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EX-23.1 - EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - BLYTH INCexhibit23_1.htm
EX-31.1 - EXHIBIT 31.1 CERTIFICATION - BLYTH INCexhibit31_1.htm
EX-31.2 - EXHIBIT 31.2 CERTIFICATION - BLYTH INCexhibit31_2.htm
EX-21.1 - LIST OF SUBSIDIARIES - BLYTH INCexhibit21_1.htm
EX-32.2 - EXHIBIT 32.2 SECTION 906 CERTIFICATION - BLYTH INCexhibit32_2.htm
EX-23.2 - EXHIBIT 23.2 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - BLYTH INCexhibit23_2.htm
EX-32.1 - EXHIBIT 32.1 SECTION 906 CERTIFICATION - BLYTH INCexhibit32_1.htm




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
 
 
           (Mark One)

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

For the fiscal year ended January 31, 2010

or

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

For the transition period from ______________ to ______________

Commission File number 1-13026

BLYTH, INC.
(Exact Name of Registrant as Specified in Its Charter)

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

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

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

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

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

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

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


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x      No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes o    No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x  
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o
 
Non-accelerated filer o
Accelerated filer x
 
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  o      No  x
 

The aggregate market value of the voting common equity held by non-affiliates of the registrant was approximately $259.7 million based on the closing price of the registrant’s Common Stock on the New York Stock Exchange on July 31, 2009 and based on the assumption, for purposes of this computation only, that all of the registrant’s directors and executive officers are affiliates.

As of March 31, 2010, there were 8,795,148 outstanding shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the 2010 Proxy Statement for the Annual Meeting of Shareholders to be held on June 10, 2010 (Incorporated into Part III).




TABLE OF CONTENTS
PART I
 
Item 1.
 
 
 
 
4
Item 1A.
   
9
Item 1B.
   
15
Item 2.
   
15
Item 3.
   
15
Item 4.
   
15
 
PART II
 
Item 5.
 
 
 
 
16
Item 6.
   
20
Item 7.
   
21
Item 7A.
   
40
Item 8.
   
42
Item 9.
   
86
Item 9A.
   
86
Item 9B.
   
89
 
PART III
 
Item 10.
 
 
 
 
90
Item 11.
   
90
Item 12.
   
90
Item 13.
   
90
Item 14.
   
90
 
PART IV
 
Item 15.
 
 
 
 
91



 
PART I

Item 1.  Business
 
(a) General Development of Business

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

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

(b) Financial Information about Segments

We report our financial results in three business segments: the Direct Selling segment, the Catalog & Internet segment and the Wholesale segment.  These segments accounted for approximately 66%, 18% and 16% of consolidated net sales, respectively, for fiscal 2010. Financial information relating to these business segments for fiscal 2008, 2009 and 2010 appears in Note 18 to the Consolidated Financial Statements and is incorporated herein by reference.

(c)           Narrative Description of Business

Direct Selling Segment

In fiscal 2010, the Direct Selling segment represented approximately 66% of total sales.  Our principal Direct Selling business is PartyLite, which sells premium candles and home fragrance products and related decorative accessories.  PartyLiteâ 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 include fragranced and non-fragranced candles, bath products and a broad range of related accessories.

In fiscal 2006, we acquired a party plan company called Two Sisters Gourmet, which is focused on selling gourmet food. Effective March 31, 2009, we combined the Two Sisters Gourmet brand into our PartyLite business and continue to offer these products as part of the PartyLite party concept.  In October 2008, we acquired our interest in ViSalus, a distributor-based business that sells nutritional supplements, energy drinks and weight management products. ViSalus represented approximately 2% of total sales of the Direct Selling segment during fiscal 2010.


United States Market

Within the United States market, PartyLiteâ brand products are sold directly to consumers through a network of independent sales consultants.  These consultants are compensated on the basis of PartyLite product sales at parties organized by them and parties organized by consultants recruited by them.  About 22,000 independent sales consultants located in the United States were selling PartyLite products at January 31, 2010.  PartyLite products are designed, packaged and priced in accordance with their premium quality, exclusivity and the distribution channel through which they are sold. Independent distributors sell ViSalus brand products using a one-to-one direct sales model.

International Market

In fiscal 2010, PartyLite products were sold internationally by more than 44,000 independent sales consultants located outside the United States.  These consultants were the exclusive distributors of PartyLite brand products internationally. PartyLite’s international markets at the end of fiscal 2010 were Australia, Austria, Canada, Denmark, Finland, France, Germany, Mexico, Norway, Poland, Sweden, Switzerland and the United Kingdom.

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

Business Acquisition

During fiscal 2009 we signed a definitive agreement to purchase ViSalus Holdings, LLC (“ViSalus”), a direct seller of vitamins and other related nutritional supplements, through a series of investments.  On October 21, 2008, we completed the initial investment and acquired a 43.6% equity interest in ViSalus for $13.0 million in cash.  In addition, we may be required to make additional purchases of ViSalus’ equity interest to increase our equity ownership over time to 57.5%, 72.7% and 100.0%.  These additional purchases were originally conditioned upon ViSalus meeting certain operating targets in calendar years 2009, 2010 and 2011.  However, ViSalus did not meet the operating threshold in 2009 so we were not required to make an additional purchase.  We have exercised our one-time, one-year extension and additional purchases will be made if ViSalus meets certain operating targets in calendar years 2010, 2011 and 2012.  We have the option to acquire the remaining interest in ViSalus even if they do not meet the predefined operating targets.

Catalog & Internet Segment

In fiscal 2010, this segment represented approximately 18% of total sales.  We design, market and distribute a wide range of household convenience items, personalized gifts and photo storage products, as well as coffee and tea, within this segment.  These products are sold through the Catalog and Internet distribution channel under brand names that include As We Changeâ, Boca Javaâ, Easy Comfortsâ, Exposuresâ, Home Marketplaceâ, Miles Kimballâ and Walter Drakeâ.

Wholesale Segment

In fiscal 2010, this segment represented approximately 16% of total sales. Products within this segment include candles and related accessories, seasonal decorations and home décor products such as lamps, picture frames and decorative metal accessories. In addition, chafing fuel and tabletop lighting products and accessories for the “away from home” or foodservice trade are sold


in this segment.  Our wholesale products are designed, packaged and priced to satisfy the varying demands of retailers and consumers within each distribution channel.

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

Product Brand Names

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

PartyLiteâ
Well Being by PartyLiteâ
Two Sisters Gourmetâ by PartyLiteâ
ViSalus Sciencesâ

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

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

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

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

New Product Development

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

Manufacturing, Sourcing and Distribution

In all of our business segments, management continuously works to increase value and lower costs through increased efficiency in worldwide production, sourcing and distribution practices, the application of new technologies and process control systems, and consolidation and rationalization of equipment and facilities.  Net capital expenditures over the past five years have totaled $58.0 million and are targeted to technological advancements and normal maintenance and replacement projects at our manufacturing and distribution facilities.  We have also closed several facilities and written down the values of certain machinery and equipment in recent years in response to changing market conditions.


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

Customers

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

Competition

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

Employees

As of January 31, 2010, we had approximately 2,300 full-time employees, of whom approximately 30% were based outside of the United States.  Approximately 60% of our employees are non-salaried.  We do not have any unionized employees. We believe that relations with our employees are good.  Since our formation in 1977, we have never experienced a work stoppage.

Raw Materials

All of the raw materials used for our candles, home fragrance products and chafing fuel, principally petroleum-based wax, fragrance, glass containers and corrugate, have historically been available in adequate supply from multiple sources.  In fiscal 2010, costs were lower compared to the prior year for certain raw materials, such as paraffin and other wax products, dyethelene glycol (“DEG”), as well as paper, while staying stable for ethanol and increasing for steel. In general commodity prices have helped us maintain the profitability of the products in all three segments.

Seasonality

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


Trademarks and Patents

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

Environmental Law Compliance

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

(d)           Financial Information about Geographic Areas

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




















Item 1A.  Risk Factors

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

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

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

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

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

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



The recent turmoil in the financial markets could increase our cost of borrowing and impede access to or increase the cost of financing our operations and investments and could result in additional impairments to our businesses.
 
United States and global credit and equity markets have recently undergone significant disruption, making it difficult for many businesses to obtain financing on acceptable terms. In addition, in recent years equity markets have experienced rapid and wide fluctuations in value. If these conditions continue or worsen, our cost of borrowing, if needed, may increase and it may be more difficult to obtain financing for our businesses. In addition, our borrowing costs can be affected by short and long-term debt ratings assigned by independent rating agencies. A decrease in these ratings would likely increase our cost of borrowing and/or make it more difficult for us to obtain financing. In the event current market conditions continue we will more than likely be subject to higher interest costs than we are currently incurring and may require our providing security to guarantee such borrowings.  Alternatively, we may not be able to obtain unfunded borrowings in that amount, which may require us to seek other forms of financing, such as term debt, at higher interest rates and with additional expenses.
 
In addition, we may be subject to future impairments of our assets, including accounts receivable, investments, inventories, property, plant and equipment, goodwill and other intangibles, if the valuation of these assets or businesses declines.
 
We face diverse risks in our international business, which could adversely affect our operating results.
 
We are dependent on international sales for a substantial amount of our total revenue. For fiscal 2008, 2009 and 2010, revenue from outside the United States was 33%, 41% and 45% of our total revenue, respectively. We expect international sales to continue to represent a substantial portion of our revenue for the foreseeable future. Due to our reliance on sales to customers outside the United States, we are subject to the risks of conducting business internationally, including:
  
 
 
United States and foreign government trade restrictions, including those which may
impose restrictions on imports to or from the United States;
 
 
 
foreign government taxes and regulations, including foreign taxes that we may not be able
to offset against taxes imposed upon us in the United States, and foreign tax and other
laws limiting our ability to repatriate funds to the United States;

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

 
 
difficulty in staffing and managing foreign operations and difficulty in maintaining quality control;
 
 
 
adverse fluctuations in foreign currency exchange rates and interest rates, including
risks related to any interest rate swap or other hedging activities we undertake;
 
 
 
 
political instability, natural disasters, health crises, war or events of terrorism;
 
 
 
 
transportation costs and delays; and
 
 
 
the strength of international economies.


We are dependent upon sales by independent consultants.

A significant portion of our products are marketed and sold through the direct selling method of distribution, where products are primarily marketed and sold by independent consultants to consumers without the use of retail establishments. This distribution system depends upon the successful recruitment, retention and motivation of a large number of independent consultants to offset frequent turnover. The recruitment and retention of independent consultants depends on the competitive environment among direct selling companies and on the general labor market, unemployment levels, economic conditions, and demographic and cultural changes in the workforce. The motivation of our consultants depends, in large part, upon the effectiveness of our compensation and promotional programs, its competitiveness compared with other direct selling companies, the successful introduction of new products, and the ability to advance through the consultant ranks.
 
