 million in fiscal 2006 to $2.6 million in fiscal 2007. Basicearnings per share from continuing operations were $0.06 for fiscal 2007compared to $0.50 for fiscal 2006*.*Dilutedearnings per share from continuing operations were $0.06 for fiscal 2007compared to $0.50 for fiscal 2006.

The loss from discontinuedoperations, net of tax, for fiscal 2007 was $105.7 million, or $2.64 perdiluted share. The loss includes (a) a non-tax deductible loss of $18.4million on the sale of the Kaemingk business, (b) a non-tax deductible losson the sale of the Edelman and Euro-Decor businesses of $14.5 million, whichincludes a goodwill impairment charge of $16.7 million recorded in the firstquarter of fiscal 2007, (c) a net of tax loss on the sale of the Giesbusiness of $28.0 million, which includes an impairment charge of $31.1 millionrecorded in the second quarter of fiscal 2007 and (d) net of tax loss onsale of the Colony business of $19.9 million, which includes an impairmentcharge of $28.6 million recorded in the second quarter of fiscal 2007. The lossfrom discontinued operations includes operating income, net of tax, for fiscal2006 of $4.3 million, or $0.11 per diluted share, compared to an operatingloss, net of tax, of $24.9 million, or $0.62 per diluted share, for fiscal 2007.

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**Fiscal2006 Compared to Fiscal 2005**

Net sales decreased $47.1million, or approximately 4%, from $1,301.4 million in fiscal 2005 to $1,254.3million in fiscal 2006. Management believes that a significant increase inparty plan competition within the Direct Selling channel in the United Statesand a weak North American consumer environment were exacerbated by high energyprices, which negatively impacted our ability to generate sales growththroughout fiscal 2006.

*Net Sales—Direct Selling Segment*

Net sales in the DirectSelling segment decreased $31.8 million, or 4%, from $735.9 million in fiscal2005 to $704.1 million in fiscal 2006. PartyLite’s U.S. sales decreasedapproximately 11% compared to the prior year, which includes the $5.5 millionbenefit of the reversal of a contingent reserve related to a settlement of astate unclaimed property matter. Management believes that sales in the U.S.market continue to be negatively impacted by increased competition forhostesses and party guests in the Direct Selling channel. In addition, webelieve PartyLite’s U.S. operations were negatively impacted by reducedconsumer discretionary income, resulting from higher energy prices.

PartyLite Canada reportedan approximately 13% increase versus the prior year in U.S. dollars. Sales inCanada increased due to a higher number of guests per show and shows perconsultant.

In PartyLite’s Europeanmarkets, sales increased approximately 4% in U.S. dollars, driven by strongsales in the newer markets*.*Infiscal 2006 PartyLite Europe represented approximately 32% of PartyLite’sworldwide net sales.

Net sales in the DirectSelling segment represented approximately 56% of total Blyth sales in fiscal2006 and fiscal 2005.

*Net Sales—Catalog & Internet Segment*

Net sales in the Catalog &Internet segment decreased $6.2 million, or 3%, from $193.5 million in fiscal2005 to $187.3 million in fiscal 2006. The decline was attributable to salesshortfalls in our primary catalogs, which the Company believes was due todecreased consumer discretionary spending.

Net sales in the Catalog &Internet segment accounted for approximately 15% of Blyth’s total net sales infiscal 2006 and fiscal 2005.

*Net Sales—Wholesale Segment*

Net sales in the Wholesalesegment decreased $9.2 million, or 2%, from $372.0 million in fiscal 2005 to$362.8 million in fiscal 2006. The decrease is primarily attributable to salesdeclines in most of the Wholesale businesses, which the Company believes wascaused by a reluctance of retailers to make significant purchases in responseto the lower level of consumer spending. This sales decrease was a result oflower sales in home décor and premium fragrance candle products, which waspartially offset by increased sales of mass channel home fragrance products.

Net sales in the Wholesalesegment represented approximately 29% of total Blyth sales in fiscal 2006 andfiscal 2005.

Blyth’s consolidated grossprofit decreased $58.8 million, or 8%, from $694.6 million in fiscal 2005 to$635.8 million in fiscal 2006. The gross profit margin decreased from 53.4% infiscal 2005 to 50.7% in fiscal 2006. This decrease was primarily due to salesshortfalls within PartyLite U.S., the margins of which are higher than Blyth’soverall average, as well as higher fuel, freight and commodity costs, whichhave adversely impacted a number of Blyth’s businesses.

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Blyth’s consolidatedselling expense decreased $12.2 million, or approximately 3%, from $423.5 millionin fiscal 2005 to $411.3 million in fiscal 2006. Most of the decrease inselling expense relates to the reduced sales in the U.S. Direct Sellingchannel. Selling expense as a percentage of net sales increased from 32.5% infiscal 2005 to 32.8% in fiscal 2006.

Blyth’s consolidatedadministrative expenses decreased $0.2 million, from $126.3 million in fiscal2005 to $126.1 million in fiscal 2006. Administrative expenses as a percentageof net sales increased from 9.7% in fiscal 2005 to 10.1% in fiscal 2006.

A goodwill impairmentcharge of $53.3 million was recognized in the Wholesale segment inJanuary 2006. In fiscal 2006 this segment experienced a substantialdecline in operating performance when compared to prior year results andbudgeted fiscal 2006 expectations.

Blyth’s consolidatedoperating profit decreased $99.6 million from $144.8 million in fiscal 2005 to$45.2 million in fiscal 2006 principally due to the impact of lower saleswithin the PartyLite U.S., Wholesale and Catalog & Internet segments,the previously mentioned goodwill impairment, investment in the strategicinitiatives, Two Sisters Gourmet in the Direct Selling segment, and flamelesstechnology in the foodservice channel of the Wholesale segment, and highercommodity costs across our businesses.

*OperatingProfit/Loss—Direct Selling Segment*

Operating profit in theDirect Selling segment decreased $24.2 million, or 18%, from $131.9 million infiscal 2005 to $107.7 million in fiscal 2006. The decrease was primarily drivenby the previously mentioned sales shortfall of PartyLite U.S. and lower grossprofit due to increased commodity costs, as well as the investment in thestrategic initiative Two Sisters Gourmet.

*Operating Profit/Loss—Catalog & InternetSegment*

Operating profit in theCatalog & Internet segment decreased from $6.7 million in fiscal 2005to a loss of $0.4 million in fiscal 2006. The decrease in profitabilitycompared to the prior year was primarily due to the impact of the previouslymentioned reduced sales, increased sales promotions and circulation costs andthe write-down of the Colorado Springs facility.

*Operating Profit/Loss—Wholesale Segment*

Operating profit in theWholesale segment decreased from $6.2 million in fiscal 2005 to a loss of $62.1 millionin fiscal 2006. The previously mentioned goodwill impairment charge, salesshortfalls in most Wholesale businesses, as well as continued pressure on grossmargins due to increased raw material costs and the loss on the sale of ImpactPlastics, were the primary contributors to the decrease in operating profit inthis segment compared to fiscal 2005.

Interest expense increased$1.7 million, or 9%, from $18.9 million in fiscal 2005 to $20.6 million infiscal 2006, due to increases in borrowings, interest rates and interestexpense on state tax settlements.

Interest income and otherdecreased $0.5 million from $2.4 million in fiscal 2005 to $1.9 million infiscal 2006. This decrease was primarily due to foreign currency exchangelosses.

Income tax expensedecreased $39.8 million, or 86.2%, from $46.2 million in fiscal 2005 to $6.4million in fiscal 2006. The effective income tax rate was 24.1% for fiscal 2006compared to 36.0% in fiscal 2005. This decrease in income tax expense and taxrate was primarily due to the decrease in U.S. earnings versus higher foreignsourced earnings, which are taxed at a lower rate than U.S earnings, the favorableimpact of global audit settlements and a reduction in tax expense resultingfrom adjustments to prior years’ income tax items. These decreases were offset bythe one-time tax charge on the American Job Creations Act of 2004 (“AJCA”)dividend as well as the non-tax deductible portion of the goodwill impairmentcharge.

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As a result of theforegoing, net earnings from continuing operations decreased $61.9 million, or75%, from $82.4 million in fiscal 2005 to $20.5 million in fiscal 2006.

Basic earnings per sharefrom continuing operations were $0.50 for fiscal 2006 compared to $1.91 forfiscal 2005*.*Diluted earnings pershare from continuing operations were $0.50 for fiscal 2006 compared to $1.89for fiscal 2005. The total of the following previously discussed items:goodwill impairment charge, loss on the sale of Impact Plastics, tax charge onthe AJCA dividend, the favorable impact of global audit settlements and areduction in tax expense resulting from adjustments to prior years’ income taxitems reduced diluted earnings per share by approximately $0.96 in fiscal 2006.

Income from discontinuedoperations, net of tax, for fiscal 2006 was $4.3 million, or $0.11 per dilutedshare, compared to $14.2 million, or $0.32 per diluted share, for fiscal 2005. Thisincome represents the operating earnings of the European Wholesale businessesreclassified into discontinued operations and sold during fiscal 2007.

**Seasonality**

Approximately 56% of theCompany’s net sales occurred in the third and fourth fiscal quarters of 2006and 2007. The Company’s net sales are strongest in the third and fourth fiscalquarters due to increased shipments to meet year-end holiday season demand forthe Company’s products.

**Liquidityand Capital Resources**

Cash and cash equivalentsdecreased $138.3 million from $242.1 million at January 31, 2006 to $103.8 millionat January 31, 2007. The decrease in cash during fiscal 2007 was primarilydue to an increase in short term investments in the current year which grew to$129.7 million at January 31, 2007.

The Company typicallygenerates positive cash flow from operations due to favorable gross margins andthe variable nature of selling expenses, which constitute a significantpercentage of operating expenses. The Company generated $94.3 million in cashfrom operations in fiscal 2007 compared to $106.8 million in fiscal 2006. Earningsfrom continuing operations decreased $17.9 million to $2.6 million primarilydue to the reduction in earnings in the North American mass candle business andPartyLite U. S. business. Loss from discontinued operations was $105.7 millionincluding a loss on sale of discontinued operations of $80.9 million. Includedin earnings from continuing operations were non-cash charges for depreciationand amortization, goodwill impairment and amortization of unearned compensationof $34.6 million, $48.8 million and $1.3 million, respectively. Netchanges in operating assets and liabilities increased cash by $37.7 millionwhich includes the impact of divestitures.

Net cash used in investingactivities was $61.1 million. As previously mentioned, the Company used itsexcess cash on hand to increase its short term investments, net of sales, to$129.7 million at January 31, 2007. Capital expenditures for property,plant and equipment were $17.7 million in fiscal 2007 up from $17.3 million infiscal 2006. The increase from the prior year is due to the expansion of theCompany’s European distribution center in support of ongoing growth of ourdirect selling business in Europe, nformation technology and research anddevelopment equipment purchases. As discussed further in Note 4 to theConsolidated Financial Statements, the Company completed its strategy to divestits European Wholesale businesses during the year and received proceeds as aresult of these dispositions of $87.8 million.

Net cash used in financingactivities was $180.0 million and was primarily attributed to the reduction ofthe Company’s long-term debt and outstanding line of credit balance by $120.3and $7.0 million, respectively. The Company also used its cash to purchasetreasury stock of $35.0 million and pay dividends of $19.9 million. Proceedsfrom the issuance of the Company’s common stock upon exercise of stock optionswere $2.5 million.

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The Company anticipatestotal capital spending of approximately $13.0 million for fiscal 2008 or $5.1 millionless than fiscal year 2007 due to the ongoing effort to reduce spending onmanufacturing facilities, while moving to more of an outsourced product supplymodel and divestitures. The Company has grown in part through acquisitions and,as part of its growth strategy, the Company expects to continue from time totime in the ordinary course of its business to evaluate and pursue acquisitionopportunities as appropriate. The Company believes our financing needs in theshort and long term can be met from cash generated internally and through ourborrowing capacity from our existing credit agreements. Information on debtmaturities is presented in Note 12 to the Consolidated Financial Statements.

On October 2, 2006,the Company executed Amendment No. 1 (the “Amendment”) to its unsecuredrevolving credit facility (“Credit Facility”) dated as of June 2, 2005. TheAmendment (i) reduced the amount available for borrowing under the Credit Agreementfrom $150.0 million to $75.0 million, (ii) changed the initial terminationdate from June 2, 2010 to June 1, 2009, (iii) increased the rateof interest applicable to loans under the Credit Agreement and (iv) modifiedsome of the covenants. The Company has the ability to increase the amountavailable for borrowing, under certain circumstances, by an additional $50.0million. The Credit Facility may be used for seasonal working capital needs andgeneral corporate purposes, including strategic acquisitions. The CreditFacility contains, among other provisions, requirements for maintaining certainfinancial ratios and limitations on certain payments. As of January 31,2007, the Company was in compliance with such provisions. Amounts outstandingunder the amended Credit Facility bear interest, at the Company’s option, atJPMorgan Chase Bank’s prime rate or Eurocurrency rate plus a spread rangingfrom 0.80% to 1.70% calculated on the basis of the Company’s senior unsecured long-term debt rating. Asof January 31, 2007, approximately $3.8 million was outstanding under theCredit Facility. Amounts available for borrowing under this facility wereapproximately $64.6 million as of January 31, 2007, reflecting $3.8million of outstanding debt drawn down against this facility and $6.6 millionin outstanding letters of credit.

In May 1999, theCompany filed a shelf registration statement for issuance of up to $250.0million in debt securities with the Securities and Exchange Commission. On September 24,1999, the Company issued $150.0 million of 7.90% Senior Notes due October 1,2009 at a discount of approximately $1.4 million, which is being amortizedover the life of the notes. In fiscal 2007, the Company repurchased $52.1 millionof these notes. Such notes contain, among other provisions, restrictions onliens on principal property or stock issued to collateralize debt. At January 31,2007, the Company was in compliance with such provisions. Interest is payablesemi-annually in arrears on April 1 and October 1. On October 20,2003, the Company issued $100.0 million 5.50% Senior Notes due on November 1,2013 at a discount of approximately $0.2 million, which is being amortized overthe life of the notes. Such notes contain provisions and restrictions similarto those in the 7.90% Senior Notes. At January 31, 2007, the Company wasin compliance with such provisions. Interest is payable semi-annually inarrears on May 1 and November 1. The notes may be redeemed in wholeor in part at any time at a specified redemption price. The proceeds of thedebt issuances were used for general corporate purposes.

As of January 31,2006 and January 31, 2007, Miles Kimball had approximately $9.4 millionand $9.0 million, respectively of long-term debt outstanding under a realestate mortgage note payable to John Hancock Life Insurance Company, whichmatures June 1, 2020. Under the terms of the note, payments of principaland interest are required monthly at a fixed interest rate of 7.89%.

As of January 31,2006 and January 31, 2007, CBK had $4.4 million and $4.2 million,respectively of long-term debt outstanding under an Industrial Revenue Bond (“IRB”),which matures on January 1, 2025. The bond is backed by an irrevocableletter of credit issued by La Salle Bank National Association. The loan iscollateralized by certain of CBK’s assets. The amount outstanding under the IRBbears interest at short-term floating rates, which equaled a weighted averageinterest rate of 5.3% at January 31, 2007. Payments of principal arerequired annually and interest payments are required monthly under the terms ofthe bond.

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As of January 31,2007, the Company had a total of $2.0 million available under an uncommittedfacility with La Salle Bank National Association, to be used for letters ofcredit through November 30, 2007. As of January 31, 2007,approximately $27 thousand of letters of credit were outstanding under thisfacility.

As of January 31,2007, the Company had a total of $2.0 million available under an uncommittedfacility with Bank of America, to be used for letters of credit through January 31,2008. As of January 31, 2007, approximately $21 thousand of letters ofcredit were outstanding under this facility.

The estimated fair valueof the Company’s $346.0 million and $215.8 million total long-term debt(including current portion) at January 31, 2006 and 2007 was approximately$330.7 million and $205.7 million, respectively. The fair value isdetermined by quoted market prices, where available, and from analysesperformed by investment bankers using current interest rates considering creditratings and the remaining terms to maturity.

The following table summarizes the maturity dates ofthe contractual obligations of the Company as of January 31, 2007:

| ** **                                                | ** ** | **Payments Due by Period** | ** ** | ** **         | ** ** | ** **      | ** ** | ** **                          | ** ** |
|-----------------------------------------------------------|------------|-------------------------------------------|------------|--------------------|------------|-----------------|------------|-------------------------------------|------------|
| ** **                                                | ** ** | ** **                                | ** ** | **Less than** | ** ** | ** **      | ** ** | ** **                          | ** ** | **More than** | ** ** |
| **Contractual Obligations (In thousands)** | ** ** | ** **                                | ** ** | **Total**          | ** ** | **1 year** | ** ** | **1 – 3 Years** | ** ** | **3 – 5 Years** | ** ** | **5 Years** | ** ** |
| Long-Term Debt(1)                                         |       | $                                         | 214,636    |               |       | $               | 529        |                                |       |   | $ | 102,716 |   |   |   | $ | 1,377 |   |   | $ | 110,014 |   |
| Capital Leases(2)                                         |       | 1,143                                     |       |               | 458        |            |       |                                | 648        |   |   |   | 37 |   |   | — |   |
| Interest(3)                                               |       | 65,720                                    |       |               | 14,240     |            |       |                                | 25,611     |   |   |   | 12,520 |   |   | 13,349 |   |
| Purchase  Obligations(4)                                  |       | 29,936                                    |       |               | 26,955     |            |       |                                | 1,572      |   |   |   | 962 |   |   | 447 |   |
| Operating Leases                                          |       | 65,420                                    |       |               | 15,833     |            |       |                                | 25,103     |   |   |   | 15,944 |   |   | 8,540 |   |
| Total Contractual  Obligations                            |       | $                                         | 376,855    |               |       | $               | 58,015     |                                |       |   | $ | 155,650 |   |   |   | $ | 30,840 |   |   | $ | 132,350 |   |
|                                                           |            |                                           |            |                    |            |                 |            |                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)**         **Long-termdebt includes 7.90% Senior Notes due October 1, 2009, 5.5% Senior Notes dueNovember 1, 2013, a mortgage note payable—maturity June 1, 2020, and anIndustrial Revenue Bond ("IRB") with a maturity date of January 1,2025.  The Company also has $3.8 millionunder our Credit Facility with a maturity date beyond one year with a variableinterest rate that is not included in the table because it is not material (SeeNote 12 to the Consolidated Financial Statements). 

(2)**         **Amountsrepresent future lease payments, excluding interest, due on three capitalleases, which end between fiscal 2010 and fiscal 2012 (See Note 12 to theConsolidated Financial Statements).

(3)**         **Interestexpense on long-term debt is comprised of $57.7 million relating to SeniorNotes, $2.3 million of interest due on the CBK Industrial Revenue Bond, $5.6million in mortgage interest and approximately $140 thousand of interestrelating to future capital lease obligations.

(4)**         **Purchaseobligations consist primarily of open purchase orders for inventory.

On June 7, 2006, theCompany’s Board of Directors amended the stock repurchase program and increasedthe number of shares of common stock authorized to be repurchased by 6,000,000shares to 12,000,000 shares. Since January 31, 2006, the Company haspurchased 1,802,382 shares on the open market for a cost of $35.0 million,bringing the cumulative total purchased shares to 6,429,182 as of January 31,2007 for a total cost of approximately $149.6 million. Additionally in fiscal2005, 4,906,616 shares were repurchased through a Dutch auction cash tenderoffer for an aggregate purchase price of $172.6 million, including fees andexpenses. The acquired shares are held as common stock in treasury at cost.

On March 27, 2007, theCompany declared a cash dividend of $0.27 per share of the Company’s commonstock for the six months ended January 31, 2007. The dividend, authorizedat the Company’s March 27, 2007 Board of Directors meeting, will bepayable to shareholders of record as of May 1, 2007, and will be paid on May 15,2007.

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The Company does notmaintain any off balance sheet arrangements, transactions, obligations or otherrelationships with unconsolidated entities that would be expected to a have amaterial current or future effect upon our financial statements.

The Company does notutilize derivatives for trading purposes.

On January 24, 2006,the Board of Directors approved a domestic reinvestment plan for theapproximately $130.0 million in foreign earnings, which were previouslyconsidered permanently reinvested in non-U.S. legal entities, which the Companyrepatriated under the American Jobs Creations Act of 2004 (“AJCA”). Of thisamount, $91.0 million qualified for the favorable treatment under the AJCA. Thefunds were brought back to the U.S. late in the fourth quarter of fiscal 2006. Thetax cost of this distribution was $7.6 million. As part of its repatriation plan, the Companyreinvested the repatriated amount domestically in a wide range of initiatives,including the hiring and training of U.S. workers, research and developmentefforts, qualified retirement plan funding, capital expenditures to support theU.S. businesses, advertising and marketing with respect to its varioustrademarks, brand names and rights to intangible property, and acquisitions ofU.S.-based businesses, all consistent with the requirements of the legislation.

**CriticalAccounting Policies**

Our discussion andanalysis of our financial condition and results of operations are based uponour Consolidated Financial Statements, which have been prepared in accordancewith accounting principles generally accepted in the U.S. The preparation ofthese financial statements requires us to make estimates and judgments thataffect the reported amounts of assets, liabilities, revenues and expenses, andrelated disclosure of contingent assets and liabilities. On an on-going basis,we evaluate our estimates, including those related to bad debts, inventories,income taxes, restructuring and impairments and contingencies and litigation. Webase our estimates on historical experience and on various other assumptionsthat we believe to be reasonable under the circumstances, the results of whichform the basis for making judgments about the carrying values of assets and liabilitiesthat are not readily apparent from other sources. Actual results may differfrom these estimates under different assumptions or conditions.

Note 1 to the ConsolidatedFinancial Statements, included elsewhere in this Annual Report on Form 10-K,includes a summary of the significant accounting policies and methods used inthe preparation of our Consolidated Financial Statements. The following is abrief discussion of the more significant accounting policies and methods usedby us.

*Revenue Recognition*

Revenues consist of salesto customers, net of returns and allowances. The Company recognizes revenueupon delivery, when both title and risk of loss are transferred to thecustomer.

Generally, sales ordersare received via signed customer purchase orders with stated fixed prices basedon published price lists. The Company records estimated reductions to revenuefor customer programs, which may include special pricing agreements forspecific customers, volume incentives and other promotions. Should marketconditions decline, the Company may increase customer incentives with respectto future sales. The Company also records reductions to revenue, basedprimarily on historical experience, for estimated customer returns andchargebacks that may arise as a result of shipping errors, product damage intransit or for other reasons that can only become known subsequent torecognizing the revenue. If the amount of actual customer returns andchargebacks were to increase significantly from the estimated amount, revisionsto the estimated allowance would be required.

In some instances, theCompany receives payment in advance of product delivery. Such advance paymentsoccur primarily in our direct selling and direct marketing channels and arerecorded as deferred 

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revenue.Upon delivery of product for which advance payment has been made, the relateddeferred revenue is reclassified to revenue.

Most of the Company’ssales made on credit are made to an established list of customers. Although thecollectibility of sales made on credit is reasonably assured, the Company hasestablished an allowance for doubtful accounts for its trade and notereceivables. The allowance is determined based on the Company’s evaluation ofspecific customers’ ability to pay, aging of receivables, historical experienceand the current economic environment. While the Company believes it hasappropriately considered known or expected outcomes, its customers’ ability topay their obligations, including those to the Company, could be adversely affectedby declining sales at retail resulting from such factors as contraction in theeconomy or a general decline in consumer spending.

Some of the Company’sbusiness units offer seasonal dating programs pursuant to which customers thatqualify for such programs are offered extended payment terms for seasonalproduct shipments. As with other customers, customer orders pursuant to suchseasonal dating programs are generally received in the form of a writtenpurchase order signed by an authorized representative of the customer. Salesmade pursuant to seasonal dating programs are recorded as revenue only upondelivery either to the customer or to an agent of the customer depending on thefreight terms for the particular shipment and consistent with the concept of “riskof loss.”  The sales price for theCompany’s products sold pursuant to such seasonal dating programs is fixedprior to the time of shipment to the customer. Customers do not have the rightto return product except for rights to return that the Company believes aretypical of our industry for such reasons as damaged goods, shipping errors orsimilar occurrences. The Company is not required to repurchase products fromits customers, nor does the Company have any regular practice of doing so. TheCompany believes that it is reasonably assured of payment for products soldpursuant to such seasonal dating programs based on its historical experiencewith the established list of customers eligible for such programs. In addition,the Company minimizes its exposure to bad debts by utilizing established creditlimits for each customer. If, however, product sales by our customers duringthe seasonal selling period should fall significantly below expectations, suchcustomers’ financial condition could be adversely affected, increasing the riskof not collecting these seasonal dating receivables and, possibly, resulting inadditional bad debt charges. The Company does not make any sales underconsignment or similar arrangements.

*Inventory Valuation*

Inventories are valued atthe lower of cost or market. Cost is determined by the first-in, first-outmethod. The Company writes down its inventory for estimated obsolescence orunmarketable inventory by an amount equal to the difference between the cost ofinventory and the estimated market value based upon assumptions about futuredemand, market conditions, customer planograms and sales forecasts. If marketacceptance of our existing products or the successful introduction of newproducts should significantly decrease, additional inventory write-downs couldbe required. Potential additional inventory write-downs could result fromunanticipated additional quantities of obsolete finished goods and rawmaterials, and/or from lower disposition values offered by the parties whonormally purchase surplus inventories. As a result of the restructuring of ourNorth American mass channel home fragrance business (See Note 5 to theConsolidated Financial Statements) inventory write-downs totaling $16.0 millionwere recorded in cost of good sold during fiscal 2007. At January 31,2007, the Company had obsolete inventory reserves totaling approximately $24.3million.

