10-K

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

Securities registered 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

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

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

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes   oNo   x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes   xNo   o

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

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

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

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

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

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

DOCUMENTS INCORPORATED BY REFERENCE

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

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)General Development of Business

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

Recent Developments

In September 2005, we announced our proposed intention to spin off the Wholesale segment to our stockholders. We requested and received from the Internal Revenue Service a ruling on the tax-free status for the transaction. In March 2006, we announced our intention to evaluate additional strategic opportunities that had been identified since the announcement of the spin off, which would likely focus on one or more of our European Wholesale businesses. In fiscal 2007, we sold all of our European Wholesale businesses.

During the third quarter of fiscal 2007, we began the restructuring of our North American mass channel home fragrance business with the announcement that we will be closing our Tijuana, Mexico manufacturing facility. In addition, in fiscal 2007, we commenced the elimination of less profitable customers and streamlining of the Stock Keeping Unit (“SKU”) base of the mass business.

Additional Information

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

(b)Financial Information about Segments

We report our financial results in three business segments: the Direct Selling segment, the Catalog & Internet segment and the Wholesale segment. These segments accounted for approximately 57%, 16% and 27% of consolidated net sales, respectively, for fiscal 2007. Financial information relating to these business segments for fiscal 2005, 2006 and 2007 appears in Note 18 of the consolidated financial statements and is incorporated herein by reference.

(c)Narrative Description of Business

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

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

Direct Selling Segment

In fiscal 2007, the Direct Selling segment represented approximately 57% of total sales. Our principal Direct Selling business is PartyLite. PartyLiteâbrand products are marketed in North America, Europe and Australia through a network of independent sales consultants using the party plan method of direct selling. These products include fragranced and non-fragranced candles, bath products and a broad range of related accessories.

In fiscal 2006, the Company acquired a party plan company called Two Sisters Gourmet, which is focused on gourmet food. Two Sisters Gourmet represents substantially less than 1% of total sales of the Direct Selling segment. In fiscal 2007, the Company ceased operations of Purple Tree, which was focused on the craft industry. In the future, the Company may pursue other direct selling business opportunities.

United States Market

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

International Market

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

We support our independent sales consultants with inventory management and control and satisfy delivery requirements through on-line ordering, which is available to all independent sales consultants in the United States and Canada, as well as in most of Europe.

Catalog & Internet Segment

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

Wholesale Segment

In fiscal 2007, this segment represented approximately 27% of total sales. Products within this segment include candles and other home fragrance products, a broad range of candle-related accessories, seasonal decorations, and home décor products such as picture frames, lamps and textiles. In addition, chafing fuel and tabletop lighting products and accessories for the Away From Home or foodservice trade are sold in this segment. Our wholesale products are designed, packaged and priced to satisfy the varying demands of retailers and consumers within each distribution channel.

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

Product Brand Names

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

PartyLiteâ
Well Being by PartyLiteä
Two Sisters Gourmetâ

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

Boca Javaä
Easy Comfortsä
Exposuresâ
Home Marketplaceâ
Miles Kimballâ
Walter Drakeâ

The key brand names under 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 Product Development

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

Manufacturing, Sourcing and Distribution

In all of our business segments, management continuously works to increase value and lower costs through increased efficiency in worldwide production, sourcing and distribution practices, the application of new technologies and process control systems, and consolidation and rationalization of equipment and facilities. Capital expenditures over the past five years have totaled $92.2 million and are targeted to technological advancements or capital investments with short payback time frames. We have also closed several facilities and written down the values of certain machinery and equipment in recent years in response to changing market conditions.

We manufacture most of our candles using highly automated processes and technologies, as well as certain hand crafting and finishing, and source nearly all of our other products, primarily from independent manufacturers in the Pacific Rim, Europe and Mexico. Many of our products are manufactured by others based on our design specifications, making our global supply chain approach

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critically important to new product development, quality control and cost management. We have also built a network of stand-alone highly automated distribution facilities in our core markets.

Technological Advancements

We continue to see the benefit of our substantial investment in technological initiatives, particularly Internet-based ordering technology. An Internet-based order-entry and business management system is available to all PartyLite independent sales consultants in the United States, Canada and most of Europe. By fiscal 2007 year-end, show orders placed via the PartyLite extranet had increased to over 90% of total show orders in North America and over 70% of total show orders in Europe. The extranet’s automated features eliminate errors common on hand-written paper forms and speed orders through processing and distribution, improving customer service. Furthermore, by easing the administrative workload and providing tools with which to track sales and programs, the extranet has helped PartyLite independent sales consultants build their businesses more efficiently. The improved accuracy of the automated system also results in administrative savings for the Company.

Customers

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

Competition

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

Employees

As of January 31, 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 are non-salaried. We do not have any unionized employees. We believe that relations with our employees are good. Since our formation in 1977, we have never experienced a work stoppage.

Raw Materials

All of the raw materials used for our candles, home fragrance products and chafing fuel, principally petroleum-based wax, fragrance, glass containers and corrugate, have historically been available in adequate supply from multiple sources. In fiscal 2007, substantial cost increases for certain raw materials, such as paraffin, dyethelene glycol (DEG) and ethanol, as well as aluminum and paper, negatively impacted profitability of certain products in all three segments.

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Seasonality

Our business is highly seasonal, and our net sales are strongest in the third and fourth fiscal quarters due to increased shipments to meet year-end holiday season demand for our products.

Trademarks and Patents

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

Environmental Law Compliance

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

(d)Financial Information about Geographic Areas

For information on net sales from external customers attributed to the United States and foreign countries and on long-lived assets located in the United States and outside the United States, see Note 18 to the Consolidated Financial Statements.

Item 1A.Risk Factors

Risk of Inability to Increase Sales or Identify Suitable Acquisition Candidates

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

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

Risks Associated with International Sales and Foreign-Sourced Products

Our international sales growth 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 segments from independent manufacturers in the Pacific Rim, Europe and Mexico. For these reasons, we are subject to the following risks associated with international manufacturing and sales:  fluctuations in currency exchange rates; economic or political instability; international public health crises; transportation costs and delays; difficulty in maintaining quality control; restrictive governmental actions; nationalizations; the laws and

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

Ability to Respond to Increased Product Demand

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

Risk of Shortages of Raw Materials

Certain raw materials could be in short supply due to price changes, capacity, availability, a change in requirements, weather or other factors, including supply disruptions due to production or transportation delays. While the price of crude oil is only one of several factors impacting the price of petroleum wax, it is possible that recent fluctuations in oil prices may have a material adverse affect on the cost of petroleum-based products used in the manufacture or transportation of our products, particularly in the Direct Selling and Wholesale business segments. In fiscal 2007, substantial cost increases for certain raw materials, such as paraffin, dyethelene glycol (DEG) and ethanol, as well as aluminum and paper, negatively impacted profitability of certain products in all three segments.

Dependence on Key Corporate Management Personnel

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

Risk of Increased Competition

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

Risks Associated with Proposed FTC Regulations

In April 2006, the U.S. Federal Trade Commission issued a notice of proposed rulemaking that if implemented, will regulate all sellers of “business opportunities” in the United States. The proposed rule would, among other things, require all sellers of business opportunities, which would likely include PartyLite and Two Sisters Gourmet, to implement a seven-day waiting period before entering into an

7

agreement with a prospective business opportunity purchaser and provide all prospective business opportunity purchasers with substantial disclosures in writing regarding the business opportunity and the company. Based on information currently available, we anticipate that the final rule may require several years to become final and effective, and may differ substantially from the rule as originally proposed. Nevertheless the proposed rule, if implemented in its original form, would negatively impact our Direct Selling businesses.

Risks Related to Information Technology Systems

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

Item 1B.Unresolved Staff Comments

None

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Item 2.Properties

The following table sets forth the location and approximate square footage of the our 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 are currently being utilized for their intended purpose.

Item 3.Legal Proceedings

We are involved in litigation arising in the ordinary course of business. In our opinion, existing litigation will not have a material adverse effect on our financial position or results of operations.

Item 4.Submission of Matters to a Vote of Security Holders

None

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PART II

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

Our Common Stock is traded on the New York Stock Exchange under the symbol BTH. The price 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 registered holders of record of the Common Stock.

On March 27, 2007, the Board of Directors declared a regular semi-annual cash dividend in the amount of $0.27 per share payable in the second quarter of fiscal 2008. During fiscal 2007 and 2006, the Board of Directors declared dividends as follows: $0.23 per share payable in the second quarter of fiscal 2007; $0.27 per share payable in the fourth quarter of fiscal 2007; $0.21 per share payable in the second quarter of fiscal 2006; 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 sets forth, for the equity compensation plan categories listed below, information as of January 31, 2007:

Equity Compensation 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

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

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The following table sets forth certain information concerning the repurchase of Common Stock made by the Company during the fourth quarter of fiscal 2007.

ISSUER PURCHASES OF EQUITY SECURITIES(1)

Period	(a) Total Number of Shares Purchased		(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
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

(1)On September 10, 1998, the Board of Directors approved our share repurchase program (the “Repurchase Program”) pursuant to which we were authorized to repurchase up to 1,000,000 shares of Common Stock in open market transactions. On June 8, 1999, the Board amended the Repurchase Program and increased the number of shares authorized to be repurchased by 1,000,000 shares, from 1,000,000 to 2,000,000 shares. On March 30, 2000, the Board further amended the Repurchase Program and increased the number of shares authorized to be 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 number of shares authorized to be repurchased by 1,000,000 shares, from 3,000,000 to 4,000,000 shares. On April 4, 2002, the Board further amended the Repurchase Program and increased the number of shares authorized to be repurchased 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 number of shares authorized to be repurchased by 6,000,000 shares, from 6,000,000 shares to 12,000,000 shares. As of January 31, 2007, we have purchased a total of 6,429,182 shares of Common Stock under the Repurchase Program. The Repurchase Program does not have an expiration date. We intend to make further purchases under the Repurchase Program from time to time.

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Performance Graph

The performance graph set forth below reflects the yearly change in the cumulative total stockholder return (price appreciation and reinvestment of dividends) on the Company’s Common Stock compared to the S&P 500 Index and the S&P 400 Midcap Index for the five fiscal years ended January 31, 2007. The graph assumes the investment of $100 in Common Stock and the reinvestment of all dividends paid on such Common Stock into additional shares of Common Stock and such indexes over the five-year period. The Company believes that it is unique and does not have comparable industry peers. Since the Company’s competitors are typically not public companies or are themselves subsidiaries or divisions of public companies engaged in multiple lines of business, the Company believes that it is not possible to compare the Company’s performance against that of its competition. In the absence of a satisfactory peer group, the Company believes that it is appropriate to compare the Company to companies comprising the S&P 400 Midcap Indexes.

Blyth, Inc. Performance Graph
Comparison of Total Stockholder Return

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Item 6.Selected Consolidated Financial Data

Set forth below are selected summary consolidated financial and operating data of the Company for fiscal years 2003 through 2007, which have been derived from our audited financial statements for those years. The information presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, including the notes thereto, appearing elsewhere in this Annual 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

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

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

(3)Fiscal 2003 pre-tax earnings include an impairment charge of $2.6 million as a result of putting Wax Lyrical into receivership. Fiscal 2004 pre-tax earnings include restructuring and impairment charges of $23.8 million related to manufacturing equipment impairment, closure of the Company’s Hyannis manufacturing facility, the discontinuance of the Canterbury® brand, and the closure of five of the Company’s candle outlet stores. Fiscal 2007 earnings include restructuring charges recorded in the Wholesale and Direct Selling segments of $24.0 million (See Note 5 to the Consolidated Financial Statements).

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

(5)Fiscal 2006 and 2007 pre-tax earnings include goodwill impairment charges of $53.3 million and $48.8 million in the Wholesale segment, respectively. (See Note 10 to the Consolidated Financial Statements).

(6)The sum of the per share amounts may not equal the amount reported for the year because computations are made independently.

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

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

Overview

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

Today, annualized net sales 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 each segment depending on geographic location, market penetration, our relative market 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 the business factors previously noted.

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

Recent Developments

In September 2005, we announced our proposed intention to spin off the Wholesale segment. We requested and received from the Internal Revenue Service a ruling on the tax-free status for the transaction. In March 2006, we announced our intention to evaluate additional strategic opportunities that had been identified since the announcement of the spin off, which would likely focus on one or more of our European Wholesale businesses, believing that substantial upside opportunities exist in the North American Wholesale businesses despite challenging market conditions impacting the Home Expressions industry.

In accordance with this intention to explore strategic alternatives with respect to our European Wholesale 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”) to an entity with which members of the management of Edelman and Euro-Decor are affiliated, (c) on August 17, 2006, we sold the Gies Group and (d) on December 20, 2006, we sold Colony Gifts Corporation Ltd. (“Colony”). Accordingly, the results of operations for Kaemingk, Edelman, Euro-Decor, Gies and Colony have been reclassified as discontinued operations for all periods presented.

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

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of the stock keeping unit (“SKU”) base of the mass business, the outsourcing of certain products currently being manufactured and head count reductions. These initial steps of the restructuring project resulted in fiscal 2007 third quarter charges totaling $5.2 million. The charges consisted of inventory write-downs of $3.9 million, equipment impairments of $0.6 million and severance costs of approximately $0.3 million which were charged to cost of goods sold, while the remaining $0.4 million related to severance was charged to administrative expense.

In the fourth quarter of fiscal 2007, the Company recorded an additional $14.9 million of charges related to the restructuring of our North American mass channel home fragrance business. In the fourth quarter, we completed the identification and notification of less profitable customers that would be eliminated. In addition, the remaining SKUs to be discontinued were identified and the determination of realizable value was made in the fourth quarter. As a result of these restructuring steps, a $12.1 million charge was recorded in cost of goods sold to adjust excess and obsolete inventory to its estimated realizable value. The remainder of the fourth quarter charges of $2.8 million consisted primarily of equipment impairments of $2.1 million and severance of $0.7 million charged to cost of goods sold. Employee terminations totaled 149 in fiscal 2007 related to this restructuring.

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

Also, during the fourth quarter of fiscal 2007, the Company recorded approximately $3.9 million of charges related to the restructuring of the North American operations of our Direct Selling segment in recognition of the recent decline in sales in this channel. These costs were comprised of a $2.4 million charge to cost of goods sold for lease obligations and equipment impairments related to a reduction in seasonal distribution capacity and $1.5 million of severance costs associated with the termination of 91 employees. Of the $1.5 million of severance costs, $0.4 million was recorded in cost of goods sold and $1.1 million was recorded in selling and administrative expense.

Segments

During fiscal 2007 there was a change in our senior management structure with the departure of our Wholesale segment President. Our Catalog & Internet segment President assumed responsibility for the Wholesale segment in addition to his current responsibilities. We refer to this new reporting structure as the Multi-channel Group. For segment reporting purposes, Blyth continues to report individual segment operating results for the Direct Selling, Catalog & Internet and Wholesale segments.

Within the Direct Selling segment, the Company designs, manufactures or sources, markets and distributes an extensive line of products including scented candles, candle-related accessories, fragranced bath gels, body lotions and other fragranced products under the PartyLite® brand. The Company also operates a small direct selling business, Two Sisters Gourmet, which is focused on gourmet food. All direct selling products are sold directly to the consumer through a network of 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 are sold in North America.

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

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

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in this segment 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 tabletop lighting products and accessories for the Away From Home or foodservice trade are sold through this segment under the Ambria®, HandyFuel® and Sterno® brands.

The following table sets forth, for the periods indicated, the percentage relationship to net sales and the percentage increase or decrease of certain items included in 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	)

Fiscal 2007 Compared to Fiscal 2006

Net sales decreased $33.7 million, or approximately 3%, from $1,254.3 million in fiscal 2006 to $1,220.6 million in fiscal 2007. The decrease is a result of the sale of Impact Plastics in January 2006, a decrease in PartyLite’s U.S. sales and lower mass candle sales in our Wholesale business. This decrease was partially offset by an increase in sales within both PartyLite’s European operations and the Catalog & 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 Direct Selling segment decreased $10.1 million, or 1%, from $704.1 million in fiscal 2006 to $694.0 million in fiscal 2007. PartyLite’s U.S. sales decreased approximately 12% compared to prior year.  Management believes this sales decrease was driven by a decline in the number of sales consultants as a result of increased channel competition, as well as fewer shows per consultant. Additionally, fiscal 2006 sales benefited from the reversal of a contingent reserve in the amount of $5.5 million for a settlement of an unclaimed property matter associated with gift cards sold since the inception of the gift card program in the Direct Selling business.

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

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

Net sales in the Direct Selling segment represented approximately 57% of total Blyth sales in fiscal 2007 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 fiscal 2006 to $199.3 million in fiscal 2007. This increase is due to increased sales in our Walter Drake, Easy Comforts and Exposures catalogs and accretive sales from 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 in fiscal 2007 compared to 15% in fiscal 2006.

Net Sales—Wholesale Segment

Net sales in the Wholesale segment 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 mass candle business and the loss of sales due to the divestiture of Impact Plastics in January 2006, which were partially offset by increased sales in the seasonal, home décor and Sterno businesses.

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

Blyth’s consolidated gross profit 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% in fiscal 2006 to 48.9% in fiscal 2007. This decrease from prior year is principally due to lower PartyLite U.S. sales, restructuring charges of $19.7 million in the Wholesale segment and $2.8 million in the Direct Selling segment and higher commodity costs.

Blyth’s consolidated selling expense decreased $1.6 million, or approximately 1%, from $411.3 million in fiscal 2006 to $409.7 million in fiscal 2007. The decrease in selling expense relates to the reduced sales in the U.S. direct selling and mass candle businesses, along with tighter cost controls in many business units, partially offset by restructuring charges in the Wholesale and Direct Selling segment. Selling expense as a percentage of net sales increased from 32.8% in fiscal 2006 to 33.6% in fiscal 2007. The increase in selling expense as a percent of sales is a result of sales decreasing at a greater rate than selling expenses.

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

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

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

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Operating Profit/Loss—Direct Selling Segment

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

Operating Profit/Loss—Catalog & Internet Segment

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

Operating Profit/Loss—Wholesale Segment

Operating loss in the Wholesale segment increased from $62.1 million in fiscal 2006 to $74.9 million in fiscal 2007. The increased loss is primarily related to the $20.1 million in restructuring charges in the North American mass candle business, sales decreased sales in the mass candle business and higher commodity costs. Additionally, included in the loss for fiscal 2006 and 2007 are the previously mentioned goodwill 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 in fiscal 2007, due to a decrease in outstanding debt.

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

Income tax expense decreased $3.7 million, or 58%, from $6.4 million in fiscal 2006 to $2.7 million in fiscal 2007. This decrease in income tax expense was primarily due to the decrease in U.S. earnings versus higher foreign sourced earnings, which are taxed at a lower rate than U.S earnings and the income tax expense of $9.1 million recorded in fiscal 2006 related to the AJCA dividend which did not recur in fiscal 2007. This decrease was offset by the recording of income taxes on unremitted foreign earnings, the tax impact of non-deductible goodwill impairments, and an increase in the Company’s contingent tax reserve. These offsets led to an increase in the effective tax rate from 24.1% in fiscal 2006 to 49.6% in fiscal 2007.

As a result of the foregoing, earnings from continuing operations decreased $17.9 million, or 87%, from $20.5 million in fiscal 2006 to $2.6 million in fiscal 2007. Basic earnings per share from continuing operations were $0.06 for fiscal 2007 compared to $0.50 for fiscal 2006. Diluted earnings per share from continuing operations were $0.06 for fiscal 2007 compared to $0.50 for fiscal 2006.

The loss from discontinued operations, net of tax, for fiscal 2007 was $105.7 million, or $2.64 per diluted share. The loss includes (a) a non-tax deductible loss of $18.4 million on the sale of the Kaemingk business, (b) a non-tax deductible loss on the sale of the Edelman and Euro-Decor businesses of $14.5 million, which includes a goodwill impairment charge of $16.7 million recorded in the first quarter of fiscal 2007, (c) a net of tax loss on the sale of the Gies business of $28.0 million, which includes an impairment charge of $31.1 million recorded in the second quarter of fiscal 2007 and (d) net of tax loss on sale of the Colony business of $19.9 million, which includes an impairment charge of $28.6 million recorded in the second quarter of fiscal 2007. The loss from discontinued operations includes operating income, net of tax, for fiscal 2006 of $4.3 million, or $0.11 per diluted share, compared to an operating loss, net of tax, of $24.9 million, or $0.62 per diluted share, for fiscal 2007.

