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Article by DailyStocks_admin    (02-03-09 08:22 AM)

Blyth Inc. CEO ROBERT B GOERGEN bought 89830 shares on 1-30-2009 at $3.66

BUSINESS OVERVIEW

(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, potpourri, 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.

Blyth was incorporated in the state of Delaware in 1977 and became a publicly traded company in 1994, at which time net sales were approximately $157.5 million. Internal growth and acquisitions have contributed to significant overall growth since that time. Internal growth has been generated by increased sales of existing Home Expressions products to consumers and retailers, the introduction of new products and product line extensions and geographic expansion. The Company has also integrated numerous acquisitions into its operations since its formation in 1977.

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. We intend to evaluate additional strategic opportunities that have been identified since the announcement of the spin off. We have engaged outside consultants to advise us on potential opportunities within the Wholesale segment, and we will likely focus on one or more of our European Wholesale businesses. Believing that substantial upside opportunities exist in the North American Wholesale business and having made significant investments in sales force integration and productivity, as well as new product development, we remain committed to the success of these and other initiatives despite challenging market conditions impacting the Home Expressions industry.

Additional information is available on our website, www.blyth.com . The Company’s 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 the Company’s website are its Corporate Governance Guidelines, its Code of Conduct, and the charters for its 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

The Company reports its financial results in three business segments: the Direct Selling segment, the Wholesale segment and the Catalog & Internet segment. These segments accounted for approximately 45%, 43% and 12% of consolidated net sales, respectively, for the fiscal year ended January 31, 2006. Financial information relating to these business segments for the years ended January 31, 2004, 2005 and 2006 appears in Note 19 of the Company’s consolidated financial statements and is incorporated herein by reference.

(c) Narrative Description of Business

Direct Selling Segment

In fiscal 2006, the Direct Selling segment represented approximately 45% of Blyth’s total sales. The Company’s principal Direct Selling business is PartyLite. PartyLite â brand 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 are designed, manufactured or sourced, marketed and distributed and include fragranced and non-fragranced candles, bath products and a broad range of related accessories.

In fiscal 2005, the Company introduced a party plan company called Purple Tree, which is focused on the craft industry, and, in fiscal 2006, the Company acquired a party plan company called Two Sisters Gourmet, which is focused on gourmet food. These two businesses represent substantially less than 1% of total sales from the Direct Selling segment. In the future, the Company may pursue other direct selling business opportunities.

United States Market

Within the United States market, PartyLite 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 27,000 independent sales consultants located in the United States were selling PartyLite products at January 31, 2006. 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 2006, PartyLite products were sold internationally by more than 19,000 independent sales consultants located outside the United States. These consultants were the exclusive distributors of PartyLite brand products internationally. The following were PartyLite’s international markets during fiscal 2006: Australia, Austria, Canada, Denmark, Finland, France, Germany, 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.

Wholesale Segment

In fiscal 2006, this segment represented approximately 43% of Blyth’s total sales. Products designed, manufactured or sourced, marketed and distributed within this segment include candles and other home fragrance products, a broad range of candle-related accessories, seasonal decorations such as ornaments, artificial trees and trim, 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 sold to more than 40,000 retailers in multiple channels of distribution in North America and Europe under brand names that include Ambria®, Asp-Holmblad®(1), Carolina®, CBK®, Colonial™(1), Colonial Candle of Cape Cod®, Colonial at HOME®, Edelman®, Euro-Decor®(1), Florasense®, Gies®(1), HandyFuel™, Kaemingk™(2), Liljeholmens®, Seasons of Cannon Falls®, Sterno® and Triumph Tree®(1). Our wholesale products are designed, packaged and priced to satisfy the varying demands of retailers and consumers within each distribution channel.

(1) Registered and sold outside the United States only.

(2) Sold outside the United States only.

United States Market

Products sold in the Wholesale segment in the United States are marketed through the premium and mass consumer wholesale channels. Within these channels, our wholesale products are 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.

International Market

Products sold internationally in the Wholesale segment are marketed to retailers in the premium and mass consumer wholesale channels, as well as to hotels, restaurants and independent foodservice distributors through independent sales representatives and our sales managers. Customers include European mass merchants, garden centers, department and gift stores and foodservice distributors.

Blyth’s international wholesale operations also include exports of products from the United States and various European countries to Canada, Europe, Latin America and the Pacific Rim. Exported products are sold through our sales managers and independent sales representatives to premium and mass retailers, hotels, restaurants and independent foodservice distributors. The Company may expand its international presence through the establishment of additional non-U.S. based marketing and distribution operations.

The Company effectively supports customers with inventory management and control and satisfies delivery requirements through various management ordering systems. The Company’s independent sales representatives and sales managers in the premium wholesale channel are supported by advanced sales tools to support showroom, road and telephone sales efforts.

Recent Dispositions

In January 2006, we sold our Impact Plastics seasonal decorations business to the former owner of that business.

Catalog & Internet Segment

In fiscal 2006, this segment represented approximately 12% of Blyth’s total sales. Blyth designs, markets and distributes a wide range of household convenience items, personalized gifts and photo storage products within this segment. These products are sold through the catalog and Internet distribution channel under brand names that include Easy Comforts™, Exposures®, Home Marketplace®, Miles Kimball® and Walter Drake®.

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 the Company’s independent sales representatives and worldwide product manufacturing partners. The new product development process may include technical research, consumer market research, fragrance studies, comparative analyses, the formulation of engineering specifications, feasibility studies, safety assessments, testing and evaluation. New products typically account for at least 40% of our net sales in the first full year following their introduction.

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 $86.4 million and are targeted to technological advancements or capital investments with short payback time frames. Management has also closed several facilities and written down the values of certain machinery and equipment in recent years in response to changing market conditions.

Blyth manufactures most of its candles and sources nearly all of its other products. In fiscal 2006, Blyth sourced approximately 65% of its products from independent manufacturers in the Pacific Rim, Europe and Mexico. Blyth manufactures approximately 35% of its products using highly automated processes and technologies, as well as certain hand crafting and finishing. Many of the Company’s products are manufactured by others based on Blyth’s design specifications, making the Company’s global supply chain approach critically important to its new product development process, quality control and cost management. Management has also built a network of stand-alone highly automated distribution facilities in its core markets.

Technological Advancements

The Company continues to see the benefit of its 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 2006 year-end, show orders placed via the PartyLite Extranet had increased to over 85% of total show orders in North America and over 40% 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. Blyth’s Wholesale segment customers include independent gift and department stores, garden centers, mass merchandisers, specialty chains, food and drug stores, foodservice distributors, hotels and restaurants. No single customer accounts for 10% or more of Blyth’s sales.

Competition

All of the Company’s 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, the Company competes for direct selling consultants with other direct selling companies. Because there are relatively low barriers to entry in all of Blyth’s business segments, the Company may face increased competition from other companies, some of which may have substantially greater financial or other resources than those available to Blyth. 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, 2006, we had approximately 5,500 full-time employees, of whom approximately 29% are based outside of the United States. Approximately 75% of our employees are non-salaried. Blyth does not have any unionized employees in the United States. Approximately 50 employees are represented by the IG Chemie labor union in our German facility at Gies Kerzen and have a General Agreement in place with no termination period. A Wages Agreement is in place for a period of one year from July 2005 until June 2006 and currently may be terminated by either party at the end of that period. Approximately 40 employees are represented by the Chemical Union in our manufacturing and distribution facility located in Promol, Portugal. The union contract has been terminated and the facility is applying the general labor law. Liljeholmens, Sweden has approximately 70 employees represented by the Industrifacket union, a manufacturing union, and the SIF union, a management union. Both union agreements each have a three-year term (April 2004 to March 2007). Management believes that relations with the Company’s employees are good. Since its formation in 1977, Blyth has never experienced a work stoppage.