Our sales are directly tied to the levels of activity of our consultants, which is a part-time working activity for many of them. Activity levels may be affected by the degree to which a market is penetrated by the presence of our consultants, the amount of average sales per party, the amount of sales per consultant, the mix of high-margin and low-margin products in our product line and the activities and actions of our competitors.

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

Our profitability may be affected by shortages or increases in the cost of raw materials.

Certain raw materials could be in short supply due to price changes, capacity, availability, a change in production requirements, weather or other factors, including supply disruptions due to production or transportation delays.  While the price of crude oil is only one of several factors impacting the price of petroleum wax, it is possible that recent fluctuations in oil prices may have a material adverse effect on the cost of petroleum-based products used in the manufacture or transportation of our products, particularly in the Direct Selling and Wholesale segments.  In recent years, substantial cost increases for certain raw materials, such as paraffin, diethylene glycol (DEG), ethanol and paper, negatively impacted profitability of certain products in all three segments.  In addition, a number of governmental authorities in the U.S. and abroad have introduced or are contemplating enacting legal requirements, including emissions limitations, cap and trade systems and other measures to reduce production of greenhouse gases, in response to the potential impacts of climate change.  These measures may have an indirect effect on us by affecting the prices of products made from fossil fuels, including paraffin and DEG, as well as ethanol, which is used as an additive to gasoline.  Given the wide range of potential future climate change regulations and their effects on these raw materials, the potential indirect impact to our operations is uncertain.


In addition, the potential impact of climate change on the weather is highly uncertain.  The impact of climate change may vary by geographic location and other circumstances, including weather patterns and any impact to natural resources such as water.  Severe weather in the locations where fossil fuel based raw materials are produced, such as increased hurricane activity or virulence in the Gulf of Mexico, could disrupt the production, availability or pricing of these raw materials.

We expect not to be disproportionately affected by these measures compared with other companies engaged in the same businesses.

We are dependent upon our key corporate management personnel.

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

Our businesses are subject to the risks from increased competition.

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

We depend upon our information technology systems.

We are increasingly dependent on information technology systems to operate our websites, process transactions, manage inventory, purchase, sell and ship goods on a timely basis and maintain cost-efficient operations. Previously, we have experienced interruptions resulting from upgrades to certain of our information technology systems which temporarily reduced the effectiveness of our operations. Our information technology systems depend on global communications providers, telephone systems, hardware, software and other aspects of Internet infrastructure that have experienced significant system failures and outages in the past.  Our systems are susceptible to outages due to fire, floods, power loss, telecommunications failures, break-ins and similar events.  Despite the implementation of network security measures, our systems are vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with our systems.  The occurrence of these or other events could disrupt or damage our information technology systems and inhibit internal operations, the ability to provide customer service or the ability of customers or sales personnel to access our information systems.

The Internet plays a major role in our interaction with customers and independent consultants and distributors.  Risks such as changes in required technology interfaces, website downtime and other technical failures, security breaches, and consumer privacy are key concerns related to the


Internet. Our failure to successfully respond to these risks and uncertainties could reduce sales, increase costs and damage our relationships.

Management uses information systems to support decision making and to monitor business performance. We may fail to generate accurate financial and operational reports essential for making decisions at various levels of management. Failure to adopt systematic procedures to quality Information Technology General Controls could disrupt our business and reduce sales. In addition, if we do not maintain adequate controls such as reconciliations, segregation of duties and verification to prevent errors or incomplete information, our ability to operate our business could be limited.

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

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

 
 
the jurisdictions in which profits are determined to be earned and taxed;
 
 
 
adjustments to estimated taxes upon finalization of various tax returns;

 
 
changes in available tax credits;
 
 
 
changes in the valuation of our deferred tax assets and liabilities;
 
 
 
changes in accounting standards or tax laws and regulations, or interpretations thereof;
 
 
 
the resolution of issues arising from uncertain positions and tax audits with various tax  authorities; and

 
 
penalties and/or interest expense that we may be required to recognize on liabilities associated with uncertain tax positions.
 
ViSalus’ business is affected by extensive laws, governmental regulations and similar constraints, and their failure to comply with those constraints may have a material adverse effect on ViSalus’ financial condition and operating results.

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


compliance costs or discontinuation of product sales and may negatively impact the marketing of ViSalus’ products, resulting in significant loss of sales revenues.

In addition, ViSalus’ network marketing program is subject to a number of federal and state regulations administered by the FTC and various state agencies in the United States. ViSalus is subject to the risk that, in one or more markets, its network marketing program could be found not to be in compliance with applicable law or regulations.  Regulations applicable to network marketing organizations generally are directed at preventing fraudulent or deceptive schemes, often referred to as “pyramid” or “chain sales” schemes, by ensuring that product sales ultimately are made to consumers and that advancement within an organization is based on sales of the organization’s products rather than investments in the organization or other non-retail sales-related criteria. The regulatory requirements concerning network marketing programs do not include “bright line” rules and are inherently fact-based, and thus, even in jurisdictions where ViSalus believes that its network marketing program is in full compliance with applicable laws or regulations governing network marketing systems, it is subject to the risk that these laws or regulations or the enforcement or interpretation of these laws and regulations by governmental agencies or courts can change. The failure of ViSalus’ network marketing program to comply with current or newly adopted regulations could negatively impact its business in a particular market or in general.

Increased cost of our catalog and promotional mailings can reduce our profitability.

Postal rate increases and paper and printing costs affect the cost of our catalog and promotional mailings. Future additional increases in postal rates or in paper or printing costs would reduce our profitability to the extent that we are unable to pass those increases directly to customers or offset those increases by raising selling prices or by reducing the number and size of certain catalog circulations.

Climate change may pose physical risks that could harm our results of operations or affect the way we conduct our business.

Several of our facilities are located in areas exposed to the risk of hurricanes or tornadoes.  The effect of global warming on such storms is highly uncertain.  Based on an assessment of the locations of the facilities, the nature and extent of the operations conducted at such facilities, the prior history of such storms in these locations, and the likely future effect of such storms on those operations and on the Company as a whole, we do not currently expect any material adverse effect on the results of operation from such storms in the foreseeable future.

Failure to comply with Section 404 of the Sarbanes-Oxley Act of 2002 might have an impact on market confidence in our reported financial information.

We must continue to document, test, monitor and enhance our internal control over financial reporting in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. The material weakness in our internal control over financial reporting relating to accounting for income taxes reported during fiscal 2009 has been remediated, and the control was determined to be effective at January 31, 2010. We will continue to perform the documentation and evaluations needed to comply with Section 404. If during this process our management identifies one or more material weaknesses in our internal control over financial reporting, we will be unable to assert our internal control as effective.


 

Item 1B.  Unresolved Staff Comments
 
None.

Item 2.  Properties

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

 
Location
 
Use
Business Segment
 
Approximate Square Feet
 
       
Owned
   
Leased
 
Arndell Park, Australia
  Distribution
Direct Selling
          38,000  
Batavia, Illinois
  Manufacturing and
  Research &
  Development
Direct Selling and Wholesale
    486,000        
Carol Stream, Illinois
  Distribution
Direct Selling
          515,000  
Cumbria, England
  Manufacturing and
  related distribution
Direct Selling
    90,000        
Deerfield Beach, Florida
  Roasting, packaging
  and distribution
Catalog & Internet
 
          22,000  
Elkin, North Carolina
  Manufacturing and
  related distribution
Wholesale
    280,000        
Heidelberg, Germany
  Distribution
Direct Selling
          6,000  
Monterrey, Mexico
  Distribution
Direct Selling
          45,000  
Oshkosh, Wisconsin
  Distribution
Catalog & Internet
          386,000  
Texarkana, Texas
  Manufacturing and
  related distribution
Wholesale
    154,000       65,000  
Tilburg, Netherlands
  Distribution
Direct Selling
    442,500        
Union City, Tennessee
  Warehouse and
  distribution
Wholesale
    360,000       16,000  

Our executive and administrative offices are generally located in leased space (except for certain offices located in owned space).

Item 3.  Legal Proceedings

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

Item 4.  Reserved





 




PART II

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

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

   
High
   
Low
 
Fiscal 2009
 
First Quarter
  $ 89.44     $ 67.36  
Second Quarter
    78.88       47.72  
Third Quarter
    64.56       25.60  
Fourth Quarter
    35.40       13.64  
   
Fiscal 2010
 
       First Quarter
  $ 44.49     $ 16.12  
Second Quarter
    45.98       29.90  
Third Quarter
    47.90       33.81  
Fourth Quarter
    38.75       28.09  

Many of our shares are held in “street name” by brokers and other institutions on behalf of stockholders, and we had more than 3,000 beneficial holders of Common Stock as of March 31, 2010.

During fiscal 2010 and 2009, the Board of Directors declared dividends as follows (fiscal 2009 amounts have been adjusted to give effect to the reverse stock split by multiplying the actual amount of the dividend by four, the reverse stock split multiple): $1.00 per share declared in the fourth quarter of fiscal 2010 and payable in the first quarter of fiscal 2011, $0.10 per share payable in the second and fourth quarters of fiscal 2010 and $1.08 per share payable in the second and fourth quarters of fiscal 2009. Our ability to pay cash dividends in the future depends upon, among other things, our ability to operate profitably and to generate significant cash flows from operations in excess of investment and financing requirements that may increase in the future to, for example, fund new acquisitions or retire debt.










The following table sets forth, for the equity compensation plan categories listed below, information as of January 31, 2010:

Equity Compensation Plan Information

 
 
 
 
 
 
 
Plan Category
 
(a)
 
 
Number of securities to be issued upon exercise of outstanding options, warrants and rights1
   
(b)
 
 
Weighted-average
exercise price of outstanding options, warrants and rights1
   
(c)
 
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
 
Equity compensation plans approved by security holders
    62,125     $ 107.68       843,926  
Equity compensation plans not approved by security holders
    -       -       -  
Total
    62,125     $ 107.68       843,926  
1 The information in this column excludes 132,987 restricted stock units outstanding as of January 31, 2010.

The following table sets forth certain information concerning the repurchases of Common Stock made by us during the fourth quarter of fiscal 2010.