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Fiscal 2006 Compared to Fiscal 2005

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

Net Sales—Direct Selling Segment

Net sales in the Direct Selling segment decreased $31.8 million, or 4%, from $735.9 million in fiscal 2005 to $704.1 million in fiscal 2006. PartyLite’s U.S. sales decreased approximately 11% compared to the prior year, which includes the $5.5 million benefit of the reversal of a contingent reserve related to a settlement of a state unclaimed property matter. Management believes that sales in the U.S. market continue to be negatively impacted by increased competition for hostesses and party guests in the Direct Selling channel. In addition, we believe PartyLite’s U.S. operations were negatively impacted by reduced consumer discretionary income, resulting from higher energy prices.

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

In PartyLite’s European markets, sales increased approximately 4% in U.S. dollars, driven by strong sales in the newer markets. In fiscal 2006 PartyLite Europe represented approximately 32% of PartyLite’s worldwide net sales.

Net sales in the Direct Selling segment represented approximately 56% of total Blyth sales in fiscal 2006 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 fiscal 2005 to $187.3 million in fiscal 2006. The decline was attributable to sales shortfalls in our primary catalogs, which the Company believes was due to decreased consumer discretionary spending.

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

Net Sales—Wholesale Segment

Net sales in the Wholesale segment 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 sales declines in most of the Wholesale businesses, which the Company believes was caused by a reluctance of retailers to make significant purchases in response to the lower level of consumer spending. This sales decrease was a result of lower sales in home décor and premium fragrance candle products, which was partially offset by increased sales of mass channel home fragrance products.

Net sales in the Wholesale segment represented approximately 29% of total Blyth sales in fiscal 2006 and fiscal 2005.

Blyth’s consolidated gross profit 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% in fiscal 2005 to 50.7% in fiscal 2006. This decrease was primarily due to sales shortfalls within PartyLite U.S., the margins of which are higher than Blyth’s overall average, as well as higher fuel, freight and commodity costs, which have adversely impacted a number of Blyth’s businesses.

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

Blyth’s consolidated administrative expenses decreased $0.2 million, from $126.3 million in fiscal 2005 to $126.1 million in fiscal 2006. Administrative expenses as a percentage of net sales increased from 9.7% in fiscal 2005 to 10.1% in fiscal 2006.

A goodwill impairment charge of $53.3 million was recognized in the Wholesale segment in January 2006. In fiscal 2006 this segment experienced a substantial decline in operating performance when compared to prior year results and budgeted fiscal 2006 expectations.

Blyth’s consolidated operating 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 sales within the PartyLite U.S., Wholesale and Catalog & Internet segments, the previously mentioned goodwill impairment, investment in the strategic initiatives, Two Sisters Gourmet in the Direct Selling segment, and flameless technology in the foodservice channel of the Wholesale segment, and higher commodity costs across our businesses.

Operating Profit/Loss—Direct Selling Segment

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

Operating Profit/Loss—Catalog & Internet Segment

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

Operating Profit/Loss—Wholesale Segment

Operating profit in the Wholesale segment decreased from $6.2 million in fiscal 2005 to a loss of $62.1 million in fiscal 2006. The previously mentioned goodwill impairment charge, sales shortfalls in most Wholesale businesses, as well as continued pressure on gross margins due to increased raw material costs and the loss on the sale of Impact Plastics, were the primary contributors to the decrease in operating profit in this segment compared to fiscal 2005.

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

Interest income and other decreased $0.5 million from $2.4 million in fiscal 2005 to $1.9 million in fiscal 2006. This decrease was primarily due to foreign currency exchange losses.

Income tax expense decreased $39.8 million, or 86.2%, from $46.2 million in fiscal 2005 to $6.4 million in fiscal 2006. The effective income tax rate was 24.1% for fiscal 2006 compared to 36.0% in fiscal 2005. This decrease in income tax expense and tax rate was primarily due to the decrease in U.S. earnings versus higher foreign sourced earnings, which are taxed at a lower rate than U.S earnings, the favorable impact of global audit settlements and a reduction in tax expense resulting from adjustments to prior years’ income tax items. These decreases were offset by the 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 impairment charge.

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As a result of the foregoing, net earnings from continuing operations decreased $61.9 million, or 75%, from $82.4 million in fiscal 2005 to $20.5 million in fiscal 2006.

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

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

Seasonality

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

Liquidity and Capital Resources

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

The Company typically generates positive cash flow from operations due to favorable gross margins and the variable nature of selling expenses, which constitute a significant percentage of operating expenses. The Company generated $94.3 million in cash from operations in fiscal 2007 compared to $106.8 million in fiscal 2006. Earnings from continuing operations decreased $17.9 million to $2.6 million primarily due to the reduction in earnings in the North American mass candle business and PartyLite U. S. business. Loss from discontinued operations was $105.7 million including a loss on sale of discontinued operations of $80.9 million. Included in earnings from continuing operations were non-cash charges for depreciation and amortization, goodwill impairment and amortization of unearned compensation of $34.6 million, $48.8 million and $1.3 million, respectively. Net changes in operating assets and liabilities increased cash by $37.7 million which includes the impact of divestitures.

Net cash used in investing activities was $61.1 million. As previously mentioned, the Company used its excess 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 in fiscal 2006. The increase from the prior year is due to the expansion of the Company’s European distribution center in support of ongoing growth of our direct selling business in Europe, nformation technology and research and development equipment purchases. As discussed further in Note 4 to the Consolidated Financial Statements, the Company completed its strategy to divest its European Wholesale businesses during the year and received proceeds as a result of these dispositions of $87.8 million.

Net cash used in financing activities was $180.0 million and was primarily attributed to the reduction of the Company’s long-term debt and outstanding line of credit balance by $120.3 and $7.0 million, respectively. The Company also used its cash to purchase treasury stock of $35.0 million and pay dividends of $19.9 million. Proceeds from the issuance of the Company’s common stock upon exercise of stock options were $2.5 million.

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The Company anticipates total capital spending of approximately $13.0 million for fiscal 2008 or $5.1 million less than fiscal year 2007 due to the ongoing effort to reduce spending on manufacturing facilities, while moving to more of an outsourced product supply model and divestitures. The Company has grown in part through acquisitions and, as part of its growth strategy, the Company expects to continue from time to time in the ordinary course of its business to evaluate and pursue acquisition opportunities as appropriate. The Company believes our financing needs in the short and long term can be met from cash generated internally and through our borrowing capacity from our existing credit agreements. Information on debt maturities is presented in Note 12 to the Consolidated Financial Statements.

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

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

As of January 31, 2006 and January 31, 2007, Miles Kimball had approximately $9.4 million and $9.0 million, respectively of long-term debt outstanding under a real estate mortgage note payable to John Hancock Life Insurance Company, which matures June 1, 2020. Under the terms of the note, payments of principal and interest are required monthly at a fixed 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 irrevocable letter of credit issued by La Salle Bank National Association. The loan is collateralized by certain of CBK’s assets. The amount outstanding under the IRB bears interest at short-term floating rates, which equaled a weighted average interest rate of 5.3% at January 31, 2007. Payments of principal are required annually and interest payments are required monthly under the terms of the bond.

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

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

The estimated fair value of 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 is determined by quoted market prices, where available, and from analyses performed by investment bankers using current interest rates considering credit ratings and the remaining terms to maturity.

The following table summarizes the maturity dates of the 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

(1)Long-term debt includes 7.90% Senior Notes due October 1, 2009, 5.5% Senior Notes due November 1, 2013, a mortgage note payable—maturity June 1, 2020, and an Industrial Revenue Bond ("IRB") with a maturity date of January 1, 2025.  The Company also has $3.8 million under our Credit Facility with a maturity date beyond one year with a variable interest rate that is not included in the table because it is not material (See Note 12 to the Consolidated Financial Statements).

(2)Amounts represent future lease payments, excluding interest, due on three capital leases, which end between fiscal 2010 and fiscal 2012 (See Note 12 to the Consolidated Financial Statements).

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

(4)Purchase obligations consist primarily of open purchase orders for inventory.

On June 7, 2006, the Company’s Board of Directors amended the stock repurchase program and increased the number of shares of common stock authorized to be repurchased by 6,000,000 shares to 12,000,000 shares. Since January 31, 2006, the Company has purchased 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 fiscal 2005, 4,906,616 shares were repurchased through a Dutch auction cash tender offer for an aggregate purchase price of $172.6 million, including fees and expenses. The acquired shares are held as common stock in treasury at cost.

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

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The Company does not maintain any off balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to a have a material current or future effect upon our financial statements.

The Company does not utilize derivatives for trading purposes.

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

Critical Accounting Policies

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

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

Revenue Recognition

Revenues consist of sales to customers, net of returns and allowances. The Company recognizes revenue upon delivery, when both title and risk of loss are transferred to the customer.

Generally, sales orders are received via signed customer purchase orders with stated fixed prices based on published price lists. The Company records estimated reductions to revenue for customer programs, which may include special pricing agreements for specific customers, volume incentives and other promotions. Should market conditions decline, the Company may increase customer incentives with respect to future sales. The Company also records reductions to revenue, based primarily on historical experience, for estimated customer returns and chargebacks that may arise as a result of shipping errors, product damage in transit or for other reasons that can only become known subsequent to recognizing the revenue. If the amount of actual customer returns and chargebacks were to increase significantly from the estimated amount, revisions to the estimated allowance would be required.

In some instances, the Company receives payment in advance of product delivery. Such advance payments occur primarily in our direct selling and direct marketing channels and are recorded as deferred

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

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

Some of the Company’s business units offer seasonal dating programs pursuant to which customers that qualify for such programs are offered extended payment terms for seasonal product shipments. As with other customers, customer orders pursuant to such seasonal dating programs are generally received in the form of a written purchase order signed by an authorized representative of the customer. Sales made pursuant to seasonal dating programs are recorded as revenue only upon delivery either to the customer or to an agent of the customer depending on the freight terms for the particular shipment and consistent with the concept of “risk of loss.”  The sales price for the Company’s products sold pursuant to such seasonal dating programs is fixed prior to the time of shipment to the customer. Customers do not have the right to return product except for rights to return that the Company believes are typical of our industry for such reasons as damaged goods, shipping errors or similar occurrences. The Company is not required to repurchase products from its customers, nor does the Company have any regular practice of doing so. The Company believes that it is reasonably assured of payment for products sold pursuant to such seasonal dating programs based on its historical experience with the established list of customers eligible for such programs. In addition, the Company minimizes its exposure to bad debts by utilizing established credit limits for each customer. If, however, product sales by our customers during the seasonal selling period should fall significantly below expectations, such customers’ financial condition could be adversely affected, increasing the risk of not collecting these seasonal dating receivables and, possibly, resulting in additional bad debt charges. The Company does not make any sales under consignment or similar arrangements.

Inventory Valuation

Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out method. The Company writes down its inventory for estimated obsolescence or unmarketable inventory by an amount equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand, market conditions, customer planograms and sales forecasts. If market acceptance of our existing products or the successful introduction of new products should significantly decrease, additional inventory write-downs could be required. Potential additional inventory write-downs could result from unanticipated additional quantities of obsolete finished goods and raw materials, and/or from lower disposition values offered by the parties who normally purchase surplus inventories. As a result of the restructuring of our North American mass channel home fragrance business (See Note 5 to the Consolidated Financial Statements) inventory write-downs totaling $16.0 million were recorded in cost of good sold during fiscal 2007. At January 31, 2007, the Company had obsolete inventory reserves totaling approximately $24.3 million.

Restructuring and Impairment Charges on Long-Lived Assets

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

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organizational changes and possibly additional restructuring and impairment charges. The Company recorded approximately $4.1 million of charges related to the restructuring of our North American mass channel home fragrance business during fiscal 2007 (See Note 5 to the Consolidated Financial Statements), of which $3.7 million was recorded in cost of goods sold and $0.4 million was recorded in administrative expense. These charges relate to the closing of our Tijuana, Mexico manufacturing facility, the elimination of less profitable customers, the elimination of stock keeping units from our product line, outsourcing of certain products currently being manufactured and personnel reductions. Also, during the fourth quarter of fiscal 2007, the Company recorded approximately $3.9 million of charges related to the restructuring of the North American operations of our Direct Selling segment in recognition of the recent decline in sales in this channel. These costs were comprised of a $2.4 million charge to cost of goods sold for lease obligations and equipment impairments related to a reduction in seasonal distribution capacity and $1.5 million of severance costs. Of the $1.5 million of severance costs, $0.4 million was recorded in cost of goods sold and $1.1 million was recorded in selling and administrative expense. The Company recorded approximately a $1.0 million impairment charge related to equipment in its North American Wholesale manufacturing facility, which is included in cost of goods sold in the fiscal 2006 financial statements. The Company did not record any restructuring and impairment charges in fiscal 2005. Historically, the Company has reviewed long-lived assets, including property, plant and equipment and other intangibles with definite lives for impairment annually and whenever events or changes in circumstances indicated that the carrying amount of such an asset might not be recoverable. Management determines whether there has been a permanent impairment on long-lived assets held for use in the business by comparing anticipated undiscounted future cash flow from the use and eventual disposition of the asset or asset group, to the carrying value of the asset. The amount of any resulting impairment is calculated by comparing the carrying value to the fair value, which may be estimated using the present value of the same cash flows. Long-lived assets that meet the definition of held for sale are valued at the lower of carrying amount or net realizable value.

Goodwill and Other Indefinite Lived Intangibles

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

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

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Our assumptions in the discounted cash flow methodology used to support recoverability include the reporting unit’s five year business outlook. The business outlook is a five year projection of the business unit’s financial performance. The business outlook includes the cash generated from the reporting unit and certain assumptions for revenue growth, capital spending and profit margins. This serves as the basis for the discounted cash flow model in determining fair value. Additionally, the discount rate utilized in the cash flow model values the reporting unit to its net present value taking into consideration the time value of money, other investment risk factors and the terminal value of the business. For the terminal value, we used a multiple of earnings before income taxes, depreciation and amortization (“EBITDA”) multiplied by a certain factor for which an independent third party would pay for a similar business in an arms length transaction. In determining this factor we used information that was available for similar transactions executed in the marketplace. The multiple of EBITDA used contemplates among other things the expected revenue growth of the business which in turn would require the use of a higher EBITDA multiple if revenue were expected to grow at a higher rate than normal. The following circumstances could impact the Company’s cash flow and cause further impairments to reported goodwill:

·unexpected increase in competition resulting in lower prices or lower volumes,

·entry of new products into the marketplace from competitors,

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

·loss of key employee or customer,

·significantly higher raw material costs, and

·macro economic factors

Wholesale Premium

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

During the second quarter of fiscal 2007, the Company identified a triggering event, which caused us to reassess goodwill impairment for its Wholesale Premium reporting unit within the Wholesale segment. In the Wholesale Premium reporting unit, a business restructuring resulted in a significantly reduced near-term outlook for the businesses that gives effect to the changing business environment which led the Company to perform an impairment analysis of the goodwill in this reporting unit. As a result of this analysis, the goodwill in this reporting unit was determined to be impaired, as the fair value of the reporting unit was less than the carrying value of the reporting unit including goodwill. The decrease in the fair value of this reporting unit was due to a significant decrease in the projected results for the full fiscal year and future years as a result of the factors previously discussed. The estimated fair value of the reporting unit was determined utilizing a combination of valuation techniques, namely the discounted cash flow methodology and the market multiple methodology. As a result, the Company recorded a non-cash pre-tax goodwill impairment charge of $25.1 million in the second quarter of fiscal 2007 writing off the remaining goodwill balance of the Wholesale Premium reporting unit in the Wholesale segment.

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The table below is a summary of estimated fair values as of January 31, 2006 and July 31, 2006 and the assumptions used in comparison to the carrying values in assessing recoverability for the Company’s Wholesale Premium reporting 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 reduced near term outlook and the changing business environment discussed above, the discount rate was increased from 13.0% to 15.0% and the terminal multiple of EBITDA was reduced from 6.5 to 6.0. The changes in these assumptions reflect the continued changes in the business environment and adverse business conditions currently experienced. Management believes the adverse conditions currently being experienced are not temporary but reflect the additional risk in the marketplace as a result of additional pricing pressures and competition.

Sterno

As a result of the Company’s annual impairment analyses in fiscal 2006, the Company determined that the goodwill balance existing at its Sterno reporting unit in the Wholesale segment was impaired. In fiscal 2006, the Sterno reporting unit experienced a substantial decline in operating performance when compared to prior years’ results and budgeted fiscal 2006 expectations. Therefore, the Company recorded a non-cash pre-tax goodwill impairment charge of $11.1 million in the Sterno reporting unit of the Wholesale segment.

During the second quarter of fiscal 2007, the Company identified a triggering event, which caused us to reassess the goodwill of the Sterno reporting unit for impairment. In the Sterno reporting unit, the Company’s decision to discontinue sales of a new product line coupled with sharply rising commodity costs led the Company to perform an impairment analysis of goodwill in the reporting unit. As a result of this analysis, the goodwill in this reporting unit was determined to be impaired, as the fair value of the reporting unit was less than the carrying value of the reporting unit including goodwill. The decrease in the fair value of the reporting unit was due to a significant decrease in the projected results for the full fiscal year and future years as a result of the factors previously discussed. The estimated fair value of the reporting unit was determined utilizing a combination of valuation techniques, namely the discounted cash flow methodology and the market multiple methodology. As a result, the Company recorded a non-cash pre-tax goodwill impairment charge of $11.7 million in the second quarter of fiscal 2007 in the Wholesale segment.

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

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The table 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 the carrying values in assessing recoverability for the Company’s Sterno reporting unit of the Wholesale segment whose fair value was close to its carrying value as 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

The table below is a summary of estimated fair values as of January 31, 2006 and 2007 and the assumptions used in comparison to the carrying values in assessing recoverability for the Company’s Miles Kimball reporting unit of the Catalog & Internet segment whose fair value was close to its carrying value 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, the Company acquired a 100% interest in Boca Java, a small gourmet coffee and tea company. Boca Java sells its products primarily through the internet and is included in the Company’s Catalog & Internet segment. In accordance with SFAS No. 142, the Company has determined that Boca Java represents a separate reporting unit and thus must be reviewed for impairment on a stand alone basis. The Company has completed the January 31, 2007 impairment assessment, which indicated that the goodwill of $1.9 million is fully recoverable. Boca Java is a relatively new operation, which is dependant upon achieving high revenue growth and other operating objectives as well as the continued support and

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funding from its parent. Should Boca Java fail to meet its revenue and operating objectives or fail to receive the continued support of its parent, its goodwill could be subject to a partial or full impairment.

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

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

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

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

If management feels there is additional risk associated with the business outlook it will adjust the discount rate and terminal value accordingly. The terminal value is generally a multiple of EBITDA and is discounted to its net present value using the discount rate. Capital expenditures are included and are consistent with the historical business trend plus any known significant expenditures. If the outlook for the Miles Kimball reporting unit as of January 31, 2007 was to be less optimistic than we had assumed in our valuation model, whereby we increased the discount rate by 1% and decreased the terminal multiple by one, the fair value of the Miles Kimball reporting unit would have decreased by $16.5 million. This reduction in fair value would not have caused the Company to perform a step two test for impairment as the fair value of the business would still exceed its carrying value. Conversely, if the outlook for the Miles Kimball reporting unit as of January 31, 2007 was more optimistic than we had assumed in our valuation model, whereby we decreased the discount rate by 1% and increased the terminal multiple by one, the fair value of the Miles Kimball reporting unit Catalog & Internet segment would have increased by $18.2 million.

Trade Names and Trademarks

The Company’s trade name and trademark intangible assets relate to the Company’s acquisitions of Miles Kimball and Walter Drake in fiscal 2004 and are reported in the Company’s Catalog & Internet Segment. The Company has approximately $28.1 million 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 of these trade names and trademarks as of January 31, 2007 was $31.9 million.