*Restructuring and Impairment Charges on Long-Lived Assets*

In response to changing market conditions andcompetition, the Company’s management regularly updates its business model andmarket strategies, including the evaluation of facilities, personnel andproducts. Future adverse changes in economic and market conditions could resultin additional 

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organizational changes and possibly additionalrestructuring and impairment charges. The Company recorded approximately $4.1million of charges related to the restructuring of our North American masschannel home fragrance business during fiscal 2007 (See Note 5 to the ConsolidatedFinancial Statements), of which $3.7 million was recorded in cost of goods soldand $0.4 million was recorded in administrative expense. These charges relateto the closing of our Tijuana, Mexico manufacturing facility, the eliminationof less profitable customers, the elimination of stock keeping units from ourproduct line, outsourcing of certain products currently being manufactured andpersonnel reductions. Also, during the fourth quarter of fiscal 2007, theCompany recorded approximately $3.9 million of charges related to therestructuring of the North American operations of our Direct Selling segment inrecognition of the recent decline in sales in this channel. These costs werecomprised of a $2.4 million charge to cost of goods sold for lease obligationsand equipment impairments related to a reduction in seasonal distributioncapacity and $1.5 million of severance costs. Of the $1.5 million ofseverance costs, $0.4 million was recorded in cost of goods sold and $1.1million was recorded in selling and administrative expense. The Companyrecorded approximately a $1.0 million impairment charge related to equipment inits North American Wholesale manufacturing facility, which is included in costof goods sold in the fiscal 2006 financial statements. The Company did notrecord any restructuring and impairment charges in fiscal 2005. Historically,the Company has reviewed long-lived assets, including property, plant andequipment and other intangibles with definite lives for impairment annually andwhenever events or changes in circumstances indicated that the carrying amountof such an asset might not be recoverable. Management determines whether therehas been a permanent impairment on long-lived assets held for use in thebusiness by comparing anticipated undiscounted future cash flow from the useand eventual disposition of the asset or asset group, to the carrying value ofthe asset. The amount of any resulting impairment is calculated by comparingthe carrying value to the fair value, which may be estimated using the presentvalue of the same cash flows. Long-lived assets that meet the definition ofheld for sale are valued at the lower of carrying amount or net realizablevalue.

*Goodwilland Other Indefinite Lived Intangibles*

Goodwill and otherindefinite lived intangibles are subject to an assessment for impairment usinga two-step fair value-based test and such other intangibles are also subject toimpairment reviews, which must be performed at least annually or morefrequently if events or circumstances indicate that goodwill or otherindefinite lived intangibles might be impaired.

The Company performs itsannual assessment of impairment as of January 31, which is our fiscalyear-end date. For goodwill, the first step is to identify whether a potentialimpairment exists. This is done by comparing the fair value of a reporting unitto its carrying amount, including goodwill. Fair value for each of ourreporting units is estimated utilizing a combination of valuation techniques,namely the discounted cash flow methodology and the market multiplemethodology. The fair value of the reporting units is derived by calculatingthe average of the outcome of the two valuation techniques. The discounted cashflow methodology assumes the fair value of an asset can be estimated by theeconomic benefit or net cash flows the asset will generate over the life of theasset, discounted to its present value. The discounting process uses a rate ofreturn that accounts for both the time value of money and the investment riskfactors. The market multiple methodology estimates fair value based on whatother participants in the market have recently paid for reasonably similarassets. Adjustments are made to compensate for differences between thereasonably similar assets and the assets being valued. If the fair value of thereporting unit exceeds the carrying value, no further analysis is necessary. Ifthe carrying amount of the reporting unit exceeds its fair value, the second stepis performed. The second step compares the carrying amount of the goodwill tothe estimated fair value of the goodwill. If fair value is less than thecarrying amount, an impairment loss is reported as a reduction to goodwill anda charge to operating expense.

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Our assumptions inthe discounted cash flow methodology used to support recoverability include thereporting unit’s five year business outlook. The business outlook is a fiveyear projection of the business unit’s financial performance. The businessoutlook includes the cash generated from the reporting unit and certainassumptions for revenue growth, capital spending and profit margins. Thisserves as the basis for the discounted cash flow model in determining fairvalue. Additionally, the discount rate utilized in the cash flow model valuesthe reporting unit to its net present value taking into consideration the timevalue of money, other investment risk factors and the terminal value of thebusiness. For the terminal value, we used a multiple of earnings before incometaxes, depreciation and amortization (“EBITDA”) multiplied by a certain factorfor which an independent third party would pay for a similar business in anarms length transaction. In determining this factor we used information thatwas available for similar transactions executed in the marketplace. Themultiple of EBITDA used contemplates among other things the expected revenuegrowth of the business which in turn would require the use of a higher EBITDAmultiple if revenue were expected to grow at a higher rate than normal. Thefollowing circumstances could impact the Company’s cash flow and cause furtherimpairments to reported goodwill:

·       unexpectedincrease in competition resulting in lower prices or lower volumes,

·       entryof new products into the marketplace from competitors,

·       lackof acceptance of the Company’s new products into the marketplace,

·       lossof key employee or customer,

·       significantlyhigher raw material costs, and

·       macro economic factors

*Wholesale Premium*

As a result of the Company’s annual assessment ofimpairment in fiscal 2006, the Company determined that the goodwill balanceexisting at its Wholesale Premium reporting unit within the Wholesale segmentwas impaired. In fiscal 2006, the Wholesale Premium reporting unit experienceda substantial decline in operating performance when compared to prior years’results and budgeted fiscal 2006 expectations. Therefore, the Company recordeda non-cash pre-tax goodwill impairment charge of $42.2 million for theWholesale Premium reporting unit within the Wholesale segment.

During the second quarter of fiscal 2007, the Companyidentified a triggering event, which caused us to reassess goodwill impairmentfor its Wholesale Premium reporting unit within the Wholesale segment. In theWholesale Premium reporting unit, a business restructuring resulted in asignificantly reduced near-term outlook for the businesses that gives effect tothe changing business environment which led the Company to perform animpairment analysis of the goodwill in this reporting unit. As a result of thisanalysis, the goodwill in this reporting unit was determined to be impaired, asthe fair value of the reporting unit was less than the carrying value of thereporting unit including goodwill. The decrease in the fair value of thisreporting unit was due to a significant decrease in the projected results forthe full fiscal year and future years as a result of the factors previouslydiscussed. The estimated fair value of the reporting unit was determinedutilizing a combination of valuation techniques, namely the discounted cashflow methodology and the market multiple methodology. As a result, the Companyrecorded a non-cash pre-tax goodwill impairment charge of $25.1 million in thesecond quarter of fiscal 2007 writing off the remaining goodwill balance of theWholesale Premium reporting unit in the Wholesale segment.

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Thetable below is a summary of estimated fair values as of January 31, 2006and July 31, 2006 and the assumptions used in comparison to the carryingvalues in assessing recoverability for the Company’s Wholesale Premiumreporting unit of the Wholesale segment as of January 31, 2006:

| ** **                                 | ** ** | **January 31, 2006** | ** ** | **July 31, 2006** | ** ** |
|--------------------------------------------|------------|--------------------------------|------------|-----------------------------|------------|
| ($'s in millions)                          |       |                           |       |                        |       |   |   |   |   |
| Estimated fair  value                      |       |                           | $          | 98.1                        |       |   |   | $ | 86.8 |   |   |
| Recorded carrying  value of assets         |       |                           | 142.7      |                        |       |   | 114.6 |   |   |
| Excess (impaired)  value to recorded value |       |                           | $          | (44.6                       | )          |   |   | $ | (27.8 | ) |   |
| Assumptions and  other information:        |       |                           |       |                        |       |   |   |   |   |
| Discount rate                              |       |                           | 13.0       | %                           |       |   | 15.0 | % |   |
| Average revenue  growth rate               |       |                           | 5.6        | %                           |       |   | 4.3 | % |   |
| Tax rate                                   |       |                           | 39.0       | %                           |       |   | 39.0 | % |   |
| Terminal multiple  of EBITDA               |       |                           | 6.5        |                        |       |   | 6.0 |   |   |
| Capital  expenditures                      |       |                           | $          | 7.5                         |       |   |   | $ | 6.9 |   |   |
| Goodwill at risk                           |       |                           | $          | 25.1                        |       |   |   | $ | — |   |   |
| Other long lived assets  at risk           |       |                           | $          | 24.8                        |       |   |   | $ | 23.4 |   |   |

 

As a result of the reducednear term outlook and the changing business environment discussed above, thediscount rate was increased from 13.0% to 15.0% and the terminal multiple ofEBITDA was reduced from 6.5 to 6.0. The changes in these assumptions reflectthe continued changes in the business environment and adverse businessconditions currently experienced. Management believes the adverse conditionscurrently being experienced are not temporary but reflect the additional riskin the marketplace as a result of additional pricing pressures and competition.

*Sterno*

As a result of the Company’s annual impairmentanalyses in fiscal 2006, the Company determined that the goodwill balanceexisting at its Sterno reporting unit in the Wholesale segment was impaired. Infiscal 2006, the Sterno reporting unit experienced a substantial decline inoperating performance when compared to prior years’ results and budgeted fiscal2006 expectations. Therefore, the Company recorded a non-cash pre-tax goodwillimpairment charge of $11.1 million in the Sterno reporting unit of the Wholesalesegment.

During the second quarter of fiscal 2007, the Companyidentified a triggering event, which caused us to reassess the goodwill of theSterno reporting unit for impairment. In the Sterno reporting unit, the Company’sdecision to discontinue sales of a new product line coupled with sharply risingcommodity costs led the Company to perform an impairment analysis of goodwillin the reporting unit. As a result of this analysis, the goodwill in thisreporting unit was determined to be impaired, as the fair value of thereporting unit was less than the carrying value of the reporting unit includinggoodwill. The decrease in the fair value of the reporting unit was due to asignificant decrease in the projected results for the full fiscal year and futureyears as a result of the factors previously discussed. The estimated fair valueof the reporting unit was determined utilizing a combination of valuationtechniques, namely the discounted cash flow methodology and the market multiplemethodology. As a result, the Company recorded a non-cash pre-tax goodwillimpairment charge of $11.7 million in the second quarter of fiscal 2007 in theWholesale segment.

In the second half of fiscal 2007, the Sternoreporting unit within the Wholesale segment experienced a further decline inoperating performance when compared to prior years’ results and budgeted fiscal2007 expectations. As a result of the fiscal 2007 goodwill impairmentassessment the Company recorded a non-cash pre-tax goodwill impairment chargeof $12.0 million writing off the remaining goodwill balance of the Sternoreporting unit within the Wholesale segment.

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Thetable below is a summary of estimated fair values as of January 31, 2006, July 31,2006 and January 31, 2007 and the assumptions used in comparison to thecarrying values in assessing recoverability for the Company’s Sterno reportingunit of the Wholesale segment whose fair value was close to its carrying valueas of January 31, 2006 and June 30, 2006:

| ** **                                 | ** ** | **January 31, 2006** | ** ** | **July 31, 2006** | ** ** | **January 31, 2007** | ** ** |
|--------------------------------------------|------------|--------------------------------|------------|-----------------------------|------------|--------------------------------|------------|
| ($'s in millions)                          |       |                           |       |                        |       |                           |       |   |   |   |   |   |   |
| Estimated fair  value                      |       |                           | $          | 57.0                        |       |                           |       | $ | 45.4 |   |   |   | $ | 25.8 |   |   |
| Recorded carrying  value of assets         |       |                           | 67.0       |                        |       |                           | 55.6       |   |   |   | 36.2 |   |   |
| Excess (impaired)  value to recorded value |       |                           | $          | (9.9                        | )          |                           |       | $ | (10.2 | ) |   |   | $ | (10.4 | ) |   |
| Assumptions and  other information:        |       |                           |       |                        |       |                           |       |   |   |   |   |   |   |
| Discount rate                              |       |                           | 13.0       | %                           |       |                           | 13.0       | % |   |   | 13.0 | % |   |
| Average revenue  growth rate               |       |                           | 2.8        | %                           |       |                           | 1.8        | % |   |   | 2.5 | % |   |
| Tax rate                                   |       |                           | 39.0       | %                           |       |                           | 39.0       | % |   |   | 39.0 | % |   |
| Terminal multiple  of EBITDA               |       |                           | 5.0        |                        |       |                           | 5.0        |   |   |   | 5.0 |   |   |
| Annual capital  expenditures               |       |                           | $          | 3.3                         |       |                           |       | $ | 2.8 |   |   |   | $ | 2.9 |   |   |
| Goodwill at risk                           |       |                           | $          | 23.7                        |       |                           |       | $ | 12.0 |   |   |   | $ | — |   |   |
| Other long lived assets  at risk           |       |                           | $          | 8.9                         |       |                           |       | $ | 8.1 |   |   |   | $ | 6.1 |   |   |

 

*Miles Kimball*

Thetable below is a summary of estimated fair values as of January 31, 2006and 2007 and the assumptions used in comparison to the carrying values inassessing recoverability for the Company’s Miles Kimball reporting unit of theCatalog & Internet segment whose fair value was close to its carryingvalue as of January 31, 2006 and 2007.

| ** **                                 | ** ** | **2006** | ** ** | **2007** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|
| ($'s in millions)                          |       |     |       |     |       |
| Estimated fair  value                      |       | $        | 149.9      |     | $          | 152.5 |   |
| Recorded carrying  value of assets         |       | 143.7    |       | 133.4    |       |
| Excess (impaired)  value to recorded value |       | $        | 6.2        |     | $          | 19.1 |   |
| Assumptions and  other information:        |       |     |       |     |       |
| Discount rate                              |       | 13.0     | %          | 13.0     | %          |
| Average revenue  growth rate               |       | 4.0      | %          | 4.4      | %          |
| Tax rate                                   |       | 39.0     | %          | 39.0     | %          |
| Terminal multiple  of EBITDA               |       | 8.5      |       | 8.5      |       |
| Capital  expenditures                      |       | $        | 10.5       |     | $          | 9.5 |   |
| Goodwill at risk                           |       | $        | 74.5       |     | $          | 74.5 |   |
| Other long lived assets  at risk           |       | $        | 18.3       |     | $          | 19.4 |   |

 

*Other*

In August 2005, theCompany acquired a 100% interest in Boca Java, a small gourmet coffee and teacompany. Boca Java sells its products primarily through the internet and isincluded in the Company’s Catalog & Internet segment. In accordancewith SFAS No. 142, the Company has determined that Boca Java represents aseparate reporting unit and thus must be reviewed for impairment on a standalone basis. The Company has completed the January 31, 2007 impairmentassessment, which indicated that the goodwill of $1.9 million is fully recoverable.Boca Java is a relatively new operation, which is dependant upon achieving highrevenue growth and other operating objectives as well as the continued supportand 

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fundingfrom its parent. Should Boca Java fail to meet its revenue and operatingobjectives or fail to receive the continued support of its parent, its goodwillcould be subject to a partial or full impairment.

The Company’s DirectSelling segment has approximately $2.3 million of goodwill. The January 31,2007 impairment assessment of this segment indicates that the goodwill is fullyrecoverable. The Direct Selling segment currently generates a significantamount of cash flows: therefore the estimated fair value exceeds its carryingvalue by a wide margin.

As discussed in Note 4 tothe Consolidated Financial Statements, the Company sold its European seasonaland everyday decorations businesses, Kaemingk, Edelman and Euro-Decor, in thefirst half of fiscal 2007, which resulted in a reduction in goodwillattributable to these businesses totaling $66.5 million.

If actual revenue growth,profit margins, costs and capital spending should differ significantly from theassumptions included in our business outlook used in the cash flow models thereporting unit’s fair value could fall significantly below expectations andadditional impairment charges could be required to write down goodwill to itsfair value and if necessary other long lived assets could be subject to asimilar fair value test and possible impairment. Long lived assets representprimarily fixed assets and other long term assets excluding goodwill and otherintangibles.

There are two mainassumptions that are used for the discounted cash flow analysis: First, thediscount rate and second the terminal multiple. This discount rate is used tovalue the gross cash flows expected to be derived from the business to its netpresent value. The discount rate uses a rate of return to account for the timevalue of money and an investment risk factor. For the terminal multiple, weused earnings before interest, taxes, depreciation and amortization (“EBITDA”)multiplied by a certain factor for which an independent third party would payfor a similar business in an arms length transaction. In determining thisfactor we used information that was available for similar transactions executedin the marketplace. The multiple of EBITDA used contemplates among otherthings, the expected revenue growth of the business which in turn would requirethe use of a higher EBITDA multiple if revenue were expected to grow at ahigher rate than normal. A change in the discount rate is often used bymanagement to alter or temper the discounted cash flow model if there is ahigher degree of risk that the business outlook objectives might not beachieved. These risks are often based upon the business units past performance,competition, confidence in the business unit management, position in themarketplace, acceptance of new products in the marketplace and other macro andmicro economic factors surrounding the business.

If management feels thereis additional risk associated with the business outlook it will adjust thediscount rate and terminal value accordingly. The terminal value is generally amultiple of EBITDA and is discounted to its net present value using the discountrate. Capital expenditures are included and are consistent with the historicalbusiness trend plus any known significant expenditures. If the outlook for theMiles Kimball reporting unit as of January 31, 2007 was to be lessoptimistic than we had assumed in our valuation model, whereby we increased thediscount rate by 1% and decreased the terminal multiple by one, the fair valueof the Miles Kimball reporting unit would have decreased by $16.5 million. Thisreduction in fair value would not have caused the Company to perform a step twotest for impairment as the fair value of the business would still exceed itscarrying value. Conversely, if the outlook for the Miles Kimball reporting unitas of January 31, 2007 was more optimistic than we had assumed in ourvaluation model, whereby we decreased the discount rate by 1% and increased theterminal multiple by one, the fair value of the Miles Kimball reporting unitCatalog & Internet segment would have increased by $18.2 million.

*Trade Names and Trademarks*

The Company’s trade nameand trademark intangible assets relate to the Company’s acquisitions of MilesKimball and Walter Drake in fiscal 2004 and are reported in the Company’sCatalog & Internet Segment. The Company has approximately $28.1million in trade names and trademarks as of January 31, 

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2007,whose fair value was determined at the dates of acquisition. The fair value ofthese trade names and trademarks as of January 31, 2007 was $31.9 million.

The Company performs itsannual assessment of impairment for indefinite-lived intangible assets as of January 31,which is our fiscal year-end. The Company uses the relief from royalty methodto estimate the fair value for indefinite-lived intangible assets. Theunderlying concept of the relief from royalty method is that the inherenteconomic value of intangibles is directly related to the timing of future cashflows associated with the intangible asset. Similar to the income approach ordiscounted cash flow methodology used to determine the fair value of goodwill,the fair value of indefinite-lived intangible assets is equal to the presentvalue of after-tax cash flows associated with the intangible asset based on anapplicable royalty rate. The royalty rate is determined by using existingmarket comparables for royalty agreements using an intellectual property database. The arms-length agreements generally support a rate that is a percentageof direct sales. This approach is based on the premise that the free cash flowis a more valid criterion for measuring value than “book” or accountingprofits.

The two primaryassumptions used in the relief from royalty method are the discount rate andthe royalty rate. This discount rate is used to value the expected net cashflows to be derived from the royalty to its net present value. The discountrate uses a rate of return to account for the time value of money and aninvestment risk factor. The royalty rate is based upon past royalty performanceas well as the expected royalty growth rate using both macro and micro economicfactors surrounding the business. A change in the discount rate is often usedby management to alter or temper the discounted cash flow analysis if there isa higher degree of risk that the estimated cash flows from the indefinite-livedintangible asset may not be fully achieved. These risks are often based uponthe 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 flowsshould fall significantly below expectations this could result in an impairmentof our indefinite-lived intangible assets. If as of January 31, 2007, thediscount rate would have increased and the royalty rate would have decreased by1%, respectively, the fair value of the Catalog & Internet trade namesand trademarks would have decreased by $15.9 million to $16.0 million. Thisdecrease would have required the Company to take an impairment charge of $12.1million to write-down its indefinite lived intangibles to its estimated fairvalue. Conversely, if the discount rate would have decreased and the royaltyrate would have increased by 1%, respectively, the fair value of the Catalog &Internet trade names and trademarks would have increased by $19.3 million to$51.2 million.

*Accounting for Income Taxes*

As part of the process ofpreparing our Consolidated Financial Statements, we are required to estimateour actual current tax exposure (state, federal and foreign), together withassessing permanent and temporary differences resulting from differing basesand treatment of items for tax and accounting purposes, such as the carryingvalue of intangibles, deductibility of expenses, depreciation of property andequipment, and valuation of inventories. Temporary differences result indeferred tax assets and liabilities, which are included within our consolidatedbalance sheets. We must then assess the likelihood that our deferred tax assetswill be recovered from future taxable income. Actual results could differ fromthis assessment if sufficient taxable income is not generated in future periods.To the extent we determine the need to establish a valuation allowance orincrease such allowance in a period, we must include an expense within the taxprovision in the accompanying consolidated statements of earnings. Themanagement of the Company periodically estimates the probable tax obligationsof the Company using historical experience in tax jurisdictions and informedjudgments. There are inherent uncertainties related to the interpretation oftax regulations in the jurisdictions in which the Company transacts business. Thejudgments and estimates made at a point in time may change based on the outcomeof 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 ordecrease in any period. Amounts accrued for the potential tax assessments,primarily recorded in long-

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termliabilities total $9.2 million and $9.9 million at January 31, 2006 and2007, respectively. Accruals relate to tax issues for U.S. federal, domesticstate and taxation of foreign earnings.

As of January 31,2007, the Company, in accordance with APB Opinion 23, Accounting for IncomeTaxes, Special Areas, determined that $48.8 million of undistributed foreignearnings were not reinvested indefinitely by its non-U.S. subsidiaries. Deferredincome tax expense of $12.6 million was recorded as a reduction to the Company’snet income on these undistributed earnings. The Company periodically determineswhether the non-U.S. subsidiaries will invest their undistributed earningsindefinitely and reassesses this determination as appropriate.

**Impactof Adoption of Recently Issued Accounting Standards**

During the first quarter of fiscal 2007, the FinancialAccounting Standards Board (FASB) issued SFAS No. 155, “Accountingfor Certain Hybrid Financial Instruments—an amendment of FASB StatementsNo. 133 and 140” (SFAS No. 155) and SFAS No. 156, “Accountingfor Servicing of Financial Instruments—an amendment of FASB StatementNo. 140” (SFAS No. 156). SFAS No. 155 requires that interests insecuritized financial assets be evaluated to determine whether they containembedded derivatives, and permits the accounting for any such hybrid financialinstruments as single financial instruments at fair value with changes in fairvalue recognized directly in earnings. SFAS No. 156 specifies thatservicing assets or liabilities recognized upon the sale of financial assetsmust be initially measured at fair value, and subsequently either measured atfair value or amortized in proportion to and over the period of estimated netservicing income or loss. The Company plans to adopt both standards on February 1,2007. The Company does notexpect the adoption of the standards to have a material impact on the Company’sconsolidated financial position, annual results of operations or cash flows.

In July 2006, the FASB issued InterpretationNo. 48, “Accounting for Uncertainty in Income Taxes.”  ThisInterpretation requires that a recorded tax benefit must be more likely thannot of being sustained upon examination by tax authorities based upon its technicalmerits. The amount of benefit recorded is the largest amount of benefit that isgreater than 50 percent likely of being realized upon ultimate settlement. Uponadoption, any adjustment will be recorded directly to beginning retainedearnings. The Interpretation is effective for the Company beginning no laterthan February 1, 2007. The Company has not yet adopted the Interpretationand has not completed the analysis to determine the effect on the Company’sfinancial statements.

In September 2006, the FASB issued SFASNo. 157, “Fair Value Measurements” (SFAS No. 157) and SFASNo. 158, “Employers’ Accounting for Defined Benefit Pension and OtherPostretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and132(R)” (SFAS No. 158). SFAS No. 157 defines fair value, establishesa framework for measuring fair value in generally accepted accountingprinciples, and expands disclosures regarding fair value measurements. SFASNo. 157 applies under other accounting pronouncements that require orpermit fair value measurements. Accordingly, SFAS No. 157 does not requireany new fair value measurements. SFAS No. 157 is effective for fiscalyears beginning after November 15, 2007. SFAS No. 158 requires theCompany to recognize the funded status of its defined benefit plan as an assetor liability on the financial statements and the changes in the funded status,net of tax, within accumulated other comprehensive income, to the extent thesechanges are not recognized in earnings as components of periodic net benefitcost. Additionally, SFAS No. 158 requires the plan’s funded status to bemeasured as of the end of the Company’s fiscal year. The Company has adoptedthese provisions as of January 31, 2007 and the effect did not have amaterial impact on the Company’s consolidated financial position, results ofoperations or cash flow.

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In September 2006, the SEC issued StaffAccounting Bulletin No. 108 (SAB No. 108), “Considering the Effectsof Prior Year Misstatements when Quantifying Misstatements in Current YearFinancial Statements.”  This issuanceeliminates the diversity in practice in quantifying financial statementmisstatements. SAB No. 108 establishes the approach that requires theCompany to quantify the misstatement on each of the financial statements andrelated disclosures. The Company has adopted this provision as of January 31,2007 and the effect did not have a material impact on the Company’sconsolidated financial position, results of operations or cash flow.