Issuer Purchases of Equity Securities (1)

Period
 
Total Number of Shares Purchased (2)
   
Average Price Paid per Share
   
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
   
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
 
November 1, 2009 -November 30, 2009
    -       -       -       1,869,162  
December 1, 2009 -December 31, 2009
    34,693     $ 32.89       34,693       1,834,469  
January 1, 2010 -January 31, 2010
    70,039       32.83       70,039       1,764,430  
Total
    104,732     $ 32.85       104,732       1,764,430  
_____________________________
(1) On September 10, 1998, our Board of Directors approved a share repurchase program pursuant to which we were originally authorized to repurchase up to 250,000 shares of Common Stock in open market transactions. From June 1999 to June 2006, the Board of Directors increased the authorization under this repurchase program five times (on June 8, 1999 to increase the authorization by 250,000 shares to 500,000 shares; on March 30, 2000 to increase the authorization by 250,000 shares to 750,000 shares; on December 14, 2000 to increase the authorization by 250,000 shares to 1.0 million shares; on April 4, 2002 to increase the authorization by 500,000 shares to 1.5 million shares; and on June 7, 2006 to increase the authorization by 1.5 million shares to 3.0 million shares). On December 13, 2007, the Board of Directors authorized a new repurchase program, for 1.5 million shares, which will become effective after we


exhaust the authorized amount under the old repurchase program.  As of January 31, 2010, we have purchased a total of 2,735,570 shares of Common Stock under the old repurchase program.  The repurchase programs do not have expiration dates.  We intend to make further purchases under the repurchase programs from time to time. The amounts set forth in this paragraph have been adjusted to give effect to the reverse stock split executed in fiscal 2009.
 
(2) This does not include the 300 shares that we withheld in order to satisfy employee withholding taxes upon the distribution of vested restricted stock units.








































Performance Graph

The performance graph set forth below reflects the yearly change in the cumulative total stockholder return (price appreciation and reinvestment of dividends) on our Common Stock compared to the Standard and Poor’s (“S&P”) 500 Index, the S&P MidCap 400 Index and the S&P SmallCap 600 Index for the five fiscal years ended January 31, 2010. The graph assumes the investment of $100 in Common Stock and the reinvestment of all dividends paid on such Common Stock into additional shares of Common Stock and such indexes over the five-year period.  We believe that we are unique and do not have comparable industry peers. Since our competitors are typically not public companies or are themselves subsidiaries or divisions of public companies engaged in multiple lines of business, we believe that it is not possible to compare our performance against that of our competition. In the absence of a satisfactory peer group, we believe that it is appropriate to compare us to companies comprising the S&P MidCap 400 Index and S&P SmallCap 600 Index, the former being the index we were in until December 2009 and the latter the index we are currently tracked in by S&P.

Blyth Performance Graph


Item 6.   Selected Financial Data

Set forth below are selected summary consolidated financial and operating data for fiscal years 2006 through 2010, which have been derived from our audited financial statements for those years.  The information presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, including the notes thereto, appearing elsewhere in this Report. The per share amounts and number of shares outstanding have been adjusted to give effect to the 1-for-4 reverse stock split of our common stock that we implemented on January 30, 2009.


     Year ended January 31,  
(In thousands, except per share and percent data)
 
2006
   
2007
   
2008
   
2009
   
2010
 
Statement of Earnings Data: (1)
                             
  Net sales
  $ 1,254,261     $ 1,220,611     $ 1,164,950     $ 1,050,793     $ 958,077  
  Gross profit
    635,785       596,669       615,471       577,216       525,499  
  Goodwill and other intangibles impairment
    53,261       48,812       49,178       48,751       16,498  
  Operating profit (2)
    45,167       15,644       30,887       4,028       29,983  
  Interest expense
    20,602       19,074       15,540       10,001       7,755  
  Earnings (loss) from continuing operations
                                       
    before income taxes and noncontrolling interest
    26,444       5,369       21,725       (11,525 )     22,074  
  Earnings (loss) from continuing operations
                                       
    attributable to Blyth, Inc.
    20,531       2,555       11,072       (15,480 )     17,694  
  Earnings (loss) from discontinued operations
                                       
    attributable to Blyth, Inc. (3)
    4,326       (105,728 )     -       -       -  
  Net earnings (loss) attributable to Blyth, Inc.
    24,857       (103,173 )     11,072       (15,480 )     17,694  
Basic net earnings (loss) from continuing operations
                                 
    attributable per Blyth, Inc. common share
  $ 2.01     $ 0.26     $ 1.15     $ (1.73 )   $ 1.99  
Basic net earnings (loss) from discontinued operations
                                 
    attributable per Blyth, Inc. common share
  $ 0.42     $ (10.63 )   $ -     $ -     $ -  
  Basic net earnings (loss) attributable per Blyth, Inc. common share
  $ 2.43     $ (10.37 )   $ 1.15     $ (1.73 )   $ 1.99  
Diluted net earnings (loss) from continuing operations
                                 
    attributable per Blyth, Inc. common share
  $ 1.99     $ 0.26     $ 1.14     $ (1.73 )   $ 1.98  
Diluted net earnings (loss) from discontinued operations
                                 
    attributable per Blyth, Inc. common share
  $ 0.42     $ (10.56 )   $ -     $ -     $ -  
  Diluted net earnings (loss) attributable per Blyth, Inc. common share
  $ 2.41     $ (10.30 )   $ 1.14     $ (1.73 )   $ 1.98  
  Cash dividends declared, per share
  $ 1.76     $ 2.00     $ 2.16     $ 2.16     $ 1.20  
  Basic weighted average number
                                       
    of common shares outstanding
    10,239       9,945       9,648       8,971       8,912  
  Diluted weighted average number
                                       
    of common shares outstanding
    10,294       10,014       9,732       8,971       8,934  
Operating Data:
                                       
  Gross profit margin
    50.7 %     48.9 %     52.8 %     54.9 %     54.8 %
  Operating profit margin
    3.6 %     1.3 %     2.7 %     0.4 %     3.1 %
  Net capital expenditures
  $ 17,272     $ 17,714     $ 9,421     $ 8,173     $ 5,384  
  Depreciation and amortization
    35,875       34,630       31,974       18,628       16,592  
Balance Sheet Data:
                                       
  Total assets
  $ 1,116,520     $ 774,638     $ 667,422     $ 574,103     $ 522,993  
  Total debt
    371,742       215,779       158,815       145,731       110,544  
  Total stockholders' equity
    493,824       363,693       299,068       248,498       256,274  

(1)  
Statement of Earnings Data includes the results of operations for periods subsequent to the respective purchase acquisitions of As We Change, acquired in August 2008, and ViSalus, acquired in October 2008, none of which individually or in the aggregate had a material effect on the Company’s results of operations.
 
(2)  
Fiscal 2007 and 2008 earnings include restructuring charges recorded in the Wholesale and Direct Selling segments of $24.0 million and $2.3 million, respectively. Fiscal 2009 and 2010 earnings include restructuring charges recorded in the Direct Selling segment of $1.7 million and $0.1 million, respectively (See Note 5 to the Consolidated Financial Statements).
 
(3)  
In fiscal 2007, the Kaemingk Edelman, Euro-Decor, Gies and Colony businesses were sold.  The results of operations for these business units have been reclassified to discontinued operations for all periods presented.


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

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

Overview

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

Fiscal 2010 Net sales are comprised of an approximately $635 million Direct Selling business, an approximately $166 million Catalog & Internet business and an approximately $157 million Wholesale business.  Sales and earnings growth differ in each segment depending on geographic location, market penetration, our relative market share and product and marketing execution, among other business factors.

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

Reverse Stock Split

On January 30, 2009, we implemented a 1-for-4 reverse stock split of our outstanding common stock that reduced the number of outstanding shares of common stock from 35.6 million to 8.9 million. The historical per share amounts within this section have been adjusted to give effect to the reverse stock split.

Business Acquisition

On August 4, 2008, we signed an agreement to purchase ViSalus, a direct seller of vitamins and other related nutritional supplements, through a series of investments.  On October 21, 2008, we completed the initial investment and acquired a 43.6% equity interest in ViSalus for $13.0 million in cash.  In addition, we may be required to make additional purchases of ViSalus’ equity interest to increase our equity ownership over time to 57.5%, 72.7% and 100.0%.  These additional purchases were originally conditioned upon ViSalus meeting certain operating targets in calendar years 2009, 2010 and 2011.  However, ViSalus did not meet the operating threshold in 2009 so we were not required to make an additional purchase.  We have exercised our one-time, one-year extension and additional purchases will be made if ViSalus meets certain operating targets in


calendar years 2010, 2011 and 2012.  We have the option to acquire the remaining interest in ViSalus even if they do not meet the predefined operating targets.

Sale of Mass Channel Candle Business

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

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

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

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

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

                         
                     
Percentage Increase (Decrease) from Prior Period
 
   
Percentage of Net Sales
   
Fiscal 2009 Compared to Fiscal 2008
   
Fiscal 2010 Compared to Fiscal 2009
 
   
Years Ended January 31
 
   
2008
   
2009
   
2010
 
Net sales
    100.0       100.0       100.0       (9.8 )     (8.8 )
Cost of goods sold
    47.2       45.1       45.2       (13.8 )     (8.7 )
Gross profit
    52.8       54.9       54.8       (6.2 )     (9.0 )
Selling
    34.8       38.1       38.4       (1.1 )     (8.3 )
Administrative
    11.2       11.8       11.6       (4.9 )     (9.9 )
Operating profit
    2.7       0.4       3.1       N/M       N/M  
Earnings from continuing operations
    1.0       (1.5 )     1.8       N/M       N/M  
N/M - Percent change from the prior year is not meaningful in concluding on our performance due to nonrecurring goodwill and other intangible impairments.


Fiscal 2010 Compared to Fiscal 2009

Consolidated Net Sales

Net sales decreased $92.7 million, or approximately 9%, from $1,050.8 million in fiscal 2009 to $958.1 million in fiscal 2010.  The decrease is a result of a decline in sales in PartyLite’s North American businesses and overall declines in sales in our Wholesale and Catalog & Internet segments. This decrease was partially offset by an increase in sales within PartyLite’s European markets.

Net Sales – Direct Selling Segment

Net sales in the Direct Selling segment decreased $29.3 million, or 4%, from $664.5 million in fiscal 2009 to $635.2 million in fiscal 2010.

PartyLite’s U.S. sales decreased approximately 14% compared to the prior year, due to the U.S. economic recession, which led to lower consumer discretionary spending, a decline in PartyLite shows as well as a decrease in shows per consultant, all resulting in less opportunity to promote our products and recruit new consultants.  We increased promotional activities to attract and retain consultants, hostesses and guests to attend shows.  As a result, PartyLite’s active independent US sales consultants remained approximately even on a year-over-year basis.

PartyLite Canada reported a 17% decrease compared to the prior year in U.S. dollars, or 15% on a local currency basis. The sales decrease in Canada is primarily due to the weak Canadian economy which contributed to the decline in consultant base of 8% and a decrease in PartyLite shows year-over-year.

In PartyLite’s European markets, sales increased 3% in U.S. dollars, driven by strong sales in Germany, France and Austria. On a local currency basis, PartyLite Europe sales increased approximately 5%, driven by an increase of approximately 2,000 consultants. PartyLite Europe represented approximately 50% of PartyLite’s worldwide net sales in fiscal 2009 compared to 54% in fiscal 2010, reflecting the continued sales growth within the European markets.