The Company performs its annual 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 method to estimate the fair value for indefinite-lived intangible assets. The underlying concept of the relief from royalty method is that the inherent economic value of intangibles is directly related to the timing of future cash flows associated with the intangible asset. Similar to the income approach or discounted cash flow methodology used to determine the fair value of goodwill, the fair value of indefinite-lived intangible assets is equal to the present value of after-tax cash flows associated with the intangible asset based on an applicable royalty rate. The royalty rate is determined by using existing market comparables for royalty agreements using an intellectual property data base. The arms-length agreements generally support a rate that is a percentage of direct sales. This approach is based on the premise that the free cash flow is a more valid criterion for measuring value than “book” or accounting profits.

The two primary assumptions used in the relief from royalty method are the discount rate and the royalty rate. This discount rate is used to value the expected net cash flows to be derived from the royalty to its net present value. The discount rate uses a rate of return to account for the time value of money and an investment risk factor. The royalty rate is based upon past royalty performance as well as the expected royalty growth rate using both macro and micro economic factors surrounding the business. A change in the discount rate is often used by management to alter or temper the discounted cash flow analysis if there is a higher degree of risk that the estimated cash flows from the indefinite-lived intangible asset may not be fully achieved. These risks are often based upon the business units past performance, competition, position in the marketplace, acceptance of new products in the marketplace and other macro and micro economic factors surrounding the business. If, however, actual cash flows should fall significantly below expectations this could result in an impairment of our indefinite-lived intangible assets. If as of January 31, 2007, the discount rate would have increased and the royalty rate would have decreased by 1%, respectively, the fair value of the Catalog & Internet trade names and trademarks would have decreased by $15.9 million to $16.0 million. This decrease would have required the Company to take an impairment charge of $12.1 million to write-down its indefinite lived intangibles to its estimated fair value. Conversely, if the discount rate would have decreased and the royalty rate 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 of preparing our Consolidated Financial Statements, we are required to estimate our actual current tax exposure (state, federal and foreign), together with assessing permanent and temporary differences resulting from differing bases and treatment of items for tax and accounting purposes, such as the carrying value of intangibles, deductibility of expenses, depreciation of property and equipment, and valuation of inventories. Temporary differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income. Actual results could differ from this assessment if sufficient taxable income is not generated in future periods. To the extent we determine the need to establish a valuation allowance or increase such allowance in a period, we must include an expense within the tax provision in the accompanying consolidated statements of earnings. The management of the Company periodically estimates the probable tax obligations of the Company using historical experience in tax jurisdictions and informed judgments. There are inherent uncertainties related to the interpretation of tax regulations in the jurisdictions in which the Company transacts business. The judgments and estimates made at a point in time may change based on the outcome of tax audits, as well as changes to or further interpretations of regulations. If such changes take place, there is a risk that the tax rate may increase or decrease in any period. Amounts accrued for the potential tax assessments, primarily recorded in long-

31

term liabilities total $9.2 million and $9.9 million at January 31, 2006 and 2007, respectively. Accruals relate to tax issues for U.S. federal, domestic state and taxation of foreign earnings.

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

Impact of Adoption of Recently Issued Accounting Standards

During the first quarter of fiscal 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140” (SFAS No. 155) and SFAS No. 156, “Accounting for Servicing of Financial Instruments—an amendment of FASB Statement No. 140” (SFAS No. 156). SFAS No. 155 requires that interests in securitized financial assets be evaluated to determine whether they contain embedded derivatives, and permits the accounting for any such hybrid financial instruments as single financial instruments at fair value with changes in fair value recognized directly in earnings. SFAS No. 156 specifies that servicing assets or liabilities recognized upon the sale of financial assets must be initially measured at fair value, and subsequently either measured at fair value or amortized in proportion 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 of the standards to have a material impact on the Company’s consolidated financial position, annual results of operations or cash flows.

In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.”  This Interpretation requires that a recorded tax benefit must be more likely than not of being sustained upon examination by tax authorities based upon its technical merits. The amount of benefit recorded is the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Upon adoption, any adjustment will be recorded directly to beginning retained earnings. The Interpretation is effective for the Company beginning no later than February 1, 2007. The Company has not yet adopted the Interpretation and has not completed the analysis to determine the effect on the Company’s financial statements.

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—an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (SFAS No. 158). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures regarding fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements. Accordingly, SFAS No. 157 does not require any new fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. SFAS No. 158 requires the Company to recognize the funded status of its defined benefit plan as an asset or liability on the financial statements and the changes in the funded status, net of tax, within accumulated other comprehensive income, to the extent these changes are not recognized in earnings as components of periodic net benefit cost. Additionally, SFAS No. 158 requires the plan’s funded status to be measured as of the end of the Company’s fiscal year. The Company has adopted these provisions as of January 31, 2007 and the effect did not have a material impact on the Company’s consolidated financial position, results of operations or cash flow.

32

In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (SAB No. 108), “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.”  This issuance eliminates the diversity in practice in quantifying financial statement misstatements. SAB No. 108 establishes the approach that requires the Company to quantify the misstatement on each of the financial statements and related disclosures. The Company has adopted this provision as of January 31, 2007 and the effect did not have a material impact on the Company’s consolidated financial position, results of operations or cash flow.

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

Forward-looking and Cautionary Statements

Certain statements contained in this Annual Report on Form 10-K may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, as discussed more fully elsewhere in this Annual Report on Form 10-K and in the Company’s previous filings with the Securities and Exchange Commission.

Item 7A.Quantitative and Qualitative Disclosures About Market Risk

Market Risk

The Company has operations outside of the United States and sells its products worldwide. The Company’s activities expose it to a variety of market risks, including the effects of changes in interest rates, foreign currency exchange rates and commodity prices. These financial exposures are actively monitored and, where considered appropriate, managed by the Company.

Interest Rate Risk

The Company is subject to interest rate risk on both variable 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 million of variable rate debt. A 1-percentage point increase in the interest rate would impact pre-tax earnings by approximately $0.1 million if applied to the total. As of January 31, 2007, the Company held $129.7 million of short-term investments, which consist of auction rate securities and variable rate demand obligations. A 1-percentage point decrease in the rate of return would impact pre-tax earnings by approximately $1.3 million if applied to the total.

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

33

Foreign Currency Risk

The Company uses foreign exchange forward and options contracts to hedge the impact of foreign currency fluctuations on foreign denominated inventory purchases, intercompany payables and certain intercompany loans. The Company does not hold or issue derivative financial instruments for trading purposes.

The Company hedged the net assets of certain of its foreign operations through foreign currency forward contracts during fiscal 2006. The Company did not continue to hedge the net assets of its foreign operations during fiscal 2007. The net after-tax gain related to the derivative net investment hedge instruments recorded in accumulated other comprehensive income (loss) (“OCI”) totaled $1.8 million at January 31, 2007.

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

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

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

Foreign Currency Risk (continued)

The following table provides information about the Company’s foreign exchange forward 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 have maturity dates through September 2007.

34

Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

Greenwich, Connecticut

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

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Blyth, Inc. and subsidiaries as of January 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 2007, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of January 31, 2007, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 13, 2007 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Chicago, Illinois

April 13, 2007

35

BLYTH, INC. AND SUBSIDIARIES
Consolidated 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 accompanying notes are an integral part of these financial statements.

36

BLYTH, INC. AND SUBSIDIARIES
CONSOLIDATED 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 accompanying notes are an integral part of these financial statements.

37

BLYTH, INC. AND SUBSIDIARIES
Consolidated 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.

38

BLYTH, INC. AND SUBSIDIARIES
Consolidated 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

BLYTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Note 1.   Summary of Significant Accounting Policies

A summary of the significant accounting policies applied in the preparation of the accompanying consolidated financial statements follows:

Principles of Consolidation

The consolidated financial statements include the accounts of Blyth, Inc. and its direct and indirect subsidiaries, (the “Company”). The Company consolidates entities in which it owns or controls more than 50% of the voting shares and investments where the Company has been determined to be the primary beneficiary. The unowned portion is reflected as minority interest. Investments in companies that are not consolidated are reported using the equity method and are recorded in other assets in the Consolidated Balance Sheets. All inter-company balances and transactions have been eliminated in consolidation.

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

Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Areas of the financial statements involving significant estimates include inventory reserves, bad debt reserves, chargeback reserves, impairment charges, taxes, and other accrued liabilities.

Credit Concentration

The Company’s credit sales are principally to department and gift stores, mass merchandisers and distributors, which purchase the Company’s products for resale. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company makes provisions for estimated credit losses.

Foreign Currency Translation

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

40

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

Note 1.Summary of Significant Accounting Policies (Continued)

Investments

The Company makes investments from time to time in the ordinary course of its business that may include selected assets and product lines, long-term investments and/or joint ventures that either complement or expand its existing business. The equity method of accounting is used to account for investments in common stock in which the Company has the ability to exercise significant influence over the operating and financial policies of the investee.

Derivatives and Other Financial Instruments

The Company uses foreign exchange forward and options contracts to hedge the impact of foreign currency fluctuations on foreign denominated inventory purchases, intercompany payables and certain intercompany loans. The Company does not hold or issue derivative financial instruments for trading purposes.

The Company hedged the net assets of certain of its foreign operations through foreign currency forward contracts during fiscal 2006. The Company did not continue to hedge the net assets of its foreign operations during fiscal 2007. The net after-tax gain related to the derivative net investment hedge instruments recorded in accumulated other comprehensive income (loss) (“OCI”) totaled $1.8 million at January 31, 2007.

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

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

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

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

41

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

Note 1.Summary of Significant Accounting Policies (Continued)

Fair Value of Financial Instruments

The Company’s financial instruments include accounts receivable, accounts payable, short-term and long-term debt. Management believes the carrying values of these items approximate their estimated fair values, except for long-term debt, as discussed in Note 12 to the Consolidated Financial Statements.

Cash Equivalents

The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Amounts due from credit card companies of $1.6 million and $1.2 million for the settlement of credit card transactions are included in cash equivalents as of January 31, 2007 and 2006, respectively.

Inventories

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

Shipping and Handling

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

Property, Plant and Equipment

Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation expense for fiscal 2006 and 2007 was $33.8 million and $32.8 million, respectively. Depreciation is provided principally by use of the straight-line method for financial reporting purposes. Leasehold improvements are amortized over the lives of the respective leases or the service lives of the improvements, whichever is shorter. The Company records gains and losses from the sale of property, plant and equipment in operating profit.

The principal estimated lives used in determining depreciation 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 Other Indefinite Lived Intangibles

Goodwill and other indefinite lived intangibles are subject to an assessment for impairment using a two-step fair value-based test and such other intangibles are also subject to impairment assessment, which must be performed at least annually or more frequently if events or circumstances indicate that goodwill or other indefinite lived intangibles might be impaired. The Company performs its annual assessment of impairment as of January 31, which is our fiscal year-end. For goodwill, the first step compares the fair value of a reporting unit to its carrying amount, including goodwill. For each of the reporting units, the estimated fair value is determined utilizing a combination of valuation techniques, namely the discounted

42

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

Note 1.Summary of Significant Accounting Policies (Continued)

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

Impairment of Long-Lived Assets

We review long-lived assets, including property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of such an asset may not be recoverable. Management will determine whether there has been a permanent impairment on such assets held for use in the business by comparing anticipated undiscounted future cash flows from the use and eventual disposition of the asset or asset group to the carrying value of the asset. The amount of any resulting impairment will be calculated by comparing the carrying value to the fair value, which may be estimated using the present value of the same cash flows. Long-lived assets that meet the definition of held for sale are valued at the lower of carrying amount or net realizable value.

Comprehensive Income (Loss)

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

The following table presents the components of the Company’s accumulated other comprehensive income (loss), net of tax, for the years 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, statutory tax rates and the impact of non-deductible items. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts. The management of the Company periodically estimates the probable tax obligations of the corporation using historical experience in tax jurisdictions and informed judgments. There are inherent uncertainties related to the interpretation of tax regulations in the jurisdictions in which the corporation transacts business. The judgments and estimates made at a point in time may change based on the outcome of tax audits, as well as changes to or further interpretations of regulations. If such changes take place, there is a risk that the tax rate may increase or decrease in any period.

43

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

Note 1.Summary of Significant Accounting Policies (Continued)

As of January 31, 2007, the Company, in accordance with APB Opinion 23, Accounting for Income Taxes, Special Areas, has determined that $48.8 million of undistributed foreign 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 the Company’s net earnings on these undistributed earnings. The Company periodically determines whether the non-U.S. subsidiaries will invest their undistributed earnings indefinitely and reassesses this determination as appropriate.

Revenue Recognition

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

Generally, sales orders are received via signed customer purchase orders with stated fixed prices based on published price lists. The Company records estimated reductions to revenue for customer programs, which may include special pricing agreements for specific customers, volume incentives and other promotions. Should market conditions decline, the Company may increase customer incentives with respect to future sales. The Company also records reductions to revenue, based primarily on historical experience, for estimated customer returns and chargebacks that may arise as a result of shipping errors, product damage in transit or for other reasons that can only become known subsequent to recognizing the revenue. If the amount of actual customer returns and chargebacks were to increase significantly from the estimated amount, revisions to the estimated allowance would be required. In some instances, the Company receives payment in advance of product delivery. Such advance payments occur primarily in our direct selling and direct marketing channels and are recorded as deferred revenue. Upon delivery of product for which advance payment has been made, the related deferred revenue is reclassified to revenue.

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

Some of the Company’s business units offer seasonal dating programs pursuant to which customers that qualify for such programs are offered extended payment terms for seasonal product shipments. As with other customers, customer orders pursuant to such seasonal dating programs are generally received in the form of a written purchase order signed by an authorized representative of the customer. Sales made pursuant to seasonal dating programs are recorded as revenue only upon delivery either to the customer or to an agent of the customer depending on the freight terms for the particular shipment and consistent with the concept of “risk of loss.”  The sales price for the Company’s products sold pursuant to such seasonal dating programs, is fixed prior to the time of shipment to the customer. Customers do not have the right to return product except for rights to return that the Company believes are typical of our industry for such reasons as damaged goods, shipping errors or similar occurrences. The Company is not required to repurchase products from its customers, nor does the Company have any regular practice of doing so. The

44

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

Note 1.Summary of Significant Accounting Policies (Continued)

Company believes that it is reasonably assured of payment for products sold pursuant to such seasonal dating programs based on its historical experience with the established list of customers eligible for such programs. In addition, the Company minimizes its exposure to bad debts by utilizing established credit limits for each customer. If, however, product sales by our customers during the seasonal selling period should fall significantly below expectations, such customers’ financial condition could be adversely affected, increasing the risk of not collecting these seasonal dating receivables and, possibly, resulting in additional bad debt charges. The Company does not make any sales under consignment or similar arrangements.

Earnings per Common and Common Equivalent Share

Earnings per common and common equivalent share-basic are computed based upon the weighted average number of shares outstanding during the period. Earnings per common and common equivalent share-diluted reflects the potential dilution that could occur if options and fixed awards to be issued under stock-based compensation arrangements were converted into common stock.

Employee Stock Option Plans

The Company has share-based compensation plans as described in Note 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 prospective application transition method, which requires the measurement and recognition of compensation expense, based on estimated fair values, for all share-based awards made to employees and directors, including stock options, restricted stock, restricted stock units and performance share units. The Company recognizes compensation expense for share-based awards expected to vest on a straight line basis over the requisite service period of the award based on their grant date fair value. The consolidated financial statements as of January 31, 2007 reflect the impact of SFAS No. 123(R). In accordance with the modified prospective application transition method, the Company’s consolidated financial statements for prior periods have not been restated to reflect, and do 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 contributed capital.

Advertising and Catalog Costs

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

Direct-response advertising relates to the Company’s Miles Kimball business and consists primarily of the costs to produce direct-mail order catalogs that include order forms for the Company’s products. The capitalized production costs are amortized for each specific catalog mailing over the period following catalog distribution in proportion to revenues (orders) received, compared to total estimated revenues for that particular catalog mailing. The amortization period is generally from three to six months and does not exceed twelve months. Deferred direct-response advertising costs of $5.0 million and $4.7 million were reported as assets at January 31, 2006 and January 31, 2007, respectively.

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

45

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

Note 1.   Summary of Significant 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 the Consolidated Financial Statements). This loss was originally recorded in “Foreign exchange and other” in the Consolidated Statement of Earnings (Loss) in fiscal 2006 but should have been included as a component of operating profit. The Company has corrected the classification of the $1.6 million loss by recording it in the “Administrative” line in our Consolidated Statements of Earnings (Loss) for fiscal 2006. The following table displays the impact to the individual 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, the Company sold the Wholesale Europe businesses including, Kaemingk, Edelman, Euro-Decor, Colony and Gies and accordingly, the results of operations for these businesses have been reclassified as discontinued operations for all periods presented (See Note 4 to the Consolidated Financial Statements).

Note 2.New Accounting Pronouncements

During the first quarter of fiscal 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140” (SFAS No. 155) and SFAS No. 156, “Accounting for Servicing of Financial Instruments—an amendment of FASB Statement No. 140” (SFAS No. 156). SFAS No. 155 requires that interests in securitized financial assets be evaluated to determine whether they contain embedded derivatives, and permits the accounting for any such hybrid financial instruments as single financial instruments at fair value with changes in fair value recognized directly in earnings. SFAS No. 156 specifies that servicing assets or liabilities recognized upon the sale of financial assets must be initially measured at fair value, and subsequently either measured at fair value or amortized in proportion 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 of the standards to have a material impact on the Company’s consolidated financial position, annual results of operations or cash flows.

In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.”  This Interpretation requires that a recorded tax benefit must be more likely than not of being sustained upon examination by tax authorities based upon its technical merits. The amount of benefit recorded is the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Upon adoption, any adjustment will be recorded directly to beginning retained earnings. The Interpretation is effective for the Company beginning no later than February 1, 2007. The Company has not yet adopted the Interpretation and has not completed the analysis to determine the effect on the Company’s financial statements.

46

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—an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (SFAS No. 158). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures regarding fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements. Accordingly, SFAS No. 157 does not require any new fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. SFAS No. 158 requires the Company to recognize the funded status of its defined benefit plan as an asset or liability on the financial statements and the changes in the funded status, net of tax, within accumulated other comprehensive income, to the extent these changes are not recognized in earnings as components of periodic net benefit cost. Additionally, SFAS No. 158 requires the plan’s funded status to be measured as of the end of the Company’s fiscal year. The Company has adopted these provisions as of January 31, 2007 and the effect did not have a material impact on the Company’s consolidated financial position, results of operations or cash flow.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (SAB No. 108), “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.”  This issuance eliminates the diversity in practice in quantifying financial statement misstatements. SAB No. 108 establishes the approach that requires the Company to quantify the misstatement on each of the financial statements and related disclosures. The Company has adopted this provision as of January 31, 2007 and the effect did not have a material impact on the Company’s consolidated financial position, results of operations or cash flow.

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

Note 3.Business Acquisitions

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

Note 4.Business Divestitures and Discontinued Operations

Discontinued Operations

In March 2006, the Company announced its intention to evaluate additional strategic opportunities identified since the September 2005 announcement of the proposed spin off of the entire Wholesale segment, and stated that the focus would likely be on one or more of the European wholesale businesses.

47

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

Included in the earnings (loss) from discontinued operations in the Consolidated Statements of Earnings (Loss) for the years ended 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 discontinued operations 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 loss of $0.3 million for fiscal 2007. In fiscal 2007, the Company recorded a non-tax deductible loss on sale of discontinued operations of $18.4 million on the sale of Kaemingk.

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

Included in the earnings (loss) from discontinued operations were net operating income related to Gies of $2.7 million in fiscal 2005, and net operating losses of $2.8 million and $9.9 million, in fiscal 2006 and 2007, respectively. Also included in the loss on sale of discontinued operations for fiscal 2007 was a net of tax loss on the sale of Gies of $28.0 million, which included a non-taxable charge for the impairment of the Gies business.

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

During fiscal 2005, the Company divested its decorative gift bag business, Jeanmarie Creations, in the Wholesale segment through 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

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

Note 4.Business Divestitures and Discontinued Operations (Continued)

of goodwill attributable to Jeanmarie, which was not tax deductible, was disposed of as part of this divesture.