In February 2007, theFASB issued Statement of Financial Accounting Standards No. 159, “The FairValue Option for Financial Assets and Financial Liabilities, including anamendment of FASB Statements No. 115” (SFAS No. 159). SFAS No. 159permits entities to choose, at specified election dates, to measure eligibleitems at fair value (the “fair value option”). A business entity shall reportunrealized gains and losses on items for which the fair value option has beenelected in earnings at each subsequent reporting period. This accountingstandard is effective as of the beginning of an entity’s first fiscal year thatbegins after November 15, 2007. The effect, if any, of adopting SFAS No. 159on the Company’s consolidated financial position, annual results of operationsor cash flows has not been determined.

**Forward-looking andCautionary Statements**

Certainstatements contained in this Annual Report on Form 10-K mayconstitute forward-looking statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995. These statements involve a number ofrisks, uncertainties and other factors that could cause actual results todiffer materially, as discussed more fully elsewhere in this Annual Report on Form 10-Kand in the Company’s previous filings with the Securities and ExchangeCommission.

**Item 7A.**                Quantitative andQualitative Disclosures About Market Risk

*Market Risk*

The Company has operationsoutside of the United States and sells its products worldwide. The Company’sactivities expose it to a variety of market risks, including the effects ofchanges in interest rates, foreign currency exchange rates and commodity prices.These financial exposures are actively monitored and, where consideredappropriate, managed by the Company.

*Interest Rate Risk*

The Company is subject to interest rate risk on bothvariable rate debt and its investments in auction rate securities. As of January 31,2007, the company is subject to interest rate risk on approximately $8.1 millionof variable rate debt. A 1-percentage point increase in the interest ratewould impact pre-tax earnings by approximately $0.1 million if applied to thetotal. As of January 31, 2007, the Company held $129.7 million ofshort-term investments, which consist of auction rate securities and variablerate demand obligations. A 1-percentage point decrease in the rate ofreturn would impact pre-tax earnings by approximately $1.3 million if appliedto the total.

On July 10, 2003, theCompany terminated the interest rate swap agreement in relation to $50.0 millionof its outstanding 7.90% Senior Notes, which mature on October 1, 2009. Thistermination resulted in a deferred gain of approximately $5.0 million, which isbeing amortized over the remaining term of the notes. At January 31, 2006and 2007, there was $3.0 million and $2.1 million, respectively, remaining tobe amortized

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*Foreign CurrencyRisk*

The Company uses foreign exchange forward and optionscontracts to hedge the impact of foreign currency fluctuations on foreigndenominated inventory purchases, intercompany payables and certain intercompanyloans. The Company does not hold or issue derivative financial instruments fortrading purposes.

The Company hedged the net assets of certain of itsforeign operations through foreign currency forward contracts during fiscal2006. The Company did not continue to hedge the net assets of its foreignoperations during fiscal 2007. The net after-tax gain related to the derivativenet investment hedge instruments recorded in accumulated other comprehensiveincome (loss) (“OCI”) totaled $1.8 million at January 31, 2007.

The Company has designatedits forward exchange and options contracts on forecasted intercompany purchasesand future purchase commitments as cash flow hedges and, as such, as long asthe hedge remains effective and the underlying transaction remains probable,the effective portion of the changes in the fair value of these contracts willbe recorded in OCI until earnings are affected by the variability of the cashflows being hedged. With regard to commitments for inventory purchases, uponpayment of each commitment, the underlying forward contract is closed and thecorresponding gain or loss is transferred from accumulated OCI and is includedin the measurement of the cost of the acquired asset. If a hedging instrumentis sold or terminated prior to maturity, gains and losses are deferred inaccumulated OCI until the hedged item is settled. However, if the hedged itemis no longer likely to occur, the resultant gain or loss on the terminatedhedge is recognized into earnings immediately. Amounts included in accumulatedOCI at January 31, 2007 are immaterial and are expected to be transferredinto earnings within the next twelve months upon payment of the underlyingcommitment.

The Company has designated its foreign currencyforward contracts related to intercompany loans and intercompany payables asfair value hedges. The gains or losses on the fair value hedges are recognizedinto earnings and generally offset the transaction gains or losses in theforeign denominated loans that they are intended to hedge.

For consolidated financialstatement presentation, net cash flows from such hedges are classified in thecategories of the Consolidated Statement of Cash Flows with the items being hedged.

*Foreign CurrencyRisk (continued)*

Thefollowing table provides information about the Company’s foreign exchangeforward and options contracts at January 31, 2007:

| ** **                                                                | ** ** | **US Dollar** | ** ** | **Average**              | ** ** | **Estimated**          | ** ** |
|---------------------------------------------------------------------------|------------|--------------------|------------|--------------------------|------------|------------------------|------------|
| **(In thousands, except average contract rate)** | ** ** | ** **         | ** ** | **Notional Amount** | ** ** | **Contract Rate** | ** ** | **Fair Value** | ** ** |
| Canadian Dollar                                                           |       |               | $          | 5,300                    |       |                   |       | 0.88 |   |   |   | $ | 194 |   |   |
| Euro                                                                      |       |               | 6,650      |                     |       |                   | 1.31       |   |   |   | (90 | ) |   |
|                                                                      |       |               | $          | 11,950                   |       |                   |       |   |   |   |   | $ | 104 |   |   |
|                                                                           |            |                    |            |                          |            |                        |            |  |  |  |  |  |  |  |  |  |  |

 

The foreign exchange contracts outstanding havematurity dates through September 2007.

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**Item8. Financial Statements and Supplementary Data**

**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

Tothe Board of Directors and Stockholders of Blyth, Inc.

Greenwich, Connecticut

We have audited the accompanying consolidated balancesheets of Blyth, Inc. and subsidiaries (the “Company”) as of January 31,2007 and 2006, and the related consolidated statements of earnings (loss),stockholders’ equity, and cash flows for each of the three years in the periodended January 31, 2007. Our audits also included the financial statementschedule listed in the Index at Item 15. These financial statements andfinancial statement schedule are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements and financial statement schedule based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, 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 statementspresent fairly, in all material respects, the financial position of Blyth, Inc.and subsidiaries as of January 31, 2007 and 2006, and the results of theiroperations and their cash flows for each of the three years in the period endedJanuary 31, 2007, in conformity with accounting principles generallyaccepted in the United States of America. Also, in our opinion, such financialstatement schedule, when considered in relation to the basic consolidatedfinancial statements taken as a whole, present fairly, in all materialrespects, the information set forth therein.

We have also audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the effectiveness of the Company’s internal control overfinancial reporting as of January 31, 2007, based on the criteriaestablished in*Internal Control—IntegratedFramework* issued by the Committee of Sponsoring Organizations of theTreadway Commission and our report dated April 13, 2007 expressed anunqualified opinion on management’s assessment of the effectiveness of theCompany’s internal control over financial reporting and an unqualified opinionon the effectiveness of the Company’s internal control over financialreporting.

| /s/ DELOITTE &  TOUCHE LLP |   |
|-------------------------------------|--------|

 

Chicago, Illinois

April 13, 2007

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**BLYTH,INC. AND SUBSIDIARIESConsolidated Balance Sheets**

| ** **                                                                                                                       | ** ** | **As of January 31,**                                               | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                       | ** ** | **2006**                                                                           | ** ** | **2007** | ** ** |
| ** **                                                                                                                       | ** ** | **(In thousands, except share  and per share data)** | ** ** |
| **ASSETS**                                                                                                                       |       |                                                                               |       |   |   |
| **Current assets:**                                                                                                              |       |                                                                               | ** ** | ** ** | ** ** |
| Cash and cash equivalents                                                                                                        |       | $                                                                                  | 242,068    | ** ** | **$** | **103,808** | ** ** |
| Short-term investments                                                                                                           |       | —                                                                             | ** ** | **129,725** | ** ** |
| Accounts receivable, less allowance for doubtful  receivables $3,892 in 2006 and $1,533 in 2007                                  |       | 109,857                                                                            | ** ** | **35,040** | ** ** |
| Inventories                                                                                                                      |       | 237,753                                                                            | ** ** | **148,321** | ** ** |
| Prepaid and other                                                                                                                |       | 35,643                                                                             | ** ** | **33,317** | ** ** |
| Assets held for sale                                                                                                             |       | 3,027                                                                              | ** ** | **—** | ** ** |
| Deferred income taxes                                                                                                            |       | 20,645                                                                             | ** ** | **29,707** | ** ** |
| Total current assets                                                                                                             |       | 648,993                                                                            | ** ** | **479,918** | ** ** |
| **Property, plant and equipment,  at cost:**                                                                                     |       |                                                                               | ** ** | ** ** | ** ** |
| Land and buildings                                                                                                               |       | 173,526                                                                            | ** ** | **122,367** | ** ** |
| Leasehold improvements                                                                                                           |       | 18,303                                                                             | ** ** | **14,303** | ** ** |
| Machinery and equipment                                                                                                          |       | 204,138                                                                            | ** ** | **156,877** | ** ** |
| Office furniture, data processing equipment and  software                                                                        |       | 92,834                                                                             | ** ** | **71,524** | ** ** |
| Construction in progress                                                                                                         |       | 1,966                                                                              | ** ** | **3,573** | ** ** |
| ** **                                                                                                                       |       | 490,767                                                                            | ** ** | **368,644** | ** ** |
| Less accumulated depreciation                                                                                                    |       | 264,941                                                                            | ** ** | **209,160** | ** ** |
|                                                                                                                             |       | 225,826                                                                            | ** ** | **159,484** | ** ** |
| **Other assets:**                                                                                                                |       |                                                                               | ** ** | ** ** | ** ** |
| Investment                                                                                                                       |       | 3,397                                                                              | ** ** | **3,610** | ** ** |
| Goodwill                                                                                                                         |       | 185,127                                                                            | ** ** | **78,682** | ** ** |
| Other intangible assets, net of accumulated  amortization of $5,917 in 2006 and $7,750 in 2007                                   |       | 37,183                                                                             | ** ** | **35,350** | ** ** |
| Deposits and other assets                                                                                                        |       | 15,994                                                                             | ** ** | **17,594** | ** ** |
|                                                                                                                             |       | 241,701                                                                            | ** ** | **135,236** | ** ** |
| Total assets                                                                                                                     |       | $                                                                                  | 1,116,520  | ** ** | **$** | **774,638** | ** ** |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                   |       |                                                                               | ** ** | ** ** | ** ** |
| **Current liabilities:**                                                                                                         | ** ** | ** **                                                                         | ** ** | ** ** | ** ** |
| Bank lines of credit                                                                                                             |       | $                                                                                  | 25,772     | ** ** | **$** | **—** | ** ** |
| Current maturities of long-term debt                                                                                             |       | 1,049                                                                              | ** ** | **987** | ** ** |
| Accounts payable                                                                                                                 |       | 75,735                                                                             | ** ** | **56,450** | ** ** |
| Accrued expenses                                                                                                                 |       | 93,000                                                                             | ** ** | **77,738** | ** ** |
| Income taxes payable                                                                                                             |       | 14,296                                                                             | ** ** | **4,925** | ** ** |
| Total current liabilities                                                                                                        |       | 209,852                                                                            | ** ** | **140,100** | ** ** |
| **Deferred income taxes**                                                                                                        |       | 39,383                                                                             | ** ** | **35,002** | ** ** |
| **Long-term debt, less current maturities**                                                                                      |       | 344,921                                                                            | ** ** | **214,792** | ** ** |
| **Other liabilities**                                                                                                            |       | 28,540                                                                             | ** ** | **21,051** | ** ** |
| **Commitments and contingencies**                                                                                                |       | —                                                                             | ** ** | **—** | ** ** |
| **Stockholders’ equity:**                                                                                                   |       |                                                                               | ** ** | ** ** | ** ** |
| Preferred stock - authorized 10,000,000 shares of  $0.01 par value; no shares issued                                             |       | —                                                                             | ** ** | **—** | ** ** |
| Common stock - authorized 100,000,000 shares of $0.02  par value; issued 50,528,060 shares in 2006 and 50,637,060 shares in 2007 |       | 1,010                                                                              | ** ** | **1,013** | ** ** |
| Additional contributed capital                                                                                                   |       | 127,580                                                                            | ** ** | **129,367** | ** ** |
| Retained earnings                                                                                                                |       | 657,983                                                                            | ** ** | **534,897** | ** ** |
| Accumulated other comprehensive income (loss)                                                                                    |       | (1,935                                                                             | )          | **22,130** | ** ** |
| Treasury stock, at cost, 9,533,416 shares in 2006 and  11,335,798 shares in 2007                                                 |       | (287,744                                                                           | )          | **(323,714** | **)** |
| Unearned compensation on restricted stock                                                                                        |       | (3,070                                                                             | )          | **—** | ** ** |
| Total stockholders’ equity                                                                                                  |       | 493,824                                                                            | ** ** | **363,693** | ** ** |
| Total liabilities  and stockholders’ equity                                                                                 |       | $                                                                                  | 1,116,520  | ** ** | **$** | **774,638** | ** ** |

 

The accompanyingnotes are an integral part of these financial statements.

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**BLYTH, INC. ANDSUBSIDIARIESCONSOLIDATED STATEMENTS OF EARNINGS (LOSS)**

| ** **                                                                                                                                 | ** ** | **For the year ended January 31,**   | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                                                                                 | ** ** | **2005**                                                 | ** ** | **2006** | ** ** | **2007** | ** ** |
| ** **                                                                                                                                 | ** ** | **(In thousands, except per share data)** | ** ** |
| Net sales                                                                                                                                  |       | $                                                        | 1,301,365  |   | $ | 1,254,261 |   | $ | 1,220,611 |   |
| Cost of goods  sold                                                                                                                        |       | 606,777                                                  |       | 618,476 |   | 623,942 |   |
| Gross profit                                                                                                                               |       | 694,588                                                  |       | 635,785 |   | 596,669 |   |
| Selling                                                                                                                                    |       | 423,540                                                  |       | 411,289 |   | 409,742 |   |
| Administrative                                                                                                                             |       | 126,265                                                  |       | 126,068 |   | 122,471 |   |
| Goodwill  impairment                                                                                                                       |       | —                                                   |       | 53,261 |   | 48,812 |   |
|                                                                                                                                       |       | 549,805                                                  |       | 590,618 |   | 581,025 |   |
| Operating profit                                                                                                                           |       | 144,783                                                  |       | 45,167 |   | 15,644 |   |
| Other expense (income):                                                                                                                    |       |                                                     |       |   |   |   |   |
| Interest expense                                                                                                                           |       | 18,936                                                   |       | 20,602 |   | 19,074 |   |
| Interest income                                                                                                                            |       | (1,947                                                   | )          | (2,235 | ) | (7,398 | ) |
| Foreign exchange and other                                                                                                                 |       | (474                                                     | )          | 356 |   | (1,401 | ) |
|                                                                                                                                       |       | 16,515                                                   |       | 18,723 |   | 10,275 |   |
| Earnings from continuing operations before income  taxes and minority interest                                                             |       | 128,268                                                  |       | 26,444 |   | 5,369 |   |
| Income tax  expense                                                                                                                        |       | 46,162                                                   |       | 6,379 |   | 2,664 |   |
| Earnings from continuing operations before minority  interest                                                                              |       | 82,106                                                   |       | 20,065 |   | 2,705 |   |
| Minority interest  expense (income)                                                                                                        |       | (258                                                     | )          | (466 | ) | 150 |   |
| Earnings from continuing operations                                                                                                        |       | 82,364                                                   |       | 20,531 |   | 2,555 |   |
| Earnings (loss)  from discontinued operations, net of income tax expense (benefit) of $6,760  in 2005, $1,396 in 2006 and ($3,985) in 2007 |       | 14,150                                                   |       | 4,326 |   | (105,728 | ) |
| Net earnings  (loss)                                                                                                                       |       | $                                                        | 96,514     |   | $ | 24,857 |   | $ | (103,173 | ) |
| Basic:                                                                                                                                     |       |                                                     |       |   |   |   |   |
| Earnings from  continuing operations per common share                                                                                      |       | $                                                        | 1.91       |   | $ | 0.50 |   | $ | 0.06 |   |
| Earnings (loss)  from discontinued operations per common share                                                                             |       | 0.33                                                     |       | 0.11 |   | (2.66 | ) |
| Net earnings  (loss) per common share                                                                                                      |       | $                                                        | 2.24       |   | $ | 0.61 |   | $ | (2.59 | ) |
| Weighted average  number of shares outstanding                                                                                             |       | 43,136                                                   |       | 40,956 |   | 39,781 |   |
| Diluted:                                                                                                                                   |       |                                                     |       |   |   |   |   |
| Earnings from continuing operations per common share                                                                                       |       | $                                                        | 1.89       |   | $ | 0.50 |   | $ | 0.06 |   |
| Earnings (loss)  from discontinued operations per common share                                                                             |       | 0.32                                                     |       | 0.11 |   | (2.64 | ) |
| Net earnings  (loss) per common share                                                                                                      |       | $                                                        | 2.22       |   | $ | 0.60 |   | $ | (2.58 | ) |
| Weighted average number  of shares outstanding                                                                                             |       | 43,556                                                   |       | 41,176 |   | 40,057 |   |

 

The accompanyingnotes are an integral part of these financial statements.

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**BLYTH, INC. AND SUBSIDIARIESConsolidated Statements of Stockholders’ Equity**

| ** **                                                                                        | ** ** | **Common  stock**       | ** ** | **Additional  contributed  capital** | ** ** | **Retained  earnings** | ** ** | **Treasury  stock** | ** ** | **Unearned  compensation** | ** ** | **Accumulated  other  comprehensive  income (loss)** | ** ** | **Total** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-------------------------|------------|--------------------------------------|------------|------------------------|------------|---------------------|------------|----------------------------|------------|-----------------------------------------------------------|------------|-----------|------------|
| ** **                                                                                        | ** ** | **(In thousands)** | ** ** |
| Balance at February 1, 2004                                                                  |       | 999                     |       |                                 | 107,965    |                   |       | 570,171             |       | (105,389                   | )          |                                                      | —     |      |       |   | 15,224 |   |   | 588,970 |   |
| Net earnings for the year                                                                         |       |                    |       |                                 |       |                   |       | 96,514              |       |                       |       |                                                      |       |      |       |   |   |   |   | 96,514 |   |
| Foreign currency translation adjustments                                                          |       |                    |       |                                 |       |                   |       |                |       |                       |       |                                                      |       |      |       |   | 21,311 |   |   | 21,311 |   |
| Unrealized gain on certain investments (net of tax of  $75)                                       |       |                    |       |                                 |       |                   |       |                |       |                       |       |                                                      |       |      |       |   | 135 |   |   | 135 |   |
| Net loss on cash flow hedging instruments (net of tax  of $280)                                   |       |                    |       |                                 |       |                   |       |                |       |                       |       |                                                      |       |      |       |   | (568 | ) |   | (568 | ) |
| Comprehensive income                                                                              |       |                    |       |                                 |       |                   |       |                |       |                       |       |                                                      |       |      |       |   |   |   |   | 117,392 |   |
| Common stock issued in connection with long-term  incentive plan                                  |       | 8                       |       |                                 | 9,463      |                   |       |                |       |                       |       |                                                      |       |      |       |   |   |   |   | 9,471 |   |
| Tax benefit from stock options                                                                    |       |                    |       |                                 | 720        |                   |       |                |       |                       |       |                                                      |       |      |       |   |   |   |   | 720 |   |
| Dividends paid ($0.36 per share)                                                                  |       |                    |       |                                 |       |                   |       | (15,529             | )          |                       |       |                                                      |       |      |       |   |   |   |   | (15,529 | ) |
| Treasury stock purchases                                                                          |       |                    |       |                                 |       |                   |       |                |       | (179,675                   | )          |                                                      |       |      |       |   |   |   |   | (179,675 | ) |
| Balance at January 31, 2005                                                                  |       | 1,007                   |       |                                 | 118,148    |                   |       | 651,156             |       | (285,064                   | )          |                                                      | —     |      |       |   | 36,102 |   |   | 521,349 |   |
| Net earnings for the year                                                                         |       |                    |       |                                 |       |                   |       | 24,857              |       |                       |       |                                                      |       |      |       |   |   |   |   | 24,857 |   |
| Foreign currency translation adjustments                                                          |       |                    |       |                                 |       |                   |       |                |       |                       |       |                                                      |       |      |       |   | (40,946 | ) |   | (40,946 | ) |
| Minimum pension liability adjustment (net of tax  $578)                                           |       |                    |       |                                 |       |                   |       |                |       |                       |       |                                                      |       |      |       |   | (1,347 | ) |   | (1,347 | ) |
| Unrealized gain on certain investments (net of tax of  $167)                                      |       |                    |       |                                 |       |                   |       |                |       |                       |       |                                                      |       |      |       |   | 948 |   |   | 948 |   |
| Net gain on cash flow hedging instruments (net of tax  of $842)                                   |       |                    |       |                                 |       |                   |       |                |       |                       |       |                                                      |       |      |       |   | 1,530 |   |   | 1,530 |   |
| Net gain on net investment hedging instruments (net  of tax $1,090)                               |       |                    |       |                                 |       |                   |       |                |       |                       |       |                                                      |       |      |       |   | 1,778 |   |   | 1,778 |   |
| Comprehensive income (loss)                                                                       |       |                    |       |                                 |       |                   |       |                |       |                       |       |                                                      |       |      |       |   |   |   |   | (13,180 | ) |
| Common stock issued in connection with long-term  incentive plan                                  |       | 3                       |       |                                 | 3,570      |                   |       |                |       |                       |       |                                                      |       |      |       |   |   |   |   | 3,573 |   |
| Tax benefit from stock options                                                                    |       |                    |       |                                 | 315        |                   |       |                |       |                       |       |                                                      |       |      |       |   |   |   |   | 315 |   |
| Issuance of restricted stock, net of cancellations                                                |       |                    |       |                                 | 5,547      |                   |       |                |       | (609                       | )          |                                                      | (4,938     | )         |       |   |   |   |   | — |   |
| Amortization of unearned compensation                                                             |       |                    |       |                                 |       |                   |       |                |       |                       |       |                                                      | 1,868      |      |       |   |   |   |   | 1,868 |   |
| Dividends paid ($0.44 per share)                                                                  |       |                    |       |                                 |       |                   |       | (18,030             | )          |                       |       |                                                      |       |      |       |   |   |   |   | (18,030 | ) |
| Treasury stock purchases                                                                          |       |                    |       |                                 |       |                   |       |                |       | (2,071                     | )          |                                                      |       |      |       |   |   |   |   | (2,071 | ) |
| Balance at January 31, 2006                                                                  |       | $                       | 1,010      |                                 |       | $                      | 127,580    |                |       | $                          | 657,983    |                                                      | $          | (287,744  | )          |   | $ | (3,070 | ) |   |   | $ | (1,935 | ) |   | $ | 493,824 |   |
| Net (loss) for the year                                                                           |       |                    |       |                                 |       |                   |       | (103,173            | )          |                       |       |                                                      |       |      |       |   |   |   |   | (103,173 | ) |
| Foreign currency translation adjustments                                                          |       |                    |       |                                 |       |                   |       |                |       |                       |       |                                                      |       |      |       |   | 21,413 |   |   | 21,413 |   |
| Unrealized gain on certain investments (net of tax of  $195)                                      |       |                    |       |                                 |       |                   |       |                |       |                       |       |                                                      |       |      |       |   | 319 |   |   | 319 |   |
| Net gain on cash flow hedging instruments (net of tax  of $36)                                    |       |                    |       |                                 |       |                   |       |                |       |                       |       |                                                      |       |      |       |   | 67 |   |   | 67 |   |
| Reversal of minimum pension liability (net of tax of  $578) due to sale of Edelman and Euro-Decor |       |                    |       |                                 |       |                   |       |                |       |                       |       |                                                      |       |      |       |   | 1,347 |   |   | 1,347 |   |
| Reclassification 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      |                   |       |                |       |                       |       |                                                      |       |      |       |   |   |   |   | 2,475 |   |
| Tax benefit from stock options                                                                    |       |                    |       |                                 | 118        |                   |       |                |       |                       |       |                                                      |       |      |       |   |   |   |   | 118 |   |
| Restricted stock net of cancellations                                                             |       |                    |       |                                 | 982        |                   |       |                |       | (982                       | )          |                                                      |       |      |       |   |   |   |   | — |   |
| SFAS 158 adoption adjustment (net of tax $563)                                               |       |                    |       |                                 |       |                   |       |                |       |                       |       |                                                      |       |      |       |   | 919 |   |   | 919 |   |
| Amortization of unearned compensation                                                             |       |                    |       |                                 | 1,285      |                   |       |                |       |                       |       |                                                      |       |      |       |   |   |   |   | 1,285 |   |
| Dividends paid ($.50 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 |   |   | $ | 363,693 |   |

 

The accompanying notes are an integral part of these financial statements.