Net sales in the Direct Selling segment represented approximately 63% of total Blyth net sales in fiscal 2009 compared to 66% in fiscal 2010.

Net Sales – Catalog & Internet Segment

Net sales in the Catalog & Internet segment decreased $24.1 million, or 13%, from $190.1 million in fiscal 2009 to $166.0 million in fiscal 2010.  Sales decreased across all catalogs due to lower consumer discretionary spending, as well as a planned reduction in catalog circulation in an effort to reduce selling costs through more targeted catalog delivery.

Net sales in the Catalog & Internet segment accounted for approximately 18% of total Blyth net sales in fiscal 2009 and fiscal 2010.

Net Sales – Wholesale Segment

Net sales in the Wholesale segment decreased $39.4 million, or 20%, from $196.2 million in fiscal 2009 to $156.8 million in fiscal 2010.  The decrease is primarily a result of reduced sales within our home décor, seasonal décor and food service product lines, which have been adversely impacted by the weak housing market and overall economy.


Net sales in the Wholesale segment represented approximately 19% of total Blyth net sales in fiscal 2009 compared to 16% in fiscal 2010.

Consolidated Gross Profit and Operating Expenses

Blyth’s consolidated gross profit decreased $51.7 million, or 9%, from $577.2 million in fiscal 2009 to $525.5 million in fiscal 2010. The decrease in gross profit is primarily attributable to the 9% decrease in sales, partially offset by rigorous cost controls. These efforts included consolidating some operations and workforce reductions, specifically related to distribution operations. The gross profit margin decreased slightly from 54.9% in fiscal 2009 to 54.8% in fiscal 2010, primarily due to the impact of sales declining at a greater rate than promotional expenses, partially offset by cost reduction measures and a general decrease in most commodity costs, specifically wax products and dyethelene glycol (“DEG”).

Blyth’s consolidated selling expense decreased $33.2 million, or approximately 8%, from $400.7 million in fiscal 2009 to $367.5 million in fiscal 2010.  The decrease in selling expense is primarily the result of the reduced sales within the Wholesale segment, PartyLite U.S. and the Catalog & Internet segment. Selling expense as a percentage of net sales increased from 38.1% in fiscal 2009 to 38.4% in fiscal 2010 which is primarily a result of promotional initiatives in the Direct Selling segment to drive sales, partially offset by the consolidation of the sales and marketing operations of our seasonal and home décor Wholesale operations.

Blyth consolidated administrative expenses decreased $12.3 million, or 10%, from $123.8 million in fiscal 2009 to $111.5 million in fiscal 2010.  This decline is principally due to improved expense management on a year over year basis. The consolidation of some of our operations has allowed us to reduce administrative costs. The merger of the Midwest and CBK operations within the Wholesale segment resulted in an approximately 23% reduction in that business unit’s administrative expenses when compared to fiscal 2009. Also contributing to the improvement is a $1.9 million gain on a pension plan settlement. Administrative expenses as a percentage of sales declined slightly from approximately 11.8% for fiscal 2009 to 11.6% for fiscal 2010.

Impairment charges of $48.8 million for goodwill and other intangibles were recognized in the Catalog & Internet segment in fiscal 2009, compared to a $16.5 million impairment recorded in the Direct Selling segment in fiscal 2010. In fiscal 2009 and 2010 we reviewed the performance of the Miles Kimball and ViSalus businesses, respectively, and their projected outlooks. Both businesses experienced lower revenue growth and reduced operating margins than anticipated. This shortfall in revenues and profit was primarily attributable to decreased consumer spending due to changes in the business environment and an overall weak economy. As a result, the goodwill and intangibles in the Catalog & Internet segment were determined to be impaired in fiscal 2009 and in the Direct Selling segment during fiscal 2010.

Blyth’s consolidated operating profit increased $26.0 million from $4.0 million in fiscal 2009 to $30.0 million in fiscal 2010.  The increase is primarily due to the decrease in goodwill and other intangibles impairments, partially offset by the impact of the 9% decrease in sales.

Operating Profit - Direct Selling Segment

Operating profit in the Direct Selling segment decreased $30.6 million, from $74.4 million in fiscal 2009 to $43.8 million in fiscal 2010.  More than half of the decrease is attributable to the $16.5 million goodwill and other intangible impairments related to ViSalus recorded in fiscal 2010. The remaining decline in operating income is attributable to a decline in operating income for PartyLite’s U.S. operations, primarily a result of the 14% decrease in sales. Partially offsetting this decline is sales growth within PartyLite Europe.


Operating Loss – Catalog & Internet Segment

Operating loss in the Catalog & Internet segment decreased from $59.1 million in fiscal 2009, to $4.8 million in fiscal 2010.  The lower operating loss is primarily due to the nonrecurring goodwill and other intangibles impairments charges of $48.8 million recorded during fiscal 2009 and a $1.9 million gain as the result of the pension plan settlement realized during fiscal 2010. Excluding the effect of these items, the operating loss would have been $10.3 million last year as compared to $6.7 million this year. This improvement is principally due to the nonrecurring impact of ERP implementation issues experienced in fiscal 2009 that increased shipping and customer service costs and cost reductions at the Miles Kimball Company and Boca Java.

Operating Loss – Wholesale Segment

Operating loss in the Wholesale segment decreased $2.2 million from $11.2 million in fiscal 2009 to $9.0 million in fiscal 2010. This reduction is primarily the result of a 28% improvement in Selling and Administrative expenses across the segment, primarily due to the merger of the Midwest and CBK operations. This was offset by a 20% decrease in sales across the segment due to a soft housing market and a continuing weak economy.

Consolidated Other Expense (Income)

Interest expense decreased $2.2 million, from $10.0 million in fiscal 2009 to $7.8 million in fiscal 2010, primarily due to the payoff of the matured 7.90% Senior Notes during fiscal 2010.

Interest income decreased $2.9 million, from $4.3 million in fiscal 2009 to $1.4 million in fiscal 2010, due to sharply lower interest rates earned on invested cash during fiscal 2010.

Foreign exchange and other losses were $9.8 million in fiscal 2009 compared to $1.6 million in fiscal 2010.  The loss recorded in fiscal 2009 includes $5.2 million for the permanent impairment of our investment in RedEnvelope and a write-down of $2.1 million related to our preferred stock portfolio that was previously classified as a trading investment. The loss in fiscal 2010 included a $0.9 million loss on the sale of an auction rate security investment.
 
Income tax expense increased $1.8 million from $3.8 million in fiscal 2009 to $5.6 million in fiscal 2010.  The increase in income tax expense was due primarily to a reduction in pretax losses in the United States and a $9.1 million reduction in our unrecognized tax benefit reserve, partially offset by the tax impact of the non-deductible portion of goodwill and other intangible impairments and impairments of investments for which a partial tax benefit was recorded. The effective tax rate was a negative 33.3% in fiscal 2009 as a result of our net loss compared to an expense of 25.6% for the current year.
 
The Net loss attributable to Blyth, Inc. was $15.5 million in fiscal 2009 compared to earnings of $17.7 million in fiscal 2010.  The improvement is primarily attributable to the $48.8 million goodwill and intangibles impairments recorded during the third quarter of fiscal 2009, partially offset by the $16.5 million goodwill and intangibles impairment recorded in the second quarter of fiscal 2010 and lower sales in relation to the comparable prior year.

As a result of the foregoing, earnings from operations increased $33.2 million, from a loss of $15.5 million in fiscal 2009 to earnings of $17.7 million in fiscal 2010.  Basic and diluted earnings (loss) per share from operations were ($1.73) for fiscal 2009 compared to income of $1.99 and $1.98 per share, respectively, for fiscal 2010.



Fiscal 2009 Compared to Fiscal 2008

Consolidated Net Sales

Net sales decreased $114.2 million, or approximately 10%, from $1,165.0 million in fiscal 2008 to $1,050.8 million in fiscal 2009.  The decrease is a result of a decline in sales in PartyLite’s North American businesses and overall declines in sales in our Wholesale and Catalog & Internet segments. This decrease was partially offset by an increase in sales within PartyLite’s International markets.

Net Sales – Direct Selling Segment

Net sales in the Direct Selling segment decreased $22.3 million, or 3%, from $686.8 million in fiscal 2008 to $664.5 million in fiscal 2009.  PartyLite’s U.S. sales decreased approximately 23% compared to fiscal 2008. This decrease was driven by a decline in the number of sales consultants, which declined from over 27,000 as of January 31, 2008 to over 21,000 as of January 31, 2009, as well as fewer shows. The reduction in sales consultants is partially the result of an increase in competition to attract and retain consultants due to more companies entering the direct selling channel. Additionally, the downturn in the U.S. economy led to lower consumer discretionary spending, which resulted in fewer shows and opportunities to promote our products and recruit new consultants.  We initiated new and expanded means to maintain our consultant count such as increased training and promotional initiatives.

PartyLite Canada reported an approximately 10% decrease for fiscal 2009 compared to fiscal 2008 in U.S. dollars, or 6% on a local currency basis. The sales decrease in Canada is primarily due to the decrease in its consultant base.

In PartyLite’s European markets, sales increased approximately 14% in U.S. dollars in fiscal 2009 compared to fiscal 2008, driven by strong sales in the newer markets, an increase of about 5,000 consultants and favorable foreign currency translation.  On a local currency basis, PartyLite Europe sales increased approximately 10%. PartyLite Europe represented approximately 42% of PartyLite’s worldwide net sales in fiscal 2008 compared to 50% in fiscal 2009, reflecting the continued sales growth.

Net sales in the Direct Selling segment represented approximately 59% of total Blyth net sales in fiscal 2008 compared to 63% in fiscal 2009.

Net Sales – Catalog & Internet Segment

Net sales in the Catalog & Internet segment decreased $16.7 million, or 8%, from $206.8 million in fiscal 2008 to $190.1 million in fiscal 2009.  This decrease is due to lower consumer discretionary spending, as well as order processing difficulties associated with the implementation of a new Enterprise Resource Planning (“ERP “) system.

Net sales in the Catalog & Internet segment accounted for approximately 18% of total Blyth net sales in fiscal 2008 and 2009.