Raw Materials

All of the raw materials used by Blyth for its 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 2006, 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.

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. For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Seasonality.”

Trademarks and Patents

The Company owns and has pending numerous trademark and patent registrations and applications in the United States Patent and Trademark Office related to its products. Blyth also registers certain trademarks and patents in other countries. While management regards these trademarks and patents as valuable assets to its business, the Company is not dependent on any single trademark or patent or group thereof.

Environmental Law Compliance

Most of the Company’s 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. Management has made and intends to continue to make expenditures necessary to comply with applicable environmental laws and does not believe that such expenditures will have a material effect on the Company’s 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 19 of Notes to Consolidated Financial Statements.

Item 1A. Risk Factors

Risk of Inability to Maintain Growth Rate

The Company has experienced significant sales growth in past years. While management expects continued growth, Blyth’s future growth rate will likely be less than its historical growth rate. The Company expects faster sales growth in its international market versus its United States market. The Company’s 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, the ability to recruit new independent sales consultants, sourcing of raw materials and demand-driven increases in production and distribution capacity. Business in all of Blyth’s segments is driven by consumer preferences. Accordingly, there can be no assurances that the Company’s current or future products will maintain or achieve market acceptance. Blyth’s 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 the Company’s financial results will not be materially adversely affected by these factors in the future.

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

Risks Associated With International Sales and Foreign-Sourced Products

Blyth’s international sales growth rate has outpaced that of its United States growth rate in recent years. Moreover, the Company sources a portion of its products in all of its business segments from independent manufacturers in the Pacific Rim, Europe and Mexico. For these reasons, Blyth is 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 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

The Company’s ability to meet future product demand in all of its business segments will depend upon its success in: sourcing adequate supplies of its products; bringing new production and distribution capacity on line in a timely manner; improving its 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 Blyth’s 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. Such shortages have not had and are not presently expected to have a material adverse effect on the Company’s operations. 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.

Dependence on Key Corporate Management Personnel

Blyth’s success depends in part on the contributions of key corporate management, including its 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; Bruce G. Crain, Senior Vice President and President, Wholesale Group; Robert B. Goergen, Jr., Vice President and President, Catalog & Internet Group; and Frank P. Mineo, Senior Vice President and President, Direct Selling Group. The Company does not have employment contracts with any of its key corporate management personnel except the Chairman and Chief Executive Officer, nor does it 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

Blyth’s 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 the Company. In addition, the Company competes for direct selling consultants with other direct selling companies. Because there are relatively low barriers to entry in all of Blyth’s business segments, the Company may face increased competition from other companies, some of which may have substantially greater financial or other resources than those available to Blyth. 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 Related to Information Technology Systems

Blyth’s 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. Blyth’s 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.


MANAGEMENT DISCUSSION FROM LATEST 10K

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 Wholesale segment and the Catalog & Internet segment. These reportable segments are based on similarities in distribution channels, customers and management oversight.

Today, on an annualized net sales basis considering the full year impact of recent acquisitions, Blyth is comprised of an approximately $700 million Direct Selling business, an approximately $700 million Wholesale business and an approximately $200 million Catalog and Internet 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 leverage more fully our infrastructure. New product development continues to be critical to all three segments of our business. In the Direct Selling segment, monthly sales and productivity incentives are designed to attract, retain and increase the earnings opportunity of independent sales consultants. As part of our strategy to invest in strategic initiatives in the Direct Selling segment, we have developed Purple Tree, a new party plan company, which markets crafts. In addition we completed the acquisition of a small gourmet food company, Two Sisters Gourmet, which also markets its products through the Direct Selling channel. In the Wholesale segment, we have numerous collaborative initiatives underway, which we believe will help drive sales and leverage the sales and marketing talents across this segment. These initiatives include customer information sharing and leveraging our in-house sales forces, as well as ongoing global sourcing objectives and other organic strategic initiatives into which we are investing resources. We entered the Catalog and Internet channel of direct-to-consumer distribution in 2003, giving us a presence in all of our desired channels. Our most recent acquisition, Boca Java, a small gourmet coffee and tea company, was in this segment.

Recent Developments

In September 2005, the Company announced its proposed intention to spin off the Wholesale segment to its stockholders. The Company requested and received from the Internal Revenue Service a ruling on the tax-free status for the transaction. Management intends to evaluate additional strategic opportunities that have been identified since the announcement of the spin off, has engaged outside consultants to advise it on strategic alternatives within the Wholesale segment and will likely focus on one or more of its European Wholesale businesses, believing that substantial upside opportunities exist in the North American Wholesale business despite challenging market conditions impacting the Home Expressions industry.

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 two small Direct Selling businesses, Purple Tree and Two Sisters Gourmet. 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. Purple Tree™ and Two Sisters Gourmet™ brand 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, artificial trees and trim, and home décor products such as picture frames, lamps and textiles. Products in this segment are sold in North America and Europe to retailers in the premium, specialty and mass channels under the CBK®, Carolina®, Colonial™(1), Colonial Candle of Cape Cod®, Colonial at HOME â , Edelman®, Euro-Decor®(1), Florasense®, Gies®(1), Kaemingk™(2), Liljeholmens®, Seasons of Cannon Falls® and Triumph Tree®(1) 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®, FilterMate®, HandyFuel™ and Sterno® brands.

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 â , Home Marketplace®, Miles Kimball â and Walter Drake â brands. These products are sold in North America.

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:

Fiscal 2006 Compared to Fiscal 2005

Net sales decreased $13.2 million, or approximately 1%, from $1,586.3 million in fiscal 2005 to $1,573.1 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 and European 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

(1) Colonial, Euro-Decor, Gies and Triumph Tree trademarks are registered and sold only outside the United States.

(2) Kaemingk is sold only outside the United States.

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 . PartyLite Europe now represents approximately 32% of PartyLite’s worldwide net sales.

Net sales in the Direct Selling segment represented approximately 45% of total Blyth sales in fiscal 2006 compared to 46% in fiscal 2005.

Net Sales—Wholesale Segment

Net sales in the Wholesale segment increased $24.7 million, or 4%, from $656.9 million in fiscal 2005 to $681.6 million in fiscal 2006. The primary reason for this increase was the acquisitions of Edelman and Euro-Decor in September 2004, which contributed an increase in net sales of $59.2 million to the segment. This increase was partially offset by sales declines in most of the other 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.

In North America, the Wholesale segment experienced a sales decline of approximately 4% versus the prior year. 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.

In Europe, the Wholesale segment experienced a sales increase of approximately 12% in fiscal 2006 versus fiscal 2005, due to the acquisitions of Edelman and Euro-Decor.