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**BLYTH, INC. AND SUBSIDIARIESConsolidated Statements of Cash Flows**

| ** **                                                                                              | ** ** | **Year ended January 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
|                                                                                                         | ** ** | **2005**                                  | ** ** | **2006** | ** ** | **2007** | ** ** |
| ** **                                                                                              | ** ** | **(In thousands)**                   | ** ** |
| Cash flows from operating activities:                                                                   | ** ** | ** **                                |       |   | ** ** | ** ** | ** ** |
| Net earnings  (loss)                                                                                    |       | $                                         | 96,514     |   | $ | 24,857 | ** ** | **$** | **(103,173** | **)** |
| Adjustments to reconcile  net earnings (loss) to net cash provided by operating activities:             |       |                                      |       |   | ** ** | ** ** | ** ** |
| Loss on sale of  discontinued operations                                                                |       | —                                    |       | — | ** ** | **80,865** | ** ** |
| Depreciation and  amortization                                                                          |       | 35,600                                    |       | 35,875 | ** ** | **34,630** | ** ** |
| Loss on  disposition of fixed assets                                                                    |       | 1,070                                     |       | 3,212 | ** ** | **1,304** | ** ** |
| Loss on impairment  of fixed assets                                                                     |       | —                                    |       | — | ** ** | **2,736** | ** ** |
| (Gain) loss on  sale of business                                                                        |       | (364                                      | )          | 1,620 | ** ** | **—** | ** ** |
| Tax benefit from  stock options                                                                         |       | 720                                       |       | 315 | ** ** | — | ** ** |
| Amortization of  unearned compensation on restricted stock                                              |       | —                                    |       | 1,868 | ** ** | **1,285** | ** ** |
| Deferred income  taxes                                                                                  |       | 12,407                                    |       | (12,923 | ) | **(9,200** | **)** |
| Equity in  (earnings) losses of investee                                                                |       | (319                                      | )          | 50 | ** ** | **(214** | **)** |
| Minority interest                                                                                       |       | (528                                      | )          | (767 | ) | **(514** | **)** |
| Goodwill  impairment charges                                                                            |       | —                                    |       | 53,261 | ** ** | **48,812** | ** ** |
| (Gain) loss on  sale of assets held for sale                                                            |       | (128                                      | )          | 1,159 | ** ** | **79** | ** ** |
| Changes in operating  assets and liabilities, net of effect of business acquisitions and  divestitures: |       |                                      |       |   | ** ** | ** ** | ** ** |
| Accounts  receivable                                                                                    |       | 10,106                                    |       | 2,490 | ** ** | **43,966** | ** ** |
| Inventories                                                                                             |       | (3,391                                    | )          | (13,841 | ) | **29,837** | ** ** |
| Prepaid and other                                                                                       |       | (14,050                                   | )          | 6,676 | ** ** | **(12,905** | **)** |
| Deposits and other  assets                                                                              |       | (1,235                                    | )          | (248 | ) | **1,280** | ** ** |
| Accounts payable                                                                                        |       | (3,199                                    | )          | (1,406 | ) | **(8,739** | **)** |
| Accrued expenses                                                                                        |       | (12,496                                   | )          | 3,042 | ** ** | **(6,284** | **)** |
| Other liabilities                                                                                       |       | 6,565                                     |       | (4,029 | ) | **(2,809** | **)** |
| Income taxes                                                                                            |       | 11,250                                    |       | 5,612 | ** ** | **(6,640** | **)** |
| Net cash provided  by operating activities                                                              |       | 138,522                                   |       | 106,823 | ** ** | **94,316** | ** ** |
| Cash flows from investing  activities:                                                                  |       |                                      |       |   | ** ** | ** ** | ** ** |
| Purchases of  property, plant and equipment                                                             |       | (20,976                                   | )          | (17,272 | ) | **(17,714** | **)** |
| Purchases of  short-term investments                                                                    |       | —                                    |       | — | ** ** | **(1,463,335** | **)** |
| Proceeds from  sales of short-term investments                                                          |       | —                                    |       | — | ** ** | **1,333,611** | ** ** |
| Purchases of  long-term investments                                                                     |       | (21,000                                   | )          | — | ** ** | **—** | ** ** |
| Proceeds from  sales of long-term investments                                                           |       | 21,000                                    |       | — | ** ** | **—** | ** ** |
| Proceeds from  sales of assets held for sale                                                            |       | 3,718                                     |       | — | ** ** | **5,550** | ** ** |
| Proceeds from  sales of businesses, net of cash disposed                                                |       | 9,752                                     |       | 7,645 | ** ** | **87,822** | ** ** |
| Purchase of  businesses, net of cash acquired                                                           |       | (54,221                                   | )          | (7,121 | ) | **(6,654** | **)** |
| Net cash used in  investing activities                                                                  |       | (61,727                                   | )          | (16,748 | ) | **(60,720** | **)** |
| Cash flows from financing activities:                                                                   |       |                                      |       |   | ** ** | ** ** | ** ** |
| Proceeds from  issuance of common stock                                                                 |       | 9,471                                     |       | 3,706 | ** ** | **2,475** | ** ** |
| Tax benefit from stock options                                                                          |       | —                                    |       | — | ** ** | **118** | ** ** |
| Purchases of  treasury stock                                                                            |       | (179,675                                  | )          | (2,071 | ) | **(34,988** | **)** |
| Borrowings from  bank line of credit                                                                    |       | 158,761                                   |       | 140,794 | ** ** | **34,172** | ** ** |
| Repayments on bank  line of credit                                                                      |       | (187,649                                  | )          | (117,950 | ) | **(41,188** | **)** |
| Borrowings on  long-term debt                                                                           |       | —                                    |       | 69,406 | ** ** | **—** | ** ** |
| Repayments on  long-term debt                                                                           |       | (5,044                                    | )          | (4,944 | ) | **(120,338** | **)** |
| Payments on  capital lease obligations                                                                  |       | —                                    |       | — | ** ** | **(309** | **)** |
| Dividends paid                                                                                          |       | (15,529                                   | )          | (18,030 | ) | **(19,913** | **)** |
| Net cash provided  by (used in) financing activities                                                    |       | (219,665                                  | )          | 70,911 | ** ** | **(179,971** | **)** |
| Effect of exchange  rate changes on cash                                                                |       | 4,839                                     |       | (10,613 | ) | **8,115** | ** ** |
| Net increase  (decrease) in cash and cash equivalents                                                   |       | (138,031                                  | )          | 150,373 | ** ** | **(138,260** | **)** |
| Cash and cash equivalents  at beginning of year                                                         |       | 229,726                                   |       | 91,695 | ** ** | **242,068** | ** ** |
| Cash and cash equivalents  at end of year                                                               |       | $                                         | 91,695     |   | $ | 242,068 | ** ** | **$** | **103,808** | ** ** |
| Supplemental disclosure of cash flow information:                                                       |       |                                      |       |   | ** ** | ** ** | ** ** |
| Cash paid during the year  for:                                                                         |       |                                      |       |   | ** ** | ** ** | ** ** |
| Interest                                                                                                |       | $                                         | 22,380     |   | $ | 23,976 | ** ** | **$** | **22,615** | ** ** |
| Income taxes, net  of refunds                                                                           |       | 37,270                                    |       | 23,565 | ** ** | **22,942** | ** ** |
| Non-cash transactions:                                                                                  |       |                                      |       |   |   |   |   |
| Notes received for  sales of assets                                                                     |       | $                                         | —     |   | $ | 2,000 |   | $ | 2,936 |   |
| Capital leases for  equipment                                                                           |       | —                                    |       | — |   | 1,142 |   |

 

The accompanying notes are an integral part of these financial statements.

39

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

**Note 1.   Summary ofSignificant Accounting Policies**

A summary of thesignificant accounting policies applied in the preparation of the accompanyingconsolidated financial statements follows:

**Principles of Consolidation**

The consolidated financialstatements include the accounts of Blyth, Inc. and its direct and indirectsubsidiaries, (the “Company”). The Company consolidates entities in which it owns or controls more than50% of the voting shares and investments where the Company has been determinedto be the primary beneficiary. The unowned portion is reflected as minorityinterest. Investments in companies that are not consolidated are reported usingthe equity method and are recorded in other assets in the ConsolidatedBalance Sheets. All inter-company balancesand transactions have been eliminated in consolidation.

Certain of the Company’ssubsidiaries operate on a 52 or 53-week fiscal year ending on theSaturday nearest to January 31. Most foreign operations maintain acalendar year accounting period, which is consolidated with the Company’sfiscal period.

**Estimates**

The preparation offinancial statements in conformity with generally accepted accountingprinciples requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. Actual resultscould differ from those estimates. Areas of the financial statements involvingsignificant estimates include inventory reserves, bad debt reserves, chargebackreserves, impairment charges, taxes, and other accrued liabilities.

**Credit Concentration**

The Company’s credit salesare principally to department and gift stores, mass merchandisers anddistributors, which purchase the Company’s products for resale. The Companyperforms ongoing credit evaluations of its customers and generally does notrequire collateral. The Company makes provisions for estimated credit losses.

**Foreign Currency Translation**

The Company’sinternational subsidiaries use their local currency as their functionalcurrency. Therefore, all balance sheet accounts of international subsidiariesare translated into U.S. dollars at the year-end rates of exchange, andstatement of earnings items are translated at the weighted average exchangerates for the period. Resulting translation adjustments are included inaccumulated other comprehensive income (loss). Gains and losses on foreigncurrency transactions, which are included in income, were not material.

40

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**BLYTH, INC. AND SUBSIDIARIES** Notes to Consolidated Financial Statements (Continued)

**Note 1.**   Summary of SignificantAccounting Policies (Continued)

**Investments**

The Company makesinvestments from time to time in the ordinary course of its business that mayinclude selected assets and product lines, long-term investments and/or jointventures that either complement or expand its existing business. The equitymethod of accounting is used to account for investments in common stock inwhich the Company has the ability to exercise significant influence over theoperating and financial policies of the investee.

**Derivatives andOther Financial Instruments**

The Company uses foreign exchange forward and optionscontracts to hedge the impact of foreign currency fluctuations on foreigndenominated inventory purchases, intercompany payables and certain intercompanyloans. The Company does not hold or issue derivative financial instruments fortrading purposes.

The Company hedged the net assets of certain of itsforeign operations through foreign currency forward contracts during fiscal2006. The Company did not continue to hedge the net assets of its foreignoperations during fiscal 2007. The net after-tax gain related to the derivativenet investment hedge instruments recorded in accumulated other comprehensiveincome (loss) (“OCI”) totaled $1.8 million at January 31, 2007.

The Company has designated its forward exchange andoptions contracts on forecasted intercompany purchases and future purchasecommitments as cash flow hedges and, as such, as long as the hedge remainseffective and the underlying transaction remains probable, the effectiveportion of the changes in the fair value of these contracts will be recorded inOCI until earnings are affected by the variability of the cash flows beinghedged. With regard to commitments for inventory purchases, upon payment ofeach commitment, the underlying forward contract is closed and thecorresponding gain or loss is transferred from accumulated OCI and is includedin the measurement of the cost of the acquired asset. If a hedging instrumentis sold or terminated prior to maturity, gains and losses are deferred inaccumulated OCI until the hedged item is settled. However, if the hedged itemis no longer likely to occur, the resultant gain or loss on the terminatedhedge is recognized into earnings immediately. Amounts included in accumulatedOCI at January 31, 2007 are immaterial and are expected to be transferredinto earnings within the next twelve months upon payment of the underlyingcommitment.

The Company has designated its foreign currencyforward contracts related to intercompany loans and intercompany payables asfair value hedges. The gains or losses on the fair value hedges are recognizedinto earnings and generally offset the transaction gains or losses in theforeign denominated loans that they are intended to hedge.

For consolidated financial statement presentation, netcash flows from such hedges are classified in the categories of theConsolidated Statements of Cash Flows with the items being hedged.

On July 10, 2003, theCompany terminated the interest rate swap agreement in relation to $50.0 millionof its outstanding 7.90% Senior Notes, which mature on October 1, 2009. Thistermination resulted in a deferred gain of approximately $5.0 million, which isbeing amortized over the remaining term of the notes. At January 31, 2006and 2007, there was $3.0 million and $2.1 million, respectively, remaining tobe amortized.

41

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**BLYTH, INC. AND SUBSIDIARIES** Notes to Consolidated Financial Statements (Continued)

**Note 1.**   Summary of SignificantAccounting Policies (Continued)

**Fair Value ofFinancial Instruments**

The Company’s financialinstruments include accounts receivable, accounts payable, short-term andlong-term debt. Management believes the carrying values of these itemsapproximate their estimated fair values, except for long-term debt, asdiscussed in Note 12 to the Consolidated Financial Statements.

**Cash Equivalents**

The Company considers allhighly liquid debt instruments purchased with an original maturity of threemonths or less to be cash equivalents. Amounts due from credit card companiesof $1.6 million and $1.2 million for the settlement of credit cardtransactions are included in cash equivalents as of January 31, 2007 and2006, respectively.

**Inventories**

Inventories are valued atthe lower of cost or market. Cost is determined by the first-in, first-outmethod. The elements of cost are primarily material, labor and overhead.

**Shipping andHandling**

The Company classifiesshipping and handling fees billed to customers as revenue, and shipping andhandling costs are classified as cost of goods sold.

**Property, Plant andEquipment**

Property, plant and equipment are stated at cost, lessaccumulated depreciation. Depreciation expense for fiscal 2006 and 2007 was$33.8 million and $32.8 million, respectively. Depreciation is providedprincipally by use of the straight-line method for financial reporting purposes.Leasehold improvements are amortized over the lives of the respective leases orthe service lives of the improvements, whichever is shorter. The Companyrecords gains and losses from the sale of property, plant and equipment inoperating profit.

The principal estimated lives used in determiningdepreciation are as follows:

| Buildings                                                 |   | 27 to 40 years |
|-----------------------------------------------------------|--------|----------------|
| Leasehold improvements                                    |   | 5 to 10 years  |
| Machinery and equipment                                   |   | 5 to 12 years  |
| Office furniture, data processing equipment and  software |   | 3 to 7 years   |

 

**Goodwill and OtherIndefinite Lived Intangibles**

Goodwill and otherindefinite lived intangibles are subject to an assessment for impairment usinga two-step fair value-based test and such other intangibles are also subject toimpairment assessment, which must be performed at least annually or morefrequently if events or circumstances indicate that goodwill or otherindefinite lived intangibles might be impaired. The Company performs its annualassessment of impairment as of January 31, which is our fiscal year-end. Forgoodwill, the first step compares the fair value of a reporting unit to itscarrying amount, including goodwill. For each of the reporting units, theestimated fair value is determined utilizing a combination of valuationtechniques, namely the discounted 

42

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**BLYTH, INC. AND SUBSIDIARIES** Notes to Consolidated Financial Statements (Continued)

**Note 1.**   Summary of SignificantAccounting Policies (Continued)

cashflow methodology and the market multiple methodology. If the fair value of thereporting unit exceeds the carrying value, no further analysis is necessary. Ifthe carrying amount of the reporting unit exceeds its fair value, the secondstep is performed. The second step compares the carrying amount of the goodwillto the fair value of the goodwill. If fair value is less than the carryingamount, an impairment loss is reported as a reduction to the asset and a chargeto operating expense. (See Note 10 to the Consolidated Financial Statements)

**Impairment ofLong-Lived Assets**

We review long-livedassets, including property, plant and equipment for impairment whenever eventsor changes in circumstances indicate that the carrying amount of such an assetmay not be recoverable. Management will determine whether there has been apermanent impairment on such assets held for use in the business by comparinganticipated undiscounted future cash flows from the use and eventualdisposition of the asset or asset group to the carrying value of the asset. Theamount of any resulting impairment will be calculated by comparing the carryingvalue to the fair value, which may be estimated using the present value of thesame cash flows. Long-lived assets that meet the definition of held for saleare valued at the lower of carrying amount or net realizable value.

**ComprehensiveIncome (Loss)**

Comprehensive income (loss) includes net income (loss)and OCI. Accumulated OCI is comprised of foreign currency cumulativetranslation adjustments, unrealized gains and losses on certain investments indebt and equity securities, the net gains and losses on cash flow hedginginstruments and net investment hedges and minimum pension liability and SFAS158 adoption adjustment. The Company reports, by major components and as asingle total, the change in comprehensive income (loss) during the period aspart of the Consolidated Statements of Stockholders’ Equity.

The following table presents the components of theCompany’s accumulated other comprehensive income (loss), net of tax, for theyears ended January 31, 2006 and 2007:

| ** **                   | ** ** | **Foreign**             | ** ** | **Unrealized**       | ** ** | **Net gain**  | ** ** | **Net gain** | ** ** | **Minimum**    | ** ** | **SFAS**       | ** ** | **Accumulated**        | ** ** |
|------------------------------|------------|-------------------------|------------|----------------------|------------|--------------------|------------|-------------------|------------|----------------|------------|----------------|------------|------------------------|------------|
| ** **                   | ** ** | **currency**            | ** ** | **gain (loss)** | ** ** | **(loss) on** | ** ** | **on net**   | ** ** | **pension**    | ** ** | **158**        | ** ** | **other**              | ** ** |
| ** **                   | ** ** | **translation**         | ** ** | **on certain**  | ** ** | **cash flow** | ** ** | **investment**    | ** ** | **liability**  | ** ** | **adoption**   | ** ** | **comprehensive**      | ** ** |
| ** **                   | ** ** | **adjustments**         | ** ** | **investments**      | ** ** | **hedges**         | ** ** | **hedges**        | ** ** | **adjustment** | ** ** | **adjustment** | ** ** | **income (loss)** | ** ** |
| ** **                   | ** ** | **(In thousands)** | ** ** |
| Balance at January 31, 2006  |       |                    | $          | (2,887               | )          |               |       | $                 | 543        |           |       |           | $          | (22                    | )          |   |   | $ | 1,778 |   |   |   | $ | (1,347 | ) |   |   | $ | — |   |   |   | $ | (1,935 | ) |   |
| Balance at January  31, 2007 |       |                    | $          | 18,526               |       |               |       | $                 | 862        |           |       |           | $          | 45                     |       |   |   | $ | 1,778 |   |   |   | $ | — |   |   |   | $ | 919 |   |   |   | $ | 22,130 |   |   |

 

**Income Taxes**

Income tax expense is based on taxable income, statutorytax rates and the impact of non-deductible items. Deferred tax assets andliabilities are recognized for the expected tax consequences of temporarydifferences between the tax basis of assets and liabilities and their reportedamounts. The management of the Company periodically estimates the probable taxobligations of the corporation using historical experience in tax jurisdictionsand informed judgments. There are inherent uncertainties related to theinterpretation of tax regulations in the jurisdictions in which the corporationtransacts business. The judgments and estimates made at a point in time maychange based on the outcome of tax audits, as well as changes to or furtherinterpretations of regulations. If such changes take place, there is a riskthat the tax rate may increase or decrease in any period.

43

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**BLYTH, INC. AND SUBSIDIARIES** Notes to Consolidated Financial Statements (Continued)

**Note 1.**   Summary of SignificantAccounting Policies (Continued)

As of January 31,2007, the Company, in accordance with APB Opinion 23, Accounting for IncomeTaxes, Special Areas, has determined that $48.8 million of undistributedforeign earnings are not reinvested indefinitely by its non-U.S. subsidiaries.Deferred income tax expense of $12.6 million was recorded as a reduction to theCompany’s net earnings on these undistributed earnings. The Companyperiodically determines whether the non-U.S. subsidiaries will invest theirundistributed earnings indefinitely and reassesses this determination asappropriate.

**Revenue Recognition**

Revenue recognition—Revenues consist of sales tocustomers, net of returns and allowances. The Company recognizes revenue upondelivery, when both title and risk of loss are transferred to the customer.

Generally, sales orders are received via signedcustomer purchase orders with stated fixed prices based on published pricelists. The Company records estimated reductions to revenue for customerprograms, which may include special pricing agreements for specific customers,volume incentives and other promotions. Should market conditions decline, theCompany may increase customer incentives with respect to future sales. TheCompany also records reductions to revenue, based primarily on historicalexperience, for estimated customer returns and chargebacks that may arise as aresult of shipping errors, product damage in transit or for other reasons thatcan only become known subsequent to recognizing the revenue. If the amount ofactual customer returns and chargebacks were to increase significantly from theestimated amount, revisions to the estimated allowance would be required. Insome instances, the Company receives payment in advance of product delivery. Suchadvance payments occur primarily in our direct selling and direct marketingchannels and are recorded as deferred revenue. Upon delivery of product forwhich advance payment has been made, the related deferred revenue isreclassified to revenue.

Most of the Company’s sales made on credit are made toan established list of customers. Although the collectibility of sales made oncredit is reasonably assured, the Company has established an allowance fordoubtful accounts for its trade and note receivables. The allowance isdetermined based on the Company’s evaluation of specific customers’ ability topay, aging of receivables, historical experience and the current economicenvironment. While the Company believes it has appropriately considered knownor expected outcomes, its customers’ ability to pay their obligations,including those to the Company, could be adversely affected by declining salesat retail resulting from such factors as contraction in the economy or ageneral decline in consumer spending.

Some of the Company’sbusiness units offer seasonal dating programs pursuant to which customers thatqualify for such programs are offered extended payment terms for seasonalproduct shipments. As with other customers, customer orders pursuant to suchseasonal dating programs are generally received in the form of a writtenpurchase order signed by an authorized representative of the customer. Salesmade pursuant to seasonal dating programs are recorded as revenue only upondelivery either to the customer or to an agent of the customer depending on thefreight terms for the particular shipment and consistent with the concept of “riskof loss.”  The sales price for theCompany’s products sold pursuant to such seasonal dating programs, is fixed priorto the time of shipment to the customer. Customers do not have the right toreturn product except for rights to return that the Company believes aretypical of our industry for such reasons as damaged goods, shipping errors orsimilar occurrences. The Company is not required to repurchase products fromits customers, nor does the Company have any regular practice of doing so. The 

44

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**BLYTH, INC. AND SUBSIDIARIES** Notes to Consolidated Financial Statements (Continued)

**Note 1.**   Summary of SignificantAccounting Policies (Continued)

Company believes that it is reasonably assured ofpayment for products sold pursuant to such seasonal dating programs based onits historical experience with the established list of customers eligible forsuch programs. In addition, the Company minimizes its exposure to bad debts byutilizing established credit limits for each customer. If, however, productsales by our customers during the seasonal selling period should fallsignificantly below expectations, such customers’ financial condition could beadversely affected, increasing the risk of not collecting these seasonal datingreceivables and, possibly, resulting in additional bad debt charges. TheCompany does not make any sales under consignment or similar arrangements.

**Earnings per Common and Common Equivalent Share**

Earnings per common andcommon equivalent share-basic are computed based upon the weighted averagenumber of shares outstanding during the period. Earnings per common and commonequivalent share-diluted reflects the potential dilution that could occur ifoptions and fixed awards to be issued under stock-based compensationarrangements were converted into common stock.

**Employee Stock Option Plans**

The Company has share-based compensation plans asdescribed in Note 17 to the Consolidated Financial Statements. On February 1,2006, the Company adopted Statement of Financial Accounting Standards No. 123(R),“Shared-Based Payment,” (SFAS No. 123(R)) using the modified prospectiveapplication transition method, which requires the measurement and recognitionof compensation expense, based on estimated fair values, for all share-basedawards made to employees and directors, including stock options, restrictedstock, restricted stock units and performance share units. The Companyrecognizes compensation expense for share-based awards expected to vest on astraight line basis over the requisite service period of the award based ontheir grant date fair value. The consolidated financial statements as of January 31,2007 reflect the impact of SFAS No. 123(R). In accordance with themodified prospective application transition method, the Company’s consolidatedfinancial statements for prior periods have not been restated to reflect, anddo not include, the impact of SFAS No. 123(R). As a result of the adoption of SFAS 123(R),$3.1 million of unearned compensation recorded in stockholders’ equity as of February 1,2006 was reclassified to and reduced the balance of additional contributedcapital.

**Advertising and Catalog Costs**

The Company expenses thecosts of advertising as incurred, except the costs for direct-responseadvertising, which are capitalized and amortized over the expected period offuture benefits.

Direct-responseadvertising relates to the Company’s Miles Kimball business and consistsprimarily of the costs to produce direct-mail order catalogs that include orderforms for the Company’s products. The capitalized production costs areamortized for each specific catalog mailing over the period following catalogdistribution in proportion to revenues (orders) received, compared to totalestimated revenues for that particular catalog mailing. The amortization periodis generally from three to six months and does not exceed twelve months.Deferred direct-response advertising costs of $5.0 million and $4.7 million werereported as assets at January 31, 2006 and January 31, 2007,respectively.

In certain of theCompany’s Wholesale and Direct Selling businesses, catalog production costs arecapitalized and expensed as the catalogs are distributed, generally over lessthan a twelve month period. The Consolidated Balance Sheets reflectapproximately $1.0 million of these costs at January 31, 2006 and 2007.

45

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**BLYTH, INC. AND SUBSIDIARIES** Notes to Consolidated Financial Statements (Continued)

**Note 1.   Summary ofSignificant Accounting Policies (Continued)**

**Reclassification**

In fiscal 2006, the Company recorded a pre-tax loss of$1.6 million from the sale of our Impact Plastics business (See Note 4 to theConsolidated Financial Statements). This loss was originally recorded in “Foreignexchange and other” in the Consolidated Statement of Earnings (Loss) in fiscal2006 but should have been included as a component of operating profit. TheCompany has corrected the classification of the $1.6 million loss by recordingit in the “Administrative” line in our Consolidated Statements of Earnings(Loss) for fiscal 2006. The following table displays the impact to theindividual line items of the Consolidated Statements of Earnings (Loss).

| ** **                  | ** ** | **Fiscal 2006**         | ** ** |
|-----------------------------|------------|------------------------------|------------|
| ** **                  | ** ** | **Originally Reported** | ** ** | **As Now Reported** | ** ** |
| ** **                  | ** ** | **(In thousands)**           | ** ** |
| Administrative              |       |                         | $          | 124,448 |   |   |   | $ | 126,068 |   |   |
| Operating Profit            |       |                         | 46,787     |   |   |   | 45,167 |   |   |
| Foreign exchange and  other |       |                         | (1,976     | ) |   |   | (356 | ) |   |

 

During fiscal 2007, theCompany sold the Wholesale Europe businesses including, Kaemingk, Edelman,Euro-Decor, Colony and Gies and accordingly, the results of operations forthese businesses have been reclassified as discontinued operations for allperiods presented (See Note 4 to the Consolidated Financial Statements).