Net Sales – Wholesale Segment

Net sales in the Wholesale segment decreased $75.2 million, or 28%, from $271.4 million in fiscal 2008 to $196.2 million in fiscal 2009.  The decrease is a result of reduced sales within our home décor and seasonal decor product lines, which were adversely impacted by the weak housing market. In addition, sales were negatively impacted by $31.8 million, as a result of the


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

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

Consolidated Gross Profit and Operating Expenses

Blyth’s consolidated gross profit decreased $38.3 million, or 6%, from $615.5 million in fiscal 2008 to $577.2 million in fiscal 2009. The decrease in gross profit is primarily attributable to the 10% decrease in sales, partially offset by efforts to control costs including reductions in workforce within the manufacturing and distribution operations and renegotiations of certain vendor and supplier contracts. The gross profit margin increased from 52.8% in fiscal 2008 to 54.9% in fiscal 2009.  This increase from fiscal 2008 is due in part to nonrecurring charges of $8.9 million, or 0.8%, relating to severance, inventory write-downs and asset impairments in connection with the sale of BHI NA during fiscal 2008. The balance of this increase was primarily due to the absence of BHI NA sales in fiscal 2009 since BHI NA operated at lower margins than Blyth’s other businesses in the prior year.

Blyth’s consolidated selling expense decreased $4.6 million, or approximately 1%, from $405.3 million in fiscal 2008 to $400.7 million in fiscal 2009.  The decrease in selling expense relates to the reduced sales in PartyLite U.S. (from $303.8 million is fiscal 2008 to $234.9 million in fiscal 2009) and the Wholesale and Catalog & Internet segments. Offsetting the impact in reduced sales were strategic initiatives undertaken by PartyLite to increase sales. These initiatives include various independent consultant promotional programs aimed at increasing sales and recruiting new consultants. Selling expense as a percentage of net sales increased from 34.8% in fiscal 2008 to 38.1% in fiscal 2009.  Overall, the increase in selling expense as a percent of sales is primarily a result of sales decreasing at a greater rate than selling expenses.

Blyth consolidated administrative expenses decreased $6.3 million, or 5%, from $130.1 million in fiscal 2008 to $123.8 million in fiscal 2009.  This decline was principally due to severance related charges ($3.2 million) and the termination of an office lease ($2.4 million) taken during fiscal 2008 associated with the sale of BHI NA, as well as improved expense management on a year over year basis.  Administrative expenses as a percentage of sales were approximately 11.2% for fiscal 2008 and 11.8% for fiscal 2009.

Impairment charges of $49.2 million for goodwill and other intangibles were recognized in the Catalog & Internet segment in fiscal 2008, compared to $48.8 million in fiscal 2009. In both years we reviewed the performance of the Miles Kimball business and its projected outlook. The Miles Kimball business experienced lower revenue growth and reduced operating margins than anticipated during both fiscal 2008 and 2009. This shortfall in revenues and profit was primarily attributable to decreased consumer spending due to changes in the business environment, an overall weak economic climate and higher postage, paper and printing costs. As a result, the goodwill and intangibles in the Catalog & Internet segment were determined to be impaired in fiscal 2008 and further impaired in fiscal 2009.

Blyth’s consolidated operating profit decreased $26.9 million from $30.9 million in fiscal 2008 to $4.0 million in fiscal 2009.  The decrease is primarily due to the decrease in sales partially offset by a corresponding decrease in selling, general and administrative expenses as a result of initiatives to maintain sales, as well as severance incurred due to reductions in personnel.




Operating Profit - Direct Selling Segment

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

Operating Loss – Catalog & Internet Segment

Operating loss in the Catalog & Internet segment increased by $10.2 million, from $48.9 million in fiscal 2008, to $59.1 million in fiscal 2009.  This increased loss was primarily due to the issues associated with the implementation of the new ERP at the Miles Kimball Company and continued lower consumer spending resulting from the weakening economy. Operating losses for fiscal 2008 and 2009 included goodwill and other intangibles impairments charges of $49.2 million and $48.8 million, respectively. Partially offsetting these charges were a reduction in losses at the Boca Java Company of $2.7 million, excluding the $1.9 million goodwill impairment.

Operating Loss – Wholesale Segment

Operating loss in the Wholesale segment decreased from $19.0 million in fiscal 2008 to $11.2 million in fiscal 2009. This reduction is primarily the result of the sale of the BHI NA business in fiscal 2008, which had contributed $18.0 million in operating losses in the prior year, improving operating income this year by $16.3 million. This was partially offset by lower sales and profit across the segment due to a soft housing market and weakening economy.

Consolidated Other Expense (Income)

Interest expense decreased $5.5 million, or 35%, from $15.5 million in fiscal 2008 to $10.0 million in fiscal 2009, primarily due to a decrease in outstanding debt.

Interest income decreased $3.3 million, from $7.6 million in fiscal 2008 to $4.3 million in fiscal 2009, mainly due to lower amounts of cash and short-term investments and lower interest rates during fiscal 2009.

Foreign exchange and other losses were $1.3 million in fiscal 2008 compared to $9.8 million in fiscal 2009.  The loss in fiscal 2008 includes a $1.2 million impairment charge related to an available-for-sale equity investment in RedEnvelope, Inc. and a $0.9 million impairment charge on an Australian joint venture investment accounted for under the equity method. The loss recorded in fiscal 2009 includes $5.2 million for the permanent impairment of our investment in RedEnvelope and an unrealized loss of $2.1 million related to our preferred stock portfolio that were classified as trading investments.

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


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

Seasonality

Historically, our operating cash flow for the first nine months of the fiscal year shows little if any positive cash flow, due to requirements for meeting working capital needs for inventory purchases and the extension of credit through the holiday season. Our fourth quarter, however, historically generated a surplus of cash resulting from a large concentration of our business occurring during the winter holiday season. Over one third of our total revenue was recorded in the fourth quarter of fiscal 2010.

Liquidity and Capital Resources

In fiscal 2009, the cash provided by operations of $37.8 million was significantly lower than previously experienced. During both fiscal 2010 and fiscal 2009, management took a number of actions to address this decline. First, we began and continue to execute an aggressive working capital management program designed to conserve cash.  Second, we have focused on cost cutting measures throughout the Company with the goal to save cash. Third, we have altered the timing and level of dividends and treasury share buybacks and may continue to do so in the future. These initiatives have supported our expectation that we will be able to fund our working capital requirements in the foreseeable future from cash flow from operations, as seen by the $93.4 million in cash provided by operations in fiscal 2010.

Cash and cash equivalents increased $61.0 million from $146.4 million at January 31, 2009 to $207.4 million at January 31, 2010, as a result of the aforementioned measures put in effect by management.

We typically generate positive cash flow from operations due to favorable gross margins and the variable nature of selling expenses, which constitute a significant percentage of operating expenses.  We generated $37.8 million in cash from operations in fiscal 2009 compared to $93.4 million in fiscal 2010.  Included in earnings in fiscal 2010 were non-cash charges for depreciation and amortization, goodwill and other intangible impairments and amortization of unearned stock-based compensation of $16.6 million, $16.5 million and $2.7 million, respectively.

Net changes in operating assets and liabilities provided cash of $35.9 million in fiscal 2010, primarily driven by a $36.2 million reduction in inventories. Due to the seasonal nature of our businesses we generally do not have significant positive cash flow from operations until our fourth quarter. Our working capital needs are the highest in late summer prior to the start of the holiday season. If demand for our products falls short of expectations, we could be required to maintain higher inventory balances than forecasted and could negatively impact our liquidity.

Net cash used by investing activities was $4.8 million in fiscal 2009, compared to a source of $6.1 million in fiscal 2010. Our investments decreased slightly from $25.0 million as of January 31, 2009 to $24.1 million at January 31, 2010, primarily through liquidations offset by the acquisition of short-term certificates of deposit. Other sources of cash in fiscal 2010 were $6.6 million received on the cash settlement of a net investment hedge and $3.9 million received from the sale of assets. Net capital expenditures for property, plant and equipment were $5.4 million in fiscal 2010, down from $8.2 million in fiscal 2009.  We used cash of $15.8 million during fiscal


2009 to obtain our 43.6% interest in ViSalus and the acquisition of certain assets of the As We Change catalog.

Net cash used in financing activities in fiscal 2009 was $43.7 million compared to $41.3 million in fiscal 2010. The current year included the reduction of our long-term debt and capital lease obligations by $38.0 million, compared to long-term debt and capital lease payments of $13.2 million in the prior year. During fiscal 2010, we purchased treasury stock of $4.0 million and paid dividends of $1.8 million compared to $11.1 million and $19.4 million, respectively, in fiscal 2009. We will continue to carefully monitor our cash position, and will only make additional repurchases of outstanding debt or treasury shares and will only pay dividends when we have sufficient cash surpluses available to do so.
 
In addition to the United States, a significant portion of our operations are in Western European nations, Canada, Australia and Mexico. A significant downturn in our business in these markets would adversely impact our ability to generate operating cash flows. Operating cash flows would also be negatively impacted if we experienced difficulties in the recruitment, retention and our ability to maintain the productivity of our independent consultants.

Although there was a significant improvement in operating cash flow during fiscal 2010, sales decreased in the PartyLite U.S. market from the prior year by $33.9 million, or 14%, which was driven by lower activity by existing consultants and a lower number of PartyLite shows held resulting from difficult economic conditions. Management’s key areas of focus have included stabilizing the consultant base through training and promotional incentives. Following several years of declines in consultant count in the United States fiscal 2010 represented a period of stability as the number of active independent sales consultants has increased slightly as a result of management efforts. While we are making efforts to stabilize and increase the number of active independent sales consultants, it may be difficult to do so in the current economic climate due to reduced consumer discretionary spending. If our U.S. consultant count declines it will have a negative impact on our liquidity and financial results.

We anticipate total capital spending of approximately $10 million for fiscal 2011. A major influence on the forecasted expenditures is our investment in the growth of the PartyLite European operations as well as investments in information technology systems. We have grown in part through acquisitions and, as part of our growth strategy, we expect to continue from time to time in the ordinary course of business to evaluate and pursue acquisition opportunities as appropriate.  We believe our financing needs in the short and long term can be met from cash generated internally.  Information on debt maturities is presented in Note 13 to the Consolidated Financial Statements.

On October 21, 2008, we acquired a 43.6% interest in ViSalus for $13.0 million and incurred acquisition costs of $1.0 million for a total cash acquisition cost of $14.0 million.  We intend to and may be required to purchase additional interests in ViSalus that will require additional capital resources, increasing our ownership to 100%. These additional purchases were originally conditioned upon ViSalus meeting certain operating targets in calendar years 2009, 2010 and 2011.  However, ViSalus did not meet the operating threshold in 2009 so we were not required to make an additional purchase.  We have exercised our one-time, one-year extension and additional purchases will be made if ViSalus meets certain operating targets in calendar years 2010, 2011 and 2012. We have the option, but are not required, to acquire the remaining interest in ViSalus if they do not meet these operating targets.  If ViSalus meets its current projected operating targets, the total expected redemption value of the noncontrolling interest will be approximately $4.5 million over calendar years 2011, 2012 and 2013. The purchase prices of the additional investments are equal to a multiple of ViSalus’ earnings before interest, taxes, depreciation and


amortization, exclusive of certain extraordinary items. The payment, if any, will be out of existing cash balances and from expected future cash flows from operations.