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

Note 5.Restructuring and Impairment Charges

In the third quarter of fiscal 2007, the Company approved a restructuring plan for its North American mass channel home fragrance business in the Wholesale segment. The major components of the restructuring plan are the closing of our Tijuana, Mexico manufacturing facility, the elimination of less profitable customers, the streamlining of the stock keeping unit (“SKU”) base of the mass business, the outsourcing of certain products currently being manufactured and head count reductions.

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

In the fourth quarter of fiscal 2007, the Company recorded an additional $14.9 million of charges related to the restructuring of our North American mass channel home fragrance business. In the fourth quarter we completed the identification and notification of less profitable customers that would be eliminated. In addition, the remaining SKU’s to be discontinued were identified and the determination of net realizable value was made in the fourth quarter. As a result of these restructuring steps a $12.1 million charge was recorded in cost of goods sold to adjust excess and obsolete inventory to its estimated net realizable value. The remainder of the fourth quarter charges of $2.8 million consisted primarily of equipment impairments of $2.1 million and severance of $0.7 million charged to cost of goods sold. Employee terminations totaled 149 in fiscal 2007 related to this restructuring.

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

Also, during the fourth quarter of fiscal 2007 the Company recorded approximately $3.9 million of charges related to the restructuring of the North American operations of our Direct Selling segment in recognition of the recent decline in sales in this channel. These costs were comprised of a $2.4 million charge to cost of goods sold for lease obligations and equipment impairments related to a reduction in seasonal distribution capacity and $1.5 million of severance costs associated with the termination of 91 employees. Of the $1.5 million of severance costs, $0.4 million was recorded in cost of goods sold and $1.1 million was recorded in selling and administrative expense.

Of the $24.0 million of restructuring costs recorded in fiscal 2007, approximately $2.0 million of accrued liabilities was included in the Consolidated Balance Sheets at January 31, 2007, relating entirely to severance costs.

49

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

Note 5.Restructuring and Impairment Charges (Continued)

The Company recorded an approximately $1.0 million impairment charge related to equipment in its North American Wholesale manufacturing facility, which is included in cost of goods sold in the fiscal 2006 financial statements.

The following is a tabular rollforward of the restructuring charges described above that were recorded on the balance sheet of 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-Term Investments

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

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

Short-term investments by contractual maturity are as follows (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 gross realized or unrealized holding gains (losses) from our short-term investments. All income generated from these short-term investments was recorded as interest income. Actual maturities may differ from contractual maturities should the borrower have the right to call certain obligations.

Note 7.Assets Held for Sale

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

50

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.   Prepaid and Other

Prepaid and 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.Goodwill and Other Intangibles

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

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

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

51

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

Note 10.Goodwill and Other Intangibles (Continued)

reporting unit, the Company’s decision to discontinue sales of a new product line coupled with sharply rising commodity costs led the Company to perform an impairment analysis of goodwill in the reporting unit. In the Wholesale Premium reporting unit, a business restructuring resulted in a significantly changed near-term outlook for the businesses that gives effect to the changing business environment led the Company to perform an impairment analysis of the goodwill in this reporting unit.  As a result of these analyses, the goodwill in both reporting units was determined to be impaired, as the fair value of the reporting units was less than the carrying values of the reporting units including goodwill. The decrease in the fair value of the reporting units was due to a significant decrease in the projected results for the full fiscal year and future years as a result of the factors previously discussed. The estimated fair value of the reporting units was determined utilizing a combination of valuation techniques, namely the discounted cash flow methodology and the market multiple methodology. As a result, 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 Financial Statements, the Company sold its European seasonal and everyday decorations businesses, Kaemingk, Edelman and Euro-Decor, in the first half of fiscal 2007, which resulted in a reduction in goodwill attributable to these businesses totaling $66.5 million.

As a result of the Company’s annual fourth quarter impairment analyses in fiscal 2006 and 2007, the Company determined that goodwill balances existing at reporting units in the Wholesale segment were impaired. In fiscal 2006, the reporting units experienced a substantial decline in operating performance when compared to prior years’ results and budgeted fiscal 2006 expectations and beyond. Therefore, the Company recorded a non-cash pre-tax goodwill impairment charge of $53.3 million in the Wholesale segment in fiscal 2006. In the second half of fiscal 2007, the remaining reporting unit within the Wholesale segment experienced a further decline in operating performance when compared to prior years’ results and budgeted fiscal 2007 expectations. As a result of the fiscal 2007 goodwill impairment assessment, the Company recorded a non-cash pre-tax goodwill impairment charge of $12.0 million writing off the remaining goodwill balance within the Wholesale segment.

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

52

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

Other intangible 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 being recorded on an accelerated basis over the estimated lives of the customer lists ranging from 10 to 12 years. Amortization expense was $2.1 million in fiscal 2006 and $1.8 million in fiscal 2007. Estimated amortization expense for the next 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 7.5 years at January 31, 2007.

53

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

Note 11.Accrued Expenses

Accrued expenses consist of 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-Term Debt

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

54

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

Note 12.   Long-Term Debt (Continued)

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

As of January 31, 2006 and January 31, 2007, Miles Kimball had approximately $9.4 million and $9.0 million, respectively of long-term debt outstanding under a real estate mortgage note payable to John Hancock Life Insurance Company, which matures June 1, 2020. Under the terms of the note, payments of principal and interest are required monthly at a fixed 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 irrevocable letter of credit issued by La Salle Bank National Association. The loan is collateralized by certain of CBK’s assets. The amount outstanding under the IRB bears interest at short-term floating rates, which equaled a weighted average interest rate of 5.3% at January 31, 2007. Payments of principal are required annually and interest payments are required monthly under the terms of the bond.

Maturities under debt obligations for the fiscal years ending January 31 are as follows (In thousands):

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 $346.0 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 is determined by quoted market prices, where available, and from analyses performed by investment bankers using current interest rates considering credit ratings and the remaining terms to maturity.

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

55

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 total of $2.0 million available under an uncommitted facility with Bank of America to be used for letters of credit. The issuance of letters of credit under this facility will be available until January 31, 2008. As of January 31, 2007, approximately $21 thousand of letters of credit were outstanding under this facility.

Note 13.   Employee Benefit Plans

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

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

In accordance with SFAS 158, the Company recorded an adjustment to its Consolidated Balance Sheet as of January 31, 2007 reducing its projected benefit obligation by $1.5 million with a corresponding credit to accumulated other comprehensive income, net of taxes of $0.9 million and the remaining credit to deferred income taxes of $0.6 million. The adoption of 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 period presented, and it will not effect the Company’s operating results in future periods.

The incremental effect of applying SFAS 158 on individual 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 the Miles Kimball Company Retirement Plan (“the Plan”). This non-contributory, defined benefit retirement plan provides benefits based on years of service and employee compensation for specified periods. When the Company acquired Miles Kimball on April 1, 2003, a decision was made to cease the accrual of benefits for all Plan participants, except to the extent that a benefit accrual is required to comply with Section 416 of the Internal Revenue Code. The Plan was frozen effective May 31, 2003. All vested benefits that have been accrued as of May 31, 2003 will continue to be held for participants under the terms of the Plan. The Company’s defined benefit pension plan uses a January 31 measurement date.

56

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 (In thousands):

	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 benefit obligation and fair value of plan assets for the pension plan as of the measurement 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

Components of the net periodic benefit cost of the Company’s noncontributory defined benefit pension plan for the years ended January 31, were as follows (In thousands):

	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 determine net periodic benefit cost and the projected benefit obligation as of and for the 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

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

Note 13.Employee Benefit Plans (Continued)

The defined benefit pension 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 strategy for its pension plan that includes a diversified portfolio of equity and debt securities, including low risk fixed income investments used to maximize the long-term rate of return of pension assets. The intent of this strategy is to minimize 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 rate of return on assets was 8.00%. The assumption for the expected long-term rate of return on plan assets represents an estimate that is based on many factors including asset allocations; historical asset returns, and current and future market conditions. The prospective target allocation percentage for the pension plan as of January 31, 2007 consists of approximately 50% of debt securities and 50% of equities. Future assumptions and estimates of the long term rate of return may change as circumstances warrant.

Substantially all pension benefit payments are made from assets of the pension plan. It is anticipated that the future benefit payments will be as follows:  $0.9 million in fiscal 2008, $0.8 million in fiscal 2009, $0.8 million in fiscal 2010, $0.8 million in fiscal 2011, $0.8 million in fiscal 2012 and $4.1 million in fiscal 2013 to 2017.

The Company makes periodic cash contributions to its defined benefit plan. The level of these contributions is within minimum required and maximum allowable government prescribed levels for the jurisdictions in which the Company operates. The Company is not required to make a contribution to the Plan in fiscal 2008.

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

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

The Company has a supplemental pension benefit agreement with one of its key corporate executives. Benefits pursuant to the agreement will be provided by a purchased annuity insurance policy.

58

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

Note 14.   Commitments and Contingencies

The Company utilizes operating and capital leases for a portion of its facilities and equipment. Generally, the leases provide that the Company pay real estate taxes, maintenance, insurance and other occupancy expenses applicable to leased premises. Certain leases provide for renewal for various periods at stipulated rates.

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

For the years ending January 31,
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 have arisen in the ordinary course of its business, including pending litigation. The Company believes the outcome of these matters will not have a material adverse effect on its consolidated financial position, results of operations, or cash flows.

The Company has entered into an employment agreement with its Chairman and CEO, Mr. Robert B. Goergen, dated as of August 1, 2000, as amended by Amendment No. 1 dated as of June 15, 2002, Amendment No. 2 dated as of March 31, 2004 and Amendment No. 3 dated as of September 26, 2006 (sometimes herein referred to as “agreement” or “employment agreement”). Pursuant to the employment agreement, upon the death of both Mr. Goergen and his spouse, the Company will, upon the demand of the estate of either Mr. Goergen or his spouse, buy back from such estate up to 7,500,000 shares of Company Common Stock within 90 days of such demand at the fair market value thereof (as defined in the employment agreement) or register the public offer and sale by such estate of up to 7,500,000 shares of Company Common Stock. In connection with the employment agreement, the Company and Mr. Goergen entered into a registration rights agreement relating to the registration of up to 7,500,000 shares of Company Common Stock as described above in the event that the Company chooses not to purchase such shares upon the death of both Mr. Goergen and his spouse. There is no specified effective date or stock price requirement in the agreements. The Company will not be obligated to purchase or register such shares, notwithstanding the death of both Mr. Goergen and his spouse, if the survivor’s estate, or his or her beneficiaries, as the case may be, can then sell all of the shares of the Company Common Stock owned by them without registration. The Company has recorded a liability of approximately $153,000 at January 31, 2007 related to the estimated future costs to register the securities.

59

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

Note 15.   Guarantees

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

Note 16.   Income Taxes

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

Income tax 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

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

Note 16.Income Taxes (Continued)

Significant components of the 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 the Company believes, due to various limitations in these foreign jurisdictions related to the tax loss carryforwards and due to limitations imposed by U.S. tax regulations related to the capital loss, it is more likely than not that such benefits will not be realized. The increase in the valuation allowance from the prior year is principally related to a $39.1 million capital loss related to the Company’s recent dispositions. At January 31, 2007, the Company had a $15.9 million net operating loss carryforward, which consisted of approximately $8.2 million of U.S. federal net operating losses that will expire 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 which the majority will expire on January 21, 2012.

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

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

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Notes to Consolidated Financial Statements (Continued)

Note 16.Income Taxes (Continued)

A reconciliation of the provision for income taxes to the amount computed at the federal statutory rate is as follows:

Year ended January 31, (In thousands)	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 estimates the probable tax obligations of the Company using historical experience in tax jurisdictions and informed judgments. There are inherent uncertainties related to the interpretation of tax regulations in the jurisdictions in which the Company transacts business. The judgments and estimates made at a point in time may change based on the outcome of tax audits, as well as changes to or further interpretations of regulations. If such changes take place, there is a risk that the tax rate may increase or decrease in any period. Amounts accrued for the potential tax assessments, primarily recorded in long-term liabilities total $9.2 million and $9.9 million at January 31, 2006 and 2007, respectively. Accruals relate to tax issues for U.S. federal, domestic state and taxation of foreign earnings. The amounts provided are included in the appropriate categories in the table above.

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

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Notes to Consolidated Financial Statements (Continued)

Note 16.Income Taxes (Continued)

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

On July 14, 2006, the FASB issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes,” an Interpretation of SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes guidance to address inconsistencies among entities with the measurement and recognition in accounting for income tax positions for financial statement purposes. Specifically, FIN 48 addresses the timing of the recognition of income tax benefits. FIN 48 requires the financial statement recognition of an income tax benefit when the company determines that it is more-likely-than-not that the tax position will be ultimately sustained. FIN 48 is effective for fiscal years beginning after December 15, 2006. Upon adoption of FIN 48, the cumulative effect will be reported as an adjustment to the opening balance of retained earnings at February 1, 2007. The Company will adopt FIN 48 as of February 1, 2007 as required and is currently assessing the potential impact on its retained earnings upon adoption.

Note 17.Stock Based Compensation

Summary of Plans

As of January 31, 2007, the Company had one active stock-based compensation plan, the 2003 Long-Term Incentive Plan (“2003 Plan”), available to grant future awards and two inactive stock-based compensation plans (the Amended and Restated 1994 Employee Stock Option Plan and the Amended and Restated 1994 Stock Option Plan for Non-Employee Directors), under which vested and unexercised options remain outstanding. There were 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 under these plans.  The Company’s policy is to issue new shares of common stock for all stock options exercised and restricted stock grants.

The Board of Directors and the stockholders of the Company have approved the adoption and subsequent amendments of the 2003 Plan. The 2003 Plan provides for grants of incentive and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, dividend equivalents and other stock unit awards to officers and employees. The 2003 Plan also provides for grants of nonqualified stock options to directors of the Company who are not, and who have not been during the immediately preceding 12-month period, officers or employees of the Company or any of its subsidiaries.

Restricted stock and restricted stock units (“RSUs”) are granted to certain employees to incent performance and retention. RSUs issued under the plans provide that shares awarded may not be sold or otherwise transferred until restrictions have lapsed. The release of RSUs on each of the vesting dates is contingent upon continued active employment by the employee until the vesting dates.

On December 9, 2005, the Board of Directors of the Company approved the acceleration of the vesting of all unvested outstanding 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, which represented 100% of the unvested options which were subject to this acceleration. Virtually all of these options had exercise prices in excess of the current market values and were not fully achieving their original objectives of 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 compensation expense 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 2007 was approximately $0.2 million. $0.4 million and $0.6 million, respectively. Total stock-based compensation expense included in discontinued operations for fiscal years 2005 and 2006 was approximately $0.1 million. Total stock-based compensation benefit included in discontinued operations for fiscal year 2007 was approximately $0.2 million. No compensation cost was capitalized as part of inventory.

Impact of Adoption of 123(R)

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

SFAS 123(R) requires companies to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model, where applicable. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period in the Company’s Consolidated Statements of Earnings (Loss). Prior to the adoption of SFAS 123(R), the Company accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB 25 as allowed under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123). Under the intrinsic value method, no stock-based compensation expense had been recognized in the Company’s Consolidated Statements of Earnings (Loss), because the exercise price of the Company’s stock options granted to employees and directors equaled the fair value of the underlying stock at the date of grant.

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

In the Company’s pro forma information required under SFAS 123 for periods prior to fiscal 2007, the Company accounted for forfeitures 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 expense recognized in the Company’s Condensed Consolidated Statements of Earnings (Loss) for the first nine months of fiscal 2007 for stock options granted prior to February 1, 2006 because no portion of those stock-based payment awards was unvested. In accordance with the modified prospective transition method, the Company’s Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 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 contributed capital.

Transactions involving 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 and RSUs for fiscal year 2005, 2006 and 2007 was approximately $0.6 million, $1.1 million and $1.5 million, respectively. Restricted stock and RSUs expense included in discontinued operations for fiscal 2005 and 2006 was approximately $0.1 million. Restricted stock and RSUs benefit included in discontinued operations for fiscal 2007 was $0.2 million. The total intrinsic value of restricted stock and RSUs vested during fiscal 2007 was $0.2 million.

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

Transactions involving 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 purchase 1,236,400 and 860,000 shares, respectively, were exercisable.

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BLYTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Note 17.Stock Based Compensation (Continued)

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

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day of fiscal year 2007 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on January 31, 2007. Intrinsic value will change in future periods based on the fair market value of the Company’s stock and the number of shares outstanding. The total intrinsic value of stock options exercised during 2005, 2006 and 2007 was approximately $3.9 million, $1.2 million and $0.3 million, respectively.

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

Assumptions used to estimate fair value

The fair value of stock options is estimated on the date of grant using the Black-Scholes model. The Company granted 17,500 stock options during the year ended January 31, 2007. The Company’s expected volatility assumption is based on an equal weighting of the Company’s daily historical stock price. The Company granted no stock options during the year ended January 31, 2006. The Company granted 8,500 stock options during the year ended January 31, 2005. The fair value of these stock options was determined using the following weighted 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 per share fair value of options granted during the year ended January 31, 2005 was $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.

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BLYTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Note 17.Stock Based Compensation (Continued)

Pro forma Impact of 123(R)

If compensation expense for the Company’s stock options had been determined in accordance with the fair value method in SFAS 123 and SFAS 148, the Company’s reported net income and earnings per share at January 31, 2005 and 2006 would 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 shares may be used under the stock-based compensation plans. The Company intends to issue shares of its common stock to meet the stock requirements of its awards in the future.

Note 18.Segment Information

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

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

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

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BLYTH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Note 18.Segment Information (Continued)

the party plan method of direct selling. PartyLite® brand products are sold in North America, Europe and Australia. Two Sisters Gourmet™ brand products are sold in North America.

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

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

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

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

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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 goodwill impairment charges of $53.3 million and $48.8 million, respectively (See Note 10 to the Consolidated Financial Statements).

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Notes to Consolidated Financial Statements (Continued)

Note 19.   Stock Repurchase Plan

On June 7, 2006, the Company’s Board of Directors amended the stock repurchase program and increased the number of shares of common stock authorized to be repurchased by 6,000,000 shares to 12,000,000 shares. Since January 31, 2006, the Company has purchased 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 fiscal 2005, 4,906,616 shares were repurchased through a Dutch auction cash tender offer for an aggregate purchase price of $172.6 million including fees and expenses. The acquired shares are held as common stock in treasury at cost.

Note 20.Earnings Per Share

The following table presents the components of basic and diluted net earnings per common 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 shares of common stock, respectively, are not included in the computation of diluted earnings per share because the effect would be antidilutive.

Note 21.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	)

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

Note 21.Treasury and Common 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.Selected Quarterly Financial Data (Unaudited)

A summary of selected quarterly information for the years ended January 31 is 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 not necessarily equal that reported for the year because the computations are made independently.

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

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

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

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

(6)Fourth quarter, fiscal 2007 net loss, includes a goodwill impairment charge of $12.0 in the Wholesale segment. (See Note 10 to 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 the Consolidated Financial Statements). The results of operations for these business units have been reclassified to discontinued operations for all periods presented.

72

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

None.

Item 9A.Controls and Procedures

(a)Evaluation of Disclosure Controls and Procedures.

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

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

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Company’s internal control over financial reporting is a process designed under the supervision of the principal executive and financial officers, and effected by the board of directors and management, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations, such as human judgment, errors or mistakes, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We performed an assessment of the effectiveness of the Company’s internal control over financial reporting as of January 31, 2007 based on the criteria set forth in Internal Control—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 internal control over financial reporting was effective as of January 31, 2007. Based on its assessment, management believes that, as of January 31, 2007, the Company’s internal control over financial reporting was effective based on the criteria in the framework.

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

(c)Changes in Internal Control over Financial Reporting.

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

73

(d)Report of Independent Registered Public Accounting Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited management’s assessment, included in the accompanying Report of Management on Internal Controls Over Financial Reporting, 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 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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

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

74

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule 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 opinion on those financial statements and financial statement schedule.

/s/ DELOITTE & TOUCHE LLP

Chicago, Illinois
April 13, 2007

Item 9B.Other Information

None.