**Note 2.**   NewAccounting Pronouncements

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

In July 2006, the FASB issued Interpretation No. 48,“Accounting for Uncertainty in Income Taxes.”  This Interpretationrequires that a recorded tax benefit must be more likely than not of beingsustained upon examination by tax authorities based upon its technical merits. Theamount of benefit recorded is the largest amount of benefit that is greaterthan 50 percent likely of being realized upon ultimate settlement. Uponadoption, any adjustment will be recorded directly to beginning retainedearnings. The Interpretation is effective for the Company beginning no laterthan February 1, 2007. The Company has not yet adopted the Interpretationand has not completed the analysis to determine the effect on the Company’sfinancial statements.

46

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**BLYTH, INC. AND SUBSIDIARIES** Notes to Consolidated Financial Statements (Continued)

**Note 2.**   New Accounting Pronouncements (Continued)

In September 2006, the FASB issued SFAS No. 157,“Fair Value Measurements” (SFAS No. 157) and SFAS No. 158, “Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans—anamendment of FASB Statements No. 87, 88, 106, and 132(R)” (SFAS No. 158).SFAS No. 157 defines fair value, establishes a framework for measuringfair value in generally accepted accounting principles, and expands disclosuresregarding fair value measurements. SFAS No. 157 applies under otheraccounting pronouncements that require or permit fair value measurements. Accordingly,SFAS No. 157 does not require any new fair value measurements. SFAS No. 157is effective for fiscal years beginning after November 15, 2007. SFAS No. 158requires the Company to recognize the funded status of its defined benefit planas an asset or liability on the financial statements and the changes in thefunded status, net of tax, within accumulated other comprehensive income, tothe extent these changes are not recognized in earnings as components ofperiodic net benefit cost. Additionally, SFAS No. 158 requires the plan’sfunded status to be measured as of the end of the Company’s fiscal year. TheCompany has adopted these provisions as of January 31, 2007 and the effectdid not have a material impact on the Company’s consolidated financialposition, results of operations or cash flow.

In September 2006, the SEC issued StaffAccounting Bulletin No. 108 (SAB No. 108), “Considering the Effectsof Prior Year Misstatements when Quantifying Misstatements in Current YearFinancial Statements.”  This issuanceeliminates the diversity in practice in quantifying financial statementmisstatements. SAB No. 108 establishes the approach that requires theCompany to quantify the misstatement on each of the financial statements andrelated disclosures. The Company has adopted this provision as of January 31,2007 and the effect did not have a material impact on the Company’sconsolidated financial position, results of operations or cash flow.

In February 2007, theFASB issued Statement of Financial Accounting Standards No. 159, “The FairValue Option for Financial Assets and Financial Liabilities, including anamendment of FASB Statements No. 115” (SFAS No. 159). SFAS No. 159permits entities to choose, at specified election dates, to measure eligibleitems at fair value (the “fair value option”). A business entity shall reportunrealized gains and losses on items for which the fair value option has beenelected in earnings at each subsequent reporting period. This accounting standardis effective as of the beginning of an entity’s first fiscal year that beginsafter November 15, 2007. The effect, if any, of adopting SFAS No. 159on the Company’s consolidated financial position, annual results of operationsor cash flows has not been determined.

**Note 3.**   BusinessAcquisitions

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

**Note 4.**   BusinessDivestitures and Discontinued Operations

**DiscontinuedOperations**

In March 2006, the Company announced its intentionto evaluate additional strategic opportunities identified since the September 2005announcement of the proposed spin off of the entire Wholesale segment, andstated that the focus would likely be on one or more of the European wholesalebusinesses.

47

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**BLYTH, INC. AND SUBSIDIARIES** Notes to Consolidated Financial Statements (Continued)

**Note 4.**   Business Divestitures and Discontinued Operations(Continued)

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 themanagement of Kaemingk. On June 16, 2006, the Company sold its Europeaneveryday home, garden and seasonal business, Edelman B.V. (“Edelman”), and itsEuropean gift and florist products business, Euro-Decor B.V. (“Euro-Decor”),both in the Wholesale segment for $38.5 million, to an entity with whichmembers of the management of Edelman and Euro-Decor are affiliated. On August 17,2006, the Company sold its European mass candle business, Gies, which was partof the Wholesale segment for $31.6 million. On December 20, 2006, theCompany sold its European premium candle business, Colony for $1.2 million. Accordingly,these businesses have all been reported as discontinued operations for allperiods presented in the Consolidated Statements of Earnings (Loss).

Included in the earnings (loss) from discontinuedoperations in the Consolidated Statements of Earnings (Loss) for the yearsended January 31, 2005, 2006 and 2007 are the following

| ** **                                                  | ** ** | **2005**                | ** ** | **2006** | ** ** | **2007** | ** ** |
|-------------------------------------------------------------|------------|-------------------------|------------|----------|------------|----------|------------|
| ** **                                                  | ** ** | **(In thousands)** | ** ** |
| Net Sales                                                   |       | $                       | 284,932    |     | $          | 318,814  |       | $ | 108,134 |   |
| Income (loss)  from discontinued operations, net of tax     |       | 14,150                  |       | 4,326    |       | (24,863  | )          |
| Gain (loss) on sale of  discontinued operations, net of tax |       | $                       | —     |     | $          | —   |       | $ | (80,865 | ) |

 

Included in the earnings (loss) from discontinuedoperations were a net operating income related to Kaemingk of $8.2 million and$7.9 million, for fiscal 2005 and 2006, respectively, and a net operating lossof $0.3 million for fiscal 2007. In fiscal2007, the Company recorded a non-tax deductible loss on sale of discontinuedoperations of $18.4 million on the sale of Kaemingk.

Included in the earnings (loss) from discontinuedoperations were net operating income related to Edelman and Euro-Decor of $4.9million and $4.3 million, for fiscal 2005 and 2006, respectively, and a netoperating loss of $2.2 million for fiscal 2007. In the first quarter of fiscal2007, the Company recorded a non-tax deductible goodwill impairment charge of$16.7 million related to these businesses, which has been included in the losson sale of discontinued operations. In fiscal 2007, the Company recorded anon-taxable gain on the sale of Edelman and Euro-Decor of $2.1 million.

Included in the earnings (loss) from discontinuedoperations were net operating income related to Gies of $2.7 million in fiscal2005, and net operating losses of $2.8 million and $9.9 million, in fiscal 2006and 2007, respectively. Also included in theloss on sale of discontinued operations for fiscal 2007 was a net of tax losson the sale of Gies of $28.0 million, which included a non-taxable charge forthe impairment of the Gies business.

Included in the earnings (loss) from discontinuedoperations were net operating losses related to Colony of $1.6 million, $5.1million and $12.4 million, respectively, for fiscal 2005, 2006 and 2007. Alsoincluded in the loss on sale of discontinued operations for fiscal 2007 was anet of tax loss of $19.9 million for the sale of the Colony business.

During fiscal 2005, the Company divested itsdecorative gift bag business, Jeanmarie Creations, in the Wholesale segmentthrough a sale to Jeanmarie’s senior management and associated investors for$10.0 million in cash. The sale resulted in a taxable gain of approximately$4.0 million. In addition, $3.6 million 

48

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**BLYTH, INC. AND SUBSIDIARIES** Notes to Consolidated Financial Statements (Continued)

**Note 4.**   Business Divestitures and Discontinued Operations (Continued)

of goodwill attributableto Jeanmarie, which was not tax deductible, was disposed of as part of thisdivesture.

During fiscal 2006, theCompany sold its seasonal decorations business, Impact Plastics, in theWholesale segment for approximately $7.6 million in cash and a promissory noteof $2.0 million. The sale resulted in a pre-tax loss of approximately $1.6million, which included the write-off of $7.8 million of goodwill attributableto Impact as a result of the sale. The loss of $1.6 million was recorded inadministrative expenses in the Consolidated Statements of Earnings (Loss).

**Note 5.**   Restructuringand Impairment Charges

In the third quarter of fiscal 2007, the Companyapproved a restructuring plan for its North American mass channel homefragrance business in the Wholesale segment. The major components of therestructuring plan are the closing of our Tijuana, Mexico manufacturingfacility, the elimination of less profitable customers, the streamlining of thestock keeping unit (“SKU”) base of the mass business, the outsourcing ofcertain products currently being manufactured and head count reductions.

In the third quarter of fiscal 2007, the Companyannounced that it would be closing its Tijuana, Mexico manufacturing facility. Inaddition, we began to identify less profitable customers and to streamline theSKU base. These initial steps of the restructuring project resulted in fiscal2007 third quarter charges totaling $5.2 million. The charges consisted ofinventory write-downs of $3.9 million, equipment impairments of $0.6 millionand severance costs, of approximately $0.3 million which were charged to costof goods sold, while the remaining $0.4 million related to severance wascharged to administrative expense.

In the fourth quarter of fiscal 2007, the Companyrecorded an additional $14.9 million of charges related to the restructuring ofour North American mass channel home fragrance business. In the fourth quarterwe completed the identification and notification of less profitable customersthat would be eliminated. In addition, the remaining SKU’s to be discontinuedwere identified and the determination of net realizable value was made in thefourth quarter. As a result of these restructuring steps a $12.1 million chargewas recorded in cost of goods sold to adjust excess and obsolete inventory toits estimated net realizable value. The remainder of the fourth quarter chargesof $2.8 million consisted primarily of equipment impairments of $2.1 millionand severance of $0.7 million charged to cost of goods sold. Employeeterminations totaled 149 in fiscal 2007 related to this restructuring.

These restructuring efforts are expected to continueinto fiscal 2008, with additional charges related to severance and equipmentimpairment estimated to be in a range of $6.0 million - $10.0 million.

Also, during the fourth quarter of fiscal 2007 theCompany recorded approximately $3.9 million of charges related to therestructuring of the North American operations of our Direct Selling segment inrecognition of the recent decline in sales in this channel. These costs werecomprised of a $2.4 million charge to cost of goods sold for lease obligationsand equipment impairments related to a reduction in seasonal distributioncapacity and $1.5 million of severance costs associated with the termination of91 employees. Of the $1.5 million of severance costs, $0.4 million was recordedin cost of goods sold and $1.1 million was recorded in selling andadministrative expense.

Of the $24.0 million of restructuring costs recordedin fiscal 2007, approximately $2.0 million of accrued liabilities was includedin the Consolidated Balance Sheets at January 31, 2007, relating entirelyto severance costs.

49

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**BLYTH, INC. AND SUBSIDIARIES** Notes to Consolidated Financial Statements (Continued)

**Note 5.**   Restructuring andImpairment Charges (Continued)

The Company recorded an approximately $1.0 millionimpairment charge related to equipment in its North American Wholesalemanufacturing facility, which is included in cost of goods sold in the fiscal2006 financial statements.

The following is a tabular rollforward of therestructuring charges described above that were recorded on the balance sheetof the Company:

| ** **                          | ** ** | **Severance Costs**   | ** ** | ** **                           | ** ** |
|-------------------------------------|------------|----------------------------|------------|--------------------------------------|------------|
| ** **                          | ** ** | **Wholesale Segment** | ** ** | **Direct Selling Segment** | ** ** | **Total** | ** ** |
| ** **                          | ** ** | **(In thousands)**    | ** ** |
| Balance at January 31,  2006        |       |                       | $          | —                               |       |   |   | $ | — |   |   | $ | — |   |
| Charges incurred in 2007            |       |                       | 1,395      |                                 |       |   | 1,541 |   |   | 2,936 |   |
| Payments made against  2007 charges |       |                       | (926       | )                                    |       |   | —   |   |   | (926 | ) |
| Balance at January 31, 2007         |       |                       | $          | 469                                  |       |   |   | $ | 1,541 |   |   | $ | 2,010 |   |

 

**Note 6.**   Short-TermInvestments

The Company accounts for its short-term investments inaccordance with Statement of Financial Accounting Standards No. 115, “Accountingfor Certain Investments in Debt and Equity Securities.”  The Company’s short-term investments consistof auction rate securities and variable rate demand obligations classified asavailable-for-sale securities. Our short-term investments in these securitiesare recorded at cost, which approximates fair market value due to theirvariable interest rates, which typically reset every 7 to 49 days. Despite thelong-term nature of their stated contractual maturities, the Company generallyhas the ability to liquidate these securities in 49 days or less. Management’sintent is to hold these securities as liquid assets convertible to cash forapplicable operational needs as they may arise.

At January 31, 2007, the Company held $129.7million of short-term investments, which consist of auction rate securities andvariable rate demand obligations classified as available-for-sale securities. Therewere no short-term investments outstanding at January 31, 2006.

Short-term investments by contractual maturity are asfollows (in thousands):

| ** **                      | ** ** | **January 31, 2006** | ** ** | **January 31, 2007** | ** ** |
|---------------------------------|------------|--------------------------------|------------|--------------------------------|------------|
| Due within one year             |       |                           | $          | —                         |       |   |   | $ | 7,000 |   |   |
| Due between one and five  years |       |                           | —     |                           |       |   | — |   |   |
| Due after ten years             |       |                           | —     |                           |       |   | 122,725 |   |   |
| **Total**                       |       |                           | $          | —                         |       |   |   | $ | 129,725 |   |   |

 

There were no grossrealized or unrealized holding gains (losses) from our short-term investments.All income generated from these short-term investments was recorded as interestincome. Actual maturities may differ from contractual maturities should theborrower have the right to call certain obligations.

**Note 7.**   AssetsHeld for Sale

During fiscal 2005, theColorado Springs facility, purchased as part of the Walter Drake acquisition,became available for sale. During fiscal 2006, the Company recorded animpairment of $1.2 million on the facility due to the deterioration of localreal estate market. The facility was sold on April 7, 2006 for $2.9million, net of related transaction costs, and resulted in an additional lossof approximately $0.1 million. The building was classified as assets held forsale in the Consolidated Balance Sheets as of January 31, 2006.

50

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**For BLYTH, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued)**

**Note 8.**   Inventories

The major components of inventories are as follows:

| ** **      | ** ** | **January 31,**    | ** ** |
|-----------------|------------|-------------------------|------------|
| ** **      | ** ** | **2006**                | ** ** | **2007** | ** ** |
| ** **      | ** ** | **(In thousands)** | ** ** |
| Raw materials   |       | $                       | 31,954     |   | $ | 22,462 |   |
| Work in process |       | 361                     |       | 90 |   |
| Finished goods  |       | 205,438                 |       | 125,769 |   |
| Total           |       | $                       | 237,753    |   | $ | 148,321 |   |

 

**Note 9.   Prepaidand Other**

Prepaidand other consists of the following:

| ** **              | ** ** | ** ** | ** ** | **January 31,**    | ** ** |
|-------------------------|------------|------------|------------|-------------------------|------------|
| ** **              | ** ** | ** ** | ** ** | **2006**                | ** ** | **2007** | ** ** |
| ** **              | ** ** | ** ** | ** ** | **(In thousands)** | ** ** |
| Income and other  taxes |       | $          | 5,285      |                    | $          | 8,594 |   |
| Catalogs                |       | 6,053      |       | 5,687                   |       |
| Other                   |       | 24,305     |       | 19,036                  |       |
| Total                   |       | $          | 35,643     |                    | $          | 33,317 |   |

 

**Note 10.**   Goodwilland Other Intangibles

Goodwill and other indefinite lived intangibles aresubject to an assessment for impairment using a two-step fair value-based testand such other intangibles are also subject to impairment reviews, which mustbe performed at least annually, or more frequently if events or circumstancesindicate that goodwill or other indefinite lived intangibles might be impaired.

The Company performs its annual assessment ofimpairment as of January 31, which is our fiscal year-end date. Forgoodwill, 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 carryingamount, including goodwill. Fair value for each of our reporting units isestimated utilizing a combination of valuation techniques, namely thediscounted cash flow methodology and the market multiple methodology. Thediscounted cash flow methodology assumes the fair value of an asset can beestimated by the economic benefit or net cash flows the asset will generateover the life of the asset, discounted to its present value. The discountingprocess uses a rate of return that accounts for both the time value of moneyand the investment risk factors. The market multiple methodology estimates fairvalue based on what other participants in the market have recently paid forreasonably similar assets. Adjustments are made to compensate for differencesbetween the reasonably similar assets and the assets being valued. If the fairvalue of the reporting unit exceeds the carrying value, no further analysis isnecessary. The fair value of the reporting units is derived by calculating theaverage of the outcome of the two valuation techniques described above. If thecarrying amount of the reporting unit exceeds its fair value, the second stepis performed. The second step compares the carrying amount of the goodwill tothe estimated fair value of the goodwill. If fair value is less than thecarrying amount, an impairment loss is reported as a reduction to the goodwilland a charge to operating expense.

During the second quarter of fiscal 2007, the Companyidentified triggering events which caused us to reassess goodwill forimpairment in two reporting units within the Wholesale segment. In the Sterno 

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**For BLYTH, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued)**

**Note 10.**   Goodwill and Other Intangibles (Continued)

reporting unit, theCompany’s decision to discontinue sales of a new product line coupled withsharply rising commodity costs led the Company to perform an impairmentanalysis of goodwill in the reporting unit. In the Wholesale Premium reportingunit, a business restructuring resulted in a significantly changed near-termoutlook for the businesses that gives effect to the changing businessenvironment led the Company to perform an impairment analysis of the goodwillin this reporting unit.  As a result ofthese analyses, the goodwill in both reporting units was determined to beimpaired, as the fair value of the reporting units was less than the carryingvalues of the reporting units including goodwill. The decrease in the fairvalue of the reporting units was due to a significant decrease in the projectedresults for the full fiscal year and future years as a result of the factorspreviously discussed. The estimated fair value of the reporting units wasdetermined utilizing a combination of valuation techniques, namely thediscounted cash flow methodology and the market multiple methodology. As aresult, the Company recorded a non-cash pre-tax goodwill impairment charge of$36.8 million in the second quarter of fiscal 2007, in the Wholesale segment.

As discussed in Note 4 to the Consolidated FinancialStatements, the Company sold its European seasonal and everyday decorationsbusinesses, Kaemingk, Edelman and Euro-Decor, in the first half of fiscal 2007,which resulted in a reduction in goodwill attributable to these businessestotaling $66.5 million.

As a result of the Company’sannual fourth quarter impairment analyses in fiscal 2006 and 2007, the Companydetermined that goodwill balances existing at reporting units in the Wholesalesegment were impaired. In fiscal 2006, the reporting units experienced asubstantial decline in operating performance when compared to prior years’results and budgeted fiscal 2006 expectations and beyond. Therefore, theCompany recorded a non-cash pre-tax goodwill impairment charge of $53.3 millionin the Wholesale segment in fiscal 2006. In the second half of fiscal 2007, theremaining reporting unit within the Wholesale segment experienced a furtherdecline in operating performance when compared to prior years’ results andbudgeted fiscal 2007 expectations. As a result of the fiscal 2007 goodwillimpairment assessment, the Company recorded a non-cash pre-tax goodwillimpairment charge of $12.0 million writing off the remaining goodwill balancewithin the Wholesale segment.

The fair values of the reporting units were estimatedusing a combination of valuation techniques, namely the discounted cash flowmethodology and the market multiple methodology as described above.Thefollowing table shows changes in the carrying amount of goodwill for the yearsended January 31, 2006 and 2007, by operating segment:

52

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**For BLYTH, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued)**

**Note 10.**   Goodwill and Other Intangibles (Continued)

| ** **                                                   | ** ** | ** ** | ** ** | **Catalog**             | ** ** | ** **              | ** ** | ** **    | ** ** |
|--------------------------------------------------------------|------------|------------|------------|-------------------------|------------|-------------------------|------------|---------------|------------|
| ** **                                                   | ** ** | ** ** | ** ** | **Direct Selling** | ** ** | **& Internet** | ** ** | **Wholesale** | ** ** | **Total** | ** ** |
| ** **                                                   | ** ** | ** ** | ** ** | **(In thousands)** | ** ** |
| Goodwill at February 1,  2005                                |       |       | $          | 307                     |       |                    |       | $             | 74,522     |   |   | $ | 171,353 |   | $ | 246,182 |   |
| Kaemingk earn out  payment                                   |       |       |       |                    |       |                    |       |          |       | 3,932 |   | 3,932 |   |
| Goodwill disposed of  related to the sale of Impact Plastics |       |       |       |                    |       |                    |       |          |       | (7,839 | ) | (7,839 | ) |
| Impairment charge                                            |       |       |       |                    |       |                    |       |          |       | (53,261 | ) | (53,261 | ) |
| Edelman and  Euro-Decor deferred tax adjustments             |       |       |       |                    |       |                    |       |          |       | 1,377 |   | 1,377 |   |
| Edelman and  Euro-Decor acquisition costs                    |       |       |       |                    |       |                    |       |          |       | 22 |   | 22 |   |
| Additional  investment in Two Sisters Gourmet                |       |       | 1,991      |                    |       |                    |       |          |       |   |   | 1,991 |   |
| Boca Java  acquisition                                       |       |       |       |                    |       |                    | 1,786      |          |       |   |   | 1,786 |   |
| Foreign currency  translation adjustment                     |       |       |       |                    |       |                    |       |          |       | (9,063 | ) | (9,063 | ) |
| Total adjustments                                            |       |       | 1,991      |                    |       |                    | 1,786      |          |       | (64,832 | ) | (61,055 | ) |
| Goodwill at  January 31, 2006                                |       |       | $          | 2,298                   |       |                    |       | $             | 76,308     |   |   | $ | 106,521 |   | $ | 185,127 |   |
| Euro-Decor  pension adjustment                               |       |       |       |                    |       |                    |       |          |       | 6,659 |   | 6,659 |   |
| Kaemingk earn out  payment                                   |       |       |       |                    |       |                    |       |          |       | 212 |   | 212 |   |
| Impairment  charges                                          |       |       |       |                    |       |                    |       |          |       | (48,812 | ) | (48,812 | ) |
| Goodwill disposed of  related to the sale of:                |       |       |       |                    |       |                    |       |          |       |   |   | — |   |
| Kaemingk                                                     |       |       |       |                    |       |                    |       |          |       | (31,775 | ) | (31,775 | ) |
| Edelman and Euro-Decor                                       |       |       |       |                    |       |                    |       |          |       | (34,736 | ) | (34,736 | ) |
| Boca Java  adjustment                                        |       |       |       |                    |       |                    | 76         |          |       |   |   | 76 |   |
| Foreign currency  translation adjustment                     |       |       |       |                    |       |                    |       |          |       | 1,931 |   | 1,931 |   |
| Total adjustments                                            |       |       | —     |                    |       |                    | 76         |          |       | (106,521 | ) | (106,445 | ) |
| Goodwill at January 31,  2007                                |       |       | $          | 2,298                   |       |                    |       | $             | 76,384     |   |   | $ | — |   | $ | 78,682 |   |

 

Otherintangible assets consisted of the following (In thousands):

| ** **                                   | ** ** | **January 31, 2006** | ** ** | **January 31, 2007** | ** ** |
|----------------------------------------------|------------|--------------------------------|------------|--------------------------------|------------|
| ** **                                   | ** ** | **Gross**                      | ** ** | **Accumulated  Amortization**  | ** ** | **Net** | ** ** | **Gross** | ** ** | **Accumulated   Amortization** | ** ** | **Net** | ** ** |
| Indefinite-lived  trade names and trademarks |       | $                              | 28,100     |                           |       | $ | — |   |   | $ | 28,100 |   | $ | 28,100 |   |   | $ | — |   |   | $ | 28,100 |   |
| Customer lists                               |       | 15,000                         |       |                           | 5,917      |   |   | 9,083 |   | 15,000 |   |   | 7,750 |   |   | 7,250 |   |
| Total                                        |       | $                              | 43,100     |                           |       | $ | 5,917 |   |   | $ | 37,183 |   | $ | 43,100 |   |   | $ | 7,750 |   |   | $ | 35,350 |   |

 

Amortization is beingrecorded on an accelerated basis over the estimated lives of the customer listsranging from 10 to 12 years. Amortization expense was $2.1 million in fiscal2006 and $1.8 million in fiscal 2007. Estimated amortization expense for thenext five fiscal years is as follows: $1.5 million, $1.5 million, $1.1 million, $1.0 million, and $0.8 million.The weighted average remaining life of the Company’s customer lists was 7.5years at January 31, 2007.