Net sales in the Wholesale segment represented approximately 43% of total Blyth sales in fiscal 2006 compared to 42% in 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. This decline from last year 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 12% of Blyth’s total net sales in fiscal 2006 and in fiscal 2005.

Blyth’s consolidated gross profit decreased $58.4 million, or 8%, from $771.7 million in fiscal 2005 to $713.3 million in fiscal 2006. The gross profit margin decreased from 48.6% in fiscal 2005 to 45.3% 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.

Blyth’s consolidated selling expense decreased $3.2 million, or approximately 1%, from $458.7 million in fiscal 2005 to $455.5 million in fiscal 2006. Most of the decrease in selling expense relates to the reduced sales in the U.S. Direct Selling channel, which was offset by the full year impact of the September 2004 acquisitions of Edelman and Euro-Decor. Selling expense as a percentage of net sales increased from 28.9% in fiscal 2005 to 29.0% in fiscal 2006.

Blyth’s consolidated administrative expenses increased $4.6 million, or 3%, from $143.7 million in fiscal 2005 to $148.3 million in fiscal 2006. The increase in administrative expenses versus the prior year was primarily due to the acquisitions of Edelman and Euro-Decor and the $1.2 million write-down in the book value of the Colorado Springs facility, which is currently held for sale. Administrative expenses as a percentage of net sales increased from 9.1% in fiscal 2005 to 9.4% 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 years results and budgeted fiscal 2006 expectations.

Blyth’s consolidated operating profit decreased $113.1 million from $169.3 million in fiscal 2005 to $56.2 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, investments in organic strategic initiatives, such as Purple Tree and 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 ongoing investment being made in the organic strategic initiatives, Purple Tree and Two Sisters Gourmet.

Operating Profit/Loss—Wholesale Segment

Operating profit in the Wholesale segment decreased from $30.7 million in fiscal 2005 to a loss of $51.1 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, were the primary contributors to the decrease in operating profit in this segment compared to the prior year.

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.

Interest expense increased $1.6 million, or 7%, from $22.1 million in fiscal 2005 to $23.7 million in fiscal 2006, due to increases in borrowings, interest rates and interest expense on state tax settlements.

Other income decreased $2.3 million from $1.9 million in fiscal 2005 to a loss of $0.4 million in fiscal 2006. This decrease was primarily due to a loss on the sale of Impact Plastics and foreign currency exchange losses.

Income tax expense decreased $45.1 million, or 85%, from $52.9 million in fiscal 2005 to $7.8 million in fiscal 2006. The effective income tax rate was 24.3% for fiscal 2006 compared to 35.5% 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.

As a result of the foregoing, net earnings decreased $71.6 million, or 74%, from $96.5 million in fiscal 2005 to $24.9 million in fiscal 2006.

Basic earnings per share were $0.61 for fiscal 2006 compared to $2.24 for fiscal 2005 . Diluted earnings per share were $0.60 for fiscal 2006 compared to $2.22 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.

Fiscal 2005 Compared to Fiscal 2004

Net sales increased $80.7 million, or 5%, from $1,505.6 million in fiscal 2004 to $1,586.3 million in fiscal 2005. Approximately 10 percentage points of the increase in net sales is attributable to the positive sales impact of Edelman and Euro-Decor, which Blyth acquired in September 2004, the positive impact of approximately 46 weeks of acquisition-related sales growth of Walter Drake, which was acquired in December 2003, the positive sales impact of approximately 24 weeks of acquisition-related sales growth of Kaemingk, which was acquired in June 2003, and the positive sales impact of approximately 8 weeks of acquisition-related sales growth of Miles Kimball, which was acquired in April 2003. The loss of sales from Jeanmarie Creations, which was divested in April 2004, had a negative impact on sales equal to approximately 2 percentage points. So, excluding the impact of acquisitions and divestitures, sales were down 3% for the year. The relative strength of foreign currencies versus the U.S. dollar had a positive impact on fiscal 2005 sales growth equal to approximately 3 percentage points. Management believes that a significant increase in party plan competition in the United States and a weak North American wholesale environment, exacerbated by higher energy prices and economic uncertainty related to the U.S. presidential election, negatively impacted Blyth’s sales throughout fiscal 2005.

Net Sales—Direct Selling Segment

Net sales in the Direct Selling segment decreased $28.6 million, or 4%, from $764.5 million in fiscal 2004 to $735.9 million in fiscal 2005. PartyLite’s U.S. sales decreased approximately 12% compared to the prior year. PartyLite Canada reported an approximately 7% decrease versus the prior year in U.S. dollars. Management believes that sales in the U.S. and Canadian markets were negatively impacted by increased competition for hostesses and party guests due to a substantial increase in channel competition. In addition, we believe PartyLite’s U.S. operations were negatively impacted by reduced discretionary income, resulting from higher gasoline prices. The U.S. market also experienced a significant decrease in third quarter sales in Florida, PartyLite’s fourth largest market, due to the August and September hurricanes. Management believes that this situation continued to have a negative impact into the fourth quarter given the loss of booking momentum due to cancelled parties. In PartyLite’s European markets, sales increased approximately 20% in U.S. dollars (+9% in local currencies), driven by strong sales in the newest markets . PartyLite Europe now represents approximately 30% of PartyLite Worldwide’s net sales.

Net sales in the Direct Selling segment represented approximately 46% of total Blyth sales in fiscal 2005 compared to 51% in fiscal 2004. This decrease was primarily due to the growth of the Catalog & Internet segment.

Net Sales—Wholesale Segment

Net sales in the Wholesale segment increased $26.6 million, or 4%, from $630.3 million in fiscal 2004 to $656.9 million in fiscal 2005. The primary reason for this increase was the acquisitions of Edelman and Euro-Decor in September 2004, which had a positive effect on sales of 6 percentage points, and the approximately 24 weeks of acquisition-related sales growth of Kaemingk, acquired in June 2003, which had a positive effect of 3 percentage points. The loss of sales of Jeanmarie Creations, which was divested in April 2004, had a negative impact on sales of approximately 4 percentage points. So, excluding acquisitions and divestitures, Wholesale segment sales were down approximately 2%.

In North America, the Wholesale segment experienced a sales decline of 10% versus the prior year. Management believes softness was seen in the sales of premium home fragrance products and seasonal decorations as a result of independent retailers’ cautiousness in purchasing throughout the year. Management also believes sales of home décor products in fiscal 2005 were slightly below the prior year due to retailers’ cautiousness. In addition, the divestiture of Jeanmarie Creations had a negative impact on sales of approximately 6 percentage points. In fiscal 2005, sales of chafing fuel and tabletop lighting to the foodservice trade improved significantly compared to the prior year, as the hospitality industry continued to rebound.

In Europe, the Wholesale segment experienced a sales increase of approximately 30% in fiscal 2005 versus fiscal 2004, due in part to the effect of the Edelman and Euro-Decor acquisitions and the full year of sales from Kaemingk, which had a positive effect on sales of 27 percentage points. Increased sales of mass channel candles in fiscal 2005 offset sales declines in premium candles in Europe.

Net sales in the Wholesale segment represented approximately 42% of total Blyth sales in fiscal 2005 and in fiscal 2004.