PART III

Item 10.Directors and Executive Officers of the Registrant

The information required by this Item will be set forth in our Proxy Statement for our annual meeting of stockholders scheduled to be held on June 6, 2007 (the “Proxy Statement”) under the captions “Nominees for Election as Directors,” “Nominees for Election at the 2007 Annual Meeting for Terms Expiring in 2010,” “Continuing Directors with Terms Expiring in 2008” and “Continuing Directors with Terms Expiring in 2009” and is incorporated herein by reference.

Item 11.Executive Compensation

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

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

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

Item 13.Certain Relationships and Related Transactions

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

Item 14.Principal Accountant Fees and Services

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

75

PART IV

Item 15.Exhibits and Financial Statement Schedules

(a)(1).Financial Statements

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

	Page No.
Reports of Independent Registered Public Accounting Firm		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

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

	Page No.
Valuation and Qualifying Accounts		S-2

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

(a)(3).Exhibits

Exhibit No.			Description of 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))

76

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)

77

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

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

*Filed herewith.

+Management contract or compensatory plan required to be filed by Item 15(a)(3) of this report.

79

SIGNATURES

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

Date: April 13, 2007	BLYTH, INC.
	By:	/s/ ROBERT B. GOERGEN
		Name: Robert B. Goergen
		Title: Chairman and Chief Executive Officer

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

Signature	Title	Date
/s/ ROBERT B. GOERGEN	Chairman and Chief Executive Officer;	April 13, 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

80

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
For 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

1.Deductions in 2007 include the sale of Wholesale Europe

S-2

EX-10.17

Exhibit 10.17

DATED   20 DECEMBER 2006

BLYTH HOMESCENTS INTERNATIONAL UK LIMITED (1)

- and -

COBCO 813 LIMITED (2)

SHARE PURCHASE AGREEMENT

Cobbetts LLP

Ship Canal House

King Street

Manchester

M2 4WB

DX: 14374 Manchester 1

Tel: 0845 404 2404

Fax: 0845 404 2414

SPM/IZR

Contents

Clause		Page
1	INTERPRETATION	1
2	SALE AND PURCHASE OF SALE SHARES	6
3	PURCHASE PRICE AND NET CASH PAYMENT	6
4	COMPLETION	9
5	WARRANTIES	11
6	LIMITATIONS ON CLAIMS	11
7	TAX COVENANT	15
8	INDEMNITIES	15
9	RESTRICTIONS ON SELLER	16
10	CONFIDENTIALITY AND ANNOUNCEMENTS	18
11	FURTHER ASSURANCE	19
12	ASSIGNMENT	19
13	WHOLE AGREEMENT	19
14	VARIATION AND WAIVER	20
15	COSTS	20
16	NOTICE	20
17	INTEREST ON LATE PAYMENT	22
18	SEVERANCE	22
19	AGREEMENT SURVIVES COMPLETION	22
20	THIRD PARTY RIGHTS	23
21	SUCCESSORS	23
22	COUNTERPARTS	23

23	LANGUAGE	23
24	GOVERNING LAW AND JURISDICTION	23
STATUTORY ACCOUNTS AND TAX COMPLIANCE FEES		24
SCHEDULE 1		25
PART 1 PARTICULARS OF THE COMPANY		25
PART 2 THE COLONY SUBSIDIARIES		26
SCHEDULE 2 COMPLETION		27
SCHEDULE 3 WARRANTIES		30
SCHEDULE 4 TAX COVENANT		32

THIS AGREEMENT is dated the 20th day of December 2006

BETWEEN:

(1)BLYTH HOMESCENTS INTERNATIONAL UK LIMITED (registered in England and Wales under Company Number 3646506) the registered office of which is at 100 New Bridge Street, London EC4V 6JA (the “Seller”).

(2)COBCO 813 LIMITED incorporated and registered in England and Wales with company number 06006752 whose registered office is c/o PKF, Sovereign House, Queen Street, Manchester M2 5HR (the “Buyer”).

BACKGROUND

(1)The Seller is the legal and beneficial owner of, or is otherwise able to procure the transfer of, the legal and beneficial title to the number of Sale Shares comprising in aggregate the whole of the issued share capital of the Company.

(2)The Seller has agreed to sell and the Buyer has agreed to buy the Sale Shares subject to the terms and conditions of this Agreement.

(3)The Company is the owner of the issued share capital of various companies, short particulars of which are set out in Part 2 of Schedule 1 (“the Colony Subsidiaries”).

IT IS AGREED THAT

1INTERPRETATION

1.1The definitions and rules of interpretation in this clause apply in this Agreement.

1.1.1“Accounts” means the audited abbreviated financial statements of the Company as at and to the Accounts Date, comprising the abbreviated balance sheet of the Company together with the notes thereon, and Directors’ reports (a copy of which is attached to the Disclosure Letter.

1.1.2“Accounts Date” means 31 December 2005.

1

1.1.3“Business” means the business of the Company, namely the manufacture, marketing and sale of candles and candle related accessories to retailers and wholesalers in Europe;

1.1.4“Business Day” means a day (other than a Saturday, Sunday or public holiday) when banks in the City of London are open for business.

1.1.5“Buyer´s Solicitors” means Cobbetts LLP (ref: SDF) of Ship Canal House, King Street, Manchester, M2 4WB.

1.1.6“CAA 2001” means the Capital Allowances Act 2001.

1.1.7“Claim and Substantiated Claim” have the meanings set out respectively in Clause 6.

1.1.8“Company” means Colony Gift Corporation Limited further details of which are set out in Part 1 of Schedule 1.

1.1.9“Companies Acts” means the Companies Act 1985 and the Companies Act 1989.

1.1.10“Completion” means completion of the sale and purchase of the Sale Shares in accordance with this Agreement.

1.1.11“Completion Date” means the date of this Agreement.

1.1.12“Connected” in relation to a person, has the meaning contained in section 839 of the ICTA 1988.

1.1.13“Control” means in relation to a body corporate, the power of a person to secure that the affairs of the body corporate are conducted in accordance with the wishes of that person:

(a)by means of the holding of shares, or the possession of voting power, in or in relation to that or any other body corporate; or

(b)by virtue of any powers conferred by the constitutional or corporate documents, or any other document, regulating that or any other body corporate,

2

and a “Change of Control” occurs if a person who controls any body corporate ceases to do so or if another person acquires control of it.

1.1.14“Director” means each person who is a director or shadow director of the Company, the names of whom are set out in Schedule 1 Part 1.

1.1.15“Disclosed” means fairly disclosed (with sufficient details to enable the Buyer to identify the nature and scope of the matter disclosed) in or under the Disclosure Letter.

1.1.16“Disclosure Letter” means the letter from the Seller to the Buyer  with the same date as this Agreement and described as the disclosure letter, including the bundle of documents attached to it (“Disclosure Bundle”).

1.1.17“Encumbrance” means any interest or equity of any person (including any right to acquire, option or right of pre-emption) or any mortgage, charge, pledge, lien, assignment, hypothecation, security, interest, title, retention or any other security agreement or arrangement.

1.1.18“Event” has the meaning given in Part 1 of Schedule 4.

1.1.19“FSMA” means the Financial Services and Markets Act 2000.

1.1.20“Group” means in relation to a company (wherever incorporated) that company, any company of which it is a Subsidiary (its holding company) and any other Subsidiaries of any such holding company; and each company in a group is a member of the group. Unless the context otherwise requires, the application of the definition of Group to any company at any time will apply to the company as it is at that time.

1.1.21“ICTA 1988” means the Income and Corporation Taxes Act 1988.

1.1.22“IHTA 1984” means the Inheritance Tax Act 1984.

1.1.23“ITEPA” means the Income Tax (Earnings and Pensions) Act 2003.

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1.1.24“Patent Licence” means a licence of various intellectual property rights including registered patent rights in the agreed form to be entered into on Completion between the Seller (1) and the Company (2).

1.1.25“Payables” means all trade and other debts, accrued charges and all other amounts owing by the Company as at Completion.

1.1.26“Purchase Price” means the purchase price for the Sale Shares to be paid or satisfied in accordance with Clause 3.

1.1.27“Purchase Price” means the purchase price for the Sale Shares to be paid in accordance with clause 3.

1.1.28“Receivables” means all trade and other debts and amounts (including prepayments) owing to the Company in respect of services supplied by the Company in the normal or usual course of carrying on its business as at Completion.

1.1.29“Sale Shares” means the 14,520,070 Ordinary Shares of £1 each in the Company, all of which have been issued and are fully paid.

1.1.30 “Seller’s Solicitors” means Cobbetts LLP (ref: SPM/IZR) of Ship Canal House, King Street, Manchester M2 4WB.

1.1.31“Subsidiary” means in relation to a company wherever incorporated (a holding company) means a “subsidiary” as defined in section 736 of the Companies Act 1985 and any other company which is a subsidiary (as so defined) of a company which is itself a subsidiary of such holding company. Unless the context otherwise requires, the application of the definition of Subsidiary to any company at any time will apply to the company as it is at that time.

1.1.32“Supply Agreement” means a supply agreement in the agreed form to be entered into on Completion between the Company (1) and Partylite Trading SA, being a subsidiary of the Seller (2).

1.1.33“Tax or Taxation” has the meaning given in Part 1 of Schedule 4.

1.1.34“Tax Covenant” means the tax covenant as set out in Part 3 of Schedule 4.

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1.1.35“Tax Claim” has the meaning given in Part 1 of Schedule 4.

1.1.36“Tax Warranties” means the Warranties in Part 2 of Schedule 3.

1.1.37“Taxation Authority” has the meaning given in Part 1 of Schedule 4.

1.1.38“Taxation Statute” has the meaning given in Schedule 3 Part 1 to be entered into on Completion between the Seller (1) and the Company (2).

1.1.39“TCGA 1992” means the Taxation of Chargeable Gains Act 1992.

1.1.40“TMA 1970” means the Taxes Management Act 1970.

1.1.41“Trademark Licences” means two licences of various intellectual property rights in the agreed form to be entered into on Completion between Blyth Inc. (1) and the Company (2).

1.1.42“Trademark Assignment” means an assignment of trademark registrations between Carolina Designs Limited (1) and Candle Corporation of America (2).

1.1.43“Transaction” means the transaction contemplated by this Agreement or any part of that transaction.

1.1.44“VATA 1994” means the Value Added Tax Act 1994.

1.1.45“Warranties” means the warranties in Clause 5 and Schedule 2 and the Tax Warranties.

1.2Clause and schedule headings do not affect the interpretation of this Agreement.

1.3A person includes a corporate or unincorporated body.

1.4Words in the singular include the plural and in the plural include the singular.

1.5A reference to one gender includes a reference to the other gender.

1.6A reference to a particular law is a reference to it as it is in force for the time being taking account of any amendment, extension, or re-enactment and includes any subordinate legislation for the time being in force made under it

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provided that any such amendment, extension or re-enactment does not increase the liability of the Seller under this Agreement.

1.7Writing or written includes faxes but not e-mail.

1.8Documents in agreed form are documents in the form agreed by the parties or on their behalf and initialled by them or on their behalf for identification.

1.9References to clauses and schedules are to the clauses and schedules of this Agreement; references to paragraphs are to paragraphs of the relevant schedule.

1.10Reference to this Agreement include this Agreement as amended or varied in accordance with its terms.

2SALE AND PURCHASE OF SALE SHARES

2.1On the terms of this Agreement, the Seller shall sell and the Buyer shall buy, with effect from Completion, the Sale Shares with full title guarantee, free from all Encumbrances and together with all rights that attach (or may in the future attach) to them including, in particular, the right to receive all dividends and distributions declared, made or paid on or after the date of this Agreement.

2.2The Buyer is not obliged to complete the purchase of any of the Sale Shares unless the purchase of all the Sale Shares is completed simultaneously.

3PURCHASE PRICE AND NET CASH PAYMENT

3.1The Purchase Price is £600,000 to be satisfied as follows:

3.1.1As to £500,000 by the payment in cash of such sum on Completion by the Buyer (“Cash Consideration”) to the Seller’s Solicitors on behalf of the Seller; and

3.1.2As to £100,000 by the payment in cash of such sum on 2 January 2008 by the Buyer to the Seller’s Solicitors on behalf of the Seller (“the Deferred Consideration”).

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3.2The Purchase Price shall be deemed to be reduced by the amount of any payment made to the Buyer:

3.2.1for a breach of any Warranty; or

3.2.2under Clause 8; or

3.2.3under the Tax Covenant.

3.3During the period following Completion up to and including 31 December 2006 the Buyer shall:

3.3.1procure that the business of the Company is carried on in the ordinary and usual course as carried on prior to the date of this Agreement (save that the parties hereby acknowledge that the business will be closed from 22 December 2006 to 2 January 2007);

3.3.2not levy any charge (by way of management charges or otherwise) on the Company;

3.3.3use all reasonable endeavours as soon as possible after Completion to procure collection of the Receivables; and

3.3.4as soon as possible after Completion use all reasonable endeavours to procure the payment of the Payables in accordance with the usual practice of the Company as carried on prior to the date of this Agreement.

3.4As soon as reasonably practicable after 31 December 2006 and in any event on or before 13 January 2007, the Buyer shall deliver to the  Seller a statement (“the Certificate”) signed by a director of the Buyer certifying the amount equal to:

3.4.1the level of the Company’s and the Colony Subsidiaries’ cash book balances as at 31 December 2006; less

3.4.2the level of the Company’s and the Colony Subsidiaries’ cash book balances as at the date of Completion

such amount (if any) being “the Cash Level Difference”

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3.5The Buyer shall afford the Seller reasonable access to its books and records and those of the Company relating to the period up to and including 31 December 2006 in relation to the collection of the Receivables and discharge of the Payables.

3.6Unless within 14 Business Days of receipt by the Seller of the Certificate, the Seller notifies the Buyer in writing, giving reasonable particulars and reasons, of any respect in which they are not satisfied that the details of the Certificate, then it shall be final and binding as between the Buyer and the Seller.

3.7If the Seller does so notify the Buyer that it is not so satisfied, the parties shall endeavour within the period expiring 5 days after receipt of the Seller’s written notice by the Buyer (excluding the day of receipt) to resolve the matter and if the matter is not so resolved it shall be resolved by an independent accountant in accordance with the provisions of clauses 3.8 to 3.11

3.8The Independent Accountant shall be a firm of chartered accountants agreed on by the Seller and the Buyer or, if they cannot agree on such appointment within 7 days of either party giving notice in writing to the other that it desires an Independent Accountant to be appointed, such firm of chartered accountants as may be nominated on the application of either one of them by the President or other senior officer for the time being of the Institute of Chartered Accountants in England and Wales.

3.9If any disagreement or dispute under this agreement is referred to the Independent Accountant:

3.9.1the parties will each use all reasonable endeavours to co-operate with the Independent Accountant in resolving such disagreement or dispute, and for that purpose will provide to him all such information and documentation as he may reasonably require;

3.9.2the Independent Accountant shall have the right to seek such professional assistance and advice as he may required;

3.9.3the fees of the Independent Accountant and other professional fees incurred by him shall be paid in such proportions and by such of the parties as may be directed by him;

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3.9.4the Independent Accountant will be requested by both parties to make a decision within 30 days of the referral.

3.10The Independent Accountant shall act as expert and not as arbitrator and his decision shall be final and binding on the parties.

3.11The draft Certificate shall be determined as final and binding either pursuant to clause 3.6 above or as a result of agreement between the Buyer and the Seller or as a result of the decision of the Independent Accountant pursuant to clause 3.9 above.

3.12If the Cash Level Difference:

3.12.1is a positive amount the Buyer shall, within 5 Business Days of the agreement or determination of the Certificate, pay such amount to the Seller.

3.12.2is a negative amount, the Seller shall, within 5 Business Days of the agreement or determination of the Certificate, pay such amount to the Buyer.

4COMPLETION

4.1Completion shall take place on the Completion Date:

4.1.1at the offices of the Seller’s Solicitors; or

4.1.2at any other place as agreed in writing by the Seller and the Buyer.

4.2At Completion the Seller shall:

4.2.1deliver or cause to be delivered the documents and evidence set out in Part 1 of Schedule 2;

4.2.2procure that a board meeting of the Company is held at which the matters identified in Part 2 of Schedule 2 are carried out; and

4.2.3deliver any other documents referred to in this Agreement as being required to be delivered by them; and

4.2.4pay to the Buyer on behalf of the Company in respect of the fees payable by the Buyer to Messrs Deloittes (in relation to the work

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undertaken by them in respect of the financial assistance exercise carried out on behalf of the Company) a sum equal to the amount by which the aggregate fees payable by the Company to Messrs Deloittes in respect of both their work carried out for the purposes of the financial assistance exercise and the work carried out for the purposes of preparation of the 2006 Accounts as referred to in Clause 25.1 below exceed £10,000 (exclusive of VAT and any disbursements).

4.3At Completion the Buyer shall:

4.3.1pay the Cash Consideration by telegraphic transfer to the Seller’s Solicitors (who are irrevocably authorised to receive the same) and otherwise in accordance with Clause 3.1. Payment made in accordance with this clause shall constitute a valid discharge of the Buyer’s obligations under Clause 3.1; and

4.3.2deliver a certified copy of the resolution adopted by the board of directors of the Buyer authorising the Transaction and the execution and delivery by the officers specified in the resolution of this Agreement, and any other documents referred to in this Agreement as being required to be delivered by it.

4.4As soon as possible after Completion the Seller shall send to the Buyer (at the Buyer´s registered office for the time being) all records, correspondence, documents, files, memoranda and other papers relating to the Company not required to be delivered at Completion and which are not kept at any of the Properties.

4.5During the period following Completion up to the date upon which the Buyer pays the Deferred Consideration to the Seller in full, the Buyer shall not and shall procure that each member of the Buyer’s Group shall:

4.5.1not knowingly undertake any act or omission which is deliberately calculated to materially and adversely affect the ability of the Buyer to pay the Deferred Consideration to the Seller on the date upon which it is due;

4.5.2not declare, make or pay any dividend or distribution (whether of capital or of profits);

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4.5.3carry on its business on the ordinary course.

5WARRANTIES

5.1The Buyer is entering into this Agreement on the basis of, and in reliance on, the Warranties.

5.2The Seller warrants to the Buyer that each Warranty is true, accurate and not misleading on the date of this Agreement except as Disclosed.

5.3Warranties qualified by the expression so far as the Seller is aware or any similar expression are deemed to be given to the best of the knowledge, information and belief of the Seller after it has made all reasonable and careful enquiries.

5.4Each of the Warranties is separate and, unless otherwise specifically provided, is not limited by reference to any other Warranty or any other provision in this Agreement.

5.5The Warranties are given subject to all information of the Buyer has knowledge and the knowledge of the Buyer shall for these purposes be deemed to be the knowledge of Simon Martin where, for the purpose of this clause 5.5 knowledge shall mean the actual knowledge of Simon Martin.

6LIMITATIONS ON CLAIMS

6.1The definitions and rules of interpretation in this clause apply in this Agreement.

6.1.1“Claim” means a claim for breach of any of the Warranties.

6.1.2“Substantiated Claim” means a Claim in respect of which liability is admitted by the party against whom such Claim is brought, or which has been adjudicated on by a Court of competent jurisdiction and no right of appeal lies in respect of such adjudication, or the parties are debarred by passage of time or otherwise from making an appeal.

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A Claim is connected with another Claim or Substantiated Claim if they all arise out of the occurrence of the same event or relate to the same subject matter.

6.2This clause limits the liability of the Seller in relation to any Claim and where specified any claim under the Tax Covenant.

6.3The liability of the Seller for all Substantiated Claims when taken together shall not exceed an amount equal to the Purchase Price.

6.4The Seller shall not be liable for a Claim unless:

6.4.1the amount of a Substantiated Claim, or of a series of connected Substantiated Claims of which that Substantiated Claim is one, exceeds £2,000;

6.4.2the amount of all Substantiated Claims that are not excluded under Clause 6.4.1 when taken together, exceeds £15,000, in which case the whole amount (and not just the amount by which the limit in this Clause 6.4.2 is exceeded) is recoverable by the Buyer.