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**For BLYTH, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued)**

**Note 11.**   AccruedExpenses

Accrued expenses consistof the following:

| ** **                         | ** ** | ** ** | ** ** | **January 31,**    | ** ** |
|------------------------------------|------------|------------|------------|-------------------------|------------|
| ** **                         | ** ** | ** ** | ** ** | **2006**                | ** ** | **2007** | ** ** |
| ** **                         | ** ** | ** ** | ** ** | **(In thousands)** | ** ** |
| Compensation and certain  benefits |       | $          | 17,800     |                    | $          | 17,606 |   |
| Deferred revenue                   |       | 17,085     |       | 10,465                  |       |
| Promotional expenses               |       | 18,429     |       | 14,657                  |       |
| Taxes, other than income           |       | 9,491      |       | 5,267                   |       |
| Interest payable                   |       | 8,243      |       | 6,173                   |       |
| Self-insurance reserves            |       | 4,038      |       | 3,226                   |       |
| Other                              |       | 17,914     |       | 20,344                  |       |
| Total                              |       | $          | 93,000     |                    | $          | 77,738 |   |

 

**Note 12.**   Long-TermDebt

Long-termdebt consists of the following:

| ** **               | ** ** | ** ** | ** ** | **January 31,**    | ** ** |
|--------------------------|------------|------------|------------|-------------------------|------------|
| ** **               | ** ** | ** ** | ** ** | **2006**                | ** ** | **2007** | ** ** |
| ** **               | ** ** | ** ** | ** ** | **(In thousands)** | ** ** |
| 7.90% Senior  Notes      |       | $          | 149,633    |                    | $          | 97,701 |   |
| 5.50% Senior  Notes      |       | 99,835     |       | 99,856                  |       |
| Credit Facilities        |       | 75,777     |       | 3,828                   |       |
| Other                    |       | 20,725     |       | 14,394                  |       |
|                     |       | 345,970    |       | 215,779                 |       |
| Less current  maturities |       | (1,049     | )          | (987                    | )          |
|                     |       | $          | 344,921    |                    | $          | 214,792 |   |

 

On October 2, 2006, the Company executedAmendment No. 1 (the “Amendment”) to its unsecured revolving creditfacility (“Credit Facility”) dated as of June 2, 2005. The Amendment (i) reducedthe amount available for borrowing under the Credit Agreement from $150.0million to $75.0 million, (ii) changed the initial termination date from June 2,2010 to June 1, 2009, (iii) increased the rate of interest applicableto loans under the Credit Agreement and (iv) modified some of thecovenants. The Company has the ability to increase the amount available forborrowing, under certain circumstances, by an additional $50.0 million. TheCredit Facility may be used for seasonal working capital needs and generalcorporate purposes, including strategic acquisitions. The Credit Facilitycontains, among other provisions, requirements for maintaining certainfinancial ratios and limitations on certain payments. As of January 31,2007, the Company was in compliance with such provisions. Amounts outstandingunder the amended Credit Facility bear interest, at the Company’s option, atJPMorgan Chase Bank’s prime rate or Eurocurrency rate plus a spread rangingfrom 0.80% to 1.70% calculated on the basis of the Company’s senior unsecuredlong-term debt rating. As of January 31, 2007, approximately $3.8 millionwas outstanding under the Credit Facility. Amounts available for borrowingunder this facility were approximately $64.6 million as of January 31,2007, reflecting $3.8 million of outstanding debt drawn down against thisfacility and $6.6 million in outstanding letters of credit.

54

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**BLYTH, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued)**

**Note 12.   Long-TermDebt (Continued)**

In May 1999, the Company filed a shelfregistration statement for issuance of up to $250.0 million in debt securitieswith the Securities and Exchange Commission. On September 24, 1999, theCompany issued $150.0 million of 7.90% Senior Notes due October 1, 2009 ata discount of approximately $1.4 million, which is being amortized over thelife of the notes. In fiscal 2007, the Company repurchased $52.1 million ofthese notes. Such notes contain, among other provisions, restrictions on lienson principal property or stock issued to collateralize debt. AtJanuary 31, 2007, the Company was in compliance with such provisions.Interest is payable semi-annually in arrears on April 1 andOctober 1. On October 20, 2003, the Company issued $100.0 million5.50% 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 notescontain provisions and restrictions similar to those in the 7.90% Senior Notes.At January 31, 2007, 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 specifiedredemption price. The proceeds of the debt issuances were used for generalcorporate purposes.

As of January 31, 2006 and January 31, 2007,Miles Kimball had approximately $9.4 million and $9.0 million, respectively oflong-term debt outstanding under a real estate mortgage note payable to John HancockLife Insurance Company, which matures June 1, 2020. Under the terms of thenote, payments of principal and interest are required monthly at a fixedinterest rate of 7.89%.

As of January 31, 2006 and January 31, 2007,CBK had $4.4 million and $4.2 million, respectively of long-term debtoutstanding under an Industrial Revenue Bond (“IRB”), which matures onJanuary 1, 2025. The bond is backed by an irrevocable letter of creditissued by La Salle Bank National Association. The loan is collateralized bycertain of CBK’s assets. The amount outstanding under the IRB bears interest atshort-term floating rates, which equaled a weighted average interest rate of5.3% at January 31, 2007. Payments of principal are required annually andinterest payments are required monthly under the terms of the bond.

Maturitiesunder debt obligations for the fiscal years ending January 31 are asfollows (In thousands):

| 2008       |   | $        | 987    |   |
|------------|--------|----------|--------|--------|
| 2009       |   | 1,064    |   |
| 2010       |   | 102,300  |   |
| 2011       |   | 700      |   |
| 2012       |   | 714      |   |
| Thereafter |   | 110,014  |   |
|       |   | $215,779 |   |

 

The estimated fair value of the Company’s $346.0million and $215.8 million total long-term debt (including current portion) atJanuary 31, 2006 and 2007 was approximately $330.7 million and $205.7million, respectively. The fair value is determined by quoted market prices,where available, and from analyses performed by investment bankers usingcurrent interest rates considering credit ratings and the remaining terms tomaturity.

As of January 31, 2007, the Company had a totalof $2.0 million available under an uncommitted facility with La Salle BankNational Association to be used for letters of credit. The issuance of lettersof credit under this facility will be available until November 30, 2007.As of January 31, 2007, approximately $27 thousand of letters of creditwere outstanding under this facility.

55

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**BLYTH, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued)**

**Note 12.**   Long-Term Debt (Continued)

As of January 31, 2007, the Company had a totalof $2.0 million available under an uncommitted facility with Bank of America tobe used for letters of credit. The issuance of letters of credit under thisfacility will be available until January 31, 2008. As of January 31,2007, approximately $21 thousand of letters of credit were outstanding underthis facility.

**Note 13.   EmployeeBenefit Plans**

On January 31 2007, the Company adopted therecognition and disclosure requirements of Statement of Financial AccountingStandards No. 158, “Employers’ Accounting for Defined Benefit Pension andOther Postretirement Plans”, an amendment of FASB Statements No. 87, 88, 106,and 132R (SFAS 158). The Company is not required to adopt the required changeto a fiscal year-end measurement date until the year ended January 31,2008. The Company has chosen to adopt this provision for the year endedJanuary 31, 2007, as permitted by SFAS 158.

SFAS 158 requires the Company to recognize the fundedstatus of its defined benefit pension plan in the Consolidated Balance Sheetsas of January 31, 2007, with a corresponding adjustment to accumulatedother comprehensive income. The funded status is the difference between thefair value of plan assets and the projected benefit obligation. The adjustmentto accumulated other comprehensive income at adoption represents the netunrecognized actuarial gains or losses.

In accordance with SFAS 158, the Company recorded anadjustment to its Consolidated Balance Sheet as of January 31, 2007reducing its projected benefit obligation by $1.5 million with a correspondingcredit to accumulated other comprehensive income, net of taxes of $0.9 millionand the remaining credit to deferred income taxes of $0.6 million. The adoptionof SFAS 158 had no effect on the Company’s Consolidated Statement of Earnings(Loss) for the year ended January 31, 2007, or for any prior periodpresented, and it will not effect the Company’s operating results in futureperiods.

The incremental effect of applying SFAS 158 onindividual line items in the Consolidated Balance Sheet as of January 31,2007 was as follows (in thousands):

| ** **                              | ** ** | **Before Application** | ** ** | ** **      | ** ** | **After Application** | ** ** |
|-----------------------------------------|------------|-----------------------------|------------|-----------------|------------|----------------------------|------------|
| ** **                              | ** ** | **of SFAS 158**   | ** ** | **Adjustments** | ** ** | **of SFAS 158**  | ** ** |
| Liability for  pension benfefits        |       |                        | $          | 2,451           |       |                       |       | $ | (1,482 | ) |   |   | $ | 969 |   |   |
| Deferred income  taxes                  |       |                        | 34,439     |            |       |                       | 563        |   |   |   | 35,002 |   |   |
| Total liabilities                       |       |                        | 411,864    |            |       |                       | (919       | ) |   |   | 410,945 |   |   |
| Accumulated other  comprehensive income |       |                        | 21,211     |            |       |                       | 919        |   |   |   | 22,130 |   |   |
| Total stockholder’s  equity        |       |                        | 362,774    |            |       |                       | 919        |   |   |   | 363,693 |   |   |

 

Certain employees of Miles Kimball are covered by theMiles Kimball Company Retirement Plan (“the Plan”). This non-contributory,defined benefit retirement plan provides benefits based on years of service andemployee compensation for specified periods. When the Company acquired MilesKimball on April 1, 2003, a decision was made to cease the accrual of benefitsfor all Plan participants, except to the extent that a benefit accrual isrequired to comply with Section 416 of the Internal Revenue Code. The Planwas frozen effective May 31, 2003. All vested benefits that have beenaccrued as of May 31, 2003 will continue to be held for participants underthe terms of the Plan. The Company’s defined benefit pension plan uses aJanuary 31 measurement date.

56

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**BLYTH, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued)**

**Note 13.**   Employee Benefit Plans (Continued)

As of the January 31,the status of the Company’s defined benefit pension plan was as follows (Inthousands):

| ** **                             | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** |
|----------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Change  in benefit obligation:**     |       |     |       |     |       |     |       |
| Benefit  obligation, beginning of year |       | $        | 15,254     |     | $          | 13,758   |       | $ | 14,316 |   |
| Interest cost                          |       | 742      |       | 732      |       | 764      |       |
| Actuarial  (gain)/loss                 |       | (1,321   | )          | 675      |       | (138     | )          |
| Benefits paid                          |       | (917     | )          | (849     | )          | (856     | )          |
| Benefit obligation, end  of year       |       | $        | 13,758     |     | $          | 14,316   |       | $ | 14,086 |   |

 

| ** **                                    | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** |
|-----------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Change  in plan assets:**                   |       |     |       |     |       |     |       |
| Fair value of  plan assets, beginning of year |       | $        | 10,508     |     | $          | 10,148   |       | $ | 9,977 |   |
| Actual return on  plan assets                 |       | 412      |       | 417      |       | 1,304    |       |
| Employer  contributions                       |       | 145      |       | 261      |       | 2,590    |       |
| Benefits paid                                 |       | (917     | )          | (849     | )          | (856     | )          |
| Reimbursement for  overpayment of benefits    |       | —   |       | —   |       | 102      |       |
| Fair value of  plan assets, end of year       |       | $        | 10,148     |     | $          | 9,977    |       | $ | 13,117 |   |
| Funded status                                 |       | $        | (3,610     | )        | $          | (4,339   | )          | $ | (969 | ) |
| Unrecognized  actuarial (gain)/loss           |       | (1,895   | )          | (824     | )          |     |       |
| Net amount recognized                         |       | $        | (5,505     | )        | $          | (5,163   | )          |   |   |

 

The projected benefit obligation, accumulated benefitobligation and fair value of plan assets for the pension plan as of themeasurement date were as follows (In thousands):

| ** **                      | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Projected benefit  obligation   |       | $        | 13,758     |     | $          | 14,316   |       | $ | 14,086 |   |
| Accumulated  benefit obligation |       | $        | 13,758     |     | $          | 14,316   |       | $ | 14,086 |   |
| Fair value of plan  assets      |       | $        | 10,148     |     | $          | 9,977    |       | $ | 13,117 |   |

 

Componentsof the net periodic benefit cost of the Company’s noncontributory definedbenefit pension plan for the years ended January 31, were as follows (Inthousands):

| ** **                      | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Interest cost                   |       | $        | 733        |     | $          | 730      |       | $ | 761 |   |
| Expected return  on plan assets |       | (777     | )          | (769     | )          | (988     | )          |
| Amortization of  actuarial gain |       | (28      | )          | (7       | )          | —   |       |
| Net periodic benefit  cost      |       | $        | (72        | )        | $          | (46      | )          | $ | (227 | ) |

 

Assumptions used to determinenet periodic benefit cost and the projected benefit obligation as of and forthe years ended January 31, were as follows:

| ** **                               | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** |
|------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Discount rate                            |       | 5.50     | %          | 5.50     | %          | 5.50     | %          |
| Expected return  on plan assets          |       | 8.00     | %          | 8.00     | %          | 8.00     | %          |
| Rate of increase in  compensation levels |       | 2.50     | %          | 2.50     | %          | 2.50     | %          |

 

57

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**BLYTH, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued)**

**Note 13.**   Employee Benefit Plans (Continued)

The defined benefitpension plan asset allocation as of the measurement date of January 31,presented as a percentage of total plan assets, was as follows:

| ** **        | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** |
|-------------------|------------|----------|------------|----------|------------|----------|------------|
| Equity securities |       | 71.7     | %          | 60.5     | %          | 48.4     | %          |
| Debt securities   |       | 27.0     | %          | 36.9     | %          | 45.6     | %          |
| Other             |       | 1.3      | %          | 2.6      | %          | 6.0      | %          |
| Total             |       | 100.0    | %          | 100.0    | %          | 100.0    | %          |

 

The Company employs a conservative investment strategyfor its pension plan that includes a diversified portfolio of equity and debtsecurities, including low risk fixed income investments used to maximize thelong-term rate of return of pension assets. The intent of this strategy is tominimize plan expense by outperforming plan liabilities in the long term.Investment risk is assessed through careful consideration of plan liabilities,plan funded status, and financial condition.

For fiscal 2007, the Company’s expected long-term rateof return on assets was 8.00%. The assumption for the expected long-term rateof return on plan assets represents an estimate that is based on many factorsincluding asset allocations; historical asset returns, and current and futuremarket conditions. The prospective target allocation percentage for the pensionplan as of January 31, 2007 consists of approximately 50% of debt securitiesand 50% of equities. Future assumptions and estimates of the long term rate ofreturn may change as circumstances warrant.

Substantially all pension benefit payments are madefrom assets of the pension plan. It is anticipated that the future benefitpayments will be as follows:  $0.9million in fiscal 2008, $0.8 million in fiscal 2009, $0.8 million in fiscal2010, $0.8 million in fiscal 2011, $0.8 million in fiscal 2012 and $4.1 millionin fiscal 2013 to 2017.

The Company makes periodic cash contributions to itsdefined benefit plan. The level of these contributions is within minimumrequired and maximum allowable government prescribed levels for thejurisdictions in which the Company operates. The Company is not required tomake a contribution to the Plan in fiscal 2008.

Certain of the Company’s non-U.S. subsidiaries providepension benefits to employees or participate in government sponsored programs.The cost of these plans or government sponsored programs is not significant tothe Company. Most employees outside the U.S. are covered by governmentsponsored and administered programs. Other contributions to government mandatedprograms are not expected to be significant.

The Company has defined contribution employee benefitplans in both the United States and certain of its foreign locations, coveringsubstantially all eligible non-union employees. Contributions to all such plansare principally at the Company’s discretion except for theSection 401(k) Company matching contributions, which became guaranteedeffective April 1, 2002. Total expense related to all defined contributionplans for the fiscal years ended January 31, 2005, 2006 and 2007 was $7.4million, $6.8 million and $6.8 million, respectively.

The Company has asupplemental pension benefit agreement with one of its key corporateexecutives. Benefits pursuant to the agreement will be provided by a purchasedannuity insurance policy.

58

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**BLYTH, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued)**

**Note 14.   Commitmentsand Contingencies**

The Company utilizes operating and capital leases fora portion of its facilities and equipment. Generally, the leases provide thatthe Company pay real estate taxes, maintenance, insurance and other occupancyexpenses applicable to leased premises. Certain leases provide for renewal forvarious periods at stipulated rates.

The minimum future rental commitments under operatingand capital leases are as follows (In thousands):

| For the years  ending January 31, |   |   |   |
|----------------------------------------|--------|--------|--------|
| 2008                                   |   | $      | 16,367 |   |
| 2009                                   |   | 14,089 |   |
| 2010                                   |   | 11,715 |   |
| 2011                                   |   | 8,861  |   |
| 2012 and  thereafter                   |   | 15,671 |   |
| Total minimum  payments required       |   | $      | 66,703 |   |

 

Rent expense for the years ended January 31,2005, 2006 and 2007 was $23.3 million, $19.5 million and $21.4 million,respectively.

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

The Company has entered into an employment agreementwith its Chairman and CEO, Mr. Robert B. Goergen, dated as ofAugust 1, 2000, as amended by Amendment No. 1 dated as ofJune 15, 2002, Amendment No. 2 dated as of March 31, 2004 andAmendment No. 3 dated as of September 26, 2006 (sometimes hereinreferred to as “agreement” or “employment agreement”). Pursuant to theemployment agreement, upon the death of both Mr. Goergen and his spouse,the Company will, upon the demand of the estate of either Mr. Goergen orhis spouse, buy back from such estate up to 7,500,000 shares of Company CommonStock within 90 days of such demand at the fair market value thereof (asdefined in the employment agreement) or register the public offer and sale bysuch estate of up to 7,500,000 shares of Company Common Stock. In connectionwith the employment agreement, the Company and Mr. Goergen entered into aregistration rights agreement relating to the registration of up to 7,500,000shares of Company Common Stock as described above in the event that the Companychooses not to purchase such shares upon the death of both Mr. Goergen andhis spouse. There is no specified effective date or stock price requirement inthe agreements. The Company will not be obligated to purchase or register suchshares, notwithstanding the death of both Mr. Goergen and his spouse, ifthe survivor’s estate, or his or her beneficiaries, as the case may be, canthen sell all of the shares of the Company Common Stock owned by them withoutregistration. The Company has recorded a liability of approximately $153,000 atJanuary 31, 2007 related to the estimated future costs to register thesecurities.

59

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**BLYTH, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued)**

**Note 15.   Guarantees**

From time to time, theCompany is party to agreements under which it may be obligated to indemnify athird party with respect to certain matters. Typically, these obligations ariseas a result of leases entered into by the subsidiaries, under which Blythagrees to indemnify a third party against losses arising from a breach ofrepresentations related to lease obligations assumed. In these circumstances,payment by Blyth is conditioned on the other party making a claim pursuant tothe procedures specified in the lease. These procedures generally allow Blythto challenge the other party’s claims. In addition, Blyth’s obligations underthese agreements may be limited in terms of time and amount. Historically,payments made by Blyth under these arrangements have not had a material effecton the business, financial condition or results of operations. Blyth believesthat if it were to incur a loss in any of these matters, such loss would nothave a material effect on the Company’s business, financial condition orresults of operations. The maximum potential amount of future payments dueunder these lease arrangements approximates $31.6 million. These amounts areincluded as part of the Company’s consolidated lease commitments as reported inNote 14, Commitments and Contingencies. The lease guarantees have expirationdates through fiscal 2014.

**Note 16.   IncomeTaxes**

Earnings(loss) before provision for income taxes:
| Year ended January 31, (In thousands) | ** ** | ** ** | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** |
|----------------------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|----------|------------|
| United States                                                  |       | $          | 72,632     |     | $          | (27,049  | )          | $        | (49,549    | ) |
| Foreign                                                        |       | 55,636     |       | 53,493   |       | 54,918   |       |
|                                                           |       | $          | 128,268    |     | $          | 26,444   |       | $        | 5,369      |   |

 

Incometax expense attributable to continuing operations consists of the following:
| Year ended January 31, (In thousands) | ** ** | ** ** | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** |
|----------------------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|----------|------------|
| Current income  tax expense:                                   |       |       |       |     |       |     |       |
| Federal                                                        |       | $          | 21,592     |     | $          | 306      |       | $        | 3,368      |   |
| State                                                          |       | 3,393      |       | 791      |       | 1,896    |       |
| Foreign                                                        |       | 8,770      |       | 18,205   |       | 6,824    |       |
|                                                           |       | 33,755     |       | 19,302   |       | 12,088   |       |
| Deferred income  tax expense (benefit):                        |       |       |       |     |       |     |       |
| Federal                                                        |       | 11,456     |       | (9,116   | )          | (7,442   | )          |
| State                                                          |       | 981        |       | (781     | )          | (1,386   | )          |
| Foreign                                                        |       | (30        | )          | (3,026   | )          | (596     | )          |
|                                                           |       | 12,407     |       | (12,923  | )          | (9,424   | )          |
|                                                           |       | $          | 46,162     |     | $          | 6,379    |       | $        | 2,664      |   |

 

60

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**BLYTH, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued)**

**Note 16.**   Income Taxes (Continued)

Significant components ofthe Company’s deferred tax assets and liabilities are as follows:
| January 31, (In thousands)              | ** ** | ** ** | ** ** | **2006** | ** ** | **2007** | ** ** |
|--------------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| Deferred tax  assets:                                  |       |       |       |     |       |
| Amortization                                           |       | $          | -          |     | $          | 7,163    |       |
| Accrued expenses and other                             |       | 1,555      |       | 1,910    |       |
| Allowance for doubtful receivables                     |       | 1,018      |       | 783      |       |
| Employee benefit plans                                 |       | 2,693      |       | 2,032    |       |
| Inventory reserves                                     |       | 6,295      |       | 9,087    |       |
| Net operating loss and other tax credit  carryforwards |       | 8,998      |       | 5,799    |       |
| Capital loss carryforward                              |       | -          |       | 15,677   |       |
| Other reserves                                         |       | 4,790      |       | 5,866    |       |
| Valuation allowance                                    |       | (4,704     | )          | (18,610  | )          |
|                                                   |       | 20,645     |       | 29,707   |       |
| Deferred tax  liabilities:                             |       |       |       |     |       |
| Prepaids                                               |       | (4,074     | )          | (5,025   | )          |
| Undistributed foreign earnings                         |       | -          |       | (12,608  | )          |
| Depreciation and amortization                          |       | (35,309    | )          | (17,369  | )          |
|                                                   |       | (39,383    | )          | (35,002  | )          |
| Net deferred tax  liability                            |       | $          | (18,738    | )        | $          | (5,295   | )          |

 

The valuation allowance relates to certain non-U.S.tax loss carryforwards and a U.S. capital loss carryforward, for which theCompany believes, due to various limitations in these foreign jurisdictionsrelated to the tax loss carryforwards and due to limitations imposed by U.S.tax regulations related to the capital loss, it is more likely than not thatsuch benefits will not be realized. The increase in the valuation allowancefrom the prior year is principally related to a $39.1 million capital lossrelated to the Company’s recent dispositions. At January 31, 2007, theCompany had a $15.9 million net operating loss carryforward, which consisted ofapproximately $8.2 million of U.S. federal net operating losses that willexpire on January 31, 2023 and 2026 and foreign net operating losses of$7.7 million, which will begin to expire in 2012. Also, at January 31,2007, the Company had a $41.3 million U.S. capital loss carryforward of whichthe majority will expire on January 21, 2012.

As of January 31, 2007, the Company, inaccordance with APB Opinion 23, Accounting for Income Taxes, Special Areas,determined that $48.8 million of undistributed foreign earnings were notreinvested indefinitely by its non-U.S. subsidiaries. Deferred income taxexpense of $12.6 million was recorded as a reduction to the Company’s netearnings on these undistributed earnings. The Company periodically determineswhether the non-U.S. subsidiaries will invest their undistributed earningsindefinitely and reassesses this determination as appropriate.

As of January 31, 2007, undistributed earnings offoreign subsidiaries considered permanently reinvested for which deferredincome taxes have not been provided were approximately $64.4 million.

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**BLYTH, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued)**

**Note 16.**   Income Taxes (Continued)

A reconciliation of theprovision for income taxes to the amount computed at the federal statutory rateis as follows:
| Year ended January 31, (In thousands)   | ** ** | ** ** | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|----------|------------|
| Tax at statutory  rate                                           |       | $          | 44,894     |     | $          | 9,255    |       | $        | 1,879      |   |
| Tax effect of:                                                   |       |       |       |     |       |     |       |
| U.S. state income taxes, net of federal benefit                  |       | 6,618      |       | 964      |       | 138      |       |
| Tax exempt interest                                              |       | -          |       | (41      | )          | (1,537   | )          |
| Permanent differences                                            |       | -          |       | (621     | )          | (263     | )          |
| Recovery of note receivable reported in discontinued  operations |       | -          |       | -        |       | (1,797   | )          |
| Worldwide movement in contingent reserve balance                 |       | -          |       | (6,051   | )          | 1,882    |       |
| Non-deductible goodwill impairment                               |       | -          |       | 5,407    |       | 3,072    |       |
| Foreign dividend and subpart F income                            |       | -          |       | 10,336   |       | (1,280)  |       |
| Tax on undistributed foreign earnings                            |       | -          |       | -        |       | 12,608   |       |
| Foreign tax rate differential                                    |       | (5,141     | )          | (10,343  | )          | (13,367  | )          |
| Other                                                            |       | (209       | )          | (2,527   | )          | 1,329    |       |
|                                                             |       | $          | 46,162     |     | $          | 6,379    |       | $        | 2,664      |   |

 

The management of the Company, periodically estimatesthe probable tax obligations of the Company using historical experience in taxjurisdictions and informed judgments. There are inherent uncertainties relatedto the interpretation of tax regulations in the jurisdictions in which theCompany transacts business. The judgments and estimates made at a point in timemay change based on the outcome of tax audits, as well as changes to or furtherinterpretations of regulations. If such changes take place, there is a riskthat the tax rate may increase or decrease in any period. Amounts accrued forthe potential tax assessments, primarily recorded in long-term liabilitiestotal $9.2 million and $9.9 million at January 31, 2006 and 2007,respectively. Accruals relate to tax issues for U.S. federal, domestic stateand taxation of foreign earnings. The amounts provided are included in theappropriate categories in the table above.