Net Sales—Catalog & Internet Segment

Net sales in the Catalog & Internet segment increased $82.8 million, or 75%, from $110.7 million in fiscal 2004 to $193.5 million in fiscal 2005 due to the December 2003 acquisition of Walter Drake. Net sales in this segment were modestly below our expectations due to decreased consumer discretionary spending and increased returns resulting from integration-related order processing delays.

Net sales in the Catalog & Internet segment accounted for approximately 12% of Blyth’s total net sales in fiscal 2005 compared to 7% in fiscal 2004.

Blyth’s consolidated gross profit increased $48.0 million, or 7%, from $723.7 million in fiscal 2004 to $771.7 million in fiscal 2005. The gross profit margin increased from 48.1% in fiscal 2004 to 48.6% in fiscal 2005 as a result of the favorable sales mix among and within Blyth’s various businesses, reduced shipping and handling charges and the positive impact of an insurance recovery related to our Monterrey facility.

Blyth’s consolidated selling expense increased $40.9 million, or 10%, from $417.8 million in fiscal 2004 to $458.7 million in fiscal 2005. Most of the increase in selling expense relates to the addition of selling expenses from the previously discussed fiscal 2005 acquisitions. Selling expense as a percentage of net sales increased from 28% in fiscal 2004 to 29% in fiscal 2005. This increase in selling expense, as a percentage of net sales, is principally due to increased promotional spending in the Direct Selling segment relative to sales, as well as the impact of Walter Drake’s business, which has a higher selling expense ratio than the overall Company average.

Blyth’s consolidated administrative expenses increased $14.7 million, or 11%, from $129.0 million in fiscal 2004 to $143.7 million in fiscal 2005. Most of the increase relates to administrative expenses associated with acquisitions made in fiscal 2005 . As a percentage of net sales, administrative expenses remained relatively flat at 9% despite the Company’s spending for organic strategic initiatives and compliance costs associated with the Sarbanes-Oxley Act of 2002.

In fiscal 2004, the Company recorded pre-tax restructuring and impairment charges of approximately $23.8 million. Of the $23.8 million charge, $6.7 million related to the Direct Selling segment and the closure of the Company’s Hyannis, Massachusetts candle manufacturing facility and $17.1 million related to the Wholesale segment. The Wholesale segment charges principally related to the write down of certain candle manufacturing assets, severance and personnel charges related to the restructuring in North America, and the discontinuation of one brand. The total charge of $23.8 million was reported as a component of operating expenses.

Blyth’s consolidated operating profit increased $16.2 million from $153.1 in fiscal 2004 to $169.3 million in fiscal 2005 principally due to the impact of the fiscal 2004 restructuring and impairment charges on the year-to-year comparison.

Operating Profit/Loss - Direct Selling Segment

Operating profit in the Direct Selling segment decreased $4.5 million, or 3%, from $136.4 million in fiscal 2004 to $131.9 million in fiscal 2005. The decrease resulted from the sales shortfalls in North America. Additional promotional and sales incentive expenses also negatively impacted this segment’s operating profit. Operating profit in the Direct Selling segment represented approximately 78% of total Company operating profit in fiscal 2005 compared to 89% in fiscal 2004.

Operating Profit/Loss—Wholesale Segment

Operating profit in the Wholesale segment increased from $10.0 million in fiscal 2004 to $30.7 million in fiscal 2005. Fiscal 2004 includes restructuring and impairment charges of $17.1 million. Additional increases in operating profit were attributable to profit improvements in the North American home fragrance business, the fiscal 2005 acquisitions of Edelman and Euro-Decor, and as previously mentioned, a $2.2 million insurance recovery benefit related to the fiscal 2004 Monterrey fire claim received in fiscal 2005 versus the negative impact of $1.9 million of expense recorded in fiscal 2004 for the fire. Operating profit in the Wholesale segment represented approximately 18% of total Company operating profit in fiscal 2005 compared to 7% in fiscal 2004.

Operating Profit/Loss—Catalog & Internet Segment

Operating profit in the Catalog & Internet segment increased from $6.6 million in fiscal 2004 to $6.7 million in fiscal 2005. Operating profit in the Catalog & Internet segment represented approximately 4% of total Company operating profit in both fiscal 2004 and fiscal 2005.

Interest expense increased $4.7 million, or 27%, from $17.4 million in fiscal 2004 to $22.1 million in fiscal 2005, primarily due to higher interest costs related to the $100 million of 5.5% Senior Notes issued in October 2003 and borrowings associated with the July 2004 Dutch tender offer.

Interest income and other increased $0.3 million, from $1.3 million in fiscal 2004 to $1.6 million in fiscal 2005. This increase was primarily due to favorable foreign currency exchange gains.

Income tax expense increased $2.5 million, or 5%, from $50.4 million in fiscal 2004 to $52.9 million in fiscal 2005. The increase in income tax expense is attributable to the increase in pre-tax earnings. The effective income tax rate was 35.5% for fiscal 2005 compared to 36.8% in fiscal 2004. This decrease in tax rate is a result of more income being earned in lower tax jurisdictions.

As a result of the foregoing, net earnings increased $10.1 million, or 12%, from $86.4 million in fiscal 2004 to $96.5 million in fiscal 2005.

Basic earnings per share were $2.24 for fiscal 2005 compared to $1.89 for fiscal 2004. The previously discussed restructuring and impairment charges reduced earnings per share by approximately $0.31 in fiscal 2004 . Diluted earnings per share were $2.22 for fiscal 2005 compared to $1.88 for fiscal 2004.

Seasonality

Approximately 41% of the Company’s net sales occurred in the first and second fiscal quarters of 2006. This is approximately equal to the Company’s net sales that occurred in the first and second fiscal quarters of 2005. 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 increased $150.4 million, or 164%, from $91.7 million at January 31, 2005 to $242.1 million at January 31, 2006. The increase in cash during fiscal 2006 was primarily due to cash generated from operations and increased borrowing in Europe to fully fund the dividend paid under the AJCA.

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 $106.8 million in cash from operations in fiscal 2006 compared to $138.5 million in fiscal 2005. This decrease was primarily due to the reduction in net earnings and an increase in inventory in the North American candles and home fragrance business to meet mass-market customer needs.

Capital expenditures for property, plant and equipment were approximately $17.3 million in fiscal 2006 down from $21.0 million in fiscal 2005. The decrease from historical levels is due to the Company continuing to reduce spending on manufacturing facilities, while moving to more of an outsourced product supply model. The Company anticipates total capital spending of approximately $25.0 million for fiscal 2007, primarily for the expansion of the Direct Selling European distribution center in support of ongoing growth, information technology and research and development-related equipment and upgrades to machinery and equipment in existing manufacturing and distribution facilities.

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. Our recent growth has been primarily acquisition related and in the future, acquisitions may continue to contribute more to the Company’s overall sales growth rate than historically. As part of our strategy to invest in strategic initiatives we have developed Purple Tree, a new Direct Selling company, which markets crafts. In addition we completed the acquisition of a small gourmet food company, Two Sisters Gourmet, that also markets its products through the Direct Selling channel. In the Wholesale segment, we have numerous collaborative initiatives underway, which we believe will help drive sales and leverage the sales and marketing talents across this segment. These initiatives include customer information sharing and leveraging our in-house sales forces, as well as ongoing global sourcing objectives and other organic strategic initiatives into which we are investing resources. The Company acquired Edelman B.V. and Euro-Decor B.V. during fiscal 2005, which added the home décor product to the European Wholesale business. The Company entered the Catalog and Internet channel of direct-to-consumer distribution in 2003, giving us a presence in all of our desired channels. Our latest acquisition, Boca Java, a small gourmet coffee and tea company, was in this segment.