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

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

As of January 31, 2010, 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, 2011.  As of January 31, 2010, 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 was amortized over the life of the notes.  During the first nine months of fiscal 2010 we repurchased $12.6 million of these notes prior to their maturity date. The final principal payments of $24.7 million were made upon maturity.

On October 20, 2003, we issued $100.0 million 5.50% Senior Notes due on November 1, 2013 at a discount of approximately $0.2 million, which is being amortized over the life of the notes.  Such notes contain among other provisions, restrictions on liens on principal property or stock issued to collateralize debt.  As of January 31, 2010, we were in compliance with such provisions.  Interest is payable semi-annually in arrears on May 1 and November 1. The notes may be redeemed in whole or in part at any time at a specified redemption price.  The proceeds of the debt issuances were used for general corporate purposes.

As of January 31, 2009 and 2010, Miles Kimball had approximately $8.2 million and $7.7 million, respectively, of long-term debt (including current portion) outstanding under a real estate mortgage note payable, which matures on June 1, 2020.  Under the terms of the note, payments of principal and interest are required monthly at a fixed interest rate of 7.89%.

As of January 31, 2009 and 2010, Midwest-CBK had $0.1 million, of long-term debt outstanding under an Industrial Revenue Bond (“IRB”), which matures on January 1, 2025. The bond is backed by an irrevocable letter of credit.  The loan is collateralized by certain of Midwest-CBK’s assets.  The amount outstanding under the IRB bears interest at short-term floating rates, which on a weighted average was 0.3% as of January 31, 2010. Interest payments are required monthly and the principal is due upon maturity.


As of January 31, 2010 ViSalus had $2.7 million of long-term debt outstanding related to notes payable to RAM and ViSalus’ three founders. Under the terms of the notes, interest is accrued at a fixed interest rate of 10.0%.

The estimated fair value of our $145.7 million and $110.5 million total long-term debt (including current portion) at January 31, 2009 and 2010 was approximately $120.6 million and $95.6 million, respectively.  The fair value of the liability is determined using the fair value of its notes when traded as an asset in an inactive market and is based on current interest rates, relative credit risk and time to maturity. 

The following table summarizes the maturity dates of our contractual obligations as of January 31, 2010:

Payments Due by Period
 
         
Less than
               
More than
 
Contractual Obligations (In thousands)
 
Total
   
1 year
   
1 - 3 Years
   
3 - 5 Years
   
5 Years
 
  Long-Term Debt(1)
  $ 110,404     $ 498     $ 3,782     $ 101,232     $ 4,892  
  Capital Leases(2)
    140       84       56       -       -  
  Interest(3)
    24,800       6,375       12,333       4,977       1,115  
  Purchase Obligations(4)
    38,719       36,872       1,698       149       -  
  Operating Leases
    43,075       13,731       19,312       7,131       2,901  
  Unrecognized Tax Benefits(5)
    12,271       218       -       -       -  
     Total Contractual Obligations
  $ 229,409     $ 57,778     $ 37,181     $ 113,489     $ 8,908  
(1) Long-term debt includes 5.5% Senior Notes due November 1, 2013, a mortgage note payable-maturity June 1, 2020, and an Industrial Revenue Bond ("IRB") with a maturity date of January 1, 2025 (See Note 13 to the Consolidated Financial Statements).
 
(2) Amounts represent future lease payments, excluding interest, due on five capital leases, which end between fiscal 2011 and fiscal 2013 (See Note 13 to the Consolidated Financial Statements).
 
(3) Interest expense on long-term debt is comprised of $20.6 million relating to Senior Notes, $3.6 million in mortgage interest, $5 thousand of interest due on the CBK Industrial Revenue Bond, $532 thousand relating to the Visalus founder loans and approximately $25 thousand of interest relating to future capital lease obligations.
 
(4) Purchase obligations consist primarily of open purchase orders for inventory.
 
(5) Unrecognized tax benefits consist of $0.2 million which is expected to be realized within the next 12 months, and $12.1 million for
 
which we are not able to reasonably estimate the timing of the potential future payments (See Note 16 to the Consolidated Financial Statements).
 

Since January 31, 2009, we have purchased 120,000 shares on the open market, for a cost of $4.0 million, bringing the cumulative total purchased shares to 2,735,570 as of January 31, 2010, for a total cost of approximately $228.8 million.  Additionally in fiscal 2005, 1,226,654 shares were repurchased through a Dutch auction cash tender offer for an aggregate purchase price of $172.6 million, including fees and expenses.  The acquired shares are held as common stock in treasury at cost.

On January 19, 2010, the Company announced that it had declared a special cash dividend of $1.00 per share of common stock, committing us to an $8.8 million payment in February 2010.  The dividend was payable to shareholders of record as of February 2, 2010, and was paid on February 16, 2010.

During fiscal 2010 we paid a total of $1.8 million in dividends, compared to $19.4 million in fiscal 2009. The total dividends declared during fiscal 2010 were approximately $10.6 million, which includes the $8.8 million special dividend declared in January 2010 and paid in February 2010. Our ability to pay cash dividends in the future is dependent upon, among other things, our ability to operate profitably and to generate significant cash flows from operations in excess of investment and financing requirements that may increase in the future to, for example, fund new acquisitions or retire debt. As we normally do, we will review our dividend policy prior to our next dividend payment (historically we have paid dividends in May and November), and may adjust the rate of our semi-annual dividend if necessary. We may also consider paying a special dividend around the end of fiscal 2011 as we determine the operating results of our seasonal businesses.


We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to a have a material current or future effect upon our financial statements. We utilize derivatives for operational purposes.

Critical Accounting Policies

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

Note 1 to the Consolidated Financial Statements includes a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements. The following are our critical accounting policies and methods.

Revenue Recognition

Revenues consist of sales to customers, net of returns and allowances.  We recognize revenue upon delivery, when both title and risk of loss are transferred to the customer. We present revenues net of any taxes collected from customers and remitted to government authorities.

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

We establish an allowance for doubtful accounts for trade and note receivables.  The allowance is determined based on our evaluation of specific customers’ ability to pay, aging of receivables, historical experience and the current economic environment. While we believe we have appropriately considered known or expected outcomes, our customers’ ability to pay their obligations, including those to us, could be adversely affected by declining retail sales resulting from such factors as contraction in the economy or a general decline in consumer spending. Some of our wholesale business units offer seasonal dating programs pursuant to which customers that qualify for such programs are offered extended payment terms for seasonal product shipments, which is a common practice in some of our channels. The sales price for our products sold pursuant to such seasonal dating programs is fixed prior to the time of shipment to the customer.  Customers do not have the right to return product, except for rights to return that


we believe are typical of our industry for such reasons as damaged goods, shipping errors or similar occurrences. We are not required to repurchase products from our customers, nor do we have any regular practice of doing so. We believe that we are reasonably assured of payment for products sold pursuant to such seasonal dating programs based on our historical experience with the established list of customers eligible for such programs. If, however, product sales by our Wholesale segment’s customers during the seasonal selling period should fall significantly below expectations, such customers’ financial condition could be adversely affected, increasing the risk of not collecting these seasonal dating receivables and, possibly, resulting in additional bad debt charges.  We do not make any sales under consignment or similar arrangements.

Inventory valuation

Inventories are valued at the lower of cost or market.  Cost is determined by the first-in, first-out method.  We write down our inventory for estimated obsolete, excess and unmarketable inventory by an amount equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand, market conditions, customer planograms and sales forecasts.  If market acceptance of our existing products or the successful introduction of new products should significantly decrease, additional inventory write-downs could be required.  Potential additional inventory write-downs could result from unanticipated additional quantities of obsolete finished goods and raw materials, and/or from lower disposition values offered by the parties who normally purchase surplus inventories.

Restructuring and impairment charges on long-lived assets

In response to changing market conditions and competition, our management regularly updates our business model and market strategies, including the evaluation of facilities, personnel and products.  Future adverse changes in economic and market conditions could result in additional organizational changes and possibly additional restructuring and impairment charges. Historically, we have reviewed long-lived assets, including property, plant and equipment and other intangibles with definite lives for impairment annually and whenever events or changes in circumstances indicated that the carrying amount of such an asset might not be recoverable.  Management determines whether there has been a permanent impairment on long-lived assets held for use in the business by comparing anticipated undiscounted future cash flow from the use and eventual disposition of the asset or asset group to the carrying value of the asset.  The amount of any resulting impairment is calculated by comparing the carrying value to the fair value, which may be estimated using the present value of the same cash flows.  Long-lived assets that meet the definition of held for sale are valued at the lower of carrying amount or net realizable value.

Goodwill and other indefinite lived intangibles

We had approximately $14.0 million and $2.3 million of goodwill as of January 31, 2009 and 2010, respectively.  Goodwill is subject to an assessment for impairment using a two-step fair value-based test and as such other intangibles are also subject to impairment reviews, which must be performed at least annually or more frequently if events or circumstances indicate that goodwill or other indefinite lived intangibles might be impaired.

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

Our assumptions in the discounted cash flow methodology used to support recoverability include the reporting unit’s five year business outlook. The business outlook is a five year projection of the business unit’s financial performance.  The business outlook includes the cash expected to be generated from the reporting unit based on certain assumptions for revenue growth, capital spending and profit margins. This serves as the basis for the discounted cash flow model in determining fair value. Additionally, the discount rate utilized in the cash flow model values the reporting unit to its net present value taking into consideration the time value of money, other investment risk factors and the terminal value of the business. For the terminal value, we used a multiple of earnings before income taxes, depreciation and amortization (“EBITDA”) multiplied by a certain factor for which an independent third party would pay for a similar business in an arms length transaction.  In determining this factor we used information that was available for similar transactions executed in the marketplace. The multiple of EBITDA used contemplates, among other things, the expected revenue growth of the business, which in turn would require the use of a higher EBITDA multiple if revenue were expected to grow at a higher rate than normal.  The following circumstances could impact our cash flow and cause further impairments to reported goodwill:
 
· unexpected increase in competition resulting in lower prices or lower volumes,
· entry of new products into the marketplace from competitors,
· lack of acceptance of our new products into the marketplace,
· loss of a key employee or customer,
· significantly higher raw material costs, and
· a prolonged economic downturn
· other micro/macroeconomic factors.

Goodwill

Miles Kimball

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

In the second quarter of fiscal 2010, ViSalus, revised downward its revenues forecast for the current fiscal year as a result of lower demand for its product reflecting lower consumer spending attributed to the domestic economic recession and a higher than anticipated attrition rate in its distributor base. These factors together have required management to focus its efforts on stabilizing its distributor base and curtailing its international expansion plans. Accordingly management has reduced its current year and long-term forecasts in response to the weakening demand for its products. The impairment analysis performed indicated that the goodwill in ViSalus was fully impaired, as its fair value was less than its carrying value, including goodwill. Accordingly, we recorded a non-cash pre-tax goodwill impairment charge of $13.2 million, during the second quarter of fiscal 2010. The January 31, 2010 impairment assessment of remaining $2.3 million of goodwill within this segment indicates that it is fully recoverable.