In December 2004, the FASB issued Staff Position No. FAS109-2 (“FAS 109-2”), “Accounting and Disclosure Guidance for theForeign Earnings Repatriation Provision within the American Jobs Creations Actof 2004” (“AJCA”). The AJCA introduced a limited time 85% dividends receiveddeduction on the repatriation of certain foreign earnings to a U.S. taxpayer(repatriation provision), provided certain criteria were met. FAS 109-2provides accounting and disclosure guidance for the repatriation provision.  On January 24,2006, the Board of Directors approved a domestic reinvestment plan forapproximately $130.0 million in foreign earnings, which were previouslyconsidered permanently reinvested in non-U.S. legal entities. Of this amount,$91.0 million qualified for the favorable treatment under the AJCA. The fundswere repatriated to the United States in the fourth quarter of fiscal 2006. The tax cost of this distribution was $7.6million. As part of its repatriation plan, the Company reinvested therepatriated amount domestically in a wide range of initiatives, including thehiring and training of U.S.workers, research and development efforts, qualified retirement plan funding,capital expenditures to support the U.S. 

62

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**BLYTH, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued)**

**Note 16.**   Income Taxes (Continued)

businesses,advertising and marketing with respect to its various trademarks, brand namesand rights to intangible property, all consistent with the requirements of thelegislation.

On July 14, 2006, theFASB issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty inIncome Taxes,” an Interpretation of SFAS No. 109, “Accounting for IncomeTaxes.” FIN 48 prescribes guidance to address inconsistencies among entitieswith the measurement and recognition in accounting for income tax positions forfinancial statement purposes. Specifically, FIN 48 addresses the timing of therecognition of income tax benefits. FIN 48 requires the financial statementrecognition of an income tax benefit when the company determines that it is more-likely-than-notthat the tax position will be ultimately sustained. FIN 48 is effective forfiscal years beginning after December 15, 2006. Upon adoption of FIN 48,the cumulative effect will be reported as an adjustment to the opening balanceof retained earnings at February 1, 2007. The Company will adopt FIN 48 asof February 1, 2007 as required and is currently assessing the potentialimpact on its retained earnings upon adoption.

**Note 17.**   StockBased Compensation

**Summary of Plans**

As of January 31, 2007, the Company had oneactive stock-based compensation plan, the 2003 Long-Term Incentive Plan (“2003Plan”), available to grant future awards and two inactive stock-basedcompensation plans (the Amended and Restated 1994 Employee Stock Option Planand the Amended and Restated 1994 Stock Option Plan for Non-EmployeeDirectors), under which vested and unexercised options remain outstanding. Therewere 6,500,100 shares authorized for grant under these plans as of January 31,2007, and there were approximately 3,600,000 shares available for grant underthese plans.  The Company’s policy is toissue new shares of common stock for all stock options exercised and restrictedstock grants.

The Board of Directors and the stockholders of theCompany have approved the adoption and subsequent amendments of the 2003 Plan. The2003 Plan provides for grants of incentive and nonqualified stock options,stock appreciation rights, restricted stock, restricted stock units,performance shares, performance units, dividend equivalents and other stockunit awards to officers and employees. The 2003 Plan also provides for grantsof nonqualified stock options to directors of the Company who are not, and whohave not been during the immediately preceding 12-month period, officersor 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. RSUsissued under the plans provide that shares awarded may not be sold or otherwisetransferred until restrictions have lapsed. The release of RSUs on each of thevesting dates is contingent upon continued active employment by the employeeuntil the vesting dates.

On December 9, 2005, the Board of Directors ofthe Company approved the acceleration of the vesting of all unvestedoutstanding stock options. Stock option awards granted from December 10,2000 through the date of acceleration totaled approximately 350,000 shares of the Company’s common stock, whichrepresented 100% of the unvested options which were subject to thisacceleration. Virtually all of these options had exercise prices in excess ofthe current market values and were not fully achieving their original objectivesof incentive compensation and employee retention.

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**BLYTH, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued)**

**Note 17.**   Stock Based Compensation (Continued)

The total compensationexpense related to all stock-based compensation plans for fiscal years 2005,2006 and 2007 was approximately $0.6 million, $1.1 million and $1.5 million,respectively. The tax benefit recognized for fiscal years 2005, 2006 and 2007was approximately $0.2 million. $0.4 million and $0.6 million, respectively. Totalstock-based compensation expense included in discontinued operations for fiscalyears 2005 and 2006 was approximately $0.1 million. Total stock-basedcompensation benefit included in discontinued operations for fiscal year 2007was approximately $0.2 million. No compensation cost was capitalized as part ofinventory.

**Impact of Adoptionof 123(R)**

On February 1, 2006, the Company adopted SFAS 123(R) whichrequires the measurement and recognition of compensation expense for allshare-based payment awards made to employees and directors, including employeestock options, restricted stock and RSUs based on estimated fair values. SFAS123(R) supersedes the Company’s previous disclosure only provisions ofSFAS No. 148, “Accounting for Stock-Based Compensation-Transition andDisclosure” (SFAS 148), and Accounting Principles Board (APB) opinion No. 25,“Accounting for Stock Issued to Employees” (APB 25) and related interpretationsin accounting for stock awards granted to its employees and directors under theintrinsic value method employed by the Company for periods prior to fiscal 2007.In March 2005, the Securities and Exchange Commission issued StaffAccounting Bulletin No. 107 (SAB 107) relating to SFAS 123(R). The Companyapplied the provisions of SAB 107 in its adoption of SFAS 123(R).

SFAS 123(R) requires companies to estimate thefair value of stock-based payment awards on the date of grant using anoption-pricing model, where applicable. The value of the portion of the awardthat is ultimately expected to vest is recognized as expense over the requisiteservice period in the Company’s Consolidated Statements of Earnings (Loss). Priorto the adoption of SFAS 123(R), the Company accounted for stock-based awards toemployees and directors using the intrinsic value method in accordance with APB25 as allowed under Statement of Financial Accounting Standards No. 123, “Accountingfor Stock-Based Compensation” (SFAS 123). Under the intrinsic value method, nostock-based compensation expense had been recognized in the Company’sConsolidated Statements of Earnings (Loss), because the exercise price of theCompany’s stock options granted to employees and directors equaled the fairvalue of the underlying stock at the date of grant.

Stock-based compensation expense recognized during theperiod is based on the value of the portion of stock-based payment awards thatis ultimately expected to vest during the period. Stock-based compensationexpense recognized in the Company’s Consolidated Statements of Earnings (Loss)for the fiscal year ended January 31, 2007 includes compensation expensefor restricted stock, RSUs and stock-based awards granted subsequent to January 31,2006 based on the grant date fair value estimated in accordance with theprovisions of SFAS 123(R). The Company recognizes these compensation costs netof a forfeiture rate for only those awards expected to vest, on a straight-linebasis over the requisite service period of the award, which is the vesting termof 3 years for stock options; vesting over 4 to 5 years or 3 year vesting foremployee restricted stock and RSUs; and vesting over 1 to 2 years fornon-employee restricted stock and RSUs. SFAS 123(R) requires forfeituresto be estimated at the time of grant and revised, if necessary, in subsequentperiods if actual forfeitures differ from those estimates.

In the Company’s pro forma information required underSFAS 123 for periods prior to fiscal 2007, the Company accounted forforfeitures of stock options as they occurred. There was no stock-based 

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**BLYTH, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued)**

**Note 17.**   Stock Based Compensation (Continued)

compensation expenserecognized in the Company’s Condensed Consolidated Statements of Earnings(Loss) for the first nine months of fiscal 2007 for stock options granted priorto February 1, 2006 because no portion of those stock-based payment awardswas unvested. In accordance with the modified prospective transition method,the Company’s Consolidated Financial Statements for prior periods have not beenrestated to reflect, and do not include, the impact of SFAS 123(R). As a resultof the adoption of SFAS 123(R), $3.1 million of unearned compensation recordedin stockholders’ equity as of February 1, 2006 was reclassified to andreduced the balance of additional contributed capital.

Transactionsinvolving 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, 2006 |       | 146,970    |       |                                                    | $          | 31.85                                                    |       |   |   |   |   |   |
| Granted                                                  |       | 257,605    |       |                                                    | 21.82      |                                                     |       |   |   |   |   |
| Vested                                                   |       | (12,500    | )          |                                                    | 31.19      |                                                     |       |   |   |   |   |
| Forfeited                                                |       | (48,645    | )          |                                                    | 29.84      |                                                     |       |   |   |   |   |
| Nonvested  restricted stock and RSUs at January 31, 2007 |       | 343,430    |       |                                                    | $          | 24.63                                                    |       |   |   | $ | 7,140 |   |   |
| Total restricted stock  and RSUs at January 31, 2007     |       | 361,930    |       |                                                    | $          | 25.02                                                    |       |   |   | $ | 7,525 |   |   |

 

Compensation expense related to restricted stock andRSUs for fiscal year 2005, 2006 and 2007 was approximately $0.6 million, $1.1million and $1.5 million, respectively. Restricted stock and RSUs expenseincluded in discontinued operations for fiscal 2005 and 2006 was approximately$0.1 million. Restricted stock and RSUs benefit included in discontinuedoperations for fiscal 2007 was $0.2 million. The total intrinsic value ofrestricted stock and RSUs vested during fiscal 2007 was $0.2 million.

As of January 31, 2007, there was $6.0 million ofunearned compensation expense related to non-vested restricted stock and RSUawards. The total unrecognized stock-based compensation cost to be recognizedin future periods as of January 31, 2007 does not consider the effect ofstock-based awards that may be issued in subsequent periods. This cost isexpected to be recognized over a weighted average period of 2.6 years. As of January 31,2007, approximately 0.3 million restricted stock awards with a weighted averagegrant date fair value of $24.63 are expected to vest over a weighted averageperiod of 2.6 years.

Transactionsinvolving stock options are summarized as follows:
|                                  | ** ** | **Option  Shares** | ** ** | **Weighted Average  Exercise Price** | ** ** | **Weighted Average  Remaining  Contractual Life** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
|----------------------------------|------------|--------------------|------------|------------------------------------------------|------------|-------------------------------------------------------------|------------|-------------------------------------|------------|
| Outstanding at  January 31, 2006 |       | 1,236,400          |       |                                           | 26.12      |                                                        |       |                                | 5.16       |   |   |   |   |   |   |
| Options granted                  |       | 17,500             |       |                                           | 20.63      |                                                        |       |                                | 4.29       |   |   |   |   |   |   |
| Options exercised                |       | (109,000           | )          |                                           | 22.64      |                                                        |       |                                |       |   |   |   |   |   |   |
| Options forfeited  and expired   |       | (267,400           | )          |                                           | 26.50      |                                                        |       |                                |       |   |   |   |   |   |   |
| Outstanding at  January 31, 2007 |       | 877,500            |       |                                           | $          | 26.32                                                       |       |                                |       | 4.56 |   |   |   | $ | 15,000 |   |   |
| Exercisable at January  31, 2007 |       | 860,000            |       |                                           | $          | 26.44                                                       |       |                                |       | 4.57 |   |   |   | $ | 3,000 |   |   |

 

At January 31, 2006 and 2007, options to purchase1,236,400 and 860,000 shares, respectively, were exercisable.

65

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

**Note 17.**   StockBased Compensation (Continued)

Compensation expense for fiscal 2007 related to stockoptions was approximately $20 thousand. As of January 31, 2007, $0.1million of total unrecognized compensation cost related to stock options isexpected to be recognized over a weighted average period of 2.4 years.  All outstanding stock options atJanuary 31, 2007 are expected to vest.

The aggregate intrinsic value in the table aboverepresents the total pretax intrinsic value (the difference between the Company’sclosing stock price on the last trading day of fiscal year 2007 and theexercise price, multiplied by the number of in-the-money options) that wouldhave been received by the option holders had all option holders exercised theiroptions on January 31, 2007. Intrinsic value will change in future periodsbased on the fair market value of the Company’s stock and the number of sharesoutstanding. The total intrinsic valueof stock options exercised during 2005, 2006 and 2007 was approximately $3.9million, $1.2 million and $0.3 million, respectively.

Upon adoption of SFAS123(R), the Company elected to continue to use the Black-Scholes option-pricingmodel (“Black-Scholes model”) to determine fair value for stock option grants. TheCompany’s determination of fair value of stock-based payment awards on the dateof grant using an option-pricing model is affected by the Company’s stock priceas well as assumptions regarding a number of highly complex and subjectivevariables. These variables include, but are not limited to: the Company’sexpected stock price volatility over the term of the awards, and actual andprojected employee stock option exercise behaviors.

**Assumptions used toestimate fair value**

Thefair value of stock options is estimated on the date of grant using theBlack-Scholes model. The Company granted 17,500 stock options during the yearended January 31, 2007. The Company’s expected volatility assumption isbased on an equal weighting of the Company’s daily historical stock price. TheCompany granted no stock options during the year ended January 31, 2006. TheCompany granted 8,500 stock options during the year ended January 31, 2005.The fair value of these stock options was determined using the followingweighted average assumptions.

| ** **                | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** |
|---------------------------|------------|----------|------------|----------|------------|----------|------------|
| Expected  volatility      |       | 32.0     | %          | N/A      |       | 2.9      | %          |
| Risk free  interest rates |       | 3.80     | %          | N/A      |       | 4.94     | %          |
| Expected lives            |       | 5        |       | N/A      |       | 3.5      |       |
| Expected dividend yield   |       | 1.40     | %          | N/A      |       | 2.23     | %          |

 

The weighted average pershare fair value of options granted during the year ended January 31, 2005was $9.52. No stock options were granted by the Company during the year ended January 31,2006. The weighted average fair value of options granted during the year ended January 31,2007 was $4.78.

66

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

**Note 17.**   Stock Based Compensation (Continued)

**Pro forma Impact of123(R)**

Ifcompensation expense for the Company’s stock options had been determined inaccordance with the fair value method in SFAS 123 and SFAS 148, the Company’sreported net income and earnings per share at January 31, 2005 and 2006would have been adjusted to the pro forma amounts indicated below:

| ** **                                                                                                        | ** ** | **Year ended January 31,**                      | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                                                                        | ** ** | **2005**                                                       | ** ** | **2006** | ** ** |
| ** **                                                                                                        | ** ** | **(In thousands, except  per share data)** | ** ** |
| Net earnings:                                                                                                     |       |                                                           |       |   |   |
| As reported                                                                                                       |       | $                                                              | 96,514     |   | $ | 24,857 |   |
| Stock-based employee  compensation expense determined under SFAS No. 123 for all awards, net  of related tax |       | 2,409                                                          |       | 2,873 |   |
| Pro forma                                                                                                         |       | $                                                              | 94,105     |   | $ | 21,984 |   |
| Net earnings per  common share:                                                                                   |       |                                                           |       |   |   |
| As reported:                                                                                                      |       |                                                           |       |   |   |
| Basic                                                                                                             |       | $                                                              | 2.24       |   | $ | 0.61 |   |
| Diluted                                                                                                           |       | 2.22                                                           |       | 0.60 |   |
| Pro forma:                                                                                                        |       |                                                           |       |   |   |
| Basic                                                                                                             |       | $                                                              | 2.18       |   | $ | 0.54 |   |
| Diluted                                                                                                           |       | 2.16                                                           |       | 0.53 |   |

 

**Other Information**

Authorized unissued sharesmay be used under the stock-based compensation plans. The Company intends toissue shares of its common stock to meet the stock requirements of its awardsin the future.

**Note 18.**   SegmentInformation

Blyth is a designer and marketer of home fragranceproducts and accessories, home décor, seasonal decorations, householdconvenience items, personalized gifts and products for the foodservice trade. Wecompete in the global Home Expressions industry, and our products can be foundthroughout North America, Europe and Australia. Our financial results arereported in three segments - the Direct Selling segment, the Catalog &Internet segment and the Wholesale segment. These reportable segments are basedon similarities in distribution channels, customers and management oversight.

During fiscal 2007 there was a change in our seniormanagement structure with the departure of our Wholesale segment President. OurCatalog & Internet segment President assumed responsibility for theWholesale segment in addition to his current responsibilities. We refer to thisnew reporting structure as the Multi-channel Group. For segment reportingpurposes, Blyth continues to report individual segment operating results forthe Direct Selling, Catalog & Internet nd Wholesale segments.

Within the Direct Selling segment, the Companydesigns, manufactures or sources, markets and distributes an extensive line ofproducts including scented candles, candle-related accessories, fragranced bathgels and body lotions and other fragranced products under the PartyLite® brand.The Company also operates a small Direct Selling business, Two Sisters Gourmetfocuses on selling gourmet foods. All direct selling products are sold directlyto the consumer through a network of independent sales consultants using 

67

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

**Note 18.**   Segment Information (Continued)

the party plan method ofdirect selling. PartyLite® brand products are sold in North America, Europe andAustralia. Two Sisters GourmetTM brand products are sold in North America.

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

Within the Wholesale segment, the Company designs,manufactures or sources, markets and distributes an extensive line of homefragrance products, candle-related accessories, seasonal decorations such asornaments and trim, and home décor products such as picture frames, lamps andtextiles. Products in this segment are sold primarily in North America toretailers in the premium, specialty and mass channels under the CBK®,Carolina®, Colonial Candle of Cape Cod®, Colonial at HOMEâ,Florasense® and Seasons of Cannon Falls® brands. In addition, chafing fuel andtabletop lighting products and accessories for the Away From Home orfoodservice trade are sold through this segment under the Ambria®, HandyFuelTMand Sterno® brands.

Earnings in all segments represent net sales lessoperating expenses directly related to the business segments and corporateexpenses allocated to the business segments. Other income (expense) includesinterest expense, interest income and equity in earnings of investees, whichare not allocated to the business segments. Identifiable assets for eachsegment consist of assets used directly in its operations and intangibleassets, if any, resulting from purchase business combinations. UnallocatedCorporate within the identifiable assets include corporate cash and cashequivalents, short term investments, prepaid income tax, corporate fixedassets, deferred bond costs, deferred income taxes and other long-terminvestments, which are not allocated to the business segments.

The geographic area dataincludes net trade sales based on product shipment destination and long-livedassets (which consists of fixed assets, goodwill and long-term investments)based on physical location.

68

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

**Note 18.**   Segment Information (Continued)

**Operating Segment Information**

| ** **                                              | ** ** | **Year ended January 31,** | ** ** |
|---------------------------------------------------------|------------|-------------------------------------------|------------|
| **Financial Information**                          | ** ** | ** **                                | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** |
| ** **                                              | ** ** | **(In thousands)**                   | ** ** |
| **Net Sales**                                           |       |                                      |       |   |   |   |   |
| Direct Selling                                          |       | $                                         | 735,863    |   | $ | 704,143 |   | $ | 694,044 |   |
| Multi-channel Group:                                    |       |                                      |       |   |   |   |   |
| Catalog &  Internet                            |       | 193,513                                   |       | 187,319 |   | 199,347 |   |
| Wholesale                                               |       | 371,989                                   |       | 362,799 |   | 327,220 |   |
| Subtotal Multi-channel  Group                           |       | 565,502                                   |       | 550,118 |   | 526,567 |   |
| **Total**                                               |       | $                                         | 1,301,365  |   | $ | 1,254,261 |   | $ | 1,220,611 |   |
| **Earnings****(1)**                                     |       |                                      |       |   |   |   |   |
| Direct Selling                                          |       | $                                         | 131,930    |   | $ | 107,692 |   | $ | 86,851 |   |
| Multi-channel Group:                                    |       |                                      |       |   |   |   |   |
| Catalog &  Internet                            |       | 6,701                                     |       | (428 | ) | 3,679 |   |
| Wholesale                                               |       | 6,152                                     |       | (62,097 | ) | (74,886 | ) |
| Subtotal Multi-channel  Group                           |       | 12,853                                    |       | (62,525 | ) | (71,207 | ) |
| Operating profit                                        |       | 144,783                                   |       | 45,167 |   | 15,644 |   |
| Other income (expense)                                  |       | (16,515                                   | )          | (18,723 | ) | (10,275 | ) |
| **Earnings before income taxes  and minority interest** |       | $                                         | 128,268    |   | $ | 26,444 |   | $ | 5,369 |   |
| **Identifiable Assets**                                 |       |                                      |       |   |   |   |   |
| Direct Selling                                          |       | $                                         | 249,126    |   | $ | 230,097 |   | $ | 238,194 |   |
| Multi-channel Group:                                    |       |                                      |       |   |   |   |   |
| Catalog &  Internet                            |       | 164,237                                   |       | 165,672 |   | 152,068 |   |
| Wholesale                                               |       | 613,819                                   |       | 522,386 |   | 181,384 |   |
| Subtotal Multi-channel  Group                           |       | 778,056                                   |       | 688,058 |   | 333,452 |   |
| Unallocated Corporate                                   |       | 48,638                                    |       | 198,365 |   | 202,992 |   |
| **Total**                                               |       | $                                         | 1,075,820  |   | $ | 1,116,520 |   | $ | 774,638 |   |
| **Capital Expenditures**                                |       |                                      |       |   |   |   |   |
| Direct Selling                                          |       | $                                         | 8,196      |   | $ | 6,351 |   | $ | 10,790 |   |
| Multi-channel Group:                                    |       |                                      |       |   |   |   |   |
| Catalog &  Internet                            |       | 2,235                                     |       | 3,086 |   | 3,415 |   |
| Wholesale                                               |       | 9,611                                     |       | 7,514 |   | 3,321 |   |
| Subtotal Multi-channel  Group                           |       | 11,846                                    |       | 10,600 |   | 6,736 |   |
| Unallocated Corporate                                   |       | 934                                       |       | 321 |   | 188 |   |
| **Total**                                               |       | $                                         | 20,976     |   | $ | 17,272 |   | $ | 17,714 |   |
| **Depreciation and Amortization**                       |       |                                      |       |   |   |   |   |
| Direct Selling                                          |       | $                                         | 11,964     |   | $ | 12,326 |   | $ | 12,799 |   |
| Multi-channel Group:                                    |       |                                      |       |   |   |   |   |
| Catalog &  Internet                            |       | 4,482                                     |       | 5,080 |   | 4,587 |   |
| Wholesale                                               |       | 17,937                                    |       | 17,479 |   | 16,337 |   |
| Subtotal Multi-channel  Group                           |       | 22,419                                    |       | 22,559 |   | 20,924 |   |
| Unallocated Corporate                                   |       | 1,217                                     |       | 990 |   | 907 |   |
| **Total**                                               |       | $                                         | 35,600     |   | $ | 35,875 |   | $ | 34,630 |   |
| **GEOGRAPHIC INFORMATION**                              |       |                                      |       |   |   |   |   |
| **Net Sales**                                           |       |                                      |       |   |   |   |   |
| United States                                           |       | $                                         | 1,015,991  |   | $ | 946,832 |   | $ | 888,206 |   |
| International                                           |       | 285,374                                   |       | 307,429 |   | 332,405 |   |
| **Total**                                               |       | $                                         | 1,301,365  |   | $ | 1,254,261 |   | $ | 1,220,611 |   |
| **Long Lived Assets**                                   |       |                                      |       |   |   |   |   |
| United States                                           |       | $                                         | 376,209    |   | $ | 302,245 |   | $ | 233,998 |   |
| International                                           |       | 171,548                                   |       | 149,288 |   | 43,128 |   |
| **Total**                                               |       | $                                         | 547,757    |   | $ | 451,533 |   | $ | 277,126 |   |
|                                                         |            |                                           |            |  |  |  |  |  |  |  |  |  |

----

(1)           Fiscal 2006 and 2007 earnings include goodwillimpairment charges of $53.3 million and $48.8 million, respectively (See Note10 to the Consolidated Financial Statements).

69

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**BLYTH, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued)**

**Note 19.   StockRepurchase Plan**

On June 7, 2006, theCompany’s Board of Directors amended the stock repurchase program and increasedthe number of shares of common stock authorized to be repurchased by 6,000,000shares to 12,000,000 shares. Since January 31, 2006, the Company haspurchased 1,802,382 shares on the open market for a cost of $35.0 millionbringing the cumulative total purchased shares to 6,429,182 as of January 31,2007 for a total cost of approximately $149.6 million. Additionally infiscal 2005, 4,906,616 shares were repurchased through a Dutch auction cashtender offer for an aggregate purchase price of $172.6 million includingfees and expenses. The acquired shares are held as common stock in treasury atcost.

**Note 20.**   EarningsPer Share

Thefollowing table presents the components of basic and diluted net earnings percommon share:

| ** **                                              | ** ** | ** ** | ** ** | **Year ended January 31,** | ** ** |
|---------------------------------------------------------|------------|------------|------------|-------------------------------------------|------------|
| ** **                                              | ** ** | ** ** | ** ** | **2005**                                  | ** ** | **2006** | ** ** | **2007** | ** ** |
| ** **                                              | ** ** | ** ** | ** ** | **(In thousands)**                   | ** ** |
| Net earnings                                            |       | $          | 96,514     |                                      | $          | 24,857 |   | $ | (103,173 | ) |
| Weighted average number  of common shares outstanding:  |       |       |       |                                      |       |   |   |
| Basic                                                   |       | 43,136     |       | 40,956                                    |       | 39,781 |   |
| Dilutive effect of stock options and restricted  shares |       | 420        |       | 220                                       |       | 276 |   |
| Weighted average number  of common shares outstanding:  |       |       |       |                                      |       |   |   |
| Diluted                                                 |       | 43,556     |       | 41,176                                    |       | 40,057 |   |
|                                                         |            |            |            |                                           |            |  |  |  |  |  |  |  |

 

As of January 31,2005, 2006 and 2007, options to purchase 50,200, 675,943 and 1,045,025 sharesof common stock, respectively, are not included in the computation of dilutedearnings per share because the effect would be antidilutive.