As of January 31, 2006, the Company had a total of $15.0 million available under an uncommitted bank line of credit with LaSalle Bank National Association, which matures in June 2006. Amounts outstanding under the line of credit bear interest at prime or LIBOR plus 0.90%. No amounts were outstanding under the uncommitted line of credit at January 31, 2006.

As of January 31, 2006, the Company had a total of $10.0 million available under an uncommitted line of credit with Bank of America to be used for letters of credit. Since the line of credit is uncommitted, there is no maturity date. At January 31, 2006, approximately $0.5 million of letters of credit were outstanding under this credit line.

As of December 31, 2005, The Gies Group (“Gies”) had available lines of credit of approximately $40.4 million of which approximately $18.8 million was outstanding. The amounts outstanding under the lines of credit bear interest at a weighted average rate of 3.2% at December 31, 2005. The lines of credit have maturity dates thru December 2006 and are renewed annually.

As of December 31, 2005, Kaemingk had an available line of credit of approximately $32.6 million with ING Bank N.V, which expires December 31, 2006. No amounts were outstanding at December 31, 2005. The line of credit is collateralized by certain real estate and equipment owned by Kaemingk.

As of December 31, 2005, Colony Gift Corporation Limited (“Colony”) had an $8.6 million short-term revolving credit facility with Barclays Bank, which matures in August 2006. Colony had borrowings under the credit facility of approximately $7.0 million, at a weighted average interest rate of 5.6%, as of December 31, 2005.

As of December 31, 2005, Edelman B.V. and Euro-Decor B.V. had available lines of credit of approximately $29.6 million with ABN Amro Bank N.V, which mature September 2007. The lines of credit are collateralized by inventory and receivables owned by Edelman B.V. and Euro-Decor B.V. At December 31, 2004, $6.9 million was outstanding at a weighted average interest rate of 3.0%. At December 31, 2005, approximately $6.4 million was outstanding at a weighted average interest rate of 3.5%.

On June 2, 2005, the Company replaced its prior $200 million credit facility with a new $150 million unsecured revolving credit facility having a five year term; the “Credit Facility” matures June 2010. The Company has the ability to increase the Credit Facility, under certain circumstances, by an additional $50 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. Amounts outstanding under the Credit Facility bear interest, at the Company’s option, at JPMorgan Chase Bank’s prime rate or at the Eurocurrency rate plus a credit spread ranging from 0.360% to 0.800%, calculated on the basis of the Company’s senior unsecured long-term debt rating. At January 31, 2005, $3.3 million letters of credit were outstanding under the prior Credit Facility. As of January 31, 2006, approximately $73.0 million (including letters of credit) was outstanding under the Credit Facility.

As of January 31, 2005 and January 31, 2006, Miles Kimball had approximately $9.9 million and $9.4 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 December 31, 2004, Kaemingk had approximately $8.8 million of long-term debt outstanding under six loans with ING Bank N.V. at a weighted average interest rate of 5.1%. As of December 31, 2005, approximately $7.0 million of long-term debt was outstanding under six loans with ING Bank N.V. at a weighted average interest rate of 4.9%. The bank loans have maturity dates ranging from 2008 through 2020. The loans are collateralized by certain real estate and equipment owned by Kaemingk.

In July 1995, the Company privately placed $25.0 million aggregate principal amount of 7.54% Senior Notes due June 2005. The final payment on the notes was made on June 30, 2005.

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. Such notes contain, among other provisions, restrictions on liens on principal property or stock issued to collateralize debt. At January 31, 2006, 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, 2006, 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 issuance were used for general corporate purposes.

As of January 31, 2005 and January 31, 2006, CBK had $4.5 million and $4.4 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 4.6% at January 31, 2006. Payments of principal are required annually and interest payments are required monthly under the terms of the bond.

The estimated fair value of the Company’s $276.1 million and $346.0 million total long-term debt (including current portion) at January 31, 2005 and 2006 was approximately $303.0 million and $330.7 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.

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

(2) Other primarily consists of 401(k), profit sharing and pension obligations.

(3) Long-term debt includes: 7.90% Senior Notes due October 1, 2009, 5.50% Senior Notes due November 1, 2013, a mortgage note payable-maturity June 1, 2020, an Industrial Revenue Bond (“IRB”)-maturity January 1, 2025 and six bank loans maturing from 2008 to 2020. The Company also has credit facilities with maturity dates beyond one year with variable interest rates that are not included in the table due to the inability to calculate future interest payments. (See Note 12 to the Consolidated Financial Statements).

The Company does not utilize derivatives for trading purposes.

The Company’s Board of Directors has authorized the Company to repurchase up to 6,000,000 shares of common stock under the Company’s share repurchase program. Since January 31, 2005, the Company has purchased 65,000 shares on the open market for a cost of $2.1 million, bringing the cumulative total purchased shares to 4,626,800 as of January 31, 2006 for a total cost of approximately $115.1 million. The acquired shares are held as common stock in treasury at cost.

On June 7, 2004, the Company announced that its Board of Directors approved a repurchase of up to 4,000,000 outstanding shares of the Company’s common stock, with the right to repurchase up to an additional 2% of the Company’s outstanding shares, at a price per share not greater than $35.00 nor less than $30.00 through a Dutch auction cash tender offer. The final number of shares repurchased under the tender offer, which expired on July 9, 2004, was 4,906,616 shares for an aggregate purchase price of $172.6 million including fees and expenses. The tender offer was funded with $86.1 million of available cash and $86.5 million of borrowings against the Company’s prior $200 million credit facility.

On April 4, 2006, the Company announced that it has declared a cash dividend of $0.23 per share of the Company’s common stock for the six months ended January 31, 2006. The dividend, authorized at the Company’s April 4, 2006 Board of Directors meeting, will be payable to shareholders of record as of May 1, 2006, and will be paid on May 15, 2006.

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.

On December 9, 2005, the Board of Directors of the Company approved the acceleration of the vesting of all unvested stock options. Stock option awards granted from December 10, 2000 through the date of acceleration with respect to approximately 350,000 shares of the Company’s common stock, which represented 100% of the unvested options, were subject to this acceleration, which was effective as of December 9, 2005. 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. Additional expense of $1.7 million associated with the acceleration is included in the year ended January 31, 2006 pro forma disclosure presented in Note 1 to the Consolidated Financial Statements. The acceleration also eliminates future compensation expense the Company would otherwise recognize in its Consolidated Statement of Earnings upon adoption of SFAS 123R. The Company believes the implementation of this standard will not have a material impact on the financial statements.

On January 24, 2006, the Board of Directors approved a domestic reinvestment plan for the approximately $130 million in foreign earnings, which were previously considered permanently reinvested in non-U.S. legal entities, which the Company repatriated under the AJCA. The funds were brought back to the United States late in the fourth quarter and received the favorable tax treatment provided by the Act. The Company recorded a one-time tax expense of $9.1 million, which is reflected in the Company’s current year effective tax rate. As part of its repatriation plan, the Company intends to make a domestic investment of the repatriated amount 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 United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an 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.