Other

In August 2005, we acquired a 100% interest in Boca Java, a small gourmet coffee and tea company. Boca Java sells its products primarily through the internet and is included in the Catalog & Internet segment. Boca Java represents a separate reporting unit and is reviewed for impairment on an annual basis. We completed an impairment assessment during fiscal 2009 which indicated that the goodwill of $1.9 million was fully impaired and recorded a charge to write off the goodwill.

Significant assumptions

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

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

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

Our trade name and trademark intangible assets related to our acquisitions of Miles Kimball and Walter Drake (reported in the Catalog & Internet segment) and our acquisition of a controlling interest in ViSalus in October 2008 (reported in the Direct Selling segment). We had approximately $12.1 million and $9.0 million in trade names and trademarks as of January 31, 2009 and 2010, respectively.
 
We perform our annual assessment of impairment for indefinite-lived intangible assets as of January 31, which is our fiscal year-end, or upon the occurrence of a triggering event.  We use the relief from royalty method to estimate the fair value for indefinite-lived intangible assets. The underlying concept of the relief from royalty method is that the inherent economic value of intangibles is directly related to the timing of future cash flows associated with the intangible asset. Similar to the income approach or discounted cash flow methodology used to determine the fair value of goodwill, the fair value of indefinite-lived intangible assets is equal to the present value of after-tax cash flows associated with the intangible asset based on an applicable royalty rate. The royalty rate is determined by using existing market comparables for royalty agreements using an intellectual property data base. The arms-length agreements generally support a rate that is a percentage of direct sales. This approach is based on the premise that the free cash flow is a more valid criterion for measuring value than “book” or accounting profits.
 
As a result of our fiscal 2009 impairment assessments, we determined that the recorded values of trade names and trademarks in the Miles Kimball reporting unit, in the Catalog & Internet segment, were impaired. In the third and fourth quarters of fiscal 2009 we performed additional impairment assessments due to changes in the business environment and adverse economic conditions currently experienced due to the continued decrease in consumer spending. As a result of these impairment analyses performed, the trade names and trademarks in this reporting unit were determined to be impaired, as their fair value was less than their carrying value. Accordingly, we recorded non-cash pre-tax impairment charges of $15.0 million and $2.9 million in the third and fourth quarters, respectively of fiscal 2009.

During the second quarter of fiscal 2010 we performed impairment assessments due to adverse economic conditions currently experienced due to the continued decrease in consumer spending and a higher then expected distributor attrition rate. We determined that the recorded values of trade names, trademarks and customer relationships within ViSalus, in the Direct Selling segment, were impaired. As a result of these impairment analyses performed, the intangible assets were determined to be impaired, as their fair value was less than their carrying value. Accordingly, we recorded a non-cash pre-tax impairment charge of $3.1 million related to the trade names and trademarks and $0.2 million related to customer relationships.

As of January 31, 2010 we performed our annual impairment analysis on the trade names and trademarks of the Catalog & Internet and ViSalus assets. The three primary assumptions used in the relief from royalty method are the discount rate, the perpetuity growth rate and the royalty rate. This discount rate is used to value the expected net cash flows to be derived from the royalty to its net present value. The discount rate uses a rate of return to account for the time value of money and an investment risk factor. The perpetuity growth rate estimates the businesses sustainable long-term growth rate. The royalty rate is based upon past royalty performance as
 
 
 
well as the expected royalty growth rate using both macro and microeconomic factors surrounding the business. A change in the discount rate is often used by management to risk adjust the discounted cash flow analysis if there is a higher degree of risk that the estimated cash flows from the indefinite-lived intangible asset may not be fully achieved. These risks are often based upon the business units’ past performance, competition, position in the marketplace, acceptance of new products in the marketplace and other macro and microeconomic factors surrounding the business. If, however, actual cash flows should fall significantly below expectations, this could result in an impairment of our indefinite-lived intangible assets.

If the discount rate would have increased by 1% and royalty rate would have decreased by 0.5%, the estimated fair value of the trade names and trademarks within the Catalog & Internet segment would have decreased the $7.8 million recorded value by $3.0 million to $4.8 million.

If the discount rate would have increased by 1% and the royalty rate would have decreased by 0.5%, the estimated fair value of ViSalus’ trade names and trademarks within the Direct Selling segment would have decreased the $1.1 million recorded value by $0.3 million to $0.8 million.

Accounting for income taxes

As part of the process of preparing our Consolidated Financial Statements, we are required to estimate our actual current tax exposure (state, federal and foreign), together with assessing permanent and temporary differences resulting from differing bases and treatment of items for tax and accounting purposes, such as the carrying value of intangibles, deductibility of expenses, depreciation of property and equipment, and valuation of inventories. Temporary differences result in deferred tax assets and liabilities, which are included within our Consolidated Balance Sheets. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income. Actual results could differ from this assessment if sufficient taxable income is not generated in future periods. To the extent we determine the need to establish a valuation allowance or change the allowance in a period, we would include this as an expense within the tax provision in the accompanying Consolidated Statements of Earnings (Loss). Management periodically estimates our probable tax obligations using historical experience in tax jurisdictions and informed judgments. There are inherent uncertainties related to the interpretation of tax regulations in the jurisdictions in which we transact business. The judgments and estimates made at a point in time may change based on the outcome of tax audits, as well as changes to or further interpretations of regulations. If such changes take place, there is a risk that the tax rate may increase or decrease in any period. Amounts accrued for the tax uncertainties, primarily recorded in long-term liabilities, total $24.5 million and $12.3 million at January 31, 2009 and 2010, respectively. Accruals relate to tax issues for U.S. federal, domestic state, and taxation of foreign earnings.

Blyth’s historical policy has been to consider its unremitted foreign earnings as not indefinitely invested except for amounts deemed required for working capital and expansion needs and as such provide deferred income tax expense on these undistributed earnings.  The Company periodically reassesses whether the non-US subsidiaries will invest their undistributed earnings indefinitely.

As of January 31, 2010, we determined that $193.0 million of cumulative undistributed foreign earnings were not reinvested indefinitely by our non-U.S. subsidiaries. During fiscal 2010, additional deferred income taxes of $6.8 million were recorded as a reduction to our Net earnings on these unremitted earnings.

In August 2008, a state department of revenue proposed to assess additional corporate income taxes on us for fiscal years 2002, 2003 and 2004 in the net amount of $34.9 million, which
 
 
includes interest.  We filed a protest to the assessment and intend to contest it vigorously.  During fiscal 2008, we established a reserve for this matter which we believe is adequate based on existing facts and circumstances.  The ultimate resolution of this matter could exceed our recorded reserve in the event of an unfavorable outcome of this matter.  It is reasonably possible that losses in excess of our recorded reserve could be incurred; however, we cannot estimate such a loss at this time.
 
 
Impact of Adoption of Recently Issued Accounting Standards

We have reviewed all guidance issued but not implemented as of the filing date and have determined that only the following could or do have a significant affect on our financial statements.

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, "Fair Value Measurements and Disclosures (Topic 820) - Improving Disclosures about Fair Value Measurements" (“ASU 2010-06”). ASU 2010-06 requires new disclosures regarding transfers in and out of the Level 1 and 2 and activity within Level 3 fair value measurements and clarifies existing disclosures of inputs and valuation techniques for Level 2 and 3 fair value measurements. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosure of activity within Level 3 fair value measurements, which is effective for fiscal years beginning after December 15, 2010, and for interim periods within those years. This update will only have an impact on our disclosures beginning February 1, 2010 and will not have a material impact on our financial statements.

Forward-looking and Cautionary Statements

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








Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

Market Risk

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

Interest Rate Risk

We are subject to interest rate risk on both variable rate debt and our investments in auction rate securities.  As of January 31, 2010, we are subject to interest rate risk on approximately $0.1 million of variable rate debt.  A 1-percentage point increase in the interest rate would not have a significant impact on pre-tax earnings.  As of January 31, 2010, we held $10.0 million of auction rate securities, at par value.  As the effective rate is below 1 % as of January 31, 2010 any decrease in the rate of return would not significantly impact pre-tax earnings.

Investment Risk

We are subject to investment risks on our marketable securities due to market volatility.  As of January 31, 2010 we held $15.7 million in equity instruments which have been adjusted to fair value based on current market data.

Foreign Currency Risk

We use foreign exchange forward contracts to hedge the impact of foreign currency fluctuations on foreign denominated inventory purchases, intercompany payables and certain foreign denominated loans. We do not hold or issue derivative financial instruments for trading purposes.  We have, in the past, hedged the net assets of certain of our foreign operations through foreign currency forward contracts. The net after-tax gain related to the derivative net investment hedges recorded in Accumulated other comprehensive income (loss) (“AOCI”) during fiscal 2010 was $0.4 million. The after-tax gain in AOCI related to net investment hedges as of January 31, 2010 was $5.2 million.

We have designated our forward exchange contracts on forecasted intercompany purchases and future purchase commitments as cash flow hedges and as such, as long as the hedge remains effective and the underlying transaction remains probable, the effective portion of the changes in the fair value of these contracts will be recorded in AOCI until earnings are affected by the variability of the cash flows being hedged.  With regard to commitments for inventory purchases, upon payment of each commitment, the underlying forward contract is closed and the corresponding gain or loss is transferred from AOCI and is included in the measurement of the cost of the acquired asset.  If a hedging instrument is sold or terminated prior to maturity, gains and losses are deferred in AOCI until the hedged item is settled.  However, if the hedged item is probable of no longer occurring, the resulting gain or loss on the terminated hedge is recognized into earnings immediately.  During fiscal 2010 the amount transferred to earnings was a loss of $1.4 million. The net after-tax gain included in AOCI at January 31, 2010 is $0.1 million and is expected to be transferred into earnings within the next twelve months upon payment of the underlying commitment.


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

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

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

The following table provides information about our foreign exchange forward contracts accounted for as cash flow hedges at January 31, 2010:


   
US Dollar
   
Average
   
Unrealized
 
(In thousands, except average contract rate)
 
Notional Amount
   
Contract Rate
   
Gain (Loss)
 
Euro
  $ 5,975     $ 1.47     $ 144  

The foreign exchange contracts outstanding have maturity dates through October 2010.
 

 
Item 8.  Financial Statements and Supplementary Data
 

Report of Independent Registered Public Accounting Firm


The Board of Directors and Stockholders of Blyth, Inc.