6.5The Seller are not liable for a Claim to the extent that:

6.5.1the Claim relates to matters Disclosed;

6.5.2the Claim relates to any matter specifically and fully provided for in the Accounts;

6.5.3the Claim is based upon a liability which is contingent only unless and until such contingent liability becomes an actual liability and is due and payable, provided that this clause 6.5.3 shall not operate to avoid a Claim made in reasonable particularity in respect of a contingent liability within the applicable time limit specified in clause 6.6 below;

6.5.4the Claim would not have occurred but for:

6.5.4.1any voluntary act, omission or transaction of the Buyer, or its directors, employees or agents, or the Company its directors, employees or agents or successors in title, after Completion done or omitted

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otherwise than in the ordinary course of the business of the relevant company and in the knowledge that such act, omission or transaction might give rise to a Claim;

6.5.4.2the passing of, or any change in, after the Completion Date, any law, rule or regulation of any government, governmental department, agency or regulatory body;

6.5.4.3any change in the accounting reference date of the Company or any change in accounting policy or practice of the Buyer or the Company;

6.5.5that the matter giving rise to the Claim is covered by a policy of insurance of the Company in force on the Completion Date and payment is made to the Company under such policy by the insurer in respect of such matter.

6.6The Seller are not liable for a Claim or a claim under the Tax Covenant unless the Buyer has given the Seller notice in writing of the Claim or the claim under the Tax Covenant, summarising the nature of the Claim or claim under the Tax Covenant as far as is known to the Buyer and the amount claimed:

6.6.1in the case of a claim made under the Tax Warranties or the Tax Covenant, within the period of seven years beginning with the Completion Date; and

6.6.2in any other case, within the period of 12 months beginning with the Completion Date.

6.7If the Buyer becomes aware of a matter that may give rise to a Claim against the Seller, notice of that fact shall be given as soon as reasonably practicable to the Seller and if the Claim in question is a result of or in connection with a claim by or liability to a third party the Claim shall not be compromised or settled without the consent of the Seller (such consent not to be unreasonably withheld or delayed) and the Buyer (if requested promptly in writing by the Seller and indemnified to its reasonable satisfaction by the Seller against all costs, charges, liabilities and expenses which may as a result be incurred by the Buyer or the Company) shall take and shall procure the Company takes all such action as the Seller may reasonably request to avoid, dispute, resist,

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appeal, compromise or contest such claim or liability and shall make available and procure that the Company shall make available to the Seller all such information and reasonable assistance as may be requested by the Seller and as is available to it or them being information relevant for the purpose of avoiding, disputing, resisting, appealing, compromising or contesting any such claim or liability and the Seller shall keep all such information confidential.

6.8Where the Buyer or the Company has or may have a claim against a third party in relation to any matter which may give rise to a Claim, the Buyer shall procure that all reasonably endeavours are used by it and the Company to recover any amounts due from any such third party and shall, as soon as reasonably practicable after such recovery, reimburse the Seller the amount so recovered (net of costs of recovery) up to the amount paid by the Seller in respect of such Claim.

6.9In relation to any Claim or alleged Claim and without prejudice to the validity of the Claim or alleged Claim in question, the Buyer shall allow, and shall procure that the Company allows, the Seller and their accountants and professional advisers to investigate the matter or circumstance alleged to give rise to such Claim and whether and to what extent any amount is payable in respect of such Claim pursuant to the terms of this Agreement and for such purpose the Buyer shall give and shall procure that the Company gives, subject to their being paid all reasonably out-of-pocket expenses, all such assistance as the Seller or their accountants or professional advisers may reasonably request including access to and copies of any relevant documents or other relevant information in the possession of the Buyer or the Company.

6.10Nothing in this Agreement shall give the Buyer any right to rescind or terminate this Agreement and the Buyer’s sole remedy against the Seller shall be in damages and shall be subject to the other provisions of this Clause 6.

6.11Nothing in this Agreement shall in any way relieve the Buyer of its duty to mitigate its loss.

6.12Nothing in this Clause 6 applies to a Claim or a claim under the Tax Covenant that arises or is delayed as a result of dishonesty, fraud, wilful misconduct or wilful concealment by the Seller, its agents or advisers.

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6.13The Seller shall not plead the Limitation Act 1980 in respect of any claims made under the Tax Warranties or Tax Covenant up to seven years after the Completion Date.

7TAX COVENANT

The provisions of Schedule 4 apply in this Agreement.

8INDEMNITIES

The Seller undertakes to indemnify, and to keep indemnified, the Buyer, the Company against all (or, in the case of the Italian JV Claim (as defined below) 95% of all) losses or liabilities (including, without limitation any direct or indirect consequential losses or loss of profit and loss of reputation, damages, claims, demands, proceedings, costs, expenses, penalties, legal and other professional fees and costs) which may be suffered or incurred by any of them and which arise directly or indirectly in connection with:-

8.1a claim being made against the Company (1) by Barry Stamper and Rochelle Stamper (a partnership t/a Barry Stamper Agencies) (2) pursuant to the Commercial Agents’ (Council Directive) Regulations 1993 and for breach of contract following the termination by the Company of an agency agreement, such claim having been issued at the High Courts of Justice, Queens Bench Division, Manchester District Registry Mercantile Court under Claim Number 5MA70447 (“the Stamper Claim”) and

8.2a claim being made by Andrew Carton, sales director of Colony Sarl, being one of the Colony Subsidiaries, against Colony Sarl following his ceasing to be an employee which took place in July 2006 (“the Andrew Carton Claim”)

8.3the dispute between the Company (1) and the Company’s JV partners in Italy, Massimo Esposito and Simona Guerini (2) (“the Italian JV Claim”)

PROVIDED THAT in relation to the Stamper Claim, the Andrew Carton Claim and the Italian JV Claim the provisions of Clauses 8.3 and 8.4 shall apply.

8.4Subject to the Buyer and the Company being indemnified and secured to its reasonable satisfaction by the Seller against all liabilities, costs, expenses, damages and losses suffered or incurred in connection with the Stamper

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Claim or the Andrew Carton Claim or the Italian JV Claim (as the case may be) the Buyer shall, and shall procure that the Company and any other relevant member of the Buyer’s Group will:

8.4.1take such action as the Seller may reasonably request to avoid, dispute, resist or compromise the Stamper Claim or the Andrew Carton Claim or the Italian JV Claim(as the case may be);

8.4.2not accept or pay or compromise the Stamper Claim or the Andrew Carton Claim or the Italian JV Claim (as the case may be) without the prior written consent of the Seller (not to be unreasonably withheld or delayed);

8.4.3keep the Seller promptly and adequately informed as to the progress of the Stamper Claim, the Andrew Carton Claim and the Italian JV Claim;

8.4.4allow the Seller or its accountants or other professional advisers reasonable access to relevant documents or other information in the possession or under the control of the Buyer or the Company or any other member of the Buyer’s Group (as the case may be);

PROVIDED THAT the Buyer shall not be required to undertake any act or omission which in its reasonable opinion materially affects or prejudices its goodwill.

8.5Where the Buyer, the Company or any other member of the Buyer’s Group (as the case may be) recovers any amounts in respect of the Stamper Claim or the Andrew Carton Claim or the Italian JV Claim the Buyer shall, and shall procure that the Company or any other member of the Buyer’s Group will, forthwith upon such recovery reimburse the Seller.

9RESTRICTIONS ON SELLER

9.1The Seller covenants with the Buyer that it shall not and will procure that any member of the Seller’s Group from time to time will not either on its or their own account:

9.1.1at any time during the period of 2 years beginning with the Completion Date, in the European Union carry on or be employed,

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engaged or interested in any business which would be in competition with any part of the Business as the Business was carried on at the Completion Date; or

9.1.2at any time during the period of 2 years beginning with the Completion Date:

9.1.2.1offer employment to, enter into a contract for the services of, or attempt to entice away from the Company, any individual who is at the time of the offer or attempt, and was at the Completion Date, employed or directly or indirectly engaged in an executive or managerial position with the Company; or

9.1.2.2procure or facilitate the making of any such offer or attempt by any other person; or

9.1.3at any time after Completion, use in the course of any business the words “Colony” and “Wax Lyrical”

9.1.4at any time during a period of 2 years beginning with the Completion Date, solicit or entice away from the Company any supplier to the Company who had supplied goods and/or services to the Company at any time during the 12 months immediately preceding the Completion Date, if that solicitation or enticement causes or would cause such supplier to cease supplying, or materially reduce its supply of, those goods and/or services to the Company.

9.2The covenants in Clause 9 are intended for the benefit of the Buyer and the Company and apply to actions carried out by the Seller in any capacity and whether directly or indirectly, on the Seller´s own behalf, on behalf of any other person or jointly with any other person.

9.3Nothing in Clause 9 prevents the Seller from holding for investment purposes only:

9.3.1any units of any authorised unit trust; or

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9.3.2not more than 5% of any class of shares or securities of any company traded on a recognised stock exchange.

9.4Each of the covenants in Clause 9 is a separate undertaking by the Seller in and shall be enforceable by the Buyer separately and independently of its right to enforce any one or more of the other covenants contained in Clause 9. Each of the covenants in Clause 9 is considered fair and reasonable by the parties, but if any restriction is found to be unenforceable, but would be valid if any part of it were deleted or the period or area of application reduced, the restriction shall apply with such modifications as may be necessary to make it valid and enforceable.

9.5The consideration for the undertakings contained in Clause 9 is included in the Purchase Price.

10CONFIDENTIALITY AND ANNOUNCEMENTS

10.1Except so far as may be required by law, and in such circumstances only after prior consultation with the Buyer, the Seller shall not at any time disclose to any person or use to the detriment of the Company this Agreement or any trade secret or other confidential information which they hold in relation to the Company and its affairs PROVIDED THAT the Buyer shall be permitted to disclose to its employees, suppliers, customers and stakeholders the fact that it has acquired the entire issued share capital of the Company but the Buyer shall not be permitted to disclose the terms of the acquisition including (without limitation) the amount of the Purchase Price.

10.2No party shall make any announcement relating to this Agreement or its subject matter without the prior written approval of the other party except as required by law or by any legal or regulatory authority (in which case the parties shall co-operate, in good faith, in order to agree the content of any such announcement so far as practicable prior to it being made).

10.3This Clause 10 shall not be applicable to information required to be disclosed by the Seller under regulations of the US Securities and Exchange Commission.

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11FURTHER ASSURANCE

The Seller shall promptly execute and deliver all such documents, and do all such things, as the Buyer may from time to time reasonably require for the purpose of giving full effect to the provisions of this Agreement.

12ASSIGNMENT

12.1Except as provided otherwise in this Agreement, no party may assign, or grant any Encumbrance or security interest over, any of its rights under this Agreement or any document referred to in it.

12.2Each party that has rights under this Agreement is acting on its own behalf.

12.3The Buyer may assign its rights under this Agreement (or any document referred to in this Agreement) but not its obligations to a member of its Group provided that, if such assignee is to cease to be a member of its Group the Buyer will procure that all the benefits in relation to this Agreement (or any document referred to in this Agreement) that have been assigned to such member or its Group are re-assigned to the Buyer (or another member of its Group) immediately before such cessation.

12.4If there is an assignment:

12.4.1the Seller may discharge their obligations under this Agreement to the assignor until they receive notice of the assignment; and

12.4.2the assignee may enforce this Agreement as if it were a party to it, but the Buyer shall remain liable for any obligations under this Agreement.

13WHOLE AGREEMENT

13.1This Agreement, and any documents referred to in it, constitute the whole agreement between the parties and supersede any arrangements, understanding or previous agreement between them relating to the subject matter they cover.

13.2Nothing in Clause 13 operates to limit or exclude any liability for fraud.

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14VARIATION AND WAIVER

14.1Any variation of this Agreement shall be in writing and signed by or on behalf of the parties.

14.2Any waiver of any right under this Agreement is only effective if it is in writing and it applies only to the party to whom the waiver is addressed and to the circumstances for which it is given and shall not prevent the party who has given the waiver from subsequently relying on the provision it has waived.

14.3A party that waives a right in relation to one party, or takes or fails to take any action against that party, does not affect its rights in relation to any other party.

14.4No failure to exercise or delay in exercising any right or remedy provided under this Agreement or by law constitutes a waiver of such right or remedy or shall prevent any future exercise in whole or in part thereof.

14.5No single or partial exercise of any right or remedy under this Agreement shall preclude or restrict the further exercise of any such right or remedy.

14.6Unless specifically provided otherwise, rights arising under this Agreement are cumulative and do not exclude rights provided by law.

15COSTS

Unless otherwise provided, all costs in connection with the negotiation, preparation, execution and performance of this Agreement, and any documents referred to in it, shall be borne by the party that incurred the costs.

16NOTICE

16.1A notice given under this Agreement:

16.1.1shall be in writing in the English language;

16.1.2shall be sent for the attention of the person, and to the address, specified in Clause 16 (or such other address or person as each party may notify to the others in accordance with the provisions of Clause 16); and

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16.1.3shall be:

16.1.3.1delivered personally; or

16.1.3.2sent by pre-paid first-class post or recorded delivery; or

16.1.3.3(if the notice is to be served by post outside the country from which it is sent) sent by airmail.

16.2Any notice to be given to or by all of the Seller under this Agreement is deemed to have been properly given if it is given to or by the Seller´ representative named in Clause 16.3.

16.3The addresses for service of notice are:

16.3.1Seller

16.3.1.1name: Michael Novins, Vice President and General Counsel

Blyth Inc.

16.3.1.2address: One Weaver Street, Greenwich, CT 06831, USA

16.3.2Buyer

16.3.2.1address: c/o PKF, Sovereign House, Queen Street, Manchester M2 5HR

16.3.2.2for the attention of: Simon Martin

16.4A notice is deemed to have been received:

16.4.1if delivered personally, at the time of delivery; or

16.4.2in the case of pre-paid first class post or recorded delivery two Business Days from the date of posting; or

16.4.3in the case of airmail, five Business Days from the date of posting; or

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16.4.4if deemed receipt under the previous paragraphs of Clause 16.4 is not within business hours (meaning 9.00 am to 5.30 pm Monday to Friday on a day that is not a public holiday in the place of receipt), when business next starts in the place of receipt.

17INTEREST ON LATE PAYMENT

17.1Where a sum is required to be paid under this Agreement (other than under the Tax Covenant) but is not paid before or on the date the parties agreed, the party due to pay the sum shall also pay an amount equal to interest on that sum for the period beginning with that date and ending with the date the sum is paid (and the period shall continue after as well as before judgment).

17.2The rate of interest shall be 2% per annum above the base lending rate for the time being of The Royal Bank of Scotland Plc.  Interest shall accrue on a daily basis and be compounded quarterly.

17.3 Clause 17 is without prejudice to any claim for interest under the law.

18SEVERANCE

18.1If any provision of this Agreement (or part of a provision) is found by any court or administrative body of competent jurisdiction to be invalid, unenforceable or illegal, the other provisions shall remain in force.

18.2If any invalid, unenforceable or illegal provision would be valid, enforceable or legal if some part of it were deleted, the provision shall apply with whatever modification is necessary to give effect to the commercial intention of the parties.

19AGREEMENT SURVIVES COMPLETION

This Agreement (other than obligations that have already been fully performed) remains in full force after Completion.

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20THIRD PARTY RIGHTS

20.1Subject to Clause 20.2, this Agreement and the documents referred to in it are made for the benefit of the parties and their successors and permitted assigns and are not intended to benefit, or be enforceable by, anyone else.

20.2Each of the parties represents to the others that their respective rights to terminate, rescind or agree any amendment, variation, waiver or settlement under this Agreement are not subject to the consent of any person that is not a party to this Agreement.

21SUCCESSORS

The rights and obligations of the Seller and the Buyer under this Agreement shall continue for the benefit of, and shall be binding on, their respective successors and assigns.

22COUNTERPARTS

This Agreement may be executed in any number of counterparts, each of which is an original and which together have the same effect as if each party had signed the same document.

23LANGUAGE

If this Agreement is translated into any language other than English, the English language text shall prevail.

24GOVERNING LAW AND JURISDICTION

24.1This Agreement and any disputes or claims arising out of or in connection with its subject matter are governed by and construed in accordance with the law of England.

24.2The parties irrevocably agree that the courts of England have exclusive jurisdiction to settle any dispute or claim that arises out of or in connection with this Agreement.

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25STATUTORY ACCOUNTS AND TAX COMPLIANCE FEES

25.1The Buyer shall, and shall procure that the Company shall, co-operate (at the Seller’s expense) in the preparation of the statutory accounts of the Company for year ended 31 December 2006 (“the 2006 Accounts”) and shall provide to the Seller by no later than 15 February 2007 such information as the Seller and/or the auditors of the Company (being Messrs Deloittes) may reasonably request in relation to the preparation of the 2006 Accounts PROVIDED THAT the Seller shall be responsible for (and shall pay) the professional fees of Messrs Deloittes in relation to their work undertaken for the purposes of the audit of the 2006 Accounts to the extent that the aggregate amount of Deloittes’ fees in respect of both their work carried out for the purposes of the audit of the 2006 Accounts and the work carried out for the financial assistance exercise (as referred to in clause 4.2.4 above) exceeds £10,000.

25.2The Seller hereby acknowledges and agrees that it shall be responsible for (and shall pay) those third party professional fees incurred by the Buyer and/or the Company in relation to any tax compliance matters which relate to the financial years ended 31 December 2005 and 31 December 2006.

This agreement has been entered into as a deed on the date stated at the beginning of it.

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SCHEDULE 1

PART 1
PARTICULARS OF THE COMPANY

Name:	Colony Gift Corporation Limited
Registration number:	01499611
Registered office:	100 New Bridge Street, London EC4V 6JA
Authorised share capital	Amount: £15,000,000 Divided into: 15,000,000 Ordinary Shares of £1 each
Issued share capital	Amount: £14,520,070 Divided into: 14,520,070 Ordinary Shares of £1 each
Directors and shadow directors:	Stephen Robert Evans Louise McMahon Simon Martin
Secretary:	Simon Martin
Auditor	Deloitte & Touche LLP
Registered Charges	Legal Charge dated 21 July 1998 in favour of Barclays Bank Plc Mortgage dated 10 October 1997 in favour of Barclays Mercantile Business Finance Limited

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SCHEDULE 1

PART 2
THE COLONY SUBSIDIARIES

Name of Subsidiary	Place of Incorporation	No of Shares held/ Percentage holding
Fragrant Memories Limited	England	100%
Nature’s Scents Limited	England	100% (held by Fragrant Memories Limited)
Colony Private Label Limited	England	100%
Colony Italy	Italy	75%
Colony Deutschland GmbH	Germany	100%
Colony Iberia SA	Spain	75%
Colony Sarl	France	100%
Carolina Designs Limited	England	100%

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SCHEDULE 2

COMPLETION

Part 1 - What the Seller shall deliver to the Buyer at Completion

1At Completion, the Seller shall deliver or cause to be delivered to the Buyer the following documents and evidence:

1.1transfers of the Sale Shares executed by the registered holders in favour of the Buyer;

1.2the share certificates for the Sale Shares in the names of the registered holders or an indemnity in the agreed form for any lost certificates;

1.3the waivers, consents and other documents required to enable the Buyer to be registered as the holder of the Sale Shares;

1.4an irrevocable power of attorney in agreed form given by the Seller in favour of the Buyer to enable the beneficiary (or its proxies) to exercise all voting and other rights attaching to the Sale Shares before the transfer of the Sale Shares is registered in the register of members;

1.5in relation to the Company, the statutory registers and minute books (written up to the time of Completion), the common seal, certificate of incorporation and any certificates of incorporation on change of name;

1.6the written resignation, executed as a deed and in the agreed form, of the directors and secretary of the Company from their offices and employment with the Company, except for Stephen Evans, Simon Martin and Louise McMahon who are not resigning

1.7a certified copy of the minutes of the board meeting held pursuant to Part 2 of Schedule 2;

1.8in relation to the Company:

1.8.1statements from each bank at which the Company has an account, giving the balance of each account at the close of business on the last Business Day before Completion;

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1.8.2all cheque books in current use and written confirmation that no cheques have been written since those statements were prepared;

1.8.3details of their cash book balances; and

1.8.4reconciliation statements reconciling the cash book balances and the cheque books with the bank statements delivered;

1.9evidence, in agreed form, that any indebtedness (other than indebtedness incurred in the ordinary course of trading) owing to the Seller or any member of the Seller’s Group) has been discharged or waived;

1.10evidence, in agreed form, that the Company has been discharged from any responsibility for the indebtedness, or for the default in the performance of any obligation, of the Seller or any member of the Seller’s Group; and

1.11all charges, mortgages, debentures and guarantees to which the Company is a party and, in relation to each such instrument and any covenants connected with it:

1.11.1a sealed discharge or release in the agreed form; and

1.11.2if applicable, a sworn and completed Form 403a (declaration that part of the property or undertaking charged has been released from the charge).