Financial Reporting Release No. 60 requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. 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,

MANAGEMENT DISCUSSION FOR LATEST QUARTER

RESULTS OF OPERATIONS:

Overview

Blyth is a designer and marketer of home fragrance products and accessories, home décor, seasonal decorations, household convenience items, personalized gifts, nutritional supplements and weight management products 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 $200 million Wholesale business. Sales and earnings growth differ in each segment depending on geographic location, market penetration, our relative market share and product and marketing execution, among other business factors.

Our current focus is driving sales growth of our brands so we may more fully leverage our infrastructure. New product development continues to be critical to all three segments of our business. In the Direct Selling segment, sales and productivity incentives are designed to attract, retain and increase the earnings opportunity of independent sales consultants. In the Catalog & Internet segment, 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, distributors and national accounts. We are actively realigning several of our operations to improve profitability in response to sales declines.

Sale of Mass Channel Candle Business

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

Net Sales

Net sales for the nine months ended October 31, 2008 decreased $53.7 million, or approximately 7%, to $737.4 million from $791.1 million in the first nine months of the comparable prior year period. The decrease is primarily a result of lower sales in our domestic markets across all segments and the sale of BHI NA last year, partially offset by increased sales in PartyLite’s international markets.

Net sales for the three months ended October 31, 2008 decreased $35.1 million, or 12%, to $250.8 million, from $285.9 million in the comparable prior year period. As noted above, lower sales in the domestic operations within all of our segments were partially offset by increased sales in most PartyLite international markets.

Net Sales - Direct Selling Segment

Net sales in the Direct Selling segment for the nine months ended October 31, 2008 increased $11.3 million, or 3%, to $449.3 million from $438.0 million in the comparable prior year period. Sales within the PartyLite’s European markets increased approximately 25% in U.S. Dollars, a 10% increase in local currency. Sales increases in the European markets were driven primarily by a 14% increase in the number of active independent sales consultants. Partially offsetting this increase was a decline in PartyLite’s U.S. sales of approximately 19% compared to the prior year, primarily due to a decline in the number of active independent sales consultants, as well as challenging economic conditions that resulted in fewer shows being booked and held per consultant. PartyLite Canada reported an approximate 1% increase in sales as measured in U.S. Dollars, a 2% decrease in sales in local currency versus the prior year.

Net sales in the Direct Selling segment for the three months ended October 31, 2008 decreased $8.3 million, or 6%, to $139.2 million from $147.5 million in the comparable prior year period. This change was primarily driven by lower sales within PartyLite U.S., which decreased approximately 23% compared to the prior year mainly due to a decline in active independent sales consultants. Additionally, PartyLite Canada’s sales decreased 16% as measured in U.S. Dollars, a 7% decline in local currency, versus the prior year. In PartyLite’s European markets, sales increased approximately 22% as measured in U.S. Dollars, an increase of 12% in local currency, versus the prior year. Sales increases in the European markets were driven primarily by an increase in the number of active independent sales consultants.

Net Sales - Catalog & Internet Segment

Net sales in the Catalog & Internet segment for the nine months ended October 31, 2008 decreased $7.0 million, or 5%, to $125.7 million from $132.7 million in the comparable prior year period. Sales declined across the segment due to the impact of order processing difficulties following the implementation of a new ERP system, as well as lower consumer discretionary spending. This sales decline was partially offset by increased in sales in the Miles Kimball and Easy Comforts brand catalogs.

Net sales in the Catalog & Internet segment for the three months ended October 31, 2008 decreased $2.9 million, or 6%, to $49.7 million from $52.6 million in the comparable prior year period. Sales declines across the segment were due largely to lower consumer discretionary spending, and the previously noted ERP implementation issues.

Net Sales - Wholesale Segment

Net sales in the Wholesale segment in the nine months ended October 31, 2008 decreased $57.9 million, or approximately 26%, to $162.5 million from $220.4 million in the comparable prior year period. The decrease in sales is primarily due to the sale of the BHI NA business in the first quarter of last year, and sales declines in the home and seasonal décor businesses reflecting a soft housing market and a weak economy.

Net sales in the Wholesale segment in the three months ended October 31, 2008 decreased $23.8 million, or approximately 28%, to $61.9 million from $85.7 million in the comparable prior year period. The decrease in sales is primarily due to declines in the home and seasonal décor businesses reflecting a softer housing market and a weaker economy.

Gross Profit

Gross profit for the nine months ended October 31, 2008, decreased $7.5 million, or 2%, to $399.7 million from $407.2 million in the comparable prior year period. The decrease in gross profit is principally attributable to the overall 7% decrease in sales, partially offset by prior year’s nonrecurring impairment and accelerated depreciation charges of $3.7 million that resulted from the sale of the BHI NA business during fiscal 2008. Gross profit margin for the nine months ended October 31, 2008 increased to 54.2% of sales from 51.5% in the comparable prior year period . T he increase in gross profit margin is primarily attributable to the prior year sale of BHI NA, the mass market gross profit margins of which were lower than Blyth’s other businesses and the aforementioned associated nonrecurring charges, as well as price increases and effective cost control efforts, partially offset by higher commodity costs in the current year.

Gross profit for the three months ended October 31, 2008, decreased $11.9 million, or 8%, to $132.3 million from $144.2 million in the comparable prior year period. This decrease in gross profit is primarily due to the 12% decrease in sales compared to the prior year. Gross profit margin for the three months ended October 31, 2008 increased to 52.7% of sales from 50.4% in the comparable prior year period . The gross profit margin improvement is the result of price increases and effective cost control efforts, partially offset by a continued increase in commodity costs.


Selling Expense

Selling expense increased $9.1 million, or 3%, to $282.2 million in the nine months ended October 31, 2008, from $273.1 million in the comparable prior year period. The increase in selling expense is primarily due to strategic initiatives undertaken by the PartyLite markets and the Wholesale segment in an effort to increase sales. These initiatives include various independent consultant promotional programs as well as Wholesale pricing incentives. These increases are partially offset by the decrease in selling expense within the Wholesale segment related to the sale of BHI NA of $1.3 million in fiscal 2008. As a percentage of net sales, selling expense increased to 38.3% of net sales for the nine months ended October 31, 2008, compared to 34.5% of net sales during the comparable prior year period.

Selling expense for the three months ended October 31, 2008, decreased $4.7 million, or 5%, to $95.8 million from $100.5 million in the comparable prior year period. This decrease in selling expense is primarily due to the decrease in sales, partially offset by efforts to increase revenue in the PartyLite markets and Wholesale segment. As a percentage of net sales, selling expense increased to 38.2% of net sales for the quarter ended October 31, 2008 compared to 35.1% for the comparable prior year period.

Administrative and Other Expense

Administrative and other expense for the nine months ended October 31, 2008, decreased $6.4 million, or 6%, to $93.0 million from $99.4 million in the comparable prior year period. This decline was principally due to severance related charges and the termination of an office lease and related assets of $3.0 million and $2.4 million, respectively, taken in April 2007 associated with the sale of BHI NA, as well as improved expense management on a year over year basis. As a percent of sales, administrative expense was 12.6% for the nine months ended October 31, 2008 and 2007.