We have audited the accompanying consolidated balance sheet of Blyth, Inc. and Subsidiaries (the “Company”) as of January 31, 2010, and the related consolidated statements of earnings (loss), stockholders' equity, and cash flows for the year then ended.  Our audit also included the financial statement schedule listed at Item 15(a)(2).  These financial statements and schedule are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements and schedule based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at January 31, 2010, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, the Company adopted the guidance originally issued in Financial Accounting Standards Board’s Statement No. 160 “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (codified in FASB ASC Topic 810) effective February 1, 2009.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of January 31, 2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 9, 2010 expressed an unqualified opinion thereon.

 
/S/ ERNST & YOUNG LLP

 
Stamford, Connecticut
April 9, 2010






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Stockholders of Blyth, Inc.
Greenwich, Connecticut
 
We have audited the accompanying consolidated balance sheets of Blyth, Inc. and subsidiaries (the "Company") as of January 31, 2009, and the related consolidated statements of earnings (loss), stockholders' equity, and cash flows for each of the two years in the period ended January 31, 2009.  Our audits also included information for fiscal years ended 2008 and 2009 in the financial statement schedule listed in the Index at Item 15.  These financial statements and financial statement schedule are the responsibility of the Company's management.  Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Blyth, Inc. and subsidiaries as of January 31, 2009, and the results of their operations and their cash flows for each of the two years in the period ended January 31, 2009, in conformity with accounting principles generally accepted in the United States of America.  Also, in our opinion, the 2008 and 2009 information in such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
 
As discussed in Note 2 to the consolidated financial statements, the accompanying consolidated financial statements have been retrospectively adjusted for the adoption of new accounting guidance for the presentation and disclosure of noncontrolling interests.
  
 
/S/ DELOITTE & TOUCHE LLP

 
Stamford, Connecticut
April 13, 2009 (April 9, 2010 as to the effects of the immaterial restatement discussed in Note 1, and the effects of  the adoption of new accounting guidance for the presentation and disclosure of noncontrolling interests as discussed in Note 2)



 
 
BLYTH, INC. AND SUBSIDIARIES
 
Consolidated Balance Sheets
 
As of January 31, (In thousands, except share and per share data)
 
2009
   
2010
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 146,424     $ 207,394  
Short-term investments
    -       5,000  
Accounts receivable, less allowance for doubtful receivables of $3,438 in 2009 and $2,243 in 2010
    29,525       18,694  
Inventories
    137,087       102,203  
Prepaid and other
    30,669       23,997  
Deferred income taxes
    40,574       6,769  
       Total current assets
    384,279       364,057  
Property, plant and equipment, at cost:
               
Land and buildings
    108,803       103,997  
Leasehold improvements
    10,010       7,944  
Machinery and equipment
    133,032       129,299  
Office furniture, data processing equipment and software
    66,888       68,641  
Construction in progress
    1,145       914  
      319,878       310,795  
    Less accumulated depreciation
    199,524       202,808  
      120,354       107,987  
Other assets:
               
Investments
    24,975       19,072  
Goodwill
    13,988       2,298  
Other intangible assets, net of accumulated amortization of $10,897 in 2009 and $12,254 in 2010
    16,840       12,176  
Other assets
    13,667       17,403  
       Total other assets
    69,470       50,949  
       Total assets
  $ 574,103     $ 522,993  
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current liabilities:
               
Current maturities of long-term debt
  $ 37,936     $ 582  
Accounts payable
    47,014       57,338  
Accrued expenses
    64,893       60,895  
Dividend payable
    -       8,826  
Income taxes payable
    17,291       4,913  
       Total current liabilities
    167,134       132,554  
Deferred income taxes
    21,778       686  
Long-term debt, less current maturities
    107,795       109,962  
Other liabilities
    28,005       24,984  
Commitments and contingencies
    -       -  
Redeemable noncontrolling interest
    893       (1,470 )
Stockholders' equity:
               
Preferred stock - authorized 10,000,000 shares of $0.01 par value; no shares issued
    -       -  
Common stock - authorized 50,000,000 shares of $0.02 par value; issued 12,733,209 shares in 2009 and 12,765,919 shares in 2010
    255       255  
Additional contributed capital
    141,307       144,233  
Retained earnings
    486,548       494,524  
Accumulated other comprehensive income
    19,366       20,591  
Treasury stock, at cost, 3,842,224 shares in 2009 and 3,972,112 shares in 2010
    (398,978 )     (403,329 )
       Total stockholders' equity
    248,498       256,274  
Noncontrolling interest
    -       3  
       Total  equity
    248,498       256,277  
       Total liabilities and equity
  $ 574,103     $ 522,993  
The accompanying notes are an integral part of these consolidated financial statements.
 



 
 
BLYTH, INC. AND SUBSIDIARIES
 
Consolidated Statements of Earnings (Loss)
 
For the year ended January 31, (In thousands, except per share data)
 
2008
   
2009
   
2010
 
Net sales
  $ 1,164,950     $ 1,050,793     $ 958,077  
Cost of goods sold
    549,479       473,577       432,578  
    Gross profit
    615,471       577,216       525,499  
Selling
    405,316       400,658       367,487  
Administrative
    130,090       123,779       111,531  
Goodwill and other intangibles impairment
    49,178       48,751       16,498  
    Total operating expense
    584,584       573,188       495,516  
    Operating profit
    30,887       4,028       29,983  
Other expense (income):
                       
     Interest expense
    15,540       10,001       7,755  
     Interest income
    (7,635 )     (4,261 )     (1,410 )
     Foreign exchange and other, net
    1,257       9,813       1,564  
    Total other expense
    9,162       15,553       7,909  
     Earnings (loss) before income taxes
    21,725       (11,525 )     22,074  
Income tax expense
    10,547       3,840       5,649  
     Net earnings (loss)
    11,178       (15,365 )     16,425  
Less: Net earnings (loss) attributable to the noncontrolling interests
    106       115       (1,269 )
Net earnings (loss) attributable to Blyth, Inc.
    11,072       (15,480 )     17,694  
Basic:
                       
Net earnings (loss) attributable per Blyth, Inc. common share
  $ 1.15     $ (1.73 )   $ 1.99  
Weighted average number of shares outstanding
    9,648       8,971       8,912  
Diluted:
                       
Net earnings (loss) attributable per Blyth, Inc. common share
  $ 1.14     $ (1.73 )   $ 1.98  
Weighted average number of shares outstanding
    9,732       8,971       8,934  
Cash dividend declared per share
  $ 2.16     $ 2.16     $ 1.20  
The accompanying notes are an integral part of these consolidated financial statements.
 










 
BLYTH, INC. AND SUBSIDIARIES
 
Consolidated Statements of Stockholders' Equity
 
   
Blyth, Inc.'s Stockholders
                         
                     
Accumulated
                     
Redeemable
       
         
Additional
         
Other
                     
Noncontrolling
       
   
Common
   
Contributed
   
Retained
   
Comprehensive
   
Treasury
   
Noncontrolling
   
Total
   
Interest
   
Comprehensive
 
(In thousands)
 
Stock
   
Capital
   
Earnings
   
Income (Loss)
   
Stock
   
Interest
   
Equity
   
(Temporary Equity)
   
Income (Loss)
 
Balance at January 31, 2007
  $ 253     $ 130,127     $ 534,897     $ 22,130     $ (323,714 )   $ -     $ 363,693              
ASC 740 adjustment
                  $ (2,769 )                           $ (2,769 )            
Adjusted Balance, February 1, 2007:
  $ 253     $ 130,127     $ 532,128     $ 22,130     $ (323,714 )   $ -     $ 360,924     $ -     $ -  
Net earnings for the year
                    11,072                       106       11,178               11,178  
Distribution to noncontrolling interest
                                            (106 )     (106 )                
Foreign currency translation adjustments
                            3,693                       3,693               3,693  
Pension adjustment (net of tax $167)
                            253                       253               253  
Unrealized gain on certain investments (net of tax of $10)
                            16                       16               16  
Net loss on cash flow hedging instruments (net of a tax benefit of $392)
                            (648 )                     (648 )             (648 )
Comprehensive income
                                                                    14,492  
Comprehensive income attributable to the noncontrolling interests
                                                                    (106 )
Comprehensive income attributable to Blyth, Inc.
                                                                  $ 14,386  
Common stock issued in connection with long-term incentive plan
    1       7,077                                       7,078                  
Tax benefit from stock options
            303                                       303                  
Amortization of unearned compensation
            1,420                                       1,420                  
Dividends paid ($2.16 per share)
                    (20,872 )                             (20,872 )                
Treasury stock purchases
                                    (64,171 )             (64,171 )                
Balance at January 31, 2008
  $ 254     $ 138,927     $ 522,328     $ 25,444     $ (387,885 )   $ -     $ 299,068     $ -     $ -  
Net loss for the year
                    (15,480 )                     115       (15,365 )             (15,365 )
Distribution to noncontrolling interest
                                            (115 )     (115 )                
Foreign currency translation adjustments
                            (4,318 )                     (4,318 )             (4,318 )
Net unrealized loss on certain investments (net of tax benefit of $546)
                            (2,375 )                     (2,375 )             (2,375 )
Net gain on cash flow hedging instruments (net of a tax liability of $377)
                            615                       615               615  
        Comprehensive loss
                                                                    (21,443 )
Comprehensive income attributable to the noncontrolling interests
                                                                    (115 )
Comprehensive loss attributable to Blyth, Inc.
                                                                  $ (21,558 )
Common stock issued in connection with long-term incentive plan
    1                                               1                  
Amortization of unearned compensation
            2,380                                       2,380                  
Dividends paid ($2.16 per share)
                    (19,406 )                             (19,406 )                
Treasury stock purchases
                                    (11,093 )             (11,093 )                
Accretion of redeemable noncontrolling interest
                    (893 )                             (893 )     893          
Balance at January 31, 2009
  $ 255     $ 141,307     $ 486,549     $ 19,366     $ (398,978 )   $ -     $ 248,499     $ 893     $ -  
Net earnings (loss) for the year
                    17,694                       201       17,895       (1,470 )     16,425  
Distribution to noncontrolling interest
                                            (198 )     (198 )                
Foreign currency translation adjustments (net of tax liability of $261)
                            1,558                       1,558               1,558  
Net unrealized gain on certain investments (net of tax liability of $315)
                            438                       438               438  
Realized loss on sale of available for sale investment (net of tax benefit of $197)
                      322                       322               322  
Realized gain on pension plan termination (net of tax liability of $749)
                            (1,153 )                     (1,153 )             (1,153 )
Net unrealized gain on cash flow hedging instruments (net of tax liability of $30)
                      60                       60               60  
Comprehensive income
                                                                    17,650  
Comprehensive loss attributable to the noncontrolling interests
                                                                    1,269  
Comprehensive income attributable to Blyth, Inc.
                                                                  $ 18,919  
Stock-based compensation
            2,926                                       2,926                  
Dividends declared ($1.20 per share)
                    (10,612 )