Blyth (BTH)

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

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

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

Blyth’s consolidated operating profit decreased $99.6 million from $144.8 million in fiscal 2005 to $45.2 million in fiscal 2006 principally due to the impact of lower sales within the PartyLite U.S., Wholesale and Catalog & Internet segments, the previously mentioned goodwill impairment, investment in the strategic initiatives, Two Sisters Gourmet in the Direct Selling segment, and flameless technology in the foodservice channel of the Wholesale segment, and higher commodity costs across our businesses.

Operating Profit/Loss—Direct Selling Segment

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

Operating Profit/Loss—Catalog & Internet Segment

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

Operating Profit/Loss—Wholesale Segment

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

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

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

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

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

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

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