**Note21.**   Treasury and Common Stock

| **Treasury Stock**           | ** ** | ** **                                       | ** ** | **Shares** | ** ** | **Amount** | ** ** |
|-----------------------------------|------------|--------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                        | ** ** | **(In thousands, except shares)** | ** ** |
| Changes in Treasury  Stock were:  |       |                                             |       |       |       |
| Balance at  February 1, 2004 |       | 4,345,100                                        |       | $          | (105,389   | )          |
| Treasury stock  purchases         |       | 5,123,316                                        |       | (179,675   | )          |
| Balance at January 31,  2005 |       | 9,468,416                                        |       | (285,064   | )          |
| Restricted stock  cancellations   |       | —                                           |       | (609       | )          |
| Treasury stock  purchases         |       | 65,000                                           |       | (2,071     | )          |
| Balance at  January 31, 2006 |       | 9,533,416                                        |       | (287,744   | )          |
| Restricted stock  cancellations   |       | —                                           |       | (982       | )          |
| Treasury stock  purchases         |       | 1,802,382                                        |       | (34,988    | )          |
| Balance at  January 31, 2007 |       | 11,335,798                                       |       | $          | (323,714   | )          |

 

70

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**BLYTH, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued)**

**Note 21.**   Treasury andCommon Stock (Continued)

| **Common Stock**                                            | ** ** | ** **                                   | ** ** | **Shares** | ** ** | **Amount** | ** ** |
|------------------------------------------------------------------|------------|----------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                       | ** ** | **(In thousands,  except shares)** | ** ** |
| Changes in Common Stock  were:                                   | ** ** | ** **                                   | ** ** |       | ** ** | ** ** |       |
| Balance at  February 1, 2004                                |       | 49,975,502                                   |       |       | $          | 999        | ** ** |   |
| Common stock  issued in connection with long-term incentive plan |       | 392,325                                      |       |       | 8          | ** ** |       |
| Balance at  January 31, 2005                                |       | 50,367,827                                   |       |       | 1,007      | ** ** |       |
| Common stock  issued in connection with long-term incentive plan |       | 158,733                                      |       |       | 3          | ** ** |       |
| Issuance of  restricted stock, net of cancellations              |       | 1,500                                        |       |       | —     | ** ** |       |
| Balance at  January 31, 2006                                |       | 50,528,060                                   |       |       | 1,010      | ** ** |       |
| Common stock  issued in connection with long-term incentive plan |       | 109,000                                      |       |       | 3          | ** ** |       |
| Issuance of  restricted stock, net of cancellations              |       | —                                       |       |       | —     | ** ** |       |
| Balance at  January 31, 2007                                |       | 50,637,060                                   |       |       | $          | 1,013      | ** ** |   |

 

**Note 22.**   SelectedQuarterly Financial Data (Unaudited)

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

| ** **                                                     | ** ** | **2006 Quarter Ended**                                   | ** ** |
|----------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                     | ** ** | **April 30**                                                  | ** ** | **July 31** | ** ** | **October 31** | ** ** | **January 31** | ** ** |
| ** **                                                     | ** ** | **(In thousands, except per share data)** | ** ** |
| Net sales                                                      |       | $                                                                  | 288,822    |   | $ | 256,276 | (2) |   | $ | 328,458 |   |   | $ | 380,705 |   |
| Gross profit                                                   |       | 151,791                                                            |       | 131,839 |   |   | 153,620 |   |   | 198,535 |   |
| Earnings (loss)  from continuing operations                    |       | 12,606                                                             |       | 8,665 |   |   | 13,757 |   |   | (14,497 | )(3)(4) |
| Earnings (loss)  from discontinued operations(7)               |       | (2,645                                                             | )          | (4,511 | ) |   | 9,284 |   |   | 2,198 |   |
| Net earnings  (loss)                                           |       | 9,961                                                              |       | 4,154 |   |   | 23,041 |   |   | (12,299 | ) |
| Basic                                                          |       |                                                               |       |   |   |   |   |   |   |   |   |
| Earnings (loss) from continuing operations per  common share   |       | $                                                                  | 0.31       |   | $ | 0.21 |   |   | $ | 0.33 |   |   | $ | (0.35 | ) |
| Earnings (loss) from discontinued operations per  common share |       | (0.07                                                              | )          | (0.11 | ) |   | 0.23 |   |   | 0.05 |   |
| Net earnings (loss) per common share(1)                        |       | $                                                                  | 0.24       |   | $ | 0.10 |   |   | $ | 0.56 |   |   | $ | (0.30 | ) |
| Diluted                                                        |       |                                                               |       |   |   |   |   |   |   |   |   |
| Earnings (loss) from continuing operations per  common share   |       | $                                                                  | 0.31       |   | $ | 0.21 |   |   | $ | 0.33 |   |   | $ | (0.35 | ) |
| Earnings (loss) from discontinued operations per  common share |       | (0.07                                                              | )          | (0.11 | ) |   | 0.23 |   |   | 0.05 |   |
| Net earnings  (loss) per common share(1)                       |       | $                                                                  | 0.24       |   | $ | 0.10 |   |   | $ | 0.56 |   |   | $ | (0.30 | ) |

** **

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**BLYTH, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued)**

**Note 22.**   Selected Quarterly Financial Data (Unaudited)(Continued)

 

| ** **                                                     | ** ** | **2007 Quarter Ended**                                   | ** ** |
|----------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                     | ** ** | **April 30**                                                  | ** ** | **July 31** | ** ** | **October 31** | ** ** | **January 31** | ** ** |
| ** **                                                     | ** ** | **(In thousands, except per share data)** | ** ** |
| Net sales                                                      |       | $                                                                  | 280,247    |   | $ | 262,617 |   |   | $ | 297,911 |   |   |   | $ | 379,836 |   |   |
| Gross profit                                                   |       | 141,334                                                            |       | 128,046 |   |   | 137,348 |   |   |   | 189,941 |   |   |
| Earnings (loss)  from continuing operations                    |       | 8,143                                                              |       | (20,769 | )(5) |   | 1,932 |   |   |   | 13,248 | (6) |   |
| Earnings (loss)  from discontinued operations(7)               |       | (38,752                                                            | )          | (68,598 | ) |   | (2,153 | ) |   |   | 3,776 |   |   |
| Net earnings  (loss)                                           |       | (30,609                                                            | )          | (89,367 | ) |   | (221 | ) |   |   | 17,024 |   |   |
| Basic                                                          |       |                                                               |       |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss)  from continuing operations per common share   |       | $                                                                  | 0.20       |   | $ | (0.52 | ) |   | $ | 0.05 |   |   |   | $ | 0.34 |   |   |
| Earnings (loss)  from discontinued operations per common share |       | (0.95                                                              | )          | (1.72 | ) |   | (0.05 | ) |   |   | 0.10 |   |   |
| Net earnings  (loss) per common share(1)                       |       | $                                                                  | (0.75      | ) | $ | (2.24 | ) |   | $ | — |   |   |   | $ | 0.43 |   |   |
| Diluted                                                        |       |                                                               |       |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss)  from continuing operations per common share   |       | $                                                                  | 0.20       |   | $ | (0.52 | ) |   | $ | 0.05 |   |   |   | $ | 0.33 |   |   |
| Earnings (loss)  from discontinued operations per common share |       | (0.95                                                              | )          | (1.72 | ) |   | (0.05 | ) |   |   | 0.10 |   |   |
| Net earnings (loss) per  common share(1)                       |       | $                                                                  | (0.75      | ) | $ | (2.24 | ) |   | $ | — |   |   |   | $ | 0.43 |   |   |

----

(1)             The sum of per share amounts for the quarters does notnecessarily equal that reported for the year because the computations are madeindependently.

(2)             Second quarter, fiscal 2006, net sales, include a $5.5million reversal of a contingent reserve related to the settlement of a stateunclaimed property matter.

(3)             Fourth quarter, fiscal 2006 net loss, includes a goodwillimpairment charge of $53.3 million in the Wholesale segment. (SeeNote 10 to the Consolidated Financial Statements).

(4)             Fourth quarter, fiscal 2006, includes a $2.5 millionreduction in tax expense resulting from adjustments to prior years’ income taxitems.

(5)             Second quarter, fiscal 2007 net loss, includes agoodwill impairment charge of $36.8 in the Wholesale segment. (See Note 10 tothe Consolidated Financial Statements).

(6)             Fourth quarter, fiscal 2007 net loss, includes agoodwill impairment charge of $12.0 in the Wholesale segment. (See Note 10to the Consolidated Financial Statements).

(7)             In fiscal 2007, the Kaemingk B.V., Edelman B.V.,Euro-Décor B.V., Gies and Colony business were sold (See Note 4 to theConsolidated Financial Statements). The results of operations for thesebusiness units have been reclassified to discontinued operations for allperiods presented.

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**Item 9.**                        Changesin and Disagreements with Accountants on Accounting and Financial Disclosure

None.

**Item 9A.**                Controlsand Procedures

(a)          Evaluation of DisclosureControls and Procedures.

Our management,with the participation of our principal executive officer and our principalfinancial officer, evaluated the effectiveness of our disclosure controls andprocedures (as defined in Securities Exchange Act of 1934 (“Exchange Act”) Rules 13a-15(e) or15d-15(e)) as of the end of the period covered by this report as requiredby paragraph (b) of Exchange Act Rules 13a-15 or 15d-15. Basedupon this evaluation, our principal executive officer and principal financialofficer have concluded that the Company’s disclosure controls and procedureswere effective as of January 31, 2007.

(b)         Management’s Report onInternal Control over Financial Reporting.

Management is responsible for establishing andmaintaining adequate internal control over financial reporting, as such term isdefined in Exchange Act Rules 13a-15(f) and 15d-15(f).The Company’s internal control over financial reporting is a process designedunder the supervision of the principal executive and financial officers, andeffected by the board of directors and management, to provide reasonableassurance regarding the reliability of financial reporting and the preparationof consolidated financial statements for external purposes in accordance withaccounting principles generally accepted in the United States of America. Becauseof its inherent limitations, such as human judgment, errors or mistakes,internal control over financial reporting may not prevent or detectmisstatements. Also, projections of any evaluation of effectiveness to futureperiods are subject to the risk that controls may become inadequate because ofchanges in conditions, or that the degree of compliance with the policies orprocedures may deteriorate.

We performed an assessment of the effectiveness of theCompany’s internal control over financial reporting as of January 31, 2007based on the criteria set forth in*InternalControl*—*Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission.The objective of this assessment is to determine whether the Company’s internalcontrol over financial reporting was effective as of January 31, 2007. Basedon its assessment, management believes that, as of January 31, 2007, theCompany’s internal control over financial reporting was effective based on thecriteria in the framework.

Deloitte &Touche LLP, an independent registered public accounting firm, has reported onmanagement’s assertion with respect to the effectiveness of the Company’sinternal control over financial reporting as of January 31, 2007, asstated in their report on pages 35 and 74.

(c)          Changes in InternalControl over Financial Reporting.

There have been no changes in our internal controlover financial reporting identified in connection with the evaluation requiredby paragraph (d) of Exchange Act Rules 13a-15 or 15d-15that occurred during the fourth quarter of fiscal 2007 that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting.

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(d)         Reportof Independent Registered Public Accounting Firm

**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

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

We have audited management’s assessment, included inthe accompanying Report of Management on Internal Controls Over FinancialReporting, that Blyth, Inc. and  subsidiaries (the “Company”)maintained effective internal control over financial reporting as of January 31,2007, based on the criteria established in *InternalControl—Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission. The Company’s management isresponsible for maintaining effective internal control over financial reportingand for its assessment of the effectiveness of internal control over financialreporting. Our responsibility is to express an opinion on management’sassessment and an opinion on the effectiveness of the Company’s internalcontrol over financial reporting based on our audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining an understandingof internal control over financial reporting, evaluating management’sassessment, testing and evaluating the design and operating effectiveness ofinternal control, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonablebasis for our opinions.

A company’s internal control over financial reportingis a process designed by, or under the supervision of, the company’s principalexecutive and principal financial officers, or persons performing similarfunctions, and effected by the company’s board of directors, management, andother personnel to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accounting principles,and that receipts and expenditures of the company are being made only inaccordance with authorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have amaterial effect on the financial statements.

Because of the inherent limitations of internalcontrol over financial reporting, including the possibility of collusion orimproper management override of controls, material misstatements due to erroror fraud may not be prevented or detected on a timely basis. Also, projectionsof any evaluation of the effectiveness of the internal control over financialreporting to future periods are subject to the risk that the controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that theCompany maintained effective internal control over financial reporting as of January 31,2007, is fairly stated, in all material respects, based on the criteriaestablished in *Internal Control—IntegratedFramework* issued by the Committee of Sponsoring Organizations of theTreadway Commission. Also in our opinion, the Company maintained, in allmaterial respects, effective internal control over financial reporting as of January 31,2007, based on the criteria established in *InternalControl—Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission.

74

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We have also audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the consolidated financial statements and financial statementschedule of Blyth, Inc. and subsidiaries as of and for the year ended January 31,2007 and our report dated April 13, 2007 expressed an unqualified opinionon those financial statements and financial statement schedule.

/s/ DELOITTE &TOUCHE LLP

Chicago, IllinoisApril 13, 2007

**Item 9B.**               OtherInformation

None.

**PART III**

**Item 10.**                 Directorsand Executive Officers of the Registrant

The information requiredby this Item will be set forth in our Proxy Statement for our annual meeting ofstockholders scheduled to be held on June 6, 2007 (the “Proxy Statement”)under the captions “Nominees for Election as Directors,” “Nominees for Electionat the 2007 Annual Meeting for Terms Expiring in 2010,” “Continuing Directorswith Terms Expiring in 2008” and “Continuing Directors with Terms Expiring in2009” and is incorporated herein by reference.

**Item 11.**                 ExecutiveCompensation

The information requiredby this Item will be set forth in our Proxy Statement under the captions “ExecutiveCompensation,” “Employment Contracts and Severance Arrangements” and “PensionPlans” and is incorporated herein by reference.

**Item 12.**                 SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters

The information requiredby this Item will be set forth in our Proxy Statement under the caption “SecurityOwnership of Management and Certain Beneficial Owners” and is incorporatedherein by reference.

**Item 13.**                 CertainRelationships and Related Transactions

The information requiredby this Item will be set forth in our Proxy Statement under the caption “CertainRelationships and Related Transactions” and is incorporated herein byreference.

**Item 14.**                 PrincipalAccountant Fees and Services

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

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**PART IV**

**Item 15.**                 Exhibitsand Financial Statement Schedules

(a)(1).                 *Financial Statements*

Thefollowing consolidated financial statements are contained on the indicated pages ofthis report:

|                                                           | ** ** | **Page No.** | ** ** |
|-----------------------------------------------------------|------------|-------------------|------------|
| Reports of  Independent Registered Public Accounting Firm |       |              | 35         |   |   |
| Statements:                                               |       |              |       |   |   |
| Consolidated Balance Sheets                               |       |              | 36         |   |   |
| Consolidated Statements of Earnings (Loss)                |       |              | 37         |   |   |
| Consolidated Statements of Stockholders’ Equity      |       |              | 38         |   |   |
| Consolidated  Statements of Cash Flows                    |       |              | 39         |   |   |
| Notes to Consolidated  Financial Statements               |       |              | 40-72      |   |   |

 

(a)(2).                 *Financial Statement Schedules*

Thefollowing financial statement schedule is contained on the indicated page ofthis report:

|                                    | ** ** | **Page No.** | ** ** |
|------------------------------------|------------|-------------------|------------|
| Valuation and  Qualifying Accounts |       |              | S-2        |   |   |
|                                    |            |                   |            |  |  |

 

All other schedulesare omitted because they are inapplicable or the requested information is shownin the consolidated financial statements or related notes.

(a)(3).                 *Exhibits*
| Exhibit No. | ** ** | **Description of Exhibit** |
|------------------|------------|----------------------------|
|             | 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)) |
|             | 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) |
|             | 4.1        | (c)                        |   | 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)) |

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|        | 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)                                                                                                                                                                                                |
|   | 10.1       | (c)    |   | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | 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 | +      |   | Employment 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

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|        | 10.5  | (a)+   |   | Amendment No. 1  dated as of June 15, 2002 to the Employment Agreement dated as of  August 1, 2000 by and between the Registrant and Robert B. Goergen  (incorporated by reference to Exhibit 10.6(a) to the Registrant’s  Annual Report on Form 10-K for the fiscal year ended  January 31, 2003)                                                                                                                                    |
|--------|-------|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 10.5  | (b)+   |   | Amendment No. 2  dated as of March 31, 2004 to the Employment Agreement dated as of  August 1, 2000 by and between the Registrant and Robert B. Goergen  (incorporated by reference to Exhibit 10.6(b) to the Registrant’s  Annual Report on Form 10-K for the fiscal year ended  January 31, 2004)                                                                                                                                   |
|   | 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  |   |   | Credit Agreement, dated  June 2, 2005 among the Registrant, PartyLite Trading, SA, the Lenders  listed therein, JPMorgan Chase Bank, N.A. as Administrative Agent and Bank of  America, N.A. and LaSalle Bank National Association as Co-Syndication Agents  (incorporated by reference to Exhibit 10.1 to the Registrant’s Current  Report on Form 8-K filed June 6, 2005)                                                                          |
|   | 10.7  | (a)    |   | Amendment No. 1  dated as of October 2, 2006 to the Credit Agreement dated as of  June 2, 2005, among Blyth, Inc., PartyLite Trading, SA, the Lenders  listed therein, JPMorgan Chase Bank, N.A. as Administrative Agent and Bank of  America, N.A. and LaSalle Bank National Association as Co-Syndication Agents  (incorporated by reference to Exhibit 10.1 to the Registrant’s Current  Report on Form 8-K filed October 5, 2006) |
|   | 10.8  | +      |   | 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)                                                                                                                                                                                                                                                                  |
|   | 10.8  | (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)                                                                                                                                                                                                      |
|   | 10.9  | +      |   | 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)                                                                                                                                                               |
|   | 10.10 | +      |   | 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)                                                                                                                                                           |
|   | 10.11 | +      |   | 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)                                                                                                                                                                                                                                                |

78

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|        | 10.11 | (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)                                                                     |
|--------|-------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 10.12 | +      |   | 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))                                                                                                                           |
|   | 10.13 | +      |   | 2003 Long-Term Incentive  Plan of the Registrant (incorporated by reference to Exhibit 10.1 to the  Registrant’s Current Report on Form 8-K/A filed April 17,  2003)                                                                                                                                                                        |
|   | 10.13 | (a)+   |   | Amendment No. 1 to  the 2003 Long-Term Incentive Plan of the Registrant (incorporated by  reference to Exhibit 10.1 to the Registrant’s Current Report on  Form 8-K filed April 27, 2004)                                                                                                                                              |
|   | 10.14 |   |   | Share Sale and Purchase  Agreement dated April 12, 2006 between SMF Management Consultants B.V.  (as Purchaser) and Blyth Holding B.V. (as Seller) and Blyth, Inc. (as  Guarantor) and Johannes Van Tol (incorporated by reference to  Exhibit 10.16 to the Registrant’s Quarterly Report on Form 10-Q  filed September 11, 2006) |
|   | 10.15 |   |   | Share Sale and Purchase  Agreement dated June 16, 2006 between Monceau Deelnemingen I B.V. (as  Purchaser), Blyth Holding B.V. (as Seller) and Blyth, Inc. (as  Guarantor) (incorporated by reference to Exhibit 10.17 to the  Registrant’s Quarterly Report on Form 10-Q filed September 11,  2006)                              |
|   | 10.16 |   |   | Share Sale and Purchase  Agreement between Prebola NR 293 AB (under name change to ALG Holding AB) and  Blyth Wholesale Holdings, Inc. dated August 14, 2006 (incorporated  by reference to Exhibit 10.18 to the Registrant’s Quarterly Report on  Form 10-Q filed December 11, 2006)                                             |
|   | 10.17 | *      |   | Share Purchase Agreement  dated December 20, 2006 between Blyth HomeScents International UK  Limited and Cobco 813 Limited                                                                                                                                                                                                                                 |
|   | 21.1  | *      |   | List of Subsidiaries                                                                                                                                                                                                                                                                                                                                            |
|   | 23.1  | *      |   | Consent of  Deloitte & Touche LLP                                                                                                                                                                                                                                                                                                                      |
|   | 31.1  | *      |   | Section 302  Certification of Chairman and Chief Executive Officer                                                                                                                                                                                                                                                                                         |
|   | 31.2  | *      |   | Section 302  Certification of Vice President and Chief Financial Officer                                                                                                                                                                                                                                                                                   |
|   | 32.1  | *      |   | Certification of  Chairman and Chief Executive Officer pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                          |
|   | 32.2  | *      |   | Certification of Vice  President and Chief Financial Officer pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                    |

----

*                    Filedherewith.

+                Managementcontract or compensatory plan required to be filed by Item 15(a)(3) ofthis report.

79

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.
| Date:  April 13, 2007 | BLYTH, INC. |
|----------------------------|-------------|
|                       |        |   |
|                       |        |   |
|                       | By:         | /s/ ROBERT B.  GOERGEN |
|                       |        | Name: Robert B. Goergen |
|                       |        | Title: Chairman and Chief Executive Officer |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the dates indicated.
| Signature               | ** ** | **Title**                                    | ** ** | **Date**             |
|-------------------------|------------|----------------------------------------------|------------|----------------------|
| /s/  ROBERT B. GOERGEN  |       | Chairman and Chief  Executive Officer;       |       | April 13,  2007 |
| Robert B. Goergen       |       | Director (Principal Executive Officer)       |       |                 |
| /s/  ROBERT H. BARGHAUS |       | Vice President and Chief  Financial Officer  |       | April 13,  2007 |
| Robert H.  Barghaus     |       | (Principal Financial and Accounting Officer) |       |                 |
| /s/  ROGER A. ANDERSON  |       | Director                                     |       | April 13,  2007 |
| Roger A. Anderson       |       |                                         |       |                 |
| /s/  JOHN W. BURKHART   |       | Director                                     |       | April 13,  2007 |
| John W. Burkhart        |       |                                         |       |                 |
| /s/  PAMELA M. GOERGEN  |       | Director                                     |       | April 13,  2007 |
| Pamela M. Goergen       |       |                                         |       |                 |
| /s/  NEAL I. GOLDMAN    |       | Director                                     |       | April 13,  2007 |
| Neal I. Goldman         |       |                                         |       |                 |
| /s/  CAROL J. HOCHMAN   |       | Director                                     |       | April 13,  2007 |
| Carol J. Hochman        |       |                                         |       |                 |
| /s/  WILMA H. JORDAN    |       | Director                                     |       | April 13,  2007 |
| Wilma H. Jordan         |       |                                         |       |                 |
| /s/  JAMES M. MCTAGGART |       | Director                                     |       | April 13,  2007 |
| James M.  McTaggart     |       |                                         |       |                 |
| /s/  HOWARD E. ROSE     |       | Director                                     |       | April 13,  2007 |
| Howard E. Rose          |       |                                         |       |                 |

 

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**SCHEDULE II—VALUATIONAND QUALIFYING ACCOUNTSFor the years ended January 31, 2006 and 2007(In thousands)**

| ** **                       | ** ** | **Balance at  Beginning of  Period** | ** ** | **Acquired  Balances** | ** ** | **Charged to  Costs and  Expenses** | ** ** | **Deductions** | ** ** | **Balance at  End of  Period** | ** ** |
|----------------------------------|------------|------------------------------------------------|------------|------------------------|------------|-----------------------------------------------|------------|----------------|------------|------------------------------------------|------------|
| **2006**                         | ** ** |                                           | ** ** | ** **             |       |                                          | ** ** | ** **     |       |                                     | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Allowance for  doubtful accounts |       |                                           | $          | 4,028                  | ** ** |                                          |       | $              | —     | ** **                               |       |   | $ | 2,189 | ** ** |   |   | $ | (2,325 | ) |   |   | $ | 3,892 | ** ** |   |
| Income tax  valuation allowance  |       |                                           | 4,038      | ** **             |       |                                          | —     | ** **     |       |                                     | 767        | ** ** |   |   | (101 | ) |   |   | 4,704 | ** ** |   |
| Inventory reserve                |       |                                           | 22,433     | ** **             |       |                                          | —     | ** **     |       |                                     | 16,961     | ** ** |   |   | (17,075 | ) |   |   | 22,319 | ** ** |   |
| **2007**                         | ** ** |                                           | ** ** | ** **             |       |                                          | ** ** | ** **     |       |                                     | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Allowance for  doubtful accounts |       |                                           | $          | 3,892                  | ** ** |                                          |       | $              | —     | ** **                               |       |   | $ | 998 | ** ** |   |   | $ | (3,357 | ) |   |   | $ | 1,533 | ** ** |   |
| Income tax  valuation allowance  |       |                                           | 4,704      | ** **             |       |                                          | —     | ** **     |       |                                     | 15,171     | ** ** |   |   | (1,265 | ) |   |   | 18,610 | ** ** |   |
| Inventory reserve                |       |                                           | 22,319     | ** **             |       |                                          | —     | ** **     |       |                                     | 29,251     | ** ** |   |   | (27,286 | ) |   |   | 24,284 | ** ** |   |

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1.                 Deductions in 2007include the sale of Wholesale Europe

S-2

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