Administrative and other expense for the three months ended October 31, 2008, decreased $3.2 million, or 10%, to $30.0 million from $33.2 million in the comparable prior year period. This decline was principally due to the $2.4 million impairment charge taken in the third quarter of fiscal 2008, related to the sale of the BHI NA business, as well as improved expense management on a year over year basis. As a percent of sales, administrative expense was 12.0% for the quarter ended October 31, 2008 and 11.6% for the comparable prior year period.

Goodwill and other intangibles impairment

During the third quarter of fiscal 2009 we assessed the recent performance of our Catalog & Internet segment businesses and their strategic outlook. The Miles Kimball Company and Boca Java business experienced lower revenue growth than anticipated and reduced operating margins. This shortfall was primarily attributable to decreased consumer spending. As a result of this analysis we recorded impairment charges related to goodwill and other intangibles totaling $45.9 million. Refer to Note 7 for further details. No impairment was recorded in the prior year comparable period, however a total impairment of $49.2 million was recorded in the fourth quarter of fiscal 2008.

Operating (Loss) Profit

Operating loss for the nine months ended October 31, 2008 was $21.4 million compared to profit of $34.8 million in the comparable prior year period. The decrease in operating profit is primarily a result of the $45.9 million impairment noted above along with decreased sales and additional promotional expenses at PartyLite U.S. and a higher operating loss at the Miles Kimball Company, partially offset by the elimination of last year’s operating losses and impairment charges associated with the sale of BHI NA.

Operating loss for the three months ended October 31, 2008 was $39.4 million versus a profit of $10.4 million in the comparable prior year period. The decrease in operating profit is primarily a result of the $45.9 million impairment charge in the Catalog & Internet segment. Current year operating profits decreased primarily as a result of lower sales at PartyLite U.S.

Operating Profit - Direct Selling Segment

Operating profit in the Direct Selling segment for the nine months ended October 31, 2008 decreased $13.3 million, or 26%, to $37.1 million from $50.4 million in the comparable prior year period. The decrease is primarily due to lower sales in PartyLite U.S. as well as additional promotional initiatives to increase the number of independent sales consultants. Partially offsetting this decline was an increase in operating profits in PartyLite Europe due to higher sales resulting from an increase in active independent sales consultants.

Operating profit for the three months ended October 31, 2008 in the Direct Selling segment decreased $3.3 million, or 41%, to $4.8 million from $8.1 million in the comparable prior year period. The decrease is primarily due to lower sales in PartyLite U.S. as well as continued promotional initiatives to increase the number of independent sales consultants in all markets, offset in part by higher operating profits in PartyLite Europe due to higher sales as a result of an increase in its active independent sales consultants.

Operating Loss - Catalog & Internet Segment

Operating loss for the nine months ended October 31, 2008 in the Catalog & Internet segment increased to $55.9 million, from $5.3 million in the comparable prior year period. This increased loss is related to the previously mentioned goodwill and intangibles impairment of the Miles Kimball Company and Boca Java of $45.9 million and lower sales as the result of lost sales related to an ERP implementation and soft economic conditions. Also contributing to the increase in operating loss are higher printing and shipping & handling costs.

Operating loss for the three months ended October 31, 2008 in the Catalog & Internet segment increased to $47.7 million versus $0.2 million in the comparable prior year period. This increased loss is related to the previously mentioned goodwill and intangibles impairment of the Miles Kimball Company and Boca Java, lower sales as the result of soft economic conditions, and higher shipping & handling costs.

Operating Profit (Loss) - Wholesale Segment

Operating loss for the nine months ended October 31, 2008 in the Wholesale segment declined to $2.5 million versus $10.4 million in the comparable prior year period. In fiscal 2008, additional costs were incurred due to the sale of the BHI NA business, which included severance of $3.8 million, and the impairment of certain fixed assets and accelerated depreciation of $6.1 million. Operating performance improved at Sterno due to improved strategic pricing and better cost management. These improvements were more than offset by lower operating profits in the seasonal and home décor businesses as a result of lower sales to independent retailers and the continued soft overall economy.

Operating profit for the three months ended October 31, 2008 in the Wholesale segment increased $0.9 million to $3.5 million versus $2.6 million in the comparable prior year period. In the third quarter of fiscal 2008, additional costs were incurred due to the sale of the BHI NA business, which included asset impairments of $3.5 million and severance of $0.6 million. These improvements were partially offset by lower operating profits in the seasonal and home décor businesses as a result of lower sales to independent retailers and the continued soft overall economy.

Interest Expense, Interest Income, and Foreign Exchange and Other

Interest expense for the nine months ended October 31, 2008, decreased approximately $3.5 million, or 32%, to $7.4 million from $10.9 million in the comparable prior year period. Interest expense for the three months ended October 31, 2008 decreased approximately $1.1 million, or 31%, to $2.5 million from $3.6 million in the comparable prior year period. The decrease in interest expense for both of these periods is primarily the result of a decrease in long-term borrowings.

Interest income for the nine months ended October 31, 2008 decreased approximately $2.7 million to $3.3 million from $6.0 million in the comparable prior year period. Interest income for the three months ended October 31, 2008 decreased approximately $1.1 million to $0.9 million from $2.0 million in the comparable prior year period. The decrease in interest income is primarily due to lower average cash and short-term investment balances.

Foreign exchange and other losses for the nine months ended October 31, 2008 were $6.0 million compared to $0.3 million in the comparable prior year period. The current year’s loss includes $5.2 million for the permanent impairment of our investment in RedEnvelope. Foreign exchange and other losses for the three months ended October 31, 2008 were $1.8 million, compared to $0.5 million in the comparable prior year period. This increased loss was principally due to the devaluation of foreign currencies on U.S. dollar denominated foreign payables. Gains from foreign currency hedges partially offset these declines.

Income Taxes

The Company’s effective tax rate for the nine months ended October 31, 2008 was 9.2%, resulting in an income tax benefit of $2.9 million, compared to the prior year effective tax rate of 26.9%, resulting in an income tax expense of $7.9 million. The current year’s effective tax rate included a tax benefit of approximately $7.0 million recorded as a result of an international restructuring plan that was completed in the third quarter. This was offset in part by the impact of non-deductible goodwill and other intangible impairment charges of $9.1 million, an additional tax provision of $1.9 million related to a state voluntary disclosure settlement proposal, and a $1.8 million valuation allowance for the capital loss recorded during the first quarter related to the write down of the RedEnvelope investment discussed in Note 5. The effective tax rate for the first nine months of last year was favorably impacted by $2.3 million as the result of the reversal of a previously established valuation allowance against capital loss carryforwards, and $0.8 million of provision-to-tax return adjustments made as a result of filing the company’s U.S. federal income tax return. The valuation allowance was reversed as a result of a capital gain generated on the sale of certain assets and liabilities of the BHI NA business. These favorable impacts were partially offset by income taxes provided on unremitted foreign earnings. Excluding theses charges and benefits, the effective tax rates for the nine months ended this year and last year would have been 37.6% and 38.3% respectively.