Part 2 - Matters for the board meeting at Completion

1The Seller shall cause a board meeting of the Company to be held at Completion at which the matters set out in Part 2 of Schedule 2 shall take place.

2A resolution to register the transfer of the Sale Shares shall be passed at such board meeting of the Company, subject to the transfers being stamped at the cost of the Buyer.

3All directors and the secretary of the Company shall resign from their offices and employment with the Company with effect from the end of the relevant board meeting, except for Stephen Evans, Simon Martin and Louise McMahon.

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4The persons the Buyer nominates shall be appointed as directors and secretary of the Company (but not exceeding any maximum number of directors contained in the relevant company’s articles of association). The appointments shall take effect at the end of the board meeting.

5All the existing instructions and authorities to bankers shall be revoked and replaced with new instructions and authorities to those banks in the form the Buyer requires.

6The address of the registered office of the Company shall be changed to the address required by the Buyer.

7The accounting reference date of the Company shall be changed to the date required by the Buyer.

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SCHEDULE 3

WARRANTIES

1POWER TO SELL THE COMPANY

1.1The Seller has all requisite power and authority to enter into and perform this Agreement in accordance with its terms and the other documents referred to in it.

1.2This Agreement and the other documents referred to in it constitute (or shall constitute when executed) valid, legal and binding obligations on the Seller in the terms of the agreement and such other documents.

1.3Compliance with the terms of this Agreement and the documents referred to in it shall not breach or constitute a default under any of the following:

1.3.1any agreement or instrument to which the Seller is a party or by which any of them is bound; or

1.3.2any order, judgment, decree or other restriction applicable to the Seller.

2SHARES IN THE COMPANY AND SUBSIDIARIES

2.1The Sale Shares constitute the whole of the allotted and issued share capital of the Company and are fully paid.

2.2The Seller is the legal and beneficial owners of the Sale Shares.

2.3The Company has no subsidiaries other than the Colony Subsidiaries.

2.4The Sale Shares are free from all Encumbrances.

2.5No right has been granted to any person to require the Company to issue any share capital and no Encumbrance has been created in favour of any person affecting any unissued shares or debentures or other unissued securities of the Company.

2.6No commitment has been given to create an Encumbrance affecting the Sale Shares (or any unissued shares or debentures or other unissued securities of the Company) or for any of them to issue any share capital and no person has claimed any rights in connection with any of those things.

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2.7Other than in relation to the Colony Subsidiaries the Company:

2.7.1does not hold or beneficially own and has not agreed to acquire, any securities of any corporation;

2.7.2is not and has agreed to become a member of any partnership or other unincorporated association, joint venture or consortium (other than recognised trade associations);

2.7.3does not have, outside its country of incorporation, any branch or permanent establishment; and

2.7.4has not allotted or issued any securities that are convertible into shares.

2.8The Company has not at any time:

2.8.1 purchased, redeemed or repaid any of its own share capital; or

2.8.2given any financial assistance in connection with any acquisition of its share capital or the share capital of its holding company (as that expression is defined in section 736 of the Companies Acts) as it would fall within sections 151 to 158 (inclusive) of the Companies Acts.

2.9All dividends or distributions declared, made or paid by the Company have been declared, made or paid in accordance with its memorandum, articles of association, the applicable provisions of the Companies Acts and any agreements or arrangements made with any third party regulating the payment of dividends and distributions.

3CONSTITUTIONAL AND CORPORATE DOCUMENTS

The copies of the memorandum and articles of association or other constitutional and corporate documents of the Company contained in the Disclosure Bundle are true, accurate and complete in all material respects and copies of all the resolutions and agreements required to be annexed to or incorporated in those documents by the law applicable are annexed or incorporated.

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SCHEDULE 4

TAX COVENANT

PART 1

Definitions and interpretation

DEFINITIONS AND INTERPRETATION

1In this schedule, unless the context otherwise requires, the following words and expressions shall have the following meanings:

1.1 “Buyer’s Group” means the Buyer and any company within the same group or association of companies as the Buyer for any Tax purpose;

1.2“Event” means any act, omission, event or transaction;

1.3“Group Relief” means:

1.3.1relief surrendered or claimed pursuant to Chapter IV Part X ICTA 1988; and

1.3.2a Tax relating to an accounting period as defined in section 102(3) of the Finance Act 1989 (surrender of company Tax refund etc within group) in respect of which a notice has been given pursuant to section 102(2) of that statute.

1.4“Liability for Taxation” means:

1.4.1any liability of the Company to make a payment of or increased payment of Tax whether or not the same is primarily payable by the Company and whether or not the Company has or may have any right of reimbursement against any other person or persons;

1.4.2the set-off of any Post Completion Relief against income, profits or gains earned, accrued or received on or before Completion in circumstances where, but for such set-off, the Company would have had a liability to make a payment of or increased payment of Tax in respect of which the Seller would have been liable under part 3 of this schedule in which case the amount of the Liability for Taxation shall be the amount of Tax saved by the Company as a result of such set-off; and

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1.4.3any liability of the Company to make a payment pursuant to an indemnity, guarantee or covenant entered into before Completion under which the Company has agreed to meet or pay a sum equivalent to or by reference to another person’s Tax liability, in which case the Liability for Taxation shall be equal to the amount of the liability;

1.5“Post Completion Relief” means:

1.5.1any Relief of the Buyer and/or any member of the Buyer’s Group (other than the Company); and

1.5.2a Relief of the Company to the extent that it arises by reference to an Event occuring after Completion;

1.6“Relevant Person” means the Seller and any person (other than the Company) which is or has been connected with the Seller;

1.7“Relief” means any loss, relief, allowance, credit, exemption or set-off available in relation to Tax or to the computation of income, profits or gains for the purposes of Tax or any right to repayment of Tax;

1.8“Tax” or “Taxation” means any tax, duty, impost, levy or tariff in each case in respect of tax but excluding the uniform business rate, council tax, water rates and other local authority rates or charges and (unless due to the default or delay of the Buyer) any penalty, fine or interest payable in connection with any such tax, duty, impost, levy or tariff;

1.9“Taxation Authority” means means any statutory or governmental authority or body of any jurisdiction involved in the collection or administration of Tax;

1.10“Tax Claim” means any notice, demand, assessment, letter or other document issued, or action taken, by or on behalf of any Taxation Authority and the submission of any Tax form, return or computation from which, in either case, it appears to the Buyer that the Company is or may be subject to a Liability for Taxation or other liability in respect of which the Seller is or may be liable under this schedule;

1.11“Taxation Statute” means any statute, statutory instrument, regulation or legislative provision wheresoever enacted, issued or adopted providing for,

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imposing or relating to Taxation and shall include any statute, enactment, law, statutory instrument, order, regulation or provision which amends extends consolidates or replaces the same or which has been amended extended consolidated or replaced by the same;

2In this schedule “Company” shall in addition to the Company include every subsidiary of the Company to the intent and effect that the provisions of this schedule shall apply and be given in respect of each subsidiary as well as the Company.

3Any reference to a Liability for Taxation in respect of income, profits or gains earned, accrued or received shall include a Liability for Taxation in respect of income, profits or gains deemed to have been or treated or regarded as earned, accrued or received for any Tax purpose and any reference to Liability for Taxation on the happening of any Event shall include a Liability for Taxation where such Event (for the purposes of the Taxation Statute in question) is deemed to have occurred or is treated or regarded as having occurred.

4Reference to an Event occurring on or before Completion shall be deemed to include:

4.1any combination of two or more Events all of which shall have occurred (or be deemed for the purposes of Tax to have occurred) on or before Completion; and

4.2any combination of two or more Events at least one of which shall have taken place or be deemed for the purposes of any Tax to have occurred on or before Completion  provided that any Event or Events which take place (or are deemed to take place) after Completion shall only be taken into account if they are:

4.2.1.the completion of the disposal of any asset which was contracted to be sold by the Company on or before Completion or the performance of any other act by virtue of a legally binding obligation entered into by the Company on or before Completion;

4.2.2.the satisfaction of a condition to which the disposal of any asset pursuant to a contract entered into by the Company on or before Completion is subject provided that such disposal shall only be treated as occurring on or before Completion to the extent that it gives rise to a liability to Taxation in respect of deemed (as opposed to actual) income, profits or gains and only Taxation arising in respect of the

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amount by which the deemed income, profits or gains of  the Company exceeds the actual income, profits and gains shall be treated as arising in consequence of an Event occurring on or before Completion;

4.2.3.the failure of any person (other than any member of the Buyer’s Group) who was at any time prior to Completion a member of  the same group of companies as the Company for the purposes of the Taxation in question or was associated with the Company for the purposes of the Taxation in question to discharge a liability for Tax within a specified period or the expiry of such a period which failure gives rise to a liability of the Company pursuant to section 767A or 767AA ICTA 1988 or any of sections 189, 190 or 191 TCGA 1992;

4.2.4.the making of any chargeable payment (as defined in section 214 ICTA 1988).

5For the purposes of this Schedule 4, where any document in the possession or under the control of the Company or to the production of which the Company is entitled and on which the Company needs to rely is not (or is not properly) stamped, the stamp duty (together with any accrued interest and/or penalties in respect of such stamp duty) required to be paid in order that such document be fully and properly stamped shall, notwithstanding that the Company may be under no legal obligation to stamp the document be treated as a liability of the Company arising on the date when the document was executed and “Liability for Taxation” shall be construed accordingly

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PART 2
TAXATION WARRANTIES

1GENERAL

1.1Notices and returns

1.1.1All notices, returns, computations and any other necessary information submitted by the Company to any Taxation Authority for the purposes of Taxation were accurate and complete when submitted and remain accurate and complete in all material respects.

1.1.2The Company is not and, in the period of six years ended on the Accounts Date, has not been in dispute with or subject to enquiry or investigation by any Taxation Authority (other than routine enquiries concerning the corporation tax computations of the Company, all of which have been resolved) and so far as the Seller is aware there are no facts or circumstances likely to give rise to or be the subject of any such dispute, enquiry or investigation.

1.2Payment of Taxation due

All Taxation for which the Company is or has been liable to account for has been duly and punctually paid (insofar as such Taxation ought to have been paid) and the Company is under no liability (and has not within the three years prior to the date of this agreement been liable) to pay any penalty, fine, surcharge or interest in connection with any Taxation.

1.3Deductions and withholdings

The Company has duly and properly made all deductions and withholdings in respect of, or on account of, any Tax (including amounts required to be deducted under the PAYE and National Insurance systems) from any payments made by it which it is obliged or entitled to make and (to the extent required to do so) has accounted in full to the relevant Taxation Authority for all amounts so deducted or withheld.

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1.4Concessions and arrangements

The amount of Taxation chargeable on the Company during any accounting period ending on or within the six years before the Accounts Date has not depended on any concessions, agreements or other formal or informal arrangements with any Taxation Authority.

1.5Calculation of Taxation liability

The Company has (to the extent required by law) preserved and retained in its possession complete and accurate records relating to its Tax affairs (including PAYE and National Insurance records and VAT records) and the Company has sufficient records relating to past events to calculate the profit, gain, loss, balancing charge or balancing allowance (all for Tax purposes) which would arise on any disposal or on the realisation of any assets owned at the Accounts Date or acquired since that date but before Completion.

1.6Secondary liabilities

So far as the Seller is aware the Company is not, nor will it become, liable to make a payment to any person (including any Taxation Authority) in respect of any liability to Taxation of any other person where that other person fails to discharge a liability to Taxation to which it is or may be primarily liable.

2CHARGEABLE GAINS

2.1Acquisition costs

The sum which would be allowed as a deduction from the consideration under section 38 TCGA 1992 (acquisition and disposal costs etc) received for each asset of the Company (other than trading stock) if disposed of on the date of this agreement would not be less than (in the case of an asset held on Accounts Date) the book value of that asset shown or included in the Accounts or (in the case of an asset acquired since the Accounts Date) an amount equal to the consideration given for its acquisition.

2.2Transactions not at arms length

The Company has not disposed of or acquired any asset in circumstances falling within section 17 or 18 TCGA 1992.

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3CAPITAL ALLOWANCES

3.1Tax written down value

Save to the extent reflected in the deferred tax provision in the Accounts, no balancing charge in respect of any capital allowances claimed or given would arise if any asset of the Company (or, where computations are made for capital allowances purposes for pools of assets, all the assets in that pool) were to be realised for a consideration equal to the amount of the book value thereof as shown or included in the Accounts.

4DISTRIBUTIONS

4.1The Company has not made any repayment of share capital or issued any share capital as paid up otherwise than by the receipt of new consideration.

4.2The Company has not made (nor is it deemed to have made) any distribution within the meaning of ICTA 1988 except dividends properly authorised and disclosed in its audited accounts.

5LOAN RELATIONSHIPS

5.1All interests, discounts and premiums payable by the Company in respect of its loan relationships (within the meaning of section 81, Finance Act 1996) are eligible to be brought into account by the Company as a debit for the purposes of Chapter II of Part IV, Finance Act 1996 at the time and to the extent that such debits are recognised in the statutory accounts of the Company.

5.2The Company has never been a party to a loan relationship that had an unallowable purpose (within the meaning of paragraph 13, Schedule 9, FA 1996).

6CLOSE COMPANIES

6.1Close investment-holding company status

The Company is not, and has never been, a close investment-holding company as defined in section 13A, ICTA 1988.

6.2Distributions

The Company has never made a distribution within section 418 ICTA 1988.

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6.3Loans to participators

Any loans or advances made or agreed to be made by the Company within sections 419 and 420 or section 422 ICTA 1988 have been disclosed in the Disclosure Letter and the Company has not released or written off or agreed to release or write off the whole or any part of any such loans or advances.

7GROUPS OF COMPANIES

7.1The Company has not entered into, or agreed to enter into, an election pursuant to section 171A of TCGA 1992 or paragraph 66 of Schedule 29 to the Finance Act 2002.

7.2Neither the execution nor completion of this agreement, nor any other event since the Accounts Date, will result in any chargeable asset being deemed to have been disposed of and re-acquired by the Company for Taxation purposes under section 179 of TCGA 1992, paragraphs 58 or 60 of Schedule 29 to the Finance Act 2002, paragraph 12A of Schedule 9 to the Finance Act 1996, paragraph 30A of Schedule 29 to the Finance Act 2002, or as a result of any other Event since the Accounts Date.

8COMPANY RESIDENCE

8.1The Company has always been resident in the United Kingdom for corporation tax purposes and has never at any time been treated for the purposes of any double taxation arrangements or for any other tax purpose as resident in any other jurisdiction and the Company does not hold shares in a company which is not resident in the United Kingdom and which would be a close company if it were resident in the United Kingdom in circumstances such that a chargeable gain accruing to the company not resident in the United Kingdom could be apportioned to the Company pursuant to section 13 of TCGA 1992.

9ANTI-AVOIDANCE

9.1Anti-avoidance

The Company has not been a party to, nor has been otherwise involved in, any transaction, scheme or arrangement the main purpose of which, or one of the main purposes of which was the avoidance or deferral of a liability to Tax.

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9.2Transactions between associated persons

All transactions or arrangements made by the Company have been made on fully arm’s length terms and there are no circumstances in which 770A of or schedule 28AA to ICTA 1988 could apply causing any Taxation Authority to make an adjustment to the terms on which such transaction or arrangement is treated as being made for taxation purposes.

10INHERITANCE TAX

10.1No transfers of value and associated operations

The Company has not made any transfer of value within sections 94 and 202, IHTA 1984, nor has it received any value such that liability might arise under section 199, IHTA 1984 , nor has it been a party to associated operations in relation to a transfer of value as defined by section 268, IHTA 1984.

10.2HM Revenue & Customs charge

There is no unsatisfied liability to inheritance tax attached to or attributable to the Sale Shares or any asset of the Company and none of them are subject to any charge as mentioned in section 237 and 238, IHTA 1984.

10.3Power of sale, mortgage or charge

No asset owned by the Company, nor the Sale Shares are liable to be subject to any sale, mortgage or charge by virtue of section 212 (1), IHTA 1984.

11VAT

11.1Returns and payments

11.1.1The Company is registered as a taxable person for the purposes of VAT in the United Kingdom under schedule 1 VATA 1994 and has never been treated as (nor applied to be) a member of a group of companies for VAT purposes.

11.1.2The Company has complied in all material respects with all statutory provisions, rules, regulations, orders and directions in respect of VAT, promptly submitted accurate returns and, maintained full and accurate VAT records and the Company has not been subject to any interest, forfeiture, surcharge or penalty,

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nor been given any notice under sections 59, 59A or 64, VATA 1994, nor been given a warning within section 76(2), VATA 1994, nor been required to give security under paragraph 4, Schedule 11, VATA 1994.

11.2Taxable supplies and input tax credit

All supplies made by the Company are taxable supplies and the Company has not been or will be denied full credit for all input tax.

11.3VAT and Properties

The Company has not made and is not otherwise bound by any election to waive exemption from VAT (pursuant to paragraph 2, Schedule 10, VATA 1994).

11.4Capital goods scheme

No asset of the Company is a capital item, the input tax on which could be subject to adjustment in accordance with the provisions of Part XV, VAT Regulations 1995.

11.5Transfer of Going Concern

The Company has not been party to a transaction to which Article 5 of the Value Added Tax (Special Provisions) Order 1995 (transfer of business as a going concern) has (or has purported to have been) applied.

11.6Bad debt relief

11.6.1The Company has not made any claim for bad debt relief under section 36, VATA 1994 and there are no existing circumstances by virtue of which any refund of tax obtained or claimed may be required to be repaid.

11.6.2There are no circumstances by virtue of which there could be a claw-back of input tax from the Company under section 36(4), VATA 1994.

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12STAMP DUTY AND SDLT

12.1Stamp duty

Any document that may be necessary in proving the title to any asset that is owned by the Company at Completion or any document that the Company may wish to enforce or produce in evidence is duly stamped.

12.2Withdrawal of Relief

Neither entering into this agreement nor Completion will result in the withdrawal of a stamp duty or stamp duty land tax relief granted on or before Completion which will affect the Company.

12.3SDLT

The Disclosure Letter sets out full and accurate details of any chargeable interest (as defined under section 48 of the Finance Act 2003) acquired or held by the Company before completion in respect of which the Seller are aware or ought reasonably to be aware that an additional land transaction return will be required to be filed with a Taxation Authority and/or a payment of stamp duty land tax made on or after Completion.

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PART 3

Tax Covenant

1COVENANT

Subject as hereinafter provided the Seller hereby covenants to pay to the Buyer an amount equal to:

1.1any Liability for Taxation which arises as a result of an Event occurring on or before Completion or in respect of income, profits or gains earned, accrued or received on or before Completion;

1.2any Liability for Taxation arising or assessed as a consequence of the failure of a Relevant Person at any time to pay Tax;

1.3any Liability for Taxation falling within paragraph 1.4.4 of part 1 of this schedule;

1.4all reasonable costs and expenses incurred by the Company or the Buyer in connection with a successful claim under this schedule; and

1.5any Liability for Taxation arising directly as a result of the waiver/capitalisation of any inter company indebtedness on or before Completion.

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PART 4

Limitations and procedure

1LIMITATION OF SELLER’S LIABILITY

1.1The provisions of clauses 6.3 (maximum) shall not apply but clauses 6.4 (disregard and de minimis) and 6.6 (time limits) of this Agreement shall apply to this schedule as if the same were set out herein in full and the liability of the Seller under this schedule shall be limited or excluded accordingly.