The effective tax rate for the three months ended October 31, 2008 was 23.2% compared to 20.6% in the prior year. The increase in the effective tax rate for the current quarter is due primarily to the tax impact of non-deductible goodwill and other intangible impairment charges of $9.1 million, and an additional tax provision of $1.9 million related to a state voluntary disclosure settlement proposal. This increase was offset in part by a tax benefit of approximately $7.0 million recorded as a result of an international restructuring plan that was completed in the third quarter. The effective tax rate for the three months ended October 31, 2007 was primarily impacted by favorable provision-to-return adjustments of $0.8 million. Excluding theses charges and benefits, the effective tax rates for the three months ended this year and last year would have been 35.7% and 35.9% respectively.

Net (Loss) Earnings

Net loss for the nine months ended October 31, 2008 was $28.7 million compared to net earnings of $21.5 million for the same period in fiscal 2008. The decrease is primarily a result of the aforementioned goodwill and other intangibles impairment of $45.9 million and decreased operating profit at PartyLite U.S and the Miles Kimball Company resulting from lower sales and higher selling expenses at PartyLite U.S.. These decreases were partially offset by the impact of nonrecurring prior year charges related to the BHI NA sale, improved operating performance at Sterno due to strategic price increases, better cost management and reduced income tax expense.

Diluted loss per share for the nine month period ended October 31, 2008, was $0.80, a decrease of $1.34 compared to earnings per share of $0.54 for the comparable prior year period.

Net loss for the three months ended October 31, 2008 was $32.9 million compared to net earnings of $6.6 million for the same period in fiscal 2008. The decrease is primarily a result of the aforementioned goodwill and other intangibles impairment, the impact of decreased operating profit at PartyLite U.S and the Miles Kimball Company resulting from lower sales and higher selling expenses at PartyLite U.S. These decreases were partially offset by the impact of prior year charges related to the BHI NA sale, as well as reduced income tax expense.

Diluted loss per share for the three month period ended October 31, 2008, was $0.93, a decrease of $1.10 compared to earnings per share of $0.17 for the comparable prior year period.

Liquidity and Capital Resources

Cash and cash equivalents decreased $100.6 million to $62.4 million at October 31, 2008 from $163.0 million at January 31, 2008. The decrease in cash during the first nine months of fiscal 2009 was primarily related to cash used to meet working capital needs, share repurchases, the payment of dividends, the retirement of long-term debt and capital expenditures.

Net cash used by operations was $59.4 million for the first nine months of fiscal 2009 compared to $18.6 million in the prior year period. The increase in cash used by operations is due to lower net earnings as well as changes in working capital. Net changes in operating assets and liabilities decreased cash by $89.6 million, driven primarily by an increase in inventory related to new product promotions and product lines as well as the impact of lower than expected sales and the seasonal increase in accounts receivable.

Net cash used by investing activities was $0.1 million. Net capital expenditures for property, plant and equipment were $6.3 million for the first nine months of fiscal 2009 compared to $7.0 million in the prior year period. We liquidated our $10.0 million investment in the limited partnership, received $2.2 million from the sale of our interest in the Australian joint venture and redeemed our investment in auction rate securities for $10.0 million. Included in investing activities are uses of cash for the purchases of ViSalus for $13.0 million and incurred acquisition costs of $1.0 million, for a total acquisition cost of $14.0 million, net of cash acquired of $0.5 million and As We Change for $2.3 million.

Net cash used in financing activities for the nine month period ended October 31, 2008 was $32.4 million, and included our dividend payment during the second quarter of $9.8 million, reduction of long-term debt and capital lease obligations of $11.5 million and share repurchases of $11.1 million.

We anticipate total capital spending of approximately $8.0 million for fiscal 2009. We have grown in part through acquisitions and, as part of this growth strategy, we expect to continue from time to time in the ordinary course of our business to evaluate and pursue acquisition opportunities as appropriate. We believe our financing needs in the short-term can be met from cash generated internally. In the long-term we may be required to seek additional forms of financing which may or may not be available at acceptable terms and conditions.

On October 21, 2008, we acquired a 43.6% interest in ViSalus for $13.0 million and incurred acquisition costs of $1.0 million for a total cash acquisition cost of $14.0 million. We intend to and may be required to purchase additional interests in ViSalus which will require additional capital resources, increasing our ownership to 100%, as described in Note 2 of the Condensed Consolidated Financial Statements.

In October 2006, we amended our unsecured revolving credit facility (“Credit Facility”) to, among other things, reduce the amount available for borrowing from $150.0 million to $75.0 million and to advance the termination date to June 2009 from June 2010. The Credit Facility contains requirements that we maintain certain financial ratios and limitations on certain payments. As of October 31, 2008, we were not in compliance with two of the provisions of the Credit Facility that require us to maintain a minimum adjusted consolidated net worth and earnings before interest, taxes, depreciation, and amortization (“EBITDA”) for the most recent twelve month period. As of October 31, 2008 and the date hereof, we have no outstanding balance under the Credit Facility, but did have outstanding $3.1 million in letters of credit. On December 5, 2008, we terminated the Credit Facility after providing cash collateral to the issuing bank such that all standby letters of credit are fully satisfied and are no longer considered outstanding under the Credit Facility. We expect to be able to fund our short-term liquidity and working capital needs from cash flows from operations.

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

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

In May 1999, we 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, we issued $150.0 million of 7.90% Senior Notes due October 1, 2009 at a discount of approximately $1.4 million, which is being amortized over the life of the notes. Through October 31, 2008, we have repurchased a total of $111.3 million of these notes, the remainder of which are due within the next twelve months and have been reclassified to Current maturities of long-term debt. Such notes contain, among other provisions, restrictions on liens on principal property or stock issued to collateralize debt. As of October 31, 2008, we were in compliance with such provisions. Interest is payable semi-annually in arrears on April 1 and October 1. On October 20, 2003, we issued $100.0 million of 5.50% Senior Notes due on November 1, 2013 at a discount of approximately $0.2 million, which is being amortized over the life of the notes. Such notes contain provisions and restrictions similar to those in the 7.90% Senior Notes. As of October 31, 2008, we were in compliance with such provisions. Interest is payable semi-annually in arrears on May 1 and November 1. The notes may be redeemed in whole or in part at any time at a specified redemption price. The proceeds of the debt issuances were used for general corporate purposes.

As of October 31, 2008, Miles Kimball had approximately $8.3 million 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 October 31, 2008, CBK had $0.1 million of long-term debt outstanding under an Industrial Revenue Bond (“IRB”), which matures on January 1, 2025. The bond is backed by an irrevocable letter of credit issued by LaSalle 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 5.6% at October 31, 2008. Payments of principal are required annually and interest payments are required monthly under the terms of the bond.

On December 13, 2007, our Board of Directors authorized a new stock repurchase program for 6,000,000 shares that will become effective after we exhaust the 12,000,000 shares authorized for repurchase under the old repurchase program. Since January 31, 2008, we have purchased 811,545 shares on the open market, for a cost of $11.1 million, bringing the cumulative total purchased shares to 10,462,280 as of October 31, 2008, for a total cost of approximately $224.8 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 September 11, 2008, the Company announced that it had declared a cash dividend of $0.27 per share of common stock for the six months ended July 31, 2008. The dividend, authorized at the Company’s September 11, 2008 Board of Directors meeting, was payable to shareholders of record as of November 3, 2008, and was paid on November 17, 2008. The total payment was $9.6 million.

Critical Accounting Policies

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

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