1.2The Seller shall not be liable under any Taxation Waranty or any claim under Part 3 (Tax Covenant) in respect of any Liability for Taxation to the extent that:

1.2.1a provision or reserve in respect thereof was made in the Accounts and has been paid or discharged on or before Completion or to the extent that the payment or discharge  of such liability has been taken into account in the Accounts and has been paid or discharged on or before Completion;

1.2.2such Liability for Taxation arises from any act or transaction of the Company in the ordinary course of business since the Accounts Date;

1.2.3such Liability for Taxation arises or is increased as a result only of any change in Taxation Statute or any increase in rates of Tax (in each case) announced and coming into force after Completion which has retrospective effect;

1.2.4such Liability for Taxation arises or is increased as a result of any change in the accounting policies or practices of the Company after Completion save where such change is made in order to comply with generally accepted accounting principles in the United Kingdom;

1.2.5such Liability for Taxation would not have arisen or would have been reduced or eliminated but for a failure or omission on the part of the Buyer after Completion to make any claim, election, surrender or disclaimer or to give any notice or consent (“Relevant

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Claim”) after Completion the making, giving or doing of which was taken into account in computing the provision for Tax in the Accounts provided that written details of such Relevant Claim were given to the Buyer in sufficient time to enable it or the Company to make the Relevant Claim;

1.2.6such Liability for Taxation would not have arisen but for the voluntary amendment or withdrawal (in whole or in part) after Completion of any claim election or surrender properly made before Completion or the making of any disclaimer after Completion;

1.2.7such Liability for Taxation would not have arisen but for a voluntary act or transaction carried out by the Buyer or the Company after Completion otherwise than:

1.2.7.1in the ordinary course of business of the Company; or

1.2.7.2pursuant to a legally binding obligation in existence at Completion or any act required by law; or

1.2.8any Relief other than a Post Completion Relief is available to the Company to relieve or mitigate that liability;

1.2.9the liability has been made good or satisfied (otherwise than by the Buyer);

1.2.10the liability arises or is increased as a result of the failure by the Company after Completion to submit any returns, notices, computations or other information required to be made by it or not submitting such returns, notices, computations or other information within the appropriate time limits or otherwise than on a proper basis;

1.2.11the liability arises or is increased as a result of the Company or Buyer failing to act in accordance with any of the provisions of this agreement;

1.2.12the rate or average rate of any Taxation for any period which is applicable to the Company increasing as a result of the sale and

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purchase of the Company under the Agreement, including the Company ceasing to be subject to corporation tax at the small companies’ rate (or qualifying for relief under section 13(2) of the ICTA 1988) and becoming subject to corporation tax at the rate applicable to companies generally; or

1.2.13such Liability for Taxation is a liability to interest on instalment payments paid on or before Completion under paragraph 7 of the Corporation Tax (Instalment Payments) Regulations 1998 which interest is only payable by reason of any instalment payments made before Completion proving to be insufficient as a result of profits earned by the Company after Completion proving to be greater than was reasonably estimated by the Company at the time such instalment was made;

1.2.14such Liability for Taxation would not have arisen but for a change in the accounting reference date of any person made on or after Completion

1.2.15such Liability for Taxation is in respect of stamp duty or stamp duty reserve tax payable on the transfer or agreement to transfer the Sale Shares pursuant to this agreement.

1.2.16the Buyer has recovered damages or any other amount under this Agreement (whether for breach of Warranty, or otherwise) in respect of the same loss, liability, damage or Event or the Buyer or the Company have otherwise obtained reimbursement or restitution from the Seller.

2DISPUTES AND CONDUCT OF TAX CLAIMS

2.1If the Buyer or the Company shall become aware of a Tax Claim the Buyer shall, or shall procure that the Company shall, as soon as reasonably practicable (and in any event, in the case of the receipt of a Tax Claim consisting of any assessment or demand for Tax or for which the time for response or appeal is limited, not less than 15 clear days prior to the day on which the time for response or appeal expires) give written notice thereof to the Seller but so that the giving of such notice shall not be a condition precedent to the Seller’s liability under this schedule.

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2.2Subject to the Seller indemnifying the Company and the Buyer to the reasonable satisfaction of the Buyer against all reasonable costs and expenses (including any additional Tax) which may be incurred thereby, the Buyer shall (and shall procure that the Company shall) take such action as the Seller may reasonably request in writing to the Buyer (including delegating the conduct of the action to the Seller) provided always that:

2.2.1the Company shall not be obliged to appeal against any assessment for Tax if, having given the Seller notice of the receipt of that assessment, the Buyer has not within 10 Business Days thereafter received instructions from the Seller, in accordance with the provisions of this paragraph 2.2 to make that appeal;

2.2.2the Buyer and the Company shall not be obliged to comply with any instruction of the Seller which involves contesting any assessment for Tax before any court or other appellate body (excluding the General and Special Commissioners of HM Revenue & Customs and the VAT and Duties Tribunal) unless the Seller provides the Buyer with the written opinion of Tax Counsel (after disclosure of all relevant information and having regard to all the relevant circumstances) of at least 10 years’ call that an appeal against the assessment will on the balance of probabilities be successful;

2.2.3the Buyer and the Company shall not be obliged to comply with any instruction of the Seller to make a settlement or compromise of a Tax Claim which is the subject of a dispute or agree any matter in the conduct of such dispute which in the reasonable opinion of the Buyer could materially adversely affect the future Tax position of the Company or any member of the Buyer’s Group.

2.3The Seller shall have the right to have any action mentioned in paragraph 2.2 conducted by their nominated professional advisers provided that the appointment of such professional advisers shall be subject to the approval of the Buyer (such approval not to be unreasonably withheld or delayed).

2.4If the Seller does not request the Buyer or the Company to take any action under paragraph 2.2 or fails to indemnify the Buyer and the Company to the Buyer’s reasonable satisfaction within a period of time (commencing with the

47

date of the notice given to the Seller) that is reasonable having regard to the nature of the Tax Claim and the existence of any time limit in relation to avoiding, disputing, defending, resisting, appealing or compromising such Tax Claim and which period shall not in any event exceed a period of 45 days the Buyer or the Company shall be free to pay or settle the Tax Claim on such terms as it may in its reasonable discretion think fit.

2.5The Buyer shall keep the Seller fully informed of the progress in settling the relevant Tax Claim and shall, as soon as reasonably practicable forward, or procure to be forwarded, to the Seller copies of all material correspondence pertaining to it.

2.6If it is alleged by any Taxation Authority in writing that the Seller (at any time) or the Company (prior to Completion) has committed any act or omission constituting fraudulent conduct relating to Tax then the provisions of paragraph 2.2 shall not apply and the Seller shall cease to have any right thereunder.

3PAYMENT DATE AND INTEREST

3.1Where the Seller is liable to make any payment under this schedule, the due date for the making of that payment (the “Due Date”) shall be the later of the date falling five Business Days after the Buyer has served a written notice on the Seller demanding that payment and:

3.1.1in any case that involves an actual payment of Tax (including any payment pursuant to paragraph 1.4 of part 3 of this schedule), the date falling two Business Days before the last date on which the Tax in question must be paid to the relevant Taxation Authority or person entitled to the payment (after taking into account any postponement of the due date for payment which is obtained) in order to avoid incurring a liability to interest or a charge fine or penalty; or

3.1.2in any case that involves a Liability for Taxation falling within paragraph 1.4.2 of part 1 of this schedule the last date upon which the Taxation is or would have been required to be paid to the relevant Taxation Authority in respect of the period in which the Loss of the Relief occurs or, if the Relief that is lost is a right to

48

repayment of Tax, the date upon which the repayment of Tax would have actually been received; or

3.1.3in any case that involves a Liability for Taxation falling within paragraph 1.4.3 of part 1 of this schedule the date upon which the Taxation saved by the Company is or would have been required to be paid to the relevant Taxation Authority; or

3.1.4in any case that involves a Liability for Taxation falling within paragraph 1.4.4 of part 1 of this schedule not later than the fifth day before the day on which the Company is due to make the payment or repayment.

3.2If any sums required to be paid by the Seller under this schedule are not paid on the Due Date, then, except to the extent that the Seller’s liability under part 2 of this schedule compensates the Buyer for the late payment by virtue of it extending to interest and penalties, such sums shall bear interest (which shall accrue from day to day after as well as before any judgment for the same) at the rate of 2 per cent per annum over the base rate from time to time of Barclays Bank Plc or (in the absence thereof) at such similar rate as the Buyer shall select from the day following the Due Date up to and including the day of actual payment of such sums such interest to be compounded quarterly.

4TAXATION OF PAYMENTS

4.1Any sum payable by the Seller to the Buyer under this agreement shall be paid free and clear of any deduction or withholding whatsoever, save only as may be required by law.

4.2If any deduction or withholding is required by law to be made from any payment by the Seller under this agreement or if the Buyer is subject to Taxation in respect of such payment the Seller shall increase the amount of the payment by such additional amount as is necessary to ensure that the net amount received and retained by the Buyer (after taking account of all deductions or withholdings or Taxation) is equal to the amount which it would have received and retained had the payment in question not been subject to any deductions or withholdings or Taxation provided that this paragraph shall

49

not apply to any interest payable under paragraph 3.2 of this part of this schedule.

4.3If, at any time after any increased payment is made by the Seller as a consequence of the application of this paragraph, the Buyer receives or is granted a credit against or remission from any Tax payable by it which it would not otherwise have received or been granted but for such increased payment, the Buyer shall, to the extent that it can do so without prejudicing the retention of the amount of such credit or remission, reimburse the Seller with the amount of such credit or remission.

5RECOVERY FROM OTHER PERSONS

5.1If the Company, the Buyer or any member of the Buyer’s Group is or becomes entitled to recover from any other person (including a Taxation Authority) any amount which is referable to a Liability for Taxation in respect of which the Seller has made a payment under this schedule, the Buyer shall or shall procure that the Company shall:

5.1.1notify the Seller of its entitlement; and

5.1.2if required by the Seller and, subject to the Buyer, or as appropriate the Company, being indemnified by the Seller against the reasonable costs of the Buyer or, as appropriate, the Company in connection with taking the following action, the Buyer shall, or shall procure that the Company shall, take such action as is reasonably requested by the Seller to enforce recovery against that person or Taxation Authority

5.2In the event that the Company, the Buyer or any member of the Buyer’s Group recover any sum referred to in paragraph 5.1 (whether after taking any action at the request of the Seller under that paragraph or otherwise), the Buyer shall, as soon as reasonably practicable, account to the Seller for the lesser of:

5.2.1the sum recovered (including any related interest or related repayment supplement) less any Tax on that amount and any reasonable costs incurred in recovering the same (save to the extent that that amount has already been made good by the Seller under paragraph 5.1.2); and

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5.2.2any amount paid by the Seller under this schedule in respect of the Liability for Taxation giving rise to the relevant Tax Claim plus costs for which the Seller has indemnified and paid to the Buyer and/or the Company under this paragraph.

6CORRESPONDING RELIEFS

6.1If:

6.1.1a payment by the Seller in respect of any Liability for Taxation under a Tax Claim or the matter giving rise to the Liability for Taxatiion in question results in the Company, the Buyer or any member of the Buyer’s Group receiving or becoming entitled to any Relief which they utilise (including by way of repayment of Tax) (“Corresponding Relief”)

then an amount equal to the Tax saved by the Corresponding Relief at the date such Corresponding Relief is utilised (“Relevant Amount”), shall be dealt with in accordance with paragraph 6.2.

6.2The Relevant Amount shall:

6.2.1first be set off against any payment then due from the Seller under this schedule;

6.2.2secondly, to the extent that there is an excess (within 7 days after receipt by the Buyer of a written demand by the Seller) there shall be refunded to the Seller any previous payment or payments made by the Seller under this schedule up to the amount of the excess; and

6.2.3thirdly, to the extent that the excess referred to in paragraph 6.2.2 has not been exhausted under that paragraph, the remainder of such excess shall be carried forward and be set against any further such payment or payments in chronological order until exhausted.

6.3If the Company or the Buyer become aware of any circumstances which shall or may give rise to the application of this paragraph 6, the Buyer shall, or shall

51

procure that the Company shall, as soon as reasonably practicable give written notice of the same to the Seller.

6.4The Seller may require the auditors of the Company for the time being (at the Seller’s cost and expense) to certify the existence and quantum of any Relevant Amount and the date on which the Corresponding Relief is utilised and, in the absence of manifest error, their decision shall be final and binding.

7TAX RETURNS

7.1The Seller or the Seller’s duly appointed agents shall, subject to the provisions of clause 25.2 of this Agreement, at the reasonable cost of the Company be entitled to prepare, submit and agree the corporation tax returns and computations of the Company (“Returns”) for all accounting periods ended on or prior to 31 December 2006.

7.2The Seller shall deliver to the Buyer for comments any Returns, documents or correspondence and details of any information or proposal (“Relevant Information”) which it intends to submit to HM Revenue & Customs before submission to the HM Revenue & Customs and shall take account of the reasonable comments of the Buyer and make such amendments to the Relevant Information as the Buyer may reasonably require in writing within 30 days of the date of delivery of the Relevant Information prior to its submission to HM Revenue & Customs.

7.3The Seller shall deliver to the Buyer copies of any correspondence sent to, or received from, HM Revenue & Customs in relation to the Returns and shall keep the Buyer fully informed of its action under this paragraph.

7.4Subject to paragraphs 7.2 and 7.3 above, the Buyer shall procure that:

7.4.1the Company causes the Returns to be properly authorised and signed andmake all such claims, surrenders, disclaimers, notices or elections in relation to all accounting periods ended on or prior to Completion as the Seller shall reasonably require;

7.4.2the Company provides to the Seller such information and assistance, including such access to its books and records, which may reasonably be required to prepare, submit, negotiate and agree the Returns; and

52

7.4.3any correspondence which relates to the Returns shall, if received by the Buyer or the Company or its agents or advisers, be properly copied to the Seller.

7.5In respect of any matter which gives rise or may give rise to a Tax Claim, the provisions of paragraph 2 of this part 4 of this schedule with respect to conduct of tax claims shall apply instead of the provisions of this paragraph 7.

7.6The Seller shall use all reasonable endeavours to agree the Returns as soon as reasonably practicable and shall deal with all matters promptly and diligently and within applicable time limits.

8BUYER’S COVENANT

8.1The Buyer covenants with the Seller to pay to the Seller an amount equal to any of the following:

8.1.1any liability or increased liability to Tax of the Seller or any person connected with the Seller arising by virtue of the non-payment of Tax by the Company, the Buyer or any member of the Buyer’s Group save that this paragraph 8.1.1 shall not apply in respect of any Tax for which the Seller are liable to make (but have not yet made) payment to the Buyer under part 3 of this schedule.

8.1.2the reasonable costs and expenses of the Seller in connection with any liability referred to or in taking any action under this paragraph.

Paragraphs 2 (conduct of tax claims), 3 (payment date and interest) and 4 (taxation of payments) of this part 4 of this schedule shall apply mutatis mutandis to the covenant in favour of and payments to the Seller under this paragraph as they apply to payments to the Buyer under part 3 of this schedule.

9GROUP RELIEF

The Buyer shall procure that the Company, to the extent permissible and to the extent a Liability for Taxation is not thereby created, enters into and signs all returns, claims, consents, surrenders, elections and notifications to effect the surrender to the Seller’s Group by the Company (at no cost to the Seller’s Group) of all Group Relief available.

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EXECUTED and DELIVERED as a DEED by BLYTH

HOMESCENTS INTERNATIONAL UK LIMITED

Acting by its duly authorised attorney

Signature:

Name

EXECUTED andDELIVERED as aDEED byCOBCO 813

LIMITED acting by a director and a director/secretary

DIRECTOR

Signature:

Name

SECRETARY/DIRECTOR

Signature:

Name

54

EX-21.1

Exhibit 21.1

Subsidiaries of Blyth, Inc.

Subsidiaries of the Registrant/U.S.		Other Names Under WhichSubsidiary Does Business	State/Country of Incorporation
1.	Blyth Home Expressions, Inc.		Delaware
2.	Blyth Direct Selling Holdings, Inc.		Delaware
3.	Blyth Wholesale Holdings, Inc.		Delaware
4.	Blyth Catalog and Internet Holdings, Inc.		Delaware
5.	Boca Java, Inc.		Delaware
6.	Candle Corporation of America	Colonial Candle of Cape Cod	New York
		Blyth HomeScents International
7.	CBK Styles, Inc.		Delaware
8.	Endar Reserve, Inc.		California
9.	KWA, Inc.		Minnesota
10.	Midwest of Cannon Falls, Inc.	Midwest	Minnesota
11.	Miles Kimball Company		Wisconsin
12.	PartyLite Gifts, Inc.	PartyLite	Delaware
13.	PartyLite Holding, Inc.		Delaware
14.	PartyLite Worldwide, Inc.	PartyLite	Delaware
15.	Purple Tree, Inc.		Delaware
16.	The Sterno Group LLC		Delaware
17.	Two Sisters Gourmet, Inc.		Michigan

Subsidiaries of the Registrant/International		State/Country of Incorporation
18.	Blyth Asia Limited	Hong Kong
19.	Blyth Candles Ltd.	Ireland
20.	Blyth Sourcing Asia, Ltd.	Barbados
21.	Blyth Holding B.V.	Netherlands
22.	Blyth HomeScents International UK Limited	England
23.	Blyth HomeScents International de Mexico S.A. de C.V.	Mexico
24.	Blyth HomeScents International Servicios S.A. de C.V.	Mexico
25.	Midwest of Cannon Falls Canada	Canada
26.	PartyLite A.p.S.	Denmark
27.	PartyLite A.S.	Norway
28.	PartyLite BV	Netherlands
29.	PartyLite Gifts, Ltd.	Canada
30.	PartyLite GmbH	Germany
31.	PartyLite Handelsgesellschaft m.b.H.	Austria
32.	PartyLite Importaciones S.A. de C.V.	Mexico
33.	PartyLite Manufacturing Limited (formerly known as CCW Manufacturing, Ltd.)	England
34.	PartyLite, S.A. de C.V.	Mexico
35.	Partylite Oy	Finland
36.	PartyLite Pty Limited	Australia
37.	PartyLite SARL, Ltd.	Switzerland
38.	PartyLite SARL	France
39.	PartyLite Trading SA	Switzerland
40.	PartyLite Europe Technology GmbH	Germany
41.	PartyLite U.K., Ltd.	England
42.	Servicios Administrativos PartyLite, S.A. de C.V.	Mexico

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 33-91954, No. 333-50011, No. 333-92557, No. 333-93237, No. 333-91144 and No. 333-117547) and Form S-3 (No. 333-59847 and No. 333-105911) of our reports dated April 13, 2007, relating to the consolidated financial statements and financial statement schedule of Blyth, Inc., and management’s report on the effectiveness of internal control over financial reporting appearing in this Annual Report on the Form 10-K of Blyth, Inc. as of and for the year ended January 31, 2007.

/s/ DELOITTE & TOUCHE LLP

Chicago, Illinois
April 13, 2007

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Robert B. Goergen, Chairman and Chief Executive Officer of Blyth, Inc., certify that:

1.I have reviewed this annual report on Form 10-K of Blyth, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 13, 2007

/s/ Robert B. Goergen

Robert B. Goergen

Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Robert H. Barghaus, Vice President and Chief Financial Officer of Blyth, Inc., certify that:

1.I have reviewed this annual report on Form 10-K of Blyth, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 13, 2007

/s/ Robert H. Barghaus

Robert H. Barghaus

Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Blyth, Inc. (the “Company”) on Form 10-K for the period ending January 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert B. Goergen, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)         The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)         The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Robert B. Goergen

Robert B. Goergen

Chairman and Chief Executive Officer

April 13, 2007

This certification is made solely for the purpose of 18 U.S.C. § 1350, subject to the knowledge standard contained therein, and not for any other purpose.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Blyth, Inc. (the “Company”) on Form 10-K for the period ending January 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert H. Barghaus, Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)         The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)         The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Robert H. Barghaus

Robert H. Barghaus

Vice President and Chief Financial Officer

April 13, 2007

This certification is made solely for the purpose of 18 U.S.C. § 1350, subject to the knowledge standard contained therein, and not for any other purpose.